<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 24, 1996
REGISTRATION NO. 333-3000
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
CABLE & CO. WORLDWIDE, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5139 22-3341195
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or organization) Industrial Identification No.)
Classification Code
Number)
</TABLE>
CABLE & CO. WORLDWIDE, INC.
724 FIFTH AVENUE
NEW YORK, NEW YORK 10019
(212) 489-9686
(Name, address and telephone number of principal executive offices
and principal place of business)
DAVID ALBAHARI
CABLE & CO. WORLDWIDE, INC.
724 FIFTH AVENUE
NEW YORK, NEW YORK 10019
(212) 489-9686
(Name, address and telephone number of agent for service)
COPIES TO:
<TABLE>
<S> <C>
MARTIN C. LICHT, ESQ. SCOTT A. ZIEGLER, ESQ.
GALLET DREYER & BERKEY, LLP ZIEGLER, ZIEGLER & ALTMAN
845 THIRD AVENUE 750 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10022
(212) 935-3131 (212) 319-7600
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
SEE "CALCULATION OF REGISTRATION FEE" ON NEXT PAGE.
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
[CAPTION]
<TABLE>
<S> <C> <C> <C>
PROPOSED OFFERING
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PRICE PER SHARE PROPOSED AGGREGATE
TO BE REGISTERED REGISTERED (1) OFFERING PRICE (1)
<S> <C> <C> <C>
Shares of Common Stock,
$.01 par value ("Common Stock") (2)................ 1,119,500 $5.00 $5,597,500
Common Stock Purchase Warrants ("Warrants") (3)...... 1,299,500 $0.10 $ 129,950
Shares of Common Stock Underlying the Warrants (4)... 1,299,500 $6.00 $7,797,000
Underwriter's Warrants (5)........................... 113,000 $0.0001 $ 10
Shares of Common Stock Underlying Underwriter's
Warrants (6)....................................... 113,000 $6.00 $ 678,000
Warrants Underlying the Underwriter's Warrants (5)... 113,000 $0.12 $ 13,560
Shares of Common Stock Underlying the Warrants
Underlying the Underwriter's Warrants (6).......... 113,000 $6.00 $ 678,000
Shares of Common Stock (7)........................... 1,062,547 $6.00 $6,375,282
Selling Securityholders' Warrants (8)................ 630,000 $0.10 $ 63,000
Shares of Common Stock Underlying Selling
Securityholders' Warrants (9)...................... 630,000 $6.00 $3,780,000
Total Registration Fee (10)..........................
<CAPTION>
TITLE OF EACH CLASS OF SECURITIES AMOUNT OF
TO BE REGISTERED REGISTRATION FEE
<S> <C>
Shares of Common Stock,
$.01 par value ("Common Stock") (2)................ $ 1,930.17
Common Stock Purchase Warrants ("Warrants") (3)...... $ 44.81
Shares of Common Stock Underlying the Warrants (4)... $ 2,688.62
Underwriter's Warrants (5)........................... --
Shares of Common Stock Underlying Underwriter's
Warrants (6)....................................... $ 233.79
Warrants Underlying the Underwriter's Warrants (5)... $ 4.68
Shares of Common Stock Underlying the Warrants
Underlying the Underwriter's Warrants (6).......... $ 233.79
Shares of Common Stock (7)........................... $ 2,198.37
Selling Securityholders' Warrants (8)................ $ 21.72
Shares of Common Stock Underlying Selling
Securityholders' Warrants (9)...................... $ 1,303.45
Total Registration Fee (10).......................... $ 8,659.40
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Includes the 950,000 shares of Common Stock being offered hereby by the
Company and being underwritten by State Street Capital Markets, Corp. (the
"Underwriter") and 169,500 shares of Common Stock which may be purchased by
the Underwriter to cover over-allotments, if any, but does not include
180,000 shares of Common Stock held by the Bridge Selling Stockholders, as
defined below. See footnote (7) below.
(3) Includes 169,500 Warrants which may be purchased by the Underwriter to
cover over-allotments, if any.
(4) Pursuant to Rule 416, there are also being registered such additional
shares as may become issuable pursuant to the anti-dilution provisions of
the Warrants.
(5) Represents warrants (the "Underwriter's Warrants") granted to the
Underwriter to acquire an aggregate of 113,000 shares of Common Stock and
113,000 Warrants at a price equal to 120% of the price to the public in
this offering.
(6) Pursuant to Rule 416, there are also being registered such additional
shares as may become issuable pursuant to the anti-dilution provisions of
the Underwriter's Warrants.
(7) Represents shares of Common Stock being registered for the account of
certain selling stockholders, including (i) 180,000 shares of Common Stock
held by certain lenders (the "Bridge Selling Stockholders") who loaned the
Company an aggregate of $1,764,000 in March 1996, (ii) 462,531 shares of
Common Stock issuable to the holders of the Company's Series A Preferred
Stock upon the redemption of the Series A Preferred Stock, which is
anticipated to occur upon the closing of this offering, (iii) 20,016 shares
of Common Stock held by an individual who loaned the Company $130,000 in
October 1995, and (iv) 400,000 shares of Common Stock held by the Company's
international consultant.
(8) Represents warrants held by certain securityholders to acquire an aggregate
of 630,000 shares of Common Stock at a price equal to 120% of the initial
public offering price.
(9) Pursuant to Rule 416, there are also being registered such additional
shares as may become issuable pursuant to the anti-dilution provisions of
the Selling Securityholders' Warrants.
(10) The registration fee of $8,659.40 was paid upon the initial filing of this
registration statement.
<PAGE>
CABLE & CO. WORLDWIDE, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM
NO. CAPTION IN FORM SB-2 LOCATION IN PROSPECTUS
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus..................... Outside Front Cover.
2. Inside Front and Outside Bank Cover Pages of
Prospectus......................................... Inside Front and Outside Back Covers.
3. Summary Information; Risk Factors.................. Prospectus Summary; Risk Factors.
4. Use of Proceeds.................................... Use of Proceeds.
5. Determination of Offering Price.................... Underwriting.
6. Dilution........................................... Dilution.
7. Selling Securityholders............................ Underwriting; Selling Securityholders
8. Plan of Distribution............................... Underwriting.
9. Legal Proceedings.................................. Business -- Litigation.
10. Directors, Executive Officers, Promoters and
Control Persons.................................... Management; Certain Transactions.
11. Security Ownership of Certain Beneficial Owners and
Management......................................... Principal Stockholders.
12. Description of Securities.......................... Description of Securities; Underwriting.
13. Interests of named Experts and Counsel............. Legal Matters; Experts.
14. Disclosure of Commission Position on Indemni-
fication for Securities Act Liabilities............ Underwriting.
15. Organization Within Last Five Years................ Prospectus Summary.
16. Description of Business............................ Prospectus Summary; Management's Discussion and Analysis of
Financial Condition and Results of Operations; Business; and
Financial Statements.
17. Management's Discussion and Analysis or Plan of
Operation.......................................... Management's Discussion and Analysis of Financial Condition and
Results of Operations.
18. Description of Property............................ Business -- Properties.
19. Certain Relationships and Related Transactions..... Certain Transactions.
20. Market for Common Equity and Related Stockholder
Matters............................................ Outside Front Cover.
21. Executive Compensation............................. Management -- Executive Compensation.
22. Financial Statements............................... Financial Statements.
</TABLE>
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED MAY 24, 1996
1,130,000 SHARES OF COMMON STOCK
1,130,000 COMMON STOCK PURCHASE WARRANTS
CABLE & CO. WORLDWIDE, INC.
Of the 1,130,000 shares (the "Shares") of common stock, $.01 par value (the
"Common Stock"), offered hereby (the "Offering"), 950,000 shares of Common Stock
are being sold by Cable & Co. Worldwide, Inc., a Delaware corporation (the
"Company"), and 180,000 shares of Common Stock are being sold by certain selling
stockholders of the Company (the "Bridge Selling Stockholders") in each case
through State Street Capital Markets, Corp. (the "Underwriter"). The Bridge
Selling Stockholders purchased such shares of Common Stock in February and March
1996 for a purchase price of $.20 per share. The Company will not receive any of
the proceeds from the sale of the shares of Common Stock by the Bridge Selling
Stockholders. See "DESCRIPTION OF SECURITIES" and "SELLING SECURITYHOLDERS."
The Company is also hereby offering 1,130,000 common stock purchase
warrants (the "Warrants") through the Underwriter. The Common Stock and the
Warrants are sometimes referred to collectively as the "Securities." The shares
of Common Stock and the Warrants will be sold on the basis of one Warrant for
each share of Common Stock purchased. The Common Stock and the Warrants will
trade separately immediately upon the date of this Prospectus (the "Effective
Date").
Each Warrant entitles the holder to purchase for $7.20, 120% of the assumed
initial public offering price, one share of Common Stock for a period of three
years commencing thirteen months after the Effective Date. The exercise price of
the Warrants is subject to adjustment in certain events pursuant to the
antidilution provisions thereof. The Warrants are redeemable by the Company at a
price of $.10 per Warrant commencing one year after the Effective Date and prior
to their expiration, provided that (i) prior notice of not less than 15 days is
given to the holders of the Warrants, and (ii) the closing bid price of the
Common Stock as reported on The NASDAQ Stock Market ("NASDAQ") (or the last sale
price, if quoted on a national securities exchange) for 20 consecutive trading
days, ending on the fifteenth day prior to the date on which the Company gives
notice of redemption, has been at least $10.80, 180% of the assumed initial
public offering price. The holders of the Warrants shall have exercise rights
until the close of the business day immediately preceding the date fixed for
redemption. See "DESCRIPTION OF SECURITIES -- Warrants" and "UNDERWRITING."
Prior to this Offering there has been no public market for the Securities
and there can be no assurance that any such market will develop therefor. It is
anticipated that the initial public offering price will be between $5.00 and
$7.00 per Share and $.10 per Warrant. The Company has applied for listing and
quotation of the Common Stock and the Warrants on The NASDAQ SmallCap Market
under the proposed trading symbols "CCWW" and "CCWWW," respectively. The initial
public offering prices of the Common Stock and the Warrants, and the exercise
price of the Warrants have been determined by negotiation between the Company
and the Underwriter on an arbitrary basis and bear no direct relationship to the
assets, earnings or any other recognized criterion of value. See "RISK
FACTORS -- Absence of Public Market; Arbitrarily Determined Offering Price" and
"UNDERWRITING."
Concurrently with this Offering, the Company has registered for resale by
certain securityholders (collectively, the "Selling Securityholders") 882,547
shares of Common Stock, 630,000 Warrants and 630,000 shares of Common Stock
issuable upon the exercise of such Warrants (collectively, the "Selling
Securityholders' Securities"). Each of the Selling Securityholders (except for
the Bridge Selling Stockholders with respect to 180,000 Warrants) have agreed
not to sell any of the Selling Securityholders' Securities for periods of up to
25 months after the Effective Date without the prior written consent of the
Underwriter. Sales of the Selling Securityholders' Securities in such offering
(the "Concurrent Offering") will be subject to the prospectus delivery
requirements and other requirements of the Securities Act of 1933, as amended
(the "Securities Act"). These securities are not being sold in the Offering
which is being underwritten by the Underwriter, and the Company will not receive
any of the proceeds from the sale of the Selling Securityholders' Securities,
although the Company will receive the proceeds from the exercise of the Selling
Securityholders' Warrants. See "DESCRIPTION OF SECURITIES -- Prior Financings,"
"CONCURRENT OFFERING" and "SELLING SECURITYHOLDERS."
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL
DILUTION. PURCHASERS SHOULD CAREFULLY CONSIDER THE MATTERS DESCRIBED UNDER
"RISK FACTORS" ON PAGE 8 AND "DILUTION" ON PAGE 18.
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 COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
[CAPTION]
<TABLE>
<S> <C> <C> <C>
UNDERWRITING DISCOUNTS
PRICE TO PUBLIC AND COMMISSIONS (1) PROCEEDS TO COMPANY (2)
<S> <C> <C> <C>
Per Share................... $ $ $
Per Warrant................. $.10 $.01 $.09
Total (3)................... $ $ $
<CAPTION>
PROCEEDS TO BRIDGE
SELLING STOCKHOLDERS
<S> <C>
Per Share................... $
Per Warrant................. --
Total (3)................... $
</TABLE>
(FOOTNOTES ON PAGE 3)
The Shares and the Warrants being offered through the Underwriter are being
sold by the Company and the Bridge Selling Stockholders on a "firm commitment"
basis subject to prior sale, when, as and if accepted by the Underwriter and
subject to approval of certain legal matters by counsel to the Underwriter and
certain other conditions. The Underwriter reserves 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 the Underwriter at One World
Trade Center, New York, New York 10048 on or about , 1996.
STATE STREET CAPITAL MARKETS, CORP.
The date of this Prospectus is , 1996.
(A redherring is located on the left-hand corner of this page, rotated
90 degrees. Text is as follows:)
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
[Insert Photos of Cable & Co. shoes]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AND/OR WARRANTS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
The Company intends to furnish its stockholders with annual reports containing
audited financial statements certified by an independent public accounting firm
and such other reports as the Company deems appropriate.
2
<PAGE>
(FOOTNOTES FROM COVER PAGE)
(1) In addition, the Company and the Bridge Selling Stockholders have agreed to
pay to the Underwriter, on a pro-rata basis, a non-accountable expense
allowance equal to 3% of the gross proceeds of this Offering, or $
($ if the Over-allotment Option described below is exercised in full),
of which $25,000 has been paid to date by the Company. The Company also has
agreed: (a) to sell to the Underwriter, for nominal consideration, an option
to purchase 113,000 shares of Common Stock and 113,000 Warrants (the
"Underwriter's Warrants") at a price equal to 120% of the initial public
offering price, subject to adjustment pursuant to the antidilution
provisions thereof, exercisable for four years commencing one year from the
Effective Date, (b) to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act, (c) to engage
the Underwriter as a financial consultant for a period of 36 months
commencing on the date of this Prospectus, for which the Underwriter will
receive a consulting fee of $112,000 to be paid in full in advance at the
closing of this Offering, and (d) that the Underwriter has the right to
designate an individual to serve as an advisor to, or a member of, the
Company's Board of Directors after the closing of the Offering for a period
of three years. See "UNDERWRITING."
(2) After deducting Underwriting Discounts and Commissions, but before payment
of the Underwriter's non-accountable expense allowance in the amount of
$ ($ if the Underwriter's Over-allotment Option referred
to below is exercised in full) and other expenses of the Offering (estimated
at $550,000) which are payable by the Company. See "UNDERWRITING."
(3) The Company has granted the Underwriter an option to purchase up to 169,500
additional shares of Common Stock and up to 169,500 additional Warrants (the
"Underwriter's Over-allotment Option"), which is exercisable within 30 days
from the Effective Date, upon the same terms set forth above, solely for the
purpose of covering over-allotments, if any. If the Underwriter's
Over-allotment Option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions, Proceeds to Company, and Proceeds to
the Bridge Selling Stockholders will be $ , $ ,
$ and $ , respectively. See "UNDERWRITING."
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED IN THIS
PROSPECTUS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED
INFORMATION, THE FINANCIAL STATEMENTS AND THE NOTES THERETO APPEARING ELSEWHERE
IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED TO THE CONTRARY, THE INFORMATION
IN THIS PROSPECTUS GIVES EFFECT TO A 26.688 FOR ONE STOCK SPLIT EFFECTED IN
JANUARY 1996 IN THE FORM OF A STOCK DIVIDEND AND THE ISSUANCE OF 462,531 SHARES
OF COMMON STOCK ISSUABLE UPON THE REDEMPTION OF THE COMPANY'S SERIES A PREFERRED
STOCK (THE "PREFERRED STOCK") WHICH WILL OCCUR UPON THE COMPLETION OF THE
OFFERING, AND ASSUMES NO EXERCISE OF (I) THE WARRANTS, (II) THE UNDERWRITER'S
OVER-ALLOTMENT OPTION OR (III) ANY OTHER OPTIONS, WARRANTS OR CONVERSION RIGHTS
DESCRIBED HEREIN. EACH PROSPECTIVE INVESTOR IS URGED TO READ THIS PROSPECTUS IN
ITS ENTIRETY.
THE COMPANY
The Company designs, imports and markets on a wholesale basis a broad range
of men's footwear bearing the Cable & Co.(Register mark) trademark. The Company
markets its products to approximately 700 department and specialty store
locations in the United States. The Company's products are designed to appeal to
fashion conscious consumers. The Company's men's footwear consists of casual
shoes and dress shoes. The retail price of the men's shoes sold under the Cable
& Co. trademark ranges from $120 to $170 for casual shoes and from $150 to $190
for the Company's dress shoes. The Company has recently commenced selling a
women's footwear line under the Cable & Co. trademark, consisting of women's
dress shoes and casual shoes on an introductory basis at select retail
locations. The Company plans a full-scale launch of the women's footwear line in
the Fall of 1996. The women's footwear sells for retail prices ranging from $130
to $150. In addition, the Company markets a line of casual men's footwear under
the name "Bacco Bucci" which sells for retail prices ranging from $110 to $140.
The Company has licensed the right to use the Bacco Bucci name from D&D Design
and Details Limited ("D&D Design"), an entity controlled by Alberto Salvucci, a
principal stockholder of the Company. See "CERTAIN TRANSACTIONS."
The Company believes that its footwear is comfortable, fashionable and
practical. The Company incorporates technically sophisticated designs into the
construction of its footwear, which is intended to be worn with casual or
business attire. The Company's men's footwear, consistent with men's footwear in
general, is less style-driven than women's footwear. The Company sells
approximately 45 styles of men's shoes each season bearing the Cable & Co.
trademark and 20 styles under the Bacco Bucci brand name. In addition, the
Company carries an average of approximately 30 styles of men's footwear from
prior seasons. The Company also intends to offer approximately 20 styles of
women's shoes each season beginning in the Fall of 1996.
The Company plans to increase revenues by increasing sales to existing
accounts, establishing new accounts, developing high quality shoes with styling
and design detail to sell at competitive prices and expanding the Company's
marketing programs. The Company intends to increase its marketing to include
direct mail. The Company also intends to explore opportunities to acquire rights
to related products such as bags, belts, wallets, accessories and other small
leather goods. In addition, the Company may seek to grant license rights to the
Cable & Co. trademark.
The Company was formed on November 10, 1994 to acquire certain net assets
of Hongson, Inc. used in the sale and marketing of footwear bearing the Cable &
Co. trademark (the "Acquired Net Assets"). The Company purchased the Acquired
Net Assets effective as of the close of business on December 31, 1994 for a net
purchase price of $1,401,787 (the "Acquisition"). The Company acquired all of
the rights of Hongson, Inc. to use the Cable & Co. trademark in the Western
Hemisphere. Cable & Co. S.R.L., an entity controlled by Alberto Salvucci, a
principal stockholder of the Company, owns the rights to use the Cable & Co.
trademark in Europe and the Company believes that International Hongson, Inc.,
an affiliate of Hongson, Inc., owns the rights to use the Cable & Co. trademark
in Asia and that Hongson, Inc. is no longer doing business. See "BUSINESS" and
"ACQUISITION."
Prior to the Acquisition, David Albahari, Chairman of the Board, President,
Chief Executive Officer, a director and a principal stockholder of the Company,
was the president of the Cable & Co. product line of Hongson, Inc. and Alan
Kandall, Executive Vice President, Treasurer, Chief Financial Officer, a
director and a principal stockholder of the Company, was the chief financial
officer of Hongson, Inc. In addition, Alberto Salvucci, a principal stockholder
of the Company, through Cable & Co. S.R.L., identified raw materials and
provided design and production services for the Cable & Co. product line of
Hongson, Inc. prior to the Acquisition. Mr. Salvucci, through Cable & Co. S.R.L.
and D&D Design, continues to provide substantially the same services to the
Company, and acts on his own behalf in connection with the sale in Europe of
footwear under the names Cable & Co. and Bacco Bucci. See "RISK FACTORS,"
"ACQUISITION," "CERTAIN TRANSACTIONS" and "PRINCIPAL STOCKHOLDERS."
4
<PAGE>
The Company's principal executive office is located at 724 Fifth Avenue,
New York, New York 10019, and its telephone number is (212) 489-9686.
THE OFFERING
<TABLE>
<S> <C>
Securities Offered.................................... 1,130,000 shares of Common Stock
1,130,000 Warrants
ASSUMED INITIAL PUBLIC
OFFERING PRICE........................................ $6.00 per share of Common Stock
$.10 per Warrant
COMMON STOCK
Outstanding Prior to the Offering................... 1,812,206 shares(1)
Outstanding After the Offering...................... 3,224,737 shares(2)
PREFERRED STOCK
Outstanding Prior to the Offering................... 43,327 shares
Outstanding After the Offering...................... 0 shares(3)
WARRANTS
Outstanding Prior to the Offering................... 630,000 Warrants
Outstanding After the Offering...................... 1,760,000 Warrants(4)
Exercise Terms........................................ Each Warrant entitles the holder to purchase one share of Common
Stock for $7.20, 120% of the assumed initial public offering price,
subject to adjustment in certain circumstances, for a period of three
years commencing thirteen months from the Effective Date. See
"DESCRIPTION OF SECURITIES -- Warrants."
Redemption of Warrants................................ The Warrants are redeemable by the Company, commencing one year after
the Effective Date, at a price of $.10 per Warrant, provided that not
less than 15 days prior notice is given to the holders of such
Warrants and the closing bid price of the Common Stock as reported on
NASDAQ (or the last sale price, if quoted on a national securities
exchange) is at least $10.80, 180% of the assumed initial public
offering price, for 20 consecutive trading days ending on the 15th
day prior to the date on which the Company gives notice of
redemption. See "DESCRIPTION OF SECURITIES -- Warrants."
Use of Proceeds....................................... The net proceeds of this Offering will be used primarily for repaying
the Bridge Notes, as defined below, redeeming the Preferred Stock,
direct mail marketing, advertising and working capital. See "USE OF
PROCEEDS."
Risk Factors.......................................... The purchase of the shares of Common Stock and the Warrants offered
hereby involves a high degree of risk and immediate substantial
dilution. See "RISK FACTORS" and "DILUTION."
Proposed NASDAQ Trading Symbols:(5)
Common Stock........................................ CCWW
Warrants............................................ CCWWW
</TABLE>
(1) Does not include (i) 462,531 shares of Common Stock issuable upon the
redemption of the Preferred Stock, which is anticipated to occur upon the
completion of this Offering, (ii) 280,000 shares of Common Stock which are
issuable upon exercise of options which may be granted pursuant to the
Company's 1996 Stock Option Plan, or (iii) 630,000 shares of Common Stock
issuable upon the exercise of outstanding Warrants. See "USE OF PROCEEDS,"
"MANAGEMENT -- Stock Options," "DESCRIPTION OF SECURITIES -- Preferred
Stock" and " -- Prior Financings."
(2) Does not include (i) 1,760,000 shares of Common Stock, subject to
adjustment, issuable upon the exercise of the Warrants; (ii) a maximum of
226,000 shares of Common Stock reserved for issuance upon the exercise of
the Underwriter's Warrants and the Warrants contained therein; (iii) 169,500
shares of Common Stock or the shares of Common Stock issuable upon the
exercise of 169,500 Warrants, which are issuable upon the exercise of the
Underwriter's Over-allotment Option; or (iv) 280,000 shares of Common Stock
which are issuable upon exercise of options which may be granted pursuant to
the Company's 1996 Stock Option Plan, but does include 462,531 shares of
Common Stock issuable upon the redemption of the Preferred Stock, which is
anticipated to occur upon the completion of this Offering. See "USE OF
PROCEEDS," "CAPITALIZATION," "MANAGEMENT -- Stock Options," "DESCRIPTION OF
SECURITIES -- Preferred Stock," " -- Warrants" and "UNDERWRITING."
5
<PAGE>
(3) It is anticipated that the outstanding shares of Preferred Stock will be
redeemed by the Company upon the completion of the Offering and that the
Company will issue 462,531 shares of Common Stock to the holders of shares
of Preferred Stock. See "USE OF PROCEEDS" and "DESCRIPTION OF
SECURITIES -- Preferred Stock."
(4) Does not include the Underwriter's Warrants, pursuant to which the
Underwriter has the option to purchase 113,000 shares of Common Stock and
113,000 Warrants. See "UNDERWRITING."
(5) The Company has applied for listing and quotation of the Common Stock and
the Warrants on NASDAQ. Quotation on NASDAQ, 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. See "RISK
FACTORS -- Lack of Trading Market; NASDAQ Maintenance Requirements; Possible
Delisting of Securities from NASDAQ; Risks of Low Priced Stocks."
RECENT DEVELOPMENTS
In March 1996, the Company consummated a $1,800,000 private placement (the
"Bridge Financing") of 36 units (the "Units") to 40 investors (the "Bridge
Selling Stockholders"). Each Unit consists of the Company's 11% promissory note
in the original principal amount of $49,000 (the "Bridge Notes"), 5,000 shares
of Common Stock and 5,000 common stock purchase warrants, subject to adjustment
(the "Bridge Warrants"). Upon the completion of this Offering, the terms of the
Bridge Warrants will be automatically modified pursuant to their terms to become
identical to the terms of the Warrants offered hereby. The Bridge Notes are due
and payable upon the earlier of February 2, 1997 or the Company's receipt of
gross proceeds of at least $4,080,000 from the sale of its debt and/or equity
securities in a public or private financing. It is anticipated that the Bridge
Notes will be repaid out of the net proceeds of this Offering. The 180,000
shares of Common Stock issued in the Bridge Financing are being offered hereby
and the 180,000 Warrants are included in the Concurrent Offering. See "USE OF
PROCEEDS," "DESCRIPTION OF SECURITIES -- Prior Financings," "CONCURRENT
OFFERING" and "SELLING SECURITYHOLDERS."
SUMMARY FINANCIAL DATA
The following summary financial information is derived from, and should be
read in conjunction with, the financial statements included elsewhere in this
Prospectus. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS."
STATEMENT OF OPERATIONS DATA FOR THE COMPANY
<TABLE>
<CAPTION>
ONE-MONTH PERIOD
YEAR ENDED ENDED JANUARY 31,
DECEMBER 31, 1995 1996
1995 (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net sales...................................................................... $10,432,926 $ 772,140 $ 1,198,778
Cost of goods sold............................................................. 6,397,568 462,681 752,308
Gross profit................................................................... 4,035,358 309,459 446,470
Operating expenses (including moving expenses of $84,356 during the year ended
December 31, 1995 and $1,352,624 of non-cash compensatory charges for the
one-month period ended January 31, 1996)..................................... (3,699,672) (239,478) (1,829,408)
Commission income.............................................................. 34,302 -- --
Income (loss) from operations.................................................. 369,988 69,981 (1,382,938)
Interest expense............................................................... 429,197 24,984 47,982
Provision (benefit) for income taxes........................................... 43,900 19,000 (13,157)
Net income (loss).............................................................. (103,109) 25,997 (1,417,763)
Dividends on Preferred Stock................................................... 53,148 -- 5,096
Net income (loss) applicable to Common Stock................................... $ (156,257) $ 25,997 $(1,422,859)
Net income (loss) per common share............................................. $ (.08) $ .01 $ (.79)
Weighted average number of common shares outstanding........................... 2,023,486 2,059,070 1,812,206
</TABLE>
6
<PAGE>
STATEMENT OF REVENUES OVER DIRECT OPERATING EXPENSES
FOR CABLE & CO. (A PRODUCT LINE OF HONGSON, INC.)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
<S> <C>
Net sales.......................................................................... $ 8,702,461
Cost of goods sold................................................................. 5,166,494
Gross profit....................................................................... 3,535,967
Selling expenses................................................................... 1,367,435
Excess of revenues over direct operating expenses.................................. $ 2,168,532
</TABLE>
BALANCE SHEET DATA FOR THE COMPANY
<TABLE>
<CAPTION>
JANUARY 31, 1996 (UNAUDITED)
DECEMBER 31, 1995 HISTORICAL PRO FORMA(1) AS ADJUSTED(1)(2)
<S> <C> <C> <C> <C>
Current assets............................................. $ 4,180,078 $4,518,137 $ 4,518,137 $ 6,523,082
Working capital (deficit).................................. (887,776) (971,712) (418,612) 2,612,333
Property and equipment, net................................ 851,972 874,955 874,955 874,955
Goodwill, net.............................................. 1,113,340 1,107,876 1,107,876 1,107,876
Intangible Assets, net..................................... 29,525 42,370 259,370 28,735
Other Assets............................................... 7,015 6,171 6,171 118,171
Current Liabilities........................................ 5,067,854 5,489,849 4,936,749 3,910,749
Total Liabilities.......................................... 5,774,931 6,167,649 5,614,549 4,588,549
Redeemable Preferred Stock -- Series A..................... 500,000 500,000 500,000 --
Stockholders' equity (deficiency).......................... (93,001) (118,140) 651,960 4,064,270
</TABLE>
(1) As adjusted to give effect to (i) the receipt of the net proceeds of
$1,583,000 from the Bridge Financing, including the issuance of the Bridge
Notes and 180,000 shares of Common Stock to the Bridge Selling Stockholders
for which there is issue discount of $738,000, (ii) the repayment of a loan
from a stockholder in the original principal amount of $130,000 plus accrued
interest of $3,900 from the net proceeds of the Bridge Financing, and (iii)
the issuance of an aggregate of 224,761 shares of Common Stock to the
Company's officers and a principal stockholder for which $943,996 of
compensation expense will be recognized, all of which transactions occurred
subsequent to January 31, 1996. See "MANAGEMENT -- Employment and Consulting
Agreements," "CERTAIN TRANSACTIONS" and "DESCRIPTION OF SECURITIES -- Prior
Financings."
(2) As adjusted to give effect to (i) the receipt of the net proceeds of this
Offering, (ii) the redemption of the outstanding shares of Preferred Stock
and the issuance of 462,531 shares of Common Stock to the holders thereof
and (iii) the repayment of the Bridge Notes from the net proceeds of the
Offering, all of which transactions are anticipated to occur on or
subsequent to the closing of this Offering. See "USE OF PROCEEDS,"
"DESCRIPTION OF SECURITIES -- Preferred Stock" and " -- Prior Financings."
7
<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK. THE SECURITIES SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO
SUSTAIN THE LOSS OF THEIR ENTIRE INVESTMENT. IN EVALUATING AN INVESTMENT IN THE
COMPANY AND ITS BUSINESS, PRIOR TO PURCHASE PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AS WELL AS OTHER INFORMATION SET
FORTH ELSEWHERE IN THIS PROSPECTUS.
LIMITED OPERATING HISTORY; WORKING CAPITAL DEFICIT
The Company, which was organized in November 1994, was formed for the
purpose of acquiring the Acquired Net Assets from Hongson, Inc. For the year
ended December 31, 1995 and for the one-month period ended January 31, 1996, the
Company had a net loss of $103,109 and $1,417,763 (including $1,352,624 of
non-cash compensatory charges), respectively. As of January 31, 1996, the
Company had a working capital deficit of $971,712. The Company has a limited
operating history and there can be no assurance of future profitable operations.
Moreover, there can be no assurance that the Company will be able to attain
improved operating results and, as a result, no assurance can be given that the
Company's financial condition will improve. See "BUSINESS."
DEPENDENCE ON PROPOSED EXPANSION PROGRAM
The Company's continued growth depends to a significant degree on its
ability to increase sales to existing customers, to obtain new customers and to
expand its product lines, while insuring adequate quality controls. The Company
plans to increase revenues by increasing sales to existing accounts,
establishing new accounts, developing high quality shoes with styling and design
detail to sell at competitive prices and expanding the Company's marketing
programs. The Company intends to increase its marketing to include direct mail
and to explore opportunities to acquire the rights to related products. In
addition, the Company may seek to grant license rights to the Cable & Co.
trademark.
There can be no assurance that the Company will be able to hire, train and
integrate employees and adapt its management information and other operational
systems, to the extent necessary to grow in a profitable manner. In addition,
the costs associated with the planned expansion of the Company may have a
material adverse impact upon the Company's results and prospects. In the event
that the Company's plans for expansion are not successful, there would be a
material adverse affect on the Company's business. See "USE OF PROCEEDS" and
"BUSINESS."
NEED FOR ADDITIONAL FINANCING
The Company intends to use the net proceeds of this Offering for redeeming
the Preferred Stock, repaying the Bridge Notes, direct mail marketing,
advertising and working capital. The Company believes that the anticipated net
proceeds of this Offering, together with anticipated cash flow, will be
sufficient to meet the Company's anticipated cash requirements for at least 18
months subsequent to the closing of this Offering. If revenues are not
sufficient for the operation of the Company, or to enable the Company to
complete its present plans for expansion, then the Company will have to seek
additional financing. Such additional financing may be in the form of
indebtedness from institutional lenders or other third parties or as equity
financing. Moreover, the Company's credit facilities with Heller Financial, Inc.
("Heller") may limit the Company's ability to obtain additional financing. There
can be no assurance that such financing will be available and, if so, on
acceptable terms. Any such financing may result in significant dilution to
investors in this Offering or cause the Company to become overly leveraged. In
such event, the stockholders, including purchasers in this Offering, may lose or
experience a substantial reduction in the value of their investment in the
Company. See "USE OF PROCEEDS."
SECURED LIENS -- LIENS ON THE COMPANY'S ASSETS
The Company's accounts receivable, inventory, machinery, equipment,
fixtures, instruments, documents, chattel paper, general intangibles and
contract rights (the "Secured Assets") have been pledged as collateral to secure
obligations owed to Heller. If the Company fails to comply with such
obligations, including making required payments of principal and interest,
Heller could declare the indebtedness immediately due and payable and, in
certain events, foreclose upon the Secured Assets. Moreover, to the extent that
the Company's assets continue to be pledged to secure outstanding indebtedness,
such assets will be unavailable to secure additional debt financing, which may
adversely affect the Company's ability to borrow in the future. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources."
8
<PAGE>
DEPENDENCE ON CREDIT FACILITIES
The Company's operations are dependent upon the availability of credit. As
of January 31, 1996, the total amount outstanding under the Company's credit
facilities with Heller was $3,519,739 of which $3,047,519 is classified as a
current liability. The Company's existing credit facility with Heller expires in
February 1998. As of January 31, 1996, the Company was not in compliance with
certain financial covenants in the credit facilities with Heller, but such
noncompliance has been waived by Heller and the credit facilities have
subsequently been amended such that the Company is presently in compliance with
such financial covenants. If Heller fails to renew or declares a default under
or imposes a material change in the terms of the Company's credit facilities,
there could be a material adverse affect on the Company. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources."
COMPETITION
Competition in the footwear industry is intense. The Company's products
compete with other branded products within their product category. In varying
degrees, depending on the product category involved, the Company competes on the
basis of style, price, quality, comfort and brand prestige and recognition,
among other considerations. The Company competes with numerous manufacturers,
importers and distributors of men's and women's footwear for the limited
shelf-space available for displaying products to the consumer. Moreover, the
general availability of contract manufacturing capacity allows access by new
market entrants. Some of the Company's competitors are larger, have achieved
greater recognition for their brand names, have captured greater market share
and/or have substantially greater financial, distribution, marketing and other
resources than the Company. See "BUSINESS -- Competition."
CONTINUED RELATIONSHIP WITH ALBERTO SALVUCCI
The Company is dependent on the design, production and production control
services provided by Alberto Salvucci, a principal stockholder of the Company,
individually and through Cable & Co. S.R.L. and D&D Design. The Company has a
non-competition agreement with each of Mr. Salvucci, Cable & Co S.R.L. and D&D
Design and a license agreement for the name Bacco Bucci with D&D Design. In
addition, Mr. Salvucci, Cable & Co. S.R.L. and D&D Design, all of which are
involved in the European footwear industry, including marketing footwear bearing
the Cable & Co. trademark and the Bacco Bucci name, will not devote all of their
time or resources to the Company's business. The loss or curtailment on
acceptable terms of Mr. Salvucci's services, or indirect competition with Mr.
Salvucci, Cable & Co. S.R.L. or D&D Design could have a material adverse affect
on the Company's business. See "BUSINESS -- Design."
DEPENDENCE ON KEY PERSONS
The Company is dependent upon the services of David Albahari and Alan
Kandall. Mr. Albahari is the Company's Chairman of the Board, President and
Chief Executive Officer and a member of the Company's Board of Directors and Mr.
Kandall is the Company's Executive Vice President, Chief Financial Officer,
Treasurer and a member of the Company's Board of Directors. Mr. Albahari and Mr.
Kandall each have employment agreements with the Company which expire on
December 31, 1997. The Company carries "keyman" insurance in the amount of
$500,000 on the life of each of Mr. Albahari and Mr. Kandall. The loss or
curtailment of the services of either Mr. Albahari or Mr. Kandall would have a
material adverse affect on the Company's operations and prospects.
In addition, the Company has an ongoing need to expand its management,
marketing and support staff. Competition for personnel having the qualifications
required by the Company is intense and no assurance can be given that the
Company will be successful in recruiting or retaining such personnel as the need
arises. See "BUSINESS -- Employees" and "MANAGEMENT."
DEPENDENCE ON MAJOR CUSTOMERS
Approximately 55% of the Company's sales were made to five customers,
including 28% to one customer, during the year ended December 31, 1995. The loss
of, or reduced purchases by, any of the Company's major customers could have a
material adverse affect on the Company. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
9
<PAGE>
CHANGING CONSUMER DEMANDS; UNCERTAINTY OF MARKET ACCEPTANCE
The footwear industry is subject to changing consumer demands and fashion
trends. The Company believes that its success will depend in large part upon its
ability to identify and interpret fashion trends and to anticipate and respond
to such trends in a timely manner. There can be no assurance that the Company
will be able to meet changing consumer demands or to develop successful styles
in the future. If the Company misjudges the market for a particular product or
product line, it may result in an increased inventory of unsold and outdated
finished goods and have an adverse affect on the Company's financial condition
and results of operations. In addition, any failure by the Company to identify
and respond to changing demands and trends could adversely affect consumer
acceptance of the Company's products and diminish the Company's business and
prospects.
The Company intends to market additional lines of footwear in the future.
Achieving market acceptance for each of these products will be difficult and may
require substantial marketing efforts and the expenditure of significant funds.
There can be no assurance that the Company will have sufficient funds to do so
or that its marketing effort will be successful. See "BUSINESS -- Advertising
and Marketing."
DEPENDENCE UPON UNAFFILIATED MANUFACTURERS
The Company does not own or operate any manufacturing facilities. The
Company's footwear has been produced to its specifications by manufacturers
located primarily in Italy. Moreover, the Company generally has relied on a
small number of suppliers to produce products within each of its product lines.
Although the Company is generally the largest and, in many cases, the exclusive
customer of these manufacturers and has established long-standing relationships
with most of them, it has not entered into any written supply agreements. The
Company believes that the production capacity of the Company's manufacturers is
sufficient to satisfy its present and anticipated production requirements. In
addition, the Company believes that it has alternative manufacturing sources
available to it in the event that its requirements change or the Company's
current manufacturers are unable to fulfill the Company's needs. However,
establishing new relationships involves uncertainties and the loss of a
substantial portion of its manufacturing capacity could have a material adverse
affect on the Company's financial condition or results of operations. The
Company intends to explore the feasibility of diversifying by contracting with
manufacturers situated in alternative locations around the world to manufacture
its products. Nevertheless, there can be no assurance that the Company's current
manufacturers will continue to provide production capacity sufficient to satisfy
the Company's requirements if and when it expands and, if required, alternative
suppliers will be available in a timely manner on terms comparable to the
Company's existing arrangements. See "BUSINESS -- Manufacturing."
IMPACT OF DOING BUSINESS IN FOREIGN COUNTRIES
The Company's business is subject to risks of doing business abroad,
including, but not limited to, fluctuations in exchange rates and changes in
regulations relating to imports, including quotas, duties, taxes and other
charges. Political and economic instability in countries where the Company's
products are manufactured or sold may have a material adverse affect on the
Company's operations.
In order to reduce the risk of exchange rate fluctuations, the Company
enters into forward exchange contracts to protect gross profit margins on some,
but not all, of its foreign currency transactions. The Company cannot anticipate
all of its currency needs and, therefore, cannot fully hedge against such
fluctuations. Thus, changes in exchange rates could adversely affect the costs
of goods purchased by the Company.
Although the goods sold by the Company are not currently subject to quotas,
countries in which the Company's products are manufactured may, from time to
time, impose new quotas or adjust prevailing quotas or other restrictions on
exported products and the United States may impose new duties, tariffs and other
restrictions on imported products, any of which could adversely affect the
Company's operations. In accordance with the 1993 Harmonized Tariff Schedule, a
fixed duty structure is in effect for the United States. The Company pays import
duties on its products ranging from approximately 8.5% to 10%, depending on the
principal component of the product and whether the product is men's or women's
footwear. Other import restrictions on footwear and related products are
periodically considered by the United States Congress and no assurances can be
given that any new regulations will not result in higher costs to the Company,
or that import quotas will not be imposed or made more restrictive.
The Company imports a large portion of its products from Italy. Italy is on
the "watch list" maintained by the United States Trade Representative (the
"USTR") under "Special 301" provisions of the Trade Act of 1974 for purposes of
monitoring protection of intellectual property rights. If the USTR were to
determine that Italy's actions, policies, or practices with
10
<PAGE>
respect to intellectual property rights are actionable, sanctions against
imports from Italy, including higher duties, could be imposed. See
"BUSINESS -- Government Regulation."
ADVANCE PURCHASES OF PRODUCTS
To minimize purchasing costs and the time necessary to fill customers'
orders and the risk of non-delivery, the Company places orders with its
manufacturers before receiving customers' orders, and maintains an inventory of
certain key products which it anticipates will be in demand. However, there can
be no assurance that the Company will be able to sell the products that it has
ordered or has in its inventory. As of April 30, 1996, the Company had
approximately $4,150,000 of pending purchase orders with its manufacturers,
including landing costs, and approximately $2,425,000 of inventory. The Company
must make decisions regarding how much inventory to buy well in advance of
anticipated sale. Deviations in actual from projected demand for products could
have an adverse affect on the Company's sales and profitability. In addition, if
the Company's manufacturers fail to meet their delivery schedules to the
Company, the Company may be unable to meet its delivery requirements to its
customers. Such delayed delivery could result in cancellation of purchase orders
and reduced sales, but the Company may still be obligated to pay its
manufacturers, thereby having an adverse effect on the Company's financial
condition. See "BUSINESS -- Manufacturing" and " -- Backlog."
PRODUCT DIVERSION
The Company does not control the distribution of the footwear produced by
Cable & Co. S.R.L, International Hongson, Inc. or D&D Design or others that may
have or acquire rights to the Cable & Co. trademark for Europe, Asia or
elsewhere, and no assurances can be given that products manufactured or sold in
Europe, Asia or elsewhere will not be sold in the Company's markets. Management
believes that International Hongson, Inc. and Cable & Co., S.R.L., an entity
controlled by Alberto Salvucci, a principal stockholder of the Company, retain
the rights to the Cable & Co. trademark for Asia and Europe, respectively. See
"BUSINESS -- Competition."
POTENTIAL LIMITATION ON TRADEMARK PROTECTION
The Company has been granted trademark registrations in the United States,
Canada and several Central and South American countries for "Cable & Co." In
addition, a trademark application has been filed in the United States by Alberto
Salvucci for Bacco Bucci. However, the trademark registration has not been
granted, and there can be no assurance concerning when or if such registration
will be effected. Additional trademark registration applications which may be
filed by the Company with the United States Patent and Trademark Office and in
other countries may or may not be granted and the breadth or degree of
protection of the Company's existing or future trademarks may not be adequate.
In addition, pursuant to the asset purchase agreement between the Company and
Hongson, Inc. in connection with the Acquisition, Hongson, Inc. was obligated to
indemnify the Company for any misrepresentations it made with respect to the
Cable & Co. trademark. However, management believes that Hongson, Inc. is no
longer doing business and it is not anticipated that it will be able to fulfill
such obligation, if so requested. Moreover, the Company may not be able to
defend successfully any of its legal rights with respect to its present or
future trademarks. The failure of the Company to protect its legal rights to the
Cable & Co. trademark or the Bacco Bucci trademark, when and if granted, from
improper appropriation or otherwise may have a material adverse affect on the
Company. See "BUSINESS -- Trademarks."
EFFECT OF GENERAL ECONOMIC CONDITIONS
The fashion-related segments of the Company's business are cyclical, with
consumer purchases generally declining during recessionary periods when
disposable income decreases. There can be no assurance that a poor economic
climate will not have an adverse impact on the Company's ability to compete for
limited consumer resources.
Although the retail footwear industry has experienced significant changes
and difficulties over the past several years, including consolidation of
ownership, centralization of buying decisions, restructurings, bankruptcies and
liquidations, management believes that such changes have not had a material and
adverse affect on the Company's business. However, the Company cannot predict
what effect, if any, continued changes within the retail industry will have on
its business.
SEASONALITY
The Company's business is subject to seasonal variations. Historically in
the footwear industry, a significant portion of the Company's sales are realized
during the spring and fall fashion seasons, and levels of sales are generally
lower during the winter and summer fashion seasons. If the Company's sales were
to be substantially below seasonal norms during the spring
11
<PAGE>
and fall fashion seasons, the Company's annual results could be materially and
adversely affected. See "BUSINESS -- Seasonality."
CONTROL BY CURRENT OFFICERS AND DIRECTORS
Upon completion of this Offering, the current officers and directors of the
Company will own an aggregate of approximately 25.1% of the Company's Common
Stock and will be in a position to influence the election of the Company's
directors and otherwise essentially control the outcome of all matters requiring
stockholder approval. See "PRINCIPAL STOCKHOLDERS."
AUTHORIZATION AND DISCRETIONARY ISSUANCE OF PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of
"blank check" preferred stock with such designations, rights and preferences as
may be determined from time to time by the Board of Directors. Accordingly, the
Board of Directors is empowered, without stockholder approval, to issue
preferred stock with dividends, liquidation, conversion, voting or other rights
which could decrease the amount of earnings and assets available for
distribution to holders of Common Stock and adversely affect the relative voting
power or other rights of the holders of the Company's Common Stock. In the event
of issuance, the preferred stock could be used, under certain circumstances, as
a method of discouraging, delaying or preventing a change in control of the
Company. The Company intends to redeem all of the outstanding shares of Series A
Preferred Stock with a portion of the net proceeds of this Offering. Although
the Company has no present intention to issue any additional shares of its
preferred stock, there can be no assurance that the Company will not do so in
the future. See "USE OF PROCEEDS" and "DESCRIPTION OF SECURITIES -- Preferred
Stock."
ABSENCE OF PUBLIC MARKET; ARBITRARILY DETERMINED OFFERING PRICE
Prior to the Offering, there has been no public market for the Securities
and there can be no assurance that an active market in these Securities will
develop or be sustained after the Offering. In the absence of an active public
trading market, an investor may be unable to liquidate his or her investment.
The price of the Securities being offered hereby and the exercise price of the
Warrants were determined solely by negotiations between the Company and the
Underwriter on an arbitrary basis and do not necessarily bear any relationship
to the Company's asset and book value, its results of operations or any other
recognized criterion of value. Factors considered in determining such prices, in
addition to prevailing market conditions, were the history of and the business
prospects for the Company and 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 or Warrants. See "UNDERWRITING."
IMMEDIATE AND SUBSTANTIAL DILUTION
This Offering involves an immediate and substantial dilution to investors.
Purchasers of Common Stock in this Offering will suffer immediate dilution of
$5.09 per share or 85% of the net tangible book value per share of the Common
Stock purchased in this Offering from the assumed initial public offering price
of $6.00 per share. See "DILUTION."
NO DIVIDENDS
The Company has not paid and does not anticipate declaring or paying any
dividends on its Common Stock in the foreseeable future. Moreover, the Company's
loan agreements with Heller prohibit the payment of dividends if such payment
would cause the Company to violate any of the Company's financial covenants. See
"DIVIDEND POLICY."
BENEFITS TO CERTAIN SELLING SECURITYHOLDERS AND INSIDERS
In March 1996, the Company consummated the Bridge Financing to the 40
Bridge Selling Stockholders of an aggregate of 36 Units at a purchase price of
$50,000 per Unit. The Units included a Bridge Note in the principal amount of
$49,000 which will be repaid from the net proceeds of this Offering. Therefore,
the Bridge Selling Stockholders paid only $.20 per share of Common Stock
acquired in the Bridge Financing, which is substantially less than the assumed
initial public offering price of $6.00 per share. The shares of Common Stock
issued to the investors in the Bridge Financing are included in this Offering
and the Warrants are included in the Concurrent Offering. Moreover, Mr. Albahari
and Mr. Kandall have guaranteed certain of the Company's obligations. The
likelihood that such individuals will have to perform their obligations pursuant
to such guarantees will be reduced upon the Company's receipt of the net
proceeds of the Offering. In addition, Cable & Co. S.R.L. and D&D Design, both
of which are controlled by Alberto Salvucci, a principal stockholder of the
Company, are paid
12
<PAGE>
fees based upon a percentage of the cost of goods shipped to the Company.
Therefore, when and if the Company's anticipated expansion results in an
increase in purchases, the amounts payable to Cable & Co. S.R.L. and D&D Design
would increase. Moreover, to the extent that amounts are owed to Cable & Co.
S.R.L. and D&D Design, the likelihood that such amounts will be repaid will be
increased upon the Company's receipt of the net proceeds of this Offering. See
"CERTAIN TRANSACTIONS," "DESCRIPTION OF SECURITIES -- Prior Financings," and
"CONCURRENT OFFERING."
SHARES ELIGIBLE FOR FUTURE SALE
Except for 180,000 shares of Common Stock being offered hereby by the
Bridge Selling Stockholders and 420,016 shares of Common Stock being registered
for resale by the Selling Securityholders in the Concurrent Offering, all of the
1,812,206 shares of Common Stock currently outstanding are "restricted
securities" as that term is defined in Rule 144 under the Securities Act and may
only be sold pursuant to a registration statement filed under the Securities Act
or in compliance with Rule 144 or another exemption from the registration
requirements of the Securities Act. In general, under Rule 144, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company, who has beneficially owned restricted shares of Common Stock for at
least two years is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of 1% of the total number of outstanding
shares of the same class, or if the Common Stock is quoted on NASDAQ or a stock
exchange, the average weekly trading volume during the four calendar weeks
immediately preceding the sale. A person who presently is not and who has not
been an affiliate of the Company for at least three months immediately preceding
the sale and who has beneficially owned the shares of Common Stock for at least
three years is entitled to sell such shares under Rule 144 without regard to any
of the volume limitations described above. All of the Company's stockholders
(except for the Bridge Selling Stockholders with respect to 180,000 Warrants)
have agreed not to sell any of their securities without the consent of the
Underwriter for periods of up to twenty-five months from the Effective Date. See
"CERTAIN TRANSACTIONS," "PRINCIPAL STOCKHOLDERS," "DESCRIPTION OF
SECURITIES -- Prior Financings," "UNDERWRITING," "CONCURRENT OFFERING" and
"SELLING SECURITYHOLDERS."
