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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION MARCH 18, 1997
REGISTRATION NO. 333-15567
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933
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2CONNECT EXPRESS, INC.
(Name of Small Business Issuer in its Charter)
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FLORIDA 5731 65-0674664
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
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1700 N.W. 65TH AVENUE
PLANTATION, FLORIDA 33313
TELEPHONE: (954) 797-7960
FACSIMILE: (954) 797-8636
(Address and Telephone Number of Principal Executive Offices and Principal Place
of Business)
MARC D. FISHMAN
CHIEF EXECUTIVE OFFICER AND PRESIDENT
1700 N.W. 65TH AVENUE
PLANTATION, FLORIDA 33313
TELEPHONE: (954) 797-7960
FACSIMILE: (954) 797-8636
(Name, Address and Telephone Number of Agent for Service)
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Copies to:
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ANDREW HULSH, ESQ. WILLIAM K. HOLBROOK, ESQ.
BAKER & MCKENZIE BURR & FORMAN LLP
701 BRICKELL AVENUE SOUTHTRUST TOWER
SUITE 1600 420 NORTH 20TH STREET
MIAMI, FLORIDA 33131 BIRMINGHAM, ALABAMA 35203
TELEPHONE: (305) 789-8985 TELEPHONE: (205) 458-5484
FACSIMILE: (305) 789-8953 FACSIMILE: (205) 458-5100
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Approximate date of proposed sale to the public: As soon as practicable
after this Registration Statement becomes effective.
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If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF ADDITIONAL REGISTRATION FEE
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PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AGGREGATE OFFERING REGISTRATION
SECURITY TO BE REGISTERED PRICE(1) FEE
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Units(2)................................................... $ 9,370,485 $2,840
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Common Stock, par value $.01 per share(3).................. 16,592,000 5,027
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Common Stock Purchase Warrants(4).......................... 10,370 4
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Total.................................................. $7,871(5)
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(1) Estimated solely for purposes of computation of the registration fee
pursuant to Rule 457(o).
(2) Each Unit consists of three shares of Common Stock and one Warrant to
purchase one share of Common Stock. Includes (i) 977,500 Units including the
Underwriter's over-allotment option of 127,500 Units and (ii) the 59,500
Units issuable upon exercise of the Underwriters' Warrant.
(3) Includes (i) 3,910,000 shares of Common Stock represented by the Units
including the Underwriter's over-allotment (including the shares of Common
Stock issuable upon exercise of the Warrants contained in the Units) and
(ii) 228,000 shares of Common Stock underlying Units issuable pursuant to
the Underwriter's Warrant (including the shares of Common Stock issuable
upon exercise of the Warrants contained in the Units issuable pursuant to
the Underwriter's Warrants).
(4) Includes (i) 977,500 Common Stock Purchase Warrants represented by the Units
including the Underwriter's over-allotment option and (ii) 59,500 Common
Stock Purchase Warrants issuable upon exercise of the Underwriter's Warrant.
(5) The Company has previously paid a registration fee to the Securities and
Exchange Commission in the amount of $6,772.30. The amount of the additional
registration fee being paid herewith is $1,099.
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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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(A),
MAY DETERMINE.
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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.
SUBJECT TO COMPLETION, DATED MARCH 18, 1997
PROSPECTUS
850,000 UNITS
2CONNECT EXPRESS, INC.
LOGO
The 850,000 Units ("Units") offered hereby are being issued and sold by
2Connect Express, Inc. ("2Connect" or the "Company"). Each Unit consists of
three shares of Common Stock, par value $.01 per share (the "Common Stock"), and
one Common Stock Purchase Warrant (a "Warrant") of the Company. Each Warrant
entitles the holder to purchase one share of Common Stock at a purchase price of
$4.00 per share for a period of 60 days commencing one year from the date of
this Prospectus. Neither the shares of Common Stock nor the Warrants contained
in the Units are detachable or separately transferable from the Units until one
year from the date of this Prospectus, at which time the Units will
automatically terminate. Application has been made for inclusion of the Units
and the Common Stock on the Nasdaq SmallCap(sm) Market under the symbols CNTCU
and CNTC, respectively. Trading in the Common Stock on the Nasdaq SmallCap(sm)
Market will not commence until one year from the date of this Prospectus.
Prior to this offering, there has been no public market for the Units,
Common Stock or Warrants and there can be no assurance that such a market will
develop after the completion of this offering or, if developed, that it will be
sustained. The initial public offering price of the Units and the exercise price
and other terms of the Warrants has been determined by agreement between the
Company and Sterne, Agee & Leach, Inc. (the "Managing Underwriter") and are not
necessarily related to the assets, book value or any other established criterion
of value. See "Risk Factors" and "Underwriting." It is presently anticipated
that the initial public offering price of the Units will be $9.00 per Unit.
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THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" ON PAGES 6 THROUGH 14 AND "DILUTION."
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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UNDERWRITING DISCOUNT
PRICE TO PUBLIC AND COMMISSIONS(1) PROCEEDS TO COMPANY(2)
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Per Unit $ $ $
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Total(3) $ $ $
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(1) Does not reflect additional compensation to be received by the Underwriters
in the form of: (i) Unit purchase warrants (the "Underwriter's Warrants")
to purchase 59,500 Units at an exercise price of $9.63 per Unit,
exercisable for a period of one year, commencing on the date of this
Prospectus. Neither the Underwriter's Warrants nor the securities
underlying the Underwriter's Warrants may be transferred for a period of
one year from the date of this Prospectus. The Company has agreed to
indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses of the offering payable by the Company, estimated
to be $438,000.
(3) The Company has granted to the Underwriters a 45-day option to purchase up
to 127,500 additional Units upon the same terms and conditions offered
hereby, solely to cover overallotments, if any. If such option is exercised
in full, additional gross proceeds, commissions and net proceeds to the
Company will be $1,147,500, $91,800, and $1,055,700, respectively. See
"Underwriting."
The Units are offered by the several Underwriters, subject to prior sale,
when, as and if received and accepted by them, subject to their right to reject
orders in whole or in part and subject to certain other conditions. It is
expected that delivery of the Units will be made against payment at the offices
of Sterne, Agee & Leach, Inc. in Atlanta, Georgia, on or about ,
1997.
STERNE, AGEE & LEACH, INC.
, 1997
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Depiction of 2Connect Store
"AMERICA'S TOTAL COMMUNICATIONS STORE"
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS OF THE
COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP(SM) MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information and the financial statements,
including the notes, thereto appearing elsewhere in this Prospectus. Investors
should carefully consider the information set forth under the heading "Risk
Factors." Unless otherwise indicated, all financial information and share data
in this Prospectus assumes no exercise of the Warrants included in the Units
offered hereby, the Underwriters' overallotment option or the Underwriter's
Warrants (including the Warrants therein).
THE COMPANY
The Company, a development stage company which was incorporated in April
1996, is a specialty retailer of Internet, cellular, PCS, paging, telephone,
satellite and other communication-related services and products under the name
"2Connect, America's Total Communications Store".
Since inception, the Company has developed a business plan for the
Company's operations and proposed expansion in South Florida; hired the
executive and support personnel necessary to support the Company's proposed
expansion in South Florida for the next six months; developed a standard
2Connect store design for its shopping mall and power center stores; engaged a
site selection and construction oversight contractor to aid the Company in
selecting and securing store sites and to oversee store construction; opened its
first 2Connect store in Coral Springs, Florida in December 1996; entered into
leases and commenced construction for two additional 2Connect stores in Miami,
Florida scheduled to open in April and May, 1997; identified and commenced
negotiations for six additional 2Connect store site locations in South Florida;
entered into agreements with service providers and product vendors; and
developed a marketing strategy.
The Company seeks to differentiate its 2Connect stores and establish a
foundation for growth by emphasizing the following strategic elements:
One-Stop Shop. The 2Connect stores are intended to serve as a central
retail location for customers to purchase Internet, cellular, paging, PCS,
telephone and satellite TV services, in each instance from one or two
leading service providers, and related products and accessories from an
array of leading manufacturers. As an independent retailer, the Company is
able to select from among the available service providers and manufacturers
in choosing services and products to offer its customers.
Quality In-Store Service. The Company believes that it will be able
to attract and retain customers by providing a high level of service and
consultation and by educating its customers as to the many benefits and
advantages of the services and products offered by the Company.
Competitive Pricing/Value To Customers. The Company believes that it
is able to offer savings to its customers by providing individualized
communications solutions designed to meet its customers' particular needs.
The Company provides free in-store analysis of customers' communications
and information service bills (Internet, cellular, PCS, paging, long
distance telephone and TV programming), and advises customers of potential
savings and ways to increase the value of their communications and
information services. The Company also believes that it is able to offer
competitive pricing on products and accessories sold in connection with
communication services.
Attractive Store Design And Layout. The design and layout of the
2Connect stores is intended to be visually appealing and inviting, and
functional in its presentation of the services and products to be offered.
Opportunity To Sample Services And Products. The 2Connect stores
provide customers with the opportunity to sample within the store many of
the services and products available for sale, and Company personnel is
available to provide guidance and instruction for many of these services
and products.
Independent Distribution Channel. The Company seeks to create, to the
extent possible, an independent distribution channel for Internet, PCS,
cellular, paging, long distance telephone, and satellite TV services and
products that is capable of retailing any brand or type of such services or
products,
3
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irrespective of advances in technology, changes in consumer preferences,
shifts in service or product brand name recognition or changes in
government regulation.
Quality Management And Employees. The Company seeks to attract,
develop and motivate its employees through competitive compensation,
benefits and bonus programs, comprehensive training programs, and defined
career paths and advancement opportunities. The Company has established a
Market Development Program. Under this program, the Company will hire a
Market Developer in each geographic market where the Company intends to
establish 2Connect stores. These Market Developers will be selected on the
basis of their retail operating experience, knowledge of the Company's
business and of the particular geographic market, and they will be
responsible for overseeing and managing the development of 2Connect stores
within their respective geographic markets, including the financial
performance of the 2Connect stores, store operations, product and service
pricing, and promotional activities. Market Developers will be compensated
based upon the financial performance of the 2Connect stores under their
supervision. The Company believes that its Market Development Program will
provide incentive to the Market Developers to actively manage and develop
2Connect stores and dedicate Company resources to maintain the good will of
2Connect customers who have subscribed for services through 2Connect, and
will enhance its ability to open new 2Connect stores.
The Company's 2Connect store generates revenue from four primary sources.
The Company receives an activation commission from cellular and PCS telephone
service carriers, pager service, Internet service and satellite carriers when a
customer initially subscribes for the related services. The amount of the
activation commission paid by the service carriers is based upon various service
plans offered by these carriers. The second source of revenue the Company
receives is from monthly payments made by the service carriers to the Company
based upon a percentage of the customers' usage. These payments, generally
referred to as residual payments, are calculated based on the amount of the
service billings generated by the base of customers activated by the Company on
the particular service provider's system. The third source of revenue the
Company receives is from the sale of in-store services such as use of Internet
stations, creation of web pages, Internet training classes and technical
consulting. The fourth source of revenue the Company receives is from the sale
of the various hardware products, accessories, and information services offered
at the 2Connect stores.
The Company's executive offices are located at 1700 N.W. 65th Avenue,
Plantation, Florida 33313. The Company's telephone number is (954) 797-7960.
4
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THE OFFERING
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Securities Offered by the Company............... 850,000 Units, each Unit consisting of three
shares of Common Stock and one Warrant to
purchase one share of Common Stock at a purchase
price of $4.00 per share for a period of 60 days
commencing one year from the date of this
Prospectus. See "Description of Securities."
Common Stock to be Outstanding after this
Offering...................................... 7,970,000 shares of Common Stock(1)
Use of Proceeds................................. The Company intends to apply the net proceeds
from this offering to the development of
additional 2Connect stores; organizational,
general and administrative expenses; and working
capital and general corporate purposes. See "Use
of Proceeds."
Risk Factors.................................... An investment in the Units offered hereby
involves a high degree of risk. See "Risk
Factors."
Proposed NASDAQ SmallCap(sm) Market Symbols:
Units......................................... CNTCU
Common Stock.................................. CNTC(2)
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(1) Excludes as of the date of this Prospectus (i) 850,000 shares of Common
Stock underlying the Warrants included in the Units which have an exercise
price equal to $4.00 per share; (ii) 721,448 shares of Common Stock
issuable upon exercise of stock options outstanding with a weighted average
price of $1.18 per share; (iii) 1,323,000 shares of Common Stock reserved
for issuance upon exercise of options that may be granted under the
Company's 1996 Stock Option Plan; (iv) 55,552 shares of Common Stock
reserved for issuance upon exercise of options that may be granted under
the Company's 1996 Directors' Stock Option Plan; and (v) 238,000 shares of
Common Stock underlying the 59,500 Units (including the Warrants therein)
issuable upon exercise of the Underwriter's Warrants at an exercise price
of $9.63 per Unit. See "Executive Compensation -- Director Compensation",
"-- 1996 Stock Option Plan", "Description of Securities", "Underwriting"
and Note 6(a) of Notes to Financial Statements.
(2) Trading in the Common Stock under the Nasdaq SmallCap(sm) Market will not
commence until one year from the date of this Prospectus.
5
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RISK FACTORS
Prospective investors should carefully consider the factors set forth
below, in addition to the other information contained in this Prospectus, in
evaluating the Company and its proposed business before making an investment
decision.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK
This Prospectus contains many forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), including statements regarding, among other items, (i) the
Company's proposed business and (ii) the Company's expansion strategy. These
forward-looking statements are based largely on the Company's expectations and
are subject to a number of risks and uncertainties, certain of which are beyond
the Company's control. Actual results could differ materially from these
forward-looking statements as a result of the factors described in "Risk
Factors." In light of these risks and uncertainties, there can be no assurance
that the results anticipated by the forward-looking information contained in
this Prospectus will in fact transpire.
RECENT ORGANIZATION; DEVELOPMENT STAGE COMPANY; ANTICIPATED OPERATING LOSSES
The Company was organized in April 1996, and is in the development stage.
The Company commenced operations of its first 2Connect store in December 1996
and has generated extremely limited operating revenue to date. Because the
Company intends to increase its level of activities substantially following the
consummation of this offering and, in connection therewith, will incur
significant costs and expenses relating to the opening of additional 2Connect
stores, the Company anticipates that it will incur losses until, at the
earliest, the Company establishes a number of 2Connect stores generating
sufficient revenue to offset its operating costs and the costs of its proposed
continuing expansion. There can be no assurance that the Company will be able to
successfully operate its first 2Connect store or establish a sufficient number
of additional stores to generate meaningful revenue or achieve profitable
operations. The Company is subject to numerous risks, expenses, problems and
difficulties typically encountered in establishing a new business. See "Proposed
Business."
PROPOSED PLAN OF OPERATION
The Company's plan of operation and prospects are dependent upon, among
other things, achieving market acceptance of the 2Connect retail concept, hiring
and retaining skilled management, market managers, store managers, and other
personnel, identifying and acquiring suitable 2Connect store sites, identifying
in a timely manner the type or types of 2Connect stores on which the Company
should focus its development efforts, identifying and engaging reliable
construction contractors, developing and constructing 2Connect stores in a
timely manner, maintaining supply contracts favorable to the Company pursuant to
which the Company will offer to its customers Internet, cellular, PCS, paging,
telephone, satellite and other communication services, maintaining product
supply contracts favorable to the Company, and successfully managing growth, if
any. The Company has developed and operates only one 2Connect store, and has no
experience in developing a retail 2Connect store system, and the lack of success
or closing of any 2Connect stores developed by the Company (and any continuing
lease obligations and/or the write-off of non-recoverable construction and
development costs) could have a material adverse effect upon the Company. There
can be no assurance that the Company will be able to successfully continue to
implement its business plan or that unanticipated expense, problems or
difficulties will not result in material delays in its proposed plan of
operation. In the event that the Company is not successful in implementing its
business plan, purchasers of the Common Stock or Warrants offered hereby could
lose all or a substantial portion of their investment. See "Proposed Business."
NEED FOR ADDITIONAL FINANCING
The Company is dependent upon the proceeds of this offering, existing cash,
anticipated supplier incentives, and cash flow from operations, if any, and
other financing to implement its proposed business plan.
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The Company believes that the proceeds from the sale of the Shares and Warrants
offered hereby will enable the Company to satisfy its anticipated financing
needs for a period of at least 12 months following this offering. However, the
capital requirements relating to implementation of the Company's business plan
will be significant. Based on the Company's current assumptions relating to
implementation of its business plan (including the timetable of, and cost
associated with store development), the Company will seek to develop, utilizing
the proceeds of this offering, existing cash, certain anticipated supplier
incentives, and cash flow from operations, if any, an additional 9-13 stores
during the 12 months following consummation of this offering. If the Company's
plans change, its assumptions prove to be inaccurate, or the capital resources
available to the Company otherwise prove to be insufficient to implement its
business plan (as a result of unanticipated expenses, problems or difficulties,
or otherwise), the Company will be required to seek additional financing or
curtail the activities in its business plan. There can be no assurance that the
Company will have sufficient capital resources to permit the Company to open the
number or type of stores currently planned or to otherwise implement such plan.
Although the Warrants and 721,448 stock options will be outstanding upon the
consummation of this offering, the Warrants will not be exercisable for a period
of 90 days from the date of this Prospectus and, in any event, the Company will
not be able to depend on the exercise of the Warrants or stock options to
provide additional capital at least until such time, if any, as the market price
of the Common Stock exceeds the exercise price of the Warrants and stock
options. There can be no assurance that the market price of the Common Stock
will ever reach such level or that the Warrants will be exercised. There can be
no assurance that any additional financing will be available to the Company on
acceptable terms, or at all. Any additional financing may involve substantial
dilution to the interests of the Company's then existing shareholders.
RAPID EXPANSION; GROWTH STRATEGY
The Company plans to pursue an aggressive growth strategy, the success of
which will depend upon its ability to develop and open additional 2Connect
stores, and to operate them profitably. The Company opened its first store in
December 1996, and expects to develop and open between 9-13 additional stores
during the 12 months following consummation of this offering, although there can
be no assurance that it will be able to do so. The Company's planned expansion
will present numerous operational and competitive challenges to the Company's
senior management and employees. The members of the Company's management team
have limited experience in developing or successfully operating new business
concepts. There can be no assurance that the Company's management will be
successful in developing or operating additional 2Connect stores in accordance
with the Company's business plan. See "Proposed Business -- Store Location and
Expansion Strategy" and "Management."
Achievement of the Company's expansion plans will depend in part upon its
ability to: (i) obtain suitable sites at acceptable costs in potentially highly
competitive real estate markets; (ii) compete successfully in new markets; (iii)
hire, train, and retain qualified personnel, including Market Developers who are
able to develop and manage new markets; (iv) integrate new 2Connect stores into
existing services controls, distribution, inventory and information systems; (v)
maintain service quality controls; and (vi) estimate costs and avoid significant
cost overruns. The Company will incur significant start-up costs in connection
with opening new 2Connect stores, including costs associated with construction,
inventory, fixtures and equipment, and employee training. There can be no
assurance that the Company will achieve its planned expansion goals, manage its
growth effectively, or operate its 2Connect stores profitably. The failure of
the Company to achieve its expansion goals on a timely basis, if at all, manage
its growth effectively, or operate stores profitably would have a material
adverse effect on the Company's results of operations. See "Use of Proceeds,"
"Management's Plan of Operation" and "Proposed Business -- Store Location and
Expansion Strategy."
The Company may incur substantial expenses identifying and investigating
proposed areas of store development. There can be no assurance that any
expenditures for investigating proposed areas for store development will ever be
recouped. As of the date of this Prospectus, the Company has only undertaken to
open stores in South Florida. The Company has not identified areas outside of
South Florida where additional 2Connect stores will be built, nor has it
conducted the necessary diligence or secured locations, local government
permits, construction contractors, Market Developers, store personnel, or
service providers for any 2Connect stores in geographic markets outside South
Florida.
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SERVICE PROVIDER RELATIONSHIPS
The Company's ability to operate successfully and to pursue its expansion
plans will depend in part upon its ability to establish and maintain good
relationships with third-party providers of the various services and products
offered at the 2Connect stores. The Company has extremely limited operating
experience with working with these service providers. These service providers
may choose to directly compete against the Company in delivering their services
to consumers, and, as a result, decide to stop offering their services through
the Company, which would have a material adverse effect upon the Company's
business and prospects. See "Proposed Business -- Service Provider Contracts"
and "Competition."
RELIANCE ON KEY PERSONNEL
The Company's success will depend to a large degree upon the efforts and
abilities of its officers and key management employees, particularly Marc
Fishman, the Company's Chairman, Chief Executive Officer and President, Steve
Stedman, the Company's Vice President-Finance and Controller, Jeff Manly, the
Company's Vice President-Merchandising, and Kevin Killoran, the Company's
Manager of Marketing and Store Development. The loss of the services of one or
more of its key employees could have a material adverse effect on the Company's
business and prospects. The Company has entered into employment and
noncompetition agreements with each of its officers. The Company also intends to
procure "key man" insurance on the life of Mr. Fishman providing for a payment
to the Company upon the death of Mr. Fishman of $5,000,000. Additionally, in
order to implement its plan of operation, the Company will be dependent upon its
ability to hire qualified Market Developers, store managers and other employees.
There can be no assurance that the Company will be able to hire and retain
additional qualified and competent personnel on terms suitable to the Company,
or that the people retained will perform to the standards the Company will need
to successfully execute its strategy. All of the current officers of the Company
were previously employed by Communicate! Powerstores, Inc. ("Communicate!").
Communicate! was intended to be a superstore retailer of computers and
communication products and services, including a self service center for
copying, printing and digital imaging, and installation and technical support
services for the small business and home office market. In contrast to
Communicate!, the 2Connect stores are not superstores, but specialty retailers
focusing on a high level of customer service to persons interested in
specialized communication services and related products, such as the Internet,
cellular, paging, PCS, telephone and satellite TV, and are located in shopping
malls or anchored by one or more superstores, typically containing a variety of
smaller specialty stores. Marc Fishman, the Company's President, Chief Executive
Officer and Chairman of the Board, conceived the business concept for
Communicate! and, together with a New York based financial and corporate
development company, began development of Communicate! This financial and
development company received a majority of the stock in Communicate! and its
Chairman and CEO served as Chairman and CEO of Communicate! Mr. Fishman held a
28% equity interest in Communicate!, which had raised a total of approximately
$5,000,000 in private equity and debt offerings. Mr. Fishman resigned from
Communicate! on May 18, 1996, after several disagreements with the CEO over the
management and executive decisions. Kevin Killoran, a co-founder of the Company,
and the Company's Manager of Marketing and Store Development and Secretary,
resigned from Communicate! on May 19, 1996. The Company believes that
Communicate! dismissed substantially all of its employees on May 24, 1996 due to
financial difficulty. See "Proposed Business -- Business Strategy,"
"-- Employees," and "Management -- Executive Officers and Directors."
RISK OF OBSOLESCENCE
The communications industry is characterized by rapidly changing technology
and frequent new service and product introductions. The Company's success will
depend upon its ability to identify and market those services and products which
are in demand. The Company's success will also be affected by its ability to
effectively manage its product inventory levels, and minimize the levels of
slow-moving and obsolete products. See "Proposed Business -- Management
Information Systems."
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RAPID ADVANCES OF INDUSTRY
The communications and information industries are fast paced and rapidly
changing. There can be no assurance that the Company's plans as they exist today
will be viable in the future. Shifts in technology, consumer buying patterns,
and government regulations could hinder the Company's strategy and growth plans.
NEW CONCEPT; UNCERTAINTY OF MARKET ACCEPTANCE
Mass marketing of Internet, cellular, paging, telephone and satellite
services and related products is a relatively new concept and, consequently,
although there is market demand for these services and products, the level of
market acceptance of a retailer that focuses exclusively on these services and
related products is subject to uncertainty. Moreover, the 2Connect name is not a
recognized brand. The Company has not conducted and does not plan to conduct
concept feasibility or market studies. In addition, the Company has extremely
limited marketing experience. There can be no assurance that the Company's
long-term marketing plan will be successful or that there will be significant
market acceptance of the 2Connect stores. The Company lacks reliable data
regarding the level of demand for and market acceptance of the 2Connect store
concept. The Company believes that the third party service providers of
Internet, cellular, PCS, paging, telephone and satellite TV services are the
most widely recognized and utilized retailers of such services. The Company also
believes that a wide variety of retailers have already developed reputations for
offering certain Internet, cellular, PCS, paging, telephone and satellite TV
services and/or products. Accordingly, achieving consumer awareness of the
2Connect concept is likely to require substantial effort and expenditures by the
Company, and there can be no assurance that the Company will be successful in
this regard. See "Proposed Business."
MANAGEMENT'S BROAD DISCRETION AS TO USE OF PROCEEDS; POTENTIAL CHANGE IN USE OF
PROCEEDS
Substantially all of the anticipated net proceeds of this offering will be
allocated to the development of additional 2Connect stores (approximately
$5,000,000) and working capital and other corporate purposes (approximately
$1,600,000). Accordingly, Management will have broad discretion with respect to
the expenditure of the net proceeds of this offering. Purchasers of the
securities offered hereby will be entrusting their funds to the Company's
management, upon whose judgment such purchasers must depend.
Notwithstanding its plan to develop its business as described in this
Prospectus, future events, including the problems, expenses, difficulties,
complications and delays frequently encountered by businesses, as well as
changes in the economic climate or changes in the distribution of communications
and information technology, may make the reallocation of funds necessary or
desirable. Any such reallocation will be at the discretion of the Board of
Directors. No assurance can be given that any such reallocation can or will be
successful.
COMPETITION
The Company is subject to intense competition from existing channels of
distribution, such as service providers, dealers, and retailers. There can be no
assurance that the Company will be able to compete effectively. It is
conceivable that existing retailers could alter their business strategies to be
more closely aligned with the 2Connect retailing concept to compete more
effectively in the communications and information services category. These
retailers may have one or more of the following competitive advantages, among
others: brand name recognition, an existing store system, superior buying power,
an existing customer base, substantial financial resources and a history of
financial performance, prime real estate locations, an experienced sales and
management staff, and knowledge of local customer shopping habits. The Company
also recognizes that, even if its competitors were unable to or choose not to
replicate certain aspects of the Company's retailing strategy, these
competitors, including ABC Cellular Corp. and Let's Talk Cellular, Inc., might
develop or have developed a retailing concept that the Company will not be able
to successfully compete against. Additionally, other start-up operations could
open in the Company's targeted markets, thus hindering the Company's growth
plans. The Company believes that ultimately its most formidable competitor
9
<PAGE> 11
may be its suppliers, namely the service providers of Internet, cellular,
paging, PCS, long distance telephone and satellite TV services.
The Company believes that if it is correct that there is a need for
accessible retail locations to provide mass market customers with Internet,
cellular, paging, telephone, and satellite services, other existing retailers
will focus on this emerging market, new retailers such as the Company will
emerge to service portions or all of this market, and carriers will seek to
horizontally integrate through entry into the market. On September 11, 1996,
Sprint Corp. announced that it will provide one-stop shopping for phone
services, paging services, prepaid phone cards, Internet access, long-distance
service and eventually local phone service in about 300 square feet of each of
the 6,800 Radio Shack stores. See "Proposed Business -- Competition."
CONTROL BY MARC D. FISHMAN
Upon completion of this offering, Marc D. Fishman, the Company's Chairman,
Chief Executive Officer and President, will own approximately 16.3%
(approximately 15.6% if the Underwriters exercise their overallotment option in
full) of the outstanding shares of the Common Stock. Pursuant to a ten-year
Voting Trust entered into in June 1996, Mr. Fishman will have the right to vote
approximately 42.4% (approximately 40.5% if the Underwriters exercise their
overallotment option in full) of the outstanding shares of the Common Stock.
Accordingly, the Company anticipates that Mr. Fishman is likely to continue to
have the ability to control the Company and direct its affairs and business.
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of the Units offered hereby will experience immediate and
substantial dilution of $1.89 per share (63%) in the net tangible book value of
their shares based upon an assumed initial public offering price of $9.00 per
Unit. See "Dilution."
ABSENCE OF PRIOR PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; POSSIBLE
VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock or the Warrants. There can be no assurance that active trading markets
will develop or, if developed, be sustained upon completion of this offering, or
that the market prices of the Common Stock or the Warrants will not decline
below the initial public offering prices. The initial public offering prices of
the Common Stock and the Warrants will be determined by negotiation between the
Company and the Underwriters, do not necessarily bear any relationship to the
Company's asset value, net worth or other established criteria of value, and may
not be indicative of the prices of the Common Stock or the Warrants that may
prevail in the public market after this offering. Securities of issuers having
relatively limited capitalization or securities recently issued in an initial
public offering are particularly susceptible to volatility based on the short
term trading strategies of certain investors. See "Underwriting."
POSSIBLE DELISTING FROM THE NASDAQ STOCK MARKET AND MARKET LIQUIDITY; PROPOSED
CHANGES TO NASDAQ LISTING CRITERIA
The Company's Units are expected to be initially included in the Nasdaq
SmallCap(sm) Market for a period of one year from the date of the offering and
the Common Stock underlying the Units is thereafter expected to be included in
the Nasdaq SmallCap(sm) Market. If the Company is unable to satisfy Nasdaq's
requirements for listing, the Units or the Common Stock may be delisted from The
Nasdaq SmallCap(sm) Market. In such event, trading, if any, in such securities
would thereafter be conducted in the over-the-counter market in the so-called
"pink sheets" or the OTC Bulletin Board, established for securities that do not
meet the Nasdaq SmallCap(sm) Market listing requirements. Consequently, the
liquidity of the Company's securities could be impaired, not only in the number
of securities which could be bought and sold, but also through delays in the
timing of transactions, reduction in security analysts' and the news media's
coverage of the Company, if any, and lower prices for the Company's securities
than might otherwise be attained.
A significant number of Units may be sold to customers of the Underwriters.
Such customers may subsequently engage in the sale or purchase of the securities
through or with the Underwriters. Although they
10
<PAGE> 12
have no obligation to do so, the Underwriters may become market makers and
otherwise effect transactions in securities of the Company, and, if they
participate in such market, may be dominating influences in the trading of the
securities. The prices and the liquidity of the securities may be significantly
affected by the degree, if any, of the participation of the Underwriters in such
market, should a market arise.
In order to qualify for initial listing on The NASDAQ SmallCap(sm) Market,
a company must, among other things, have at least $4,000,000 in total assets, $2
million net worth, $1 million "public float," and a minimum bid price for its
securities of $3 per share. For continued listing on The NASDAQ SmallCap(sm)
Market, a company must maintain $2 million in total assets, a $200,000 market
value of the public float and $1 million in total capital and surplus. In
addition, continued inclusion requires two market-markers and a minimum bid of
$1 per share; provided, however, that if a company falls below such minimum bid
price, it will remain eligible for continued inclusion on The NASDAQ
SmallCap(sm) Market if the market value of the public float is at least $1
million and the Company has $2 million in capital and surplus. The failure to
meet these maintenance criteria in the future may result in the discontinuance
of the inclusion of the Units or the Common Stock on The NASDAQ SmallCap(sm)
Market.
The NASDAQ Stock Market, Inc. has recently proposed certain changes to the
entry and maintenance criteria for listing eligibility on The NASDAQ
SmallCap(sm) Market. The proposed entry standards would require at least
$4,000,000 in net tangible assets or $750,000 in net income in 2 of the last 3
years. The proposed entry standards would also require a public float of at
least 1,000,000 shares, a $5,000,000 market value of public float, a minimum bid
price of $4.00 per share, at least 3 market makers, and at least 300
shareholders. The proposed maintenance standards (as opposed to entry standards)
would require at least $2,000,000 in net tangible assets or $500,000 in net
income in 2 of the last 3 years, a public float of at least 500,000 shares, a
$1,000,000 market value of public float, a minimum bid price of $1.00 per share,
at least 2 market makers, and at least 300 shareholders. The NASDAQ Stock
Market, Inc. is currently in the process of soliciting comments from investors,
issuers, market participants, and others with respect to the foregoing proposed
changes. No changes have yet been adopted by The NASDAQ Stock Market, Inc.
The Company believes that the Units will be listed on The NASDAQ
SmallCap(sm) Market prior to the adoption of the proposed entry standards and
that if the proposed entry standards are adopted before the Company's Common
Stock is listed on The NASDAQ SmallCap(sm) Market, the Company will be able to
satisfy the new entry and maintenance standards. However, no assurance can be
given that the Company will be able to continue to satisfy the new proposed
maintenance standards.
RISKS OF LOW-PRICED STOCKS; PENNY STOCK REGULATIONS
If the Company's securities were delisted from the Nasdaq SmallCap(sm)
Market, they may become subject to Rule 15g9 under the 1934 Act, which imposes
additional sales practice requirements on broker-dealers which sell such
securities to persons other than established customers and institutional
accredited investors. For transactions covered by this rule, a broker-dealer
must make a special suitability determination for the purchaser and have
received the purchaser's written consent to the transaction prior to sale.
Consequently, the rule may affect the ability of broker-dealers to sell the
Company's Units, Common Stock and Warrants and may affect the ability of
purchasers in this offering to sell any of the Units acquired pursuant to this
Prospectus or the Common Stock or Warrants (including the Common Stock issuable
upon exercise thereof) underlying the Units in the secondary market.
The regulations of the Securities and Exchange Commission (the
"Commission") define a "penny stock" to be any equity security that has a market
price (as therein defined) less than $5.00 per share or with an exercise price
of less than $5.00 per share, subject to certain exceptions. The penny stock
restrictions will not apply to the Company's Units or Common Stock if such
securities are listed on The Nasdaq SmallCap(sm) Market and has certain price
and volume information provided on a current and continuing basis or meets
certain minimum net tangible assets or average revenue criteria. There can be no
assurance that the Company's securities will qualify for exemption from these
restrictions. If the Company's Units or Common Stock was subject to the rules on
penny stocks, the market liquidity for the Units or Common Stock, as the case
may be, could be severely adversely affected.
11
<PAGE> 13
WARRANTS TO BE OUTSTANDING
The Warrants comprising a part of the Units offered hereby will entitle the
holders thereof to purchase an aggregate of up to 850,000 shares of Common
Stock, exercisable at a price of $4.00 per share. The Warrants are exercisable
for a limited period of 60 days commencing one year from the date of this
Prospectus. For the term of the Warrants, the holders thereof are given an
opportunity to profit from a rise in the market price of the Company's Common
Stock, with a resulting dilution in the interests of the then existing
shareholders. The terms on which the Company may obtain additional financing
during that period may be adversely affected by the existence of such
securities. The holders of the Warrants may exercise them at a time when the
Company might be able to obtain additional capital through a new offering of
securities on terms more favorable than those provided by the Warrants. See
"Description of Securities -- Warrants."
POTENTIAL ADVERSE EFFECT OF FAILURE TO EXERCISE WARRANTS
The Warrants are exercisable for a period of 60 days commencing one year
from the date of this Prospectus. If holders of the Warrants elect not to
exercise the Warrants during the limited period in which they are exercisable,
the holders thereof would lose the benefit of the difference between the market
price of the underlying Common Stock as of such date and the exercise price of
such Warrants, as well as any possible future price appreciation in the Common
Stock. Furthermore, the Warrants will have no value and will likely terminate
without exercise if the price of the Common Stock does not exceed the exercise
price of the Warrants during the limited period during which the Warrants may be
exercised. As a result of an exercise of the Warrants, existing shareholders may
be diluted and the market price of the Common Stock may be adversely affected.
If a Warrantholder fails to exercise his rights under the Warrants prior to the
expiration date of the Warrants, then the Warrantholder will not be entitled to
any benefit with respect to the Warrants. See "Description of
Securities -- Warrants."
CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE WARRANTS
Holders of the Warrants will only be able to exercise the Warrants if (a) a
current prospectus under the Securities Act relating to the shares of Common
Stock issuable upon exercise of the Warrants is then in effect and (b) such
securities are qualified for sale or exemption from qualification under the
applicable securities laws of the states in which the various holders of
Warrants reside. Although the Company has undertaken to use its best efforts to
maintain the effectiveness of a current prospectus covering the Common Stock
underlying the Warrants, and any unexercised Warrants will not terminate unless
a current and effective registration statement covering the underlying Common
Stock has been in effect for at least 60 days following the date on which the
Warrants may first be exercised, there can be no assurance that the Company will
be able to do so. Unless there is an effective and current registration
statement covering the issuance of the Common Stock upon exercise of the
Warrants, the Company will not accept payment for, or issue Common Stock with
respect to, the exercise of any Warrants, and any payments made by a Warrant
holder will be refunded by the Company. The value of the Warrants may be greatly
reduced if a current prospectus covering the Common Stock issuable upon the
exercise of the Warrants is not kept effective or if such securities are not
qualified or exempt from qualification in the states in which the holders of
Warrants reside. See "Description of Securities -- Warrants."
UNDERWRITER'S WARRANTS
In connection with the offering, the Company will sell to the Managing
Underwriter, for nominal consideration, Unit purchase warrants (the
"Underwriter's Warrants") to purchase an aggregate of 59,500 Units. The
Underwriter's Warrants will be exercisable for a period of one year, commencing
on the date of this Prospectus, at an exercise price of $9.63 per Unit. The
holders of the Underwriter's Warrants will have the opportunity to profit from a
rise in the market price of the Units and Common Stock, if any. The Company may
find it more difficult to raise additional equity capital if it should be needed
for the business of the Company while the Underwriter's Warrants are
outstanding. At any time when the holders thereof might be expected to exercise
them, the Company would probably be able to obtain additional capital on terms
more
12
<PAGE> 14
favorable than those provided by the Underwriters' Warrants. See "Dilution,"
"Description of Securities," "Shares Eligible for Future Sale" and
"Underwriting."
ANTI-TAKEOVER PROVISIONS OF FLORIDA LAW
Florida has enacted legislation that may deter or frustrate takeovers of
Florida corporations. The Florida Control Share Act generally provides that
shares acquired in excess of certain specified thresholds, beginning at 20% of
the Company's outstanding voting shares, will not possess any voting rights
unless such voting rights are approved by a majority vote of a corporation's
disinterested shareholders. The Affiliated Transactions Act generally requires
majority approval by disinterested directors or supermajority approval of
disinterested shareholders of certain specified transactions (such as a merger,
consolidation, sale of assets, issuance or transfer of shares or
reclassifications of securities) between a corporation and a holder of more than
10% of the outstanding voting shares of the corporation, or any affiliate of
such shareholder. This legislation could make the possible takeover of the
Company or the removal of management of the Company more difficult or discourage
hostile bids for control of the Company in which shareholders may receive
premiums for their Common Stock. See "Description of Securities."
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
Following this offering, the Company will have 13,842,000 authorized but
unissued shares of Common Stock available for future issuance without
shareholder approval (which number excludes (i) 850,000 shares of Common Stock
reserved for issuance upon exercise of Warrants included in the Units, (ii)
721,448 shares issuable upon the exercise of outstanding stock options, (iii)
1,323,000 shares reserved for issuance upon the exercise of options that may be
granted under the Company's 1996 Stock Option Plan, (iv) 55,552 shares reserved
for issuance upon the exercise of options that may be granted under the
Company's 1996 Directors' Stock Option Plan and (v) 238,000 shares underlying
the 59,500 Units (including the Warrants therein) issuable upon exercise of the
Underwriter's Warrants). These additional shares may be utilized for a variety
of corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans.
The existence of authorized but unissued and unreserved Common Stock may
enable the Board of Directors to issue shares to persons friendly to current
management which could render more difficult or discourage an attempt to obtain
control of the Company by means of a proxy contest, tender offer, merger, or
otherwise, and thereby protect the continuity of the Company's management. See
"Description of Securities."
INDEMNIFICATION OF DIRECTORS AND OFFICERS AND RELATED MATTERS
Under Florida law, a director is not personally liable for monetary damages
to the corporation or any other person for any statement, vote, decision, or
failure to act unless (i) the director breached or failed to perform his duties
as a director and (ii) a director's breach of, or failure to perform, those
duties constitutes (1) a violation of the criminal law, unless the director had
reasonable cause to believe his conduct was lawful or had no reasonable cause to
believe his conduct was unlawful, (2) a transaction from which the director
derived an improper personal benefit, either directly or indirectly, (3) a
circumstance under which an unlawful distribution is made, (4) in a proceeding
by or in the right of the corporation or in a proceeding in which the
corporation procures a judgment in its favor or by or in the right of a
shareholder, conscious disregard for the best interest of the corporation or
willful misconduct, or (5) in a proceeding by or in the right of someone other
than the corporation or a shareholder, recklessness or an act or omission which
was committed in bad faith or with malicious purpose or in a manner exhibiting
wanton and willful disregard of human rights, safety, or property. A corporation
may purchase and maintain insurance on behalf of any director or officer against
any liability asserted against him and incurred by him in his capacity or
arising out of his status as such, whether or not the corporation would have the
power to indemnify him against such liability under Florida law.
