As filed with the Securities And Exchange Commission on November 12, 1997
SEC Registration No. 333-9583
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N.W.
Washington, D.C. 20549
POST EFFECTIVE
AMENDMENT NO. 1 TO
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
- ---------------------------- --------------------------- --------------
(State or Other Jurisdiction (Primary Standard Industrial (IRS Employer
Of Incorporated or Classification Code Identification
Organization) Number) Number)
14603 Chrisman
Houston, Texas 77039
(281) 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
(281) 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 Thomas A. Rose, Esquire
Francis B. Barron, Esquire Schneck Weltman & Hashmall LLP
Bearman Talesnick & Clowdus 1285 Avenue of the Americas
Professional Corporation New York, NY 10019
1200 Seventeenth Street, Suite 2600 (212) 956-1500
Denver, Colorado 80202
(303) 572-6500
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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. [X]
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. [ ]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------
Proposed Proposed
Offering Aggregate Amount Of
Title Of Each Class Of Amount To Be Price Per Offering Registration
Securities To Be Registered Registered Share (1) Price Fee
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Common Stock, $.001 par value, 667,000(2) $5.00 $3,335,000 $1,010.61
offered by the Company
Common Stock Purchase Warrants offered by 667,000(2) $ .10 66,700 20.21
the Company
Common Stock, issuable upon exercise of 667,000(2) $5.00 3,335,000 1,010.61
Common Stock Purchase Warrants(3)
Underwriters' Warrants to purchase Common 58,000 $ --- 9 .01
Stock
Underwriters' Warrants to purchase Warrants 58,000 $ --- 1 .01
Common Stock, issuable upon exercise of 58,000 $6.00 348,000 105.00
Underwriters' Warrants(4)
Warrants, issuable upon exercise of 58,000 $ .12 6,960 2.11
Underwriters' Warrants(4)
Common Stock, issuable upon exercise of 58,000 $5.00 290,000 87.88
Warrants underlying Underwriters'
Warrants(5)
Common Stock to be sold by Selling 500,100 $5.00 2,500,500 757.72
Securities Holders
Common Stock Purchase Warrants to be sold
by 3,000,000 $ .10 300,000 90.91
Selling Securities Holders
Common Stock, issuable upon exercise of
outstanding Common Stock Purchase Warrants 3,000,000 $5.00 15,000,000 4,545.45
Common Stock to be sold by Underwriter
(from Exercise of Underwriters' Warrants and
Warrants included in Underwriters' Warrants) 116,000 $6.00 696,000 211.00
---------- ----------- ---------
TOTAL $25,878,170 $7,841.87 (6)
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Includes 87,000 shares and/or warrants to cover the Underwriters'
over-allotment option.
(3) 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.
(4) Reserved for issuance upon exercise of the Underwriters' 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.
(5) Reserved for issuance upon exercise of Common Stock Purchase Warrants
obtained upon exercise of the Underwriters' Warrants.
(6) Previously paid.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with a primary offering of 580,000 shares of Common Stock and
580,000 Warrants (the "Offering Prospectus"), and one to be used in connection
with the secondary sale of 500,100 shares of Common Stock and 3,000,000 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".
<PAGE>
[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 November 12, 1997, 1997
[Red Ink]
PROSPECTUS
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AMERICAN INTERNATIONAL CONSOLIDATED INC.
580,000 Shares Of Common Stock And
580,000 Redeemable Common Stock Purchase Warrants
This Prospectus relates to the offering (the "Offering") by American
International Consolidated Inc. (the "Company") of 580,000 shares of common
stock, $.001 par value (the "Common Stock"), and 580,000 Redeemable Common Stock
Purchase Warrants (the "Warrants") through I.A.R. Securities Corp., which is
also the representative (the "Representative") of Worthington Capital Group,
Inc. (collectively, the "Underwriters") for the purpose of this Offering. 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 quotation
of the Common Stock, as reported on the OTC Bulletin Board 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".
<PAGE>
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
Representative 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 intends to have the Common
Stock and Warrants quoted on the OTC Bulletin Board, an electronic quotation
system maintained by the National Association of Securities Dealers, Inc.
("NASD"), under the trading symbols "AICI" and "AICIW," respectively. See "RISK
FACTORS-Risk Factor No. 25-Possible Effects Of SEC Rules On Market For Common
Stock And Warrants".
In addition, 38 persons (the "Selling Securities Holders") who hold 500,100
shares of Common Stock and 3,000,000 warrants previously purchased 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 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 10)
AND "DILUTION" (PAGE 20).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Underwriting Proceeds To
Price To Public (1) Discount And 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) $2,958,000 $295,800 $2,662,200
- --------------------------------------------------------------------------------------------------------------
(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, 99 Wall Street, New York, New York 10005 on or about ________,
1997.
I.A.R. Securities Corp. Worthington Capital Group
The date of this Prospectus is , 1997
-----------------
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 $88,740 of the $2,958,000 aggregate offering amount
($102,051 if the Underwriters' over-allotment option is exercised in full),
of which $25,000 previously has been advanced by the Company.
The Underwriting Agreement provides that, upon the closing of this
Offering, the Company will enter into a consulting agreement with the
Underwriters pursuant to which the Underwriters will receive a consulting
fee of $55,000, payable at the Closing, for services to be rendered by the
Underwriters to the Company for three years commencing on the closing date
of the Offering. See "UNDERWRITING".
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
up to a maximum of 58,000 shares of Common Stock and 58,000 Warrants (the
"Underwriters' Warrants"). The Underwriters' Warrants will entitle the
holder to purchase the shares of Common Stock at a purchase price of $6.00
per share and the Warrants at a purchase price of $.12 per Warrant. The
Warrants received upon exercise of the Underwriters' Warrants are
exercisable at $5.00 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 $570,000 (approximately $295,000 of which will have been paid
prior to closing). These other offering expenses include the
non-accountable expense allowance to the Underwriters of $88,740 ($102,051
if the Underwriters' over-allotment option is exercised in full) and
additional offering expenses estimated at $481,260 for filing fees,
printing costs, legal and accounting fees, and miscellaneous expenses.
After allowing for all such expenses and offsetting prior payments, the net
cash proceeds to the Company from this Offering are expected to be
$2,387,200.
(6) This Offering commenced as a "best-efforts, minimum maximum" offering on
March 13, 1997. The Offering continued for a 60 day period and was extended
for an additional 30 days upon mutual agreement of the Company and the
Underwriters. Funds received during the Offering period were held by an
escrow agent in a separate escrow account. At the end of the 90 day
offering period, on June 11, 1997, the minimum offering had not been
subscribed for and all funds in the escrow account were returned to the
investors.
3
<PAGE>
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, 1998. 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. As of the
date of this Prospectus, no officer, director or affiliate of the Company is
obligated to purchase any Common Stock or Warrants in the Offering and no
officer, director or affiliate has made a commitment or indicated his intention
to purchase securities in the Offering.
THE COMMON STOCK AND WARRANTS ARE OFFERED SUBJECT TO PRIOR SALE, ALLOTMENT,
WITHDRAWAL, CANCELLATION OR MODIFICATION OF THE OFFERING WITHOUT PRIOR NOTICE.
THE UNDERWRITERS RESERVE 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.
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 (281) 449-9000. DELIVERY OF THE
REQUESTED DOCUMENTS WILL BE MADE WITHOUT CHARGE.
4
<PAGE>
PROSPECTUS SUMMARY
The Company
American International Consolidated Inc. (the "Company") is a general
contractor and a manufacturer 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 and erection 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 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, and (ii) increasing operating margins and profitability through
decreasing interest expense (from reduction of debt) and decreasing bonding
costs. 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 (281) 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 580,000 shares
of the Company's common stock (the
"Common Stock") and 580,000 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
"DESCRIPTION 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
__________, 2002.
5
<PAGE>
Shares of Common
Stock outstanding: prior to
Offering: ......................... 2,900,100
Shares of Common Stock offered (1): 580,000
Shares of Common Stock outstanding
after the Offering(1): ........... 3,480,100
Warrants outstanding prior to
Offering(1): ..................... 3,000,000
Warrants offered(1): ............... 580,000
Warrants outstanding
after the Offering: .............. 3,580,000
Shares of Common Stock Outstanding
after the Offering assuming exercise
of all Warrants offered in the
Offering and all Warrants previously
outstanding: ....................... 7,060,100
Estimated net proceeds to the
Company (2): ....................... $2,387,200
- --------------------
(1) Does not include (i) up to 580,000 shares of Common Stock issuable upon
exercise of the Warrants included in the Offering, (ii) up to 87,000 shares
of Common Stock included in the Underwriters' over-allotment option, and
(iii) up to 203,000 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. See "UNDERWRITING".
(2) This amount is after deduction of aggregate selling commissions of $295,800
and the $275,000 unpaid portion of the other total estimated offering
expenses.
6
<PAGE>
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
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 Warrants remain
exercisable during the 30-day notice
period. Any Warrant holder 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 payment of outstanding
indebtedness, undertaking additional
marketing activities, and increasing
working capital, which is anticipated to
improve the Company's financial
condition and thereby 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
"RISK FACTORS" and "DILUTION".
OTC Bulletin Board Symbols ........ Common Stock - AICI Warrants - AICIW
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, 1997, 1996
and 1995 (audited) and as of and for the three months ended July 31, 1997 and
1996 (unaudited). 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.
7
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended April 30, Three Months Ended July 31,
---------------------------------------- ----------------------------------
1996 1997 1996 1997
---------------- --------------- ---------------- ------------
(Unaudited) (Unaudited)
Operating Results: Actual Actual Actual Actual
- ------------------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues.............. $31,184,828 $33,350,003 $7,586,688 $10,095,849
Net Income (Loss)..... 351,570 (4,197,239)(1) (1,735,990)(1) 227,710
Net Income Per share.. .12 (1.45) (.60) .08
Balance Sheet Data: April 30, July 31, 1997 July 31, 1997
------------------------------- (Unaudited) (Unaudited)
1996 1997 Actual As Adjusted (2)
-------- ----------- ----------- ---------------
Working Capital (Deficit) ...... $ 836,774 $(3,945,066) $(3,855,863) $(1,656,006)
Total assets ................... 7,346,083 8,691,840 8,806,640 9,553,840
Long Term Debt ................. 2,422,292 327,213 25,590 25,590
Total liabilities .............. 7,566,576 11,859,522 11,746,612 10,401,612
Accumulated (deficit) .......... (368,648) (4,565,887) (4,338,177) (4,338,177)
Stockholders' equity
(deficit) .................... (220,493) (3,167,682) (2,939,972) (847,772)
</TABLE>
- --------------------
(1) Includes a pre-tax charge of $1,305,250 ($.45 per share) for the year ended
April 30, 1997 and $1,005,250 ($.35 per share) for the quarter ended July
31, 1996 as the amortized portion of the non-recurring pre-tax charge to
earnings for the 500,100 shares of the Company's Common Stock that were
issued in connection with the issuance of $300,000 of unsecured promissory
notes in July 1996. This non-recurring charge was amortized over the term
of the promissory notes. Also includes a non-recurring charge of $358,946
at April 30, 1997 for the write-off of capitalized offering costs. See Note
8 to "Notes To Consolidated Financial Statements" and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS".
(2) As adjusted to reflect the net proceeds from the Offering, including
repayment of $345,000 of unsecured notes, including interest thereon, and
$1,000,000 of trade accounts. See "USE OF PROCEEDS".
8
<PAGE>
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. Substantial Doubt About The Company's Ability To Continue As A Going
Concern Without Completion Of Public Offering. The Company's operating results
for each of the fiscal years ended April 30, 1996 and 1995 and for the three
months ended July 31, 1997, resulted in a profit; however, the Company incurred
operating losses during each of the fiscal years ended April 30, 1997, 1994 and
1993, and there is no assurance that the operations of the Company will be
profitable in the future. As a result of the Company's losses during its last
completed fiscal year (approximately $4.2 million, including non-recurring
charges of $1.7 million), the Company's working capital position and ability to
generate sufficient cash flows from operations to meet its operating and capital
requirements has further deteriorated and these matters raise substantial doubt
about the Company's ability to continue as a going concern without completion of
this Offering or an alternate substantial infusion of equity capital. The
Company believes that it will be successful in removing the threat concerning
its ability to continue as a going concern by adhering to closer and stricter
scrutiny of its contract bids and utilizing the estimated net proceeds of
approximately $2.3 million from this Offering to achieve profitability through
lower interest and bonding costs and expanded volume. Management believes that
approximately $1.0 to $1.2 million of the proceeds from this Offering are
necessary to remove the threat concerning the Company's ability to continue as a
going concern and that if this Offering is completed, the estimated net proceeds
from this Offering will enable the Company to continue operating for the
foreseeable future at its current level of operations. The length of the period
that these proceeds would enable the Company to continue operating at its
current level of operations is dependent upon a number of factors, including
primarily the Company's profitability. Assuming the Company incurs, during
fiscal 1998 and 1999, additional net losses (excluding non-cash, non-recurring
charges) at the same rate as for fiscal 1997 ($2.5 million), the net proceeds
would allow the Company to operate at its current level of operations for
approximately six months. However, the Company has reported a profit for the
first quarter of its 1998 fiscal year, and management does not believe that the
Company will incur a net loss for fiscal 1998 and 1999, combined. There is no
assurance that management's belief is accurate and that the Company will not
incur future cumulative net losses. To the extent that management's belief is
accurate, then the net proceeds from the Offering would allow the Company to
continue operations as long as the Company had not sustained future cumulative
net losses of approximately $1.1 million. There is no assurance these results
will occur even if this Offering is consummated. If this does not occur, the
Company will pursue other sources of financing, but there is no assurance any
other source of financing will be available.
9
<PAGE>
The Company is current in its obligations to all lenders and major
suppliers except for the Supplier described in Risk Factor No. 3 below and
except for the holders (the "Noteholders") of $300,000 principal amount
unsecured notes as described in Risk Factor No. 3. The Supplier has indicated
that it has no intent of accelerating payment on any obligations as long as this
Offering is completed. The Supplier has not indicated what it will do if this
Offering is abandoned or otherwise terminated unsuccessfully. The Company is
requesting to the Noteholders that they extend their notes or otherwise wait for
completion of this Offering before requiring payment. There is no assurance that
the Noteholders will comply with this request.
As a result of the losses incurred in the fiscal year ended April 30, 1997,
the audit report of the Company's independent auditors for that year indicates
that there is substantial doubt concerning the Company's ability to continue as
a going concern without a substantial infusion of equity capital, such as that
contemplated from this Offering. The implication of this to investors is that
successful completion of this Offering (or an equity infusion from another
source) is necessary for the Company to continue operations. See
"BUSINESS-Business Plan And Strategy", "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS", "FINANCIAL INFORMATION", and
Note 2 to the Financial Statements.
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 July 31, 1997, the Company owed its
major supplier of raw materials (the "Supplier") $2,665,000 for accounts payable
and an additional $1,914,000 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 approximately $1,000,000 of the proceeds
to reduce the accounts payable to the Supplier. 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 ended April 30, 1997. The Supplier has
waived this requirement for the fiscal year ended April 30, 1997 and for the
period from May 1, 1997 through December 31, 1997, but the Company is required
to satisfy it for subsequent periods. Management believes that if this Offering
is completed, it will be able to satisfy the requirement for the last four
months of fiscal 1998 and thereafter while the Note is outstanding, or that it
will be close enough to satisfying it that the Supplier will waive it.
Nevertheless, there is no assurance that the Company will satisfy this
requirement. As of July 31, 1997 the Company also was in violation of certain
other covenants for which the Supplier has granted a waiver and for which there
is no assurance that the Company will be able to satisfy in the future. If all
these requirements are not satisfied as required in the future, 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".
10
<PAGE>
As of July 31, 1997, the Company also owed an aggregate of approximately
$322,000 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 had other obligations of an aggregate of approximately $101,000
at July 31, 1997 that require aggregate monthly payments of approximately
$12,850. The Company also is the obligor on an aggregate of $300,000 principal
amount of unsecured notes, together with interest of more than $30,700 thereon,
that currently are in default that will be repaid from the proceeds of this
Offering. See "USE OF PROCEEDS".
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 construction and erection of storage facilities,
warehouses, manufacture of 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, 1997, approximately 43 percent,
and for the three months ended July 31, 1997, approximately 47 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".
11
<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 three months ended July
31, 1997 and the fiscal year ended April 30, 1997, U-Haul, Inc. accounted for
approximately $2.0 million and $7.3 million, respectively, or 19 percent and 22
percent, respectively, of the Company's total revenues. During the fiscal years
ended April 30, 1996 and 1995, U-Haul, Inc. accounted for approximately $8.1
million, and $4.9 million, respectively, or 26 percent and 20 percent,
respectively, 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. See "BUSINESS-Reliance On Major
Customers".
9. Previous Unprofitable International Operations. 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 a two-person international sales force located
in its Houston, Texas headquarters.
10. Availability Of Labor; Possible Effect Of Subcontractors' Use Of
Unionized 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.
12
<PAGE>
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. Effect Of Unfavorable Weather. Certain aspects of the Company's
construction activities cannot be performed in severely inclement weather, such
as continuous rain and flooding. Conditions of this nature can have a negative
impact on the Company's earnings, as was experienced in spring 1997.
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 "EXECUTIVE
COMPENSATION-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.
13
<PAGE>
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 Representative that require,
for a period of 12 months after this Offering, that the Company obtain the
Representative's permission in order to issue securities for financing purposes.
See "UNDERWRITING".
15. Broad Discretion To Allocate Use Of Proceeds. 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. No Proceeds To Company From Sales By Selling Securities Holders. The
Company will not receive any of the proceeds from the sale by the Selling
Securities Holders of the 500,100 shares of Common Stock and 3,000,000 Warrants
being registered pursuant to the registration statement of which this Prospectus
is a part. However, in the event that any of the 3,000,000 Warrants are
exercised, the Company will receive the proceeds from the exercise of those
warrants.
17. Benefits Of The Offering To Current Stockholders. Current stockholders
of the Company will benefit from the Offering, including the following: (i)
creation of a public trading market for the Common Stock, which is intended but
for which there is no assurance; (ii) the sale of up to an aggregate of 500,100
shares by certain non-management, non-employee stockholders at the time of the
public offering; and (iii) the substantial unrealized gain, based upon the
difference between the acquisition costs and the initial public offering price,
for stockholders who acquired their stock prior to the public offering. This
difference is $5.00 per share for the non-management, non-employee stockholders
who received an aggregate of 500,100 shares as partial consideration for loaning
the Company an aggregate of $300,000, and may be considered to be as much as
$4.95 for the shareholders who founded the Company in 1985 and during the
interim developed the business of the Company to its current level.
14
<PAGE>
18. Potential Conflicts Of Interest. Potential conflicts of interest may
arise between the Company and its officers and directors. Although each of the
Company's officers and directors is committed to devote full working time to the
business of the Company, they also may be engaged in other business activities.
If these business activities are of the same type as those engaged in or
contemplated by the Company, conflicts of interest will 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 also
will develop with respect to any 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-Conflicts Of Interest
Policy".
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
interest and except to the extent that a consulting arrangement with one
director might present conflicts of 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 established a policy pursuant to which the Board Of
Directors will consider transactions with officers, directors, and shareholders
of the Company and their respective affiliates. Pursuant to this policy, the
Board Of Directors will not approve any transaction unless it determines that
the terms of the transaction are no less favorable to the Company than those
available from unaffiliated parties. Because this policy is not contained in the
Company's Certificate Of Incorporation or Bylaws, the policy is subject to
change by the Board Of Directors, although it currently is not contemplated that
the policy will be changed. In addition, 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.
19. Lack Of Outside Directors. At the present time, only one of the
Company's directors is not also an officer and employee of the Company. However,
this director also serves as a paid consultant to the Company, which may present
conflicts of interest. See above, "Risk Factor No. 18-Potential Conflicts Of
Interest".
