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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION MAY 5, 1997
REGISTRATION NO. 333-15567
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 6 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)
</TABLE>
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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<C> <C>
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
</TABLE>
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. [ ]
------------------------
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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<PAGE> 2
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 MAY 5, 1997
PROSPECTUS
520,000 UNITS
2CONNECT EXPRESS, INC.
LOGO
The 520,000 Units ("Units") offered hereby are being issued and sold by
2Connect Express, Inc. ("2Connect" or the "Company"). Each Unit consists of two
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
$6.00 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 Units will be listed for quotation on the National
Quotation Bureau, Inc.'s pink sheets under the symbol CNTCU. In order to be
listed on the pink sheets, a company must have at least one broker-dealer who
makes a market in a company's securities and the broker-dealer must maintain in
its records a copy of the prospectus, financial information and other current
information regarding the company and its business. Trading in the Common Stock,
if at all, will not commence until one year from the date of this Prospectus.
"See Risk Factors."
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 $12.50 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 15 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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<CAPTION>
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UNDERWRITING DISCOUNT
PRICE TO PUBLIC AND COMMISSIONS(1) PROCEEDS TO COMPANY(2)
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Per Unit $12.50 $1.00 $11.50
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Total(3) $6,500,000 $520,000 $5,980,000
=======================================================================================================================
</TABLE>
(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 30,500 Units at an exercise price of $13.38 per Unit,
exercisable for the period commencing 11 months from the date of the
issuance of the Underwriter's Warrant and ending on the date 12 months from
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 78,000 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 $975,000, $78,000, and $897,000, 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
.
STERNE, AGEE & LEACH, INC.
, 1997
<PAGE> 3
Depiction of 2Connect Store
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE UNITS OFFERED
HEREBY, INCLUDING OVERALLOTMENT, STABILIZING TRANSACTIONS AND SHORT COVERING
TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
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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 (i) give effect to a one for two reverse split of the Common
Stock effected on May 5, 1997, and (ii) 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 three 2Connect stores in South Florida; 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, irrespective of advances in technology, changes in consumer
preferences, shifts in service or product brand name recognition or changes
in government regulation.
3
<PAGE> 5
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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<S> <C>
Securities Offered by the Company............... 520,000 Units, each Unit consisting of two shares
of Common Stock and one Warrant to purchase one
share of Common Stock at a purchase price of
$6.00 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...................................... 3,752,500 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."
Trading Symbols:
Units......................................... CNTCU(2)
Common Stock.................................. CNTC(3)
</TABLE>
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(1) Excludes as of the date of this Prospectus (i) 520,000 shares of Common
Stock underlying the Warrants included in the Units which have an exercise
price equal to $6.00 per share; (ii) 358,224 shares of Common Stock
issuable upon exercise of stock options outstanding with a weighted average
price of $2.37 per share; (iii) 661,500 shares of Common Stock reserved for
issuance upon exercise of options that may be granted under the Company's
1996 Stock Option Plan; (iv) 27,776 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) 91,500 shares of Common Stock
underlying the 30,500 Units (including the Warrants therein) issuable upon
exercise of the Underwriter's Warrants at an exercise price of $13.38 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) The Units will be listed on the National Quotation Bureau, Inc.'s pink
sheets unless and until the Units are listed on the Nasdaq SmallCap(sm)
Market. See "Risk Factors -- Impaired Market Liquidity," "-- Uncertainty of
Possible Future Listing -- NASD Review" and " -- Uncertainty of Possible
Future Listing -- Proposed Changes to Nasdaq Listing Criteria."
(3) Trading in the Common Stock will not commence, if at all, until one year
from the date of this Prospectus. See "Risk Factors -- Impaired Market
Liquidity," "-- Uncertainty of Possible Future Listing -- NASD Review" and
" -- Uncertainty of Possible Future Listing -- Proposed Changes to Nasdaq
Listing Criteria."
5
<PAGE> 7
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.
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 three 2Connect stores in South
Florida during the past five months 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 three 2Connect stores 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 three 2Connect stores, 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. 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 plans to develop, utilizing the proceeds of this offering, existing
cash, certain anticipated supplier incentives, and cash flow from operations, if
any, an additional 7-11 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.
6
<PAGE> 8
Although the Warrants and 358,224 stock options will be outstanding upon
the consummation of this offering, the Warrants will not be exercisable for a
period of one year from the date of this Prospectus and, thereafter, for a
period of 60 days 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 three
stores in South Florida during the past five months and plans to develop and
open between 7-11 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.
