As filed with the Securities and Exchange Commission on ^June 2, 1998
Registration No. ^333-44131
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NUMBER 1 TO THE
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
PRIDE AUTOMOTIVE GROUP, INC.
(Exact name of Registrant as specified in Charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 7510 98-0157860
(State of (Primary standard industrial I.R.S. employer
Incorporation) classification code) Identification No.
</TABLE>
Pride House, Watford Metro Centre, Tolpits Lane
Watford Hertfordshire, WD1 8SB England
(800) 698-6590
(Address and Telephone Number of Principal Executive Offices)
Alan Lubinsky, President
Pride House, Watford Metro Centre, Tolpits Lane
Watford Hertfordshire, WD1 8SB England
(800) 698-6590
(Name, Address and Telephone Number of Agent for Service)
Copies To:
Mitchell Lampert, Esq. Jay M. Kaplowitz, Esq.
Lampert & Lampert Gersten Savage Kaplowitz
10 East 40th Street & Fredericks, LLP
New York, New York 10016 101 East 52nd Street, 9th Fl.
(212) 889-7300 New York, New York 10168
(212) 752-9700
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration number of the earlier effective registration
statement for the same offering. [ ]
If any of the securities being registered on this Form SB-2 are to be offered on
a continuous basis pursuant to Rule 415 under the Securities Act of 1933, please
check the following box. [x]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, please check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of a prospectus is expected to be made pursuant to Rule 434, please
check the following box. [ ]
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================================
Maximum Maximum Amount of
Title of Each Class Amount Being Offering Price Aggregate Registration
of Securities Registered Per Security (1) Offering Price (1) Fee
Being Registered
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock, Par Value
<S> <C> <C> <C> <C>
$.001(2)............... 1,437,500 $(3) $5,750,000 $1,982.60
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock, Par Value
$.001 (4)...... 95,000 7.50 712,500 245.67
- -----------------------------------------------------------------------------------------------------------------------------------
Warrants (4)......... 200,000 0.15 30,000 10.34
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock, Par Value
$.001 (4)...... 200,000 5.75 1,150,000 396.52
- -----------------------------------------------------------------------------------------------------------------------------------
Underwriters Warrants to
Purchase Shares of
Common Stock
(5)............ 125,000 10.00 nil nil(6)
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock, Par Value
$.001.......... 125,000 (7) 600,000 206.88
- -----------------------------------------------------------------------------------------------------------------------------------
Totals $8,601,500 $2,842.01(8)
===================================================================================================================================
</TABLE>
^(1) Estimated solely for the purpose of determining the registration ^fee
pursuant to Rule 457.
(2) Includes (i) ^170,000 shares of Common Stock being sold by certain
Selling Shareholders (the "Selling Shareholders"), and (ii) 187,500 shares of
Common Stock, subject to sale upon exercise of the ^Over-allotment Option
granted to the ^Underwriter by the Company.
(3) For the purposes of calculating the ^registration fee, the Company has
assumed an offering price of $4.00 per Share.
^(4) Represents the shares of Common Stock and Warrants being sold by the
Selling Securityholder, not through the Underwriter in this Offering.
(5) The Company has agreed to sell to the Underwriter, for aggregate
consideration of $10, 125,000 shares of Common Stock (the "Underwriter's
Warrants").
(6) Pursuant to Rule 457(g), no fee is payable thereon.
(7) For the purposes of calculating the registration fee, the Company has
assumed an offering price of $4.00 per share of Common Stock and an exercise
price of $4.80 per share of Common Stock for the Underwriter's Warrants.
(8) A total fee of $2,474.14 was paid, therefore an additional $367.87 fee
is required, with respect to the changes in the securities being registered.
ii
<PAGE>
Cross Reference Sheet Pursuant to Rule 404 (a)
Showing the Location In Prospectus of
Information Required by Items of Form SB-2
<TABLE>
<CAPTION>
<S> <C>
Item in Form SB-2 Prospectus Caption
1. Forepart of the Registration Cover Page and Cover Page of Registration
Statement and Outside Front Statement
Cover Page of Prospectus
2. Inside Front and Outside Continued Cover Page, Table of Contents
Back Cover Pages of
Prospectus
3. Summary Information and Prospectus, Summary, Risk Factors,
Risk Factors Summary Financial Information
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Cover Page, Underwriting, Risk Factors
Price
6. Dilution Risk Factors, Dilution
7. Selling Securityholders Principal and Selling Stockholders
8. Plan of Distribution Cover Page, Underwriting
9. Legal Proceedings Business
10. Directors, Executive Officers Management
Promoters and Certain Control
Persons
11. Security Ownership of Principal and Selling ^Shareholders
Certain Beneficial Owners
and Management
iii
<PAGE>
12. Description of Securities Description of Securities
13. Interest of Named Experts Legal Opinions, Experts
and Counsel
14. Disclosure of Commission Position Management and Item 24. Indemnification
on Securities Act Liabilities Officers and Directors
15. Organization Within Five Years Prospectus Summary, Business, Principal and
Selling Stockholders, Certain Relationships
and Related Transactions, Risk Factors
16. Description of Business Business
17. Management's Discussion Management's Discussion and Analysis of
and Analysis or Plan of Operation Financial Condition and Results of Operations
18. Description of Property Business
19. Certain Relationships and Related Certain Relationships and Related
Transactions Transactions
20. Market for Common Equity Not Applicable
and Related Stockholder
Matters
21. Executive Compensation Management
22. Financial Statements Financial Statements
23. Changes in and Disagreements Not Applicable
with Accountants and Financial
Disclosure
</TABLE>
iv
<PAGE>
Preliminary prospectus subject to completion, dated ^June , 1998
PROSPECTUS
PRIDE AUTOMOTIVE GROUP, INC.
^ 1,250,000 Shares of Common Stock
^ Offering Price: $ per Share
This Prospectus relates to an offering of ^1,250,000 Shares of Common
Stock, par value $.001 per share (the "Common ^Stock" or the "Shares") of Pride
Automotive Group, Inc. (the ^"Company"). All of the 1,250,000 Shares will be
offered and sold through Mason Hill & Co., Inc. ("Mason Hill"), as
representative of the several underwriters (collectively referred to as the
"Underwriters"). Of the 1,250,000 Shares being offered hereunder, 1,080,000
Shares will be sold by the Company, with the balance of the 170,000 Shares being
sold by certain Selling Shareholders (the "Selling Shareholders"). This
Registration Statement also relates to the offer and sale of an aggregate of
^95,000 shares of Common Stock and 200,000 Common Stock Purchase Warrants by
certain Selling Securityholders (collectively the "Selling Securityholders'
^Securities"), which securities are issuable upon exercise of an underwriter's
warrant which the Selling Securityholders received as partial compensation for
acting as underwriters for the Company in its 1996 public offering of
Securities. The Selling Securityholder ^Securities may be sold from time to time
by the Selling Securityholders. The Company will not receive any proceeds from
the sale of any securities sold by the Selling ^Securityholders or by the
Selling Shareholders. The shares of Common Stock are sometimes referred to as
the "Securities." See "Description of Securities" and "Principal and Selling
Securityholders."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH
DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL
DILUTION TO INVESTORS.
SEE "RISK FACTORS" AND "DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==========================================================================================================================
Price to Discounts and Proceeds to the Proceeds to
Public Commission (1) Company (2) the Company (2)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per (3)$ $ $ $
Share..........
- --------------------------------------------------------------------------------------------------------------------------
Total $ $ $ $
(4)...........
==========================================================================================================================
(footnotes on following page)
</TABLE>
MASON HILL & CO., INC.
110 Wall Street
New York, NY 10005
The date of this Prospectus is_______________, 1998.
<PAGE>
(1) Does not include additional compensation to be received by the
Underwriters, including (i) a non-accountable expense allowance equal to
3% of the gross proceeds of the Offering; (ii) warrants entitling the
Underwriters to purchase from the Company ^125,000 shares of the Company's
Common Stock (the "Underwriters' Warrants") at 120% of the public offering
price, exercisable for a period of four years commencing one year from the
date of the Prospectus; and (iii) a three year consulting fee of $36,000
per year, to be paid in advance at the closing of this Offering. The
Company ^and the Selling Shareholders have also agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deduction of expenses of the Offering, all or which are payable by
the Company, estimated at $400,000, which includes the Underwriters'
non-accountable expenses allowance, the financial consulting fee as well
as filing, legal, accounting, printing and other costs and expenses.
(3) It is currently anticipated that the offering price will be ^$4.00 per
share. It is currently anticipated that the proceeds to the Company and
the Selling Shareholders will be $3,888,000 and $612,000, respectively.
(4) The Company has granted the Underwriters an option, exercisable within
forty-five days from the date of this Prospectus, to purchase up to an
additional ^187,500 Shares, on the same terms set forth above, solely for
the purpose of covering over-allotments. If such options are exercised in
full, the total Price to the Public, Underwriting Discounts and
^Commission, Proceeds to Company and Proceeds to ^the Selling Shareholders
will be $5,750,000, ^$575,000, $4,563,000, and $612,000 respectively. See
"Underwriting".
Prior to this Offering, there has been a limited public market for the
Company's Common Stock and ^Warrants. The Company's Common Stock and Warrants
are currently listed on the Nasdaq SmallCap Stock Market ("Nasdaq") under the
symbols "LEAS" and "LEASW" and on the Boston Stock Exchange ("BSE") under the
symbols "LES" and "LESW". Quotation on Nasdaq or BSE does not imply that a
meaningful, sustained market for the Company's Securities will develop or if
developed that it will be sustained for any period of time. In the event the
Company's Securities do not continue to be listed on Nasdaq or the BSE, the
Company's Securities will be available for trading only in the over-the-counter
market on the OTC Electronic Bulletin Board. The offering price of the ^Shares
has been determined in negotiations between the Company and the Underwriters on
an arbitrary basis and bears no direct relationship to the assets, earnings or
any other recognized criteria of value. Factors considered in determining such
prices, in addition to prevailing market conditions, included the history of and
the business prospects for the Company and an assessment of the net worth and
financial condition of the Company, as well as such other factors as were deemed
relevant, including an evaluation of management and the general economic
climate. The prices should in no event, however, be regarded as an indication of
any future market price of the Common Stock. See "Risk Factors."
The Securities are being sold by the Company through Mason Hill & Co.,
Inc. as representative of the several underwriters (collectively referred to as
the "Underwriters"), on a "firm commitment" basis subject to prior sale, when,
as and if accepted by the Underwriters and subject to approval of certain legal
matters by counsel for the Underwriters and certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify such offer and
reject any order in whole or in part. It is expected that delivery of
certificates representing the Securities being sold hereby will be made against
payment therefor at the offices of Mason Hill & Co., Inc., 110 Wall Street, New
York, New York on or about ____________, 1998.
2
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMPANY'S SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY DISCONTINUE AT ANY TIME.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 under the Securities Act,
with respect to the shares of Common Stock to which this Prospectus relates. As
permitted by the rules and regulations of the Commission, this Prospectus does
not contain all of the information set forth in the Registration Statement. For
further information with respect to the Company and the Securities offered
hereby, reference is made to the Registration Statement, including the exhibits
thereto, which may be copied and inspected at the Public Reference Section of
the Commission at its principal office at 450 Fifth Street, N.W., Washington,
D.C., 20549 or at its regional office at 7 World Trade Center, New York, New
York or at its website, http://www.sec.gov/.
The Company's fiscal year end is November 30. The Company is subject to
the informational reporting requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and in accordance therewith, files periodic
reports, proxy statements and other information with the Commission. At present,
the Company is current in its filings under the Exchange Act. In the event the
Company's obligation to file such periodic reports, proxy statements and other
information is suspended, the Company will voluntarily continue to file such
information with the Commission. The Company distributes to its stockholders,
annual reports containing audited financial statements, together with an opinion
by its auditing accountants. In addition, the Company may, in its discretion,
furnish quarterly reports to stockholders containing unaudited financial
information for the first three quarters of each year.
3
<PAGE>
SUMMARY
The following summary is intended to set forth certain pertinent facts and
highlights from material contained in the body of this Prospectus. The summary
is qualified in its entirety by the detailed information and financial
statements appearing elsewhere in this Prospectus.
This Prospectus contains forward looking statements that involve risks an
uncertainties. The Company's actual results may differ significantly from the
results discussed in these forward-looking statements. Factors that might cause
such differences include, but are not limited to, those discussed in "Risk
Factors."
THE COMPANY
Pride Automotive Group, Inc., a Delaware corporation (the "Company") was
formed by Pride, Inc. ("Pride"), in March 1995 for the purpose of acquiring all
of the outstanding shares of common stock of Pride Management Services, Plc., an
English corporation ("PMS"), in a transaction which was accounted for as a
reorganization (the "Reorganization"). Prior to the Reorganization, PMS was a
wholly owned subsidiary of Pride.
These companies jointly engage in the business of leasing new automobiles
to businesses, servicing such automobiles during the lease term and remarketing
the automobiles upon the expiration of the lease term, which arrangement is
described as a "contract hire." The Company's sales policy emphasizes leasing to
financially sound clients and requires certain financial disclosures prior to
executing any lease agreements. Customer accounts are targeted from profitable,
growing, medium-sized corporate companies. The Company purchases each vehicle
pursuant to its client's specifications, finances its purchase and pays for all
the maintenance on the vehicle during the lease term. Typically, the term of the
loan corresponds with the term of the lease, whereby, upon the completion of the
lease term the automobiles are fully paid and owned by the Company.
The following is a list of the PMS subsidiaries, their dates of formation
and their business operations:
<TABLE>
<CAPTION>
Date of
Name Formation Business Operations
<S> <C> <C>
Pride Vehicle Contracts
Limited 12/23/86 Conducts all administrative functions for the Company,
including paying salaries and all operational expenses of
the Company.
Baker Vehicle Contracts
Limited 02/22/89 Vehicle leasing, primarily the business
operations of Baker Hire Contracts Limited,
acquired in May 1990, which operations are primarily
in Wales and the south west region of England.
Pride Vehicle Contracts 09/28/88 Vehicle leasing, acquired County Contract
Hire Limited and Master (UK) Limited Vehicle
Contracts Limited in February 1992 and March 1994, respectively.
Pride Leasing Limited 02/22/89 Vehicle leasing. Owned property and a building in Croydon, England,
which was sold in November 1997.
Pride Vehicle Management 02/14/90 Operates the Company's fleet management services.
Limited
Pride Vehicle Deliveries 06/14/90 Provides vehicle distribution and collection services
for all the Limited Company's leasing operations.
</TABLE>
4
<PAGE>
The Company has servicing agreements with automobile dealers and service
centers, which specify pricing schedules for maintenance and repair work to be
performed, all of which require the prior consent of the Company. The lessees
monthly lease payment is determined by a computer program which takes into
account estimated service costs, new vehicle pricing, manufacturer bonuses,
rebates and options, potential residual value at lease end as well as other
variable information including interest rates and other current and anticipated
future economic variables. The monthly lease payments are usually sufficient to
pay the financing costs and servicing costs on the vehicles during the lease
term, with the bulk of the profits, if any, coming on the resale of the
automobile. Upon the expiration of the lease, the Company remarkets the
automobiles through various distribution channels including, but not limited to,
used car wholesalers or used car retailers. The lessee is responsible for
maintaining full comprehensive insurance on each vehicle, of which the Company
is a beneficiary and payee in the event the vehicle is damaged.
The Company also engages in fleet management services for certain of its
clients who choose to own the vehicle(s) directly. Customarily, these clients
purchase the automobiles through the Company in order to take advantage of the
Company's bulk purchase discounts. The Company maintains these vehicles on such
clients behalf pursuant to a monthly management fee, usually $15 per automobile
and disposes of the vehicles thereafter on behalf of the client. These clients
pay all costs associated with the purchase, maintenance and resale of the
automobiles.
In April 1996, the Company sold 950,000 shares of its common stock
(inclusive of 440,000 shares sold by certain Selling Stockholders) to the public
at a price of $5.00 per share and 2,000,000 redeemable common stock purchase
warrants at a price of $.10 per warrant in a public offering underwritten by the
Underwriter. The warrants are exercisable at a price of $5.75 per share, subject
to adjustment, beginning April 24, 1997 and expiring April 23, 2001.
Additionally, the Company sold 142,500 shares of its common stock (inclusive of
60,000 shares sold by certain Selling Stockholders) and 300,000 redeemable
common stock purchase warrants pursuant to the exercise of an Over-allotment
Option granted to the Underwriter by the Company and certain Selling
Stockholders. The Company's securities are currently traded on the Nasdaq
SmallCap Stock Market and the Boston Stock Exchange, Inc.
In ^November 1996, the Company's then majority owned subsidiary, AC
Automotive Group, Inc., ("Automotive"), a Delaware Company, through its
wholly-owned subsidiary, AC Car Group Limited ("AC"), a company incorporated
under the laws of England and Wales, acquired all of the assets of AC Cars
Limited ("AC Cars") and Autokraft Limited ("Autokraft") (the "Asset Purchase"),
two companies incorporated under the laws of England and Wales, respectively. AC
Cars and Autokraft are specialty automobile manufacturers that had been in
administrative receivership since March 1996. AC Cars is the oldest automobile
company in continuous existence in England and currently manufactures two
automobiles, the Superblower (which is a continuation of the AC Cobra) and the
Ace, a newly developed automobile of which less than 50 prototype cars have been
sold to date. The Superblower has a current list price of (pound)69,000
($115,575) and the Ace has a current list price of (pound)75,000 ($125,625).
In order to finance the costs of such acquisition, the Company engaged in
a private placement, whereby it issued an aggregate of ^$1,700,000 of promissory
notes and ^170,000 shares of Common Stock. ^Mason Hill acted as placement agent
in such private placement. Additionally, Mason Hill loaned the Company $100,000
of which $29,000 has been repaid. In connection with such private offering, AC
sold an aggregate of 1,028,700 shares to ^Beth-Anne Kinsley, Victor
5
<PAGE>
and Marion Durchhalter and Bridget Staff, each of whom are associated
persons of Mason Hill, for aggregate consideration of $1,030^, which at such
time represented 30% of the issued and outstanding common stock of Automotive.
Such persons currently own approximately 5% of the issued and outstanding common
stock of Automotive. See "Use of Proceeds" and "Certain Relationships and
Related Transactions".
On February 12, 1998, the Board of Directors of Automotive authorized the
issuance of 6,130,000 shares of its common stock to Erwood Holdings, Inc., a
company affiliated with Alan Lubinsky, the President, Chief Executive Officer
and a Director of the Company and Automotive, for aggregate consideration of
$6,130. In addition, on such date Automotive authorized the issuance of 176,520,
176,520 and 88,260 shares of its common stock to Beth-Anne Kinsley, Victor and
Marion Durchhalter and Bridget Staff, respectively, for consideration of $177,
$177 and $89, respectively. After the foregoing issuances, there was a total of
10,000,000 shares of Automotive authorized, issued and outstanding. See "Risk
Factors" and "Certain Relationships and Related Transactions."
On March 24, 1998, the Board of Directors of Automotive authorized a one
for four reverse split of its common stock and issued (1) 525,000 shares of its
common stock to Durnover Ltd., an entity affiliated with Alan Lubinsky, for
aggregate consideration of $526; (ii) 651,000 shares of its common stock to the
Company for aggregate consideration of $2,248,460 which consideration was paid
by the capitalization of debt of $2,248,460 owed by Automotive to the Company.
On March 31, 1998, the Board of Directors of Automotive authorized the following
issuances of its common stock (i) 2,352,000 shares of its common stock to
Michael Hall for $2,352, (ii) 514,500 shares of its common stock to Kingsbury
Company, Ltd. for $514.50, (iii) 367,500 shares of its common stock to ACL
(1996) Ltd. and a further 367,500 shares of its common stock to Autokraft for a
total consideration of $1,675,000, which consideration was paid by the
capitalization of debt of $1,675,000 owed by Automotive to ACL and Autokraft. In
connection with such share issuances, Michael Hall and Kingsbury Company, Ltd.
loaned the sum of (pound)1,000,000 and (pound)500,000 to AC, respectively. In
October 1997, Alan Lubinsky loaned AC the sum of (pound)100,000, which note is
payable on demand. During March and April 1998, Mr. Lubinsky further loaned AC
(pound)21,750 of which (pound)9,400 was repaid in May 1998. See "Certain
Relationships and Related Transactions".
The foregoing issuance of shares reduced the ownership of AC Automotive
Group, Inc. by the Company to under 50%. Accordingly, future financial
statements of the Company will be issued on an unconsolidated basis.
The Company's executive offices are located at Pride House, Watford
Metro Centre, Tolpits Lane Watford, Hertfordshire, WD1 8SB England, phone number
(800) 698-6590.
6
<PAGE>
THE OFFERING(1)
<TABLE>
<CAPTION>
Securities Offered (2):
<S> <C>
1,^250,000 Shares of Common Stock
Price Per Share: $(4)
Securities Outstanding Prior to the Offering:
Common Stock 2,8^22,500 Shares
Warrants (5) 2,300,000 Warrants
Securities Outstanding After the Offering:
Common Stock 3,^902,500 Shares
Warrants (5) 2,300,000 Warrants
Use Of Proceeds The net proceeds of this Offering, estimated at
$^3,488,000, will be used as follows: (i) $1,^857,000
to repay the notes issued in the December 1996 Private
Placement and (ii) $71,000 to repay the loan to the
Underwriter and (iii) $^1,559,750 to repay lines of
credit to the bank. See "Use of Proceeds."
Risk Factors An investment in the Securities offered hereby involves
a high degree of risk and immediate substantial dilution
to investors. Potential purchasers should not invest in
these securities unless they can afford the risk of losing
their entire investment. See "Risk Factor" and
"Dilution."
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Symbols (4)
<S> <C>
Nasdaq Common Stock .........LEAS
Warrants .................LEASW
BSE Common Stock..........LES
Warrants..................LESW
</TABLE>
(1) Unless otherwise indicated, no effect is given in this Prospectus to
the exercise of (i) the Underwriters' Over-allotment Option to purchase up to an
additional ^187,500 Shares; (ii) the Underwriters' Warrants to purchase 125,000
Shares; (iii) options exercisable on the issuance of restricted shares under the
Company's Senior Management Incentive Plan in the aggregate of 300,000 shares,
of which options to purchase 199,665 shares of Common Stock have been granted or
(iv) up to 1,250,000 shares which may be issued to Pride pursuant to the Special
Warrant. See "Description of Securities.
(2) The 95,000 shares of Common Stock and 200,000 Warrants being registered
hereunder are not being underwritten and may be sold from time to time by the
Selling Securityholders pursuant to a separate prospectus.
(3) It is currently anticipated that the offering price will be $^4.00 per
Share.
(4) The Company's Common Stock and Warrants are currently listed on Nasdaq
and the BSE and the Company has applied for additional listing of the Shares
being offered hereby, on both Nasdaq and BSE. Quotation on Nasdaq and/or BSE
does not imply that a meaningful, sustained market for the Company's Securities
will develop or if developed that it will be sustained for any period of time.
In addition, continued inclusion on Nasdaq and/or the BSE is subject to certain
maintenance criteria. The failure to meet these criteria in the future may
result in the discontinuance of the listing of the Company's Securities which in
turn may have a material adverse effect on the market for the Company's
Securities. See "Risk Factors".
(5) Represents Warrants exercisable at $5.75 per share which were issued in
the Company's 1996 initial public offering. The warrants expire on April 23,
2001.
8
<PAGE>
SUMMARY FINANCIAL INFORMATION
Set forth below is the historical summary financial information with
respect to the Company and its subsidiaries for the years ended November 30,
^1997 and 1996 and the unaudited ^three month periods ended ^February 28, 1998
and February 28, 1997. The historical financial data for the years ended
November 30, ^1996 and 1997 is derived from the audited consolidated financial
statements of the Company and its subsidiaries which have been reported upon by
Civvals, Chartered Accountants. The summary historical financial data presented
below should be read in conjunction with the audited financial statements of the
Company and its subsidiaries and related notes thereto included elsewhere in
this Prospectus.
^Statement of Operations Data:
<TABLE>
<CAPTION>
=================================================================================================================
For the Year For the Three Months
Ended Ended
- -----------------------------------------------------------------------------------------------------------------
November 30, November 30, February 28, February 28,
1996 1997 1997 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $12,884,018 $17,459,275 $3,735,283 $3,580,971
- -----------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ (600,622) $(4,455,400) $(569,345) $(194,647)
- -----------------------------------------------------------------------------------------------------------------
Earnings (loss) per
Common Share $(.25) $(1.59) $(.21) $(.07)
- -----------------------------------------------------------------------------------------------------------------
Weighted Average
Shares Outstanding 2,405,760 2,801,075 2,759,167 2,822,500
=================================================================================================================
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
November 30, 1997 February 28, 1998 February 28, 1998
- -------------------------------------------------------------------------------------------------------------
Actual Actual As Adjusted (1)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tangible Assets $31,210,429 $31,807,181 $31,807,181
- -------------------------------------------------------------------------------------------------------------
Intangible Assets $9,090,156 $8,917,186 $8,971,186
- -------------------------------------------------------------------------------------------------------------
Total Assets $40,300,585 $40,724,367 $40,724,367
- -------------------------------------------------------------------------------------------------------------
Total Liabilities $32,890,207 $28,808,663 $25,320,663
- -------------------------------------------------------------------------------------------------------------
Stockholders' $7,410,378 $11,915,704 $15,403,704
Equity
=============================================================================================================
</TABLE>
(1) Gives effect to the sale by the Company of ^1,080,000 shares of Common
Stock in this Offering, and the application of net proceeds therefrom.
Does not give effect to the exercise of the Over-allotment Option ^the
Underwriters' Warrants or the Special Warrant.
See "Use of Proceeds" and "Description of Securities".
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RISK FACTORS
The securities offered hereby are speculative and involve a high degree
of risk. In addition to the other information contained in this Prospectus, the
following factors should be carefully considered before purchasing the
securities offered by this Prospectus. The purchase of these Securities should
not be considered by anyone who cannot afford the risk of loss of his entire
investment.
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
projected in the forward-looking statements discussed herein. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed in this section, as well as in the sections entitled "Plan of
Operation" and "Business."
1. Negative Cash Flow; Loss from Operations; Accumulated Deficit; Need for
Capital. The proceeds raised in this Offering will be used primarily to repay
existing indebtedness to private lenders and commercial banks. The Company's
operations have historically been depicted by negative cash flow. In entering
into a new lease agreement, the Company (i) purchases the automobile, which
usually requires a 10% down payment, (ii) pays down the note on the purchase
including principal and interest during the lease term and (iii) pays all
maintenance costs during the term of the lease, all of which require the outlay
of operating capital. The lease payments received from the customer, over the
term of the lease, typically are sufficient to pay the Company's monthly
obligations on the vehicle. However, due to the timing of the payment of
expenses versus the receipt of lease payments, the Company has continuously
experienced negative cash flow problems. This problem increases as the Company
expands operations. Historically, the Company has financed its negative cash
flow by borrowing from a secured line of credit through its bank, Midland Bank
Plc. ^In February 1998, the Company entered into a new agreement with the bank.
This new line of credit of $5,862,500, of which $5,297,687 had been drawn down
as of February 28, 1998, is payable on demand and is secured by all assets of
the Company other than the building and revenue producing vehicles which are
already pledged (See Notes 6b and 7 to the Financial Statements). Interest is
payable at rates between 2% and 4% in excess of the bank's base rate (7 1/2% as
of November 30, 1997). The agreement is due for renewal November 1998. There can
be no assurance that the line of credit will be renewed. See "Risk Factors".
There can be no assurance that the Company will be able to secure the necessary
financing if one of the aforementioned events comes to pass. The Company
realizes most of its profit on the lease of a vehicle, if any, from the proceeds
of the resale of the vehicle at the end of the lease term. Prior to November
1992, the Company's financing arrangements in the purchase of its vehicles
required monthly payments of interest and a balloon payment of the principal
amount borrowed being made at the end of the lease term. This financing strategy
enabled the Company to have more cash available for operations during the term
of the lease, but the higher financing fees and interest expense limited the
profit margin over the lease term. In November 1995, the Company began to
receive back the vehicles it first financed using its current financing method.
Due to the nature of the Company's business, namely contract leasing of
motor vehicles which are fixed long-term assets, the Company's balance sheet has
been prepared on an unclassified basis. Accordingly, there is no classification
of current assets, current liabilities or working capital. As vehicles are
returned each month, they are sold by the Company and the cash received
increases cash flow. However, in trying to increase the number of leases each
month, the cash flow from the resale of returned vehicles has not been
sufficient to enable the Company to purchase the number of additional vehicles
needed. The Company incurred losses of ^$4,455,400 (of which $3,625,344 is
related to AC Car Group Ltd.) and $194,647, after goodwill amortization, for the
year ended November 30, ^1997 and
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the ^three months ended ^February 28, 1998, respectively. In addition, the
Company had an accumulated deficit of ^$5,857,987 (of which $3,762,790 is
related to AC Car Group Ltd.) and $2,289,844 as of November 30, ^1997 and
February 28, 1998 respectively. In the event that the Company has continuous
losses from operations, cannot meet its current capital needs, is unable to
finance the purchase of new vehicles for its clients or defaults in the payment
of any of its financing arrangements, all or any of the above could materially
adversely affect the operations of the Company. In the event the Company is
required to seek additional financing, there can be no assurance that such
additional financing will be available to the Company in the future, or if
available, at such times, or upon such terms and conditions acceptable to the
Company. See "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business - Financing and
Collections."
2. Competition. The Company's business is highly competitive, with
relatively insignificant barriers to entry and with numerous firms competing for
the same customers. The Company is in direct competition with local (includes
the ^county of Hertfordshire and the surrounding areas including Watford),
regional (includes London and surrounding areas) and national (includes the
entire United Kingdom inclusive of England, Wales, Scotland and Northern
Ireland) automotive leasing companies, many of which have greater resources and
more extensive distribution and marketing than the Company. The Company also
competes in the automobile financing industry with providers of other forms of
financing. The Company primarily competes on the basis of both pricing and
service. Many of its competitors have significantly greater financial and
marketing resources than the Company.
The wholesale of used automobiles is highly competitive, with the
Company's competition coming from individuals, other leasing companies,
independent used automobile wholesalers and dealerships and rental car
companies. In the event of a decrease in the demand for or market value of used
automobiles or the models leased and resold by the Company, the Company may not
be able to resell such vehicles at prices it had anticipated when entering into
the lease agreements. Such conditions would have a material adverse affect on
the business of the Company and its profitability. There can be no assurance
that the Company will be able to compete successfully in this market. See "Risk
Factor - Decrease in Automotive Resale Market; Decrease in Profitability" and
"Business - Competition."
3. Dependence on Suppliers and Service Centers. The Company purchases
all of the automobiles that it leases to its clients from automotive
dealerships, usually several at any one time. For the year ended November 30,
^1997 and the ^three months ended ^February 28, 1998, General Motors and Ford
were the manufacturers of approximately ^15% and 16%, respectively and ^15% and
16%, respectively, of the vehicles which it leased. The Company does not depend
on any one dealership for its purchase of automobiles and does not have any
written agreements or arrangements with any of the dealerships it purchases
vehicles from. The Company has servicing agreements with over 1,400 automotive
dealerships and independent service centers in its areas of operations. The
Company believes that there are a sufficient number of dealerships of the models
its purchases, so that it will continue to be able to purchase automobiles at
competitive prices and terms in the future. A portion of the Company's profit
margin is based on discounts received on the purchase of vehicles from the
dealerships as well as rebates received directly from the manufacturers.
However, the Company has no assurances that it will be able to acquire
automobiles at favorable prices or receive such rebates in the future. No
assurance can be given that an uninterrupted and adequate supply of automobiles
or service centers will be available to the Company in the future, although, the
Company believes that there are a sufficient number of automobile dealerships
and independent service centers so that in the event any individual or
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group of dealerships or service centers can no longer service the Company's
needs, the Company will be able to find other dealerships and service centers at
competitive prices. In the event the Company cannot obtain automobiles or
maintenance of such vehicles on similar terms as is presently available to it or
the production of automobiles ceases or is significantly reduced, the Company
would be materially adversely affected. See "Business - Suppliers."
4. Concentration of Lease Agreements; Lease Defaults; Economic
Conditions in England. For the year ended November 30, ^1996 and 1997, the
Company had two unaffiliated customers, Westbury Homes Plc. and Campbell
Distillers Limited, which companies accounted for in the aggregate approximately
^29% and 24%, respectively, of the Company's total revenues. For the ^three
months ended ^February 28, 1997 and February 28, 1998, revenues from these
customers accounted for approximately ^ 27% and 20%, respectively of total
revenues. The Company is dependent on client loyalty and the continued increase
in the number of its leases. The Company's profitability is dependent on the
number of leases entered into each year due to the small profit margin realized
on each individual lease. The discontinuance or default by the above clients or
of any group of leases or a continued or general economic downturn in England
would have a material adverse affect on the Company's results of operations. See
"Business - Leasing, Maintenance and Resale."
5. Decrease in Automotive Resale Market; Decrease in Profitability. The
automotive resale market is highly competitive, with model, mileage and
condition being the basis for a vehicle's resale value. Recently, the market for
used automobiles has increased due to the increase in the prices for new
vehicles. The Company is dependent on its ability to resell the vehicles which
are returned to it at the end of the lease term quickly and profitably. Pursuant
to the Company's current financing arrangements, at the end of a lease term the
Company owns the automobile. The Company does not currently do repairs on the
returned vehicles and attempts to sell such vehicles immediately upon their
return. In the event the market for used automobiles decreases, the models or
conditions of the vehicles returned to the Company decrease their resale value
or vehicles are returned pursuant to defaults in the lease agreements, such
events may adversely affect the Company's business and profitability. See
"Business - Leasing, Maintenance and Resale."
6. Foreign Currency and Foreign Exchange Regulation. Fluctuations in
exchange rates of the English Pound against foreign currencies could adversely
affect the Company's results of operations. The Company intends to convert the
net proceeds of this Offering (exclusive of funds being repaid to private U.S.
investors) into pounds immediately upon consummation of the Offering. The
Company will experience the risk of currency fluctuations with respect to the
conversion of dollars into pounds. In the event that the conversion rate of
dollars into pounds decreases, the Company will receive less proceeds than
expected. Similarly, in the event that the Company issues cash dividends in the
future, the proceeds of such dividend will be subject to the risk of currency
fluctuations.
7. Government Regulation. The Company is subject to regulation by the
United Kingdom Department of Trade and Industry (the "Department of Trade"). The
Department of Trade establishes general rules and regulations with respect to
the operation of a business in the United Kingdom. The Department of Trade has
not established any regulations or licensing requirements specifically
regulating the leasing of automobiles to companies. There is no license required
for a company to lease automobiles to a company. There can be no assurances that
such will be the case in the future or that if licensing or other forms of
regulation is required in order to engage in the Company's business that it will
be
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successful in obtaining such licenses or in meeting the requirements of such
regulations. In addition, the Company must comply with a wide range of national,
regional and local rules and regulations applicable to its business, including
regulations covering labor relations, safety standards, affirmative action and
the protection of the environment. Continued compliance with the broad
regulatory network of the United Kingdom is essential and costly and the failure
to comply with such regulations may have an adverse effect on the Company's
operations. See "Business - Government Regulations."
8. Control by Management and Alan Lubinsky. Upon the sale of the
Securities offered hereby, Mr. Lubinsky will have voting control of
approximately ^36.8% of the outstanding shares of Common Stock by virtue of his
family's trust ownership of approximately 65% of Pride, which prior to the
Offering owned ^53.1% of the Company. The trustee is Elfin Trust Company
Limited, located on the Island of Guernsey, Channel Islands. Although Mr.
Lubinsky disclaims beneficial ownership of the shares of Pride owned by New
World Finance, Limited, which company is wholly owned by New World Trust, the
beneficiaries of which are members of Mr. Lubinsky's family, it may be expected
that such entity will vote its respective shares in favor of proposals espoused
by Mr. Lubinsky. Accordingly, Mr. Lubinsky through his family, will in all
likelihood be able to elect the entire board of directors of the Company and to
direct the affairs of the Company. In April 1998, a Special Warrant was issued
to Pride under which Pride may acquire up to 1,250,000 shares of the Company's
Common Stock at a purchase price of $4.40 per share. If fully exercised, Pride
would own approximately 51% of the Company's issued and outstanding Common
Stock. See "Management" and "Principal and Selling Securityholders."
9. Conflicts of Interest. Mr. Lubinsky is an officer and director of
the Company, Pride, AC, Automotive, PMS and each of PMS's subsidiaries. ^In
addition, Mr. Lubinsky has been involved in transactions with the Company and
its subsidiaries. Neither Mr. Lubinsky nor the Board of Directors sought outside
advice as to the value or the fairness of such transactions and there can be no
assurance that the Company and/or Mr. Lubinsky resolved the inherent conflicts
of interest which exist under such circumstances. In addition, there may arise
conflicts of interest with respect to matters concerning the ^Company, its
subsidiaries and affiliates. Although no specific measures to resolve conflicts
of interest have been formulated, the officers and directors of the Company have
a fiduciary obligation to deal fairly and in good faith with the Company. The
directors ^are required to exercise reasonable judgment and take such steps as
they deem necessary under all of the circumstances in resolving any specific
conflict of interest which may ^occur. There can be no assurance that the
Company will employ any of such measures or that conflicts of interest will be
resolved in the best interest of the stockholders of the Company. See
"Management" and "Certain Relationships and Related Transactions."
10. Dependence on Management. The Company is dependent upon the
personal efforts and abilities of Alan Lubinsky, the President, Secretary and
Chairman of the Board of Directors of the Company, Pride, ^AC, Automotive and
PMS. Pursuant to the terms of his employment agreement, Mr. Lubinsky will devote
all of his business time to the affairs of the Company and its subsidiaries. The
loss of the services of Mr. Lubinsky would adversely affect the business of the
Company. Although PMS has a key-man insurance policy of $750,000 on the life of
Mr. Lubinsky, neither the Company nor AC currently have any such policy and have
no current intent to obtain any such insurance. See "Management."
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11. Non-U.S. Resident Management May Result in Special Risks. Alan
Lubinsky, Allan Edgar, Ian Satill and Ivan Averbuch, the officers and directors
of the Company, are residents of England, Switzerland, Australia and England,
respectively, and are not residents of the United States. Accordingly, the
enforcement of civil liabilities against Mr. Lubinsky, Mr. Edgar, Mr. Satill or
Mr. Averbuch by investors may be adversely affected. Investors may have
difficulty effecting service of process within the United States and judgments
against Mr. Lubinsky, Mr. Edgar or Mr. Averbuch in United States courts may be
difficult or impossible to enforce. In addition, there can be no assurance that
foreign courts would enforce such judgments, either predicated upon the civil
liability provisions of the federal securities laws or otherwise.
12. Immediate Substantial Dilution. The purchasers of the Securities
offered hereby will incur immediate substantial dilution from their purchase
price in the net tangible book value of each share of Common Stock of
approximately ^$2.34 per share or ^58.5% of their initial investment. The
present stockholders of the Company will own approximately ^72.3% of the
Company's outstanding shares of Common Stock upon completion of this Offering
and will realize an immediate increase in the net tangible book value of their
shares of approximately ^$.60 per share. Accordingly, Pride will be the primary
beneficiary of this Offering. If the Company's future operations are
unsuccessful, the persons who purchased the Securities offered hereby will
sustain the principal losses. See "Use of Proceeds," "Certain Relationships and
Related Transactions," "Dilution" and Note 11 of Notes to the Financial
Statements.
13. Possible Future Dilution. The Company has authorized capital stock
of 10,000,000 shares of Common Stock, par value $.001 per share and 2,000,000
shares of Preferred Stock, none of which have been issued. In addition, the
Company has issued Pride a Special Warrant pursuant to which it may acquire up
to 1,250,000 shares at a price of $4.40 per share. If fully exercised, Pride
would own approximately 51% of the Company's issued and outstanding Common
Stock. Inasmuch as the Company may use authorized but unissued shares of
Preferred Stock or issue shares of Preferred Stock which are convertible into
shares of Common Stock, without stockholder approval, there may be further
dilution of the stockholders' interests. See "Description of Securities."
14. No Dividends and None Anticipated. To date, the Company has not paid
any cash dividends on its Common Stock and does not expect to declare or pay any
cash or other dividends in the foreseeable future. The Company anticipates that
any profits from operations will be reinvested in the Company. See "Dividend
Policy."
15. Authorization of Preferred Stock. The Company's certificate of
incorporation authorizes the issuance of 2,000,000 shares of preferred stock,
$.01 par value, which shares may be issued in classes and series, pursuant to
the rights, designations and preferences as determined by the board of
directors. Accordingly, the board of directors is empowered, without obtaining
stockholder approval, to issue preferred stock with dividend, liquidation,
conversion, voting or other rights that could adversely affect the voting power
or other rights of the holders of the Common Stock. In the event of issuance,
the preferred stock could be utilized, under certain circumstances, as a method
of discouraging, delaying, or preventing a change in the control of the Company.
See "Description of Securities - Common Stock."
16. Arbitrary Determination of Offering Price. The offering price of
the ^Shares has been determined by negotiations between the Company and the
Underwriter on an arbitrary basis and bears
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no direct relationship to the assets, earnings or any other recognized criteria
of value. Factors considered in determining such prices, in addition to
prevailing market conditions and the current price of the Company's Common
Stock, included the history of and the business prospects for the Company, an
assessment of the net worth and financial condition of the Company, an
evaluation of management and the general economic climate of the United Kingdom.
The prices should in no event, however, be regarded as an indication of any
future market price of the Common Stock. Prior to this Offering, there has been
only a limited public market for the Common Stock. See "Dilution" and
"Underwriting."
17. Limited Public Market for the Securities. At present, only a
limited public market exists for the Company's Common Stock and Warrants. There
is no assurance that a regular trading market will develop for the Shares or
Warrants at the conclusion of this Offering, or if one does develop, that it
will be sustained. Therefore, purchasers of the Securities offered herein may be
unable to resell said Securities at or near their original offering price or at
any price. Furthermore, it is unlikely that a lending institution will accept
the Company's securities as pledged collateral for loans even if a regular
trading market develops.
18. Restrictions on Exercise of Warrants; Necessity for Updating
Registration Statement. So long as the Warrants or Underwriter's Warrants are
exercisable, or in the event that the Company reduces the exercise price or
exercise period of any of such warrants, the Company would be required to file
one or more Post-Effective Amendments to its Registration Statement to update
the general and financial information contained in this Prospectus. These
obligations could result in substantial expense to the Company and could be a
hindrance to any future financing. Warrants may not be exercised at any time in
which the Company's Registration Statement is not current. Although the Company
has not updated its Registration Statement, it intends to do so shortly after
the completion of this Offering. Although the Company has undertaken and intends
to keep its Registration Statement current, there is no assurance that the
Company will keep its Registration Statement current, and if for any reason it
does not do so, the Warrants will not be exercisable. See "Description of
Securities-Warrants."
19. Shares Available for Resale. Of the ^2,822,500 shares of the
Company's Common Stock outstanding, 1,560,000 shares were issued in March 1995.
All of such shares were issued as "restricted securities" which may be sold upon
compliance with Rule 144 adopted under the Securities Act, or any other
exemption from the registration requirements of the Securities Act. 500,000
shares of Common Stock were issued in the Company's Private Placement in
December 1995, all of which were registered and sold in the Company's initial
public offering in April 1996. ^170,000 shares of the Company's Common Stock
were issued in the Company's Private Placement of December 1996. All ^170,000
shares issued in the December Private Placement are being registered and
underwritten in this ^Offering. In addition, 95,000 shares of common stock and
200,000 Initial Warrants are being registered herein on behalf of the Selling
Securityholders and may be sold from time to time by ^such Securityholders.
Rule 144 provides, in essence, that a person holding "restricted
securities" for a period of two years may sell every three months in brokerage
transactions an amount equal to the greater of: (a) one percent of the Company's
outstanding shares of Common Stock; (b) the average weekly reported volume of
trading for the securities on all national exchanges and/or through the
automated quotation system of a registered securities association during the
four calendar week period preceding each transaction; or (c) the average weekly
trading volume in the securities reported through the consolidated transaction
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reporting system during the four calendar week period. Rule 144 also requires
that current information about the securities must be available to stockholders
and brokers.
Therefore, after taking into account the shares to be sold in this
Offering (and without giving effect to any shares of Common Stock which may be
issued upon exercise of the Warrants) in each three-month period commencing
January 1998, at least ^39,025 (40,900 shares if the Underwriters'
Over-allotment option is exercised in full) shares may be publicly sold under
Rule 144 by each holder of "restricted securities" who has held such shares for
at least one year.
Persons who are not "affiliates" of the Company, as that term is
defined under the Securities Act, who have been non-affiliates for the 90 days
immediately preceding the sale, and who have owned their shares for a period of
at least two years, may sell such shares without limitation. ^See "Shares
Eligible for Future Sales."
All officers, directors and owners of 5% or more of the Company's
Common Stock, except the Selling Securityholders, have agreed to "lock-up" and
not sell, publicly, privately or otherwise dispose of any shares of Common Stock
for a period of two years from the date of this Prospectus, whereby these
stockholders cannot sell, publicly, privately or otherwise dispose of any of
their shares without the prior written consent of the Underwriter.
^20. Possible Delisting of Securities from Nasdaq System; Risks of Low
Priced Stocks. The Commission has approved rules imposing more stringent
criteria for listing of the Securities on the Nasdaq SmallCap Stock Market
("Nasdaq"). In order to continue to be listed on the Nasdaq the Company would be
required to maintain (i) net tangible assets of at least $2,000,000, or market
capitalization of $35,000,000 or $500,000 in net income for two of the last
three years (ii) total stockholders' equity of $1,000,000, (iii) a minimum bid
price of $1.00, (iv) two market makers, (v) 300 stockholders, (vi) at least
500,000 shares in the public float, (vii) a minimum market value for the public
float of $1,000,000 and (viii) compliance with the Corporate Governance
Standards. In the event the Company's Securities are delisted from the Nasdaq,
and not traded on the Boston Stock Exchange ("BSE") or other exchange, trading,
if any, in Securities would thereafter be conducted in the over-the-counter
market on the OTC Bulletin Board. Consequently, an investor may find it more
difficult to dispose of, or to obtain accurate quotations as to the price of the
Company's Securities. The Company has applied for the additional listing of its
Securities on Nasdaq and the BSE. Quotation on Nasdaq and/or the BSE does not
imply that a meaningful, sustained market for the Company's Securities will
develop or if developed that it will be sustained for any period of time.
In December 1997, the Company was notified by Nasdaq that it was in
danger of falling out of compliance with Nasdaq's continued listing
requirements. Specifically, the Company was advised that its net tangible assets
were below the minimum prescribed amount and that the Company needed to add an
additional independent director. The Company was advised that it had until
February 24, 1998 to correct these ^deficiencies, which deficiencies have been
addressed and corrected. Additionally, the Company ^has added an additional
independent director and ^it is now in compliance with Nasdaq's corporate
governance requirements. There can be no assurance that the Company will remain
in compliance with Nasdaq requirements or that Nasdaq will not change its
listing and/or maintenance requirements in the future.
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If the Company's securities ^become subject to the existing or proposed
regulations on penny stocks, the market liquidity for the Company's Securities
could be severely and adversely affected by limiting the ability of
broker/dealers to sell the Company's Securities and the ability of purchasers in
this Offering to sell their securities in the secondary market. See "Certain
Transactions".
^21. Penny Stock Regulation. Broker/dealer practices in connection with
transactions in "penny stocks" are regulated by certain penny stock rules
adopted by the Securities and Exchange Commission. Penny stocks generally are
equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on the Nasdaq
system, provided that current price and volume information with respect to
transactions in such securities is provided by the exchange or system). The
penny stock rules require a broker/dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document that provides information about penny stocks and the risks
in the penny stock market. The broker/dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker/dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the customer's
account. In addition, the penny stock rules generally require that prior to a
transaction in a penny stock the broker/dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. These
disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for a stock that becomes subject to the penny
stock rules. If the Company's Securities become subject to the penny stock
rules, investors in this Offering may find it more difficult to sell their
Securities.
^22. Underwriters' Warrants. The Underwriters will acquire, for nominal
consideration, the Underwriters' Warrants to purchase ^125,000 Shares at price
of ^$4.80 per Share during the four year period commencing one year from the
date of this Prospectus. The Securities issuable upon exercise by the
Underwriters of the Underwriters' Warrants are identical to the Securities being
offered hereby. The Company has agreed to register the Underwriters' Warrants
and the underlying securities at its expense, one time only, upon request of
holders of a majority of the Underwriters' Warrants or underlying securities. In
addition, the Company has agreed, for a period of seven years following the date
of this Prospectus, to give advance notice to the holders of the Underwriters'
Warrants or underlying securities of its intention to file a registration
statement, and in such case the holders of the Underwriters' Warrants and
underlying securities shall have the right to require the Company to include the
Underwriters' Warrants and underlying securities in such registration statement
at the Company's expense. These obligations could be a hindrance to any future
financing of the Company. Furthermore, in the event the Underwriters exercise
their registration rights to effect the distribution of the ^Securities
underlying the Underwriters' Warrants, the Underwriters and any holder of such
Warrants who is a market maker in the Company's Securities, prior to such
distribution, will be unable to make a market in the Company's Securities for up
to a period ^up to five days prior to the commencement of such distribution and
until such distribution is completed. If the Underwriters cease to make a
market, the market and market prices for the Securities may be adversely
affected, and the holders thereof may be unable to sell such Securities. See
"Underwriting."
^23. Underwriters' Possible Ability to Dominate or Influence the Market for
the Securities. A significant number of the Securities offered in the Offering
may be sold to customers of the Underwriters. Such customers subsequently may
engage in transactions for the sale or purchase of the
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Securities through or with the Underwriters. Although they have no
obligation to do so, all or any individual Underwriter may exert a dominating
influence on the market, if one develops, for the Company's Securities. The
price, liquidity and price volatility of the Company's Securities may be
significantly affected by the degree, if any, of an Underwriter's participation
in such market. See "Underwriting."
^24. Limited Experience of Underwriters. Mason Hill & Co., Inc., has
previously managed and completed ^three public offerings inclusive of the
Company's initial public offering. The Underwriter is a relatively small firm
and there can be no assurance that it will be able to make a meaningful market
in the Company's Securities or that another broker/dealer will make a meaningful
market in the Company's Securities. See "Underwriting."
^25. Indemnification of Officers and Directors. The Certificate of
Incorporation of the Company provides indemnification to the fullest extent
permitted by Delaware law for any person whom the Company may indemnify
thereunder, including directors, officers, employees and agents of the Company.
In addition, the Certificate of Incorporation, as permitted under the Delaware
General Corporation Law, eliminates the personal liability of the directors to
the Company or any of its stockholders for damages for breaches of their
fiduciary duty as directors. As a result of the inclusion of such provision,
stockholders may be unable to recover damages against directors for actions
taken by them which constitute negligence or gross negligence or that are in
violation of their fiduciary duties. The inclusion of this provision in the
Company's Certificate of Incorporation may reduce the likelihood of derivative
litigation against directors and other types of stockholder litigation, even
though such action, if successful, might otherwise benefit the Company and its
stockholders. See "Management."
^26. Potential Adverse Effect of Exercise of Special Warrant owned by
Pride. Pride owns a special warrant under which it may acquire up to 1,250,000
common shares of the Company at a price of $4.40 per share during the
twenty-four month period commencing on the date of this Prospectus (the "Special
Warrant"). The Special Warrant allows Pride to purchase only such number of the
Company's common shares to increase its percent ownership of the Company's
common shares to no more than 51%.
If the Special Warrant was to be exercised in full by Pride, it would
result in Pride owning in excess of 50% of the issued and outstanding common
stock of the Company and would enable Pride to control the Company. The exercise
by Pride of the Special Warrant may result in dilution to the shareholders of
the Company
It may be expected that Pride will exercise the Special Warrant at such
time, if any, as it deems the common stock to be worth in excess of $4.40. Such
exercise would in all likelihood result in dilution to the Company's
shareholders and result in a diminution in the value of the Shares and the
Warrants. See "Description of Securities" and "Certain Relationships and Related
Transactions."
Risks related to the business of AC Car Group Limited - Although the
Company's ownership of Automotive (and indirectly AC) has been reduced to 16%,
the following risks have been described to give investors information relative
to the risks associated with the Company's ownership of Automotive.
^27. Losses from Operations. When AC completed its acquisition of AC Cars
and Autokraft in November 1997, AC Cars had been experiencing operating losses
for several years and in fact had been placed in administrative receivership in
March 1996. If AC continues to incur operating losses, the business of AC could
be materially adversely affected. There can be no assurance that AC will ever be
able to operate at a profit. See "Business - Acquisition of AC Car Group, Ltd.
^28. Dependence on Retention of AC Employees. Since its acquisition of AC
Cars, AC has attempted to retain most if not all of the former employees of AC
Cars, however, there can be no
18
<PAGE>
assurance that any or all of such employees will continue to work for AC. If
some or all of the former employees of AC Cars refuse to work for AC, there can
be no assurance that it will be able to locate or attract personnel with the
requisite talent and skills necessary to build, manage, engineer and/or market
AC automobiles. In addition, if the Company decides to move the current
manufacturing facilities of AC, there can be no assurance that any employees of
AC will relocate. See "Properties" and "Business."
^29. Limited Market for AC Automobiles; Low Production Manufacturer. The
market for AC automobiles is limited to a select group of purchasers. AC
automobiles are typically purchased by successful business and professional
individuals. Accordingly, the Company is dependent on a small, affluent segment
of the population to purchase its products. If this segment should alter its
interests or spending habits, if the economy or tax laws are such that these
persons or entities are negatively impacted, either financially or otherwise,
the Company may be unable to sell a sufficient number of automobiles, if any, to
continue in operation. See "Business."
^30. Product Liability Claims; Insurance. As a result of the purchase of
AC, the Company will face the inherent business risk of exposure to product
liability claims as a manufacturer of new automobiles. At present, AC maintains
product liability insurance through Lloyds of London. The limit of the indemnity
is (pound)2,000,000 ($3,350,000) for each instance. Although the Company has
procured this insurance policy, there can be no assurance that it will be able
to maintain such insurance, that such insurance will be sufficient to cover
claims, if any, or that such insurance will continue to be available at
commercially reasonable terms. If the Company is unable to maintain products
liability insurance for the automobiles that it manufactures, it would adversely
affect the business of the Company and could potentially cause it to discontinue
operations. See "Business."
