As filed with the Securities And Exchange Commission on August 5, 1996
SEC Registration No. 333-________
U.S. SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N.W.
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
AMERICAN INTERNATIONAL CONSOLIDATED INC.
----------------------------------------
(Exact Name Of Registrant As Specified In Its Charter)
Delaware 1541; 1761; 1791 76-0145668
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(State or Other Jurisdiction (Primary Standard Industrial (IRS Employer
Of Incorporation Industrial Classification Identification
or Organization) Code Number) Number)
14603 Chrisman
Houston, Texas 77039
(713) 449-9000
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(Address, Including Zip Code, And Telephone Number, Including Area Code,
Of Registrant's Principal Executive Offices)
John T. Wilson, Chief Executive Officer
14603 Chrisman
Houston, Texas 77039
(713) 449-9000
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(Address, Including Zip Code, And Telephone Number, Including Area Code,
Of Agent For Service
Copies to:
Alan L. Talesnick, Esquire Felice F. Mischel, Esq.
Francis B. Barron, Esquire Gregory Sichenzia, Esq.
Bearman Talesnick & Clowdus Schneck Weltman Hashmall & Mischel LLP
Professional Corporation 1285 Avenue of the Americas
1200 Seventeenth Street, Suite 2600 New York, NY 10019
Denver, Colorado 80202 (212) 956-1500
(303) 572-6500
- --------------------------------------------------------------------------------
Approximate Date Of Commencement 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. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration 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. [ ]
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CALCULATION OF REGISTRATION FEE
===================================================================================================================================
Proposed Proposed
Maximum Maximum Amount
Offering Aggregate Of
Title Of Each Class Of Securities To Be Amount To Be Price Per Offering Registration
Registered Registered Share(1) Price Fee
===================================================================================================================================
<S> <C> <C> <C> <C>
Shares of Common Stock, $.001 par value, offered 1,035,000 $5.00 $5,175,000 $1,784.34
by the Company
Common Stock Purchase Warrants offered by the Company 517,500 $ .10 51,750 17.84
Common Stock, issuable upon exercise of Common 517,500 $5.00 2,587,500 892.17
Stock Purchase Warrants(2)
Underwriter's Warrants to purchase Common Stock 90,000 $ --- 9 .01
Underwriter's Warrants to purchase Warrants 45,000 $ --- 1 .01
Common Stock, issuable upon exercise of 90,000 $6.00 540,000 186.19
Underwriter's Warrants(3)
Warrants, issuable upon exercise of Underwriter's 45,000 $ .12 5,400 1.86
Warrants(3)
Common Stock, issuable upon exercise of Warrants 45,000 $6.00 270,000 93.10
underlying Underwriter's Warrant(4)
Common Stock, issuable upon exercise of 3,000,000 $5.00 15,000,000 5,172.00
outstanding Common Stock Purchase Warrants
Common Stock to be sold by Selling Securities 500,100 $5.00 2,500,500 862.17
Holders
Common Stock Purchase Warrants to be sold by 3,000,000 $ .10 300,000 103.44
Selling Securities Holders
Common Stock to be sold by Underwriter (from 135,000 $6.00 810,000 279.29
Exercise of Underwriter's Warrant and
Warrants included in Underwriter's Warrant)
TOTAL $27,240,160 $9,392.42
===================================================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457.
(2) Issuable upon the exercise of Common Stock Purchase Warrants. This Registration Statement also covers any additional shares
of Common Stock which may become issuable by virtue of the anti-dilution provisions of the Common Stock Purchase Warrants. No
additional registration fee is included for these shares.
(3) Reserved for issuance upon exercise of the Underwriter's Warrants together with such indeterminate number of Common Stock
Purchase Warrants and/or Common Stock as may be issuable pursuant to the anti-dilution provisions of the Underwriter's
Warrants, or the Common Stock Purchase Warrants.
(4) Reserved for issuance upon exercise of Common Stock Purchase Warrants obtained upon exercise of the Underwriter's Warrants.
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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American International Consolidated Inc.
Cross-reference Sheet between Registration Statement (Form S-1) and Form of Prospectus.
Item Number And Caption Caption In Prospectus
<S> <C> <C>
10 General. Not Applicable.
101 Description Of Business. Business.
102 Description Of Property. Business--Properties.
103 Legal Proceedings. Business--Legal Proceedings.
201 Market Price Of And Dividends On The Description Of Securities; Principal
Registrant's Common Equity And Related Stockholders; Certain Risk Factors.
Stockholder Matters.
202 Description Of Registrant's Securities. Description Of Securities.
301 Selected Financial Data. Selected Consolidated Financial Data.
302 Supplementary Financial Information. Not Applicable.
303 Management's Discussion And Analysis Of Management's Discussion And Analysis
Financial Condition And Results of Opera- Of Financial Condition And Results Of
tions. Operations.
304 Changes In And Disagreements With Accoun- Changes In And Disagreements With
tants On Accounting And Financial Accountants On Accounting And
Disclosure. Financial Disclosure.
401 Directors and Executive Officers. Management.
402 Executive Compensation. Executive Compensation.
403 Security Ownership Of Certain Beneficial Principal Stockholders.
Owners And Management.
404 Certain Relationships And Related Transac- Transactions Between The Company And
tions. Related Parties.
405 Compliance with Section 16(a) Of The Ex- Not Applicable.
change Act.
501 Forepart Of Registration Statement And Out- Registration Statement Cover Page;
side Front Cover Of Prospectus. Prospectus Cover Page; Prospectus Inside
Cover Page.
502 Inside Front And Outside Back Cover Pages Cover Page; Inside Cover Page; Back
Of Prospectus. Cover Page.
503 Summary Information, Risk Factors, And Prospectus Summary; Certain Risk
Ratio Of Earnings to Fixed Changes. Factors.
504 Use Of Proceeds. Use Of Proceeds.
505 Determination Of Offering Price. Cover Page; Certain Risk Factors.
506 Dilution. Dilution.
507 Selling Security Holders. Selling Securities Holders (in Alternate
Prospectus)
508 Plan Of Distribution. Cover Page; Underwriting.
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509 Interests Of Named Experts and Counsel. Experts; Legal Matters.
510 Disclosure Of Commission Position On Securities And Exchange Commission
Indemnification For Securities Act Liabilities. Position On Certain Indemnification.
511 Other Expenses Of Issuance And Distribution. Prospectus Inside Cover Page.
512 Undertakings. Not Applicable.
601 Exhibits. Not Applicable.
701 Recent Sales Of Unregistered Securities. Transactions Between The Company And
Related Parties.
702 Indemnification Of Directors And Officers. Not Applicable.
801 Securities Act Industry Guides. Not Applicable.
802 Exchange Act Industry Guides. Not Applicable.
iii
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EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with a primary offering of 900,000 shares of Common Stock and
450,000 Warrants (the "Offering Prospectus"), and one to be used in connection
with the secondary sale of 500,100 shares of Common Stock, 3,000,000 Warrants,
and the Common Stock underlying those Warrants, by certain Selling Securities
Holders (the "Selling Securities Holders' Prospectus"). The Offering Prospectus
and the Selling Securities Holders' Prospectus will be identical in all respects
except for the alternate pages for the Selling Securities Holders' Prospectus
included herein which are labeled "Alternate Page for Selling Securities
Holders' Prospectus".
iv
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[Red Ink]
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>
[Logo red, white and blue flag]
Subject To Completion
August 5, 1996
[Red Ink]
PROSPECTUS
AMERICAN INTERNATIONAL CONSOLIDATED INC.
900,000 Shares Of Common Stock And 450,000
Redeemable Common Stock Purchase Warrants
This Prospectus relates to the offering (the "Offering") by American
International Consolidated Inc. (the "Company") of 900,000 shares of common
stock, $.01 par value (the "Common Stock"), and 450,000 Redeemable Common Stock
Purchase Warrants (the "Warrants") through Dalton Kent Securities Group, Inc.,
the representative (the "Representative") of I.A. Rabinowitz & Co. and the other
Underwriters (collectively, the "Underwriters"). The shares of Common Stock and
the Warrants, which are offered on a firm commitment basis, may be purchased
separately and will be transferable separately upon issuance.
Each Warrant entitles the registered holder thereof to purchase one share
of Common Stock at an exercise price of $5.00 per share, subject to adjustment
in certain events, at any time during the period commencing on the date hereof
and expiring on the fifth anniversary of the date hereof. The Warrants are
subject to redemption by the Company at $.01 per Warrant at any time commencing
12 months after the date hereof, on not less than 30 days' prior written notice
to the holders of the Warrants, provided that the average closing bid price of
the Common Stock as reported on The Nasdaq Stock Market or the average closing
sale price if listed on a national securities exchange, has been at least 150%
of the then current exercise price of the Warrants, for each of the 20
consecutive business days ending on the third day prior to the date on which the
Company gives notice of redemption. The Warrants will be exercisable until the
close of business on the day immediately preceding the date fixed for
redemption. See "DESCRIPTION OF SECURITIES-Warrants".
Prior to this Offering, there has been no public market for the Common
Stock or the Warrants, and there can be no assurance that any such market for
the Common Stock or the Warrants will develop after the closing of this
Offering, or that, if developed, it will be sustained. The offering price of the
Common Stock and the Warrants and the initial exercise price and other terms of
the Warrants were established by negotiation between the Company and the
Underwriter and do not necessarily bear any direct relationship to the Company's
assets, earnings, book value per share or other generally accepted criteria of
value. See "UNDERWRITING". The Company has applied for quotation of the Common
Stock and the Warrants on The Nasdaq SmallCap Market ("NASDAQ") under the
trading symbols "AICI" and "AICIW," respectively. The Company also intends to
apply for listing of the Common Stock and the Warrants on The Boston Stock
Exchange ("BSE") under the trading symbols "AICI" and "AICW", respectively.
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVESTMENT THEREIN INVOLVES A
HIGH DEGREE OF RISK. FOR A DESCRIPTION OF CERTAIN RISKS REGARDING AN INVESTMENT
IN THE COMPANY AND IMMEDIATE SUBSTANTIAL DILUTION, SEE "RISK FACTORS" (PAGE 9)
AND "DILUTION" (PAGE 19).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSION NOR HAS
THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
1
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=============================================================================================================================
Underwriting
Price To Public (1) Discount And Proceeds To
Commissions (3)(4) Company (4)(5)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share (2) $ 5.00 $ 0.50 $ 4.50
Per Warrant $ .10 $ 0.01 $ .09
Total (2) $4,545,000 $454,500 $4,090,500
=============================================================================================================================
(See Notes on following page)
</TABLE>
The Common Stock and Warrants are being offered by the Company through the
Underwriters on a firm commitment basis. The Offering is made by the
Underwriters, subject to the Underwriters' right to reject any subscription, in
whole or in part, or to withdraw or cancel the Offering without notice. It is
expected that delivery of the certificates representing the Common Stock and the
Warrants will be made against payment therefor at the offices of the
Representative, 330 Seventh Avenue, New York, New York 10001 on or about
_________, 1996.
Dalton Kent Securities Group, Inc. I.A. Rabinowitz & Co.
The date of this Prospectus is August 5, 1996
2
<PAGE>
Notes
(1) The offering price has been arbitrarily determined by negotiations between
the Company and the Representative. See "RISK FACTORS".
(2) The Common Stock and Warrants are offered on a "firm underwriting" basis.
The Common Stock and Warrants are offered, subject to receipt and
acceptance by the Underwriters, to prior sale and to the Underwriters'
right to reject any order in whole or in part and to withdraw, cancel, or
modify the offer without notice. The Company has granted to the
Underwriters an option, solely to cover over-allotments of the Offering, to
purchase all or any part of 15 percent of the total number of shares of
Common Stock and Warrants for a period of 45 days from the date of closing
of the Offering at the price to public and subject to the underwriting
discount and commissions shown in the above table. See "UNDERWRITING". The
Underwriters reserve the right to reject subscriptions for any reason,
including without limitation, because the Underwriters determine that the
subscriber is not qualified to purchase the Common Stock or Warrants
because either (i) the Offering has not been qualified in the subscriber's
jurisdiction, or (ii) the Underwriters do not believe the investment is
suitable for the subscriber based on the investment profile and strategy of
the subscriber. In addition, the Underwriters may reject a subscription
because the Offering has been oversubscribed.
(3) The Underwriters will receive a non-accountable expense allowance equal to
three percent, or $136,350, of the $4,545,000 aggregate offering amount, of
which $25,000 already has been advanced by the Company.
Upon the closing of this Offering, the Company will enter into a consulting
and merger and acquisition agreement with the Representative pursuant to
which the Representative will receive a consulting fee of $108,000, payable
at the Closing, for services to be rendered by the Representative to the
Company for three years commencing on the closing date of the Offering.
The Underwriting Agreement also provides for reciprocal indemnification
between the Company and the Underwriters, including liabilities arising
under the Securities Act of 1933, as amended. See "SECURITIES AND EXCHANGE
COMMISSION POSITION ON CERTAIN INDEMNIFICATION".
(4) Upon the closing of the Offering, the Company will sell to the Underwriters
and/or their designees, for an aggregate price of $10, warrants to purchase
90,000 shares of Common Stock and 45,000 Warrants (the "Underwriters'
Warrants"). The Underwriters' Warrants will entitle the holder to purchase
the shares of Common Stock at a purchase price of $6 per share and the
Warrants at a purchase price of $.12 per Warrant. The Warrants are
exercisable at $6.00 per share during the four year period commencing one
year after the date of this Prospectus. See "UNDERWRITING".
(5) These amounts represent the proceeds to the Company after payment of the
underwriting commissions, but before deduction of other offering expenses
estimated at $554,000 (approximately $296,000 of which will have been paid
prior to closing). These other offering expenses include the
non-accountable expense allowance to the Underwriters of $136,350 and
additional offering expenses estimated at $417,650 for filing fees,
printing costs, legal and accounting fees, and miscellaneous expenses.
After allowing for all such expenses and prior payments, the net proceeds
to the Company from this Offering are expected to be $3,832,500.
3
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In addition, 26 persons (the "Selling Securities Holders") who previously
purchased 500,100 shares of Common Stock and 3,000,000 Warrants in a private
offering that was exempt from registration under federal and state securities
laws are proposing to sell those shares and warrants to the public. The Company
also is registering the exercise of those warrants by persons who purchase
warrants from the Selling Securities Holders and resales of the Common Stock
issuable upon the exercise of warrants by the Selling Securities Holders or
persons who purchase warrants from the Selling Securities Holders. These
transactions are being registered by separate Prospectus concurrently with this
Offering. The Company will not receive any of the proceeds from the sale of
shares and warrants by the Selling Securities Holders.
The Company intends to furnish its stockholders with annual reports
containing consolidated financial statements audited and reported upon by its
independent certified public accountants after the end of each fiscal year,
commencing with its fiscal year ending April 30, 1997. The Company may
distribute quarterly reports containing unaudited interim financial information.
The Company also will furnish stockholders with such other periodic reports as
the Company may determine to be appropriate or as may be required by law.
Officers, directors and affiliates of the Company, and persons associated
with them, may purchase Common Stock or Warrants in the offering. If such
purchases are made, they will be made solely with a view toward investment and
not resale. It is not expected that purchases by officers, directors and their
affiliates will exceed five percent of the Common Stock or Warrants.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY EFFECT TRANSACTIONS
WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AND/OR WARRANTS
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
THE COMMON STOCK AND WARRANTS ARE OFFERED SUBJECT TO PRIOR SALE, ALLOTMENT,
WITHDRAWAL, CANCELLATION OR MODIFICATION OF THE OFFERING WITHOUT PRIOR NOTICE.
THE UNDERWRITER RESERVES THE RIGHT TO REJECT ANY SUBSCRIPTION IN WHOLE OR IN
PART. THE OFFERING CANNOT BE MODIFIED UNLESS AN AMENDED REGISTRATION STATEMENT
IS FILED AND DECLARED EFFECTIVE BY THE SECURITIES AND EXCHANGE COMMISSION.
THE COMPANY HAS NOT PREVIOUSLY FILED ANY REPORTS WITH THE SECURITIES AND
EXCHANGE COMMISSION AND CURRENTLY IS NOT A REPORTING COMPANY.
ANY DOCUMENT WHICH IS INCORPORATED BY REFERENCE HEREIN BUT NOT DELIVERED
HEREWITH, MAY BE REQUESTED BY ANY PERSON TO WHOM THIS PROSPECTUS IS DELIVERED.
SUCH REQUESTS SHALL BE MADE TO AMERICAN INTERNATIONAL CONSOLIDATED INC., 14603
CHRISMAN, HOUSTON, TEXAS 77039, TELEPHONE NUMBER (713) 449-9000. DELIVERY OF THE
REQUESTED DOCUMENTS WILL BE MADE WITHOUT CHARGE.
4
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). All statements other than statements of historical fact
included in this Prospectus,including without limitation, the statements under
"PROSPECTUS SUMMARY", "RISK FACTORS-Risk Factors Relating To The Business Of The
Company", "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS- Liquidity And Capital Resources", "BUSINESS-Business Plan
And Strategy", "-- Indebtedness To Major Supplier" and "--FCLT Loans", and Notes
3, 7, and 8 to the Consolidated Financial Statements located elsewhere herein
regarding the Company's financial position and liquidity, the amount of its
ability to make debt service payments, its strategies, financial instruments,
and other matters, are forward-looking statements. Although the Company believes
that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct. Important factors that could cause actual results to differ
materially from the Company's expectations ("Cautionary Statements") are
disclosed in this Prospectus, including without limitation in conjunction with
the forward-looking statements included in this Prospectus. All subsequent
written and oral forward-looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by the
Cautionary Statements.
5
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PROSPECTUS SUMMARY
The Company
American International Consolidated Inc. (the "Company") is a manufacturer
and general contractor that focuses primarily on three types of construction
products: mini-warehouses and self-storage facilities; metal buildings and
structural steel projects; and cold storage, including refrigerated and freezer,
buildings. The Company's services range from the start, or construction design,
phase to the finish, or erection, phase of a project, including general
construction, construction management, design, manufacture, building, and
turnkey services. The Company selects, coordinates and manages subcontractors
for substantially all phases of the work, except for design, erection and
manufacture of certain metal building components. The Company also provides
oversight and supervision of the entire construction process for each project.
The Company intends to take advantage of its increased capital and improved
financial condition resulting from this Offering by (i) increasing revenues,
operating margins and profitability through the following: establishment of an
in-house trim shop, expansion of its metal buildings manufacturing facility,
decreasing interest expense (from reduction of debt), and decreasing bonding
costs; and (ii) increasing business volume through increasing bonding capacity
in order to access larger projects and other new business, undertaking planned
domestic and international marketing programs, and increasing business referrals
from suppliers and other business contacts. See "BUSINESS--Business Plan And
Strategy" for a more detailed description of this strategy and each of these
items. See also "USE OF PROCEEDS".
The Company's principal executive and administrative offices are located at
14603 Chrisman, Houston, Texas 77039, telephone number (713) 449-9000.
The Company was incorporated under the laws of Texas in May 1985 and
changed its state of incorporation to Delaware in June 1994. In July 1996, the
Company changed its name to American International Consolidated Inc. from
American International Construction Inc.
The Offering
Securities Offered The Company is offering, for $5.00 per
share, 900,000 shares of the Company's
common stock (the "Common Stock") and
450,000 redeemable common stock purchase
warrants (the "Warrants"). Each Warrant
entitles the holder to purchase one
share of Common Stock for $5.00 per
share during the period beginning on the
date of this prospectus and ending five
years from the date of this prospectus.
See "DESCRIP- TION OF SECURITIES".
Offering Price $ 5.00 per share of Common Stock
$ .10 per Warrant
Warrant Exercise Price $ 5.00 per share of Common Stock,
subject to adjustments in certain
circumstances
Warrant Exercise Period The Period commencing on
the date of this prospectus and expiring
on __________, 2001. Shares of Common
Stock outstanding prior to Offering:
2,900,100
Shares of Common Stock offered (1): 900,000
Shares of Common Stock outstanding
after the Offering: 3,800,100
Warrants outstanding prior to
Offering: 3,000,000
Warrants offered: 450,000
6
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Warrants outstanding after
the Offering: 3,450,000
Shares of Common Stock Outstanding
after the Offering assuming exercise
of all Warrants offered in Offering
and previously outstanding: 7,250,100
Estimated net proceeds to the
Company (2): $ 3,832,500
- --------------------
(1) Does not include (i) up to 450,000 shares of Common Stock issuable upon
exercise of the Warrants included in the Offering, (ii) up to 135,000
shares of Common Stock included in the Underwriters' over-allotment option,
(iii) up to 135,000 shares of Common Stock issuable upon exercise of the
Underwriters' Warrants and the warrants issuable to the Underwriters upon
the exercise of the Underwriters' Warrants, and (iv) 3,000,000 shares of
Common Stock issuable upon exercise of previously outstanding warrants. See
"UNDERWRITING".
(2) This amount is after deduction of aggregate selling commissions of $454,500
and of $258,000 as the unpaid portion of the other total estimated offering
expenses of $355,000.
Redemption Of The Warrants The Warrants are redeemable by the
Company at a price of $.01 per Warrant
upon 30 days prior written or published
notice at any time commencing 12 months
after the date of this Prospectus and
prior to their exercise or expiration,
provided however, that the closing bid
quotation for the Common Stock for each
of the 20 consecutive business days end-
ing on the third day prior to the
Company's giving notice of redemption
has been at least 150 percent of the
then effective exercise price of the
Warrants. The Warrants remain
exercisable during the 30-day notice
period. Any Warrantholder who does not
exercise that holder's Warrants prior to
their expiration or redemption, as the
case may be, forfeits that holder's
right to purchase the shares of Common
Stock underlying the Warrants. See
"DESCRIPTION OF SECURITIES--Common Stock
Purchase Warrants--Redemption".
Use Of Proceeds Net proceeds are intended to be used
primarily for establishing an in- house
trim shop, expanding the capacity of the
Company's metal buildings production
facility, undertaking additional
marketing activities, payment of
outstanding indebtedness, and increasing
working capital, which is anticipated to
enable the Company to increase its
bonding line. See "USE OF PROCEEDS" and
"BUSINESS".
Risk Factors The securities offered hereby involve a
high degree of risk and substantial
immediate dilution to new investors. See
"CERTAIN RISK FACTORS" and "DILUTION".
NASDAQ Symbols Common Stock - AICI Warrants - AICIW
Boston Exchange Symbol Common Stock - AIC Warrants - AICW
7
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Summary Selected Financial Data
The financial statements included in this Prospectus set forth information
regarding the Company as of and for the fiscal years ended April 30, 1996, 1995
and 1994 (audited). See "FINANCIAL INFORMATION". The summary selected financial
data shown below is derived from, and is qualified in its entirety by, those
financial statements, which are contained in the "FINANCIAL INFORMATION" section
of this Prospectus.
Fiscal Year Ended April 30
--------------------------
1995 1996
---- ----
Actual Actual
Operating Results:
Revenues....................... $24,317,051 $31,184,828
Net Income..................... 186,662 351,570
Net Income Per share (1)....... .08 .15
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<CAPTION>
Fiscal Year
Ended
April 30, 1996
Balance Sheet Data: As Adjusted(1)
- ------------------- --------------
<S> <C> <C> <C>
Working Capital (Deficit)...... (1,405,511) 836,774 2,182,037
Total assets................... 5,487,091 7,346,083 9,383,000
Long Term Debt ................ 453,868 2,422,292 1,222,292
Total liabilities.............. 6,059,154 7,566,576 6,066,576
Accumulated (deficit).......... (720,218) (368,648) (368,648)
Stockholders' equity
(deficit).................... (572,063) (220,493) 3,316,007
--------------------
(1) As adjusted for (a) $300,000 loan consummated in July 1996 and (b) net proceeds from this
Offering, including repayment of $1.2 million of long-term debt and $300,000 of unsecured
notes. See, "USE OF PROCEEDS".
8
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RISK FACTORS
THE COMMON STOCK AND WARRANTS BEING OFFERED INVOLVE A HIGH DEGREE OF RISK
AND, THEREFORE, SHOULD BE CONSIDERED EXTREMELY SPECULATIVE. THEY SHOULD NOT BE
PURCHASED BY PERSONS WHO CANNOT AFFORD THE POSSIBILITY OF THE LOSS OF THEIR
ENTIRE INVESTMENT. Prospective investors should consider carefully, among other
factors, the risk factors and other special considerations relating to the
Company and this offering set forth below.
Risk Factors Relating To The Business Of The Company
- ----------------------------------------------------
1. Possibility Of Unprofitable Operations. The Company's audited results
for each of the fiscal years ended April 30, 1996 and 1995 resulted in a profit;
however, the Company incurred operating losses for each of the fiscal years
ended April 30, 1994, 1993 and 1992, and there is no assurance that the
operations of the Company will be profitable in the future. See
"BUSINESS--Business Plan And Strategy" and "FINANCIAL INFORMATION".
2. Limited Financial Resources, Negative Net Worth, And Outstanding
Obligations. The Company has limited financial resources available, which has
had an adverse impact on the Company's liquidity. Its activities and operations
to date have resulted in a negative net worth. There is no assurance that the
proceeds of this Offering will be sufficient to successfully develop, produce,
and market the Company's services. The Company may be forced to limit its
activities because of the lack of availability of adequate financing. In the
past, the Company's limited liquidity has limited the amount of credit available
from the Company's suppliers. If the Company were not to have adequate financing
available in the future, it is likely that this credit limitation would continue
and that the Company's domestic and international marketing would be directly
affected, which would impair the Company's ability to increase its business
volume.
The Company's negative net worth and financial condition in general have
prevented the Company from being able to obtain performance and payment bonds,
which has limited the Company's ability to obtain certain projects. If this
Offering is successfully completed, the Company believes that it will be able to
increase its bonding line and thereby increase the jobs available to it. See
"BUSINESS- Business Plan and Strategy -- Strengthen Financial Condition and
Increase Bonding Capacity".
3. Outstanding Indebtedness. As of April 30, 1996, the Company owed its
major supplier of raw materials (the "Supplier") $1,065,825 for accounts payable
and an additional $2,400,000 that is evidenced by a note (the "Note") and other
related loan documents. The Company is required to make weekly payments of
$11,537 for outstanding principal and accrued interest on the Note until April
30, 2001. If this Offering is successfully completed, of which there is no
assurance, the Company intends to use $1.2 million of the proceeds to reduce the
balance of the Note to approximately $1.1 million, which will reduce the weekly
payments to approximately $6,000 per week. Pursuant to the terms of the Note, it
is an event of default if the Company's net income before interest expense is
less than 1.5 percent of the Company's total sales for any fiscal year beginning
with the fiscal year ending April 30, 1997. Although the Company would not have
satisfied this requirement for any of its previous fiscal years, management
believes that it will be able to do so for fiscal 1997 and thereafter.
Nevertheless, there is no assurance that the Company will satisfy this
requirement. If this requirement is not satisfied, the Company will be required
to obtain alternate financing, receive a waiver from the Supplier, or default on
the Note. See "BUSINESS--Indebtedness To Major Supplier".
9
<PAGE>
As of April 30, 1996, the Company also owed an aggregate of approximately
$373,000 to FCLT, L.P., a Texas limited partnership ("FCLT"), pursuant to two
loans that are payable in June 1998, are collateralized by the Company's land
and buildings, and are guaranteed by the three principal stockholders of the
Company. Aggregate monthly payments on these two loans are $6,082. See
"BUSINESS--Outstanding Bank Loans".
The Company has other long-term obligations of an aggregate of
approximately $202,000 at April 30, 1996 that require aggregate monthly payments
of approximately $312,000. The Company also is the obligor on an aggregate of
$300,000 principal amount of unsecured notes that will be repaid from the
proceeds of this Offering. See "USE OF PROCEEDS".
The Company believes it will be able to make all monthly debt payments from
its operating funds and that it will be able to satisfy the June 1998 balloon
payments on the two bank loans either through operating funds or through
refinancing. However, there is no assurance that this will be the case or that
the Company's indebtedness will not have a significant negative impact on the
Company's operations.
4. Fluctuations In Industry Construction Activity. Although most recently,
new construction projects for storage facilities, warehouses and pre-engineered
metal buildings and freezer/refrigerated facilities, as well as renovations and
remodeling projects, have occurred at a historically active rate, new projects
were not as numerous in prior years. These fluctuations in industry activity
result from numerous factors, including general economic conditions, interest
rates and the general real estate market. There can be no assurance that future
demand for the Company's services will be adequate for the Company to operate
profitably.
5. Uncertain Markets And Market Acceptance. No assurance can be given of
market acceptance or profitability from sales of the Company's current services
or that sales of future services will be profitable. The Company's industry is
extremely competitive and subject to numerous changes. See "BUSINESS".
6. Competition. The Company competes, in a highly competitive environment,
with many companies in the manufacture, construction and erection of storage
facilities, warehouses, pre-engineered metal buildings, freezer/refrigerated
facilities, and other construction services. Many of the Company's primary
competitors not only have greater resources than the Company, they also have
larger administrative staffs and more available service personnel. The larger
competitors also may use their greater financial resources to develop and market
their services. The presence of these competitors may be a significant
impediment to any attempts by the Company to develop its business. Major
competitive factors include product knowledge, experience, past relationships,
quality of performance, financial condition, reputation, timeliness, and
pricing. The Company believes that it ranks highly and therefore will have
certain competitive advantages in attempting to develop and market its services,
including the Company's excellent relationships with its past and current
customers, which has led to "repeat" business, the Company's product knowledge,
experience, past relationships, quality of performance, reputation and pricing,
and the Company's ability to respond to customer requests more quickly than some
larger competitors. For the year ended April 30, 1996, approximately 43% percent
of the Company's business was derived from repeat customers; however there is no
assurance that this will occur in the future. None of the Company's repeat
business is derived from long-term contracts, and all repeat business results
from separately negotiated contracts. With respect to lower rankings for
competitive factors, the Company's capitalization prior to this Offering has
placed it at a competitive disadvantage in the past but the Company believes
that as a result of this Offering it will increase its ability to compete on the
basis of financial condition. However, there is no assurance that this will
prove correct. See "BUSINESS-- Marketing" and "BUSINESS--Industry Environment".
10
<PAGE>
7. Exposure To Construction Related Litigation. The construction industry
has a high incidence of litigation, and as a participant in this industry, the
Company is constantly exposed to the risk of litigation. Even though the Company
maintains insurance for these matters in amounts customary in the industry, and
even if the Company prevails in any such litigation, of which there is no
assurance, the management time and out-of-pocket expense expended in commercial
litigation could have an adverse impact on the Company.
8. Past Dependence On Major Customers. During the fiscal years ended April
30, 1995 and 1994, U-Haul, Inc. accounted for approximately $4.8 and $4.9
million, respectively, or approximately 20 percent and 19 percent, respectively,
of the Company's total revenues. During the fiscal year ended April 30, 1996,
U-Haul, Inc. accounted for approximately $8.1 Million, or 26 percent, of the
Company's total revenues. The Company negotiates each project with U-Haul
separately as there is no contract with U-Haul covering the construction of
future projects. The loss of U-Haul, Inc.'s business could have a materially
adverse effect on the Company. Also during the fiscal year ended April 30, 1994,
another customer, with a contract for cold storage construction, accounted for
approximately 22 percent of the Company's total revenues. This contract was
entered into as a one-time project, and the Company does not anticipate any
future business from this customer. See "BUSINESS--Reliance On Major Customers".
9. Previous Experience In International Markets. The Company plans to
expand its business in international markets but a significant portion of its
past experiences in international markets has been unprofitable. The past losses
from international business occurred in situations in which the Company had set
up satellite offices in other countries, such as Guam and Puerto Rico, and the
cost of operating and maintaining these offices was too great to operate
profitably. The Company has closed its offices in Puerto Rico and in Guam, and
believes that it will be able to conduct business internationally without
opening satellite offices. The Company currently is doing a small amount of
business internationally through an international sales force located in its
Houston, Texas headquarters. Although there can be no assurance, management of
the Company believes that despite past losses in international markets, it will
be able to operate profitably in international markets in the future. This is
based on the Company's belief that because it is accustomed to undertaking
projects in areas geographically separated from its home office, it will be
better suited to serving customers in foreign markets than competitors that
generally operate in proximity to their home base. The Company also believes
that it will be able to operate profitably in foreign markets because it
believes the demand in those markets currently exceeds the availability of
qualified companies to service them.
10. Availability Of Labor. In order to minimize overhead, the Company often
contracts with independent third parties to provide a substantial portion of the
labor for its construction projects. Therefore, the Company's ability to provide
these services is dependent upon outside sources of workers and this may result
in delays in the completion of contracts due to the unavailability of such
labor. The Company is not currently experiencing, and has not in the past
experienced, a shortage of labor.
11. Possible Effect Of Subcontractors' Use Of Unionized Labor. At the
current time, the use of unionized labor by subcontractors engaged by the
Company does not have a significant effect on the Company because subcontractors
tend to use unionized labor only in areas where there is a heavy concentration
of unionized labor, and because in those areas other contractors in competition
with the Company most often utilize unionized labor so that there would be no
competitive advantages or disadvantages to the Company. There is no assurance
that this situation will remain constant in the future.
11
<PAGE>
12. Dependence On Key Personnel. The success of the Company is largely
dependent upon the efforts of John Wilson, Chief Executive Officer and a
director of the Company, Danny Clemons, President and a director of the Company,
R. L. Farrar, Vice President of Operations, Treasurer, Secretary and a director
of the Company, and Jim Williams, Vice President of Finance, Assistant Secretary
and a director of the Company. The loss of the services of any of these persons
or the loss of the services of Jimmy M. Rogers, head of the Company's Thermal
System Division, could be detrimental to the Company as there is no assurance
that the Company could replace any of them adequately at an affordable
compensation level. See "MANAGEMENT". The Company has entered into employment
agreements with each of the above officers. See "REMUNERATION--Employments
Contracts And Termination Of Employment And Change-In-Control Arrangements". The
Company is the beneficiary for $500,000 of key-man term life insurance coverage
on each of Messrs. Wilson, Clemons, Farrar, Rogers and Williams. There is no
assurance that these insurance policies will provide the Company with adequate
compensation in the event of the death of any of the insured.
13. Government Regulation And Workers Compensation Insurance. The Company
is subject to government regulation of its business operations. In addition, the
Company's construction activities must meet with the requirements of local
building codes, and the Company is required to provide workers compensation or
alternate insurance coverage for the Company's employees. Because of the nature
of the Company's business in construction services, the cost of this insurance
for the Company's on-site employees is higher relative to the cost of insurance
coverage for the Company's office personnel. When construction work is performed
on behalf of the Company by subcontractors, the subcontractors, and not the
Company, pay the direct costs of insurance for the construction workers. There
is no assurance that subsequent changes in laws or regulations will not affect
the Company's operations adversely.
14. Possible Need For Future Financing. The Company believes that the
proceeds of this offering will enable it to accomplish the purposes set forth
under "BUSINESS", although there can be no assurance that this will be the case.
If the proceeds of this offering are not sufficient, the Company would be
required to seek additional financing to enable it to conduct its business
operations. There can be no assurance that the Company will be able to obtain
such financing on acceptable terms. Any such additional financing may entail
substantial dilution of the equity of the then-existing stockholders of the
Company. The availability of additional financing may be restricted by
provisions in the underwriting agreement with the Underwriter that require, for
a period of 24 months after this Offering, that the Company obtain the
Underwriter's permission in order to issue securities for financing purposes.
See "UNDERWRITING".
15. Use Of Proceeds Not Specific. The proceeds of this offering have been
allocated only generally. The specific uses of investors' funds will depend upon
the business judgment of management, upon which the investors must rely, with
only limited information about management's specific intentions. See "USE OF
PROCEEDS" and "BUSINESS".
16. Potential Conflicts Of Interest. Potential conflicts of interest may
arise between the Company and its officers and directors. Each of the Company's
officers and directors may be engaged in other business activities in addition
to his involvement with the Company. As a result, conflicts of interest may
arise in the area of corporate opportunities or in the area of conflicting time
commitments with respect to the officers and directors of the Company. Conflicts
of interest may also develop with respect to contractual relationships that may
be entered into between the Company and any of its officers and directors. See
"TRANSACTIONS BETWEEN THE COMPANY AND RELATED PARTIES".
At the present time, there are not any material conflicts of interest
between the Company and any of its officers or directors, except to the extent
that their respective positions as large stockholders might present conflicts of
12
<PAGE>
interest. A previously existing conflict of interest was resolved in May 1994
when AIC Management, Inc. merged with and into the Company. At the time of the
merger, AIC Management, Inc. owned the land and buildings that are utilized for
the Company's administrative offices as well as its metal buildings
manufacturing facility. The shareholders and directors of AIC Management, Inc.
at the time of the merger were Messrs. Clemons, Farrar and Wilson, who are the
three largest stockholders and three of the four directors of the Company.
The Company has not established any special procedures for dealing with any
such conflicts. In the event any conflicts of interest arise with respect to any
officer or director of the Company, the Company anticipates that its officers
and directors will exercise their judgment consistent with their fiduciary
duties arising under the applicable state laws. There can be no assurance that
all conflicts of interest will be resolved in favor of the Company.
Risk Factors Concerning This Offering And The Securities Offered
- ----------------------------------------------------------------
17. Significant Dilution To Investors. An investor in this Offering will,
immediately after the Offering, incur significant dilution from the amount of
his initial investment, as compared to the book value per share of the Common
Stock purchased. Dilution to new investors will be $4.13, or 83 percent, per
share of Common Stock. It appears that significant dilution also will be the
case for any exercise of Warrants in the foreseeable future, although this
cannot be certain because the amount of any such dilution will depend on the
future business operations and other activities of the Company. See "DILUTION".
18. Control By Present Stockholders And Management. After the Offering,
Management of the Company will remain in effective control of the Company as it
will own enough shares in the aggregate that it would be able to elect all of
the directors of the Company, and the investors in this Offering, voting by
themselves as a group, would not be able to elect any of the directors of the
Company. See "PRINCIPAL STOCKHOLDERS" and "DESCRIPTION OF SECURITIES".
19. No Dividends. Since its inception, the Company has paid no dividends
with respect to its Common Stock and it does not contemplate paying dividends in
the foreseeable future. The Company currently is prohibited from paying
dividends by its agreements with a supplier to whom it is indebted. See
"BUSINESS--Indebtedness To Major Supplier".
20. No Assurance Of Market For Common Stock Or Warrants. There currently is
no public market for the Common Stock or Warrants (collectively, the
"Securities") being offered, and no assurance can be given that a market will
develop. The Company has not taken any steps to create an aftermarket for the
Securities and has made no arrangements with broker-dealers to serve as market
makers in the Securities. If a trading market does develop for any of the
Securities, the prices may be highly volatile. None of the Underwriters is
obligated to make a market in any of the Securities upon completion of this
offering, and, even if an Underwriter makes a market following the Offering,
there is no assurance that it will continue to do so in the future. In addition,
if a market for any of the Securities does develop, and the Securities are not
traded on the Nasdaq Small-Cap Market system and are sold below certain prices,
many brokerage firms may not effect transactions in the Securities, and sales of
the Securities may be subject to Securities And Exchange Commission ("SEC") Rule
15g-9. See below, "Risk Factor No. ". Trading in the Securities, if any, will be
limited to the Nasdaq Small-Cap Market system or, if the Company does not
qualify or continue to qualify for listing on the Nasdaq Small-Cap Market
system, the electronic bulletin board or the "pink sheets" used by members of
the National Association Of Securities Dealers, Inc. ("NASD"). If a market does
not develop for the Securities, it may be difficult or impossible for purchasers
to resell the Securities. There is no assurance that any of the Securities can
ever be sold at the offered price or at any price.
13
<PAGE>
21. Possible Effects Of SEC And NASDAQ Rules On Market For Common Stock And
Warrants. The Company has applied to the NASD for listing of the Company's
Securities on the NASDAQ Market System following the completion of this
offering. In order for the Company's Securities to be eligible for initial
listing on the Nasdaq Small-Cap Market system ("NASDAQ"), the Company must have
total assets of at least $4 million, capital and surplus of at least $2 million,
and a minimum bid price of at least $3 per security. After the Company initially
has been listed for trading on NASDAQ, in order to continue to be listed on
NASDAQ, the Company must continue to have total assets of at least $2 million,
capital and surplus of at least $1 million, and a price per share of at least
$1. There is no assurance that the Company will be able to meet the initial or
continued requirements for NASDAQ.
If (i) the Company's Securities are no longer eligible for trading on
NASDAQ, and (ii) those Securities are traded for less than $5 per security, then
unless the Company's net tangible assets exceed $2,000,000 or the Company has
had average revenue of at least $6,000,000 for the last three (3) years, the
respective security (a "Low-Priced Security") will be subject to SEC Rule 15g-9
concerning sales of low-priced securities or "penny stock" unless the security
is otherwise exempt from Rule 15g-9. Pursuant to Rule 15g-9, prior to concluding
a sale, a broker-dealer must make a special suitability determination for the
purchaser and receive the purchaser's written representations and agreement
concerning the transaction. In addition, Rule 15g-2 generally requires
broker-dealers to provide customers for whom they are effecting transactions in
a Low-Priced Security, before the transactions, with a standard risk disclosure
document describing the customer's right to disclosures of the (i) current bid
and ask quotations, if any, (ii) compensation of the broker-dealer and the
salesperson in the transaction, and (iii) monthly account statements showing the
market value of such stock held in the customer's account. If the Common Stock
or Warrants individually trade for more than $5 per security, then these rules
will not apply to transactions in the respective security trading for over $5.
To the extent that the respective security becomes a Low-Priced Security, these
rules will apply and may have a negative effect on the desire of brokers to sell
the Company's Securities, may have a negative effect on the brokers' ability to
do so, and also may have a negative effect on the ability of purchasers in this
offering to sell the Company's securities in the secondary market.
22. Underwriters' Influence On Possible Market For Common Stock And
Warrants. A significant amount of the Securities to be sold in this Offering may
be sold to customers of the Underwriters. These customers subsequently may
engage in transactions for the sale or purchase of such Securities through or
with the Underwriters. Although they have no legal obligation or commitment to
do so, one or more of the Underwriters may from time to time become market
makers and otherwise effect transactions in such Securities. An Underwriter, if
it participates in the market, may be the sole or primary market maker, it may
effect a large proportion of all transactions in the Securities, and it may for
these or other reasons be a dominating influence in the market, if one develops,
for the Securities. The prices and liquidity of the Securities may be
significantly affected by the degree, if any, of the Underwriters' participation
in such market. In these situations, the price of the Securities as quoted by an
Underwriter may not be subject to an independent market for the Securities.
23. Shares Eligible For Future Sales. The Company has a total of 2,900,100
shares of Common Stock issued and outstanding that are "restricted securities".
Restricted securities may be sold in a registered public offering under the
Securities Act of 1933, as amended (the "1933 Act"), or in open-market
transactions in compliance with Rule 144 adopted under the 1933 Act if the
conditions of Rule 144 are satisfied. Generally, Rule 144 provides that, subject
to current information being publicly available concerning the Company, after a
14
<PAGE>
person has held the restricted securities for a period of two years, that person
may sell, in any three-month period, an amount of up to one percent of the
Company's outstanding Common Stock. Persons who have not been affiliates of the
Company for at least three months and who have held their shares for more than
three years are not subject to any limitations on the sale of their restricted
securities. Under Rule 144, and subject to the sales volume limitations
described above, 2,400,000 shares of Common Stock would become eligible for
resale 90 days after the date of this Prospectus; however, the holders of
2,257,401 of these shares have agreed with the Underwriter not to sell any of
these shares until two years after the date of this Prospectus without first
obtaining the prior written consent of the Underwriter. In addition, the sale by
the Selling Securities Holders of 500,100 shares of restricted Common Stock,
3,000,000 Warrants, and the 3,000,000 shares of Common Stock underlying those
Warrants is being registered pursuant to the registration statement of which
this Prospectus is a part. Although the sale of the securities by the Selling
Securities Holders is being registered, the Selling Securities Holders have
agreed with the Underwriter that they will not sell any of these Securities
until _________, 1997 [one year after the effective date of this Registration
Statement] without first obtaining the prior written consent of the Underwriter.
Sales under Rule 144 and by the Selling Securities Holders, whenever they are
made, may have a depressive effect on the price of the Common Stock.
24. Possible Issuance Of Additional Shares Of Common Stock And Preferred
Stock. Subject to the Representative's right to approve any additional issuances
of Common Stock, preferred stock, and other securities of the Company for one
year after the effective date of the Offering, under the Company's Certificate
Of Incorporation, the Board Of Directors of the Company has the power to issue
up to an aggregate of 20,000,000 shares of Common Stock of the Company, of which
2,900,100 were issued and outstanding as of June 30, 1996, and of which an
additional 3,000,000 are reserved for issuance upon the exercise of previously
outstanding Warrants, without stockholder approval under certain circumstances.
If this were to occur, of which there is no present intention, there would be
additional equity dilution to the investors in this Offering. Under the
Company's Certificate Of Incorporation, the Board Of Directors of the Company
also has the power to issue all the 1,000,000 authorized and unissued shares of
the Company's $1.00 par value preferred stock without stockholder approval under
certain circumstances. The Board Of Directors of the Company has the right to
fix the rights, privileges and preferences of any class of preferred stock to be
issued in the future. Any class of preferred stock that may be authorized in the
future may have rights, privileges, and preferences senior to the Common Stock.
The creation of a class of preferred stock with rights senior to the Common
Stock could be authorized by the Board Of Directors of the Company without the
approval of the holders of the Common Stock and may adversely affect the rights
of the holders of Common Stock. See "DESCRIPTION OF SECURITIES" and
"UNDERWRITING".
25. Arbitrary Determination Of Offering Price Of Units And Exercise Price
Of Warrants. The price at which the Units are being offered to the public and
the price at which the Warrants are exercisable for shares of Common Stock have
been determined arbitrarily. The offering price and exercise price were arrived
at after negotiations between the Company and the Representative and were based
upon the Company's and the Representative's assessment of the history and
prospects of the Company, the background of the Company's management and current
conditions in the securities markets. Each of these factors was given
approximately equal weight. There is no relationship between the offering price
or the exercise price and the Company's assets, book value, net worth or any
other economic or recognized criteria of value. See "DESCRIPTION OF SECURITIES".
26. Registration Or Exemption Required To Exercise Warrants. Holders of
Warrants have the right to exercise their Warrants to purchase Common Stock only
if a registration statement relating to those shares is then in effect or an
exemption from registration is available and only if those shares are qualified
15
<PAGE>
for sale, or are deemed to be exempt from qualification, under applicable
securities laws of the state of residence of the holder of those shares. The
Company intends to have a registration statement in effect at times that the
Warrants are eligible for exercise, although there can be no assurance that the
Company will be able to do so. However, the Company will not be required to
honor the exercise of the Warrants if, in its opinion, the issuance of Common
Stock would be unlawful because of the absence of an effective registration
statement or for other reasons. If the Company were unable to cause a required
registration statement to be effective during a period of time when holders
wished to exercise, the market value of the Warrants could be adversely
affected.
27. Lack Of Experience Of The Representative Of The Underwriters. The
Representative became a member of the National Association of Securities
Dealers, Inc. in May 1996 and has not previously underwritten a public offering.