The Company's Bylaws limit, to the maximum extent permitted by Florida law,
the personal liability of directors and officers for monetary damages for breach
of their fiduciary duties as directors and officers. The Bylaws provide further
that the Company shall indemnify to the fullest extent permitted by Florida law
any person made a party to an action or proceeding by reason of the fact that
such person was a director, officer, employee or agent of the Company. The
Bylaws also provide that directors and officers who are entitled to
13
<PAGE> 15
indemnification shall be paid their expenses incurred in connection with any
action, suit or proceeding in which such director or officer is made a party by
virtue of his being an officer or director of the Company to the maximum extent
permitted by Florida law.
Prior to this offering, the Company will enter into separate
indemnification agreements with its executive officers and directors containing
provisions which are in some respects broader than the specific indemnification
provisions contained in the Company's Bylaws. The indemnification agreements may
require the Company, among other things, to indemnify such directors and
officers against certain liabilities that may arise by reason of their status as
directors and officers (other than liabilities arising from willful misconduct
of a culpable nature), to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified, and to provide
directors' and officers' insurance, if available on reasonable terms. The
Company believes these agreements are necessary to attract and retain qualified
persons as directors and officers. See "Management."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock into the public
market following this offering could materially adversely affect the prevailing
market price for the Common Stock. Upon completion of this offering, the Company
will have outstanding 7,970,000 shares of Common Stock. Of these outstanding
shares, the 2,550,000 shares included in the Units sold in this offering will be
freely tradeable without restriction under the Securities Act, unless purchased
by "affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act, although such shares may be traded only as part of the Units
until , 1998. Of such 5,420,000 remaining outstanding shares of
Common Stock: (i) 1,300,000 shares will become eligible for sale under Rule 144
promulgated under the Securities Act ("Rule 144") on April 19, 1998; (ii)
600,000 shares will become eligible for sale under Rule 144 on April 20, 1998;
(iii) 1,505,000 shares will become eligible for sale under Rule 144 on May 15,
1998; (iv) 515,000 shares will become eligible for sale under Rule 144 on May
17, 1998; and (v) 1,500,000 shares will become eligible for sale under Rule 144
on August 30, 1998. Rule 144 was recently amended to reduce the holding period
for restricted securities, including such 5,420,000 shares of Common Stock, from
two years to one year. Accordingly, as a result of this amendment, which will
become effective on April 27, 1997, such shares will become eligible for resale
under Rule 144 on a date which is exactly one year earlier than the dates
described above. See "Shares Eligible for Future Sale."
Upon consummation of this offering, the Company will have 3,188,000 shares
of Common Stock reserved for issuance, which figure includes: (i) 850,000 shares
of Common Stock issuable upon exercise of the Warrants; (ii) 721,448 shares of
Common Stock issuable upon exercise of stock options (weighted average exercise
price $1.18 per share); (iii) an aggregate of 1,378,552 shares of Common Stock
reserved for issuance upon exercise of options that may be granted under the
Company's 1996 Stock Option Plan and 1996 Director's Stock Option Plan; and (iv)
238,000 shares of Common Stock underlying the 59,500 Units (including the
Warrants therein) issuable upon exercise of the Underwriter's Warrants.
All of the Company's officers and directors have agreed not to sell or
otherwise dispose of any of their shares of Common Stock for a period for a
period of 18 months from the date of this Prospectus without the prior written
consent of the Managing Underwriter.
Prior to this offering, there has been no market for the Units, Common
Stock or Warrants and no prediction can be made as to the effect, if any, that
market sales of Units or shares of Common Stock or the availability of shares of
Common Stock for sale will have on the market prices prevailing from time to
time. Nevertheless, the possibility that substantial amounts of Units or Common
Stock may be sold in the public market may adversely affect prevailing market
prices for the Units and the Common Stock and could impair the Company's ability
to raise capital through the sale of its equity securities. See "Description of
Securities," "Management -- Director Compensation," "Management -- 1996 Option
Plan," "Underwriting" and "Shares Eligible for Future Sale."
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<PAGE> 16
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 850,000 Units offered
hereby, after deducting underwriting discounts and estimated offering expenses,
are estimated to be approximately $6,600,000 (approximately $7,655,700 if the
Underwriters' overallotment option is exercised in full) based on an assumed
initial public offering price of $9.00 per Unit. The Company intends to use such
proceeds as follows:
<TABLE>
<CAPTION>
APPROXIMATE PERCENTAGE OF
APPLICATION OF PROCEEDS DOLLAR AMOUNT NET PROCEEDS
- ----------------------- ------------- -------------
<S> <C> <C>
Store development(1)........................................ $5,000,000 76%
Organizational, general and administrative costs(2)......... 500,000 7%
Working capital and general corporate purposes.............. 1,100,000 17%
---------- ------
Total............................................. $6,600,000 100.0%
========== ======
</TABLE>
- ---------------
(1) Represents those proceeds from this offering which comprise part of the
estimated costs relating to opening 9-13 2Connect stores, which includes site
selection costs; leasehold improvements; furniture, fixtures and equipment;
signage; opening store inventories; store development, related professional fees
and expenses and certain store pre-opening expenses, including salaries,
training, travel, advertising, and promotion, but excludes lease payments. See
"Proposed Business -- Proposed Store Locations and Expansion Strategy."
(2) Represents those proceeds from this offering which comprise part of the
estimated costs in connection with the Company's administrative operations,
including employee compensation, headquarter lease and utilities, professional
services, and miscellaneous corporate expenses.
If the Underwriters exercise their overallotment option in full, the
Company will realize additional net proceeds of approximately $1,055,700, which
will be applied to working capital.
Pending use of the net proceeds for the above purposes, the Company intends
to invest such funds in short-term, investment-grade, interest-bearing
obligations.
The Company anticipates that the proceeds, if any, received from any
exercise of the Warrants or the Underwriter's Warrants will be utilized for
working capital and other corporate purposes.
The Company believes that the proceeds from the sale of the Units offered
hereby will enable the Company to satisfy its anticipated financing needs for a
period of at least 12 months following this offering. However, the capital
requirements relating to implementation of the Company's business plan will be
significant. Based on the Company's current assumptions relating to
implementation of its business plan (including the timetable of, and cost
associated with, store development), the Company will seek to develop, utilizing
the proceeds of this offering, existing cash, certain anticipated supplier
incentives, and cash flow from operations, if any, 9-13 stores during the 12
months following consummation of this offering. If the Company's plans change,
its assumptions prove to be inaccurate, or the capital resources available to
the Company otherwise prove to be insufficient to implement its business plan
(as a result of unanticipated expenses, problems or difficulties, or otherwise),
the Company would be required to seek additional financing or curtail its
activities. There can be no assurance that the Company will have sufficient
capital resources to permit the Company to open the number or type of 2Connect
stores proposed in its business plan or to otherwise implement such plan.
DIVIDEND POLICY
The Company has never paid any dividends. The Company anticipates that
future earnings, if any, will be retained to finance the continuing development
of its business. Accordingly, the Company does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future.
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<PAGE> 17
CAPITALIZATION
The following table sets forth the capitalization of the Company at
December 31, 1996, (i) on an actual basis and (ii) as adjusted to reflect the
sale of the 850,000 Units (at an assumed initial public offering price of $9.00
per Unit), and the application of the net proceeds therefrom. See "Use of
Proceeds."
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------
ACTUAL AS ADJUSTED(2)
----------- --------------
<S> <C> <C>
Shareholders' equity:
Common stock, $0.01 par value. Authorized 25,000,000 shares;
issued and outstanding 5,420,000 shares actual and
7,970,000 shares as adjusted(1)........................... $ 54,200 $ 79,700
Additional Paid-in capital.................................. 3,257,320 9,831,820
Deficit accumulated during the development stage............ (1,056,945) (1,056,945)
----------- -----------
Total shareholders' equity................................ 2,254,575 8,854,575
----------- -----------
Total capitalization...................................... $ 2,254,575 $ 8,854,575
=========== ===========
</TABLE>
- ---------------
(1) Does not include 675,000 shares of Common Stock subject to options
outstanding at December 31, 1996 having a weighted average exercise price
of $1.10 per share. See "Management -- Director Compensation,"
"Management -- 1996 Stock Option Plan," "Executive Compensation -- Option
Grants," and Note 6(a) of Notes to Financial Statements.
(2) Assumes no exercise of the Warrants.
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<PAGE> 18
DILUTION
The net tangible book value of the Company as of December 31, 1996 was
approximately $2,254,575 or $0.42 per share of Common Stock. Net tangible book
value per share represents the amount of total tangible assets of the Company
less total liabilities, divided by the number of shares of Common Stock
outstanding. After giving effect to the sale of the 2,550,000 shares of Common
Stock included in the Units offered hereby at an assumed initial public offering
price of $9.00 per Unit, and the receipt by the Company of the net proceeds
therefrom, the pro forma net tangible book value of the Company as of December
31, 1996 would have been $8,854,575 or $1.11 per share. This represents an
immediate increase in pro forma net tangible book value of $0.69 per share to
existing shareholders and an immediate dilution of $1.89 per share to new
investors ("New Investors") purchasing Units in this Offering. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share of Common
Stock..................................................... $3.00
Net tangible book value per share before offering......... $0.42
Increase in net tangible book value per share attributable
to New Investors....................................... 0.69
-----
Pro forma net tangible book value per share after
offering.................................................. 1.11
-----
Dilution per share to New Investors......................... $1.89
=====
</TABLE>
The following table summarizes, as of December 31, 1996, the number of
shares of Common Stock purchased from the Company, the total cash consideration
paid, and the average price per share paid by existing shareholders and to be
paid by purchasers of Units offered hereby at an assumed initial offering price
of $9.00 per Unit (before deducting the underwriting discounts and commissions
and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CASH CONSIDERATION AVERAGE
---------------------- ------------------------ PRICE PER
NUMBER PERCENTAGE AMOUNT PERCENTAGE SHARE
--------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders............. 5,420,000 68% $ 3,762,050 33% $0.69
New investors..................... 2,550,000 32 7,650,000 67 3.00
--------- ----- ----------- ----
Total................... 7,970,000 100% $11,412,050 100%
========= ===== =========== ====
</TABLE>
If the Underwriters' overallotment option is exercised in full, the number
and percentage of shares purchased by New Investors will be 2,932,500 and 35%,
respectively, the amount and percentage of total cash consideration paid by New
Investors will be $8,797,500 and 70%, respectively, and the existing
shareholders' percentage of shares of Common Stock purchased and percentage of
total consideration paid will be 65% and 30%, respectively. The computations in
the tables above exclude: (i) 675,000 shares of Common Stock issuable upon the
exercise of stock options outstanding at December 31, 1996 at a weighted average
exercise price of approximately $1.10 per share; (ii) 1,325,000 shares of Common
Stock reserved for issuance upon exercise of options that may be granted in the
future under the Company's 1996 Stock Option Plan; and (iii) 100,000 shares of
Common Stock reserved for issuance upon exercise of options that may be granted
in the future under the Company's Director's Option Plan. To the extent such
options are exercised, there will be further dilution to new investors. See
"Capitalization," "Management -- 1996 Stock Option Plan,"
"Management -- Director Compensation," and Note 6(a) of Notes to Financial
Statements.
17
<PAGE> 19
SELECTED FINANCIAL INFORMATION
The selected statement of operations data set forth below with respect to
the period from April 19, 1996 (date of inception) to December 31, 1996 and the
selected balance sheet data at December 31, 1996 are derived from the financial
statements of the Company that have been audited by KPMG Peat Marwick LLP,
independent certified public accountants. The selected financial data should be
read in conjunction with "Management's Plan of Operation" and the financial
statements and related notes included elsewhere in this Prospectus.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 19, 1996
(INCEPTION) TO
DECEMBER 31, 1996
------------------
<S> <C>
Net Sales................................................... $ 88,203
Cost of Sales............................................... 61,047
-----------
Gross Profit...................................... 27,156
General and administrative expenses:
Salaries.................................................. 408,406
Professional services..................................... 190,891
Sales and marketing....................................... 243,103
Other..................................................... 286,397
-----------
Operating loss.................................... (1,101,641)
Interest income............................................. 44,696
-----------
Net loss.......................................... $(1,056,945)
===========
Net loss per share.......................................... $ (.18)
-----------
Number of shares used in calculating net loss per share..... 5,843,712(1)
===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------
ACTUAL AS ADJUSTED(2)
---------- --------------
<S> <C> <C>
Balance Sheet Data:
Cash...................................................... $1,939,985 $8,676,305
Total assets.............................................. 2,874,864 9,391,119
Total shareholders' equity................................ 2,254,575 8,854,575
</TABLE>
- ---------------
(1) All Common Stock and Common Stock equivalents issued by the Company prior to
the date of this Prospectus have been included in the calculation of the
number of shares used in calculating net loss per share (using the treasury
stock method).
(2) Adjusted to give effect to the sale of 850,000 Units offered by the Company
hereby at an assumed initial public offering price of $9.00 per Unit, and
the application of the net proceeds therefrom. Of the $220,065 of deferred
financing costs incurred at December 31, 1996, $136,320 had been paid in
cash as of December 31, 1996.
18
<PAGE> 20
MANAGEMENT'S PLAN OF OPERATION
The following should be read in conjunction with the Financial Statements
of the Company and the Notes thereto, and the other financial and other
information included elsewhere in this Prospectus. This Prospectus contains
certain statements regarding future trends which are subject to various risks
and uncertainties. Such trends, and their anticipated impact on the Company,
could differ materially from those discussed in this Prospectus. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed in "Risk Factors" and elsewhere in this Prospectus.
GENERAL
The Company was organized in April 1996, and is in the development stage.
The Company commenced operations of its first 2Connect store in December 1996
and has generated extremely limited operating revenue to date. The Company's
first 2Connect store generated revenue of approximately $267,000 for the 94 days
from the opening on December 6, 1996 to March 9, 1997. Because the Company
intends to increase its level of activities substantially following the
consummation of this offering and, in connection therewith, will incur
significant costs and expenses relating to the opening of additional 2Connect
stores, the Company anticipates that it will incur losses until, at the
earliest, the Company establishes a number of 2Connect stores generating
sufficient revenue to offset its operating costs and the costs of its proposed
continuing expansion. There can be no assurance that the Company will be able to
successfully operate its first 2Connect store or establish a sufficient number
of additional stores to generate meaningful revenue or achieve profitable
operations.
The Company's 2Connect stores generate revenue from four primary sources.
The Company receives an activation commission from service providers when a
customer initially subscribes for the related services. The amount of the
activation commission paid by the service carriers is based upon various service
plans offered by these carriers. The second source of revenue the Company
receives is from monthly payments made by the service carriers to the Company
based upon a percentage of the customers' usage. These payments, generally
referred to as residual payments, are calculated based on the amount of the
service billings generated by the base of customers activated by the Company on
the particular service provider's system. The third source of revenue the
Company receives is from the sale of in-store services such as use of Internet
stations, creation of web pages, and technical consulting. The fourth source of
revenue the Company receives is from the sale of the various hardware products,
accessories, and information services offered at the 2Connect stores.
The Company also receives service-provider and product-vendor funding and
allowances in the form of cooperative advertising allowances, market development
funds, new store allowances, and rebates, although there can be no assurance
that the Company will regularly receive such funding or allowances. Cooperative
advertising allowances are provided by service providers and product vendors
("service and product vendors") for store advertising that features their
services or products. Cooperative advertising allowances are generally available
to mass market retailers of cellular, PCS, paging, telephone, and satellite TV
services and products. Market development funds are additional funds provided by
the service and product vendors for marketing and advertising. Market
development funds are only provided to selected mass market retailers of
cellular, PCS, paging, telephone, and satellite TV services and products. New
store allowances are funds provided by the service and product vendors to offset
the costs of developing new stores. These funds, which can be used as determined
by the retailers receiving them, are provided by service and product vendors
only to selected mass market retailers as they develop new stores. Rebates are
discounts or allowances that are generally available from service and product
vendors to mass market retailers of cellular, PCS, paging, telephone, and
satellite TV services and products for exceeding sales volume targets.
Since inception, the Company has developed a business plan for the
Company's operations and proposed expansion in South Florida; hired the
executive and support personnel necessary to support the Company's proposed
expansion in South Florida for the next six months; developed a standard
2Connect store design for its shopping mall and power center stores; engaged a
site selection and construction oversight contractor to aid the Company in
selecting and securing store sites and to oversee store construction; opened its
first 2Connect store; commenced construction on its second store scheduled to
open in April 1997, and
19
<PAGE> 21
applied for building permits for its third store scheduled to open in May 1997,
identified and commenced negotiations for six additional 2Connect store site
locations in South Florida; entered into agreements with service providers and
product vendors; and developed a marketing strategy.
In the period from April 19, 1996 (inception) to December 31, 1996, the
Company incurred general and administrative expenses of $1,128,797, which
includes expenses of $408,406, $190,891, $243,103, $286,397 for salaries,
professional services, sales and marketing and other items, respectively.
The nature of the professional services to date are for the development of
the new store design, fixture design, corporate identity and marketing programs,
legal and accounting fees as well as fees for professional consulting and
assistance in the development of the concept. Many of these costs will continue
into the future, although costs for store, fixture and identity development
should decrease significantly in 1997. Other expenses include recruitment,
moving expenses, travel, telephone, utilities, bank charges and other
miscellaneous expenses. It is anticipated that these costs will continue to be
of a recurring nature.
LIQUIDITY AND CAPITAL RESOURCES
As of the date of this Prospectus, the Company has approximately $1,080,000
in cash and cash equivalents. The Company anticipates receiving $6,600,000 in
net proceeds from the sale of the Units offered hereby ($7,655,700 if the
Underwriter's overallotment option is exercised in full).
The Company anticipates that its cost of developing each 2Connect store
will range from $453,000 to $568,000, primarily depending on the size of the
store and the extent of required leasehold improvements. These costs include
site selection costs, leasehold improvements, furniture, fixtures and equipment,
signage, opening store inventories, development-related professional fees and
expenses and certain pre-opening expenses, including salaries, training,
advertising and promotion, but excludes lease payments. The Company anticipates
that approximately 75 days are required from the date a site is made available
to the Company to renovate, equip and furnish the store, obtain the necessary
licenses and approvals, and open a store. The Company does not anticipate that
the costs or time period required to develop and open a 2Connect store in a
shopping mall or a power center mall will significantly vary. See "Proposed
Business -- Store Location and Expansion Strategy."
The Company is dependent upon the proceeds of this offering, existing cash,
certain anticipated supplier incentives, and cash flow from operations, if any,
or other financing to implement its proposed business plan. The Company believes
that the proceeds from the sale of the Units offered hereby will enable the
Company to satisfy its anticipated financing needs for a period of at least 12
months following this offering. However, the capital requirements relating to
implementation of the Company's business plan will be significant. Based on the
Company's current assumptions relating to implementation of its business plan
(including the timetable of, and cost associated with, store development), the
Company will seek to develop, utilizing the proceeds of this offering, existing
cash, certain anticipated supplier incentives, and cash flow from operations, if
any, 9-13 stores during the 12 months following consummation of this offering.
If the Company's plans change, its assumptions prove to be inaccurate, or the
capital resources available to the Company otherwise prove to be insufficient to
implement its business plan (as a result of unanticipated expenses, problems or
difficulties, or otherwise), the Company would be required to seek additional
financing or curtail its activities. There can be no assurance that the Company
will have sufficient capital resources to permit the Company to open the number
or type of 2Connect stores proposed in its business plan or to otherwise
implement such plan.
Although the Warrants will be outstanding after the date hereof, the
Warrants will not be exercisable for a period of 12 months from the date of this
Prospectus and, in any event, the Company will not be able to depend on the
exercise of the Warrants to provide additional capital at least until such time,
if any, as the market price of the Common Stock exceeds the exercise price of
the Warrants. No assurance can be given that the market price of the Common
Stock will ever reach such level or that the Warrants will be exercised. There
can be no assurance that any additional financing will be available to the
Company on acceptable terms, or at all. Any additional financing may involve
substantial dilution to the interests of the Company's then existing
shareholders.
20
<PAGE> 22
In addition, any implementation of the Company's business plan subsequent
to the 12-month period following this offering will require capital resources
substantially greater than the proceeds of this offering or otherwise currently
available to the Company. The Company anticipates that cash flow from
operations, if any, will be utilized to fund future capital expenditures. If
cash flow from operations is not available in sufficient amounts, the Company
may seek additional debt or equity financing. There can be no assurance that the
Company will generate sufficient, or any, cash flow from operations or that
additional financing will be available on acceptable terms, or at all, to fund
the Company's future plans for capital expenditures.
Since inception, the Company's development has been funded by the proceeds
of three private offerings of Common Stock which raised $3,236,957 in net
proceeds. In the first private offering, which closed on May 15, 1996, the
Company sold 1,505,000 shares of Common Stock for aggregate net proceeds of
$30,100, in the second private offering, which closed on May 17, 1996, the
Company sold 515,000 shares of Common Stock for aggregate net proceeds of
$356,950, and in the third private offering, which closed on August 30, 1996,
the Company sold 1,500,000 shares of Common Stock for aggregate net proceeds of
$2,849,907.
21
<PAGE> 23
PROPOSED BUSINESS
The following should be read in conjunction with the Financial Statements
of the Company and the Notes thereto, and the other financial and other
information included elsewhere in this Prospectus. This Prospectus contains
certain statements regarding future trends which are subject to various risks
and uncertainties. Such trends, and their anticipated impact on the Company,
could differ materially from those discussed in this Prospectus. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed in "Risk Factors" and elsewhere in this Prospectus. Prospective
investors must consider that as of the date of this Prospectus, the Company
opened its first store in December 1996. See "Risk Factors -- Forward Looking
Statements and Associated Risks."
GENERAL
The Company, a development stage company which was incorporated in April
1996, is a specialty retailer of Internet, cellular, PCS, paging, telephone,
satellite and other communication-related services and products under the name
"2Connect, America's Total Communications Store". Since inception, the Company
has developed a business plan for the Company's operations and proposed
expansion in South Florida; hired the executive and support personnel necessary
to support the Company's proposed expansion in South Florida for the next six
months; developed a standard 2Connect store design for its shopping mall and
power center stores; engaged a site selection and construction oversight
contractor to aid the Company in selecting and securing store sites and to
oversee store construction; opened its first 2Connect store in Coral Springs,
Florida in December 1996; entered into leases and commenced construction for two
additional 2Connect stores in South Florida; identified and commenced
negotiations for six additional 2Connect store site locations in Miami, Florida
scheduled to open in April and May 1997; entered into agreements with service
providers and product vendors; and developed a marketing strategy.
BUSINESS STRATEGY
The Company seeks to differentiate its stores and establish a foundation
for growth by emphasizing the following strategic elements:
ONE-STOP SHOP. The 2Connect stores are intended to serve as a central
retail location for customers to purchase Internet, cellular, paging, PCS,
telephone and satellite TV services, in each instance from one or two
leading service providers, and related products and accessories from an
array of leading manufacturers. As an independent retailer, the Company is
able to select from among the available service providers and manufacturers
in choosing services and products to offer its customers.
QUALITY IN-STORE SERVICE. The Company believes that it will be able
to attract and retain customers by providing a high level of service and
consultation and by educating its customers as to the many benefits and
advantages of the services and products offered by the Company.
COMPETITIVE PRICING/VALUE TO CUSTOMERS. The Company believes that it
is able to offer savings to its customers by providing individualized
communications solutions designed to meet its customers' particular needs.
The Company provides free in-store analysis of customers' communications
and information service bills (Internet, cellular, paging, PCS, long
distance telephone, and TV programming), and advising customers of
potential savings and ways to increase the value of their communications
and information services. The Company also believes that it is able to
offer competitive pricing of products and accessories sold in connection
with communication services.
ATTRACTIVE STORE DESIGN AND LAYOUT. The design and layout of the
2Connect stores is intended to be visually appealing and inviting, and
functional in its presentation of the services and products to be offered.
OPPORTUNITY TO SAMPLE SERVICES AND PRODUCTS. The 2Connect stores will
provide customers with the opportunity to sample within the store many of
the services and products available for sale, and
22
<PAGE> 24
Company personnel is available to provide guidance and instruction for many
of these services and products.
INDEPENDENT DISTRIBUTION CHANNEL. The Company seeks to create, to the
extent possible, an independent distribution channel for Internet,
cellular, paging, PCS, telephone, and satellite TV services and products
that is capable of retailing any brand or type of such services or
products, irrespective of advances in technology, changes in consumer
preferences, shifts in service or product brand name recognition or changes
in government regulation.
QUALITY MANAGEMENT AND EMPLOYEES. The Company seeks to attract,
develop and motivate its employees through competitive compensation,
benefits and bonus programs, comprehensive training programs, and defined
career paths and advancement opportunities. The Company has established a
Market Development Program. Under this program, the Company will hire a
Market Developer in each geographic market where the Company intends to
establish 2Connect stores. These Market Developers will be selected on the
basis of their retail operating experience, knowledge of the Company's
business and of the particular geographic market, and they will be
responsible for overseeing and managing the development of 2Connect stores
within their respective geographic markets, including the financial
performance of the 2Connect stores, store operations, product and service
pricing, and promotional activities. Market Developers will be compensated
based upon the financial performance of the 2Connect stores under their
supervision. The Company believes that its Market Development Program will
provide incentive to the Market Developers to actively manage and develop
2Connect stores and will enhance its ability to open new 2Connect stores.
23
<PAGE> 25
SERVICES AND PRODUCTS
The 2Connect stores are intended to serve as a central retail location for
customers to purchase Internet, cellular, paging, PCS, telephone and satellite
TV services, in each instance from a leading service provider, and related
products and accessories from an array of leading brand-name manufacturers.
Listed below are the services and products the Company currently offers for sale
in its first 2Connect store and plans to offer for sale in each of its 2Connect
stores:
<TABLE>
<CAPTION>
INTERNET WIRELESS TELEPHONE SATELLITE
-------- -------- --------- ---------
<S> <C> <C> <C>
Access Accounts: Cellular Services & Local Phone Services Programming Services
Internet Access Phones Long Distance Products and
Accounts Pagers & Services Services Accessories
E-Mail Accounts PCS Services & Smart Telephone Installation
Special Interest Phones Products
Subscriptions Personal Communicators and Services
Long Distance
Products, Hardware, Prepaid Cards
Software & Cordless Telephones
Accessories: Fax Machines
Web TV Systems Hardware
Internet Accessories
Software Services
Internet
Accessories
Books and
Magazines
Other Internet
Services:
Web Page Design
Web Page
Hosting
Internet Training
Personal
Consulting
(Rent-A-Tech)
In-Store Pay-Per-
Use
Internet Stations
Internet Domain
Registration
</TABLE>
The Company anticipates that approximately 31%, 49%, 14% and 6% of its
total revenues will be derived from the Internet, Wireless, Telephone and
Satellite categories, respectively, although no assurance can be given in this
regard.
INTERNET
The Company offers all of the services, software, products, accessories and
information its customers will need to connect to the Internet, including the
following:
Access Accounts
INTERNET ACCESS ACCOUNTS. Internet access accounts are required for
individuals to connect their computers or other hardware to the Internet.
The Company offers Internet access accounts from CyberGate Technologies,
Inc., a leading, third party service provider, and Web TV Network, a
national Internet service provider. Customers are able to select plans from
a variety of available options based upon their individual usage
requirements.
24
<PAGE> 26
E-MAIL ACCESS ACCOUNTS. E-Mail (Electronic Mail) accounts enable
individuals to send and receive electronic messages world-wide through the
Internet. The Company offers basic E-Mail subscription accounts to
customers from the Company's third-party Internet access provider.
SPECIAL INTEREST SUBSCRIPTIONS. Special interest subscriptions
include Internet services that enable individuals or businesses to access
specialized services such as customized newspapers, home banking from a
computer, personalized electronic travel services, and other services. The
Company intends to offer special interest Internet subscriptions from an
array of leading third-party electronic publishers and service providers,
including .
Hardware, Software and Accessories
INTERNET TELEVISION SYSTEMS ("WEB TV SYSTEMS"). Web TV Systems enable
users to access the Internet's World Wide Web with his or her existing
television equipment. A Web TV System is comprised of a converter device
(similar to a cable TV converter box), a remote control, and a wireless
keyboard. The Company offers Web TV Systems from Sony Corporation.
SOFTWARE. The Company offers a limited assortment of Internet and
communication computer software titles from leading software developers.
Categories of software include Internet Browsers (required for computer
users to access and browse the Internet's World Wide Web), Internet
Security (software that is primarily used by parents to limit children's
access to distasteful content sometimes found on the Internet), Internet
Telephone software (software that enables users to make and receive phone
calls over the Internet thereby eliminating long distance charges), Web
Page Design programs (software that allows users to design their own
Internet Web Pages on their computers), E-Mail Programs (software required
to send and receive E-Mail from a computer), and other communication
software programs.
ACCESSORIES. As a convenience to customers, the Company offers a
limited selection of computer accessories such as computer cables, computer
mouse pads, diskettes, surge protectors and other miscellaneous
accessories.
BOOKS AND MAGAZINES. The Company offers a selection of leading titles
of books and magazines related to the Internet and communication services.
Other Internet Services
WEB PAGE DESIGN. Internet Web Pages are personalized "pages" or
locations/addresses on the Internet's World Wide Web where individuals
and/or businesses can display information about themselves, their
businesses, or any other information. The Company offers, at an additional
charge to customers, in-store assistance by Company employees in designing,
creating, maintaining and hosting Internet Web Pages.
INTERNET TRAINING. The Company offers, at an additional charge to
customers, in-store Internet training classes with training provided by
Company employees.
PERSONAL CONSULTATION ("RENT-A-TECH"). The Company offers, at an
additional charge to customers, personal consulting services to provide
customers with Internet and communication services solutions.
IN-STORE PAY-PER-USE INTERNET STATIONS. The Company intends to have
within each 2Connect store between one and four Internet computers where
customers can sit down and explore the Internet on their own. The Company
has 4 of these Internet computers in its existing store. Operation of the
Internet computer stations is regulated by prepaid "2Connect cards" which
will permit the use of the stations for specified amounts of time. Each
Internet station will present customers with concise instructions to help
guide users. The Company intends to provide, adjacent to each station,
information on recommended Internet sites to visit, with topics organized
by lifestyle. The Company's in-store Internet stations will also allow
customers the ability to send E-mail from the store.
25
<PAGE> 27
INTERNET DOMAIN NAME REGISTRATION. Internet addresses (or "Domain
Names") are unique addresses assigned to individuals and/or businesses
through the Internet Society. The most common form of addresses are those
for Internet Web Pages. The Company offers such registration services, for
a fee, to its customers.
As the Internet is shaped by evolving technologies and newly available
services, the Company intends to aggressively offer new services and products to
allow its customers to more fully utilize the Internet's potential.
WIRELESS
The Company offers cellular and paging services, PCS services, and Personal
Communicators (also generally known as Personal Digital Assistants or PDAs), and
related services, hardware and accessories, including the following:
CELLULAR SERVICES, PHONES AND ACCESSORIES. The Company offers
cellular telephone service from Bell South Mobility, a leading third-party
service provider. The Company offers a wide assortment of cellular
telephone hardware and a broad selection of cellular phone accessories such
as batteries, home and car chargers, vehicle adapter kits, cases and
starter kits from leading brand-name manufacturers including Motorola,
Ericsson, Nokia, Sony and Mitsubishi.
PAGERS, SERVICES AND ACCESSORIES. The Company offers various types of
wireless pagers, including numeric (standard pagers that can only display
numbers), alphanumeric (pagers that can display numbers and/or text) and
2-way (alphanumeric pagers that give users the ability to respond to
messages with the touch of a button), and related paging services. The
Company offers paging services from two of the leading national paging
service providers, SkyTel and MobilCom. The Company also offers a broad
assortment of pager hardware and a complete selection of pager accessories
from leading brand name manufacturers including Motorola, Sony, Panasonic
and NEC.
PCS SERVICES, PHONES AND ACCESSORIES. PCS ("Personal Communication
Services") is a new wireless communication service that is being marketed
as an alternative to cellular phones. PCS telephones and service operate in
a manner similar to cellular telephones, but utilize different transmission
frequencies. Differences exist in the service features available, the
service coverage areas, and the service plan pricing options and structure.
The Company offers PCS service from PrimeCo., a leading PCS service
provider. The Company also intends to offer PCS service, an assortment of
competing brands of PCS phone hardware and accessories from additional
service providers and manufacturers if and as the Company expands to other
geographic markets.
PERSONAL COMMUNICATORS. Personal Communicators (also known as
Personal Digital Assistants or PDAs) are an emerging category of wireless
communicators and personal organizers. Personal communicators are palm-top
sized devices that are capable of performing basic data management features
such as an address book, to-do lists, calendar and schedulers, expense
tracking and spreadsheets and, with appropriate peripherals, advanced
communication functions such as E-Mail, remote faxing, paging, Internet
access, computer linking, and other forms of data transmission and
reception. The Company offers a wide assortment of Personal Communicators
from competing brand name manufacturers including Hewlett-Packard, Psion,
Sharp and US Robotics, along with the accompanying accessories, peripherals
and software. The Company also offers subscriptions to Personal
Communicator services such as E-Mail and Internet access from leading
brand-name service providers as they become available.
TELEPHONE
The Company offers for sale a wide variety of telephone services, along
with the required hardware and accessories geared toward the individual or home
user, including the following:
LOCAL TELEPHONE SERVICES. The Company intends to offer basic
telephone sign up and service, second phone line sign up and service, ISDN
sign up and service, and premium telephone services, including, among
others, Caller ID, call waiting, voice mail, call forwarding, and call back
from either the
26
<PAGE> 28
leading/existing Bell operating company in the geographic market, or
through a leading third-party service provider.
LONG DISTANCE TELEPHONE SERVICES. The Company currently offers long
distance calling plans and other long distance services such as calling
cards and personal 800 numbers from one or two national long distance
service providers, LDDS/WorldCom and TresCom International.
Smart Telephone Products and Services
CALLER ID PRODUCTS. Caller ID is a recently developed technology
that allows users to identify incoming callers before they answer their
telephone. Caller ID products come in two forms: freestanding Caller ID
boxes, which feature an alphanumeric display board and plug into a
telephone, and telephones with a built-in alphanumeric display board.
The Company offers a wide assortment of Caller ID products from
competing brand-name manufacturers, including AT&T/Lucent Technologies
and Astra.
"SMART TELEPHONES". Smart Phones, when combined with Smart Phone
service subscriptions, enable a user to send E-Mail, view stock quotes,
local weather, sports scores and other information, access bank account
information, and more. The Company offers an assortment of Smart Phones
from competing leading brand-name manufacturers, including AT&T/Lucent
Technologies, Intellifone and potentially Nortel, as well as an
assortment of Smart Phone service subscriptions from leading third-party
smart phone service providers such as Smart Serve.
LONG DISTANCE PREPAID TELEPHONE CALLING CARDS. Long distance prepaid
telephone calling cards are cards that are sold with prepaid long distance
calling time. The Company offers a selection of private label "2Connect"
prepaid calling cards, as well as other "Novelty" or special occasion
cards. Long distance service and cards are currently provided by
LDS/WorldCom, a leading third party service provider.
900MHZ CORDLESS TELEPHONES. 900MHz cordless telephones are the most
technologically advanced type of cordless telephones currently available.
900MHz telephones operate on a different frequency than traditional
cordless telephones, and provide for enhanced reception clarity, greater
range and enhanced security features. The Company offers a broad range of
900MHz cordless telephones from competing, leading brand-name
manufacturers, including Uniden, Sony, AT&T/Lucent Technologies, Toshiba
and V-Tech.
TELEPHONE ACCESSORIES. The Company offers a broad selection of
telephone accessories, such as cords, modular jacks, replacement antennas,
cordless telephone batteries and other accessories from leading brand-name
manufacturers.
FAX MACHINES AND SERVICES. The Company offers a selection of
telephone based fax machines for the home and home office from leading
brand-name manufacturers. In addition, the Company offers related fax
accessories and supplies. The Company intends to offer a selection of fax
service subscriptions from leading third-party service providers.
SATELLITE
The Company offers a variety of digital satellite television programming
along with the accompanying hardware, accessories and installation, including
the following:
PROGRAMMING SERVICES. The Company offers satellite services that
allow users to select and subscribe to packages of general programming and
of specific sports, entertainment and other programming packages. The
Company offers a wide variety of programming package options from leading
brand-name service and content providers, including Direct TV and USSB.
PRODUCTS AND ACCESSORIES. Satellite TV programming requires specific
hardware and accessories including satellite dishes, converter boxes,
multi-signal devices (for different channel reception within the
27
<PAGE> 29
same household) and other items. The Company offers this hardware from
Toshiba, a leading brand name manufacturer, and accessories from Recoton, a
leading, brand-name manufacturer.
INSTALLATION. The Company offers "self-installation" kits for
satellite TV systems from leading manufacturers, as well as fee-based
professional in-home installation through a third party installer.
PROPOSED STORE LOCATION AND EXPANSION STRATEGY
The Company opened its first 2Connect store in Coral Springs, Florida in
December 1996, and has entered into leases for two additional 2Connect stores in
Miami, Florida. The Company has also commenced lease negotiations for six
additional locations for 2Connect stores, all of which are in South Florida. The
Company will seek to open 9-13 stores during the 12 months following the
consummation of this offering. The Company anticipates that its first 8-10
stores will be located in South Florida. Subject to the Company's development
and operation experiences at its first 8-10 stores, the Company intends next to
seek to develop stores in other metropolitan areas, including Central Florida,
and the Atlanta, Georgia, the New York-New Jersey, and the Chicago metropolitan
areas. See "Risk Factors -- Rapid Expansion; Growth Strategy."
The Company intends to develop 2Connect stores in two general venues:
shopping malls and power centers.
SHOPPING MALLS. The Company intends to develop 2Connect stores located
in-line in super-regional and regional shopping malls. These stores are expected
to range in size from 1,750-3,000 square feet. The Company believes that it will
benefit from the exposure to existing customer traffic in these malls.
POWER CENTERS. The Company also intends to develop 2Connect stores in
"power centers." Power centers are generally anchored by one or more
super-stores, and typically contain a variety of smaller specialty stores. These
stores are expected to range in size from 1,200-5,000 square feet. The Company
believes that it will benefit from the exposure to existing customer traffic in
these power centers, and from the ability to showcase its products and services
on a larger scale.
The Company will monitor the results of its mall-based stores and power
center stores to determine which, if either, will generate positive operating
income. The Company may also locate 2Connect stores in locations other than in
shopping malls and power centers, depending on the particular opportunities that
become available. The Company intends to base its future 2Connect store site
selections on the experiences of its 2Connect stores, market size and
demographics.
The Company has retained The Colfax Group, Dallas, Texas, a national site
selection and construction management firm, to provide assistance in site
selection, lease negotiations, permit procurement, construction contractor
selection, and construction supervision and inspection.
The Company anticipates that its cost of developing each 2Connect store
will range from $453,000 to $568,000, primarily depending on the size of the
store and the extent of required leasehold improvements. These costs include
site selection costs, leasehold improvements, furniture, fixtures and equipment,
signage, opening store inventories, development related professional fees and
expenses, and certain pre-opening expenses, including salaries, training,
advertising and promotion, but excludes lease payments. The Company anticipates
that approximately 75 days are required from the date a site is made available
to the Company to renovate, equip and furnish the store, obtain the necessary
licenses and approvals, and open a store. The Company does not anticipate that
the costs or time period required to develop and open a 2Connect store in a
shopping mall or a power center mall will significantly vary.
The Company intends to develop numerous stores in each geographic market it
targets for development, depending on the size of the market and the market's
demographics. The Company believes that developing stores in such clusters may
enable it to realize certain efficiencies in procuring services and products
supplied by third parties, market management, recruiting, hiring, training,
advertising and marketing.
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STORE LAYOUT AND DESIGN
The 2Connect stores have been designed with the intent of blending
high-tech services and products into a comfortable, inviting store setting. A
glass storefront with bold red and white exterior signage leads into a brightly
lit store with carpet and a curved, floating ceiling designed to have an open
and spacious effect. Colorful oversized wall graphics, combined with warm
finishes and decor that allow the services and products to remain the focal
point at each store, are intended to create an upbeat and appealing store
environment.
All products are displayed on adjustable fixtures where customers can
handle the products and experience selected services, either assisted or
unassisted prior to purchase. Services, products and accessories are laid-out
and presented in a logical order and within easy reach. Hardware products are
displayed on fixtures along the perimeter walls, with large signs that explain
the services available for each category. Accessories and impulse and
promotional items are placed in the center of the store, adjacent to their
corresponding service and product categories. Each product presented is
accompanied by information explaining the features and benefits of that
particular product.
