<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 21, 1996
REGISTRATION NO. 333-12273
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(Name of small business issuer in its charter)
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<S> <C> <C>
DELAWARE 3721 95-4257380
(State or Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification
Number)
</TABLE>
3060 AIRPORT WAY
LONG BEACH, CALIFORNIA 90806
(310)988-2088
(Address and telephone number of principal executive offices and principal place
of business)
CARL L. CHEN, CHAIRMAN OF THE BOARD OF DIRECTORS
ADVANCED AERODYNAMICS & STRUCTURES, INC.
3060 AIRPORT WAY
LONG BEACH, CALIFORNIA 90806
(310) 988-2088
(Name, address and telephone number of agent for service)
------------------------
COPIES TO:
OTTO E. SORENSEN, ESQ. SHELDON E. MISHER, ESQ.
RICHARD C. TURNER, ESQ. ALISON S. NEWMAN, ESQ.
LUCE, FORWARD, HAMILTON & SCRIPPS LLP BACHNER, TALLY, POLEVOY & MISHER LLP
600 WEST BROADWAY, SUITE 2600 380 MADISON AVENUE
SAN DIEGO, CALIFORNIA 92101 NEW YORK, NEW YORK 10017-2590
(619) 236-1414 (212) 687-7000
(619) 232-8311 (FAX) (212) 682-5729 (FAX)
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
PURSUANT TO RULE 416, THERE ARE ALSO BEING REGISTERED SUCH ADDITIONAL SHARES
AND WARRANTS AS MAY BECOME ISSUABLE PURSUANT TO ANTI-DILUTION PROVISIONS UPON
THE EXERCISE OF THE CLASS A WARRANTS, THE CLASS B WARRANTS AND THE UNIT PURCHASE
OPTION.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement covers the registration of (i) up to 6,900,000
units ("Units"), including Units to be issued to cover over-allotments, if any,
each Unit consisting of one share of Class A Common Stock, $.0001 par value
("Common Stock"), of Advanced Aerodynamics & Structures, Inc., a Delaware
corporation (the "Company"), one redeemable Class A Warrant ("Class A Warrant")
and one redeemable Class B Warrant ("Class B Warrant"), for sale by the Company
in an underwritten public offering and (ii) an additional 3,500,000 Class A
Warrants (the "Selling Securityholders' Class A Warrants"), for sale by the
holders thereof (the "Selling Securityholders"), 3,500,000 Class B Warrants (the
"Selling Securityholders' Class B Warrants") underlying the Selling
Securityholders' Class A Warrants and 7,000,000 shares of Class A Common Stock
(the "Selling Securityholders' Stock") underlying the Selling Securityholders'
Class A Warrants and the Selling Securityholders' Class B Warrants, all for
resale from time to time by the Selling Securityholders subject to the
contractual restriction that the Selling Securityholders may not sell the
Selling Securityholders' Class A Warrants for specified periods after the
closing of the underwritten offering. The Selling Securityholders' Class A
Warrants, the Selling Securityholders' Class B Warrants and the Selling
Securityholders' Stock are sometimes collectively referred to herein as the
"Selling Securityholders' Securities."
The complete Prospectus relating to the underwritten offering follows
immediately after this Explanatory Note. Following the Prospectus for the
underwritten offering are pages of the Prospectus relating solely to the Selling
Securityholders' Securities, including alternative front and back cover pages
and sections entitled "Concurrent Public Offering," "Plan of Distribution" and
"Selling Securityholders" to be used in lieu of the sections entitled
"Concurrent Offering" and "Underwriting" in the Prospectus relating to the
underwritten offering. Certain sections of the Prospectus for the underwritten
offering, such as "Use of Proceeds" and "Dilution," will not be used in the
Prospectus relating to the Selling Securityholders' Securities.
ii
<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>
SUBJECT TO COMPLETION, DATED NOVEMBER 21, 1996
PROSPECTUS
6,000,000 UNITS
ADVANCED AERODYNAMICS & STRUCTURES, INC.
CONSISTING OF 6,000,000 SHARES OF CLASS A COMMON STOCK,
6,000,000 REDEEMABLE CLASS A WARRANTS AND 6,000,000 REDEEMABLE CLASS B WARRANTS
Each unit ("Unit") offered by Advanced Aerodynamics & Structures, Inc. (the
"Company") consists of one share of Class A Common Stock, $.0001 par value (the
"Class A Common Stock"), one redeemable Class A Warrant (the "Class A Warrant")
and one redeemable Class B Warrant (the "Class B Warrant"). The Class A Warrants
and Class B Warrants (collectively, the "Warrants") will be transferable
separately immediately upon issuance. Each Class A Warrant entitles the holder
to purchase one share of Class A Common Stock and one Class B Warrant at an
exercise price of $6.50, subject to adjustment, until the fifth anniversary of
the date of this Prospectus. Each Class B Warrant entitles the holder to
purchase one share of Class A Common Stock at an exercise price of $8.75,
subject to adjustment, until the fifth anniversary of the date of this
Prospectus. The Class A Warrants and the Class B Warrants are subject to
redemption, commencing one year from the date of this Prospectus, by the Company
at a price of $.05 per Warrant on 30 days written notice if the closing bid
price of the Class A Common Stock for 30 consecutive trading days ending within
15 days of the notice of redemption of the Warrants averages in excess of $12.00
per share with respect to the Class A Warrants and $15.00 per share with respect
to the Class B Warrants (subject to adjustment in each case). See "Description
of Securities."
The Class A Common Stock is one of four classes of the Company's Common
Stock (which are collectively referred to herein as the "Common Stock"). The
various classes of the Company's Common Stock are essentially identical, except
that the Class B Common Stock, $.0001 par value per share (the "Class B Common
Stock"), and the Class E-1 Common Stock, $.0001 par value per share (the "Class
E-1 Common Stock"), and the Class E-2 Common Stock, $.0001 par value per share
(the "Class E-2 Common Stock") have five votes per share and the Class A Common
Stock has one vote per share on all matters upon which stockholders may vote.
Each share of Class B Common Stock is convertible into one share of Class A
Common Stock at any time at the option of the holder and automatically upon the
sale or transfer thereof commencing 13 months after the date of this Prospectus.
Upon completion of this offering (the "Offering"), the holders of Class B Common
Stock and Class E-1 Common Stock and Class E-2 Common Stock (collectively, the
"Class E Common Stock") will control approximately 85% of the total voting power
of the Company and will therefore be able to elect all of the Company's
directors and control the Company. See "Description of Securities--Common
Stock."
Prior to the Offering, there has been no public market for the Units, the
Common Stock, or the Warrants, and there can be no assurance that such a market
will develop after the completion of the Offering. The Class A Common Stock, the
Class A Warrants and the Class B Warrants have been approved for quotation on
the Nasdaq National Market and the Units have been approved for quotation on the
Nasdaq SmallCap Market. See "Underwriting" for a discussion of factors
considered in determining the initial public offering price. FOR INFORMATION
CONCERNING A SECURITIES AND EXCHANGE COMMISSION INVESTIGATION RELATING TO D.H.
BLAIR INVESTMENT BANKING CORP. (THE "UNDERWRITER"), SEE "RISK FACTORS" AND
"UNDERWRITING."
The registration statement of which this Prospectus is a part also covers
the offering for resale by certain securityholders (the "Selling
Securityholders") of 3,500,000 Class A Warrants (the "Selling Securityholders'
Class A Warrants"), 3,500,000 Class B Warrants (the "Selling Securityholders'
Class B Warrants") underlying the Selling Securityholders' Class A Warrants and
7,000,000 shares of Class A Common Stock issuable upon the exercise of the
Selling Securityholders' Class A and Class B Warrants. See "Concurrent
Securities Offering." The Selling Securityholders' Class A Warrants and the
securities underlying such warrants are sometimes collectively referred to in
this Prospectus as the "Selling Securityholders' Securities." The Company will
not receive any of the proceeds from the sale of the Selling Securityholders'
Securities. The Selling Securityholders' Class A Warrants are issuable upon the
closing of the Offering to the Selling Securityholders upon the automatic
conversion of 3,500,000 bridge warrants (the "Bridge Warrants") acquired by them
in the Company's private placement completed in August 1996 (the "Bridge
Financing"). The Selling Securityholders have agreed with the Company not to
sell the Selling Securityholders' Class A Warrants for at least 90 days after
the closing of the Offering and have agreed to sell only certain specified
percentages of such warrants during the period from 91 to 270 days after such
closing. In addition, the Selling Securityholders have agreed not to exercise
the Selling Securityholders' Class A Warrants for one year after the closing of
the Offering. See "Concurrent Securities Offering." Sales of any of the Selling
Securityholders' Securities, or even the potential of such sales at any time,
may have an adverse effect on the market prices of the securities offered
hereby. Unless the context otherwise requires, all references to the Warrants
shall include the Selling Securityholders' Warrants.
------------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL
IMMEDIATE DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 8 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 DISCOUNTS PROCEEDS TO
PRICE TO PUBLIC AND COMMISSIONS (1) COMPANY (2)
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Per Unit..................... $5.00 $0.30 $4.70
Total (3).................... $30,000,000 $1,800,000 $28,200,000
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
The Units are offered by the Underwriter on a "firm commitment" basis when,
as and if delivered to and accepted by the Underwriter, and subject to
withdrawal or cancellation of the offer without notice and to their right to
reject orders in whole or in part and to certain other conditions. It is
expected that delivery of the certificates representing the Common Stock and
Warrants comprising the Units will be made at the offices of D.H. Blair
Investment Banking Corp., New York, New York, on or about , 1996.
------------------------------
D.H. BLAIR INVESTMENT BANKING CORP.
The date of this Prospectus is , 1996.
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
(1) Does not reflect additional compensation to be received by the Underwriter
in the form of (i) a non-accountable expense allowance of $900,000 or $0.15
per Unit ($1,035,000 if the over-allotment option is exercised in full) and
(ii) an option to purchase up to 600,000 Units at an exercise price of $6.50
per Unit, exercisable over a period of two years commencing three years from
the date of this Prospectus (the "Unit Purchase Option"). In addition, the
Company has agreed to indemnify the Underwriter against certain liabilities,
including liabilities under the Securities Act of 1933, as amended (the
"Securities Act"). See "Underwriting."
(2) Before deducting estimated expenses of the Offering of approximately
$1,784,035 ($1,919,035 if the over-allotment is exercised) payable by the
Company, including the Underwriter's non-accountable expense allowance.
(3) The Company has granted to the Underwriter a 30-day option to purchase up to
900,000 additional Units on the same terms and conditions as set forth
above, solely to cover over-allotments, if any. If the over-allotment option
is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, and Proceeds to Company will be increased to $34,500,000,
$2,070,000 and $32,430,000, respectively. See "Underwriting."
PHOTOGRAPH DESCRIPTIONS AND CAPTIONS
1. Top left side corner: Color photo of employee looking into autoclave.
Caption: Nitrogen Pressurized Autoclave (30ft long by 10ft diameter) to
process graphite composite fuselage and components.
2. Second from Top--Left side. Color photo of employees laying up fuselage half
prior to autoclave processing. Caption: Graphite Composite lay up of
JETCRUZER-TM- 450 test aircraft fuselage prior to Autoclave processing.
3. Third from Top--Left side. Color photo with employees showing final stages
of mating wings and fuselage. Caption: Assembly of JETCRUZER-TM- 450 test
aircraft graphite composite fuselage with metal wings.
4. Bottom--Left side corner--Drawing of JETCRUZER-TM- 500 showing top, front
and six place seating. Caption: JETCRUZER-TM- 500 Propjet--Top, Front and
passenger seating views.
5. Upper Right Side Corner: AASI Aircraft Logo
Caption: AASI AIRCRAFT
6. Center Large Main Photo--Color photograph of the JETCRUZER-TM- 450 in
flight.
Caption: FAA Certified--JETCRUZER-TM- 450
THE COMPANY INTENDS TO MODIFY THE MODEL 450 TO PRODUCE AND SELL THE MODEL
500. SEE "BUSINESS--PROPOSED AIRCRAFT."
THE COMPANY INTENDS TO FURNISH ITS STOCKHOLDERS AND HOLDERS OF WARRANTS WITH
ANNUAL REPORTS CONTAINING FINANCIAL STATEMENTS AUDITED BY ITS INDEPENDENT
AUDITORS.
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 AND/OR WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN
ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND FINANCIAL DATA (INCLUDING THE
FINANCIAL STATEMENTS AND THE NOTES THERETO) APPEARING ELSEWHERE IN THIS
PROSPECTUS. UNLESS OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS (A)
ASSUMES NO EXERCISE OF (I) THE UNDERWRITER'S OVER-ALLOTMENT OPTION, (II) THE
WARRANTS, (III) THE UNDERWRITER'S UNIT PURCHASE OPTION, (IV) THE SELLING
SECURITYHOLDERS' WARRANTS, OR (V) OPTIONS GRANTED OR AVAILABLE FOR GRANT UNDER
THE COMPANY'S 1996 STOCK OPTION PLAN (THE "OPTION PLAN") AND (B) GIVES EFFECT TO
THE CONVERSION, WHICH WILL OCCUR UPON THE CLOSING OF THE OFFERING, OF THE BRIDGE
WARRANTS INTO THE SELLING SECURITYHOLDERS' WARRANTS. ALL SHARE, PER SHARE AND
OTHER INFORMATION CONTAINED IN THIS PROSPECTUS REFLECTS THE REINCORPORATION AND
RECAPITALIZATION OF THE COMPANY EFFECTED IN JULY 1996. SEE "--THE
RECAPITALIZATION," "CAPITALIZATION," "MANAGEMENT--STOCK OPTION PLAN" AND
"DESCRIPTION OF SECURITIES."
THE COMPANY
The Company is a development stage company organized to design, develop,
manufacture and market propjet and jet aircraft intended primarily for business
use. The Company has obtained a type certificate ("Type Certificate") from the
United States Federal Aviation Administration ("FAA") with respect to a
non-pressurized, single-engine propjet aircraft powered by a Pratt & Whitney
engine (the "JETCRUZER 450"). The Company intends to modify the JETCRUZER-TM-
450 to develop a six-seat (including pilot), pressurized version of such
aircraft for commercial sale (the "JETCRUZER 500") which, the Company
anticipates, will takeoff and land in less than 1,000 feet, be able to fly at
approximately 30,000 feet above sea level, and have a high cruise speed of
approximately 350 mph and a range of approximately 1,600 miles.
Development of the JETCRUZER 450 began in 1990 and continued through the
issuance of the Type Certificate in 1994. Although the Company received
preliminary written indications of interest to purchase the aircraft, the
Company has decided that it will not obtain a production certificate with regard
to the JETCRUZER 450 or otherwise pursue commercialization of that aircraft in
part because the Type Certificate is subject to certain limitations which the
Company believes reduce the commercial viability of the JETCRUZER 450. Instead,
the Company has decided to amend the Type Certificate to develop the JETCRUZER
500 for commercial sale.
The amendment to the Type Certificate will incorporate certain design
changes and modifications required to improve the performance and capabilities
of the aircraft and to remove a number of the limitations imposed on the Type
Certificate. The Company will also be required to obtain a production
certificate from the FAA to commercially produce the JETCRUZER 500 and
airworthiness certificates for individual aircraft upon the completion of
manufacture. To obtain the production certificate the Company will be required
to demonstrate, through the FAA-monitored manufacturing of its first production
aircraft, that it has the capability of building the aircraft in accordance with
the specifications of the Type Certificate. An airworthiness certificate is
issued by the FAA for a particular aircraft when it is certified to have been
built in accordance with specifications approved under the type certificate for
that model.
The Company currently anticipates that it will obtain an amendment to its
Type Certificate during the approximately 18 to 24 months following the Offering
and obtain a production certificate and commence commercial production of the
JETCRUZER 500 within the same time frame. There can be no assurance, however,
that obtaining such an amendment and a production certificate will not take
longer than anticipated, that the Company will not be required to obtain a new
type certificate for the aircraft, that the Company will be successful in
obtaining the necessary type or production certifications, or that the Company
will not experience unforeseen expense or delay in certifying and
commercializing the JETCRUZER 500. See "Business--Government
Regulation--Certification."
The Company's proposed aircraft are based on a canard wing design in which a
smaller wing is installed in front of the aircraft's main wing. The Company
believes that this design provides for improved safety margins, including spin
resistance and increased lift, and increased ride comfort as compared to
3
<PAGE>
more conventional aircraft designs. The engine and propeller of the Company's
aircraft are located at the rear of the fuselage, thus providing the passengers
with a quieter ride. In addition, the Company's aircraft are designed to
incorporate lightweight graphite composite in the fuselage and aluminum in the
main wings, which, when combined with the canard wing, will, in the Company's
opinion, enhance the performance of the aircraft by increasing cruising distance
and fuel efficiency and thereby lowering operating expenses.
The Company's objective is to become a market leader in the sale of small
business aircraft. To achieve this objective, the Company intends to focus on
the performance, efficiency and safety of its proposed aircraft. The Company's
strategy is to capitalize on a perceived current lack of relatively low-priced,
high-performance aircraft by developing, certifying, manufacturing and marketing
aircraft which outperform competitive aircraft at a reduced cost. Additionally,
the Company intends to expend substantial resources on a worldwide sales and
marketing program to position itself with potential customers.
The Company believes that the market for its proposed aircraft will consist
primarily of foreign and domestic corporations, as well as, to a lesser extent,
private individuals and governmental entities. The Company intends to develop
direct marketing programs to target potential customers and to market its
aircraft through in-house sales representatives, trade publications, aircraft
trade shows and independent distributors and agents.
The Company has also initiated the development of two additional aircraft,
the JETCRUZER 650, a stretched twelve passenger (plus pilot) version of the
JETCRUZER 500, and the STRATOCRUZER-Registered Trademark- 1250, a twelve
passenger (plus pilot) twin engine jet aircraft anticipated to fly at
approximately 42,000 feet above sea level, have a maximum cruise speed of 500
mph, and a range of 3,700 miles. The continued development of these aircraft,
including obtaining the requisite regulatory approvals, will require substantial
financing in addition to the proceeds obtained from the Offering. Accordingly,
there can be no assurance that such aircraft will ever become available for
commercial sale.
The Company has incurred operating losses in each of its fiscal years to
date and expects that operating losses will continue for the foreseeable future.
No assurance can be given that the JETCRUZER 500, if successfully developed, or
any other aircraft which the Company may develop, will meet with market
acceptance or that the Company will achieve substantial sales revenue or operate
profitably.
The Company's principal executive offices and design facilities are located
at 3060 Airport Way, Long Beach, California 90806. The Company's telephone
number is (310) 988-2088.
THE RECAPITALIZATION
The Company was incorporated in Delaware in July 1996 and is the successor
by merger to Advanced Aerodynamics and Structures, Inc., a California
corporation incorporated in January 1990. Unless the context requires otherwise,
or as otherwise indicated, all references to the Company include the predecessor
company. Pursuant to the Agreement of Merger between the Company and its
predecessor, each share of the predecessor's common stock and preferred stock
outstanding prior to the merger was converted into approximately .056 shares of
Class B Common Stock, approximately .111 shares of Class E-1 Common Stock and
approximately .111 shares of Class E-2 Common Stock. The foregoing transactions
are collectively referred to in this Prospectus as the "Recapitalization." All
share and per share data set forth in this Prospectus have been restated to
reflect the Recapitalization.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered................ 6,000,000 Units, each Unit consisting of one share of
Class A Common Stock, one Class A Warrant and one Class
B Warrant. Each Class A Warrant entitles the holder to
purchase one share of Class A Common Stock and one Class
B Warrant at an exercise price of $6.50, subject to
adjustment, at any time until the fifth anniversary of
the date of this Prospectus. Each Class B Warrant
entitles the holder to purchase one share of Class A
Common Stock at an exercise price of $8.75, subject to
adjustment, at any time until the fifth anniversary of
the date of this Prospectus. Commencing one year after
the date of this Prospectus, the Warrants are subject to
redemption in certain circumstances on 30 days written
notice. See "Description of Securities."
Securities Offered Concurrently by
Selling Securityholders......... 3,500,000 Class A Warrants, 3,500,000 Class B Warrants
issuable upon exercise of such Class A Warrants, and
7,000,000 shares of Class A Common Stock issuable upon
exercise of such Class A Warrants and Class B Warrants.
See "Concurrent Securities Offering."
Common Stock Outstanding Before
the Offering(1)(2).............. Class A Common Stock .......................... 0 shares
Class B Common Stock .................. 2,000,000 shares
Class E-1 Common Stock ............. 4,000,000 shares(3)
Class E-2 Common Stock ............. 4,000,000 shares(3)
Common Stock Outstanding After the
Offering(1)(4).................. Class A Common Stock .................. 6,000,000 shares
Class B Common Stock .................. 2,000,000 shares
Class E-1 Common Stock ............. 4,000,000 shares(3)
Class E-2 Common Stock ............. 4,000,000 shares(3)
Use of Proceeds................... The Company will use the net proceeds of the Offering to
repay the notes issued in the Bridge Financing (the
"Bridge Notes"), to amend its FAA Type Certificate, to
acquire and produce equipment and tooling, to establish
an appropriate manufacturing facility, to market and
sell its proposed aircraft, and for working capital. See
"Use of Proceeds."
Risk Factors...................... The Offering involves a high degree of risk and
immediate and substantial dilution. See "Risk Factors"
and "Dilution."
Nasdaq Symbols(5):
Units........................... AASIU
Class A Common Stock............ AASI
Class A Warrants................ AASIW
Class B Warrants................ AASIZ
</TABLE>
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(1) For a description of the voting and other rights of the Class A Common
Stock, Class B Common Stock and Class E Common Stock (collectively, the
"Common Stock") see "Description of Securities-- Common Stock."
5
<PAGE>
(2) Does not include (i) 500,000 shares of Class A Common Stock reserved for
issuance under the Option Plan, under which options to purchase 110,000
shares of Class A Common Stock are outstanding at an exercise price of $5.00
per share, or (ii) 7,000,000 shares of Class A Common Stock issuable upon
exercise of the Bridge Warrants and the Class B Warrants underlying the
Bridge Warrants. See "Capitalization" and "Management--Stock Option Plan."
(3) Pursuant to the Company's Certificate of Incorporation, the 4,000,000 shares
of each of Class E-1 and Class E-2 Common Stock (the "Performance Shares")
will automatically convert into Class B Common Stock if the Company attains
certain earnings levels over the next approximately seven years or the
market price of the Company's Class A Common Stock achieves certain levels
over the next approximately three years. If such earnings or market price
levels are met, the Company will record a substantial non-cash charge to
earnings, for financial reporting purposes, as compensation expense relating
to the value of the Performance Shares held by officers, directors,
employees or consultants of the Company converted to Class B Common Stock.
The Performance Shares will be redeemable by the Company at any time after
March 31, 2004 for a nominal amount if such earnings or market price levels
are not achieved within the time periods specified above. See
"Capitalization," "Plan of Operations--Charge to Income in the Event of
Conversion of Performance Shares," "Principal Stockholders" and "Description
of Securities."
(4) Does not include (i) 18,000,000 shares of Class A Common Stock issuable upon
exercise of the Warrants included in the Units offered hereby, (ii)
3,600,000 shares of Class A Common Stock issuable upon exercise of the
Underwriter's over-allotment option, including shares issuable upon exercise
of the Warrants included in the Units subject to such option, (iii)
2,400,000 shares of Class A Common Stock issuable upon exercise of the Unit
Purchase Option and the Warrants included in the Units issuable upon
exercise of the Unit Purchase Option, or (iv) 7,000,000 shares of Class A
Common Stock issuable upon exercise of the Selling Securityholders' Class A
Warrants and the Selling Securityholders' Class B Warrants underlying such
warrants. Also does not include 500,000 shares of Class A Common Stock
reserved for issuance under the Option Plan, under which options to purchase
110,000 shares are outstanding at an exercise price of $5.00 per share.
(5) Notwithstanding quotation on Nasdaq, there can be no assurance that an
active trading market for the Company's securities will develop or, if
developed, that it will be sustained.
6
<PAGE>
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 26,
1990
NINE-MONTHS ENDED SEPTEMBER (INCEPTION)
YEAR ENDED DECEMBER 31, 30, THROUGH
---------------------------- ---------------------------- SEPTEMBER 30,
1994 1995 1995 1996 1996
------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Interest and Other Income.......... $ 73,000 $ 27,000 $ 27,000 $ 11,000 $ 758,000
Costs and Expenses................. $ 2,840,000 $ 1,715,000 $ 1,297,000 $ 1,737,000 $ 23,424,000
Net Loss........................... $ (2,767,000) $ (1,688,000) $ (1,270,000) $ (1,726,000) $ (22,666,000)
Net loss per share(1).............. $ (.81) $ (.50) $ (.37) $ (.51)
Weighed average number of shares
outstanding(1)................... 3,400,000 3,400,000 3,400,000 3,400,000
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------------
AS
ACTUAL ADJUSTED(2)
-------------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working Capital (deficit)....................................................... $ (2,713,000) $ 22,530,000
Total assets.................................................................... 6,222,000 24,899,000
Total liabilities............................................................... 7,173,000 607,000
Accumulated deficit............................................................. (22,666,000) (23,839,000)
Total stockholders' equity (deficit)............................................ (951,000) 24,292,000
</TABLE>
- ------------------------
(1) Excludes 8,000,000 Performance Shares. See Note 1 of Notes to Financial
Statements for an explanation of the determination of the weighted average
number of shares outstanding used in computing net loss per share.
(2) Adjusted to give effect to (i) the sale of the 6,000,000 Units offered
hereby at an offering price of $5.00 per Unit and (ii) the receipt of the
net proceeds therefrom and the use of a portion of the net proceeds to repay
the Bridge Notes, together with accrued interest, and a charge to operations
of approximately $1,100,000 upon the repayment of the Bridge Notes. See "Use
of Proceeds" and "Plan of Operations."
7
<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE IN NATURE AND INVOLVE A
HIGH DEGREE OF RISK, AND ONLY THOSE WHO CAN BEAR THE RISK OF THE LOSS OF THEIR
ENTIRE INVESTMENT SHOULD PURCHASE SUCH SECURITIES. PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER, ALONG WITH THE OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS, THE FOLLOWING CONSIDERATIONS AND RISKS IN EVALUATING AN INVESTMENT
IN THE COMPANY. CERTAIN STATEMENTS CONTAINED IN THIS PROSPECTUS, INCLUDING
STATEMENTS CONCERNING THE COMPANY'S FUTURE CASH AND FINANCING REQUIREMENTS, THE
COMPANY'S ABILITY TO OBTAIN MARKET ACCEPTANCE OF ITS AIRCRAFT, THE COMPANY'S
ABILITY TO OBTAIN REGULATORY APPROVAL FOR ITS AIRCRAFT, AND THE COMPETITIVE
MARKET FOR SALES OF SMALL BUSINESS AIRCRAFT AND OTHER STATEMENTS CONTAINED
HEREIN REGARDING MATTERS THAT ARE NOT HISTORICAL FACTS, ARE FORWARD LOOKING
STATEMENTS; ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE SET FORTH IN THE
FORWARD LOOKING STATEMENTS, WHICH STATEMENTS INVOLVE RISKS AND UNCERTAINTIES.
DEVELOPMENT STAGE COMPANY; EARLY STAGE OF PRODUCT DEVELOPMENT; NO ASSURANCE
OF SUCCESS; NO COMMERCIAL OPERATIONS. The Company is in the development stage
and has not commenced any commercial operations or received any operating
revenues. Potential investors should be aware of the problems, delays, expenses
and difficulties encountered by an enterprise in the Company's stage of
development, many of which may be beyond the Company's control. These include,
but are not limited to, unanticipated problems relating to product development,
testing, initial and continuing regulatory compliance, manufacturing costs,
production and assembly, the competitive and regulatory environment in which the
Company plans to operate, marketing problems and additional costs and expenses
that may exceed current estimates. The Company has been engaged primarily in
research and development since its inception and has not completed the
development of the JETCRUZER 500. There can be no assurance that the Company
will be able to successfully develop the JETCRUZER 500 or any of its other
proposed aircraft, that the Company will be granted, or if granted, will be able
to maintain the necessary regulatory approvals to produce and sell its proposed
aircraft, that the Company's aircraft will prove to be commercially viable or
successfully marketed, or that the Company will ever achieve significant
revenues. See "Plan of Operations" and "Business."
ACCUMULATED DEFICIT; WORKING CAPITAL DEFICIT; HISTORY OF LOSSES; EXPECTATION
OF SUBSTANTIAL FUTURE LOSSES. To date, the Company has incurred significant
losses. At September 30, 1996, the Company had an accumulated deficit of
approximately $22,666,000 and a working capital deficit of approximately
$2,713,000. The Company incurred net losses of approximately $2,767,000 and
$1,688,000 for the fiscal years ended December 31, 1994 and 1995, respectively,
and has incurred a net loss of $1,726,000 for the nine months ended September
30, 1996. Such losses have resulted principally from significant costs
associated with the design, development and certification of the JETCRUZER 450
aircraft. The Company expects to incur further losses for the foreseeable future
due to significant costs associated with amending its FAA Type Certificate,
establishing manufacturing facilities capable of producing aircraft on a
commercial scale, manufacturing its proposed aircraft and obtaining the
necessary regulatory approvals relating thereto, and marketing and selling its
proposed aircraft. There can be no assurance that sales of the Company's
aircraft will ever generate sufficient revenues to fund its continuing
operations, that the Company will generate positive cash flow from its
operations, or that the Company will attain or thereafter sustain profitability
in any future period. See "Use of Proceeds," "Plan of Operations" and
"Business."
UNCERTAINTY AS TO ABILITY TO CONTINUE AS A GOING CONCERN. The report of the
Company's independent accountants contains an explanatory paragraph that
describes an uncertainty as to the ability of the Company to continue as a going
concern. Among the factors cited by the independent accountants as raising doubt
as to the Company's ability to continue as a going concern is the Company's need
for additional financing and that the Company has suffered recurring losses
during the development stage and has a working capital deficit and net
stockholders' deficit. See Report of Independent Accountants.
UNCERTAINTY OF MARKET ACCEPTANCE OF AIRCRAFT; LACK OF ESTABLISHED MARKET FOR
AIRCRAFT. The Company's business is dependent on market acceptance of its
proposed aircraft. To date, the Company has made only limited attempts to sell
its aircraft. There can be no assurance that, after the initiation of
significant
8
<PAGE>
marketing and sales efforts, the Company's aircraft will be accepted by the
marketplace. The Company's ability to successfully market the JETCRUZER 500 and
any other aircraft it may develop will depend in part upon the Company
convincing potential customers of the price, performance and safety advantages
of its aircraft as compared to competitive aircraft having a more conventional
design and appearance. The canard design is unusual in the aircraft industry,
and there can be no assurance that potential customers will accept such design.
Historically, sales of other manufacturers' aircraft having an unconventional
design and appearance have been disappointing, although such poor sales may be
related to other factors. Further, as a new manufacturer without an established
reputation, the Company would be particularly vulnerable to financial and
reputational harm in the event of an occurrence that aroused concern regarding
the safety or airworthiness of the Company's aircraft, including but not limited
to, an accident or other incident involving an aircraft manufactured by the
Company. Although the Company has received indications of interest to purchase
the JETCRUZER 450 (which the Company no longer intends to market and sell) and
the JETCRUZER 500, a number of which are supported by a nominal deposit, at any
time prior to the commencement of the manufacture of a customer's aircraft, the
deposit will be returned at the customer's request. See "Business--Competition"
and "--Marketing, Distribution and Service."
REGULATORY UNCERTAINTY. The Company intends to amend its Type Certificate
with respect to the JETCRUZER 450 to include the JETCRUZER 500, although there
can be no assurance that the FAA will not require application for a new type
certificate for the JETCRUZER 500. In addition, the Company will be required to
obtain an amendment to its Type Certificate or a new type certificate if and
when it proceeds with development of the JETCRUZER 650. The Company will be
required to obtain a new type certificate if and when it proceeds with
development of the STRATOCRUZER 1250. Obtaining a new or amended FAA type
certificate can be difficult, costly, and time consuming. There can be no
assurance that the Company will be successful in obtaining a new type
certificate or amendments to its existing Type Certificate for its proposed
aircraft, or that, if one or more new or amended type certificates are obtained,
they will not be subject to conditions which may adversely affect the use of the
proposed aircraft for their intended purpose. In the event that the FAA
determines that a new type certificate is required for any of the Company's
proposed aircraft (including the JETCRUZER 500), the time and cost of obtaining
such certification may be substantial, may render it impossible for the Company
to complete such certification and may have an adverse effect on the Company's
operations.
The Company will also need to obtain an FAA production certificate for the
commercial production of its aircraft and airworthiness certificates for
individual aircraft upon the completion of manufacture. There can be no
assurance that the Company will be able to obtain a production certificate for
its planned aircraft models, or airworthiness certificates for individual
aircraft, and therefore there can be no assurance that the Company will be able
to produce and sell aircraft.
The Company will also be subject to the risk of modification, suspension or
revocation of any FAA certificate it holds. Such modification, suspension, or
revocation could occur if, in the FAA's judgement, compliance with airworthiness
or safety standards by the Company was in doubt. If the FAA were to suspend or
revoke the Company's type or production certificate for an aircraft model, sales
of that model would be adversely affected or terminated. If, in the FAA's
judgement, an unsafe condition developed or was discovered after one or more of
the Company's aircraft had entered service, the FAA could issue an
"Airworthiness Directive," which could result in a requirement that the Company
develop appropriate design changes at the Company's expense. Foreign authorities
could impose similar obligations upon the Company as to aircraft within their
jurisdiction. Any or all of the above occurrences could expose the Company to
substantial additional costs and/or liabilities. See "Business--Government
Regulation."
LIMITED PRODUCTION CAPABILITIES; LACK OF MANUFACTURING EXPERIENCE. The
Company has produced only three JETCRUZER 450 aircraft in the course of
obtaining its FAA Type Certificate and has not yet manufactured any other
aircraft or any aircraft on a commercial scale. The manufacture of aircraft is a
complex and exacting process and will require the Company to attract and retain
experienced personnel to develop a manufacturing capability and to comply with
extensive government standards with respect to its proposed aircraft and the
process by which they are manufactured. There can be no assurance that the
9
<PAGE>
Company will be able to successfully implement large scale production
operations, attract and retain experienced personnel or obtain and maintain the
necessary regulatory approvals to commence and continue its manufacturing
operations. The Company intends to finance a substantial portion of the cost to
establish such a manufacturing facility through mortgage financing and/or other
similar means. There can be no assurance, however, that the Company will be able
to obtain such financing in order to establish a facility capable of producing
the Company's proposed aircraft. See "Use of Proceeds," "Plan of Operations" and
"Business."
LIMITED PRODUCT LINE; FLUCTUATIONS IN SALES OF AIRCRAFT. Initially, the
JETCRUZER 500 is intended to be the Company's only product available for
commercial sale. Accordingly, the operating results of the Company and the
future development of additional products will depend substantially upon the
successful sale of that aircraft, as to which there can be no assurance.
Moreover, if there is a downturn in the market for general aviation aircraft due
to economic, political or other reasons, the Company would not be able to rely
on sales of other products to offset the downturn. For example, from a peak of
approximately 18,000 units delivered by United States manufacturers in 1978,
sales of personal and recreational aircraft declined significantly during the
1980's and early 1990's. Since 1986, the number of aircraft delivered per year
by United States manufacturers has not exceeded 1,500, and fewer than 1,000
aircraft were delivered in each of 1992, 1993 and 1994. This decrease in sales
was caused by several factors, including the cost of aviation fuel, high
interest rates, inflation and an increase in negligence and product liability
claims arising from accidents involving general aviation piston aircraft and a
resulting increase in the price of manufacturers' liability insurance and,
therefore, of such aircraft. It is possible that sales of business aircraft
could decline in the future for these or other reasons beyond the Company's
control. Furthermore, if a potential purchaser is experiencing an economic
downturn or is for any other reason seeking to limit its capital expenditures,
the high unit selling price of a new aircraft may result in such potential
purchaser deferring its purchase or electing to purchase a pre-owned aircraft or
a lower priced aircraft. Further, since the Company intends to rely on the sale
of a relatively small number of high unit selling price aircraft to provide
substantially all of its revenue, small decreases in the number of aircraft
delivered in any year may have a material negative effect on the results of
operations for that year. In addition, small changes in the number and timing of
deliveries of, and receipt of payments on, new aircraft may have a material
effect on the Company's liquidity. See "Business--Industry Background" and
"--Proposed Products."
COMPETITION. The Company's aircraft will compete with other aircraft that
have comparable characteristics and capabilities. Most of the Company's
competitors, including Cessna Aircraft Co. (maker of the Caravan), Socata (maker
of the TBM), Pilatus (maker of the PC-12), Raytheon Aircraft Co. (Beechcraft)
(maker of the King Air) and New Piper Aircraft Corp. (maker of the Malibu
Mirage), are substantially larger in size and have far greater financial,
technical, marketing, and other resources than the Company. Certain of the
Company's actual and potential competitors may have technological capabilities
or other resources that would allow them to modify existing aircraft or develop
alternative new aircraft which could compete with the Company's aircraft, and
such competitors may introduce such aircraft and aircraft changes prior to the
anticipated delivery of the Company's first aircraft, which is not expected for
at least two years. The Company's ability to compete effectively may be
adversely affected by the ability of these competitors to devote greater
resources to the sales and marketing of their products than are available to the
Company. In addition, the Company will need to convince potential customers of
the advantages of its aircraft as compared to competitors' aircraft having a
more conventional design and appearance. There can be no assurance that future
technological advances will not result in competitive aircraft with improved
characteristics and capabilities that could adversely affect the Company's
business. The Company's aircraft may also compete with used aircraft which
become available in the resale market at prices sufficiently lower to offset
deficits in performance, if any, as compared to the Company's aircraft. See
"Business-- Competition."
NEED FOR ADDITIONAL FINANCING. The Company believes that the net proceeds
from the Offering will be sufficient to meet its cash requirements for
approximately 18 to 24 months following consummation of the Offering; however,
there can be no assurance that the Company will not require additional financing
prior
10
<PAGE>
to that time or that, if required, additional financing will be available on
acceptable terms or at all. Specifically, if the FAA determines that a new type
certificate is required for the JETCRUZER 500, the time lost to obtain such new
type certificate may be substantial. In addition, following such 18 to 24 month
period, if the Company has not completed the development of the JETCRUZER 500,
received the required regulatory approvals, and successfully commenced sales of
its aircraft, the Company may need to obtain additional financing. Further, the
Company intends to rely on mortgage financing or other similar financing in
connection with the establishment of a new manufacturing facility. The Company
has no binding commitments from any third parties to provide funds to the
Company, and there can be no assurance that additional financing will be
available on terms acceptable to the Company, if at all. Failure to obtain such
additional financing would have a material adverse effect on the Company's
business and prospects and could require the Company to severely limit or cease
its operations. See "Use of Proceeds," "Plan of Operations" and the Financial
Statements and the Notes thereto. Additionally, the Company has completed the
initial design of the JETCRUZER 650 and has designed and partially constructed
the prototype of the STRATOCRUZER 1250. Further development of these aircraft
will not be pursued in the near term future and will require substantial
financing in addition to that received in the Offering. See "Business--Other
Proposed Aircraft."
RELIANCE ON SINGLE SOURCE SUPPLIERS. The Company will be dependent on
certain suppliers of products in order to manufacture its aircraft. In
particular, the Company will be dependent on Pratt & Whitney to supply the
propjet engine for the JETCRUZER 500. The Company has no contractual right to
obtain any specified number of engines from Pratt & Whitney. Should the
Company's ability to obtain the requisite number of engines be limited for any
lengthy period of time or the cost of such engines increase, the Company's
ability to produce and sell aircraft could be materially and adversely affected.
In addition, the failure of other suppliers or subcontractors to meet the
Company's performance specifications, quality standards or delivery standards or
schedules could have a material adverse effect on the Company's operations.
Moreover, the Company's ability to significantly increase its production rate
following the introduction of the JETCRUZER 500 could be limited by the ability
or willingness of its key suppliers to increase their delivery rates. Further, a
significant amount of time has elapsed since the Company has obtained materials
and components from many of its suppliers. Accordingly, at such time as the
Company is ready to commence the manufacture of its aircraft, the prices to
obtain such materials and components may have changed and a number of suppliers
may need to be replaced. The Company's inability to obtain supplies to
manufacture its products would have a material adverse effect on the Company's
business prospects, operations and financial condition. See
"Business--Suppliers."
INSURANCE AND PRODUCT LIABILITY EXPOSURE. Because the failure of an
aircraft manufactured by the Company or any other mishap involving such an
aircraft may result in physical injury or death to the occupants of the aircraft
or others, the Company could be subject to lawsuits involving product liability
claims, which lawsuits may involve claims for substantial sums. Although the
Company intends to obtain comprehensive product liability insurance prior to the
commencement of commercial sales of its aircraft, such insurance can be
expensive, subject to various coverage exclusions and may not be obtainable by
the Company in the future on terms acceptable to the Company or at all. Further,
should the Company become involved in product liability litigation, the expenses
and damages awarded could be large and the scope of any coverage may be
inadequate. Increased insurance costs and/or liability costs could require an
increase in the price of the Company's aircraft and therefore could have a
negative impact on sales. See "--Limited Product Line; Fluctuations in Sales of
Aircraft" and "Business--Industry Background."
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. The Company expects to derive
a substantial portion of its revenues from the sale of a relatively small number
of aircraft. As a result, a small reduction in the number of aircraft shipped in
a quarter due to, for example, unanticipated shipment rescheduling or
cancellations, supplier delays in the delivery of component parts or unexpected
manufacturing difficulties, could have a material and adverse effect on the
Company's financial position and results of operations for that quarter.
In addition, the Company's intention to expand its manufacturing
capabilities and the need for continued investment by the Company in research,
development, engineering, and marketing will limit the
11
<PAGE>
Company's ability to reduce expenses in response to any such decrease in sales.
Moreover, because the indications of interest received by the Company from
potential customers will be subject to cancellation or rescheduling by the
customer prior to the commencement of construction of the customer's aircraft, a
backlog of orders at any particular date will not necessarily be representative
of actual sales for any succeeding period. If the Company's anticipated level of
revenues is not achieved for a particular period, the Company's operating
results could be adversely affected by its inability to reduce costs. The impact
of these and other factors on the Company's operating results in any future
period cannot be accurately forecast. See "Plan of Operations."
RISKS OF INTERNATIONAL OPERATIONS. The Company intends to market and sell
its proposed aircraft to foreign customers. Accordingly, the Company will be
subject to all of the risks inherent in international operations, including work
stoppages, transportation delays and interruptions, political instability or
conflict between countries in which the Company may do business, foreign
currency fluctuations, economic disruptions, differences in airworthiness and
certification standards imposed by foreign authorities, the imposition of
tariffs and import and export controls, changes in governmental policies
(including United States trade policy) and other factors, including other
foreign laws and regulations, which could have an adverse effect on the
Company's business. With respect to international sales that are denominated in
U.S. dollars, an increase in the value of the U.S. dollar relative to foreign
currencies can increase the effective price of, and reduce demand for, the
Company's products relative to competitive products priced in the local
currency. These international trade factors may, under certain circumstances,
materially and adversely impact demand for the Company's products or the
Company's ability to sell its aircraft in particular countries or deliver its
products in a timely manner or at a competitive price, which in turn may have an
adverse impact on the Company's relationships with its customers. In addition,
foreign certification or equivalent approval is required prior to importing an
aircraft into a foreign country, and no assurance can be given that the Company
will receive such certification or equivalent approval in any country. The
Company's success will depend in part upon its ability to obtain and maintain
foreign certifications or equivalent approvals and manage international
marketing, sales and service operations. See "Business--Marketing, Distribution
and Service" and "--Government Regulation--Foreign Certi-
fication."
DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL MANAGEMENT PERSONNEL. The
Company's success to date has depended in large part on the skills and efforts
of Dr. Carl Chen, the Company's Chairman and Chief Executive Officer, and, to a
lesser extent, on the skills and efforts of Mr. Gene Comfort, the Company's
Executive Vice President, and Mr. William Leeds, the Company's former Senior
Vice President, who has agreed to rejoin the Company upon the closing of the
Offering. See "Management-- Directors and Executive Officers." The Company has
obtained key-man life insurance coverage with respect to Dr. Chen and Mr.
Comfort in the face amounts of $2,000,000 and $1,000,000, respectively, naming
the Company as beneficiary. The Company's future success will depend to a
significant extent on its ability to identify and hire certain other key
employees on a timely basis. The Company is seeking to hire personnel to
complete its management team in connection with the contemplated expansion of
its operations. Competition for highly-skilled business, product development,
technical and other personnel is intense, and there can be no assurance that the
Company will be successful in recruiting new personnel or in retaining any of
its existing personnel. The Company will experience increased costs in order to
retain and attract skilled employees. The Company's failure to attract
additional qualified employees on a timely basis or at all or to retain the
services of key personnel could have a material adverse effect on the Company's
operating results and financial condition. See "Management."
LIMITED SALES AND MARKETING EXPERIENCE. The Company's operating results
will depend to a large extent on its ability to successfully market and sell its
aircraft. The Company currently has limited marketing capabilities and needs to
hire additional sales and marketing personnel. The Company intends to use a
portion of the proceeds of the Offering to expand its marketing activities and
to hire additional sales and marketing personnel. There can be no assurance that
the Company will be able to recruit, train or retain qualified personnel to sell
and market its products or that it will develop a successful sales and marketing
12
<PAGE>
strategy. The Company also has very limited marketing experience. There can be
no assurance that any marketing efforts undertaken by the Company will be
successful or will result in any significant sales of its products. See
"Business--Marketing, Distribution and Service" and "Management."
RISKS OF PLANNED GROWTH. The Company plans to significantly expand its
operations during the fourth quarter of 1996 and throughout 1997, which could
place a significant strain on its limited personnel, financial and other
resources. The Company intends to expand its manufacturing capabilities and
ultimately commence commercial manufacture of its aircraft. There can be no
assurance that the Company's efforts to conduct manufacturing activities will be
successful or that the Company will be able to satisfy commercial scale
production requirements on a timely and cost-effective basis. The Company's
ability to manage this growth, should it occur, would require significant
expansion of its engineering, production, marketing and sales capabilities and
personnel. There can be no assurance that the Company will be able to find
qualified personnel to fill such additional engineering, production, and sales
and marketing positions or be able to successfully manage a larger sales and
marketing organization. See "Business."
CONTROL BY INSIDERS; OWNERSHIP OF SHARES HAVING DISPROPORTIONATE VOTING
RIGHTS. Upon completion of the Offering, Dr. Carl Chen, the Company's Chairman
and Chief Executive Officer, and C.M. Cheng, a Director of the Company, will
beneficially own, or have voting control over, shares of the Company's capital
stock representing approximately 85% of the total voting power of the Company.
Accordingly, they will continue to be able to elect at least a majority of the
Company's directors and thereby direct the policies of the Company after
completion of the Offering. Furthermore, the disproportionate vote afforded the
shares of Class B Common Stock and Class E Common Stock could also serve to
impede or prevent a change of control of the Company. As a result, potential
acquirors may be discouraged from seeking to acquire control of the Company
through the purchase of Class A Common Stock, which could have a depressive
effect on the market price of the Company's securities. See "Principal
Stockholders."
LIMITATION ON OFFICERS' AND DIRECTORS' LIABILITIES UNDER DELAWARE
LAW. Pursuant to the Company's Certificate of Incorporation, and as authorized
under applicable Delaware law, directors and officers of the Company are not
liable for monetary damages for breach of fiduciary duty, except (i) in
connection with a breach of the duty of loyalty, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for dividend payments or stock repurchases illegal under Delaware law
or (iv) for any transaction in which a director has derived an improper personal
benefit. See "Management--Limitation of Liability and Indemnification Matters."
CHARGE TO INCOME IN THE EVENT OF CONVERSION OF PERFORMANCE SHARES. The
Performance Shares will be subject to redemption by the Company at a price of
$.01 per share if the Company does not attain certain earnings or share price
levels. In the event the Company attains certain earnings or share price levels,
the Performance Shares will be automatically converted into shares of Class B
Common Stock. In the event any Performance Shares held by officers, directors,
employees or consultants of the Company are converted into Class B Common Stock,
the maximum compensation expense recorded for financial reporting purposes will
be an amount equal to the fair value of the shares converted at the time of such
conversion which value cannot be predicted at this time. Therefore, in the event
the Company attains any of the earnings thresholds or the Company's Class A
Common Stock meets certain minimum bid prices required for the conversion of the
Performance Shares, the Company will recognize a substantial charge to earnings
during the period in which such conversion occurs as compensation expense to the
Company, which would have the effect of increasing the Company's loss or
reducing or eliminating its earnings, if any, at such time. Although the amount
of compensation expense recognized by the Company will not affect the Company's
cash flow or liquidity, it may have a depressive effect on the market price of
the Company's securities. In the event the Company does not attain these
earnings thresholds or minimum bid price levels, and no conversion occurs, no
compensation expense will be recorded for financial reporting purposes. See
"Description of Securities--Common Stock."
POSSIBLE ADVERSE EFFECTS OF AUTHORIZATION OF PREFERRED STOCK; ANTI-TAKEOVER
PROVISIONS; ENCHANCED VOTING POWER OF CLASS B COMMON STOCK AND CLASS E COMMON
STOCK. The Company's Certificate of Incorporation
13
<PAGE>
authorizes the issuance of a maximum of 5,000,000 shares of preferred stock on
terms which may be fixed by the Company's Board of Directors without stockholder
action. The terms of any series of preferred stock, which may include priority
claims to assets and dividends and special voting rights, could adversely affect
the rights of holders of the Common Stock. The issuance of preferred stock could
make the possible takeover of the Company or the removal of management of the
Company more difficult, discourage hostile bids or control of the Company in
which stockholders may receive premiums for their shares of Class A Common Stock
or otherwise dilute the rights of holders of Class A Common Stock. See
"Description of Securities--Preferred Stock." In addition, the Company is
subject to Delaware General Corporation Law provisions that may have the effect
of delaying, deferring or preventing certain changes of control of the Company.
See "Description of Securities--Certain Statutory and Charter Provisions under
the Delaware General Corporation Law." Furthermore, the disproportionate vote
afforded the Class B Common Stock and Class E Common Stock could also serve to
impede or prevent a change in control of the Company. See "--Control by
Insiders; Ownership of Shares Having Disproportionate Voting Rights" and
"Description of Securities--Common Stock."
PORTION OF NET PROCEEDS TO BE USED TO REPAY BRIDGE NOTES; CHARGES ARISING
FROM DEBT DISCOUNT AND DEBT ISSUANCE COSTS. Approximately $7,144,000 of the net
proceeds of the Offering will be used to repay in full the Bridge Notes. As a
result, the proceeds from the Offering available for the Company to meet its
ongoing operating needs and expansion plans will be correspondingly reduced. See
"Use of Proceeds." Upon completion of the Offering and repayment of the Bridge
Notes, a non-recurring charge of approximately $1,100,000 representing the
unamortized debt discount and issuance costs incurred in connection with the
Bridge Financing will be charged to operations in the quarter in which the
Offering is completed. See "Plan of Operations."