The limited experience of the Representative may adversely affect the
development of a market for the Common Stock and/or Warrants. See above "--Risk
Factor No. 20. No Assurance Of Market For Common Stock Or Warrants" and "--Risk
Factor No. 22. Underwriters' Influence On Possible Market For Common Stock And
Warrants".
16
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from this offering are estimated to be
$3,832,500 after deducting selling commissions and other unpaid expenses of the
offering. Total selling commissions equal to ten percent of the gross offering
proceeds from the Common Stock and Warrants, together with a three percent
non-accountable expense allowance, will be allowed to the Underwriters upon
consummation of the offering. Other expenses of the offering, estimated to be
$554,000, include printing costs, legal fees, accounting fees, blue sky fees and
costs, transfer agent fees, SEC, NASD and NASDAQ filing fees and other
miscellaneous costs. Approximately $296,000 of the total offering expenses will
have been paid prior to closing by the Company, leaving $258,000 of offering
expenses and $454,500 of selling commissions to be paid from the offering
proceeds. The $3,832,500 of net proceeds are expected to be allocated
substantially as follows and applied in the following order of priority, during
the 12 month period following the offering (1):
<TABLE>
<CAPTION>
Approximate
Percentage
Approximate of
Amount Net Proceeds
------ ------------
<S> <C> <C>
Establish In-House Trim Shop; Expand Capacity of Metal
Buildings Manufacturing Facility (2)...................... $700,000 18.3%
Domestic and International Marketing Program............... 285,000 7.5%
Reduction of Secured Note to Major Supplier (3)............ 1,200,000 31.3%
Repayment of Unsecured Notes (4)........................... 300,000 7.8%
Upgrade Computer Software Systems.......................... 50,000 1.3%
Reduction of Trade Accounts ............................... 300,000 7.8%
Other Working Capital (5).................................. 997,500 26.0%
------- -----
TOTAL NET PROCEEDS $3,832,500 100%
========= ====
</TABLE>
- --------------------
(1) See "BUSINESS--Business Plan And Strategy" for a description of how the
proposed allocation of proceeds of this Offering applies to the Company's
plans.
(2) A portion of the proceeds for the in-house trim shop, which will be located
in a portion of the metal buildings manufacturing facility, will be used
for the purchase of initial inventory of trim material and of operating
equipment, including a press with a bed length of 27 to 33 feet, a hemming
mill machine, a button lock mill machine, a trim break machine, a
cut-to-length-line machine, and four work tables. Expansion of the
manufacturing facility also will include the acquisition of two 250-ton
presses, four welding machines, die sets, and miscellaneous hand tools.
(3) The Company intends to reduce by $1.2 million the outstanding principal
balance on the outstanding note to its major supplier. When this occurs,
that note, which accrues interest at one percent over the Prime Rate (as
designated in The Wall Street Journal) and matures on April 30, 2001, will
be adjusted to decrease the weekly payments from $11,537 to approximately
$6,000. See "BUSINESS--Indebtedness To Major Supplier".
17
<PAGE>
(4) The Company intends to repay the $300,000 of indebtedness that was incurred
in July 1996 in order to pay for costs of this Offering and to provide
immediate working capital. This indebtedness accrues interest at 10 percent
per annum and is due and payable upon the earliest to occur of January 24,
1997 or the closing of any public debt or equity financing of the Company
or the closing of any transaction in which the Company's securities are
exchanged for securities of another entity (whether by merger or
otherwise).
(5) The Company's working capital will be utilized for general corporate
purposes and operating expenses, including payment of $108,000 for the
Representative's consulting fee. See "UNDERWRITING".
Although the amounts set forth above indicate management's present estimate
of the Company's use of the net proceeds from the offering, the Company may
reallocate the proceeds or utilize the proceeds for other corporate purposes
based on the contingencies described below. The actual expenditures may vary
from the estimates in the table because of a number of factors, including
whether the Company has been operating profitably, what other obligations have
been incurred by the Company, whether the Company desires to expand its existing
operations, and other changes in circumstances. Although no alternate plans
currently exist, other uses could include additional funds for increased
marketing, expanded operations or additional payment on accounts. If the
Company's need for working capital increases, the Company could seek additional
funds through loans or other financing. No such arrangements exist or are
currently contemplated, and there can be no assurance that they may be obtained
in the future should the need arise. If the use of the proceeds of the offering
in the manner described above proves impractical or it is otherwise deemed by
Management to be in the Company's best interests to utilize the proceeds in
another manner, the Company may apply the proceeds of the offering in such
manner as it deems appropriate under the then existing circumstances. The
Company has no present intention, agreements or understandings to make any
material acquisitions of businesses, assets, or technologies.
DIVIDEND POLICY
The Company was not paid any dividends to date. The Company currently
intends to retain its future earnings, if any, to fund the development and
growth of its business and, therefore, does not anticipate paying cash dividends
on its Common Stock in the future.
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<PAGE>
DILUTION
The net tangible book value of the Company as of April 30, 1996 was
($379,256), or ($.13) per share, after giving effect to the 500,100 shares of
Common Stock issued in connection with the loan consummated in July 1996. Net
tangible book value per share represents the amount of total tangible assets of
the Company, reduced by the amount of its total liabilities, divided by the
total number of shares of Common Stock outstanding. After giving effect to the
sale by the Company of 900,000 shares of Common Stock and 450,000 Warrants at
the initial public offering price of $5.00 per share of Common Stock and $.10
per Warrant, the as adjusted net tangible book value of the Company as of April
30, 1996 would have been $3,316,007, or $0.87 per share of Common Stock. This
represents an immediate increase in net tangible book value of $1.00 per share
to existing stockholders and an immediate dilution of $____ per share to new
investors. The following table illustrates the per share dilution in net
tangible book value to new investors:
Public offering price per share $ 5.00
Net tangible book value per share before the Offering ($0.13)
Increase per share attributable to new investors $ 1.00
Net tangible book value per share after the Offering $ .87
Dilution per share to new investors $ 4.13
The following table summarizes, on a pro forma basis, after the closing of
the Offering, the differences in total consideration paid for Common Stock and
the average price per share paid by existing stockholders and new investors with
respect to the number of shares of Common Stock purchased from the Company
assuming an initial public offering price of $5.00 per share:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
---------------- -------------------
Number Percent Amount Percent Average
------ ------- ------ ------- Price/Share
-----------
<S> <C> <C> <C> <C> <C>
Existing stockholders 2,900,100 76.3% $ 148,155 3.2% $0.05
New investors 900,000 23.7% $4,500,000 96.8% $5.00
Total 3,800,000 100.0% $4,648,155 100.0%
The information presented above, with respect to existing stockholders, assumes no exercise of the Underwriter's Warrants,
the Warrants included in the Offering, or the Warrants outstanding prior to the Offering. In addition, 200,000 shares of Common
Stock have been reserved for issuance upon the exercise of options granted pursuant to the Company's Stock Option Plan,
approximately ______ of which options currently are outstanding. The issuance of Common Stock under such plan may result in
further dilution to new investors.
</TABLE>
19
<PAGE>
BUSINESS
Overview
American International Consolidated Inc. (the "Company") is a manufacturer
and general contractor that focuses primarily on three types of construction
products: the manufacture of metal buildings and structural steel projects; the
construction of mini-warehouses and self-storage facilities; and the
construction of cold storage, including refrigerated and freezer, buildings. The
Company's services range from the start, or design, phase to the finish, or
erection, phase of a project, including design, manufacture, general
construction, construction management, building, and turnkey services. The
Company selects, coordinates and manages subcontractors for substantially all
phases of the work, except for design, erection, and manufacture of certain
metal building components. The Company also provides oversight and supervision
of the entire construction process for each project.
The Company's principal executive and administrative offices are located at
14603 Chrisman, Houston, Texas 77039, telephone number (713) 449-9000.
Description Of Business
Within its manufacturing and construction operations, the Company operates
three specialty divisions: (i) the manufacture of metal buildings and structural
steel projects; (ii) mini-warehouses and other self-storage facilities; and
(iii) cold storage buildings, including refrigerated and freezer facilities. The
actual manufacturing, construction and other operating services related to these
are generally provided separately by the particular specialty division of the
Company, and the administrative or non- construction services are provided by
the same marketing, accounting, billing, collection, capital financing, in-house
legal, and other general administrative portions of the Company. Set forth below
is a description of each of the three specialty operations of the Company.
Manufacture Of Metal Buildings
------------------------------
The Company provides different variations of services in its metal
buildings and metal roof activities. Most often, the Company will be engaged to
pre-engineer, prepare construction drawings, manufacture the building frames,
procure all non-structural steel, sheeting and trim, and then ship these
products to the customer, with the customer being responsible for erection and
installation as well as site preparation for the building. The Company also may
be engaged, in some instances, in the actual erection of the building. In other
situations, the Company may be engaged only to provide the material components
or to provide the frame itself in the form of cut and welded pieces of steel
that are based on drawings provided by the customer. In all cases, the Company
generally will rely on the owner's being responsible for site preparation,
including work on the slab or other foundation.
The Company's metal buildings division also provides both conventional and
pre-engineered building face lifts and retrofits, and performs the dismantling
and relocation of metal buildings. The experience and knowledge to provide these
services are a natural by-product of the other services provided by the Company.
For the fiscal year ended April 30, 1996, the Company realized
approximately $9.2 million in gross revenues from its metal buildings
manufacturing and construction services. Approximately $1.7 million, or 18
percent, of this volume resulted from international sales despite the fact that
the Company has virtually no continuing marketing effort for international
sales.
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<PAGE>
The Company believes that it could increase its international metal
buildings manufacturing and construction services significantly through a
marketing program that would entail attendance at trade shows and direct sales
visits to U.S. based companies with international operations. These two methods
of expansion appear preferable to attempting to establish more sales
representatives. The Company believes that international expansion is desirable
at this time because (i) there does not appear to be local competition in most
countries, (ii) international projects tend to have higher margins, and (iii)
with respect to Mexico in particular, the North American Free Trade Agreement
("NAFTA") significantly reduces taxes and makes transportation of products and
materials both easier and less expensive. The Company believes it may be at a
competitive advantage for international business because its metal buildings are
generally more simple to erect, the Company is better able to provide continued
service after the completion of the transaction, and the Company tends to be
able to customize its proposals to deal with international needs that may be
different from those for domestic projects. Because the Company's metal frames
generally include more of the component pieces already welded on than those of
its competitors, they are simple to erect.
The Company also is attempting to increase the volume and profitability of
its metal buildings manufacturing and construction services by pursuing
specialty buildings, such as wood processing plants, shopping centers, medical
centers, professional buildings and office buildings, and undertaking projects
in areas where local competition does not exist. The Company has built four wood
processing plants in the past, was awarded a contract for another wood
processing plant in July 1996, and submitted bids for two additional wood
processing plants in early August 1996. These plants, which make various types
of particle board, pressboard and strand board out of wood, tend to be located
in thinly populated or wilderness areas where there are no local construction
companies able to undertake the required project. This should provide the
Company with a competitive advantage because it is accustomed to constructing
its projects in localities other than its headquarters and to bringing its
workers and subcontractors into areas away from home.
In constructing metal buildings, the Company utilizes steel frames and
steel roof materials, however the walls can be made of brick or any other
material. The Company believes it is at a competitive advantage in bidding
projects utilizing non-steel materials for the walls because most of its
competitors prefer to use metal walls that they manufacture and thereby increase
their profit, whereas the Company purchases all walls from other companies,
regardless of whether they are metal, and therefore, there is no incentive for
the Company's bids for projects with non-steel walls to be structured to favor
the steel wall alternative.
There are approximately 44 full time employees working in the metal
buildings divisions, including the general manager, three salespersons, two
estimators, one customer service representative, one shop manager, four
draftspersons, two secretaries, two international sales persons, four
installation laborers, and 24 shop personnel including machine operators,
welders, foremen and helpers.
Construction Of Mini-Warehouses
-------------------------------
During the fiscal year ended April 30, 1996, the Company realized
approximately $20.6 million of revenue from its mini-warehouse construction.
Generally, mini-warehouse projects are undertaken in one of the following three
ways: (1) the Company is engaged to provide all aspects of the project from
breaking ground to turnkey installation; (2) the Company is engaged as a
subcontractor to provide the building frame, the walls, roof and interior
partitions; and (3) the Company is engaged to convert existing buildings, such
as office buildings, strip centers, warehouses and manufacturing buildings, into
mini- warehouse facilities. In all three of the above situations, the Company
provides its own trained job foreman and crew to erect the steel portion (walls,
roof, partitions) and subcontracts the remaining work to regional contractors.
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<PAGE>
The Company believes that it is the largest independent construction
company for mini-warehouses in the United States at the current time, with
approximately 39 percent of the Company's mini-warehouse construction work
currently being undertaken on behalf of U-Haul Inc. For the fiscal year ended
April 30, 1995, U-Haul Inc. represented approximately 42 percent of the
Company's mini- warehouse construction business although the Company has also
transacted construction work for Public Storage, Inc., Shurguard Corporation,
and other companies. The Company believes that it is the contractor for
approximately 25 to 35 percent of U-Haul Inc.'s mini-warehouse construction
business and that the Company 's relationship with U-Haul Inc. continues to be
excellent.
The Company's employees for its mini-warehouse construction business
include a chief operating officer, a construction manager, one architectural
draftsperson, three project managers, an operations coordinator, a project
assistant, an executive secretary, two purchasing department employees, three
estimators, four draftspersons, four salespeople, nine field superintendents,
and 40 to 50 crew members.
Construction Of Cold Storage (Refrigerated And Freezer) Buildings
-----------------------------------------------------------------
The Company's cold storage construction services are performed with the
Company serving either as a specialty subcontractor that is responsible only for
constructing the refrigerated or freezer portions of the building, or as a
general contractor that is responsible for the entire building. When the Company
acts in the capacity of a general contractor, it subcontracts out most aspects
of the construction that do not deal directly with the cold storage function.
For the fiscal year ended April 30, 1996, cold storage construction
services accounted for approximately $1.4 million of revenue.
Much of the business and many of the referrals in the cold storage line of
business are influenced heavily by a contractor's financial condition, bonding
capacity, and rapidity of payment. The Company believes that as a result of this
Offering, it will improve its financial condition, increase the frequency of
payment of its accounts, and obtain more desirable terms for its bonding
arrangements and material purchases. These factors are particularly important in
obtaining cold storage construction business because a very high percentage of
the referrals for cold storage construction come from suppliers, and the
suppliers tend to favor those construction companies that pay their bills on a
timely basis. In addition, a high percentage of the work available in cold
storage construction is for companies with national or international operations.
Financial strength and bonding ability are considered quite important by
companies of that nature.
Competition in cold storage construction is highly specialized and limited.
The Company believes that if it is able to improve the timing of its payments
and its credit standing, it will lower its costs by obtaining better terms from
suppliers and increase its business by the improved supplier relationships and
image of the Company. It also believes that its business will improve to the
extent that any of the Offering proceeds are spent on additional marketing
activities.
Personnel involved in the Company's cold storage construction services
include a chief operating officer, a vice president-in-charge of field work and
purchasing, a general superintendent, a site supervisor, an administrative
secretary and two salespersons.
22
<PAGE>
Backlog
As of April 30, 1996 the Company had an aggregate backlog of approximately
$12.1 million, including a backlog of $4.4 million related to its metal building
manufacturing division, $7.6 million related to its mini-warehouse construction
division, and approximately $46,000 related to its cold storage construction
division. The Company expects to complete all of this backlog in the first two
quarters of fiscal 1997. By comparison, as of April 30, 1995, the Company had an
aggregate backlog of approximately $13.3 million in the respective amounts of
$4.1 million, $8.7 million, and $.2 million related to its metal building
manufacturing, mini-warehouse construction, and cold storage construction
divisions, respectively.
Industry Environment
Management believes that the current industry environment complements the
Company's plan to focus on its three types of specialty manufacturing and
construction services. The demand for mini- warehouses and pre-engineered metal
buildings has increased dramatically in the past few years. The Company believes
that the demand for these structures will continue to increase, and that it is
well positioned to meet this demand because of its expertise and business
reputation in these areas. Management also believes that the general increase in
the level of business internationally, coupled with the Company's ability to
service those areas and the relatively low level of competition for the Company
in many of those areas, also positions the Company extremely well for growth,
most particularly with respect to cold storage and metal buildings. See "RISK
FACTORS--Previous Experience In International Markets". Although there is no
assurance that the growth of the industry or of the Company will continue, the
Company believes its business will continue to increase and that it will benefit
from a future increase in new construction in these and other areas.
Business Plan And Strategy
Management of the Company believes that the Company's significant business
experience, quality of services, client relationships and efficient operations
are attributes that will enable the Company to continue to progress in the
current industry environment.
Management's business plan and strategy in following through from this
Offering is summarized as follows:
Increase Revenue, Margins And Profitability
-------------------------------------------
Establish An In-House Trim Shop. The Company intends to utilize a portion
of the proceeds of this Offering to establish an in-house trim shop to fabricate
various types of metal trim for walls, corners, gutters, windows, doors and
other openings. See "USE OF PROCEEDS". This will involve acquisition of a press
with a bed length of 27 to 33 feet, a hemming mill machine, a button lock
machine, a trim break machine, a cut-to-length-line machine, two overhead
cranes, four welding machines, and four work tables. In the past, the Company
has not had this capability and has had to subcontract this work. The in-house
trim shop not only represents additional revenue for the Company, but also
results in higher margins than most of the Company's other work to third
parties.
Expand Metal Buildings Manufacturing Facility. The Company intends to
utilize a portion of the proceeds of this Offering to increase the floor space
of its metal buildings manufacturing facility from approximately 15,000 square
feet to approximately 30,000 square feet. See "USE OF PROCEEDS". Approximately
___ square feet of the expanded space will house the trim shop described in the
preceding
23
<PAGE>
paragraph under "Establish An In-House Trim Shop". Management believes that the
expansion will enable the Company to operate at an increased capacity level as
well as to increase its operating efficiencies and therefore its operating
margins. The Company anticipates that it will save work time and therefore labor
costs as a result of the fact that the additional space will allow a more
efficient workflow arrangement for materials and job pieces to flow through the
shop more efficiently and directly. The additional space also will enable each
worker to have the raw materials inventory that he utilizes to be placed more
closely to him and not in a pile mixed with other materials several yards away.
Additional cost savings also are anticipated by providing additional space for
storage of raw materials inventory and thereby allowing the Company to purchase
raw materials in larger quantities at lower unit prices.
Decrease Interest Expense. The Company will utilize $1.2 million of the
proceeds of this Offering to reduce outstanding indebtedness to the Supplier.
This indebtedness currently accrues interest at one percentage point above the
prime rate. See "USE OF PROCEEDS" and "--Indebtedness To Major Supplier". As a
result of this debt reduction, the Company's weekly payment on this debt, which
is currently $11,537 will decrease to approximately $6,000.
Decrease Bonding Costs. During its fiscal year ended April 30, 1996, the
Company paid aggregate premium expenses of approximately $35,000, or
approximately four percent of the respective gross contract price to obtain
performance bonds for its work. Management believes, based on discussions with
its bonding agent, that the improvement in the Company's financial condition
resulting from the Offering will enable the Company to obtain performance bonds
for a premium cost of 1.5 to 2.0 percent of the respective gross contract
prices; however there is no assurance that this will occur. Although the total
amount that would have been saved in bonding costs during fiscal 1996 is
limited, future savings are anticipated to be more significant because the
Company believes that in the future it will be utilizing greater amounts of
performance bonds because of the increased bonding capacity it believes will be
available. See "--Increase Business Volume: Strengthen Financial Condition And
Increase Bonding Capacity" below.
Increase Business Volume
------------------------
Strengthen Financial Condition And Increase Bonding Capacity. By
strengthening its financial condition, the Company recently has increased, and
anticipates it will be able to further increase, its bonding capacity. Based on
its financial results for the fiscal year ended April 30, 1996, the Company has
increased its bonding capacity for a single job from $500,000 to $1,500,000 and
its aggregate bonding capacity from approximately $1 million to $5 million. It
is anticipated, based on discussions with the Company's bonding agent, that as a
result of this Offering the Company's bonding capacity would increase to $5
million per job and that its aggregate bonding capacity also would increase
significantly; however, there is no assurance that this will occur. Each
increase in the Company's bonding capacity expands the number, nature and size
of contracts that are available for the Company to submit bids.
Undertake Planned Domestic And International Marketing Programs. The
Company intends to utilize a portion of the proceeds of this Offering to
undertake planned domestic and international marketing programs through
attendance at industry trade shows, direct sales visits, and advertisements in
publications. See "USE OF PROCEEDS". In the past, the Company has not budgeted
or expended a significant or otherwise meaningful amount of funds for marketing.
Management of the Company believes that because of the Company's experience,
reputation and expertise, a planned marketing effort should be successful in
deriving new business; however, there is no assurance that this will be the
case. See "RISK FACTORS--Previous Experience In International Markets".
24
<PAGE>
Increase Business Referrals From Suppliers And Other Business Contacts.
Management of the Company believes that this Offering will enable the Company to
have sufficient working capital to be more timely in payment of its trade
accounts and that this, together with other aspects of its improved financial
condition, will result in an increase in business referrals received by the
Company from its suppliers and other business contacts. Nevertheless, there is
no assurance that this will occur.
Marketing
The Company obtains business primarily through repeat business from
previous and existing customers and recommendations from customers and vendors.
As indicated elsewhere in this Prospectus, the Company intends to utilize a
portion of the proceeds of this offering to undertake a marketing program that
includes trade show attendance, sales call visits, and advertising. Management
believes that a marketing program of this nature will have a positive impact on
the Company's business. See "USE OF PROCEEDS" and foregoing subsections under
"Description Of Business".
Reliance On Major Customers
During the fiscal year ended April 30, 1996, one of the Company's
customers, U-Haul, Inc., accounted for approximately $8.1 million, or
approximately 26 percent, of the Company's total revenues. For the fiscal year
ended April 30, 1995, U-Haul, Inc. represented $4.8 million, or 20 percent, of
the Company's total revenues. Although the loss of U-Haul Inc.'s business could
have a material adverse effect on the Company, the Company believes that this is
unlikely to occur in the near future and that the potential effect on the
Company will decrease over time as the Company's revenues from other customers
increase.
Subsidiaries
C.H.O.A. Construction Company ("C.H.O.A.") was formed in September 1993 to
perform general construction services in the State of Louisiana. C.H.O.A. was
formed as a Louisiana corporation and originally was owned 80 percent by the
Company and 20 percent by a general contractor licensed in Louisiana.
Subsequently, the Company acquired the 20 percent minority interest, and
C.H.O.A. currently is a wholly-owned subsidiary of the Company.
L. Campbell Construction, Inc. ("Campbell") was formed as a wholly-owned
subsidiary of the Company in order to handle the Company's turnkey and general
construction operations. Campbell was incorporated under the laws of the State
of Texas in January 1991. Since its inception in January 1991, much of the
general construction work has been performed by the Company directly under
agreement with U-Haul. Consequently, the Company has little or no future need to
perform general construction operations under Campbell and expects to dissolve
Campbell or merge Campbell with and into the Company. Campbell currently has no
assets and no liabilities.
In November 1994, two wholly-owned subsidiaries of the Company, American
International Thermal Systems, Inc. ("AI Thermal") and American International
Building Systems, Inc. ("AI Building"), merged with and into the Company. AI
Thermal performed cold storage construction services and AI Building
manufactured metal buildings and structural steel projects. The Company performs
these same services through two of its divisions.
In May 1994, AIC Management, Inc. ("AIC Management") merged with and into
the Company. Before the merger, AIC Management was wholly-owned by Messrs.
Clemons, Farrar and Wilson, each of whom is an officer, director and 29.47
percent stockholder of the Company. AIC Management was formed in February 1987
25
<PAGE>
to provide management and consulting services to the construction industry,
however all such services were provided to the Company. Prior to the merger, AIC
Management owned the Company's office building and warehouse/assembly plant and
leased them to the Company.
In August 1994 and November 1994, respectively, the Company dissolved two
of its inactive, wholly-owned subsidiaries, Belko Construction, Inc. and AIC
Export Corporation.
Indebtedness To Major Supplier
As of April 30, 1996, the Company owed an aggregate of $3,465,825 to its
major supplier (the "Supplier"), of metal building components. This debt
consisted of $1,065,825 in accounts payable and $2,400,000 in principal and
interest under a note (the "Note") dated April 24, 1996 executed by the Company.
The Note is payable in installments and accrues interest at one percent
above the prime rate designated in The Wall Street Journal. The Company is
required to make consecutive weekly payments of $11,537 for outstanding accrued
interest and principal, until April 24, 2001 when the Note will have been paid
in full. The Company, which has the right to prepay the Note in full or in part
at any time without penalty, intends, and is required under the Loan Agreement,
to pay $1.2 million to reduce the principal on the Note from the proceeds of the
Offering. At the time this payment is made, the weekly payment on the Note will
be reduced so that the remaining principal balance will be amortized evenly,
including payments of interest, over the remaining term of the Note. If this
payment were made on October 31, 1996, the weekly payment on the Note would be
reduced from $11,537 to approximately $6,000. See "RISK FACTORS--Risk Factor No.
3" and "USE OF PROCEEDS".
Pursuant to the Loan Agreement effective April 24, 1996 between and among
the Supplier, the Company, and Danny Clemons, Ralph and Judith Farrar, Jim and
Shirley Williams and John Wilson (collectively, the five individuals are
referred to as the "Guarantors"), the Note is secured by a blanket security
interest in all the Company's accounts, equipment, and inventory, whenever
acquired, and all proceeds and products of such assets (collectively, the
"Collateral"), subject only to security interests previously granted to FCLT,
L.P., a Texas limited partnership. The Collateral secures the Note and all other
obligations of the Company to the Supplier. The Company also must provide the
Supplier with monthly financial statements prepared in accordance with generally
accepted accounting principles and with audited annual financial statements that
are not subject to a qualification of the auditors' opinion. The Loan Agreement
prohibits the Company from assuming any additional liabilities except for (a)
accounts payable and unsecured liabilities to vendors and suppliers, (b) up to
$500,000 of private placement debt, and (c) those expenditures for goods and
services incurred in the ordinary course of business on ordinary trade terms.
The Company also is prohibited from: (i) compensating any of the Guarantors who
are employees of the Company in excess of $150,000 per year during the term of
the Loan Agreement, (ii) making any advances to third parties other than in the
ordinary course of business and advances to employees for emergencies up to
$25,000, (iii) investing in any other third parties, (iv) making any capital
expenditure in excess of $25,000 or cumulative capital expenditures in excess of
$120,000 in the aggregate annually, except for capital expenditures made with
proceeds of this Offering and except for trade debt incurred in the ordinary
course of business, (v) declaring or paying dividends, (vi) changing its
corporate organization by merger, consolidation, joint venture or any other
method without the written consent of the Supplier, (vii) substantially changing
its management personnel or the general character of its business, and (viii)
permitting the ratio of each of its current assets to current liabilities to
decrease below 60 percent, but notwithstanding the foregoing, the Loan Agreement
expressly states that the Company is in no way inhibited or prohibited from
undertaking an initial public offering of stock. Pursuant to the Note and/or the
Loan Agreement, if (a) any terms, covenants, or
26
<PAGE>
other obligations under the Loan Documents are breached or any representation or
warranty is incorrect or materially misleading, (b) any judgment against any the
Company remains undischarged for a period of 90 days, (c) any Guarantor shall be
adjudicated bankrupt or dies and the life insurance proceeds are not first
applied to repay the Note, (d) the Company makes an assignment for the benefit
of creditors, files a petition in bankruptcy, is adjudicated bankrupt or becomes
insolvent, or (e) the Company fails to maintain earnings before interest expense
equal to at least 1.5% of gross revenues, then all of the outstanding amounts
due under the Note shall become immediately due and payable. In addition, upon
the occurrence of any of the above events, the Supplier may exercise its right
of offset against the Collateral. The Loan Agreement terminates upon the
satisfaction of all obligations of the Guarantors and the Company under the Loan
Documents. The Loan Agreement also requires that the Company use $1.2 million of
the proceeds from this Offering to reduce the balance of the Note. As indicated
above, when that payment is made, the weekly payment on the Note will be reduced
so that the remaining balance will be amortized evenly, including payments of
interest, over the remaining term of the Note.
Also pursuant to the terms of the Loan Agreement, the Company and the
Supplier have agreed that, prior to commencement of this Offering, the Supplier
may review a draft of the Prospectus or Registration Statement used in
connection with this Offering and that the Company and the Supplier will attempt
to cooperate with one another in agreeing upon language in the Prospectus or
Registration Statement relating to the Supplier.
Pursuant to the Security Agreement-Pledge effective April 24, 1996, the
Company and Guarantors pledged to the Supplier all the issued and outstanding
stock of the Company and its subsidiaries that they respectively own, and they
agreed not to transfer or otherwise encumber any of these shares during the term
of the Loan Agreement. Further, the Company and Guarantors executed Irrevocable
Limited Stock Powers appointing the Supplier's legal counsel as attorney to
transfer the above stock to the Supplier in the event of a default under the
Loan Documents. The shares pledged as collateral are to be returned to the
Guarantors and the Company upon the payment of all amounts due under the Note.
The Guarantors also executed Continuing Guarantees to the Supplier which
fully guaranteed all outstanding amounts due under the Note in the event of
default under the Loan Documents.
FCLT Loans
As of April 30, 1996, the Company owed FCLT, L.P., a Texas limited
partnership ("FCLT"), an aggregate of approximately $373,000 (the "Debt") under
two loan agreements. See "RISK FACTORS--Outstanding Indebtedness".
One loan is evidenced by a promissory note in the face amount of $414,000,
with an outstanding principal balance of $289,000 at April 30, 1996. The Company
is required to make monthly payments on this note, including interest, of $4,907
to FCLT until June 1998, at which time all outstanding principal and interest
become payable. The other loan is evidenced by a promissory note in the face
amount of $180,000, with an outstanding principal balance of $83,000 at April
30, 1996. The Company is required to make monthly payments on this note,
including interest, of $1,175 to FCLT until June 1998, at which time all
outstanding principal and interest become payable. The Company's aggregate
monthly payments, including interest, currently are $6,082 to FCLT. Interest
accrues on the outstanding Debt at the rate of 10 percent per annum until
maturity and at the rate of 18 percent per annum after maturity. The Company may
prepay part of or all the Debt at any time without penalty.
The Debt is secured by two Deeds of Trust on the Company's real property on
which the Company's offices and warehouse/assembly plant are located. In the
event that the Company sells any of this property, FCLT has the right to declare
the entire outstanding Debt immediately due and payable. The Debt is guaranteed
by each of Messrs. Wilson, Clemons and Farrar.
27
<PAGE>
Government Regulation
The Company's business is subject to a variety of governmental regulations
and licensing requirements relating to construction activities. Prior to
commencing work on a project in the United States, the Company is required to
obtain building permits and, in some jurisdictions, a general contractor license
is required by the state or local licensing authorities. In addition, the
construction projects are required to meet federal, state and local code
requirements relating to construction, building, fire and safety codes. In order
to complete a project and obtain a certificate of occupancy, the Company is
required to obtain the approval of local authorities confirming compliance with
these requirements.
The Company is subject to similar and sometimes more onerous government
regulations and licensing requirements of any foreign countries in which it
operates. Although the Company has not researched the applicable laws of all
foreign countries, the Company is not aware of any significant impediments to
doing business in most other countries. If significant impediments do arise in
certain countries, the Company does not intend to pursue business there.
Employees
The Company has 152 employees including its Chief Executive Officer, the
Presidents for each of its three divisions, an in-house legal counsel, one Vice
President, five project managers, two project coordinators, four estimators, a
manager of business development, nine draftsmen, seven salesmen, 15
superintendents, 24 shop workers, 40 to 50 construction employees, five
accounting personnel and 10 secretarial, administrative and clerical employees.
There are no family relationships among the Company's officers and
directors.
Properties
The Company occupies, approximately 16,000 square feet of space in an
office building and 21,450 square feet of space in a warehouse/assembly
plant/office at 14603 Chrisman, Houston, Texas. Both buildings, together with
the approximately 7.3 acres on which they are located, are owned by the Company.
Legal Proceedings
No material legal proceedings, other than ordinary routine litigation
incidental to the business of the Company are pending in which the Company is a
party, or to which the property of the Company is subject, and no such material
proceeding is known by management of the Company to be contemplated.
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial data of the Company presented below for each of the
years in the five-year period ended April 30, 1996 are derived from the audited
consolidated financial statements of the Company for these periods. This
information should be read in conjunction with the Consolidated Financial
Statements and Notes thereto and "Management's Discussion And Analysis Of
Financial Condition And Results Of Operations" included elsewhere in this
Prospectus. The selected consolidated financial data provided below is not
necessarily indicative of the future results of operations or financial
performance of the Company.
<TABLE>
<CAPTION>
Years Ended April 30,
--------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Statement of Operations Data: (in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Contract revenues $19,918 $16,843 $25,845* $24,317 $31,185
Contract cost 18,277 13,905 22,566 20,812 27,204
Gross profit 1,641 2,938 3,279 3,505 3,981
Selling, general and administrative 2,421 3,126 3,459 3,069 3,421
Interest and other financing costs 79 192 219 188 184
Federal income tax expense -- -- -- -- 35
Net income (loss) after pro forma (565) (361) (420) 187 352
income taxes
Net income (loss) per share after (.24) (.15) (.18) .08 .15
pro forma income taxes
Dividends paid per share .04 .03 .01 -0- -0-
April 30,
----------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Balance Sheet Data:
Current Assets 3,021 3,058 4,581 4,163 5,944
Current Liabilities 3,258 4,076 5,974 5,563 5,107
Working capital (deficiency) $ (232) $(1,018) $(1,393) $(1,406) $ 837
Total assets 4,382 4,265 5,717 5,487 7,346
Long-term debt 1,029 519 495 454 2,422
Stockholders' equity (deficit) 94 (330) (759) (572) (220)
29
</TABLE>
<PAGE>
- -------------
(1) See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" for discussion of a non-recurring contract for $5.58
million that was performed during 1994.
(2) Prior to its acquisition during the year ended April 30, 1994, AIC
Management, Inc. was a nontaxable entity. Pro forma income taxes are
reflected herein as if AIC Management, Inc. had been a taxable entity for
the periods preceding its acquisition.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results Of Operations
The following table sets forth for the periods indicated the percentages
that certain items are of total revenues and the percentage of change of that
ratio from the corresponding year-earlier period:
<TABLE>
<CAPTION>
Percentage Change From
Percentage of Total Revenues Prior Period
--------------------------------------- ---------------------------
Year Ended April 30, Year Ended April 30,
--------------------------------------- ---------------------------
1994 1995 1996 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
Contract revenues: 100.0% 100.0% 100.0% (5.9%) 28.2%
Costs and expenses:
Contract costs: 87.3% 85.6% 87.2% (7.8%) 30.7%
Selling, general and 13.4% 12.6% 11.0% (11.3%) 11.5%
administrative:
Interest and other financing costs: .8% .8% .5% (14.2%) (1.9%)
----- ------ ------- ------- ------
Total costs and expenses: 101.5% 99.3% 98.7% (8.3%) 28.0%
====== ===== ===== ====== =====
</TABLE>
Fiscal Year Ended April 30, 1996 Compared With Fiscal Year Ended April 30,
1995.
For the fiscal year ended April 30, 1996, the Company reported a net profit
of $352,000, or $.15 per share, on revenues of $31,185,000 as compared with net
profit of $187,000, or $.08 per share, on revenues of $24,317,000 for the prior
year. The increased profit resulted primarily from increased revenues and from a
reduction in selling, general and administrative expenses as a percentage of
revenues, which decreased to 11.0% of gross revenues in fiscal 1996 from 12.6%
of gross revenues in fiscal 1995.
The increase in total revenues from $24,317,000 in fiscal 1995 to
$31,185,000 in fiscal 1996 is due primarily to a large increase in sales of the
mini-warehouses and other general construction products. Although these
increased sales were realized at a lower overall gross profit margin, management
believes that the increase in volume more than justified growth in this area.
The decrease in gross profit margin was from 14.4% for fiscal 1995 to 12.8% for
fiscal 1996.
The Company's contract backlog as of April 30, 1996 decreased to
$12,079,000 from $13,055,000 as of April 30, 1995, which is primarily
attributable to a lower volume of mini-warehouse general construction products.
From April 30, 1994 to April 30, 1995, the Company's backlog increased from
$10,500,000 to $13,055,000, which was primarily attributable to both the metal
building and mini-warehouse general construction products.
31
<PAGE>
Interest expense decreased by $4,000 even though gross revenues increased
by almost $7 million in fiscal 1996. This was primarily due to a favorable
financing agreement negotiated with its major supplier which allowed the Company
to substantially increase its existing outstanding accounts payable and
therefore reduce its borrowings to finance accounts receivables.
Fiscal Year Ended April 30, 1995 Compared With Fiscal Year Ended April 30,
1994.
For the fiscal year ended April 30, 1995, the Company reported a net profit
of $187,000, or $.08 per share, on total revenues of $24,317,000 as compared
with a net loss of $420,000, or $.18 per share, in fiscal 1994, on total
revenues of $25,845,000.
The decrease in revenues for fiscal 1995 as compared with fiscal 1994 is
primarily due to a large one-time contract for a cold storage facility in fiscal
1994. This contract resulted in revenues of $5,583,000 in fiscal 1994 versus
$1,268,000 in 1995.
The increase in profitability for fiscal 1995 over fiscal 1994 resulted
primarily from an increase in gross margin percentage from 12.7% in fiscal 1994
to 14.4% in fiscal 1995 and a reduction in selling, general and administrative
expenses of $391,000 in fiscal 1995 as compared to fiscal 1994. The Company
experienced lower margins in fiscal 1994 as a result of the aforementioned cold
storage facility contract that contributed $5,583,000 of revenues during fiscal
1994. The Company accepted this contract at a "cost plus a fixed fee". The fixed
fee was well below the Company's usual profit margin, but management felt that
the increase in volume coupled with the relatively low risk of a cost plus
contract more than justified acceptance of this contract.
Selling, general and administrative expenses, as a percentage of gross
revenues, declined in fiscal 1995 to 12.6% from 13.4% in fiscal 1994. This was a
result of management's decision to manage international sales from its corporate
headquarters, and thereby eliminate overhead in other locations.
Interest expense decreased by $31,000 from fiscal 1994 to fiscal 1995
because of reduced borrowings to finance receivables during fiscal 1995.
Interest expense in connection with receivable financing amounted to $101,000 in
fiscal 1994 as compared to $58,000 for fiscal 1995. The Company was able to
lower its usage of receivable financing in fiscal 1995 because of the
improvement in gross margins and the reduction in overhead as previously
discussed.
Liquidity And Capital Resources
As of April 30, 1996, the Company had current assets of $5,944,000 and
current liabilities of $5,107,000, which represents a positive working capital
of $837,000 as compared with a working capital deficiency of $1,406,000 as of
April 30, 1995. The $2,243,000 improvement in working capital is primarily the
result of the Company's converting $2,400,000 of current accounts payable into
the Note from Supplier. See "BUSINESS--Indebtedness To Major Supplier". The
Company's improved operating results and refinancing of two real estate notes
payable also contributed to the improvement in working capital during fiscal
1996.
The Company's net cash flow is materially affected by the timing of
payments of accounts payable, other amounts owed and collection of accounts
receivable. For the fiscal year ended April 30, 1996, the Company's cash balance
decreased by $363,000 from the prior year. This decrease is primarily
attributable to the Company's utilizing available cash to reduce notes payables
and capital lease obligations by $758,000, which includes paying off its
factoring line of credit.
32
<PAGE>
The Company's cash flow from operations increased by $158,000 for fiscal
1996 as compared with fiscal 1995. This increase is primarily attributable to
the Company's improved operating results. Net income for fiscal 1996 increased
by $165,000 as compared to fiscal 1995.
For the fiscal year ending April 30, 1997, the Company is planning to make
capital expenditures described under "USE OF PROCEEDS", which assumes the
successful completion of this Offering. The current maturities of long-term debt
and capital lease obligations that are required to be paid during fiscal 1997
are approximately $552,000 in the aggregate. Management of the Company believes
that for fiscal 1997, the Company's anticipated cash flow from operations,
together with its financing arrangement with its major supplier, will be
adequate for the Company to meet its requirements for operations, debt service
and necessary capital expenditures. However, without the successful completion
of this Offering, the Company does not anticipate being able to undertake the
majority of the capital expenditures described under "USE OF PROCEEDS" in the
near future.
As indicated below and in the Company's financial statements, the Company
has experienced losses from operations in the past. However, the Company
believes that it will be able to continue to operate profitably in the future as
a result of increased operating volume and the benefits to be derived by it from
the proposed public offering described elsewhere in this prospectus, including
additional profitability from establishment of an in-house trim shop, expansion
of its metal building manufacturing capacity, and reduction of interest expenses
for borrowed funds.
As of April 30, 1996, the Company's backlog was $12,079,000 as compared
with $13,055,000 for fiscal year end 1995. The Company anticipates increased
volume for fiscal 1997 and does not anticipate that its liquidity or capital
resources will be significantly altered by its operating results for fiscal
1997.
33
<PAGE>
MANAGEMENT
The Officers and Directors of the Company are as follows:
Name Age Position
- ---- --- --------
John T. Wilson 42 Chief Executive Officer, Chairman Of The Board
and Director
Danny R. Clemons 46 President/Mini-Warehouse Division and Director
Ralph L. Farrar 49 President/Metal Buildings Division, Secretary
and Director
Jim W. Williams 41 Vice President/Finance, Chief Financial
Officer, Assistant Secretary and Director
John T. Wilson has served as Chief Executive Officer of the Company since
May 1992 after having served as Vice President from May 1985 to May 1992. Mr.
Wilson also has served as a Director of the Company since its formation in May
1985 and as Chairman Of The Board since November 1994. In addition to his other
responsibilities as Chief Executive Officer, Mr. Wilson coordinates the
Company's marketing, administrative and financial activities. Mr. Wilson has in
excess of 22 years of experience working in the construction industry.
Danny R. Clemons has served as President of the Mini-Warehouse Division of
the Company since November 1994 after having served as President of the Company
from December 1986 to November 1994. Mr. Clemons also has served as a Director
of the Company since May 1985. Mr. Clemons has in excess of 25 years of
experience working in the construction industry.
Ralph L. Farrar has served as President of the Metal Buildings Division of
the Company since November 1994 and Secretary and a Director of the Company
since May 1985. Mr. Farrar also served as Treasurer of the Company from May 1985
to November 1994. Mr. Farrar has in excess of 27 years of experience working in
the construction industry.
Jim W. Williams has served as Vice President of Finance and Chief Financial
Officer of the Company since January 1990, and as a Director since June 1996.
From January 1989 to January 1990, Mr. Williams served as Controller of Care
Shipping, Inc., which engaged in the business of marine terminal and stevedoring
operations. From January 1981 to January 1989, Mr. Williams served as Treasurer
and Controller of Shippers Stevedoring, Inc., which engaged in the business of
marine terminal and stevedoring operations. Mr. Williams received a B.A. Degree
in Business Administration from Hardin-Simmons University in Abilene, Texas in
1977.
Another key employee of the Company is as follows:
Jimmy M. Rogers, 44, has been in charge of the Company's cold storage
services since September 1990 and has served as President of the Thermal Systems
Division of the Company since November 1994. From 1982 to September 1990, Mr.
Rogers served as Vice President of Cold Storage Construction Company, which
engaged in freezer and refrigerated unit installation. Mr. Rogers has in excess
of 12 years of experience working in the freezer and refrigerated installation
industry. Mr. Rogers received a B.S. Degree in Business Agriculture from
Hardin-Simmons University in Abilene, Texas in 1980.
34
<PAGE>
There are no family relationships between any of the above officers,
directors and key employees of the Company.
If the Offering is successfully completed, for a period of five years
commencing after the closing of the Offering, the Underwriter will have the
right to designate one person to serve as an advisor to or member of the
Company's Board of Directors. The Company has not been notified of whether the
Underwriter intends to designate an advisor to or a member of the Company's
Board of Directors.
35
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth in summary form the compensation received
during each of the Company's last three completed fiscal years by certain
officers of the Company. No other employee of the Company, except as set forth
below, received total salary and bonus exceeding $100,000 during any of the last
three fiscal years.
Summary Of Annual Compensation Table
------------------------------------
Fiscal Year All Other
Name and Principal Ended Compensation
Position April 30, Salary ($) (1) ($) (2)
===============================================================================
John T. Wilson 1996 72,000 5,476
Chief Executive Officer, 1995 72,000 5,123
Chairman Of The 1994 107,406 13,648
Board and a director
Danny R. Clemons 1996 72,000 5,871
President/Mini- 1995 72,000 5,004
Warehouse Division 1994 107,406 13,678
and a director
Ralph L. Farrar 1996 72,000 5,674
President/Metal 1995 72,000 5,697
Buildings Division 1994 107,406 11,718
and a director
- -------------------------
(1) The dollar value of base salary (cash and non-cash) received. Each of the
named individuals currently is receiving a salary of $72,000 per year. For
a description of employment agreements with the named individuals, see
below, "Employment Contracts And Change-In-Control Agreements".
(2) All other compensation received that the Company could not properly report
in any other column of the Summary Compensation Table, consisting of annual
Company contributions or other allocations to the Company's 401(k) plan,
amounts paid for group medical insurance premiums, and "S" Corporation
dividends. The amounts shown consist of the following: 1996: John T. Wilson
- $1,184 for 401(k) contributions and $4,292 for group medical insurance
premiums; Danny R. Clemons - $1,579 for 401(k) plan contributions and
$4,292 for group medical insurance premiums; and Ralph L. Farrar - $1,184
for 401(k) plan contributions and $4,490 for group medical insurance
premiums; and 1995: John T. Wilson - $1,016 in 401(k) contributions and
$4,107 for group medical insurance premiums; Danny R. Clemons - $897 for
401(k) plan contributions and $4,107 for group medical insurance premiums;
and Ralph L. Farrar - $1,016 for 401(k) plan contributions and $4,681 for
group medical insurance premiums; and 1994: John T. Wilson - $965 for
401(k) plan contributions, $5,183 for group medical insurance premiums, and
$7,500 for "S" Corporation dividends; Danny R. Clemons - $995 for 401(k)
plan contributions, $5,183 for group medical insurance premiums, and $7,500
for "S" Corporation dividends; and Ralph L. Farrar - $966 for 401(k) plan
contributions, $3,252 for group medical insurance premiums, and $7,500 for
"S" Corporation dividends.
36
<PAGE>
Compensation Of Directors
- -------------------------
The Company has no standard or other arrangement pursuant to which
directors of the Company are compensated for any services provided as a director
or for committee participation or special assignments.
Employment Contracts And Termination Of Employment And Change-In-Control
Arrangements
- ------------------------------------------------------------------------
The Company has entered into three-year employment agreements that began on
January 1, 1995 with each of the following executive officers: John T. Wilson,
Danny R. Clemons, Ralph L. Farrar, and Jim W. Williams. Each of the agreements
is terminable at will and automatically renews for consecutive one-year terms
unless a party provides written notice of its desire not to renew. The annual
salary during the term of the agreements are the following amounts, although the
Board Of Directors of the Company may increase the salary in its sole
discretion: John T. Wilson, Danny R. Clemons, and Ralph L. Farrar, $72,000 each,
and Jim W. Williams, $66,000. The Company also will pay all the premiums on two
$500,000 term life insurance policies covering each of the above executive
officers, of which one policy covering each of them is a key-man policy for
which the Company is the beneficiary and the other policy is for the benefit of
a beneficiary designated by the respective executive officer.