Immediately after the Offering the Company will have 3,224,737 shares of
Common Stock outstanding and 1,760,000 shares of Common Stock will be issuable
upon the exercise of the Warrants. In addition, up to 226,000 shares of Common
Stock are issuable upon the exercise of the Underwriter's Warrants and the
Warrants contained therein. Moreover, 280,000 shares of Common Stock will be
available for issuance upon the exercise of options which may be granted under
the Company's 1996 Stock Option Plan. To the extent that options or warrants are
exercised, dilution to the interests of the Company's stockholders may occur.
Moreover, the terms upon which the Company will be able to obtain additional
equity capital may be adversely affected, since the holders of the outstanding
options or warrants can be expected to exercise them, to the extent they are
able to, at a time when the Company would, in all likelihood, be able to obtain
any needed capital on terms more favorable to the Company than those provided in
the options or warrants. See "MANAGEMENT -- Stock Options," "CERTAIN
TRANSACTIONS" and "DESCRIPTION OF SECURITIES."
IMPACT OF CONCURRENT OFFERING
Concurrently with this Offering, the Company is registering on behalf of
the Selling Securityholders 882,547 shares of Common Stock, Warrants to purchase
630,000 shares of Common Stock and 630,000 shares of Common Stock underlying
such Warrants. Sales of substantial amounts of the Company's securities by the
Selling Securityholders or the Company's other stockholders, or even the
potential for such sales, could have an adverse affect on the market price of
the Securities and could impair the Company's ability to raise capital through
the sale of its securities. See "SELLING SECURITYHOLDERS."
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS
The Warrants are redeemable by the Company at a price of $.10 per Warrant,
commencing one year after the Effective Date and prior to their expiration,
provided that (i) 15 days prior written notice is given to the holders of the
Warrants, and (ii) the closing bid price per share of the Common Stock as
reported on NASDAQ (or the last sale price, if quoted on a national securities
exchange) on each of the 20 consecutive trading days ending on the fifteenth day
prior to the date of the notice of redemption has been at least $10.80, 180% of
the assumed initial public offering price. The holders of the Warrants have
exercise rights until the close of the business day immediately preceding the
date fixed for redemption. Notice of redemption of the Warrants could force the
holders to exercise the Warrants and pay the respective exercise prices at a
time when it may be disadvantageous for them to do so, to sell the Warrants at
the 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. See "DESCRIPTION OF
SECURITIES -- Warrants."
13
<PAGE>
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE WARRANTS
Warrantholders will have the right to exercise the Warrants and purchase
shares of Common Stock only if a current prospectus relating to such shares is
then in effect and only if the shares are qualified for sale under the
securities laws of the applicable state or states, or there is an exemption from
the applicable qualification requirements. The Company has undertaken and
intends to file and keep effective and current a prospectus which will permit
the purchase and sale of the Common Stock underlying the Warrants, but there can
be no assurance that the Company will be able to do so. Although the Company
intends to qualify for sale the shares of Common Stock underlying the Warrants
in those states in which the securities are to be offered, no assurance can be
given that such qualification will occur. The Warrants may be deprived of any
value if a prospectus covering the shares issuable upon the exercise thereof is
not kept effective and current or if such underlying shares are not, or cannot
be, registered in the applicable states. However, the Company will not redeem
the Warrants unless a current registration statement is in effect. Although the
Warrants will not knowingly be sold to purchasers in jurisdictions in which the
Warrants are not registered or otherwise qualified for sale, purchasers may buy
Warrants in the after-market or may move to jurisdictions in which the
underlying shares are not so registered or qualified during the period that the
Warrants are exercisable. In this event, the Company would be unable to issues
shares of Common Stock to those persons desiring to exercise their Warrants
unless and until the underlying shares could be qualified for sale in the
jurisdictions in which such purchasers reside, or an exemption from such
qualification exists in such jurisdictions, and holders of Warrants would have
no choice but to attempt to sell the Warrants in a jurisdiction where such sale
is permissible or allow them to expire unexercised. See "DESCRIPTION OF
SECURITIES -- Warrants."
LIMITED EXPERIENCE OF UNDERWRITER
The Underwriter, State Street Capital Markets, Corp., formerly White Rock
Partners & Co., Inc., has previously completed two firm commitment public
offerings. The Underwriter is a relatively small firm and there can be no
assurance that the Underwriter 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. Prior to September 1995, the Underwriter's name was
White Rock Partners & Co., Inc. If the Underwriter does not receive recognition
of its new name by its clients or the public, it could adversely affect the
Underwriter's operations. The Underwriter also has the right to act as the
Company's exclusive agent in connection with any future solicitation of holder's
of Warrants to exercise their Warrants. Unless granted an exemption by the
Commission from Rule 10b-6 under the Exchange Act, the Underwriter will be
prohibited from engaging in market-making activities or solicited brokerage
activities with regard to the Company's securities during the periods prescribed
by exemption (xi) to Rule 10b-6 before the solicitation of the exercise of any
Warrant until the later of the termination of such solicitation activity or the
termination by waiver or otherwise of any right the Underwriter may have to
receive a fee for the exercise of the Warrants following such solicitation. As a
result, the Underwriter and soliciting broker/dealers may be unable to continue
to make a market in the Company's Securities during certain periods while the
Warrants are exercisable. Such a limitation, while in effect, could impair the
liquidity and market price of the Company's Securities. See "UNDERWRITING."
UNDERWRITER'S WARRANTS AND REGISTRATION RIGHTS
The Company has agreed to sell to the Underwriter for $10.00, Underwriter's
Warrants to purchase an aggregate of 113,000 shares of Common Stock and 113,000
Warrants at an exercise price equal to 120% of the initial public offering
price. The shares of Common Stock and the Warrants issuable upon exercise of the
Underwriter's Warrants are identical to those offered hereby. The Underwriter's
Warrants are exercisable for a period of four years commencing one year from the
date hereof. The exercise of the Underwriter's Warrants will dilute the value of
the shares of Common Stock and may adversely affect the Company's ability to
obtain equity capital. Moreover, if the Common Stock issuable upon the exercise
of the Underwriter's Warrants is sold in the public market it may adversely
affect the market price of the Common Stock. The Underwriter has been granted
certain "piggyback" registration rights for a period of seven years from the
date of this Prospectus and demand registration rights for a period of five
years from the date of this Prospectus, with respect to the registration under
the Securities Act of the securities issuable upon exercise of the Underwriter's
Warrants. The exercise of such rights could result in substantial expense to the
Company. The Underwriter's Warrants can be expected to be exercised at a time
when the Company would, in all likelihood, be able to obtain equity capital by
the sale of its securities on terms more favorable than those provided by the
Underwriters's Warrants, whereby these obligations could be a hindrance to any
future financing. Furthermore, in the event the Underwriter exercises its
registration rights to effect the distribution of the Common Stock and/or
Warrants underlying the Underwriter's Warrants, the Underwriter and any holder
of such Warrants who is a market maker of the Company's Securities, prior to
such distribution, will be unable to make a market in the Company's Securities
for up to nine days prior to the commencement of such distribution and until
such distribution is completed. If the
14
<PAGE>
Underwriter ceases making 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."
LACK OF TRADING MARKET; NASDAQ MAINTENANCE REQUIREMENTS; POSSIBLE DELISTING OF
SECURITIES FROM NASDAQ; RISKS OF LOW-PRICED STOCKS
Prior to the Offering, there has been no established public trading market
for the Company's securities and there is no assurance that a regular public
trading market will develop after the completion of the Offering. If a trading
market does develop for the Company's securities, there can be no assurance that
it will be sustained. The Company has applied for listing of the Common Stock
and the Warrants on the NASDAQ SmallCap Market. For continued listing on NASDAQ,
the Company generally must have $2,000,000 in total assets, $1,000,000 in total
capital and surplus, $200,000 in market value of public float, a minimum bid
price of $1.00 per share, a minimum of 100,000 shares publicly held and a
minimum of 300 stockholders. If the Company is unable to satisfy NASDAQ's
maintenance criteria in the future, its securities will be subject to being
delisted and trading, if any, in the Company's securities would thereafter be
conducted in the over-the-counter market in the so-called "pink sheets" or the
NASD's "Electronic Bulletin Board." As a consequence of such delisting, coverage
of the Company by financial and other publications would likely be limited and
an investor would likely find it more difficult to dispose of, or to obtain
quotations as to the price of, the Company's securities. Quotation on the Nasdaq
SmallCap Market 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.
If the Company's securities are not quoted on NASDAQ or the Company does
not have at least $2,000,000 in net tangible assets, trading in the Company's
securities would be covered by Rules 15g-5 through 15g-9 promulgated under the
Exchange Act for non-NASDAQ and non-exchange listed securities. Under such
rules, broker-dealers who recommend such securities to persons other than
established customers and accredited investors must make a special written
suitability determination for the purchaser and receive the purchaser's written
agreement to a transaction prior to sale. Securities are exempt from this rule
if they are listed on NASDAQ or if the market price is at least $5.00 per share.
The Commission has adopted regulations that generally define a penny stock
to be any equity security that has a market price of less than $5.00 per share,
subject to certain exceptions. Such exceptions include an equity security listed
on NASDAQ and an equity security issued by an issuer that has (i) net tangible
assets of at least $2,000,000, if such issuer has been in continuous operation
for three years, (ii) net tangible assets of at least $5,000,000, if such issuer
has been in continuous operation for less than three years, or (iii) average
revenue of at least $6,000,000 for the preceding three years. Unless an
exception is available, the regulations require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the risks associated therewith. If the Company's
securities were subject to the regulations applicable to penny stocks, the
market liquidity for the securities would be severely 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.
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company of this Offering from the sale of the
Shares and the Warrants at an assumed initial public offering price of $6.00 per
share and $.10 per Warrant, after deducting underwriting discounts and other
estimated expenses of the Offering (estimated at $550,000), are anticipated to
be $4,507,310, and $5,406,847 if the Underwriter's Over-allotment Option is
exercised in full. The Company will not receive any of the proceeds from the
sale of Securities by the Selling Securityholders or the Bridge Selling
Stockholders. The Company expects to use such proceeds (assuming no exercise of
the Underwriter's Over-allotment Option) as follows:
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE PERCENTAGE
DOLLAR AMOUNT OF NET PROCEEDS
<S> <C> <C>
Repayment of Bridge Notes(1).......................................................... $ 1,824,000 40.5%
Redemption of Preferred Stock(2)...................................................... 580,000 12.9%
Direct Mail Marketing(3).............................................................. 400,000 8.9%
Advertising(4)........................................................................ 300,000 6.6%
Working Capital(5).................................................................... 1,403,310 31.1%
Total............................................................................... $ 4,507,310 100.0%
</TABLE>
(1) Represents repayment of the Bridge Notes in the aggregate principal amount
of $1,764,000. The Bridge Notes bear interest at a rate of 11% per annum and
are due upon the earlier of February 2, 1997 or the Company's receipt of
gross proceeds of at least $4,080,000 from the sale of its debt and/or
equity securities in a public or private financing. The proceeds from the
sale of the Bridge Notes were used primarily for working capital purposes
and the repayment of a loan in the original principal amount of $130,000 to
a stockholder. See "DESCRIPTION OF SECURITIES -- Prior Financings."
(2) Represents the redemption price and accrued dividends on all outstanding
shares of Preferred Stock. See "DESCRIPTION OF SECURITIES -- Preferred
Stock."
(3) Represents the commencement of direct mail marketing efforts by the Company.
See "BUSINESS -- Advertising and Marketing."
(4) Represents funds to be added to the Company's advertising budget, which will
primarily be utilized to purchase additional print advertising. See
"BUSINESS -- Advertising and Marketing."
(5) The remaining proceeds will be allocated to working capital. Proceeds
allocated to working capital may be used, among other things, for payment of
general and administrative expenses or other operating expenses.
The Company estimates that the net proceeds of this Offering, together with
anticipated cash flow, will be sufficient to meet its anticipated cash
requirements for at least 18 months subsequent to the closing of the Offering.
The Company anticipates that additional financing will be required for the
Company's further expansion. See "RISK FACTORS -- Need For Additional Financing"
and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources."
The cost, timing and amount of funds required for specific uses by the
Company cannot be precisely determined at this time. The use of proceeds is
subject to change based upon, among other factors, the Company's sales,
competitive conditions and creditor and supplier relations. The amounts actually
expended for any purpose could vary significantly and the Company reserves the
right to reallocate proceeds depending upon numerous factors including, among
other things, revenues derived from the Company's activities. The Company cannot
currently predict the circumstances under which the Company may be required or
may find it appropriate to apply the proceeds in a manner other than as
indicated in this Prospectus. If the Underwriter's Over-allotment Option is
exercised in full, the Company will add the net proceeds to working capital.
Pending use of the net proceeds for the above purposes, the Company intends to
invest such funds in short-term bank deposits and investment grade securities,
U.S. government securities and other short-term, income-producing securities.
16
<PAGE>
DIVIDEND POLICY
The Company has not in the past paid, and does not anticipate paying in the
foreseeable future, cash dividends on its Common Stock, but instead intends to
retain future earnings, if any, for reinvestment in its business. Any future
determination to pay cash dividends will be at the discretion of the Board of
Directors and will be dependent upon the Company's financial condition, results
of operations, capital requirements and such other factors as the Board of
Directors deems relevant, including whether the Company's loan agreements
prohibit the payment of dividends. The Company's loan agreements with Heller
prohibit the payment of dividends if such payment would cause the Company to
violate any of the Company's financial covenants. See "RISK
FACTORS -- Dependence on Credit Facilities" and "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and
Capital Resources."
17
<PAGE>
DILUTION
As of January 31, 1996, without giving effect to any changes after January
31, 1996 other than (i) the receipt of the net proceeds from the Bridge
Financing, including the issuance of the Bridge Notes and 180,000 shares of
Common Stock to the Bridge Selling Stockholders, (ii) the repayment of a loan
from a stockholder in the original principal amount of $130,000, plus accrued
interest of $3,900, from the net proceeds of the Bridge Financing, (iii) the
issuance of an aggregate of 224,761 shares of Common Stock to the Company's
officers and a principal stockholder, the net tangible book value of the
Company's Common Stock was $(715,286) or $(.39) per share of Common Stock. The
net tangible book value of the Company is its tangible assets less its total
liabilities. Tangible assets equals total assets less goodwill and other
intangible assets. Dilution per share represents the difference between the
amounts paid per share by purchasers in this Offering and the pro forma net
tangible book value per share after the Offering, after giving effect to (i) the
sale of the Securities offered hereby and the receipt of the net proceeds
$4,507,310 therefrom (plus $13,635 of Offering costs paid through January 1996),
(ii) the issuance of 462,531 shares of Common Stock upon the redemption of the
outstanding shares of Preferred Stock, including the payment of $80,000 of
accrued dividends, and (iii) the repayment of the Bridge Notes including
$738,000 of issue discount and $60,000 of accrued interest from the net proceeds
of the Offering, the pro forma, net tangible book value of the Company as of
January 31, 1996 would have been $2,927,659, or $.91 per share. This represents
an increase in net tangible book value per share of $1.30 to the Company's
existing stockholders and an immediate dilution of $5.09 per share to public
investors in the Offering or 85% of the net tangible book value per share of the
Common Stock. The computation of dilution on a per share basis gives effect to
the receipt of the net proceeds from the sale of the Warrants, but does not give
effect to their exercise. The following table illustrates this dilution on a per
share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share of Common Stock...................... $6.00
Net tangible book value per share before Offering.................................... $(.39)
Increase in net tangible book value.................................................. 1.30
Pro forma net tangible book value per share after Offering........................... .91
Dilution per share to new investors.................................................. $5.09
</TABLE>
The following table summarizes as of January 31, 1996, the number and
percentage of shares of Common Stock purchased from the Company, the amount and
percentage of total consideration paid, and the average price per share paid by
existing stockholders and by new investors pursuant to this Offering.
<TABLE>
<CAPTION>
TOTAL CONSIDERATION
SHARES PURCHASED PERCENTAGE
PERCENTAGE OF OF TOTAL
OUTSTANDING CONSIDERATION CONSIDERATION
NUMBER SHARES PAID PAID
<S> <C> <C> <C> <C>
Present Common Stockholders.............................. 1,812,206 56.2% $ 226,000 3.8%
Present Preferred Stockholders........................... 462,531 14.3 -- --
New investors............................................ 950,000 29.5 5,700,000 96.2
Total.................................................. 3,224,737 100.0% $ 5,926,000 100.0%
<CAPTION>
AVERAGE
PRICE
PER SHARE
<S> <C>
Present Common Stockholders.............................. $ .12
Present Preferred Stockholders........................... --
New investors............................................ 6.00
Total.................................................. $1.84
</TABLE>
The computations set forth in both tables above include all outstanding
shares of Common Stock, as well as the issuance of 462,531 shares of Common
Stock issuable upon the anticipated redemption of the Preferred Stock upon the
completion of this Offering, but do not include (i) a maximum of 1,760,000
shares of Common Stock, subject to adjustment, issuable upon the exercise of the
Warrants; (ii) a maximum of 280,000 shares of Common Stock issuable upon
exercise of options which may be granted under the Company's 1996 Stock Option
Plan; (iii) 169,500 shares of Common Stock or the shares of Common Stock
issuable upon the exercise of 169,500 Warrants, which are issuable upon the
exercise of the Underwriter's Over-allotment Option; and (iv) 226,000 shares of
Common Stock reserved for issuance upon the exercise of the Underwriter's
Warrants and the Warrants contained therein. See "CAPITALIZATION,"
"MANAGEMENT -- Stock Options," "DESCRIPTION OF SECURITIES -- Prior Financings"
and " -- Preferred Stock."
18
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of January 31, 1996 and the capitalization as of January 31, 1996 (a) on a pro
forma basis to give effect to (i) the receipt of the net proceeds of $1,583,000
from the Bridge Financing, including the issuance of the Bridge Notes and
180,000 shares of Common Stock to the Bridge Selling Stockholders for which
there is issue discount of $738,000, (ii) the repayment of a loan from a
stockholder in the original principal amount of $130,000, plus accrued interest
of $3,900, from the net proceeds of the Bridge Financing, (iv) the issuance of
an aggregate of 224,761 shares of Common Stock to the Company's officers and a
principal stockholder for which $943,996 of compensation expense will be
recognized, and (b) as further adjusted to give effect to the sale of the
Securities offered hereby and the receipt of the net proceeds therefrom, the
issuance of 462,531 shares of Common Stock upon the redemption of the Preferred
Stock and the repayment of the Bridge Notes from the net proceeds of the
Offering.
<TABLE>
<CAPTION>
JANUARY 31, 1996
HISTORICAL PRO FORMA AS ADJUSTED (1)(2)
<S> <C> <C> <C>
Term loan payable............................................................ $ 130,000 -- --
Notes payable, including current portion..................................... 805,556 $ 805,556 $ 805,556
Bridge Notes payable......................................................... -- 1,026,000 --
Capital lease obligations, including current portion......................... 156,466 156,466 156,466
Redeemable preferred stock -- Series A, par value $.01 per share,
80,000 shares authorized, 43,327 shares issued and outstanding (no shares
as adjusted)............................................................... 500,000 500,000 --
Stockholders equity
Preferred stock, par value $.01 per share; 1,420,000 shares authorized,
no shares issued........................................................ -- -- --
Common Stock, par value $.01 per share; 10,000,000 shares authorized,
1,407,445 shares issued and outstanding (1,812,206 shares pro forma,
3,224,737 as adjusted).................................................. 14,074 18,122 32,247
Additional paid-in capital................................................... 1,388,658 3,102,606 7,515,791
Accumulated deficit.......................................................... (1,520,872) (2,468,768) (3,483,768)
Total stockholders' equity (deficiency)...................................... (118,140) 651,050 4,064,270
Total capitalization......................................................... $ 1,473,882 $ 3,139,982 $ 5,026,292
</TABLE>
(1) Does not include (i) a maximum of 1,760,000 shares of Common Stock, subject
to adjustment, issuable upon the exercise of the Warrants; (ii) a maximum of
280,000 shares of Common Stock issuable upon exercise of options which may
be granted under the Company's 1996 Stock Option Plan; (iii) 169,500 shares
of Common Stock or the shares of Common Stock issuable upon the exercise of
169,500 Warrants, which are issuable upon the exercise of the Underwriter's
Over-allotment Option; and (iv) 226,000 shares of Common Stock reserved for
issuance upon the exercise of the Underwriter's Warrants and the Warrants
contained therein. See "MANAGEMENT -- Stock Options" and "DESCRIPTION OF
SECURITIES -- Prior Financings."
(2) Upon completion of the Offering, the Company will expense $217,000 of debt
issue costs associated with the Bridge Financing, $738,000 of issue discount
on the Bridge Notes and $60,000 of interest attributable to the Bridge
Notes.
SELECTED FINANCIAL DATA
The statement of operations data for the Company and the statement of
revenues over direct operating expenses for Cable & Co. (a product line of
Hongson, Inc.) for the years ended December 31, 1995 and 1994, respectively, and
the balance sheet data for the Company at December 31, 1995, have been derived
from the audited financial statements appearing elsewhere in this Prospectus.
The selected statement of operations data for the one-month period ended January
31, 1995 and 1996 and the balance sheet data at January 31, 1996 are derived
from unaudited financial statements of the Company. The results of operations
for the one-month period ended January 31, 1996 is not necessarily indicative of
the results of operations that may be expected for the full year. However, in
the opinion of management, the unaudited financial statements have been prepared
on the same basis as the audited financial statements and all adjustments,
consisting only of normal recurring adjustments necessary for a fair
presentation of the results for such periods, have been reflected therein. All
of such information should be read in conjunction with, and is qualified by
reference to, the financial statements, including the notes
19
<PAGE>
thereto, which are set forth elsewhere in this Prospectus. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
SELECTED STATEMENT OF OPERATIONS DATA FOR THE COMPANY
<TABLE>
<CAPTION>
YEAR ENDED ONE-MONTH PERIOD
DECEMBER 31, ENDED JANUARY 31,
1995 1995 1996
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Net sales......................................................................... $ 10,432,926 $ 772,140 $ 1,198,778
Cost of goods sold................................................................ 6,397,568 462,681 752,308
Gross profit...................................................................... 4,035,358 309,459 446,470
Operating expenses (including moving expenses of $84,356 during the year ended
December 31, 1995 and $1,352,624 of non-cash compensatory charges for the
one-month period ended January 31, 1996)........................................ (3,699,672) (239,478) (1,829,408)
Commission income................................................................. 34,302 -- --
Income (loss) from operations..................................................... 369,988 69,981 (1,382,938)
Interest expense.................................................................. 429,197 24,984 47,982
Provision (benefit) for income taxes.............................................. 43,900 19,000 (13,157)
Net income (loss)................................................................. (103,109) 25,997 (1,417,763)
Dividends on Preferred Stock...................................................... 53,148 -- 5,096
Net income (loss) applicable to Common Stock...................................... $ (156,257) $ 25,997 $(1,422,859)
Net income (loss) per common share................................................ $ (.08) $ .01 $ (.79)
Weighted average number of common shares outstanding.............................. 2,023,486 2,059,070 1,812,206
</TABLE>
STATEMENT OF REVENUES OVER DIRECT OPERATING EXPENSES
FOR CABLE & CO. (A PRODUCT LINE OF HONGSON, INC.)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994
<S> <C>
Net sales............................................................................... $8,702,461
Cost of goods sold...................................................................... 5,166,494
Gross profit............................................................................ 3,535,967
Selling expenses........................................................................ 1,367,435
Excess of revenues over direct operating expenses....................................... $2,168,532
</TABLE>
SELECTED BALANCE SHEET DATA FOR THE COMPANY
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
1995 1996
<S> <C> <C>
(UNAUDITED)
Current assets........................................................... $4,180,078 $ 4,518,137
Working capital (deficit)................................................ (887,776) (971,712)
Property and equipment, net.............................................. 851,972 874,955
Goodwill, net............................................................ 1,113,340 1,107,876
Intangible Assets, net................................................... 29,525 42,370
Other Assets............................................................. 7,015 6,171
Current Liabilities...................................................... 5,067,854 5,489,849
Total Liabilities........................................................ 5,774,931 6,167,649
Redeemable Preferred Stock -- Series A................................... 500,000 500,000
Stockholders' deficiency................................................. (93,001) (118,140)
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company was formed on November 10, 1994 to purchase the Acquired Net
Assets used by Hongson, Inc. in the sale and marketing of footwear bearing the
Cable & Co. trademark. The Company purchased the Acquired Net Assets effective
as of the close of business on December 31, 1994 for a net purchase price of
$1,401,787.
The Company designs, imports and markets on a wholesale basis a broad range
of footwear bearing the Cable & Co. trademark. The Company markets its products
to approximately 700 department and specialty store locations in the United
States. In addition, the Company markets a line of casual men's footwear under
the name "Bacco Bucci." The Company has licensed the right to use the Bacco
Bucci name from D&D Design, an entity controlled by Alberto Salvucci, a
principal stockholder of the Company.
The Company plans to increase revenues by increasing sales to existing
accounts, establishing new accounts, developing high quality shoes with styling
and design detail to sell at competitive prices and expanding the Company's
marketing programs. The Company intends to increase its marketing to include
direct mail. The Company also intends to explore opportunities to acquire rights
to related products such as bags, belts, wallets, accessories and other small
leather goods. In addition, the Company may seek to grant license rights to the
Cable & Co. trademark.
YEARS ENDED DECEMBER 31, 1995 AND 1994
The Company's net sales for fiscal 1995 were $10,432,926 as compared to net
sales of $8,702,461 in fiscal 1994 from the Cable & Co. product line of Hongson,
Inc. (the "Cable Product Line") derived from footwear bearing the Cable & Co.
trademark, an increase of 19.9%. In fiscal 1995, the Company derived $9,612,304
of net sales from the sale of men's footwear bearing the Cable & Co. trademark,
a 10.5% increase over the net sales of the Cable Product Line in fiscal 1994.
The Company believes that the increase in net sales during fiscal 1995 is
primarily attributable to increased advertising and marketing efforts by the
Company. In addition, the Company's net sales for fiscal 1995 included $295,557
of net sales of women's footwear, which the Company commenced selling in the
second half of 1995. The Company also began marketing a less expensive men's
casual footwear line under the Bacco Bucci name, which produced $525,065 of net
sales in fiscal 1995.
The Company's cost of goods sold for fiscal 1995 was $6,397,568 as compared
to $5,166,494 for the Cable Product Line in fiscal 1994, a 23.8% increase. The
Company believes that such increase is primarily attributable to the increase in
net sales in fiscal 1995. The Company's gross profit as a percentage of net
sales was 38.7% in fiscal 1995 as compared to 40.6% for the Cable Product Line
in fiscal 1994. The Company believes that such decrease is primarily
attributable to increased freight costs, the lower initial gross profit margins
on Bacco Bucci and women's footwear and increases in manufacturing costs.
In fiscal 1995 the Company had a net loss of $103,109. The Company believes
that the net loss is primarily attributable to the expenses incurred in
connection with severing the Company's business from Hongson, Inc., including
moving costs of $84,356 and other costs of relocating the Company's warehouse
and offices. Management does not believe that the Company will incur similar
expenses in 1996.
Management anticipates that the Company's results of operations in fiscal
1996 will reflect non-cash expenses of $3,588,738. Such expenses will be
incurred as a result of expensing (i) $738,000 issue discount in connection with
the issuance of 180,000 shares of Common Stock and 180,000 Warrants in the
Bridge Financing, (ii) $561,667 annually for a period of three years
representing an aggregate expense of $1,685,000 over the term of the agreement
attributable to the issuance of 400,000 shares of Common Stock and 450,000
Warrants to an international consultant, (iii) $1,345,075 attributable to the
release of an aggregate of 320,256 shares of Common Stock from escrow to Mr.
Albahari, Mr. Kandall and Mr. Salvucci, and (iv) $943,996 attributable to the
issuance of an aggregate of 224,761 shares of Common Stock to Mr. Albahari, Mr.
Kandall and Mr. Salvucci. See "ACQUISITION," "MANAGEMENT -- Employment and
Consulting Agreements," "CERTAIN TRANSACTIONS" and "DESCRIPTION OF
SECURITIES -- Prior Financings."
ONE MONTH PERIOD ENDED JANUARY 31, 1996 AND 1995
The Company's net sales for January 1996 were $1,198,778 as compared to net
sales of $772,140 in January 1995, an increase of 55.3% in January 1996. The
Company believes that the increase in net sales in January 1996 is primarily
attributable to net sales of women's footwear of $107,000 and net sales of
footwear bearing the Bacco Bucci name of $176,000, as well as a 19% increase of
footwear bearing the Cable & Co. trademark.
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<PAGE>
The Company's cost of goods sold for January 1996 was $752,308, as compared
to $462,681 in January 1995, a 62.6% increase. The Company believes that such
increase is primarily attributable to the increase in net sales in January 1996.
The Company's gross profit as a percentage of net sales was 37.2% in January
1996 as compared to 40.1% in January 1995. The Company believes that such
decrease is primarily attributable to the lower initial gross profit margins on
Bacco Bucci and women's footwear.
In January 1996 the Company incurred selling, general and administrative
expenses of $476,784, 39.8% as a percentage of net sales as compared to selling,
general and administrative expenses in January 1995 of $239,478, 31.0% as a
percentage of net sales. The Company believes that the increase in selling,
general and administrative expenses is primarily attributable to increases in
expenses incurred in connection with severing the Company's business with
Hongson, Inc., additional costs attributable to launching the Bacco Bucci line
and the women's footwear line in 1996, including increased selling expenses and
sampling costs, additional marketing and advertising expenses, higher rent
expenses and increased factoring costs. In addition, management believes that
the increase is also attributable to increased warehouse costs of approximately
$43,000 which resulted from the Company terminating its warehouse lease and
moving its inventory.
In January 1996, the Company incurred interest expense of $47,982 as
compared to $24,984 in January 1995, an increase of 92.1%. The Company believes
that the increase is attributable to an increase in borrowing relating to the
higher sales and inventory levels in January 1996 together with additional
borrowing attributable to the purchase of 266,880 shares of Common Stock and
21,660 shares of Preferred Stock from Harry Chen. See "ACQUISITION".
In January 1996 the Company incurred noncash compensatory charges of
$1,352,624. Of the total $1,345,075 related to the release of an aggregate of
320,256 shares of Common Stock to Mr. Albahari, Mr. Kandall and Mr. Salvucci
which had been held in escrow pursuant to a stockholders agreement which had
been entered into in connection with the Acquisition. In addition, such charges
also included $7,549 attributable to an international consulting agreement. See
"ACQUISITION" and "MANAGEMENT -- Employment and Consulting Agreements."
In January 1996, the Company had a net loss of $1,417,763 as compared to
net income of $25,997 in January 1995. The Company believes that it incurred
such net loss because of the decrease in gross profit margins, the increase in
selling, general and administrative expenses, the noncash compensatory charges
and increased interest expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its requirements for the Acquisition, working
capital and capital expenditures from net cash provided through various
borrowings, including borrowings under its credit facility with Heller, the 1995
Financing, as defined below, and the Bridge Financing. As of January 31, 1996,
the Company had a working capital deficit of $971,712 and a debt to equity ratio
of 429.50 to 1.
The Company's obligations to Heller include a collateral installment note
in the original principal amount of $1,000,000 of which $722,222 was outstanding
as of April 30, 1996. The collateral installment note is payable in 36 monthly
installments of $27,777 and bears interest at 3% above the prime rate of Chase
Manhattan Bank, N.A. ("Chase"). In addition, the Company may borrow from Heller
the lesser of 50% of the Company's eligible inventory or $2,000,000 (the
"Inventory Loan"). The Inventory Loan bears interest at 2% above Chase's prime
rate. The Company also finances its accounts receivable under a factoring
agreement with Heller. Pre-approved accounts are factored without recourse to
the Company and non-approved accounts are factored with recourse. At January 31,
1996, $385,496 of the $2,266,114 (17%) of factored accounts receivable, were
factored with recourse. Heller is entitled to a fee equal to 1.25% of all
accounts receivable purchased. Moreover, advances by Heller bear interest at
rates equal to Chase's prime rate plus 1.5% to 2%. Under the credit facility,
all of the Company's obligations to Heller may not exceed $6,000,000.
In February 1995, the Company consummated the 1995 Financing of 64,987
shares of Preferred Stock in the aggregate amount of $750,000. It is anticipated
that the redemption price and accrued dividends on the shares of Preferred Stock
will be paid out of the net proceeds of the Offering. In October 1995, the
Company purchased and retired 266,880 shares of Common Stock and 21,660 shares
of Preferred Stock from Harry Chen for a purchase price of $132,500 and
$267,500, respectively. In October 1995, the Company borrowed $130,000 from a
stockholder which was repaid in February 1996 from the net proceeds of the
Bridge Financing and issued such stockholder 20,016 shares of Common Stock in
consideration for making such loan. In March 1996, the Company consummated the
Bridge Financing of 36 Units to the Bridge Selling Stockholders at a purchase
price of $50,000 per Unit, $1,800,000 in the aggregate. Each Unit consists of
the Company's 11% Bridge Note in the original principal amount of $49,000, 5,000
shares of Common Stock and 5,000 Bridge Warrants. The Bridge Notes are due and
payable upon the earlier of February 2, 1997 or the Company's receipt of gross
proceeds of at least $4,080,000 from
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<PAGE>
the sale of its debt and/or equity securities in a public or private financing.
It is anticipated that the Bridge Notes will be repaid out of the net proceeds
of this Offering. See "USE OF PROCEEDS" and "DESCRIPTION OF SECURITIES -- Prior
Financings."
The Company believes that the net proceeds of the Offering, together with
net cash provided by operations and available borrowings under the Company's
credit facility, will be sufficient to meet its anticipated cash requirements
for at least the 18 months subsequent to the closing of the Offering. However,
additional funds may be required for additional expansion.
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<PAGE>
BUSINESS
GENERAL
The Company was formed on November 10, 1994 to acquire the Acquired Net
Assets previously used by Hongson, Inc. since 1989 in the sale and marketing of
footwear bearing the Cable & Co. trademark. The Company purchased the Acquired
Net Assets effective as of the close of business on December 31, 1994 for a net
purchase price of $1,401,787. See "ACQUISITION."
Prior to the Acquisition, David Albahari, Chairman of the Board, President,
Chief Executive Officer, a director and a principal stockholder of the Company,
was the president of the Cable & Co. product line of Hongson, Inc. and Alan
Kandall, Executive Vice President, Chief Financial Officer, Treasurer, a
director and a principal stockholder of the Company, was the chief financial
officer of Hongson, Inc. In addition, Alberto Salvucci, through Cable & Co.
S.R.L., identified raw materials, and provided design and production services
for shoes bearing the Cable & Co. trademark for the Cable & Co. product line of
Hongson, Inc. prior to the Acquisition. Mr. Salvucci, through Cable & Co. S.R.L.
and D&D Design, continues to provide substantially the same services to the
Company, and acts on his own behalf in connection with the sale in Europe of
footwear under the names Cable & Co. and Bacco Bucci. Mr. Albahari, Mr. Kandall
and Mr. Salvucci had no beneficial interest in Hongson, Inc. prior to the
Acquisition.
The Company designs, imports and markets on a wholesale basis a broad range
of men's footwear bearing the Cable & Co.(Register mark) trademark. The Company
markets its products to approximately 700 department and specialty store
locations in the United States. The Company's products are designed to appeal to
fashion conscious consumers. The Company's men's footwear consists of casual
shoes and dress shoes. The retail price of the men's shoes sold under the Cable
& Co. trademark ranges from $120 to $170 for casual shoes and ranges from $150
to $190 for the Company's dress shoes. The Company has recently commenced
selling a women's footwear line under the Cable & Co. trademark consisting of
women's dress shoes and casual shoes on an introductory basis at select retail
locations. The Company plans a full-scale launch of the women's footwear line in
the Fall of 1996. The women's footwear sells for retail prices ranging from $130
to $150. In addition, the Company markets a line of casual men's footwear under
the name "Bacco Bucci" which sells for retail prices ranging from $110 to $140.
The Company has licensed the right to use the Bacco Bucci name from D&D Design,
an entity controlled by Alberto Salvucci, a principal stockholder of the
Company. See "CERTAIN TRANSACTIONS."
The Company believes that its footwear is comfortable, fashionable and
practical. The Company incorporates technically sophisticated designs into the
construction of its footwear, which is intended to be worn with casual or
business attire. The Company's men's footwear, consistent with men's footwear in
general, is less style-driven than women's footwear. The Company sells
approximately 45 styles of men's shoes each season bearing the Cable & Co.
trademark and 20 styles under the Bacco Bucci brand name. In addition, the
Company carries an average of approximately 30 styles of men's footwear from
prior seasons. The Company also intends to offer approximately 20 styles of
women's shoes each season beginning in the Fall of 1996.
The Company plans to increase revenues by increasing sales to existing
accounts, establishing new accounts, developing high quality shoes with styling
and design detail to sell at competitive prices and expanding the Company's
marketing programs. The Company intends to increase its marketing to include
direct mail. The Company also intends to explore opportunities to acquire rights
to related products such as bags, belts, wallets, accessories and other small
leather goods. In addition, the Company may seek to grant license rights to the
Cable & Co. trademark.
DISTRIBUTION AND WHOLESALE OPERATIONS
The Company's products are distributed to approximately 450 customers for
sale in approximately 700 store locations in the United States. The Company
markets its products to (i) major department stores and specialty stores, such
as Bloomingdales, Dillard Department Stores, Inc., Nordstrom, Inc. and R.H. Macy
& Co., Inc., (ii) upscale specialty retailers, such as Neiman Marcus, Saks Fifth
Avenue, Lord & Taylor and Parisian, and (iii) upscale shoe and apparel
merchants. Out-of-season products are sold only through a select channel of
distribution.
The Company's strategy has been to provide marketing and management support
to its customers by producing what management believes to be strong image
advertising campaigns. The Company markets its product line and introduces new
styles at industry-wide footwear shows, which occur twice a year in Las Vegas
and New York, and at regional shows throughout the year. These shows afford the
Company an opportunity to assess demand for its products. After each show, the
Company's agents and corporate account specialists visit customers to review the
Company's product lines and to secure purchase commitments. The Company also
facilitates sales by offering what management believes are creative, quality
products and
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maintaining adequate inventory levels of new products as well as products
included in the Company's "open stock" program. The Company's "open stock"
program enables customers to order individual pairs of shoes from the Company's
inventory, primarily through an electronic data interchange system. See
" -- Management Information Systems."
DESIGN
The Company believes that its success will depend in substantial part on
its ability to originate and define fashion trends as well as to anticipate and
react to changing consumer demands in a timely manner. To meet this objective,
the Company retains Cable & Co. S.R.L. and D&D Design, both of which are
controlled by Alberto Salvucci, a principal stockholder of the Company, to
provide design, production and production control services. The process of
designing and introducing a new product takes approximately three to four
months. The Company's management works with Cable & Co. S.R.L. and D&D Design to
create a design which they believe fits the Company's image, reflects current or
approaching trends and can be manufactured cost-effectively. Once the initial
design is complete, a prototype is developed, fit trials are conducted and the
prototype is reviewed and refined prior to commencement of production. See "RISK
FACTORS -- Continued Relationship with Alberto Salvucci," "CERTAIN
TRANSACTIONS," and "PRINCIPAL STOCKHOLDERS."
MANUFACTURING
The Company does not own or operate any manufacturing facilities and
purchases its products through independently owned manufacturers located
primarily in Italy. Cable & Co. S.R.L. maintains an office in Montegranaro,
Italy and monitors the production, quality and timely distribution of the
Company's products.
The footwear marketed by the Company is produced primarily in Italy because
management believes that Italian manufacturers can satisfy the Company's quality
control requirements. Approximately 86% of the dollar value of its footwear
purchases in 1995 were purchased from three manufacturers in Italy. The Company
is generally the largest and, in many cases, the exclusive customer of these
manufacturers and has established long-standing relationships with most of them.
In advance of the Fall and Spring selling seasons, the Company's management
works with Cable & Co. S.R.L. to develop new products for industry trade shows
and with manufacturers to determine production costs, materials, break-even
quantities and component requirements for new styles. Based on indications of
interest obtained at trade shows and initial purchasing commitments from
retailers, the Company places production orders with its manufacturers. To
maintain inventory positions, the Company places manufacturing orders prior to
receiving firm commitments. Once an order has been placed, delivery time ranges
from 10 weeks to three months depending on whether the product is new or is
currently in production. The Company, primarily through Cable & Co., S.R.L.,
monitors product quality through inspections at the factories throughout the
production process and upon receipt. To reduce the risk of inventory
overstocking, the Company monitors sales data on a weekly basis.
ADVERTISING AND MARKETING
The Company markets its products based on the design and quality
specifications of such products. The Company believes that its advertising
campaigns have resulted in increased sales and consumer awareness of its
products. The Company's advertisements appear in magazines such as GQ, Esquire,
Cigar Aficionado and Vanity Fair. The Company spent approximately $630,000 on
advertising in 1995. In order to strengthen brand awareness of its products and
increase sales, the Company intends to continue to be actively involved in the
development of marketing and merchandising programs. As part of this effort, the
Company provides cooperative advertising programs, sales incentives and sales
promotions. All advertising and marketing production is produced in-house
allowing the Company to have complete control over marketing functions, while at
the same time reducing the high costs associated with contracting with
advertising agencies to produce high quality work.
The Company has an in-house direct "teleservicing" department which is
responsible for maintaining and servicing the Company's present customer list,
referring retail customers to local retail stores to purchase advertised and
non-advertised products and to provide product information. Currently, this
function is performed by the Company during normal business hours using a toll
free telephone number.
The Company anticipates that a portion of the net proceeds of the Offering
will be utilized to commence direct mail marketing and to purchase additional
print advertising. The Company intends to enter into an agreement with an
independent firm to provide direct mail marketing services to the Company,
although it has not yet commenced negotiations and there can be no assurance
that it will be able to consummate any such agreement on acceptable terms. See
"USE OF PROCEEDS."
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Substantially all of the Company's footwear is sold in the United States
and, to a lesser extent, in Canada. In consultation with U.K. Hyde Park
Consultants, Ltd., the Company intends to explore the feasibility of marketing
its footwear to countries in Central and South America. See
"MANAGEMENT -- Employment and Consulting Agreements."
PRODUCT DELIVERY
Once manufacturing is completed overseas, the Company's products are
inspected, packed and shipped by air and boat to the United States. Thereafter,
the products are transported by truck to an independent warehouse facility
utilized by the Company located in Bayonne, New Jersey. The products are then
shipped to the Company's customers. By maintaining significant inventory
positions, the Company strives to fill at least a 95% of customer orders within
72 hours. While the Company's "open stock" program requires an increased
investment in inventories, management believes that it is an important service
for its customers, allowing them to manage inventory levels more effectively.
MANAGEMENT INFORMATION SYSTEMS
Information systems are essential to the Company's ability to maintain its
competitive position and to support continued growth. The Company's management
information system was designed to provide, among other things, comprehensive
order processing, production, accounting and management information for the
importing, distribution and marketing aspects of the Company's business. The
Company has installed an electronic data interchange system which provides a
computer link between the Company and certain of its wholesale customers that
enable both the customer and the Company to monitor purchases, shipments and
invoicing.
TRADEMARKS
Cable & Co.(Register mark) is a registered trademark of the Company in the
United States, Canada and several Central and South American countries. The
registered trademark includes footwear and related products. The Company
believes that the Cable & Co. trademark contributes significantly in the
marketing of its products. In addition, a trademark application has been filed
in the United States by Alberto Salvucci for Bacco Bucci. However, the trademark
registration has not been granted, and there can be no assurance concerning when
or if such registration will be effected.
COMPETITION
Competition in the footwear industry is intense. The Company's products
compete with other branded products within their product category sold by
retailers. In varying degrees depending on the product category involved, the
Company competes on the basis of style, price, quality, comfort and brand
prestige and recognition, among other considerations. The Company competes with
numerous manufacturers, importers and distributors of footwear and accessories
for the limited shelf-space available for displaying such products to the
consumer. Moreover, the general availability of contract manufacturing capacity
allows access by new market entrants. The Company believes that its ability to
deliver quality merchandise in a timely manner is a critical competitive factor,
particularly in connection with the introduction of new product lines. The
Company's ability to maintain existing relationships and develop new
relationships with foreign manufacturers is another important element in its
ability to compete. Some of the Company's competitors are larger, have achieved
greater recognition for their brand names, have captured greater market share
and have substantially greater financial, distribution, marketing and other
resources than the Company. However, some of such competitors have been in
business longer than the Company and are better capitalized than the Company.
GOVERNMENT REGULATION
Although the goods sold by the Company are not currently subject to quotas,
countries in which the Company's products are manufactured may, from time to
time, impose new or adjust prevailing quotas or other restrictions on exported
products and the United States may impose new duties, tariffs and other
restrictions on imported products, any of which could adversely affect the
Company's operations and its ability to import its products. In accordance with
the 1993 Harmonized Tariff Schedule, a fixed duty structure is in effect for the
United States. The Company pays import duties on its products ranging from
approximately 8.5% to 10%, depending on the principal component and whether the
product is men's or women's footwear. Other restrictions on the importation of
footwear are periodically considered by the United States Congress and no
assurances can be given that tariffs or duties on the Company's goods may not be
raised, resulting in higher costs to the Company, or that import quotas
respecting such goods may not be imposed or made more restrictive.
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The Company imports a large portion of its products from Italy. Italy is on
the "watch list" maintained by the USTR for purposes of monitoring protection of
intellectual property rights. According to the USTR, its consultations with
Italy have contributed to an improved and stronger legal framework for the
protection of intellectual property rights. If the USTR were to determine that
Italy's actions, policies, or practices with respect to intellectual property
rights are actionable, sanctions against imports from Italy, including higher
duties, could be imposed.
SEASONALITY
The Company's business is subject to seasonal variations. Historically in
the footwear industry, a significant portion of the Company's sales are realized
during the spring and fall fashion seasons, and levels of sales are generally
lower during the winter and summer fashion seasons. If the Company's sales were
to be substantially below seasonal norms during the spring and fall fashion
seasons, the Company's annual results could be materially and adversely
affected. The Company must make decisions regarding how much inventory to buy
well in advance of anticipated sale. Deviations in actual from projected demand
for products could have an adverse affect on the Company's sales and
profitability.
BACKLOG
As of April 30, 1996, the Company had unfilled customers orders of
approximately $5,325,000. The Company's backlog is affected by a number of
factors, including seasonality and customer purchases of its products through
the Company's "open stock" program. To date, the Company has not experienced
material returns of its products or material cancellations of orders.
EMPLOYEES
As of April 30, 1996, the Company had 28 full-time employees of which five
were involved in sales and 23 in general management and administration. In
addition, the Company utilizes the services of six independent exclusive sales
agents on a regular basis. The Company believes its success depends upon its
ability to identify, hire and retain capable personnel. As there is significant
competition for qualified personnel, there can be no assurance that the Company
will succeed in recruiting or retaining suitable staff. The Company considers
its relations with its employees, none of whom are covered by collective
bargaining agreements, to be excellent.
PROPERTIES
The Company, through its wholly-owned subsidiary Cable & Company
Enterprises, Ltd., leases approximately 4,500 square feet at 724 Fifth Avenue,
New York, New York at a monthly base rental of $9,750, which increases to
$10,500 per month commencing in May 2000. The lease expires on July 31, 2005 and
the space is utilized as the Company's executive office and showroom. In
addition, the Company, through Cable & Company Enterprises, Ltd., leases
approximately 2,800 square feet of office space in Edison, New Jersey at a
monthly base rental of $4,086, which amount increases each year of the lease to
a maximum of $4,981 in September 1999. The lease expires on September 30, 2000.
INSURANCE
The Company maintains insurance coverage including workers' compensation
coverage, and liability insurance in respect of hazards on the Company's
business premises. The Company carries a general liability policy which provides
for coverage of $1,000,000 per occurrence and $2,000,000 in the aggregate. The
Company carries key man life insurance in the amount of $500,000 on the life of
each of David Albahari and Alan Kandall with the Company as beneficiary.
LITIGATION
The Company is not a party to any material pending litigation.
ACQUISITION
On January 16, 1995, the Company entered into an asset purchase agreement
(the "Asset Purchase Agreement") providing for the purchase from Hongson, Inc.
of the Acquired Net Assets. The Company consummated the purchase of the Acquired
Net Assets on February 16, 1995. However, the Company was entitled to all of the
income, and responsible for all of the expenses, in connection with the Acquired
Net Assets as of the close of business on December 31, 1994. The net purchase
price for the Acquired Net Assets was $1,401,787. The Company believes that the
assets of Hongson, Inc. have
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been liquidated and that Hongson, Inc. is no longer doing business. In
connection with the Acquisition, Harry Chen, a principal stockholder of Hongson,
Inc., was issued 266,880 shares of Common Stock for an aggregate purchase price
of $100.
As a condition of the Asset Purchase Agreement, David Albahari, Alan
Kandall, Alberto Salvucci, Harry Chen and the Company entered into a
stockholders agreement (the "Stockholders Agreement") with respect to their
shares of Common Stock. Pursuant to the Stockholders Agreement, Mr. Albahari,
Mr. Kandall and Mr. Salvucci (the "Management Group") agreed not to sell their
shares of Common Stock for nine months if the Company either merged with an
entity having a publicly traded class of securities or registered its shares
under the Securities Act without the consent of the Company's investment advisor
or underwriter, respectively. The Management Group also placed an aggregate of
320,256 shares of Common Stock in escrow which were not to be released to the
Management Group unless the Company satisfied certain performance criteria (the
"Escrow Shares"). The Stockholders Agreement was to expire on the earlier of a
merger of the Company, the date upon which the Company consummated the sale of
its securities pursuant to a registration statement filed under the Securities
Act or on the fifteenth anniversary of the Stockholders Agreement. In January
1996, the Company terminated the Stockholders Agreement and released all of the
Escrow Shares to the Management Group, although the terms for the release of the
Escrow Shares had not yet been satisfied. The Company recorded a noncash
compensatory charge of $1,345,075 in January 1996, relating to the release of
the Escrow Shares.