^31. Regulation. As a manufacturer of automobiles, AC is subject to
regulation by the Vehicle Certification Agency (VCA). The VCA prescribes
standards for the safe manufacturing of automobiles for sale in the United
Kingdom. The costs of compliance with these requirements are significant. AC
will be subject to inspections by the VCA and may be subjected to fines and
other penalties (including orders to cease production) for noncompliance with
VCA regulations. The failure of AC to adhere to the standards prescribed by the
VCA could have a material adverse affect on AC's ability to continue its
operations. See "Business - Governmental Regulation."
^32. Lack of Experience of Current Management in Operation of Automobile
Manufacturing. Management of the Company and AC do not have any prior experience
in the manufacturing of automobiles. Management will be dependent on employees
and consultants to render advise on modifying, improving and manufacturing
automobiles for AC. The lack of experience in manufacturing automobile could
adversely affect AC and the Company.
^33. Competition. AC is a low volume, specialty manufacturer which
^manufactures a limited number of hand made, relatively expensive, sports cars.
AC is in direct competition with other well financed manufacturers such as
Mercedes Benz, BMW, Aston Martin, as well as others. All aspects of AC's
business are and will continue to be highly competitive. AC will compete in a
mature marketplace which is well established and heavily capitalized. Most of
the entities with which AC will compete have substantially greater sales,
personnel and financial resources than that of AC. Moreover, there can be no
assurance that other companies will not enter the marketplace or that other
companies will not produce products superior to AC's. See "Competition."
19
<PAGE>
DIVIDEND POLICY
The Company has not paid cash dividends on its Common Stock and intends
to retain earnings, if any, for use in its activities. Payment of cash dividends
in the future will be wholly dependent upon the Company's earnings, financial
condition, capital requirements and other factors deemed relevant by the board
of directors. It is not likely that cash dividends or other dividends will be
paid in the foreseeable future.
DILUTION
As of ^May 25, 1998, there were outstanding ^2,822,500 shares of the
Company's Common Stock. The Company's Common Stock ^as of ^February 28, 1998 had
a net tangible book value per share of approximately ^$1.06, based upon a total
of ^2,822,500 shares issued and outstanding. Net tangible book value per share
represents the amount by which the Company's total tangible assets exceed its
total liabilities, divided by the number of shares of its Common Stock
outstanding.
After giving effect to the sale of the ^1,080,000 Shares of Common
Stock by the ^Company offered hereby and the application of the net proceeds
therefrom (after deducting estimated underwriting discounts and commissions and
other expenses of the Offering) there would be outstanding a total of ^3,902,500
shares of the Company's Common Stock with a net tangible book value per share of
approximately ^$1.66. This would represent an immediate increase in net tangible
book value of ^$0.60 per share to existing stockholders and an immediate
dilution of ^$2.34 or 58.5% of the offering price per share to new investors.
Dilution is determined by subtracting net tangible book value per share after
the Offering from the amount paid by new investors per share of Common Stock.
<TABLE>
<CAPTION>
The following table illustrates the per share dilution:
<S> <C> <C>
Public offering price per share (1) $4.00(1)
Net tangible book value per share prior to this offering $1.06
Increase attributable to new investors(2) $0.60
Net tangible book value per share after this Offering $1.66
Dilution per share to new investors $2.34
=====
</TABLE>
(1) Assumes the offering price is ^$4.00 per share.
(2) Does not include funds which may be received upon exercise of the
Underwriters' Warrants^, the Underwriters' Over-allotment Option, the
Warrants or the Special Warrant.
20
<PAGE>
The following table sets forth at ^May 25, 1998 the difference between
the existing stockholders and the new investors with respect to the number of
shares of Common Stock purchased from the Company, the total consideration paid
to the Company and the price per share paid.
<TABLE>
<CAPTION>
Shares Total Average
Purchased Consideration Paid Consideration Paid
Number Percent Amount Percent Per Share
Existing
<S> <C> <C> <C> <C> <C> <C>
Stockholders 2,822,500 (1)(2) 72.3% $14,124,986 76.6% $5.00
New
Investors 1,080,000 (2) 27.7% $4,320,000 23.4% $^4.00 (3)
--------- ---------- -----
3,902,500 100% $18,444,988 100.0%
========= ==== =========== =======
</TABLE>
(1) Includes 1,500,000 shares owned by Pride pursuant to the
Reorganization, 60,000 shares of Common Stock issued in March 1995 and
500,000 shares of Common Stock issued in the December 1995 Private
Placement and ^170,000 shares issued in the December 1996 Private
Placement. See "Capitalization" and "Certain Relationships and Related
Transactions."
(2) No effect is given to the possible exercise of (i) the Underwriters'
Warrants to purchase ^125,000 Shares, ^ (ii) the Underwriters'
Over-allotment Option, to purchase from the Company ^187,500 Shares, or
(iii) up to 1,250,000 shares of Common Stock issuable upon the exercise
by Pride of its Special Warrant.
^
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Securities offered
hereby after deducting underwriting discounts and estimated expenses of the
Offering payable by the Company, which have been estimated at ^$400,000
($422,500 if the Underwriters' Over-allotment Option is exercised in full) is
^$3,488,000 ($4,140,500 if the Underwriters' Over-allotment Option is exercised
in full). The net proceeds of this Offering are intended to be used as follows:
<TABLE>
<CAPTION>
Percent of
Use of Proceeds Amount of Proceeds Net Proceeds
<S> <C> <C> <C>
Repayment of Notes (1) $1,857,000 53.2%
Repayment of Lines of Credit to Bank (1)(2) $1,559,750 44.7%
Repayment of Loan to Underwriter (1) $71,000 2.1%
---------- ----
Total $3,488,000 100.0%
========== ======
</TABLE>
(Footnotes listed on the next page)
21
<PAGE>
(1) See "Business - Financing and Collections."
(2) The Company intends to use whatever proceeds are remaining after
repayment of the Notes to pay down existing credit lines, which as ^of January
9, 1998 aggregated (pound)3,250,000 ($5,200,000) to the banks. Given this, the
Company may need to draw upon its lines of credit for working capital in the
future.
The Company believes that the proceeds of this Offering will be
sufficient to meet its anticipated cash requirements for the 12 months
subsequent to the closing of this Offering. It is not anticipated that the
Company will be required to raise any additional capital within the next twelve
months. If for any reason such estimates prove inaccurate, the Company may be
forced to seek additional financing. There can be no assurances that such
financing will be available, and if available, that it will be on terms
acceptable to the Company. None of the proceeds of this Offering will be paid to
members of the National Association of Securities Dealers, Inc. (the "NASD") or
associates or affiliates thereof, except for the proceeds being paid to the
Underwriters as described in this Prospectus and the repayment of a $71,000 loan
to Mason Hill. See "Underwriting" and "Certain Relationships and Related
Transactions".
Any additional proceeds received from the purchase of additional
securities by the Underwriters to cover over-allotments, will be added to the
Company's working capital. In the event the Underwriters exercise the
Underwriters' Over-allotment Option in full, the net proceeds to the Company
would be approximately ^$4,140,500. No proceeds from this Offering will be paid
to any officer or director of the Company, or affiliates or associates for
expenses of the Offering or for any type of fee or remuneration except. A
portion of the proceeds may be used to pay salaries in the event the Company's
income from operations does not meet its cash requirements. The Company will not
make any loans to any officer, director, affiliate or associate with the
proceeds of the Offering.
22
<PAGE>
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company at
^February 28, 1998 and (ii) such capitalization as adjusted to reflect the sale
of ^1,250,000 Shares in this Offering and the application of the net proceeds
thereof.
As
Actual Adjusted(1)
Bank Debt and Other Liabilities(2) $2,363,900 $584,900
Bank Line of Credit (2) 5,489,924 3,780,924
Stockholders' Equity:
Preferred Stock, $.01 par value,
2,000,000 shares authorized, none
issued or outstanding -- --
Common Stock, $.001 par value,
10,000,000 shares authorized;
issued and outstanding, 2,822,500
shares at February 28, 1998,
3,902,500 shares as adjusted 2,823 3,093
Additional Paid-In Capital 14,122,165 17,609,085
Deferred Financing Costs (123,750) (123,750)
Retained Earnings (deficit) (2,289,844) (2,289,844)
Foreign Currency Translation 204,310 204,310
Total Stockholders' Equity 11,915,704 15,403,704
Total Capitalization $19,769,528 $19,769,528
(1) Does not include (i) ^up to 1,250,000 shares issuable upon the exercise
of the Special Warrant, (ii) ^187,500 shares of Common Stock issuable upon the
exercise of the Underwriters' Over-allotment Option, (iii) ^125,000 shares of
Common Stock reserved for issuance upon the exercise of the Underwriters'
Warrants and (iv) 300,000 shares of Common Stock reserved for issuance under the
Company's Senior Management Incentive Plan, of which an option to purchase
^199,665 shares have been granted by the Company.
(2) Does not include additional liabilities reflected on the balance sheet
of approximately $22,849,778 which consists of accounts payable, equipment
financing, loans payable-directors, bank overdrafts and miscellaneous
liabilities.
23
<PAGE>
MARKET FOR COMMON EQUITY
The Company's Common Stock is currently quoted on the Nasdaq SmallCap
Stock Market and the Boston Stock Exchange. The following table sets forth
representative high and low closing bid quotes as reported by ^the Nasdaq
SmallCap Stock Market during the periods stated below. Bid quotations reflect
prices between dealers, do not include resale mark-ups, mark-downs, or other
fees or commissions, and do not necessarily represent transactions.
<TABLE>
<CAPTION>
Common Stock Warrants
Calendar Period Low High Low High
1996
<S> <C> <C> <C> <C>
4/24/96 to 5/31/96 7 1/2 8 1/4 3 4 1/8
6/1/96 to 8/31/96 8 8 1/8 2 7/8 4
9/1/95 to 11/30/96 5 6 7/8 1 1/8 1 1/2
12/1/96 to 2/29/96 1 3/4 4 11/16 5/16 1 1/2
1997
03/01/97 - 05/31/97 2 2 1/2 5/16 5/8
06/01/97 - 08/31/97 1 1/4 2 5/16 5/16 3/8
09/01/97 - 11/30/97 2 1/4 3 1/2 13/32 13/32
12/01/97 - 02/28/98 27/8 3 1/2 5/32 3/4
1998
03/01/98 - 5/15/98 3 7/16 4 1/2 5/16 3/4
</TABLE>
(1) The Company effected an initial public offering of its Common Stock and
Warrants on April 24, 1996.
As of ^May 15, 1998, there were 32 holders of record of the Company's
Common Stock, although the Company believes that there are approximately 1,000
additional beneficial owners of shares of Common Stock held in street name. As
of ^May 15, 1998, the number of outstanding shares of the Company's Common Stock
was ^2,822,500.
As of ^May 15, 1998, there were 9 holders of the Company's Warrants,
although the Company believes that there are approximately 400 additional
beneficial owners of the Company's Warrants held in street name. As of ^May 15,
1998, the number of outstanding Warrants was 2,300,000.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
^ The following is management's discussion and analysis of significant
factors which have affected the Company's financial position and operations
during the years ended November 30, 1997 and 1996.
Pride Automotive Group, Inc. (the "Company") was incorporated in the State
of Delaware in March 1995. Pursuant to the terms and conditions of a
reorganization agreement entered into in March 1995, the Company issued
1,500,000 shares of its Common Stock to Pride, Inc. (an entity incorporated in
the State of Delaware), in exchange for all the issued and outstanding shares of
PMS, thereby making the Company a majority owned subsidiary of Pride and PMS a
wholly-owned subsidiary of the Company. PMS is the holding company for six
wholly-owned subsidiaries, operating as one unit, located in the United Kingdom.
PMS and its wholly-owned subsidiaries are located in the United Kingdom and
follow generally accepted accounting principles in the United Kingdom. For
purposes of the consolidated financial statements of the Company, the statements
have been converted to the generally accepted accounting principles in the
United States.
Pride, the Company's parent, is an entity reporting under the Exchange Act,
and its reports may be obtained and reviewed by either contacting the Company or
the Securities and Exchange Commission. Pride, Inc., on its own has virtually no
operations. As such, its financial viability is represented by the financial
statements of the Company. Pride was incorporated as L.H.M. Corp. in the State
of Delaware on May 10, 1988 as a "blank check" company, for the purpose of
seeking potential business ventures through acquisition or merger. In April
1990, L.H.M. Corp. entered into an Agreement and Plan of Reorganization with
International Sportsfest, Inc. ("ISI"), a company formed to engage in and
establish sports expositions in sports merchandise such as clothing and
equipment. ISI never engaged in any business operations. In January 1994, ISI
entered into an Agreement and Plan of Reorganization with PMS, whereby PMS
became a wholly-owned subsidiary of ISI and ISI changed its name to Pride, Inc.
Pride also owns 100% of the capital stock of Watford Investments, a South
African company with minimal operations. This Company was formed in March 1995.
The six wholly-owned subsidiaries of PMS are Pride Vehicle Contracts
Limited, Baker Vehicle Contracts Limited, Pride Vehicle Contracts (UK) Limited,
Pride Leasing Limited, Pride Vehicle Management Limited and Pride Vehicle
Deliveries Limited, which comprise the majority of the operations of the
Company. Unless the context otherwise requires, all references to the "Company"
include its wholly-owned subsidiary, PMS, and PMS's wholly-owned subsidiaries.
These companies jointly engage in the business of leasing new automobiles to
businesses, servicing such automobiles during the lease term and remarketing the
automobiles upon the expiration of the lease term, which arrangement is
described as a "contract hire." The Company purchases each vehicle pursuant to
its clients' specifications, finances its purchase and pays for all the
maintenance on the vehicle during the lease term.
The Company has servicing agreements with automobile dealers and service
centers, which specify pricing schedules for maintenance and repair work to be
performed, all of which require the prior consent of the Company. Typically, the
term of the loan corresponds with the term of the lease, whereby, upon the
completion of the lease term, the automobiles are fully paid and owned by the
Company. Upon the expiration of the lease, the Company remarkets the automobiles
through various distribution channels including, but not limited to, used car
wholesalers or used car retailers. Each client's monthly lease payment is
determined by a computer program which takes into account estimated service
costs, new
25
<PAGE>
vehicle pricing, manufacturer bonuses, rebates and options, potential residual
value at lease end, as well as other variable information including interest
rates and other current and anticipated future economic variables. The monthly
lease payments are usually sufficient to pay the financing and servicing on the
vehicles during the lease term, with the bulk of the profits, if any, coming on
the resale of the automobile.
The Company's principal operations are conducted by PMS which reflects its
financial statements in British pounds. As a result, most assets and liabilities
of the foreign operations are translated into U.S. dollars using current
exchange rates in effect at the balance sheet date. Fixed assets and intangible
assets are translated at historical exchange rates. Revenue and expense accounts
are translated using an average exchange rate during the period except for those
expenses related to assets and liabilities which are translated at historical
exchange rates. These expenses include depreciation and amortization which are
translated at the rates existing at the time the asset was acquired. Any
resulting gains or losses due to the translation are reflected as a separate
item of stockholders' equity.
In December 1995, the Company consummated a private placement offering of
common stock of 500,000 shares, which reduced Pride's ownership interest to
72.8%. In April 1996, the Company completed an initial public offering of
592,500 shares of common stock at $5.00 per share and 2,000,000 redeemable
common stock warrants at a price of $.10 each. The effort of the offering was to
reduce Pride's ownership interest to 56.55%.
On November 29, 1996, the Company, through its newly formed majority owned
subsidiary, AC Automotive Group, Inc. and its wholly-owned subsidiary AC Car
Group Limited (registered in the United Kingdom), acquired certain of the assets
of AC Cars Limited and Autokraft Limited. These two companies were engaged in
the manufacture and sale of specialty automobiles. The purchase price of
approximately $6,000,000 was financed by the sale of common stock and by loans.
The acquisition involved the purchase of plant and equipment, the brand name,
inventories and an aircraft and was recorded using the purchase method of
accounting (see also Note 1 - notes to financial statements).
On February 12, 1998, the Board of Directors of AC Automotive Group, Inc.
authorized the issuance of 6,130,000 shares of its common stock to Erwood
Holdings, Inc., a company affiliated with Alan Lubinsky, the President and Chief
Executive Officer and director of the Company and AC Automotive Group, Inc., for
aggregate consideration of $6,130. In addition, 441,300 shares were issued to
other unrelated parties for aggregate consideration of $443. Following further
restructure and the foregoing issuance of shares, the ownership of AC Automotive
Group, Inc. by the Company has been reduced to 16%.
Results of Operations - Years Ended November 30, 1997 and November 30, 1996:
Contract Hire/Fleet Management
Revenues, including those from other group companies, for the year ended
November 30, 1997 were approximately $17,294,000 compared to approximately
$12,884,000 for the year ended November 30, 1996, an increase of $4,410,000 or
34%. The primary reason for this 34% increase was due to an increase in revenues
from contract hire, sale of vehicles at lease maturity and the selling of
vehicles at low margins to take advantage of dealer bonuses.
26
<PAGE>
For the year ended November 30, 1997, 550 new vehicles were acquired as
against 385 in the year ended November 30, 1996. The average monthly rental of
new contracts written was $541 per vehicle as against an average of $569 per
vehicle for the previous year. The average monthly rental is dependent on the
type of vehicle being rented and the terms of the contract.
For the year ended November 30, 1997, 153 vehicles were disposed of on
termination of contracts at an average profit of $1,529 per vehicle. For the
year ended November 30, 1996, 157 vehicles were disposed of on termination of
contracts at an average profit of $2,233 per vehicle. The average profit per
disposal is dependent on the type of vehicle sold and current market value of
vehicles.
As of November 30, 1997, 1,740 vehicles were under lease and management
compared to 1,409 vehicles as at November 30, 1996.
Cost of sales increased in actual dollars but decreased as a percent of
sales, when comparing the years ended November 30, 1997 and 1996. These costs
increased by approximately $3,193,000 or 31%, which is less than the increase in
revenues. As a percent of sales, cost of sales for 1997 was 77.7% versus 79.5%
for 1996.
General and administrative expenses increased from $1,802,000 for 1996 to
$1,858,000 for 1997, an increase of $56,000 or 3%. As a percent of sales these
expenses represented 11% of sales for 1997 and 14% for 1996. Management believes
that they can continue to increase revenues while keeping general and
administration costs under control.
Interest expense increased from $860,000 in 1996 to $1,747,000 in 1997.
Management attributes this increase to the large increase in new business
written and the associated increase in funding of vehicles, providing financial
support to AC Cars (see below) and the costs associated with the raising of
finances to fund the acquisition of AC Cars.
The loss on sale of fixed assets resulted from the sale of a property to
the tenant who exercised their option to purchase. The loss amounted to
approximately $455,000.
Income (loss) before taxes for the years ended November 30, 1997 and 1996,
prior to amortization of goodwill for the period ($632,000 and $635,000,
respectively) aggregated $256,000 and ($20,000), respectively.
AC Cars
The Company, on November 29, 1996, through its newly formed 70% owned
subsidiary, AC Automotive Group, Inc. and its wholly-owned subsidiary AC Car
Group Limited, completed the acquisition of certain assets of AC Cars Limited
and Autokraft Limited. These two companies are engaged in the manufacture and
sale of sports cars among which the famous AC Cobra sells for approximately
$100,000 each.
The Company acquired the business out of administrative receivership and
for most of the year has devoted most of its resources to resurrecting
operations. This has involved upgrading of production facilities, improving
efficiency, appointing new dealerships, installing systems and controls and
appointing new management where necessary. New dealerships have been appointed
in the United Kingdom and a distributor has been appointed in Australia.
27
<PAGE>
Revenues, including those from other group companies, for the year ended
November 30, 1997, were approximately $1,633,000. Other income of $701,000
resulted mainly from the sale of the option to purchase the property occupied by
the operation.
Cost of sales amounted to approximately $1,573,000 on the above revenues.
General and administration expenses amounted to approximately $2,589,000.
Rent and property taxes of approximately $865,000 and salaries of $282,000
accounted for 44% of the above costs.
Depreciation of plant, machinery, tooling, equipment and fixtures amounted
to approximately $400,000.
Interest amounted to approximately $462,000 for the year. Interest was
incurred on a bank line of credit of $195,000, on bank debt of $80,000 and on
acquisition debt of $187,000.
The Hurricane aircraft which was acquired as part of the assets at
acquisition, was disposed of at a loss of approximately $299,000.
AC Cars is in a developmental stage and certain specific expenses have been
classified as research and development costs. These costs relate to research and
development incurred on the manufacture and distribution of the AC Cobra and AC
Ace and are separately disclosed. Management believes it is more prudent to
write off these costs immediately as they occur. Research and development costs
amounted to approximately $983,000 for the current year.
(Loss) before tax for the year ended November 30, 1997 on the AC business
aggregated $4,111,000.
In February 1998, subsequent to the end of the Company's current fiscal
year, AC Automotive issued additional shares to certain individuals and an
entity affiliated with the Company's President for aggregate cash of $6,573,
thereby diluting the Company's ownership in this subsidiary to 16%. See Note 1
of Notes to the Financial Statements for additional information.
Consolidated
For the year ended November 30, 1997, the Company reported a net loss of
$4,455,400 or $1.59 per share. For the year ended November 30, 1996, the Company
reported a net loss of $600,622 or $.25 per share.
Results of Operations - Contract Hire - Three Months Ended February 28,
1998 and 1997
Contract hire and fleet management income increased by $1,004,955 when
comparing the quarter ended February 28, 1998 to the quarter ended February 28,
1997. This 57% increase is due to the net growth in the fleet of 379 vehicles
over the past year.
Vehicle sales decreased by $914,704 when comparing the two quarters due to
less contracts terminating and less sales of vehicles.
During the quarter, 96 new contracts were written at an average rental of
$695 per vehicle compared with 117 new contracts in the corresponding period in
1997 at an average rental of $525 per vehicle. The average monthly rental is
dependent on the type of vehicle being rented and the terms of the contract.
28
<PAGE>
During the quarter, 37 vehicles were disposed on termination of
contracts at an average profit of $734 per vehicle. During the corresponding
quarter in 1997, 40 vehicles were disposed of at an average profit of $2,363 per
vehicle. The average profit per vehicle on disposal is dependent on the type of
vehicle sold and current market value of vehicles.
As of February 28, 1998, 1,757 vehicles were under lease and management
compared to 1,492 vehicles as at February 28, 1997.
Costs of sales relating to sales of vehicles decreased from $1,614,633
to $789,954 when comparing the quarter ended February 28, 1998 with the quarter
ended February 28, 1997. This decrease is due to less contracts terminating and
a decrease in the sales of vehicles.
Cost of sales, including depreciation, relating to contract hire and
fleet management income increased from $1,228,579 to $1,762,589 or 43% when
comparing the two quarters ended February 28, 1997 to 1998, respectively. This
increase is in line with the 57% increase in contract hire and fleet management
income. Cost of sales, including depreciation, as a percentage of contract hire
and fleet management income decreased from 69.8% to 63.8%, when comparing the
two quarters. This resulting increase in gross margin of approximately 6% has
enabled the Company to absorb the increases in other overheads when comparing
the results of the two quarters ended February 28, 1998 and 1997, respectively.
General and administrative expenses increased by $113,559 when
comparing the quarters ended February 28, 1998 and 1997, respectively. This
increase of 30% is in line with the growth in contract hire income of 57% over
the past year, and represents 13.67% of revenue as against 10.47% for the
corresponding period.
Interest expense increased by $296,498 when comparing the two quarters
ending February 28, 1998 and 1997, respectively. The reason for this increase is
due to the significant growth in new business which requires increased funding,
the cost of the increase in the bank overdraft line of credit utilized to fund
the AC Car operations and additional working capital requirements to fund the
growth.
For the three months ended February 28, 1998 and 1997, the Company
reported, prior to amortization of goodwill ($157,680 for both periods) losses
from operations of $36,967 and $7,829, respectively, for the contract hire
operations.
Liquidity and Capital Resources
Due to the nature of the Company's business, namely contract leasing of
motor vehicles which are fixed long-term assets, the balance sheet has been
prepared on an unclassified basis. Accordingly, there is no classification of
current assets and current liabilities. At November 30, 1997 and February 28,
1998, the Company's balance sheet reflected cash of $77,000 and $14,000,
respectively, accounts receivable of $2,002,000 and $4,243,000, respectively,
and total assets of $40,301,000 and $40,724,000, respectively. The principal
reason for the increase in total assets is an increase in contract hire vehicles
available for lease.
In December 1995, the Company completed a private placement offering
selling 20 units, each unit consisting of 25,000 shares of Common Stock, at
$6,000 per unit for aggregate gross proceeds of $120,000 ($.24 per share).
In April 1996, the Company successfully completed an initial public
offering of its common stock, which yielded net proceeds to the Company of
approximately $2,166,000.
29
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The Company's total assets as of November 30, 1997 and 1996 include
intangible assets of approximately $9,090,000 and $9,722,000, respectively.
These intangible assets consist of the unamortized portion of the costs over net
assets acquired in acquisitions, which are being amortized over periods ranging
from 10 to 20 years. When adjusted for these intangible assets, the net tangible
book value of the Company at November 30, 1997 and 1996 would be approximately
($1,680,000) and $2,235,000, respectively.
During the years ended November 30, 1997 and 1996, the Company generated
cash flows from operating activities aggregating approximately $1,572,000 and
$489,000, respectively. Investing activities reflect uses of cash for the years
ended November 30, 1997 and 1996 of $11,911,000 and $8,759,000, respectively.
These uses of cash are the result of the purchases of fixed assets (primarily
revenue producing vehicles) net of the proceeds received from the sale of
vehicles at lease expiration dates and the acquisition described above. In order
to replenish its fleet of revenue producing vehicles, annually, the Company is
required to purchase from 300 to 400 new vehicles at an average cost of
approximately $25,000 each. At the time of purchase, the Company typically makes
a cash deposit of approximately 10% and finances the balance. The Company has
funding lines with several financing institutions for this purpose which
aggregate approximately $23,677,500 at November 30, 1997. At November 30, 1997,
there was approximately $18,342,000 outstanding under these lines. These lines
are typically open for between 24 and 60 months depending on the terms, the most
important term being the interest rate. Therefore, the principal amount of the
Company's current credit lines is constantly changing. Since the Company's
funding lines are asset based (secured by the vehicles purchased), there is
generally no difficulty obtaining funding lines, however, the Company is
continuously seeking to find the best terms and rates. Typically financing
institutions authorize credit lines with a fixed interest rate, which line is to
be open for a certain period of time. During the term of the line, the Company
may draw down on such line in order to finance the purchase of vehicles to
lease. When the time for drawing down on the line expires, the Company can no
longer draw down on such line to finance additional vehicles, however, the
amount drawn is repaid pursuant to the terms of such line.
For the year ended November 30, 1997, the Company provided cash from
financing activities ($10,208,000) primarily due to financing provided by bank
lines of credit ($4,012,000) plus the increases in financing of new vehicles
($19,492,000) net of the amounts needed to reduce hire purchase contract
financing ($12,185,000). For fiscal 1996, the Company provided cash from
financing activities of approximately $9,240,000 primarily as a result of an IPO
($2,200,000) and the financing needed to acquire new vehicles ($11,500,000) net
of the amounts utilized to pay hire purchase contract financing ($6,100,000).
Other than the annual acquisitions of revenue producing vehicles as
mentioned above, there are no material planned capital expenditures at the
present time.
The Company believes that its cash flow from operations, and its available
funding lines for the acquisition of revenue producing vehicles will be
sufficient for at least the ensuing 12 month period.
This report contains forward-looking statements and information that is
based on management's beliefs and assumptions, as well as information currently
available to management. When used in this document, the words "anticipate,
"estimate," "expect," "intend," and similar expressions are intended to identify
forward- looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct. Such statements are
subject to certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize, or should the underlying assumptions
prove incorrect, actual results may vary materially from those anticipated,
estimated or expected.
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BUSINESS
History
Pride Automotive Group, Inc., a Delaware corporation (the "Company") was
formed by Pride, Inc. ("Pride"), in March 1995 for the purpose of acquiring all
of the outstanding shares of common stock of Pride Management Services, Plc., an
English corporation ("PMS"), which has been accounted for as a "Reorganization."
Prior to the Reorganization, PMS was a wholly owned subsidiary of Pride.
Pride was incorporated as L.H.M. Corp. in the State of Delaware on May 10,
1988, as a "blank check" company for the purpose of seeking potential business
ventures through acquisition or merger. In April 1990, L.H.M. Corp. entered into
an Agreement and Plan of Reorganization with International Sportsfest, Inc.
("ISI"), a company formed to engage in and establish sports expositions in
sports products such as clothing and sports related equipment. At such time
L.H.M. Corp. changed its name to ISI. ISI never engaged in any business
operations. In November 1992, the Company effected a 1 for 200 reverse split of
its issued and outstanding shares of Common Stock. In January 1994, ISI entered
into an Agreement and Plan of Reorganization with Pride Management Services,
Plc. ("PMS"), an English corporation, whereby PMS became a wholly owned
subsidiary of ISI and ISI changed its name to Pride, Inc.
^ Pursuant to the terms and conditions of the Reorganization in March 1995,
between the Company, PMS and Pride, the Company issued 1,500,000 shares of its
Common Stock to Pride in exchange for all of the issued and outstanding shares
of PMS. In connection with the Reorganization and formation of the Company, PMS
became a wholly owned subsidiary of the Company which, prior to the Company's
initial public offering, was approximately 72.8% owned by Pride. PMS is a
holding company which has six wholly owned subsidiaries which engage in the
Company's operations. PMS's wholly-owned subsidiaries include; Pride Vehicle
Contracts Limited, Baker Vehicle Contracts Limited, Pride Vehicle Contracts (UK)
Limited, Pride Leasing Limited, Pride Vehicle Management Limited and Pride
Vehicle Deliveries Limited. These companies operate as one unit, with the same
management and facilities. Unless the context otherwise requires, all references
to the "Company" are to its wholly owned subsidiary, PMS and PMS's six wholly
owned subsidiaries. See "--Subsidiaries."
Public Offering of Pride Automotive Group, Inc.
In April 1996, the Company completed an underwritten initial public
offering of its securities. The securities were registered with the Securities
and Exchange Commission ("SEC") pursuant to a registration statement on Form
SB-2. The initial public offering was declared effective by the SEC on April 24,
1996. In the offering, the Company sold 592,500 shares of its common stock to
the public at a price of $5.00 per share and 2,300,000 redeemable common stock
purchase warrants at a price of $.10 per warrant. The warrants are exercisable
at a price of $5.75 per share, subject to adjustment, beginning April 24, 1997
and expiring April 23, 2001. In connection therewith, the Company also granted
to the underwriters of the offering, Mason Hill & Co., Inc.,^ the Thornwater
Group, Inc., and J.W. Barclay warrants to purchase an aggregate of 95,000 shares
of the Company's common stock at a purchase price of $7.50 and 200,000
redeemable common stock purchase warrants at a price of $0.15 per warrant, each
warrant exercisable to purchase one share of common stock at a purchase price of
$7.50 per share. Other than with respect to the exercise price, the terms of the
warrants granted to the underwriter are identical to those described above. The
securities underlying such warrants are being registered hereunder. The
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Company's securities are currently traded on the Nasdaq SmallCap Stock Market
and the Boston Stock Exchange, Inc. See "Principal and Selling Securityholders".
Business of Pride Management Services, Plc.
The Company engages in the business of leasing new automobiles to
businesses, servicing such automobiles during the lease term and remarketing the
automobiles upon the expiration of the lease. The Company's business strategy is
to (i) provide personal and attentive service to its clientele, (ii) lease
primarily to high-quality credit applicants in order to continue to build a
lease portfolio with low delinquency and credit loss rates, (iii) finance its
lease portfolio with competitive credit terms and (iv) manage its residual risk
relating to the Company's resale of automobiles after the expiration of the
lease term. The leasing, financing and servicing of the vehicles is described as
a "contract hire."
The Company purchases each automobile pursuant to the specifications of
its clients, finances the purchase and pays for all the maintenance and repairs
on the vehicle during the term of lease. Typically, the Company pays off the
purchase price of the vehicles during the term of the lease and then resells the
automobile at the end of the lease term.
Acquisitions
The Company has expanded its operations in the past several years through
acquisition. In May 1990, the Company formed Baker Vehicle Contracts Limited
("Baker") to acquire certain assets, including the right to the name and
contracts of Baker Hire Limited, an English company. At the time of its
acquisition, Baker was a division of W.H. Baker Limited, which company had filed
for bankruptcy protection. Baker's vehicle leasing is primarily in Wales and the
southwest region of England. In December 1990, PMS was contracted to run the
business of County Contract Hire Limited ("County"), which at that time
comprised approximately 3,500 leased vehicles. In February 1992, the Company
purchased County from Berisford International Plc., an English public company,
pursuant to a stock purchase agreement, whereby PMS acquired all of the
outstanding shares of County and changed County's name to Pride Vehicle
Contracts (UK) Limited. In October 1994, the Company acquired certain assets of
Master Vehicle Contracts Limited ("Master"), an English company, pursuant to the
terms of an asset purchase agreement. The assets purchased included vehicles,
vehicle lease agreements and customer lists. At the time of the sale, Master was
in receivership, whereby the sale was entered into by PMS and the court
appointed receivers. In connection with this purchase, the Company acquired the
rights to use the name Master Vehicle Contracts Limited.
Industry Overview
Companies have a variety of financing alternatives available to them in
acquiring the use of a new automobile, either through the purchase or lease of
such vehicle. In financing the purchase of a vehicle there are various loan
alternatives including, fully amortizing, balloon payment, no money down, low
down payment and business equity loans. In terms of leasing vehicles, there are
various options including, payment schedules, term, maintenance and repurchase
rights. The primary benefit of leasing over purchasing is that leasing typically
provides a consumer with the opportunity to acquire the use of a new automobile
at a lower monthly payment than financing the purchase of such vehicle, usually
without a significant initial cash outlay, and enables the return of the
automobile without any further liability at the
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<PAGE>
end of the lease term. Companies which provide employees with automobile
transportation typically lease such vehicles and expense the costs.
The increase in new vehicle prices in relation to annual median family income
has been a contributing factor in the growth in the leasing and used automobile
markets. This has provided the Company with a further opportunity for revenue
growth through the resale of its vehicles after the term of the lease or in the
event there are defaults of the leases.
Business Objectives
The Company's primary goal is to expand its leasing and fleet management
operations, increase and obtain better terms with respect to the financing of
the vehicles it leases and to increase the profitability of its vehicle
remarketing program. The Company's strategy for continued growth is to (i)
increase lease origination by (a) increased name recognition, (b) acquisition of
similar companies or their assets, (c) the development, expansion and retention
of existing clients, and (d) the expansion into new geographic markets, (ii)
further develop and market its fleet management services, (iii) increase and
improve the terms of its financing arrangements, (iv) further develop and
increase the profitability of its used automobile remarketing operations, and
(v) lease primarily to high quality credit applicants in order to continue to
build a lease portfolio with low delinquency and credit loss rates.
Subsidiaries
The following table lists all the wholly owned subsidiaries of PMS, the
date of their formation and business operations. These companies operate as one
unit in conducting the business affairs of the Company.
<TABLE>
<CAPTION>
Date of
Name Formation Business Operations
<S> <C> <C>
Pride Vehicle Contracts
Limited 12/23/86 Conducts all administrative functions for the Company,
including paying salaries and all operational expenses of
the Company.
Baker Vehicle Contracts
Limited 02/22/89 Vehicle leasing, primarily the business
operations of Baker Hire Contracts Limited,
acquired in May 1990, which operations are primarily
in Wales and the south west region of England.
Pride Vehicle Contracts 09/28/88 Vehicle leasing, acquired County Contract
Hire Limited and Master (UK) Limited Vehicle
Contracts Limited in February 1992 and March 1994, respectively.
Pride Leasing Limited 02/22/89 Vehicle leasing. Owned property and a building in Croydon, England,
which was sold in November 1997.
Pride Vehicle Management 02/14/90 Operates the Company's fleet management services.
Limited
Pride Vehicle Deliveries 06/14/90 Provides vehicle distribution and collection services
for all the Limited Company's leasing operations.
</TABLE>
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<PAGE>
Leasing, Maintenance and Resale
The Company purchases each vehicle pursuant to its client's
specifications; finances its purchase and pays for all the maintenance on the
vehicle during the term of the lease. The Company usually finances the purchase
of each vehicle to correspond with the term of the lease, such that upon the
completion of the lease term the automobiles are fully paid. As of January 1,
1998, the Company had approximately ^1,477 vehicles under lease.
The term of the leases average generally between 24 and 48 months, with
the average lease being 36 months. In addition to setting forth the lease term,
the amount of the rental payments and the mileage allowance, each lease requires
the lessee to pay all fees, taxes, fines and other costs relating to the use of
the vehicle. Generally, the lessee pays the first and last two months lease
payment in advance of the lease term. The lessee is required to maintain
liability and casualty insurance on each vehicle at specified limits and to name
the Company as an additional insured and loss payee. The Company will only
approve policies which have a maximum deductible of $500.
The Company's sales policy emphasizes leasing to financially sound clients
and requires certain financial disclosures prior to executing any lease
agreement. Customer accounts are targeted from profitable, growing, medium-sized
corporate companies. For the years ended November 30, ^1996 and 1997, the
Company had two unaffiliated customers, Westbury Homes Plc. and Campbell
Distillers Limited, which companies accounted for in the aggregate approximately
^29% and 24%, respectively, of the Company's total revenues. For the ^three
month period ended ^February 28, 1997 and February 28, 1998, revenues from these
two unaffiliated customers aggregated ^27% and 20%, respectively, of total
revenues. The Company also leases vehicles to the following local government
agencies; Swansea Council in Wales, Brent Council in London and Mid Glarmorgan
Council in Wales.
Each lease applicant must provide information regarding, among other
things, corporate history, length of time in business, ability to pay based both
on income level and certain debt to income ratios developed by the Company and
credit history, including comparable borrowing experience. Review of financial
statements, audited where obtainable, allows for the independent verification of
the Company's financial position and past history. The foregoing procedures
provide the general basis for the Company's credit decisions, but the ultimate
determination is in the discretion of the Company's credit analysts.
Accordingly, certain of the leases entered into by the Company may not meet each
of the Company's credit guidelines.
The Company has servicing agreements with over 1,400 automotive
dealerships and independent service centers in its areas of operations. Since
all of the leased vehicles are new, there are warranties typically ranging from
12 to 36 months or 20,000 to 60,000 miles, which ever comes first, with the
average being 24 months or 40,000 miles. ^Each lease has mileage limitation and
additional fees for overages. Therefore, the Company does not incur significant
expenses for repairs. Maintenance is regularly performed on all vehicles,
pursuant to negotiated pricing schedules. No work is permitted to be performed
on any vehicle, unless performed by one of the Company's contracted service
centers with the prior consent of the Company.
The monthly lease payment which the Company charges its clients is
determined by a computer program which takes into account estimated service
costs, new vehicle pricing, manufacturer bonuses,
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<PAGE>
rebates and options, potential residual value at lease end as well as other
variable information including interest rates and other current anticipated
future economic variables. The client is responsible for maintaining its own
insurance, of which the Company is the beneficiary, in the event the vehicle is
damaged.
The Company typically attempts to match the financing term with the lease
term, whereby at the end of the lease term the Company owns the automobile. The
Company does not currently perform repairs or refurbishing on the returned
vehicles, rather, the Company attempts to resell such vehicles immediately upon
their return in the same condition as they are returned in. This enables the
Company to increase its cash flow, though the Company believes it could obtain
higher prices for the used vehicles in the event minor repairs were performed
prior to resale. The Company manages its residual risk by focusing on the
leasing of vehicle models which it believes will have a broad appeal in the used
automobile market at the end of the lease term and by utilizing multiple
remarketing channels including, but not limited to used car wholesalers and used
car retailers. The Company upon pricing the lease of a new vehicle reviews the
listed wholesale price as listed in several pricing guides, predominantly the
Current Auction Prices ("CAP") book, which gives the current wholesale price of
the model being leased. The Company currently attempts to get at least 85% of
the CAP listed wholesale price upon the resale of the vehicle. The Company
believes that with increased working capital and cash flow from operations, the
Company can make minor repairs and refurbishings on the automobiles performed
and seek higher prices on resales of up to 110% of the wholesale price on
popular models. The Company sells its used vehicles through used automobile
wholesalers and retailers, automobile auctions, unaffiliated dealers and
pursuant to sales to related parties of the lessees. In the event the market for
used automobiles decreases the models or conditions of the vehicles returned to
the Company decrease their resale value or vehicles are returned pursuant to
defaults in the lease agreements, such events may adversely affect the Company's
cash flow, profitability and business operations. See "-- Financing and
Collections" and "-- Competition."
Fleet Management Services
In 1994, the Company opened its fleet management division, which division
manages the automobiles for certain of its corporate clients who choose to own
the vehicle(s) directly. Customarily, these clients purchase the automobiles
through the Company in order to take advantage of the Company's bulk purchase
discounts. The Company maintains these vehicles on behalf of such clients
pursuant to a monthly management fee, usually $15 per automobile and disposes of
the vehicles thereafter on behalf of the client. The client pays all costs
associated with the purchase, maintenance and resale of the automobiles. The
Company estimates that for the year ended November 30, ^1997 less than 5% of the
Company's revenues were from fleet management services.
Suppliers
The Company purchases all of the automobiles that it leases to its clients
from automotive dealerships, usually several at a time. For the ^years ended
November 30, 1996 and ^November 30, 1997, General Motors and Ford were the
manufacturers of approximately 17% and 16%, respectively and 15% and 16%,
respectively, of the vehicles which it leased. The Company does not depend on
any individual dealership for the purchase of any vehicle brand. The Company has
no written agreements with any dealership it purchases vehicles from, though it
does receive yearly rebates from manufacturers based on quantity of automobiles
purchased. Management believes that the price it pays and the terms
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<PAGE>
it receives for the automobiles it purchases are more favorable than it would
receive if it was purchasing automobiles on an individual basis. The Company
believes that it will continue to be able to purchase automobiles at competitive
prices and terms into the future.
A portion of the Company's profit margin is based on rebates received
directly from the automobile manufacturers on a yearly basis. The Company
receives a rebate on most vehicles purchased based upon the quantity of
automobiles purchased from said manufacturer each year. This rebate is usually
between $100 and $400 per vehicle. However, the Company has no assurances that
it will be able to acquire automobiles at favorable prices in the future or
receive such rebates in the future. No assurance can be given that an
uninterrupted and adequate supply of automobiles will be available to the
Company in the future, although ^ the Company believes that there are a
sufficient number of automobile dealerships, so that in the event any individual
or group of dealerships can no longer service the Company's needs, the Company
will be able to find other dealerships at competitive prices. In the event the
Company cannot obtain the automobiles of any specific manufacturer or
automobiles in general or is not able to purchase such automobiles on similar
terms as is presently available to it, the Company may be materially adversely
affected.
Financing and Collections
The Company provides new automobiles to its clients pursuant to each
individual client's specifications, with personal and attentive service to
include all of its clients needs. The Company's sales representatives have ^
experience in the automobile finance and leasing industry and work closely with
the clients to meet their driving and financial needs.
Since November 1992, when entering into new lease agreements, the Company
purchases the automobile, which usually requires a 10% down payment and pays
down the note on the purchase, including principal and interest, during the term
of the lease. Prior to November 1992, the Company would finance the purchase of
automobiles through promissory notes which required the payment of interest
during the term of the loan and the repayment of the principal in a balloon
payment at loan maturity, which is coincident with the end of the lease term.
This financing strategy enabled the Company to increase its cash flow during the
term of the lease, but the higher financing fees and interest expense reduced
the Company's profit on the resale of the vehicles.
The Company has asset funding lines to acquire revenue producing vehicles
with several institutions in England in the aggregate amount of ^$23,667,500 of
which the Company has borrowed approximately ^$18,341,778 as of November 30,
1997^. The ^ Company's asset funding line ^has increased as a result of ^ equity
raised in the Company's initial public offering in April 1996. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources." Under the lease agreements, the lessees
generally have no right to terminate their leases prior to the end of their
scheduled term. In the event that any lease terminates prior to the end of its
scheduled term (whether by way of default, the destruction or theft of the
vehicle), the lessee is liable to the Company for the amount by which the
lessee's default termination liability under the lease agreement exceeds the
realized value of such vehicle, which may be obtained through the proceeds of
the sale of the vehicle (including a sale following repossession) or the
proceeds of any applicable insurance on the vehicle. Under the terms of the
lease, the term "default termination liability" includes; (i) all payments due
under the lease agreement up to the termination date, inclusive of interest,
(ii) future rental payments due from
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<PAGE>
termination date until the contracted lease termination date, less maintenance
and a 5% discount and (iii) the difference between the amount received pursuant
to the sale of the vehicle and the estimated residual value, if such sale price
is less than the estimated residual value. Under its agreements with the lessee,
the Company pays the sale or insurance proceeds to its lender up to the amount
of the then remaining balance of the note payable related to the vehicle. Any
shortfall is a credit loss and is borne by the lessee, and any excess is
retained by the Company.
^ On August 31, 1997, the Company's line of credit with its bank under which it
finances its general working capital requirements, expired. In February 1998,
the Company entered into a new agreement with the bank. This new line of credit
of $5,862,500, is payable on demand and is secured by all assets of the Company
other than building and revenue-producing vehicles which are already pledged
(see Notes 6b and 7 to the Notes to the Financial Statements). Interest is
payable at rates between 2% and 4% in excess of the bank's base rate (7 1/2% as
of November 30, 1997). The agreement is due for renewal November 1998. There can
be no assurance that the line of credit will be renewed. See "Risk Factors".
The Company attempts to enhance the performance of its leases and thereby
minimize its financial risks by maintaining timely, consistent and direct
customer contact. When a default does occur, collections and repossessions are
handled by the Company's collection department. Upon a lease payment default and
after the passage of three days, the Company mails a written notice to the
defaulting customer and attempts to contact the customer directly by phone. Once
contact is established, the collection department will work with the customer
until the default is cured. If contact is not made or the default is not
satisfactorily cured, the Company will proceed to repossess the vehicle. The
Company will repossess the vehicle upon a determination that there is a risk of
not recovering the vehicle. In the event repossession is required, it typically
will take place within 20 days after the initial default. Pursuant to English
law, a company can repossess a vehicle for non payment in the event payment is
not received within two days of the due date, however, the Company's lease
agreements provide for a seven day grace period. No notice is required and no
demand for payment need be made prior to repossession. The Company, as the
vehicles owner, has all key numbers with respect to the vehicles it leases. In
the event the Company deems repossession necessary it sends an employee to
physically drive the vehicle away from the lessee. Repossessed vehicles are
offered by the Company at public sale, after the giving of notice, and sold by
the Company in a commercially reasonable manner. There were no repossessions of
vehicles in fiscal 1996. In 1997, there were eight repossessions, however six of
those repossessions were re-leased. There have been none to date in 1998.^
Competition
The Company's business is highly competitive, with relatively
insignificant barriers to entry and with numerous firms competing for the same
customers. The Company is in direct competition with local (includes the ^county
of Hertfordshire and the surrounding areas), regional (includes London and the
surrounding areas) and national (includes all of the United Kingdom, inclusive
of England, Wales, Scotland and Northern Ireland) automotive leasing companies,
many of which have greater resources and more extensive distribution and
marketing than the Company. The largest leasing companies in direct competition
with the Company are ^Arriva and Lex Vehicle Leasing Limited, each of which
claim to have presently on lease approximately 65,000 vehicles. As of January 1,
1998, the Company had ^1,477 vehicles under lease. The Company also competes in
the automobile financing industry with providers of other forms of financing.
Other competitors include finance companies affiliated with automobile
37
<PAGE>
manufacturers, a variety of local, regional and national finance companies,
commercial banks, savings and loans, and other consumer lenders such as
industrial thrifts and credit unions. The automobile leasing business is highly
competitive and the Company competes for business on the basis of both pricing
and service. The Company believes that the main concern of the lessee or buyer
of a new automobile is the amount of the monthly payment and of any down
payment. Many of the Company's competitors have significantly greater financial,
technical and marketing resources and market share than the Company. Automobile
finance companies affiliated with automobile manufacturers, from time to time
offer aggressive leasing and financing programs at below market pricing to
promote the sale of certain vehicle models. Many of the national leasing
companies have extensive advertising campaigns which develop and reinforce brand
recognition. In addition, many of such manufacturers have agreements with
vehicle leasing entities to jointly advertise and market their products and
services.
The used automobile sales business is highly fragmented and competitive,
with competition coming from individuals, independent used automobile
wholesalers and dealerships and used automobile lots operated by new automobile
dealers and rental car companies.
Marketing and Sales
The sales policies of the Company have emphasized quality of business
rather than volume, both in its own new business contracts and its acquired
contracts. This controlled and conservative approach to growth allows the
Company to write what it considers to be good quality, profitable contract
hires. Customer service and satisfaction is then emphasized as a high priority,
to ensure that the group's premium pricing policies can be maintained for repeat
business.
Customer accounts are targeted from profitable, growing, medium-sized
corporate companies together with public sector referrals. ^The Company attempts
to take^ a balanced, portfolio approach to risk management with a variety of
company sizes to balance credit risk against profit margin.
The Company executes a finance company standard hire purchase agreement
for each lease and the finance company takes a registered charge (security
interest) over the underlying agreement between the Company and its customer.
The security of the lender is further increased by the Company's down payment on
the vehicles and the monthly payments of principal and interest during the term
of the lease. The Company has all required liens and security interests
appropriately filed and recorded.
As part of its obligations, the Company performs all administrative
functions in the acquisition, registration and leasing of the automobile and
controls and pays for all required servicing of its vehicles. The Company
obtains appropriate vehicle registrations and titles for all lease vehicles,
tracks compliance with insurance requirements, negotiates and handles all claims
with insurance companies and remits all appropriate sales taxes on lease
payments to the taxing authority.
Government Regulations
The Company is subject to regulation by the United Kingdom Department of
Trade and Industry (the "Department of Trade"). The Department of trade
establishes general rules and regulations with respect to the operation of a
business in the United Kingdom. The Department of Trade has not established any
regulations or licensing requirements specifically regulating the leasing of
automobiles to companies.
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<PAGE>
There can be no assurances that such will be the case in the future or that if
licensing or other form of regulation is required in order to engage in the
Company's business that the Company will be successful in obtaining such
licenses or in meeting the requirements of such regulations. The Department of
Trade, in accordance with the credit agreement act, requires the issuance of a
license in order to lease vehicles to individuals, which license the Company has
obtained^. However, the Company never has nor does it presently intend to lease
vehicles to individuals. In addition, the Company must also comply with a wide
range of other state and local rules and regulations applicable to its business,
including regulations covering labor relations, safety standards, affirmative
action and the protection of the environment. Continued compliance with the
broad regulatory network of the United Kingdom is essential and costly and the
failure to comply with such regulations may have an adverse effect on the
Company's operations.
In August 1995, the British Government passed a law allowing leasing
companies to be reimbursed by the Government for the value added tax "VAT" which
is added to all consumer goods including automobiles. The VAT tax is currently
at 17.5%. Reimbursement of the VAT tax will allow the Company to charge lower
lease rates.
Employees
As of May 25^, 1998, the Company employed 19 full-time persons, ^six of
which are in management (three of which are officers), ^ nine administrative,
^two sales representative and two drivers. None of the employees are represented
by a union, and the Company considers employee relations to be good.
Properties
The Company maintains 6,000 square feet of executive office space in a
modern, free standing building at Pride House, Watford Metro Centre, Tolpits
Lane Watford Hertfordshire, WD1 8SB England. The building was purchased by PMS
in December 1992 at a cost of approximately $895,000. The annual cost of
servicing the building's mortgage and taxes is approximately $80,000 and
$18,000, respectively. Pride Leasing Limited ^owned a building in Croydon,
England, which it purchased in 1991 at a cost of approximately $825,000. The
Company sold this ^property in ^November 1997 for ^$400,000.
Pending Litigation
The Company is not a party to any material pending litigation which, if
decided adversely to the Company, would have a significant negative impact on
the business, income, assets or operation of the Company, and the Company is not
aware of any material threatened litigation which might involve the Company. In
England, the owner of the automobile is not considered liable for the acts of
the driver where there is a lease arrangement.
AC is not a party to any material litigation. ^Although the Company
acquired the assets of AC Cars and Autokraft and does not believe that it will
have any exposure to liability claims for automobiles built by AC Cars and
Autokraft, there can be no assurance that the Company is correct in such belief.
Any such claim relating to new automobiles built by AC or to automobiles built
by AC Cars and Autokraft could have an adverse effect on the Company.
39
<PAGE>
Acquisition of AC Car Group Limited
In November 1996, the Company, through its ^subsidiary, AC Automotive
Group, Inc. ("Automotive") and its England subsidiary, AC Car Group Limited,
acquired all of the assets of AC Cars Limited ("AC Cars") and Autokraft Limited
("Autokraft"), two companies incorporated under the laws of England and Wales,
respectively. AC Cars and Autokraft are specialty automobile manufacturers that
had been in administrative receivership since March 1996.
In March 1998, Automotive issued additional shares of its common stock to
various parties, thereby reducing the Company's ownership to a minority interest
(approximately 16% of the issued and outstanding common stock). Notwithstanding
the foregoing and despite the fact that Automotive is not expected to have a
material impact on the affairs or financial statements of the Company, a
discussion has been included herein regarding the business of AC (the operating
entity owned by Automotive) to give investors an understanding of such entity
and the Company's investment therein.
Business of AC Car Group Limited
AC Car Group Limited was incorporated in England and Wales on June 28,
1996, as Paradehaven Limited. The name was changed to AC Car Group Limited on
August 30, 1996. Automotive was incorporated under the laws of the state of
Delaware in January 1997 to act as a holding company for AC and to effect a
private offering to raise capital to complete the acquisition of AC Cars and
Autokraft. See "Certain Relationships and Related Transactions."
AC Cars was formed in 1901 as ^Autocarriers Limited and has been in
continuous operations ever since. AC Cars is Britain's oldest independent
manufacturer. Today, Autokraft and AC Cars manufacture ^two automobiles on a
limited basis, namely, the Superblower (a continuation of the AC Cobra) and the
AC Ace.
The AC Cobra is a high-powered, hand built sports car with an aluminum
body. The automobile is manufactured today using the same traditional coach
building methods and original Cobra tooling which were used on the original
manufactured Cobras in the 1960s. Historically, in 1963 the AC Cobra caused a
sensation by racing along the MI motorway (England's first motorway) at 196
miles per hour, and by 1964, the 427 AC Cobra was listed in the Guinness Book of
Records as the fastest production car in the world. The ^Superblower sells for
about (pound)69,000 ^($113,643).