Risk Factors Concerning This Offering And The Securities Offered
- ----------------------------------------------------------------
20. Lack of Experience Of Worthington Capital Group, Inc. Worthington
Capital Group, Inc., formerly known as M.D. Walsh & Co., was licensed as a
broker/dealer in July 1991 and has not participated in public offerings prior to
this Offering. In addition, Worthington Capital Group, Inc. is not permitted to
make markets in securities including the securities offered by the Company. The
limited experience of Worthington Capital Group, Inc. and its inability to make
markets may adversely affect the development of a market for the Common Stock
and/or Warrants. See below, "Risk Factor No. 24-No Assurance Of Market For
Common Stock Or Warrants" and "Risk Factor No. 26-Underwriters' Influence On
Possible Market For Common Stock And Warrants".
15
<PAGE>
21. 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 $5.24, or 105 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".
22. Control By Present Stockholders And Management. Each of Messrs.
Clemons, Farrar, and Wilson, who are officers and directors of the Company, will
own 20.3 percent and Mr. Williams, who is an officer and director of the
Company, will own 3.9 percent of the Company's outstanding Common Stock after
the Offering. Also after the Offering, Management of the Company as a group will
own approximately 64.9 percent of the outstanding shares of Common Stock and
will remain in effective control of the Company because Management will own
enough shares in the aggregate that it would be able to elect all 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".
23. 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".
24. 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. Although Worthington Capital Group is not permitted to make a market
for the Company's Securities, I.A.R. Securities Corp. and another broker-dealer
participating in the Offering have indicated that they will make a market for
the Securities. However, they are not required to do so and there is no
assurance that a market will develop. If a trading market does develop for any
of the Securities, the prices may be highly volatile. Neither 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 traded below certain prices, many brokerage firms may not
effect transactions in the Securities, and sales of the Securities will be
subject to Securities And Exchange Commission ("SEC") Rule 15g-9. See below,
"Risk Factor No. 25-Possible Effects Of SEC Rules On Market For Common Stock And
Warrants". Trading in the Securities, if any, will be limited to the OTC
Bulletin Board or the "pink sheets" used by members of the NASD. If a market
does not develop for the Securities, it may be difficult or impossible for
purchasers to resell the Securities. The Company withdrew its application to
list its securities on the NASDAQ SmallCap Market ("NASDAQ") because NASDAQ
indicated that the application would not be approved. There is no assurance that
any of the Securities can ever be sold at the offered price or at any price.
16
<PAGE>
25. Possible Effects Of SEC Rules On Market For Common Stock And Warrants.
If the Company's 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 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-9 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 at a price in excess of $5 per security, then
these rules will not apply to transactions in the respective security trading at
a price in excess of $5. To the extent that the respective security becomes a
Low-Priced Security, these rules will apply and would be expected to have a
negative effect on the desire of brokers to sell the Company's Securities, would
be expected to have a negative effect on the brokers' ability to do so, and also
would be expected to have a negative effect on the ability of purchasers in this
Offering to sell the Company's securities in the secondary market.
26. 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 it has no legal obligation or commitment to do
so, one of the Underwriters may from time to time become a market maker, and one
or both of the Underwriters otherwise may effect transactions in such
Securities. (As indicated in Risk Factor No. 20, one of the Underwriters is not
permitted to make markets in any 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 Underwriter's 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.
27. 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
person has held the restricted securities for a period of one year, 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
two 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 are eligible for resale;
however, the holders of 2,257,401 of these shares have agreed with the
Underwriters not to sell any of these shares until March 13, 1999 without first
obtaining the prior written consent of the Underwriters. The holders of 142,599
of the 2,400,000 shares currently eligible for resale have agreed with the
Underwriters not to sell any of these shares until March 13, 1998 without first
obtaining the written consent of the Underwriters. 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 may not
sell any of these Securities until March 13, 1998 without first obtaining the
prior written consent of the Underwriters. 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.
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<PAGE>
28. 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 October 31, 1997, 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".
29. 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".
30. 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
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.
31. Prior Offering Period Expired Without Obtaining Minimum Offering. There
is no assurance that this Offering will be completed. The Offering, which
originally was made on a "best efforts, minimum/maximum basis", first commenced
on March 13, 1997. The 90 day offering period ended on June 11, 1997 and all
funds were returned to investors because the minimum offering amount was not
received.
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from this Offering are estimated to be
$2,387,200 ($2,773,219 if the Underwriters' over-allotment option is exercised
in full) 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 Underwriter upon
consummation of the Offering. Other expenses of the Offering, estimated to be
$570,000, include the non-accountable expense allowance, printing costs, legal
fees, accounting fees, blue sky fees and costs, transfer agent fees, SEC and
NASD filing fees and other miscellaneous costs. Approximately $295,000 of the
total offering expenses will have been paid by the Company prior to closing the
Offering leaving $275,000 of offering expenses and $295,800 of selling
commissions to be paid from the offering proceeds. The $2,387,200 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):
Offering
------------------------------
Approximate
Percentage
Approximate Of Net
Amount Proceeds
----------- -----------
Domestic and International
Marketing Program ........................ $100,000 4.2%
Repayment of Unsecured Notes (2) ......... 345,000 14.5%
Upgrade Computer Software Systems ........ 50,000 2.1%
Reduction of Trade Account to
Major Supplier ........................... 1,000,000 41.9%
Other Working Capital (3) ................ 892,200 37.3%
---------- -----
TOTAL NET PROCEEDS $2,387,200 100%
========== ====
- --------------------
(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) The Company intends to repay the $300,000 of indebtedness and approximately
$45,000 of accrued interest on notes issued 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 was due and
payable upon the earliest to occur of April 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). This indebtedness
currently is in default, and the Company is requesting that the debt
holders agree to extend the due date of their notes until completion of
this Offering. There is no assurance that they will agree to do so.
(3) The Company's working capital will be utilized for general corporate
purposes and operating expenses, including payment of $55,000 for the
Representative's consulting fee. If the Underwriters' over-allotment option
is exercised in part or in full, the net proceeds from that exercise will
be applied to working capital. See "UNDERWRITING".
19
<PAGE>
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 has not paid any cash dividends to date. As indicated under
"BUSINESS-Indebtedness To Major Supplier", the Company's Note to the Supplier
prohibits the payment of any dividends until the Note is paid in full. 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.
DILUTION
The net tangible book value of the Company as of July 31, 1997 was
$(3,097,628) or $(1.07) per share. 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 580,000 shares of
Common Stock and 580,000 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 July 31, 1997 would have been $(847,772), or
$(.24) per share of Common Stock. This represents an immediate increase in net
tangible book value of $.83 per share to existing stockholders and an immediate
dilution of $5.24 per share, or 105 percent, 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 $(1.07)
Increase per share attributable to new investors $ .83
Net tangible book value per share after the Offering $( .24)
Dilution per share to new investors $(5.24)
20
<PAGE>
The following table summarizes, on a pro forma basis, assuming 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
----------------------- -----------------------
Average
Number Percent Amount Percent Price/Share
------ ------- ------ ------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders 2,900,100 83.3% $ 148,155 4.9% $0.05
New investors 580,000 16.7% $2,900,000 95.1% $5.00
--------- ------ ---------- -----
Total 3,480,100 100.0% $3,048,155 100.0%
========= ===== ========== =====
</TABLE>
The information presented above, with respect to existing stockholders,
assumes no exercise of the Underwriters' 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 1994 Stock Option Plan. Pursuant to
the 1994 Stock Option Plan, the Company has approved the issuance, effective
upon the completion of this Offering, of options to purchase 172,000 shares of
Common Stock. These outstanding options may not be exercised until one year
after the Company completes the Offering, at which time 25 percent of the
options become exercisable. An additional 25 percent become exerciable on each
subsequent anniversary and all options expire five years after the completion of
the Offering. The issuance of Common Stock under this plan may result in further
dilution to new investors.
21
<PAGE>
BUSINESS
Overview
American International Consolidated Inc. (the "Company") is a general
contractor and a manufacturer that focuses primarily on three types of
construction products: the construction of mini-warehouses and self-storage
facilities; the manufacture of metal buildings and structural steel projects;
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 and 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 (281) 449-9000.
Description Of Business
Within its construction and manufacturing operations, the Company operates
three specialty divisions: (i) mini-warehouses and other self-storage
facilities; (ii) the manufacture of metal buildings and structural steel
projects; 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.
Construction Of Mini-Warehouses
-------------------------------
During each of the fiscal year ended April 30, 1997 and the three months
ended July 31, 1997, the Company realized revenue of approximately $17 million
and $6.0 million, respectively, from its mini-warehouse construction. For the
fiscal years ended April 30, 1996 and 1995, the Company's revenue from this
division was $20.6 million and $11.5 million, respectively. 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.
Approximately 19 percent of the Company's mini-warehouse construction work
currently is being undertaken on behalf of U-Haul Inc. For the fiscal years
ended April 30, 1997 and April 30, 1996, U-Haul Inc. represented approximately
43 percent and 39 percent, respectively, 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 favorable.
The Company employs approximately 90 people for its mini-warehouse
construction business including 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, four estimators, four draftspersons, two salespeople, nine
field superintendents, and 50 to 60 erection crew members.
22
<PAGE>
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, 1997 and for the three months ended
July 31, 1997, the Company realized approximately $15 million and $3.4 million,
respectively, in gross revenues from its metal buildings manufacturing and
construction services. Approximately $2.3 million, or 7 percent, of these
revenues for the 1997 fiscal year, and approximately $.9 million of these
revenues, or 8.7 percent, for the three months ended July 31, 1997 resulted from
international sales despite the fact that the Company has virtually no
continuing marketing effort for international sales. For the fiscal years ended
April 30, 1996 and 1995, the Company's revenue from this division was $9.2 and
$10.0, respectively.
The Company has determined to concentrate its metal building division
activities on international sales, from which the Company believes it will
derive higher margins. Accordingly, the Company will not pursue domestic sales
of metal buildings except in isolated situations, if any, that it believes will
have high margins. The Company also has determined to close its metal buildings
manufacturing facility and to utilize outside contractors for manufacturing.
This will reduce the number of employees in the metal building division from 25
to three.
On October 27, 1997, the Company sold substantially all its equipment and
inventory that had previously been utilized in the metal buildings division, and
paid the net proceeds to reduce amounts owed to the Supplier. The equipment
purchasers also agreed, among other things, to lease the manufacturing facility
from the Company on a month-to-month basis and to process any metal buildings
manufacturing orders from the Company at a pre-determined fixed price per ton of
steel. The Company believes that the metal buildings division will have
significantly lower sales revenue but generate greater gross margins under the
new operating structure.
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 simpler to erect.
23
<PAGE>
The metal buildings sold by the Company utilize 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 three full-time and one part-time employee working
in the metal buildings division, including one salesperson, one estimator, and
one administrative person.
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, 1997 and the three months ended July
31, 1997, revenue from cold storage construction services accounted for
approximately $1.7 million and $.5 million, respectively. For the fiscal years
ended April 30, 1996 and 1995, the Company's revenue from this division was $1.4
million and $2.8 million, respectively.
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 of operations of field work
and purchasing, a general superintendent, a site supervisor, an administrative
secretary and eight construction crew members.
24
<PAGE>
Backlog
As of July 31, 1997 the Company had an aggregate backlog of approximately
$16.6 million, including a backlog of $3.8 million related to its metal building
manufacturing division, $12.2 million related to its mini-warehouse construction
division, and approximately $.6 million related to its cold storage construction
division. The Company expects to complete all of this backlog by April 30, 1998.
By comparison, as of July 31, 1996, the Company had an aggregate backlog of
approximately $23.5 million in the respective amounts of $9.5 million, $12.3
million, and $1.7 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-Risk Factor No. 9-Previous Unprofitable International Operations".
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 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
been able to increase its bonding capacity for a single job from $250,000 to
$500,000 and its aggregate bonding capacity from approximately $1.5 million to
$2.5 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. 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. See "RISK FACTORS-Risk
Factor No. 9-Previous Unprofitable International Operations".
25
<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.
Increase Margins And Profitability
----------------------------------
Decrease Bonding Costs. During each of its fiscal years ended April 30,
1997 and 1996, the Company paid aggregate premium expenses of approximately
$51,000 and $38,000, respectively, or approximately two percent and four
percent, respectively, 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 each of fiscal 1997
and 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" above.
Decrease Overall Cost Of Metal Building Manufacturing. As a result of the
successful completion of this Offering and reduction of the Note to the
Supplier, the Company believes it will be able to obtain purchase discounts on
metal building components, which will enable it to increase margins and
profitability; however there is no assurance that these purchase discounts will
be available. The Company also believes it will increase its margins by
contracting out its manufacturing and by concentrating on international sales
for metal buildings.
Management's Plan To Remove The Threat To
The Company's Ability To Continue As A Going Concern
----------------------------------------------------
As a result of the Company's losses incurred in the fiscal year ended April
30, 1997 (approximately $4.2 million, including a non-recurring charge of $1.7
million), the Company's working capital position and ability to generate
sufficient cash flows from operations to meet its operating and capital
requirements has further deteriorated and these matters raise substantial doubt
about the Company's ability to continue as a going concern without completion of
this Offering or a substantial infusion of equity capital. The Company believes
that it will be successful in removing the threat concerning its ability to
continue as a going concern by adhering to closer and stricter scrutiny of its
contract bids and utilizing the estimated net proceeds of approximately $2.38
million from this Offering to achieve profitability through lower interest and
bonding costs and expanded volume as described above under "Increase Business
Volume" and "Increase Margins And Profitability". Management believes that
approximately $1.0 to $1.2 million of the proceeds from this Offering are
necessary to remove the threat concerning the Company's ability to continue as a
going concern and that if this Offering is completed, the proceeds from this
Offering will enable the Company to continue operating for the foreseeable
future at its current level of operations. There is no assurance these results
will occur even if this Offering is consummated. If this does not occur, the
Company will pursue other sources of financing, but there is no assurance any
other source of financing will be available.
26
<PAGE>
The Company is current in its obligations to all lenders and major
suppliers except for the Supplier described in "Indebtedness To Major Supplier",
below, and except for the holders (the "Noteholders") of $300,000 principal
amount of, and approximately $45,000 accrued interest on, certain outstanding
unsecured notes. The Supplier has indicated that it has no intent of
accelerating payment on any obligations as long as this Offering is completed.
The Supplier has not indicated what it will do if this Offering is abandoned or
otherwise terminated unsuccessfully. The Company has requested that the
Noteholders extend their notes or otherwise wait for completion of this Offering
before requiring payment. There is no assurance that the Noteholders will comply
with this request.
As a result of the losses incurred during fiscal year ended April 30, 1997,
the audit report of the Company's independent auditors indicates that there is
substantial doubt concerning the Company's ability to continue as a going
concern without a substantial infusion of equity capital, such as that
contemplated from this Offering. The implication of this to investors is that
successful completion of this Offering (or an equity infusion from another
source) is necessary for the Company to continue operations. See "RISK
FACTORS-Risk Factor No. 1. Substantial Doubt About The Company's Ability To
Continue As A Going Concern Without Completion Of Public Offering",
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS", and Note 2 to the Financial Statements.
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 three months ended July 31, 1997 and the fiscal year ended April
30, 1997, one of the Company's customers, U-Haul, Inc., accounted for
approxmately $2.0 million and $7.3 million, respectively, or approximately 19
percent and 22 percent, respectively, of the Company's total revenues. For the
fiscal year ended April 30, 1996, U-Haul, Inc. represented $8.1 million, or 26
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. became a wholly-owned subsidiary of the Company. C.H.O.A. was dissolved
on September 13, 1996.
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.
27
<PAGE>
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
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 October 31, 1997, the Company owed its major supplier (the
"Supplier") of metal building components $2,461,738 in accounts payable and
$1,798,885 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 $1,000,000 from the proceeds of the Offering to
reduce the accounts payable to the Supplier. 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 and Teresa 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
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
28
<PAGE>
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 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. As of April 30, 1997, the Company
was in default of a number of covenants under the Loan Agreement, and the
Supplier agreed to waive these defaults. See "RISK FACTORS-Risk Factor No.
3-Outstanding Indebtedness".
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 July 31, 1997, the Company owed FCLT, L.P., a Texas limited
partnership ("FCLT"), an aggregate of approximately $322,000 (the "Debt") under
two loan agreements. See "RISK FACTORS-Risk Factor No. 3-Outstanding
Indebtedness".
29
<PAGE>
One loan is evidenced by a promissory note in the face amount of $414,000,
with an outstanding principal balance of $247,000 at July 31, 1997. 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 $75,000 at July 31,
1997. 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.
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 approximately 120 employees including its Chief Executive
Officer, the Presidents for each of its three divisions, an in-house legal
counsel, one Vice President, one construction manager, five project managers,
two operations coordinators, four estimators, five draftsmen, three salesmen, 20
superintendents, 50-60 construction employees, one purchasing manager and one
purchasing coordinator, five accounting personnel and four 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 also owns 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.
The office building includes offices for the Company's metal buildings and
mini-warehouse operations as well as for the Company's administrative and
financial operations. The warehouse/assembly plant/office currently is being
leased to another party on a month-to-month basis. Both buildings are encumbered
by the Debt described under "FCLT Loans" and by the Note described under
"Indebtedness To Major Supplier". The Company also leases 824 square feet of
space in Conroe, Texas, for its cold storage construction services.
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.
30
<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, 1997 are derived from the audited
consolidated financial statements of the Company for these periods. The selected
financial data presented for the three-month periods ended July 31, 1997 and
1996 are derived from unaudited consolidated financial statements included
elsewhere in this Prospectus, which in the opinion of management include all
normal and recurring adjustments necessary for fair presentation of information.
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>
Three Months
Years Ended April 30 Ended July 31
--------------------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1996 1997
------- ---------- -------- -------- -------- -------- --------
Statement of Operations Data: (In thousands except per share data) (unaudited)
- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Contract revenues $16,843 $ 25,845(1) $ 24,317 $ 31,185 $ 33,350 $ 7,587 $ 10,096
Contract cost 13,905 22,566 20,812 27,204 31,388 7,288 8,867
Gross profit 2,938 3,279 3,505 3,981 1,962 299 1,229
Selling, general and
administrative 3,091 3,303 3,021 3,359 3,839 907 918
Provision for doubtful
accounts 35 156 48 62 428 18 17
Bridge financing costs -0- -0- -0- -0- (1,305) (1,005) -0-
Interest and other
financing costs (192) (219) (188) (184) (308) (81) (65)
Write-off of IPO
costs - capital -0- -0- (106) -0- (359) -0- -0-
Federal income tax expense -0- -0- -0- (35) -0- (35) -0-
Net income (loss) after
pro forma income taxes (2) (361) (420) 187 352 (4,197) (3) (1,736) (3) 228
Net income (loss) per share
after pro forma income taxes (2) (.12) (.14) .06 .12 (1.45) (.60) .08
Dividends paid per share .03 .01 -0- -0- -0- -0- -0-
April 30
1993 1994 1995 1996 1997 July 31, 1997
--------- -------- -------- -------- -------- -------------
(In thousands) (Unaudited)
Balance Sheet Data:
- -------------------
Current Assets $ 3,058 $ 4,581 $ 4,163 $ 5,944 $ 7,297 $ 7,351
Current Liabilities 4,076 5,974 5,568 5,107 11,242 11,207
Working capital (deficiency) (1,018) (1,393) (1,405) 837 (3,945) (3,856)
Total assets 4,265 5,717 5,487 7,346 8,692 8,807
Long-term debt 519 495 454 2,422 327 26
Stockholders' equity (deficit) (330) (759) (572) (220) (3,168) (2,940)
</TABLE>
- -------------------
(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 were
reflected herein as if AIC Management, Inc. had been a taxable entity for
the periods preceding its acquisition.