In October 1995, the Company purchased and retired all of Mr. Chen's
remaining interest in the Company, namely, 266,880 shares of Common Stock, and
21,660 shares of Preferred Stock which Mr. Chen purchased for $250,000 in the
1995 Financing, as defined below. Of the $400,000 purchase price, $132,500 was
attributable to the 266,880 shares of Common Stock and $267,500 was attributable
to the 21,660 shares of Preferred Stock and the accrued dividends thereon. See
"CERTAIN TRANSACTIONS" and "DESCRIPTION OF SECURITIES -- Prior Financings."
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the directors
and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
David Albahari 40 Chairman of the Board, President,
Chief Executive Officer and
Director
Alan Kandall 52 Executive Vice President, Chief
Financial Officer, Treasurer and
Director
Martin C. Licht 54 Secretary and Director
</TABLE>
In accordance with the Underwriting Agreement, the Underwriter has been
granted the option of designating an individual to serve, in its discretion, as
an advisor to, or a member of, the Company's Board of Directors for a period of
three years after the completion of this Offering. However, the Underwriter has
not advised the Company whether it will exercise such option or, if so, whom it
will designate. The Company's officers are elected to serve in such capacities
until the earlier to occur of the election and qualification of their respective
successors or until their respective deaths, resignations or removals by the
Company's Board of Directors from such positions. The Company's directors are
elected to serve in such capacities until the earlier to occur of the election
and qualification of their respective successors or their respective deaths,
resignations or removals by the Company's stockholders from such positions. The
Company intends to establish an Audit Committee, a Stock Option Committee and a
Compensation Committee upon the closing of the Offering.
The following is a brief summary of the background of each executive
officer and director:
DAVID ALBAHARI has been the Chairman of the Board, President and Chief
Executive Officer of the Company and a member of the Board of Directors since
its inception. From May 1989 until February 1995, Mr. Albahari was the President
of the Cable & Co. product line of Hongson, Inc. From 1986 through 1989, Mr.
Albahari was President of the men's footwear division of Kenneth Cole
Productions Inc. From 1985 through 1986, Mr. Albahari served as Vice President
Men's of Mark Alpert, a footwear company. From 1978 through 1985, Mr. Albahari
was employed by Saks Fifth Avenue as a buyer for mens's footwear, men's
furnishings and women's footwear. From 1976 through 1978 Mr. Albahari was a
junior executive in R.H. Macy & Co.'s executive training program.
ALAN KANDALL has served as the Executive Vice President, Chief Financial
Officer, and Treasurer of the Company and a member of the Board of Directors
since its inception. From April 1993 through February 1995, Mr. Kandall was the
Chief
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Financial Officer of Hongson, Inc., which the Company believes has been
liquidated and is no longer doing business. From June 1992 to March 1993, Mr.
Kandall was the Chief Financial Officer of Publix Corp. From January 1992
through May 1992, Mr. Kandall was the Chief Financial Officer of Orly, Inc. From
1988 through 1991, Mr. Kandall was the Chief Financial Officer of Barbizon
Corporation.
MARTIN C. LICHT has served as Secretary and a member of the Company's Board
of Directors since its inception. He has been a practicing attorney since 1967
and has been a partner of the law firm of Gallet Dreyer & Berkey, LLP, since
October 1993. From April 1993 until that time, he was a partner of Solomon,
Weiss & Moskowitz, P.C. For one year prior thereto he was a partner of the law
firm of Summit, Solomon & Feldesman. Prior to such time, Mr. Licht was a member
of the law firm of Herzfeld & Rubin, P.C. for twelve years. All of such firms
are located in New York City. Mr. Licht is also a director of two companies
traded on the NASDAQ SmallCap Market, Natural Health Trends Corp., a company
that owns and operates three vocational schools in Florida, and Gaylord
Companies, Inc., a company that operates retail bookstores and retail stores
selling cookware and serving equipment.
DIRECTORS' COMPENSATION
Directors of the Company do not receive any fixed compensation for their
services as directors. However, the Board of Directors may authorize the payment
of a fixed sum to non-employee directors for their attendance at regular and
special meetings of the Board as is customary for similar companies. Directors
will be reimbursed for their reasonable out-of-pocket expenses incurred in
connection with their duties to the Company. For the fiscal year ended December
31, 1995, the Company did not pay its directors any cash or other form of
compensation for acting in such capacity. For the fiscal year ended December 31,
1995, directors who were also executive officers of the Company received cash
compensation for acting in the capacity of executive officers. See
" -- Executive Compensation," " -- Stock Options" and "CERTAIN TRANSACTIONS."
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides a summary of cash and non-cash compensation
for the year ended December 31, 1995 with respect to the following officers of
the Company:
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS
SECURITIES
ANNUAL COMPENSATION RESTRICTED UNDERLYING PAYOUTS
OTHER ANNUAL STOCK OPTIONS LTIP
NAME AND PRINCIPAL POSITIONS YEAR SALARY($) BONUS($) COMPENSATION($)(1) AWARD(S)($) SARS(#) PAYOUTS($)
<S> <C> <C> <C> <C> <C> <C> <C>
David Albahari
Chairman of the Board,
President and Chief Executive
Officer...................... 1995 $200,000 -- -- -- -- --
Alan Kandall
Executive Vice President,
Chief Financial Officer and
Treasurer.................... 1995 $150,000 -- -- -- -- --
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL POSITIONS COMPENSATION
<S> <C>
David Albahari
Chairman of the Board,
President and Chief Executive
Officer...................... --
Alan Kandall
Executive Vice President,
Chief Financial Officer and
Treasurer.................... --
</TABLE>
(1) Excludes perquisites and other personal benefits that in the aggregate do
not exceed 10% of each of such individual's total annual salary and bonus.
EMPLOYMENT AND CONSULTING AGREEMENTS
The Company has entered into employment agreements with David Albahari and
Alan Kandall expiring in December 1997, under which they will receive annual
salaries of $200,000 and $150,000, respectively. The agreements provide that the
executive will be eligible to receive short-term incentive bonus compensation,
the amount of which, if any, will be determined by the Board of Directors based
on the employee's performance, contributions to the Company's success and on the
Company's ability to pay such incentive compensation. The employment agreements
also provide for termination based on death, disability, voluntary resignation
or material failure in performance. The employment agreements do not provide for
severance payments upon termination unless the executive is terminated without
cause, in which case the executive will receive severance payments until the
later of two and one-half years from the date of severance or December 31, 1997.
The
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<PAGE>
agreements contain non-competition provisions that preclude Mr. Albahari and Mr.
Kandall from competing with the Company for a period of one year and two years
from the date of termination of employment, respectively.
The Company entered into a three year international consulting agreement as
of January 26, 1996 with U.K. Hyde Park Consultants, Ltd. ("Hyde Park Group"),
and issued thereto 400,000 shares of Common Stock and warrants to purchase up to
450,000 shares of Common Stock identical to the Warrants offered hereby, as
compensation for services and for $40,000 paid by Hyde Park Group to the
Company. Hyde Park Group will provide international consulting services to the
Company relating to the Company's anticipated expansion upon the completion of
this Offering, business and financial development and potential business
acquisitions. The Company and Hyde Park Group have agreed that the Company will
not be able to pursue its anticipated plans for expansion without additional
financing. Accordingly, if the Company does not have a net worth of at least
$3,000,000 by July 31, 1996, such agreement may be terminated, and the Company
will have the right to acquire all of such shares of Common Stock and warrants
for $40,000.
STOCK OPTIONS
No stock options were granted to, held or exercised by, any of the
Company's officers during the fiscal year ended December 31, 1995. The Company
has adopted the 1996 Stock Option Plan under which up to 280,000 options to
purchase shares of Common Stock may be granted to key employees, consultants and
members of the Board of Directors of the Company. The exercise price of the
options will be determined by the Stock Option Committee selected by the Board
of Directors, but the exercise price will not be less than 85% of the fair
market value of the Common Stock on the date of grant. No options have been
granted to date.
CERTAIN TRANSACTIONS
Alberto Salvucci, a principal stockholder of the Company, owns and operates
Cable & Co. S.R.L. which owns the rights to products bearing the Cable & Co.
trademark for Europe. Cable & Co. S.R.L. identifies raw material for the Company
and provides design and production services. For such services, Cable & Co.
S.R.L. received a fee of $410,000 for fiscal 1995, which was equal to 7% of the
cost of the goods shipped to the Company. Commencing January 1, 1996, the
Company agreed to pay Cable & Co. S.R.L. 8% of the production cost of goods
shipped to the Company, of which 3% will be paid to D&D Design at the direction
of Cable & Co. S.R.L. Cable & Co. S.R.L. and D&D Design have received an
aggregate of $83,595 from the Company for fiscal 1996 through April 30, 1996 and
are owed an additional $30,628 through April 30, 1996. The Company's obligations
to Cable & Co. S.R.L. are secured by a standby letter of credit in the amount of
$300,000.
The Company licenses the right to sell Bacco Bucci footwear under the Bacco
Bucci name from D&D Design, which is also controlled by Mr. Salvucci. The
Company paid D&D Design 3% of the production cost of Bacco Bucci footwear for
the license for fiscal 1995. In addition, D&D Design and Cable & Co. S.R.L.
received additional fees equal to 2% and 5%, respectively, of the cost of the
Bacco Bucci footwear shipped to the Company in fiscal 1995. D&D Design received
$75,809 in connection with Bacco Bucci footwear from the Company for fiscal
1995. Commencing as of January 1, 1996, the Company has agreed to pay to D&D
Design 3% of the net sales of Bacco Bucci footwear. In addition, the Company has
agreed to pay an aggregate of 5% of the production cost of Bacco Bucci footwear
to D&D Design and Cable & Co. S.R.L., as directed by Cable & Co. S.R.L. As of
April 30, 1996, the Company has paid an aggregate of $52,286 to Cable & Co.
S.R.L. and D&D Design in connection with Bacco Bucci footwear and owes Cable &
Co. S.R.L. and D&D Design an additional $32,714. On May 15, 1996, the Company
entered into agreements with Mr. Salvucci, D&D Design and Cable & Co. S.R.L.
which provides for the license of the Bacco Bucci name from D&D Design and
provides for non-competition. See "PRINCIPAL STOCKHOLDERS."
In February 1995, Mr. Albahari, Mr. Kandall and Mr. Salvucci each purchased
329,143 shares of Common Stock from the Company for $50,000 each. Concurrently,
each entered into a certain Stockholders Agreement which provided that 106,752
of such shares of Common Stock were to be held in escrow for each of Mr.
Albahari, Mr. Kandall and Mr. Salvucci, subject to satisfying certain
performance criteria. In January 1996, the Company terminated the Stockholders
Agreement and released such shares of Common Stock to such individuals, although
the performance criteria had not yet been satisfied. In February 1996, the
Company issued an aggregate of 224,761 shares of Common Stock to Messrs.
Kandall, Albahari and Salvucci, of which 74,921 shares of Common Stock were
issued to Mr. Albahari and 74,920 shares of Common Stock were each issued to Mr.
Kandall and Mr. Salvucci. Mr. Albahari and Mr. Kandall have guaranteed certain
of the Company's obligations aggregating approximately $114,000 for leasing
computer hardware and telephone equipment. See "USE OF PROCEEDS" and
"ACQUISITION."
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<PAGE>
In February 1995, in connection with the Acquisition, Harry Chen, a
principal stockholder of Hongson, Inc., purchased from the Company 266,880
shares of Common Stock for $100 and 21,660 shares of Preferred Stock in the 1995
Financing for $250,000. In October 1995, the Company purchased and retired all
of Mr. Chen's shares of Common Stock and Preferred Stock for $132,500 and
$267,500, respectively. In addition, the Company paid $226,000 to Hongson, Inc.
pursuant to subleases for office and warehouse space in 1995. The Company no
longer leases such space from Hongson, Inc. See "ACQUISITION."
On February 14, 1995, the Company entered into an agreement with Gruntal &
Co., Inc. ("Gruntal") pursuant to which Gruntal was to receive $50,000 of
financial advisory fees in connection with the Acquisition and the 1995
Financing and $2,000 per month for rendering financial advice for a period of
twelve months. Douglas Kleinberg was a director of the Company and a Vice
President of Gruntal. In February 1995, Gruntal converted $50,000 of financial
advisory fees in connection with the 1995 Financing into 4,332 shares of
Preferred Stock and in February 1996 Gruntal converted $26,000 in commissions
received in the Bridge Financing into .52 Units. Upon the completion of this
Offering and the redemption of the Preferred Stock, Gruntal and officers of
Gruntal will own an aggregate of 144,882 shares of Common Stock and 20,000
Warrants. Martin C. Licht, a partner of Gallet Dreyer & Berkey, LLP, which is
the Company's counsel, the Secretary and a director of the Company, purchased
4,332 shares of Preferred Stock in the 1995 Financing and subsequently gave such
shares of Preferred Stock to his three adult children. The Company has paid
Gallet Dreyer & Berkey, LLP legal fees and expenses of $116,015 for various
legal services rendered in 1995 and $50,000 for various legal services rendered
in 1996. The Company anticipates paying additional legal fees and expenses in
conjunction with and out of the proceeds of this Offering. See "MANAGEMENT."
The Company has agreed with the Underwriter, among other things, that for a
period of three years from the closing of this Offering, the Underwriter may, in
its discretion, designate an individual to serve as an advisor to, or a member
of, the Company's Board of Directors. In addition, effective on the closing of
the Offering, the Company will enter into a three year financial consulting
agreement with the Underwriter pursuant to which the Company will pay the
Underwriter consulting fees at the rate of $3,111 per month, all of which will
be paid in advance at the closing of the Offering. The Underwriter may also
receive a finder's fee in the event that it originates a merger, acquisition,
joint venture or other transaction in which the Company is a party. See
"MANAGEMENT" and "UNDERWRITING."
Mr. Albahari and Mr. Kandall may be deemed parents of the Company as a
result of their executive positions, service as directors and ownership of
approximately 22% each of the Common Stock of the Company prior to the Offering
and Messrs. Albahari, Kandall and Salvucci may be deemed to be promoters. See
"MANAGEMENT."
All ongoing and future transactions and/or loans to officers, directors or
5% stockholders will be on terms no less favorable than could be obtained from
independent third parties on an arms length basis and will be approved by a
majority of the independent, disinterested directors of the Company.
31
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as to the Common Stock
ownership of each of the Company's directors, executive officers, all executive
officers and directors as a group and all persons known by the Company to be the
beneficial owners of more than five percent of the Company's Common Stock.
<TABLE>
<CAPTION>
APPROXIMATE PERCENTAGE
OF COMMON STOCK(2)
NUMBER BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OF SHARES(1) OFFERING OFFERING
<S> <C> <C> <C>
David Albahari 404,064 22.3% 12.5%
c/o Cable & Co. Worldwide, Inc.
724 Fifth Avenue
New York, New York 10019
Alan Kandall 404,063 22.3% 12.5%
c/o Cable & Co. Worldwide, Inc.
724 Fifth Avenue
New York, New York 10019
Alberto Salvucci 404,063 22.3% 12.5%
c/o Cable & Co. Worldwide, Inc.
724 Fifth Avenue
New York, New York 10019
Martin C. Licht (3) 0 * *
c/o Gallet Dreyer & Berkey, LLP
845 Third Avenue
New York, New York 10022
U.K. Hyde Park Consultants Ltd. (4) 400,000 22.1% 12.4%
17 State Street
New York, New York 10004
All present officers (3) and directors as 808,127 44.6% 25.1%
a group (3 persons)
</TABLE>
(1) Unless otherwise noted, all persons named in the table have sole voting and
dispositive power with respect to all shares of Common Stock beneficially
owned by them and such persons disclaim beneficial ownership of the
securities owned by any other persons.
(2) The calculation of the percentages used in the column "Before Offering"
herein do not include 462,531 shares of Common Stock issuable upon the
redemption of the Preferred Stock, but the column "After Offering" includes
the issuance of such shares. See "DESCRIPTION OF SECURITIES -- Preferred
Stock."
(3) Does not include an aggregate of 4,332 shares of Preferred Stock owned by
Mr. Licht's three adult children before the Offering and the 46,244 shares
of Common Stock to be issued after Offering upon the redemption of the
Preferred Stock. Mr. Licht's three adult children each have sole voting and
dispositive power with respect to their securities.
(4) Does not include warrants to purchase up to 450,000 shares of Common Stock
which are not exercisable for at least 60 days. See
"MANAGEMENT -- Employment and Consulting Agreements."
* Represents less than 1% of the applicable number of shares of Common Stock
outstanding.
DESCRIPTION OF SECURITIES
GENERAL
The authorized capital stock of the Company consists of 10,000,000 shares
of Common Stock, $.01 par value, and 1,500,000 shares of preferred stock, $.01
par value. The Company currently has 1,812,206 shares of Common Stock issued and
outstanding. Moreover, 462,531 shares of Common Stock are issuable to holders of
the Preferred Stock upon the redemption of the Preferred Stock and 630,000
shares of Common Stock are issuable upon the exercise of outstanding warrants.
The Company presently has 43,327 shares of Preferred Stock outstanding. After
the completion of the Offering and the redemption of the Preferred Stock,
3,224,737 shares of Common Stock will be issued and outstanding and an aggregate
of 1,986,000 shares of Common Stock will be issuable upon the exercise of
outstanding options, warrants and conversion rights, including 226,000 shares of
Common Stock which are issuable upon the exercise of the Underwriter's Warrants
and the
32
<PAGE>
Warrants contained therein, and assuming that the Underwriter does not exercise
the Over-allotment Option. After completion of the Offering and the redemption
of the outstanding shares of Preferred Stocks, no shares of Preferred Stock will
be issued and outstanding. The Company has 45 holders of shares of Common Stock
and 23 holders of shares of Preferred Stock.
COMMON STOCK
Each share of Common Stock entitles the holder thereof to one vote on all
matters submitted to a vote of the stockholders. Since the holders of Common
Stock do not have cumulative voting rights, holders of more than 50% of the
outstanding shares can elect all of the directors of the Company then being
elected and holders of the remaining shares by themselves cannot elect any
directors. The holders of Common Stock do not have preemptive rights or rights
to convert their Common Stock into other securities. Holders of Common Stock are
entitled to receive ratably such dividends as may be declared by the Board of
Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, holders of the Common
Stock have the right to a ratable portion of the assets remaining after payment
of liabilities subject to any superior claims of any shares of Preferred Stock
hereafter issued. See " -- Preferred Stock." All shares of Common Stock
outstanding and to be outstanding upon completion of the Offering are and will
be fully paid and nonassessable.
WARRANTS
Each Warrant is issued pursuant to a Warrant Agreement between the Company
and Continental Stock Transfer & Trust Company, as warrant agent. The following
description is subject to the detailed provisions of and are qualified in their
entirety by reference to the Warrant Agreement, which is included as an exhibit
to the Registration Statement of which this Prospectus is a part.
Each Warrant entitles the holder to purchase for $7.20, 120% of the assumed
initial public offering price, one share of Common Stock for a period of three
years commencing thirteen months after the Effective Date. The exercise price of
the Warrants and the number of shares issuable upon exercise of such Warrants
will be subject to adjustment to protect against dilution in the event of stock
dividends, stock splits, combinations, subdivisions, or reclassifications or the
sale of any shares of Common Stock below the market price thereof. Warrants may
be exercised by surrendering to the warrant agent the Warrants and the payment
of the exercise price in United States funds by cash or certified or bank check.
No fractional shares of Common Stock will be issued in connection with the
exercise of the Warrants. The Warrants may not be exercised unless a
registration statement pursuant to the Securities Act covering the underlying
shares of Common Stock is current and such shares have been qualified, or there
is an exemption from registration and qualification requirements, under the
Securities Act and securities laws of the state of residence of the holder of
the Warrants. The Common Stock and the Warrants will trade separately
immediately upon the Effective Date.
Commencing one year from the Effective Date, the Company may redeem the
Warrants at a price of $.10 per Warrant, provided that (i) prior notice of not
less than 15 days is given to the holders of the Warrants, and (ii) the closing
bid price per share of Common Stock as reported on NASDAQ (or the last sale
price, if quoted on a national securities exchange) has been at least $10.80,
180% of the assumed initial public offering price, for 20 consecutive trading
days ending on the fifteenth day prior to the date on which the Company gives
the notice of redemption. In the event the Company notifies the holders of the
Warrants of its intention to redeem Warrants, the holders of the Warrants may
exercise same at any time prior to the close of business on the business day
immediately preceding the date fixed for redemption. The Warrants may not be
redeemed by the Company unless a current registration statement is in effect.
Unless extended by the Company in its discretion, the Warrants will expire
at 3:00 p.m., New York time, 49 months from the Effective Date. In the event a
holder of Warrants fails to exercise the Warrants prior to their expiration, the
Warrants will expire and the holder thereof will have no further rights
thereunder.
PREFERRED STOCK
The Company is authorized to issue up to 1,500,000 shares of preferred
stock, $.01 par value per share, in one or more series. Upon the redemption of
the 43,327 shares of Series A Preferred Stock outstanding, the Company will be
authorized to issue up to 1,420,000 shares of preferred stock. The Company's
Board of Directors is authorized to fix the relative rights, preferences,
privileges and restrictions thereof including, among other things, dividend
rights and rates, conversion rights, voting privileges, liquidation preferences,
terms of redemption and the number of shares constituting any series thereof.
Other than the Company's Series A Preferred Stock as described herein, there are
no other shares of preferred stock issued
33
<PAGE>
and outstanding and the Company has no present plans to authorize the issuance
or to issue any other shares of preferred stock. The issuance of shares of
preferred stock with voting power, conversion rights or privileges superior to
those of the shares of Common Stock being offered hereby may adversely affect
investors in this Offering.
SERIES A PREFERRED STOCK
The Company presently has 43,327 shares of Series A Preferred Stock
outstanding. The Series A Preferred Stock, with respect to dividend rights and
with respect to rights of liquidation, dissolution and winding up, ranks senior
to the Common Stock and accrues dividends at 12% percent of the liquidation
value of $11.54 per share of the Preferred Stock. The Company has the right to
redeem the Preferred Stock, in whole or in part. The holders of the Preferred
Stock have the right to require the Company to redeem the Preferred Stock
commencing February 16, 2000. Upon the completion of this Offering, the Company
will (i) pay each holder of shares of Preferred Stock a redemption price of
$11.54 per share, plus accrued and unpaid dividends to the date of redemption,
and (ii) issue to each holder of shares of Preferred Stock 10.6752 shares of
Common Stock for each share of Preferred Stock, representing an aggregate of
462,531 shares.
PRIOR FINANCINGS
In February 1995, the Company consummated a private placement to 22
individuals of 64,987 shares of Preferred Stock in the aggregate amount of
$750,000 (the "1995 Financing"). Upon using a portion of the net proceeds of
this Offering to redeem all outstanding shares of Preferred Stock, the Company
is required to issue an aggregate of 462,531 shares of Common Stock to the
holders thereof. The shares of Common Stock issuable upon the redemption of the
Preferred Stock are being registered for resale in the Concurrent Offering. The
holders of shares of Preferred Stock have agreed that they shall only be
entitled to sell the Common Stock issuable upon the redemption of the Preferred
Stock, without the consent of the Underwriter, as follows: (i) up to one-third
of such shares of Common Stock commencing 13 months from the Effective Date,
(ii) up to two-thirds of such shares of Common Stock commencing 19 months after
the Effective Date, and (iii) the balance of such shares of Common Stock
commencing 25 months after the Effective Date. See "USE OF PROCEEDS" and
"CONCURRENT OFFERING."
In March 1996, the Company consummated the Bridge Financing of 36 Units to
the Bridge Selling Stockholders at a purchase price of $50,000 per Unit. Each
Unit consists of the Company's 11% Bridge Note in the original principal amount
of $49,000, 5,000 shares of Common Stock and 5,000 Bridge Warrants. Upon the
completion of this Offering, the terms of the Bridge Warrants will be
automatically modified pursuant to their terms to become identical to the terms
of the Warrants offered hereby. The Bridge Notes, aggregating $1,764,000, are
due and payable upon the earlier of February 2, 1997 or the Company's receipt of
gross proceeds of at least $4,080,000 from the sale of its debt and/or equity
securities in a public or private financing. It is anticipated that the Bridge
Notes will be repaid out of the net proceeds of this Offering. The 180,000
shares of Common Stock issued in the Bridge Financing are being offered hereby
and the 180,000 Warrants are included in the Concurrent Offering. The Company
has valued the 180,000 shares of Common Stock at approximately $756,000 in
accordance with generally accepted accounting principles. In connection with the
Bridge Financing, the Company paid commissions and non-accountable expense
allowances in the aggregate amount of $217,000 of which $166,000 was paid to the
Underwriter. See "SELLING SECURITYHOLDERS."
Except for the adult children of Martin C. Licht, a director of the
Company, none of the Bridge Selling Stockholders are believed to have material
relationships with either the Underwriter or the Company. See "USE OF PROCEEDS,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS," "MANAGEMENT," "UNDERWRITING" and "FINANCIAL STATEMENTS."
CERTIFICATE OF INCORPORATION AND BYLAWS
Pursuant to Delaware Law, the power to adopt, amend and repeal bylaws is
conferred solely upon the stockholders unless the corporation's certificate of
incorporation also confers such power upon the board of directors. Under the
Company's Certificate of Incorporation, the Board of Directors are granted the
power to amend the Bylaws of the Company. Such Bylaws provide that each director
has one vote on each matter for which directors are entitled to vote. The
Certificate of Incorporation and/or the Bylaws also provide that the directors
will hold office until the next annual meeting of stockholders and until their
respective successors are elected and qualified, and special meetings of
stockholders may only be called by the Board of Directors, President, Chairman
or Vice Chairman of the Board of the Company. These provisions, in addition to
the existence of authorized but unissued capital stock, may have the effect,
either alone or in combination with each other, of making more difficult or
discouraging an acquisition of the Company deemed undesirable by the Board of
Directors. The
34
<PAGE>
Board of Directors of the Company currently consists of three persons. Following
completion of the Offering, the Company expects to appoint an additional
director. See "MANAGEMENT."
SECTION 203 OF THE DELAWARE LAW
Section 203 of the Delaware Law prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless (i) prior to the date
of the business combination, the transaction is approved by the board of
directors of the corporation; (ii) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the outstanding voting stock, or (iii) on or
after such date the business combination is approved by the board of directors
and by the affirmative vote of at least 66 2/3% of the outstanding voting stock
that is not owned by the interested stockholder. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the stockholder. An "interested stockholder" is a person, who,
together with affiliates and associates, owns (or within three years, did own)
15% or more of the corporation's voting stock. This provision of law could
discourage, prevent or delay a change in management or stockholder control of
the Company, which could have the effect of discouraging bids for the Company
and thereby prevent stockholders from receiving the maximum value for their
shares, or a premium for their shares in a hostile takeover situation.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Certificate of Incorporation of the Company provides that the Company
shall indemnify to the fullest extent permitted by Delaware law any person whom
it may indemnify thereunder, including directors, officers, employees and agents
of the Company. Such indemnification (other than as ordered by a court) shall be
made by the Company only upon a determination that indemnification is proper in
the circumstances because the individual met the applicable standard of conduct.
Advances for such indemnification may be made pending such determination. In
addition, the Certificate of Incorporation provides for the elimination, to the
extent permitted by Delaware law, of personal liability of directors to the
Company and its stockholders for monetary damages for breach of fiduciary duty
as directors.
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.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the shares of Common Stock and
Warrants is Continental Stock Transfer & Trust Company, 2 Broadway, New York,
New York 10004.
SHARES ELIGIBLE FOR FUTURE SALE
COMMON STOCK
Except for the 180,000 shares of Common Stock being offered hereby by the
Bridge Selling Stockholders and 420,016 shares of Common Stock registered for
resale by the Selling Securityholders in the Concurrent Offering, all of the
1,812,206 shares of the Company's Common Stock currently outstanding are
"restricted securities" as that term is defined in Rule 144 under the Securities
Act. Such shares may be sold only pursuant to a registration under the
Securities Act or in compliance with Rule 144 or pursuant to another exemption
therefrom. In general, under Rule 144, subject to the satisfaction of certain
other conditions, a person, including an affiliate of the Company, who has
beneficially owned restricted shares of Common Stock for at least two years is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of 1% of the total number of outstanding shares of the
same class, or if the Common Stock is quoted on NASDAQ or a stock exchange, the
average weekly trading volume during the four calendar weeks immediately
preceding the sale. A person who presently is not and who has not been an
affiliate of the Company for at least three months immediately preceding the
sale and who has beneficially owned the shares of Common Stock for at least
three years is entitled to sell such shares
35
<PAGE>
under Rule 144 without regard to any of the volume limitations described above.
The 180,000 shares of Common Stock sold in the Bridge Financing are being
offered hereby. Of the outstanding shares of Common Stock, 1,212,190 shares are
"control securities" because they are held by "affiliates" of the Company (as
such terms are defined in Rule 144). All of the current stockholders, including
the officers and directors, except for the holders of shares of Preferred Stock,
have agreed that they will not sell without the consent of the Underwriter any
of their securities (except for the securities acquired in the Bridge Financing)
for a period of two years from the Effective Date. The holders of shares of
Preferred Stock have agreed not to sell any of the 462,531 shares of Common
Stock issuable upon the redemption of the Preferred Stock until 13 months after
the Effective Date, without the consent of the Underwriter. Thereafter, the
holders of shares of Preferred Stock may sell the shares of Common Stock
issuable upon the redemption of the Preferred Stock, without the consent of the
Underwriter, as follows: (i) up to one-third of such shares of Common Stock
until 19 months after the Effective Date and (ii) up to two-thirds of their
shares of Common Stock until 25 months after the Effective Date. Thereafter, the
sale of such shares of Common Stock will not be subject to the Underwriter's
consent. Sales of the Company's Common Stock by existing stockholders may have a
depressive effect on the price of the Company's Common Stock in any market which
may develop. See "CONCURRENT OFFERING."
UNDERWRITING
The Company has entered into an Underwriting Agreement with the
Underwriter. The Underwriter is a registered broker-dealer which was organized
on or about January 1994 and is engaged primarily in the retail brokerage
business. The Underwriter is a relatively small firm and there can be no
assurance that the Underwriter will be able to make a meaningful market in the
Company's Securities or that the broker-dealers will make a meaningful market in
the Company's Securities. The Underwriting Agreement has been filed as an
exhibit to the Registration Statement filed with the Commission of which this
Prospectus forms a part.
SUMMARY OF UNDERWRITING AGREEMENT
The Underwriter has agreed, subject to the terms and conditions contained
in the Underwriting Agreement to purchase 950,000 shares of Common Stock and
1,130,000 Warrants from the Company and 180,000 shares of Common Stock from the
Bridge Selling Stockholders. The Underwriter is committed to purchase and pay
for all of the Securities offered hereby if any Securities are purchased. The
shares of Common Stock and Warrants are being offered by the Underwriter,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriter and subject to approval of certain legal matters by counsel and to
certain other conditions.
The Underwriter has advised the Company that it proposes to offer the
Securities to the public at the public offering price set forth on the cover
page of this Prospectus. The Underwriter may allow to certain dealers who are
members of the National Association of Securities Dealers, Inc. ("NASD")
concessions, not in excess of $ and $ per share and Warrant
respectively. The Underwriter will not confirm sales of any of the Securities
offered to any account over which it exercises discretionary authority.
Prior to this Offering, there has been no public market for the Common
Stock or the Warrants. Accordingly, the offering and exercise price of such
Securities being offered hereby was determined, in large part, by negotiations
between the Company and the Underwriter on an arbitrary basis and bear no direct
relationship to the assets, earnings or other recognized criterion of value.
Factors considered in determining such prices, in addition to prevailing market
conditions, includes the history of and the business prospects 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 or the Warrants.
Neither the Company nor any of its officers, directors, affiliates and
associates will recommend, encourage or advise investors to open brokerage
accounts with any broker-dealer that is obtained to make a market in the
Company's Securities. Furthermore, no promoter or anyone acting at the direction
of the Company's officers, directors, affiliates, associates or promoters will
engage in such activities.
The Company has granted to the Underwriter an option, exercisable for 30
days from the Effective Date, to purchase up to an additional 169,500 shares of
the Common Stock and 169,500 Warrants at the public offering prices set forth on
the cover page of this Prospectus, less the underwriting discounts and
commissions. The Underwriter 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.
36
<PAGE>
The Company has agreed that it will not issue any other securities (except
with respect to the shares of Common Stock issuable upon the exercise of
outstanding options, warrants or conversion rights, the redemption of the
Preferred Stock, pursuant to the 1996 Stock Option Plan, the Warrants or the
Underwriter's Warrants) for two years from the Effective Date of the
registration statement of which this Prospectus is a part without the prior
written consent of the Underwriter. The Company and the Bridge Selling
Stockholders have agreed to pay the Underwriter 3% of the gross proceeds of the
Securities offered hereby on a pro rata basis, or a total of $ ($ )
if the Over-allotment Option is exercised in full), for the Underwriter's
expenses on a non-accountable basis, of which $25,000 has been paid by the
Company to date. The Underwriter's expenses in excess of the non-accountable
expense allowance, if any, will be borne by the Underwriter. To the extent that
the expenses of the Underwriter are less than the non-accountable expense
allowance, such excess may be deemed to be additional compensation to the
Underwriter. 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.
Upon the exercise of the Warrants at any time commencing one year from the
Effective Date, the Company will pay the Underwriter a commission of 7% of the
aggregate exercise price if (i) the market price of the Common Stock on the date
the Warrant is exercised is greater than the then current exercise price of the
Warrants; (ii) the exercise of the Warrant was solicited by a member of the
NASD; (iii) the Warrant is not held in a discretionary account; (iv) disclosure
of compensation arrangements was made both at the time of the Offering and at
the time of exercise of the Warrant; (v) the holder of the Warrant has stated in
writing that the exercise was solicited and designated in writing the soliciting
broker-dealer; and (vi) the solicitation of exercise of the Warrant was not in
violation of Rule 10b-6, promulgated under the Exchange Act. No fee will be paid
to the Underwriter on Warrants exercised within one year of the Effective Date
or on Warrants voluntarily exercised at any time without solicitation by the
Underwriter.
Unless granted an exemption by the Commission from its Rule 10b-6, the
Underwriter and any soliciting broker-dealers will be prohibited from engaging
in any market making activities with regard to the Company's Securities for the
period from nine business days prior to any solicitation for the exercise of
Warrants until the later of the termination of such solicitation activity or the
termination (by waiver or otherwise) of any right that the Underwriter and
soliciting broker-dealers' may have to receive a fee for the exercise of
Warrants following such solicitation. As a result, the Underwriter and
soliciting broker-dealers may be unable to continue to provide a market for the
Securities during certain periods while the Warrants are exercisable.
In connection with this Offering, the Company has agreed to sell to the
Underwriter, for $10, the Underwriter's Warrants to purchase from the Company an
aggregate of 113,000 Shares and 113,000 Warrants. The Underwriter's Warrants for
shares of Common Stock are exercisable at a price equal to 120% of the pubic
offering price of the Shares and the Underwriter's Warrants for Warrants are
exercisable at a price equal to 120% of the public offering price of the
Warrants. The Underwriter's Warrants are exercisable for a four year period
commencing one year from the Effective Date. The Underwriter's Warrants may not
be sold, transferred, assigned or hypothecated for a period of one year, except
to the officers of the Underwriter or officers or partners or members of the
selling group. The Underwriter's Warrants will contain anti-dilution provisions
providing for appropriate adjustment under certain circumstances. The holders of
the Underwriter's Warrants have no voting, dividend or other rights as
stockholders of the Company with respect to the Shares underlying the
Underwriter's Warrants or the Warrants contained therein until the Underwriter's
Warrants or the Warrants contained therein for Shares have been exercised.
In addition, the Company has agreed to enter into a consulting agreement
with the Underwriter as a financial consultant for a period of three years at a
monthly fee of $3,111 payable in advance at the closing of the Offering. As part
of the consulting agreement, the Company has agreed, for a period of five years
following the Effective Date, to pay the Underwriter a cash finder's fee of (i)
five percent of the first $1,000,000; (ii) four percent of the second
$1,000,000; (iii) three percent of the third $1,000,000; (iv) two percent of the
fourth $1,000,000; and (v) one percent of any consideration over $5,000,000 upon
the completion of any transaction in which the Underwriter was responsible for
introducing a merger or acquisition candidate to the Company.
The Underwriting Agreement provides that the Company will grant to the
Underwriter a right of first refusal for a period of three years from the
Effective Date for any public or private offering of its securities, except in
connection with any offer from a wirehouse firm to sell in excess of $15,000,000
of the Company's securities.
The Company has agreed, for a period of five years following the Effective
Date, to give advance notice to the holders of the Underwriter's Warrants or the
underlying securities of its intention to file a registration statement, and in
such case the holders of Underwriter's Warrants and the underlying securities
shall have the right to require the Company to include the
37
<PAGE>
Underwriter's Warrants and underlying securities 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 Effective Date, holders of 50% of the
Underwriter's Warrants or the underlying securities 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 Underwriter's
Warrants and the underlying securities.
All of the current stockholders, including the officers and directors,
except for the holders of shares of Preferred Stock, have agreed that they will
not offer, sell or otherwise dispose of, directly or indirectly, any shares of
Common Stock or other securities of the Company (except for the securities
acquired in the Bridge Financing) for a period of 24 months without the prior
written consent of the Underwriter. The holders of shares of Preferred Stock
have agreed not to offer, sell or otherwise dispose of, directly or indirectly,
any of the shares of Common Stock issuable upon the redemption of the Preferred
Stock until 13 months after the Effective Date without the prior written consent
of the Underwriter. Thereafter, the holders of shares of Preferred Stock may
sell the shares of Common Stock issuable upon the redemption of the Preferred
Stock, without the consent of the Underwriter, as follows: (i) up to one-third
of such shares of Common Stock commencing 13 months after the Effective Date,
(ii) up to two-thirds of such shares of Common Stock commencing 19 months from
the Effective Date, and (iii) the balance of such shares of Common Stock
commencing 25 months after the Effective Date.
The Company has granted the Underwriter the right to designate an
individual to serve in its discretion as an advisor to, or a member of, the
Company's Board of Directors for a period of three years. In the event that such
an individual is designated, such individual shall receive reimbursement of
expenses for attending the meetings of the Board of Directors.
The Company has agreed to indemnify the Underwriter against liabilities
incurred by the Underwriter 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 Underwriter, 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 in writing by the Underwriter. To the extent that such
section of the Underwriting Agreement may purport to provide exculpation from
possible liabilities arising under the Federal securities laws, it is the
opinion of the Commission that such indemnification is contrary to public policy
and unenforceable. See "DESCRIPTION OF SECURITIES -- Indemnification of Officers
and Directors."
The Underwriter received commissions and non-accountable expense allowances
in connection with Bridge Financing in the aggregate amount of $166,000.
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 the Underwriter and may be examined during their regular business
hours.
CONCURRENT OFFERING
In the Concurrent Offering which is not being underwritten, the Selling
Securityholders are offering on their own behalf an aggregate of 882,547 shares
of Common Stock, 630,000 Warrants, as well as 630,000 shares of Common Stock
underlying the Warrants. The securities being offered by the Selling
Securityholders include the shares of Common Stock issuable upon the redemption
of the Preferred Stock issued by the Company in the 1995 Financing and the
Warrants offered in the Bridge Financing. All of the current stockholders,
including the officers and directors, except for the holders of shares of
Preferred Stock, have agreed that they will not sell without the consent of the
Underwriter any of their securities (except for the securities acquired in the
Bridge Financing) for a period of two years from the Effective Date. The holders
of shares of Preferred Stock have agreed not to sell any of the 462,531 shares
of Common Stock issuable upon the redemption of the Preferred Stock until 13
months after the Effective Date, without the consent of the Underwriter.
Thereafter, the shares of Common Stock issuable upon the redemption of the
Preferred Stock may be sold, without the consent of the Underwriter, as follows:
(i) up to one-third of such shares of Common Stock until 19 months after the
Effective Date and (ii) up to two-thirds of such shares of Common Stock until 25
months after the Effective Date. Thereafter, the sale of such shares of Common
Stock will not be subject to the Underwriter's consent. Sales of the Selling
Securityholders' Securities in the Concurrent Offering will be subject to the
prospectus delivery requirements and other requirements of the Securities Act.
38
<PAGE>
SELLING SECURITYHOLDERS
The Bridge Selling Stockholders are offering an aggregate of 180,000 shares
of Common Stock in the underwritten Offering. The Bridge Selling Stockholders
and the Selling Securityholders are also offering an aggregate of 882,547 shares
of Common Stock and 180,000 Warrants on their own behalf in the Concurrent
Offering. The Company has agreed to register for resale the public offering of
the Securityholders' Securities under the Securities Act concurrently with this
Offering and to pay substantially all of the expenses in connection therewith.
All of such Securities have been included in the Registration Statement of which
this Prospectus forms a part. Except as set forth below, none of the Bridge
Selling Stockholders or Selling Securityholders have ever held any position or
office with the Company or had any other material relationship with the Company.
Sales of the Selling Securityholders' Securities in the Concurrent Offering will
be subject to the prospectus delivery requirements and other requirements of the
Securities Act. The following table sets forth certain information with respect
to the Selling Securityholders and the Bridge Selling Stockholders.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
SHARES OWNED AFTER WARRANTS/WARRANT
SHARES OFFERED SHARES THIS OFFERING SHARES
BENEFICIALLY HEREBY OFFERED IN AND BENEFICIALLY
OWNED PRIOR IN THIS CONCURRENT CONCURRENT OWNED PRIOR TO
NAME OF SELLING SECURITYHOLDER TO SALE OFFERING OFFERING OFFERING(1) SALE
<S> <C> <C> <C> <C> <C>
John S. Bai (2).............................. 900 900 -- 0 900
E. Wayne Boland.............................. 5,000 5,000 -- 0 5,000
Elliot Braun................................. 5,000 5,000 -- 0 5,000
Adam S. Brzostovski.......................... 5,000 5,000 -- 0 5,000
Samiron K. Chatterjee........................ 5,000 5,000 -- 0 5,000
Harvey J. Cohen.............................. 5,000 5,000 -- 0 5,000
Arnold Curnyn................................ 5,000 5,000 -- 0 5,000
Robert W. Deutsch............................ 5,000 5,000 -- 0 5,000
Joseph Enea.................................. 5,000 5,000 -- 0 5,000
James M. Franco, M.D., Inc. Profit Sharing
Trust...................................... 5,000 5,000 -- 0 5,000
Mattes Friesel............................... 5,000 5,000 -- 0 5,000
Paul Hawran.................................. 5,000 5,000 -- 0 5,000
Austin E. Hills, Trustee..................... 5,000 5,000 -- 0 5,000
G. Lenard Johnston........................... 5,000 5,000 -- 0 5,000
Dennis J. Lewis.............................. 5,000 5,000 -- 0 5,000
Gary Lyons................................... 5,000 5,000 -- 0 5,000
Timothy H. Martin............................ 5,000 5,000 -- 0 5,000
Carol Moss................................... 2,500 2,500 -- 0 2,500
Jeffrey Muhlgeier............................ 5,000 5,000 -- 0 5,000
Jacob and Sophia Popovic..................... 5,000 5,000 -- 0 5,000
Edward Reardon............................... 10,000 10,000 -- 0 10,000
Robert J. Reardon............................ 10,000 10,000 -- 0 10,000
Edward Secker................................ 2,500 2,500 -- 0 2,500
Mark P. Schlefer............................. 5,000 5,000 -- 0 5,000
George W. Smith.............................. 5,000 5,000 -- 0 5,000
John C. and Julia S. Smith................... 5,000 5,000 -- 0 5,000
Marie Speziale............................... 5,000 5,000 -- 0 5,000
White Rock of Tucson......................... 5,000 5,000 -- 0 1,000
C. Clarke Ambrose............................ 18,501 -- 18,501 0 --
S. Coca Brandt (3)........................... 9,256 -- 9,256 0 --
Joel P. Brooks (3)........................... 9,256 -- 9,256 0 --
Chinook Equities (2)......................... 9,256 -- 9,256 0 --
James C. Gale (2)............................ 22,501 4,000 18,501 0 4,000
Michael Gironta (2).......................... 14,062 2,500 11,562 0 2,500
Paul Gordon.................................. 48,139 5,000 43,139 0 5,000
Gruntal & Co. Inc. (4)....................... 48,845 2,600 46,245 0 2,600
<CAPTION>
WARRANTS/WARRANT
SHARES
BENEFICIALLY
OWNED AFTER
NAME OF SELLING SECURITYHOLDER SALE(1)
<S> <C>
John S. Bai (2).............................. 0
E. Wayne Boland.............................. 0
Elliot Braun................................. 0
Adam S. Brzostovski.......................... 0
Samiron K. Chatterjee........................ 0
Harvey J. Cohen.............................. 0
Arnold Curnyn................................ 0
Robert W. Deutsch............................ 0
Joseph Enea.................................. 0
James M. Franco, M.D., Inc. Profit Sharing
Trust...................................... 0
Mattes Friesel............................... 0
Paul Hawran.................................. 0
Austin E. Hills, Trustee..................... 0
G. Lenard Johnston........................... 0
Dennis J. Lewis.............................. 0
Gary Lyons................................... 0
Timothy H. Martin............................ 0
Carol Moss................................... 0
Jeffrey Muhlgeier............................ 0
Jacob and Sophia Popovic..................... 0
Edward Reardon............................... 0
Robert J. Reardon............................ 0
Edward Secker................................ 0
Mark P. Schlefer............................. 0
George W. Smith.............................. 0
John C. and Julia S. Smith................... 0
Marie Speziale............................... 0
White Rock of Tucson......................... 0
C. Clarke Ambrose............................ 0
S. Coca Brandt (3)........................... 0
Joel P. Brooks (3)........................... 0
Chinook Equities (2)......................... 0
James C. Gale (2)............................ 0
Michael Gironta (2).......................... 0
Paul Gordon.................................. 0
Gruntal & Co. Inc. (4)....................... 0
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
SHARES OWNED AFTER WARRANTS/WARRANT
SHARES OFFERED SHARES THIS OFFERING SHARES
BENEFICIALLY HEREBY OFFERED IN AND BENEFICIALLY
OWNED PRIOR IN THIS CONCURRENT CONCURRENT OWNED PRIOR TO
NAME OF SELLING SECURITYHOLDER TO SALE OFFERING OFFERING OFFERING(1) SALE
John Heffer.................................. 102,490 10,000 92,490 0 10,000
<S> <C> <C> <C> <C> <C>
Lionel G. and Amy Hest (2)................... 17,378 3,500 13,878 0 3,500
David Kandall (5)............................ 4,633 -- 4,633 0 --
Daniel Kleinberg (6)......................... 4,633 -- 4,633 0 --
Alice Kres (3)............................... 9,256 -- 9,256 0 --
Daniel Livingston (3)........................ 9,256 -- 9,256 0 --
Charles Lowlicht............................. 46,245 46,245 0
Joan Lowlicht................................ 5,000 5,000 -- 0 5,000
Herbert D. Wise (3).......................... 9,256 -- 9,256 0 --
Glenn Zagoren (3)............................ 9,256 -- 9,256 0 --
Howard Boilen................................ 46,245 -- 46,245 0 --
Robert Sablowsky (2)......................... 14,062 2,500 11,562 0 2,500
Alyssa Licht (7)............................. 15,415 -- 15,415 0 --
Michelle Licht (7)........................... 15,414 -- 15,414 0 --
Evan Licht (7)............................... 15,414 -- 15,414 0 --
Douglas Kleinberg (2)(8)..................... 1,000 1,000 -- 0 1,000
John Cirrito (2)............................. 500 500 -- 0 500
Robert Weinstein (2)......................... 1,000 1,000 -- 0 1,000
Barry Richter (2)............................ 15,378 1,500 13,878 0 1,500
U.K. Hyde Park Consultants, Ltd.............. 400,000 -- 400,000 0 450,000
TOTAL...................................... 1,062,547 180,000 882,547 0 630,000
<CAPTION>
WARRANTS/WARRANT
SHARES
BENEFICIALLY
OWNED AFTER
NAME OF SELLING SECURITYHOLDER SALE(1)
John Heffer..................................
<S> <C>
Lionel G. and Amy Hest (2)................... 0
David Kandall (5)............................ 0
Daniel Kleinberg (6)......................... 0
Alice Kres (3)............................... 0
Daniel Livingston (3)........................ 0
Charles Lowlicht.............................
Joan Lowlicht................................ 0
Herbert D. Wise (3).......................... 0
Glenn Zagoren (3)............................ 0
Howard Boilen................................ 0
Robert Sablowsky (2)......................... 0
Alyssa Licht (7)............................. 0
Michelle Licht (7)........................... 0
Evan Licht (7)............................... 0
Douglas Kleinberg (2)(8)..................... 0
John Cirrito (2)............................. 0
Robert Weinstein (2)......................... 0
Barry Richter (2)............................ 0
U.K. Hyde Park Consultants, Ltd.............. 0
TOTAL...................................... 0
</TABLE>
(1) Assumes that all Securities are sold by such Securityholders and no
additional securities are acquired thereby.
(2) Each of such persons are officers or are comprised of officers of Gruntal.
Douglas Kleinberg, an officer of Gruntal, was a director of the Company.
(3) Each of such individuals are employees of the Company.
(4) Gruntal has provided financial advisory services to the Company and Douglas
Kleinberg, an officer of Gruntal, was a director of the Company.
(5) David Kandall is the brother of Alan Kandall, the Executive Vice President,
Treasurer and a director of the Company.
(6) Daniel Kleinberg is the father of Douglas Kleinberg, who was a director of
the Company.
(7) Each of such individuals are adult children of Martin C. Licht, the
Secretary and a director of the Company and a member of Gallet Dreyer &
Berkey, LLP, the Company's counsel.
(8) Mr. Kleinberg was a director of the Company.
The Bridge Selling Stockholders are offering 180,000 shares of Common Stock
in this Offering and the Selling Securityholders may sell the balance of the
Selling Securityholders' Securities from time to time in their discretion on
NASDAQ, in the over-the-counter market, or in privately-negotiated transactions,
at fixed prices which may be changed, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices. The Selling Securityholders may effect such transactions in their
discretion in sales to or through broker-dealers, and such broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the Selling Securityholders or the purchasers of the Selling Securityholders'
Securities for whom such broker-dealers may act as agent or to whom they sell as
principal, or both (which compensation to a broker-dealer might be in excess of
customary commissions).