IMPAIRED MARKET LIQUIDITY
Upon completion of this offering, the Managing Underwriter intends to make
a market in the Units. The Units offered hereby are expected to be listed on the
National Quotation Bureau, Inc.'s pink sheets. The pink sheets are a
non-computerized, daily quotation publication which lists the market makers of a
company's securities and which may also provide a bid and ask price for such
securities, in contrast to a real-time, on-line quotation system, such as the
OTC Bulletin Board or the Nasdaq SmallCap(sm) Market. In order to be listed on
the pink sheets, a company must have at least one broker-dealer who makes a
market in the company's securities and the broker-dealer must comply with the
information maintenance requirements of Rule 15c2-11 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), which generally requires the
broker-dealer to maintain in its records a copy of the prospectus, financial
information and other current
7
<PAGE> 9
information regarding the company and its business. Accordingly, purchasers of
the Units may have more difficulty selling or obtaining quotations of the price
of the Units than they would have if the Units were listed on the Nasdaq
SmallCap(sm) Market or a national securities exchange. Unless and until the
Units are listed on the Nasdaq SmallCap(sm) Market or a national securities
exchange (of which no assurance can be given), the liquidity of the Units may be
impaired, not only in the number of Units which could be bought and sold, but
also through delays in the timing of transactions, reduction in securities
analysts and the news media's coverage of the Company, if any, and lower prices
for the Units than might otherwise be obtained. The Managing Underwriter does
not presently intend to make a market in the Common Stock; however, if the
Common Stock is approved for listing on the Nasdaq SmallCap(sm) Market, as to
which no assurance can be given, upon termination of the Units, the Managing
Underwriter intends to make a market in the Common Stock on the Nasdaq
SmallCap(sm) Market. Because no public market for the underlying Common Stock
contained in the Units currently exists and the underlying Common Stock will
detach from the Units one year from the date of this Prospectus, the liquidity
of the Units and the prevailing market price of the Units may be materially
adversely affected until the Units and the Common Stock are listed, if ever, on
the Nasdaq SmallCap(sm) Market or any national securities exchange. There can be
no assurance that a stockholder who desires to sell the Units will be able to
sell all or a portion of the Units being offered or at the desired times or
prices. Further, until the Company's securities are listed on the Nasdaq
SmallCap(sm) Market, if ever, the market for the Company's securities may be
less liquid than the securities of companies listed on the Nasdaq SmallCap(sm)
Market or any national securities exchange. See "-- Uncertainty of Possible
Future Listing -- NASD Review," "-- Uncertainty of Possible Future
Listing -- Proposed Changes to Nasdaq Listing Criteria," "-- Risks of Low-Priced
Stocks; Penny Stock Regulations" and "Underwriting."
Because a significant number of Units will be sold to customers of the
Managing Underwriter and such customers may subsequently engage in the sale or
purchase of such securities through or with the Managing Underwriter, the
Managing Underwriter is likely to be a significant influence in the trading of
the Company's securities, unless and until other broker-dealers are able to
influence the market for the Company's securities. The prices and the liquidity
of the Company's securities may be affected by the degree, if any, of the
participation of the Managing Underwriter in such market, should a market arise.
If the Managing Underwriter discontinues making a market in the Company's Units,
the Units will not be listed on the pink sheets unless and until a broker-dealer
agrees to serve as a market maker for the Units.
The Warrants contained in the Units are not detachable or separately
transferable from the Units until one year from the date of this Prospectus, at
which time the Units will automatically terminate. A liquid public market may
not develop for the Warrants during the 60 day exercise period after the
Warrants detach from the Units. Further, the price and liquidity of the Warrants
is likely to be significantly adversely affected to the extent that an active
trading market for the underlying Common Stock does not develop. See
"-- Uncertainty of Possible Future Listing -- NASD Review" and "-- Uncertainty
of Possible Future Listing -- Proposed Changes to Nasdaq Listing Criteria."
UNCERTAINTY OF POSSIBLE FUTURE LISTING -- NASD REVIEW
The Company has applied for listing of the Units on the Nasdaq SmallCap(sm)
Market. The National Association of Securities Dealers, Inc. ("NASD") is
currently reviewing the Company's application for listing and has recently
expanded the scope of its review to include the Company's initial financing
activities. The NASD is reviewing the involvement and background of the entity
which served as the Company's placement agent in a private financing of the
Company's Common Stock in August 1996 and certain purchasers who purchased
shares of the Company's Common Stock in private financings of the Company. The
Company is presently unable to predict the outcome of the matters under NASD
review. In the event that the Company is unable to list the Units or the Common
Stock on the Nasdaq SmallCap(sm) Market or on any national securities exchange,
the value of the Units and the Common Stock and the Warrants may be materially
adversely affected. See "-- Impaired Market Liquidity."
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<PAGE> 10
UNCERTAINTY OF POSSIBLE FUTURE LISTING -- PROPOSED CHANGES TO NASDAQ LISTING
CRITERIA
At present, 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 (or $6.13 per Unit for
the Company's Units). 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-makers and a minimum bid of $1 per share (or $2.13
per Unit for the Company's Units); provided, however, that if a company's
securities 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. Subsequent to the offering, the price of the Units and the Common
Stock may not meet the minimum bid price requirements or other qualifications
for listing on the Nasdaq SmallCap(sm) Market. If the Units or the Common Stock
are listed on the Nasdaq SmallCap(sm) Market, the failure to meet these
maintenance criteria in the future is likely to result in the discontinuance of
the inclusion of the Units or the Common Stock on the Nasdaq SmallCap(sm)
Market. As a result of any such occurrences, the value of the Units and the
Common Stock may be materially adversely affected. See "-- Impaired Market
Liquidity" and "-- Uncertainty of Possible Future Listing -- NASD Review."
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 (or $8.13 per Unit for the Company's Units), 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 (or $2.13 per Unit for the Company's
Units), 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 is currently unable to satisfy certain of the proposed
entry standards, including the number of market makers. In the event that the
new proposed entry and maintenance standards are adopted and the Company is
unable to satisfy such standards, the Company will not be permitted to list the
Units and the Common Stock on the Nasdaq SmallCap(sm) Market and the value of
the Units and the Common Stock may be materially adversely affected. See
"-- Impaired Market Liquidity" and "-- Uncertainty of Possible Future Listing
-- NASD Review."
RISKS OF LOW-PRICED STOCKS; PENNY STOCK REGULATIONS
Transactions in the Company's securities are presently not subject to Rules
15g-1 through 15g-9 under the Exchange Act (the "Penny Stock Regulations")
because the Common Stock has a deemed market price of more than $5.00 per share.