(3) Includes a pre-tax charge of $1,305,250 ($.45 per share) for the year ended
April 30, 1997 and $1,005,250 ($.35 per share) for the quarter ended July
31, 1996 as the amortized portion of the non-recurring pre-tax charge to
earnings for the 500,100 shares of the Company's Common Stock that were
issued in connection with the issuance of $300,000 of unsecured promissory
notes in July 1996. This non-recurring charge was amortized over the term
of the promissory notes. Also includes a non-recurring charge of $358,946
at April 30, 1997 for the write-off of capitalized offering costs. See Note
8 to "Notes To Consolidated Financial Statements" and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS".
31
<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
Percentage of Total Revenues Three Months Ended From Prior Period
Year Ended April 30, July 31, Year Ended April 30, Three Months Ended
------------------------ ------------------ ------------------- -------------------
1995 1996 1997 1996 1997 1996 1997 July 31, 1997
---- ---- ---- ---- ---- ---- ---- -------------
Revenues:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Contract revenues: 100.0% 100.0% 100.0% 100.0% 100.0% 28.2% 6.9% 33.1%
Costs and expenses:
Contract costs: 85.6% 87.2% 94.1% 96.1% 87.8% 30.7% 15.4% 21.7%
Selling, general
and administrative: 12.4% 10.8% 11.5% 11.9% 9.1% 11.2% 14.3% 1.3%
Provision for doubtful
accounts: .2% .2% 1.3% .9% .2% 28.3% 596.5% 0%
Private Placement
financing costs: --- % --- % 3.9% 13.3% --- % --- % 100.0% (100.0)%
Interest and other
financing costs: 8% .6% .9% 1.1% .6% (1.9%) 67.1% (19.6)%
Total costs and expenses: 99.0% 98.8% 111.7% 123.3% 97.7% 28.0% 21.0% 6.2%
</TABLE>
Three Months Ended July 31, 1997 Compared To Three Months Ended July 31,
1996
- --------------------------------------------------------------------------------
For the three months ended July 31, 1997, the Company reported net income
of $228,000 or $.08 per share on revenues of $10,096,000 compared to a net loss
in the prior year's first quarter of ($1,736,000) or ($.60) per share, on
revenues of $7,587,000. The net loss in the prior year's first quarter is
primarily attributable to a non-recurring, non-cash charge of $1,005,000 for
private placement costs.
Total margins more than doubled when comparing July 31, 1996 margin of 3.9%
with 12.2% at July 31, 1997. This increased margin is attributed primarily to
improved margins on new contracts performed by the Metal Building Manufacturing
Division which earned a margin of 16% on revenues of $3.4 million for the
quarter ended July 31, 1997 as compared with a negative margin of (4.4%) on
revenues of $2.9 million for the quarter ended July 31, 1996. These improved
results for the quarter ended July 31, 1997 include the revenue earned on a
contract to provide a metal building for a wood processing plant which earned a
margin of 20% on revenues of $1.4 million.
32
<PAGE>
The mini-warehouse division improved its margin to 10.3% on revenues of
$6.0 million for the three months ended July 31, 1997 as compared with a margin
of 7.3% on revenues of $4.4 million for the three months ended July 31, 1996. In
addition, the Thermal Systems Division earned revenues of $.5 million with a
margin of 10.4% for the three months ended July 31, 1997 as compared with
revenues of $.3 million with a margin of 14.7% for the comparable period in
1996.
Selling, general and administrative expenses as a percentage of revenues
decreased to 9.1% for the three months ended July 31, 1997 as compared with 12%
for the three months ended July 31, 1996. This decrease in percentage is a
result of revenues increasing at a greater rate than expenses. The Company
anticipates that, to the extent that revenues continue to increase in the
future, of which there is no assurance, selling, general and administrative
expenses will increase at a lower rate.
Net interest expense decreased to $65,000 for the three months ended July
31, 1997 as compared with $81,000 for the three months ended July 31, 1996. This
decrease is the result of a declining balance on the note payable to a major
supplier.
The Company's contract backlog as of July 31, 1997 was $16.6 million as
compared to $23.5 million as of July 31, 1996, a decrease of $6.9 million, which
is primarily attributable to a $7.4 million decrease in the backlog for the
metal building manufacturing division and a $1.1 million decrease in the backlog
for the cold-storage construction division. The decrease in backlog for the
metal building division is consistent with the Company's decision to concentrate
metal buildings division activity on international projects. See "BUSINESS-Metal
Buildings Manufacturing Division".
Year Ended April 30, 1997 Compared With Year Ended April 30, 1996
-----------------------------------------------------------------
For the year ended April 30, 1997, the Company reported a net loss of
$(4,197,239) or ($1.45) per share, on revenues of $33,350,003 as compared with
net income of $351,570, or $.12 per share, on revenues of $31,184,828 for the
year ended April 30, 1996. The increase in net loss is primarily attributable to
the following: (a) the Company recorded a non-recurring, non-cash charge of
$1,305,000 for private placement costs and a write-off of initial public
offering costs of $358,945; (b) the Company's gross margins decreased
approximately $2,018,380 for the period ended April 30, 1997 as compared with
the same period of the prior year; (c) the Company incurred an expense of
$200,000 as a provision for doubtful accounts resulting from its agreement to
settle a disputed account receivable by accepting $200,000 less than the full
value of the account; and (d) the Company deferred recognition of gross profits
of $253,084 during the fiscal year ended April 30, 1997 compared with $224,094
during the fiscal year ended April 30, 1996 for self-storage construction
contracts.
The total margins decreased from 12.8% to 5.9% when comparing the year
ended April 30, 1996 with the year ended April 30, 1997. This decreased margin
is attributable primarily to the metal building division which earned revenues
of $15 million with a margin of .4% for the year ended April 30, 1997 as
compared with earned revenues of $9.2 million with a margin of 10% for the year
ended April 30, 1996.
The mini-warehouse division margins decreased to 9.9% on revenues of $16.7
million for the year ended April 30, 1997 as compared with margins of 13.8% on
revenues of $20.6 million for the year ended April 30, 1996. The Thermal Systems
division earned revenues of $1.7 million with margins of 15.7% for the year
ended April 30, 1997 as compared with revenues of $1.4 million with margins of
14.8% for the comparable period in 1996.
33
<PAGE>
Selling, general and administrative expenses as a percentage of revenues
increased to 11.5% for the year ended April 30, 1997 as compared with 10.8% for
the year ended April 30, 1996. This increase in percentage is primarily a result
of increasing insurance expenses. The Company anticipates that, to the extent
that revenues continue to increase in the future, of which there is no
assurance, selling, general and administrative expenses will increase at a lower
rate.
Interest expense increased $123,569 from $184,277 for the year ended April
30, 1996 to $307,846 for the year ended April 30, 1997. This increase is the
result of the conversion of non-interest-bearing accounts payable to
interest-bearing Notes Payable to Supplier effective in April 1996.
The Company's contract backlog as of April 30, 1997 was $18.8 million as
compared with $12.5 million as of April 30, 1996, an increase of $6.3 million,
which is attributable to a $5 million increase in the backlog for the
mini-warehouse construction division, a $1 million increase in the backlog for
the metal building manufacturing division, and a $.3 million increase for the
thermal systems division.
For additional discussions concerning recent losses and the Company's
ability to continue as a going concern, see "RISK FACTORS-Risk Factor No.
1-Substantial Doubt About The Company's Ability To Continue As A Going Concern
Without Completion Of A Public Offering" and "BUSINESS-Business Plan And
Strategy" above and "-Liquidity And Capital Resources" below.
Fiscal Year Ended April 30, 1996 Compared With Fiscal Year Ended April 30,
1995
- --------------------------------------------------------------------------------
For fiscal year ended April 30, 1996, the Company reported a net profit of
$352,000 or $.12 per share, on revenues of $31,185,000 as compared with net
profit of $187,000, or $.06 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 10.8% of gross revenues in fiscal 1996 from 12.4%
of gross revenues in fiscal 1995. See discussion above of selling, general and
administrative expenses for the six months ended October 31, 1996 for additional
information.
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 12.7% for
fiscal 1996.
The Company's contract backlog as of April 30, 1996 decreased to $12
million from $13.3 million 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 $10.5 million
to $13.3 million, which was primarily attributable to both the metal building
and mini-warehouse general construction products.
34
<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.
Liquidity And Capital Resources
As of July 31, 1997, the Company had current assets of $7,351,000 and
current liabilities of $11,207,000 which represents negative working capital of
$(3,856,000). Working capital decreased $89,000 as compared with April 30, 1997.
The decrease in working capital is attributed to an increase in the current
portion of long-term debt of $175,000 on notes payable to a bank that mature in
June 1998. As of April 30, 1997 the Company had current assets of $7,297,000 and
current liabilities of $11,242,000, which represents a negative working capital
of $3,945,000 as compared with a positive working capital of $837,000 as of
April 30, 1996. The $4,782,000 decrease in working capital is primarily
attributable to the loss incurred from operations for fiscal 1997 of $4,197,000
and the increase in current portion of long-term debt of $1,884,000.
As of July 31, 1997, the Company's cash balance decreased $97,000 as
compared with the balance at April 30, 1997. This decrease is primarily
attributable to the Company's utilizing available cash to reduce notes payable
and capital lease obligations.
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. The Company's cash flow from operations decreased $107,000 for
fiscal 1997 as compared with fiscal 1996 as a result of the Company's loss from
operations, which was partially offset by an increase in accounts payable of
$51,600. The cash flow from operations for the three months ended July 31, 1997
as compared with July 31, 1996 improved $135,000 to a positive $67,000 from a
negative $68,000 for the first fiscal quarter of 1996. The improvement in net
cash flow for the quarter ended July 31, 1997 is due primarily to improved
operating results.
For the fiscal year ending April 30, 1998, the Company is planning to make
capital expenditures of $50,000 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
1998 are approximately $566,000 in the aggregate. Management of the Company
believes that for fiscal 1998, the Company's funding from this Offering, and 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. See "RISK FACTORS--Risk Factor No. 3--Outstanding Indebtedness".
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 above and in the Company's financial statements, the Company
incurred operating losses for each of the fiscal years ended April 30, 1997,
1994, and 1993, and there is no assurance that the operations of the Company
will be profitable in the future. As a result of the Company's losses in fiscal
1997 (approximately $4.2 million, including non-recurring charges and write-off
of initial public offering costs of an aggregate of $1.7 million), the Company's
working capital position and ability to generate sufficient cash flows from
operations to meet its operating and capital requirements has further
deteriorated. These matters raise substantial doubt about the Company's ability
to continue as a going concern without completion of this Offering or a
substantial infusion of equity capital. The Company believes that it will be
successful in removing the threat concerning its ability to continue as a going
concern by adhering to closer and stricter scrutiny of its contract bids and
utilizing the estimated net proceeds of approximately $2.38 million from this
Offering to achieve profitability through lower interest and bonding costs and
expanded volume. Management believes that approximately $1.0 to $1.2 million of
the proceeds from this Offering are necessary to remove the threat concerning
the Company's ability to continue as a going concern and that if this Offering
is completed, the proceeds from this Offering will enable the Company to
continue operating for the foreseeable future at its current level of
operations. There is no assurance these results will occur even if this Offering
is consummated. If this does not occur, the Company will pursue other sources of
financing, but there is no assurance any other source of financing will be
available.
35
<PAGE>
The Company is current in its obligations to all lenders and major
suppliers except for the Supplier described in "RISK FACTORS-Risk Factor No.
3-Outstanding Indebtedness" and "BUSINESS-Indebtedness To Major Supplier" and
except for the holders (the "Noteholders") of $300,000 principal amount
unsecured notes as described in Risk Factor No. 3. The Supplier has indicated
that it has no intent of accelerating payment on any obligations as long as this
Offering is completed. The Supplier has not indicated what it will do if this
Offering is abandoned or otherwise terminated unsuccessfully. The Company has
requested that the Noteholders extend their notes or otherwise wait for
completion of this Offering before requiring payment. There is no assurance that
the Noteholders will comply with this request.
As a result of the losses incurred in the fiscal year ended April 30, 1997,
the audit report of the Company's independent auditors indicates that there is
substantial doubt concerning the Company's ability to continue as a going
concern without a substantial infusion of equity capital, such as that
contemplated from this Offering. The implication of this to investors is that
successful completion of this Offering (or an equity infusion from another
source) is necessary for the Company to continue operations. See "RISK
FACTORS-Risk Factor No. 1-Substantial Doubt About The Company's Ability To
Continue As A Going Concern Without Completion Of Public Offering",
"BUSINESS-Business Plan And Strategy", "FINANCIAL INFORMATION", and Note 2 to
the Financial Statements.
As of July 31, 1997, the Company's backlog was $16.6 million as compared
with $23.7 million as of July 31, 1996. The Company anticipates that its
operating results for fiscal 1998 will not significantly alter its liquidity or
capital resources.
MANAGEMENT
The Officers and Directors of the Company are as follows:
Name Age Position
- ---- --- --------
John T. Wilson 43 Chief Executive Officer, Chairman Of
The Board and Director
Danny R. Clemons 47 President/Mini-Warehouse Division and
Director
Ralph L. Farrar 50 President/Metal Buildings Division,
Secretary and Director
Jim W. Williams 43 Vice President/Finance, Chief Financial
Officer, Assistant Secretary and Director
Louis S. Carmisciano 55 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.
36
<PAGE>
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.
Louis S. Carmisciano became a Director of the Company on January 14, 1997.
Since 1984, Mr. Carmisciano has served as the President of LSC Associates, Inc.,
a firm providing consulting services to the construction and real estate
industries. Mr. Carmisciano, as President of LSC Associates, Inc., has provided
consulting services to the Company since July 1996. Prior to 1984, Mr.
Carmisciano was the senior vice president of Dimeo Enterprises, Inc., a real
estate developer and contractor, and also served as an audit manager for Touche
Ross & Co. In addition, since 1978, Mr. Carmisciano has served as a professional
lecturer at the Hartford Graduate Center in Hartford, Connecticut and has
lectured for the American Subcontractors Association, the Rhode Island Bankers
Association, and the Massachusetts and Rhode Island Societies Of Certified
Public Accountants. Mr. Carmisciano is a member of the Association of General
Contractors, the American Subcontractors Association, the Construction Financial
Management Association, the American Institute of Certified Public Accountants,
the Massachusetts Society of Certified Public Accountants, and the Rhode Island
Society of Certified Public Accountants. Mr. Carmisciano is a certified public
accountant licensed in the Commonwealth of Massachusetts and the State of
Illinois and received a B.S. Degree in Business Administration from Northeastern
University in Boston, Massachusetts in 1963.
Another key employee of the Company is as follows:
Jimmy M. Rogers, 45, 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.
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 Representative will have the
right to designate to the Company's Board Of Directors 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 Representative intends to designate an advisor to
or a member of the Company's Board of Directors.
37
<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 $100,000 during any of the last
three fiscal years.
Summary Of Annual Compensation Table
------------------------------------
Fiscal Year
Name and Principal Ended All Other
Position April 30, Salary ($)(1) Compensation ($)(2)
===============================================================================
John T. Wilson 1997 72,500 5,109
Chief Executive Officer, 1996 72,000 6,811
Chairman Of The 1995 72,000 6,120
Board and a director
Danny R. Clemons 1997 72,500 3,600
President/Mini- 1996 72,000 8,329
Warehouse Division 1995 72,000 6,661
and a director
Ralph L. Farrar 1997 72,500 4,180
President/Metal 1996 72,000 8,286
Buildings Division 1995 72,000 7,533
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 $85,000 per year. For
a description of employment agreements with the named individuals, see
below, "Employment Contracts And Termination Of Employment 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 amounts paid on
behalf of the named person for life insurance premiums. The amounts shown
consist of the following: 1997: John T. Wilson - $1,750 for 401(k) plan
contributions, $2,180 for group medical insurance premiums, and $130 for
life insurance premiums; Danny R. Clemons - $120 for 401(k) plan
contributions, $2,140 for group medical insurance premiums, and $1,340 for
life insurance premiums; and Ralph L. Farrar - $1,750 for 401(k) plan
contributions, $2,300 for group medical insurance premiums, and $130 for
life insurance premiums; 1996: John T. Wilson - $1,184 for 401(k)
contributions, $4,292 for group medical insurance premiums, and $1,335 for
life insurance premiums; Danny R. Clemons - $1,579 for 401(k) plan
contributions, $4,292 for group medical insurance premiums, and $2,458 for
life insurance premiums; and Ralph L. Farrar - $1,184 for 401(k) plan
contributions, $4,490 for group medical insurance premiums, and $2,612 for
life insurance premiums; and 1995: John T. Wilson - $1,016 in 401(k)
contributions, $4,107 for group medical insurance premiums, and $997 for
life insurance premiums; Danny R. Clemons - $897 for 401(k) plan
contributions, $4,107 for group medical insurance premiums, and $1,657 for
life insurance premiums; and Ralph L. Farrar - $1,016 for 401(k) plan
contributions, $4,681 for group medical insurance premiums, and $1,836 for
life insurance premiums.
38
<PAGE>
Compensation Of Directors
- -------------------------
Louis S. Carmisciano, a Director of the Company who is neither an officer
nor an employee of the Company, will be paid $150 per hour for his services as a
Director of the Company. Mr. Carmisciano also is the President of LSC
Associates, Inc. ("LSC"), which provides consulting services to the Company.
This arrangement is described under "TRANSACTIONS BETWEEN THE COMPANY AND
RELATED PARTIES-Consulting Agreement". Jim W. Williams, the Vice President Of
Finance, Chief Financial Officer and a Director of the Company, received options
to purchase up to 10,000 shares of the Company's Common Stock in January 1997.
For a description of the terms of these options, see below "-Option Grants". The
Company has no other arrangement pursuant to which the other 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, Ralph L. Farrar, and Jim W.
Williams, $85,000 each. 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.
Compensation Committee Interlocks And Insider Participation.
- ------------------------------------------------------------
The Company's Board Of Directors determines the compensation for the
Company's executive officers. The Company has no compensation committee or other
committee of the Board Of Directors that performs a similar function. Each of
the Company's current directors except for Louis S. Carmisciano also is an
executive officer of the Company. John T. Wilson, Danny R. Clemons, and Ralph F.
Farrar, each of whom is an executive officer and employee of the Company,
participated in deliberations of the Company's Board Of Directors concerning
executive officer compensation during the fiscal year ended April 30, 1996. Jim
W. Williams became a director of the Company in June 1996. Mr. Williams also is
the Vice President/Finance and Chief Financial Officer of the Company.
39
<PAGE>
Option Grants
- -------------
On January 14, 1997, the Company approved ths issuance, effective upon the
completion of this Offering, of incentive stock options to purchase an aggregate
of 172,000 shares of Common Stock to employees of the Company, including options
to purchase 10,000 shares issued to each of Jim W. Williams, the Vice President
Of Finance, Chief Financial Officer and a Director of the Company, and Jimmy M.
Rogers, President of the Thermal Systems Division of the Company. These options
were granted pursuant to the Company's 1994 Stock Option Plan and allow the
recipients to purchase shares of the Common Stock at an exercise price of $5.00
per share, which is the offering price of shares in this Offering. With respect
to each recipient of options, one-fourth of their options become exercisable on
each of the first, second, third and fourth anniversaries of the completion of
the Offering, and all their options expire on the fifth anniversary of the
completion of the Offering. The Company's obligation to issue options to
purchase 127,000 shares terminated because of the termination of the employment
of certain recipients.