The Selling Securityholders and any broker-dealers who act in connection
with the sale of the Selling Securityholders' Securities offered hereby may be
deemed to be "underwriters" as that term is defined in the Securities Act with
respect to the
40
<PAGE>
securities offered and any profits realized or commissions received may be
deemed underwriting compensation. The Company has agreed to indemnify the
Selling Securityholders against certain liabilities, including liabilities under
the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the issuance of the Securities
offered hereby will be passed upon for the Company by Gallet Dreyer & Berkey,
LLP, 845 Third Avenue, New York, New York 10022. Martin C. Licht, a partner of
such firm, is the Secretary and a member of the Board of Directors of the
Company. Certain legal matters in connection with this Offering will be passed
upon for the Underwriter by Ziegler, Ziegler & Altman, 750 Lexington Avenue, New
York, New York 10022.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1995 and for the year then ended and the financial statements of Cable & Co. (a
product line of Hongson, Inc.) for the year ended December 31, 1994, have been
included herein and in the Registration Statement in reliance upon the report of
Goldstein Golub Kessler & Company, P.C., independent certified public
accountants, appearing elsewhere herein, and upon the authority of such firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
A Registration Statement on Form SB-2 (the "Registration Statement") under
the Securities Act relating to the securities offered hereby has been filed by
the Company with the Securities and Exchange Commission (the "Commission"), in
Washington, D.C. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and the securities offered
hereby, reference is made to such Registration Statement, exhibits and
schedules. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as exhibits to the Registration Statement, each such statement being qualified
in all respects by such reference. A copy of the Registration Statement may be
inspected without charge at the Commission's principal offices in Washington,
D.C., and copies of all or any part thereof may be obtained from the Commission
upon the payment of certain fees prescribed by the Commission.
Following this Offering, the Company will be subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith will be required to file periodic reports,
proxy statements and other information with the Commission. Such reports, proxy
statements and other information concerning the Company may be inspected or
copied at the public reference facilities of the Commission located at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's
Regional Offices in New York, 7 World Trade Center, 13th Floor, New York, New
York 10048, and in Chicago, Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such documents can be
obtained at the public reference section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates.
41
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY:
Independent Auditor's Report................................................................................... F-2
Consolidated Balance Sheet as of December 31, 1995............................................................. F-3
Consolidated Statement of Operations for the Year Ended December 31, 1995...................................... F-4
Consolidated Statement of Stockholders' Deficiency for the Year Ended December 31, 1995........................ F-5
Consolidated Statement of Cash Flows for the Year Ended December 31, 1995...................................... F-6
Notes to Consolidated Financial Statements..................................................................... F-7-F-13
CABLE & CO. (A PRODUCT LINE OF HONGSON, INC.):
Independent Auditor's Report................................................................................... F-14
Statement of Revenues over Direct Operating Expenses for the Year Ended December 31, 1994...................... F-15
Statement of Cash Flows for the Year Ended December 31, 1994................................................... F-16
Notes to Financial Statements.................................................................................. F-17
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY:
Consolidated Balance Sheet as of January 31, 1996 (unaudited).................................................. F-18
Consolidated Statement of Operations for the One-month Periods Ended January 31, 1995 and 1996 (unaudited)..... F-19
Consolidated Statement of Stockholders' Deficiency for the One-month Period Ended January 31, 1996
(unaudited)................................................................................................. F-20
Consolidated Statement of Cash Flows for the One-month Periods Ended January 31, 1995 and 1996 (unaudited)..... F-21
Notes to Consolidated Financial Statements (unaudited)......................................................... F-22-F-23
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
TO THE BOARD OF DIRECTORS OF
CABLE & CO. WORLDWIDE, INC.
We have audited the accompanying consolidated balance sheet of Cable & Co.
Worldwide, Inc. and Subsidiary as of December 31, 1995, and the related
consolidated statements of operations, stockholders' deficiency, and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Cable & Co.
Worldwide, Inc. and Subsidiary as of December 31, 1995, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York
February 2, 1996, except for Note 6,
as to which the date is March 21, 1996
and Note 17, as to which the date is
March 28, 1996
F-2
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS (NOTE 6)
CURRENT ASSETS:
Cash.......................................................................................................... $ 8,010
Accounts receivable, less allowances for doubtful accounts and sales discounts of $100,125.................... 650,540
Inventory (Notes 1 and 2)..................................................................................... 2,878,082
Prepaid expenses and other current assets (Note 3)............................................................ 643,446
Deferred income tax asset, net of valuation allowance of $58,800 (Note 15).................................... --
TOTAL CURRENT ASSETS....................................................................................... 4,180,078
Property and Equipment, net (Notes 1, 4 and 10)................................................................. 851,972
Goodwill, net of accumulated amortization of $58,597 (Note 1)................................................... 1,113,340
Other Intangible Assets, net of accumulated amortization of $12,820 (Note 1).................................... 29,525
Other Assets.................................................................................................... 7,015
TOTAL ASSETS............................................................................................... $ 6,181,930
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Due to factor (Note 6)........................................................................................ $ 2,525,671
Accounts payable.............................................................................................. 1,266,123
Accrued expenses and other current liabilities (Notes 5 and 14)............................................... 771,526
Income taxes payable (Note 15)................................................................................ 14,300
Term loan payable (Note 7).................................................................................... 130,000
Current portion of note payable (Note 8)...................................................................... 333,336
Current portion of capital lease obligations (Notes 4 and 9).................................................. 26,898
TOTAL CURRENT LIABILITIES.................................................................................. 5,067,854
Note Payable -- net of current portion (Note 8)................................................................. 499,997
Capital Lease Obligations -- net of current portion (Notes 4 and 9)............................................. 133,598
Deferred Rent (Note 10)......................................................................................... 45,382
Deferred Income Tax Liability (Note 15)......................................................................... 28,100
TOTAL LIABILITIES.......................................................................................... 5,774,931
Commitments and Contingencies (Note 10)
Redeemable Preferred Stock -- Series A -- 12% cumulative; $.01 par value; authorized 58,340 shares, issued and
outstanding 43,327 shares ($500,000 liquidation preference) (Note 12)......................................... 500,000
STOCKHOLDERS' DEFICIENCY (NOTE 12):
Preferred stock -- $.01 par value; authorized 1,420,000 shares, no shares issued --
Common stock -- $.01 par value; authorized 10,000,000 shares, issued and outstanding
1,007,445 shares........................................................................................... 10,074
Additional paid-in capital.................................................................................... 34
Accumulated deficit........................................................................................... (103,109)
STOCKHOLDERS' DEFICIENCY................................................................................... (93,001)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY............................................................. $ 6,181,930
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Net sales...................................................................................................... $ 10,432,926
Cost of goods sold (Note 14)................................................................................... 6,397,568
Gross profit................................................................................................... 4,035,358
Selling expenses (Note 1)...................................................................................... (2,255,874)
General and administrative expenses (Note 1)................................................................... (1,443,798)
Commission income.............................................................................................. 34,302
Income from operations......................................................................................... 369,988
Interest expense (Notes 6, 7 and 8)............................................................................ 429,197
Loss before provision for income taxes......................................................................... (59,209)
Provision for income taxes (Note 15)........................................................................... 43,900
Net loss....................................................................................................... (103,109)
Dividends on preferred stock (Note 12)......................................................................... 53,148
Net loss applicable to common stock............................................................................ $ (156,257)
Net loss per common share (Note 1)............................................................................. $ (.08)
Weighted average number of common shares outstanding (Note 1).................................................. 2,023,486
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
COMMON STOCK ADDITIONAL
NUMBER OF PAID-IN ACCUMULATED STOCKHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT DEFICIENCY
<S> <C> <C> <C> <C> <C>
Issuance of common stock.................................... 1,254,309 $ 12,543 $137,557 -- $ 150,100
Purchase and retirement of common stock and preferred stock
dividend (Note 12)........................................ (266,880) (2,669) (147,331) -- (150,000)
Issuance of common stock in connection with term loan
payable (Note 7).......................................... 20,016 200 9,808 -- 10,008
Net loss.................................................... -- -- -- $(103,109) (103,109)
Balance at December 31, 1995................................ 1,007,445 $ 10,074 $ 34 $(103,109) $ (93,001)
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss..................................................................................................... $ (103,109)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization............................................................................. 106,062
Provision for doubtful accounts and sales discounts....................................................... 100,125
Provision for deferred income taxes....................................................................... 28,100
Noncash interest expense.................................................................................. 10,008
Changes in operating assets and liabilities, net of effect of purchase of the Cable & Co. product line
(Note 1):
Increase in accounts receivable......................................................................... (744,285)
Increase in inventory................................................................................... (1,208,200)
Increase in prepaid expenses and other current assets................................................... (615,446)
Increase in intangibles................................................................................. (42,345)
Increase in other assets................................................................................ (7,015)
Increase in accounts payable............................................................................ 117,814
Increase in accrued expenses and other current liabilities.............................................. 771,526
Increase in income taxes payable........................................................................ 14,300
Increase in deferred rent............................................................................... 45,382
NET CASH USED IN OPERATING ACTIVITIES................................................................ (1,527,083)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................................................................... (716,462)
Purchase of Cable & Co. product line......................................................................... (1,401,787)
CASH USED IN INVESTING ACTIVITIES.................................................................... (2,118,249)
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from factor, net.................................................................................... 2,199,568
Proceeds from issuance of short-term note.................................................................... 130,000
Principal payments under capital lease obligation............................................................ (9,659)
Net proceeds from issuance of long-term note payable......................................................... 833,333
Proceeds from issuance of redeemable preferred stock......................................................... 750,000
Proceeds from issuance of common stock....................................................................... 150,100
Purchase and retirement of redeemable preferred stock and common stock (Note 12)............................. (400,000)
NET CASH PROVIDED BY FINANCING ACTIVITIES............................................................ 3,653,342
NET INCREASE IN CASH AND CASH AT END OF YEAR................................................................... $ 8,010
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.................................................................................................. $ 419,189
Income taxes.............................................................................................. $ 1,400
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Equipment purchased under capital lease obligations.......................................................... $ 170,155
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRINCIPAL BUSINESS ACTIVITY:
Cable & Co. Worldwide, Inc. ("Cable"), which was incorporated November 10,
1994, is an importer and wholesaler of men's and ladies' shoes. Sales are made
primarily to major department and specialty stores located in the United States.
The Company was inactive until January 1, 1995.
The accompanying consolidated financial statements include the accounts of
Cable and its wholly owned subsidiary, Cable & Company Enterprises, Ltd.
(collectively referred to as the "Company"). All intercompany accounts and
transactions have been eliminated in consolidation.
Effective January 1, 1995, pursuant to a purchase agreement dated January
16, 1995, the Company acquired the Cable & Co. product line of Hongson, Inc.
("Hongson") in a business combination accounted for as a purchase. The Company
acquired assets with a fair value of $3,187,714 and assumed liabilities of
$2,957,864.
The assets acquired and liabilities assumed are as follows:
<TABLE>
<S> <C>
Assets acquired:
Accounts receivable................................................................... $1,489,832
Inventory............................................................................. 1,669,882
Miscellaneous receivables............................................................. 28,000
3,187,714
Liabilities assumed:
Accounts payable...................................................................... 1,148,309
Amount due to factor.................................................................. 1,809,555
2,957,864
Net operating assets acquired...................................................... $ 229,850
</TABLE>
The total purchase price was $1,401,787 including $151,787 of acquisition
costs. The cost in excess of the fair value of the net assets acquired
(goodwill) amounting to $1,171,937 is being amortized by the straight-line
method over 20 years.
At the time of the acquisition of the Cable product line of Hongson the
stockholders of the Company, including the Company's management, entered into a
stockholders' agreement ("Stockholders' Agreement") with respect to their shares
of common stock. Pursuant to the Stockholders' Agreement, the Company's
management placed an aggregate of 320,256 shares of common stock in escrow. In
January 1996, the Company terminated the Stockholders' Agreement and released
all of the shares held in escrow. As a result of this release, the Company will
record a noncash compensatory charge in the amount of $1,345,075 in January
1996.
At each balance sheet date the Company evaluates the period of amortization
of goodwill. The factors used in evaluating the period of amortization include:
(i) current operating results, (ii) projected future operating results, and
(iii) any other material factors that effect the continuity of the business.
Revenue is recognized when merchandise is shipped.
Inventory is stated at the lower of cost (first-in, first-out method) or
market.
Depreciation of property and equipment is provided for by the straight-line
method over the estimated useful lives of the assets. Amortization of leasehold
improvements is provided for by the straight-line method over the terms of the
respective leases.
Intangible assets consisting of debt issue costs, trademarks, at cost, and
organization costs are amortized using the straight-line method over 3 to 15
years.
Foreign currency transaction gains of approximately $57,000 are included in
cost of goods sold.
Advertising costs are charged to operations as incurred. Total advertising
expense for the year ended December 31, 1995 was approximately $629,000 and is
included in selling expenses.
F-7
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRINCIPAL BUSINESS
ACTIVITY: -- Continued
Included in general and administrative expenses is moving expense of
approximately $84,000 which relates to expenses incurred to relocate the
Company's office, showroom and warehouse.
The financial statements have been prepared in conformity with generally
accepted accounting principles which require the use of estimates by management.
The fair value of the Company's financial instruments approximate their
carrying value.
Net loss per common share is calculated by dividing net loss by the
weighted average number of shares of common stock outstanding. Pursuant to
Securities and Exchange Commission Staff Accounting Bulletin No. 83, shares of
common stock issued during the 12-month period preceding the date of the filing
of a Registration Statement for an initial public offering ("IPO") (see Note 17)
at prices below the IPO price, including the shares released from escrow as
discussed above, have been included in the weighted average number of shares
outstanding since inception.
Management does not believe that any recently issued, but not yet
effective, accounting standards if currently adopted would have a material
effect on the accompanying financial statements.
2. INVENTORY:
Inventory consists of the following:
<TABLE>
<S> <C>
Raw materials........................................................................... $ 205,904
Finished goods.......................................................................... 2,672,178
$2,878,082
</TABLE>
3. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following:
<TABLE>
<S> <C>
Claims receivable......................................................................... $180,000
Cooperative advertising receivable........................................................ 120,000
Salesperson advances...................................................................... 151,033
Prepaid expenses.......................................................................... 165,610
Other receivables......................................................................... 26,803
$643,446
</TABLE>
Claims receivable will be offset against future inventory purchases.
4. PROPERTY AND EQUIPMENT:
Property and equipment, at cost, consists of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
<S> <C> <C>
Leasehold improvements............................................................... $264,204 Term of lease
Furniture and fixtures............................................................... 63,436 10 years
Computer and office equipment........................................................ 391,904 4 to 10 years
Display booth........................................................................ 150,298 10 years
Shoe molds........................................................................... 16,775 3 years
886,617
Less accumulated depreciation........................................................ 34,645
$851,972
</TABLE>
F-8
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
4. PROPERTY AND EQUIPMENT: -- Continued
Property and equipment includes assets acquired under capital leases
amounting to $170,155 and related accumulated depreciation of $5,300 at December
31, 1995.
5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<S> <C>
Accrued inventory purchases............................................................... $546,698
Accrued commissions....................................................................... 104,202
Accrued moving expenses................................................................... 38,892
Accrued professional fees................................................................. 28,000
Other current liabilities................................................................. 53,734
$771,526
</TABLE>
6. DUE TO FACTOR:
The Company finances all accounts receivable under an agreement with a
factor. Certain preapproved accounts receivable are factored on a nonrecourse
basis. Nonapproved accounts are factored with recourse. Under the terms of this
agreement, the Company is advanced funds against receivables assigned to the
factor and additional funds which are collateralized by inventory and
substantially all other assets. These advances may not exceed $6,000,000. The
factor is responsible for servicing the factored receivables and charges the
Company a fee on the net cash advances equal to the prime rate (8.5% at December
31, 1995) plus 1.5% to 2% per annum, plus additional fees of 1.25% of the gross
amount of receivables serviced by the factor.
The factoring agreement contains covenants that require the Company to meet
certain financial ratios and maintain certain levels of working capital and net
worth.
At December 31, 1995, the Company was not in compliance with certain
covenants. On March 21, 1996, the factor amended or waived compliance with these
covenants. Compliance with the amended covenants will be measured at various
dates during 1996 commencing May 31, 1996. The Company anticipates that it will
be in compliance with the amended covenants at the respective measurement dates.
Due to factor consists of:
<TABLE>
<S> <C>
Outstanding accounts receivables assigned to factor without recourse................... $ 1,483,452
Cash advances from factor.............................................................. (4,009,123)
$(2,525,671)
</TABLE>
7. TERM LOAN PAYABLE:
The Company has a term note payable to a stockholder. The note bears
interest at a rate of 9% per annum. In connection with this note the Company
issued an additional 20,016 shares of common stock valued at $10,008. The note
plus interest was paid in February 1996.
8. NOTE PAYABLE:
The note payable represents an installment note payable to the factor with
interest at the prime rate (8.5% at December 31, 1995) plus 3% and is subject to
the same collateral and covenants as the factoring agreement.
F-9
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
8. NOTE PAYABLE: -- Continued
Maturities are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1996............................................................................... $333,336
1997............................................................................... 333,336
1998............................................................................... 166,661
833,333
Less current portion...................................................................... 333,336
Long-term portion.................................................................... $499,997
</TABLE>
9. CAPITAL LEASE OBLIGATIONS:
The Company acquired equipment under leases that have been accounted for as
capital leases.
Minimum future lease payments are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1996............................................................................... $ 50,302
1997............................................................................... 50,302
1998............................................................................... 50,301
1999............................................................................... 45,239
2000............................................................................... 30,215
226,359
Less amount representing interest......................................................... 65,863
Present value of minimum lease payments................................................... 160,496
Current portion........................................................................... 26,898
Long-term portion.................................................................... $133,598
</TABLE>
Certain leases are guaranteed by stockholders. At December 31, 1995,
guarantees approximated $114,000.
10. COMMITMENTS AND CONTINGENCIES:
The Company leases office and showroom facilities under noncancelable
operating leases. The leases provide for escalation based on increases in real
estate taxes and other expenses. Additionally, the Company leases equipment
under noncancelable operating leases. Future minimum aggregate annual rental
payments are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1996............................................................................. $ 160,743
1997............................................................................. 160,608
1998............................................................................. 181,782
1999............................................................................. 181,782
2000............................................................................. 171,704
Thereafter......................................................................... 577,500
$1,434,119
</TABLE>
Rent expense charged to operations under these leases for the year ended
December 31, 1995 amounted to approximately $67,000.
Rent expense recognized annually differs from rent paid as a result of free
rent periods and scheduled rent increases provided for in the office and
showroom leases. Accordingly, the Company has recorded deferred rent of $45,382
at December 31, 1995, which will be charged to operations over the term of the
leases.
F-10
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
10. COMMITMENTS AND CONTINGENCIES: -- Continued
The Company has a letter of credit line with the factor up to a maximum of
$750,000, $200,000 of which is reserved as collateral for purchases of foreign
currency contracts to a maximum amount of $2,000,000. At December 31, 1995, the
Company has outstanding letters of credit in the amount of $722,000, $200,000
serving as collateral for foreign currency contracts, $222,000 serving as
collateral for lease security deposits, and a standby letter of credit in the
amount of $300,000 in favor of Cable & Co. S.R.L. (see Note 14). Management does
not expect any material losses to result from the off-balance-sheet instruments
because performance is not expected to be required.
The Company enters into foreign currency forward contracts to manage
foreign currency exchange risk associated with inventory purchases denominated
in Italian lira. The contracts are recorded at market value and any gains and
losses are included in operations. At December 31, 1995, the Company has open
foreign currency contracts to purchase 1,459,750,000 Italian lira for $890,000
expiring at various dates from January 9, 1996 to July 31, 1996. These financial
instruments may give rise to off-balance-sheet risk. Risks arise from potential
counterparty nonperformance and from changes in the market value of the
underlying currency.
The Company has entered into employment agreements with its president and
executive vice president through December 31, 1997 that provide for minimum
annual salaries and incentive bonus compensation based upon the performance of
the employee and the Company. The agreements also provide for severance due to
termination without cause, in which case the employee will receive severance
payments until the later of two and one-half years from the date of severance or
December 31, 1997. At December 31, 1995, the total commitment, excluding
incentives, was $700,000.
11. RETIREMENT PLAN:
The Company has a defined contribution plan under Section 401(k) of the
Internal Revenue Code, wherein qualified employees may contribute a percentage
of their pretax eligible compensation to the plan. Matching contributions are at
the discretion of the Board of Directors. No contributions were made to the plan
for the year ended December 31, 1995.
An officer and the corporate controller serve as trustees of the plan.
12. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIENCY:
In October 1995, the Company repurchased 266,880 shares of its Common Stock
for $132,500. These shares were then retired. In addition, the Company
repurchased 21,660 shares of its redeemable preferred stock for $250,000 plus
$17,500 of accrued dividends.
The 12% cumulative preferred stock is redeemable at the Company's
discretion, in whole or in part, beginning February 16, 1996 or upon the
completion of an IPO of the Company's securities, a merger of the Company or a
sale of all or substantially all of the Company's assets. The preferred stock is
redeemable at $11.54 per share plus accrued and unpaid dividends to the date of
redemption plus 10.6752 shares of common stock for each share of preferred
stock.
The preferred stockholders have the right to require the Company to redeem
the preferred stock at $11.54 per share plus accrued and unpaid dividends
commencing five years from the date of issuance (see Note 17).
The Company is required to pay quarterly dividends on preferred stock at
the rate of $1.38 per share per annum, as and when declared by the Board of
Directors. At December 31, 1995, no dividends have been declared. At December
31, 1995, preferred dividends in arrears aggregated approximately $53,000 or
$1.23 per share.
The common stock has certain piggyback registration rights (see Note 17).
13. MAJOR CUSTOMER:
One customer accounted for approximately 28% of gross sales for the year
ended December 31, 1995.
F-11
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
14. RELATED PARTY TRANSACTIONS:
The Company had operating leases with Hongson for office, showroom and
warehouse space. Rent expense and warehouse fees paid to Hongson amounted to
approximately $226,000.
Included in costs of goods sold are commissions charged from Cable & Co.
S.R.L., and D & D Design and Details Limited, companies whose controlling
stockholder is a stockholder of the Company. These companies provide the Company
with design, production and production control services. Commissions are a
percentage of purchases and amounted to approximately $436,000 for the year
ended December 31, 1995. The amount due to these companies for commissions
earned was $104,202 at December 31, 1995 and is included in accrued expenses and
other current liabilities.
15. INCOME TAXES:
The provision for income taxes consists of the following:
<TABLE>
<S> <C>
Current:
Federal.................................................................................. $ 8,700
State and local.......................................................................... 7,100
15,800
Deferred:
Federal.................................................................................. 21,000
State and local.......................................................................... 7,100
28,100
$43,900
</TABLE>
The components of deferred income tax and the deferred income tax
provision, resulting from the differences in the bases of assets and liabilities
for income tax and financial reporting purposes, and other items are as follows:
<TABLE>
<CAPTION>
CURRENT NONCURRENT
<S> <C> <C>
Allowance for doubtful accounts and sales discounts....................................... $ 40,050 --
Charitable contribution carryforward...................................................... 18,750 --
Property and equipment.................................................................... -- $(23,300)
Goodwill.................................................................................. -- (7,800)
Deferred rent............................................................................. -- 3,000
Valuation allowance....................................................................... (58,800) --
$ -0- $(28,100)
</TABLE>
The difference between the income tax provision computed at the federal
statutory rate and the actual income tax provision is accounted for as follows:
<TABLE>
<S> <C>
Income tax benefit computed using statutory rate of 34%.................................... $(20,100)
Effect of nondeductible expenses........................................................... 64,000
$ 43,900
</TABLE>
16. INSURANCE:
The Company is the beneficiary of term insurance policies on the lives of
the president and executive vice president in the aggregate amount of
$1,000,000.
17. INTENDED TRANSACTIONS, SUBSEQUENT EVENTS AND INITIAL PUBLIC OFFERING:
In January 1996, the Company entered into a three-year international
consulting agreement with U.K. Hyde Park Consultants, Ltd. ("Hyde Park"). In
addition, Hyde Park purchased 400,000 shares of common stock and warrants to
purchase up to 450,000 shares of common stock for a note in the amount of
$40,000 which was subsequently paid in March 1996. The
F-12
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED)
17. INTENDED TRANSACTIONS, SUBSEQUENT EVENTS AND INITIAL PUBLIC
OFFERING: -- Continued
warrants are identical to the warrants issued in conjunction with the March 28,
1996 private placement (see below). The agreement contains cancelation clauses
and stock repurchase provisions in the event that the Company does not have a
net worth of at least $3,000,000 at July 31, 1996.
The Company intends to value these shares of common stock and warrants to
purchase shares of common stock at $1,725,000. The difference between this
amount and the purchase price of $40,000 will be recognized ratably as a noncash
compensatory charge over the life of the agreement.
During January 1996, the Company adopted the 1996 Stock Option Plan (the
"Plan"). Under the Plan, options to purchase shares of the Company's common
stock are granted to key employees, consultants and members of the Board of
Directors at the discretion of the Stock Option Committee. The Plan permits the
granting of options to purchase a maximum of 280,000 shares at an exercise price
to be determined by the Stock Option Committee.
On January 25, 1996, the Company executed a Letter of Intent with State
Street Capital Markets, Corp. with respect to an IPO. The Company anticipates
that 1,130,000 common shares, of which 950,000 shares of common stock are being
sold by the Company and 180,000 shares of common stock are being sold by the
private placement investors (see below), and 1,130,000 common share purchase
warrants will be offered at an assumed price of $6.00 per share and $.10 per
warrant. The warrants will entitle the holder to purchase common stock at $7.20
per share, 120% of the assumed IPO price per share, over a 3-year period
beginning 13 months from the date of issuance. The warrants will be redeemable
by the Company one year after the effective date of the IPO at the price of $.10
per warrant, subject to the closing bid price of the common stock.
On January 26, 1996, the Board of Directors increased the number of
authorized shares from 80,000 to 1,500,000 for preferred stock and from 120,000
to 10,000,000 for common stock. In conjunction with the increase, the Company
effected a 26.688 for 1 stock split effective January 26, 1996. All references
in the financial statements to number of shares and per share amounts have been
retroactively restated to reflect the increased number of shares of preferred
and common stock authorized, issued and outstanding.
On March 28, 1996, the Company completed a private placement, whereby it
issued 36 units at a price of $50,000 per unit. Each unit consisted of a $49,000
promissory note, 5,000 shares of common stock and a warrant to purchase up to
5,000 shares of common stock, subject to adjustment, as defined, at an exercise
price of $7.20 per share, 120% of the assumed IPO price per share. The
promissory notes, aggregating $1,764,000, bear interest at an annual rate of 11%
and are due upon the earlier of 12 months from date of issuance or the Company's
receipt of gross proceeds of at least $4,080,000 from the sale of its debt
and/or equity securities in a public or private financing. The warrants are
exercisable over a 3-year period, commencing 13 months from date of issuance.
Upon the closing of the Company's proposed IPO, the terms of the warrants will
be adjusted to be identical to the terms of the warrants to be issued in
conjunction with the IPO.
In connection with the private placement, a discount of $738,000 will be
recorded based upon the allocation of the proceeds between the Bridge Notes
payable and the common stock and warrants issued. This discount will be
reflected as a reduction of the face amount of the Bridge Notes payable. This
amount was calculated by attributing a value of $4.20 per share of common stock
and $.10 per warrant, less cash received of $36,000.
The net proceeds of $1,583,000 net of $217,000 in debt issue costs was used
to repay the term loan payable plus accrued interest of $3,900, and the
remaining balance was used to reduce the amount due to factor.
In February 1996, the Company issued 224,761 shares of common stock to
existing stockholders which will be recorded as compensation of $943,996 ($4.20
per share) in 1996.
F-13
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of
Cable & Co. Worldwide, Inc.
We have audited the accompanying statements of revenues over direct
operating expenses and cash flows of Cable & Co. (a product line of Hongson,
Inc.) ("Cable product line") the net assets of which were acquired by Cable &
Co. Worldwide, Inc. (the "Company") for the year ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying financial statements were prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission for inclusion in the registration statement on Form SB-2 of Cable &
Co. Worldwide, Inc. as described in Note 1 and are not intended to be a complete
presentation of the Cable product line's results of operations.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the revenues over direct operating expenses and cash
flows of Cable & Co. (a product line of Hongson, Inc.) for the year ended
December 31, 1994, in conformity with generally accepted accounting principles.
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York
March 5, 1996
F-14
<PAGE>
CABLE & CO.
(A PRODUCT LINE OF HONGSON, INC.)
STATEMENT OF REVENUES OVER DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
Net sales....................................................................................................... $8,702,461
Cost of goods sold (Notes 2 and 3).............................................................................. 5,166,494
Gross profit.................................................................................................... 3,535,967
Selling expenses................................................................................................ 1,367,435
Excess of revenues over direct operating expenses............................................................... $2,168,532
</TABLE>
The accompanying notes and independent auditor's report should be read in
conjunction with the financial statements.
F-15
<PAGE>
CABLE & CO.
(A PRODUCT LINE OF HONGSON, INC.)
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
Cash flows from operating activities:
Excess of revenues over direct operating expenses............................................................ $ 2,168,532
Adjustments to reconcile excess of revenues over direct operating expenses to net cash provided by operating
activities:
Provision for doubtful accounts and sales discounts....................................................... 40,000
Changes in operating assets and liabilities:
Decrease in accounts receivable......................................................................... 141,064
Increase in inventory................................................................................... (1,025,071)
Increase in other assets................................................................................ (2,539)
Increase in accounts payable............................................................................ 709,722
Net cash provided by operating activities............................................................ 2,031,708
Cash flows from investing activity -- advances from factor, net................................................ 274,288
Net cash remitted to Hongson, Inc.............................................................................. $ 2,305,996
</TABLE>
The accompanying notes and independent auditor's report should be read in
conjunction with the financial statements.
F-16
<PAGE>
CABLE & CO.
(A PRODUCT LINE OF HONGSON, INC.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. BASIS OF PRESENTATION:
The statements of revenues over direct operating expenses and cash flows of
Cable & Co. (a product line of Hongson, Inc.) ("Cable product line"), the net
assets of which were acquired by Cable & Co. Worldwide, Inc. (the "Company"),
have been prepared for the purpose of complying with the rules and regulations
of the Securities and Exchange Commission for inclusion in the registration
statement on Form SB-2 of the Company. These financial statements are not
intended to be a complete presentation of the Cable product line's results of
operations.
Effective January 1, 1995, pursuant to a purchase agreement dated January
16, 1995, the Cable product line net assets were acquired by the Company for
$1,401,787 which included acquisition costs of $151,787.
The statement of revenues over direct operating expenses includes only
those revenues and expenses directly related to the importation and sale of
men's shoes using the Cable product line trademark. All nondirect costs
allocated to the Cable product line from Hongson, Inc., such as occupancy and
administrative costs, interest expense and depreciation and amortization, have
been excluded because such amounts are not readily obtainable.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRINCIPAL BUSINESS ACTIVITY:
The Cable product line is comprised of men's shoes sold primarily to major
department and specialty stores located in the United States.
Revenue is recognized when merchandise is shipped.
Advertising costs are charged to operations as incurred.
Cost of goods sold was computed by stating inventory at the lower of cost,
first-in, first-out method, or market.
The financial statements have been prepared in conformity with generally
accepted accounting principles which require the use of estimates by management.
3. RELATED PARTY TRANSACTIONS:
Included in costs of goods sold are commissions charged from Cable & Co.
S.R.L., a company whose controlling stockholder is a stockholder of the Company.
Cable & Co. S.R.L. provides the Company with design, production and production
control services. Commissions are a percentage of purchases and amounted to
approximately $330,000 for the year ended December 31, 1994.
F-17
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JANUARY 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
<S> <C> <C>
(NOTE 4)
ASSETS
CURRENT ASSETS:
Cash.......................................................................................... $ 673 $ 673
Accounts receivable, less allowances for doubtful accounts and
sales discounts of $83,000................................................................. 690,444 690,444
Inventory..................................................................................... 3,123,721 3,123,721
Prepaid expenses and other current assets..................................................... 703,299 703,299
Deferred income tax asset, net of valuation allowance of $90,000.............................. -- --
TOTAL CURRENT ASSETS....................................................................... 4,518,137 4,518,137
Property and Equipment, net of accumulated depreciation of $45,388.............................. 874,955 874,955
Goodwill, net of accumulated amortization of $64,061............................................ 1,107,876 1,107,876
Deferred Offering Costs (Note 4)................................................................ 13,635 13,635
Debt Issue Costs (Note 4)....................................................................... -- 217,000
Other Intangible Assets, net of accumulated amortization of $13,891............................. 28,735 28,735
Other Assets.................................................................................... 6,171 6,171
TOTAL ASSETS.................................................................................. $ 6,549,509 $ 6,766,509
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Due to factor................................................................................. $ 2,714,183 $ 1,265,083
Bridge notes payable (Note 4)................................................................. -- 1,026,000
Accounts payable.............................................................................. 1,576,983 1,576,983
Accrued expenses and other current liabilities................................................ 707,665 707,665
Term loan payable............................................................................. 130,000 --
Current portion of note payable............................................................... 333,336 333,336
Current portion of capital lease obligations.................................................. 27,682 27,682
TOTAL CURRENT LIABILITIES.................................................................. 5,489,849 4,936,749
Note Payable -- net of current portion.......................................................... 472,220 472,220
Capital Lease Obligations -- net of current portion............................................. 128,784 128,784
Deferred Rent................................................................................... 47,554 47,554
Deferred Income Tax Liability................................................................... 29,242 29,242
TOTAL LIABILITIES............................................................................. 6,167,649 5,614,549
Redeemable Preferred Stock -- Series A -- 12% cumulative; $.01 par value;
authorized 80,000 shares, issued and outstanding 43,327 shares
($500,000 liquidation preference)............................................................. 500,000 500,000
STOCKHOLDERS' EQUITY (DEFICIENCY) (Notes 2 and 3):
Preferred stock -- $.01 par value; authorized 1,420,000 shares,
no shares issued........................................................................... -- --
Common stock -- $.01 par value; authorized 10,000,000 shares,
issued and outstanding 1,407,445 shares (1,812,206 shares pro forma)....................... 14,074 18,122
Additional paid-in capital.................................................................... 1,388,658 3,102,606
Accumulated deficit........................................................................... (1,520,872) (2,468,768)
STOCKHOLDERS' EQUITY (DEFICIENCY).......................................................... (118,140) 651,960
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY).................................... $ 6,549,509 $ 6,766,509
</TABLE>
See Notes to Consolidated Financial Statements.
F-18
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
ONE-MONTH PERIOD ENDED
JANUARY 31,
1995 1996
<S> <C> <C>
Net sales......................................................................................... $ 772,140 $ 1,198,778
Cost of goods sold................................................................................ 462,681 752,308
Gross profit...................................................................................... 309,459 446,470
Noncash compensatory charges (Notes 2 and 3)...................................................... -- (1,352,624)
Selling expenses.................................................................................. (154,170) (276,350)
General and administrative expenses............................................................... (85,308) (200,434)
Income (loss) from operations..................................................................... 69,981 (1,382,938)
Interest expense.................................................................................. 24,984 47,982
Income (loss) before provision (benefit) for income taxes......................................... 44,997 (1,430,920)
Provision (benefit) for income taxes.............................................................. 19,000 (13,157)
Net income (loss)................................................................................. 25,997 (1,417,763)
Dividends on preferred stock...................................................................... -- 5,096
Net income (loss) applicable to common stock...................................................... $ 25,997 $(1,422,859)
Net income (loss) per common share................................................................ $ .01 $ (.79)
Weighted average number of common shares outstanding.............................................. 2,059,070 1,812,206
</TABLE>
See Notes to Consolidated Financial Statements.
F-19
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
ONE-MONTH PERIOD ENDED JANUARY 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
NUMBER OF PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT DEFICIENCY
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995............................. 1,007,445 $10,074 $ 34 $ (103,109) $ (93,001)
Issuance of common stock and warrants to purchase common
stock (Note 3)......................................... 400,000 4,000 1,721,000 -- 1,725,000
Deferred consulting costs (Note 3)....................... -- -- (1,685,000) -- (1,685,000)
Amortization of deferred consulting costs (Note 3)....... -- -- 7,549 -- 7,549
Release of escrow shares (Note 2)........................ -- -- 1,345,075 -- 1,345,075
Net loss................................................. -- -- -- (1,417,763) (1,417,763)
BALANCE AT JANUARY 31, 1996.............................. 1,407,445 $14,074 $1,388,658 $(1,520,872) $ (118,140)
</TABLE>
See Notes to Consolidated Financial Statements.
F-20
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
ONE-MONTH PERIOD ENDED
JANUARY 31,
1995 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................................................. $ 25,997 $(1,417,763)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization.............................................................. 5,951 17,278
Provision for doubtful accounts and sales discounts........................................ 8,000 (17,125)
Provision for deferred income taxes........................................................ -- 1,142
Noncash compensatory charges............................................................... -- 1,352,624
Changes in operating assets and liabilities, net of effect of purchase of the Cable & Co.
product line:
Increase in accounts receivable.......................................................... (152,168) (22,779)
(Increase) decrease in inventory......................................................... 103,467 (245,639)
Increase in prepaid expenses and other current assets.................................... (40,496) (19,853)
Increase in intangibles.................................................................. (42,344) (281)
(Increase) decrease in other assets...................................................... (1,000) 844
Increase (decrease) in accounts payable.................................................. (532,274) 310,860
Increase (decrease) in accrued expenses and other current liabilities.................... 385,236 (63,861)
Increase (decrease) in income taxes payable.............................................. 19,000 (14,300)
Increase in deferred rent................................................................ -- 2,172
Net cash used in operating activities................................................. (220,631) (116,681)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment............................................................ -- (33,726)
Purchase of Cable & Co. product line.......................................................... (1,401,787) --
Cash used in investing activities.......................................................... (1,401,787) (33,726)
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred offering costs....................................................................... -- (13,635)
Advances from factor, net..................................................................... 472,318 188,512
Principal payments under capital lease obligations............................................ -- (4,030)
Net proceeds from issuance of long-term note payable.......................................... 1,000,000 --
Proceeds from issuance of common stock........................................................ 150,100 --
Principal payments of long-term note payable.................................................. -- (27,777)
Net cash provided by financing activities.................................................. 1,622,418 143,070
Net decrease in cash............................................................................ -- (7,337)
Cash at beginning of period -- 8,010
Cash at end of period........................................................................... $ 0 $ 673
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest...................................................... $ 24,984 $ 47,007
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Common stock issued for note receivable....................................................... -- $ 40,000
</TABLE>
See Notes to Consolidated Financial Statements.
F-21
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted from the accompanying financial statements. The results of
operations for the one-month period ended January 31, 1996 is not necessarily
indicative of the results of operations expected for the year ended December 31,
1996. The consolidated financial statements included herein should be read in
conjunction with the consolidated financial statements and notes thereto for the
year ended December 31, 1995.
The accompanying unaudited interim consolidated financial statements
include all adjustments (consisting only of those of a normal recurring nature)
necessary for a fair statement of the results of the interim period.
2. ESCROW SHARES:
At the time of the acquisition of the Cable product line (see Note 1 of the
Company's year-end consolidated financial statements) the stockholders of the
Company, including the Company's management, entered into a Stockholders'
Agreement with respect to their shares of common stock. Pursuant to the
Stockholders' Agreement, the Company's management placed an aggregate of 320,256
shares of common stock in escrow. In January 1996, the Company terminated the
Stockholders' Agreement and released all of the shares held in escrow. As a
result of this release, the Company has recorded a noncash compensatory charge
in the amount of $1,345,075.
The noncash compensatory charge relating to release of the escrow shares is
offset by an increase in additional paid-in capital. There is no impact on total
stockholders' equity reflected on the Company's consolidated financial
statements as a result of the release of the escrow shares. The charges related
to the release of the shares are not deductible for income tax purposes.
The following table illustrates the impact of the noncash compensatory
charge relating to the release of the escrow shares for the one-month period
ended January 31, 1996:
<TABLE>
<CAPTION>
IMPACT OF WITHOUT
AS STATED CHARGES CHARGES
<S> <C> <C> <C>
Net sales.......................................................................... $ 1,198,778 $1,198,778
Cost of goods sold................................................................. 752,308 752,308
Gross profit....................................................................... 446,470 446,470
Noncash compensatory charges....................................................... (1,352,624) $1,345,075 (7,549)
Selling expenses................................................................... (276,350) (276,350)
General and administrative expenses................................................ (200,434) (200,434)
Loss from operations............................................................... (1,382,938) 1,345,075 (37,863)
Interest expense................................................................... 47,982 47,982
Loss before income tax benefit..................................................... (1,430,920) 1,345,075 (85,845)
Income tax benefit................................................................. (13,157) (13,157)
Net loss........................................................................... (1,417,763) 1,345,075 (72,688)
Dividends on preferred stock....................................................... 5,096 5,096
Net loss applicable to common stock................................................ (1,422,859) $1,345,075 $ (77,784)
Net loss per common share.......................................................... $ (.79) $ (.04)
Weighted average number of common shares outstanding............................... $ 1,812,206 $1,812,206
</TABLE>
The presentation of the net loss without the noncash compensatory charge
does not intend to represent an alternative to the calculation of the net loss
in accordance with generally accepted accounting principles as an indicator of
operating performance.
This information is presented to assist a reader of the financial
statements in understanding the effect of this compensatory charge. This
charge represents a noncash item, which has no net effect on
stockholders' equity and is not tax deductible.
F-22
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONCLUDED
(UNAUDITED)
3. INTERNATIONAL CONSULTING AGREEMENT:
In January 1996, the Company entered into a three-year international
consulting agreement with U.K. Hyde Park Consultants, Ltd. ("Hyde Park"). In
addition, Hyde Park purchased 400,000 shares of common stock and warrants to
purchase up to 450,000 shares of common stock for a note in the amount of
$40,000 which was subsequently paid in March 1996. The warrants are identical to
the warrants issued in conjunction with the March 28, 1996 private placement
(see below). The agreement contains cancellation clauses and stock repurchase
provisions in the event that the Company does not have a net worth of at least
$3,000,000 at July 31, 1996.
The Company has valued these shares of common stock and warrants to
purchase shares of common stock at $1,725,000. The difference between this
amount and the purchase price of $40,000 will be recognized ratably as a noncash
compensatory charge over the life of the agreement. For the one-month period
ended January 31, 1996, the Company recognized $7,549 of consulting expense in
the accompanying consolidated statement of operations.
4. INITIAL PUBLIC OFFERING AND PRO FORMA ADJUSTMENTS TO BALANCE SHEET:
On January 25, 1996, the Company executed a letter of intent with State
Street Capital Markets Corp. with respect to an IPO. The Company anticipates
that 1,130,000 common shares, of which 950,000 shares of common stock are being
sold by the Company and 180,000 shares of common stock are being sold by the
private placement investors (see below), and 1,130,000 common share purchase
warrants will be offered at an assumed IPO price of $6.00 per share and $.10 per
warrant. The warrants will entitle the holder to purchase common stock at $7.20
per share, 120% of the assumed IPO price per share over a 3-year period
beginning 13 months from the date of issuance. The warrants will be redeemable
by the Company one year after the effective date of the IPO at the price of $.10
per warrant, subject to the closing bid price of the common stock.
The unaudited pro forma balance sheet as of January 31, 1996 gives effect
to certain transactions which have occurred subsequent to January 31, 1996. The
pro forma balance sheet does not give effect to the consummation of the proposed
IPO.
Transactions reflected as pro forma adjustments to the January 31, 1996
balance sheet are as follows:
On March 28, 1996, the Company completed a private placement, whereby it
issued 36 units at a price of $50,000 per unit. Each unit consisted of a $49,000
promissory note, 5,000 shares of common stock and a warrant to purchase up to
5,000 shares of common stock, subject to adjustment, as defined, at an exercise
price of $7.20 per share, 120% of the assumed IPO price per share. The
promissory notes, aggregating $1,764,000, bear interest at an annual rate of 11%
and are due upon the earlier of 12 months from date of issuance or the Company's
receipt of gross proceeds of at least $4,080,000 from the sale of its debt
and/or equity securities in a public or private financing. The warrants are
exercisable over a 3-year period, commencing 13 months from date of issuance.
Upon the closing of the Company's proposed IPO, the terms of the warrants will
be adjusted to be identical to the terms of the warrants to be issued in
conjunction with the IPO.
In connection with the private placement, a discount of $738,000 has been
recorded based upon the allocation of the proceeds between the Bridge Notes
payable and the common stock and warrants issued. This discount has been
reflected as a reduction of the face amount of the Bridge Notes payable. This
amount was calculated by attributing a value of $4.20 per share of common stock
and $.10 per warrant, less cash received of $36,000.
The net proceeds of $1,583,000, net of $217,000 in debt issue costs, were
used to repay the term loan payable, plus accrued interest of $3,900, and the
remaining balance was used to reduce the amount due to factor.
In February 1996, the Company issued 224,761 shares of common stock to
existing stockholders which will be recorded as compensation of $943,996 ($4.20
per share).
F-23
<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE SECURITIES OFFERED BY THIS PROSPECTUS, OR AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IS UNLAWFUL. THE DELIVERY
OF THIS PROSPECTUS SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF
THE PROSPECTUS.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary................................... 4
Risk Factors......................................... 8
Use of Proceeds...................................... 16
Dividend Policy...................................... 17
Dilution............................................. 18
Capitalization....................................... 19
Selected Financial Data.............................. 19
Management's Discussion and Analysis
of Financial Condition and
Results of Operations.............................. 21
Business............................................. 24
Acquisition.......................................... 27
Management........................................... 28
Certain Transactions................................. 30
Principal Stockholders............................... 32
Description of Securities............................ 32
Shares Eligible for Future Sale...................... 35
Underwriting......................................... 36
Concurrent Offering.................................. 38
Selling Securityholders.............................. 39
Legal Matters........................................ 41
Experts.............................................. 41
Available Information................................ 41
Index to Financial Statements........................ F-1
</TABLE>
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE SECURITIES, WHETHER OR NOT PARTICIPATING IN THE
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
1,130,000 SHARES
OF COMMON STOCK
1,130,000 COMMON
STOCK PURCHASE WARRANTS
CABLE & CO.
WORLDWIDE, INC.
PROSPECTUS
STATE STREET
CAPITAL MARKETS,
CORP.
, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the Delaware General Corporation Law ("DGCL") permits, in
general, a Delaware corporation to indemnify any person made, or threatened to
be made, a party to an action or proceeding by reason of the fact that he or she
was a director or officer of the corporation, or served another entity in any
capacity at the request of the corporation, against any judgment, fines, amounts
paid in settlement and expenses, including attorney's fees actually and
reasonably incurred as a result of such action or proceeding, or any appeal
therein, if such person acted in good faith, for a purpose he or she reasonably
believed to be in, or, in the case of service for another entity, not opposed
to, the best interests of the corporation and, in criminal actions or
proceedings, in addition had no reasonable cause to believe that his or her
conduct was unlawful. Section 145(e) of the DGCL permits the corporation to pay
in advance of a final disposition of such action or proceeding the expenses
incurred in defending such action or proceeding upon receipt of an undertaking
by or on behalf of the director or officer to repay such amount as, and to the
extent, required by statute. Section 145(f) of the DGCL provides that the
indemnification and advancement of expense provisions contained in the DGCL
shall not be deemed exclusive of any rights to which a director or officer
seeking indemnification or advancement of expenses may be entitled.
The Company's Certificate of Incorporation provides, in general, that the
Company shall indemnify, to the fullest extent permitted by Section 145 of the
DGCL, any and all persons whom it shall have power to indemnify under said
section from and against any and all of the expenses, liabilities or other
matters referred to in, or covered by, said section. The Certificate of
Incorporation also provides that the indemnification provided for therein shall
not be deemed exclusive of any other rights to which those indemnified may be
entitled under any By-Law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to actions taken in his or her official capacity
and as to acts in another capacity while holding such office.
In accordance with that provision of the Certificate of Incorporation, the
Company shall indemnify any officer or director (including officers and
directors serving another corporation, partnership, joint venture, trust, or
other enterprise in any capacity at the Company's request) made, or threatened
to be made, a party to an action or proceeding (whether civil, criminal,
administrative or investigative) by reason of the fact that he or she was
serving in any of those capacities against judgments, fines, amounts paid in
settlement and reasonable expenses (including attorney's fees) incurred as a
result of such action or proceeding. Indemnification would not be available if a
judgment or other final adjudication adverse to such director or officer
establishes that (i) his or her acts were committed in bad faith or were the
result of active and deliberate dishonesty or (ii) he or she personally gained
in fact a financial profit or other advantage to which he or she was not legally
entitled.
The Underwriting Agreement contains, among other things, provisions whereby
the Underwriter agrees to indemnify the Company, each officer and director of
the Company who has signed the Registration Statement, and each person who
controls the Company within the meaning of Section 15 of the Securities Act,
against any losses, liabilities, claims or damages arising out of alleged untrue
statements or alleged omissions of material facts with respect to information
furnished to the Company by the Underwriter for use in the Registration
Statement or Prospectus. See Item 28, "UNDERTAKINGS."
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses (other than selling,
commissions and other fees paid or payable to the Underwriter) which will be
paid by the Company in connection with the issuance and distribution of the
securities being registered. With the exception of the registration fee, the
NASD filing fee and the NASDAQ and BSE listing fees, all amounts shown are
estimates.
<TABLE>
<S> <C>
Registration fee.......................................................................... $ 8,659
NASDAQ listing fees....................................................................... 10,000
NASD filing fee........................................................................... 3,011
Blue Sky fees and expenses (including legal and filing)................................... 40,000
Printing expenses......................................................................... 100,000
Legal fees and expenses (other than Blue Sky)............................................. 200,000
Accounting fees and expenses.............................................................. 150,000
Transfer agent fees and expenses.......................................................... 5,000
Miscellaneous expenses.................................................................... 33,330
Total................................................................................... $550,000
</TABLE>
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In the past three years, the Company has made the sales of unregistered
securities set forth below, all of which sales were intended to be exempt from
the registration requirements of the Securities Act pursuant to Section 4(2)
and/or Rule 506 promulgated thereunder. Each of the parties represented and
agreed that they acquired the shares for investment and without a view to the
distribution thereof.
I. The Company issued the shares of Common Stock to the individuals listed
below prior to, and in connection with, the Acquisition. These sales were
intended to be exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof.
