<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 27, 1996
REGISTRATION NO. 333-3544
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ON-SITE SOURCING, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8744 54-1648470
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
<TABLE>
<S> <C>
ON-SITE SOURCING, INC. ON-SITE SOURCING, INC.
1111 NORTH 19TH STREET 1111 NORTH 19TH
SUITE 404 STREET, SUITE 404
ARLINGTON, VA 22209 ARLINGTON, VA 22209
703-276-1123
(Address and Telephone Number of (Address of Principal Place of Business or
Principal Executive Offices) Intended Principal Place of Business)
</TABLE>
------------------------
MR. CHRISTOPHER J. WEILER, PRESIDENT
ON-SITE SOURCING, INC.
1111 19TH STREET, SUITE 404
ARLINGTON, VA 22209
703-276-1123
(Name, address and telephone number of agent for service)
------------------------
WITH COPIES OF COMMUNICATION TO:
<TABLE>
<S> <C>
JOHN S. STOPPELMAN, ESQ. EDWARD I. TISHELMAN, ESQ.
The Stoppelman Law Firm, P.C. Hartman & Craven LLP
1749 Old Meadow Road, Suite 610 460 Park Avenue
McLean, Virginia 22102 New York, NY 10022
703-827-7450 212-753-7500
</TABLE>
------------------------
APPROXIMATE DATE OF THE PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE
------------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
(For calculation of the $6,150.31 registration fee, see table on following page)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
PROPOSED
MAXIMUM PROPOSED
OFFERING PRICE MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO PER UNIT OR AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED SHARE (1) OFFERING PRICE FEE
Units, each consisting of two
shares of Common Stock, $0.01
par value per share, and one
Redeemable Common Stock
Purchase Warrant.............. 1,104,000(2) $6.25 $6,900,000 $2,379.31
Common Stock included in the
Units......................... 2,208,000 -- -- --
Warrants included in the
Units......................... 1,104,000 -- -- --
Common Stock issuable upon
exercise of the Warrants...... 1,104,000 $6.00 $6,624,000 $2,284.14
Underwriter's Option to
Purchase Units................ 96,000 $.001 $96.00 (3)
Underwriter's Units issuable
upon exercise of the
Underwriter's Option.......... 96,000 $7.50 $720,000 $248.28
Common Stock included in
Underwriter's Units........... 192,000 -- -- --
Warrants included in the
Underwriter's Units........... 96,000 -- -- --
Common Stock issuable upon
exercise of the Underwriter's
Warrants...................... 96,000 $6.00 $576,000 $198.62
Units offered by Selling
Securityholders, each
consisting of two shares of
Common Stock, $0.01 par value
per share, and one Redeemable
Common Stock Purchase Warrant
(4)........................... 109,123 $6.25 $682,018.75 $235.18
Common Stock included in the
Units (5)..................... 218,246 -- -- --
Warrants included in the Units
(6)........................... 109,123 -- -- --
Common Stock issuable upon
exercise of the Warrants...... 109,123 $6.00 $654,738.00 $225.77
Common Stock issued in Bridge
Financing (7)................. 559,709 $3.00 $1,679,127.00 $579.01
Total......................... $17,835,979.75
TOTAL REGISTRATION FEE........ $6,150.31
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes 144,000 Units which the Underwriter has the option to purchase from
the Company to cover over-allotments, if any.
(3) None pursuant to Rule 457(g).
(4) Shares registered by certain selling securityholders for sale in this
offering as Units when combined with Warrants offered by the Company. See
"Concurrent Registration of Securities"
(5) To be sold by Selling Securityholders.
(6) To be sold by the Company.
(7) Registered by certain selling securityholders. See "Underwriting -- Lock-Up
Agreement", "Concurrent Registration of Securities" and "Shares Eligible for
Future Sale".
------------------------
ON-SITE SOURCING, INC. (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>
ON-SITE SOURCING, INC.
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS OF FORM SB-2
<TABLE>
<CAPTION>
FORM SB-2 REGISTRATION STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Front of Registration Statement and Outside Front
Cover of Prospectus................................. Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information and Risk Factors................. Prospectus Summary; Risk Factors
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... Underwriting
6. Dilution............................................. Dilution
7. Selling Security Holders............................. Concurrent Registration of Securities
8. Plan of Distribution................................. Outside Front Cover Page of Prospectus; Underwriting
9. Legal Proceedings.................................... *
10. Directors, Executive Officers, Promoters and Control
Persons............................................. Management; Principal Stockholders; Certain
Transactions
11. Security Ownership of Certain Beneficial Owners and
Management.......................................... Management
12. Description of Securities............................ Description of Securities; Underwriting
13. Interests of Named Experts and Counsel............... Interest of Counsel
14. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Management
15. Organization Within Last Five Years.................. Prospectus Summary
16. Description of Business.............................. Prospectus Summary; Risk Factors; Management's
Discussion and Analysis of Financial Condition and
Results of Operations; Business; Management; Certain
Transactions; Principal Securityholders;
Consolidated Financial Statements
17. Management's Discussion and Analysis or Plan of
Operations.......................................... Management's Discussion and Analysis of Financial
Condition and Results of Operations
18. Description of Property.............................. Business
19. Certain Relationships and Related Transactions....... Certain Transactions
20. Market for Common Equity and Related Stockholder
Matters............................................. Front Cover Page; Description of Securities
21. Executive Compensation............................... Management
22. Financial Statements................................. Financial Statements
23. Change in and Disagreements with Accountants on
Accounting and Financial Disclosure................. *
</TABLE>
- ------------------------
* Not Applicable
<PAGE>
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>
PRELIMINARY PROSPECTUS DATED JUNE 27, 1996
SUBJECT TO COMPLETION
[LOGO]
1,069,123 UNITS
CONSISTING OF 2,138,246 SHARES OF COMMON STOCK
AND 1,069,123 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
Each Unit ("Unit") consists of two shares of Common Stock, par value $.01
per share ("Common Stock"), and one Redeemable Common Stock Purchase Warrant
("Warrant"), which are transferable separately after 30 business days from the
date of this Prospectus, which period may terminate sooner at the sole
discretion of the Underwriter. Each Warrant entitles the holder to purchase one
share of Common Stock at $6.00 per share for a period of five years following
the date of this Prospectus. Each Warrant is redeemable by On-Site Sourcing,
Inc. (the "Company"), upon notice of not less than 30 days, at a price of $.01
per Warrant, provided that the closing bid price of the common stock is $7.00 or
more per share for a period of ten consecutive trading days. See "Description of
Securities."
Of the 1,069,123 Units offered hereby, 960,000 are being sold by the Company
and 109,123 Units are being sold by certain security holders who acquired shares
in private placements (the "Selling Securityholders"). All of the Units are
being sold by the Underwriter on a firm commitment basis. See "Concurrent
Registration of Securities" and "Underwriting." The Selling Securityholders are
providing 218,246 shares of Common Stock, $0.01 par value per share to be
combined with 109,123 Redeemable Common Stock Purchase Warrants provided by the
Company in order to form 109,123 Units offered hereby. The Selling
Securityholders will receive $3.00 per share of Common Stock, subject to
underwriting discounts and the Company will receive $0.25 per Warrant, subject
to underwriting discounts. The Company will not receive any of the proceeds from
the sale of the Selling Securityholders' shares. See "Concurrent Registration of
Securities." Concurrently with this offering, an additional 559,709 shares of
the Company's Common Stock held by shareholders who acquired the same in private
placements are being registered hereby. These shares may be sold in six months
or sooner with the consent of the Underwriter. See "Concurrent Registration of
Securityholders."
The Company is not currently a reporting company. Prior to this offering,
there has been no public market for the Units, Common Stock or Warrants. The
Company has applied for quotation of the Units, Common Stock and Warrants on the
National Association of Securities Dealers Automated Quotation Small-Cap Market
System under the symbols "ONSSU", "ONSS" and "ONSSW". For factors considered in
determining the initial public offering price. See "Underwriting."
SEE "RISK FACTORS" AT PAGE 7 FOR CERTAIN CONSIDERATIONS RELEVANT TO AN
INVESTMENT IN THESE SECURITIES.
---------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK
AND IMMEDIATE DILUTION AND SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT
AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" AND
"DILUTION."
------------------------
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.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
<S> <C> <C> <C>
Per Unit............ $6.25 $.625 $5.625
Total (3)........... $6,682,018.75 $668,201.87 $5,424,552.68(4)
</TABLE>
(1) Does not include additional consideration to be paid to the Underwriter in
the form of (i) a 3% nonaccountable expense allowance; (ii) an option to
purchase up to 96,000 Units at an exercise price equal to 135% of the
initial public offering price per Unit exercisable commencing one year after
the date of this prospectus for a period of 4 years. In addition, the
Company has agreed to indemnify the Underwriter against certain liabilities,
including liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses estimated at $426,000, (approximately $.45 per
Unit sold by the Company), not including the Underwriter's non-accountable
expense allowance in the amount of $180,000 ($207,000 if the Underwriter's
over-allotment option is exercised in full), each of which is payable by the
Company.
(3) The Company has granted the Underwriter an option, exercisable within 45
days from the date of this Prospectus, to purchase up to 144,000 additional
Units on the same terms and conditions as set forth above, solely for the
purpose of covering over-allotments. If such option is exercised in full,
the price to public, underwriting discounts and commissions and proceeds to
Company will be $7,582,018.75, $758,201.88 and $6,234,552.68, respectively.
See "Underwriting."
(4) Includes $24,552.68 after underwriting discounts and commissions from the
sale of Warrants which were combined with the Selling Securityholders'
shares to create the additional Units. The Company will not receive any
proceeds from the sale of the Selling Securityholders' shares.
------------------------------
These Units are offered by the Underwriter on a firm commitment basis,
subject to a declaration by the U.S. Securities and Exchange Commission that the
registration statement is effective, as specified herein, and subject to receipt
and acceptance by the Underwriter and subject to its right to reject any order
in whole or in part. It is expected that delivery of certificates representing
the securities will be made at the offices of the Underwriter on or about
, 1996.
M.H. MEYERSON & CO., INC.
FOUNDED 1960
30 MONTGOMERY STREET
JERSEY CITY, NEW JERSEY 07302
(201) 332-4801
(800) 888-8118
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE>
MARKETING DISPLAY
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS, COMMON
STOCK OR WARRANTS OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ
SMALL-CAP MARKET SYSTEM, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
AVAILABLE INFORMATION
On-Site Sourcing, Inc. ("On-Site" or the "Company"), which is currently not
a reporting company, has filed a registration statement on Form SB-2 (the
"Registration Statement") under the Securities Act of 1933, as amended ("1933
Act") with the Securities and Exchange Commission ("SEC"), with respect to the
securities being offered by this prospectus ("Prospectus"). This Prospectus,
which constitutes a part of the Registration Statement, does not contain all the
information set forth in the Registration Statement and the exhibits thereto.
For further information with respect to On-Site and the securities offered
hereby, reference is made to the Registration Statement and the exhibits
thereto. All of these documents may be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549; and at the SEC's Regional Offices at
7 World Trade Center, 13th Floor, New York, New York 10007 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies may be obtained at the prescribed rates from the Public Reference Section
of the SEC at its principal office in Washington, D.C. 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 an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
On-Site intends to distribute to its stockholders annual reports containing
financial statements audited by its independent certified public accountants and
quarterly reports containing unaudited summary financial information for the
first three quarters of each fiscal year.
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY M.H. MEYERSON & CO.,
INC. (THE "UNDERWRITER"). THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, BY ANY PERSON IN ANY JURISDICTION IN WHICH
IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. EACH PROSPECTIVE INVESTOR IS URGED TO READ THIS
PROSPECTUS IN ITS ENTIRETY. UNLESS OTHERWISE INDICATED ALL PER SHARE DATA AND
INFORMATION IN THIS PROSPECTUS RELATING TO THE NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING ASSUMES NO EXERCISE OF THE UNDERWRITER'S OVER-ALLOTMENT, THE
UNDERWRITER'S UNIT PURCHASE OPTION, OR OF OUTSTANDING OPTIONS TO PURCHASE AN
AGGREGATE OF 342,000 SHARES OF COMMON STOCK.
THE COMPANY
On-Site Sourcing, Inc. (the "Company" or "On-Site") provides reprographic
and facilities management services to law firms, non-profit organizations,
accounting firms, financial institutions and other organizations throughout the
East Coast of the United States. In order to meet the highly specialized
requirements of each client, On-Site offers a variety of customized reprographic
and facilities management services. The Company provides reprographic services
24 hours per day, seven days per week including copying, binding, labeling,
collating and indexing in support of complex, document-intensive litigation as
well as higher volume productions of manuals, brochures and other materials for
corporations and non-profit organizations. On-Site also provides on-premises
management of the customer's support services including mailroom operations,
facsimile transmission, records and supply room management and copying services.
The Company services, refurbishes, leases and sells mid and high volume copy
machines through its copier service division, thereby minimizing critical down
time and increasing productivity at both the Company's reprographic centers and
its facilities management sites. On-Site assumes complete responsibility for
these operations through the provision of management personnel, highly-trained
staff, specialized proprietary software, equipment, supplies, copier repair and
consulting services.
The Company targets the premium service segment of the reprographics and
facilities management markets in which speed, accuracy and quality are critical.
Management believes that On-Site's extensive employee training and innovative
management techniques create efficiencies which allow the Company to provide
high quality service at economical prices. Additionally, the Company's use of
technology, including the proprietary SiteTrax and OATS software, dramatically
enhance labor productivity. On-Site's meticulous quality control process ensures
that each client's accuracy demands are met. Because the large majority of
potential customers still handle their own reprographic and related facilities
management internally, the Company believes that the Company's efficiency
provides opportunities for growth in the premium service market.
On-Site Sourcing, Inc. was founded in 1992 and currently serves the greater
Washington, Philadelphia, and Atlanta metropolitan areas through outsourcing
locations in Arlington, Virginia; Philadelphia, Pennsylvania and Atlanta,
Georgia, as well as facilities management locations in Washington, DC;
Philadelphia, PA and Mt. Laurel, New Jersey. The Arlington, Virginia outsourcing
location is the largest legal processing center in the metropolitan Washington
area. The Company plans to expand service to the New York City metropolitan area
in the Summer of 1996. Customers include a number of the large law firms,
corporations and non-profit entities operating in these cities.
The Company was originally incorporated in Virginia in December, 1992 and
changed its state of incorporation to Delaware in January, 1996. The Company's
principal executive offices are located at 1111 N. 19th Street, Suite 404,
Arlington, Virginia 22209, and its telephone number is (703) 276-1123.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered by the 960,000 Units, each Unit consists of Two (2) Shares of
Company.......................... Common Stock and One (1) Redeemable Common Stock
Purchase Warrant which expires five years from the
purchase date. See "Description of Securities."
Securities Offered by Selling
Securityholders.................. 109,123 Units, each Unit consists of Two (2) Shares of
Common Stock and One (1) Redeemable Common Stock
Purchase Warrant which expires five years from the
purchase date. See "Concurrent Registration of
Securities" and "Description of Securities."
Common Stock to be Outstanding
after the Offering (1)........... 4,506,955 shares
Warrants to be Outstanding after
the Offering (2)................. 1,069,123 Warrants
Exercise Terms.................... Exercisable at any time commencing , 1996
through and including , 2001, each to
purchase one share of Common Stock at a price of $6.00,
subject to adjustment in certain circumstances. See
"Description of Securities -- Redeemable Warrants."
Expiration Date................... , 2001.
Redemption........................ Redeemable by the Company, at any time commencing
, 1996, upon notice of not less than 30
days, at a price of $.01 per Warrant, provided that the
closing bid quotation of the Common Stock is at or above
$7.00 on 10 consecutive business days. The Warrants will
be exercisable until the close of business on the date
fixed for redemption. See "Description of Securities --
Redeemable Warrants."
Use of Proceeds................... The net proceeds of this offering will be applied to the
expansion into New York and other major markets
($956,000), for expansion of existing office capacity
($1,000,000), to hire additional sales personnel
($200,000), for repayment of indebtedness ($860,000),
for development of internal video conferencing
capabilities ($300,000), for purchase of imaging and
scanning technology ($500,000), to hire software
engineers ($200,000), to hire software technical support
staff ($90,000), and for working capital ($712,552).
Risk Factors...................... The securities offered hereby are speculative and
involve a high degree of risk and immediate substantial
dilution. See "Risk Factors" and "Dilution."
Proposed Nasdaq Symbols........... Units -- ONSSU
Common Stock -- ONSS
Warrant -- ONSSW
</TABLE>
- ------------------------
(1) Includes 2,586,955 shares of Common Stock previously outstanding. Does not
include (i) 1,069,123 shares of Common Stock reserved for issuance upon
exercise of Warrants; (ii) 288,000 shares of Common Stock and 144,000
Warrants reserved for issuance upon exercise of
5
<PAGE>
the Underwriter's Over-Allotment Option; (iii) 192,000 shares of Common
Stock and 96,000 Warrants reserved for issuance upon exercise of the
Underwriter's Options; and (iv) 342,000 shares of Common Stock reserved for
issuance upon exercise of outstanding options.
(2) Includes 109,123 warrants to purchase Common Stock offered by the Company to
be combined with Selling Shareholders shares. Does not include 144,000
warrants included in the Underwriter's overallotment or 96,000 warrants
included in the Underwriter's Option.
SUMMARY FINANCIAL INFORMATION
The following selected financial data for the years ended December 31, 1995
and December 31, 1994 is derived from the Company's audited financial
statements. The following summary financial information as of March 31, 1996 and
for the three months ended March 31, 1996 and 1995 is derived from the Company's
unaudited financial statements. The following data should be read in conjunction
with the financial statements of the Company, including the notes thereto. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Financial Statements.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
YEAR ENDED DECEMBER 31
---------------------------- ----------------------------
1995 1994 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Total revenues....................................... $ 4,919,270 $ 1,959,455 $ 1,797,020 $ 1,151,718
Net Earnings (Loss).................................. $ 75,628 $ (22,266) $ 91,366 $ 55,909
Earnings (Loss) per Common Share..................... $ 0.03 $ (0.01) $ 0.03 $ 0.02
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------------
ACTUAL AS ADJUSTED(1)
------------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working Capital.................................................................... $ 63,860 $ 4,750,444
Total Assets....................................................................... $ 2,199,787 $ 6,168,339
Long-Term Obligations, Less Current Portion........................................ $ 209,673 $ 77,705
Stockholders' Equity............................................................... $ 698,751 $ 5,517,303
</TABLE>
- ------------------------
(1) Adjusted to reflect the sale of the securities offered hereby, less
underwriting discounts, the payment by the Company of expenses of this
Offering estimated at $426,000, and the use of proceeds to retire the
Company's debt. See "Use of Proceeds."
6
<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR
ENTIRE INVESTMENT. EACH PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER THE
FOLLOWING RISK FACTORS INHERENT IN AND AFFECTING THE BUSINESS OF THE COMPANY AND
THIS OFFERING BEFORE MAKING AN INVESTMENT DECISION.
RISKS RELATED TO THE COMPANY
LIMITED OPERATING HISTORY.
The Company began operations in June of 1993 and therefore has had only a
limited operating history upon which prospective investors may base an
evaluation of its performance. The Company is subject to the normal risks of any
start up business including unanticipated problems and unforeseen forms of
competition. See "Prospectus Summary -- The Company" and "Business".
POSSIBLE NEED FOR ADDITIONAL FINANCING.
To date, the Company has relied upon private placements of its equity
securities as well as bank loans to finance its working capital requirements.
The Company is dependent upon the proceeds from this offering in order to expand
operations into new geographic areas, integrate new technology into the
business, and fund the Company's working capital requirements. The Company
anticipates, based on current proposed plans and assumptions relating to its
operations, that the proceeds of this offering and cash flow from operations
will be sufficient to satisfy its contemplated capital requirements. In the
event that the Company's plans change or prove to be inaccurate or if the
proceeds of this offering prove to be insufficient to fund its operations, the
Company may be required to seek additional financing sooner than currently
anticipated or may be required to curtail its planned expansion. There can be no
assurances that any additional financing will be available to the Company on
acceptable terms, or at all. Additional equity financing may involve substantial
dilution of the stock ownership percentage of the Company's then existing
stockholders. Moreover, financial and other covenants imposed by future lenders
might adversely affect the Company's ability to pay dividends and management's
ability to control the Company. See "Use of Proceeds" and "Managements'
Discussion and Analysis of Financial Condition and Results of Operations."
COMPETITION.
The reprographics and facilities management businesses are highly
competitive. On-Site competes with numerous national and regional companies,
some of which are substantially larger and have greater financial resources than
the Company. There can be no assurances that future competition will not have a
material adverse effect on the Company's business, financial condition, or
results of operations. See "Business -- Competition"
SENSITIVITY TO SERVICE ECONOMY.
The Company's business and results of operations are sensitive to the state
of the U.S. service economy, particularly the legal sector. In recessionary
periods, copy volumes may decline at individual sites due to fewer matters being
handled by the clients. Reduced copy volumes negatively affect the Company's
revenues and gross margins per site. In addition, customers may impose pricing
pressures on the Company due to their own reduced levels of profitability,
thereby adversely affecting the Company's gross margins and results of
operations. See "Management Discussion and Analysis of Financial Condition and
Results of Operations."
DEPENDENCE ON KEY CUSTOMERS.
Two of the Company's customers, a large national law firm and a non-profit
organization, accounted for 10% and 18% of the Company's gross sales in 1995.
There can be no assurance that these customers will maintain their volume of
business with the Company. A loss of the Company's sales to these customers
could have a material adverse effect on the Company's results of operations
unless other customers were found to provide the Company with similar revenues.
See "Management Discussion and Analysis of Financial Condition and Results of
Operations."
7
<PAGE>
PROCEEDS TO BE USED FOR EXPANSION.
The Company currently intends to utilize approximately 20% of the net
proceeds of this offering for the expansion of its operations to new geographic
areas. The Company's ability to expand its operations in this manner depends on
a number of factors. See "Use of Proceeds".
PROCEEDS TO REPAY DEBT.
A portion of the proceeds of this offering will be used to repay debt
incurred prior to this offering. See "Use of Proceeds."
DEPENDENCE ON KEY PERSONNEL.
The success of the Company will be largely dependent on the personal efforts
of Christopher J. Weiler, President and Chief Executive Officer, Allen C.
Outlaw, Executive Vice President of Sales and Marketing, Larry F. Morris, Vice
President of Sales, and Anthony A. Kopsidas, Vice President of Operations. These
employees all have employment agreements and Christopher Weiler is covered by a
key-man life insurance policy for $1,000,000. The Company's growth and future
success will depend in large part on its ability to continue to attract,
motivate and retain highly qualified personnel. Competition for such personnel
is intense and there can be no assurance that the Company will continue to be
successful in hiring, motivating or retaining such qualified personnel. The loss
of key personnel or the inability to hire or retain qualified personnel could
have a material adverse effect on the Company's business and financial
conditions. See "Business -- Employees" and "Management -- Directors, Executive
Officers and Key Employees" and "Management -- Employment Agreements".
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the Delaware General Corporation Law, the Company has
included in its Certificate of Incorporation and By-Laws provisions to eliminate
the personal liability of its directors for monetary damages for breach or
alleged breach of their fiduciary duties as directors, subject to certain
exceptions. See "Limitation of Liability and Indemnification Matters."
RISKS RELATED TO THE OFFERING
IMMEDIATE AND SUBSTANTIAL DILUTION.
As a result of the prior issuance of Common Stock by the Company, public
investors who purchase the Units will experience an immediate and substantial
dilution in net tangible book value of 60%, a $1.81 decrease from the $3.00
price per offering share, assuming the allocation of the full public offering
price to the shares of Common Stock included as part of the Units. See
"Dilution".
DIVIDEND POLICY.
The Company has not paid any cash dividends on its Common Stock and does not
expect to declare or pay any cash dividends in the foreseeable future. See
"Description of Securities -- Dividends."
AUTHORIZATION AND DISCRETIONARY ISSUANCE OF PREFERRED STOCK.
The Company is currently authorized to issue 1,000,000 shares of Preferred
Stock, par value $.01 per share. The preferred stock is issuable in one or more
series with such rights, preferences, maturity dates and similar matters as the
Board of Directors of the Company may from time to time determine without any
further vote or action by the Company's stockholders. No Preferred stock is
currently outstanding. See "Description of Securities -- Preferred Stock."
SUBSTANTIAL CONTROL BY CURRENT OFFICERS AND DIRECTORS.
Upon completion of this offering, the current executive officers and
directors of the Company and persons who may be deemed affiliates, as a group,
will beneficially own approximately 30.2% of the Company's outstanding Common
Stock, assuming the exercise of any outstanding warrants and options held by
such individuals and their affiliates. As a result, officers and directors and
their affiliates voting together may be able to effectively control the decision
on such a matter, including the election of directors, if they were to agree.
See "Management".
8
<PAGE>
POSSIBLE CONFLICTS OF INTEREST BETWEEN THE COMPANY AND THE COMPANY'S COUNSEL.
On-Site's corporate attorney, John S. Stoppelman, is a stockholder of the
Company holding 630,000 shares of common stock, or 24.4% of the shares
outstanding before this offering. Mr. Stoppelman serves as the Chairman of the
Board of Directors and Secretary. Accordingly, there may be a conflict of
interest in Mr. Stoppelman's role as Chairman of the Board of Directors and as
the Company's counsel. The fees collected by the Stoppelman Law Firm from the
Company did not constitute five percent or more of his law firm's gross revenue
in any year of the Company's existence. The Company believes that the fees
charged were at least as favorable as those obtainable from an uninterested
third party. See "Interest of Management and Others in Certain Transactions."
NO ASSURANCE OF PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; POSSIBLE
VOLATILITY OF MARKET PRICES OF THE COMMON STOCK AND WARRANTS.
Prior to this offering, no public market existed for the Units, the Common
Stock or the Warrants. There is no assurance that an active market will develop
in the Units, the Common Stock or the Warrants. Despite the application of the
Company to list on the National Association of Securities Dealers Automated
Quotation Small-Cap Market System exchange, there is no assurance that such an
application will be accepted or that if accepted, an active market will develop
in the Common Stock or the Warrants. The offering price of the Common Stock and
exercise price for the Warrants was determined by negotiation between the
Company and the Underwriter. In determining these the Company and the
Underwriter considered, among other things, the public trading prices for the
common stock of corporations engaged in businesses similar to the Company's
business, estimates of the business potential for the Company, the management of
the Company, and the Company's plans for the expansion of its business base. The
offering price does not bear any relation to earnings per share, book value, or
the net worth of the Company. Prospective investors should not consider the
offering price of the Common Stock or the exercise price of the Warrants as
necessarily indicative of the actual value of either the Common Stock or the
Warrants. See "Underwriting."
POSSIBLE INABILITY TO EXERCISE WARRANTS.
The Warrants included in the Units offered hereby are not exercisable
unless, at the time of exercise, the Company has a current prospectus covering
the shares of Common Stock issuable upon exercise of the Warrants and such
shares have been registered, qualified or deemed to be exempt under the
securities laws of the state of residence of the exercising holder of the
Warrants. The Company intends to keep the Registration Statement, of which this
Prospectus is a part, effective during the pendency of the entire offering,
including the period during which the Warrants are likely to be exercised.
However, there is no guarantee that the Company will be able to do so or to
comply with all regulatory requirements. In the event that the Company is unable
to keep the Registration Statement effective, a holder of Warrants may not be
able to exercise such Warrants for shares of Common Stock.
The Warrants, which are part of the Units offered hereby, will not be
detachable from the Units and separately transferable for a period of 30 days
after the date of this Prospectus unless the period is terminated sooner at the
sole option of the Underwriter. Although the Units will not knowingly be sold to
purchasers in jurisdictions in which the Units are not registered or otherwise
qualified for sale, purchasers may buy Warrants in the after-market or may move
to jurisdictions in which the Shares underlying the Warrants are not so
registered or qualified during the period that the Warrants are exercisable. In
this event, the Company would be unable to issue Shares to those persons
desiring to exercise their Warrants unless and until the Shares could be
qualified for sale in jurisdictions in which purchasers reside, or exemption
from such qualification exists in such jurisdictions, and Warrant holders would
have no choice but to attempt to sell the Warrants to a resident of a
jurisdiction where such sale is permissible or allow them to expire unexercised.
See "Description of Securities -- Warrants."
9
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS.
Upon completion of this Offering, the Company will have outstanding
4,506,955 shares of Common Stock. 2,586,955 shares of the Company's Common Stock
("Restricted Shares") were issued by the Company in reliance upon exemptions
from the registration requirements of the 1933 Act and may not be sold unless
they are so registered thereunder or are sold pursuant to an applicable
exemption from registration including Rule 144 which governs the sales of
restricted securities. Of these shares, 777,955 are to be registered
concurrently with this registration statement with 218,246 shares to be sold in
this offering. The remaining shares are subject to a six month lock-up period.
See "Concurrent Registration of Securities" and "Underwriting -- Lock-up
Agreement".
Under Rule 144, a stockholder who has beneficially owned Restricted Shares
for at least two (2) years (including persons who may be deemed to be
"affiliates" of the Company under Rule 144) may sell within any three (3) month
period a number of shares that does not exceed the greater of: a) one percent
(1%) of the then outstanding shares of a particular class of the Company's
Common Stock as reported on its 10Q filing, or b) the average weekly volume on
NASDAQ during the four (4) calendar weeks preceding such sale and may only sell
such shares through unsolicited brokers' transactions. A stockholder who is not
deemed to have been an "affiliate" of the Company for at least ninety (90) days
and who has beneficially owned his shares for at least three (3) years would be
entitled to sell such shares under Rule 144 without regard to the volume
limitations described above.
There has been no public market for the securities of the Company. Sales of
substantial amounts of shares of the Company's Common Stock, pursuant to Rule
144 or otherwise, could adversely affect the market price of the Common Stock,
and consequently make it more difficult for the Company to sell equity
securities in the future at a time and price which the Company deems
appropriate. See "Shares Eligible for Future Sale."
NASDAQ MAINTENANCE REQUIREMENTS; POSSIBLE DELISTING OF SECURITIES FROM NASDAQ
SYSTEM;
RISKS OF LOW-PRICED STOCKS
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,
would thereafter be conducted in the over-the-counter market in the so-called
"pink sheets" or the "Electronic Bulletin Board" of the National Association of
Securities Dealers, Inc. ("NASD"). As a consequence of such delisting, an
investor could find it more difficult to dispose of, or to obtain accurate
quotations as to the price of, the Company's securities.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure, relating to the market for penny stocks, in connection
with trades in any stock defined as a penny stock. The SEC 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 any equity security listed on NASDAQ and any 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 annual revenue
of at least $6,000,000 if such issuer has been in continuous operation for less
than 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.
In addition, if the Company's securities are not quoted on NASDAQ, or the
Company does not have $2,000,000 in net tangible assets, trading in the Common
Stock would be covered by Rule 15g-9 promulgated under the Securities Exchange
Act of 1934, as amended, (the "Exchange Act") for non-NASDAQ and non-exchange
listed securities. Under such rule, 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 also
are exempt from this rule if the market price is at least $5.00 per share.
10
<PAGE>
The Company's Common Stock will, as of the date of this Prospectus,
technically be within the definitional scope of a penny stock, but will be
exempt from the definition of penny stock by operational law, because it is
listed on NASDAQ. In the event that the Common Stock were subsequently to become
characterized as a penny stock, the market liquidity for the Company's
securities could be severely affected. In such an event, the regulations on
penny stocks could limit the ability of broker/ dealers to sell the Company's
securities and thus the ability of purchasers of the Company's securities to
sell their securities in the secondary market.
SIGNIFICANT OUTSTANDING OPTIONS AND WARRANTS.
Upon consummation of this offering, there will be outstanding stock options
to purchase an aggregate of approximately 342,000 shares of Common Stock at
exercise prices ranging from $1.11 to $1.39 per share. To the extent that
outstanding options or warrants are exercised, dilution to the Company's
stockholders will occur. Moreover, the terms upon which the Company will be able
to obtain additional equity capital may be adversely affected since the holders
of outstanding options and warrants can be expected to exercise them 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 the exercise terms provided by such
outstanding securities. See "Description of Securities -- Warrants" and
"Management -- Stock Option Plan"
UNDERWRITER'S UNIT PURCHASE OPTIONS.
Subject to the requirements of the SEC and NASD, the Company will grant to
the Underwriter, as partial consideration for services rendered, options to
purchase up to 96,000 units (the "Underwriter's Unit Purchase Option") at an
exercise price of $8.45 per Unit. An exercise of the Underwriter's Unit Purchase
Options, which may be effected at any time, either in whole or in part,
beginning one (1) year after the date of this Prospectus for a period of four
(4) years thereafter, may adversely affect the Company's ability to obtain
equity capital, and, if the Common Stock issuable upon the exercise of the
Underwriter's Unit Purchase Option is sold in the public market, may adversely
affect the market price of the Company's Common Stock. The Underwriter's Unit
Purchase Option, the Units issuable upon the exercise of the Underwriter's Unit
Purchase Option, the Common Stock and Warrants comprising such Units, and the
Common Stock issuable upon exercise of such Warrants have been included in the
Registration Statement of which this Prospectus is a part. The Company has
agreed to keep such Registration Statement current, which would result in
substantial expense to the Company. This obligation is in addition to certain
registration rights granted to the Underwriter. See "Underwriting --
Underwriter's Unit Purchase Option" and "Dilution."
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS.
The Warrants are redeemable by the Company for $.01 per Warrant upon thirty
(30) days prior written notice, provided that the price of the Common Stock for
ten (10) consecutive business days is $7.00 or more per share. Redemption of the
Warrants by the Company could force the holders to exercise the Warrants and pay
the exercise price at a time when it may be disadvantageous for the holders to
do so, to sell the Warrants at the then current market price when they might
otherwise wish to hold the Warrants, or to accept the redemption price, which is
likely to be substantially less than the market value of the Warrants at the
time of redemption. In the event of the exercise of a substantial number of
Warrants offered as part of the Units within a reasonably short period of time
after the right to exercise commences, the resulting increase in the amount of
Common Stock of the Company in the trading market could substantially affect the
market price of the Common Stock. See "Description of Securities -- Common Stock
Purchase Warrants."
POSSIBLE CONFLICTS OF INTEREST BETWEEN THE COMPANY AND THE UNDERWRITER.
The Underwriter, M.H. Meyerson & Co., Inc., together with other principals
of the Underwriter are stockholders of the Company holding an aggregate of
393,750 shares of Common Stock, or 15.2% of the shares issued before this
offering. The aggregate holding is comprised of 45,000 shares held by M.H.
