<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 7, 1996
REGISTRATION NO. 333-13345
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MANCHESTER EQUIPMENT CO., INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
5045
NEW YORK 7379 11-2312854
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBERS) IDENTIFICATION NO.)
</TABLE>
160 OSER AVENUE
HAUPPAUGE, NEW YORK 11788
(516) 435-1199
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
BARRY R. STEINBERG
MANCHESTER EQUIPMENT CO., INC.
160 OSER AVENUE
HAUPPAUGE, NEW YORK 11788
(516) 435-1199
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
SETH I. TRUWIT, ESQ. BERNARD STEBEL, ESQ. RICHARD H. GILDEN, ESQ.
EPSTEIN BECKER & GREEN, P.C. STEBEL & PASELTINER, P.C. FULBRIGHT & JAWORSKI L.L.P.
250 PARK AVENUE 7600 JERICHO TURNPIKE 666 FIFTH AVENUE
NEW YORK, NEW YORK 10177 WOODBURY, NEW YORK 11797 NEW YORK, NEW YORK 10103
(212) 351-4500 (516) 496-8117 (212) 318-3000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement
becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ------------------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT BEING OFFERING PRICE AGGREGATE AMOUNT OF
TITLE OF SECURITIES BEING REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value................ 2,875,000 $12.00 $34,500,000 $11,897*
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* Previously paid.
(1) Includes 375,000 shares that the Underwriters have the option to purchase to
cover over-allotments, if any.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act.
------------------------
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 SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 BY ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES
LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER 7, 1996
PROSPECTUS
2,500,000 SHARES
LOGO
MANCHESTER EQUIPMENT CO., INC.
COMMON STOCK
------------------------
Of the 2,500,000 shares of Common Stock offered hereby, 2,125,000 shares
are being sold by Manchester Equipment Co., Inc. ("Manchester" or the "Company")
and 375,000 shares are being sold by a selling shareholder of the Company (the
"Selling Shareholder"). See "Principal and Selling Shareholders." The Company
will not receive any proceeds from the sale of the shares by the Selling
Shareholder.
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that a trading market will develop after
the sale of shares offered hereby. It is currently estimated that the initial
public offering price will be between $10.00 and $12.00 per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The Common Stock has been approved for
quotation on The Nasdaq National Market subject to official notice of issuance
under the symbol "MANC."
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECU-
RITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDER
- -------------------------------------------------------------------------------------------------------
Per Share.......................... $ $ $ $
- -------------------------------------------------------------------------------------------------------
Total(3)........................... $ $ $ $
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) For information regarding indemnification of the Underwriters and certain
compensation payable to the Representatives of the Underwriters, see
"Underwriting."
(2) Before deducting expenses of this offering payable by the Company estimated
at $825,000.
(3) The Company has granted to the Underwriters an option, exercisable within 30
days of the date hereof, to purchase up to 375,000 additional shares of
Common Stock solely to cover over-allotments, if any, on the same terms and
conditions as the shares offered hereby. If such option is exercised in
full, the total "Price to Public," "Underwriting Discounts and Commissions"
and "Proceeds to Company" will be $ , $ and $ ,
respectively. See "Underwriting."
The shares of Common Stock are offered by the several Underwriters when, as
and if delivered to and accepted by the several Underwriters, subject to their
right to reject any order in whole or in part and to certain other conditions.
It is expected that delivery of the certificates representing the shares of
Common Stock will be made on or about , 1996 at the offices of
Ladenburg Thalmann & Co. Inc., New York, New York.
'Ladenburg Logo' 'Ladenburg Logo'
The date of this Prospectus is , 1996
<PAGE> 3
OFFERING CUSTOMERS SINGLE-SOURCE SOLUTIONS
TO THEIR INFORMATION SYSTEMS NEEDS
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
------------------------
The Company intends to furnish its shareholders with annual reports
containing audited financial statements reported on by independent auditors and
quarterly reports containing unaudited financial information for the first three
quarters of each fiscal year.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information and the Consolidated Financial
Statements and the Notes thereto appearing elsewhere in this Prospectus. Unless
otherwise indicated, all references to the Company's authorized, issued and
outstanding securities assume no exercise of the Underwriters' over-allotment
option. This Prospectus contains forward-looking statements that involve risks
and uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements as a result of the factors
set forth under "Risk Factors" and elsewhere in this Prospectus.