<TABLE>
<CAPTION>
AMOUNT PAID
DATE NAME OF STOCKHOLDER NUMBER OF SHARES PER SHARE
<C> <S> <C> <C>
1/5/95 David Albahari 27 .15
1/5/95 Alan Kandall 27 .15
2/16/95 David Albahari 329,116 .15
2/16/95 Alan Kandall 329,116 .15
2/16/95 Alberto Salvucci 329,143 .15
2/16/95 Harry Chen 266,880 .0003
</TABLE>
II. In February 1995, the Company consummated a private placement to 22
purchasers of 64,987 shares of Preferred Stock in the aggregate amount of
$750,000 (the "1995 Financing"). Upon redeeming the Preferred Stock, the Company
is required to issue an aggregate of 462,531 shares of Common Stock to the
holders thereof. These sales were intended to be exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) and Rule 506
promulgated thereunder. The 462,531 shares of Common Stock issuable upon the
redemption of the Preferred Stock are being registered for resale by the holders
thereof in the Concurrent Offering. See "DESCRIPTION OF SECURITIES -- Prior
Financings," " -- Preferred Stock" and "CONCURRENT OFFERING."
<TABLE>
<CAPTION>
NUMBER OF SHARES
DATE NAME OF STOCKHOLDER OF PREFERRED STOCK
<C> <S> <C>
2/16/95 C. Clarke Ambrose 1,733
2/16/95 S. Coca Brandt 867
2/16/95 Joel P. Brooks 867
2/16/95 Chinook Equities 867
2/16/95 James C. Gale 1,733
2/16/95 Michael Gironta 1,083
2/16/95 Paul Gordon 2,166
2/16/95 Gruntal & Co. Incorporated 4,332
2/16/95 John Heffer 8,664
2/16/95 Lionel Gray Hest and Amy Hest, JTROS 1,300
2/16/95 David Kandall 434
2/16/95 Daniel Kleinberg 434
2/16/95 Alice Kres 867
2/16/95 Daniel Livingston 867
2/16/95 Charles Lowlicht 4,332
2/16/95 Barry Richter 1,300
2/16/95 Herbert D. Wise 867
2/16/95 Glenn Zagoren 867
2/16/95 Howard Boilen 4,332
2/16/95 Robert Sablowsky 1,083
2/16/95 Martin C. Licht 4,332
2/16/95 Harry Chen 21,660
</TABLE>
III. On October 11, 1995 the Company borrowed $130,000 from Paul Gordon, a
holder of shares of Preferred Stock, issued its promissory note in such amount
and 20,016 shares of Common Stock to Mr. Gordon in consideration for making such
loan. This sale was intended to be exempt from the registration requirements of
the Securities Act pursuant to Section 4(2) thereof.
IV. The Company entered into a three year international consulting
agreement as of January 26, 1996 with U.K. Hyde Park Consultants, Ltd. ("Hyde
Park Group"), and issued thereto 400,000 shares of Common Stock and warrants to
purchase
II-2
<PAGE>
up to 450,000 shares of Common Stock identical to the Warrants offered hereby,
as compensation for services and for $40,000 paid by Hyde Park Group to the
Company. This sale was intended to be exempt from the registration requirements
of the Securities Act pursuant to Section 4(2). See "MANAGEMENT -- Employment
and Consulting Agreements."
V. In March 1996, the Company consummated the Bridge Financing of 36 Units
to the Bridge Selling Stockholders at a purchase price of $50,000. Each Unit
consists of the Company's 11% Bridge Note in the original principal amount of
$49,000, 5,000 shares of Common Stock and 5,000 Bridge Warrants. Upon the
completion of this Offering, the terms of the Bridge Warrants will be identical
to the terms of the Warrants offered hereby. The Bridge Notes are due and
payable upon the earlier of February 2, 1997 or the Company's receipt of gross
proceeds of at least $4,080,000 from the sale of its debt and/or equity
securities in a public or private financing. It is anticipated that the Bridge
Notes will be repaid out of the net proceeds of this Offering. These sales were
intended to be exempt from the registration requirements of the Securities Act
pursuant to Rule 506 promulgated thereunder. In connection with the Bridge
Financing, the Company paid commissions and non-accountable expense allowances
in the aggregate amount of $217,000, of which $166,000 was paid to the
Underwriter. See "CERTAIN TRANSACTIONS" and "DESCRIPTION OF SECURITIES -- Bridge
Financing."
<TABLE>
<CAPTION>
PRINCIPAL NUMBER OF
AMOUNT OF SHARES OF NUMBER OF
DATE NAME OF SHAREHOLDER NOTE COMMON STOCK WARRANTS
<C> <S> <C> <C> <C>
2/02/96 John S. Bai $ 8,820 900 900
2/14/96 E. Wayne Boland $49,000 5,000 5,000
2/14/96 Elliot Braun $49,000 5,000 5,000
2/14/96 Adam S. Brzostovski $49,000 5,000 5,000
2/02/96 Samiron K. Chatterjee $49,000 5,000 5,000
2/02/96 John Cirrito $ 4,900 500 500
2/02/96 Harvey J. Cohen $49,000 5,000 5,000
2/14/96 Arnold Curnyn $49,000 5,000 5,000
2/02/96 Robert W. Deutsch $49,000 5,000 5,000
2/02/96 Joseph Enea $49,000 5,000 5,000
2/02/96 James M. Franco, M.D., Inc. $49,000 5,000 5,000
Profit Sharing Trust
2/14/96 Mattes Friesel $49,000 5,000 5,000
2/02/96 James C. Gale $39,200 4,000 4,000
2/02/96 Michael Gironta $24,500 2,500 2,500
3/28/96 Paul Gordon $49,000 5,000 5,000
2/14/96 Gruntal & Co., Incorporated $25,480 2,600 2,600
2/14/96 Paul Hawran $49,000 5,000 5,000
2/14/96 John Heffer $98,000 10,000 10,000
2/02/96 Lionel G. Hest and Amy Hest $34,300 3,500 3,500
2/02/96 Austin E. Hills, Trustee $49,000 5,000 5,000
2/14/96 G. Lenard Johnston $49,000 5,000 5,000
2/02/96 Douglas Kleinberg $ 9,800 1,000 1,000
2/02/96 Dennis J. Lewis $49,000 5,000 5,000
2/14/96 Joan Lowlicht $49,000 5,000 5,000
2/02/96 Gary Lyons $49,000 5,000 5,000
2/14/96 Timothy H. Martin $49,000 5,000 5,000
2/14/96 Carol Moss $24,500 2,500 2,500
2/14/96 Jeffrey Muhlgeier $49,000 5,000 5,000
2/02/96 Jacob Popovic and Sophia Popovic $49,000 5,000 5,000
2/02/96 Edward Reardon $98,000 10,000 10,000
2/02/96 Robert J. Reardon $98,000 10,000 10,000
2/02/96 Barry Richter $14,700 1,500 1,500
2/02/96 Robert Sablowsky $24,500 2,500 2,500
2/14/96 Edward Secker $24,500 2,500 2,500
2/14/96 Mark P. Schlefer $49,000 5,000 5,000
2/02/96 George W. Smith $49,000 5,000 5,000
2/02/96 John C. Smith, II and Julia S. Smith $49,000 5,000 5,000
2/14/96 Marie Speziale $49,000 5,000 5,000
2/02/96 Robert Weinstein $ 9,800 1,000 1,000
2/14/96 White Rock of Tucson $49,000 5,000 5,000
</TABLE>
II-3
<PAGE>
VI. On February 8, 1996, the Company issued 74,921 Shares of Common Stock
to David Albahari and 74,920 Shares of Common Stock to each of Alan Kandall and
Alberto Salvucci as compensation. These issuances were intended to be exempt
from the registration requirements of the Securities Act pursuant to Section
4(2) thereof. See "CERTAIN TRANSACTIONS."
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF EXHIBIT
<C> <S> <C>
1.1 -- Form of Underwriting Agreement between the Company and the Underwriter.
2.1 -- Asset Purchase Agreement dated January 16, 1995 between Hongson, Inc., as seller and Cable & Co. Worldwide, Inc.,
as buyer.+
3.1 -- Certificate of Incorporation of the Company, as amended.+
3.2 -- By-Laws of the Company.+
4.1 -- Form of Warrant Agreement between the Company and Continental Stock Transfer & Trust, as warrant agent.
4.2 -- Specimen Certificate of the Company's Common Stock.
4.3 -- 1996 Stock Option Plan.+
4.4 -- Specimen Certificate of the Company's Warrant.
4.5 -- Form of Underwriter's Purchase Option.
4.6 -- Form of Bridge Warrant.+
4.7 -- Form of Bridge Note.+
5.1 -- Opinion of Gallet Dreyer & Berkey, LLP counsel to the Company.
10.1 -- Employment Agreement dated as of January 1, 1995 between the Company and David Albahari.+
10.2 -- Employment Agreement dated as of January 1, 1995 between the Company and Alan Kandall.+
10.3 -- Agreements between the Company and Heller Financial, Inc.+
10.4 -- Intentionally Omitted.
10.5 -- Agreement dated as of the 26th day of January 1996 between U.K. Hyde Park Consultants, Ltd. and the Company.+
10.6 -- Lease dated July 28, 1995 between Raritan Plaza I Associates, L.P., as landlord, and Cable & Company Enterprises,
Ltd., as tenant.+
10.7 -- Lease dated May 16, 1995 between 724 Fifth Avenue Realty Co., as landlord, and Cable & Co. Enterprises Ltd., as
tenant.+
10.8 -- Financial Advisory and Investment Banking Agreement.
10.9 -- Agreements between Gruntal & Co., Inc. and the Company.+
10.10 -- Agreement dated as of May 15, 1996 among D&D Design and Details Limited,
Pio Alberto Salvucci and Cable & Co. Worldwide, Inc.
11.1 -- Statement of computation per share earnings
21.1 -- List of Subsidiaries.+
23.1 -- Consent of Goldstein Golub Kessler & Company, P.C.
23.2 -- Consent of Gallet Dreyer & Berkey, LLP (contained in Exhibit 5.1).
24.1 -- Power of Attorney (included on the signature page of this Registration Statement).
99.1 -- Cable & Co. Trademark Registration from the United States Patent and Trademark Office.+
</TABLE>
+ Previously filed
ITEM 28. UNDERTAKINGS.
1. The undersigned, Company, hereby undertakes:
(a) To file, during any period in which the Company offers or sells
securities, a post-effective amendment(s) to this registration statement:
(1) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(2) To reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and
(3) To include any additional or changed material information with
respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the
registration statement;
II-4
<PAGE>
(b) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering; and
(c) The Company will provide to the Underwriter at the closing
specified in the underwriting agreement certificates in such denominations
and registered in such names as required by the Underwriter to permit
prompt delivery to each purchaser.
(d) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
2. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "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 (the "Commission") such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
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 Act and will
be governed by the final adjudication of such issue.
3. If the Company relies on Rule 430A under the Act, the Company will:
(a) For determining any liability under the Act, treat the information
omitted from the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form of prospectus
filed by the Company under Rule 424(b)(1), or (4), or 497(h) under the Act
as part of this registration statement as of the time the Commission
declared it effective; and
(b) For determining any liability under the Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing this Amendment to Form SB-2 and has authorized
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, New York, on May 24, 1996.
CABLE & CO. WORLDWIDE, INC.
By: /s/ David Albahari
DAVID ALBAHARI, CHAIRMAN OF THE
BOARD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints DAVID ALBAHARI and/or ALAN KANDALL his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or either of them or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ DAVID ALBAHARI Chairman of the Board, President, Chief Executive May 24, 1996
DAVID ALBAHARI Officer and Director
/s/ ALAN KANDALL Executive Vice President, Chief Financial and May 24, 1996
ALAN KANDALL Accounting Officer, Treasurer and Director
/s/ MARTIN C. LICHT Secretary and Director May 24, 1996
MARTIN C. LICHT
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
NUMBER DESCRIPTION OF EXHIBIT PAGE NO.
<C> <S> <C> <C>
1.1 -- Form of Underwriting Agreement between the Company and the Underwriter.
2.1 -- Asset Purchase Agreement dated January 16, 1995 between Hongson, Inc., as seller and Cable & Co.
Worldwide, Inc., as buyer.+
3.1 -- Certificate of Incorporation of the Company, as amended.+
3.2 -- By-Laws of the Company.+
4.1 -- Form of Warrant Agreement between the Company and Continental Stock Transfer & Trust, as warrant
agent.
4.2 -- Specimen Certificate of the Company's Common Stock.
4.3 -- 1996 Stock Option Plan.+
4.4 -- Specimen Certificate of the Company's Warrant.
4.5 -- Form of Underwriter's Purchase Option.
4.6 -- Form of Bridge Warrant.+
4.7 -- Form of Bridge Note.+
5.1 -- Opinion of Gallet Dreyer & Berkey, LLP counsel to the Company.
10.1 -- Employment Agreement dated as of January 1, 1995 between the Company and David Albahari.+
10.2 -- Employment Agreement dated as of January 1, 1995 between the Company and Alan Kandall.+
10.3 -- Agreements between the Company and Heller Financial, Inc.+
10.4 -- Intentionally Omitted.
10.5 -- Agreement dated as of the 26th day of January 1996 between U.K. Hyde Park Consultants, Ltd. and the
Company.+
10.6 -- Lease dated July 28, 1995 between Raritan Plaza I Associates, L.P., as landlord, and Cable & Company
Enterprises, Ltd., as tenant.+
10.7 -- Lease dated May 16, 1995 between 724 Fifth Avenue Realty Co., as landlord, and Cable & Co. Enterprises
Ltd., as tenant.+
10.8 -- Financial Advisory and Investment Banking Agreement between the Underwriter and the Company.
10.9 -- Agreements between Gruntal & Co., Inc. and the Company.+
10.10 -- Agreement dated as of May 15, 1996 among D & D Design and
Details Limited, Pio Alberto Salvucci and Cable & Co. Worldwide, Inc.
11.1 -- Statement of computation per share earnings+
21.1 -- List of Subsidiaries.+
23.1 -- Consent of Goldstein Golub Kessler & Company, P.C.
23.2 -- Consent of Gallet Dreyer & Berkey, LLP (contained in Exhibit 5.1).
24.1 -- Power of Attorney (included on the signature page of this Registration Statement).
99.1 -- Cable & Co. Trademark Registration from the United States Patent and Trademark Office.+
</TABLE>
+ Previously filed
Cable & Co. Worldwide, Inc.
UNDERWRITING AGREEMENT
New York, New York
___________, 1996
State Street Capital Markets, Corp.
One World Trade Center, Suite 4047
New York, New York 10048
An officer of Cable & Co. Worldwide, Inc.
as the representative for
the selling shareholders,
Ladies/Gentlemen:
The undersigned, Cable & Co. Worldwide, Inc., a corporation
incorporated in the State of Delaware (the "Company"), hereby confirms its
agreement with State Street Capital Markets, Corp. (referred to herein variously
as "you" or the "Underwriter") and an officer of the Company as the
representative for the certain selling shareholders of the Company listed on
Exhibit A attached hereto (the "Selling Shareholders"), as follows:
1. Introduction. The Company proposes to issue and sell to you
950,000 of its shares of Common Stock, $.01 par value (the "Company Shares") and
1,130,000 redeemable Common Stock purchase warrants (the "Class A Warrants")
(the Class A Warrants and the Company Shares are collectively referred to as the
"Firm Securities") and the Selling Shareholders propose to sell to you 180,000
shares of Common Stock (the "Selling Shareholder Shares" the "Company Shares"
and the "Selling Shareholders Shares" are collectively referred to herein as the
"Firm Shares"). Upon your request, as provided in Section 4 of this Agreement,
the Company shall also issue and sell to you up to an additional 169,500 Shares
and 169,500 Class A Warrants for the purpose of covering over-allotments in the
sale of the Firm Securities (the "Over- allotment Option"). Such 169,500
Ordinary Shares and 169,500 Class A Warrants are hereinafter collectively
referred to as the "Option Securities." The Firm Securities, the Selling
Shareholder Shares and the Option Securities are hereinafter sometimes referred
to as the "Securities." The Class A Warrants will be exercisable to purchase one
share of Common Stock, at any time commencing thirteen months from the Effective
Date (hereinafter defined), and ending on the third anniversary of the date
which is thirteen months from the Effective Date. The Class A Warrant exercise
price, subject to adjustment as described in
<PAGE>
the agreement providing for the Class A Warrants (the "Warrant Agreement"),
shall be $ per share. The shares of Common Stock and the Class A Warrants shall
trade separately and not as a unit. Commencing one year after the Effective
Date, the Class A Warrants are subject to redemption by the Company at $0.10 per
Class A Warrant, provided that (a) prior notice of not less than 30 days is
given to the holders of the Class A Warrants and (b) the closing bid price per
share of Common Stock as reported on The NASDAQ Stock Market for the 20
consecutive trading days ending on the fifteenth day prior to the date on which
notice of redemption is given, is at least 180% of the offering price of the
Firm Shares. The holders of Class A Warrants shall have exercise rights until
the close of the business day immediately preceding the date fixed for
redemption. The Company also proposes to issue and sell to you, pursuant to the
terms of the warrant agreement, dated ___________, 1996 between you and the
Company (the "Underwriter's Warrant Agreement"), warrants (the "Underwriter's
Warrants") to purchase up to 113,000 shares of Common Stock and 113,000 Class A
Warrants. The Underwriter's Warrants shall be non-redeemable by the Company and
exercisable during the 4-year period commencing one (1) year from the date of
the Prospectus (as defined in Section 2(a) hereof) at a price of $ .00 per share
and $.12 per Class A Warrants (120% of the offering price of the Firm
Securities, subject to adjustment in certain events to protect against
dilution.) The Securities issuable upon exercise of the Underwriter's Warrants
are hereinafter sometimes referred to as the "Underwriter's Securities." The
Securities, the Underwriter's Warrants and the Underwriter's Securities are more
fully described in the Registration Statement and the Prospectus referred to
below.
2. Representations and Warranties of the Company. The
Company represents and warrants to the Underwriter as of the date
hereof that:
a. The Company has filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form SB-2 (No. 33-_____), including any
related preliminary prospectus (the "Preliminary Prospectus"), for the
registration of the Securities, the Underwriter's Warrants and the Underwriter's
Securities, under the Securities Act of 1933, as amended (the "Act"), which
registration statement and amendment or amendments have been prepared by the
Company in conformity with the requirements of the Act, and the rules and
regulations (the "Regulations") of the Commission promulgated under the Act. The
Preliminary Prospectus bore the legend required by Item 501 of Regulation S-B
under the Act and the Regulations. Before the registration becomes effective,
the Company will not file any amendment to such registration statement to which
you shall have reasonably objected after having been furnished with a copy
thereof. Except as the context may otherwise require, such registration
statement, as amended, on file with the Commission at the time the registration
statement becomes effective (including the prospectus, financial statements,
schedules,
2
<PAGE>
exhibits and all other documents filed as a part thereof or incorporated therein
and all information deemed to be a part thereof as of such time pursuant to
paragraph (b) of Rule 430(A) of the Regulations), is hereinafter called the
"Registration Statement," and the form of prospectus, in the form first filed
with the Commission pursuant to Rule 424(b) of the Regulations (or included in
the Registration Statement, if no filing under Rule 424 is required), is
hereinafter called the "Prospectus."
b. On the date upon which the Registration
Statement is declared effective by the Commission (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, the
Registration Statement and the Prospectus will comply in all material respects
with the applicable provisions of the Act and the Regulations; neither the
Registration Statement nor the Prospectus, nor any amendment or supplement
thereto, will contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. When any Preliminary Prospectus was first filed with the
Commission (whether filed as part of the Registration Statement for the
registration of the Securities or any amendment thereto or pursuant to Rule
424(a) of the Regulations) and when any amendment thereof or supplement thereto
first filed with the Commission, such Preliminary Prospectus and any amendments
thereof and supplements thereto complied in all material respects with the
applicable provisions of the Act and the Regulations and did not contain an
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
representation and warranty made in this Section 2(b) does not apply to
statements made or statements omitted in reliance upon and in conformity with
written information furnished to the Company by the Underwriter expressly for
use in the Registration Statement or Prospectus or any amendment thereof or
supplement thereto.
c. This Agreement, the Warrant Agreement, the
Underwriter's Warrant Agreement and the Consulting Agreement (as defined in
Section 6(s) hereof), have been duly and validly authorized, executed and
delivered by the Company, and this Agreement constitutes, and the Warrant
Agreement, Underwriter's Warrant Agreement and the Consulting Agreement, when
executed and delivered pursuant to this Agreement, will (assuming due execution
by the Underwriter and/or the Warrant Agent, as defined in the Warrant
Agreement) each constitute a valid and binding agreement of the Company,
enforceable against the Company in accordance with its respective terms, except
(i) as such enforceability may be limited by bankruptcy, insolvency, reorga-
3
<PAGE>
nization, moratorium, fraudulent conveyance or similar laws affecting creditors'
rights generally, (ii) as enforceability of any indemnification, contribution or
exculpation provision may be limited under applicable Federal and state
securities laws, and (iii) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to the equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought. The Securities and the Underwriter's Warrants to be issued and
sold by the Company pursuant to this Agreement and the Underwriter's Securities
issuable upon exercise of the Underwriter's Warrants and payment therefor, have
been duly authorized and, when issued and paid for, will be validly issued,
fully paid and non-assessable; the holders thereof are not and will not be
subject to personal liability by reason of being such holders; the Securities,
the Underwriter's Warrants and the Underwriter's Securities are not and will not
be subject to the preemptive rights of any holders of any security of the
Company or similar contractual rights granted by the Company; and all corporate
action required to be taken for the authorization, issuance and sale of the
Securities, the Underwriter's Warrants and the Underwriter's Securities has been
duly and validly taken. The Securities conform, or will conform when issued, in
all material respects to all statements with respect thereto contained in the
Registration Statement and the Prospectus. The Underwriter's Warrants constitute
valid and binding obligations of the Company, enforceable in accordance with
their respective terms, to issue and sell, upon exercise in accordance with the
terms thereof, the number and type of the Company's securities called for
thereby; except (i) as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or similar laws
affecting creditors' rights generally, (ii) as enforceability of any
indemnification, contribution or exculpation provision may be limited under
applicable Federal and state securities laws, and (iii) that the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to the equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
d. All issued and outstanding securities of the
Company have been duly authorized and validly issued and are fully paid and
non-assessable; the issuances and sales of all such securities complied in all
material respects with applicable Federal and state securities laws; the holders
thereof have no rights of rescission with respect thereto, and are not subject
to personal liability by reason of being such holders; and none of such
securities were issued in violation of the preemptive rights of any holders of
any security of the Company or similar contractual rights granted by the
Company.
e. Except as set forth in its Registration
Statement and the Prospectus, the Company has good and marketable
4
<PAGE>
title to, or valid and enforceable leasehold estates in, all items of real and
personal property stated in the Prospectus to be owned or leased by it,
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 interfere with the use made or
proposed to be made of such assets or properties by the Company or are not
materially significant or important in relation to the business of the Company;
(ii) all of the material leases and subleases under which the Company is the
lessor or sublessor of properties or assets or under which the Company 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
is 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 as lessor, sublessor, lessee or
sublessee under any such lease or sublease, or affecting or questioning the
right of the Company to continued possession of the lease or subleased premises
or assets under any such lease or sublease, except as described or referred to
in the Prospectus; and (iii) the Company owns or leases all such assets and
properties, described in the Prospectus, as are necessary to its operations as
now conducted and, except as otherwise stated in the Prospectus, as proposed to
be conducted as set forth in the Prospectus.
f. Except as set forth in the Prospectus, there
is not now pending nor, to the knowledge of the Company, 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 is a party or its business
or property is subject, before or by any court (domestic or foreign) or
governmental authority (domestic or foreign), which, if determined adversely to
the Company, would have a material adverse effect on the condition, financial or
otherwise, or the earnings, business operations or business prospects of the
Company; and no labor disputes involving the employees of the Company exists
which would affect materially adversely the business, property, financial
position or results of operations of the Company.
g. All contracts and other documents required to
be described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement have been described in the Registration
Statement or the Prospectus or filed with the Commission as Exhibits to the
Registration Statement, as required.
h. The financial statements, together with
related notes, set forth in the Registration Statement and the
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Prospectus present fairly the consolidated financial position, results of
operations, changes in stockholders' equity and cash flows of the Company 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 Summary Financial Data and Selected
Financial 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.
i. Goldstein Golub Kessler & Company, P.C., 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, independent public
accountants as required by the Act and the Rules and Regulations.
j. The Company has one subsidiary (the
"Subsidiary"). Each of the Company and the Subsidiary has been duly organized
and is validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation. Except as otherwise set forth in the Prospectus,
the Company does not own, directly or indirectly, an interest in any
corporation, partnership, joint venture, trust or other business entity. Each of
the Company and the Subsidiary is duly qualified and licensed and in good
standing as a foreign corporation in each jurisdiction in which its operations
require such qualification or licensing. Each of the Company and the Subsidiary
has all requisite corporate power and authority, and all necessary
authorizations, approvals, orders, licenses, certificates and permits of and
from all governmental regulatory officials and bodies, to own or lease its
property and conduct its business as described in the Prospectus. Each of the
Company and the Subsidiary is and has been doing business in compliance with all
such material authorizations, approvals, orders, licenses, certificates and
permits and with all applicable foreign, state and local laws, rules and
regulations, including but not limited to laws and regulations relating to
environmental matters and employee health and safety matters, and none of the
aforementioned authorizations, approvals, orders, licenses, certificates or
permits have been suspended or revoked, nor are there any proceedings pending or
threatened which could result in a suspension or revocation thereof. The Company
has all requisite corporate power and authority to enter into this Agreement,
the Warrant Agreement, Underwriter's Warrant Agreement and the Consulting
Agreement and to carry out the provisions and conditions hereof and thereof, and
all consents, authorizations, approvals and orders required in connection
therewith have been
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obtained. No consent, authorization or order of, and no filing with, any court,
government agency (domestic and foreign) or other body is required for the
issuance of the Securities, and the Underwriter's Securities, pursuant to this
Agreement, the Warrant Agreement, the Consulting Agreement and the Underwriter's
Warrant Agreement, and as contemplated by the Prospectus, except with respect to
applicable state securities laws. To the knowledge of the Company, none of the
activities or business of the Company or of the Subsidiary is in violation of,
or would cause the Company 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 on the condition, financial or otherwise,
or the earnings, business operations or business prospects of the Company or the
Subsidiary, as the case may be.
k. The outstanding debt, the property and the
business of the Company conforms in all material respects to the descriptions
thereof contained in the Registration Statement and Prospectus.
l. The Securities, the Underwriter's Warrants,
the Underwriter's Securities, and any other securities issued or to be issued by
the Company on or before the Closing Dates (as defined in Section 4(d) hereof)
described herein conform, or will conform when issued, in all material respects
to all statements with respect thereto contained in the Registration Statement
and the Prospectus.
m. Except as set forth in the Prospectus, no
default exists in the due performance and observance of any term, covenant or
condition of any license, contract, indenture, mortgage, deed of trust, note,
loan or credit agreement, or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or instrument to which the
Company or the Subsidiary is a party or by which the Company or the Subsidiary
may be bound or to which any of the property or assets of the Company or the
Subsidiary is subject which default could reasonably be expected to have a
material adverse effect on the condition, financial or otherwise, or the
earnings, business operations or business prospects of the Company or the
Subsidiary, as the case may be.
n. Neither the Company nor the Subsidiary is in
violation of any term or provision of its Certificate of Incorporation (or other
incorporation documents). Neither the execution and delivery of this Agreement,
the Warrant Agreement, the Consulting Agreement nor the issuance and sale of the
Securities, the Underwriter's Warrants, the Underwriter's Securities, nor the
consummation of any of the transactions contemplated herein or therein, nor the
compliance by the Company with the terms and provisions hereof or thereof has
conflicted
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with or will conflict with, or has resulted in or will result in a breach of,
any of the terms and provisions of, or has constituted or will constitute a
default under, or has resulted in or will result in the creation or imposition
of any lien, charge or encumbrance upon the property or assets of the Company or
the Subsidiary pursuant to the terms of any indenture, mortgage, deed of trust,
note, loan or credit agreement or any other agreement or instrument evidencing
an obligation for borrowed money, or any other agreement or instrument to which
the Company or the Subsidiary, as the case may be, is a party, or by which the
Company or the Subsidiary, as the case may be, is or may be bound, or to which
any of the property or assets of the Company or the Subsidiary is subject; nor
will such action result in any violation of the provisions of the Certificate of
Incorporation of the Company or the Subsidiary or any contract or agreement, or
any statute or any order, rule or regulation applicable to the Company or the
Subsidiary or any other regulatory authority or other governmental foreign and
domestic body having jurisdiction over the Company or the Subsidiary, as the
case may be.
o. Except as disclosed in the Prospectus, each of
the Company and the Subsidiary has filed all necessary federal, state, local and
foreign income and franchise tax returns and has 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, might be asserted
against the Company or the Subsidiary, as the case may be.
p. Subsequent to the respective dates as of which
information is given in the most recently circulated Preliminary Prospectus
included as a part of the Registration Statement, and except as may otherwise be
indicated or contemplated herein or therein, (i) neither the Company nor the
Subsidiary has issued any securities (except for the issuance of securities
described under the caption "Capitalization"), (ii) declared or paid any
dividend or made any other distribution on or in respect to its capital stock;
(iii) incurred any liability or obligation, direct or contingent, or entered
into any transaction which is material to its business; (iv) entered into any
transaction other than in the ordinary course of business or (v) effected or
experienced any adverse change, or development involving a prospective adverse
change, in its financial position, net worth, results of operations, business or
business prospects, assets or properties or key personnel.
q. The Commission has not issued any order
preventing or suspending the use of any Preliminary Prospectus or
any part thereof.
r. The authorized, issued and outstanding capital
stock of the Company as of the date of the Prospectus is as set
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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 directly or indirectly convert any obligation
into, any shares of capital stock of the Company or the Subsidiary have been
granted or entered into by the Company or the Subsidiary, except as expressly
described in the Prospectus. The Securities conform in all material respects to
all statements relating thereto contained in the Registration Statement or the
Prospectus.
s. Except for the registration rights granted
under the Underwriter's Warrant Agreement and to the Selling Stockholders,
including the holders of shares of Series A Preferred Stock, named in the
Registration Statement and as disclosed in the Prospectus, no holders of any
securities of the Company or the Subsidiary or of any options, warrants or
convertible or exchangeable securities of the Company or the Subsidiary
exercisable for or convertible or exchangeable for securities of the Company or
the Subsidiary, as the case may be, have the right to include any securities
issued by the Company or the Subsidiary, as the case may be, in the Registration
Statement or any registration statement to be filed by the Company.
t. The Company has in effect a "Key-man" life
insurance policies of which the Company is the beneficiary in the amount of
$500,000 on the life of David Albahari.
u. Assuming that there will be two "market
makers" for the Common Stock and the Class A Warrants, at least 300 beneficial
owners of each of the Securities and a sufficient "public float" of the shares
of Common Stock and the Class A Warrants, and that the Company's registration of
the Common Stock and the Class A Warrants pursuant to the Securities Exchange
Act of 1934 (the "Exchange Act") becomes effective (all as contemplated by the
requirements of the National Association of Securities Dealers, Inc. (the
"NASD")), the shares of Common Stock and the Class A Warrants are eligible for
quotation on the Nasdaq Stock Market ("Nasdaq"). The Company has filed a
registration statement with the Commission pursuant to Section 12 of the
Exchange Act, has used its best efforts to have same declared effective by the
Commission on an accelerated basis on the Effective Date.
v. There are no claims, payments, issuances,
arrangement or understandings for services in the nature of a finder's or
origination fee with respect to the sale of the Securities hereunder or any
other arrangements, agreements, understandings, commitments, payments or
issuances of securities with respect to the Company that may affect the
Underwriter's
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compensation, as determined by the National Association of
Securities Dealers, Inc. ("NASD").
w. Neither the Company, the Subsidiary nor, to
the knowledge of the Company or the Subsidiary, any of its employees or officers
or directors, agents or any other person acting on behalf of the Company or the
Subsidiary has, directly or indirectly, contributed or agreed to contribute any
money, gift or similar benefit (other than legal price concessions to customers
in the ordinary course of business) to any customer, supplier, employee or agent
of a customer, supplier, or official or governmental agency or instrumentality
of any government (domestic or foreign) or any political party or candidate for
office (domestic or foreign) or other person who was, is, or may be in a
positions to help or hinder the business of the Company or the Subsidiary (or
assist it in connection with any actual or proposed transaction) which (i) could
reasonably be expected to subject the Company or the Subsidiary to any material
damage or penalty in any civil, criminal or governmental litigation or
proceeding, (ii) if not given in the past, could reasonably be expected to have
had a materially adverse effect on the assets, business or operations of the
Company or the Subsidiary as reflected in any of the financial statements
contained in the Prospectus, or (iii) if not continued in the future, could
reasonably be expected to materially adversely affect the condition, financial
or otherwise, or the earnings, business operations or business prospects of the
Company or the Subsidiary. The Company's internal accounting controls and
procedures are sufficient to cause the Company to comply in all material
respects with the Foreign Corrupt Practices Act of 1977, as amended.
x. The Company owns or possesses the requisite
licenses or rights to use all trademarks, service marks, service names, trade
names, patents and patent applications, copyrights, methods, protocols,
techniques, technologies, procedures and other rights (collectively the
"Intangibles") described as owned or used by the Company in the Registration
Statement. There is no claim, action or proceeding by any person pending or, to
the Company's knowledge, threatened, which pertains to or challenges the rights
of the Company with respect to any Intangibles used in the conduct of the
business of the Company, except as described in the Prospectus. To the Company's
and the Subsidiary's knowledge, current products, services and processes of the
Company and the Subsidiary do not infringe on any Intangibles held by any third
party.
y. Except as set forth in the Registration
Statement, neither the Company nor the Subsidiary is under any obligation to pay
royalties or fees of any kind whatsoever to any third party with respect to
Intangibles it has developed, owns, licenses, uses, employs or intends to use or
employ.
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z. Each of the Company and the Subsidiary have
generally enjoyed satisfactory employer/employee relationships with its
employees and are in material compliance in all material respects with all
foreign, Federal, state and local laws and regulations respecting the employment
of its employees and employment practices, terms and conditions of employment
and wages and hours relating thereto. There are no pending or, to the Company's
or the Subsidiary's knowledge, threatened investigations involving the Company
or the Subsidiary by the U.S. Department of Labor or corresponding foreign
agency, or any other governmental agency responsible for the enforcement of such
foreign, Federal, state or local laws and regulations. There is no unfair labor
practice charge or complaint against the Company or the Subsidiary pending
before the National Labor Relations Board or corresponding foreign agency or any
strike, picketing, boycott, dispute, slowdown or stoppage pending or, to the
Company's or the Subsidiary's knowledge, as the case may be, threatened against
or involving the Company or the Subsidiary, or any predecessor entity to either
of them, and none has occurred. No representation question exists respecting the
employees of the Company or the Subsidiary. No collective bargaining agreement
or modification thereof is currently in effect or being negotiated by the
Company or the Subsidiary and their respective employees. No grievance or
arbitration proceeding is pending under any expired or existing collective
bargaining agreements of the Company.
aa. Neither the Company, nor, to the Company's
knowledge, any of its respective officers or directors or any of their
respective employees or stockholders, has taken, directly or indirectly, any
action designed to or which has constituted or which could reasonably be
expected to cause or result in, under the Exchange Act or otherwise,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities.
bb. Neither the Company nor the Subsidiary
maintains or has maintained, sponsored or contributed to any program or
arrangement that is an "employee pension benefit plan," an "employee welfare
benefit plan" or a "multiemployer plan" as such terms are defined in Sections
3(2), 3(1) and 3(37), respectively of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") ("ERISA Plans"), except for the 1996 Stock
Option Plan described in the Prospectus. Neither the Company nor the Subsidiary
presently maintains, or contributes or at any time in the past, maintained or
contributed to a defined benefit plan, as defined in Section 3(35) of ERISA.
Neither the Company nor the Subsidiary has ever completely or partially
withdrawn from a "multi-employer plan."
cc. Except as set forth in the Prospectus under
"MANAGEMENT" and "CERTAIN TRANSACTIONS," neither the Company nor
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the Subsidiary is a party to any agreement with any officer, director or
stockholder of the Company or any affiliate or associate of any such person or
entity which is required to be disclosed in the Prospectus pursuant to
Regulation SB. Except as set forth in the Prospectus, to the Company's
knowledge, no officer, director or stockholder of the Company or any "affiliate"
or "associate" (as these terms are defined in Rule 405 promulgated under the
Regulations) of any such person or entity or the Company, has or has had, either
directly or indirectly, (i) an interest in any person or entity which (A)
furnishes or sells services or products which are furnished or sold or are
proposed to be furnished or sold by the Company, or (B) purchases from or sells
or furnishes to the Company any goods or services, or (ii) a beneficial interest
in any contract or agreement to which the Company is a party or by which it may
be bound or affected.
dd. The minute books of the Company and the
Subsidiary have been made available to counsel to the Underwriter and contain a
complete summary of all meetings and actions by unanimous consent of directors
and stockholders since the time of incorporation and reflect all transactions
referred to in such minutes accurately in all material respects.
ee. The statements in the Prospectus under "RISK
FACTORS," "BUSINESS," "CERTAIN TRANSACTIONS," "MANAGEMENT" and "DESCRIPTION OF
SECURITIES," insofar as they refer to statements of law, descriptions of
statutes, licenses, rules or regulations or legal conclusions are correct in all
material aspects; and the business activities of the Company and the Subsidiary,
do not violate applicable foreign, state, or local laws, statutes, rules or
regulations.
ff. 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.
gg. On Closing Date I and Closing Date II (as
defined in Section 4(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 Securities to the Underwriter hereunder shall have been
fully paid or provided for by the Company, and all laws imposing such taxes
shall have been fully complied with.
3. Representations and Warranties of the Selling
Shareholders. Each of the Selling Shareholders represents and
warrants to, and agrees with, the Underwriter that:
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(a) Such Selling Shareholder has taken and prior to Closing
Date I will take no action which will prevent it from having at Closing Date I,
valid, marketable title to the Securities to be sold by such Selling Shareholder
hereunder and full right, power and authority to enter into this Agreement and
to sell, assign, transfer and deliver such Securities hereunder, free of liens,
encumbrances, equities and adverse claims; and upon delivery of and payment for
such Securities hereunder, the Underwriter will acquire valid, marketable title
thereto, free of liens, encumbrances, equities and adverse claims.
(b) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed, or which might reasonably be
expected, to cause or result in stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale of the Securities.
(c) Such Selling Shareholder has executed and delivered a
power of attorney naming Martin C. Licht, Esq., as such Selling Shareholder's
Attorney-in-fact (and by the execution by him of this Agreement, such
Attorney-in-fact represents and warrants that he has been duly appointed as
Attorney-in-fact by the Selling Shareholders) for the purpose of entering into
and carrying out this Agreement, and in connection therewith such Selling
Shareholder further represents, warrants and agrees that such Selling
Shareholder [has deposited in custody, under a custody agreement ("Custody
Agreement") with the law firm of Gallet, Dreyer & Berkey LLP, as custodian (the
"Custodian"), certificates in negotiable form for the Securities to be sold by
such Selling Shareholder hereunder for the purpose of further delivery pursuant
to this Agreement. Such Selling Shareholder agrees that the Securities to be
sold by such Selling Shareholder represented by the certificates on deposit with
the Custodian are subject to the interest of the Underwriter and the other
Selling Shareholders, that the arrangements made for such custody are to that
extent irrevocable, and that the obligations of such Selling Shareholder
hereunder shall not be terminated except as provided in this Agreement or in the
power of attorney appointing the Attorney-in-fact or in the Custody Agreement,
by any act of such Selling Shareholder, by operation of law, whether, in the
case of an individual Selling Shareholder, by the death or incapacity of such
Selling Shareholder, in the case of a trust or estate, by the death of the
trustee or trustees or the executor or executors or the termination of such
trust or estate or, in the case of a corporate or partnership Selling
Shareholder, by its liquidation or dissolution, or by the occurrence of any
other event. If any individual Selling Shareholder, trustee or executor should
die or become incapacitated, any such trust or estate should be terminated or
any such corporation or partnership should be liquidated or dissolved, or if any
other event should occur before the delivery of the Securities hereunder,
certificates for the Securities deposited with the Custodian shall be delivered
by
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the Custodian in accordance with the terms and conditions of this Agreement as
if such death, incapacity, termination, liquidation, dissolution or other event
had not occurred, regardless of whether or not the Custodian or the
Attorney-in-fact shall have received notice thereof.
(d) To the extent that any statements or omissions made in the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, are made in reliance upon, and in conformity with, written information
furnished to the Company by such Selling Shareholder specifically for use in the
preparation thereof, neither the Registration Statement nor the Prospectus nor
any amendment or supplement thereto, when the Registration Statement becomes
effective and at all times subsequent thereto up to and at Closing Date I, will
include any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading.
4. Purchase, Sale and Delivery of the Securities and
Underwriter's Warrants.
a. On the basis of the representations and
warranties herein contained, but subject to the terms and conditions herein set
forth, the Company and the Selling Shareholders agree severally and not jointly
to sell to the Underwriter the Securities (950,000 shares of Common Stock and
1,130,000 Class A Warrants will be issued and sold to the Underwriter by the
Company and 180,000 shares of Common Stock will be sold by the Selling
Shareholders to the Underwriter in the amounts set forth in Exhibit A) and the
Underwriter agrees to purchase from the Company and from the Selling
Shareholders such Securities, in the amounts set forth on Exhibit B attached
hereto, at a purchase price of $ per share and $.10 per Class A Warrant at the
time described herein, to be sold by the Underwriter at an initial public
offering price of $ per share and $.10 per Class A Warrant. The Company and the
Selling Shareholders shall pay to the Underwriter commissions at the value of $.
per share and $.01 per Class A Warrant for each purchased by the Underwriter
against payment by the Underwriter.
b. In addition, upon not less than two (2) days'
notice from the Underwriter to the Company, for a period of thirty (30) business
days from the date hereof, the Company agrees to sell to the Underwriter at a
purchase price of $ per share of Common Stock and $.10 per Class A Warrant all
or any part of the Option Securities, to be sold by the Underwriter hereunder at
an initial public offering price of $ per share of Common Stock and $.10 per
Class A Warrant. Delivery of the Option Securities shall be made concurrently
with tender of payment therefor. Option Securities may be purchased by the
Underwriter only for the purpose of covering over-allotments in
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<PAGE>
the sale of the Firm Securities, and the Underwriter shall have no obligation to
exercise all or part of the over-allotment Option. No Option Securities shall be
delivered unless the Firm Securities shall be simultaneously delivered or shall
theretofore have been delivered as herein provided. The Company shall pay to the
Underwriter commissions at the value of $. per share and $.01 per Class A
Warrant for each purchased by the Underwriter against payment by the
Underwriter.
c. On Closing Date I, the Company shall issue and
sell to the Underwriter the Underwriter's Warrants, which warrants shall entitle
the holders thereof to purchase an aggregate of (i) 113,000 shares of Common
Stock and (ii) 113,000 Class A Warrants. The total purchase price of the
Underwriter's Warrants shall be $10. The Underwriter's Warrants shall be
exercisable in whole or in part for a period of four (4) years commencing one
(1) year from the Effective Date at an initial purchase price equal to 120% of
the initial public offering price per Security. The Underwriter's Warrant
Agreement and form of Underwriter's Warrant Certificates shall be substantially
in the form filed as Exhibit 4.2 to the Registration Statement.
d. Payment for the Underwriter's Warrants shall
be made on Closing Date I. Payment for the Firm Securities and the Option
Securities shall be made on each of Closing Date I and Closing Date II,
respectively, at the Underwriter's election by certified or bank cashier's check
in New York Clearing House funds, payable to the order of the Company at the
offices of the Underwriter, or at such other place as agreed upon by the
Underwriter and the Company, upon delivery of certificates (in form and
substance reasonably satisfactory to the Underwriter) representing the
Securities or by confirmation of electronic transfer of the Securities to the
Underwriter for the account of the Underwriter. Delivery and payment for the
Firm Securities shall be made at 10:00 A.M. New York time, on or before the
seventh business day following the Effective Date or at such earlier time as the
Underwriter shall determine, or at such other time as shall be agreed upon by
the Underwriter and the Company. The hour and date of delivery and payment for
the Firm Securities are called "Closing Date I." The Firm Securities shall be
registered in such name or names and in such authorized denominations as the
Underwriter may request in writing at least two (2) full business days prior to
Closing Date I. The Company will permit the Underwriter to examine and package
any certificates representing the Firm Securities for delivery, at least one (1)
full business day prior to Closing Date I. Delivery for the Option Securities as
provided above shall be made within the two (2) business day period after notice
of exercise to the Company, and against payment therefor, as provided above. The
hour and date of such delivery and payment made subsequent to Closing Date I for
Option Securities is referred to as "Closing Date II." The Option Securities
shall be registered in such name or names and
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in such denominations as the Underwriter may request in writing
at the time of exercise of the Over-allotment Option.
e. The Company and the Selling Shareholders shall
not be obligated to sell or deliver any Firm Securities except upon tender of
payment by the Underwriter for all the Firm Securities.
5. Public Offering. The Underwriter is to make a public
offering of the Firm Securities and such of the Option Securities as it may
determine. The Securities are to be initially offered to the public at the
offering prices set forth on the cover page of the Prospectus (such prices being
hereinafter called the "Public Offering Price"). The Underwriter may, at its own
expense, enter into one or more agreements as the Underwriter, in its sole
discretion, deem advisable, with one or more broker-dealers who shall act as
dealers in connection with such public offering.
6. Covenants of the Company. The Company covenants
and agrees that it will:
a. The Company shall use its best efforts 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 counsel to the Underwriter shall have objected
in writing, or which is not in compliance with the Act and the Regulations.
Additionally, the Company shall at its own expense, prepare and file with the
Commission a registration statement (on Form 8-A or form 10) under section 12 of
the Exchange Act, and shall use its best efforts to cause such registration
statement to be declared effective by the Commission on an accelerated basis on
the Effective Date and maintained in effect for at least five years from the
Effective Date.
b. Promptly after you or the Company shall have been advised
thereof, you shall advise the Company or the Company shall advise you, as the
case may be, and confirm such advice in writing, of (i) the receipt of any
comments of the Commission, (ii) the effectiveness of any post-effective
amendment to the Registration Statement, (iii) the filing of any supplement to
the Prospectus or any amended Prospectus, (iv) 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 (v) 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
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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.
c. 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 Securities for such period as in the opinion of
counsel to the Underwriter the use thereof is required to comply with the
applicable provisions of the Act and the 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 an underwriter or dealer, of any event of
which the Company had knowledge and which materially affects the Company or the
Securities, or which in the opinion of counsel to the Company or counsel to the
Underwriter should be set forth in an amendment to the Registration Statement or
an amendment or supplement to the Prospectus in order to make the statements
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
Securities, or in case it shall be necessary to amend or supplement the
Prospectus to comply with the Act or the 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, except that in
the case that 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 and at the expense of the Underwriter,
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. During the period when a Prospectus is required under the Act, the Company
will, promptly upon your request, prepare and file with the Commission any
amendments or supplements to the
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Registration Statement or Prospectus, and take any other action, which in the
reasonable opinion of Ziegler, Ziegler & Altman, may be reasonably necessary or
advisable in connection with the distribution of the Securities, and will use
its best efforts to cause the same to become effective as promptly as possible.
d. The Company will deliver to you at or before the Closing
Date I two signed copies of the Registration Statement including all financial
statements and exhibits filed therewith, and of all amendments thereto and
signed copies of all consents of certified experts. 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 the Underwriter 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.
e. The Company shall comply with the Act, the Regulations, and
the Exchange Act, and the rules and regulations promulgated thereunder in
connection with the offering and issuance of the Securities in all material
respects.
f. File the Prospectus (in form and substance reasonably
satisfactory to the Underwriter) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission in accordance with
Rule 424, if the Prospectus is required to be so filed.
g. During the time when a prospectus is required to be
delivered under the Act, use all reasonable efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended, and by the Regulations, as from time to time in force, so far
as necessary to permit the continuance of sales of or dealings in the Securities
and the Underwriter's Securities in accordance with the provisions hereof and
the Prospectus. If at any time when a prospectus relating to the Securities, the
Warrant Securities or the Underwriter's Securities is required to be delivered
under the Act, any event shall have occurred as a result of which, in the
opinion of counsel for the Company or counsel for the Underwriter, the
Prospectus, as then amended or supplemented, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or if it is necessary at any time to amend
the Prospectus to comply with the Act, the Company will notify the Underwriter
promptly and prepare and file with the Commission
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an appropriate amendment or supplement in accordance with
Section 10 of the Act.
h. Endeavor in good faith, in cooperation with the
Underwriter, and Ziegler, Ziegler & Altman at or prior to the time the
Registration Statement becomes effective, to qualify the Securities, the Warrant
Securities, and the Underwriter's Securities for offering and sale under the
securities laws of such jurisdictions as the Underwriter may reasonably
designate, provided that no such qualification shall be required in any
jurisdiction where, as a result thereof, the Company would be subject to service
of general process or to taxation as a foreign corporation doing business in
such jurisdiction. In each jurisdiction where such qualification shall be
effected, the Company will, unless the Underwriter agrees that such action is
not at the time necessary or advisable, use all reasonable efforts to file and
make such statements or reports at such times as are or may reasonably be
required by the laws of such jurisdiction.
i. Make generally available to its security holders as soon as
practicable, but not later than the first day of the fifteenth full calendar
month following the Effective Date, an earnings statement (which need not be
certified by independent public or independent certified public accountants
unless required by the Act or the Regulations, but which shall satisfy the
provisions of Section 11(a) of the Act) covering a period of at least twelve
(12) consecutive months beginning after the Effective Date.
j. For a period of five (5) years from the Effective Date,
furnish to the Underwriter copies of such financial statements and other
periodic and special reports as the Company from time to time furnishes
generally to holders of any class of its securities, and promptly furnish to the
Underwriter (i) a copy of each periodic report the Company shall be required to
file with the Commission, (ii) a copy of every press release and every news item
and article with respect to the Company, or its respective affairs which was
released by the Company, (iii) copies of each Form SR, (iv) a copy of each Form
8-K or Schedules 13D, 13G, 14D-1 or 13E-4 received or prepared by the Company,
and (v) such additional documents and information with respect to the Company,
and its affairs or any future subsidiaries or affiliates of the Company as the
Underwriter may from time to time reasonably request.
k. Apply the net proceeds from the offering received
by it in a manner consistent with the caption "USE OF PROCEEDS OF
THE OFFERING" in the Prospectus.
l. Deliver to the Underwriter, prior to filing, any
amendment or supplement to the Registration Statement or
Prospectus proposed to be filed after the Effective Date and not
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file any such amendment or supplement to which the Underwriter shall reasonably
object, after being furnished such copy, in writing with reasonable specificity
as to the nature and extent of any objection.
m. Furnish to the Underwriter as early as practicable prior to
the date hereof and Closing Date I, but not later than two (2) full business
days prior thereto, a copy of the latest available unaudited interim financial
statements of the Company (which in no event shall be earlier than March 31,
1996) which have been read by the Company's independent accountants as stated in
their letter to be furnished to the Underwriter pursuant to Sec-tion 8(h)
hereof.
n. For a period of three (3) years from Closing Date I,
provide the Underwriter, at the Company's sole expense, with access to daily
consolidated financial transfer sheets relating to the Securities. Also, provide
the Underwriter, at the Company's sole expense, with a daily Securities Listing
Position generated by The Depository Trust Company.
o. For a period of no less than three (3) years after the
Effective Date, engage an advisor (the "Advisor") designated in writing by the
Underwriter to the Board of Directors of the Company (the "Board"), and
reasonably acceptable to the Board of Directors, if requested by the
Underwriter. In the event the Underwriter shall not have designated such
individual at the time of any meeting of the Board or such person is unavailable
to serve, the Company shall notify the Underwriter of each meeting of the Board.