Meyerson & Co., Inc., 180,000 shares held by Manhattan Group Funding, 56,250
shares held by the IRA account of Martin H. Meyerson, 11,250 shares held by
Jeffrey E. Meyerson, 11,250 shares
11
<PAGE>
held by Michael Silvestri and 90,000 shares held by Kenneth J. Koock. Although
principals of the Underwriter do not serve as officers or directors of the
Company, their ownership of Common Stock could be deemed to give them and the
Underwriter influence upon management decisions, including the decision to
utilize the Underwriter for purposes of this offering. See "Underwriting."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 960,000 Units offered
hereby are estimated to be approximately $4,818,552 ($5,601,552 if the
Underwriter's over-allotment option is exercised in full). The Company intends
to use $956,000 of the net proceeds of this offering for the expansion into the
New York and three (3) other major markets. An additional $1,000,000 will be
used to expand the capacity of the existing offices through the purchase of
three (3) high speed digital publishing machines with electronic data storage
and on-line Internet capabilities, as well as other additional high speed copy
machines. Four additional sales representatives will also be hired with $200,000
of the proceeds. The Company also plans to pay off debt with $860,000 of the
proceeds of this offering. An additional $300,000 will be used to obtain
internal video conferencing capabilities which will increase uniformity in
bidding and enable the centralization of all projects and executive decisions.
The Company also intends to use $500,000 to obtain imaging and scanning
technology which will store numerous documents on CD ROM with the ability to
recall any document instantly. In order to support the Company's software
development four software engineers and two technical support staff will be
hired with $200,000 and $90,000 of the proceeds. The remaining $712,552 will be
used as working capital.
The Company's plans for specific use of net proceeds are as follows:
<TABLE>
<C> <S> <C>
1. Expansion into the New York and three other major markets (i.e.
Midwest and West Coast) includes leases, fixtures and equipment..... $ 956,000
2. Additional copy machines for existing offices........................ 1,000,000
3. Additional Sales force............................................... 200,000
4. Repayment of indebtedness (1)........................................ 860,000
5. Internal video conferencing capability............................... 300,000
6. Imaging and scanning technology...................................... 500,000
7. Software engineers................................................... 200,000
8. Software technical support........................................... 90,000
9. Working Capital...................................................... 712,552
----------
Total................................................................ $4,818,552
----------
----------
</TABLE>
- ------------------------
(1) As of March 31, 1996, this debt includes the following loans from commercial
banks: Several vehicle loans totaling approximately $52,000 at the following
interest rates and maturity dates 7.2% due August 9, 1999; 8.25% due
February 2, 1999; 9.0% due July 14, 1999; 8.2% due December 15, 1999;
Business loans totaling approximately $296,000 at 10.25% due September 1,
1997; 10.25% due November 1, 1998; 10.25% due October 1, 1998; 10.25% due
June 1, 1996; capitalized leases valued at approximately $21,000; 15.2% due
May 1996; 15.2% due June 1, 1996; 15.2% due January 1, 1997; 15.2% due
August 1997; 15.2% due September 1997; 15.2% due December 1997; 15.2% due
June 1997; 15.2% Due November 1997; 15.2% due February 9, 1997; and a
$375,000 line of credit at 9.25% due April 1, 1997. This debt also includes
a bank loan of approximately $17,000 at 8.1% due March 21, 2000, consummated
after March 31, 1996 and a $100,000 loan made to the Company by M.H.
Meyerson & Co., Inc. in May 1996 at .5% below the prime rate coming due upon
the earlier of April 30, 1997 or the closing of any public debt or equity
financing of the Company.
The foregoing represents the Company's best estimate of the allocation of
the net proceeds of this Offering based upon the current status of its business.
The estimate is based on certain assumptions, including that no events occur
which would cause the Company's revenues to recede abruptly and that the
Company's new additional offices, can be placed in operation on time and within
budget. Future
12
<PAGE>
events, including the problems, delays, expenses and complications frequently
encountered by small enterprises, as well as changes in economic or competitive
conditions or the Company's business, may make shifts in the allocation of funds
necessary or desirable. There can be no assurance that the Company's estimates
will prove accurate, that new programs or activities will not be undertaken
which will require considerable additional expenditures, or that unforeseen
expenses will not occur.
The Company anticipates that the proceeds of this Offering, together with
existing funds, will enable it to fund its operating and capital needs for at
least 24 months from the completion of this Offering. The Company anticipates
that it may require additional financing after that time, depending on the
status of its sales efforts and whether sufficient revenues and contractual
commitments have been received from its customers to enable it to function with
sufficient liquidity. In addition, the Company may require additional funds
prior to or after that time for purposes of further significant expansion of its
facilities or acquisition of operations of other entities, but the Company has
no current or presently anticipated plan in this respect other than for the
contemplated new facility, which is to be funded with a portion of the proceeds
of this Offering. See "Business -- Strategy." The Company is not able at this
time to predict the amount or potential source of such additional funds and has
no commitment to obtain additional funds. Any additional proceeds upon exercise
of the Over-allotment Option or the Warrants, if exercised, will be added to
working capital.
13
<PAGE>
DILUTION
As of March 31, 1996, the Company had net tangible assets of $530,786 or
$0.21 per share. Net tangible book value per share means the tangible assets of
the Company, less all liabilities, divided by the number of shares of common
stock outstanding. On a pro forma basis adjusted for the sale of 960,000 Units
offered by the Company hereby at an initial public offering price of $6.25 per
Unit, the deduction of estimated expenses, underwriting discounts and the
underwriter's non-accountable expense allowance, the as-adjusted pro forma net
tangible book value of the Company would have been $5,349,338 or $1.19 per
share. This represents an immediate dilution to new investors of $1.81 (60%) per
share. Dilution is calculated by subtracting net tangible book value per share
after the offering from the offering price to investors.
The following table illustrates the foregoing information with respect to
dilution to new investors on a per share basis as of March 31, 1996:
<TABLE>
<S> <C>
Public offering price............................................... $ 3.00
Net tangible book value before the offering..................... $ 0.21
Pro Forma net tangible book value after the offering............ $ 1.19
Increase attributable to new investors.......................... $ 0.98
Dilution to new investors........................................... $ 1.81
</TABLE>
The above table assumes no exercise of the Underwriter's overallotment, the
Underwriter's purchase option nor any outstanding options.
The following table sets forth, on a pro forma basis as of March 31, 1996,
the number of shares of Common Stock sold by the Company, the total
consideration received by the Company, the average price per share of existing
shareholders and the average price to be paid by purchasers of the Units offered
by the Company hereby (before deducting offering expenses and underwriting
discounts and commissions) at an assumed initial public offering price of $6.25
per Unit and $3.00 per share.
<TABLE>
<CAPTION>
SHARES SOLD TOTAL CONSIDERATION AVERAGE
---------------------------- -------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing Shareholders.............................. 2,586,955 57% $ 960,710 14% $ 0.37
New Investors...................................... 1,920,000(1) 43% $ 5,760,000 86% $ 3.00
--------------- ----- ------------- -----
Total........................................ 4,506,955 100% $ 6,720,710 100%
--------------- ----- ------------- -----
--------------- ----- ------------- -----
</TABLE>
- ------------------------
(1) Sales of Units by the Selling Securityholders in the offering made hereby
will reduce the number of shares of Common Stock held by Existing
Shareholders to 2,368,709 shares or 53% of the total number of shares of
Common Stock outstanding, and will increase the number of shares held by New
Investors to 2,138,246 shares or 47% of the total number of Shares of Common
Stock outstanding.
The above table allocates no value to the Warrants contained in the Units,
and assumes no exercise of the Underwriter's overallotment, the Underwriter's
purchase option nor any outstanding options. No further dilution will occur upon
exercise of Warrants, Underwriters overallotment or Underwriter's Purchase
Option. The dilution caused by the exercise of the currently outstanding options
is de minimis.
If the Overallotment option is exercised in full, the New Investors, not
including those purchasing shares from the Selling Securityholders, will have
paid $6,624,000 and will hold 2,208,000 shares of Common Stock, representing 87
percent of the total consideration and 46 percent of the total number of
outstanding shares of Common Stock.
14
<PAGE>
CAPITALIZATION
The following sets forth (i) the capitalization of the Company as of March
31, 1996, and (ii) pro forma capitalization on such date as adjusted to give
effect to the issuance and sale of the 960,000 Units offered hereby and the
anticipated application of the estimated net proceeds therefrom. The information
set forth below should be read in conjunction with the Financial Statements and
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Use of Proceeds."
<TABLE>
<CAPTION>
HISTORICAL AS ADJUSTED
------------ -------------
<S> <C> <C>
Long-Term Debt.................................................................... $ 131,968 $ --
------------ -------------
Common Stock, $.01 par value, 20,000,000 shares authorized, 2,586,955 issued and
outstanding; 4,506,955 as adjusted............................................... $ 25,870 $ 45,070
Preferred Stock, $.01 par value, 1,000,000 shares authorized zero shares issued... $ -- $ --
Additional Paid-in Capital........................................................ $ 934,842 $ 5,734,194*
Accounts and Notes Receivable..................................................... $ (115,000) $ (115,000)
Retained Deficit.................................................................. $ (146,961) $ (146,961)
------------ -------------
Total Stockholders' Equity.................................................... $ 698,751 $ 5,517,303
------------ -------------
Total Capitalization...................................................... $ 830,719 $ 5,517,303
------------ -------------
------------ -------------
</TABLE>
- ------------------------
* Assuming net proceeds of $4,818,552 (without exercise of overallotment)
15
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data as of December 31, 1995 and December
31, 1994 and for the periods then ended are derived from the Company's audited
financial statements. The financial data as of March 31, 1996 and 1995 and for
the three month periods then ended are derived from unaudited financial
statements. The unaudited financial statements include all adjustments,
consisting of normal recurring accruals, which the Company considers necessary
for a fair presentation of the financial position and the results of operations
for these periods. Operating results for the three months ended March 31, 1996
are not necessarily indicative of the results to be expected for the entire
year. The following data should be read in conjunction with the financial
statements of the Company, including the notes thereto. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Financial Statements.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
YEAR ENDED DECEMBER 31,
---------------------------- ----------------------------
1995 1994 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Services Income...................................... 4,919,270 1,959,455 1,797,020 1,151,718
------------- ------------- ------------- -------------
Costs and Expenses:
Cost of sales...................................... 3,887,709 1,425,443 1,358,602 878,619
Selling and shipping............................... 343,012 54,910 148,355 80,747
Administrative..................................... 532,027 480,428 188,488 123,837
------------- ------------- ------------- -------------
Total Operating Expenses....................... 4,762,748 1,960,781 1,695,455 1,083,203
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Earnings (Loss) from Operations...................... 156,522 (1,326) 101,575 68,515
Net Earnings (Loss).................................. 75,628 (22,266) 91,366 55,909
Earnings (Loss) per Common Share..................... 0.03 (0.01) 0.03 0.02
Average Number of Common Shares and Common Share
Equivalents Outstanding During the Period........... 2,648,377 2,558,377 2,648,377 2,648,377
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995 MARCH 31, 1996
----------------- -----------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash.................................................................... $ 38,116 $ 20,360
Working Capital (Deficit)............................................... $ (94,892) $ 63,860
Total Assets............................................................ $ 1,478,035 $ 2,199,787
Long Term Debt, Net of Current Portion.................................. $ 125,384 $ 131,968
Shareholders Equity:
Common Stock.......................................................... $ 21,870 $ 25,870
Additional Paid in capital............................................ $ 488,140 $ 934,842
Accounts and Notes Receivable -- Shareholders........................... -- $ (115,000)
Retained Deficit...................................................... $ (238,327) $ (146,961)
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company began to provide reprographic and facilities management services
to the premium service segment of the Philadelphia, Pennsylvania market in June
1993. The company has subsequently expanded its geographic market to include
Washington, DC and Atlanta, Georgia. In July 1995 the Company expanded the scope
of its business through the purchase of the assets of a copy machine repair
service. Revenues from reprographic and litigation support account for
approximately 77% of total revenues while facilities management accounts for 20%
and copy machine refurbishment, repairs, sale and leases account for 3% as of
March 31, 1996.
The Company's reprographic and litigation support services to law firms and
corporations includes copying, binding, drilling, "Bates" stamping, labeling,
collating, indexing, assembling and quality review. The Company currently has
technology which allows customers to "telecommute" by sending documents
instantaneously via the Internet to computers at On-Site. The documents are then
transferred into the memory of a digital copy machine and reproduced.
The Company also contracts to provide its services on the premises of its
customers through facilities management agreements. The Company conducts a
comprehensive analysis of each client's needs and tailors the services provided
to these needs based on volume, time, and quality requirements. On-Site's
facilities management services include providing on-site management of the
client's support services including copy, mail, supply and records rooms.
Mailroom services include distributing all mail and interoffice correspondence,
processing, logging and billing outgoing mail, parcels and special courier
items, logging, billing, and tracking transmission of outgoing facsimiles and
distributing incoming facsimiles. Supply room services include providing all
required materials through a "Just in Time" system designed to minimize the
costs of logging and tracking materials provided. Records room services include
utilization of bar code applications and state-of-the-art imaging and scanning
equipment to store documents and data base information for quick retrieval and
copying. Copy room management involves tracking, logging and billing all copies,
and providing repair services to copy machines. In addition, specialized
proprietary software generates operating data that allows the Company to analyze
vendor, copy and overtime costs, copy volume and prepare profit and loss
statements that offer solutions to productivity problems.
On-Site recently expanded the scope of its business to include the servicing
and sales of copy machines. In July 1995, On-Site purchased the assets of SWR
Associates, Inc. ("SWR"), doing business as CRC or Copier Rebuild Center, in
Frederick, MD, that services, refurbishes, leases and sells mid and high volume
copiers. On-Site now provides service technicians to all of the Company's
locations. The acquisition of an in house repair service was a natural vertical
integration and has allowed On-Site to minimize critical down time and increases
productivity at the Company's reprographic centers and facilities management
sites.
The revenue provided by the reprographic services vary depending on the
volume of work orders received with December historically being a slow period.
Revenues are collected on a monthly basis for facilities management contracts
with payment due on the first of the month while reprographic and service
revenues are collected on a per job basis. The Company's collection history of
accounts receivables has been 45 to 90 days with facilities management accounts
being collected within 10 to 15 days.
The Company's near term objectives include plans to expand geographically
and increase the use of technology. Expansion into the New York market with a
portion of the $956,000 allocated for expansion from the proceeds of this
offering is scheduled for the Summer of 1996. The Company also plans to expand
the capacity of its existing facilities by adding copy machines through the use
of $1,000,000 of the proceeds of this offering. Additionally, the Company plans
to invest in its SiteTrax and OATS Systems and new technology in order to
improve efficiency and expand into new markets.
17
<PAGE>
The Company expects to hire four software engineers and two technical support
staff members to further develop the OATS and SiteTrax Systems and provide
technical support at locations where the Company's software products have been
installed. The implementation of internal video conferencing with $300,000 of
the proceeds of this offering will improve efficiency and ensure consistency by
allowing the various locations to share expertise. Expanding the range of
services provided to include imaging technology with $500,000 of the proceeds of
this offering is also planned. Although no assurances can be given, the Company
believes that the net proceeds of this offering will be sufficient to attain
these objectives and to satisfy its contemplated cash requirements for the next
twenty four months. See "Use of Proceeds" and "Business -- Technology and
Proprietary Information".
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
total revenues represented by certain line items in the Company's statements of
operations:
<TABLE>
<CAPTION>
PERCENT OF TOTAL REVENUES
------------------------------------------
THREE MONTHS ENDED
YEAR ENDED DECEMBER
31, MARCH 31,
-------------------- --------------------
1995 1994 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Services Income........................................................... 100 100 100 100
Costs and Expenses:
Cost of Sales........................................................... 79 73 76 76
Selling and shipping.................................................... 7 3 8 7
Administrative.......................................................... 11 24 10 11
--- --- --- ---
Total Operating Expenses............................................ 97 100 94 94
--- --- --- ---
--- --- --- ---
Earnings (Loss) from Operations........................................... 3 (*) 6 6
Net Earnings (Loss)....................................................... 2 (1) 5 5
</TABLE>
- ------------------------
(*) Loss of less than 1%
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUES
The Company's revenues are derived from reprographics and litigation
support, facilities management, and copier repairs. Overall sales revenue
increased by $2,959,815 or 151% from 1994 to 1995. Of this increase $2,035,712,
a 58% increase, can be attributed to the increased capacity of existing
facilities and $762,306, a 62% increase, resulted from the increased number of
facilities management sites from three as of December 31, 1994 to eight as of
December 31, 1995. The purchase of the Copy Rebuild Center in Frederick, MD in
July 1995, which services, refurbishes, leases and sells mid and high volume
copiers, also provided approximately three percent (3%) of the Company's total
revenues in 1995. The Company expects that copy machine sales and servicing will
continue to account for approximately three percent (3%) of the total revenues
during 1996. The company has also achieved name recognition and a reputation for
quality in the markets it served in 1995 which has resulted in repeat customers.
COSTS AND EXPENSES
COST OF SALES. Cost of sales increased by $2,462,266 or 173% from 1994.
This increase was nearly proportional to the increase in revenues. As a
percentage of revenue, cost of sales increased from 73% in 1994 to 79% in 1995.
This increase can be attributed to an increase in wages paid to three sales and
marketing employees hired in 1995 and a rise in the cost of paper during 1995.
SELLING AND SHIPPING. Costs of selling and shipping increased $288,102 or
525% in 1995 due to increased marketing efforts and increased commissions paid
to a larger marketing staff and the purchase of new delivery trucks in 1995.
18
<PAGE>
ADMINISTRATIVE. Although administrative costs in 1995 increased $51,599 or
10.7% over the 1994 period, these costs declined as a percentage of revenues
from 24% to 11%. The increase can be attributed to the Company's growth both in
existing and new markets in 1995.
EARNINGS FROM OPERATIONS. Earnings from operations increased $157,848 in
1995 due to increased marketing efforts by the Company. The increased number of
facility management sites from three in 1994 to eight in 1995 also accounts for
the increased earnings from operations.
OTHER EXPENSES, PRIMARILY INTEREST. Other expenses increased by $52,032 or
180% due mainly to an increase in the amount of debt carried by the Company in
order to meet the Company's working capital needs and costs of expansion.
INCOME TAX EXPENSE. In December 1994, the Company had available unused
operating loss carryforwards that were applied to taxable income in 1995. As of
December 31, 1995 the Company still had unused operating loss carryforwards that
may be applied against future taxable income. See "Notes to Financial Statements
- -- Note J"
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
REVENUES
Total revenues increased by $645,302 or 56% from the first three months of
1995. This increase is principally due to increased volume of work orders
fulfilled due to increased capacity at the Rosslyn, VA reprographics facility
and the commencing of operations of the Atlanta, GA reprographics facility. The
Rosslyn facility's floor space increased by 5,400 square feet. The Copy Rebuild
Center in Frederick, MD also contributed approximately 3% of the Company's
revenues in the first three months of 1996. The Company has also achieved name
recognition and a reputation for quality in the markets it serves which has
resulted in repeat customers.
COSTS AND EXPENSES
COST OF SALES. For the first three months of 1996, cost of sales increased
$479,983 or 55% over the same period in 1995. Included in the Cost of sales are
the one time start-up costs of the Atlanta reprographics facility, which became
operational during this time period. The Company anticipates that the Atlanta
facility will become profitable in the middle of the second quarter of this
year. The increased costs are proportional to the increased revenues for this
period and reflect the increased volume of business received by the Company. As
a percent of total revenues, cost of sales remained constant between the two
periods.
SELLING AND SHIPPING. Selling and shipping costs increased $67,608 or 84%
over the first three months of 1995. This increase is due to the salaries of new
sales personnel hired after the first quarter of 1995 in anticipation of the
Company's increased capacity.
ADMINISTRATIVE. Although administrative costs increased by $64,651 or 52.2%
over the 1995 period, these costs declined as a percentage of revenues from 11%
in 1995 to 10% in 1996. Administrative costs for the first three months of 1996
also include the audit fee in connection with the year end audit of
approximately $25,000.
EARNINGS FROM OPERATIONS. Earnings from operations increased $33,060 or 48%
over the same period in 1995. This increase is due to increased volume.
OTHER EXPENSES, PRIMARILY INTEREST. Other expenses increased $19,076 or
151% in 1996 over the first three months of 1995. The increase is due to the
Company's increased short term and long term borrowing to finance working
capital needs and costs of expansion.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically been dependent upon loans from commercial
banks, as well as private placements of its equity securities to finance its
working capital requirements. The Company is dependent on the proceeds of this
offering to expand its operations into new cities, expand the capacity of its
existing facilities, invest in new technology, pay off existing debts and meet
its working
19
<PAGE>
capital requirements. Although the Company believes the proceeds of this
offering will be sufficient to satisfy the Company's contemplated cash
requirements for at least 24 months following this offering, the Company has no
current arrangements with respect to, or sources of, additional financing except
for its line of credit as described below. In the event that the Company's plans
change or prove to be inaccurate or if the proceeds of this offering are
insufficient, the Company may be required to seek additional funding or may be
required to curtail its operations. There can be no assurance that any
additional financing will be available to the Company.
On May 1, 1995, Sequoia National Bank agreed to make a $300,000 line of
credit available to the Company. Upon consummation of the line of credit, the
Company borrowed $260,000 in order to meet its working capital needs. In January
1996, the Company amended the credit facility to $450,000 with all other terms
remaining unchanged and borrowed $115,000 in order to meet its working capital
needs leaving $75,000 currently available to the Company to provide working
capital.
In order to finance working capital needs the Company raised $310,700
through a private placement of 147,955 shares of Common stock in March 1996.
On March 29, 1996, Allen C. Outlaw, Vice President of Sales and Marketing
and a director of the Company, exercised options to purchase 162,000 shares of
common stock for $90,000. The options had been granted pursuant to an employment
agreement and fully vested during 1994. In connection with the exercise of the
options, the Company loaned $89,900 to the officer/director. The loan bears
interest at 6% per year with a payment of $40,000 due on May 1, 1996 and the
remaining principal and interest due April 1, 1998.
ACQUISITION OF SWR ASSOCIATES, INC.
On-Site recently expanded the scope of its business to include the servicing
and sales of refurbished copy machines by purchasing the net assets of SWR
Associates, Inc. ("SWR") of Frederick, Maryland, doing business as CRC, for the
nominal consideration of $10,000 on July 27, 1995. SWR's location in Frederick,
MD, is comprised of a copier rebuild center that services, refurbishes, leases
and sells mid and high volume copiers. The acquisition of an in-house repair
service was a vertical integration designed to allow On-Site to minimize
critical down time of equipment and increase productivity at On-Site's
reprographic centers and facilities management sites. As a result of the
acquisition, On-Site now provides copier service technicians with dispatch to
all of On-Site's locations, thereby enhancing productivity.
In essence, SWR has become the maintenance division of On-Site after the
acquisition, with On-Site providing the majority of SWR's work. For the seven
months before the acquisition, SWR had revenues of approximately $286,000 and
incurred a loss of $76,300 due mainly to excess capacity. Subsequent to its
acquisition, SWR's facility and personnel began operating at full capacity due
to On-Site's demands for copy machine maintenance. SWR's external revenue during
the post-acquisition period in 1995 was approximately $162,000. This factor, in
addition to the elimination of redundant general and administrative expenses,
resulted in SWR earning a profit of approximately $9,400 for the last five
months of 1995.
While On-Site's acquisition of SWR has had a significant effect on SWR's
performance, SWR has not had a similar effect on On-Site. SWR only accounted for
3% of On-Site Sourcing's external revenue for 1995. Management believes the time
period after the acquisition is more indicative of how SWR will perform in the
future and that providing audited financial statements for the time prior to the
acquisition would therefore not provide meaningful information. For the first
two months of 1996, SWR only accounted for 2.8% of On-Site's total revenue.
Furthermore, SWR's operations, prior to the acquisition, reflect discretionary
salary and bonuses to the owner as a result of appropriate income tax planning
which have not continued after the acquisition.
20
<PAGE>
BUSINESS
The Company, ("On-Site") provides reprographic and facilities management
services to law firms, non-profit organizations, accounting firms, financial
institutions and other organizations throughout the East Coast. In order to meet
the highly specialized requirements of each client, On-Site offers a variety of
customized reprographic and facilities management services. The Company's
reprographic services include copying, binding, labeling, collating and indexing
in support of complex, document-intensive litigation as well as higher volume
productions of manuals, brochures and other materials for corporations and
non-profit organizations. On-Site also provides on-premises management of the
customer's support services including mailroom operations, facsimile
transmission, records and supply room management and copying services. The
Company also services, refurbishes, leases and sells mid and high volume copy
machines thereby minimizing critical down time and increasing productivity at
the Company's reprographic centers and facilities management sites. On-Site
assumes complete responsibility for these operations through the provision of
management, highly-trained staff, specialized proprietary software, equipment,
supplies, as well as copier repair and consulting services.
The Company targets the premium service segment of the market in which
speed, accuracy and quality are critical by providing high quality service at
economical prices. On-Site Sourcing, Inc. was founded in 1992 and currently
serves the greater Washington, Philadelphia, and Atlanta metropolitan areas
through outsourcing locations in Arlington, Virginia; Philadelphia, Pennsylvania
and Atlanta, Georgia, as well as facilities management locations in Washington,
DC; Philadelphia, PA and Mt. Laurel, New Jersey. The Arlington, Virginia
outsourcing location is the largest legal processing center in the metropolitan
Washington area. The Company plans to expand service to the New York City
metropolitan area in the Summer of 1996. Customers include a number of the large
law firms, corporations and non-profit entities operating in these cities. The
Company was originally incorporated in Virginia in December, 1992 and changed
its state of incorporation to Delaware in January, 1996.
OUTSOURCING MARKET. Traditionally, most organizations have provided all of
the services required to support their own operations. Increasingly, however,
organizations are contracting out certain functions to specialized independent
business service companies. These services include reprographic, security,
secretarial, cafeteria, computer and communications facilities management.
Outsourcing allows organizations to focus their management and resources on
their own business, while often improving support systems and more effectively
controlling costs. Users of facilities management services are relieved of the
responsibilities of selecting and maintaining equipment and hiring, training,
managing and motivating employees. These vendors generally achieve economies of
scale in administration and the purchasing of equipment and supplies.
STRATEGY. The Company's strategy for continued growth in the premium
service sector of the reprographic and facilities management business is to
attract new customers, retain existing clients and to expand the range of
services while maintaining high quality and efficient operations. The Company
has developed several management strategies in order to continue to compete
successfully with larger companies including:
<TABLE>
<S> <C>
- - TRAINING PROGRAMS On-Site has developed intensive training programs for all
employees through the use of proprietary computer
programs. Training is based on qualification requirements
for each position and continues throughout the course of
employment.
- - QUALITY CONTROL Strict quality control standards are also maintained
through the use of a Quality Assurance Team, Quality
Assurance Diary, intensive training programs and client
surveys. Because of the
</TABLE>
21
<PAGE>
<TABLE>
<S> <C>
sensitivity of the materials produced, each document is
hand checked in a separate room by a quality control team.
Less than 1% of all documents are rejected by clients due
to poor quality.
- - EMPLOYEE RELATIONS On-Site places a strong emphasis on employee relations
through the use of employee empowerment practices, team
building, close relations between employees and management
and an employee incentive program that includes stock
ownership.
- - ECONOMIES OF SCALE On-Site is able to provide efficient services to its
clients because it achieves economies of scale in
administration, training, acquisition of equipment and
supplies, improved equipment utilization, servicing
copiers and higher employee productivity.
- - BROAD RANGE OF SERVICES On-Site offers a broad range of services in order to
tailor its operations to the highly specialized
requirements of each client. In addition to customized
reprographic services, On-Site offers litigation support
such as binding, labeling, collating and indexing.
Facilities management services include copy and mailroom
operations, facsimile transmission, records and supply
room management, as well as copier repair and consulting
services.
</TABLE>
The Company receives the main part of its business by providing reprographic
and litigation support services to law firms and corporations. This accounts for
approximately 77 percent of the Company's business. Facilities management
accounts for approximately 20 percent of the business while the final sector of
On-Site's business, the servicing and sales of copy machines, now provides 3
percent of the Company's business. Each division and business function, while
independent in services to the client, share personnel and resources in order to
minimize costs and provide high quality services.
The Company's goal is to expand its reprographics and facilities management
business by taking advantage of opportunities presented by the large number of
organizations that still provide their own facilities management services
internally. On-Site also plans to expand into new geographic locations including
New York City in the Summer of 1996.
OPERATIONS. On-Site provides its services through regional offices in
metropolitan Washington, DC, Philadelphia, PA and Atlanta, GA. These facilities
maintain staff, equipment, supplies and training facilities in order to provide
reprographic and litigation support services to a variety of customers. The
Company also places professional management at each site and provides employees
with ongoing training in equipment operation and maintenance, customer
satisfaction, interpersonal skills, and quality control. Equipment and supplies
are provided by numerous regional and national vendors.
On-Site contracts to provide its services on the premises of its customers.
The Company conducts a comprehensive analysis of each client's needs and tailors
the services provided to these needs based on volume, time, and quality
requirements.
The Company's reprographic and litigation support services to law firms and
corporations includes copying, binding, drilling, "Bates" stamping, labeling,
collating, indexing, assembling and quality review. The Company currently has
technology which allows customers to "telecommute" by sending documents
instantaneously via the Internet to computers at On-Site. The documents are then
transferred into the memory of a copy machine and reproduced.
On-Site's facilities management services include providing on-site
management of the client's support services including copy, mail, supply and
records rooms. Mailroom services include distributing all mail and interoffice
correspondence, processing, logging and billing outgoing mail, parcels and
22
<PAGE>
special courier items, logging, billing, and tracking transmission of outgoing
facsimiles and distributing incoming facsimiles. Supply room services include
providing all required materials through a "Just in Time" system designed to
minimize the costs of logging and tracking materials provided. Records room
services include utilization of bar code applications and state-of-the-art
imaging and scanning equipment to store documents and data base information for
quick retrieval and copying. Copy room management involves tracking, logging and
billing all copies, and providing repair services to copy machines. In addition,
specialized proprietary software generates operating data that allows the
Company to analyze vendor, copy and overtime costs, copy volume and prepare
profit and loss statements that offer solutions to productivity problems.
On-Site recently expanded the scope of its business to include the servicing
and sales of copy machines. In July 1995, On-Site purchased the assets of SWR
Associates, Inc. ("SWR"), doing business as CRC, a copy rebuild center in
Frederick, MD, that services, refurbishes, leases and sells mid and high volume
copiers. On-Site now provides service technicians to all of the Company's
locations. The acquisition of an in house repair service was a natural vertical
integration and has allowed On-Site to minimize critical down time and increases
productivity at the Company's reprographic centers and facilities management
sites.
The Company is currently in the process of negotiating a lease for office
space in New York City and expects to begin operations in New York by the end of
the summer of 1996. The Company is also evaluating the market potential of
several mid-west and west coast cities.
The Company operates in two segments, one of which includes facilities
management, litigation copying, and related services at customer and company
locations, and a second, which includes the purchase, refurbishment, lease, sale
and servicing of copy machines. For the year ended December 31, 1995, the
purchase, refurbishment, lease, sale and servicing of copy machines was not
material to the financial statements. The Company's operations are conducted
entirely in the United States.
CUSTOMERS. On-Site's customers include law firms, non-profit organizations,
accounting firms, financial institutions and other organizations throughout the
East Coast. On-Site's customer base is the premium service segment of the market
in which speed, accuracy and quality are critical. The Company's clients include
many of the largest law firms and business entities in the markets served.
EMPLOYEES. The Company continuously recruits, trains and offers benefits
and other incentives to personnel in order to develop and retain a qualified and
reliable staff. Under the Company' training program, all personnel receive
training covering the use and maintenance of equipment, interpersonal skills and
operating procedures. The Company places a strong emphasis on employee relations
and engages in team building, and employee empowerment practices as well as
providing incentives, including a stock ownership plan, that are specifically
designed to encourage and reward employee performance. Additionally, all
employees are bonded, sign confidentiality agreements and agree to undergo drug
tests. The Company believes these programs result in higher employee
productivity and professionalism. As of February 2, 1996 the Company had 120
full time employees, of which 6 are in executive positions. None of the
Company's employees are represented by a labor union and the Company considers
its employee relations to be satisfactory.
COMPETITION. The reprographics and facilities management businesses are
highly competitive. The largest competition is from prospective clients
themselves, which provide these services internally. The national competitors
providing facilities management services include Pitney Bowes Management
Services and Xerox Business Systems, while Merrill Corporation is a competitor
for reprographic services. Alco Standard Corporation and R.R. Donnelley Business
Systems are national competitors providing both reprographic and facilities
management services while Copy America, Balmar and Reliable are regional
competitors providing both of these services in the markets served by On-Site.
TECHNOLOGY AND PROPRIETARY INFORMATION. The Company's proprietary software,
On-Site Sourcing, Inc. Automated Tracking System ("OATS") was conceptualized by
the Company's President,
23
<PAGE>
Christopher Weiler, in early 1993 for use in facilities management contracts. It
has undergone continuous development to the present. The program tracks and
produces reports for a variety of back office operations which enables On-Site
to operate in the most efficient manner, thereby increasing productivity. When
combined with specially configured bar code technology, the program tracks the
delivery of all internal mail and packages, organizes file rooms, assists the
client with cost accounting by automating client billing information and
purchase orders, tracks office employee productivity, automates inventories and
tracks incoming and outgoing facsimiles. The program also employs icons which
allow direct access to other applications such as the UPS and Federal Express
Tracking Systems. The report function produces in-depth charts on all facets of
the back office which allows On-Site employees to easily monitor activities and
eliminate inefficiencies. Finally, OATS automates On-Site's billing of clients.
OATS is installed via computer disk and is compatible with a variety of
operating systems.
The Company is also developing a proprietary automated cost recovery system
for copy machines, SiteTrax, which will be operational before the end of 1996.
The system networks copy machines and tracks the number of copies made, the
client to be billed, the specific matter involved and the employee making the
copies. This system is designed to increase On-Site's appeal to potential
facilities management clients based on price and performance.
The Company relies on confidentiality and non-competition agreements with
its employees in order to protect its proprietary know-how and employs various
methods to protect the software, concepts, ideas and documentation of its
proprietary technology. However, such methods may not afford complete
protection, and there can be no assurance that others will not independently
develop similar know-how or obtain access to the Company's know-how or software,
concepts, ideas and documentation. Furthermore, although the Company has and
expects to have confidentiality and non-competition agreements with its
employees, consultants, and appropriate vendors, there can be no assurance that
such arrangements will adequately protect the Company's trade secrets.
FACILITIES. The Company's executive offices and reprographic operations
which service the metropolitan Washington area are located in approximately
11,453 square feet of leased space in Arlington, Virginia. The lease expires in
December of 1999. Rent for the premises is $12,800 per month through April 1996,
$13,700 per month for May 1996 through April 1997, $14,600 per month for May
1997 through April 1998 and $15,300 per month from May 1998 through December
1999.
The Company's Philadelphia offices are located in approximately 4900 square
feet of leased space in center city Philadelphia, PA. The lease provides for a
base annual rent of $61,300 and an expiration date in October 2000. The Company
also has offices located in approximately 3935 square feet of leased space in
Frederick, MD. The lease provides for a base annual rent of $30,000 with
additional operating costs of $2,000 per year and an expiration date in January,
1997.