THE COMPANY
Manchester Equipment Co., Inc. is a systems integrator and reseller of
computer hardware, software and networking products, primarily for commercial
customers. The Company offers its customers single-source solutions customized
to their information systems needs by combining value-added services with
hardware, software, networking products and peripherals from leading vendors.
Over the past 20 years, the Company has forged long-standing relationships with
both customers and suppliers and has capitalized on the rapid developments in
the computer industry, including the shift toward client/server-based platforms.
Manchester's marketing focus is on mid- to large-sized companies, which
have become increasingly dependent upon complex information systems in an effort
to gain competitive advantages. While many of these companies have the financial
resources to make the required capital investments in information systems, often
they do not have the necessary information technology personnel to design,
install or maintain complex systems or to incorporate continuously evolving
technologies. As a result, these companies are turning to independent third
parties to procure, design, install, maintain and upgrade their information
systems.
The Company offers its customers a variety of value-added services, such as
consulting, integration and support services, together with a broad range of
computer and networking products from leading vendors. Consulting services
include systems design, performance analysis, security analysis and migration
planning. Integration services include product procurement, configuration,
testing, systems installation and implementation. Support services include
network management, "help-desk" support, and enhancement, maintenance and repair
of computer systems. Significant customers of the Company currently include
Barnes & Noble Inc., Cabletron Systems Inc., Conde Nast Publications Inc., J&R
Music World, National Broadcasting Company Inc., Pfizer Inc., Reuters America
Inc., Time Warner Inc., The Toronto Dominion Bank, United Parcel Service of
America Inc. and the United States Merchant Marine Academy. The Company offers
services and products from its headquarters in Long Island, New York, and its
regional offices in New York City, Needham (Boston), Massachusetts and Boca
Raton and Tampa, Florida. Most of the Company's revenues are derived from sales
to customers located in the New York Metropolitan area, with approximately 90%
of the Company's revenues being generated from its Long Island and New York City
offices.
The Company believes that a number of factors enable it to compete in its
highly fragmented and rapidly changing market. Among other things, the Company
benefits from long-standing relationships with many of its customers, providing
opportunities for continued sales of products and services. The Company's
long-standing relationships with suppliers and its large volume purchases
contribute to the Company's ability to obtain significant purchase discounts and
inventory as needed. Manchester further believes that its name is widely
recognized for high quality, competitively priced products and value-added
services. Manchester also has developed efficient inventory and credit extension
controls which have historically resulted in rapid inventory turnover and
minimal bad debt expense. The Company's expansion to regional offices in the
Northeast and Florida has contributed to a continued increase in its revenues.
3
<PAGE> 5
Key elements of Manchester's strategy include (i) increasing its focus on
providing value-added services, such as consulting, integration and support,
(ii) expanding its marketing focus on companies outside the Fortune 500, (iii)
introducing an electronic sales ordering system (linked to automated inventory
and credit control systems) for its customers, (iv) increasing sales force
productivity through enhanced electronic access to product information,
increased training of sales representatives and use of telemarketing, (v)
expanding its presence in the New York Metropolitan area by enlarging both its
New York City and Long Island offices and (vi) expanding geographically into
growing business centers in the eastern half of the United States. In support of
its strategy, during the past fiscal year, the Company hired additional
technical and administrative staff and increased its investment in its
management information systems.
The Company's executive offices are located at 160 Oser Avenue, Hauppauge,
New York 11788; its telephone number is (516) 435-1199.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by
The Company...................................... 2,125,000 shares
The Selling Shareholder.......................... 375,000 shares
Common Stock to be outstanding after the
offering(1)......................................... 8,325,000 shares
Use of proceeds....................................... To repay short-term debt, to expand
its New York Metropolitan area
operations, to upgrade its
telecommunications system and for
working capital
Proposed Nasdaq National Market symbol................ MANC
</TABLE>
- ---------------
(1) Excluding 1,100,000 shares of Common Stock reserved for issuance under the
Company's stock option plan and 250,000 shares of Common Stock reserved for
issuance upon the exercise of warrants to be issued to the Representatives
of the Underwriters and their designees exercisable at 120% of the public
offering price (the "Representatives' Warrants"). See "Capitalization,"
"Management -- Stock Option Plan" and "Underwriting."