Each 2Connect store will have between one and four Internet computers where
customers can sit down and explore the Internet on their own. The Company has
four of these Internet computers in its existing store. Operation of the
Internet computer stations is regulated by prepaid "2Connect cards" which permit
the use of the stations for predetermined amounts of time. Each station presents
the customers with concise instructions to help guide users. The Company intends
to provide, adjacent to each station, information on recommended Internet sites
to visit, with topics organized by lifestyle. For example, a customers
interested in sports, travel or real estate will be able to look at the list of
recommended web sites, and then visit those sites themselves. These 2Connect
Internet computer stations are intended to be a focal point of interest within
the 2Connect stores.
Each store features an Activation Center, Internet Center and Services
Center. These Centers serve as focal points and destinations within the store
layout. The Activation Center, located at the rear of the store, provides a
sign-up counter and seating area where customers complete the required paperwork
associated with subscribing for particular services. The Internet Center
provides an area where customers can use Internet computers to explore the
Internet and learn about and subscribe for Internet access and related services,
such as Web Site Design, Internet Training and Internet Access. The Services
Center provides an area for customers to learn about and subscribe for the
Company's long distance program, bill analysis program, local telephone
services, business consulting and other services.
Each 2Connect store will maintain its inventory in-house.
The standard 2Connect store design was developed with the assistance of
Pentagram Architecture, Inc., New York, New York, and Pentagram Design, Inc.,
Austin, Texas (collectively "Pentagram"), one of the world's leading design
firms. The Company believes that the resulting store designs, interior and
exterior signage and the logos will differentiate and support the 2Connect
brand. The Company has developed a standard store design which can be adapted to
each store format and size.
STORE OPERATIONS
The Company expects that most 2Connect stores will be open from 9:00 a.m.
to 9:00 p.m., seven days a week. These hours may be modified at an individual
store or in a market based on shopping patterns and shopping mall hours of
operations. The Company expects that most stores will have three to four full
time sales associates, two to three part time sales associates and at least one
direct sales person, all of whom will be trained to assist customers in the
various services and product categories offered by the Company. Each 2Connect
store will have at least one Web Master specifically trained on Internet
services. Each 2Connect store will also employ a Manager and an Assistant
Manager.
SERVICE PROVIDER CONTRACTS
INTERNET SERVICES. The Company offers Internet and E-mail access accounts
pursuant to an agreement (the "Internet Service Agreement") with CyberGate
Technologies, Inc. The Internet Service
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Agreement is nonbinding and nonexclusive. The Company believes that on the
national and regional level there is a high level of competition among providers
of Internet and E-mail access accounts and, accordingly, does not believe it is
dependent on any particular group of Internet service providers.
CELLULAR SERVICES. The Company offers cellular telephone service pursuant
to an agreement (a "Cellular Service Agreement") with Bell South Mobility. This
Cellular Service Agreement is exclusive for a period of two years for all
2Connect stores in South Florida. The Company believes that most of its stores,
including its South Florida stores, will be developed in areas where there may
be only two cellular telephone service providers and, accordingly, the Company
will be dependent upon such providers with respect to the provision of cellular
phone services. The Company believes its dependency on such providers of
cellular phone services will be lessened to the extent that PCS services are
perceived by customers as a viable alternative to cellular phone services.
PAGING SERVICES. The Company offers paging services pursuant to supply
agreements ("Paging Service Agreements") with two leading third-party service
providers, SkyTel and MobilCom. These Paging Service Agreements are
non-exclusive, and have a term of one year. The Company believes that on the
national and regional level there is a high level of competition among providers
of paging services and, accordingly, the Company does not believe it is
dependent on any particular or group of paging service providers.
PCS SERVICES. The Company offers PCS services pursuant to a supply
agreement (a "PCS Service Agreement") with PrimeCo, Inc. This PCS Service
Agreement is non-exclusive, and has a term of six months. The Company believes
that PCS services have only recently begun to be offered. The Company
anticipates that many of its stores, including its South Florida stores, may be
developed in areas where there may be none, one or only two PCS service
providers and, accordingly, the Company will be dependent upon such providers
with respect to the provision of PCS services. The Company believes that its
dependency on such providers of PCS services will be lessened to the extent that
cellular phone services are perceived by customers as a viable alternative to
PCS services.
LONG DISTANCE SERVICES. The Company offers long distance telephone
services pursuant to supply agreements ("Long Distance Service Agreements") with
two national third-party service providers, LDDS/WorldCom and TresCom
International. These Long Distance Service Agreements are non-exclusive, and
have a term of one year. The Company believes that there is a high level of
competition among providers of long distance and prepaid telephone card services
and, accordingly, does not believe it is dependent on any particular supplier.
SATELLITE TV PROGRAMMING. The Company offers satellite TV programming
services pursuant to agreements ("Satellite Agreements") with two leading
brand-name service providers, Direct TV and USSB. These Satellite Agreements are
nonexclusive for a period of up to one year. Although the Company believes that
there are at least four nationwide providers of satellite TV programming
services, the Company believes that it is important for it to offer the
programming services of at least one or two providers which the Company believes
offer superior services. Accordingly, with respect to satellite TV services, but
not its overall business strategy, the Company is dependent on the two higher
quality satellite TV service providers.
EMPLOYEES
The Company offers competitive wages and benefits, and has established a
bonus program that is designed to reward the achievement of operating targets by
distributing a portion of its net income to its employees in accordance with a
specified formula which is based on position, job performance, and the Company's
realization of the applicable store or geographic area's net income goals. The
Company believes that the training and knowledge of its employees and the
consistency and quality of the service they deliver will be central to the
Company's success. The Company also believes that its bonus program will help
build successful long-term relationships with its employees.
The Company expects to dedicate substantial resources to employee training.
All full-time 2Connect store employees participate in a comprehensive
orientation program which introduces them to the Company's mission and culture.
Each Sales Associate, Assistant Store Manager and Store Manager is trained in
customer
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service and sales techniques, in the different services and product categories,
and in how to match a customer's specific needs and usage patterns to the best
priced and most appropriate 2Connect service plans, hardware and accessories.
The Company has developed comprehensive training materials, including handbooks,
self assessments and other training aids. The Company also utilizes periodic
vendor-provided training. Members of the sales team will regularly participate
in training so that they can stay abreast of new services, technologies, and
operating procedures. Market Developers and Store Managers are expected to
receive additional specialized training in effective communication skills,
employee motivation, customer retention techniques, team building, and
post-sales marketing.
In the period from inception through the date of this Prospectus, the
Company has hired 23 full time employees, including its Chief Executive Officer
and President, Vice President for Finance, Vice President for Merchandising,
Manager of Marketing and Store Development, Manager of Training, Store
Communications, Policies and Procedures, Manager of Information Systems,
receptionist and clerical assistant, Manager of Marketing, Manager of Financial
Planning, Merchandising Manager, Operations Manager, Store Manager and Assistant
Store Manager for the first two stores, Internet Web Master, and full time and
part time sales associates.
The Company believes that it has good relationships with its employees.
MANAGEMENT INFORMATION SYSTEMS
The Company expects to link each of the 2Connect stores to the Company's
headquarters through its point-of-sale system that utilizes integrated software
for merchandising, inventory, tracking service activation and usage, and
accounting. The Company's management information system maintains a record,
updated daily, of the sale of each service subscription and activation, service
residuals (based on monthly customer usage), and each merchandise item from its
order to receipt to sale. The Company's management information system is also
designed to create store-level, area, and Company-wide data bases, and generate
customized mailings.
MARKETING AND ADVERTISING
The Company's marketing and advertising efforts are concentrated in two
areas: in-store and media.
IN-STORE. The Company believes its unique store design, presentations and
store signage are a significant factor in establishing, differentiating and
reinforcing the 2Connect brand. Each 2Connect store will feature signage and
other materials that are designed to provide concise information as to the
available services and products. The Company seeks to present customers with
simple explanations of category features and benefits, as well as pricing and
sign-up information. The Company believes its brand is also differentiated and
reinforced by its delivery of quality in-store service and by maintaining
competitive prices.
MEDIA. The Company uses a wide variety of traditional media advertising
methods to promote brand awareness and to attract consumers to the 2Connect
stores. The Company has developed both grand opening and ongoing advertising
strategies utilizing traditional advertising vehicles such as newspaper print,
targeted direct mail, radio, press releases and special events, that it
anticipates will be substantially funded by service providers and product
manufacturers.
The Company receives service-provider and product-vendor funding and
allowances in the form of cooperative advertising allowances, market development
funds, and new store allowances, although there can be no assurance that the
Company will regularly receive such funding or allowances. Cooperative
advertising allowances are provided by service providers and product vendors
("service and product vendors") for store advertising that features their
services or products. Cooperative advertising allowances are generally available
to mass market retailers of cellular, paging, PCS, telephone, and satellite TV
services and products. Market development funds are additional funds provided by
the service and product vendors for marketing and advertising. Market
development funds are only provided to selected mass market retailers of
cellular, paging, PCS, telephone and satellite TV services and products. New
store allowances are funds provided by service and product vendors to offset the
costs of developing these new stores. These funds, which can be used as
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determined by the retailers receiving them, are provided by service and product
vendors only to selected mass market retailers as they develop new stores.
COMPETITION
The Company believes that it will have certain competitive advantages over
other distributions channels for the products and services offered at the
2Connect stores, including the Company's ability to serve as a central retail
location for a wide variety of Internet, cellular, paging, PCS, telephone and
satellite TV services and to provide quality in-store service and competitive
pricing for products and services. The Company is subject to intense competition
from new and existing distributing channels for Internet, cellular, PCS, paging
and satellite TV services and products.
In the event of perceived initial market acceptance of the 2Connect store
retailing concept, there is likely to be a rapidly increasing number of market
entrants offering comparable services and products through retail distribution
channels.
The Company believes that certain of its existing competitors may attempt
to adjust their retailing strategies to be more closely aligned with the
retailing concept to be pursued by 2Connect. For instance, certain of the
Company's competitors that have developed highly successful independent retail
store chains previously focusing on providing a high level of customer service
in connection with the sale of Internet, cellular, PCS, paging, long distance
telephone or satellite TV products (i.e. Tandy Corporation, doing business as
Radio Shack and Incredible Universe, and Computer City Stores, Inc.) may decide
to dedicate additional resources to the retailing of a broad range of the
complimentary services. These retailers may have one or more of the following
competitive advantages, among others: brand name recognition, an existing store
system, superior buying power, an existing customer base, substantial financial
resources and a history of financial performance, prime real estate locations,
an experienced sales and management staff, and knowledge of local customer
shopping habits.
The Company also recognizes that, even if its competitors were unable to or
choose not to replicate certain aspects of the Company's retailing strategy,
these competitors, including ABC Cellular Corp. and Let's Talk Cellular, Inc.,
might develop or have developed a retailing concept that the Company will not be
able to successfully compete against. For instance, a number of the Company's
competitors have developed highly successful independent retail store chains by
focusing on providing a high level of customer service in connection with the
sale of certain, but not each type of, service and product to be offered by the
Company. In addition, certain of the Company's competitors have developed highly
successful independent retail store chains focusing on providing a high level of
customer service in connection with a range of services and products which is
broader than the Company's proposed range (i.e., Sound Advice, Inc. and Beyond
Electronics, Inc.). The Company recognizes that the retailers mentioned above
may possess any or all of the competitive advantages identified in the preceding
paragraph. In addition, such competitors have already developed a work force
experienced in the sale of certain types of services, may offer a broader range
of services within a particular service category, may offer a broader range of
services and products, and may offer their customers greater expertise in the
services and products they offer.
The Company believes that ultimately its most formidable competitor may be
its suppliers, namely the service providers of Internet, cellular, paging, PCS,
long distance telephone and satellite TV services. Certain service providers,
such as Sprint Corp., AT&T Wireless Services, Inc. and BellSouth
Telecommunications, Inc., currently offer at retail locations all or most of the
services the Company offers. Sprint Corp., Sprint Spectrum L.P. (a limited
partnership between Sprint, Telecommunications, Inc., Cox Communications and
Comcast Corporation) and Tandy Corporation ("Sprint-Tandy") recently announced
that they will jointly develop one-stop shopping locations primarily for Sprint
Corp. and Sprint Spectrum L.P. for cellular, PCS, and paging services and
products in about 300 square feet of each of the 6,800 Radio Shack stores in the
United States. The Company believes that Sprint Corp. has developed at least 10
retail stores in the mid-Atlantic region of the United States that offer
primarily cellular services and products, and that Sprint Corp. and Sprint
Spectrum L.P. have developed at least 10 retail stores in the mid-Atlantic
region of the United States that offer primarily PCS service and products. AT&T
Wireless Services, Inc. has established at least
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112 retail stores in the United States that offer cellular, PCS and paging
services and products. Similarly, BellSouth Telecommunications, Inc. has
established at least 15 retail stores in the southeastern region of the United
States which offer cellular and paging services and products. These competitors
may have one or more of the following competitive advantages, among others:
brand name recognition, an established store system, absolute control over their
source of supply, an existing customer base, substantial financial resources and
a history of financial performance, an experienced sales and management staff
and knowledge of consumer use patterns.
The Company will also compete with the service providers of Internet,
cellular, PCS, paging, long distance telephone and satellite TV services for
customers on another level. Unlike the Company, the service providers can market
their services directly to customers without a retail distribution channel
through telephone and other direct forms of subscription. Although the Company
hopes the retail setting will provide it with an opportunity to attract
customers that would not otherwise subscribe for certain service services, the
Company recognizes that service providers engaged in direct marketing may enjoy
all the competitive advantages described above. The Company also recognizes that
certain providers have substantial experience with conducting direct marketing
campaigns.
FACILITIES
The Company leases approximately 6,500 square feet for executive offices in
Plantation, Florida. The Company believes its executive offices are sufficient
to meet the Company's needs over the next twelve months. The Company's lease for
its executive offices has a five year term without renewal, and does not contain
a right to purchase early termination by the Company or by its landlord. The
Company has entered into a lease with a ten year term without renewal for its
first 2Connect store. The 2Connect store lease is for a 1,754 square foot
in-line store located adjacent to the food court in the Coral Square Shopping
Center located in Coral Springs, Florida. The Company has entered into two other
leases for store locations, including a store in Dadeland Station and a store in
Westchester Shopping Center, both of which are in Miami, Florida. The lease in
Dadeland Station is for 1,300 square feet, and has a five year term and a five
year renewal option. The lease in the Westchester Shopping Center is for 2,387
square feet, and has an initial term of five years and a five year renewal
option.
PROPRIETARY INFORMATION
The Company has applied for U.S. trademark protection for the name 2Connect
and for the Company's 2Connect logo. Both applications are currently pending.
The Company anticipates future registrations of various taglines and logos.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
All of the current officers of the Company were previously employed by
Communicate! Powerstores, Inc. ("Communicate!"). Communicate! was intended to be
a superstore retailer of computers and communication products and services,
including a self service center for copying, printing and digital imaging, and
installation and technical support services for the small business and home
office market. In contrast to Communicate!, the 2Connect stores are not
superstores, but specialty retailers focusing on a high level of customer
service to persons interested in specialized communication services and related
products, such as the Internet, cellular, paging, PCS, telephone and satellite
TV, and are located in shopping malls or anchored by one or more superstores,
typically containing a variety of smaller specialty stores. Marc Fishman, the
Company's President, Chief Executive Officer and Chairman of the Board,
conceived the business concept for Communicate! and, together with a New York
based financial and corporate development company, began development of
Communicate! This financial and development company received a majority of the
stock in Communicate! and its Chairman and CEO served as Chairman and CEO of
Communicate! Mr. Fishman held a 28% equity interest in Communicate!, which had
raised a total of approximately $5,000,000 in private equity and debt offerings.
Mr. Fishman resigned from Communicate! on May 18, 1996, after several
disagreements with the CEO over the management and executive decisions. Kevin
Killoran, a co-founder of the Company, and the Company's Manager of Marketing
and Store Development and Secretary, resigned from Communicate! on May 19, 1996.
The Company believes that Communicate! dismissed substantially all of its
employees on May 24, 1996 due to financial difficulty.
The following table sets forth certain information with respect to the
executive officers, certain key employees and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Marc D. Fishman........................... 31 President, Chief Executive Officer and
Chairman of the Board of Directors
Steve Stedman............................. 41 Vice President -- Finance; Controller
Jeff Manly................................ 40 Vice President -- Merchandising
Kevin Killoran............................ 26 Secretary; Manager of Marketing and
Store Development
Ira Neimark............................... 75 Director
David Colby............................... 43 Director
Lynn Tilton............................... 38 Director
Arnold Jaffee............................. 46 Director
</TABLE>
MARC D. FISHMAN is the founder, and has been the President, Chief Executive
Officer, and Chairman of the Board of Directors of the Company since the
Company's inception on April 19, 1996. Prior to working for the Company, from
November 1994 to May 1996, Mr. Fishman was President, Director and Chief
Merchandising Officer of Communicate! From September 1991 to November 1994, Mr.
Fishman was employed at Office Depot, Inc., a publicly traded company
headquartered in Delray Beach, Florida, most recently as a senior merchandising
executive.
STEVE STEDMAN has served as the Vice President -- Finance and Controller of
the Company since June 1996. Prior to joining the Company, from October 1995 to
May 1996, Mr. Stedman was Corporate Controller at Communicate! From February
1980 to October 1995, Mr. Stedman was employed at Color Tile, Inc., a closely
held company with publicly traded debt, most recently as Treasurer and Vice
President of Finance, Retail Operations. ColorTile, Inc., which is a retailer of
floor and wall coverings, and related accessories, filed for protection under
Chapter 11 of the Bankruptcy Laws of the United States in January 1996.
JEFF MANLY has served as the Vice President -- Merchandising of the Company
since June 1996. From April 1996 to May 1996, Mr. Manly served as the Director
of the Computer Division at Communicate! From
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September 1995 to April 1996, Mr. Manly was the Merchandising Manager for the
Computer Hardware Division of Best Buy, Inc., a publicly traded company, which
is a leading retailer of consumer electronics and computer products. From July
1991 to June 1995, Mr. Manly was Senior Merchant for the Computer Hardware
Division of Office Depot, Inc.
KEVIN KILLORAN is a founder and has served as the Manager of Marketing and
Store Development of the Company since June 1996, and as the Secretary of the
Company since August 1996. From its inception in November 1994 until May 1996,
Mr. Killoran was Director of In-Store Marketing at Communicate! From May 1992 to
August 1994, Mr. Killoran held positions of increasing responsibility at Office
Depot, Inc., most recently as Mr. Fishman's management assistant for the
Wireless Communications Products and Business Machine categories.
IRA NEIMARK has been a director of the Company since November 1996. From
1983 to 1992, Mr. Neimark served as Chairman and Chief Executive Officer of
Bergdorf Goodman, a retail department store located in New York, New York, and
from 1975 to 1983 served as its President and Chief Executive Officer. Mr.
Neimark has worked in the retail business for over fifty years and has served as
an Adjunct Professor of Retail Marketing at the Columbia School of Business.
DAVID COLBY has been a director of the Company since November 1996. Since
April 1996, Mr. Colby has served as Executive Vice President, Chief Financial
Officer and Treasurer of American Medical Response, Inc., a company engaged in
which is publicly traded on the New York Stock Exchange, Inc. For
approximately eight years prior thereto, Mr. Colby was employed by Columbia/HCA
Healthcare Corporation, a company engaged in the business of hospital
management, most recently as Senior Vice President and Treasurer.
LYNN TILTON has been a director of the Company since November 1996. For
more than the past five years, Ms. Tilton has served as an investment banker
with Amroc Investments, Inc. where she advises mutual and hedge funds on
investment opportunities in corporate debt.
ARNOLD JAFFEE has been a director of the Company since November 1996. From
May 1994 to present, Mr. Jaffee has been a director and shareholder of Adorno &
Zeder, P.A., a law firm in Miami, Florida, where he provides legal advice on
corporate finance, mergers and acquisitions transactions and general corporate
matters. From January 1993 to May 1994, Mr. Jaffee practiced law with Fine,
Jacobson, Schwartz, Nash & Block, P.A. From January 1988 to December 1992, Mr.
Jaffee practiced law with Matzer, Ziskind, Hermelle, Kosnitzky & Jaffee.
The Directors currently serve for one-year terms and until their successors
have been elected and qualified. Each officer serves at the discretion of the
Board of Directors (the "Board").
DIRECTOR COMPENSATION
Outside directors are reimbursed for out-of-pocket expenses incurred in
attending Board meetings. Employee directors are not compensated for services
provided as directors or for out-of-pocket expenses related to attendance at
Board of Director meetings.
The Company's 1996 Directors' Stock Option Plan (the "Directors' Option
Plan") was adopted by the Board and approved by the Company's shareholders in
September 1996. A total of 100,000 shares of Common Stock has been reserved for
issuance under the Directors' Option Plan. The Directors' Option Plan provides
for the automatic grant of nonstatutory stock options to non-employee directors
of the Company. As of March 9, 1997, options to purchase 44,448 shares at an
exercise price of $2.25 per share were outstanding and 55,552 shares remained
available for future grant under the Directors' Option Plan.
The Directors' Option Plan provides that each non-employee director shall
be granted a nontransferable option to purchase on the date such person becomes
a director of the Company (the "First Option") such number of shares of Common
Stock that have a fair market value of $25,000. Beginning on October 1, 1997,
and on each October 1 thereafter, each non-employee director shall be granted an
option to purchase such number of shares of Common Stock that have a fair market
value of $25,000 (a "Subsequent Option") if, on such date, he or she shall have
served on the Company's Board of Directors for at least six months immediately
prior to such date.
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Each First Option and Subsequent Option shall be exercisable in full on the
date of grant. The exercise price of stock options granted under the Directors'
Option Plan shall be set by the Company's Board of Directors, but shall not be
lower than the lesser of (i) fair market value of a share of the Company's
Common Stock on the date of the grant of the option, or (ii) what is then the
last sale price at which the Company sold shares of its Common Stock on or prior
to the date of grant of the option. Options granted under the Directors' Option
Plan have a term of 10 years. In the event of a merger of the Company with or
into another corporation or a sale of substantially all of the Company's assets,
each option would be assumed or an equivalent option substituted by the
successor corporation.
The Directors' Option Plan will terminate in September 2006. The Board of
Directors may amend or terminate the Directors' Option Plan at any time;
provided, however, that no such action may adversely affect any outstanding
option without the optionee's consent and the provisions affecting the grant and
terms of options may not be amended more than once during any six-month period.
In accordance with Rule 16b-3 of the Securities and Exchange Act of 1934,
certain amendments to the Directors' Option Plan require shareholder approval.
Officers of the Company are not eligible to participate in the Directors' Option
Plan.
The Company has no plans to pay cash compensation to any of its directors
for services provided as directors.
1996 STOCK OPTION PLAN
The Company's 1996 Stock Option Plan (the "1996 Plan"), which was adopted
by the Board and approved by the Company's shareholders on April 19, 1996,
provides for the granting to employees of incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), and for the granting to employees and consultants of
non-statutory stock options. A total of 2,000,000 shares of Common Stock has
been reserved for issuance under the 1996 Plan. As of March 9, 1997, options to
purchase 677,000 shares were outstanding and 1,323,000 shares remained available
for future grant under the 1996 Plan.
The 1996 Plan is administered by the Board of Directors or a committee of
the Board (in either case, the "Committee"), which Committee is required to be
constituted to comply with Rule 16b-3 promulgated under the Securities Exchange
Act of 1934, as amended and applicable laws. The Committee has the power to
determine the terms of the options granted, including the exercise price, the
number of shares subject to the option and the exercisability thereof, and the
form of consideration payable upon exercise. Options granted under the 1996 Plan
are not generally transferable by the optionee, and each option is exercisable
during the lifetime of the optionee only by such optionee. Incentive stock
options granted under the 1996 Plan must be exercised within three months of the
end of the optionee's status as an employee or consultant of the Company, or
within twelve months after such optionee's termination by death or disability,
but in no event later than the expiration of the option's term.
The exercise price of all incentive stock options granted under the 1996
Plan must be at least equal to the fair market value of the Common Stock on the
date of grant. With respect to any participant who owns stock possessing more
than 10% of the voting power of all classes of the Company's outstanding capital
stock, the exercise price of any incentive stock option granted must equal at
least 110% of the fair market value of the Common Stock on the grant date, and
the term of the option must not exceed five years. The term of all other
incentive stock options granted under the 1996 Plan may not exceed ten years,
and the term of non-statutory stock options may not exceed twenty years.
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<PAGE> 38
EXECUTIVE COMPENSATION
The Company was incorporated in April, 1996. The following table sets forth
certain information regarding the annual compensation which would have been paid
by the Company with respect to the year ending December 31, 1996, had the
Company employed such persons for the full year, for services in all capacities
of (i) the Company's Chief Executive Officer (the "CEO") and, (ii) the other
executive officers of the Company whose compensation would have been or exceeded
$100,000 in their first full year of employment with the Company (together with
the CEO, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION ----------------------
------------------- SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION SALARY OPTION AWARDS (#)
- --------------------------- ------------------- ----------------------
<S> <C> <C>
Marc D. Fishman, Chairman, CEO and President........ $150,000(1) 200,000
Steve Stedman, Vice President -- Finance and
Controller........................................ $100,000(1) 100,000
Jeff Manly, Vice President -- Merchandising......... $100,000(1) 100,000
</TABLE>
- ---------------
(1) Such figure represents the named individual's annual salary. The named
individual's employment with the Company commenced June 17, 1996.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Fishman,
Stedman and Manly, each dated June 17, 1996. Mr. Fishman's employment agreement
has a three year term, with automatic one year renewals, terminable by Mr.
Fishman in writing upon the end of a term. Mr. Fishman may be terminated by the
Company only for "cause," as defined in his employment agreement. Messrs.
Stedman and Manly's employment agreements each have a one year term, with
automatic one year renewals, terminable by either the Company or, respectively,
Messrs. Stedman or Manly in writing upon the end of a term. Pursuant to their
agreements, each of Messrs. Fishman, Stedman and Manly has agreed not to compete
with the Company for a period of one year following termination of their
respective employment agreement.
OPTION/GRANTS IN LAST FISCAL YEAR
The following table contains information concerning stock option grants to
each of the Named Executive Officers during 1996 pursuant to the Company's 1996
Stock Option Plan.
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
NUMBER
OF % OF TOTAL
SECURITIES OPTIONS GRANTED
UNDERLYING TO EMPLOYEES
OPTIONS THROUGH EXERCISE PRICE EXPIRATION
NAME GRANTED(1) DECEMBER 31, 1996 PER SHARE DATE
- ---- ---------- ------------------ -------------- -------------
<S> <C> <C> <C> <C>
Marc D. Fishman.......................... 100,000(2) 17.3% $.81 June 16, 2016
100,000 17.3% $.73 June 16, 2001
Steve Stedman............................ 100,000 17.3% $.73 June 16, 2006
Jeff Manly............................... 100,000 17.3% $.73 June 16, 2006
</TABLE>
- ---------------
(1) Except as otherwise noted, the options shown in the table are incentive
stock options that vest equally on the first, second and third
anniversaries of the date of grant.
(2) These options are immediately exercisable non-qualified stock options that
were granted on June 17, 1996. These options expire twenty years from the
date of grant.
37
<PAGE> 39
OPTION VALUE TABLE
The following table contains information concerning the value of
unexercised stock options held by each of the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS OPTIONS(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Marc D. Fishman................................ 100,000 100,000 $219,000 $227,000
Steve Stedman.................................. 100,000 -- $227,000
Jeff Manly..................................... 100,000 -- $227,000
</TABLE>
- ---------------
(1) For the purposes of this table, it has been assumed that the value of the
shares of Common Stock issuable upon the exercise of options is $3.00.
INDEMNIFICATION OF DIRECTORS AND OFFICERS AND RELATED MATTERS
Under Florida law, a director is not personally liable for monetary damages
to the corporation or any other person for any statement, vote, decision, or
failure to act unless (i) the director breached or failed to perform his duties
as a director and (ii) a director's breach of, or failure to perform, those
duties constitutes (1) a violation of the criminal law, unless the director had
reasonable cause to believe his conduct was lawful or had no reasonable cause to
believe his conduct was unlawful, (2) a transaction from which the director
derived an improper personal benefit, either directly or indirectly, (3) a
circumstance under which an unlawful distribution is made, (4) in a proceeding
by or in the right of the corporation or in a proceeding in which the
corporation procures a judgment in its favor or by or in the right of a
shareholder, conscious disregard for the best interest of the corporation or
willful misconduct, or (5) in a proceeding by or in the right of someone other
than the corporation or a shareholder, recklessness or an act or omission which
was committed in bad faith or with malicious purpose or in a manner exhibiting
wanton and willful disregard of human rights, safety, or property. A corporation
may purchase and maintain insurance on behalf of any director or officer against
any liability asserted against him and incurred by him in his capacity or
arising out of his status as such, whether or not the corporation would have the
power to indemnify him against such liability under Florida law.
The Company's Bylaws limit, to the maximum extent permitted by Florida law,
the personal liability of directors and officers for monetary damages for breach
of their fiduciary duties as directors and officers. The Bylaws provide further
that the Company shall indemnify to the fullest extent permitted by Florida law
any person made a party to an action or proceeding by reason of the fact that
such person was a director, officer, employee or agent of the Company. The
Bylaws also provide that directors and officers who are entitled to
indemnification shall be paid their expenses incurred in connection with any
action, suit or proceeding in which such director or officer is made a party by
virtue of his being an officer or director of the Company to the maximum extent
permitted by Florida law.
Prior to this offering, the Company will enter into separate
indemnification agreements with its executive officers and directors containing
provisions which are in some respects broader than the specific indemnification
provisions contained in the Company's Bylaws. The indemnification agreements may
require the Company, among other things, to indemnify such directors and
officers against certain liabilities that may arise by reason of their status as
directors and officers (other than liabilities arising from willful misconduct
of a culpable nature), to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified, and to provide
directors' and officers' insurance, if available on reasonable terms. The
Company believes these agreements are necessary to attract and retain qualified
persons as directors and officers.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding which may result in a claim for such indemnification.
38
<PAGE> 40
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
CERTAIN TRANSACTIONS
COMMON STOCK OWNERSHIP
In connection with the organization of the Company and the issuance of
1,900,000 shares of Common Stock in April 1996, the Company issued 1,300,000
shares and 300,000 shares of Common Stock for no cash consideration to Messrs.
Marc Fishman and Kevin Killoran, respectively. Messrs. Fishman and Killoran may
be deemed to be founders of the Company. The balance of 300,000 shares of Common
Stock were issued for no cash consideration to certain other individuals who
contributed to developing the Company's initial business concept.
LEGAL SERVICES
Arnold M. Jaffee, a director of the Company, is a director and shareholder
of Adorno & Zeder, P.A., a law firm which received $159,112 in legal fees from
the Company in connection with professional services provided the Company during
1996.
FUTURE TRANSACTIONS
All future transactions, including loans, between the Company and its
officers, directors, principal stockholders and their affiliates will be
approved by a majority of the Board of Directors, including a majority of
independent and disinterested outside directors on the Board of Directors, and
will be on terms no less favorable to the Company than those that could be
obtained from unaffiliated third parties.
39
<PAGE> 41
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock immediately prior to this offering, and
as adjusted to reflect the sale of Common Stock offered by this Prospectus, (i)
by each person (or group of affiliated persons) who is known by the Company to
own beneficially more than five percent of the Company's Common Stock, (ii) by
each of the Named Executive Officers, (iii) by each of the Company's directors
and nominees for director and (iv) by all directors and executive officers as a
group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING(2)
-------------------- --------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER PERCENT NUMBER PERCENT
--------------------------------------- --------- ------- --------- -------
<S> <C> <C> <C> <C>
Marc D. Fishman(3)(4).............................. 3,479,500 64.2% 3,479,500 43.7%
Robert S. Davimos(5)............................... 390,000 7.2% 390,000 4.9%
Kevin Killoran..................................... 300,000 5.5% 300,000 3.8%
Steve Stedman...................................... 0 * 0 *
Jeff Manly......................................... 0 * 0 *
Arnold Jaffe(6).................................... 61,112 1.1% 61,112 *
Lynn Tilton(7)..................................... 26,112 * 26,112 *
Ira Neimark(8)..................................... 11,112 * 11,112 *
David Colby(9)..................................... 11,112 * 11,112 *
All Directors and Executive Officers as a group (8
persons)(1)(2)(3)................................ 4,278,948 79.0% 4,278,948 53.7%
</TABLE>
- ---------------
* Less than 1%
(1) The address of each person listed below is the address of the Company, 1700
N.W. 65th Avenue, Plantation, Florida 33313.
(2) Except as otherwise noted, does not give effect to the exercise of (a) the
Underwriter's over-allotment option, (b) the Underwriter's Warrants
(including the Warrants therein), (c) the Warrants offered hereby, and (d)
options which may subsequently be granted under the Company's 1996 Stock
Option Plan and the Directors' Plan. See "Management -- Director
Compensation," "-- 1996 Stock Option Plan," "Description of Securities" and
"Underwriting."
(3) Includes 100,000 shares subject to options that are currently exercisable by
Mr. Fishman.
(4) Includes 2,079,500 shares which are not owned by Mr. Fishman, but which are
held in a voting trust of which Mr. Fishman is the trustee, and for which
Mr. Fishman has sole voting power. The beneficiaries under such voting
trust are as follows: Kevin Killoran (300,000 shares), Thomas Vittor
(140,000 shares), Scott Zimmerman (50,000 shares), Allan Fishman (135,000
shares), Robert S. Davimos (397,500 shares), Jeannine Gurian (159,000
shares), Henry Allan (100,000 shares), Philip Gurian (50,000 shares),
Robert Zara (150,000 shares), Bauman Ltd. (230,000 shares), Gary Kelman
(25,000 shares), H&H Partnership (35,000 shares), Lauro Fiero (30,000
shares), Reinerman, Ltd. (125,000 shares), Arnold M. Jaffee (50,000
shares), Yale Fishman (20,000 shares), Leon Katz (20,000 shares), Logan
Davis (20,000 shares), and Richard H. Davimos, Jr. (43,000 shares). See
"Description of Securities -- Voting Trust."
(5) Does not include 183,000 shares of Common Stock owned by members of the
family of Robert S. Davimos. Richard H. Davimos (father of Robert S.
Davimos), Richard H. Davimos, Jr. and John L. Davimos (brothers of Robert
S. Davimos), and Carol Miller (mother of Robert S. Davimos), who have in
the aggregate purchased 183,000 shares of Common Stock. Robert S. Davimos
disclaims beneficial ownership of the shares held by Richard H. Davimos,
Richard H. Davimos, Jr., John L. Davimos, and Carol Miller.
(6) Includes 11,112 shares subject to options that are currently exercisable by
Mr. Jaffe.
(7) Includes 11,112 shares subject to options that are currently exercisable by
Ms. Tilton.
(8) Includes 11,112 shares subject to options that are currently exercisable by
Mr. Neimark.
(9) Includes 11,112 shares subject to options that are currently exercisable by
Mr. Colby.
40
<PAGE> 42
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 25,000,000 shares
of Common Stock, $.01 par value. The Company is not authorized to issue any
preferred stock.
UNITS
Each Unit consists of three shares of Common Stock and one Warrant. Each
Warrant entitles the holder to purchase one share of Common Stock at a purchase
price of $4.00 per share for a period of 60 days commencing one year from the
date of this Prospectus. Neither the shares of Common Stock nor the Warrants
contained in the Units are detachable or separately transferable from the Units
until one year from the date of this Prospectus, at which time the Units will
automatically terminate. The exercise price of the Warrants was determined by
negotiation between the Company and the Managing Underwriter taking into account
the offering price of the Units offered hereby and does not relate to any
recognized criteria of value. In no event should the exercise price be
considered an indication of the future market price of the Common Stock, should
a market develop therefor.
COMMON STOCK
Each outstanding share of Common Stock is entitled to one vote on all
matters submitted to a vote of shareholders. Subject to the restrictions
summarized below, dividends may be paid to the holders of Common Stock when and
if declared by the Board of Directors out of funds legally available for
dividends. See "Dividend Policy."
Holders of Common Stock have no conversion, redemption, cumulative voting,
or preemptive rights. All outstanding shares of Common Stock are fully paid and
nonassessable. In the event of any liquidation, dissolution or winding up of the
affairs of the Company, the holders of Common Stock will be entitled to share
ratably in its assets remaining after provision for payment of creditors.
There were 146 holders of record of Common Stock as of the date of this
Prospectus.
VOTING TRUST
Marc Fishman is the sole Trustee of a Voting Trust (the "Voting Trust")
entered into among Marc Fishman, Kevin Killoran, and the purchasers of shares of
Common Stock in the initial private offering of the Company. As of December 31,
1996, 3,379,500 of 5,420,000 shares of outstanding Common Stock were held in the
Voting Trust. The Voting Trust will remain in effect until June 2006 and applies
to all shares of Common Stock held by the Voting Trust's participants, including
shares acquired after the date of the Voting Trust. As Trustee, Mr. Fishman may
vote the shares held in the Voting Trust as he determines to be in the best
interests of the Company, in his sole discretion. As a result, Marc Fishman will
have the ability to control the outcome of all matters submitted to a vote of
the Company's shareholders. Any participant in the Voting Trust may withdraw any
or all of his or her shares of Common Stock at any time after this offering of
Common Stock pursuant to this Prospectus, if the withdrawn shares are
immediately sold pursuant to a bona fide sale to a party who is not a
participant in the Voting Trust.
WARRANTS
Each Unit consists of three shares of Common Stock and one Warrant. See
"-- Units."
In order for a holder to exercise a Warrant, there must be a current
registration statement on file with the Commission pertaining to the shares of
Common Stock underlying the Warrants, and such shares must be registered or
qualified for sale under the securities laws of the state in which such Warrant
holder resides or such exercise must be exempt from registration in such state.
The Company will be required to file post-effective amendments to the
Registration Statement, of which this Prospectus forms a part, during the 60
days during which the Warrants may be exercised, when events require such
amendments. In addition, the Company has agreed with the Managing Underwriter to
use its best efforts to keep the Registration Statement covering the shares of
Common Stock underlying the Warrants current and effective. The Warrants will
not
41
<PAGE> 43
terminate unless a current and effective registration statement covering the
underlying Common Stock has been in effect for at least 60 days following the
date on which the Warrants may first be exercised. There can be no assurance,
however, that such Registration Statement (or any other Registration Statement
filed by the Company to cover shares of Common Stock underlying the Warrants)
can be kept current. If a Registration Statement covering such shares of Common
Stock is not kept current for any reason, or if the shares underlying the
Warrants are not registered in the state in which a holder resides, the Warrants
will not be exercisable.
Holders of the Warrants will be protected against dilution upon the
occurrence of certain events, including, but not limited to the issuance of any
Common Stock or other securities convertible or exercisable for Common Stock at
a price per share less than the exercise price or the market price of the Common
Stock, or in the event of any stock dividend, stock split, reclassification,
recapitalization, stock combination or similar transaction. However, holders of
the Warrants will have no voting rights and will not be entitled to dividends.
In the event of liquidation, dissolution or winding up of the Company, holders
of Warrants as such will not be entitled to participate in any distribution of
the Company's assets.
ANTI-TAKEOVER PROVISIONS OF FLORIDA LAW
Florida has enacted legislation that may deter or frustrate takeovers of
Florida corporations. The Florida Control Share Act generally provides that
shares acquired in excess of certain specified thresholds, beginning at 20% of
the Company's outstanding voting shares, will not possess any voting rights
unless such voting rights are approved by a majority vote of a corporation's
disinterested shareholders. The Affiliated Transactions Act generally requires
majority approval by disinterested directors or supermajority approval of
disinterested shareholders of certain specified transactions (such as a merger,
consolidation, sale of assets, issuance or transfer of shares or
reclassifications of securities) between a corporation and a holder of more than
10% of the outstanding voting shares of the corporation, or any affiliate of
such shareholder.
The directors of the Company are subject to the "general standards for
directors" provisions set forth in the Florida Business Corporation Act. These
provisions provide that in discharging his or her duties and determining what is
in the best interests of the Company, a director may consider such factors as
the director deems relevant, including the long-term prospects and interests of
the Company and its shareholders and the social, economic, legal or other
effects of any proposed action on the employees, suppliers or customers of the
Company, the community in which the Company operates and the economy in general.
Consequently, in connection with any proposed action, the Board of Directors is
empowered to consider interests of other constituencies in addition to the
Company's shareholders, and directors who take into account these other factors
may make decisions which are less beneficial to some, or a majority, of the
shareholders than if the law did not permit consideration of such other factors.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
The authorized but unissued shares of Common Stock are available for future
issuance without shareholder approval. These additional shares may be utilized
for a variety of corporate purposes, including future public offerings to raise
additional capital, corporate acquisitions and employee benefit plans.
The existence of authorized but unissued and unreserved Common Stock may
enable the Board of Directors to issue shares to persons friendly to current
management which could render more difficult or discourage an attempt to obtain
control of the Company by means of a proxy contest, tender offer, merger, or
otherwise, and thereby protect the continuity of the Company's management.