SHARES AVAILABLE FOR FUTURE SALE; REGISTRATION RIGHTS. Future sales of
Common Stock by existing stockholders pursuant to Rule 144 under the Securities
Act of 1933, as amended (the "Securities Act"), pursuant to the Concurrent
Securities Offering or otherwise, could have an adverse effect on the price of
the Company's securities. Pursuant to the Concurrent Securities Offering,
3,500,000 Selling Securityholders' Class A Warrants and the underlying
securities have been registered for resale concurrently with the Offering,
subject to a contractual restriction that the Selling Securityholders not sell
any of the Selling Securityholders' Class A Warrants for at least 90 days from
the closing of the Offering and, during the period from 91 to 270 days after the
closing of the Offering, only sell specified percentages of such Selling
Securityholders' Class A Warrants. Upon the sale of the 6,000,000 Units offered
hereby, the Company will have outstanding 16,000,000 shares of Common Stock,
6,000,000 Class A Warrants and 6,000,000 Class B Warrants (16,900,000 shares of
Common Stock, 6,900,000 Class A Warrants and 6,900,000 Class B Warrants if the
Underwriter's over-allotment option is exercised in full). The shares of Class A
Common Stock, Class A Warrants and Class B Warrants sold in the Offering will be
freely tradeable without restriction under the Securities Act, unless acquired
by "affiliates" of the Company as that term is defined in the Securities Act.
The remaining 10,000,000 outstanding shares of Common Stock are "restricted
securities" within the meaning of Rule 144 under the Securities Act. Pursuant to
Rule 144, virtually all of these restricted shares would be eligible for resale
commencing 90 days following the date of this Prospectus. However, 2,000,000 of
the 10,000,000 outstanding shares are Class B Common Stock and thus may not be
sold until thirteen months after the date of this Prospectus. In addition, the
remaining 8,000,000 of the outstanding shares are Class E Common Stock, which
shares are not currently transferable and are subject to redemption by the
Company for a nominal consideration if the Company does not meet certain income
or stock price levels, and are convertible into Class B Common Stock if the
Company does meet such levels. The holders of the Unit Purchase Option have
certain demand and "piggyback" registration rights covering their securities.
The exercise of such rights could involve substantial expense to the Company.
Sales of Common Stock, or the possibility of such sales, in the public market
may adversely affect the market price of the securities offered hereby. See
"Concurrent Securities Offering," "Description of Securities," "Shares Eligible
for Future Sale" and "Underwriting."
14
<PAGE>
EFFECT OF OUTSTANDING OPTIONS AND WARRANTS. Upon sale of the 6,000,000
Units offered hereby, the Company will have outstanding 6,000,000 Class A
Warrants to purchase 6,000,000 shares of Class A Common Stock and 6,000,000
Class B Warrants for $6.50 per share (subject to adjustment in certain
circumstances) and 6,000,000 Class B Warrants to purchase 6,000,000 shares of
Class A Common Stock at $8.75 per share (subject to adjustment in certain
circumstances) (or 6,900,000 Class A Warrants and 6,900,000 Class B Warrants if
the Underwriter's over-allotment option is exercised in full). In addition, the
Company will have outstanding 3,500,000 Selling Securityholders' Class A
Warrants to purchase 3,500,000 shares of Class A Common Stock and 3,500,000
Class B Warrants (which are exercisable for 3,500,000 shares of Class A Common
Stock), the Unit Purchase Option to purchase an aggregate of 2,400,000 shares of
Class A Common Stock assuming exercise of the underlying Warrants, and 500,000
shares of Class A Common Stock reserved for issuance under the Option Plan,
under which options to purchase 110,000 shares are outstanding at an exercise
price of $5.00 per share. Holders of such options and warrants may exercise them
at a time when the Company would otherwise be able to obtain additional equity
capital on terms more favorable to the Company. In addition, the Unit Purchase
Option contains a provision permitting the holder to elect a cashless exercise
of the Option. Moreover, while these options are outstanding, the Company's
ability to obtain financing on favorable terms may be adversely affected. See
"Management" and "Description of Securities."
IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of the Units offered hereby
will incur immediate and substantial dilution in the net tangible book value of
the Class A Common Stock included in the Units, estimated to be approximately
$3.48 per share or approximately 70% of the public offering price per share
(allocating no value to the Warrants). Additional dilution to public investors,
if any, may result to the extent that the Warrants, the Unit Purchase Option or
outstanding options and warrants are exercised at a time when the net tangible
book value per share of Common Stock exceeds the exercise price of any such
securities. See "Dilution."
ARBITRARY DETERMINATION OF OFFERING PRICE; ABSENCE OF PUBLIC MARKET AND
POSSIBLE VOLATILITY OF STOCK PRICE. The initial public offering price of the
Units and the exercise prices and other terms of the Warrants have been
arbitrarily determined by negotiation between the Company and the Underwriter
and do not necessarily bear any relationship to the Company's assets, net worth
or other established criteria of value. The exercise and redemption prices of
the Warrants should not be construed to imply or predict any increase in the
market price of the Class A Common Stock. See "Underwriting." No public market
for the securities has existed prior to the Offering. No assurance can be given
that an active trading market in the Company's securities will develop after
completion of the Offering or, if developed, that it will be sustained. No
assurance can be given that the market price of the Company's securities will
not fall below the initial public offering price. The Company believes factors
such as quarterly fluctuations in financial results and announcements of new
technology or products or regulatory developments in the aircraft industry may
cause the market price of the Company's securities to fluctuate, perhaps
substantially. These fluctuations, as well as general economic conditions, such
as recessions or high interest rates, may adversely affect the market price of
the securities.
POSSIBLE DELISTING OF SECURITIES FROM THE NASDAQ STOCK MARKET. The
Company's Class A Common Stock, Class A Warrants and Class B Warrants have been
approved for quotation on The Nasdaq National Market and the Units have been
approved for quotation on the Nasdaq SmallCap Market. The Company will have to
maintain certain minimum financial requirements for continued inclusion on
Nasdaq. If the Company is unable to satisfy Nasdaq's maintenance requirements,
the Company's securities may be delisted from Nasdaq. In such event, trading, if
any, in the Units, Class A Common Stock and Warrants would thereafter be
conducted in the over-the-counter markets in the so-called "pink sheets" or the
NASD's "Electronic Bulletin Board." Consequently, the liquidity of the Company's
securities could be impaired, not only in the number of securities which could
be bought and sold, but also through delays in the timing of the transactions,
reductions in the number and quality of security analysts' and the news media's
coverage of the Company, and lower prices for the Company's securities than
might otherwise be attained. The Nasdaq Stock Market has recently proposed more
stringent financial requirements for listing
15
<PAGE>
on Nasdaq. If adopted, the Company will have to meet and maintain such new
financial requirements for continued inclusion on Nasdaq. If the Company is
unable to satisfy these new requirements, the Company's securities may be
delisted from Nasdaq.
RISK OF LOW-PRICE STOCKS. If the Company's securities were to be delisted
from Nasdaq, they could become subject to Rule 15g-9 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), which imposes additional
sales practice requirements on broker-dealers which sell such securities to
persons other than established customers and "accredited investors" (generally,
individuals with net worths in excess of $1,000,000 or annual incomes exceeding
$200,000, or $300,000 together with their spouses). For transactions covered by
this rule, a broker-dealer must make a special suitability determination for the
purchaser and have received the purchaser's written consent to the transaction
prior to sale. Consequently, the rule may adversely affect the ability of
broker-dealers to sell the Company's securities and may adversely affect the
ability of purchasers in the Offering to sell any of the securities acquired
hereby in the secondary market.
Commission regulations define a "penny stock" to be any non-Nasdaq equity
security that has a market price (as therein defined) of less than $5.00 per
share or with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require delivery, prior to any transaction in a penny stock, of a
disclosure schedule prepared by the Commission relating to the penny stock
market. Disclosure is also required to be made about commissions payable to both
the broker-dealer and the registered representative and current quotations for
the securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stocks.
The foregoing penny stock restrictions will not apply to the Company's
securities if such securities are listed on Nasdaq and have certain price and
volume information provided on a current and continuing basis or if the Company
meets certain minimum net tangible assets or average revenue criteria. There can
be no assurance that the Company's securities will qualify for exemption from
these restrictions. In any event, even if the Company's securities were exempt
from such restrictions, it would remain subject to Section 15(b)(6) of the
Exchange Act, which gives the Commission the authority to prohibit any person
that is engaged in unlawful conduct while participating in a distribution of a
penny stock from associating with a broker-dealer or participating in a
distribution of a penny stock, if the Commission finds that such a restriction
would be in the public interest. If the Company's securities were subject to the
rules on penny stocks, the market liquidity for the Company's securities could
be severely adversely affected.
CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE
WARRANTS. The Warrants included in the Units offered hereby will be immediately
detachable and separately tradeable. 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 who reside in or move to jurisdictions
in which the securities underlying the Warrants are not so registered or
qualified during the period that the Warrants are exercisable may buy Units (or
the Warrants included therein) in the aftermarket. In this event, the Company
would be unable to issue securities to those persons desiring to exercise their
Warrants unless and until the underlying securities could be registered or
qualified for sale in the jurisdictions in which such purchasers reside, or
unless an exemption from such qualification exists in such jurisdictions. No
assurance can be given that the Company will be able to effect any such required
registration or qualification.
Additionally, purchasers of the Units will be able to exercise the Warrants
included therein only if a current prospectus relating to the securities
underlying the Warrants is then in effect under the Securities Act and such
securities are qualified for sale or exempt from qualification under the
applicable securities or "blue sky" laws of the states in which the various
holders of the Warrants then reside. Although the Company has undertaken to use
reasonable efforts to maintain the effectiveness of a current prospectus
covering the securities underlying the Warrants, no assurance can be given that
the Company will be able to do so. The value of the Warrants may be greatly
reduced if a current prospectus covering the securities issuable upon the
exercise of the Warrants is not kept effective or if such securities are not
qualified or exempt from qualification in the states in which the holders of the
Warrants then reside.
16
<PAGE>
ADVERSE EFFECT OF POSSIBLE REDEMPTION OF WARRANTS. The Warrants are subject
to redemption by the Company commencing one year from the date of this
Prospectus, on at least 30 days' prior written notice, if the average closing
bid price of the Class A Common Stock for 30 consecutive trading days ending
within 15 days of the date on which the notice of redemption is given exceeds
$12.00 per share with respect to the Class A Warrants and $15.00 per share with
respect to the Class B Warrants. If the Warrants are redeemed, holders of
Warrants will lose their right to exercise the Warrants, except during such
30-day notice of redemption period. Upon the receipt of a notice of redemption
of the Warrants, the holders thereof would be required to: (i) exercise the
Warrants and pay the exercise price at a time when it may be disadvantageous for
them to do so, (ii) sell the Warrants at the then current market price (if any)
when they might otherwise wish to hold the Warrants, or (iii) accept the
redemption price, which is likely to be substantially less than the market value
of the Warrants at the time of redemption. See "Description of Securities--
Redeemable Warrants."
NO DIVIDENDS. The Company has paid no dividends to its stockholders since
its inception and does not plan to pay dividends in the foreseeable future. The
Company intends to reinvest earnings, if any, in the development and expansion
of its business. See "Dividend Policy."
POSSIBLE ADVERSE EFFECT ON LIQUIDITY OF THE COMPANY'S SECURITIES DUE TO
INVESTIGATION BY THE SECURITIES AND EXCHANGE COMMISSION OF THE UNDERWRITER AND
D.H. BLAIR & CO. The Securities and Exchange Commission (the "Commission") is
conducting an investigation concerning various business activities of the
Underwriter and D.H. Blair & Co., Inc. ("Blair & Co."), a selling group member
that will distribute substantially all of the Units offered hereby. The
investigation appears to be broad in scope, involving numerous aspects of the
Underwriter's and Blair & Co.'s compliance with the Federal securities laws and
compliance with the Federal securities laws by issuers whose securities were
underwritten by the Underwriter or Blair & Co., or in which the Underwriter or
Blair & Co. made over-the counter markets, persons associated with the
Underwriter or Blair & Co., such issuers and other persons. The Company has been
advised by the Underwriter that the investigation has been ongoing since at
least 1989 and that it is cooperating with the investigation. The Underwriter
cannot predict whether this investigation will ever result in any type of formal
enforcement action against the Underwriter or Blair & Co. or, if so, whether any
such action might have an adverse effect on the Underwriter or the securities
offered hereby. The Company has been advised that Blair & Co. intends to make a
market in the securities following the Offering. An unfavorable resolution of
the Commission's investigation could have the effect of limiting such firm's
ability to make a market in the Company's securities, which could adversely
affect the liquidity or price of such securities. See "Underwriting."
POSSIBLE RESTRICTIONS ON MARKET MAKING ACTIVITIES IN THE COMPANY'S
SECURITIES. The Underwriter has advised the Company that Blair & Co. intends to
make a market in the Company's securities. Rule 10b-6 under the Exchange Act
will prohibit Blair & Co. from engaging in any market-making activities with
regard to the Company's securities for the period from nine business days (or
such other applicable period as Rule 10b-6 may provide) prior to any
solicitation by the Underwriter of the exercise of Warrants until the later of
the termination of such solicitation activity or the termination (by waiver or
otherwise) of any right that the Underwriter may have to receive a fee for the
exercise of Warrants following such solicitation. As a result, Blair & Co. may
be unable to provide a market for the Company's securities during certain
periods while the Warrants are exercisable. In addition, under applicable rules
and regulations under the Exchange Act, any person engaged in the distribution
of the Selling Securityholders' Warrants may not simultaneously engage in
market-making activities with respect to any securities of the Company for the
applicable "cooling off" period (at least two and possibly nine business days)
prior to the commencement of such distribution. Accordingly, in the event the
Underwriter or Blair & Co. is engaged in a distribution of the Selling
Securityholders' Warrants, neither of such firms will be able to make a market
in the Company's securities during the applicable restrictive period. Any
temporary cessation of such market-making activities could have an adverse
effect on the market prices of the Company's securities. See "Underwriting."
17
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the 6,000,000 Units offered hereby, after
deducting the underwriting discount and commissions and other estimated expenses
of the Offering, are anticipated to be approximately $26,415,965 ($30,510,965 if
the Underwriter's over-allotment option is exercised in full). The Company
expects the net proceeds to be utilized approximately as follows:
<TABLE>
<CAPTION>
APPROXIMATE AMOUNT PERCENTAGE OF
ANTICIPATED APPLICATION OF NET PROCEEDS NET PROCEEDS
- ------------------------------------------------------------------------------ ------------------- -------------
<S> <C> <C>
Repayment of Bridge Notes(1).................................................. $ 7,144,000 27.04%
Amendment of FAA Type Certificate(2).......................................... 8,000,000 30.28%
Purchase of Equipment and Tooling(3).......................................... 1,450,000 5.49%
Manufacturing Facility Costs(4)............................................... 1,100,000 4.16%
Sales and Marketing(5)........................................................ 900,000 3.41%
Working Capital(6)............................................................ 7,821,965 29.61%
------------------- ------
Total....................................................................... $ 26,415,965 100.00%
------------------- ------
------------------- ------
</TABLE>
- ------------------------
(1) Represents the aggregate principal amount of Bridge Notes issued in the
Bridge Financing completed by the Company in August 1996, together with
estimated accrued interest through November 12, 1996. The Bridge Notes bear
interest at the rate of 10% per annum and mature on the earlier of the
closing of the Offering or August 30, 1997. The proceeds of the Bridge Notes
were and are being used to repay bank and other outstanding indebtedness,
loans from officers and directors (consisting of approximately $401,000 and
$262,000 of indebtedness owed by the Company to C. M. Cheng, a director of
the Company, and Dr. Carl Chen, the Chairman, Chief Executive Officer and
President of the Company, respectively), accrued compensation (consisting of
approximately $213,000 and $34,000 of accrued and unpaid compensation owed
to Dr. Chen and Gene Comfort, the Executive Vice President of the Company,
respectively) and past due accounts payable and for working capital. See
"Plan of Operations" and "Certain Transactions."
(2) Represents the cost of completing development of the JETCRUZER 500,
including the cost of obtaining an amendment of the Company's FAA Type
Certificate to include the JETCRUZER 500, the cost of equipment, tooling,
dies, and jigs necessary to manufacture the JETCRUZER 500, the cost of
static and flight testing, and the cost of hiring, training, and employing
personnel necessary to obtain such amendment. The Company expects that
certain of the equipment and tooling which will be acquired or created by
the Company in amending its Type Certificate will also be used to
manufacture the JETCRUZER 500 for commercial sale. See "Plan of Operations."
(3) Includes the purchase of additional production tools and the in-house
duplication of existing tooling, jigs and dies for commercial production.
(4) Represents a portion of the costs of establishing an appropriate
manufacturing facility. The Company estimates that the total cost of this
facility will be approximately $7,000,000 and anticipates funding the
remaining portion of such facility through mortgage financing and/or other
similar means. In the event that the Company is unable to fully fund the
cost of such facility from such sources, it may be necessary to use the
proceeds allocated to working capital for such purpose or the Company may
determine to lease a facility until such funds become available. See "Plan
of Operations."
(5) Includes the cost of sales materials, advertising, trade shows and hiring,
training and employing additional sales and marketing personnel.
(6) Represents working capital reserves and general and administrative expenses,
including those related to the financial and accounting functions of the
Company, management information systems, insurance and hiring, training and
employing administrative, financial, and accounting personnel.
18
<PAGE>
The foregoing represents the Company's best estimate of its allocation of
the net proceeds of the Offering during the next 18 to 24 months. This estimate
is based upon the current status of the Company's business and upon certain
assumptions, including, primarily, assumptions that the Company's development of
the JETCRUZER 500 will occur as projected and that the Company will obtain the
necessary regulatory approvals on a timely basis. The amounts actually expended
for each purpose set forth above, other than repayment of the Bridge Notes, may
vary significantly in the event that any of these assumptions prove to be
inaccurate. Future events, including the problems, delays, expenses and
difficulties frequently encountered by development stage companies, changes in
economic, regulatory or competitive conditions or the Company's proposed
business, the results of the Company's sales and marketing activities, or the
inability to obtain regulatory approvals as anticipated, may make changes in the
anticipated allocation of funds necessary or desirable. The Company reserves the
right to change its use of proceeds in response to unanticipated events or
opportunities. In addition, the Company may use funds allocated to working
capital to acquire or invest in complementary businesses or products. The
Company does not currently have any plans, agreements, or commitments with
respect to any possible acquisition.
The Company anticipates, based on its current plans and assumptions
regarding its future operations, that the net proceeds of the Offering will be
sufficient to satisfy the Company's cash requirements for at least the next 18
to 24 months. If the Company's estimates prove to be incorrect, however, then
during such period, the Company may have to seek additional sources of
financing, reduce operating costs and/or curtail growth plans. In addition,
following such period, if the Company has not completed the development of the
JETCRUZER 500, received the required regulatory approvals, and commenced
commercial sales of the JETCRUZER 500, the Company may need to obtain additional
financing. No assurances can be given that additional sources of financing would
be available to the Company under those circumstances; and, if the Company were
unable to obtain needed financing, the Company's business would be materially
and adversely affected. See "Plan of Operations."
Prior to their use, the net proceeds of the Offering will be invested in
short-term, investment-grade securities or federally insured accounts or
certificates of deposit. Any proceeds received upon exercise of the
Underwriter's over-allotment option, the Warrants or the Selling
Securityholders' Warrants will be added to working capital.
DIVIDEND POLICY
The Company has not, to date, paid any dividends. The Company has no current
plans to pay dividends and intends to retain earnings, if any, for working
capital purposes. Any future determination as to the payment of dividends by the
Company will depend upon the Company's results of operations, capital
requirements, and financial condition and other factors deemed relevant by the
Company's Board of Directors.
19
<PAGE>
DILUTION
THE FOLLOWING DISCUSSION AND TABLES ALLOCATE NO VALUE TO THE WARRANTS WHICH
ARE A PART OF THE UNITS.
Dilution represents the difference between the initial public offering price
per share paid by the purchasers in the Offering and the net tangible book value
per share immediately after completion of the Offering. Net tangible book value
per share represents the net tangible assets of the Company (total assets less
total liabilities and intangible assets at September 30, 1996) divided by the
number of shares of Common Stock outstanding. At September 30, 1996, the Company
had a net tangible book value deficit of $951,000, or approximately $0.10 per
share ($0.48 per share if the Performance Shares are excluded). After giving
effect to the issuance of the 6,000,000 Units offered hereby at an assumed
public offering price of $5.00 per Unit and the Company's receipt of the
estimated net proceeds therefrom and the use of a portion of the net proceeds to
repay the Bridge Notes (including interest), the net tangible book value of the
Company, as adjusted at September 30, 1996, would be $24,292,000, or
approximately $1.52 per share ($3.04 per share if the Performance Shares were
excluded). This would result in an immediate dilution to investors in the
Offering of $3.48, or 70%, per share ($1.96, or 39%, per share if the
Performance Shares were excluded), and the aggregate increase in the net
tangible book value to present stockholders would be $1.62 per share ($3.52 per
share if Performance Shares are excluded), as illustrated by the following
table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per Unit................ $ 5.00
Net tangible book value deficit per share before the
Offering.................................................. (0.10)
Increase per share attributable to new investors in the
Units..................................................... 1.62
---------
Net tangible book value per share after the Offering.......... 1.52
---------
Dilution per share to investors(1)............................ $ 3.48
---------
---------
</TABLE>
- ------------------------
(1) If the over-allotment option is exercised in full, the net tangible book
value per share after the Offering would be approximately $1.68, resulting
in dilution to new investors in the Offering of $3.32, or 66%, per share.
The following table sets forth at September 30, 1996 the differences between
existing stockholders and new investors in the Offering with respect to the
number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price per share paid by
existing stockholders and by new investors at an initial public offering price
of $5.00 per Unit:
<TABLE>
<CAPTION>
PERCENTAGE OF
PERCENTAGE OF TOTAL AVERAGE
OUTSTANDING CONSIDERATION CONSIDERATION PRICE PER
NUMBER SHARES PAID(1) PAID SHARE(1)
------------- --------------- ------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Existing Stockholders..................... 10,000,000(2) 62.5% $ 19,374,000 39.2% $ 1.94
New Investors............................. 6,000,000 37.5 30,000,000 60.8 $ 5.00
------------- ----- ------------- -----
Total..................................... 16,000,000 100.0% $ 49,374,000 100.0%
------------- ----- ------------- -----
------------- ----- ------------- -----
</TABLE>
- ------------------------
(1) Prior to the deduction of costs of issuance.
(2) Includes the 8,000,000 Performance Shares. See "Description of
Securities--Common Stock."
20
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996 and as adjusted to give effect to the issuance by the Company
of 6,000,000 Units offered hereby at an initial offering price of $5.00 per
Unit, the receipt of the net proceeds therefrom and the application of the net
proceeds in part to repay the Bridge Notes. See "Use of Proceeds." This table
should be read in conjunction with the financial statements of the Company and
the notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1996
------------------------------
AS ADJUSTED
ACTUAL (4)
-------------- --------------
<S> <C> <C>
Bridge Notes, net of discount.................................................... $ 6,566,000 $ --
-------------- --------------
Stockholders' Equity:
Preferred Stock, $.0001 par value, 5,000,000 shares authorized; none issued...... -- --
Class A Common Stock, $.0001 par value, 45,000,000 shares authorized; no shares
issued and outstanding actual; 6,000,000 shares issued and outstanding as
adjusted (1)(2)(3)............................................................. -- 1,000
Class B Common Stock, $.0001 par value, 10,000,000 shares authorized; 2,000,000
shares issued and outstanding actual and as adjusted (2)....................... -- --
Class E-1 Common Stock, $.0001 par value, 4,000,000 shares authorized; 4,000,000
shares issued and outstanding actual and as adjusted (2)....................... -- --
Class E-2 Common Stock, $.0001 par value, 4,000,000 shares authorized; 4,000,000
shares issued and outstanding actual and as adjusted (2)....................... -- --
Warrants to Purchase Common Stock................................................ 473,000 473,000
Additional paid-in capital....................................................... 21,242,000 47,657,000
Deficit accumulated during the development stage................................. (22,666,000) (23,839,000)
-------------- --------------
Stockholders' equity (deficit)................................................... (951,000) 24,292,000
-------------- --------------
Total capitalization............................................................. $ (5,615,000) $ 24,292,000
-------------- --------------
-------------- --------------
</TABLE>
- ------------------------
(1) In November 1996 the Company filed an amendment to its Certificate of
Incorporation increasing the number of authorized shares of Class A Common
Stock to 60,000,000.
(2) The various classes of the Company's Common Stock are essentially identical,
except that the Class B, Class E-1, and Class E-2 Common Stock have five
votes per share and the Class A Common Stock has one vote per share, and
each share of Class B Common Stock is convertible into one share of Class A
Common Stock commencing 13 months after the date of this Prospectus. Also,
the shares of Class E-1 and E-2 Common Stock are redeemable by the Company
for nominal consideration if the Company does not achieve certain income or
share price levels, and each share of Class E-1 and E-2 Common Stock is
convertible into one share of Class B Common Stock if the Company does
achieve those levels. See "Description of Securities--Common Stock."
(3) Does not include (i) 18,000,000 shares of Class A Common Stock issuable upon
exercise of the Warrants included in the Units offered hereby, (ii)
3,600,000 shares of Class A Common Stock issuable upon exercise of the
Underwriter's over-allotment option, including the shares issuable upon
exercise of the Warrants included in the Units subject to such option, (iii)
2,400,000 shares of Class A Common Stock issuable upon exercise of the Unit
Purchase Option and the Warrants included in the
21
<PAGE>
Units issuable upon exercise of the Underwriter's Unit Purchase Option, and
(iv) 7,000,000 shares of Class A Common Stock issuable upon exercise of the
Selling Securityholders' Warrants and the Class B Warrants underlying such
warrants. Also does not give effect to options to purchase 110,000 shares of
Class A Common Stock issuable upon exercise of outstanding options with an
exercise price of $5.00 per share and 390,000 shares of Class A Common Stock
reserved for future grant under the Option Plan as of the date of this
Prospectus. See "Management--Stock Option Plan" and Note 7 of Notes to
Financial Statements.
(4) As adjusted amounts give effect to the recognition a charge to earnings of
approximately $1,100,000 upon the repayment of the Bridge Notes. See "Use of
Proceeds" and "Plan of Operations."
BRIDGE FINANCING
In August 1996, the Company completed the Bridge Financing of an aggregate
of $7,000,000 principal amount of Bridge Notes and 3,500,000 Bridge Warrants in
which it received net proceeds of approximately $6,195,000 (after expenses of
such offering). The Bridge Notes are payable, together with interest at the rate
of 10% per annum, on the earlier of one year from the issuance of the Bridge
Notes or the closing of the Offering. See "Use of Proceeds," "Plan of
Operations" and "Certain Transactions." Commencing in August 1997, the Bridge
Warrants entitle the holders thereof to purchase one share of Class A Common
Stock. However, the Bridge Warrants will be exchanged automatically on the
closing of the Offering for the Selling Securityholders' Warrants, each of which
will be identical to the Class A Warrants included in the Units offered hereby.
The Selling Securityholders' Warrants have been registered for resale in the
Registration Statement of which this Prospectus is a part, subject to the
contractual restriction that the Selling Securityholders have agreed not to
exercise the Selling Securityholders' Warrants for a period of one year from the
closing of the Offering and not to sell the Securityholders' Warrants except
after specified periods commencing 90 days after the closing date of the
Offering. See "Concurrent Securities Offering."
22
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below for the years ended December 31,
1994 and 1995 and for the period from January 26, 1990 (inception) to December
31, 1995 are derived from the audited financial statements of the Company
included elsewhere in this Prospectus. The report of Price Waterhouse LLP which
also appears herein contains an explanatory paragraph relating to uncertainty as
to the ability of the Company to continue as a going concern. The selected
financial data as of September 30, 1996 and for the nine months ended September
30, 1995 and 1996 and for the period from January 26, 1990 (inception) through
September 30, 1996 have been derived from the Company's unaudited financial
statements which, in the opinion of Management, reflect all adjustments, which
are of a normal recurring nature, necessary for a fair presentation of the
results of operations for such periods. The results of the interim periods are
not necessarily indicative of the results of a full year. The following selected
financial data should be read in conjunction with the financial statements and
related notes thereto, and with "Plan of Operations," appearing elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 26,
1990
PERIOD FROM NINE-MONTH PERIOD ENDED (INCEPTION) TO
YEAR ENDED DECEMBER 31, JANUARY 26, 1990 SEPTEMBER 30 (UNAUDITED) SEPTEMBER 30,
------------------------ (INCEPTION) TO ------------------------ 1996
1994 1995 DECEMBER 31, 1995 1995 1996 (UNAUDITED)
----------- ----------- ----------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Other income.......................... $ 71,000 $ 27,000 $ 687,000 $ 27,000 $ 7,000 $ 694,000
Interest income....................... 2,000 60,000 4,000 64,000
----------- ----------- ----------------- ----------- ----------- ---------------
73,000 27,000 747,000 27,000 11,000 758,000
----------- ----------- ----------------- ----------- ----------- ---------------
Cost and expenses:
Research and development costs...... 1,088,000 13,636,000 13,636,000
Preoperating costs.................. 282,000 282,000
General and administrative
expenses.......................... 1,239,000 1,453,000 5,463,000 1,151,000 1,418,000 6,881,000
Loss on disposal of assets.......... 357,000 357,000 357,000
Interest expense.................... 156,000 262,000 1,188,000 146,000 319,000 1,507,000
In-process research and development
acquired.......................... 761,000 761,000
----------- ----------- ----------------- ----------- ----------- ---------------
2,840,000 1,715,000 21,687,000 1,297,000 1,737,000 23,424,000
----------- ----------- ----------------- ----------- ----------- ---------------
Net loss.............................. $(2,767,000) $(1,688,000) $ (20,940,000) $(1,270,000) $(1,726,000) $ (22,666,000)
----------- ----------- ----------------- ----------- ----------- ---------------
----------- ----------- ----------------- ----------- ----------- ---------------
Net loss per share(1)................. $ (.81) $ (.50) $ (.37) $ (.51)
Weighted average number of shares
outstanding(1)...................... 3,400,000 3,400,000 3,400,000 3,400,000
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................................................................. $ (2,713,000)
Total assets.............................................................................................. 6,222,000
Total liabilities......................................................................................... 7,173,000
Deficit accumulated during development stage.............................................................. (22,666,000)
Total stockholders' deficit............................................................................... (951,000)
</TABLE>
- --------------------------
(1) Excludes 8,000,000 Performance Shares, which are redeemable by the Company
for a nominal amount in certain circumstances. See "Capitalization," "Plan
of Operations--Charge to Income in the Event of Conversion of Performance
Shares," "Principal Stockholders" and "Description of Securities." See Note
1 of Notes to Financial Statements for an explanation of the determination
of weighted average number of shares outstanding and shares used in
computing net loss per share.
23
<PAGE>
PLAN OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this Prospectus.
Certain statements contained in this Prospectus, including statements concerning
the Company's future cash and financing requirements, the Company's ability to
obtain market acceptance of its aircraft, the Company's ability to obtain
regulatory approval for its aircraft, and the competitive market for sales of
small business aircraft and other statements contained herein regarding matters
that are not historical facts, are forward looking statements; actual results
may differ materially from those set forth in the forward looking statements,
which statements involve risks and uncertainties.
GENERAL
The Company is a development stage enterprise organized to design, develop,
manufacture and market propjet and jet aircraft intended primarily for business
use. Since its inception, the Company has been engaged principally in research
and development of its proposed aircraft. In January 1990, the Company acquired
the assets of Aerodynamics & Structures, Inc. ("ASI"), a New Jersey corporation
engaged in the design of an aircraft prototype, in exchange for 139,407 shares
of Class B Common Stock, 278,815 shares of Class E-1 Common Stock, and 278,815
shares of Class E-2 Common Stock. In connection with this exchange, the Company
assumed liabilities of ASI in the amount of approximately $400,000. In March
1990, the Company made application to the FAA for a Type Certificate for the
JETCRUZER 450, which Certificate was ultimately granted in June 1994. As a
result, the Company has not generated any operating revenues to date and has
incurred losses from such activities. The Company believes it will continue to
experience losses until such time as it commences the sale of aircraft on a
commercial scale.
Prior to commencing commerical sales, the Company will need to, among other
things, complete the development of the JETCRUZER 500, obtain the requisite
regulatory approvals, establish an appropriate manufacturing facility, hire
additional engineering and manufacturing personnel and expand its sales and
marketing efforts. The Company estimates that the cost to complete development
of the JETCRUZER 500 and obtain an amendment of its FAA Type Certificate will be
approximately $8,000,000. This amount includes the cost of equipment and tooling
(estimated at approximately $1,500,000), static and flight testing of the
aircraft (estimated at approximately $2,500,000) and the employment of the
necessary personnel to build and test the aircraft (estimated at approximately
$4,000,000). The Company estimates that the cost of establishing an appropriate
manufacturing facility will be approximately $7,000,000. The Company intends to
use $1,100,000 of the proceeds from the Offering for this purpose and to finance
the remaining portion through mortgage financing and/or other similar means. The
Company also intends to use approximately $900,000 of the proceeds of the
Offering for sale and marketing of the aircraft. See "Use of Proceeds."
At such time, if ever, as the Company commences the commercial sale of its
proposed aircraft, the Company will derive a substantial portion of its revenues
from the sale of a relatively small number of aircraft. As a result, a small
reduction in the number of aircraft shipped in a quarter could have a material
adverse effect on the Company's financial position and results of operations for
that quarter. The Company expects to receive progress payments during the
construction of aircraft and final payments upon the delivery of aircraft.
Therefore, construction or delivery delays near the end of a particular quarter,
due to, for example, shipment reschedulings, delays in the delivery of component
parts or unexpected manufacturing difficulties experienced by the Company, could
cause the financial results of the quarter to fall significantly below the
Company's expectations and could materially and adversely affect the Company's
financial position and results of operations for the quarter.
24
<PAGE>
During the 18 to 24 months following the Offering, the Company intends to
focus its efforts in the following areas:
- To complete the development of the JETCRUZER 500, including, among other
things, adding a larger engine, pressurization, environmental systems,
de-icing capability and autopilot certification. See "Business--Proposed
Aircraft."
- To obtain an amendment to its Type Certificate to include the JETCRUZER
500, including the manufacture of FAA conformed models of the JETCRUZER
500 and static and flight testing. See "Business--Government Regulation."
- To establish an appropriate manufacturing facility capable of producing
the JETCRUZER 500 on a commercial scale, including the establishment of a
production line in such facility and the acquisition of production
inventory and additional items of equipment, tooling and computer hardware
and software systems. See "Business--Facilities."
- To obtain a production certificate from the FAA and commence commercial
production of the JETCRUZER 500. See "Business--Government Regulation."
- To expand its sales and marketing staff and increase its marketing efforts
with respect to the JETCRUZER 500. See "Business--Marketing, Distribution
and Service."
- To increase its engineering, manufacturing and administrative staff in
anticipation of increased development and production activities. See
"Business--Employees."
The Company believes that the net proceeds of the Offering will be
sufficient to finance its plan of operations for at least the 18 to 24 months
following the Offering, based upon the current status of its business
operations, its current plans and current economic and industry conditions. See
"Use of Proceeds." If the Company's estimates prove to be incorrect, however,
then during such period the Company may have to seek additional sources of
financing, reduce operating costs and/or curtail growth plans. See "--Liquidity
and Capital Resources."
RESULTS OF OPERATIONS
The Company has not generated any revenues from operations. For the period
from inception (January 26, 1990) through September 30, 1996, the Company
incurred a net loss of $22,666,000, $2,767,000 and $1,688,000 of which was
incurred during the years ended December 31, 1994 and December 31, 1995,
respectively, and $1,270,000 and $1,726,000 of which was incurred during the
nine months ended September 30, 1995 ("1995 nine months") and September 30, 1996
("1996 nine months") respectively. These losses have resulted primarily from
expenditures made in connection with the research and development of the
Company's proposed aircraft and general and administrative activities.
Research and development expenses have consisted primarily of the costs of
personnel, facilities and materials and equipment required to conduct the
Company's development activities. Such expenses aggregated $13,636,000 from
inception through September 30, 1996, $1,088,000 of which was incurred in 1994
and none of which was incurred in 1995 or in the 1996 nine months. Such expenses
were incurred to develop the JETCRUZER 450, to obtain a Type Certificate with
respect thereto, and to begin the design of the JETCRUZER 500, the JETCRUZER 650
and the STRATOCRUZER. Research and development expenses will increase in the
fourth quarter of 1996 and in 1997 as the Company accelerates the development of
the JETCRUZER 500 and amends its Type Certificate with respect thereto.
General and administrative expenses have consisted primarily of
administrative salaries and benefits, rent, marketing expenses, insurance and
other administrative costs. Such expenses aggregated $6,881,000 from inception
through September 30, 1996, $1,239,000 and $1,453,000 of which were incurred in
1994 and 1995, respectively, and $1,151,000 and $1,418,000 of which were
incurred in the 1995 nine months and the 1996 nine months, respectively. General
and administrative expenses have increased since 1994 primarily
25
<PAGE>
due to increased compensation expenses payable to the Company's executive
officers who were engaged principally in capital raising and marketing
activities. Such increases were partially offset by decreases in rent,
insurance, employee payroll and other administrative costs occasioned by the
Company's limited development activities during the period. General and
administrative expenses are expected to increase substantially in the fourth
quarter of 1996 and in 1997 due to the addition of personnel and other resources
to support increased administrative, marketing, and development activities. See
"--Liquidity and Capital Resources."
Interest expense has consisted primarily of interest expended by the Company
for bank and private financing. Interest expense aggregated $1,507,000 from
inception through September 30, 1996, $156,000 and $262,000 of which were
incurred in 1994 and 1995, respectively, and $146,000 and $319,000 of which were
incurred in the 1995 nine months and the 1996 nine months, respectively. See
"--Liquidity and Capital Resources."
In 1994, the Company incurred a $357,000 loss on disposal of assets, which
was a result of the disposal of certain tooling equipment in connection with the
Company's relocation in September 1994.
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." The
Company has incurred net losses in each year since its inception and
consequently has paid no federal or state income taxes.
At December 31, 1995, the Company had a federal tax net operating loss
carryforward of approximately $17,000,000 which, if unused, will expire in
varying amounts in years 2005 through 2010 and a state tax net operating loss
carryforward of approximately $3,000,000 which, if unused, will expire in
various amounts in years 1996 through 2000.
At December 31, 1995, the Company had federal and state research and
development ("R&D") credit carryforwards of approximately $1,169,000 and
$468,000, respectively. The federal R&D credit carryforwards will expire in
years 2005 through 2010. The state R&D credit carryforwards can be carried
forward indefinitely. See Note 4 of Notes to Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had a working capital deficit of
$2,713,000, an accumulated deficit of $22,666,000 and a negative net worth of
$951,000. Since its inception in January 1990, the Company has experienced
continuing negative cash flow from operations, which has resulted in the
Company's inability to pay certain existing liabilities in a timely manner. The
Company has financed its operations through private fundings of equity and debt.
Prior to mid-1994, the activities of the Company were financed primarily by
(i) equity contributions from Mr. Song Gen Yeh and members of his immediate
family, who were at that time directors and principal stockholders of the
Company, in the aggregate amount of $7,280,000 and (ii) loans in the aggregate
amount of $10,728,000 from Mr. Yeh. The loans made by Mr. Yeh were repaid
through the issuance of 598,011 shares of Class B Common Stock, 1,196,021 shares
of Class E-1 Common Stock, and 1,196,021 shares of Class E-2 Common Stock of the
Company in June 1996. Additionally, in October 1993, the Company received a loan
of $60,000, bearing interest at a rate of 12%, from SIDA Corporation ("SIDA"), a
corporation then affiliated with Dr. Carl Chen, the President and Chief
Executive Officer and a Director of the Company; and, in February and July 1994,
the Company received loans in an aggregate amount of $565,000, bearing interest
at a rate of 12%, from four individuals who were at the time not affiliated with
the Company. One of such persons, C.M. Cheng, became a Director of the Company
in June 1996. These loans were repaid in September 1996 with the proceeds of the
Bridge Financing described below. See "Certain Transactions."
26
<PAGE>
In the second half of 1994, the Company's expenditures decreased because
capital constraints required a reduction of the Company's development
activities. The Company's capital requirements during that period were satisfied
primarily by a loan from General Bank in the principal amount of approximately
$550,000, bearing interest at the prime rate plus 1 1/2%, which loan was
guaranteed by the Small Business Administration, the California Export Finance
Office and Dr. Chen and secured by substantially all of the Company's assets.
The Company also received an additional $50,000 loan from SIDA.
During 1995 and 1996, the Company's capital requirements were met by
additional advances of $350,000 pursuant to the bank loan described above and
loans by Dr. Chen, bearing interest at a rate of 12%, in the aggregate principal
amount of $562,000. In June 1996, $336,000 of indebtedness owed by the Company
to Dr. Chen was converted into 187,118 shares of Class B Common Stock, 374,236
shares of Class E-1 Common Stock, and 374,236 shares of Class E-2 Common Stock.
In September 1996, the bank loan, in the aggregate principal amount of
$900,000 plus $15,000 in accrued interest, $226,000 of the principal amount owed
to Dr. Chen, together with interest thereon of $36,000, and the loan from SIDA,
in the aggregate principal amount of $110,000 plus $31,000 in accrued interest,
were repaid with the proceeds of the Bridge Financing described below. See
"Certain Transactions."
In August 1996, the Company completed the Bridge Financing of $7,000,000
principal amount of Bridge Notes and 3,500,000 Bridge Warrants (which will
automatically convert to Class A Warrants upon completion of the Offering). See
"Bridge Financing" and "Concurrent Securities Offering." The net proceeds of the
Bridge Financing were approximately $6,195,000 after deducting commissions and a
non-accountable expense allowance aggregating $805,000 paid to the placement
agent and other expenses of the Bridge Financing. The net proceeds of the Bridge
Financing were and are being used to repay bank and other outstanding
indebtedness, loans from officers and directors, accrued compensation and past
due accounts payable and as working capital. The Company has allocated a portion
of the net proceeds of the Offering to repay the Bridge Notes. See "Bridge
Financing," "Certain Transactions," and "Use of Proceeds." Additionally, the
Company will recognize a charge to operations of approximately $1,100,000,
representing the combined unamortized debt discount and issuance costs arising
from the Bridge Financing, in the quarter in which the Bridge Notes are repaid.
The Company expects its cash requirements to increase in the future due to
higher expenses associated with product development, the scale-up of production
(including capital investment in production equipment), implementation of a
sales and marketing program, the hiring of personnel and other anticipated
operating activities. The Company also expects to continue to incur losses until
such time, if ever, as it obtains regulatory approval for the JETCRUZER 500 and
related production processes and market acceptance for its proposed aircraft at
selling prices and volumes which provide adequate gross profit to cover
operating costs and generate positive cash flow. The Company's working capital
requirements will depend upon numerous factors, including the level of resources
devoted by the Company to the scale-up of manufacturing and the establishment of
sales and marketing capabilities and the progress of the Company's research and
development program for the JETCRUZER 500 and other proposed aircraft. See
"Business--Marketing, Distribution and Service."
The Company expects that the net proceeds of the Offering will enable it to
meet its liquidity and capital requirements for at least 18 to 24 months
following completion of the Offering, by which time the Company expects to have
received a type certificate and a production certificate for the JETCRUZER 500
and commenced commercial production and sale of the JETCRUZER 500. During this
period such proceeds will be used primarily for amendment of the Type
Certificate, the purchase of equipment and tooling, the establishment of a
manufacturing facility, and sales and marketing. The Company's capital
requirements are subject to numerous contingencies associated with development
stage companies. Specifically, in the event that the FAA determines that a new
type certificate is required, or if delays are encountered in amending the
current Type Certificate, the time and cost of obtaining such certification
27
<PAGE>
may be substantial, may render it impossible for the Company to complete such
new or amended certification and may therefore have a material and adverse
effect on the Company's operations. Further, following such 18 to 24 month
period, if the Company has not completed the development of the JETCRUZER 500,
received the required regulatory approvals and successfully commenced commercial
sales of its aircraft, the Company may require additional funding to fully
implement its proposed business plan. The Company has no commitments from any
third parties for any future funding, and there can be no assurance that the
Company will be able to obtain financing in the future from bank borrowings,
debt or equity financings or other sources on terms acceptable to the Company or
at all. In the event necessary financing were not obtained, the Company would be
materially and adversely affected and might have to cease or substantially
reduce operations.
The Company had no material capital commitments at September 30, 1996.
Following the Offering, the Company intends to hire a number of additional
employees and to establish a larger manufacturing facility, both of which will
require substantial capital resources. The Company anticipates that it will hire
approximately 50 employees over the next six months and 150 employees over the
next 24 months, including engineers and manufacturing technicians necessary to
produce its aircraft. See "Business-- Employees." Additionally, the Company
plans to acquire, build and/or improve a larger manufacturing facility. The
Company estimates that the total cost of such facility will be approximately
$7,000,000 and has allocated approximately $1,100,000 of the proceeds of the
Offering to fund a portion of such cost. The Company anticipates funding the
remaining portion of such cost through mortgage financing and/or other similar
means. There can be no assurance, however, that such funding will be available
on terms acceptable to the Company or at all. In the event the Company is unable
to fund fully the costs of the facility from such sources, it may utilize a
portion of the proceeds from the Offering allocated to working capital for such
purpose or it may lease a facility until adequate funds become available. See
"Use of Proceeds."
The Report of Independent Accountants includes an explanatory paragraph
indicating that there is substantial doubt as to the Company's ability to
continue as a going concern. See Report of Independent Accountants.
CHARGE TO INCOME IN THE EVENT OF CONVERSION OF PERFORMANCE SHARES
In the event the Company attains certain earnings thresholds or the
Company's Class A Common Stock meets certain minimum bid price levels, the Class
E Common Stock will be converted into Class B Common Stock. In the event any
such converted Class E Common Stock is held by officers, directors, employees or
consultants, the maximum compensation expense recorded for financial reporting
purposes will be an amount equal to the fair value of the shares converted at
the time of such conversion which value cannot be predicted at this time.
Therefore, in the event the Company attains such earnings thresholds or stock
price levels, the Company will recognize a substantial charge to earnings during
the period in which such conversion occurs, which would have the effect of
increasing the Company's loss or reducing or eliminating its earnings, if any,
at that time. In the event the Company does not attain these earnings thresholds
or mimimum bid price levels, and no conversion occurs, no compensation expense
will be recorded for financial reporting purposes. See "Description of
Securities--Common Stock."
28
<PAGE>
BUSINESS
OVERVIEW
The Company is a development stage company organized to design, develop,
manufacture and market propjet and jet aircraft intended primarily for business
use. The Company has obtained a type certificate ("Type Certificate") from the
Federal Aviation Administration ("FAA") with respect to a non-pressurized,
single-engine aircraft powered by a Pratt & Whitney propjet engine (the
"JETCRUZER 450"). The Company intends to modify the JETCRUZER 450 to develop a
six-seat (including pilot), pressurized version of such aircraft for commercial
sale (the "JETCRUZER 500") which, the Company anticipates, will takeoff and land
in less than 1,000 feet, be able to fly at approximately 30,000 feet above sea
level, and have a high cruise speed of approximately 350 mph and a range of
approximately 1,600 miles.
The Company began development of the JETCRUZER 450 in 1990 and obtained the
Type Certificate in 1994. Throughout this period, the Company engaged in design
and engineering of the aircraft, as well as production of the jigs, forms,
tools, dies and molds necessary to manufacture the aircraft. The first FAA
conformed JETCRUZER 450 was completed in 1992. This aircraft was used by the
Company and the FAA to perform static (nonflight) testing. In late 1992 and
1993, two flight test aircraft were completed. These aircraft were flight tested
by the Company and the FAA from 1992 through 1994. The Company received the Type
Certificate for the JETCRUZER 450 on June 14, 1994.
Although the Company received preliminary written indications of interest to
purchase the aircraft, the Company has decided that it will not obtain a
production certificate with regard to the JETCRUZER 450 or otherwise pursue
commercialization of that aircraft in part because the Type Certificate is
subject to certain limitations which the Company believes reduce the commercial
viability of the JETCRUZER 450. See "--Proposed Aircraft--JETCRUZER-TM-500."
Instead, the Company has decided to amend the Type Certificate to develop the
JETCRUZER 500 for commercial sale, which is a modified version of the JETCRUZER
450 that the Company anticipates will not be subject to the limitations imposed
by the existing Type Certificate. See "--Proposed Aircraft."
Based on the limited scope of the changes to be made to the JETCRUZER 450
and the experience of other manufacturers that have modified certificated
aircraft, the Company believes it will need to amend its Type Certificate,
rather than obtain a new type certificate, to develop the JETCRUZER 500 for
commercial sale. The Company currently anticipates that it can obtain an
amendment to its Type Certificate during the approximately 18 to 24 months
following the Offering and obtain a production certificate and commence
commercial production of such aircraft within the same time frame. There can be
no assurance, however, that obtaining the amendment will not take longer that
anticipated, that the Company will not be required to obtain a new type
certificate for the JETCRUZER 500, or that the Company will not experience
unforeseen expense or delay in certifying and commercializing its proposed
aircraft.
INDUSTRY BACKGROUND
The general aviation industry comprises essentially all nonmilitary aviation
activity other than scheduled and charter commercial airlines licensed by the
FAA and the Department of Transportation. General aviation aircraft are
frequently classified by their type and number of engines and include aircraft
with fewer than 20 seats. There are three different types of engines: piston,
propjet and turbofan (jet). Piston aircraft use an internal combustion engine to
drive a propeller. There may be one or two engines and propellers. Propjet
aircraft combine a jet turbine powerplant with a propeller geared to the main
shaft of the turbine. There may be one or two engines and propellers. Turbofan
aircraft use jet propulsion to power the aircraft. There are generally two
engines on general aviation turbofan aircraft, although there may also be one or
three.
29
<PAGE>
Purchasers of general aviation aircraft include (i) corporations, (ii)
governments, (iii) the military, (iv) the general public and (v) fractional
interest entities. A corporation may purchase a general aviation aircraft for
transporting its employees and property. Many companies use an aircraft in their
line of business, including on-demand air taxi services, air ambulance services
and freight and delivery services. Governments and military organizations may
purchase an aircraft for the transportation of personnel, freight and equipment.
Members of the general public may purchase an aircraft for personal and/or
business transportation and pleasure use. Fractional interest entities purchase
one or more aircraft and then sell interests in each aircraft to several persons
or entities. Each entity pays for its share of maintenance and operating costs
and its access to and use of the aircraft. Increased corporate earnings may
encourage corporations to acquire an aircraft. An aircraft must qualify under
FAA regulations in order to be used for certain purposes, and the ability of an
aircraft to so qualify will have a material affect on the potential market for
such aircraft. See "Business--Government Regulation."