4
<PAGE> 6
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The following table sets forth summary financial data of the Company and
should be read in conjunction with the Consolidated Financial Statements and the
Notes thereto and other financial information included herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31,
-----------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues.............................. $111,835 $118,898 $137,361 $170,818 $189,659
Gross profit.......................... 18,551 17,852 19,984 24,495 26,531
Income from operations................ 1,285 1,787 2,604 3,215 3,933
Net income............................ 628 1,132 1,776(1) 1,663 2,138
PRO FORMA INCOME STATEMENT DATA
(UNAUDITED)(2):
Income from operations.......................................................... $ 3,933
Reduction in officers' compensation............................................. 3,209
Reduction in rent to related parties............................................ 304
Pro forma income from operations................................................ 7,446
Pro forma net income............................................................ $ 4,246
========
Pro forma net income per share.................................................. $ .68
========
Shares used in pro forma net income per share calculation....................... 6,246,970
========
</TABLE>
<TABLE>
<CAPTION>
JULY 31, 1996
--------------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital................................................. $ 9,841 $ 28,368
Total assets.................................................... 37,761 52,058
Short-term debt, including current maturities of capital lease
obligation................................................... 6,952 452
Shareholders' equity............................................ 12,914 33,711
</TABLE>
- ---------------
(1) Includes a cumulative effect of a change in accounting for income taxes of
$386. See Notes 1 and 8 of Notes to Consolidated Financial Statements.
(2) Pro forma to give effect to the assumed reduction in (i) officers'
compensation payable to the Company's Chief Executive Officer, Executive
Vice President and Chief Financial Officer to an aggregate of $1,125,
exclusive of fringe benefits, to reflect (A) the annual compensation that
the Company's Chief Executive Officer and Executive Vice President have
agreed to receive without any diminished duties or responsibilities, and (B)
the reduction from the amount of annual compensation paid to the former
Chief Financial Officer to the annual compensation currently payable to the
present Chief Financial Officer, and (ii) rent paid to related parties to
amounts stipulated in current leases. See "Management" and "Certain
Transactions." Officers' compensation was $3,940, $1,897, $1,988, $4,990 and
$4,334 for the fiscal years ended July 31, 1992, 1993, 1994, 1995 and 1996,
respectively.
(3) As adjusted to reflect the sale of 2,125,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $11.00 per share and
the application of the estimated net proceeds therefrom. See "Use of
Proceeds" and "Capitalization."
5
<PAGE> 7
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of Common Stock offered hereby. This
Prospectus contains certain forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from the
results anticipated in these forward-looking statements as a result of certain
of the factors set forth in the following risk factors and elsewhere in this
Prospectus.
ADVERSE INDUSTRY CONDITIONS; DECREASING OPERATING MARGINS IN SALES OF PRODUCTS
The computer industry is characterized by a number of potentially adverse
business conditions, including pricing pressures, evolving distribution
channels, market consolidation and a potential decline in the rate of growth in
sales of personal computers. Heightened price competition among various hardware
manufacturers has resulted in reduced per unit revenue and declining gross
profit margins. As a result of the intense price competition within the
industry, the Company has experienced increasing pressure on its gross profit
and operating margins with respect to the sale of products. The Company's
inability to compete successfully on the pricing of products sold, or the
continuing decline in its gross margins of products sold due to adverse industry
conditions or competition, could have a material adverse effect on the Company's
business, results of operations and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
RISKS ASSOCIATED WITH THE COMPANY'S STRATEGY
An integral part of the Company's strategy is to increase its value-added
services revenue. These services generally provide higher operating margins than
those associated with the sale of products. This strategy requires the Company,
among other things, to attract and retain highly skilled technical employees in
a competitive labor market, provide additional training to its sales
representatives and enhance its existing service management system. There can be
no assurance that the Company will be successful in increasing its focus on
providing value-added services, and the failure to do so could have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Strategy -- Emphasizing Value-added
Services."
Manchester's strategy also includes expanding its presence in the New York
Metropolitan area by increasing its sales and service capabilities in its New
York City office and enlarging its sales, service and training capabilities at
its Long Island headquarters as well as expanding geographically into growing
business centers in the eastern half of the United States. There can be no
assurance that the Company's expansion of its New York Metropolitan area
operations will increase profits generated by such operations, that the opening
of new offices will prove profitable, or that these expansion plans will not
substantially increase future capital or other expenditures. The failure of this
component of the Company's strategy could materially adversely affect its
business, results of operations and financial condition. See
"Business -- Strategy -- Expanding New York Metropolitan Area Presence" and
"-- Strategy -- Expanding into Additional Business Centers."