PRINCIPAL STOCKHOLDERS
The following table summarizes certain information as of October 31, 1997
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
Name And Address Of Beneficial Class Prior To Class After
Of Beneficial Owner Ownership Offering Offering (1)
- --------------------- --------- -------- ------------
<S> <C> <C> <C>
Danny R. Clemons(2) 707,319 24.4% 20.3%
14603 Chrisman
Houston, Texas 77039
Ralph L. Farrar(2) 707,319 24.4% 20.3%
14603 Chrisman
Houston, Texas 77039
John T. Wilson(2) 707,319 24.4% 20.3%
14603 Chrisman
Houston, Texas 77039
Jim W. Williams(2) 135,444 4.7% 3.9%
14603 Chrisman
Houston, Texas 77039
Louis S. Carmisciano 0 0% 0
P.O. Box 1114
Chicago, Illinois 60690-1114
All Officers And Directors 2,257,401 77.8% 64.9%
As A Group (Five Persons)(2)
</TABLE>
- --------------------
(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 is 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".
40
<PAGE>
TRANSACTIONS BETWEEN THE COMPANY AND RELATED PARTIES
Conflicts Of Interest Policy.
- -----------------------------
The Company has established a policy for considering transactions with
directors, officers, and stockholders of the Company and their affiliates.
Pursuant to this policy, the Board Of Directors of the Company will not approve
any such related party transactions unless the Board Of Directors has determined
that the terms of the transaction are no less favorable to the Company than
those available from unaffiliated parties. Because this policy is not contained
in the Company's Certificate Of Incorporation or Bylaws, this policy is subject
to change at any time by the vote of the Board Of Directors. It currently is not
contemplated that this policy will be changed. The Board has determined that the
transactions described below were made on terms no less favorable to the Company
than would have been available from unaffiliated 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.
Grants Of Stock Options.
- ------------------------
On January 14, 1997, the Company approved the issuance, effective upon the
completion of this Offering, of options to purchase an aggregate of 172,000
shares of the Company's Common Stock to employees of the Company pursuant to the
Company's 1994 Stock Option Plan. Included in these option grants were options
to purchase 10,000 shares granted to each of Jim W. Williams and Jimmy M.
Rogers. The exercise price of these options is $5 per share, which is the
offering price of shares in this Offering. One fourth of the options granted
become exercisable on each of the first, second, third and fourth anniversaries
of the completion of the Offering, and all of these options expire on the fifth
anniversary of the completion of the Offering. The Company's obligation to issue
options to purchase 127,000 shares terminated because of the termination of the
employment of certain recipients.
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.
41
<PAGE>
Employment Agreements.
- ----------------------
The Company is a party to employment agreements with each of its four
officers. These agreements are described under "EXECUTIVE COMPENSATION".
Consulting Agreement.
- ---------------------
LSC Associates, Inc. ("LSC"), of which Louis S. Carmisciano is the
President, has served as a consultant to the Company since July 1, 1996.
Pursuant to the original agreement, which terminated on December 31, 1996, LSC
received $5,000 per month plus expenses for consulting services provided to the
Company during the six month period ended December 31, 1996. This agreement
provided that the Company and LSC would evaluate the arrangement at December 31,
1996 and determine whether to enter into a new arrangement, which might include
continuing to retain LSC as a consultant and electing Mr. Carmisciano as a
Director. Effective January 1, 1997, the arrangement was modified to retain LSC
as a consultant on an as needed basis for $150 per hour, with no minimum hour
requirement. Mr. Carmisciano was elected a Director of the Company on January
14, 1997. Mr. Carmisciano will be paid at the same hourly rate for services
provided to the Company as a Director.
Interests In U.S. Storage, Inc. And U.S. Storage Management Services, Inc.
- --------------------------------------------------------------------------
As of October 16, 1996, each of Danny Clemons, Leroy Farrar, and John T.
Wilson transferred to the Company all of their interests in U.S. Storage, Inc.
("U.S. Storage") and U.S. Storage Management Services, Inc. ("Management
Services"). U.S. Storage was formed for the purpose of owning mini-warehouse
facilities, and Management Services was formed for the purpose of providing
management services for mini-warehouse facilities. In exchange for these
transfers, each of Messrs. Clemons, Farrar and Wilson received the right to
receive eight and one-third percent of any cash distributions received by the
Company from U.S. Storage or its successors. Messrs. Clemons, Farrar, and Wilson
had acquired their respective interests in U.S. Storage consisting, for each of
them, of 25 percent of the common stock of U.S. Storage, in February 1996 for
$500 each. Messrs. Clemons, Farrar, and Wilson had acquired their respective
interests in Management Services, consisting, for each of them, of 25 percent of
the common stock of Management Services, in May 1996 for $250 each. On October
17, 1996, the Company exchanged all its interest in U.S. Storage for a 37.5
percent interest in U.S. Storage/Westheimer G.P.L.C. ("Westheimer") and it sold
all its interest in Management Services to a former employee for $15,000
including $7,500 cash and release of the Company from $7,500 in commissions owed
to the individual. Westheimer is involved in the ownership of mini- warehouse
facilities.
As of October 23, 1996, Messrs. Clemons, Farrar and Wilson each transferred
to Jim W. Williams, an officer and director of the Company, the right to receive
one and two-thirds percent of any cash distributions received by the Company
from U.S. Storage or its successors. As a result of these transfers, each of
Messrs. Clemons, Farrar and Wilson has the right to receive six and two-thirds
percent, and Mr. Williams has the right to receive five percent, of any cash
distributions received by the Company from U.S. Storage or its successors.
None of Messrs. Clemons, Farrar or Wilson ever has received any payment,
distribution, or other economic benefit from either U.S. Storage or Management
Services. In May 1996, prior to assignment of all the interests of Messrs.
Clemons, Farrar and Wilson in U.S. Storage and Management Services to the
Company, the Company entered into a contract with U.S. Storage/Westheimer, Ltd.
for the Company to construct a mini-warehouse facility for approximately $1.36
million. U.S. Storage/Westheimer, Ltd. is a limited partnership in which
Westheimer owns a 45 percent interest, which results in the Company's owning a
16.875 percent beneficial interest in U.S. Storage/Westheimer, Ltd. The Company
believes that the terms of this contract were at least as favorable to the
Company as the terms and conditions of all other similar contracts for
construction of mini-warehouse facilities that the Company enters into with
unrelated parties. As indicated above, none of Messrs. Clemons, Farrar or Wilson
has ever received any payment, distribution or any other economic benefit from
U.S. Storage or Management Services, and each of these three individuals has
transferred all of his respective right, title, and interest in and to each of
U.S. Storage and Management Services to the Company.
42
<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 September 30, 1997 consisted
of 2,900,100 shares of $.001 par value Common Stock which were held by 44
stockholders and 3,000,000 Warrants held by 38 holders. The Company is offering
580,000 shares of Common Stock and 580,000 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
cast one vote per share for each nominee for director. 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
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.
43
<PAGE>
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.
44
<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 Underwriters' 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 until March 13, 1998 without
the prior written consent of the Underwriters. If the Underwriters do 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. 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 Underwriters with respect to the Underwriters' Warrant and the securities
underlying the Underwriters' Warrant.
45
<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, Incorporated.
UNDERWRITING
The Company has entered into an Underwriting Agreement with I.A.R.
Securities Corp., formerly I.A. Rabinowitz & Co. and Worthington Capital Group,
Inc. (the "Underwriters"), with I.A.R. Securities Corp., as the representative
(the "Representative") of 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 580,000
shares of Common Stock at a price of $5.00 per share and 580,000 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 intends to have the Common Stock and Warrants quoted on the OTC
Bulletin Board, an electronic quotation system maintained by the NASD, under the
trading symbols "AICI" and "AICIW", respectively. There is no assurance that
quotation on the OTC Bulletin Board will occur or that a trading market will
develop for the Common Stock and/or Warrants. See "RISK FACTORS-Risk Factor No.
24. 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 below.
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.
46
<PAGE>
The Underwriters will receive a commission equal to 10% of the gross
proceeds from the sale of the Common Stock and Warrants sold or $295,800. 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 Representative has advised the Company that the Underwriters 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 $.25 for each share of Common Stock and $.005 for each
Warrant. 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.
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 58,000 shares of Common Stock and 58,000 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 $.21 per Warrant. These Warrants are exercisable
at $5.00 per share during the four year period commencing one year after the
date of this Prospectus. 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 its
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 Representative has informed the Company that it does 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 prospective purchasers 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.
47
<PAGE>
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.
The Company will enter into on the date of this Prospectus a consulting
agreement with the Underwriters pursuant to which the Underwriters will receive
a consulting fee of $55,000, payable at the closing of the Offering, for
services to be rendered by the Underwriters 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 one
year following the date of this Prospectus without the Underwriters' consent
except that the Company may, without the Underwriters' 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
Regulation M 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 Regulation M 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".
Worthington Capital Group, Inc., formerly known as M. D. Walsh & Co., was
licensed as a broker/dealer in July 1991 and has not participated in public
offerings prior to this Offering. Worthington Capital Group, Inc. may not make
markets in securities. See "RISK FACTORS-Risk Factor No. 20. Lack Of Experience
Of Worthington Capital Group, Inc.".
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 Representative, 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.
48
<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 Underwriters 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 Underwriters by Schneck Weltman & Hashmall
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.
49
<PAGE>
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 Securities Holders Prospectus.
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. The Commission maintains a Worldwide Web
site at http:\\www.sec.gov that contains reports, proxies, and information
statements regarding registrants that file electronically with the Commission.
50
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditor's Report.................................................F-2
Financial Statements:
Consolidated Balance Sheets as of April 30, 1996 and 1997 and
July 31, 1997 (unaudited)..........................................F-3
Consolidated Statements of Operations for each of the three years
ended April 30, 1995, 1996 and 1997 and for each of the
three months ended July 31, 1996 and 1997 (unaudited)..............F-4
Consolidated Statements of Stockholders' Equity (Deficit) for each of
the three years in the period ended April 30, 1997 and for
the three months ended July 31, 1997 (unaudited)...................F-5
Consolidated Statements of Cash Flows for each of the three years
ended April 30, 1995, 1996 and 1997 and for each of the
three months ended July 31, 1996 and 1997 (unaudited)..............F-6
Notes to Consolidated Financial Statements................................F-8
Independent Auditor's Report - Consolidated Financial Statement Schedule..S-1
Schedule II - Consolidated Valuation and Qualifying Accounts..............S-2
F-1
<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, 1996 and 1997,
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, 1997. 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, 1996
and 1997, and the results of their operations and their cash flows for each of
the three years in the period ended April 30, 1997, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that American
International Consolidated, Inc. and Subsidiaries will continue as a going
concern. As more fully discussed in Note 2 to the consolidated financial
statements, the Company has incurred a net loss of $4,197,000 for the year ended
April 30, 1997, which includes a non-recurring charge of $1,305,000 related to
the Company's private placement of securities in July 1996 and a non-recurring
charge of $359,000 arising from the writeoff of capitalized offering costs. As a
result of this loss, the Company's working capital position and ability to
generate sufficient cash flows from operations to meet its operating and capital
requirements has deteriorated. These matters raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 18. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ Hein & Associates LLP
- -----------------------------------
HEIN + ASSOCIATES LLP
Certified Public Accountants
Houston, Texas
July 23, 1997
F-2
<PAGE>
<TABLE>
<CAPTION>
AMERICAN INTERNATIONAL CONSOLIDATED, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
April 30,
------------------------------ July 31,
1996 1997 1997
------------ ------------ ------------
(Unaudited)
ASSETS
------
Current assets:
<S> <C> <C> <C>
Cash $ 265,949 $ 160,211 $ 63,291
Accounts receivable:
Contracts, less allowance for doubtful accounts 4,874,421 5,637,320 5,868,962
Employee 26,543 8,274 11,495
Costs and estimated earnings in excess
of billings on uncompleted contracts 645,420 1,303,101 1,227,420
Other current assets 131,725 188,253 179,813
------------ ------------ ------------
Total current assets 5,944,058 7,297,159 7,350,981
------------ ------------ ------------
Property and equipment, net 1,185,841 1,132,072 1,095,761
Capitalized offering costs 158,764 120,848 157,656
Other assets 57,420 141,761 202,242
------------ ------------ ------------
Total assets $ 7,346,083 $ 8,691,840 $ 8,806,640
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
Current liabilities:
Nots payable to stockholders, net of discount $ -- $ 300,000 $ 300,000
Current portion of long-term debt and capital
lease obligations 552,264 2,136,244 2,311,170
Accounts payable 3,980,484 7,006,908 7,802,285
Accrued payroll and and related expenses 108,970 80,914 105,871
Billings in excess of costs and estimated earnings on
uncompleted contracts 261,319 1,556,787 539,778
Other current liabilities 204,247 161,372 147,740
------------ ------------ ------------
Total current liabilities 5,107,284 11,242,225 11,206,844
------------ ------------ ------------
Long-term debt, net of current portion 2,400,005 294,945 2,016
Capital lease obligations, net of current portion 22,287 32,268 23,574
Deferred contract revenue -- 253,084 477,178
Other liabilities 37,000 37,000 37,000
------------ ------------ ------------
Total liabilities 7,566,576 11,859,522 11,746,612
Contingencies (Note 10)
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 at April 30, 1996;
2,900,100 issued and outstanding at April 30 and July 31,1997 2,400 2,900 2,900
Additional paid-in capital 145,755 1,395,305 1,395,305
Accumulated deficit (368,648) (4,565,887) (4,338,177)
------------ ------------ ------------
Total stockholders' equity (deficit) (220,493) (3,167,682) (2,939,972)
------------ ------------ ------------
Total liabilities and stockholders' equity (deficit) $ 7,346,083 $ 8,691,840 $ 8,806,640
============ ============ ============
See accompanying notes to these consolidated financial statements.
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN INTERNATIONAL CONSOLIDATED, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
Year Ended April 30, Three Months Ended July 31,
-------------------------------------------------- ---------------------------
1995 1996 1997 1996 1997
------------ ------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Contact revenue $ 24,317,051 $ 31,184,828 $ 33,350,003 $ 7,586,688 $ 10,095,849
Contract cost 20,812,194 27,204,243 31,387,798 7,288,080 8,866,961
------------ ------------ ------------ ------------ ------------
Gross profit 3,504,857 3,980,585 1,962,205 298,608 1,228,888
Selling, general and
administrative 3,020,997 3,359,653 3,838,880 906,665 918,298
Provision for doubtful
accounts 47,919 61,504 428,384 17,520 17,520
Other income (expense):
Interest and other
financial costs (187,908) (184,277) (307,846) (81,269) (65,303)
Writeoff of capitalized
costs in connection
with delayed offering (105,743) -- (358,946) -- --
Bridge-financing costs -- -- (1,305,250) (1,005,250) --
Interest income and
other, net 44,372 11,419 79,862 11,106 (57)
------------ ------------ ------------ ------------ ------------
Income (loss) before federal
income taxes 186,662 386,570 (4,197,239) (1,700,990) 227,710
Federal income tax expense -- (35,000) -- (35,000) --
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 186,662 $ 351,570 $ (4,197,239) $ (1,735,990) $ 227,710
============ ============ ============ ============ ============
Net income (loss)per share $ .06 $ .12 $ (1.45) $ (.60) $ .08
============ ============ ============ ============ ============
Weighted average common
shares outstanding 2,900,100 2,900,100 2,900,100 2,900,100 2,900,100
============ ============ ============ ============ ============
See accompanying notes to these consolidated financial statements.
F-4
</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, 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)
Common stock issued in
connection with private
placement offering 500,100 500 1,249,550 -- 1,250,050
Net loss -- -- -- (4,197,239) (4,197,239)
----------- ----------- ----------- ----------- -----------
Balances, April 30, 1997 2,900,100 2,900 1,395,305 (4,565,887) (3,167,682)
Net Income (Unaudited) -- -- -- 227,710 227,710
----------- ----------- ----------- ----------- -----------
Balances, July 31, 1997 (Unaudited) 2,900,100 $ 2,900 $ 1,395,305 $(4,338,177) $(2,939,972)
=========== =========== =========== =========== ===========
See accompanying notes to these consolidated financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN INTERNATIONAL CONSOLIDATED, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Year Ended April 30, Three Months Ended July 31,
----------------------------------------------- ---------------------------
1995 1996 1997 1996 1997
------------ ----------- ------------ ----------- -----------
(Unaudited)
Cash flows from operating activities:
<S> <C> <C> <C> <C> <C>
Net income $ 186,662 $ 351,570 $(4,197,239) $(1,735,990) $ 227,710
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Fair value of common stock
issued in connection with
bridge financing -- -- 1,250,050 950,050 --
Depreciation and amortization 141,176 170,123 165,284 43,759 36,312
(Increase) decrease in:
Receivables, net (12,353) (2,211,591) (744,630) (120,643) (234,863)
Costs and estimated earnings
in excess of billings on
uncompleted contracts 673,380 64,215 (657,681) (4,103) 75,681
Other current assets (96,016) 3,063 (56,528) (122,980) 8,440
Increase (decrease) in:
Accounts payable (415,777) 2,510,817 3,026,424 416,400 795,377
Billings in excess of costs and
estimated earnings 98,668 (226,495) 1,295,468 346,261 (1,017,009)
Other current liabilities (74,152) (19,064) (70,931) 11,303 11,325
Deferred contract revenues -- -- 253,084 139,216 224,094
Other, net (55,788) 2,260 274,604 8,411 (60,482)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used
in) operating activities 445,800 644,898 537,905 (68,316) 66,585
Cash flows from investing activities:
Capital expenditures (169,485) (148,264) (55,183) (40,819) --
Proceeds from sale of investments 19,050 -- -- -- --
----------- ----------- ----------- ----------- -----------
Net cash used in investing
activities (150,435) (148,264) (55,183) (40,819) --
Cash flows from financing activities:
Net borrowings (payments) under
receivables factoring agreements 177,239 (408,889) -- --
Proceeds from notes payable to
stockholders -- -- 300,000 300,000 --
Issuance of long-term debt 173,585 -- -- --
Principal payments
on long-term debt, capital leases
and other notes payable (439,303) (348,947) (567,430) (153,629) (126,697)
Other (60,325) (101,828) (321,030) (194,309) (36,808)
----------- ----------- ----------- ----------- -----------
Net cash provided used in
financing activities (148,804) (859,664) (588,460) (47,938) (163,505)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash 146,561 (363,030) (105,738) (157,073) (96,920)
Cash, beginning of period 482,418 628,979 265,949 265,949 160,211
----------- ----------- ----------- ----------- -----------
Cash, end of period $ 628,979 $ 265,949 $ 160,211 $ 108,876 $ 63,291
=========== =========== =========== =========== ===========
See accompanying notes to these consolidated financial statements.
F-6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN INTERNATIONAL CONSOLIDATED, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
Year Ended April 30, Three Months Ended July 31,
----------------------------------------------- -----------------------------
1995 1996 1997 1996 1997
------------ ----------- ------------ ----------- ----------
(Unaudited)
Supplemental disclosures:
<S> <C> <C> <C> <C> <C>
Interest paid $ 197,661 $ 184,277 $ 307,846 $ 81,270 $ 65,303
Income taxes paid $ -- $ -- $ 5,000 $ -- $ --
Trade payable converted to
long-term debt $ -- $2,400,000 $ -- $ -- $ --
Equipment acquired under
capital leases $ 63,361 $ -- $ 56,332 $ -- $ --
========== ========== ========== ========== ==========
See accompanying notes to these consolidated financial statements.
F-7
</TABLE>
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED, INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Information Subsequent to April 30, 1997 is Unaudited)
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., (collectively "the Company"). Effective
April 30, 1994, the Company acquired all the outstanding shares of AIC
Management, Inc., a corporation wholly owned by the stockholders of the Company,
for $1,015,000, consisting of 75,000 shares of the Company's common stock, with
an assigned value of $44,000, and liabilities assumed totaling $971,000. This
acquisition, which was accounted for in a manner which approximates the purchase
method of accounting, gave no rise to goodwill. In June 1994, American
International Construction , Inc., a Texas corporation, formed AIC as a
wholly-owned subsidiary. Subsequent to this, the Texas corporation was merged
into the Delaware corporation in a reverse tax-free exchange. Effective July 26,
1996, the Company changed its name from American International Construction,
Inc. to American International Consolidated, Inc. All significant intercompany
balances and transactions have been eliminated in consolidation.