However, in the event that the market price of the Common Stock decreases to
less than $5.00 per share, transactions in the Company's securities will be
subject to the Penny Stock Regulations, except for (i) transactions in the
Company's securities which are not solicited or recommended by broker-dealers,
(ii) sales to certain institutional accredited investors, and (iii) certain
private offerings of the Company's securities. The Penny Stock Regulations
require broker-dealers to make a special suitability determination for the
purchaser and to receive the purchaser's written representations and agreement
concerning the securities transaction prior to concluding a sale. In addition,
the Penny Stock Regulations generally require broker-dealers to provide
customers for whom they are effecting transactions in a penny stock (as defined
below), prior to concluding a sale, with a standard risk disclosure document
describing the customer's right to disclosures of the (i) current bid and ask
quotations, if any, (ii) compensation of the broker-dealer and the salesperson
in the transaction, and (iii) monthly account statements showing the market
value of such stock held in the customer's account. Consequently, the Penny
Stock Regulations may, if applicable, in all transactions which are not exempt
from their application, affect the ability of broker-dealers
9
<PAGE> 11
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 and may reduce the likelihood that a bank or financial
institution will accept such securities as collateral. See "Impaired Market
Liquidity," "-- Uncertainty of Possible Future Listing -- NASD Review" and
"-- Uncertainty of Possible Future Listing -- Proposed Changes to Nasdaq Listing
Criteria."
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. If the Penny Stock
Regulations become applicable to the Company's securities as a result of a
decrease in the price of the Common Stock, they will continue to be applicable
unless and until the Common Stock is listed on the Nasdaq SmallCap(sm) Market or
any national securities exchange or until the Common Stock has a market price of
at least $5.00 per share. See "-- Impaired Market Liquidity."
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
10
<PAGE> 12
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."
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
$4,500,000) and working capital and other corporate purposes (approximately
$1,042,000). 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
11
<PAGE> 13
effectively. 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 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 17.3%
(approximately 16.6% 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 45.0% (approximately 43.2% 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 $3.92 per share (65%) in the net tangible book value of
their shares based upon an assumed initial public offering price of $12.50 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 Units. 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 Units will not decline below the
initial public offering prices. The initial public offering prices of the Common
Stock and the Units will be determined by negotiation between the Company and
the Managing Underwriter, 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 Units 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."
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 520,000 shares of Common Stock
(598,000 shares of Common Stock if the underwriter's overallotment option is
exercised in full), exercisable at a price of $6.00 per share. The Warrants are
12
<PAGE> 14
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 30,500 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 $13.38 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 favorable than those provided by the Underwriters' Warrants. See
"Dilution," "Description of Securities," "Shares Eligible for Future Sale" and
"Underwriting."
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<PAGE> 15
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 21,247,500 authorized but
unissued shares of Common Stock available for future issuance without
shareholder approval (which number includes (i) 520,000 shares of Common Stock
(598,000 shares of Common Stock if the underwriter's overallotment option is
exercised in full) reserved for issuance upon exercise of Warrants included in
the Units, (ii) 358,224 shares issuable upon the exercise of outstanding stock
options, (iii) 661,500 shares reserved for issuance upon the exercise of options
that may be granted under the Company's 1996 Stock Option Plan, (iv) 27,776
shares reserved for issuance upon the exercise of options that may be granted
under the Company's 1996 Directors' Stock Option Plan and (v) 91,500 shares
underlying the 30,500 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
indemnification shall be paid their expenses incurred in connection with any
action, suit or proceeding in
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<PAGE> 16
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 3,752,500 shares of Common Stock. Of these outstanding
shares, the 1,040,000 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
through May 5, 1998. Of such 2,712,500 remaining outstanding shares of Common
Stock: (i) 950,000 shares are currently eligible for sale under Rule 144
promulgated under the Securities Act ("Rule 144"); (ii) 752,500 shares will
become eligible for sale under Rule 144 on May 15, 1997; (iii) 257,500 shares
will become eligible for sale under Rule 144 on May 17, 1997; (iv) 750,000
shares will become eligible for sale under Rule 144 on August 30, 1997 and (v)
2,500 shares will become eligible for sale under Rule 144 on April 22, 1998. See
"Shares Eligible for Future Sale."
Upon consummation of this offering, the Company will have 1,659,000 shares
of Common Stock reserved for issuance, which figure includes: (i) 520,000 shares
of Common Stock issuable upon exercise of the Warrants; (ii) 358,224 shares of
Common Stock issuable upon exercise of stock options (weighted average exercise
price $2.37 per share); (iii) an aggregate of 689,276 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)
91,500 shares of Common Stock underlying the 30,500 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 the Units, shares of Common Stock or Warrants or the
availability of such securities for sale will have on the market prices
prevailing from time to time. Nevertheless, the possibility that substantial
amounts of Units, Common Stock or Warrants may be sold in the public market may
adversely affect prevailing market prices for the Units, Common Stock and
Warrants 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> 17
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 520,000 Units offered
hereby, after deducting underwriting discounts and estimated offering expenses,
are estimated to be approximately $5,542,000 (approximately $6,439,000 if the
Underwriters' overallotment option is exercised in full) based on an assumed
initial public offering price of $12.50 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)........................................ $4,500,000 81%
Organizational, general and administrative costs(2)......... 500,000 9%
Working capital and general corporate purposes.............. 542,000 10%
---------- ------
Total............................................. $5,542,000 100.0%
========== ======
</TABLE>
- ---------------
(1) Represents those proceeds from this offering which comprise part of the
estimated costs relating to opening 7-11 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 $897,000, 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, 7-11 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.