To date, Manchester's success has been based primarily upon sales in the
New York Metropolitan area. The Company's strategy, encompassing the expansion
of service offerings, the expansion of existing offices and the establishment of
new regional offices, is expected to challenge the Company's senior management
and infrastructure. There can be no assurance as to the Company's ability to
respond to these challenges. The failure of the Company to effectively manage
its planned growth could have a material adverse effect on the Company's
business, results of operations and financial condition. See
"Business -- Strategy."
6
<PAGE> 8
In addition, the success of the Company's strategy will depend in large
part upon the Company's ability to attract and retain highly skilled technical
and sales personnel in a competitive labor market. There can be no assurance
that the Company will be able to attract and retain such skilled personnel. The
loss of a significant number of the Company's existing technical or sales
personnel or difficulty in hiring or retaining additional technical or sales
personnel could have a material adverse effect on the Company's business,
results of operations and financial condition. See "Business -- Services and
Products" and "-- Employees."
COMPETITION
The computer industry is characterized by intense competition. The Company
directly competes with local, regional and national systems integrators,
value-added resellers ("VARs") and distributors as well as with certain computer
manufacturers that market through direct sales forces. While the Company's
competitors vary depending upon the particular market, some of the national and
regional competitors of the Company include AmeriData Technologies, Inc.,
CompuCom Systems, Inc., Dataflex Corporation, Entex Information Services, Inc.,
Vanstar Corporation and Electronic Data Systems Corporation. The computer
industry has recently experienced a significant amount of consolidation through
mergers and acquisitions, and manufacturers of personal computers may increase
competition by offering a range of services in addition to their current product
and service offerings. In the future, the Company may face further competition
from new market entrants and possible alliances between existing competitors.
Some of the Company's competitors have, or may have, greater financial,
marketing and other resources, and may offer a broader range of products and
services, than the Company. As a result, they may be able to respond more
quickly to new or emerging technologies or changes in customer requirements,
benefit from greater purchasing economies, offer more aggressive hardware and
service pricing or devote greater resources to the promotion of their products
and services. There can be no assurance that the Company will be able to compete
successfully in the future with these or other competitors. See "Business --
Competition."
DEPENDENCE ON KEY EXECUTIVES
The success of the Company is dependent on the services of Barry R.
Steinberg, the Company's founder, Chairman of the Board, President and Chief
Executive Officer, and Joel G. Stemple, Ph.D., the Company's Executive Vice
President. Mr. Steinberg, who has served the Company for in excess of 23 years,
has long-standing relationships with many manufacturers, which the Company
believes assists it in procuring desired products on a timely basis and on
desirable financial terms. In addition, Mr. Steinberg has long-standing
relationships with many of the Company's customers, providing opportunities for
continued sales of products and services. Dr. Stemple has served the Company for
in excess of 14 years and his management responsibilities include marketing and
advertising programs, review of contracts, monitoring the sales force and
inventory control. The loss of the services of either of Mr. Steinberg or Dr.
Stemple could have a material adverse effect on the Company's business, results
of operations and financial condition. The Company currently is the beneficiary
under insurance policies on the lives of Mr. Steinberg and Dr. Stemple in the
amounts of $1.3 million and $700,000, respectively. There can be no assurance
that the proceeds of these insurance policies will be adequate to compensate the
Company for the loss of services of either of these key executives. See
"Management."
DEPENDENCE UPON MAJOR CUSTOMER
The Company's largest customer accounted for approximately 14%, 22% and 16%
of the Company's revenues for the fiscal years ended July 31, 1994, 1995 and
1996, respectively, substantially all of such revenues being derived from the
sale of hardware products. The presence of this customer contributes to the
Company's ability to obtain volume discounts on the purchase of computer
hardware from certain of its vendors. Although this customer has been a customer
of the
7
<PAGE> 9
Company for approximately ten years, the Company has no long-term supply
contract with it, but rather ships products against purchase orders to meet the
customer's needs. The loss of this customer could have a material adverse effect
on the Company's revenues as well as its ability to obtain volume discounts from
certain vendors, either of which could have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Business -- Services and Products" and "-- Customers."
DEPENDENCE ON SALES TO COMPUTER RESELLERS AND VARS
The Company's profitability has been affected by its ability to obtain
volume discounts from certain manufacturers which has been dependent, in part,
upon the Company's ability to sell large quantities of products to computer
resellers, including VARs. Sales to resellers have been made at profit margins
generally less favorable than sales directly to commercial customers. For the
fiscal years ended July 31, 1994, 1995 and 1996, approximately 25%, 24% and 23%
of the Company's revenues, respectively, were derived from sales to computer
resellers, including VARs. The Company's inability to continue to sell products
to computer resellers and thereby obtain the desired volume discounts from
manufacturers or to expand its sales to commercial customers sufficiently to
offset the need to rely on sales to computer resellers could have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Management's Discussion of Financial Condition and Results of
Operations."