The Company has equity investments in three limited liability companies. The
Company's ownership in each of these companies is less than 50 percent and an
unrelated third party is the managing member of each company. The Company
accounts for its investment in these companies on the equity method of
accounting.
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 is 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-8
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED, INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Information Subsequent to April 30, 1997 is Unaudited)
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 using the liability method,
under which 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.
Deferred Offering Costs: Direct costs incurred in connection with the Company's
proposed offering of common stock have been capitalized in the accompanying
balance sheets. Upon closing of the proposed offering, these costs, which amount
to approximately $158,000 at July 31,1997, will be applied as a reduction of the
offering proceeds.
Deferred Financing Costs: Direct costs incurred in the origination of debt are
capitalized and amortized over the related term of the debt on the interest
method.
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.
The Company's financial statements are based on a number of significant
estimates including the adequacy of the Company's allowance for doubtful
accounts receivable and the determination of profits and losses on construction
and fabrication contracts recorded on the percentage-of-completion method of
accounting. The Company's estimates of profit or loss on construction and
fabrication contracts are inherently imprecise and may change as the contracts
move toward completion.
New Accounting Standards: The Financial Accounting Standards Board ("the FASB")
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. SFAS No. 121 had no
material impact on the Company's financial condition or operating results upon
implementation.
The FASB 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 which 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. SFAS No.
123 had no material impact on the Company's financial condition or operating
results upon implementation.
In February 1997, the FASB issued SFAS No. 128 entitled, Earnings Per Share,
effective for interim and annual periods after December 15, 1997. This statement
replaces primary earnings per share with a newly defined earnings per share and
modifies the computation of diluted earnings per share. The Company's basic and
diluted earnings per share computed using the requirements of SFAS 128 are the
same as primary earnings per share disclosed in the accompanying income
statements.
In June 1997, the FASB issued two new disclosure standards. Results of
operations and financial position will be unaffected by implementation of these
new standards.
F-9
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED, INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Information Subsequent to April 30, 1997 is Unaudited)
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
------------------------------------------------
SFAS No. 130, Reporting Comprehensive Income, establishes standards for
reporting and display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes in equity
except those resulting from investments by owners and distributions to owners.
Among other disclosures, SFAS No. 130 requires that all items that are required
to be recognized under current accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements.
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, which supersedes SFAS No. 14, Financial Reporting for Segments of a
Business Enterprise, establishes standards for the way that public enterprises
report information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS No. 131 defines operating segments as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance.
Net Income (Loss) Per Share and Common Stock Split: Net income (loss) per share
is based upon the weighted average common shares outstanding. There were no
common stock equivalents during the periods presented.
For purposes of determining the weighted average shares outstanding, the 500,100
shares of common stock issued in connection with notes payable to stockholders
(see Note 8) were deemed to be outstanding beginning May 1, 1994.
Unaudited Interim Financial Information: The financial information at July 31,
1997, and for the three-month periods ended July 31, 1996 and 1997, is
unaudited. However, such information reflects all adjustments (consisting of
normal recurring adjustments) that are, in the opinion of management, necessary
to fairly present the financial position, results of operations and cash flows
of the Company for the interim periods. The results of operations for the
three-month period ended July 31, 1997, are not necessarily indicative of the
results that will be achieved for the entire year.
NOTE 2 - GOING CONCERN
-------------
The Company's loss for the year ended April 30, 1997, which includes a non-cash
charge of $1,305,000 related to the Company's private placement of securities in
July 1996 (see Note 8) and a non-recurring charge of $359,000 arising from the
writeoff of capitalized offering costs, was approximately $4,197,000. As a
result of these losses, the Company's working capital position and ability to
generate sufficient cash flows from operations to meet its operating and capital
requirements has deteriorated. These matters raise substantial doubt about the
Company's ability to continue as a going concern without a substantial infusion
of equity capital (see Note 18). The Company believes that it will be successful
in removing the threat concerning its ability to continue as a going concern by
adhering to closer and stricter scrutiny of its contract bids and utilizing the
estimated minimum cash net proceeds of approximately $2.3 million from the
proposed public offering to achieve profitability through lower interest and
bonding costs and expanded volume. There is no assurance these results will
occur even if the proposed public offering is consummated. If this does not
occur, the Company will pursue other sources of financing, but there is no
assurance any other source of financing will be available.
F-10
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED, INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Information Subsequent to April 30, 1997 is Unaudited)
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 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:
<TABLE>
<CAPTION>
April 30,
----------------------------------- July 31,
1996 1997 1997
----------- ------------ -----------
(Unaudited)
<S> <C> <C> <C>
Land $ 167,461 $ 167,461 $ 167,461
Buildings 834,944 834,944 834,944
Construction equipment 213,575 232,898 232,898
Office equipment 583,877 553,631 553,631
Automobiles 296,471 286,471 286,471
----------- ----------- -----------
2,096,328 2,075,405 2,075,405
Less appreciation and amortization (910,487) (943,333) (979,644)
----------- ----------- -----------
$ 1,185,841 $ 1,132,072 $ 1,095,761
=========== =========== ===========
</TABLE>
NOTE 5 - CONSTRUCTION ACCOUNTS
---------------------
Costs and billings on uncompleted contracts consists of the following:
<TABLE>
<CAPTION>
April 30,
----------------------------------- July 31,
1996 1997 1997
------------- ------------ -----------
(Unaudited)
<S> <C> <C> <C>
Cost incurred on uncompleted contracts $ 7,739,410 $ 21,169,011 $ 23,418,969
Estimated earnings on uncompleted contracts 1,239,522 1,378,123 1,719,279
------------ ------------ ------------
8,978,932 22,547,134 25,138,248
Less: Billings to date (8,594,831) (22,800,820) (24,450,606)
------------ ------------ ------------
$ 384,101 $ (253,686) $ 687,642
============ ============ ============
Included in the accompanying
consolidated balance sheets under
the following captions:
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 645,420 $ 1,303,101 $ 1,227,420
Billings in excess of costs and estimated
earning on uncompleted contracts (261,319) (1,556,787) (539,778)
------------ ------------ ------------
$ 384,101 $ (253,686) $ 687,642
============ ============ ============
F-11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN INTERNATIONAL CONSOLIDATED, INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Information Subsequent to April 30, 1997 is Unaudited)
NOTE 6 - CONTRACTS RECEIVABLE
---------------------
Contracts receivable consisted of the following:
April 30,
----------------------------------- July 31,
1996 1997 1997
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
Completed contracts $ 1,458,204 $ 612,941 $ 178,278
Uncompleted contracts 3,158,551 3,888,280 4,813,063
Retainage 337,523 1,176,603 965,438
----------- ----------- -----------
4,954,278 5,677,824 5,956,779
Less: Allowance for doubtful accounts (79,857) (40,504) (87,817)
----------- ----------- -----------
$ 4,874,421 $ 5,637,320 $ 5,868,962
=========== =========== ===========
</TABLE>
NOTE 7 - NOTES PAYABLE
--------------
The Company had a credit line with a financing company under which certain of
the Company's contract receivables were 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. This credit line was terminated effective April 24, 1996.
NOTE 8 - NOTES PAYABLE TO STOCKHOLDERS
-----------------------------
In July 1996, the Company issued an aggregate of 500,100 shares of Common Stock,
and agreed to issue 3,000,000 Warrants upon the closing of the Company's initial
public offering, 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
warrants are exercisable at $5.00 per share for a period of five years beginning
with the effective date of the registration statement filed by the Company with
the Securities and Exchange Commission. The warrants, when and if issued, may be
redeemed by the Company at at price of $.01 per share, provided the closing bid
price of the Company's common stock is in excess of 150 percent of the then
exercise price for all 20 trading days preceding the notice of redemption. The
Company incurred a charge to earnings of approximately $1,005,000 which
represents the amount by which the fair value of the 500,100 shares issued to
the note holders exceeded the face amount of the promissory notes. This excess
was charged to expense as opposed to being capitalized as direct financing costs
because it was deemed unrecoverable. An additional $300,000 of expense was
recognized during the year ended April 30, 1997, which represented the
amortization of the discount on the promissory notes. The discount on the
promissory notes is being amortized on the interest method over the term of the
notes. The effective interest rate on the notes, plus the fair value of the
common stock issued to the note holders, amounted to 580%.
F-12
<PAGE>
<TABLE>
<CAPTION>
AMERICAN INTERNATIONAL CONSOLIDATED, INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Information Subsequent to April 30, 1997 is Unaudited)
NOTE 9 - LONG-TERM DEBT
--------------
Long-term debt consisted of the following:
April 30,
------------------------- July 31,
1996 1997 1997
----------- ---------- ------------
(Unaudited)
<S> <C> <C> <C>
Note payable to supplier, due in weekly
installments of $11,537, including interest
at prime plus 1% (9.5% at April 30, 1997)
through April 30, 2001. The note is
collateralized by certain contract
receivables, inventory, equipment, land,
buildings and substantially all shares of the
Company's common stock. The note is
guaranteed by four stockholders of the
Company. $2,400,000 $2,002,536 $ 1,914,073
Note payable to a bank, due in monthly
install ments of $4,907, including interest
at 10% 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. 289,153 254,932 246,514
Note payable to a bank, due in monthly
install ments of $1,175, including interest
at 10% 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. 83,416 76,726 75,106
Real estate note payable, due in monthly
installments of $1,018, including interest at
8.7%, through October 1998. The note is col
lateralized by a first lien on a portion of
the Company's land. 26,556 15,335 13,514
Demand notes payable to the State of Florida
for sales and use tax, payable in monthly
installments of $7,930, including interest at
12%. 135,042 45,177 29,319
Other equipment and automobile notes 1,228 -- --
--------- --------- ----------
2,935,395 2,394,706 2,278,526
Less: Current portion (535,390) (2,099,761) (2,276,510)
---------- ---------- -----------
$2,400,005 $ 294,945 $ 2,016
========== =========== ===========
F-13
</TABLE>
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED, INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Information Subsequent to April 30, 1997 is Unaudited)
NOTE 9 - LONG-TERM DEBT (continued)
--------------
The note payable to supplier includes various financial covenants which require,
among other things, the Company to limit its capital expenditures, without prior
approval of the supplier, to $120,000 annually; to submit audited financial
statements within 90 days of year-end; to maintain certain balance requirements
on trade payables to this supplier; to prohibit the payment of dividends; to
maintain a ratio of current assets to current liabilities of at least .60 to 1;
and to maintain earnings before interest expense of at least 1.5% of gross
revenues. The Company is in violation of certain of these debt covenants, and
has received a waiver of such violations through December 31, 1997. Accordingly,
the outstanding balance of the note payable to supplier is classified as current
in the accompanying consolidated balance sheets as of April 30 and July 31,
1997. The Company also had trade payables due this supplier of $1,065,825 and
$1,683,688 at April 30, 1996 and 1997, respectively, and of $2,664,608 at July
31, 1997.
Scheduled maturities of long-term debt are as follows:
Year Ending April 30,
---------------------
1998 $ 531,511
1999 772,472
2000 525,070
2001 565,653
-------------
$ 2,394,706
=============
NOTE 10 - 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 Company settled this dispute during November 1996 for $125,000, resulting in
a reduction in amounts due from this owner by $201,000 during the second quarter
of fiscal 1997.
The owner of another construction project has notified the Company of a claim
arising from work performed by the Company, and the Company has in turn filed a
claim with its insurance company. The total amount of loss expected to arise
from this claim ranges from zero to $200,000. The ultimate amount of the loss is
dependent on a variety of circumstances, including what amount, if any, the
Company's insurance company will pay on its claim. The Company has accrued a
loss of $45,000 at July 31, 1997 in connection with this claim.
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 11 - STOCKHOLDERS' EQUITY
--------------------
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.
F-14
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED, INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Information Subsequent to April 30, 1997 is Unaudited)
NOTE 12 - FEDERAL INCOME TAXES
--------------------
Deferred tax assets and liabilities as of April 30, 1996 consisted of the
following:
<TABLE>
<CAPTION>
Current Noncurrent Total
--------- ---------- --------
Deferred tax assets:
<S> <C> <C> <C>
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) $ --
========= ========= =========
</TABLE>
Deferred tax assets and liabilities as of April 30, 1997 consisted of the
following:
<TABLE>
<CAPTION>
Current Noncurrent Total
------- ---------- -----
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards -- 748,000 748,000
Other, net 38,000 -- 38,000
-------- -------- --------
Total deferred tax asset 38,000 748,000 786,000
Less: Valuation allowance (1,000) (748,000) (749,000)
-------- -------- --------
Deferred tax asset, net 37,000 -- 37,000
Deferred tax liability - accumulated
depreciation -- (37,000) (37,000)
-------- -------- --------
$ 37,000 $(37,000) $ --
======== ======== ========
</TABLE>
The Company had net operating loss carryforwards (NOL's) for federal income
purposes of approximately $2,000,000 at April 30, 1997. If unused, these NOL's
will expire in 2012. The change in the valuation allowance from April 30, 1996
to April 30, 1997 relates primarily to the increase in the NOL from April 30,
1996 to April 30, 1997. If the Company's initial public offering is completed
during the fiscal year ending April 30, 1998, the combination of warrants to
acquire common stock and common stock issued may cause a change in control as
defined in Internal Revenue Code Section 382. If a change in control does occur,
then the utilization of the Company's NOLs may be limited.
F-15
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED, INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Information Subsequent to April 30, 1997 is Unaudited)
NOTE 13 - 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, 1995, 1996 and 1997, the Company
made contributions to the Plan of $25,692, $24,626 and $37,142, respectively,
and $8,488 and $9,557 for the three-month periods ended July 31, 1996 and 1997,
respectively.
NOTE 14 - INCENTIVE STOCK OPTION PLAN
---------------------------
The Company has a Stock Option Plan (the Option Plan) which allows the Company
to grant certain officers, employees, and other individuals options to purchase
200,000 shares of the Company's common stock. No stock options had been granted
pursuant to the Option Plan as of July 31,1997.
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.
On January 14, 1997, the Company approved the issuance, effective upon the
completion of this Offering, of options to purchase an aggregate of 172,000
shares of the Company's Common Stock to employees of the Company pursuant to the
Company's 1994 Stock Option Plan. The exercise price of these options, when and
if issued, is $5 per share, which is the offering price of shares in this
Offering. One fourth of the options granted become exercisable on each of the
first, second, third and fourth anniversaries of the completion of the Offering,
and all of these options expire on the fifth anniversary of the completion of
the Offering. The Company's obligation to issue options to purchase 127,000
shares terminated because of the termination of the employment of certain
recipients.
NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
The Company's financial instruments consist of trade receivables, trade payables
and various notes payable to banks, stockholders and a supplier. The Company
believes the carrying value of these financial instruments approximate their
estimated fair value.
F-16
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED, INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Information Subsequent to April 30, 1997 is Unaudited)
NOTE 16 - RELATED PARTY TRANSACTIONS
--------------------------
The Company has a 37.5% ownership interest in U.S. Storage/Westheimer G.P., L.C.
("Westheimer LLC"), a Texas limited liability company; and, a 24.5% ownership
interest in both U.S. Storage/Woodlands #1 G.P., L.C. ("Woodlands LLC") and U.S.
Storage/Atascocita G.P., L.C. ("Atascocita LLC"), each a Texas limited liability
company. Westheimer LLC, Woodlands LLC, and Atascocita LLC are 45% owners in
U.S. Storage/Westheimer, Ltd.; U.S. Storage/Woodlands #1, Ltd.; and, U.S.
Storage Atascocita, Ltd., respectively. These entities ("the Partnerships") are
Texas limited liability partnerships which were formed to construct and operate
mini-storage facilities.
The Company was engaged by the Partnerships to construct three separate
mini-storage facilities and three major stockholders of the Company guaranteed
bank debt of the Partnerships. Revenues derived from the Partnerships aggregated
$2,053,140 during fiscal 1997, and $1,124,936 and $1,356,300 for the three-month
periods ended July 31, 1996 and 1997, respectively. The gross profit from these
construction contracts, aggregating $447,178 at July 31, 1997 ($253,084 at April
30, 1997), is being deferred until the Partnerships sell the mini-storage
facilities or the Company disposes of its ownership interests in the
Partnerships, provided the Company's major stockholders are released from their
guarantees of the bank debt owed by the Partnerships. The Partnerships owed the
Company $459,308 and $758,118 at April 30, and July 31, 1997, respectively, as a
result of these construction contracts.
NOTE 17 - 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 periods and
dates indicated:
Revenues
------------------------------------
Year Ended April 30,
------------------------------------
1995 1996 1997
------ ----- -----
Customer A 19.8% 26.0% 21.7%
Customer B -- -- --
Customer C 10.2 -- --
Customer D -- -- --
Customer E -- -- 14.6
Customer F -- -- --
Customer G -- --
---- ---- ----
30.0% 26.0% 36.3%
==== ==== ====
Receivables
--------------------------------------
April 30,
--------------------------------------
1995 1996 1997
------ ----- -----
Customer A 20.0% 11.0% 24.6%
Customer B -- 12.3
Customer C -- -- --
Customer D 13.0 -- --
Customer E -- -- --
Customer F -- -- --
Customer G -- --
------ ----- ----
33.0% 11.0% 36.9%
======= ===== =====
F-17
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED, INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Information Subsequent to April 30, 1997 is Unaudited)
NOTE 18 - INITIAL PUBLIC OFFERING
-----------------------
The Company is preparing to register the sale of a minimum of 580,000 shares of
common stock and 580,000 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
intends to offer these securities in a public offering through two underwriters
on a "firm commitment basis". If the offering is consummated, the Company will
sell to the underwriters and/or their designees, for an aggregate price of $10,
underwriters' warrants to purchase up to a maximum of 58,000 shares of common
stock and 58,000 warrants. The warrants received upon exercise of the
underwriters' warrants are exercisable at $5.00 per share during the four year
period commencing one year after the effective date of the registration
statement concerning the offering. The Company has granted registration rights
with respect to the common stock and warrants underlying the underwriters'
warrants.
F-18
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED, INC.
AND SUBSIDIARIES
INDEPENDENT AUDITOR'S REPORT
ON CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
To the Stockholders
American International Consolidated, Inc.
Houston, Texas
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of American International Consolidated Inc.
and subsidiaries included in this Registration Statement and have issued our
report thereon dated July 23, 1997. Our audit was made for the purpose of
forming an opinion on the basic consolidated financial statements taken as a
whole. The accompanying financial statement schedule (Schedule II Consolidated
Valuation and Qualify Accounts) is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic consolidated financial
statements. This consolidated financial statement schedule has been subjected to
the auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, is fairly stated in all material respects with
the financial data required to be set forth thereon in relation to the basic
consolidated financial statements taken as a whole.
/s/ HEIN + ASSOCIATES
HEIN + ASSOCIATES LLP
Certified Public Accountants
Houston, Texas
July 23, 1997
S-1
<PAGE>
<TABLE>
<CAPTION>
AMERICAN INTERNATIONAL CONSOLIDATED, INC.
AND SUBSIDIARIES
Schedule II - Consolidated Valuation and Qualifying Accounts
Balance at Charged to Balance
Beginning Costs and End of
Description of Year Expenses Write-Offs Year
- ----------------------------------- ---------- ----------- ---------- --------
<S> <C> <C> <C> <C>
Year Ended April 30, 1995 allowance $106,594 $ 47,919 $ 57,460 $ 97,053
for doubtful accounts
Year ended April 30, 1996 allowance $ 97,053 $ 61,504 $ 78,700 $ 79,857
for doubtful accounts
Year ended April 30, 1997 allowance $ 79,859 $428,384 $467,737 $ 40,504
for doubtful accounts
See accompanying notes to these consolidated financial statements.