In 1994, the AC Ace prototype was first displayed at the London Motor
show. In 1995, the AC Ace was shown to the North American public at the Detroit
Motorshow. When the AC Ace comes into production, it will sell for approximately
(pound)75,000 ^($123,525). As of January 1, 1998, AC has produced approximately
fifty pre-production AC Aces. ^AC management expects the ^Ace to enter into its
final production stage in ^the second quarter of 1998.
^In 1987, Ford Motor Company became a partner ^of Autokraft and AC Cars.
The AC Cobra is equipped with a Ford V8 engine. Currently, Ford Motor Company
owns the trademark to the name Cobra. However, Autokraft and AC Cars used the
name "Cobra" under a license arrangement with Ford Motor Company. When
^Autokraft and AC Cars were placed in administrative receivership, the license
arrangement with Ford Motor Company was voided. After the Asset Acquisition, ^AC
negotiated a new
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<PAGE>
licensing agreement with Ford Motor Company whereby ^it procured a three year
license, commencing December 7, 1996, to continue to use the name "Cobra" on its
AC Cobra model. Notwithstanding the foregoing, the "Cobra" has been recently
updated and has been renamed the AC "Superblower."
Administrative Receivership
AC Cars has incurred losses in recent years as a result of design and
development costs incurred in bringing the AC Ace into production. Although most
of the development work is now complete and approximately fifty AC Aces have
been produced to date as pre-production vehicles, the expenses AC Cars and
Autokraft incurred in connection with the development of the Ace forced
Autokraft and AC Cars to seek additional capital investments so as to enable
them to both meet current production needs and increase future production
levels. Once it became clear to Autokraft and AC Cars' management that
additional funds were unlikely to be forthcoming in time to allow the businesses
to meet their financial obligations, coupled with their bankers indications that
they no longer had confidence in the current ownership, the Directors of the
businesses resolved to request their bankers to appoint Administrative
Receivers. Administrative receivers were appointed on March 7, 1996.
Development Projects and Enhancements
^It is expected that AC will continue to evaluate ^and develop the Cobra
and the Ace's chassis to be compatible with other engines.
Marketing and Sales; License Arrangement
AC Cars has used very little, if any, print or other media advertising
with respect to the AC Ace. However, both the Cobra and the Ace have been the
subject of numerous magazine articles in automotive publications, and, as such,
have received extensive exposure.
As discussed above, AC Cars and Autokraft were using the name Cobra under
a license arrangement with Ford Motor Company. Although the arrangement became
void when the two companies were placed in receivership, ^AC has entered into a
new licensing arrangement with the Ford Motor Company whereby ^it has procured a
three year license to use the name "Cobra," terminating in December 1999.
Whereas ^AC is pleased that it has been able to procure a licensing
arrangement to continue to use the name "Cobra", ^it anticipates that a
significantly larger portion of its future marketing efforts will concentrate on
the venerable history and prestige associated with the name "AC", which name ^AC
acquired outright as part of the Asset Acquisition.
^AC believes that the principal markets for sales of its automobiles are
the United States, Australia, Germany and the United Kingdom.
The ^AC Cobra (which is now known as the AC Superblower) and the AC Ace
both have received low volume Type approval in the United Kingdom.
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<PAGE>
^
Trademarks
Acquired as part of the Asset Acquisitions was the rights to utilize the
"Ace" mark on sales of the Ace. The right to use the Cobra name was subject to a
license arrangement which was in place with Ford Motor Company, the owner of the
trademark just prior to the appointment of Receivers. As discussed above, ^AC
has entered into a new license agreement with Ford Motor Company whereby ^it has
procured a three year license to use the name "Cobra", which terminates on
November 30, 1999. Former management of Autokraft and AC Cars has advised ^AC
that it is not aware of any actions attempting to invalidate or challenge its
use of such trademarks and that it has not received any notice or claims of
infringement regarding its trademarks.
Products Liability Insurance
At present, AC maintains product liability insurance through Lloyds of
London. The limit of the indemnity is (pound)2,000,000 ($3,350,000) for each
instance. Although AC has procured this insurance policy, there can be no
assurance that it will be able to maintain such insurance, that such insurance
will be sufficient to cover claims, if any, or that such insurance will continue
to be available on^ commercially reasonable terms. If AC is unable to maintain
products liability insurance for the automobiles that it manufactures, it would
adversely affect the business of AC and could potentially cause it to
discontinue operations. However, there can be no assurance that such insurance
will be maintained^, that such insurance will be sufficient to cover claims, if
any, or that such insurance will continue to be available at commercially
reasonable terms. If ^AC is required to pay uninsured claims, it would adversely
affect ^AC and could cause a discontinuation of its operations. ^AC does not
carry business interruption or key man insurance. See "Risk Factors."
Legal Proceedings
AC is not a party to any material litigation. Autokraft and AC Cars are
involved in legal proceedings, all of which are related to their being placed in
administrative receivership.
Properties
AC ^formerly occupied premises on a four acre site at the Brooklands
Industrial Park in Surrey, England. The property comprises a factory, workshop,
showroom and office space. In all, the facility provides approximately 90,000
square feet of manufacturing area and 20,000 square feet of executive office
area. ^AC exercised its option to purchase the premises for the purchase price
of (pound)5,200,000 ^($8,715,200) in July 1997. AC then sold the property for
^$9,385,600 and entered into a 15 year lease for 39,000 square feet of the
property at the rate of ^$30,200 per month.
Employees
At the time of their acquisition, Autokraft and AC Cars together employed
a total of 83 persons. ^AC retained approximately 31 of such employees upon
completion of the Asset Acquisition and has hired 12 additional employees to
oversee the manufacturing and marketing of the automobiles.
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<PAGE>
MANAGEMENT
The names, ages and positions of the Company's executive officers and
directors are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Name Age Position with the Company
Alan Lubinsky 40 President, Secretary, and Chairman of the Board
of Directors
Ivan Averbuch 42 Chief Financial Officer
Allan Edgar 51 Director
Ian Satill 39 Director
</TABLE>
Alan Lubinsky. Mr. Lubinsky has been the President and a director of the
Company since its inception in March 1995. Mr Lubinsky has been the President,
Secretary and director of Pride, Inc since January 14, 1994. Mr. Lubinsky has
been the Chairman and Managing Director of Pride Management Services, Plc
("PMS") since its inception in 1988. Mr. Lubinsky has been the Chairman and
Managing Director of AC Car Group Limited since July 1996. Mr. Lubinsky has been
the President, Chairman and director of AC Automotive Group, Inc. since its
inception in 1996. Mr. Lubinsky has 19 years experience in the motor vehicle
industry in positions of executive management.
Ivan Averbuch. Mr. Averbuch ^was a director and the Chief Financial Officer
of the Company since December 1995. Mr. Averbuch resigned as a Director of the
Company in March 1998. Mr. Averbuch has been the Chief Financial Officer of
^Pride, Inc. since December 1995. Mr. Averbuch has been the Financial Director
of AC Car Group Limited since July 1996. Mr. Averbuch has been the Chief
Financial Officer and Director of AC Automotive Group, Inc. since its inception
in 1996. From September 1987 to November 1995, Mr. Averbuch was employed at
Kessel Feinstein, a member firm of Grant Thorton International, an accounting
firm. In January 1989, Mr. Averbuch was promoted to audit manager and appointed
as a partner in October 1992.
Allan Edgar. Mr. Edgar has been a director of the Company since May 1997.
Mr. Edgar has been a director of AC Automotive Group, Inc. since its inception
in 1996. Mr. Edgar has been the Marketing Director of Hyatt Hotels & Resorts for
Europe, Africa and the Middle East since 1990. Mr. Edgar has extensive
experience in the automobile industry, including positions at Hertz Rent-a-Car,
Volkswagen Interent, and Leyland Motor Corporation.
Ian Satill. Ian Satill has been a director of the Company since February
1998. From June 1994 until present, Mr. Satill has been the Group Managing
Director of Rustlers Food Group Pty. Ltd. From 1990 to present, Mr. Satill has
been the sole shareholder, officer and director of Associated Planners Ltd., an
independent financial services brokerage located in Sydney, Australia.
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<PAGE>
The directors of the Company are elected annually by the stockholders and
hold office until the next annual meeting of stockholders, or until their
successors are elected and qualified. The executive officers are elected
annually by the board of directors, serve at the discretion of the board of
directors and hold office until their successors are elected and qualified.
Vacancies on the board of directors may be filled by the remaining directors.
As permitted under Delaware Corporation Law, the Company's Certificate of
Incorporation eliminates the personal liability of the directors to the Company
or any of its stockholders for damages for breaches of their fiduciary duty as
directors. As a result of the inclusion of such provision, stockholders may be
unable to recover damages against directors for actions taken by them which
constitute negligence or gross negligence or that are in violation of their
fiduciary duties. The inclusion of this provision in the Company's Certificate
of Incorporation may reduce the likelihood of derivative litigation against
directors and other types of stockholder litigation.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company 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
Company, 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 of 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.
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following provides certain information concerning all Plan and
Non-Plan compensation awarded to, earned by the named executive officer (as
designated in Item 402 (a)(2) of Regulation S-B), paid by Pride Vehicle
Contracts Limited during the years ended November 30, 1997, 1996 and 1995. The
Company did not incur any compensation expense during such periods.
44
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
(a) (b) (c) (d) (e)
Name and Principal Other Annual
Position (1) Year Salary($) Bonus($) Compensation($)(2)
<S> <C> <C> <C> <C>
Alan Lubinsky 1997 $176,000 - $30,000 (3)(4)
President, Secretary 1996 $160,000 - $30,000
and Chairman of the Board 1995 $137,750 - $30,000
</TABLE>
^ (1) All of the Company's administrative functions, including the payment
of salaries, are performed by Pride Vehicle Contracts Limited, since the
Company's operations run basically as one operation. The Company believes that
it is easier and cost effective to operate in this manner. The Company plans on
continuing this practice in the future.
(2) Includes contributions to the Company's pension plan of $18,000 in each
of 1997, 1996 and 1995, respectively, and the cost of an automobile and expenses
of $12,000 annually.
(3) Alan Lubinsky entered into an employment agreement with PAG in August
1995. The agreement is for a term of three years, and pays Mr. Lubinsky an
annual salary of $160,000 per annum with 10% yearly escalations, subject to
adjustment by PAG's board of directors. Pursuant to the agreement, Mr. Lubinsky
received stock options under PAG's Senior Management Incentive Plan to purchase
100,000 shares at $5.50 per share. These options vest at the rate of 33 1/3% per
annum commencing August 1996.
(4) In May 1997, Mr. Lubinsky received stock options under PAG's Senior
Management Incentive Plan to purchase 43,234 shares at $2.54 per share. These
options vest at the rate of 33 1/3% per annum commencing May 1998.
Employment Agreements
Alan Lubinsky entered into an employment agreement with the Company in
August 1995. The agreement is for a term of three years, and pays Mr. Lubinsky
an annual salary of $160,000 per annum with 10% yearly escalations, subject to
adjustment by the Company's board of directors. Pursuant to the terms of his
employment agreement, Mr. Lubinsky has agreed to ^devote all of his business
time to the affairs of Pride and the Company. Pursuant to the agreement, Mr.
Lubinsky received stock options under the Company's Senior Management Incentive
Plan to purchase 100,000 shares at $5.50 per share. These options vest at the
rate of 33 1/3% per annum commencing August 1996. The agreement restricts Mr.
Lubinsky from competing with the Company for a period of one year after the
termination of his employment.
Ivan Averbuch entered into an employment agreement with the Company in
September 1995, for a term of 24 months, commencing December 1, 1995. The
agreement was automatically extended for an additional 24 months in December
1997. The agreement is subject to cancellation by either the Company or Mr.
Averbuch on 90 days written notice. Pursuant to the terms of the agreement, Mr.
Averbuch is
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<PAGE>
to receive an annual salary of $55,000 per annum, with a 10% escalation in
December 1996, subject to review by the board of directors.
Senior Management Incentive Plan
In September 1995, the board of directors adopted the Senior Management
Incentive Plan (the "Management Plan"), which was adopted by written stockholder
consent. The Management Plan provides for the issuance of up to 300,000 shares
of the Company's Common Stock in connection with the issuance of stock options
and other stock purchase rights to executive officers, key employees and
consultants.
The adoption of the Management Plan was prompted by its desire to provide
the board with sufficient flexibility regarding the forms of incentive
compensation which the Company will have at its disposal in rewarding executive
officers, key employees and consultants who render significant services to the
Company and its subsidiaries. The board of directors intends to offer key
personnel equity ownership in the Company through the grant of stock options and
other rights pursuant to the Management Plan to enable the Company to attract
and retain qualified personnel without unnecessarily depleting the Company's
cash reserves. The Management Plan is designed to augment the Company's existing
compensation programs and is intended to enable the Company to offer to its as
well as its subsidiaries executives, key employees and consultants a personal
interest in the Company's growth and success through awards of either shares of
Common Stock or rights to acquire shares of Common Stock.
The Management Plan is intended to attract and retain executive officers,
key employees and consultants whose performance is expected to have a
substantial impact on the Company's and its subsidiaries long-term profit and
growth potential by encouraging and assisting those persons to acquire equity in
the Company. It is contemplated that only those who perform services of special
importance to the Company will be eligible to participate under the Management
Plan. A total of 300,000 shares of Common Stock will be reserved for issuance
under the Management Plan. It is anticipated that awards made under the
Management Plan will be subject to three-year vesting periods, although the
vesting periods are subject to the discretion of the Administrator.
Unless otherwise indicated, the Management Plan is to be administered by
the board of directors or a committee of the board, if one is appointed for this
purpose (the board or such committee, as the case may be, shall be referred to
in the following description as the "Administrator"). Subject to the specific
provisions of the Management Plan, the Administrator will have the discretion to
determine the recipients of the awards, the nature of the awards to be granted,
the dates such awards will be granted, the terms and conditions of awards and
the interpretation of the Management Plan, except that any award granted to any
employee of the Company who is also a director of the Company shall also be
subject, in the event the persons serving as members of the Administrator of
such plan at the time such award is proposed to be granted do not satisfy the
requirements regarding the participation of "disinterested persons" set forth in
Rule 16b-3 ("Rule 16b-3") promulgated under the Exchange Act, to the approval of
an auxiliary committee consisting of not less than two individuals who are
considered "disinterested persons" as defined under Rule 16b-3. As of the date
hereof, the Company has not yet determined who will serve on such auxiliary
committee, if one is required. The Management Plan generally provides that,
unless the Administrator determines otherwise, each option or right granted
under a plan shall become exercisable in full upon certain "change of control"
events as described in the Management Plan. If any
46
<PAGE>
change is made in the stock subject to the Management Plan, or subject to any
right or option granted under the Management Plan (through merger,
consolidation, reorganization, recapitalization, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or otherwise), the
Administrator will make appropriate adjustments to such plans and the classes,
number of shares and price per share of stock subject to outstanding rights or
options. Generally, the Management Plan may be amended by action of the board of
directors, except that any amendment which would increase the total number of
shares subject to such plan, extend the duration of such plan, materially
increase the benefits accruing to participants under such plan, or would change
the category of persons who can be eligible for awards under such plan must be
approved by affirmative vote of a majority of stockholders entitled to vote. The
Management Plan permits awards to be made thereunder until September 2005.
Directors who are not otherwise employed by the Company will not be
eligible for participation in the Management Plan. The Management Plan provides
for four types of awards: stock options, incentive stock rights, stock
appreciation rights (including limited stock appreciation rights) and restricted
stock purchase agreements, as described below.
Stock Options.
Options granted under the Management Plan may be either incentive stock
options ("ISOs") or options which do not qualify as ISOs ("non-ISOs"). ISOs may
be granted at an option price of not less than 100% of the fair market value of
the Common Stock on the date of grant, except that an ISO granted to any person
who owns capital stock representing more than 10% of the total combined voting
power of all classes of Common Stock of the Company ("10% stockholder") must be
granted at an exercise price of at least 110% of the fair market value of the
Common Stock on the date of the grant. The exercise price of the non-ISOs may
not be less than 85% of the fair market value of the Common Stock on the date of
grant. Unless the Administrator determines otherwise, no ISO or non-ISO may be
exercisable earlier than one year from the date of grant. ISOs may not be
granted to persons who are not employees of the Company. ISOs granted to persons
other than 10% stockholders may be exercisable for a period of up to ten years
from the date of grant; ISOs granted to 10% stockholders may be exercisable for
a period of up to five years from the date of grant. No individual may be
granted ISOs that become exercisable in any calendar year for Common Stock
having a fair market value at the time of grant in excess of $100,000. Non-ISOs
may be exercisable for a period of up to 13 years from the date of grant. In
connection with the Company's entering into an employment agreement with its
president, Alan Lubinsky, Mr. Lubinsky received 100,000 stock options to
purchase shares of Common Stock. See "Management - Employment Agreement."
In May 1997, Mr. Lubinsky, Mr. Averbuch and Mr. Edgar were issued 43,234,
8,647 and 8,647 options to purchase shares of the Company's Common Stock at the
exercise price of $2.54, $2.31 and $2.31 per share respectively, pursuant to the
Company's Senior Management Incentive Plan.
In January 1998, Mr. Lubinsky, Mr. Averbuch and Mr. Edgar were issued
29,137, 5,000 and 5,000 options, respectively, to purchase shares of the
Company's Common Stock at the exercise price of $3.43, $3.13 and $3.13 per share
respectively, pursuant to the Company's Senior Management Incentive Plan.
47
<PAGE>
Payment for shares of Common Stock purchased pursuant to the exercise of
stock options shall be paid in full in cash, by certified check or, at the
discretion of the Administrator, (i) by promissory note combined with cash, (ii)
by shares of Common Stock having a fair market value equal to the total exercise
price or (iii) by a combination of (i) and (ii) above. The provision that
permits the delivery of already owned shares of stock as payment for the
exercise of an option may permit "pyramiding". In general, pyramiding enables a
holder to start with as little as one share of common stock and, by using the
shares of common stock acquired in successive, simultaneous exercises of the
option, to exercise the entire option, regardless of the number of shares
covered thereby, with no additional cash or investment other than the original
share of Common Stock used to exercise the option.
Upon termination of employment or consulting services, an optionee will be
entitled to exercise the vested portion of an option for a period of up to three
months after the date of termination, except that if the reason for termination
was a discharge for cause, the option shall expire immediately, and if the
reason for termination was for death or permanent disability of the optionee,
the vested portion of the option shall remain exercisable for a period of twelve
months thereafter.
Incentive Stock Rights. Incentive stock rights consist of incentive stock
units equivalent to one share of Common Stock in consideration for services
performed for the Company. Each incentive stock unit shall entitle the holder
thereof to receive, without payment of cash or property to the Company, one
share of Common Stock in consideration for services performed for the Company or
any subsidiary by the employee, subject to the lapse of the incentive periods,
whereby the Company shall issue such number of shares upon the completion of
each specified period. If the employment or consulting services of the holder
with the Company terminate prior to the end of the incentive period relating to
the units awarded, the rights shall thereupon be null and void, except that if
termination is caused by death or permanent disability, the holder or his/her
heirs, as the case may be, shall be entitled to receive a pro rata portion of
the shares represented by the units, based upon that portion of the incentive
period which shall have elapsed prior to the death or disability.
Stock Appreciation Rights (SARs). SARs may be granted to recipients of
options under the Management Plan. SARs may be granted simultaneously with, or
subsequent to, the grant of a related option and may be exercised to the extent
that the related option is exercisable, except that no general SAR (as
hereinafter defined) may be exercised within a period of six months of the date
of grant of such SAR and no SAR granted with respect to an ISO may be exercised
unless the fair market value of the Common Stock on the date of exercise exceeds
the exercise price of the ISO. A holder may be granted general SARs ("general
SARs") or limited SARs ("limited SARs"), or both. General SARs permit the holder
thereof to receive an amount (in cash, shares of Common Stock or a combination
of both) equal to the number of SARs exercised multiplied by the excess of the
fair market value of the Common Stock on the exercise date over the exercise
price of the related option. Limited SARs are similar to general SARs, except
that, unless the Administrator determines otherwise, they may be exercised only
during a prescribed period following the occurrence of one or more of the
following "Change of Control" transactions: (i) the approval of the Board of
Directors of a consolidation or merger in which the Company is not the surviving
corporation, the sale of all or substantially all the assets of the Company, or
the liquidation or dissolution of the Company; (ii) the commencement of a tender
or exchange offer for the Company's Common Stock (or securities convertible into
Common Stock) without the prior consent of the Board; (iii) the acquisition of
beneficial ownership by any person or other entity (other than the Company or
any employee benefit plan sponsored by the Company) of securities of the Company
48
<PAGE>
representing 25% or more of the voting power of the Company's outstanding
securities; or (iv) if during any period of two years or less, individuals who
at the beginning of such period constitute the entire Board cease to constitute
a majority of the Board, unless the election, or the nomination for election, of
each new director is approved by at least a majority of the directors then still
in office.
The exercise of any portion of either the related option or the tandem
SARs will cause a corresponding reduction in the number of shares remaining
subject to the option or the tandem SARs, thus maintaining a balance between
outstanding options and SARs.
Restricted Stock Purchase Agreements. Restricted stock purchase agreements
provide for the sale by the Company of shares of Common Stock at prices to be
determined by the Board, which shares shall be subject to restrictions on
disposition for a stated period during which the purchaser must continue
employment with the Company in order to retain the shares. Payment can be made
in cash, a promissory note or a combination of both. If termination of
employment occurs for any reason within six months after the date of purchase,
or for any reason other than death or by retirement with the consent of the
Company after the six-month period but prior to the time that the restrictions
on disposition lapse, the Company shall have the option to reacquire the shares
at the original purchase price.
Restricted shares awarded under the Management Plan will be subject to a
period of time designated by the Administrator (the "restricted period") during
which the recipient must continue to render services to the Company before the
restricted shares will become vested. The Administrator may also impose other
restrictions, terms and conditions that must be fulfilled before the restricted
shares may vest.
Upon the grant of restricted shares, stock certificates registered in the
name of the recipient will be issued and such shares will constitute issued and
outstanding shares of Common Stock for all corporate purposes. The holder will
have the right to vote the restricted shares and to receive all regular cash
dividends (and such other distributions as the Administrator may designate), if
any, which are paid or distributed on the restricted shares, and generally to
exercise all other rights as a holder of Common Stock, except that, until the
end of the restricted period: (i) the holder will not be entitled to take
possession of the stock certificates representing the restricted shares and (ii)
the holder will not be entitled to sell, transfer or otherwise dispose of the
restricted shares. A breach of any restrictions, terms or conditions established
by the Administrator with respect to any restricted shares will cause a
forfeiture of such restricted shares.
Upon expiration of the applicable restricted period and the satisfaction
of any other applicable conditions, all or part of the restricted shares and any
dividends or other distributions not distributed to the holder (the "retained
distributions") thereon will become vested. Any restricted shares and any
retained distributions thereon which do not so vest will be forfeited to the
Company. If prior to the expiration of the restricted period a holder is
terminated without cause or because of a total disability (in each case as
defined in the Management Plan), or dies, then, unless otherwise determined by
the Administrator at the time of the grant, the restricted period applicable to
each award of restricted shares will thereupon be deemed to have expired. Unless
the Administrator determines otherwise, if a holder's employment terminates
prior to the expiration of the applicable restricted period for any reason other
than as set forth above, all restricted shares and any retained distributions
thereon will be forfeited.
49
<PAGE>
Accelerating of the vesting of the restricted shares shall occur, under
the provisions of the Management Plan, on the first day following the occurrence
of any of the following: (a) the approval by the stockholders of the Company of
an "Approved Transaction"; (b) a "Control Purchase"; or (c) a "Board Change".
An "Approved Transaction" is defined as (A) any consolidation or merger of
the Company in which the Company is not the continuing or surviving corporation
or pursuant to which shares of Common Stock would be converted into cash,
securities or other property other than a merger of the Company in which the
holders of Common Stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation immediately
after the merger, or (B) any sale, lease, exchange, or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
of the assets of the Company, or (C) the adoption of any plan or proposal for
the liquidation or dissolution of the Company.
A "Control Purchase" is defined as circumstances in which any person (as
such term is defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act),
corporation or other entity (other than the Company or any employee benefit plan
sponsored by the Company) (A) shall purchase any Common Stock of the Company (or
securities convertible into the Company's Common Stock) for cash, securities or
any other consideration pursuant to a tender offer or exchange offer, without
the prior consent of the Board of Directors, or (B) shall become the "beneficial
owner" (as such term is defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing twenty-five percent
(25%) or more of the combined voting power of the then outstanding securities of
the Company ordinarily (and apart from rights accruing under special
circumstances) having the right to vote in the election of directors (calculated
as provided in paragraph (d) of such Rule 13d-3 in the case of rights to acquire
the Company's securities).
A "Board Change" is defined as circumstances in which, during any period
of two consecutive years or less, individuals who at the beginning of such
period constitute the entire Board shall cease for any reason to constitute a
majority thereof unless the election, or the nomination for election by the
Company's stockholders, of each new director was approved by a vote of at least
a majority of the directors then still in office.
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<PAGE>
PRINCIPAL AND SELLING SECURITYHOLDERS
The following table sets forth certain information at ^May 25, 1998, and
as adjusted to reflect the sale of ^1,250,000 Shares by the Company and the
Selling Shareholders, with respect to the beneficial ownership of Common Stock
by (i) each person known by the Company to be the owner of 5% or more of the
outstanding Common Stock; (ii) by each officer and director; and (iii) by all
officers and directors as a group. Except as otherwise indicated below, each
named beneficial owner has sole voting and investment power with respect to the
shares of Common Stock listed.
<TABLE>
<CAPTION>
Shares of Percent of Shares of Percent of
Common Stock Common Stock Common Stock Common Stock
Owned Prior to Owned Prior to Owned After Owned After
Name Offering Offering Offering Offering
<S> <C> <C> <C> <C> <C>
Pride, Inc. (1) 1,500,000 53.2% 1,500,000 39.3%
Pride House
Watford Metro Centre
Tolpits Lane
Watford Hertfordshire
WD1 8SB England
Alan Lubinsky (1)(2) 1,500,000 53.2% 1,500,000 39.3%
Pride House
Watford Metro Centre
Tolpits Lane
Watford Hertfordshire
WD1 8SB England
Allan Edgar (3) * (3) *
Pride House
Watford Metro Centre
Tolpits Lane
Watford Hertfordshire
WD1 8SB England
Ivan Averbuch (4) * (4) *
Pride House
Watford Metro Centre
Tolpits Lane
Watford Hertfordshire
WD1 8SB England
Arthur Kamian &
Jane Kamian
The Family Trust 20,000 * 0 0
Don R. Howard &
Grace Howard 5,000 * 0 0
Sierra Holdings Trust
Rachmat Martin, Trustee 15,000 * 0 0
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<PAGE>
Jeffrey E. Levine 10,000 * 0 0
Joseph Giovinazzo 5,000 * 0 0
Robert Tormey 5,000 * 0 0
Timothy M. Schlameuss 5,000 * 0 0
Seymour M. Wasserstrum 5,000 * 0 0
Mann O War Inc. 20,000 * 0 0
Wayne Wiseman 10,000 * 0 0
James Bastek 20,000 * 0 0
Dan Easley 15,000 * 0 0
Joe DiMauro 10,000 * 0 0
Robert W. Bonnewell Trust 5,000 * 0 0
Edward Wilkins 5,000 * 0 0
Charles Wilkins 5,000 * 0 0
LeRoy Dukes 5,000 * 0 0
Richard & Dorine Sasso 5,000 * 0 0
All officers and 1,500,000 53.2% 1,500,000 39.3%
Directors of Pride as a Group
(3 persons) (2)
</TABLE>
* less than 1%
(1) Does not include shares of Common Stock issuable upon (i) the exercise
of the Underwriters' Warrants, (ii) the exercise of the Underwriters'
Over-allotment Option, (iii) the exercise of options or the grant of restricted
shares under the Company's Senior Management Incentive Plan, or (iv) the
exercise of the Special Warrant granted to Pride to purchase up to 1,250,000
shares of the Company's Common Stock. See "Description of Securities".
(2) New World Finance, Limited, which is wholly owned by a trust of which
family members of Mr. Lubinsky are the beneficiaries, owns approximately 65% of
the outstanding shares of Pride, Inc. and may be considered the beneficial owner
of the shares of the Company owned by Pride, Inc. The trustee is Elfin Trust
Company Limited, located on the Island of Guernsey, Channel Islands. Although
Mr. Lubinsky disclaims beneficial ownership of the shares owned by New World
Finance, Limited, it may be expected that such entity will vote its respective
shares in favor of proposals espoused by Mr. Lubinsky. Does not include 100,000
shares of Common Stock issuable upon the exercise of options granted to Mr.
Lubinsky in August 1995. Does not include 43,234 shares of Common Stock issuable
upon the exercise of options granted to Mr. Lubinsky in May 1997. Does not
include 29,137 shares of Common Stock issuable upon the exercise of option
granted to Mr. Lubinsky in January 1998. See "Executive Compensation -
Employment Agreement."
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<PAGE>
(Notes continued from previous page)
(3) Does not include 8,647 shares of Common Stock issuable upon the
exercise of options granted to Mr. Edgar in May 1997. Does not include 5,000
shares of Common Stock issuable upon the exercise of options granted to Mr.
Edgar in January 1998.
(4) Does not include 8,647 shares of Common Stock issuable upon the
exercise of options granted to Mr. Averbuch in May 1997. Does not include 5,000
shares of Common Stock issuable upon the exercise of options granted to Mr.
Averbuch in January 1998.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to the terms of the acquisition of County in 1992, the Company
paid $1 and assumed approximately $11,500,000 of net liabilities. These
liabilities were purchased by New World Finance Limited within thirty days of
the acquisition. New World Finance Limited ("New World") is a company which is
wholly owned by New World Trust, the beneficiaries of which are members of Mr.
Lubinsky's family. This debt accrued interest at 6% and was repayable five years
from the date of issuance. This debt was converted in March 1992 into a
convertible note, which was convertible into shares of common stock of PMS at
$1.50 per share. In March 1992, New World converted approximately $5,250,0000 of
the note into 3,500,000 shares of PMS. In March 1993, New World converted
approximately $3,750,000 of the note into 2,500,000 shares of PMS. In January
1994, pursuant to the reorganization of Pride and PMS, Pride acquired all the
shares of PMS from New World, and issued shares of common stock of Pride, in
return. In September 1994, the right to convert the note into shares of PMS, was
converted into the right to purchase shares of common stock of Pride, at a price
to be determined by the board of directors of Pride, as of each conversion date.
In addition, New World guaranteed to PMS that the sale proceeds of vehicles
acquired from County would be at least equal to the residual value shown on the
books of County as of the date of the acquisition. Mr. Lubinsky did not vote on
the conversion price of any of the following conversions. In September 1994, New
World converted $1,125,000 into 281,250 shares of common stock of Pride, Inc. In
October 1994, New World converted $400,000 into 114,285 shares of common stock
of Pride, Inc. In January 1995, New World converted $155,000 into 155,000 shares
of common stock of Pride, Inc.
In August 1995, the Company determined, with the agreement of New
World, that the estimated ultimate sales values of the vehicles were less than
expected and it was agreed that the note ($562,292) be written off and canceled
against the New World guarantee.
In March 1995, Pride formed the Company in the State of Delaware and
reorganized its corporate structure by exchanging all of its shares of PMS for
1,500,000 shares of the Company's Common Stock, making PMS a wholly owned
subsidiary of the Company.
In March 1995, the Company issued 60,000 shares of its Common Stock to
Lampert & Lampert, counsel to the Company for fees and expenses of $500.
In July 1995, PMS entered into a loan agreement with the Company's
president, whereby PMS borrowed approximately $232,500. The loan is payable on
demand and accrues interest at the rate of
53
<PAGE>
2.5% over the Midland Bank base rate. The principal balance of such loan was
$117,034, which was paid in April 1996.
In December 1995, the Company consummated a private placement offering,
whereby the Company sold 20 units, each unit comprised 25,000 shares of Common
Stock at a purchase price of $6,000 per unit.
In April 1996, the Company consummated an initial public offering,
whereby the Company sold 950,000 shares of its common stock at a purchase price
of $5.00 per share and 2,000,000 redeemable common stock purchase warrants at a
price of $0.10 per warrant. The warrants are exercisable at a price of $5.75 per
share, subject to adjustment, beginning April 24, 1997 and expiring April 23,
2001. In connection therewith, the Company also granted to the underwriter of
the offering a warrant to purchase 95,000 shares of the Company's common stock
at a purchase price of $7.50 and 200,000 redeemable common stock purchase
warrants at a purchase price of $0.15 per warrant, each warrant exercisable to
purchase one share of common stock at a purchase price of $7.50 per share. Other
than with respect to the exercise price, the terms of the warrants granted to
the underwriter are identical to those described above. The Company's securities
are currently traded on the Nasdaq SmallCap Stock Exchange and the Boston
Exchange.
In November 1996, the Company, through its subsidiary AC Automotive
Group, Inc., purchased all the assets of AC Cars Limited and Autokraft Limited.
In December 1996, the Company consummated a private placement offering,
whereby the Company sold ^17 units, each unit comprised of a 10% promissory note
in the amount of 10,000 shares of Common Stock at a purchase price of $100,000
per unit. In connection with such offering, AC sold an aggregate of 1,028,700
shares to three affiliates of the Underwriter for aggregate consideration of
$1,030. Such persons currently own an aggregate of approximately ^5% of the
capital stock of AC. In addition, the Underwriter loaned the Company the sum of
$100,000, $71,000 of which remains outstanding.
On February 17, 1998 the Company received a letter from NASDAQ
informing the Company that it did not comply with recently amended NASDAQ
continued listing criteria which required the Company to have minimum net
tangible assets of at least $2,000,000, two independent directors and an audit
committee, a majority of which are independent directors. The Company was
granted until February 23, 1998 to comply with such requirements.
On February 12, 1998, the Board of Directors of Automotive authorized
the issuance of 6,130,000 shares of its common stock to Erwood Holdings, Inc., a
company affiliated with Alan Lubinsky, the President, Chief Executive Officer
and a Director of the Company and Automotive, for aggregate consideration of
$6,130. Such shares have been subsequently transferred from Erwood Holdings,
Inc. to Durnover, Ltd., another company with which Mr. Lubinsky is affiliated.
In addition, on such date Automotive authorized the issuance of 176,520, 176,520
and 88,260 shares of its common stock to Beth-Anne Kinsley, Victor and Marion
Durchhalter and Bridget Staff, respectively, for consideration of $177, $177 and
$89, respectively. After the foregoing issuances, there was a total of
10,000,000 shares of Automotive authorized, issued and outstanding. See "Risk
Factors" and "Certain Relationships and Related Transactions."
54
<PAGE>
On March 1998, the Board of Directors of Automotive authorized a one
for four reverse split of its common stock and issued (1) 525,000 shares of its
common stock to Durnover Ltd., an entity affiliated with Alan Lubinsky, for
aggregate consideration of $526; (ii) 651,000 shares of its common stock to the
Company for aggregate consideration of $2,248,460 which consideration was paid
by the capitalization of debt of $2,248,460 owed by Automotive to the Company.
On March 31, 1998, the Board of Directors of Automotive authorized the following
issuance of its common stock (i) 2,352,000 shares of its common stock to Michael
Hall for $2,352, (ii) 514,500 shares of its common stock to Kingsbury Company,
Ltd. for $514.50, (iii) 367,500 shares of its common stock to ACL (1996) Ltd.
and a further 367,500 shares of its common stock to Autokraft for a total
consideration of $1,675,000, which consideration was paid by the capitalization
of debt of $1,675,000 owed by Automotive to ACL and Autokraft. In connection
with such share issuances, Michael Hall and Kingsbury Company, Ltd.
loaned the sum of (pound)1,000,000 and (pound)500,000 to AC respectively.
In October 1997, Alan Lubinsky loaned AC the sum of (pound)100,000,
which note is payable on demand and accrues interest at the rate of 2% over the
base lending rate in England. During March and April 1998, Mr. Lubinsky further
loaned AC (pound)21,750, interest-free, of which (pound)9,400 was repaid in May
1998.
The foregoing issuance of shares reduced the ownership of AC Automotive
Group, Inc. by the Company to under 50%. Accordingly, future financial
statements of the Company will be issued on an unconsolidated basis. Footnote 1^
to the Company's Financial Statements has been prepared to show the effect of
the share issuance described herein. See "Financial Statements."
On February 25, 1998 Ivan Averbuch resigned as a Director of the Company
and on the same date the board of directors elected Ian Satill, to fill such
vacancy.
On February 25, 1998, the Board of Directors resolved to form an audit
committee in order to comply with current Nasdaq corporate governance
requirements. The Audit Committee is comprised of the three directors of the
Company, two of whom (Ian Satill and Allan Edgar) are believed by the Board of
Directors to be independent.
On April 1, 1998, the Company issued to Pride a Special Warrant which will
entitle Pride to purchase up to 1,250,000 shares of the Company's common stock
at an exercise price of $4.40 each during the twenty-four month period
commencing with the date of this Prospectus. If the Special Warrant was to be
exercised in full by Pride, it would result in Pride owning in excess of 50% of
the issued and outstanding common stock of the Company and would enable Pride to
control the Company. See "Risk Factors" and "Description of Securities".
For a description of the Company's employment agreements, see "Executive
Compensation - Employment Agreements."
55
<PAGE>
^Transactions referenced herein between Management, the Company and/or
its subsidiaries present conflicts of interest for Management. There can be no
assurance that Management resolved such conflicts of interest in the past or
that it will be able to avoid or resolve conflicts of interest in the future.
There can further be no assurance that prior transactions between the Company,
its subsidiaries and Management were on terms no less favorable than could be
obtained from independent third parties, although Management represents herein
that it will attempt to resolve future conflicts of interest, if any in a manner
such that future transactions between the Company and any officer, director or
5% stockholder will be on terms no less favorable than could be obtained from
independent third parties and will be approved by a majority of the independent
disinterested directors of the Company. See "Risk Factors."
DESCRIPTION OF SECURITIES
The Company's authorized capitalization consists of 10,000,000 shares
of Common Stock, par value $.001 per share and 2,000,000 shares of Preferred
Stock, par value $.01 per share, which may be issued in one or more series at
the discretion of the board of directors. As of ^May 25, 1998, there were
^2,822,500 shares of Common Stock outstanding, all of which were fully paid and
non-assessable. The following summary description of the Common Stock, Warrants
and Preferred Stock is qualified in its entirety by reference to the Company's
Articles of Incorporation and all amendments thereto.
Common Stock
Each share of Common Stock entitles its holder to one non-cumulative
vote per share and, subject to the preferential rights of the preferred
stockholders, the holders of more than fifty percent (50%) of the shares voting
for the election of directors can elect all the directors if they choose to do
so, and in such event the holders of the remaining shares will not be able to
elect a single director. Holders of shares of Common Stock are entitled to
receive such dividends as the board of directors may, from time to time, declare
out of Company funds legally available for the payment of dividends. Upon any
liquidation, dissolution or winding up of the Company, holders of shares of
Common Stock are entitled to receive pro rata all of the assets of the Company
available for distribution to stockholders after the satisfaction of the
liquidation preference of the preferred stockholders.
Stockholders do not have any pre-emptive rights to subscribe for or
purchase any stock, warrants or other securities of the Company. The Common
Stock is not convertible or redeemable. Neither the Company's Certificate of
Incorporation nor its By-Laws provide for pre-emptive rights.
Preferred Stock
The preferred stock may be issued in one or more series, to be
determined and to bear such title or designation as may be fixed by resolution
of the board of directors prior to the issuance of any shares thereof. Each
series of the preferred stock will have such voting powers (including, if
determined by the board of directors, no voting rights), preferences, and other
rights as determined by the board of directors, with such qualifications,
limitations or restrictions as may be stated in the resolutions of the board of
directors adopted prior to the issuance of any shares of such series of
preferred stock.
56
<PAGE>
Purchasers of the Securities offered hereby should be aware that the
holders of any series of preferred stock, which may be issued in the future
could have voting rights, rights to receive dividends or rights to distribution
in liquidation, superior to those of holders of the Common Stock, thereby
diluting or negating the voting rights, dividend rights or liquidation rights of
the holders of the Common Stock.
Because the terms of each series of preferred stock may be fixed by the
Company's board of directors without stockholder action, the preferred stock
could be issued with terms calculated to defeat a proposed takeover of the
Company, or to make the removal of the Company's management more difficult.
Under certain circumstances, this could have the effect of decreasing the market
price of the Common Stock. Management of the Company is not aware of any such
threatened transaction to obtain control of the Company.
Warrants
Each warrant gives the holder the right to purchase one share of the
Company's Common Stock, subject to adjustment in certain events at an initial
price of $5.75 per share. The Warrants will be exercisable one year from the
date of this Prospectus for a period of four years, until April 23, 2001. The
Warrants are redeemable by the Company at any time commencing one year from the
date of this Prospectus upon 30 days notice at a redemption price of $.05 per
Warrant, provided that the closing bid quotation of the Common Stock for at
least 20 trading consecutive days ending not more than 15 days prior to the date
on which the Company gives notice has been at least 120% of the then effective
exercise price of the Warrants. The Company may elect to redeem the Warrants at
such time as the Company requires additional capital. Redemption of the Warrants
could force the holders to exercise the Warrants and pay the exercise price at a
time when it may be disadvantageous for the holders to do so, to sell the
Warrants at the then current market price when they might otherwise wish to hold
the Warrants, or to accept the redemption price, which is likely to be
substantially less than the market value of the Warrants at the time of
redemption. The Company will not redeem the Warrants at any time in which its
registration statement is not current, so that investors will be able to
exercise their Warrants during the 30 day notice period in the event of a
warrant redemption by the Company.
The exercise price and the number of shares of Common Stock purchasable
upon the exercise of each Warrant are subject to adjustment in certain events,
including the issuance of a stock dividend to holders of Common Stock, or a
combination, subdivision or reclassification of Common Stock. No fractional
shares will be issued upon exercise of Warrants, but the Company will pay the
cash value of the fractional shares otherwise issuable.
Notwithstanding the foregoing, in case of any consolidation, merger,
sale or conveyance of the property of the Company as an entirety or
substantially as an entirety, the holder of each outstanding Warrant shall
continue to have the right to exercise the Warrant for the kind and amount of
shares and other securities and property (including cash) receivable by a holder
of the number of shares of Common Stock for which such Warrants were exercisable
immediately prior thereto.
Holders of Warrants are not entitled, by virtue of being such holders,
to receive dividends or to consent or to receive notice as stockholders in
respect of any meeting of stockholders for the election of directors of the
Company or any other mater, or to vote at any such meeting, or to exercise any
rights whatsoever as stockholders of the Company.
57
<PAGE>
Although the Company intends to seek to qualify for sale the shares of
Common Stock underlying the Warrants in those states in which the Securities are
to be offered, i.e., Colorado, Connecticut, Delaware, Florida, Georgia,
Illinois, Louisiana Maryland, Nevada, New Hampshire, New Jersey, New York, Rhode
Island, Utah and Virginia, no assurance can be given that such qualification
will occur. The Warrants may be deprived of any value and the market for the
Warrants may be limited if a current prospectus covering the Common Stock
issuable upon exercise of the Warrants is not kept effective or if such Common
Stock is not qualified or exempt from qualification in the jurisdictions in
which the holders of the Warrants then reside.
The Warrants may not exercised unless the Company has a current
Prospectus. Prior to the exercise of any Warrants, the Company must file a
post-effective amendment to this Registration Statement of which this Prospectus
forms a part, and such post-effective amendment must be declared effective by
the Commission. The Company will notify all Warrantholders and its transfer
agent that the Warrants may not be exercised in the event that a post-effective
amendment has not been declared effective on or before the one-year anniversary
of this Prospectus, as to prevent the Warrants from being exercised in the
absence of a current, effective Registration Statement.
In the event the Company reduces the exercise price or extends the
exercise period of the Warrants, the Company will undertake the notification
filing provisions herein referred to with respect to notification of
Warrantholders and the filing of a post-effective amendment. No such changes are
currently contemplated by the Company.
Special Warrant
The Special Warrant is a Warrant which the Company issued to Pride in
connection with this Offering. The Special Warrant was issued to Pride to enable
it to gain up to a majority interest in the Company provided that it pay the
Company the exercise price for the Special Warrant. The Special Warrant is not
transferrable by the Company and neither the Special Warrant nor the underlying
shares of common stock will be in registered form. The following statements are
summaries of certain provisions of the Special Warrant Agreement, copies of
which may be examined at the principal corporate offices of the Company and a
form of which is filed as an exhibit to the registration Statement of which this
Prospectus forms a part.
The Special Warrant will entitle Pride to purchase up to 1,250,000
shares of the Company's common stock at an exercise price of $4.40 each during
the twenty-four month period commencing with the date of this Prospectus. If the
Special Warrant was to be exercised in full by Pride, it would result in Pride
owning in excess of 50% of the issued and outstanding common stock of the
Company and would enable Pride to control the Company. See "Risk Factors."
It may be expected that Pride will exercise the Special Warrant at such
time, if any, as it deems the common stock to be worth in excess of $4.40. Such
exercise would in all likelihood result in dilution to the Company's
shareholders and result in a diminution in the value of the Shares and the
Warrants.
See "Risk Factors."
58
<PAGE>
Private Placements
The Company consummated a private placement offering in December 1995
(the "Private Placement"), whereby the Company sold 20 units, each comprised of
25,000 shares of Common Stock at a purchase price of $6,000 per unit. 440,000
shares of Common Stock were sold by certain selling securityholders in the
Company's initial public offering through the Underwriters on a firm commitment
basis, with an additional 60,000 shares sold pursuant to the exercise of the
Underwriters' Over-allotment Option granted by certain selling securityholders
to the Underwriters. The proceeds of the Private Placement were used by the
Company as working capital to finance its operations.
In December 1996, the Company completed a private placement of ^17
units, each unit consisting of a 10% promissory note in the amount of $95,000
and 10,000 shares of the Company's common stock for an aggregate price of
$100,000 per unit. The notes are payable on the earlier of 18 months from the
date of issuance or the closing of an underwritten public offering of the
Company' securities. The gross proceeds of the Private Placement were used by
the Company's majority owned subsidiary to complete the acquisition of the
assets of AC Cars Limited ("AC Cars") and Autokraft Limited ("Autokraft"), two
companies incorporated under the laws of England and Wales, respectively.
Transfer Agent and Warrant Agent.
The Company's Transfer Agent and Warrant Agent is Continental Stock
Transfer and Trust Company, which Agent is responsible for all record keeping
and administrative functions in connection with the Common Stock and Warrants.
REPORTS TO STOCKHOLDERS
The Company has adopted November 30 as its fiscal year end. The Company
will distribute annual reports to its stockholders, including financial
statements examined and reported on by an independent certified public
accountant, and will provide such other reports as management may deem necessary
or appropriate to keep stockholders informed of the Company's operations.
SHARES ELIGIBLE FOR FUTURE SALE
Of the ^2,822,500 shares of the Company's Common Stock outstanding,
1,560,000 shares were issued in March 1995. All of such shares were issued as
"restricted securities" which may be sold upon compliance with Rule 144 adopted
under the Securities Act, or any other exemption from the registration
requirements of the Securities Act. 500,000 shares of Common Stock were issued
in the Company's Private Placement in December 1995, all of which were
registered and sold in the Company's initial public offering in April 1996.
^170,000 shares of the Company's Common Stock were issued in the Company's
Private Placement of December 1996. All ^170,000 shares issued in the December
Private Placement are being registered and underwritten in this ^offering. In
addition, the Company has registered 95,000 shares of common stock and 200,000
Warrants on behalf of certain Selling
59
<PAGE>
Securityholders, inclusive of the Representative, which securities are issuable
upon the exercise of an Underwriters' Warrant which was issued to the Selling
Securityholders in April 1996. All of the Selling Shareholder securities may be
sold from time to time by the Selling Securityholders.
Rule 144 provides, in essence, that a person holding "restricted
securities" for a period of two years may sell every three months in brokerage
transactions an amount equal to the greater of: (a) one percent of the Company's
outstanding shares of Common Stock; (b) the average weekly reported volume of
trading for the securities on all national exchanges and/or through the
automated quotation system of a registered securities association during the
four calendar week period preceding each transaction; or (c) the average weekly
trading volume in the securities reported through the consolidated transaction
reporting system during the four calendar week period. Rule 144 also requires
that current information about the securities must be available to stockholders
and brokers.
Therefore, after taking into account the shares to be sold in this
Offering (and without giving effect to any shares of Common Stock which may be
issued upon exercise of the Warrants) in each three-month period commencing
January 1998, at least ^39,025 (40,900 shares if the Underwriters'
Over-allotment option is exercised in full) shares may be publicly sold under
Rule 144 by each holder of "restricted securities" who has held such shares for
at least one year.
Persons who are not "affiliates" of the Company, as that term is
defined under the Securities Act, who have been non-affiliates for the 90 days
immediately preceding the sale, and who have owned their shares for a period of
at least two years, may sell such shares without limitation. Giving effect to
the sale of ^1,080,000 shares of Common Stock by the Company, the Company will
have issued and outstanding ^3,902,500 shares of its Common Stock, of which
1,500,000 shares will be "restricted securities." All 1,500,000 of said shares
of Common Stock became eligible for resale under Rule 144 in March 1997.
Investors should be aware that the possibility of such sales under Rule 144 will
in all probability have a depressive effect on the price of the Company's Common
Stock in any market which may develop. See "Shares Eligible for Future Sales."
All officers, directors and owners of 5% or more of the Company's
Common Stock, except the Selling Securityholders, have agreed to "lock-up" and
not sell, publicly, privately or otherwise dispose of any shares of Common Stock
for a period of two years from the date of this Prospectus, whereby these
stockholders cannot sell, publicly, privately or otherwise dispose of any of
their shares without the prior written consent of the Underwriter.
UNDERWRITING
The Company has entered into an Underwriting Agreement (the
"Agreement") with the Underwriters. Mason Hill & Co., Inc. has previously
completed two public offerings. Mason Hill is a relatively small firm and plans
on making a market in the Company's securities, however, there can be no
assurances that it will be able to make a meaningful market in the Company's
Securities or that another broker/dealer will make a meaningful market in the
Company's Securities. The Agreement has been filed as an exhibit to the
Registration Statement filed with the Securities and Exchange Commission
60
<PAGE>
of which this Prospectus forms a part. The Underwriters severally and not
jointly, have agreed to purchase, ^1,080,000 shares of Common Stock from the
Company and 170,000 shares of Common Stock from the Selling Shareholders, as
follows:
Underwriter Shares
Mason Hill & Co., Inc.
Total 1,250,000
Summary of Underwriting Agreement.
The obligations of the several Underwriters are subject to the
satisfaction of certain conditions precedent. Pursuant to the Agreement, the
Underwriters are committed to purchase and pay for all of the Securities, on a
"firm commitment" basis, if any Securities are purchased. The Underwriters have
advised the Company that they propose to offer the Securities to the public at
the public offering prices set forth on the cover page of this Prospectus.
Investors will not be required to purchase shares of Common Stock and Warrants
together or in any particular ratio. The Underwriters may allow to certain
dealers who are members of the National Association of Securities Dealers, Inc.
("NASD") concessions, not in excess of $.___ and $.____ per share and Warrant
respectively.
The Company ^has granted to the Underwriters an option, exercisable for
45 days from the date of this Prospectus, to purchase up to an additional
^187,500 shares of Common Stock at the public offering prices set forth on the
cover page of this Prospectus, less the underwriting discounts and commissions.
The Underwriters may exercise this option in whole or, from time to time, in
part, solely for the purpose of covering over-allotments, if any, made in
connection with the sale of the Securities offered hereby. To the extent that
the Underwriters exercise this option, each Underwriter will have a firm
commitment, subject to certain conditions, to purchase approximately the same
percentage of such Securities which the number of Securities to be purchased by
it shown in the foregoing table bears to the total number of Securities
initially offered hereby.
The Company has agreed to pay to the Underwriters 3% of the gross
proceeds, or a total of ^$ , ($ , if the Over-allotment Option is
exercised in full), for the Underwriters expenses on a
non-accountable basis, of which none has been paid by the Company to date. The
Company is required to pay the cost of qualifying and registering the Securities
being sold under federal and certain state securities laws, together with any
other legal and accounting fees, printing and other costs in connection with the
Offering.
In connection with this Offering, the Company has agreed to sell to the
Underwriters, for $10, warrants (the "Underwriters' Warrants") to purchase from
the Company an aggregate of ^125,000 shares of Common Stock at an exercise
prices of 120% of the public offering prices of the Securities or ^$4.80 per
share, subject to adjustment. The Underwriters' Warrants are exercisable for a
period of four years
61
<PAGE>
commencing one year from the date of this Prospectus. The Underwriters' Warrants
may not be sold, transferred, assigned or hypothecated for a period of one year,
except to the officers of each of the Underwriters. The Underwriters' Warrants
will contain anti-dilution provisions providing for appropriate adjustment under
certain circumstances. The holders of the Underwriters' Warrants have no voting,
dividend or other rights as stockholders of the Company with respect to Shares
underlying the Underwriters' Warrants until the Underwriters' Warrants have been
exercised.
The Company has agreed, for a period of five years following the date
of this Prospectus, to give advance notice to the holders of the Underwriters'
Warrants or underlying shares of its intention to file a registration statement,
and in such case the holders of the Underwriters' Warrants and underlying shares
shall have the right to require the Company to include the Underwriters'
Warrants and underlying shares in such registration statement at the Company's
expense. In addition, at any time during the four year period following the
first anniversary of the date of this Prospectus, holders of 50% of the
Underwriters' Warrants or the underlying shares will have the right to require
the Company to prepare and file, at the Company's expense, one registration
statement so as to permit the public offering of the Underwriters' Warrants and
the shares underlying such Warrants.
In addition, the Company has agreed to enter into a consulting
agreement with Mason Hill & Co., Inc. to provide financial consulting services
to the Company for a period of three years at an aggregate monthly fee of $3,000
payable in full at the closing of the Offering. Pursuant to the terms of the
consulting agreement, the Company has agreed, for a period of five years
following the date of this Prospectus, to pay to Mason Hill & Co., Inc. a cash
finder's fee of (i) five percent (5%) of the first $1,000,000; (ii) four percent
(4%) of the second $1,000,000; (iii) three percent (3%) of the third $1,000,000;
(iv) two percent (2%) of the fourth $1,000,000; and (v) one percent (1%) of any
consideration over $5,000,000 upon the completion of any transaction in which
Mason Hill & Co., Inc. is responsible for introducing a merger or acquisition
candidate to the Company.