The Company also has entered into a ten-year employment agreement with
Jimmy M. Rogers that became effective on May 1, 1993. This agreement is
terminable at will and automatically renews for consecutive one-year terms
unless either party provides written notice of its desire not to renew. The
annual salary during the term of the agreement is presently $66,000 although the
Board Of Directors of the Company may increase this amount in its sole
discretion. The agreement also provides for Mr. Rogers to receive the following:
(i) an incentive bonus equal to 18 percent of the annual net operating profit of
the thermal systems division of the Company; (ii) bonus payments of $17,000 on
November 16, 1993 and of $13,600 on each December 1 from and including 1994
through 1998, provided that he still is employed by the Company on those
respective dates; and (iii) payment by the Company of the premiums on a $1
million key-man life insurance policy covering Mr. Rogers, of which 50 percent
of the proceeds is distributable to the Company and 50 percent to a beneficiary
designated by Mr. Rogers.
The Company has no compensatory plan or arrangement that results or will
result from the resignation, retirement, or any other termination of an
executive officer's employment with the Company or from a change-in-control of
the Company, unless the Company terminates the employment of an executive
officer without cause before the full term of the employment agreement expires,
in which case the Company is required to pay three months salary to that
executive officer.
The Board Of Directors of the Company determined the executive compensation
for the executive officers of the Company for the last three fiscal years and
the period since the end of the last fiscal year.
37
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table summarizes certain information as of July 31, 1996 with
respect to the beneficial ownership of the Company's Common Stock (i) by the
Company's officers and directors, (ii) by stockholders known by the Company to
own five percent or more of the Company's Common Stock, and (iii) by all
officers and directors as a group.
<TABLE>
<CAPTION>
Amount And Nature Percent Of Percent Of
Of Beneficial Class Prior To Class After
Name And Address Of Beneficial Owner Ownership Offering Offering (1)
- ------------------------------------ --------- -------- ------------
<S> <C> <C> <C>
Danny R. Clemons (2) 707,319 24.4% 18.6%
14603 Chrisman
Houston, Texas 77039
Ralph L. Farrar (2) 707,319 24.4% 18.6%
14603 Chrisman
Houston, Texas 77039
John T. Wilson (2) 707,319 24.4% 18.6%
14603 Chrisman
Houston, Texas 77039
Jim W. Williams (2) 135,444 4.7% 3.6%
14603 Chrisman
Houston, Texas 77039
All Officers And Directors 2,257,401 77.8% 59.4%
As A Group (Four Persons) (2)
- --------------------
(1) Assumes that all the shares of Common Stock offered pursuant to this Prospectus are sold, that
none of the Warrants offered or previously outstanding are exercised, and that the respective
beneficial owners listed in the table will not purchase any shares of Common Stock in this Offering.
(2) All the shares owned by each of Messrs. Clemons, Farrar, Wilson and Williams are pledged as collateral
for the Company's indebtedness to the supplier as described under "BUSINESS -- Indebtedness To Major
Supplier". If there were a default in this indebtedness and the supplier were to foreclose on the
pledged shares, a change of control of the Company could result. See "BUSINESS -- Indebtedness To
Major Supplier".
38
</TABLE>
<PAGE>
TRANSACTIONS BETWEEN THE COMPANY AND RELATED PARTIES
Issuances And Transfers Of Stock.
- ---------------------------------
The Company was incorporated in Texas on May 14, 1985. At that time, each
of John T. Wilson, Danny R. Clemons, and Ralph L. Farrar paid $250, or $.01 per
share, for 25,000 shares (an aggregate total of 75,000 shares) of stock of
American International Construction, Inc., a Texas corporation ("AIC-Texas").
In May 1994, AIC Management, Inc. merged with and into the Company. As part
of the merger, the shareholders of AIC Management, Inc. received an aggregate of
75,000 shares of the Company's common stock, which after its issuance
constituted 50 percent of the Company's outstanding shares. The shareholders of
AIC Management, Inc. at the time of the merger were John T. Wilson, Danny R.
Clemons and Ralph L. Farrar. In determining that the values of the two companies
were approximately equal, the Company and AIC Management, Inc. considered the
net book value of the assets of each, an appraisal of the value of the land and
a building owned by AIC Management, Inc., and their respective estimates of the
fair market value of the land and building.
In April 1992, each of John T. Wilson, Danny R. Clemons and Ralph L. Farrar
transferred to Jim W. Williams 3,000 shares of the common stock of AIC-Texas
owned by each of them respectively. The shares were given to Mr. Williams as an
incentive bonus.
Delaware Reincorporation And Capital Restructurings.
- ----------------------------------------------------
In June 1994, the Company changed its state of incorporation and effected a
16-for-1 stock split by forming a wholly owned Delaware subsidiary into which
the Company was merged. As a result of this transaction, the Company became a
Delaware corporation with 2,400,000 shares of Common Stock outstanding. All
references in this Prospectus to numbers of shares give effect to this stock
split and the issuance of 75,000 shares to the shareholders of AIC Management.
Employment Agreements.
- ----------------------
The Company is a party to employment agreements with each of its four
officers. These agreements are described under "EXECUTIVE COMPENSATION".
39
<PAGE>
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
On August 5, 1994, Melton & Melton, L.L.P. ("Melton"), the Company's
independent accountant at that date, informed the Company that it is not
Melton's usual policy to issue audit opinions for inclusion in registration
statements filed with the Securities And Exchange Commission, and therefore,
Melton would not consent to the inclusion of its audit opinions in the Company's
registration statement. As a result, the Company engaged HEIN + ASSOCIATES LLP
as the Company's independent accountant, which decision was approved by the
Board Of Directors of the Company.
Melton's prior reports concerning the Company's financial statements did
not contain adverse opinions or disclaimers of opinion, and they were not
qualified as to uncertainty, audit scope or accounting principles. There have
been no disagreements with Melton on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure.
40
<PAGE>
DESCRIPTION OF SECURITIES
The Company's authorized capital consists of 20 million shares of $.001 par
value Common Stock and one million shares of $1.00 par value Preferred Stock.
The Company's issued and outstanding capital as of July 31, 1996 consisted of
2,900,100 shares of $.001 par value Common Stock which were held by 35
stockholders and 3,000,000 Warrants held by 26 holders. The Company is offering
900,000 shares of Common Stock and 450,000 Warrants pursuant to this Prospectus.
Common Stock
Each share of the Common Stock is entitled to share equally with each other
share of Common Stock in dividends from sources legally available therefore,
subject to the rights of the Preferred Stock, when, as, and if declared by the
Board of Directors and, upon liquidation or dissolution of the Company, whether
voluntary or involuntary, to share equally in the assets of the Company that are
available for distribution to the holders of the Common Stock. Each holder of
Common Stock of the Company is entitled to one vote per share for all purposes,
except that in the election of directors, each holder shall have the right to
vote such number of shares for as many persons as there are directors to be
elected. Cumulative voting shall not be allowed in the election of directors or
for any other purpose, and the holders of Common Stock have no preemptive
rights, redemption rights or rights of conversion with respect to the Common
Stock. All outstanding shares of Common Stock and all shares to be sold and
issued upon exercise of the Warrants will be fully paid and nonassessable by the
Company. The Board Of Directors is authorized to issue additional shares of
Common Stock within the limits authorized by the Company's Certificate Of
Incorporation and without stockholder action.
The Company has not paid any dividends during its last two fiscal years or
in any subsequent periods.
The Company has reserved a sufficient number of shares of Common Stock for
issuance in the event that all the Warrants are exercised. In addition, the
Company has reserved a sufficient number of shares of Common Stock for issuance
upon the exercise of options under the Company's 1994 Stock Option Plan.
The issuance of additional shares of Common Stock and other securities of
the Company is subject to the Representative's right of approval for two years
after the effective date of the Offering.
Common Stock Purchase Warrants
General. The redeemable Common Stock Purchase Warrants (the "Warrants")
offered by the Company are to be in registered form. They are tradeable
separately from the Common Stock. Each Warrant is exercisable at $5.00 per
Warrant during the period commencing on the date of this Prospectus and ending
five years from the date of this Prospectus. Although there currently is no plan
or other intention to do so, the Board Of Directors of the Company, in its sole
discretion, may extend the exercise period of the Warrants and/or reduce the
exercise price of the Warrants. It is anticipated that the Board would make such
a modification only if it deemed it to be in the Company's best interests.
Possible circumstances that may lead to modification of the terms of the
Warrants, of which there is no assurance, would include circumstances in which
the market price of the Company's Common Stock is less than the exercise price
of the Warrants and the Board would reduce the exercise price of the Warrants in
41
<PAGE>
order to encourage their being exercised. This would be based on the Board's
belief that it would be in the Company's best interests to receive additional
capital funds from that source.
The exercise price of the Warrants was arbitrarily established and there is
no assurance that the price of the Common Stock of the Company will ever rise to
a level where exercise of the Warrants would be of any economic value to a
holder of the Warrants.
Current Registration Statement Required For Exercise. In order for a holder
to exercise that holder's Warrants, there must be a current registration
statement on file with the Securities and Exchange Commission and various state
securities commissions to continue registration of the issuance of the shares of
Common Stock underlying the Warrants. The Company intends to maintain a current
registration statement during the period that the Warrants are exercisable
unless the market price of the Common Stock underlying the Warrants would create
no economic incentive for exercise of the Warrants. If those circumstances were
to exist during the entire exercise period of the Warrants, the Warrants could
expire without the holders having had an opportunity to exercise their Warrants.
The maintenance of a currently effective registration statement could
result in substantial expense to the Company, and there is no assurance that the
Company will be able to maintain a current registration statement covering the
shares of Common Stock issuable upon exercise of the Warrants. Although there
can be no assurance, the Company believes that it will be able to qualify the
shares of Common Stock underlying the Warrants for sale in those states where
the Units are to be offered. The Warrants may be deprived of any value if a
current Prospectus covering the shares of Common Stock issuable upon exercise of
the Warrants is not kept effective or if the underlying shares are not qualified
in the states in which the Warrantholders reside.
Exercise Of Warrants. The Warrants may be exercised upon the surrender of
the Warrant certificate on or prior to the expiration of the exercise period,
with the form of "Election To Purchase" on the reverse side of the certificate
executed as indicated, and accompanied by payment of the full exercise price for
the number of Warrants being exercised. No rights of a stockholder inure to a
holder of Warrants until such time as a holder has exercised Warrants and has
been issued shares of Common Stock.
Redemption. The Warrants are redeemable by the Company at any time prior to
their exercise or expiration upon 30 days prior written or published notice,
provided however, that the closing bid quotation for the Common Stock for all 20
business days ending on the third day prior to the Company's giving notice of
redemption has been at least 150 percent of the then effective exercise price of
the Warrants. The redemption price for the Warrants will be $.01 per Warrant.
Any Warrant holder that does not exercise prior to the date set forth in the
Company's notice of redemption will forfeit the right to exercise the Warrants
and purchase the shares of Common Stock underlying those Warrants. Any Warrants
outstanding after the redemption date will be deprived of any value except the
right to receive the redemption price of $.01 per Warrant.
Tax Consequences Of Warrants. For federal income tax purposes, no gain or
loss will be realized upon exercise of a Warrant. The holder's basis in the
Common Stock received will be equal to the holder's basis in the Warrant
exercised, plus the amount of the exercise price. If the Warrant being exercised
has been purchased by the holder in this Offering, the holder's basis in the
Warrant will be determined based on the consideration paid for the Warrants. Any
loss realized by a holder of a Warrant due to a failure to exercise a Warrant
prior to the expiration of the exercise period will be treated for federal
income tax purposes as a loss from the sale or exchange of property that has the
same character as any shares of Common Stock acquired from the exercise of the
Warrants.
42
<PAGE>
Warrant exercise price adjustments, or the omission of such adjustments,
may under certain circumstances be deemed to be distributions that could be
taxable as dividends for federal income tax purposes to holders of the Warrants
or the holders of the Common Stock.
The Internal Revenue Code provides that a corporation does not recognize
gain or loss upon the issuance, lapse or repurchase of a warrant to acquire its
own stock. Therefore, the Company will not recognize income upon the expiration
of any unexercised Warrants.
Preferred Stock
The Company is authorized to issue up to 1,000,000 shares of $1.00 par
value Preferred Stock.
The Board Of Directors of the Company has the right to fix the rights,
privileges and preferences of any class of Preferred Stock to be issued in the
future out of authorized but unissued shares of Preferred Stock and can issue
such shares after adopting and filing a Certificate Of Designations with the
Secretary Of State of Delaware. Any class of Preferred Stock that may be
authorized in the future may have rights, privileges, and preferences senior to
the Common Stock. The Company currently does not have a plan to authorize any
class of Preferred Stock.
The foregoing description concerning capital stock of the Company does not
purport to be complete. Reference is made to the Company's Certificate Of
Incorporation, Bylaws, and Underwriting Agreement which are filed as exhibits to
the Registration Statement of which this Prospectus is part, as well as to the
applicable statutes of the State of Delaware for a more complete description of
the rights and liabilities of stockholders.
The issuance of additional shares of Preferred Stock and other securities
of the Company is subject to the Representative's right of approval for one year
after the effective date of the Offering.
Registration Rights
Concurrently with the closing of the Offering, there is being registered on
behalf of the Selling Securities Holders an aggregate of 500,100 shares of
Common Stock and 3,000,000 Warrants issued in connection with the $300,000 loan
to the Company consummated in July 1996. The Selling Securities Holders have
entered into a Lock-Up Agreement which, in general, provides that the Selling
Securities Holders will not offer, sell, contract to sell or grant any option to
purchase or otherwise dispose of the shares of Common Stock or Warrants of the
Company issued to them in connection with the loan for a period of one year
after the Effective Date without the prior written consent of the
Representative. If the Representative does not consent to the sale of such
securities concurrently with the Offering, the Selling Security Holders will be
entitled to certain demand and "piggyback" registration rights with respect to
the registration of such shares under the Securities Act until ______, 1998.
Generally, the Company is required to bear the expense of all such
registrations, except that the Selling Securities Holders will be required to
bear their pro rata share of the underwriting discounts and commissions, if any.
Substantially similar demand and "piggyback rights" have also been granted to
the Underwriter with respect to the Underwriter's Warrant and the securities
underlying the Underwriter's Warrant.
43
<PAGE>
Delaware Law and Certain Charter Provisions
The Company is a Delaware corporation and subject to Section 203 of the
Delaware General Corporation Law (the "Delaware Law"), an anti-takeover law. In
general, Section 203 of the Delaware Law prevents an "interested stockholder"
(defined generally as a person owning 15% or more of the corporation's
outstanding voting stock) from engaging in a "business combination" (as defined)
with a Delaware corporation for three years following the date such person
became an interested stockholder, subject to certain exceptions such as the
approval of the Board of Directors and the holders of at least 66 2/3% of the
outstanding shares of voting stock not owned by the interested stockholder. The
existence of this provision would be expected to have the effect of discouraging
takeover attempts including attempts that might result in a premium over the
market price for the shares of Common Stock held by stockholders.
Transfer Agent
The Transfer Agent for the Common Stock and Warrants is American Securities
Transfer & Trust, Inc.
44
<PAGE>
UNDERWRITING
The Company has entered into an Underwriting Agreement with Dalton Kent
Securities Group, Inc. (the "Representative") as the Representative on behalf of
the underwriters (collectively, the "Underwriters"), which Underwriting
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus forms a part, and which governs the terms and conditions of the
sale of the Common Stock and Warrants offered hereby. Pursuant to the terms of
the Underwriting Agreement, the Underwriters, as the Company's exclusive agents,
have agreed to purchase from the Company on a firm commitment basis 900,000
shares of Common Stock at a price of $5.00 per share and 450,000 Warrants at a
price of $.10 per Warrant. Each Warrant entitles its holder to purchase one
share of Common Stock at an exercise price of $ 5.00 per share.
The Company has applied for quotation of the Common Stock and the Warrants
on The Nasdaq SmallCap Market ("NASDAQ") under the trading symbols "AICI" and
"AICIW", respectively. The Company also intends to apply for listing of the
Common Stock and the Warrants on The Boston Stock Exchange ("BSE") under the
trading symbols "AIC" and "AICW", respectively. There is no assurance that
listing on NASDAQ or BSE will occur or that a trading market will develop for
the Common Stock and/or Warrants. See "RISK FACTORS--Risk Factor No. 20. No
Assurance Of Market For Common Stock Or Warrants".
The Company has granted to the Underwriters an option, solely to cover
over-allotments in the Offering, to purchase all or any part of 15 percent of
the total number of shares of the Common Stock and Warrants offered pursuant to
this Prospectus for a period of 45 days from the date of the closing of the
Offering at the price to public and subject to the discounts and commissions
described in the previous paragraph.
The public offering price of the shares of Common Stock and the exercise
price of the Warrants were determined by negotiation between the Representative
and the Company. The Warrant offering price and other terms were determined
arbitrarily by negotiation between the Company and the Representative and do not
necessarily bear any direct relationship to the Company's assets, earnings or
other generally accepted criteria of value. Other factors considered in
determining the offering and exercise price of the Warrants include the business
in which the Company is engaged, the Company's financial condition, an
assessment of the Company's management, the general condition of the securities
markets and the demand for similar securities of comparable companies.
The Underwriters will receive a commission equal to 10% of the gross
proceeds from the sale of the Common Stock and Warrants sold or $454,500. The
Underwriters also will receive a non-accountable expense allowance in an amount
equal to 3% of the gross proceeds of this Offering of which $25,000 has been
paid to date.
The Underwriters have advised the Company that they propose to offer the
shares and the Warrants to the public at the public offering price set forth on
the Cover Page of this Prospectus for each separate security, and that the
Underwriters may allow to certain dealers who are members of the NASD, and to
certain foreign dealers not eligible for membership in the NASD, concessions of
not in excess of $______ for each share of Common Stock and $ ______ for each
Warrant, of which amount a sum not in excess of $ _______ per share and $
_______ per Warrant may be re-allowed by such dealers to other dealers who are
members of the NASD and to certain foreign dealers not eligible for membership
in the NASD. After commencement of this Offering, the concession and the
re-allowance may be changed. No such modification shall change the amount of
proceeds to be received by the Company.
45
<PAGE>
Pursuant to the Underwriting Agreement, the Company has agreed to sell to
the Underwriters, at a nominal cost, Underwriters' Warrants to purchase up to a
maximum of 90,000 shares of Common Stock and 45,000 Warrants, or one share of
Common Stock for each ten shares sold in this Offering and one Warrant for each
ten Warrants sold in this Offering. The Underwriters' Warrants will be
non-exercisable for one year after the date of this Prospectus. Thereafter, for
a period of four years, the Underwriters' Warrants will be exercisable at $6.00
per share of Common Stock and $.12 per Warrant. The Underwriters' Warrants are
not transferable for a period of one year after the date of this Prospectus,
except to officers and stockholders of the Underwriters and to members of the
selling group and their officers and partners. The Company has also granted one
demand and certain "piggy-back" registration rights to the holders of the
Underwriters' Warrants.
For the life of the Underwriters' Warrants, the holders thereof are given,
at a nominal cost, the opportunity to profit from a rise in the market price of
the Company's securities with a resulting dilution in the interest of other
stockholders. Further, the holders may be expected to exercise the Underwriters'
Warrants at a time when the Company would in all likelihood be able to obtain
equity capital on terms more favorable than those provided in the Underwriters'
Warrants.
The Underwriters have informed the Company that they do not expect any
sales of the Common Stock and Warrants offered hereby to be made to
discretionary accounts.
The Company may provide the Underwriters with the names of persons
contacting the Company with an interest in purchasing Common Stock or Warrants
in this Offering, and it is possible that the Company's officers, directors, and
employees will refer subscribers to the Underwriters. Although the Company will
not provide any names for the express purpose of closing the Offering, sales may
be made to those persons for that purpose. The Underwriters may sell a portion
of the Common Stock or Warrants offered hereby to such persons if they reside in
a state in which the Common Stock or Warrants can be sold. The Underwriters are
not obligated to sell any Common Stock or Warrants to such persons and will do
so only to the extent that such sales would not be inconsistent with the public
distribution of the shares. Neither the Company nor the Underwriters will
directly or indirectly arrange for the financing of such purchases, and the
proceeds of the Offering will not directly or indirectly be used for such
purchases. Officers, directors and stockholders of the Company may purchase
Common Stock or Warrants offered hereby.
For a period of five years after the closing of the Offering, the
Representative has the right to designate one person to serve as an advisor to
or member of the Company's Board of Directors. There is no restriction on
whether the person designated is a director, officer, partner, employee, or
affiliate of any of the Underwriters. The Representative has not yet informed
the Company of whether it intends to designate an advisor or director.
Upon the successful completion of this Offering, the Representative shall
have a preferential right for a period of three years from the date of this
Prospectus to purchase for its own account or to sell for the account of the
Company or any of the Company's subsidiaries or affiliates, any securities sold
in a public or private offering to raise capital and any sales of securities to
be made by the Company, its affiliates or any of its present or future
subsidiaries.
46
<PAGE>
The Company will enter into on the date of this Prospectus a consulting
agreement with the Representative pursuant to which the Representative will
receive a consulting fee of $108,000, payable at the closing of the Offering,
for services to be rendered by the Representative to the Company for three years
commencing on the closing date of the Offering. Such services shall include but
not be limited to advising the Company in connection with management and
financial matters and possible acquisition opportunities.
The Underwriting Agreement provides that the Company will not sell any
shares of Common Stock, Preferred Stock, Warrants or options for a period of two
years following the date of this Prospectus without the Representative's consent
except that the Company may, without the Representative's consent, issue Common
Stock or options pursuant to the Company's 1994 Stock Option Plan.
The Company also has agreed to engage the Representative as the warrant
solicitation agent on behalf of the Company for the solicitation of the exercise
of the Warrants commencing one year after the date of this Prospectus and
continuing for four years thereafter. The Representative will be paid a warrant
solicitation fee of five percent of the exercise price for each Warrant
exercised during that period. Unless granted an exemption by the Commission from
Rule 10b-6 under the Exchange Act, the Representative and any other soliciting
broker-dealers will be prohibited from engaging in any market-making activities
or solicited brokerage activities with regard to the Company's securities during
the periods prescribed by exemption (xi) to Rule 10b-6 before the solicitation
of the exercise of any Warrant until the later of the termination of such
solicitation activity or the termination of any right the Representative and any
other soliciting broker-dealer may have to receive a fee for the solicitation of
the exercise of the Warrants.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriters against certain liabilities in connection with
this Offering, including liabilities under the Securities Act. See "SECURITIES
AND EXCHANGE COMMISSION POSITION ON CERTAIN INDEMNIFICATION".
The Representative became a member of the National Association of
Securities Dealers, Inc. in May 1996 and this is its first public offering. The
Representative may participate in public offerings only if other qualified
broker-dealers participate as underwriters. See "RISK FACTORS--Risk Factor No.
27. Lack Of Experience Of The Representative Of The Underwriters".
The foregoing does not purport to be a complete summary of the terms and
conditions of the Underwriting Agreement, copies of which are on file at the
offices of the Underwriter, the Company and the Securities And Exchange
Commission in Washington, D.C. See "ADDITIONAL INFORMATION".
There are no material relationships between the Company and any of the
Underwriters other than the relationships created by the Underwriting Agreement.
47
<PAGE>
SECURITIES AND EXCHANGE COMMISSION POSITION
ON CERTAIN INDEMNIFICATION
The Company has agreed to indemnify directors, officers, and other
representatives of the Company for costs incurred by each of them in connection
with any action, suit, or proceeding brought by reason of their position as a
director, officer, or representative. This would include actions, suits, or
proceedings with respect to liability under the 1933 Act. To be eligible for
indemnification, the person being indemnified must have acted in good faith and
in a manner he or she reasonably believed to be in or not opposed to the best
interests of the Company.
The Board Of Directors is empowered to make other indemnification as
authorized by the Company's Certificate Of Incorporation, Bylaws, or corporate
resolutions so long as the indemnification is consistent with the General
Corporation Law Of Delaware. Under the Company's Bylaws, the Company is required
to indemnify its directors to the full extent permitted by the General
Corporation Law Of Delaware, the common law, and any other statutory provisions.
These provisions also may include indemnification for liabilities arising under
the 1933 Act.
In the Underwriting Agreement, the Company and the Underwriter have agreed
to indemnify each other against civil liabilities, including liabilities under
the 1933 Act. See "UNDERWRITING".
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities And Exchange Commission such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable.
LEGAL MATTERS
Bearman Talesnick & Clowdus Professional Corporation, Denver, Colorado, has
acted as counsel for the Company in connection with this offering. Certain legal
matters will be passed upon for the Underwriter by Schneck Weltman Hashmall &
Mischel LLP, 1285 Avenue of the Americas, New York, New York.
EXPERTS
The audited financial statements of the Company appearing in this
Prospectus have been examined by HEIN + ASSOCIATES LLP, independent certified
public accountants, as set forth in their report appearing elsewhere herein, and
are included in reliance upon such report and upon the authority of said firm as
experts in accounting and auditing.
CONCURRENT OFFERING
The Registration Statement of which this Prospectus is a part also covers
500,100 shares of Common Stock and 3,000,000 Warrants offered by the Selling
Securities Holders made pursuant to the Selling Security Holders Prospectus.
48
<PAGE>
ADDITIONAL INFORMATION
The Company has filed a Registration Statement under the Securities Act Of
1933 with respect to the securities offered hereby with the United States
Securities And Exchange Commission. This Prospectus does not contain all of the
information contained in the Registration Statement. For further information
regarding both the Company and the securities offered hereby, reference is made
to the Registration Statement, including all exhibits and schedules therein,
filed at the Commission's Washington, D.C. office. Copies of the Registration
Statement and exhibits are on file with the Commission and may be obtained, upon
payment of the fee prescribed by the Commission, or may be examined free of
charge at the offices of the Commission, Public Reference Room, 450 Fifth
Street, N.W., Washington, D.C. 20549.
49
<PAGE>
FINANCIAL INFORMATION
Index To Financial Statements
Page No.
Independent Auditor's Report ........................................... F-1
Financial Statements:
Consolidated Balance Sheets as of
April 30, 1995 and 1996............................................. F-2
Consolidated Statements Of Operations for each of
the three years ended April 30, 1994, 1995 and 1996................. F-3
Consolidated Statements Of Stockholders' Equity
(Deficit) for each of the three years in the
period ended April 30, 1996........................................... F-4
Consolidated Statements Of Cash Flows for each of the three years
ended April 30, 1994, 1995 and 1996................................... F-5
Notes To Consolidated Financial Statements....................... F-6 - 14
50
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders
American International Consolidated Inc.
Houston, Texas
We have audited the accompanying consolidated balance sheets of American
International Consolidated Inc. and Subsidiaries as of April 30, 1995 and 1996,
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the three years in the period ended April
30, 1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
American International Consolidated Inc. and Subsidiaries as of April 30, 1995
and 1996, and the results of their operations and their cash flows for each of
the three years in the period ended April 30, 1996, in conformity with generally
accepted accounting principles.
/s/ HEIN + ASSOCIATES LLP
Certified Public Accountants
Houston, Texas
July 1, 1996
F-1
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
April 30,
-----------------------------------
1995 1996
------------- -------------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 628,979 $ 265,949
Accounts receivable:
Contracts, less allowance for doubtful accounts of $97,053
and $79,857 at April 30, 1995 and 1996, respectively 2,677,558 4,874,421
Employee 11,815 26,543
Other - -
Costs and estimated earnings in excess of billings on
uncompleted contracts 709,635 645,420
Other current assets 134,788 131,725
------------- -------------
Total current assets 4,162,775 5,944,058
------------- -------------
Property and equipment, net 1,207,700 1,185,841
Other assets 116,616 216,184
------------- -------------
Total assets $ 5,487,091 $ 7,346,083
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Note payable to financial institutions $ 408,889 $ -
Current portion of long-term debt and capital lease obligation 469,635 552,264
Accounts payable 3,715,390 3,826,207
Accrued payroll and related expenses 158,558 108,970
Other accrued liabilities 328,000 313,024
Taxes payable - 45,500
Billings in excess of costs and estimated earnings on
uncompleted contracts 487,814 261,319
------------- -------------
Total current liabilities 5,568,286 5,107,284
------------- -------------
Long-term debt, net of current portion 409,482 2,400,005
Capital lease obligation, net of current portion 44,386 22,287
Other liabilities 37,000 37,000
------------- -------------
Total liabilities 6,059,154 7,566,576
Contingencies (Note 9)
Stockholders' equity (deficit):
Preferred stock, $1.00 par value; 1,000,000 shares authorized,
none issued - -
Common stock, $.001 par value; 20,000,000 shares authorized;
2,400,000 shares issued and outstanding 2,400 2,400
Additional paid-in capital 145,755 145,755
Accumulated deficit (720,218) (368,648)
------------- -------------
Total stockholders' deficit (572,063) (220,493)
------------- -------------
Total liabilities and stockholders' deficit $ 5,487,091 $ 7,346,083
============= =============
See accompanying notes to these consolidated financial statements.
F-2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN INTERNATIONAL CONSOLIDATED INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
Year Ended April 30,
--------------------------------------------------------
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Contract revenue $ 25,844,725 $ 24,317,051 $ 31,184,828
Contract cost 22,565,928 20,812,194 27,204,243
------------- ------------- -------------
Gross profit 3,278,797 3,504,857 3,980,585
Selling, general and administrative 3,459,482 3,068,916 3,421,157
Other income (expense):
Interest and other financing costs (219,155) (187,908) (184,277)
Writeoff of capitalized costs in connection
with delayed offering - (105,743) -
Interest income and other, net (20,618) 44,372 11,419
------------- ------------- -------------
Income (loss) before federal income taxes (420,458) 186,662 386,570
Federal income tax expense - - 35,000
------------- ------------- -------------
Net income (loss) $ (420,458) $ 186,662 $ 351,570
============= ============= =============
Net income (loss) per share $ (.18) $ .08 $ .15
============= ============= =============
Weighted average common shares outstanding 2,400,000 2,400,000 2,400,000
============= ============= =============
See accompanying notes to these consolidated financial statements.
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN INTERNATIONAL CONSOLIDATED INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
Common Stock Additional
------------------------ Paid-In Accumulated
Shares Amount Capital Deficit Total
-------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balances, May 1, 1993 2,400,000 $ 2,400 $ 15,621 $ (348,048) $ (330,027)
Net loss - - - (420,458) (420,458)
142,599 shares of common stock
sold by the major stockholders at
estimated fair market value - - 14,260 - 14,260
Distributions to AIC Management,
Inc. stockholders - - - (22,500) (22,500)
Conversion of AIC Management,
Inc. from a non-taxable to
taxable entity - - 115,874 (115,874) -
---------- ----------- ---------- ----------- -----------
Balances, April 30, 1994 2,400,000 2,400 145,755 (906,880) (758,725)
Net income - - - 186,662 186,662
---------- ----------- ---------- ----------- -----------
Balances, April 30, 1995 2,400,000 2,400 145,755 (720,218) (572,063)
Net income - - - 351,570 351,570
---------- ----------- ---------- ----------- -----------
Balances, April 30, 1996 2,400,000 $ 2,400 $ 145,755 $ (368,648) $ (220,493)
========== =========== ========== =========== ===========
See accompanying notes to these consolidated financial statements.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN INTERNATIONAL CONSOLIDATED INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Year Ended April 30,
----------------------------------------------
1994 1995 1996
------------- ------------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (420,458) $ 186,662 $ 351,570
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 137,492 141,176 170,123
(Increase) decrease in:
Receivables (200,705) (12,353) (2,211,591)
Costs and estimated earnings in excess of billings on
uncompleted contracts (1,072,648) 673,380 64,215
Other current assets 26,262 (96,016) 3,063
Increase (decrease) in:
Accounts payable 2,272,397 (415,777) 2,510,817
Billings in excess of costs and estimated earnings 88,759 98,668 (226,495)
Other current liabilities 240,665 (74,152) (19,064)
Other, net 165,096 (116,113) (99,568)
------------- ------------- ------------
Net cash provided by operating activities 1,236,860 385,475 543,070
Cash flows from investing activities:
Capital expenditures (13,842) (169,485) (148,264)
Proceeds from sale of investments - 19,050 -
------------- ------------- ------------
Net cash used in investing activities (13,842) (150,435) (148,264)
Cash flows from financing activities:
Net borrowings (payments) under receivables factoring agreements (460,808) 177,239 (408,889)
Issuance of long-term debt - 173,585 -
Principal payments on long-term debt,
capital leases and other notes payable (342,796) (439,303) (348,947)
Distributions to stockholders (22,500) - -
------------- ------------- ------------
Net cash used in financing activities (826,104) (88,479) (757,836)
------------- ------------- ------------
Net increase (decrease) in cash 396,914 146,561 (363,030)
Cash, beginning of year 85,504 482,418 628,979
------------- ------------- ------------
Cash, end of year $ 482,418 $ 628,979 $ 265,949
============= ============ ============
Supplemental disclosures:
Interest paid $ 203,629 $ 197,661 $ 184,277
Equipment and vehicles acquired in exchange for long-term debt $ 28,182 $ - $ -
Advances to stockholders converted to compensation $ 120,500 $ - $ -
Land acquired in exchange for long-term debt $ 49,430 $ - $ -
Trade payable converted to long-term debt $ - $ - $ 2,400,000
Equipment acquired under capital leases $ 3,845 $ 63,361 $ -
============= ============= ============
See accompanying notes to these consolidated financial statements.
F-5
</TABLE>
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------------
Organization: The accompanying consolidated financial statements include the
accounts of American International Consolidated Inc. (AIC), a Delaware
corporation, and its wholly-owned subsidiaries: C.H.O.A. Construction Company
and L. Campbell Construction, Inc., which is currently inactive. Effective July
26, 1996, the Company changed its name from American International Construction
Inc. to American International Consolidated Inc. Effective April 30, 1994,
American International Construction, Inc., a Texas corporation, exchanged 75,000
shares of its common stock for the outstanding shares of AIC Management, Inc., a
corporation wholly-owned by the stockholders of AIC. In June 1994, American
International Construction , Inc., a Texas corporation, formed AIC, a Delaware
corporation, as a wholly-owned subsidiary. Subsequent to this, the Texas
corporation was merged into the Delaware corporation in a reverse tax-free
exchange. These transactions involved companies under common control and,
therefore, are accounted for similar to a pooling of interest. Therefore, the
accompanying consolidated financial statements include the accounts of AIC
Management, Inc. and (AIC-Texas) for all years presented as if the respective
transaction had occurred on April 30, 1992. All significant intercompany
balances and transactions have been eliminated in consolidation.
The Company is primarily engaged in the design and erection of metal buildings
for use as self-storage, commercial and cold storage facilities and fabrication
of metal building components. The Company also participates in major
construction projects as a general contractor.
Revenue and Cost Recognition: Profits and losses on construction and fabrication
contracts are recorded on the percentage-of-completion method of accounting,
measured by the percentage of contract costs incurred to date to estimated total
contract costs for each contract. Contract costs include raw materials, direct
labor, amounts paid to subcontractors and an allocation of overhead expenses.
General and administrative costs are charged to expense as incurred. Anticipated
losses on uncompleted construction contracts are charged to operations as soon
as such losses can be estimated. Changes in job performance, job conditions,
estimated profitability and final contract settlements may result in revisions
to costs and income and are recognized in the period in which the revisions are
determined.
The asset, "costs and estimated earnings in excess of billings on uncompleted
contracts", represents revenues recognized in excess of amounts billed. The
liability, "billings in excess of costs and estimated earnings on uncompleted
contracts", represents billings in excess of revenues recognized.
Cash: Cash includes all highly liquid investments with original maturities of
less than three months.
Property and Equipment: Property and equipment is carried at cost. Property and
equipment acquired through capital leases are stated at the present value of the
future minimum lease payments at the inception of the lease. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets. Property and equipment held under capital leases is amortized on the
straight-line method over the lesser of the asset's estimated useful life or the
term of the lease. When assets are retired or otherwise disposed of, the cost
and related accumulated depreciation are removed from the accounts, and any
resulting gain or loss is recognized in operations for the period. The cost of
maintenance and repairs are expensed as incurred; however, significant
refurbishments or improvements are capitalized.
F-6
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
- ---------------------------------------------------------------------
Federal Income Taxes: AIC files a consolidated federal income tax return, which
includes the results of its operations and those of its wholly-owned
subsidiaries. The Company accounts for income taxes in conformity with Statement
of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
Under SFAS No. 109, deferred income taxes are recognized for the tax
consequences of temporary differences by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax basis of existing assets and liabilities. Income
tax expense or benefit represents the current tax payable or refundable for the
period plus or minus the tax effect of the net change in the deferred tax assets
and liabilities.
Prior to its acquisition in fiscal 1994, AIC Management, Inc. was a subchapter S
corporation, as provided under the Internal Revenue Code. Accordingly, the
taxable income or loss for this entity was reported in the stockholders'
individual tax returns.
Deferred Offering Costs: Direct costs incurred in connection with the Company's
proposed offering of Common Stock have been capitalized in the accompanying
balance sheet. Upon closing of the proposed offering, these costs, which amount
to approximately $159,000 at April 30, 1996, will be applied as a reduction of
the offering proceeds.
Use of Estimates: The preparation of the Company's consolidated financial
statements, in conformity with generally accepted accounting principles,
requires the Company's management to make estimates and assumptions that affect
the amounts reported in these financial statements and accompanying notes.
Actual results could differ from those estimates.
New Accounting Standards: The Financial Accounting Standards Board issued SFAS
No. 121 entitled, Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of, which is effective for fiscal years beginning after December 15,
1995. SFAS No. 121 specifies certain events and circumstances which indicate the
cost of an asset or assets may be impaired, the method by which the evaluation
should be performed and the method by which writedowns, if any, of the asset or
assets are to be determined and recognized. Management does not currently
believe SFAS No. 121 will have a material impact on the Company's financial
condition or operating results upon implementation.
The FASB also issued SFAS No. 123 entitled, Accounting for Stock Based
Compensation, effective for fiscal years beginning after December 15, 1995. This
statement allows companies to choose to adopt the statement's new rules for
accounting for employee stock-based compensation plans. For those companies who
choose not to adopt the new rules, the statement requires disclosures as to what
earnings and earnings per share would have been if the new rules had been
adopted. Management intends to adopt the disclosure requirements of this
statement in fiscal 1997.
Net Income (Loss) Per Share and Common Stock Split: Net income (loss) per share
is based upon the weighted average common shares outstanding. All share and per
share amounts in the accompanying financial statements have been adjusted to
reflect a 16 to 1 stock split which was authorized in June 1994. There were no
common stock equivalents during the years presented.
F-7
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
NOTE 2 - HISTORICAL OPERATIONS
- ------------------------------
The Company experienced substantial losses prior to fiscal 1995 and has a
stockholders' deficit of $220,493 at April 30, 1996. The Company's ability to
continue to fund its future operating and capital needs is dependent upon its
ability to continue profitable operations and to generate adequate cash flows
from operations. For the year ended April 30, 1996, the Company reported net
income of $351,570, cash flow from operations of $543,070 and an increase in its
working capital to $836,774 as a result of converting $2,400,000 of trade
accounts payable to long-term debt.
NOTE 3 - CONCENTRATION OF CREDIT RISK
- -------------------------------------
The Company provides construction services to commercial companies primarily in
the continental United States which are principally concentrated in Texas and
Florida. The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. The Company assesses its credit risk and
provides an allowance for doubtful accounts for any accounts which it deems
doubtful of collection.
The Company maintains deposits in banks which may exceed the amount of federal
deposit insurance available. Management believes that the risk of any possible
deposit loss is minimal
NOTE 4 - PROPERTY AND EQUIPMENT
- -------------------------------
Property and equipment consists of the following:
April 30,
-----------------------------------
1995 1996
--------------- --------------
Land $ 167,461 $ 167,461
Buildings 825,172 834,944
Construction equipment 213,575 213,575
Office equipment 445,385 583,877
Automobiles 296,471 296,471
--------------- --------------
1,948,064 2,096,328
Less accumulated depreciation
and amortization (740,364) (910,487)
--------------- --------------
$ 1,207,700 $ 1,185,841
=============== ==============
F-8
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
NOTE 5 - CONSTRUCTION ACCOUNTS
- ------------------------------
Costs and billings on uncompleted contracts consists of the following:
<TABLE>
<CAPTION>
April 30,
-----------------------------------
1995 1996
--------------- ---------------
<S> <C> <C>
Costs incurred on uncompleted contracts $ 5,171,015 $ 7,739,410
Estimated earnings on uncompleted contracts 456,387 1,239,522
-------------- --------------
5,627,402 8,978,932
Less: Billings to date (5,405,581) (8,594,831)
--------------- --------------
$ 221,821 $ 384,101
=============== =============
Included in the accompanying consolidated
balance sheet under the following captions:
Costs and estimated earnings in excess of billings
on uncompleted contracts $ 709,635 $ 645,420
Billings in excess of costs and estimated earnings
on uncompleted contracts (487,814) (261,319)
--------------- -------------
$ 221,821 $ 384,101
=============== ============
NOTE 6 - CONTRACTS RECEIVABLE
- -----------------------------
Contracts receivable consisted of the following:
April 30,
---------------------------------
1995 1996
--------------- -------------
Completed contracts $ 1,138,660 $ 1,458,204
Uncompleted contracts 1,350,298 3,158,551
Retainage 285,653 337,523
--------------- -------------
2,774,611 4,954,278
Less allowance for doubtful accounts (97,053) (79,857)
--------------- -------------
$ 2,677,558 $ 4,874,421
=============== ============
</TABLE>
NOTE 7 - NOTES PAYABLE TO FINANCIAL INSTITUTIONS
- ------------------------------------------------
The Company had a credit line with a financing company under which certain of
the Company's contract receivables are purchased at a discount of 9%. The
Company was refunded a portion of the discount provided the receivable was
collected promptly. The agreement was guaranteed by the Company's four principal
stockholders, all of whom are officers, and three of whom are directors of the
Company. The outstanding balance under this credit agreement was $408,889 as of
April 30, 1995. This credit line was terminated effective April 24, 1996.
F-9
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
NOTE 8 - LONG-TERM DEBT
- -----------------------
Long-term debt consists of the following:
<TABLE>
<CAPTION>
April 30,
------------------------------
1995 1996
------------- ------------
<S> <C> <C>
Note payable to supplier, due in weekly installments of $11,537, including
interest at prime plus 1% (10% at April 30, 1996) through April 30, 2001.
The note is collateraterized by certain contract receivables, inventory,
equipment, land, buildings and substantially all shares of the Company's
common stock. The note is guaranteed by the four stockholders of the
Company. If the Company completes the initial public offering described in
Note 17, $1,200,000 of the remaining principal is immediately payable under
the provisions of the loan agreement and the weekly payment will be reduced
to provide for amortization at an even rate over the remaining term of the
note. $ - $ 2,400,000
Note payable to supplier, due in weekly installments of $6,000, including
interest at prime plus 1% (10% at April 30, 1995) through March 1, 1996.
The note was repaid during fiscal 1996. 229,588 -
Note payable to a bank, due in monthly installments of $4,907, including
interest at 8.75% (10% beginning March 15, 1995) through June 1998 when the
remaining principal is due. The note is collateralized by the Company's
land and buildings and guaranteed by three principal stockholders of the
Company. 314,150 289,153
Note payable to a bank, due in monthly installments of $1,175, including
interest at 8.75%, (10% beginning March 15, 1995) with a final payment of
principal and interest due the earlier of 30 days after consummation of a
proposed public offering or June 5, 1998. The note is collateralized by a
second lien on the Company's land and buildings and guaranteed by three
principal stockholders of the Company. 88,038 83,416
Real estate note payable, due in monthly installments of $1,018, including
interest at 8.7%, through October 1998. The note is collateralized by a
first lien on a portion of the Company's land. 36,021 26,556
- Continued -
F-10
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
NOTE 8 - LONG-TERM DEBT (continued)
April 30,
-----------------------------
1995 1996
------------ -------------
<S> <C> <C>
Notes payable to the State of Florida for sales and use tax, due in monthly
installments of $7,930, including interest at 12%, through June 1997.
168,584 135,042
Other equipment and automobile notes 21,979 1,228
------------- ------------
858,360 2,935,395
Less: Current maturities (448,878) (535,390)
------------- ------------
$ 409,482 $ 2,400,005
============= ============
</TABLE>
The note payable to supplier includes various financial covenants, among other
things, which require the Company to limit its capital expenditures to $120,000
annually, submit audited financial statements within 90 days of year end,
prohibit the payment of dividends, require the Company to maintain a ratio of
current assets to current liabilities of at least .60 to 1 and maintain earnings
before interest expense of at least 1.5% of gross revenues. The distributions to
AIC Management, Inc. in fiscal year 1994 preceded the merger of the Company and
AIC Management, Inc. and were therefore not in violation of the loan covenants.
The Company also had trade payables due this supplier of $1,758,352 and
$1,065,825 at April 30, 1995 and 1996, respectively.
Future maturities of long-term debt are as follows:
Year Ending April 30,
---------------------
1997 $ 535,390
1998 528,187
1999 770,194
2000 525,178
2001 576,446
--------------
$ 2,935,395
==============
NOTE 9 - CONTINGENCIES
- ----------------------
The owner of one of the Company's construction projects has disputed some of the
costs charged to a job which was completed in the fourth quarter of fiscal 1996.
The owner has stated that some of the disputed costs relate to mismanagement of
the project causing unnecessary cost overruns. The Company contends that such
costs incurred were beyond management's control and were caused by
weather-related delays and ordinary problems encountered with several
subcontractors. The Company has liened the project and the matter has been
submitted to arbitration. The Company anticipates settlement of this claim
within the next year and management has estimated the range of loss to be $6,000
to $200,000. A loss of $59,000 has been reflected in the accompanying
consolidated financial statements based on management's assessment of the
probable outcome of this dispute.
F-11
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
NOTE 9 - CONTINGENCIES (continued)
- ----------------------------------
Additionally, the Company is involved in various other claims and legal actions
arising in the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse effect on
the Company's consolidated financial condition, liquidity or results of
operations.
NOTE 10 - STOCKHOLDERS' EQUITY
- ------------------------------
In October 1993, the four stockholders of the Company transferred an aggregate
of 142,599 shares of the Company's common stock as a consideration for services
provided to the Company. Expense of $14,260 was recognized in fiscal 1994 for
the estimated fair value of the shares transferred.
The Company may issue one or more series of preferred stock, with such
designations, preferences, rights, dividends and restrictions as may be
determined by the Board of Directors.