An individual, if any, designated by the Underwriter shall receive all notices
and other correspondence and communications sent by the Company to members of
the Board. In addition, such Advisor shall be entitled to receive reimbursement
for all reasonable costs incurred in attending such meetings including, but not
limited to, food, lodging, and transportation. Such reimbursement shall be the
same as that offered to other directors. The Company further agrees that, during
said three (3) year period, it shall schedule no less than four (4) formal and
"in person" meetings of its Board of Directors in each such year at which
meetings such Advisor shall be permitted to attend as set forth herein; said
meetings shall be held quarterly each year and thirty (30) days advance notice
of such meetings shall be given to the Advisor. Further, during such three (3)
year minimum period, the Company shall give notice to the Underwriter with
respect to any proposed acquisitions, mergers, reorganizations or other similar
transactions. In lieu of the Underwriter's right to designate an Advisor, the
Underwriter shall have the right during such minimum three (3) year period, in
its sole discretion, to designate in writing one (1) person for election as a
Director of the Company and the Company will utilize its best efforts to obtain
the election of such person
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who shall be entitled to receive the same compensation, expense reimbursements
and other benefits set forth above.
The Company agrees to indemnify and hold the Underwriter and
such Advisor harmless against any and all claims, actions, damages, costs and
expenses, and judgments arising solely out of the attendance and participation
of the Advisor at any such meeting described herein. In the event the Company
maintains a liability insurance policy affording coverage for the acts of its
officers and directors, it agrees, if possible (without any additional premium
or other related cost to the Company) to include the Advisor as an insured under
such policy. In the event that the Underwriter designates an individual for
election as a Director, the Company shall endeavor to provide all of the
officers and directors with liability insurance affording coverage for the acts
of such officers and directors.
p. Until the sooner of (i) seven (7) years from the date
hereof, or (ii) the sale to the public of the Underwriter's Securities, not take
any action or actions which may prevent or disqualify the Company's use of Form
SB-2 (or other appropriate form) for the registration under the Act of the
Underwriter's Securities.
q. For a period of five (5) years from the Effective Date, use
its best efforts to maintain the quotations on the NASDAQ SmallCap Stock Market
and the Boston Stock Exchange of the Securities.
r. Within a reasonable time after Closing Date I, supply the
Underwriter with one (1), and Ziegler, Ziegler & Altman, counsel to the
Underwriter, with three (3) bound volumes in form and content acceptable to the
Underwriter and its counsel, 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. The volumes shall be hard cover bound in book
format.
s. For a period of two (2) years from the Effective Date, not
issue any shares of Common Stock or any warrants, options or other rights to
purchase capital stock without the prior written consent of the Underwriter,
which consent shall not be unreasonably withheld. Notwithstanding the foregoing,
the Company may issue securities (A) upon (i) the conversion of any securities
outstanding on the date hereof pursuant to the terms thereof, (ii) the exercise
of any warrants or options outstanding on the date hereof pursuant to the terms
thereof, (iii) the exercise of the Underwriter's Warrant, and (iv) upon the
redemption of the Series A Preferred Stock as described in the Registration
Statement and (B) pursuant to the 1996 Stock Option Plan described in the
Prospectus.
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t. 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, hold an annual meeting of stockholders for the election of
directors within 180 days after the end of each of the Company's fiscal years
and, within 150 days after the end of each of the Company's fiscal years, and
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 as at the end of such fiscal year, together
with statements of income, stockholders' equity and cash flows of the Company 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. Such financial statements shall be those required by Rule
14a-3 under the Exchange Act and shall be included in an annual report pursuant
to the requirements of such Rule.
u. For a period of two years following the Closing Date I, the
Company shall not, without the Underwriter's prior written consent, register or
otherwise facilitate the registration of any of its securities issuable upon the
exercise of options, warrants (other than the Class A Warrants and the
Underwriter's Securities) or other rights, whether by means of a Registration
Statement on Form S-8 or otherwise.
v. Engage a financial public relations firm reasonably
satisfactory to the Underwriter as soon as possible after Closing Date I, and
continuously engage such firm, or an acceptable substitute firm for date twenty
four (24) months from Closing Date I. In addition, upon the request of the
Underwriter, the Company shall retain a management consulting firm and/or
advisory agency acceptable to the Underwriter.
w. Enter into the Underwriter's Warrant Agreement, and the
Consulting Agreement in substantially the forms filed as Exhibits [ ] and [ ],
respectively, to the Registration Statement. Upon the exercise of any Class A
Warrants on or after the first anniversary of the Effective Date, the Company
shall pay to the Underwriter a commission of seven (7%) percent of the aggregate
exercise price of such Class A Warrants, a portion of which may be reallowed by
the Underwriter to the dealer who solicited the exercise, if: (i) the market
price of the Common Stock is greater than the exercise price of the Class A
Warrant
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on the date of exercise; (ii) the exercise of the Class A Warrant was solicited
by a member of the NASD; (iii) the Class A Warrant is not held in a
discretionary account; (iv) the disclosure of the compensation arrangements has
been made in documents provided to customers, both as part of the Offering and
at the time of exercise; and (v) the solicitation of the Class A Warrant was not
in violation of Rule 10b-6 promulgated under the Exchange Act. No commission
shall be paid to you on any Class A Warrant exercise prior to the first
anniversary of the Effective Date or on any Warrant exercised at any time
without solicitation by the Underwriter or a soliciting dealer.
x. Purchase term key-man insurance on the life of David
Albahari, in the amount of $500,000 for such executive and naming the Company as
the sole beneficiary thereof, on or before Closing Date I.
y. Take all necessary and appropriate actions to be included
in Standard and Poor's Corporation Descriptions and Moody's OTC Manual or other
equivalent Manuals and to maintain its listing therein for a period of five (5)
years from the Effective Date.
z. Cause the Company's existing officers and directors and
shareholders to enter into written agreements (the "Lock-up Agreements") that,
for a period of two (2) years, from the Effective Date, they will not, without
the prior written consent of the Underwriter, (i) publicly sell any securities
of the Company owned directly or indirectly by them or owned beneficially by
them (as defined in the Exchange Act and the Regulations) except that certain
holders of Preferred Stock who will be issued an aggregate of 462,531 shares of
Common Stock shall be entitled to sell (i) up to 1/3 of their holdings during
the period commencing 13 months after Closing Date II until the last day of the
18th month after Closing Date II; (ii) up to 1/3 of their holdings during the
period 19 months after Closing Date II until the last day of the 24th month
after Closing Date II; and (iii) the remaining holdings 25 months after Closing
Date II; and provided, further that the shares of Common Stock acquired in the
Bridge Financing (as defined in the Registration Statement, the "Bridge
Financing") shall be sold as described in the Registration Statement and that
certain holders of the Warrants acquired as part of the Bridge Financing shall
be entitled to sell such Warrants without the Underwriter's consent at any time
after the one year anniversary of the Closing Date.
aa. (i) Grant to the Underwriter a preferential right on the
terms and subject to the conditions set forth in Section 6(v), for a period of
three (3) years from the Effective Date, to purchase for its account, or to sell
or otherwise dispose of for the account of the Company or its present affiliates
or subsidiaries or any of its stockholders listed in
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the Prospectus under the caption "PRINCIPAL STOCKHOLDERS" (the "Principal
Stockholders"), any securities of the Company, on terms not more favorable to
the Company or such present or future subsidiary or the Principal Stockholders
than they can secure elsewhere, to purchase or sell any such securities;
provided, however, that the Underwriter shall have no right of first refusal to
match a binding firm commitment offer from a so-called "wire house" investment
banking firm to raise the Company in excess of $15,000,000, provided, further,
that if such "wire house" does not enter into a binding firm commitment to raise
in excess of $15,000,000 for the Company, the Underwriter shall maintain its
preferential right granted hereunder. If the Underwriter fails to notify the
Company in writing of its intention to act as underwriter or placement agent or
otherwise participate or introduce a third party to participate in such offering
within fortyfive (45) 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 modified in
any substantive respect, 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 does not perform any of the functions set
forth in (ii) above, 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.
bb. Following the Effective Date and from time to time
thereafter so long as any of the Class A Warrants remain
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outstanding, timely deliver and supply to its Transfer Agent acting as warrant
agent sufficient copies of the Company's current Prospectus, as will enable such
warrant agent to deliver a copy of such Prospectus to any Class A Warrant holder
or other holder where such Prospectus delivery is by law required to be made.
cc. For a period of three years following the First Closing
Date, not issue or sell any securities pursuant to Regulation S of the
Regulations under the Act, without the Underwriter's prior written consent.
7. Payment of Expenses.
a. The Company hereby agrees to pay all expenses
(other than fees of counsel to the Underwriter, except as provided in (iii)
below) in connection with the offering, including but not limited to, (i) the
preparation, printing, filing and mailing (including the payment of postage and
overnight delivery with respect to such mailing) of the Registration Statement
and the Prospectus and the printing and mailing of this Agreement and related
documents, including the cost of all copies thereof and of the Preliminary
Prospectus and of the Prospectus and any amendments thereof or supplements
thereto supplied to the Underwriter in quantities as hereinabove stated, (ii)
the printing, engraving, issuance and delivery of the Securities, the
Underwriter's Warrants, including any transfer or other taxes payable thereon
and the Underwriter's Securities, (iii) the qualification of the Securities, the
Underwriter's Warrants, the Warrant Securities, and the Underwriter's Securities
under state or foreign securities or "Blue Sky" laws and determination of the
status of such securities under legal investment laws, including the costs of
printing and mailing the "Preliminary Blue Sky Memorandum," and "Supplemental
Blue Sky Memorandum" and "Legal Investments Survey," if any, and the fees and
disbursements of counsel for the Underwriter relating to Blue Sky matters (which
fees shall be payable by the Company in the sum of $35,000), (iv) advertising
costs and expenses including but not limited to the costs and expenses in
connection with the "road show," information meetings and presentations, bound
volumes and "tombstones" in publications selected by the Underwriter and
prospectus memorabilia, (v) costs and expenses in connection with due diligence
investigations, including but not limited to the fees of any independent counsel
or consultant retained, and all reasonable travel and lodging expenses incurred
by you and/or counsel to the Underwriter in connection with visits to, and
examination of, the Company's premises, (vi) fees and expenses of the registrar,
transfer agent and warrant agent, (vii) application and listing fees for
inclusion in Moody's OTC Manual or Standard and Poor's Corporation Descriptions
or other equivalent manuals, and (viii) the fees payable to the NASD and Nasdaq.
In addition, the
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Company shall engage the Underwriter's Counsel to provide the Underwriter, at
the Closing Date I 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 National Market System, with an opinion, setting forth those
states in which the Common Stock may be traded in non-issuer transactions under
the blue sky laws of the fifty states. The Company shall pay Ziegler, Ziegler &
Altman a one-time fee of $12,500 at Closing Date I for such opinions. The
$35,000 payment to counsel for the Underwriter shall not include fees of special
counsel if same is required to be incurred in a merit review state which may
require local counsel. In this connection, Blue Sky applications shall be made
in such states and jurisdictions as shall be requested by the Underwriter.
Payments with regard to items (i), (iii), (iv) and (v) shall be made on each of
Closing Date I and Closing Date II, as the case may be, and the Underwriter
shall provide the Company with a written statement itemizing such expenses.
b. The Company and the Selling Shareholders, on a
pro rata basis, shall pay to the Underwriter an aggregate non-accountable
expense allowance, in addition to the expenses payable pursuant to Section 7(a),
equal to three (3%) percent of the gross proceeds received by the Company and
the Selling Shareholders from the sale of the Securities and, on its part, the
Underwriter agrees to deduct from said three (3%) percent allowance the $25,000
previously paid by the Company to the Underwriter as an advance against the
payment due pursuant to the provisions of this Section 7(b). In the event that
the transactions contemplated hereby fail to be consummated for any reason, then
the Underwriter shall return to the Company that portion of $25,000 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
$25,000 paid).
8. Conditions of Underwriter's Obligations. The obligations of
the Underwriter to purchase and pay for the Securities, as provided herein,
shall be subject to the continuing accuracy of the representations and
warranties of the Company and the Selling Shareholders as of the date hereof and
as of each of the Closing Dates, to the accuracy of the statements of officers
of the Company made pursuant to the provisions hereof and to the performance by
the Company of its obligations hereunder and to the following conditions:
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a. The Registration Statement shall have become
effective not later than 5:00 p.m., New York time, on the date of this Agreement
or such later date and time as shall be consented to in writing by you, and, at
each of the Closing Dates, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or shall be pending or contemplated by the
Commission and any request on the part of the Commission for additional
information shall have been complied with to the reasonable satisfaction of
Ziegler, Ziegler & Altman, counsel to the Underwriter.
b. On or prior to each of Closing Date I and
Closing Date II, counsel for the Underwriter shall have received the favorable
opinion of Gallet Dreyer & Berkey, LLP, counsel for the Company dated Closing
Date I or Closing Date II, as the case may be, addressed to the Underwriter and
in form and substance satisfactory to Ziegler, Ziegler & Altman, counsel to the
Underwriter, to the effect that:
(i) Each of the Company and the Subsidiary have been
duly incorporated and each validly exists as corporations in good
standing under the law of its jurisdiction of incorporation, with full
corporate power and authority to own its properties and conduct its
business as described in the Prospectus, and each is duly qualified or
licensed to do business as a foreign corporation and is in good
standing in each other jurisdiction in which the nature of its business
or the character or location of its properties requires such
qualification, except where failure to so qualify will not have a
material adverse affect on the business, properties or financial
condition of the Company or the Subsidiary, as the case may be;
(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 Common
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 of the Securities 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
27
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for or purchase, and except for the transfer restrictions imposed by
Rule 144 of the 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 Securities, the Warrant Agreement and the Underwriter's Warrants
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
any of the Class A Warrants (including the Class A Warrants issuable
upon exercise of the Underwriter's Warrants) are outstanding, for
issuance upon exercise of all of such Class A Warrants; 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 Securities are
each in valid and proper legal form; and the Class A Warrants are
exercisable for shares of Common Stock in accordance with the terms of
the Class A Warrants and at the prices therein provided for;
(iv) this Agreement, the Warrant Agreement, the
Underwriter's Warrant Agreement, and the Consulting Agreement have been
duly and validly authorized, executed and delivered by the Company and
(assuming due execution and delivery thereof by the Underwriter and/or
Continental Stock Transfer & Trust Co., as the case may be) 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 or contribution provisions
contained in Section 9;
(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 Warrant Agreement, the
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<PAGE>
Underwriter's Warrant Agreement, or the 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 default under this Agreement, the
Warrant Agreement, the Underwriter's Warrant Agreement, or the
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, or any material obligation,
agreement, covenant of 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 are 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 has obtained, or are in the process of obtaining, all licenses,
permits and other governmental authorizations necessary to the conduct
of its business as described in the Prospectus, (b) such obtained
licenses, permits and other governmental authorization are in full
force and effect, and (c) the Company 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;
(ix) the Registration Statement and the Prospectus
(except for the financial statements, notes thereto and other financial
information and statistical date contained therein, as to which counsel
need not express an opinion) comply as to form in all material respects
with the Act and the Regulations;
(x) all descriptions contained in the
Registration Statement and the Prospectus, and any
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<PAGE>
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 which has not already been waived or obtained is necessary in
connection with: (A) the authorization, issuance, sale, transfer or
delivery of the Securities by the Company in accordance with this
Agreement; (B) the execution, delivery and performance of this
Agreement by the Company or the taking of any action contemplated
herein; (C) the issuance of the Underwriter's Warrants in accordance
with this Agreement and the Underwriter's Warrant 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
30
<PAGE>
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 counsel to the Underwriter 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 or the State of
New York 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.
c. On or prior to each of Closing Date I and
Closing Date II, counsel for the Underwriter shall have received the favorable
Opinion of trademark and copyright counsel, addressed to the Underwriter and in
form and substance satisfactory to Ziegler, Ziegler & Altman, counsel to the
Underwriter, to the effect that:
(i) The Company owns or possesses the requisite
licenses or rights to use all trademarks, service marks, service names, trade
names, patents and patent applications, copyrights, methods, protocols,
techniques, technologies, procedures and other rights (collectively the
"Intangibles") described as owned or used by the Company in the Registration
Statement. There is no claim, action or proceeding by any person pending or, to
the Company's knowledge, threatened, which pertains to or challenges the rights
of the Company with respect to any Intangibles used in the conduct of the
business of the Company, except as described in the Prospectus.
(ii) The statements in the Registration Statement
under the captions "Risk Factors--Potential Limitation on Trademark Protection",
"Business - General", "Business Trademarks" has been reviewed by such counsel
and insofar as such statements constitute statements of law, descriptions of
statues, rules or regulations, or conclusions of law applicable to the conduct
of the Company's business, such statements fairly represent the information
called for and are accurate and complete in all material respects.
(iii) The Company has the exclusive right in the
United States to use and license the use of the trademarks described in the
Registration Statement as being owned or licensed by the Company, as registered
in the United States, in connection with the advertising, promotion and sale of
products by the Company and the operations of the Company's business.
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<PAGE>
(iv) The Company is in a position to prevent the
adoption and use by third parties of the trademarks described in the
Registration Statement as being owned or licensed by the Company, and any marks
confusingly similar thereto.
In addition, such opinion shall relate to such
other matters of trademark, copyright and related laws relating to the
operations of the Company as you or your counsel shall reasonably agree. In
rendering such opinion, Company Counsel may rely, as to matters of fact, to the
extent they deem proper, on certificates of responsible officers of the Company
satisfactory in form and substance to Ziegler, Ziegler & Altman.
d. On or prior to each of Closing Date I and
Closing Date II, counsel for the Underwriter shall have been furnished such
documents, certificates and opinions as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in
Section 8(b) and (c), or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions herein
contained.
e. Prior to each of Closing Date I and Closing
Date II, (i) there shall have been no material adverse change, or development
involving a prospective change, in the condition or prospects of the business
activities, financial or otherwise, of the Company from the latest dates as of
which such condition is set forth in the Registration Statement and Prospectus;
(ii) there shall have been no transaction, not in the ordinary course of
business, entered into by the Company from the latest date as of which the
financial condition of the Company is set forth in the Registration Statement
and Prospectus which is materially adverse to the Company; (iii) the Company is
not in default under any provision of any instrument relating to any outstanding
indebtedness which default would have an adverse effect on the Company; (iv) no
material amount of the assets of the Company shall have been pledged or
mortgaged, except as set forth in the Registration Statement and Prospectus; (v)
no action, suit or proceeding, at law or in equity, shall be pending or
threatened against the Company before or by any court or foreign, Federal or
state commission, board or other administrative agency wherein an unfavorable
result, decision, ruling or finding may materially adversely affect the
business, prospects, operations, or financial condition or income of the
Company; (vi) no stop order shall have been issued under the Act and no
proceedings with respect thereto shall have been initiated or threatened by the
Commission; (vii) the market for securities in general or for the Company's
Securities in particular, or political, financial or economic conditions shall
have materially changed from those reasonably foreseeable as of the date hereof
as to render it impracticable in the Underwriter's judgment to make a public
offering of the Securities, or there has been a
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<PAGE>
material adverse change in market levels for securities in general (or those of
the Company in particular) or financial or economic conditions which render it
inadvisable in the Underwriter's judgment to proceed; and (viii) there shall
have commenced or occurred no war or Act of God or other calamity which would
have a substantial adverse effect on, or result in a loss to, the Company.
The Company agrees and acknowledges that the
Underwriter shall be the sole determining party as to the presence of any such
conditions, events, occurrences and provisions set forth in this Section 8(e).
f. At each of Closing Date I and Closing Date II,
the Underwriter shall have received a certificate of the Company signed by the
President and the Secretary of the Company, dated Closing Date I and Closing
Date II, respectively, to the effect that the conditions set forth in sections
8(e) (i) through (vi) above have been satisfied and that, as of Closing Date I
and Closing Date II, respectively, the representations and warranties of the
Company and the Selling Shareholders set forth in Sections 2 and 3 hereof are
true and correct.
g. By the Effective Date, the Underwriter shall
have received clearance from the NASD as to the amount of compensation allowable
or payable to the Underwriter, as described in the Registration Statement.
h. At the time this Agreement is executed, and at
each of Closing Date I and Closing Date II, the Underwriter shall have received
a letter, addressed to the Underwriter and in form and substance reasonably
satisfactory in all respects (including the nonmaterial nature of the changes or
decreases, if any, referred to in clause (3) below) to the Underwriter and to
Ziegler, Ziegler & Altman, counsel for the Underwriter, from Goldstein Golub
Kessler & Co., P.C., dated, as of the date of this Agreement and as of each of
Closing Date I and Closing Date II:
(1) confirming that they are independent
accountants with respect to the Company within the meaning of
the Act and the applicable Regulations;
(2) stating that in their opinion the
financial statements of the Company included in the
Registration Statement and Prospectus comply as to form in all
material respects with the applicable accounting requirements
of the Act and the published Regulations thereunder;
(3) stating that, on the basis of a reading
of the latest available minutes of the stockholders and
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boards of directors and the various committees of the boards
of directors of the Company, consultations with officers and
other employees of the Company responsible for financial and
accounting matters, a reading of the latest interim financial
statements of the Company (which shall be earlier than March
31, 1996) and other specified procedures and inquiries,
nothing has come to their attention which would lead them to
believe that (A) either the audited financial statements for
the year ended December 31, 1995 of the Company in the
Registration Statement do not comply as to form in all
material respects with the applicable accounting requirements
of the Act, and the Regulations or are not fairly presented in
conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the
audited financial statements of the Company included in the
Registration Statement, (B) at a date not later than five (5)
days prior to the Effective Date, there was any change in the
capital stock or long-term debt of the Company, or any
decrease in the stockholders' equity of the Company as
compared with amounts shown in the December 31, 1995 balance
sheet included in the Registration Statement, other than as
set forth in or contemplated by the Registration Statement,
or, if there was any decrease, setting forth the amount of
such decrease, and (C) during the period from December 31,
1995 to a specified date not more than five (5) days prior to
the Effective Date there was any decrease in net revenues,
increase in net losses or increases in net losses per common
share of the Company, in each case as compared with the
corresponding period beginning December 31, 1995 other than as
set forth in or contemplated by the Registration Statement,
or, if there was any such increase or decrease, setting forth
the amount of such increase or decrease;
(4) stating that they have compared specific
dollar amounts, numbers of shares, percentages of revenues and
earnings, statements and other financial information
pertaining to the Company set forth in the Prospectus in each
case to the extent that such amounts, numbers, percentages,
statements and information may be derived from the general
accounting records, including worksheets, of the Company and
excluding any questions requiring an interpretation by legal
counsel, with the results obtained from the application of
specified readings, inquiries and other appropriate procedures
(which procedures do not constitute an examination in
accordance with generally accepted auditing standards) set
forth in the letter and found them to be in agreement; and
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(5) statements as to such other matters
incident to the transaction contemplated hereby as the
Underwriter may reasonably request.
i. All proceedings taken in connection with the
authorization, issuance or sale of the Securities, the Underwriter's Warrants,
the Warrant Securities, and the Underwriter's Securities as herein contemplated
shall be satisfactory in form and substance to the Underwriter and to Ziegler,
Ziegler & Altman, counsel to the Underwriter.
j. On each of Closing Date I and Closing Date II,
there shall have been duly tendered to you for your respective accounts the
appropriate number of Securities and individually for your own respective
accounts the Underwriter's Warrants.
k. No order suspending the sale of the Securities
in any jurisdiction designated by you pursuant to Section 6(e) hereof shall have
been issued on either Closing Date I or Closing Date II, and no proceedings for
that purpose shall have been instituted or, to the knowledge of the Underwriter
or the Company, shall be contemplated.
l. Prior to each of the Closing Date I and
Closing Date II there shall not have been received or provided by the Company's
independent public accountants or attorneys, qualifications to the effect of
either difficulties in furnishing certifications as to material items including,
without limitation, information contained within the footnotes to the financial
statements, or as affecting matters incident to the issuance and sale of the
Securities or as to corporate proceedings or other matters.
m. On or before the Effective Date, the Company
shall have appointed Continental Stock Transfer & Trust Co. (or other agent
mutually acceptable to the Company and the Underwriter), as its transfer agent
and warrant agent ("Transfer Agent") to transfer all of the shares of Common
Stock and Class A Warrants issued in the Offering, as well as to transfer other
shares of the Common Stock and warrants outstanding from time to time.
n. On or prior to Closing Date I, the
Underwriter's Warrant Agreement and the Consulting Agreement shall have by
executed and delivered by the Company, and all the Lock-Up Agreements required
by section 6(v) hereof shall have been executed and delivered to the Underwriter
or counsel to the Underwriter.
Any certificate signed by any officer of the Company and
delivered to the Underwriter or to counsel to the Underwriter shall be deemed a
representation and warranty by the Company to
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<PAGE>
the Underwriter as to the statements made therein. If any condition to the
Underwriter's obligations hereunder to be fulfilled prior to or at any Closing
Date is not so fulfilled, the Underwriter may, without any liability on its
part, terminate this Agreement or, if the Underwriter so elects, may waive any
such conditions which have not been fulfilled or extend the time for their
fulfillment.
9. Indemnification.
(a) The Company and each of the Selling Shareholders agrees to
indemnify and hold harmless the Underwriter and each controlling person, if any,
who controls the Underwriter within the meaning of Section 15 of the Act of
Section 20(a) of the Exchange Act, as follows: (i) against any and all loss,
liability, claim, damage and expense whatsoever, as incurred, arising out of any
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the Rule 430A
information, if applicable, or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
therein not misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus or the
Prospectus (or any amendment or supplement thereto) or the omission or alleged
omission therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, nor
misleading; (ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim whatsoever
based upon any such untrue statement or omission, or any such alleged untrue
statement or omission, if such settlement is effected with the written consent
of the Company and the Selling Stockholders; and (iii) against any and all
expense whatsoever, as incurred (including fees and disbursements of counsel
chosen you), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim whatsoever based upon any
such untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under (i) or (ii)
above; provided, however, that this indemnity agreement shall not apply to any
loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to the
Company by the Underwriter or its counsel expressly for use in the Registration
Statement (or any amendment or supplement thereto), including the Rule 430A
information, if
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<PAGE>
applicable, or any Preliminary Prospectus or Prospectus (or any
amendment or supplement thereto).
(b) The Underwriter agrees to indemnify and hold harmless the Company
against any and all loss, liability, claim, damage and expense described in the
indemnity contained in subsection (a) of this Section, as incurred, but only
with respect to untrue statements or omissions, or alleged untrue statements or
omissions, made in the Registration Statement (or any amendment thereto) or any
Preliminary Prospectus or Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with written information furnished to the
Company by the Underwriter expressly for use in the Registration Statement (or
any amendment thereto), including the Rule 430A information, if applicable, or
such Preliminary Prospectus or Prospectus (or any amendment or supplement
thereto).
(c) Each indemnified party shall give notice as promptly as reasonably
practicable to each indemnifying party of any action commenced against it in
respect of which indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve such indemnifying party from any liability
which it may have otherwise than on account of this indemnity agreement. An
indemnifying party may participate at its own expense in the defense of any such
action. In no event shall the indemnifying party or parties be liable for the
fees and expenses of more than one counsel for all indemnified parties in
connection with any one action or separate but similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances.
(d) In order to provide for just and equitable contribution in
circumstances under which the indemnity provided for in this Section 9 is for
any reason held to be unenforceable by the indemnified parties although
applicable otherwise applicable in accordance with its terms, the Company, the
Selling Stockholders and the Underwriter shall contribute to the aggregate
losses, liabilities, claims, damages and expenses of the nature contemplated by
such indemnity incurred by the Company and the Selling Stockholders and the
Underwriter, as incurred, in such proportions that (a) the Underwriter is
responsible for that portion represented by the percentage that the underwriting
discount appearing on the front cover page of the Prospectus bears to the
initial public offering price appearing thereon provided, however, that
notwithstanding the above in no event shall the Underwriter be required to
contribute any amount in excess of 10% of the initial public offering price of
the Securities and (b) the Company and the Selling Stockholders, in the
proportion that they have agreed to indemnify, are responsible for the balance;
provided, however, that no person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
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any person who was not guilty of such fraudulent misrepresentation. For purposes
of this Section, each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Act shall have the same rights to contribution as
the Underwriter.
(e) The indemnity and contribution agreements contained in this Section
9 and the representations and warranties in this Agreement of the Company and
Selling Stockholders shall remain operative and in full force and effect
regardless of (i) any termination of this Agreement, (ii) any investigation made
by or on behalf of the Underwriter and any person controlling the Underwriter,
or by or on behalf of the Company, its officers or directors or any person
controlling the Company and (iii) acceptance of and payment for any of the
Securities.
10. Representations and Agreements to Survive Delivery. Except
as the context otherwise requires, all representations, warranties and
agreements contained in this Agreement shall be deemed to be representations,
warranties and agreements at the Closing Dates, and such representations,
warranties and agreements of the Underwriter, the Selling Shareholders and the
Company, including, but not limited to, the indemnity agreements contained in
Section 9 hereof, shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of any of the Underwriter, the Selling
Shareholders, the Company or any controlling person, and shall survive
termination of this Agreement or the issuance and delivery of the Securities to
the Underwriter until the earlier of the expiration of any applicable statute of
limitations and the seventh anniversary of Closing Date II, at which time the
representations, warranties and agreements shall terminate and be of no further
force and effect.
11. Effective Date of This Agreement and Termination
hereof.
a. This Agreement shall become effective at 9:30
a.m., New York time, on the first full business day following the day on which
the Registration Statement becomes effective or at the time of the initial
public offering by the Underwriter of the Securities, whichever is earlier. The
time of the initial public offering, for the purpose of this Section 11, shall
mean the time, after the Registration Statement becomes effective, of the
release by the Underwriter for publication of the first newspaper advertisement
which is subsequently published relating to the Securities or the time, after
the Registration Statement becomes effective, when the Securities are first
released by the Underwriter for offering by the Underwriter or dealers by letter
or telegram, whichever shall first occur. The Underwriter may prevent this
Agreement from becoming effective without liability to any other party, except
as noted below, by giving the notice
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indicated below in this Section 11 before the time this Agreement becomes
effective. The Underwriter agrees to give the undersigned notice of the
commencement of the offering described herein.
b. the Underwriter shall have the right, in its
sole discretion, to terminate this Agreement, including without limitation, the
obligation to purchase the Firm Securities and the obligation to purchase the
Option Securities after the exercise of the Over-Allotment Option, by notice
given to the Company prior to delivery and payment for all the Firm Securities
or the Option Securities, as the case may be, if any of the conditions
enumerated in Section 8 are not either fulfilled or waived by the Underwriter on
or before any Closing Date. In addition, the Underwriter may terminate this
Agreement at any time prior to the Closing Date I and Closing Date II, if the
over-allotment is exercised, if in the Underwriter's sole judgment it is
impracticable to offer for sale or to enforce contracts made by you for the
resale of the Securities agreed to be purchased hereunder, by reason of: (A) 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; (B) trading in securities on the
New York Stock Exchange, the American Stock Exchange or The Nasdaq NMS Stock
Market having been suspended or limited; (C) material governmental restrictions
having been imposed on trading in securities generally which are not in force
and effect on the date hereof; (D) a banking moratorium having been declared by
federal or New York State authorities; (E) an outbreak or significant escalation
of major international hostilities or other national or international calamity
having occurred; (F) 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; (G)
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 (H) 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) of the Company, whether or not arising in the ordinary course of
business.
c. If the Underwriter elects to prevent this
Agreement from becoming effective or to terminate this Agreement as provided in
this Section 11, the Company shall be notified on the same day as such election
is made by the Underwriter by telephone or telegram, confirmed by letter.
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d. Anything herein to the contrary notwithstand-
ing, if this Agreement shall not be carried out within the time specified
herein, or any extensions thereof granted by the Underwriter, by reason of any
failure on the part of the Company to perform any undertaking or satisfy any
condition of this Agreement by it to be performed or satisfied then, in addition
to the obligations assumed by the Company pursuant to Section 7(a) hereof, the
Underwriter shall return to the Company that portion of the initial $25,000
expense allowance previously paid which exceeds its accountable expenses,
together with a statement of such accountable expenses.
e. In the event of litigation between the
parties arising hereunder, the prevailing party shall be entitled to costs and
reasonable attorney's fees.
f. Notwithstanding any contrary provision
contained in this Agreement, any election hereunder or termination of this
Agreement, and whether or not this Agreement is otherwise carried out, the
provisions of Section 9 shall not be in any way affected by such election or
termination or failure to carry out the terms of this Agreement or any part
hereof.
12. Notices. All communications hereunder, except as herein
otherwise specifically provided, shall be in writing and, if sent to the
Underwriter, shall be mailed, delivered or telegraphed and confirmed to State
Street Capital Corporation, One World Trade Center, Suite 4047, New York, New
York 10048, Attention: Chairman, with a copy to Ziegler, Ziegler & Altman, 750
Lexington Avenue, New York, New York 10022, Attention: Scott A. Ziegler, Esq.,
and if to the Company Cable & Co. Worldwide Inc., 724 Fifth Avenue, New York,
New York 10019, Attention David Albahari, with a copy to Gallet Dreyer & Berkey,
LLP, 845 Third Avenue, New York, New York 10022, Attention: Martin C. Licht,
Esq.
13. Parties. This Agreement shall inure solely to the benefit
of and shall be binding upon, the Underwriter, the Selling Shareholders and the
Company and the controlling persons, directors and officers referred to in
Section 9 hereof, and their respective successors, legal representatives and
assigns, and no other person shall have or be construed to have any legal or
equitable right, remedy or claim under or in respect of or by virtue of this
Agreement or any provisions herein contained.
14. Construction. This Agreement shall be governed by
and construed and enforced in accordance with the laws of the
State of New York, without giving effect to conflict of laws.
15. Entire Agreement. This Agreement, the Under-
writer's Warrant Agreement and the Consulting Agreement contain
the entire agreement between the parties hereto in connection
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with the subject matter hereof and thereof. The parties agree to submit
themselves to the jurisdiction of the courts of the State of New York or of the
United States of America for the Southern District of New York, which shall be
the sole tribunals in which any parties may institute and maintain a legal
proceeding against the other party arising from any dispute in this Agreement.
In the event either party initiates a legal proceeding in a jurisdiction other
than in the courts of the State of New York or of the United States of America
for the Southern District of New York, the other party may assert as a complete
defense and as a basis for dismissal of such legal proceeding that the legal
proceeding was not initiated and maintained in the courts of the State of New
York or of the United States of America for the Southern District of New York,
in accordance with the provisions of this Section 15.
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16. 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 correctly sets forth the understanding among
the Underwriter, the Selling Shareholders and the Company, please so indicate in
the space provided below for that purpose, whereupon this letter shall
constitute a binding agreement between us.
Very truly yours,
Cable & Co. Worldwide, Inc.
By:
Name:
Title
Accepted as of the date first above written.
New York, New York
STATE STREET CAPITAL CORP.
By:
Name:
Title:
By:
, as the
representative for the
Selling Shareholders
42
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EXHIBIT A
Shares of Common Stock
Offered Pursuant to
Selling Shareholder the Prospectus
43
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WARRANT AGREEMENT
AGREEMENT, dated as of ______________, 1996, by and among
CABLE & CO. WORLDWIDE, INC., a Delaware corporation (the "Company"), CONTINENTAL
STOCK TRANSFER & TRUST CO., a New York corporation, as Warrant Agent (the
"Warrant Agent") and STATE STREET CAPITAL MARKETS, CORP., a Florida corporation
(the "Underwriter").
WITNESSETH
WHEREAS, the Company and certain selling stockholders of the
Company (the "Selling Stockholders") propose to issue and sell through an
initial public offering underwritten by the Underwriter, an aggregate of up to
1,130,000 shares of common stock, $.01 par value ("Common Stock") and up to
1,130,000 common stock purchase warrants (the "Warrants") (and up to 169,500
additional shares of Common Stock and warrants covered by an over-allotment
option granted by the Company to the Underwriter) pursuant to an underwriting
agreement (the "Underwriting Agreement") dated____________, 1996 among the
Company, the Selling Stockholders and the Underwriter;
WHEREAS, the Company has granted the Underwriter an option to
purchase an additional 113,000 shares of Common Stock and 113,000 Warrants
(together the "Purchase Option"), with said Purchase Option warrants
substantially the same as the Warrants (such Purchase Option warrants and the
Warrants being referred to hereinafter collectively as the "Warrants"); and
WHEREAS, each Warrant will entitle the holder thereof to
purchase one Share; and
WHEREAS, the Company desires the Warrant Agent to act on
behalf of the Company, and Warrant Agent is willing to so act, in connection
with the issuance, registration, transfer, exchange and redemption of the
Warrants, the issuance of certificates representing the Warrants (such
certificates being "Warrant Certificates"), the exercise of the Warrants, and
the rights of the holders thereof.
NOW THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the Warrant Certificates and the respective
rights and obligations thereunder of the Company, the holders of Warrant
Certificates and the Warrant Agent, the parties hereto agree as follows:
SECTION 1. Definitions.
As used herein, the following terms shall have the following
meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean the authorized stock
of the Company of any class, whether now or hereafter authorized, which has the
right to participate in the distribution of earnings and assets of the Company
without limit as to amount or percentage, which at the date hereof consists of
10,000,000 shares of Common
<PAGE>
Stock, $.01 par value per share.
(b) "Corporate Office" shall mean the office of the
Warrant Agent (or its successor) at which at any particular time its principal
business shall be administered, which office is located on the date hereof at 2
Broadway, New York, New York 10004.
(c) "Exercise Date" shall mean, as to any Warrant,
the date on which the Warrant Agent shall have received both (a) the Warrant
Certificate representing such Warrant, with the exercise form thereon duly
executed by the Registered Holder thereof or his attorney duly authorized in
writing, and (b) payment in cash, or by official bank or certified check made
payable to the Warrant Agent, of an amount in lawful money of the United States
of America equal to the applicable Purchase Price.
(d) "Initial Warrant Exercise Date" shall mean, as
to each Warrant, _________________, 1997.
(e) "Purchase Price" shall mean the price to be
paid upon exercise of each Warrant in accordance with the terms hereof, which
price shall be $ per share with respect to the Warrants, subject to adjustment
from time to time pursuant to the provisions of Section 9 hereof, and subject to
the Company's right to reduce the Purchase Price upon notice to all Warrant
Holders.
(f) "Redemption Price" shall mean the price at
which the Company may, at its option, redeem the Warrants, in accordance with
the terms hereof, which price shall be $.10 per Warrant, subject to adjustment
from time to time pursuant to the provisions of Section 9.
(g) "Registered Holder" shall mean the person in
whose name any Warrant Certificate shall be registered on the books maintained
by the Warrant Agent pursuant to Section 6.
(h) "Transfer Agent" shall mean Continental Stock
Transfer & Trust Co., the Company's transfer agent, or its authorized successor
as such.
(i) "Warrant Expiration Date" shall mean, with
respect to each Warrant, 3:00 p.m. (New York, New York time) on __________,
2000, or the Redemption Date as defined in Section 8, whichever is earlier;
provided that if such date shall in the State of New York be a holiday or a day
on which banks are authorized to close, then 3:00 p.m. (New York, New York time)
on the next following day which in the State of New York is not a holiday nor a
day on which banks are authorized to close. Upon notice to all Warrant Holders,
the Company shall have the right to extend the Warrant Expiration Date.
SECTION 2. Warrants and Issuance of Warrant
Certificates.
(a) Each Warrant shall initially entitle the
Registered Holder of the Warrant Certificate representing such Warrant to
purchase one (1) share of Common Stock upon the exercise
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thereof, in accordance with the terms hereof, subject to modification and
adjustment as provided in Section 9.
(b) Upon execution of this Agreement, Warrant
Certificates representing the number of Warrants sold pursuant to the
Underwriting Agreement shall be executed by the Company and delivered to the
Warrant Agent. Upon written order of the Company signed by its President or
Chairman or a Vice President and by its Secretary or an Assistant Secretary, the
Warrant Certificates shall be countersigned, issued and delivered by the Warrant
Agent.
(c) From time to time, up to the Warrant Expiration
Date, the Transfer Agent shall countersign and deliver stock certificates in
required whole number denominations representing up to an aggregate of _________
shares of Common Stock, subject to adjustment as described herein, upon the
exercise of Warrants in accordance with this Agreement.
(d) From time to time, up to the Warrant Expiration
Date, the Warrant Agent shall countersign and deliver Warrant Certificates in
required whole number denominations to the persons entitled thereto in
connection with any transfer or exchange permitted under this Agreement;
provided that no Warrant Certificates shall be issued except to (i) those
initially issued hereunder, (ii) those issued on or after the Initial Warrant
Exercise Date, upon the exercise of fewer than all Warrants represented by any
Warrant Certificate, to evidence any unexercised Warrants held by the exercising
Registered Holder, (iii) those issued upon any transfer or exchange pursuant to
Section 6; (iv) those issued in replacement of lost, stolen, destroyed or
mutilated Warrant Certificates pursuant to Section 7; (v) those issued pursuant
to the Purchase Option; and (vi) at the option of the Company, in such form as
may be approved by its Board of Directors, to reflect any adjustment or change
in the Purchase Price, the number of shares of Common Stock purchasable upon
exercise of the Warrants or the Redemption Price therefor made pursuant to
Section 9.
(e) Pursuant to the terms of the Purchase Option,
the Underwriter and its designees may purchase up to an aggregate of 113,000
shares of Common Stock and 113,000 Warrants.
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially
in the form annexed hereto as Exhibit A, and may have such letters, number or
other marks of identification or designation and such legends, summaries or
endorsements printed, lithographed or engraved thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement or
as may be required to comply with any law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange on which
the Warrants may be listed, or to conform to usage. The Warrant Certificates
shall be dated the date of
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<PAGE>
issuance thereof (whether upon initial issuance, transfer, exchange or in lieu
of mutilated, lost, stolen, or destroyed Warrant Certificates) and issued in
registered form. Warrants shall be numbered serially with the letter W on the
Warrants.
(b) Warrant Certificates shall be executed on
behalf of the Company by its Chairman of the Board, President or any Vice
President and by its Secretary or an Assistant Secretary, by mutual signatures
or by facsimile signatures printed thereon, and shall have imprinted thereon a
facsimile of the Company's seal. Warrant Certificates shall be manually
countersigned by the Warrant Agent and shall not be valid for any purpose unless
so countersigned. In case any officer of the Company who shall have signed any
of the Warrant Certificates shall cease to be such officer of the Company before
the date of issuance of the Warrant Certificates or before countersignature by
the Warrant Agent and issue and delivery thereof, such Warrant Certificates may
nevertheless be countersigned by the Warrant Agent, issued and delivered with
the same force and effect as though the person who signed such Warrant
Certificates had not ceased to be such officer of the Company. After
countersignature by the Warrant Agent. Warrant Certificates shall be delivered
by the Warrant Agent to the Registered Holder without further action by the
Company, except as otherwise provided by Section 4(a).
SECTION 4. Exercise
(a) Each Warrant may be exercised by the Registered
Holder thereof at any time on or after the Initial Warrant Exercise Date, but
not after the Warrant Expiration Date, upon the terms and subject to the
conditions set forth herein and in the applicable Warrant Certificate. A Warrant
shall be deemed to have been exercised immediately prior to the close of
business on the Exercise Date and the person entitled to receive the securities
deliverable upon such exercise shall be treated for all purposes as the holder
upon exercise thereof as of the close of business on the Exercise Date. As soon
as practicable on or after the Exercise Date, the Warrant Agent shall deposit
the proceeds received from the exercise of a Warrant and shall notify the
Company in writing of the exercise of the Warrants. Promptly following, and in
any event within five (5) days after the date of such notice from the Warrant
Agent, the Warrant Agent, on behalf of the Company, shall cause to be issued and
delivered by the Transfer Agent, to the person or persons entitled to receive
the same, a certificate or certificates for the securities deliverable upon such
exercise (plus a Warrant Certificate for any remaining unexercised Warrants of
the Registered Holder) unless prior to the date of issuance of such certificates
the Company shall instruct the Warrant Agent to refrain from causing such
issuance of certificates pending clearance of checks received in payment of the
Purchase Price pursuant to such Warrants. Notwithstanding the foregoing, in the
case of payment made in the form of a check drawn on an account of the
Underwriter, certificates shall immediately be issued without prior notice to
the Company or any delay. Upon the exercise of any Warrant and clearance of the
funds received, the Warrant Agent
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<PAGE>
shall promptly remit the payment received for the Warrant to the Company or as
the Company may direct in writing.
(b) If, on the Exercise Date in respect of the
exercise of any Warrant at any time on or after the first anniversary of the
date hereof (i) the market price of the Company's Common Stock is greater than
the then Purchase Price of the Warrant, (ii) the exercise of the Warrant was
solicited by a member of the National Association of Securities Dealers, Inc.
(NASD"), (iii) the Warrant was not held in a discretionary account, (iv)
disclosure of compensation arrangements was made both at the time of the
original offering and at the time of exercise; and (v) the solicitation of the
exercise of the Warrant was not in violation of Rule 10b-6 (as such rule or any
successor rule as may be in effect as of such time of exercise) promulgated
under the Securities Exchange Act of 1934, then the Warrant Agent,
simultaneously with the distribution of proceeds to the Company received upon
exercise of the Warrant(s) so exercised shall, on behalf of the Company, pay
from the proceeds received upon exercise of the Warrant(s), a fee of seven (7%)
percent of the Purchase Price to the Underwriter (of which a percentage may be
reallowed to the dealer who solicited the exercise, which dealer may also be the
Underwriter). Within five days after the exercise, the Warrant Agent shall send
to the Underwriter a copy of the reverse side of each Warrant exercised. The
Company shall reimburse the Warrant Agent, upon request, for its reasonable
expenses relating to compliance with this Section 4(b). In addition, the
Underwriter and the Company may at any time during business hours, examine the
records of the Warrant Agent, including its ledger of original Warrant
Certificates returned to the Warrant Agent upon exercise of Warrants. The
provisions of this paragraph may not be modified, amended or deleted without the
prior written consent of the Underwriter and the Company.
SECTION 5. Reservation of Shares of Common Stock;
Listing; Payment of Taxes; etc.
(a) The Company covenants that it will at all times
reserve and keep available out of its authorized Common Stock, solely for the
purpose of issuance upon exercise of Warrants, such number of shares of Common
Stock as shall then be issuable upon exercise of all outstanding Warrants. The
Company covenants that all shares of Common Stock which shall be issuable upon
exercise of the Warrants shall, at the time of delivery, be duly and validly
issued, fully paid, nonassessable and free from all taxes, liens and charges
with respect to the issuance thereof (other than those which the Company shall
promptly pay or discharge) and that upon issuance such shares shall be listed on
each national securities exchange, if any, and/or made eligible for trading on
each inter-dealer quotation system on which the other shares of outstanding
Common Stock of the Company are then listed or traded.
(b) The Company covenants that if any securities to
be reserved for the purpose of exercise of Warrants hereunder
require registration with, or approval of, any governmental
5
<PAGE>
authority under any federal securities law before such securities may be validly
issued or delivered upon such exercise, then the Company will in good faith and
as expeditiously as possible, secure such registration or approval. The Company
will use best effort to obtain appropriate approvals or registrations under
state "blue sky" securities laws with respect to any such securities. However,
Warrants may not be exercised by, or shares of Common Stock issued to, any
Registered Holder in any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or
similar taxes and other governmental charges that may be imposed with respect to
the issuance of Warrants, or the issuance or delivery of any shares upon
exercise of the Warrants; provided, however, that if the shares of Common Stock
are to be delivered in a name other than the name of the Registered Holder of
the Warrant Certificate representing any Warrant being exercised, then no such
delivery shall be made unless the person requiring the same had paid to the
Warrant Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably
authorized to requisition the Company's Transfer Agent from time to time for
certificates representing shares of Common Stock required upon exercise of the
Warrant, and the Company will authorize the Transfer Agent to comply with all
such proper requisitions. The Company will file with the Warrant Agent a
statement setting forth the name and address of the Transfer Agent of the
Company for shares of Common Stock issuable upon exercise of the Warrants,
unless the Warrant Agent and the Transfer Agent are the same entity.
SECTION 6. Exchange and Registration of Transfer
(a) Warrant Certificates may be exchanged for other
Warrant Certificates representing an equal aggregate number of Warrants of the
same class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and
upon satisfaction of all the terms and provisions hereof, the Company shall
execute and the Warrant Agent shall countersign, issue and deliver in exchange
therefor the Warrant Certificate or Certificates which the Registered Holder
making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office
books in which, subject to such reasonable regulations as it may prescribe, it
shall register Warrant Certificates and the transfer thereof in accordance with
its regular practice. Upon due presentment for registration of transfer of any
Warrant Certificate at such office, the Company shall execute and the Warrant
Agent shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants
of the same class.
(c) With respect to all Warrant Certificates
6
<PAGE>
presented for registration or transfer, or for exchange or exercise, the
subscription form on the reverse thereof shall be duly endorsed, or be
accompanied by a written instrument or instruments of transfer and subscription,
in form satisfactory to the Company and the Warrant Agent, duly executed by the
Registered Holder or his attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant
Agent for any exchange or registration of transfer of Warrant Certificates. In
addition, the Company may require payment by such holder of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
therewith.
(e) All Warrant Certificates surrendered for
exercise or for exchange in case of mutilated Warrant Certificates shall be
promptly canceled by the Warrant Agent and thereafter retained by the Warrant
Agent until termination of this Agreement or resignation as Warrant Agent, or,
with the prior written consent of the Underwriter, disposed of or destroyed, at
the direction of the Company.