TRANSFER AGENT AND WARRANT AGENT
The transfer agent and registrar for the Units, the Common Stock and the
Warrants is American Stock Transfer & Trust Company.
42
<PAGE> 44
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Units, Common
Stock or Warrants of the Company. Future sales of substantial amounts of Units
or Common Stock in the public market could adversely affect market prices
prevailing from time to time.
Upon completion of this offering, the Company will have outstanding
7,970,000 shares of Common Stock outstanding and 3,188,000 shares of Common
Stock reserved for issuance which figure includes: (i) 850,000 shares of Common
Stock issuable upon exercise of the Warrants included in the Units; (ii) 721,448
shares of Common Stock issuable upon exercise of stock options (weighted average
exercise price $1.18 per share); (iii) an aggregate of 1,378,552 shares of
Common Stock reserved for issuance upon exercise of options that may be granted
under the Company's 1996 Stock Option Plan and 1996 Director's Stock Option
Plan; and (iv) 238,000 shares of Common Stock underlying the 59,500 Units
(including the Warrants therein) issuable upon exercise of the Underwriter's
Warrants. Of outstanding shares, the 2,550,000 shares comprising the Units sold
in this offering will be freely tradable without restriction under the
Securities Act, unless purchased by "affiliates" of the Company as that term is
defined in Rule 144 under the Securities Act, although such shares may be traded
only as part of the Units through , 1998. Of such 5,420,000
remaining outstanding shares of Common Stock: (i) 1,300,000 shares will become
eligible for sale under Rule 144 promulgated under the Securities Act ("Rule
144") on April 19, 1998; (ii) 600,000 shares will become eligible for sale under
Rule 144 on April 20, 1998; (iii) 1,505,000 shares will become eligible for sale
under Rule 144 on May 15, 1998; (iv) 515,000 shares will become eligible for
sale under Rule 144 on May 17, 1998; and (v) 1,500,000 shares will become
eligible for sale under Rule 144 on August 30, 1998. Rule 144 was recently
amended to reduce the holding period for restricted securities, including such
5,420,000 shares of Common Stock, from two years to one year. Accordingly, as a
result of this amendment, which will become effective on April 27, 1997, such
shares will become eligible for resale under Rule 144 on a date which is exactly
one year earlier than the dates described above.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least two
years (including the holding period of any prior owner except an affiliate) is
entitled to sell in "broker's transactions" or to market makers, within any
three-month period, a number of shares that does not exceed the greater of (i)
1% of the then outstanding shares of Common Stock (approximately
shares immediately after this offering) or (ii) generally, the
average weekly trading volume in the Common Stock during the four calendar weeks
preceding the sale. Sales under Rule 144 are also subject to the filing of a
Form 144 with respect to such sale and certain other limitations and
restrictions. Under Rule 144(k), a person who is not deemed to have been an
affiliate of the Company at any time during the ninety days preceding a sale,
and who has beneficially owned the shares proposed to be sold for at least three
years, would be entitled to sell such shares without having to comply with the
manner of sale, volume limitation or notice filing provisions described above.
All of the Company's officers and directors have agreed not to sell or
otherwise dispose of any of their shares of Common Stock for a period of 18
months from the date of this Prospectus without the prior written consent of the
Managing Underwriter and the Company.
Prior to this offering, there has been no market for the Common Stock and
no prediction can be made as to the effect, if any, that market sales of shares
of Common Stock or the availability of such shares for sale will have on the
market prices prevailing from time to time. Nevertheless, the possibility that
substantial amounts of Common Stock may be sold in the public market may
adversely affect prevailing market prices for the Common Stock and could impair
the Company's ability to raise capital through the sale of its equity
securities. See "Description of Securities," "Management -- Director
Compensation," "-- 1996 Option Plan," and "Underwriting."
43
<PAGE> 45
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell 850,000 Units to the Managing Underwriter, and the
Managing Underwriter has agreed to purchase 850,000 Units from the Company. The
Managing Underwriter is committed to purchase all the Units offered hereby, if
any are so purchased.
The Company has agreed to sell the Units to the Underwriters at a discount
of eight percent of the initial public offering price thereof. The Managing
Underwriter proposes to offer the Units directly to the public initially at the
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession not in excess of $ per Unit.
The Managing Underwriter may allow, and such dealers may re-allow, concessions
not in excess of $ per Unit to certain other dealers. The offering of
the Units is made for delivery when, as and if accepted by the Managing
Underwriter and subject to prior sale and withdrawal, cancellation or
modification of the offer without notice. The Managing Underwriter reserves the
right to reject any order for the purchase of Units. After the public offering
of the Units, the public offering price and the concessions may be changed by
the Managing Underwriter.
Prior to this offering, there has been no public market for the Units, the
Common Stock or the Warrants. Consequently, the initial public offering price
for the Units, and the terms of the Warrants, have been determined by
negotiations between the Company and the Managing Underwriter and are not
necessarily related to the Company's asset value, net worth or other established
criteria of value. Among the factors considered in such negotiations will be the
prospects for the Company's business, the history of and an assessment of the
Company's management, the Company's business plans and development, the
Company's capital structure, and the general condition of the securities market
at the time of this offering. Upon completion of this offering, the Managing
Underwriter intends to make a market in the Units. Furthermore, the Managing
Underwriter intends to make a market in the Common Stock upon termination of the
Units.
The Company has agreed to indemnify the Managing Underwriter against
certain liabilities, including liabilities under the Securities Act, or to
contribute to payments the Managing Underwriter may be required to make in
respect thereof. The Managing Underwriter has agreed to indemnify the Company
against any liabilities by reason of misstatements or omissions to state
material facts in connection with the statements made in this Prospectus based
on information relating to the Underwriters and furnished in writing by the
Underwriters specially for inclusion herein.
The Company has agreed with the Managing Underwriter that the Company will
pay to the Managing Underwriter a warrant solicitation fee (the "Warrant
Solicitation Fee") equal to 5% of the exercise price of the Warrants at such
time as any Warrant is exercised and to the extent not inconsistent with the
guidelines of the NASD and the rules and regulations of the Commission
(including NASD Notice to Members 81-38). Such Warrant Solicitation Fee will be
paid to the Managing Underwriter only if (i) the Managing Underwriter has
provided actual services in connection with the solicitation of the exercise of
a Warrant and (ii) any holder of such Warrant who exercises any such Warrant(s)
affirmatively designates in writing on the exercise form on the reverse side of
the Warrant Certificate that the exercise of such holder's Warrant(s) was
solicited by the Managing Underwriter. Unless granted an exemption by the
Commission from Rule 10b-6, the Managing Underwriter and any soliciting
broker-dealer are prohibited from engaging in any market making activities with
regard to the Company's securities for the period commencing upon either (i)
nine (9) business days prior to the commencement of any solicitation for the
exercise of the Warrants in the event that the market price of the Common Stock
is less than $5.00 per share or the public float of the Common Stock is less
than 400,000 shares; or (ii) two (2) business days prior to the commencement of
any solicitation for the exercise of the Warrants in the event that the price of
the Common Stock is greater than $5.00 per share and the public float of the
Common Stock is greater than 400,000 shares and ending upon the termination of
such Underwriters' or soliciting broker-dealers' participation in such
solicitation, which shall be deemed to be the later of termination of such
solicitation activity or the termination (by waiver or otherwise) of any right
that the Managing Underwriter and/or soliciting broker-dealers may have to
receive a fee for the exercise of such Warrants following such solicitation. As
a result, the Managing Underwriter and soliciting broker-dealers may
44
<PAGE> 46
be unable to continue to provide a market for the Company's securities during
certain periods while the Warrants are exercisable.
The Managing Underwriter has been granted an option by the Company,
exercisable within 45 days after the date of this Prospectus, to purchase up to
an additional 127,500 Units at the initial public offering price of the Units
offered hereby, less underwriting discounts and commissions. Such option may be
exercised only for the purpose of covering overallotments, if any, incurred in
the sale of the Units offered hereby.
All of the Company's directors and officers have agreed not to, directly or
indirectly, sell, transfer, hypothecate or otherwise encumber any of their
shares for eighteen (18) months following the date of this Prospectus without
the prior written consent of the Managing Underwriter and the Company.
In connection with this Offering, the Company has agreed to sell to the
Managing Underwriter, for nominal consideration, the Underwriter's Warrants to
purchase from the Company 59,500 Units. The Underwriter's Warrants are initially
exercisable for Units at a price of $9.63 per Unit for a period of one year,
commencing on the date of this Prospectus. Additionally, to insure the liquidity
of the Common Stock underlying the Units (including the Warrants contained
therein) which are issuable to the Managing Underwriter upon exercise of the
Underwriter's Warrants, the Company has agreed to give the Managing Underwriter
certain "piggyback" registration rights for a period of seven (7) years from the
date of this Prospectus and certain demand registration rights for a period of
five (5) years from the date of this Prospectus for such Common Stock. During
the one year period commencing upon the date of this Prospectus, the
Underwriter's Warrants may not be sold, transferred, assigned, pledged or
hypothecated except to officers of the Managing Underwriter and members of the
selling group and officers and partners thereof. The Underwriter's Warrants also
provide for adjustment in the number of shares of Common Stock underlying the
Units and in the number of shares of Common Stock issuable upon exercise of the
Warrants included therein as a result of certain subdivisions and combinations
of the Common Stock. For the life of the Underwriter's Warrants, the holders
thereof are given, at a nominal cost, the opportunity to profit from a rise in
the market price of the Common Stock with a resulting dilution in the interest
of other shareholders. The Company may find it more difficult to raise capital
for its business if the need should arise while the Underwriter's Warrants are
outstanding. At any time when the holders of the Underwriter's Warrants might be
expected to exercise it, the Company would probably be able to obtain additional
capital on more favorable terms.
The Managing Underwriter has the right to appoint an individual upon the
consummation of the offering to serve on the Board of Directors of the Company
until the next annual meeting of shareholders of the Company. Thereafter, the
Company has agreed to nominate for a vote of shareholders at each annual meeting
of shareholders of the Company one individual designated by the Managing
Underwriter. The Managing Underwriter has not selected its designee as of the
date of this Prospectus.
The foregoing is a summary of the principal terms of the Underwriting
Agreement described above and is a materially complete summary of such principal
terms. Reference is made to a copy of each such agreement which is filed as an
exhibit to the Registration Statement of which this Prospectus forms a part. See
"Additional Information."
45
<PAGE> 47
LEGAL MATTERS
The validity of the Units offered hereby will be passed upon for the
Company by Baker & McKenzie, Miami, Florida. Burr & Forman LLP, Birmingham,
Alabama, has acted as counsel for the Underwriters in connection with certain
legal matters relating to the Units offered hereby.
EXPERTS
The financial statements of 2Connect Express, Inc. as of December 31, 1996
and for the period from April 19, 1996 (date of inception) to December 31, 1996
have been included herein and in the registration statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission in Washington, D.C., a
Registration Statement on Form SB-2 (together with all amendments thereto, the
"Registration Statement"), under the Securities Act with respect to the Units
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement and the exhibits and schedules filed therewith,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. For further information with respect to the
Company and the Units (and the underlying Common Stock and Warrants) offered
hereby, reference is hereby made to the Registration Statement and to the
exhibits and schedules filed therewith. Statements contained in this Prospectus
regarding the contents of any contract or other document referred to are
complete in all material respects. However, in each instance, reference is made
to the copy of such contract or other document filed as an exhibit to the
Registration Statement, and each such statement should be deemed to be qualified
in its entirety by such reference. The Registration Statement, including all
exhibits and schedules thereto, may be inspected without charge at the principal
office of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, or at the regional offices of the Commission at
Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661 and
Seven World Trade Center, New York, New York 10048. Copies of such material may
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, upon the payment of the
prescribed fees. The Commission maintains a site on the World Wide Web
(http://www.sec.gov.) that contains reports, registration statements, proxy and
information statements, and other information.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements and a report thereof by its independent
public accountants and with quarterly reports for the first three quarters of
each fiscal year containing unaudited interim financial information.
46
<PAGE> 48
2CONNECT EXPRESS INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Balance Sheet as of December 31, 1996....................... F-3
Statement of Operations and Deficit Accumulated during the
Development Stage from April 19, 1996(date of inception)
to December 31, 1996...................................... F-4
Statement of Shareholders' Equity from April 19, 1996 (date
of inception) to December 31, 1996........................ F-5
Statement of Cash Flows from April 19, 1996 (date of
inception) to December 31, 1996........................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 49
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors
2 Connect Express, Inc.:
We have audited the accompanying balance sheet of 2 Connect Express, Inc.
(a development stage enterprise) as of December 31, 1996 and the related
statements of operations and deficit accumulated during the development stage,
shareholders' equity and cash flows for the period from April 19, 1996 (date of
inception) to December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of 2 Connect Express, Inc. as
of December 31, 1996 and the results of its operations and its cash flows for
the period from April 19, 1996 (date of inception) to December 31, 1996 in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
February 20, 1997
Miami, Florida
F-2
<PAGE> 50
2 CONNECT EXPRESS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash...................................................... $1,939,985
Accounts receivable....................................... 34,909
Inventories............................................... 196,998
Prepaid expenses and other current assets................. 68,121
----------
Total current assets.............................. 2,240,013
Property and equipment, net................................. 401,170
Deferred financing costs.................................... 220,065
Other assets................................................ 13,616
----------
Total assets...................................... $2,874,864
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 586,969
Accrued expenses.......................................... 33,320
----------
Total liabilities................................. 620,289
Shareholders' equity:
Common stock, $0.01 par value. Authorized 25,000,000
shares; issued and outstanding 5,420,000 shares........ 54,200
Paid-in capital........................................... 3,257,320
Deficit accumulated during the development stage.......... (1,056,945)
----------
Total shareholders' equity........................ 2,254,575
----------
Commitments
Total liabilities and shareholders' equity........ $2,874,864
==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 51
2 CONNECT EXPRESS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS AND DEFICIT ACCUMULATED
DURING THE DEVELOPMENT STAGE
PERIOD FROM APRIL 19, 1996 (DATE OF INCEPTION) TO DECEMBER 31, 1996
<TABLE>
<S> <C>
Net sales................................................... $ 88,203
Cost of sales............................................... 61,047
-----------
Gross profit...................................... 27,156
General and administrative expenses:
Salaries.................................................. 408,406
Professional services..................................... 190,891
Sales and marketing....................................... 243,103
Other..................................................... 286,397
-----------
Operating loss.................................... (1,101,641)
Interest income............................................. 44,696
-----------
Net loss and deficit accumulated during the
development stage................................ $(1,056,945)
===========
Net loss per share.......................................... $ (0.18)
===========
Number of shares used in calculating net loss per share..... 5,843,712
===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 52
2 CONNECT EXPRESS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF SHAREHOLDERS' EQUITY
PERIOD FROM APRIL 19, 1996 (DATE OF INCEPTION) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
DEFICIT
COMMON STOCK ACCUMULATED
------------------- DURING THE
NUMBER OF PAR PAID-IN DEVELOPMENT
SHARES VALUE CAPITAL STAGE TOTAL
--------- ------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance, at inception............... -- $ -- $ -- $ -- $ --
Issuance of common stock on April 19
& 20, 1996 (founders shares at
nominal consideration)............ 1,900,000 19,000 (19,000) -- --
Issuance of common stock on May 15,
1996 ($0.02 per share)............ 1,505,000 15,050 15,050 -- 30,100
Issuance of common stock on May 17,
1996 ($0.69 per share)............ 515,000 5,150 351,800 -- 356,950
Issuance of common stock on August
30, 1996 ($2.25 per share and net
of $525,093 of issuance costs).... 1,500,000 15,000 2,834,907 -- 2,849,907
Grant of stock options to service
providers......................... -- -- 74,563 -- 74,563
Net loss............................ -- -- -- (1,056,945) (1,056,945)
--------- ------- ---------- ----------- -----------
Balance, at December 31, 1996....... 5,420,000 $54,200 $3,257,320 $(1,056,945) $ 2,254,575
========= ======= ========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 53
2 CONNECT EXPRESS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
PERIOD FROM APRIL 19, 1996 (DATE OF INCEPTION) TO DECEMBER 31, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss.................................................. $(1,056,945)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization expense.................. 8,155
Stock compensation expense............................. 74,563
Changes in assets and liabilities:
Accounts receivable.................................. (34,909)
Prepaid expenses and other assets.................... (81,737)
Inventories.......................................... (196,998)
Accounts payable..................................... 586,969
-----------
Accrued expenses..................................... 33,320
-----------
Net cash used in operating activities............. (667,582)
Cash flows from investing activities:
Purchase of property and equipment........................ (409,325)
-----------
Net cash used in investing activities............. (409,325)
-----------
Cash flows from financing activities:
Net proceeds from issuance of common stock................ 3,236,957
Deferred financing costs.................................. (220,065)
-----------
Net cash provided by financing activities......... 3,016,892
Net increase in cash.............................. 1,939,985
-----------
Cash, beginning of period................................... --
-----------
Cash, end of period......................................... $ 1,939,985
===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 54
2 CONNECT EXPRESS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION, BUSINESS AND RISK FACTORS
(a) Organization and Business
2 Connect Express, Inc., (the "Company"), was incorporated in April 1996.
The Company intends to become a specialty retailer of Internet, cellular,
paging, telephone, satellite and other communication-related products and
services under the name "2Connect." Since inception, the Company has developed a
business plan for the Company's operations and proposed expansion in South
Florida; hired the executive and support personnel necessary to support the
Company's proposed expansion in South Florida for the next six months; hired its
first market developer and store manager; developed a standard 2Connect store
design for its shopping mall and power center stores; engaged a site selection
and construction oversight contractor to aid the Company in selecting and
securing store sites and to oversee store construction; identified and signed
leases for three 2Connect store site locations; identified and commenced
negotiations for six additional 2Connect store site locations in South Florida;
identified and commenced negotiations with its proposed service providers and
product vendors; developed a marketing strategy; and raised an aggregate of
$3,236,957 in net proceeds through private offerings. The Company opened its
first 2Connect store in Coral Springs, Florida in December 1996.
(b) Development Stage Company and Risk Factors
The Company is considered to be a development stage company as defined in
Statement of Financial Accounting Standards No. 7, "Accounting and Reporting by
Development Stage Enterprises." The Company, as a development stage enterprise,
has commenced planned principal operations, but has not generated significant
revenue therefrom and there is no assurance of future revenues. The Company is
subject to a number of risks that may affect its ability to become an operating
enterprise or impact its ability to remain in existence, including risks
relating to the Company's recent organization, the need for additional capital
and/or financing to implement its business plan, the need to negotiate contracts
and establish and maintain successful relationships with service providers,
reliance on key personnel, the risk of technological obsolescence, the
uncertainty of market acceptance of the Company's business concept and
competition.
The Company currently plans to raise additional capital through an initial
public offering of its common stock. If the proposed initial public offering is
not consummated, the Company plans to seek alternative forms of capital or
financing. In the event the Company is unable to obtain the desired capital or
financing, management will modify the Company's business plan to delay or
eliminate additional store openings and implement measures to significantly
reduce operating and capital expenditures planned in 1997. Such actions, if
necessary, will enable the Company to remain liquid for the remainder of 1997.
(2) SIGNIFICANT ACCOUNTING POLICIES
(a) Inventory
Inventory is stated at the lower of cost or market. Cost is determined
using the first-in, first-out method. The company's inventories consist
primarily of high-technology equipment, which is subject to rapid technological
obsolescence or reduction in value as a result of new products developed by
competitors or normal competitive pressures. The Company periodically estimates
an allowance for obsolete inventory based on current market conditions. Changes
in the marketplace for high-technology equipment may significantly effect
management's estimates.
(b) Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is calculated on a straight-line basis over the estimated useful lives
of the assets. Leasehold improvements are amortized on a straight-line basis
over their useful lives or the term of the related lease, whichever is less.
F-7
<PAGE> 55
2 CONNECT EXPRESS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Maintenance and repairs are charged to operations when incurred.
Substantial expenditures for improvements that increase the capacity or extend
the useful lives of the assets are capitalized.
(c) Impairment of Long-Lived Assets And Long-Lived Assets To Be Disposed Of
The Company reviews its long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Impairment of
assets to be held and used is determined by a comparison of the carrying amount
of an asset to future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
(d) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(e) Net Loss Per Share
Net loss per share is based on the weighted average number of shares of
common stock and common stock equivalents outstanding during the period. In
accordance with a Securities and Exchange Commission Staff Accounting bulletin,
common stock and common stock equivalents issued within a twelve-month period
prior to the initial filing of a registration statement relating to an initial
public offering are treated as outstanding for the entire period (using the
treasury stock method and the estimated public-offering price of $3 per share).
(f) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
F-8
<PAGE> 56
2 CONNECT EXPRESS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) PROPERTY AND EQUIPMENT, NET
Property and equipment, net at December 31, 1996 consists of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
-----------
<S> <C> <C>
Store equipment............................................. $125,957 5 years
Machinery and equipment..................................... 90,700 3-5 years
Furniture and fixtures...................................... 23,116 7 years
Leasehold improvements...................................... 169,552 Lease term
--------
409,325
Less accumulated depreciation and amortization.............. (8,155)
--------
Property and equipment, net....................... $401,170
========
</TABLE>
(4) INCOME TAXES
The income tax benefit for the period from April 19, 1996 (date of
inception) to December 31, 1996 differed from the amount computed by applying
the United States federal income tax rate of 34 percent to the pretax loss as a
result of the following:
<TABLE>
<S> <C>
Computed "expected" tax benefit............................. $359,361
Increase (reduction) in income taxes resulting from:
State income taxes, net of federal income tax benefit..... 38,366
Increase in the valuation allowance for deferred tax
assets................................................. (395,420)
Other..................................................... (2,307)
--------
$ --
========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at December 31, 1996 are presented below:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss........................................ $170,435
Start-up and organizational costs......................... 223,750
Depreciation.............................................. 1,235
Less: valuation allowance................................. (395,420)
--------
Total net deferred tax asset...................... $ --
========
</TABLE>
Realization of deferred tax assets associated with net operating loss
carryforwards is dependent upon generating sufficient taxable income prior to
their expiration. Management believes that there is a risk that these net
operating loss carryforwards may expire unused and, accordingly has established
a valuation allowance for the deferred tax asset.
At December 31, 1996, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $453,000, which are available to
offset future federal taxable income through 2011.
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of financial instruments (such as accounts receivable,
accounts payable and accrued expenses) approximated fair value at December 31,
1996 because of the short maturity of these items.
F-9
<PAGE> 57
2 CONNECT EXPRESS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(6) SHAREHOLDERS' EQUITY
(a) Stock Options
The Company has two fixed stock option plans. Under the Company's 1996
Stock Option Plan, the Company may grant options for up to 2 million shares of
common stock. Under the Directors Stock Option Plan, the Company may grant
options to nonemployee members of the Company's board of directors for up to
100,000 shares of common stock, and any options granted fully vest upon grant.
Under the 1996 Stock Option Plan, the exercise price of each option must equal
or exceed the fair market price of the Company's common stock on the date of
grant, and an option's maximum term is 20 years. Under the Directors Stock
Option Plan, the exercise price of each option must not be lower than the lesser
of (i) the fair market price of the Company's common stock on the date of grant
of the option or (ii) what is at the date of grant, the last sale price at which
the Company sold shares of its common stock, and an option's maximum term is 10
years. All options granted during the period from April 19, 1996 (date of
inception) to December 31, 1996 were granted under the 1996 Stock Option Plan
and vest equally over the first, second and third anniversaries of the date of
grant, other than options which were granted to an executive officer of the
Company to purchase 100,000 shares of common stock, and options which were
granted to certain service providers to purchase 98,000 shares of common stock,
which are immediately exercisable.
A summary of the status of the Company's 1996 Stock Option Plan as of
December 31, 1996 and changes for the period from April 19, 1996 (date of
inception) to December 31, 1996 is presented below:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------- ----------------
<S> <C> <C>
Outstanding at inception.................................... -- $ --
Granted..................................................... 675,000 1.10
------- ------
Outstanding at December 31, 1996............................ 675,000 1.10
======= ======
Options exercisable at December 31, 1996.................... 198,000 $1.24
======= ======
</TABLE>
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock options granted to employees. The exercise price of all
stock options granted to employees during the period from April 19, 1996 (date
of inception) to December 31, 1996 equaled or exceeded the fair market value of
the underlying common stock on the date of grant. Accordingly, no compensation
expense has been recognized in connection with stock options granted to
employees. Had compensation cost for the Company's stock options granted to
employees been determined consistent with Financial Accounting Standards Board
Statement No. 123, the Company's net loss for the period from April 19, 1996
(date of inception) to December 31, 1996, would have been increased by
approximately $23,000 and net loss per share would have been unchanged. The
weighted average fair value per share of options granted to employees during the
period from April 19, 1996 (date of inception) to December 31, 1996 is $0.34.
The fair value of each option grant is estimated on the date of grant using the
minimum-value method with the following assumptions used for grants in 1996:
expected dividends of zero; a risk-free interest rate of 6.92 percent; and an
expected life of 5 years.
The Company accounts for stock options granted to service providers based
on the fair value of the stock options granted. During the period from April 19,
1996 (date of inception) to December 31, 1996 the Company recorded $74,563 of
stock compensation expense related to 98,000 stock options granted to service
providers. The fair value of such stock options was estimated on the date of
grant using the minimum-value method.
F-10
<PAGE> 58
2 CONNECT EXPRESS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(b) Voting Trust
The Company's chief executive officer is the trustee of a voting trust
entered into among himself (1,300,000 shares), the Company's director of
marketing and store development (300,000 shares) and certain other shareholders
of the Company (1,779,500 shares). The voting trust has a term of 10 years
expiring June 2006 and applies to all shares of common stock of the voting
trust's participants, including shares acquired after entry into the voting
trust. Any participant in the voting trust may withdraw any or all of his or her
shares of common stock at any time after the Company's initial public offering,
if the withdrawn shares are immediately sold pursuant to a bona fide sale to a
party who is not a participant in the voting trust. As a result, the Company's
chief executive officer has voting control of the Company for all matters in
which shareholders vote. The Company's chief executive officer is expected to
continue to have voting control even after the completion of the Company's
initial public offering.
(7) RELATED PARTY TRANSACTIONS
A director of the Company is a shareholder of a law firm that received
$159,112 in legal fees from the Company during the period from April 19, 1996
(date of inception) to December 31, 1996. At December 31, 1996 the Company owed
such law firm $92,181.
(8) COMMITMENTS
(a) Leases
The Company is obligated under noncancelable operating leases for office
space and a store site location that expire at various dates through 2006. Rent
expense for the period from April 19, 1996 (date of inception) to December 31,
1996 was $15,303.
Minimum future rental payments under noncancelable operating leases as of
December 31, 1996 consist of the following:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<C> <S> <C>
1997............................................................. $ 99,107
1998............................................................. 103,030
1999............................................................. 103,508
2000............................................................. 106,924
2001............................................................. 92,241
Thereafter........................................................ 296,896
--------
$801,706
========
</TABLE>
In addition to the minimum future rental payments due under the store
lease, the Company is required to pay an annual amount equal to 6% of the
store's annual adjusted gross revenue (as defined in the lease agreement) in
excess of approximately $1,500,000.
F-11
<PAGE> 59
2 CONNECT EXPRESS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(b) Employment Agreements
The Company has entered into employment agreements with several of its
officers and employees including the president. Under the terms of these
agreements, the Company is obligated to pay base salaries over the next three
years as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<C> <S> <C>
1997............................................................. 401,130
1998............................................................. 150,000
1999............................................................. 68,750
</TABLE>
(9) SUBSEQUENT EVENTS
During January 1997, the Company entered into two noncancelable operating
leases for store site locations that expire in 2002.
Minimum future rental payments under these noncancellable operating leases
consist of the following:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1997..................................................... $ 75,699
1998..................................................... 100,932
1999..................................................... 101,949
2000..................................................... 105,924
2001..................................................... 108,144
2002..................................................... 27,120
--------
$519,768
========
</TABLE>
F-12
<PAGE> 60
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING THE OFFER IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 15
Dividend Policy....................... 15
Capitalization........................ 16
Dilution.............................. 17
Selected Financial Information........ 18
Management's Plan of Operation........ 19
Proposed Business..................... 22
Management............................ 34
Executive Compensation................ 37
Certain Transactions.................. 39
Principal Shareholders................ 40
Description of Securities............. 41
Shares Eligible for Future Sale....... 43
Underwriting.......................... 44
Legal Matters......................... 46
Experts............................... 46
Additional Information................ 46
Index to Financial Statements......... F-1
</TABLE>
---------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
[2CONNECT LOGO]
850,000 UNITS
-------------------------
PROSPECTUS
-------------------------
STERNE, AGEE & LEACH, INC.
, 1997
======================================================
<PAGE> 61
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Bylaws limit, to the maximum extent permitted by Florida
law, the personal liability of directors and officers for monetary damages for
breach of their fiduciary duties as directors or officers. The Bylaws provide
further that the Company shall indemnify to the fullest extent permitted by
Florida law any person made a party to an action or proceeding by reason of the
fact that such person was director, officer, employee or agent of the Company.
The Bylaws also provide that directors and officers who are entitled to
indemnification shall be paid their expenses incurred in connection with any
action, suit, or proceeding in which such director or officer is made a party by
virtue of his or her being an officer or director of the Company to the maximum
extent permitted by Florida law.
Prior to the offering, the Company expects to enter into separate
indemnification agreements with its officers and directors containing provisions
which are in some respect broader than the specific indemnification provisions
contained in the Company's Bylaws. The indemnification agreements may require
the Company, among other things, to indemnify such directors and officers
against certain liabilities that may arise by reason of their status as
directors and officers (other than liabilities arising from willful misconduct
of a culpable nature), to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified, and to obtain
directors' and officers' insurance, if available on reasonable terms. The
Company believes that these agreements are necessary to attract and retain
qualified persons as directors and officers.
Reference is made to the following documents filed as Exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
DOCUMENT EXHIBIT NUMBER
- -------- --------------
<S> <C>
Underwriting Agreement...................................... 1.1
Registrant's Articles of Incorporation...................... 3.1
Registrant's Bylaws......................................... 3.2
</TABLE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions and the Representatives' nonaccountable
expense allowance, payable in connection with the sale of the Common Stock being
registered hereby. All amounts are estimates, except the registration fee and
the NASD filing fee.
<TABLE>
<CAPTION>
ITEM AMOUNT
- ---- --------
<S> <C>
SEC registration fee........................................ $ 7,871
NASD filing fee............................................. 2,735
Nasdaq listing fee.......................................... 7,000
Blue Sky fees and expenses.................................. 60,000*
Printing and engraving expenses............................. 55,000*
Road show expenses.......................................... 15,000*
Legal fees and expenses..................................... 220,000
Auditors' fees and expenses................................. 50,000
Transfer Agent and Registrar fees........................... 3,500*
Miscellaneous expenses...................................... 16,894
--------
Total..................................................... $438,000
========
</TABLE>
- ---------------
* Estimated
II-1
<PAGE> 62
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following is a summary of the transactions by Registrant since the
Registrant's incorporation on April 19, 1996, involving sales of Registrant's
securities that were not registered under the Securities Act of 1933, as amended
(the "Securities Act"):
On April 19 and 20, 1996, the founding shareholders of the Company (Marc
Fishman, Kevin Killoran, Allan Fishman, Thomas Vittor, Richard Gurian, Tim
Flavin, Charles Northington, Richard Thal, David Lansburgh, Scott Zimmerman,
David Kusiel, Lowell Williams, John Semyan, and James Holbrook) received
1,900,000 shares of Common Stock for no consideration. The issuances of these
1,900,000 shares were deemed exempt from registration under the Securities Act
in reliance on Section 4(2) of such Act. In addition, the recipients of the
1,900,000 shares of founders' Common Stock represented their intentions to
acquire the securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were affixed to
the share certificates.
On May 15, 1996, the Company closed a $30,100 offering of 1,505,000 shares
of Common Stock at $.02 per share. The purchasers of the Common Stock at $.02
per share (Allan Fishman, Thomas Vittor, Scott Zimmerman, Robert S. Davimos,
Jeannine Gurian, Henry Allen, Philip Gurian, Robert Zara, Bauman Ltd., Gary
Kelman, H&H Partnership, Laura Fiero, Reinerman Ltd., Arnold Jaffee, Yale
Fishman, Leon Katz, Logan Davis, Nathan Nacklas, Richard H. Davimos, Jr., and
Osmond Howe) would have forfeited their shares if they failed to purchase shares
of Common Stock in subsequent offerings so that the Company would have received
$350,000 in capital contributions by the consummation of the first follow-up
offering of Common Stock, and $2,500,000 in capital contributions by the
consummation of the second follow-up offering of Common Stock.
On May 17, 1996, the Company closed a $356,950 offering of 515,000 shares
of Common Stock at $.69 per share (purchasers: Richard Gurian, Robert S.
Davimos, Jeannine Gurian, H&H Partnership, Richard H. Davimos, Richard H.
Davimos, Jr., John L. Davimos, Melissa Warman, Carol Miller, Mario Arace, Lynn
Tilton, Osmond Howe, Frank Hernandez, Wayne Sewell, Michael Clair, Elliot
Starman, J. Barrie Farrington, Timothy Gula, and Don Brennan). The issuance of
the 1,505,000 shares of Common Stock at $.02 per share and the 515,000 shares of
Common Stock at $.69 per share were deemed exempt from registration under the
Securities Act in reliance on Rule 506 promulgated under the Securities Act.
All recipients had adequate access to information about the Registrant. The
Registrant believes that all of the purchasers of the Common Stock in this
offerings at $.02 per share and $.69 per share were accredited investors as
defined in Rule 501 promulgated under the Securities Act.
On August 30, 1996, the Company closed a $3,375,000 offering of 1,500,000
shares of Common Stock at $2.25 per share. Sovereign Equity Management
Corporation, the Managing Underwriters in this offering, served as the Placement
Agent in the 1,500,000 share offering, for which it received a fee in the form
of a Placement Agent's discount of $337,500 (10% of the gross proceeds of this
offering) and a non-accountable expense allowance of $101,250 (3% of the gross
proceeds of this offering). The Company believes that the issuance of the
1,500,000 shares of Common Stock at $2.25 per share was deemed exempt from the
registration requirements of the Securities Act in reliance on Rule 506
promulgated under the Securities Act. All recipients of the Common Stock in this
offering at $2.25 per share were "accredited investors" within the meaning of
Rule 501 promulgated under the Securities Act and had adequate access to the
information about the Registrant, and the recipients represented their
intentions to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution. Appropriate legends were
affixed to the share certificates. The Registrant believes that all of the
purchasers of the Common Stock in the $2.25 per share offering were accredited
investors as defined in Rule 501 promulgated under the Securities Act.
II-2
<PAGE> 63
ITEM 27. EXHIBITS
(a) Exhibits
<TABLE>
<S> <C> <S>
1.1 -- Form of Underwriting Agreement**
3.1 -- Articles of Incorporation of Registrant, as amended to date*
3.2 -- Bylaws of Registrant*
4.1 -- Specimen Stock Certificate of Registrant**
4.2 -- Specimen Unit Certificate of Registrant**
4.3 -- Form of Warrant Agreement**
4.4 -- Form of Representative's Warrant Agreement**
5.1 -- Opinion of Baker & McKenzie***
9.1 -- Voting Trust Agreement with Marc D. Fishman**
10.1 -- 1996 Stock Option Plan*
10.2 -- Directors' Option Plan*
10.3 -- Employment Agreement with Marc D. Fishman*
10.4 -- Employment Agreement with Steve Stedman*
10.5 -- Employment Agreement with Michael Wichelns*
10.6 -- Employment Agreement with Jeff Manly*
10.7 -- Form of Indemnification Agreement between Registrant and
Marc D. Fishman***
10.8 -- Form of Indemnification Agreement between Registrant and
Steven Stedman***
10.9 -- Form of Indemnification Agreement between Registrant and
Jeff Manly***
10.10 -- Form of Indemnification Agreement between Registrant and
Kevin Killoran***
10.11 -- Form of Indemnification Agreement between Registrant and Ira
Neimark***
10.12 -- Form of Indemnification Agreement between Registrant and
David Colby***
10.13 -- Form of Indemnification Agreement between Registrant and
Lynn Tilton***
10.14 -- Form of Indemnification Agreement between Registrant and
Arnold Jaffee***
10.15 -- Form of Lock-up Agreement**
23.1 -- Consent of KPMG Peat Marwick LLP**
23.2 -- Consent of Baker & McKenzie (included as part of Exhibit
5.1)***
24.1 -- Powers of Attorney (included on signature page)**
27 -- Financial Data Schedule (for SEC use only)**
</TABLE>
- ---------------
* Previously filed.
** Filed herewith.
*** To be filed by amendment.
(b) Financial Statement Schedules: None
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a) (3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
registration statement;
(iii) To include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act, to treat each
post-effective amendment as a new registration statement of the securities
offered, and this offering of the securities at that time to be the initial
bona fide offering.
II-3
<PAGE> 64
(3) To remove from the registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of this offering.
(4) To provide to the underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to
each purchaser.
(5) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officer or controlling
persons of the registrant, pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered hereunder, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication of such
issue.
(6) For determining any liability under the Securities Act, to treat
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the issuer under Rule 424(b) (1), or (4), or 497(h)
under the Securities Act as part of this registration statement as of the
time the Commission declared it effective.
(7) For determining any liability under the Securities Act, to treat
each post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
II-4
<PAGE> 65
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorizes this Amendment No. 1
to the Registration Statement to be signed on its behalf by the undersigned, in
the City of Plantation, State of Florida on March 18, 1997.
2CONNECT EXPRESS, INC.
By: /s/ MARC D. FISHMAN
------------------------------------
Marc D. Fishman
President, Chief Executive Officer
and Chairman of the Board
POWER OF ATTORNEY
Each person whose signature appears below hereby authorizes Marc D. Fishman
as his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and any Registration Statement filed
pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<C> <S> <C>
/s/ MARC D. FISHMAN President, Chief Executive March 18, 1997
- ----------------------------------------------------- Officer and Chairman of the
Marc D. Fishman Board of Directors
(Principal Executive
Officer)
/s/ STEVE STEDMAN Vice President, Finance and March 18, 1997
- ----------------------------------------------------- Chief Financial Officer
Steve Stedman (Principal Financial and
Accounting Officer)
Director
- -----------------------------------------------------
Ira Neimark
/s/ DAVID COLBY Director March 18, 1997
- -----------------------------------------------------
David Colby
/s/ LYNN TILTON Director March 18, 1997
- -----------------------------------------------------
Lynn Tilton
/s/ ARNOLD JAFFEE Director March 18, 1997
- -----------------------------------------------------
Arnold Jaffee
</TABLE>
II-5
<PAGE> 66
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGES
- ------- ------- ------------
<C> <C> <S> <C>
1.1 -- Form of Underwriting Agreement
4.1 -- Specimen Stock Certificate of Registrant
4.2 -- Specimen Unit Certificate of Registrant
4.3 -- Form of Warrant Agreement
4.4 -- Form of Representative's Warrant Agreement
9.1 -- Voting Trust Agreement with Marc D. Fishman
10.15 -- Form of Lock-up Agreement
23.1 -- Consent of KPMG Peat Marwick LLP
24.1 -- Powers of Attorney (included on signature page)
27 -- Financial Data Schedule (for SEC use only)
</TABLE>
II-6
<PAGE> 1
Exhibit 1.1
850,000 UNITS(1)
2CONNECT EXPRESS, INC.
UNDERWRITING AGREEMENT
March __, 1997
Sterne, Agee & Leach, Inc.
As Representative of the several Underwriters
named in Schedule I attached hereto
1901 Sixth Avenue North, Suite 2100
Birmingham, Alabama 35203-2675
Gentlemen:
The undersigned, 2Connect Express, Inc., a Florida corporation (the
"Company"), hereby confirms its agreement with Sterne, Agee & Leach, Inc.
(individually, "Sterne Agee"), as representative (the "Representative") of the
several underwriters named in Schedule I hereto (the "Underwriters"), as
follows:
1. INTRODUCTION.
(a) The Company proposes to issue and sell to the Underwriters
850,000 Units ("Units"), each Unit of which shall consist of three shares of the
Company's authorized and unissued common stock, par value $.01 per share (the
"Common Stock"), and one Common Stock Purchase Warrant (the "Warrant") as set
forth in Schedule 1 hereto and pursuant to the Underwriters' agreement to
purchase the Units in Section 3(a) hereof. The Units to be purchased pursuant to
Section 3(a) of this Agreement may be hereinafter referred to as the "Firm
Units". Each Warrant is exercisable pursuant to the warrant agreement in
substantially the form attached hereto as Exhibit A ("Warrant Agreement") to
purchase one share of Common Stock at $4.00 per share at any time during a
period of 60 days commencing April __, 1998 (one year from the date of the
Company's final prospectus) after which time the Warrants will expire and no
longer be of any force and effect.