NOTE 11 - FEDERAL INCOME TAXES
- ------------------------------
Deferred tax assets and liabilities as of April 30, 1995 consisted of the
following:
<TABLE>
<CAPTION>
Current Noncurrent Total
-------------- ------------- --------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 157,000 $ - $ 157,000
Deferred compensation and other accruals 27,700 - 27,700
Other, net 62,300 - 62,300
-------------- -------------- --------------
Total deferred tax asset 247,000 - 247,000
Less: Valuation allowance (210,000) - (210,000)
-------------- -------------- --------------
Deferred tax asset, net 37,000 - 37,000
-------------- -------------- --------------
Deferred tax liability - accumulated
depreciation - (37,000) (37,000)
-------------- -------------- --------------
$ 37,000 $ (37,000) $ -
============== ============== ==============
Deferred tax assets and liabilities as of April 30, 1996 consisted of the
following:
Current Noncurrent Total
-------------- -------------- --------------
<S> <C> <C> <C>
Deferred tax assets:
Deferred compensation and other accruals $ 52,000 $ - $ 52,000
Valuation allowance (9,000) - (9,000)
-------------- -------------- --------------
Deferred tax asset, net 43,000 - 43,000
-------------- -------------- --------------
Deferred tax liability - accumulated
depreciation - (37,000) (37,000)
-------------- -------------- --------------
$ 43,000 $ (37,000) $ 6,000
============== ============== ==============
F-12
</TABLE>
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
NOTE 12 - EMPLOYEE BENEFIT PLANS
- --------------------------------
The Company sponsors a 401(k) plan (the Plan) which covers substantially all of
its employees meeting minimum age and service requirements. The Plan provides
for elective contributions by employees up to the lesser of 15% of the
employee's compensation or the maximum limit allowed by tax regulations. Under
the terms of the Plan, the Company makes matching contributions equal to 25% of
the first 6% of each employee's elective contributions to the Plan. In addition,
the Company may make discretionary contributions up to 15% of total participant
compensation. During the years ended April 30, 1994, 1995 and 1996, the Company
made contributions to the Plan of $20,965, $25,692 and $24,626, respectively.
NOTE 13 - INCENTIVE STOCK OPTION PLAN
- -------------------------------------
The Company has a Stock Option Plan (the Option Plan) pursuant to which options
to purchase 200,000 shares of the Company's common stock may be granted to
officers and employees of the Company or its subsidiaries and to other persons.
As of April 30, 1996, no stock options had been granted pursuant to the Option
Plan.
Options granted pursuant to the Option Plan may be "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, or
"non-qualified stock options," which are options that do not meet the
requirements of Section 422. Incentive options may be granted only to key
employees of the Company, as defined in the Option Plan, and non-qualified
options may be granted to both key employees and other persons, other than an
employee of the Company, who are committed to the interests of the Company.
The Option Plan expires November 21, 2004, except as to options previously
granted and outstanding under the Option Plan at that time.
NOTE 14 - INVESTMENT IN JOINT VENTURE
- -------------------------------------
The Company had an ownership interest of 13% in Saxon International Building
Systems (Saxon) a Polish limited liability company in which the three major
stockholders of the Company have a 26% ownership interest. The Company
recognized losses from Saxon, which was accounted for on the equity method of
accounting, of $36,666 for the year ended April 30, 1994. The Company's
investment in Saxon had been reduced to zero at April 30, 1994, and the Company
ceased recognizing its proportionate share of Saxon's losses. During 1995, the
Company ceased all funding of Saxon and sold its ownership interest in Saxon to
an unrelated third party. Management does not believe it has any contingent
liabilities arising from its prior ownership in Saxon.
F-13
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS
- ---------------------------------------------
The Company's financial instruments consist of trade receivables, trade payables
and various notes payable to banks, a financing company and a supplier. The
Company believes the carrying value of these financial instruments approximate
their estimated fair value.
NOTE 16 - MAJOR CUSTOMERS
- -------------------------
The following is a summary of customers accounting for ten percent (10%) or more
of the Company's revenues and trade accounts receivable for the years indicated:
<TABLE>
<CAPTION>
Revenues Receivables
---------------------------------------------- ------------------------------------------
Year Ended April 30, April 30,
---------------------------------------------- ------------------------------------------
1994 1995 1996 1994 1995 1996
----------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Customer A 19.0% 19.8% 26.0% 11% 20% 11%
Customer B 21.6% - - - - -
Customer C - 10.2% - - - -
Customer D - - - - 13% -
----------- ----------- ----------- ----------- ----------- -------
40.6% 30.0% 26.0% 11% 33% 11%
=========== =========== =========== =========== =========== =======
</TABLE>
NOTE 17 - INITIAL PUBLIC OFFERING
- ---------------------------------
The Company is preparing to register the sale of 900,000 shares of common stock
and 450,000 warrants with the Securities and Exchange Commission as part of an
initial public offering. Each warrant is exercisable to purchase one share of
common stock at an exercise price of $5.00 per share. The Company has entered
into a letter of intent with an underwriter to offer such units in a public
offering on a "firm commitment basis". If the offering is consummated, the
underwriter will receive underwriters' warrants to purchase a total of 90,000
shares of common stock and 45,000 warrants, each at 120% of the initial offering
price for a period of four years beginning twelve months after the closing of
the offering. The Company has granted registration rights with respect to the
common stock and warrants underlying the underwriters' warrants.
NOTE 18 - SUBSEQUENT EVENT
- --------------------------
In July 1996, the Company issued an aggregate of 500,100 shares of Common
Stock, 3,000,000 Warrants, and $300,000 aggregate face amount of unsecured
promissory notes payable in a balloon payment plus accrued interest at 10
percent per annum due on the earlier of April 24, 1997 or the closing of any
public debt or equity offering by the Company or the closing of any transaction
in which the Company's securities are exchanged for securities of a public
entity. The Company will incur a one-time non-recurring charge to earnings of
approximately $625,000 over the term of the promissory notes in connection with
the 500,100 shares of common stock issued upon the closing of this transaction.
* * * * * * * *
F-14
<PAGE>
- ---------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS
BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION OTHER THAN AMERICAN INTERNATIONAL
THOSE CONTAINED IN THIS PROSPECTUS AND, CONSOLIDATED INC.
IF GIVEN OR MADE, SUCH INFORMATION OR
AMERICAN INTERNATIONAL REPRESENTATION
MUST NOT BE RELIED UPON CONSOLIDATED
INC. AS HAVING BEEN AUTHORIZED BY THE 900,000 Shares of Common Stock
COMPANY. THIS PROSPECTUS SHALL NOT 450,000 Redeemable Common
CONSTITUTE AN OFFER TO SELL OR THE Stock Purchase Warrants
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.
------------------------------
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY................... 6
RISK FACTORS........................ 9 ---------------------------
USE OF PROCEEDS..................... 17
BUSINESS............................ 20 PROSPECTUS
SELECTED CONSOLIDATED
FINANCIAL DATA.................... 29 ---------------------------
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS........................ 31
MANAGEMENT.......................... 34
EXECUTIVE COMPENSATION.............. 36
PRINCIPAL STOCKHOLDERS.............. 38
TRANSACTIONS BETWEEN THE
COMPANY AND RELATED PARTIES....... 39
CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.......... 40
DESCRIPTION OF SECURITIES........... 41
SELLING SECURITIES HOLDERS.......... 45
CONCURRENT OFFERING................. 46
SECURITIES AND EXCHANGE
COMMISSION POSITION
ON CERTAIN INDEMNIFICATION........ 48
LEGAL MATTERS....................... 48
EXPERTS............................. 48
ADDITIONAL INFORMATION.............. 49
FINANCIAL INFORMATION............... 50
Dalton Kent Securities Group, Inc.
I.A. Rabinowitz & Co.
________________, 1996
-------------------------------------
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITIES HOLDERS' PROSPECTUS]
[Logo red, white and blue flag]
August 5, 1996
[Red Ink]
PROSPECTUS
AMERICAN INTERNATIONAL CONSOLIDATED INC.
500,100 Shares Of Common Stock And 3,000,000
Redeemable Common Stock Purchase Warrants
This Prospectus relates to 500,100 shares of Common Stock and 3,000,000
Redeemable Common Stock Purchase Warrants ("Warrants") of American International
Consolidated Inc. (the "Company"). See "OFFERING BY SELLING SECURITIES HOLDERS".
The Common Stock and Warrants being offered hereby were acquired by the persons
named herein (the "Selling Securities Holders") pursuant to a private offering
of Common Stock and Warrants (the "Private Placement") completed in July 1996.
Each Warrant entitles the registered holder thereof to purchase one share
of Common Stock at an exercise price of $5.00 per share, subject to adjustment
in certain events, at any time during the period commencing on the date hereof
and expiring on the fifth anniversary of the date hereof. The Warrants are
subject to redemption by the Company at $.01 per Warrant at any time commencing
12 months after the date hereof, on not less than 30 days' prior written notice
to the holders of the Warrants, provided that the average closing bid price of
the Common Stock as reported on The Nasdaq Stock Market or the average closing
sale price if listed on a national securities exchange, has been at least 150%
of the then current exercise price of the Warrants, for each of the 20
consecutive business days ending on the third day prior to the date on which the
Company gives notice of redemption. The Warrants will be exercisable until the
close of business on the day immediately preceding the date fixed for
redemption. See "DESCRIPTION OF SECURITIES-Warrants".
The Company will receive no proceeds from the sales of the Common Stock and
Warrants by the Selling Securities Holders. The Common Stock and Warrants
offered by this Prospectus may be sold from time to time by the Selling
Securities Holders, or by transferees. No underwriting arrangements have been
entered into by the Selling Securities Holders. The distribution of the Common
Stock and Warrants by the Selling Warrant Holders may be offered in one or more
transactions that may take place on the over-the-counter market, including
ordinary broker's transactions, privately-negotiated transactions or through
sales to one or more dealers for resale of such Common Stock and Warrants 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 Securities Holders in connection with sales of the Warrants by Selling
Securities Holders. See "OFFERING BY SELLING SECURITIES HOLDERS".
Prior to this Offering, there has been no public market for the Common
Stock or the Warrants, and there can be no assurance that any such market for
the Common Stock or the Warrants will develop after the closing of this
Offering, or that, if developed, it will be sustained. The offering price of the
Common Stock and the Warrants and the initial exercise price and other terms of
the Warrants were
ALT-COVER
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITIES HOLDERS' PROSPECTUS]
established by negotiation between the Company and the Underwriter and do not
necessarily bear any direct relationship to the Company's assets, earnings, book
value per share or other generally accepted criteria of value. See
"UNDERWRITING". The Company has applied for quotation of the Common Stock and
the Warrants on The Nasdaq SmallCap Market ("NASDAQ") under the trading symbols
"AICI" and "AICIW," respectively. The Company also intends to apply for listing
of the Common Stock and the Warrants on The Boston Stock Exchange ("BSE") under
the trading symbols "AICI" and "AICW", respectively.
On _________ 1996, the Company completed an initial public offering of
900,000 shares of Common Stock and 450,000 Warrants through Dalton Kent
Securities Group, Inc. (the "Representative") as the representatives of I. A.
Rabinowitz & Co. and the other underwriters (the "Underwriters").
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVESTMENT THEREIN
INVOLVES A HIGH DEGREE OF RISK. FOR A DESCRIPTION OF CERTAIN RISKS REGARDING AN
INVESTMENT IN THE COMPANY AND IMMEDIATE SUBSTANTIAL DILUTION, SEE "RISK FACTORS"
(PAGE 9) AND "DILUTION" (PAGE 19).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSION NOR HAS
THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Dalton Kent Securities Group, Inc. I.A. Rabinowitz & Co.
The date of this Prospectus is August 5, 1996
ALT-COVER
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITIES HOLDERS' PROSPECTUS]
PROSPECTUS SUMMARY
The Company
American International Consolidated Inc. (the "Company") is a manufacturer
and general contractor that focuses primarily on three types of construction
products: mini-warehouses and self-storage facilities; metal buildings and
structural steel projects; and cold storage, including refrigerated and freezer,
buildings. The Company's services range from the start, or construction design,
phase to the finish, or erection, phase of a project, including general
construction, construction management, design, manufacture, building, and
turnkey services. The Company selects, coordinates and manages subcontractors
for substantially all phases of the work, except for design, erection and
manufacture of certain metal building components. The Company also provides
oversight and supervision of the entire construction process for each project.
The Company intends to take advantage of its increased capital and improved
financial condition resulting from this Offering by (i) increasing revenues,
operating margins and profitability through the following: establishment of an
in-house trim shop, expansion of its metal buildings manufacturing facility,
decreasing interest expense (from reduction of debt), obtaining raw materials
purchase discounts, and decreasing bonding costs; and (ii) increasing business
volume through increasing bonding capacity in order to access larger projects
and other new business, undertaking planned domestic and international marketing
programs, and increasing business referrals from suppliers and other business
contacts. See "BUSINESS--Business Plan And Strategy" for a more detailed
description of this strategy and each of these items. See also "USE OF
PROCEEDS".
The Company's principal executive and administrative offices are located at
14603 Chrisman, Houston, Texas 77039, telephone number (713) 449-9000.
The Company was incorporated under the laws of Texas in May 1985 and
changed its state of incorporation to Delaware in June 1994. In June 1996, the
Company changed its name to American International Consolidated Inc. from
American International Construction Inc.
The Offering
Securities Offered 500,100 shares of Common Stock and
3,000,000 Warrants to purchase one share
of Common Stock for $5.00 per share
during the five-year period beginning on
the date of this Prospectus. The Common
Stock and Warrants offered by the
Selling Securities Holders, when
purchased by buyers, are identical to
the Common Stock and Warrants offered by
the Company pursuant to the Offering
Prospectus. See, "DESCRIPTION OF
SECURITIES" and "OFFERING BY SELLING
SECURITIES HOLDERS".
Offering Price $ 5.00 per share of Common Stock
$ .10 per Warrant
Warrant Exercise Price $ 5.00 per share of Common Stock,
subject to adjustments in certain
circumstances
Warrant Exercise Period The Period commencing on
the date of this prospectus and expiring
on __________, 2001.
ALT-6
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITIES HOLDERS' PROSPECTUS]
Shares of Common
Stock outstanding prior to
Offering: 2,900,100
Shares of Common Stock offered (1): 900,000
Shares of Common Stock outstanding
after the Offering: 3,800,100
Warrants outstanding prior to
Offering: 3,000,000
Warrants offered: 450,000
Warrants outstanding after
the Offering: 3,450,000
Shares of Common Stock Outstanding
after the Offering assuming
exercise of all Warrants offered
in Offering and previously
outstanding: 7,250,100
Estimated net proceeds to the
Company (2): $ 3,832,500
Use of Proceeds The Company will not receive any of the
proceeds from the sales of the Common
Stock and Warrants by the Selling
Securities Holders. In the event that
any holder of Warrants elects to
exercise Warrants, the proceeds from the
exercise of those Warrants will be
utilized by the Company for working
capital purposes. See, "USE OF PROCEEDS"
and "OFFERING BY SELLING SECURITIES
HOLDERS".
- --------------------
(1) Does not include (i) up to 450,000 shares of Common Stock issuable upon
exercise of the Warrants included in the Offering, (ii) up to 135,000
shares of Common Stock included in the Underwriters' over-allotment option,
(iii) up to 135,000 shares of Common Stock issuable upon exercise of the
Underwriters' Warrants and the warrants issuable to the Underwriters upon
the exercise of the Underwriters' Warrants, and (iv) 3,000,000 shares of
Common Stock issuable upon exercise of previously outstanding warrants. See
"UNDERWRITING".
(2) This amount is after deduction of aggregate selling commissions of $454,500
and of $258,000 as the unpaid portion of the other total estimated offering
expenses of $395,000.
Redemption Of The Warrants The Warrants are redeemable by the
Company at a price of $.01 per Warrant
upon 30 days prior written or published
notice at any time commencing 12 months
after the date of this Prospectus and
prior to their exercise or expiration,
provided however, that the closing bid
quotation for the Common Stock for each
of the 20 consecutive business days end-
ing on the third day prior to the
Company's giving notice of redemption
has been at least 150 percent of the
then effective exercise price of the
Warrants. The Warrants remain
exercisable during the 30-day notice
period. Any Warrantholder who does not
exercise that holder's Warrants prior to
their expiration or redemption, as the
case may be, forfeits that holder's
right to purchase the shares of Common
Stock underlying the Warrants. See
"DESCRIPTION OF SECURITIES--Common Stock
Purchase Warrants--Redemption".
ALT-7
<PAGE>
Use Of Proceeds The Company will not receive any of the
proceeds from the sales of the Common
Stock and Warrants by the Selling
Securities Holders. In the event that
any holder of Warrants elects to
exercise Warrants, the proceeds from the
exercise of the those Warrants will be
utilized by the Company for working
capital purposes. See "USE OF PROCEEDS"
and "OFFERING BY SELLING SECURITIES
HOLDERS".
Risk Factors The securities offered hereby involve a
high degree of risk and substantial
immediate dilution to new investors. See
"CERTAIN RISK FACTORS" and "DILUTION".
NASDAQ Symbols Common Stock - AICI Warrants - AICIW
Boston Exchange Symbol Common Stock - AIC Warrants - AICW
Summary Selected Financial Data
The financial statements included in this Prospectus set forth information
regarding the Company as of and for the fiscal years ended April 30, 1996, 1995
and 1994 (audited). See "FINANCIAL INFORMATION". The summary selected financial
data shown below is derived from, and is qualified in its entirety by, those
financial statements, which are contained in the "FINANCIAL INFORMATION" section
of this Prospectus.
Fiscal Year Ended April 30
--------------------------
1995 1996
---- ----
Actual Actual
Operating Results:
Revenues..................... $24,317,051 $31,184,828
Net Income................... 186,662 351,570
Net Income Per share (1)..... .08 .15
<TABLE>
<CAPTION>
Fiscal Year
Ended
April 30, 1996
Balance Sheet Data: As Adjusted(1)
--------------
<S> <C> <C> <C>
Working Capital (Deficit).... (1,405,511) 836,774 2,522,774
Total assets................. 5,487,091 7,346,083 9,323,320
Long Term Debt .............. 453,868 2,412,292 1,222,292
Total liabilities............ 6,059,154 7,566,576 6,086,576
Accumulated (deficit)........ (720,218) (368,648) (368,648)
Stockholders' equity
(deficit).................. (572,063) (220,493) 3,256,744
- --------------------
(1) As adjusted for (a) $300,000 loan consummated in July 1996 and (b) net proceeds
from this Offering, including repayment of $1.2 million of long-term debt and
$300,000 of unsecured notes. See, "USE OF PROCEEDS".
ALT-8
</TABLE>
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITIES HOLDERS' PROSPECTUS]
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Selling
Securities Holders Common Stock and Warrants. In the event that any holder of
Warrants elects to exercise Warrants, the proceeds from the exercise of those
Warrants will be utilized by the Company for working capital purposes.
The net proceeds to the Company from the sale of Common Stock and Warrants
pursuant to the Offering Prospectus are estimated to be $3,832,500 after
deducting selling commissions and other unpaid expenses of the Offering. Total
selling commissions equal to ten percent of the gross offering proceeds from the
Common Stock and Warrants, together with a three percent non-accountable expense
allowance, will be allowed to the Underwriters upon consummation of the
offering. Other expenses of the offering, estimated to be $258,650, include
printing costs, legal fees, accounting fees, blue sky fees and costs, transfer
agent fees, SEC, NASD and NASDAQ filing fees and other miscellaneous costs.
Approximately $137,000 of the total offering expenses will have been paid prior
to closing by the Company, leaving $258,000 of offering expenses and $454,500 of
selling commissions to be paid from the offering proceeds. The $3,832,500 of net
proceeds are expected to be allocated substantially as follows and applied in
the following order of priority, during the 12 month period following the
offering (1):
<TABLE>
<CAPTION>
Approximate
Percentage
of
Approximate Net
Amount Proceeds
------ --------
<S> <C> <C>
Establish In-House Trim Shop; Expand Capacity of Metal
Buildings Manufacturing Facility (2)......................... $ 700,000 18.3%
Domestic and International Marketing Program.................. 285,000 7.5%
Reduction of Secured Note to Major Supplier (3)............... 1,200,000 31.3%
Repayment of Unsecured Notes (4).............................. 300,000 7.8%
Upgrade Computer Software Systems............................. 50,000 1.3%
Reduction of Trade Accounts .................................. 300,000 7.8%
Other Working Capital (5)..................................... 997,500 26.0%
------- -----
TOTAL NET PROCEEDS $3,832,500 100%
========= ====
</TABLE>
- --------------------
(1) See "BUSINESS--Business Plan And Strategy" for a description of how the
proposed allocation of proceeds of this Offering applies to the
Company's plans.
(2) A portion of the proceeds for the in-house trim shop, which will be
located in a portion of the metal buildings manufacturing facility, will
be used for the purchase of initial inventory of trim material and of
operating equipment, including a press with a bed length of 27 to 33
feet, a hemming mill machine, a button lock mill machine, a trim break
machine, a cut-to-length-line machine, and four work tables. Expansion
of the manufacturing facility also will include the acquisition of two
250-ton presses, four welding machines, die sets, and miscellaneous hand
tools.
ALT-17
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITIES HOLDERS' PROSPECTUS]
SELLING SECURITIES HOLDERS
The Company is registering the sale of Common Stock and Warrants by persons
who received an aggregate of 500,100 shares of Common Stock and 3,000,000
Warrants (the "Selling Securities Holders") in the Private Placement pursuant to
exemptions from registration under federal and state securities laws. In
addition, the Company is registering the exercise of those Warrants by the
persons who purchase those Warrants from the Selling Securities Holders pursuant
to this Prospectus and, in the alternative, the sale of Common Stock received by
the Selling Securities Holders upon the exercise of the Warrants by the Selling
Securities Holders. The Selling Securities Holders may sell their Warrants or
Common Stock at such prices as they are able to obtain in the market, if any
market develops. The Company will receive no proceeds from the sale of Warrants
or Common Stock by the Selling Securities Holders. The following table sets
forth the name of each Selling Securities Holder, the number of Warrants
beneficially owned by each Selling Securities Holder before this Offering, the
number of Warrants proposed to be sold by each Selling Securities Holder, the
number of Warrants owned after this Offering assuming the sale of all the
Warrants offered by the Selling Securities Holders, the number of shares of
Common Stock owned by the Selling Securities Holders before the Offering, the
number of shares of Common Stock to be sold by the Selling Securities Holders
assuming they exercise their Warrants, and the number of shares owned by the
Selling Securities Holders after the Offering.
<TABLE>
<CAPTION>
Number Of Shares
Number of Number Of Of Common Stock Number of Number Of
Warrants Owned Warrants Warrants Owned Owned Before Shares To Be Shares Owned
Name Before Offering to be Sold After Offering Offering(1) Sold (2) After Offering
- ----------------------- --------------- ------------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Alina Garcia 40,000 40,000 0 46,668 46,668 0
Scott Gerard 250,000 250,000 0 291,675 291,675 0
Richard H. Eisen 100,000 100,000 0 116,670 116,670 0
Rory Nichols 250,000 250,000 0 291,675 291,675 0
Scott Stackman 150,000 150,000 0 175,005 175,005 0
Scott Silverman 250,000 250,000 0 291,675 291,675 0
Paul G. Leff 250,000 250,000 0 291,675 291,675 0
Robert L. Dubofsky 20,000 20,000 0 23,334 23,334 0
Pemvi, Inc. 80,000 80,000 0 93,336 93,336 0
George Stritas 10,000 10,000 0 11,667 11,667 0
Mogul Capital Corp. 250,000 250,000 0 291,675 291,675 0
Euro Pharmaceuticals
Distributors Ltd. 750,000 750,000 0 875,025 875,025 0
John Donnidio 10,000 10,000 0 11,667 11,667 0
LTA Holding Corp. 10,000 10,000 0 11,667 11,667 0
Frank Signorile 10,000 10,000 0 11,667 11,667 0
Abe Heyman 10,000 10,000 0 11,667 11,667 0
Maria Capello 10,000 10,000 0 11,667 11,667 0
Geneva Partners 10,000 10,000 0 11,667 11,667 0
Al Abramovic 10,000 10,000 0 11,667 11,667 0
Princess Export
Associates, Inc. 50,000 50,000 0 58,335 58,335 0
E.P. Ong 10,000 10,000 0 11,667 11,667 0
Mordecai Goldzweig 10,000 10,000 0 11,667 11,667 0
Irwin and Michelle Raymer 10,000 10,000 0 11,667 11,667 0
Tammy L. Gross 60,000 60,000 0 70,002 70,002 0
Randy Bobkin 190,000 190,000 0 221,673 221,673 0
Rifky Weiner 200,000 200,000 0 233,340 233,340 0
------- ------- - ------- ------- -
TOTAL 3,000,000 3,000,000 0 3,500,100 3,500,100 0
- --------------------------
(1) Because the Warrants currently are exercisable, the shares issuable upon the exercise of the Warrants are considered
beneficially owned by the Selling Securities Holders. The number of shares underlying the Warrants shown for each Selling
Securities Holder under "Number Of Warrants Before Offering" are included in the "Number Of Share Of Common Stock Owned
Before Offering."
ALT-45
</TABLE>
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITIES' PROSPECTUS]
(2) The number of shares of Common Stock to be sold assumes that the Selling
Securities Holders exercise all their Warrants and elect to sell all the
shares of Common Stock received upon the exercise of the Warrants and all
the shares of Common Stock received in the Private Placement. Upon the
exercise of the Warrants by the Selling Securities Holders, they would
receive restricted shares of Common Stock pursuant to an exemption from
registration under Rule 506 under the Securities Act and those shares of
Common Stock could be transferred only pursuant to an effective
registration statement or an exemption from registration.
CONCURRENT OFFERING
The registration statement of which this Prospectus forms a part also
covers 900,000 shares of Common Stock and 450,000 Warrants being offered by the
Company in the Offering made pursuant to the Offering Prospectus.
ALT-46
<PAGE>
- ---------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS
BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION OTHER THAN AMERICAN INTERNATIONAL
THOSE CONTAINED IN THIS PROSPECTUS AND, CONSOLIDATED INC.
IF GIVEN OR MADE, SUCH INFORMATION OR
AMERICAN INTERNATIONAL REPRESENTATION
MUST NOT BE RELIED UPON CONSOLIDATED
INC. AS HAVING BEEN AUTHORIZED BY THE 900,000 Shares of Common Stock
COMPANY. THIS PROSPECTUS SHALL NOT 450,000 Redeemable Common
CONSTITUTE AN OFFER TO SELL OR THE Stock Purchase Warrants
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.
------------------------------
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY................... 6
RISK FACTORS........................ 9 ---------------------------
USE OF PROCEEDS..................... 17
BUSINESS............................ 20 PROSPECTUS
SELECTED CONSOLIDATED
FINANCIAL DATA.................... 29 ---------------------------
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS........................ 31
MANAGEMENT.......................... 34
EXECUTIVE COMPENSATION.............. 36
PRINCIPAL STOCKHOLDERS.............. 38
TRANSACTIONS BETWEEN THE
COMPANY AND RELATED PARTIES....... 39
CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.......... 40
DESCRIPTION OF SECURITIES........... 41
SELLING SECURITIES HOLDERS.......... 45
CONCURRENT OFFERING................. 46
SECURITIES AND EXCHANGE
COMMISSION POSITION
ON CERTAIN INDEMNIFICATION........ 48
LEGAL MATTERS....................... 48
EXPERTS............................. 48
ADDITIONAL INFORMATION.............. 49
FINANCIAL INFORMATION............... 50
Dalton Kent Securities Group, Inc.
I.A. Rabinowitz & Co.
________________, 1996
-------------------------------------
ALT-Back Cover
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses Of Issuance And Distribution.
The following is an itemization of all expenses (subject to future
contingencies) incurred or to be incurred by the Registrant in connection with
the issuance and distribution of the securities being offered.
Registration and filing fee..................................$ 9,392
Transfer agent's fee*..........................................3,000
Printing and engraving*.......................................22,000
Accounting fees and expenses*................................100,000
Legal fees and expenses*.....................................175,000
Blue sky fees and expenses*...................................50,000
NASD filing fee................................................3,224
NASDAQ listing fee............................................10,000
Boston Stock Exchange listing fee.............................15,000
Underwriter's non-accountable expense allowance..............136,350
Standard & Poor's listing......................................2,380
Miscellaneous*................................................27,654
--------
Total* $554,000
========
- --------------------
* Estimated
Item 14. Indemnification Of Directors And Officers.
The Delaware General Corporation Law provides for indemnification by a
corporation of costs incurred by directors, employees, and agents in connection
with an action, suit, or proceeding brought by reason of their position as a
director, employee, or agent. The person being indemnified must have acted in
good faith and in a manner that the person reasonably believed to be in or not
opposed to the best interests of the corporation.
In addition to the general indemnification section, Delaware law provides
further protection for directors under Section 102(b)(7) of the General
Corporation Law of Delaware. This section was enacted in June 1986 and allows a
Delaware corporation to include in its Certificate Of Incorporation a provision
that eliminates and limits certain personal liability of a director for monetary
damages for certain breaches of the director's fiduciary duty of care, provided
that any such provision does not (in the words of the statute) do any of the
following:
"eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation
or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing
violation of law, (iii) under section 174 of this Title
[dealing with willful or negligent violation of the
statutory provision concerning dividends, stock purchases
and redemptions], or (iv) for any transaction from which the
director derived an improper personal benefit. No such
provision shall eliminate or limit the liability of a
director for any act or omission occurring prior to the date
when such provision becomes effective..."
The Board Of Directors is empowered to make other indemnification as
authorized by the Certificate Of Incorporation, Bylaws or corporate resolution
so long as the indemnification is consistent with the Delaware General
Corporation Law. Under the Company's Bylaws, the Company is required to
indemnify its directors to the full extent permitted by the Delaware General
Corporation Law, common law and any other statutory provisions.
60
<PAGE>
Item 15. Recent Sales Of Unregistered Securities.
In July 1996, the Company sold an aggregate of 500,100 shares of Common
Stock, 3,000,000 Warrants, and $300,000 aggregate face amount of promissory
notes in reliance upon exemptions pursuant to Sections 4(2) and 4(6) of the
Securities Act of 1933, as amended. These securities were sold solely to
accredited investors in 300 units at a price of $1,000 per unit. Each unit
consisted of 1,667 shares of Common Stock, 10,000 Warrants, and one promissory
note in the face amount of $1,000.
Item 16. Exhibits.
The following is a complete list of Exhibits filed as part of this
Registration Statement, which Exhibits are incorporated herein.
Number Description
- ------ -----------
1.1 Underwriting Agreement between American International
Consolidated Inc. ("Registrant") and Dalton Kent Securities
Group, Inc.
2.1 Agreement And Plan Of Merger of American International
Construction, Inc., a Texas Corporation, and American
International Construction Inc., a Delaware Corporation.(1)
2.2 Plan Of Merger of American International Construction, Inc. and
AIC Management, Inc.(1)
2.3 Plan Of Merger of American International Construction, Inc. and
American International Thermal Systems, Inc.(1)
2.4 Plan Of Merger of American International Construction, Inc. and
American International Building Systems, Inc.(1)
3.1(a) Certificate Of Incorporation filed with the Delaware Secretary Of
State on June 7, 1994.(1)
3.1(b) Certificate of Amendment To The Certificate of Incorporation
filed with the Delaware Secretary of Sate on July 26, 1996. 3.2
Bylaws.(1)
4.1(a) Specimen Common Stock Certificate.(1)
4.1(b) Specimen Common Stock Purchase Warrant.
4.2 Form of Underwriter's Warrant
4.3 Form of Warrant Agreement concerning Common Stock Purchase
Warrants.
61
<PAGE>
5.1 Opinion of Bearman Talesnick & Clowdus Professional Corporation
concerning legality of issuance of Common Stock, Warrants, and
underlying securities.
10.1 Loan Agreement effective April 24, 1996 between and among the
Company, Metal Building Components, Inc. ("MBCI"), Danny Roy
Clemons, Ralph Leroy Farrar, Judith Ann Farrar, Jimmy Wayne
Williams, Shirley Beth Williams, and John Thomas Wilson.
10.2 Renewal, Extension And Modification Agreement effective as of
September 3, 1993 between American International Construction,
Inc. and Texas Commerce Bank National Association.(1)
10.3 Renewal, Extension And Modification Agreement effective as of
September 5, 1993 between American International Construction,
Inc. and Texas Commerce Bank National Association.(1)
10.4A Renewal, Extension And Modification Agreement effective as of
March 5, 1995 between American International Construction, Inc.
and Texas Commerce Bank National Association.(4)
10.4B Renewal, Extension And Modification Agreement effective as of
March 5, 1995 between American International Construction, Inc.
and Texas Commerce Bank National Association.(4)
10.5 Employee Stock Option Plan.(1)
10.8 Revised Form of Executive Service Agreement between the Company
and each of John T. Wilson, Danny R. Clemons, Ralph L. Farrar and
Jim W. Williams.(3)
10.8A Schedule Identifying Material Differences Among Executive Service
Agreements between the Company and each of John T. Wilson, Danny
R. Clemons, Ralph L. Farrar and Jim W. Williams.(1)
10.9 Executive Service Agreement between the Company and Jimmy M.
Rogers dated November 16, 1994.(1)
16 Letter to Securities and Exchange Commission from the Company's
former independent accountant, MELTON & MELTON, L.L.P.(2)
22 List of subsidiaries of Registrant. (1)
24.1 Consent of Bearman Talesnick & Clowdus Professional Corporation
(included in Opinion in Exhibit 5.1).
24.2 Consent of HEIN + ASSOCIATES LLP.
25 Power of Attorney (included in signature page).
- ---------------------
62
<PAGE>
(1) Incorporated by reference from the Company's Registration Statement on Form
S-1 filed with the Securities And Exchange Commission ("SEC") on December 12,
1994, File No. 33-87336.
(2) Incorporated by reference from the Company's Amendment No. 1 to Registration
Statement on Form S-1 filed with the SEC on January 24, 1995, File No. 33-87336.
(3) Incorporated by reference from the Company's Amendment No. 2 to Registration
Statement on Form S-1 filed with the SEC on February 15, 1995, File No.
33-87336.
(4) Incorporated by reference from the Company's Amendment No. 3 to Registration
Statement on Form S-1 filed with the SEC on March 16, 1995, File No. 33-87336.
Item 17. Undertakings.
1. The Company hereby undertakes:
(a) to file, during any period in which offers or sales are being made, a
post-effective amendment to the Registration Statement:
(1) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(2) to reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement; and
(3) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(b) That for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof;
(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
2. The Company hereby undertakes to provide to the Underwriter at the closing
specified in the Underwriting Agreement certificates in such denominations
and registered in such names as required by the Underwriter to permit prompt
delivery to each purchaser.
3. Insofar as indemnification for liabilities arising under the 1933 Act may be
permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities And Exchange Commission, such
indemnification is against public policy as expressed in the 1933 Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or a controlling person of the
63
<PAGE>
Company in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or a controlling person in connection
with the securities being registered, the Company will, unless in the
opinion of its counsel, the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in
the 1933 Act and will be governed by the final adjudication of such issue.
4. The Company hereby undertakes that:
(a) for purposes of determining any liability under the 1933 Act, the
information omitted from the form of prospectus filed as part of the
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the 1933 Act shall be deemed to be part of the Registration Statement
as of the time it was declared effective.
(b) for the purpose of determining any liability under the 1933 Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
64
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas,
on August 5, 1996.
AMERICAN INTERNATIONAL CONSOLIDATED INC.
By: /S/ JOHN T. WILSON
-----------------------------------------
John T. Wilson, Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers and directors
of the Registrant, by virtue of their signatures to this Registration Statement
appearing below, hereby constitute and appoint John T. Wilson or Jim W.
Williams, and each or either of them, with full power of substitution, as
attorneys-in-fact in their names, place and stead to ex cute any and all
amendments to this Registration Statement in the capacities set forth opposite
their name and hereby ratify all that said attorneys-in-fact and each of them or
his substitutes may do by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/S/ JOHN T. WILSON Chief Executive Officer and August 5, 1996
- -------------------- Director
John T. Wilson
/S/ DANNY R. CLEMONS President/Mini-Warehouse August 5, 1996
- --------------------- Division and Director
Danny R. Clemons
/S/ RALPH L. FARRAR President/Metal Buildings August 5, 1996
- --------------------- Divison, Secretary and Director
Ralph L. Farrar
/S/ JIM W. WILLIAMS Chief Financial Officer, Vice August 5, 1996
- -------------------- President/Finance, Principal
Jim W. Williams Financial Officer, Principal
Accounting Officer, and
Assistant Secretary
65
AMERICAN INTERNATIONAL CONSOLIDATED, INC.
900,000 Shares of Common Stock and
450,000 Redeemable
Common Stock Purchase Warrants
UNDERWRITING AGREEMENT
----------------------
, 1996
Dalton Kent Securities Group, Inc.
330 Seventh Avenue
New York, New York 10001
Dear Sirs:
American International Consolidated, Inc., a Delaware corporation (the
"Company"), hereby confirms its agreement with Dalton Kent Securities Group,
Inc., ("you" or the "Underwriter") the representitive of the several
underwriters, which is expected to include I.A. Rabinowitz & Co., Inc. , as
follows:
1. Description of the Securities.
------------------------------
The Company proposes to issue and sell to the Underwriter 900,000 shares
(the "Shares") of common stock, $.01 par value per share ("Common Stock"), and
450,000 redeemable common stock purchase warrants ("Warrants") of the Company
(the Shares, together with such Warrants, being sometimes referred to as the
"Securities"). The Company proposes to grant to the Underwriter an option to
purchase up to 135,000 additional shares of Common Stock and up to an additional
67,500 Warrants (the "Additional Securities"). The offering of Securities and
Additional Securities contemplated hereby may sometimes be referred to as the
"Offering."
(a) The Warrants.
-------------
Pursuant to and subject to certain conditions set forth in the agreement
(the "Warrant Agreement") between the Company, the Underwriter and [ ] Stock
Transfer & Trust Company, each Warrant will be exercisable during the period
commencing on the effective date of the Registration Statement, as defined in
Paragraph 2(a) hereof (the "Effective Date"), and expiring five years
thereafter, subject to prior redemption by the Company (as described below), at
an initial exercise price (subject to adjustment as set forth in the Warrant
Agreement) equal to $5.00 per share. The shares of Common Stock issuable upon
the exercise of Warrants are hereinafter referred to as "Warrant Shares."
<PAGE>
As more fully provided in the Warrant Agreement, the Warrants will be
redeemable at a price of $.01 per Warrant, commencing 12 months after the
Effective Date and prior to their expiration upon not less than 30 days' prior
written notice to the holders of the Warrants, provided the average closing bid
quotations of the Common Stock as reported on The Nasdaq Stock Market if traded
thereon, or if not traded thereon, the average closing sale price if listed on a
national securities exchange (or other reporting system that provides last sales
prices), has been at least 150% of the then current Warrant exercise price
(initially $7.50 per share, subject to adjustment), for a period of 20
consecutive trading days ending on the third day prior to the date on which the
Company gives notice of redemption, subject to the right of the holder to
exercise his purchase rights thereunder until redemption.
(b) Underwriter's Securities.
-------------------------
The Company will sell to the Underwriters, for nominal consideration,
warrants to purchase up to one share of Common Stock and one Warrant for each
ten shares of Common Stock and ten Warrants sold in the Offering excluding the
Additional Securities (a maximum of 90,000 shares of Common Stock and 45,000
Warrants) at a price equal to $6.00 per share of Common Stock and $.012 per
Warrant (the "Underwriter's Warrants"). The Underwriter's Warrants, shares of
Common Stock and Warrants underlying the Underwriter's Warrants and shares of
Common Stock issuable upon exercise of the Warrants underlying the Underwriter's
Warrants are hereinafter referred to collectively as the "Underwriters'
Securities." The Underwriters' Warrants shall be non-exercisable and
non-transferable (other than to officers and directors of the Underwriters and
to members of the selling group and their officers or partners) for a period of
12 months following the Effective Date. Thereafter, the Underwriter's Warrants
shall be exercisable and transferable for a period of four years (provided such
transfer is in accordance with the Securities Act and any other applicable
securities laws). If the Underwriters' Warrants are not exercised during their
term, they shall, by their terms, automatically expire. The Underwriters'
Securities shall be registered for sale to the public and shall be included in
the Registration Statement filed in connection with the Offering.
2. Representations and Warranties of the Company.
----------------------------------------------
The Company represents and warrants to the Underwriter that:
(a) The Company has filed with the Securities and Exchange Commission
(the "Commission"), a registration statement, and one or more amendments
thereto, on Form S-1 (File No. 33- ), including in each such registration
statement and each such amendment any related preliminary prospectus
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("Preliminary Prospectus"), for the registration of the Securities under the
Securities Act of 1933 (the "Act"). The Company will, if required, file a
further amendment to said registration statement in the form to be delivered to
you and will not, before the registration statement becomes effective, file any
other amendment thereto to which you shall have reasonably objected in writing
after having been furnished with a copy thereof. Except as the context may
otherwise require, such registration statement, as amended, on file with the
Commission at the time such registration statement becomes effective (including
the prospectus, financial statements, exhibits and all other documents, as
amended, filed as a part thereof), is hereinafter called the "Registration
Statement," and the prospectus, in the form filed with the Commission pursuant
to Rule 424(b) of the General Rules and Regulations of the Commission under the
Act (the "Regulations") or, if no such filing is made, the definitive prospectus
used in the Offering, is hereinafter called the "Prospectus." The Company has
delivered to you copies of each Preliminary Prospectus as filed with the
Commission and has consented to the use of such copies for purposes permitted by
the Act.
(b) The Commission has not issued any orders preventing or suspending
the use of any Preliminary Prospectus, and, as of the date filed with the
Commission, each Preliminary Prospectus conformed in all material respects with
the requirements of the Act and did not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
and necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; provided, however, that this
representation and warranty does not apply to statements or omissions made in
reliance upon and in conformity with written information furnished to the
Company by or on your behalf for use in such Preliminary Prospectus and except
that this representation and warranty does not apply to statements or omissions
that have been cured in a subsequent preliminary prospectus or in the
Prospectus.
(c) When the Registration Statement becomes effective under the Act
and at all times subsequent thereto to and including the Closing Date
(hereinafter defined) and the Option Closing Date (hereinafter defined) and for
such longer periods as a Prospectus is required to be delivered in connection
with the sale of the Securities by the Underwriter, the Registration Statement
and Prospectus, and any amendment thereof or supplement thereto, will contain
all material statements which are required to be stated therein in accordance
with the Act and the Regulations, and will in all material respects conform to
the requirements of the Act and the Regulations, and neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto, will
contain any untrue statement of a material fact or omit to state any material
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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, however, that this representation and warranty does not apply to
statements or omissions made in reliance upon and in conformity with written
information furnished to the Company by you for use in the Registration
Statement or Prospectus, or in any amendment thereof or supplement thereto. It
is understood that the statements set forth in the Prospectus with respect to
(i) the amounts of the selling concession and reallowance; (ii) the identity of
counsel to the Underwriter under the heading "Legal Matters"; (iii) the
statements with respect to the public offering of the Securities set forth under
the heading "Underwriting," including the information concerning the National
Association of Securities Dealers, Inc. ("NASD") affiliation of the Underwriter;
and (iv) the stabilization legend in the Prospectus and (v) any other
information in the Prospectus concerning the Underwriter, constitutes
information supplied by you for use in the Registration Statement or Prospectus.
(d) The Company is, and at the Closing Date and the Option Closing
Date will be, a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. The Company does not have any
subsidiaries. The Company is duly qualified and in good standing as a foreign
corporation in each jurisdiction in which its ownership or leasing of any
properties or the character of its operations requires such qualification,
except those jurisdictions in which the failure to so qualify would not have a
material adverse effect on the business or operations of the Company and its
subsidiaries, taken as a whole ("Material Adverse Effect"). The Company has all
requisite corporate powers and authority, and all necessary authorizations,
approvals, orders, licenses, certificates and permits of and from all
governmental regulatory officials and bodies to own or lease its properties and
conduct its business as described in the Prospectus except where the failure to
have any such authorizations, approvals, orders, licenses, certificates or
permits would not have a Material Adverse Effect, and the Company is doing
business and has been doing business during the period described in the
Registration Statement in compliance with all such material authorizations,
approvals, orders, licenses, certificates and permits and all material federal,
state and local laws, rules and regulations concerning the business in which the
Company is engaged, except where the failure to comply with any such
authorizations, approvals, orders, licenses, certificates or permits or any such
laws, rules or regulations would not have a Material Adverse Effect. The
disclosures in the Registration Statement concerning the effects of federal,
state and local regulation on the Company's business as currently conducted and
as contemplated are correct in all material respects and do not omit to state a
material fact required to be stated therein in light of the circumstances under
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<PAGE>
which such disclosures were made. The Company has all corporate power and
authority to enter into this Agreement and carry out the provisions and
conditions hereof, and all consents, authorizations, approvals and orders
required in connection therewith have been obtained or will have been obtained
prior to the Closing Date.
(e) This Agreement has been duly and validly authorized and executed
by the Company. The Securities (including the Shares and the Warrants), the
Warrant Shares underlying such Warrants, and the Underwriter's Securities have
been duly authorized (and, in the case of the Shares and such Warrant Shares,
have been duly reserved for issuance) and, when issued and paid for in
accordance with this Agreement (and, in the case of such Warrant Shares, upon
exercise of such Warrants and payment to the Company of the exercise price
therefor pursuant to the terms of the Warrant Agreement), the Shares and such
Warrant Shares will be validly issued, fully paid and non-assessable; the
Securities, Additional Securities, Warrant Shares (other than Underwriter's
Securities), and Underwriter's Securities are not and will not be subject to the
preemptive rights of any stockholder of the Company and conform and at all times
up to and including their issuance will conform in all material respects to all
statements with regard thereto contained in the Registration Statement and
Prospectus; and all corporate action required to be taken for the authorization,
issuance and sale of the Securities, the Additional Securities, Warrant Shares
(other than Underwriter's Securities) and Underwriter's Securities has been
taken, and this Agreement constitutes a valid and binding obligation of the
Company, enforceable in accordance with its terms, to issue and sell, upon
exercise in accordance with the terms thereof, the number and kind of securities
called for thereby.
(f) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof will not result in a breach or
violation of any of the terms or provisions of, or constitute a default under,
the Certificate of Incorporation or by-laws, in each case as amended, of the
Company or of any evidence of indebtedness, lease, contract or other agreement
or instrument to which the Company is a party or by which the Company or any of
its properties is bound, or under any applicable law, rule, regulation,
judgment, order or decree of any government, professional advisory body,
administrative agency or court, domestic or foreign, having jurisdiction over
the Company or its properties, in each case except for any breach, violation or
default that would not have a Material Adverse Effect, or result in the creation
or imposition of any material lien, charge or encumbrance upon any of the
properties or assets of the Company; and no consent, approval, authorization or
order of any court or governmental or other regulatory agency or body is
required for the consummation by the Company of the transactions on its part
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herein contemplated, except such as may be required under the Act or under state
securities or blue sky laws or under the rules and regulations of the NASD, and
except where the breach, violation or failure to obtain such consent, approval,
authorization or order would not have a Material Adverse Effect.
(g) Subsequent to the date hereof, and prior to the Closing Date and
the Option Closing Date, except as otherwise described in or contemplated by the
Prospectus, the Company will not issue or acquire any equity securities.