(f) Prior to due presentment for registration of
transfer thereof, the Company and Warrant Agent may deem and treat the
Registered Holder of any Warrant Certificate as the absolute owner thereof and
of each Warrant represented thereby (notwithstanding any notations of ownership
or writing thereon made by anyone other than a duly authorized officer of the
Company or the Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary. The Warrants, which are being publicly offered pursuant
to the Underwriting Agreement, may be purchased separately from the shares of
Common Stock and are transferable separately from the Common Stock.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and
the Warrant Agent of evidence satisfactory to them of the ownership of and loss,
theft, destruction or mutilation of any Warrant Certificate and (in case of
loss, theft or destruction) of indemnity satisfactory to them, and (in the case
of mutilation) upon surrender and cancellation thereof, the Company shall
execute and the Warrant Agent shall (in the absence of notice to the Company
and/or Warrant Agent that the Warrant Certificate has been acquired by a bona
fide purchaser) countersign and deliver to the Registered Holder in lieu thereof
a new Warrant Certificate of like tenor representing an equal aggregate number
of Warrants. Applicants for a substitute Warrant Certificate shall comply with
such other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.
SECTION 8. Redemption
(a) Commencing 12 months from the effective date of
the Registration Statement (or earlier, with the prior written consent of the
Underwriter) on not less than fifteen (15) days prior written notice, the
Warrants may be redeemed, at the option of the Company, at a redemption price of
$0.10 per Warrant,
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<PAGE>
provided the closing bid price of the Company's Common Stock on the Nasdaq Stock
Market as reported by the National Quotation Bureau, Incorporated (or the last
sale price, if quoted on a national securities exchange) equals or exceeds 180%
of the initial public offering for at least 20 consecutive trading days ending
on the fifteenth day prior to the date of the notice of redemption. All Warrants
must be redeemed if any of the Warrants are redeemed.
(b) In case the Company shall desire to exercise
its right to so redeem the Warrants, it shall request the Warrant Agent, or the
Underwriter, if the date fixed for redemption is on or after the first
anniversary of the date hereof, to mail a notice of redemption to each of the
Registered Holders of the Warrants to be redeemed, first class, postage prepaid,
not later than the fifteenth (15th) day before the date fixed for redemption, at
their last address as shall appear on the records of the Warrant Agent. Any
notice mailed in the manner provided herein shall be conclusively presumed to
have been duly given whether or not the Registered Holder receives such notice.
(c) The notice of redemption shall specify (i) the
Redemption Price, (ii) the date fixed for redemption, (iii) the place where the
Warrant Certificates shall be delivered and the redemption price paid, (iv) that
the Underwriter will assist each Registered Holder of a Warrant in connection
with the exercise thereof (if the Underwriter has conducted, or caused to be
conducted, the mailing) and (v) that the right to exercise the Warrant shall
terminate at 3:00 p.m. (New York, New York time) on the business day immediately
preceding the date fixed for redemption. No failure to mail such notice nor any
defect therein or in the mailing thereof shall affect the validity of the
proceedings for such redemption except as to a holder (a) to whom notice was not
mailed or (b) whose notice was defective. An affidavit of the Warrant Agent or
of the President or the Secretary of the Underwriter or the Company that notice
of redemption has been mailed shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.
(d) Any right to exercise a Warrant that has been
called for redemption shall terminate at 3:00 p.m. (New York, New York time) on
the business day immediately preceding the Redemption Date. On and after the
Redemption Date, Holders of the redeemed Warrants shall have no further rights
except to receive, upon surrender of the redeemed Warrant, the Redemption Price.
(e) From and after the date specified for
redemption, the Company shall, at the place specified in the notice of
redemption, upon presentation and surrender to the Company by or on behalf of
the Registered Holder thereof of one or more Warrants to be redeemed, deliver or
cause to be delivered to or upon the written order of such Holder a sum in cash
equal to the Redemption Price of each such Warrant. From and after the date
fixed for redemption and upon the deposit or setting aside by the Company of a
sum sufficient to redeem all the Warrants called for redemption, such Warrants
shall expire and become void and all rights hereunder
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<PAGE>
and under the Warrant Certificates, except the right to receive payment of the
Redemption Price, shall cease.
SECTION 9. Adjustment of Exercise Price and Number of
Shares of Common Stock or Warrants.
(a) Subject to the exceptions referred to in
Section 9(g), in the event the Company shall, at any time or from time to time
after the date hereof, sell any shares of Common Stock for a consideration per
share less than the lesser of the market price of a share of Common Stock as
offered on NASDAQ or the then current Purchase Price or issue any shares of
Common Stock as a stock dividend to the holders of Common Stock, or subdivides
or combines the outstanding shares of Common Stock into a greater or lesser
number of shares (any such sale, issuance, subdivision or combination being
herein called a "Change of Shares"), then, and thereafter upon each further
Change of Shares, the applicable Purchase Price in effect immediately prior to
such Change of Shares shall be changed to a price (including any applicable
fraction of a cent) determined by multiplying the Purchase Price in effect
immediately prior thereto by a fraction, the numerator of which shall be the sum
of (a) the total number of shares of Common Stock outstanding immediately prior
to such Change of Shares and (b) the number of shares of Common Stock which the
aggregate consideration received by the Company upon such sale, issuance,
subdivision or combination (determined in accordance with subsection f(vi)
below) could have purchased at the then current Purchase Price, and the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such Change of Shares.
Upon each adjustment of the applicable Purchase
Price pursuant to this Section 9, the total number of shares of Common Stock
purchasable upon the exercise of each Warrant shall (subject to the provisions
contained in Section 9(b)) be such number of shares (calculated to the nearest
tenth) purchasable at the applicable Purchase Price immediately prior to such
adjustment multiplied by a fraction, the numerator of which shall be the
applicable Purchase Price in effect immediately prior to such adjustment and the
denominator of which shall be the applicable Purchase Price in effect
immediately after such adjustment.
(b) The Company may elect, upon any adjustment of
the applicable Purchase Price hereunder, to adjust the number of Warrants
outstanding, in lieu of adjusting the number of shares of Common Stock
purchasable upon the exercise of each Warrant as hereinabove provided, so that
each Warrant outstanding after such adjustment shall represent the right to
purchase one share of Common Stock. Each Warrant held of record prior to such
adjustment of the number of Warrants shall become that number of Warrants
(calculated to the nearest tenth) determined by multiplying the number one by a
fraction, the numerator of which shall be the applicable Purchase Price in
effect immediately prior to such adjustment and the denominator of which shall
be the applicable Purchase Price in effect immediately after such adjustment.
Upon
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<PAGE>
each such adjustment of the number of Warrants, the Redemption Price in effect
immediately prior to such adjustment also shall be adjusted by multiplying such
Redemption Price by a fraction, the numerator of which shall be the Purchase
Price in effect immediately after such adjustment and the denominator of which
shall be the Purchase Price in effect immediately prior to such adjustment. Upon
each adjustment of the number of Warrants pursuant to this Section 9, the
Company shall, as promptly as practicable, cause to be distributed to each
Registered Holder of Warrant Certificates on the date of such adjustment Warrant
Certificates evidencing, subject to Section 10, the number of additional
Warrants, if any, to which such Holder shall be entitled as a result of such
adjustment or, at the option of the Company, cause to be distributed to such
Holder in substitution and replacement for the Warrant Certificates held by him
prior to the date of adjustment (and upon surrender thereof, if required by the
Company) new Warrant Certificates evidencing the number of Warrants to which
such Holder shall be entitled after such adjustment.
(c) In case of any reclassification, capital
reorganization or other change of outstanding shares of Common Stock, or in case
of any consolidation or merger of the Company with or into another corporation
(other than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock), or in
case of any sale or conveyance to another corporation of the property of the
Company as, or substantially as, an entirety (other than a sale/leaseback,
mortgage or other financing transaction), the Company shall cause effective
provision to be made so that each holder of a Warrant then outstanding shall
have the right thereafter, by exercising such Warrant, to purchase the kind and
number of shares of stock or other securities or property (including cash)
receivable upon such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock that might have been purchased upon exercise of such Warrant,
immediately prior to such reclassification, capital reorganization or other
change, consolidation, merger, sale or conveyance. Any such provision shall
include provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 9. The foregoing
provisions shall similarly apply to successive reclassifications, capital
reorganizations and other changes of outstanding shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.
(d) Irrespective of any adjustments or changes in
the Purchase Price or the number of shares of Common Stock purchasable upon
exercise of the Warrants, the Warrant Certificates theretofore and thereafter
issued shall, unless the Company shall exercise its option to issue new Warrant
Certificates pursuant to Section 2(f), continue to express the applicable
Purchase Price per share, the number of shares purchasable thereunder and the
Redemption Price therefor as the Purchase Price per share, and the
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<PAGE>
number of shares purchasable thereunder and the Redemption Price therefor as
were expressed in the Warrant Certificates when the same were originally issued.
(e) After each adjustment of the Purchase Price
pursuant to this Section 9, the Company will promptly prepare a certificate
signed by the Chairman or President, and by the treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary, of the Company setting
forth: (i) the applicable Purchase Price as so adjusted, (ii) the number of
shares of Common Stock purchasable upon exercise of each Warrant after such
adjustment, and, if the Company shall have elected to adjust the number of
Warrants, the number of Warrants to which the registered holder of each Warrant
shall then be entitled, and the adjustment in Redemption Price resulting
therefrom, and (iii) a brief statement of the facts accounting for such
adjustment. The Company will promptly file such certificate with the Warrant
Agent and cause a brief summary thereof to be sent by ordinary first class mail
to the Underwriter and to each registered holder of Warrants at his last address
as it shall appear on the registry books of the Warrant Agent. No failure to
mail such notice nor any defect therein or in the mailing thereof shall affect
the validity thereof except as to the holder to whom the Company failed to mail
such notice, or except as to the holder whose notice was defective. The
affidavit of an officer of the Warrant Agent or the Secretary or an Assistant
Secretary of the Company that such notice has been mailed shall, in the absence
of fraud, be prima facie evidence of the facts stated therein.
(f) For purposes of Section 9(a) and 9(b) hereof,
the following provisions (i) to (vi) shall also be applicable:
(i) The number of shares of Common Stock
outstanding at any given time shall include shares of Common Stock owned or held
by or for the account of the Company and the sale or issuance of such treasury
shares or the distribution of any such treasury shares shall not be considered a
Change of Shares for purposes of said sections.
(ii) No adjustment of the Purchase Price
shall be made unless such adjustment would require an increase or decrease of at
least $0.05 in such price; provided that any adjustments which by reason of this
clause (ii) are not required to be made shall be carried forward and shall be
made at the time of and together with the next subsequent adjustment which,
together with any adjustment(s) so carried forward, shall require an increase or
decrease of at least $0.05 in the Purchase Price then in effect hereunder.
(iii) In case of (1) the sale by the Company
solely for cash of any rights or warrants to subscribe for or purchase, or any
options for the purchase of, Common Stock or any securities convertible into or
exchangeable for Common Stock without the payment of any further consideration
other than cash, if any (such convertible or exchangeable securities being
herein
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called "Convertible Securities"), or (2) the issuance by the Company, without
the receipt by the Company of any consideration therefor, of any rights or
warrants to subscribe for or purchase, or any options for the purchase of,
Common Stock or Convertible Securities, in each case, if (and only if) the
consideration payable to the Company upon the exercise of such rights, warrants
or options shall consist solely of cash, whether or not such rights, warrants or
options, or the right to convert or exchange such Convertible Securities, are
immediately exercisable, and the price per share for which Common Stock is
issuable upon the exercise of such rights, warrants or options or upon the
conversion or exchange of such Convertible Securities (determined by dividing
(x) the minimum aggregate consideration payable to the Company upon the exercise
of such rights, warrants or options, plus the consideration received by the
Company for the issuance or sale of such rights, warrants or options, plus, in
the case of such Convertible Securities, the minimum aggregate amount of
additional consideration, if any, other than such Convertible Securities,
payable upon the conversion or exchange thereof, by (y) the total maximum number
of shares of Common Stock issuable upon the exercise of such rights, warrants or
options or upon the conversion or exchange of such Convertible Securities
issuable upon the exercise Purchase Price immediately prior to the date of the
issuance or sale of such rights, warrants or options, then the total maximum,
number of shares of Common Stock issuable upon the exercise of such rights,
warrants or options or upon the conversion or exchange of such Convertible
Securities (as of the date of the issuance or sale of such rights, warrants or
options) shall be deemed to be outstanding shares of Common Stock for purposes
of Sections 9(a) and 9(b) hereof and shall be deemed to have been sold or cash
in an amount equal to such price per share.
(iv) In case of the sale by the Company
solely for cash of any Convertible Securities, whether or not the right of
conversion or exchange thereunder is immediately exercisable, and the price per
share for which Common Stock is issuable upon conversion or exchange of such
Convertible Securities (determined by dividing (x) the total amount of
consideration received by the Company for the sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, other than such Convertible Securities, payable upon the conversion or
exchange thereof, by (y) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of such Convertible Securities) is less
than the then Purchase Price immediately prior to the date of the sale of such
Convertible Securities, then the total maximum number of shares of Common
Stock issuable upon the conversion or exchange of such Convertible Securities
(as of the date of the sale of such Convertible Securities) shall be deemed to
be outstanding shares of Common Stock for purposes of Sections 9(a) and 9(b)
hereof and shall be deemed to have been sold for cash in an amount equal to such
price per share.
(v) If the exercise or purchase price provided
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<PAGE>
for in any right, warrant or option referred to in clause (iii) above, or the
rate at which any Convertible Securities referred to in clause (iii) or (iv)
above are convertible into or exchangeable for Common Stock, shall change at any
time (other than under or by reason of provisions designed to protect against
dilution), the Purchase Price then in effect hereunder shall forthwith be
readjusted to such Purchase Price as would have been obtained (1) had the
adjustments made upon the issuance or sale of such rights, warrants, options or
Convertible Securities been made upon the basis of the issuance of only the
number of shares of Common Stock theretofore actually delivered (and the total
consideration received therefor) upon the exercise of such rights, warrants or
options or upon the conversion or exchange of such Convertible Securities,(2)
had adjustments been made on the basis of the Purchase Price as adjusted under
clause (1) for all transactions (which would have affected such adjusted
Purchase Price) made after the issuance or sale of such rights, warrants,
options or Convertible Securities, and (3) had any such rights, warrants,
options or Convertible Securities then still outstanding been originally issued
or sold at the time of such change. On the expiration of any such right, warrant
or option or the termination of any such right to convert or exchange any such
Convertible Securities, the Purchase Price then in effect hereunder shall
forthwith be readjusted to such Purchase Price as would have been obtained (a)
had the adjustments made upon the issuance or sale of such rights, warrants,
options or Convertible Securities been made upon the basis of the issuance of
only the number of shares of Common Stock theretofore actually delivered (and
the total consideration received therefor) upon the exercise of such rights,
warrants or options or upon the conversion or exchange of such Convertible
Securities and (b) had adjustments been made on the basis of the Purchase Price
as adjusted under clause (a) for all transactions (which would have affected
such adjusted Purchase Price) made after the issuance or sale of such rights,
warrants, options or Convertible Securities.
(vi) In case of the sale for cash of any
shares of Common Stock, any Convertible Securities, any rights or warrants to
subscribe for or purchase, or any options for the purchase of, Common Stock or
Convertible Securities, the consideration received by the Company therefore
shall be deemed to be the gross sales price therefor without deducting therefrom
any expense paid or incurred by the Company or any underwriting discounts or
commissions or concessions paid or allowed by the Company in connection
therewith.
(g) No adjustment to the Purchase Price or to the
number of shares of Common Stock purchasable upon the exercise of each Warrant
will be made, however:
(i) upon the grant or exercise of any other
options which may hereafter be granted or exercised under any
employee benefit plan of the Company as described in the
Registration Statement; or
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<PAGE>
(ii) upon the sale or exercise of the
Warrants, including without limitation the sale or exercise of any of the
Warrants underlying the Purchase Option; or
(iii) Upon the sale of any shares of Common
Stock in the public offering pursuant to the Registration Statement, including,
without limitation, shares sold upon the exercise of any over-allotment option
granted to the Underwriter in connection with such offering; or
(iv) upon the issuance or sale of Common
Stock or Convertible Securities upon the exercise of any rights or warrants
to subscribe for or purchase, or any options for the purchase of, Common Stock
or Convertible Securities, outstanding on the date of the original sale of the
Warrants;
(v) upon the issuance or sale of Common
Stock upon conversion or exchange of any Convertible Securities outstanding on
the date of the original sale of the Warrants under the Underwriting Agreement,
whether or not any adjustment in the Purchase Price was made or required to be
made upon the issuance or sale of such Convertible Securities; or
(vi) upon any amendment to or change in the
terms of any rights or warrants to subscribe for or purchase, or options for the
purchase of, Common Stock or Convertible Securities or in the terms of any
Convertible Securities, including, but not limited to, any extension of any
expiration date of any such right, warrant or option, any change in any exercise
or purchase price provided for in any such right, warrant or option, any
extension of any date through which any Convertible Securities are convertible
into or exchangeable for Common Stock or any change in the rate at which any
Convertible Securities are convertible into or exchangeable for Common Stock
(other than rights, warrants, options or Convertible Securities issued or sold
after the close of business on the date of the original issuance of the shares
of Common Stock and Warrants under the Underwriting Agreement (i) for which an
adjustment in the Purchase Price then in effect was theretofore made or required
to be made, upon the issuance or sale thereof, or (ii) for which such an
adjustment would have been required had the exercise or purchase price of such
rights, warrants or options at the time of the issuance or sale thereof or the
rate of conversion or exchange of such Convertible Securities, at the time of
the sale of such Convertible Securities, or the issuance or sale of rights or
warrants to subscribe for or purchase, or options for the purchase of, such
Convertible Securities, been the price or rate as changed, in which case the
provisions of Section 9(f)(v) hereof shall be applicable if, but only if, the
exercise or purchase price thereof, as changed, or the rate of conversion or
exchange thereof, as changed, consists solely of cash or requires the payment of
additional consideration, if any, and the Company did not receive any
consideration other than cash, if any, in connection with such change).
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<PAGE>
(h) As used in this Section 9, the term "Common
Stock" shall mean and include the Company's shares of Common Stock authorized on
the date of the original issuance under Underwriting Agreement and shall also
include any capital stock of any class of the Company thereafter authorized
which shall not be limited to a fixed sum or percentage in respect of the rights
of the holders thereof to participate in dividends and in the distribution of
assets upon the voluntary liquidation, dissolution or winding up of the Company;
provided, however, that the shares issuable upon exercise of the Warrants shall
include only shares of such class designated in the Company's Certificate of
Incorporation as Common Stock on the date of the original issuance of shares of
Common Stock under the Underwriting Agreement or (i), in the case of any
reclassification, change, consolidation, merger, sale or conveyance of the
character referred to in Section 9(c) hereof, the stock, securities or property
provided for in such section or (ii), in the case of any reclassification or
change in the outstanding shares of Common Stock issuable upon exercise of the
Warrants as a result of a subdivision or combination or consisting of a change
in par value, or from par value to no par value, or from no par value to par
value, such shares of Common Stock as so reclassified or changed.
(i) Any determination as to whether an adjustment
in the Purchase Price in effect hereunder is required pursuant to Section 9, or
as to the amount of any such adjustment, if required, shall be binding upon the
holders of the Warrants and the Company if made in good faith by the Board of
Directors of the Company.
(j) If and whenever the Company shall grant to the
holders of Common Stock, as such, rights or warrants to subscribe for or to
purchase, or any options for the purchase of, Common Stock or securities
convertible into or exchangeable for or carrying a right, warrant or option to
purchase Common Stock, the Company shall concurrently therewith grant to each of
the then Registered Holders of the Warrants all of such rights, warrants or
options to which each such holder would have been entitled if, on the date of
determination of stockholders entitled to the rights, warrants or options being
granted by the Company, such holder were the holder of record of the number of
whole shares of Common Stock then issuable upon exercise (assuming, for purposes
of this Section 9(j), that the exercise of Warrants is permissible during
periods prior to the Initial Warrant Exercise Date) of his Warrants. Such grant
by the Company to the holders of the Warrants shall be in lieu of any adjustment
which otherwise might be called for pursuant to this Section 9.
SECTION 10. Fractional Warrants and Fractional Shares of
Common Stock.
(a) If the number of shares of Common Stock
purchasable upon the exercise of each Warrant is adjusted pursuant to Section 9
hereof, the Company shall nevertheless not be required to issue fractions of
shares, upon exercise of the Warrants or otherwise, or to distribute
certificates that evidence fractional
15
<PAGE>
shares. With respect to any fraction of a share called for upon any exercise
hereof, the Company shall pay to the Holder an amount in cash equal to such
fraction multiplied by the current market value of such fractional share,
determined as follows:
(i) If the Common Stock is listed on a
National Securities Exchange or admitted to unlisted trading privileges on such
exchange or listed for trading on the Nasdaq National Market, the current value
shall be the last reported sale price of the Common Stock on such exchange on
the last business day prior to the date of exercise of the Warrant, or if no
such sale is made on such day, the average of the closing bid and asked prices
for such day on such exchange; or
(ii) If the Common Stock is not listed or
admitted to unlisted trading privileges, the current value shall be
the mean of the last reported bid and asked prices reported by the
National Quotation Bureau, Inc. on the last business day prior to
the date of the exercise of the Warrant; or
(iii) If the Common Stock is not so listed
or admitted to unlisted trading privileges and bid and asked prices are not so
reported, the current value shall be an amount determined in such reasonable
manner as may be prescribed by the Board of Directors of the Company.
SECTION 11. Warrant Holders Not Deemed Stockholders.
No holder of Warrants shall, as such, be entitled to vote or
to receive dividends or be deemed the holder of Common Stock that may at any
time be issuable upon exercise of such Warrants for any purpose whatsoever, nor
shall anything contained herein be construed to confer upon the holder of
Warrants, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action (whether upon any recapitalization, issuance or
reclassification of stock, change of par value or change of stock to no par
value, consolidation, merger or conveyance or otherwise), or to receive notice
of meetings, or to receive dividends or subscription rights, until such Holder
shall have exercised such Warrants and been issued shares of Common Stock in
accordance with the provisions hereof.
SECTION 12. Rights of Action.
All rights of action with respect to this Agreement are vested
in the respective Registered Holders of the Warrants, and any Registered Holder
of a Warrant, without consent of the Warrant Agent or of the holder of any other
Warrant, may, in his own behalf and for his own benefit, enforce against the
Company his right to exercise his Warrants for the purchase of shares of Common
Stock in the manner provided in the Warrant Certificates and this Agreement.
16
<PAGE>
SECTION 13. Agreement of Warrant Holders.
Every holder of a Warrant, by his acceptance thereof, consents
and agrees with the Company, the Warrant Agent and every other holder of a
Warrant that:
(a) The Warrants are transferable only on the
registry books of the Warrant Agent by the Registered Holder thereof in person
or by his attorney duly authorized in writing and only if the Warrant
Certificates representing such Warrants are surrendered at the office of the
Warrant Agent, duly endorsed or accompanied by a proper instrument of transfer
satisfactory to the Warrant Agent and the Company in their sole discretion,
together with payment of any applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and
treat the person in whose name the Warrant Certificate is registered as the
holder and as the absolute, true and lawful owner of the Warrants represented
thereby for all purposes, and neither the Company nor the Warrant Agent shall be
affected by any notice or knowledge to the contrary, except as otherwise
expressly provided in Section 7 hereof.
SECTION 14. Cancellation of Warrant Certificates.
If the Company shall purchase or acquire any Warrant or
Warrants, the Warrant Certificate or Warrant Certificates evidencing the same
shall thereupon be delivered to the Warrant Agent and canceled by it and
retired. The Warrant Agent shall also cancel Warrant Certificates following
exercise of any or all of the Warrants represented thereby or delivered to it
for transfer, split-up, combination or exchange.
SECTION 15. Concerning the Warrant Agent.
The Warrant Agent acts hereunder as agent and in a ministerial
capacity for the Company, and its duties shall be determined solely by the
provisions hereof. The Warrant Agent shall not, by issuing and delivering
Warrant Certificates or by any other act hereunder be deemed to make many
representations as to the validity, value or authorization of the Warrant
Certificates or the Warrants represented thereby or of any securities or other
property delivered upon exercise of any Warrant or whether any stock issued upon
exercise of any Warrant is fully paid and nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists which may require any such
adjustments, or with respect to the nature or extent of any such adjustment,
when made, or with respect to the method employed in making the same. It shall
not (i) be liable for any recital or statement of facts contained herein or for
any action taken, suffered or omitted by it
17
<PAGE>
in reliance on any Warrant Certificate or other document or instrument believed
by it in good faith to be genuine and to have been signed or presented by the
proper party or parties, (ii) be responsible for any failure on the part of the
Company to comply with any of its covenants and obligations contained in this
Agreement or in any Warrant Certificate, or (iii) be liable for any act or
omission in connection with this Agreement except for its own negligence or
willful misconduct.
The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company or for the Underwriter)
and shall incur no liability or responsibility for any action taken, suffered or
omitted by it in good faith in accordance with the opinion or advice of such
counsel.
Any notice, statement, instruction, request, direction, order
or demand of the Company shall be sufficiently evidenced by an instrument signed
by the Chairman of the Board, President, any Vice President, its Secretary, or
Assistant Secretary, (unless other evidence in respect thereof is herein
specifically prescribed). The Warrant Agent shall not be liable for any action
taken, suffered or omitted by it in accordance with such notice, statement,
instruction, request, direction, order or demand reasonably believed by it to be
genuine.
The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its reasonable
expenses hereunder; it further agrees to indemnify the Warrant Agent and save it
harmless against any and all losses, expenses and liabilities, including
judgments, costs and counsel fees, for anything done or omitted by the Warrant
Agent in the execution of its duties and powers hereunder except losses,
expenses and liabilities arising as a result of the Warrant Agent's negligence
or willful misconduct.
In the event of a dispute under this Agreement between the
Company and the Underwriter regarding proceeds received by the Warrant Agent
from the exercise of the Warrants, the Warrant Agent shall have the right, but
not the obligation, to bring an interpleader action to resolve such dispute.
The Warrant Agent may resign its duties and be discharged from
all further duties and liabilities hereunder (except liabilities arising as a
result of the Warrant Agent's own negligence or willful misconduct), after
giving 30 days' prior written notice to the Company. At least 15 days prior to
the date such resignation is to become effective, the Warrant Agent shall cause
a copy of such notice of resignation to be mailed to the Registered Holder of
each Warrant Certificate at the Company's expense. Upon such resignation, or any
inability of the Warrant Agent to act as such hereunder, the Company shall
appoint a new warrant agent in writing. If the Company shall fail to make such
appointment within a period of 15 days after it has been notified in writing of
such resignation by the resigning Warrant Agent, then the Registered Holder of
any Warrant Certificate may apply to any
18
<PAGE>
court of competent jurisdiction for the appointment of a new warrant agent. Any
new warrant agent, whether appointed by the Company or by such a court shall be
a bank or trust company having a capital and surplus as shown by its last
published report to its stockholders, of not less than Ten Million
($10,000,000.00) Dollars, or a stock transfer company. After acceptance in
writing of such appointment by the new warrant agent is received by the Company,
such new warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act or deed; but if for any reason it
shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning Warrant
Agent. Not later than the effective date of any such appointment the Company
shall file notice thereof with the resigning Warrant Agent and shall forthwith
cause a copy of such notice to be mailed to the Registered Holder of each
Warrant Certificate.
Any corporation into which the Warrant Agent or any new
warrant agent may be converted or merged or any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party or any corporation succeeding to the trust business of the Warrant Agent
shall be a successor warrant agent under this Agreement without any further act,
provided that such corporation is eligible for appointment as successor to the
Warrant Agent under the provisions of the preceding paragraph. Any such
successor warrant agent shall promptly cause notice of its succession as warrant
agent to be mailed to the Company and to the Registered Holder of each Warrant
Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of
its or their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as though it were not Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
SECTION 16. Modification of Agreement.
Subject to the provisions of Section 4(b), the Warrant Agent
and the Company may by supplemental agreement make any changes or corrections in
this Agreement (i) that they shall deem appropriate to cure any ambiguity or to
correct any defective or inconsistent provision or manifest mistake or error
herein contained; or (ii) that they may deem necessary or desirable and which
shall not adversely affect the interests of the holders of Warrant Certificates;
provided, however, that this Agreement shall not otherwise be modified,
supplemented or altered in any respect except with the consent in writing of the
Registered Holders of Warrant Certificates representing not less than 50% of the
Warrants then outstanding; and provided, further, that no change in the
19
<PAGE>
number or nature of the securities purchasable upon the exercise of any Warrant,
or the Purchase Price therefor, or the acceleration of the Warrant Expiration
Date, shall be made without the consent in writing of the Registered Holder of
the Warrant Certificate representing such Warrant, other than such changes as
are specifically prescribed by this Agreement as originally executed.
SECTION 17. Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first class registered or certified mail, postage prepaid as
follows: If to the Registered Holder of a Warrant Certificate, at the address of
such holder as shown on the registry books maintained by the Warrant Agent; if
to the Company, at 724 Fifth Avenue, New York, New York 10019, Attention: David
Albahari, or at such other address as may have been furnished to the Warrant
Agreement in writing by the Company; if to the Warrant Agent, at Continental
Stock Transfer & Trust Co., 2 Broadway, New York, New York 10004; and if to the
Underwriter, at One World Trade Center, Suite 4047, New York, New York 10048,
attention: President.
SECTION 18 Governing Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without reference to
principles of conflict of laws.
SECTION 19. Binding Effect.
This Agreement shall be binding upon and inure to the benefit
of the Company, the Warrant Agent and the Underwriter, and their respective
successors and assigns, and the holders from time to time of the Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law, or
to impose upon any other person any duty, liability or obligation.
SECTION 20. Termination.
This Agreement shall terminate at the close of business on the
Expiration Date of all the Warrants of such earlier date upon which all Warrants
have been exercised, except that the Warrant Agent shall account to the Company
for cash held by it and the provisions of Section 15 hereof shall survive such
termination.
SECTION 21. Counterparts.
This Agreement may be executed in several counterparts, which
taken together shall constitute a single document.
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be duly executed as of the date first above written.
CABLE & CO. WORLDWIDE, INC.
By:____________________________________
Authorized Officer
CONTINENTAL STOCK TRANSFER & TRUST CO.
By:____________________________________
Authorized Officer
STATE STREET CAPITAL MARKETS, CORP.
By:____________________________________
Authorized Officer
21
<PAGE>
EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
No. W _________ (______) Warrants
VOID AFTER _________, 2001
REDEEMABLE COMMON STOCK WARRANT CERTIFICATE
FOR PURCHASE OF COMMON STOCK OF
CABLE & CO. WORLDWIDE, INC.
This certifies that FOR VALUE RECEIVED_____________________ or
registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Common Stock Purchase Warrants (the "Warrants") specified above. Each
Warrant initially entitles the Registered Holder to purchase, subject to the
terms and conditions set forth in this Certificate and the Warrant Agreement (as
hereinafter defined), one fully paid and nonassessable share of Common Stock,
$.01 par value, of Cable & Co. Worldwide, Inc., a Delaware corporation (the
"Company"), at any time between _________, 1997 and the Expiration Date (as
hereinafter defined), upon the presentation and surrender of this Warrant
Certificate with the Subscription Form on the reverse hereof duly executed, at
the corporate office of Continental Stock Transfer and Trust Co. as Warrant
Agent, or its successor (the "Warrant Agent"), accompanied by payment of $_.00
per share (the "Purchase Price") in lawful money of the United States of America
in cash or by official bank or certified check made payable to the Warrant
Agent.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement"), dated as of
____________, 1996, by and among the Company, the Warrant Agent and State Street
Capital Markets, Corp.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 3:00 p.m. (New York, New
York time) on ____________, 2000, or such earlier date as the
Warrants shall be redeemed. If such date shall in the State of New
York be a holiday or a day on which the banks are authorized to
close, then the Expiration Date shall be 3:00 p.m. (New York, New
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<PAGE>
York time) the next day which in the State of New York is not a holiday nor a
day in which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, with respect to such securities is effective. The
Company has covenanted and agreed that it will file a registration statement and
will use its best efforts to cause the same to become effective and to keep such
registration statement current while any of the Warrants are outstanding. This
Warrant shall not be exercisable by a Registered Holder in any state where such
exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment together with any tax or other
governmental charge imposed in connection therewith, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Certificates representing an equal aggregate number of Warrants will be
issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Commencing _____________, 1997, this Warrant may be redeemed at the
option of the Company, at a Redemption Price of $0.10 per Warrant, provided the
closing bid price of the Company's Common Stock on the Nasdaq SmallCap Market as
reported by the National Quotation Bureau, Incorporated (or the last sale price,
if quoted on a national securities exchange) equals or exceeds $9.00 for at
least 20 consecutive trading days ending on the fifteenth business day prior to
the date of the notice of redemption. Notice of redemption shall be given not
later then the fifteenth (15th) day before the date fixed for redemption, all as
provided in the Warrant Agreement. On and after the date fixed for redemption,
the Registered Holder shall have no rights with respect to this Warrant except
to receive the $0.10 per Warrant upon surrender of this Certificate.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company of the Warrant Agent) for all purposes and
shall not be
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<PAGE>
affected by any notice to the contrary.
The Company has agreed to pay a fee of seven percent (7%) of the
Purchase Price upon certain conditions as specified in the Warrant Agreement
upon the exercise of this Warrant.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two (2) of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated: _______________
CABLE & CO. WORLDWIDE, INC.
___________________________ By: _____________________________
Chairman
___________________________ By: _____________________________
Secretary
[seal]
Countersigned:
CONTINENTAL STOCK TRANSFER & TRUST CO.
By: __________________________
Authorized Officer
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<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
SUBSCRIPTION FORM
To be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
__________________ (________________) Warrants represented by this Warrant
Certificate, and to purchase the securities issuable upon the exercise of such
Warrants, and requests that certificates for such securities shall be issued in
the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
============================
============================
[please print or type name and address]
and be delivered to
============================
============================
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
The undersigned represents that the exercise of the within Warrant was
solicited by a member of the National Association of Securities Dealers, Inc.
("NASD"). If not solicited by an NASD member, please write "unsolicited" in the
space below. Unless otherwise indicated by listing the name of another NASD
member firm, it will be assumed that the exercise was solicited by State Street
Capital Markets, Corp.
Name of NASD Member if other than
than State Street Capital Markets,
Corp.
Dated: _____________________ ________________________________
Signature
--------------------------------
Street Address
--------------------------------
City, State and Zip Code
--------------------------------
Taxpayer ID Number
Signature Guaranteed:
---------------------------------
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<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
====================================
====================================
[please print or type name and address]
___________________ (_____________) of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints
____________________ Attorney to transfer this Warrant Certificate on the books
of the Company, with full power of substitution in the premises.
Dated: ______________________ ___________________________
Signature Guaranteed:
---------------------------
THE SIGNATURE MUST BE GUARANTEED BY A MEMBER OF THE MEDALLION SIGNATURE
GUARANTEE PROGRAM.
26
<PAGE>
<PAGE>
CABLE & CO. WORLDWIDE, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SHARES
C
COMMON STOCK COMMON STOCK
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 126827 10 4
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $.01 EACH OF THE
COMMON STOCK OF
CABLE & CO. WORLDWIDE, INC. (hereinafter called the "Corporation"),
transferable on the books of the Corporation by the said owner in person
or by his duly authorized attorney, upon the surrender of this
certificate properly endorsed. This certificate is not valid unless
countersigned by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
(CABLE & CO. WORLDWIDE CORPORATE SEAL 1994 DELAWARE appears here)
COUNTERSIGNED AND REGISTERED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(Jersey City, N.J.)
BY TRANSFER AGENT AND REGISTRAR
AUTHORIZED OFFICER
TREASURER PRESIDENT
<PAGE>
CABLE & CO. WORLDWIDE, INC.
The Corporation will furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT Custodian
(Cust) (Minor)
under Uniform Gifts to Minors
Act
(State)
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
Signature(s) Guaranteed:
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM) PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
No. W _________ (______) Warrants
VOID AFTER _________, 2001
REDEEMABLE COMMON STOCK WARRANT CERTIFICATE
FOR PURCHASE OF COMMON STOCK OF
CABLE & CO. WORLDWIDE, INC.
This certifies that FOR VALUE RECEIVED_____________________ or
registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Common Stock Purchase Warrants (the "Warrants") specified above. Each
Warrant initially entitles the Registered Holder to purchase, subject to the
terms and conditions set forth in this Certificate and the Warrant Agreement (as
hereinafter defined), one fully paid and nonassessable share of Common Stock,
$.01 par value, of Cable & Co. Worldwide, Inc., a Delaware corporation (the
"Company"), at any time between _________, 1997 and the Expiration Date (as
hereinafter defined), upon the presentation and surrender of this Warrant
Certificate with the Subscription Form on the reverse hereof duly executed, at
the corporate office of Continental Stock Transfer and Trust Co. as Warrant
Agent, or its successor (the "Warrant Agent"), accompanied by payment of $_.00
per share (the "Purchase Price") in lawful money of the United States of America
in cash or by official bank or certified check made payable to the Warrant
Agent.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement"), dated as of
____________, 1996, by and among the Company, the Warrant Agent and State Street
Capital Markets, Corp.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 3:00 p.m. (New York, New
York time) on ____________, 2000, or such earlier date as the
Warrants shall be redeemed. If such date shall in the State of New
York be a holiday or a day on which the banks are authorized to
close, then the Expiration Date shall be 3:00 p.m. (New York, New
22
<PAGE>
York time) the next day which in the State of New York is not a holiday nor a
day in which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, with respect to such securities is effective. The
Company has covenanted and agreed that it will file a registration statement and
will use its best efforts to cause the same to become effective and to keep such
registration statement current while any of the Warrants are outstanding. This
Warrant shall not be exercisable by a Registered Holder in any state where such
exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment together with any tax or other
governmental charge imposed in connection therewith, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Certificates representing an equal aggregate number of Warrants will be
issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Commencing _____________, 1997, this Warrant may be redeemed at the
option of the Company, at a Redemption Price of $0.10 per Warrant, provided the
closing bid price of the Company's Common Stock on the Nasdaq SmallCap Market as
reported by the National Quotation Bureau, Incorporated (or the last sale price,
if quoted on a national securities exchange) equals or exceeds $9.00 for at
least 20 consecutive trading days ending on the fifteenth business day prior to
the date of the notice of redemption. Notice of redemption shall be given not
later then the fifteenth (15th) day before the date fixed for redemption, all as
provided in the Warrant Agreement. On and after the date fixed for redemption,
the Registered Holder shall have no rights with respect to this Warrant except
to receive the $0.10 per Warrant upon surrender of this Certificate.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company of the Warrant Agent) for all purposes and
shall not be
23
<PAGE>
affected by any notice to the contrary.
The Company has agreed to pay a fee of seven percent (7%) of the
Purchase Price upon certain conditions as specified in the Warrant Agreement
upon the exercise of this Warrant.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two (2) of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated: _______________
CABLE & CO. WORLDWIDE, INC.
___________________________ By: _____________________________
Chairman
___________________________ By: _____________________________
Secretary
[seal]
Countersigned:
CONTINENTAL STOCK TRANSFER & TRUST CO.
By: __________________________
Authorized Officer
24
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
SUBSCRIPTION FORM
To be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
__________________ (________________) Warrants represented by this Warrant
Certificate, and to purchase the securities issuable upon the exercise of such
Warrants, and requests that certificates for such securities shall be issued in
the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
============================
============================
[please print or type name and address]
and be delivered to
============================
============================
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
The undersigned represents that the exercise of the within Warrant was
solicited by a member of the National Association of Securities Dealers, Inc.
("NASD"). If not solicited by an NASD member, please write "unsolicited" in the
space below. Unless otherwise indicated by listing the name of another NASD
member firm, it will be assumed that the exercise was solicited by State Street
Capital Markets, Corp.
Name of NASD Member if other than
than State Street Capital Markets,
Corp.
Dated: _____________________ ________________________________
Signature
--------------------------------
Street Address
--------------------------------
City, State and Zip Code
--------------------------------
Taxpayer ID Number
Signature Guaranteed:
---------------------------------
25
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
====================================
====================================
[please print or type name and address]
___________________ (_____________) of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints
____________________ Attorney to transfer this Warrant Certificate on the books
of the Company, with full power of substitution in the premises.
Dated: ______________________ ___________________________
Signature Guaranteed:
---------------------------
THE SIGNATURE MUST BE GUARANTEED BY A MEMBER OF THE MEDALLION SIGNATURE
GUARANTEE PROGRAM.
26
<PAGE>
UNDERWRITER'S PURCHASE OPTION
DATED: JUNE , 1996 CERTIFICATE NO. SSCM #1
UNDERWRITER'S PURCHASE OPTIONS
VOID AFTER 5:00 P.M., EASTERN TIME ON JUNE , 2001
CABLE & CO. WORLDWIDE, INC.
113,000 Underwriter's Purchase Options to Purchase 113,000 Shares
of Common Stock, par value $.01 per share
and
113,000 Redeemable Common Stock Purchase Warrants
Dated: June , 1996
THIS CERTIFIES THAT STATE STREET CAPITAL MARKETS, CORP. or registered
assigns (the "Holder") is entitled to purchase from CABLE & CO. WORLDWIDE, INC.,
a Delaware corporation (the "Company"), at any time after June , 1997 and before
5:00 P.M. Eastern time on June ,2001, one hundred thirteen thousand (113,000)
shares of Common Stock, par value $.01 per share, (herein referred to as
"Shares") and one hundred thirteen thousand (113,000) Redeemable Common Stock
Purchase Warrants (herein referred to as "Warrants") of the Company (the number
and character of such Shares and/or Warrants being subject to adjustments as
provided herein) at the purchase price of $ per Share and $.12 per Warrant
(hereinafter referred to as the "Exercise Price"), subject to adjustment as
provided in paragraph 8 hereof. This Underwriter's Purchase Option (the
"Purchase Option") is one of a series of such options to purchase an aggregate
of 113,000 Shares and 113,000 Warrants, which options were issued pursuant to an
Underwriting Agreement dated June , 1996, between the Company, State Street
Capital Markets, Corp. (the "Underwriter") and an officer of Cable & Co.
Worldwide, Inc. as the representative for the certain selling shareholders of
the Company listed on Exhibit A attached thereto, in connection with a public
offering, through the Underwriter, of 1,130,000 Shares and 1,130,000 Warrants as
therein described (and up to 169,500 additional Shares and up to 169,500
additional Warrants covered by an over-allotment option granted by the Company
to the Underwriter, hereinafter referred to together with the 1,130,000 Shares
and 1,130,000 Warrants, as the "Public Shares" and "Public Warrants",
respectively) and in consideration of $10.00 received by the Company for the
Purchase Option. Except as specifically otherwise provided herein, the Shares
and Warrants issuable pursuant to the Purchase Option shall have same terms and
conditions as the Public Shares and Public Warrants, respectively, as described
under the caption "Description of Securities" in the Company's Registration
Statement on Form SB-2, File No. 333-3000 (the "Registration Statement"), except
that the Holder shall have registration rights under the Securities Act of 1993
(the "Act"), for
1
<PAGE>
the Purchase Option, the Shares and Warrants, and the Shares purchasable upon
exercise of the Warrants, as more fully described in paragraph 6 herein.
1. The rights represented by this Purchase Option 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 [one day before date of agreement, 1996] (the "Initial Period"),
inclusive, the Holder shall have no right to purchase any Shares or Warrants
hereunder, except that in the event of any merger, consolidation or sale of
substantially all the assets of the Company as an entirety during the Initial
Period, the Holder shall have the right to exercise the Purchase Option 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 and
Warrants into which the Purchase Option might have been exercisable immediately
prior thereto; (b) between [date of agreement, 1997] and [one day before date of
agreement, 2001] (the "Expiration Date") inclusive, the Holder shall have the
option to purchase Shares hereunder at a price of $ per Share (120% of the
initial public offering price) and Warrants hereunder at a price of $0.12 per
Warrant (120% of the initial public offering price), all subject to adjustment
as provided in paragraph 8 hereof; and (c) after the Expiration Date, the Holder
shall have no right to purchase any Shares or Warrants hereunder.
2. (a) The rights represented by this Purchase Option may be
exercised at any time within the periods above specified, in whole or in part,
by (i) the surrender of the Purchase Option (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 Holder at the address of the Holder appearing on the books of the
Company); (ii) payment to the Company of the exercise price then in effect for
the number of Shares and/or Warrants 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 Purchase Option 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 Purchase Option 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 and Warrants shall be issuable
upon such exercise shall become the holder or holders of record of such Shares
and Warrants at that time and date. Certificates representing the Shares and
Warrants so purchased shall be delivered to the Holder within a reasonable time,
not exceeding five (5) days, after the rights represented by this Purchase
Option shall have been so exercised.
2
<PAGE>
(b) Notwithstanding anything to the contrary contained
in subparagraph (a) of paragraph 2, the Holder may elect to exercise this
Purchase Option in whole or in part by receiving Shares and/or Warrants, as the
case may be, equal to the value (as determined below) of this Purchase Option at
the principal office of the Company together with notice of such election in
which event the Company shall issue to the Holder a number of Shares and/or
Warrants, as the case may be, computed using the following formula:
X = Y(A-B)
A
Where: X = the number of Shares or Warrants, as the
case may be, to be issued to the Holder;
Y = the number of Shares or Warrants, as the
case may be, to be exercised under this
Purchase Option;
A = the current fair market value of one Share
or Warrant, as the case may be (calculated
as described below); and
B = the Exercise Price per Share or
Warrant, as the case may be.
As used herein, in the case of Shares, the current fair market
value of one Share shall mean the greater of (x) the average of the closing
price per share of the Company's Shares sold on all securities exchanges on
which the Shares 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 per share on
such day on The Nasdaq Stock 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 Purchase
Option is given or (y) the average of the Market Price per Share for the five
trading days immediately preceding the date notice of exercise of this Purchase
Option is given. As used herein, in the case of Warrants, the current fair
market value of one Warrant shall mean the greater of (x) the average of the
closing price per warrant of the Public Warrants sold on all securities
exchanges on which the Public Warrants 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 per share on such day on The Nasdaq Stock 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 Purchase
Option is given or (y) the average of the Market Price per warrant of the Public
3
<PAGE>
Warrants for the five trading days immediately preceding the date notice of
exercise of this Purchase Option is given. If on any date for which the Market
Price per Share or per Public Warrant is to be determined, the Shares or the
Public Warrants, as the case may be, are not listed on any securities exchange
or quoted on the NASDAQ National Market or on The Nasdaq Stock Market or
otherwise in the over-the-counter market, the Market Price per Share or per
Public Warrant shall be the highest price per share or per warrant, as the case
may be, which the Company could then obtain from a willing buyer (not a current
employee or director) for Shares sold by the Company, from authorized but
unissued shares or for Public Warrants, 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 or
Public Warrant shall be deemed to be the value received by the holders of the
Company's Shares and the Public Warrants for each share or warrant, as the case
may be, pursuant to the Company's acquisition.
3. The Purchase Option shall not be transferred,
sold, assigned, or hypothecated during the Initial Period except that it may be
transferred to successors of the Holder, and may be assigned in whole or in part
to any person who is an officer, director or partner of the Holder. Any such
assignment shall be effected by the Holder by (i) executing the form of
assignment at the end hereof and (ii) surrendering the Purchase Option 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 the Holder if the
Holder is a corporation), stating that each transferee is a permitted transferee
under this paragraph 3; whereupon the Company shall issue, in the name or name
specified by the Holder (including the Holder) a new Purchase Option or Purchase
Options of like tenor and representing, in the aggregate, rights to purchase the
same number of Shares and Warrants as are purchasable hereunder.
4. The Company covenants and agrees that all Shares
which may be purchased hereunder or upon exercise of the Warrants 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 Purchase Option may be exercised, the Company will at
all times have authorized and reserved a sufficient number of Shares to provide
for the exercise of the Purchase Option and the Warrants.
5. The Purchase Option shall not entitle the Holder to any
voting rights or other rights as stockholders of the Company.
6. (a)(i) The Company shall advise the Holder or its
transferees, whether the Holder holds the Purchase Option or has
exercised the Purchase Option and holds Shares and/or Warrants by
written notice at least four weeks prior to the filing of any post-
4
<PAGE>
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 Holder,
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 Purchase Option, the Shares issuable upon the exercise thereof,
the Warrants issuable upon exercise of the Purchase Option and the Common Stock
issuable upon exercise of the Warrants which are issuable upon exercise of the
Purchase Option (collectively, the "Registrable Securities"). The Company shall
supply prospectuses and such other document as the Holder 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 the Holder designates and do any and all
other acts and things which may be necessary or desirable to enable the Holder
to consummate the public sale or other disposition of the Registrable
Securities, all at no expense to the Holder, and furnish indemnification in the
manner provided in paragraph 7 hereof. The Holder 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 Holder 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 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 three months after the completion of such underwritten
offering.
(b) If any 50% Holder (as defined below) shall give
written 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
5
<PAGE>
necessary to obtain the removal of any stop order) within 60 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 Registrable Securities 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 and/or Warrants issuable
upon exercise of the Purchase Option. The 50% Holder may, at its option, request
such post-effective amendment or new registration statement during the described
period with respect to the Purchase Option, or separately as to the Common Stock
and Warrants issuable upon the exercise of the Purchase Option, and such
registration rights may be exercised by the 50% Holder prior to or subsequent to
the exercise of the Purchase Option. Within ten days after receiving any such
notice pursuant to this subparagraph (b) of paragraph 6, the Company shall give
written notice to any other Holder of Purchase Options, 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 Purchase Option held by the other Holder, provided that they shall furnish
the Company with such appropriate information (relating to the intentions of
such Holder) 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 pay 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 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 Purchase Options and/or the
Shares and the Warrants underlying the Purchase Option and shall include any
owner or combination of owners of such securities, which ownership shall be
calculated by determining the number of Shares held by such owner or owners as
well as the number of Shares then issuable upon exercise of the Purchase Option
and the Warrants.
6
<PAGE>
(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 Purchase Option or any Shares issued or issuable upon
the exercise of the Purchase Option or the Warrants, or any Warrants 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 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
7
<PAGE>
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 arise
solely out of an untrue statement or alleged untrue statement or omission 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 expressly for use in such registration statement.
(b) The Distributing Holder will indemnify and hold
harmless each of 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 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 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 directly out of an
untrue statement or 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 expressly for use in such registration statement; provided,
however that no Distributing Holder shall be liable hereunder for an amount in
excess of the net proceeds received by such Distributing Holder from the sale of
the securities under such registration statement.
(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 except to the
extent that such failure to so notify materially prejudices the indemnifying
party's rights or its ability to defend against any claim related thereto.