S-2
</TABLE>
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITIES HOLDERS' PROSPECTUS]
[Logo red, white and blue flag]
SUBJECT TO COMPLETION
_________, 1997
[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 the offering (the "Securities Holders'
Offering") 500,100 shares of Common Stock and 3,000,000 Redeemable Common Stock
Purchase Warrants ("Warrants") of American International Consolidated Inc. (the
"Company") offered by the persons named herein (the "Selling Securities
Holders"). See "OFFERING BY SELLING SECURITIES HOLDERS". The Common Stock and
Warrants being offered hereby were acquired 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 quotation
of the Common Stock, as reported on the OTC Bulletin Board 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".
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Prior to this Securities Holders' 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 Securities Holders' Offering, or that, if developed, it will be
sustained. The Company intends to have the Common Stock and Warrants quoted on
the OTC Bulletin Board, an electronic quotation system maintained by the
National Association Of Securities Dealers, Inc. ("NASD"), under the trading
symbols "AICI" and "AICIW," respectively. See "RISK FACTORS-Risk Factor No.
25-Possible Effects Of SEC Rules On Market For Common Stock And Warrants".
On ______ 1997, the Company completed an initial public offering (the
"Company Offering") of 580,000 shares of Common Stock and 580,000 Warrants on a
"firm commitment basis" through I.A.R. Securities Corp. and Worthington Capital
Group, Inc. (collectively, the "Underwriters"). The Company Offering commenced
as a "best efforts, minimum/maximum" offering on March 13, 1997. The Company
Offering continued for a 60 day period and was extended for an additional 30
days upon mutual agreement of the Company and the Underwriters. At the end of
the 90 day offering period, on June 11, 1997, the minimum offering had not been
subscribed for and all funds in the escrow account were returned to the
investors.
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 (10)
AND "DILUTION" (PAGE 20).
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.
The date of this Prospectus is _______, 1997
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PROSPECTUS SUMMARY
The Company
American International Consolidated Inc. (the "Company") is a general
contractor and a manufacturer 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 its Offering by (i) 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, and (ii) increasing operating margins and profitability through
decreasing interest expense (from reduction of debt) and decreasing bonding
costs. 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 (281) 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 in the Company
Offering 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
__________, 2002.
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Shares of Common
Stock outstanding prior to
Offering: ........................ 2,900,100
Shares of Common Stock
offered (1): ..................... 580,000
Shares of Common Stock outstanding
after the Offering(1): .......... 3,480,100
Warrants outstanding prior to
Offering(1): .................... 3,000,000
Warrants offered(1): .......... 580,000
Warrants outstanding after the
Offering: ................... 3,580,000
Shares of Common Stock Outstanding
after the Offering assuming
exercise of all Warrants offered in
the Offering and all Warrants
previously outstanding: .......... 7,060,100
- ---------------
(1) Does not include (i) up to 580,000 shares of Common Stock issuable upon
exercise of the Warrants included in the Offering, (ii) up to 87,000 shares
of Common Stock included in the Underwriters' over-allotment option, and
(iii) up to 203,000 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.
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
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 War
rants. 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".
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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".
OTC Bulletin Board Symbols Common Stock - AICI Warrants - AICIW
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, 1997, 1996
and 1995 (audited) and as of and for the three-month period ended July 31, 1996
and 1997 (unaudited). 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.
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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. Substantial Doubt About The Company's Ability To Continue As A Going
Concern Without Completion Of Public Offering. The Company's operating results
for each of the fiscal years ended April 30, 1996 and 1995, and for the three
months ended July 31, 1997, resulted in a profit; however, the Company incurred
operating losses for each of the fiscal years ended April 30, 1997, 1994, and
1993, and there is no assurance that the operations of the Company will be
profitable in the future. As a result of the Company's losses during its last
completed fiscal year (approximately $4.2 million, including a non-recurring
charge of $1.7 million), the Company's working capital position and ability to
generate sufficient cash flows from operations to meet its operating and capital
requirements has further deteriorated and these matters raise substantial doubt
about the Company's ability to continue as a going concern without completion of
the Company Offering or an alternate substantial infusion of equity capital. The
Company believes that it will be successful in removing the threat concerning
its ability to continue as a going concern by adhering to closer and stricter
scrutiny of its contract bids and utilizing the estimated minimum net proceeds
of approximately $2.3 million from the Company Offering to achieve profitability
through lower interest and bonding costs and expanded volume. Management
believes that approximately $1.0 to $1.2 million of the proceeds from the
Company Offering are necessary to remove the threat concerning the Company's
ability to continue as a going concern and that if the Company Offering is
completed, the estimated net proceeds from the Company Offering will enable the
Company to continue operating for the foreseeable future at its current level of
operations. The length of the period that these proceeds would enable the
Company to continue operating at its current level of operations is dependent
upon a number of factors, including primarily the Company's profitability.
Assuming the Company incurs, during fiscal 1998 and 1999, additional net losses
(excluding non-cash, non-recurring charges) at the same rate as for fiscal 1997
($2.2 million), the minimum net proceeds would allow the Company to operate at
its current level of operations for approximately six months. However, the
Company has reported a profit for the first quarter of its 1998 fiscal year, and
management does not believe that the Company will incur a net loss for fiscal
1998 and 1999, combined. There is no assurance that management's belief is
accurate and that the Company will not incur future cumulative net losses. To
the extent that management's belief is accurate, then the minimum net proceeds
from the Company Offering would allow the Company to continue operations as long
as the Company had not sustained future cumulative net losses of approximately
$1.1 million. There is no assurance these results will occur even if the Company
Offering is consummated. If this does not occur, the Company will pursue other
sources of financing, but there is no assurance any other source of financing
will be available.
The Company is current in its obligations to all lenders and major
suppliers except for the Supplier described in Risk Factor No. 3 below and
except for the holders (the "Noteholders") of $300,000 principal amount
unsecured notes as described in Risk Factor No. 3. The Supplier has indicated
that it has no intent of accelerating payment on any obligations as long as the
Company Offering is completed. The Supplier has not indicated what it will do if
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the Company Offering is abandoned or otherwise terminated unsuccessfully. The
Company is requesting to the Noteholders that they extend their notes or
otherwise wait for completion of the Company Offering before requiring payment.
There is no assurance that the Noteholders will comply with this request.
As a result of the losses incurred in the fiscal year ended April 30, 1997,
the audit report of the Company's independent auditors for that year indicates
that there is substantial doubt concerning the Company's ability to continue as
a going concern without a substantial infusion of equity capital, such as that
contemplated from the Company Offering. The implication of this to investors is
that successful completion of the Company Offering (or an equity infusion from
another source) is necessary for the Company to continue operations. See
"BUSINESS-Business Plan And Strategy", "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS", "FINANCIAL INFORMATION", and
Note 2 to the Financial Statements.
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 the Company 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 the
Company 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 July 31, 1997, the Company owed its
major supplier of raw materials (the "Supplier") $2,665,000 for accounts payable
and an additional $1,914,000 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 the Company Offering is successfully completed, of which there is
no assurance, the Company intends to use approximately $1,000,000 of the
proceeds to reduce the accounts payable to the Supplier. 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 ended April 30, 1997. The Supplier
has waived this requirement for the fiscal year ended April 30, 1997 and for the
period from May 1, 1997 through December 31, 1997, but the Company is required
to satisfy it for subsequent periods. Management believes that if the Company
Offering is completed, it will be able to satisfy the requirement for the last
four months of fiscal 1998 and thereafter while the Note is outstanding.
Nevertheless, there is no assurance that the Company will satisfy this
requirement. As of July 31, 1997, the Company also was in violation of certain
other covenants for which the Supplier granted a waiver and for which there is
no assurance that the Company will be able to satisfy in the future. If all
these requirements are not satisfied as required in the future, 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".
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As of July 31, 1997, the Company also owed an aggregate of approximately
$322,000 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 had other obligations of an aggregate of approximately $101,000
at July 31, 1997 that require aggregate monthly payments of approximately
$12,850. The Company also is the obligor on an aggregate of $300,000 principal
amount of unsecured notes together with interest of more than $30,700 thereon,
that currently are in default that will be repaid from the proceeds of the
Company Offering. See "USE OF PROCEEDS".
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 construction and erection of storage facilities,
warehouses, manufacture of 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, 1997, approximately 43 percent,
and for the three months ended July 31, 1997, approximately 47 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 the Company Offering
has placed it at a competitive disadvantage in the past but the Company believes
that as a result of the Company 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".
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
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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 three months ended July
31 and the fiscal year ended April 30, 1997, U-Haul, Inc. accounted for
approximately $2.0 million and $7.3 million, respectively, or 19 percent and 22
percent, respectively, of the Company's total revenues. During the fiscal years
ended April 30, 1996 and 1995, U-Haul, Inc. accounted for approximately $8.1 and
$4.9 million, respectively, or approximately 26 percent and 20 percent,
respectively, 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. See "BUSINESS-Reliance On Major
Customers".
9. Previous Unprofitable International Operations. 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 a two-person international sales force located
in its Houston, Texas headquarters.
10. Availability Of Labor; Possible Effect Of Subcontractors' Use Of
Unionized 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.
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. Effect Of Unfavorable Weather. Certain aspects of the Company's
construction activities cannot be performed in severely inclement weather, such
as continuous rain and flooding. Conditions of this nature can have a negative
impact on the Company's earnings as was experienced in spring 1997.
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
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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 "EXECUTIVE
COMPENSATION-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 Representative that require,
for a period of 12 months after the Company Offering, that the Company obtain
the Representative's permission in order to issue securities for financing
purposes.
15. Broad Discretion To Allocate Use Of Proceeds. 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. No Proceeds To Company From Sales By Selling Securities Holders. The
Company will not receive any of the proceeds from the sale by the Selling
Securities Holders of the 500,100 shares of Common Stock and 3,000,000 Warrants
being registered pursuant to the registration statement of which this Prospectus
is a part. However, in the event that any of the 3,000,000 Warrants are
exercised, the Company will receive the proceeds from the exercise of those
warrants.
17. Benefits Of The Offering To Current Stockholders. Current stockholders
of the Company will benefit from the Securities Holders' Offering, including the
following: (i) creation of a public trading market for the Common Stock, which
is intended but for which there is no assurance; (ii) the sale of up to an
aggregate of 500,100 shares by the Selling Securities Holders at the time of the
Company Offering; and (iii) the substantial unrealized gain, based upon the
difference between the acquisition costs and the initial public offering price,
for stockholders who acquired their stock prior to the public offering. This
difference is $5.00 per share for the Selling Securities Holders, who are
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non-management, non-employee stockholders who received an aggregate of 500,100
shares as partial consideration for loaning the Company an aggregate of
$300,000, and may be considered to be as much as $4.95 for the shareholders who
founded the Company in 1985 and during the interim developed the business of the
Company to its current level.
18. Potential Conflicts Of Interest. Potential conflicts of interest may
arise between the Company and its officers and directors. Although each of the
Company's officers and directors is committed to devote full working time to the
business of the Company, they also may be engaged in other business activities.
If these business activities are of the same type as those engaged in or
contemplated by the Company, conflicts of interest will 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 also
will develop with respect to any 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-Conflicts Of Interest
Policy".
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
interest and except to the extent that a consulting arrangement with one
director might present conflicts of 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 established a policy pursuant to which the Board Of
Directors will consider transactions with officers, directors, and shareholders
of the Company and their respective affiliates. Pursuant to this policy, the
Board Of Directors will not approve any transaction unless it determines that
the terms of the transaction are no less favorable to the Company than those
available from unaffiliated parties. Because this policy is not contained in the
Company's Certificate Of Incorporation or Bylaws, the policy is subject to
change by the Board Of Directors, although it currently is not contemplated that
the policy will be changed. In addition, 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.
19. Lack Of Outside Directors. At the present time, only one of the
Company's directors is not also an officer and employee of the Company. However,
this director also serves as a paid consultant to the Company, which may present
conflicts of interest. See above, "Risk Factor No. 18-Potential Conflicts Of
Interest".
Risk Factors Concerning The Company Offering And The Securities Offered
- -----------------------------------------------------------------------
20. Lack of Experience Of Worthington Capital Group, Inc. Worthington
Capital Group, Inc., formerly known as M.D. Walsh & Co., was licensed as a
broker/dealer in July 1991 and has not participated in public offerings prior to
the Company Offering. In addition, Worthington Capital Group, Inc. is not
permitted to make markets in securities including the securities offered by the
Company. The limited experience of Worthington Capital Group, Inc. and its
inability to make markets may adversely affect the development of a market for
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the Common Stock and/or Warrants. See below, "Risk Factor No. 24-No Assurance Of
Market For Common Stock Or Warrants" and "Risk Factor No. 26-Underwriters'
Influence On Possible Market For Common Stock And Warrants".
21. Significant Dilution To Investors. An investor in the Company 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 in the Company Offering will be
$____, or ___ 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".
22. Control By Present Stockholders And Management. Each of Messrs.
Clemons, Farrar, and Wilson, who are officers and directors of the Company, will
own 20.3 percent and, and Mr. Williams, who is an officer and director of the
Company, will own 3.9 percent of the Company's outstanding Common Stock, after
the Company Offering. Also after the Company Offering, Management of the Company
as a group will own approximately 64.9 percent of the outstanding shares of
Common Stock and will remain in effective control of the Company because
Management will own enough shares in the aggregate that it would be able to
elect all the directors of the Company, and the investors in the Company
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".
23. 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".
24. 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. Although Worthington Capital Group is not permitted to make a market
for the Company's Securities, I.A.R. Securities Corp. and another broker-dealer
participating in the Offering have indicated that they will make a market for
the Securities. However, they are not required to do so and there is no
assurance that a market will develop. If a trading market does develop for any
of the Securities, the prices may be highly volatile. Neither of the
Underwriters in the Company Offering 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 Company 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 traded below certain prices,
many brokerage firms may not effect transactions in the Securities, and sales of
the Securities will be subject to Securities And Exchange Commission ("SEC")
Rule 15g-9. See below, "Risk Factor No. 25-Possible Effects Of SEC Rules On
Market For Common Stock And Warrants". Trading in the Securities, if any, will
be limited to the OTC Bulletin Board or the "pink sheets" used by members of the
NASD. If a market does not develop for the Securities, it may be difficult or
impossible for purchasers to resell the Securities. The Company withdrew its
application to list its securities on the NASDAQ SmallCap Market ("NASDAQ")
because NASDAQ indicated that the application would not be approved. There is no
assurance that any of the Securities can ever be sold at the offered price or at
any price.
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<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITIES HOLDERS' PROSPECTUS]
25. Possible Effects Of SEC Rules On Market For Common Stock And Warrants.
If the Company's 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 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-9 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 at a price in excess of $5 per security, then
these rules will not apply to transactions in the respective security trading at
a price in excess of $5. To the extent that the respective security becomes a
Low-
Priced Security, these rules will apply and would be expected to have a negative
effect on the desire of brokers to sell the Company's Securities, would be
expected to have a negative effect on the brokers' ability to do so, and also
would be expected to have a negative effect on the ability of purchasers in the
Company Offering to sell the Company's securities in the secondary market.
26. Underwriters' Influence On Possible Market For Common Stock And
Warrants. A significant amount of the Securities to be sold in the Company
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 it has no legal obligation
or commitment to do so, one of the Underwriters may from time to time become a
market maker, and one or both of the Underwriters otherwise may effect
transactions in such Securities. (As indicated in Risk Factor No. 20, one of the
Underwriters is not permitted to make markets in any 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 Underwriter's
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.
27. 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
person has held the restricted securities for a period of one year, 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
two 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 are eligible for resale;
however, the holders of 2,257,401 of these shares have agreed with the
Underwriters not to sell any of these shares until March 13, 1999 without first
obtaining the prior written consent of the Underwriters. The holders of 142,599
of the 2,400,000 shares currently eligible for resale have agreed with the
Underwriters not to sell any of these shares until March 13, 1998 without first
obtaining the written consent of the Underwriters. 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
ALT-11
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITIES HOLDERS' PROSPECTUS]
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 may not
sell any of these Securities until March 13, 1998 without first obtaining the
prior written consent of the Underwriters. 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.
28. 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 October 31, 1997 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 the Company 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".
29. 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".
30. 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
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.
31. Prior Offering Period Expired Without Obtaining Minimum Offering. There
is no assurance that the Company Offering will be completed. The Company
Offering which originally was made on a "bes t efforts, minimum/maximum basis",
ALT-12
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITIES HOLDERS' PROSPECTUS]
first commenced on March 13, 1997. The Offering was terminated on June 11, 1997
upon the expiration of the 90 day offering period, and all funds were returned
to investors, because the minimum offering amount was not received.
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
in the Company Offering pursuant to the Offering Prospectus are estimated to be
$2,387,200 ($2,773,219 if the Underwriters' over-allotment option is exercised
in full) after deducting selling commissions and other unpaid expenses of the
Company 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 Underwriter
upon consummation of the Company Offering. Other expenses of the Company
Offering, estimated to be $570,000, include the non-accountable expense
allowance, printing costs, legal fees, accounting fees, blue sky fees and costs,
transfer agent fees, SEC and NASD filing fees and other miscellaneous costs.
Approximately $295,000 of the total offering expenses will have been paid by the
Company prior to closing the Company Offering, leaving $275,000 of offering
expenses and $295,000 of selling commissions to be paid from the offering
proceeds. The $2,387,200 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):
Offering
----------------------------------
Approximate
Percentage
Approximate Of Net
Amount Proceeds
Domestic and International
Marketing Program ................... $100,000 4.2%
Repayment of Unsecured Notes (2) ...... 345,000 14.5%
Upgrade Computer Software Systems ...... 50,000 2.1%
Reduction of Trade Account
to Major Supplier .................... 1,000,000 41.9%
Other Working Capital (3) .............. 892,200 37.3%
---------- ----
TOTAL NET PROCEEDS $2,387,200 100%
=========== ====
ALT-13
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITIES HOLDERS' PROSPECTUS]
- -------------------
(1) See "BUSINESS-Business Plan And Strategy" for a description of how the
proposed allocation of proceeds of the Company Offering applies to the
Company's plans.
(2) The Company intends to repay the $300,000 of indebtedness and approximately
$45,000 of accrued interest on notes issued in July 1996 in order to pay
for costs of the Company Offering and to provide immediate working capital.
This indebtedness accrues interest at 10 percent per annum and was due and
payable upon the earliest to occur of April 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). This indebtedness
currently is in default, and the Company is requesting that the debt
holders agree to extend the due date of their notes until completion of
this Offering. There is no assurance that they will agree to do so.
(3) The Company's working capital will be utilized for general corporate
purposes and operating expenses, including payment of $55,000 for the
Representative's consulting fee. If the Underwriters' over-allotment option
in the Company Offering is exercised in part or in full, the net proceeds
from that exercise will be applied to working capital.
Although the amounts set forth above indicate management's present estimate
of the Company's use of the net proceeds from the Company 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 Company 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 Company
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.
ALT-14
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITIES HOLDERS' PROSPECTUS]
DIVIDEND POLICY
The Company has not paid any cash dividends to date. As indicated under
"BUSINESS-Indebtedness To Major Supplier", the Company's Note to the Supplier
prohibits the payment of any dividends until the Note is paid in full. 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.
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 the Company
Offering, the number of Warrants proposed to be sold by each Selling Securities
Holder, the number of Warrants owned after the Company 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.