DEPENDENCE ON MAJOR MANUFACTURERS
The Company's business is dependent upon its relationships with major
manufacturers in the computer industry. Combined sales of products manufactured
by Toshiba America Information Systems, Inc. ("Toshiba"), Hewlett-Packard
Company ("Hewlett-Packard"), NEC Technologies, Inc. ("NEC") and Compaq Computer
Corporation ("Compaq") during the fiscal years ended July 31, 1994, 1995 and
1996 comprised approximately 51%, 52% and 53%, respectively, of the Company's
revenues. Sales of products manufactured by Toshiba accounted for approximately
23%, 24% and 23%, respectively, of the Company's revenues, substantially all of
which sales were of notebook computers and related accessories. Many aspects of
the Company's business are affected by its relationships with major
manufacturers, including product availability, pricing and related terms, and
reseller authorizations. The increasing demand for personal computers and
ancillary equipment has resulted in significant product shortages from time to
time, because manufacturers have been unable to produce sufficient quantities of
certain products to meet demand. There can be no assurance that manufacturers
will maintain an adequate supply of these products to satisfy all the orders of
the Company's customers or that, during periods of increased demand,
manufacturers will provide products to the Company, even if available, or at
discounts previously offered to the Company. In addition, there can be no
assurance that the pricing and related terms offered by major manufacturers will
not adversely change in the future. The failure to obtain an adequate supply of
products, the loss of a major manufacturer, the deterioration of the Company's
relationship with a major manufacturer or the Company's inability in the future
to develop new relationships with other manufacturers could have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Business -- Services and Products."
Certain manufacturers offer market development funds, cooperative
advertising and other promotional programs to systems integrators, distributors
and computer resellers. The Company relies on these funds for many of its
advertising and promotional campaigns. The dollar amounts of funds received by
the Company for the fiscal years ended July 31, 1994, 1995 and 1996 were $1.4
million, $906,000 and $943,000, respectively, representing 1.0%, .5% and .5% of
revenues, respectively. In recent years, manufacturers have generally reduced
their level of support with respect to these programs. The discontinuance or
material reduction of these programs would result in the Company having to spend
its own funds to obtain the same level of advertising and promotion,
8
<PAGE> 10
which could have a material adverse effect on the Company's business, results of
operations and financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- General" and "Business -- Sales
and Marketing."
INVENTORY MANAGEMENT
The computer industry is characterized by rapid product improvement and
technological change resulting in relatively short product life cycles and rapid
product obsolescence, which can place inventory at considerable valuation risk.
Certain of Manchester's suppliers provide price protection to the Company, which
is intended to reduce the risk of inventory devaluation due to price reductions
on current products. Certain of the Company's suppliers also provide stock
balancing to the Company pursuant to which the Company is able to return unsold
inventory to a supplier as a partial credit against payment for new products.
There are often restrictions on the dollar amount of inventory that can be
returned at any one time. There can be no assurance that such price protection
or stock balancing will be available to the Company in the future, or that these
measures will provide complete protection against the risk of excess or obsolete
inventories. Although the Company maintains a sophisticated proprietary
inventory management system, there can be no assurance that the Company will
continue to successfully manage its existing and future inventory. Failure to
successfully manage its current or future inventory could have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Business -- Management Information Systems."
RAPID TECHNOLOGICAL CHANGE
The markets for the Company's products and services are characterized by
rapidly changing technology and frequent introduction of new hardware and
software products and services, which may render many existing products
noncompetitive, less profitable or obsolete. The Company's continued success
will depend on its ability to keep pace with the technological developments of
new products and services and to address increasingly sophisticated customer
requirements. The Company's success will also depend upon its abilities to
address the technical requirements of its customers arising from new generations
of computer technologies, to obtain these new products from present or future
suppliers and vendors at reasonable costs, to educate and train its employees as
well as its customers with respect to these new products or services and to
integrate effectively and efficiently these new products into both the Company's
internal systems and systems developed for the Company's customers. There can be
no assurance that the Company will be successful in identifying, developing and
marketing product and service developments or enhancements in response to these
technological changes. The failure of the Company to respond effectively to
these technological changes could have a material adverse effect on the
Company's business, results of operations and financial condition.