The Company also has offices located in approximately 5,512 square feet of
leased space in Atlanta, GA. The lease provides for a base annual rent of
$64,800. The lease expiration date is February 28, 2002.
The Company believes that its current facilities are adequate for its
current and reasonably foreseeable future needs for the markets that each
facility serves and that additional physical capacity at its current facilities
is available to accommodate expansion, if required.
SEASONAL AND CYCLICAL NATURE OF BUSINESS; BACKLOG. The revenue provided by
the reprographic services vary depending on the volume of work orders received,
with December historically being a slow period. Facilities management contracts
are not significantly seasonal or cyclical in nature. The nature of the business
does not lend itself to backlogs and references to backlogs are not meaningful.
24
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------- --- -------------------------------------------------------------
<S> <C> <C>
Christopher J. Weiler 33 President, Chief Executive Officer and Director
John S. Stoppelman 52 Chairman of the Board and Director
Allen C. Outlaw 30 Vice President -- Sales and Marketing and Director
Anthony A. Kopsidas 26 Vice President -- Operations and Director
Randall C. Reitz 27 Chief Financial Officer
Larry F. Morris 30 Vice President -- Sales and Marketing
</TABLE>
CHRISTOPHER J. WEILER founded the Company with Mr. Stoppelman in December,
1992 and has been President, Chief Executive Officer and a director of the
Company since that time. Mr. Weiler graduated from the United States Naval
Academy in 1985 and served in the United States Navy as a surface warfare
officer and as a Navy Senate Liaison Officer on Capitol Hill, Washington, D.C.
Joining Pitney Bowes Management Services (PBMS) in 1991, Mr. Weiler took the
reigns of PBMS Washington's most volatile account and refined it into one of the
largest and most profitable national accounts.
JOHN S. STOPPELMAN founded the Company with Mr. Weiler in December, 1992 and
has been Chairman of the Board of Directors since inception. Mr. Stoppelman has
also served as Secretary and Treasurer. Mr. Stoppelman has been a practicing
attorney for twenty five years. After working as an attorney at a government
agency for four years, Mr. Stoppelman entered private practice in 1976,
specializing in securities, corporate, and other investment related law and
litigation. Mr. Stoppelman has also been the Chairman of Justin Asset
Management, Inc., a registered investment advisory firm (1985-1994). He has
served on the American Bar Association Committee on Federal Regulation of
Securities (1976-present) and as Vice-Chairman of the Subcommittee on SEC
Practice and Enforcement Matters of the ABA Federal Regulation of Securities
Committee (1979-1991). Mr. Stoppelman has published several articles relating to
the areas of his practice and has appeared at various times on national
television to comment on various securities related issues.
ALLEN C. OUTLAW has been Vice President of Sales and Marketing since joining
the Company in March 1994. Mr. Outlaw has also served on the Board of Directors
since March, 1994. Prior to joining the Company, he held various positions in
the investment industry including owner and Director of Marketing of Justin
Asset Management a successful investment management firm from January 1991 until
joining the Company.
ANTHONY A. KOPSIDAS has been the Vice President of Operations since
December, 1994. Prior thereto Mr. Kopsidas served as a supervisor since joining
the Company in March 1994. Mr. Kopsidas served as president of Corporate Lawn
and Landscaping, a Maryland corporation, for three years before joining the
Company. Mr. Kopsidas has also served on the Board of Directors since December,
1994.
RANDALL C. REITZ has served as Chief Financial Officer since December, 1995.
Prior thereto he served as controller for the Company beginning November, 1994.
Mr. Reitz also worked at Crowell & Moring before his employment by On-Site
Sourcing. Mr. Reitz graduated from Washburn University in the Summer of 1994.
LARRY F. MORRIS has served as Vice President of Sales and Marketing in the
Atlanta office since joining the Company in November 1995. Prior thereto Mr.
Morris spent seven years as a legal recruiter and consultant to law firms and
corporations, most recently as President of Morris & Company from October 1994
until joining the Company and prior thereto as Executive Vice President and
Managing Recruiter of the Atlanta placement firm Bellon & Associates from
January 1993 until
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<PAGE>
October 1994. From January 1990 until January 1993 Mr. Morris was Vice President
of the Houston attorney recruitment firm, Lyn-Jay International, which merged
with Richard, Wayne & Roberts in 1992.
Upon the completion of this offering, Charles B. Millar and Jorge R. Forgues
have agreed to serve on the Company's Board of Directors as well as on the audit
committee. Mr. Millar has served as a Senior Vice President of the Washington
D.C. investment banking firm of Johnston, Lemon & Co., Inc. since 1991. Mr.
Forgues has held the positions of Vice President of Finance and Administration,
Chief Financial Officer and Treasurer of Network Imaging Corporation since April
1996. From October 1993 until assuming his current position, Mr. Forgues was
Vice President of Finance and Administration, Chief Financial Officer and
Treasurer of Globalink, a Fairfax-based, publicly-traded, machine translation
software company. From 1992 to 1993 Mr. Forgues was the Director of Accounting
for Spirit Cruises, a $50 million harbor cruise line with operations in nine
states. Prior thereto, from 1987 to 1992, Mr. Forgues was Vice President of
Finance at Best Programs, Inc., a $25 million computer software developer.
All directors hold office until the next annual meeting of the stockholders
and the election and qualification of their successors. Executive officers are
elected by the Board of Directors annually and serve at the discretion of the
Board.
Messrs. John Stoppelman and Christopher Weiler, are the members of both the
Audit and the Compensation Committees of the Board of Directors.
The Company has agreed, for a period of three years from the date of this
Prospectus, if so requested by M.H. Meyerson & Co., Inc. (the "Underwriter"), to
appoint a designee of the Underwriter to the Company's Board of Directors. The
Underwriter has not yet exercised its right to designate such a person.
DIRECTOR COMPENSATION
Directors currently receive no cash compensation for serving on the Board of
Directors other than reimbursement of reasonable expenses incurred in attending
meetings.
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid or accrued by the
Company to the Company's Chief Executive Officer and the Company's other
executive officers whose compensation exceeded $100,000 for the fiscal years
ended December 31, 1995 and December 31, 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION
COMPENSATION(1) -------------------
---------------- OPTIONS
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY (IN SHARES)
- -------------------------------------------------------------------- ------------- ---------------- -------------------
<S> <C> <C> <C>
Christopher Weiler.................................................. 1995 $ 85,000 0
President and Chief Executive Officer 1994 $ 65,000 0
1993 $ 50,000 0
</TABLE>
- ------------------------
(1) As of June 1, 1996, Mr. Weiler will be compensated at a rate of $100,000 per
annum. See "Management -- Employment Agreements."
(2) These options have been exercised.
No other officer received cash compensation in excess of $100,000 in 1993, 1994
or 1995.
STOCK OPTION PLAN
1995 STOCK OPTION PLAN. Effective March 3, 1995, the Board of Directors of
the Company adopted the 1995 Stock Option Plan (the "Plan") which was approved
by the stockholders of the Company at the Stockholder's Annual Meeting held on
March 15, 1995.
26
<PAGE>
The Plan is designed to attract and retain qualified personnel in key
positions, provide officers, directors and key employees with a proprietary
interest in the Company as an incentive to contribute to the success of the
Company and to reward key employees for outstanding performance and the
attainment of targeted goals. The Plan provides for the grant of incentive stock
options within the meaning of Section 422 of the Internal Revenue Code as well
as nonqualified stock options. The total number of options to purchase the
Company's common stock granted under the Plan is not to exceed 510,000 shares.
The number of shares which may be issued under the Plan may be adjusted to
reflect any changes in the number of shares of the Company's Common Stock due to
the declaration of stock dividends, recapitalization resulting in stock splits
or combinations or exchanges of shares.
The 1995 Stock Option Plan authorizes the Board of Directors to administer
the Plan. The Board's authority includes the authority to grant Options to
purchase Common Stock, determine which Options shall constitute Incentive Stock
Options and which shall constitute Nonqualified Stock Options and to determine
the exercise price of the options granted. Options may be granted to employees,
officers and directors as well as employees of present or future divisions and
subsidiary corporations. Options granted as Incentive Stock Options are subject
to two limitations. The first is that the aggregate Fair Market Value of the
shares of Common Stock underlying the Options becoming exercisable for the first
time by an optionee during any calendar year shall not exceed $100,000. The
Second limitation is that the Option Price for Shareholders holding 10% or more
of the outstanding shares shall not be less than 110% of the Fair Market Value
of the Common Stock. All Options granted under the Plan may only be exercised
while the Optionee is then in the employ of the Company and has remained
continuously so employed since the date of the grant of the Option. If the
employment of the Optionee terminates, other than by reason of death, disability
or retirement, all Options may be exercised within three months after such
termination, with the exception that all options shall terminate upon dismissal
for cause. Options granted under the Plan are not transferable other than by
will, the laws of descent and distribution or to a revocable inter vivos trust
for the primary benefit of the Optionee and his or her spouse.
EMPLOYMENT AGREEMENTS
The Company has entered into a three-year employment agreement with
Christopher J. Weiler effective December 1995 which provides for his employment
as President and Chief Executive Officer. The employment agreement provides for
an annual base compensation of $85,000 until June 1, 1996 and $100,000
thereafter subject to increases upon review by the Board of Directors, and
annual bonuses at the discretion of the Board of Directors. The amount of any
increases to base salary and bonuses granted by the Board of Directors is based
upon a review of the employee's overall performance and the achievement of
employment goals set by the Board.
The Company has entered into a one year employment agreement, to be renewed
automatically for succeeding one year periods, with Allen Outlaw effective June
1, 1994 which provides for his employment as Vice President of Sales and
Marketing. The employment agreement provides for an annual base compensation of
$50,000 subject to increases upon review by the Board of Directors, and
incentives and annual bonuses at the discretion of the Board of Directors. The
amount of any increases to base salary and bonuses granted by the Board of
Directors is based upon a review of the employee's overall performance and the
achievement of employment goals set by the Board. The agreement also provides
for options to purchase 162,000 shares of the Company's Common Stock. The
options are subject to a vesting schedule which ties vesting to the achievement
of certain employment goals. These goals were met and exceeded during 1994.
The Company has entered into a three year employment agreement, to be
renewed automatically for succeeding one year periods, with Larry F. Morris
effective December, 1995 which provides for his employment as Vice President of
Sales and Marketing. The employment agreement provides for a base non-refundable
salary draw of $40,000 per year payable monthly against commission compensation
through January 1, 1997 and thereafter a salary to be determined at the
discretion of the
27
<PAGE>
Management based on overall performance. Mr. Morris receives a commission of
.25% on each percentage point of margin on reprographic and printing revenues
that are realized by the Company through sales managed or closed by Mr. Morris
with a cap at 10% on all full margin (40% or greater gross) reprographic
revenues. Mr. Morris also receives a commission of .125% on each percentage
point of margin on facilities management revenues that are realized by the
Company through sales managed or closed by Mr. Morris with a cap of 5% on a full
margin (40% or greater gross) facilities management revenues. The agreement also
provides for options to purchase 162,000 shares of the Company's Common Stock.
The options are subject to a vesting schedule which ties vesting to the
achievement of certain employment goals. 27,000 of the options are currently
vested.
The Company has entered into a three year employment agreement, to be
renewed automatically for succeeding one year periods, with Anthony Kopsidas
effective December 1995, which provides for his employment as Vice President of
Operations. The employment agreement provides for an annual base compensation of
$55,000 subject to increases upon review by the Board of Directors, and
incentives and annual bonuses at the discretion of the Board of Directors. The
amount of any increases to base salary and bonuses granted by the Board of
Directors is based upon a review of the employee's overall performance and the
achievement of employment goals set by the Board. The agreement also provides
for options to purchase 126,000 shares of the Company's common stock. The
options are subject to a vesting schedule whereby the options vest on the first,
second and third anniversaries of the commencement of employment with the
Company. Two-thirds of the options are currently vested.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the Delaware General Corporation Law, the Company has
included in its Certificate of Incorporation a provision to eliminate the
personal liability of its directors for monetary damages for breach or alleged
breach of their fiduciary duties as directors, subject to certain exceptions. In
addition, the bylaws of the Company provide that the Company is required to
indemnify its officers and directors, employees and agents under certain
circumstances, including those circumstances in which indemnification would
otherwise be discretionary, and the Company is required to advance expenses to
its officers and directors as incurred in connection with proceedings against
them for which they may be indemnified. The bylaws provide that the Company,
among other things, will indemnify such officers and directors, employees and
agents against certain liabilities that may arise by reason of their status or
service as directors, officers, or employees (other than liabilities arising
from willful misconduct of a culpable nature), and to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified. At present, the Company is not aware of any pending or threatened
litigation or proceeding involving a director, officer, employee or agent of the
Company in which indemnification would be required or permitted. The Company
believes that its charter provisions and indemnification agreements are
necessary to attract and retain qualified persons as directors and officers.
28
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of the date of this Prospectus
based on information obtained from the persons named below, with respect to the
beneficial ownership of shares of Common Stock by (i) each person or a group
known by the Company to be the owner of more than 5% of the outstanding shares
of Common Stock, (ii) each director, (iii) each executive officer named in the
Summary Compensation Table under the caption "Management", and (iv) all officers
and directors as a group.
<TABLE>
<CAPTION>
APPROXIMATE % OF APPROXIMATE % OF
# OF SHARES BENEFICIAL BENEFICIAL
BENEFICIALLY OWNED OWNERSHIP PRIOR TO OWNERSHIP AFTER
NAME (1) OFFERING (2) OFFERING (3)
- ------------------------------------------------ -------------------- ------------------- -------------------
<S> <C> <C> <C>
John S. Stoppelman.............................. 630,000 24.4% 14%
The Stoppelman Law Firm
1749 Old Meadow Road
Suite 610
McLean, VA 22102
Christopher J. Weiler........................... 360,000 13.9% 8.0%
c/o the Company
Manhattan Group Funding......................... 180,000 7.0% 4.0%(4)
c/o Ronald Heller
30 Montgomery Street
Jersey City, NJ 07302
John E. Krutsick................................ 162,000 6.3% 3.6%
c/o the Company
Allen C. Outlaw (5)............................. 207,000 8.0% 4.6%
c/o the Company
Anthony A. Kopsidas (6)......................... 126,000 4.9% 2.8%
c/o the Company
Denis Seynhaeve (7)............................. 180,000 7.0% 4.0%
220 Wardoun Drive
Annapolis, MD 21401
Larry F. Morris................................. 27,000 1.0% *
c/o the Company
All Officers and Directors as a group........... 1,359,000 53.0% 30.2%
</TABLE>
- ------------------------
* Less than 1%
(1) Based on a total of 2,586,955 shares of common stock issued and outstanding
and 342,000 shares of Common Stock issuable upon the exercise of stock
options.
(2) Based on 2,586,955 shares of Common Stock issued outstanding.
(3) Based on 4,506,955 shares of Common Stock to be outstanding after this
offering and assuming no exercise of the Underwriter's over-allotment
option, the Underwriter's Unit Purchase Option or the Warrants.
(4) Securityholder is offering 90,000 shares in the Offering as a Selling
Shareholder, if all of these shares are sold the Securityholder will be the
beneficial owner of 2.0% of the shares outstanding after the offering.
(5) 162,000 Shares are held by escrow agent pursuant to the Promissory Note and
Escrow Agreement. See "Interest of Management and others in Certain
Transactions -- Loans and Guarantees".
(6) Assumes exercise of stock option to purchase 126,000 shares of common stock
at $1.11 per share.
(7) Includes 90,000 shares of Common Stock held by Laure Seynhaeve.
29
<PAGE>
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
In March 1994, the Company granted Options to purchase 162,000 shares of
Common Stock at an adjusted price of $0.56 per share to Allen Outlaw pursuant to
his original employment agreement as an incentive to join the Company. Mr.
Outlaw is the Vice President of Sales and Marketing and a director. The Options
were subject to a vesting schedule based on sales goals that were met and
exceeded during 1994. At the date of grant, these options were granted on terms
no less favorable to the Company than those available to unaffiliated parties
purchasing shares of the Company's Common Stock.
In December 1995 the Company granted Options to purchase 126,000 shares of
Common Stock at $1.11 per share to Anthony Kopsidas, the Vice President of
Operations and a director. The Options are subject to a vesting schedule whereby
the options vest on the first, second and third anniversaries of his employment.
Two Thirds of the Options (84,000 shares) are currently vested. At the date of
grant, these options were granted on terms no less favorable to the Company than
those available to unaffiliated parties purchasing shares of the Company's
Common Stock.
In December 1995 the Company granted Options to purchase 162,000 shares of
Common Stock at $1.39 per share to Larry Morris, Vice President of Sales and
Marketing. Twenty seven thousand (27,000) of the Options were vested upon the
grant, with the remaining options vesting in the future. At the date of
grant,these options were granted on terms no less favorable to the Company than
those available to unaffiliated parties purchasing shares of the Company's
Common Stock.
LOANS AND GUARANTEES
In November 1995, Christopher J. Weiler, the President of the Company, his
wife, Victoria Weiler, and John Stoppelman, the Chairman of the Board of
Directors of the Company, personally guaranteed a note with a commercial bank
with a principal amount of $115,000 and interest at 2% over the prime rate per
year and 35 principal payments of $3,200 beginning December 1, 1995 and
continuing through November 1, 1998. The note was executed by the Company for
business purposes.
In May 1995, Christopher J. Weiler, the President of the Company, his wife,
Victoria Weiler, and John Stoppelman, the Chairman of the Board of Directors of
the Company, personally guaranteed a revolving line of credit with a commercial
bank with a principal amount of $300,000 and interest at 2% over the prime rate
per year. The line is due on demand and originally expired on April 1, 1996. The
note was executed by the Company for business purposes including the financing
of receivables. In January 1996, the Company increased the line of credit to
$450,000. In April, 1996, the line was renewed through April 1, 1997 and the
interest rate was modified to prime plus 1%.
In September 1994, Christopher J. Weiler, the President of the Company and
his wife, Victoria Weiler, personally guaranteed a business loan from a
commercial bank in the principal amount of $26,500 with interest at 2% over the
prime rate per year and the amount borrowed being due October 1, 1997. The note
was executed by the Company for business purposes.
In January 1996, Christopher J. Weiler, the President of the Company, his
wife, Victoria Weiler, and John Stoppelman, the Chairman of the Board of
Directors of the Company, personally guaranteed a note with a commercial bank
with a principal of $150,000 and interest at 2% over the prime rate per year
with the amount borrowed and interest being due June 1, 1996. The note was
executed by the Company for business purposes.
In January 1996, Christopher J. Weiler, the President of the Company, his
wife, Victoria Weiler, and John Stoppelman, the Chairman of the Board of
Directors of the Company, personally guaranteed a note with a commercial bank
with a principal of $32,000 and interest at 2% over the prime rate per year with
the amount borrowed and interest being due October 1, 1998. The note was
executed by the Company for business purposes.
30
<PAGE>
In March 1996, the Company loaned $89,900 to Allen C. Outlaw, Vice President
of Sales and Marketing. The loan bears interest at 6% per year with a payment of
$40,000 due on May 1, 1996 and the remaining principal and interest due April 1,
1998.
During 1994, the company received a $15,000 non-interest bearing working
capital advance from the Company's Chairman of the Board of Directors, John S.
Stoppelman. The advance was repaid during 1995.
REVENUES AND EXPENSES
During the three months ended March 31, 1996, the Company incurred
approximately $69,000 for legal services rendered by the Stoppelman Law Firm,
P.C., of which the Chairman of the Board of Directors, John S. Stoppelman, is a
principal.
During 1995, the Company billed the Chairman of the Board of Directors, John
S. Stoppelman approximately $19,000 for reprographic services and the sale of a
photocopier. These transactions occurred at the same prices available to
non-related third parties.
During 1995 and 1994, the company incurred approximately $20,000 and $4,000
respectively, for legal services rendered by the Stoppelman Law Firm, P.C., of
which the Chairman of the Board of Directors, John S. Stoppelman is a principal.
The Company believes that the fees charged were at least as favorable as those
obtainable from an uninterested third party.
In May 1996, M.H. Meyerson & Co., Inc., the Underwriter, loaned $100,000 to
the Company at .5% below prime rate coming due upon the earlier of April 30,
1997 or the closing of any public debt or equity financing of the Company.
Future transactions with interested parties will continue to be handled on
an arms' length basis, upon terms no less favorable to the Company than those
available from unaffiliated third parties.
No loans shall be made by the Company to officers, directors, or to a 5% or
greater stockholder of the Company, or to their affiliates, except for bona fide
business purposes.
DESCRIPTION OF SECURITIES
UNITS
The Units offered hereby consist of two shares of Common Stock and one
Redeemable Common Stock Purchase Warrant. The Warrants are neither detachable
nor separately tradeable from the Common Stock with which they are issued for a
period of 30 business days from the date of this Prospectus, which period may
terminate sooner at the sole discretion of the Underwriter. The units will be
evidenced by separate certificates for the Common Stock and the Warrants which
comprise the Units.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters to be voted on by stockholders. There is no cumulative
voting with respect to the election of directors, with the result that the
holders of more than 50% of the shares voting for the election of directors can
elect all of the directors. The current officers and directors of the Company
will continue to beneficially own more than 30.2% of the shares of Common Stock
after the offering and, accordingly, will be able to elect all of the Company's
directors and control corporate policy. Holders of shares of Common Stock are
entitled to receive dividends when, as and if declared by the Board of Directors
in its discretion, out of funds legally available therefor. In the event of
liquidation, dissolution, or winding up of the Company, the holders of Common
Stock are entitled to share ratably in the assets of the Company, if any,
legally available for distribution to them after payment of debts and
liabilities of the Company after provision has been made for each class of
stock, if any, having liquidation preference over the Common Stock. Holders of
shares of Common Stock have no conversion, preemptive or other subscription
rights, and there are no redemption or sinking fund provisions applicable to the
Common
31
<PAGE>
Stock. All of the outstanding shares of Common Stock are, and the shares of
Common Stock offered will be, when issued upon payment of the consideration set
forth in this Prospectus, fully paid and non-assessable.
PREFERRED STOCK
The Company is currently authorized to issue 1,000,000 shares of Preferred
Stock, par value $.01 per share. The preferred stock is issuable in one or more
series with such rights, preferences, maturity dates and similar matters as the
Board of Directors of the Company may from time to time determine without any
further vote or action by the Company's stockholders. No Preferred stock is
currently outstanding.
REDEEMABLE WARRANTS
The Company has authorized the registration of 1,309,123 Warrants to
purchase Common Stock, including Warrants issuable if the Underwriter exercises
in full its options to purchase Units for itself and to cover over-allotments.
The Company has reserved an equal number of shares of Common Stock for issuance
upon exercise of the Warrants. The following is a brief summary of all the
material provisions of the Warrants. For a more detailed description see the
Warrant Agreement between the Company and the Continental Stock and Trust
Company, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. See "Additional Information".
Each warrant entitles its holder to purchase one share of Common Stock at an
exercise price of $6.00 per share. The Warrants expire five years from the date
of the closing of the sale of the Units offered hereby. The Warrants are neither
detachable nor separately tradeable from the Common Stock with which they are
issued for a period of 30 business days from the date of this Prospectus, which
period may terminate sooner at the sole discretion of the Underwriter.
The Warrants are redeemable by the Company upon thirty days prior written
notice for $.01 per Warrant if the average closing bid price of the Common Stock
is $7.00 or more per share for a period of ten consecutive trading days. Warrant
holders shall have exercise rights until the close of the trading day preceding
the date fixed for redemption.
No warrant will be exercisable unless, at the time of exercise, the Company
has filed a current registration statement with the United States Securities and
Exchange Commission covering the shares of Common Stock issuable upon exercise
of such Warrants and such shares have been registered or qualified or deemed to
be exempt from registration or qualification under the securities laws of the
state of residence of the holder of such Warrant. The Company will use its best
efforts to have all such shares so registered or qualified on or before the
exercise date and to maintain a current prospectus relating thereto until the
expiration of the Warrants, subject to the terms of the Warrant Agreement. While
it is the Company's intention to do so, there can be no assurance that the
Company will be successful in registering such shares.
The exercise price of the Warrants is subject to adjustment upon the
occurrence of certain events, including the issuance of dividends payable in
Common Stock and subdivision or combinations of the Common Stock.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock. The Board of
Directors does not anticipate paying cash dividends in the foreseeable future as
it intends to retain future earnings to finance the growth of the business. The
payment of future cash dividends will depend on such factors as earnings levels,
anticipated capital requirements, the operating and financial condition of the
Company and other factors deemed relevant by the Board of Directors.
DELAWARE LAW WITH RESPECT TO BUSINESS COMBINATIONS
Following the consummation of this offering, the Company will be subject to
the State of Delaware's "business combination" statute, Section 203 of the
Delaware General Corporation Law. In general, such statute prohibits a publicly
held Delaware corporation from engaging in a "business
32
<PAGE>
combination" with a person who is an "interested stockholder" for a period of
three years after the date of the transaction in which that person became an
interested stockholder, unless the business combination is approved in a
prescribed manner. A "business combination" includes a merger, asset sale or
other transaction resulting in a financial benefit to the interested
stockholder. An "interested stockholder" is a person who, together with
affiliates, owns (or, within three years prior to the proposed business
combination, did own) 15% or more of the Delaware corporation's voting stock.
The statute could prohibit or delay mergers or other takeovers or change in
control attempts with respect to the Company and, accordingly, may discourage
attempts to acquire the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is the Continental
Stock and Trust Company, 2 Broadway, New York, NY 10004.
REPORTS TO STOCKHOLDERS
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and such other periodic reports as the
Company may determine to be appropriate or as may be required by law.
As of the date of this Prospectus, the Company has registered its Common
Stock and Warrants under the provisions of Section 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the Company has
agreed that it will use its best efforts to continue to maintain such
registration for a minimum of five years from the date of this Prospectus. Such
registration will require the Company to comply with periodic reporting, proxy
solicitation and certain other requirements of the Exchange Act.
LOCK-UP AGREEMENTS
All officers, directors and five percent or greater shareholder's have
agreed not to offer, pledge, sell, or contract to sell, transfer, give, encumber
or otherwise dispose of any shares of common stock of the Company directly or
indirectly, for a period of one year after the effective date of the
Registration Statement on Form SB-2. The lock-up letter also includes any shares
of common stock which may be acquired upon exercise of stock options or warrants
now or hereafter held by the officers, directors or five percent shareholders.
The officers, directors and five percent shareholders are permitted to transfer
common stock to other persons who have signed a similar letter provided that the
shares shall remain to be so restricted in the hands of such transferee. This
lock-up agreement is in addition to any other such letters required by the
Underwriter. See "Underwriting -- Lock-Up Agreements."
33
<PAGE>
UNDERWRITING
The Underwriter, M.H. Meyerson & Co., Inc., has agreed, pursuant to the
terms and conditions of the Underwriting Agreement between the Company and the
Underwriter, to purchase from the Company 960,000 Units and, in addition,
109,123 Units from certain Selling Securityholders. The Underwriter is committed
to purchase all of the Units, if any of the Units are purchased. The Underwriter
is purchasing the Units at a 10% discount.
UNDERWRITER'S OPTION
The following discussion of certain terms and provisions of the
Underwriter's Unit Purchase Option is qualified in its entirety by reference to
the detailed provisions of the Underwriter's Unit Purchase Option which has been
filed as an exhibit to the Registration Statement of which this Prospectus forms
a part. See "Additional Information."
The Company has granted to the Underwriter an option to purchase a maximum
of 96,000 Units, with an exercise price of $8.45 per Unit (135% of the public
offering price of the Units).
The Underwriter's Unit Purchase Option will be entitled to the benefit of
adjustments in the purchase price and in the number of shares of Common Stock
and/or other securities deliverable upon the exercise thereof in the event of a
stock dividend, stock split, reclassification, reorganization, consolidation,
merger or similar transaction.
The Underwriter's Unit Purchase Option may be exercised at any time
commencing one year from the date of this Prospectus and ending five years from
the date of this Prospectus.
No holder, as such, of Underwriter's Unit Purchase Option shall be entitled
to vote or receive dividends or be deemed the holder of shares of Common Stock
for any purposes whatsoever until such Underwriter's Unit Purchase Option has
been duly exercised and the purchase price has been paid in full. The
Underwriter's Unit Purchase Option is nontransferable except to officers and
stockholders of the Underwriter and of the selling syndicate members and by
operation of law. Any transferee will be subject to the same transfer
restrictions.
NON-ACCOUNTABLE EXPENSE ALLOWANCE
The Company has agreed to pay the Underwriter a non-accountable expense
allowance of 3% of gross proceeds or $180,000 ($207,000 if the over-allotment
option is exercised) for due diligence and other expenses incurred by the
Underwriter in connection with the Offering. An advance of $5,000 on this
non-accountable expense allowance has been paid to the Underwriter and shall be
repaid to the Company in the event the offering is not completed for reasons
other than default by the Company.
ADDITIONAL SALE OF SHARES BY CERTAIN SELLING SECURITYHOLDERS
Certain security holders who acquired shares in private placements are
offering 109,123 Units concurrently with the 960,000 Units offered by the
Company. These Units are all being underwritten on a firm commitment basis. The
Company will not receive any of the proceeds from the sale of the Selling
Securityholders' Units.
In addition, 559,709 shares of the Company's Common Stock held by the
shareholders who acquired the same in private placements are being registered
hereby. These shares may be sold in six months or sooner with the Consent of the
Underwriter.
The Underwriter has a right of first refusal to sell these shares with a
commission or discount of up to ten percent in accordance with applicable NASD
Rules.
OVER-ALLOTMENT OPTION
The Company has granted the Underwriter an option, exercisable within 45
days from the date of this Prospectus, to purchase up to an additional 144,000
Units, at the same price as the 960,000 Units offered hereby. The Underwriter
may exercise the option only for the purposes of covering over-allotments, if
any, made in connection with the distribution of the Units to the public.
34
<PAGE>
LOCK-UP AGREEMENT
All principals of the Company holding the Company's unregistered Common
Stock have agreed in writing not to sell, assign, transfer, or make any other
disposition of any of their shares of Common Stock or any security convertible
into or exchangeable for Common Stock prior to two years after the date of this
prospectus or twelve (12) months after the date of this prospectus with the
Underwriter's prior written consent. Additionally, all Securityholders who have
registered Common Stock in this offering (other than the Common Stock included
in the Units to be sold in this offering) have agreed in writing not to sell,
assign, transfer, or make other disposition of any of their shares of Common
Stock prior to six (6) months after the date of this Prospectus without the
prior written consent of the Underwriter. See "Concurrent Registration of
Securities".
INVESTMENT BANKING AGREEMENT
Pursuant to a two year investment banking agreement the Company will retain
M.H. Meyerson & Co., Inc. as financial advisor at a fee of $2,500 per month, the
total fee payable at the closing.
RIGHT TO NOMINATE DIRECTOR
Following the completion of this offering, the Underwriter has the right to
nominate one member of the Company's board of directors. The Underwriter has not
indicated whether it will do so.
QUALIFIED INDEPENDENT UNDERWRITER
This offering is being made in accordance with the provisions of Rule 2720
of the Conduct Rules ("Rule 2720") of the National Association of Securities
Dealers, Inc. ("NASD"), since the offering is of securities of an entity in
which associated persons or affiliates of the Underwriter own approximately
15.2% of the issued and outstanding common stock. Accordingly, the Underwriter
and the Company have designated Loeb Partners Corporation to act as "qualified
independent underwriter" for the offering ("QIU"). The QIU is assuming the
responsibilities of acting as such in connection with the pricing of, and
conducting due diligence in connection with, this offering.
The independent investment banking firm of Loeb Partners Corporation, which
may participate as a member of the selling group in this offering (but will not
offer for sale more than 10% of the Units offered hereby), has recommended a
maximum initial public offering price of $6.25 per Unit. Pursuant to Rule 2720
to the NASD By-Laws, the Units are being offered at a price no greater than the
maximum recommended by Loeb Partners Corporation, which firm has informed the
Company that it has performed "due diligence" with respect to the information
contained in the Registration Statement of which this Prospectus is a part. The
NASD and the SEC have indicated that, in their view, a qualified independent
underwriter, such as Loeb Partners Corporation, may be deemed to be an
underwriter, as that term is defined in the Act. The Underwriter will pay a fee
to Loeb Partners Corporation of $15,000 and, in addition, will reimburse such
firm for actual out-of-pocket disbursements of up to $4,000 for services in
connection with recommending a maximum initial public offering price in this
offering.
In conformity with the foregoing, Loeb Partners Corporation has so
participated and rendered its opinion, a copy of which is filed with the
exhibits to the Registration Statement of which this Prospectus constitutes a
part, to the effect that the terms of the Common Stock and Warrants being
issued, including the exercise price and other terms of the Warrants, are fair
to the public, and that the offering price per Unit of the securities covered in
this offering does not exceed the maximum fair price.
The initial public offering price of the shares of Common Stock and Warrants
comprising the Units was determined by negotiations between the Company and the
Underwriter. Among the factors considered in determining the initial public
offering price were, among other things, the public trading prices for the
common stock of corporations engaged in businesses similar to the Company's
business, estimates of the business potential of the Company, the management of
the Company, and the Company's plans for expansion of its business base and the
advice and recommendations of Loeb
35
<PAGE>
Partners Corporation, as qualified independent underwriter. See "Risk Factors --
No Assurance of Public Market; Determination of Offering Price; Possible
Volatility of Market Prices of the Common Stock and Warrants" and "Dilution."
INTEREST OF COUNSEL
John S. Stoppelman, a principal of The Stoppelman Law Firm, P.C., counsel to
the Company, is a founder and the Chairman of the Board of Directors of the
Company, owner of 630,000 shares of Common Stock. The fees collected by the
Stoppelman Law Firm from the Company did not constitute five percent of the law
firm's gross revenue in any year of the Company's existence. See "Risk Factors
- -- Possible Conflicts of Interest Between the Company and the Company Counsel".
The Company believes that the fees charged were at least as favorable as those
obtainable from an uninterested third party.