(h) The consolidated financial statements and notes thereto included
in the Registration Statement and the Prospectus fairly present the consolidated
financial position and the results of operations of the Company at the
respective dates and for the respective periods to which they apply; and such
financial statements have been prepared in conformity with generally accepted
accounting principles, consistently applied throughout the periods involved.
(i) Except as set forth in the Registration Statement, the Company is
not, and at the Closing Date and at the Option Closing Date the Company will not
be, in violation or breach of, or default in, the due performance and observance
of any term, covenant or condition of any indenture, mortgage, deed of trust,
note, loan or credit agreement, or any other agreement or instrument evidencing
an obligation for borrowed money, or any other agreement or instrument to which
the Company 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, which violations, breaches,
default or defaults, singularly or in the aggregate, would have a Material
Adverse Effect. The Company does not have and at the Closing Date or Option
Closing Date the Company will not have taken any action in violation of the
provisions of the Certificate of Incorporation or by-laws, in each case as
amended, of the Company, or any statute or any order, rule or regulation of any
court or regulatory authority or governmental body having jurisdiction over or
application to the Company or its business or properties, except for any
violations that, singularly or in the aggregate, would not have a Material
Adverse Effect.
(j) The Company has, and at the Closing Date and at the Option Closing
Date will have, 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, claims, security interests, restrictions and defects of any
material nature whatsoever, except such as are described or referred to in the
Prospectus and liens for taxes not yet due and payable or such as in the
aggregate will not have a Material Adverse Effect. 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 as
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described in the Prospectus are, and will on the Closing Date and the Option
Closing Date be, in full force and effect, and except as described in the
Prospectus, the Company is not and will not be in default in respect of any of
the terms or provisions of any of such leases or subleases (except for defaults
which would not have a Material Adverse Effect), and no claim has been asserted
by anyone adverse to rights of the Company or the Subsidiaries 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 continue
possession of the leased or subleased premises or assets under any such lease or
sublease, except as described or referred to in the Prospectus or such as in the
aggregate would not have a Material Adverse Effect, and the Company (including
through wholly owned subsidiaries) owns or leases all such properties 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
(except where the failure to own or lease such properties would not have a
Material Adverse Effect).
(k) The authorized, issued and outstanding capital stock of the
Company as of the date referenced in the Prospectus is, and the authorized,
issued and outstanding capital stock of the Company on the Closing Date will be,
as set forth in the Prospectus under "Capitalization" (in each case based on the
assumptions set forth therein and except that issuance and sale of the
Additional Securities will not be reflected therein); the shares of issued and
outstanding capital stock of the Company set forth thereunder have been (or as
of the Closing Date will be) duly authorized and validly issued and are (or as
of the Closing Date will be) 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 Common Stock, the Warrants and all such
options and warrants conform in all material respects, to all statements
relating thereto contained in the Registration Statement and Prospectus.
(l) Except as described in the Prospectus, the Company does not own or
control any capital stock or securities of, or have any proprietary interest in,
or otherwise participates in any other corporation, partnership, joint venture,
firm, association or business organization (other than those direct or indirect
subsidiaries of the Company disclosed in Exhibit 22 to the Registration
Statement); provided, however, that this provision shall not be applicable to
the investment, if any, of the net proceeds from the sale of the Securities sold
by the Company or other funds thereof in interest-bearing savings accounts,
certificates of deposit, money market accounts, United States government
obligations or other short-term obligations.
7
<PAGE>
(m) HEIN + ASSOCIATES, LLP., who have reported on the financial
statements of the Company which have been filed with the Commission as a part of
the Registration Statement, are independent accountants with respect to the
Company as required by the Act and the Regulations.
(n) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, and except as may otherwise
be indicated or contemplated herein or therein, the Company has not (i) issued
any securities or incurred any liability or obligation, direct or contingent,
for borrowed money; or (ii) entered into any transaction other than in the
ordinary course of business; or (iii) declared or paid any dividend or made any
other distribution on or in respect of its capital stock; provided, however,
that this provision shall not be applicable to any transaction between or among
the Company and its subsidiaries.
(o) There is no litigation or governmental proceeding pending or to
the knowledge of the Company or the Subsidiaries threatened against, or
involving the properties or business of the Company which might have a Material
Adverse Effect, except as referred to in the Prospectus. Further, except as
referred to in the Prospectus, there are no pending actions, suits or
proceedings related to environmental matters or related to discrimination on the
basis of age, sex, religion or race, nor is the Company charged with or, to its
knowledge, under investigation with respect to any violation of any statutes or
regulations of any regulatory authority having jurisdiction over its business or
operations, which violations might have a Material Adverse Effect, and no labor
disturbances by the employees of the Company exist or, to the knowledge of the
Company, have been threatened.
(p) The Company has, and at the Closing Date and at the Option Closing
Date will have, filed all necessary federal, state and foreign income and
franchise tax returns or has requested extensions thereof (except in any case
where the failure so to file would not have a Material Adverse Effect), and has
paid all taxes which it believes in good faith were required to be paid by it
except for any such taxes that currently, or on the Closing Date or Option
Closing Date, as the case may be, are being contested in good faith or as
described in the Prospectus.
(q) The Company has not at any time (i) made any contribution to any
candidate for political office, or failed to disclose fully any such
contribution, in violation of law, or (ii) made any payment to any state,
federal, foreign governmental or professional regulatory agency, officer or
official or other person charged with similar public, quasi-public or
professional regulatory duties, other than payments or contributions required or
allowed by applicable law.
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<PAGE>
(r) Except as set forth in the Registration Statement, neither the
Company nor any officer, director, employee or agent of the Company has made any
payment or transfer of any funds or assets of the Company or conferred any
personal benefit by use of the Company's assets or received any funds, assets or
personal benefit in violation of any law, rule or regulation, which is required
to be stated in the Registration Statement or necessary to make the statements
therein not misleading.
(s) On the Closing Date and on the Option Closing Date, all transfer
or other taxes, if any (other than income tax), which are required to be paid,
and are due and payable, in connection with the sale and transfer of the
Securities by the Company to the Underwriter will have been fully paid or
provided for by the Company as the case may be, and all laws imposing such taxes
will have been fully complied with in all material respects.
(t) There are no contracts or other documents of the Company which are
of a character required to be described in the Registration Statement or
Prospectus or filed as exhibits to the Registration Statement which have not
been so described or filed.
(v) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (1) transactions are executed in
accordance with management's general or specified authorizations; (2)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; and (3) access to assets is permitted only
in accordance with management's general or specific authorizations.
(w) Except as set forth in the Prospectus, no holder of any securities
of the Company has the right (which has not been effectively waived or
terminated) to require registration of any securities because of the filing or
effectiveness of the Registration Statement, except as set forth in the
Prospectus.
(x) The Company has not taken and at the Closing Date will not have
taken, directly or indirectly, any action designed to cause or result in, or
which has constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the Common Stock or the Warrants
to facilitate the sale or resale of such securities.
(y) To the Company's knowledge, there are no claims for services in
the nature of a finder's origination fee with respect to the sale of the
Securities hereunder, except as set forth in the Prospectus.
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(z) No right of first refusal exists with respect to any sale of
securities by the Company.
(aa) No statement, representation, warranty or covenant made by the
Company in this Agreement or made in any certificate or document required by
this Agreement to be delivered to the Underwriter was, when made, or as of the
Closing Date or as of the Option Closing Date will be materially inaccurate,
untrue or incorrect.
3. Covenants of the Company.
-------------------------
The Company covenants and agrees with the Underwriter that:
(a) It will deliver to the Underwriter, without charge, two conformed
copies of each Registration Statement and of each amendment or supplement
thereto, including all financial statements and exhibits.
(b) The Company has delivered to the Underwriter, and each of the
Selected Dealers (as hereinafter defined) without charge, as many copies as have
been reasonably requested of each Preliminary Prospectus heretofore filed with
the Commission in accordance with and pursuant to the Commission's Rule 430
under the Act and will deliver to the Underwriter and to others whose names and
addresses are furnished by the Underwriter or a Selected Dealer, without charge,
on the Effective Date, and thereafter from time to time during such reasonable
period as you may request if, in the reasonable opinion of counsel for the
Underwriter, the Prospectus is required by law to be delivered in connection
with sales by the Underwriter or a dealer, as many copies of the Prospectus
(and, in the event of any amendment of or supplement to the Prospectus, of such
amended or supplemented Prospectus) as the Underwriter may reasonably request
for the purposes contemplated by the Act. The Company will take all necessary
actions to furnish to whomever directed by the Underwriter, when and as
requested by the Underwriter, all necessary documents, exhibits, information,
applications, instruments and papers as may be reasonably required in order to
permit or facilitate the sale of the Securities.
(c) The Company has authorized the Underwriter to use, and make
available for use by prospective dealers, the Preliminary Prospectus, and
authorizes the Underwriter, all dealers selected by you in connection with the
distribution of the Securities (the "Selected Dealers") to be purchased by the
Underwriter and all dealers to whom any of such Securities may be sold by the
Underwriter or by any Selected Dealer, to use the Prospectus, during the period
that the Prospectus is current, as from time to time amended or supplemented, in
connection with the sale of the Securities in accordance with the applicable
provisions
10
<PAGE>
provisions of the Act, the applicable Regulations and applicable state law,
until completion of the distribution of the Securities and for such longer
period as you may reasonably request if the Prospectus is required under the
Act, the applicable Regulations or applicable state law to be delivered in
connection with sales of the Securities by the Underwriter or the Selected
Dealers.
(d) The Company will use its best efforts to cause the Registration
Statement to become effective and will notify the Underwriter immediately, and
confirm the notice in writing: (i) when the Registration Statement or any
post-effective amendment thereto becomes effective; (ii) of the receipt of any
comments from the Commission regarding the Registration Statement or of the
receipt of any stop order or of the initiation, or to the best of the Company's
knowledge, the threatening, of any proceedings for that purpose; (iii) the
suspension of the qualification of the Securities and the Underwriter's
Warrants, or underlying securities, for offering or sale in any jurisdiction or
of the initiating, or to the best of the Company's knowledge the threatening, of
any proceeding for that purpose; and (iv) of the receipt of any comments from
the Commission. If the Commission shall enter a stop order at any time, the
Company will make every reasonable effort to obtain the lifting of such order as
promptly as practicable.
(e) During the time when a prospectus relating to the Securities is
required to be delivered under the Act, the Company will use its best efforts to
comply with all requirements imposed upon it by the Act and the Securities
Exchange Act of 1934 (the "Exchange Act"), as now and hereafter amended and by
the Regulations, as from time to time in force, as necessary to permit the
continuance of sales of or dealings in the Securities in accordance with the
provisions hereof and the Prospectus and the Company shall use its best efforts
to keep the Registration Statement effective so long as a Prospectus is required
to be delivered in connection with the sale of the Securities or Additional
Securities by the Underwriter or by dealers effecting transactions therein in
connection with the initial public offering thereof. If at any time when a
prospectus relating to the Securities is required to be delivered under the Act,
any event shall have occurred as a result of which, in the reasonable opinion of
counsel for the Company or counsel for the Underwriter, the Prospectus as then
amended or supplemented (or the prospectus contained in a new registration
statement filed by the Company pursuant to Paragraph 3(q)), includes an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if, in the
reasonable opinion of either such counsel, it is necessary at any time to amend
the Prospectus (or the prospectus contained in such new registration statement)
11
<PAGE>
to comply with the Act, the Company will notify you promptly and prepare and
file with the Commission an appropriate amendment or supplement in accordance
with Section 10 of the Act and will furnish to you copies thereof.
(f) The Company will endeavor in good faith, in cooperation with you,
at or prior to the time the Registration Statement becomes effective, to qualify
the Securities for offering and sale under the securities laws or blue sky laws
of such jurisdictions as you may reasonably designate; provided, however, that
in connection therewith the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process in any
jurisdiction or to make any changes in its capital structure or certificate of
incorporation or in any other material aspects of its business or to enter into
any material agreement with any Blue Sky commissioner. In each jurisdiction
where such qualification shall be effected, the Company will, unless you agree
that such action is not at the time necessary or advisable, use it best efforts
to file and make such statements or reports at such times as are or may
reasonably be required by the laws of such jurisdiction to continue such
qualification until none of the Warrants held by persons in that jurisdiction
are outstanding.
(g) The Company will make generally available (within the meaning of
Section 11(a) of the Act and the Regulations) to its security holders, as soon
as practicable, but in no event later than the first day of the eighteenth full
calendar month following the Effective Date, an earnings statement of the
Company, which will be in reasonable detail but which need not be audited,
covering a period of at least twelve months beginning after the Effective Date,
which earnings statements shall satisfy the requirements of Section 11(a) of the
Act and the Regulations as then in effect. The Company may discharge this
obligation in accordance with Rule 158 of the Regulations.
(h) During the period of five years commencing on the Effective Date
(unless the Company shall no longer have a class of equity securities registered
under Section 12(b) or 12(g) of the Exchange Act), the Company will furnish to
its stockholders an annual report (including financial statements audited by its
independent public accountants), in accordance with Rule 14a-3 under the
Exchange Act, and, at its expense, furnish to the Underwriter (i) within 90 days
after the end of each fiscal year of the Company, a consolidated balance sheet
of the Company and its consolidated subsidiaries and a separate balance sheet of
each subsidiary of the Company the accounts of which are not included in such
consolidated balance sheet as of the end of such fiscal year, and consolidated
statements of operations, stockholder's equity and cash flows of the Company and
its consolidated subsidiaries and separate statements of operations,
stockholder's equity and cash flows of each of the subsidiaries of the Company
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<PAGE>
the accounts of which are not included in such consolidated statements, for the
fiscal year then ended all in reasonable detail and all certified by independent
accountants (within the meaning of the Act and the Regulations), (ii) within 50
days after the end of each of the first three fiscal quarters of each fiscal
year, similar balance sheets as of the end of such fiscal quarter and similar
statements of operations, stockholder's equity and cash flows for the fiscal
quarter then ended, all in reasonable detail, and subject to year end
adjustment, all certified by the Company's principal financial officer or the
Company's principal accounting officer as having been prepared in accordance
with generally accepted accounting principles applied on a consistent basis,
(iii) as soon as available, each report furnished to or filed with the
Commission or any securities exchange and each report and financial statement
furnished to the Company's stockholders generally, and (iv) as soon as
available, such other material as the Underwriter may from time to time
reasonably request regarding the financial condition and operations of the
Company; provided, however, that the Underwriter shall use such other material
only in connection with its activities as Underwriter hereunder and shall
otherwise keep such other material confidential.
(i) For a period of eighteen months from the Closing Date, the
Company, 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 quarters prior to the announcement of quarterly
financial information, the filing of the Company's 10-Q quarterly report and the
mailing,if any, of quarterly financial information to stockholders.
(j) Prior to the Closing Date or the Option Closing Date (if any), the
Company will not, directly or indirectly, without your prior written consent,
which shall not be unreasonably withheld or delayed, issue any press release or
other public announcement or hold any press conference with respect to the
Company or its activities with respect to the Offering (other than trade
releases issued in the ordinary course of the Company's business consistent with
past practices with respect to the Company's operations and other than as
required by law.
(k) The Company will deliver to you prior to filing, any amendment or
supplement to the Registration Statement or Prospectus proposed to be filed
after the Effective Date and will not file any such amendment or supplement to
which you shall reasonably object after being furnished such copy.
(l) During the period of 120 days commencing on the date hereof, the
Company will not at any time take, directly or indirectly, any action designed
to, or which will constitute or which might reasonably be expected to cause or
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result in stabilization or manipulation of the price of the Securities to
facilitate the sale or resale of any of the Securities.
(m) The Company will apply the net proceeds from the Offering received
by it substantially in the manner set forth under "Use of Proceeds" in the
Prospectus.
(n) Counsel for the Company, the Company's accountants, and the
officers and directors of the Company will, respectively, furnish the opinions,
the letters and the certificates referred to in subsections of Paragraph 9
hereof, and, if the Company shall file any amendment to the Registration
Statement relating to the offering of the Securities or any amendment or
supplement to the Prospectus relating to the offering of the Securities
subsequent to the Effective Date, such counsel, such accountants, and such
officers and directors, respectively, will, at the time of such filing or at
such subsequent time as you shall specify, so long as Securities being
registered by such amendment or supplement are being underwritten by the
Underwriter, furnish to you such opinions, letters and certificates, each dated
the date of its delivery, of the same nature as the opinions, the letters and
the certificates referred to in said Paragraph 9, as you may reasonably request,
or, if any such opinion or letter or certificate cannot be furnished by reason
of the fact that such counsel or such accountants or any such officer or
director believes that the same would be inaccurate, such counsel or such
accountants or such officer or director will furnish an accurate opinion or
letter or certificate with respect to the same subject matter.
(o) The Company will comply in all material respects with all of the
provisions of any undertakings contained in the Registration Statement.
(p) The Company will reserve and keep available for issuance that
maximum number of its authorized but unissued shares of Common Stock which are
issuable upon exercise of the Warrants and issuable upon exercise of the
Underwriter's Warrants (including the underlying securities) outstanding from
time to time.
(q) The Company will timely prepare and file at its sole cost and
expense one or more post-effective amendments to the Registration Statement or a
new registration statement as required by law as will permit Warrant holders to
be furnished with a current prospectus in the event and at such time as the
Warrants are exercised, and the Company will use its best efforts and due
diligence to have the same be declared effective (with the intent that the same
be declared effective as soon as the Warrants become exercisable) and to keep
the same effective so long as the Warrants are outstanding. The Company will
deliver a draft of each such post-effective amendment or new registration
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<PAGE>
statement to the Underwriter at least ten days prior to the filing of such
post-effective amendment or registration statement.
(r) So long as any of the Warrants remain outstanding, the Company
will timely deliver and supply to its Warrant agent sufficient copies of the
Company's current Prospectus, as will enable such Warrant agent to deliver a
copy of such Prospectus to any Warrant or other holder where such Prospectus
delivery is by law required to be made.
(s) So long as any of the Warrants remain outstanding, the Company
shall continue to employ the services of a firm of independent certified public
accountants reasonably acceptable to the Underwriter in connection with the
preparation of the financial statements to be included in any registration
statement to be filed by the Company hereunder, or any amendment or supplement
thereto. During the same period, the Company shall employ the services of a law
firm(s) reasonably acceptable to the Underwriter in connection with all legal
work of the Company, including the preparation of a registration statement to be
filed by the Company hereunder, or any amendment or supplement thereto.
(t) So long as any of the Warrants remain outstanding, the Company
shall continue to appoint a Warrant agent for the Warrants, who shall be
reasonably acceptable to the Underwriter.
(u) The Company agrees that it will, upon the Effective Date, for a
period of no less than three years, engage a designee of the Underwriter as an
advisor (the "Advisor") to its Board of Directors where such Advisor shall
attend meetings of the Board, receive all notices and other correspondence and
communications sent by the Company to members of its Board of Directors and
receive cash compensation equal to the entitlement of other non-officer
Directors. In addition, such Advisor shall be entitled to receive reimbursement
for all reasonable costs incurred in attending such meetings including, but not
limited to (if reasonably required in connection with any meeting held outside
the New York City metropolitan area), food, lodging and transportation. The
Company further agrees that, during said three year period, it shall schedule no
less than four (4) formal and "in person" meetings of its Board of Directors in
each such year and such meetings shall be held quarterly each year and advance
notice of such meetings identical to the notice given to directors shall be
given to the Advisor. Further, during such three year period, the Company shall
give notice to the Underwriter with respect to any proposed acquisitions,
mergers, reorganizations or other similar transactions. In lieu of the
Underwriter's right to designate an Advisor, the Underwriter shall have the
right during such three-year period, in its sole discretion, to designate one
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person for election as a Director of the Company and the Company will utilize
its best efforts to obtain the election of such person who shall be entitled to
receive the same compensation, expense reimbursements and other benefits set
forth above.
The Company agrees to indemnify and hold the Underwriter and such
Advisor or Director harmless against any and all claims, actions, damages, costs
and expenses, and judgments arising solely out of the attendance and
participation of your designee at any such meeting described herein. In the
event the Company maintains a liability insurance policy affording coverage for
the acts of its officers and directors, it agrees, if possible, to include the
Underwriter's designee as an insured under such policy.
(v) Upon the Closing Date, the Company shall have entered into an
agreement with the Underwriter in form reasonably satisfactory to the
Underwriter (the "Consulting Agreement"), pursuant to which the Underwriter will
be retained as a management and financial consultant for a three-year period
commencing as of the Closing Date, and will be paid a fee of $3,000 a month for
a term of three years, all of which ($108,000) shall be paid upon the Closing
Date.
(w) The Common Stock and Warrants shall be quoted on the Nasdaq
SmallCap Market ("Nasdaq") and the Boston Stock Exchange ("BSE"), not later than
the Closing Date. Thereafter, (unless the Company is acquired) the Company will
effect and use its best efforts to maintain such listing or cause such
securities to be listed on a national securities exchange or in a comparable
inter-dealer quotation system for at least five years from the date of this
Agreement (or until such earlier date on which no Warrants remain outstanding).
(x) The Company will apply for listing in Standard and Poors
Corporation Reports or Moodys OTC Guide and shall use its best efforts to have
the Company included in one of such publications for at least five years from
the Closing Date (unless the Common Stock is listed on the New York Stock
Exchange or the American Stock Exchange or unless the Company shall no longer
have a class of equity securities registered under Section 12(b) or 12(g) of the
Exchange Act).
(y) The Company has obtained from each person who is currently an
officer or director of the Company or a beneficial owner of more than five
percent of the Company's Common Stock, a written agreement, in form and
substance reasonably satisfactory to you and your counsel, to the effect that
such person shall not offer, sell or contract to sell, or otherwise dispose of,
directly or indirectly, without your prior written consent (or pursuant to such
other agreement with respect to the sale of capital stock as may be required by
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state "Blue Sky" laws in order to qualify the Offering in any such State), any
shares of the Common Stock owned by such person or any securities convertible
into, or exchangeable for, or warrants to purchase or acquire, shares of Common
Stock, for a period of twenty four months from the Effective Date, except as
otherwise set forth in the Prospectus. For a period of two years from the
Effective Date, the Company shall not issue any shares of Common Stock or
preferred stock or any warrants, options or other rights to purchase Common
Stock or preferred stock without the consent of the Underwriter, except for (i)
the Securities and the Additional Securities, (ii) the Underwriter's Securities,
(iii) Warrant Shares, (iv) securities issuable upon the exercise of other
options or warrants outstanding as of the Closing Date, (v) options to purchase
shares of Common Stock pursuant to the Company's stock option plan and shares of
Common Stock issuable upon the exercise of such options.
(z) The Company will use its best efforts to obtain, as soon after the
Closing Date as is reasonably possible, liability insurance covering its
officers and directors.
(aa) The Company agrees that it will employ the services of a
financial public relations firm reasonably acceptable to the Underwriter for a
period of at least twelve months following the Effective Date.
4. Sale, Purchase and Delivery of Securities; Closing Date; Public
Offering.
----------------------------------------------------------------------
(a) On the basis of the warranties, representations and agreements
herein contained, and subject to the satisfaction of all the terms and
conditions of this Agreement, the Company agrees to issue and sell to the
Underwriter, and the Underwriter agrees to purchase from the Company, the
Securities at a price of $[ ] per share of Common Stock and $.10 per Warrant,
less, in the case of each such Security, an underwriting discount of ten percent
(10%) of the price for such Security. The Underwriter may allow a concession not
exceeding $. per share of Common Stock and $. per Warrant to Selected Dealers
who are members of the NASD, and to certain foreign dealers, and such dealers
may reallow to NASD members and to certain foreign dealers a concession not
exceeding $. per share of Common Stock and $ per Warrant.
(b) Delivery of the Securities and payment therefor shall be made at
10:00 A.M., New York time on the Closing Date, as hereinafter defined, at the
offices of the Underwriter or such other location as may be agreed upon by you
and the Company. Delivery of certificates for the Common Stock and Warrants (in
definitive form and registered in such names and in such denominations as you
shall request by written notice to the Company delivered at least four business
days' prior to the Closing Date), shall be made to you for the account of the
17
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the Underwriter against payment of the purchase price therefor by certified or
bank check or wire transfer payable in New York Clearing House funds to the
order of the Company. The Company will make such certificates available for
inspection at least one business day prior to the Closing Date at such place as
you shall designate.
(c) The "Closing Date" shall be , 1996, or such other date not later
than the fourth business day following the effective date of the Registration
Statement as you shall determine and advise the Company by at least three full
business days' notice.
(d) The cost of original issue tax stamps, if any, in connection with
the issuance and delivery of the Securities by the Company to the Underwriter
shall be borne by the Company. The Company will pay and hold the Underwriter,
and any subsequent holder of the Securities, harmless from any and all
liabilities with respect to or resulting from any failure or delay in paying
federal and state stamp taxes, if any, which are payable in connection with the
original issuance or sale to the Underwriter of the Securities or any portions
thereof.
(e) As soon, on or after the Effective Date, as the Underwriter deems
advisable, the Underwriter shall make a public offering of the Securities (other
than to residents of or in any jurisdiction in which qualification of the
Securities is required and has not become effective) at the initial public
offering prices and upon the other terms set forth in the Prospectus. The
Underwriter may from time to time increase or decrease the public offering
prices of the Securities after the distribution thereof has been completed to
such extent as the Underwriter, in its sole discretion, deems advisable.
5. Sale, Purchase and Delivery of Additional Securities; Option Closing
Date.
------------------------------------------------------------------------
(a) Upon the basis of the representations, warranties and agreements
herein contained, and subject to the satisfaction of all the terms and
conditions of this Agreement, the Company agrees to sell to the Underwriter, and
the Underwriter shall have the option (the "Option") to purchase from the
Company, the Additional Securities at the same price per Security as set forth
in Paragraph 4(a) above. Additional Securities may be purchased solely for the
purpose of covering over-allotments made in connection with the distribution and
sale of the Securities as contemplated by the Prospectus.
(b) The Option to purchase all or part of the Additional Securities
covered thereby is exercisable by you at any time and from time to time before
the expiration of a period of 45 calendar days from the date of the Effective
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<PAGE>
Date (the "Option Period") by written notice to the Company setting forth the
number of Additional Securities for which the Option is being exercised, the
name or names in which the certificates for such Additional Securities are to be
registered and the denominations of such certificates. Upon each exercise of the
Option, the Company shall sell to the Underwriter the aggregate number of
Additional Securities specified in the notice exercising such Option.
(c) Delivery of the Additional Securities with respect to which
Options shall have been exercised and payment therefor shall be made at 10:00
A.M., New York time on the Option Closing Date, as hereinafter defined, at the
offices of the Underwriter or at such other locations as may be agreed upon by
you and the Company. Delivery of certificates for Additional Securities shall be
made to you for the account of the Underwriter against payment of the purchase
price therefor by certified or bank check or wire transfer in New York Clearing
House Funds to the order of the Company. The Company will make certificates for
Additional Securities to be purchased at the Option Closing Date available for
inspection at least one business day prior to such Option Closing Date at such
place as you shall designate.
(d) The "Option Closing Date" shall be the date not later than three
business days after the end of the Option Period as you shall determine and
advise the Company by at least three full business days' notice, unless some
other time is agreed upon between you and the Company.
(e) The obligations of the Underwriter to purchase and pay for
Additional Securities at such Option Closing Date shall be subject to compliance
as of such date with all the conditions specified in Paragraph 9 herein and the
delivery to you of opinions, certificates and letters, each dated such Option
Closing Date, substantially similar in scope to those specified in Paragraph 9
herein.
(f) The cost of original issue tax stamps, if any, in connection with
the issuance and delivery of the Additional Securities by the Company to the
Underwriter shall be borne by the Company. The Company will pay and hold the
Underwriter, and any subsequent holder of Additional Securities, harmless from
any and all liabilities with respect to or resulting from any failure or delay
in paying federal and state stamp taxes, if any, which are payable in connection
with the original issuance or sale to the Underwriter of the Additional
Securities or any portion thereof.
6. Warrant Solicitation Fee.
-------------------------
The Company agrees to pay the Underwriter a fee of five percent (5%) of the
aggregate exercise price of the Warrants if:
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(i) the market price of the Common Stock is greater than the exercise price of
the Warrants on the date of exercise; (ii) the exercise of the Warrants is
solicited by a member of the NASD; (iii) the Warrants are not held in a
discretionary account; (iv) the disclosure of compensation arrangements was made
both at the time of the Offering and at the time of the exercise of the Warrant;
and (v) the solicitation of the Warrant is not in violation of Rule 10b-6
promulgated under the Exchange Act. The Company agrees not to solicit the
exercise of any Warrants other than through the Underwriter and will not
authorize any other dealer to engage in such solicitation without the prior
written consent of the Underwriter which will not be unreasonably withheld. The
Warrant solicitation fee will not be paid in a non-solicited transaction. Any
request for exercise will be presumed to be unsolicited unless the customer
states in writing that the transaction was solicited and designates in writing
the broker/dealer to receive compensation for the exercise. No Warrant
solicitation by the Underwriter will occur for a period of 12 months from the
Effective Date.
7. Representations and Warranties of the Underwriter.
--------------------------------------------------
The Underwriter represents and warrants to the Company that:
(a) The Underwriter is a member in good standing of the NASD, and has
complied with all NASD requirements concerning net capital and compensation to
be received in connection with the Offering.
(b) To the Underwriter's knowledge, there are no claims for services
in the nature of a finder's or origination fee with respect to the sale of the
Securities hereunder, which the Company is, or may become, obligated to pay.
8. Payment of Expenses.
--------------------
(a) The Company will pay and bear all costs, fees and expenses
incident to and in connection with: (i) the issuance, sale and delivery of the
Securities, including all expenses and fees incident to the preparation,
printing and filing (including the mailing and distribution of preliminary and
final prospectuses) of the Registration Statement (including all exhibits
thereto), each Preliminary Prospectus, the Prospectus, and amendments and
post-effective amendments thereof and supplements thereto, and this Agreement
and related documents, Preliminary and Final Blue Sky Memoranda, including the
cost of preparing and copying all copies thereof in quantities deemed reasonably
necessary by the Underwriter; (ii) advertising costs and expenses, including,
but not limited to, the costs and expenses in connection with the "road show,"
memorabilia and "tombstones" in publications selected by the Underwriter; (iii)
the printing, engraving, issuance and delivery of the Shares, Warrants, Warrant
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Shares, Additional Securities, Underwriter's Warrants and the securities
underlying the Underwriter's Warrant, including any transfer or other taxes
payable thereon in connection with the original issuance thereof (excluding such
transfer or other taxes as may be payable in connection with the issuance of the
securities underlying the Underwriter's Warrants other than to the registered
holder of the Underwriter's Warrants or in connection with the issuance of
Common Stock upon the exercise of Warrants other than to the registered holder
of such Warrants); (iv) the qualification of the Common Stock and Warrants under
the state or foreign securities or "Blue Sky" laws selected by the Underwriter
and the Company, and disbursements and reasonable fees of $40,000 to counsel for
the Underwriter in connection therewith plus the filing fees for such states;
(v) fees and disbursements of counsel and accountants for the Company; (vi) all
reasonable traveling and lodging expenses incurred by us and/or our counsel in
connection with visits to, and examination of, the Company's premises;(vii)
other expenses and disbursements incurred on behalf of the Company (viii) the
filing fees payable to the Commission and the NASD; (ix) any listing of the
Common Stock and Warrants on a securities exchange or on NASDAQ.
(b) In addition to the expenses to be paid and borne by the Company
referred to in Paragraph 8(a) above, the Company shall reimburse you at closing
for expenses incurred by you in connection with the Offering (for which you need
not make any accounting), in the amount of 3% of the price to the public of the
Securities and Additional Securities sold in the Offering. This 3%
non-accountable expense allowance shall cover the fees of your legal counsel,
but shall not include any expenses for which the Company is responsible under
Paragraph 8(a) above, including the reasonable fees and disbursements of your
legal counsel with respect to Blue Sky matters.
9. Conditions of Underwriter's Obligations.
----------------------------------------
The obligations of the Underwriter to consummate the transactions
contemplated by this Agreement shall be subject to the continuing accuracy in
all material respects of the representations and warranties of the Company
contained herein (except those representations and warranties that speak as of a
specific date) and the accuracy in all material respects of the statements of
the Company and its officers and directors made pursuant to the provisions
hereof, as of the date hereof and as of the Closing Date, and to the performance
by the Company in all material respects of its covenants and agreements
hereunder and to the following additional conditions:
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(a) The Registration Statement shall have become effective not later
than 5:00 p.m., New York time, on the date following the date of this Agreement,
or such later date and time as shall be consented to in writing by you and, on
or prior to the Closing Date, no stop order suspending the effectiveness of the
Registration Statement and no proceedings for that purpose shall have been
instituted or to your knowledge or the knowledge of the Company, shall be
pending or contemplated by the Commission and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of counsel to the Underwriter and after the date hereof
no amendment or supplement shall have been filed to the Registration Statement
or Prospectus without your prior consent, which shall not have been unreasonably
withheld or delayed.
(b) The Underwriter shall not have advised the Company that the
Registration Statement or the Prospectus or any amendment thereof or supplement
thereto contains an untrue statement of a fact which, in the Underwriter's
reasonable opinion, is material, or omits to state a fact which, in the
Underwriter's reasonable opinion, is material and is required to be stated
therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) Between the time of the execution and delivery of this Agreement
and the Closing Date, there shall be no litigation instituted against the
Company or any of its officers or directors and between such dates there shall
be no proceeding instituted or, to the Company's knowledge, threatened against
the Company or any of its officers or directors before or by any federal, state
or county commission, regulatory body, administrative agency or other
governmental body, domestic or foreign, in which litigation or proceeding an
unfavorable ruling, decision or finding would have a Material Adverse Effect.
(d) The representations and warranties of the Company contained herein
and in each certificate and document contemplated under this Agreement to be
delivered to you shall be true and correct in all material respects at the
Closing Date as if made at the Closing Date, and all covenants and agreements
contained herein to be performed on the part of the Company, and all conditions
contained herein to be fulfilled or complied with by the Company at or prior to
the Closing Date shall be fulfilled or complied with in all material respects.
(e) At the Closing Date, you shall have received the opinion of
Bearman Talesnick & Clowdus, P.C., counsel to the Company, dated as of such
Closing Date, addressed to the Underwriter and in form and substance
satisfactory to counsel to the Underwriter, to the effect that:
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<PAGE>
(i) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, with all requisite
corporate power and authority to own its properties and to conduct its business
as described in the Registration Statement. The Company is duly qualified to do
business as a foreign corporation and is in good standing in all jurisdictions
where its ownership, leasing, licensing or use of property and assets or the
conduct of its business makes such qualification necessary, except where failure
to be so qualified or in good standing will not have a Material Adverse Effect;
(ii) The Company has all requisite corporate power and authority
to execute, deliver and perform the Underwriting Agreement, the Consulting
Agreement (to be entered into as of the Closing Date), the Warrant Agreement and
the Underwriter's Warrants and to consummate the transactions contemplated
thereby. The execution, delivery and performance of the Underwriting Agreement,
the Consulting Agreement, the Warrant Agreement and the Underwriter's Warrants
by the Company, the consummation by the Company of the transactions therein
contemplated and the compliance by the Company with the terms of the
Underwriting Agreement, the Consulting Agreement, the Warrant Agreement and the
Underwriter's Warrants have been duly authorized by all necessary corporate
action, the Underwriting Agreement has been duly executed and delivered by the
Company, and each of the Consulting Agreement, the Warrant Agreement and the
Underwriter's Warrants will have been duly executed and delivered by the Company
as of the Closing Date. The Underwriting Agreement is, and, as of the Closing
Date each of the Consulting Agreement, the Warrant Agreement and the
Underwriter's Warrants will be, a valid and binding obligation of the Company,
enforceable in accordance with its terms, except insofar as enforceability of
indemnification and contribution provisions may be limited by applicable law or
policy or equitable principles, and except as enforceability may be limited by
bankruptcy, reorganization, moratorium, insolvency or other laws affecting the
enforceability of creditors' rights generally and rules of law governing
specific performance, injunctive relief and other equitable remedies.
(iii) The execution, delivery and performance of the Underwriting
Agreement, the Consulting Agreement, the Warrant Agreement and the Underwriter's
Warrants by the Company, and the consummation by the Company of the transactions
therein or herein contemplated will not, with or without the giving of notice or
the lapse of time, or both, (A) result in a violation of the Certificate of
Incorporation or by-laws of the Company, in each case as the same may be
amended, (B) to the best of such counsel's knowledge, result in a breach of, or
conflict with, any terms or provisions of or constitute a default under, or
result in the modification or termination of, or result in the creation or
23
<PAGE>
imposition of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company pursuant to, any indenture, mortgage, note,
contract, commitment or other material agreement or instrument known to such
counsel to which the Company is a party or by which the Company or any of its
properties or assets are bound or affected, except where any of the foregoing
would not have a Material Adverse Effect; (C) to the best of such counsel's
knowledge, violate any existing applicable law, rule or regulation or judgment,
order or decree known to such counsel of any governmental agency or court,
domestic or foreign, having jurisdiction over the Company or any of its
properties or business, which judgment, order or decree is binding on the
Company or to which any of its business or operations is subject, except where
any such violation would not have a Material Adverse Effect; or (D) to the best
of such counsel's knowledge, have any material adverse effect on any permit,
certification, registration, approval, consent, license or franchise necessary
for the Company to own or lease and operate its properties and to conduct its
business or the ability of the Company to make use thereof, in each case in the
State of New York;
(iv) To the best of such counsel's knowledge, no authorization,
approval, consent, order, registration, license or permit of any court or
governmental agency or body (other than under the Act, the Regulations and
applicable state securities or Blue Sky laws) is required for the authorization,
issuance, sale and delivery of the Securities, the Additional Securities, the
Warrant Shares or the Underwriter's Warrants, and the consummation by the
Company of the transactions contemplated by the Underwriting Agreement, the
Consulting Agreement, the Warrant Agreement or the Underwriter's Warrants;
(v) Such counsel has been advised by the staff of the Commission
that the Registration Statement was declared effective under the Act by the
Commission on , 1996; to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has been issued by
the Commission, and no proceedings for that purpose have been instituted or are
pending or threatened under the Act;
(vi) The Registration Statement and the Prospectus, as of the
Effective Date (except for the financial statements and other financial data
included therein or omitted therefrom, as to which such counsel need express no
opinion), comply as to form in all material respects with the requirements of
the Act and Regulations and, to the best of such counsel's knowledge, the
conditions for use of a registration statement on Form S-1 have been satisfied
by the Company;
(vii) The description in the Registration Statement and the
Prospectus, other than in the section entitled "Underwriting" as to which no
opinion
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<PAGE>
need be provided, of statutes, regulations, contracts and other documents have
been reviewed by us, and, based upon such review, are accurate summaries of such
statutes, regulations, contracts and other documents in all material respects
and, to the best of such counsel's knowledge, there are no material contracts or
documents of a character required to be described in the Registration Statement
or the Prospectus or to be filed as exhibits to the Registration Statement,
which are not so described or filed as required.
(viii) Each share of Common Stock outstanding as of the date of
the Prospectus or immediately prior to the Closing Date has been duly authorized
and validly issued and is fully paid and nonassessable. To the best of such
counsel's knowledge, none of the Common Stock outstanding as of either such date
or time has been issued in violation of the preemptive rights of any stockholder
of the Company. The authorized Common Stock conforms in all material respects to
the description thereof contained in the Registration Statement and Prospectus.
To the best of such counsel's knowledge, except as set forth in the Prospectus,
no holders of any of the Company's securities has any rights, "demand,"
"piggyback" or otherwise (which has not been waived or terminated), to have such
securities registered under the Act, except as set forth in the Prospectus;
(ix) The issuance and sale of the Securities, the Additional
Securities, the Warrants, the Warrant Shares and the Underwriter's Warrants have
been duly authorized and, when issued, paid for and delivered in accordance with
the terms hereof and thereof, the Common Stock comprising the Securities and,
Additional Securities and the Warrant Shares will be validly issued, fully paid
and nonassessable. Neither the Securities nor the Additional Securities are
subject to statutory preemptive rights of any stockholder of the Company. The
certificates representing the Securities are in proper legal form;
(x) The Warrants and the Underwriter's Warrants constitute, and
the Warrants underlying the Underwriter's Warrants, when issued and delivered
upon exercise of the Underwriter's Warrants, will constitute valid and binding
obligations of the Company, enforceable in accordance with their respective
terms, to issue and sell, upon exercise thereof and payment pursuant to the
terms thereof, the numbers and types of securities of the Company called for
thereby. All corporate action required to be taken for the authorization,
issuance and sale of the Securities has been duly and validly taken. The
Warrants and the Underwriter's Warrants conform in all material respects to the
descriptions thereof contained in the Registration Statement and Prospectus;
25
<PAGE>
(xi) Good title to the Securities, free and clear of all liens,
encumbrances, equities, security interests and claims (except those that may
arise from actions or inactions of the Underwriter), has been transferred to the
Underwriter, provided that the Underwriter purchased the Securities in good
faith and without notice of any such lien, encumbrance, equity, security or
claim or any other adverse claim within the meaning of the New York Uniform
Commercial Code ("NYUCC") to the extent that the NYUCC is identical to the
Colorado Uniform Commercial Code ("COUCC").
(xii) Assuming that the Underwriter exercises the Option to
purchase the Additional Securities and makes payments therefor in accordance
with the terms of the Underwriting Agreement, upon issuance of the Additional
Securities to the Underwriter pursuant hereto, good title to the Additional
Securities, free and clear of any liens, encumbrances, equities, security
interests and claims (except those that may arise from actions or inactions of
the Underwriter), will have been transferred to the Underwriter, provided that
the Underwriter purchased the Additional Securities in good faith and without
notice of any such lien, encumbrance, equity, security or claim or any other
adverse claim within the meaning of the New York Uniform Commercial Code to the
extent that the NYUCC is identical to the COUCC;
(xiii) To the best of such counsel's knowledge, other than as set
forth or contemplated in the Prospectus, there are no claims, actions, suits,
proceedings, arbitrations, investigations or inquiries before any governmental
agency, court or tribunal, or before any private arbitration tribunal, pending
or threatened against the Company or to which its properties or business is
subject, which, individually or in the aggregate, would have a Material Adverse
Effect.
In addition, such counsel shall state that during the course of
the preparation of the Registration Statement and the Prospectus, such counsel
participated in conferences with officers of the Company, and, while such
counsel are not passing upon, has not verified or independently investigated,
and does not assume any responsibility for the accuracy, completeness or
fairness of the statements or documents contained in the Registration Statement
or the Prospectus, during the course of such preparation and the foregoing
conferences, no facts came to such counsel's attention which caused such counsel
to believe that (A) the Registration Statement (except as to the financial
statements and other financial data contained therein, as to which such counsel
need express no opinion), as of the Effective Date, contained any untrue
statement of 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 (B) the Prospectus (except as to the financial
26
<PAGE>
statements and other financial data contained therein, as to which such counsel
need express no opinion), as of its date, contained any untrue statement or a
material fact or omitted to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading.
In rendering such opinions, such counsel may limit their opinions
to matters governed by the federal laws of the United States, the laws of the
State of New York (to the extent that New York law is similar to Colorado law)
and the general corporation laws of the State of Delaware, and may rely as to
matters of fact, to the extent they deem proper, on certificates and written
statements of officers of the Company and certificates or other written
statements of officers of departments of various jurisdictions having custody of
documents respecting the corporate existence or good standing of the Company,
provided that copies of any such statements or certificates shall be delivered
to counsel to the Underwriter.
(f) On or prior to the Closing Date, counsel for the Underwriter shall
have been furnished such documents, certificates and opinions as they may
reasonably require for the purpose of enabling them to review the matters
referred to in subparagraph (e) of this Paragraph 9, or in order to evidence the
accuracy, completeness or satisfaction of any of the representations, warranties
or conditions herein contained.
(g) Prior to the Closing Date:
(i) There shall have been no material adverse change in the
condition or prospects or the business activities, financial or otherwise, of
the Company from the latest dates as of which such condition is set forth in the
Registration Statement and Prospectus;
(ii) There shall have been no transaction, outside the ordinary
course of business, entered into by the Company from the latest date as of which
the financial condition of the Company is set forth in the Registration
Statement and Prospectus which is material to the Company, which is (x) required
to be disclosed in the Prospectus or Registration Statement and is not so
disclosed, and (y) likely to have a Material Adverse Effect;
(iii) The Company shall not be in default under any material
provision of any instrument relating to any outstanding indebtedness, except as
described in the Prospectus and except such as will not have a Material Adverse
Effect;
27
<PAGE>
(iv) No material amount of the assets of the Company shall have
been pledged, mortgaged or otherwise encumbered, except as set forth in the
Registration Statement and Prospectus;
(v) No action, suit or proceeding, at law or in equity, shall
have been pending or to its knowledge threatened against the Company or
affecting any of its properties or businesses before or by any court or federal
or state commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding would have a Material Adverse Effect, except as set
forth in the Registration Statement and Prospectus;
(vi) No stop order shall have been issued under the Act and no
proceedings therefor shall have been initiated or, to the Company's knowledge,
threatened by the Commission; and
(vii) Each of the representations and warranties of the Company
contained in this Agreement and in each certificate and document contemplated
under this Agreement to be delivered to you was, when originally made and is at
the time such certificate is dated, true and correct in all material respects.
(h) Concurrently with the execution and delivery of this
Agreement and at the Closing Date, you shall have received a certificate of the
Company signed by the Chief Executive Officer of the Company and the principal
financial officer of the Company, dated as of the Closing Date, to the effect
that the conditions set forth in subparagraph (g) above have been satisfied in
all material respects and that, as of the Closing Date, the representations and
warranties of the Company set forth in Paragraph 2 herein are true and correct,
as if made on and as of the Closing Date, in all material respects. Any
certificate signed by any officer of the Company and delivered to you or to
counsel for the Underwriter shall be deemed a representation and warranty by the
Company to the Underwriter as to the statements made therein.
(i) At the time this Agreement is executed, and at the Closing Date,
you shall have received a letter, addressed to the Underwriter and in form and
substance reasonably satisfactory in all material respects to you and counsel
for the Underwriter, from HEIN + ASSOCIATES LLP. dated as of the date of this
Agreement and as of the Closing Date, substantially in the form of Exhibit A
hereto.
(j) All proceedings taken in connection with the authorization,
issuance or sale of the Securities, Warrant Shares, Additional Securities and
the Underwriter's Securities as herein contemplated shall be reasonably
satisfactory in form and substance to you and to counsel to the Underwriter, and
the Underwriter shall have received from such counsel an opinion, dated as the
28
<PAGE>
Closing Date with respect to such of these proceedings as you may reasonably
require.
(l) The obligation of the Underwriter to purchase Additional
Securities hereunder is subject to the accuracy of the representations and
warranties of the Company contained herein on and as of the Option Closing Date
in all material respects and to the satisfaction on and as of the Option Closing
Date of the conditions set forth herein in all material respects.
(m) On the Closing Date there shall have been duly tendered to you for
your account the appropriate number of shares of Common Stock and Warrants
constituting the Securities.