ALT-15
<PAGE>
<TABLE>
<CAPTION>
[ALTERNATE PAGE FOR SELLING SECURITIES HOLDERS' PROSPECTUS]
Number Of Shares
Number of Number Of Of Common Stock Number of Number Of Shares
Warrants Owned Warrants Warrants Owned Owned Before Shares To Be Owned After
Name Before Offering to Be Sold After Offering Offering(1) Sold (2) Offering
- ------------------- --------------- ----------- --------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Norman Goldstein 40,000 40,000 0 46,668 46,668 0
Glen Nortman 20,000 20,000 0 23,334 23,334 0
Maria Quacinella 80,000 80,000 0 93,336 93,336 0
Richard Bower 10,000 10,000 0 11,667 11,667 0
Mogul Capital Corp. 150,000 150,000 0 175,005 175,005 0
Euro Pharmaceuticals
Distributors Ltd. 750,000 750,000 0 875,025 875,025 0
John Donnadio 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 Abramovitch 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
Elull Development Corp. 50,000 50,000 0 58,335 58,335 0
Christopher Mackie 50,000 50,000 0 58,335 58,335 0
Dunkirk Capital Corp. 500,000 500,000 0 583,350 583,350 0
J.A.A.M. Corp. 325,000 325,000 0 379,177 379,177 0
Gary Lyle Brustein 75,000 75,000 0 87,503 87,503 0
Ronald J. Drucker 50,000 50,000 0 58,335 58,335 0
Patrick Colombo, Jr. 50,000 50,000 0 58,335 58,335 0
Robert Zarin 75,000 75,000 0 87,502 87,502 0
Jay G. Goldman 75,000 75,000 0 87,503 87,503 0
Rifky Weiner 200,000 200,000 0 233,340 233,340 0
Zycor Corp. 50,000 50,000 0 58,335 58,335 0
Ronald J. Brescia 50,000 50,000 0 58,335 58,335 0
--------- ------ - ------ ------ -
TOTAL 3,000,000 3,000,000 0 3,500,100 3,500,100 0
</TABLE>
- ----------------------------
(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-16
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITIES HOLDERS' 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 up to 580,000 shares of Common Stock and 580,000 Warrants being offered
by the Company in the offering made pursuant to the Offering Prospectus.
ALT-17
<PAGE>
============================================= =================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATION OTHER THAN THOSE CONTAINED AMERICAN INTERNATIONAL
IN THIS PROSPECTUS AND, IF GIVEN OR MADE, CONSOLIDATED INC.
SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
THE COMPANY. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL Redeemable Common
THERE BE ANY SALE OF THESE SECURITIES IN ANY Stock Purchase Warrants
STATE IN WHICH SUCH OFFER, SOLICITATION OR 580,000 Warrants
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 ............................ 10
USE OF PROCEEDS ......................... 19
DIVIDEND POLICY ......................... 20
DILUTION ................................ 21 --------------------
BUSINESS ................................ 23
SELECTED CONSOLIDATED FINANCIAL DATA..... 33 PROSPECTUS
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF ---------------------
OPERATIONS............................. 35
MANAGEMENT............................... 39
EXECUTIVE COMPENSATION................... 41
PRINCIPAL STOCKHOLDERS................... 44
TRANSACTIONS BETWEEN THE COMPANY AND
RELATED PARTIES........................ 46
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE................... 49
DESCRIPTION OF SECURITIES................ 50
UNDERWRITING ............................ 54
SECURITIES AND EXCHANGE COMMISSION
POSITION ON CERTAIN INDEMNIFICATION.... 58
LEGAL MATTERS............................ 58
EXPERTS.................................. 58
CONCURRENT OFFERING...................... 59 I.A.R. Securities Corp.
ADDITIONAL INFORMATION................... 59
FINANCIAL INFORMATION....................F-1 Worthington Capital Group
UNTIL ______, 1997, ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS , 1997
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
============================================== ================================
<PAGE>
============================================= =================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATION OTHER THAN THOSE CONTAINED AMERICAN INTERNATIONAL
IN THIS PROSPECTUS AND, IF GIVEN OR MADE, CONSOLIDATED INC.
SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
THE COMPANY. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL 500,100 Shares Of Common Stock
THERE BE ANY SALE OF THESE SECURITIES IN ANY 3,000,000 Redeemable Common
STATE IN WHICH SUCH OFFER, SOLICITATION OR Stock Purchase Warrants
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............................ 10
USE OF PROCEEDS......................... 19
DIVIDEND POLICY......................... 20
DILUTION................................ 21 ---------------------
BUSINESS................................ 23
SELECTED CONSOLIDATED FINANCIAL DATA.... 33 PROSPECTUS
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION ---------------------
AND RESULTS OF OPERATIONS............... 35
MANAGEMENT.............................. 39
EXECUTIVE COMPENSATION.................. 41
PRINCIPAL STOCKHOLDERS.................. 44
TRANSACTIONS BETWEEN THE
COMPANY AND RELATED PARTIES.......... 46
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE............................ 49
DESCRIPTION OF SECURITIES............... 50
SELLING SECURITIES HOLDERS.............. 54
CONCURRENT OFFERING..................... 55
SECURITIES AND EXCHANGE COMMISSION
POSITION ON CERTAIN INDEMNIFICATION... 58
LEGAL MATTERS........................... 58
EXPERTS................................. 58
ADDITIONAL INFORMATION.................. 59
FINANCIAL INFORMATION...................F-1
UNTIL ________, 1997, ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS , 1997
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
============================================= =================================
<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............................... $ 10,530
Transfer agent's fee*..................................... 3,000
Printing and engraving*................................... 28,000
Accounting fees and expenses*............................. 140,000
Legal fees and expenses*.................................. 195,000
Blue sky fees and expenses*............................... 50,000
NASD filing fee............................................ 3,224
Underwriter's non-accountable expense allowance............ 88,740
Standard & Poor's listing.................................. 2,380
Miscellaneous*............................................. 49,126
--------
Total* $570,000
========
- --------------------
* 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..."
II-1
<PAGE>
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.
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 (the "Securities Act"). 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.
In January 1997, pursuant to the Company's 1994 Stock Option Plan, the
Company granted stock options to purchase an aggregate of 172,000 shares of the
Company's Common Stock at a purchase price of $5.00 per share to 52 persons who
were employed by the Company. These grants were made pursuant to an exemption
from registration under Section 3(b) of the Securities Act pursuant to Rule 701
under the Securities Act.
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 Revised form of Underwriting Agreement between and among American
International Consolidated Inc. ("Registrant"), I.A.R. Securities
Corp. and Worthington Capital 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 State on July 26, 1996. (5)
II-2
<PAGE>
3.2 Bylaws.(1)
4.1(a) Specimen Common Stock Certificate.(1)
4.1(b) Specimen Common Stock Purchase Warrant. (5)
4.2 Revised form of Underwriter's Warrant
4.3 Revised form of Warrant Agreement concerning Common Stock
Purchase Warrants.
5.1 Opinion of Bearman Talesnick & Clowdus Professional Corporation
concerning legality of issuance of Common Stock, Warrants, and
underlying securities. (5)
10.1A 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. (5)
10.1B Letter Agreement dated October 8, 1996 modifying Loan Agreement
dated April 24, 1996.(5)
10.1C Letter Agreement dated December 31, 1996 modifying Loan Agreement
dated April 24, 1996.(5)
10.1D Letter Agreement dated September 19, 1997 modifying Loan
Agreement dated April 24, 1996.
10.1E Letter Agreement dated November 3, 1997 modifying Loan Agreement
dated April 24, 1996.
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)
10.10 Agreement dated May 23, 1996 between the Company and U.S.
Storage\Westheimer, Ltd. concerning site preparation for the U.S.
Storage mini-warehouse facilities in Houston, Texas.(5)
10.11 Agreement dated May 23, 1996 between the Company and U.S.
Storage\Westheimer, Ltd. concerning the construction of the U.S.
Storage mini-warehouse facilities in Houston, Texas.(5)
10.12 Form of Conveyance, Transfer And Assignment Of Corporate Stock
Separate From A Certificate executed by each of Messrs. Clemons,
Farrar and Wilson transferring their respective interests in the
U.S. Storage, Inc. and U.S. Storage Management Services, Inc. to
the Company.(5)
II-3
<PAGE>
16 Letter to Securities and Exchange Commission from the Company's
former independent accountant, MELTON & MELTON, L.L.P.(2)
21 List of subsidiaries of Registrant. (1)
23.1 Consent of Bearman Talesnick & Clowdus Professional Corporation
(included in Opinion in Exhibit 5.1).
23.2 Consent of HEIN + ASSOCIATES LLP.
24 Power of Attorney (5)
27 Financial Data Schedule
- ---------------------
(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.
(5) Previously filed.
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.
II-4
<PAGE>
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
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.
5. The Company hereby undertakes to supplement the prospectus, after the
expiration of the subscription period, to set forth the results of the
subscription offer, the transactions by the underwriters during the
subscription period, the amount of unsubscribed securities to be purchased
by the underwriters, and the terms of any subsequent reoffering thereof. If
any public offering by the underwriters is to be made on terms different
from those set forth on the cover page of the prospectus, a post-effective
amendment will be filed to set forth the terms of such offering.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Post Effective Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Houston, State of Texas, on November 12, 1997.
AMERICAN INTERNATIONAL CONSOLIDATED INC.
By: /s/ John T. Wilson
----------------------------------------------
John T. Wilson, Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Post
Effective Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ John T. Wilson Chief Executive Officer and November 12, 1997
- --------------------- Director
John T. Wilson
/s/ Danny R. Clemons President/Mini-Warehouse Division November 12, 1997
- --------------------- and Director
Danny R. Clemons
/s/ Ralph L. Farrar President/Metal Buildings Division,
- ---------------------- Secretary and Director November 12, 1997
Ralph L. Farrar
/s/ Jim W. Williams Chief Financial Officer,
- ----------------------- Vice President/Finance, Principal
Jim W. Williams Accounting Officer, and
Assistant Secretary November 12, 1997
/s/ Louis S. Carmisciano Director
- ------------------------ November 12, 1997
Louis S. Carmisciano
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
(Attached To And Made A Part Of Post Effective Amendment No. 1
To The Registration Statement
On Form S-1 For American International Consolidated Inc. Dated March 11, 1997)
The following is a complete list of Exhibits filed as part of this
Registration Statement:
Number Description
- ------ -----------
1.1 Revised form of Underwriting Agreement between and among American
International Consolidated Inc. ("Registrant"), I.A. Rabinowitz &
Co. and Worthington Capital Group, Inc.(5)
1.2 Form of Fund Escrow Agreement between and among Registrant, the
Underwriters, and American Securities Transfer & Trust,
Incorporated.(5)
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 State on July 26, 1996.(5)
3.2 Bylaws.(1)
4.1(a) Specimen Common Stock Certificate.(1)
4.1(b) Specimen Common Stock Purchase Warrant.(5)
4.2 Revised form of Underwriter's Warrant.
4.3 Revised form of Warrant Agreement concerning Common Stock
Purchase Warrants.
5.1 Opinion of Bearman Talesnick & Clowdus Professional Corporation
concerning legality of issuance of Common Stock, Warrants, and
underlying securities.(5)
EX-1
<PAGE>
10.1A 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.(5)
10.1B Letter Agreement dated October 8, 1996 modifying Loan Agreement
dated April 24, 1996.(5)
10.1C Letter Agreement dated December 31, 1996 modifying Loan Agreement
dated April 24, 1996.(5)
10.1D Letter Agreement dated September 19, 1997 modifying Loan
Agreement dated April 24, 1996.
10.1E Letter Agreement dated November 3, 1997 modifying Loan Agreement
dated April 24, 1996.
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)
10.10 Agreement dated May 23, 1996 between the Company and U.S.
Storage\Westheimer, Ltd. concerning site preparation for the U.S.
Storage mini-warehouse facilities in Houston, Texas.(5)
10.11 Agreement dated May 23, 1996 between the Company and U.S.
Storage\Westheimer, Ltd. concerning the construction of the U.S.
Storage mini-warehouse facilities in Houston, Texas.(5)
EX-2
<PAGE>
10.12 Form of Conveyance, Transfer And Assignment Of Corporate Stock
Separate From A Certificate executed by each of Messrs. Clemons,
Farrar and Wilson transferring their respective interests in the
U.S. Storage, Inc. and U.S. Storage Management Services, Inc. to
the Company.(5)
16 Letter to Securities and Exchange Commission from the Company's
former independent accountant, MELTON & MELTON, L.L.P.(2)
21 List of subsidiaries of Registrant. (1)
23.1 Consent of Bearman Talesnick & Clowdus Professional Corporation
(included in Opinion in Exhibit 5.1).
23.2 Consent of HEIN + ASSOCIATES LLP.
24 Power of Attorney (5)
27 Financial Data Schedule
- ---------------------
(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.
(5) Previously filed.
EX-3
AMERICAN INTERNATIONAL CONSOLIDATED, INC.
580,000 Shares of Common Stock and
580,000 Redeemable
Common Stock Purchase Warrants
UNDERWRITING AGREEMENT
----------------------
November , 1997
I.A.R. Securities Corp.
99 Wall Street
New York, New York 10004
Worthington Capital Group, Inc.
71 Clinton Road
Garden City, New York 11562
Dear Sirs:
American International Consolidated Inc., a Delaware corporation (the
"Company"), hereby confirms its agreement with I.A.R. Securities Corp., and
Worthington Capital Group, Inc. ("you" or the "Underwriters"), as follows:
1. Description of the Securities.
The Company proposes to issue and sell to the Underwriters, on a "firm
commitment" basis, 580,000 shares (the "Shares") of common stock, $.001 par
value per share ("Common Stock"), and 580,000 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 Underwriters an option to purchase up to 87,000 additional shares of
Common Stock and 87,000 Warrants (the "Additional Securities"). The offering of
the Securities and the 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 Underwriters and American
Securities Transfer & Trust Co., 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 (including
the Electronic Bulletin Board) 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) Underwriters' 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 58,000 shares of Common Stock and 58,000
Warrants) at a price equal to $6.00 per share of Common Stock and $.12 per
Warrant (which Warrants shall be exercisable at $5.00 per share) (the
"Underwriters' Warrants"). The Underwriters' Warrants, shares of Common Stock
and Warrants underlying the Underwriters' Warrants and shares of Common Stock
issuable upon exercise of the Warrants underlying the Underwriters' 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 Underwriters' 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 Underwriters 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. 333- 9583), including in each such registration
2
<PAGE>
statement and each such amendment any related preliminary prospectus
("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 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 Underwriters, 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
3
<PAGE>
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 Underwriters 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
Underwriters; (iv) the stabilization legend in the Prospectus and (v) any other
information in the prospectus concerning the Underwriters, constitute
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
which such disclosures were made. The Company has all corporate power and
4
<PAGE>
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 initial 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 Underwriters' 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 Underwriters'
Securities), and Underwriters' 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, Additional Securities, Warrant Shares
(other than Underwriters' Securities) and Underwriters' 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
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
5
<PAGE>
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 any 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 and the 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 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
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
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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); the shares of issued and outstanding capital
stock of the Company set forth thereunder have been (or as of the Closing Date
or the Option Closing Date will be) duly authorized and validly issued and are
(or as of the Closing Date or the Option 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.
(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
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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 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 the 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.
(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
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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 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 Underwriters 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.
(z) No right of first refusal exists with respect to any sale of
securities by the Company.
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(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 Underwriters was, when made, or as of the
Closing Date or the Option Closing Date will be materially inaccurate, untrue or
incorrect.
3. Covenants of the Company.
The Company covenants and agrees with the Underwriters that:
(a) It will deliver to the Underwriters, 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 Underwriters, 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 Underwriters and to others whose names and
addresses are furnished by the Underwriters 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 Underwriters, the Prospectus is required by law to be delivered in
connection with sales by the Underwriters 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 Underwriters may
reasonably request for the purposes contemplated by the Act. The Company will
take all necessary actions to furnish to whomever directed by the Underwriters,
when and as requested by the Underwriters, 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 Underwriters to use, and make
available for use by prospective dealers, the Preliminary Prospectus, and
authorizes the Underwriters, all dealers selected by you in connection with the
distribution of the Securities (the "Selected Dealers") to be purchased by the
Underwriters and all dealers to whom any of such Securities may be sold by the
Underwriters 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 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
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Act, the applicable Regulations or applicable state law to be delivered in
connection with sales of the Securities by the Underwriters or the Selected
Dealers.
(d) The Company will use its best efforts to cause the Registration
Statement to become effective and will notify the Underwriters 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 Underwriters'
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 or the Additional
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 by the Underwriters 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 Underwriters, 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) 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.
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(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 Underwriters (i) within 105
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 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
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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 Underwriters may from time to
time reasonably request regarding the financial condition and operations of the
Company; provided, however, that the Underwriters shall use such other material
only in connection with their activities as Underwriters hereunder and shall
otherwise keep such other material confidential.
(i) For a period of eighteen months from the initial 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 and the Option Closing Date, 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
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.
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(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
Underwriters, 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
Underwriters' 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
statement to the Underwriters 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
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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 Underwriters 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 Underwriters 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 Underwriters.
(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 Underwriters 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 Underwriters with respect to any proposed acquisitions,
mergers, reorganizations or other similar transactions. In lieu of the
Underwriters' right to designate an Advisor, the Underwriters shall have the
right during such three-year period, in its sole discretion, to designate one
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 Underwriters 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
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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
Underwriters' designee as an insured under such policy.
(v) Upon the initial Closing Date, the Company shall have entered into
an agreement with the Underwriters in form reasonably satisfactory to the
Underwriters (the "Consulting Agreement"), pursuant to which the Underwriters
will be retained as a management and financial consultant for a three-year
period commencing as of the initial Closing Date, and will be paid a fee of
$1,527.78 a month for a term of three years, all of which ($55,000) shall be
paid upon the initial Closing Date.
(w) The Common Stock and Warrants shall be quoted on the Electronic
Bulletin Board maintained by the National Association of Securities Dealers,
Inc., not later than the initial 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 an 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 initial 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
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 one year 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 Underwriters, except for (i)
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the Securities, (ii) the Underwriters' Securities, (iii) Warrant Shares, (iv)
securities issuable upon the exercise of other options or warrants outstanding
as of the initial 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
initial 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 Underwriters 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
Underwriters, and the Underwriters agree to purchase from the Company, the
Securities at a price of $5.00 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 Underwriters 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 each Closing Date, as hereinafter defined, at the
offices of the Underwriters 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
purchasers of the Securities 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 _______, 1997 or such other date not
later than the fourth business day following the effective date of the
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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 Underwriters
shall be borne by the Company. The Company will pay and hold the Underwriters,
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 Underwriters 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
Underwriters 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 Underwriters, in their sole discretion, deem advisable.
5. Sale, Purchase and Delivery of Additional Securities; Option Closing
Date.
(a) The Underwriter shall have the option (the "Option") to purchase
from the Company, 87,000 shares of Common Stock and 87,000 Warrants. The Option
to purchase the Additional Securities shall be exercisable 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
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 Underwriters 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
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offices of the Underwriters 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 Underwriters 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 Underwriters 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
Underwriters shall be borne by the Company. The Company will pay and hold the
Underwriters, 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 Underwriters a fee of five percent (5%) of
the aggregate exercise price of the Warrants if: (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 Regulation M promulgated
under the Exchange Act. The Company agrees not to solicit the exercise of any
Warrants other than through the Underwriters and will not authorize any other
dealer to engage in such solicitation without the prior written consent of the
Underwriters which will not be unreasonably withheld. The Warrant solicitation
fee will not be paid in a non- solicited transaction. Any request for exercise
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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
Underwriters will occur for a period of 12 months from the Effective Date.
7. Representations and Warranties of the Underwriters.
The Underwriters represent and warrant individually to the Company that:
(a) Each 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 Underwriters' 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 Underwriters; (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 Underwriters; (iii)
the printing, engraving, issuance and delivery of the Shares, Warrants, Warrant
Shares, Additional Securities, Underwriters' Warrants and the securities
underlying the Underwriters' 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 Underwriters' Warrants other than to the registered
holder of the Underwriters' 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 Underwriters
and the Company, and disbursements and reasonable fees of $40,000 to counsel for
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the Underwriters 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 Underwriters' Obligations.