36
<PAGE>
CONCURRENT REGISTRATION OF SECURITIES
Concurrently with this offering, 777,955 shares of the Company's Common
Stock shall be registered under the Securities Act. Of these shares, 109,123
additional Units (the "Additional Units") consisting of 218,246 shares of Common
Stock, $0.01 par value per share ("Selling Securityholders' shares"), and
109,123 Redeemable Common Stock Purchase Warrants provided by the Company shall
be sold concurrently with this offering. The remaining shares may be sold in six
months or sooner with the consent of the Underwriter. The 218,246 shares of
Common Stock are provided by the Selling Securityholders while the 109,123
Warrants are to be provided by the Company. The Selling Securityholders will
receive $3.00 per share of Common Stock, subject to underwriting discounts and
the Company will receive $0.25 per Warrant, subject to underwriting discounts,
as compensation for the sale of each Warrant. The Company will not receive any
of the proceeds from the sale of the Selling Securityholders' shares of Common
Stock. See "Concurrent Registration of Securities" and "Underwriting -- Lock-up
Agreement"
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES SHARES TO BE SHARES BENEFICIALLY OWNED
TO BE SOLD IN THE
OWNED PRIOR TO OFFERING REGISTERED OFFERING AFTER THE OFFERING
----------------------- ----------- ------------- --------------------------
BENEFICIAL OWNER NUMBER PERCENT NUMBER NUMBER NUMBER PERCENT
- ----------------------------------------- --------- ------------ ----------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Manhattan Group Funding ................. 180,000 7.0% 180,000 90,000 90,000(1) 2.0%
Ron Heller
30 Montgomery Street
Jersey City, NJ 07302
Leonard and Roslyn Parker ............... 11,250 * 11,250 5,626 5,624(1) *
9576 Shady Brook Drive
Building 62-201
Boynton Beach, FL 33437
Edward I. Tishelman ..................... 45,000 1.7% 45,000 0 45,000 1.0%
254 East 68th Street
New York, NY 10002
Ronnee Medow ............................ 90,000 3.5% 90,000 45,000 45,000(1) 1.0%
c/o Michael Miller
485 Madison Avenue
Suite 1100
New York, NY 10022
Donald L. Skidmore ...................... 11,905 * 11,905 0 11,905 *
10900 Equestrian Court
Reston, VA 22090
Carlton F. Gay .......................... 11,905 * 11,905 0 11,905 *
c/o Dean Witter Reynolds
2 Wisconsin Circle
Suite 330
Chevy Chase, MD 20815
Mr. and Mrs. Edward A. Baroody . 11,905 * 11,905 0 11,905 *
8811 Sandy Ridge Court
Fairfax, VA 22031
John Patterson, Esq. .................... 11,905 * 11,905 0 11,905 *
Livingston, Patterson,
Strickland & Weiner
46 North Washington Boulevard
Suite 1
Sarasota, FL 34236
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES SHARES TO BE SHARES BENEFICIALLY OWNED
TO BE SOLD IN THE
OWNED PRIOR TO OFFERING REGISTERED OFFERING AFTER THE OFFERING
----------------------- ----------- ------------- --------------------------
BENEFICIAL OWNER NUMBER PERCENT NUMBER NUMBER NUMBER PERCENT
- ----------------------------------------- --------- ------------ ----------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sabine Devilloutreys .................... 23,810 * 23,810 23,810 0(1) 0
c/o Denis Seynhaeve
Delmag, Inc.
900 Bestgate Road
Suite 410
Annapolis, MD 21401
Sagax Fund II Ltd. ...................... 23,810 * 23,810 23,810 0(1) 0
c/o International Fund
Administration, Ltd.
48 Par-La-Ville Road
Suite 464
Hamilton HM 11, Bermuda
Daniel J. Weiler ........................ 11,905 * 11,905 0 11,905 *
7402 Beverly Manor Drive
Annandale, VA 22003
Joseph Sciacca .......................... 5,000 * 5,000 0 5,000 *
7224 Beechwood Rd.
Alexandria, VA 22307
Walter S. Luffsey ....................... 11,905 * 11,905 0 11,905 *
1805 Crystal Drive
No. 713-S
Arlington, VA 22202
Christopher John Laiti .................. 5,000 * 5,000 0 5,000 *
12525 Knollbrook Drive
Clifton, VA 22024
Brentwood, Inc. ......................... 7,000 * 7,000 0 7,000 *
12525 Knollbrook Drive
Clifton, VA 22024
Bill Reynolds ........................... 11,905 * 11,905 0 11,905 *
P.O. Box 26389
Richmond, VA
IRA Account of Martin H. Meyerson ....... 56,250 2.2% 56,250 0 56,250 1.2%
30 Montgomery Street
Jersey City, NJ 07302
Michael Silvestri ....................... 11,250 * 11,250 0 11,250 *
M.H. Meyerson & Co., Inc.
30 Montgomery Street
Jersey City, NJ 07302
Jeffrey E. Meyerson ..................... 11,250 * 11,250 0 11,250 *
M.H. Meyerson & Co., Inc.
30 Montgomery Street
Jersey City, NJ 07302
M.H. Meyerson & Co., Inc. ............... 45,000 1.7% 45,000 0 45,000 1.0%
30 Montgomery Street
Jersey City, NJ 07302
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES SHARES TO BE SHARES BENEFICIALLY OWNED
TO BE SOLD IN THE
OWNED PRIOR TO OFFERING REGISTERED OFFERING AFTER THE OFFERING
----------------------- ----------- ------------- --------------------------
BENEFICIAL OWNER NUMBER PERCENT NUMBER NUMBER NUMBER PERCENT
- ----------------------------------------- --------- ------------ ----------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Paul Sozansky ........................... 90,000 3.5% 90,000 30,000 60,000(1) 1.3%
8 Coventry Drive
Belle Vista, AR 72714
Kenneth J. Koock ........................ 90,000 3.5% 90,000 0 90,000 1.9%
M.H. Meyerson & Co., Inc.
30 Montgomery Street
Jersey City, NJ 07302
--------- -- ----------- ------------- ------------- ---
TOTALS................................... 777,955 30% 777,955 218,246(2) 559,709 12.4%
--------- -- ----------- ------------- ------------- ---
--------- -- ----------- ------------- ------------- ---
</TABLE>
- ------------------------
* Less than 1%
(1) Assumes all shares offered herein are sold.
(2) The 218,246 shares will be combined with 109,123 Common Stock Purchase
Warrants provided by the Company for an additional 109,123 Units available
in this offering.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering there has been no public market for the Units, the
Common Stock or the Warrants. No prediction can be made as to the effect, if
any, that market sales of the Units, the Common Stock or the Warrants or their
availability for sale will have on the market price prevailing from time to
time. Nevertheless, sales of substantial amounts of Units, the Common Stock or
the Warrants in the public market could adversely affect prevailing market
prices and the Company's ability to raise capital through future offerings of
its securities.
Upon completion of this offering, the Company will have outstanding a total
of 4,506,955 shares of Common Stock (4,794,955 if the Underwriter's
over-allotment option is exercised in full). Of the 4,506,955 shares
outstanding, the 1,920,000 shares of Common Stock included as part of the Units
offered hereby will be freely tradeable without restriction or requirement for
further registration under the Securities Act. Any sale by an affiliate would be
subject to certain volume limitations and other restrictions. The remaining
2,586,955 outstanding shares are "restricted" shares within the meaning of Rule
144 (the "Restricted Shares"). The Restricted Shares outstanding were issued and
sold by the Company in private transactions in reliance upon exemptions from
registration under the Securities Act and may be sold only if they are
registered under the Securities Act or unless an exemption from registration is
available. Of the restricted shares, 777,955 will be registered in this
offering. See "Concurrent Registration of Securities."
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for the
Company by The Stoppelman Law Firm, P.C., McLean, Virginia. Hartman & Craven
LLP, New York, New York has acted as counsel for the Underwriter in connection
with this offering. Edward I. Tishelman, a partner of Hartman & Craven LLP,
invested in the September 1993 private placement of the Company's unregistered
securities. As a result thereof Mr. Tishelman owns 45,000 shares of common
stock, or 1.7% of the shares outstanding before this offering.
39
<PAGE>
EXPERTS
The financial statements included in this Prospectus and elsewhere in the
Registration Statement of which this Prospectus forms a part, to the extent and
for the periods indicated in their reports, have been audited by Grant Thornton
LLP, independent certified public accountants, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission a registration statement on Form
SB-2 (the "Registration Statement") under the Securities Act with respect to the
Common Stock and Warrants offered by this Prospectus. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and this
offering, reference is made to the Registration Statement, including the
exhibits filed therewith, which may be inspected without charge at the
Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549;
at the New York Regional Office, 7 World Trade Center, New York, New York 10048
and at the Midwest Regional Office, Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of the Registration
Statement may be obtained from the Commission at its principal office and
regional office upon payment of prescribed fees. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete and, where the contract or other document has been filed as
an exhibit to the Registration Statement, each statement is qualified in all
respects by reference to the applicable document filed with the Commission.
40
<PAGE>
ON-SITE SOURCING, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
AUDITED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants................................................ F-2
Balance Sheet..................................................................................... F-3
Statements of Operations.......................................................................... F-4
Statements of Stockholders' Equity................................................................ F-5
Statements of Cash Flows.......................................................................... F-6
Notes to Financial Statements..................................................................... F-7-F-15
UNAUDITED FINANCIAL STATEMENTS
Balance Sheet..................................................................................... F-16
Statements of Earnings............................................................................ F-17
Statements of Stockholders' Equity................................................................ F-18
Statements of Cash Flows.......................................................................... F-19
Notes to Financial Statements..................................................................... F-20-F-23
</TABLE>
F-1
<PAGE>
(Grant Thornton Letterhead)
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
On-Site Sourcing, Inc.
We have audited the accompanying balance sheet of On-Site Sourcing, Inc., as
of December 31, 1995, and the related statements of operations, stockholders'
equity and cash flows for the years ended December 31, 1995 and 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of On-Site Sourcing, Inc., as
of December 31, 1995, and the results of its operations and its cash flows for
the years ended December 31, 1995 and 1994, in conformity with generally
accepted accounting principles.
[SIG]
Vienna, Virginia
February 28, 1996 (except for Note N, as to
which the date is June 6, 1996)
F-2
<PAGE>
ON-SITE SOURCING, INC.
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------
<S> <C>
Current Assets
Cash......................................................................................... $ 38,116
Accounts receivable, net..................................................................... 809,927
Prepaid supplies............................................................................. 54,407
-----------------
Total Current Assets..................................................................... 902,450
Fixed Assets, net.............................................................................. 500,056
Other Assets................................................................................... 75,529
-----------------
$ 1,478,035
-----------------
-----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable -- trade.................................................................... $ 506,695
Accrued and other liabilities................................................................ 148,693
Line of credit............................................................................... 260,000
Current portion of long-term debt............................................................ 81,954
-----------------
Total Current Liabilities................................................................ 997,342
Long-term Debt, Net of Current Portion......................................................... 125,384
Deferred Rent.................................................................................. 83,626
Commitments and Contingencies.................................................................. --
Stockholders' Equity
Common stock, $.01 par value, 20,000,000 shares authorized; 2,187,000 shares issued and
outstanding................................................................................. 21,870
Preferred stock, $.01 par value, 1,000,000 shares authorized; no shares issued and
outstanding................................................................................. --
Additional paid-in capital................................................................... 488,140
Retained deficit............................................................................. (238,327)
-----------------
271,683
-----------------
$ 1,478,035
-----------------
-----------------
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE>
ON-SITE SOURCING, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
Revenue............................................................................. $ 4,919,270 $ 1,959,455
Costs and Expenses
Cost of sales..................................................................... 3,887,709 1,425,443
Selling and shipping.............................................................. 343,012 54,910
Administrative.................................................................... 532,027 480,428
------------- -------------
4,762,748 1,960,781
------------- -------------
Earnings (Loss) from Operations..................................................... 156,522 (1,326)
Other Income (Expense)
Other income...................................................................... -- 7,922
Other expense, primarily interest................................................. (80,894) (28,862)
------------- -------------
Earnings (Loss) Before Income Taxes................................................. 75,628 (22,266)
Income Tax Expense.................................................................. -- --
------------- -------------
Net Earnings (Loss)................................................................. $ 75,628 $ (22,266)
------------- -------------
------------- -------------
Earnings (Loss) per Common Share.................................................... $ 0.03 $ (0.01)
------------- -------------
Average Number of Common Shares and Common Share Equivalents Outstanding During the
Year............................................................................... 2,648,377 2,558,377
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
ON-SITE SOURCING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1995 AND 1994
--------------------------------------------------------------
ADDITIONAL
COMMON COMMON PAID-IN RETAINED
SHARES STOCK CAPITAL (DEFICIT) TOTAL
----------- --------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994...................... 1,818,000 $ 18,180 $ 281,830 $ (291,689) $ 8,321
Sale of Common Stock.......................... 369,000 3,690 206,310 -- 210,000
Net Loss for the Year......................... -- -- -- (22,266) (22,266)
----------- --------- ----------- ------------ -----------
Balance at December 31, 1994.................... 2,187,000 21,870 488,140 (313,955) 196,055
Net Earnings for the Year..................... -- -- -- 75,628 75,628
----------- --------- ----------- ------------ -----------
Balance at December 31, 1995.................... 2,187,000 $ 21,870 $ 488,140 $ (238,327) $ 271,683
----------- --------- ----------- ------------ -----------
----------- --------- ----------- ------------ -----------
</TABLE>
The accompanying notes are an integraal part of these statements.
F-5
<PAGE>
ON-SITE SOURCING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
Increase (Decrease) in Cash
Cash Flows from Operating Activities
Net earnings (loss)................................................................. $ 75,628 $ (22,266)
------------ ------------
Adjustments to reconcile net earnings to net cash used in operating activities
Depreciation...................................................................... 107,412 56,298
Loss on disposition of equipment and furniture.................................... -- 7,921
Changes in assets and liabilities
Increase in accounts receivable................................................. (355,978) (396,145)
Increase in prepaid supplies.................................................... (36,327) (16,231)
Decrease (increase) in other assets............................................. 2,086 (2,041)
Increase in accounts payable -- trade........................................... 400,839 97,454
Increase in accrued liabilities................................................. 115,655 23,067
Increase in deferred rent....................................................... 10,430 60,787
------------ ------------
Total Adjustments........................................................... 244,117 (168,890)
------------ ------------
Net Cash Provided by (Used in) Operating Activities................................... 319,745 (191,156)
------------ ------------
Cash Flows from Investing Activities
Capital expenditures................................................................ (224,287) (77,989)
Proceeds from sale of fixed assets.................................................. -- 8,079
Purchase of CRC, net................................................................ (9,161) --
------------ ------------
Net Cash Used in Investing Activities................................................. (233,448) (69,910)
------------ ------------
Cash Flows from Financing Activities
Proceeds from sale of common stock.................................................. -- 210,000
Proceeds of long-term debt agreements............................................... 164,188 62,458
Payments under long-term debt agreements............................................ (264,783) (129,580)
Net borrowings under line-of-credit agreement....................................... 110,034 109,966
Deferred offering costs............................................................. (65,585) --
------------ ------------
Net Cash (Used in) Provided by Financing Activities................................... (56,146) 252,844
------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents.................................. 30,151 (8,222)
Cash and Cash Equivalents at Beginning of Year........................................ 7,965 16,187
------------ ------------
Cash and Cash Equivalents at End of Year.............................................. $ 38,116 $ 7,965
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
ON-SITE SOURCING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
On-Site Sourcing, Inc. (the Company), was incorporated in the Commonwealth
of Virginia on December 15, 1992. During 1996, the Company was merged into a
newly formed Delaware Corporation. The Company operates in two segments, one of
which includes facilities management, litigation copying, and related services
at customer and company locations, and a second, which includes the purchase,
refurbishment, lease, sale and servicing of copy machines. The Company's
facilities management and litigation copying services are performed in
Philadelphia, Pennsylvania; Arlington, Virginia; and Atlanta, Georgia. The
Company's copy machines business is conducted from the Company's Frederick,
Maryland, office. For the year ended December 31, 1995, the purchase,
refurbishment, lease, sale and servicing of copy machines was not material to
the financial statements.
USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
REVENUE RECOGNITION
Revenue from reprographic services is recognized on a per copy basis upon
completion of the services. Revenue from facilities management is recognized
based on monthly fixed fees and, in certain cases, variable per copy fees, as
contained in facilities management agreements. Revenue from the sale of
refurbished copiers is recognized when the copiers are shipped and transfer of
title occurs.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
DEFERRED OFFERING COSTS
Specific incremental costs directly attributable to the planned initial
public offering (see Note N) are deferred and will be charged against the gross
proceeds of the offering. In the event the offering is not completed, the costs
will be charged to expense at that time.
INCOME TAXES
Deferred taxes arise from temporary differences, primarily attributable to
differences between reporting, for tax purposes, on the cash basis, and for
financial statements, on the accrual basis.
DEPRECIATION
Depreciation on fixed assets is computed on a straight-line basis over an
estimated useful life of five years for financial reporting purposes.
Accelerated methods are used for tax purposes.
EARNINGS PER COMMON SHARE
The Company's common stock was split 100-for-one and 18-for-one in March
1995 and February 1996, respectively. All earnings per share amounts in the
financial statements have been restated to give effect to the stock splits.
Earnings (loss) per common share is based on the weighted average number of
common shares and, if dilutive, common equivalent shares outstanding during each
year. Such average shares include the weighted average number of common shares
outstanding (2,187,000 in 1995 and 2,097,000 in 1994) plus the shares issuable
upon exercise of stock options and warrants after the assumed repurchase of
common shares with the related proceeds (461,377 in 1995 and 1994). Options and
warrants
F-7
<PAGE>
ON-SITE SOURCING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
granted, as well as certain shares issued during the one-year period prior to
the planned initial public offering (see Note N), are treated as outstanding in
calculating earnings per share for both periods presented.
EMPLOYEE STOCK OPTIONS
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," which is effective for 1996 financial statements.
SFAS No. 123 requires that stock-based compensation be accounted for on the fair
value method as described in SFAS No. 123, or on the intrinsic value-based
method of Accounting Principles Board Opinion No. 25 (APB 25), whereby if
options are priced at fair market value or above on the date of grant, there is
no compensation expense of the options to the Company. If APB 25 is used, pro
forma net income and earnings per share must be disclosed as if the fair
value-based method had been applied. The Company intends to continue accounting
for its incentive stock option plan under APB 25; therefore, the only effect on
the Company's financial statements will be the pro forma disclosure.
LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of."
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. If the sum of the expected future cash flows
(undiscounted and without interest) is less than the carrying amount of the
asset, an impairment loss is recognized. Measurement of that loss would be based
on the fair value of the asset. SFAS No. 121 also generally requires long-lived
assets and certain identifiable intangibles to be disposed of to be reported at
the lower of the carrying amount or the fair value less cost to sell. SFAS No.
121 is effective for the Company's 1996 fiscal year-end. The Company has made no
assessment of the potential impact of adopting SFAS No. 121 at this time.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Effective December 31, 1995, the Company adopted SFAS No. 107, which
requires disclosing fair value to the extent practicable for financial
instruments which are recognized or unrecognized in the balance sheet.
At December 31, 1995, financial instruments held consist of the Company's
line of credit and other current debt instruments for which fair value
approximates carrying value.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid securities purchased with a maturity
of three months or less to be cash equivalents. As of December 31, 1995, cash is
comprised of amounts held in demand deposit accounts.
F-8
<PAGE>
ON-SITE SOURCING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE B -- COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at December 31, 1995:
<TABLE>
<S> <C>
Trade.................................................................... $ 830,077
Other.................................................................... 9,850
Allowance for uncollectible accounts..................................... (30,000)
---------
$ 809,927
---------
</TABLE>
OTHER ASSETS
Other assets consisted of the following at December 31, 1995:
<TABLE>
<S> <C>
Deferred offering costs.................................................. $ 65,585
Deposits................................................................. 9,944
---------
$ 75,529
---------
</TABLE>
FIXED ASSETS
Fixed assets consisted of the following at December 31, 1995:
<TABLE>
<S> <C>
Copiers.................................................................. $ 467,269
Computers, equipment, and other.......................................... 134,692
Vehicles................................................................. 70,525
---------
672,486
Accumulated depreciation................................................. (172,430)
---------
$ 500,056
---------
</TABLE>
ACCRUED AND OTHER LIABILITIES
Accrued and other liabilities consisted of the following at December 31,
1995:
<TABLE>
<S> <C>
Accrued salaries, commissions, taxes, and fringe benefits................ $ 70,750
Accrued sales tax payable................................................ 42,943
Other accrued liabilities................................................ 35,000
---------
$ 148,693
---------
</TABLE>
NOTE C -- LINE OF CREDIT
At December 31, 1995, the Company had available a $300,000 working capital
line of credit at the bank's prime rate (8.5%) plus 2%. The credit facility is
collateralized by the assets of the Company and guaranteed by the Company's
Chairman, and the Company's President and his spouse. Borrowings under the
working capital line of credit were $260,000. The credit facility expires on
April 1, 1996; however, management expects to renew the line of credit in the
ordinary course of business. In January 1996, the Company amended the credit
facility to $450,000 with all other terms remaining unchanged.
F-9
<PAGE>
ON-SITE SOURCING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE D -- LONG-TERM DEBT
Long-term debt is as follows at December 31, 1995:
<TABLE>
<S> <C>
10.5% variable rate (prime plus 2%) equipment note, collateralized by all
assets of the Company, payable in equal monthly installments of
approximately $3,194, maturing November 1998............................ $ 111,800
10.5% variable rate (prime plus 2%) equipment note, collateralized by the
equipment, payable in equal monthly installments of approximately $736,
maturing September 1997................................................. 16,194
7.2%-9% vehicle notes, collateralized by the vehicles, payable in various
equal monthly installments, including interest and principal, maturing
at various dates through December 1999.................................. 54,153
Capital leases........................................................... 25,191
---------
207,338
Less current maturities included in current liabilities.................. (81,954)
---------
$ 125,384
---------
</TABLE>
Aggregate maturities for long-term debt are as follows at December 31, 1995:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- -------------------------------------------------------------------------
<S> <C>
1996..................................................................... $ 81,954
1997..................................................................... 66,905
1998..................................................................... 48,489
1999..................................................................... 9,990
---------
$ 207,338
---------
---------
</TABLE>
The above notes are subject to certain covenants; at various times
throughout the year the Company was in violation of the covenants. However, at
December 31, 1995, the banks have waived their rights under the default
provisions through December 31, 1996, in connection with the violation of the
covenants.
On January 30, 1996, the Company borrowed $182,000 from a bank. The notes
are payable in equal annual installments plus 10.5% variable interest (prime
plus 2%) maturing at various dates through October, 1998. The notes are subject
to certain covenants and are collateralized by certain assets of the Company.
NOTE E -- LEASES
The Company leases its office facilities, copiers, and office equipment
under various operating and capital leases. Lease terms range from one to
approximately six years.
F-10
<PAGE>
ON-SITE SOURCING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE E -- LEASES (CONTINUED)
Minimum annual rental and lease commitments for leases with a remaining term
of one year or more at December 31, 1995, are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31, LEASES LEASE
- -------------------------------------------------------------- --------- ----------
<S> <C> <C>
1996.......................................................... $ 17,441 $ 595,000
1997.......................................................... 9,762 436,000
1998.......................................................... -- 163,000
1999 -- 126,000
2000.......................................................... -- 116,000
Thereafter.................................................... -- 75,000
--------- ----------
Total minimum lease payments.................................. 27,203 $1,511,000
----------
----------
Less: interest................................................ 2,012
---------
Present value of net minimum lease payments................... $ 25,191
---------
---------
</TABLE>
Fixed assets recorded under capital leases as of December 31, 1995, total
approximately $28,000. Interest expense on the outstanding obligations under
capital leases was approximately $15,000 and $13,000 for the years ended
December 31, 1995 and 1994, respectively.
Rent expense was $376,000 and $101,000 for the years ended December 31, 1995
and 1994, respectively. The Company received abatements of rent for a portion of
the term of two office space leases. Rent expense is recorded on a straight-line
basis over the life of the lease, thus giving rise to deferred rent.
NOTE F -- RELATED PARTY TRANSACTIONS
TRANSACTIONS WITH AN OFFICER/SHAREHOLDER
During the years ended December 31, 1995 and 1994, the Company recorded the
following transactions with an officer/shareholder.
- During 1994, the Company received a $15,000 non-interest bearing working
capital advance which was repaid during 1995.
- During 1995, the Company billed the officer/shareholder approximately
$19,000 for reprographic services and the sale of a copier.
- During 1995 and 1994, the Company incurred approximately $20,000 and
$4,000 respectively, for legal services rendered by the
officer/shareholder. Included in the amounts payable as of December 31,
1995, is approximately $15,000 in legal fees due to the
officer/shareholder.
TRANSACTIONS WITH A SHAREHOLDER
During 1995 and 1994, the Company recorded revenue of approximately $340,000
and $324,000, respectively, for services provided to a shareholder under a
facilities management agreement. Included in accounts receivable as of December
31, 1995, is approximately $86,000 in accounts receivable from the shareholder.
F-11
<PAGE>
ON-SITE SOURCING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE G -- COMMITMENTS
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with 12 officers and
employees. The agreements are for terms ranging from six months to five years
and generally automatically renew for periods ranging from six months to one
year. The agreements further provide for guaranteed base salaries, contingent
incentive compensation based on achievement of certain sales and other goals,
non-compete and non-disclosure restrictions and in certain cases, stock options.
The minimum amounts due under the agreements during the succeeding five-year
period, exclusive of contingent incentive compensation, is as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- -----------------------------------------------------------------------
<S> <C>
1996................................................................... $ 463,000
1997................................................................... 385,000
1998................................................................... 365,800
1999................................................................... 60,000
2000................................................................... 35,000
----------
$1,308,800
----------
----------
</TABLE>
NOTE H -- INCENTIVE STOCK OPTION PLAN
In 1995, the Company adopted an incentive stock option plan, under which a
pool of 510,000 shares has been reserved. The plan is administered and terms of
option grants are established by the Board of Directors. Under the terms of the
plan, options may be granted to the Company's employees to purchase shares of
common stock. Options become exercisable ratably over a vesting period as
determined by the Board of Directors, and expire over terms not exceeding ten
years from the date of grant, three months after termination of employment, or
one year after the death or permanent disability of the employee. The Board of
Directors determines the option price (not less than fair market value) at the
date of grant.
At December 31, 1995 and 1994, pursuant to an employment agreement, the
Company had outstanding options to sell 162,000 shares of common stock to an
officer/director of the Company at an exercise price of $.56 per share. These
options vest upon the attainment of certain performance goals. As of December
31, 1994, all options were vested. The options expire in March 1997.
At December 31, 1995, the Company had outstanding options to sell 126,000
shares of common stock to an officer/director at an exercise price of $1.11 per
share. As of December 31, 1995, options for 84,000 shares are vested, and
options for 42,000 shares are scheduled to vest in June 1996. The options expire
in December 2000.
During 1995, the Company granted to employees options for 216,000 shares of
common stock at exercise prices ranging from $1.11 to $1.39 per share. The grant
price of $1.11 per share was determined by the Board of Directors to represent
fair value and the grant price of $1.39 per share was determined to be in excess
of fair value based upon independent sales of stock by a shareholder in December
1995 at $1.11 per share. As of December 31, 1995, options for 60,000 of the
shares are vested with the remainder scheduled to vest through December 1998.
The options expire through December 2000.
F-12
<PAGE>
ON-SITE SOURCING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE H -- INCENTIVE STOCK OPTION PLAN (CONTINUED)
The following depicts activity in the plan for the two years ended December
31, 1995:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------
PER SHARE
EXERCISE
SHARES PRICES
--------- --------------
---------
<S> <C> <C>
Outstanding, January 1, 1994................................................ -- $ --
Options granted........................................................... 162,000 .56
Options exercised......................................................... -- --
Options expired........................................................... -- --
--------- --------------
Outstanding, December 31, 1994.............................................. 162,000 $ .56
Options granted........................................................... 342,000 $ 1.11-1.39
Options exercised......................................................... -- --
Options expired........................................................... -- --
--------- --------------
Outstanding, December 31, 1995.............................................. 504,000 $ .56-1.39
--------- --------------
</TABLE>
NOTE I -- STOCK WARRANTS
At December 31, 1995 and 1994, in connection with the issuance of stock, the
Company had outstanding warrants for a total of 90,000 shares of its common
stock exclusively to Ryan Lee and Company exercisable at a price of $.56 per
share (the approximate market price at time of grant). The warrants became
exercisable on July 22, 1993, and expire on July 22, 1998.
NOTE J -- INCOME TAXES
The amounts and sources of the provision for deferred income tax expense
(benefit) were as follows for the year ended December 31:
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Current......................................................................... $ -- $ --
Deferred........................................................................ 30,206 (8,893)
---------- ---------
30,206 (8,893)
Change in valuation allowance (30,206) 8,893
---------- ---------
$ -- $ --
---------- ---------
---------- ---------
</TABLE>
Deferred tax assets (liabilities) consist of the following at December 31,
1995:
<TABLE>
<S> <C>
Excess of tax over financial accounting depreciation.................... $ (45,293)
Operating accruals...................................................... (24,389)
Loss carryforwards...................................................... 145,340
Other................................................................... 14,549
---------
Gross deferred tax asset................................................ 90,207
Deferred tax asset valuation allowance.................................. (90,207)
---------
$ --
---------
---------
</TABLE>
F-13
<PAGE>
ON-SITE SOURCING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE J -- INCOME TAXES (CONTINUED)
The differences between the total income tax expense (benefit) and the
income tax expense (benefit) computed using the federal income tax rate were as
follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Pretax earnings (loss)......................................................... $ 75,628 $ (22,266)
---------- ----------
---------- ----------
Computed federal income taxes at 34%........................................... $ 25,714 $ (7,570)
Computed state income taxes, net of federal benefit............................ 4,492 (1,323)
---------- ----------
Deferred tax (benefit) expense................................................. 30,206 (8,893)
Expense (benefit) arising from change in deferred tax asset valuation
allowance..................................................................... (30,206) 8,893
---------- ----------
Income tax expense............................................................. $ -- $ --
---------- ----------
---------- ----------
</TABLE>
The Company has available at December 31, 1995, unused operating loss
carryforwards of approximately $364,000 that may be applied against future
taxable income and expire through 2009. The change in ownership as a result of
the planned initial public offering (see Note N) may limit the utilization of
operating loss carryforwards.
NOTE K -- SUPPLEMENTAL CASH FLOWS INFORMATION
NONCASH INVESTING AND FINANCING ACTIVITIES
The Company had the following noncash investing and financing activities for
the years ended December 31:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Fixed assets acquired under capital lease obligation.......................... $ 46,718 $ 254,939
Fixed assets acquired in acquisition of CRC................................... 33,308 --
Fixed asset basis reduction related to capital lease termination.............. 33,114 --
Capital lease obligation retired resulting from early lease termination....... 150,236 --
</TABLE>
During 1995, the Company entered into agreements with lessors to purchase
certain fixed assets held under capital leases for approximately $117,000, which
was less than the remaining lease obligation. These purchases occurred before
the leases had expired. The purchase of these fixed assets resulted in a
reduction in the lease obligations of approximately $150,000, and a reduction in
basis of the corresponding fixed assets of approximately $33,000.
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
The Company paid the following amounts for interest and income taxes during
the year ended December 31:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Interest......................................................................... $ 41,150 $ 18,435
--------- ---------
Income taxes..................................................................... $ -- $ --
--------- ---------
</TABLE>
NOTE L -- CONCENTRATION OF CREDIT RISK
Because of the nature of the Company's business, sales to a few customers,
primarily law firms, have accounted for a significant percentage of sales.
During 1995, two customers accounted for
F-14
<PAGE>
ON-SITE SOURCING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE L -- CONCENTRATION OF CREDIT RISK (CONTINUED)
approximately $877,000 (18%) and $488,000 (10%) of total gross sales. Accounts
receivable at December 31, 1995, include approximately $82,000 in amounts due
from these customers. During 1994, two customers accounted for approximately
$399,000 (20%) and $324,000 (17%) of total gross sales.
NOTE M -- ACQUISITION OF SWR ASSOCIATES, INC.
On July 27, 1995, the Company acquired SWR Associates, Inc., d/b/a CRC
Copiers, Inc. (CRC), in a business combination accounted for as a purchase. CRC
is primarily engaged in the refurbishment, sales and service of photocopy
machines. The results of operations of CRC are included in the accompanying
financial statements since the date of acquisition. The total cost of the
acquisition was $10,000, which was less than the value of the net assets of CRC
by approximately $23,000. The excess was utilized to reduce fixed assets based
on fair market values. The acquisition is not deemed material to the Company and
pro forma operating results are therefore not presented.
At the time of the acquisition, the Company also entered into an employment
agreement with CRC's former owner to manage the acquired company. The agreement
calls for five years of compensation (see Note G) and stock options (see Note
H).
NOTE N -- PROPOSED PUBLIC OFFERING
On December 18, 1995, the Company executed a letter of intent for a proposed
initial public offering. As of June 6, 1996, the Company and the Underwriter
have agreed to modify the offer such that the Company will offer 960,000 units,
each consisting of two shares of common stock, $.01 par value and one common
stock purchase warrant, to the public at a currently anticipated price of $6.25
per unit. The warrants are redeemable by the Company for $.01 per warrant, upon
30 days prior written notice, provided the average closing bid price of the
common stock for ten consecutive days prior to the date of the redemption notice
is $7.00 or more per share. The Company has also granted the underwriters an
option to purchase up to 144,000 additional units, exercisable for a period of
45 days after the offering is commenced, solely to cover overallotments. Upon
the closing of the initial public offering, the underwriters will be granted
warrants to purchase up to an aggregate of 96,000 units at $8.45 per unit. The
warrants will be exercisable during a four-year period commencing one year from
the date of the initial public offering.
F-15
<PAGE>
ON-SITE SOURCING, INC.
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
1996
-------------
(UNAUDITED)
<S> <C>
Current Assets
Cash............................................................................................. $ 20,360
Accounts receivable, net......................................................................... 1,272,487
Prepaid supplies................................................................................. 62,376
-------------
Total Current Assets............................................................................... 1,355,223
Fixed Assets, net.................................................................................. 644,139
Deferred Offering Costs and Other Assets........................................................... 200,425
-------------
$ 2,199,787
-------------
-------------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
Current Liabilities
Accounts payable -- trade........................................................................ $ 509,766
Accrued and other liabilities.................................................................... 169,183
Line of credit................................................................................... 375,000
Current portion of long-term debt................................................................ 237,414
-------------
Total Current Liabilities.......................................................................... 1,291,363
Long-term Debt, net of current portion............................................................. 131,968
Deferred Rent...................................................................................... 77,705
Commitments and Contingencies...................................................................... --
Stockholders' Equity
Common stock, $.01 par value, 20,000,000 shares authorized, 2,586,955 issued and outstanding..... 25,870
Preferred stock, $.01 par value, 1,000,000 authorized, no shares issued and outstanding.......... --
Additional paid-in capital....................................................................... 934,842
Accounts and notes receivable -- shareholders.................................................... (115,000)
Accumulated deficit.............................................................................. (146,961)
-------------
698,751
-------------
$ 2,199,787
-------------
-------------
</TABLE>
F-16
<PAGE>
ON-SITE SOURCING, INC.