- --------
(1) Plus an option to purchase up to 127,500 additional units from the
Company to cover over-allotments.
<PAGE> 2
Neither the shares of Common Stock nor the Warrants are detachable or separately
transferable from the Units until April __, 1998 (one year from the date of the
Company's final prospectus).
(b) Solely for the purpose of covering over-allotments, if
any, the Company proposes to grant to the Underwriters a one-time option (the
"Over-allotment Option") to purchase from the Company in the aggregate, up to an
additional 127,500 Units pursuant to the terms and conditions of Section 3(b)
herein. Such Units are hereinafter referred to as the "Option Units."
(c) The Company proposes to sell to Sterne Agee, individually
and not as Representative, 59,500 warrants (the "Representative's Warrants") to
purchase up to an aggregate of 59,500 Units ("Warrant Units") for an aggregate
purchase price of $5.95. The Representative's Warrants shall be substantially in
the form attached hereto as Exhibit B and as filed as an exhibit to the
Registration Statement (as hereinafter defined). The Representative's Warrants
and the Warrant Units are hereinafter referred to collectively as the
"Representative's Securities."
(d) The Company agrees to appoint one individual designated by
Sterne Agee at the Closing Date to serve on the Board of Directors of the
Company until the next annual meeting of the shareholders of the Company. The
Company further agrees to nominate for a vote of the shareholders at each annual
meeting of the shareholders of the Company one individual designated by Sterne
Agee; provided that, Sterne Agee designate such individual no later than 30 days
prior to the proposed distribution by the Company of a proxy statement for the
solicitation of proxies in connection with such annual meeting of the
shareholders of the Company. The Company further agrees to use its best efforts
to solicit the necessary votes of the shareholders in favor of the election of
such designee to the Board of Directors of the Company if the Company uses the
services of a proxy solicitation firm in connection with such annual meeting.
2. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants
to, and agrees with, the several Underwriters that:
(a) A registration statement on Form SB-2 (File No. 333-15567)
with respect to the Units, including a prospectus subject to completion, has
been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the applicable rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Act and has been filed with the
Commission; such amendments to such registration statement, such amended
prospectuses subject to completion and such abbreviated registration statements
2
<PAGE> 3
pursuant to Rule 462(b) of the Rules and Regulations as may have been required
prior to the date hereof have been similarly prepared and filed with the
Commission; and the Company will file such additional amendments to such
registration statement, such amended prospectuses subject to completion and such
abbreviated registration statements as may hereafter be required. Copies of such
registration statement and amendments, of each related prospectus subject to
completion (the "Preliminary Prospectuses") and of any abbreviated registration
statement pursuant to Rule 462(b) of the Rules and Regulations have been
delivered to Sterne Agee.
If the registration statement relating to the Units has been declared
effective under the Act by the Commission, the Company will prepare and promptly
file with the Commission the information omitted from the registration statement
pursuant to Rule 430A(a) or, if Sterne Agee, on behalf of the Underwriters,
shall agree to the utilization of Rule 434 of the Rules and Regulations, the
information required to be included in any term sheet filed pursuant to Rule
434(b) or (c), as applicable, of the Rules and Regulations pursuant to
subparagraph (1), (4) or (7) of Rule 424(b) of the Rules and Regulations or as
part of a post-effective amendment to the registration statement (including a
final from of prospectus). If the registration statement relating to the Units
has not been declared effective under the Act by the Commission, the Company
will prepare and promptly file an amendment to the registration statement,
including a final form of prospectus, or, if Sterne Agee on behalf of the
Underwriters, shall agree to the utilization of Rule 434 of the Rules and
Regulations, the information required to be included in any term sheet filed
pursuant to Rule 434(b) or (c), as applicable, of the Rules and Regulations. The
term "Registration Statement" as used in this Agreement shall mean such
registration statement, including financial statements, schedules and exhibits,
in the form in which it became or becomes, as the case may be, effective
(including, if the Company omitted information from the registration statement
pursuant to Rule 430A(a) or files a term sheet pursuant to Rule 434 of the Rules
and Regulations, the information deemed to be a part of the registration
statement at the time it became effective pursuant to Rule 430A(b) or Rule
434(d) of the Rules and Regulations) and, in the event of any amendment thereto
or the filing of any abbreviated registration statement pursuant to Rule 462(b)
of the Rules and Regulations relating thereto after the effective date of such
registration statement, shall also mean (from and after the effectiveness of
such amendment or the filing of such abbreviated registration statement) such
registration statement as so amended, together with any such abbreviated
registration statement. The term "Prospectus" as used in this Agreement shall
mean the prospectus relating to the Units as included in such Registration
Statement at the time it becomes effective
3
<PAGE> 4
(including, if the Company omitted information from the Registration Statement
pursuant to Rule 430A(a) of the Rules and Regulations, the information deemed to
be a part of the Registration Statement at the time it became effective pursuant
to Rule 430A(b) of the Rules and Regulations); PROVIDED, HOWEVER, that if in
reliance on Rule 434 of the Rules and Regulations and with the consent of Sterne
Agee, on behalf of the several Underwriters, the Company shall have provided to
the Underwriters a term sheet pursuant to Rule 434(b) or (c), as applicable,
prior to the time that a confirmation is sent or given for purposes of Section
2(10)(a) of the Act, the term "Prospectus" shall mean the "prospectus subject to
completion" (as defined in Rule 434(g) of the Rules and Regulations) last
provided to the Underwriters by the Company and circulated by the Underwriters
to all prospective purchasers of the Units (including the information deemed to
be a part of the Registration Statement at the time it became effective pursuant
to Rule 434(d) of the Rules and Regulations). Notwithstanding the foregoing, if
any revised prospectus shall be provided to the Underwriters by the Company for
use in connection with the offering of the Units that differs from the
prospectus referred to in the immediately preceding sentence (whether or not
such revised prospectus is required to be filed with the Commission pursuant to
Rule 424(b) of the Rules and Regulations), the term "Prospectus" shall refer to
such revised prospectus from and after the time it is first provided to the
Underwriters for such use. If in reliance on Rule 434 of the Rules and
Regulations and with the consent of Sterne Agee on behalf of the Underwriters,
the Company shall have provided to the Underwriters a term sheet pursuant to
Rule 434(b) or (c), as applicable, prior to the time that a confirmation is sent
or given for purposes of Section 2(10)(a) of the Act, the Prospectus and the
term sheet, together, will not be materially different from the prospectus in
the Registration Statement.
(b) The Commission has not issued an order (a "Stop Order")
suspending the effectiveness of, or preventing or suspending the use of, the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, refusing to permit the effectiveness of the
Registration Statement, or suspending the registration or qualification of the
Units nor has any such authorities instituted or threatened to institute any
proceedings with respect to a Stop Order. In the event a Stop Order is issued by
any "blue sky" or securities authority of any jurisdiction, then either the
Company or the Representative may abandon the Registration Statement or void
this Agreement. The Registration Statement, Preliminary Prospectus and
Prospectus and any amendments and supplements thereto have conformed in all
material respects to the requirements of the Act and the Rules and Regulations
and, as of its date, has not included any untrue statement of a material fact or
omitted to state a material fact necessary to make the statements therein, in
the light of the
4
<PAGE> 5
circumstances under which they were made, not misleading; and at the time the
Registration Statement became or becomes, as the case may be, effective and at
all times subsequent thereto up to and on the Closing Date (hereinafter defined)
and on any later date on which Option Units are to be purchased, (i) the
Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained and will contain all material information required to be
included therein by the Act and the Rules and Regulations and will in all
material respects conform to the requirements of the Act and the Rules and
Regulations, (ii) the Registration Statement, and any amendments or supplements
thereto, did not and will not include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and (iii) the Prospectus, and any
amendments or supplements thereto, did not and will not include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; PROVIDED, HOWEVER, that none of the representations and
warranties contained in this subparagraph (b) shall apply to information
contained in or omitted from the Registration Statement or Prospectus, or any
amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Underwriter furnished to the Company by such
Underwriter specifically for use in the preparation thereof.
(c) The Company has no subsidiaries as defined in the
Regulations. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation with full power and authority (corporate and other) to own, lease
and operate its properties and conduct is business as described in the
Prospectus; the Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the ownership
or leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or be in good
standing would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company;
no proceeding has been instituted in any such jurisdiction, revoking, limiting
or curtailing, or seeking to revoke, limit or curtail, such power and authority
or qualification; the Company is in possession of and operating in compliance
with all authorizations, licenses, certificates, consents, orders and permits
from state, federal and other regulatory authorities which are material to the
conduct of its business, all of which are valid and in full force and effect;
the Company is not in violation of its charter or bylaws or in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any
5
<PAGE> 6
material bond, debenture, note or other evidence of indebtedness, or in any
material lease, contract, indenture, mortgage, deed of trust, loan agreement,
joint venture or other agreement or instrument to which the Company is a party
or by which it or its properties may be bound; and the Company is not in
material violation of any law, order, rule, regulation, writ, injunction,
judgment or decree of any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or over its properties of which it has knowledge.
(d) The Company has all requisite power and authority to
execute, deliver, and perform each of this Agreement, the Warrant Agreement and
the Representative's Warrants. All necessary corporate proceedings of the
Company have been duly taken to authorize the execution, delivery, and
performance by the Company of this Agreement, the Warrant Agreement and the
Representative's Warrants. This Agreement, the Warrant Agreement and the
Representative Warrants, respectively, have been duly authorized, executed, and
delivered by the Company, are, respectively, legal, valid, and binding
obligations of the Company, and each are enforceable as to the Company in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, or other laws affecting the rights of creditors
generally. No consent, authorization, approval, order, license, certificate, or
permit of or from, or declaration or filing with, any federal, state, local, or
other governmental authority or any court or other tribunal is required by the
Company for the execution, delivery, or performance by the Company of this
Agreement, the Warrant Agreement or the Representative's Warrants, except
filings under the Act which have been or will be made before the Closing Date.
No consent of any party to any contract, agreement, instrument, lease, license,
arrangement, or understanding to which the Company is a party, or to which any
of its properties or assets is subject, is required for the execution, delivery,
or performance of this Agreement, the Warrant Agreement and the Representative's
Warrants; and the execution, delivery, and performance of this Agreement, the
Warrant Agreement and the Representative's Warrants will not violate, result in
a breach of, conflict with, result in the creation or imposition of any lien,
charge, or encumbrance upon any properties or assets of the Company pursuant to
the terms of, or, with or without the giving of notice or the passage of time or
both, entitle any party to terminate or call a default under, any such contract,
agreement, instrument, lease, license, arrangement, or understanding, or
violate, result in a breach of, or conflict with any term of the certificate of
incorporation (or other charter document) or by-laws of the Company, or violate,
result in a breach of, or conflict with, any law, rule, regulation, order,
judgment, or decree binding on the Company or to which any of its operations,
businesses, properties, or assets are subject.
6
<PAGE> 7
(e) The Firm Units (and the component Common Stock and
Warrants thereof) are validly authorized and, upon the issuance and delivery for
payment thereof in accordance with this Agreement and the Warrant Agreement,
will be validly issued, fully paid and nonassessable, without any personal
liability attaching to the ownership thereof, and will not be issued in
violation of any preemptive or similar rights of shareholders, and the
Underwriters will receive good title to the Firm Units (and the component Common
Stock and Warrants thereof) purchased by them, respectively, free and clear of
all liens, security interests, pledges, charges, encumbrances, shareholders'
agreements, and voting trusts. The Option Units (and the component Common Stock
and Warrants thereof) are validly authorized and duly and validly reserved for
issuance and, upon issuance and delivery for payment therefor in accordance with
the terms hereof, will be validly issued, fully paid and nonassessable, without
any personal liability attaching to the ownership thereof, and will not be
issued in violation of any preemptive or similar rights of stockholders, and the
Underwriters will receive good title to the Option Units (and the component
Common Stock and Warrants thereof), if any, purchased by them, respectively,
free and clear of all liens, security interests, pledges, charges, encumbrances,
shareholders' agreements, and voting trusts. The Firm Units and Option Units
conform to all statements relating thereto contained in the Registration
Statement and the Prospectus. The shares of Common Stock to be issued upon
exercise of the Warrants are validly authorized and have been duly and validly
reserved for issuance and, when issued and delivered upon exercise of the
Warrants in accordance with the terms of the Warrant Agreement, will be validly
issued, fully paid and non-assessable without any personal liability attaching
to the ownership thereof and will not be issued in violation of any preemptive
or similar rights of stockholders and the holders of the Warrants will receive
good title to the securities purchased by them upon exercise of the Warrants,
free and clear of all liens, security interest, pledges, charges, encumbrances,
stockholders agreements and voting trusts
(f) There is not any pending or, to the best of the Company's
knowledge, threatened action, suit, claim or proceeding against the Company, or
any of its officers or any of its properties, assets or rights before any court,
government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or over its officers or properties or otherwise
(including, but not limited to, any pending or threatened action, suit, claim or
proceeding by Communicate! Powerstores, Inc.) which (i) might result in any
material adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company or might materially
and adversely affect its properties, assets or rights, (ii) might prevent
consummation of the transactions contemplated hereby or (iii) is required
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<PAGE> 8
to be disclosed in the Registration Statement or Prospectus and is not so
disclosed; and there are no agreements, contracts, leases or documents of the
Company of a character required to be described or referred to in the
Registration Statement or Prospectus or to be filed as an exhibit to the
Registration Statement by the Act or the Rules and Regulations which have not
been accurately described in all material respects in the Registration Statement
or Prospectus or filed as exhibits to the Registration Statement.
(g) All outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all federal and state
securities laws, were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities, and the
authorized and outstanding capital stock of the Company as of December 31, 1996
is as set forth in the Prospectus under the caption "Capitalization" and
conforms in all material respects to the statements relating thereto contained
in the Registration Statement and the Prospectus (and such statements correctly
state the substance of the instruments defining the capitalization of the
Company); the Firm Units and the Option Units have been duly authorized for
issuance and sale to the Underwriters pursuant to this Agreement and, when
issued and delivered by the Company against payment therefor in accordance with
the terms of this Agreement, will be duly and validly issued and fully paid and
nonassessable, and will be sold free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest; and no preemptive right,
co-sale right, registration right, right of first refusal or other similar right
of stockholders exists with respect to any of the Firm Units or Option Units or
the issuance and sale thereof other than those that have been expressly waived
prior to the date hereof and those that will automatically expire upon the
consummation of the transactions contemplated on the Closing Date. No further
approval or authorization of any stockholder, the Board of Directors of the
Company or others is required for the issuance and sale or transfer of the Units
except as may be required under the Act or under state or other securities or
Blue Sky laws. Except as disclosed in or contemplated by the Prospectus and the
financial statements of the Company, and the related notes thereto, included in
the Prospectus, the Company does not have outstanding any options to purchase,
or any preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. The description of the Company's stock
option, stock bonus and other stock plans or arrangements, and the
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<PAGE> 9
options or other rights granted and exercised thereunder, set forth in the
Prospectus accurately and fairly presents the information required to be shown
with respect to such plans, arrangements, options and rights.
(h) KPMG Peat Marwick, L.L.P., which has examined the
financial statements of the Company, together with the related schedules and
notes, as of December 31, 1996 and for the period beginning upon the date of the
Company's incorporation on April 19, 1996 until December 31,1996 filed with the
Commission as a part of the Registration Statement, which are included in the
Prospectus, are independent accountants within the meaning of the Act and the
Rules and Regulations; the audited financial statements of the Company, together
with the related schedules and notes, and the unaudited financial information,
forming part of the Registration Statement and Prospectus, fairly present the
financial position and the results of operations of the Company at the
respective dates and for the respective period to which they apply; and all
audited financial statements of the Company, together with the related schedules
and notes, filed with the Commission as part of the Registration Statement, have
been prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved except as may be otherwise
stated therein. The selected financial included in the Registration Statement
present fairly the information shown therein and have been compiled on a basis
consistent with the audited financial statements presented therein. No other
financial statements or schedules are required to be included in the
Registration Statement.
(i) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, there has not been (i)
any material adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company, (ii) any transaction
that is material to the Company, except transactions entered into in the
ordinary course of business, (iii) any obligation, direct or contingent, that is
material to the Company, incurred by the Company, except obligations incurred in
the ordinary course of business, (iv) any change in the capital stock or
outstanding indebtedness of the Company that is material to the Company, (v) any
dividend or distribution of any kind declared, paid or made on the capital stock
of the Company, or (vi) any loss or damage (whether or not insured) to the
property of the Company which has been sustained or will have been sustained
which has a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company.
(j) Except as set forth in the Registration Statement and
Prospectus, (i) the Company has good and marketable title to all properties and
assets described in the Registration Statement and Prospectus as owned by it,
free and
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<PAGE> 10
clear of any pledge, lien, security interest, encumbrance, claim or equitable
interest, other than such as would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company, (ii) the agreements to which the Company is a party
described in the Registration Statement and Prospectus are valid agreements,
enforceable by the Company, except as the enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights, generally or by general
equitable principles and, to the best of the Company's knowledge, the other
contracting party or parties thereto are not in material breach or material
default under any of such agreements, and (iii) the Company has valid and
enforceable leases for all properties described in the Registration Statement
and Prospectus as leased by it, except as the enforcement thereof may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by general
equitable principles. Except as set forth in the Registration Statement and
Prospectus, the Company owns or leases all such properties as are necessary to
its operations as now conducted or as proposed to be conducted.
(k) The Company has timely filed all necessary federal, state
and foreign income and franchise tax returns and have paid all taxes shown
thereon as due, and there is no tax deficiency that has been or, to the best of
the Company's knowledge, might be asserted against the Company or any of its
subsidiaries that might have a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company; and all tax liabilities are adequately provided for on the books
of the Company.
(l) The Company maintains insurance with insurers of
recognized financial responsibility of the types and in the amounts generally
deemed adequate for their respective businesses and consistent with insurance
coverage maintained by similar companies in similar businesses, including, but
not limited to, insurance covering real and personal property owned or leased by
the Company against theft, damage, destruction, acts of vandalism and all other
risks customarily insured against, all of which insurance is in full force and
effect; the Company has not been refused any insurance coverage sought or
applied for; and the Company has no reason to believe that it will not be able
to renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not materially and adversely affect the
condition (financial or
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<PAGE> 11
otherwise), earnings, operations, business or business prospects of the Company;
and the Company maintains insurance on the life of Marc Fishman in an amount of
not less than $5 million.
(m) To the best of the Company's knowledge, no labor
disturbance by the employees of the Company exists or is imminent; and the
Company is not aware of any existing or imminent labor disturbance by the
employees of any of its principal suppliers, value added resellers,
subcontractors, authorized dealers or other distributors that might be expected
to result in a material adverse change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company.
No collective bargaining agreement exists with any of the Company's employees
and, to the best of the Company's knowledge, no such agreement is imminent.
(n) Other than a potential claim by Two Connect, Inc., a
Florida corporation, (a) the Company owns or possesses adequate rights to use
all patents, patent rights, inventions, trade secrets, know-how, trademarks,
service marks, trade names and copyrights which are necessary to conduct its
businesses as described in the Registration Statement and Prospectus; the
expiration of any patents, patent rights, trade secrets, trademarks, service
marks, trade names or copyrights would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company; (b) the Company has not received any notice of, and
has no knowledge of, any infringement of or conflict with asserted rights of the
Company by others with respect to any patent, patent rights, inventions, trade
secrets, know-how, trademarks, service marks, trade names or copyrights; and (c)
the Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of others with respect to any
patent, patent rights, inventions, trade secrets, know-how, trademarks, service
marks, trade names or copyrights which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a material
adverse effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company.
(o) The Units and the Common Stock have each been approved for
quotation on the Nasdaq SmallCap Market, subject to official notice of issuance.
(p) The Company has been advised concerning the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to conduct,
its affairs in such a manner as to ensure that it will not become an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the 1940 Act and such rules and regulations.
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<PAGE> 12
(q) The Company has not distributed and will not distribute
prior to the later of (i) the Closing Date or the Option Closing Date, as the
case may be, and (ii) completion of the distribution of the Firm Units, any
offering material in connection with the offering and sale of the Firm Units or
the Option Units, as the case may be, other than any Preliminary Prospectuses,
the Prospectus, the Registration Statement and other materials, if any,
permitted by the Act.
(r) The Company has not at any time since its inception (i)
made any unlawful contribution to any candidate for foreign office or failed to
disclose fully any contribution in violation of law, or (ii) made any payment to
any federal or state governmental officer or official, or other person charged
with similar public or quasi-public duties, other than payments required or
permitted by the laws of the United States or any jurisdiction thereof.
(s) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization or manipulation of the price of the Units or the
component Common Stock and Warrant to facilitate the sale or resale of the
Units.
(t) Each officer and director of the Company has agreed in
writing that such person will not, from the date of the lock-up agreement
through a period of 18 months after the effective date of the Registration
Statement (the "Lock-up Period"), offer to sell, contract to sell, or otherwise
sell (including without limitation in a short sale), dispose of, loan, pledge or
grant any rights with respect to any Units or any shares of Common Stock, or any
securities convertible into or exchangeable for Common Stock, any options or
warrants to purchase any shares of Common Stock, or any securities convertible
into or exchangeable for shares of Common Stock (collectively, "Securities") now
owned or hereafter acquired directly by such person or with respect to which
such person has or hereafter acquires the power of disposition (collectively, a
"Disposition"), otherwise than (i) as a bona fide gift or gifts, provided the
donee or donees thereof agree in writing to be bound by this restriction or (ii)
with the prior written consent of Sterne Agee, provided that the foregoing shall
not apply to any shares sold to the Underwriters pursuant to the Underwriting
Agreement. Following the expiration of the 18 month period, the undersigned may
dispose of such Common Stock free of any contractual obligation hereunder.
Furthermore, such person will also agree and consent to the entry of stop
transfer instructions with the Company's transfer agent against the transfer of
the securities held by such person, except in compliance with this Agreement.
The Company has provided to counsel for the Underwriters a complete and accurate
list of all security-holders of the Company and the number and type of
securities held by each security-holder. The Company has provided to counsel for
the Underwriters true, accurate and
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<PAGE> 13
complete copies of all of the agreements pursuant to which its officers,
directors and security-holders have agreed to such or similar restrictions (the
"Lock-up Agreements") presently in effect or effected hereby. The Company hereby
represents and warrants that it will not release any of its officers, directors
or security-holders from any Lock-up Agreements currently existing or hereafter
effected without the prior written consent of Sterne Agee.
(u) Except as set forth in the Registration Statement and
Prospectus, (i) the Company is in compliance with all rules, laws and
regulations relating to the use, treatment, storage and disposal of toxic
substances and protection of health or the environment ("Environmental Laws")
which are applicable to its business, (ii) the Company has received no notice
from any governmental authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in the Registration
Statement and the Prospectus, (iii) to the best of the Company's knowledge, the
Company will not be required to make future material capital expenditures to
comply with Environmental Laws and (iv) no property which is owned, leased or
occupied by the Company has been designated as a Superfund site pursuant to the
Comprehensive Response, Compensation, and Liability Act of 1980, as amended (42
U.S.C. Section 9601, ET SEQ.), or otherwise designated as a contaminated site
under applicable state or local law.
(v) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(w) There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or guarantees
of indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of them,
except as disclosed in the Registration Statement and the Prospectus.
(x) The Company has complied with all provisions of Section
517.075, Florida Statutes relating to doing business with the Government of Cuba
or with any person or affiliate located in Cuba.
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3. PURCHASE, SALE, AND DELIVERY OF THE STOCK, WARRANTS AND THE
REPRESENTATIVE'S WARRANTS.
(a) On the basis of the representations, warranties,
covenants, and agreements of the Company herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to issue and sell to
the several Underwriters, and, each of the Underwriters, severally and not
jointly, agree to purchase from the Company, the Firm Units as set forth
opposite the respective names of the Underwriters in Schedule I hereto:
Delivery of the definitive certificates for the Firm Units to
be purchased by the Underwriters pursuant to this Section 3 shall be made
against payment of the purchase price therefor by the several Underwriters in
same-day federal funds by wire transfer to the Company at the offices of Baker &
McKenzie, Barnett Tower, Suite 1600, 701 Brickell Avenue, Miami, Florida
33131-2827 (or at such other place as may be agreed upon between the
Representative and the Company), at 10:00 A.M., Miami time either (a) on the
third (3rd) full business day following the first day that Units are traded on
the Nasdaq SmallCap Market, (b) if this Agreement is executed and delivered
after 3:30 P.M., Miami time, the fourth (4th) full business day following the
day that this Agreement is executed and delivered or (c) at such other time and
date not later than seven (7) full business days following the first day that
Units are traded on the Nasdaq SmallCap Market as the Representative and the
Company may determine (or at such time and date to which payment and delivery
shall have been postponed pursuant to Section 9 hereof), such time and date of
payment and delivery being herein called the "Closing Date;" PROVIDED, HOWEVER,
that if the Company has not made available to the Representative copies of the
Prospectus within the time provided in Section 5(d) hereof, the Representative
may, in its sole discretion, postpone the Closing Date until no later than two
(2) full business days following delivery of copies of the Prospectus to the
Representative. The certificates for the Firm Units (and the component Common
Stock and Warrants thereof) to be so delivered will be made available to Sterne
Agee at such office or such other location including, without limitation, in New
York City, as Sterne Agee may reasonably request for checking at least one (1)
full business day prior to the Closing Date and will be in such names and
denominations as Sterne Agee may request, such request to be made at least two
(2) full business days prior to the Closing Date. If the Representative so
elects, delivery of the Firm Units may be made by credit through full fast
transfer to the accounts at The Depository Trust Company designated by the
Representative.
(b) The Company hereby grants to the Underwriters the
Over-allotment Option to purchase up to 127,500 Units, as may be necessary to
cover over-allotments, at the same purchase price per Unit as applicable, to be
paid
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<PAGE> 15
by the several Underwriters to the Company for the Firm Units as provided for in
this Section 3 hereof. The Over-allotment Option may be exercised only to cover
over-allotments in Units by the Underwriters. The Over-allotment Option may be
exercised as to all or any part of the 127,500 Units included therein at any
time (but only once) within 45 days after the date the Registration Statement
becomes effective. The Underwriters shall not be under any obligation to
purchase any Option Units prior to the exercise of such option. The
Over-allotment Option may be exercised by the Representative of the several
Underwriters, by giving written notice to the Company setting forth the number
of Option Units to be purchased from the Company and the date and time for
delivery of and payment for such Option Units and stating that the Option Units
therein are to be used for the purpose of covering over-allotments in connection
with the distribution and sale of the Firm Units. If such notice is given prior
to the Closing Date, the date set forth therein for such delivery and payment
shall not be earlier than two full business days thereafter or the Closing Date,
whichever occurs later. If such notice is given on or after the Closing Date,
the date set forth therein for such delivery and payment shall not be earlier
than five full business days thereafter. In either event, the date so set forth
shall not be more than 15 full business days after the date of such notice. The
date and time set forth in such notice, or such other time not later than the
seventh full business day thereafter as the Representative and the Company may
determine, is herein called the "Option Closing Date". Upon exercise of the
option, the Company shall become obligated to sell to the Representative for the
account of the several Underwriters, and, subject to the terms and conditions
herein set forth, the Representative shall become obligated to purchase, for the
account of each Underwriter, from the Company, the number of Option Units
specified in such notice. The number of Option Units to be purchased for the
account of each Underwriter shall bear the same ratio to the total number of
Option Units to be purchased for the account of all Underwriters as the total
number of Firm Units to be purchased from the Company set forth opposite the
name of such Underwriter on Schedule 1 hereto bears to the total number of Firm
Units to be purchased by all the Underwriters from the Company, subject in each
case to such adjustments as the Representative in its discretion may make so
that allocations may be made to each Underwriter in round lot amounts to the
extent practicable.
(c) The Company hereby agrees to issue and sell to Sterne Agee
and/or its designees on the Closing Date the Representative's Warrants to
purchase the Warrant Units for an aggregate purchase price of $5.95. Delivery
and payment for the Representative's Warrants shall be made on the Closing Date.
The Company shall deliver to Sterne Agee, upon payment therefor, certificates
representing the Representative's Warrants in the name or names and in
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<PAGE> 16
such authorized denominations as Sterne Agee may request. The Representative's
Warrants shall be exercisable for a period of one year commencing on the date on
which the Registration Statement was declared effective under the Act at an
initial exercise price equal to $9.63 per Warrant Unit.
(d) It is understood that the Representative may (but shall
not be obligated to) make any and all payments required pursuant to this Section
3 on behalf of any Underwriters whose check or checks shall not have been
received by the Representative at the time of delivery of the Firm Units or any
Option Units to be purchased by such Underwriter or Underwriters. Any such
payment by the Representative shall relieve any such Underwriter or Underwriters
of any of its or their obligations hereunder.
4. OFFERING.
(a) After the Registration Statement becomes effective, the
several Underwriters intend to offer for sale to the public the Firm Units and
the Option Units, if any, which may be sold at the price and upon the terms set
forth in the Prospectus.
(b) The information set forth in the last paragraph on the
front cover page (insofar as such information relates to the Underwriters),
under the ____ paragraph on page ___, concerning stabilization and
over-allotment by the Underwriters, and under the ____ and ____ paragraphs under
the caption "Underwriting" in any Preliminary Prospectus and in the final form
of Prospectus filed pursuant to Rule 424(b) constitutes the only information
furnished by the Underwriters to the Company for inclusion in any Preliminary
Prospectus, the Prospectus or the Registration Statement, and Sterne Agee, on
behalf of the respective Underwriters, represents and warrants to the Company
that the statements made therein do not include any untrue statement of a
material fact or omit to state a 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.
5. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees with the
several Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto, to
become
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<PAGE> 17
effective as promptly as possible; the Company will use its best efforts to
cause any abbreviated registration statement pursuant to Rule 462(b) of the
Rules and Regulations as may be required subsequent to the date the Registration
Statement is declared effective to become effective as promptly as possible; the
Company will notify Sterne Agee, promptly after it shall receive notice thereof,
of the time when the Registration Statement, any subsequent amendment to the
Registration Statement or any abbreviated registration statement has become
effective or any supplement to the Prospectus has been filed; if the Company
omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A(a) of the Rules and
Regulations, the Company will provide evidence satisfactory to Sterne Agee that
the Prospectus contains such information and has been filed, within the time
period prescribed, with the Commission pursuant to subparagraph (1) or (4) of
Rule 424(b) of the Rules and Regulations or as part of a post-effective
amendment to such Registration Statement as originally declared effective which
is declared effective by the Commission; if the Company files a term sheet
pursuant to Rule 434 of the Rules and Regulations, the Company will provide
evidence satisfactory to Sterne Agee that the Prospectus and term sheet meeting
the requirements of Rule 434(b) or (c), as applicable, of the Rules and
Regulations, have been filed, within the time period prescribed, with the
Commission pursuant to subparagraph (7) of Rule 424(b) of the Rules and
Regulations; if for any reason the filing of the final form of Prospectus is
required under Rule 424(b)(3) of the Rules and Regulations, it will provide
evidence satisfactory to Sterne Agee that the Prospectus contains such
information and has been filed with the Commission within the time period
prescribed; it will notify Sterne Agee promptly of any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information; promptly upon Sterne Agee's request,
it will prepare and file with the Commission any amendments or supplements to
the Registration Statement or Prospectus which, in the opinion of counsel for
several Underwriters ("Underwriters' Counsel"), may be necessary or advisable in
connection with the distribution of the Units by the Underwriters; it will
promptly prepare and file with the Commission, and promptly notify Sterne Agee
of the filing of, any amendments or supplements to the Registration Statement or
Prospectus which may be necessary to correct any statements or omissions, if, at
any time when a prospectus relating to the Units is required to be delivered
under the Act, any event shall have occurred as a result of which the Prospectus
or any other prospectus relating to the Units as then in effect would include
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; in case any Underwriter is required
to deliver a prospectus
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<PAGE> 18
nine (9) months or more after the effective date of the Registration Statement
in connection with the sale of the Units, it will prepare promptly upon request,
but at the expense of such Underwriter, such amendment or amendments to the
Registration Statement and such prospectus or prospectuses as may be necessary
to permit compliance with the requirements of Section 10(a)(3) of the Act; and
it will file no amendment or supplement to the Registration Statement or
Prospectus which shall not previously have been submitted to Sterne Agee a
reasonable time prior to the proposed filing thereof or to which Sterne Agee
shall reasonably object in writing, subject, however, to compliance with the Act
and the Rules and Regulations and the provisions of this Agreement. The Company
shall, at its own expense, file such post-effective amendments to the
Registration Statement as may be required in order to ensure the existence of a
current prospectus with respect to the issuance and resale of the Common Stock
issuable upon the exercise of the Warrants and Representative's Warrants
(including Warrants contained in the Warrant Units) for such period as the
Warrants and Representative's Warrants shall remain outstanding, subject,
however, to the Regulations and policies of the Commission and the staff
thereof, and shall, at its own expense, maintain the state securities or blue
sky law registrations and qualifications or exemptions therefrom with respect to
the Common Stock issued pursuant to the exercise of the Warrants and the
Representative's Warrants for such period.
(b) The Company will advise Sterne Agee, promptly after it
shall receive notice or obtain knowledge, of the issuance of any stop order by
the Commission suspending the effectiveness of the Registration Statement or of
the initiation or threat of any proceeding for that purpose; and it will
promptly use its best efforts to prevent the issuance of any stop order or to
obtain its withdrawal at the earliest possible moment if such stop order should
be issued.
(c) The Company will use its best efforts to qualify the Units
for offering and sale under the securities laws of such jurisdictions as Sterne
Agee may designate and to continue such qualifications in effect for so long as
may be required for purposes of the distribution of the Units, except that the
Company shall not be required in connection therewith or as a condition thereof
to qualify as a foreign corporation or to execute a general consent to service
of process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Units shall have been qualified as above provided, the
Company will make and file such statements and reports in each year as are or
may be reasonably required by the laws of such jurisdiction.
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<PAGE> 19
(d) The Company will deliver without charge to each of the
several Underwriters such number of copies of each Preliminary Prospectus as may
reasonably be requested by the Underwriters and, as soon as the Registration
Statement, or any amendment thereto, becomes effective under the Act or a
supplement is filed with the Commission, deliver without charge to the
Representative who signed copies of the Registration Statement, including
exhibits, or such amendment thereto, as the case may be, and two copies of any
supplement thereto, and delivery without charge to each of the several
Underwriters such number of copies of the Prospectus, the Registration
Statement, and amendments and supplements thereto, if any, without exhibits, as
the Representative may reasonably request for the purposes contemplated by the
Act.
(e) The Company will make generally available to its
security-holders a soon as practicable, but in any event not later than the
forty-fifth (45th) day following the end of the fiscal quarter first occurring
after the first anniversary of the effective date of the Registration Statement,
an earnings statements (which will be in reasonable detail but need not be
audited) complying with the provisions of Section 11(a) of the Act and covering
a twelve (12) month period beginning after the effective date of the
Registration Statement.
(f) During a period of three (3) years after the date hereof,
the Company will furnish to its stockholders as soon as practicable after the
end of each respective period, annual reports (including financial statements
audited by independent certified public accountants), and will furnish to
Sterne, Agee and the other several Underwriters hereunder, (i) concurrently with
furnishing to its stockholders, a balance sheet of the Company as of the end of
such fiscal year, together with statements of operations, of stockholders'
equity, and of cash flows of the Company or such fiscal year, accompanied by a
copy of the certificate or report thereon of independent certified public
accountants, (ii) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders, (iii) as soon as they are
available, copies of all reports and financial statements furnished to or filed
with the Commission, any securities exchange or the National Association of
Securities Dealers, Inc. (the "NASD"), (iv) every material press release and
every material news item or article in respect of the Company or its affairs
which was generally released to stockholders or prepared by the Company or any
of its subsidiaries, and (v) any additional information of a public nature
concerning the Company or its subsidiaries, or its business which Sterne Agee
may reasonably request. During such three (3) year period, if the Company shall
have active subsidiaries, the foregoing financial statements shall be on a
consolidated basis to the extent that the accounts of the
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Company and any subsidiaries are consolidated, and shall be accompanied by
similar financial statements for any significant subsidiary which is not so
consolidated.
(g) The Company will apply the net proceeds from the sale of
the Units being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for the Unit and, after
dissolution of the Unit, its Common Stock.
(i) The Company will file Form SR in conformity with the
requirements of the Act and the Rules and Regulations.
(j) The Company will file timely with the Commission an
appropriate form to register the Units and the Common Stock pursuant to Section
12(g) of the Securities Exchange Act of 1934 ("Exchange Act") and comply with
all registration, filing, and reporting requirements of the Exchange Act, which
may from time to time be applicable to the Company.
(k) The Company will comply with all provisions of all
undertakings contained in the Registration Statement.
(l) Prior to the Closing Date or the Option Closing Date, as
the case may be, the Company will issue no press release or other communication,
directly or indirectly, and hold no press conference with respect to the
Company, the financial condition, results of operations, business, properties,
assets, liabilities of the Company, or this offering, without the prior consent
of the Representative, which consent shall not be unreasonably withheld.
(m) Until expiration of the Warrants and Representative's
Warrants, the Company will keep reserved sufficient shares of Common Stock for
issuance upon exercise of the Warrants and Representative's Warrants (including
the Warrants which are a component of the Warrant Units).
(n) Use its best efforts to list itself in Moody's OTC
Industrial Manual within ten days of the date hereof, and maintain such listing
for a period of at least five years from the date hereof.
(o) If the transactions contemplated hereby are not
consummated by reason of any failure, refusal or inability on the part of the
Company to perform any agreement on its part to be performed hereunder or to
fulfill any
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<PAGE> 21
condition of the Underwriters' obligations hereunder, or if the Underwriters
shall terminate this Agreement pursuant to Section 11(b)), the Company will
reimburse the several Underwriters for all out-of-pocket expenses (including
fees and disbursement of Underwriters' Counsel) incurred by the Underwriters in
investigating or preparing to market or marketing any Units.
(p) If at any time during the ninety (90) day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which, in the
opinion of Sterne Agee, the market price of the Units has been or is likely to
be materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from Sterne Agee advising the Company to the effect set
forth above, forthwith prepare, consult with Sterne Agee concerning the
substance of and disseminate a press release or other public statement,
reasonably satisfactory to Sterne Agee responding to or commenting on such
rumor, publication or event.
(q) During a period of ninety (90) days from the effective
date of the Registration Statement, the Company will not file a registration
statement registering shares under the 2Connect Express, Inc. 1996 Stock Option
Plan, the 2Connect Express, Inc. 1996 Directors Stock Option Plan or other
employee benefit plan.
6. PAYMENT OF EXPENSES. The Company hereby agrees to pay all expenses
(other than fees of counsel of the Underwriters, except as provided in Section
6(c), below), in connection with (a) the preparation, printing, filing,
distribution, and mailing of the Registration Statement and the Prospectus and
the printing, filing, distribution, and mailing of this Agreement and the Master
Agreement Among Underwriters, any Master Selected Dealer Agreement, and related
documents, including the cost of all copies thereof and of the Preliminary
Prospectuses and of the Prospectus and any amendments or supplements thereto
supplied to the Underwriters in quantities as hereinabove stated, (b) the
issuance, offer, sale, transfer, and delivery (as applicable) of the Units (and
each of the component Common Stock and Warrants thereof), including any transfer
or other taxes payable thereon, (c) the qualification of the Units (and each of
the component Common Stock and Warrants thereof) under state or foreign "blue
sky" or securities laws, including the costs of printing and mailing the
preliminary and final "Blue Sky Survey" and the fees of counsel for the
Underwriters, which shall not exceed $7,500 and the disbursements in connection
therewith, (d) the filing fees payable to the Commission, the NASD, and the
jurisdictions in which such qualification is sought, (e) any fees relating to
the listing of the Units and the Common Stock on Nasdaq
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<PAGE> 22
SmallCap Market, (f) the cost of printing certificates representing the Units
(and the component Common Stock and Warrants thereof), (g) the fees of the
transfer agent for the Units and the Common Stock, and (h) the cost of a Company
"roadshow" including, without limitation, expenses associated with presentations
of the Company and the preparation of visual materials assocuated therewith.
7. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Firm Units and the Option Units
and Representative's Securities, as provided herein, and the obligation of
Sterne Agee to purchase and pay for the Representative's Warrants, each as
provided herein, shall be subject, in the discretion of the Representative, to
the continuing accuracy in all material respects, of the representations and
warranties of the Company contained herein and in each certificate and document
contemplated under this Agreement to be delivered to the Underwriters, as of the
date hereof and as of the Closing Date (or the Option Closing Date, as the case
may be), to the performance by the Company of its obligations hereunder, and to
the following conditions:
(a) The Registration Statement shall have become effective
under the Act not later than 6:00 P.M., Florida local time, on the date of this
Agreement or such later date and time as shall be consented to in writing by the
Representative; on or prior to the Closing Date, or the Option Closing Date, as
the case may be, no Stop Order shall have been issued and no proceeding shall
have been initiated or threatened with respect to a Stop Order; and any request
by the Commission for additional information shall have been complied with by
the Company to the reasonable satisfaction of the Representative. If required,
the Prospectus shall have been filed with the Commission in the manner and
within the time period required by Rule 424(b) under the Act.