All officers, directors and owners of 5% or more of the Company's
Common Stock, except the Selling Securityholders, have agreed to "lock-up" and
not sell, publicly, privately or otherwise dispose of any shares of Common Stock
for a period of two years from the date of this Prospectus, whereby these
stockholders cannot sell, publicly, privately or otherwise dispose of any of
their shares without the prior written consent of the Underwriters. 1,500,000
shares of Common Stock will not be eligible for resale under Rule 144 until
January 2000.
For a period of five years from the date hereof, the Company has agreed
to nominate a designee of the Underwriters, to stand for election to the
Company's board of directors. At present the Underwriters have advised the
Company that they have no intention to select such individual in the immediate
future. In the event such designee is not elected, or in lieu thereof, the
Underwriters may designate an observer to be notified and attend all meetings of
the board. No designee or observer shall be an associated person of any
Underwriter.
The Company has agreed to indemnify the Underwriters against liabilities
incurred by the Underwriters by reason of misstatements or omissions to state
material facts in connection with the statements made in this Prospectus and the
Registration Statement of which it forms a part. The
62
<PAGE>
Underwriters, in turn, has agreed to indemnify the Company against liabilities
incurred by the Company by reason of misstatements or omissions to state
material facts in connection with statements made in the Registration Statement
and Prospectus based on information furnished by the Underwriters.
The foregoing does not purport to be a complete statement of the terms
and conditions of the Agreement, copies of which are filed at the offices of the
Company and Underwriters and may be examined there during regular business
hours.
LEGAL OPINIONS
Legal matters relating to the shares of Common Stock ^ offered hereby
will be passed on for the Company by its counsel, Lampert & Lampert. Counsel for
the Underwriter is Gersten Savage Kaplowitz & Fredericks, LLP. Lampert & Lampert
has acted as counsel to the Underwriter on other matters unrelated to this
Offering and may do so in the future.
EXPERTS
The financial statements of the Company as of ^the ^year ended November
30, ^1997 and for the years ended 1997 and 1996 included in the Prospectus and
in the Registration Statement have been audited by Civvals, Chartered
Accountants to the extent and for the period set forth in their report appearing
elsewhere herein and in the Registration Statement and is included in reliance
upon such report given upon the authority of said firm as experts in accounting
and auditing.
63
<PAGE>
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING CONTAINED HEREIN, AND IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY STATE TO ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE SUCH AN OFFER. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME
DOES NOT IMPLY THAT THE INFORMATION STATED IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF.
--------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ADDITIONAL INFORMATION................................................................... PRIDE AUTOMOTIVE
GROUP, INC.
PROSPECTUS SUMMARY.......................................................................
RISK FACTORS.............................................................................
DIVIDEND POLICY..........................................................................
DILUTION.................................................................................
USE OF PROCEEDS..........................................................................
CAPITALIZATION...........................................................................
BUSINESS.................................................................................
MANAGEMENT...............................................................................
PRINCIPAL STOCKHOLDERS...................................................................
DESCRIPTION OF
SECURITIES...............................................................................
^ 1,250,000 Shares of Common Stock
SHARES ELIGIBLE FOR
FUTURE SALE..............................................................................
CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS.................................................................
UNDERWRITING.............................................................................
LEGAL OPINIONS........................................................................... -----------------------
PROSPECTUS
-----------------------
EXPERTS..................................................................................
INDEX TO FINANCIAL STATEMENTS............................................................F-1
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS MASON HILL & CO., INC.
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
^ JUNE __, 1998
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
</TABLE>
<PAGE>
Preliminary prospectus subject to completion, dated June , 1998
PROSPECTUS
PRIDE AUTOMOTIVE GROUP, INC.
^ 95,000 Shares of Common Stock,
200,000 Warrants and 200,000 shares
of Common Stock underlying the Warrants
which may be sold from time to time
by the Selling Securityholders
This Prospectus relates to ^95,000 shares of Common Stock, 200,000
Warrants and 200,000 shares of Common Stock underlying the Warrants (the
"Selling Securityholders' ^Securities")^, of Pride Automotive Group, Inc. (the
"Company"), which are being offered for sale by certain selling securityholders
(the "Selling Securityholders"). ^See "Selling Securityholders and Plan of
Distribution."
The Company will not receive any of the proceeds from the sales of the
Selling Securityholders' Securities by the Selling Securityholders. The Selling
Securityholders' Securities may be offered from time to time by the Selling
Securityholders, their transferees, pledgees and/or their donees, through
ordinary brokerage transactions in the over-the-counter market, in negotiated
transactions or otherwise, at market prices prevailing at the time of sale or at
negotiated prices.
The Selling Securityholders, their pledgees and/or their donees, may be
deemed to be "underwriters" as defined in the Securities Act of 1933, as amended
(the "Securities Act"). If any broker-dealers are used by the Selling
Securityholders, their pledgees and/or their donees, any commission paid to
broker-dealers and, if broker-dealers purchase any Selling Securityholders'
Securities as principals, any profits received by such broker-dealers on the
resale of the Selling Securityholders' Securities, may be deemed to be
underwriting discounts or commissions under the Securities Act. In addition, any
profits realized by the Selling Securityholders, their pledgees and/or their
donees, may be deemed to be underwriting commissions. All costs, expenses and
fees in connection with the registration of the Selling Securityholders'
Securities will be borne by the Company except for any commission paid to
broker-dealers.
The Selling Securityholders' Securities offered by this Prospectus may
be sold from time to time by the Selling Securityholders, their pledgees and/or
their donees. No underwriting arrangements have been entered into by the Selling
Securityholders. The distribution of the Selling Securityholders' Securities by
the Selling Securityholders, their pledgees and/or their donees, may be effected
in one or more transactions that may take place on the over-the-counter market,
including ordinary broker's transactions, privately-negotiated transactions or
through sales to one or more dealers for resale of such shares as principals, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Securityholders, their pledgees and/or their donees, in connection with sales of
the Selling Securityholders' Securities.
On the date of this Prospectus, a registration statement under the
Securities Act with respect to an underwritten public offering (the
"Underwritten Offering") of ^1,250,000 shares of Common Stock (without giving
effect to the Underwriters' Over-allotment Option granted to the Underwriters to
purchase up to an additional ^187,500 shares of Common Stock), was declared
effective by the Securities and Exchange Commission. In connection with the
Underwritten Offering, the Company granted the Representative a warrant to
purchase ^125,000 shares of Common Stock (the "Underwriter's Warrants").
II-1
<PAGE>
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 7.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSIONS PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Offering
<TABLE>
<CAPTION>
<S> <C>
Securities Registered ^95,000 shares of Common ^Stock, 200,000 Warrants and 200,000 shares of Common
Stock underlying the Warrants. See "Description of Securities", "Risk Factors" and
"Selling Securityholders and Plan of Distribution."
Risk Factors This offering involves a high degree of risk and immediate substantial dilution. See "Risk
Factors" and "Dilution."
</TABLE>
SELLING SECURITYHOLDERS AND PLAN OF DISTRIBUTION
The Company has issued a warrant to certain NASD broker/dealers which
acted as Underwriters in the Company's 1996 public offering (the "Underwriters'
Warrant") which enables such parties to acquire from the Company an aggregate of
^95,000 shares of Common ^Stock and 200,000 Warrants at a price of $7.50 per
share, $.15 per Warrant and $5.75 per share of Common Stock for the shares of
Common Stock underlying the Warrants, respectively. See "Certain Transactions".
The Selling Securityholders have advised the Company that sales of the Selling
Securityholders' Securities may be effected from time to time by themselves,
their pledgees and/or their donees, in transactions (which may include block
transactions) in the over-the-counter market, in negotiated transactions,
through the writing of options on the Selling Securityholders' Securities, or a
combination of such methods of sale, at fixed prices that may be changed, at
market prices prevailing at the time of sale, or at negotiated prices. The
Selling Securityholders, their pledgees and/or their donees, may effect such
transactions by selling the Selling Securityholders' Securities directly to
purchasers or through broker-dealers that may act as agents or principals. Such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Securityholders and/or the purchasers of Selling
Securityholders' Securities for whom such broker-dealers may act as agents or to
whom they sell as principals, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions).
The Selling Securityholders, their pledgees and/or their donees, and
any broker-dealers that act in connection with the sale of the Selling
Securityholders' Securities as principals may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act and any commissions
received by them and any profit on the resale of the Selling Securityholders'
Securities as principals might be deemed to be underwriting discounts and
commissions under the Securities Act. The Selling Securityholders' Securities
being registered on behalf of the Selling Securityholders are restricted
securities while held by the Selling Securityholders and the resale of such
securities by the Selling
II-2
<PAGE>
Securityholders is subject to the prospectus delivery and other requirements of
the Act. The Selling Securityholders, their pledgees and/or their donees, may
agree to indemnify any agent, dealer or broker-dealer that participates in
transactions involving sales of the Selling Securityholders' Securities against
certain liabilities, including liabilities arising under the Securities Act. The
Company will not receive any proceeds from the sale of the Selling
Securityholders' Securities by the Selling Securityholders. Sales of the Selling
Securityholders' Securities by the Selling Securityholders, or even the
potential of such sales, would likely have an adverse effect on the market price
of the Company's securities.
At the time a particular offer of any securities is made by or on
behalf of the Selling Securityholders, to the extent required, a prospectus
supplement will be distributed which will set forth the number of securities
being offered and the terms of the offering, including the names or names of any
underwriters, dealers or agents, the purchase price paid by any underwriter for
shares purchased from the Selling Securityholders and any discounts, commissions
or concessions allowed or reallowed or paid to dealers, and the proposed selling
price to the public.
Under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the regulations thereto, any person engaged in distribution of
Company securities offered by this Prospectus may not simultaneously engage in
market-making activities with respect to Company securities during the
applicable "cooling off" period prior to the commencement of such distribution.
In addition, and without limiting the foregoing, the Selling Securityholders
will be subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including without limitation, ^Regulation M and Rule
10b- 7, in connection with transactions in the securities, which provisions may
limit the timing of purchases and sales of Company securities by the Selling
Securityholders.
The following table sets forth certain information with respect to
persons for whom the Company is registering the Selling Securityholders'
Securities for resale to the public. The Company will not receive any of the
proceeds from the sale of the Selling Securityholders' Securities. Beneficial
ownership of the Selling Securityholders' Securities by such Selling
Securityholders after the Offering will depend on the number of Selling
Securityholders' Securities sold by each Selling Securityholder. The securities
held by the Selling Securityholders are restricted securities while held by such
Selling Securityholders and the resale of such securities by the Selling
Securityholders is subject to prospectus delivery and other requirements of the
Act. The Selling Securityholders' Securities offered by the Selling
Securityholders are not being underwritten by the Underwriter.
II-3
<PAGE>
[Alternative Page for Selling Securityholders' Prospectus]
<TABLE>
<CAPTION>
Beneficial Beneficial
Ownership Percentage Ownership
Prior of Amount of After Selling
to Selling Common Shares/ Securityholders
Securityholders Stock/Warrants Warrants Offering if All
Offering Owned Before Being Shares/Warrants
Selling Securityholder Shares/Warrants Offering Registered are Sold
<S> <C> <C> <C> <C>
Mason Hill & Co., Inc.
The Thornwater Company, L.P.
J.W. Barclay & Co., Inc.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
^^
<S> <C>
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING CONTAINED HEREIN, AND IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON. THIS PRIDE AUTOMOTIVE
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO GROUP, INC.
BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY STATE TO ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE SUCH AN OFFER. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME ^95,000 Shares of Common Stock, 200,000
DOES NOT IMPLY THAT THE INFORMATION STATED IS CORRECT AS OF ANY TIME SUBSEQUENT Warrants and 200,000 shares of Common
TO THE DATE HEREOF. Stock underlying the Warrants which
may be sold from time to time by the
Selling Securityholders
--------------------
TABLE OF CONTENTS
ADDITIONAL INFORMATION...................................................................
PROSPECTUS SUMMARY.......................................................................
RISK FACTORS.............................................................................
DIVIDEND POLICY..........................................................................
DILUTION.................................................................................
USE OF PROCEEDS..........................................................................
CAPITALIZATION...........................................................................
BUSINESS................................................................................. -----------------------
PROSPECTUS
-----------------------
MANAGEMENT...............................................................................
PRINCIPAL STOCKHOLDERS...................................................................
DESCRIPTION OF
SECURITIES...............................................................................
SHARES ELIGIBLE FOR
FUTURE SALE..............................................................................
CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS.................................................................
UNDERWRITING............................................................................. MASON HILL & CO., INC.
LEGAL OPINIONS...........................................................................
EXPERTS..................................................................................
INDEX TO FINANCIAL STATEMENTS............................................................F-1 JUNE , 1998
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
</TABLE>
II-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
As permitted under the Delaware Corporation Law, the Company's
Certificate of Incorporation and By-laws provide for indemnification of a
director or officer under certain circumstances against reasonable expenses,
including attorneys fees, actually and necessarily incurred in connection with
the defense of an action brought against him by reason of his being a director
or officer. In addition, the Company's charter documents provide for the
elimination of directors' liability to the Company or its stockholders for
monetary damages except in certain instances of bad faith, intentional
misconduct, a knowing violation of law or illegal personal gain.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Company pursuant to any charter,
provision, by-law, contract, arrangement, statute or otherwise, the Company 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 Company of expenses
incurred or paid by a director, officer, or controlling person of the Company in
the successful defense of any such action, suit or proceeding) is asserted by
such director, officer or controlling person of the Company in connection with
the Securities being registered pursuant to this Registration Statement, the
Company 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
by such court of such issue.
Item 25. Other Expenses of Issuance and Distribution.
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee $ ^2,842.01
NASD Filing Fee ^1,360.15
Nasdaq Filing Fee ^7,500.00
Boston Stock Exchange Fee ^5,000.00
Printing and Engraving 35,000.00(1)
Legal Fees 80,000.00(1)
Accounting 35,000.00(1)
Transfer Agent and Warrant Agent Fees 2,500.00(1)
Blue Sky Fee Expenses 25,000.00(1)
Underwriters non-accountable
expense allowance 150,000.00(1)
Consulting Fee 108,000.00
Miscellaneous (1)
Total $400,000.00
</TABLE>
- -----------------------
(1) Estimated.
II-6
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
The following issuance of shares of Common Stock were exempt from
registration under the Securities Act, in reliance upon the exemption afforded
by Section 4(2) of the Securities Act for transactions not involving a public
offering. All certificates evidencing such sales bear an appropriate restrictive
legend.
In March 1995, Pride caused the Company to be incorporated in the State
of Delaware and reorganized its corporate structure by exchanging all of its
shares of Pride Management Services, Plc., an English corporation ("PMS") with
the Company in exchange for 1,500,000 newly issued shares of the Company's
common stock, making PMS a wholly owned subsidiary of the Company.
In March 1995, the Company issued 60,000 shares of its Common Stock to
Lampert & Lampert, counsel to the Company for fees and expenses.
The Company consummated a private placement offering in December 1995.
The Company sold 20 units in the Private Placement. The units each comprised
25,000 shares of Common Stock at a purchase price of $6,000 per unit.
The Company consummated a private placement offering in December 1996.
The Company sold 17 units in the Private Placement to the Selling Shareholders.
The units each comprised of a 10% promissory note in the amount of $95,000 and
10,000 shares of the Company's common stock for an aggregate price of $100,000
per unit. The notes are payable on the earlier of 18 months from the date of
issuance or a closing of an underwritten public offering of the Company's
securities. In connection with acting as the Placement Agent for this
transaction, the Underwriter received $240,500 as commission.
Item 27. Exhibits.
The following exhibits marked with an asterisk are being filed with
this Registration Statement on Form SB-2. All other Exhibits have been
previously filed.
<TABLE>
<CAPTION>
<S> <C>
1.1* - Form of Underwriting Agreement.
3.1 - Certificate of Incorporation of the Company. (Incorporated by reference from the
Registration Statement filed on January 12, 1996 SEC file number 333-296-NY)
3.2 - By-Laws of the Company. (Incorporated by reference from
the Registration Statement filed on January 12, 1996 SEC
file number 333-296-NY)
4.1 - Specimen Common Stock Certificate. (Incorporated by
reference from the Registration Statement filed on January
12, 1996 SEC file number 333-296-NY)
4.2 - Specimen Warrant Certificate. (Incorporated by reference
from the Registration Statement filed on January 12, 1996
SEC file number 333-296-NY)
II-7
<PAGE>
4.3* - Form of Warrant Agreement between the Company and the
Underwriters.
4.4 - Form of Warrant Agreement between the Company and
Continental Stock Transfer & Trust Company. (Incorporated by reference from the
Registration Statement filed on January 12, 1996 SEC file number 333-296-NY)
4.5* - Form of Lock-up Agreement.
4.6* - Form of Special Warrant.
5.0* - Opinion of Lampert & Lampert.
10.1 - The Company's Senior Management Incentive Plan. (Incorporated by reference
from the Registration Statement filed on January 12, 1996 SEC file number 333-
296-NY)
10.2 - Employment Agreement with Alan Lubinsky. (Incorporated by reference from the
Registration Statement filed on January 12, 1996 SEC file number 333-296-NY)
10.3 - Employment Agreement with Ivan Averbuch. (Incorporated by reference from the
Registration Statement filed on January 12, 1996 SEC file number 333-296-NY)
10.4 - Consulting Agreement. (Incorporated by reference from the Registration Statement
filed on January 12, 1996 SEC file number 333-296-NY)
10.5 - Loan Agreement between PMS and Alan Lubinsky. (Incorporated by reference
from the Registration Statement filed on January 12, 1996 SEC file number 333-
296-NY)
10.6 - Form of Service Agreement. (Incorporated by reference from the Registration
Statement filed on January 12, 1996 SEC file number 333-296-NY)
10.7 - Asset purchase agreement between Pride Vehicle Contracts (UK) Limited and
Master Vehicle Contracts Limited. (Incorporated by reference from the Registration
Statement filed on January 12, 1996 SEC file number 333-296-NY)
10.8 - Form of Hire Purchase Agreement. (Incorporated by reference from the
Registration Statement filed on January 12, 1996 SEC file number 333-296-NY)
10.9 - Mortgage on Pride House, Watford Metro Center. (Incorporated by reference from
the Registration Statement filed on January 12, 1996 SEC file number 333-296-NY)
10.10 - Mortgage on Croydon, England property. (Incorporated by
reference from the Registration Statement filed on January 12,
1996 SEC file number 333-296-NY)
10.11 - Lease agreement with respect to the Croydon England property. (Incorporated by
reference from the Registration Statement filed on January 12, 1996 SEC file
number 333-296-NY)
10.12* - Lease agreement with respect to Land at Unit 1, Vickers Drive North, Brooklands
Industrial Park, Elmbridge, Surrey.
10.13* - Financing Agreement with Midland Bank dated January 22, 1998.
23.1* - Consent of Civvals Chartered Accountants.
23.2 - Consent of Lampert & Lampert, Esqs., is contained in their opinion filed as exhibit
5.0 to this Registration Statement.
</TABLE>
Item 28. Undertakings.
The undersigned Registrant hereby undertakes:
II-8
<PAGE>
(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, including but not limited to any addition or
deletion of a managing Underwriter.
(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 the time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of Post-Effective Amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to provide to the
Underwriters at the Closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company, pursuant to the foregoing provisions, or otherwise, the Company 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 Company of expenses
incurred or paid by a director, officer or controlling person of the Company 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 Company 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. See Item 24.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form SB-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in New York, New York on the ^2nd day of ^June, 1998.
PRIDE AUTOMOTIVE GROUP, INC.
By: /s/ Alan Lubinsky
ALAN LUBINSKY, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Alan Lubinsky President and Director
Alan Lubinsky (Principal Executive 06/02/98
Officer) Date
/s/ Ivan Averbuch
Ivan Averbuch Chief Financial Officer, Vice President,
Treasurer 06/02/98
Date
/s/ Allan Edgar Director 06/02/98
Allan Edgar Date
/s/ Ian Satill Director 06/02/98
Ian Satill Date
</TABLE>
II-1
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page Nos
<S> <C>
Independent Auditors' Report F - 2
Financial Statements:
Consolidated Balance Sheets as of November 30, 1997 and February 28, 1998 (Unaudited) F - 3
Consolidated Statements of Operations for the Years Ended November 30, 1997 and 1996
and the Three Months Ended February 28, 1998 and 1997 (Unaudited) F - 4
Consolidated Statement of Changes in Shareholders' Equity for the Two Years in the Period
Ended November 30, 1997 and the Three Months Ended February 28, 1998 (Unaudited) F - 5
Consolidated Statements of Cash Flows for the Years Ended November 30, 1997 and 1996
and the Three Months Ended February 28, 1998 and 1997 (Unaudited) F - 6
Notes to Consolidated Financial Statements F - 7
</TABLE>
F - 1
<PAGE>
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of Pride Automotive
Group, Inc. and subsidiaries as of November 30, 1997 and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for each of the two years in the period ended November 30, 1997. These
consolidated financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United Kingdom which are substantially the same as those followed in the
United States. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the above mentioned consolidated financial statements present
fairly, in all material respects, the consolidated financial position of the
Corporation as of November 30, 1997 and the results of their operations for the
two years in the period ended November 30, 1997 in conformity with accounting
principles generally accepted in the United States of America.
Our audits also include the translation of British pounds into United States
dollars for amounts included in the consolidated financial statements. In our
opinion, such translation has been made in conformity with the basis stated in
Note 2(h) of the notes to the consolidated financial statements.
<TABLE>
<CAPTION>
<S> <C> <C>
MARBLE ARCH HOUSE
66-68 SEYMOUR STREET
LONDON W1H 5AH CIVVALS
UNITED KINGDOM FEBRUARY 20, 1998 CHARTERED ACCOUNTANTS
</TABLE>
F - 2
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ASSETS (Note 6a) -
<TABLE>
<CAPTION>
November 30, February 28,
1997 1998
(Unaudited)
ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 77,354 $ 13,689
Accounts receivable - net (Notes 2c and 3) 2,002,365 4,243,377
Inventories (Note 2d) 1,248,360 179,268
Property, revenue producing vehicles and equipment - net
(Notes 2e, 4, 6b and 7) 27,882,350 25,570,847
Intangible assets - net (Note 2f) 9,090,156 8,917,186
Investment in affiliate (Note 1) - 1,800,000
-------------------- --------------
TOTAL ASSETS $40,300,585 $40,724,367
=========== ===========
- LIABILITIES AND SHAREHOLDERS' EQUITY -
LIABILITIES:
Bank line of credit (Note 6a) $ 6,976,699 $ 5,489,924
Accounts payable 1,758,764 1,567,040
Accrued liabilities and expenses (Note 5) 865,977 724,116
Bank debt (Note 6b) 695,782 677,900
Obligations under hire purchase contracts (Note 7) 18,341,778 18,441,373
Other liabilities (Note 8) 52,707 222,310
Acquisition debt payable (Note 9) 4,198,500 1,686,000
------------- --------------
TOTAL LIABILITIES 32,890,207 28,808,663
------------ ------------
MINORITY INTEREST IN SUBSIDIARY (Note 16) - -
----------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 13 and 15)
SHAREHOLDERS' EQUITY (Notes 10 and 11):
Preferred stock, $.01 par value, 2,000,000 shares authorized, none issued
or outstanding - -
Common stock, $.001 par value, 10,000,000 shares authorized 2,822,500
shares issued and outstanding 2,823 2,823
Additional paid-in capital 13,582,795 14,122,165
Deferred financing costs (Note 10) (141,500) (123,750)
Retained earnings (deficit) (5,857,987) (2,289,844)
Foreign currency translation (Note 2h) (175,753) 204,310
-------------- --------------
TOTAL SHAREHOLDERS' EQUITY 7,410,378 11,915,704
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $40,300,585 $40,724,367
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F - 3
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended For the Three Months Ended
November 30, February 28,
1997 1996 1998 1997
---------------- ---------------- ---------------- ---------
(Unaudited) (Unaudited)
REVENUE (Note 2i):
<S> <C> <C> <C> <C>
Contract hire income (Note 13) $ 8,410,366 $ 6,286,677 $2,441,865 $1,652,484
Sale of contract hire vehicles 6,762,323 5,839,080 817,112 1,731,816
Sale of vehicles - AC Cars (Note 1) 327,704 - - 202,563
Fleet management and other income - contract hire 1,076,650 758,261 321,994 106,420
Service and spare parts revenue 180,990 - - 42,000
Other income - AC Cars 701,242 - - -
----------------------------------------------------------------
17,459,275 12,884,018 3,580,971 3,735,283
------------ ------------ ----------- -----------
EXPENSES:
Cost of sales - contract hire 9,887,640 7,946,686 1,480,587 2,026,157
Cost of sales - AC Cars 448,720 - - 172,178
Depreciation - contract hire 3,546,807 2,295,164 1,071,956 817,054
Depreciation - AC Cars 399,828 - - 109,269
General and administrative expenses - contract hire 1,857,263 1,620,859 489,586 376,027
General and administrative expenses - AC Cars 1,682,866 181,252 - 379,115
Amortization of intangible assets - contract hire 630,718 634,813 157,680 157,680
Amortization of intangible assets - AC Cars 1,489 - - 616
Interest expense and other - contract hire 1,747,114 860,242 575,809 279,311
Interest expense and other - AC Cars 462,036 - - 78,382
Research and development - AC Cars 982,581 - - 81,912
Loss on sale of fixed assets - contract hire 454,851 - - -
Loss on sale of fixed assets - AC Cars 299,082 - - -
--------------------------------------------------------------
22,400,995 13,539,016 3,775,618 4,477,701
------------ ----------- ----------- ----------
LOSS BEFORE MINORITY INTERESTS (4,941,720) (654,998) (194,647) (742,418)
Minority interests in net loss of consolidated
subsidiary (Note 1) 486,320 54,376 - 173,073
-------------- -------------- ------------------ -----------
LOSS BEFORE PROVISION FOR INCOME
TAXES (4,455,400) (600,622) (194,647) (569,345)
Provision (credit) for income taxes (Notes 2g and 12) - - - -
---------------------------------------------------------------------
NET LOSS $ (4,455,400) $ (600,622) $ (194,647) $ (569,345)
============ ============ =========== ===========
LOSS PER COMMON SHARE (Note 2j):
Net loss before minority interest $(1.76) $(.27) $(.07) $ (.27)
Minority interest in net loss of subsidiary .17 .02 - .06
-------- ------ -------- -------
$(1.59) $(.25) $(.07) $(.21)
====== ===== ====== =====
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (Note 2j) 2,801,075 2,405,760 2,822,500 2,759,167
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F - 4
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Deferred Retained Foreign Total
Common Paid-in Financing Earnings Currency Shareholders'
Shares Stock Capital Costs (Deficit) Translation Equity
----------- ------------ ------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 1, 1995 1,560,000 $1,560 $11,741,922 $ - $ (801,965) $ 609,349 $11,550,866
Private offering of common
stock (Note 10) 500,000 500 119,500 - - - 120,000
Shares and warrants sold in
initial public offering (Note 10) 592,500 593 2,165,336 - - - 2,165,929
Adjustment for minority interest
(Note 16) - - (539,370) - - - (539,370)
Foreign currency translation
adjustment - - - - - (739,592) (739,592)
Net loss for the year ended
November 30, 1996 - - - - (600,622) - (600,622)
---------------- ----------------------------------------------------------- ------------------------------
Balance at November 30, 1996 2,652,500 2,653 13,487,388 - (1,402,587) (130,243) 11,957,211
Private offering of common
stock (Note 10) 170,000 170 95,407 - - - 95,577
Deferred financing costs
(Note 10) - - - (141,500) - - (141,500)
Foreign currency translation
adjustment - - - - - (45,510) (45,510)
Net loss for year ended
November 30, 1997 - - - - (4,455,400) - (4,455,400)
---------------- --------------------------------------------------------- ---------------- ------------
Balance at November 30, 1997 2,822,500 2,823 13,582,795 (141,500) (5,857,987) (175,753) 7,410,378
Deferred financing costs - - - 17,750 - - 17,750
Adjustment - AC Car
Group Ltd. - - 539,370 - 3,762,790 - 4,302,160
Foreign currency translation
adjustment - - - - - 380,063 380,063
Net loss for the three months
ended February 28, 1998
(unaudited) - - - - (194,647) - (194,647)
---------------- ----------------------------------------------------------- ----------------------------
BALANCE AT
FEBRUARY 28, 1998
(UNAUDITED) 2,822,500 $2,823 $14,122,165 $(123,750) $(2,289,844) $204,310 $11,915,704
========= ====== =========== ========= =========== ======== ===========
</TABLE>
See notes to consolidated financial statements.
F - 5
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
November 30, February 28,
1997 1996 1998 1997
---------------- ---------------- -------------- ---------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net (loss) $ (4,455,400) $ (600,622) $ (194,647) $ (569,345)
Adjustments to reconcile net (loss) to net cash provided
by operating activities:
Minority interest in net loss of subsidiary (486,320) (54,376) - (173,073)
Depreciation and amortization 3,946,635 2,295,164 1,071,956 946,597
Amortization of goodwill 632,207 634,813 157,680 148,683
Deferred financing costs (141,500) - 17,750 -
Loss (gain) on disposal of fixed assets 753,933 (119,030) 41,354 (28,470)
Provision for maintenance costs - (18,524) - -
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 19,646 (599,753) (43,342) 125,654
(Increase) in inventories (225,705) (93,794) (46,899) (276,261)
Increase (decrease) in accounts payable, accrued
expenses and bank overdraft 1,528,020 (955,172) 438,706 352,781
--------------- ------------- -------------- --------------
Net cash provided from operating activities 1,571,516 488,706 1,442,558 526,566
--------------- -------------- ------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of revenue producing assets (16,494,724) (9,858,724) (3,104,557) (2,918,307)
Acquisition of assets in new subsidiary - (969,279) - -
Proceeds from sale of fixed assets 4,583,660 2,068,601 909,207 517,139
-------------- ------------- -------------- --------------
Net cash (utilized) by investing activities (11,911,064) (8,759,402) (2,195,350) (2,401,168)
------------- ------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank lines of credit 4,012,234 1,870,785 192,237 1,501,618
Net proceeds from sale of stock 95,577 2,285,929 - 78,862
Loans repaid to officers - (304,759) - -
Payment of acquisition debt (899,970) - - (810,800)
Principal payments of long term debt (306,789) (67,921) (17,882) (6,679)
Proceeds from hire purchase contract funding 19,491,763 11,530,175 3,154,590 3,701,474
Principal repayments of hire purchase contract funding (12,184,936) (6,073,790) (2,748,385) (3,090,658)
------------ ------------- ------------ ------------
Net cash provided from financing activities 10,207,879 9,240,419 580,560 1,373,817
------------- ------------- -------------- ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (41,676) (722,401) 108,567 276,330
--------------- -------------- -------------- -------------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (173,345) 247,322 (63,665) (224,455)
Cash and cash equivalents, beginning of year 250,699 3,377 77,354 250,699
-------------- ---------------- --------------- --------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 77,354 $ 250,699 $ 13,689 $ 26,244
============== ============= ============== ==============
</TABLE>
SUPPLEMENTAL INFORMATION:
(i) In November 1996, the Company acquired certain of the assets of AC
Cars Limited aggregating $6,067,749 and incurred debt obligations
aggregating $5,098,470.
(ii) The loss on the disposal of fixed assets resulted from the sale of
certain non-revenue producing assets whereby the proceeds were less
than the carrying value.
See notes to consolidated financial statements.
F - 6
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
(Information as of and for the Periods Ended
February 28, 1998 and 1997 is Unaudited)
NOTE 1 - DESCRIPTION OF COMPANY:
Pride Automotive Group, Inc. (the "Company") was incorporated
in the State of Delaware in March 1995. Pursuant to the terms
and conditions of a reorganization in March 1995, the Company
issued 1,500,000 shares of its common stock to Pride, Inc. (an
entity incorporated in the State of Delaware), thereby making
the Company a majority owned subsidiary of Pride Inc., in
exchange for all of the issued and outstanding shares held by
Pride, Inc., of Pride Management Services Plc (PMS), a
consolidated group of operating companies located in the United
Kingdom which are engaged in the leasing of motor vehicles
primarily on contract hire to local authorities and selected
corporate customers throughout the United Kingdom. This
exchange of stock resulted in PMS becoming a wholly owned
subsidiary of the Company. The Company, its subsidiary PMS and
PMS's subsidiaries are referred to as the "Company" unless the
context otherwise requires.
On November 29, 1996, the Company, through a newly formed
majority owned subsidiary, AC Automotive Group Inc. and its
wholly owned subsidiary AC Car Group Limited (registered in the
United Kingdom), completed the acquisition of certain assets of
AC Cars Limited and Autokraft Limited. These two companies were
engaged in the manufacture and sale of specialty automobiles.
The purchase price of approximately $6,067,000 was financed
with the proceeds of a private offering of the Company's common
stock, and by loans. The acquisition was recorded using the
purchase method of accounting.
On February 12, 1998, the Board of Directors of AC Automotive
Group, Inc. authorized the issuance of 6,130,000 shares of its
common stock to Erwood Holdings, Inc., a company affiliated
with Alan Lubinsky, the President and Chief Executive Officer
and director of the Company and AC Automotive Group, Inc., for
aggregate consideration of $6,130. In addition, 441,300 shares
were issued to other unrelated parties for aggregate
consideration of $443. Following further restructure and the
foregoing issuance of shares, the ownership of AC Automotive
Group, Inc. by the Company has been reduced to 16%. Due to the
change in ownership percentage, the Company does not believe
that it still has the ability to exercise significant influence
over AC Automotive Group, Inc. Accordingly, consolidation is
not considered appropriate. The Company's investment in AC
Automotive Group, Inc., is therefore being reported under the
cost method of accounting (See also Note 16).
F - 7
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
(Information as of and for the Periods Ended
February 28, 1998 and 1997 is Unaudited)
NOTE 1 - DESCRIPTION OF COMPANY (Continued):
The following condensed pro-forma balance sheet assumes this
reduction in ownership occurred as of November 30, 1997:
<TABLE>
<CAPTION>
Assets:
<S> <C>
Cash $ 76,516
Accounts receivable - net 4,200,035
Inventory 132,369
Fixed assets - net 24,489,646
Intangible assets - net 9,074,865
Investment in affiliate 1,800,000
-------------
$39,773,431
Liabilities and Shareholder's Equity:
Bank line of credit $ 5,297,687
Accounts payable and accrued expenses 2,022,057
Bank debt 695,782
Obligations under hire purchase contracts 18,341,778
Loans payable 1,738,703
Shareholders' equity 11,677,424
------------
$39,773,431
The following pro forma statement of operations assumes the
reduction in ownership occurred at the beginning of the year
ended November 30, 1997:
Revenue $16,249,338
Expenses 17,079,394
Net loss (830,056)
Loss per share (.30)
</TABLE>
The pro-forma financial information is not necessarily
indicative of the results that would have occurred had this
reduction in ownership occurred as of the dates indicated above
nor are they necessarily indicative of future operating
results.
F - 8
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
(Information as of and for the Periods Ended
February 28, 1998 and 1997 is Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PMS, the operating group of companies, which is located in the
United Kingdom, follows generally accepted accounting
principles in the United Kingdom. For purposes of these
consolidated financial statements, the Company has converted to
the generally accepted accounting principles of the United
States.
(a) Basis of Consolidation and Presentation:
The consolidated financial statements include the accounts of
the Company (Pride Automotive Group, Inc.), its' wholly owned
subsidiary Pride Management Services Plc and its' wholly owned
subsidiaries. All material intercompany balances and
transactions have been eliminated.
Due to the nature of the majority of the Company's business,
contract leasing of motor vehicles (revenue producing assets)
which are treated as non-current fixed assets, the balance
sheet is reflected on an unclassified basis. Accordingly,
current assets and current liabilities are not reflected
separately on the face of the balance sheet.
(b) Use of Estimates:
In preparing financial statements in accordance with generally
accepted accounting principles, management makes certain
estimates and assumptions, where applicable, that affect the
reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and
expenses during the reporting period. While actual results
could differ from those estimates, management does not expect
such variances, if any, to have a material effect on the
financial statements.
(c) Concentration of Credit Risk/Fair Value:
Financial instruments that potentially subject the Company to
concentrations of credit risk in accordance with SFAS No 105
consist principally of accounts receivable. The Company
believes however, that risks associated with accounts
receivable are limited due to its large customer base and the
fact that it leases vehicles to companies in many industries.
The carrying amounts of cash and cash equivalents, trade
receivables, other assets, accounts payable and debt
obligations approximate fair value.
(d) Inventories:
Inventories include vehicles which are no longer being leased
to customers and which are temporarily being held for resale at
cost less accumulated depreciation, which approximates net
realizable value. The inventories of AC Automotive Group, Inc.
and its subsidiary consist of finished goods, work in progress
and spare parts of specialty automobiles and are stated at the
lower of cost, (first-in, first-out method) or market. Market
is considered as net realizable value.
F - 9
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
(Information as of and for the Periods Ended
February 28, 1998 and 1997 is Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(d) Inventories (continued):
Inventories consisted of the following:
<TABLE>
<CAPTION>
November 30, February 28,
1997 1998
(Unaudited)
<S> <C> <C>
Cars held for resale $ 132,369 $179,268
Finished goods 90,784 -
Work-in-progress 502,500 -
Spare parts 522,707 -
------------ --------
$1,248,360 $179,268
</TABLE>
(e) Fixed Assets and Depreciation:
Fixed assets are stated at cost less depreciation. Depreciation
is provided on all assets at rates calculated to write off the
cost of each asset over its estimated useful life, as follows:
Building and improvements 50 years straight-line basis
Revenue producing vehicles 3-6 years straight-line basis
Furniture and fixtures 4 years double declining basis
Machinery and equipment 4 years double declining basis
Aircraft 4 years double declining basis
Maintenance and repairs are charged to operations and major
improvements are capitalized. Upon retirement, sale of other
disposal, the associated cost and accumulated depreciation of
the asset are eliminated from the accounts and any resulting
gain or loss is included in operations.
(f) Intangible Assets:
Intangible assets consist primarily of goodwill which arose in
connection with the acquisition of certain subsidiaries of PMS.
Goodwill is being amortized over a period of 10-20 years on a
straight-line basis. Accumulated amortization as of November
30, 1997 aggregated $3,622,833. Accumulated amortization as of
February 28, 1998 aggregated $3,780,512.
The Company periodically reviews the valuation and amortization
of goodwill and other intangibles to determine possible
impairment by evaluating events and circumstances that might
indicate an inability to recover the carrying amount. Such
evaluation is based on analysis, including profitability,
projections and cash flows that incorporate the impact on
existing Company business.
F - 10
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
(Information as of and for the Periods Ended
February 28, 1998 and 1997 is Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(g) Income Taxes:
The Company conducts all of its operating activities in the
United Kingdom (UK). As such, they are subject to taxation in
the UK based upon that country's tax statutes. Under UK
taxation rules, provision is made for taxation deferred as a
result of material timing differences between the incidence of
income and expenditures for taxation and accounting purposes,
using the liability method, only to the extent that there is
reasonable probability that a liability or asset will
crystallize in the near future. See also Note 12 regarding SFAS
No 109 - Accounting for Income Taxes.
(h) Foreign Currency Translation:
The Company's principal operations are conducted by PMS which
reflects its financial statements in British pounds. As a
result, most assets and liabilities of the foreign operations
are translated into US dollars using current exchange rates in
effect at the balance sheet date. Fixed assets and intangible
assets are translated at historical exchange rates. Revenue and
expense accounts are translated using an average exchange rate
during the period except for those expenses related to assets
and liabilities which are translated at historical exchange
rates. These include depreciation and amortization which are
translated at the rates existing at the time the asset was
acquired. Any resulting gains or losses due to the translations
are reflected as a separate item of shareholders' equity.
(i) Income Recognition:
Contract hire income of leased vehicles is recognized as
operating leases over the period of the contract in accordance
with SFAS No 13 - Accounting for Leases and the related
amendments and interpretations. Income from the sale of
previously leased vehicles is reflected at the time of sale of
the vehicle. Fleet management revenues and miscellaneous income
are reflected on the accrual basis over the term that the
services are provided.
The Company leases vehicles with terms generally ranging from
two to four years. The following table shows the future minimum
lease payments of existing leases to be received, net of
related costs as of November 30, 1997 (see also Note 7):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
November 30, 1998 $ 7,504,475
November 30, 1999 5,072,831
November 30, 2000 2,152,957
November 30, 2001 418,979
--------------
Total minimum lease payments receivable net of executory costs $15,149,242
===========
</TABLE>
F - 11
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
(Information as of and for the Periods Ended
February 28, 1998 and 1997 is Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(j) Earnings (Loss) Per Share:
Earnings per share are computed based upon the weighted average
shares and common equivalent shares outstanding. The shares
sold during the year ended November 30, 1996 in a private
offering (see Note 10), have been treated as outstanding for
all periods presented, in accordance with the guidelines of the
Securities and Exchange Commission. Common stock equivalents
have been excluded from the computation since the results would
be anti-dilutive.
In February 1997, the Financial Accounting Standards Board
issued Statement No. 128 - Earnings Per Share ("SFAS 128"),
which changes the method for calculating earnings per share.
SFAS 128 requires the presentation of "basic" and "diluted"
earnings per share on the face of the income statement. SFAS
128 is effective for financial statements for periods ending
after December 15, 1997. The Company will adopt SFAS 128 for
the year ending November 30, 1998, and accordingly restate
prior periods, as early adoption is not permitted. SFAS 128 is
not expected to materially differ from primary or fully diluted
earnings per share as previously reported.
(k) Cash and Cash Equivalents:
For purposes of the statements of cash flows, the Company
considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
(l) Stock Based Compensation:
SFAS No. 123 "Accounting for Stock Based Compensation",
effective December 1996, requires the Company to either record
compensation expense or to provide additional disclosures with
respect to stock awards and stock option grants made after
December 31, 1994. The accompanying Notes to Consolidated
Financial Statements include the disclosures required by SFAS
No. 123. No compensation expense is recognized pursuant to the
Company's stock option plans under SFAS No. 123 which is
consistent with prior treatment under APB No. 25.
(m) New Accounting Pronouncements:
SFAS 130 "Reporting Comprehensive Income" is effective for
years beginning after December 15, 1997 and early adoption is
permitted. This statement prescribes standards for reporting
comprehensive income and its components. The Company will adopt
these standards effective for the year ending November 30,
1998.
See also Earnings (Loss) Per Share.
F - 12
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
(Information as of and for the Periods Ended
February 28, 1998 and 1997 is Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(n) Impact of the Year 2000 Issue:
The year 2000 issue is the result of computer programs being
written using two digits rather than four to designate the
applicable year. Accordingly, any of the Company's computer
programs that utilize date sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000.
This could potentially result in a system failure or
miscalculations causing disruptions of operations, including
among other things, a temporary inability to process
transactions, send invoices, or engage in other similar normal
business activities.
The Company had already planned on upgrading its computer
software to increase operational efficiencies and information
analysis. In conjunction with this upgrade, the Company will
ensure that the new systems properly utilize dates that go
beyond December 31, 1999. The cost of this upgrade project, as
it relates to the Year 2000 issue, is not expected to have a
material effect on the operations of the Company and will be
funded through operating cash flows.
NOTE 3 - ACCOUNTS RECEIVABLE:
<TABLE>
<CAPTION>
Accounts receivable consist of the following:
November 30, February 28,
1997 1998
(Unaudited)
<S> <C> <C>
Trade receivables - net of allowance for doubtful
accounts of $80,486 for 1997 and 1998 $ 639,109 $ 667,954
Lease maintenance receivables 943,261 968,284
Value added tax 138,555 23,751
Due from related companies 83,219 90,263
Other debtors 198,221 2,493,125
------------ -----------
$2,002,365 $4,243,377
</TABLE>
Included in other debtors at February 28, 1998 is an amount of
$2,248,460 owing by AC Automotive Group, Inc. Subsequent to
February 28, 1998, AC Automotive Group, Inc. was restructured
and the Company was issued 651,000 shares in consideration for
the amount owing.
F - 13
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
(Information as of and for the Periods Ended
February 28, 1998 and 1997 is Unaudited)
NOTE 4 - FIXED ASSETS AND DEPRECIATION:
Fixed assets consist of the following:
<TABLE>
<CAPTION>
November 30, February 28,
1997 1998
(Unaudited)
<S> <C> <C>
Buildings and improvements $ 820,160 $ 784,599
Revenue producing vehicles 27,612,291 29,551,013
Furniture, fixtures, plant and equipment 4,670,067 544,112
------------- --------------
33,102,518 30,879,724
Less: accumulated depreciation (including
$4,263,115 and $4,764,963 of accumulated
depreciation on revenue producing vehicles,
for 1997 and 1998, respectively) 5,220,168 5,308,877
------------- -------------
$27,882,350 $25,570,847
</TABLE>
Depreciation expense for the years ended November 30, 1997 and
1996 aggregated $3,946,635 and $2,295,164, respectively.
Depreciation expense for the three months ended February 28,
1998 and 1997 aggregated $1,071,956 and $926,323, respectively.
One of the buildings owned by Pride Management was being leased
to an unrelated party at an annual rent of approximately
$80,000 per annum. In November 1997, the tenant exercised an
option to purchase the building for approximately $400,000.
NOTE 5 - ACCRUED LIABILITIES AND EXPENSES:
Accrued liabilities and expenses consist of the following:
<TABLE>
<CAPTION>
November 30, February 28,
1997 1998
(Unaudited)
<S> <C> <C>
Taxes other than income taxes $438,289 $344,903
Miscellaneous accrued expenses 427,688 379,213
--------- ---------
$865,977 $724,116
</TABLE>
F - 14
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
(Information as of and for the Periods Ended
February 28, 1998 and 1997 is Unaudited)
NOTE 6 - BANK LOANS/LINE OF CREDIT:
(a) As of August 31, 1997, the Company's line of credit with its
bank expired. In February 1998, subsequent to the balance sheet
date, the Company entered into a new agreement with the bank.
This new line of credit of $5,862,500, after deconsolidating
the AC Car Group, is payable on demand and is secured by all
assets of the Company other than building and revenue-producing
vehicles which are already pledged (see Notes 6b and 7).
Interest is payable at 7 1/2% in excess of the bank's base
rate. The agreement is due for review in November 1998.
(b) At November 30, 1997, other bank loans consisted of $695,782
($677,900 at February 28, 1998) payable at a rate of 3% in
excess of the bank's base rate. This loan is secured by a
freehold property (building) owned by Pride Management and its
subsidiaries, and matures in 2017.
The scheduled principal payments of this bank debt as of
November 30, 1997 are as follows:
For the Year Ended November 30,
1998 $ 84,058
1999 84,058
2000 84,058
2001 84,058
2002 84,058
Thereafter 275,492
--------
$695,782
NOTE 7 - HIRE PURCHASE CONTRACTS/EQUIPMENT FINANCING:
The Company has funding lines with several financing
institutions in the United Kingdom in the aggregate amount of
approximately $23,667,500 as of November 30, 1997. These
funding lines are utilized to acquire revenue producing
vehicles, which vehicles collateralize the outstanding
obligations.
Assets (revenue producing vehicles) obtained under hire
purchase contracts are capitalized as fixed assets and
depreciated over their useful lives. The obligations under such
agreements, which mature at various dates within five years
from inception, are reflected separately on the balance sheet
net of finance charges which are charged to the periods to
which they apply. At November 30, 1997, obligations under hire
purchase contracts are as follows:
For the Year Ended November 30,
1998 $ 8,860,849
1999 7,060,375
2000 2,372,636
2001 47,918
--------------
$18,341,778
F - 15
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
(Information as of and for the Periods Ended
February 28, 1998 and 1997 is Unaudited)
NOTE 7 - HIRE PURCHASE CONTRACTS/EQUIPMENT FINANCING (Continued):
The annual interest rates on these obligations range from 9% to
11%.
As of February 28, 1998, the aggregate funding lines had been
decreased to $23,097,000 and obligations under hire purchase
funding aggregated $18,441,373.
NOTE 8 - OTHER LIABILITIES:
At November 30, 1997 and February 28, 1998 other liabilities
consisted of $52,707 and $222,310, respectively, due to other
creditors at interest rates approximating the current market
rates and are repayable on a demand basis.
NOTE 9 - ACQUISITION DEBT PAYABLE:
Acquisition debt payable (see Note 1) consists of the following:
<TABLE>
<CAPTION>
November 30, February 28,
1997 1998
(Unaudited)
<S> <C> <C>
Unsecured notes payable on demand after May 31, 1998; interest
payable quarterly at 2% above the
base rate (i) $ 837,500$ -
Unsecured notes payable on demand after May 31,
1998; interest payable at 10% per annum (see Note 10) 1,615,000 1,615,000
Unsecured notes payable on demand after October 31,
1999; interest payable quarterly at 8% per annum (i) 1,675,000 -
Other short-term notes payable 71,000 71,000
------------- -------------
$4,198,500 $1,686,000
</TABLE>
(i) These notes were issued by AC Automotive Group, Inc., and
are no longer owed by the Company.
NOTE 10 - COMMON STOCK/RECAPITALIZATION:
In December 1995, the Company completed a private placement
offering selling 20 units, each unit consisting of 25,000
shares of common stock, at $6,000 per unit for aggregate gross
proceeds of $120,000.
F - 16
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
(Information as of and for the Periods Ended
February 28, 1998 and 1997 is Unaudited)
NOTE 10 - COMMON STOCK/RECAPITALIZATION (Continued):
In April 1996, the Company successfully completed an initial
public offering ("IPO") of its common stock whereby it sold
592,500 shares of common stock at a price of $5.00 per share
and 2,300,000 common stock purchase warrants at a price of $.10
per warrant. This offering yielded net proceeds of
approximately $2,166,000.
The warrants are exercisable at a price of $5.75 per share,
subject to adjustment, one year from the date of the offering,
for a period of four years. The warrants are redeemable by the
Company at any time commencing one year from the date of its
prospectus, upon 30 days notice, at a redemption price of $.05
per warrant.
In addition, the Company entered into a consulting agreement
with one of the Underwriters as a financial consultant for a
period of two years at a monthly fee of $2,500 payable in full
at the closing of the offering. The Underwriters have also been
granted warrants to acquire 95,000 shares of Common Stock and
200,000 warrants at 150% of the public offering prices or $7.50
per share and $.15 per Warrant, respectively.
In 1997, the Company completed a private placement of 17 units,
each unit consisting of a 10% promissory note in the amount of
$95,000 and 10,000 shares of the Company's common stock for an
aggregate price of $100,000 per unit. The notes are payable on
the earlier of 18 months from the date of issuance or a closing
of an underwritten public offering of the Company's (or any of
its subsidiaries) securities (see Note 18a). The promissory
notes are classified as acquisition debt (see also Note 9).
The Company has reflected deferred financing costs based upon
the difference between the deemed fair value of the shares and
the market value at the time of issuance. These costs will be
recognized as additional interest expense over the term of the
notes.
NOTE 11 - STOCK OPTION PLANS:
In September 1995, the board of directors adopted the 1995
Senior Management Incentive Plan (the "Management Plan") which
was adopted by shareholder consent. The Plan provides for the
issuance of up to 300,000 shares of the Company's common stock
in connection with the issuance of stock options and other
stock purchase rights to executive officers and other key
employees.
During the year ended November 30, 1996, the Company granted
options to purchase 100,000 shares of common stock at an
exercise price of $5.50 per share (fair value of $2.60), none
of which has been exercised to date. These options are
exercisable over a five-year period pursuant to a three-year
vesting schedule (331/3% per annum) beginning in August 1996.
F - 17
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
(Information as of and for the Periods Ended
February 28, 1998 and 1997 is Unaudited)
NOTE 11 - STOCK OPTION PLANS (Continued):
In May 1997, the Company granted an aggregate of 60,528 options
to three employees exercisable at $2.54 per share. These
options vest at the rate of 331/3% per annum commencing May
1998.
The Company applies APB 25 and related Interpretations in
accounting for the Management Plan. Accordingly, no
compensation cost has been recognized for the Management Plan.
Had compensation cost of the Management Plan been determined
using the fair value-based method, as defined in SFAS 123 (see
Note 2l), the Company's net earnings (loss) and earnings (loss)
per share would have been adjusted to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1997 1996
--------------- --------
<S> <C> <C>
Net earnings (loss):
As reported $(4,455,400) $(600,622)
Pro forma (4,745,000) (906,622)
Earnings (loss) per share:
As reported (1.59) (.25)
Pro forma (1.69) (.38)
</TABLE>
The fair value of each option grant was estimated on the date
of the grant using the Black-Scholes option-pricing model with
the following weighted average assumptions for 1997 and 1996;
respectively; expected volatility of 1.2% and 1.1%,
respectively; risk-free interest rate of 6.5%; and expected
lives of 3 to 5 years.
The effects of applying SFAS 123 in the above pro forma
disclosures are not necessarily indicative of future amounts.
Additionally, future amounts are likely to be affected by the
number of grants awarded since additional awards are generally
expected to be made at varying amounts.
NOTE 12 - INCOME TAXES:
The Company has available operating losses carryforwards for
tax purposes aggregating approximately $5,028,000 as of
November 30, 1997, which may result in a deferred tax asset.
The Company has recognized this asset but has provided a
valuation allowance for the full amount since there is no
assurance that such losses will be utilized in the near future.
The components of the deferred tax asset, pursuant to SFAS
No. 109, are as follows:
<TABLE>
<CAPTION>
November 30, February 28,
1997 1998
(Unaudited)
<S> <C> <C>
Operating loss carryforward $1,709,000 $688,000
Valuation allowance (1,709,000) (688,000)
----------- ---------
$ - $ -
================= =======
</TABLE>
F - 18
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
(Information as of and for the Periods Ended
February 28, 1998 and 1997 is Unaudited)
NOTE 13 - ECONOMIC DEPENDENCY:
For the years ended November 30, 1997 and 1996, the Company had
two unaffiliated customers, which accounted for an aggregate of
approximately 17% (1996 - 17%) and 7% (1996 - 12%)
respectively, of the Company's total revenues.
The Company purchases all of the automobiles that it leases to
its clients from automotive dealerships, usually several at a
time. The Company does not depend on any one dealership for its
purchase of automobiles and does not have any written
agreements with any of the dealerships it purchases vehicles
from. The Company believes that it will continue to be able to
purchase automobiles at competitive prices and terms into the
future.
NOTE 14 - PENSION PLAN:
PMS and its' subsidiaries have a fully insured defined
contribution plan for all of its eligible employees.