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1996 1995
------------- -------------
(UNAUDITED)
<S> <C> <C>
Revenue............................................................................. $ 1,797,020 $ 1,151,718
Costs and Expenses
Cost of sales..................................................................... 1,358,602 878,619
Selling and shipping.............................................................. 148,355 80,747
Administration.................................................................... 188,488 123,837
------------- -------------
1,695,445 1,083,203
------------- -------------
Earnings from Operations............................................................ 101,575 68,515
Other Income (Expense)
Other income...................................................................... 21,473 --
Other expense, primarily interest................................................. (31,682) (12,606)
------------- -------------
Earnings Before Income Taxes........................................................ 91,366 55,909
Income Taxes........................................................................ -- --
------------- -------------
Net Earnings........................................................................ $ 91,366 55,909
------------- -------------
------------- -------------
Earnings per Common Share........................................................... $ 0.03 $ 0.02
------------- -------------
Average Number of Common Shares and Common Share Equivalents Outstanding During the
Period............................................................................. 2,648,377 2,648,377
------------- -------------
------------- -------------
</TABLE>
F-17
<PAGE>
ON-SITE SOURCING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
----------------------------------------------------------------------------
ADDITIONAL ACCOUNTS AND
COMMON COMMON PAID-IN NOTES ACCUMULATED
SHARES STOCK CAPITAL RECEIVABLE DEFICIT TOTAL
----------- --------- ----------- ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996........... 2,187,000 $ 21,870 $ 488,140 $ -- $ (238,327) $ 271,683
Sale of Common Stock................. 399,955 4,000 446,702 -- -- 450,702
Accounts and Notes Receivable --
shareholders........................ -- -- -- (115,000) -- (115,000)
Net Earnings for the Period.......... -- -- -- -- 91,366 91,366
----------- --------- ----------- ------------ ------------ -----------
Balance at March 31, 1996............ 2,586,955 $ 25,870 $ 934,842 $ (115,000) $ (146,961) $ 698,751
----------- --------- ----------- ------------ ------------ -----------
----------- --------- ----------- ------------ ------------ -----------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1995
----------------------------------------------------------------------------
ADDITIONAL ACCOUNTS AND
COMMON COMMON PAID-IN NOTES ACCUMULATED
SHARES STOCK CAPITAL RECEIVABLE DEFICIT TOTAL
----------- --------- ----------- ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995........... 2,187,000 $ 21,870 $ 488,140 $ -- $ (313,955) $ 196,055
Net Earnings for the Period.......... -- -- -- -- 55,909 55,909
----------- --------- ----------- ------------ ------------ -----------
Balance at March 31, 1995............ 2,187,000 $ 21,870 $ 488,140 $ -- $ (258,046) $ 251,964
----------- --------- ----------- ------------ ------------ -----------
----------- --------- ----------- ------------ ------------ -----------
</TABLE>
F-18
<PAGE>
ON-SITE SOURCING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
-------------------------
1996 1995
------------ -----------
(UNAUDITED)
<S> <C> <C>
Increase (Decrease) in Cash
Cash Flows from Operating Activities
Net earnings......................................................................... $ 91,366 $ 55,909
------------ -----------
Adjustments to reconcile net earnings to net cash from operations
Depreciation....................................................................... 37,003 20,803
Changes in assets and liabilities
Increase in accounts receivable.................................................. (462,560) (13,805)
(Increase) decrease in prepaid supplies.......................................... (7,969) 8,100
Increase in other assets......................................................... (22,516) --
Increase in accounts payable..................................................... 100,482 35,110
(Decrease) increase in accrued liabilities....................................... (76,921) 62,966
(Decrease) increase in deferred rent............................................. (5,921) 2,608
------------ -----------
Total Adjustments...................................................................... (438,402) 115,782
------------ -----------
Net Cash (Used in) Provided by Operating Activities.................................... (347,036) 171,691
------------ -----------
Cash Flows from Investing Activities
Capital expenditures................................................................. (181,085) (23,214)
------------ -----------
Cash Flows from Financing Activities
Proceeds from sale of common stock................................................... 335,702 --
Proceeds of long-term debt........................................................... 32,000 --
Borrowings under short-term debt agreement........................................... 150,000 --
Payments under long-term debt agreements............................................. (19,956) (18,067)
Net borrowings under line of credit.................................................. 115,000 (25,000)
Deferred offering costs.............................................................. (102,381) --
------------ -----------
Net Cash Provided by (Used in) Financing Activities.................................... 510,365 (43,067)
------------ -----------
Net (Decrease) Increase in Cash........................................................ (17,756) 105,410
Cash at Beginning of Period............................................................ 38,116 7,965
------------ -----------
Cash at End of Period.................................................................. $ 20,360 $ 113,375
------------ -----------
------------ -----------
</TABLE>
F-19
<PAGE>
ON-SITE SOURCING, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and note disclosures normally included in the annual
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to those rules and
regulations, although the Company believes that the disclosures made are
adequate to make the information presented not misleading.
In the opinion of management, the accompanying condensed financial
statements reflect all necessary adjustments and reclassifications that are
necessary for fair presentation for the periods presented. It is suggested that
these condensed financial statements be read in conjunction with the financial
statements and the notes thereto included herein. The results of operations for
the three-month period ended March 31, 1996, are not necessarily indicative of
the results to be expected for the full year.
EARNINGS PER COMMON SHARE
The Company's common stock was split 100-for-one and 18-for-one in March
1995 and February 1996, respectively. All earnings per share amounts in the
financial statements have been restated to give effect to the stock splits.
Earnings per common share is based on the weighted average number of common
shares and, if dilutive, common equivalent shares outstanding during each year.
Such average shares include the weighted average number of common shares
outstanding (2,187,000 in 1996 and 1995) plus the shares issuable upon exercise
of stock options and warrants after the assumed repurchase of common shares with
the related proceeds (461,377 in 1996 and 1995). Options and warrants granted,
as well as certain shares issued during the one-year period prior to the planned
initial public offering (see Note H), are treated as outstanding in calculating
earnings per share for both periods presented.
LONG-LIVED ASSETS
As of January 1, 1996, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. If the sum
of the expected future cash flows (undiscounted and without interest) is less
than the carrying amount of the asset, an impairment loss is recognized.
Measurement of that loss is based on the fair value of the asset. SFAS No. 121
also generally requires long-lived assets and certain identifiable intangibles
to be disposed of to be reported at the lower of the carrying amount or the fair
value less cost to sell. The adoption of SFAS No. 121 had no effect on the
Company's financial statements as of March 31, 1996.
NOTE B -- CREDIT FACILITIES
At March 31, 1996, the Company had available a $450,000 working capital line
of credit at the bank's prime rate (8.25%) plus 2%, which is due on demand. The
credit facility is collateralized by the assets of the Company and guaranteed by
the Company's chairman, and the Company's president and his spouse. Borrowings
under the working capital line of credit were $375,000. The credit facility was
renewed on April 1, 1996, and the interest rate was modified to prime plus 1%.
The line of credit expires on April 1, 1997.
F-20
<PAGE>
ON-SITE SOURCING, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
NOTE B -- CREDIT FACILITIES (CONTINUED)
The above notes are subject to certain covenants; at various times
throughout the period the Company was in violation of certain covenants.
However, at December 31, 1995 and March 31, 1996, the banks have waived their
rights under the default provisions through December 31, 1996, in connection
with the violation of the covenants.
On January 30, 1996, the Company borrowed $32,000 from a bank. The note is
payable in equal monthly installments of $1,000 plus 10.25% variable interest
(prime plus 2%) maturing at various dates through October 1998. On January 30,
1996, the Company borrowed $150,000 from the bank with interest at an annual
rate of 10.25% variable interest (prime plus 2%). The note is due and payable
from the proceeds of the Company's initial public offering. The notes are
subject to certain covenants and are collateralized by certain assets of the
Company, and guaranteed by the Company's chairman and the Company's president
and his spouse.
NOTE C -- RELATED PARTY TRANSACTIONS
TRANSACTIONS WITH AN OFFICER/SHAREHOLDER
During the three months ended March 31, 1996 and 1995, the Company recorded
the following transaction with an officer/shareholder:
- During the three months ended March 31, 1996, the Company incurred
approximately $69,000 for legal services rendered by the
officer/shareholder. Included in the amounts payable as of March 31, 1996,
is approximately $9,400 in legal fees due to the officer/shareholder.
TRANSACTIONS WITH A SHAREHOLDER
During the three months ended March 31, 1996 and 1995, the Company recorded
the following transactions with a shareholder:
- During the three months ended March 31, 1996 and 1995, the Company
recorded revenue of approximately $85,100 and $77,300, respectively, for
services provided to a shareholder under a facilities management
agreement. Included in accounts receivable as of March 31, 1996, is
approximately $58,000 in accounts receivable for facilities management
services to this shareholder.
- In March 1996, the Company entered into a two-year consulting agreement
with its underwriters/shareholder for financial and marketing services for
$60,000 to be paid from the proceeds of the initial public offering.
ACCOUNTS AND NOTES RECEIVABLE -- SHAREHOLDERS
At March 31, 1996, $90,000 was due from an officer/director in connection
with the exercise of stock options. In addition, $25,000 was due from a
shareholder in connection with the purchase of shares.
NOTE D -- COMMITMENTS
The Company has annual rental and lease commitments with a term of one year
or more as fully disclosed in the audited financial statements dated December
31, 1995. Effective March 1, 1996, the Company expanded its Arlington, Virginia,
production facility by approximately 5,100 square feet, and executed an
amendment to its lease agreement. Under the terms of the amended lease
agreement, the lease has been extended to December 1999, and the annual minimum
lease expense has increased from $95,000 to $154,000.
F-21
<PAGE>
ON-SITE SOURCING, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
NOTE D -- COMMITMENTS (CONTINUED)
Fixed assets recorded under capital leases as of March 31, 1996, total
approximately $28,000.
NOTE E -- INCENTIVE STOCK OPTION PLAN
In 1995, the Company adopted an incentive stock option plan, under which a
pool of 510,000 shares has been reserved. The plan is administered and terms of
option grants are established by the Board of Directors. Under the terms of the
plan, options may be granted to the Company's employees to purchase shares of
common stock. Options become exercisable ratably over a vesting period as
determined by the Board of Directors, and expire over terms not exceeding ten
years from the date of grant, three months after termination of employment, or
one year after the death or permanent disability of the employee. The Board of
Directors determines the option price (not less than fair market value) at the
date of grant.
At March 31, 1995, pursuant to an employment agreement, the Company had
outstanding options to sell 162,000 shares of common stock to an
officer/director of the Company at an exercise price of $.56 per share. The
options, which were fully vested during 1994, were exercised on March 29, 1996
for $90,000. In connection with the exercise of the options, the Company loaned
$89,900 to the officer/director which is included in accounts and notes
receivable -- shareholders at March 31, 1996. The loan bears interest at 6% per
year with a payment of $40,000 due on May 1, 1996 and the remaining principal
and interest due April 1, 1998.
At March 31, 1996, the Company had outstanding options to sell 126,000
shares of common stock to an officer/director at an exercise price of $1.11 per
share. As of March 31, 1996, options for 84,000 shares are vested, and options
for 42,000 shares are scheduled to vest in June 1996. The options expire in
December 2000.
During 1995, the Company granted to employees options for 216,000 shares of
common stock at exercise prices ranging from $1.11 to $1.39 per share. The grant
price of $1.11 per share was determined by the Board of Directors to represent
fair value and the grant price of $1.39 per share was determined to be in excess
of fair value based upon independent sales of stock by a shareholder in December
1995 at $1.11 per share. As of March 31, 1996, 60,000 of the shares are vested
with the remainder scheduled to vest through December 1998. The options expire
through December 2000.
NOTE F -- WARRANTS AND OTHER ISSUANCE OF STOCK
RYAN, LEE AND COMPANY
At December 31, 1995 and 1994, in connection with the issuance of stock, the
Company had outstanding warrants for a total of 90,000 shares of its common
stock exclusively to Ryan Lee and Company, exercisable at a price of $.56 per
share (the approximate market price at time of grant). The warrants were
exercised on March 13, 1996.
OTHERS
During March 1996, the Company sold 147,955 shares of stock to individuals
for $310,700 or $2.10 per share. Of this amount, $25,000 was due from a
shareholder at March 31, 1996. This amount was received on April 1, 1996.
NOTE G -- CONCENTRATION OF CREDIT RISK
Because of the nature of the Company's business, sales to a few customers,
primarily law firms, have accounted for a significant percentage of sales.
During the three months ended March 31, 1996, one customer accounted for
approximately 15% of total gross sales.
F-22
<PAGE>
ON-SITE SOURCING, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
NOTE H -- PROPOSED PUBLIC OFFERING
On December 18, 1995, the Company executed a letter of intent for a proposed
initial public offering. As of June 6, 1996, the Company and the Underwriter
have agreed to modify the offer such that the Company will offer 960,000 units,
each consisting of two shares of common stock, $.01 par value and one common
stock purchase warrant, to the public at a currently anticipated price of $6.25
per unit. The warrants are redeemable by the Company for $.01 per warrant, upon
30 days prior written notice, provided the average closing bid price of the
common stock for ten consecutive days prior to the date of the redemption notice
is $7.00 or more per share. The Company has also granted the underwriters an
option to purchase up to 144,000 additional units, exercisable for a period of
45 days after the offering is commenced, solely to cover overallotments. Upon
the closing of the initial public offering, the underwriters will be granted
warrants to purchase up to an aggregate of 96,000 units at $8.45 per unit. The
warrants will be exercisable during a four-year period commencing one year from
the date of the initial public offering.
F-23
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED ON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE 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 SECURITY BY ANY PERSON IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, IMPLY THAT THE INFORMATION IN THIS PROSPECTUS IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 4
Risk Factors................................... 7
Use of Proceeds................................ 12
Dilution....................................... 14
Capitalization................................. 15
Selected Financial Data........................ 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 17
Business....................................... 21
Management..................................... 25
Principal Stockholders......................... 29
Interest of Management and Others in Certain
Transactions.................................. 30
Description of Securities...................... 31
Underwriting................................... 34
Concurrent Registration of Securities.......... 37
Shares Eligible for Future Sale................ 39
Legal Matters.................................. 39
Experts........................................ 40
Additional Information......................... 40
Index to Consolidated Financial Statements..... F-1
</TABLE>
Until , 1996 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
[LOGO]
---------------------
PROSPECTUS
---------------------
M.H. MEYERSON & CO., INC.
30 MONTGOMERY STREET
JERSEY CITY, NEW JERSEY 07302
FOUNDED 1960
, 1996
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Six of the Company's Restated By-Laws contains the following
provision with respect to indemnification of Directors and Officers:
6.1 RIGHT TO INDEMNIFICATION
The corporation shall indemnify and hold harmless, to the fullest extent
permitted by applicable law as presently exists or may hereafter be amended, any
person who was or is made or is threatened to be made a party or is otherwise
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "proceeding") by reason of the fact that he,
or a person for whom he is the legal representative, is or was a director,
officer, employee or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust, enterprise or non-profit
entity, including service with respect to employee benefit plans, against all
liability and loss suffered and expenses reasonably incurred by such person. The
corporation shall be required to indemnify a person in connection with a
proceeding initiated by such person only if the proceeding was authorized by the
Board of Directors of the corporation.
6.2 PREPAYMENT OF EXPENSES
The corporation shall pay the expenses incurred in defending any proceeding
in advance of its final disposition, provided, however, that the payment of
expenses incurred by a director or officer in advance of the final disposition
of the proceeding shall be made only upon receipt of an undertaking by the
director or officer to repay all amounts advanced if it should be ultimately
determined that the director or officer is not entitled to be indemnified under
this Article or otherwise.
6.3 CLAIMS
If a claim for indemnification or payment of expenses under this Article is
not paid in full within sixty days after a written claim therefor has been
received by the corporation the claimant may file suit to recover the unpaid
amount of such claim and, if successful in whole or in part, shall be entitled
to be paid the expense of prosecuting such claim. In any such action the
corporation shall have the burden of proving that the claimant was not entitled
to the requested indemnification or payment of expenses under applicable law.
6.4 NON-EXCLUSIVITY OF RIGHTS
The rights conferred on any person by this Article 6 shall not be exclusive
of any other rights which such person may have or hereafter acquire under any
statute, provision of the certificate of incorporation, these by-laws,
agreement, vote of stockholders or disinterested directors or otherwise.
6.5 OTHER INDEMNIFICATION
The corporation's obligation, if any, to indemnify any person who was or is
serving at its request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, enterprise or non-profit entity
shall be reduced by any amount such person may collect as indemnification from
such other corporation, partnership, joint venture, trust, enterprise or
non-profit enterprise.
6.6 AMENDMENT OR REPEAL
Any repeal or modification of the foregoing provisions of this Article 6
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
Section 145 of the General Corporate Law of the State of Delaware contains
provisions entitling directors and officers of the Company to indemnification
from judgements, fines, amounts paid in
II-1
<PAGE>
settlement reasonable expenses, including attorney's fees, as the result of an
action or proceeding in which they may be involved by reason of being or having
been a director or officer of the Company provided said officers or directors
acted in good faith.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
SEC Registration......................................................... $ 6,150
NASD Listing Fee......................................................... $ 2,250
NASDAQ Listing Fee....................................................... $ 13,750
Pacific Stock Exchange Listing Fee....................................... $ 500
Transfer Agent Fee....................................................... $ 3,500
Printing and Engraving Cost.............................................. $ 40,000
Legal Fees and Expenses.................................................. $ 125,000
Accounting Fees and Expenses............................................. $ 170,000
Blue Sky Fees and Expenses............................................... $ 47,000
Miscellaneous............................................................ $ 17,850
---------
TOTAL................................................................ $ 426,000
---------
---------
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
1. On April 6, 1993, the Company issued 350 shares (630,000 after stock
splits) of its Common Stock to John Stoppelman for $50,000.
2. On April 6, 1993, the Company issued 200 shares (360,000 after stock
splits) of its Common Stock to Christopher Weiler for $2.00.
3. On April 6, 1993, the Company issued 100 shares (180,000 after stock
splits) of its Common Stock to Paul Sozansky for $1.00.
4. On April 6, 1993, the Company issued 100 shares (180,000 after stock
splits) of its Common Stock to John E. Krutsick for $1.00.
5. On June 8, 1993, the Company issued 25 shares (45,000 after stock
splits) of its Common Stock to Joel Goldman for $25,000.
6. On June 8, 1993 the Company issued 50 shares (90,000 after stock splits)
of its Common Stock to Manhattan Group Funding for $50,000.
7. On July 12, 1993 the Company issued 10 shares (18,000 after stock
splits) of its Common Stock to Joseph Khoury for $0.10.
8. On June 14, 1993, the Company issued 31.25 shares (56,250 after stock
splits) of its Common Stock to the IRA Account of Martin H. Meyerson for
$31,250.
9. On June 14, 1993, the Company issued 6.25 shares (11,250 after stock
splits) of its Common Stock to Leonard and Roslyn Parker for $6,250.
10. On June 14, 1993, the Company issued 6.25 shares (11,250 after stock
splits) of its Common Stock to Michael Silvestri for $6,250.
11. On June 14, 1993, the Company issued 6.25 shares (11,250 after stock
splits) of its Common Stock to Jeffrey Meyerson for $6,250.
12. On July 22, 1993, the Company issued 25 shares (45,000 after stock
splits) of its Common Stock to Edward Tishelman for $25,000.
13. On October 20, 1993, the Company issued 50 shares (90,000 after stock
splits) of its Common Stock to Denis Seynhaeve for $50,000.
II-2
<PAGE>
14. On July 22, 1993, the Company issued 50 shares (90,000 after stock
splits) of its Common Stock to LaBrum & Doak pursuant to a Service Contract.
15. On January 31, 1994, the Company issued 25 shares (45,000 after stock
splits) of its Common Stock to M.H. Meyerson & Co., Inc. for $25,000.
16. On March 10, 1994 the Company issued 50 shares (90,000 after stock
splits) of its Common Stock to Manhattan Group Funding for $50,000.
17. On March 29, 1994, the Company issued 50 shares (90,000 after stock
splits) of its Common Stock to Ronee Medow for $50,000.
18. On March 29, 1994, the Company issued 50 shares (90,000 after stock
splits) of its Common Stock to Kenneth Koock for $50,000.
19. On April 14, 1994, the Company issued 25 shares (45,000 after stock
splits) of its Common Stock to Allen Outlaw for $25,000.
20. On November 11, 1994, the Company issued 5 shares (9,000 after stock
splits) of its Common Stock to Donald Burris for $10,000.
21. On March 13, 1996, the Company issued 90,000 shares of its Common Stock
to Ryan, Lee & Company, Inc. for $50,000 pursuant to the redemption of Warrants
to purchase Common Stock issued to Ryan, Lee and Company, Inc. which were
granted pursuant to a professional services contract on July 22, 1993.
22. On March 22, 1996, the Company issued 11,905 shares of its Common Stock
to Carlton F. Gay for $25,000.
23. On March 22, 1996, the Company issued 11,905 shares of its Common Stock
to Edward and Gloria Baroody for $25,000.
24. On March 25, 1996, the Company issued 11,905 shares of its Common Stock
to Donald L. Skidmore for $25,000.
25. On March 26, 1996, the Company issued 23,810 shares of its Common Stock
to Sabine Devilloutreys for $50,000.
26. On March 26, 1996, the Company issued 11,905 shares of its Common Stock
to John M. Strickland and John Patterson t'ees uta dtd 7-1-89 for $25,000.
27. On March 26, 1996, the Company issued 23,810 shares of its Common Stock
to Sagax Fund II Ltd. for $50,000.
28. On March 28, 1996, the Company issued 11,905 shares of its Common Stock
to Daniel J. Weiler for $25,000.
29. On March 28, 1996, the Company issued 11,905 shares of its Common Stock
to Walter Luffsey for $25,000.
30. On March 29, 1996, the Company issued 7,000 shares of its Common Stock
to Brentwood, Inc. for $14,700.
31. On March 29, 1996, the Company issued 5,000 shares of its Common Stock
to Christopher Laiti for $10,500.
32. On March 29, 1996, the Company issued 5,000 shares of its Common Stock
to Joseph Sciacca for $10,500.
33. On March 29, 1996, the Company issued 162,000 shares of its Common Stock
to Allen Outlaw for $90,000 pursuant to the exercise of options granted in his
employment contract of June 1, 1994.
II-3
<PAGE>
34. On April 1, 1996, the Company issued 11,905 shares of its Common Stock
to William
Reynolds for $25,000.
The sales of securities described above were made in reliance upon Section
4(2) of the 1933 Act, which provides exemptions for transactions not involving a
public offering.
With regard to the Company's reliance upon the exemption from registration
provided by Section 4(2) of the 1933 Act of the sale of securities described
above, certain inquiries were made by the Company to establish that such sales
qualified for such exemption. In particular, the Company confirmed that with
respect to the exemption claimed under Section 4(2) of the 1933 Act (i) each
investor made representations that he or she was sophisticated and/or an
"accredited investor" within the meaning of Regulation D of the 1933 Act in
relation to such investments and (ii) each purchaser gave assurance of his or
her investment intent, and the certificates for the securities bear a legend
accordingly.
ITEM 27. LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
PAGE NO. DESCRIPTION OF EXHIBIT
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.01 Form of Underwriting Agreement
1.02 Underwriter's Unit Purchase Option
1.03 Qualified Agreement with Qualified Independent Underwriter
1.04 Opinion of Qualified Independent Underwriter
2.01 Merger Agreement
2.02 Asset Purchase Agreement: SWR
3.01 Certificate of Incorporation: Delaware
3.02 Restated By-Laws: Delaware
4.01 Form of Common Stock Certificate
4.02 Form of Warrant Certificate
4.03 Form of Warrant Agreement between On-Site Sourcing, Inc. and the Continental Stock and Trust Company
4.04 Registrant's Articles of Incorporation are incorporated by reference to exhibit 3.01
4.05 Registrant's Restated Bylaws pages 1-5 are incorporated by reference to exhibit 3.02
5.01 Opinion of The Stoppelman Law Firm, P.C. on Legality of Securities Being Registered
10.01 Employment Agreement between the Company and Christopher Weiler
10.02 Employment Agreement between the Company and Allen Outlaw
10.03 Employment Agreement between the Company and Anthony Kopsidas
10.04 Employment Agreement between the Company and Jack Krutsick
10.05 Employment Agreement between the Company and Larry F. Morris
10.06 Lease with Rubin Strouse Realty for Philadelphia, PA
10.07 Amendment 1 to Lease with Rubin Strouse Realty
10.08 Amendment 2 to Lease with Rubin Strouse Realty
10.09 Amendment 3 to Lease with Rubin Strouse Realty
10.10 Lease with JRG/Lynn Associates 9/12/95 for Arlington, VA
10.11 First Addendum to Lease with JRG/Lynn Associates 3/30/94
10.12 Second Addendum to Lease with JRG/Lynn Associates 7/6/94
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
PAGE NO. DESCRIPTION OF EXHIBIT
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.13 Third Addendum to Lease with JRG/Lynn Associates 6/29/95
10.14 Fourth Addendum to Lease with JRG/Lynn Associates 1/25/96
10.15 Lease Agreement between Oak Crest Ltd. and SWR 1/31/92 for Frederick, MD assumed by On-Site
10.16 Assumption of Lease Agreement between the Company and Oak Crest Ltd.
10.17 Lease with Kingston Atlanta Partners, L.P. - 12/15/95 for Atlanta, GA
10.18 Form of Management Services Contract
10.19 Loan Agreement of 11/14/95 with Sequoia National Bank for $115,000
10.20 Loan Agreement of 5/1/95 with Sequoia National Bank for $300,000 Line-of-Credit
10.21 Loan Agreement of 1/30/96 with Sequoia National Bank for $150,000
10.22 Change in Terms of Agreement with Sequoia National Bank increase of Line-of-Credit to $450,000
10.23 Revised Stock Option Plan
23.01 Consent of The Stoppelman Law Firm, P.C. incorporated by reference as part of Exhibit 5.01
23.02 Consent of Grant Thornton LLP, independent auditors
23.03 Consent of Director Designate Charles B. Millar
23.04 Consent of Director Designate Jorge Forgues
</TABLE>
ITEM 28. UNDERTAKINGS
A. CERTIFICATES
The undersigned registrant hereby undertakes to 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.
B. RULE 415 OFFERING
The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement to: (i) Include
any prospectus required by Section 10(a)(3) of the Securities Act; (ii)
Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
registration statement and; (iii) Include any additional or changed material
information on the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the Offering of the securities at that time to be the initial
bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
C. REQUEST FOR ACCELERATION OF EFFECTIVE DATE
The Company may elect to request acceleration of the effective date of the
Registration Statement under Rule 461 of the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the small business issuer
II-5
<PAGE>
pursuant to the foregoing provisions, or otherwise, the small business issuer
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant 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
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the County of
Arlington in the Commonwealth of Virginia on 27th day of June, 1996.
On-Site Sourcing, Inc.
By: /s/ CHRISTOPHER J. WEILER
-----------------------------------
Christopher J. Weiler
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Christopher J. Weiler, 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 full 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 was signed by the following persons in the capacities and
on the dates stated.
SIGNATURE TITLE DATE
- ----------------------------------- ------------------------- ----------------
/s/ CHRISTOPHER J.
WEILER President, Chief
- ----------------------------------- Executive Officer and June 27, 1996
Christopher J. Weiler Director
/s/ RANDALL C.
REITZ
- ----------------------------------- Chief Financial Officer June 27, 1996
Randall C. Reitz
/s/ JOHN S.
STOPPELMAN Chairman of the Board of
- ----------------------------------- Directors June 27, 1996
John S. Stoppelman
/s/ ANTHONY A.
KOPSIDAS Vice President of
- ----------------------------------- Operations and Director June 27, 1996
Anthony A. Kopsidas
/s/ ALLEN C.
OUTLAW Vice President of Sales
- ----------------------------------- and Marketing and June 27, 1996
Allen C. Outlaw Director
II-7
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
EXHIBITS
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ON-SITE SOURCING, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ON-SITE SOURCING, INC.
1,069,123 Units (1)
EACH UNIT CONSISTS OF TWO SHARES OF COMMON STOCK
AND ONE REDEEMABLE COMMON STOCK PURCHASE WARRANT
TO PURCHASE ONE SHARE OF COMMON STOCK
UNDERWRITING AGREEMENT
, 1996
M.H. Meyerson & Co., Inc.
30 Montgomery Street
Jersey City, New Jersey 07302
Dear Sirs:
The undersigned, ON-SITE SOURCING, INC., a Delaware corporation (the
"Company") and certain selling securityholders named on the signature page
("Selling Securityholders"), hereby confirms their respective agreements with M.
H. Meyerson & Co., Inc. (the "Underwriter") as follows:
1. DESCRIPTION OF UNITS. Subject to the terms and conditions herein contained,
the Company proposes to issue and sell to the Underwriter (the "Offering")
pursuant to the Preliminary Prospectus and the Prospectus (both, as
hereinafter defined) 960,000 Units, (the "Firm Offered Units"), at a price
of $6.25 per Unit (less a ten (10%) percent discount thereon). Each Unit
consisting of 2 shares of the Company's common stock, par value $.01 per
share ("Common Stock") and one (1) Redeemable Common Stock Purchase Warrant
("Warrant") to purchase 1 share of Common Stock. The Selling Securityholders
confirm and agree to offer and sell to the Underwriter 218,246 shares of
common stock at a price of $3.00 per share (less a 10% discount thereon) and
the Company shall issue and sell to the Underwriter 109,123 Warrants, at a
price of $.25 per Warrant (less a 10% discount thereon), to constitute
109,123 Units, in addition to the 960,000 Units referred to above (all of
which Units shall be called the "Firm Offered Units").
Each Warrant entitles the holder to purchase 1 share of Common Stock at the
price of $6.00 per share of Common Stock until 5:00 p.m. Eastern daylight
time for a period of five years from and after the effective date of the
Prospectus. Each Warrant is detachable and separately transferable from the
Common Stock issued as part of a Unit, commencing thirty (30) days following
the date of the Prospectus or earlier in the event that the Underwriter
shall so elect in its sole discretion.
Subject to the terms and conditions herein contained, the Company and Selling
Securityholders agree to allot, issue and sell to the Underwriter the Firm
Offered Units and the Underwriter agrees to purchase the Firm Offered Units.
In addition, the Company hereby grants to the Underwriter an option (the
"Underwriter's Over-Allotment Option") to acquire on or before 5:00 p.m.
Eastern Standard time on the th day of , 1996 to purchase up
to an additional 144,000 Units to cover any over-allotment in the Offering,
at a price of $6.25 per Unit (less a ten (10%) percent commission thereon).
Any and all Units to be purchased by the Underwriter pursuant to the
Over-Allotment Option are referred to herein as the "Optional Offered
Units". The Firm Offered Units, and the Optional Offered Units are sometimes
collectively referred to herein as the "Offered Units".
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE UNDERWRITER.
- ------------------------
(1) Plus an option to purchase from the Company up to 144,000 additional Units
to cover over- allotments.
<PAGE>
(a) The Company represents and warrants to, and agrees with the
Underwriter, and the Company acknowledges that the Underwriter is relying
upon such representations, warranties and agreements, that:
(i) A registration statement on Form SB-2 (File No. 33- ) with
respect to the Offered Units, including a prospectus subject to
completion, has been filed by the Company with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933,
as amended (the "Act"), and one or more amendments to such registration
statement may have been so filed. After the execution of the Underwriting
Agreement, the Company will file with the Commission either: (A) if such
registration statement, as it may have been amended, has been declared by
the Commission to be effective under the Act, a prospectus in the form
most recently included in an amendment to such registration statement
(or, if no such amendment shall have been filed, in such registration
statement), with such changes or insertions as are required by Rule 430A
under the Act or permitted by Rule 424(b) under the Act and as have been
provided to and approved by the Underwriter; or (B) if such registration
statement, as it may have been amended, has not been declared by the
Commission to be effective under the Act, an amendment to such
registration statement, including a form of prospectus, a copy of which
amendment has been furnished to and approved by the Underwriter prior to
the execution of the Underwriting Agreement. As used in this Agreement,
the term "Registration Statement" means such registration statement, as
amended at the time when it was or is declared effective (the "Effective
Time"), including all financial schedules and exhibits thereto and
including any information omitted therefrom pursuant to Rule 430A under
the Act and included in the Prospectuses (as hereinafter defined); the
term "Preliminary Prospectus" means each prospectus subject to completion
relating to the offering of Units filed with such registration statement
or any amendment thereto (including the prospectus subject to completion,
if any, included in the Registration Statement or any amendment thereto
at the Effective Time); the term "Prospectus" means the prospectus
relating to the offering Units first filed with the Commission pursuant
to Rule 424(b) under the Act or, if no prospectus is required to be filed
pursuant to said Rule 424(b), such term means the prospectus relating to
the offering of Units included in the Registration Statement.
(ii) No securities commission or regulatory authority (referred to
herein, collectively, as "Regulatory Authority" or "Regulatory
Authorities") has issued any order preventing or suspending the use of
any Preliminary Prospectus. When each Preliminary Prospectus was filed
with the appropriate Regulatory Authorities such document did not include
any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. At the
Effective Time, each of the Registration Statement and the Prospectus:
(A) contained or will contain all statements required to be stated
therein in accordance with, and complied or will comply in all material
respects with the requirements of, the applicable securities legislation
and the rules and regulations of the appropriate Regulatory Authority
thereunder; and (B) did not or will not include any untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading. The foregoing provisions of this
Paragraph (ii) do not apply to statements or omissions made in any
Preliminary Prospectus, the Registration Statement or any amendment
thereto or any Prospectus or any amendment or supplement thereto in
reliance upon and in conformity with written information furnished to the
Company by the Underwriter specifically for use therein or to statements
contained in such document relating to the Underwriter.
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(iii) The Company has been duly incorporated and is validly existing
as a corporation and in good standing under the laws of the State of
Delaware and is duly qualified to transact business under the laws of
such other jurisdictions where the ownership or leasing of its property
or the conduct of its business requires such qualification.
(iv) The Company has full corporate power and corporate authority to
own or lease its property and conduct its businesses as described in the
Registration Statement and the Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus).
(v) The Company has corporate power and corporate authority to enter
into the Underwriting Agreement; to issue, sell and deliver the Units and
the shares of Common Stock and the Warrants comprising such Units to be
sold to the Underwriter and/or publicly offered pursuant to the
Underwriting Agreement; and to carry out all the terms and provisions
hereof and thereof to be carried out by it, except to the extent that
rights to indemnity and contribution under the Underwriting Agreement may
be limited by federal or state securities laws or the public policy
underlying such laws.
(vi) The capital stock of the Company conforms in all material
respects to the description thereof contained in the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary
Prospectus). All of the issued shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
non-assessable; the Units and the shares of Common Stock and the Warrants
comprising the Units have been duly authorized by all necessary corporate
action of the Company and, when certificates therefor are countersigned
by the Company's transfer agent and issued and delivered to and paid for
by the Underwriter pursuant to the Underwriting Agreement, will be
validly issued, fully paid and non-assessable. No holders of outstanding
shares of capital stock of the Company are entitled as such to any
preemptive or any similar rights to subscribe for any of the Units; there
are no outstanding rights, warrants, or options to acquire, or
instruments convertible into or exchangeable for, any shares of capital
stock of the Company which are not fully disclosed in the Prospectus;
and, except as disclosed in the Prospectus, no holders of securities of
the Company are entitled to have such Securities registered under the
Registration Statement.