FLUCTUATIONS IN QUARTERLY RESULTS
The Company's quarterly revenues and operating results have varied
significantly in the past and are expected to continue to do so in the future.
Quarterly revenues and operating results generally fluctuate as a result of the
demand for the Company's products and services, the introduction of new hardware
and software technologies with improved features, the introduction of new
services by the Company and its competitors, changes in the level of the
Company's operating expenses, competitive conditions and economic conditions. In
particular, the Company currently is increasing its fixed operating expenses,
including a significant increase in personnel, as part of its strategy to
increase its focus on providing systems integration and other higher margin and
value-added services. Accordingly, the Company believes that period-to-period
comparisons of its operating results should not be relied upon as an indication
of future performance. In addition, the results of any quarterly period are not
indicative of results to be expected for a full fiscal year.
9
<PAGE> 11
CONCENTRATION OF OWNERSHIP AND CONTROL AND ANTI-TAKEOVER PROVISIONS
Based on the number of shares of Common Stock that will be outstanding upon
completion of this offering, Barry R. Steinberg, the Company's Chairman of the
Board, President and Chief Executive Officer, will beneficially own 55.7% of the
outstanding shares of Common Stock (approximately 53.3% if the Underwriters'
over-allotment option is exercised in full). As a result, Mr. Steinberg will
have sufficient voting power to elect all of the Company's directors. Mr.
Steinberg also will be able to veto any proposed sale of the Company, which
under New York law requires the affirmative vote of the holders of two-thirds of
the outstanding shares of Common Stock. See "Principal and Selling
Shareholders."
The Company's principal shareholders and their families and affiliated
entities own a substantial portion of the real estate leased by the Company. The
Company believes that each of these leases, as amended to be effective with the
closing of this offering, is on terms comparable to those that the Company could
have obtained from independent third parties. However, there can be no assurance
that conflicts of interest may not arise out of such relationships. See
"Principal and Selling Shareholders" and "Certain Transactions."
The Company's Certificate of Incorporation provides that up to 5,000,000
shares of Preferred Stock may be issued by the Company from time to time in one
or more series. The Board of Directors is authorized to determine the rights,
preferences, privileges and restrictions granted to and imposed upon any wholly
unissued series of Preferred Stock and to fix the number of shares of any series
of Preferred Stock and the designation of any such series, without any vote or
action by the Company's shareholders. The Board of Directors may authorize and
issue Preferred Stock with voting or conversion rights that could adversely
affect the voting power or other rights of the holders of Common Stock. In
addition, the potential issuance of Preferred Stock may have the effect of
delaying, deferring or preventing a change in control of the Company, may
discourage bids of the Common Stock at a premium over the market price of the
Common Stock and may adversely affect the market price of the Common Stock. In
addition, the Company is subject to Section 912 of the New York Business
Corporation Law which imposes certain restrictions and requirements on a
company's ability to engage in a "business combination" with an "interested
shareholder." See "Description of Capital Stock."
DISCRETIONARY USE OF PROCEEDS
Assuming an initial public offering price of $11.00 per share,
approximately $12.0 million of the net proceeds of this offering will be
utilized for general corporate purposes, including working capital. Accordingly,
the Board of Directors will have broad discretion as to the allocation of a
substantial portion of the net proceeds from this offering. See "Use of
Proceeds."
SUBSTANTIAL DILUTION
Purchasers of the Common Stock offered hereby will incur an immediate and
substantial dilution of approximately $7.04 per share in net tangible book value
from the assumed $11.00 per share initial public offering price. See "Dilution."