Contributions to the plan, which are discretionary, for the
years ended November 30, 1997 and 1996 amounted to $65,726 and
$33,264, respectively. Contributions to the plan for the three
month periods ended February 28, 1998 and 1997 amounted to
$22,690 and $11,874, respectively.
NOTE 15 - COMMITMENTS:
(a) Leases:
In November 1996, the Company entered into a one-year lease
agreement for the manufacturing facility being utilized for its
new subsidiary at a cost of approximately $54,000 per month,
with an option to purchase this facility at a cost of
$8,700,000, through August 1997. In August 1997, the Company
sold this option to purchase for $673,750 and negotiated a new
lease for a smaller portion of this facility at an approximate
cost of $31,000 per month.
(b) Employment Agreements:
In August 1995, the Company entered into an employment
agreement with its President/Chairman of the Board of
Directors. This three-year agreement provides for an annual
salary of $160,000 with annual escalations of 10% and also
contains certain non-compete restrictions. This employee was
also granted 100,000 stock options (see Note 11).
In September 1995, the Company entered into an employment
agreement with an officer/director for a period of twenty-four
months commencing December 1, 1995. This agreement is
automatically extendable for a further twenty four-month period
subject to review by the Board of Directors. For the year ended
November 30, 1997, the annual salary amounted to $71,000
F - 19
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
(Information as of and for the Periods Ended
February 28, 1998 and 1997 is Unaudited)
NOTE 15 - COMMITMENTS (Continued):
(c) Rental Income:
The Company leased one of its owned facilities to an
unaffiliated company for an annual rental of approximately
$80,000 per annum. The annual cost of servicing the mortgage
and real estate taxes on this building was approximately
$70,000. In November 1997, this property was sold for $400,000
(see Note 4).
NOTE 16 - MINORITY INTEREST IN SUBSIDIARIES:
As of November 30, 1997, the Company owned 70% of AC Automotive
Group, Inc. ("AC Group") - see Note 1. As of November 30, 1996,
the Company reflected a charge of $539,370 to additional
paid-in capital in order to properly reflect the minority
interest liability at $482,486. For the year ended November 30,
1997, losses applicable to the minority shareholder exceeded
its interest, accordingly, such losses were charged against the
operations of the Company. See Note 1 - re carrying value of
this investment.
NOTE 17 - BUSINESS SEGMENT INFORMATION:
The Company's operations have been classified into two business
segments; Contract Hire and Leasing and Automobile Manufacture.
The Contract Hire and Leasing is the business of Pride
Management Services Plc and its subsidiaries and utilizes the
resale of automobiles at the end of the contracts. The
Automobile manufacturer is the business of AC Car Group
Limited. This segment began operations in December 1996.
F - 20
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
(Information as of and for the Periods Ended
February 28, 1998 and 1997 is Unaudited)
NOTE 17 - BUSINESS SEGMENT INFORMATION (Continued):
Summarized financial information by business segment for the
years ended November 30, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
---------------- -----------
Revenue:
<S> <C> <C>
Pride Management Services Plc $16,249,338 $12,884,018
AC Car Group Limited 1,209,937 -
--------------------------
$17,459,275 $12,884,018
Income (Loss) Before Minority Interests:
Pride Management Services Plc $ (830,056) $ (654,998)
AC Car Group Limited (4,111,664) -
------------- -------------
$ (4,941,720) $ (654,998)
============ =============
Total Assets:
Pride Management Services Plc $35,686,989 $27,680,689
AC Car Group Limited 4,613,596 6,008,893
------------- --------------
$40,300,585 $33,689,582
Depreciation and Amortization:
Pride Management Services Plc $ 4,155,846 $ 2,929,977
AC Car Group Limited 422,996 -
----------------------------
$ 4,578,842 $ 2,929,977
============ ===========
Capital Expenditures:
Pride Management Services Plc $15,298,608 $ 8,002,360
AC Car Group Limited 1,196,116 1,856,364
------------- -------------
$16,494,724 $ 9,858,724
=========== ============
</TABLE>
Segment information is not reflected for the period ended
February 28, 1998 due to the ownership change as described in
Note 1.
NOTE 18 - SUBSEQUENT EVENTS:
The Company has filed a Form SB-2 with the Securities and
Exchange Commission, registering for the sale of 1,250,000
shares of common stock, which includes 170,000 shares being
sold by certain selling shareholders. The estimated net
proceeds from this offering, to the Company, is expected to be
$3,488,000. The Company intends to use these proceeds to repay
existing debt.
F - 21
UNDERWRITING AGREEMENT
Dated: 1998
MASON HILL & CO., INC.
110 Wall Street
New York, New York 10005
Ladies and Gentlemen:
Pursuant to this Underwriting Agreement (this "Agreement"),
(1) PRIDE AUTOMOTIVE GROUP, INC., a Delaware corporation (the "Company"),
proposes to issue and sell to Mason Hill & Co., Inc. (the "Underwriter" or
"you"), an aggregate of 1,080,000 shares (the "Company Firm Shares") of the
common stock, par value $.001 per share, of the Company (the "Common Stock"),
and (ii) each of the stockholders of the Company named in Schedule A hereto (the
"Selling Stockholders"), acting severally and not jointly, proposes to sell to
you the respective number of shares of Common Stock set forth opposite the
Selling Stockholders' names on Schedule A for an aggregate of 170,000 shares of
Common Stock (the "Selling Stockholder Firm Shares"; and together with the
Company Firm Shares, the "Firm Shares").
In addition, the Company proposes to grant to the Underwriter
the Over-Allotment Option, referred to and defined in Section 2(c) hereof, to
purchase all or any part of an aggregate of 187,500 additional shares of Common
Stock (the "Option Shares") and the Company proposes to issue to you the
Underwriter's Warrant, referred to and defined in Section 1 2 hereof, to
purchase certain further shares of Common Stock.
The aggregate of Firms Shares together with the aggregate of
187,500 Option Shares are herein collectively called the "Shares." The Shares
and the shares of Common Stock issuable upon exercise of the Underwriter's
Warrant, are herein collectively called the "Securities." The term
"Underwriter's Counsel" shall mean the firm of Gersten, Savage, Kaplowitz &
Fredericks, LLP, counsel to the Underwriter, and the term "Company Counsel"
shall mean the firm of Lampert & Lampert, counsel to the Company. Unless the
context otherwise requires, all references herein to a "Section" shall mean the
appropriate Section of this Agreement.
You have advised the Company and the Selling Stockholders that
the Underwriter desires to purchase the Firm Shares as herein provided. The
Company and the Selling Stockholders confirm the agreements made by them with
respect to the purchase of the Firm Shares as well as the Option Shares by the
Underwriter, as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE SELLING STOCKHOLDERS.
(a) The Company represents and warrants to, and agrees with, the
<PAGE>
Underwriter that:
(i) Registration Statement; Prospectus. A registration statement (File
No.33 ) on Form SB-2 relating to the public offering of the Securities (the
"Offering"), including a preliminary form of prospectus, copies of which have
heretofore been delivered to you, has been prepared by the Company in conformity
with the requirements of the Securities Act of 1933 (the "Act"), and the rules
and regulations of the Securities and Exchange Commission (the "Commission")
promulgated thereunder (the "Rules and Regulations"), and has been filed with
the Commission under the Act. As used herein, the term "Preliminary Prospectus"
shall mean each prospectus filed pursuant to Rule 430 or Rule 424(a) of the
Rules and Regulations. The Preliminary Prospectus bore the legend required by
Item 501 of Regulation S-B under the Act and the Rules and Regulations. Such
registration statement (including all financial statements, schedules and
exhibits) as amended at the time it becomes effective and the final prospectus
included therein are herein respectively called the "Registration Statement" and
the "Prospectus," except that (i) if the prospectus filed by the Company
pursuant to Rule 424(b) or Rule 430A of the Rules and Regulations shall differ
from such final prospectus as then amended, then the term "Prospectus" shall
instead mean the prospectus first filed pursuant to said Rule 424(b) or Rule
430A, and (ii) if such registration statement is amended or such prospectus is
amended or supplemented after the effective date of such registration statement
and prior to the Option Closing Date (as defined in Section 2(c) hereto) then
(unless the context necessarily requires otherwise) the term "Registration
Statement" shall include such registration statement as so amended, and the term
"Prospectus" shall include such prospectus as so amended or supplemented, as the
case may be.
(ii) Contents of Registration Statement. On the Effective Date, and at all
times subsequent thereto for so long as the delivery of a prospectus is required
in connection with the offering or sale of any of the Securities, (a) the
Registration Statement and the Prospectus shall in all material respects conform
to the requirements of the Act and the Rules and Regulations, and (b) neither
the Registration Statement nor the Prospectus shall include any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary or make statements therein in light of the circumstances in
which they were made, not misleading; provided, however, that the Company, makes
no representations, warranties or agreements as to information contained in or
omitted from the Registration Statement or Prospectus in reliance upon, and in
conformity with, written information furnished to the Company by or on behalf of
the Underwriter specifically for use in the preparation thereof. It is
understood that the statements set forth in the Prospectus with respect to
stabilization, the material set forth under the caption "UNDERWRITING," the
information on the cover page of the Prospectus regarding the underwriting
arrangements and the identity of the Underwriter's Counsel under the caption
"LEGAL MATTERS," which information the Underwriter hereby represents and
warrants to the Company is true and correct in all material respects and does
not omit to state any material fact required to be stated therein or necessary
to make statements therein, in light of the circumstances in which they were
made, not misleading, constitute the only information furnished in writing by or
on behalf of the Underwriters for inclusion in the Registration Statement and
Prospectus, as the case may be.
<PAGE>
(iii) Organization, Standing, Etc. The Company and each of its subsidiaries
(the "Subsidiaries) have been duly incorporated and are validly existing as
corporations in good standing under the laws of their respective jurisdictions
of incorporation, with full power and corporate authority to own their
properties and conduct their business as described in the Prospectus, and are
duly qualified or licensed to do business as foreign corporations and are in
good standing in each other jurisdiction in which the nature of their businesses
or the character or location of their properties requires such qualification,
except where failure so to qualify will not have a material adverse effect on
the business, properties or financial condition of the Company or its
Subsidiaries.
(iv) Capitalization. The authorized, issued and outstanding capital stock
of the Company as of the date of the Prospectus is as set forth in the
Prospectus under the caption "CAPITALIZATION." The shares of Common Stock issued
and outstanding on the Effective Date have been duly authorized, validly issued
and are fully paid and non-assessable. No options, warrants or other rights to
purchase, agreements or other obligations to issue, or agreements or other
rights to convert any obligation into, any shares of capital stock of the
Company have been granted or entered into by the Company, except as expressly
described in the Prospectus. The Securities conform to all statements relating
thereto contained in the Registration Statement or the Prospectus.
(v) Securities. The Securities and the Underwriter's Warrant have been duly
authorized and, when issued and delivered against payment therefor pursuant to
this Agreement, or the Underwriter's Warrant, as the case may be, will be duly
authorized, validly issued, fully paid and non-assessable and free of preemptive
rights of any security holder of the Company. Neither the filing of the
Registration Statement nor the offering or sale of any of the Securities or the
Underwriter's Warrant as contemplated by this Agreement gives rise to any
rights, other than those which have been waived or satisfied, for or relating to
the registration of any securities of the Company, except as described in the
Registration Statement.
(vi) Authority, Etc. This Agreement, the Underwriter's Warrant and the
Financial Consulting Agreement (as hereinafter defined), have been duly and
validly authorized, executed and delivered by the Company and, assuming due
execution of this Agreement and such other agreements by the other party or
parties hereto and thereto, constitute valid and binding obligations of the
Company enforceable against the Company in accordance with their respective
terms. The Company has full right, power and lawful authority to authorize,
issue and sell the Securities and the Underwriter's Warrant on the terms and
conditions set forth herein. All consents, approvals, authorizations and orders
of any court or governmental authority which are required in connection with the
authorization, execution and delivery of such agreements, the authorization,
issue and sale of the Securities and the Underwriter's Warrant, and the
consummation of the transactions contemplated hereby have been obtained.
(vii) No Conflict. Except as described in the Prospectus, the Company is
not in violation, breach or default of or under, and consummation of the
transactions hereby contemplated and fulfillment of the terms of this Agreement
will not conflict with or result in a breach of, any of
<PAGE>
the terms or provisions of, or constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance pursuant to the terms
of, any contract, indenture, mortgage, deed of trust, loan agreement or other
material agreement or instrument to which the Company or any Subsidiary is a
party or by which the Company or any Subsidiary may be bound or to which any of
the property or assets of the Company or any Subsidiary is subject, nor will
such action result in any violation of the provisions of the Articles of
Incorporation or the By-laws of the Company or any Subsidiary, as amended to
date, or any statute or any order, rule or regulation applicable to the Company
or any Subsidiary, or of any court or of any regulatory authority or other
governmental body having jurisdiction over the Company or any Subsidiary.
(viii) Assets. Subject to the qualifications stated in the Prospectus: (a)
the Company and each Subsidiary have good and marketable title to all properties
and assets described in the Prospectus as owned by them, including without
limitation intellectual property, free and clear of all liens, charges,
encumbrances or restrictions, except such as do not materially affect the value
of such properties or assets and do not materially interfere with the use made
or proposed to be made of such assets or properties by the Company and/or the
Subsidiaries or are not materially significant or important in relation to the
business of the Company or the Subsidiaries; (b) all of the material leases and
subleases under which the Company and/or the Subsidiaries is the lessor or
sublessor of properties or assets or under which the Company and/or the
Subsidiaries holds properties or assets as lessee or sublessee, as described in
the Prospectus, are in full force and effect and, except as described in the
Prospectus, the Company and/or the Subsidiaries are not in default in any
material respect with respect to any of the terms or provisions of any of such
leases or subleases, and no claim has been asserted by any party adverse to the
rights of the Company and/or the Subsidiaries as lessor, sublessor, lessee or
sublessee under any such lease or sublease, or affecting or questioning the
right of the Company and/or the Subsidiaries to continued possession of the
leased or subleased premises or assets under any such lease or sublease, except
as described or referred to in the Prospectus; and (c) the Company and each
Subsidiary, owns or leases all such assets and properties, described in the
Prospectus, as are necessary to their operations as now conducted and, except as
otherwise stated in the Prospectus, as proposed to be conducted as set forth in
the Prospectus.
(ix) lndependent Accountants. Civvals, Chartered Accountants, who have
given their report on certain financial statements filed or to be filed with the
Commission as a part of the Registration Statement, and which are included in
the Prospectus, are with respect to the Company and its Subsidiaries,
independent public accountants as required by the Act and the Rules and
Regulations.
(x) Financial Statements. The financial statements, together with related
notes, set forth in the Registration Statement and the Prospectus present fairly
the financial position, results of operations, changes in stockholders' equity
and cash flows of the Company and the Subsidiaries on the basis stated in the
Registration Statement, at the respective dates and for the respective periods
to which they apply. Such financial statements and related notes have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the entire period involved, except to the extent
disclosed therein. The Selected Financial
<PAGE>
Data included in the Registration Statement and the Prospectus present fairly
the information shown therein and have been prepared on a basis consistent with
that of the financial statements included in the Registration Statement and the
Prospectus.
(xi) No Material Change. Except as otherwise set forth in the Prospectus,
subsequent to the respective dates as of which information is given in the
Registration Statement and the Prospectus, neither the Company nor any
Subsidiary have: (i) incurred any material liability or obligation, direct or
contingent, or entered into any material transaction other than in the ordinary
course of business; (ii) effected or experienced any change in its capital stock
or incurred any long-term debt, (iii) issued any options, warrants or other
rights to acquire its capital stock; (iv) declared, paid or made any dividend or
distribution of any kind on its capital stock; or (v) effected or experienced
any material adverse change, or development involving a prospective material
adverse change, in its financial position, net worth, results of operations,
business or business prospects, assets or properties or key personnel.
(xii) Litigation. Except as set forth in the Prospectus, there is not now
pending nor, to the knowledge of the Company or any Subsidiary, threatened, any
action, suit or proceeding (including any related to environmental matters or
discrimination on the basis of age, sex, religion or race), whether or not in
the ordinary course of business, to which the Company or any Subsidiary is a
party or its business or property is subject, before or by any court or
governmental authority, which, if determined adversely to the Company or any
Subsidiary, would have a material adverse effect on the financial position, net
worth, or results of operations, business or business prospects, assets or
property of the Company or any Subsidiary; and no labor disputes involving the
employees of the Company or any Subsidiary exist which would materially
adversely affect the business, property, financial position or results of
operations of the Company or any Subsidiary.
(xiii) No Unlawful Prospectuses. The Company has not distributed any
prospectus or other offering material in connection with the Offering
contemplated herein, other than any Preliminary Prospectus, the Prospectus or
other material permitted by the Act and the Rules and Regulations.
(xiv) Taxes. Except as disclosed in the Prospectus, the Company and each
Subsidiary have filed all necessary federal, state, local and foreign income and
franchise tax returns and have paid all taxes shown as due thereon on or before
the date such taxes are due to be paid; and there is no tax deficiency which has
been or, to the knowledge of the Company or any Subsidiary, might be asserted
against the Company or any Subsidiary.
(xv) Licenses, Etc. The Company and each Subsidiary have in effect all
necessary licenses, permits and other governmental authorizations currently
required for the conduct of their businesses or the ownership of their property,
as described in the Prospectus, and are in all material respects in compliance
therewith. The Company and each Subsidiary own or possess adequate rights to use
all material patents, patent applications, trademarks, mark registrations,
copyrights and
<PAGE>
licenses disclosed in the Prospectus and/or which are necessary for the
conduct of such business, and except as disclosed in the Prospectus neither
the Company nor any Subsidiary have received any notice of conflict with the
asserted rights of others in respect thereof. To the knowledge of the Company,
none of the activities or business of the Company and its Subsidiaries is in
violation of, or would cause the Company or any Subsidiary to violate, any
law, rule, regulation or order of the United States, any country, state,
county or locality, the violation of which would have a material adverse
effect upon the financial position, net worth, results of operations, business
or business prospects, assets or property of the Company.
(xvi) No Prohibited Payments. The Company has not, directly or indirectly
at any time: (i) made any contribution to any candidate for political office, or
failed to disclose fully any such contribution in violation of law; or (ii) made
any payment to any federal, state, local or foreign governmental officer or
official, or other person charged with similar public or quasi-public duties,
other than payments or contributions required or allowed by applicable law. The
internal accounting controls and procedures of the Company are sufficient to
cause the Company to comply in all material respects with the Foreign Corrupt
Practices Act of 1977, as amended.
(xvii) Transfer Taxes. On the Closing Dates (as defined in Section 2(d)
hereof), all transfer and other taxes (including franchise, capital stock and
other taxes, other than income taxes, imposed by any jurisdiction), if any,
which are required to be paid in connection with the sale and transfer of the
Shares to the Underwriters hereunder shall have been fully paid or provided for
by the Company and the Selling Stockholders, and all laws imposing such taxes
shall have been fully complied with.
(xviii) Exhibits. All contracts and other documents of the Company which
are, under the Rules and Regulations, required to be filed as exhibits to the
Registration Statement have been so filed.
(xix) Stockholder Agreements, Registration Rights. Except as described in
the Prospectus, no security holder of the Company has any rights with respect to
the purchase, sale or registration of any Securities, and all registration
rights with respect to the Offering have been waived or complied with.
(xx) No Stabilization or Manipulation. The Company has not taken and will
not take, directly or indirectly, any action designed to cause or result in, or
which has constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the Common Stock to facilitate the
sale or resale of the Securities hereunder.
(xxi) No Finders. Except for this Agreement and any other agreements with
the Underwriter, the Company has not entered into any agreement pursuant to
which any person is entitled either directly or indirectly to compensation from
the Company for services as a finder in connection with the proposed public
offering.
<PAGE>
(xxii) Lock-up Agreements. The Company has obtained from each officer,
director (the "Shareholders"), Lock-Up agreements in the form previously
delivered.
(b) Each of the Selling Stockholders, severally and not
jointly, represents and warrants to, and agrees with, the Underwriter as of the
date hereof, each of subparagraphs (i) through (xxii), inclusive, of subsection
(a) of this Section 1 and as follows:
(i) The execution and delivery of this Agreement and the consummation
of the transactions herein and therein contemplated will not result in a
breach by such Selling Stockholder of, or constitute a default by such
Selling Stockholder under, any material indenture, deed or trust, contract
or other agreement or instrument or any decree, judgment or order to which
such Selling Stockholder is a party or by which such Selling Stockholder
may be bound.
(ii) Such Selling Stockholder has and will have, at the First Closing
Date, good and marketable title to the Shares to be sold by such Selling
Stockholder hereunder, free and clear of any pledge, lien, security
interest, encumbrance, claim or equity, created by or arising through the
Selling Stockholder other than pursuant to this Agreement; such Selling
Stockholder has full right, power and authority to sell, transfer and
deliver the Shares to be sold by such Selling Stockholder hereunder; and
upon delivery of the Shares to be sold by such Selling Stockholder
hereunder and payment of the purchase price therefor as herein
contemplated, the Underwriter will receive good and marketable title to the
Shares purchased by it from such Selling Stockholder, free and clear of any
pledge, lien, security interest, encumbrance, claim or equity.
(iii) Such Selling Stockholder has duly executed and delivered in the
form heretofore furnished to the Underwriter, a power of attorney and
custody agreement (the "Power of Attorney and Custody Agreement") with
______________as the attorney-in-fact and the custodian (the
"Attorney-in-Fact" and the "Custodian", respectively); the Attorney-in-Fact
is authorized to execute and deliver this Agreement and the certificates
referred to in Section 4(k) or that may be required pursuant to Section
4(h) on behalf of such Selling Stockholder, to authorize the delivery of
the Shares to be sold by such Selling Stockholder hereunder, to duly
endorse (in blank or otherwise) the certificate or certificates
representing such Shares, to accept payment therefor, and otherwise to act
on behalf of such payment therefor, and otherwise to act on behalf of such
Seller in connection with this Agreement.
(iv) All authorizations, approvals and consents necessary for the
execution and delivery by such Selling Stockholder of the Power of Attorney
and Custody Agreement, the execution and delivery by or on behalf of such
Selling Stockholder of this Agreement, and the sale and delivery of the
Shares to be sold by such Selling Stockholder hereunder and thereunder
(other than, at the time of the execution hereof, the issuance of the order
of the Commission declaring the Registration Statement effective and such
authorizations, approvals or consents as may be necessary under state
securities laws), have been obtained and are in full force and effect; and
such Selling Stockholder has the full right, power and authority to enter
into this Agreement and the Power of Attorney and Custody
<PAGE>
Agreement and to sell, transfer and deliver the Shares to be sold by
such Selling Stockholder hereunder.
(v) For a period of ___ days from the date hereof, such Selling
Stockholder will not, without the prior written consent of the Underwriter,
directly or indirectly, offer to sell, grant any option for the sale of, or
otherwise dispose of, any Common Stock of the Company or any securities
convertible into Common Stock owned by such Selling Stockholder or with
respect to which such Selling Stockholder has the power of disposition,
other than to the Underwriter pursuant to this Agreement.
(vi) Such Selling Stockholder has not taken, and will not take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security or the Company
to facilitate the sale or exercise of the Shares.
(vii) Certificates in negotiable form for all Shares to be sold by
such Selling Stockholder hereunder have been placed in custody with the
Custodian by or for the benefit of such Selling Stockholder for the
purposes or effecting delivery by such Selling Stockholder hereunder.
2. PURCHASE, DELIVERY AND SALE OF THE SHARES.
(a) Purchase Price for the Shares.
The Shares shall be sold to and purchased by the Underwriter hereunder at
the purchase price of $4.50 per Share (that being the public offering price of
$5.00 per Share less an underwriting discount of 10 percent) (the "Purchase
Price").
(b) Firm Shares.
(i) Subject to the terms and conditions of this Agreement, and on the
basis of the representations, warranties and agreements herein contained the
Company and the Selling Stockholders agree to issue and sell to the Underwriter,
and the Underwriter agrees to buy from the Company and the Selling Stockholders
at the Purchase Price, the Firm Shares.
(ii) Delivery of the Firm Shares against payment therefor shall take
place at the offices of the Underwriter (or at such other place as may be
designated by agreement between you and the Company) at 10:00 a.m., Eastern
Daylight Time, on _______ , 1998, or at such later time and date, not later than
five (5) business days after the Effective Date, as you may designate (such time
and date of payment and delivery for the Firm Shares being herein called the
"First Closing Date"). Time shall be of the essence and delivery of the Firm
Shares at the time and place specified in this Section 2(b)(ii) is a further
condition to the obligations of the Underwriter hereunder.
<PAGE>
(c) Option Shares.
(i) In addition, subject to the terms and conditions of this
Agreement, and on the basis of the representations, warranties and agreements
herein contained, the Company and the Selling Stockholders hereby grant to the
Underwriter an option (the "Over-Allotment Option"), to purchase from the
Company all or any part of 187,500 Option Shares at the Purchase Price.
(ii) The Over-Allotment Option may be exercised by the Underwriter, in
whole or in part, within 45 calendar days after the Effective Date, upon written
notice by you to the Company, advising the Company of the number of Option
Shares as to which the Over-Allotment Option is being exercised, the names and
denominations in which the certificates for the Option Shares are to be
registered, and the time and date when such certificates are to be delivered.
Such time and date shall be determined by you but shall not be less than two nor
more than 10 business days after exercise of the Over-Allotment Option, nor in
any event prior to the First Closing Date (such time and date being herein
called the "Option Closing Date"). Delivery of the Option Shares against payment
therefor shall take place at the Underwriter's Offices. Time shall be of the
essence and delivery at the time and place specified in this Section 2(c)(ii) is
a further condition to the obligations of the Underwriter hereunder.
(iii) The Over-Allotment may be exercised only to cover
over-allotments in the sale by the Underwriter of Firm Shares.
(d) Delivery of Certificates; Payment.
(i) The Company and the Selling Stockholders shall make the
certificates for the Shares to be purchased hereunder available to you for
checking at least one full business day prior to the First Closing Date or the
Option Closing Date (each, a "Closing Date"), as the case may be. The
certificates shall be in such names and denominations as you may request at
least two business days prior to the relevant Closing Date. Time shall be of the
essence and the availability of the certificates at the time and place specified
in this Section 2(d)(1) is a further condition to the obligations of the
Underwriter hereunder.
(ii) On the First Closing Date, the Company and the Selling
Stockholders shall deliver to you for the account of the Underwriter definitive
engraved certificates in negotiable form representing all of the Shares
comprising the Firm Shares to be sold by the Company and the Selling
Stockholders, against payment of the Purchase Prices therefor by you, for your
account, by certified or bank cashier's checks payable in New York Clearing
House funds to the order of the Company and each Selling Stockholder in the
appropriate amounts.
(iii) In addition, if and to the extent that the Underwriter
exercises the Over-Allotment Option, then on the Option Closing Date the Company
shall deliver to you for your
<PAGE>
account, definitive engraved certificates in negotiable form representing the
Shares and the Warrants comprising the Option Securities to be sold by the
Company, against payment of the Purchase Prices therefor by you for your
account, by certified or bank cashier's checks payable in next day funds to the
order of the Company.
(iv) It is understood that the Underwriter proposes to offer the
Firm Shares to be purchased hereunder to the public, upon the terms and
conditions set forth in the Registration Statement, after the Registration
Statement becomes effective.
3. COVENANTS OF THE COMPANY. The Company covenants and agrees
with the Underwriter that:
(a) Registration.
(i) The Company shall use its best effort to cause the Registration
Statement to become effective and, upon notification from the Commission that
the Registration Statement has become effective, shall so advise you and shall
not at any time, whether before or after the Effective Date, file any amendment
to the Registration Statement or any amendment or supplement to the Prospectus
of which you shall not previously have been advised and furnished with a copy,
or to which you or Underwriter's Counsel shall have objected in writing, or
which is not in compliance with the Act and the Rules and Regulations.
(ii) Promptly after you or the Company shall have been advised thereof, you
shall advise the Company or the Company shall I advise you, as the case may be,
and confirm such advice in writing, of (A) the receipt of any comments of the
Commission, (B) the effectiveness of any post-effective amendment to the
Registration Statement, (C) the filing of any supplement to the Prospectus or
any amended Prospectus, (D) any request made by the Commission for amendment of
the Registration Statement or amendment or supplementing of the Prospectus, or
for additional information with respect thereto, or (E) the issuance by the
Commission or any state or regulatory body of any stop order or other order
denying or suspending the effectiveness of the Registration Statement, or
preventing or suspending the use of any Preliminary Prospectus, or suspending
the qualification of the Securities for offering in any jurisdiction, or
otherwise preventing or impairing the Offering, or the institution or threat of
any proceeding for any of such purposes. The Company and you shall not acquiesce
in such order or proceeding, and shall instead actively defend such order or
proceeding, unless the Company and you agree in writing to such acquiescence.
(iii) The Company has caused to be delivered to you copies of each
Preliminary Prospectus, and the Company has consented and hereby consents to the
use of such copies for the purposes permitted by the Act. The Company authorizes
the Underwriter and selected dealers to use the Prospectus in connection with
the sale of the Shares for such period as in the opinion of Underwriter's
Counsel the use thereof is required to comply with the applicable provisions of
the Act
<PAGE>
and the Rules and Regulations. In case of the happening, at any time within such
period as a prospectus is required under the Act to be delivered in connection
with sales by the Underwriter or a dealer, of any event of which the Company has
knowledge and which materially affects the Company or the Securities, or which
in the opinion of Company Counsel or of Underwriter's Counsel should be set
forth in an amendment to the Registration Statement or an amendment or
supplement to the Prospectus in order to make the statement made therein not
then misleading, in light of the circumstances existing at the time the
Prospectus is required to be delivered to a purchaser of the Shares, or in case
it shall be necessary to amend or supplement the Prospectus to comply with the
Act or the Rules and Regulations, the Company shall notify you promptly and
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 you may reasonably request, in order that the Prospectus, as so
amended or supplemented, shall not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements in the Prospectus, in the light of the circumstances under which they
are made, not misleading. The preparation and furnishing of each such amendment
to the Registration Statement, amended Prospectus or supplement to be attached
to the Prospectus shall be without expense to the Underwriter. If the
Underwriter is required, in connection with the sale of the Securities, to
deliver a prospectus nine months or more after the Effective Date, the Company
shall upon your request, amend the Registration Statement and amend or
supplement the Prospectus, or file a new registration statement, if necessary,
and furnish the Underwriter with reasonable quantities of prospectuses complying
with section 10(a)(3) of the Act.
(iv) The Company will deliver to you at or before the First Closing Date
two signed copies of the Registration Statement including all financial
statements and exhibits filed therewith, and of all amendments thereto. The
Company will deliver to or upon your order, from time to time until the
Effective Date as many copies of any Preliminary Prospectus filed with the
commission prior to the Effective Date as you may reasonably request. The
Company will deliver to you on the Effective Date and thereafter for so long as
a Prospectus is required to be delivered under the Act, from time to time, as
many copies of the Prospectus, in final form, or as thereafter amended or
supplemented, as the Underwriter may from time to time reasonably request.
(v) The Company shall comply with the Act, the Rules and Regulations, and
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules and regulations promulgated thereunder in connection with the offering and
issuance of the Securities in all material respects.
(b) Blue Sky. The Company shall, at its own expense, use its best
efforts to qualify or register the Securities for sale (or obtain an
exemption from registration) under the securities or "blue sky" laws of
such jurisdictions as you may designate, and shall make such applications
and furnish such information to Underwriter's Counsel as may be required
for that purpose, and shall comply with such laws; provided, however, that
the Company shall not be required to qualify as a foreign corporation or a
dealer in securities or to execute a general consent to service of process
in any jurisdiction in any action other than one arising out of the
offering or sale of the
<PAGE>
Securities. The Company shall bear all of the expense of such qualifications and
registrations, including without limitation the legal fees and disbursements of
Underwriter's Counsel, which fees, exclusive of disbursements, shall not exceed
$35,000 (unless otherwise agreed). After each Closing Date the Company shall, at
its own expense, from time to time prepare and file such statements and reports
as may be required to continue each such qualification (or maintain such
exemption from registration) in effect for so long a period as required by law,
regulation or administrative policy in connection with the offering of the
Securities. In addition, the Company shall engage Underwriter's Counsel to
provide the Underwriter, at the Closing and quarterly thereafter, until such
time as the Common Stock is listed on the New York Stock Exchange or the
American Stock Exchange or quoted on NASDAQ/NMS, with a memorandum, setting
forth those states in which the Common Stock may be traded in non-issuer
transactions under the Blue Sky laws of the 50 states. The Company shall pay
such counsel a one-time fee of $7,500 at the Closing for such opinions.
(c)Prospectus Copies. The Company shall deliver to you on or before
the First Closing Date a copy of the Registration Statement including all
financial statements, schedules and exhibits filed therewith, and of all
amendments thereto. The Company shall deliver to or on the order of the
Underwriter, from time to time until the Effective Date, as many copies of
any Preliminary Prospectus filed with the Commission prior to the Effective
Date as the Underwriter may reasonably request. The Company shall deliver
to the Underwriter on the Effective Date, and thereafter for so long as a
prospectus is required to be delivered under the Act, from time to time, as
many copies of the Prospectus, in final form, or as thereafter amended or
supplemented, as the Underwriter may from time to time reasonably request.
(d) Amendments and Supplements. The Company shall, promptly upon your
request, prepare and file with the Commission any amendments to the
Registration Statement, and any amendments or supplements to the
Preliminary Prospectus or the Prospectus, and take any other action which
in the reasonable opinion of Underwriter's Counsel and Company Counsel may
be reasonably necessary or advisable in connection with the distribution of
the Securities, and shall use its best efforts to cause the same to become
effective as promptly as possible.
(e) Certain Market Practices. The Company has not taken, and shall not
take, directly or indirectly, any action designed, or which might
reasonably be expected, to cause or result in, or which has constituted,
the stabilization or manipulation of the price of the Securities to
facilitate the sale or resale thereof.
(f) Certain Representations. Neither the Company nor any
representative of the Company has made or shall make any written or oral
representation in connection with the Offering and sale of the Securities
or the Underwriter's Warrant that is not contained in the Prospectus, which
is otherwise inconsistent with or in contravention of anything contained in
the Prospectus, or which shall constitute a violation of the Act, the Rules
and Regulations, the Exchange Act or the rules and regulations promulgated
under the Exchange Act.
<PAGE>
(g) Use of Proceeds. The Company shall apply the net proceeds from the
sale of the Securities substantially for the purposes set forth in the
Prospectus under the caption "USE OF PROCEEDS," and shall file such reports
with the Commission with respect to the sale of the Securities and the
application of the proceeds therefrom as may be required pursuant to Rule
463 of the Rules and Regulations.
(h) Twelve Months' Earnings Statement. The Company shall make
generally available to its security holders and deliver to you as soon as
it is practicable so to do, but in no event later than 90 days after the
end of twelve months after the close of its Current fiscal quarter, an
earnings statement (which need not be audited) covering a period of at
least 12 consecutive months beginning after the Effective Date, which shall
satisfy the requirements of section 11 (a) of the Act.
(i) NASDAQ Exchange Listings, Etc. The Company shall immediately make
all filings required to seek approval for the quotation of the Securities
on the NASDAQ Small Cap Market ("NASDAQ") and shall use its best efforts to
effect and maintain such approval for at least five years from the
Effective Date. Within 10 days after the Effective Date, the Company shall
also use its best efforts to list itself in Moody's OTC Industrial Manual,
Standard & Poor's or other recognized securities manual acceptable to the
Underwriter and to cause such listing to be maintained for five years from
the Effective Date.
(j) Board of Directors. For a period of five (5) years from the
Effective Date, the Company shall allow an observer designated by the
Underwriter and reasonably acceptable to the Company, to receive notice of
and to attend all meetings of the Board of Directors of the Company and
shall be compensated in the same manner as are non-employee directors of
the Company. The Company shall hold at least four (4) meetings per year and
the observer will be indemnified by the Company against any claims arising
out of his participation at Board Meetings and shall be compensated for all
reasonable travel and lodging expenses incurred.
(k) Periodic Reports. For so long as the Company is a reporting
company under section 12(g) or section 15(d) of the Exchange Act, the
Company shall, at its own expense, furnish to its stockholders an annual
report (including financial statements audited by certified public
accountants) in reasonable detail. In addition, during the period ending
five years from the date hereof, the Company shall, at its own expense,
furnish to you: (i) within 90 days of the end of each fiscal year, a
balance sheet of the Company and its Subsidiaries as at the end of such
fiscal year, together with statements of income, stockholders' equity and
cash flows of the Company and its Subsidiaries as at the end of such fiscal
year, all in reasonable detail and accompanied by a copy of the certificate
or report thereon of certified public accountants; (ii) as soon as they are
available, a copy of all reports (financial or otherwise) distributed to
security holders; (iii) as soon as they are available, a copy of all
non-confidential reports and financial statements furnished to or filed
with the Commission; and (iv) such other information as you may from time
to time reasonably request. The
<PAGE>
financial statements referred to herein shall be on a consolidated basis to the
extent the accounts of the Company and its Subsidiaries are consolidated in
reports furnished to its stockholders generally.
(l) Certain Options. For a period of two (2) years following the First
Closing Date, the Company shall not, without your prior written consent,
grant any options, warrants or other rights to purchase shares of Common
Stock at a price less than the lesser of the Public Offering price of the
Shares or the market price of the Common Stock.
(m) Form S-8 Registrations. For a period of two (2) years following
the First Closing Date, the Company shall not register or otherwise
facilitate the registration of any of its securities issuable upon the
exercise of options, warrants (other than the Warrants and the
Underwriter's Warrant) or other rights, whether by means of a Registration
Statement on Form S-8 or otherwise, without your prior written consent.
(n) Future Sales. For a period of two (2) years following the First
Closing Date, the Company shall not issue, sell or otherwise dispose of any
securities of the Company without your prior written consent, which consent
shall not be unreasonably withheld; provided, however, that the Company may
at any time issue shares of Common Stock pursuant to the exercise of the
Underwriter's Warrant, and options, warrants or conversion rights issued
and outstanding on the Effective Date and described in the Prospectus.
(o) Regulation S Sales. For a period of two (2) years following the
First Closing Date, the Company shall not issue or sell any securities
pursuant to Regulation S of the Rules and Regulations under the Act,
without your prior written consent.
(p) Agreements with Directors and Officers. The Company shall deliver
written agreements of each of the Company's directors and officers entered
into with the Underwriter (the "Lock-up Agreements") prior to the Effective
Date pursuant to which said director or officer shall (x) agree not to
sell, assign, hypothecate, pledge, transfer or otherwise dispose of any
shares of Common Stock owned by them, or subsequently acquired by them upon
the exercise of any options or warrants or conversion of any convertible
security of the Company, directly or indirectly, for a period of
twenty-four (24) months following the Effective Date, except with the prior
written consent of the Underwriter, which consent shall not be unreasonably
withheld; (y) authorize the Company to place a restrictive legend on all
certificates evidencing securities owned by them advising of the
restriction referred to in clause (x) above, and (z) authorize the Company
to issue appropriate stop transfer instructions to the Transfer Agent for
the Common Stock noting the restriction referred to in clause (x) above.
(q) Available Shares. The Company shall reserve and at all times keep
available that maximum number of its authorized but unissued Securities
which are issuable upon exercise of the Underwriter's Warrant, in each case
taking into account the anti-dilution provisions
<PAGE>
thereof.
(r) Financial Consulting Agreement. On the First Closing Date and
simultaneously with the delivery of the Firm Shares, the Company shall
execute and deliver to you an agreement with you, in the form previously
delivered to the Company by you, regarding your services as a financial
consultant to the Company (the "Financial Consulting Agreement").
(s) Management. On each Closing Date, the President of the Company
shall be Alan Lubinsky, and the Chief Financial Officer of the Company
shall be Ivan Averbuch. On or prior to the Effective Date, the Company
shall have (A) entered into employment agreements with Messrs. Lubinsky and
Averbuch on terms satisfactory to the Underwriter and (B) obtained "key
man" life insurance coverage on the life of Mr. Lubinsky, naming the
Company as beneficiary and having a face value of at least $1,000,000, for
terms, and with an insurance agency, mutually agreed upon by the Company
and you. The Company shall use its best efforts to maintain such insurance
during the three-year period commencing on the First Closing Date.
(t) Stock Transfer Sheets. The Company shall instruct its transfer
agent to deliver to you copies of all advance sheets showing the daily
transfer of the outstanding shares of Common Stock sold by the Company in
the public offering and shall, at its own expense, furnish you with
Depository Trust Company stock transfer sheets on a weekly basis for the
period ending three (3) years from the First Closing Date.
(u) Public Relations. Prior to the Effective Date the Company shall
have retained a public relations firm reasonably acceptable to you, and
shall continue to retain such firm, or an alternate firm reasonably
acceptable to you, for a period of two years.
(v) Bound Volumes. Within 120 days from the First Closing Date, the
Company shall deliver to you, at the Company's expense, two bound volumes
in form and content acceptable to you, containing the Registration
Statement and all exhibits filed therewith and all amendments thereto, and
all other agreements, correspondence, filings, certificates and other
documents filed and/or delivered in connection with the Offering.
(w) Right of First Refusal. (i) The Company shall: grant to the
Underwriter a preferential right on the terms and subject to the conditions
set forth in Sections 3(r) and 3(p), for a period of three (3) years from
the Effective Date, to purchase for its account, or to sell for the account
of the Company or its present affiliates or subsidiaries or any of its
stockholders listed in the Prospectus under the caption "PRINCIPAL
STOCKHOLDERS" (the "Principal Stockholders"), any securities of the Company
or its Subsidiaries or future subsidiaries, on terms not more favorable to
the Company or such present or future subsidiary or affiliate or the
Principal Stockholders than they can secure elsewhere, to purchase or sell
any such securities. If the Underwriter fails to notify the Company in
writing of its intention to act as underwriter or placement agent or
otherwise participate
<PAGE>
or introduce a third party to participate in such offering within fifteen (15)
days after receipt of a notice containing such proposal, then the Underwriter
shall have no further claim or right with respect to the proposal contained in
such notice. If thereafter, such proposal is materially modified, the Company,
and each present or future affiliate or subsidiary or its Principal Stockholders
shall in all respects have the same obligations and adopt the same procedures
with respect to such proposal as are provided hereinabove with respect to the
original proposal; (ii) if the Underwriter acts as underwriter or placement
agent with respect to such offering or introduces a third party (other than an
underwriter) which participates in such offering, then the Underwriter shall
receive, as compensation for services rendered, ten (10%) percent of the
aggregate consideration received by the Company through the Underwriter or the
party introduced by the Underwriter and warrants to purchase an amount of
securities equal to ten (10%) percent of the securities sold by the Company in
such offering through the Underwriter or the party introduced by the Underwriter
at an exercise price per security equal to the offering price of such
securities. If the Underwriter introduces another underwriter who acts as
underwriter with respect to such offering, then the Underwriter shall be
entitled to receive two and one-half (2 1/2%) percent of the aggregate
consideration received by the Company through such underwriter and warrants to
purchase an amount of securities equal to two and one-half (2 1/2%) percent of
the securities sold by the Company in such offering through such underwriter;
(iii) if the Underwriter is offered the right of first refusal and agrees to
perform such functions, but fails to perform, the Underwriter will not be
entitled to any such compensation, and waives its right of first refusal with
respect to future offerings unless such failure to perform is caused by the
Company; and (iv) if the Underwriter does not perform any of the functions set
forth in (ii) above and (iii) does not apply to such transaction, the
Underwriter shall be entitled to receive an aggregate of two and one-half (2
1/2%) percent of the aggregate consideration received by the Company and
warrants to purchase an amount of securities equal to two and one-half (2 1/2%)
percent of the securities sold by the Company in such offering at an exercise
price per security equal to the offering price of such securities.
4. CONDITIONS TO UNDERWRITER'S OBLIGATIONS. The obligations of
the Underwriter to purchase and pay for the Securities which they have agreed to
purchase hereunder are subject to the accuracy (as of the date hereof and as of
each Closing Date) of and compliance with the representations and warranties of
the Company and the Selling Stockholders contained herein, the performance by
the Company and the Selling Stockholders of all of their respective obligations
hereunder and the following further conditions:
(a) Effective Registration Statement; No Stop Order. The Registration
Statement shall have become effective and you shall have received notice
thereof not later than 6:00 p.m., New York time, on the date of this
Agreement, or at such later time or on such later date as to which you may
agree in writing. In addition, on each Closing Date (i) no stop order
denying or suspending the effectiveness of the Registration Statement shall
be in effect, and no proceedings for that or any 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, and (ii)
all requests on the part of the Commission for additional information shall
have been complied with to the reasonable
<PAGE>
satisfaction of Underwriter's Counsel.
(b) Opinion of Company Counsel. On the First Closing Date, you shall
have received the opinion, dated as of the First Closing Date, of Company
Counsel, in form and substance satisfactory to the Underwriter's Counsel,
to the effect that:
(i) the Company and its Subsidiaries have been duly incorporated
and are validly existing as corporations in good standing under the
laws of their respective jurisdictions of incorporation, with full
corporate power and authority to own their properties and conduct
their business as described in the Prospectus, and are duly qualified
or licensed to do business as foreign corporations and are in good
standing in each other jurisdiction in which the nature of their
business or the character or location of their properties requires
such qualification, except where failure to so qualify will not have a
material adverse effect on the business, properties or financial
condition of the Company or its Subsidiaries;
(ii) (A) the authorized capitalization of the Company as of the
date of the Prospectus was as is set forth in the Prospectus under the
caption "CAPITALIZATION;" (B) all of the shares of capital stock now
outstanding have been duly authorized and validly issued, are fully
paid and non-assessable, conform in all material respects to the
description thereof contained in the Prospectus, have not been issued
in violation of the preemptive rights of any stockholder and, except
as described in the Prospectus, are not subject to any restrictions
upon the voting or transfer thereof; (C) all have been duly authorized
and, when issued and delivered to the Underwriter against payment
therefor as provided herein, shall be validly issued, fully paid and
non-assessable, shall not have been issued in violation of the
preemptive rights of any stockholder, and no personal liability shall
attach to the ownership thereof; (D) the stockholders of the Company
do not have any preemptive rights or other rights to subscribe for or
purchase, and except for the transfer restrictions imposed by Rule 144
of the Rules and Regulations promulgated under the Act or contained in
the Lock-up Agreements executed with the Underwriter, there are no
restrictions upon the voting or transfer of, any of the Securities;
(E) the Shares and the Underwriter's Warrant conform in all material
respects to the respective descriptions thereof contained in the
Prospectus; (F) all issuances of the Company's securities have been
made in compliance with, or under an exemption from, the Act and
applicable state securities laws; (G) a sufficient number of shares of
Common Stock has been reserved, for all times when the Underwriter's
Warrant is outstanding, for issuance upon exercise of the
Underwriter's Warrant; and (H) to the knowledge of such counsel,
neither the filing of the Registration Statement nor the offering or
sale of the Securities as contemplated by this Agreement gives rise to
any registration rights or other rights, other than those which have
been effectively waived or satisfied or described in the Prospectus,
for or relating to the registration of any securities of the Company;
(iii) the certificates evidencing the Shares are each in valid
and proper legal form;
<PAGE>
(iv) this Agreement, the Underwriter's Warrant and the Financial
Consulting Agreement have been duly and validly authorized, executed
and delivered by the Company and (assuming due execution and delivery
thereof by the Underwriter all of such agreements are, or when duly
executed shall be, the valid and legally binding obligations of the
Company, enforceable in accordance with their respective terms (except
as enforceability may be limited by bankruptcy, insolvency or other
laws affecting the rights of creditors generally); provided, however,
that no opinion need to be expressed as to the enforceability of the
indemnity provisions contained in Section 6 or the contribution
provisions contained in Section 7;
(v) to the knowledge of such counsel, other than as described in
the Prospectus (A) there is no pending, threatened or contemplated
legal or governmental proceeding affecting the Company which could
materially and adversely affect the business, property, operations,
condition (financial or otherwise) or earnings of the Company, or
which questions the validity of the Offering, the Securities, this
Agreement, the Underwriter's Warrant or the Financial Consulting
Agreement or of any action taken or to be taken by the Company
pursuant thereto; and (B) there is no legal or governmental regulatory
proceeding required to be described or referred to in the Registration
Statement which is not so described or referred to;
(vi) to the knowledge of such counsel, (A) the Company is not in
violation of or in default under this Agreement, the Underwriter's
Warrant or the Financial Consulting Agreement; and (B) to the
knowledge of such counsel, the execution and delivery hereof and
thereof and consummation of the transactions herein or therein
contemplated shall not result in a material violation of, or
constitute a default under, the Certificate of Incorporation or
By-laws of the Company, both as amended to date, or any material
obligation, agreement, covenant or condition contained in any bond,
debenture, note or other evidence of indebtedness, or in any material
contract, indenture, mortgage, loan agreement, lease, joint venture or
other agreement or instrument to which the Company is a party or by
which the assets of the Company is bound, or any material order, rule,
regulation, writ, injunction or decree of any government, governmental
instrumentality or court applicable to the Company;
(vii) to the knowledge of such counsel, (a) the Company and each
Subsidiary has obtained, or is in the process of obtaining, all
licenses, permits and other governmental authorizations necessary to
the conduct of their business as described in the Prospectus, (b) such
obtained licenses, permits and other governmental authorizations are
in full force and effect, and (c) the Company and each Subsidiary is
in all material respects complying therewith;
(viii) the Registration Statement has become effective under the
Act, and to the knowledge of such counsel, no stop order denying or
suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for that or any similar purpose have been
instituted or are pending before or threatened by the Commission;
<PAGE>
(ix) the Registration Statement and the Prospectus (except for
the financial statements, notes thereto and other financial
information and statistical data contained therein, as to which
counsel need not express an opinion) comply as to form in all material
respects with the Act and the Rules and Regulations;
(x) all descriptions contained in the Registration Statement and
the Prospectus, and any amendments or supplements thereto, of
contracts and other documents are accurate and fairly present the
information required to be described, and such counsel is familiar
with all contracts and other documents referred to in the Registration
Statement and the Prospectus, and any such amendment or supplement, or
filed as exhibits to the Registration Statement and, to the knowledge
of such counsel, no contract, document, license or permit of a
character required to be summarized or described therein or to be
filed as an exhibit thereto is not so summarized, described or filed.
(xi) the statements in the Registration Statement and the
Prospectus under the captions "Risk Factors," "Use of Proceeds,"
"Business," "Management," and "Description of Securities," which
purport to summarize the provisions of agreements, licenses, statutes
or rules and regulations, have been reviewed by such counsel and are
accurate summaries in all material respects;
(xii) except for registration under the Act and registration or
qualification of the Securities under applicable state or foreign
securities or blue sky laws, no authorization, approval, consent or
license of any governmental or regulatory authority or agency is
necessary in connection with: (A) the authorization, issuance, sale,
transfer or delivery of the Securities by the Company and the Selling
Stockholders in accordance with this Agreement; (B) the execution,
delivery and performance of this Agreement by the Company and the
Selling Stockholders or the taking of any action contemplated herein;
(C) the issuance of the Underwriter's Warrant in accordance with this
Agreement or the Securities issuable upon exercise thereof; or the
taking of any action contemplated herein.
Such opinion shall also state that Company Counsel's examination of the
Registration Statement and its discussions with the Company and its independent
auditors did not disclose any information which gives Company Counsel reason to
believe that the Registration Statement (other than the financial statements and
other financial and statistical information as to which counsel need not express
an opinion) at the time it became effective contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, or that the
Prospectus (other than the schedules, financial statements and other financial
and statistical information as to which no view is expressed) at the time it
became effective contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus (other than the
financial statements and other financial and statistical information as to which
counsel need not express an opinion) contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. In addition, such opinion shall also cover such matters incident to
the transactions contemplated hereby as you or Underwriter's Counsel shall
reasonably request. In
<PAGE>
rendering such opinion, Company Counsel may rely as to matters of fact upon
certificates of officers of the Company, and of public officials, and may rely
as to all matters of law other than the law of the United States and the General
Corporation law of the State of Delaware upon opinions of counsel satisfactory
to you, in which case the opinion shall state that they have no reason to
believe that you and they are not entitled so to rely.
(e) Corporate Proceedings. All corporate proceedings and
other legal matters relating to this Agreement, the Registration Statement, the
Prospectus and other related matters shall be reasonably satisfactory to or
approved by Underwriter's Counsel.
(f) Comfort Letters. Prior to the Effective Date, and again
on and as of the First Closing Date, you shall have received letters from
Civvals, Chartered Accountants, certified public accountants for the Company in
form and substance satisfactory to Underwriter's Counsel.
(g) Bring Down. At each of the Closing Dates, (i) the
representations and warranties of the Company contained in this Agreement shall
be true and correct with the same effect as if made on and as of such Closing
Date, and the Company shall have performed all of its obligations hereunder and
satisfied all the conditions to be satisfied at or prior to such Closing Date;
(ii) the Registration Statement and the Prospectus shall contain all statements
which are required to be stated therein in accordance with the Act and the Rules
and Regulations, and shall in all material respects conform to the requirements
of the Act and the Rules and Regulations, and neither the Registration Statement
nor the Prospectus shall contain any untrue statement of a material fact or omit
to state any material fact required to be stated or which they were made, not
misleading; (iii) there shall have been, since the respective dates as of which
information is given, no material adverse change in the business, property,
operations, condition (financial or otherwise), earnings, capital stock,
long-term or short-term debt or general affairs of the Company from that set
forth in the Registration Statement and the Prospectus, except changes which the
Registration Statement and Prospectus indicate might occur after the Effective
Date, and the Company shall not have incurred any material liabilities or
entered into any material agreement other than as referred to in the
Registration Statement and Prospectus other than in the ordinary course of
business; and (iv) except as set forth in the Prospectus, no action, suit or
proceeding shall be pending or threatened against the Company before or by any
commission, board or administrative agency in the United States or elsewhere,
wherein an unfavorable decision, ruling or finding would materially adversely
affect the business, property, operations, condition (financial or otherwise),
earnings or general affairs of the Company. In addition, you shall have
received, at the First Closing Date, certificates signed by the respective
principal executive officers and principal financial officers of the Company,
dated as of the First Closing Date, evidencing compliance with the provisions of
this Section 4(g).
(h) Transfer and Warrant Agent. On or before the Effective Date, the
Company shall have appointed Continental Stock Transfer & Trust Company (or
other agent mutually
<PAGE>
acceptable to the Company and you), as its transfer agent and warrant agent to
transfer all of the Shares issued and sold by the Company and sold by the
Selling Stockholders in the Offering, as well as to transfer other shares of the
Common Stock outstanding from time to time.