(vii) The financial statements and schedules, if applicable, of the
Company, included in the Registration Statement and the Prospectus (or,
if the Prospectus is not in existence, the most recent Preliminary
Prospectus) fairly present the financial position of the Company and the
results of operations and financial condition as of the dates and for the
periods therein specified. Such financial statements and schedules, if
applicable, have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods
involved. The selected financial data and capitalization set forth under
the headings "Dilution", "Selected Financial Data", "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" in the Prospectus (or, if the Prospectus are not in
existence, the most recent Preliminary Prospectus) fairly present, on the
bases stated therein, the information included therein. In addition the
"Use of Proceeds" as set forth in the Registration Statement and the
Prospectus sets forth the Company's intentions for the use of the
proceeds of this Offering in all material respects.
(viii) Grant Thornton LLP, the auditors who have certified the most
recent financial statements of the Company, and have delivered their
report with respect to the audited financial statements and schedules, if
applicable, included in the Registration Statement and the Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus), are independent public accountants as required by the Act.
(ix) No legal or governmental proceedings are pending to which the
Company is a party or to which the property of the Company is subject
that are required to be described in the Registration Statement or the
Prospectus and are not described therein (or, if the Prospectus
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is not in existence, the most recent Preliminary Prospectus), and no such
proceedings have been threatened against or, to the knowledge of the
Company, are contemplated with respect to, the Company or with respect to
any of its property; and no contract or other document is required to be
described in the Registration Statement or the Prospectus or to be filed
as an exhibit to the Registration Statement that is not described therein
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus) or filed as required.
(x) The execution and delivery of the Underwriting Agreement by the
Company, the issuance, offering and sale of the Units, the shares of the
Common Stock and the Warrants comprising such Units to the Underwriter
and/or the public offering thereof by the Company pursuant to the
Underwriting Agreement, the compliance by the Company with the other
provisions of the Underwriting Agreement, and the consummation of the
other transactions herein and therein contemplated do not: (A) require
the consent, approval, authorization, registration or qualification of or
with any governmental authority, stock exchange, securities association
or other third party, except: (1) such as have been obtained, (2) such as
may be required under state securities or blue sky laws, (3) if the
registration statement filed with respect to the Units (as amended) is
not effective under the Act as of the time of execution hereof, such as
may be required (and shall be obtained as provided in this Agreement)
under the Act and the Securities and Exchange Act of 1934, as amended
(the "Exchange Act"), or (4) such as may be required (and shall be
obtained as provided in this Agreement) under applicable securities and
other laws, or (B) conflict with or result in a breach or violation of
any of the terms and provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, lease or other agreement or
instrument to which, the Company is a party or by which the Company or
any of its property is bound, or the charter documents or by-laws of the
Company or any statute or any judgment, decree, order or regulation of
any court or other governmental authority or any arbitrator, which breach
or violation would have a material adverse effect on the Company, or
stock exchange or securities association applicable to the Company.
(xi) Except in each case as described in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus),
subsequent to the respective dates as of which information is given in
the Registration Statement and the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus): (A) the
Company has not incurred any material liability or obligation, direct or
contingent, nor entered into any material transaction not in the ordinary
course of business; (B) the Company has not purchased or entered into any
agreement to purchase any of its outstanding capital stock, nor declared,
paid or otherwise made any dividend or distribution of any kind on its
capital stock; (C) there has not been any material change in the capital
stock, short-term debt or long-term debt of the Company; (D) there has
been no material change in the proposed use of the proceeds of this
Offering as described in the Prospectus.
(xii) There has not been any material change in the management or
material adverse change in the business, properties, prospects, results
of operations, condition (financial or otherwise) or general affairs of
the Company, whether or not arising from transactions in the ordinary
course of business.
(xiii) The Company is not in violation of any applicable federal,
state, local or foreign law, rule or regulation, the breach or violation
of which would have a material adverse effect on the Company, including,
without limitation, any laws, rules or regulations relating to discharge
of materials into the environment, and the Company is in compliance with
all terms and conditions of any required permit, license or approval,
except as described in or contemplated by the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus),
the breach or violation of which would have a material adverse effect on
the Company.
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(xiv) The Company possesses all certificates, authorizations, permits
and licenses issued by the appropriate federal, state, local or foregoing
regulatory authorities necessary to conduct its business as currently
conducted in all material respects and as described in the Registration
Statement and the Prospectus (or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus), and the Company has not received
any notice of proceedings relating to the revocation or modification of
any such certificates, authorizations, permits and licenses which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would have a material adverse effect on the Company, except as
described in or contemplated by the Registration Statement and Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus).
(xv) Except as disclosed in the Prospectus, the Company has not
received any notice (written or oral) by any person or entity alleging
potential liability (including, without limitation, potential liability
for discharge of materials into the environment and any clean up costs,
governmental response costs, natural resources damages, property damages,
personal injuries, or penalties) arising out of, based on or resulting
from: (A) the business and/or operations of the Company, including,
without limitation, the presence or release into the environment of any
chemicals, pollutants, contaminants, wastes, toxic substance, petroleum
or petroleum products, at any location, whether or not owned by the
Company; or (B) circumstances forming the basis or any violation or
alleged violation of any environmental laws.
(xvi) Except as disclosed in the Prospectus, there are no past or
present actions, activities, event or incidents, that could reasonably be
expected to form the basis of any claim against the Company or, to the
Company's knowledge, against any person or entity whose liability for any
claim the Company may have retained or assumed either contractually or by
operation of law.
(xvii) The Company has not at any time since the date of its
incorporation: (A) made any unlawful contributions to any candidate for
political office, or failed to disclose fully any contribution in
violation of law, or (B) made any payment to any state, federal or
foreign government office or official, or other person charged for
similar public or quasi-public duties (other than payments required or
permitted by applicable laws).
(xviii) No default exists, and no event has occurred which, with notice
or lapse of time or both, would constitute a default in the due
performance and observance of, or would conflict with or result in, the
breach or violation of any term, covenant or condition of any indenture,
mortgage, deed of trust, lease or other agreement (including, without
limitation, each agreement listed in Item 27 of Part II of the
Registration Statement) or instrument to which the Company is a party or
by which the Company or any of its property is bound, which default,
breach or violation would materially adversely affect the Company.
(xix) To the extent described in the Prospectus, the Company owns or
possesses the rights to use trademarks, trade names, patents, licenses
and proprietary or other confidential information currently used by it in
connection with its business, and the Company has received no notice of
infringement of or conflict with rights asserted against the Company by
any third party with respect to any of the foregoing which, singly or in
the aggregate, if the subject of an unfavorable decision, ruling or
finding, would have a material adverse effect on the Company, except as
described in or contemplated by the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(xx) All health, medical, welfare and other employee benefit plans,
and all deferred compensation plans, stock option plans, or other
contracts, agreements, plans or arrangements for the benefit or
compensation of employees maintained by the Company or to which the
Company is obligated to contribute, comply in all material respects with
and are administered in accordance with all applicable federal and state
laws, rules, and regulations.
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<PAGE>
(xxi) The Company has good and marketable title to all property owned
by it, in each case free and clear of all security interests, liens,
encumbrances, equities, claims and other defects except such as do not
materially adversely affect the value of such property and do not
interfere with the use made or proposed to be made of such property by
the Company.
(xxii) No labor dispute with employees of the Company exists or is
threatened or imminent that could, singly or in the aggregate, have a
material adverse effect on the Company, except as described in or
contemplated by the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(xxiii) The Company does not, and does not intend to conduct its
operations in a manner that will subject it to registration as, an
"investment company" under the Investment Company Act of 1940, as
amended.
(xxiv) The Company has filed all federal, state and local tax returns
that are required to be filed or have requested extensions thereof
(except in any case in which the failure so to file would not, singly or
in the aggregate, have a material adverse effect on the Company) and has
paid all taxes required to be paid by it and any other assessment, fine
or penalty levied against it, to the extent that any of the foregoing is
due and payable, except for any such assessment, fine or penalty that is
currently being contested in good faith or as described in or
contemplated by the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(xxv) Except as noted in the Company's financial statements contained
in the Prospectus, the Company neither owns any shares of stock or any
other equity securities of any corporation nor has any equity interest in
any firm, partnership, association or other entity.
(xxvi) The Units and the shares of Common Stock and the Warrants
comprising the Units are qualified for inclusion on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ")
operated by the National Association of Securities Dealers, Inc., subject
to official notice of issuance. The definitive form of certificates for
the shares of Common Stock and the Warrants, respectively, is in proper
form under the laws of the State of Delaware and complies with the
requirements of NASDAQ.
(xxvii) Within the period commencing on incorporation of the Company and
ending on the date hereof, the Company has not paid any dividend under
circumstances such that, immediately before or after giving effect
thereto, the Company: (A) was insolvent; (B) had unreasonably small
capital with which to conduct its business; or (C) intended to incur
debts beyond its ability to pay such debts as they mature. As used in
this Agreement, the term "insolvent" means, with respect to the Company,
that: (A) the fair value of its property is less than the total amount of
its liabilities; or (B) the present fair saleable value of its assets is
less than the amount required to pay its probable liabilities and debts
as they become absolute and matured.
(xxviii) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company has
not entered into any material transaction with any of its affiliates.
(xxix) The principal stockholders of the Company are as set forth in the
Prospectus under the heading "Security Ownership of Certain Beneficial
Owners and Management" or such alternative heading containing such
information, and the officers, directors and principal stockholders are
the beneficial owners of the shares of Common Stock of the Company as set
forth therein.
(xxx) The Company, with the assistance of its external auditors, makes
and keeps accurate books and records reflecting its assets and maintains
internal accounting controls which
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<PAGE>
provide reasonable assurance that: (A) transactions are executed in
accordance with management's authorization; (B) transactions are recorded
as necessary to permit preparation of the Company's financial statements
and to maintain accountability for the assets of the Company; (C) access
to the assets of the Company is permitted only in accordance with
management's authorization; and (D) the recorded accounts and
accountability of the assets of the Company is compared with existing
assets at reasonable intervals.
(xxxi) Except as disclosed in the Prospectus, the Company has not and
has not agreed to issue or sell any securities of the Company (as defined
in the Act) and subject to the provisions thereof and the Securities
Laws, other than shares of Common Stock and Warrants issued and sold or
to be issued and sold as described in the Prospectus under the headings
"Management -- Restricted Stock Options", "Description of Securities",
and "Underwriting"; all shares of Common Stock and Warrants to be issued
as herein described have been duly authorized, and reserved and set aside
and when certificates therefor are countersigned by the Company's
transfer agent and issued and delivered to and paid for by the
subscribers, will be validly issued, fully paid and non-assessable; the
shares of Common Stock issuable upon exercise of the Warrants have been
reserved for issuance and, when issued in accordance with the terms of
the Warrant Agreement, will be duly and validly authorized, validly
issued, fully paid and non-assessable; and all statements made in the
Prospectus under the aforementioned headings describing such securities
are accurate; and all agreements and other instruments granting the
foregoing rights including, without limitation, the Underwriting
Agreement, the Warrant Agreement and the Underwriter's Unit Purchase
Option, are valid and binding agreements and instruments, enforceable
against the Company in accordance with their respective terms, assuming
due execution and delivery by the other parties thereto and subject to
bankruptcy and insolvency laws and other laws generally affecting the
enforceability of creditors' rights, the availability of equitable
remedies of injunction and specific performance and enforceability of
rights to indemnity; and except to the extent that rights to indemnity
and contribution under the Underwriting Agreement may be limited by
applicable federal or state securities laws or the public policy
underlying such laws.
(xxxii) Neither the Company nor any of its officers, directors or
affiliates (within the meaning of the Rules under the Act and the
securities laws) has or will take, directly or indirectly, any action
designed to stabilize or manipulate the price of any security of the
Company, or which has constituted or which might reasonably be expected
to cause or result in its stabilization or manipulation of the price of
any security of the Company, to facilitate the sale or resale of the
Units or the shares of Common Stock or the Warrants comprising such Units
or otherwise.
(xxxiii) To the Company's knowledge, no stamp or other issuance taxes,
transfer taxes, fees or duties are payable by or on behalf of the
Underwriter in connection with the sale of the Units or the consummation
of any other transaction contemplated pursuant to the Underwriting
Agreement.
(xxxiv) To the Company's knowledge, after investigation, at the
Effective Time, the statements in the Registration Statement and the
Prospectus did not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein
not misleading.
Each Certificate expressly provided for by Section 7 hereof signed by
any officer of the Company and delivered to the Underwriter or counsel for
the Underwriter shall be deemed to be a representation and warranty by the
Company to the Underwriter as to the matters covered thereby.
(b) The Underwriter represents and warrants to the Company that it is a
corporation duly incorporated, organized and subsisting under the laws of a
State of the United States of America,
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with good and sufficient power, authority and right to enter into and
deliver this Agreement and to complete the transactions to be completed by
the Underwriter contemplated hereby and that it is not a "new underwriter"
as defined in Item 508(b) of S.E.C. Regulation S-K.
3. ISSUE, SALES AND DELIVERY OF THE FIRM OFFERED UNITS AND OPTIONAL OFFERED
UNITS.
(a) The Company hereby agrees to sell to the Underwriter, and such
Underwriter, in reliance upon the representations and warranties contained
herein, and subject to the terms and conditions hereof, agrees to purchase
from the Company 960,000 Firm Offered Units, each Firm Offered Unit
consisting of two (or 1,920,000 in the aggregate) shares of Common Stock and
one (or 960,000 in the aggregate) Warrant at a purchase price of $6.25 per
Firm Offered Unit, together with such number of additional Warrants at a
price of $.25 per Warrant, as shall be necessary to offer the shares of
Common Stock of the Selling Stockholders in Units, as provided in the
Registration Statement, (before giving effect to the Underwriter's 10%
discount). You agree to offer the Firm Offered Units to the public initially
at the purchase price of $6.25 per Firm Offered Unit. At the Closing Date
the Company shall issue the Offered Units and the shares of Common Stock and
the Warrants comprising such Units to, or to the order of, the Underwriter
and deliver to the Underwriter one or more certificates in definitive form
representing the shares of Common Stock and the Warrants comprising such
Firm Offered Units, such Common Stock and Warrant certificates to be in such
denominations and registered in such name or names as the Underwriter shall
notify the Company in writing, not less than 2 business days prior to the
Firm Closing Date, against payment by the Underwriter to the Company of an
aggregate purchase price for the Firm Offered Units in lawful money of the
United States by certified check or banker's draft drawn upon New York
Clearing House Bank and payable at par or in immediately available funds
together with the Underwriter's receipt for such Common Stock and Warrant
certificates against delivery of the Company's receipt for such monies. Such
delivery of and payment for the Firm Offered Units shall be made at the
offices of M.H. Meyerson & Co., Inc., 30 Montgomery Street, Jersey City, New
Jersey 07302, at 10:00 a.m., New York time (the "Closing"), on ,
1996, or at such other place, time or date as the Underwriter and the
Company may agree upon or as the Underwriter may determine pursuant to
Section 7 hereof, such time and date of delivery against payment being
herein referred to as the "Firm Closing Date". The Company shall
contemporaneously pay to the Underwriter fees with respect to the Offered
Units as described in Paragraph 3 hereof, by certified check or banker's
draft at par against delivery of the Underwriter's receipt therefor. For the
purpose of expediting the checking and packaging of the Firm Offered Units,
the Company agrees to make the stock certificates for shares of the Common
Stock and the Warrants comprising such Firm Offered Units, as the
Underwriter may designate, available for inspection at least 24 hours prior
to the Firm Closing Date. The shares of the Common Stock and the Warrants
comprising the Firm Offered Units will be separately transferrable 30
business days after the date of the Prospectus or earlier in the discretion
of the Underwriter.
(b) For the purpose of covering any over-allotments in connection with
the distribution and sale of the Firm Offered Units as contemplated by the
Prospectus, the Company hereby grants to the Underwriter an option to
purchase up to 144,000 Units (the "Over-Allotment Option Offered Units").
The purchase price to be paid for the Over-Allotment Option Offered Units
shall be the same price per Unit as set forth above in Paragraph (a) of this
Section 3. The Over-Allotment Option may be exercised as to all or any part
thereof from time to time within 30 days after the date of the Prospectus.
The Over-Allotment Option shall be exercised, from time to time, in whole or
in part, by notice in writing specifying the number of Units with respect to
which the Over-Allotment Option is exercised and the date and time (the
"Over-Allotment Option Closing Date") and place for delivery of and payment
for such Over-Allotment Option Offered Units, given by the Underwriter to
the Company at any time prior to 5:00 p.m. (New York time) on the last day
for the exercise of the Over-Allotment Option. The Over-Allotment Option
Closing Date shall not be earlier than two business days or later than 7
business days after such exercise of the Over-
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Allotment Option and, in any event, shall not be earlier than the Firm
Closing Date. The purchase and sale of the Over-Allotment Option Offered
Units which are specified in the notice of exercise of all or part of the
Over-Allotment Option shall be held on the Over-Allotment Option Closing
Date or such other date or place as may be agreed in writing by the
Underwriter and the Company. The Underwriter shall not be under any
obligation to purchase any of the Over-Allotment Option Offered Units prior
to the exercise of the Over-Allotment Option. Upon exercise of the
Over-Allotment Option as provided herein, the Company shall become obligated
to sell to the Underwriter, and, subject to the terms and conditions herein
set forth, the Underwriter shall become obligated to purchase from the
Company, the Over-Allotment Option Offered Units as to which the Underwriter
is then exercising the Over-Allotment Option. If the Over-Allotment Option
is exercised as to all or any portion of the Over-Allotment Option Offered
Units, one or more certificates in definitive (or, if not available,
temporary) form for such Over-Allotment Option Offered Units, and payment
therefor, shall be delivered on the Over-Allotment Option Closing Date in
the manner, and upon the terms and conditions, set forth in Paragraph (a) of
this Section 3, except that reference therein to the Firm Offered Units and
the Firm Closing Date, shall be construed to mean Over-Allotment Option
Offered Units and Over-Allotment Option Closing Date, respectively.
4. OFFERING BY THE UNDERWRITER.
Upon the authorization of the release of the Firm Offered Units, the
Underwriter proposes to offer the Firm Offered Units for sale upon the terms
set forth in the Prospectus.
5. COVENANTS OF THE COMPANY AND THE UNDERWRITER.
A. The Company covenants and agrees with the Underwriter that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the time of execution of this Agreement,
and any amendments thereto, to become effective as promptly as possible.
If required, the Company will file the Prospectus and any amendment or
supplement thereto with the Commission in the manner and within the time
period required by Rule 424(b) under the Act. During any time when a
prospectus relating to the Units is required to be delivered under the
Act, the Company: (i) will comply with all requirements imposed upon it
by the Act and the rules and regulations of the Commission thereunder to
the extent necessary to permit the continuance of sales of or dealings in
the Units in accordance with the provisions hereof and of the Prospectus,
as then amended or supplemented; and (ii) will not file with the
Commission the Prospectus or the amendment referred to in the second
sentence of Section 2(a)(i) hereof, any amendment to the Registration
Statement of which the Underwriter shall not previously have been advised
and furnished with a copy for a reasonable period of time prior to the
proposed filing and as to which filing the Underwriter shall have
reasonably objected. The Company will prepare and file with the
Commission, in accordance with the rules and regulations of the
Commission, promptly upon request by the Underwriter or counsel for the
Underwriter, any amendments to the Registration Statement or amendments
or supplements to the Prospectus that may be necessary or advisable in
connection with the distribution of the Offered Units by the Underwriter,
and will use its best efforts to cause any such amendment to the
Registration Statement to be declared effective by the Commission as
promptly as possible. The Company will advise the Underwriter, promptly
after receiving notice thereof, of the time when the Registration
Statement, or any amendment thereto, has been filed or declared effective
or the Prospectus or any amendment or supplement thereto has been filed
and will provide evidence satisfactory to the Underwriter of each such
filing or effectiveness.
(b) The Company will advise the Underwriter, promptly after receiving
notice or obtaining knowledge thereof, of: (i) the issuance by any
Regulatory Authority of any stop order suspending the effectiveness of
the Registration Statement or any amendment thereto or any order
preventing or suspending the use of any Preliminary Prospectus, any
Prospectus or
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any amendment or supplement thereto; (ii) the suspension of the
qualification of the Units for offering or sale in any jurisdiction;
(iii) the institution, threatening or contemplation of any proceeding for
any such purpose; or (iv) any request made by any entity, governmental or
otherwise, having jurisdiction over this offering, is made or is proposed
to be made ("Regulatory Authority") for amending the Registration
Statement, for amending or supplementing any Prospectus or for additional
information. The Company will use its best efforts to prevent the
issuance of any such stop order and, if any such stop order is issued, to
obtain the withdrawal thereof as promptly as possible.
(c) The Company will use its best efforts to arrange for the
qualification of the Units and the shares of Common Stock and the
Warrants comprising the Units (and the Units to be offered by the Selling
Stockholders) for offering and sale under the securities or blue sky laws
of such jurisdictions as the Underwriter may designate, and will continue
such qualification in effect for as long as may be necessary to complete
the distribution of the Units and the shares of Common Stock and the
Warrants comprising the Units, provided however, that in connection with
such qualification the Company shall not be required to qualify as a
foreign corporation in any such jurisdiction.
(d) The Company will not take, directly or indirectly, any action
designed to cause or result in, or which was constituted or which might
reasonably be expected to constitute, the stabilization or manipulation
of the price of any securities of the Company.
(e) If, at any time when a prospectus relating to the Units is
required to be delivered under applicable securities legislation and the
rules and regulations of the appropriate Regulatory Authority thereunder,
any event occurs as a result of which any Prospectus, as then amended or
supplemented, would include any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading, or if for any other reason it is necessary at any time to
amend or supplement any Prospectus to comply with applicable securities
legislation and the rules and regulations of the appropriate Regulatory
Authority thereunder, the Company will promptly notify the Underwriter
thereof and, subject to Paragraph 10(a) hereof, will prepare and file
with the Commission, and file with or deliver to each other appropriate
Regulatory Authority, at the Company's expense, an amendment to the
Registration Statement or an amendment or supplement to such Prospectus
that corrects such statement or omission or effects such compliance.
(f) The Company will, without charge, provide: (i) to the Underwriter
and to counsel for the Underwriter, two signed copies of the registration
statement originally filed with respect to the Units and each amendment
thereto (in each case including exhibits thereto); and (ii) so long as a
prospectus relating to the Units is required to be delivered under the
Act, as many copies of each Preliminary Prospectus or the Prospectus or
any amendment or supplement thereto as the Underwriter may reasonably
request. The Company will provide or cause to be provided to the
Underwriter and to each other Underwriter or broker-dealer in a selling
group for this Offering that so requests in writing, a copy of the report
on Form SR filed by the Company as required by Rule 463 under the Act.
(g) The Company at its own expense, will give and continue to give
such financial statements and other information to and as may be required
by the Commission and by any Regulatory Authority in any jurisdiction in
which the Offering is to occur, or the public bodies of the jurisdictions
in which the Units may be qualified. Without limiting the generality of
the foregoing, the Company at its own expense, as soon as practicable,
will make generally available to its security holders and to the
Underwriter an earnings statement of the Company that satisfies the
provisions of Section 11(a) of the Act and Rule 158 thereunder.
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(h) The Company will apply the net proceeds from the sale of the
Units as set forth under the headings "Prospectus Summary -- Use of
Proceeds" and "Use of Proceeds" in the Prospectus.
(i) During a period of five years from the Effective Time, the
Company will furnish to the Underwriter: (A) as soon as practicable after
it is (x) filed with the Commission, any Regulatory Authority or any
securities exchange on which any class of securities of the Company may
be listed or (y) distributed to security holders of the Company, a copy
of each annual, interim and other report or communication so filed or
distributed; and (B) as soon as available, a copy of each report or
definitive proxy statement of the Company filed with the Commission under
the Exchange Act, or mailed to security holders (including, upon written
request, all related exhibits thereto).
(j) The Company will use its best efforts to cause the Units and the
shares of Common Stock and the Warrants comprising the Units to be duly
authorized for inclusion in the NASDAQ System, subject to notice of
issuance prior to the Firm Closing Date.
(k) Subsequent to the date of this Agreement and through the Firm
Closing Date, except as otherwise disclosed in the Prospectus, the
Company will not take any action that will result in the Company
incurring, or refrain from taking any action that would prevent it from
incurring, any material liability or obligation, direct or contingent, or
enter into any material transaction not in the ordinary course of its
business, and there will not be any material change in capital stock,
short-term debt or long-term debt, obligations under capital leases of
the Company or any issuance of options, warrants, or rights to purchase
shares of any class or series of capital stock of the Company or any
agreement to purchase any of its outstanding capital stock or any
declaration or payment of any dividend on any class or series of capital
stock of the Company.
(l) The Company will provide the Underwriter and its counsel with
copies of all comment letters and all other correspondence and with
contents of any oral comments received from any Regulatory Authority, as
soon as practicable after receipt thereof, and will supply the
Underwriter and its counsel with 2 bound volumes containing copies of all
filings and correspondence with the Commission and any other Regulatory
Authority relating to the offering.
(m) The Underwriter shall have the right to request the Company to
nominate one (1) designee of the Underwriter for election to the Board of
Directors for three (3) years following the Effective Date, and the
Company will use its best efforts to cause such nominee to be elected to
the Board of Directors. Such director shall not receive compensation from
the Company for services as a director in an amount greater than
compensation paid to other outside directors of the Company.
(n) The Company agrees to retain the Underwriter as an independent
consultant and investment banker for the Company for a period of two (2)
years from and after the date of the Prospectus, at a fee of $2,500 per
month, plus out-of-pocket expenses; such fee, aggregating $60,000, shall
be due and payable in full at the closing of the Firm Offered Units.
B. The Underwriter covenants with the Company that it shall conduct its
business relating to the offering of the Units contemplated herein
reasonably in accordance with all applicable laws.
6. EXPENSES.
(a) The Company agrees to pay all of its costs, fees, taxes and expenses
incident to the performance of its obligations under the Underwriting
Agreement, whether or not the transactions contemplated herein or therein
are consummated or this Agreement is terminated pursuant to Section 10
hereof, including all costs and expenses incident to: (i) the printing or
other
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production of documents with respect to the transactions, including all
costs of printing the registration statement originally filed with respect
to the Units and each amendment thereto, each Preliminary Prospectus, each
Prospectus and each amendment or supplement thereto and similar material;
(ii) all reasonable arrangements relating to the delivery to the Underwriter
of copies of the foregoing documents; (iii) the fees and disbursements of
the counsel, the accountants and any other experts or advisors retained by
the Company; (iv) preparation, issuance and delivery to the Underwriter of
any certificates evidencing the shares of Common Stock and the Warrants
comprising the Units, including all transfer agent's, sub-transfer agent's,
registrar's and sub-registrar's fees; (v) the qualification of the Units and
the shares of Common Stock and the Warrants comprising the Units under state
securities and blue sky laws and all Securities Laws of the United States
and its political subdivisions, including filing fees and reasonable fees
and disbursements of counsel for the Underwriter relating thereto; (vi) the
filing fees of the Commission and the National Association of Securities
Dealers, Inc. and all other Regulatory Authorities relating to the Units;
and (vii) the inclusion of the Units and the shares of Common Stock and the
Warrants comprising the Units in the NASDAQ System. In addition to the
foregoing, in connection with meetings with prospective investors in the
Units, the Company agrees to pay (x) all costs and expenses incurred by or
on behalf of it or its officers or employees, and (y) to the Underwriter at
the closing, a non-accountable expense allowance in the amount of three (3%)
percent of the gross dollar amount of the offering by the Company to the
public (including the Over-Allotment Option, if exercised), out of which a
five thousand ($5,000) dollar advance payment has been made, it being
understood that, except for the foregoing and the Underwriter's fees
described in Paragraph 3 hereof or other amounts payable in accordance with
the terms of this Agreement, no further expenses or fees shall be payable by
the Company to the Underwriter. If the sale of the Offered Units provided
for herein is not consummated because any condition to the obligations of
the Underwriter set forth in Section 7 hereof is not satisfied or because of
any failure, refusal or inability on the part of the Company to perform all
obligations and satisfy all conditions on its part to be performed or
satisfied hereunder other than by reason of a default by the Underwriter,
then the Company agrees to reimburse the Underwriter upon demand for all
out-of-pocket expenses (including reasonable counsel fees and disbursements)
that shall have been incurred by it in connection with the proposed purchase
and sale of the Offered Units; provided, however, that, except if the sale
of the offered Units is not consummated because of said failure, refusal or
inability on the part of the Company, the Underwriter shall refund to the
Company the amount, if any, by which said out-of-pocket expenses of the
Underwriter are less than the advance payment of expense allowances
theretofore made by the Company, provided, further, that if the public
offering is not consummated other than by reason of the Company's default,
the non-refundable retainer of $5,000 paid by the Company shall be refunded
by the Underwriter. The Selling Securityholders shall not bear any expenses
of the offering but shall have their shares of Common Stock which are
offered and sold to the Underwriter subject to the 10% discount referred to
above.
7. CONDITIONS OF THE UNDERWRITER'S OBLIGATIONS.
The obligations of the Underwriter to purchase and pay for the Firm Offered
Units shall be subject, in the Underwriter's reasonable discretion, to the
accuracy of the representations and warranties of the Company contained
herein as of the date hereof and as of the Firm Closing Date as if made on
and as of the Firm Closing Date, to the accuracy of the statements of the
officers of the Company and others made pursuant to the provisions of this
Section 7, to the performance in all material respects by the Company of its
covenants and agreements hereunder and to the following additional
conditions:
(a) If the Registration Statement or any amendment thereto filed prior
to the Firm Closing Date has not been declared effective as of the time of
execution hereof, the Registration Statement or such amendment shall have
been declared effective not later than 10:00 a.m., New Jersey time, on the
date on which the amendment to the registration statement originally filed
with
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respect to the Units or to the Registration Statement, as the case may be,
containing information regarding the initial public offering price of the
Units has been filed with the Commission, or such later time and date as
shall have been consented to by the Underwriter; if required, the Prospectus
and any amendments or supplements thereto shall have been filed with the
Commission in the manner and within the time period required by Rule 424(b)
under the Act; no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto shall have been issued, and
no proceedings for that purpose shall have been instituted or threatened or,
to the knowledge of the Company or the Underwriter, shall be contemplated by
the Commission; and the Company shall have complied with any request of the
Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise).
(b) The Underwriter shall not have advised the Company that the
Registration Statement or any Prospectus, or any amendment or any supplement
thereto, contains an untrue statement of fact which, in its reasonable
judgment, is material, or omits to state a fact which, in its reasonable
judgment, is material and is required to be stated therein or necessary to
make the statements therein not misleading.