(b) All corporate proceedings and other legal matters in
connection with this Agreement, the form of Registration Statement and the
Prospectus, and the registration, authorization, issue, sale and delivery of the
Units, shall have been reasonably satisfactory to Underwriters' Counsel, and
such counsel shall have been furnished with such papers and information as they
may reasonably have requested to enable them to pass upon the matters referred
to in this Section.
(c) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date, there shall not have been any change in the
condition (financial or otherwise), earnings, operations, business, or business
prospects of the Company from that set forth in the Registration Statement or
Prospectus, which, in Sterne Agee's sole judgment, is
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<PAGE> 23
material and adverse and that makes it, in Sterne Agee's sole judgment,
impracticable or inadvisable to proceed with the public offering of the Units as
contemplated by the Prospectus.
(d) At the Closing Date and the Option Closing Date, as the
case may be, Sterne Agee shall have received the Opinion of Baker & McKenzie,
counsel for the Company, dated the date of delivery, addressed to the
Underwriters, and in form and scope satisfactory to the Representative, with
reproduced copies or signed counterparts thereof for each of the Underwriters,
to the effect that:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation.
(ii) The Company has the corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Prospectus.
(iii) The Company is duly qualified to do business
as a foreign corporation and is in good standing in each jurisdiction, if any,
in which the ownership or leasing of its properties or the conduct of its
business requires such qualification, except where the failure to be so
qualified or be in good standing would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations or business of the
Company. To such counsel's knowledge, the Company does not own or control,
directly or indirectly, any corporation, association or other entity.
(iv) The authorized, issued and outstanding capital
stock of the Company is as set forth in the Prospectus under the caption
"Capitalization" as of the dates stated therein, the issued and outstanding
shares of capital stock of the Company have been duly and validly issued and are
fully paid and nonassessable, and, to such counsel's knowledge, will not have
been issued in violation of or subject to any preemptive right, co-sale right,
registration right, right of first refusal or other similar right.
(v) To the knowledge of such counsel, other than
potential claims by Michael Wilchens relating to the termination from his
employment with the Comapny as its Vice President - Operations, there is no
litigation, arbitration, claim, governmental or other proceeding (formal or
informal), or investigation, pending or threatened with respect to the Company
or any of its operations, businesses, properties, or assets, except as may be
properly described in the Prospectus or such as individually or in the aggregate
do not now have, and will not in the future have, a material adverse effect upon
the operations, business, properties, or assets of the Company. To the knowledge
of such counsel, the Company
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<PAGE> 24
is not in violation of, or in default with respect to, any law, rule,
regulation, order, judgment, or decree, except as may be properly described in
the Prospectus or such as in the aggregate do not now have and will not in the
future be reasonably expected to have a material adverse effect upon the
operations, business, properties, or assets of the Company, nor is the Company
required to take any action in order to avoid any such violation or default.
(vi) To the knowledge of such counsel, neither
the Company, nor any other party is now, or is expected by the Company to be, in
violation or breach of, or in default with respect to, any provision of any
contract, agreement, instrument, lease, license, arrangement, or understanding
which is material to the Company, and, to the knowledge of such counsel, each
such material contract, agreement, instrument, lease, license, arrangement, or
understanding is in full force and effect and is the legal, valid, and binding
obligation of the parties thereto and is enforceable in accordance with its
terms.
(vii) The Company is not in violation or breach
of, or in default with respect to, any term of its certificate of incorporation
(or other charter document) or by-laws.
(viii) The Company has all requisite power and
authority to execute, deliver, and perform this Agreement, the Warrant
Agreement, and the Representative's Warrants. All necessary corporate
proceedings of the Company have been taken to authorize the execution, delivery,
and performance by the Company of this Agreement, the Warrant Agreement and the
Representative's Warrants. This Agreement, the Warrant Agreement, and the
Representative's Warrant have been duly authorized, executed, and delivered by
the Company, are, respectively, legal, valid, and binding obligations of the
Company, and, subject to applicable bankruptcy, insolvency, and other laws
affecting the enforceability of creditors' rights generally, are enforceable as
to the Company in accordance with their respective terms. No consent,
authorization, approval, order, license, certificate, or permit of or from, or
declaration or filing with, any federal, state, local, or other governmental
authority or any court or other tribunal is required by the Company for the
execution, delivery, or performance by the Company of this Agreement, the
Warrant Agreement or the Representative's Warrants, except filings under the Act
which have been made prior to the Closing Date or the Option Closing Date, as
the case may be, and consents consisting only of consents under "blue sky" or
securities laws in connection with the purchase and the distribution of the
Units by the Underwriters. No consent of any party to any material contract,
agreement, instrument, lease, license, arrangement, or understanding known to
such counsel to which the Company is a party, or to which any of its properties
or
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<PAGE> 25
assets are subject, is required for the execution, delivery, or performance of
this Agreement, the Warrant Agreement, and the Representative's Warrants; and to
the knowledge of counsel, the execution, delivery, and performance of this
Agreement, the Warrant Agreement and the Representative's Warrants will not
violate, result in a breach of, conflict with, result in the creation of
imposition of any lien, charge, or encumbrance upon any properties or assets of
the Company pursuant to the terms of, or, with or without the giving of notice
or the passage of time or both, entitle any party to terminate or call a default
under, any such material contract, agreement, instrument, lease, license,
arrangement, or understanding known to such counsel, violate or result in a
breach of, or conflict with any term of the certificate of incorporation (or
other charter document) or by-laws of the Company, or violate, result in a
breach of, or conflict with any law, rule, or regulation, or, to the knowledge
of such counsel, any order, judgment, or decree binding on the Company to which
any of its operations, businesses, properties, or assets are subject.
(ix) The Firm Units (and the component Common Stock
and Warrants thereof) to be delivered on the Closing Date as part of the Units
are validly authorized and, upon issuance and delivery against payment therefor
in accordance with the terms hereof and thereof, will be validly issued, fully
paid, and nonassessable, without any personal liability attaching to the
ownership thereof, and will not be issued in violation of any preemptive or
similar rights of shareholders. The Option Units (and the component Common Stock
and Warrants thereof) to be issued upon exercise by Sterne Agee of any Option
Unit to be delivered on the Option Closing Date are validly authorized and, upon
issuance and delivery against payment therefor in accordance with the terms
hereof and thereof, will be validly issued, fully paid, and nonassessable,
without any personal liability attaching to the ownership thereof, and will not
be issued in violation of any preemptive or similar rights of shareholders. The
Underwriters will receive good title to the Firm Units and the Option Units (and
the component Common Stock and Warrants of the Firm Units and Option Units)
purchased by them, respectively, free and clear of all liens, security
interests, pledges, charges, encumbrances, shareholders' agreements, and voting
trusts. The Firm Units and the Option Units (and the component Common Stock and
Warrants of the Firm Units and Option Units) conform in all material respect to
the statements relating thereto contained in the Registration Statement or the
Prospectus. Shares of Common Stock underlying the Warrants are validly
authorized and have been duly and validly reserved for issuance pursuant to the
terms of the Warrant Agreement.
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(x) The Representative's Warrants have been duly
and validly issued and delivered. The Warrant Units (and the component Common
Stock and Warrants thereof) are validly authorized and have been duly and
validly reserved for issuance pursuant to the terms of this Agreement and the
Representative's Warrants. The Warrant Units (and each of the component Common
Stock and Warrants thereof) issuable upon exercise of the Representative's
Warrants will be free and clear of all liens, security interest, pledges,
charges, encumbrances, shareholders' agreements, and voting trusts. The Warrant
Units (and each of the component Common Stock and Warrants thereof) conform in
all material respects to the statements relating thereto contained in the
Registration Statement or the Prospectus. Shares of Common Stock underlying the
Warrants contained in the Warrant Units are validly authorized and have been
duly and validly reserved for issuance pursuant to the terms of the Warrant
Agreement associated therewith.
(xi) To the knowledge of such counsel, each
contract, agreement, instrument, lease, or license required to be described in
the Registration Statement or the Prospectus has been properly described
therein, and each contract, agreement, instrument, lease, or license required to
be filed as an exhibit to the Registration Statement has been filed with the
Commission as an exhibit to the Registration Statement.
(xii) Insofar as statements in the Prospectus
purport to summarize the status of litigation or the provisions of laws, rules,
regulations, orders, judgments, decrees, contracts, agreements, instruments,
leases, or licenses, such statements have been prepared or reviewed by such
counsel and accurately reflect the status of such litigation and provisions
purported to be summarized and are correct in all material respects.
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(xiii) The Company is not an "investment company"
as defined in the Investment Company Act and the rules and regulations
thereunder and, if the Company conducts its business as set forth in the
Prospectus, will not become an "investment company", and will not be required to
be registered under the Investment Company Act.
(xiv) The Registration Statement has become
effective under the Act, the Prospectus has been filed in accordance with Rule
424(b) of the Regulations, including the applicable time periods set forth
therein, or such filing is not required. To the knowledge of such counsel, no
Stop Order has been issued and no proceeding for that purpose has been
instituted or threatened. On that basis of the participation of such counsel in
conferences at which the contents of the Registration Statement and the
Prospectus and related matters were discussed, but without independent
verification by such counsel of the accuracy, completeness, or fairness of the
statements contained in the Registration Statement, the Prospectus, or any
amendment or supplement thereto, such counsel has no knowledge that (other than
financial statements and other financial data and schedules which are or should
be contained therein, as to which such counsel need express no opinion): (A) the
Registration Statement, any Rule 430A Prospectus, and the Prospectus, and any
amendment or supplement thereto, does not appear on its face to comply as to
form in any material respects with the requirements of the Act and the
Regulations; (B) the Registration Statement, any Rule 430A Prospectus, or the
Prospectus, or any amendment or supplement thereto, contains any untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading; or
(c) since the date of effectiveness under the Act or the Registration Statement,
any event has occurred which should have been set forth in an amendment or
supplement to the Registration Statement or the Prospectus which has not been
set forth in such an amendment or supplement.
Counsel rendering the foregoing opinion may rely as to questions of law
not involving the laws of the United States or the State of Florida upon
opinions of local counsel, and as to questions of fact upon representations or
certificates of officers of the Company and of government officials, in which
case their opinion is to state that they are so relying and that they have no
knowledge of any material misstatement or inaccuracy in any such opinion,
representation or certificate. Copies of any opinion, representation or
certificate so relied upon shall be delivered to Sterne Agee, as Representative
of the Underwriters, and to Underwriters' Counsel.
(e) On or prior to the Closing Date and the Option Closing
Date, as the case may be, the Underwriters shall have been furnished such
information, documents, certificates, and opinions as they may reasonably
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<PAGE> 28
require for the purpose of enabling them to review the matters referred to in
Section 7(d), and in order to evidence the accuracy, completeness, or
satisfaction of any of the representations, warranties, covenants, agreements,
or conditions herein contained, or as the Representative may reasonably request.
(f) At the Closing Date or the Option Closing Date, as the
case may be, (i) the Registration Statement and the Prospectus and any
amendments or supplements thereto shall contain all statements which are
required to be stated therein in accordance with the Act and the Regulations,
and in all material respects conform to the requirements thereof, and neither
the Registration Statement nor the Prospectus nor any amendment or supplement
thereto shall contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein no misleading, (ii) there shall have been, since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, no material adverse change, or any development involving a
prospective material adverse change, in the business, properties, or condition
(financial or otherwise), results of operations, capital stock, long-term or
short-term debt, or general affairs of the Company from that set forth in the
Registration Statement and the Prospectus, except changes which the Registration
Statement and Prospectus indicate might occur after the date on which the
Registration Statement becomes effective under the Act, and the Company shall
not have incurred any material liabilities or entered into any agreements not in
the ordinary course of business other than as referred to in the Registration
Statement and Prospectus, (iii) except as set forth in the Prospectus, no
litigation, arbitration, claim, governmental, or other proceeding (formal or
informal) or investigation shall be pending, or, to our knowledge threatened or
in prospect (or any basis therefor), with respect to the Company or any of its
operations, businesses, properties, or assets which would be required to be set
forth in the Registration Statement, wherein an unfavorable decision, ruling, or
finding would materially adversely affect the business, property, condition
(financial or otherwise), results of operations, or general affairs of the
Company, and (iv) the Units be quoted upon the Nasdaq SmallCap Market.
(g) At the Closing Date and the Option Closing Date, as the
case may be, Sterne Agee shall have received a certificate of the chief
executive officer and the chief financial officer of the Company, dated the
Closing Date or the Option Closing Date, as the case may be, to the effect,
among other things, that (i) the conditions set forth in Section 7(a) and 7(f)
have been satisfied, (ii) as of the date of this Agreement and as of the Closing
Date or the Option Closing Date, as the case may be, the representations and
warranties of the Company contained herein were and are accurate and correct in
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all material respects, and (iii) as of the Closing Date or the Option Closing
Date, as the case may be, the obligations to be performed by the Company
hereunder on or prior to such time have been fully performed in all material
respects.
(h) At the time this Agreement is executed and at the Closing
Date and the Option Closing Date, as the case may be, Representative shall have
received a letter, addressed to the Underwriters, and in form and substance
reasonably satisfactory to the Representative, from KPMG Peat Marwick, L.L.P.,
independent public accountants for the Company, dated the date of delivery:
(i) confirming that they are, and during the
period covered by their report(s) included in the Registration Statement and the
Prospectus were, independent certified public accountants with respect to the
Company within the meaning of the Act and the published Regulations and stating
that the disclosure in response to Item 13 of the Registration Statement is
correct insofar as it relates to them;
(ii) stating that, in their opinion, the
financial statements and schedules of the Company included in the Registration
Statement examined by them comply in form in all material respects with the
applicable accounting requirements of the Act and the related published rules
and regulations;
(iii) stating that, on the basis of procedures
(but not an examination made in accordance with generally accepted auditing
standards) consisting of a reading of the latest available unaudited interim
consolidated financial statements of the Company (with an indication of the date
of the latest available unaudited interim financial statements), a reading of
the latest available minutes of the shareholders and Boards of Directors of the
Company and committees of such Board of Directors, inquiries to certain officers
and other employees of the Company responsible for financial and accounting
matters, and other specified procedures and inquiries, nothing has come to their
attention that caused them to believe that: (A) the unaudited consolidated
financial statements and schedules of the Company included in the Registration
Statement and Prospectus do not comply in form in all material respects with the
applicable accounting requirements of the Act and the Exchange Act and the
related published rules and regulations under the Act or the Exchange Act or are
not fairly presented in conformity with generally accepted accounting principles
(except to the extent that certain footnote disclosures regarding any stub
period may have been omitted in accordance with the applicable rules of the
Commission under the Exchange Act) applied on a basis consistent with that of
the audited financial statements appearing therein; (B) there was any change in
the capital stock or long-term debt of the Company or any decrease in the net
current
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assets or shareholders' equity of the Company as of the date of the latest
available monthly financial statements of the Company as of a specified date not
more than five business days prior to the date of such letter, each as compared
with the amounts shown in the December 31, 1997 balance sheet included in the
Registration Statement and Prospectus, other than as properly described in the
Registration Statement and Prospectus or any change or decrease (which shall be
set forth therein) which, in the sole discretion of the Representative, the
Representative shall accept, or (C) there was a net decrease in net sales, net
earnings, or net earnings per share of Common Stock during the period from
December 31, 1997 to the date of the latest available monthly financial
statements of the Company or to a specified date nor more than five business
days prior to the date of such letter, other than as properly described in the
Registration Statement and Prospectus or any decrease (which shall be set forth
therein) which, at the sole discretion of the Representative, the Representative
shall accept; and
(iv) stating that they have compared specific
numerical data and financial information pertaining to the Company set forth in
the Registration Statement (including, but not limited to, the number of
shareholders of the Company and the number of issued and outstanding shares of
the Common Stock of the Company as of December 31, 1996), which have been
specified by the Representative prior to the date of this Agreement, to the
extent that such data and information may be derived from the general accounting
records of the Company, and excluding any questions requiring any interpretation
by legal counsel, with the results obtained from the application of specified
readings, inquiries, and other appropriate procedures (which procedures do not
constitute an examination in accordance with generally accepted auditing
standards) set forth in the letter, and found them to be in agreement.
(i) All proceedings taken in connection with the issuance,
sale, transfer, and delivery of the securities offered by the Registration
Statement and Prospectus shall be reasonably satisfactory in form and substance
to the Representative and to counsel for the Underwriters, and the Underwriters
shall have received from such counsel for the Underwriters the opinion, dated as
of the Closing Date and the Option Closing Date, as the case may be, with
respect to the sufficiency of all such corporate proceedings and other legal
matters relating to this Agreement and the transactions contemplated hereby as
the representative may reasonably require, and the Company shall have furnished
to such counsel such documents as they may have requested for the purpose of
enabling them to pass upon such matters.
(j) The NASD, upon review of the terms of the public offering
of the Stock shall not have objected to the Underwriters' participation in such
offering.
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(k) Prior to or on the Closing Date, the Company shall have
entered into the Warrant Agreement and Representative's Warrants with the
Representative.
(l) Prior to or on the Closing Date, the Company shall have
provided to the Representative, or its counsel, copies of the agreements
referred to in Section 2(t).
Any certificate or other document signed by any officer of the Company
and delivered to the Representative or to counsel for the Underwriters shall be
deemed a representation and warranty by the Company hereunder to the
Underwriters as to the statements made therein. If any condition to the
Underwriters' obligations hereunder to be fulfilled prior to or at the Closing
Date or the Option Closing Date, as the case may be, is not so fulfilled, the
Representative may, on behalf of the several Underwriters, terminate this
Agreement or, if the Representative so elects, in writing waive any such
conditions which have not been fulfilled or extend the time for their
fulfillment.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject (including, without
limitation, in its capacity as an Underwriter or as a "qualified independent
underwriter" within the meaning of SCHEDULE E OF THE BYLAWS OF THE NASD), under
the Act, the Exchange Act or otherwise, specifically including, but not limited
to, losses, claims, damages or liabilities, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon (i) any breach of representation, warranty, agreement or covenant of the
Company herein contained, (ii) any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (iii) any untrue statement or alleged untrue
statement of any material fact contained in any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or the omission or alleged
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 they were made, no misleading, and agrees to reimburse each Underwriter
for any legal or other expenses reasonably incurred by it in connection with
investigating or defending any such loss, claim, damage, liability or action;
PROVIDED, HOWEVER, that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage, liability or action arises out of or
is based upon an untrue statement or alleged untrue
31
<PAGE> 32
statement or omission or alleged omission made in the Registration Statement,
such Preliminary Prospectus or the Prospectus, or any such amendment or
supplement thereto, in reliance upon, and in conformity with, written
information relating to any Underwriter furnished to the Company by such
Underwriter, directly or through Sterne Agee, specifically for use in the
preparation thereof and, PROVIDED FURTHER, that the indemnity agreement provided
in this Section 8(a) with respect to any Preliminary Prospectus shall not inure
to the benefit of any Underwriter from whom the person asserting any losses,
claims, damages, liabilities or actions based upon any untrue statement or
alleged untrue statement of material fact or omission or alleged omission to
state therein a material fact purchased Units, if a copy of the Prospectus in
which such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the time
required by the Act and the Rules and Regulations, unless such failure is the
result of noncompliance by the Company with Section 5(d) hereof.
The indemnity agreement in this Section 8(a) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each person, if any,
who controls any Underwriter within the meaning of the Act or the Exchange Act.
This indemnity agreement shall be in addition to any liabilities which the
Company may otherwise have.
(b) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company against any losses, claims, damages or
liabilities, joint or several, to which the Company may become subject under the
Act or otherwise, specifically including, but not limited to, losses, claims,
damages or liabilities, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon (i) any breach of
any representation, warranty, agreement or covenant of such Underwriter herein
contained, (ii) any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (ii) any untrue statement or alleged untrue statement of any
material fact contained in any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact necessary to make the statements therein not misleading,
or (iii) any untrue statement or alleged untrue statement of any material fact
contained in any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, in the case of
subparagraphs (ii) and (iii) of this
32
<PAGE> 33
Section 8(c) to the extent, but only to the extent, that such untrue statements
or alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by such
Underwriter, directly or through Sterne Agee, specifically for use in the
preparation thereof, and agrees to reimburse the Company for any legal or other
expenses reasonably incurred by the Company in connection with investigating or
defending any such loss, claim, damage, liability or action.
The indemnity agreement in this Section 8(c) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each officer of the
Company who signed the Registration Statement and each director of the Company,
and each person, if any, who controls the Company within the meaning of the Act
or the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which each Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against any indemnifying
party under this Section 8, notify the indemnifying party in writing of the
commencement thereof but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under this Section 8. In case any such action is brought against
any indemnified party, and it notified the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it shall elect by written notice delivered to
the indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; PROVIDED, HOWEVER, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of the indemnifying party's election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section 8 for any legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
33
<PAGE> 34
(it being understood, however, that the indemnifying party shall not be liable
for the expenses of more than one separate counsel (together with appropriate
local counsel) approved by the indemnifying party representing all the
indemnified parties under Section 8(a) or 8(b) hereof who are parties to such
action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time (no more than fifteen (15) days) after notice of commencement
of the action or (iii) the indemnifying party has authorized the employment of
counsel for the indemnified party at the expense of the indemnifying party. In
no event shall any indemnifying party be liable in respect of any amounts paid
in settlement of any action unless the indemnifying party shall have approved
the terms of such settlement; PROVIDED that such consent shall not be
unreasonably withheld. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened proceeding in respect of which any indemnified party is or could have
been a party or indemnification could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such proceeding.
(d) In order to provide for just and equitable contribution in
any action in which a claim for indemnification is made pursuant to this Section
8 but it is judicially determined (by the entry of a final judgment or decree by
a court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 8 provided for
indemnification in such case, all the parties hereto shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that, except as set forth
in Section 8(f) hereof, the Underwriters severally and not jointly are
responsible pro rata for the portion represented by the percentage that the
underwriting discount bears to the initial public offering price, and the
Company are responsible for the remaining portion, PROVIDED, HOWEVER, that (i)
no Underwriter shall be required to contribute any amount in excess of the
underwriting discount applicable to the Units purchased by such Underwriter in
excess of the amount of damages which such Underwriter has otherwise required to
pay and (ii) no person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation. The contribution
agreement in this Section 8(e) shall extend upon the same terms and conditions
to, and shall inure to the benefit
34
<PAGE> 35
of, each person, if any, who controls the Underwriters or the Company within the
meaning of the Act or the Exchange Act and each officer of the Company who
signed the Registration Statement and each director of the Company.
(e) The parties of this Agreement hereby acknowledge that they
are sophisticated business persons who are represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 8, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 8 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act.
9. SUBSTITUTION OF UNDERWRITERS.
(a) If any Underwriter or Underwriters shall default in its or
their obligation to purchase Firm Units or Option Units hereunder, and if the
number of Firm Units or Option Units to which the defaults of all Underwriters
in the aggregate relate does not exceed 10% of the aggregate number of Firm
Units or Option Units, as the case may be, which all Underwriters have agreed to
purchase hereunder, then such Firm Units or Option Units to which such defaults
relate shall be purchased by the non-defaulting Underwriters in proportion to
their respective commitments hereunder.
(b) If such defaults exceed in the aggregate 10% of the number
of shares of Firm Units or Option Units, as the case may be, which all
Underwriters have agreed to purchase hereunder, the Representative may, in its
discretion, arrange to purchase itself or for another party or parties to
purchase such shares of Firm Units or Option Units, as the case may be, to which
such default relates on the terms contained herein. If the Representative does
not arrange for the purchase of such Firm Units or Option Units, as the case may
be, within one business day after the occurrence of defaults relating to in
excess of 10% of the Firm Units and Option Units, as the case may be, then the
Company shall be entitled to a further period of three business days within
which to procure another party or parties reasonably satisfactory to the
Representative to purchase Firm Units or the Option Units, as the case may be,
on such terms. If the Representative or the Company does not arrange for the
purchase of Firm Units or the Option Units, as the case may be, to which such
defaults relate as provided in this Section 9(b), this Agreement may be
terminated by the Representative or by the Company without liability on the part
of the Company (except that the provisions of Sections 5(a)(1), 6, 8, 10 and 13
shall survive such
35
<PAGE> 36
termination) or the several Underwriters, but nothing in this Agreement
shall relieve a default Underwriter of its liability, if any, to the other
several Underwriters and to the Company for any damages occasioned by its
default hereunder.
(c) If the Firm Units or Option Units to which such defaults
relate are to be purchased by the non-defaulting Underwriters, or are to be
purchased by another party or parties as aforesaid, the Representative or the
Company shall have the right to postpone the Closing Date or the Option Closing
Date, as the case may be, for a reasonable period but in any event not more than
seven business days in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus or in any other
documents and arrangements with respect to the Firm Units or the Option Units,
and the Company agrees to prepare and file promptly any amendment or supplement
to the Registration Statement or the Prospectus which in the opinion of counsel
for the Underwriters may thereby be made necessary. The term "Underwriter" as
used in this Agreement shall include any party substituted under this Section 9
as if such party had originally been a party to this Agreement and had been
allocated the number of shares of Firm Units and Option Units actually purchased
by it as a result this Section 9.
10. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties, covenants, and agreements contained in this
Agreement shall be deemed to be representations, warranties, covenants, and
agreements at the Closing Date and the Option Closing Date, and such
representations, warranties, covenants, and agreements of the Underwriters and
the Company, including the indemnity and contribution agreements contained in
Section 8, shall remain operative and in full force and effect regardless of any
investigation made by, or on behalf of, any Underwriter or any indemnified
person, or by, or on behalf of, the Company, or any person or entity which is
entitled to be indemnified under Section 8(b), and shall survive termination of
this Agreement or the delivery of the Firm Units and the Option Units, if any,
to the several Underwriters. In addition, the provisions of Sections 5(a)(1), 6,
8, 10, 11 and 13 shall survive termination of this Agreement, whether such
termination occurs before or after the Closing Date or the Option Closing Date.
Notwithstanding anything in the second sentence of Section 6 hereof to the
contrary, and in addition to the obligations assumed by the Company pursuant to
the first sentence of Section 6 hereof, if the offering should be terminated,
the Company shall be liable to the Underwriters only for out-of-pocket expenses
incurred by the Underwriters in connection with this Agreement or the proposed
offer, sale, and delivery of the Firm Units, Option Units and the
Representative's Warrants.
36
<PAGE> 37
11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION THEREOF.
(a) This Agreement shall become effective at the earlier of
(i) 9:30 A.M., New York City local time, on the first full business day
following the day on which the Registration Statement becomes effective under
the Act or (ii) the time of the initial public offering of any of the Units by
the Underwriters after the Registration Statement becomes effective. The time of
the initial public offering shall mean the time of the release by Sterne Agee,
for publication, of the first newspaper advertisement relating to the Units, or
the time at which the Units are first generally offered by the Underwriters to
the public by letter, telephone, telegram or telecopy, whichever shall first
occur. The Representative or the Company may prevent this Agreement from
becoming effective without liability of any party to any other party, except as
provided in Section 5(p), Section 6 and Section 8, by giving the notice
indicated in Section 11(c) before the time this Agreement becomes effective
under this Section 11(a).
(b) In addition to the right to terminate this Agreement
pursuant to Sections 7 and 9 hereof, the Representative shall have the right to
terminate this Agreement at any time prior to the Closing Date or the Option
Closing Date, as the case may be, by giving notice to the Company, and, if
exercised, the Over-allotment Option, at any time prior to the Option Closing
Date, by giving notice to the Company in the event of the following: (i) if any
domestic or international event, act, or occurrence has materially and adversely
disrupted, or, in the reasonable opinion of the Representative, will in the
immediate future materially and adversely disrupt, the securities markets; or
(ii) if there shall have been a general suspension of, or a general limitation
on prices for, trading in securities on the New York Stock Exchange or the
American Stock Exchange or in the over-the-counter market; or (iii) if there
shall have been an outbreak or increase in the level of major hostilities or
other national or international calamity; or (iv) if a banking moratorium has
been declared by a state or federal authority; or (v) if a moratorium in foreign
exchange trading by major international banks or persons has been declared; or
(vi) if there shall have been a material interruption in the mail service or
other means of communication within the United States; or (vii) if the Company
shall have sustained a material or substantial loss by fire, flood, accident,
hurricane, earthquake, theft, sabotage, or other calamity or malicious act,
whether or not such loss shall have been insured, or from any labor dispute or
court or government action, order, or decree, which will, in the reasonable
opinion of the Representative, make it inadvisable to proceed with the offering,
sale, or delivery of the Firm Units or the Option Units, as the case may be; or
(viii) if any material governmental restrictions shall have been imposed on
trading in securities in general, which restrictions are
37
<PAGE> 38
not in effect on the date hereof, or (ix) if there shall be passed by the
Congress of the United States or by any state legislature any act or measure, or
adopted by any governmental body or authoritative accounting institute or board,
or any governmental executive, any orders, rules, or regulations, which the
Representative believes likely to have a material adverse effect on the
business, financial condition, or financial statements of the Company or the
market for the Common Stock; or (x) if there shall have been such material and
adverse change in the market for the Company's securities or securities in
general or in political, financial, or economic conditions as in the reasonable
judgment of the Representative makes it inadvisable to proceed with the
offering, sale, and delivery of the Firm Units or the Option Units, as the case
may be, on the terms contemplated by the Prospectus.
(c) If the Representative elects to prevent this Agreement
from becoming effective, as provided in this Section 11, or to terminate this
Agreement pursuant to Section 7 of this Agreement or this Section 11, the
Representative shall notify the Company promptly by telephone, telex, or
telegram, confirmed by letter. If, as so provided, the Company elects to prevent
this Agreement from becoming effective or to terminate this Agreement, the
Company shall notify he Representative promptly by telephone, telex, or
telegram, confirmed by letter.
(d) Notwithstanding anything herein to the contrary, if this
Agreement shall not become effective by reason of the election of the Company
pursuant to Section 11(a) or if this Agreement shall terminate or shall
otherwise not be carried out within the time specified herein by reason of any
failure on the part of the Company to perform any covenant or agreement of this
Agreement or satisfy any condition of this Agreement by it to be performed or
satisfied, the sole liability of the Company to the several Underwriters, in
addition to the obligations the Company assumed pursuant to the first sentence
of Section 6, will be to reimburse the several Underwriters for such
out-of-pocket expenses (including the fees and disbursements of their counsel)
as shall have been incurred by them in connection with this Agreement or the
proposed offer, sale, and delivery of the Firm Units, Option Units and
Representative's Warrants, and, upon demand, the Company agrees to pay promptly
the full amount thereof to the Representative for the respective accounts of the
Underwriters up to a maximum reimbursement of $75,000. Anything in this
Agreement to the contrary notwithstanding other than Section 11(e), if this
Agreement shall not be carried out within the time specified herein for any
reason other than the failure on the part of the Company to perform any covenant
or agreement or satisfy any condition of this Agreement by
38
<PAGE> 39
it to be performed or satisfied, the Company shall have no liability to the
several Underwriters other than for obligations assumed by the Company pursuant
to Section 6.
(e) Notwithstanding any election hereunder or any termination
of this Agreement, and whether or not this Agreement is otherwise carried out,
the provisions of Sections 5(a)(1), 6, 8, 10 and 13 shall not be in any way
affected by such election or termination or failure to carry out the terms of
this Agreement or any part hereof.
12. NOTICES. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to any
Underwriter, shall be mailed, delivered, or telexed or telegraphed and confirmed
by letter, to such Underwriter, c/o Sterne, Agee & Leach, Inc., 1901 Sixth
Avenue North, Suite 2100, Birmingham, Alabama 35203-2675, Attention: James S.
Holbrook, Jr., with a copy to Burr & Forman LLP, 3100 SouthTrust Tower, 420
North Twentieth Street, Birmingham, Alabama 35203, Attention: William K.
Holbrook, Esq., or if sent to the Company, shall be mailed, delivered, or
telexed or telegraphed and confirmed by letter, to the Company, 2 Connect
Express, Inc., 1700 NW 65th Avenue, Plantation, Florida 33113, Attention: Marc
P. Fishman, President, with a copy to Baker & McKenzie, Barnett Tower, Suite
1600, 701 Brickell Avenue, Miami, Florida 33131-2827, Attention: Andrew Hulsh,
Esq. All notices hereunder shall be effective upon receipt by the party to which
it is addressed.
13. PARTIES. Sterne Agee represents that it is authorized to act as
Representative on behalf of the several Underwriters named in Schedule I hereto,
and the Company shall be entitled to act and rely on any request, notice,
consent, waiver, or agreement purportedly given on behalf of the Underwriters
when the same shall have been given by Sterne Agee on such behalf. This
Agreement shall inure solely to the benefit of, and shall be binding upon, the
several Underwriters and the Company and the persons and entities referred to in
Section 8 who are entitled to indemnification or contribution, and their
respective successors, legal representatives, and assigns (which shall not
include any buyer, as such, of the Firm Units or the Option Units), and no other
person shall have, or be construed to have, any legal or equitable right,
remedy, or claim under, in respect of, or by virtue of this Agreement or any
provision herein contained. Notwithstanding anything contained in this Agreement
to the contrary, all of the obligations of the Underwriters hereunder are
several and not joint.
14. CONSTRUCTION. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Alabama, without giving effect to
conflict of laws. TIME IS OF THE ESSENCE IN THIS AGREEMENT.
39
<PAGE> 40
15. CONSENT TO JURISDICTION. The Company irrevocably consents to the
jurisdiction of the courts of the State of Alabama and of any federal court
located in such state in connection with any action or proceeding arising out
of, or relating to, this Agreement, any document or instrument delivered
pursuant to, in connection with, or simultaneously with this Agreement, or a
breach of this Agreement or any such document or instrument. In any such action
or proceeding, the Company waives personal service of any summons, complaint, or
other process and agrees that service thereof may be made in accordance with
Section 12.
16. COUNTERPARTS. This Agreement may be signed in several counterparts,
each of which will constitute an original.
40
<PAGE> 41
If the foregoing correctly sets forth the understandings between the
Representative 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,
2CONNECT EXPRESS, INC.
By:
---------------------
Marc D. Fishman
ACCEPTED as of the date first above
written in Boca Raton, Florida
STERNE, AGEE & LEACH, INC.*
By:
--------------------------------------
*On behalf of itself and the other several
Underwriters named in Schedule I hereto
41
<PAGE> 42
SCHEDULE I
<TABLE>
<CAPTION>
TOTAL
NUMBER
OF UNITS
TO BE
Underwriter PURCHASED
----------- ---------
<S> <C>
Sterne, Agee & Leach, Inc........................................................... 850,000
-------
Total...................................................................... 850,000
=======
</TABLE>
42
<PAGE> 43
EXHIBIT A
---------
REPRESENTATIVE'S WARRANT AGREEMENT
43
<PAGE> 1
[LOGO] Exhibit 4.1
2CONNECT EXPRESS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF FLORIDA
[NUMBER] [SHARES]
COMMON STOCK COMMON STOCK
SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 901860 10 6
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK,
PAR VALUE $.01 PER SHARE, OF
2CONNECT EXPRESS, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
CERTIFICATE OF STOCK
Dated:
/s/ Marc D. Fishman
PRESIDENT AND CHIEF EXECUTIVE OFFICER
/s/ Kevin Killoran
SECRETARY
[CORPORATE SEAL]
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE> 2
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- _______________ Custodian _________________
(Cust) (Minor)
under Uniform Gifts to Minors Act _________________________
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, ______________________________________ hereby sell, assign
and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________Shares of Common Stock
represented by the within Certificate, and do hereby irrevocably constitute
and appoint
_______________________________________________________________________ Attorney
to transfer the said shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated ______________________________
________________________________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED: _______________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE> 1
Exhibit 4.2
NUMBER [2CONNECT LOGO] UNITS
CUSIP
UNITS CONSISTING OF THREE SHARES OF COMMON STOCK, $.01 PAR VALUE,
AND ONE COMMON STOCK PURCHASE WARRANT
THIS CERTIFIES that
is the registered owner of Units
as described above, transferable on the books of 2Connect Express, Inc.
("Corporation") by the holder hereof in person or by duly authorized Attorney
upon surrender of this Unit Certificate properly endorsed.
Each Unit consists of three shares of Common Stock, $.01 par value ("Common
Stock"), and one Common Stock Purchase Warrant ("Warrant") to purchase one
share of Common Stock of the Corporation. The Common Stock and Warrant
constituting a Unit are not transferable separately prior to [1 yr. from
prospectus date] (the "Separation Date"), at which time the Units will
automatically terminate. Commencing on the Separation Date, American Stock
Transfer & Trust Company, the Transfer Agent and Registrar for the Units, will
separate all of the Units at which time the holder hereof may continue to hold
(and trade, if desired) the Common Stock, in the form such Common Stock is then
evidenced, and the holder hereof may for a period of sixty days from the
Separation Date exercise the Warrant to purchase one share of Common Stock at
an exercise price of $4.00 per share, which exercise price is subject to
adjustment under certain circumstances. The Warrant will automatically expire
60 days from the Separation Date.
The Warrants are issued under and the rights represented hereby are subject
to the terms and provisions set forth in a Warrant Agreement dated as
of [ ] between the Corporation and American Stock Transfer & Trust Company,
as Warrant Agent, to all terms and provisions of which the registered holder
hereof, by acceptance hereof, assents. Reference is hereby made to said
Warrant Agreement for a more complete statement of the rights and limitations
of rights of the registered holder hereof, the rights and duties of the Warrant
Agent and the rights and obligations of the Corporation thereunder.
Copies of said Warrant Agreement are on file at the office of said Warrant
Agent.
This Certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrant.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
DATED: 2 CONNECT EXPRESS, INC.
ATTEST: By:
/s/ Kevin Killoran /s/ Marc D. Fishman
----------------------------- -----------------------------
Kevin Killoran Secretary Marc D. Fishman President
[2CONNECT EXPRESS, INC.
CORPORATE
SEAL]
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(New York, New York) TRANSFER AGENT
AND REGISTRAR
AUTHORIZED SIGNATURE
<PAGE> 2
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- _______________ Custodian _________________
(Cust) (Minor)
under Uniform Gifts to Minors Act _________________________
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, ______________________________________ hereby sell, assign
and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________Units represented by
the within Certificate, and do hereby irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said units on the books of the within named Corporation with
full power of substitution in the premises.
Dated ______________________________
________________________________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED: _______________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE> 1
Exhibit 4.3
WARRANT AGREEMENT
by and between
2CONNECT EXPRESS, INC.
and
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
and
STERNE, AGEE & LEACH, INC.,
as Representative
Dated as of ________ ___, 1997
WARRANT AGREEMENT, dated this ____ day of ________, 1997, by and among
2CONNECT EXPRESS, INC., a Florida corporation (the "Company"), AMERICAN STOCK
TRANSFER & TRUST COMPANY, as Warrant Agent (the "Warrant Agent"), and STERNE,
AGEE & LEACH, INC., as Representative (the "Representative").
WITNESSETH:
WHEREAS, the Company has filed with the Securities and Exchange Commission
a Registration Statement on Form SB-2 with respect to an initial public offering
of up to (i) 850,000 Units ("Units"), each Unit consisting of three shares of
the Company's Common Stock, par value $.01 per share, and one common stock
purchase warrant (the "Warrants"), each Warrant entitling the holder thereof to
purchase one share of Common Stock at a price equal to $4.00 per share, (ii) the
over-allotment option to purchase up to an additional 127,500 Units from the
Company (the "Over-allotment Option"), and (iii) the sale to the Representative
of 59,500 warrants (the "Representative's Warrants") to purchase up to 59,500
Units. The Warrants and Representative's Warrants are subject to increase as
provided herein and in the Representative's Warrant Agreement;
WHEREAS, the Company desires to provide for the issuance of certificates
representing the Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants and the rights of the holders thereof.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth and for the purpose of defining the terms and provisions
of the Warrants and the certificates representing the Warrants and the
respective rights and obligations thereunder of the Company, the
Representative, the holders of certificates representing the Warrants and the
Warrant Agent, the parties hereto agree as follows:
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SECTION 1. Definitions.
As used herein, the following terms shall have the following meanings,
unless the context shall otherwise require:
(a) "Act" shall mean the Securities Act of 1933, as amended.
(b) "NASDAQ" shall mean National Association of Securities
Dealers Automated Quotation system.
(c) "Common Stock" shall mean the authorized stock of the Company
of any class, whether now or hereafter authorized, which has the
right to participate in the voting and in the distribution of
earnings and assets of the Company without limit as to amount or
percentage which at the date hereof consists of 25,000,000 shares of
Common Stock, $.01 par value per share.
(d) "Commission" shall mean the Securities and Exchange
Commission.