(i) Certain Further Matters. On each Closing Date, Underwriter's Counsel
shall have been furnished with all such other documents and certificates as they
may reasonably request for the purpose of enabling them to render their legal
opinion to the Underwriter and in order to evidence the accuracy and
completeness of any of the representations, warranties or statements, the
performance of any of the covenants, or the fulfillment of any of the
conditions, herein contained.
(j) Additional Conditions. Upon exercise of the Over-Allotment Option,
the Underwriter's obligations to purchase and pay for the Option Shares shall be
subject (as of the date hereof and as of the Option Closing Date) to the
following conditions:
(i) The Registration Statement shall remain effective at the
Option Closing Date, no stop order denying or suspending the
effectiveness thereof shall have been issued, and no proceedings for
that or any similar purpose shall have been instituted or shall be
pending or, to your knowledge or the knowledge of the Company, shall
be contemplated by the Commission, and all reasonable requests on the
part of the Commission for additional information shall have been
complied with to the satisfaction of Underwriter's Counsel.
(ii) On the Option Closing Date there shall have been delivered
to you the signed opinion of Company Counsel, dated as of the Option
Closing Date, in form and substance satisfactory to Underwriter's
Counsel, which opinion shall be substantially the same in scope and
substance as the opinion furnished to you on the First Closing Date
pursuant to Section 4(b), except that such opinion, where appropriate,
shall cover the Option Shares rather than the Firm Shares. If the
First Closing Date is the same as the Option Closing Date, such
opinions may be combined.
(iii) All proceedings taken at or prior to the Option Closing
Date in connection with the same and issuance of the Option Shares
shall be satisfactory in form and substance to you and you and
Underwriter's Counsel shall have been furnished with all such
documents, certificates and opinions as you may reasonably request in
connection with this transaction in order to evidence the accuracy and
completeness of any of the representations, warranties or statements
of the Company or its compliance with any of the covenants or
conditions contained herein.
(iv) On the Option Closing Date there shall have been delivered
to you letters in form and substance satisfactory to you from Civvals,
Chartered Accountants, dated the Option Closing Date and addressed to
you, confirming the information in their letters referred to in
Section 4(f) as of the date thereof and stating that, without any
additional investigation required, nothing has come to their attention
during the period from the ending date of their review referred to in
such letters to a date not more than five (5) banking days prior to
the Option Closing Date which
<PAGE>
would require any change in such letters if they were required to
be dated the Option Closing Date.
If any of the conditions herein provided for in this Section shall not have been
completely fulfilled as of the date indicated, this Agreement and all
obligations of the Underwriter under this Agreement may be canceled at, or at
any time prior to, each Closing Date by your notifying the Company of such
cancellation in writing or by telecopy at or prior to the applicable Closing
Date. Any such cancellation shall be without liability of the Underwriter,
except as otherwise provided herein.
(k) At the First Closing Date the Underwriter shall have received a
certificate of the Attorney-in-Fact for each of the Selling Stockholders, dated
as of the First Closing Date, to the effect that (i) the representations and
warranties of each Selling Stockholder contained in Section 1 (b) are true and
correct with the same force and effect as though expressly made at and as of the
First Closing Date and (ii) each Selling Stockholder has compiled with all
agreements and satisfied all conditions on its part to be performed or satisfied
hereunder at or prior to the First Closing Date. The Attorney-in-Fact shall be
entitled to rely upon certificates of the Selling Stockholders in giving its
certificate.
5. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligations
of the Company and the Selling Stockholders to sell and deliver the Securities
are subject to the following conditions:
(a) Effective Registration Statement. The Registration Statement shall have
become effective not later than 6:00 p.m. Eastern time, on the date of this
Agreement, or at such later time or on such later date as the Company and you
may agree in writing.
(b) No Stop Order. On the applicable Closing Date, no stop order denying or
suspending the effectiveness of the Registration Statement shall have been
issued under the Act or any proceedings therefor initiated or threatened by the
Commission.
(c) Payment for Securities. On the applicable Closing Date, you shall have
made payment, for the account of the Underwriter, of the aggregate Purchase
Price for the Securities then being purchased by certified or bank cashier's
checks payable in next day funds to the order of the Company.
If the conditions to the obligations of the Company and the Selling
Stockholders provided by this Section 5 have been fulfilled on the First Closing
Date but are not fulfilled after the First Closing Date and prior to the Option
Closing Date, then only the obligation of the Company to sell and deliver the
Option Shares upon exercise of the Over-Allotment Option shall be affected.
6. INDEMNIFICATION.
(a) Indemnification by the Company. As used in this Agreement, the term
<PAGE>
"Liabilities" shall mean any and all losses, claims, damages and liabilities,
and actions and proceedings in respect thereof (including without limitation all
reasonable costs of defense and investigation and all attorneys' fees) including
without limitation those asserted by any party to this Agreement against any
other party to this Agreement. The Company and the Selling Stockholders hereby
indemnify and hold harmless the Underwriter and each person, if any, who
controls the Underwriter within the meaning of the Act, from and against all
Liabilities, joint or several, to which the Underwriter or such controlling
person may become subject, under the Act or otherwise, insofar as such
Liabilities arise out of or are based upon: (i) any untrue statement or alleged
untrue statement of any material fact, in light of the circumstances in which it
was made, contained in (A) the Registration Statement or any amendment thereto,
or the Prospectus or any Preliminary Prospectus, or any amendment or supplement
thereto, or (B) any "blue sky" application or other document executed by the
Company specifically for that purpose, or based upon written information
furnished by the Company, filed in any state or other jurisdiction in order to
qualify any or all of the Securities under the securities laws thereof (any such
application, document or information being herein called a "Blue Sky
Application"); or (ii) the omission or alleged omission to state in the
Registration Statement or any amendment thereto, or the Prospectus or any
Preliminary Prospectus, or any amendment or supplement thereto, or in any Blue
Sky Application, a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which it was made,
not misleading; provided, however, that the Company and the Selling Stockholders
shall not be liable in any such case to the extent, but only to the extent, that
any such Liabilities arise out of or are based upon an untrue statement or
alleged untrue statement or omission or alleged omission (x) made in reliance
upon and in conformity with written information furnished to the Company through
you by or on behalf of the Underwriter specifically for use in the preparation
of the Registration Statement or any such amendment thereto, or the Prospectus
or any such Preliminary Prospectus, or any such amendment or supplement thereto,
or any such Blue Sky Application or (y) corrected by the final Prospectus and
the failure of the Underwriter to deliver the final Prospectus. The foregoing
indemnity shall be in addition to any other liability, which the Company may
otherwise have.
(b) Indemnification by Underwriter. The Underwriter hereby indemnifies and
holds harmless the Company, each of its directors, each nominee (if any) for
director named in the Prospectus, each of its officers who have signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of the Act, and the Selling Stockholders from and against all
Liabilities to which the Company or any such director, nominee, officer or
controlling person and/or the Selling Stockholders may become subject under the
Act or otherwise, insofar as such Liabilities arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement or any amendment thereto, or the Prospectus or any
Preliminary Prospectus, or any amendment or supplement thereto, or (ii) the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that any such Liabilities arise
out of or are based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in the Registration Statement or any amendment
thereto, or the Prospectus or any Preliminary Prospectus, or any amendment or
supplement thereto, in reliance upon and in
<PAGE>
conformity with written information furnished to the Company through you, by or
on behalf of the Underwriter, specifically for use in the preparation thereof.
In no event shall the Underwriter be liable under this Section 6(b) for any
amount in excess of the compensation received by such Underwriter, in the form
of underwriting discounts or otherwise, pursuant to this Agreement or any other
agreement contemplated hereby. The foregoing indemnity shall be in addition to
any other liability, which any Underwriter may otherwise have.
(c) Procedure. Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under this Section 6, notify in writing the indemnifying party of the
commencement thereof, but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under this Section 6 unless the rights of the indemnifying party
have been prejudiced by such omission or delay. In case any, such action is
brought against any indemnified party and it notifies the indemnifying party of
the commencement thereof, the indemnifying party shall be entitled to
participate in and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, subject to
the provisions hereof, with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party shall not
be liable to such indemnified party under this Section 6 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. The indemnified
party shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided, however, that the fees and expenses of such
counsel shall be at the expense of the indemnifying party if (i) the employment
of such counsel has been specifically authorized in writing by the indemnifying
party, or (ii) the named parties to any such action (including any impleaded
parties) include both such indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it which are different from or in addition to those
available to the indemnifying party or that the indemnified and indemnifying
party have conflicting interests which would make it inappropriate for the same
counsel to represent both of them (in which case the indemnifying party shall
have the right to assume the defense of such action on behalf of the indemnified
party, it being understood, however, that the indemnifying party shall not, in
connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys). No settlement of any action against
an indemnified party shall be made without the consent of the indemnified party,
which shall not be unreasonably withheld in light of all factors of importance
to such indemnified party.
7. CONTRIBUTION. In order to provide for just and equitable contribution
under the Act in any case in which (a) any indemnified party makes claims for
indemnification pursuant to
<PAGE>
Section 6 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case, notwithstanding the fact that the express provisions of
Section 6 provide for indemnification in such case, or (b) contribution under
the Act may be required on the part of any indemnified party, then such
indemnified party and each indemnifying party (if more than one) shall
contribute to the aggregate Liabilities to which it may be subject, in either
such case (after contribution from others) in such proportions that the
Underwriter is responsible for the portion of such Liabilities represented by
the percentage that the underwriting discount per Share appearing on the cover
page of the Prospectus bears to the public offering price per Share, appearing
thereon, and the Company and/or the Selling Stockholders shall be responsible
for the remaining portion; provided, however, that if such allocation is not
permitted by applicable law, then the relative fault of the Company, the Selling
Stockholders and the Underwriter in connection with the statements or omissions
which resulted in such Liabilities and other relevant equitable considerations
shall also be considered. The relative fault shall be determined by reference
to, among other things, whether in the case of an untrue statement of material
fact or the omission to state a material fact, such statement or omission
relates to information supplied by the Company, the Selling Stockholders, or the
Underwriter, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
Company, the Selling Stockholders and the Underwriter agree that it would not be
just and equitable if the respective obligations of the Company, the Selling
Stockholders, and the Underwriter to contribute pursuant to this Section 7 were
to be determined by pro rata or per capita allocation of the aggregate
Liabilities or by any other method of allocation that does not take account of
the equitable considerations referred to in the first sentence of this Section
7. However, the contribution of the Underwriter shall not be in excess of the
cash compensation received by the Underwriter, in the form of underwriting
discounts or otherwise, pursuant to this Agreement or any other agreement
contemplated hereby. No person guilty of a fraudulent misrepresentation (within
the meaning of section 11 (f) of the Act) shall be entitled to contribution from
any person who is not guilty of such fraudulent misrepresentation. As used in
this Section 7, the term "Company" shall include any officer, director or person
who controls the Company within the meaning of section 15 of the Act. If the
full amount of the contribution specified in this Section 7 is not permitted by
law, then each indemnified party and each person who controls an indemnified
party shall be entitled to contribution from each indemnifying party to the
fullest extent permitted by law. The foregoing contribution agreement shall in
no way affect the contribution liabilities of any persons having liability under
section 11 of the Act other than the Company and the Underwriter. No
contribution shall be requested with regard to the settlement of any matter from
any party who did not consent to the settlement provided, however, that such
consent shall not be unreasonably withheld in light of all factors of importance
to such party.
8. COSTS AND EXPENSES.
(a) Certain Costs and Expenses. Whether or not this Agreement becomes
effective or the sale of the Securities to the Underwriter is consummated, the
Company shall pay all
<PAGE>
costs and expenses incident to the issuance, offering, sale and delivery of the
Securities and the performance of its obligations under this Agreement,
including without limitation: (i) all fees and expenses of the Company's legal
counsel and accountants; (ii) all costs and expenses incident to the
preparation, printing, filing, distribution and mailing of the Registration
Statement (including the financial statements contained therein and all exhibits
and amendments thereto), each Preliminary Prospectus and the Prospectus, each as
amended or supplemented, this Agreement and the other underwriting documents, as
well as the other agreements and documents referred to herein and the Blue Sky
Memorandum; each in such quantities as you shall deem necessary; (iii) all fees
of NASD required in connection with the filing required by NASD to be made by
the Underwriter with respect to the Offering; (iv) all expenses, including fees
(but not in excess of the amount set forth in Section 3(b) and disbursements of
Underwriter's Counsel in connection with the qualification of the Securities
under the "blue sky" laws which you shall designate; (v) all costs and expenses
of printing the respective certificates representing the Shares; (vi) the
expense of placing one or more "tombstone" advertisements or promotional
materials as directed by you and of Offering memorabilia; (vii) all costs and
expenses associated with due diligence meetings and presentations (including the
payment for road show conference centers); (viii) any and all taxes (including
without limitation any transfer, franchise, capital stock or another tax imposed
by any jurisdiction) on sales of the Securities to the Underwriter hereunder;
and (ix) all costs and expenses incident to the furnishing of any amended
Prospectus or any supplement to be attached to the Prospectus as required by
Sections 3(a) and 3(d), except as otherwise provided by said Sections.
(b) Underwriter's Expense Allowance. In addition to the expenses described
in Section 8(a), the Company shall on the First Closing Date pay to you, based
on the number of Firm Shares to be sold by the Company, the balance of a
non-accountable expense allowance (which shall include fees of Underwriter's
Counsel exclusive of the fees referred to in Section 3(b) of $________ (that
being an amount equal to three percent (3%) of the gross proceeds received upon
sale of the Firm Securities), of which $_ has been paid to you prior to the date
hereof. In the event that the Over-Allotment Option is exercised, then the
Company shall on the Option Closing Date pay to you, based on the number of
Option Shares sold by the Company, an additional amount equal to three percent
(3%) of the gross proceeds received upon sale of any of the Option Shares sold
to you by the Company. In the event that the transactions contemplated hereby
fail to be consummated for any reason, then you shall return to the Company that
portion of $ ___________ heretofore paid by the Company to the extent that it
has not been utilized by you in connection with the Offering for accountable
out-of-pocket expenses; provided, however, that if such failure is due to a
breach by the Company of any covenant, representation or warranty contained
herein or because any other condition to the Underwriter's obligations hereunder
required to be fulfilled by the Company is not fulfilled, then the Company shall
be liable for your accountable out-of-pocket expenses to the full extent thereof
(with credit given to the $ ________ paid).
(c) No Finders. No person is entitled either directly or indirectly to
compensation from the Company, the Underwriter or any other person for services
as a finder in connection with the Offering, and the Company hereby indemnifies
and holds harmless the
<PAGE>
Underwriter, and the Underwriter hereby indemnifies and holds harmless the
Company from and against all Liabilities, joint or several, to which the
indemnified party may become subject insofar as such Liabilities arise out of or
are based upon the claim of any person (other than an employee of the party
claiming indemnity) or entity that he or it is entitled to a finder's fee in
connection with the Offering by reason of such person's or entity's influence or
prior contact with the indemnifying party.
9. [RESERVED].
10. EFFECTIVE DATE. The Agreement shall become effective upon
its execution, except that you may, at your option, delay its effectiveness
until 10:00 a.m., Eastern time, on the first full business day following the
Effective Date, or at such earlier time after the Effective Date as you in your
discretion shall first commence the Public Offering by the Underwriter of any of
the Securities. The time of the Public Offering shall mean the time of release
by you of the first newspaper advertisement with respect to the Securities, or
the time when the Securities are first generally offered by you to dealers by
letter or telegram, whichever shall first occur. This Agreement may be
terminated by you at any time before it becomes effective as provided above,
except that the provisions of Sections 3(w), 6, 7, 8, 13, 14, 15 and 16 shall
remain in effect notwithstanding such termination.
11. TERMINATION.
(a) Grounds for Termination. This Agreement, except for Sections
3(w), 6, 7, 8, 1 3, 14, 15 and 16, may be terminated at any time prior to the
First Closing Date, and the Over-Allotment Option, if exercised, may be canceled
at any time prior to the Option Closing Date, by you if in your sole judgment it
is impracticable to offer for sale or to enforce contracts made by the
Underwriter for the resale of the Securities agreed to be purchased hereunder,
by reason of: (i) the Company having sustained a material loss, whether or not
insured, by reason of fire, earthquake, flood, accident or other calamity, or
from any labor dispute or court or government action, order or decree; (ii)
trading in securities on the Nasdaq Stock Market having been suspended or
limited; (iii) material governmental restrictions having been imposed on trading
in securities generally which are not in force and effect on the date hereof;
(iv) a banking moratorium having been declared by federal or New York State
authorities; (v) an outbreak or significant escalation of major international
hostilities or other national or international calamity having occurred; (vi)
the passage by the Congress of the United States or by any state legislative
body of similar impact, of any act or measure, or the adoption of any orders,
rules or regulations by any governmental body or any authoritative accounting
institute or board, or any governmental executive, which is reasonably believed
likely by you to have a material adverse impact on the business, financial
condition or financial statements of the Company; (vii) any material adverse
change in the financial or securities markets beyond normal fluctuations in the
United States having occurred since the date of this Agreement; or (viii) any
material adverse change having occurred, since the respective dates for which
information is given in the Registration Statement and Prospectus, in the
earnings, business, prospects or condition (financial or otherwise)
<PAGE>
of the Company, whether or not arising in the ordinary course of business.
(b) Notification. If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided by this Section 11 or by
Section 10, the Company shall be promptly notified by you, by telephone or
telegram, confirmed by letter.
12. UNDERWRITER'S WARRANT. On the First Closing Date, the Company shall
issue and sell to you, for a total purchase price of $10.00, and upon the terms
and conditions set forth in the form of Underwriter's Warrant filed as an
exhibit to the Registration Statement, a warrant entitling you to purchase up to
125,000 Shares (the "Underwriter's Warrant"). In the event of conflict in the
terms of this Agreement and the Underwriter's Warrant, the terms and conditions
of the Underwriter's Warrant shall control.
13. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties, covenants and
other statements of the Company, the Selling Stockholders and the Underwriter
set forth in Sections 3, 6, 7 and 8 of this Agreement shall remain in full force
and effect regardless of any investigation made by or on behalf of any other
party, and shall survive delivery of and payment for the Securities and the
termination of this Agreement. The Company and the Selling Stockholders hereby
indemnify and hold harmless the Underwriter from and against all Liabilities,
joint or several, to which the Underwriter may become subject insofar as such
Liabilities arise out of or are based upon the breach or failure of any of the
provisions of Sections 3, 6, 7 and 8.
14. NOTICES. All communications hereunder shall be in writing and, except
as otherwise expressly provided herein, if sent to you, shall be mailed,
delivered or telegraphed and confirmed to you at the address first set forth
above, to the attention of the President, with a copy sent to Jay M. Kaplowitz,
Esq., Gersten, Savage, Kaplowitz & Fredericks, LLP, 101 East 52nd Street, New
York, New York 10022; or if sent to the Company, shall be mailed, delivered, or
telegraphed and confirmed to it at Pride Automotive Group, Inc., Pride House,
Watford Metro Centre, Tolpits Lane, Watford Hertfordshire, WDI 8SB England,
Attention: President, with a copy sent to Lampert & Lampert, 1 0 East 40th
Street, New York, New York 10016, Attention: Mitchell Lampert, Esq.
15. PARTIES IN INTEREST. This Agreement is made solely for the benefit of
the Underwriter, the Selling Stockholders, the Company, and, to the extent
expressed, any person controlling the Company or the Underwriter, as the case
may be, and the directors of the Company, nominees for directors of the Company
(if any) named in the Prospectus, officers of the Company who have signed the
Registration Statement, and their respective executors, administrators,
successors and assigns; and no other person shall acquire or have any right
under or by virtue of this Agreement. The term "successors and assigns" shall
not include any purchaser, as such, from the Underwriter of the Securities.
16. APPLICABLE LAW. This Agreement shall be governed by, and construed
<PAGE>
in accordance with, the laws of the State of New York applicable to agreements
made and to be performed entirely within such State.
17. COUNTERPARTS. This Agreement may be executed in two or more counterpart
copies, each of which shall be deemed an original but all of which together
shall constitute one and the same instrument.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this Agreement, whereupon it will become a
binding agreement between the parties in accordance with its terms.
Very truly yours,
PRIDE AUTOMOTIVE GROUP, INC.
By:____________________________________
Name:
Title:
THE SELLING STOCKHOLDERS
By:____________________________________
As Attorney-in-Fact, acting on behalf of each of
the Selling Stockholders named in Schedule A
hereto
Accepted as of the date first above written:
MASON HILL & CO., INC.
By: ____________________________
Name:
Title:
DRAFT
4/20/98
UW-1
UNDERWRITER'S WARRANT
Dated: , 1998
THIS CERTIFIES THAT is entitled to purchase from PRIDE AUTOMOTIVE GROUP,
INC., a Delaware corporation (the "Company"), 125,000 shares of common stock of
$.001 par value per share ("Common Stock" or "Shares") at a purchase price of
$6.00 per Share (the "Exercise Price"), subject to adjustment as provided in
paragraph 8 hereof, at any time during the four-year period commencing one (1)
year from the date hereof. This Underwriter's Warrant (the "Underwriter's
Warrant") grants Mason Hill & Co., Inc. (the "Underwriter") to purchase up to
125,000 Shares issued pursuant to an Underwriting Agreement dated , 1998, among
the Company and the Underwriter, in connection with a public offering, through
the Underwriter, of 1,250,000 Shares as therein described (and up to 187,500
additional Shares covered by an over-allotment option granted by the Company to
the Underwriter, hereinafter referred to together with the 1,250,000 Shares, as
the "Public Shares") and in consideration of $10.00 received by the Company for
the Underwriter's Warrants. Except as specifically otherwise provided herein,
the Shares issuable pursuant to the Underwriter's Warrant shall have the same
terms and conditions as the Public Shares, as described under the caption
"Description of Securities" in the Company's Registration Statement on Form
SB-2, File No. 33-_______ (the "Registration Statement"), except that the
Holders shall have registration rights under the Securities Act of 1933, as
amended (the "Act"), for the Underwriter's Warrant, as more fully described in
paragraph 6 herein.
1. The rights represented by the Underwriter's Warrant shall be exercised
at the price, subject to adjustment in accordance with paragraph 8 hereof, and
during the periods as follows:
(a) During the period from the date hereof to , 1999 (the "First
Anniversary Date"), inclusive, the Holders shall have no right to purchase
any Shares hereunder, except that in the event of any merger, consolidation
or sale of substantially all the assets of the Company as an entirety prior
to the First Anniversary Date, the Holders shall have the right to exercise
the Underwriter's Warrant at such time and into the kind and amount of
shares of stock and other securities and property (including cash)
receivable by a holder of the number of shares of Common Stock into which
the
<PAGE>
Underwriter's Warrant might have been exercisable immediately prior
thereto.
(b) Between , 1999 and , 2003 (the "Expiration Date") inclusive, the
Holders shall have the option to purchase Shares hereunder at a price of
$6.00 per Share (120% of the public offering price), subject to adjustment
as provided in paragraph 8 hereof.
(c) After the Expiration Date, the Holders shall have no right to
purchase any Shares hereunder.
2. (a) The rights represented by the Underwriter's Warrant may be exercised
at any time within the periods above specified, in whole or in part, by (i) the
surrender of the Underwriter's Warrant (with the purchase form at the end hereof
properly executed) at the principal executive office of the Company (or such
other office or agency of the Company as it may designate by notice in writing
to the Holders at the addresses of the Holders appearing on the books of the
Company); (ii) payment to the Company of the exercise price then in effect for
the number of Shares specified in the above-mentioned purchase form together
with applicable stock transfer taxes, if any; and (iii) delivery to the Company
of a duly executed agreement signed by the person(s) designated in the purchase
form to the effect that such person(s) agree(s) to be bound by the provisions of
paragraph 6 and subparagraphs (b), (c) and (d) of paragraph 7 hereof. The
Underwriter's Warrant shall be deemed to have been exercised, in whole or in
part to the extent specified, immediately prior to the close of business on the
date the Underwriter's Warrant is surrendered and payment is made in accordance
with the foregoing provisions of this paragraph 2, and the person or persons in
whose name or names the certificates for shares of Common Stock shall be
issuable upon such exercise shall become the holder or holders of record of such
Common Stock at that time and date. Certificates representing the Common Stock
so purchased shall be delivered to the Holders within a reasonable time, not
exceeding ten (10) days, after the rights represented by this Warrant shall have
been so exercised.
(b) Notwithstanding anything to the contrary contained in subparagraph (a)
of paragraph 2, the Holders may elect to exercise this Underwriter's Warrant in
whole or in part by receiving Shares equal to the value (as determined below) of
this Underwriter's Warrant at the principal office of the Company together with
notice of such election in which event the Company shall issue to the Holders a
number of Shares computed using the following formula:
X = Y(A-B)
A
Where: X = the number of Shares to be issued to the Holders;
2
<PAGE>
Y = the number of Shares to be exercised under this Underwriter's Warrant;
A = the current fair market value of one share of Common Stock (calculated
as described below); and
B = the Exercise Price.
As used herein, the current fair market value of Common Stock shall mean
the greater of (x) the average of the closing prices of the Company's Common
Stock sold on all securities exchanges on which the Common Stock may at the time
be listed and the NASDAQ National Market, or, if there have been no sales on any
such exchange or the NASDAQ National Market on such day, the average of the
highest bid and lowest asked price on such day on The Nasdaq SmallCap Market or
otherwise in the domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or any similar successor organization (the
"Market Price"), on the trading day immediately preceding the date notice of
exercise of this Underwriter's Warrant is given or (y) the average of the Market
Price per share of Common Stock for the five trading days immediately preceding
the date notice of exercise of this Underwriter's Warrant is given. If on any
date for which the Market Price per share of Common Stock is to be determined
the Common Stock is not listed on any securities exchange or quoted on the
NASDAQ National Market or on The Nasdaq SmallCap Market or otherwise in the
over-the-counter market, the Market Price per share of Common Stock shall be the
highest price per share which the Company could then obtain from a willing buyer
(not a current employee or director) for shares of Common Stock sold by the
Company, from authorized but unissued shares, as determined in good faith by the
Board of Directors of the Company, unless prior to such date the Company has
become subject to a merger, acquisition or other consolidation pursuant to which
the Company is not the surviving party, in which case the Market Price per share
of Common Stock shall be deemed to be the value received by the holders of the
Company's Common Stock for each share thereof pursuant to the Company's
acquisition.
3. The Underwriter's Warrant and the securities issuable upon exercise
thereof shall not be transferred, sold, assigned, or hypothecated for a period
of one year commencing on the Effective Date except that it may be transferred
to successors of the Holders, and may be assigned in whole or in part to any
person who is an officer of either of the Holders or to any member of the
selling group and/or the officers or partners thereof during such period. In the
event that the Underwriter's Warrant is transferred after one year from the
Effective Date, it must be exercised immediately upon such transfer and, if not
exercised immediately upon transfer, the Underwriter's Warrant shall lapse. Any
such assignment shall be effected by the Holders by (i) executing the form of
assignment at the end hereof and (ii) surrendering the Underwriter's Warrant for
cancellation at the office or agency of the Company referred to in paragraph 2
hereof, accompanied by a certificate (signed by an officer of each of the
Holders if the Holders are corporations), stating that each transferee is a
permitted transferee under this paragraph 3; whereupon the Company shall issue,
in the name or names specified by the Holders (including the
3
<PAGE>
Holders) a new Underwriter's Warrant or Warrants of like tenor and representing
in the aggregate rights to purchase the same number of Shares (consisting of the
same number of shares of Common Stock) as are purchasable hereunder.
4. The Company covenants and agrees that all shares of Common Stock which
may be purchased hereunder will, upon issuance against payment of the purchase
price therefor, be duly and validly issued, fully paid and nonassessable, and no
personal liability will attach to the holder thereof. The Company further
covenants and agrees that, during the periods within which the Underwriter's
Warrant may be exercised, the Company will at all times have authorized and
reserved a sufficient number of shares of its Common Stock to provide for the
exercise of the Underwriter's Warrant.
5. The Underwriter's Warrant shall not entitle the Holders to any voting
rights or other rights as stockholders of the Company.
6.(a) (i) The Company shall advise the Holders or its transferees, whether
the Holders hold the Underwriter's Warrant or have exercised the Underwriter's
Warrant and hold shares of Common Stock by written notice at least four weeks
prior to the filing of any post-effective amendment to the Registration
Statement or of any new registration statement or post-effective amendment
thereto under the Act covering any securities of the Company, for its own
account or for the account of others, except for any registration statement
filed on Form S-4 or S-8, and will, for a period of seven years from the
Effective Date, upon the request of the Holders, and subject to subparagraph
(a)(ii) of this paragraph 6, include in any such post-effective amendment to the
Registration Statement or in any new registration statement such information as
may be required to permit a public offering of the Underwriter's Warrant or the
Common Stock issuable upon the exercise thereof (collectively, the "Registrable
Securities"). The Company shall supply prospectuses and such other document as
the Holders may reasonably request in order to facilitate the public sale or
other disposition of the Registrable Securities, use its best efforts to
register and qualify any of the Registrable Securities for sale in such states
as such Holders designate and do any and all other acts and things which may be
necessary or desirable to enable such Holders to consummate the public sale or
other disposition of the Registrable Securities, all at no expense to the
Holders or the Underwriter, and furnish indemnification in the manner provided
in paragraph 7 hereof. The Holders shall furnish information and indemnification
as set forth in paragraph 7.
(ii) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the Company shall so
advise the Holders as a part of the written notice given pursuant to
subparagraph (a)(i) of this paragraph 6. If the managing underwriter
determines that a limitation of the number of shares to be underwritten is
required, the underwriter may exclude some or all Registrable Securities
from such registration (the "Excluded Registrable Securities"); provided,
however, that no other security-holder may include any such securities in
such Registration Statement if any of the Registrable Securities have
4
<PAGE>
been excluded from such registration; and further provided that the
Company will file a new Registration Statement covering the Excluded
Registrable Securities, at the Company's expense, within six months after
the completion of such underwritten offering.
(b) If any 50% Holder (as defined below) shall give notice to the Company
at any time to the effect that such Holder desires to register under the Act any
or all of the Registrable Securities under such circumstances that a public
distribution (within the meaning of the Act) of any such securities will be
involved, then the Company will promptly, but no later than four weeks after
receipt of such notice, file a post-effective amendment to the current
Registration Statement or a new registration statement pursuant to the Act, so
that such designated Registrable Securities may be publicly sold under the Act
as promptly as practicable thereafter and the Company will use its best efforts
to cause such registration to become and remain effective (including the taking
of such steps as are necessary to obtain the removal of any stop order) within
90 days after the receipt of such notice, provided, that such Holder shall
furnish the Company with appropriate information in connection therewith as the
Company may reasonably request in writing. The 50% Holder may, at its option,
request the filing of a post-effective amendment to the current Registration
Statement or a new registration statement under the Act on two occasions during
the four-year period beginning one year from the Effective Date. The 50% Holder
may, at its option, request the registration of the Underwriter's Warrant and/or
any of the securities underlying the Underwriter's Warrant in a registration
statement made by the Company as contemplated by subparagraph (a) of this
paragraph 6 or in connection with a request made pursuant to this subparagraph
(b) of paragraph 6 prior to acquisition of the shares of Common Stock issuable
upon exercise of the Underwriter's Warrant. The 50% Holder may, at its option,
request such post-effective amendment or new registration statement during the
described period with respect to the Underwriter's Warrant, or separately as to
the Common Stock issuable upon the exercise of the Underwriter's Warrant, and
such registration rights may be exercised by the 50% Holder prior to or
subsequent to the exercise of the Warrant. Within ten days after receiving any
such notice pursuant to this subparagraph (b) of paragraph 6, the Company shall
give notice to any other Holders of the Underwriter's Warrant, advising that the
Company is proceeding with such post-effective amendment or registration
statement and offering to include therein the securities underlying that part of
the Warrant held by the other Holders, provided that they shall furnish the
Company with such appropriate information (relating to the intentions of such
Holders) in connection therewith as the Company shall reasonably request in
writing. All costs and expenses of the first post-effective amendment or new
registration statement shall be borne by the Company, except that the Holder(s)
shall bear the fees of their own counsel and any underwriting discounts or
commissions applicable to any of the securities sold by them. All costs and
expenses of the second such post-effective amendment or new registration
statement shall be borne by the Holder(s). The Company will maintain such
registration statement or post-effective amendment current under the Act for a
period of at least six months (and for up to an additional three months if
requested by the Holder(s)) from the effective date thereof. The Company shall
provide prospectuses, and such other documents as the Holder(s) may request in
order to facilitate the public sale or other disposition of the Registrable
Securities, use its best efforts to register and qualify any of the Registrable
Securities for sale in such states as such Holder(s) designate and
5
<PAGE>
furnish indemnification in the manner provided in paragraph 7 hereof.
(c) The term "50% Holder" as used in this paragraph 6 shall mean the
Holder(s) of at least 50% of the Underwriter's Warrant and/or the Common Stock
underlying the Underwriter's Warrant and shall include any owner or combination
of owners of such securities, which ownership shall be calculated by determining
the number of shares of Common Stock held by such owner or owners as well as the
number of shares then issuable upon exercise of the Underwriter's Warrant.
(d) If at any time prior to the effectiveness of the registration statement
filed in connection with an offering pursuant to this paragraph 6 the 50% Holder
shall determine not to proceed with the registration, upon notice to the Company
and the payment to the Company by the 50% Holder of the Company's expenses, if
any, theretofore incurred in connection with the registration statement, the 50%
Holder may terminate its participation in the offering, and the registration
statement previously filed shall not be counted against the number of demand
registrations permitted under this paragraph 6. The 50% Holder need not pay to
the Company its expenses incurred in connection with the registration statement,
however, if such 50% Holder shall have determined not to proceed because of
material adverse developments on the part of the Company of which such 50%
Holder obtained knowledge subsequent to the giving to the Company of the written
request to register Registrable Securities pursuant to this paragraph 6.
(e) Notwithstanding the foregoing, if the Company shall furnish to such 50%
Holder a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors it would be seriously detrimental
to the Company or its stockholders for a registration statement to be filed in
the near future containing the disclosure of material information required to be
included therein by reason of the federal securities laws, then the Company's
obligation to use its best efforts to file a registration statement shall be
deferred for a period during which such disclosure would be seriously
detrimental, provided that this period will not exceed 30 days and provided
further, that the Company shall not defer its obligation in this matter more
than once in any 12 month period.
7.(a) Whenever pursuant to paragraph 6 a registration statement relating to
the Underwriter's Warrant or any Common Stock issued or issuable upon the
exercise of the Underwriter's Warrant is filed under the Act, amended or
supplemented, the Company will indemnify and hold harmless each Holder of the
securities covered by such registration statement, amendment or supplement (such
Holder being hereinafter called the "Distributing Holder"), and each person, if
any, who controls (within the meaning of the Act) the Distributing Holder, and
each underwriter (within the meaning of the Act) of such securities and each
person, if any, who controls (within the meaning of the Act) any such
underwriter, against any losses, claims, damages or liabilities, joint or
several, to which the Distributing Holder, any such controlling person or any
such underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities, or actions in respect thereof, arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any such registration
6
<PAGE>
statement or any preliminary prospectus or final prospectus constituting a part
thereof or any amendment or supplement thereto, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading and will reimburse the Distributing Holder or such controlling person
or underwriter in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company will not
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus or said amendment or
supplement in reliance upon and in conformity with written information furnished
by such Distributing Holder or any other Distributing Holder for use in the
preparation thereof.
(b) The Distributing Holder will indemnify and hold harmless the Company,
each of its directors, each of its officers who have signed said registration
statement and such amendments and supplements thereto, and each person, if any,
who controls the Company (within the meaning of the Act) against any losses,
claims, damages or liabilities, joint or several, to which the Company or any
such director, officer or controlling person may become subject, under the Act
or otherwise, insofar as such losses, claims, damages or liabilities, or actions
in respect thereof, arise out of or are based upon any untrue or alleged untrue
statement of any material fact contained in said registration statement, said
preliminary prospectus, said final prospectus, or said amendment or supplement,
or arises out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in said registration statement, said preliminary prospectus, said
final prospectus or said amendment or supplement in reliance upon and in
conformity with written information furnished by such Distributing Holder for
use in the preparation thereof; and will reimburse the Company or any such
director, officer or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party under this paragraph 7
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party, give the
indemnifying party notice of the commencement thereof, but the omission so to
notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party otherwise than under this paragraph 7.
(d) In case any such action is brought against any indemnified party, and
it notified an indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
7
<PAGE>
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this paragraph 7 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation.
8. The Exercise Price in effect at any time and the number and kind of
securities purchasable upon the exercise of each Warrant shall be subject to
adjustment from time to time upon the happening of certain events hereinafter
described.
(a) In case the Company shall (i) declare a dividend or make a distribution
on its outstanding shares of Common Stock in shares of Common Stock, (ii)
subdivide or reclassify its outstanding shares of Common Stock into a greater
number of shares, or (iii) combine or reclassify its outstanding shares of
Common Stock into a smaller number of shares, or (iv) the outstanding shares of
Common Stock of the Company are at any time changed into or exchanged for a
different number or kind of shares or other security of the Company or of
another corporation through reorganization, merger, consolidation, liquidation
or recapitalization, then appropriate adjustments in the number and kind of such
securities subject to this Warrant shall be made and the Exercise Price in
effect at the time of the record date for such dividend or distribution or of
the effective date of such subdivision, combination, reclassification,
reorganization, merger, consolidation, liquidation or recapitalization shall be
proportionately adjusted so that the Holders of this Warrant exercised after
such date shall be entitled to receive the aggregate number and kind of
securities which, if this Warrant had been exercised by such Holders immediately
prior to such date, they would have owned upon such exercise and been entitled
to receive upon such dividend, distribution, subdivision, combination,
reclassification, reorganization, merger, consolidation, liquidation or
recapitalization. For example, if the Company declares a 2 for 1 stock
distribution and the Exercise Price immediately prior to such event was $6.00
per Share [120% of the public offering price of the Shares, Public Shares] and
the number of Shares purchasable upon exercise of this Warrant was 125,000, the
adjusted Exercise Price immediately after such event would be $3.00 per Share
and the adjusted number of Shares purchasable upon exercise of this Warrant
would be 250,000. Such adjustment shall be made successively whenever any event
listed above shall occur.
(b) In case the Company shall hereafter distribute without consideration to
all holders of its Common Stock evidence of its indebtedness or assets
(excluding cash dividends or distributions and dividends or distributions
referred to in subparagraph (a) of this paragraph 8, or subscription rights or
warrants, then in each such case the Exercise Price in effect thereafter shall
be determined by multiplying the number of Shares issuable upon exercise of the
Underwriter's Warrant by the Exercise Price in effect immediately prior thereto,
multiplied by a fraction, the numerator of which shall be the total number of
shares of Common Stock then outstanding multiplied by the current Exercise
Price, less the fair market value (as determined by the Company's Board of
Directors) of said assets, or evidence of indebtedness so distributed or of such
rights or warrants, and the denominator of which shall be the total number of
shares of Common Stock outstanding multiplied by the current Exercise Price.
Such adjustment shall be
8
<PAGE>
made whenever any such distribution is made and shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such distribution.
(c) In case the Company shall issue shares of its Common Stock [excluding
shares issued (i) in any of the transactions described in subparagraphs(a) or
(b) of this paragraph 8; (ii) as part of the Public Shares, (iii) upon
conversion or exchange of securities convertible into or exchangeable for Common
Stock, (iv) upon exercise of options granted under the Company's Stock Option
Plan, as amended to date, if such shares would otherwise be included in this
subsection (c), (v) upon exercise of the Underwriter's Warrant or the
outstanding Public Warrants or the Shares or (vi) upon exercise of rights or
warrants issued to the holders of the Common Stock, but only if no adjustment is
required pursuant to this paragraph 8 (without regard to subsection (g) of this
paragraph 8) with respect to the transaction giving rise to such rights] for a
consideration per share less than the current Redeemable Warrant Exercise Price
on the date the Company fixes the offering price of such additional shares, the
Exercise Price shall be adjusted immediately thereafter so that it shall equal
the price determined by multiplying the Exercise Price in effect immediately
prior thereto by a fraction, of which the numerator shall be the total number of
shares of Common Stock outstanding immediately prior to the issuance of such
additional shares plus the number of shares of Common Stock which the aggregate
consideration received (determined as provided in subparagraph (f) of this
paragraph 8) for the issuance of such additional shares would purchase at the
current Redeemable Warrant Exercise Price, and of which the denominator shall be
the number of shares of Common Stock outstanding immediately after the issuance
of such additional shares. Such adjustment shall be made successively whenever
such an issuance is made.
(d) In case the Company shall issue any securities convertible into or
exchangeable for its Common Stock (excluding securities issued in transactions
described in subparagraph (b) of paragraph 8) for a consideration per share of
Common Stock initially deliverable upon conversion or exchange of such
securities (determined as provided in subparagraph (f) of paragraph 8) less than
the current Redeemable Warrant Exercise Price in effect immediately prior to the
issuance of such securities, the Exercise Price shall be adjusted immediately
thereafter so that it shall equal the price determined by multiplying the
Exercise Price in effect immediately prior thereto by a fraction, of which the
numerator shall be the number of shares of Common Stock outstanding immediately
prior to the issuance of such securities plus the number of shares of Common
Stock which the aggregate consideration received (determined as provided in
subparagraph (f) of paragraph 8) for such securities would purchase at the
current Redeemable Warrant Exercise Price, and of which the denominator shall be
the number of shares of Common Stock outstanding immediately prior to such
issuance plus the maximum number of shares of Common Stock of the Company
deliverable upon conversion of or in exchange for such securities at the initial
conversion or exchange price or rate. Such adjustment shall be made successively
whenever such an issuance is made.
(e) Whenever the Exercise Price payable upon exercise of the Underwriter's
Warrant is adjusted pursuant to subparagraphs (a), (b), (c) or (d) of paragraph
8,
9
<PAGE>
the number of shares of Common Stock purchasable upon exercise of this
Underwriter's Warrant shall simultaneously be adjusted by multiplying the number
of shares of Common Stock issuable upon exercise of this Underwriter's Warrant
by the Exercise Price in effect on the date hereof and dividing the product so
obtained by the Exercise Price, as adjusted.
(f) For purposes of any computation respecting consideration received
pursuant to subparagraphs (c) and (d) of paragraph 8, the following shall apply:
(i) in the case of the issuance of shares of
Common Stock for cash, the consideration shall be the
amount of such cash, provided that in no case shall
any deduction be made for any commissions, discounts
or other expenses incurred by the Company for any
underwriting of the issue or otherwise in connection
therewith;
(ii) in the case of the issuance of shares
of Common Stock for a consideration in whole or in
part other than cash, the consideration other than
cash shall be deemed to be the fair market value
thereof as determined in good faith by the Board of
Directors of the Company (irrespective of the
accounting treatment thereof), whose determination
shall be conclusive; and
(iii) in the case of the issuance of
securities convertible into or exchangeable for
shares of Common Stock, the aggregate consideration
received therefor shall be deemed to be the
consideration received by the Company for the
issuance of such securities plus the additional
minimum consideration, if any, to be received by the
Company upon the conversion or exchange thereof (the
consideration in each case to be determined in the
same manner as provided in clauses (i) and (ii) of
this subparagraph (f) of paragraph 8.
(g) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least five cents ($0.05)
in such price; provided, however, that any adjustments which by reason of this
subparagraph (g) 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 paragraph 8 shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be. Anything in this Section 8
to the contrary notwithstanding, the Company shall be entitled, but shall not be
required, to make such changes in the Exercise Price, in addition to those
required by this Section 8, as it shall determine, in its sole discretion, to be
advisable in order that any dividend or distribution in shares of Common Stock,
or any subdivision, reclassification or combination of Common Stock, hereafter
made by the Company shall not result in any federal income tax liability to the
holders of Common Stock or securities convertible into Common Stock.
10
<PAGE>
(h) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly cause a notice setting forth the adjusted Exercise Price
and adjusted number of shares of Common Stock or other securities purchasable
upon exercise of the Underwriter's Warrant to be mailed to the Holders, at their
addresses set forth herein, and shall cause a certified copy thereof to be
mailed to the Company's transfer agent, if any. The Company may retain a firm of
independent certified public accountants selected by the Board of Directors (who
may be the regular accountants employed by the Company) to make any computation
required by this paragraph 8, and a certificate signed by such firm shall be
conclusive evidence of the correctness of such adjustment.
(i) In the event that at any time, as a result of an adjustment made
pursuant to the provisions of this paragraph 8, the Holders of the Underwriter's
Warrant thereafter shall become entitled to receive any securities of the
Company, other than Common Stock included in the Underwriter's Warrant,
thereafter the number of such other securities so receivable upon exercise of
the Underwriter's Warrant shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Common Stock contained in subparagraphs (a) to (g), inclusive of
this paragraph (i).
9. This Agreement shall be governed by and in accordance with the laws of
the State of New York.
IN WITNESS WHEREOF, PRIDE AUTOMOTIVE GROUP, INC. has caused this
Underwriter's Warrant to be signed by its duly authorized officers, and this
Underwriter's Warrant to be dated __________________, 1998.
PRIDE AUTOMOTIVE GROUP, INC.
By: ______________________________________
Name:
Title:
11
<PAGE>
PURCHASE FORM
(To be signed only upon exercise of Warrant)
The undersigned, the holder of the foregoing Underwriter's Warrant,
hereby irrevocably elects to exercise the purchase rights represented by such
Warrant for, and to purchase thereunder, ______________ Shares of PRIDE
AUTOMOTIVE GROUP, INC., and herewith makes payment of $_____________________
therefor (or hereby surrenders and delivers that portion of the Underwriter's
Warrant having equivalent value (as determined in accordance with the provisions
of subparagraph (d) of paragraph 2 of the Underwriter's Warrant)), and requests
that the certificates for shares of Common Stock be issued in the name(s) of,
and delivered to _____________________, whose address(es) is (are):
Dated: _________________________, 19_________
- -------------------------------------------------
Signature
(Print
name under signature)
(Signature must conform in
all respects to the name of
holder as specified on the
face of the
Underwriter's Warrant).
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the Warrant)
FOR VALUE RECEIVED
hereby sells, assigns and transfers unto
(Please print name and address of transferee)
this Warrant, together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint Attorney, to transfer the within
Warrant on the books of PRIDE AUTOMOTIVE GROUP, INC., with full power of
substitution.
Dated:
Signature
(Print
name under signature)
(Signature must conform in
all respects to the name of
holder as specified on the
face of the
Underwriter's Warrant).
(Insert Social Security or Other
Identifying Number of Holders)
[J\PRIDE\underwriter warrant.wpd]
13
, 1998
Mason Hill & Co., Inc.
110 Wall Street
New York, New York 10005
Ladies and Gentlemen:
In order to induce Mason Hill & Co., Inc. (the "Underwriter") to enter into
an underwriting agreement with respect to the proposed public offering (the
"Offering") of up to _______ shares of common stock, $.001 par value per share
(the "Common Stock") of Pride Automotive Group, Inc., a Delaware corporation
(the "Company"), pursuant to a Registration Statement on Form SB-2, Registration
No. 333- (the "Registration Statement"), the undersigned, as the beneficial
owner of _______ shares of Common Stock (the "Securities"), covenants and agrees
for the benefit of the Company and the Underwriter to abide to the following
terms and conditions of this Agreement:
1. For a period of twenty-four (24) months subsequent to the date upon
which the Securities and Exchange Commission (the "Commission") declares the
Registration Statement filed with the Commission effective under the Securities
Act of 1933, as amended (the "Act"), the undersigned will not, without the prior
written consent of the Underwriter, offer, pledge, sell, transfer, assign,
contract to sell, grant any option for the sale of, or otherwise dispose of,
directly or indirectly, pursuant to Rule 144 promulgated under the Act ("Rule
144") or otherwise, any shares of the Common Stock beneficially owned by the
undersigned (within the meaning of Rule 13d-3 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")).
2. To enable the Underwriter to enforce the aforesaid covenants, the
undersigned hereby consents to the placing of restrictive legends consistent
with this Agreement upon the Securities and to the entry of stop-transfer orders
consistent with this Agreement on the books and records of the transfer agent of
the Securities with respect to any Securities registered in the undersigned's
name or beneficially owned by the undersigned. The Company agrees to instruct
the transfer agent to place such legends and enter such stop-transfer orders and
not to transfer any Securities without the consent of the Underwriter as set
forth herein.
<PAGE>
Mason Hill & Co., Inc.
________, 1998
Page 2
3. The undersigned understands that the Company and the Underwriter will
rely upon this Agreement if they proceed with the Offering. The provisions of
this Agreement shall be binding upon the undersigned and the successors,
assigns, heirs, and personal representatives of the undersigned.
Very truly yours,
Signature:
Print Name:_____________________________
Accepted and Agreed to:
PRIDE AUTOMOTIVE GROUP, INC.
By:______________________________________
Name: Alan Lubinsky
Title: President
PRIDE, INC.
and
PRIDE AUTOMOTIVE GROUP, INC.
SPECIAL WARRANT
WARRANT AGREEMENT
Dated as of , 1998
AGREEMENT dated as of , 1993, between Pride, Inc., a Delaware corporation
(hereinafter the "Company"), and PRIDE AUTOMOTIVE GROUP, INC., a Delaware
Corporation (hereinafter "Pride").
WHEREAS, the Company is has filed a registration statement for the sale of
up to 1,267,500 share of its common stock (inclusive of shares of common stock
which are issuable upon the exercise of the Underwriters' over-Allotment Option
and exclusive of 170,000 shares of common stock being offered and sold by
certain Selling Shareholders); and
WHEREAS, the sale of such shares will reduce Pride's ownership of the
Company to below 50% from 53.1% before such offering; and
WHEREAS, Pride and the Company have agreed that it is in the best interests
of both companies that Pride have the option to obtain at least 50% ownership of
the Company; and
WHEREAS, the Company desires to grant a Warrant to Pride which Warrant
shall entitle Pride to purchase up to 1,250,000 shares of common stock of the
Company (the "Common Shares") at an exercise price of $4.40 each during the
twenty-four month period commencing with the date of the Company's Prospectus
(the "Special Warrant").
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto agree as follows:
Section 1. Exercise of Special Warrants. Subject to the provisions of this
Agreement, Pride shall have the right, which may be exercised during a
twenty-four month period commencing with the date of the Company's Prospectus
(the "Term"), to purchase up to 1,250,000 fully paid and non-assessable Common
Shares, upon surrender to the Company, of this Special Warrant, with the form of
election to purchase duly filled in and signed, and upon payment to the order of
the Company for the Special Warrant exercise price,
<PAGE>
determined in accordance with Section 2 herein, for the number of shares in
respect of which such Special Warrant is then exercised. Payment of such Special
Warrant Price shall be made in cash or by certified check or bank draft or
postal or express money order, payable in United States Dollars to the order of
the Company. The Special Warrants shall expire at the close of business on
_____________. Upon such surrender of Special Warrants, and payment of the
Warrant Price as aforesaid, the Company shall issue and cause to be delivered
with all reasonable dispatch to or upon the written order of Pride, a
certificate or certificates for the largest number of whole Common Shares so
purchased upon the exercise of such Special Warrant. The Company shall not be
required to issue any fraction of a Share of Common Stock or make any cash or
other adjustment in respect of any fraction of a Common Share otherwise issuable
upon such surrender. The rights of purchase represented by the Special Warrant
shall be exercisable, at the election of Pride, only to the extent provided in
Section 3 herein. In the event that the Special Warrant is exercised in respect
of less than all of the Shares specified therein at any time prior to the date
of expiration of the Special Warrant, a new Special Warrant or Special Warrants
will be issued to Pride for the remaining number of shares specified in the
Special Warrant so surrendered.
Section 2. Special Warrant Price. This Special Warrant shall allow Pride to
purchase shares of the Company's Common Stock at a price of $4.40 per whole
Share, subject to the limitations set forth herein. Payment of the Special
Warrant Price shall be made to the Company upon exercise by Pride of the Special
Warrant. The common shares issuable to Pride upon its exercise of this Special
Warrant shall be restricted shares, which may not be transferred or sold by
Pride unless registered under the Securities Act of 1933 or pursuant to an
exemption from registration.
Section 3. Limitation on Exercise of Special Warrant. The Special Warrant
may only be exercised by Pride during the term hereof in accordance with the
provisions herein contained.
Section 4. Adjustments. The Special Warrant Price and number of Common
Shares subject to this Special Warrant shall be adjusted from time to time as
hereinafter set forth.
(A) If the Company shall at any time subdivide its outstanding Common
Shares by recapitalization, reclassification, split-up thereof, or other such
issuance without additional consideration, the Special Warrant Price immediately
prior to such subdivision shall be proportionately decreased and, if the Company
shall at any time combine the outstanding Common Shares by recapitalization,
reclassification or combination thereof, the Special Warrant Price immediately
prior to such combination shall be proportionately increased. Any such
adjustment to the Special Warrant Price or the corresponding adjustment to the
Special
2
<PAGE>
Warrant Price shall become effective at the close of business on the record date
for such subdivision or combination.
(B) In case at any time the Company shall declare a dividend or make any
other distribution upon any stock of the Company payable in Common Stock, then
such Common Stock issuable in payment of such dividend or distribution shall be
deemed to have been issued or sold without consideration.
(C) Upon any adjustment of the Special Warrant Price as hereinabove
provided, the number of Common Shares issuable upon exercise of this Special
Warrant shall be changed to the number of Shares determined by dividing (i) the
aggregate Special Warrant Price payable for the purchase of all Shares issuable
upon exercise of this Special Warrant immediately prior to such adjustment by
(ii) the Special Warrant Price per Share in effect immediately after such
adjustment.
Section 5. Notices. Any notice pursuant to this Agreement to be given or
made by the Warrant Agent or by the registered holder of any Special Warrant to
the Company shall be sufficiently given or made if sent by first class mail,
postage prepaid, addressed (until another address is filed in writing by the
Company with the Warrant Agent) as follows:
Pride, Inc.
Pride House
Watford Metro Centre, Tolpits Lane
Watford Hertordshire
WD1 8SB England
Pride Automotive Group, Inc.
Pride House
Watford Metro Centre, Tolpits Lane
Watford Hertordshire
WD1 8SB England
Copy to:
Lampert & Lampert, Esqs.
10 East 40th Street
New York, New York 10016
Section 6. New York Contract. This Agreement shall be deemed to be a
contract made under the laws of the State of New York and for all purposes shall
be construed in accordance with the laws of said State.
3
<PAGE>
Section 7. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall be considered an original.