10. Indemnification and Contribution.
---------------------------------
(a) Subject to the conditions set forth below, the Company agrees to
indemnify and hold harmless the Underwriter, each of its agents and counsel and
each person, if any, who controls the Underwriter ("controlling person") within
the meaning of either Section 15 of the Act or Section 20 of the Exchange Act,
against any and all losses, liabilities, claims, damages, actions and expenses
or liability, joint or several, whatsoever (including but not limited to any and
all expense whatsoever reasonably incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever), joint or several, to which it or such controlling persons may
become subject under the Act, the Exchange Act or under any other statute or at
common law or otherwise, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any Preliminary Prospectus or the Prospectus (as from time to time
amended and supplemented); in any post-effective amendment or amendments or any
new registration statement and prospectus in which is included the Warrant
Shares of the Company issued or issuable upon exercise of the Warrants, or
Warrant Shares issued or issuable upon exercise of the Underwriter's Warrants;
or in any application or other document or written communication (in this
Paragraph 10 collectively called "application") executed by the Company or based
upon written information furnished by the Company filed in any jurisdiction in
order to qualify the Securities, Warrant Shares, Additional Securities,
Underwriter's Warrants and Underwriter's Securities under the securities laws
thereof or filed with the Commission or any securities exchange; or the omission
or alleged omission therefrom of a material fact required to be stated therein
or necessary to make the statements therein not misleading (in light of the
circumstances under which they were made), unless such statement or omission was
made in reliance upon or in conformity with written information furnished to the
Company with respect to the Underwriter by or on behalf of the Underwriter
expressly for use in any Preliminary Prospectus, the Registration Statement or
29
<PAGE>
Prospectus, or any amendment or supplement thereof, or in any application, as
the case may be. Notwithstanding the foregoing, the Company shall have no
liability under this Paragraph 10(a) if any such untrue statement or omission
made in a Preliminary Prospectus, is corrected in the Prospectus and the
Underwriter failed to deliver to the person or persons alleging the liability
upon which indemnification is being sought, at or prior to the written
confirmation of such sale, a copy of the Prospectus. This indemnity will be in
addition to any liability which the Company may otherwise have.
(b) The Underwriter agrees to indemnify and hold harmless the Company
and each of the officers and directors of the Company who have signed the
Registration Statement, each of its agents and counsel, and each other person,
if any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, to the same extent as the foregoing indemnity
from the Company to the Underwriter in Paragraph 10(a), but only with respect to
any untrue statement or alleged untrue statement of any material fact contained
in or any omission or alleged omission to state a material fact required to be
stated in any Preliminary Prospectus, the Registration Statement or Prospectus
or any amendment or supplement thereof or necessary to make the statements
therein not misleading or in any application made in reliance upon, and in
conformity with, written information furnished to the Company by you expressly
for use in the preparation of such Preliminary Prospectus, the Registration
Statement or Prospectus with respect to the Underwriter or directly relating to
the transactions effected or to be effected by the Underwriter in connection
with the Offering. This indemnity agreement will be in addition to any liability
which the Underwriter may otherwise have.
(c) If any action is brought against any indemnified party (the
"Indemnitee") in respect of which indemnity may be sought against another party
pursuant to the foregoing (the "Indemnitor"), the Indemnitor shall assume the
defense of the action, including the employment and fees of counsel (reasonably
satisfactory to the Indemnitee) and payment of expenses. Any Indemnitee shall
have the right to employ its or their own counsel in any such case, but the fees
and expenses of such counsel shall be at the expense of such Indemnitee unless
the employment of such counsel shall have been authorized in writing by the
Indemnitor in connection with the defense of such action. If the Indemnitor
shall have employed counsel to have charge of the defense or shall previously
have assumed the defense of any such action or claim, the Indemnitor shall not
thereafter be liable to any Indemnitee in investigating, preparing or defending
any such action or claim. Each Indemnitee shall promptly notify the Indemnitor
of the commencement of any litigation or proceedings or any other action against
the Indemnitee in respect of which indemnification is to be sought.
30
<PAGE>
(d) In order to provide for just and equitable contribution under the
Act in any case in which: (i) the Underwriter makes a claim for indemnification
pursuant to Paragraph 10 hereof, but it is judicially determined (by the entry
of a final judgment or decree by a court of competent jurisdiction and the time
to appeal has expired or the last right of appeal has been denied) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Paragraph 10 provides for indemnification of such case; or (ii)
contribution under the Act may be required on the part of the Underwriter in
circumstances for which indemnification is provided under this Paragraph 10,
then, and in each such case, the Company and the Underwriter shall contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after any contribution from others) in such proportion so that the
Underwriter is responsible for the portion represented by dividing the total
compensation received by the Underwriter herein or in connection with the
Offering by the total purchase price of all Securities sold in the public
offering and the Company is responsible for the remaining portion; provided,
that in any such case, no person guilty of a fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
The foregoing contribution agreement shall in no way affect the
contribution liabilities of any persons having liability under Section 11 of the
Act other than the Company and the Underwriter. As used in this Paragraph 10,
the term "Underwriter" includes any officer, director, or other person who
controls the Underwriter within the meaning of Section 15 of the Act, and 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 to the full extent permitted by law. No
contribution shall be requested with regard to the settlement of any matter from
any party who did not consent in writing to the settlement.
(e) Within fifteen (15) days after receipt by any party to this
Agreement (or its representative) of notice of the commencement of any action,
suit or proceeding, such party will, if a claim for contribution in respect
thereof is made against another party (the "contributing party"), notify the
contributing party of the commencement thereof, but the omission so to notify
the contributing party will not relieve it from any liability it may have to any
other party other than for contribution hereunder.
31
<PAGE>
In case any such action, suit or proceeding is brought against any party,
and such party notifies a contributing party or his or its representative of the
commencement thereof within the aforesaid fifteen (15) days, the contributing
party will be entitled to participate therein with the notifying party and any
other contributing party similarly notified. Any such contributing party shall
not be liable to any party seeking contribution on account of any settlement of
any claim, action or proceeding effected by such party seeking contribution
without the written consent of such contributing party. The indemnification
provisions contained in this Paragraph 11 are in addition to any other rights or
remedies which either party hereto may have with respect to the other or
hereunder.
32
<PAGE>
11. Representations, Warranties, Agreements to Survive Delivery.
------------------------------------------------------------
The respective indemnity and contribution agreements by the Underwriter and
the Company contained in Paragraph 10 hereof, and the covenants, representations
and warranties of the Company and the Underwriter set forth in this Agreement,
shall remain operative and in full force and effect regardless of (i) any
investigation made by the Underwriter or on its behalf or by or on behalf of any
person who controls the Underwriter, or by the Company or any controlling person
of the Company or any director or any officer of the Company, (ii) acceptance of
any of the Securities and payment therefor, or (iii) any termination of this
Agreement, and shall survive the delivery of the Securities; and any successor
of the Underwriter or the Company, or of any person who controls you or the
Company or any other indemnified party, as the case may be, shall be entitled to
the benefit of such respective indemnity and contribution agreements. The
respective indemnity and contribution agreements by the Underwriter and the
Company contained in Paragraph 10 above shall be in addition to any liability
which the Underwriter and the Company may otherwise have.
12. Effective Date of This Agreement and Termination Thereof.
---------------------------------------------------------
(a) This Agreement shall become effective at 10:00 A.M., New York
time, on the first full business day following the day on which you and the
Company receive notification that the Registration Statement became effective.
(b) This Agreement may be terminated by the Underwriter by notifying
the Company at any time on or before the Closing Date, if any domestic or
international event or act or occurrence has materially disrupted, or in your
reasonable opinion will in the immediate future materially disrupt, securities
markets in the United States; or if trading in securities generally on the New
York Stock Exchange, the American Stock Exchange, or in the over-the-counter
market in the United States shall have been suspended, or minimum or maximum
prices for trading in securities generally shall have been fixed, or maximum
ranges for prices for securities shall have been required, on the
over-the-counter market by the NASD or NASDAQ or by order of the Commission or
any other governmental authority having jurisdiction; or if a moratorium in
foreign exchange trading by major international banks or persons has been
declared in the United States; or if the Company shall have sustained a loss
material or substantial to the Company taken as a whole by fire, flood,
accident, hurricane, earthquake, theft, sabotage or other calamity or malicious
act which, whether or not such loss shall have been insured, will, in your
reasonable opinion, make it inadvisable to proceed with the offering, sale and
delivery of the Securities; or if there shall have been a material adverse
33
<PAGE>
change in the conditions of the United States securities market in general, as
in your reasonable judgment would make it inadvisable to proceed with the
offering, sale and delivery of the Securities.
(c) If you elect to terminate this Agreement as provided in this
Paragraph 12, the Company shall be notified promptly by you by telephone or
facsimile, confirmed by letter.
(d) Anything in this Agreement to the contrary notwithstanding, if
this Agreement shall terminate or shall not be carried out within the time
specified herein by reason of any failure on the part of the Company to perform
any undertaking, or to satisfy any condition of this Agreement by it to be
performed or satisfied, the sole liability of the Company to the Underwriter, in
addition to the obligations assumed by the Company pursuant to Paragraph 8
herein, will be to reimburse the Underwriter on an accountable basis for the
following: (i) reasonable Blue Sky counsel fees and expenses to the extent set
forth in Paragraph 8(a)(iv); (ii) Blue Sky filing fees to that same extent; and
(iii) such other reasonable out-of-pocket expenses actually incurred by the
Underwriter (including the reasonable fees and disbursements of their counsel),
to the extent set forth in Paragraph 8(a), in connection with this Agreement and
the proposed offering of the Securities, but in no event to exceed the sum of
$100,000 less such amounts as shall have already been paid pursuant to Section
8(b) or otherwise. The Company shall not in any event be liable to the
Underwriter for the loss of anticipated profits from the transactions covered by
this Agreement.
Anything in this Agreement to the contrary notwithstanding, if this
Agreement shall be terminated by you because you have exercised your rights
pursuant to Paragraph 12(b) above, the Company shall not be under any liability
to you except, on an accountable basis, for the portion of the non-accountable
expense allowance referred to in Paragraph 8(b) for which expenses have actually
been paid or incurred by you, and any balance will be returned by you to the
Company.
13. Notices.
--------
All communications hereunder, except as herein otherwise specifically
provided, shall be in writing and, if sent to the Underwriter, shall be mailed,
delivered or telegraphed and confirmed to the Underwriter at Dalton Kent
Securities Group, Inc., 330 Seventh Avenue, New York, New York 10001, Attention:
Alan Elkes, with a copy thereof to Gregory Sichenzia, Esq., Schneck Weltman
Hashmall & Mischel LLP, 1285 Avenue of the Americas, New York, New York 10019,
and, if sent to the Company, shall be mailed, delivered or telegraphed and
confirmed to the Company at 14603 Chisman, Houston, Texas, 77039, Attention:
John Wilson, Chief
34
<PAGE>
Executive Officer, with a copy thereof to Alan Talesnick, Esq., Bearman
Talesnick & Clowdus, P.C., 1200 Seventeenth Street, Suite 2600, Denver Colorado
80202.
14. Parties.
--------
This Agreement shall inure solely to the benefit of and shall be binding
upon, the Underwriter, the Company and the controlling persons, directors and
officers referred to in Paragraph 10 hereof, and their respective successors,
legal representatives and assigns, and no other person shall have or be
construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provision herein contained. No
purchaser of any of the Securities or Additional Securities from the Underwriter
shall be deemed a successor or assign by reason merely of such purchase.
15. Construction.
-------------
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York, without giving effect to the
rules governing conflict of laws, and shall supersede any agreement or
understanding, oral or in writing, express or implied, between the Company and
you relating to the sale of any of the Securities.
16. Jurisdiction and Venue.
-----------------------
The Company agrees that the courts of the State of New York shall have
jurisdiction over any litigation arising from this Agreement, and venue shall be
proper in the Southern District of New York.
17. Counterparts.
------------
This agreement may be executed in counterparts.
If the foregoing correctly sets forth the understanding between you and the
Company, please so indicate in the space
35
<PAGE>
provided below for that purpose, whereupon this letter shall constitute a
binding agreement between us.
Very truly yours,
AMERICAN INTERNATIONAL CONSOLIDATED,
INC.
By:
----------------------------------
John Wilson, Chief Executive Officer
Accepted as of the date first above written:
DALTON KENT SECURITIES GROUP, INC.
By:
----------------------------------------
36
CERTIFICATE OF AMENDMENT TO THE
CERTIFICATE OF INCORPORATION OF
AMERICAN INTERNATIONAL CONSTRUCTION INC.
Pursuant to the provision of Section 242 of the General Corporation Law Of
Delaware, the undersigned corporation adopts the following amendments to its
Certificate Of Incorporation:
FIRST: The name of the corporation is American International
Construction Inc.
SECOND: The following amendments to the Certificate Of Incorporation
was adopted by a vote of the stockholders sufficient for approval effective on
July 15, 1996 in the manner prescribed by the General Corporation Law of the
State of Delaware:
Article FIRST of the Certificate Of Incorporation is amended to read in
its entirety as follows:
"FIRST: The name of the corporation is American International Consolidated
Inc."
Article FOURTH of the Certificate Of Incorporation is amended to read in
its entirety as follows:
"FOURTH: The total number of shares that the corporation shall have
the authority to issue is 21,000,000, consisting of 20,000,000 shares of common
stock, with each share having a par value of $.01, and 1,000,000 shares of
preferred stock, with each share having a par value of $1.00.
The Board Of Directors is hereby expressly authorized, by
resolution or resolutions, to provide, out of the unissued shares of preferred
stock, for the issuance of one or more series of preferred stock, with such
voting powers, if any, and with such designations, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, as shall be expressed in the resolution or resolutions
providing for the issuance thereof adopted by the Board Of Directors, including,
without limiting the generality of the foregoing, the following:
(a) the designation of such series, the number of shares to
constitute such series and the stated value thereof if different
from the par value thereof;
(b) whether the shares of such series shall have voting rights, in
addition to any voting rights provided by law, and, if so, the
terms of such voting rights, which may be general or limited;
(c) the dividends, if any, payable on such series, whether any such
dividends shall be cumulative, and, if so, from what dates, the
conditions and dates upon which such dividends shall be payable,
the preferences or relation which such dividends shall bear to
the dividends payable on any shares of stock of any other class
or any other series of this class;
<PAGE>
(d) whether the shares of such series shall be subject to redemption
by the corporation, and, if so, the times, prices and other terms
and conditions of such redemption;
(e) the amount or amounts payable upon shares of such series upon,
and the rights of the holders of such series in, the voluntary or
involuntary liquidation, dissolution or winding up, or upon any
distribution of the assets, of the corporation;
(f) whether the shares of such series shall be subject to the
operation of a retirement or sinking fund and, if so, the extent
to and manner in which any such retirement or sinking fund shall
be applied to the purchase or redemption of the shares of such
series for retirement or other corporate purposes and the terms
and provisions relative to the operation thereof;
(g) whether the shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or classes
or of any other series of this class or any other class or
classes of capital stock and, if so, the price or prices or the
rate or rates of conversion or exchange and the method, if any,
of adjusting the same, and any other terms and conditions of such
conversion or exchange;
(h) the limitations and restrictions, if any, to be effective while
any shares of such series are outstanding upon the payment of
dividends or the making of other distributions on, and upon the
purchase, redemption or other acquisition by the corporation of,
the common stock or shares of stock of any other class or any
other series of this class; and
(i) the conditions or restrictions, if any, upon the creation of
indebtedness of the corporation or upon the issue of any
additional stock, including additional shares of such series or
of any other series of this class or of any other class or
classes.
The powers, preferences and relative, participating, optional and
other special rights of each series of preferred stock, and the
qualifications, limitations or restrictions thereof, if any, may differ
from those of any and all other series at any time outstanding. All shares
of any one series of preferred stock shall be identical in all respects
with all other shares of such series, except that shares of any one series
issued at different times may differ as to the dates from which dividends
thereon shall be cumulative."
THIRD: The Amendment does not provide for the exchange,
reclassification or cancellation of issued shares.
FOURTH: The Amendment does not effect a change in the amount of stated
capital.
Dated: July 15, 1996.
-2-
<PAGE>
ATTEST: AMERICAN INTERNATIONAL CONSTRUCTION INC.
- -------------------------------- By:
R.L. Farrar, Secretary -------------------------------------
Danny Clemons, President
Each of the undersigned, Danny Clemons, the President of the Corporation,
and R.L. Farrar, the Secretary of the corporation hereby affirms and
acknowledges, under penalties of perjury, that the respective signature of the
undersigned on the foregoing instrument is his respective act and deed or the
act and deed of the Corporation, and that the facts stated in the foregoing
instrument are true.
-------------------------------------
Danny Clemons, President
-------------------------------------
R.L. Farrar, Secretary
* * * * *
-3-
No. W-1~ VOID AFTER , 2001
---------
7~WARRANTS
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE ONE SHARE OF COMMON STOCK
AMERICAN INTERNATIONAL CONSTRUCTION INC.
CUSIP [ ]
THIS CERTIFIES THAT, FOR VALUE RECEIVED, 3~
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Warrants (the "Warrants") specified above. Each Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and nonassessable share of Common Stock, no par value
(the "Common Stock"), of AMERICAN INTERNATIONAL CONSTRUCTION INC., a Delaware
corporation (the "Company"), at any time from ___________, 1996 (the date of the
Prospectus) (the "Initial Warrant Exercise Date"), and prior to the Expiration
Date (as hereinafter defined), upon the presentation and surrender of this
Warrant Certificate with the Exercise Form on the reverse hereof duly executed,
at the corporate office of [ ] Stock Transfer & Trust Company, [ ], as Warrant
Agent, or its successor (the "Warrant Agent"), accompanied by payment of $[ ],
subject to adjustment (the "Exercise Price"), in lawful money of the United
States of America in cash or by certified or bank check made payable to the
Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement, dated as of ____, 1996 [date of the Prospectus]
(the "Warrant Agreement"), between the Company, Dalton Kent Securities Group,
Inc. and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Exercise Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all the Warrants represented hereby, the Company shall
cancel this Warrant Certificate upon the surrender hereof and shall execute and
deliver a new Warrant Certificate or Warrant Certificates of like tenor, which
the Warrant Agent shall countersign, for the balance of such Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
________, 2001 [the date which is the fifth anniversary of the Initial Warrant
Exercise Date]; provided, that if such date is not a business day, it shall mean
5:00 p.m., New York City time, on the next following business day. For purposes
hereof, the term "business day' shall mean any day other than a Saturday, Sunday
or a day on which banking institutions in New York City, New York, are
authorized or obligated by law to be closed.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of the Warrants represented hereby unless at the time of exercise
the Company has filed with the Securities and Exchange Commission a registration
statement under the Securities Act of 1933 (the "Act"), covering the securities
issuable upon exercise of the Warrants represented hereby and such registration
statement has been declared and shall remain effective and shall be current, and
such securities have been registered or qualified or deemed to be exempt under
the securities laws of the state or other jurisdiction of residence of the
Registered Holder and the exercise of the Warrants represented hereby in any
state or other jurisdiction shall not otherwise be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon the presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
<PAGE>
Prior to the exercise of any Warrant represented hereby, the Registered
Holder, as such, shall not be entitled to any rights of a shareholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may be
redeemed at the option of the Company, at a redemption price of $.01 per
Warrant, at any time commencing _____________, 1997 [12 months after the date of
the Prospectus], provided that the average closing bid quotation of the Common
Stock as reported on The Nasdaq Stock Market, if traded thereon, or is not
traded thereon, the average closing sale price if listed on a national exchange
(or other reporting system that provides last sales prices), shall have for a
period of 20 consecutive days on which such market is open for trading ending on
the third day prior to the date on which the Company gives the Notice of
Redemption, as defined below, equalled or exceeded 150% of the then current
Exercise Price. Notice of redemption (the "Notice of Redemption") shall be given
by the Company 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 right with respect to
this Warrant except to receive the $.01 per Warrant upon surrender of this
Certificate.
Under certain circumstances described in the Warrant Agreement, Dalton Kent
Securities Group, Inc. shall be entitled to receive as a solicitation fee an
aggregate of five percent (5%) of the Exercise Price of the Warrants represented
hereby.
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York without regard to the conflicts of law
principles thereof.
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.
Dated _______________________, 1996
[SEAL] AMERICAN INTERNATIONAL CONSTRUCTION INC.
By:
--------------------------------------
, President
By:
--------------------------------------
, Secretary
COUNTERSIGNED:
[ ] STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
By:
----------------------------------
Authorized Officer
NO SALE OR TRANSFER OF THIS WARRANT OR THE SECURITIES
UNDERLYING THIS WARRANT MAY BE MADE UNTIL
THE EFFECTIVENESS OF A REGISTRATION STATEMENT
OR OF A POST-EFFECTIVE AMENDMENT THERETO
UNDER THE SECURITIES ACT OF 1933 (THE "ACT"),
COVERING THIS WARRANT OR THE SECURITIES UNDERLYING
THIS WARRANT, OR UNTIL THE COMPANY IS IN RECEIPT OF AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM
THE REGISTRATION REQUIREMENTS OF THE ACT. TRANSFER OF
THIS WARRANT IS RESTRICTED UNDER PARAGRAPH 2 BELOW.
UNDERWRITER'S WARRANT TO PURCHASE
COMMON STOCK AND/OR REDEEMABLE WARRANTS
AMERICAN INTERNATIONAL CONSOLIDATED, INC.
(a Delaware corporation)
Dated: , 1996
THIS CERTIFIES THAT, for value received, I.A. Rabinowitz & Co., Inc.
("Rabinowitz") one of the several underwriters including Dalton Kent Securities
Group, Inc., ("Dalton") (collectivley the "Underwriters"), or its registered
assigns (the "Holder") is the owner of options (the "Underwriter's Option") to
purchase from American International Consolidated, Inc., a Delaware corporation
(the "Company"), during the period and at the prices hereinafter specified, up
to 45,000 shares of the Company's common stock, par value $.01 per share (the
"Common Stock"), and 22,500 redeemable common stock purchase warrants (the
"Warrants"), (collectively with the Common Stock, the "Securities").
This Underwriter's Option is issued pursuant to an Underwriting Agreement
dated , 1996, between the Company and the Underwriters in connection with a
public offering through the Underwriters (the "Public Offering"), of 900,000
shares of Common Stock and 450,000 Warrants, and, pursuant to the Underwriter's
overallotment option, an additional 135,000 shares of Common Stock and 67,500
Warrants. The Warrants (including those issuable pursuant to the exercise of the
Underwriter's Option) will be issued pursuant to and subject to the terms and
conditions set forth in an agreement between the Company, the Underwriters and [
] Stock Transfer & Trust Company (the "Warrant Agreement").
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1. Exercise of the Underwriter's Option.
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(a) The rights represented by this Underwriter's Option shall be
exercisable at the prices and during the period specified below, upon the terms
and subject to the conditions as set forth herein:
(i) During the period from , 1996 to , 1997, inclusive, the
Holder shall have no right to purchase any Securities hereunder.
(ii) Between , 1997 and , 2001, inclusive, the Holder shall have
the option to purchase shares of Common Stock and Warrants hereunder at a price
of $ $6.00 per share and $.12 per Warrant, respectively, the purchase price of
the Common Stock and price of the Warrants being 120 % of the public offering
prices for the Securities set forth in the Prospectus forming a part of the
registration statement on Form S-1 (File No. 33- ) of the Company, as amended
(the "Registration Statement").
(iii) After , 2001, the Holder shall have no right to purchase
any Securities hereunder and this Underwriter's Option shall expire effective at
5:00 p.m., New York time on such date.
(b) The rights represented by this Underwriter's Option may be
exercised at any time within the period above specified, in whole or in part, by
(i) the surrender of this Underwriter's Option (with the purchase form at the
end hereof properly executed) at the principal executive office of the Company
(or such other office or agency of the Company as it may designate by notice in
writing to the Holder at the address of the Holder appearing on the books of the
Company); (ii) payment to the Company of the exercise price then in effect for
the number of shares of Common Stock and Warrants specified in the
above-mentioned purchase form together with applicable stock transfer taxes, if
any; and (iii) delivery to the Company of a duly executed agreement signed by
the person(s) designated in the purchase form to the effect that such person(s)
agree(s) to be bound by the provisions of Paragraph 5 and subparagraphs (b), (c)
and (d) of Paragraph 6 hereof. This Underwriter's 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 Underwriter's Option is surrendered
and payment is made in accordance with the foregoing provisions of this
Paragraph 1, and the person or persons in whose name or names the certificates
for the Securities shall be issuable upon such exercise shall become the holder
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or holders of record of such Common Stock and Warrants at that time and date.
The Common Stock and Warrants so purchased shall be delivered to the Holder
within a reasonable time, not exceeding ten (10) business days, after the rights
represented by this Underwriter's Option shall have been so exercised.
2. Restrictions on Transfer.
----------------------------
This Underwriter's Option shall not be transferred, sold, assigned or
hypothecated for a period of one year commencing , 1996, except that it may be
transferred to successors of the Holder, and may be assigned in whole or in part
to any person who is an officer of the Underwriter or an officer or partner of
any other member of the selling group during such period. Any such assignment
shall be effected by the Holder by (i) completing and executing the transfer
form at the end hereof and (ii) surrendering this Underwriter's Option with such
duly completed and executed transfer form for cancellation, accompanied by funds
sufficient to pay any transfer tax, at the office or agency of the Company
referred to in Paragraph 1 hereof, accompanied by a certificate (signed by a
duly authorized representative of the Holder), stating that each transferee is a
permitted transferee under this Paragraph 2; whereupon the Company shall issue,
in the name or names specified by the Holder (including the Holder), a new
Underwriter's Option or Underwriter's Options of like tenor and representing in
the aggregate rights to purchase the same number of Securities as are then
purchasable hereunder. The Holder acknowledges that this Underwriter's Option
may not be offered or sold except pursuant to an effective registration
statement under the Act or an opinion of counsel satisfactory to the Company
that an exemption from registration under the Act is available.
3. Covenants of the Company
---------------------------
(a) The Company covenants and agrees that all Common Stock issuable
upon the exercise of this Underwriter's Option will, upon issuance thereof and
payment therefor in accordance with the terms hereof, and all Common Stock
issuable upon exercise of the Warrants underlying this Underwriter's Option,
will upon the issuance thereof and payment therefor in accordance with the terms
of the Warrant Agreement, be duly and validly issued, fully paid and
nonassessable and no personal liability will attach to the holder thereof by
reason of being such a holder, other than as set forth herein.
(b) The Company covenants and agrees that during the period within
which this Underwriter's Option may be exercised, the Company will at all times
have authorized and reserved a sufficient number of shares of Common Stock to
provide for the exercise of this Underwriter's Option and the Warrants included
therein.
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(c) The Company covenants and agrees that for so long as the
Securities shall be outstanding (unless the Securities shall no longer be
registered under Paragraph 12(b) or 12(g) of the Securities Exchange Act of
1934, as amended) the Company shall use its best efforts to cause all shares of
Common Stock issuable upon the exercise of the Underwriter's Option and the
Warrants contained therein, to be quoted by the NASDAQ Stock Market or listed on
a national securities exchange.
4. No Rights of Stockholder.
----------------------------
This Underwriter's Option shall not entitle the Holder to any voting
rights or other rights as a stockholder of the Company, either at law or in
equity, and the rights of the Holder are limited to those expressed in this
Underwriter's Option and are not enforceable against the Company except to the
extent set forth herein.
5. Registration Rights.
-----------------------
(a) During the period of four years from , 1997, the Company shall
advise the Holder, whether the Holder holds this Underwriter's Option or has
exercised this Underwriter's Option and holds Common Stock and Warrants, or
Common Stock underlying the Warrants (the "Warrant Shares"), by written notice
at least 30 days 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 upon the request of the Holder
made during such four-year period, include in any such post-effective amendment
or registration statement such information as may be required to permit a public
offering of any of the Common Stock or Warrants issuable hereunder, and/or the
Warrant Shares (the "Registerable Securities"); provided, that this Paragraph
5(a) shall not apply to any registration statement filed pursuant to Paragraph
5(b) hereof or to registrations of shares in connection with an employee benefit
plan or a merger, consolidation or other comparable acquisition or solely for
registration of non-convertible debt or preferred equity securities of the
Company; and provided, further, that, notwithstanding the foregoing, the Holder
shall have no right to include any Registrable Securities in any new
registration statement or post-effective amendment thereto unless as of the
effective date thereof the Registration Statement (as it may hereafter be
amended or supplemented) or any new registration statement under which the
Registrable Securities are registered shall have ceased to be effective or
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the prospectus contained in such Registration Statement shall have ceased to be
current. The Company shall supply prospectuses in order to facilitate the public
sale or other disposition of the Registerable Securities, use its best efforts
to register and qualify any of the Registerable Securities for sale in such
states in which the Common Stock and Warrants are offered and sold in the Public
Offering as such Holder reasonably designates and do any and all other acts and
things which may be necessary to enable such Holder to consummate the public
sale of the Registerable Securities, provided that, without limiting the
foregoing, the Company shall not be obligated to execute or file any general
consent to service of process or to qualify as a foreign corporation to do
business under the laws of any such jurisdiction, and furnish indemnification in
the manner provided in Paragraph 6 hereof. The Holder shall furnish information
reasonably requested by the Company in accordance with such post-effective
amendments or registration statements, including its intentions with respect
thereto, and shall furnish indemnification as set forth in Paragraph 6. The
Company shall continue to advise the Holders of the Registerable Securities of
its intention to file a registration statement or amendment pursuant to this
Paragraph 5(a) until the earliest of (i) , 2001; or (ii) such time as all of the
Registerable Securities have been registered and sold under the Act; or (iii)
all of the Registrable Securities have been otherwise transferred, new
certificates for them not bearing a legend restricting further transfer shall
have been delivered by the Company and subsequent public distribution of them
shall not require registration or qualification of them under the Act, or (iv)
in the opinion of legal counsel for the Company, the Registrable Securities may
be offered and sold by the holders thereof without being registered under the
Act and such securities, upon receipt by the purchasers thereof pursuant to such
sale, will not constitute "restricted securities" as such term is defined in
Rule 144 under the Act.
(b) If any fifty-one (51%) percent holder (as defined below) shall
give notice to the Company at any time during the two (2) year period beginning
one (1) year from , 1996 to the effect that such holder desires to register
under the Act any Registerable Securities, under such circumstances that a
public distribution (within the meaning of the Act) of any such Registerable
Securities will be involved (and the Registration Statement or any new
registration statement under which such Registerable Securities are registered
shall have ceased to be effective or the Prospectus contained therein shall have
ceased to be current), then the Company will as promptly as practicable after
receipt of such notice, but not later than thirty (30) days after receipt of
such notice, at the Company's option, file a post-effective amendment to the
current Registration Statement or a new registration statement pursuant to the
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<PAGE>
Act to the end that the Registerable Securities may be publicly sold under the
Act as promptly as practicable thereafter and the Company will use its best
efforts to cause such registration to become and remain effective as provided
herein (including the taking of such steps as are reasonably necessary to obtain
the removal of any stop order); provided, that such fifty-one (51%) percent
holder shall furnish the Company with appropriate information in connection
therewith as the Company may reasonably request; and provided, further, that the
Company shall not be required to file such a post-effective amendment or
registration statement pursuant to this Paragraph 5(b) on more than one
occasion; and provided, further, that, the registration rights of the 51% holder
under this Paragraph 5(b) shall be subject to the "piggyback" registration
rights of other holders of securities of the Company to include such securities
in any registration statement or post-effective amendment filed pursuant to this
Paragraph 5(b). The Company will maintain such registration statement or
post-effective amendment current under the Act for a period of at least nine
months from the effective date thereof. The Company shall supply prospectuses in
order to facilitate the public sale of the Registerable Securities, use its best
efforts to register and qualify any of the Registerable Securities for sale in
such states in which the Common Stock and Warrants are offered and sold in the
Public Offering as such holder reasonably designates and furnish indemnification
in the manner provided in Paragraph 6 hereof, provided that, without limiting
the foregoing, the Company shall not be obligated to execute or file any general
consent to service of process or to qualify as a foreign corporation to do
business under the laws of any such jurisdiction.
(c) The Holder may, in accordance with Paragraphs 5(a) or (b), at his
or its option, and subject to the limitations set forth in Paragraph 1(a)
hereof, request the registration of any of the Registerable Securities in a
filing made by the Company prior to the acquisition of the Securities upon
exercise of this Underwriter's Option. The Holder may thereafter exercise this
Underwriter's Option at any time or from time to time subsequent to the
effectiveness under the Act of the registration statement in which the Common
Stock underlying the Underwriter's Options and Warrants were included.
(d) The term "51% holder," as used in this Paragraph 5, shall include
any owner or combination of owners of Underwriter's Options or Registerable
Securities if the aggregate number of shares of Common Stock and Warrant Shares
included in and underlying the Underwriter's Options and Registerable Securities
held of record by it or them, would constitute a majority of the aggregate of
such shares of Common Stock and Warrant Shares underlying the Underwriter's
Option and Registrable Securities as of the date of the initial issuance of the
Underwriter's Option.
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<PAGE>
(e) The following provisions of this Paragraph 5 shall also be
applicable:
(i) Within ten (10) days after receiving any notice pursuant to
Paragraph 5(b), the Company shall give notice to the other Holders of
Underwriter's Options or Registerable Securities, advising that the Company is
proceeding with such post-effective amendment or registration and offering to
include therein the Registerable Securities of such other Holders, provided that
they shall furnish the Company with all information in connection therewith as
shall be necessary or appropriate and as the Company shall reasonably request in
writing. Following the effective date of such post-effective amendment or
registration, the Company shall, upon the request of any Holder of Registerable
Securities, forthwith supply such number of prospectuses meeting the
requirements of the Act, as shall be reasonably requested by such Holder. The
Company shall use its best efforts to qualify the Registerable Securities for
sale in such states in which the Common Stock and Warrants are offered and sold
in the Public Offering as the 51% holder shall reasonably designate at such
times as the registration statement is effective under the Act, provided that,
without limiting the foregoing, the Company shall not be obligated to execute or
file any general consent to service of process or to qualify as a foreign
corporation to do business under the laws of any such jurisdiction.
(ii) The Company shall bear the entire cost and expense of any
registration of securities initiated by it under Paragraph 5(a) hereof
notwithstanding that the Registerable Securities subject to this Underwriter's
Option may be included in any such registration. The Company shall also comply
with the one request for registration made by the 51% holder pursuant to
Paragraph 5(b) hereof at the Company's own expense and without charge to any
holder of the Registerable Securities. Notwithstanding the foregoing, any Holder
whose Registerable Securities are included in any such registration statement
pursuant to this Paragraph 5 shall, however, bear the fees of any counsel
retained by him and any transfer taxes or underwriting discounts or commissions
applicable to the Registerable Securities sold by him pursuant thereto and, in
the case of a registration pursuant to Paragraph 5(a) hereof, any additional
registration or "blue sky" or state securities fees attributable to the
registration or qualification of such Holder's Registerable Securities.
(iii) If the underwriter or managing underwriter in any
underwritten offering made pursuant to Paragraph 5(a) hereof shall advise the
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<PAGE>
Company that it declines to include a portion or all of the Registerable
Securities requested by the Holders to be included in the registration
statement, then distribution of all or a specified portion of the Registerable
Securities shall be excluded from such registration statement (in case of an
exclusion as to a portion of such Registerable Securities, such portion to be
allocated among such Holders in proportion to the respective numbers of
Registerable Securities requested to be registered by each such Holder). In such
event the Company shall give the Holder prompt notice of the number of
Registerable Securities excluded. Further, in such event the Company shall,
commencing six (6) months after the completion of such underwritten offering,
file and use its best efforts to have declared effective, at its sole expense
(subject to the provisions of Paragraph 5), a registration statement relating to
such excluded securities.
(iv) Notwithstanding anything to the contrary contained herein,
the Company shall have the right at any time after it shall have given written
notice pursuant to Paragraph 5(a) or 5(b) (irrespective of whether a written
request for inclusion of any Registerable Securities shall have been made) to
elect not to file or to delay any such proposed registration statement or
post-effective amendment thereto, or to withdraw the same after the filing but
prior to the effective date thereof. In addition, the Company may delay the
filing of any registration statement or post-effective amendment requested
pursuant to Paragraph 5(b) hereof by not more than 120 days if the Company,
prior to the time it would otherwise have been required to file such
registration statement or post-effective amendment thereto, determines in good
faith that the filing of the registration statement would require the disclosure
of non-public material information that, in its judgment, would be detrimental
to the Company if so disclosed or would otherwise adversely affect a financing,
acquisition, disposition, merger or other material transaction.
(v) If a registration pursuant to Paragraph 5(a) hereof involves an underwritten
offering, the Company shall have the right to select the investment banker or
investment bankers and manager or managers that will serve as underwriter with
respect to the underwritten offering. No Holder of Registerable Securities may
participate in any underwritten offering under this Agreement unless such holder
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwritten offering, in each case, in the form and upon terms reasonably
acceptable to the Company and the underwriters. The requested registration
pursuant to Paragraph 5(b) hereof shall not involve an underwritten offering
unless the Company shall first give its written approval of each underwriter
that participates in the offering, such approval not to be unreasonably
withheld.
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6. Indemnification.
-------------------
(a) Whenever pursuant to Paragraph 5, a registration statement
relating to any Registerable Securities is filed under the Act, amended or
supplemented, the Company will indemnify and hold harmless each Holder of the
Registerable Securities covered by such registration statement, amendment or
supplement (such holder hereinafter referred to as the "Distributing Holder"),
each person, if any, who controls (within the meaning of the Act) the
Distributing Holder, and each officer, employee, partner or agent of the
Distributing Holder, if the Distributing Holder is a broker or dealer, 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 and
each officer, employee, agent or partner of such underwriter against any losses,
claims, damages or liabilities, joint or several, to which the Distributing
Holder, any such underwriter or any other 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 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, in light of the
circumstances under which such statements were made, not misleading; and will
reimburse the Distributing Holder and each such underwriter or such other person
for any legal or other expenses reasonably incurred by the Distributing Holder,
or underwriter or such other person, 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 (i) 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, any other Distributing Holder
or any such underwriter for use in the preparation thereof, or (ii) such losses,
claims, damages or liabilities arise out of or are based upon any actual or
alleged untrue statement or omission made in or from any preliminary prospectus,
but corrected in the final prospectus, as amended or supplemented.
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(b) Whenever pursuant to Paragraph 5 a registration statement relating
to the Registerable Securities is filed under the Act, or is amended or
supplemented, the Distributing Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, and each
person, if any, who controls the Company (within the meaning of the Act) against
any losses, claims, damages or liabilities to which the Company or any such
director, officer or controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue or alleged untrue
statement of any material fact contained in any such registration statement or
any preliminary prospectus or final prospectus constituting a part thereof, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, 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 for use in the preparation
thereof; and will reimburse the Company or any such director, officer or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action.
(c) Promptly after receipt by an indemnified party under this
Paragraph 6 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 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
Paragraph 6.
(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 satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election to so assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Paragraph 6 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
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7. Adjustments of Warrant Price and Number of Shares of Common Stock.
---------------------------------------------------------------------
(a) Computation of Adjusted Price. Except as hereinafter provided, in
case the Company shall, at any time after the date of closing of the sale of
securities pursuant to the initial public offering ("IPO") of the Company's
securities (the "Closing Date"), issue or sell any shares of Common Stock (other
than the issuances or sales referred to in Paragraph 7(f) hereof and other than
private offerings pursuant to exemptions from federal and state securities laws
to parties other than the Company's officers, directors, five percent
shaeholders or Affiliates as such is defined in the Act, the Exchange Act and
the rules and regulations thereunder of each of them), including shares held in
the Company's treasury and shares of Common Stock issued upon the exercise of
any options, rights or warrants to subscribe for shares of Common Stock (other
than the issuances or sales of Common Stock pursuant to rights to subscribe for
such Common Stock distributed pursuant to Paragraph 7(j) hereof) and shares of
Common Stock issued upon the direct or indirect conversion or exchange of
securities for shares of Common Stock, for a consideration per share less than
both the "Market Price" (as defined in Paragraph 7(a)(vi) hereof) per share of
Common Stock on the trading day immediately preceding such issuance or sale and
the Warrant Price in effect immediately prior to such issuance or sale, or
without consideration, then forthwith upon such issuance or sale, the Warrant
Price in respect of the Common Stock issuable upon exercise of the Underwriter's
Option (but not the exercise price of the Warrants underlying the Underwriter's
Option, which shall be adjusted only in accordance with the Warrant Agreement)
shall (until another such issuance or sale) be reduced to the price (calculated
to the nearest full cent) determined by multiplying the Warrant Price in effect
immediately prior to such issuance or sale by a fraction, the numerator of which
shall be the sum of (1) the number of shares of Common Stock outstanding
immediately prior to such issuance or sale multiplied by the Warrant Price
immediately prior to such issuance or sale plus (2) the consideration received
by the Company upon such issuance or sale, and the denominator of which shall be
the product of (x) the total number of shares of Common Stock outstanding
immediately after such issuance or sale, multiplied by (y) the Warrant Price
immediately prior to such issuance or sale; provided, however, that in no event
shall the Warrant Price be adjusted pursuant to this computation to an amount in
excess of the Warrant Price in effect immediately prior to such computation,
except in the case of a combination of outstanding shares of Common Stock, as
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provided by Paragraph 7(c) hereof. For the purposes of this Paragraph 7, the
term "Warrant Price" shall mean the exercise price per share of Common Stock and
Warrants issuable upon exercise of the Underwriter's Option (initially $ per
Share and $ per Warrant), as adjusted from time to time pursuant to the
provisions of this Paragraph 7.
For the purposes of any computation to be made in accordance with this
Paragraph 7(a), the following provisions shall be applicable:
(i) In case of the issuance or sale of shares of Common Stock for
a consideration part or all of which shall be cash, the amount of the cash
consideration therefor shall be deemed to be the amount of cash received by the
Company for such shares (or, if shares of Common Stock are offered by the
Company for subscription, the subscription price, or, if such securities shall
be sold to underwriters or dealers for public offering without a subscription
offering, the public offering price) before deducting therefrom any compensation
paid or discount allowed in the sale, underwriting or purchase thereof by
underwriters or dealers or others performing similar services, or any expenses
incurred in connection therewith.
(ii) In case of the issuance or sale (otherwise than as a
dividend or other distribution on any stock of the Company) of shares of Common
Stock for a consideration part or all of which shall be other than cash, the
amount of the consideration therefor other than cash shall be deemed to be the
value of such consideration as determined in good faith by the Board of
Directors of the Company.
(iii) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of shareholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued without consideration. (iv)
The reclassification of securities of the Company other than shares of Common
Stock into securities including shares of Common Stock shall be deemed to
involve the issuance of such shares of Common Stock for a consideration other
than cash immediately prior to the close of business on the date fixed for the
determination of security holders entitled to receive such shares, and the value
of the consideration allocable to such shares of Common Stock shall be
determined as provided in subparagraph (ii) of this Paragraph 7(a).
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(v) The number of shares of Common Stock at any one time
outstanding shall include the aggregate number of shares issued or issuable upon
the exercise of options, rights, warrants and upon the conversion or exchange of
convertible or exchangeable securities.
(vi) As used herein, the phrase "Market Price" at any date shall
be deemed to be the average of the last reported sale price, or, in case no such
reported sale takes place on such day, the average of the last reported sale
prices for the last three trading days, in either case as officially reported by
the principal securities exchange on which the Common Stock is listed or
admitted to trading or as reported in the NASDAQ Stock Market, or, if the Common
Stock is not listed or admitted to trading on any national securities exchange
or quoted on the NASDAQ Stock Market, the closing bid quotation as furnished by
the National Association of Securities Dealers, Inc. through NASDAQ or a similar
organization if NASDAQ is no longer reporting such information, or if the Common
Stock is not quoted on NASDAQ, as determined in good faith by resolution of the
Board of Directors of the Company, based on the best information available to it
for the day immediately preceding such issuance or sale, the day of such
issuance or sale and the day immediately after such issuance or sale. If the
Common Stock is listed or admitted to trading on a national securities exchange
and also quoted on the NASDAQ Stock Market, the Market Price shall be determined
as hereinabove provided by reference to the prices reported in the NASDAQ Stock
Market; provided that if the Common Stock is listed or admitted to trading on
the New York Stock Exchange, the Market Price shall be determined as hereinabove
provided by reference to the prices reported by such exchange.
(b) Options, Rights, Warrants and Convertible and Exchangeable
Securities. Except in the case of the Company issuing rights to subscribe for
shares of Common Stock distributed pursuant to Paragraph 7(j) hereof, if the
Company shall at any time after the Closing Date issue options, rights or
warrants to subscribe for shares of Common Stock, or issue any securities
convertible into or exchangeable for shares of Common Stock, in each case other
than the issuances or sales referred to in Paragraph 7(f) hereof, (i) for a
consideration per share less than the lesser of (a) the Warrant Price in effect
immediately prior to the issuance of such options, rights or warrants, or such
convertible or exchangeable securities, or (b) the Market Price on the trading
day immediately preceding such issuance, or (ii) without consideration, the
Warrant Price in effect immediately prior to the issuance of such options,
rights or warrants, or such convertible or exchangeable securities, as the case
may be, shall be reduced to a price determined by making a computation in
accordance with the provisions of Paragraph 7(a) hereof, provided that:
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(i) The aggregate maximum number of shares of Common Stock, as
the case may be, issuable under all the outstanding options, rights or warrants
shall be deemed to be issued and outstanding at the time all the outstanding
options, rights or warrants were issued, and for a consideration equal to the
minimum purchase price per share provided for in the options, rights or warrants
at the time of issuance, plus the consideration (determined in the same manner
as consideration received on the issue or sale of shares in accordance with the
terms of Paragraph 7(a) hereof), if any, received by the Company for the
options, rights or warrants, and if no minimum price is provided in the options,
rights or warrants, then the consideration shall be equal to zero; provided,
however, that upon the expiration or other termination of the options, rights or
warrants, if any thereof shall not have been exercised, the number of shares of
Common Stock deemed to be issued and outstanding pursuant to this subparagraph
(b) (and for the purposes of subparagraph (v) of Paragraph 7(a) hereof) shall be
reduced by such number of shares as to which options, warrants and/or rights
shall have expired or terminated unexercised, and such number of shares shall no
longer be deemed to be issued and outstanding, and the Warrant Price then in
effect shall forthwith be readjusted and thereafter be the price which it would
have been had adjustment been made on the basis of the issuance only of shares
actually issued or issuable upon the exercise of those options, rights or
warrants as to which the exercise rights shall not have expired or terminated
unexercised.
(ii) The aggregate maximum number of shares of Common Stock
issuable upon conversion or exchange of any convertible or exchangeable
securities shall be deemed to be issued and outstanding at the time of issuance
of such securities, and for a consideration equal to the consideration
(determined in the same manner as consideration received on the issue or sale of
shares of Common Stock in accordance with the terms of Paragraph 7(a) hereof)
received by the Company for such securities, plus the minimum consideration, if
any, receivable by the Company upon the conversion or exchange thereof;
provided, however, that upon the expiration or other termination of the right to
convert or exchange such convertible or exchangeable securities (whether by
reason of redemption or otherwise), the number of shares deemed to be issued and
outstanding pursuant to this subparagraph (ii) (and for the purpose of
subparagraph (v) of Paragraph 7(a) hereof) shall be reduced by such number of
shares as to which the conversion or exchange rights shall have expired or
terminated unexercised, and such number of shares shall no longer be deemed to
be issued and outstanding, and the Warrant Price then in effect shall forthwith
be readjusted and thereafter be the price which it would have been had
14
<PAGE>
adjustment been made on the basis of the issuance only of the shares actually
issued or issuable upon the conversion or exchange of those convertible or
exchangeable securities as to which the conversion or exchange rights shall not
have expired or terminated unexercised. No adjustment will be made pursuant to
this subparagraph (ii) upon the issuance by the Company of any convertible or
exchangeable securities pursuant to the exercise of any option, right or warrant
exercisable therefor, to the extent that adjustments in respect of such options,
rights or warrants were previously made pursuant to the provisions of
subparagraph (i) of this subparagraph 7(b).