Currently, there are fewer than ten major manufacturers of general aviation
aircraft based in the United States. Piston aircraft make up the numerical
majority of aircraft delivered by these manufacturers, whereas propjets and jet
aircraft account for the majority of billings. In 1995, approximately 581 piston
aircraft were delivered for approximately $123 million in billings;
approximately 250 propjets were delivered for billings of approximately $653
million; and approximately 246 jet aircraft were delivered, generating billings
of approximately $2 billion.
Total shipments of general aviation aircraft manufactured in the United
States reached a peak in 1978, when approximately 18,000 aircraft were shipped.
The number of units delivered annually has decreased since that time as a result
of a number of factors, such as the cost of aviation fuel, high interest rates,
inflation and, most importantly, an increase in negligence and product liability
claims arising from accidents involving small, personal/recreational piston
aircraft and a resulting increase in the price of manufacturer's liability
insurance. Since 1986, the number of units delivered per year from United States
manufacturers has not exceeded 1,500, and fewer than 1,000 aircraft were
delivered from United States manufacturers in each of 1992, 1993 and 1994.
Although the total number of general aviation aircraft manufactured in the
United States declined from 1978 to 1994, deliveries of more expensive propjet
and jet aircraft manufactured in the United States increased, resulting in a
less substantial decline in the total dollar value of shipments of aircraft
during such period and a substantial increase in the average price of each such
aircraft delivered from 1978 through 1994. Deliveries of more costly corporate
aircraft powered by propjet or jet engines were affected to a lesser extent by
the liability and insurance coverage problems encountered by piston aircraft. In
addition, on August 17, 1994, Congress enacted the General Aviation
Revitalization Act of 1994 ("GARA"). The GARA imposes an 18-year statute of
limitations on product liability suits involving airplane manufacturers and
suppliers. Although product liability suits will not disappear, nor is it likely
that settlements will be smaller, the Company believes that the reduction to 18
years of an original equipment manufacturer's exposure to lawsuits may lower
insurance costs for the industry which may result in increased sales of aircraft
and a corresponding increase in the number of licensed pilots. Shipments of all
types of general aviation aircraft manufactured in the United States increased
from 928 units in 1994 to 1,077 units in 1995.
STRATEGY
The Company's objective is to become a worldwide market leader in the sale
of small business aircraft. To achieve this objective, the Company intends to
focus on the performance, efficiency and safety of its proposed aircraft. The
Company's strategy is to capitalize on a perceived current lack in the
marketplace of low-priced, high-performance aircraft. The Company believes that
its ability to offer an aircraft which outperforms competitive aircraft at a
reduced cost will enable the Company to penetrate the business, private and
government aircraft markets. Additionally, the Company intends to expend
substantial resources on a worldwide sales and marketing program to position
itself with potential customers.
30
<PAGE>
The Company believes that aircraft sales are heavily dependent on the
quality and safety of a company's products. Accordingly, the Company intends to
maintain high quality and safety standards in all aspects of the design and
manufacture of its proposed aircraft. For example, the Company believes that
certain design features of the JETCRUZER 500, such as the canard wing, will make
the aircraft spin resistant and that the absence of wing flaps will make the
operation of the aircraft less susceptible to pilot error. In addition, the
Company believes that the reliability of the Company's component suppliers, such
as Pratt & Whitney, will be viewed favorably by potential customers.
The Company believes that it will be able to offer aircraft at a
comparatively low price by containing the costs of obtaining FAA certification
and amendments to such certification as well as the costs of manufacturing. The
Company believes that it was able to obtain its Type Certificate for the
JETCRUZER 450 at a significantly lower cost than its competitors with regard to
comparable aircraft due, in part, to the Company's smaller size as compared to
its competitors, resulting in the Company's ability to contain administrative
costs and the overhead expenses allocable to the development process.
Additionally, the Company's Southern California location is home to a number of
workers from recently downsized defense and aerospace companies who the Company
was able to hire to assist in the certification of the JETCRUZER 450. These
employees provided the Company with experience in testing, certifying, tool and
jig manufacturing and other aspects of the certification process that would not
otherwise have been available to the Company. The Company expects that many of
these key employees will return to the Company following the completion of the
Offering.
The Company believes that it will be able to control manufacturing costs by
producing most of the tooling, jigs, dies and molds required for the manufacture
of its aircraft in-house. Also, because the Company will produce the airframe
and most of the associated components of its aircraft in-house, it will have
greater control over the production process; and the Company believes that this
control will also help keep construction and certification costs at reduced
levels.
PROPOSED AIRCRAFT
GENERAL.
The Company's proposed aircraft are based on a canard wing design in which a
smaller wing (the "canard") is installed in front of the aircraft's main wing.
The Company believes that this design provides for improved safety margins and
performance, including spin resistance and increased lift, and increased ride
comfort as compared to more conventional aircraft designs.
The Company believes that the JETCRUZER provides increased safety margins,
in part, because it has been certified under the latest safety regulations
adopted by the FAA. Additionally, the canard design, which provides dual lifting
surfaces, makes the JETCRUZER resistant to spins. An airplane may enter a spin
when one main wing stalls (ie. stops producing lift) before the other. On the
JETCRUZER, the canard wing will stall before the main rear wing, thereby
automatically lowering the aircraft's nose and increasing its airspeed, thus
preventing a stall of either of the main wings. Since the main wing of the
JETCRUZER does not stall, it does not lose lift on one side before the other and
thus the aircraft is resistant to spins. The JETCRUZER has increased lift in
part because the graphite composite fuselage of the JETCRUZER is lighter than a
fuselage made of aluminum, as is used by most of the Company's competitors, and
the canard wing design provides an additional lifting surface as compared to
conventional aircraft. Generally, lighter weight and additional lifting surfaces
result in greater lifting capacity. Increased lift can provide increased fuel
efficiency and thus increased range.
Management also believes that the Company's aircraft will provide
performance advantages over competitors' models, including better stall and
handling characteristics, increased speed, greater fuel efficiency and lower
operating expenses. Based on the reports of its test pilots, the Company also
believes that the JETCRUZER provides increased ride comfort, and a quieter ride,
than aircraft of a conventional
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design. The JETCRUZER will not require pilot licensing beyond that required for
other single-engine propjet aircraft. See "Business--Competition."
The fuselage of each aircraft will be made of an advanced graphite
composite/nomex honeycomb sandwich with embedded aluminum and copper screen mesh
for lightning protection, which is processed in the Company's (30 foot long by
10 foot diameter) nitrogen-pressurized autoclave. The canard wing on the
JETCRUZER will be constructed of aircraft aluminum; and the canard wing on the
STRATOCRUZER, if that aircraft is developed, will be constructed of the graphite
composite. The main rear wing and the ailerons of all of the aircraft will be
constructed of aircraft aluminum skin and spar and rib construction. Flaps are
not required on the JETCRUZER because of the design and high lift capabilities
of the canard and the main wing. The engine and propeller of the Company's
JETCRUZER aircraft are located at the rear of the fuselage, thus providing
passengers with a quieter ride.
JETCRUZER-TM- 500.
The JETCRUZER 500 is intended to be a six-seat (including pilot), high
performance single engine propjet with conventionally constructed wings made
from aluminum attached to a fuselage formed from a high-strength graphite nomex
honeycomb composite material. The aircraft is intended to have a canard
configuration with two lift-producing surfaces and no conventional wing flaps.
The JETCRUZER 500 will be powered by a Pratt & Whitney PT6A-42A, 1,132 ESHP
propjet engine located at the rear of the aircraft. The JETCRUZER 500 is
intended to be a modified version of the JETCRUZER 450.
In June 1994, the FAA awarded the Company a Type Certificate for the
JETCRUZER 450, which is a non-pressurized propjet aircraft powered by a smaller
Pratt & Whitney engine. However, the Type Certificate is subject to a number of
FAA limitations which were imposed as a result of the aircraft's early stage of
development. For example, the maximum number of occupants is presently limited
to five, as compared to the six passenger (including pilot) design configuration
of the JETCRUZER 500, and the maximum operating speed is presently limited to
178 mph, as compared to the 350 mph design speed of the JETCRUZER 500. The
Company intends to amend the Type Certificate to remove these limitations in the
course of further development and certification of the JETCRUZER 500.
In order to amend the Type Certificate to include the JETCRUZER 500,
additional work remains to be performed on the aircraft by the Company,
including adding pressurization, environmental systems, de-icing capability,
test retractable landing gear and autopilot certification, all of which will be
necessary to produce the JETCRUZER 500 for commercial sale. The Company
currently anticipates obtaining the amendment to its Type Certificate during the
approximately 18 to 24 months after the Offering. The Company has recently
submitted its application for amendment to the FAA. There can be no assurance,
however, that obtaining such an amendment will not take longer than anticipated,
that any of the FAA limitations will be removed or that such removal will not,
in the FAA's judgment, necessitate a new type certificate, thereby causing
unforeseen expense and delay in certifying the JETCRUZER 500. See "--Government
Regulation."
Although no assurance can be given as to the performance characteristics of
any aircraft in its design phase, based on the performance of the JETCRUZER 450,
the Company believes that the JETCRUZER 500 will carry six passengers (including
pilot) and have a cruise speed of approximately 350 mph. The Company also
believes that such aircraft should be able to climb at approximately 2,600 feet
per minute, cruise at an altitude of approximately 30,000 feet above sea level,
have a range of approximately 1,600 miles and takeoff and land in less than 1000
feet. The interior of the aircraft will be built either to a customer's
specifications or in accordance with one of the Company's standard
configurations. These statistics reflect the overall anticipated performance of
the JETCRUZER 500. However, interior configuration, optional equipment, weather
conditions and flying weight will affect the performance of an individual
aircraft.
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Although there can be no assurance, the Company currently anticipates that
the JETCRUZER 500 will be available for commercial sale at a price of
approximately $1,300,000 approximately two years following the date of this
Prospectus. However, since the Company has not yet completed development of the
JETCRUZER 500 and has not yet established a facility for manufacturing it on a
commercial scale, both of which may be subject to unforeseen delays, the date on
which the JETCRUZER 500 is actually available for sale and its initial purchase
price could change materially.
To date, the Company has made only limited test marketing attempts to sell
its aircraft. Notwithstanding these limitations, the Company has received more
than 30 written indications of interest to purchase the JETCRUZER 450 and the
JETCRUZER 500. Because the Company believes that the improved performance
characteristics associated with the JETCRUZER 500 will make it a more desirable
aircraft than the JETCRUZER 450, the Company currently intends to initially
produce only the JETCRUZER 500. Accordingly, the Company has converted all but
two of the indications of interest in the JETCRUZER 450 into indications of
interest in the JETCRUZER 500. Generally, written indications of interest are
supported by a $10,000 deposit. However, each such deposit is refundable at the
request of the purchaser at any time until the commencement of construction of
the purchaser's particular aircraft. Accordingly, there can be no assurance that
any such indications of interest will lead to the sale of an aircraft.
OTHER PROPOSED AIRCRAFT
JETCRUZER-TM- 650.
The Company currently intends to develop the JETCRUZER 650. This aircraft
will be based on the JETCRUZER 450/500 design and will have the same engine and
components as the JETCRUZER 500. However, it is intended to have a longer
fuselage which will accommodate up to twelve passengers plus a pilot. To produce
the JETCRUZER 650, the Company will need either to amend its Type Certificate or
obtain a new type certificate, as determined by the FAA.
The Company anticipates that the cruise speed of the JETCRUZER 650 will be
approximately 300 miles per hour, that it will takeoff in approximately 1,800
feet, climb at a rate of 1,200 to 1,600 feet per minute and have a maximum range
of approximately 1,250 miles. The Company currently plans to offer two versions
of the JETCRUZER 650: a pressurized corporate and on-demand charter passenger
aircraft, which will cruise at approximately 30,000 feet above sea level and
have a maximum passenger seating capacity of twelve, and a non-pressurized
version for use as a utility/freight aircraft which will cruise at a lower
altitude than the pressurized version.
Although it incorporates certain components and systems approved as part of
the JETCRUZER 450 certification process, the JETCRUZER 650 is in a very early
stage of engineering and design, and the completion of the development of the
JETCRUZER 650 and the certification of such aircraft will require substantial
capital resources in addition to the proceeds obtained by the Company in the
Offering. There can be no assurance that the Company will obtain the resources
necessary to continue the development of the JETCRUZER 650 or, if such resources
are obtained, to successfully develop and certify the JETCRUZER 650. Further,
the Company will not continue development of the JETCRUZER 650 until it has
solicited orders for the aircraft and obtained adequate indications of interest
to justify the completion of its design, prototyping, and static and flight
testing. Accordingly, the Company cannot predict when, if ever, the JETCRUZER
650 will be available for commercial sale.
STRATOCRUZER-REGISTERED TRADEMARK- 1250.
The Company also currently intends to develop a twin engine jet aircraft to
be called the STRATOCRUZER 1250. The STRATOCRUZER, if developed, is expected to
be a canard aircraft with three flying surfaces powered by two Williams/Rolls
Royce FJ44-2 fanjets. It will be able to seat up to 12 passengers, plus the
pilot. Based on its design and preliminary testing, it is anticipated that the
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STRATOCRUZER will have a maximum cruise speed of approximately 500 mph, a range
of approximately 3,700 miles and a pressurized ceiling of approximately 42,000
feet. The STRATOCRUZER will be able to takeoff in less than 3,200 feet and land
in less than 3,000 feet. The instrumentation of the STRATOCRUZER will consist of
digital electronic avionics, including EFIS (an Electronic Flight
Instrumentation System, which includes color monitors on which flight instrument
data, weather radar, maps and other navigation information are available) and
GPS (Global Positioning System) navigation. The aircraft will be of lightweight
construction. The Company believes that the STRATOCRUZER's comparatively light
weight, combined with, among other things, its additional lifting surfaces, fuel
efficient engines and aerodynamic design, will give the STRATOCRUZER superior
range and fuel efficiency compared to other twin jets. The Company will be
required to obtain a new FAA type certificate for the STRATOCRUZER.
The STRATOCRUZER is in a very early stage of development, and the completion
of such development will also require substantial capital resources beyond those
to be obtained by the Company in the Offering. Therefore, there can be no
assurance that the Company will obtain the resources necessary to continue the
development of the STRATOCRUZER or, if such resources are obtained, successfully
develop and certify the STRATOCRUZER. Accordingly, the Company cannot predict
when, if ever, the STRATOCRUZER will be available for commercial sale.
MANUFACTURING
The Company has designed and produced or procured most of the equipment
necessary for production of the JETCRUZER 450 and has used that equipment to
certify the aircraft. The Company intends to obtain or produce additional sets
of the equipment necessary for production of the JETCRUZER 500 with the proceeds
of the Offering and acquire and/or build a manufacturing facility capable of
producing the JETCRUZER 500. See "--Facilities." The Company intends to produce
in-house nearly all of the tooling necessary for the production of its aircraft,
from master models to major jigs and fixtures. The Company believes it achieves
cost savings by manufacturing tooling itself. Additionally, nearly all airframe
assemblies and parts are intended to be produced in-house, except for special
tasks such as hydroforming, spar milling and painting. The manufacturing process
for the Company's aircraft is highly technical and requires skilled assembly
technicians. The Company intends to rehire a number of employees who assisted
the Company in the development of the JETCRUZER 450 as well as a number of
additional employees. However, no assurance can be given that former employees
of the Company or other personnel with the required skills will in fact be
available to the Company. See "Business--Employees."
The equipment and procedures used by the Company for manufacturing must be
certified, and are subject to inspection and continuing oversight by the FAA.
See "Business--Government Regulation."
The Company has a complete in-house computer design system, with
interactive, computer-aided design ("CAD") capabilities. The Company maintains
an Aircraft Quality Control System ("AQCS") designed to meet the requirements of
the military, the National Aeronautics and Space Administration ("NASA") and the
FAA. An AQCS is a system mandated and approved by the FAA to assure the
integrity and traceability of aircraft components, parts, and systems. It is
required as a condition to obtaining a type certificate and a production
certificate. All of the Company's precision tools and gauges are certified by
the National Bureau of Standards.
The Company intends to manufacture the advanced graphite composite fuselage
structure used in the construction of its aircraft in its own
computer-controlled, nitrogen-pressurized autoclave. Although not operational at
this time, the autoclave was purchased new in 1990 and was used in the
construction of the certification aircraft. It can achieve temperatures of up to
650 degrees Fahrenheit and pressure of 150 pounds per square inch. The graphite
material is very strong and lightweight and in the course of certifying the
JETCRUZER 450, the Company believes it has demonstrated to the FAA that the
graphite material meets or exceeds all standards set by the FAA for aircraft
construction material. Use of the graphite composite material simplifies the
manufacturing process, as opposed to metal construction, because it
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eliminates most riveting, which is a labor intensive, time consuming process.
The graphite sections are bonded together through a process which provides
strength equal to or greater than riveting. The metal wings of the aircraft are
attached to the composite portions of the airframe through a manufacturing
technique developed by the Company.
MARKETING, DISTRIBUTION AND SERVICE
MARKETING AND DISTRIBUTION.
To date, the Company has conducted limited marketing activity and has
marketed its aircraft only through test advertisements and news releases in
trade publications. Following completion of the Offering, the Company intends to
use a portion of the proceeds of the Offering to develop an in-house sales
organization and market its aircraft in a number of different territories in the
United States and abroad through trade publications, aircraft trade shows, and
independent distributors and agents.
The Company's efforts will emphasize aircraft trade shows, from which it
believes a significant amount of new aircraft sales are generated. The Company
intends to participate in, among others, the Paris Air Show, the National
Business Aircraft Association USA Show and the Singapore Aerospace Show.
Management believes that, in addition to sales generated directly from such
events, participation in trade shows will help introduce the Company's aircraft
to other potential purchasers and help increase overall awareness of the
Company's products. The Company also intends to promote general knowledge of the
Company's products by issuing press releases to aviation magazines and
newspapers. The Company will also use paid advertising in trade magazines,
general interest flying magazines and international business magazines to
promote its products.
Management anticipates that most of the Company's aircraft will be sold to
corporations for transportation of their personnel, guests and company property.
The Company intends to develop direct marketing programs to target such
corporations. The Company believes that its aircraft will also be attractive to
customers other than corporations and intends to address these markets. These
markets include current owners of single and twin engine aircraft who operate
their own aircraft for business purposes, governmental entities that use
aircraft for surveillance or mapping photography, forest fire detection, and
other purposes, and fractional use entities who purchase one or more aircraft
and sell interests in each aircraft to several persons or entities. The Company
believes that the relatively low purchase price, performance, safety and cost of
operations of its aircraft will make them attractive to such purchasers. Other
potential specialty markets may include air freight and delivery services,
on-demand air taxi services and/or charter and air ambulance use.
The Company intends to provide assistance to customers who require financing
to complete the purchase of an aircraft from the Company. Overseas sales may be
financed through the United States Export/Import Bank ("EXIM"), which may
provide loans to qualified overseas customers, and several domestic banks, of
which at least one provides 20-year loans for corporate aircraft. Additionally,
EXIM may provide low-cost working capital loans to the Company upon the receipt
of evidence of export sales commitments.
SERVICE.
The Company's aircraft will be serviced primarily by fixed base operations
("FBO's") authorized by the Company. FBO's are established aircraft maintenance
companies located at airports throughout the world which service general
aviation aircraft produced by virtually all major aircraft manufacturers. If and
when customers in a particular region or country begin to acquire aircraft
manufactured by the Company, an appropriate FBO for that area will be identified
and authorized by the Company after consultation with the agent and/or
distributor for that area. The Company will provide training and a service
manual to the employees of its authorized FBO's. Required parts and repair
materials will be air freighted to the FBO's
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as required. Maintenance and repair of major systems included in the Company's
aircraft, such as engines and avionics, will be provided by the manufacturers of
those systems.
SUPPLIERS
The Company will rely on certain suppliers of products necessary to
manufacture its aircraft, including a number of different suppliers of materials
and components. In particular, the engines and the avionics will be provided by
outside manufacturers. These suppliers also produce equipment for aircraft
manufacturers other than the Company. Engines for the JETCRUZER will be
manufactured by Pratt & Whitney. Engines for the STRATOCRUZER, if that aircraft
is developed, will be manufactured by Williams/Rolls Royce. The Company has no
contractual right to obtain any specified number of engines from Pratt & Whitney
or any other manufacturer. Should the Company's ability to obtain the requisite
number of engines be limited for any lengthy period of time or the cost of such
engines increase, the Company's ability to produce and sell aircraft could be
materially and adversely affected. In addition, the failure of other suppliers
or subcontractors to meet the Company's performance specifications, quality
standards or delivery standards or schedules could have a material adverse
effect on the Company's operations. Moreover, the Company's ability to
significantly increase its production rate following the introduction of the
JETCRUZER 500 could be limited by the ability or willingness of its key
suppliers to increase their delivery rates.
COMPETITION
The JETCRUZER 500 will compete against several other types of aircraft,
including new and used single and multi-engine propjets and high-end piston
powered aircraft. Management believes that competition will be based primarily
on the aircraft's price, performance and operating cost. Single engine propjets
have only recently come into use in the general aviation industry, and there are
not many competitors in this category. Twin engine propjets are far more common
and vary significantly in size.
The following table lists the number of seats (including pilot), estimated
price and high cruise speed of the aircraft which the Company considers to be
the principal competitors of the JETCRUZER 500.
<TABLE>
<CAPTION>
NAME AND MODEL HIGH CRUISE
(NUMBER AND TYPE OF APPROXIMATE SPEED-MILES PER
ENGINES NOTED IN PARENTHESIS) SEATS BASE PRICE HOUR
- --------------------------------------------------------------------- ----- ------------ ---------------
<S> <C> <C> <C>
JETCRUZER 500 (1) (Propjet).......................................... 6 $ 1,295,000 350
Cessna Caravan 208B(1) (Propjet)..................................... 9 $ 1,493,000 210
Socata TBM 700 (1) (Propjet)......................................... 6 $ 2,607,000 345
Pilatus PC - 12 (1) (Propjet)........................................ 10 $ 2,315,000 310
Raytheon/Beech King Air C-90B (2) (Propjet).......................... 7 $ 2,488,000 284
Piper Malibu Mirage (1) (Piston)..................................... 6 $ 755,000 267
</TABLE>
There are currently only three single engine propjet aircraft on the market
in the JETCRUZER 500 category: the Socata TBM 700, the Pilatus PC-12 and the
Cessna Caravan. The TBM 700 is a pressurized, single engine propjet of
conventional design with a Pratt & Whitney engine. It is made in France and has
passenger capacity and performance similar to the JETCRUZER 500. Its base price
is approximately $2,607,000. The Pilatus PC-12 is also a single engine propjet
of conventional design with a Pratt & Whitney engine. The Pilatus PC-12 is made
in Switzerland, has an airspeed of 310 mph and has a base price of approximately
$2,315,000. The Cessna Caravan 208B has a base price of approximately $1,493,000
and is designed primarily for hauling freight at low altitude. Its high speed is
210 mph, its landing gear does not retract, and it is not pressurized. Each of
these competitive products is a standard, one lifting-wing aircraft built
primarily from aircraft aluminum, rather than graphite.
Additional competition to the JETCRUZER 500 may be provided by the Malibu
Mirage. The Malibu Mirage is a single engine piston powered aircraft, rather
than a propjet. It is manufactured in the United
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States by The New Piper Aircraft Corp. It has an airspeed of 267 miles per hour
and a range of approximately 1,200 miles. Its approximate base price is
$755,000. The Company believes that piston aircraft such as the Mirage and
propjet aircraft such as the JETCRUZER 500 compete for different customers based
on performance (particularly speed) and reliability. However, the price
differential may induce certain purchasers to select the lower-priced piston
aircraft.
The Company believes that the JETCRUZER 500, and the proposed JETCRUZER 650,
if developed, may compete with and compare favorably to various twin engine
propjets, such as the King Air C-90B, in airspeed and passenger seating at a
significantly lower purchase price and operating cost. The King Air C-90B is a
twin engine propjet of conventional design which is manufactured in the United
States by Raytheon Aircraft Co. (Beechcraft). It has an airspeed of
approximately 284 miles per hour and has seven seats. Its approximate base price
is $2,488,000. However, certain customers may be reluctant to purchase a
single-engine aircraft due to the perception of additional safety associated
with twin-engine aircraft. Additionally, single-engine aircraft are not
permitted by FAA regulations to be used for commercial passenger revenue-paying
flights (whether on-demand charter or scheduled) in instrument conditions.
However, single engine aircraft may currently be used for revenue-paying
on-demand charter and scheduled flights under VFR (visual flight rules) provided
the pilot and aircraft meet certain FAA certification, proficiency, maintenance
and additional equipment and airworthiness requirements. See "--Government
Regulation."
Most of the Company's competitors are substantially larger in size and have
far greater financial, technical, marketing, and other resources than the
Company. Certain of the Company's actual and potential competitors may have
technological capabilities, or other resources that would allow them to modify
existing aircraft or develop alternative new aircraft which could compete with
the Company's aircraft. Therefore, there can be no assurance that the Company's
ability to market its proposed aircraft will not be materially adversely
affected by future technological changes or marketing initiatives on the part of
its competitors.
Additionally, indirect competition and potential sales will come from the
used aircraft market, both propjets and jets, which have sales prices near that
anticipated for the JETCRUZER 500. As the prices of new aircraft have increased,
buyers have turned in greater numbers to the used aircraft market. The Company,
however, believes that it may be able to attract purchasers who might otherwise
acquire a used aircraft by emphasizing the price, performance, technology, fuel
efficiency and operational costs advantages of the Company's aircraft.
PRODUCT LIABILITY AND INSURANCE.
The failure of an aircraft manufactured by the Company or any other mishap
involving such an aircraft may result in physical injury or death to the
occupants of the aircraft or others, and therefore, the Company could be subject
to lawsuits involving product liability claims. The Company intends to obtain
product liability insurance with regard to aircraft purchased by customers
commencing on the delivery of the first customer's aircraft. However, such
insurance is expensive, subject to various exclusions and, although the product
liability insurance for manufacturers of general aviation aircraft has become
somewhat more available and less costly over the last two years, there can be no
assurance that such coverage will be available to the Company on acceptable
terms or at all. Further, should the Company become involved in product
liability litigation, the expenses and damages awarded could be large and the
scope of any coverage may be inadequate. In the past it has obtained other
insurance as needed, including flight test insurance for the pilots and aircraft
used during the FAA certification process.
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GOVERNMENT REGULATION
The manufacture of aircraft is subject to extensive regulation by the
Federal Aviation Administration ("FAA"). Both the finished product and the
process of manufacturing itself must be certified by the FAA, as must the type
design. Failure to obtain or maintain all required FAA certifications would have
a material adverse effect on the Company's operations.
CERTIFICATION.
On June 14, 1994, the Company obtained a Type Certificate from the FAA for
the JETCRUZER 450. For an aircraft model to be manufactured for sale, the FAA
must issue a type certificate and production certificate for that model; for an
individual aircraft to be operated, the FAA must issue an airworthiness
certificate for that aircraft. Type certificates are issued by the FAA when an
aircraft model is determined to meet applicable performance, safety,
environmental, and other technical criteria. In the case of aircraft such as the
Company's which have one or more unconventional design characteristics for which
there are no applicable criteria, such criteria are developed and applied in the
course of the type certification process. More stringent airworthiness criteria
and additional equipment requirements become applicable if the aircraft will be
used in commercial passenger operations, whether on-demand charter or scheduled.
Production certificates are issued by the FAA after it determines that the type
certificate holder (or its licensee) has the facilities and quality control
capability to manufacture aircraft that will meet the design provisions of the
applicable type certificate. An airworthiness certificate is issued by the FAA
for a particular aircraft when it is certified to have been built in accordance
with specifications approved under the type certificate for that model; the
airworthiness certificate remains in effect so long as required maintenance,
repairs and upkeep are performed.
The Company intends to amend its Type Certificate with respect to the
JETCRUZER 450 to include the JETCRUZER 500, although there can be no assurance
that the FAA will not require application for a new type certificate for the
JETCRUZER 500. In addition, the Company will be required to obtain a further
amendment to its Type Certificate or a new type certificate if and when it
proceeds with development of the JETCRUZER 650. The Company will be required to
obtain a new type certificate if and when it proceeds with development of the
STRATOCRUZER 1250.
Obtaining a new or amended FAA type certificate can be difficult, costly,
and time consuming. In either case, the Company must accomplish, to the extent
deemed necessary by the FAA, among other things, (a) the filing of an
appropriate application with the FAA, (b) development and submission to the FAA
of an appropriate design and substantiating data and receipt of FAA approval
that such design and data comply with applicable FAA airworthiness standards,
(c) development and receipt of FAA approval of a flight test plan, (d)
successful completion of conformity inspections requested by the FAA from time
to time to ensure compliance of the aircraft with the type design, (e)
modification and reassembly of an existing JETCRUZER 450 for use for initial
flight testing, (f) modification and reassembly of an additional existing
JETCRUZER 450 for flight and static testing, (g) completion of Company flight
tests and receipt of precertification approval from the FAA, (h) completion of
additional flight tests under FAA supervision, (i) development and receipt of
FAA approval of an airplane flight manual, and (j) development and receipt of
FAA approval of maintenance and inspection requirements for the aircraft.
Although the time required to obtain a new or amended type certificate may vary,
the Company believes that it can obtain a new or amended certificate for the
JETCRUZER 500 within the 18 to 24 months following the closing of the Offering.
There can be no assurance that the Company will be successful in obtaining a new
type certificate or amendments to its existing Type Certificate for its planned
aircraft models, or, if the Company is successful in obtaining a type
certificate for its planned aircraft, that the new or amended type certificate
will not be subject to conditions which may adversely affect the use of the
planned aircraft models for their intended purpose or the Company's operations.
In the event that the FAA determines that a new type certificate is required for
any of the Company's planned aircraft models (including the JETCRUZER 500),
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the time and cost of obtaining such certification may be substantial, may render
it impossible for the Company to complete such certification and may have an
adverse effect on the Company's operations.
The Company will also need to obtain an FAA production certificate for the
commercial production of its aircraft. In order to obtain a production
certificate, the Company must commence production of an aircraft and make
application for the certificate. The FAA will regularly inspect the Company's
facilities and procedures during the production process. When the initial
aircraft is nearly complete, the Company must have submitted all required
materials, including a copy of the applicable quality assurance manual. The FAA
will then review the materials submitted and the results of its inspections and
will either issue the production certificate or require that the Company modify
either or both of its quality assurance manual or the manufacturing process.
While production does not necessarily stop during the review process, a failure
to receive a production certificate would likely delay the manufacturing
process. The time required to obtain a production certificate is identical to
and concurrent with the time required to manufacture the first
commercially-produced applicable aircraft; which the Company believes will be
five to six months in the case of the JETCRUZER 500. The Company expects to
obtain the production certificate within the 18 to 24 months following the
completion of the Offering.
There can be no assurance that the Company will not encounter a delay in
obtaining a production certificate for its planned aircraft models, or
airworthiness certificates for individual aircraft.
The Company will also be subject to the risk of modification, suspension or
revocation of any FAA certificate it holds. Such modification, suspension, or
revocation could occur if, in the FAA's judgement, compliance with airworthiness
or safety standards by the Company was in doubt. If the FAA were to suspend or
revoke the Company's type or production certificates for an aircraft model,
sales of that model would be adversely affected or terminated. If, in the FAA's
judgement, an unsafe condition developed or was discovered after one or more of
the Company's aircraft had entered service, the FAA could issue an
"Airworthiness Directive," which could result in a regulatory obligation upon
the Company to develop appropriate design changes at the Company's expense.
Foreign authorities could impose similar obligations upon the Company as to
aircraft within their jurisdiction. Any or all of the above occurrences could
expose the Company to substantial additional costs and/or liability.
GOVERNMENT ASSISTANCE.
The Company has negotiated with local and state governments regarding
incentives for locating the Company's facilities in a certain state or locality,
including facility construction, tax incentives and employee training. One city
in which the Company may locate its facilities has informed the Company that the
city would assist the Company by providing coordinated permit processing and
possibly matching funds for federal job training subsidies. The city has also
informed the Company that the potential site being considered by the Company
would cause the Company to be eligible for enterprise zone, state revitalization
zone and manufacturers' investment tax credits. If the Company is able to obtain
such assistance or financing, the Company may be subject to certain restrictions
on its operations, including an inability to relocate or to obtain certain types
of financing.
PRODUCT LIABILITY.
In 1994, the United States Congress passed and the President signed the
General Aviation Revitalization Act of 1994 ("GARA"). GARA provides protection
for manufacturers of general aviation aircraft against certain lawsuits for
wrongful death or injuries resulting from an aircraft accident. Except as set
forth in GARA, and provided a period of 18 years has passed from the date of
delivery of the aircraft to the original purchaser or retailer, no claim for
damages resulting from personal injury or wrongful death may be brought against
the manufacturer of a general aviation aircraft. Although GARA will not directly
affect the Company until eighteen years from the date it delivers its first
aircraft, management believes that GARA will indirectly benefit the Company
immediately, in that it may encourage increased manufacturing
39
<PAGE>
and sales of general aviation aircraft and this increased activity may in turn
result in an increased number of licensed pilots. Management believes that a
greater number of licensed pilots may provide an increased market for the
Company's aircraft. However, there can be no assurance that Management's view of
GARA's effects will prove to be correct.
FOREIGN CERTIFICATION.
In order for the Company to sell its aircraft in foreign countries, it must
comply with each country's aircraft certification process. Certain countries
will accept as adequate the certification issued by the FAA, while others impose
additional requirements. In countries which do require additional certification,
the FAA certification often provides a starting point from which such country
begins its certification process. The Company intends to begin certification
processes in foreign countries once it has received the amendment to the Type
Certificate for the JETCRUZER 500 and has finalized a sale or distributorship in
that country. The Company has not yet determined which foreign markets it will
first address. Priorities in this area will be established by the levels of
interest in the Company's products of dealers and distributors in the various
foreign markets.
FACILITIES.
The Company's executive offices and research and limited manufacturing
facilities are located in an approximately 40,000 sq. ft. building near the Long
Beach, California airport pursuant to a month to month lease at a monthly rent
of $12,000. The Company has allocated a portion of the net proceeds of the
Offering to establish a larger facility to enable the Company to expand its
manufacturing capabilities as soon as a suitable location is found. The Company
presently has no other facilities.
The Company has identified several possible locations for its manufacturing
facility. The Company believes that establishment of the manufacturing facility
will take approximately 5 to 7 months and that the municipality selected by the
Company as the site of its main manufacturing facility will provide assistance
with streamlining the permit process, local licensing and other requirements.
The Company believes the cost of establishing the facility will be approximately
$7,000,000, which the Company intends to fund in part with the proceeds of the
Offering and in part through mortgage financing and/or other similar means. The
total anticipated size of the facility will be approximately 220,000 square
feet, with approximately 20,000 square feet of office space and approximately
200,000 square feet of manufacturing space. In the event that the Company is
unable to fully fund the cost of such facility, the Company may determine to
lease a facility until such funds become available. See "Use of Proceeds" and
"Plan of Operations."
EMPLOYEES
As of November 1, 1996, the Company had six full-time employees and eight
part-time technical consultants. The Company believes that its relations with
its employees are good. The Company is not a party to any collective bargaining
agreement.
The Company will require highly skilled engineers and manufacturing
technicians to complete the design of and produce the JETCRUZER 500. The Company
believes that a number of such individuals are available in Southern California
in general, and the Long Beach area in particular, as a result of recent
downsizings by large aerospace and defense contractors. In the past, the Company
has obtained the majority of its employees from this pool. However, there can be
no assurance that these individuals will remain available or that the Company
will be able to fill all necessary positions with qualified personnel.
The Company intends to hire employees as needed and believes that
approximately 50 employees will be hired within six months of the closing of the
Offering. Those employees will be needed to work on obtaining the amendment to
the Company's Type Certificate, as well as to plan and prepare for the Company's
relocation to a new manufacturing facility. The Company believes that it will
require a total of
40
<PAGE>
approximately 150 employees within 24 months of the closing of the Offering to
produce, manufacture, market and sell the JETCRUZER 500.
LEGAL PROCEEDINGS
In the ordinary course of business the Company is generally subject to
claims, complaints, and legal actions. The Company is not currently a party to
any material lawsuit.
In connection with the Recapitalization in July 1996, the stockholders of
the Company had the right, within thirty days of receiving notice of the merger
which was a part of the Recapitalization, to exercise dissenters' rights and
make written demand upon the Company to purchase their shares at fair market
value. The Company did not receive any such demands within such thirty-day
period. However, one stockholder, who presently owns slightly less than 5% of
the Company's outstanding Common Stock, forwarded a letter to the Company
claiming that he did not receive sufficient information in order to exercise his
rights and that therefore the time to exercise his rights should be extended. In
addition, such stockholder has asserted that his ownership interest in the
Company has been improperly diluted. Such stockholder threatened to commence
litigation against the Company. The Company has not received any communications
from such stockholder since the expiration of the time period for notification
of the exercise of dissenters' rights.
The Company believes that it has complied with the statutory requirements
with respect to the Recapitalization as well as with respect to all issuances of
its capital stock. However, there can be no assurance as to whether such
stockholder will in fact assert any such claims against the Company or whether
any such claims will be successful. The Company does not believe, however, that
any adverse outcome of claims asserted against the Company by such stockholder
would have a material adverse effect on the Company.
41
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following are the executive officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ------------------------------------------------------------
<S> <C> <C>
Carl Leei Chen, Ph.D. .............. 50 Chairman of the Board, Chief Executive Officer and
President(1)
Gene Comfort........................ 53 Executive Vice President, General Manager, Secretary and
Director(2)
William V. Leeds.................... 53 Senior Vice President--Operations(3)
Sandra Andre........................ 42 Chief Financial Officer
C.M. Cheng.......................... 50 Director(1)(2)
Steve Gorlin........................ 59 Director(1)
</TABLE>
- ------------------------
(1) Member of Compensation Committee and Option Committee
(2) Member of Audit Committee
(3) Mr. William V. Leeds has consented to become the Senior Vice
President--Operations of the Company following the closing of the Offering.
DR. CARL L. CHEN is the founder of the Company and has been its President
and a director since the Company's incorporation in January 1990 and the Chief
Executive Officer of the Company since December 1994. From January 1992 to
October 1995, Dr. Chen served as President, and since January 1992 has been a
minority stockholder, of Union China Investment and Development Group, Inc.
("Union China"), a company located in Monterey Park, California, which was
formed to invest in commercial real estate. Union China confirmed a plan of
reorganization pursuant to Chapter 11 of the Federal bankruptcy laws in August
1995. The bankruptcy case for Union China was closed in May 1996 pursuant to a
Final Decree and Order Closing Case entered by the Bankruptcy Court for the
Central District of California. Since January 1992, Dr. Chen has served as the
President of California Aerospace Technology, Inc., a consulting company for the
satellite industry, located in Monterey Park, California. Dr. Chen was Chairman
of SIDA Corporation, a high technology trading company located in Monterey Park,
California, from 1989 to May 1996. Prior to founding the Company in 1990, Dr.
Chen was a Satellite System Engineering Manager at Hughes Space and
Communications, Inc. for 15 years. Dr. Chen has a Ph.D. in Engineering from the
California Institute of Technology and Masters Degrees in Control Engineering
and Aerospace Engineering from UCLA and West Virginia University, respectively.
Dr. Chen is a graduate of the Owner/President Management program at the Graduate
School of Business Administration of Harvard University.
GENE COMFORT has been the Executive Vice President and General Manager of
the Company since September 1995 and a director since May 1996. From July 1993
to September 1995, Mr. Comfort was the Vice President--Marketing of the Company,
and he was the Director of Marketing of the Company from April 1991 to July
1993. Mr. Comfort has been involved in the aircraft industry for over 25 years
in a variety of marketing, sales and management positions. Mr. Comfort is a
single and multi engine rated pilot.
SANDRA J. ANDRE became Chief Financial Officer of the Company in June 1996.
From May 1995 to March 1996, Ms. Andre served as the Chief Financial Officer at
Lottery Enterprises, Inc., a public company located in San Diego, California,
engaged in the manufacture of vending terminals for instant winner lottery
tickets. From July 1990 to May 1995, Ms. Andre was the Chief Financial Officer
and Vice
42
<PAGE>
President of Plitt Amusement Co., Inc., a private company located in Torrance,
California, engaged in the entertainment business.
WILLIAM V. LEEDS has agreed to serve as a Senior Vice President of the
Company following the completion of this Offering. He served as the Senior Vice
President of the Company from 1991 to September 1994 and has acted as a
consultant to the Company on an as-needed basis since that time. He was one of
the key employees responsible for obtaining the Type Certificate for the
JETCRUZER 450. Since October 1994, Mr. Leeds has served as the General Manager
of Aerostar Corporation, a private company located in the State of Washington
engaged in the development and sale of small aircraft. From February 1986 to
January 1990, Mr. Leeds was the General Manager of Quiet Nacelle Corp., a
private company which retrofits aircraft engine nacelles for noise reduction.
Mr. Leeds has an Aeronautical Engineering Degree from Northrop Institute of
Technology and is an FAA Structure Designated Engineering Representative (DER).
He is a single engine, instrument rated pilot.
C.M. CHENG has served as a director of the Company since June 1996. Since
April 1996, Mr. Cheng has been a Vice President of Eurotai International, Ltd.,
a private company located in Taipei, Taiwan, which distributes health food
products. From 1984 to April 1996, Mr. Cheng served as a Vice President,
Director of the Office of the President, and Manager of Corporate Planning with
Taiwan Yeu Tyan Machinery, Mfg Co. Ltd., a public company located in Taipei,
Taiwan, which manufactures automobiles and heavy equipment. From 1980 to 1983,
Mr. Cheng was an Associate Professor of Economics and Management at Taiwan
National Sun-Yet-Sen University. Mr. Cheng is the director of Harpa Limited, a
corporation organized under the laws of the Cayman Islands ("Harpa"), a
principal stockholder of the Company. See "Certain Transactions" and "Principal
Stockholders."
STEVE GORLIN has served as a director of the Company since July 1996. Over
the past twenty-five years, Mr. Gorlin has founded several biotechnology and
pharmaceutical companies, including Hycor Biomedical, Inc., Theragenics
Corporation, CytRx Corporation, and Medicis Corporation, which are public
companies, and SeaLite Sciences, Inc., which is a private company. Mr. Gorlin
founded, and served as Chairman of the Board of, EntreMed Inc., a public
company, from its inception in 1991 until December 1995 (EntreMed was privately
held during his tenure). He founded, and is a member of the Board of Directors
of, Perma-Fix Environmental Services, Inc., a public company involved in the
disposal of hazardous waste. Mr. Gorlin also established the Touch Foundation, a
non-profit organization for the blind. He is a single and multi-engine pilot.
Directors serve until the next annual meeting or until their successors are
elected or appointed. Officers are elected by and serve at the discretion of the
Board of Directors. There are no family relationships among the officers or
directors of the Company.
BOARD COMMITTEES AND DESIGNATED DIRECTORS
The Board of Directors has a Compensation Committee, which makes
recommendations to the Board concerning salaries and incentive compensation for
officers and employees of the Company. The members of the Compensation Committee
are Dr. Chen, and Messrs. Cheng and Gorlin. The Board of Directors has
established an Option Committee to administer the Option Plan. The members of
the Option Committee are Dr. Chen and Messrs. Gorlin and Cheng. The Board of
Directors also has an Audit Committee which reviews the results and scope of the
audit and other accounting related matters. The members of the Audit Committee
are currently Messrs. Comfort and Cheng and the Company intends to add an
additional member following the Offering.
The Company has agreed to nominate a designee of the Underwriter who is
reasonably acceptable to the Company for election to the Company's Board of
Directors, if so requested by the Underwriter, for a period of five years from
the date of this Prospectus.
43
<PAGE>
DIRECTOR COMPENSATION
Directors who are employees of the Company receive no compensation for
serving on the Board of Directors. Non-employee Directors serving on the
Company's Board receive $1,000 per meeting plus out of pocket expenses for
attending such meetings. In addition, non-employee Directors are not precluded
from serving the Company in any other capacity and receiving compensation
therefor.
Directors are also eligible to participate in the Company's Stock Option
Plan. It is a policy of the Company that each Director who is not an employee of
the Company receive options to purchase 25,000 shares of Class A Common Stock
upon joining the Board. As of the date of this Prospectus, Messrs. Comfort,
Cheng and Gorlin each had received 25,000 shares of Class A Common Stock at an
exercise price of $5.00 per share. The options vest in equal annual installments
over five years. See
"--Stock Option Plan."
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company for its
fiscal year ended December 31, 1995, to Dr. Carl Chen, the Chief Executive
Officer and President of the Company. No other executive officer of the Company
received salary and bonus in excess of $100,000 in such fiscal year:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION (1)
--------------------------------------------
SALARY OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR ($)(2) COMPENSATION ($)(3)
- -------------------------------------------- --------- ------------ -------------------
<S> <C> <C> <C>
Dr. Carl Leei Chen, 1995 $ 53,000 $ 242,000
Chief Executive Officer and President
</TABLE>
- ------------------------
(1) The compensation described in this table does not include medical insurance,
retirement benefits and other benefits received by the foregoing executive
officer which are available generally to all employees of the Company and
certain perquisites and other personal benefits received by the foregoing
executive officer of the Company, the value of which did not exceed the
lesser of $50,000 or 10% of the executive officer's compensation in the
table.
(2) Pursuant to the New Management Agreement, which became effective on January
29, 1995 (the "New Management Agreement"), Dr. Chen was entitled to receive
a salary of $323,000 in 1995. This amount was accrued and unpaid as of
December 31, 1995. In May 1996, Dr. Chen agreed to convert $300,000 of such
accrued amount into 16,724 shares of Class B Common Stock, 33,448 shares of
Class E-1 Common Stock and 33,448 shares of Class E-2 Common Stock and to
receive the remainder in cash. See "Certain Transactions" and Note 6 of
Notes to Financial Statements. $30,000 of the amount stated reflects the
approximate fair value of such shares. In May 1996, the New Management
Agreement was terminated, and Dr. Chen's annual salary was changed to
$200,000 per year. See "--Employment Agreement."
(3) Represents the approximate fair value of 135,416 shares of Class B Common
Stock, 270,832 shares of Class E-1 Common Stock, and 270,832 shares of Class
E-2 Common Stock issued to Dr. Chen in June 1996 and earned by him under the
New Management Agreement during 1995. See "Certain Transactions."
EMPLOYMENT AGREEMENT
The Company entered into an eight-year employment agreement (the "Chen
Employment Agreement") with Dr. Carl Chen, the Company's, Chairman, Chief
Executive Officer and President, commencing in May 1996. The Chen Employment
Agreement provides that, in consideration for Dr. Chen's services, he is to be
paid an annual salary of $200,000. He will receive increases in salary and
bonuses as
44
<PAGE>
deemed appropriate by the Board of Directors. The Company will maintain life
insurance coverage on Dr. Chen, and Dr. Chen may name the beneficiary of such
policy. The Chen Employment Agreement also provides that he will not compete
with the Company during the term of the Agreement and for eighteen months
thereafter and that, if Dr. Chen's employment is terminated by the Company
without cause (as defined therein), he will receive up to eighteen months'
salary as severance, payable monthly commencing on the thirtieth day following
such termination without cause.
STOCK OPTION PLAN
The Board of Directors and the stockholders of the Company have adopted and
approved the 1996 Stock Option Plan ("Stock Option Plan"). The Stock Option Plan
provides for the grant of incentive stock options ("ISOs") within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and
non-qualified stock options ("NQSOs") to certain employees, officers, directors,
consultants and agents of the Company. The purpose of the Stock Option Plan is
to attract and retain qualified employees, agents, consultants, officers and
directors.
The total number of shares of Class A Common Stock with respect to which
options may be granted under the Stock Option Plan is 500,000. The shares
subject to, and available under, the Stock Option Plan may consist, in whole or
in part, of authorized but unissued stock or treasury stock not reserved for any
other purpose. Any shares subject to an option that terminates, expires or
lapses for any reason, and any shares purchased upon exercise of an option and
subsequently repurchased by the Company pursuant to the terms of the option,
become available for grant under the Stock Option Plan.
The Stock Option Plan is administered by the Board of Directors of the
Company, which determines, in its discretion, among other things, the recipients
of grants, whether a grant will consist of ISOs or NQSOs, or a combination
thereof, and the number of shares of Class A Common Stock to be subject to such
option. The Board may, in its discretion, delegate its power, duties and
responsibilities under the Stock Option Plan to a committee consisting of two or
more directors. The exercise price for ISOs must be at least 100% of the fair
market value per share of Class A Common Stock on the date of grant, as
determined by the Board. ISOs are not transferable, other than by will or the
laws of descent and distribution. NQSOs may be transferred to the optionee's
spouse or lineal descendants, subject to certain restrictions. Options may be
exercised during the holder's lifetime only by the holder or his or her guardian
or legal representative.
Options may be exercisable for a term determined by the Board, which may not
be less than one year or greater than 10 years from the date of grant. Options
may be exercised only while the original optionee has a relationship with the
Company which confers eligibility to be granted options or within 90 days after
termination of such relationship with the Company, or up to six months after
death or total and permanent disability. In the event the Company terminates its
relationship with the original optionee for cause (as defined in the Stock
Option Plan), all options granted to the optionee terminate immediately.
The Stock Option Plan contains certain limitations applicable only to ISOs
granted thereunder to satisfy specific provisions of the Internal Revenue Code.
For example, the aggregate fair market value, as of the date of grant, of shares
as to which an ISO becomes exercisable for the first time by an optionee during
any calendar year may not exceed $100,000. In addition, if an optionee owns more
than 10% of the Company's stock at the time the individual is granted as ISO,
the exercise price per share cannot be less than 110% of the fair market value
per share and the term of the option cannot exceed five years.
Options may be paid for in cash, by check or, in certain instances, by
delivering an assignment of shares of Class A Common Stock having a value equal
to the option price, or any combination of the foregoing, as stipulated in the
option agreement entered into between the Company and the optionee. At the
discretion of the Board, the Company may loan to the optionee some or all of the
purchase price of the shares acquired upon exercise of an option granted under
the Stock Option Plan.
45
<PAGE>
The Board may modify, suspend or terminate the Stock Option Plan; provided,
however, that certain material modifications affecting the Stock Option Plan
must be approved by the stockholders, and any change in the Stock Option Plan
that may adversely affect an optionee's rights under an option previously
granted under the Stock Option Plan requires the consent of the optionee.
As of the date of this Prospectus, the Company had granted options to
purchase 110,000 shares of Class A Common Stock at an exercise price of $5.00
per share under the Stock Option Plan. See "--Director Compensation" and
"Certain Transactions."
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation eliminates in certain
circumstances the liability of directors of the Company for monetary damages for
breach of their fiduciary duty as directors. This provision does not eliminate
the liability of a director (i) for breach of the director's duty of loyalty to
the Company or its stockholders, (ii) for acts or omissions by the director not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for willful or negligent declaration of an unlawful dividend, stock
purchase or redemption, or (iv) for transactions from which the director derived
an improper personal benefit. Such limitation of liability does not affect the
availability of equitable remedies such as injunctive relief or rescission.