16
<PAGE> 18
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 520,000 Units (at an assumed initial public offering price of $12.50
per Unit), and the application of the net proceeds therefrom. See "Use of
Proceeds."
<TABLE>
<CAPTION>
DECEMBER 31, 1996(1)
----------------------------
ACTUAL AS ADJUSTED(3)
----------- --------------
<S> <C> <C>
Shareholders' equity:
Common stock, $0.01 par value. Authorized 25,000,000 shares;
issued and outstanding 2,710,000 shares actual and
3,750,000 shares as adjusted(2)........................... $ 27,100 $ 37,500
Additional Paid-in capital.................................. 3,284,420 8,816,020
Deficit accumulated during the development stage............ (1,056,945) (1,056,945)
----------- -----------
Total shareholders' equity................................ 2,254,575 7,796,575
----------- -----------
Total capitalization...................................... $ 2,254,575 $ 7,796,575
=========== ===========
</TABLE>
- ---------------
(1) All share amounts have been restated to retroactively reflect the one for
two reverse split of the Common Stock.
(2) Does not include 337,500 shares of Common Stock subject to options
outstanding at December 31, 1996 having a weighted average exercise price
of $2.20 per share. See "Management -- Director Compensation,"
"Management -- 1996 Stock Option Plan," "Executive Compensation -- Option
Grants," and Note 6(a) of Notes to Financial Statements.
(3) Assumes no exercise of the Warrants.
17
<PAGE> 19
DILUTION
The net tangible book value of the Company as of December 31, 1996 was
approximately $2,254,575 or $0.83 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 1,040,000 shares of Common
Stock included in the Units offered hereby at an assumed initial public offering
price of $12.50 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 $7,796,575 or $2.08 per share. This represents an
immediate increase in pro forma net tangible book value of $1.25 per share to
existing shareholders and an immediate dilution of $3.92 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..................................................... $6.00
Net tangible book value per share before offering......... $0.83
Increase in net tangible book value per share attributable
to New Investors....................................... 1.25
-----
Pro forma net tangible book value per share after
offering.................................................. 2.08
-----
Dilution per share to New Investors......................... $3.92
=====
</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 $12.50 per Unit (before deducting the underwriting discounts and commissions
and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CASH CONSIDERATION AVERAGE
---------------------- ------------------------ PRICE PER
NUMBER PERCENTAGE AMOUNT PERCENTAGE SHARE
--------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders............. 2,710,000 72% $ 3,762,050 37% $1.39
New investors..................... 1,040,000 28 6,500,000 63 6.00(2)
--------- ----- ----------- ----
Total................... 3,750,000 100% $10,262,050 100%
========= ===== =========== ====
</TABLE>
- ---------------
(1) All share and per share amounts have been restated to retroactively reflect
the one for two reverse split of the Common Stock.
(2) $260,000 of the total cash consideration has been allocated to the Warrants
and, as such, is excluded when calculating the average price per share.
If the Underwriters' overallotment option is exercised in full, the number
and percentage of shares purchased by New Investors will be 1,196,000 and 31%,
respectively, the amount and percentage of total cash consideration paid by New
Investors will be $7,475,000 and 67%, respectively, and the existing
shareholders' percentage of shares of Common Stock purchased and percentage of
total consideration paid will be 69% and 33%, respectively. The computations in
the tables above exclude: (i) 337,500 shares of Common Stock issuable upon the
exercise of stock options outstanding at December 31, 1996 at a weighted average
exercise price of approximately $2.20 per share; (ii) 662,500 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) 50,000 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.
18
<PAGE> 20
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.......................................... $ (0.36)
-----------
Number of shares used in calculating net loss per share..... 2,921,873(1)
===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------
ACTUAL AS ADJUSTED(2)
---------- --------------
<S> <C> <C>
Balance Sheet Data:
Cash...................................................... $1,939,985 $7,618,305
Total assets.............................................. 2,874,864 8,333,119
Total shareholders' equity................................ 2,254,575 7,796,575
</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). All share and per share amounts have been restated to
retroactively reflect the one for two reverse split of the Common Stock.
(2) Adjusted to give effect to the sale of 520,000 Units offered by the Company
hereby at an assumed initial public offering price of $12.50 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.
19
<PAGE> 21
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 three 2Connect stores on December
6, 1996, April 4, 1997 and April 26, 1997, respectively, and has generated
extremely limited operating revenue to date. The Company's first 2Connect store
generated revenue of approximately $387,000 for the 131 days from the opening on
December 6, 1996 to April 15, 1997. The Company's second 2Connect store
generated revenue of approximately $84,000 for the 12 days from the opening on
April 4, 1997 to April 15, 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 three
20
<PAGE> 22
2Connect stores in South Florida; 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 April 15, 1997, the Company has approximately $790,000 in cash and
cash equivalents. The Company anticipates receiving $5,542,000 in net proceeds
from the sale of the Units offered hereby ($6,439,000 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. 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, 7-11 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. See "Risk Factors -- Need for Additional Financing."
21
<PAGE> 23
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 752,500 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 257,500 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 750,000 shares of Common Stock for aggregate net proceeds of
$2,849,907.
22
<PAGE> 24
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 three 2Connect stores in South
Florida; identified and commenced negotiations for six additional 2Connect store
site locations; 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 Company personnel is
available to provide guidance and instruction for many of these services
and products.