NO PRIOR MARKET; STOCK PRICE VOLATILITY
Prior to this offering, there has been no public market for the Company's
Common Stock. Consequently, the initial public offering price will be determined
by negotiations between the Company and the Representatives. There can be no
assurance that an active public market for the Common Stock will develop or be
sustained after this offering or that the market price of the Common Stock will
not decline below the initial public offering price. The trading price of the
Common Stock could be subject to wide fluctuations in response to quarter to
quarter variations in operating results, announcements of technological
innovations or new products or services by the Company or its competitors,
general conditions in the industry, changes in earnings estimates by
10
<PAGE> 12
securities analysts, or other events or factors, many of which are beyond the
Company's control. In addition, the stock market has experienced extreme price
and volume fluctuations, which have particularly affected the market prices of
many technology-related companies and which have often been unrelated to the
operating performance of such companies. The Company's revenue or operating
results in future quarters may be below the expectations of securities analysts
and investors. In such event, the price of the Company's Common Stock would
likely decline, perhaps substantially. These Company-specific factors or broad
market fluctuations may materially adversely affect the market price of the
Company's Common Stock. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market after
this offering or the prospect of such sales could adversely affect the market
price of the Common Stock and the Company's ability to raise capital necessary
to fund its future operations. In addition to the 2,500,000 shares of Common
Stock offered hereby, as of the date of this Prospectus (the "Effective Date"),
there will be approximately 5,825,000 shares of Common Stock outstanding, all of
which are deemed "restricted securities" under Rule 144 under the Securities Act
of 1933, as amended (the "Securities Act"), and may be eligible for sale in the
public market in accordance with certain volume and other restrictions under
Rule 144 under the Securities Act beginning 90 days after the effective date of
this offering. Notwithstanding the ability to resell their shares under Rule
144, the current shareholders have agreed with the Representatives not to offer,
sell or otherwise dispose of any shares of Common Stock without the prior
written consent of Ladenburg Thalmann & Co. Inc., on behalf of the
Representatives, for a period of 180 days after the date of this Prospectus.
Sales of a substantial number of shares of Common Stock in the public market
following this offering, pursuant to Rule 144 or otherwise, could materially
adversely affect the market price of the Common Stock. In addition, the Company
intends to register under the Securities Act, following the closing of this
offering, 1,100,000 shares of Common Stock reserved for issuance under the
Company's stock option plan. See "Shares Eligible for Future Sale."
Upon completion of this offering, the Company has agreed to issue to the
Representatives and their designees warrants covering an aggregate of 250,000
shares of Common Stock exercisable for a four-year period commencing one year
from the date of this offering, at an exercise price equal to 120% of the
initial public offering price. The Company has agreed to grant certain demand
and piggyback registration rights to the holders of these warrants. The
existence or exercise of these warrants could materially adversely affect the
Company's ability to raise additional financing at a time when it may be
advantageous to do so. See "Underwriting."
ABSENCE OF DIVIDENDS
To date, the Company has not paid any cash dividends and does not presently
intend to pay cash dividends in the foreseeable future. See "Dividend Policy."
11
<PAGE> 13
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered by the Company hereby are estimated to be approximately $20,796,875
($24,612,500 if the Underwriters' over-allotment option is exercised in full),
assuming an initial public offering price of $11.00 per share, and deducting
underwriting discounts and commissions and estimated offering expenses. The
Company intends to repay the entire balance outstanding under its line of credit
with the net proceeds of this offering. At July 31, 1996, approximately $6.5
million was outstanding under the line of credit, of which $3.5 million bore
interest at 7.69% per annum and the balance bore interest at 8.25% per annum. Of
the remaining net proceeds, approximately $1.0 million will be used to relocate
or expand the Company's New York City office, approximately $770,000 will be
used to expand training and sales facilities in Long Island, and approximately
$500,000 will be used to upgrade the Company's internal telecommunications
system. The approximately $12.0 million balance (assuming $6.5 million is
outstanding under the line of credit as of the closing of this offering) will be
added to working capital for general corporate purposes. The retiring of
indebtedness under the bank line of credit will increase the availability of
bank credit for general corporate purposes.
Exact allocation of the proceeds for working capital purposes, the
increased funds available under the bank line of credit and the timing of such
expenditures will depend upon various factors, including the availability of
strategic expansion opportunities. Although it is possible that the Company
might acquire businesses complementary to the current or future business of the
Company, the Company's ability to effect such an acquisition will depend upon a
number of factors, including the availability of acquisition candidates or other
business opportunities. The Company has no current plans for any acquisitions,
and no such acquisitions are being negotiated as of the date of this Prospectus.
There can be no assurance that any acquisition will be consummated or that, if
consummated, any acquisition will be successful.
Pending the use of the net proceeds of this offering, the Company will
invest the funds in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Board of Directors currently intends to retain all future earnings,
if any, to fund the growth and development of the Company's business and,
accordingly, does not anticipate paying any cash dividends in the foreseeable
future.
12
<PAGE> 14
DILUTION
The net tangible book value of the Company at July 31, 1996, was
approximately $12,185,000, or $1.97 per share. Net tangible book value per share
is equal to the Company's total tangible assets less its total liabilities,
divided by the number of shares of Common Stock outstanding. After giving effect
to the sale of the 2,125,000 shares of Common Stock offered by the Company
hereby (at an assumed initial public offering price of $11.00 per share) and the
application of the estimated net proceeds therefrom, the pro forma net tangible
book value of the Company at July 31, 1996, would have been approximately
$32,982,000, or $3.96 per share. This represents an immediate increase in net
tangible book value of $1.99 per share to existing shareholders and an immediate
dilution in net tangible book value of $7.04 per share to purchasers of Common
Stock in this offering, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $11.00
Net tangible book value per share as of July 31, 1996........... $1.97
Increase per share attributable to new investors in this 1.99
offering.....................................................