The Company has entered into indemnification agreements ("Indemnification
Agreement(s)") with each of its directors and officers. Each such
Indemnification Agreement provides that the Company will indemnify the
indemnitee against expenses, including reasonable attorneys' fees, judgements,
penalties, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with any civil or criminal action or administrative
proceeding arising out of his performance of his duties as a director or
officer, other than an action instituted by the director or officer. Such
indemnification is available if the indemnitee acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company, and with respect to any criminal action, had no reasonable cause to
believe his conduct was unlawful. The Indemnification Agreements also require
that the Company indemnify the director or other party thereto in all cases to
the fullest extent permitted by applicable law. Each Indemnification Agreement
permits the director or officer that is party thereto to bring suit to seek
recovery of amounts due under the Indemnification Agreement and to recover the
expenses of such suit if he is successful.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that it is the opinion of the Commission that such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
46
<PAGE>
CERTAIN TRANSACTIONS
From January 1990 through December 1993, Mr. Song Gen Yeh, who was at that
time a principal stockholder and director of the Company, advanced funds to the
Company in the aggregate amount of $10,478,000. In December 1993, the Company
entered into an agreement with Mr. Yeh to repay such advances through the
issuance of 584,074 shares of Class B Common Stock, 1,168,148 shares of Class
E-1 Common Stock, and 1,168,148 shares of Class E-2 Common Stock of the Company.
Such shares were issued to Mr. Yeh in June 1996. From 1994 through 1995, Mr. Yeh
provided additional advances to the Company aggregating $250,000. In June 1996,
such advances were repaid by the Company through the issuance of 13,937 shares
of Class B Common Stock, 27,873 shares of Class E-1 Common Stock, and 27,873
shares of Class E-2 Common Stock. Such shares were subsequently transferred to
Harpa Limited ("Harpa"), a Cayman Islands corporation the voting stock of which
is controlled by two of Mr. Yeh's children. C.M. Cheng, a director of the
Company, is the Director of Harpa and, as such, has the power to vote the shares
of the Company's Common Stock held by Harpa. See "Principal Stockholders."
In January 1990, the Company entered into a five-year agreement (the
"Management Agreement") with SIDA Corporation ("SIDA"). Dr. Carl L. Chen, the
Chairman, Chief Executive Officer and President of the Company, was, at that
time, a principal stockholder of SIDA, and the other two stockholders of SIDA
were also, at that time, stockholders of the Company. The Management Agreement
provided for annual payments to SIDA of $140,000 for management services
consisting essentially of those customarily performed by the President of a
company. The SIDA agreement expired by its terms in January 1995. As of June 30,
1996, SIDA was owed $259,000 of unpaid management fees. This amount, together
with accrued interest of $64,000 through August 30, 1996, was paid from the
proceeds of the Bridge Financing in September 1996. In October 1993 and February
1994, the Company obtained loans from SIDA in the aggregate principal amount of
$110,000, bearing interest at 12%. These loans, together with accrued interest
of $31,000, were repaid from the proceeds of the Bridge Financing in September
1996.
In February and July 1994, the Company received loans in an aggregate
principal amount of $565,000, bearing interest at a rate of 12%, from four
individuals who were at the time not affiliated with the Company. One of such
persons, C.M. Cheng, became a director of the Company in June 1996. These loans,
together with accrued interest of $161,000, were repaid with the proceeds of the
Bridge Financing in September 1996.
In December 1994, the Company entered into a New Management Agreement (the
"New Management Agreement") with Dr. Chen which took effect in January 1995.
Pursuant to the New Management Agreement, Dr. Chen agreed to serve as the
Company's President and Chief Executive Officer. The New Management Agreement
had a term of 10 years and provided that Dr. Chen was to receive a signing bonus
of 139,365 shares of Class B Common Stock, 278,730 shares of Class E-1 Common
Stock, and 278,730 shares of Class E-2 Common Stock, an annual salary of
$350,000, and additional annual compensation payable in 147,727 shares of Class
B Common Stock, 295,454 shares of Class E-1 Common Stock, and 295,454 shares of
Class E-2 Common Stock. In May 1996, Dr. Chen agreed to terminate the New
Management Agreement. Pursuant to the New Management Agreement and in connection
with its termination, the Company issued a total of 577,823 shares of Class B
Common Stock, 1,155,647 shares of Class E-1 Common Stock, and 1,155,647 shares
of Class E-2 Common Stock to Dr. Chen. At June 30, 1996, $144,000 remained
accrued and unpaid under the New Management Agreement. This amount was paid to
Dr. Chen with the proceeds of the Bridge Financing in September 1996.
In May 1996 the Company entered into an Employment Agreement with Dr. Chen
pursuant to which he agreed to serve as its Chairman, Chief Executive Officer
and President. See "Management--Employment Agreement." As of August 31, 1996,
compensation of $69,000 was accrued and unpaid under this Agreement. This amount
was paid from the proceeds of the Bridge Financing in September 1996.
From September 1995 through August 1996, Dr. Chen made loans bearing
interest at a rate of 12% to the Company in the aggregate principal amount of
$562,000. In May 1996, Dr. Chen agreed to convert
47
<PAGE>
$336,000 of these loans into 187,118 shares of Class B Common Stock, 374,236
shares of Class E-1 Common Stock, and 374,236 shares of Class E-2 Common Stock.
The remaining $226,000 principal amount of these loans, together with $36,000 of
accrued interest, was repaid with the proceeds of the Bridge Financing in
September 1996.
In 1994 and 1995, the Company obtained loans from General Bank in the
aggregate principal amount of $900,000. This loan bore interest at the prime
rate plus 1.5% and had a maturity date of October 1996. Repayment of the loan
was guaranteed by the Small Business Administration, the California Export
Finance Office and Dr. Chen and was secured by substantially all the assets of
the Company. The total outstanding balance of the loan of approximately $915,000
(including accrued interest) was repaid from the proceeds of the Bridge
Financing in September 1996.
In May 1996, the Company issued 17,460 shares of Class B Common Stock,
34,919 shares of Class E-1 Common Stock, and 34,919 shares of Class E-2 Common
Stock to Gene Comfort, its Executive Vice President, as partial consideration
for marketing and general administrative services performed by Mr. Comfort for
the Company. In September 1996, $34,000 of accrued but unpaid salary was paid to
Mr. Comfort from the proceeds of the Bridge Financing.
In September 1996, the Company granted options to purchase 25,000 shares of
Class A Common Stock to each of C.M. Cheng and Steve Gorlin, directors of the
Company, and Gene Comfort, an officer and director of the Company, and 5,000
shares of Class A Common Stock to Sandra Andre, an officer of the Company, at an
exercise price of $5.00 per share. The options vest in equal annual installments
over five years.
The Company believes that each of the foregoing transactions was on terms at
least as favorable to the Company as those that could have been obtained from
nonaffiliated third parties.
48
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of the date of this Prospectus by (i)
each person who is known by the Company to own beneficially more than 5% of the
Company's outstanding Common Stock, (ii) each of the Company's directors and
executive officers, and (iii) all officers and directors of the Company as a
group (a) prior to the Offering, and (b) as adjusted to give effect to the sale
of the 6,000,000 Units offered hereby.
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF
COMMON STOCK OWNERSHIP PERCENT OF TOTAL VOTING
BENEFICIALLY BEFORE OWNERSHIP POWER AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(2) OFFERING AFTER OFFERING OFFERING(3)
- --------------------------------------------------------- -------------- ----------- --------------- -------------
<S> <C> <C> <C> <C>
Dr. Carl L. Chen(4)...................................... 4,196,460 41.96% 26.23% 37.47%
Gene Comfort(5).......................................... 87,298 .87 .55 .78
Sandra Andre(6).......................................... 0 0 0 0
C.M. Cheng(5)(7)......................................... 5,217,860 52.18 32.61 46.59
Steve Gorlin(5).......................................... 0 0 0 0
Harpa Limited(8)......................................... 5,217,860 52.18 32.61 46.59
Shih Jen Yeh(8).......................................... 5,217,860 52.18 32.61 46.59
Chyao Chi Yeh(8)......................................... 5,217,860 52.18 32.61 46.59
All executive officers and directors as a group (5
persons)............................................... 9,501,618 95.02 59.39 84.84
</TABLE>
- ------------------------
(1) Except as otherwise indicated, the address of each principal stockholder is
c/o the Company at 3060 Airport Way, Long Beach, California 90806. The
Company believes that all persons named have sole voting power and sole
investment power, subject to community property laws where applicable.
(2) Except as otherwise noted, all shares beneficially owned are 20% Class B
Common Stock and 80% Class E Common Stock, which shares of Class E Common
Stock are subject to redemption by the Company if the Company does not
achieve certain income or market price levels. See "Description of
Securities--Performance Shares."
(3) The Common Stock of the Company is divided into four classes. Each share of
Class B Common Stock, Class E-1 Common Stock and Class E-2 Common Stock is
entitled to five votes per share, and the Class A Common Stock is entitled
to one vote per share. See "Description of Securities-- Common Stock."
(4) Includes 200,000 shares of Class E-2 Common Stock held by Julie C. Chen, as
trustee of the Eric F. Chen Trust under Declaration of Trust dated August
31, 1996, for the benefit of Eric F. Chen, Dr. Chen's son. Julie Chen is Dr.
Chen's sister-in-law. Dr. Chen disclaims beneficial ownership of the 200,000
shares held by the Trust for the benefit of his son.
(5) Excludes 25,000 shares of Class A Common Stock issuable upon the exercise of
options not exercisable within 60 days of the date of this Prospectus.
(6) Excludes 5,000 shares of Class A Common Stock issuable upon the exercise of
options not exercisable within 60 days of the date of this Prospectus.
(7) Includes 5,208,177 shares of Common Stock held by Harpa Limited, a Cayman
Island corporation ("Harpa"). C.M. Cheng is a director of Harpa and has sole
voting and investment control over the shares of Common Stock held by Harpa
and thus may be deemed to beneficially own such shares. Mr. Cheng disclaims
beneficial ownership of such shares. The address of Harpa is c/o Coutts Co.
(Cayman) Ltd., Coutts House, P.O. Box 707, West Bay Road, Grand Cayman,
Cayman Islands.
(8) The voting stock of Harpa is currently held equally by Shih Jen Yeh and
Chyao Chi Yeh, who are children of Song Gen Yeh, the former Chairman and
principal stockholder of the Company. See "Certain Transactions." The
address of Mr. Shih Jen Yeh and Mr. Chyao Chi Yeh is 14th Floor, No. 55,
Section 2, Chung-Cheng Road, Shih-Lin District, Taipei, Taiwan.
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CONCURRENT SECURITIES OFFERING
An additional 3,500,000 redeemable Class A Warrants (the "Selling
Securityholders' Class A Warrants") have been registered pursuant to the
Registration Statement under the Securities Act of which this Prospectus is a
part for sale by the holders thereof (the "Selling Securityholders"). The
Selling Securityholders' Class A Warrants are identical to the Class A Warrants
included in the Units offered hereby and are being issued to the Selling
Securityholders on the closing of the Offering upon the automatic conversion of
all of the Company's outstanding Bridge Warrants. All of the Selling
Securityholders' Class A Warrants issued upon conversion of the Bridge Warrants,
the Class A Common Stock and Class B Warrants issuable upon exercise of such
Class A Warrants and the Class A Common Stock issuable upon exercise of the
Class B Warrants will be registered, at the Company's expense, under the
Securities Act and are expected to become tradeable on or about the closing of
the Offering, subject to a contractual restriction agreed to with the Company
that such Selling Securityholders' Class A Warrants and underlying securities
may not be sold for at least 90 days after the closing of the Offering; and,
during the period from 91 to 270 days after such closing, only certain specified
percentages of such securities may be sold. See "Shares Eligible For Future
Sale." The Selling Securityholders have also agreed with the Company not to
exercise their Selling Securityholders' Class A Warrants for a period of one
year following the closing of the Offering; provided, however, that purchasers
of such Selling Securityholders' Class A Warrants are not subject to such
restrictions on exercise. After the one-year period following the closing of the
Offering, the Selling Securityholders may exercise the Selling Securityholders'
Class A Warrants and sell the Class B Warrants and Class A Common Stock issuable
upon exercise of their warrants without restriction if a current prospectus
relating to such Class A Common Stock is in effect and the securities are
qualified for sale. The Company will not receive any proceeds from the sale of
the Selling Securityholders' Class A Warrants. Sales of Selling Securityholders'
Class A Warrants or the securities underlying such Class A Warrants or even the
potential of such sales could have an adverse effect on the market prices of the
Units, the Class A Common Stock and the Warrants. See "Shares Eligible For
Future Sale."
There are no material relationships between any of the Selling
Securityholders and the Company, nor have any such material relationships
existed within the past three years. The Company has been informed by the
Underwriter that there are no agreements between the Underwriter and any Selling
Securityholder regarding the distribution of the Selling Securityholders'
Warrants or the underlying securities.
The sale of the securities by the Selling Securityholders may be effected
from time to time in transactions (which may include block transactions by or
for the account of the Selling Securityholders) in the over-the-counter market
or in negotiated transactions, a combination of such methods of sale or
otherwise. Sales may be made at fixed prices which may be changed, at market
prices prevailing at the time of sale or at negotiated prices.
Selling Securityholders may effect such transactions by selling their
securities directly to purchasers, through broker-dealers acting as agents for
the Selling Securityholders or to broker-dealers who may purchase shares as
principals and thereafter sell the securities from time to time in the
over-the-counter market, in negotiated transactions or otherwise. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Securityholders or the purchasers
for whom such broker-dealers may act as agents or to whom they may sell as
principals or otherwise (which compensation as to a particular broker-dealer may
exceed customary commissions).
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Selling Securityholders' Class A Warrants may
not simultaneously engage in market making activities with respect to any
securities of the Company for a period of at least two (and possibly nine)
business days prior to the commencement of such distribution. Accordingly, in
the event the Underwriter or Blair & Co. is engaged in a distribution of the
Selling Securityholders' Class A Warrants, neither of such firms will be able to
make a market in the Company's securities during the applicable restrictive
period. However, neither the Underwriter nor Blair & Co. has agreed to, nor is
either of them obligated to, act as
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a broker-dealer in the sale of the Selling Securityholders' Class A Warrants,
and the Selling Securityholders may be required, and in the event Blair & Co. is
a market maker, will likely be required, to sell such securities through another
broker-dealer. In addition, each Selling Securityholder desiring to sell
Warrants will be subject to the applicable provisions of the Exchange Act and
the rules and regulations thereunder, including without limitation Rules l0b-6
and l0b-7, which provisions may limit the timing of the purchases and sales of
shares of the Company's securities by such Selling Securityholders.
The Selling Securityholders and broker-dealers, if any, acting in connection
with sales of the Selling Securityholders' Class A Warrants or the securities
underlying such Warrants may deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act, and any commission received by them and any
profit on the resale of such securities might be deemed to be underwriting
discounts and commissions under the Securities Act.
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DESCRIPTION OF SECURITIES
The following description of the capital stock of the Company and certain
provisions of the Company's Certificate of Incorporation and Bylaws is a summary
and is qualified in its entirety by the provisions of the Certificate of
Incorporation and Bylaws, which have been filed as exhibits to the Company's
Registration Statement of which this Prospectus is a part.
The authorized capital stock of the Company currently consists of 60,000,000
shares of Class A Common Stock, $.0001 par value (giving effect to the amendment
to the Company's Certificate of Incorporation in November 1996), 10,000,000
shares of Class B Common Stock, $.0001 par value, 4,000,000 shares of Class E-1
Common Stock, $.0001 par value, 4,000,000 shares of Class E-2 Common Stock,
$.0001 par value, and 5,000,000 shares of Preferred Stock, $.0001 par value. As
of the date of this Prospectus, there were outstanding 2,000,000 shares of Class
B Common Stock (held of record by four stockholders), 4,000,000 shares of Class
E-1 Common Stock (held of record by four stockholders), 4,000,000 shares of
Class E-2 Common Stock (held of record by four stockholders), no shares of Class
A Common Stock and no shares of Preferred Stock.
UNITS
Each Unit offered hereby consists of one share of Class A Common Stock, one
Class A Warrant and one Class B Warrant. At any time commencing on the date of
issuance until the fifth anniversary date of this Prospectus, each Class A
Warrant will be exercisable to purchase one share of Class A Common Stock and
one Class B Warrant and each Class B Warrant will be exercisable to purchase one
share of Class A Common Stock. The Common Stock and Warrants included in the
Units are immediately transferable separately upon issuance.
COMMON STOCK
The Class A Common Stock, Class B Common Stock, Class E-1 Common Stock and
Class E-2 Common Stock are substantially identical, except that the holders of
Class A Common Stock have the right to cast one vote, and the holders of Class B
Common Stock, Class E-1 Common Stock, and Class E-2 Common Stock have the right
to cast five votes, for each share held of record on all matters submitted to a
vote of the holders of Common Stock, including the election of directors. The
Class A Common Stock, Class B Common Stock, Class E-1 Common Stock and Class E-2
Common Stock vote together as a single class on all matters on which
stockholders may vote, including the election of directors, except when voting
by class is required by applicable law. Holders of the Class A Common Stock,
Class B Common Stock, Class E-1 Common Stock and Class E-2 Common Stock have
equal ratable rights to dividends from funds legally available therefor, when,
as and if declared by the Board of Directors and are entitled to share ratably,
as a single class, in all of the assets of the Company available for
distribution to the holders of shares of Common Stock upon the liquidation,
dissolution or winding up of the affairs of the Company. Except as described
herein, no pre-emptive, subscription, or conversion rights pertain to the Common
Stock and no redemption or sinking fund provisions exist for the benefit
thereof. All outstanding shares of Common Stock are, and those shares of Class A
Common Stock offered hereby will be duly authorized, validly issued, fully paid
and nonassessable.
As a consequence of their ownership of Common Stock and the enhanced voting
power of the Class B Common Stock, Class E-1 Common Stock, and Class E-2 Common
Stock, the current stockholders of the Company will continue to control a
majority of the voting power of the Company following completion of the Offering
and, accordingly, will be able to elect all of the Company's directors. This
difference in voting rights and consequent increase in the voting power of the
Class E-1 Common Stock, Class E-2 Common Stock and Class B Common Stock has an
anti-takeover effect, in that the existence of the Class E-1 Common Stock, Class
E-2 Common Stock and Class B Common Stock may make the Company a less attractive
target for a hostile takeover bid or render more difficult or discourage a
merger proposal, an
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<PAGE>
unfriendly tender offer, a proxy contest, or the removal of incumbent
management, even if such transactions were favored by the stockholders of the
Company other than the holders of Class E-1 Common Stock, Class E-2 Common Stock
and Class B Common Stock. Thus, the stockholders of the Company may be deprived
of an opportunity to sell their shares at a premium over prevailing market
prices in the event of a hostile takeover bid. Those seeking to acquire the
Company through a business combination will be compelled to consult first with
the holders of the Class E-1 Common Stock, Class E-2 Common Stock and Class B
Common Stock in order to negotiate the terms of such a business combination.
Additionally, any such proposed business combination would have to be approved
by the Board of Directors, which may be under the control of the holders of the
Class E-1 Common Stock, Class E-2 Common Stock and Class B Common Stock; and, if
stockholder approval were required, the approval of the holders of the Class E-1
Common Stock, Class E-2 Common Stock and Class B Common Stock would be necessary
before any such business combination could be consummated.
PERFORMANCE SHARES
The Company's Certificate of Incorporation provides that the Class E-1 and
the Class E-2 Common Stock is redeemable by the Company at a price of $.01 per
share unless the Company meets certain income or share price thresholds. If the
thresholds are met, the Performance Shares will be automatically converted into
shares of Class B Common Stock. The Performance Shares are not assignable or
transferable other than upon death, by operation of law, or to related parties
who agree to be bound by the restrictions on the Performance Shares set forth in
the Company's Certificate of Incorporation.
(a) The 4,000,000 shares of outstanding Class E-1 Common Stock will be
automatically converted into Class B Common Stock if, and only if, one or more
of the following conditions are met:
(i) the Company's net income before provision for income taxes and
exclusive of any extraordinary earnings as audited and determined by the
Company's independent public accountants (the "Minimum Pretax Income")
amounts to at least $17.5 million for the fiscal year ending December 31,
1998;
(ii) the Minimum Pretax Income amounts to at least $22.5 million for the
fiscal year ending December 31, 1999;
(iii) the Minimum Pretax Income amounts to at least $28.5 million for the
fiscal year ending December 31, 2000;
(iv) the Minimum Pretax Income amounts to at least $36.0 million for the
fiscal year ending on December 31, 2001;
(v) the Minimum Pretax Income amounts to at least $45.0 million for the
fiscal year ending on December 31, 2002;
(vi) the Minimum Pretax Income amounts to at least $56.0 million for the
fiscal year ending on December 31, 2003;
(vii) commencing on the date of this Prospectus and ending 18 months
after the date of this Prospectus, the Bid Price (as defined herein) of the
Company's Class A Common Stock averages in excess of $14.00 per share
(subject to adjustment in the event of any reverse stock splits or other
similar events) for 30 consecutive business days; or
(viii) commencing 18 months after the date of this Prospectus and ending
36 months after the date of this Prospectus, the Bid Price (as defined
herein) of the Company's Class A Common Stock averages in excess of $18.50
per share (subject to adjustment in the event of any reverse stock splits or
other similar events) for 30 consecutive business days.
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(b) The 4,000,000 shares of outstanding Class E-2 Common Stock will be
converted into Class B Common Stock if, and only if, at least one of the
following conditions is met.
(i) the Minimum Pretax Income amounts to at least $21.875 million for
the fiscal year ending on December 31, 1998;
(ii) the Minimum Pretax Income amounts to at least $28.125 million for
the fiscal year ending on December 31, 1999;
(iii) the Minimum Pretax Income amounts to at least $35.625 million for
the fiscal year ending on December 31, 2000;
(iv) the Minimum Pretax Income amounts to at least $45.0 million for the
fiscal year ending on December 31, 2001
(v) the Minimum Pretax Income amounts to at least $56.25 million for the
fiscal year ending on December 31, 2002;
(vi) the Minimum Pretax Income amounts to at least $69.5 million for the
fiscal year ending on December 31, 2003;
(vii) commencing on the date of this Prospectus and ending 18 months
after the date of this Prospectus, the Bid Price (as defined herein) of the
Company's Class A Common Stock averages in excess of $18.00 per share
(subject to adjustment in the event of any reverse stock splits or other
similar events) for 30 consecutive business days; or
(viii) commencing 18 months after the date of this Prospectus and ending
36 months after the date of this Prospectus, the Bid Price (as defined
herein) of the Company's Class A Common Stock averages in excess of $23.00
per share (subject to adjustment in the event of any reverse stock splits or
other similar events) for 30 consecutive business days.
The Minimum Pretax Income amounts set forth above (i) shall be calculated
exclusive of any extraordinary earnings or charge, including, but not limited
to, any charge to income resulting from conversion of the Performance Shares and
(ii) shall be increased proportionately, with certain limitations, in the event
additional shares of Common Stock or securities convertible into, exchangeable
for or exercisable into Common Stock are issued after completion of the
Offering. The bid price amounts set forth above are subject to adjustment in the
event of any stock splits, reverse stock splits or other similar events.
If none of the applicable Minimum Pretax Income or bid price levels set
forth above have been met by March 31, 2004, the Performance Shares will be
redeemable by the Company at a price of $.01 per share. The Company expects that
the conversion of Performance Shares owned by officers, directors, employees and
consultants of the Company will be deemed compensatory and, accordingly, will
result in a substantial charge to reportable earnings equal to the fair market
value of such shares on the date of conversion. Such charge could substantially
increase the loss or reduce or eliminate the Company's net income for financial
reporting purposes for the period or periods during which such shares are, or
become probable of being, converted. Therefore, although the amount of
compensation expense recognized by the Company will not affect the Company's
cash flow, it may have a negative effect on the market price of the Company's
securities.
The restrictions on the Class E-1 Common Stock and Class E-2 Common Stock
were required by the Underwriter as a condition to this Offering. The Minimum
Pretax Income and bid price levels set forth above were determined by
negotiation between the Company and the Underwriter and should not be construed
to imply or predict any future earnings by the Company or any increase in the
market price of its securities.
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Bid Price shall mean the closing bid price of the Class A Common Stock as
quoted on the Nasdaq SmallCap Market or as reported by the National Quotation
Bureau, Inc. or the closing sales price of the Class A Common Stock if it is
listed on the Nasdaq National Market or a national stock exchange.
The "Minimum Pretax Income" amounts set forth above assume the conversion
into Class B Common Stock of all of the shares of Class E Common Stock and the
conversion into Class A Common Stock of any outstanding Class B Common Stock and
any other securities which are convertible into Class A or Class B Common Stock
solely upon surrender of such convertible securities without the payment of any
additional consideration, but shall be increased proportionally to reflect the
issuance of any other additional shares, including any shares that may be issued
upon the exercise of any warrants or options presently outstanding or hereafter
granted, provided, however, that, with respect to any shares of Class A Common
Stock issued upon exercise of warrants subject to a registration statement
covering shares of Class A Common Stock (the "Registration Statement") filed
with the Commission (provided such Registration Statement is filed on or before
September 30, 1996), so long as any portion of the net proceeds received by the
Company upon such exercise is not utilized by the Company, but such proceeds
(the "Invested Proceeds") are instead invested in short-term high interest
bearing securities or accounts or securities issued or guaranteed by the United
States government, then the adjustment to the Minimum Pretax Income amounts set
forth above with respect to that number of warrants which generated such
Invested Proceeds shall be equal to 8% per annum multiplied by such amount of
Invested Proceeds. The Minimum Pretax Income shall be calculated exclusive of
any extraordinary earnings or extraordinary charges including, but not limited
to, any charge to income resulting from the conversion of shares of Class E
Common Stock.
CLASS B COMMON STOCK
Each share of Class B Common Stock is convertible at any time commencing
thirteen months following the date of this Prospectus at the option of the
holder into one share of Class A Common Stock. Shares of Class B Common Stock
will also automatically convert into an equivalent number of fully paid and
non-assessable shares of Class A Common Stock after such period upon the sale or
transfer of such shares of Class B Common Stock (other than a transfer to
another holder of Class B Common Stock) by the original record holder thereof or
upon the death of the holder thereof unless and to the extent that such shares
are acquired by another holder of Class B Common Stock.
REDEEMABLE WARRANTS
The following is a brief summary of the material provisions of the Warrants,
but such summary does not purport to be complete and is qualified in all
respects by reference to the actual text of the Warrant Agreement between the
Company, the Underwriter, and American Stock Transfer and Trust Company (the
"Transfer and Warrant Agent"). A copy of the Warrant Agreement has been filed as
an exhibit to the Registration Statement of which this Prospectus is a part.
CLASS A WARRANTS
The holder of each Class A Warrant is entitled, upon payment of the exercise
price of $6.50, to purchase one share of Class A Common Stock and one Class B
Warrant. Unless previously redeemed, the Class A Warrants are exercisable at any
time after their issuance until the fifth anniversary of the date of this
Prospectus, provided that at such time a current prospectus relating to the
Class A Common Stock and the Class B Warrants underlying the Class A Warrants is
in effect and the underlying Class A Common Stock and the Class B Warrants are
qualified for sale or exempt from qualification under applicable state
securities laws. The Class A Warrants included in the Units offered hereby are
immediately transferable separately from the Class A Common Stock and the Class
B Warrants issued with such Class A Warrants as part of the Units. The Class A
Warrants are subject to redemption, as described below.
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CLASS B WARRANTS
The holder of each Class B Warrant is entitled, upon payment of the exercise
price of $8.75, to purchase one share of Class A Common Stock. Unless previously
redeemed, the Class B Warrants are exercisable at any time after their issuance
until the fifth anniversary of the date of this Prospectus, provided that at
such time a current prospectus relating to the underlying Class A Common Stock
is then in effect and the Class A Common Stock underlying the Warrants is
qualified for sale or exempt from qualification under applicable state
securities laws. The Class B Warrants included in the Units offered hereby are
transferable separately from the Class A Common Stock and Class A Warrants
issued with such Class B Warrants as part of the Units, and the Class B Warrants
underlying the Class A Warrants will be transferable separately from the Class A
Common Stock received upon exercise of the Class A Warrants. The Class B
Warrants are subject to redemption, as described below.
REDEMPTION
Commencing one year from the date of this Prospectus, the Class A Warrants
are subject to redemption by the Company, upon 30 days written notice, at a
price of $.05 per Warrant, if the average closing bid price of the Class A
Common Stock for any 30 consecutive trading days ending within 15 days of the
date on which the notice of redemption is given shall have exceeded $12.00 per
share. The Class B Warrants are subject to redemption by the Company commencing
one year from the date of this Prospectus, upon 30 days written notice, at a
price of $.05 per Warrant, if the average closing bid price of the Class A
Common Stock for any 30 consecutive trading days ending within 15 days of the
date on which the notice of redemption is given shall have exceeded $15.00 per
share. Holders of Warrants will automatically forfeit their rights to purchase
the shares of Class A Common Stock and/or Class B Warrants issuable upon
exercise of such Warrants unless the Warrants are exercised before the close of
business on the business day immediately prior to the date set for redemption.
All of the outstanding Warrants of a class, except for those underlying the Unit
Purchase Option, must be redeemed if any of that class are redeemed. A notice of
redemption shall be mailed to each of the registered holders of the Warrants by
first class mail, postage prepaid, upon 30 days' notice before the date fixed
for redemption. The notice of redemption shall specify the redemption price, the
date fixed for redemption, the place where the Warrant certificates shall be
delivered and the redemption price to be paid, and that the right to exercise
the Warrants shall terminate at 5:00 p.m. (New York City time) on the business
day immediately preceding the date fixed for redemption.
GENERAL
The Warrants may be exercised upon surrender of the certificate or
certificates therefor on or prior to the expiration or the redemption date (as
explained above) at the offices of the Company's warrant agent (the "Warrant
Agent") with the subscription form on the reverse side of the certificate or
certificates completed and executed as indicated, accompanied by payment (in the
form of a certified or cashier's check payable to the order of the Company) of
the full exercise price for the number of Warrants being exercised.
The Warrants contain provisions that protect the holders thereof against
dilution by adjustment of the exercise price per share and the number of shares
issuable upon exercise thereof upon the occurrence of certain events, including
issuances of Class A Common Stock (or securities convertible, exchangeable or
exercisable into Class A Common Stock) at less than market value, stock
dividends, stock splits, mergers, sale of substantially all of the Company's
assets, and for other extraordinary events; provided, however, that no such
adjustment shall be made upon, among other things, (i) the issuance or exercise
of options or other securities under the Company's Stock Option Plan or other
employee benefit plans or (ii) the sale or exercise of outstanding options or
warrants or the Warrants offered hereby.
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The Company is not required to issue fractional shares of Class A Common
Stock and in lieu thereof will make a cash payment based upon the current market
value of such fractional shares. The holder of the Warrants will not possess any
rights as a stockholder of the Company unless and until he or she exercises the
Warrants.
PREFERRED STOCK
The Preferred Stock may be issued in series, and shares of each series will
have such rights, preferences, and privileges as are fixed by the Board of
Directors in the resolutions authorizing the issuance of that particular series.
In designating any series of Preferred Stock, the Board of Directors may,
without further action by the holders of Common Stock, fix the number of shares
constituting the series and fix the dividend rights, dividend rate, conversion
rights, voting rights (which may be greater or lesser than the voting rights of
the Common Stock), rights and terms of redemption (including any sinking fund
provisions), and the liquidation preferences of the series of Preferred Stock.
The holders of any series of Preferred Stock, when and if issued, are expected
to have priority claims to dividends and to any distributions upon liquidation
of the Company, and they may have other preferences over the holders of the
Common Stock.
The Board of Directors may issue series of Preferred Stock without action by
the holders of the Common Stock. Accordingly, the issuance of Preferred Stock
may adversely affect the rights of the holders of the Common Stock. In addition,
the issuance of Preferred Stock may be used as an "anti-takeover" device without
further action on the part of the holders of the Common Stock. The issuance of
Preferred Stock may also dilute the voting power of the holders of Common Stock,
in that a series of Preferred Stock may be granted enhanced per share voting
rights and the right to vote on certain matters separately as a class, and may
render more difficult the removal of current management, even if such removal
may be in the stockholders' best interest. The Company has no current plans to
issue any Preferred Stock.
UNIT PURCHASE OPTION
Upon the closing of the Offering, the Company has agreed to grant to the
Underwriter the Unit Purchase Option to purchase up to 600,000 Units. The Units
issuable upon exercise of the Unit Purchase Option will, when so issued, be
identical to the Units offered hereby. The Unit Purchase Option cannot be
transferred, sold, assigned or hypothecated for three years, except to any
officer of the Underwriter or members of the selling group or their officers.
The Unit Purchase Option is exercisable during the two-year period commencing
three years from the date of this Prospectus at an exercise price of $6.50 per
Unit (130% of the initial public offering price) subject to adjustment under
certain circumstances. The holders of the Unit Purchase Option have certain
demand and piggyback registration rights. See "Underwriting."
REGISTRATION RIGHTS
The Company has granted certain demand and piggyback registration rights to
the holder of the Unit Purchase Option relating to their options and the
underlying securities. See "Underwriting."
TRANSFER AGENT AND WARRANT AGENT
American Stock Transfer & Trust Company, New York, New York, will serve as
Transfer Agent for the shares of Common Stock and Warrant Agent for the
Warrants.
CERTAIN STATUTORY AND CHARTER PROVISIONS UNDER THE DELAWARE GENERAL CORPORATION
LAW
Section 203 of the Delaware General Corporation Law provides, in general,
that a stockholder acquiring more than 15% of the outstanding voting shares of a
publicly-held Delaware corporation subject to the statute (an "Interested
Stockholder") may not engage in certain "Business Combinations" with the
corporation for a period of three years subsequent to the date on which the
stockholder became an
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Interested Stockholder unless (i) prior to such date the corporation's board of
directors approved either the Business Combination or the transaction in which
the stockholder became an Interested Stockholder or (ii) upon consummation of
the Business Combination, the Interested Stockholder owns 85% or more of the
outstanding voting stock of the corporation (excluding shares owned by directors
who are also officers of the corporation or shares held by employee stock option
plans that do not provide employees with the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer), or (iii) the Business Combination is approved by the corporation's board
of directors and authorized at an annual or special meeting of stockholders, and
not by written consent, by the affirmative vote of at least two-thirds of the
outstanding voting stock of the corporation not owned by the Interested
Stockholder.
Section 203 defines the term "Business Combination" to encompass a wide
variety of transactions with or caused by an Interested Stockholder in which the
Interested Stockholder receives or could receive a benefit on other than a pro
rata basis with other stockholders, including mergers, certain asset sales,
certain issuances of additional shares to the Interested Stockholder or
transactions in which the Interested Stockholder receives certain other
benefits.
These provisions could have the effect of delaying, deferring or preventing
a change of control of the Company. The Company's stockholders, by adopting an
amendment to the Certificate of Incorporation or Bylaws of the Company, may
elect not to be governed by Section 203, effective twelve months after adoption.
Neither the Certificate of Incorporation nor the Bylaws of the Company currently
excludes the Company from the restrictions imposed by Section 203.
The Delaware General Corporation Law permits a corporation through its
Certificate of Incorporation to eliminate the personal liability of its
directors to the Corporation or its stockholders for monetary damages for breach
of fiduciary duty of loyalty and care as a director with certain exceptions. The
exceptions include a breach of the director's duty of loyalty, acts or omissions
not in good faith or which involve intentional misconduct or knowing violation
of law, and improper personal benefit. The Company's Certificate of
Incorporation exonerates its directors from monetary liability to the fullest
extent permitted by this statutory provision.
58
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding 6,000,000
shares of Class A Common Stock (6,900,000 shares of Class A Common Stock if the
Underwriter's over-allotment option is exercised in full) 2,000,000 shares of
Class B Common Stock, 4,000,000 shares of Class E-1 Common Stock and 4,000,000
shares of Class E-2 Common Stock. All of the shares of Class A Common Stock
offered hereby will be freely tradeable without restriction or further
registration under the Securities Act, except for any shares purchased by any
person who is or thereby becomes an "affiliate" of the Company, which shares
will be subject to the resale limitations contained in Rule 144 promulgated
under the Securities Act, as described below.
All of the 10,000,000 shares of Class B Common Stock, Class E-1 Common
Stock, and Class E-2 Common Stock currently outstanding (and the shares of Class
A Common Stock or Class B Common Stock, as the case may be, into which they are
convertible) are "restricted securities" within the meaning of Rule 144 under
the Securities Act and, in general, may not be sold unless they are registered
under the Securities Act or sold pursuant to Rule 144 or another exemption from
registration. Pursuant to Rule 144, virtually all of these restricted shares
would be eligible for resale commencing 90 days following the date of this
Prospectus. However, 2,000,000 of the 10,000,000 outstanding shares are Class B
Common Stock and thus may not be sold until thirteen months after the date of
this Prospectus. In addition, the remaining 8,000,000 of the outstanding shares
are Class E Common Stock, which shares are not currently tradeable and are
subject to redemption by the Company for a nominal consideration if the Company
does not meet certain income or stock price levels, and are convertible into
Class B Common Stock if the Company does meet such levels. See "Description of
Securities."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including a person who may be deemed to be an
"affiliate" of the Company as that term is defined under the Securities Act, is
entitled to sell, within any three month period, the number of shares
beneficially owned for at least two years that does not exceed the greater of
(i) one percent of the number of the then outstanding shares of Class A Common
Stock, or (ii) the average weekly trading volume of the Class A Common Stock
during the four calendar weeks preceding such sale. Sales under Rule 144 are
also subject to certain requirements as to manner of sale, notice and the
availability of current public information about the Company. Furthermore, a
person who is not deemed to have been an affiliate of the Company during the
ninety days preceding a sale by such person and who has beneficially owned such
shares for at least three years is entitled to sell such shares without regard
to the volume, manner of sale and notice requirements.
In addition, Rule 701 under the Securities Act provides an exemption from
the registration requirements of the Act for offers and sales of securities
issued pursuant to certain compensatory benefit plans or written contracts of a
company not subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act. Securities issued pursuant to Rule 701 are defined as restricted
securities for purposes of Rule 144. However, 90 days after the issuer becomes
subject to the reporting provisions of the Exchange Act, the Rule 144 resale
restrictions, except for the broker's transaction requirements, are inapplicable
for nonaffiliates. Affiliates are subject to all Rule 144 restrictions after
this 90-day period, but without the Rule 144 holding period requirement.
Holders of the Class A Warrants included in the Units offered hereby
(assuming no exercise of the Underwriter's over-allotment option) will be
entitled to purchase an aggregate of 6,000,000 shares of Class A Common Stock
upon exercise of the Class A Warrants and holders of the Class B Warrants
offered hereby and underlying the Class A Warrants offered hereby will be
entitled to purchase an aggregate of 12,000,000 additional shares of Class A
Common Stock upon exercise of the Class B Warrants, in each case at any time
during the five-year period following the date of this Prospectus, provided that
the Company satisfies certain securities registration requirements with respect
to the securities underlying the Warrants.
59
<PAGE>
Up to 2,400,000 additional shares of Class A Common Stock may be purchased
by the Underwriter through the exercise of the Unit Purchase Option and the
Class A Warrants and Class B Warrants contained in and underlying the Unit
Purchase Option. Any and all of such shares of Class A Common Stock will be
tradeable without restriction, provided that the Company satisfies certain
securities registration requirements in accordance with the terms of the Unit
Purchase Option. The Underwriter also has demand and "piggyback" registration
rights with respect to the securities underlying the Unit Purchase Option. See
"Underwriting."
The Company has also registered on behalf of the Selling Securityholders an
aggregate of 3,500,000 Selling Securityholders' Class A Warrants and the
securities underlying such Class A Warrants. The Selling Securityholders have
agreed not to sell their Selling Securityholder Class A Warrants or the
securities issuable on exercise thereof except pursuant to the restrictions set
forth below:
<TABLE>
<CAPTION>
PERCENTAGE
ELIGIBLE
LOCK-UP PERIOD FOR RESALE
- -------------------------------------------------------------------- -----------------
<S> <C>
Up to 90 days after closing......................................... 0%
Between 91 and 150 days after closing............................... 25%
Between 151 and 210 days after closing.............................. 50%
Between 211 and 270 days after closing.............................. 75%
After 270 days after closing........................................ 100%
</TABLE>
The Selling Securityholders have also agreed with the Company not to
exercise the Selling Securityholders' Class A Warrants for a period of one year
following the closing of the Offering; provided, however, that purchasers of
such Selling Securityholders' Class A Warrants are not subject to this
restriction on exercise.
The Company has adopted a Stock Option Plan and reserved 500,000 shares of
Class A Common Stock for issuance under the Plan. As of the date of this
Prospectus, the Company has granted options under the Plan to purchase 110,000
shares of Class A Common Stock. Such options vest in equal annual installments
over five years. See "Management--Stock Option Plan."
Prior to the Offering, no public market for the Company's securities has
existed. Following the Offering, no predictions can be made of the effect, if
any, of future public sales of restricted shares or the availability of
restricted shares for sale in the public market. Moreover, the Company cannot
predict the number of shares of Class A Common Stock that may be sold in the
future pursuant to Rule 144 or Rule 701 because such sales will depend on, among
other factors, the market price of the Class A Common Stock and the individual
circumstances of the holders thereof. The availability for sale of substantial
amounts of Class A Common Stock acquired through the exercise of the Class A
Warrants and Class B Warrants, under Rule 144 or Rule 701, other options or the
Unit Purchase Option could adversely affect prevailing market prices for the
Company's securities.
60
<PAGE>
UNDERWRITING
D.H. Blair Investment Banking Corp., the Underwriter, has agreed, subject to
the terms and conditions of the Underwriting Agreement, to purchase the
6,000,000 Units offered hereby from the Company on a "firm commitment" basis, if
any are purchased. It is expected that Blair & Co. will distribute as a selling
group member substantially all of the Units offered hereby. Blair & Co. is owned
by a corporation that is substantially owned by family members of J. Morton
Davis. Mr. Davis is the sole stockholder of the Underwriter.
The Underwriter has advised the Company that it proposes to offer the Units
to the public at the public offering price set forth on the cover page of this
Prospectus. The Underwriter may allow to selected dealers who are members of the
National Association of Securities Dealers, Inc. (the "NASD") concessions not in
excess of $. per Unit, of which not in excess of $. per Unit may be
reallowed to other dealers who are members of the NASD. After commencement of
the offering, the public offering price, concession and the reallowance may be
changed by the Underwriter.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act. The Company has
also agreed to pay to the Underwriter a nonaccountable expense allowance of 3%
of the gross proceeds derived from the sale of the Units offered hereby,
including any Units purchased pursuant to the Underwriter's over-allotment
option, $40,000 of which has been paid as of the date of this Prospectus.
The Underwriter has informed the Company that it does not expect sales to
any discretionary accounts to exceed 5% of the Offering.
The Company has granted to the Underwriter an option, exercisable during the
30-day period commencing on the date of this Prospectus, to purchase from the
Company at the public offering price, less underwriting discounts and
commissions, up to 900,000 additional Units for the purpose of covering
over-allotments, if any.
The Company has agreed to sell to the Underwriter and its designees, for
nominal consideration, the Unit Purchase Option to purchase up to 600,000 Units
substantially identical to the Units being offered hereby, except that the
Warrants included therein are subject to redemption by the Company at any time
after the Unit Purchase Option has been exercised and the underlying Warrants
are outstanding. The Unit Purchase Option will be exercisable during the
two-year period commencing three years from the date of this Prospectus at an
exercise price of $6.50 per Unit, subject to adjustment in certain events to
protect against dilution, and is not transferable for a period of three years
from the date of this Prospectus except to officers of the Underwriter or to
members of the Underwriter's selling group. The Company has agreed to register
the securities issuable upon exercise thereof under the Securities Act on two
separate occasions (the first at the Company's expense and the second at the
expense of the holders of the Unit Purchase Option) during the five-year period
commencing one year from the date of this Prospectus. The Unit Purchase Option
includes a provision permitting the holder to elect a cashless exercise of the
Option. The Company has also granted certain piggyback rights to holders of the
Unit Purchase Option.
The Underwriter has the right to designate one director for nomination to
the Company's Board of Directors for a period of five years from the completion
of the Offering. Such designee may be a director, officer, partner, employee or
affiliate of the Underwriter.
During the five-year period from the closing of the Offering, in the event
the Underwriter originates any transaction, including mergers, acquisitions and
joint ventures, to which the Company is a party, the Underwriter will be
entitled to receive a finder's fee in consideration for origination of such
transaction. The fee is based on a percentage of the consideration paid in the
transaction, ranging from 7% of the first $1,000,000 to 2.5% of any
consideration in excess of $9,000,000.
61
<PAGE>
The Underwriter acted as placement agent in connection with the Bridge
Financing in August 1996 and, in connection therewith, received a placement
agent fee of $560,000 and a non-accountable expense allowance of $210,000.
The Company has agreed not to solicit Warrant exercises other than through
the Underwriter, unless the Underwriter declines to make such solicitation. Upon
any exercise of the Class A or Class B Warrants after one year from the date of
this Prospectus, the Company will pay the Underwriter a fee of 5% of the
aggregate exercise price for Warrant exercises solicited in writing by the
Underwriter or its representatives or agents, if (i) the market price of the
Company's Class A Common Stock on the date the Warrant is exercised is greater
than the then exercise price of the Warrants; (ii) the exercise of the Warrant
was solicited in writing by a member of the NASD; (iii) the Warrant is not held
in a discretionary account; (iv) disclosure of compensation arrangements was
made both at the time of the offering and at the time of exercise of the
Warrants; and (v) the solicitation of exercise of the Warrant was not in
violation of Rule 10b-6 promulgated under the Exchange Act.
Rule 10b-6 may prohibit Blair & Co. from engaging in any market making
activities with regard to the Company's securities for the period from two to
nine business days (or such other applicable period as Rule l0b-6 may provide)
prior to any solicitation by the Underwriter of the exercise of Warrants until
the later of the termination of such solicitation activity or the termination
(by waiver or otherwise) of any right that the Underwriter may have to receive a
fee for the exercise of Warrants following such solicitation. As a result, Blair
& Co. may be unable to provide a market for the Company's securities during
certain periods while the Warrants are exercisable.
The Commission is conducting an investigation concerning various business
activities of the Underwriter and Blair & Co. The investigation appears to be
broad in scope, involving numerous aspects of the Underwriter's and Blair & Co's
compliance with the federal securities laws and compliance with the federal
securities laws by issuers whose securities were underwritten by the Underwriter
or Blair & Co., or in which the Underwriter or Blair & Co. made over-the-counter
markets, persons associated with the Underwriter or Blair & Co., such issuers
and other persons. The Company has been advised by the Underwriter that the
investigation has been ongoing since at least 1989 and that it is cooperating
with the investigation. The Underwriter cannot predict whether this
investigation will ever result in any type of formal enforcement action against
the Underwriter or Blair & Co. or, if so, whether any such action might have an
adverse effect on the Underwriter or the securities offered hereby. The Company
has been advised that Blair & Co. will make a market in the securities following
the Offering. An unfavorable resolution of the Commission's investigation could
have the effect of limiting such firm's ability to make a market in the
Company's securities, which could adversely affect the liquidity or price of
such securities.
Prior to the Offering, there has been no market for any of the securities
offered hereby. Accordingly, the initial public offering price of the Units and
the exercise prices and other terms of the Warrants have been determined by
negotiations between the Company and the Underwriter and are not necessarily
related to the Company's assets, net worth or other established criteria of
value. Factors considered in determining such prices and terms, in addition to
prevailing market conditions, include the history of, and prospects for, the
industry in which the Company competes, the Company's management, the Company's
financial condition, the Company's capital structure and such other factors as
were deemed relevant.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Luce, Forward, Hamilton & Scripps LLP, San Diego, California. The
statements herein relating to federal aviation regulatory matters will be passed
upon by Boros & Garofalo, P.C., Washington, D.C. Certain legal matters will be
passed upon for the Underwriter by Bachner, Tally, Polevoy & Misher LLP, New
York, New York.
62
<PAGE>
EXPERTS
The financial statements of Advanced Aerodynamics & Structures, Inc. at
December 31, 1995 and for the years ended December 31, 1995 and 1994 and the
period from January 26, 1990 (inception) to December 31, 1995 included in this
Prospectus have been so included in the reliance on the report (which contains
an explanatory paragraph relating to the Company's ability to continue as a
going concern as disclosed in Note 1 to the financial statements) of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Washington D.C. office of the Securities and
Exchange Commission a Registration Statement on Form SB-2 under the Securities
Act, with respect to the Units offered by this Prospectus. This Prospectus,
which is part of the Registration Statement, omits certain information contained
in the Registration Statement and the exhibits thereto, as permitted by the
Rules and Regulations of the Commission. For further information, reference is
made to the Registration Statement and to the exhibits filed therewith, which
may be examined without charge at the Washington, D.C. office of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices
of the Commission located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and at 500 Madison (Suite 1400), Chicago, Illinois 60661. Copies of
all or any part thereof may be obtained from the Public Reference Section of the
Commission upon payment of the fees prescribed by the Commission. The Company is
an electronic filer, and the Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding the
Company at www.sec.gov/edgarhp.htm. Statements contained in this Prospectus as
to the contents of any contract or other document referred to are materially
complete, but in each instance such statement is qualified by reference to each
such contract or document.
63
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Report of Independent Accountants....................................... F-1
Balance Sheet........................................................... F-2
Statement of Operations................................................. F-3
Statement of Stockholders' Deficit...................................... F-4
Statement of Cash Flows................................................. F-5
Notes to Financial Statements........................................... F-6
</TABLE>
64
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Advanced Aerodynamics
& Structures, Inc.