23
<PAGE> 25
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.
24
<PAGE> 26
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>
In 1997, the Company anticipates that approximately 10%, 73%, 15% and 2% 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.
25
<PAGE> 27
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 eight of these Internet computers in its three existing stores.
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.
26
<PAGE> 28
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
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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
LDDS/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
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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 three 2Connect stores in South Florida during
the past five months. The Company has also commenced lease negotiations for six
additional locations for 2Connect stores, all of which are located in South
Florida. The Company plans to open 7-11 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 plans 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
eight of these Internet computers in its three existing stores. Operation of the
Internet computer stations may be 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 Agreement is
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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 with two leading brand-name service providers, Direct TV and USSB.
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 service and sales techniques, in the different services and product
categories, and in how to match a customer's
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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 58 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 three 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 material 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 leading provider of
emergency and non-emergency ambulance services in the United States, 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 50,000 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 April 22, 1997, options to purchase 22,224 shares at an
exercise price of $4.50 per share were outstanding and 27,776 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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<PAGE> 38
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 1,000,000 shares of Common Stock has
been reserved for issuance under the 1996 Plan. As of April 22, 1997, options to
purchase 336,000 shares were outstanding and 661,500 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> 39
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) 100,000
Steve Stedman, Vice President -- Finance and
Controller........................................ $100,000(1) 50,000
Jeff Manly, Vice President -- Merchandising......... $100,000(1) 50,000
</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. Stedman and
Manly, each dated June 17, 1996 and has entered into an employment agreement
with Mr. Fishman dated as of April 1, 1997. 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.......................... 50,000 17.3% $1.62 June 16, 2001
50,000(2) 17.3% $1.46 June 16, 2016
Steve Stedman............................ 50,000 17.3% $1.46 June 16, 2006
Jeff Manly............................... 50,000 17.3% $1.46 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.
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<PAGE> 40
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................................ 50,000 50,000 $227,000 $219,000
Steve Stedman.................................. 50,000 -- $227,000
Jeff Manly..................................... 50,000 -- $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 $6.00.
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.
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<PAGE> 41
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
950,000 shares of Common Stock in April 1996, the Company issued 650,000 shares
and 150,000 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 150,000 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.
40
<PAGE> 42
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).............................. 1,756,417 61.9% 1,756,417 45.3%
Robert S. Davimos(5)............................... 198,750 7.0% 198,750 5.1%
Kevin Killoran(6).................................. 155,000 5.5% 155,000 4.0%
Steve Stedman(7)................................... 16,667 * 16,667 *
Jeff Manly(8)...................................... 16,667 * 16,667 *
Arnold Jaffee(9)................................... 28,056 1.0% 28,056 *
Lynn Tilton(10).................................... 13,056 * 13,056 *
Ira Neimark(11).................................... 5,556 * 5,556 *
David Colby(12).................................... 5,556 * 5,556 *
All Directors and Executive Officers as a group (8
persons)(1)(2)(3)................................ 1,996,975 70.4% 1,996,975 51.5%
</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 overallotment 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 66,667 shares subject to options that are currently exercisable or
exercisable within 60 days of the date of the Prospectus by Mr. Fishman.
(4) Includes 1,039,750 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 (150,000 shares), Thomas Vittor
(20,000 shares), Thomas J. Vittor Irrevocable Trust of 1996 (50,000
shares), Scott Zimmerman (25,000 shares), Allan Fishman (67,500 shares),
Robert S. Davimos (198,750 shares), Jeannine Gurian (79,500 shares), Henry
Allan (50,000 shares), Philip Gurian (25,000 shares), Robert Zara (75,000
shares), Bauman Ltd. (115,000 shares), Gary Kelman (12,500 shares), H&H
Partnership (17,500 shares), Lauro Fiero (15,000 shares), Reinerman, Ltd.
(62,500 shares), Arnold M. Jaffee (22,500 shares), Yale Fishman (10,000
shares), Leon Katz (10,000 shares), Logan Davis (10,000 shares), Richard H.
Davimos, Jr. (21,500 shares), Cecil McNab (750 shares), Juan Cayado (600
shares), Carole Rosenkrantz (650 shares) and Holly Rosenkrantz (500
shares). See "Description of Securities -- Voting Trust."
(5) Does not include 91,500 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 91,500 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 5,000 shares subject to options that are exercisable within 60
days of the date of the Prospectus by Mr. Killoran.
41
<PAGE> 43
(7) Includes 16,667 shares subject to options that are exercisable within 60
days of the date of the Prospectus by Mr. Stedman.
(8) Includes 16,667 shares subject to options that are exercisable within 60
days of the date of the Prospectus by Mr. Manly.
(9) Includes 5,556 shares subject to options that are currently exercisable by
Mr. Jaffee.
(10) Includes 5,556 shares subject to options that are currently exercisable by
Ms. Tilton.
(11) Includes 5,556 shares subject to options that are currently exercisable by
Mr. Neimark.
(12) Includes 5,556 shares subject to options that are currently exercisable by
Mr. Colby.
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 two shares of Common Stock and one Warrant. Each
Warrant entitles the holder to purchase one share of Common Stock at a purchase
price of $6.00 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 153 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, 1,689,750 of 2,710,000 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 two shares of Common Stock and one Warrant. See
"-- Units."
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<PAGE> 44
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 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
43
<PAGE> 45
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.