(e) "Corporate Office shall mean the office of the Warrant Agent
(or its successor) at which at any particular time its business in
New York, New York, shall be administered, which office is located
on the date hereof at ___ Wall Street, New York, New York _______.
(f) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(g) "Exercise Date" shall mean, subject to the provisions of
Section 5(b) hereof, as to any Warrant, the date on which the
Warrant Agent shall have received both (i) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly
executed by the Registered Holder thereof or his attorney duly
authorized in writing, and (ii) payment in cash or by official bank
or certified check made payable to the Warrant Agent for the account
of the Company, of the amount in lawful money of the United States
of America equal to the applicable Purchase Price (as hereinafter
defined) in good funds.
(h) "Initial Warrant Exercise Date" shall mean ______________,
1998 (one year from the effective date of the Registration
Statement).
(i) "NASD" shall mean the National Association of Securities
Dealers, Inc.
(j) "Purchase Price" shall mean, subject to modification and
adjustment as provided in Section 8, $4.00 per share of Common
Stock.
(k) "Registered Holder" shall mean the person in whose name any
certificate representing the Warrants shall be registered on the
books maintained by the Warrant Agent pursuant to Section 6.
(l) "Representative's Warrant Agreement" shall mean the agreement
dated as of ________, 1997 (the date of the Prospectus) between the
Company and the Representative relating to and governing the terms
and provisions of the Representative's Warrants.
(m) "Transfer Agent" shall mean American Stock Transfer & Trust
Company, or its authorized successor.
(n) "Underwriting Agreement" shall mean the underwriting
agreement dated _________, 1997 (the date of the Prospectus) between
the Company and the several underwriters listed therein relating to
the purchase for resale to the public of the 850,000 Units.
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(o) "Warrant Certificate" shall mean a certificate representing
each of the Warrants substantially in the form annexed hereto as
Exhibit A.
(p) "Warrant Expiration Date" shall mean 5:30 p.m. (New York
time), on ________, 1998 (14 months from the effective date of the
Registration Statement); provided, that if such date shall in the
State of New York be a holiday or a day on which banks are
authorized to close, then 5:30 p.m. (New York time) on the next
following day which, in the State of New York, is not a holiday or a
day on which banks are authorized to close; and provided, further,
that the Warrant Expiration Date shall not occur until such time as
a current and effective registration statement covering the Common
Stock underlying the Warrants shall have been in effect for at least
60 days following the Initial Warrant Exercise Date. Upon five
business days' prior written notice to the Registered Holders, the
Company shall have the right to extend the Warrant Expiration Date.
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) Each Warrant shall initially entitle the Registered Holder of
the Warrant Certificate representing such Warrant to purchase at the
Purchase Price therefor from the Initial Warrant Exercise Date until
the Warrant Expiration Date one share of Common Stock upon the
exercise thereof in accordance with the terms hereof, subject to
modification and adjustment as provided in Section 8.
(b) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants sold pursuant to the
Underwriting Agreement (subject to modification and adjustment as
provided in Section 8) shall be executed by the Company and
delivered to the Warrant Agent.
(c) Upon exercise of the Representative's Warrants as provided
therein, Warrant Certificates representing all or a portion of
59,500 Warrants to purchase up to an aggregate of 59,500 shares of
Common Stock (subject to modification and adjustment as provided in
Section 8 hereof and in the Representative's Warrant Agreement),
shall be countersigned, issued and delivered by the Warrant Agent
upon written order of the Company signed by its Chairman of the
Board, Chief Executive Officer, President or a Vice President and by
its Treasurer or an Assistant Treasurer or its Secretary or an
Assistant Secretary.
(d) From time to time, commencing on the Initial Warrant Exercise
Date and continuing up to the Warrant Expiration Date, the Warrant
Agent shall countersign and deliver Warrant Certificates in required
denominations of one or whole number multiples thereof to the person
entitled thereto in connection with any transfer or exchange
permitted under this Agreement. Except as provided herein, no
Warrant Certificates shall be issued except (i) Warrant Certificates
initially issued hereunder, those issued pursuant to the exercise of
the Over-allotment Option and those issued on or after the Initial
Warrant Exercise Date, upon the exercise of fewer than all Warrants
held by the exercising Registered Holder, (ii) Warrant Certificates
issued upon any transfer or exchange of Warrants, (iii) Warrant
Certificates issued in replacement of lost, stolen, destroyed or
mutilated Warrant Certificates pursuant to Section 7, (iv) Warrant
Certificates issued pursuant to the Representative's Warrant
Agreement, and (v) at the option of the Company, Warrant
Certificates in such form as may be approved by its Board of
Directors, to reflect any adjustment or change in the Purchase
Price, the number of shares of Common Stock purchasable upon
exercise of the Warrants or the Redemption Price therefor made
pursuant to Section 8 hereof.
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SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially in the form
annexed hereto as Exhibit A (the provisions of which are hereby
incorporated herein) and may have such letters, numbers or other
marks of identification or designation and such legends, summaries
or endorsements printed, lithographed or engraved thereon as the
Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with
any law or with any rule or regulation made pursuant thereto, or to
conform to usage. The Warrant Certificates shall be dated the date
of issuance thereof (whether upon initial issuance, transfer,
exchange or in lieu of mutilated, lost, stolen or destroyed Warrant
Certificates) and issued in registered form. Warrants shall be
numbered serially with the letter W on the Warrants.
(b) Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, Chief Executive Officer,
President or any Vice President and by its Treasurer or an Assistant
Treasurer or its Secretary or an Assistant Secretary, by manual
signatures or by facsimile signatures printed thereon, and shall
have imprinted thereon a facsimile of the Company's seal. Warrant
Certificates shall be manually countersigned by the Warrant Agent
and shall not be valid for any purpose unless so countersigned. In
case any officer of the Company who shall have signed any of the
Warrant Certificates shall cease to be such officer of the Company
before the date of issuance of the Warrant Certificates or before
countersignature by the Warrant Agent and issue and delivery
thereof, such Warrant Certificates, nevertheless, may be
countersigned by the Warrant Agent, issued and delivered with the
same force and effect as though the person who signed such Warrant
Certificates had not ceased to be such officer of the Company.
After countersignature by the Warrant Agent, Warrant Certificates
shall be delivered by the Warrant Agent to the Registered Holder
promptly and without further action by the Company, except as
otherwise provided by Section 4(a) hereof.
SECTION 4. Exercise of Warrants; Payment of Warrant Solicitation Fee.
(a) Warrants in denominations of one or whole number multiples
thereof may be exercised by the Registered Holder thereof commencing
at any time on or after the Initial Warrant Exercise Date, but not
after the Warrant Expiration Date, upon the terms and subject to the
conditions set forth herein and in the applicable Warrant
Certificate. A Warrant shall be deemed to have been exercised
immediately prior to the close of business on the Exercise Date and
the person entitled to receive the securities deliverable upon such
exercise shall be treated for all purposes as the holder, upon
exercise thereof, as of the close of business on the Exercise Date.
If Warrants in denominations other than whole number multiples
thereof shall be exercised at one time by the same Registered
Holder, the number of full shares of Common Stock which shall be
issuable upon exercise thereof shall be computed on the basis of the
aggregate number of full shares of Common Stock issuable upon such
exercise. As soon as practicable on or after the Exercise Date and
in any event within five business days after such date, if one or
more Warrants have been exercised, the Warrant Agent on behalf of
the Company shall cause to be issued to the person or persons
entitled to receive the same a Common Stock certificate or
certificates for the shares of Common Stock deliverable upon such
exercise, and the Warrant Agent shall deliver the same to the person
or persons entitled thereto. Upon the exercise of any one or more
Warrants, the Warrant Agent shall promptly notify the Company in
writing of such fact and of the number of securities delivered upon
such exercise and, subject to subsection (b) below, shall cause all
payments of an amount in cash or by check made payable to the order
of the Company, equal to the Purchase Price, to be deposited
promptly in the Company's bank account.
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<PAGE> 5
(b) At any time upon the exercise of any Warrants, the Warrant
Agent shall, on a daily basis, within two business days after such
exercise, notify the Representative of the exercise of any such
Warrants and shall, on a weekly basis (subject to collection of
funds constituting the tendered Purchase Price, but in no event
later than five business days after the last day of the calendar
week in which such funds were tendered), remit to the Representative
an amount equal to five percent (5%) of the Purchase Price of such
Warrants then being exercised unless the Representative shall have
notified the Warrant Agent that the payment of such amount with
respect to such Warrant is violative of the General Rules and
Regulations promulgated under the Exchange Act, or the rules and
regulations of the NASD or applicable state securities or "blue sky"
laws, or the Warrants are those underlying the Representative's
Warrants in which event, the Warrant Agent shall have to pay such
amount to the Company; provided, that the Warrant Agent shall not be
obligated to pay any amounts pursuant to this Section 4(b) during
any week that such amounts payable are less than $1,000 and the
Warrant Agent's obligation to make such payments shall be suspended
until the amount payable aggregates $1,000, and provided further,
that, in any event, any such payment (regardless of amount) shall be
made not less frequently than monthly. Notwithstanding the
foregoing, the Representative shall be entitled to receive the
commission contemplated by this Section 4(b) as Warrant solicitation
agent only if: (i) the Representative has provided actual services
in connection with the solicitation of the exercise of a Warrant by
a Registered Holder and (ii) the Registered Holder exercising a
Warrant(s) affirmatively designates in writing on the exercise form
on the reverse side of the Warrant Certificate that the exercise of
such Registered Holder's Warrant(s) was solicited by the
Representative.
(c) The Company shall not be required to issue fractional shares
on the exercise of Warrants. Warrants may only be exercised in such
multiples as are required to permit the issuance by the Company of
one or more whole shares. If one or more Warrants shall be presented
for exercise in full at the same time by the same Registered Holder,
the number of whole shares which shall be issuable upon such
exercise thereof shall be computed on the basis of the aggregate
number of shares purchasable on exercise of the Warrants so
presented. If any fraction of a share would, except for the
provisions provided herein, be issuable on the exercise of any
Warrant (or specified portion thereof), the Company shall pay an
amount in cash equal to such fraction multiplied by the then current
market value of a share of Common Stock, determined as follows:
(1) If the Common Stock is listed, or admitted to
unlisted trading privileges, on NASDAQ or a national
securities exchange, the current market value of a share of
Common Stock shall be the closing sale price of the Common
Stock at the end of the regular trading session on the last
business day prior to the date of exercise of the Warrants on
whichever of such exchanges had the highest average daily
trading volume for the Common Stock on such day; or
(2) If the Common Stock is not listed or admitted to
unlisted trading privileges on any national securities
exchange, but is traded in the over-the-counter market, the
current market value of a share of Common Stock shall be the
average of the last reported bid and asked prices of the
Common Stock reported by the National Quotation Bureau, Inc.
on the last business day prior to the date of exercise of the
Warrants; or
(3) If the Common Stock is not listed or admitted to
unlisted trading privileges on any national securities
exchange, and bid and asked prices of the Common Stock are not
reported by the National Quotation Bureau, Inc., the current
market value of a share of Common Stock shall be an amount,
not less than the book value thereof as of the end of the most
recently completed fiscal quarter of the Company ending
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prior to the date of exercise, determined by the members of
the Board of Directors of the Company exercising good faith
and using customary valuation methods.
SECTION 5. Reservation of Shares; Listing; Payment of Taxes; etc.
(a) The Company covenants that it will at all times reserve and
keep available out of its authorized Common Stock, solely for the
purpose of issue upon exercise of Warrants, such number of shares of
Common Stock as shall then be issuable upon the exercise of all
outstanding Warrants. The Company covenants that all shares of
Common Stock which shall be issuable upon exercise of the Warrants
shall, at the time of delivery thereof, be duly and validly issued
and fully paid and nonassessable and free from all preemptive or
similar rights, taxes, liens and charges with respect to the issue
thereof, and that upon issuance such shares shall be listed on each
securities exchange, if any, on which the other shares of
outstanding Common Stock of the Company are then listed.
(b) The Company covenants that if any securities to be reserved
for the purpose of exercise of Warrants hereunder require
registration with, or approval of, any governmental authority under
any federal securities law before such securities may be validly
issued or delivered upon such exercise, then the Company will file a
registration statement under the federal securities laws or a
post-effective amendment, use its best efforts to cause the same to
become effective and to keep such registration statement current
while any of the Warrants are outstanding and deliver a prospectus
which complies with Section 10(a)(3) of the Act, to the Registered
Holder exercising the Warrant (except, if in the opinion of counsel
to the Company, such registration is not required under the federal
securities laws or if the Company receives a letter from the Staff
of the Commission stating that it would not take any enforcement
action if such registration is not effected). The Company will use
its best efforts to obtain appropriate approvals or registrations
under state "blue sky" securities laws with respect to any such
securities. However, Warrants may not be exercised by, or shares of
Common Stock issued to, any Registered Holder in any state in which
such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes
and other governmental charges that may be imposed with respect to
the issuance of Warrants, or the issuance or delivery of any shares
of Common Stock upon exercise of the Warrants; provided, however,
that if shares of Common Stock are to be delivered in a name other
than the name of the Registered Holder of the Warrant Certificate
representing any Warrant being exercised, then no such delivery
shall be made unless the person requesting the same has paid to the
Warrant Agent the amount of transfer taxes or charges incident
thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized as the
Transfer Agent to requisition from time to time certificates
representing shares of Common Stock or other securities required
upon exercise of the Warrants, and the Company will comply with all
such requisitions.
SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of
the same class or may be transferred in whole or in part. Warrant
Certificates to be exchanged shall be surrendered to the Warrant
Agent at its Corporate Office, and, upon satisfaction of the terms
and provisions hereof, the Company shall execute and the Warrant
Agent shall countersign, issue and deliver in exchange therefor the
Warrant Certificate or Certificates which the Registered Holder
making the exchange shall be entitled to receive.
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(b) The Warrant Agent shall keep, at its office, books in which,
subject to such reasonable regulations as it may prescribe, it shall
register Warrant Certificates and the transfer thereof in accordance
with customary practice. Upon due presentment for registration of
transfer of any Warrant Certificate at such office, the Company
shall execute and the Warrant Agent shall issue and deliver to the
transferee or transferees a new Warrant Certificate or Certificates
representing an equal aggregate number of Warrants of the same
class.
(c) With respect to all Warrant Certificates presented for
registration of transfer, or for exchange or exercise, the
subscription or exercise form, as the case may be, on the reverse
thereof shall be duly endorsed or be accompanied by a written
instrument or instruments of transfer and subscription, in form
satisfactory to the Company and the Warrant Agent, duly executed by
the Registered Holder thereof or his attorney-in-fact duly
authorized in writing.
(d) A service charge may be imposed by the Warrant Agent for any
exchange or registration of transfer of Warrant Certificates. In
addition, the Company may require payment by such Holder of a sum
sufficient to cover any tax or other governmental charge that may be
imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for
exchange in case of mutilated Warrant Certificates shall be promptly
canceled by the Warrant Agent and thereafter retained by the Warrant
Agent until termination of this Agreement.
(f) Prior to due presentment for registration of transfer
thereof, the Company and the Warrant Agent may deem and treat the
Registered Holder of any Warrant Certificate as the absolute owner
thereof and of each Warrant represented thereby (notwithstanding any
notations of ownership or writing thereon made by anyone other than
a duly authorized officer of the Company or the Warrant Agent) for
all purposes and shall not be affected by any notice to the
contrary.
SECTION 7. Loss or Mutilation.
Upon receipt by the Company and the Warrant Agent of evidence
satisfactory to them of the ownership of and the loss, theft, destruction
or mutilation of any Warrant Certificate and (in the case of loss, theft
or destruction) of indemnity satisfactory to them, and (in case of
mutilation) upon surrender and cancellation thereof, the Company shall
execute and the Warrant Agent shall (in the absence of notice to the
Company and/or the Warrant Agent that a new Warrant Certificate has been
acquired by a bona fide purchaser) countersign and deliver to the
Registered Holder in lieu thereof a new Warrant Certificate of like tenor
representing an equal aggregate number of Warrants. Applicants for a
substitute Warrant Certificate shall also comply with such other
reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.
SECTION 8. Adjustment of Purchase Price and Number of Shares of Common Stock
Deliverable.
(a) Except as hereinafter provided, in the event the Company
shall, at any time or from time to time after the date hereof and
prior to the Warrant Expiration Date, issue any shares of Common
Stock as a stock dividend to the holders of Common Stock, or
subdivide or combine the outstanding shares of Common Stock into a
greater or lesser number of shares (any such issuance, subdivision
or combination being herein called a "Change of Shares"), then, and
thereafter upon each further Change of Shares, the Purchase Price
for the Warrants (whether or not the same shall be issued and
outstanding) in effect immediately prior to such Change of Shares
shall be changed to a price (including any applicable fraction of a
cent to the nearest cent) determined by dividing (i) the total
number of shares of Common Stock outstanding immediately prior to
such Change of Shares, multiplied by the Purchase Price in effect
immediately prior to such Change of Shares by (ii) the total number
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<PAGE> 8
of shares of Common Stock outstanding immediately after such Change
of Shares; provided, however, that in no event shall the Purchase
Price be adjusted pursuant to this computation to an amount in
excess of the Purchase Price in effect immediately prior to such
computation, except in the case of a combination of outstanding
shares of Common Stock.
For the purposes of any adjustment to be made in accordance with
this Section 8(a), the following provisions shall be applicable:
(A) 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.
(B) 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 immediately prior to the close of business on the date
fixed for the determination of security holders entitled to receive
such shares.
(C) The number of shares of Common Stock at any one time
outstanding shall be deemed to include the aggregate maximum number
of shares issuable (subject to readjustment upon the actual
issuance thereof) upon the exercise of options, rights or warrants
and upon the conversion or exchange of convertible or exchangeable
securities.
(b) Upon each adjustment of the Purchase Price pursuant to this
Section 8, the number of shares of Common Stock purchasable upon the
exercise of each Warrant shall be the number derived by multiplying
the number of shares of Common Stock purchasable immediately prior
to such adjustment by the Purchase Price in effect prior to such
adjustment and dividing the product so obtained by the applicable
adjusted Purchase Price.
(c) In case of any reclassification or change of outstanding
shares of Common Stock issuable upon exercise of the Warrants (other
than a change in par value, or from 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 case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a
subsidiary of the Company in which merger the Company is the
continuing corporation) and which does not result in any
reclassification or change of the then outstanding shares of Common
Stock or other capital stock issuable upon exercise of the Warrants
(other than a change in par value, or from 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 case of any sale or conveyance to
another corporation of the property of the Company as an entirety or
substantially as an entirety, then, as a condition of such
reclassification, change, consolidation, merger, sale or conveyance,
the Company, or such successor or purchasing corporation, as the
case may be, shall make lawful and adequate provision whereby the
Registered Holder of each Warrant then outstanding shall have the
right thereafter to receive on exercise of such Warrant the kind and
amount of securities and property receivable upon such
reclassification, change, consolidation, merger, sale or conveyance
by a holder of the number of securities issuable upon exercise of
such Warrant immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance and shall forthwith file
at the Corporate Office of the Warrant Agent a statement signed by
its Chief Executive Officer, President or a Vice President and by
its Treasurer or an Assistant Treasurer or its Secretary or an
Assistant Secretary evidencing such provision. Such provisions
shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in
Sections 8(a) and (b). The above
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provisions of this Section 8(c) shall similarly apply to successive
reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.
(d) Irrespective of any adjustments or changes in the Purchase
Price or the number of shares of Common Stock purchasable upon
exercise of the Warrants, the Warrant Certificates theretofore and
thereafter issued shall, unless the Company shall exercise its
option to issue new Warrant Certificates pursuant to Section 2(d)
hereof, continue to express the Purchase Price per share and the
number of shares purchasable thereunder as the Purchase Price per
share and the number of shares purchasable thereunder were expressed
in the Warrant Certificates when the same were originally issued.
(e) After each adjustment of the Purchase Price pursuant to this
Section 8, the Company will promptly prepare a certificate signed by
the Chairman, Chief Executive Officer or President, and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary, of the Company setting forth: (i) the Purchase Price as
so adjusted, (ii) the number of shares of Common Stock purchasable
upon exercise of each Warrant, after such adjustment, and (iii) a
brief statement of the facts accounting for such adjustment. The
Company will promptly file such certificate with the Warrant Agent
and cause a brief summary thereof to be sent by ordinary first class
mail to each Registered Holder at his last address as it shall
appear on the registry books of the Warrant Agent. No failure to
mail such notice nor any defect therein or in the mailing thereof
shall affect the validity thereof except as to the holder to whom
the Company failed to mail such notice, or except as to the holder
whose notice was defective. The affidavit of an officer of the
Warrant Agent or the Secretary or an Assistant Secretary of the
Company that such notice has been mailed shall, in the absence of
fraud, be prima facie evidence of the facts stated therein.
(f) No adjustment of the Purchase Price shall be made as a result
of or in connection with (A) the issuance or sale of shares of
Common Stock pursuant to options, warrants, stock purchase
agreements, asset purchase agreements and convertible or
exchangeable securities; or (B) the issuance or sale of shares of
Common Stock if the amount of said adjustment shall be less than
$.10, provided, however, that 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 of and together with the next
subsequent adjustment that shall amount, together with any
adjustment so carried forward, to at least $.10. In addition,
Registered Holders shall not be entitled to cash dividends paid by
the Company prior to the exercise of any Warrant or Warrants held by
them.
SECTION 9. Concerning the Warrant Agent.
(a) The Warrant Agent acts hereunder as agent and in a
ministerial capacity for the Company and the Representative, and its
duties shall be determined solely by the provisions hereof. The
Warrant Agent shall not, by issuing and delivering Warrant
Certificates or by any other act hereunder, be deemed to make any
representations as to the validity or value or authorization of the
Warrant Certificates or the Warrants represented thereby or of any
securities or other property delivered upon exercise of any Warrant
or whether any stock issued upon exercise of any Warrant is fully
paid and nonassessable.
(b) The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or
cause to be made any adjustment of the Purchase Price or the
Redemption Price provided in this Agreement, or to determine whether
any fact exists which may require any such adjustments, or with
respect to the nature or extent of any such adjustments, when made,
or with respect to the method employed in making the same. It shall
not (i) be liable for any recital or statement of fact contained
herein or for any action
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taken, suffered or omitted by it in reliance on any Warrant
Certificate or other document or instrument believed by it in good
faith to be genuine and to have been signed or presented by the
proper party or parties, (ii) be responsible for any failure on the
part of the Company to comply with any of its covenants and
obligations contained in this Agreement or in any Warrant
Certificate, or (iii) be liable for any act or omission in
connection with this Agreement except for its own negligence, bad
faith or willful misconduct.
(c) The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company or for the
Representative) and shall incur no liability or responsibility for
any action taken, suffered or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
(d) Any notice, statement, instruction, request, direction, order
or demand of the Company shall be sufficiently evidenced by an
instrument signed by the Chairman of the Board of Directors, Chief
Executive Officer, President or Chief Financial Officer (unless
other evidence in respect thereof is herein specifically
prescribed). The Warrant Agent shall not be liable for any action
taken, suffered or omitted by it in accordance with such notice,
statement, instruction, request, direction, order or demand
reasonably believed by it to be genuine.
(e) The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its
reasonable expenses hereunder; the Company further agrees to
indemnify the Warrant Agent and save it harmless from and against
any and all losses, expenses and liabilities, including judgments,
costs and counsel fees, for anything done or omitted by the Warrant
Agent in the execution of its duties and powers hereunder except
losses, expenses and liabilities arising as a result of the Warrant
Agent's negligence, bad faith or willful misconduct.
(f) The Warrant Agent may resign its duties and be discharged
from all further duties and liabilities hereunder (except
liabilities arising as a result of the Warrant Agent's own
negligence or willful misconduct), after giving 30 days' prior
written notice to the Company. At least 15 days prior to the date
such resignation is to become effective, the Warrant Agent shall
cause a copy of such notice of resignation to be mailed to the
Registered Holder of each Warrant Certificate at the Company's
expense. Upon such resignation, or any inability of the Warrant
Agent to act as such hereunder, the Company shall appoint in writing
a new warrant agent. If the Company shall fail to make such
appointment within a period of 15 days after it has been notified in
writing of such resignation by the resigning Warrant Agent, then the
Registered Holder of any Warrant Certificate may apply to any court
of competent jurisdiction for the appointment of a new warrant
agent. Any new warrant agent, whether appointed by the Company or
by such a court, shall be a bank or trust company having a capital
and surplus, as shown by its last published report to its
stockholders, of not less than $10,000,000 or a stock transfer
company. After acceptance in writing of such appointment by the new
warrant agent is received by the Company, such new warrant agent
shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the
Warrant Agent, without any further assurance, conveyance, act or
deed; but if for any reason it shall be necessary or expedient to
execute and deliver any further assurance, conveyance, act or deed,
the same shall be done at the expense of the Company and shall be
legally and validly executed and delivered by the resigning Warrant
Agent. Not later than the effective date of any such appointment the
Company shall file notice thereof with the resigning Warrant Agent
and shall forthwith cause a copy of such notice to be mailed to the
Registered Holder of each Warrant Certificate.
(g) Any corporation into which the Warrant Agent or any new
warrant agent may be converted or merged, any corporation resulting
from any consolidation to which the Warrant Agent or any new warrant
agent shall be a party, or any corporation succeeding to the
corporate trust
10
<PAGE> 11
business of the Warrant Agent or any new warrant agent shall be a
successor warrant agent under this Agreement without any further
act, provided that such corporation is eligible for appointment as
successor to the Warrant Agent under the provisions of the
preceding paragraph. Any such successor warrant agent shall
promptly cause notice of its succession as warrant agent to be
mailed to the Company and to the Registered Holders of each Warrant
Certificate.
(h) The Warrant Agent, its subsidiaries and affiliates, and any
of its or their officers or directors, may buy and hold or sell
Warrants or other securities of the Company and otherwise deal with
the Company in the same manner and to the same extent and with like
effect as though it were not Warrant Agent. Nothing herein shall
preclude the Warrant Agent from acting in any other capacity for the
Company or for any other legal entity.
(i) The Warrant Agent shall retain for a period of two years from
the date of exercise any Warrant Certificate received by it upon
such exercise.
SECTION 10. Modification of Agreement.
The Warrant Agent and the Company may by supplemental agreement make any
changes or corrections in this Agreement (i) that they shall deem
appropriate to cure any ambiguity or to correct any defective or
inconsistent provision or manifest mistake or error herein contained; or
(ii) that they may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Warrant Certificates;
provided, however, that this Agreement shall not otherwise be modified,
supplemented or altered in any respect except with the consent in writing
of the Registered Holders representing not less than 66-2/3% of the
Warrants then outstanding; provided, further, that no change in the
number or nature of the securities purchasable upon the exercise of any
Warrant, or to increase the Purchase Price therefor or to accelerate the
Warrant Expiration Date, shall be made without the consent in writing of
the Registered Holder of the Warrant Certificate representing such
Warrant, other than such changes as are presently specifically prescribed
by this Agreement as originally executed. In addition, this Agreement
may not be modified, amended or supplemented without the prior written
consent of the Representative, other than to cure any ambiguity or to
correct any provision which is inconsistent with any other provision of
this Agreement or to make any such change that is necessary or desirable
and which shall not adversely affect the interests of the Representative
and except as may be required by law.
SECTION 11. Notices.
All notices, requests, consents and other communications hereunder shall
be in writing and shall be deemed to have been made when delivered or
mailed first-class registered or certified mail, postage prepaid, as
follows: if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the
Warrant Agent; if to the Company at 2Connect Express, Inc., 1700 N.W.
65th Avenue, Suite 4, Plantation, Florida 33313, Attention: Marc Fishman,
President and Chief Executive Officer, or at such other address as may
have been furnished to the Warrant Agent in writing by the Company; and
if to the Warrant Agent, at its Corporate Office. Copies of any notice
delivered pursuant to this Agreement shall also be delivered to the
Representative at 1901 Sixth Avenue North, Suite 2100, Birmingham,
Alabama 35203, Attention: James S. Holbrook, Jr., Chairman and Chief
Executive Officer, or at such other address as may have been furnished to
the Company and the Warrant Agent in writing.
SECTION 12. Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Florida without giving effect to conflicts of laws.
11
<PAGE> 12
SECTION 13. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
Company, the Representative, the Warrant Agent and their respective
successors and assigns and the holders from time to time of Warrant
Certificates or any of them. Nothing in this Agreement is intended or
shall be construed to confer upon any other person any right, remedy or
claim, in equity or at law, or to impose upon any other person any duty,
liability or obligation.
SECTION 14. Termination.
This Agreement shall terminate at the close of business on the Expiration
Date of all of the Warrants or such earlier date upon which all Warrants
have been exercised or redeemed, except that the Warrant Agent shall
account to the Company for cash held by it and the provisions of Section
10 hereof shall survive such termination.
SECTION 15. Counterparts.
This Agreement may be executed in several counterparts, which taken
together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
SEAL
2CONNECT EXPRESS, INC.
By:
--------------------------------
Name:
--------------------------
Title:
--------------------------
Attest:
By:
--------------------
Name:
---------------
Title:
--------------
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
By:
--------------------------------
Name:
---------------------------
Title:
--------------------------
STERNE, AGEE & LEACH, INC.,
as Representative
By:
--------------------------------
Name:
---------------------------
Title:
--------------------------
12
<PAGE> 13
EXHIBIT A
No. W______________
VOID AFTER _________________, 2001
WARRANTS
WARRANT CERTIFICATE TO
PURCHASE ONE SHARE OF COMMON STOCK
2CONNECT EXPRESS, INC.
CUSIP____________
THIS CERTIFIES THAT, FOR VALUE RECEIVED or registered assigns (the
"Registered Holder") is the owner of the number of Warrants (the "Warrants")
specified above. Each Warrant initially entitles the Registered Holder to
purchase, subject to the terms and conditions set forth in this Certificate and
the Warrant Agreement (as hereinafter defined), one fully paid and
nonassessable share of Common Stock, $.01 par value, of 2CONNECT EXPRESS, INC.,
a Florida corporation (the "Company"), at any time between ________, 1998 (the
"Initial Warrant Exercise Date"), and the Expiration Date (as hereinafter
defined) upon the presentation and surrender of this Warrant Certificate with
the Subscription Form on the reverse hereof duly executed, at the corporate
office of American Stock Transfer & Trust Company, as Warrant Agent, or its
successor (the "Warrant Agent"), accompanied by payment of $4.00 per share of
Common Stock, subject to adjustment (the "Purchase Price"), in lawful money of
the United States of America in cash or by check made payable to the Warrant
Agent for the account of the Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement"), dated
___________,1997 ), between the Company, Sterne, Agee & Leach, Inc. (the
"Representative") and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all the Warrants represented hereby, the Company
shall cancel this Warrant Certificate upon the surrender hereof and shall
execute and deliver a new Warrant Certificate or Warrant Certificates of like
tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:30 p.m. (New York time) on
________________, 1998. If each such date shall in the State of New York be a
holiday or a day on which the banks are authorized to close, then the
Expiration Date shall mean 5:30 p.m. (New York time) on the next following day
which in the State of New York is not a holiday or a day on which banks are
authorized to close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended (the "Act"), with respect to such securities
is effective or an exemption thereunder is available. The Company has
covenanted and agreed that it will file a registration statement under the
Federal securities laws, use its best efforts to cause the same to become
effective, use its best efforts to keep such registration statement current, if
required under the Act, while any of the Warrants are outstanding, and deliver
a prospectus which complies with Section
<PAGE> 14
10(a)(3) of the Act to the Registered Holder exercising this Warrant. This
Warrant shall not be exercisable by a Registered Holder in any state where such
exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment and payment of any
tax or other charge imposed in connection therewith or incident thereto, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Under certain circumstances, the Representative may be entitled to receive
an aggregate of five percent (5%) of the Purchase Price of the Warrants
represented hereby.
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of Florida without giving effect to conflicts of
laws.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
2
<PAGE> 15
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated:
2CONNECT EXPRESS, INC.
SEAL:
By:
-----------------------------
Name:
--------------------
Title:
-------------------
By:
-----------------------------
Name:
--------------------
Title: Secretary
COUNTERSIGNED:
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
By:
-----------------------
Authorized Officer
Name:
------------------
Title:
-----------------
3
<PAGE> 16
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
_________ Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in the name of:
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
(please print or type name and address)
and be delivered to
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
IMPORTANT: PLEASE CIRCLE AND COMPLETE THE FOLLOWING, AS APPLICABLE:
1. The exercise of this Warrant was solicited by
Sterne, Agee & Leach, Inc.,
as Representative.
2. The exercise of this Warrant was solicited by
.
----------------------------------------------
3. The exercise of this Warrant was not solicited.
Dated:
----------------------
Address
Social Security or Taxpayer
Identification Number
Signature Guaranteed
<PAGE> 17
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, __________________, hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER
(please print or type name and address)
________________ of the Warrants represented by this Warrant Certificate, and
hereby irrevocably constitutes and appoints ________________ Attorney to
transfer this Warrant Certificate on the books of the Company, with full power
of substitution in the premises.
Dated:
------------------------
------------------------
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE
GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE> 1
Exhibit 4.4
REPRESENTATIVE'S WARRANT AGREEMENT (the "Representative's Warrant
Agreement" or "Agreement"), dated as of April __, 1997, between 2CONNECT
EXPRESS, INC. (the "Company"), and STERNE, AGEE & LEACH, INC. (the
"Representative").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Representative has agreed, pursuant to the underwriting
agreement (the "Underwriting Agreement") dated as of the date hereof between the
Company and the Representative, to act as the Representative of the Underwriters
in connection with the Company's proposed public offering (the "Public
Offering") of 850,000 Units ("Units") for $9.00 per Unit, each Unit of which
consists of three (3) shares of the Company's common stock, par value $.01 per
share ("Common Stock"), and one (1) Common Stock Purchase Warrant ("Warrant").
Neither the shares of Common Stock nor the Warrants contained in the Units are
detachable or separately transferable from the Units until one year from the
date of the Effective Date (as hereinafter defined); and
WHEREAS, the Company proposes to issue to the Representative and/or
persons related to the Representative as those persons are defined in Rule 2710
of the NASD Conduct Rules (the "Holder"), 59,500 warrants ("Representative
Warrants") which are immediately exercisable to purchase up to 59,500 Units
("Representative Units") and which expire one year from the date of the final
prospectus associated with the Public Offering. The Common Stock underlying the
Representative Units shall hereinafter be referred to as the "Underlying Common
Stock" and the Warrants underlying the Representative Units shall hereinafter be
referred to as the "Underlying Warrants". Furthermore, the Underlying Common
Stock and the Underlying Warrants shall be hereinafter collectively referred to
as the "Warrant Securities"; and
WHEREAS, the Representative Warrants to be issued pursuant to this
Agreement will be issued on the Closing Date (as such term is defined in the
Underwriting Agreement) by the Company to the Holders in consideration for, and
as part of the compensation in connection with, the Representative acting as
Representative pursuant to the Underwriting Agreement.
NOW, THEREFORE, in consideration of the premises, the payment by the
Representative to the Company of FIVE DOLLARS AND NINETY-FIVE CENTS ($5.95), the
agreements herein set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. GRANT AND PERIOD.
The Public Offering has been registered under a Registration Statement
on Form SB-2 (File No. 333-15567) ("Registration Statement") and declared
effective by the Securities and Exchange Commission (the "SEC" or "Commission")
on April ___, 1997 (the "Effective Date"). This Agreement, relating to the
purchase of the Representative Warrants, is entered into pursuant to the
Underwriting Agreement between the Company and the Representative, as
representative of the Underwriters, in connection with the Public Offering.
Pursuant to the Representative Warrants, the Holders are hereby granted
the right to purchase from the Company, at any time during the period commencing
on the Closing Date (as defined in the Underwriting Agreement), and expiring at
5:30 P.M., New York local time, on April __, 1998 (12 months after the Effective
Date); provided that, if such date shall fall on a weekend day or federal
holiday, then the next following day which is not a weekend day or federal
holiday (the "Expiration Time"), up to 59,500 Units at an exercise price
(subject to adjustment as provided in Article 7 hereof) of $9.63 per Unit (107%
of the Public Offering price of the Units) ("Exercise Price"). The exercise
price of each Underlying Warrant shall be $4.00 per share of Common Stock
("Underlying Exercise Price"). The adjusted exercise price shall be the price
which shall result from time to time from any and all adjustments of the initial
exercise price in accordance with the provisions of Section 7 hereof. The
Underlying Warrants are exercisable during the sixty (60) day period commencing
one (1) year following the Effective Date in accordance with the Warrant
Agreement.
Except as specifically otherwise provided herein, the Underlying Common
Stock and the Underlying Warrants constituting the Warrant Securities shall bear
the same terms and conditions as such securities described under the caption
"Description of Securities" in the Registration Statement, and as designated in
the Company's Articles of Incorporation and
<PAGE> 2
any amendments thereto, and the Underlying Warrants shall be governed by the
terms of the Warrant Agreement executed in connection with the Public Offering
(the "Warrant Agreement"), except as provided herein, and the Holders shall have
registration rights under the Securities Act of 1933, as amended (the "Act"),
for the Representative Warrants, the Underlying Common Stock, the Underlying
Warrants, and the shares of Common Stock underlying the Underlying Warrants, as
more fully described in Section 6 of this Representative's Warrant Agreement. In
the event of any extension of the expiration date or reduction of the exercise
price of the Warrants, the same such changes to the Underlying Warrants shall be
simultaneously effected, except that the Underlying Warrants shall expire no
later than five (5) years from the Effective Date.
2. WARRANT CERTIFICATES.
The Warrant Certificates (the "Warrant Certificates") delivered and to
be delivered pursuant to this Agreement shall be in the form set forth in the
form of Warrant Certificate, attached hereto and made a part hereof, with such
appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
3. EXERCISE OF WARRANT.
3.1 FULL EXERCISE. The Holder hereof may effect a cash exercise
of the Representative Warrants and the Underlying Warrants by
surrendering the Warrant Certificate, together with a Subscription in
the form of Exhibit "A" attached thereto, duly executed by such Holder
to the Company, at any time prior to the Expiration Time, at the
Company's principal office, accompanied by payment in cash or by
certified or official bank check payable to the order of the Company or
wire transfer in the amount of the aggregate purchase price which shall
be equal to the Exercise Price multiplied by the number of
Representative Warrants (as adjusted as hereinafter provided) (the
"Aggregate Price"), subject to any adjustments provided for in Section
7 of this Agreement.
3.2 PARTIAL EXERCISE. The securities referred to in paragraph
3.1 above also may be exercised from time to time in part by
surrendering the Warrant Certificate in the manner specified in Section
3.1 hereof, except that the Exercise Price payable shall be equal to
the number of securities being purchased hereunder multiplied by the
per security Exercise Price, subject to any adjustments provided for in
this Agreement. Upon any such partial exercise, the Company, at its
expense, will forthwith issue to the Holder hereof a new Warrant
Certificate for Representative Warrants of like tenor calling in the
aggregate for the number of securities (as constituted as of the date
hereof) for which the Warrant Certificate shall not have been
exercised, issued in the name of the Holder hereof or as such Holder
(upon payment by such Holder of any applicable transfer taxes) may
direct.
4. ISSUANCE OF CERTIFICATES.
Upon the exercise of the Representative Warrants and/or the Underlying
Warrants, the issuance of certificates for the Warrant Securities and/or other
securities shall be made forthwith (and in any event within three (3) business
days thereafter) without charge to the Holder thereof including, without
limitation, any stock transfer or similar tax which may be payable in respect of
the issuance thereof, and such certificates shall (subject to the provisions of
Sections 5 and 6 hereof) be issued in the name of, or in such names as may be
directed by, the Holder thereof; provided, however, that the Company shall not
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certificates in a name other
than that of the Holder and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the Warrant
Securities and/or other securities shall be executed on behalf of the Company by
the manual or facsimile signature of the then present Chairman or Vice Chairman
of the Board of Directors or President or Vice President of the Company under
its corporate seal reproduced thereon, and attested to by the manual or
facsimile signature of the then present Secretary or Assistant Secretary of the
Company. Warrant Certificates shall be dated the date of execution by the
Company upon initial issuance, division, exchange, substitution or transfer.
2
<PAGE> 3
5. RESTRICTION ON TRANSFER OF WARRANTS.
The Holder of a Warrant Certificate, by acceptance thereof, covenants
and agrees that the Representative Warrants, and in the event of the exercise
thereof, the Representative Unit, may not be sold, transferred, assigned,
pledged, hypothecated or otherwise disposed of, in whole or in part, for a
period of one (1) year from the Effective Date, except (a) to officers of the
Representative or to officers and partners of the other Underwriters or Selected
Dealers participating in the Public Offering; (b) by will; or (c) by operation
of law.