(A Development Stage Enterprise)
In our opinion, the accompanying balance sheet and the related statements of
operations, of stockholders' deficit, and of cash flows present fairly, in all
material respects, the financial position of Advanced Aerodynamics & Structures,
Inc. (a Development Stage Enterprise) at December 31, 1995, and the results of
its operations and its cash flows for the years ended December 31, 1994 and 1995
and for the period from January 26, 1990 (inception) to December 31, 1995, in
conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses during the
development stage and has a working capital deficit and a stockholders' deficit
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
PRICE WATERHOUSE LLP
Los Angeles, California
September 4, 1996
F-1
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER
DECEMBER 31, 30,
1995 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ -- $ 1,499,000
Marketable securities.................................................. -- 1,360,000
Certificate of deposit................................................. 10,000 11,000
Receivable from officer................................................ -- 115,000
Deferred debt issuance costs........................................... -- 739,000
Deferred offering costs................................................ -- 586,000
Prepaid expenses and other current assets.............................. 150,000 150,000
------------ ------------
Total current assets............................................... 160,000 4,460,000
Property and equipment, net (Note 3)..................................... 2,007,000 1,762,000
------------ ------------
Total assets....................................................... $ 2,167,000 $ 6,222,000
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Bridge Notes, net of discount (Note 8)................................. $ -- $ 6,566,000
Obligations under capital leases....................................... 19,000 4,000
Note payable to bank (Note 5).......................................... 900,000 --
Accounts payable....................................................... 252,000 373,000
Accrued liabilities.................................................... 1,478,000 172,000
Loan from SIDA Corporation (Note 5).................................... 110,000 --
Loan from officer (Note 5)............................................. 160,000 --
Other short-term loans (Note 5)........................................ 565,000 --
Interest payable....................................................... 235,000 58,000
Advances from stockholder (Note 5)..................................... 10,728,000 --
------------ ------------
Total current liabilities.......................................... 14,447,000 7,173,000
------------ ------------
Commitments and contingencies (Note 6)
Stockholders' deficit (Notes 1 and 7):
Preferred stock, par value $.0001 per share; 5,000,000 shares
authorized, no shares issued and outstanding......................... -- --
Class A Common Stock, par value $.0001 per share; 45,000,000 shares
authorized; no shares issued and outstanding......................... -- --
Class B Common Stock, par value $.0001 per share; 10,000,000 shares
authorized; 619,588 and 2,000,000 shares issued and outstanding at
December 31, 1995 and September 30, 1996, respectively............... -- --
Class E-1 Common Stock, par value $.0001 per share; 4,000,000 shares
authorized; 1,239,177 and 4,000,000 shares issued and outstanding at
December 31, 1995 and September 30, 1996, respectively............... -- --
Class E-2 Common Stock, par value $.0001 per share; 4,000,000 shares
authorized; 1,239,177 and 4,000,000 shares issued and outstanding at
December 31, 1995 and September 30, 1996, respectively............... -- --
Warrants to purchase common stock (Note 8)............................. -- 473,000
Additional paid-in capital (Note 5).................................... 8,660,000 21,242,000
Deficit accumulated during the development stage....................... (20,940,000) (22,666,000)
------------ ------------
Total stockholders' deficit...................................... (12,280,000) (951,000)
------------ ------------
Total liabilities and stockholders' deficit...................... $ 2,167,000 $ 6,222,000
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
YEAR ENDED JANUARY 26, 1990 NINE MONTHS ENDED JANUARY 26, 1990
DECEMBER 31, (INCEPTION) TO SEPTEMBER 30, (INCEPTION) TO
------------------------ DECEMBER 31, ---------------------------- SEPTEMBER 30,
1994 1995 1995 1995 1996 1996
----------- ----------- ---------------- ------------ ------------- ----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Other income....................... $ 71,000 $ 27,000 $ 687,000 $ 27,000 $ 7,000 $ 694,000
Interest income.................... 2,000 60,000 4,000 64,000
----------- ----------- ---------------- ------------ ------------- ----------------
73,000 27,000 747,000 27,000 11,000 758,000
----------- ----------- ---------------- ------------ ------------- ----------------
Costs and expenses:
Research and development costs... 1,088,000 13,636,000 13,636,000
Preoperating costs............... 282,000 282,000
General and administrative
expenses....................... 1,239,000 1,453,000 5,463,000 1,151,000 1,418,000 6,881,000
Loss on disposal of assets....... 357,000 357,000 357,000
Interest expense................. 156,000 262,000 1,188,000 146,000 319,000 1,507,000
In-process research and
development acquired........... 761,000 761,000
----------- ----------- ---------------- ------------ ------------- ----------------
2,840,000 1,715,000 21,687,000 1,297,000 1,737,000 23,424,000
----------- ----------- ---------------- ------------ ------------- ----------------
Net loss........................... $(2,767,000) $(1,688,000) $(20,940,000) $(1,270,000) $ (1,726,000) $(22,666,000)
----------- ----------- ---------------- ------------ ------------- ----------------
----------- ----------- ---------------- ------------ ------------- ----------------
Net loss per share................. $ (.81) $ (.50) $ (.37) $ (.51)
----------- ----------- ------------ -------------
----------- ----------- ------------ -------------
Weighted average number of shares
outstanding...................... 3,400,000 3,400,000 3,400,000 3,400,000
----------- ----------- ------------ -------------
----------- ----------- ------------ -------------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
PREFERRED STOCK
---------------------------
SHARES AMOUNT
------------ ------------
<S> <C> <C>
Common stock issued.........................................
Common stock issued in exchange for
in-process research and development.......................
Imputed interest on advances from stockholder (Note 5)......
Net loss from inception to December 31, 1993................
------------ ------------
Balance at December 31, 1993................................
Imputed interest on advances from stockholder (Note 5)......
Net loss....................................................
------------ ------------
Balance at December 31, 1994................................
Imputed interest on advances from stockholder (Note 5)......
Net loss....................................................
------------ ------------
Balance at December 31, 1995................................
Unaudited:
Conversion of stockholder advances (Note 5).................
Conversion of officer loan (Note 5).........................
Stock issued in consideration for services in 1994, 1995,
and 1996 (Note 6).........................................
Imputed interest on advances from stockholder (Note 5)......
Warrants issued in connection with issuance of Bridge Notes
(Note 8)..................................................
Net loss....................................................
------------ ------------
Balance at September 30, 1996 (unaudited)................... $
------------ ------------
------------ ------------
<CAPTION>
COMMON STOCK
---------------------------------------------------------
CLASS A CLASS B
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Common stock issued......................................... 418,094 $ --
Common stock issued in exchange for
in-process research and development....................... 201,494 --
Imputed interest on advances from stockholder (Note 5)......
Net loss from inception to December 31, 1993................
------------ ------------ ------------ ------------
Balance at December 31, 1993................................ 619,588 --
Imputed interest on advances from stockholder (Note 5)......
Net loss....................................................
------------ ------------ ------------ ------------
Balance at December 31, 1994................................ 619,588 --
Imputed interest on advances from stockholder (Note 5)......
Net loss....................................................
------------ ------------ ------------ ------------
Balance at December 31, 1995................................ 619,588 --
Unaudited:
Conversion of stockholder advances (Note 5)................. 598,011 --
Conversion of officer loan (Note 5)......................... 187,118 --
Stock issued in consideration for services in 1994, 1995,
and 1996 (Note 6)......................................... 595,283 --
Imputed interest on advances from stockholder (Note 5)......
Warrants issued in connection with issuance of Bridge Notes
(Note 8)..................................................
Net loss....................................................
------------ ------------ ------------ ------------
Balance at September 30, 1996 (unaudited)................... $ 2,000,000 $ --
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
<CAPTION>
COMMON STOCK
---------------------------------------------------------
CLASS E-1 CLASS E-2
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
Common stock issued......................................... 836,189 $ -- 836,189 $ --
Common stock issued in exchange for
in-process research and development....................... 402,988 -- 402,988 --
Imputed interest on advances from stockholder (Note 5)......
Net loss from inception to December 31, 1993................
------------ ------------ ------------ ------------
Balance at December 31, 1993................................ 1,239,177 -- 1,239,177 --
Imputed interest on advances from stockholder (Note 5)......
Net loss....................................................
------------ ------------ ------------ ------------
Balance at December 31, 1994................................ 1,239,177 -- 1,239,177 --
Imputed interest on advances from stockholder (Note 5)......
Net loss....................................................
------------ ------------ ------------ ------------
Balance at December 31, 1995................................ 1,239,177 -- 1,239,177 --
Unaudited:
Conversion of stockholder advances (Note 5)................. 1,196,021 -- 1,196,021 --
Conversion of officer loan (Note 5)......................... 374,236 -- 374,236 --
Stock issued in consideration for services in 1994, 1995,
and 1996 (Note 6)......................................... 1,190,566 -- 1,190,566 --
Imputed interest on advances from stockholder (Note 5)......
Warrants issued in connection with issuance of Bridge Notes
(Note 8)..................................................
Net loss....................................................
------------ ------------ ------------ ------------
Balance at September 30, 1996 (unaudited)................... 4,000,000 $ -- 4,000,000 $ --
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
<CAPTION>
DEFICIT
ACCUMULATED
WARRANTS TO ADDITIONAL DURING THE
PURCHASE PAID-IN DEVELOPMENT
COMMON STOCK CAPITAL STAGE TOTAL
------------ ------------ ------------ ------------
Common stock issued......................................... -- $ 7,500,000 $ 7,500,000
Common stock issued in exchange for
in-process research and development....................... -- 361,000 361,000
Imputed interest on advances from stockholder (Note 5)...... -- 765,000 765,000
Net loss from inception to December 31, 1993................ -- $(16,485,000) (16,485,000)
------------ ------------ ------------ ------------
Balance at December 31, 1993................................ -- 8,626,000 (16,485,000) (7,859,000)
Imputed interest on advances from stockholder (Note 5)...... -- 11,000 11,000
Net loss.................................................... -- (2,767,000) (2,767,000)
------------ ------------ ------------ ------------
Balance at December 31, 1994................................ -- 8,637,000 (19,252,000) (10,615,000)
Imputed interest on advances from stockholder (Note 5)...... -- 23,000 23,000
Net loss.................................................... -- (1,688,000) (1,688,000)
------------ ------------ ------------ ------------
Balance at December 31, 1995................................ -- 8,660,000 (20,940,000) (12,280,000)
Unaudited:
Conversion of stockholder advances (Note 5)................. -- 10,728,000 10,728,000
Conversion of officer loan (Note 5)......................... -- 336,000 336,000
Stock issued in consideration for services in 1994, 1995,
and 1996 (Note 6)......................................... -- 1,507,000 1,507,000
Imputed interest on advances from stockholder (Note 5)...... -- 11,000 11,000
Warrants issued in connection with issuance of Bridge Notes
(Note 8).................................................. 473,000 473,000
Net loss.................................................... -- (1,726,000) (1,726,000)
------------ ------------ ------------ ------------
Balance at September 30, 1996 (unaudited)................... $ 473,000 $ 21,242,000 $(22,666,000) $ (951,000)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-4
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
YEAR ENDED JANUARY 26, 1990 NINE MONTHS ENDED JANUARY 26, 1990
DECEMBER 31, INCEPTION TO SEPTEMBER 30, (INCEPTION) TO
------------------------ DECEMBER 31, ---------------------------- SEPTEMBER 30,
1994 1995 1995 1995 1996 1996
----------- ----------- ---------------- ------------- ------------ ----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss......................... $(2,767,000) $(1,688,000) $(20,940,000) $(1,269,000) $(1,726,000) $(22,666,000)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and
amortization................. 332,000 325,000 1,487,000 244,000 245,000 1,732,000
Noncash interest expense....... 105,000 105,000
Noncash stock compensation
expense...................... 250,000 367,000 617,000 267,000 590,000 1,207,000
Loss on disposal of assets..... 357,000 357,000 357,000
Cost of in-process research and
development acquired......... 761,000 761,000
Imputed interest on advances
from stockholder............. 11,000 23,000 799,000 17,000 11,000 810,000
Changes in assets and
liabilities:
Decrease (increase) in
prepaid expenses and other
current assets............. 22,000 (150,000) (11,000) -- (150,000)
Decrease in lease security
deposits................... 1,000
Increase (decrease) in
accounts payable........... 56,000 (86,000) 252,000 64,000 121,000 373,000
Increase (decrease) in
accrued liabilities........ 253,000 403,000 461,000 238,000 (389,000) 72,000
Increase in interest
payable.................... 86,000 150,000 235,000 85,000 (177,000) 58,000
Increase in receivable from
officer.................... (115,000) (115,000)
----------- ----------- ---------------- ------------- ------------ ----------------
Net cash used in operating
activities............... (1,399,000) (506,000) (16,121,000) (365,000) (1,335,000) (17,456,000)
----------- ----------- ---------------- ------------- ------------ ----------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures............. (7,000) (3,841,000) (3,841,000)
Proceeds from insurance claims
upon loss of aircraft.......... 30,000 30,000
Purchase of certificate of
deposit........................ (10,000) (1,000) (11,000)
Purchase of marketable
securities..................... (1,499,000) (1,499,000)
----------- ----------- ---------------- ------------- ------------ ----------------
Net cash used in investing
activities............... (7,000) (3,821,000) (1,500,000) (5,321,000)
----------- ----------- ---------------- ------------- ------------ ----------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Advances from stockholder........ 250,000 10,728,000 10,728,000
Proceeds from issuance of common
stock.......................... 7,500,000 7,500,000
Repayment of obligation under
capital leases................. (9,000) (4,000) (21,000) (10,000) (15,000) (36,000)
Proceeds from (repayment of) bank
note........................... 550,000 350,000 900,000 350,000 (900,000)
Proceeds from loan from
officer........................ 160,000 160,000 32,000 402,000 562,000
Repayment of loan from officer... (226,000) (226,000)
Proceeds from (repayment of) loan
from SIDA Corporation.......... 50,000 110,000 (110,000)
Proceeds from (repayment of)
other short-term loans......... 565,000 565,000 (565,000)
Proceeds from bridge financing,
net of issuance costs.......... 6,195,000 6,195,000
Increase in deferred offering
costs.......................... (586,000) (586,000)
----------- ----------- ---------------- ------------- ------------ ----------------
Net cash provided by
financing activities..... 1,406,000 506,000 19,942,000 372,000 4,195,000 24,137,000
----------- ----------- ---------------- ------------- ------------ ----------------
NET INCREASE IN CASH............... -- -- -- 7,000 1,360,000 1,360,000
CASH AT BEGINNING OF PERIOD........ -- -- -- -- -- --
----------- ----------- ---------------- ------------- ------------ ----------------
CASH AT END OF PERIOD.............. $ -- $ -- $ -- $ 7,000 $ 1,360,000 $ 1,360,000
----------- ----------- ---------------- ------------- ------------ ----------------
----------- ----------- ---------------- ------------- ------------ ----------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Stockholder advances converted to
common stock................... $10,728,000 $ 10,728,000
------------ ----------------
------------ ----------------
Loan from officer converted to
common stock................... $ 336,000 $ 336,000
------------ ----------------
------------ ----------------
Common stock issued for noncash
consideration and
compensation................... $ 361,000 $ 1,507,000 $ 1,868,000
------------ ----------------
------------ ----------------
Liabilities assumed from ASI..... 400,000 $ 400,000
----------------
----------------
----------------
In-process research and
development acquired......... $ 761,000
----------------
----------------
Equipment acquired under capital
leases......................... $ 24,000 $ 40,000 $ 40,000
----------- ---------------- ----------------
----------- ---------------- ----------------
Deposit surrendered as payment
for rents due.................. $ 80,000 $ 80,000 $ 80,000 $ 80,000
----------- ---------------- ------------- ----------------
----------- ---------------- ------------- ----------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY
Advanced Aerodynamics & Structures, Inc. (the "Company" or "AASI") was
incorporated in California on January 26, 1990. The Company is in the
development stage of designing a multi-purpose light aircraft. The present
design of the aircraft is based on a canard design using Pratt &
Whitney-designed engines; the Company's ability to manufacture aircraft to its
present design is dependent on its having access to such engines.
Upon formation of AASI, an aircraft prototype and related proprietary
technology were contributed by Aerodynamics and Structures, Inc. ("ASI") in
exchange for 2,500,764 AASI common shares with a fair value of $250,000. In
connection with this exchange, the Company also assumed ASI's liabilities of
approximately $400,000. Three other individuals contributed technical
information in exchange for 1,113,740 AASI common shares with a fair value of
$111,000. Such technology and prototype acquired were immediately expensed as
in-process research and development. Finally, certain investors contributed
$7,500,000 in cash in exchange for 7,500,000 shares of convertible preferred
stock of AASI. ASI was subsequently liquidated and its sole asset, investment in
AASI common shares, was distributed to ASI's stockholders. The Company's
aforementioned common and preferred shares were converted into approximately
619,588, 1,239,177 and 1,239,177 shares, respectively, upon reincorporation of
the Company into Class B, Class E-1 and Class E-2 Common Stock as part of the
July 1996 recapitalization described below.
In July 1996, the Company reincorporated by merging with a newly formed
corporation in Delaware (the "reincorporation"). In connection with the
reincorporation, the Company (i) increased the authorized capital of the Company
to 63,000,000 shares of $.0001 par value common stock, of which 45,000,000 are
designated Class A Common Stock, 10,000,000 are designated Class B Common Stock,
4,000,000 are designated Class E-1 Common Stock and 4,000,000 are designated
Class E-2 Common Stock (Note 7) and (ii) authorized 5,000,000 shares of $.0001
par value preferred stock. All issued and outstanding shares of common and
preferred stock at the time of the reincorporation were exchanged into
approximately .0557 shares of Class B common stock, approximately .1115 shares
of Class E-1 common stock and approximately .1115 shares of Class E-2 common
stock (the "recapitalization"). All share and per share data have been
retroactively restated to reflect the recapitalization.
BASIS OF PRESENTATION
The Company is a development stage enterprise and has incurred losses since
its inception, and has a working capital deficit of $14,287,000 and a
stockholders' deficit of $12,280,000 at December 31, 1995. The Company expects
to continue to incur losses for the foreseeable future due to the significant
costs anticipated to be incurred with the development, certification,
manufacture and marketing of its product. In August 1996, the Company completed
a private placement of bridge financing (Note 8). Success of future operations
is dependent upon, among other things, the Company's ability to obtain necessary
additional capital and appropriate government certification for the commercial
production of its aircraft. The Company intends to actively pursue the
contemplated initial public offering (Note 8) to develop, manufacture and market
its product to achieve commercial viability. In the event the proposed public
offering is not consummated, the Company intends to limit expenditures and seek
alternative sources of financing. The net proceeds of the offering, if
consummated, will be used to amend its Federal Aviation Administration ("FAA")
Type Certificate for technical revisions to its product, establish a production
line and obtain a FAA Production Certificate for its product, repay borrowings
under a bridge loan (Note 8), expand the Company's sales and marketing efforts,
establish a new manufacturing facility, and acquire production materials and
additional tooling and equipment.
F-6
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. THE COMPANY (CONTINUED)
The Company is subject to all of the risks inherent in a new business
enterprise and the likelihood of the success of the Company must be considered
in light of the difficulties and delays frequently encountered in connection
with a new business. These matters raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
NET LOSS PER SHARE
The Company's net loss per share was computed based on the weighted average
number of shares of common stock outstanding during the years ended December 31,
1994 and 1995 and the nine months ended September 30, 1995 and 1996 and excludes
all outstanding shares of Class E-1 and Class E-2 Common Stock because the
conditions for the lapse of restrictions on such shares have not been satisfied
(Note 7).
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
83, stock options and warrants granted and common shares issued since July 1,
1995 other than Class E-1 and Class E-2 Common Stock have been included as
outstanding in net loss per share computations for all periods presented using
the treasury stock method and the expected public offering price per share.
UNAUDITED INTERIM INFORMATION
The information presented as of September 30, 1996, and for the nine months
ended September 30, 1995 and 1996, has not been audited. In the opinion of
management, the unaudited interim financial statements include all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
results for the interim periods presented. The information disclosed in the
notes to the financial statements as of such date and for such periods are also
unaudited.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RESEARCH AND DEVELOPMENT COSTS
All costs incurred in the design, testing, and certification of aircraft
being developed by the Company (including cost of in-process research and
development acquired) are expensed as incurred.
PREOPERATING COSTS
Preoperating costs are expensed as incurred.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated using the
straight-line method over their estimated useful lives of five to ten years.
Leasehold improvements are amortized over the shorter of their estimated useful
lives or the term of the lease.
OTHER INCOME
Other income consists primarily of sales of aircraft engines used for
testing.
F-7
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist primarily of deposits for
aircraft engines.
INCOME TAXES
Income taxes are accounted for under an asset and liability approach that
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the Company's
financial statements or tax returns. A valuation allowance is established to
reduce deferred tax assets if it is more likely than not, all or some portion
of, such deferred tax assets will not be realized.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers short-term, highly liquid instruments purchased with
an original maturity of three months or less to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include cash and cash equivalents,
marketable securities, a certificate of deposit, prepaid expenses and other
current assets, accounts payable, accrued and other current liabilities, and
short-term loans. The carrying value of these financial instruments approximates
fair value due to their short-term nature. The fair value of the Bridge Notes is
not determinable because of their unusual terms.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") issued Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" ("SFAS No. 121"). SFAS No. 121 was adopted by the Company
effective January 1, 1996. The adoption of SFAS No. 121 did not have a material
impact on the Company's financial position, results of operations or liquidity.
The FASB issued Statement No. 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123"). SFAS No. 123 establishes an alternative method of accounting
for stock-based compensation plans and must be adopted in the Company's 1996
financial statements. The Company intends to adopt only the disclosure
provisions for stock compensation and does not expect that the adoption of SFAS
No. 123 will have a material impact on the Company's financial position, results
of operations or liquidity.
F-8
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
-------------
<S> <C>
Office furniture and equipment................................................. $ 123,000
Machinery and equipment........................................................ 3,063,000
-------------
3,186,000
Accumulated depreciation and amortization...................................... (1,179,000)
-------------
$ 2,007,000
-------------
-------------
</TABLE>
4. INCOME TAXES
The temporary differences and carryforwards which give rise to the Company's
net deferred tax assets at December 31, 1995 of $7,675,000 were subject to a
full valuation allowance because their realization is not likely. The primary
components of the temporary differences consisted of net operating loss and
research and development credits carryforwards.
At December 31, 1995, the Company had Federal tax net operating loss ("NOL")
carryforwards of approximately $17 million which will, if unused, expire in
varying amounts in years 2005 through 2010. The Company also had California
franchise tax NOL carryforwards of approximately $3 million which will, if
unused, expire in various amounts in years 1996 through 2000.
At December 31, 1995, the Company had Federal and California research and
development ("R&D") credit carryforwards of approximately $1,169,000 and
$468,000, respectively. The Federal R&D credit carryforwards will expire in
years 2005 through 2010. The California R&D credit carryforwards can be carried
forward indefinitely.
Utilization of the net operating loss and tax credit carryforwards may be
subject to an annual limitation if a change in the Company's ownership should
occur as defined by Section 382 of the Internal Revenue Code.
As a result of the Company's operating losses, no income tax provision has
been recorded.
5. DEBT AND RELATED PARTY TRANSACTIONS
As of December 31, 1995, the loan from SIDA Corporation (Note 6) of $110,000
and the loans from non-affiliated individuals aggregating $565,000 are payable
on demand and bear interest at 12% per annum. One of these individuals
subsequently became a director of the Company in June 1996.
The loan from officer amounting to $160,000 at December 31, 1995 increased
to $336,000 in April 1996 which was subsequently converted in May 1996 to
187,118 shares of Class B Common Stock and 374,236 shares each of Class E-1 and
Class E-2 Common Stock. An additional $226,000 was advanced subsequent to such
conversion through August 1996 and was repaid, together with interest accrued at
12% per annum totaling $36,000, in September 1996. Receivable from officer of
$115,000 at September 30, 1996 (representing overpayment of accrued compensation
from proceeds of bridge financing (Note 8)) was repaid in full in October 1996.
F-9
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. DEBT AND RELATED PARTY TRANSACTIONS (CONTINUED)
The note payable to bank matures in October 1996, bears interest of prime
rate plus 1.5% (10% per annum at December 31, 1995) and is guaranteed by the
United States Small Business Administration, the California Export Finance
Office and the Company's President, and secured by substantially all of the
Company's assets.
On December 23, 1993, the Company entered into an agreement with a
stockholder to convert the advances from such stockholder aggregating
$10,478,000 at that date to 584,074 shares of Class B Common Stock, and
1,168,148 shares each of Class E-1 and Class E-2 Common Stock. The Company
issued these shares in June 1996. Interest expense was not recorded on these
advances subsequent to December 23, 1993 due to the intent to convert the
advances to equity. In 1994 the stockholder provided additional advances
aggregating $250,000, which were converted to 13,937 shares of Class B Common
Stock and 27,873 shares each of Class E-1 and Class E-2 Common Stock in June
1996. Imputed interest on all advances, based on prevailing market rates, of
$23,000 in 1995, $11,000 in 1994 and $799,000 for the period from January 26,
1990 (inception) to December 31, 1995 was charged to expense and credited to
additional paid-in capital.
6. COMMITMENTS, CONTINGENCIES AND EMPLOYMENT AGREEMENTS
In January 1990, the Company entered into a five-year management services
agreement (the "1990 Agreement") with SIDA Corporation, the stockholders of
which are also minority stockholders of the Company. During the period from
January 26, 1990 (inception) to December 31, 1995, the Company incurred $700,000
of service fees ($140,000 and $12,000 in 1994 and 1995, respectively) pursuant
to this agreement. As of December 31, 1995, the unpaid service fee of $259,000
and interest of $31,000, accrued at 12% per annum, are included in accrued
liabilities and interest payable, respectively, in the accompanying balance
sheet.
In January 1995, the 1990 Agreement expired and was replaced by a new
management services agreement (the "1995 Agreement") entered into with the
Company's President on December 29, 1994 for an original term of ten years. The
1995 Agreement provides for an annual base compensation of $350,000 to be paid
to the Company's President, a $250,000 signing incentive payable in shares of
common stock and additional common stock to be earned for services performed.
Pursuant to the 1995 Agreement, the unpaid base compensation of $323,000 and
interest of $39,000, accrued at 12% per annum, are included in accrued
liabilities and interest payable, respectively, in the accompanying balance
sheet at December 31, 1995. The liability for signing incentive of $250,000 and
additional compensation for services performed of $367,000 that was ultimately
paid in the form of shares of common stock was included in accrued liabilities
at December 31, 1995. Unpaid base compensation of $300,000 was subsequently
converted to shares of Class B, Class E-1 and Class E-2 Common Stock as
discussed below.
F-10
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS, CONTINGENCIES AND EMPLOYMENT AGREEMENTS (CONTINUED)
In May 1996, the 1995 Agreement was terminated and renegotiated (see below).
The following shares of Class B, Class E-1 and Class E-2 Common Stock were
issued to the Company's President pursuant to the terms of the 1995 Agreement
and in consideration of the termination thereof:
<TABLE>
<CAPTION>
CLASS B CLASS E-1 CLASS E-2
--------- ----------- -----------
<S> <C> <C> <C>
Consideration for termination of the 1995 Agreement................... 237,076 474,152 474,152
Partial settlement of $300,000 of accrued 1995 base compensation...... 16,724 33,448 33,448
Signing incentive provided per the 1995 Agreement..................... 139,365 278,730 278,730
Shares earned for services performed per the 1995 Agreement........... 184,658 369,317 369,317
</TABLE>
Stock compensation cost of $250,000, $367,000 and $559,000 in 1994, 1995 and
the nine months ended September 30, 1996, respectively, was charged to expense
based on the fair value of the stock awarded by reference to an independent
appraisal.
In May 1996, the Company entered into an employment agreement with the
Company's President, which replaced the terminated 1995 Agreement. This
employment agreement extends to April 30, 2004 and provides for an annual salary
of $200,000. If the employment agreement is terminated by the Company without
cause, the President may be entitled to receive up to eighteen months' salary as
severance payment.
Also in May 1996, an officer of the Company was awarded 17,460 shares of
Class B Common Stock and 34,919 shares each of Class E-1 and Class E-2 Common
Stock for services rendered. Compensation cost of $31,000 was charged to expense
in the nine months ended September 30, 1996 based on the fair value of the stock
awarded by reference to an independent appraisal.
The Company leases its office and warehouse facility for approximately
$12,000 per month on a month-to-month basis.
In the ordinary course of business, the Company is generally subject to
claims, complaints, and legal actions. The Company is not currently a party to
any material lawsuits.
7. STOCKHOLDERS' EQUITY
COMMON STOCK
The rights and privileges of holders of Class A, Class B, Class E-1 and
Class E-2 Common Stock are substantially the same on a share-for-share basis,
except that (i) the holder of each outstanding share of Class A Common Stock is
entitled to one vote and the holder of each outstanding share of Class B, Class
E-1 and Class E-2 Common Stock is entitled to five votes, (ii) Class B Common
Stock cannot be transferred or sold for thirteen months following the effective
date of the offering, after which time the Class B Common Stock may be converted
at any time at the option of the holder into one share of Class A Common Stock.
F-11
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
CLASS E-1 AND E-2 COMMON STOCK
All shares of Class E-1 and Class E-2 Common Stock ("Performance Shares")
are not transferable or assignable and may be converted into shares of Class B
Common Stock in the event income before provision for income taxes, exclusive of
any extraordinary earnings, reaches certain targets over the next seven years,
or if the market price of the Class A Common Stock reaches specified levels over
the next three years. With respect to targeted earnings, Class E-1 Common Stock
shares may be converted if pretax income exceeds $17.5 million in 1998, $22.5
million in 1999, $28.5 million in 2000, $36.0 million in 2001, $45.0 million in
2002 and $56.0 million in 2003. Class E-2 Common Stock shares may be converted
if pretax income exceeds $21.875 million in 1998, $28.125 million in 1999,
$35.625 million in 2000, $45.0 million in 2001, $56.25 million in 2002 or $69.5
million in 2003. With respect to market price levels, the Class E-1 Common Stock
shares may be converted if, commencing at the effective date of the public
offering (see Note 8) and ending 18 months thereafter, the bid price of the
Company's Class A Common Stock averages in excess of $14.00 per share for 30
consecutive business days, or commencing 18 months after the effective date and
ending 36 months after the effective date, the bid price averages $18.50 per
share for 30 consecutive business days. Class E-2 Common Stock shares may be
converted if commencing at the effective date of the public offering and ending
18 months thereafter, the bid price of the Company's Class A Common Stock
averages in excess of $18.00 per share for 30 consecutive business days or
commencing 18 months after such date and ending 36 months after such date, the
bid price averages in excess of $23.00 for 30 consecutive business days.
All Performance Shares that have not been converted by March 31, 2004 may be
redeemed by the Company for $.01 per share. For accounting purposes, the
Performance Shares are treated in a manner similar to a variable stock option
award. As a consequence, a compensation charge will be recorded in an amount
equal to the then fair value of any Performance Shares that are ultimately
converted into Class B Common Stock.
STOCK OPTION PLAN
In July 1996, the Company's Board of Directors approved the Stock Option
Plan (the Plan). The Plan provides for the grant of incentive and non-qualified
stock options to certain employees, officers, directors, consultants, and agents
of the Company. Under the Plan, the Company may grant options with respect to
500,000 shares of the Class A Common Stock. The options are to be granted at not
less than fair market value, vest immediately and may be exercised for a period
of one to ten years as determined by the Board of Directors. In September 1996,
options to purchase 110,000 shares of Class A Common Stock were granted at an
exercise price of $5 per share.
8. PROPOSED PUBLIC OFFERING
On May 13, 1996, the Company entered into a letter of intent, as amended on
July 23, 1996, with an underwriter (the "Underwriter") whereby the Underwriter
has agreed in principle to act as an underwriter in an initial public offering
of units (the "Units"). Each Unit will be comprised of one share of the
Company's Class A Common Stock, one Class A Warrant and one Class B Warrant.
Upon exercise, the Class A Warrants entitle the holder to purchase one share of
Class A Common Stock and one Class B Warrant. Each Class B Warrant entitles the
holder to purchase one share of Class A Common Stock.
F-12
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. PROPOSED PUBLIC OFFERING (CONTINUED)
On August 30, 1996, the Company completed a private placement of an
aggregate of $7,000,000 principal amount of notes (the "Bridge Notes") and
3,500,000 warrants (the "Bridge Warrants") in which it received net proceeds of
approximately $6,195,000 (after expenses of issuance). The Bridge Notes are
payable, together with cash interest at the rate of 10% per annum, on the
earlier of one year from the issuance of the Bridge Notes or the closing of the
proposed public offering discussed above. Each Bridge Warrant will be
exercisable for a period commencing one year from the date of issuance and
expiring approximately two years thereafter, and entitles the holder thereof to
purchase one share of Class A Common Stock at an exercise price of $3.00 per
share if the Company does not consummate the proposed public offering. In the
event the Company completes the proposed offering and such offering includes
warrants or Class A Warrants, each Bridge Warrant will automatically convert on
the closing date of the public offering into one warrant or Class A Warrant (a
"Public Warrant") which is identical in all respects to the Class A Warrant sold
in the public offering, except that purchasers of the Bridge Notes acquiring the
Bridge Warrants have agreed (i) not to exercise the Public Warrants for a period
of one year from the closing date of the public offering and (ii) not to sell
publicly the Public Warrants except as provided in certain lock-up provisions
which expire between 90 and 270 days after the closing date of the public
offering. The fair value of the Bridge Warrants, amounting to approximately
$473,000 by reference to an independent appraisal, together with the cost of
issuance (approximately $805,000), will be treated as additional interest
expense over the term of the Bridge Notes.
F-13
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED BY THE COMPANY
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 UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH 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 CONTAINED IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 8
Use Of Proceeds........................................................... 18
Dividend Policy........................................................... 19
Dilution.................................................................. 20
Capitalization............................................................ 21
Selected Financial Data................................................... 23
Plan of Operations........................................................ 24
Business.................................................................. 29
Management................................................................ 42
Certain Transactions...................................................... 47
Principal Stockholders.................................................... 49
Concurrent Securities Offerings........................................... 50
Description Of Securities................................................. 52
Shares Eligible For Future Sale........................................... 59
Underwriting.............................................................. 61
Legal Matters............................................................. 62
Experts................................................................... 63
Additional Information.................................................... 63
Index to Financial Statements............................................. 64
</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.
ADVANCED
AERODYNAMICS &
STRUCTURES, INC.
6,000,000 UNITS
CONSISTING OF
6,000,000 SHARES OF
CLASS A COMMON STOCK
6,000,000 REDEEMABLE CLASS A WARRANTS
6,000,000 REDEEMABLE CLASS B WARRANTS
---------------------
PROSPECTUS
------------------
D. H. BLAIR
INVESTMENT BANKING
CORP.
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 21, 1996 ALTERNATE
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>
PROSPECTUS
ADVANCED AERODYNAMICS & STRUCTURES, INC.
3,500,000 Redeemable Class A Warrants
3,500,000 Redeemable Class B Warrants and
7,000,000 Shares of Class A Common Stock
This Prospectus relates to 3,500,000 redeemable Class A Warrants (the
"Selling Securityholders' Warrants" or the "Class A Warrants") of Advanced
Aerodynamics & Structures, Inc., a Delaware corporation (the "Company"), issued
to certain investors upon the conversion of warrants issued to such investors
(the "Selling Securityholders") in a private placement by the Company completed
in August 1996 (the "Bridge Financing"), the 3,500,000 redeemable Class B
Warrants (the "Class B Warrants") issuable upon exercise of the Class A
Warrants, and the 7,000,000 shares of Class A Common Stock, $.0001 par value, of
the Company (the "Class A Common Stock") underlying the Class A Warrants and
Class B Warrants. See "Selling Securityholders and Plan of Distribution." Each
Class A Warrant entitles the holder to purchase one share of Class A Common
Stock and one Class B Warrant at an exercise price of $6.50, subject to
adjustment, until the fifth anniversary of the date of this Prospectus. Each
Class B Warrant entitles the holder to purchase one share of Class A Common
Stock at an exercise price of $8.75, subject to adjustment, until the fifth
anniversary of the date of this Prospectus. The Class A Warrants and the Class B
Warrants are subject to redemption, commencing one year from the date of this
Prospectus, by the Company at $.05 per Warrant on 30 days' written notice if the
closing bid price of the Class A Common Stock for 30 consecutive trading days
ending within 15 days of the notice of redemption of the Warrants averages in
excess of $12.00 per share with respect to the Class A Warrants and $15.00 per
share with respect to the Class B Warrants (subject to adjustment in each case).
See "Description of Securities."
The Selling Securityholders have agreed not to exercise the Selling
Securityholders' Warrants for a period of one year from the closing of the
Offering and not to sell the Selling Securityholders' Warrants for a period of
90 days after the closing of the Offering and to sell only certain specified
percentages of such warrants during the period from 91 to 270 days after such
closing. However, purchasers of such warrants in permitted sales will be
entitled to exercise such warrants immediately.
The securities offered by this Prospectus may be sold from time to time by
the Selling Securityholders, or by their transferees. The distribution of the
securities offered hereby may be effected in one or more transactions that may
take place in the over-the-counter market, including ordinary brokers'
transactions, privately negotiated transactions or through sales to one or more
dealers for resale of such securities as principals, at market prices prevailing
at the time of sale, at prices related to such prevailing market prices or at
negotiated prices. Usual and customary or specifically negotiated brokerage fees
or commissions may be paid by the Selling Securityholders.
The Selling Securityholders and intermediaries through whom such securities
are sold may be deemed "underwriters" within the meaning of the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the securities
offered, and any profits realized or commission received may be deemed
underwriting compensation. The Company has agreed to indemnify the Selling
Securityholders against certain liabilities, including liabilities under the
Securities Act.
The Company will not receive any of the proceeds from the sale of securities
by the Selling Securityholders. In the event the Warrants are fully exercised,
the Company will receive gross proceeds of $53,375,000. See "Selling
Securityholders and Plan of Distribution."
The Company has filed a registration statement under the Securities Act with
the Securities and Exchange Commission (the "Commission") relating to a public
offering by the Company (the "Offering") of 6,000,000 Units, each Unit
consisting of one share of Class A Common Stock, one Class A Warrant and one
Class B Warrant. The Company will receive approximately $26,415,965 in net
proceeds from the sale of the Units (assuming no exercise of the Underwriter's
over-allotment option) after payment of underwriting discounts and commissions
and estimated expenses of the Offering.
--------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
--------------------------
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.
The date of this Prospectus is , 1996
<PAGE>
SELLING SECURITYHOLDERS
An aggregate of up to 3,500,000 Class A Warrants, 3,500,000 shares of Class
A Common Stock and 3,500,000 Class B Warrants issuable upon exercise of the
Class A Warrants, and 3,500,000 shares of Class A Common Stock issuable upon
exercise of the Class B Warrants may be offered by certain securityholders who
received their Class A Warrants in connection with the Bridge Financing or by
their transferees.
The following table sets forth certain information with respect to each
Selling Securityholder for whom the Company is registering securities for resale
to the public. The Company will not receive any of the proceeds from the sale of
these securities. Except as described below, there are no material relationships
between any of the Selling Securityholders and the Company, nor have any such
material relationships existed within the past three years.
<TABLE>
<CAPTION>
NUMBER OF
CLASS A WARRANTS
BENEFICIALLY
OWNED
AND MAXIMUM
NUMBER
SELLING SECURITYHOLDER TO BE SOLD (1)
- --------------------------------------------------------------------------- -----------------
<S> <C>
Magid Abraham.............................................................. 37,500
Leonard J. Adams........................................................... 25,000
Agent 17, Inc.............................................................. 37,500
Carmine Agnello............................................................ 75,000
L.S. Agrawal............................................................... 6,250
James L. Alderman.......................................................... 6,250
Keith Alliotts............................................................. 12,500
Amore Perpetuo, Inc........................................................ 75,000
Eric C. Appolonia.......................................................... 6,250
Earl M. and Bonnie B. Baldwin, JTROS....................................... 6,250
Robert S. and Sonia T. Benach, JTROS....................................... 6,250
Milan Beres................................................................ 6,250
Morde Bernfeld............................................................. 12,500
Mitchell J. and Kathryn W. Birzon, JTROS................................... 12,500
William H. Boyce........................................................... 6,250
Harry Bram................................................................. 12,500
Robert D. Burke, M.D....................................................... 6,250
James Paul Clay............................................................ 6,250
CLFS Equities Ltd.......................................................... 6,250
Richard P. Cole............................................................ 12,500
David Cymrot............................................................... 12,500
Daryl Lee Scot, LLC........................................................ 12,500
Ronald L. and Carolyn C. Drake, JTROS...................................... 12,500
Allen D. and Carole J. Drewes, JTROS....................................... 12,500
Isaac R. Dweck............................................................. 12,500
Edara Partnership.......................................................... 100,000
EDN Equities #2............................................................ 100,000
Jonathan and Irene Elias, TBE.............................................. 12,500
Factory Direct Ind., Inc................................................... 6,250
David B. Falk.............................................................. 12,500
Bruce F. and D'Arbra L. Fetzer, JTROS...................................... 6,250
Gary B. Flom............................................................... 6,250
Neil C. Friess............................................................. 12,500
Lawrence Frisina........................................................... 12,500
Larry P. and Connie P. Galloway............................................ 12,500
Lisa Susan Gatschet........................................................ 50,000
Bernard J. Golan Revocable Living Trust.................................... 12,500
Bob and Gwendolyn Gold, JTROS.............................................. 12,500
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
CLASS A WARRANTS
BENEFICIALLY
OWNED
AND MAXIMUM
NUMBER
SELLING SECURITYHOLDER TO BE SOLD (1)
- --------------------------------------------------------------------------- -----------------
<S> <C>
Andrew M. Goldfarb......................................................... 12,500
Dr. Ross H. Golding........................................................ 12,500
Ernest Gottdiener.......................................................... 50,000
Gary A. Greenberg.......................................................... 6,250
Varda Grodko............................................................... 12,500
Gulf Stream Asset Management Corp Retirement Trust......................... 12,500
Jay B. Gutkin.............................................................. 6,250
Esther Hellman............................................................. 6,250
Dr. Julian Herskowitz...................................................... 12,500
Samuel J. Holtzman Trust................................................... 75,000
Len A. Holubowich.......................................................... 12,500
Clarence B. Horton......................................................... 12,500
Steven R. Hurlburt......................................................... 25,000
Arthur Inden............................................................... 25,000
Anthony D. Ivankovich, M.D................................................. 12,500
Stuart and Allison Jacobson, JTROS......................................... 6,250
Robert and Elizabeth A. Jennee, JTROS...................................... 6,250
James P. and Joyce Johnson, JTROS.......................................... 25,000
Michael Jordon............................................................. 12,500
Robert and Carole M. Juranek, JTROS........................................ 6,250
Daniel Kane................................................................ 37,500
Patti and Neil Karnofsky, JTROS............................................ 6,250
Dennis L. and Kathryn G. Karsh, JTROS...................................... 12,500
Robert Katz................................................................ 12,500
Leonard and Eileen Keller, JTROS........................................... 125,000
Brian Kelley............................................................... 12,500
Marvin and Muriel Kogod, JTROS............................................. 12,500
Nicole and Michael Kubin, JTROS............................................ 31,250
Joseph S. Kulpa............................................................ 6,250
Frank Lagano............................................................... 25,000
Charles F. Larimer......................................................... 12,500
George Lichtenstein........................................................ 18,750
Phil Lifschitz............................................................. 12,500
Jan Linhart................................................................ 6,250
J. Jay and Beverly O. Lobell, JTROS........................................ 12,500
Frank J. Loccisano Defined Benefit Pension Plan............................ 12,500
Robert and Margaret Lombardi, JTROS........................................ 12,500
Ronald B. Low.............................................................. 12,500
Jerry A. and Melissa Lubliner, JTROS....................................... 12,500
David Maleh................................................................ 12,500
Jack M. and Michelle Maleh, JTROS.......................................... 12,500
Thomas J. Mannausa......................................................... 12,500
Jamie Massimi.............................................................. 50,000
Mark and Diane McAllister.................................................. 6,250
George A. McDonnell........................................................ 6,250
Kathleen McGlynn........................................................... 50,000
Lee H., M.D. and Lynne Miller, JTROS....................................... 6,250
Wayne Mixson............................................................... 6,250
Pavel and Liliana Mostovoy, JTROS.......................................... 25,000
Vadim Mostovoy............................................................. 25,000
Morton M. Mower............................................................ 12,500
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
CLASS A WARRANTS
BENEFICIALLY
OWNED
AND MAXIMUM
NUMBER
SELLING SECURITYHOLDER TO BE SOLD (1)
- --------------------------------------------------------------------------- -----------------
<S> <C>
Richard A. and Elaine M. Nelson, JTROS..................................... 75,000
Richard A., Elaine M., and Ross R. Nelson, JTROS........................... 25,000
James Nigro................................................................ 100,000
Veniamin Nilva............................................................. 6,250
Iouri Ostanine............................................................. 6,250
Grace T. and Ruby G. O'Steen, TIC.......................................... 6,250
Richard E., M.D. PC Pension & Profit Sharing Plan.......................... 12,500
Ronald Palmer.............................................................. 6,250
Ignazio Paneduro........................................................... 12,500
Alan N. Parnes, D.D.S...................................................... 12,500
Kirit S. and Shobha K. Patel, JTROS........................................ 12,500
Amy R. Paul................................................................ 12,500
Phillip J. Picchietti...................................................... 12,500
Harry A. Pinkman........................................................... 6,250
Curtis J. Polk............................................................. 12,500
James Polley............................................................... 6,250
Pierre F. and Claire T. Pype, JTROS........................................ 6,250
Martin Ratner.............................................................. 12,500
Anthony C. Recchia......................................................... 6,250
Ronald Reduce.............................................................. 12,500
Susie R. Reinsberg......................................................... 12,500
Edward F. Reitz............................................................ 6,250
John Rini.................................................................. 12,500
Marc Roberts............................................................... 12,500
Roger C. Rohrs............................................................. 6,250
Norton A. Rosenberg........................................................ 12,500
Michael Rosin.............................................................. 56,250
Alan J. Rubin.............................................................. 12,500
Gregg Rubin................................................................ 6,250
Peter J. Russo............................................................. 6,250
Wayne Saker................................................................ 25,000
Anand J. Sathe............................................................. 12,500
Lewis J. Saul, P.C. Retirement Income Plan and Trust....................... 25,000
R. Douglas Scheidt......................................................... 6,250
Matthew C. Schilowitz...................................................... 56,250
Steve Schnipper............................................................ 12,500
Kenneth Schwartz........................................................... 12,500
Alan J. Shaw............................................................... 6,250
Steven R. Sheck............................................................ 12,500
Mike Sheen................................................................. 18,750
Barry Shemaria............................................................. 6,250
Robert J. Shilliday, Jr.................................................... 12,500
Marc K. Siegel............................................................. 12,500
Dr. Stephen M. Silston..................................................... 12,500
SJG Management, Inc........................................................ 6,250
Steven Sklow............................................................... 6,250
Robert S. and Irene S. Sloan, JTROS........................................ 12,500
Jeffrey D. and Susanne M. Smith, JTROS..................................... 6,250
Kevin W. Smyth............................................................. 25,000
Ilker Sonmez............................................................... 12,500
Harvey and Donna Sorkin, JTROS............................................. 37,500
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
CLASS A WARRANTS
BENEFICIALLY
OWNED
AND MAXIMUM
NUMBER
SELLING SECURITYHOLDER TO BE SOLD (1)
- --------------------------------------------------------------------------- -----------------
<S> <C>
Howard Sorkin.............................................................. 37,500
South Ferry #2, L.P........................................................ 50,000
Dr. George Spiegel......................................................... 37,500
Richard J. Stephenson...................................................... 25,000
Victor M. Sternberg DMD PC................................................. 31,250
Ely Tama................................................................... 12,500
TCM Partners, L.P.......................................................... 12,500
25 Broadway Realty Company 50,000
W. Ed and Vickie S. Tyler, JTROS........................................... 50,000
Donald J. Vernine.......................................................... 12,500
Kevin and Lisa Waltzer, JTROS.............................................. 18,750
David C. and Patricia Bray-Ward, JTROS..................................... 12,500
Jonathan Waxberg, M.D...................................................... 6,250
Sherwyn J. Wayne........................................................... 12,500
Michael R. and Mary J. Webb, JTROS......................................... 6,250
Barry and Helen Webster, JTROS............................................. 25,000
Carl F.R. and Beverly J. Weiman, JTROS..................................... 6,250
Eric Wiborg Trust.......................................................... 37,500
Morris Wolfson Family Limited Partnership.................................. 87,500
Aaron Wolfson.............................................................. 87,500
Abraham Wolfson............................................................ 50,000
Wolfson Equities #2........................................................ 100,000
Wolfson Descendants' 1983 Trust............................................ 100,000
Casimer Zaremba............................................................ 6,250
Herman L. Zeller Living Trust.............................................. 6,250
Robert D. Zucker........................................................... 12,500
Total...................................................................... 3,500,000
</TABLE>
- ------------------------
(1) Does not include shares of Class A Common Stock and Class B Warrants
issuable upon exercise of the Class A Warrants and the shares of Class A
Common Stock issuable upon exercise of the Class B Warrants. The Selling
Securityholders have agreed not to exercise the Class A Warrants offered
hereby for a period of one year after the closing of the Offering.
PLAN OF DISTRIBUTION
The sale of the securities by the Selling Securityholders may be effected
from time to time in transactions (which may include block transactions by or
for the account of the Selling Securityholders) in the over-the-counter market
or in negotiated transactions, a combination of such methods of sale or
otherwise. Sales may be made at fixed prices which may be changed, at market
prices prevailing at the time of sale, or at negotiated prices.
Selling Securityholders may effect such transactions by selling their
securities directly to purchasers, through broker-dealers acting as agents for
the Selling Securityholders or to broker-dealers who may purchase shares as
principals and thereafter sell the securities from time to time in the
over-the-counter market, in negotiated transactions or otherwise. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Securityholders or the purchasers
for whom such broker-dealers may act as agents or to whom they may sell as
principals or otherwise (which compensation as to a particular broker-dealer may
exceed customary commissions).
A-4
<PAGE>
Each Selling Securityholder has agreed (i) not to sell, transfer or
otherwise dispose of publicly the Selling Securityholder Warrants except after
the time periods and in the percentage amounts set forth below, on a cumulative
basis, and (ii) not to exercise the Selling Securityholder Warrants for a period
of one year after the closing of the Offering. Purchasers of the Selling
Securityholder Warrants will not be subject to such restrictions.
<TABLE>
<CAPTION>
PERCENTAGE ELIGIBLE
LOCK UP PERIOD FOR RESALE
- ------------------------------------------------------------------ -----------------------------
<S> <C>
Before 90 days after the closing.................................. 0%
Between 91 and 150 days........................................... 25%
Between 151 and 210 days.......................................... 50%
Between 211 and 270 days.......................................... 75%
After 270 days.................................................... 100%
</TABLE>
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Selling Securityholders' Warrants may not
simultaneously engage in market making activities with respect to any securities
of the Company for a period of at least two (and possibly nine) business days
prior to the commencement of such distribution. Accordingly, in the event the
Underwriter of the Company's initial public offering or D.H. Blair & Co., Inc.
("Blair & Co.") is engaged in a distribution of the Selling Securityholders'
Warrants, neither of such firms will be able to make a market in the Company's
securities during the applicable restrictive period. However, neither the
Underwriter nor Blair & Co. has agreed to, nor is either of them obligated to,
act as a broker-dealer in the sale of the Selling Securityholders' Warrants, and
the Selling Securityholders may be required, and in the event Blair & Co. is a
market maker, will likely be required, to sell such securities through another
broker-dealer. In addition, each Selling Securityholder desiring to sell
Warrants will be subject to the applicable provisions of the Exchange Act and
the rules and regulations thereunder, including without limitation, Rules 10b-6
and 10b-7, which provisions may limit the timing of the purchases and sales of
shares of the Company's securities by such Selling Securityholders.
The Selling Securityholders and broker-dealers, if any, acting in connection
with such sales may be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act and any commission received by them and any profit
on the resale of the securities by them might be deemed to be underwriting
discounts and commissions under the Securities Act.