(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
8
<PAGE>
party, and after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party under this 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 Prices in effect at any time and the number and kind of
securities purchasable upon the exercise of each Purchase Option 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 in Shares, (ii) subdivide or reclassify
its outstanding Shares into a greater number of Shares, or (iii) combine or
reclassify its outstanding Shares into a smaller number of Shares, or (iv) the
outstanding Shares 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 Purchase Option shall be made and the Exercise Prices
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 Holder of this Purchase Option exercised
after such date shall be entitled to receive the aggregate number and kind of
securities which, if this Purchase Option had been exercised by such Holder
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 $[
.00] per Share [120% of the initial public offering price of the Public Shares]
and the number of Shares and Warrants purchasable upon exercise of this Purchase
Option was 50,000, the adjusted Exercise Price immediately after such event
would be $[ ] per Share and [ ] per Warrant and the adjusted number of Shares
and Warrants purchasable upon exercise of this Purchase Option would be 100,000
Shares and 100,000 Warrants. 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 Shares 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 for the Shares and Warrants,
as the case may be, in effect thereafter shall be determined by multiplying the
number of Shares and Warrants, as the case may be, issuable upon exercise of
9
<PAGE>
the Purchase Option by the Exercise Price for the Shares and Warrants,
respectively, in effect immediately prior thereto, multiplied by a fraction, the
numerator of which shall be the total number of Shares or Warrants, as the case
may be, then outstanding multiplied by the current Exercise Price for the Shares
or Warrants, as the case may be, 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 or Warrants, as the case may be, outstanding
multiplied by the current Exercise Price for the Shares or Warrants, as the case
may be. Such adjustment shall be 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 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 Shares, (iv) upon
exercise of the Purchase Option or the Public Warrants or the Warrants or (v)
upon exercise of rights or warrants issued to the holders of Shares, 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 lesser of the market
price of a Share as quoted NASDAQ or then current Warrant Exercise Price on the
date the Company fixes the offering price of such additional Shares, the
Exercise Price per Share shall be adjusted immediately thereafter so that it
shall equal the price determined by multiplying the Exercise Price per Share in
effect immediately prior thereto by a fraction, of which the numerator shall be
the total number of Shares outstanding immediately prior to the issuance of such
additional Shares plus the number of Shares 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 Warrant
Exercise Price, and of which the denominator shall be the number of Shares
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 Shares (excluding securities issued in transactions
described in subparagraph (b) of paragraph 8) for a consideration per Share,
initially deliverable upon conversion or exchange of such securities (determined
as provided in subparagraph (f) of paragraph 8), less than the lesser of the
market price of a Share as quoted on NASDAQ or then current Redeemable Warrant
Exercise Price in effect immediately prior to the issuance of such securities,
the Exercise Price per Share shall be adjusted immediately thereafter so that it
shall equal the price determined by multiplying the Exercise Price per Share in
effect immediately prior thereto by a fraction, of which the numerator shall be
the number of Shares
10
<PAGE>
outstanding immediately prior to the issuance of such securities plus the number
of Shares 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 outstanding immediately prior to such issuance plus the
maximum number of Shares 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 Prices payable upon exercise of the Purchase
Option is adjusted pursuant to subparagraphs (a), (b), (c) or (d) of paragraph
8, the number of Shares and Warrants purchasable upon exercise of this Purchase
Option shall simultaneously be adjusted by multiplying the number of Shares and
Warrants, respectively, issuable upon exercise of this Purchase Option by the
Exercise Price per Share or Warrant, as the case may be, in effect on the date
hereof and dividing the product so obtained by the applicable 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 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 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, 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.
11
<PAGE>
(g) No adjustment in the Exercise Price of the Shares 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 Prices, 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, or any subdivision, reclassification or combination of Shares, hereafter
made by the Company shall not result in any federal income tax liability to the
holders of Shares or securities convertible into Shares (including the Warrants
issuable upon exercise of the Purchase Option).
(h) Whenever any 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, Warrants or other securities purchasable upon
exercise of the Purchase Option to be mailed to the Holder, at the addresses
listed on the books of the Company, 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 any time, as a result of an adjustment made
pursuant to the provisions of this paragraph 8, the Holder of this Purchase
Option thereafter shall become entitled to receive any securities of the
Company, other than Shares and the Warrants, thereafter the number of such other
securities so receivable upon exercise of the Purchase Option 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 Shares 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.
10. Loss or Destruction. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction, or mutilation of this Purchase Option
certificate and, in the case of any loss, theft or destruction, upon delivery of
an indemnity agreement satisfactory in form and amount to the Company and its
counsel, or, in the case of any such mutilation, upon surrender and cancellation
of this Purchase Option, the Company, at its expense, will execute and deliver,
in lieu thereof, a new Purchase Option certificate of like tenor.
12
<PAGE>
IN WITNESS WHEREOF, CABLE & CO. WORLDWIDE, INC. has caused this
Purchase Option to be signed by its duly authorized officers, and this
Purchase Option to be dated June __, 1996.
CABLE & CO. WORLDWIDE INC.
By:_______________________
Name:
Title:
13
<PAGE>
PURCHASE FORM
(To be signed only upon exercise of Purchase Option)
The undersigned, the holder of the foregoing Purchase Option, hereby
irrevocably elects to exercise the purchase rights represented by such Purchase
Option for, and to purchase thereunder, _________ Shares and Warrants of CABLE &
CO. WORLDWIDE, INC., and herewith makes payment of $________________ therefor
(or hereby surrenders and delivers that portion of the Purchase Option having
equivalent value (as determined in accordance with the provisions of
subparagraph (d) of paragraph 2 of the Purchase Option)), and requests that the
certificates for Shares and/or Warrants, as the case may be, be issued in the
name(s) of, and delivered to ___________, whose address(es) is (are):
Dated: _______________
----------------------------
Signature
-----------------------------
(Print name under signature)
(Signature must conform in all
respects to the name of holders
specified on the face of the Purchase
Option).
-----------------------------
(Insert Social Security or Other
Identifying Number of Holder)
14
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the Purchase Option)
FOR VALUE RECEIVED ___________________________________
hereby sells, assigns and transfers unto _______________________
(Please print name and address of transferee)
this Purchase Option, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint ___________________ Attorney, to
transfer the within Purchase Option on the books of CABLE & CO. WORLDWIDE, INC.,
with full power of substitution.
Dated: ______________________
----------------------------
Signature
-----------------------------
(Print name under signature)
(Signature must conform in all
respects to the name of holders
specified on the face of the Purchase
Option).
-----------------------------
(Insert Social Security or Other
Identifying Number of Holder)
15
<PAGE>
<PAGE>
May 24, 1996
Cable & Co Worldwide, Inc.
724 Fifth Avenue
New York, New York 10019
Re: Registration Statement on Form SB-2,
as amended, SEC File No. 333-3000
Gentlemen:
We refer to the public offering (the "Offering") of the
following securities (collectively, the "Securities") of Cable & Co. Worldwide,
Inc., a Delaware corporation (the "Company"), as described in the Registration
Statement on Form SB-2 filed with the Securities and Exchange Commission on
March 29, 1996 as subsequently amended from time to time (collectively, the
"Registration Statement"):
1. Up to 1,119,500 shares of Common Stock, $.01 par value (the
"Common Stock"), of the Company, being registered on behalf of the Company;
2. Up to 1,299,500 common stock purchase warrants (the "Public
Warrants") and the shares of Common Stock underlying the Public Warrants, being
registered on behalf of the Company;
3. Up to 113,000 warrants (the "Underwriter's Warrants")
granted to State Street Capital Markets Corp. (the "Underwriter"), together with
the securities contained therein, being registered on behalf of the Underwriter;
and
4. Up to 1,062,547 shares of Common Stock, 630,000 warrants
and the shares of Common Stock underlying such warrants, being registered on
behalf of certain selling stockholders (the "Selling Stockholders' Securities").
In furnishing our opinion, we have examined copies of the
Registration Statement and the Exhibits thereto. We have conferred with officers
of the Company and have examined the originals or certified, conformed or
photostatic copies of such records of the Company, certificates of officers of
the Company, certificates of public officials, and such other documents as we
have deemed relevant and necessary under the circumstances as the basis of the
opinion
<PAGE>
Cable & Co. Worldwide, Inc.
May 24, 1996
Page 2
expressed herein. In all such examinations, we have assumed the authenticity of
all documents submitted to us as originals or duplicate originals, the
conformity to original documents of all document copies, the authenticity of the
respective originals of such latter documents, and the correctness and
completeness of such certificates. Finally, we have obtained from officers of
the Company such assurances as we have considered necessary for the purposes of
this opinion.
Based upon and subject to the foregoing and such other matters
of fact and questions of law as we have deemed relevant in the circumstances,
and in reliance thereon, it is our opinion that, when and if (a) the
Registration Statement shall have be declared effective by the Securities and
Exchange Commission, as the same may hereafter be amended; and (b) the
Securities to be sold for the account of the Company, the Underwriter or the
selling stockholders, as the case may be, shall have been sold as contemplated
in the Registration Statement, then all of the Securities, upon execution and
delivery of proper certificates therefor, will be duly authorized, validly
issued and outstanding, fully paid and nonassessable.
The undersigned hereby consents to the use of its name in the
Registration Statement and in the prospectus forming a part of the Registration
Statement (the "Prospectus"), to references to this opinion contained therein
under the caption of the Prospectus entitled "Legal Matters," and to the
inclusion of this opinion in the Exhibits to the Registration Statement.
Please note that, as set forth in the Prospectus, Martin C.
Licht, a partner of this firm is a director of the Company.
We are members of the Bar of the State of New York and we do
not express herein any opinion as to any matters governed by any law other than
the law of the State of New York, the corporate law of the State of Delaware,
and the Federal laws of the United States.
This opinion is limited to the matters set forth herein, and
may not be relied upon in any matter by any other person or used for any other
purpose other than in connection with the corporate authority for the issuance
of the Securities pursuant to and as contemplated by the Registration Statement.
Very truly yours,
GALLET DREYER & BERKEY, LLP
<PAGE>
FINANCIAL ADVISORY AND INVESTMENT BANKING AGREEMENT
This Agreement is made and entered into as of the ____ day of
___________, 1996 by and between State Street Capital Markets, Corp. ("State
Street" or the "Advisor"), and Cable & Co.
Worldwide, 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 the Advisor 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 ______________, 1996 to _______________,
2001.
3. Duties of the Advisor: During the term of this Agreement,
the Advisor 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 the Advisor to
the Company pursuant to this Agreement (and in addition to the expenses provided
for in Paragraph 5 hereof), the Company shall compensate the Advisor as follows:
(a) The Company shall pay the Advisor a consulting
fee of $112,000.00 for the initial three year term of this Agreement. The entire
fee shall be payable on the date hereof.
(b) In the event that any Transaction occurs during
the term of this Agreement or eighteen months thereafter, the Company shall pay
fees to the Advisor as follows:
5% of all of the Consideration up to $1,000,000 4% of all of
the Consideration from $1,000,000.01 to $2,000,000 3% of all
of the Consideration from $2,000,000.01 to $3,000,000 2% of
all of the Consideration from $3,000,000.01 to $4,000,000 1%
of all of the Consideration in excess of $4,000,000
For the purposes of this Agreement, "Consideration" shall mean
the total market value on the day of the closing of stock, cash, assets, loans,
equity or debt securities of the Company, loans, loan commitments, guarantees of
indebtedness, leasing, sale and leaseback, joint ventures or licensing, exchange
of equity or debt securities and all other property (real or personal) exchanged
or received, directly or indirectly by the Company or any of its security
holders in connection with any Transaction. In the event that the Consideration
is not Securities of a publicly traded company the parties shall mutually
appoint an independent third party to make a determination as to the fair market
value of such property whose valuation shall be final. Any co-broker and/or
co-underwriter retained by the Advisor shall be paid by the Advisor.
(c) For the purposes of the Agreement, the term
"Transaction" shall include (i) any transaction originated by or introduced to
the Company by or on behalf of the Advisor, whereby, directly or indirectly,
control of, or an interest in, the Company or any of its businesses or any of
their respective assets, is transferred for Consideration, (ii) any transaction
originated by or introduced to the
<PAGE>
Company by or on behalf of the Advisor whereby the Company acquires any other
company or the assets of any other company or an interest in any other company
(an "Acquisition"), (iii) any transaction to which the Company is a party which
takes the form of a merger, consolidation, acquisition of stock or assets, or a
combination thereof or (iv) any joint venture, loan commitment, line of credit,
loan facility, guarantee of indebtedness, lease, sale and leaseback, license, or
other like form of arrangement arranged by or introduced to the Company by or on
behalf of the Advisor for the direct or indirect benefit of the Company.
Notwithstanding Paragraph 4(b) above, in the event the Advisor
originates a line of credit or a guarantee of indebtedness with a lender or a
corporate partner, the Advisor introduces the Company to a joint venture partner
or customer and sales develop as a result of the introduction, the Company and
the Advisor will mutually agree on a satisfactory fee and the terms of payment
of such fee; provided however that if no such agreement shall be reached prior
to the time the line or credit, guarantee of indebtedness or joint venture
agreement is entered into, the fee and terms of payment shall be determined
through arbitration before the American Arbitration Association with any hearing
to be held in New York, New York; provided, however, that in the case of a line
of credit or guarantee of indebtedness, the minimum value of the consideration
to the Company for purposes of application of the fee determined under Section 4
hereof shall be the maximum amount available under such line of credit or the
maximum level of indebtedness to be guaranteed or which may be guaranteed under
the terms of any such guarantee agreement, as the case may be.
(d) All fees to be paid pursuant to this Agreement,
except as otherwise specified, are due and payable to the Advisor in cash at the
closing or closings of any Transaction. In the event that a portion of the
consideration is completed in delayed increments, the fee shall be paid
-3-
<PAGE>
pro rata as each increments is advanced. If the consideration shall not be paid
in full at closing, the Advisor shall receive payment in the same proportion as
the Company receives or pays such consideration until such consideration is paid
in full. In computing the value of such consideration securities shall be valued
as if they were freely tradeable without limitation on transferability, whether
by virtue of the registration requirements of the Securities Act of 1933, as
amended, or otherwise. The Company shall furnish the Advisor a copy of the
Transaction agreement at or prior to closing and shall inform the Advisor of the
time of closing and afford the Advisor the right to attend and to receive
payment at the closing. In the event that this Agreement shall not be renewed or
if terminated for any reason, notwithstanding any such non-renewal or
termination, the Advisor shall be entitled to a full fee and repayment of all
expenses 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 18 months after non-renewal or termination of
this Agreement. Nothing herein shall impose any obligation on the part of the
Company to enter into any Transaction.
5. Expenses of the Advisor: In addition to the fees payable
hereunder and regardless of whether any Transaction is proposed or consummated,
the Company shall reimburse the Advisor for all reasonable fees and
disbursements of the Advisor's counsel and the Advisor's travel and
out-of-pocket expenses incurred in connection with the services performed by
them pursuant to this Agreement, including without limitation, hotels, food and
associated expenses and long-distance telephone calls, except that all fees and
disbursements of the Advisor's counsel and expenses exceeding $1,000 must be
pre-approved in writing by the Company.
-4-
<PAGE>
6. Liability of the Advisor:
(1) The Company acknowledges that all opinions and
advice (written or oral) given by the Advisor to the Company in connection with
the Advisor'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 the Advisor 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 the Advisor, or use
the Advisor's name in any annual reports or any other reports or releases of the
Company, in each case, without the Advisor's prior written consent.
(2) Other than as to comply with the rules and
regulations of listing on the NASDAQ System, the Company acknowledges that the
Advisor 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 that may be prepared
by the Advisor, when and if prepared, will be done solely on the merits or
judgment of analysis of the Advisor or any senior corporate finance personnel of
the Advisor.
7. The Advisor's Services to Others: The Company acknowledges
that the Advisor 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 the Advisor in conducting such business with
respect to others, or in rendering such advice to others.
8. Company Information:
-5-
<PAGE>
(a) The Company recognizes and confirms that, in
advising the Company and in fulfilling its engagement hereunder, the Advisor
will use and rely on data, material and other information furnished to the
Advisor by the Company. The Company acknowledges and agrees that in performing
its services under this engagement, the Advisor 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 in the opinion of counsel to the Company, the Advisor
shall keep confidential all non-public information provided to it by the
Company, and shall not disclose such information to any third party without the
Company's prior written consent, other than such of its employees and advisors
as the Advisor determines to have a need to know. In the event that the Advisor
discloses such information to its employees or advisors, it will cause such
employees or advisors to be bound by the provisions of this Section 8(b).
9. Indemnification:
(a) The Company shall indemnify and hold harmless the
Advisor 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 (the "1933 Act"), the Securities Exchange Act of 1934, (the "Act") or
any other federal or state statute, at common law or otherwise, insofar as said
liabilities, claims and lawsuits (including costs, expenses, awards and/or
judgments) arise out of or are in connection with the services rendered by the
Advisor or any Transactions effected in connection with this Agreement, except
for any liabilities, claims and lawsuits (including awards and/or judgments),
arising out of acts or omissions of the Advisor. In addition, the Company shall
also indemnify and hold
-6-
<PAGE>
harmless the Advisor against any and all costs and expenses, including
reasonable counsel fees, incurred or relating to the foregoing.
The Advisor shall give the Company prompt notice of
any such liability, claim or lawsuit which the Advisor 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 therefrom any and all proceedings or hearings before any regulatory
bodies and/or authorities.
The Advisor shall indemnify and hold harmless the
Company 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 costs, expenses,
awards and/or judgments) arise out of or are based upon any untrue statement of
a material fact or the omission to disclose a material fact required to be
stated or necessary to make the statement not misleading, which statement or
omission was made in reliance upon information furnished in writing to the
Company by or on behalf of the Advisor for inclusion in any registration
statement, prospectus or any amendment or supplement thereto in connection with
any Transaction to which this Agreement applies.
The Company shall give the Advisor prompt notice of
any such liability, claim or lawsuit which the Company contends is the subject
matter of the Advisor's indemnification and the Advisor 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,
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<PAGE>
compromise or dispose of such liability, claim or lawsuit, excepting 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 1933 Act in any case in which (i) any person entitled to
indemnification under this Paragraph 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 Paragraph 9 provides
for indemnification in such case, or (ii) contribution under the 1933 Act may be
required on the part of any such person in circumstances for which
indemnification is provided under this Paragraph 9, then, and in each such case,
the Company and the Advisor 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 or other
document 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 the Advisor be required to contribute any amount in
excess of 10% of the 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 1933 Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
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<PAGE>
Within 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 to so
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 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 Paragraph 9 are in addition to any other rights or remedies which either
party hereto may have with respect to the other or hereunder.
10. The Advisor as an Independent Contractor: The Advisor
shall perform its services hereunder as an independent contractor and not as an
employee of the Company or affiliates thereof. It is expressly understood and
agreed to by the parties hereto that the Advisor 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. It is understood that the Advisor is acting as a finder only, and shall
have no authority to enter into any commitments on the Company's behalf, or to
hold any funds or securities in connection with any transaction or to perform
any act which would require Advisor to become an underwriter of the Company's
securities. The
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<PAGE>
Advisor is engaged on a "best efforts" basis only and the Advisor makes no
representation, warranty, guarantee or statement that its efforts will be
successful. All decisions with respect to any transaction will be those of the
Company and there shall be no liability on the part of the Advisor in respect
thereof.
11. Miscellaneous:
(a) This Agreement between the Company and the
Advisor 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.
(b) 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 (confirmed in a writing sent by overnight
next-day delivery or by hand same-day delivery) , to the respective parties as
set forth below, or to such other address as either party may notify the other
in writing:
If to the Company, to: Cable & Co. Worldwide, Inc.
724 Fifth Avenue
New York, New York 10019
Attn: David Albahari
with a copy to: Gallet Dreyer & Berkey, LLP
845 Third Avenue
New York, New York 10022
Attn: Martin C. Licht, Esq.
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<PAGE>
If to State Street, to: State Street Capital Markets, Corp.
One World Trade Center, Suite 4047
New York, New York 10048
Att: President
With a copy to: Ziegler, Ziegler & Altman
750 Lexington Avenue
New York, New York 10022
Attn: Scott A. Ziegler, Esq.
(c) 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.
(d) This Agreement may be executed in any number of
counterparts, each of which together shall constitute one and the same original
document.
(e) No provision of this Agreement may be amended,
modified or waived, except in a writing signed by all of the parties hereto.
(f) This Agreement may be terminated by a written
agreement signed by both of the parties hereto. Upon termination of the
Agreement, no party hereto shall thereafter have any further liability or
obligation hereunder other than the Company's obligations under Paragraph 4(d).
(g) 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 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
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<PAGE>
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.
STATE STREET CAPITAL MARKETS, CORP.
By:__________________________________
Name:
Title:
CABLE & CO. WORLDWIDE, INC..
By:___________________________________
Name:
Title:
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<PAGE>
LICENCE AGREEMENT
This Agreement is made as of the 15 day of May 1996
BETWEEN: D & D Design and Details Limited, 66 Wigmore Street, London
W1H0HQ, United Kingdom VAT registration number GB671857206, in
the person of its Administrator Mr. Luciano Nessi (hereinafter,
D&D)
Pio Alberto SALVUCCI, an Italian citizen, domiciled at Macerata,
Italy via Biagiotti 9, Tax Payor Code SLVPBR55A09F749W
(hereinafter "SALVUCCI")
AND: Cable & Co. Worldwide Inc., a Delaware, U.S.A., corporation
having its registered address at 724 Fifth Avenue, New York, New
York, in the person of _________________________ (hereinafter
Licensee)
WHEREAS:
A. D&D is a company owning all licensing, franchising and distribution rights
on the Trademark BACCO BUCCI (and design) world-wide whose rights have
been granted by Mr. Pio Alberto Salvucci (original D&D). In this Agreement
D&D will always be referred to as "D&D" and Cable & Co. Worldwide Inc., as
"Licensee", even if, more correctly, the former should be a "Licensee" and
the latter a "Sub-licensee";
B. Mr. Pio Alberto Salvucci is a party to, and will subscribe, this Agreement
in order to guarantee the continuation thereof even in case the Agreement
stipulated between himself and D&D should be terminated before the term
granted in this Agreement, or be declared void, or for any reason cease to
have any effect, before the said term. Mr. Pio Alberto Salvucci, by
signing this Agreement, only guarantees the Licensee of the enforcement of
the terms and conditions contained herein, in case the original licensing
rights should return to him for any reason;
C. Licensee has declared its interest in obtaining a licence from D&D for the
use of the Trademarks and devices displaying the word BACCO BUCCI and set
forth in Annexe 1 (hereinafter "the Trademarks"), and D&D wishes to
appoint Licensee as the exclusive licensee of the Trademarks in the
territory set forth in Annexe 2 (hereinafter "the Territory") for the
production and distribution of the products set forth in Annexe 3
(hereinafter "the Licensed Products"), upon the terms and conditions set
out in this Agreement;
D. D&D has defined a world-wide strategy aimed at establishing and affirming
the international image and market positioning of the Trademarks and of
the Licensed Products through the integration of the activities of its
licensees and distributors in D&D's strategic decisions and guidelines in
these fields;
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E. It is the interest of Licensee, of D&D and of its various licensees and
distributors to closely co-operate so as to maintain the highest degree of
uniformity in terms of international image and market positioning of the
Trademarks and of the Licensed Products;
F. licensee, as a fundamental element for the achievement of the goals of the
present Agreement, acknowledges its will and intention to integrate its
production, sales and marketing policies within D&D's guidelines.
NOW, THEREFORE, for and in consideration of the mutual covenants set forth
herein and other valuable considerations, it is agreed by and between the
parties as follows:
1. CONSTRUCTION AND DEFINITIONS
1.1 The recitals and annexes form an integral part of the present Agreement
and any reference to clauses, recitals and annexes shall be a reference
to clauses and recitals of, and annexes to, this Agreement.
1.2 In this Agreement unless the context otherwise requires:
"Parties" means D&D and Licensee;
"Trademarks" means the Trademarks set forth in Annexe 1;
"Territory" means the territory set forth in Annexe 2;
"Licensed Products" means the products set forth in Annexe 3;
"Net Sales" means Total Sales less Returns and Deductions for allowances
to distributors, customers and sub-licensees;
"Intellectual Property" means any and all Trademarks, brand names, trade
names, line names, logos, patents, copyrights and rights in any
invention, model, design, or other intellectual property rights related
to the Licensed Products.
2. OBJECT AND EXCLUSIVITY
2.1 Upon the terms and conditions set out herein D&D grants Licensee, who
accepts, an exclusive license to make, have made and use the Trademarks
in the Territory and to manufacture, have manufactured and sell the
Licensed Products bearing the Trademarks, during the period of validity
of this Agreement.
2.2 D&D does not expressly or implicitly represent and/or guarantee anything
on the subject-matter hereof, unless explicitly stated herein. Licensee
represents that, in
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concluding this Agreement, it did not expect on any representation and/or
guarantee from D&D other than those explicitly stated herein.
2.3 The Licensee shall have the right to sublicense the Trademarks within the
Territory, however no sublicense shall be granted without the prior
approval of the D&D which shall not be unreasonably withheld or delayed.
No sublicense shall commence without D&D being provided with a complete
executed copy of such sublicense 10 (ten) days prior to its commencement.
The Licensee shall be fully responsible for its sublicensees and all
clauses of this Agreement shall be respected, unless otherwise agreed in
writing by D&D, by all sublicensees. Sublicensees Net Sales in connection
with the Licensed Products will be considered as Licensee's Net Sales and
Royalties thereon shall be paid by Licensee to D&D.
3. TERM
3.1 This Agreement shall be valid and binding upon the Parties beginning from
the date of its execution and shall remain in force until 31 December
2001 unless earlier termination should occur in accordance with the
provisions of clause 8.
3.2 This agreement will automatically be renewed for an additional period of
five years, provided the Parties reach an agreement, for such a second
term, on the Guaranteed Minimum Royalty disciplined in clause 4.1(i).
3.3 It is mutually agreed that an Agreement on the Minimum Guaranteed
Royalties shall be reached between the parties before 30 June 2001, and
that minimum guaranteed royalties shall be set at a very reasonable level
(which, however, should not be lower than 3% of the average Net Sales of
the last two year of the first five-year period) for the second five-year
term. However, failing an agreement by the above date, the yearly minimum
guaranteed amounts, for each year of the second five-year period, shall
be decided by an independent arbitrator nominated by the parties or,
should they fail to de agreed upon before 31 August 2001, by the
President of the American Arbitration Association.
3.4 At the expiration of the second five-year term, this agreement will be
automatically renewed for an additional period of five years, provided
that the Licensee generated, during the second five-year term, Net Sales
sufficient to generate the Guaranteed Minimum Royalties agreed upon.
3.5 It is mutually agreed that an Agreement on the Minimum Guaranteed
Royalties and on the Rate of Royalties shall be reached between the
parties before 30 June 2006. However, failing an agreement by the above
date, the yearly minimum guaranteed amounts, for each year of the second
five year-period and the applicable rate of royalties, shall be decided
by an independent arbitrator nominated by the parties or, should they
fail to agree before 31 August 2006, by the President of the American
Arbitration Association.
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<PAGE>
3.6 If the condition set at section 3.4 is not met at the end of the second
five-year term, or, at any rate, at the expiration of the third five-year
term, this Agreement shall definitely expire without any need for any
further formality.
3.7 The Licensee will, however, have a Right of First Refusal for the
granting of a new License which shall be exercised within the 15
(fifteen) days following the written communication by the D&D of all the
relevant terms of any third party's offer. Failing to exercise its right
within the above term, the Licensee shall have no further rights
whatsoever concerning this license.
4. ROYALTIES
4.1 In consideration of the rights granted by this Agreement, Licensee shall pay
D&D:
(i) the Guaranteed Minimum Royalties, when due, set forth in Annex 4;
(ii) the difference, if any, between royalties amounting to 3% (three
percent) of the Licensee's Net Sales realised in connection with the
Licensed Products during a particular year and the Guaranteed Minimum
Royalty pertaining to the same year.
5. PAYMENTS
5.1 The yearly Guaranteed Minimum Royalty provided for in clause 4.1(i) shall
be paid in two (2) instalments of the same amount by 30 June and 31
December of each year and D&D will issue an invoice upon receipt of the
payment.
5.2 On the basis of the reports to be sent by Licensee in compliance with
clause 6.1(d), at the end of the first and second solar semester of each
year Licensee shall calculate the value of the royalties provided for in
clause 4.1(ii) in respect of the solar semester just ended. The sum
obtained will be converted from the Territory's currency, if other than
the United States, to US Dollars at the rate of exchange of the day it is
received by the Licensee, as published in the Wall Street Journal. Should
the sum so calculated be higher than the semi-annual instalment of the
yearly Guaranteed Minimum Royalty, Licensee shall pay such difference to
D&D at the time of sending the reports provided for at clause 6.1(d) and
D&D will issue an invoice therefor upon receipt of the payment.
5.3 Royalties shall be paid to D&D Design & Details Ltd., 66 Wigmore Street,
London W1 H0HQ, United Kingdom in US Dollars by direct remittance on
D&D's bank account.
5.4 Acceptance by D&D of the payment of a sum lower than that actually due,
shall in no way imply the waiver of the right to obtain full settlement
of its credit.
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5.5 The existence of a claim shall not give Licensee the right to suspend or
delay any payment.
6. OBLIGATIONS OF LICENSEE
6.1 Licensee shall:
(a) maintain a sales structure adequate to a large diffusion of the Licensed
Products and always exert its best reasonable efforts throughout the year
and throughout the Territory in an efficient and diligent manner in order
to develop the sales of the Licensed Products to buyers who respect the
quality standards and the market positioning for the Licensed Products as
established in agreement with D&D,
(b) follow the strategic indications established in agreement with D&D on the
positioning of the Licensed Products and exert its best reasonable
efforts to achieve the sales objectives agreed with D&D; monitor, with
diligence, the activities of its sales agents and purchasers;
(c) keep a sufficient and assorted stock of the Licensed Products in order to
restock the retailers according to the market needs, so as to avoid any
anticipated shortage;
(d) supply D&D, upon request, within thirty (30) days after the end of each
solar quarter (i.e. within 15 April, July, October and January) with a an
accurate report, in a reasonable format specified by D&D, setting out the
Licensee's sales of the Licensed Products (by quantity and type), the
royalties accrued and any other information reasonably requested;
(e) store and handle the Licensed Products, to the reasonable satisfaction of
D&D, so as to ensure that they are always supplied to the final
purchasers in good condition as well as assist and encourage its
purchasers to do likewise;
(f) obtain and maintain in full force and effect all licences and other
required documents necessary to enable Licensee to carry on its
activities related to the Licensed Products and, upon request, provide
copies of the above documents to D&D; comply with all applicable laws and
regulations (including self-regulation codes and the like) relating to
the production and importation of the Licensed Products and to the
distribution, sale and advertising thereof in the Territory;
(g) promptly inform D&D of any claims or proceedings brought against Licensee
in respect of the Licensed Products;
(h) bear all the expenses for its activities and obligations under this
Agreement, unless expressly stated otherwise in this Agreement or agreed
by D&D in writing;
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(i) send to D&D, for information only, its price-lists, its price structure
and any changes thereof, in order to permit D&D to set its policy of
suggested retail prices all over the world;
(f) bind its sublicensees to observe the same rules set forth hereabove and
herebelow.
7. ACCOUNTS AND CONTROL
7.1 Licensee undertakes to keep separate and detailed books of accounts
related to all its activities hereunder in such a way as to be easily
accessible to D&D in case of controls. It is understood that control of
such data will be ordinary practice, but they shall not exceed twice
yearly. In the course of these controls, D&D's representatives, upon
written request, shall have the right to examine all documents and to
make photocopies thereof at D&D's cost.
7.2 D&D may, at its own costs and expenses, by informing Licensee in advance
and under the pledge of secrecy, carry out directly or through external
consultants any appropriate control on the accounts of Licensee in order
to verify the data supplied in the quarterly reports, as per clause
6.1(d), above. Such right may also be exercised with respect to the
accounts pertaining to the semester following the expiration or
termination of the Agreement, and controls may be made as long as
Licensee is bound by law to keep files of its book-keeping.
8. EARLY TERMINATION
8.1 This Agreement may be terminated with immediate effect by either Party
serving the other a written notice of such
intention, upon the grounds that:
(a) a petition in bankruptcy has been filed for the winding up, whether
voluntary or otherwise, which remains undismissed after ninety (90) days,
or a notice has been issued for the summoning of a meeting at which a
resolution proposing the winding up of a Party is to be voted on;
(b) a receiver, official manager, or liquidator, however defined, is
appointed with respect to a Party or any of its
assets;
(c) a Party makes an assignment in favour of, or a composition or
arrangement, or enters into a scheme of arrangement, with its creditors;
(d) a Party has failed to perform or observe a provision of this Agreement
and has not cured such failure, if capable of cure, within thirty (30)
days after service of a written notice from the other Party, requiring it
to do so.
8.2 This Agreement may forthwith be terminated by D&D by serving Licensee a
written notice of its intention, should a substantial alteration occur in
the management of Licensee as specified in annexe 6;
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8.3 Subject to section 8.1(d), termination shall be effective upon the
Parties at the moment of delivery, by registered mail, by courier or
personally, of the termination notice given by the proceeding Party.
8.4 Any dispute arising upon termination will be solved according to clause
23.
9. QUALITY CONTROL
9.1 All Licensed Products, including those produced by sublicensees, must
receive quality control approval by D&D, which shall not be unreasonably
withheld or delayed. Licensee agrees that all Licensed Products covered
by this License shall be of high standard and of such style, appearance
and quality as approved by D&D.
9.2 Licensee, and sublicensees, shall sell no Licensed Product unless written
approval of the Product has been executed by the D&D, which shall not be
unreasonably withheld or delayed, and returned to Licensee, and remains
in full force and effect. After samples of Licensed Products have been
approved, Licensee and sublicensees shall not depart therefrom in any
material respect without D&D's prior written consent, which shall not be
unreasonably withheld or delayed. D&D shall have the right to withdraw
its approval of approved samples if the quality of any Product ceases to
be reasonably acceptable.
(a) D&D will make best efforts to evaluate and execute written approvals
of Licensed Products within fifteen (15) days of their receipt by D&D or
within such shorter time as he may consider prudent and possible.
(b) Licensee and sublicensees shall materially not deviate from the
standards of quality of samples upon which approval is based. Departure
from such quality standard constitutes a breach of a material term of
this License thirty (30) days after serving a written notice and the
failure of Licensee to cure the default during such period.
(c) D&D undertakes not to refuse its approval if the samples are produced
under the supervision of SALVUCCI.
10. EFFECTS OF EXPIRATION OR TERMINATION
10.1 Upon expiration or termination of this Agreement Licensee shall have no
right to compensation from D&D for any advertising and promotion or for
any other activity with respect to the Licensed Products, nor for any
goodwill Licensee may have established by its activities hereunder.
10.2 Upon expiration or termination of this Agreement, Licensee shall
forthwith destroy all letter-head stationery, personal cards, and the
like, on which any part of the Intellectual Property is reproduced; it
shall remove any object indicating
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<PAGE>
that it is a Licensee of, or that it deals in, the Licensed Products, and
it shall return to D&D all signs, advertising materials and other
materials relating to the Licensed Products or to their promotion.
10.3 Licensee expressly acknowledges that its use of all Intellectual Property
shall be for the benefit of D&D and that all customers and goodwill
deriving from the said use shall automatically return to D&D at no
charge, expense, cost or indemnification, upon expiration or termination
of this Agreement for any reason.
10.4 Following the expiration or termination date, Licensee may not use the
Trademarks; upon expiration for non-renewal, as it will have the time for
a correct production-planning, Licensee may not have any Licensed
Products being produced; in the event of termination Licensee shall, if
possible, cancel all pending orders for the production of any Licensed
Products.
10.5 Within thirty (30) days following the expiration or termination date,
Licensee shall provide D&D with a report detailing the inventory of the
Licensed Products owned by Licensee; D&D shall have the right to purchase
such Licensed Products at Licensee's cost plus, when relevant, delivery
costs and customs duties; payment will be due within thirty (30) days
from Licensee's invoice. In the event D&D does not exercise the present
right to purchase the Licensed Products within thirty (30) days from
delivery of the report, Licensee may sell the Licensed Products to third
parties, so long as they are in perfect state, within six (6) months from
expiration or termination date.
10.6 During the six (6) month period, as disciplined in clause 10.5, Licensee
shall comply with all its duties hereunder. After the lapse of such six
(6) month period, the Licensed Products still unsold shall, at D&D's
option: (i) be destroyed at Licensee's cost, in the presence of D&D's
representatives, or (ii) be sold to D&D, at a contract price of one (1)
US Dollar and delivered to D&D's warehouse, at D&D's cost.
10.7 No sublicense agreement may have an expiration date later than this
Agreement expiration date. In case of termination all sublicenses will
become automatically void and null at the same date of the termination of
the Licensee's right. A clause reflecting this possibility shall be
included in every sublicence agreement.
11. TRADEMARKS AND INTELLECTUAL PROPERTY
11.1 D&D warrants that, at the best of its knowledge, it has the sole rights
on the Trademarks in the Territory, in accordance with the laws in force
at the time of conclusion of this Agreement.
11.2 D&D undertakes to obtain from SALVUCCI the extension of BACCO BUCCI
Trademark registrations, upon written request by Licensee, in all
countries included in the territory.
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11.3 Licensee acknowledges that D&D's original Licensor is the exclusive owner
of the Intellectual Property, including the Trademarks, or of
combinations of any part thereof, used in connection with the Licensed
Products, as well as of the goodwill attached thereto, and that its only
rights in respect thereof is to use them exclusively in relation to the
Licensed Products and for the purposes and during the term of this
Agreement, in accordance with the conditions set forth herein.
11.4 Any right which Licensee may acquire on the Intellectual Property, on any
of D&D's original Licensor's Trademarks, or on any other intellectual
property, as defined above, including the technical and aesthetic
features of the Licensed Products (even if developed by Licensee by
virtue of its activities pursuant to this Agreement) shall automatically
be vested in, or if this is not legally possible, be, upon request,
assigned to D&D's original Licensor, for the agreed compensation of US
Dollars 1 (one) (even in the case of registration in the name of
Licensee).
11.5 Licensee shall not do or omit to do anything which may diminish or
jeopardise the goodwill and reputation associated with the Intellectual
Property or any other right attached thereto nor shall do anything which
may infringe, damage, discredit, and/or directly or indirectly challenge
the ownership in the Intellectual Property.
12. USE OF THE TRADEMARKS
12.1 Licensee undertakes to uninterruptedly use the Trademarks for the
Licensed Products in the Territory during the entire period of validity
of this Agreement.
12.2 Licensee shall use the Trademarks only on the Licensed Products
manufactured in accordance with the specifications, design and models
agreed with D&D.
12.3 In the event Licensee intends to use labels, containers, boxes, packaging
or any other item displaying the Trademarks which differ from the
standards set by D&D, it shall submit the same to D&D for its prior
approval, which shall not be unreasonably withheld or delayed. Licensee
shall not use the above materials without D&D's previous authorisation
and shall modify them as requested by D&D.
12.4 D&D may from time to time set a standard package which may include a part
of the Intellectual Property. Licensee shall use the Intellectual
Property, as specified in the Package, on its letterhead, personal cards,
and the like as instructed by D&D.
12.5 Licensee shall not use on its products which are not marked with the
Trademarks any technical or aesthetic element and/or any feature, even if
created by Licensee, which may cause confusion with the Licensed Products
during or after the term of this Agreement.
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12.6 Any type of advertising and sales promotion undertaken by Licensee in
connection with the Licensed Products or using the Intellectual Property
shall be submitted to and approved in writing by D&D before the same is
published, displayed, broadcast, or used in any manner. Approval shall be
granted as soon as possible and should not be unreasonably withheld.
12.7 Notwithstanding anything to the contrary contained herein, D&D consents
to the Licensee's present use of the Trademark including, but not limited
to, its packaging and advertising.
13. PROTECTION OF RIGHTS
13.1 D&D shall have the sole right and responsibility to protect and defend
the Intellectual Property in the Territory and to determine which type of
action, if any, should be taken for the protection thereof, bearing the
costs and obtaining the possible benefits.
13.2 In order for D&D to take all the necessary steps to protect and defend
the Intellectual Property, Licensee shall: (i) monitor the market in the
Territory; (ii) notify D&D of any actual, apparent or threatened
infringement of the Intellectual Property; (iii) provide D&D with all
details and sufficient evidence concerning any infringement including, if
necessary, the purchase of samples.
13.3 Licensee shall have no power whatsoever to, and shall not, take any
action related to the Intellectual Property, either conciliatory or
judicial, without the prior consent in writing by D&D. Upon request,
Licensee shall assist D&D to deal therewith, by participating with D&D in
the legal proceedings. D&D shall bear the relevant cost and obtain the
possible benefits.
13.4 Upon request by the Licensee D&D may grant written permission to the
Licensee to directly protect and defend the Intellectual Property in the
Territory and to determine which type of action, if any, should be taken
for the protection thereof. In this case the Licensee shall bear the
costs and obtain the possible benefits of the relevant actions.
14. CLAIMS
14.1 Each party shall be liable for, and will indemnify the other party
against, any and all liability, loss, damages, expenses or costs,
including legal costs, professional and other expenses of any nature
whatsoever incurred or suffered by the other party, whether directly or
consequential (including but without limitation any commercial loss or
other loss of profits, business or goodwill) arising out of:
(i) any dispute or contractual tort or other claims (including product
liability or other liability however connected with the production and
sale of the Licensed Products) or proceedings brought by any party and
connected to the
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manufacture, use, sale or advertising of any Licensed Products by the
Licensee or the use by the Licensee of the Trade Marks;
(ii) any breach or non-performance of any promise, representation,
warranty or other obligation of Licensee.
14.2 The party's responsibility shall be ascertained by the relevant Court
before its liability is engaged.
14.3 Licensee declares that it is insured, with a primary insurance company,
by a policy covering product liability, as specified above, for a minimum
coverage of one (1) million US Dollars per event and shall provide D&D
with a copy of such policy to be attached to the present Agreement as
Annex 5.
15. RELATIONSHIP BETWEEN THE PARTIES
15.1 Licensee shall not, directly or indirectly, represent itself orally, in
writing, through advertising, by letterhead, business or personal card,
or otherwise to be other than a licensee of the Trademarks and
distributor of the Licensed Products and shall have only such rights and
duties as are specified herein.
15.2 In selling the Licensed Products, Licensee shall act only as an
independent entrepreneur dealing in its own name for its own account and
at its own risk.
15.3 The relationship established between the Parties by this Agreement is not
that of principal and agent nor of joint-ventures or partnership, but
solely that of independent contractors and neither Licensee nor its
employees or agents shall represent themselves to be the agents of D&D
and none of them shall have any right or authority to bind D&D in any
respect or for any purpose.
16. FORCE MAJEURE
16.1 When, as a result of force majeure any Party is prevented in whole or in
part from performing its duties or carrying out its obligations under
this Agreement it shall give prompt notice thereof to the other Party
specifying the obligations which cannot be performed and describing the
event of force majeure in full detail. Following such notice, and for as
long thereafter as the force majeure continues, those obligations which
cannot be performed because of the force majeure shall be suspended.
16.2 The term "force majeure" as used in this Agreement shall mean acts of
God, earthquakes, war, sabotage, riot, insurrection, civil commotion,
national emergencies (whether in fact or law), with the exclusion of any
act deriving from economic, corporate or governmental, national or local
decisions (devaluation, wrong forecasts, and equivalent decisions) and
any other matter beyond the reasonable control of the Parties.
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16.3 In the event of force majeure continuing for a period in excess of one
(1) month, the Parties undertake to negotiate in good faith a temporary
revision of this Agreement. In the event of force majeure continuing for
a period in excess of six (6) months the present Agreement may be
terminated by either party forthwith.
17. NOTICES
17.1 Any notice required to be given under this Agreement by a Party to the
other shall be addressed to the commercial address of the other Party in
writing, and shall be deemed to have been given and served:
(a) where dispatched by telex or by facsimile transmission at the time of
acknowledgement of a successful transmission; and
(b) where dispatched by registered mail, by courier or personally, at the
time of delivery to the addressee.
17.2 Each Party may change its address, telex number or facsimile number by
notifying the change to the other Party in accordance with this clause.
18. COMMERCIAL INSPECTIONS
18.1 D&D may have the Territory visited at its expense by its representatives.
Licensee shall provide D&D's representatives, if requested, with
reasonable opportunities to meet with Licensee's sales and marketing
personnel and with customers.
19. ANNOUNCEMENTS AND CONFIDENTIALITY
19.1 Neither Party shall, unless compelled by any competent authority, either
during the continuance of this Agreement or after its termination,
disclose any confidential information in relation to the Licensed
Products or to the other Party's business or methods of carrying on
business, including any technical and design information and know-how, to
any person whatsoever without the prior written consent of the other
Party.
20. NO-COMPETITION AND NO-DUMPING
20.1 D&D and SALVUCCI undertake, during the full term of this Agreement, not
to engage, either directly or indirectly, in any activity in the
Territory which may be in competition with the Licensee.
20.2 D&D and SALVUCCI undertake, during the full term of this Agreement, not
to sell in any country world-wide the Licensed Products at a price which
is lower than their costs and never to engage in any commercial practice
which may be considered as "dumping" of the Licensed Products.
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21. MISCELLANEOUS
21.1 This Agreement constitutes the final written expression of the terms of
agreement between the Parties relating to the subject matter contained
herein and is the complete and exclusive statement of those terms. This
Agreement supersedes all prior agreements between the Parties with
respect to such subject matter. Neither Party shall be bound by any
definition, condition, representation, warranty, covenant, or other
provision except as is expressly stated herein or as is set forth in
writing and, contemporaneously or subsequently, executed by the duly
authorised officers of both Parties.
21.2 Where any provision of this Agreement is rendered void, avoidable,
unenforceable or otherwise ineffective by operation of law, such
avoidance, unenforceability or ineffectiveness shall not affect the
enforceability of the remaining provisions.
21.3 Neither the failure of any Party to obtain the exact enforcement of any
of the provisions hereof nor the granting of other indulgence shall
constitute a waiver or estoppel of such Party's right to obtain the exact
enforcement thereof in the future or of such Party's right to obtain the
exact enforcement of any other provisions of this Agreement.
21.4 The rights and obligations arising from the present Agreement may not be
assigned by either Party without the previous written approval of the
other Party.
22. REPRESENTATIONS AND WARRANTIES OF THE PARTIES.
22.1 As an essential inducement to the execution of this Agreement by the
other Party, each of the Parties hereby represents and warrants that:
(i) it is a company duly organised and in good standing under the laws of its
jurisdiction of incorporation, has full corporate power and authority to
carry on its business as now conducted, to execute this Agreement and to
carry out the provisions hereof;
(ii) the execution and delivery of this Agreement, the performance hereof and
the completion of the transactions contemplated hereby have been duly
authorised and approved by all necessary and proper corporate action and
this Agreement, when executed, will embody legal, valid, binding and
enforceable obligations and will not result in the violation of any laws
or any rules, orders, regulations or decrees of any competent authority
and will not conflict with or result in the breach of the provisions of
its Articles of Incorporation, or any covenant, agreement or
understanding to which it is a party;
(iii) there are no actions, suits, proceedings or investigations pending, or to
their best knowledge, threatened against or affecting either party before
any Court,
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arbitrator or administrative or governmental body which might adversely
affect the performance of any obligation under this Agreement.
22.2 Licensee has never undertaken any challenge to the Trademarks and at no
time during the term of this Agreement will Licensee take any action to
challenge the validity of the Trademark.
23. GOVERNING LAW
23.1 This Agreement shall be construed and interpreted in accordance with the
laws of the State of New York governing contracts made in and to be
performed solely in such State and without regard to choice of law
provisions.
24. OFFICIAL LANGUAGE
24.1 Only the English text of this Agreement has an official value.
Translations in other languages shall have no value in the relations
between the Parties or with third parties and shall be meant exclusively
as "courtesy" translations.
25. REGISTRATION OF THE AGREEMENT
24.1 The registration costs of the present Agreement shall be borne by the
registering Party.
IN WITNESS WHEREOF the Parties hereto have read, confirmed and executed this
agreement:
..........., ______ _______ 1996 )
Signed by Luciano Nessi, Administrator )
for and on behalf of D&D Design And )
Details Limited )
in the presence of: ___________ )
Macerata, 15 May 1996 )
Signed by Pio Alberto Salvucci )
in the presence of: ________________ )
______, ______ _______ 1996 )
Signed by ___________, __________ )
for and on behalf of Cable & Co. Worldwide )
Inc., in the presence of: ___________ )
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ANNEXE 1
The Trademarks
BACCO BUCCI (and design) as per enclosed specimen
ANNEXE 2
The Territory
United States of America
Canada
Mexico
Any other country in North, Central and South America
ANNEXE 3
The Licensed Products
Men's and women's footwear
A right of first refusal is granted to Licensee for other Goods provided that
such right is exercised within 15 (fifteen) days after receiving the notice of
the offer served by D&D. Unless a positive and definitive answer is received
within the above term, D&D shall be free to grant a licence to the third party
without any other formality to be observed or notice to be served to the
Licensee.
ANNEXE 4
The Guaranteed Minimum Royalties
1996 US Dollars 0
1997 US Dollars 0
1998 US Dollars 0
1999 US Dollars 0
2000 US Dollars 0
2001 US Dollars 0
2002 US Dollars To be established before 30.06.2001
2003 US Dollars To be established before 30.06.2001
2004 US Dollars To be established before 30.06.2001
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2005 US Dollars To be established before 30.06.2001
2006 US Dollars To be established before 30.06.2001
ANNEXE 5
Product Liability Insurance Policy
ANNEXE 6
Licensee's Management Structure
Mr. David Albahari
Mr. Allan Kandall
Mr. Alberto Salvucci
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INDEPENDENT AUDITOR'S CONSENT
TO THE BOARD OF DIRECTORS OF
CABLE & CO. WORLDWIDE, INC.
We hereby consent to the use in the Prospectus constituting part of the
Registration Statement on Form SB-2 of our report dated February 2, 1996, except
for Note 6, as to which the date is March 21, 1996, and Note 17, as to which the
date is March 28, 1996, on the financial statements of Cable & Co. Worldwide,
Inc. and Subsidiary as of December 31, 1995 and for the year then ended and our
report dated March 5, 1996 on the financial statements of Cable & Co. (a product
line of Hongson, Inc.) for the year ended December 31, 1994 which appear in such
Prospectus. We also consent to the reference to our firm under the caption
"experts" in such Prospectus.
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York
May 24, 1996
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