6. LIQUIDITY RIGHTS.
6.1 EFFECTIVENESS OF REGISTRATION STATEMENT.
For a period of fourteen (14) months commencing on the Effective Date,
the Company shall, at its own expense, file such post-effective amendments to
the Registration Statement as may be required in order to ensure the existence
of a current prospectus with respect to the issuance and resale of the Common
Stock issuable upon the exercise of the Representative Warrants and the
Underlying Warrants, subject, however, to the regulation policies of the
Commission and the staff thereof, and shall, at the Company's own expense,
maintain the State Securities or Blue Sky Law registrations and qualifications
or exemptions therefrom with respect to the Common Stock issued pursuant to the
exercise of the Representative Warrants and the Underlying Warrants for such
period.
6.2 REGISTRATION RIGHTS.
(a) If, at any time during the seven-year period commencing on the
Effective Date, the Company shall file a registration statement (other than on
Form S-4, Form S-8 or any successor form) with the Securities and Exchange
Commission (the "Commission") while any Registrable Securities (as hereinafter
defined) are outstanding, the Company shall give all the then holders of any
Registrable Securities (the "Eligible Holders") at least 45 days prior written
notice of the filing of such registration statement. If requested by any
Eligible Holder in writing within 30 days after receipt of any such notice, the
Company shall, at the Company's sole expense (other than the fees and
disbursements of counsel for the Eligible Holders and the underwriting
discounts, if any, payable in respect of the Registrable Securities sold by any
Eligible Holder), register or qualify all or, at each Eligible Holder's option,
any portion of the Registrable Securities of any Eligible Holders who shall have
made such request, concurrently with the registration of such other securities,
all to the extent requisite to permit the public offering and sale of the
Registrable Securities, and will use its best efforts through its officers,
directors, auditors, and counsel to cause such registration statement to become
effective as promptly as practicable. Notwithstanding the foregoing, if the
managing underwriter of any such offering shall advise the Company in writing
that, in its opinion, the distribution of all or a portion of the Registrable
Securities requested to be included in the registration concurrently with the
securities being registered by the Company would materially adversely affect the
distribution of such securities by the Company for its own account, then any
Eligible Holder who shall have requested registration of his, her, or its
Registrable Securities shall delay the offering and sale of such Registrable
Securities (or the portions thereof so designated by such managing underwriter)
for such period, not to exceed 90 days (the "Delay Period"), as the managing
underwriter shall request, provided that no such delay shall be required as to
any Registrable Securities if any securities of the Company are included in such
registration statement and eligible for sale during the Delay Period for the
account of any person other than the Company and any Eligible Holder unless the
securities included in such registration statement and eligible for sale during
the Delay Period for such other person shall have been reduced pro rata to the
reduction of the Registrable Securities which were requested to be included and
eligible for sale during the Delay Period in such registration. As used herein,
"Registrable Securities" shall mean the Underlying Common Stock and all shares
of Common Stock into which the Underlying Warrants are exercisable which, in
each case, have not been previously sold pursuant to a registration statement or
Rule 144 promulgated under the Securities Act.
(b) If, on any one occasion during the five-year period commencing on
the Effective Date, the Company shall receive a written request from Eligible
Holders who in the aggregate own (or upon exercise of all Warrants or Warrants
then outstanding would own) a majority of the total number of shares of Common
Stock then included (or upon such exercises would be included) in the
Registrable Securities (the "Majority Holders"), to register the sale of all or
part of such
3
<PAGE> 4
Registrable Securities, the Company shall, as promptly as practicable, prepare
and file with the Commission a registration statement sufficient to permit the
public offering and sale of the Registrable Securities and will use its best
efforts through its officers, directors, auditors, and counsel to cause such
registration statement to become effective as promptly as practicable; provided,
that the Company shall only be obligated to file one such registration statement
pursuant to this Section 6(b) for which all expenses incurred in connection with
such registration (other than the fees and disbursements of counsel for the
Eligible Holders and underwriting discounts, if any, payable in respect of the
Registrable Securities sold by the Eligible Holders) shall be borne by the
Company. Within five business days after receiving any request contemplated by
this Section 6(b), the Company shall give written notice to all the other
Eligible Holders, advising each of them that the Company is proceeding with such
registration and offering to include therein all or any portion of any such
other Eligible Holder's Registrable Securities, provided that the Company
receives a written request to do so from such Eligible Holder within 30 days
after receipt by him, her, or it of the Company's notice.
(c) In the event of a registration pursuant to the provisions of this
Section 6, the Company shall use its best efforts to cause the Registrable
Securities so registered to be registered or qualified for sale under the
securities or blue sky laws of such jurisdictions as the Holder or such holders
may reasonably request; provided, however, that the Company shall not be
required by reason of this Section 6(c) to register or qualify the Registrable
Securities in any jurisdiction where, as a result thereof, the Company would be
subject to service of general process or to taxation as a foreign corporation
doing business in such jurisdiction to which the Company is not then subject.
(d) The Company shall keep effective any registration or qualification
contemplated by this Section 6 and shall from time to time amend or supplement
each applicable registration statement, preliminary prospectus, final
prospectus, application, document, and communication for such period of time as
shall be required to permit the Eligible Holders to complete the offer and sale
of the Registrable Securities covered thereby. The Company shall in no event be
required to keep any such registration or qualification in effect for a period
in excess of nine months from the date on which the eligible Holders are first
free to sell such Registrable Securities; provided, however, that, if the
Company is required to keep any such registration or qualification in effect
with respect to securities other than the Registrable Securities beyond such
period, the Company shall keep such registration or qualification in effect as
it relates to the Registrable Securities for so long as such registration nor
qualification remains or is required to remain in effect in respect of such
other securities.
(e) In the event of a registration pursuant to the provisions of this
Section 6, the Company shall furnish to each Eligible Holder such number of
copies of the registration statement and of each amendment and supplement
thereto (in each case, including all exhibits), such reasonable number of copies
of each prospectus contained in such registration statement and each supplement
or amendment thereto (including each preliminary prospectus), all of which shall
conform to the requirements of the Securities Act and the rules and regulations
thereunder, and such other documents as any Eligible Holder may reasonably
request to facilitate the disposition of the Registrable Securities included in
such registration.
(f) In the event of a registration pursuant to the provisions of this
Section 6, the Company shall furnish each Eligible Holder of any Registrable
Securities so registered with an opinion of its counsel (reasonably acceptable
to the Eligible Holders) to the effect that (i) the registration statement has
become effective under the Securities Act and no order suspending the
effectiveness of the registration statement, or preventing or suspending the use
of the registration statement, any preliminary prospectus, any final prospectus
or any amendment or supplement thereto, has been issued, nor, to the knowledge
of such counsel has the Commission or any securities or blue sky authority of
any jurisdiction instituted or threatened to institute any proceedings with
respect to such an order, (ii) the registration statement and each prospectus
forming apart thereof (including each preliminary prospectus), and any amendment
or supplement thereto, complies as to form with the Securities Act and the rules
and regulations thereunder, and (iii) such counsel has no knowledge of any
material misstatement or omission in such registration statement or any
prospectus, as amended or supplemented. Such opinion shall also state the
jurisdictions in which the Registrable Securities have been registered or
qualified for sale pursuant to the provisions of Section 6(c).
(g) In the event of a registration pursuant to the provision of this
Section 6, the Company shall enter into a cross-indemnify agreement and a
contribution agreement, each in customary form, with each underwriter, if any,
and, if requested, enter into an underwriting agreement containing conventional
representations, warranties, allocation of expenses,
4
<PAGE> 5
and customary closing conditions, including, without limitation, opinions of
counsel and accountants' cold comfort letters, with any underwriter who acquires
any Registrable Securities.
(h) The Company agrees that until all the Registrable Securities have
been sold under a registration statement or pursuant to Rule 144 under the
Securities Act, it shall keep current in filing all reports, statements, and
other materials required to be filed with the Commission to permit holders of
the Registrable Securities to sell such securities under Rule 144 under the
Securities Act.
7. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SECURITIES.
7.1 ADJUSTMENT FOR DIVIDENDS, SUBDIVISIONS, COMBINATIONS OR
RECLASSIFICATIONS.
In case the Company shall (a) pay a dividend or make a distribution in
shares of its capital stock (whether shares of Common Stock or of capital stock
of any other class), (b) subdivide its outstanding shares of Common Stock into a
greater number of shares, (c) combine its outstanding shares of Common Stock
into a smaller number of shares, or (d) issue by reclassification of its shares
of Common Stock any shares of capital stock of the Company; then, and in each
such case, the per share Exercise Price and the number of Warrant Securities in
effect immediately prior to such action shall be adjusted so that the Holder of
this Representative Warrant thereafter upon the exercise hereof shall be
entitled to receive the number and kind of shares of the Company which such
Holder would have owned immediately following such action had this
Representative Warrant been exercised immediately prior thereto. An adjustment
made pursuant to this Section shall become effective immediately after the
record date in the case of a dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification. If, as a result of an adjustment made pursuant to this
Section, the Holder of this Warrant shall become entitled to receive shares of
two or more classes of capital stock of the Company, the Board of Directors of
the Company (whose determination shall be conclusive) shall determine the
allocation of the adjusted Exercise Price between or among shares of such class
of capital stock.
Immediately upon any adjustment of the Exercise Price pursuant to this
Section, the Company shall send written notice thereof to the Holder of Warrant
Certificates (by first class mail, postage prepaid), which notice shall state
the Exercise Price resulting from such adjustment, and any increase or decrease
in the number of Warrant Securities to be acquired upon exercise of the
Representative Warrants, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
7.2 ADJUSTMENT FOR REORGANIZATION, MERGER OR CONSOLIDATION.
In case of any reorganization of the Company or consolidation of the
Company with, or merger 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 Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental Representative Warrant agreement providing that the
Holder of each Warrant then outstanding or to be outstanding shall have the
right thereafter (until the expiration of such Representative Warrant) to
receive, upon exercise of such warrant, the kind and amount of shares of stock
and other securities and property receivable upon such consolidation or merger,
by a holder of the number of shares of Warrant Securities of the Company for
which such warrant might have been exercised immediately prior to such
reorganization, consolidation, merger, conveyance, sale or transfer. Such
supplemental Representative Warrant agreement shall provide for adjustments
which shall be identical to the adjustments provided in this Section 7 and such
registration rights and other rights as provided in this Agreement. The Company
shall not effect any such consolidation, merger, or similar transaction as
contemplated by this paragraph, unless prior to or simultaneously with the
consummation thereof, the successor corporation (if other than the Company)
resulting from such consolidation or merger or the corporation purchasing,
receiving, or leasing such assets or other appropriate corporation or entity
shall assume, by written instrument executed and delivered to the Holders, the
obligation to deliver to the Holders, such shares of stock, securities, or
assets as, in accordance with the foregoing provisions, such holders may be
entitled to purchase, and to perform the other obligations of the Company under
this Agreement. The above provision of this Subsection shall similarly apply to
successive consolidations or successively whenever any event listed above shall
occur.
5
<PAGE> 6
7.3 DIVIDENDS AND OTHER DISTRIBUTIONS.
In the event that the Company shall at any time prior to the exercise
of all of the Representative Warrants and/or Underlying Warrants distribute to
its stockholders any assets, property, rights, evidences of indebtedness,
securities (other than a distribution made as a cash dividend payable out of
earnings or out of any earned surplus legally available for dividends under the
laws of the jurisdictions of incorporation of the Company), whether issued by
the Company or by another, the Holders of the unexercised Representative
Warrants shall thereafter be entitled, in addition to the shares of Warrant
Securities or other securities and property receivable upon the exercise
thereof, to receive, upon the exercise of such Representative Warrants, the same
property, assets, rights, evidences of indebtedness, securities or any other
thing of value that they would have been entitled to receive at the time of such
distribution as if the Representative Warrants had been exercised immediately
prior to such distribution. At the time of any such distribution, the company
shall make appropriate reserves to ensure the timely performance of the
provisions of this subsection or an adjustment to the Exercise Price, which
shall be effective as of the day following the record date for such
distribution.
7.4 ADJUSTMENT IN NUMBER OF SECURITIES.
Upon each adjustment of the Exercise Price pursuant to the provisions
of this Section 7, the number of securities issuable upon the exercise of each
Representative Warrants shall be adjusted to the nearest full amount by
multiplying the number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of securities issuable upon exercise of the
Representative Warrants immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
7.5 NO ADJUSTMENT OF EXERCISE PRICE IN CERTAIN CASES.
No adjustment of the Exercise Price shall be made if the amount of said
adjustment shall be less than 10 cents ($.10) per Unit, provided, however, that
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 of and together with the
next subsequent adjustment which, together with any adjustment so carried
forward, shall amount to at least 10 cents ($.10) per Unit.
7.6 ACCOUNTANT'S CERTIFICATE OF ADJUSTMENT.
In each case of an adjustment or readjustment of the Exercise Price or
the number of any securities issuable upon exercise of the Representative
Warrants, the Company, at its expense, shall cause independent certified public
accountants of recognized standing selected by the Company (who may be the
independent certified public accountants then auditing the books of the Company)
to compute such adjustment or readjustment in accordance herewith and prepare a
certificate showing such adjustment or readjustment, and shall mail such
certificate, by first class mail, postage prepaid, to any Holder of the
Representative Warrants at the Holder's address as shown on the Company's books.
The certificate shall set forth such adjustment or readjustment, showing in
detail the facts upon which such adjustment or readjustment is based including,
but not limited to, a statement of (i) the Exercise Price at the time in effect,
and (ii) the number of additional securities and the type and amount, if any, of
other property which at the time would be received upon exercise of the
Representative Warrants.
7.7 ADJUSTMENT OF UNDERLYING WARRANT EXERCISE PRICE.
With respect to any of the Underlying Warrants whether or not the
Underlying Warrants have been exercised (or are exercisable) and whether or not
the Underlying Warrants are issued and outstanding, the Underlying Warrant
exercise price and the number of shares of Common Stock underlying such
Underlying Warrants shall be automatically adjusted in accordance with the
Warrant Agreement between the Company and the Company's transfer agent, upon
occurrence of any of the events relating to adjustments described therein.
Thereafter, the Underlying Warrants shall be exercisable at such adjusted
Underlying Warrant exercise price for such adjusted number of underlying shares
of Common Stock or other securities, properties or rights the same as if, at
such time, the Holder of the Representative Warrants had exercised such
Representative Warrants into the Underlying Warrants.
6
<PAGE> 7
8. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES.
Each Warrant Certificate is exchangeable without expense, upon the
surrender thereof by the registered Holder at the principal executive office of
the Company, for a new Warrant Certificate of like tenor and date representing
in the aggregate the right to purchase the same number of securities in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
9. ELIMINATION OF FRACTIONAL INTEREST.
The Company shall not be required to issue certificates representing
fractions of shares of Common Stock upon the exercise of the Representative
Warrants and/or Underlying Warrants, nor shall it be required to issue script or
pay cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests may be eliminated, at the Company's option, by
rounding any fraction up to the nearest whole number of shares of Common Stock
or other securities, properties or rights, or in lieu thereof paying cash equal
to such fractional interest multiplied by the current value of a share of Common
Stock.
10. RESERVATION AND LISTING.
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon the
exercise of the Representative Warrants and the Underlying Warrants, such number
of shares of Common Stock or other securities, properties or rights as shall be
issuable upon the exercise thereof. The Company covenants and agrees that, upon
exercise of the Representative Warrants and/or the Underlying Warrants, and
payment of the Exercise Price and/or Underlying Exercise Price therefor, all
shares of Common Stock and other securities issuable upon such exercise shall be
duly and validly issued, fully paid, non-assessable and not subject to the
preemptive rights of any stockholder. As long as the Representative Warrants
and/or Underlying Warrants shall be outstanding, the Company shall use its best
efforts to cause all shares of Common Stock issuable upon the exercise of the
Representative Warrants and/or the Underlying Warrants to be listed and quoted
(subject to official notice of issuance) on all securities Exchanges and Systems
on which the Common Stock, at such time, may then be listed and/or quoted,
including Nasdaq.
11. NOTICES TO WARRANT HOLDERS.
Nothing contained in this Agreement shall be construed as conferring
upon the Holders of the Representative Warrants and/or Underlying Warrants the
right to vote or to consent or to receive notice as a stockholder in respect of
any meetings of stockholders for the election of directors or any other matter,
or as having any rights whatsoever as a stockholder of the Company. If, however,
at any time prior to the expiration of the Representative Warrants and/or
Underlying Warrants and their exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling then to receive a
dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings, as indicated by the accounting treatment of such
dividend or distribution in the books of the Company; or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital stock
of the Company, or any option, right or warrant to subscribe therefor;
or
7
<PAGE> 8
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of
all or substantially all of its property, assets and business as an
entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date of the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notices shall
specify such record date or the date of closing the transfer books, as the case
may be. Failure to give such notice or any defect therein shall not affect the
validity of any action taken in connection with the declaration or payment of
any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
12. UNDERLYING WARRANTS.
The form of the certificate representing the Underlying Warrants (and
the form of election to purchase shares of Common Stock upon the exercise of the
Underlying Warrants and the form of assignment printed on the reverse thereof)
shall be substantially as set forth in the exhibits to the Warrant Agreement.
The exercise price of the Underlying Warrants and the number of shares of Common
Stock issuable upon the exercise of the Underlying Warrants are subject to
adjustment, whether or not the Representative Warrants have been exercised and
the Underlying Warrants have been issued, in the manner and upon the occurrence
of the events set forth in the Warrant Agreement, which is hereby incorporated
herein by reference and made a part hereof as if set forth in its entirety
herein. Subject to the provisions of this Agreement and upon issuance of the
Underlying Warrants, each registered holder of such Underlying Warrant shall
have the right to purchase from the Company (and the Company shall issue to such
registered holders) up to the number of fully-paid and non-assessable shares of
Common Stock (subject to adjustment as provided in the Warrant Agreement) set
forth in such Warrant Certificate, free and clear of all preemptive rights of
stockholders, provided that such registered Holder complies with the terms
governing exercise of the Underlying Warrant set forth in the Warrant Agreement,
and pays the applicable exercise price, determined in accordance with the terms
of the Warrant Agreement. Upon exercise of the Underlying Warrants, the Company
shall forthwith issue to the registered Holder of any such Underlying Warrant in
his name or in such name as may be directed by him, certificates for the number
of shares of Common Stock so purchased. Except as otherwise provided herein and
in this Agreement, the Underlying Warrants shall be governed in all respects by
the terms of the Warrant Agreement. The Underlying Warrants shall be
transferrable in the manner provided in the Warrant Agreement, and upon any such
transfer, a new Underlying Warrant certificate shall be issued promptly to the
transferee. The Company covenants to send to each Holder, irrespective of
whether or not the Representative Warrants have been exercised, any and all
notices required by the Warrant Agreement to be sent to holders of Underlying
Warrants.
13. NOTICES.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly given when personally
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of any of the Registrable
Securities, to the address of such Holder as shown on the books of the
Company; or
(b) If to the Company, to the address set forth below or to
such other address as the Company may designate by notice to the
Holders.
Marc Fishman
2Connect Express, Inc.
1700 N.W. 65th Avenue
Plantation, Florida 33313
With a copy to: Andrew Hulsh, Esq.
Baker & McKenzie
701 Brickell Avenue, Suite 1600
Miami, Florida 33131
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<PAGE> 9
14. ENTIRE AGREEMENT: MODIFICATION.
This Agreement (and the Underwriting Agreement and Warrant Agreement to
the extent applicable) contain the entire understanding between the parties
hereto with respect to the subject matter hereof, and the terms and provisions
of this Agreement may not be modified, waived or amended except in a writing
executed by the Company and the Holders of at least a majority of Registrable
Securities (based on underlying numbers of shares of Common Stock). Notice of
any modification, waiver or amendment shall be promptly provided to any Holder
not consenting to such modification, waiver or amendment.
15. SUCCESSORS.
All the covenants and provisions of this Agreement shall be binding
upon and inure to the benefit of the Company, the Holders and their respective
successors and assigns hereunder.
16. TERMINATION.
This Agreement shall terminate at the close of business on April __,
2004. Notwithstanding the foregoing, the indemnification provisions of Section 6
shall survive such termination.
17. GOVERNING LAW; SUBMISSION TO JURISDICTION.
This Agreement and each Warrant Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of Alabama and for all
purposes shall be construed in accordance with the laws of said State without
giving effect to the rules of said State governing the conflicts of laws. The
Company, the Representative and the Holders hereby agree that any action,
proceeding or claim arising out of, or relating in any way to, this Agreement
shall be brought and enforced in a federal or state court of competent
jurisdiction with venue only in the Seventeenth Judicial Circuit Court in and
for Broward, Florida or the United States District Court for the Southern
District of Florida, Broward Division, and irrevocably submits to such
jurisdiction, which jurisdiction shall be exclusive. The Company, the
Representative and the Holders hereby irrevocably waive any objection to such
exclusive jurisdiction or inconvenient forum. Any such process or summons to be
served upon any of the Company, the Representative and the Holders (at the
option of the party bringing such action, proceeding or claim) may be served by
transmitting a copy thereof, by registered or certified mail, return receipt
requested, postage prepaid, addressed to it at the address set forth in Section
14 hereof. Such mailing shall be deemed personal service and shall be legal and
binding upon the party so served in any action, proceeding or claim.
18. SEVERABILITY.
If any provision of this Agreement shall be held to be invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision of this Agreement.
19. CAPTIONS.
The caption headings of the Sections of this Agreement are for
convenience of reference only and are not intended, nor should they be construed
as, a part of this Agreement and shall be given no substantive effect.
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<PAGE> 10
20. BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Representatives and any other
registered Holder(s) of the Warrant Certificates or Registrable Securities any
legal or equitable right, remedy or claim under this Agreement; and this
Agreement shall be for the sole and exclusive benefit of the Company and the
Representative and any other Holder(s) of the Warrant Certificates or
Registrable Securities.
21. COUNTERPARTS.
This Agreement may be executed in any number of counterparts and each
of such counterparts shall for all purposes be deemed to be an original, and
such counterparts shall together constitute but one and the same instrument.
IN WITNESS HEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
2CONNECT EXPRESS, INC.
By:
-----------------------
Marc Fishman, President
Attest:
- -------------------------
Kevin Killoran, Secretary
STERNE, AGEE & LEACH, INC.
By:
-----------------------
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<PAGE> 11
WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK LOCAL TIME ON APRIL __, 1998.
NO. UWW-___
59,500 Representative 178,500 Common Stock
------ Warrants -------
and
59,500 Underlying
------ Warrants
This Warrant Certificate certifies that Sterne, Agee & Leach, Inc., or
registered assigns, is the registered holder of 59,500 Representative Warrants
of 2Connect Express, Inc. (the "Company"). Each Representative Warrant permits
the Holder hereof to purchase initially, at any time from April ___, 1997
("Purchase Date") until 5:00 p.m. Miami local time on April ___, 1998
("Expiration Date"), one (1) Unit of the Company at the initial exercise price,
subject to adjustment in certain events (the "Exercise Price"), of $9.63 per
share (100% of the initial public offering price). Each Underlying Warrant
permits the Holder thereof to purchase during the 60 day period commencing on
the day one year from the Effective Date one (1) share of the Company's Common
Stock at the Exercise Price of $4.00 per share.
Any exercise of Representative Warrants and/or Underlying Warrants
shall be effected by surrender of this Warrant Certificate and payment of the
Exercise Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the Representative's Warrant Agreement dated
as of April __, 1997, between the Company and Sterne, Agee & Leach, Inc. (the
"Representative's Warrant Agreement"). Payment of the Exercise Price shall be
made by certified check or official bank check in New York Clearing House funds
payable to the order of the Company.
No Representative Warrant may be exercised after 5:30 p.m., New York
local time, on the Expiration Date, at which time all Representative Warrants
evidenced hereby, unless exercised prior thereto, shall thereafter be void.
The Representation Warrants evidenced by this Warrant Certificate are
part of a duly authorized issue of Representative Warrants issued pursuant to
the Representative's Warrant Agreement, which Representative's Warrant Agreement
is hereby incorporated by reference in and made a part of this instrument and is
hereby referred to for a description of the rights, limitation or rights,
obligations, duties and immunities thereunder of the Company and the holders
(the words "holders" or "holder" meaning the registered holders or registered
holder) of the Warrants.
The Representative's Warrant Agreement provides that upon the
occurrence of certain events, the Exercise Price and the type and/or number of
the Company's securities issuable thereupon may, subject to certain conditions,
be adjusted. In such event, the Company will, at the request of the holder,
issue a new Warrant Certificate evidencing the adjustment in
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<PAGE> 12
the Exercise Price and the number and/or type of securities issuable upon the
exercise of the Warrants' provided, however, that the failure of the Company to
issue such new Warrant Certificates shall not in any way change, alter, or
otherwise impair, the rights of the holder as set forth in the Representative's
Warrant Agreement.
Upon due presentment for registration or transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the
Representative's Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Representative Warrants
evidenced by this Certificate, the Company shall forthwith issue to the holder
hereof a new Warrant Certificate representing such number of unexercised
Representative Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Representative Warrant certificate (notwithstanding
any notation of ownership or other writing hereon made by anyone), for the
purpose of any exercise hereof, and of any distribution to the holder(s) hereof,
and for all other purposes, and the Company shall not be affected by any notice
to the contrary.
All terms used in this Warrant Certificate which are defined in the
Representative's Warrant Agreement shall have the meanings assigned to them in
the Representative's Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of , 199 .
----------------------- --
2CONNECT EXPRESS, INC.
By:
-----------------------
Marc Fishman, President
(Seal)
Attest:
- -------------------------
Kevin Killoran, Secretary
12
<PAGE> 13
EXHIBIT "A"
FORM OF SUBSCRIPTION (CASH EXERCISE)
(To be signed only upon exercise of Warrant)
TO: 2Connect Express, Inc.
1700 N.W. 65th Avenue
Miami, Florida 33313
The undersigned, the Holder of Warrant Certificate number UWW- __ (the
"Warrant"), representing 59,500 Representative Warrants of 2Connect Express,
Inc. (the "Company"), which Warrant Certificate is being delivered herewith,
hereby irrevocably elects to exercise the purchase right provided by the Warrant
Certificate for, and to purchase thereunder, ____ Units of the Company, and
herewith makes payment of $_______ therefor, and requests that the
certificates for such securities be issued in the name of, and delivered to,
_____________________________________, whose address is
__________________________________________, all in accordance with the
Representative's Warrant Agreement and the Warrant Certificate.
Dated: _________________________
--------------------------------------------------
(Signature must conform in all respects to name
of Holder as specified on the face of the Warrant
Certificate)
--------------------------------------------------
--------------------------------------------------
13
<PAGE> 14
(FORM OF ASSIGNMENT)
(To be exercised by the registered holder if such holder desires to
transfer the Warrant Certificate.)
FOR VALUE RECEIVED _____________________________________________________________
hereby sells, assigns and transfers unto
(Print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _____________________________
Attorney, to transfer the within Warrant Certificate on the books of the
within-named Company, and full power of substitution.
Dated: Signature:
- ------------------------ ------------------------------------------
(Signature must conform in all respects to
name of holder as specified
on the face of the Warrant Certificate)
--------------------------------------------
(Insert Social Security or Other Identifying
Number of Assignee)
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<PAGE> 1
EXHIBIT 9.1
VOTING TRUST AGREEMENT
This Voting Trust Agreement ("Agreement") is made in Dade County,
Florida, on April ____, 1996, by and among certain stockholders of CONNECT
EXPRESS, INC., a Florida corporation ("Corporation"), whose names are
subscribed below, and all other stockholders of the Corporation who shall join
in and become parties to this Agreement as hereinafter provided, all of which
stockholders are hereinafter called "Subscribers," and Marc D. Fishman, who is
hereinafter called the "Trustee."
Recitals
This Subscribers own shares of the common stock of the Corporation (the
"Shares") in the amount set opposite their respective signatures hereto.
With a view to the safe and competent management of the Corporation in
the interests of all of its stockholders, including the Subscribers, the
Subscribers desire to create a voting trust (the "Trust").
The Subscribers desire to specify in writing their respective rights and
obligations, and to set forth certain matters regarding the Trust.
Agreement
1. Transfer of Stock to Trustee. Each of the Subscribers will
execute the stock power in the form attached hereto as Exhibit A, will assign
and deliver to the Trustee any certificate representing Shares owned by them
respectively, and will do all things necessary for the transfer of their
respective Shares to the Trustee on the books of Corporation.
2. Other Stockholders May Join. Any stockholder in the Corporation
may, with the Trustee's consent, become a party to this Agreement by executing
the Agreement and assigning and delivering the certificate or certificates of
his or her Shares to the Trustee in the manner provided in Section 1.
3. Trustee To Hold Subject To Agreement. The Trustee shall hold the
Shares so transferred to him for the common benefit of the Subscribers, under
the terms and conditions of this Agreement.
4. Issuance Of Stock Certificates To Trustee. The Trustee shall
ensure that the Corporation issues Shares to the Subscribers in the form of a
certificate issued to the Trustee as the trustee under this Agreement; provided,
however, that if any shareholder of the Corporation, other than the Subscribers
originally joining the Trust, desires to join the Trust and the Trustee
approves, the Trustee shall surrender to the proper officer of the Corporation
for cancellation all such certificates for Shares delivered to him for inclusion
in the Trust, and in their stead the Trustee shall procure new certificates to
be issued to him as trustee under this Agreement.
<PAGE> 2
5. Voting Trust Certificates. The Trustee shall issue to each of the
Subscribers a voting trust certificate ("Trust Certificate") for the number of
Shares that Subscriber has placed in the Trust. Each Trust certificate shall
state that it is issued under this Agreement, shall set forth the nature of the
beneficial interest thereunder of the person to whom it is issued, shall set
forth the number of Shares it beneficially represents, and shall be assignable,
subject to the provisions of this Agreement. The Trustee shall keep a list of
the names and addresses of all Subscribers, together with the number (and if
applicable, the class) of Shares each transferred to the Trust, and deliver
copies of the list and this Agreement to the Corporation's principal office so
that they may be open to inspection by any shareholder of the Corporation or any
beneficiary of the Trust.
The Trust Certificate shall be substantially in the following form:
TRUSTEE'S CERTIFICATE
This is to certify that the undersigned Trustee has received a
certificate or certificates issued in the name of [name] evidencing the
ownership of [number] shares of Common Stock of Connect Express, Inc.,
a Florida corporation ("Connect"), and that such shares are held
subject to all the terms and conditions of a Voting Trust Agreement,
dated April ____, 1996, by and among Marc D. Fishman as Trustee, and
certain shareholders in Connect. During the period of ten (10) years
from and after April ____, 1996, the said Trustee or his successors
shall, as provided in said Voting Trust Agreement, possess and be
entitled to exercise the vote and otherwise represent all of the said
shares for all purposes, the Trustee and the holder of this certificate
having agreed that no voting right shall pass to the holder by virtue
of the ownership of this certificate.
Upon the termination of said Trust, this certificate shall be
surrendered to the Trustee by its holder upon delivery to such holder
of a stock certificate representing a like number of Connect shares.
IN WITNESS WHEREOF, the undersigned Trustee has executed this
certificate as of [date].
-------------------------
Marc D. Fishman,
Trustee
6. Trustee To Vote Stock. It shall be the duty of the Trustee, and
he shall have full power ad authority and is hereby fully empowered and
authorized to represent the holders of the Trust Certificates and the Shares
transferred to the Trustee as aforesaid to vote said Shares as in the judgment
of the Trustee may be for the best interest of the Corporation, at all meetings
of the
2
<PAGE> 3
stockholders of the Corporation or for shareholder action without a
meeting as permitted by law, in the election of directors and upon any and all
other matters in question, as fully as any stockholder might do if personally
present or consenting.
7. Trustee's Liability. The Trustee shall use his best judgment in
voting the Shares subject to the Trust, but shall not be liable for any vote
cast or consent given by him in good faith and in the absence of gross
negligence.
8. Dividends. The Trustee shall collect and receive all dividends
that may accrue upon the Shares subject to the Trust, and subject to deduction
as provided in the following paragraph, shall divide the same among the Trust
Certificate holders in proportion to the number of Shares subject to the Trust
respectively represented by their Trust Certificates.
9. Trustee's Indemnity. The Trustee shall be entitled to be
indemnified out of the dividends coming to his hands against all costs, charges,
expenses and other liabilities properly incurred by him in the exercise of any
power conferred upon him by this Agreement.
10. Appointment of Trustee to Fill Vacancy. In the event of death,
resignation, or refusal or inability to act by the Trustee, the Subscribers
shall appoint a Trustee reasonably acceptable to the Corporation to fill the
vacancy, and any person so appointed shall thereupon be vested with all the
duties, powers and authority of the Trustee hereunder as if originally named
herein.
11. Continuance and Termination of Trust. The Trust hereby created
shall be continued until 10 years after its effective date, and shall then
terminate. Upon termination of the Trust, the Trustee shall, upon the surrender
of the Trust Certificates by the respective holders thereof, assign and transfer
to them the number of Shares thereby represented.
12. Withdrawal of Shares. Upon the Securities and Exchange Commission
declaring a registration statement filed by the Corporation of Form S-1 or SB-1
for the initial public offering of Shares to be effective, any Subscriber may
(from time-to-time and at any time) withdraw any or all of his or her Shares
from the Trust, provided that such Shares, immediately upon their withdrawal,
are sold pursuant to a bona fide sale to a party who is not a party to the
Trust. The Trustee shall cooperate and comply with all reasonable, written
requests made by a Subscriber seeking to withdraw Shares in compliance with this
Section 12, provided that the Trustee receives any and all reasonable assurances
or performance as and when he requests from such Subscriber, including, without
limiting the generality of the foregoing, provision of any expenses that may be
incurred by the Trust, the Trustee, or the Corporation in connection with the
withdrawal of the requested Shares.
13. Disclosure of Fishman's Relationships with the Corporation.
a. Each Subscriber hereby acknowledges that Fishman (i) is
individually a holder of Corporation Shares, (ii) is the Chief Executive Officer
of the Corporation and is the
3
<PAGE> 4
Chairman of its Board of Directors, and (iii) during the term of the
Trust, will be able to vote a majority of the Corporation's Shares when the
Shares subject to the Trust are aggregated with his Shares (until such time, if
ever during the Trust's term, that the number of Shares held by others exceeds
that of the Subscribers and Fishman, which could occur as a result of the
Corporation issuing new Shares and/or the withdrawal of Shares from the Trust).
b. Fishman hereby agrees to inform the Subscribers of any
material changes in his relationships with the Corporation which could
materially affect the Subscribers' interests.
14. After-Acquired Shares. The terms and provisions of this Agreement
shall apply to all Shares now owned or which may be issued hereafter to any of
the Subscribers, including, without limitation, Shares which may be issued in
consequence of any purchase, exchange or reclassification of shares, corporate
reorganization or any form of recapitalization or consolidation or merger or
share split-up, share dividend or distribution, or which are acquired by such
party in any manner whatsoever, including the exercise of an option pursuant to
any option agreement with the Corporation.
15. Third Party Beneficiary. The clause of Section 10 providing for
the Corporation's reasonable acceptance, Section 15, and Subsections 16(b) and
(h) hereof have been included herein for the express benefit of the Corporation
and may not be amended, or any rights or obligations thereunder waived, without
the prior written consent of the Corporation.
16. Miscellaneous.
a. This Agreement, together with the attached Exhibit,
constitutes the entire agreement of the parties with respect to the subject
matter hereof, and supersedes all prior negotiations or agreements, whether
written or oral. This Agreement shall be binding upon and inure to the
benefit of the parties, their heirs, personal representatives, successors and
assigns.
b. Except as otherwise expressly provided herein, the rights
and obligations of the parties pursuant to this Agreement may not be assigned
without the express written consent of all other parties, approved in writing in
advance by the Corporation.
c. The Subscribers and Trustee each agree to execute in an
expeditious manner all instruments in writing and to do all other things
necessary to effectuate the purpose of this Agreement.
d. This Agreement shall be construed and enforced in
accordance with the laws of the State of Florida. The parties hereto waive any
objection to the local, State and Federal courts located in Dade County,
Florida, being a proper or convenient forum for the litigation of any matter
which might arise between them relating to this Agreement.
4
<PAGE> 5
e. If any covenant or other provision of this Agreement is
invalid, unlawful or incapable of being enforced, by reason of any rule of law
or public policy, all other conditions and provisions of this Agreement which
can be given effect without the invalid, unlawful or unenforceable provisions
shall, nevertheless, remain in full force and effect, and no covenant or
provision shall be deemed dependent upon any other covenant or provision unless
so expressed herein.
f. All notices and other communications required or permitted
hereunder shall be in writing and shall be delivered in person or by means of
registered or certified mail, return receipt requested, postage prepaid, or by
any nationally utilized delivery service. All such notices shall be deemed
given if delivered by hand, on the third business day if mailed as aforesaid,
and on the first business day after delivery if sent by overnight delivery
service. Notices may also be given by facsimile transmission provided that an
original copy be sent to the addressee by courier or by a nationally utilized
delivery service by the day following such transmission. Facsimiles shall be
delivered on the date of such transmission. Notices to the parties shall be
sent to the last address for that person or entity as provided by the
Corporation.
Any party hereto may change the address to which such notice or
communication may be sent by giving written notice to each of the other parties
hereto of its new address.
g. In the event that either party hereto finds it necessary to
employ the services of an attorney to enforce any of their rights hereunder, the
prevailing party to such action shall be entitled to recover from the other
party all reasonable costs thereof, including, but not limited to, attorneys'
fees and court costs incurred as a result of such enforcement action and all
appropriate appeals thereof.
h. This Agreement may be amended only by a writing signed by
all then-current parties, approved in advance in writing by the Corporation.
i. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Subscribers have executed this Agreement and set
opposite their respective signatures the number of shares held by them
respectively, and the Trustee, in token of his acceptance hereby created, has
executed this Agreement.
___________________________
______________________Shares
5
<PAGE> 1
Exhibit 10.15
LOCK-UP AGREEMENT
____________, 1997
Sterne, Agee & Leach, Inc.
1901 Sixth Avenue North
Suite 2100
Birmingham, Alabama 35203
Gentlemen:
In order to induce you and 2Connect Express, Inc., a Florida corporation
(the "Company"), to enter into an underwriting agreement with respect to the
public offering (the "Offering") of up to 977,500 Units ("Units"), each Unit of
which consists of three (3) shares of Common Stock, par value $.01 per share
("Common Stock"), and one (1) Common Stock Purchase Warrant ("Warrant")
(including 127,500 Units issuable solely to cover over-allotments, if any) of
the Company, I hereby agree that for the period of 18 months commencing on the
date on which the Company's registration statement, filed with respect to the
Offering, under the Securities Act of 1933, as amended (the "Act"), becomes
effective under the Act, I will not, without your prior written consent,
publicly offer, sell, contract to sell, grant any option for the sale of, or
otherwise dispose of, directly or indirectly, any Units or any shares of Common
Stock or any security or other instrument which by its terms is convertible
into, or exercisable for, shares of Common Stock or other securities of the
Company, including, without limitation, any shares of Common Stock issuable
pursuant to the terms of any employee stock options other than as a bona fide
gift or gifts, provided the donee or donees thereof agree in writing to be
bound by this restriction, or with the prior written consent of Sterne, Agee &
Leach, Inc. In order to enable you to enforce the aforesaid restrictions on
transfer, I hereby agree that the Company may impose stop-transfer instructions
with respect to the securities of the Company owned beneficially or of record by
me, and affix to the certificates evidencing such securities a restrictive
legend to such effect, in each case until the end of such 18 month period.
This letter agreement shall be governed by, and construed in accordance
with, the laws of the State of Alabama, without giving effect to conflict of
law principles.
________________________________________
Signature
________________________________________
Name (please print or type)
________________________________________
Address (please print or type)
________________________________________
Print Social Security Number
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
The Board of Directors
2 Connect Express, Inc.:
We consent to the use of our report included herein and to the references to
our firm under the headings "Selected Financial Information" and "Experts"
in the prospectus.
/s/ KPMG Peat Marwick LLP
Miami, Florida
March 18, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 AND FOR THE
PERIOD FROM APRIL 19, 1996 (DATE OF INCEPTION) TO DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-19-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,939,985
<SECURITIES> 0
<RECEIVABLES> 34,909
<ALLOWANCES> 0
<INVENTORY> 196,998
<CURRENT-ASSETS> 2,240,013
<PP&E> 409,325
<DEPRECIATION> (8,155)
<TOTAL-ASSETS> 2,874,864
<CURRENT-LIABILITIES> 620,289
<BONDS> 0
0
0
<COMMON> 54,200
<OTHER-SE> 2,200,375
<TOTAL-LIABILITY-AND-EQUITY> 2,874,864
<SALES> 88,203
<TOTAL-REVENUES> 88,203
<CGS> 61,047
<TOTAL-COSTS> 61,047
<OTHER-EXPENSES> 1,128,797
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (44,696)
<INCOME-PRETAX> (1,056,945)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,056,945)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,056,945)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> 0
</TABLE>