Section 8. Effectiveness. This Agreement shall be deemed binding and
therefore in effect as of, and subject to the effective date of the Registration
Statement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
PRIDE, INC.
By:
Alan Lubinsky, President
Attest:
Ivan Averbach, Secretary
PRIDE AUTOMOTIVE GROUP, INC.
By:
Alan Lubinsky, President
Attest:
Ivan Averbach, Secretary
4
ADVISORY AND INVESTMENT BANKING AGREEMENT
This Agreement is made and entered into as of the __ day of , 1998 by and
between Mason Hill & Co., Inc., a Delaware corporation ("Mason Hill"), and Pride
Automotive Group, Inc., a Delaware corporation (the "Company").
In consideration of the mutual promises made herein and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Purpose: The Company hereby engages Mason Hill for the term specified in
Paragraph 2 hereof to render consulting advice to the Company as an investment
banker relating to financial and similar matters upon the terms and conditions
set forth herein.
2. Term: Except as otherwise specified in paragraph 4 hereof, this
Agreement shall be effective from , 1998 to , 2001.
3. Duties of Mason Hill: During the term of this Agreement, Mason Hill
shall seek out Transactions (as hereinafter defined) on behalf of the Company
and shall furnish advice to the Company in connection with any such
Transactions.
<PAGE>
4. Compensation: In consideration for the services rendered by Mason Hill
to the Company pursuant to this Agreement (and in addition to the expenses
provided for in Paragraph 5 hereof), the Company shall compensate Mason Hill as
follows: (a) The Company shall pay Mason Hill a fee of $_______ per month during
the term of this Agreement. The sum of $__________ shall be payable in full on
the date of this Agreement; (b) In the event that any Transaction (as
hereinafter defined) occurs during the term of this Agreement or one year
thereafter, the Company shall pay fees to Mason Hill as follows:
<TABLE>
<CAPTION>
Consideration Fee
<S> <C>
$-0- to $1,000,000 5% of Consideration
$1,000,001 to $2,000,000 $50,000 plus 4% of the
Consideration between
$1,000,001 and $2,000,000
$2,000,001 to $3,000,000 $90,000 plus 3% of the
Consideration between
$2,000,001 and $3,000,000
$3,000,001 to $4,000,000 $120,000 plus 2% of the
Consideration between
$3,000,001 and $4,000,000
$4,000,001 or more $140,000 plus 1% of the
Consideration above $4,000,001
</TABLE>
For the purposes of this Agreement, "Consideration" shall mean the total
market value on the day of the closing of stock, cash, assets and all other
property (real or personal) exchanged or
2
<PAGE>
received, directly or indirectly by the Company or any of its security holders
in connection with any Transaction. Any co-broker retained by Mason Hill shall
be paid by Mason Hill.
For the purposes of the Agreement, a "Transaction" shall mean (a) any
transaction originated by Mason Hill, other than in the ordinary course of trade
or business of the Company, whereby, directly or indirectly, control of or a
material interest in the Company or any of its businesses or any of their
respective assets, is transferred for Consideration, (b) any transaction
originated by Mason Hill whereby the Company acquires any other company or the
assets of any other company or an interest in any other company (an
"Acquisition") or (c) any sale or Acquisition in connection with which the
Company engages an investment banker other than Mason Hill and pays such
investment banker a fee in respect of such Transaction.
In the event Mason Hill originates a line of credit with a lender, the
Company and Mason Hill will mutually agree on a satisfactory fee and the terms
of payment of such fee; provided, however, that in the event the Company is
introduced to a corporate partner by Mason Hill in connection with a merger,
acquisition or financing and a credit line develops directly as a result of the
introduction, the appropriate fee shall be the amount set forth in the schedule
above. In the event Mason Hill introduces the Company to a joint venture partner
or customer and sales develop as a result of the introduction, the Company
agrees to pay a fee of five percent (5%) of total sales generated directly from
this introduction during the first
3--
<PAGE>
two years following the date of the first sale. Total sales shall mean cash
receipts less any applicable refunds, returns, allowances, credits and shipping
charges and monies paid by the Company by way of settlement or judgment arising
out of claims made by or threatened against the Company. Commission payments
shall be paid on the 15th day of each month following the receipt of customers'
payment. In the event any adjustments are made to the total sales after the
commission has been paid, the Company shall be entitled to an appropriate refund
or credit against future payments under this Agreement. All fees to be paid
pursuant to this Agreement, except as otherwise specified, are due and payable
to Mason Hill in cash at the closing or closings of any transaction specified in
Paragraph 4 hereof. In the event that this Agreement shall not be renewed or if
terminated for any reason, notwithstanding any such non-renewal or termination,
Mason Hill shall be entitled to a full fee as provided under Paragraphs 4 and 5
hereof, for any transaction for which the discussions were initiated during the
term of this Agreement and which is consummated within a period of twelve months
after non-renewal or termination of this Agreement.
The Company and Mason Hill shall have the right to modify the compensation
payable on any Transaction provided that such modification is memorialized by a
written agreement signed by both parties.
5. Expenses of Mason Hill: In addition to the fees payable hereunder, and
regardless of whether any transaction set forth
4--
<PAGE>
in Paragraph 4 hereof is proposed or consummated the Company shall reimburse
Mason Hill for all fees and disbursements of Mason Hill's counsel and Mason
Hill's travel and out-of-pocket expenses incurred in connection with the
services performed by Mason Hill pursuant to this Agreement, including without
limitation, hotels, food and associated expenses and long-distance telephone
calls.
6. Liability of Mason Hill:
(1) The Company acknowledges that all opinions and advice (written or
oral) given by Mason Hill to the Company in connection with Mason Hill's
engagement are intended solely for the benefit and use of the Company in
considering the transaction to which they relate, and the Company agrees
that no person or entity other than the Company shall be entitled to make
use of or rely upon the advice of Mason Hill to be given hereunder, and no
such opinion or advice shall be used for any other purpose or reproduced,
disseminated, quoted or referred to at any time, in any manner or for any
purpose, nor may the Company make any public references to Mason Hill, or
use Mason Hill's name in any annual reports or any other reports or
releases of the Company without Mason Hill's prior written consent.
(2) The Company acknowledges that Mason Hill makes no commitment
whatsoever as to making a market in the Company's securities or to
recommending or advising its clients to purchase the Company's securities.
Research reports or corporate finance reports
5--
<PAGE>
that may be prepared by Mason Hill will, when and if prepared, be done
solely on the merits or judgment of analysis of Mason Hill or any senior
corporate finance personnel of Mason Hill.
7. Mason Hill's Services to Others: The Company acknowledges that Mason
Hill's or its affiliates are in the business of providing financial services and
consulting advice to others. Nothing herein contained shall be construed to
limit or restrict Mason Hill in conducting such business with respect to others,
or in rendering such advice to others.
8. Company Information:
(a) The Company recognizes and confirms that, in advising the Company
and in fulfilling its engagement hereunder, Mason Hill will use and rely on
data, material and other information furnished to Mason Hill by the
Company. The Company acknowledges and agrees that in performing its
services under this engagement, Mason Hill may rely upon the data, material
and other information supplied by the Company without independently
verifying the accuracy, completeness or veracity of same.
(b) Except as contemplated by the terms hereof or as required by
applicable law, Mason Hill shall keep confidential all material non-public
information provided to it by the Company, and shall not disclose such
information to any third party, other than
6--
<PAGE>
such of its employees and advisors as Mason Hill determines to have a
need to know.
9. Indemnification:
a. The Company shall indemnify and hold Mason Hill harmless against
any and all liabilities, claims, lawsuits, including any and all awards
and/or judgments to which it may become subject under the Securities Act of
1933, as amended (the "1933 Act"), the Securities Exchange Act of 1934, as
amended (the "Act") or any other federal or state statute, at common law or
otherwise, insofar as said liabilities, claims and lawsuits (including
awards and/or judgments) arise out of or are in connection with the
services rendered by Mason Hill or any transactions in connection with this
Agreement, except for any liabilities, claims and lawsuits (including
awards and/or judgments), arising out of acts or omissions of Mason Hill.
In addition, the Company shall also indemnify and hold Mason Hill harmless
against any and all costs and expenses, including reasonable counsel fees,
incurred or relating to the foregoing.
Mason Hill shall give the Company prompt notice of any such liability,
claim or lawsuit which Mason Hill contends is the subject matter of the
Company's indemnification and the Company thereupon shall be granted the
right to take any and all necessary and proper action, at its sole cost and
expense, with respect to such liability, claim and lawsuit, including the
right to settle, compromise and dispose of such liability, claim or
lawsuit, excepting
7--
<PAGE>
therefrom any and all proceedings or hearings before any regulatory
bodies and/or authorities.
Mason Hill shall indemnify and hold the Company harmless against any
and all liabilities, claims and lawsuits, including any and all awards
and/or judgments to which it may become subject under the 1933 Act, the Act
or any other federal or state statute, at common law or otherwise, insofar
as said liabilities, claims and lawsuits (including awards and/or
judgments) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact required to be stated or necessary to
make the statement therein, not misleading, which statement or omission was
made in reliance upon information furnished in writing to the Company by or
on behalf of Mason Hill for inclusion in any registration statement or
prospectus or any amendment or supplement thereto in connection with any
transaction to which this Agreement applies. In addition, Mason Hill shall
also indemnify and hold the Company harmless against any and all costs and
expenses, including reasonable counsel fees, incurred or relating to the
foregoing.
The Company shall give to Mason Hill prompt notice of any such
liability, claim or lawsuit which the Company contends is the subject
matter of Mason Hill's indemnification and Mason Hill thereupon shall be
granted the right to a take any and all necessary and proper action, at its
sole cost and expense, with respect to such liability, claim and lawsuit,
including the right to settle, compromise or dispose of such liability,
claim or lawsuit, excepting
8--
<PAGE>
therefrom any and all proceedings or hearings before any regulatory
bodies and/or authorities.
b.In order to provide for just and equitable contribution under the
Act in any case in which (i) any person entitled to indemnification under
this Section 9 makes claim for indemnification pursuant hereto but it is
judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 10
provides for indemnification in such case, or (ii) contribution under the
Act may be required on the part of any such person in circumstances for
which indemnification is provided under this Section 10, then, and in each
such case, the Company and Mason Hill shall contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (after
any contribution from others) in such proportion taking into consideration
the relative benefits received by each party from the offering covered by
the prospectus with respect to any transactions in connection with this
Agreement (taking into account the portion of the proceeds of the offering
realized by each), the parties' relative knowledge and access to
information concerning the matter with respect to which the claim was
assessed, the opportunity to correct and prevent any statement or omission
and other equitable considerations appropriate under the circumstances;
provided, however, that notwithstanding the above in no event shall Mason
Hill be
9--
<PAGE>
required to contribute any amount in excess of 10% of the public
offering price of any securities to which such Prospectus applies; and
provided, that, in any such case, no person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
Within fifteen (15) days after receipt by any party to this Agreement
(or its representative) of notice of the commencement of any action, suit
or proceeding, such party will, if a claim for contribution in respect
thereof is to be made against another party (the "Contributing Party"),
notify the Contributing Party of the commencement thereof, but the omission
so to notify the Contributing Party will not relieve it from any liability
which it may have to any other party other than for contribution hereunder.
In case any such action, suit or proceeding is brought against any party,
and such party notifies a Contributing Party or his or its representative
of the commencement thereof within the aforesaid fifteen (15) days, the
Contributing Party will be entitled to participate therein with the
notifying party and any other Contributing Party similarly notified. Any
such Contributing Party shall not be liable to any party seeking
contribution on account of any settlement of any claim, action or
proceeding effected by such party seeking contribution without the written
consent of the Contributing Party. The indemnification provisions contained
in this Section 10 are in addition to any other
10--
<PAGE>
rights or remedies which either party hereto may have with respect to
the other or hereunder.
10. Mason Hill an Independent Contractor : Mason Hill shall perform its
services hereunder as an independent contractor and not as an employee of the
Company or an affiliate thereof. It is expressly understood and agreed to by the
parties hereto that Mason Hill shall have no authority to act for, represent or
bind the Company or any affiliate thereof in any manner, except as may be agreed
to expressly by the Company in writing from time to time.
11. Miscellaneous:
(1) This Agreement between the Company and Mason Hill constitutes the
entire agreement and understanding of the parties hereto, and supersedes
any and all previous agreements and understandings, whether oral or
written, between the parties with respect to the matters set forth herein.
(2) Any notice or communication permitted or required hereunder shall
be in writing and shall be deemed sufficiently given if hand-delivered or
sent (i) postage prepaid by registered mail, return receipt requested, or
(ii) by facsimile, to the respective parties as set forth below, or to such
other address as either party may notify the other in writing:
11--
<PAGE>
If to the Company, to: Pride Automotive Group, Inc.
Pride House, Watford Metro Centre
Tolpits Lane
Watford, Hartfordshire
WD1 8SB England
with a copy to: Lampert & Lampert
10 East 40th Street
New York, New York 10016
If to Mason Hill, to: Mason Hill & Co., Inc.
110 Wall Street
New York, New York 10005
with a copy to: JAY M. KAPLOWITZ
Gersten, Savage, Kaplowitz
& Fredericks, LLP
101 East 52nd Street
New York, New York 10022
(3)This Agreement shall be binding upon and inure to the benefit of
each of the parties hereto and their respective successors, legal
representatives and assigns.
(4)This Agreement may be executed in any number of counterparts, each
of which together shall constitute one and the same original document.
(5) No provision of this Agreement may be amended, modified or waived,
except in a writing signed by all of the parties hereto.
(6) This Agreement shall be construed in accordance with and governed
by the laws of the State of New York, without giving effect to conflict of
law principles. The parties hereby agree that any dispute which may arise
between them arising out of or in connection with this Agreement shall be
adjudicated before a court located in New York City, and they hereby submit
to the exclusive
12--
<PAGE>
jurisdiction of the courts of the State of New York located in New
York, New York and of the federal courts in the Southern District of New
York with respect to any action or legal proceeding commenced by any party,
and irrevocably waive any objection they now or hereafter may have
respecting the venue of any such action or proceeding brought in such a
court or respecting the fact that such court is an inconvenient forum,
relating to or arising out of this Agreement, and consent to the service of
process in any such action or legal proceeding by means of registered or
certified mail, return receipt requested, in care of the address set forth
in Paragraph 11(b) hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
MASON HILL & CO., INC.
By:________________________________
PRIDE AUTOMOTIVE GROUP, INC.
By:________________________________
J:\pride\financial adv agr.wpd
13--
June 2, 1998
Securities and Exchange Commission
7 World Trade Center
New York, New York 10048
Re: Pride Automotive Group, Inc.
Registration Statement on Form SB-2
File No. 333-296-NY
Ladies and Gentlemen:
We have acted as counsel to Pride Automotive Group, Inc. (the
"Registrant") with respect to the above Registration Statement on Form SB-2,
relating to the registration of up to 1,092,500 shares of Common Stock and
2,300,000 Redeemable Common Stock Purchase Warrants (the "Warrants") to be sold
pursuant to an Underwriting Agreement between the Registrant, Mason Hill & Co.,
Inc., and The Thornwater Company, L.P. (collectively referred to as the
"Underwriters"). The Registration Statement further relates to the registration
of 95,000 shares of Common Stock and 200,000 Warrants to be sold to the
Underwriters (the "Underwriters' Warrant") and the shares issuable upon the
exercise of the Warrants and the Underwriters' Warrant. In connection therewith,
we have examined the Certificate of Incorporation and By-Laws of the Registrant,
as amended through the date hereof, and such other materials as we deem
pertinent. Based upon the foregoing, it is our opinion that:
1. The 1,092,500 shares of Common Stock when paid for and issued
pursuant to the terms of the aforesaid Underwriting Agreement, will be legally
issued, fully paid and non-assessable.
2. The Warrants, Underwriters' Warrant and the Warrants issuable upon
the exercise of the Underwriters' Warrant, when issued and paid for in
accordance with the terms of the Underwriting Agreement and the related Warrant
Agreement or Underwriters' Warrant Agreement, as the case may be, will
constitute valid and binding obligations of the Company to issue shares of the
Company's Common Stock upon full payment therefor pursuant to the terms of the
related instrument.
<PAGE>
Securities and Exchange Commission
June 2, 1998
Page 2.
3. The shares of Common Stock, when issued and paid for in accordance
with the terms of the Warrants and Underwriters' Warrant will be legally issued,
fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to said
Registration Statement, and further consent to the use of our name wherever
appearing in said Registration Statement, including the Prospectus constituting
a part thereof, and in any amendment thereto.
Very truly yours,
LAMPERT & LAMPERT
MILTON INVESTMENT FUND LIMITED (1)
A.C. CAR GROUP LIMITED
LEASE
- of -
Land at Unit 1, Vickers Drive North
Brooklands Industrial Park, Elmbridge, Surrey
+
Charles Russell
<PAGE>
THIS LEASE made the day of
One Thousand Nine Hundred and Ninety Seven
BETWEEN:
(1) MILTON INVESTMENT FUND LIMITED whose registered office is at Milton
Manor, Thanington Without, Canterbury, Kent CT4 7PH (hereinafter called
"Landlord" which expression shall include the person from time to time entitled
to the reversion expectant on the term hereby granted)
(2) A.C. CAR GROUP LIMITED whose registered office is at Pride House,
Watford Metro Centre, Tolpitts Lane, Watford, Hertfordshire WDI 3SB (hereinafter
called "Tenant" which expression shall include the person from time to time
entitled to the term hereby granted)
WITNESSETH as follows:
I. INTERPRETATION
In this Lease:
1.1 The following expressions have unless the context otherwise requires
the following meanings and cognate expressions are to be construed accordingly:
"Accessway"
means the accessway shown coloured brown on the Plan;
"Conducting Media"
means sewers drains pipes wires cables ventilation ducts heating ducts and
other conducting media including any fixings louvres cowls and other covers and
includes any apparatus (not being tenant's or trade fixtures (including the
Tenant's Fixtures)) connected to any Conducting
<PAGE>
Media for enabling use to be made of the Conducting Media or of any water
gas electricity heating ventilation air conditioning or other effluvia passing
through Conducting Media;
"Demised Premises"
means the building and premises as described in Part I of Schedule I and all
additions and alterations thereto and all Landlord's Fixtures from time to time
annexed thereto but excluding the air space surrounding and above the same;
"Development Charge"
means all sums payable by the Landlord as Service Charge (as that
expression is defined in the Oakimber Transfers) pursuant to the Oakimber
Transfers in relation to the Demised Premises and due from the date hereof;
"Estate"
means the land and building of which the Demised Premises form part being
the land registered at HM Land Registry under title numbers SY579222 and
SY579223 and shown for the purpose of identification only edged blue on the
Plan;
"Full Reinstatement Cost"
means the costs (to be conclusively determined from time to time by the
Landlord's Surveyor) which would be likely to be incurred in rebuilding or
reinstating the Estate in accordance with the requirements of this Lease
(including the reasonable and proper cost of shoring up demolition site
clearance any works that may be required by statute
2
<PAGE>
professional fees payable upon any applications for planning permission or
other consents and other incidental expenses) at the time when such rebuilding
or reinstatement is likely to take place;
"Insured Risks"
means the risk of loss damage or destruction by fire lightning storm
tempest flood explosion earthquake (fire and shock) subsidence heave and
landslip impact from vehicles aircraft and articles dropped therefrom riot civil
commotion malicious damage bursting or overflowing of water tanks apparatus or
pipes and such other risks as the Landlord may from time to time in its
reasonable discretion insure against pursuant to the Landlord's covenant in that
behalf hereinafter contained but excepting any stated or other risk against
which insurance cannot ordinarily be obtained at a reasonable and economic
premium with insurers of repute in the United Kingdom for a property such as the
Estate unless the Landlord has in fact insured and continues to insure against
such risk;
"Irrevocable VAT"
means VAT incurred by the Landlord to the extent that the Landlord is
unable to obtain credit for or recover the same;
"Landlord 's Expenses"
means the reasonable and proper expenses incurred by the Landlord as set
out in Part 1 of Schedule 3;
<PAGE>
"Landlord's Fixtures"
means all Landlord's fixtures and fittings in the Demised Premises but for
the avoidance of doubt excluding the Tenant's Fixtures;
"Landlord's Surveyor
means such firm of surveyors or surveyor (who may be an employee or officer
of the Landlord) as the Landlord may from time to time appoint;
"Landlord's Third Party Liability Insurance"
means insurance against all liabilities of the Landlord to third parties
arising out of or in connection with any matter including or relating to the
Estate on such terms and in such amount as the Landlord shall reasonably from
time to time determine as expedient or necessary;
"Legislation"
means all present and future Acts of Parliament all directly applicable
provisions of all present and future treaties constituting the European
Communities and all order regulations bye-laws and directives made pursuant to
any Act of Parliament or otherwise having the force of law including any made
pursuant to such treaties which have the force of law in United Kingdom
"Loss of Rent Insurance
means insurance against loss of the rent first reserved by Clause 2 hereof
for the time being payable for such period (13eing not less than three years) as
the Landlord shall from time to time deem to be necessary for the purpose of
rebuilding or
4
<PAGE>
reinstating the Demised Premises having regard to any likely increase as a
result of such rent being reviewed under this Lease;
"Oakimber Transfers"
means the transfer dated 27th October 1987 made between (1) Oakimber
Limited (2) Trafalgar Brookmount Limited (3) Autokraft Limited (4) Trafalgar
House Developments Holding Limited (as varied by a Deed of Variation dated 18th
January 1991 made between (I) Oakimber Limited (2) Autokraft Limited and (3)
Ford Motor Company Limited) and a transfer dated 27th October 1987 made between
(I) Oakimber Limited (2) Trafalgar Brookmount Limited (3) AC Cars Limited and
(4) Trafalgar House Developments Holdings Limited (as varied by a Deed of
Variation dated 18th January 1991 and made between (1) Oakimber Limited (2) AC
Cars Limited and (3) Ford Motor Company Limited;
"Permitted Use"
means automotive vehicle and component assembly and manufacture with
ancillary storage and offices or any use or uses within Classes Bi and/or B8 of
the Town and Country Planning Use Classes) Order 1987, or such other use as
shall be approved by the Landlord (such approval not to be unreasonably withheld
or delayed);
"Plan"
means the plan or plans annexed to this Lease;
5
<PAGE>
"Planning Acts"
means the Town and Country Planning Act 1990 the Planning (Listed Buildings
and Conversation Areas) Act 1990 the Planning (Listed Buildings and Conservation
Areas) Act 1990 the Planning (Hazardous Substances) Act 1990 the Planning
miscellaneous Provisions Act) 1990 and the Planning and Compensation Act 1991
and all over legislation from time to time in force relating to Town and Country
Planning;
"Perpetuity Period"
means the period of 80 years starting on the date of this Lease which shall
be the perpetuity period of this Lease;
"Prescribed Rate"
means interest of a rate of 4 per cent above the base rate from time to
time of Lloyds Bank plc or of such Bank being a member of the Committee of
London and Scottish Bankers) as the Landlord may from time to time nominate or
during any time when Lloyds Bank plc or other bank nominated by the Landlord has
no such base rate such other rate as shall replace the same or be the nearest
equivalent thereto as may be notified from time to time to the Tenant by the
Landlord;
"Rent Commencement Date"
means
"the Service Charge" and "Interim Service Charge"
means the charges to the Tenant in respect of the Landlord's Expenses as
set out in Part II of Schedule 3;
6
<PAGE>
"Tenant's Fixtures"
means the fixtures and fittings in the Demised Premises listed in Schedule
6;
"VAT"
means Value Added Tax or any similar tax from time to time payable whether
in substitution for or addition to Value Added Tax;
"Yearly Rent"
means the annual rent of(pound)221,500.00 (or such higher rent as shall be
determined pursuant to the provisions in Schedule 2 and so in proportion for any
period less than a year;
1.2 Where the context so admits or requires words importing one gender
shall be construed as importing any other gender and the singular includes the
plural and vice versa and where any party hereto) comprises two or more persons
any obligation on the part of that party contained or implied herein shall be
deemed to be joint and several obligations on the part of such person
1.3 Any Index and headings are for reference only and shall not affect the
meaning of this document
1.4 References to the "Demised Premises in the absence of any provision to
the contrary include any part thereof
1.5 Except in the definition of "Permitted Use" reference to a specific
statute or provision of a specific statute includes all regulations and orders
from time to time made pursuant to that statute or (as the case may be)
provision or any statute or provision amending or replacing the same
1.6 Any covenant by or regulation requiring the Tenant not to do an act or
thing shall be deemed to include an obligation on the part of the Tenant to
ensure that any such act or thing is not done by any third party
1.7 Whenever the consent or approval of the Landlord is required or
requested in relation to this Lease, such provisions shall be construed as also
requiring the consent or approval of any mortgagee of the Landlord and any
superior lessor where the same shall be required except that nothing in
7
<PAGE>
this Lease shall be construed as implying that any obligation is imposed upon
any mortgagee or superior lessor not unreasonable to refuse any consent
1.8 References to any right of the Landlord to enter or to have access to
the Demised Premises shall be construed as extending to any superior lessor or
mortgagee for the time being and to all persons authorized by the Landlord aid
to any such superior lessor or mortgagee
1.9 Unless the context otherwise requires references to "the tenancy" and
"the term" shall be deemed to be the references both to the term of years hereby
demised and to any extension or continuation thereof whether by the provisions
of the Landlord and Tenant Act 1954 or any similar legislation from time to time
in force or otherwise which tenancy shall be deemed to have commenced on the
date of commencement of the said term hereinafter stipulated
1.10 The expression "termination in relation to the tenancy means
termination in any manner whether by effluxion of time notice forfeiture
surrender or otherwise and the expression "terminating" bears a corresponding
meaning 2. DEMISE TERM RENT
The Landlord hereby demises unto the Tenant ALL THOSE the Demised Premises
TOGETHER WITH the rights described in Part II of Schedule 1 EXCEPTING AND
RESERVING unto the Landlord and its predecessors in title and those deriving
title from the Landlord or such predecessors the rights described in Part Ill of
Schedule 1 TO HOLD the same unto the Tenant SUBJECT to the matters described in
Part W of Schedule 1 for the term of Fifteen Years commencing on the date hereof
YIELDING AND PAYING therefor the following rents:
2.1 First throughout the term the Yearly Rent which Yearly Rent shall be
paid by equal quarterly installments in advance on the usual quarter days in any
year the first installment thereof or a proportionate part in respect of the
period commencing on the Rent Commencement Date and ending on
8
<PAGE>
the date immediately prior to the next succeeding quarter day shall be paid
on the execution hereof
2.2 Secondly on demand by way of further or additional rent a sum equal to
a reasonable proportion of (1) the premium or premiums incurred by the Landlord
in (a) insuring and keeping insured the Estate in the Full Reinstatement Cost
against the occurrence of any of the Insured Risks and all professional and
other fees and charges in relation to the rebuilding or reinstatement thereof
(1)) insuring in respect of the Loss of Rent Insurance (c) insuring in respect
of the Landlord's Third Party Liability insurance and (d) insuring against such
other risks expenses and liabilities relating to the Estate and/or the
occupation thereof and in such sums as the Landlord may reasonably and properly
require and (2) the reasonable cost of the valuations of the Estate not more
often than once in any calendar year for the purpose of such insurance AND
together with any increased or additional premium payable by reason of any act
or omission of the Tenant or any of the Tenants servants agents or licensees or
persons deriving title under the Tenant or by reason of the user of the Demised
Premises
2.3 Thirdly by way of further rent the Interim Charge and the Service
Charge relating to the Landlord's Expenses at the times and in the manner
provided in Part II of Schedule 3 hereto
2.4 Fourthly any VAT payable on the Yearly Rent, the Insurance Rent or
other Taxable supplies by the Landlord to the Tenant hereunder
2.5 Fifthly all and any other sums payable by the Tenant to the Landlord
pursuant to the provisions of this Lease
3. TENANT'S COVENANTS
The Tenant hereby covenants with the Landlord:-
3.1 RENT AND OTHER PAYMENTS
3.1.1 To pay the rents hereby reserved on the days and in the manner
aforesaid and not to exercise or seek to exercise any right or claim to withhold
rent or other sums payable under this Lease or any right or claim to be entitled
to any legal or equitable set-off
9
<PAGE>
3.1.2 If so required in writing by the Landlord to make such payments by
bankers order or other direct credit transfer to any bank and account in the
United Kingdom that the Landlord may from time to time nominate
3.2 OUJGOINGS
3.2.1 To pay and indemnify the Landlord against all rates taxes (including
community charges) levies duties charges assessments impositions and outgoings
whether of an existing or novel kind now or at any time hereafter during the
term levied imposed or charged exclusively in respect of the Demised Premises or
any part thereof or the owner or occupier in respect of the Demised Premises
(other than income tax and corporation tax on the income of the Demised Premises
received by the Landlord and any tax payable by the Landlord in respect of any
dealing with any reversion to this Lease) and a fair proportion (as determined
by the Landlord's Surveyor) of any such rates taxes assessments impositions and
outgoings levied imposed or charged on the Demised Premises in common with other
premises
3.2.2 To pay to the suppliers of and to indemnify the Landlord against all
charges for electricity gas telephone water and other services consumed or used
at or in relation to the Demised Premises (including all standing charges and
meter rents)
3.2.3 To pay to the Vendor (as defined in the Oakimber Transfers) and/or
indemnify the Landlord against the Development Charge in so far as it relates to
the Demised Premises within 10 days of being notified of the sum due
3.3 REPAIR AND DECORATION
3.3.1 Well and substantially to repair and reinstate the Demised Premises
and keep them in good and substantial repair and condition and to carry out such
repair and reinstatement with best quality materials and to the best standard of
workmanship and to the complete satisfaction of the Landlord and if necessary
from time to time to reinstate or rebuild the Demised Premises (damage or
destruction due to any of the Insured Risks excepted unless any of the insurance
money in respect thereof shall have been rendered irrecoverable by any act
default or omission of the Tenant or any person
10
<PAGE>
deriving title from the Tenant or any servant agent licensee or invitee of the
Tenant or any such person) and to repay to the Landlord on demand all expenses
from time to time incurred by the Landlord in repairing or reinstating any
Conducting Media not comprised in the Demised Premises but which serve only the
Demised Premises
3.3.2 Without prejudice to the generality of the Tenant's obligations under
the immediately preceding sub-clause to keep all machinery and equipment forming
part of the Demised Premises properly maintained and in good working order and
for that purpose to employ reputable contractors to be approved in writing by
the Landlord (such approval not to be unreasonably withheld) for the regular
periodic inspection and maintenance of them and to renew all working and other
parts of such machinery and equipment as and when necessary or when recommended
by such contractors and from time to time to replace all Landlord's Fixtures
fittings and appurtenances in or about the Demised Premises which become worn
out or beyond repair at any time during or at the termination of the term
3.3.3 In a proper and workmanlike manner to prepare and paint with two
coats of good quality paint or to treat with a suitable alternative preservative
of equivalent efficacy previously approved in writing by the Landlord all the
wood metal and other parts of the Demised Premises previously or usually so
painted or treated and in like manner with good quality materials to grain
varnish creosote stop whiten colour or otherwise treat all such parts as have
been previously or are usually so dealt with and to repaper or reline the parts
usually papered or lined with suitable good quality paper or fabric in every
fifth year of the term and in the last three months of the term (howsoever
determined) such decorations in the last three months of the Term to be carried
out in such colours patterns and materials as shall first be approved in writing
by the Landlord
3.4 INSURANCE OF PLATE GLASS
To insure and keep insured all plate glass (if any) comprised in the
Demised Premises from time to time against damage or destruction in a sum at
least equal to the cost of replacing the same in the joint names of the Landlord
and
11
<PAGE>
the Tenant and such other names if any as the Landlord may from time to time
require with such insurance office as the Landlord may from time to time approve
and to pay all premiums necessary for the above purpose as the same shall become
due and payable and to produce to the Landlord or its agents on demand the
policy or policies of such insurance and the receipt for each such payment and
if any such plate glass shall be damaged or destroyed forthwith to replace the
same and all monies received by virtue of any such insurance to be applied
solely towards the cost of replacing the said plate glass and if such insurance
money is insufficient for such purpose to make up any deficiency PROVIDED ALWAYS
that if the Tenant shall at any time fail to maintain Such insurance the
Landlord may do all things necessary to effect and maintain such insurance and
any monies expended by the Landlord for that purpose shall be payable by the
Tenant on demand and shall be recoverable from the Tenant as rent in arrear
3.5 CLEANING OF WINDOWS
To clean the glass of all windows comprised in the Demised Premises both
inside and out at least once in every month of the tenancy
3.6 CLEANING OF DEMISED PREMISES
To keep the Demised Premises in a clean and tidy condition and regularly to
remove therefrom all waste refuse or offensive materials and articles and not to
deposit any such materials or articles upon any other part of the Estate except
such part (if any) as shall from time to time be provided for the deposit of
such materials and articles
3.7 COMPLIANCE WITH LEGISLATION
To comply in all respects with all requirements (whether placed on the
Landlord or the Tenant) of all present and future Legislation and of all
competent authorities as to the condition of the Demised Premises and the user
thereof and the activities carried on thereat (including the exercise of any
rights granted by this Lease) and any works or alterations executed or required
to be executed thereon or in respect thereof or in any other way affecting the
Demised Premises or any such rights and to keep the Landlord indemnified against
all actions proceedings claims or demands which may be
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<PAGE>
brought or made by reason of any such requirements not having been duly complied
with and if as a result of any such requirements the Landlord or any superior
landlord shall carry out any works or alterations to the Demised Premises or any
other part of the Estate the Tenant shall repay to the Landlord on demand the
expenses thereby incurred by the Landlord or a fair proportion thereof as
determined by the Landlord's Surveyor whose decision shall be final
3.8 YIELDINGUP
At the termination of the tenancy to yield up the Demised Premises and all
fixtures therein in such repair and condition (including without limitation
compliance with clause 3.6) as is required by the covenants on the part of the
Tenant herein contained and to surrender to the Landlord all keys to the Demised
Premises and to remove the Tenant's Fixtures (other than the kitchen) and unless
the Landlord otherwise requires remove all alterations and additions whatsoever
to the Demised Premises including any work in connection with any fitting out of
the Demised Premises by the Tenant and any signs or fascias fixed to the Demised
Premises and make good all damage done by such removal to the satisfaction of
the Landlord PROVIDED THAT:-3.8.1 the Tenant may before such termination remove
all tenant's or trade fixtures but shall make good any damage thereby caused to
the Demised Premises to the Landlord's satisfaction;
3.8.2 if after the termination of the tenancy there shall be left on the
Demised Premises any tenant 5 or trade fixtures (including any of the Tenant's
Fixtures) or any chattels or refuse the Landlord may treat the same as having
been abandoned by the Tenant and may arrange for the removal and destruction or
disposal thereof as the Landlord thinks fit and the Tenant shall pay to the
Landlord on demand the cost of such removal and destruction or disposal and
shall indemnify the Landlord against any liability resulting therefrom; and
3.8.3 if the Tenant shall fail to yield up the Demised Premises in such
repair and condition as aforesaid the Landlord may if it thinks fit effect any
repairs decorations and other works which ought to have been carried out by
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tile Tenant pursuant to the covenants on the part of the Tenant herein contained
and the Tenant shall pay to the Landlord on demand the cost of such repairs
decorations and other works effected by the Landlord together with mesne profits
at a rate equal to the rack rental value of the Demised Premises at the date of
such termination for the period reasonably required for the carrying out of such
work and the Landlord's Surveyor's certificate as to the amount of such cost and
mesne profits shall be conclusive and binding on the parties
3.9 ENTRY BY LANDLORD
To permit the Landlord and those authorized by it to enter upon the Demised
Premises or any part thereof and to remain on the same for any of the following
purposes:
3.9.1 inspecting the Demised Premises and opening up floors or other parts
of the Demised Premises (including moving fixtures) where such opening-up or
moving is required in order to inspect;
3.9.2 taking schedules of the condition thereof;
3.9.3 taking any measurement or making a valuation of the Demised Premises
3.9.4 taking inventories of the Landlord's Fixtures and of other things to
be yielded up on termination of the term;
3.9.5 repairing altering adding to rebuilding or replacing any adjoining
premises;
3.9.6 repairing, altering, adding to, replacing or installing any
Conducting Media comprised in the Demised Premises which serves or is capable of
being passed through the Demised Premises to serve other premises;
3.9.7 preparing any schedule of works drawings specifications or estimates
required by the Landlord prior to or in contemplation of the exercise by the
Landlord of any rights under this Lease;
3.9.8 to do anything which the Landlord considers necessary or desirable
for the performance by the Landlord of the covenants on its part hereinafter
contained or to prevent forfeiture of any superior lease;
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3.9.9 in connection with any rent review or any impending or intended step
under the Landlord and Tenant Act 1954;
3.9.10 exercising without interruption or interference any of the rights
reserved or granted to it by virtue of the provisions of this Lease
PROVIDED THAT in each of the above cases the person so entering shall cause
as little damage, disturbance and inconvenience as is reasonably practicable and
shall forthwith make good any damage caused to the Demised Premises
3.10 ENTRY BY LANDLORD ON TENANT'S DEFAULT
3.10.1 To permit the Landlord and those authorized by it to enter upon the
Demised Premises in order to carry out any works to which this sub-clause
applies and which the tenant has failed to carry out within two months (or
sooner in the case of emergency) after service upon the Tenant of a notice
requiring the same to be carried out
3.10.2 The works to which this sub-clause applies are:
3.10.2.1 the carrying out and completion in the manner required by this
Lease of any repairs or other works which the Tenant is obliged to carry out by
the terms of this Lease;
3.10.2.2 the removal of any alterations additions or other works carried
out or commenced on the Demised Premises without all necessary licences consents
permissions and approvals of the Landlord the Local Planning Authority and any
other authority or person having been obtained; and
3.10.2.3 the removal or (at the Landlord's option) the completion in a good
and workmanlike manner in accordance with the terms of this Lease and of such
licences consents permissions and approvals of any alterations additions or
other works which have not been so completed.
3.11 EXPENSE OF MAKING GOOD DILAPIDATIONS AND SERVING NOTICES
To pay to the Landlord on demand on an indemnity basis all expenses
(including Solicitors' Surveyors' Architects' and other professional fees)
incurred by the Landlord in connection with or in contemplation of and the
Landlord's reasonable administration fee for
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3 11.1 the carrying out of any works to which the immediately preceding
sub-clause applies;
3 11.2 the preparation and service of any notice under section 146 or
section 147 of the Law of Property Act 1925 notwithstanding that forfeiture is
avoided otherwise than by relief granted by the Court;
3.1 1.3 the preparation and service at any time during or after the
termination of the tenancy of any schedule of dilapidations and any negotiations
relating thereto;
3.11.4 the enforcement of or verification of the Tenant's compliance ~ any
of the Tenant's covenants or conditions herein contained whether any action to
enforce or verify shall be taken during or after the termination of the Tenancy;
3.11.5 the recovery or attempted recovery of any rent or other sums due
from the Tenant; or
3.11.6 the preparation of any such schedule of works drawings
specifications or estimates as are referred to in sub-clause 3.9.7
3.11.7 the levy of a distress for the rents payable hereunder or any part
thereof or as a result of the bailiff being paid the said rents or any part
thereof whether or not any distress in the event be levied
3.12 ALTERATIONS
Not to make any alteration or addition or commit waste to or in any way
injure the Demised Premises or any part thereof or any signs affixed to the
exterior thereof or the internal arrangement thereof or the Conducting Media
comprised in or serving the Demised Premises save that the Tenant may make
nonstructural alterations or additions to the internal arrangement of the
Demised Premises, which do not except for bolts or other fixings cut into and
which do not damage the structural parts of the buildings on the Demised
Premises or the Estate and without prejudice to the foregoing in this subclause
the Tenant shall:-
3.12.1 comply and ensure compliance by others with all conditions and
obligations stipulated by the Landlord in respect of any such alteration or
addition; and
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3.12.2 on or before termination of the tenancy (unless otherwise required
by the Landlord) remove all alterations and additions to the Demised Premises
(including any such made by or on behalf of the Tenant in fitting out the
Demised Premises prior to or at the commencement of the tenancy (including the
Tenant's Fixtures other than the kitchen) and to reinstate the Demised Premises
to its condition before such alterations or additions were carried out in a good
and workmanlike manner to the reasonable satisfaction of the Landlord
3.12.3 demolish and remove any building addition or alteration built or
carried out in breach of this clause and restore the Estate and the Demised
Premises to its previous condition to the reasonable satisfaction of the
Landlord
3.13 OBSTRUCTION OF CONDUCTING MEDIA
Not to interfere with or obstruct any Conducting Media and in so far as
heating ventilation or air conditioning may be provided through such Conducting
Media to ensure that the internal arrangement of the Demised Premises does not
interfere with the efficient operation of such heating ventilation or air
conditioning.
3.14 SIGNS
3.14.1 Not to display upon the exterior of the Demised Premises or upon the
interior thereof so as to be visible outside the Demised Premises any lettering
inscription advertisement board sign notice placard bill pole flag or similar
device without the prior written consent of the Landlord which consent will not
be unreasonably withheld or delayed to a sign on the exterior of the Demised
Premises displaying the name and business of the Tenant and of any permitted
sub-tenant in such position and being of such material size design and colours
as the Landlord shall approve (such approval not to be unreasonably withheld or
delayed)
3.14.2 Not to place or affix behind or near the windows of the Demised
Premises so as to be visible outside the Demised Premises: any curtains or other
articles which in the opinion of the Landlord (which the Tenant agrees
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to accept without dispute) may depreciate the value of the Landlord's
interest in the Demised Premises.
3.15 NUISANCE, OVERLOADING ETC.
Not to LI5C or permit to be used the Demised Premises or any part thereof
for any illegal or immoral purpose or in a manner which in the opinion of the
Landlord will or may depreciate the value of the Landlord's interest in the
Demised Premises or the Estate or become a nuisance annoyance or disturbance to
the Landlord any superior landlord or the owner or occupier of any neighbouring
premises (PROVIDED THAT use of the Demised Premises in accordance with the
Permitted Use referred to in clause 1.1. shall not be in itself deemed a
nuisance) and not to permit any person to reside or sleep at the Demised
Premises and not to bring upon the Demised Premises anything of an explosive or
inflammable nature save for utilisation in the Tenant's Permitted Use of the
Demised Premises or which may overload any part of the Demised Premises
3.16 USE OF ADDRESS OF DEMISED PREMISES
Not to use or permit to be used the address of the Demised Premises in any
advertisement or in any other manner which in the opinion of the Landlord (which
the Tenant agrees to accept without dispute) is or may be detrimental to the
reputation of the Demised Premises or the Estate
3.17 NAME OF DEMISED PREMISES
Not for any purpose whatsoever to use or permit others to use as the name
of the Demised Premises any name other than that given to the Demised Premises
by the Landlord or a name approved in writing by the Landlord (such approval not
to be unreasonably withheld)
3.18 USE OF DEMISED PREMISES
At all times during the term to use the Demised Premises for the Permitted
Use and not to use any part thereof for any other purpose
3.19 PLANNING ACTS
In relation to the Planning Acts:
3.19.1 At all times during the term to comply with the Planning Acts and
all planning consents and conditions (if any) thereunder so far as the same
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respectively relate to or affect the Demised Premises or any part thereof or any
operations works acts or things already carried out executed done or omitted by
the Tenant or hereafter to be carried out executed done or omitted thereon or
the use thereof for any purpose AND at all times hereafter to indemnify and keep
indemnified the Landlord against all actions proceedings costs expenses claims
and demands in respect of any contravention of such provisions and requirements
3.19.2 during the term so often as occasion shall require without expense
to the Landlord to obtain from the relevant planning authority or the Secretary
of State for the Environment or other authorised person or body all such
planning consents (if any) as may be required for the carrying out by the lawful
occupier thereof from time to time of such person's operations on the Demised
Premises or the institution or continuance thereon of such person's use thereof
which may constitute development within the meaning of the Planning Acts
3.19.3 on receipt by the Tenant of any notice order planning consent
proposal or determination under the Planning Acts to deliver forthwith to the
Landlord a copy thereof and (unless the Tenant shall lawfully decline to
implement a planning consent subject to conditions which it reasonably considers
onerous) without delay and at the Tenant's own expense to comply with such
notice order planning consent proposal or determination AND if so required by
the Landlord to make or join in making at the expense of the Tenant such
representation or appeal in respect of any such notice order planning consent
proposal or determination as the Landlord may reasonably require
3.19.4 Not to make any application under the Planning Acts for permission
to carry out any development (as defined by the Planning Acts) or for the
approval of anything in connection therewith unless the Tenant shall previously
have obtained all consents licences and approvals of the Landlord required under
this Lease for the carrying out of such development.
3.19.5 Not to make any such application except in such form and for such
duration whether limited or unlimited as the Landlord may approve in
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writing Provided that in relation to a change of use or works which are
otherwise authorised by this Lease approval of such application will not be
unreasonably withheld in any case where (i) neither the application for such
planning permission nor its grant nor implementation will or may create or give
rise to any tax or other fiscal liability for the Landlord or (ii) the Tenant
agrees to indemnify the Landlord against any such tax or other fiscal liability
in such manner and provides such security as the Landlord may require
3.19.6 If the Landlord so directs to apply to the relevant planning
authority to determine whether any relevant proposal requires permission under
the Planning Acts
3.19.7 If reasonably required by the Landlord but at the cost of the Tenant
to appeal against any refusal of planning permission or the imposition of any
conditions on a planning permission relating to the Demised Premises following
an application by or on behalf of the Tenant
3.19.8 Not to enter into any agreement with any competent authority
regulating the development or use of the Demised Premises
3.19.9 Not to implement any planning permission or approval unless the same
has been submitted to and approved in writing by the Landlord whose approval
shall not be unreasonably withheld
3.19.10 In the event of the Tenant carrying out any works in implementation
of any planning permission or approval so approved to carry out and complete all
works required to implement the same in a good and workmanlike manner in
accordance with the terms of such Permission or approval and in accordance with
any other obligations imposed by the Landlord in any license deed or other
document issued by the Landlord permitting such works
3.19.11 To make or secure to the satisfaction of the Secretary of State or
other competent authority appointed for the purpose any payment that may be
required for any planning permission or approval which may be granted and so to
do for the lull term of the permission or approval and similarly to make or
secure any payment that may be required in respect of any development or the
continuance or retention of any development being a
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permission or approval implemented or development carried out or continued
or retained at any time during the currency of the tenancy
3 19.12 Unless the Landlord otherwise directs to carry out before the
termination of the tenancy or such earlier date as may be nominated by the
Landlord any works required to be carried out to the Demised Premises by a date
subsequent to the termination of the tenancy by any limitation or condition to
which any planning permission or approval implemented by or under or for the
benefit of the Tenant is subject
3.19.13 To produce to the Landlord or the Landlord's Surveyor when required
all such drawings documents and other evidence that the provisions of this
sub-clause have been complied with as they or either of them may reasonably
require
3.19.14 For the avoidance of doubt the Landlord's approval of any
application permission or approval under this sub-clause may be refused on the
ground inter alia that the period thereof or anything contained therein or
omitted therefrom would in the reasonable opinion of the Landlord's Surveyor be
likely to be prejudicial to the interests of the Landlord whether in relation to
the Demised Premises or the Estate or any neighbouring premises or otherwise and
whether during the currency of this tenancy or thereafter
3.20 PRODUCTION OF NOTICES
Within three days of the receipt of the same by the Tenant to give full
particulars to the Landlord or the Landlord's Surveyor of any notice or order or
proposal for a notice or order given issued or made to or on the Tenant by any
competent authority pursuant to Legislation and if so required by the Landlord
or the Landlord's Surveyor to produce such notice order or proposal to them and
without delay to take all necessary steps to comply with any such notice order
or proposal and at the request of the Landlord or the Landlord's Surveyor but at
the cost of the Tenant to make or join with the Landlord in making such
objections or representations against or in respect of any such notice order or
proposal as they or either of them shall deem expedient.
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3.21 Encroachments
Not to permit any person to encroach upon or to acquire any right of light air
way water or drainage or other easement over the Demised Premises but forthwith
upon being made aware of the same to inform the Landlord of any such
encroachment or of any act or thing which might result in the acquisition of any
right or easement over the Demised Premises and to do all acts and things which
may be necessary or expedient to prevent such encroachment or the acquisition of
any such right or easement provided that if the Tenant shall fail to do such
acts and things as aforesaid the Landlord shall have power to enter upon the
Demised Premises for the purpose of doing the same and any expenses which the
Landlord thereby incurs shall be paid by the Tenant to the Landlord on demand.
3.22 INVALIDATION OF INSURANCE
3.22.1 Not to do or omit or cause any act matter or thing which might
invalidate or prejudicially affect any insurance of the Demised Premises or any
adjoining premises or whereby any payment thereunder may be refused in whole or
part or render the insurance monies in whole or part irrecoverable
3.22.2 Immediately to comply to the satisfaction of the Landlord's insurers
with their requirements for protection of the Demised Premises of which notice
shall have been given to the Tenant whether those requirements relate to the
Demised Premises to the use thereof or to anything in or on the Demised Premises
or to the employment of any persons therein.
3.23 DUPLICATION OF INSURANCE
Not to effect or maintain or contribute towards the maintenance of any
insurance on or in respect of the Demised Premises in duplication of any
insurance effected and maintained by the Landlord PROVIDED ALWAYS that without
prejudice to the foregoing and any right of action or remedy in respect of any
breach thereof if at any time the Tenant shall be entitled to the benefit of any
such insurance on the Demised Premises to pay or procure to be paid to the
Landlord all moneys received by virtue of such insurance and to hold the benefit
of such policy and moneys payable thereunder in trust for
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the Landlord to be applied towards rebuilding or reinstating the Demised
Premises.
3.24 DISCLOSURE TO INSURERS
Forthwith to give written notice to the Landlord of the occurrence of any
damage or destruction of the Demised Premises or of any other event which the
Landlord is obliged to disclose to the insurers or which ought reasonably to be
brought to the attention of the insurers.
3.25 INCREASED COST OF INSURANCE AND VOID INSURANCE
3 25.1 In the event of the premiums payable for the insurance of the
Demised Premises or the Estate or any neighbouring premises being increased by
reason of any act default or omission of the Tenant to pay on demand to the
Landlord or to whomsoever the Landlord shall direct the amount of such increase
3.25.2 In the event of the Demised Premises being destroyed or damaged by
any of the risks insured against by the Landlord and the insurance money under
any such insurance against the same being wholly or partly irrecoverable by
reason solely or in part of any act default or omission of the Tenant or any
person deriving title from the Tenant or any servant agent licensee or invitee
of the Tenant or any such person the Tenant shall from time to time forthwith on
demand by or on behalf of the Landlord pay to the Landlord the whole or (as the
case may require) the irrecoverable portion of the cost (including professional
and other fees and expenses together with any Irrecoverable VAT thereon) of
completely rebuilding and reinstating the same together with (in the event of
such sums not being paid within ten working days of demand therefor) interest
thereon at the Prescribed Rate calculated to the date of payment (with quarterly
rests) from the date of such destruction or damage
3.26 DISPOSALS BY TENANT
3.26.1 Not to assign transfer underlet licence share or part with
possession or occupation of the Demised Premises or any part thereof nor hold
the Demised Premises on trust for or as a nominee of any person
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company or body PROVIDED that the transactions mentioned in 3.26.2 and
3.26.3 shall not constitute a breach of this covenant BUT notwithstanding the
foregoing provisions of this clause the Tenant shall be permitted to share
occupation of part or whole of the Demised Premises with a company that is a
Member of the same group as the Tenant (within the meaning of the Landlord and
Tenant Act 1954 Section 42) for so long as both companies remain Members of the
same group and otherwise than in a manner that transfers or creates a legal
estate or any landlord and tenant relationship and any such sharing of
occupation as provided for by this clause shall be permitted without the
Landlords prior consents being required but the Tenant shall forthwith upon the
commencement and cessation of any such sharing of occupation notify the Landlord
thereof in writing
3.26.2 Not to assign the whole of the Demised Premises without first:-
3.26.2.1 obtaining the written licence of the Landlord which shall not be
unreasonably withheld or delayed such licence to be by way of deed prepared by
the Landlord's solicitors at the expense of the Tenant and to contain a covenant
by the assignee directly with the Landlord to observe and perform the covenants
obligations and conditions on the part of the Tenant herein during the residue
of the term hereby granted from the date of the relevant assignment;
3.26.2.2 satisfying the circumstances specified for the purposes of
S.19(1A) of the Landlord and Tenant Act 1927 and set out in clause 3.26.2.4; and
3.26.2.3 complying with the conditions specified for the purposes of S.