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
3,752,500 shares of Common Stock outstanding and 1,659,000 shares of Common
Stock reserved for issuance which figure includes: (i) 520,000 shares of Common
Stock issuable upon exercise of the Warrants included in the Units; (ii) 358,224
shares of Common Stock issuable upon exercise of stock options (weighted average
exercise price $2.37 per share); (iii) an aggregate of 689,276 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) 91,500 shares of Common Stock underlying the 30,500 Units (including the
Warrants therein) issuable upon exercise of the Underwriter's Warrants. Of
outstanding shares, the 1,040,000 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 May 5, 1998. Of such 2,712,500 remaining outstanding shares of
Common Stock: (i) 950,000 shares are currently eligible for sale under Rule 144
promulgated under the Securities Act ("Rule 144"); (ii) 752,500 shares will
become eligible for sale under Rule 144 on May 15, 1997; (iii) 257,500 shares
will become eligible for sale under Rule 144 on May 17, 1997; (iv) 750,000
shares will become eligible for sale under Rule 144 on August 30, 1997 and (v)
2,500 shares will become eligible for sale under Rule 144 on April 22, 1998.
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 one
year (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 37,525 shares
immediately after this offering or 39,085 shares if the Underwriter's over-
allotment option is exercised in full) 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 two 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 Units, Common
Stock or Warrants and no prediction can be made as to the effect, if any, that
market sales of the Units, shares of Common Stock or Warrants or the
availability of such securities for sale will have on the market prices
prevailing from time to time. Nevertheless, the possibility that substantial
amounts of Units, Common Stock and Warrants may be sold in the public market may
adversely affect prevailing market prices for the Units, Common Stock and
Warrants 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."
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<PAGE> 46
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell 520,000 Units to the Managing Underwriter, and the
Managing Underwriter has agreed to purchase 520,000 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 Managing Underwriter 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 on the National Quotation
Bureau, Inc.'s pink sheets. If the Units are approved for listing on the Nasdaq
SmallCap(sm) Market, the Managing Underwriter intends to make a market in the
Units on the Nasdaq SmallCap(sm) Market. The Managing Underwriter does not
presently intend to make a market in the Common Stock; however, if the Common
Stock is approved for listing on the Nasdaq SmallCap(sm) Market, upon
termination of the Units, the Managing Underwriter intends to make a market in
the Common Stock on the Nasdaq SmallCap(sm) Market. See "Risk
Factors -- Impaired Market Liquidity," "-- Uncertainty of Possible Future
Listing -- NASD Review," and "Uncertainty of Possible Future Listing -- Proposed
Changes to Nasdaq Listing Criteria."
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 and (iii) the solicitation of the Warrant
was not made in violation of Regulation M ("Regulation M") of the Exchange Act.
Regulation M may prohibit the Managing Underwriter and any soliciting
broker-dealer from engaging in market making activities with regard to the
Company's securities for up to five business days prior to any solicitation by
the Managing Underwriter or any soliciting broker-dealer of the exercise of the
Warrants until the later of the termination of such solicitation activity or the
termination (by waiver or otherwise) of any right that the Managing Underwriter
or any soliciting broker-dealer may have to receive a fee for the exercise of
the Warrants following such solicitation.
45
<PAGE> 47
As a result, the Managing Underwriter and soliciting broker-dealers may 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 78,000 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.
The Managing Underwriter may engage in overallotment, stabilizing
transactions and short covering transactions in accordance with Regulation M.
Overallotment involves sales in excess of the offering size, which create a
short position. Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a specified maximum.
Short coverage transactions involve purchases of the Units in the open market
after the distribution has been completed in order to cover short positions.
Such overallotment, stabilizing transactions, and short covering transactions
may cause the price of the Units to be higher than they would otherwise be in
the absence of such transactions. These transactions may be effected on The
Nasdaq SmallCap(sm) Market or otherwise and, if commenced, may be discontinued
at any time.
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 30,500 Units. The Underwriter's Warrants are initially
exercisable for Units at a price of $13.38 per Unit for the period commencing 11
months from the date of the issuance of the Underwriter's Warrant and ending on
the date 12 months from 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, upon the consummation of the
offering or during the three (3) month period thereafter, to appoint an
individual to serve on the Board of the Company until the next annual meeting of
the shareholders of the Company. Thereafter, the Company has agreed to nominate
for a vote of the shareholders at each annual meeting of the shareholders of the
Company one individual designated by the Managing Underwriter. The Managing
Underwriter has not selected its appointee as of the date of this Prospectus.
Under NASD Rule 2710, certain other persons have been deemed to have
received compensation in connection with this offering as related persons to the
Managing Underwriter which includes, by definition, Underwriters' Counsel,
financial consultants and advisors, finders, members of the selling or
distribution group, any member participating in the public offering, and any and
all other persons associated with or related to and members of the immediate
family of any of the aforementioned persons ("Related Persons"). From
46
<PAGE> 48
April 1996 to August 1996, certain Related Persons were issued unregistered
shares of the Common Stock as follows: (i) certain associates of the Managing
Underwriter were, in the aggregate, issued 32,000 shares of Common Stock for
$800.00; (ii) a family member of an associate of GunnAllen Financial Services, a
member of the selling group, was issued 2,500 shares of Common Stock for $3,650;
and (iii) an affiliate of South Beach Capital Markets Advisory Corporation, a
financial advisor and finder, was issued, in the aggregate, 8,056 shares of
Common Stock for $25,100. All of such Related Persons have agreed not to,
directly or indirectly, sell, transfer, assign, pledge, hypothecate or otherwise
dispose of any of their shares of Common Stock for twelve (12) months following
the date of this Prospectus except by (i) operation of law or (ii) by reason of
reorganization of the Company. Additionally, the Company paid a fee of $6,350 to
South Beach Capital Markets Advisory Corporation for services rendered and
$25,000 to its former managing underwriter as reimbursement for certain expenses
that the Company had agreed to pay.