(iii) If any change shall occur in the price per share provided
for in any of the options, rights or Warrants referred to in subparagraph (i) of
this Paragraph 7(b), or in the price per share at which the securities referred
to in subparagraph (ii) of this Paragraph 7(b) are convertible or exchangeable,
or if any such option, rights or warrants are exercised at a price greater than
the minimum purchase price provided for in such options, rights or warrants, or
any such securities are converted or exercised for more than the minimum
consideration receivable by the Company upon such conversion or exchange, the
options, rights or warrants or conversion or exchange rights, as the case may
be, shall be deemed to have expired or terminated on the date when such price
change became effective in respect of shares not theretofore issued pursuant to
the exercise or conversion or exchange thereof, and the Company shall be deemed
to have issued upon such date new options, rights or warrants or convertible or
exchangeable securities at the new price in respect of the number of shares
issuable upon the exercise of such options, rights or warrants or the conversion
or exchange of such convertible or exchangeable securities; provided, however,
that no adjustment shall be made pursuant to this subparagraph (iii) with
respect to any change in the price per share provided for in any of the options,
rights or warrants referred to in subparagraph (i) of this Paragraph 7, or in
the price per share at which the securities referred to in subparagraph (ii) of
this Paragraph 7(b) are convertible or exchangeable, which change results from
the application of the anti-dilution provisions thereof in connection with an
event for which, subject to subparagraph (iv) of Paragraph 7(f), an adjustment
to the Warrant Price and the number of securities issuable upon exercise of the
Warrants will be required to be made pursuant to this Paragraph 7.
(c) Subdivision and Combination. In case the Company shall at any time
after the Closing Date subdivide or combine the outstanding shares of Common
Stock, the Warrant Price shall forthwith be proportionately decreased in the
case of subdivision or increased in the case of combination.
15
<PAGE>
(d) Adjustment in Number of Shares. Upon each adjustment of the
Warrant Price pursuant to the provisions of this Paragraph 7, the number of
shares of Common Stock (but not the number of Warrants, which are subject to
adjustment as set forth in the Warrant Agreement) issuable upon the exercise of
the Underwriter's Option shall be adjusted to the nearest full whole number by
multiplying a number equal to the Warrant Price in effect immediately prior to
such adjustment by the number of shares of Common Stock issuable upon exercise
of the Underwriter's Option immediately prior to such adjustment and dividing
the product so obtained by the adjusted Warrant Price.
(e) Reclassification, Consolidation, Merger, etc. In case of any
reclassification or change of the outstanding shares of Common Stock (other than
a change in par value to no par value, or from no par value to par value, or as
a result of a subdivision or combination), or in the case of any consolidation
of the Company with, or merger of the Company into, another corporation (other
than a consolidation or merger which does not result in any reclassification or
change of the outstanding shares of Common Stock, except a change as a result of
a subdivision or combination of such shares or a change in par value, as
aforesaid), or in the case of a sale or conveyance to another corporation of the
property of the Company as an entirety, the Holder shall thereafter have the
right to purchase the kind and number of shares of stock and other securities
and property receivable upon such reclassification, change, consolidation,
merger, sale or conveyance as if the Holder were the owner of the shares of
Common Stock underlying the Underwriter's Option immediately prior to any such
events (but not the shares of Common Stock issuable upon exercise of any
Warrants underlying the Underwriter's Option) at a price equal to the product of
(x) the number of shares issuable upon exercise of the Underwriter's Option (but
not the shares of Common Stock issuable upon exercise of any Warrants underlying
the Underwriter's Option) and (y) the Warrant Price in effect immediately prior
to the record date for such reclassification, change, consolidation, merger,
sale or conveyance as if such Holder had exercised the Underwriter's Option.
(f) No Adjustment of Warrant Price in Certain Cases. Notwithstanding
anything herein to the contrary, no adjustment of the Warrant Price shall be
made:
(i) Upon the issuance or sale of the Underwriter's Option, the
shares of Common Stock or Warrants issuable upon the exercise of the
Underwriter's Option or the shares of Common Stock issuable upon
exercise of the Warrants underlying the Underwriter's Option; or
16
<PAGE>
(ii) Upon the issuance or sale of (A) the shares of Common Stock
or Warrants issued by the Company in the Public Offering (including
pursuant to the Underwriter's overallotment option) or other shares of
Common Stock or warrants issued by the Company upon consummation of
the IPO, (B) the shares of Common Stock (or other securities) issuable
upon exercise of Warrants; or
(iii) Upon (i) the issuance of options pursuant to the Company's
employee stock option plan in effect on the date hereof or as
hereafter amended in accordance with the terms thereof or any other
employee or executive stock option plan approved by stockholders of
the Company or the sale by the Company of any shares of Common Stock
pursuant to the exercise of any such options, or (ii) the sale by the
Company of any shares of Common Stock pursuant to the exercise of any
options or warrants issued and outstanding on the date of closing of
the sale of Common Stock and Warrants pursuant to the Public Offering
or (iii) the issuance or sale by the Company of any shares of Common
Stock pursuant to the Company's restricted stock plan in effect on the
date hereof; or
(iv) If the amount of said adjustment shall be less than two
cents (2(cent)) per share of Common Stock.
(g) Adjustment of Warrants Underlying Underwriter's Option. With
respect to the Warrants underlying the Underwriter's Option, the exercise price
of such Warrants and the number of shares of Common Stock purchasable pursuant
to such Warrants shall be automatically adjusted in accordance with the
applicable provisions of the Warrant Agreement, upon the occurrence, at any time
after the date hereof, of any of the events described in the Warrant Agreement
requiring such adjustment, with the same force and effect as if such Warrants
had been issued as of this date, whether or not such Warrants shall have been
exercised (or exercisable) at the time of the occurrence of such event and
whether or not such Warrants shall be issued and outstanding at the time of the
occurrence of such event. Thereafter, such Warrants shall be exercisable at such
adjusted Warrant's exercise price for such adjusted number of shares of Common
Stock or other securities, properties or rights.
(h) Redemption of Underwriter's Option. Notwithstanding anything to
the contrary contained in this Agreement or elsewhere, the Underwriters Option
cannot be redeemed by the Company under any circumstances.
17
<PAGE>
(i) Dividends and Other Distributions with Respect to Outstanding
Securities. In the event that the Company shall at any time after the Closing
Date and prior to the exercise and expiration of the Underwriter's Option
declare a dividend (other than a dividend consisting solely of shares of Common
Stock or a cash dividend or distribution payable out of current or retained
earnings) or otherwise distribute to the holders of Common Stock any monies,
assets, property, rights, evidences of indebtedness, securities (other than such
a cash dividend or distribution or dividend consisting solely of shares of
Common Stock), whether issued by the Company or by another person or entity, or
any other thing of value, the Holders of the unexercised Underwriter's Option
shall thereafter be entitled, in addition to the shares of Common Stock or other
securities receivable upon the exercise thereof, to receive, upon the exercise
of such Underwriter's Option, the same monies, property, assets, rights,
evidences of indebtedness, securities or any other thing of value that they
would have been entitled to receive at the time of such dividend or distribution
as if the Holders were the owners of the shares of Common Stock underlying the
Underwriter's Option (but not the shares of Common Stock issuable upon exercise
of any Warrants underlying the Underwriter's Option). At the time of any such
dividend or distribution, the Company shall make appropriate reserves to ensure
the timely performance of the provisions of this Paragraph 7(i).
(j) Subscription Rights for Shares of Common Stock or Other
Securities. In case the Company or an affiliate of the Company shall at any time
after the date hereof and prior to the exercise of the Underwriter's Option in
full issue any rights to subscribe for shares of Common Stock or any other
securities of the Company or of such affiliate to all the holders of Common
Stock of the Company, the Holders of the unexercised Underwriter's Option shall
be entitled, in addition to the shares of Common Stock or other securities
receivable upon the exercise of the Underwriter's Option, to receive such rights
at the time such rights are distributed to the other stockholders of the Company
but only to the extent of the number of shares of Common Stock, if any, for
which the Underwriter's Option remains exercisable.
(k) Notice in Event of Dissolution. In case of the dissolution,
liquidation or winding-up of the Company, all rights under the Underwriter's
Option shall terminate on a date fixed by the Company, such date to be no
earlier than ten (10) days prior to the effectiveness of such dissolution,
liquidation or winding-up and not later than five (5) days prior to such
effectiveness. Notice of such termination of purchase rights shall be given to
the last registered Holder of the Underwriter's Option, as the same shall appear
on the books and records of the Company, by registered mail at least thirty (30)
days prior to such termination date.
18
<PAGE>
(l) Computations. The Company may retain a firm of independent
public accountants (who may be any such firm regularly employed by the Company)
to make any computation required under this Paragraph, and any certificate
setting forth such computation signed by such firm shall be conclusive evidence
of the correctness of any computation made under this Paragraph 7.
8. Fractional Shares.
---------------------
(a) The Company shall not be required to issue fractions of shares of
Common Stock or fractional Warrants on the exercise of this Underwriter's
Option, provided, however, that if the Holder exercises the Underwriter's Option
in full, any fractional shares of Common Stock shall be eliminated by rounding
any fraction up to the nearest whole number of shares of Common Stock.
(b) The Holder of this Underwriter's Option, by acceptance hereof,
expressly waives his right to receive any fractional share of Common Stock or
fractional Warrant upon exercise of this Underwriter's Option.
9. Redemption of Warrants underlying the Underwriter's Option
-------------------------------------------------------------
The Warrants underlying the Underwriter's Option are redeemable by the
Company at a redemption price of $.01 per Warrant, in whole or in part,
commencing 12 months after the date hereof and prior to their expiration upon
not less than thirty (30) days' prior written notice to the holders of the
Warrants; provided that the average closing bid quotation of the Common Stock as
reported on The Nasdaq Stock Market, if traded thereon, or if not traded
thereon, the average closing sale price if listed on a national securities
exchange (or other reporting system that provides last sales prices), has been
at least 150% of the then current Exercise Price for a period of 20 consecutive
trading days ending on the third day prior to the date on which the Company
gives notice of redemption. Any redemption in part shall be made pro rata to all
Warrant holders. The redemption notice shall be mailed to the holders of the
Warrants at their respective addresses appearing in the Warrant register.
Holders of the Warrants will have exercise rights until the close of business on
the day immediately preceding the date fixed for redemption (at which time this
Underwriter's Option shall no longer be exercisable for Warrants).
9. Miscellaneous.
-----------------
(a) This Underwriter's Option shall be governed by and in accordance
with the laws of the State of New York without regard to the conflicts of law
principles thereof.
19
<PAGE>
(b) All notices, requests, consents and other communications hereunder
shall be made in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt requested:
(i) if to a Holder, to the address of such Holder as shown on the books of the
Company, or (ii) if to the Company, 611 Broadway, New York, New York 10012.
(c) The Company and the Underwriter may from time to time supplement
or amend this Underwriter's Option without the approval of any other Holders in
order to cure any ambiguity, to correct or supplement any provision contained
herein which may be defective or inconsistent with any provisions herein, or to
make any other provisions in regard to matters or questions arising hereunder
which the Company and the Underwriter may deem necessary or desirable and which
the Company and the Underwriter deem not to materially adversely affect the
interest of the Holders.
(d) All the covenants and provisions of this Underwriter's Option by
or for the benefit of the Company and the Holders shall bind and inure to the
benefit of their respective successors and assigns hereunder.
(e) Nothing in this Underwriter's Option shall be construed to give to
any person or corporation other than the Company and the Underwriter and any
other registered Holder or Holders, any legal or equitable right, and this
Underwriter's Option shall be for the sole and exclusive benefit of the Company
and the Underwriter and any other Holder or Holders.
(f) This Underwriter's Option may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
IN WITNESS WHEREOF, the Company has caused this Underwriter's Warrant
to be signed by its duly authorized officer and this Underwriter's Option to be
dated , 1996.
AMERICAN INTERNATIONAL
CONSOLIDATED,INC.
By:
------------------------------------
John Wilson, Chief Executive Officer
20
<PAGE>
PURCHASE FORM
(To be signed only upon exercise of the Underwriter's Option)
The undersigned, the Holder of the foregoing Underwriter's Option,
hereby irrevocably elects to exercise the purchase rights represented by such
Underwriter's Option for, and to purchase thereunder, of ______ shares of Common
Stock and Warrants of American International Consolidated, Inc., and herewith
makes payment of $________ therefor, and requests that the certificates for
Common Stock and Warrants be issued in the name(s) of, and delivered to
________________________________ whose address(es) is (are)
___________________________________________________________ and whose social
security or taxpayer identification number is .
Dated: __________________
_________________________*
- -------------------------
Address
21
<PAGE>
* Signature must conform in all respects to name of registered Holder.
22
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of the Underwriter's Option)
For value received, the undersigned hereby sells, assigns, and transfers unto
_____________________ the right to purchase _______ shares of Common Stock and
Warrants of American International Consolidated, Inc. represented by the
foregoing Underwriter's Option to the extent of __________ Shares and Warrants
and appoints ________________, attorney to transfer such rights on the books of
American International Consolidated, Inc., with full power of substitution in
the premises.
Dated: __________________
- -------------------------
(name of holder)
- -------------------------
Address
- -------------------------
In the presence of:
- -------------------------
- -------------------------
23
AMERICAN INTERNATIONAL CONSOLIDATED, INC.
a Delaware corporation
[ ] STOCK TRANSFER & TRUST COMPANY
Warrant Agent
and
DALTON KENT SECURITIES GROUP, INC.
WARRANT AGREEMENT
<PAGE>
TABLE OF CONTENTS
Section Page
------- ----
1. Appointment of Warrant Agent................................... 1
2. Form of Warrant................................................ 1
3. Countersignature and Registration.............................. 2
4. Transfers and Exchanges........................................ 3
5. Exercise of Warrants; Payment of Warrant
Solicitation Fee............................................... 3
6. Payment of Taxes............................................... 8
7. Mutilated or Missing Warrants.................................. 8
8. Reservation of Common Stock.................................... 9
9. Warrant Price; Adjustments..................................... 10
10. Fractional Interests........................................... 19
11. Notices to Warrantholders...................................... 19
12. Disposition of Proceeds on Exercise of Warrant................. 21
13. Redemption of Warrants......................................... 21
14. Merger or Consolidation or Change of Name of
Warrant Agent.................................................. 22
15. Duties of Warrant Agent........................................ 23
16. Change of Warrant Agent........................................ 26
17. Identity of Transfer Agent..................................... 27
18. Notices........................................................ 28
19. Supplements and Amendments..................................... 29
20. New York Contract.............................................. 29
21. Benefits of this Agreement..................................... 30
22. Successors..................................................... 30
i
<PAGE>
WARRANT AGENT AGREEMENT dated as of , 1996, by and among AMERICAN
INTERNATIONAL CONSOLIDATED, INC., a Delaware corporation (the "Company"), [ ]
Stock Transfer & Trust Company, as warrant agent (hereinafter called the
"Warrant Agent"), and Dalton Kent Securities Group, Inc., the representative
("Representative") of the several underwriters (the "Underwriters").
WHEREAS, the Company proposes to issue and sell through a initial public
offering by the Underwriters, an aggregate of 900,000 shares of common stock,
$.01 par value per share (the "Common Stock") and 450,000 Common Stock Purchase
Warrants (the "Warrants");
WHEREAS, each Warrant will entitle the holder to pur- chase one share of
Common Stock;
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 exercise of the Warrants;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto agree as follows: Section 1. Appointment of
Warrant Agent. The Company hereby appoints the Warrant Agent to act as Warrant
Agent for the Company in accordance with the instructions hereinafter set forth
in this Agreement, and the Warrant Agent hereby accepts such appointment.
<PAGE>
Section 2. Form of Warrant. The text of the Warrants and of the form of
election to purchase Common Stock to be printed on the reverse thereof shall be
substantially as set forth in Exhibit A attached hereto. Each Warrant shall
entitle the registered holder thereof to purchase one share of Common Stock at a
purchase price of [[five dollars] ($5.00)], at any time commencing on the
effective date of the prospectus of the public offering until 4:00 p.m. Eastern
time, on ,2001. The warrant exercise price and the number of shares of Common
Stock issuable upon exercise of the Warrants are subject to adjustment upon the
occurrence of certain events, all as hereinafter provided. The Warrants shall be
executed on behalf of the Company by the manual or facsimile signature of the
present or any future President or Vice President of the Company, attested to by
the manual or facsimile signature of the present or any future Secretary or
Assistant Secretary of the Company.
Warrants shall be dated as of the issuance by the Warrant Agent either upon
initial issuance or upon transfer or exchange.
In the event the aforesaid expiration dates of the Warrants fall on a
Saturday or Sunday, or on a legal holiday on which the New York Stock Exchange
is closed, then the Warrants shall expire at 4:00 p.m. Eastern time on the next
succeeding business day.
Section 3. Countersignature and Registration. The Warrant Agent shall
maintain books for the transfer and registration of the Warrants. Upon the
2
<PAGE>
initial issuance of the Warrants, the Warrant Agent shall issue and register the
Warrants in the names of the respective holders thereof. The Warrants shall be
countersigned manually or by facsimile by the Warrant Agent (or by any successor
to the Warrant Agent then acting as warrant agent under this Agreement) and
shall not be valid for any purpose unless so countersigned. The Warrants may,
however, be so countersigned by the Warrant Agent (or by its successor as
Warrant Agent) and be delivered by the Warrant Agent, notwithstanding that the
persons whose manual or facsimile signatures appear thereon as proper officers
of the Company shall have ceased to be such officers at the time of such
countersignature or delivery.
Section 4. Transfers and Exchanges. The Warrant Agent shall transfer, from
time to time, any outstanding Warrants upon the books to be maintained by the
Warrant Agent for that purpose, upon surrender thereof for transfer properly
endorsed or accompanied by appropriate instructions for transfer. Upon any such
transfer, a new Warrant shall be issued to the transferee and the surrendered
Warrant shall be cancelled by the Warrant Agent. Warrants so cancelled shall be
delivered by the Warrant Agent to the Company from time to time upon request.
Warrants may be exchanged at the option of the holder thereof, when surrendered
at the office of the Warrant Agent, for another Warrant, or other Warrants of
different denominations of like tenor and representing in the aggregate the
right to purchase a like number of shares of Common Stock.
3
<PAGE>
Section 5. Exercise of Warrants; Payment of Warrant Solicitation Fee.
Subject to the provisions of this Agreement, each registered holder of Warrants
shall have the right, which may be exercised commencing at the opening of the
business on , 1996, to purchase from the Company (and the Company shall issue
and sell to such registered holder of Warrants) the number of fully paid and
non-assessable shares of Common Stock specified in such Warrants upon surrender
of such Warrants to the Company at the office of the Warrant Agent, with the
form of election to purchase on the reverse thereof duly filled in and signed,
and upon payment to the Company of the warrant price, determined in accordance
with the provisions of Sections 9 and 10 of this Agreement, for the number of
shares of Common Stock in respect of which such Warrants are then exercised.
Payment of such warrant price shall be made in cash or by certified check or
bank draft to the order of the Company. Subject to Section 6, upon such
surrender of Warrants and payment of the warrant price, the Company shall issue
and cause to be delivered with all reasonable dispatch to or upon the written
order of the registered holder of such Warrants and in such name or names as
such registered holder may designate, a certificate or certificates for the
number of full shares of Common Stock so purchased upon the exercise of such
Warrants. Such certificate or certificates shall be deemed to have been issued
and any person so designated to be named therein shall be deemed to have become
4
<PAGE>
a holder of record of such shares of Common Stock as of the date of the
surrender of such Warrants and payment of the warrant price as aforesaid. The
rights of purchase represented by the Warrants shall be exercisable, at the
election of the registered holders thereof, either as an entirety or from time
to time for a portion of the shares specified therein and, in the event that any
Warrant is exercised in respect of less than all of the shares of Common Stock
specified therein at any time prior to the date of expiration of the Warrants, a
new Warrant or Warrants will be issued to the registered holder for the
remaining number of shares of Common Stock specified in the Warrant so
surrendered, and the Warrant Agent is hereby irrevocably authorized to
countersign and to deliver the required new Warrants pursuant to the provisions
of this Section and of Section 3 of this Agreement and the Company, whenever
requested by the Warrant Agent, will supply the Warrant Agent with Warrants duly
executed on behalf of the Company for such purpose. Anything in the foregoing to
the contrary notwithstanding, no Warrant will be exercisable unless at the time
of exercise the Company has filed with the Securities and Exchange Commission a
registration statement under the Securities Act of 1933 (the "Act") covering the
shares of Common Stock issuable upon exercise of such Warrant and such
registration statement shall have been declared effective, such shares have been
so registered or qualified or deemed to be exempt under the securities laws of
the state of residence of the holder of such Warrant. The Company shall use its
best efforts to have all shares so registered or qualified on or before the date
on which the Warrants become exercisable.
5
<PAGE>
(a) If at the time of exercise of any Warrant (i) the market price of
the Company's Common Stock is equal to or greater than the then exercise price
of the Warrant, (ii) the exercise of the Warrant is solicited by the
Underwriters at such time as it is a member of the National Association of
Securities Dealers, Inc. ("NASD"), (iii) the Warrant is not held in a
discretionary account, (iv) disclosure of the compensation arrangement is made
in documents provided to the holders of the Warrants, (v) the Underwriter is
designated in writing as the soliciting broker and (vi) the solicitation of the
exercise of the Warrant is 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 Underwriter soliciting such
Warrant shall be entitled to receive from the Company upon exercise of each of
the Warrants so exercised a fee of five percent (5%) of the aggregate price of
the Warrants so exercised (the "Exercise Fee"). The procedures for payment of
the warrant solicitation fee are set forth in Section 5(b) below.
(b) (1) Within five (5) days of the last day of each month commencing
with , 1996, the Warrant Agent will notify the Representative of each Warrant
Certificate which has been properly completed for exercise by holders of
6
<PAGE>
Warrants during the last month. The Company and Warrant Agent shall determine,
in their sole and absolute discretion, whether a Warrant Certificate has been
properly completed. The Warrant Agent will provide the Representative with such
information, in connection with the exercise of each Warrant, as the
Representative shall reasonably request.
(2) The Company hereby authorizes and in- structs the Warrant Agent to
deliver to the soliciting Underwriter the Exercise Fee promptly after receipt by
the Warrant Agent from the Company of a check payable to the order of the
soliciting Underwriter in the amount of the Exercise Fee. In the event that an
Exercise Fee is paid to the Underwriter with respect to a Warrant which the
Company or the Warrant Agent determines is not properly completed for exercise
or in respect of which the Underwriter is not entitled to an Exercise Fee, the
soliciting Underwriter will return such Exercise Fee to the Warrant Agent which
shall forthwith return such fee to the Company. The Representative and the
Company may at any time, after , 1996, and 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.
Notwithstanding any provision to the contrary, the provisions of paragraph 5(a)
and 5(c) may not be modified, amended or deleted without the prior written
consent of the Representative.
7
<PAGE>
Section 6. Payment of Taxes. The Company will pay any documentary stamp
taxes attributable to the initial issuance of Common Stock issuable upon the
exercise of Warrants; provided, however, that the Company shall not be required
to pay any tax which may be payable in respect of any transfer involved in the
issuance or delivery of any certificates of shares of Common Stock in a name
other than that of the registered holder of Warrants in respect of which such
shares are issued, and in such case neither the Company nor the Warrant Agent
shall be required to issue or deliver any certificate for shares of Common Stock
or any Warrant until the person requesting the same has paid to the Company the
amount of such tax or has established to the Company's satisfaction that such
tax has been paid.
Section 7. Mutilated or Missing Warrants. In case any of the Warrants shall
be mutilated, lost, stolen or destroyed, the Company may, in its discretion,
issue and the Warrant Agent shall countersign and deliver in exchange and
substitution for and upon cancellation of the mutilated Warrant, or in lieu of
and in substitution for the Warrant lost, stolen or destroyed, a new Warrant of
like tenor and representing an equivalent right or interest, but only upon
receipt of evidence satisfactory to the Company and the Warrant Agent of such
loss, theft or destruction and, in case of a lost, stolen or destroyed Warrant,
indemnity, if requested, also satisfactory to them. Applicants for such
substitute Warrants shall also comply with such other reasonable regulations and
pay such reasonable charges as the Company or the Warrant Agent may prescribe.
8
<PAGE>
Section 8. Reservation of Common Stock. There have been reserved, and the
Company shall at all times keep reserved, out of the authorized and unissued
shares of Common Stock, a number of shares of Common Stock sufficient to provide
for the exercise of the rights of purchase represented by the Warrants, and the
transfer agent for the shares of Common Stock and every subsequent transfer
agent for any shares of the Company's Common Stock issuable upon the exercise of
any of the rights of purchase aforesaid are irrevocably authorized and directed
at all times to reserve such number of authorized and unissued shares of Common
Stock as shall be required for such purpose. The Company agrees that all shares
of Common Stock issued upon exercise of the Warrants shall be, at the time of
delivery of the certificates of such shares, validly issued and outstanding,
fully paid and non-assessable and listed on any national securities exchange
upon which the other shares of Common Stock are then listed. So long as any
unexpired Warrants remain outstanding, the Company will file such post-effective
amendments to the registration statement (Form S-1, Registration No. 33- ) (the
"Registration Statement") filed pursuant to the Act with respect to the Warrants
(or other appropriate registration statements or post-effective amendment or
supplements) as may be necessary to permit it to deliver to each person
exercising a Warrant, a prospectus meeting the requirements of Section 10(a)(3)
of the Act and otherwise complying therewith, and will deliver such prospectus
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to each such person. To the extent that during any period it is not reasonably
likely that the Warrants will be exercised, due to market price or otherwise,
the Company need not file such a post-effective amendment during such period.
The Company will keep a copy of this Agreement on file with the transfer agent
for the shares of Common Stock and with every subsequent transfer agent for any
shares of the Company's Common Stock issuable upon the exercise of the rights of
purchase represented by the Warrants. The Warrant Agent is irrevocably
authorized to requisition from time to time from such transfer agent stock
certificates required to honor outstanding Warrants. The Company will supply
such transfer agent with duly executed stock certificates for that purpose. All
Warrants surrendered in the exercise of the rights thereby evidenced shall be
cancelled by the Warrant Agent and shall thereafter be delivered to the Company,
and such cancelled Warrants shall constitute sufficient evidence of the number
of shares of Common Stock which have been issued upon the exercise of such
Warrants. Promptly after the date of expiration of the Warrants, the Warrant
Agent shall certify to the Company the total aggregate amount of Warrants then
outstanding, and thereafter no shares of Common Stock shall be subject to
reservation in respect of such Warrants which shall have expired. Section 9.
Warrant Price; Adjustments. (a) The warrant price at which Common Stock shall be
purchasable upon the exercise of the Warrants shall be $[5.00] at any time from
, 1996 until 4:00 Eastern time on , 20001 or after adjustment, as provided in
this Section, shall be such price as so adjusted (the "Warrant Price").
10
<PAGE>
(b) The Warrant Price shall be subject to adjust- ment from time to
time as follows:
(i) In case the Company shall at any time after the date hereof
pay a dividend in shares of Common Stock or make a distribution in shares of
Common Stock, then upon such dividend or distribution the Warrant Price in
effect immediately prior to such dividend or distribution shall forthwith be
reduced to a price determined by dividing:
(A) an amount equal to the total number of shares of Common
Stock outstanding immediately prior to such dividend or distribution multiplied
by the Warrant Price in effect immediately prior to such dividend or
distribution, by
(B) the total number of shares of Common Stock outstanding
immediately after such issuance or sale.
For the purposes of any computation to be made in accordance with the
provisions of this clause (i), the following provisions shall be applicable:
Common Stock issuable by way of dividend or other distribution on any stock of
the Company shall be deemed to have been issued immediately after the opening of
business on the date following the date fixed for the determination of
stockholders entitled to receive such dividend or other distribution.
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<PAGE>
(ii) In case the Company shall at any time subdivide or combine the
outstanding Common Stock, the Warrant Price shall forthwith be proportionately
decreased in the case of subdivision or increased in the case of combination to
the nearest one cent. Any such adjustment shall become effective at the time
such subdivision or combination shall become effective.
(iii) Within a reasonable time after the close of each quarterly
fiscal period of the Company during which the Warrant Price has been adjusted as
herein provided, the Company shall
(A) file with the Warrant Agent a cer tificate signed by the
President or Vice President of the Company and by the Treasurer or Assistant
Treasurer or the Secretary or an Assistant Secretary of the Company, showing in
detail the facts requiring all such adjustments occurring during such period and
the Warrant Price after each such adjustment; and
(B) the Warrant Agent shall have no duty with respect to any such
certificate filed with it except to keep the same on file and available for
inspection by holders of Warrants during reasonable business hours, and the
Warrant Agent may conclusively rely upon the latest certificate furnished to it
hereunder. The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of a Warrant to determine whether any facts exist
which may require any adjustment of the Warrant Price, or with respect to the
nature or extent of any adjustment of the Warrant Price when made, or with
respect to the
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<PAGE>
method employed in making any such adjustment, or with respect to the nature or
extent of the property or securities deliverable hereunder. In the absence of a
certificate having been furnished, the Warrant Agent may conclusively rely upon
the provisions of the Warrants with respect to the Common Stock deliverable upon
the exercise of the Warrants and the applicable Warrant Price thereof.
(C) Notwithstanding anything contained herein to the contrary, no
adjustment of the Warrant Price shall be made if the amount of such adjustment
shall be less than $.05, but in such case any adjustment that would otherwise be
required then to be made shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustment so carried forward, shall amount to not less than $.05.
(c) In the event that the number of outstanding shares of Common Stock
is increased by a stock dividend payable in Common Stock or by a subdivision of
the outstanding Common Stock, then, from and after the time at which the
adjusted Warrant Price becomes effective pursuant to Subsection (b) of this
Section by reason of such dividend or subdivision, the number of shares of
Common Stock issuable upon the exercise of each Warrant shall be increased in
proportion to such increase in outstanding shares. In the event that the number
of shares of Common Stock outstanding is decreased by a combination of the
outstanding Common Stock, then, from and after the time at which the adjusted
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<PAGE>
Warrant Price becomes effective pursuant to Subsection (b) of this Section by
reason of such combination, the number of shares of Common Stock issuable upon
the exercise of each Warrant shall be decreased in proportion to such decrease
in the outstanding shares of Common Stock.
(d) In case of any reorganization or reclassifi cation of the
outstanding Common Stock (other than a change in par value, or from par value to
no par value, or as a result of a subdivision or combination), or in case of any
consolidation of the Company with, or merger of the Company 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 of the
outstanding Common Stock), or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, the holder of each Warrant then outstanding shall thereafter have the
right to purchase the kind and amount of shares of Common Stock and other
securities and property receivable upon such reorganization, reclassification,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock which the holder of such Warrant shall then be entitled to
purchase; such adjustments shall apply with respect to all such changes
occurring between the date of this Warrant Agreement and the date of exercise of
such Warrant.
14
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(e) Subject to the provisions of this Section 9, in case the Company
shall, at any time prior to the exercise of the Warrants, make any distribution
of its assets to holders of its Common Stock as a liquidating or a partial
liquidating dividend, then the holder of Warrants who exercises his Warrants
after the record date for the determination of those holders of Common Stock
entitled to such distribution of assets as a liquidating or partial liquidating
dividend shall be entitled to receive for the Warrant Price per Warrant, in
addition to each share of Common Stock, the amount of such distribution (or, at
the option of the Company, a sum equal to the value of any such assets at the
time of such distribution as determined by the Board of Directors of the Company
in good faith), which would have been payable to such holder had he been the
holder of record of the Common Stock receivable upon exercise of his Warrant on
the record date for the determination of those entitled to such distribution.
(f) In case of the dissolution, liquidation or winding-up of the
Company, all rights under the Warrants shall terminate on a date fixed by the
Company, such date to be no earlier than ten (10) days prior to the
effectiveness of such dissolution, liquidation or winding-up and not later than
five (5) days prior to such effectiveness. Notice of such termination of
purchase rights shall be given to the last registered holder of the Warrants, as
the same shall appear on the books of the Company maintained by the Warrant
Agent, by registered mail at least thirty (30) days prior to such termination
date.
15
<PAGE>
(g) In case the Company shall, at any time prior to the expiration of
the Warrants and prior to the exercise thereof, offer to the holders of its
Common Stock any rights to subscribe for additional shares of any class of the
Company, then the Company shall give written notice thereof to the last
registered holder thereof not less than thirty (30) days prior to the date on
which the books of the Company are closed or a record date is fixed for the
determination of the stockholders entitled to such subscription rights. Such
notice shall specify the date as to which the books shall be closed or record
date fixed with respect to such offer of subscription and the right of the
holder thereof to participate in such offer of subscription shall terminate if
the Warrant shall not be exercised on or before the date of such closing of the
books or such record date.
(h) Any adjustment pursuant to the aforesaid provisions shall be made
on the basis of the number of shares of Common Stock which the holder thereof
would have been entitled to acquire by the exercise of the Warrant immediately
prior to the event giving rise to such adjustment.
(i) Irrespective of any adjustments in the Warrant Price or the number
or kind of shares purchasable upon exercise of the Warrants, Warrants previously
or thereafter issued may continue to express the same price and number and kind
of shares as are stated in the similar Warrants initially issuable pursuant to
this Warrant Agreement.
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(j) The Company may retain a firm of independent public accountants
(who may be any such firm regularly employed by the Company) to make any
computation required under this Section, and any certificate setting forth such
computation signed by such firm shall be conclusive evidence of the correctness
of any computation made under this Section.
(k) If at any time, as a result of an adjustment made pursuant to
paragraph (d) above, the holders of a Warrant or Warrants shall become entitled
to purchase any securities other than shares of Common Stock, thereafter the
number of such securities so purchasable upon exercise of each Warrant and the
Warrant Price for such shares shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable to the provisions
with respect to the Common Stock contained in paragraphs (b) and (c).
(l) No adjustment to the Purchase Price of the Warrants or to the
number of shares of Common Stock purchasable upon the exercise of such Warrants
will be made, however under the following circumstances: (i) upon the grant or
exercise of any of the options presently outstanding (or options which may
hereafter be granted and/or exercised) under the Company's 1995 Stock Option
Plan for officers, directors and/or employees, consultants and similar situated
parties of the Company; or (ii) upon the exercise of any of the options
presently outstanding granted to directors and counsel to the Company in 1995 as
otherwise set forth in the Prospectus of the Company dated , 1996; or
17
<PAGE>
(iii) upon the sale or exercise of the Warrants; or
(iv) upon exercise of the Underwriters' Warrants as otherwise
described in the Company's Prospectus dated [ ], 1996; or
(vi) upon exercise or sale of the Warrants issuable upon exercise
of the Underwriters' Warrants; or
(vii) upon any amendment to or change in the term of any rights
or warrants to subscribe for or purchase, or options for the purchase of Common
Stock or convertible securities, including, but not limited to, any extension of
any expiration date of any such right, warrant or option, any change in any
exercise or purchase price provided for in any such right, warrant or option,
any extension of any date through which any convertible securities are
convertible into or exchangeable for Common Stock or any change in the rate at
which any convertible securities are convertible into or exchangeable for Common
Stock (other than rights, warrants, options or convertible securities issued or
sold after the close of business on the date of the original issue of the Common
Stock, (i) for presently outstanding securities, or (ii) for which an adjustment
in the Purchase Price then in effect was theretofor made or required to be made,
upon issuance or sale thereof.
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<PAGE>
(viii) Upon a private offering of securities pursuant to
exemptions from federal and state securities laws to parties other than the
Company's officers, directors, five percent stockholders or Affiliates as that
term is defined in the Act, Exchange Act and the rules and regulations
thereunder of each of them. Section 10. Fractional Interests. The Warrants may
only be exercised to purchase full shares of Common Stock and the Company shall
not be required to issue fractions of shares of Common Stock on the exercise of
Warrants. However, if a Warrantholder exercises all Warrants then owned of
record by him and such exercise would result in the issuance of a fractional
share, the Company will pay to such Warrantholder, in lieu of the issuance of
any fractional share otherwise issuable, an amount of cash based on the market
value of the Common Stock of the Company on the last trading day prior to the
exercise date. Section 11. Notices to Warrantholders. (a) Upon any adjustment of
the Warrant Price and the number of shares of Common Stock issuable upon
exercise of a Warrant, then and in each such case, the Company shall give
written notice thereof to the Warrant Agent, which notice shall state the
Warrant Price resulting from such adjustment and the increase or decrease, if
any, in the number of shares purchasable at such price upon the exercise of a
Warrant, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. The Company shall also mail such
notice to
19
<PAGE>
the holders of the Warrants at their respective addresses appearing in the
Warrant register. Failure to give or mail such notice, or any defect therein,
shall not affect the validity of the adjustments.
(b) In case at any time:
20
<PAGE>
(i) the Company shall pay dividends payable in stock upon its
Common Stock or make any distribution (other than regular cash dividends) to the
holders of its Common Stock; or
(ii) the Company shall offer for subscrip- tion pro rata to all
of the holders of its Common Stock any additional shares of stock of any class
or other rights; or
(iii) there shall be any capital reorganiza- tion or
reclassification of the capital stock of the Company, or consolidation or merger
of the Company with, or sale of substantially all of its assets to another
corporation; or
(iv) there shall be a voluntary or involun- tary dissolution,
liquidation or winding-up of the Company; then in any one or more of such cases,
the Company shall give written notice in the manner set forth in Section 11(a)
of the date on which (A) a record shall be taken for such dividend, distribution
or subscription rights, or (B) such reorganization, reclassifica- tion,
consolidation, merger, sale, dissolution, liquidation or winding-up shall take
place, as the case may be. Such notice shall also specify the date as of which
the holders of Common Stock of record shall participate in such dividend,
distribution or subscription rights, or shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up as the case may be. Such notice shall be given at
least thirty (30) days prior to the action in question and not less than thirty
21
<PAGE>
(30) days prior to the record date in respect thereof. Failure to give such
notice, or any defect therein, shall not affect the legality or validity of any
of the matters set forth in this Section 11(b).
(c) The Company shall cause copies of all finan- cial statements and
reports, proxy statements and other documents that are sent to its stockholders
to be sent by first-class mail, postage prepaid, on the date of mailing to such
stockholders, to each registered holder of Warrants at his address appearing in
the Warrant register as of the record date for the determination of the
stockholders entitled to such documents.
Section 12. Disposition of Proceeds on Exercise of Warrants.
(a) The Warrant Agent shall promptly forward to the Company all monies
received by the Warrant Agent for the purchase of shares of Common Stock through
the exercise of such Warrants.
(b) The Warrant Agent shall keep copies of this Agreement available for
inspection by holders of Warrants during normal business hours.
Section 13. Redemption of Warrants. The Warrants are redeemable by the
Company commencing on , 1996 ( or earlier with the consent of the
Representative) and prior to their expiration on , 2001, in whole or in part, on
not less than thirty (30) days' prior written notice at a redemption price of
$.01 per Warrant at any time; provided that the average closing bid price of the
22
<PAGE>
Common Stock for a period of twenty consecutive trading days ending on the fifth
day prior to the date of any redemption notice, equals or exceeds 150% of the
then effective Exercise Price of the Warrants. Any redemption in part shall be
made pro rata to all Warrant holders. The redemption notice shall be mailed to
the holders of the Warrants at their respective addresses appearing in the
Warrant register. Holders of the Warrants will have exercise rights until the
close of business on the date fixed for redemption.
Section 14. Merger or Consolidation or Change of Name of Warrant Agent. Any
corporation or company which may succeed to the corporate trust business of the
Warrant Agent by any merger or consolidation or otherwise shall be the successor
to the Warrant Agent hereunder without the execution or filing of any paper or
any further act on the part of any of the parties hereto, provided that such
corporation would be eligible for appointment as a successor Warrant Agent under
the provisions of Section 16 of this Agreement. In case at the time such
successor to the Warrant Agent shall succeed to the agency created by this
Agreement, any of the Warrants shall have been countersigned but not delivered,
any such successor to the Warrant Agent may adopt the countersignature of the
original Warrant Agent and deliver such Warrants so countersigned. In case at
any time the name of the Warrant Agent shall be changed and at such time any of
the Warrants shall have been countersigned but not delivered, the Warrant Agent
may adopt the
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<PAGE>
countersignature under its prior name and deliver Warrants so countersigned. In
all such cases such Warrants shall have the full force provided in the Warrants
and in the Agreement.
Section 15. Duties of Warrant Agent. The Warrant Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Warrants, by their
acceptance thereof, shall be bound:
(a) The statements of fact and recitals contained herein and in the
Warrants shall be taken as statements of the Company, and the Warrant Agent
assumes no responsibility for the correctness of any of the same except as such
describe the Warrant Agent or action taken or to be taken by it. The Warrant
Agent assumes no responsibility with respect to the distribution of the Warrants
except as herein expressly provided.
(b) The Warrant Agent shall not be responsible for any failure of the
Company to comply with any of the covenants in this Agreement or in the Warrants
to be complied with by the Company.
(c) The Warrant Agent may consult at any time with counsel satisfactory to
it (who may be counsel for the Company) and the Warrant Agent shall incur no
liability or responsibility to the Company or to any holder of any Warrant in
respect of any action taken, suffered or omitted by it hereunder in good faith
and in accordance with the opinion or the advice of such counsel.
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<PAGE>
(d) The Warrant Agent shall incur no liability or responsibility to the
Company or to any holder of any Warrant for any action taken in reliance on any
notice, resolution, waiver, consent, order, certificate or other instrument
believed by it to be genuine and to have been signed, sent or presented by the
proper party or parties.
(e) The Company agrees to pay to the Warrant Agent reasonable compensation
for all services rendered by the Warrant Agent in the execution of this
Agreement, to reimburse the Warrant Agent for all expenses, taxes and
governmental charges and other charges incurred by the Warrant Agent in the
execution of this Agreement and to indemnify the Warrant Agent and save it
harmless against any and all liabilities, including judgments, costs and
reasonable counsel fees, for anything done or omitted by the Warrant Agent in
the execution of this Agreement except as a result of the Warrant Agent's
negligence, willful misconduct or bad faith.
(f) The Warrant Agent shall be under no obligation to institute any action,
suit or legal proceeding or to take any other action likely to involve expenses
unless the Company or one or more registered holders of Warrants shall furnish
the Warrant Agent with reasonable security and indemnity for any costs and
expenses which may be incurred (for which there is no obligation of the Company
to do so, except as provided herein) but this provision shall not affect the
power of the Warrant Agent to take such action as the Warrant Agent may
considerproper, whether with or without any such security or indemnity. All
25
<PAGE>
rights of action under this Agreement or under any of the Warrants may be
enforced by the Warrant Agent without the possession of any of the Warrants or
the production thereof at any trial or other proceeding, and any such action,
suit or proceeding instituted by the Warrant Agent shall be brought in its name
as Warrant Agent, and any recovery of judgment shall be for the ratable benefit
of the registered holders of the Warrants, as their respective rights and
interests may appear.
(g) The Warrant Agent and any stockholder, director, officer, partner or
employee of the Warrant Agent may buy, sell or deal in any of the Warrants or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or lend
money to or otherwise act as fully and freely as though it were not the Warrant
Agent under this Agreement. Nothing herein shall preclude the Warrant Agent from
acting in any other capacity for the Company or for any other legal entity.
(h) The Warrant Agent shall act hereunder solely as agent and its duties
shall be determined solely by the provisions hereof.
(i) The Warrant Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or through
its attorneys, agents or employees, and the Warrant Agent shall not be
answerable or accountable for any such attorneys, agents or employees or for any
loss to the Company, provided reasonable care had been exercised in the
selection and continued employment thereof.
26
<PAGE>
(j) Any request, direction, election, order or demand of the Company shall
be sufficiently evidenced by an instrument signed in the name of the Company by
its President or a Vice President or its Secretary or an Assistant Secretary or
its Treasurer or an Assistant Treasurer (unless other evidence in respect
thereof be herein specifically prescribed); and any resolution of the Board of
Directors may be evidenced to the Warrant Agent by a copy thereof certified by
the Secretary or an Assistant Secretary of the Company. Section 16. Change of
Warrant Agent. The Warrant Agent may resign and be discharged from its duties
under this Agreement by giving to the Company notice in writing, and to the
holders of the Warrants notice by mailing such notice to the holders at their
respective addresses appearing on the Warrant register, of such resignation,
specifying a date when such resignation shall take effect. The Warrant Agent may
be removed by like notice to the Warrant Agent from the Company and the like
mailing of notice to the holders of the Warrants. If the Warrant Agent shall
resign or be removed or shall otherwise become incapable of action, the Company
shall appoint a successor to the Warrant Agent. If the Company shall fail to
make such appointment within a period of thirty (30) days after such removal or
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Warrant Agent or after the Company has received such
27
<PAGE>
notice from a registered holder of a Warrant (who shall, with such notice,
submit his Warrant for inspection by the Company), then the registered holder of
any Warrant may apply to any court of competent jurisdiction for the appointment
of a successor to the Warrant Agent. Any successor Warrant Agent, whether
appointed by the Company or by such a court, shall be a bank or trust company,
in good standing, incorporated under any state or federal law. After
appointment, the successor Warrant Agent shall be vested with the same powers,
rights, duties and responsibility as if it had been originally named as Warrant
Agent without further act or deed and the former Warrant Agent shall deliver and
transfer to the successor Warrant Agent all cancelled Warrants, records and
property at the time held by it hereunder, and execute and deliver any further
assurance or conveyance necessary for the purpose. Failure to file or mail any
notice provided for in this Section, however, or any defect therein, shall not
affect the validity of the resignation or removal of the Warrant Agent or the
appointment of the successor Warrant Agent, as the case may be.
Section 17. Identity of Transfer Agent. Forthwith upon the appointment of
any transfer agent for the shares of Common Stock or of any subsequent transfer
agent for the shares of Common Stock or other shares of the Company's Common
Stock issuable upon the exercise of the rights of purchase represented by the
Warrants, the Company will file with the Warrant Agent a statement setting forth
the name and address of such transfer agent.
28
<PAGE>
Section 18. Notices. Any notice pursuant to this Agreement to be given by
the Warrant Agent, or by the registered holder of any Warrant to the Company,
shall be sufficiently given if sent by first-class mail, postage prepaid,
addressed (until another is filed in writing by the Company with the Warrant
Agent) as follows:
American International Consolidated, Inc.
14603 Chrisman
Houston, Texas 77039
Attention: John Wilson, Chief Executive Officer
and a copy thereof to:
Bearman Talesnick & Clowdus, P.C.
1200 Seventeenth Street, Suite 2600
New York, New York 80202
Attention: Alan Talesnick, Esq.