(c) The Underwriter shall have received an opinion, dated the Firm
Closing Date, of The Stoppleman Law Firm, P.C., counsel for the Company, to
the effect that:
(i) the Company is a corporation duly incorporated, validly existing
and in good standing as a domestic corporation under the laws of its
jurisdiction of incorporation and is duly qualified to do business as a
foreign corporation and is in good standing under the laws of all other
jurisdictions where it owns or leases its property or conducts its
business;
(ii) the Company has full corporate power to own or lease its
property and conduct its business as described in the Registration
Statement and the Prospectus;
(iii) the form of certificates for the Units and the underlying shares
of Common Stock and the Warrants, respectively, has been approved by all
necessary corporate proceedings and complies with all applicable
corporate requirements and requirements of Delaware law;
(iv) the Units of the Company (including the shares of Common Stock
and the Warrants comprising the Units) conform in all material respects
to the description thereof contained in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus)
under the heading "Description of Securities";
(v) the Company has the authorized and issued capital as set forth in
the Prospectus; all of the shares of capital stock of the Company issued
at any time immediately prior to the Firm Closing Date have been duly
authorized and validly issued and (based upon an auditor's confirmation)
are fully paid and non-assessable; the Units and the shares of Common
Stock and the Warrants comprising the Units have been duly authorized by
all necessary corporate action of the Company and, when certificates
therefor are countersigned by the Company's transfer agent and issued and
delivered to and paid for by the Underwriter pursuant to the Underwriting
Agreement, will be validly issued, fully paid and non-assessable. No
holders of outstanding shares of capital stock of the Company are
entitled as such to any preemptive or, any similar rights, to subscribe
for any of the Units; to such counsel's knowledge, after due inquiry,
there are no outstanding rights, warrants, or options to acquire, or
instruments convertible into or exchangeable for, any shares of capital
stock of the Company which are not fully disclosed in the Prospectus;
and, except as disclosed in the Prospectus, no holders of securities of
the Company are entitled to have such securities registered under the
Registration Statement;
(vi) the statements set forth under the heading "Description of
Securities" in the Prospectus, insofar as such statements purport to
summarize certain provisions of the capital stock and certificate of
incorporation of the Company, provide a fair summary of such provisions
in all material respects;
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(vii) the Company has corporate power and corporate authority to
issue, sell and deliver the Units and the shares of Common Stock and the
Warrants comprising such Units to be sold to the Underwriter pursuant to
the Underwriting Agreement; and to carry out all of the terms and
provisions hereof and thereof to be carried out by it. The Company has
the corporate power and corporate authority to execute and deliver and to
perform its obligations under the Underwriting Agreement and to
consummate the transactions contemplated hereby and as described in the
Registration Statement;
(viii) to the best of such counsel's knowledge, after due
investigation, no legal or governmental proceedings are pending before
any court or governmental agency or authority to which the Company is a
party or to which the property of the Company is subject and no such
proceedings have been threatened against, or to the knowledge of such
counsel, are contemplated with respect to, the Company or with respect to
any of its property;
(ix) the Registration Statement and the Prospectus and any further
amendments and supplements thereto as of the Firm Closing Date, other
than financial statements and other statistical data and schedules
included therein, as to which such counsel need express no opinion,
comply as to form in all material respects with the requirements of the
Act and the rules and regulations thereunder; the contracts and other
documents filed as exhibits to the Registration Statement and summarized
in the Prospectus are accurately and fairly summarized therein to the
extent required in all material respects;
(x) the issuance, offering and sale of the Units, the shares of the
Common Stock and the Warrants comprising such Units, to the Underwriter
by the Company pursuant to the Underwriting Agreement, the compliance by
the Company with the other provisions of the Underwriting Agreement, and
the consummation of the other transactions herein and therein
contemplated do not: (A) require the consent, approval, authorization,
registration, permit or qualification of or with any governmental
authority, regulatory body, administrative agency, stock exchange or
securities association except: (1) such as have been obtained, (2) such
as may be required under state securities or blue sky laws, (3) if the
Registration Statement filed with respect to the Units (as amended) is
not effective under the Act as of the time of execution hereof, such as
may be required (and shall be obtained as provided in this Agreement)
under the Act and the Exchange Act, or (4) such as may be required (and
shall be obtained as provided in this Agreement) under applicable
securities and other laws; or (B) conflict with or result in a breach or
violation of any of the terms and provisions of, or constitute a default
under: (1) any indenture, mortgage, deed or trust, lease or other
agreement or instrument (x) to which the Company is a party that is
listed on a schedule attached to such opinion or (y) listed as an exhibit
to the Registration Statement, which the Company has advised such counsel
are the only agreements, instruments or indentures that are material to
the Company, taken as a whole, or (2) the charter documents or by-laws of
the Company; or (C) to the knowledge of such counsel, without independent
investigation, result in a material breach or material violation of any
of the terms and provisions of, or constitute a material default under
any statute of the United States or of any state therein or any judgment,
order or regulation of any court or other governmental authority,
regulatory body, administrative agency, stock exchange or securities
association applicable to the Company, the breach or violation of which
may be materially adverse to the Company;
(xi) except in each case as described in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus),
subsequent to the respective dates as of which information is given in
the Registration Statement and the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus): (A) the
Company has not incurred any material liability or obligation, direct or
contingent, nor entered into any material transaction not in the ordinary
course of business; (B) the Company has not
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<PAGE>
purchased any of its outstanding capital stock, nor declared, paid or
otherwise made any dividend or distribution of any kind on its capital
stock; (C) there has not been any material change in the capital stock,
short term debt or long term debt of the Company;
(xii) neither such counsel nor the Company has received notice that
the Company is in violation of any applicable federal, state, local or
foreign law, rule or regulation and/or that the Company is not in
compliance with all terms and conditions of any required permit, license
or approval, except as described in or contemplated by the Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus);
(xiii) except as disclosed in the Prospectus, there are no past or
present loss contingencies within the meaning of and within the scope of
Paragraph 5 of the ABA Statement of policy regarding lawyers responses to
auditors requests for information (December 1975), that could reasonably
be expected to form the basis of any claim against the Company;
(xiv) the Company has good and marketable title to all property owned
by it, in each case free and clear of all security interests, liens,
encumbrances, equities, claims and other defects except such as do not
materially adversely affect the value of such property and do not
interfere with the use made or proposed to be made of such property by
the Company;
(xv) the principal stockholders of the Company are as set forth in the
Prospectus under the heading "Security Ownership of Certain Beneficial
Owners and Management" and the officers, directors and principal
stockholders are the registered owners of the shares of Common Stock of
the Company as set forth therein;
(xvi) except as disclosed in the Prospectus, the Company has not and,
to such counsel's knowledge, has not agreed to issue or sell any
securities of the Company (as defined in the Act) and subject to the
provisions thereof and the Securities Laws, other than shares of Common
Stock issued and sold or to be issued and sold as described in the
Prospectus under the headings "Description of Securities", and
"Underwriting"; and to such counsel's knowledge all statements made in
the Prospectus under the aforementioned headings describing such
securities are accurate; and all agreements and other instruments
granting the options and/or Warrants described under such headings as
well as all agreements filed as part of Item 27 in Part II of the
Registration Statement are valid and binding agreements and instruments,
enforceable by, or against the Company, as the case may be in accordance
with their respective terms, assuming due execution and delivery by
parties thereto (other than the Company) and subject to bankruptcy and
insolvency laws and other laws generally affecting the enforceability of
creditors' rights, the availability of equitable remedies of injunction
and specific performance and enforceability of rights to indemnity, and
except to the extent that rights to indemnity and contribution under the
Underwriting Agreement may be limited by applicable federal or state
securities laws or the public policy underlying such laws;
(xvii) as of the Firm Closing Date, and on the Over-Allotment Option
Closing Date, as the case may be, the Registration Statement has been
declared effective under the Act by the Commission; each required filing
of the Prospectus pursuant to Rule 424(b) has been made in the manner and
within the time period required by Rule 424(b); and to such counsel's
knowledge, no stop order suspending the effectiveness of the Registration
Statement or any amendment thereto has been issued and no proceedings for
that purpose have been instituted or threatened by the Commission;
(xviii) the Company is not currently subject to regulation under the
Investment Company Act of 1940, as amended;
(xix) to the knowledge of such counsel, the Company possesses all
certificates, permits and licenses issued by the appropriate federal,
state or local regulatory authorities, which would have a material
adverse effect if such certificate, permit or license was not possessed
by the Company, necessary to conduct its business as currently conducted
and to the knowledge
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of such counsel, after investigation, the Company has not received any
notice of proceedings relating to the revocation or modification of any
such certificates, authorizations, permits and licenses which, singularly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would have a material adverse effect on the Company; and
(xx) to the best of the knowledge of such counsel, except as disclosed
in the Prospectus, the Company owns or possesses the rights to use
patents and licenses and proprietary or other confidential information
currently used by it for the conduct of its business and neither the
Company nor such counsel has received a notice of infringement of or
conflict with rights asserted against the Company by any third party with
respect to any of the foregoing which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a
material adverse effect on the Company, except as described in or
contemplated by the Registration Statement and the Prospectus, and the
consummation of the transactions contemplated therein will not alter or
impair any such rights. The statements set forth under the heading "Risk
Factors -- Competition" and the corresponding discussion under "Business
-- Competition" have been reviewed by such counsel and fairly present the
information disclosed therein in all material respects;
(xxi) to the best knowledge of such counsel, the statements set forth
under the headings "Risk Factors -- Dependence on Key Personnel";
"Dependence on Key Customers;" "Sensitivity to Service Economy:" and all
materials under the prime caption "BUSINESS" have been reviewed by such
counsel and fairly present the information disclosed therein in all
material respects.
Such counsel shall state that they have participated in conferences with
officers and representatives of the Company, representatives of the
independent accountants of the Company and representatives of the
Underwriter, at which the contents of the Registration Statement and the
Prospectus and related matters were discussed and, although such counsel
makes no representation, express or implied, that it has independently
verified, and such counsel is not passing upon and does not assume any
responsibility for, the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus (other than as set
forth in Paragraph (vi) above), on the basis of the foregoing and relying
thereon, no facts have come to the attention of such counsel which lead them
to believe that the Prospectus or the Registration Statement, as of its
effective date, 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 any Prospectus, as of its
date or the date of such opinion, included or includes any untrue statement
of a material fact or omitted or omits to state a material fact required to
be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
Such counsel may advise the Underwriter that such counsel expresses no
opinion or belief as to the financial statements, schedules and other
financial and statistical information included in or excluded from the
Registration Statement or the Prospectus.
In rendering any such opinion, such counsel may rely, as to matters
of facts, to the extent such counsel deems proper, on certificates of public
officials and, as to matters involving the application of laws of any
jurisdiction other than the State of Delaware or the United States, to the
extent satisfactory in form and scope to counsel for the Underwriter, upon
the opinion of other counsel acceptable to the Underwriter. Copies of such
opinion shall be delivered to the Underwriter and counsel for the
Underwriter and shall expressly state that all such counsel may rely on such
opinion.
References to the Registration Statement and the Prospectus in this
Paragraph (c) shall include any amendment or supplement thereto at the date
of such opinion.
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(d) The Underwriter shall have received from Grant Thornton LLP, letters
dated the date hereof and the Firm Closing Date, in form and substance
satisfactory to the Underwriter, to the effect that:
(i) they are independent accountants with respect to the Company
within the meaning of the Act and Regulation S-B and the applicable
published rules and regulations thereunder;
(ii) in their opinion, the audited financial statements and schedules
examined by them and included in the Registration Statement and the
Prospectus comply in form in all material respects with all applicable
accounting requirements, including, without limitation, the applicable
accounting requirements of the Act and Regulation S-B, and the related
published rules and regulations; and
(iii) they have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts, percentages and
financial information that are derived from the general accounting
records of the Company and are included in the Registration Statement and
the Prospectus under the headings "Prospectus Summary", "The Company",
"Risk Factors", "Dividend Policy", "Capitalization", "Dilution",
"Selected Financial Data", "Management's Discussion and Analysis of
Financial Condition and Results of Operations", "Business", "Management",
"Security Ownership of Certain Beneficial Owners and Management",
"Certain Transactions", and have compared such amounts, percentages and
financial information with the accounting records of the Company and with
information derived from such records and have found them to be in
agreement, excluding any questions of legal interpretation.
(iv) On the basis of limited procedures, not constituting an audit, a
reading of the latest financial statements of the Company, reading the
minutes of meetings of the Board of Directors and stockholders of the
Company, inquiries of certain officials of the Company responsible for
financial and accounting matters and such other inquiries and procedures
as may be specified in such letters, nothing came to their attention
which in their judgment would cause them to believe that during the
period from the last audited balance sheet included in the Registration
Statement or the Prospectus (or, if the Prospectus is not in existence,
the most current Preliminary Prospectus) to a specified date not more
than five days prior to date of such letter (a) there has been any change
in the common stock or other securities of the Company or any payment or
declaration of any dividend or other distribution in respect thereof or
exchange therefor from that shown on its audited balance sheets or in the
debt of the Company from that shown in the Registration Statement or the
Prospectus (or, if the Prospectus is not in existence, the most current
Preliminary Prospectus) so as to make said financial statements
misleading; (b) any decrease in stockholders' equity or in the net sales
of the Company; and (c) on the basis of the procedures indicated above,
nothing has come to their attention which, in their judgment, would cause
them to believe or indicate that the audited financial statement
appearing in the Prospectus (or, if the Prospectus is not in existence,
the most current Preliminary Prospectus), or the unaudited financial
statements, whether or not appearing in the Prospectus (or, if the
Prospectus is not in existence, the most current Preliminary Prospectus),
do not, at the dates of such letters, present fairly the financial
position and the results of the Company for the periods indicated in
accordance with generally accepted accounting principles applied on a
consistent basis. The Underwriter and its counsel may request such other
information and statements to be contained in the aforesaid letters from
Grant Thornton LLP, provided that such additional material shall be
reasonably within the purview of the Statement on Auditing Standards No.
72 issued February, 1993 by the American Institute of Certified Public
Accountants, Inc.
In the event that the letter referred to above sets forth any such
changes,decreases or increases, it shall be a further condition to the
obligations of the Underwriter that: (A) such letter shall be accompanied by
a written explanation of the Company as to the significance thereof,
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unless the Underwriter deems such explanation unnecessary; and (B) such
changes, decreases or increases do not, in the reasonable judgment of the
Underwriter make it impractical or inadvisable to proceed with the purchase
and the delivery of the Units as contemplated by the Registration Statement,
as amended as of the date hereof.
References to the Registration Statement and any Prospectus in this
Paragraph (d) with respect to the letters referred to above shall include
any amendment or supplement thereto at the date of such letter.
(e) The Underwriter shall have received a certificate, dated the Firm
Closing Date, of the Chief Executive Officer and Chief Financial Officer of
the Company, respectively, to the effect that:
(i) the representations and warranties of the Company in this
Agreement are true and correct as if made on and as of the Firm Closing
Date; the Registration Statement, as amended as of the Firm Closing Date,
does not include any untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein not
misleading; the Prospectus, as amended or supplemented as of the Firm
Closing Date, does not include any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading; and the Company has performed all covenants and agreements
and satisfied all conditions on its part to be performed or satisfied at
or prior to the Firm Closing Date;
(ii) The Registration Statement has become effective and no order
suspending or preventing the use of any Prospectus, or the effectiveness
of the Registration Statement or any amendment thereto has been issued,
and to the best of their knowledge after inquiry, no proceedings for that
purpose have been instituted or threatened, or are contemplated, by any
Regulatory Authority;
(iii) the charter documents and by-laws of the Company attached to the
certificate are full, true and correct copies and in effect on the date
thereof;
(iv) the minutes or other records of various proceedings and actions
of the Company's Board of Directors attached to the certificate at the
request of the Underwriter are full, true and correct copies thereof and
have not been modified or rescinded as of the date thereof;
(v) subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, the Company has
not sustained any material loss or interference with its businesses or
properties from fire, flood, hurricane, accident or other calamity,
whether or not covered by insurance, or from any labor dispute or any
legal or governmental proceeding, and there has not been any material
adverse change, or any development involving a prospective material
adverse change, in the condition (financial or otherwise), business
prospects, net worth or results of operations of the Company;
(vi) the Company has complied in all material respects with all terms
and conditions and covenants of this Agreement on its part to be complied
with prior to the Firm Closing Date;
(vii) except as described in the Prospectus, the Company is not a
party to or bound by any material contract or other material document;
(viii) the only jurisdictions in which the Company owns or leases
material property or conducts material operations are the jurisdictions
described in the Prospectus; and
(ix) such additional matters as the Underwriter may reasonably
request.
(f) The Units and the shares of Common Stock and the Warrants comprising
the Units shall have been approved for inclusion in the NASDAQ System
subject to official notice of issuance.
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<PAGE>
(g) On or before the Firm Closing Date, the Underwriter and counsel for
the Underwriter shall have received such further certificates, documents or
other information as they may have reasonably requested from the Company.
(h) The Company shall have issued and delivered to the Underwriter the
Underwriter's Unit Purchase Option to acquire 960,000 Units at a price of
$9.375 per Unit, as described in the Prospectus under the caption
"Underwriting -- Underwriter's Unit Purchase Option."
All opinions, certificates, letters and documents delivered pursuant
to this Agreement shall comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Underwriter and
counsel for the Underwriter. The Company shall furnish to the Underwriter
such conformed copies of such opinions, certificates, letters and documents
required hereunder in such quantities as the Underwriter and counsel for the
Underwriter shall reasonably request.
The respective obligations of the Underwriter to purchase and pay for
any Over-Allotment Option Offered Units shall be subject, in its discretion,
to each of the foregoing conditions to purchase the Firm Offered Units as of
the Over-Allotment Option Closing Date. All opinions, certificates, letters
an documents delivered pursuant to this Agreement on the Firm Closing Date
shall be re-affirmed and redelivered on and as of the Over-Allotment Option
Closing Date.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless the Underwriter
and each person, if any, who controls the Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, against any losses,
claims, damages or liabilities, joint or several, to which the Underwriter
or such controlling person may become subject under the Act, the Exchange
Act, the Securities Laws of the Qualifying Jurisdictions, or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement made by the
Company in Section 2 of this Agreement or in any certificate delivered to
the Underwriter pursuant to Section 7 of this Agreement;
(ii) any untrue statement or alleged untrue statement of any material
fact contained in: (A) the registration statement originally filed with
respect to the Units or any amendment thereto, any Preliminary Prospectus
or Prospectus or any amendment or supplement thereto; or (B) any
application or other document, or any amendment or supplement thereto,
executed by the Company or based upon written information furnished by or
on behalf of the Company filed in any jurisdiction in order to qualify
the Units under the securities or blue sky laws thereof or filed with the
Commission or any securities association or securities exchange
(individually and/or collectively as the "Application"); or
(iii) the omission or alleged omission to state in such registration
statement or any amendment thereto, any Preliminary Prospectus or
Prospectus or any amendment or supplement thereto, or any Application, a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse, as incurred, the
Underwriter and each such controlling person for any legal or other
properly vouchered expenses reasonably incurred by the Underwriter or
such controlling person in connection with investigating, defending
against or appearing as a third party witness in connection with any such
loss, claim, damage, liability or action; PROVIDED, HOWEVER, that the
Company will not be liable (x) in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon any
untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement or any amendment thereto,
any Preliminary Prospectus or Prospectus or any amendment or supplement
thereto, or any Application in
19
<PAGE>
reliance upon and in conformity with statements contained therein
relating to the Underwriter where such documents have been provided by
the Underwriter specifically for inclusion in the Registration Statement
or Prospectus contained therein, or (y) to the Underwriter or any person
controlling the Underwriter with respect to any such untrue statement or
omission made in any Preliminary Prospectus that is corrected in the
related Prospectus (or any amendment or supplement thereto) if the person
asserting any such loss, claim, damage or liability purchased Units from
such Underwriter but was not sent or given a copy of such Prospectus (as
amended or supplemented) at or prior to the written confirmation of the
sale of such Units to such person in any case where such delivery of such
Prospectus (as amended or supplemented) is required by the Act or the
Securities Laws, unless such failure to deliver such Prospectus (as
amended or supplemented) was a result of non-compliance by the Company
with Section 5 of this Agreement. Notwithstanding the foregoing, the
Company shall not be liable for the settlement of any claim or action in
respect of which indemnity may be sought hereunder effected without the
written consent of the Company, which consent shall not be unreasonably
withheld. This indemnity agreement will be in addition to any liability
or obligation which the Company may otherwise have.
The Company will not, without the prior written consent of the
Underwriter, settle or compromise or consent to the entry of any judgment in
any pending or threatened claim, action, suit or proceeding in respect of
which indemnification may be sought hereunder (whether or not the
Underwriter or any person who controls the Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act is a party to such
claim, action, suit or proceeding), unless such settlement, compromise or
consent includes an unconditional release of the Underwriter and each such
controlling person from all liability arising out of such claim, action,
suit or proceeding.
(b) The Underwriter will indemnify and hold harmless the Company, each
of its directors, each of its officers who signed the Registration Statement
and each person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act against any losses,
claims, damages or liabilities to which the Company, any such director or
officer of the Company or any such controlling person of the Company may
become subject, under the Act, the Exchange Act, the Securities Laws of the
Qualifying Jurisdiction or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon: (i) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment
thereto, any Preliminary Prospectus or Prospectus or any amendment or
supplement thereto, or any Application; or (ii) the omission or the alleged
omission to state in the Registration Statement or any amendment thereto,
any Preliminary Prospectus or Prospectus or any amendment or supplement
thereto, or any Application a material fact required to be stated therein or
necessary to make the statements therein not misleading,
PROVIDED, however, that the foregoing obligation of the Underwriter
is subject, in each case, to the requirement that such untrue statement or
alleged untrue statement or omission or alleged omission was made in
reliance upon and in conformity with statements contained therein relating
to the Underwriter where such information has been specifically provided by
the Underwriter for inclusion therein; and, subject to the limitation set
forth immediately preceding this clause, will reimburse upon receipt of
proper vouchers, as incurred, any legal or other expenses reasonably
incurred by the Company, any such director, officer or controlling person in
connection with defending any such loss, claim damage liability or action in
respect thereof. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section 8
of notice of the commencement of any action, such indemnified party will, if
a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party of the
20
<PAGE>
commencement thereof; but the omission so to notify the indemnifying party
will not relieve it from any liability which it may have to any indemnified
party otherwise than under this Section 8. In case any such action is
brought against any indemnified party, and it notifies the indemnifying
party of the commencement thereof, the indemnifying party will be entitled
to participate therein and, to the extent that it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel satisfactory to such indemnified party; PROVIDED, HOWEVER, that
if the defendants in any such action include both the indemnified party and
the indemnifying party and the indemnified party shall have reasonably
concluded that there may be one or more legal defenses available to it
and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnifying party shall not
have the right to direct the defense of such action on behalf of such
indemnified party or parties and such indemnified party or parties shall
have the right to select separate counsel to defend such action on behalf of
such indemnified party or parties. After notice from the indemnifying party
to such indemnified party of its election so to assume the defense thereof
and approval by such indemnified party of counsel appointed to defend such
action, the indemnifying party will not be liable to such indemnified party
under this Section 8 for any legal or other expenses, other than reasonable
costs of investigation, subsequently incurred by such indemnified party in
connection with the defense thereof, unless: (i) the indemnified party shall
have employed separate counsel in accordance with the proviso to the next
preceding sentence (it being understood, however, that in connection with
such action the indemnifying party shall not be liable for the expenses of
more than one separate counsel (in addition to local counsel) in any one
action or separate but substantially similar actions in the same
jurisdiction arising out of the same general allegations or circumstances,
designated by the Underwriter in the case of Paragraph (a) of this Section
8, representing the indemnified parties under such Paragraph (a) who are
parties to such action or actions); or (ii) the indemnifying party has
authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party. After such notice from the indemnifying
party to such indemnified party, the indemnifying party will not be liable
for the costs and expenses of any settlement of such action effected by such
indemnified party without the consent of the indemnifying party, unless such
indemnified party waived its rights under this Section 8 in which case the
indemnified party may effect such a settlement without such consent.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in the preceding
Paragraphs of this Section 8 is unavailable or insufficient to hold harmless
an indemnified party in respect of any losses, claims, damages or
liabilities (or actions in respect thereof), then each indemnifying party
shall contribute to the amount paid or payable by such indemnified party as
a result of such losses, claims, damages or liabilities (or actions in
respect thereof) in such proportion as is appropriate to reflect: (i) the
relative benefits received by the indemnifying party or parties on the one
hand and the indemnified party on the other from the offering of the Offered
Units; or (ii) if the allocation provided by the foregoing Clause (i) is not
permitted by applicable law, not only such relative benefits but also the
relative fault of the indemnifying party or parties on the one hand and the
indemnified party on the other in connection with the statements or
omissions or alleged statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof). The relative
benefits received by the Company on the one hand and the Underwriter on the
other shall be deemed to be in the same proportion as the total proceeds
from the offering of the Offered Units (before deducting expenses) received
by the Company bear to the total underwriting discounts and commissions
received by the Underwriter in connection therewith. The relative fault of
the parties shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company or the Underwriter, the parties' relative intents, knowledge,
access to information and opportunity to correct or prevent such statement
or omission, and any other equitable considerations appropriate in the
circumstances. The Company and the Underwriter agree that it would not be
equitable if the amount of such
21
<PAGE>
contribution were determined by pro rata or per capita allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the first sentence of this Paragraph (d).
Notwithstanding any other provision of this Paragraph (d), the Underwriter
shall not be obligated to make contributions hereunder that in the aggregate
exceed the total public offering price of the Offered Units purchased by the
Underwriter under this Agreement, less the aggregate amount of any damages
that the Underwriter has otherwise been required to pay in respect of the
same or any substantially similar claim, and no person guilty of fraudulent
misrepresentation (within the meaning of Section 11 (f) of the Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Paragraph (d), each
person, if any, who controls the Underwriter within the meaning of Section
15 of the Act or Section 20 of the Exchange Act shall have the same rights
to contribution as the Underwriter, and each director of the Company, each
officer of the Company who signed the Registration Statement and each
person, if any, who controls the Company within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act, shall have the same rights to
contribution as the Company.
9. SURVIVAL.
The respective representations, warranties, agreements, covenants,
indemnities and other statements of the Company, their officers and the
Underwriter set forth in this Agreement, shall remain in full force and
effect until three years from the Effective Time, regardless of: (i) any
investigation made by or on behalf of the Company, any of their officers or
directors, the Underwriter or any controlling person referred to in Section
8 hereof; and (ii) delivery of and payment for the Offered Units.
Notwithstanding the foregoing sentence, the respective agreements,
covenants, indemnities and other statements set forth in Sections 5 through
8 hereof shall remain in full force and effect regardless of any termination
or cancellation of this Agreement and shall remain in full force and effect
after Closing.
10. TERMINATION.
(a) This Agreement may be terminated with respect to the Firm Offered
Units or any Over-Allotment Option Offered Units in the sole discretion of
the Underwriter by notice to the Company given prior to the Firm Closing
Date or the Over-Allotment Option Closing Date, respectively, in the event
that the Company shall have failed, refused or been unable to perform any or
all obligations and satisfy any or all conditions on its part to be
performed or satisfied hereunder at or prior thereto or, if at or prior to
the Firm Closing Date or such Over-Allotment Option Closing Date,
respectively:
(i) the Company shall have sustained any material loss or
interference with its business or property from fire, flood, hurricane,
accident or other calamity, whether or not covered by insurance, or from
any labor dispute or any legal or governmental proceeding or there shall
have been any material adverse change, or any development involving a
prospective material adverse change including, without limitation, the
event that any of the persons described under the caption "Management --
Directors, Executive Officers, and Key Employees" as employees of the
Company shall cease to be employed by the Company, and/or a change in
management or control of the Company, shall have occurred or a material
adverse change occurs, in the condition (financial or otherwise),
business prospects, net worth or results of operations of the Company;
(ii) trading in the Units shall have been suspended or halted by any
applicable securities commission or regulator in the United States or by
NASDAQ, or trading in securities general on NASDAQ shall have been
suspended, or minimum or maximum prices shall have been established on
such exchange, or trading in any securities of the Company shall have
been suspended or halted by any national securities exchange upon which
such securities are listed or the appropriate Regulatory Authorities;
22
<PAGE>
(iii) a banking moratorium shall have been declared by authorities of
the City of New York, the States of New Jersey or New York, or the United
States of America; or
(iv) there shall have been: (A) an outbreak of hostilities between the
United States and any foreign power; (B) an outbreak of any other
insurrection or armed conflict involving the United States; or (C) any
other calamity or crisis having, in the case of Sections 11(a)(iv)(A),
(B) or (C) a material adverse effect on the financial markets such that
in the reasonable judgment of the Underwriter it is impracticable or
inadvisable to proceed with the public offering or the delivery of the
Offered Units, as contemplated by the Registration Statement, as amended
as of the date hereof.
(b) Termination of this Agreement pursuant to this Paragraph 10 shall be
without liability of any party to any other party except as provided in Section
10 hereof.
11. INFORMATION SUPPLIED BY THE UNDERWRITER.
The information under the heading "Underwriting" and the statements set forth
on the front cover page in any Preliminary Prospectus and Prospectus (to the
extent such statements relate to the Underwriter) constitute the only
information furnished by the Underwriter to the Company for the purposes
hereof. The Underwriter confirms that such statements (to such extent) are
correct.
12. NOTICES.
All communications hereunder shall be in writing and shall be mailed,
delivered by hand or confirmed overnight service (such as Federal Express or
DHL) or by facsimile confirmed in writing, and shall, in the case of notice
of the Company be addressed and sent to the Company at its address on the
cover of the Registration Statement, Attn: Chief Executive Officer with a
copy to its counsel: The Stoppleman Law Firm, P.C., 1749 Old Meadow Road,
Suite 610, McLean, Virginia; and in the case of notice to the Underwriter be
addressed and sent to: M.H. Meyerson & Co., Inc., 30 Montgomery Street,
Jersey City, New Jersey 07302, Attn.: Mr. Michael Silvestri, President, with
a copy to its counsel: Hartman & Craven LLP, 460 Park Avenue, New York, New
York 10022, Attn: Edward I. Tishelman, Esq.
The Company and the Underwriter may change their respective addresses for
notice, by notice given in the manner aforesaid. Any such notification shall
take effect at the time of receipt.
13. SUCCESSORS.
This Agreement shall enure to the benefit of, and shall be binding upon, the
Underwriter and the Company and their respective successors and legal
representatives, and nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any other person of this Agreement,
or any provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person except that:
(i) the indemnities of the Company contained in Section 8 of this Agreement
shall also be for the benefit of all officers, directors, employees and
agents of the Underwriter and any person or persons who control the
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act; and (ii) the indemnities of the Underwriter contained in
Section 8 of this Agreement shall also be for the benefit of the directors
of the Company, the officers of the Company who have signed the Registration
Statement and any person or persons who control the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act. No
purchaser of Units from the Underwriter shall be deemed a successor because
of such purchase.
23
<PAGE>
14. APPLICABLE LAW.
The validity and interpretation of this Agreement, and the terms and
conditions set forth herein, shall be governed by and construed in
accordance with the laws of the State of New Jersey United States of
America, without giving effect to any provisions relating to conflicts of
laws.
15. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one
and the same instrument.
16. TIME OF ESSENCE.
Time shall be of the essence of this Agreement between the Company and the
Underwriter.
17. CONDITIONS FOR THE BENEFIT OF THE COMPANY.
The obligation of the Company to issue the Units is subject to the following
terms and conditions which are for the exclusive benefit of the Company to
be performed or complied with at or prior to the Closing:
(1) the representations and warranties of the Underwriter set forth in
Section 2(b) shall be true and correct at the Closing with the same force
and effect as if made at and as of such time; and
(2) the Underwriter shall have performed or complied with all of the terms,
covenants and conditions of this Agreement to be performed or complied
with by such Underwriter at or prior to the Closing.
If the foregoing correctly sets forth our understanding, please indicate your
acceptance thereof in the space provided below for that purpose, whereupon this
letter shall constitute a binding agreement among the Company and the
Underwriter.
ON-SITE SOURCING, INC.
<TABLE>
<S> <C> <C>
By: ----------------------------------------
Christopher J. Weiler
President
</TABLE>
SELLING SECURITYHOLDERS:
Manhattan Group Funding
<TABLE>
<S> <C> <C>
By: ---------------------------------------- ----------------------------------------
Ron Heller Leonard Parker
---------------------------------------- ----------------------------------------
Ronnee Medow Roslyn Parker
---------------------------------------- ----------------------------------------
Paul Sozansky Sabine Devilloutreys
Sagax Fund II Ltd.
By: ----------------------------------------
</TABLE>
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
M. H. MEYERSON & CO., INC.
<TABLE>
<S> <C> <C>
By: ----------------------------------------
</TABLE>
24
<PAGE>
EXHIBIT 1.02
ON-SITE SOURCING, INC.
THE TRANSFERABILITY OF THIS OPTION IS
RESTRICTED AS PROVIDED IN ARTICLE 3
In consideration of $0.001 per Unit (as defined below) and other good
and valuable consideration, the receipt of which is hereby acknowledged by
ON-SITE SOURCING, INC., a Delaware corporation with its principal address at
1111 N. 19th Street, Suite 404, Arlington, VA 22209 ("Company"), M.H. MEYERSON
& CO., INC. ("Underwriter" or "Holder") is hereby granted the right to
purchase (the "Option") at the initial exercise price of $9.375 per unit (the
"Purchase Price"), at any time from ____________, 1996 until 5:00 P.M.,
E.S.T., on ____________, 2001, any portion or all, at the Holder's election,
of 96,000 Units ("Units"), each Unit consisting of two shares of Common Stock
and One Redeemable Common Stock Purchase Warrant to Purchase One Share of
Common Stock ("Common Stock") at a price of $6.00 per share.
This Option and the underlying Units have been registered under a
registration statement on Form SB-2 (File No. 333-3544) declared effective by
the Securities and Exchange Commission on ___________, 1996 (the
"Registration Statement").
Except as specifically otherwise provided herein, the Common Stock and
Unit Warrants issued pursuant to this Option (the "Holder's Unit Purchase
Option" or the "Option") shall bear the same terms and conditions as the
Units, including the Common Stock and Warrants, as described in the
Registration Statement, and the Unit Warrants shall be governed by the terms
of the Warrant Agreement dated ____________, 1996, between the Company and
The Trust Company of New Jersey (the "Warrant Agreement") executed in
connection with the public offering of the securities covered by the
Registration Statement, except (a) with respect to the exercise price as
described below, (b) that the Holder shall have registration rights under the
Securities Act of 1933 with respect to the Units and the shares of Common
Stock underlying the Units, Unit Warrants and the shares of Common Stock
underlying the Units, Unit Warrants and the shares of Common Stock underlying
the Unit Warrants, all as more fully described herein.
Each Unit Warrant entitles the Holder to purchase one (1) share of
Common Stock at a price of $6.00 per share until 5:00 P.M. EDT on
____________, 2001, when the Unit Warrants expire. The exercise price of the
Unit Warrants are subject to adjustment under certain circumstances described
in the Warrant Agreement.
This Option initially is exercisable at a price of $9.375 per Unit (the
"Purchase Price") payable in cash or by certified or official bank check in
New York Clearing House funds, subject to adjustment as provided in Article 6
hereof. Upon surrender of this Option with the annexed Subscription Form duly
executed, together with payment of the Purchase Price (as hereinafter defined)
for the Units purchased at the Company's principal offices, the Holder of
<PAGE>
this Option ("Holder") shall be entitled to receive a certificate or
certificates for the shares of Common Stock so purchased and a certificate or
certificates for the Unit Warrants so purchased.
1. EXERCISE OF OPTION.
The purchase rights represented by this Option are exercisable, at the
option of the Holder hereof, in whole or in part (but not as to fractional
shares of the Common Stock underlying this Option or fractional Unit
Warrants), commencing ____________, 1997 and extending until 5:00 P.M., New
York time ____________, 2001. In the case of the purchase of less than all
the Units purchasable under this Option, the Company shall cancel this Option
upon the surrender hereof and shall execute and deliver a new Option of like
tenor for the balance of the Units purchasable hereunder.
2. ISSUANCE OF CERTIFICATES.
Upon the exercise of this Option, the issuance of certificates for
shares of Common Stock and Unit Warrants underlying this Option and, upon the
exercise of the Unit Warrants, the issuance of certificates for shares of
Common Stock underlying the Unit Warrants, shall be made forthwith (and in
any event within three business days thereafter) without charge to the Holder
hereof including, without limitation, any tax which may be payable in respect
of the issuance thereof, and such certificates shall (subject to the
provisions of Articles 3 and 5 hereof) be issued in the name of, or in such
names as may be directed by, the Holder hereof; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any such
certificates in a name other than that of the Holder and the Company shall
not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the
Company the amount of such tax or shall have established to the satisfaction
of the Company that such tax has been paid. The certificates representing the
shares of Common Stock and Unit Warrants underlying this Option and the
shares of Common Stock underlying the Unit Warrants shall be executed on
behalf of the Company by the manual or facsimile signature of the present or
any future Chairman or President of the Company, and attested to by the
manual or facsimile signature of the present or any future Secretary or
Assistant Secretary of the Company.
3. RESTRICTION ON TRANSFER OF OPTION.
The Holders of this Option, by their acceptance hereof, covenant and
agree that this Option is being acquired as an investment and not with a view
to the distribution thereof, and that, for a period of five years from and
after the effective date of the Registration Statement, it may not be sold,
transferred, assigned, hypothecated or otherwise disposed of, in whole or in
part, except to a successor to the business of the Underwriter, persons who
are officers and/or stockholders of the Underwriter, if a corporation, or
partners of the Underwriter, if a partnership, or the executor, administrator
or personal representative of such officer or partner in the event of his
death or incapacity.
-2-
<PAGE>
4. PRICE.
4.1 INITIAL AND ADJUSTED PURCHASE PRICES. The Holders shall pay the
sum of $0.001 per Unit to purchase this Option. Thereafter, the purchase
price ("Purchase Price") shall be $9.375 per Unit. The adjusted purchase price
shall be the price which shall result from time to time from any and all
adjustments of the initial purchase price in accordance with the provisions
of Article 6 hereof.
4.2 PURCHASE PRICE. The term "Purchase Price" herein shall mean the
Purchase Price or the adjusted purchase price, depending upon the context.
5. REGISTRATION RIGHTS.
In the event that the Units covered by this Option, and the Unit
Warrants and shares of Common Stock comprising the same, and/or the shares of
Common Stock issuable upon exercise of the Unit Warrants, are not at any
future date registered under the Securities Act of 1933, as amended ("the
Act") by a then-effective registration statement:
5.1 DEMAND REGISTRATION. If the Holders of at least fifty percent
(50%) of this Option and/or Units or other securities obtained upon exercise
of this Option and/or exercise of the Warrants contained in the Units acquired
upon exercise of this Option, shall give notice to the Company at any time
from ___________, 1996 until 5:00 P.M., E.S.T. ____________, 2001, to the
effect that such Holder desires to register under the Act, the Units or any
of the underlying securities contained in the Units underlying the Option
(the "Option Securities") under such circumstances that public distribution
(within the meaning of the Act) of any such securities will be involved, then
the Company will promptly, but no later than thirty (30) days after receipt
of such notice, file a post-effective amendment to the current Registration
Statement or a new registration statement pursuant to the Act, as may be
required, to the end that the Option Securities may be publicly sold under
the Act as promptly as practicable thereafter and the Company will use its
best efforts to cause such registration to become and remain effective
(including the taking of such steps as are necessary to obtain the removal of
any stop order); provided, that such Holder shall furnish the Company with
appropriate information in connection therewith as the Company may reasonably
request in writing. The 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 one occasion only at the Company's
expense during the five year period beginning ____________, 1996 and ending
at 5:00 P.M., E.S.T. on ____________, 2001. The Holder may, at its option,
request the registration of the Option and/or any of the securities
underlying the Option in a registration statement made by the Company as
contemplated by this section or in connection with a request made pursuant to
this section prior to acquisition of the Units issuable upon exercise of the
Option and, provided such notice is given prior to 5:00 P.M., New York time
on ____________, 2001, even though the Holder has not given notice of
exercise of the Option. The Holder may, at its option, request such post-
-3-
<PAGE>
effective amendment or new registration statement during the described period
with respect to the Option, the Units as a unit, or separately as to the
Common Stock and/or Unit Warrants (and Common Stock underlying the same)
issuable upon the exercise of the Option, and such registration rights may be
exercised by the Holder prior to or subsequent to the exercise of the Option.