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."
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.
47
<PAGE> 49
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> 50
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, except as to the last
paragraph of note 9, which
is as of May 5, 1997.
Miami, Florida
F-2
<PAGE> 51
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 2,710,000 shares................ 27,100
Paid-in capital........................................... 3,284,420
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> 52
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.......................................... $ (0.36)
===========
Number of shares used in calculating net loss per share..... 2,921,873
===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 53
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)............ 950,000 9,500 (9,500) -- --
Issuance of common stock on May 15,
1996 ($0.04 per share)............ 752,500 7,525 22,575 -- 30,100
Issuance of common stock on May 17,
1996 ($1.39 per share)............ 257,500 2,575 354,375 -- 356,950
Issuance of common stock on August
30, 1996 ($4.50 per share and net
of $525,093 of issuance costs).... 750,000 7,500 2,842,407 -- 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....... 2,710,000 $27,100 $3,284,420 $(1,056,945) $ 2,254,575
========= ======= ========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 54
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> 55
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> 56
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 ("SEC") 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 $6 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> 57
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> 58
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 1 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
50,000 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 50,000 shares of common stock, and options which were
granted to certain service providers to purchase 49,000 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..................................................... 337,500 2.20
------- ------
Outstanding at December 31, 1996............................ 337,500 2.20
======= ======
Options exercisable at December 31, 1996.................... 99,000 $2.48
======= ======
</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 49,000 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> 59
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 (650,000 shares), the Company's director of marketing
and store development (150,000 shares) and certain other shareholders of the
Company (889,750 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> 60
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>
On May 2, 1997, the Company's Board of Directors declared a one for two
reverse split of the Company's common stock effective May 5, 1997. The par value
of each common share remained $0.01 and a total of $27,100 was reclassified from
common stock to paid-in capital. In accordance with an SEC Staff Accounting
Bulletin all share and per share amounts have been restated to retroactively
reflect the reverse stock split.
F-12
<PAGE> 61
======================================================
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....................... 16
Dividend Policy....................... 16
Capitalization........................ 17
Dilution.............................. 18
Selected Financial Information........ 19
Management's Plan of Operation........ 20
Proposed Business..................... 23
Management............................ 35
Executive Compensation................ 38
Certain Transactions.................. 40
Principal Shareholders................ 41
Description of Securities............. 42
Shares Eligible for Future Sale....... 44
Underwriting.......................... 45
Legal Matters......................... 47
Experts............................... 47
Additional Information................ 47
Index to Financial Statements......... F-1
</TABLE>
---------------------
UNTIL , 1997 (90 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.
======================================================
======================================================
LOGO
520,000 UNITS
-------------------------
PROSPECTUS
-------------------------
STERNE, AGEE & LEACH, INC.
, 1997
======================================================
<PAGE> 62
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............................................. 3,097
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...................................... 16,532
--------
Total..................................................... $438,000
========
</TABLE>
II-1
<PAGE> 63
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"). All financial information and share data set forth below
gives effect to a one for two reverse split of the Common Stock effected on May
5, 1997.
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 950,000
shares of Common Stock for no consideration. The issuances of these 950,000
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 950,000 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 752,500 shares of
Common Stock at $.04 per share. The purchasers of the Common Stock at $.04 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 257,500 shares
of Common Stock at $1.39 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 752,500 shares of Common Stock at $.04 per share and the 257,500 shares of
Common Stock at $1.39 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 the
offerings at $.04 per share and $1.39 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 750,000
shares of Common Stock at $4.50 per share. Sovereign Equity Management
Corporation, served as the Placement Agent in the 750,000 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 750,000 shares of Common Stock at $4.50 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 $4.50 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 $4.50 per share offering were
accredited investors as defined in Rule 501 promulgated under the Securities
Act.
On May 15, 1996, the Company granted options to Bruce S. Foerster, a
consultant to the Company, to acquire 2,500 shares of the Company's Common Stock
under the 1996 Stock Option Plan at an option exercise price of $.04 per share
which were immediately exercisable on the grant date. On April 22, 1997, Mr.
Foerster acquired 2,500 shares of Common Stock from the Company pursuant to the
exercise of these options for an aggregate purchase price of $100 pursuant to an
exemption from registration under Section 4(2) of the Securities Act and Rule
506 thereunder. The Registrant believes that Mr. Foerster is an accredited
investor as defined in Rule 501 of the Securities Act.
II-2
<PAGE> 64
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 -- Amended and Restated Employment Agreement with Marc D.
Fishman dated as of 4/1/97*
10.4 -- Employment Agreement with Steve Stedman dated June 17, 1996*
10.5 -- Employment Agreement with Michael Wichelns dated June 17,
1996*
10.6 -- Employment Agreement with Jeff Manly dated June 17, 1996*
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.
(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.
(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.
II-3
<PAGE> 65
(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> 66
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. 6
to the Registration Statement to be signed on its behalf by the undersigned, in
the City of Plantation, State of Florida on May 5, 1997.
2CONNECT EXPRESS, INC.