Any notice pursuant to this Agreement to be given by the Company or by the
registered holder of any Warrant to the Warrant Agent shall be sufficiently
given if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing by the Warrant Agent with the Company) as follows:
[ ] Stock
Transfer & Trust Company
ADDRESS
Attention: Compliance Department
29
<PAGE>
Any notice pursuant to this Agreement to be given to the Warrant Agent or
by the Company to the Representative shall be sufficiently given if sent by
first-class mail, postage prepaid, addressed (until another address if filed in
writing with the Warrant Agent) as follows:
Dalton Kent Securities Group, Inc.
330 Seventh Avenue
New York, New York 10001
Attention: Mr. Alan Elkes, CEO
and a copy thereof to:
Schneck Weltman Hashmall & Mischel LLP
1285 Avenue of the Americas
New York, New York 10019
Attention: Gregory Sichenzia, Esq.
Section 19. Supplements and Amendments. The Company, the Warrant Agent and
the Representative may from time to time supplement or amend this Agreement in
order to cure any ambiguity or to correct or supplement any provision contained
herein which may be defective or inconsistent with any other provision herein,
or to make any other provisions in regard to matters or questions arising
hereunder which the Company and the Warrant Agent and the Representative may
deem necessary or desirable and which shall not be inconsistent with the
provisions of the Warrants and which shall not adversely affect the interest of
the holders of Warrants.
Section 20. New York Contract. This Agreement and each Warrant issued
hereunder shall be deemed to be a contract made under the laws of the State of
New York and shall be construed in accordance with the laws of New York
applicable to agreements to be performed wholly within New York.
30
<PAGE>
Section 21. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Representative,
the Company and the Warrant Agent and the registered holders of the Warrants any
legal or equitable right, remedy or claim under this Agreement; but this
Agreement shall be for the sole and exclusive benefit of the Company, the
Warrant Agent and the registered holders of the Warrants.
Section 22. Successors. All the covenants and provisions of this Agreement
by or for the benefit of the Company, the Representative or the Warrant Agent
shall bind and inure to the benefit of their respective successors and assigns
hereunder. IN WITNESS WHEREOF, the parties have entered into this Agreement on
the date first above written. AMERICAN INTERNATIONAL CONSOLIDATED, INC.
By:
-------------------------------------
John Wilson, Chief Executive Officer
[ ] STOCK TRANSFER & TRUST COMPANY
By:
--------------------------------------
DALTON KENT SECURITIES GROUP, INC.
By:
--------------------------------------
31
August 5, 1996
U.S. Securities And Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen and Ladies:
We have acted as counsel for American International Consolidated Inc., a
Delaware corporation (the "Company"), in connection with the registration on
Form S-1 under the Securities Act of 1933, as amended, of up to 900,000 shares
of the Company's $.001 par value common stock ("Common Stock") and Redeemable
Common Stock Purchase Warrants ("Warrants") to purchase up to an additional
450,000 shares of Common Stock.
We have examined the Certificate Of Incorporation and the Bylaws of the
Company and the record of the Company's corporate proceedings concerning the
registration described above. In addition, we have examined such other
certificates, agreements, documents and papers, and we have made such other
inquiries and investigations of law as we have deemed appropriate and necessary
in order to express the opinion set forth in this letter. In our examinations,
we have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, photostatic, or conformed copies and the
authenticity of the originals of all such latter documents. In addition, as to
certain matters we have relied upon certificates and advice from various state
authorities and public officials, and we have assumed the accuracy of the
material and the factual matters contained herein.
Subject to the foregoing and on the basis of the aforementioned
examinations and investigations, it is our opinion that the shares of Common
Stock being registered by the Company, if and when sold and delivered as
described in the Company's Registration Statement on Form S-1 (the "Registration
Statement"), will have been duly authorized and legally issued, and will
constitute fully paid and nonassessable shares of the Company's Common Stock.
Further, the Warrants, if and when issued, will represent the right to purchase
shares of the Company's Common Stock, all as set forth in the Registration
Statement.
We hereby consent (a) to be named in the Registration Statement and in the
prospectus that constitutes a part of the Registration Statement as the
attorneys passing, on behalf of the Company, upon the validity of the issuance
of the Common Stock and Warrants, and (b) to the filing of this opinion as an
exhibit to the Registration Statement.
<PAGE>
U.S. Securities And Exchange Commission
August 5, 1996
Page 2
This opinion is to be used solely for the purpose of the registration of
the Common Stock and Warrants and may not be used for any other purpose.
Very truly yours,
/s/ Bearman Talesnick & Clowdus
Professional Corporation
BEARMAN TALESNICK & CLOWDUS
Professional Corporation
BTC:sl
Enclosures
LOAN AGREEMENT
This Loan Agreement ( the "Agreement" ) is entered into effective April 24,
1996, by and among AMERICAN INTERNATIONAL CONSTRUCTION, INC., (the "Borrower"),
METAL BUILDING COMPONENTS, INC. ( the "Lender" ), and DANNY ROY CLEMONS, RALPH
LEROY FARRAR, JUDITH ANN FARRAR, JIMMY WAYNE WILLIAMS, SHIRLEY BETH WILLIAMS,
and JOHN THOMAS WILSON (individually and collectively called the "Guarantors,"
jointly and severally).
I. PURPOSE AND SCOPE
1.1 Lender has loaned to Borrower, and Borrower has borrowed from Lender, the
total principal sum of Two Million Four Hundred Thousand Dollars,
($2,400,000.00).
1.2 Pursuant to the terms and conditions of this Agreement and other documents
and loan papers executed contemporaneously herewith, Borrower will execute a
Promissory Note (The "Note") in the principal sum of Two Million Four Hundred
Thousand Dollars ($2,400,000.00), dated April 24, 1996 in favor of Lender. The
principal and interest accruing thereon under the Note, and all other
indebtedness arising under the Loan Documents is referred to collectively in
this Agreement as the "Indebtedness". The Indebtedness shall continue to be
secured by a blanket security interest in and encumbering all of the Collateral
together with Guarantors' guarantee of performance of all of Borrower's
obligations and payment of the Indebtedness in favor of Lender. The "Collateral"
is more fully described in Article III of this Agreement.
1.3 Performance and payment of the Note and the other Loan Documents has been
guaranteed by the Guarantors pursuant to their respective Guaranty Agreements
executed in connection with the Note. This Agreement, the Note, Security
Agreement, Deeds of Trust, Guaranty Agreements and all other documents and
instruments executed in connection with the Note together with the documents and
instruments referred to or executed in connection with in this Agreement are
collectively for convenience referred to as the "Loan Documents."
1.4 The purpose of this Agreement is to set forth the terms of the financing
arrangement among Borrower, Lender and the Guarantors.
1.5 Terms referred to in this Agreement shall have the definitions assigned in
this Agreement.
1.6 In consideration of the conditions, covenants, representations, warranties,
statements and agreements contained in this Agreement, inducements made by the
Borrower and Guarantors for the benefit of Lender, and of other good and
valuable considerations, the receipt and adequacy of which are hereby
acknowledged by the parties to this Agreement, Borrower, Lender and the
Guarantors each and all agree to the terms and conditions set forth in this
Agreement.
II. LOAN AND MAXIMUM DEBT LIMITATIONS
2.1 Note. As of the effective date of execution of this Agreement, Borrower has
an unpaid principal balance of Two Million Four Hundred Thousand Dollars
($2,400,000.00). The Note will be paid in the form and amount of the Note
attached hereto, designated Exhibit "A" . The terms and conditions of interest
accrual and repayment are more fully set forth in the Note.
2.2 Prepayment. Borrower shall be entitled at any time, and from time to time,
to make prepayments of the Indebtedness owed by it to Lender without premium or
penalty. Any and all prepayments shall be applied and credited first against the
interest then due on the Note, and second as payment on the next maturing
principal payment owing on the Note. If the source of funds for any prepayment
is derived from liquidation of the Collateral, then such prepayment(s) shall be
applied in the manner required by Section 3.4 of this Agreement.
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American International Construction, Inc. - MBCI
Loan Agreement
April 24, 1996
2.3 Prepayment From Proceeds of Public Offering of Stock. Borrower intends to
issue a public offering of its stock for approximately Five Million Dollars
($5,000,000.00). In the event Borrower is successful in completing said public
offering, Borrower hereby agrees that One Million Two Hundred Thousand Dollars
($1,200,000.00) of the Indebtedness shall become due and payable and Borrower
hereby agrees to utilize One Million Two Hundred Thousand Dollars
($1,200,000.00) of the proceeds of said public offering to make a payment of the
Indebtedness as outlined in Section 2.2 of this Agreement. Upon the payment of
said amount, the payment schedule under the Note shall be adjusted so that the
remaining principal balance of said Note shall be amortized in equal monthly
installments over the remaining time period under the terms and conditions of
said Note.
2.4 Term of Agreement. The terms and conditions of this Agreement shall remain
in full force and effect and shall be binding upon the parties hereto until all
the Indebtedness and all Loan Documents are fully satisfied by the Borrower and
Guarantors.
III. COLLATERAL
3.1 Security Interest. Subject to security interests previously granted in favor
of FCLT, L.P., a Texas limited partnership, and Graybar, and subject to any
subordination agreed to herein or otherwise consented to by Lender, and as
security for the performance of the "Secured Obligations" (defined in Section
3.7 hereof), the Borrower and Guarantors have previously transferred, assigned,
or granted to Lender, and hereby reaffirm, and to the extent not previously
transferred, assigned or granted, do hereby transfer, assign and grant to
Lender, a first priority security interest and lien in and encumbering the
following property of the Borrower and Guarantors:
(a) All of Borrower's accounts, equipment, inventory, goods, chattels,
instruments, and documents, whenever acquired or arising, and all
proceeds and products thereof in any form derived. By way of
illustration and not by way of limitation, the terms "accounts,"
"equipment," and "inventory" shall be deemed to include within their
meanings the following:
(i) "accounts" shall include any and all rights of Borrower to
payment for goods sold or leased or for services rendered,
which rights are not evidenced by an instrument or chattel
paper, whether due or to become due and whether or not the
rights have been earned by performance;
(ii) "equipment" shall include any and all goods, including
fixtures, of the Borrower, other than inventory, wherever
located and whether now owned or hereafter acquired,
including, but not limited to, machinery, computers, vehicles,
rolling stock, motors, controls, tools, parts, furniture,
furnishings and office machines, together with all
attachments, accessories, replacements, substitutions,
additions and improvements to any of the foregoing, whenever
acquired or arising by Borrower, but excluding any such goods
leased by Borrower from others; and
(iii) "inventory" shall include any and all goods, merchandise and
other personal property of the Borrower, wherever located or
in transit, that may at any time be held for sale or lease or
to be furnished under any contract for services, be so leased
or furnished, or constitute raw materials, work in process,
supplies or materials that are or might be used or consumed in
the business or in connection with the manufacture, packing,
shipping, advertising, selling, leasing or finishing of such
goods, merchandise or ther personal property, together with
all attachments, accessories, replacements, substitutions,
additions and improvements to any of the foregoing, whether
now owned or hereafter acquired, and all such property the
sale or other disposition of which has given rise to accounts
and which has been returned to, repossessed, or stopped in
transit by or on behalf of the Borrower.
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Loan Agreement
April 24, 1996
(b) Real property together with improvements of Borrower, American
International Construction, Inc. more fully described on Exhibit "B"
attached hereto and by this reference made a part hereof.
(c) 2,257,401 shares of issued and outstanding capital stock of Borrower,
pledged by the holders of the Certificates evidencing such stock ( the
"Pledgors" ).
(d) All documents and documents of title, including bills of lading,
warehouse receipts, trust receipts and the like, evidencing title to
any of the Collateral.
(e) Any interests of Borrower in any personal property from which any of
the properties, assets and rights described herein arise, including
repossessed, reclaimed, replevied and returned goods, goods stopped in
transit by the Borrower, and goods covered by chattel paper.
(f) All rights and claims of Borrower in or under all policies of
insurance covering the Collateral, including but not limited to
insurance for fire, damage, loss and casualty, whether covering
personal property, tangible rights together with the proceeds, or
products, renewals and replacements thereof, including prepaid and
unearned premiums.
(g) All books and records, including but not limited to credit files,
computer programs, printouts and other computer materials and records
pertaining to any of the Collateral.
(h) Without in any way limiting the foregoing, whether derived from
voluntary or involuntary disposition, all proceeds and products of the
Collateral, and all renewals, replacements, substitutions, additions,
accessions, rents, issues, royalties and profits of any of the
Collateral, whether now owned or existing or hereafter acquired or
arising.
All of the Property of Borrower, Pledgors and Guarantors identified and
described in this Section 3.1, or in the Loan Documents to which reference is
made herein, is referred to collectively in this Agreement for convenience and
clarity as the "Collateral."
3.2 Lender hereby agrees to allow Borrower to substitute another Bank and/or
lending institution for FCLT, L.P., a Texas limited partnership should Borrower
be successful in obtaining a similar or more favorable loan agreement with said
institution provided Lender's security under these Loan Agreements is in no way
impaired by such substitution, and Borrower obtains Lender's written approval of
said substitution. Said written approval shall not be unreasonably withheld.
3.3 Collateral Documents. As evidence of the security for the performance of the
Secured Obligations, the following agreements have been or shall be provided to
Lender by Borrower and other designated parties:
(a) Security Agreement dated April 24, 1996, executed by Borrower.
(b) Third Lien Deed of Trust dated April 24, 1996, executed by American
International Construction, Inc.
(c) Deed of Trust dated April 30, 1996, executed by American International
Construction, Inc.
(d) Security Agreement-Pledge dated April 24, 1996, executed by American
International Construction, Inc., Danny Roy Clemons, Ralph Leroy
Farrar, Judith Ann Farrar, John Thomas Wilson, Jimmy Wayne Williams
and Shirley Beth Williams.
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April 24, 1996
(e) Absolute, unconditional, unlimited and continuing guaranty of payment
and performance of Borrower's obligations to Lender evidenced by the
Guaranty dated April 24, 1996, executed by Guarantor, John Thomas
Wilson.
(f) Absolute, unconditional, unlimited and continuing guaranty of payment
and performance of Borrower's obligations to Lender evidenced by the
Guaranty dated April 24, 1996, executed by Guarantor, Danny Roy
Clemons.
(g) Absolute, unconditional, unlimited and continuing guaranty of payment
and performance of Borrower's obligations to Lender evidenced by the
Guaranty dated April 24, 1996, executed by Guarantors, Ralph Leroy
Farrar and Judith Ann Farrar.
(h) Absolute, unconditional, unlimited and continuing guaranty of payment
and performance of Borrower's obligations to Lender evidenced by the
Guaranty dated April 24, 1996, executed by Guarantors, Jimmy Wayne
Williams and Shirley Beth Williams.
(i) Continuing Guaranty agreements dated effective April 24, 1996,
executed by each of the Guarantors in favor of Lender.
3.4 Collateral Proceeds. Subject only to the rights of Borrower's creditors
holding lien claims superior to that granted to Lender, proceeds derived from
the liquidation of the Collateral other than in the ordinary course of
Borrower's businesses shall be immediately delivered by Borrower to Lender with
the exception that proceeds derived from non-ordinary course of business sales
of Collateral which are less than $10,000.00 in the aggregate may be retained by
the Borrower for use in its ongoing business operations. All proceeds received
by Lender shall be applied by Lender first to the interest then due on the Note,
and second as payment on the next maturing principal payment owing on the Note.
3.5 Continuing Liability and Security Interest. Borrower shall not be discharged
from the security interests granted to Lender by any act of Lender which extends
the time, renews obligations, or results in the taking of additional security,
or releases a part or all of the Collateral.
3.6 Binding Effect. The rights and privileges of Lender under this Agreement
with respect to the Collateral shall inure to the benefit of the successors and
assigns of Lender, and all covenants, representations, obligations, warranties
and agreements of Borrower and Guarantors shall be binding upon their respective
heirs, legal representatives, successors and assigns; provided that Lender shall
provide Borrower with written notice of any such assignment.
3.7 Secured Obligations. As used herein, the term "Secured Obligations" shall
mean the obligations to pay all of the Indebtedness covered by this Agreement,
both presently existing and all modifications, renewals, increases,
replacements, restatements, extensions and changes in the form thereof, all of
the contractual obligations arising under the Loan Documents, which presently
exist or come into existence in the future, including without limitation all
costs, attorneys' fees, and collateral preservation and disposition expenses
incurred by Lender.
3.8 Cross-Collateralization and Cross-Default. The Collateral secures all
Indebtedness of Borrower to Lender arising under the Loan Documents and all
Indebtedness arising out of sales of goods on open account for each and every
invoice that remains unpaid in whole or in part for more than forty-five (45)
days from the date of invoice, and any Event of Default under any of the Loan
Documents shall constitute an Event of Default under all of the Loan Documents.
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Loan Agreement
April 24, 1996
IV. CONDITIONS, COVENANTS, REPRESENTATIONS AND WARRANTIES
The matters described in the following provisions of this Article IV shall
constitute conditions precedent to this Agreement and the funding of the Note,
and shall be continuing conditions, covenants, representations and warranties of
Borrower and Guarantors to Lender.
4.1 Corporate Existence. Borrower is validly organized and existing under and by
virtue of the laws of the States of Delaware and Texas. The corporate charter
and franchise of Borrower is in good standing in Texas. Borrower is duly
qualified to do business and is in good standing in every state and jurisdiction
in which it does or will do business. Borrower shall maintain its corporate
existence in good standing and comply with all laws, regulations and
governmental requirements applicable to it or to any of its property, business
operations and transactions.
4.2 Conduct of Business. The existence of Borrower and amenability to service of
process in courts of the State of Texas and all of its rights, franchises,
privileges, permits, and licenses necessary for its business or for the
ownership, location and/or operation of its property and assets, including but
not limited to the Collateral, shall at all times be preserved and maintained.
Borrower shall conduct and maintain its business in an orderly, efficient and
regular manner and in compliance with all applicable laws, including all
regulatory requirements applicable to business operations, if any.
4.3 Authority. The execution and delivery of this Agreement and the other Loan
Documents by the Borrower and the due observation and performance by the
Borrower of the terms, provisions and covenants set forth therein are within the
corporate powers of the Borrower, have been duly authorized, do not contravene
or violate any law or term or provision of the articles of incorporation, bylaws
or any corporate resolution of the shareholders or directors, and do not
contravene, violate or constitute a default under any contract, indenture,
agreement or undertaking to which the Borrower is a party or by the terms of
which the Borrower or any property or assets are bound.
4.4 Borrower Operations and Tax Warranty. The following representations and
warranties are made by the Borrower, and shall be relied upon by Lender:
(a) Borrower shall maintain all tangible property in good condition and
repair and make all necessary replacements thereof, and preserve and
maintain all licenses, privileges, franchises, certificates and the
like necessary for the operation of business.
(b) Borrower shall promptly pay all of its indebtedness, including but not
limited to the Indebtedness, as it comes due, and all taxes, levies,
assessments and any other charges legally imposed upon the Collateral;
provided, however, that this provision shall not be construed to
require the payment of any tax, assessment or other charge, the
validity of which is contested in good faith by Borrower in
proceedings diligently conducted.
4.5 Insurance. Borrower shall maintain insurance with responsible insurance
companies on its property, in amounts and against risks as is customarily
maintained by similar businesses operating in the same vicinity, specifically to
include a policy of fire and extended coverage insurance covering all assets,
business interruption insurance and liability insurance, all to be underwritten
by such companies and in amounts satisfactory to Lender. Borrower's evidence of
insurance complying with this Agreement shall be supplied to Lender.
4.6 Tax Returns and Reports. Borrower shall duly file all tax returns and
reports required by law to be filed, pay all taxes as same become due and
payable. Borrower represents that it has paid when due all taxes, assessments,
fees, and other governmental charges upon its assets. This provision shall not
be construed to require the payment of any tax, assessment or other charge, the
validity of which is contested in good faith by Borrower in proceedings
diligently conducted.
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American International Construction, Inc. - MBCI
Loan Agreement
April 24, 1996
4.7 Financial Reports and Inspections. Borrower shall maintain a system of
accounting in accordance with Generally Accepted Accounting Principles ("GAAP")
consistently applied, and shall maintain its inventory on a First-In, First-Out
(FIFO) basis, and will permit Lender's officers or authorized representatives to
visit and inspect Borrower's books of account and other records at such
reasonable times during normal operating hours of Borrower and as often as
Lender may desire. Borrower shall maintain their books and records at 14603
Chrisman, Houston, Texas. The following financial reports shall be delivered to
Lender:
(a) Within forty-five (45) days after the close of each month of
Borrower's fiscal year, Borrower shall make available to Lender
financial statements, including a balance sheet and income statement,
prepared in accordance with GAAP, evidencing the results of Borrower's
financial affairs during that month. Accompanying said statement shall
be a certification by the Chief Executive Officer or Chief Financial
Officer of Borrower indicating that to the best of said Officer's
knowledge, information and belief the covenants contained in these
Loan Documents have not been violated.
(b) Within sixty (60) days after the close of each month of Borrower's
fiscal year, Borrower shall make available to Lender a monthly
accounts receivable aging, accounts payable aging and inventory
listing.
(c) Within one hundred five (105) days after the close of Borrower's
fiscal year, Borrower shall make available to Lender audited,
nonqualified fiscal year end financial statements prepared in
accordance with GAAP. The annual financial statements shall include a
balance sheet, statement of income and retained earnings and a
statement of changes in financial position.
(d) Borrower shall make available to Lender such additional information,
reports or statements respecting its business operations and financial
condition as Lender may reasonably request from time to time solely
for purposes related to this Agreement and the other Loan Documents.
(e) Borrower shall permit and facilitate the audit of Borrower's systems,
inventory and financial affairs by Lender's designated agent at such
times as are reasonably requested by Lender, but not less than
annually in any event. If Lender requests that an independent audit be
performed other than the annual independent audit currently being
performed by Borrower, Lender shall bear all costs associated with
said independent audit, provided, in the aggregate, a material adverse
variance does not exist from the statements previously issued by
Borrower's chosen auditors. For purposes of this provision , a
material adverse variance shall be defined as a net variance that
exceeds, after aggregating and offsetting all adverse and positive
variances, One Hundred Thousand Dollars and reduces pre-tax earnings
by Ten Percent (10%) or more. In the event that a material adverse
variance is revealed, the costs of said audit shall be borne by
Borrower. Excluded from this provision are material adverse variances
that exist as a result of errors in project cost estimates made in
good faith upon management representation.
(f) Lender shall utilize all information obtained from Borrower under this
Agreement only for the purpose of protecting and/or preserving
Lender's rights under this Agreement and the other Loan Documents.
4.8 Lien Priority. Borrower warrants that the security interests and other
encumbrances granted to Lender pursuant to the Loan Documents are and shall be
of first priority in and encumbering the Collateral, except as disclosed to
Lender prior to the effective date of the Note.
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Loan Agreement
April 24, 1996
4.9 Notice of Collateral Location. Borrower shall provide Lender with twenty
(20) days advance notice of all proposed changes in location of any of the
Collateral pledged to Lender, excluding only the use of tools and equipment and
the storage of materials on construction job sites in the ordinary course of
Borrower's business.
4.10 Cooperation. Borrower will cooperate with Lender and will execute such
security agreements, deeds of trust, financing statements, and other instruments
and documents in forms satisfactory to Lender, as Lender may from time to time
reasonably request in connection with this Agreement or any of the other Loan
Documents, to cause the Collateral to be continuously secured to Lender.
4.11 Adverse Conditions or Events. Borrower shall promptly advise Lender in
writing of any condition, event or act which comes to its attention that would
materially and adversely affect the Borrower's financial condition, Lender's
rights in or to the Collateral under this Agreement or the other Loan Documents,
and of any litigation filed against the Borrower, except litigation filed in the
ordinary course of business.
4.12 Litigation. Borrower represents and warrants that, except for those
litigation matters identified on the Litigation Disclosure attached hereto,
designated Exhibit "C", there are no proceedings pending or, to the knowledge of
Borrower, threatened against the Borrower before any court or administrative
agency, except as disclosed in writing by the Borrower to Lender prior to the
execution of this Agreement. American International Construction, Inc. shall
have the right to file liens and take such other legal action as is necessary to
protect the Collateral.
4.13 No Fraudulent Transfer or Preference. BORROWER AND GUARANTORS REPRESENT AND
WARRANT TO LENDER, AND INTEND THAT LENDER MATERIALLY RELY UPON REPRESENTATIONS
AND WARRANTIES SET FORTH IN THE LOAN DOCUMENTS, THAT IN CONNECTION WITH THE LOAN
TRANSACTION DESCRIBED IN THIS AGREEMENT, THEY HAVE ENTERED INTO THIS AGREEMENT
AND THE LOAN DOCUMENTS EXECUTED IN CONNECTION WITH THIS AGREEMENT VOLUNTARILY
AND IN GOOD FAITH, WITHOUT ANY FRAUD, MISREPRESENTATION, DURESS OR UNDUE
INFLUENCE WHATSOEVER OR ANY MISUNDERSTANDING ON THE PART OF BORROWER OR
GUARANTORS; AND BORROWER AND GUARANTORS FURTHER REPRESENT AND WARRANT THAT THE
AGREEMENTS EVIDENCED BY THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS ARE NOT
GIVEN AS A PREFERENCE AGAINST OR IN FRAUD OF ANY OTHER CREDITORS OF THE BORROWER
OR GUARANTORS; BORROWER AND GUARANTORS ACKNOWLEDGE AND CONFIRM WITH LENDER THAT
IT IS NOT THE INTENT OF ANY PARTIES TO THIS AGREEMENT OR THE LOAN DOCUMENTS BY
ENTERING INTO SUCH AGREEMENTS TO HINDER, DELAY OR TO DEFRAUD ANY CREDITORS OF
BORROWER OR GUARANTORS. BORROWER ACKNOWLEDGES AND CONFIRMS THAT IT HAS NO OTHER
CREDITORS WHOSE RIGHTS COULD BE PREJUDICED BY THE TRANSACTION EVIDENCED BY THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS.
V. NEGATIVE COVENANTS
Borrower covenants and agrees with Lender that during the term of the Note and
this Agreement it will not do any of the following without the prior written
consent of Lender:
5.1 Liabilities. Borrower shall not create, incur, suffer or permit to exist, or
assume or guarantee, directly, or become or remain liable with respect to any
liability, whether direct, indirect, absolute, contingent or otherwise, except
the following:
(a) Indebtedness to Lender;
(b) other liabilities existing on the date of this Agreement as set forth
on Schedule B; and
(c) current and future accounts payable and unsecured current and future
liabilities, permitted by this Agreement, in favor of vendors,
suppliers and persons providing services, for expenditures for goods
and services normally required by it in the ordinary course of
business and on ordinary trade terms. It is understood that Borrower
shall be allowed to continue to pursue the intial public offering of
its stock, and in that regard, to incur reasonable liabilities (up to
$300,000.00 - exclusive of broker's commission) in pursuit of said
public offering. Said public offering must be fully sold and funded by
October 31, 1996; and
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(d) Five Hundred Thousand Dollar ($500,000.00) loan referred to in Section
5.2 and previously disclosed to Lender.
5.2 Liens. Except in the ordinary course of business, Borrower shall not grant,
suffer or permit liens on or security interests in Borrower's assets to secure
indebtedness exceeding $15,000.00 per transaction or $50,000.00 in the
aggregate, or fail to promptly pay all lawful claims, whether for labor,
materials or otherwise. Borrower shall not grant or permit to exist any
mortgage, security interest or other lien or encumbrance in or against any of
the Collateral now owned or hereafter acquired, except those encumbrances
created by or pursuant to the Loan Documents, those created in favor of Lender,
those permitted by this Agreement and those existing on the date the Note was
executed by the Borrower. In addition, Borrower may grant a security interest in
Borrower's assets, which is subordinate to the security interest of Lender, to
the persons or entities granting the Five Hundred Thousand Dollar ($500,000.00)
loan referred to in Section 5.1 (d). The $500,000 will be repaid from the
proceeds of the initial public offering of Borrower's stock and the subordinated
security interest will be subordinate to Lender's security interest in
Borrower's assets.
5.3 Guarantor Compensation. Borrower's total compensation or distribution to any
single employee, who is a Guarantor, during the term of this Agreement shall be
no greater than $150,000 inclusive of any payments as defined in 5.11 (c),
unless the prior written consent of Lender has been granted. Said consent shall
not be unreasonably withheld.
5.4 Advances to Third Party. Borrower shall not make any advances to any third
parties other than advances to employees for emergencies not to exceed
$25,000.00 cumulative annually, and advances in the ordinary course of business
unless the prior written consent of Lender has been granted. Said consent shall
not be unreasonably withheld.
5.5 Investments in Third Parties. Borrower shall not make any investment in any
third party without prior written consent of Lender. Said consent shall not be
unreasonably withheld..
5.6 Ownership Change. Borrower shall not merge or consolidate with or into any
other corporation, organize any subsidiary, enter into or invest in any
partnership, joint venture or other asset acquisition or agreement with any
individual, corporation, organization or other entity or association, change its
form of organization or business, liquidate itself or otherwise dispose of all
or substantially all of its assets, or acquire all or a substantial part of the
assets of any other business enterprise unless the prior written consent of
Lender has been granted. Said consent shall not be unreasonably withheld. Lender
and Borrower hereby acknowledge that Borrower intends to pursue an initial
public offering of its stock in the immediate future. This agreement in no way
prohibits Borrower from issuing an initial public offering of its stock. Upon
receipt of a letter of intent from a brokerage firm delineating the terms and
conditions of said offering, Borrower shall submit said terms and conditions to
Lender for its consent. Said consent shall not be unreasonably withheld. Lender
hereby consents to, for purposes of this section , the terms and conditions
outlined in the letter of intent dated March 12, 1996 executed by Borrower and
previously presented to Lender for its review.
5.7 Borrowings. Borrower shall not create, incur, assume or become liable in any
manner for any material indebtedness (for borrowed money, deferred payment for
the purchase of assets, lease payments, as surety or Guarantors for the debt of
another, or otherwise) other than to Lender, except for (a) normal trade debts
incurred in the ordinary course of Borrower's business, (b) to the extent
otherwise authorized by this Agreement, (c) the loan described in Section 5.1
(d), and (d) the existing indebtedness for their operating leasehold and capital
equipment leases as of the date of this Agreement.
5.8 Character of Business. Borrower shall not change the general character of
its business as conducted at the date of this Agreement, or engage in any type
of business not reasonably related to its business as presently and normally
conducted.
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5.9 Violate Other Covenants. Borrower shall not violate or fail to comply with
any covenants or agreements regarding other debt which will or would with the
passage of time or upon demand cause the maturity of any other debt to be
accelerated.
5.10 Material Adverse Change. Borrower shall not permit a material adverse
change to occur (in the good faith judgment of the Lender) in the business,
operations, property, assets or condition (financial or otherwise) of the
Borrower which change shall lead the Lender to conclude that reasonable grounds
exist for believing that the Borrower will not be able to perform its
obligations under this Agreement or other of the Loan Documents in accordance
with their respective terms.
5.11 Additional Prohibited Company Transactions. Borrower shall not for the term
of this Agreement:
(a) Except for trade debt incurred in the ordinary course of Borrower's
business, and except for capital expenditures made from the proceeds
of the public offering of Borrower's stock, make any capital
expenditures in excess of $25,000.00 per transaction or $120,000.00 in
the aggregate annually without the prior written consent of Lender.
Said consent shall not be unreasonably withheld.
(b) Engage in any transaction or transactions with any Related Person,
except upon terms similar to those prevailing in like transactions
with other parties. As used herein the term "Related Person" shall
mean any individual, corporation, organization or other entity who is
a shareholder, officer, director, or employee of the Borrower, or an
entity in which the Borrower owns five percent (5%) or more, of the
capital including any class of capital. The term "Related Person"
shall also include any corporation, organization or other entity, five
percent (5%) of the capital (or five percent [5%] of any class of
capital) of which is owned by a Related Person.
(c) Declare or pay any cash dividend, or return any capital to its
stockholders or authorize or make any other distribution, payment or
delivery of property or cash to its officers or stockholders, or
redeem, retire, purchase or otherwise acquire, directly or indirectly,
for consideration, any shares of any class of its capital stock, or
purchase or otherwise acquire any shares of stock or obligations of,
or make loans or advances to, or investments in any affiliate
organization of the Borrower, or set aside any funds for any of the
foregoing purposes and bonuses to stockholders and directors shall not
exceed $150,000.00 in the aggregate unless the prior written consent
of Lender has been granted. Said consent shall not be unreasonably
withheld.
(d) Permit at any time the ratio of current assets to current liabilities
of each of the Borrowers to decline below.60.
5.12 Guarantors' Sales of Stock. None of the Guarantors will sell any shares of
the common stock of Borrower, or any other securities of Borrower, without the
prior written consent of Lender. Said consent shall not be unreasonably
withheld.
5.13 Lender Review of Prospectus. In connection with any public offering of
securities of Borrower, Borrower shall provide Lender with a copy of the
Registration Statement or Prospectus. Within 48 hours thereafter, Lender will
indicate to Borrower any objections that Lender may have to the proposed use of
Lender's name or the characterization of this loan agreement. Borrower and
Lender shall attempt to cooperate with one another in agreeing upon language
relating to Lender.
5.14 Accounts Payable. Borrower shall not default in the timely payments of its
accounts payable, including its accounts payable to Lender.
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American International Construction, Inc. - MBCI
Loan Agreement
April 24, 1996
VI. DEFAULT AND REMEDIES
6.1 Events of Default. Each of the following shall be deemed an Event of
Default:
(a) Default shall be made in the payment of any installment of principal
or interest upon the Note to Lender when due and payable, whether at
maturity or otherwise; or
(b) Default shall be made in the performance of any material term covenant
or agreement contained herein or in any other loan document; or
(c) Any representation or warranty contained in any of the Loan Documents,
or in any financial statement, certificate, report or opinion
submitted to Lender in connection with the Note, pursuant to the
requirements of this Agreement, or in any of the Loan Documents shall
prove to have been incorrect or misleading in any material respect
when made, except that if such representation or warranty was made in
good faith and is incorrect or misleading, Borrower shall have ten
(10) days to take the action required to make the representation or
warranty correct and not misleading; or
(d) Any judgment against the Borrower or any attachment or other levy
against the property of the Borrower with respect to a claim remains
unpaid, unstayed on appeal, undischarged, not bonded or not dismissed
for a period of ninety (90) days; or
(e) Any Guarantor shall die and all life insurance proceeds held by the
Borrower are not first applied to satisfy the Indebtedness or any
Guarantor shall be adjudicated as bankrupt, or there is a substantial
change in ownership or control of the Borrower except the event of a
public offering of Borrower's stock; or
(f) Borrower makes an assignment for the benefit of creditors, admits in
writing its inability to pay its debts generally as they become due,
files a petition in bankruptcy, is adjudicated insolvent or bankrupt,
petitions or applies to any tribunal for any receiver or any trustee
of Borrower for any substantial part of its property, commences any
action relating to Borrower under any reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect, or if there is
commenced against Borrower any such action, and such action is not
dismissed within 150 days or the Borrower by any act indicates its
consent to or approval of any trustee for the Borrower or any
substantial part of its property, or suffers any such receivership or
trustee to continue undischarged; or
(g) The death or termination of employment of any of the four current
officers of the Borrower, John T. Wilson, Danny R. Clemons, Ralph L.
Farrar, and Jim W. Williams, who are Guarantors pursuant to this Loan
Agreement.
(h) For the fiscal year ending April 30, 1997 and continuing thereafter
for each successive fiscal year end throughout the duration of this
Loan Agreement, Borrower fails to maintain earnings before interest
expense equal to One and One-half Percent. (1.5%) of gross revenues.
For purposes of this provision, all costs associated with a public
offering of Borrower's stock shall be excluded from the foregoing
performance requirement.
6.2 Remedies Upon Default. If any of the Events of Default stated in Section 6.1
hereof shall occur and remain uncured, then Lender may do any or all of the
following after first giving Borrower written notice of the occurrence of the
Event of Default and ten (10) days within which to cure said Default prior to
exercise of these remedies:
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American International Construction, Inc. - MBCI
Loan Agreement
April 24, 1996
(a) declare the Note and Indebtedness to be, and thereupon the Note and
Indebtedness shall forthwith become, immediately due and payable,
together with all accrued interest thereon, without further notice of
any kind, including notice of acceleration or of intention to
accelerate, requirement of presentment and demand or protest, all of
which are hereby expressly waived by the Borrower and all Guarantors;
(b) exercise its rights of offset against each account and all Collateral
in the possession of the Lender, which right is hereby granted by the
Borrower to Lender;
(c) exercise any and all other rights of Lender pursuant to the Loan
Documents to the extent not in material conflict with the terms of
this Agreement; and
(d) request Borrower to, at its own cost and expense, but in Lender's
behalf and for Lender's account, collect and otherwise enforce as
Lender's property and hold in trust for Lender, all collections,
proceeds, products and remittances in whatever form of the Collateral.
Borrower shall deliver all such collections, proceeds, products and
remittances and all amounts received for the Collateral, to Lender
immediately upon receipt for credit to the Note.
6.3 Remedies Cumulative. No remedy, right or power conferred upon Lender is
intended to be exclusive of any other remedy, right or power given thereunder,
or now or hereafter existing at law, in equity, or otherwise, and all such
remedies, rights and powers shall be cumulative.
6.4 Definitions. The terms "default", "event of default", and "Event of
Default", wherever used in any of the Loan Documents shall mean and include any
of the events specified in any of the Loan Documents as constituting a default
thereunder.
VII. MISCELLANEOUS
7.1 Conforming Loan Documents. As of the effective date of this Agreement, all
terms and provisions of the Loan Documents are hereby amended and modified
wherever necessary, and even though not specifically addressed herein, so as to
conform to the amendments and modifications set forth in this Agreement.
7.2 Ratification of Loan Documents. Except as specifically modified and amended
herein, all of the terms and provisions of the Loan Documents are hereby
ratified, affirmed and reaffirmed by the Borrower and each of the Guarantors,
and the Borrower and Guarantors specifically acknowledge the validity and
enforceability of all of the Loan Documents.
7.3 Ratification of Liens. This Agreement in no way acts as a release or
relinquishment of the liens, security interests and rights securing payment of
the Indebtedness, including without limitation the liens created by the Loan
Documents. The liens granted Lender are hereby ratified and affirmed by
Borrowers in all respects.
7.4 Governing Law. THIS AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS HAVE
BEEN OR WILL BE EXECUTED, DELIVERED AND ACCEPTED PURSUANT TO A LENDING
TRANSACTION NEGOTIATED, CONSUMMATED, AND TO BE PERFORMED IN HOUSTON, HARRIS
COUNTY, TEXAS AND ARE INTENDED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE
OF TEXAS AND TO BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
THE BORROWER AND THE GUARANTORS WAIVE ALL OBJECTIONS TO THE VENUE OF ANY STATE
OR FEDERAL COURT SITTING IN HOUSTON, HARRIS COUNTY, TEXAS, IN ANY ACTION
INSTITUTED BY LENDER BY REASON OF OR ARISING OUT OF THE EXECUTION, DELIVERY,
PERFORMANCE OR ENFORCEMENT OF THIS AGREEMENT, THE TERM NOTE OR ANY OF THE OTHER
LOAN DOCUMENTS.
7.5 Intentionally Deleted.
11
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American International Construction, Inc. - MBCI
Loan Agreement
April 24, 1996
7.6 Cumulative Rights and Waiver. Each and every right granted to Lender under
this Agreement or under any other Loan Document or allowed Lender by law or
equity shall be cumulative of and may be exercised in addition to any and all
other rights of Lender, and no delay in exercising any right shall operate as a
waiver thereof, nor shall any single or partial exercise by Lender of any right
preclude any other or future exercise thereof or the exercise of any other
right. Any of the foregoing covenants and agreements may be waived by Lender but
only in writing. Borrower expressly waives any presentment, demand, protest or
other notice of any kind.
7.7 Conflicting Provisions. In the event there should be any conflict between
the terms of this Agreement and the terms of any other Loan Documents, the terms
of this Agreement shall control unless otherwise stated.
7.8 Severability. If any provision of this Agreement or the other Loan Documents
is held invalid or unenforceable for any reason, such invalidity or the
unenforceability shall not affect any other provisions hereof or of other Loan
Documents, and this Agreement and the other Loan Documents shall be construed
and enforced as if such provision had not been included herein or therein.
7.9 Fees and Expenses. Borrower agrees to pay upon demand all reasonable fees,
expenses and charges incurred by Lender with respect to this Agreement or the
other Loan Documents, including, but not limited to, recording and filing fees,
the fees and expenses of legal counsel employed by the Lender in connection with
the documentation and closing of the transaction contemplated by this Agreement,
any other fees and expenses involved in the closing of this loan transaction,
and the fees and expenses payable by the Lender which are incidental to the
enforcement, defense, modification, extension or renewal of this Agreement or
any of the other Loan Documents, including attorneys' fees incurred in any
litigation arising out of or relating to this transaction.
7.10 Modification. This Agreement may be amended or modified only in writing
when signed by the Borrower and Lender. No future modification or amendment of
any of the Loan Documents shall require the prior notice to, consent or written
approval of the Guarantors.
7.11 Notices. All notices required or permitted hereunder shall be (a) delivered
showing receipt therefor, (b) mailed by registered or certified mail return
receipt requested, or (c) sent by facsimile transmission, in each case addressed
as follows:
Borrower: American International Construction, Inc.
Attn: John T. Wilson, C.E.O.
14603 Chrisman
Houston, Texas 77039
Facsimile (713)449-5608
Lender: Metal Building Components, Inc.
Attn: A. R. Ginn, President
14031 West Hardy
Houston, Texas 77060
Facsimile (713)445-8606
With a copy to : Sheldon E. Richie
Richie & Gueringer, P.C.
111 Congress Avenue, Suite 2020
Austin, Texas 78701
Facsimile (512) 320-7230
Guarantors: Danny R. Clemons
3300 Sage, Apt. 8204
Houston, Texas 77056
Facsimile (713)449-5608
12
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American International Construction, Inc. - MBCI
Loan Agreement
April 24, 1996
Ralph L. and Judith A. Farrar
16306 Yarnarm Court
Crosby, Texas 77532
Facsimile (713)449-5608
John T. Wilson
3300 Sage, Apt. 8204
Houston, Texas 77056
Facsimile (713)449-5608
Jimmy Wayne and Shirley Beth Williams
5215 Straight Arrow
Humble, Texas 77346
Facsimile (713) 449-5608
at the last known address for such party, or such other address that Lender,
Borrower or Guarantors may by written notice designate. Notices shall be deemed
to have been given when delivered.
7.12 Headings. The headings and arrangements used in this Agreement are for
convenience only and do not affect, limit, amplify or modify the terms and
provisions hereof.
7.13 Term. Except as otherwise expressly provided herein, this Agreement will
remain in effect until all of the obligations of the Borrower to Lender under
this Agreement and the Loan Documents have been fully satisfied and discharged.
7.14 Survival; Parties Bound. All representations, warranties, covenants and
agreements made by or on behalf of the Borrower and Guarantors in connection
herewith shall survive the execution and delivery of the Loan Documents, and
shall be binding on the Borrower and Guarantors, their heirs, legal
representatives, successors and assigns, and shall inure to the benefit of the
Lender, its successors and assigns.
7.15 Usury Not Intended; Refund of Any Excess Payments. It is the intent of the
parties in the execution and performance of this Agreement to contract in strict
compliance with the usury laws of the State of Texas and the United States of
America from time to time in effect. In furtherance thereof, Lender and Borrower
stipulate and agree that none of the terms and provisions contained in this
Agreement, or the other Loan Documents, shall ever be construed to create a
contract to pay for the use, forbearance or detention of money with interest at
a rate in excess of the highest lawful rate, and that for purposes hereof
"interest" shall include the aggregate of all charges which constitute interest
under such laws that are contracted for, reserved, taken, charged or received
under this Agreement. In determining whether or not the interest paid or
payable, under any specific contingency, exceeds the highest lawful rate,
Borrower and Lender shall, to the maximum extent permitted under applicable law:
(a) treat the loan evidenced by the Note as a single extension of credit
(Borrower and Lender agree that such is the case);
(b) characterize any non principal payment as an expense, fee or premium
rather than as interest;
(c) exclude voluntary prepayments and the effects thereof; and
(d) "spread" the total amount of interest throughout the entire
contemplated term of the Note.
The provisions of this section shall control over all other provisions of the
Loan Documents which may be in apparent conflict herewith.
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American International Construction, Inc. - MBCI
Loan Agreement
April 24, 1996
7.16 Collective References. Collective references in this Agreement to the
Borrower and Guarantors shall in each case include a reference to, and
obligation imposed upon, the Borrower and Guarantor identified in this
Agreement.
7.17 Captions. Captions used in this Agreement are for convenience only and
shall not be considered as a limitation upon or an expansion of the terms
hereof.
7.18 Construction of Agreement. The terms and provisions of this Agreement
represent the results of negotiations between the parties, each of which has had
the opportunity to consult with legal counsel of its selection, none of which
has acted under duress or compulsion, whether legal, economic or otherwise.
Consequently, the terms and provisions of this Agreement and the other Loan
Documents shall be interpreted and construed in accordance with their usual and
customary meanings, and the parties hereby expressly waive and disclaim in
connection with the interpretation and construction of this Agreement and the
other Loan Documents any rule of law or procedure requiring otherwise.
7.19 Counterparts. This Agreement may be executed in counterparts, each of which
shall be deemed an original, and all of which, taken together, shall constitute
but one and the same instrument, which may be sufficiently evidenced by one
counterpart.
7.20 Final Agreement. THIS LOAN AGREEMENT AND ALL OF THE LOAN DOCUMENTS EXECUTED
IN CONNECTION HEREWITH (AS MAY BE MODIFIED, RENEWED, SUPPLEMENTED, AMENDED,
RESTATED AND REVISED) CONSTITUTE A "LOAN AGREEMENT" AS DEFINED IN TEX. BUS. &
COM. CODE ANN. 26.02(a), AND REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG OR
BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
effective the day, month and year first stated above.
BORROWER:
---------
AMERICAN INTERNATIONAL CONSTRUCTION, INC.
By:
---------------------------------------------
JOHN T. WILSON, its Chief Executive Officer
LENDER:
-------
METAL BUILDING COMPONENTS, INC.
By:
---------------------------------------------
A. R. GINN, its President
GUARANTORS:
-----------
------------------------------------------------
DANNY ROY CLEMONS, individually
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American International Cosntruction, Inc. - MBCI
Loan Agreement
April 24, 1996
-------------------------------------------------
RALPH LEROY FARRAR, individually
-------------------------------------------------
JUDITH ANN FARRAR, individually
-------------------------------------------------
JOHN THOMAS WILSON, individually
-------------------------------------------------
JIMMY WAYNE WILLIAMS, individually
-------------------------------------------------
SHIRLEY BETH WILLIAMS, individually
15
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our report dated July 1, 1996 included herein, and
to the reference to our firm under the heading "Experts" in the Prospectus and
the Registration Statement on Form S-1.
HEIN + ASSOCIATES LLP
Certified Public Accountants
Houston, Texas
August 5, 1996