The obligations of the Underwriters 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 the Option 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:
(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 or the Option 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 Underwriters
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.
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(b) The Underwriters 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 Underwriters'
reasonable opinion, is material, or omits to state a fact which, in the
Underwriters' 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 Underwriters and in form and substance
satisfactory to counsel to the Underwriters, to the effect that:
(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 initial Closing Date), the Warrant
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Agreement and the Underwriters' 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
Underwriters' 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 Underwriters' 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 Underwriters' Warrants will have been duly executed and
delivered by the Company as of the Closing Date. The Underwriting Agreement is,
and, as of each Closing Date each of the Consulting Agreement, the Warrant
Agreement and the Underwriters' 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 Underwriters'
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
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
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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;
(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 Underwriters' Warrants, and the consummation by the
Company of the transactions contemplated by the Underwriting Agreement, the
Consulting Agreement, the Warrant Agreement or the Underwriters' 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 , 1997; 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 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 initial 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
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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 Underwriters' 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, the
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 Underwriters' Warrants constitute, and
the Warrants underlying the Underwriters' Warrants, when issued and delivered
upon exercise of the Underwriters' 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 Underwriters' Warrants conform in all material respects to the
descriptions thereof contained in the Registration Statement and Prospectus;
(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 Underwriters), has been transferred to
the Underwriters, provided that the Underwriters 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 Underwriters exercise the Option to
purchase the Additional Securities and make payment therefor in accordance with
the terms of the Underwriting Agreement, upon issuance of the Additional
Securities to the Underwriters 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 Underwriters), will have been transferred to the Underwriters, provided that
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the Underwriters 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 NYUCC 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
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 Underwriters.
(f) On or prior to the initial Closing Date, counsel for the
Underwriters shall have been furnished such documents, certificates and options
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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;
(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
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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 Underwriters shall be deemed a representation and warranty by
the Company to the Underwriters 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 Underwriters and in form and
substance reasonably satisfactory in all material respects to you and counsel
for the Underwriters, 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, Additional Securities, Warrant Shares and
the Underwriters' Securities as herein contemplated shall be reasonably
satisfactory in form and substance to you and to counsel to the Underwriters,
and the Underwriters shall have received from such counsel an opinion, dated as
each Closing Date with respect to such of these proceedings as you may
reasonably require.
(k) The obligation of the Underwriters 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.
(l) 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 Underwriters, each of their agents and counsel
and each person, if any, who controls the Underwriters ("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
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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 Underwriters' 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 information furnished by the Company filed in any jurisdiction in order to
qualify the Securities, Additional Securities, Warrant Shares, Underwriters'
Warrants and Underwriters' 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 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 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) 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, 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. In addition, 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 Underwriters agree 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
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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.
(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 Underwriters in
circumstances for which indemnification is provided under this Paragraph 10,
then, and in each such case, the Company and the Underwriters 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
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Underwriters are responsible for the portion represented by dividing the total
compensation received by the Underwriters 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 Underwriters. As used in this Paragraph 10,
the term "Underwriters" includes any officer, director, or other person who
controls any 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
Underwriters and each person who controls the Underwriters 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.
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 10 are in addition to any
other rights or remedies which either party hereto may have with respect to the
other or hereunder.
11. Representations, Warranties, Agreements to Survive Delivery.
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<PAGE>
The respective indemnity and contribution agreements by the Underwriters
and the Company contained in Paragraph 10 hereof, and the covenants,
representations and warranties of the Company and the Underwriters set forth in
this Agreement, shall remain operative and in full force and effect regardless
of (i) any investigation made by the Underwriters or on their behalf or by or on
behalf of any person who controls any 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 Underwriters 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
Underwriters and the Company contained in Paragraph 10 above shall be in
addition to any liability which the Underwriters 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 Underwriters by notifying
the Company at any time on or before the initial 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
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.
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<PAGE>
(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 Underwriters,
in addition to the obligations assumed by the Company pursuant to Paragraph 8
herein, will be to reimburse the Underwriters 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
Underwriters (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
Underwriters 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 Underwriters, shall be mailed,
delivered or telegraphed and confirmed to the Underwriters at the addresses set
forth on the first page hereof, with a copy thereof to Thomas Rose, Esq.,
Schneck Weltman Hashmall 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 Executive Officer, with a copy thereof to Alan Talesnick,
Esq., Bearman Talesnick & Clowdus, P.C., 1200 Seventeenth Street, Suit 2600,
Denver Colorado 80202.
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<PAGE>
14. Parties.
This Agreement shall inure solely to the benefit of and shall be binding
upon, the Underwriters, 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
Underwriters 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 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:
I.A.R. Securities Corp. WORTHINGTON CAPITAL GROUP, INC.
By: By:
----------------------------- --------------------------------------
34
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.
UNDERWRITERS' WARRANT TO PURCHASE
COMMON STOCK AND/OR REDEEMABLE WARRANTS
AMERICAN INTERNATIONAL CONSOLIDATED, INC.
(a Delaware corporation)
Dated: , 1997
THIS CERTIFIES THAT, for value received, I.A.R. Securities Corp.,
("Rabinowitz") (collectively 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 [ ]
shares of the Company's common stock, par value $.01 per share (the "Common
Stock"), and [ ] redeemable common stock purchase warrants (the "Warrants"),
(collectively with the Common Stock, the "Securities").
<PAGE>
This Underwriter's Option is issued pursuant to an Underwriting Agreement
dated , 1997, between the Company and the Underwriters in connection with a
public offering through the Underwriters (the "Public Offering"), of 580,000
shares of Common Stock and 580,000 Warrants. The Warrants will be issued
pursuant to and subject to the terms and conditions set forth in an agreement
between the Company, the Underwriters and American Securities Transfer & Trust
Company (the "Warrant Agreement").
1. Exercise of the Underwriter's Option.
(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 , 1997 to , 1998,
inclusive, the Holder shall have no right to purchase any Securities hereunder.
(ii) Between , 1998 and , 2002, 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 (which Warrants are
exercisable at $5.00 per share), respectively, the purchase price of the Common
Stock and price of the Warrants being % 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. 333-9583) of the Company, as amended (the
"Registration Statement").
2
<PAGE>
(iii) After , 2002, 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
3
<PAGE>
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, other than by will or pursuant to the laws of descent and
distribution, except to a partner of the underwriter when the underwriter is a
partnership or to a stockholder, officer or director of the underwriter or
beneficiary of a trust which is a stockholder of such underwriter when the
underwriter is a corporation; however after one year such transfer may occur
providing the option is exercised immediately upon transfer. If not exercised
immediately upon transfer the option shall lapse. Such transfer may 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
4
<PAGE>
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.
(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
5
<PAGE>
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 OTC Bulletin Board maintained by the National
Association of Securities Dealers, Inc., 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 , 1998, 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
6
<PAGE>
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 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
7
<PAGE>
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 , 1997 to the effect that such holder desires to register under
8
<PAGE>
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 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
9
<PAGE>
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
10
<PAGE>
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.
(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
11
<PAGE>
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 Company that it
declines to include a portion or all of the Registerable Securities requested by
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<PAGE>
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
13
<PAGE>
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.
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
14
<PAGE>
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
15
<PAGE>
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.
(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
16
<PAGE>
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
17
<PAGE>
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.
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
shareholders 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
18
<PAGE>
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
the "Market Price" (as defined in Paragraph 7(a)(vi) hereof) per share of Common
Stock on the trading day immediately preceding such issuance 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
19
<PAGE>
prior to such computation, except in the case of a combination of outstanding
shares of Common Stock, as 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
20
<PAGE>
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).
(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.
21
<PAGE>
(vi) As used herein, the phrase "Market Price" at any date shall be
deemed to be 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.
22
<PAGE>
(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, for a consideration per
share less than 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:
(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
23
<PAGE>
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,
24
<PAGE>
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
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
25
<PAGE>
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.
26
<PAGE>
(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.
(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
27
<PAGE>
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:
28
<PAGE>
(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
(ii) Upon the issuance or sale of (A) the shares of Common
Stock or Warrants issued by the Company in the Public Offering 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
29
<PAGE>
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.
30
<PAGE>
(i) Omitted
(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
31
<PAGE>
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.
(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,
32
<PAGE>
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.
(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:
33
<PAGE>
(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.
34
<PAGE>
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
, 1997.
AMERICAN INTERNATIONAL CONSOLIDATED,INC.
By:
--------------------------------------
John Wilson,
Chief Executive Officer
35
<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
* Signature must conform in all respects to name of registered Holder.
36
<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:
- -------------------------
- -------------------------
37
AMERICAN INTERNATIONAL CONSOLIDATED, INC.
a Delaware corporation
AMERICAN STOCK TRANSFER & TRUST COMPANY
Warrant Agent
and
I.A.R. SECURITIES CORP.
and
WORTHINGTON CAPITAL 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 Warrants................... 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 , 1997, by and among AMERICAN
INTERNATIONAL CONSOLIDATED, INC., a Delaware corporation (the "Company"),
American Securities Transfer & Trust Company, as warrant agent (hereinafter
called the "Warrant Agent"), and I.A.R. Securities Corp. and Worthington Capital
Group, Inc., the representatives ("Representatives") 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 580,000 shares of common stock,
$.01 par value per share (the "Common Stock") and 580,000 Common Stock Purchase
Warrants (the "Warrants");
WHEREAS, each Warrant will entitle the holder to purchase 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 ,
2002. 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
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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 , 1997, 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
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and any person so designated to be named therein shall be deemed to have become
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.
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(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 Regulation M (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 , 1998, the Warrant Agent will notify the Representatives of each Warrant
Certificate which has been properly completed for exercise by holders of
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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 Representatives with such
information, in connection with the exercise of each Warrant, as the
Representatives 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 Representatives and the Company may at any time, after , 1997, 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 Representatives.
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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
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substitute Warrants shall also comply with such other reasonable regulations and
pay such reasonable charges as the Company or the Warrant Agent may prescribe.
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. 333-9583)
(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
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10(a)(3) of the Act and otherwise complying therewith, and will deliver such
prospectus 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 , 1997 until 4:00
Eastern time on , 2002 or after adjustment, as provided in this Section, shall
be such price as so adjusted (the "Warrant Price").
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(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 Com- mon 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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(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
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respect to the 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 deliver- able 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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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.
(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
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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.
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(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 pro- visions 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 War- rant 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 or as
otherwise set forth in the Prospectus of the Company dated , 1997; or
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(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 [ ], 1997; 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 theretofore made or required to be
made, upon issuance or sale thereof.
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(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 Warrant- holder 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
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shall also mail such notice to 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:
(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 subscription 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 reorganization 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 involuntary 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,
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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
(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.
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Section 13. Redemption of Warrants. The Warrants are redeemable by the
Company commencing on , 1997 ( or earlier with the consent of the
Representative) and prior to their expiration on , 2002, 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
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
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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 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.
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(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.
(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
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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
consider proper, whether with or without any such security or indemnity. All
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, direc- tor, 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.
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(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.
(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
26
<PAGE>
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 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.
27
<PAGE>
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.
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
Denver, Colorado 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
28
<PAGE>
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:
American Securities
Transfer & Trust Company
1825 Lawrence Street, Suite 444
Denver, Colorado 80202
Attention: Compliance Department
Any notice pursuant to this Agreement to be given to the Warrant Agent or
by the Company to the Representatives 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:
I.A.R. Securities Corp.
99 Wall Street
New York, New York 10004
and
Worthington Capital Group, Inc.
71 Clinton Road
Garden City, New York 11562
and a copy thereof to:
Schneck Weltman & Hashmall LLP
1285 Avenue of the Americas
New York, New York 10019
Attention: Thomas A. Rose, 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
29
<PAGE>
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.
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.
30
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED, INC.
By:
-------------------------------------------
John Wilson, Chief Executive Officer
AMERICAN SECURITIES TRANSFER & TRUST COMPANY
By:
-------------------------------------------
I.A.R. SECURITIES CORP.
By:
-------------------------------------------
WORTHINGTON CAPITAL GROUP, INC.
By:
-------------------------------------------
31
American International Construction Inc.
A Division Of American International Consolidated Inc.
14603 Chrisman
Houston, Texas 77039
(281) 449-9000 * Fax (281) 442-6351
September 19, 1997
Mr. Ken Maddox
M.B.C.I.
14031 West Hardy
Houston, Texas 77238
Re: Loan Agreement - April 24, 1996
Dear Ken:
During the process of refiling our Registration Statement with the S.E.C.,
and the review by our accountants Hein + Associates LLP, it has been noted that
we need to update your consent relative to the following Negative Covenants in
the referenced loan agreement with your company (the " Loan"). Accordingly,
please acknowledge or confirm the following:
(A) - AICI has acquired a 37.5% interest in a Limited Liability Company.
This Limited Liability Company is a general partner (45% ownership) in a Limited
Partnership that owns a mini-storage project (U.S. Storage/Westheimer). This
acquisition of ownership was acquired in order for AICI to secure the
construction contract for the related mini-storage project for approximately
$1.4 million.
I. - M.B.C.I. hereby acknowledges and consents to this investment and
waives any remedies provided pursuant to the Loan as a result of this covenant
violation.
/s/ Kenneth W. Maddox
------------------------------------------
(Acknowledgment)
(B) - AICI has acquired a 24.5% interest in a Limited Liability Company
which is a general partner (45% ownership) in a Limited Partnership that owns a
mini-storage project (U.S. Storage/Woodlands). This acquisition of ownership was
acquired in order for AICI to serve the construction contract for the related
mini-storage project for approximately $1.5 million.
II. - M.B.C.I. hereby acknowledges and consents to this investment and
waives any remedies provided pursuant to the Loan as a result of this covenant
violation.
/s/ Kenneth W. Maddox
------------------------------------------
(Acknowledgment)
"Quality Brings Success"
<PAGE>
Mr. Ken Maddox
September 19, 1997
Page 2
(C) - AICI has acquired a 24.5% interest in a Limited Liability Company
which is a general partner (45% ownership) in a Limited Partnership that owns a
mini-storage project (U.S. Storage/Atascocita). This acquisition of ownership
was acquired in order for AICI to serve the construction contract for the
related mini-storage project for approximately $900,000.00.
III. M.B.C.I. hereby acknowledges and consents to this investment and waives any
remedies provided pursuant to the Loan as a result of this covenant violation.
/s/ Kenneth W. Maddox
------------------------------------------
(Acknowledgment)
(D) - AICI is currently delinquent in the timely payment of its accounts
payable with M.B.C.I. and it is estimated the amount past due (over 45 days old)
will range from $.5 to $1 million.
IV. - M.B.C.I. hereby acknowledges notification of this past due amount and
waives any remedies provided pursuant to the Loan as a result of this covenant
violation through December 31, 1997.
/s/ Kenneth W. Maddox
------------------------------------------
(Acknowledgment)
(E) - AICI did not reach its Earnings Before Interest Covenant requirements
of 1.5% of gross revenues as of April 30, 1997.
V. - M.B.C.I. hereby acknowledges notification of this deficiency in
required gross profit and waives any remedies provided pursuant to the Loan as a
result of this covenant violation through December 31, 1997.
/s/ Kenneth W. Maddox
------------------------------------------
(Acknowledgment)
(F) - AICI did not provide M.B.C.I. with additional financial statements
within 90 days of April 30, 1997.
VI. - M.B.C.I. hereby acknowledges this covenant violation and waives any
remedies provided pursuant to the Loan as a result of this covenant violation
through December 31, 1997.
/s/ Kenneth W. Maddox
------------------------------------------
(Acknowledgment)
<PAGE>
Mr. Ken Maddox
September 19, 1997
Page 3
(G) - AICI has contacted a realtor in order to market the company's
principal office and warehouse facility in an effort to consummate a
sale/leaseback arrangement.
VII. - M.B.C.I. hereby acknowledges notification of AICI's intent.
/s/ Kenneth W. Maddox
------------------------------------------
(Acknowledgment)
Your prompt response to the items addressed will be greatly appreciated.
Please feel free to contact John Wilson, Bill Betzler or me if you need any
further information.
Sincerely,
/s/ Jim Williams
- ------------------------------------
Jim Williams
VP- Finance
Enclosures
cc: John Wilson
Bill Betzler
JW/ad
<PAGE>
STATE OF TEXAS
COUNTY OF HARRIS
SWORN TO AND SUBSCRIBED by the said Kenneth W. Maddox before and undersigned, a
Notary Public in and for the County and State aforesaid this 16th day of
October, 1997.
My Commission Expires
3-4-99 /s/ Cathy J. Noel
- ------ --------------------------------------
Notary Public
Cathy J. Noel
Notary Public State of Texas
Commission Expires 3-4-99
American International Construction Inc.
A DIVISION OF AMERICAN INTERNATIONAL CONSOLIDATED INC.
14603 Chrisman
Houston, Texas 77039
(281) 449-9000 o FAX (281) 442-6351
November 3, 1997
Mr. Kenneth W. Maddox
Vice President/Chief Financial Officer
MBCI
14031 West Hardy
Houston, TX 77060
Dear Ken:
As you are aware, we have reduced the amount of our initial public offering as a
result of the offering changing form one of a "best efforts" basis to one on a
"firm commitment" basis. Accordingly, we hereby request the MBCI confirm their
agreement to certain changes in the "Use of the Proceeds" from the offering
which are specified on the attached schedule.
Please sign the statement below acknowledging MBCI's understanding of the
changes to the use of the public offering proceeds. Thank you for your
cooperation.
Sincerely,
/s/ John T. Wilson
- -----------------------
John T. Wilson
Chief Executive Officer
JTW/ad
MBCI hereby confirms that $1,000,000 of the offering proceeds will be used to
reduce American International Consolidated Inc.'s accounts payable balance to
MBCI. Previously, $1,200,000 of the offering proceeds were to be used to reduce
American International Consolidated Inc.'s not payable to MBCI.
/s/ Kenneth W. Maddox November 4, 1997
- --------------------- ----------------
Kenneth W. Maddox Date
Chief Financial Officer
MBCI
"Quality Brings Success"
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our reports dated July 23, 1997 and to the reference to
our firm under the heading "Experts" in the Prospectus and the Registration
Statement on Post-Effective Amendment No. 1 to Form S-1.
/s/ Hein + Associate LLP
- --------------------------
HEIN + ASSOCIATES LLP
Certified Public Accountants
Houston, Texas
November 12, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from American
International Consolidated, Inc. and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> APR-30-1997 APR-30-1997
<PERIOD-END> APR-30-1997 JUL-31-1997
<CASH> 160 63
<SECURITIES> 0 0
<RECEIVABLES> 5,686 5,938
<ALLOWANCES> 41 58
<INVENTORY> 0 0
<CURRENT-ASSETS> 7,297 7,351
<PP&E> 2,075 2,075
<DEPRECIATION> 943 980
<TOTAL-ASSETS> 8,692 8,807
<CURRENT-LIABILITIES> 11,242 11,207
<BONDS> 0 0
0 0
0 0
<COMMON> 3 3
<OTHER-SE> (3,170) (2,943)
<TOTAL-LIABILITY-AND-EQUITY> 8,692 8,807
<SALES> 33,350 10,096
<TOTAL-REVENUES> 33,350 10,096
<CGS> 31,388 8,867
<TOTAL-COSTS> 31,388 918
<OTHER-EXPENSES> 3,759 0
<LOSS-PROVISION> 428 18
<INTEREST-EXPENSE> 308 65
<INCOME-PRETAX> (2,533) 228
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,533) 228
<DISCONTINUED> 0 0
<EXTRAORDINARY> (1,664) 0
<CHANGES> 0 0
<NET-INCOME> (4,197) 228
<EPS-PRIMARY> (1.45) .08
<EPS-DILUTED> (1.45) .08
</TABLE>