19(lA) of the Landlord and Tenant Act 1927 and set out in clause 3.26.2.5
3.26.2.4 the circumstances referred to in clause 3.26.2.2 are that:-
3.26.2.4.1 all sums due from the Tenant under this Lease which have been
demanded or become due and are outstanding have been paid at the date of the
application for the licence to assign;
3.26.2.4.2 in the Landlord's reasonable opinion the assignee is at the date
of the application for licence to assign likely to be able to pay the rents
hereby reserved (including any increased rent which the Landlord reasonably
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anticipates will become payable pursuant to the provisions of this Lease)
and comply with the tenant covenants of this Lease and is likely to continue to
be so able following the assignment;
3.26.2.4.3 the assignee does not have the benefit of diplomatic immunity;
3.26.2.4.4 the assignee is a corporation registered in (or if an individual
is resident in) a jurisdiction in which the order of a court obtained in England
and Wales will be enforced without any consideration of the merits of the case;
3.26.2.4.5 in the case of an assignment to a company which is in the same
group (within the meaning of Section 42 of the Landlord and Tenant Act 1954) as
the Tenant the assignee is in the Landlord's reasonable opinion a company who is
at the date of the application for licence to assign no less likely than the
Tenant was at the date of the grant or assignment of the Lease to the Tenant to
be able to comply with the tenant covenants of this Lease and is likely to
continue to be such a company following the assignment; and
3.26.2.5 The Conditions referred to in clause 3.26.2.3 are that:-
3.26.2.5.1 upon or before any assignment and before giving occupation to
the assignee the Tenant shall covenant by way of indemnity and guarantee with
the Landlord in the terms set out in Schedule 5;
3.26.2.5.2 if so reasonably required by the Landlord the assignee shall
upon or before any assignment and before taking occupation obtain guarantors
reasonably acceptable to the Landlord who shall covenant by way of indemnity and
guarantee (if more than one jointly and severally) with the Landlord in the
terms set out in Schedule 4; and
3.26.2.5.3 the written licence to assign contains a condition that if at
any time prior to the assignment the circumstances (or any of them) specified in
subclause 3.26.2.4 cease to exist the Landlord may revoke the licence by written
notice to the Tenant
3.26.3 Not to underlet the whole of the Demised Premises without first
obtaining the prior consent by deed (which shall be prepared by the Landlord's
solicitors at the expense of the Tenant) of the Landlord both as to
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the proposed undertenant and the form of the underlease such consent not to
be unreasonably withheld and subject to the following conditions:-
3.26.3.1 the underlease shall reserve a yearly rent payable by equal
quarterly installments in advance on the usual quarter days an amount which will
not be less than the rent for the time being payable hereunder or (if greater)
the then current open market rental value of the Demised Premises with provision
for the review of rent upwards only on the review dates referred to in Schedule
2 and in the manner therein contained
3.26.3.2 the 'underlease shall not be granted in consideration of a fine or
premium
3.26.3.3 the underlease shall contain a covenant on the part of the
undertenant in the underlease that the undertenant will not assign transfer
underlet licence share or part with the possession or occupation of the premises
thereby demised or any part thereof PROVIDED that the undertenant may assign the
whole of the premises thereby demised if the undertenant has first obtained the
prior consent by deed of the Landlord under this Lease (such consent not to be
unreasonably withheld or delayed) --------
3.26.3.4 before granting the underlease and giving possession the Tenant
shall obtain a valid Order from the Court excluding the provisions of Sections
24 to 28 (inclusive) of the Landlord and Tenant Act 1954 in relation to such
underlease
3.26.3.5 the Tenant shall not knowingly permit or suffer any breach by any
underlessee of the provisions of any such underlease and at all times shall
strictly enforce the same and operate and enforce any provisions therein for the
review of rent
3.26.3.6 the Tenant shall not at any time reduce or permit to be reduced
the rent payable by any underlessee or waive forego or compound the same
3.26.4 The Tenant shall furnish the Landlord on demand with hill
particulars of all derivative interests and occupational rights of or in the
Demised Premises or any part thereof howsoever remote or inferior including
particulars of the rent or rents payable in respect of such derivative interests
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and shall supply such further particulars as the Landlord may reasonably
require in respect thereof
3.27 REGISTRATION OF DOCUMENTS
To deliver or cause to be delivered to the Landlord or its agents for the
time being (and at the direction of the Landlord to any superior landlord) a
notice of every assignment underletting disposition or devolution of or charge
on or transfer of the title of the Demised Premises or any part thereof whether
by way of mortgage or otherwise and whether for the whole or any part of the
term or otherwise within one month after the execution or signature of any deed
or document or after the date of any probate letters of administration or other
instrument or any court order by which such assignment underletting disposition
devolution charge or transfer may be effected or evidenced such notice to
specify the name and address and description of the person or persons to whom or
in whose favour the assignment underletting disposition devolution charge or
transfer shall be made or take effect AND also at the time of delivery of any
such notice to produce the deed document instrument or order or a certified copy
thereof by which such assignment underletting disposition devolution charge or
transfer shall purport to be effected or evidenced as aforesaid for the purpose
of having a memorandum thereof entered in a register to be kept for that purpose
AND to pay to the Landlord or its agent their reasonable fees for the
registration of each such deed document instrument or order or certified copy
thereof
3.28 WHERE DEMISED PREMISES ARE FOR SALE OR TO LET
To permit the Landlord at any time (in the case of a proposed sale mortgage
or charge of the Landlord's interest) or during the twelve months immediately
preceding the termination of the term hereby demised and any continuation of the
tenancy thereafter to affix and retain without interference to any part of the
exterior of the Demised Premises but so as not unduly to obscure the windows
thereof or interfere with the Tenant's use thereto) a notice advertising that
the same are for sale or to let and during the said twelve months and any
continuation of the tenancy thereafter (or at any time in the
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case of a disposal of the Landlord's interest) to permit the Landlord or any
person authorised by it to show the Demised Premises to prospective tenants
mortgagees and purchasers or their agents at reasonable times by prior
appointment
3.29 COST OF LICENCES ETC.
To pay on an indemnity basis the costs and disbursements (including stamp
duties) of the Landlord's Solicitors Surveyors Architects and other professional
advisers and the Landlord's reasonable administration fee in connection with any
Deed or other thing hereby required to be executed or done at the Tenant's
expense or any licence consent or approval applied for by the Tenant relating to
the Demised Premises or the provisions of this Lease whether or not the same
shall be executed done or given together with any Irrecoverable VAT thereon.
3.30 INDEMNITIES
3.30.1 To pay and make good to the Landlord all and every loss and damage
whatsoever incurred or sustained by the Landlord as a consequence of any breach
or non-observance of the Tenant's covenants herein contained and to indemnify
the Landlord from and against all actions claims liabilities costs and expenses
thereby arising and in the event of forfeiture of this Lease to indemnify the
Landlord against all losses costs damages and expenses incurred by the Landlord
consequent upon such forfeiture and (without prejudice to the generality
thereof) pending any re-letting of the Demised Premises to pay to the Landlord
amounts equal to all rent and other sums which but for such forfeiture would
have been payable by the Tenant under this Lease (at the respective times
therein provided for) and all costs charges and expenses incurred by the
Landlord of and incidental to any re-letting or attempted re-letting of the
Demised Premises and any other losses costs damages and expenses occasioned to
the Landlord by reason of or in consequence of any forfeiture of this Lease.
3.30.2 Without prejudice to any other right or remedy available to the
Landlord to indemnify and keep the Landlord effectually indemnified from
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and against all expenses proceedings claims damages costs demands loss and any
other liabilities as a consequence of or in respect of:
3.30.2.1 (save to the extent that the Landlord is effectively indemnified
by a policy of insurance effected by it hereunder) damage to the Demised
Premises or the Estate caused by any act default or negligence of the Tenant or
any person deriving title from the Tenant or the servants agents licensees or
invitees of the Tenant or such person;
3.30.2.2 any injury to or death of any person, damage to any property, the
infringement disturbance or destruction of any right easement or privilege or
otherwise by reason of or arising directly out of the state of repair and
condition of the Demised Premises (to the extent that the Tenant is responsible
therefor under this Lease) or the user of the Demised Premises;
3.30.2.3 to indemnify the Landlord against any taxes charges or other
assessments payable in respect of any change of use or works (as the case may
be) permitted by or by reason of this Lease or by reason of any licence granted
to the Tenant or by reason of the obtaining of any consents required to be
obtained under the terms of any such licence.
3.31 PLANS DOCUMENTS AND INFORMATION
3.31.1 If called upon to do so supply copies to the Landlord or the
Landlord's Surveyor of all plans documents and other evidence as the Landlord
may reasonably require in order to satisfy itself that the provisions of this
Lease have been complied with
3.31.2 If called upon to do so to furnish to the Landlord or the Landlord's
Surveyor and (as the case may be) to the independent surveyor referred to in
Schedule 2 such information as may reasonably be requested in writing in
relation to any pending or intended step under the Landlord and Tenant Act 1954
or the implementation of any provisions for rent review contained in Schedule 2
3.32 INTEREST
Without prejudice to or derogation from any other right remedy or power
whatsoever available to the Landlord if so required by the Landlord to pay to
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the Landlord interest at the Prescribed Rate both before and after judgment
upon:
3.32.1 any installment of the Yearly Rent or any other rents hereby
reserved or any part thereof which shall not have been paid to the Landlord on
the due date for payment (or in the case of sums other than the installments of
the Yearly Rent seven days after the same became due) for the period from the
date on which the same became due to the date on which the same was paid
PROVIDED that any installment which is tendered to the Landlord but which the
Landlord has declined to accept so as to avoid the risk of waiving any right to
forfeit this Lease to which the Landlord is entitled shall for the purpose of
this sub-clause be deemed not to have been paid; and
3.32.2 any expenditure by the Landlord or any other sums payable to the
Landlord pursuant to this Lease and not included in the rent secondly reserved
but which the Tenant is required to reimburse or pay to the Landlord for the
period from the date of such expenditure or demand for payment of such other
sums to the date on which such reimbursement or payment was made.
3.33 REGULATIONS
To comply and procure compliance by the occupiers of the Demised Premises
or any part thereof and by the Tenant's and such occupiers' respective servants
licensees and visitors with such reasonable regulations as the Landlord shall
from time to time make relating to the use of any parts of the Estate and which
in the opinion of the Landlord are desirable in the interest of the persons
(including the Landlord) entitled to use such parts or for the proper management
of the Estate (and without prejudice to the generality of the foregoing such
regulations shall include compliance with the covenants conditions restrictions
and regulations set Out in the Oakirnber Transfers)
3.34 VALUE ADDED TAX
3.34.1 To pay VAT on all supplies including the grant of this Lease
received by the Tenant under or in connection with this Lease.
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3.34.2 To pay to the Landlord an amount equivalent to any Irrecoverable VAT
on supplies received by the Landlord under or in connection with this Lease.
3.34.3 All references in this Lease to amounts (including rent) payable by
the Tenant to the Landlord are references to such amounts exclusive of VAT and
the Tenant shall pay to the Landlord in addition to any such amount any VAT
payable on that amount.
3.35 OBLIGATIONS AFFECTING LANDLORD'S TITLE
3.35.1 To observe and perform all obligations imposed upon and the
covenants on the part of the Landlord in respect of the Demised Premises arising
from the matters specified in Part IV of Schedule 1 and not to commit any breach
of the aforesaid obligations and covenants in respect of the Estate (and in
particular but without prejudice to the generality of the foregoing the Tenant
shall be primarily liable promptly and duly to observe and perform the covenants
on the part of the Purchaser contained in the Oakimber Transfers in so far as
they relate to the Demised Premises) PROVIDED that the Landlord shall with all
due speed pass on to the Tenant copies of all demands notices or other
correspondence papers or documents received by the Landlord relating to such
obligations and covenants
3.35.2 To indemnify and keep indemnified the Landlord from and against any
actions proceedings claims damages costs and expenses or losses arising from any
breach non-observance or non-performance of such covenants and conditions
3.36 FIRE-FIGIITING EQUIPMENT
To keep the Demised Premises supplied and equipped with such fire-fighting
apparatus and appliances as the Landlord's insurers or the fire officer or other
competent authority shall from time to time in writing specify or approve
3.37 DEFECTIVE PREMISES
To notify the Landlord without delay of any "relevant defect" in the state
of the Demised Premises within the meaning of Section 4 of the Defective
Premises Act 1972 or any statutory modification or re-enactment thereof for the
time being in force AND to display and maintain all notices and to erect
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and maintain effective barriers if necessary which may from time to time be
required to be displayed or erected on the Demised Premises under the said Act
AND to indemnify the Landlord against all liability and cost arising in respect
of any r1otice claim or demand costs and proceedings brought thereunder
3.38 SUBSTITUTION OF SURETY
Within fourteen days of the death during the term of any surety for the time
being for the performance and observance of the Tenants covenants or of such
person becoming bankrupt or having a receiver appointed under the Mental Health
Act 1983 or being a company passing a resolution to wind up or entering into
liquidation or having a receiver appointed to give notice of this to the
Landlord AND if so required by the Landlord at the expense of the Tenant within
twenty-eight days to procure some other person reasonably acceptable to the
Landlord to execute a deed of guarantee in respect of the Tenant's obligations
contained in this Lease in the form of the Surety's covenants set out n Schedule
4
4. LANDLORD'S COVENANTS
Subject to the Tenant paying the rents hereby reserved and observing and
performing the covenants on its part and the conditions herein contained the
Landlord hereby covenants with the Tenant (but so that the Landlord shall not
remain personally liable to the Tenant after it has disposed of its reversionary
interest to this Lease except for any breach occurring prior to such disposal)
as follows:
4.1 INSURANCE
To insure the Estate with reputable insurers (subject to such exclusions
and limitations as are imposed by the insurers and subject to the appropriate
insurance cover being obtainable) in the Full Reinstatement Cost thereof against
the occurrence of any of the Insured Risks AND to provide to the Tenant on
demand (but not more frequently than twice in every year) copies of the relevant
policies and schedules of insurance together with copies of the receipts for the
latest premiums payable in respect thereo
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4.2 REINSTATEMENT OF INSURED DAMAGE
4.2.1 In the event of damage or destruction of the Demised Premises or any
part thereof and/or those parts of the Estate properly used by the Tenant in the
Tenant's enjoyment of the Demised Premises by any of the Insured Risks then save
to the extent that the insurance monies in respect thereof are irrecoverable in
whole or in part due to some act or default on the part of the Tenant or any of
the Tenants servants agents or licensees or persons deriving title under the
Tenant or the user of the Demised Premises then (subject to Clause 4.2.2) the
Landlord shall forthwith diligently pursue all claims and apply all insurance
proceeds received in respect of such damage or destruction (other than money
received in respect of Loss of Rent Insurance) in rebuilding or reinstating the
Demised Premises and the said parts of the Estate as soon as reasonably
practicable making up any difference between the cost of rebuilding and
reinstating and the money received out of the Landlord's own money
4.2.2 The Landlord shall not be liable to rebuild or reinstate the Demised
Premises if prevented from so doing by circumstances beyond the Landlords
control
4.2.3 If upon the expiration of the period of two and a half years (or such
longer period as shall be agreed in writing between the Landlord and the Tenant)
commencing on the date of the damage or destruction by any of the Insured Risks
the Demised Premises have not been rebuilt or reinstated so as to be fit for the
Tenant's occupation and use either party may by notice in writing served at any
time within six months of the expiry of such period terminate the term in
accordance with the provisions of Clause 4.2.4 PROVIDED that the Tenant shall
not be entitled to serve such a notice if the Landlords inability to rebuild or
reinstate the Demised Premises results from any act or default of the Tenant the
Tenants immediate or remote undertenants or anyone at or near the Demised
Premises expressly or by implication with their authority or where the insurance
of the Demised Premises effected pursuant to the covenant by the Landlord in
that behalf herein contained has been vitiated in whole or in part by some act
or default of the Tenant the I
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Tenants' immediate or remote undertenants or anyone at or near the Demised
Premises expressly or by implication with their authority
4.2.4 From a date twenty-one days after the service of a notice in
accordance with Clause 4.2.3 the term will absolutely cease but without
prejudice to any rights or remedies that may have accrued to either party
against the other PROVIDED THAT the Tenant shall have no claim against the
Landlord in respect of and the Landlord shall be deemed to be released from the
covenant on the part of the Landlord to reinstate the Demised Premises AND all
money received in respect of the insurance effected by the Landlord pursuant to
the provisions hereinbefore contained shall belong to the Landlord
4.2.5 Any difference or dispute as to the operation of this clause shall be
determined by an independent Surveyor (acting as expert) appointed in default of
agreement between the parties by the President of the Royal Institution of
Chartered Surveyors on the application of either party
4.3 QUIET ENJOYMENT
That the Tenant shall peaceably hold and enjoy the Demised Premises
throughout the said term without any lawful interruption by the Landlord or any
person lawfully claiming under through or in trust for the Landlord.
4.4 REPAIRS
Subject to the Tenant paying the Interim Charge and the Service Charge the
Landlord shall use its reasonable endeavours to maintain the Accessway in good
and substantial repair and condition
5. PROVISOS
Provided always and it is expressly agreed as follows:
5.1 FORFEITURE
If the rents hereby reserved or any part thereof shall be in arrear for
twenty one days after the same shall have become due (whether legally demanded
or not) and for the purposes of this clause any rents paid by the Tenant by
bankers standing order or credit transfer shall be deemed for all purposes
hereof not to have been received by the Landlord until the same shall have been
received by the Landlord's bank or in the event of any breach of any of
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the Tenant's covenants herein contained or if the Tenant or any guarantor for
the Tenant (being a company) shall enter into liquidation (other than a
voluntary members liquidation on terms approved by the Landlord when solvent for
the purpose of reconstruction or amalgamation forthwith carried into effect)
whether voluntarily or compulsorily or if the Tenant or any guarantor shall for
any reason be removed from the register of companies or be unable to pay its
debts within the meaning of section 123 of the Insolvency Act 1986 or if a
petition shall be presented for the appointment of an administrator or a
receiver (whether or not an administrative receiver) or manager shall be
appointed of the whole or any part of its or their respective undertakings or an
administration order shall be made or if there shall be convened a meeting of
creditors or members to consider a voluntary arrangement or any other scheme or
composition with the Tenant" creditors or if the Tenant or such guarantor (not
being a company) shall become bankrupt have a bankruptcy order made against it
or them or a petition for such order shall be presented or if an interim
receiver is appointed of the property of the Tenant or such guarantor or if the
Tenant or such guarantor (whether or not a company) shall enter into any
arrangement or composition for the benefit of its or their respective creditors
or shall suffer any distress or execution to be levied on their respective goods
then in any of the said cases it shall be lawful for the Landlord or any person
on its behalf at any time thereafter to re-enter upon the Demised Premises or
any part thereof in the name of the whole and thenceforth peaceably to hold and
enjoy the same as if this Lease had not been made and thereupon this demise
shall absolutely determine except for the Tenant's obligations under the
sub-clause headed INDEMMTIES but without prejudice to any right of action of the
Landlord in respect of any breach of the Tenant's covenants herein contained
5.2 SUSPENSION OF RENT
If the Demised Premises or any part thereof or any part of the Estate over
which the rights specified in Part II of Schedule 1 are exercised shall be so
destroyed or damaged by any of the Insured Risks as to render the Demised
Premises or some part thereof unfit for or incapable of occupation and use by
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the Tenant then (unless any of the insurance money in respect of loss of rent
shall have been rendered irrecoverable by the act or default of the Tenant or
any other person deriving title from the Tenant or any licensee or invitee of
the Tenant or any such other person) the rents hereby reserved or a fair
proportion thereof according to the extent of the damage shall be suspended and
cease to be payable until the same shall have been reinstated and the Demised
Premises are fit for occupation and use or until the expiration of the period
from the date of such destruction or damage for which the Landlord has Loss of
Rent Insurance whichever shall be the earlier PROVIDED that any dispute as to
the amount which ceases to be payable shall be determined by an independent
Surveyor (acting as expert) appointed in default of agreement between the
parties by the President of the Royal Institution of Chartered Surveyors on the
application of either party
5.3 COMPENSATION UNDER LANDLORD AND TENANT ACT 1954
Subject to the provisions of sub-section (2) of section 38 of the Landlord
and Tenant Act 1954 neither the Tenant nor any person deriving title from the
Tenant to the whole or any part of the Demised Premises shall be entitled on
quitting the Demised Premises to any compensation under section 37 of the said
Act
5.4 EXCLUSION OF LIABILITY ON PART OF LANDLORD
5.4.1 The Landlord shall not be liable to any person other than the
Tenant to perform any of the covenants herein contained whether expressed
or implied in so far as such covenants impose obligations going beyond the
common duty of care imposed by the Occupiers Liability Act 1957 or the Defective
Premises Act 1972 and the Landlord shall not be liable to the Tenant or any
other person for any accident loss or damage which may at any time during the
said term be occasioned to or suffered by the Tenant or any other person or
occasioned to the Demised Premises or to any goods or property of the Tenant or
any other person by reason of any breach of any obligation on the part of the
Landlord herein contained whether expressed or implied resulting from any act
neglect default or misfeasance or nonfeasance
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whether tortious or of any other kind whatsoever of any servant or employee or
agent or tenant of the Landlord or any other person or by reason of any fire or
leakage or overflow from any Conducting Media or other appliances in or near the
Demised Premises
5.4.2 Nothing herein contained or implied nor any statement or
representation made by or on behalf of the Landlord shall be taken to be a
covenant warranty or representation that the Demised Premises can lawfully be
used for the Permitted Use
5.5 FORM OF LICENCES ETC.
Any consent permission licence or approval purporting to be given by the
Landlord to the Tenant in relation to this Lease or the Demised Premises whether
or not the same be required to be obtained by the Tenant by any of the covenants
or conditions herein contained shall be ineffective unless the same be given
either:
5.5.1 by Deed; or
5.5.2 by writing under the hand of the Landlord or some duly authorised
officer or agent of the Landlord expressly stating that the Landlord does not
require the same to be by Deed.
5.6 WAIVER OF RIGHT TO FORFEIT
That no demand for or acceptance or receipt in whole or in part of any of
the rents hereby reserved or any payment on account thereof or ~e grant of any
consent permission licence or approval hereunder shall operate as a waiver by
the Landlord of any right which the Landlord may have to forfeit this Lease by
reason of any breach of covenant or condition by the Tenant notwithstanding that
the Landlord may know or be deemed to know of such breach at the date of such
demand acceptance receipt or grant
5.7 IMPLIED EASEMENTS AND OTIIER RIGHTS
5.7.1 Nothing herein contained shall operate to grant by implication or
otherwise any estate right or easement not hereby expressly granted by the
Landlord.
5.7.2 Nothing herein contained shall confer on the Tenant any right to the
benefit of or to enforce any covenant or agreement contained in any
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lease or other instrument relating to any other premises belonging to the
Landlord or limit or affect the right of the Landlord to deal with the same now
or at any time hereafter in any manner which may be thought fit.
5.8 PARTYWALLS
Such of the walls (if any) of the Demised Premises as divide the Demised
Premises from other premises of the Landlord shall be deemed to be party walls
divided longitudinally and shall be included in the Demised Premises to the
centre of such division.
5.9 ARBITRATION
Where in this Lease provision is made for the appointment of some person to
act as an expert or arbitrator to determine a matter of difference between the
Landlord and the Tenant and such provision proves ineffective to secure such
appointment then the difference in question shall if the Landlord so requires be
settled by a single arbitrator under the Arbitration Acts 1950 and 1979.
5.10 REPRESENTATIONS
The Tenant acknowledges that this Lease has not been entered into in
reliance wholly or partly on any statement or representation made by or on
behalf of the Landlord except any such statement or representation that is
expressly set out in this Lease.
5.11 SERVICE OF NOTICES
5.11.1 The provisions of section 196 of the Law of Property Act 1925 as
amended by the Recorded Delivery Service Act 1962 shall apply to any notices
served pursuant to or in connection with this Lease as if such notices were
notices required or authorised under the said Acts.
5.11.2 The reference in such section to a registered letter shall also
include a pre-paid first class ordinary letter.
5.11.3 If the Tenant or the Guarantor shall comprise more than one person
the service of any such notice demand request or other communication on any one
of such persons shall constitute good service on all persons constituting the
Tenant or (as the case may be) the Guarantor.
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5.12 VALUE ADDED TAX
5.12.1 The Landlord may but is not obliged to exercise the Election so as
to secure that supplies made under the Lease are or are treated as
standard-rated supplies for VAT purposes.
5.12.2 The Landlord may issue a yearly invoice in accordance with
Regulation 19 of the VAT (General) Regulations 1985 (SI 1985/886)
5.13 REDEVELOPMENT OF ADJOINING PROPERTY
That nothing herein contained shall by implication of law or otherwise
operate or be deemed to confer upon the Tenant any easement right or privilege
whatsoever over or against any adjoining property (including the Estate) or
which would or might restrict or prejudicially affect the future rebuilding
alteration or development of such adjoining property AND that the Landlord shall
have the right at any time to make such alterations to or pull down and rebuild
or redevelop any such adjoining property as it may deem fit without obtaining
any consent from or making any compensation to the Tenant PROVIDED that the
Landlord shall cause as little nuisance as practicable to the Tenant
IN WITNESS whereof the parties have signed or sealed this Deed as indicated
below and it has been delivered on their behalf on the day and year first above
written
SCHEDULE 1
Part I
Description of the Demised Premises
The premises known as Unit 1 Vickers Drive, Brooklands Industrial Park,
Weybridge, Surrey more particularly delineated and edged red on the Plan and
forming part of the land registered at H.M. Land Registry under titles numbered
SYS79222 and SY579223
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Part II
Rights granted to the Tenant
1. The free passage and running of gas electricity water soil and other
services through and along the Conducting Media now or at any time hereafter in
or upon the Estate and serving any part of the Demised Premises
2. The right to support and to shelter and protection from those parts of
the Estate not included in this demise as at the date hereof
3. The right to enter upon the other parts of the Estate at reasonable
times in the day time after giving 48 hours written notice (except in case of
emergency) for the purposes of:-
3. i inspecting maintaining repairing or renewing any of the Conducting
Media thereon and installing within other parts of the Estate any new Conducting
Media required in connection with the services within the Demised Premises or
the use by any person of any part thereof and
3.2 carrying out any repairs renewals maintenance necessary inspections or
alterations to the Demised Premises
BUT only if such matters or works cannot otherwise be reasonably effected
from the Demised Premises the person exercising such rights causing as little
nuisance as possible and remedying any physical damage so caused as soon as
reasonably practicable ---
4. The right for the Tenant and all persons authorised by the Tenant in
common with all others entitled at all times in connection with the Permitted
User of the Demised Premises to go pass and repass over through and along the
Accessway with or without vehicles
5. Such rights in common with the Landlord and others as are Co extensive
with the rights of which the Landlord has the benefit under the
Oakimber Transfers
6. The right to retain or install upon the Demised Premises satellite
dishes or other communication devices as shall be approved by the Landlord (such
approval not to be unreasonably withheld or delayed)
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Part III
Rights Reserved
1. The free passage and running of gas electricity water soil and other
services through and along the Conducting Media now or at any time hereafter in
or upon the Demised Premises and serving any part of the Estate
2. The right to enter upon the Demised Premises at reasonable times in the
day time after giving 48 hours written notice (except in case of emergency) for
the purposes of:
2.1 inspecting maintaining repairing or renewing any of the Conducting
Media thereon and installing within the Demised Premises any new Conducting
Media required in connection with the services within the Estate or the use by
any person of any part thereof and
2.2 carrying out any repairs renewals maintenance necessary inspections or
alterations to any other part of the Estate (including the erection of
scaffolding and the placing of ladders upon the Demised Premises if that shall
be necessary for such works) and
2.3 carrying out matters giving rise to the Landlord's Expenses and/or such
other services as the Landlord wishes to carry out and the cost of which can be
recovered by means of the Service Charge
PROVIDED THAT in exercising such right the Landlord shall use its
reasonable endeavours not materially to interfere with the use enjoyment and
access of the Tenant in respect of the Demised Premises and the person
exercising such rights causing as little nuisance as practicable and remedying
any physical damage so caused as soon as reasonably practicable
3. All liberties privileges easements quasi-easements rights and advantages
whatsoever now held or enjoyed with or appertaining or reputed to appertain to
any other part of the Estate
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4 The right to deal in any manner whatsoever with the remainder of the
Estate and to erect maintain rebuild or alter or suffer to be erected maintained
rebuilt or altered thereon any buildings whatsoever whether such buildings shall
or shall not affect or diminish the light or air which may now or at any time
hereafter be enjoyed for or in respect of the Demised Premises
5. The right of support and shelter by and from the Demised Premises for
any part of the Estate
6. The rights and liberties to enter upon the Demised Premises in the
circumstances in which the Tenant covenants to permit such entry in the
covenants by the Tenant herein contained
Part IV
Matters subject to and with the benefit
of which the Demised Premises are demised
The covenants restrictions stipulations rights liabilities and other
matters other than charges to secure money set out or referred to in the
Property and Charges Registers of H.M. Land Registry titles numbered 5Y579222
and SY579223
SCHEDULE 2
Rent Review
1. In this Schedule the following expressions shall have the meanings
respectively ascribed to them:-
"Review Date" means the [] day of [] in each of the years 2002 and 2007 and
the penultimate day of the term and each other date that becomes a Review Date
pursuant to the provisions of this Schedule
"Rental Value" means the best yearly rack rent or the aggregate best yearly
rack rents (whichever shall be the higher) at which the Demised Premises might
be
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let as a whole or in parts at the relevant Review Date in the open market
and with vacant possession by a willing lessor to a willing lessee without a
premium for a term equal to the residue of the term of this Lease unexpired at
the relevant Review Date or 10 years (whichever is the longer) and for the
avoidance of doubt such term shall be deemed to be computed from the relevant
Review Date but otherwise on the terms of this Lease (other than the amount of
the rent hereby reserved but including the provisions for review of that rent
similar to those set out in this Schedule) and ON THE ASSUMPTION (whether or not
it is a fact) that:- ------ ----------
(1) all the covenants and obligations on the part of the Tenant contained
in this Lease have been observed and performed (but without prejudice to any
rights or remedies of the Landlord in regard thereto)
(2) if the Demised Premises at the relevant Review Date or the means of
access thereto or egress therefrom have been damaged or destroyed such damage or
destruction has been reinstated
(3) that the Demised Premises are available immediately for occupation and
use
(4) no reduction is to be made to take account of any rental concession
rent free period or other inducement which on new letting with vacant possession
might be granted to the incoming lessee
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BUT DISREGARDING: -
(a) any effect on rent of any goodwill attached to the Demised Premises by
reason of the carrying on by the Tenant or any duly authorised under-tenant of
any business thereon or thereat
(b) any effect on rent of the occupation of the Demised Premises by the
Tenant or any duly authorised under-tenant
(c) any effect on rent of any improvements to the Demised Premises made by
the Tenant or by any duly authorised under-tenant with the consent of the
Landlord or any improvements carried out more than twenty one years prior to the
relevant Review Date but so that there shall not be so disregarded any
improvements effected at the expense of the Landlord or in pursuance of any
obligation to the Landlord (whether under the provisions of this Lease or any
other deed or document)
(d) any effect on rent of the existence of the Tenant's Fixtures on in or
about the Demised Premises
means the President for the time being of the Royal Institution of
Chartered Surveyors or a duly authorised person acting on his behalf or in
substitution for him
2. On and after each Review Date the yearly hereunder shall be whichever is
the greater of: -
(1) the Rental Value at the Review Date then occurring or "President" rent
first reserved
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(2) the yearly rent payable pursuant to the terms and provisions of this
Lease immediately prior to such Review Date
3. (1) In the event of the Landlord and the Tenant failing to
agree the Rental Value by a date three months prior to any Review Date then
the determination of the Rental Value at that Review Date may be referred to and
conclusively determined by an independent surveyor such surveyor to be agreed
upon by the Landlord and the Tenant or if they do not so agree before a date two
months prior to that Review Date to be nominated upon the application of the
Landlord or the Tenant by or on behalf of the President
(2) The independent surveyor shall act as an arbitrator unless prior to the
application to the President the Landlord shall have notified the Tenant in
writing that the Landlord requires the surveyor to act as an expert and not an
arbitrator
(3) In the case of arbitration the arbitration shall be conducted in
accordance with the Arbitration Acts 1950 and 1979 with the further provision
that if the arbitrator nominated pursuant to this sub-Clause shall die or
decline to act the President may on the application of either the Landlord or
the Tenant by writing discharge the arbitrator and appoint another in his place
(4) In the case of determination by an independent expert he shall afford
the Landlord and the Tenant an opportunity to make representations to him AND if
the independent surveyor shall die delay or become unwilling unfit or incapable
of acting or if for any other reason the President shall think fit he may on the
application of either the Landlord or the Tenant by writing discharge the expert
and appoint another in his place ---
(5) The fees payable to the independent Surveyor shall be borne and paid by
the parties equally
4. If by a Review Date the Rental Value at such Review Date has not been
ascertained pursuant to the terms and provisions of this Schedule the Tenant
shall continue to pay the yearly rent previously payable and on the quarter day
next after such ascertainment the Tenant shall in addition to any
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increased rent payable pursuant to the foregoing provisions hereof pay to the
Landlord without any deduction whatsoever the amount of the difference between
the said yearly rent previously payable and the rent so ascertained for the
period commencing on such Review Date and ending on such quarter day together
with interest on such difference at the rate of four percentage points below the
Prescribed Rate from the Review Date to the date of payment
5. If on any Review Date the Landlord shall be obliged legally or otherwise
to comply with any Act of Parliament Order or direction dealing with the control
of rent or which shall restrict or modify the Landlord's right to reserve or
receive any increase in rent in accordance with the terms and provisions of this
Lease then the first day of the month next following any relaxation removal or
modification of such enactment order or direction in whole or in part shall be a
Review Date
6. The amount of any increased rent ascertained in accordance with the
foregoing provisions of this Schedule shall within twenty eight days of such
ascertainment be recorded by way of Memorandum attached to this Lease and the
Counterpart hereof by and at the expense of the Tenant and the Landlord
respectively
SCHEDULE 3
PART I
The Landlord's Expenses
1. The reasonable and proper cost of the repair and maintenance (and where
reasonably necessary) renewal and replacement of the Accessway
2. The reasonable and proper cost of making repairing maintaining
rebuilding and cleaning all ways roads pavements Conducting Media walls party
structures fences or other conveniences which shall belong to or be used by the
Demised Premises in common with other parts of the Estate or by the Estate in
common with adjoining or neighbouring premises (save to the extent that the same
falls within the Development Charge)
3. The cost of all works which by or under any enactment or by local or
other authority are or may be directed or required to be executed
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upon or in respect of any part of the Estate (other than parts separately
let or intended to be separately let)
4. The cost of compliance with any notice of any local or other authority
in respect of any part of the Estate (other than parts separately let or
intended to be separately let) 5 (a) The reasonable and proper cost of the
employment at the
Landlord's discretion of a firm of managing agents to manage the Estate and
discharge all proper fees salaries charges and expenses payable to such agents
or such other person who may be managing the Estate provided that if the
Landlord shall at the Landlord's discretion manage the Estate instead of
employing a firm of managing agents the Landlord shall be entitled to charge a
reasonable fee for such management limited to 12.5% of total expenditure
(b) The cost of the employment of all such surveyors builders architects
engineers tradesmen accountants solicitors or other professional persons as may
be necessary or desirable for the proper maintenance safety and administration
of the Estate and assessing recording and auditing all costs and expenses
involved
6. Without prejudice to the foregoing the cost of all such services works
installations acts matters and things as in the absolute discretion of the
Landlord may be considered necessary or advisable for the proper maintenance
safety amenity and administration of the Estate
7. The cost of borrowing monies from any clearing bank to pay any of the
Landlord's Expenses and paying the interest on such sums borrowed as required by
such bank
PART II
The Service Charge and the Interim Service Charge
1. In this part of this Schedule the following expressions have the
following meanings respectively
(1) "total expenditure" means the aggregate of the Landlord's Expenses
including any Irrecoverable VAT in any accounting period plus any VAT charged
thereon
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(2) "accounting period" means the period of one year to the date nominated
by the Landlord from time to time
(3) "the Service Charge" means 40 per centum of total expenditure or (in
respect of the accounting period during which this Lease is executed) such
proportion of such percentage as is attributable to the period from the date of
this Lease to the end of the current accounting period
(4) "the Interim Service Charge" means such sum to be paid on account of
the Service Charge in respect of each accounting period as the Landlord or
Landlord's managing agents shall specify at its or their reasonable discretion
to be a fair and reasonable interim payment
2. In this Schedule any surplus carried forward from previous accounting
periods shall not include any Reserve Sum
3. The first payment of the Interim Service Charge (on account of the
Service Charge for the accounting period during which this Lease is executed)
shall be made on the execution hereof and thereafter the Interim Service Charge
shall be paid to the Landlord by equal quarterly installments payable in advance
on the usual quarter days with the rent reserved by this Lease and in case of
default the same shall be recoverable from the Tenant as rent in arrear
4 If the Interim Service Charge paid by the Tenant in respect of any
accounting period exceeds the Service Charge for that period the surplus of the
Interim Service Charge so paid over and above the Service Charge shall be
carried forward by the Landlord and credited to the account of the Tenant in
computing the Service Charge in succeeding accounting periods as hereinafter
provided
5. If the Service Charge in respect of any accounting period exceeds the
Interim Service Charge paid by the Tenant in respect of that accounting period
together with any surplus from previous years carried forward as aforesaid then
the Tenant shall pay the excess to the Landlord
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within twenty-eight days of service upon the Tenant of a certificate
referred to in the following paragraph and in case of default the same shall be
recoverable from the Tenant as rent in arrear
6. As soon as practicable after the expiration of each accounting period an
account of the total expenditure shall be prepared by the Landlord or Landlords
managing agents and there shall be served upon the Tenant by the Landlord or the
Landlord's agents a certificate signed by such agents containing the following
information:
(a) The amount of the total expenditure for that accounting period
(1)) The amount of the Interim Service Charge paid by the Tenant in respect
of that accounting period together with any surplus carried forward from the
previous accounting period
(c) The amount of the Service Charge in respect of that accounting period
or deficiency of the Service Charge over or under the Interim Service Charge
(d) The amount of any Reserve Sum
7. The said certificate shall (save in the case of manifest error) be
conclusive and binding on the parties hereto but the Tenant shall be entitled at
the Tenant's own expense at any time within twenty-eight days after service of
such certificate to inspect the account of the Landlord's Expenses
SCHEDULE 4
Covenant by Surety
1. Covenant and indemnity by Surety
The Surety hereby covenants with the Landlord as a primary obligation and
not merely as guarantor that the Tenant or the Surety shall at all times during
the term duly perform and observe all the covenants on the part of the Tenant
contained in this Lease including the payment of the rents and all other sums
payable under this Lease in the manner and at the times herein specified and
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as a separate severable covenant that the Tenant and the Surety shall at
all times observe and perform the Tenant's obligations under any deed the Tenant
may enter into pursuant to clause 3.26.2.5.1 ("Authorised Guarantee Agreement)
and the Surety hereby covenants to indemnify the Landlord against all claims
demands losses damages liability costs fees and expenses whatsoever properly
sustained by the Landlord by reason of or arising in any way directly or
indirectly out of any default by the Tenant in the performance and observance of
any of its obligations or the payment of any rent and other sums
2. Surety jointly and severally liable with Tenant
The Surety hereby further covenants with the Landlord that the Surety is
jointly and severally liable with the Tenant (whether before or after any
disclaimer by a liquidator or trustee in bankruptcy) for the fulfillment of all
the obligations of the Tenant under this Lease or an Authorised Guarantee
Agreement and agrees that the Landlord in the enforcement of its rights
hereunder may proceed against the Surety as if the Surety was named as the
Tenant in this Lease or in an Authorised Guarantee Agreement
3. Waiver by Surety
The Surety hereby waives any right to require the Landlord to proceed
against the Tenant or to pursue any other remedy whatsoever which may be
available to the Landlord before proceeding against the Surety
4. Postponement of claims by Surety against Tenant The Surety hereby
further covenants with the Landlord that the Surety shall not claim in any
liquidation bankruptcy composition or arrangement of the Tenant in competition
with the Landlord or claim any set off or counter claim against the Tenant in
respect of any liability to the Tenant by the Surety and shall remit to the
Landlord the proceeds of all judgments and all distributions it may receive from
any liquidator trustee in bankruptcy or supervisor of the Tenant and shall hold
for the benefit of the Landlord all security and rights the Surety may have over
assets of the Tenant whilst any liabilities of the Tenant and the Surety to the
Landlord remain outstanding
5. Postponement of participation by Surety in security
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The Surety shall not be entitled to participate in any security held by the
Landlord in respect of the Tenant's obligations to the Landlord under this Lease
or an Authorised Guarantee Agreement or to stand in the place of the Landlord in
respect of any such security until all the obligations of the Tenant and the
Surety to the Landlord under this Lease or an Authorised Guarantee Agreement
have been performed or discharged
6. No release of Surety
None of the following or any combination thereof shall release determine
discharge or in any way lessen or affect the liability of the Surety as
principal debtor under this Lease or otherwise prejudice or affect the right of
the Landlord to recover from the Surety to the full extent of this guarantee
(1) any neglect delay or forbearance of the Landlord in endeavoring to
obtain payment of the rents or the amounts required to be paid by the Tenant or
in enforcing the performance or observance of any of the obligations of the
Tenant under this Lease or an Authorised Guarantee Agreement
(2) any refusal by the Landlord to accept rent tendered by or on behalf of
the Tenant at a time when the Landlord was entitled (or would after the service
of a notice under Section 146 of the Law of Property Act 1925 have been
entitled) to reenter the Premises
(3) any extension of time given by the Landlord to the Tenant
(4) any variation of the terms of this Lease (to the extent permitted by
law) or the transfer of the Landlord's reversion or the assignment of this Lease
(5) any change in the constitution structure or powers of either the Tenant
the Surety or the Landlord or the liquidation administration or bankruptcy (as
the case may be) of either the Tenant or the Surety
(6) any legal limitation or any immunity disability or incapacity of the
Tenant (whether or not known to the Landlord) or the fact
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that any dealings with the Landlord by the Tenant may be outside or in
excess of the powers of the Tenant
(7) any other act omission matter or thing whatsoever whereby but for this
provision the Surety would be exonerated either wholly or in part (other than a
release under seal given by the Landlord)
7. Surrender of Part
In the event of the Tenant surrendering part of the Premises the liability
of the Surety shall continue in respect of the remainder after making any
necessary apportionment's under Section 140 of the Law of Property Act 1925
8. Disclaimer or forfeiture of Lease
(1) The Surety hereby further covenants with the Landlord that:-(a) if a
liquidator or trustee in bankruptcy shall disclaim or
surrender this Lease or an Authorised Guarantee Agreement or
(b) if this Lease shall be forfeited or
(c) if the Tenant shall cease to exist
THEN the Surety shall if the Landlord by notice in writing given to the
Surety within six months after such disclaimer or other event so requires accept
from and execute and deliver to the Landlord a counterpart of a new lease of the
Premises (i) for a term commencing on the date of the disclaimer or other event
and continuing for the residue then remaining unexpired of the Term (ii) at the
rent payable by the Tenant immediately before the disclaimer or other event
("the Old Rent") unless the Rental Value at a Review Date occurring before or
after such disclaimer or other event has not been agreed or determined in
accordance with the provisions of this Lease then the Landlord and the Surety
shall take such steps as are necessary to agree or determine the Rental Value in
accordance with such provisions in which event the rent payable by the Surety
under the new lease shall be whichever is the higher of the Old Rent and the
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Rental Value and (iii)subject to the same covenants conditions and
provisions as are contained in this Lease AND on the grant of such new lease the
Surety shall pay to the Landlord an amount equal to the rents which would have
been paid to the Landlord had the new lease been granted on the date of the
disclaimer or other event
(2) If the Landlord shall not require the Surety to take a new lease the
Surety shall nevertheless upon demand pay to the Landlord a sum equal to the
rents and other sums that would have been payable under this Lease but for the
disclaimer or other event in respect of the period from and including the date
of such disclaimer or other event until the expiration of six months therefrom
or until the Landlord shall have granted a lease of the Premises to a third
party and any rent free period thereunder shall have expired (whichever shall
first occur)
9. Benefit of Guarantee
This guarantee shall enure for the benefit of the successors and assigns of
the Landlord under this Lease without the necessity for any assignment thereof
10. Severability
For the avoidance of doubt the obligations of the Surety to guarantee any
of the obligations on the part of the Tenant contained in an Authorised
Guarantee Agreement shall be expressly severable from all other obligations of
the Surety contained in this Lease and if and to the extent that any such
obligations are held to be unenforceable at law then this Lease shall be read
and construed as if all references in this Schedule to an Authorised Guarantee
Agreement were omitted
SCHEDULE 5
Authorised Guarantee Agreement
THIS AUTHORISED GUARANTEE AGREEMENT is made the day of 19
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BETWEEN
(1) ("the Landlord")
(2) ("the Assignor")
(3) ("the Assignee")
1. INTERPRETATION
(1) In this Agreement and the Schedule hereto unless there is something in
the subject or context inconsistent therewith the following expressions shall
have the meanings ascribed to them
"the Act" means the Landlord and Tenant (Covenants) Act 1995 and any
enactment for the time being amending or replacing
"the Assignee"
means the party numbered three above and its successors and assigns means
the assignment authorised by the Licence "the Assignment"
"Assignor"
means the party numbered two above means the premises demised by the Lease means
the party numbered one above or other the person or persons for the time being
entitled to the reversion immediately expectant on the determination of the Term
"the Premises" "the Landlord"
means the Lease short particulars of which are set out m the Schedule
hereto and includes any deeds or documents supplemental thereto
"the Lease"
the same
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"the Licence"
means a Licence of even date herewith and made between the same parties as
this Agreement
"the Term"
means the term granted by the Lease
(2) Where the context so requires or admits the masculine includes the
feminine and the singular includes the plural AND where for the time being any
party comprises two or more persons the covenants expressed to be made by such
party shall be deemed to be made by such persons jointly and severally
(3) All references to clauses are to clauses of this Agreement and all
references to the Schedule are to the Schedule to this Agreement
(4) The headings in this Agreement are inserted for convenience only and
shall be ignored in construing this Agreement
2. 'IHE LICENCE
This Agreement is supplemental to the Licence whereby the Landlord granted
to the Assignor licence to assign the Lease to the Assignee on the terms therein
set out and in consideration of the Landlord granting the Licence the Assignor
and the Assignee have agreed to enter into the covenants on their part set out
below
3. COVENANT BY ASSIGNEE
The Assignee hereby covenants with the Landlord that as from the Assignment
and thereafter for the remainder of the Term (unless released from liability
under the Act) the Assignee shall at all times duly observe and perform all the
covenants on the part of the tenant contained in the Lease including the payment
of the rents and all other sums payable under the Lease in the manner and times
therein specified
4. COVENANTS AND INDEMNHY BYTHE ASSIGNOR
The Assignor hereby covenants with the Landlord as a primary obligation and
not merely as guarantor that as from the Assignment and thereafter for the
remainder of the Term (unless released from liability under the Act) the
Assignee or the Assignor shall at all times duly observe and perform all the
55
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covenants on the part of the tenant contained in the Lease including the payment
of the rents and all other sums payable under the Lease in the manner and times
therein specified and the Assignor hereby covenants to indemnify the Landlord
against all claims demands losses damages liability costs fees and expenses
whatsoever sustained by the Landlord by reason of or arising in any way directly
or indirectly out of any default by the Assignee in the performance and
observance of any of its obligations or the payment of any rent or other sums
5. ASSIGNOR JOINTLY AND SEVERALLY LIABLE WITH ASSIGNEE
The Assignor hereby further covenants with the Landlord that as from the
Assignment and thereafter for the remainder of the Term (unless released from
liability under the Act) the Assignor is jointly and severally liable with the
Assignee (whether before or after any disclaimer by a liquidator or trustee in
bankruptcy) for the fulfillment of all the obligations of the Assignee under
this Agreement and agrees that the Landlord in the event of enforcement of its
rights hereunder- may proceed against the Assignor as if the Assignor was named
as the Assignee in this Agreement
6. WAIVER BY ASSIGNOR
The Assignor hereby waives any right to require the Landlord to proceed
against the Assignee or to pursue any other remedy whatsoever which may be
available to the Landlord before proceeding against the Assignor
7. POSTPONEMENT OF CLAIMS BY ASSIGNOR AGAINST ASSIGNEE
The Assignor hereby further covenants with the Landlord that the Assignor
shall not claim in any liquidation bankruptcy composition or arrangement of the
Assignee in competition with the Landlord or claim any set off or counterclaim
against the Assignee in respect of any liability to the Assignee by the Assignor
and shall remit to the landlord the proceeds of all judgments and all
distributions it may receive from any liquidator trustee in bankruptcy or
supervisor of the Assignee and shall hold for the benefit of the Landlord all
security and rights the Assignor may have over assets of the Assignee
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whilst any liabilities of the Assignee and the Assignor to the landlord
remain outstanding
8. POSTPONEMENT OF PARTICIP~ON BY ASSIGNOR IN SECURITY
The Assignor shall not be entitled to participate in any security held by
the Landlord in respect of the Assignee's obligations to the Landlord under the
Lease or to stand in the place of the Landlord in respect of any such security
until all the obligations of the Assignee and the Assignor to the Landlord under
the Lease have been performed or discharged
9. NO RELEASE OF ASSIGNOR
None of the following or any combination thereof shall release determine
discharge or in any way lessen or affect the liability of the Assignor as
principal debtor under this Agreement or otherwise prejudice or affect the right
of the Landlord to recover from the Assignor to the full extent of this
guarantee:
(1) any neglect delay or forbearance of the Landlord in endeavoring to
obtain payment of the rents or the amounts required to be paid by the Assignee
or in enforcing the performance or observance of any of the obligations of the
Assignee under the Lease
(2) any refusal by the Landlord to accept rent tendered by or on behalf of
the Assignee at a time when the Landlord was entitled (or would after the
service of a notice under section 146 of the Law of Property Act 1925 have been
entitled) to re-enter the Premises
(3) any extension of time given by the Landlord to the Assignee
(4) the variation of the terms of the Lease (to the extent permitted by
law) or the transfer of the Landlord's reversion or any further assignment of
the Lease following the Assignment
(5) any change in the constitution structure or powers of either the
Assignee the Assignor or the Landlord or the liquidation
57
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administration or bankruptcy (as the case m~ be) of either the
(6) any legal limitation or immunity disability CT incapacity of the
Assignee (whether or not known to the Landlord) or the fact that any dealings
with the Landlord by the Assignee may be outside or in excess of the powers of
the Assignee
(7)any other act omission matter or thing whatsoever whereby but for this
provision the Assignor would be exonerated either wholly or in part (other than
a release by deed given by the Landllord)
10.INVALIDITY OF PROVISIONS
No invalidity of any provision of this Agreement shall in any way vitiate
or affect any other provision of this Agreement
11. SURRENDER OF PART
In the event of the Assignee surrendering part of the Premises the
liability of the Assignor shall continue in respect of the remainder after
making any necessary apportionment's under section 140 of the Law of Property
Act 1925
12. DISCLAIMER OF LEASE
The Assignor hereby covenants with the Landlord that if a liquidator or
trustee in bankruptcy shall disclaim the Lease then the Assignor shall if so
required by notice in writing given by the Landlord within six months after such
disclaimer accept from and deliver to the Landlord a counterpart of a new lease
of the Premises (i) for a term commencing on the date of disclaimer and
continuing for the residue then remaining unexpired of the Term (ii) at the rent
payable by the Assignee immediately before the disclaimer ("the Old Rent")
unless the revised rent at a review date occurring before or after such
disclaimer has not been agreed or determined in accordance with the provisions
of the Lease then the Landlord and the Assignor shall take such steps as are
necessary to agree or determine the revised rent in accordance with such
provisions in which event the rent payable by the Assignor under the new lease
shall be whichever shall be the higher of the Old Rent and the revised rent and
(iii) subject to the same covenants and provisions as are
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contained in the Lease AND on the grant of such new lease the Assignor shall pay
to the Landlord an amount equal to the rents which would have been paid to the
Landlord had the new lease been granted by the Landlord on the date of the
disclaimer
13. BENEFIT OF GUARANTEE
This guarantee shall enure for the benefit of successors and assigns of the
Landlord under the Lease without the necessity for any assignment thereof
SCHEDULE 6
The Kitchen
3 Spray Booths
The Rolling Road
Satellite Dish
EXECUTED (but not delivered until the date inserted herein) as a deed by
affixing the COMMON SEAL of MILTON INVESTMENT FUND LIMITED in the presence of:
DIRECTOR
SECRETARY
59
June 2, 1998
The Directors
The Companies
(as specified in the Schedule
to this letter)
Dear Sirs:
Midland Bank plc (`Midland') is pleased to offer the seven Companies whose names
are listed in the Schedule to this letter (`the Companies') a collective net
overdraft facility (`the Facility') on the terms referred to below but otherwise
subject to normal banking terms and conditions.
Limit
(pound)3,250,000 (Three million two hundred and fifty thousand pounds)
Availability
Midland may at any time withdraw the Facility and/or demand repayment of
all sums owing. Subject to this, the Facility is due for review in November
1998.
Interest Rate
2% p.a. over Midland's Base Rate as published from time to time on amounts
up to (pound)750,000 and 4% p.a. over Midland's Base Rate as published from time
to time on amounts in excess of this within the Limit.
Fees
An arrangement fee of (pound)25,000 will be payable on receipt of the first
tranche or equity.
Security
The repayment and discharge of all monies at any time owing in respect of
the Facility will be secured by all security at any time given to Midland in
respect of the liabilities to Midland of the Companies or any of them.
<PAGE>
22 January, 1998
Without limiting the above, the security listed in the attached Security
Schedule is to be held.
All costs, fees and expenses, as mentioned in the General Terms and
Conditions attached to this letter,shall be payable by the Company on whose
behalf such costs and expenses are incurred, or as otherwise agreed with
Midland.
The Facility shall be subject to the General Terms and Conditions and
Security Schedule attached to this letter.
Additional Matters
In considering from time to time the continuation of the Facility, Midland
will have particular regard to the matters listed on the attached page headed
"Additional Matters". Regardless of whether such Additional Matters are being
observed, Midland may still at any time withdraw the Facility and/or demand
repayment of all sums owing.
Environmental Responsibility
The Companies, by accepting the terms of this Facility, warrant and
represent to Midland that: they are in full compliance with all applicable
current laws, regulations and practices relating to the protection of the
environment from pollution (the `environmental responsibility') and are not
aware of any circumstances which may prevent full compliance in the future.
Regardless of whether such warranties and representations are being
observed, Midland may still at any time withdraw all of the Facility and/or
demand repayment of all sums owing.
The Companies, by accepting this Facility jointly and severally hereby
indemnify Midland against all losses, claims, damages, costs, or any other
liability which might arise (by reason of Midland providing this or any other
Facility and/or having a security interest in the Companies' assets) in respect
of a breach of, or a failure to meet, an environmental responsibility.
This letter replaces Midland's letter dated 12/8/97 and all existing
liabilities in respect of collective net overdraft Facilities shall be governed
in future by the terms and conditions of this letter.
<PAGE>
22 January, 1998
This offer is conditional upon the unqualified acceptance of all of the
Companies. However, any Company accepting the letter shall be bound by its terms
even though not all of the other Companies may have done so, or be so bound
through some defect, informality or insufficiency in their powers.
To accept this offer please arrange for the enclosed copy of this letter to
be signed and returned.
Yours faithfully,
J R Poulton
Business Banking Manager
For and on Behalf of Midland Bank plc
<PAGE>
THE SCHEDULE
PRIDE MANAGEMENT SERVICES PLC
BAKER VEHICLE CONTRACTS LIMITED
PRIDE VEHICLE CONTRACTS LIMITED
PRIDE LEASING LIMITED
PRIDE VEHICLE CONTRACTS (UK) LIMITED
PRIDE VEHICLE DELIVERIES LIMITED
PRIDE VEHICLE MANAGEMENT LIMITED
(`the Companies')
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the use in this amendment No. 1 to the Registration
Statement on Form SB-2 of our report dated February 20, 1998 relating to the
consolidated financial statements of Pride Automotive Group, Inc. and
Subsidiaries, and to the reference to our Firm under the caption "Experts" in
the Prospectus. We also consent to the reference to our firm in the Summary
Financial Data section of the Registration Statement.
CIVVALS
London, United Kingdom
June 1, 1998