CONCURRENT PUBLIC OFFERING
On the date of this Prospectus, a Registration Statement under the
Securities Act was declared effective with respect to an underwritten offering
of 6,000,000 Units by the Company (6,900,000 Units if the Underwriter's
over-allotment option is exercised in full), each Unit consisting of one share
of Class A Common Stock, one Class A Warrant and one Class B Warrant.
A-5
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company. This Prospectus does
not constitute an offer to sell, or a solicitation of any offer to buy, any
securities offered hereby by anyone in any jurisdiction in which such an offer
or solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to anyone to whom it is unlawful to
make such 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 contained is correct as of any time subsequent to the
date of this Prospectus.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................
The Offering..............................................................
Risk Factors..............................................................
Use Of Proceeds...........................................................
Dividend Policy...........................................................
Dilution..................................................................
Capitalization............................................................
Selected Financial Data...................................................
Plan of Operations........................................................
Business..................................................................
Management................................................................
Certain Transactions......................................................
Principal Stockholders....................................................
Selling Securityholders...................................................
Plan of Distribution......................................................
Concurrent Public Offering................................................
Description Of Securities.................................................
Shares Eligible For Future Sale...........................................
Legal Matters.............................................................
Experts...................................................................
Additional Information....................................................
Index to Financial Statements............................................. F-1
</TABLE>
Until , 1996 (25 days from 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 with respect to their unsold allotments or subscriptions.
ADVANCED AERODYNAMICS &
STRUCTURES, INC.
3,500,000 REDEEMABLE CLASS A WARRANTS,
3,500,000 REDEEMABLE CLASS B WARRANTS
AND
7,000,000 SHARES OF CLASS A COMMON STOCK
---------------------
PROSPECTUS
---------------------
, 1996
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to Section 145 of the General Corporation Law of the State
of Delaware. As permitted by Delaware law, the Company's Certificate of
Incorporation contains an article limiting the personal liability of directors.
The Certificate of Incorporation provides that a director of the Company shall
not be personally liable for any damages from any breach of fiduciary duty as a
director, except for liability based on a judgment or other final adjudication
adverse to him establishing that his acts or omissions were committed in bad
faith or were the result of active or deliberate dishonesty and were material to
the cause of action so adjudicated, or that he personally gained a financial
profit or other advantage to which he was not legally entitled. The Company's
Certificate of Incorporation and Bylaws also provide for indemnification of all
officers and directors of the Company to the fullest extent permitted by law.
The Company has entered into Indemnification Agreements ("Indemnification
Agreements") with each of Dr. Carl Chen, Gene Comfort, Sandra Andre, C.M. Cheng
and Steve Gorlin (collectively, the "Indemnitees"). The Indemnification
Agreements permit the Company to indemnify the Indemnitees for liabilities and
expenses arising from certain actions taken by the Indemnitees for or on behalf
of the Company and require indemnification in certain circumstances.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with the offering, other than underwriting discounts, commissions and
non-accountable expense allowances:
<TABLE>
<CAPTION>
AMOUNT
------------
<S> <C>
SEC registration fee............................................................ $ 82,357
NASD registration fee........................................................... 27,678
Nasdaq fee...................................................................... 50,000
Printing and engraving.......................................................... 90,000
Legal fees and expenses......................................................... 324,000
Accounting fees and expenses.................................................... 190,000
Blue Sky filing fees and expenses............................................... 40,000
Transfer agent's fees and expenses.............................................. 10,000
Underwriter's non-accountable expense allowance................................. 900,000
Miscellaneous................................................................... 70,000
------------
TOTAL....................................................................... $ 1,784,035
------------
------------
</TABLE>
- ------------------------
* Assumes no exercise of the Underwriter's overallotment option.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following discussion gives retroactive effect to the Recapitalization
effected by the Registrant in July 1996. The Registrant has sold and issued the
following securities during the past three years.
In September 1996, the Registrant issued options to purchase 25,000 shares
of Class A Common Stock to each of Gene Comfort, C.M. Cheng, William Leeds and
Steve Gorlin and options to purchase 5,000 shares of Class A Common Stock to
each of Chom Kruesopon and Sandra Andre under the Registrant's 1996 Stock Option
Plan. These options are exercisable at a price of $5.00 per share and vest in
equal annual installments over five years. Messrs. Comfort, Cheng and Gorlin are
members of the Registrant's
II-1
<PAGE>
Board of Directors; Mr. Leeds is currently a consultant to the Registrant and
has agreed to become a Senior Vice President of the Company following the
closing of the Offering; Ms. Kruesopon is an employee of the Registrant; Ms.
Andre is the Registrant's Chief Financial Officer; and Mr. Comfort is the
Registrant's Executive Vice President and Secretary. The securities were issued
in reliance on Section 4(2) of the Securities Act and Rule 506 promulgated
thereunder, and no commissions or discounts were paid.
In August 1996, in connection with the Bridge Financing, the Registrant
issued 140 units, each unit consisting of a note in the principal amount of
$50,000 and warrants to purchase 25,000 shares of Class A Common Stock at an
exercise price of $3.00 per share (the "Bridge Warrants") to 166 accredited
investors for an aggregate purchase price of $7,000,000. The Bridge Warrants
will be converted on the closing of the Offering into 3,500,000 Class A
Warrants. D.H. Blair Investment Banking Corp. acted as the placement agent for
the Bridge Financing and, in that capacity, received a commission of $560,000
and a $210,000 nonaccountable expense allowance. Neither the Company nor any
person acting on its behalf offered or sold the securities by means of a general
solicitation, the resale of the securities was restricted, and all of the
purchasers of the securities were accredited investors. The securities were
issued in reliance on Section 4(2) of the Securities Act and Rule 506
promulgated thereunder.
In July 1996, in connection with the Recapitalization, the Company issued an
aggregate of 10,000,000 shares of its Common Stock in exchange for all of the
outstanding shares of the capital stock of Company's predecessor. The shares
were issued in reliance on Sections 3(a)(9), 3(b) and 4(2) of the Securities Act
and Rules 505 and 506 promulgated thereunder. No commissions or discounts were
paid.
In May 1996, the Registrant agreed to issue 577,823 shares of Class B Common
Stock, 1,155,647 shares of Class E-1 Common Stock and 1,155,647 shares of Class
E-2 Common Stock to Dr. Carl Chen, the Chairman. Chief Executive Officer and
President of the Registrant, pursuant to, and in connection with the termination
of, the New Management Agreement effective as of January 29, 1995 between the
Registrant and Dr. Chen. The shares were issued to Dr. Chen in June 1996 in
reliance on Section 4(2) of the Securities Act and Rule 506 promulgated
thereunder, and no commissions or discounts were paid.
In May 1996, the Registrant agreed to issue 187,118 shares of Class B Common
Stock, 374,236 shares of Class E-1 Common Stock, and 374,236 shares of Class E-2
Common Stock to Dr. Chen in exchange for the cancellation of loans in the
aggregate amount of $336,000. The shares were issued in June 1996 in reliance on
Section 4(2) of the Securities Act and Rule 506 promulgated thereunder, and no
commissions or discounts were paid.
In May 1996, the Registrant authorized the issuance of 17,460 shares of
Class B Common Stock, 34,919 shares of Class E-1 Common Stock and 34,919 shares
of Class E-2 Common Stock to Gene Comfort, its Executive Vice President, in
consideration for Mr. Comfort's services to the Company. The securities were
issued on June 26, 1996 in reliance on Section 4(2) of the Securities Act and
Rule 506 promulgated thereunder, and no commissions or discounts were paid.
In December 1993, the Registrant and Mr. Song Gen Yeh, who was at the time a
principal stockholder and director of the Registrant, agreed that the Registrant
would issue 584,074 shares of Class B Common Stock, 1,168,148 shares of Class
E-1 Common Stock, and 1,168,148 shares of Class E-2 Common Stock of the Company
to Mr. Yeh in repayment of advances made by Mr. Yeh to the Company in the
aggregate amount of $10,478,000. Such shares were issued to Mr. Yeh in June
1996. Also in June 1996, Mr. Yeh was issued 13,937 shares of Class B Common
Stock, 27,873 shares of Class E-1 Common Stock, and 27,873 shares of Class E-2
Common Stock of the Registrant in repayment of $250,000 in additional advances
made by Mr. Yeh to the Company. The foregoing shares were issued in reliance
upon Section 4(2) of the Securities Act and Rule 506 promulgated thereunder, and
no commissions or discounts were paid. In August 1996, Mr. Yeh transferred all
of the shares of the Registrant held by him to Harpa Limited, a corporation
organized under the laws of the Cayman Islands ("Harpa"). C.M. Cheng, a director
of the Registrant, is the Director of Harpa and thus has voting control of the
shares of the Registrant held by
II-2
<PAGE>
Harpa. The voting control of Harpa is held equally by Shih Jen Yeh and Chyao Chi
Yeh, who are sons of Song Gen Yeh.
ITEM 27. EXHIBITS.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE NO.
- --------- -------------------------------------------------------------------------------------- -----
<C> <S> <C>
**1.1 Form of Underwriting Agreement........................................................
*3.1 Certificate of Incorporation..........................................................
*3.2 Bylaws................................................................................
**3.3 Amendment to Certificate of Incorporation.............................................
**4.1 Specimen Certificate of Class A Common Stock..........................................
**4.2 Warrant Agreement (including forms of Class A and Class B Warrant Certificates).......
**4.3 Form of Underwriter's Unit Purchase Option............................................
**5.1 Opinion of Luce, Forward, Hamilton & Scripps..........................................
*10.1 Form of Indemnification Agreement.....................................................
*10.2 1996 Stock Option Plan................................................................
*10.3 Employment Agreement dated as of May 1, 1996 between the Company and Dr. Carl L.
Chen................................................................................
*10.4 Agreement of Merger dated July 16, 1996 between Advanced Aerodynamics and Structures,
Inc., California corporation, and Advanced Aerodynamics & Structures, Inc., a
Delaware corporation................................................................
**11.1 Statement re: Computation of Per Share Earnings.......................................
**23.1 Consent of Luce, Forward, Hamilton & Scripps LLP (contained in Exhibit 5.1)...........
**23.2 Consent of Price Waterhouse LLP, independent accountants..............................
**23.3 Consent of Boros & Garofalo, P.C......................................................
*24 Power of Attorney (included on page II-5).............................................
</TABLE>
- ------------------------
*Previously filed
**Filed herewith
ITEM 28. UNDERTAKINGS
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act; (ii) to reflect
in the prospectus any facts or events arising after the effective date of the
registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information in the registration statement; and (iii) to include any additional
or changed material information with respect to the plan of distribution.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating
II-3
<PAGE>
to the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(4) To provide to the underwriter at the closing specified in the
underwriting agreements certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
(5) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 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 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.
(6) The undersigned Registrant hereby undertakes that it will:
(a) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Securities Act as part of this registration statement as of
the time it was declared effective.
(b) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and the offering of such securities at that time as the initial
BONA FIDE offering of those securities.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and has duly caused this Amendment No. 2 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in Long Beach, State of California, on November 21, 1996.
ADVANCED AERODYNAMICS & STRUCTURES, INC.
/S/ CARL L. CHEN
-----------------------------------------
By: Carl L. Chen, PRESIDENT
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ CARL L. CHEN President, Chief Executive
- ------------------------------ Officer, and Chairman of November 21, 1996
Carl L. Chen the Board
*GENE COMFORT
- ------------------------------ Executive Vice President, November 21, 1996
Gene Comfort Secretary and Director
*SANDRA ANDRE
- ------------------------------ Chief Financial Officer November 21, 1996
Sandra Andre
*C.M. CHENG
- ------------------------------ Director November 21, 1996
C.M. Cheng
*STEVE GORLIN
- ------------------------------ Director November 21, 1996
Steve Gorlin
*By: /s/ CARL L. CHEN November 21, 1996
-------------------------
Carl L. Chen
ATTORNEY IN FACT
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE NO.
- --------- -------------------------------------------------------------------------------------- -----
<C> <S> <C>
**1.1 Form of Underwriting Agreement........................................................
*3.1 Certificate of Incorporation..........................................................
*3.2 Bylaws................................................................................
**3.3 Amendment to Certificate of Incorporation.............................................
**4.1 Specimen Certificate of Class A Common Stock..........................................
**4.2 Warrant Agreement (including forms of Class A and Class B Warrant Certificates).......
**4.3 Form of Underwriter's Unit Purchase Option............................................
**5.1 Opinion of Luce, Forward, Hamilton & Scripps..........................................
*10.1 Form of Indemnification Agreement.....................................................
*10.2 1996 Stock Option Plan................................................................
*10.3 Employment Agreement dated as of May 1, 1996 between the Company and Dr. Carl L.
Chen................................................................................
*10.4 Agreement of Merger dated July 16, 1996 between Advanced Aerodynamics and Structures,
Inc., California corporation, and Advanced Aerodynamics & Structures, Inc., a
Delaware corporation................................................................
**11.1 Statement re: Computation of Per Share Earnings.......................................
**23.1 Consent of Luce, Forward, Hamilton & Scripps LLP (contained in Exhibit 5.1)...........
**23.2 Consent of Price Waterhouse LLP, independent accountants..............................
**23.3 Consent of Boros & Garofalo, P.C......................................................
*24 Power of Attorney (included on page II-5).............................................
</TABLE>
- ------------------------
*Previously filed
**Filed herewith
<PAGE>
6,000,000 Units
(each Unit consisting of one share of Class A Common Stock, par
value $.0001 per share; one redeemable Class A warrant
and one redeemable Class B warrant)
ADVANCED AERODYNAMICS
& STRUCTURES, INC.
UNDERWRITING AGREEMENT
New York, New York
__________, 1996
D.H. Blair Investment Banking Corp.
44 Wall Street
New York, New York 10005
Advanced Aerodynamics & Structures, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to D.H. Blair Investment Banking Corp.
(the "Underwriter"), an aggregate of 6,000,000 Units, each unit being
hereinafter referred to as a "Unit" and consisting of one share of Class A
Common Stock, par value $.0001 per share, ("Shares"), one redeemable Class A
warrant ("Class A Warrant") and one redeemable Class B warrant ("Class B
Warrant"). Each Class A Warrant is exercisable to purchase one share of Common
Stock and one Class B Warrant at a price of $6.50 from ___________, 1996 to
___________, 2001. Each Class B Warrant is exercisable to purchase one share of
Class A Common Stock at a price of $8.75 from __________ , 1996 to ___________ ,
2001. The Class A Warrants and Class B Warrants are collectively referred to as
the "Warrants". The Warrants are subject to redemption, in certain instances
commencing one year from the date of this Agreement. In addition, the Company
proposes to grant to the Underwriter the option referred to in Section 2(b) to
purchase all or any part of an aggregate of 900,000 additional Units. Unless
the context otherwise indicates, the term "Units" shall include the 900,000
additional Units referred to above.
The aggregate of 6,000,000 Units to be sold by the Company, together
with all or any part of the 900,000 Units which the Underwriter has the option
to purchase, and the Shares and the Warrants comprising such Units, are herein
called the "Units." The Class A Common Stock of the Company to be outstanding
after giving effect to the sale of the Shares is herein called the "Class A
Common Stock." The Shares and Warrants included in the Units (including the
Units which the Underwriter has the option to purchase) are herein collectively
called the "Securities."
<PAGE>
You have advised the Company that you desire to purchase the Units.
The Company confirms the agreements made by it with respect to the purchase of
the Units by you as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, the Underwriter that:
(a) A registration statement (File No. 333-12273) on Form SB-2
relating to the public offering of the Units, including a form of prospectus
subject to completion, copies of which have heretofore been delivered to you,
has been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
(the "Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder, and has been filed with the Commission under the Act
and one or more amendments to such registration statement may have been so
filed. After the execution of this Agreement, the Company will file with the
Commission either (i) if such registration statement, as it may have been
amended, has been declared by the Commission to be effective under the Act,
either (A) if the Company relies on Rule 434 under the Act, a Term Sheet (as
hereinafter defined) relating to the Units that shall identify the Preliminary
Prospectus (as hereinafter defined) that it supplements containing such
information as is required or permitted by Rules 434, 430A and 424(b) under the
Act or (B) if the Company does not rely on Rule 434 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 in the case of either
clause (i)(A) or (i)(B) of this sentence, as have been provided to and approved
by you prior to the execution of this Agreement, or (ii) 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 shall be furnished to
and approved by you prior to the execution of this 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, including all financial schedules and exhibits thereto and including
any information omitted therefrom pursuant to Rule 430A under the Act and
included in the Prospectus (as hereinafter defined); the term "Preliminary
Prospectus" means each prospectus subject to completion 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 time it was or is declared effective); the term
"Prospectus" means (A) if the Company relies on Rule 434 under the Act, the Term
Sheet relating to the Shares and Warrants that is first filed pursuant to Rule
424(b)(7) under the Act, together with the Preliminary Prospectus identified
therein that such Term Sheet supplements; (B) if the Company does not rely on
Rule 434 under the Act, the prospectus first filed with the Commission pursuant
to Rule 424(b) under the Act or (C) if the Company does not rely on Rule 434
under the Act and if no prospectus is required to be filed pursuant to said
Rule 424(b), such term means the prospectus included in the Registration
-2-
<PAGE>
Statement; except that if such registration statement or prospectus is amended
or such prospectus is supplemented, after the effective date of such
registration statement and prior to the Option Closing Date (as hereinafter
defined), the terms "Registration Statement" and "Prospectus" shall include such
registration statement and prospectus as so amended, and the term "Prospectus"
shall include the prospectus as so supplemented, or both, as the case may be;
and the term "Term Sheet" means any term sheet that satisfies the requirements
of Rule 434 under the Act. Any reference to the "date" of a Prospectus that
includes a Term Sheet shall mean the date of such Term Sheet.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus. At the time the
Registration Statement becomes effective and at all times subsequent thereto
up to and on the Closing Date (as hereinafter defined) or the Option Closing
Date (as hereafter defined), as the case may be, (i) the Registration
Statement and Prospectus will in all respects conform to the requirements of
the Act and the Rules and Regulations; and (ii) neither the Registration
Statement nor the Prospectus will include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make statements therein not misleading; provided, however, that
the Company makes no representations, warranties or agreements as to
information contained in or omitted from the Registration Statement or
Prospectus in reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of the Underwriter specifically for
use in the preparation thereof. It is understood that the statements set
forth in the Prospectus on page 2 with respect to stabilization, under the
heading "Underwriting" and the identity of counsel to the Underwriter under
the heading "Legal Matters" constitute the only information furnished in
writing by or on behalf of the Underwriter for inclusion in the Registration
Statement and Prospectus, as the case may be.
(c) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation, with full power and authority (corporate and other) to own
its properties and conduct its business as described in the Prospectus and is
duly qualified to do business as a foreign corporation and is in good standing
in all other jurisdictions in which the nature of its business or the character
or location of its properties requires such qualification, except where failure
to so qualify will not materially affect the Company's business, properties or
financial condition.
(d) The authorized, issued and outstanding capital stock of the
Company as of September 30, 1996 is as set forth in the Prospectus under
"Capitalization"; the shares of issued and outstanding capital stock of the
Company set forth thereunder have been duly authorized, validly issued and are
fully paid and non-assessable; except as set forth in the Prospectus, no
options, warrants, or other rights to purchase, agreements or other obligations
to issue, or agreements or other rights to convert any obligation into, any
shares of capital stock of the Company have been granted or entered into by the
Company; and the capital stock conforms to all statements relating thereto
contained in the Registration Statement and Prospectus.
-3-
<PAGE>
(e) The Units and the Shares are duly authorized, and when
issued and delivered pursuant to this Agreement, will be duly authorized,
validly issued, fully paid and nonassessable and free of preemptive rights of
any security holder of the Company. Neither the filing of the Registration
Statement nor the offering or sale of the Units as contemplated in this
Agreement gives rise to any rights, other than those which have been waived or
satisfied, for or relating to the registration of any shares of Common Stock,
except as described in the Registration Statement.
The Warrants have been duly authorized and, when issued and delivered
pursuant to this Agreement, will have been duly executed, issued and delivered
and will constitute valid and legally binding obligations of the Company
enforceable in accordance with their terms and entitled to the benefits provided
by the warrant agreement pursuant to which such Warrants are to be issued (the
"Warrant Agreement"), which will be substantially in the form filed as an
exhibit to the Registration Statement. The shares of Class A Common Stock
issuable upon exercise of the Warrants have been reserved for issuance upon the
exercise of the Warrants and when issued in accordance with the terms of the
Warrants and Warrant Agreement, will be duly and validly authorized, validly
issued, fully paid and non-assessable and free of preemptive rights and no
personal liability will attach to the ownership thereof. The Warrant Agreement
has been duly authorized and, when executed and delivered pursuant to this
Agreement, will have been duly executed and delivered and will constitute the
valid and legally binding obligation of the Company enforceable in accordance
with its terms. The Warrants and the Warrant Agreement conform to the
respective descriptions thereof in the Registration Statement and Prospectus.
The Shares and the Warrants contained in the Unit Purchase Option have
been duly authorized and, when duly issued and delivered, such Warrants will
constitute valid and legally binding obligations of the Company enforceable in
accordance with their terms and entitled to the benefits provided by the Unit
Purchase Option. The Shares included in the Unit Purchase Option (and the
shares of Common Stock issuable upon exercise of such Warrants) when issued and
sold, will be duly authorized, validly issued, fully paid and non-assessable and
free of preemptive rights and no personal liability will attach to the ownership
thereof.
(f) This Agreement, the Unit Purchase Option and the M/A
Agreement (as defined herein) have been duly and validly authorized, executed
and delivered by the Company. The Company has full power and lawful
authority to authorize, issue and sell the Units to be sold by it hereunder
on the terms and conditions set forth herein, and no consent, approval,
authorization or other order of any governmental authority is required in
connection with such authorization, execution and delivery or with the
authorization, issue and sale of the Units or the Unit Purchase Option,
except such as may be required under the Act or state securities laws.
(g) Except as described in the Prospectus, the Company is not in
violation, breach or default of or under, and consummation of the transactions
herein contemplated and the fulfillment of the terms of this Agreement will not
conflict with, or result in a breach or violation of, any of the terms or
provisions of, or constitute a default under, or
-4-
<PAGE>
result in the creation or imposition of any lien, charge or encumbrance upon any
of the property or assets of the Company pursuant to the terms of any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company is a party or by which the Company may be bound or to which
any of the property or assets of the Company is subject, nor will such action
result in any violation of the provisions of the articles of incorporation or
the by-laws of the Company, as amended, or any statute or any order, rule or
regulation applicable to the Company of any court or of any regulatory authority
or other governmental body having jurisdiction over the Company.
(h) Subject to the qualifications stated in the Prospectus, the
Company has good and marketable title to all properties and assets described in
the Prospectus as owned by it, free and clear of all liens, charges,
encumbrances or restrictions, except such as are not materially significant or
important in relation to its business; all of the material leases and subleases
under which the Company is the lessor or sublessor of properties or assets or
under which the Company holds properties or assets as lessee or sublessee as
described in the Prospectus are in full force and effect, and, except as
described in the Prospectus, the Company is not in default in any material
respect with respect to any of the terms or provisions of any of such leases or
subleases, and no claim has been asserted by anyone adverse to rights of the
Company as lessor, sublessor, lessee or sublessee under any of the leases or
subleases mentioned above, or affecting or questioning the right of the Company
to continued possession of the leased or subleased premises or assets under any
such lease or sublease except as described or referred to in the Prospectus; and
the Company owns or leases all such properties described in the Prospectus as
are necessary to its operations as now conducted and, except as otherwise stated
in the Prospectus, as proposed to be conducted as set forth in the Prospectus.
(i) Price Waterhouse LLP, who have given their reports on
certain financial statements filed and to be filed with the Commission as a part
of the Registration Statement, which are incorporated in the Prospectus, are
with respect to the Company, independent public accountants as required by the
Act and the Rules and Regulations.
(j) The financial statements, together with related notes, set
forth in the Prospectus (or if the Prospectus is not in existence, the most
recent Preliminary Prospectus) or the Registration Statement present fairly the
financial position and results of operations and changes in cash flow position
of the Company on the basis stated in the Registration Statement, at the
respective dates and for the respective periods to which they apply. Said
statements and Schedules and related notes have been prepared in accordance with
generally accepted accounting principles applied on a basis which is consistent
during the periods involved. The information set forth under the captions
"Dilution", "Capitalization", and "Selected Financial Data" in the Prospectus
fairly present, on the basis stated in the Prospectus, the information included
therein. The pro forma financial information filed as part of the Registration
Statement or included in the Prospectus (or preliminary prospectus) has been
prepared in accordance with the Commission's rules and guidelines with respect
to pro forma financial statements, and includes all adjustments necessary to
present fairly the pro forma financial condition and results
-5-
<PAGE>
of operations at the respective dates and for the respective periods indicated
and all assumptions used in preparing such pro forma financial statements are
reasonable.
(k) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus), the Company has not
incurred any liabilities or obligations, direct or contingent, not in the
ordinary course of business, or entered into any transaction not in the ordinary
course of business, which is material to the business of the Company, and there
has not been any change in the capital stock of, or any incurrence of short-term
or long-term debt by, the Company or any issuance of options, warrants or other
rights to purchase the capital stock of the Company or any adverse change or any
development involving, so far as the Company can now reasonably foresee a
prospective adverse change in the condition (financial or other), net worth,
results of operations, business, key personnel or properties of it which would
be material to the business or financial condition of the Company and the
Company has not become a party to, and neither the business nor the property of
the Company has become the subject of, any material litigation whether or not in
the ordinary course of business.
(l) Except as set forth in the Prospectus, there is not now
pending or, to the knowledge of the Company, threatened, any action, suit or
proceeding to which the Company is a party before or by any court or
governmental agency or body, which might result in any material adverse change
in the condition (financial or other), business prospects, net worth, or
properties of the Company, nor are there any actions, suits or proceedings
related to environmental matters or related to discrimination on the basis of
age, sex, religion or race; and no labor disputes involving the employees of the
Company exist or are imminent which might be expected to adversely affect the
conduct of the business, property or operations or the financial condition or
results of operations of the Company.
(m) Except as disclosed in the Prospectus, the Company has filed
all necessary federal, state and foreign income and franchise tax returns and
has paid all taxes shown as due thereon; and there is no tax deficiency which
has been or to the knowledge of the Company might be asserted against the
Company.
(n) The Company has sufficient licenses, permits and other
governmental authorizations currently required for the conduct of its business
or the ownership of its properties as described in the Prospectus and is in all
material respects complying therewith and owns or possesses adequate rights to
use all material patents, patent applications, trademarks, service marks,
trade-names, trademark registrations, service mark registrations, copyrights and
licenses necessary for the conduct of such business and had not received any
notice of conflict with the asserted rights of others in respect thereof. To
the best knowledge of the Company, none of the activities or business of the
Company are in violation of, or cause the Company to violate, any law, rule,
regulation or order of the United States, any state, county or locality, or of
any agency or body of the United States or of any state, county or locality, the
violation of which would have a material adverse impact upon the condition
(financial or otherwise), business, property, prospective results of operations,
or net worth of the Company.
-6-
<PAGE>
(o) The Company has not, directly or indirectly, at any time
(i) made any contributions to any candidate for political office, or failed to
disclose fully any such contribution in violation of law or (ii) made any
payment to any state, federal or foreign governmental officer or official, or
other person charged with similar public or quasi-public duties, other than
payments or contributions required or allowed by applicable law. The Company's
internal accounting controls and procedures are sufficient to cause the Company
to comply in all material respects with the Foreign Corrupt Practices Act of
1977, as amended.
(p) On the Closing Dates (hereinafter defined) all transfer or
other taxes, (including franchise, capital stock or other tax, other than income
taxes, imposed by any jurisdiction) if any, which are required to be paid in
connection with the sale and transfer of the Units to the Underwriter hereunder
will have been fully paid or provided for by the Company and all laws imposing
such taxes will have been fully complied with.
(q) All contracts and other documents of the Company which are,
under the Rules and Regulations, required to be filed as exhibits to the
Registration Statement have been so filed.
(r) The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in, or which has constituted
or which might reasonably be expected to constitute, the stabilization or
manipulation of the price of the shares of Common Stock to facilitate the sale
or resale of the Units hereby.
(s) The Company has no subsidiaries.
(t) The Company has not entered into any agreement pursuant to
which any person is entitled either directly or indirectly to compensation from
the Company for services as a finder in connection with the proposed public
offering.
(u) Except as previously disclosed in writing by the Company to
you, no officer, director or stockholder of the Company has any affiliation or
association with any member of the National Association of Securities Dealers
Inc. ("NASD").
(v) The Company is not, and upon receipt of the proceeds from
the sale of the Units will not be, an "investment company" within the meaning of
the Investment Company Act of 1940, as amended, and the rules and regulations
thereunder.
(w) The Company has not distributed and will not distribute
prior to the First Closing Date any offering material in connection with the
offering and sale of the Units other than the Preliminary Prospectus,
Prospectus, the Registration Statement or the other materials permitted by the
Act, if any.
(x) The conditions for use of Form SB-2, as set forth in the
General Instructions thereto, have been satisfied.
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(y) There are no business relationships or related-party
transactions of the nature described in Item 404 of Regulation S-B involving the
Company and any person described in such Item that are required to be disclosed
in the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) and that have not been so disclosed.
2. PURCHASE, DELIVERY AND SALE OF THE UNITS.
(a) Subject to the terms and conditions of this Agreement, and
upon the basis of the representations, warranties, and agreements herein
contained, the Company agrees to issue and sell to the Underwriter, and the
Underwriter agrees, to buy from the Company at $_______ per Unit, at the place
and time hereinafter specified, 6,000,000 Units.
Delivery of the First Units against payment therefor shall take
place at the offices of D.H. Blair Investment Banking Corp., 44 Wall Street, New
York, N.Y. (or at such other place as may be designated by agreement between
you and the Company) at 10:00 a.m., New York time, on , 1996, or at such
later time and date as you may designate, such time and date of payment and
delivery for the First Units being herein called the "First Closing Date."
(b) In addition, subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties and agreements
herein contained, the Company hereby grants an option to the Underwriter to
purchase all or any part of an aggregate of an additional 900,000 Units at the
same price per Unit as the Underwriter shall pay for the First Units being sold
pursuant to the provisions of subsection (a) of this Section 2 (such additional
Units being referred to herein as the "Option Units"). This option may be
exercised within 30 days after the effective date of the Registration Statement
upon notice by you to the Company advising as to the amount of Option Units as
to which the option is being exercised, the names and denominations in which the
certificates for such Option Units are to be registered and the time and date
when such certificates are to be delivered. Such time and date shall be
determined by you but shall not be earlier than four nor later than ten full
business days after the exercise of said option, nor in any event prior to the
First Closing Date, and such time and date is referred to herein as the "Option
Closing Date." Delivery of the Option Units against payment therefor shall take
place at the offices of D.H. Blair Investment Banking Corp., 44 Wall Street, New
York, N.Y. The Option granted hereunder may be exercised only to cover
overallotments in the sale by the Underwriter of First Units referred to in
subsection (a) above. In the event the Company declares or pays a dividend or
distribution on its Common Stock, whether in the form of cash, shares of Common
Stock or any other consideration, prior to the Option Closing Date, such
dividend or distribution shall also be paid on the Option Units on the Option
Closing Date.
(c) The Company will make the certificates for the securities
comprising the Units to be purchased by the Underwriter hereunder available to
you for checking at least two full business days prior to the First Closing Date
or the Option Closing Date (which are collectively referred to herein as the
"Closing Dates"). The certificates shall be in such names and denominations as
you may request, at least two full business days prior to the Closing
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Dates. Time shall be of the essence and delivery at the time and place
specified in this Agreement is a further condition to the obligations of the
Underwriter.
Definitive certificates in negotiable form for the Units to be
purchased by the Underwriter hereunder will be delivered by the Company to you
against payment of the purchase price by certified or bank cashier's checks in
New York Clearing House funds, payable to the order of the Company.
In addition, in the event the Underwriter exercises the option to
purchase from the Company all or any portion of the Option Units pursuant to the
provisions of subsection (b) above, payment for such Units shall be made to or
upon the order of the Company by certified or bank cashier's checks payable in
New York Clearing House funds at the offices of D.H. Blair Investment Banking
Corp., at the time and date of delivery of such Units as required by the
provisions of subsection (b) above, against receipt of the certificates for such
Units by the Underwriter for the account of the Underwriter registered in such
names and in such denominations as the Underwriter may request.
It is understood that the Underwriter propose to offer the Units
to be purchased hereunder to the public upon the terms and conditions set forth
in the Registration Statement, after the Registration Statement becomes
effective.
3. COVENANTS OF THE COMPANY. The Company covenants and agrees with
the Underwriter that:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective as promptly as possible. If
required, the Company will file the Prospectus or any Term Sheet that
constitutes a part thereof and any amendment or supplement thereto with the
Commission in the manner and within the time period required by Rules 434 and
424(b) under the Act. Upon notification from the Commission that the
Registration Statement has become effective, the Company will so advise you and
will not at any time, whether before or after the effective date, file the
Prospectus, Term Sheet or any amendment to the Registration Statement or
supplement to the Prospectus of which you shall not previously have been advised
and furnished with a copy or to which you or your counsel shall have objected in
writing or which is not in compliance with the Act and the Rules and
Regulations. At any time prior to the later of (A) the completion by the
Underwriter of the distribution of the Units contemplated hereby (but in no
event more than nine months after the date on which the Registration Statement
shall have become or been declared effective) and (B) 25 days after the date on
which the Registration Statement shall have become or been declared effective,
the Company will prepare and file with the Commission, promptly upon your
request, any amendments or supplements to the Registration Statement or
Prospectus which, in your opinion, may be necessary or advisable in connection
with the distribution of the Units.
As soon as the Company is advised thereof, the Company will
advise you, and confirm the advice in writing, of the receipt of any comments of
the Commission, of the
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effectiveness of any post-effective amendment to the Registration Statement, of
the filing of any supplement to the Prospectus or any amended Prospectus, of any
request made by the Commission for amendment of the Registration Statement or
for supplementing of the Prospectus or for additional information with respect
thereto, of the issuance by the Commission or any state or regulatory body of
any stop order or other order or threat thereof suspending the effectiveness of
the Registration Statement or any order preventing or suspending the use of any
preliminary prospectus, or of the suspension of the qualification of the Units
for offering in any jurisdiction, or of the institution of any proceedings for
any of such purposes, and will use its best efforts to prevent the issuance of
any such order, and, if issued, to obtain as soon as possible the lifting
thereof.
The Company has caused to be delivered to you copies of each
Preliminary Prospectus, and the Company has consented and hereby consents to the
use of such copies for the purposes permitted by the Act. The Company
authorizes the Underwriter and dealers to use the Prospectus in connection with
the sale of the Units for such period as in the opinion of counsel to the
Underwriter the use thereof is required to comply with the applicable provisions
of the Act and the Rules and Regulations. In case of the happening, at any time
within such period as a Prospectus is required under the Act to be delivered in
connection with sales by an underwriter or dealer of any event of which the
Company has knowledge and which materially affects the Company or the securities
of the Company, or which in the opinion of counsel for the Company or counsel
for the Underwriter should be set forth in an amendment of the Registration
Statement or a supplement to the Prospectus in order to make the statements
therein not then misleading, in light of the circumstances existing at the time
the Prospectus is required to be delivered to a purchaser of the Units or in
case it shall be necessary to amend or supplement the Prospectus to comply with
law or with the Rules and Regulations, the Company will notify you promptly and
forthwith prepare and furnish to you copies of such amended Prospectus or of
such supplement to be attached to the Prospectus, in such quantities as you may
reasonably request, in order that the Prospectus, as so amended or supplemented,
will not contain any untrue statement of a material fact or omit to state any
material facts necessary in order to make the statements in the Prospectus, in
the light of the circumstances under which they are made, not misleading. The
preparation and furnishing of any such amendment or supplement to the
Registration Statement or amended Prospectus or supplement to be attached to the
Prospectus shall be without expense to the Underwriter, except that in case any
Underwriter is required, in connection with the sale of the Units to deliver a
Prospectus nine months or more after the effective date of the Registration
Statement, the Company will upon request of and at the expense of the
Underwriter, amend or supplement the Registration Statement and Prospectus and
furnish the Underwriter with reasonable quantities of prospectuses complying
with Section 10(a)(3) of the Act.
The Company will comply with the Act, the Rules and Regulations
and the Securities Exchange Act of 1934 and the rules and regulations thereunder
in connection with the offering and issuance of the Units.
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(b) The Company will use its best efforts to qualify to register
the Units for sale under the securities or "blue sky" laws of such jurisdictions
as the Underwriter may designate and will make such applications and furnish
such information as may be required for that purpose and to comply with such
laws, provided the Company shall not be required to qualify as a foreign
corporation or a dealer in securities or to execute a general consent of service
of process in any jurisdiction in any action other than one arising out of the
offering or sale of the Units. The Company will, from time to time, prepare and
file such statements and reports as are or may be required to continue such
qualification in effect for so long a period as the Underwriter may reasonably
request.
(c) If the sale of the Units provided for herein is not
consummated for any reason caused by the Company, the Company shall pay all
costs and expenses incident to the performance of the Company's obligations
hereunder, including but not limited to, all of the expenses itemized in
Section 8, including the actual accountable out-of-pocket expenses of the
Underwriter.
(d) The Company will use its best efforts to (i) cause a
registration statement under the Securities Exchange Act of 1934 to be declared
effective concurrently with the completion of this offering and will notify the
Underwriter in writing immediately upon the effectiveness of such registration
statement, and (ii) if requested by the Underwriter, to obtain a listing on the
Pacific Stock Exchange and to obtain and keep current a listing in the Standard
& Poors or Moody's Industrial OTC Manual.
(e) For so long as the Company is a reporting company under
either Section 12(g) or 15(d) of the Securities Exchange Act of 1934, the
Company, at its expense, will furnish to its stockholders an annual report
(including financial statements audited by independent public accountants), in
reasonable detail and at its expense, will furnish to you during the period
ending five (5) years from the date hereof, (i) as soon as practicable after the
end of each fiscal year, a balance sheet of the Company and any of its
subsidiaries as at the end of such fiscal year, together with statements of
income, surplus and cash flow of the Company and any subsidiaries for such
fiscal year, all in reasonable detail and accompanied by a copy of the
certificate or report thereon of independent accountants; (ii) as soon as
practicable after the end of each of the first three fiscal quarters of each
fiscal year, consolidated summary financial information of the Company for such
quarter in reasonable detail; (iii) as soon as they are available, a copy of all
reports (financial or other) mailed to security holders; (iv) as soon as they
are available, a copy of all non-confidential reports and financial statements
furnished to or filed with the Commission or any securities exchange or
automated quotation system on which any class of securities of the Company is
listed; and (v) such other information as you may from time to time reasonably
request.
(f) In the event the Company has an active subsidiary or
subsidiaries, such financial statements referred to in subsection (e) above will
be on a consolidated basis to the extent the accounts of the Company and its
subsidiary or subsidiaries are consolidated in reports furnished to its
stockholders generally.
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<PAGE>
(g) The Company will deliver to you at or before the First
Closing Date two signed copies of the Registration Statement including all
financial statements and exhibits filed therewith, and of all amendments
thereto, and will deliver to the Underwriter such number of conformed copies of
the Registration Statement, including such financial statements but without
exhibits, and of all amendments thereto, as the Underwriter may reasonably
request. The Company will deliver to or upon the order of the Underwriter, from
time to time until the effective date of the Registration Statement, as many
copies of any Preliminary Prospectus filed with the Commission prior to the
effective date of the Registration Statement as the Underwriter may reasonably
request. The Company will deliver to the Underwriter on the effective date of
the Registration Statement and thereafter for so long as a Prospectus is
required to be delivered under the Act, from time to time, as many copies of the
Prospectus, in final form, or as thereafter amended or supplemented, as the
Underwriter may from time to time reasonably request. The Company, not later
than (i) 5:00 p.m., New York City time, on the date of determination of the
public offering price, if such determination occurred at or prior to 12:00 noon,
New York City time, on such date or (ii) 6:00 p.m., New York City time, on the
business day following the date of determination of the public offering price,
if such determination occurred after 12:00 noon, New York City time, on such
date, will deliver to the Underwriter, without charge, as many copies of the
Prospectus and any amendment or supplement thereto as the Underwriter may
reasonably request for purposes of confirming orders that are expected to settle
on the First Closing Date.
(h) The Company will make generally available to its security
holders and to the registered holders of its Warrants and deliver to you as soon
as it is practicable to do so but in no event later than 90 days after the end
of twelve months after its current fiscal quarter, an earnings statement (which
need not be audited) covering a period of at least twelve consecutive months
beginning after the effective date of the Registration Statement, which shall
satisfy the requirements of Section 11(a) of the Act.
(i) The Company will apply the net proceeds from the sale of the
Units for the purposes set forth under "Use of Proceeds" in the Prospectus, and
will file such reports with the Commission with respect to the sale of the Units
and the application of the proceeds therefrom as may be required pursuant to
Rule 463 under the Act.
(j) The Company will, promptly upon your request, prepare and
file with the Commission any amendments or supplements to the Registration
Statement, Preliminary Prospectus or Prospectus and take any other action, which
in the reasonable opinion of Bachner, Tally, Polevoy & Misher LLP, counsel to
the Underwriter, may be reasonably necessary or advisable in connection with the
distribution of the Units, and will use its best efforts to cause the same to
become effective as promptly as possible.
(k) The Company will reserve and keep available that maximum
number of its authorized but unissued securities which are issuable upon
exercise of the Unit Purchase Option outstanding from time to time.
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<PAGE>
(l) For a period of thirteen months from the First Closing Date,
no officer, director or stockholder of the Company (the "Principal
Stockholders") will directly or indirectly, offer, sell (including any short
sale), grant any option for the sale of, acquire any option to dispose of, or
otherwise dispose of any shares of Common Stock or other securities of the
Company without the prior written consent of the Underwriter. In order to
enforce this covenant, the Company shall impose stop-transfer instructions with
respect to the shares owned by the Principal Stockholders until the end of such
period.
(m) Prior to completion of this offering, the Company will make
all filings required, including registration under the Securities Exchange Act
of 1934, to obtain the listing of the Units, Common Stock, and Warrants on the
Nasdaq National Market (or a listing on such other market or exchange as the
Underwriter consents to), and will effect and maintain such listing for at least
five years from the date of this Agreement.
(n) The Company and each of the Principal Stockholders
represents that it or he has not taken and agree that it or he will not take,
directly or indirectly, any action designed to or which has constituted or which
might reasonably be expected to cause or result in the stabilization or
manipulation of the price of the Units, Shares or the Warrants or to facilitate
the sale or resale of the Securities.
(o) On the Closing Date and simultaneously with the delivery of
the Units, the Company shall execute and deliver to you, the Unit Purchase
Option. The Unit Purchase Option will be substantially in the form of the
Underwriter's Unit Purchase Option filed as an Exhibit to the Registration
Statement.
(p) During the 18 month period commencing on the date of this
Agreement, the Company will not, without the prior written consent of the
Underwriter, grant options to purchase shares of Common Stock at an exercise
price less than the greater of (i) the initial public offering price of the
Units (without allocating any value to the Warrants) or (ii) the fair market
value of the Common Stock on the date of grant. In addition, all of such
options shall vest over a five year period from the date of issuance. During
the six month period commencing on the date of this Agreement, the Company will
not, without the prior written consent of the Underwriter, grant options to any
current officer of the Company. During the three year period from the First
Closing Date, the Company will not, without the prior written consent of the
Underwriter, offer or sell any of its securities pursuant to Regulation S under
the Act.
(q) The Company will not, without the prior written consent of
the Underwriter, grant registration rights to any person which are exercisable
sooner than 13 months from the First Closing Date.
(r) Dr. Carl L. Chen shall be President and Chief Executive
Officer of the Company on the Closing Dates and Gene Comfort shall be Senior
Vice President and General Manager on the Closing Date. The Company has
obtained key person life insurance on
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the lives of Dr. Chen and Mr. Comfort, respectively, in an amount of not less
than $2 million and $1 million and will use its best efforts to maintain such
insurance during the three year period commencing on the First Closing Date or
the term of their employment, whichever period is longer. In the event Dr.
Chen's employment is terminated prior to the three year period commencing on the
First Closing Date, the Company will obtain a comparable policy on the life of
his successor for the balance of the three year period. For a period of
thirteen months from the First Closing Date, the compensation of the executive
officers of the Company shall not be increased from the compensation levels
disclosed in the Prospectus.
(s) On the Closing Date and simultaneously with the delivery of
the Units the Company shall execute and deliver to you, an agreement with you
regarding mergers, acquisitions, joint ventures and certain other forms of
transactions, in the form previously delivered to the Company by you (the "M/A
Agreement").
(t) So long as any Warrants are outstanding, the Company shall
use its best efforts to cause post-effective amendments to the Registration
Statement to become effective in compliance with the Act and without any lapse
of time between the effectiveness of any such post-effective amendments and
cause a copy of each Prospectus, as then amended, to be delivered to each holder
of record of a Warrant and to furnish to the Underwriter and dealer as many
copies of each such Prospectus as the Underwriter or dealer may reasonably
request. The Company shall not call for redemption any of the Warrants unless a
registration statement covering the securities underlying the Warrants has been
declared effective by the Commission and remains current at least until the date
fixed for redemption. In addition, for so long as any Warrant is outstanding,
the Company will promptly notify the Underwriter of any material change in the
business, financial condition or prospects of the Company.
(u) Upon the exercise of any Warrant or Warrants after
_______, 1997, the Company will pay D.H. Blair Investment Banking Corp., a
fee of 5% of the aggregate exercise price of the Warrants, of which 1% may be
reallowed to the dealer who solicited in writing the exercise (which may also
be D.H. Blair Investment Banking Corp.) if (i) the market price of the
Company's Common Stock is greater than the exercise price of the Warrants on
the date of exercise; (ii) the exercise of the Warrant was solicited in
writing by a member of the National Association of Securities Dealers, Inc.,
(iii) the Warrant is not held in a discretionary account; (iv) the disclosure
of compensation arrangements has been made in documents provided to
customers, both as part of the original offering and at the time of exercise,
and (v) the solicitation of the Warrant was not in violation of Rule 10b-6
promulgated under the Securities Exchange Act of 1934, as amended. The
Company agrees not to solicit the exercise of any Warrants other than through
D.H. Blair Investment Banking Corp. and will not authorize any other dealer
to engage in such solicitation without the prior written consent of D.H.
Blair Investment Banking Corp.
(v) For a period of five (5) years from the Effective Date the
Company (i) at its expense, shall cause its regularly engaged independent
certified public accountants to review (but not audit) the Company's financial
statements for each of the first three (3) fiscal
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quarters prior to the announcement of quarterly financial information, the
filing of the Company's 10-Q quarterly report and the mailing of quarterly
financial information to stockholders and (ii) shall not change its accounting
firm without the prior written consent of the Chairman or the President of the
Underwriter.
(w) As promptly as practicable after the Closing Date, the
Company will prepare, at its own expense, hard cover "bound volumes" relating to
the offering, and will distribute at least four of such volumes to the
individuals designated by the Underwriter or counsel to the Underwriter.
(x) For a period of five years from the First Closing Date (i)
the Underwriter shall have the right, but not the obligation, to designate one
director of the Board of Directors of the Company and (ii) the Company shall
engage a public relations firm acceptable to the Underwriter.
(y) The Company shall, for a period of six years after date of
this Agreement, submit which reports to the Secretary of the Treasury and to
stockholders, as the Secretary may require, pursuant to Section 1202 of the
Internal Revenue Code, as amended, or regulations promulgated thereunder, in
order for the Company to qualify as a "small business" so that stockholders may
realize special tax treatment with respect to their investment in the Company.
(z) With respect to the Selling Stockholders, the Company will
send all post-effective amendments or prospectus supplements disclosing actual
price and selling terms to the NASD concurrently with the filing thereof with
the Commission. The Company will notify the Underwriter and the NASD if the
Company becomes aware that any 5% or greater stockholder of the Company becomes
an affiliated or associated person of an NASD member participating in the
distribution of this offering.
4. CONDITIONS OF UNDERWRITER'S OBLIGATION. The obligations of the
Underwriter to purchase and pay for the Units which they have respectively
agreed to purchase hereunder, are subject to the accuracy (as of the date
hereof, and as of the Closing Dates) of and compliance with the representations
and warranties of the Company herein, to the performance by the Company of its
obligations hereunder, and to the following conditions:
(a) The Registration Statement shall have become effective and
you shall have received notice thereof not later than 10:00 A.M., New York time,
on the date on which the amendment to the registration statement originally
filed with 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 agreed to by the Representative; if required, the Prospectus or
any Term Sheet that constitutes a part thereof and any amendment or supplement
thereto shall have been filed with the Commission in the manner and within the
time period required by Rule 434 and 424(b) under the Act; on or prior to the
Closing Dates no stop order suspending the effectiveness of the
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Registration Statement shall have been issued and no proceedings for that or a
similar purpose shall have been instituted or shall be pending or, to your
knowledge or to the knowledge of the Company, shall be contemplated by the
Commission; any request on the part of the Commission for additional information
shall have been complied with to the reasonable satisfaction of Bachner, Tally,
Polevoy & Misher LLP, counsel to the Underwriter;
(b) At the First Closing Date, you shall have received the
opinion, dated as of the First Closing Date, of Luce, Forward, Hamilton &
Scripps LLP, counsel for the Company, in form and substance satisfactory to
counsel for the Underwriter, to the effect that:
(i) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Delaware, with full corporate power and authority to own
its properties and conduct its business as described in the
Registration Statement and Prospectus. The Company is duly
qualified to do business as a foreign corporation in California
and is in good standing in the State of California.
(ii) to the best knowledge of such counsel, (a) the Company
has obtained, or is in the process of obtaining, all licenses,
permits and other governmental authorizations necessary to the
conduct of its business as described in the Prospectus, (b) such
licenses, permits and other governmental authorizations obtained
are in full force and effect, and (c) the Company is in all
material respects complying therewith;
(iii) the authorized capitalization of the Company as of
September 30, 1996 is as set forth under "Capitalization" in the
Prospectus; all shares of the Company's outstanding stock
requiring authorization for issuance by the Company's board of
directors have been duly authorized, validly issued, are fully
paid and non-assessable and conform to the description thereof
contained in the Prospectus. To the best knowledge of such
counsel, the outstanding shares of Common Stock of the Company
have not been issued in violation of the preemptive rights of
any shareholder and no preemptive rights of stockholders exist
with respect to any of the outstanding shares of stock of the
Company or the issue and sale thereof. To the best knowledge
of such counsel, there are no outstanding rights, warrants or
options to acquire, or instruments convertible into or
exchangeable for, any shares of capital stock or other equity
interest in the Company, except as disclosed in the Prospectus.