Within ten days after receiving any such notice pursuant to this subsection,
the Company shall give notice to the other Holders of the Option, advising
that the Company is proceeding with such post-effective amendment or
registration statement and offering to include therein the securities
underlying the Option of the other Holders, provided that they shall furnish
the Company with such appropriate information (relating to the intentions of
such Holders) in connection therewith as the Company shall reasonably request
in writing. In the event the registration statement is not filed within the
period specified herein and the expiration date of the Option falls within
such period, the expiration date of this Option shall be extended by an
amount of time equal to the delay in filing, and in the event the
registration statement is not declared effective under the Act prior to the
expiration date of this Option, the Company shall extend the expiration date
of the Option to a date not less than ninety (90) days after the effective
date of such registration statement. All costs and expenses of such
post-effective amendment of new registration statement shall be borne by the
Company, as provided in paragraph 5.4 hereof. The Company shall 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) from the effective date thereof. The Company shall
supply prospectuses, and such other documents as the Holder may request in
order to facilitate the public sale or other disposition of the Option
Securities, use its best efforts to register and qualify any of the Option
Securities for sale in such states as such Holder designates and furnish
indemnification in the manner provided in paragraph 5.3(c) hereof.
5.2 FAILURE TO EXERCISE DEMAND REGISTRATION. The Holders demanding
registration pursuant to Section 5.1 hereof shall not be required to exercise
the purchase rights represented by this Option prior to demanding
registration rights hereunder. If, however, the Holders demand such
registration rights and the Company prepares and files a registration
statement or post-effective amendment as a result of such demand and the
Holders thereafter elect not to exercise the purchase rights represented by
this Option during the period that such registration statement or
post-effective amendment is effective, or three months after the effective
date, whichever is earlier, the demand registration right provided by Section
5.1 hereof shall nonetheless have been satisfied. The Holders may obtain the
right to demand another registration hereunder by reimbursing all of the
Company's direct and its reasonable indirect expenses incurred in connection
with the preparation and filing of such registration statement or
post-effective amendment. The Company shall submit its invoice for such
expenses to the Holders. The Holders may request confirmation or other
assurances from the Company or its auditors with respect to such expenses.
Thereafter the Holders shall have thirty (30) days within which to pay such
invoice, or adjusted invoice as the case may be, in full to the Company. Upon
payment of such invoice in full the Holders shall have the right to a single
demand registration in accordance with the terms of Section 5.1 hereof.
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5.3 PIGGYBACK REGISTRATION. The Company will, until ____________, 2001,
afford all holders of the Option and/or Option Securities, in addition
to the demand registration rights in Section 5.1, the right to add such
Option and Option Securities to any registration statement filed by the
Company, without cost or expense to the Holders hereof.
5.4 COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION. In
connection with any registration under Section 5.1 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to have a registration
statement, if any, declared effective at the earliest practicable time, and
shall furnish each Holder such number of prospectuses as shall reasonably be
requested.
(b) The Company will take all reasonably necessary action which
may be required in qualifying or registering the Option Securities included in
a registration statement for offering and sale under the securities or blue
sky laws of such states as are requested by the Holders provided that the
Company shall not be obligated to execute or file any general consent to
service of process or to quality as a foreign corporation to do business
under the laws of any such jurisdiction.
(c) The Company shall indemnify the Holders of the Option (and
underlying securities) to be sold pursuant to any registration statement and
each person, if any, who controls such Holders within the meaning of Section
15 of the Act or Section 20(a) of the Securities Exchange Act of 1934, as
amended ("Exchange Act"), against all loss, claim, damage, expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which any of them may
become subject under the Act, the Exchange Act or otherwise, arising from
such registration statement to the same extent and with the same effect as
the provisions pursuant to which the Company has agreed to indemnify the
Holder contained in the Underwriting Agreement (the "Underwriting Agreement")
between the Company and the Holder relating to the Registration Statement.
(d) The Holders of the Option Securities to be sold pursuant to a
registration statement, and their successors and assigns, shall severally and
not jointly indemnify the Company, its officers and directors and each
person, if any, who controls the Company within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act, against all loss, claim, damage
or expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished by or on behalf of such Holders, or their
successors or assigns, for specific inclusion in such registration statement
to the same extent and with the same effect as the provisions pursuant to
which the Holder has agreed to indemnify the Company contained in the
Underwriting Agreement.
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<PAGE>
5.5 EXPENSES OF REGISTRATION.
(a) The Company shall pay all costs, fees and expenses in
connection with all registration statements under Section 5.1, or for the
sale of the Option Securities under 5.2, including, without limitation, legal
and accounting fees, printing expenses and blue sky fees and expenses, except
that the Company shall not pay for any of the following costs, fees or
expenses: (i) underwriting discounts and commissions allocable to the Option
Securities, (ii) federal or state transfer taxes, and (iii) brokerage
commissions.
(b) Commencing with the month in which notice of exercise of the
Option is received, the Company shall promptly pay or reimburse, as the case
may be, all expenses of registration and/or of the Holder in connection
therewith.
6. ADJUSTMENTS IN PRICE AND TERM.
6.1 GENERAL. It is the intention of the parties that the Holders shall
not receive any benefits in the terms of the Option Securities contained in
the Units underlying this Option which are not generally available to the
holders of the publicly issued Units. Accordingly, the Exercise Price or
Purchase Price and/or number, as the case may be, of the Units, Common Stock
and Warrants covered by this Option shall only be modified to the extent that
the holders of such securities (i.e., Units, Common Stock and Warrants) which
are being contemporaneously offered to the public are entitled to such
adjustments.
6.2 ADJUSTMENT OF UNIT WARRANT PURCHASE PRICE AND SHARES ON EXERCISE OF
UNIT WARRANT. In furtherance of the provisions of this Article 6, with
respect to any of the Unit Warrants underlying this Option, whether or not
this Option has been exercised with respect thereto and whether or not the
Unit Warrants are issued and outstanding, the Unit Warrant purchase price and
the number of shares of Common Stock underlying any such Unit Warrants shall
be automatically adjusted in accordance with Section 9 of the Warrant
Agreement upon the occurrence of any of the events described therein.
Thereafter, the underlying Unit Warrants shall be exercisable at such
adjusted Unit Warrant purchase price and for such adjusted number of
underlying shares of Common Stock. Any adjustments made with respect to the
purchase price or the number of shares underlying the Unit Warrants shall
likewise be made with respect to the Unit Warrants underlying this Option and
the Holder shall be entitled to receive all notices sent to Holders of the
Unit Warrants, whether or not this Option has been exercised.
7. EXCHANGE AND REPLACEMENT OF OPTION.
This Option is exchangeable without expense, upon the surrender hereof
by the registered Holder at the principal executive office of the Company,
for a new Option of like tenor and date representing in the aggregate the
right to purchase the same number of Units as are purchasable
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<PAGE>
hereunder in such denominations as shall be designated by the Holder hereof
at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Option, and,in case of
loss, theft or destruction, of indemnity or security reasonably satisfactory
to it, and reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Option, if mutilated,
the Company will make and deliver a new Option of like tenor, in lieu of this
Option.
8. ELIMINATION OF FRACTIONAL INTERESTS.
The Company shall not be required to issue certificates representing
fractions of shares of Common Stock or fractions of Unit Warrants on the
exercise of this Option, nor shall it be required to issue scrip or pay cash
in lieu of fractional interests, it being the intent of the parties that all
fractional interests shall be eliminated pursuant to Section 6.4
9. RESERVATION AND LISTING OF SECURITIES.
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon
the exercise of this Option, such number of shares of Common Stock as shall
be issuable upon the exercise hereof and thereof. The Company covenants and
agrees that, upon exercise of this Option and payment of the Purchase Price
therefor, all shares of Common Stock or Warrants issuable upon such exercise
shall be duly and validly issued, fully paid and non-assessable. The Company
further covenants and agrees that upon exercise of the Unit Warrants
underlying this Option, as the case may be, and, in the case of the Warrants,
payment of the Unit Warrant exercise price (as defined below) therefor, all
shares of Common Stock issuable upon such conversion or exercise shall be
duly and validly issued, fully paid and non-assessable. As long as this
Option shall be outstanding, the Company shall use its best efforts to cause
all shares of Common Stock issuable upon the exercise of this Option, all
shares of Common Stock issuable upon exercise of the Warrants, and the Unit
Warrants and all Units and Unit Warrants underlying this Option to be listed
(subject to official notice of issuance) on all securities exchanges on which
the Common Stock, or the Units or Unit Warrants issued to the public in
connection herewith may then be listed and/or quoted on NASDAQ.
10. NOTICES TO OPTION HOLDERS.
Nothing contained in this Option shall be construed as conferring upon
the Holder hereof the right to vote or to consent or to receive notice as a
stockholder in respect of any meetings of shareholders for the election of
directors or any other matter, or as having any rights whatsoever as a
stockholder of the Company. If, however, at any time prior to the expiration
of this Option and prior to its exercise, any of the following events shall
occur:
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<PAGE>
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash; or
(b) The Company shall offer to all the holders of its Common Stock
any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the Company,
or any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall
be proposed; then, in one or more of said events, the Company shall give
written notice of such event to the Holder or Holders of this Option at the
same time and in the same form as such notice is given to the shareholders of
the Company. Failure to give such notice or any defect therein shall not
affect the validity of any action taken in connection with the declaration or
payment of any such dividend, or the issuance of any convertible or
exchangeable securities, or subscription rights, options or warrants, or any
proposed dissolution, liquidation, winding up or sale.
11. UNIT WARRANTS.
The form of the certificate representing Unit Warrants (and the form of
election to purchase shares of Common Stock upon the exercise of Unit
Warrants and the form of assignment printed on the reverse thereof) shall be
substantially as set forth in Exhibit "B" to the Warrant Agreement. Each Unit
Warrant issuable upon exercise of this Option shall evidence the right to
purchase initially the number of fully paid and non-assessable shares of
Common Stock at the initial purchase price per share, of $6.00, until 5:00
P.M., E.D.T. on ____________, 2001, at which time the Unit Warrants expire.
The exercise price of the Unit Warrants as set out in this Section 11 and the
number of shares issuable upon the exercise of the Unit Warrants are subject
to adjustment, whether or not they have been issued, in the manner and upon
the occurrence of the events set forth in the Warrant Agreement which is
hereby incorporated herein by reference and made a part hereof as if more
fully set forth herein. Subject to the provisions of this Option and upon
issuance of the Unit Warrants underlying this Option, each registered Holder
of such Unit Warrants shall have the right to purchase from the Company (and
the Company shall issue to such registered Holders) up to the number of fully
paid non-assessable shares of Common Stock underlying such Unit Warrants
(subject to adjustment as provided herein and in the Warrant Agreement), free
and clear of all preemptive rights of stockholders, provided that such
registered Holder complies with the terms governing exercise of the Unit
Warrants set forth in the Warrant Agreement, and pays the applicable Warrant
exercise price, determined in accordance with the terms hereof and the
Warrant Agreement, such payment to be made in the manner provided in the
Warrant Agreement. Upon exercise of the Unit Warrants and payment of the Unit
Warrant exercise price, the Company shall forthwith issue to the registered
Holder of any such Unit Warrant in the name of such holder or in such name as
may be directed by such holder, certificates for the number of shares
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<PAGE>
of Common Stock so purchased. The Company shall not be required to issue stock
certificates representing fractions of shares of Common Stock, nor shall it
be required to issue scrip or pay cash in lieu of fractional interests, it
being the intent of the parties that all fractional interests shall be
eliminated. The Unit Warrants underlying this Option shall be governed in all
respects by the terms of the Warrant Agreement (including the anti-dilution
provisions thereof). In the event that any Unit Warrant is exercised for less
than the number of shares of Common Stock underlying it at any time prior to
its expiration, the Company shall issue a new Unit Warrant or Unit Warrants
for the remaining number of shares of Common Stock underlying such Unit
Warrant(s). The Unit Warrants shall be transferable in the manner provided in
the Warrant Agreement, and upon and such transfer, a new Unit Warrant shall
be issued promptly to the transferee. In the event the Warrant Agreement is
modified, amended, cancelled, altered or superseded through the agreement of
the Company and the Holders of the Options ("Modification"), the Holder or
Holders will not be bound by such Modification without their consent.
12. NOTICES.
All notices, requests, consents and other communications hereunder shall
be in writing and shall be deemed to have been duly made when delivered,
or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of this Option, to the address of such
Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth on the first page of
this Option or to such other address as the Company may designate by notice
to the Holders.
13. SUCCESSORS.
All the covenants, agreements, representations and warranties contained
in this Option shall bind the parties hereto and their respective heirs,
executors, administrators, distributees, successors and assigns.
14. HEADINGS.
The Article and Section headings in this Option are inserted for
purposes of convenience only and shall have no substantive effect.
15. LAW GOVERNING.
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<PAGE>
15. LAW GOVERNING.
This Option shall be construed and enforced in accordance with, and
governed by, the laws of the State of Delaware.
WITNESS the seal of the Company and the signature of its duly authorized
President.
ON-SITE SOURCING, INC.
[SEAL]
By: ______________________________
Christopher J. Weiler,
Chief Executive Officer
Dated: ____________, 1996
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<PAGE>
SUBSCRIPTION FORM
(To be Executed by the Registered Holder
in order to Exercise the Option)
The undersigned hereby irrevocably elects to exercise the right to
purchase ____ Units covered by this Option at a price of $9.375 per Unit,
according to the conditions hereof and herewith makes payment of the Purchase
Price of such Units in full.
__________________________________
Signature
__________________________________
__________________________________
Address
Dated: ____________, 1996. __________________________________
Social Security Number or
Taxpayer's Identification Number
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<PAGE>
WARRANT AGREEMENT
AGREEMENT, dated as of this day of , 1996, by and among
ON-SITE SOURCING, INC., a Delaware corporation ("Company") and CONTINENTAL STOCK
AND TRUST COMPANY, as Warrant Agent (the "Warrant Agent").
W I T N E S S E T H
WHEREAS, in connection with a public offering of up to 1,104,000 units
("Units"), each unit consisting of two (2) shares of the Company's Common Stock,
$.01 par value ("Common Stock") and one (1) Redeemable Common Stock Purchase
Warrant ("Warrant") to be effected pursuant to an underwriting agreement (the
"Underwriting Agreement") dated , 1996 between the Company,
and M.H. Meyerson & Co., Inc. ("Meyerson" or, the "Underwriter"), and the
issuance to the Underwriter or its designees of a Unit Purchase Option to
purchase 96,000 additional Units, dated as of , 1996 (the
"Unit Purchase Option"), the Company will issue up to 1,200,000 Redeemable
Common Stock Purchase Warrants (the "Warrants"); and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth and for the purpose of defining the terms and provisions
of the Warrants and the certificates representing the Warrants and the
respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS.
As used herein, the following terms shall have the following meanings,
unless the context shall otherwise require:
(a) "Common Stock" shall mean the common stock of the Company.
(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 at the date hereof at 2 Broadway, New
York, NY 10004.
(c) "Effective Date" shall mean the date when the public offering of Units
described in the first recital of this Agreement is declared effective by the
Securities and Exchange Commission.
(d) "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 Company, of an
amount in lawful money of the United States of America equal to the applicable
Purchase Price.
(e) "Initial Warrant Exercise Date" shall mean , 1996.
(f) "Purchase Price" shall mean the purchase price per share to be paid upon
exercise of each Warrant in accordance with the terms hereof, which price shall
be $6.00 per share, subject to adjustment from time to time pursuant to the
provisions of Section 9 hereof.
(g) "Redemption Price" shall mean the price at which the Company may, at its
option, redeem the Warrants, in accordance with the terms hereof, which price
shall be $.01 per Warrant.
(h) "Registered Holder" shall mean as to any Warrant and as of any
particular date, the person in whose name the certificate representing the
Warrant shall be registered on that date on the books maintained by the Warrant
Agent pursuant to Section 6.
(i) "Transfer Agent" shall mean CONTINENTAL STOCK AND TRUST COMPANY, as the
Company's transfer agent, or its authorized successor, as such.
<PAGE>
(j) "Warrant Expiration Date" shall mean 5:00 P.M. (New York time) on
, 2001, or the Redemption Date as defined in Section 8,
whichever is earlier; provided that if such date shall in the State of New
Jersey be a holiday or a day on which banks are authorized or required to close,
then 5:00 P.M. (New York time) on the next following day which in the State of
New Jersey is not a holiday or a day on which banks are authorized or required
to close. Upon notice to all warrantholders the Company shall have the right to
extend the Warrant Expiration Date.
SECTION 2. WARRANTS AND ISSUANCE OF WARRANT CERTIFICATES.
(a) A Warrant initially shall entitle the Registered Holder of the Warrant
representing such Warrant to purchase one share of Common Stock upon the
exercise thereof, in accordance with the terms hereof, subject to modification
and adjustment as provided in Section 9.
(b) Upon execution of this Agreement, Warrant Certificates representing the
number of Warrants sold pursuant to the Underwriting Agreement shall be executed
by the Company and delivered to the Warrant Agent. Upon written order of the
Company signed by its President or Chairman or a Vice President and by its
Secretary or an Assistant Secretary, the Warrant Certificates shall be
countersigned, issued and delivered by Warrant Agent as part of the Units.
(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 1,309,123 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 (i) following thirty days after the Effective Date unless
the Underwriter has earlier permitted the Warrants to be detachable from the
Units, (ii) those initially issued hereunder and 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 Unit Purchase Option; and (vi) at the option of the
Company, in such form as may be approved by the 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 hereof.
(e) Pursuant to the terms of the Unit Purchase Option, the Underwriter may
purchase up to 96,000 Units, which include up to 96,000 Warrants.
SECTION 3. FORM AND EXECUTION OF WARRANT CERTIFICATES.
(a) The Warrant Certificates shall be substantially in the form annexed
hereto as Exhibit A (the provisions of which are hereby incorporated herein) and
may have such letters, numbers or other marks of identification or designation
and such legends, summaries or endorsements printed, lithographed or engraved
thereon as the Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any law or
with any rule or regulation made pursuant thereto or with any rule or regulation
of any stock exchange on which the Warrants may be listed, or to conform to
usage or to the requirements of Section 2(b). The Warrant Certificates shall be
dated the date of issuance thereof (whether upon initial issuance, transfer,
exchange or in lieu of mutilated, lost, stolen, or destroyed Warrant
Certificates) and issued in registered form. Warrant Certificates shall be
numbered serially with the letter W.
(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 manual
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<PAGE>
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 an officer of the
Company or to hold the particular office referenced in the Warrant Certificate
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 an officer of the Company
or to hold such office. 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) hereof.
SECTION 4. EXERCISE.
Each Warrant may be exercised by the Registered Holder thereof at any time
on or after the Initial 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 of those securities upon the exercise of
the Warrant 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 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 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. Upon the exercise of any Warrant and clearance
of the funds received, the Warrant Agent shall promptly remit the payment
received for the Warrant (the "Warrant Proceeds") to the Company or as the
Company may direct in writing, subject to the provisions of Sections 4(b) and
4(c) hereof.
SECTION 5. RESERVATION OF SHARES; LISTING; PAYMENT TAXES; ETC.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon exercise of Warrants, such number of shares of Common Stock as shall be
issuable upon the exercise of all outstanding Warrants. The Company covenants
that all shares of Common Stock which shall be issuable upon exercise of the
Warrants shall, at the time of delivery, be duly and validly issued, fully paid,
nonassessable and free from all taxes, liens and charges with respect to the
issue 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 or eligible for inclusion in each automated quotation
system, if any, on which the other shares of outstanding Common Stock of the
Company are then listed or eligible for inclusion.
(b) The Company covenants that if any securities to be reserved for the
purpose of exercise of Warrants hereunder require registration with, or approval
of, any governmental authority under any federal securities law before such
securities may be validly issued or delivered upon such exercise, then the
Company will in good faith and as expeditiously as reasonably possible, endeavor
to secure such registration or approval. The Company will use reasonable efforts
to obtain appropriate approvals or registrations under state "blue sky"
securities laws. With respect to any such securities, however, Warrants may not
be exercised by, or shares of Common Stock issued to, any Registered Holder in
any state in which such exercise would be unlawful.
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(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 requesting the same has 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 issuable upon exercise of the Warrants, and the Company will
authorize the Transfer Agent to comply with all such proper requisitions. The
Company will file with the Warrant Agent a statement setting forth the name and
address of the Transfer Agent of the Company for shares of Common Stock issuable
upon exercise of the Warrants.
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 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.
(c) With respect to all Warrant Certificates 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 in any 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 cancelled by the
Warrant Agent and thereafter retained by the Warrant Agent until termination of
this Agreement or resignation as Warrant Agent, or, with the prior written
consent of the Underwriter, disposed of or destroyed, at the direction of the
Company.
(f) Prior to due presentment for registration of transfer thereof, the
Company and the Warrant Agent may deem and treat the Registered Holder of any
Warrant Certificate as the absolute owner thereof and of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice to
the contrary. The Warrants, which are being publicly offered in Units with
shares of Common Stock pursuant to the Underwriting Agreement, will be
detachable from the Common Stock and transferable separately therefrom in
accordance with the Underwriting Agreement.
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<PAGE>
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) Subject to the provisions of paragraph 2(e) hereof, on not less than
thirty (30) days notice, the Warrants may be redeemed, at the option of the
Company, at a redemption price of $.01 per Warrant, provided the Market Price of
the Common Stock receivable upon exercise of such Warrant shall exceed $7.00
(the "Target Price"), subject to adjustment as set forth in Section 8(f), below.
Market Price for the purpose of this Section 8 shall mean (i) the closing high
bid quotation for ten (10) consecutive business days (or such other period as
the Underwriter may consent to), ending with the date of the notice of
redemption, which notice shall be mailed no later than five days thereafter, of
the Common Stock (A) as reported by the National Association of Securities
Dealers, Inc. Automated Quotation System, if the Common Stock is then so listed
or (B) if the Common Stock is not so listed, as reported in the over-the-counter
market or (ii) the last reported sale price, for ten (10) consecutive business
days ending with the date of the notice of redemption, which notice shall be
mailed no later than five days thereafter, on the primary exchange on which the
Common Stock is then traded on. The market price shall be based upon the closing
price on the exchange (or the bid if there is no trading) for such shares during
the ten day period. All Warrants of a class, except those comprising the Unit
Purchase Option, must be redeemed if any of that class are redeemed.
(b) If the conditions set forth in Section 8(a) are met, and the Company
desires to exercise its right to redeem the Warrants, it shall request the
Warrant Agent 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
thirtieth day before the date fixed for redemption, at their last address as
shall appear on the records maintained pursuant to Section 6(b). 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 Warrant Agent or
Company will assist each Registered Holder of a Warrant in connection with the
exercise thereof and (v) that the right to exercise the Warrant shall terminate
at 5:00 P.M. (New York time) on the business day immediately preceding the date
fixed for redemption. The date fixed for the redemption of the Warrants shall be
the Redemption Date. No failure to mail such notice nor any defect therein or in
the mailing thereof shall affect the validity of the proceedings for such
redemption except as to a Registered Holder (a) to whom notice was not mailed or
(b) whose notice was defective. An affidavit of the Warrant Agent or of the
Secretary or an Assistant Secretary of the Warrant Agent 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 shall terminate at 5:00 P.M. (New York
time) on the business day immediately preceding the Redemption Date. On and
after the Redemption Date, Holders of the Warrants shall have no further rights
except to receive, upon surrender of the Warrant, the Redemption Price.
(e) From and after the Redemption Date specified, 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
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<PAGE>
Registered Holder thereof of one or more Warrant Certificates evidencing
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 Redemption Date and upon the deposit or setting
aside by the Company of a sum sufficient to redeem all the Warrants called for
redemption, such Warrants shall expire and become void and all rights hereunder
and under the Warrant Certificates, except the right to receive payment of the
redemption price, shall cease.
(f) If the shares of the Company's Common Stock are subdivided or combined
into a greater or smaller number of shares of Common Stock, the Target Price
shall be proportionally adjusted by the ratio which the total number of shares
of Common Stock outstanding immediately prior to such event bears to the total
number of shares of Common Stock to be outstanding immediately after such event.
SECTION 9. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES OF COMMON STOCK OR
WARRANTS.
(a) 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 Company shall not effect any such consolidation,
merger or sale unless prior to or simultaneously with the consummation thereof
the successor (if other than the Company) resulting from such consolidation or
merger or the corporation purchasing assets or other appropriate corporation or
entity shall assume, by written instrument executed and delivered to the Warrant
Agent, the obligation to deliver to the holder of each Warrant such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such holders may be entitled to purchase and the other obligations under this
Agreement. The foregoing provisions shall similarly apply to successive
reclassification, capital reorganizations and other changes of outstanding
shares of Common Stock and to successive consolidations, mergers, sales or
conveyances.
(b) 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(d) hereof, continue to express the Purchase Price per share, the number of
shares purchasable thereunder and the Redemption Price therefor as the Purchase
Price per share, and the number of shares purchasable and the Redemption Price
therefore as were expressed in the Warrant Certificates when the same were
originally issued.
(c) 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 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
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<PAGE>
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.
(d) 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.
SECTION 10. FRACTIONAL WARRANTS AND FRACTIONAL SHARES.
(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 nevertheless
shall not be required to issue fractions of shares, upon exercise of the
Warrants or otherwise, or to distribute certificates that evidence fractional
shares. With respect to any fraction of a share called for upon any exercise
hereof, the Company shall pay to the Holder an amount in cash equal to such
fraction multiplied by the current market value of such fractional share:
(1) 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 Quotation System, the current value shall be the last
reported sale price of the Common Stock on such exchange on the last
business day prior to the date of exercise of this Warrant or if no such
sale is made on such day, the average of the closing bid and asked prices
for such day on such exchange; or
(2) 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 this Warrant; or
(3) 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, issue 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 or the purchase of shares of Common
Stock in the manner provided in the Warrant Certificate and this Agreement.
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<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 cancelled by it and retired. The Warrant
Agent shall also cancel Common Stock being reserved for issuance hereunder, upon
cancellation of unexercised Warrant Certificates representing the right to
purchase a like number of shares.
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 any representations as to the
validity, value or authorization of the Warrant Certificates or the Warrants
represented thereby or of any securities or other property delivered upon
exercise of any Warrant or whether any stock issued upon exercise of any Warrant
is fully paid and nonassessable.
The Warrant Agent shall not at any time 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 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 wilful misconduct.
The Warrant Agent may at any time consult with counsel satisfactory to it
(which may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order or demand of
the Company shall be sufficiently evidenced by an instrument signed by the
Chairman of the Board, President, any Vice President, its Secretary, or
Assistant Secretary (unless other evidence in respect thereof is herein
specifically prescribed). The Warrant Agent shall not be liable for any action
taken, suffered or omitted by it in accordance with such notice, statement,
instruction, request, direction, order or demand believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable compensation for its
services hereunder and to reimburse it for its reasonable expenses hereunder; it
further agrees to indemnify the Warrant Agent and save it harmless against any
and all losses, expenses and liabilities, including
8
<PAGE>
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 wilful misconduct.
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 wilful misconduct), after giving 30 days,
prior written notice to the Company. At least 15 days prior to the date such
resignation is to become effective, the Warrant Agent shall cause a copy of such
notice of resignation to be mailed to the Registered Holder of each Warrant
Certificate at the Company's expense. Upon such resignation, or any inability of
the Warrant Agent to act as such hereunder, the Company shall appoint a new
Warrant Agent in writing. If the Company shall fail to make such appointment
within a period of 15 days after it has been notified in writing of such
resignation by the resigning Warrant Agent, then the Registered Holder of any
Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new Warrant Agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last published report to its stockholders,
of not less than $10,000,000 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.
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 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 or are made in compliance with applicable law.
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<PAGE>
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 Suite 404, 1111 North 19th Street, Arlington, Virginia 22209, Attention:
President, or at such other address as may have been furnished to the Warrant
Agent in writing by the Company; and if to the Warrant Agent, at its corporate
office.
SECTION 18. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware, without reference to principles of conflict of
laws.
SECTION 19. BINDING EFFECT.
This Agreement shall binding upon and inure to the benefit of the Company
and, the Warrant Agent and their respective successors and assigns, and the
holders from time to time of Warrant Certificates Nothing in this Agreement is
intended or shall be construed 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 the Warrants or 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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first above written.
ON-SITE SOURCING, INC.
By: __________________________________
CONTINENTAL STOCK AND TRUST COMPANY
By: __________________________________
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<PAGE>
EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
ON-SITE SOURCING, INC.
NO. W ________________ WARRANTS _______________
VOID AFTER , 2001
WARRANT CERTIFICATE FOR
PURCHASE OF COMMON STOCK
This certifies that FOR VALUE RECEIVED or registered assigns (the
"Registered Holder") is the owner of the number of 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
non-assessable share of Common Stock, $.01 par value, of ON-SITE SOURCING, INC.,
a Delaware corporation (the "Company") at any time prior to the Expiration Date
(as hereinafter defined), upon the presentation and surrender of the Warrant
Certificate with the Subscription Form on the reverse hereof duly executed, in
the United States at the corporate office of the Continental Stock and Trust
Company, as Warrant Agent, or its successor (the "Warrant Agent"), accompanied
by payment of U.S. $6.00 per share of Common Stock if the Warrant is exercised
by 5:00 p.m. Eastern Standard time on , 2001 (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 Company. The Company may, at its election,
reduce the purchase price, subject to any applicable regulatory requirements.
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 a Warrant Agreement (the "Warrant Agreement"), dated , 1996
by and among the Company and the Warrant Agent. In certain events 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 Certificates or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:00 p.m. Eastern Standard time on
, 2001 or such earlier date as the Warrants shall expire. If such
date shall in the State of New York be a holiday or a day on which the banks are
authorized to close, then the Expiration Date shall mean 5:00 p.m. Eastern
Standard time the next following day which in the State of New York is not a
holiday or a day on which banks are authorized to close. The Company may, at its
election, extend the expiration date, subject to any applicable regulatory
requirements. The Company shall not be obligated to deliver any securities
pursuant to the exercise of this Warrant in the United States unless a
registration statement under the Securities Act of 1933, as amended, with
respect to such securities is effective. The Company has consented and agreed
that it will use its reasonable best efforts to file a registration statement
and to cause the same to become effective and to keep such registration
statement current which any of the Warrants are outstanding. This Warrant shall
not exercisable by a Registered Holder in any state of the United States where
such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate offices of the Warrant Agent, for a new
Warrant Certificate Warrant Certificates of like
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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
with a reasonable transfer fee per certificate (as determined from time to time
by the Warrant Agent) in addition to any tax or other governmental charge
imposed in connection therewith, for registration or transfer of this Warrant
Certificate at such office, a new Warrant Certificate or Warrant Certificates
representing an equal aggregate number of Warrants will be issued to the
transferee in exchange therefor, subject to the limitations provided in the
Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights as a shareholder 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.
This Warrant may be redeemed at the option of the Company, at a redemption
price of $.01 per Warrant at any time, provided the market price (as defined in
the Warrant Agreement) for the securities issuable upon exercise of such Warrant
shall exceed $7.00 per share. Notice of redemption shall be given not later than
the thirtieth day before the date fixed for redemption, all as provided in the
Warrant Agreement. On and after the date fixed for redemption, the Registered
Holder shall have no rights with respect to this Warrant except to receive the
$.01 per Warrant upon surrender of this Certificate.
Prior to due presentment for registration or transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the of any proceedings of the Company,
except as provided in the Warrant Agreement.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of Delaware. This Warrant Certificate is not valid
unless countersigned by the Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
ON-SITE SOURCING, INC.
Dated: _________________________________ By: __________________________________
By: __________________________________
This Warrant is one of the warrants referred to in
the above-mentioned Warrant Agreement.
CONTINENTAL STOCK AND TRUST CO.
as Warrant Agent
By: __________________________________
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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 upon
the terms and subject to the conditions set forth in the Warrant Agreement dated
, 1996, 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.
In full payment of the Purchase Price with respect to the Warrants
exercised, the undersigned hereby tenders payment of $ in cash or by
official bank or certified check payable in United States currency to the order
of On-Site Sourcing, Inc. and undertakes to provide to the Warrant Agent any
additional tax or charge within five (5) business days hereof.
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ASSIGNMENT
TO BE EXECUTED BY THE REGISTERED
HOLDER IN ORDER TO EXERCISE WARRANTS
FOR VALUE RECEIVED, hereby sells assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
________________________________________
________________________________________
________________________________________
[Please print or type name and address]
of the Warrants represented by this Warrant Certificate,
and hereby irrevocably constitutes and appoints Attorney
to transfer this Warrant Certificate on the books of the Company, with full
power of substitution in the premises.
<TABLE>
<S> <C>
Dated:
Name (Please Print)
Certificate Nos.
(address)
Taxpayer Identification Number
Number of Warrants:
(Signature Guaranteed)
</TABLE>
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
4
<PAGE>
EXHIBIT 23.02
[GRANT THORNTON LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We have issued our report dated February 28, 1996, (except for Note N, as to
which the date is June 6, 1996) accompanying the financial statements of
On-Site Sourcing, Inc., contained in the Registration Statement and
Prospectus. We consent to the use of the aforementioned report in the
Registration Statement and Prospectus and to the use of our name as it
appears under the caption "Experts."
/s/ Grant Thornton LLP
Vienna, Virginia
June 26, 1996
<PAGE>
Exhibit 23.03
CONSENT OF DIRECTOR DESIGNATE
I hereby give consent to the use of my name in the Registration
Statement and Prospectus of On-Site Sourcing, Inc. as it appears under the
Caption Directors as I have agreed to serve on On-Site Sourcing, Inc.'s Board
of Directors upon completion of the offering.
/s/ Charles B. Millar
---------------------------------------
Charles B. Millar
<PAGE>
Exhibit 23.04
CONSENT OF DIRECTOR DESIGNATE
I hereby give consent to the use of my name in the Registration
Statement and Prospectus of On-Site Sourcing, Inc. as it appears under the
Caption Directors as I have agreed to serve on On-Site Sourcing, Inc.'s Board
of Directors upon completion of the offering.
/s/ Jorge Forgues
---------------------------------------
Jorge Forgues