By: /s/ MARC D. FISHMAN
------------------------------------
Marc D. Fishman
President, Chief Executive Officer
and Chairman of the Board
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 May 5, 1997
- ----------------------------------------------------- Officer and Chairman of the
Marc D. Fishman Board of Directors (Principal
Executive Officer)
/s/ STEVE STEDMAN* Vice President, Finance and May 5, 1997
- ----------------------------------------------------- Chief Financial Officer
Steve Stedman (Principal Financial and
Accounting Officer)
/s/ IRA NEIMARK* Director May 5, 1997
- -----------------------------------------------------
Ira Neimark
/s/ DAVID COLBY* Director May 5, 1997
- -----------------------------------------------------
David Colby
/s/ LYNN TILTON* Director May 5, 1997
- -----------------------------------------------------
Lynn Tilton
/s/ ARNOLD JAFFEE* Director May 5, 1997
- -----------------------------------------------------
Arnold Jaffee
*By: /s/ MARC D. FISHMAN
------------------------------------------------
Marc D. Fishman
Attorney-in-fact
</TABLE>
II-5
<PAGE> 67
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGES
- ------- ------- ------------
<C> <C> <S> <C>
3.1 -- Second Amendment to Articles of Incorporation of Registrant
23.1 -- Consent of KPMG Peat Marwick LLP
</TABLE>
II-6
<PAGE> 1
EXHIBIT 3.1
SECOND AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
2CONNECT EXPRESS, INC.
----------------------
Pursuant to the provisions of Section 607.1006 of the Florida Business
Corporation Act (the "Act"), the undersigned corporation adopts the following
Second Amendment to its Articles of Incorporation:
1. The name of the corporation is 2CONNECT EXPRESS, INC. (the
"Corporation").
2. The Second Amendment to the Articles of Incorporation of the
Corporation set forth below (the "Amendment") was duly adopted on May 2, 1997,
by the joint written consent of all of the directors and the shareholder having
the sole voting rights with respect to a majority of the issued and outstanding
shares of Common Stock, par value $0.01 per share (the "Common Stock"), of the
Corporation, the number of votes cast by such shareholder being sufficient for
such approval, in the manner prescribed by Sections 607.10025 and 607.1003 of
the Act.
3. The text of the Amendment is as follows: Article III of the
Articles of Incorporation of the Corporation shall be amended and restated in
its entirety to read as follows:
"ARTICLE III. - CAPITAL STOCK: The maximum number of shares
which this Corporation is authorized to have outstanding at any
time is 25,000,000 shares of Common Stock having a par value of
$0.01 per share (the "Common Stock").
Effective at the time of the filing with the Secretary of
State of the State of Florida of this Second Amendment to the
Articles of Incorporation of the Corporation setting forth the
amendment set forth herein (the "Effective Time"), each two (2)
shares of Common Stock issued and outstanding immediately prior
to the Effective Time shall, automatically and without any action
on the part of the respective holders thereof, be reclassified
into and become one (1) share of Common Stock and each stock
certificate that, immediately prior to the Effective Time,
represented two (2) shares of Common Stock shall, from and after
the Effective Time, represent one (1) share of Common Stock."
4. Except as hereby amended, the Articles of Incorporation of the
Corporation shall remain the same.
*****
IN WITNESS WHEREOF, the Corporation has caused this Second Amendment to
the Articles of Incorporation to be signed in its name by its Chairman of the
Board, Chief Executive Officer and President on the 5th day of May, 1997.
2CONNECT EXPRESS, INC.
By: /s/ Marc D. Fishman
-------------------------------
Marc D. Fishman
Chairman of the Board, Chief
Executive Officer and President
<PAGE> 2
CERTIFICATE FOR
SECOND AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
2CONNECT EXPRESS, INC.
----------------------
2CONNECT EXPRESS, INC., a Florida corporation (the "Corporation"),
hereby certifies, pursuant to and in accordance with Sections 607.10025 and
607.1003 of the Florida Business Corporation Act for the purpose of filing its
Second Amendment to the Articles of Incorporation of the Corporation with the
Secretary of State of the State of Florida, that:
1. The name of the Corporation is 2CONNECT EXPRESS, INC.
2. The Corporation's Second Amendment to the Articles of
Incorporation attached hereto (the "Amendment") contains an
amendment to the Corporation's Articles of Incorporation that
provides for a one (1) for two (2) reverse split of the issued
and outstanding shares of Common Stock, par value $0.01 per
share (the "Common Stock"), of the Corporation effected on May
5, 1997 (the "Reverse Stock Split").
3. The Amendment contains an amendment to the Corporation's
Articles of Incorporation that requires shareholder approval,
and the Amendment was duly adopted and approved on May 2, 1997
by (i) the Corporation's Board of Directors, and (ii) the
Corporation's shareholder having the sole voting rights with
respect to a majority of the issued and outstanding shares of
Common Stock, the number of votes cast by such shareholder being
sufficient for such approval.
4. The Amendment does not adversely affect the rights or preferences
of the holders of the outstanding shares of Common Stock.
5. The number of shares of Common Stock subject to the Reverse
Stock Split is 5,425,000 shares of Common Stock and the number
of shares of Common Stock that will exist after the Reverse
Stock Split is 2,712,500 shares of Common Stock.
IN WITNESS WHEREOF, the undersigned has executed this Certificate on
the 5th day of May, 1997.
2CONNECT EXPRESS, INC.
By: /s/ Marc D. Fishman
--------------------------------
Marc D. Fishman
Chairman of the Board, Chief
Executive Officer and President
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
KPMG PEAT MARWICK LLP
The Board of Directors
2Connect 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.
KPMG Peat Marwick LLP
Miami, Florida
May 5, 1997