There are no restrictions upon the voting or transfer of any of
the Shares; the Class A Common Stock, the Warrants, the Unit
Purchase Option and the Warrant Agreement conform to the
respective descriptions thereof contained in the Prospectus; the
Shares have been, and the shares of Class A Common Stock to be
issued upon exercise of the Warrants and the Unit Purchase Option,
upon issuance in accordance with the terms of such Warrants, the
Warrant Agreement and Unit Purchase Option have been duly
authorized and, when issued and delivered, will be duly and
validly issued, fully paid and non-assessable; all prior sales
by the
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Company of the Company's securities have been made in compliance
with or under an exemption from registration under the Act and
applicable state securities laws and no shareholders of the
Company have any rescission rights with respect to Company
securities; a sufficient number of shares of Class A Common Stock
has been reserved for issuance upon exercise of the Warrants and
Unit Purchase Option and to the best of such counsel's knowledge,
neither the filing of the Registration Statement nor the offering
or sale of the Units as contemplated by this Agreement gives rise
to any registration or other rights, other than those
which have been waived or satisfied, for or relating to the
registration of any shares of Common Stock;
(iv) this Agreement, the Unit Purchase Option, the Warrant
Agreement amd the M/A Agreement have been duly and validly
authorized, executed and delivered by the Company and, assuming
due execution by each other party hereto or thereto, each
constitutes a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its respective
terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws
of general application relating to or affecting enforcement of
creditors' rights and the application of equitable principles in
any action, legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law;
(v) the certificates evidencing the shares of Class A
Common Stock are in valid and proper legal form; the Warrants
will be exercisable for shares of Class A Common Stock of the
Company in accordance with the terms of the Warrants and at the
prices therein provided for. The shares of Class A Common
Stock of the Company issuable upon exercise of the Warrants
have been duly authorized and reserved for issuance. Upon the
exercise thereof in accordance with the terms of the Warrants and
at the price provided for, the shares underlying such Warrants
will be duly and validly issued, fully paid and non-assessable;
(vi) such counsel knows of no pending or threatened legal or
governmental proceedings to which the Company is a party which
could materially adversely affect the business, property,
financial condition or operations of the Company; or which
question the validity of the Securities, this Agreement, the
Warrant Agreement, the Unit Purchase Option or the M/A Agreement,
or of any action taken or to be taken by the Company pursuant to
this Agreement, the Warrant Agreement, the Unit Purchase Option
or the M/A Agreement; and no such proceedings are known to such
counsel to be contemplated against the Company; there are
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no governmental proceedings or regulations required to be
described or referred to in the Registration Statement which are
not so described or referred to;
(vii) to the best of such counsel's knowledge, the Company is
not in violation of or default under, nor will the execution and
delivery of this Agreement, the Unit Purchase Option, the
Warrant Agreement or the M/A Agreement, and the incurrence of
the obligations herein and therein set forth and the consummation
of the transactions herein or therein contemplated, result
in a breach or violation of, or constitute a default under
the certificate or articles of incorporation or by-laws, in the
performance or observance of any material obligations, agreement,
covenant or condition contained in any bond, debenture, note or
other evidence of indebtedness or in any contract, indenture,
mortgage, loan agreement, lease, joint venture or other agreement
or instrument to which the Company is a party or by which it or
any of its properties may be bound or in violation of any material
order, rule, regulation, writ, injunction, or decree of any
government, governmental instrumentality or court, domestic or
foreign;
(viii) the Registration Statement has become effective under
the Act, and no stop order proceedings with respect thereto have
been instituted or are pending under the Act and, to the best of
such counsel's knowledge, no such proceedings are threatened or
contemplated by the Commission; any required filing of the
Prospectus and any supplement thereto pursuant to Rule 424(b)
and Rule 430A of the Rules and Regulations of the Act have been
made in the manner and in the time period required by such
Rules; the Registration Statement and the Prospectus (except
for the financial statements and other financial data contained
therein, or omitted therefrom, as to which such counsel need
express no opinion) comply as to form in all material respects
with the applicable requirements of the Act and the Rules and
Regulations;
(ix) such counsel has participated in conferences with
officers and other representatives of the Company, representatives
of the independent public accountants of the Company and
representatives of the Underwriters at which the contents of
the Registration Statement were discussed and, although such
counsel need not pass upon, assume responsibility for or
independently verify the accuracy, completeness or fairness of
the statements contained in the Registration Statement, no
facts have come to such counsel's attention which cause such
counsel to believe that the Registration Statement, or any
amendment thereto, at the time the Registration Statement or
such amendment thereto became effective, contained an untrue
statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading, or that the Prospectus, or any
amendment thereto, at the time it was filed pursuant to Rule
424(b) or at the Closing Date, contained an untrue statement of
a material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not
misleading (provided that such counsel need not express a view as
to the financial statements, schedules or other financial
information and statistical data and information included therein
or any information regarding the Underwriter of the
Underwriting).;
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(x) to the best of such counsel's knowledge, descriptions
in the Registration Statement and the Prospectus, and any
amendment or supplement thereto, of contracts and other
documents are accurate and fairly present the information
required to be shown, and such counsel is familiar with all
contracts and other documents referred to in the Registration
Statement and the Prospectus and any such amendment or supplement
or filed as exhibits to the Registration Statement, and such
counsel does not know of any contracts or documents of a
character required to be summarized or described therein or to be
filed as exhibits thereto which are not so summarized, described
or filed;
(xi) Except for the order of the Commission, which has been
obtained, declaring the Registration Statement effective and
except for permits and similar authorizations required under the
securities or blue sky laws of certain jurisdictions, as to
which such counsel need not express an opinion, to such
counsel's knowledge, no consent, approval, authorization or
other order of any court or regulatory body, administrative
agency or other governmental body is required for the
execution, delivery and performance of the Underwriting
Agreement and the consummation of the transactions contemplated
by the Underwriting Agreement or the issuance of the Unit
Purchase Option or the Securities underlying the Unit Purchase
Option; and no consents or waivers from the holders of the
Company's capital stock are required in connection with the
consummation of the transactions contemplated by the Underwriting
Agreement.
(xii) the statements in the Registration Statement under the
captions "Business", "Use of Proceeds", "Management", and
"Description of Securities" have been reviewed by such counsel
and insofar as they refer to descriptions of agreements,
statements of law, descriptions of statutes, licenses, rules or
regulations or legal conclusions, are correct in all material
respects;
(xiii) the Class A Common Stock and the Warrants
have been duly authorized for quotation on the Nasdaq National
Market, and the Units have been duly authorized for quotation
on the Nasdaq SmallCap Market; and
(xiv) to such counsel's knowledge, there are no business
relationships or related-party transactions of the nature
described in Item 404 of Regulation S-B involving the Company
and any person described in such Item that are required to be
disclosed in the Prospectus and which have not been so disclosed.
(c) At the First Closing Date, you shall have received the
opinion, addressed to the Underwriter, dated as of the First Closing Date, of
Boros & Garofalo, aviation counsel to the Company, in form and substance
satisfactory to counsel for the Underwriter, to the effect that:
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(i) the information in the Registration Statement
accurately and adequately describes in all material respects the
nature and extent to which the Company's business is subject to
regulation by the Federal Aviation Administration ("FAA").
(ii) the business as presently conducted by the Company, as
described in the Registration Statement, does not, to our
knowledge, violate any rule or regulation or the FAA.
Such opinion[s] shall also cover such matters incident to the
transactions contemplated hereby as the Underwriter shall reasonably request.
In rendering such opinion, such counsel may rely upon certificates of any
officer of the Company or public officials as to matters of fact; and may rely
as to all matters of law other than the law of the United States or of the State
of Delaware upon opinions of counsel satisfactory to you, in which case the
opinion shall state that they have no reason to believe that you and they are
not entitled to so rely.
(d) All corporate proceedings and other legal matters relating
to this Agreement, the Registration Statement, the Prospectus and other related
matters shall be satisfactory to or approved by Bachner, Tally, Polevoy &
Misher LLP, counsel to the Underwriter, and you shall have received from such
counsel a signed opinion, dated as of the First Closing Date, with respect to
the validity of the issuance of the Units, the form of the Registration
Statement and Prospectus (other than the financial statements and other
financial data contained therein), the execution of this Agreement and other
related matters as you may reasonably require. The Company shall have furnished
to counsel for the Underwriter such documents as they may reasonably request for
the purpose of enabling them to render such opinion.
(e) You shall have received a letter prior to the effective date
of the Registration Statement and again on and as of the First Closing Date from
Price Waterhouse LLP, independent public accountants for the Company,
substantially in the form approved by you, and including estimates of the
Company's revenues and results of operations for the period ending at the end of
the month immediately preceding the effective date and results of the comparable
period during the prior fiscal year.
(f) At the Closing Dates, (i) the representations and warranties
of the Company contained in this Agreement shall be true and correct with the
same effect as if made on and as of the Closing Dates and the Company shall have
performed all of its obligations hereunder and satisfied all the conditions on
its part to be satisfied at or prior to such Closing Date; (ii) the Registration
Statement and the Prospectus and any amendments or supplements thereto shall
contain all statements which are required to be stated therein in accordance
with the Act and the Rules and Regulations, and shall in all material respects
conform to the requirements thereof, and neither the Registration Statement nor
the Prospectus nor any amendment or supplement thereto shall contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not
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misleading; (iii) there shall have been, since the respective dates as of which
information is given, no material adverse change, or any development involving a
prospective material adverse change, in the business, properties, condition
(financial or otherwise), results of operations, capital stock, long-term or
short-term debt or general affairs of the Company from that set forth in the
Registration Statement and the Prospectus, except changes which the Registration
Statement and Prospectus indicate might occur after the effective date of the
Registration Statement, and the Company shall not have incurred any material
liabilities or entered into any agreement not in the ordinary course of business
other than as referred to in the Registration Statement and Prospectus; and
(iv) except as set forth in the Prospectus, no action, suit or proceeding at law
or in equity shall be pending or threatened against the Company which would be
required to be set forth in the Registration Statement, and no proceedings shall
be pending or threatened against the Company before or by any commission, board
or administrative agency in the United States or elsewhere, wherein an
unfavorable decision, ruling or finding would materially and adversely affect
the business, property, condition (financial or otherwise), results of
operations or general affairs of the Company, and (v) you shall have received,
at the First Closing Date, a certificate signed by each of the Chairman of the
Board or the President and the principal financial or accounting officer of the
Company, dated as of the First Closing Date, evidencing compliance with the
provisions of this subsection (f).
(g) Upon exercise of the option provided for in Section 2(b)
hereof, the obligations of the Underwriter to purchase and pay for the Option
Units referred to therein will be subject (as of the date hereof and as of the
Option Closing Date) to the following additional conditions:
(i) The Registration Statement shall remain effective at
the Option Closing Date, and no stop order suspending the
effectiveness thereof shall have been issued and no proceedings
for that purpose shall have been instituted or shall be pending,
or, to your knowledge or the knowledge of the Company, shall be
contemplated by the Commission, and any reasonable request on the
part of the Commission for additional information shall have been
complied with to the satisfaction of Bachner, Tally, Polevoy &
Misher LLP, counsel to the Underwriter.
(ii) At the Option Closing Date there shall have been
delivered to you the signed opinions of Luce, Forward, Hamilton &
Scripps LLP and Boros & Garofalo, counsels for the Company, dated
as of the Option Closing Date, in form and substance satisfactory
to Bachner, Tally, Polevoy & Misher LLP, counsel to the
Underwriter, which opinions shall be substantially the same in
scope and substance as the opinions furnished to you at the First
Closing Date pursuant to Section 4(b) and (c) hereof, except that
such opinion, where appropriate, shall cover the Option Units.
(iii) At the Option Closing Date there shall have been
delivered to you a certificate of the Chairman of the Board or
the President and the
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principal financial or accounting officer of the Company, dated
the Option Closing Date, in form and substance satisfactory to
Bachner, Tally, Polevoy & Misher LLP, counsel to the Underwriter,
substantially the same in scope and substance as the certificate
furnished to you at the First Closing Date pursuant to
Section 4(f) hereof.
(iv) At the Option Closing Date there shall have been
delivered to you a letter in form and substance satisfactory to
you from Price Waterhouse LLP, dated the Option Closing Date and
addressed to the Underwriter confirming the information in their
letter referred to in Section 4(f) hereof and stating that
nothing has come to their attention during the period from the
ending date of their review referred to in said letter to a date
not more than five business days prior to the Option Closing
Date, which would require any change in said letter if it were
required to be dated the Option Closing Date.
(v) All proceedings taken at or prior to the Option Closing
Date in connection with the sale and issuance of the Option Units
shall be satisfactory in form and substance to you, and you and
Bachner, Tally, Polevoy & Misher LLP, counsel to the Underwriter,
shall have been furnished with all such documents, certificates,
and opinions as you may request in connection with this
transaction in order to evidence the accuracy and completeness of
any of the representations, warranties or statements of the
Company or its compliance with any of the covenants or conditions
contained herein.
(h) No action shall have been taken by the Commission or the
NASD the effect of which would make it improper, at any time prior to the
Closing Date, for members of the NASD to execute transactions (as principal or
agent) in the Units, Common Stock or the Warrants and no proceedings for the
taking of such action shall have been instituted or shall be pending, or, to the
knowledge of the Underwriter or the Company, shall be contemplated by the
Commission or the NASD. The Company represents that at the date hereof it has
no knowledge that any such action is in fact contemplated by the Commission or
the NASD. The Company shall have advised the Underwriter of any NASD
affiliation of any of its officers, directors, stockholders or their affiliates.
(i) If any of the conditions herein provided for in this Section
shall not have been fulfilled as of the date indicated, this Agreement and all
obligations of the Underwriter under this Agreement may be cancelled at, or at
any time prior to, each Closing Date by the Underwriter. Any such cancellation
shall be without liability of the Underwriter to the Company.
5. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY. The obligation of
the Company to sell and deliver the Units is subject to the condition that at
the Closing Dates, no
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stop orders suspending the effectiveness of the Registration Statement shall
have been issued under the Act or any proceedings therefor initiated or
threatened by the Commission.
If the condition to the obligations of the Company provided for
in this Section have been fulfilled on the First Closing Date but are not
fulfilled after the First Closing Date and prior to the Option Closing Date,
then only the obligation of the Company to sell and deliver the Units on
exercise of the option provided for in Section 2(b) hereof shall be affected.
6. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter within the
meaning of the Act against any losses, claims, damages or liabilities, joint or
several (which shall, for all purposes of this Agreement, include, but not be
limited to, all reasonable costs of defense and investigation and all attorneys'
fees), to which the Underwriter or such controlling person may become subject,
under the Act or otherwise, and will reimburse, as incurred, such Underwriter
and such controlling persons for any legal or other expenses reasonably incurred
in connection with investigating, defending against or appearing as a third
party witness in connection with any losses, claims, damages or liabilities,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in (A) the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto,
(B) any blue sky application or other document executed by the Company
specifically for that purpose or based upon written information furnished by the
Company filed in any state or other jurisdiction in order to qualify any or all
of the Units under the securities laws thereof (any such application, document
or information being hereinafter called a "Blue Sky Application"), or arise out
of or are based upon the omission or alleged omission to state in the
Registration Statement, any Preliminary Prospectus, Prospectus, or any amendment
or supplement thereto, or in any Blue Sky Application, a material fact required
to be stated therein or necessary to make the statements therein not misleading;
provided, however, that the Company will not be liable in any such case to the
extent, but only to the extent, that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in reliance upon and in conformity with
written information furnished to the Company by or on behalf of the Underwriter
specifically for use in the preparation of the Registration Statement or any
such amendment or supplement thereof or any such Blue Sky Application or any
such preliminary Prospectus or the Prospectus or any such amendment or
supplement thereto. This indemnity will be in addition to any liability which
the Company may otherwise have.
(b) The Underwriter will indemnify and hold harmless the
Company, each of its directors, each nominee (if any) for director named in the
Prospectus, each of its officers who have signed the Registration Statement, and
each person, if any, who controls the Company within the meaning of the Act,
against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and
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investigation and all attorneys' fees) to which the Company or any such
director, nominee, officer or controlling person may become subject under the
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto (i) in reliance upon and in conformity with written
information furnished to the Company by you specifically for use in the
preparation thereof and (ii) relates to the transactions effected by the
Underwriter in connection with the offer and sale of the Units contemplated
hereby. This indemnity agreement will be in addition to any liability which the
Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 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, notify in writing the indemnifying party of the commencement
thereof; but the omission to so notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under this Section. 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 in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that if the indemnified party is an Underwriter
or a person who controls such Underwriter within the meaning of the Act, the
fees and expenses of such counsel shall be at the expense of the indemnifying
party if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both such Underwriter or such
controlling person and the indemnifying party and in the judgment of the
Underwriter, it is advisable for the Underwriter or controlling persons to be
represented by separate counsel (in which case the indemnifying party shall not
have the right to assume the defense of such action on behalf of such
Underwriter or such controlling person, it being understood, however, that the
indemnifying party shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or
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circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys for the Underwriter and controlling persons, which
firm shall be designated in writing by you). No settlement of any action
against an indemnified party shall be made without the consent of the
indemnifying party, which shall not be unreasonably withheld in light of all
factors of importance to such indemnifying party.
7. CONTRIBUTION.
In order to provide for just and equitable contribution under the
Act in any case in which the Underwriter makes claim for indemnification
pursuant to Section 6 hereof but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case, notwithstanding the fact that
the express provisions of Section 6 provide for indemnification in such case, or
(ii) contribution under the Act may be required on the part of the Underwriter,
then the Company and each person who controls the Company, in the aggregate, and
the Underwriter shall contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (which shall, for all purposes of this
Agreement, include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees) in either such case (after
contribution from others) in such proportions that the Underwriter is
responsible in the aggregate for that portion of such losses, claims, damages or
liabilities represented by the percentage that the underwriting discount per
Unit appearing on the cover page of the Prospectus bears to the public offering
price appearing thereon, and the Company shall be responsible for the remaining
portion, provided, however, that (a) if such allocation is not permitted by
applicable law then the relative fault of the Company and the Underwriter and
controlling persons, in the aggregate, in connection with the statements or
omissions which resulted in such damages and other relevant equitable
considerations shall also be considered. The relative fault shall be determined
by reference to, among other things, whether in the case of an untrue statement
of a material fact or the omission to state a material fact, such statement or
omission relates to information supplied by the Company, or the Underwriter and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission. The Company and the
Underwriter agree that it would not be just and equitable if the respective
obligations of the Company and the Underwriter to contribute pursuant to this
Section 7 were to be determined by pro rata or per capita allocation of the
aggregate damages (even if the Underwriter in the aggregate were treated as one
entity for such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in the first sentence of
this Section 7. No person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation. As used in this
paragraph, the word "Company" includes any officer, director, or person who
controls the Company within the meaning of Section 15 of the Act. If the full
amount of the contribution specified in this paragraph is not permitted by law,
then the Underwriter and each person who controls the Underwriter shall be
entitled to contribution from the Company, its officers, directors and
controlling persons to the full extent permitted by law. The foregoing
contribution agreement shall in no way affect the contribution
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liabilities of any persons having liability under Section 11 of the Act other
than the Company and the Underwriter. No contribution shall be requested with
regard to the settlement of any matter from any party who did not consent to the
settlement; provided, however, that such consent shall not be unreasonably
withheld in light of all factors of importance to such party.
8. COSTS AND EXPENSES.
(a) Whether or not this Agreement becomes effective or the sale
of the Units to the Underwriter is consummated, the Company will pay all costs
and expenses incident to the performance of this Agreement by the Company
including, but not limited to, the fees and expenses of counsel to the Company
and of the Company's accountants; the costs and expenses incident to the
preparation, printing, filing and distribution under the Act of the Registration
Statement (including the financial statements therein and all amendments and
exhibits thereto), Preliminary Prospectus and the Prospectus, as amended or
supplemented, or the Term Sheet, the fee of the NASD in connection with the
filing required by the NASD relating to the offering of the Units contemplated
hereby; all expenses, including reasonable fees and disbursements of counsel to
the Underwriter, in connection with the qualification of the Units under the
state securities or blue sky laws which the Underwriter shall designate; the
cost of printing and furnishing to the Underwriter copies of the Registration
Statement, each Preliminary Prospectus, the Prospectus, this Agreement, Selling
Agreement and the Blue Sky Memorandum, any fees relating to the listing of the
Units, Class A Common Stock and Warrants on the Nasdaq National Market or any
other securities exchange, the cost of printing the certificates representing
the securities comprising the Units, the fees of the transfer agent and warrant
agent the cost of publication of at least three "tombstones" of the offering (at
least one of which shall be in national business newspaper and one of which
shall be in a major New York newspaper) and the cost of preparing at least four
hard cover "bound volumes" relating to the offering, in accordance with the
Underwriter's request. The Company shall pay any and all taxes (including any
transfer, franchise, capital stock or other tax imposed by any jurisdiction) on
sales to the Underwriter hereunder. The Company will also pay all costs and
expenses incident to the furnishing of any amended Prospectus or of any
supplement to be attached to the Prospectus as called for in Section 3(a) of
this Agreement except as otherwise set forth in said Section.
(b) In addition to the foregoing expenses the Company shall at
the First Closing Date pay to D.H. Blair Investment Banking Corp., a
non-accountable expense allowance of $900,000 of which $40,000 has been paid.
In the event the overallotment option is exercised, the Company shall pay to
D.H. Blair Investment Banking Corp. at the Option Closing Date an additional
amount equal to 3% of the gross proceeds received upon exercise of the
overallotment option. In the event the transactions contemplated hereby are not
consummated by reason of any action by the Underwriter (except if such
prevention is based upon a breach by the Company of any covenant, representation
or warranty contained herein or because any other condition to the Underwriter's
obligations hereunder required to be fulfilled by the Company is not fulfilled)
the Company shall be liable for the accountable expenses of the Underwriter,
including legal fees up to a maximum of $40,000. In the event the transactions
contemplated hereby are not consummated by reason of any action of the Company
or because of a breach by
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the Company of any covenant, representation or warranty herein, the Company
shall be liable for the actual accountable out-of-pocket expenses of the
Underwriter, including legal fees, up to a maximum of $540,000. In the event
the offering is not consummated for any reason, any portion of the
non-accountable expense allowance previously paid to the Underwriter which is
not accounted for shall be returned to the Company.
(c) No person is entitled either directly or indirectly to
compensation from the Company, from the Underwriter or from any other person for
services as a finder in connection with the proposed offering, and the Company
agrees to indemnify and hold harmless the Underwriter, against any losses,
claims, damages or liabilities, joint or several (which shall, for all purposes
of this Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees), to which the Underwriter or person may
become subject insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon the claim of any
person (other than an employee of the party claiming indemnity) or entity that
he or it is entitled to a finder's fee in connection with the proposed offering
by reason of such person's or entity's influence or prior contact with the
indemnifying party.
9. EFFECTIVE DATE.
The Agreement shall become effective upon its execution except
that you may, at your option, delay its effectiveness until 11:00 A.M., New York
time on the first full business day following the effective date of the
Registration Statement, or at such earlier time after the effective date of the
Registration Statement as you in your discretion shall first commence the
initial public offering by the Underwriter of any of the Units. The time of the
initial public offering shall mean the time of release by you of the first
newspaper advertisement with respect to the Units, or the time when the Units
are first generally offered by you to dealers by letter or telegram, whichever
shall first occur. This Agreement may be terminated by you at any time before
it becomes effective as provided above, except that Sections 3(c), 6, 7, 8, 12,
13, 14 and 15 shall remain in effect notwithstanding such termination.
10. TERMINATION.
(a) This Agreement, except for Sections 3(c), 6, 7, 8, 12, 13,
14 and 15 hereof, may be terminated at any time prior to the First Closing Date,
and the option referred to in Section 2(b) hereof, if exercised, may be
cancelled at any time prior to the Option Closing Date, by you if in your
judgment it is impracticable to offer for sale or to enforce contracts made by
the Underwriter for the resale of the Units agreed to be purchased hereunder by
reason of (i) the Company having sustained a material loss, whether or not
insured, by reason of fire, earthquake, flood, accident or other calamity, or
from any labor dispute or court or government action, order or decree;
(ii) trading in securities on the New York Stock Exchange, the American Stock
Exchange, the Nasdaq SmallCap Market or the Nasdaq National Market having been
suspended or limited; (iii) material governmental restrictions having been
imposed on trading in securities generally (not in force and effect on the date
hereof); (iv) a banking moratorium having been declared by federal or New York
state authorities; (v) an outbreak of international hostilities or other
national or international calamity or crisis or change in economic or political
conditions having occurred; (vi) a pending or threatened legal or governmental
proceeding or
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action relating generally to the Company's business, or a notification having
been received by the Company of the threat of any such proceeding or action,
which could materially adversely affect the Company; (vii) except as
contemplated by the Prospectus, the Company is merged or consolidated into or
acquired by another company or group or there exists a binding legal commitment
for the foregoing or any other material change of ownership or control occurs;
(viii) the passage by the Congress of the United States or by any state
legislative body or federal or state agency or other authority of any act, rule
or regulation, measure, or the adoption of any orders, rules or regulations by
any governmental body or any authoritative accounting institute or board, or any
governmental executive, which is reasonably believed likely by the
Representative to have a material impact on the business, financial condition or
financial statements of the Company or the market for the securities offered
pursuant to the Prospectus; (ix) any adverse change in the financial or
securities markets beyond normal market fluctuations having occurred since the
date of this Agreement, or (x) any material adverse change having occurred,
since the respective dates of which information is given in the Registration
Statement and Prospectus, in the earnings, business prospects or general
condition of the Company, financial or otherwise, whether or not arising in the
ordinary course of business.
(b) If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 10 or in
Section 9, the Company shall be promptly notified by you, by telephone or
telegram, confirmed by letter.
11. UNIT PURCHASE OPTION.
At or before the First Closing Date, the Company will sell to
D.H. Blair Investment Banking Corp. (for its own account), or its designees for
a consideration of $600, and upon the terms and conditions set forth in the form
of Unit Purchase Option annexed as an exhibit to the Registration Statement, a
Unit Purchase Option to purchase an aggregate of 600,000 Units. In the event of
conflict in the terms of this Agreement and the Unit Purchase Option, the
language of the Unit Purchase Option shall control.
12. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.
The respective indemnities, agreements, representations,
warranties and other statements of the Company or its Principal Stockholders,
where appropriate, and the undertakings set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
made by or on behalf of the Underwriter, the Company or any of its officers or
directors or any controlling person and will survive delivery of and payment of
the Units and the termination of this Agreement.
13. NOTICE.
Any communications specifically required hereunder to be in
writing, if sent to the Underwriter, will be mailed, delivered and confirmed to
them at D.H. Blair Investment Banking Corp., 44 Wall Street,, New York, New York
10005, with a copy sent to
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<PAGE>
Bachner, Tally, Polevoy & Misher LLP, 380 Madison Avenue, New York, New York
10017, or if sent to the Company, will be mailed, delivered and confirmed to it
at Advanced Aerodynamics & Structures, Inc., 3060 Airport Way, Long Beach,
California 90806, with a copy sent to Luce, Forward, Hamilton & Scripps LLP, 600
West Broadway, Suite 2600, San Diego, California 92101.
14. PARTIES IN INTEREST.
The Agreement herein set forth is made solely for the benefit of
the Underwriter, the Company and, to the extent expressed, the Principal
Stockholders, any person controlling the Company or the Underwriter, and
directors of the Company, nominees for directors (if any) named in the
Prospectus, its officers who have signed the Registration Statement, and their
respective executors, administrators, successors, assigns and no other person
shall acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" shall not include any purchaser, as such purchaser,
from the Underwriter of the Units.
15. APPLICABLE LAW.
This Agreement will be governed by, and construed in accordance
with, the laws of the State of New York applicable to agreements made and to be
entirely performed within New York.
-29-
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this agreement, whereupon it will become a
binding agreement between the Company and the Underwriter in accordance with its
terms.
Very truly yours,
ADVANCED AERODYNAMICS & STRUCTURES, INC.
By:
-----------------------------------
Carl L. Chen, President
The foregoing Underwriting Agreement is hereby confirmed and accepted
as of the date first above written.
D.H. BLAIR INVESTMENT BANKING CORP.
By:
------------------------------------
Martin A. Bell, Vice Chairman and
General Counsel
-30-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION OF
ADVANCED AERODYNAMICS & STRUCTURES, INC.
Advanced Aerodynamics & Structures, Inc., a corporation duly organized
and existing under the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify that:
I. The amendment to the Corporation's Certificate of Incorporation set
forth below was duly adopted in accordance with the provisions of Section 242
and has been consented to in writing by the stockholders, in accordance with
Section 228 of the General Corporation Law of the State of Delaware.
II. The first paragraph of Article 4 of the Corporation's Certificate
of Incorporation is amended to read in its entirety as follows:
4. The total number of shares of stock which the corporation shall
have authority to issue is 83,000,000 consisting of 60,000,000
shares of Class A Common Stock, par value $0.0001 per share (the
"Class A Common Stock"), 10,000,000 shares of Class B Common Stock,
par value $0.0001 per share (the "Class B Common Stock"), 4,000,000
shares of Class E-1 Common Stock, par value $0.0001 per share (the
"Class E-1 Common Stock"), 4,000,000 shares of Class E-2 Common
Stock, par value $0.0001 per share (the "Class E-2 Common Stock,"
and, with the Class E-1 Common Stock, the "Class E Common Stock"),
and 5,000,000 shares of Preferred Stock, par value $0.0001 per
share (the "Preferred Stock").
IN WITNESS WHEREOF, Advanced Aerodynamics & Structures, Inc., has caused
this Certificate to be executed by Carl L. Chen, its authorized officer, on
this 1st of November, 1996.
/s/ Carl L. Chen
------------------------
Carl L. Chen, President
<PAGE>
Exhibit 4.1
NPO NUMBER SHARES
CA
COMMON STOCK COMMON STOCK
ADVANCED AERODYNAMICS
& STRUCTURES, INC.
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF DELAWARE CERTAIN DEFINITIONS
CUSIP 0075DB 10 7
This Certifies that
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF CLASS A COMMON STOCK,
$.0001 PAR VALUE PER SHARE OF
ADVANCED AERODYNAMICS & STRUCTURES, INC.
transferable on the books of the Corporation in person or by duly authorized
attorney on surrender of this certificate properly endorsed. This certificate
shall not be valid until countersigned and registered by the Transfer Agent
and Registrar.
WITNESS the facsimile seal of the Corporation and the signatures of its
duly authorized officers.
Dated:
COUNTERSIGNED AND REGISTERED
AMERICAN STOCK TRANSFER
& TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
[signature] [signature]
SECRETARY AND EXECUTIVE [SEAL] CHAIRMAN AND CHIEF EXECUTIVE
VICE PRESIDENT OFFICER
<PAGE>
The Corporation shall furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock of the
Corporation or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Such requests shall be made
to the Corporation's Secretary at the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIT GIFT MIN ACT - _________________Custodian________________
TEN ENT - as tenants by the entretles (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as a tenant Act___________________________________________
in common (State)
UNIF TRF MIN ACT - _______________Custodian (until age________)
(Cust)
___________________Under Uniform Transfers
(Minor)
to Minors Act________________________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED____________________________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_______________________________________________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE
_______________________________________________________________________________________________________________________
_______________________________________________________________________________________________________________________
_________________________________________________________________________________________________________________Shares
of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint
_______________________________________________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises
Dated_______________________________
X ___________________________________________________
X ___________________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THIS
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER
</TABLE>
SIGNATURE(S) GUARANTEED
BY_________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTRUCTION, BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATION AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAMS. PURSUANT
TO S.E.C. RULE 17ad-15
[LOGO]
<PAGE>
WARRANT AGREEMENT
AGREEMENT, dated as of this ____th day of ___________, 1996, by and
among Advanced Aerodynamics & Structures, Inc., a Delaware corporation
("Company"), American Stock Transfer & Trust Company, as Warrant Agent (the
"Warrant Agent"), and D.H. BLAIR INVESTMENT BANKING CORP., a New York
corporation ("Blair").
W I T N E S S E T H
WHEREAS, in connection with a public offering of up to 6,900,000
units ("Units"), each unit consisting of one (1) share of the Company's
Class A Common Stock, $.0001 par value ("Class A Common Stock"), one (1)
redeemable Class A Warrant ("Class A Warrants") and one (1) redeemable Class
B Warrant ("Class B Warrants") pursuant to an underwriting agreement (the
"Underwriting Agreement") dated _______________, 1996 between the Company and
Blair, (ii) and the issuance to Blair or its designees of Unit Purchase
Options to purchase an aggregate of 600,000 additional Units, to be dated as
of __________, 1996 (the "Unit Purchase Options"), (iii) the issuance of
3,500,000 Class A Warrants to certain security holders of the Company upon
the conversion of warrants acquired by them in a private placement in August
1996, the Company may issue up to 11,000,000 Class A Warrants and 7,500,000
Class B Warrants (the Class A Warrants and Class B Warrants may be
collectively referred to as "Warrants"); and
WHEREAS, each Class A Warrant initially entitles the Registered
Holder thereof to purchase one (1) share of Class A Common Stock and one (1)
Class B Warrant, and accordingly, the Company may issue up to an additional
11,000,000 Class B Warrants; and
WHEREAS, each Class B Warrant initially entitles the Registered Holder
thereof to purchase one (1) share of Class A Common Stock; 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 Registered 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:
<PAGE>
(a) "Common Stock" shall mean stock of the Company of any class,
whether now or hereafter authorized, which has the right to participate in
the distribution of earnings and assets of the Company without limit as to
amount or percentage, which at the date hereof consists of 4,000,000
authorized shares of each of Class E-1 and Class E-2 Common Stock, $.0001 par
value, 10,000,000 authorized shares of Class B Common Stock, $.0001 par
value, and 60,000,000 authorized shares of Class A Common Stock, $.0001 par
value.
(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 40 Wall Street, New
York, New York.
(c) "Exercise Date" shall mean, as to any Warrant, the date on which
the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder thereof or his attorney duly authorized in writing, and (b)
payment in cash, or by official bank or certified check made payable to the
Company, of an amount in lawful money of the United States of America equal to
the applicable Purchase Price.
(d) "Initial Warrant Exercise Date" shall mean as to each Class A
Warrant and Class B Warrant __________, 1996.
(e) "Purchase Price" shall mean the purchase price to be paid upon
exercise of each Class A Warrant or Class B Warrant in accordance with the terms
hereof, which price shall be $6.50 as to the Class A Warrants and $8.75 as to
the Class B Warrants, subject to adjustment from time to time pursuant to the
provisions of Section 9 hereof, and subject to the Company's right to reduce the
Purchase Price upon notice to all Registered Holders of Warrants.
(f) "Redemption Price" shall mean the price at which the Company may,
at its option in accordance with the terms hereof, redeem the Class A Warrants
and/or Class B Warrants, which price shall be $0.05 per Warrant.
(g) "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.
(h) "Transfer Agent" shall mean American Stock Transfer & Trust
Company, as the Company's transfer agent, or its authorized successor, as such.
(i) "Warrant Expiration Date" shall mean 5:00 P.M. (New York time)
on ______, 2001 or, with respect to Warrants which are outstanding as of the
applicable Redemption Date (as defined in Section 8) and specifically excluding
Warrants issuable upon exercise of Unit Purchase Options if the Unit Purchase
Options have not been exercised, the Redemption Date, whichever is earlier;
provided that if such date shall in the State of New York be a holiday or a day
on which banks are authorized or required to close, then 5:00 P.M.
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<PAGE>
(New York time) on the next following day which in the State of New York is not
a holiday or a day on which banks are authorized or required to close. Upon
notice to all Registered Holders, the Company shall have the right to extend the
Warrant Expiration Date.
SECTION 2. WARRANTS AND ISSUANCE OF WARRANT CERTIFICATES.
(a) A Class A Warrant initially shall entitle the Registered Holder
of the Warrant Certificate representing such Warrant to purchase one share of
Class A Common Stock and one Class B Warrant upon the exercise thereof, in
accordance with the terms hereof, subject to modification and adjustment as
provided in Section 9.
(b) A Class B Warrant initially shall entitle the Registered Holder
of the Warrant Certificate representing such Warrant to purchase one share of
Class A Common Stock upon the exercise thereof, in accordance with the terms
hereof, subject to modification and adjustment as provided in Section 9.
(c) The Class A Warrants and Class B Warrants included in the
offering of Units will be detachable and separately transferable immediately
from the shares of Class A Common Stock constituting part of such Units. The
Class B Warrants will also be detachable and separately transferable immediately
from the shares of Class A Common Stock issued upon exercise of the Class A
Warrants.
(d) Upon execution of this Agreement, Warrant Certificates
representing the number of Class A Warrants and Class B Warrants sold pursuant
to the Underwriting Agreement shall be executed by the Company and delivered to
the Warrant Agent. Upon written order of the Company signed by its President or
Chairman or a Vice President and by its Secretary or an Assistant Secretary, the
Warrant Certificates shall be countersigned, issued and delivered by the Warrant
Agent as part of the Units.
(e) 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 29,500,000
shares of Class A Common Stock, subject to adjustment as described herein,
upon the exercise of Warrants in accordance with this Agreement.
(f) 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) those initially issued hereunder, (ii)
those issued on or after the Initial Warrant Exercise Date, upon the exercise of
fewer than all Warrants represented by any Warrant Certificate, to evidence any
unexercised Warrants held by the exercising Registered Holder, (iii) those
issued upon any transfer or exchange pursuant to Section 6; (iv) those issued in
replacement of lost, stolen, destroyed or mutilated Warrant Certificates
pursuant to Section 7; (v) those issued pursuant to the Unit
-3-
<PAGE>
Purchase Option; (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 Class A Common Stock purchasable
upon exercise of the Warrants or the Target Price(s) therefor made pursuant to
Section 8 hereof; and (vii) those Class B Warrants issued upon exercise of Class
A Warrants.
(g) Pursuant to the terms of the Unit Purchase Option, Blair may
purchase up to 600,000 Units, which include up to 600,000 Class A Warrants and
1,200,000 Class B Warrants. Notwithstanding anything to the contrary contained
herein, the Warrants underlying the Unit Purchase Option shall not be subject to
redemption by the Company except under the terms and conditions set forth in the
Unit Purchase Options.
SECTION 3. FORM AND EXECUTION OF WARRANT CERTIFICATES.
(a) The Warrant Certificates shall be substantially in the form
annexed hereto as Exhibit A as to the Class A Warrants and Exhibit B as to the
Class B Warrants (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 Class A Warrants or Class B Warrants may be
listed, or to conform to usage or to the requirements of Section 2(d). 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 letters AW on Class A Warrants
of all denominations and the letters BW on Class B Warrants of all
denominations.
(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 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.
-4-
<PAGE>
SECTION 4. EXERCISE.
(a) 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 Warrant Certificate for any remaining unexercised Warrants of
the Registered Holder) unless prior to the date of issuance of such certificates
the Company shall instruct the Warrant Agent to refrain from causing such
issuance of certificates pending clearance of checks received in payment of the
Purchase Price pursuant to such Warrants. Notwithstanding the foregoing, in the
case of payment made in the form of a check drawn on an account of Blair or such
other investment banks and brokerage houses as the Company shall approve in
writing to the Warrant Agent, certificates shall immediately be issued without
prior notice to the Company or any delay. Upon the exercise of any Warrant and
clearance of the funds received, the Warrant Agent 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.
(b) If, at the Exercise Date in respect of the exercise of any
Warrant after , 1997, (i) the market price of the Company's Class A Common
Stock is greater than the then Purchase Price of the Warrant, (ii) the exercise
of the Warrant was solicited by a member of the National Association of
Securities Dealers, Inc. ("NASD") as designated in writing on the Warrant
Certificate Subscription Form, (iii) the Warrant was not held in a discretionary
account, (iv) disclosure of compensation arrangements was made both at the time
of the original offering and at the time of exercise; and (v) the solicitation
of the exercise of the Warrant was not in violation of Rule 10b-6 (as such rule
or any successor rule may be in effect as of such time of exercise) promulgated
under the Securities Exchange Act of 1934, then the Warrant Agent,
simultaneously with the distribution of the Warrant Proceeds to the Company
shall, on behalf of the Company, pay from the Warrant Proceeds, a fee of 5% (the
"Blair Fee") of the Purchase Price to Blair (of which a portion may be reallowed
by Blair to the dealer who solicited the exercise, which may also be Blair or
D.H. Blair & Co., Inc.). In the event the Blair Fee is not received within
five days of the date on which the Company receives Warrant Proceeds, then the
Blair Fee shall begin accruing interest at an annual rate of prime plus four
(4)%, payable by the Company to Blair at the time Blair receives the Blair Fee.
Within five days after exercise the Warrant Agent shall send to Blair a copy of
the reverse side of each Warrant exercised. Blair shall reimburse the Warrant
Agent, upon request, for its reasonable expenses relating to
-5-
<PAGE>
compliance with this section 4(b). In addition, Blair and the Company may at
any time during business hours, examine the records of the Warrant Agent,
including its ledger of original Warrant Certificates returned to the Warrant
Agent upon exercise of Warrants. The provisions of this paragraph may not be
modified, amended or deleted without the prior written consent of Blair.
(c) In order to enforce the provisions of Section 4(b) above, in the
event there is any dispute or question as to the amount or payment of the Blair
Fee, the Warrant Agent is hereby expressly authorized to withhold payment to the
Company of the Warrant Proceeds unless and until the Company establishes an
escrow account for the purpose of depositing the entire amount of the Blair Fee,
which amount will be deducted from the net Warrant Proceeds to be paid to the
Company. The funds placed in the escrow account may not be released to the
Company without a written agreement from Blair that the required Blair Fee has
been received by Blair.
SECTION 5. RESERVATION OF SHARES; LISTING; PAYMENT OF TAXES; ETC.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Class A Common Stock, solely for the purpose of
issue upon exercise of Warrants, such number of shares of Class A Common Stock
as shall then be issuable upon the exercise of all outstanding Warrants. The
Company covenants that all shares of Class A 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, on which the other shares of
outstanding Class A Common Stock of the Company are then listed or shall be
eligible for inclusion in the Nasdaq National Market or the Nasdaq SmallCap
Market if the other shares of outstanding Class A Common Stock of the Company
are so included.
(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 Class A Common Stock issued to, any Registered
Holder in any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes and
other governmental charges that may be imposed with respect to the issuance of
Warrants, or the issuance or delivery of any shares or Class B Warrants upon
exercise of the Class A Warrants, or the issuance or delivery of any shares upon
exercise of the Class B Warrants; provided, however,
-6-
<PAGE>
that if the shares of Class A Common Stock or Class B Warrants, as the case may
be, 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 Class A 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
Class A 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 by the Warrant Agent for any
exchange or registration of transfer of Warrant Certificates. In addition, the
Company may require payment by such holder of a sum sufficient to cover any tax
or other governmental charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for exchange
in case of mutilated Warrant Certificates shall be promptly cancelled by the
Warrant Agent and thereafter retained by the Warrant Agent until termination of
this Agreement or resignation as
-7-
<PAGE>
Warrant Agent, or, with the prior written consent of Blair, 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 Class A Common Stock pursuant to the Underwriting Agreement, will be
immediately detachable from the Class A Common Stock and transferable separately
therefrom.
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 Class A Warrants or Class B 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(g) hereof, on not less
than thirty (30) days notice given at any time after , 1997 (the
"Redemption Notice"), to Registered Holders of the Warrants being redeemed, the
Warrants may be redeemed, at the option of the Company, at a redemption price of
$0.05 per Warrant, provided the Market Price of the Class A Common Stock
receivable upon exercise of such Warrants shall exceed $12.00 with respect to
the Class A Warrants and $15.00 with respect to the Class B Warrants (the
"Target Prices"), subject to adjustment as set forth in Section 8(f), below.
Market Price shall mean (i) the average closing bid price of the Class A Common
Stock, for thirty (30) consecutive business days ending on the Calculation Date
as reported by Nasdaq, if the Class A Common Stock is traded on the Nasdaq
SmallCap Market, or (ii) the average last reported sale price of the Class A
Common Stock, for thirty (30) consecutive business days ending on the
Calculation Date, as reported by the primary exchange on which the Class A
Common Stock is traded, if the Class A Common Stock is traded on a national
securities exchange, or by Nasdaq, if the Class A Common Stock is traded on the
Nasdaq National Market. All Warrants of a class must be redeemed if any of that
class are redeemed, provided that the Warrants underlying the Unit Purchase
Option may only be redeemed in compliance with and subject to the terms and
conditions of the Unit Purchase Option. For purposes of this Section 8, the
Calculation Date shall mean a date within 15 days of the mailing of the
Redemption Notice. The date fixed for redemption of the Warrants is referred
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to herein as the "Redemption Date". The Class B Warrant Redemption Date may not
be earlier than thirty-one (31) days after the Class A Warrant Redemption Date.
(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
Blair to mail a Redemption Notice 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 Redemption Notice shall specify (i) the redemption price,
(ii) the Redemption Date, (iii) the place where the Warrant Certificates shall
be delivered and the redemption price paid, (iv) that Blair 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 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 Blair 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, Registered 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, the Company shall, at the
place specified in the Redemption Notice, upon presentation and surrender to the
Company by or on behalf of the 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 Registered 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
Prices 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.
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SECTION 9. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES OF
CLASS A COMMON STOCK OR WARRANTS.
(a) (1) Subject to the exceptions referred to in Section 9(g) below,
in the event the Company shall, at any time or from time to time after the date
hereof, sell any shares of Common Stock for a consideration per share less than
the Market Price of the Class A Common Stock (as defined in Section 8, except
that for purposes of Section 9, the Calculation Date shall mean the date of the
sale or other transaction referred to in this Section 9) on the date of the sale
(any such sale being herein called a "Change of Shares"), then, and thereafter
upon each further Change of Shares, the Purchase Price in effect immediately
prior to such Change of Shares shall be changed to a price (including any
applicable fraction of a cent) determined by multiplying the Purchase Price in
effect immediately prior thereto by a fraction, the numerator of which shall be
the sum of the number of shares of Common Stock outstanding immediately prior to
the issuance of such additional shares and the number of shares of Common Stock
which the aggregate consideration received (determined as provided in subsection
9(f)(F) below) for the issuance of such additional shares would purchase at the
Market Price and the denominator of which shall be the sum of the number of
shares of Common Stock outstanding immediately after the issuance of such
additional shares. Such adjustment shall be made successively whenever such an
issuance is made.
Upon each adjustment of the Purchase Price pursuant to this
Section 9, the total number of shares of Class A Common Stock purchasable upon
the exercise of each Class A Warrant or each Class B Warrant, as applicable,
shall (subject to the provisions contained in Section 9(a)(2) hereof) be such
number of shares (calculated to the nearest tenth) purchasable at the Purchase
Price in effect immediately prior to such adjustment multiplied by a fraction,
the numerator of which shall be the Purchase Price in effect immediately prior
to such adjustment and the denominator of which shall be the Purchase Price in
effect immediately after such adjustment.
(2) The Company may elect, upon any adjustment of the Purchase
Price hereunder, to adjust the number of Class A Warrants or Class B Warrants
outstanding, in lieu of the adjustment in the number of shares of Class A Common
Stock purchasable upon the exercise of each Warrant as hereinabove provided, so
that each Class A Warrant outstanding after such adjustment shall represent the
right to purchase one share of Class A Common Stock and one Class B Warrant, and
each Class B Warrant outstanding after such adjustment shall represent the right
to purchase one share of Class A Common Stock. Each Warrant held of record
prior to such adjustment of the number of Warrants shall become that number of
Warrants (calculated to the nearest tenth) determined by multiplying the number
one by a fraction, the numerator of which shall be the Purchase Price in effect
immediately prior to such adjustment and the denominator of which shall be the
Purchase Price in effect immediately after such adjustment.
(b) In case the Company shall (i) declare and pay a dividend or make
a distribution on its outstanding shares of Common Stock in shares of Common
Stock,
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(ii) subdivide or reclassify its outstanding shares of Common Stock into a
greater number of shares, or (iii) combine or reclassify its outstanding shares
of Common Stock into a smaller number of shares, the Purchase Price in effect at
the time of the record date for such dividend or distribution or of the
effective date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal the price determined by multiplying the Purchase
Price by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such action, and the denominator
of which shall be the number of shares of Common Stock outstanding after giving
effect to such action. Such adjustment shall be made successively whenever any
event listed above shall occur. Whenever the Purchase Price is adjusted
pursuant to this Subsection (b), the number of Class A Warrants or Class B
Warrants outstanding shall be adjusted so that each Class A Warrant outstanding
after such adjustment shall represent the right to purchase one share of Class A
Common Stock and one Class B Warrant, and each Class B Warrant outstanding after
such adjustment shall represent the right to purchase one share of Class A
Common Stock. Each Warrant held of record prior to such adjustment of the
number of Warrants shall become that number of Warrants (calculated to the
nearest tenth) determined by multiplying the number one by a fraction, the
numerator of which shall be the Purchase Price in effect immediately prior to
such adjustment and the denominator of which shall be the Purchase Price in
effect immediately after such adjustment.
(c) In case of any reclassification, capital reorganization or other
change of outstanding shares of Common Stock, or in case of any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification, capital reorganization or other
change of outstanding shares of Common Stock), or in case of any sale or
conveyance to another corporation of the property of the Company as, or
substantially as, an entirety (other than a sale/leaseback, mortgage or other
financing transaction), the Company shall cause effective provision to be made
so that each holder of a Warrant then outstanding shall have the right
thereafter, by exercising such Warrant, to purchase the kind and number of
shares of stock or other securities or property (including cash) receivable upon
such reclassification, capital reorganization or other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
that might have been purchased upon exercise of such Warrant immediately prior
to such reclassification, capital reorganization or other change, consolidation,
merger, sale or conveyance. Any such provision shall include provision for
adjustments that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 9. The 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 of the Company under this Agreement. The foregoing provisions shall
similarly apply to successive reclassifications, capital reorganizations and
other changes of outstanding shares of Common Stock and to successive
consolidations, mergers, sales or conveyances.
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(d) Irrespective of any adjustments or changes in the Purchase Price
or the number of shares of Class A Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Section 2(f) 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 therefor were expressed in the Warrant Certificates
when the same were originally issued.
(e) After each adjustment of the Purchase Price pursuant to this
Section 9, the Company will promptly prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Purchase Price as so adjusted, (ii) the number of shares of Class A 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 Blair and to each Registered
Holder of Warrants at his last address as it shall appear on the registry books
of the Warrant Agent. No failure to mail such notice nor any defect therein or
in the mailing thereof shall affect the validity thereof except as to the holder
to whom the Company failed to mail such notice, or except as to the holder whose
notice was defective. The affidavit of an officer of the Warrant Agent or the
Secretary or an Assistant Secretary of the Company that such notice has been
mailed shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
(f) For purposes of Section 9(a) and 9(b) hereof, the following
provisions (A) to (F) shall also be applicable:
(A) The number of shares of Common Stock outstanding at any
given time shall include shares of Common Stock owned or held by or
for the account of the Company and the sale or issuance of such
treasury shares or the distribution of any such treasury shares shall
not be considered a Change of Shares for purposes of said sections.
(B) No adjustment of the Purchase Price shall be made unless
such adjustment would require an increase or decrease of at least $.10
in the Purchase Price; provided that any adjustments which by reason
of this clause (B) are not required to be made shall be carried
forward and shall be made at the time of and together with the next
subsequent adjustment which, together with any adjustment(s) so
carried forward, shall require an increase or decrease of at least
$.10 in the Purchase Price then in effect hereunder.
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(C) In case of (1) the sale by the Company for cash (or as a
component of a unit being sold for cash) of any rights or warrants to
subscribe for or purchase, or any options for the purchase of, Common
Stock or any securities convertible into or exchangeable for Common
Stock without the payment of any further consideration other than
cash, if any (such securities convertible, exercisable or exchangeable
into Common Stock being herein called "Convertible Securities"), or
(2) the issuance by the Company, without the receipt by the Company of
any consideration therefor, of any rights or warrants to subscribe for
or purchase, or any options for the purchase of, Common Stock or
Convertible Securities, in each case, if (and only if) the
consideration payable to the Company upon the exercise of such rights,
warrants or options shall consist of cash, whether or not such rights,
warrants or options, or the right to convert or exchange such
Convertible Securities, are immediately exercisable, and the price per
share for which Common Stock is issuable upon the exercise of such
rights, warrants or options or upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the minimum
aggregate consideration payable to the Company upon the exercise of
such rights, warrants or options, plus the consideration, if any,
received by the Company for the issuance or sale of such rights,
warrants or options, plus, in the case of such Convertible Securities,
the minimum aggregate amount of additional consideration, other than
such Convertible Securities, payable upon the conversion or exchange
thereof, by (y) the total maximum number of shares of Common Stock
issuable upon the exercise of such rights, warrants or options or upon
the conversion or exchange of such Convertible Securities issuable
upon the exercise of such rights, warrants or options) is less than
the Market Price of the Class A Common Stock on the date of the
issuance or sale of such rights, warrants or options, then the total
maximum number of shares of Common Stock issuable upon the exercise of
such rights, warrants or options or upon the conversion or exchange of
such Convertible Securities (as of the date of the issuance or sale of
such rights, warrants or options) shall be deemed to be outstanding
shares of Common Stock for purposes of Sections 9(a) and 9(b) hereof
and shall be deemed to have been sold for cash in an amount equal to
such price per share.
(D) In case of the sale by the Company for cash of any
Convertible Securities, whether or not the right of conversion or
exchange thereunder is immediately exercisable, and the price per
share for which Common Stock is issuable upon the conversion or
exchange of such Convertible Securities (determined by dividing (x)
the total amount of consideration received by the Company for the sale
of such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange thereof, by (y)
the total maximum number of shares of Common Stock issuable upon the
conversion or exchange of such Convertible Securities) is less than
the Market Price of the Class A Common Stock on the date of the sale
of such Convertible Securities, then the total
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maximum number of shares of Common Stock issuable upon the conversion
or exchange of such Convertible Securities (as of the date of the sale
of such Convertible Securities) shall be deemed to be outstanding
shares of Common Stock for purposes of Sections 9(a) and 9(b) hereof
and shall be deemed to have been sold for cash in an amount equal to
such price per share.
(E) In case the Company shall modify the rights of conversion,
exchange or exercise of any of the securities referred to in (C) or
(D) above or any other securities of the Company convertible,
exchangeable or exercisable for shares of Common Stock, for any reason
other than an event that would require adjustment to prevent dilution,
so that the consideration per share received by the Company after such
modification is less than the Market Price on the date prior to such
modification, the Purchase Price to be in effect after such
modification shall be determined by multiplying the Purchase Price in
effect immediately prior to such event by a fraction, of which the
numerator shall be the number of shares of Common Stock outstanding on
the date prior to the modification plus the number of shares of Common
Stock which the aggregate consideration receivable by the Company for
the securities affected by the modification would purchase at the
Market Price and of which the denominator shall be the number of
shares of Common Stock outstanding on such date plus the number of
shares of Common Stock to be issued upon conversion, exchange or
exercise of the modified securities at the modified rate. Such
adjustment shall become effective as of the date upon which such
modification shall take effect. On the expiration of any such right,
warrant or option or the termination of any such right to convert or
exchange any such Convertible Securities referred to in Paragraph (C)
or (D) above, the Purchase Price then in effect hereunder shall
forthwith be readjusted to such Purchase Price as would have obtained
(a) had the adjustments made upon the issuance or sale of such rights,
warrants, options or Convertible Securities been made upon the basis
of the issuance of only the number of shares of Common Stock
theretofore actually delivered (and the total consideration received
therefor) upon the exercise of such rights, warrants or options or
upon the conversion or exchange of such Convertible Securities and (b)
had adjustments been made on the basis of the Purchase Price as
adjusted under clause (a) for all transactions (which would have
affected such adjusted Purchase Price) made after the issuance or sale
of such rights, warrants, options or Convertible Securities.
(F) In case of the sale for cash of any shares of Common Stock,
any Convertible Securities, any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or
Convertible Securities, the consideration received by the Company
therefore shall be deemed to be the gross sales price therefor without
deducting therefrom any expense paid or incurred by the Company or any
underwriting discounts or commissions or concessions paid or allowed
by the Company in connection therewith.
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(g) No adjustment to the Purchase Price of the Warrants or to the
number of shares of Common Stock purchasable upon the exercise of each Warrant
will be made, however,
(i) upon the exercise of any of the options presently
outstanding under the Company's Stock Option Plan (the "Plan") for
officers, directors and certain other key personnel of the Company; or
(ii) upon the issuance or exercise of any other securities
which may hereafter be granted or exercised under the Plan or under
any other employee benefit plan of the Company; or
(iii) upon the sale or exercise of the Warrants, including
without limitation the sale or exercise of any of the Warrants
comprising the Unit Purchase Option or upon the sale or exercise of
the Unit Purchase Option; or
(iv) upon the sale of any shares of Common Stock or Convertible
Securities in a firm commitment underwritten public offering,
including, without limitation, shares sold upon the exercise of any
overallotment option granted to the underwriters in connection with
such offering; or
(v) upon the issuance or sale of Common Stock or Convertible
Securities upon the exercise of any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or
Convertible Securities, whether or not such rights, warrants or
options were outstanding on the date of the original sale of the
Warrants or were thereafter issued or sold; or
(vi) upon the issuance or sale of Common Stock upon conversion
or exchange of any Convertible Securities, whether or not any
adjustment in the Purchase Price was made or required to be made upon
the issuance or sale of such Convertible Securities and whether or not
such Convertible Securities were outstanding on the date of the
original sale of the Warrants or were thereafter issued or sold.
(h) As used in this Section 9, the term "Common Stock" shall mean and
include the Company's Class A Common Stock authorized on the date of the
original issue of the Units and shall also include any capital stock of any
class of the Company thereafter authorized which shall not be limited to a fixed
sum or percentage in respect of the rights of the holders thereof to participate
in dividends and in the distribution of assets upon the voluntary liquidation,
dissolution or winding up of the Company; provided, however, that the shares
issuable upon exercise of the Warrants shall include only shares of such class
designated in the Company's Certificate of Incorporation as Class A Common Stock
on the date of the original issue of the Units or (i), in the case of any
reclassification, change, consolidation, merger, sale or conveyance of the
character referred to in Section 9(c) hereof, the stock, securities or property
provided for in such section or (ii), in the case of any reclassification or
change in the outstanding shares of
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Class A Common Stock issuable upon exercise of the Warrants as a result of a
subdivision or combination or consisting of a change in par value, or from par
value to no par value, or from no par value to par value, such shares of Common
Stock as so reclassified or changed.
(i) Any determination as to whether an adjustment in the Purchase
Price in effect hereunder is required pursuant to Section 9, or as to the amount
of any such adjustment, if required, shall be binding upon the holders of the
Warrants and the Company if made in good faith by the Board of Directors of the
Company.
(j) If and whenever the Company shall grant to the holders of Common
Stock, as such, rights or warrants to subscribe for or to purchase, or any
options for the purchase of, Common Stock or securities convertible into or
exchangeable for or carrying a right, warrant or option to purchase Common
Stock, the Company shall concurrently therewith grant to each Registered Holder
as of the record date for such transaction of the Warrants then outstanding, the
rights, warrants or options to which each Registered Holder would have been
entitled if, on the record date used to determine the stockholders entitled to
the rights, warrants or options being granted by the Company, the Registered
Holder were the holder of record of the number of whole shares of Class A Common
Stock then issuable upon exercise (assuming, for purposes of this Section 9(j),
that exercise of Warrants is permissible during periods prior to the Initial
Warrant Exercise Date) of his Warrants. Such grant by the Company to the
holders of the Warrants shall be in lieu of any adjustment which otherwise might
be called for pursuant to this Section 9.
SECTION 10. FRACTIONAL WARRANTS AND FRACTIONAL SHARES.
(a) If the number of shares of Class A 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 the exercise of any Warrant, the Company shall pay to the Holder an amount
in cash equal to such fraction multiplied by the current market value of such
fractional share, determined as follows:
(1) If the Class A Common Stock is listed on a national
securities exchange or admitted to unlisted trading privileges on such
exchange or is traded on the Nasdaq National Market, the current
market value shall be the last reported sale price of the Class A
Common Stock on such exchange or market 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 market; or
(2) If the Class A Common Stock is not listed or admitted to
unlisted trading privileges on a national securities exchange or is
not traded on the Nasdaq National Market, the current market value
shall be the mean of the last reported
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bid and asked prices reported by the Nasdaq SmallCap Market or, if not
traded thereon, 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 Class A Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so
reported, the current market 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 Class A 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 for the
purchase of shares of Common Stock in the manner provided in the Warrant
Certificate and this Agreement.
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.
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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 the Warrant Certificate or Warrant Certificates following exercise of any
or all of the Warrants represented thereby or delivered to it for transfer or
exchange.
SECTION 15. CONCERNING THE WARRANT AGENT. The Warrant Agent acts
hereunder as agent and in a ministerial capacity for the Company, and its duties
shall be determined solely by the provisions hereof. The Warrant Agent shall
not, by issuing and delivering Warrant Certificates or by any other act
hereunder be deemed to make 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 be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists which may require any such
adjustments, or with respect to the nature or extent of any such adjustment,
when made, or with respect to the method employed in making the same. It shall
not (i) be liable for any recital or statement of facts contained herein or for
any action taken, suffered or omitted by it 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 (who may be counsel for the Company) and shall incur no
liability or responsibility for any action taken, suffered or omitted by it in
good faith in accordance with the opinion or advice of such counsel.
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
judgments, costs and counsel fees, for anything done or omitted by the
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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 that is a registered
transfer agent under the Securities Exchange Act of 1934. After acceptance in
writing of such appointment by the new warrant agent is received by the Company,
such new warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act or deed; but if for any reason it
shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning Warrant
Agent. Not later than the effective date of any such appointment the Company
shall file notice thereof with the resigning Warrant Agent and shall forthwith
cause a copy of such notice to be mailed to the Registered Holder of each
Warrant Certificate.
Any corporation into which the Warrant Agent or any new warrant
agent may be converted or merged or any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party or any corporation succeeding to the trust business of the Warrant Agent
shall be a successor warrant agent under this Agreement without any further act,
provided that such corporation is eligible for appointment as successor to the
Warrant Agent under the provisions of the preceding paragraph. Any such
successor warrant agent shall promptly cause notice of its succession as warrant
agent to be mailed to the Company and to the Registered Holder of each Warrant
Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of
its or their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as though it were not Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
SECTION 16. MODIFICATION OF AGREEMENT. Subject to the provisions
of Section 4(b), the parties hereto and the Company may by supplemental
agreement make any
-19-
<PAGE>
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; (ii) to reflect an increase in the
number of Class A or Class B Warrants which are to be governed by this Agreement
resulting from a subsequent public offering of Company securities which includes
Class A or Class B Warrants having the same terms and conditions as the Class A
or Class B Warrants, respectively, originally covered by or subsequently added
to this Agreement under this Section 16; or (iii) that they may deem necessary
or desirable and which shall not adversely affect the interests of the holders
of Warrant Certificates; PROVIDED, HOWEVER, that this Agreement shall not
otherwise be modified, supplemented or altered in any respect except with the
consent in writing of the Registered Holders 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.
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 Advanced Aerodynamics & Structures, Inc.,
3060 Airport Way, Long Beach, California 90806, attention: Carl L. Chen, or at
such other address as may have been furnished to the Warrant Agent in writing by
the Company; if to the Warrant Agent, at its Corporate Office; if to Blair, at
D.H. Blair Investment Banking Corp., 44 Wall Street, New York, New York 10005.
SECTION 18. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without
reference to principles of conflict of laws.
SECTION 19. BINDING EFFECT. This Agreement shall be binding upon
and inure to the benefit of the Company 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 to
confer upon any other person any right, remedy or claim, in equity or at law, or
to impose upon any other person any duty, liability or obligation.
SECTION 20. TERMINATION. This Agreement shall terminate at the
close of business on the earlier of the Warrant Expiration Date or the date upon
which all Warrants (including the warrants issuable upon exercise of the Unit
Purchase Options) 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.
-20-
<PAGE>
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.
ADVANCED AERODYNAMICS &
STRUCTURES, INC.
By:
----------------------------------------
Carl L. Chen, President
AMERICAN STOCK TRANSFER &
TRUST COMPANY
By:
----------------------------------------
Authorized Officer
D.H. BLAIR INVESTMENT BANKING CORP.
By:
---------------------------------------------
Authorized Officer
-21-
<PAGE>
EXHIBIT A
[FORM OF FACE OF CLASS A WARRANT CERTIFICATE]
No. AW __________ Class A Warrants
VOID AFTER ________, 2001
CLASS A WARRANT CERTIFICATE FOR PURCHASE
OF CLASS A COMMON STOCK AND REDEEMABLE CLASS B WARRANTS
Advanced Aerodynamics & Structures, Inc.
This certifies that FOR VALUE RECEIVED __________________ or
registered assigns (the "Registered Holder") is the owner of the number of Class
A Warrants ("Class A Warrants") specified above. Each Class A Warrant
represented hereby initially entitles the Registered Holder to purchase, subject
to the terms and conditions set forth in this Warrant Certificate and the
Warrant Agreement (as hereinafter defined), one fully paid and nonassessable
share of Class A Common Stock, $.0001 value ("Class A Common Stock"), of
Advanced Aerodynamics & Structures, Inc., a Delaware corporation (the
"Company"), and one Class B Warrant of the Company at any time between _______,
1996, and the Expiration Date (as hereinafter defined), upon the presentation
and surrender of this Warrant Certificate with the Subscription Form on the
reverse hereof duly executed, at the corporate office of American Stock Transfer
& Trust Company as Warrant Agent, or its successor (the "Warrant Agent"),
accompanied by payment of $6.50 (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.
This Warrant Certificate and each Class A Warrant represented hereby
are issued pursuant to and are subject in all respects to the terms and
conditions set forth in the Warrant Agreement (the "Warrant Agreement"), dated
_________ __, 1996, by and among the Company, the Warrant Agent and D.H. Blair
Investment Banking Corp.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Class A Common Stock
and Class B Warrants subject to purchase upon the exercise of each Class A
Warrant represented hereby are subject to modification or adjustment.
Each Class A Warrant represented hereby is exercisable at the option
of the Registered Holder, but no fractional shares of Class A Common Stock will
be issued. In the case of the exercise of less than all the Class A Warrants
represented hereby, the Company shall
A-1
<PAGE>
cancel this Warrant Certificate upon the surrender hereof and shall execute and
deliver a new Warrant Certificate or Warrant Certificates of like tenor, which
the Warrant Agent shall countersign, for the balance of such Class A Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York time) on
____________ ___, 2001, or such earlier date as the Class A Warrants shall be
redeemed. If such date shall in the State of New York be a holiday or a day on
which banks are authorized to close, then the Expiration Date shall mean 5:00
P.M. (New York time) the next following day which in the State of New York is
not a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of the Class A Warrants represented hereby unless a registration
statement under the Securities Act of 1933, as amended, with respect to such
securities is effective. The Company has covenanted and agreed that it will
file a registration statement and will use its best efforts to cause the same to
become effective and to keep such registration statement current while any of
the Class A Warrants are outstanding. The Class A Warrants represented hereby
shall not be exercisable by a Registered Holder in any state where such exercise
would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Class A Warrants, each of such new Warrant Certificates to
represent such number of Class A Warrants as shall be designated by such
Registered Holder at the time of such surrender. Upon due presentment with any
applicable transfer fee per certificate in addition to any tax or other
governmental charge imposed in connection therewith, for registration of
transfer of this Class A Warrant Certificate at such office, a new Warrant
Certificate or Warrant Certificates representing an equal aggregate number of
Class A 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 Class A Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
The Class A Warrants represented hereby may be redeemed at the option
of the Company, at a redemption price of $.05 per Class A Warrant at any time
after ___________ __, 1997, provided the Market Price (as defined in the Warrant
Agreement) for the Class A Common Stock shall exceed $12.00 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 the Class A Warrants represented hereby except to receive the $.05
per Class A Warrant upon surrender of this Warrant Certificate.
A-2
<PAGE>
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Class A Warrant represented hereby
(notwithstanding any notations of ownership or writing hereon made by anyone
other than a duly authorized officer of the Company or the Warrant Agent) for
all purposes and shall not be affected by any notice to the contrary.
The Company has agreed to pay a fee of 5% of the Purchase Price upon
certain conditions as specified in the Warrant Agreement upon the exercise of
the Class A Warrants represented hereby.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile, by two of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.
ADVANCED AERODYNAMICS &
STRUCTURES, INC.
Dated: By:
-------------- -------------------------------
By:
-------------------------------
[seal]
Countersigned:
American Stock Transfer & Trust Company,
as Warrant Agent
By
---------------------------
Authorized Officer
A-3
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
TRANSFER FEE: $_______ PER CERTIFICATE ISSUED
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to
exercise _______ Class A Warrants represented by this Warrant Certificate, and
to purchase the securities issuable upon the exercise of such Class A 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 Class A Warrants shall not be all the Class A Warrants
evidenced by this Warrant Certificate, that a new Class A Warrant Certificate
for the balance of such Class A Warrants be registered in the name of, and
delivered to, the Registered Holder at the address stated below.
The undersigned represents that the exercise of the Class A Warrants
evidenced hereby was solicited by a member of the National Association of
Securities Dealers, Inc. If not
A-4
<PAGE>
solicited by an NASD member, please write "unsolicited" in the space below.
Unless otherwise indicated by listing the name of another NASD member firm, it
will be assumed that the exercise was solicited by D.H. Blair Investment
Banking Corp. or D.H. Blair & Co., Inc.
------------------------------------
(Name of NASD Member)
Dated: X
------------- -------------------------------
------------------------------------
------------------------------------
Address
------------------------------------
Taxpayer Identification Number
------------------------------------
Signature Guaranteed
------------------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGE- MENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
A-5
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, __________________ hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
OF TRANSFEREE
------------------------------------
------------------------------------
------------------------------------
------------------------------------
[please print or type name and address]
_________________ of the Class A Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints
____________________________________ Attorney to transfer this Warrant
Certificate on the books of the Company, with full power of substitution in the
premises.
Dated: X
--------------- ------------------------------
Signature Guaranteed
------------------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGE- MENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
A-6
<PAGE>
EXHIBIT B
[FORM OF FACE OF CLASS B WARRANT CERTIFICATE]
No. BW __ Class B Warrants
VOID AFTER _____________ 2001
CLASS B WARRANT CERTIFICATE FOR
PURCHASE OF COMMON STOCK
Advanced Aerodynamics & Structures, Inc.
This certifies that FOR VALUE RECEIVED ____________________________ or
registered assigns (the "Registered Holder") is the owner of the number of Class
B Warrants specified above. Each Class B Warrant represented hereby initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Warrant Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and nonassessable share of Class A Common Stock,
$.0001 par value ("Class A Common Stock"), of Advanced Aerodynamics &
Structures, Inc., a Delaware corporation (the "Company"), at any time between
________ __, 1996, and the Expiration Date (as hereinafter defined), upon the
presentation and surrender of this Warrant Certificate with the Subscription
Form on the reverse hereof duly executed, at the corporate office of American
Stock Transfer & Trust Company as Warrant Agent, or its successor (the "Warrant
Agent"), accompanied by payment of $8.75 (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.
This Warrant Certificate and each Class B Warrant represented hereby
are issued pursuant to and are subject in all respects to the terms and
conditions set forth in the Warrant Agreement (the "Warrant Agreement"), dated
___________ __, 1996 by and among the Company, the Warrant Agent and D.H. Blair
Investment Banking Corp.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Class A Common Stock
subject to purchase upon the exercise of each Class B Warrant represented hereby
are subject to modification or adjustment.
Each Class B Warrant represented hereby is exercisable at the option
of the Registered Holder, but no fractional shares of Class A Common Stock will
be issued. In the case of the exercise of less than all the Class B Warrants
represented hereby, the Company shall cancel this Warrant Certificate upon the
surrender hereof and shall execute and deliver a new Warrant Certificate or
Warrant Certificates of like tenor, which the Warrant Agent shall countersign,
for the balance of such Class B Warrants.
B-1
<PAGE>
The term "Expiration Date" shall mean 5:00 P.M. (New York time) on
___________ __, 2001 or such earlier date as the Class B Warrants shall be
redeemed. If such date shall in the State of New York be a holiday or a day on
which banks are authorized to close, then the Expiration Date shall mean 5:00
P.M. (New York time) the next following day which in the State of New York is
not a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of the Class B Warrants represented hereby unless a registration
statement under the Securities Act of 1933, as amended, with respect to such
securities is effective. The Company has covenanted and agreed that it will
file a registration statement and will use its best efforts to cause the same to
become effective and to keep such registration statement current while any of
the Class B Warrants are outstanding. The Class B Warrants represented hereby
shall not be exercisable by a Registered Holder in any state where such exercise
would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Class B Warrants, each of such new Warrant Certificates to
represent such number of Class B Warrants as shall be designated by such
Registered Holder at the time of such surrender. Upon due presentment with any
applicable transfer fee in addition to any tax or other governmental charge
imposed in connection therewith, for registration of transfer of this Warrant
Certificate at such office, a new Warrant Certificate or Warrant Certificates
representing an equal aggregate number of Class B 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 Class B Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
The Class B Warrants represented hereby may be redeemed at the option
of the Company, at a redemption price of $.05 per Class B Warrant at any time
after __________ __, 1997, provided the Market Price (as defined in the Warrant
Agreement) for the Common Stock shall exceed $15.00 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
the Class B Warrants represented hereby except to receive the $.05 per Class B
Warrant upon surrender of this Warrant Certificate.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Class B Warrant represented hereby
(notwithstanding any notations of ownership or writing
B-2
<PAGE>
hereon made by anyone other than a duly authorized officer of the Company or the
Warrant Agent) for all purposes and shall not be affected by any notice to the
contrary.
The Company has agreed to pay a fee of 5% of the Purchase Price upon
certain conditions as specified in the Warrant Agreement upon the exercise of
the Class B Warrants represented hereby.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile, by two of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.
ADVANCED AERODYNAMICS &
STRUCTURES, INC.
Dated: By:
--------------- ------------------------------
By:
------------------------------
[seal]
Countersigned:
American Stock Transfer & Trust Company,
___________, as Warrant Agent
By:
------------------------------
Authorized Officer
B-3
<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 ___________ Class B Warrants represented by this Warrant Certificate,
and to purchase the securities issuable upon the exercise of such Class B
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 Class B Warrants shall not be all the Class B Warrants
evidenced by this Warrant Certificate, that a new Warrant Certificate for the
balance of such Class B Warrants be registered in the name of, and delivered to,
the Registered Holder at the address stated below.
The undersigned represents that the exercise of the Class B Warrants
evidenced hereby was solicited by a member of the National Association of
Securities Dealers, Inc. If not
B-4
<PAGE>
solicited by an NASD member, please write "unsolicited" in the space below.
Unless otherwise indicated by listing the name of another NASD member firm, it
will be assumed that the exercise was solicited by D.H. Blair Investment
Banking Corp.
------------------------------------
(Name of NASD Member)
Dated: X
---------- -------------------------------
------------------------------------
------------------------------------
Address
------------------------------------
Taxpayer Identification Number
------------------------------------
Signature Guaranteed
------------------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGE- MENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED,___________________ hereby sells, assigns and transfers unto
B-5
<PAGE>
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
OF TRANSFEREE
------------------------------------
------------------------------------
------------------------------------
------------------------------------
[please print or type name and address]
___________________ of the Class B Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints _________________
______________________________________________ Attorney to transfer this Warrant
Certificate on the books of the Company, with full power of substitution in the
premises.
Dated: X
--------- ------------------------------
Signature Guaranteed
------------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGE- MENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
B-6
<PAGE>
Option to Purchase
________Units
Advanced Aerodynamics & Structures, Inc.
UNIT PURCHASE OPTION
Dated: _______, 1996.
THIS CERTIFIES THAT______________ (herein sometimes called the
"Holder") is entitled to purchase from Advanced Aerodynamics & Structures, Inc.,
a Delaware corporation (hereinafter called the "Company"), at the prices and
during the periods as hereinafter specified, up to _______ (_______) Units
("Units"), each Unit consisting of one share of the Company's Class A Common
Stock, $.0001 par value, as now constituted ("Class A Common Stock"), one
Class A warrant ("Class A Warrants") and one Class B warrant ("Class B
Warrants"). Each Class A Warrant is exercisable to purchase one share of Class
A Common Stock and one Class B Warrant at an exercise price of $6.50 from
_______, 1996 to _______ , 2001, and each Class B Warrant is exercisable to
purchase one share of Class A Common Stock at an exercise price of $8.75 until
_______, 2001. The Class A Warrants and Class B Warrants are herein
collectively referred to as the "Warrants."
The Units have been registered under a Registration Statement on
Form SB-2, (File No. 333-12273 ) declared effective by the Securities and
Exchange Commission on _______ (the "Registration Statement"). This Option,
together with options of like tenor, constituting in the aggregate options (the
"Options") to purchase 600,000 Units, subject to adjustment in accordance with
Section 8 of this Option (the "Option Units"), was originally issued pursuant to
an underwriting agreement between the Company and D.H. Blair Investment Banking
Corp., as underwriter (the "Underwriter") in connection with a public offering
(the "Offering") of 6,000,000 Units (the "Public Units") through the
Underwriter, in consideration of $600 received for the Options.
Except as specifically otherwise provided herein, the Class A Common
Stock and the Warrants issued pursuant to the option herein granted (the
"Option") shall bear the same terms and conditions as described under the
caption "Description of Securities" in the Registration Statement, and the
Warrants shall be governed by the terms of the Warrant Agreement dated as of
_______, 1996 executed in connection with such public offering (the "Warrant
Agreement"), and except that (i) the holder shall have registration rights under
the Securities Act of 1933, as amended (the "Act"), for the Option, the Class A
Common Stock and the Warrants included in the Option Units, and the shares of
Class A Common Stock underlying the Warrants, as more fully described in
Section 6 of this Option and (ii) the Warrants issuable upon exercise of the
Option will be subject to redemption by the Company pursuant to the Warrant
Agreement at any time after the Option has been exercised and the Warrants
underlying the Option Units are outstanding. Any such redemption shall be on
the same terms and
<PAGE>
conditions as the Warrants included in the Public Units (the "Public Warrants").
The Company will list the Class A Common Stock underlying this Option and, at
the Holder's request the Warrants, on the Nasdaq National Market, the Nasdaq
SmallCap Market or such other exchange or market as the Class A Common Stock or
Public Warrants may then be listed or quoted. In the event of any extension of
the expiration date or reduction of the exercise price of the Public Warrants,
the same changes to the Warrants included in the Option Units shall be
simultaneously effected.
1. The rights represented by this Option shall be exercised at the
prices, subject to adjustment in accordance with Section 8 of this Option ("the
"Exercise Price"), and during the periods as follows:
(a) During the period from _______, 1996 to _______, 1998
inclusive, the Holder shall have no right to purchase any Option
Units hereunder, except that in the event of any merger,
consolidation or sale of all or substantially all the capital
stock or assets of the Company or in the case of any statutory
exchange of securities with another corporation (including any
exchange effected in connection with a merger of another
corporation into the Company) subsequent to _______, the Holder
shall have the right to exercise this Option and the Warrants
included herein at such time and receive the kind and amount of
shares of stock and other securities and property (including
cash) which a holder of the number of shares of Class A Common
Stock underlying this Option and the Warrants included in this
Option would have owned or been entitled to receive had this
Option been exercised immediately prior thereto.
(b) Between _______, 1998 and _______,2001 inclusive, the
Holder shall have the option to purchase Option Units hereunder
at a price of $_______ per Unit. For purposes of the adjustments
under Section 8 hereof, the Per Share Exercise Price shall be
deemed to be $_______, subject to further adjustment as provided
in such Section 8.
(c) After _________, 2001 the Holder shall have no right to
purchase any Units hereunder.
2. (a) The rights represented by this Option may be exercised at
any time within the period above specified, in whole or in part, by (i) the
surrender of this Option (with the purchase form at the end hereof properly
executed) at the principal executive office of the Company (or such other office
or agency of the Company as it may designate by notice in writing to the Holder
at the address of the Holder appearing on the books of the Company); and
(ii) payment to the Company of the exercise price then in effect for the number
of Option Units specified in the above-mentioned purchase form together with
applicable stock transfer taxes, if any. This Option shall be deemed to have
been exercised, in whole or in part to the extent specified, immediately prior
to the close of business on the date this Option is surrendered and
-2-
<PAGE>
payment is made in accordance with the foregoing provisions of this Section 2,
and the person or persons in whose name or names the certificates for shares of
Class A Common Stock and Warrants shall be issuable upon such exercise shall
become the holder or holders of record of such Class A Common Stock and Warrants
at that time and date. The certificates for the Class A Common Stock and
Warrants so purchased shall be delivered to the Holder as soon as practicable
but not later than ten (10) days after the rights represented by this Option
shall have been so exercised.
(b) At any time during the period above specified, during which
this Option may be exercised, the Holder may, at its option, exchange this
Option, in whole or in part (an "Option Exchange"), into the number of Option
Units determined in accordance with this Section (b), by surrendering this
Option at the principal office of the Company or at the office of its stock
transfer agent, accompanied by a notice stating such Holder's intent to effect
such exchange, the number of Option Units into which this Option is to be
exchanged and the date on which the Holder requests that such Option Exchange
occur (the "Notice of Exchange"). The Option Exchange shall take place on the
date specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Company (the "Exchange Date"). Certificates for the
shares of Class A Common Stock and Warrants issuable upon such Option Exchange
and, if applicable, a new Option of like tenor evidencing the balance of the
Option Units remaining subject to this Option, shall be issued as of the
Exchange Date and delivered to the Holder within seven (7) days following the
Exchange Date. In connection with any Option Exchange, this Option shall
represent the right to subscribe for and acquire the number of Option Units
(rounded to the next highest integer) equal to (x) the number of Option Units
specified by the Holder in its Notice of Exchange up to the maximum number of
Option Units subject to this option (the "Total Number") less (y) the number of
Option Units equal to the quotient obtained by dividing (A) the product of the
Total Number and the existing Exercise Price by (B) the Fair Market Value.
"Fair Market Value" shall mean first, if there is a trading market as indicated
in Subsection (i) below for the Units, such Fair Market Value of the Units and
if there is no such trading market in the Units, then Fair Market Value shall
have the meaning indicated in Subsections (ii) through (v) below for the
aggregate value of all shares of Class A Common Stock and Warrants which
comprise a Unit:
(i) If the Units are listed on a national securities exchange
or listed or admitted to unlisted trading privileges on such exchange
or listed for trading on the Nasdaq National Market or the Nasdaq
SmallCap Market, the Fair Market Value shall be the average of the
last reported sale prices or the average of the means of the last
reported bid and asked prices, respectively, of the Units on such
exchange or market for the twenty (20) business days ending on the
last business day prior to the Exchange Date; or
(ii) If the Class A Common Stock or Warrants are listed on a
national securities exchange or admitted to unlisted trading
privileges on such exchange or listed for trading on the Nasdaq
National Market or the Nasdaq SmallCap Market, the Fair Market Value
shall be the average of the last reported sale prices or the
-3-
<PAGE>
average of the means of the last reported bid and asked prices,
respectively, of Class A Common Stock or Warrants, respectively, on
such exchange or market for the twenty (20) business days ending on
the last business day prior to the Exchange Date; or
(iii) If the Class A Common Stock or Warrants are not so listed
or admitted to unlisted trading privileges, the Fair Market Value
shall be the average of the means of the last reported bid and asked
prices of the Class A Common Stock or Warrants, respectively, for the
twenty (20) business days ending on the last business day prior to the
Exchange Date; or
(iv) If the Class A Common Stock is not so listed or admitted
to unlisted trading privileges and bid and asked prices are not so
reported, the Fair Market Value shall be an amount, not less than book
value thereof as at the end of the most recent fiscal year of the
Company ending prior to the Exchange Date, determined in such
reasonable manner as may be prescribed by the Board of Directors of
the Company; or
(v) If the Warrants are not so listed or admitted to unlisted
trading privileges, and bid and asked prices are not so reported for
Warrants, then Fair Market Value for the Warrants shall be an amount
equal to the difference between (i) the Fair Market Value of the
shares of Class A Common Stock and Warrants which may be received upon
the exercise of the Warrants, as determined herein, and (ii) the
Warrant Exercise Price.
3. Neither this Option nor the underlying securities shall be
transferred, sold, assigned, or hypothecated for a period of three years
commencing on the effective date of the Registration Statement except that
they may be transferred to successors of the Holder, and may be assigned in
whole or in part to any person who is an officer of the Holder, any member
participating in the selling group relating to the Offering or any officer of
such selling group member. Any such assignment shall be effected by the
Holder (i) executing the form of assignment at the end hereof and (ii)
surrendering this Option for cancellation at the office or agency of the
Company referred to in Section 2 hereof, accompanied by a certificate (signed
by an officer of the Holder if the Holder is a corporation), stating that
each transferee is a permitted transferee under this Section 3 hereof;
whereupon the Company shall issue, in the name or names specified by the
Holder (including the Holder) a new Option or Options of like tenor and
representing in the aggregate rights to purchase the same number of Option
Units as are purchasable hereunder.
4. The Company covenants and agrees that all shares of Class A
Common Stock which may be issued as part of the Option Units purchased hereunder
and the Class A Common Stock which may be issued upon exercise of the Warrants
will, upon issuance, be duly and validly issued, fully paid and nonassessable
and no personal liability will attach to the holder thereof. The Company
further covenants and agrees that during the periods within which this
-4-
<PAGE>
Option may be exercised, the Company will at all times have authorized and
reserved a sufficient number of shares of its Class A Common Stock to provide
for the exercise of this Option and that it will have authorized and reserved a
sufficient number of shares of Class A Common Stock for issuance upon exercise
of the Warrants included in the Option Units.
5. This Option shall not entitle the Holder to any voting rights or
any other rights, or subject to the Holder to any liabilities, as a stockholder
of the Company.
6. (a) The Company shall advise the Holder or its transferee,
whether the Holder holds the Option or has exercised the Option and holds Option
Units or any of the securities underlying the Option Units, by written notice at
least four weeks prior to the filing of any post-effective amendment to the
Registration Statement or of any new registration statement or post-effective
amendment thereto under the Act covering any securities of the Company, for its
own account or for the account of others, and will for a period of seven years
from the effective date of the Registration Statement, upon the request of the
Holder, include in any such post-effective amendment or registration statement,
such information as may be required to permit a public offering of the Option,
all or any of the Option Units, the Class A Common Stock or Warrants included in
the Option Units or the Class A Common Stock issuable upon the exercise of the
Warrants (the "Registrable Securities").
(b) If D.H. Blair Investment Banking Corp., D.H. Blair & Co.,
Inc. or J. Morton Davis (each, a "Majority Holder") shall give notice to the
Company at any time to the effect that such holder desires to register under
the Act this Option, the Option Units or any of the underlying securities
contained in the Option Units under such circumstances that a public
distribution (within the meaning of the Act) of any such securities will be
involved then the Company will promptly, but no later than twenty (20) days
after receipt of such notice, file a post-effective amendment to the current
Registration Statement or a new registration statement on Form S-1 or such
other form as the holder requests pursuant to the Act, to the end that the
Option, the Option Units and/or any of the securities underlying the Option
Units 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. A
Majority 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 during the four year period beginning
one year from the effective date of the Registration Statement. 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 Section 6(a) or in connection with a request made
pursuant to this Section 6(b) prior to acquisition of the Option Units
issuable upon exercise of the Option and even though the Holder has not given
notice of exercise of the Option. A Majority Holder may, at its option,
request such post-effective amendment or new registration statement during
the described period with respect to the Option, the Option Units as a unit,
or separately as to the Class A Common Stock and/or Warrants included in the
Option Units and/or the Class A
-5-
<PAGE>
Common Stock issuable upon the exercise of the Warrants, and such registration
rights may be exercised by a Majority Holder prior to or subsequent to the
exercise of the Option.
Within ten days after receiving any such notice pursuant to this
Section 6(b), the Company shall give notice to the other holders of the Options,
advising that the Company is proceeding with such post-effective amendment or
registration statement and offering to include therein the securities underlying
the Options 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 in the event the registration statement is not declared effective
under the Act prior to ________, 2001, then, at the holders' request, the
Company shall purchase the Options from the holder for a per option price equal
to the difference between (i) the Fair Market Value of the Class A Common Stock
on the date of notice multiplied by the number of shares of Class A Common Stock
issuable upon exercise of the Option and the underlying Warrants and (ii) the
average per share purchase price of the Option and each share of Class A Common
Stock underlying the Option. All costs and expenses of the first such
post-effective amendment or new registration statement under this paragraph 6(b)
shall be borne by the Company, except that the holders shall bear the fees of
their own counsel and any underwriting discounts or commissions applicable to
any of the securities sold by them.
The Company will maintain such registration statement or
post-effective amendment current under the Act for a period of at least six
months (and for up to an additional three months if requested by the Holder)
from the effective date thereof.
(c) Whenever pursuant to Section 6 a registration statement
relating to any Registrable Securities is filed under the Act, amended or
supplemented, the Company shall (i) supply prospectuses and such other documents
as the Holder may request in order to facilitate the public sale or other
disposition of the Registrable Securities, (ii) use its best efforts to register
and qualify any of the Registrable Securities for sale in such states as such
Holder designates, (iii) furnish indemnification in the manner provided in
Section 7 hereof, (iv) notify each Holder of Registrable Securities at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, contains
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and, at the request of any such Holder, prepare and furnish to such
Holder a reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not included an
untrue statement of a material fact or omit to state material fact required to
be stated therein or necessary to make the statements therein not misleading and
(v) do any and all other acts and things which may be necessary or desirable to
enable such Holders to consummate the public sale or other disposition of the
-6-
<PAGE>
Registrable Securities, The Holder shall furnish appropriate information in
connection therewith and indemnification as set forth in Section 7.
(d) The Company shall not permit the inclusion of any securities
other than the Registrable Securities to be included in any registration
statement filed pursuant to Section 6(b) hereof without the prior written
consent of a Majority Holder.
(e) The Company shall furnish to each Holder participating in
the offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company, dated
the effective date of such registration statement (or, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) if such registration
includes an underwritten public offering, a "cold comfort" letter dated the
effective date of such registration statement and dated the date of the closing
under the underwriting agreement signed by the independent public accountants
who have issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
(f) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and memoranda
described below and to the managing underwriter copies of all correspondence
between the Commission and the Company, its counsel or auditors and all
memoranda relating to discussions with the Commission or its staff with respect
to the registration statement and permit each Holder and underwriter to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonable
necessary to comply with applicable securities laws or rules of the National
Association of Securities Dealers, Inc. ("NASD"). Such investigation shall
include access to non-confidential books, records and properties and
opportunities to discuss the business of the Company with its officers and
independent auditors, all to such reasonable extent and at such reasonable times
as any such Holder shall reasonably request.
7. (a) Whenever pursuant to Section 6 a registration statement
relating to the Registrable Securities is filed under the Act, amended or
supplemented, the Company will indemnify and hold harmless each holder of the
Registrable Securities covered by such registration statement, amendment or
supplement (such holder being hereinafter called the "Distributing Holder"), and
each person, if any, who controls (within the meaning of the Act) the
Distributing Holder, and each underwriter (within the meaning of the Act) of
such securities and each person, if any, who controls (within the meaning of the
Act) any such underwriter, against any losses, claims, damages or liabilities,
joint or several, to which the Distributing Holder, any such controlling person
or any such underwriter may become subject, under the Act or
-7-
<PAGE>
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any such registration
statement or any preliminary prospectus or final prospectus constituting a part
thereof or any amendment or supplement thereto, or arise out of or are based
upon the omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; and will reimburse
the Distributing Holder and each such controlling person and underwriter for any
legal or other expenses reasonably incurred by the Distributing Holder or such
controlling person or underwriter in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in said
registration statement, said preliminary prospectus, said final prospectus or
said amendment or supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder specifically for use in the
preparation thereof.
(b) If requested by the Company prior to the filing of any
registration statement covering the Registrable Securities, each Distributing
Holder will agree, severally but not jointly, to indemnify and hold harmless the
Company against any losses, claims, damages or liabilities to which the Company
may become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities arise out of or are based upon any untrue or alleged
untrue statement of any material fact contained in said registration statement,
said preliminary prospectus, said final prospectus, or said amendment or
supplement, or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in said registration
statement, said preliminary prospectus, said final prospectus or said amendment
or supplement in reliance upon and in conformity with written information
furnished by such Distributing Holder specifically for use in the preparation
thereof; except that the maximum amount which may be recovered from the
Distributing Holder pursuant to this Section 7 or otherwise shall be limited to
the amount of net proceeds received by the Distributing Holder from the sale of
the Registrable Securities.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 7.
(d) In case any such action is brought against any indemnified
party, and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified to
assume the defense thereof, with counsel reasonably
-8-
<PAGE>
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party
under this Section 7 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation.
(8) In addition to the provisions of Section 1(a) of this Option, the
Exercise Price in effect at any time and the number and kind of securities
purchasable upon the exercise of the Options shall be subject to adjustment from
time to time upon the happening of certain events as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of
Common Stock, (ii) subdivide or reclassify its outstanding shares of
Common Stock into a greater number of shares, or (iii) combine or
reclassify its outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price in effect at the time of the
record date for such dividend or distribution or of the effective date
of such subdivision, combination or reclassification shall be adjusted
so that it shall equal the price determined by multiplying the
Exercise Price by a fraction, the denominator of which shall be the
number of shares of Common Stock outstanding after giving effect to
such action, and the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to such action. Such
adjustment shall be made successively whenever any event listed above
shall occur.
(b) Whenever the Exercise Price payable upon exercise of each
Option is adjusted pursuant to Subsection (a) above, (i) the number of
shares of Class A Common Stock included in an Option Unit shall
simultaneously be adjusted by multiplying the number of shares of
Class A Common Stock included in Option Unit immediately prior to such
adjustment by the Exercise Price in effect immediately prior to such
adjustment and dividing the product so obtained by the Exercise Price,
as adjusted and (ii) the number of shares of Class A Common Stock or
other securities issuable upon exercise of the Warrants included in
the Option Units and the exercise price of such Warrants shall be
adjusted in accordance with the applicable terms of the Warrant
Agreement.
(c) Whenever the Exercise Price is adjusted, as herein provided,
the Company shall promptly but no later than 10 days after any request
for such an adjustment by the Holder, cause a notice setting forth the
adjusted Exercise Price and adjusted number of Option Units issuable
upon exercise of each Option and, if requested, information describing
the transactions giving rise to such adjustments, to be mailed to the
Holders, at the address set forth herein, and shall cause a certified
copy thereof to be mailed to its transfer agent, if any. The Company
may retain a firm of independent certified public accountants selected
-9-
<PAGE>
by the Board of Directors (who may be the regular accountants employed
by the Company) to make any computation required by this Section 8,
and a certificate signed by such firm shall be conclusive evidence of
the correctness of such adjustment.
(d) In the event that at any time, as a result of an adjustment
made pursuant to Subsection (a) above, the Holder of this Option
thereafter shall become entitled to receive any shares of the Company,
other than Class A Common Stock, thereafter the number of such other
shares so receivable upon exercise of this Option shall be subject to
adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Class
A Common Stock contained in Subsections (a) to (c), inclusive above.
(e) In case any event shall occur as to which the other
provisions of this Section 8 or Section 1(a) hereof are not strictly
applicable but as to which the failure to make any adjustment would
not fairly protect the purchase rights represented by this Option in
accordance with the essential intent and principles hereof then, in
each such case, the Holders of Options representing the right to
purchase a majority of the Option Units may appoint a firm of
independent public accountants reasonably acceptable to the Company,
which shall give their opinion as to the adjustment, if any, on a
basis consistent with the essential intent and principles established
herein, necessary to preserve the purchase rights represented by the
Options. Upon receipt of such opinion, the Company will promptly mail
a copy thereof to the Holder of this Option and shall make the
adjustments described therein. The fees and expenses of such
independent public accountants shall be borne by the Company.
9. This Agreement shall be governed by and in accordance with the
laws of the State of New York, without giving effect to the principles of
conflicts of law thereof.
IN WITNESS WHEREOF, Advanced Aerodynamics & Structures, Inc. has
caused this Option to be signed by its duly authorized officers under its
corporate seal, and this Option to be dated ____________, 1996.
Advanced Aerodynamics & Structures, Inc.
By:
----------------------------
Carl L. Chen, President
(Corporate Seal)
Attest:
- --------------------------
Gene Comfort, Secretary
-10-
<PAGE>
PURCHASE FORM
(To be signed only upon exercise of option)
The undersigned, the holder of the foregoing Option, hereby
irrevocably elects to exercise the purchase rights represented by such Option
for, and to purchase thereunder, ___ Units of Advanced Aerodynamics &
Structures, Inc., each Unit consisting of one share of $.0001 Par Value Class A
Common Stock, one Class A Warrant to purchase one share _________ of Class A
Common Stock and one Class B Warrant, and one Class B Warrant and herewith makes
payment of $_________ thereof
Dated: _________, 19__. Instructions for Registration of Stock
and Warrants
----------------------------------------
Print Name
----------------------------------------
Address
----------------------------------------
Signature
<PAGE>
OPTION EXCHANGE
The undersigned, pursuant to the provisions of the foregoing Option,
hereby elects to exchange its Option for _________ Units of Advanced
Aerodynamics & Structures, Inc., each Unit consisting of ___ shares of $.0001
Par Value Class A Common Stock, one Class A Warrant to purchase one share
_________ of Common Stock and one Class B Warrant, pursuant to the Option
Exchange provisions of the Option.
Dated: _____________, 19__.
----------------------------------------
Print Name
----------------------------------------
Address
----------------------------------------
Signature
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of the Option)
For value received, the undersigned hereby sells, assigns, and
transfers unto the right to purchase Units represented by the foregoing
Option to the extent of Units , and appoints _____________ attorney to
transfer such rights on the books of _____________, with full power of
substitution in the premises.
Dated: _______________, 19__
[Underwriter]
By: -----------------------------------
----------------------------------------
Address
In the presence of:
<PAGE>
EXHIBIT 5.1
November 20, 1996
Advanced Aerodynamics & Structures, Inc.
3060 Airport Way
Long Beach, California 90806
Re: Registration Statement on Form SB-2
Ladies and Gentlemen:
We are counsel for Advanced Aerodynamic & Structures, Inc., a Delaware
corporation ("AASI"), in connection with its proposed public offering under the
Securities Act of 1933, as amended, of 6,000,000 units ("Units") consisting of
6,000,000 shares of Class A Common Stock, 6,000,000 of Class A Warrants and
6,000,000 Class B Warrants (6,900,000 Units if the overallotment option is
exercised in full), through a Registration Statement on Form SB-2 as to which
this opinion is a part, to be filed with the Securities and Exchange Commission
(the "Commission").
In connection with rendering our opinion as set forth below, we have
reviewed and examined originals or copies of such corporate records and other
documents and have satisfied ourselves as to such other matters as we have
deemed necessary to enable us to express our opinion hereinafter set forth.
Based upon the foregoing, it is our opinion that:
The Shares covered by the Registration Statement, when issued in accordance
with the terms and conditions set forth therein, will be duly authorized,
validly issued, fully paid, and non-assessable Shares of Common Stock.
The shares of Common Stock being registered for the account of the Selling
Stockholders are duly authorized, validly issued, fully paid and nonassessable
shares of Common Stock.
The shares of Common Stock underlying the Warrants covered by the
Registration Statement, when issued in accordance with the terms and conditions
set forth therein, will be duly authorized, validly issued, fully paid, and
nonassessable.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus included in the Registration Statement.
Very truly yours,
LUCE, FORWARD, HAMILTON & SCRIPPS LLP
<PAGE>
EXHIBIT 11.1
ADVANCED AERODYNAMICS & STRUCTURES, INC.
FORM SB-2
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED NINE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1995 1996
------------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net loss..................................... $ (2,767,000) $ (1,688,000) $ (1,270,000) $ (1,726,000)
------------- ------------- ----------------- -----------------
Weighted average number of Class B common
stock shares outstanding.................... 2,000,000 2,000,000 2,000,000 2,000,000
Common stock equivalents from the issuance of
Bridge Warrants computed using the treasury
stock method................................ 1,400,000 1,400,000 1,400,000 1,400,000
------------- ------------- ----------------- -----------------
Weighted average number of shares
outstanding................................. 3,400,000 3,400,000 3,400,000 3,400,000
------------- ------------- ----------------- -----------------
------------- ------------- ----------------- -----------------
Net loss per share........................... $ (0.81) $ (0.50) $ (0.37) $ (0.51)
------------- ------------- ----------------- -----------------
------------- ------------- ----------------- -----------------
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 2 to Registration Statement on Form SB-2 of our report dated
September 4, 1996 relating to the financial statements of Advanced Aerodynamics
& Structures, Inc., which appears in such Prospectus. We also consent to the
references to us under the headings "Experts" and "Selected Financial Data" in
such Prospectus. However, it should be noted that Price Waterhouse LLP has not
prepared or certified such "Selected Financial Data."
Price Waterhouse LLP
Los Angeles, California
November 19, 1996
<PAGE>
EXHIBIT 23.3
[LETTERHEAD]
November 20, 1996
Advanced Aerodynamics & Structures, Inc.
3060 Airport Way
Long Beach, CA 90806
RE: REGISTRATION STATEMENT ON FORM SB-2
Ladies/Gentlemen:
We are special regulatory counsel for Advanced Aerodynamics & Structures,
Inc., a Delaware corporation ("AASI"), in connection with its proposed public
offering under the Securities Act of 1933, as amended, of 6,000,000 units
("Units") consisting of 6,000,000 shares of Class A Common Stock, 6,000,000 of
Class A Warrants and 6,000,000 Class B Warrants (6,900,000 Units if the
overallotment option is exercised in full), through a Registration Statement on
Form SB-2 as to which this opinion is a part, to be filed with the Securities
and Exchange Commission (the "Commission").
We hereby consent to the reference to this firm under the caption "Legal
Matters" in the Prospectus included in the Registration Statement, stating as
follows: "The statements herein relating to federal aviation regulatory matters
will be passed upon by Boros & Garofalo, P.C., Washington, D.C."
Very truly yours,
BOROS & GAROFALO, P.C.
By: /s/ AARON A. GOERLICH
-----------------------------------
Aaron A. Goerlich, VICE PRESIDENT