-----
Pro forma net tangible book value per share after this offering... 3.96
------
Dilution per share to new investors in this offering.............. $ 7.04
======
</TABLE>
The following table sets forth, as of the date of this Prospectus, the
number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by the existing
shareholders and the new investors (assuming an initial public offering price of
$11.00 per share and before deducting the underwriting discounts and commissions
and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders..... 6,200,000(1) 74.47% $ 4,600 .02% $ .00
New investors............. 2,125,000 25.53% $23,375,000 99.98% $ 11.00
--------- ------ ----------- ------
Total........... 8,325,000 100.00% $23,379,600 100.00%
========= ====== =========== ======
</TABLE>
- ---------------
(1) Does not give effect to the sale by the Selling Shareholder of 375,000
shares of Common Stock pursuant to this offering. See "Principal and Selling
Shareholders."
13
<PAGE> 15
CAPITALIZATION
The following table sets forth, as of July 31, 1996, the capitalization of
the Company and the as adjusted capitalization of the Company after giving
effect to the sale of the 2,125,000 shares of Common Stock offered by the
Company hereby at an assumed offering price of $11.00 per share and the
application of the estimated net proceeds therefrom after deducting underwriting
discounts and commissions and estimated offering expenses. The information
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JULY 31, 1996
---------------------------
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
Short-term debt, including current maturities of capital lease
obligation................................................... $ 6,952,000 $ 452,000
=========== ===========
Capital lease obligation, excluding current maturities......... $ 175,000 $ 175,000
Shareholders' equity:
Preferred Stock, $.01 par value; 5,000,000 shares authorized,
none issued and outstanding actual and as adjusted........... -- --
Common Stock, $.01 par value; 25,000,000 shares authorized,
6,200,000 shares issued and outstanding, and 8,325,000 shares
issued and outstanding as adjusted(1)........................ 62,000 83,000
Additional paid-in capital..................................... -- 20,776,000
Retained earnings.............................................. 12,852,000 12,852,000
----------- -----------
Total shareholders' equity..................................... 12,914,000 33,711,000
----------- -----------
Total capitalization........................................... $13,089,000 $33,886,000
=========== ===========
</TABLE>
- ---------------
(1) Excludes 1,100,000 shares of Common Stock reserved for issuance under the
Company's stock option plan and 250,000 shares of Common Stock reserved for
issuance upon exercise of the Representatives' Warrants. See
"Management -- Stock Option Plan" and "Underwriting."
14
<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The selected consolidated financial data presented below are derived from
the audited consolidated financial statements of the Company. The Consolidated
Financial Statements as of July 31, 1995 and 1996 and for each of the years in
the three-year period ended July 31, 1996 and the report thereon of KPMG Peat
Marwick LLP, independent auditors, are included elsewhere in this Prospectus.
The consolidated financial data presented below as of July 31, 1992, 1993 and
1994 and for the years ended July 31, 1992 and 1993 are derived from
consolidated financial statements of the Company not appearing herein which were
audited by another independent auditor. The data should be read in conjunction
with the Consolidated Financial Statements and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31,
-------------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues............................ $111,835 $118,898 $137,361 $170,818 $ 189,659
Cost of revenues.................... 93,284 101,046 117,377 146,323 163,128
-------- -------- -------- -------- --------
Gross profit........................ 18,551 17,852 19,984 24,495 26,531
Selling, general and administrative
expenses(1)...................... 17,266 16,065 17,380 21,280 22,598
-------- -------- -------- -------- --------
Income from operations.............. 1,285 1,787 2,604 3,215 3,933
Interest and other expenses, net.... (47) 34 (172) (392) (365)
Provision for income taxes.......... 610 689 1,042 1,160 1,430
Cumulative effect of change in
accounting for income taxes...... -- -- 386 -- --
-------- -------- -------- -------- --------
Net income.......................... $ 628 $ 1,132 $ 1,776 $ 1,663 $ 2,138
======== ======== ======== ======== ========
PRO FORMA INCOME STATEMENT DATA
(UNAUDITED)(2):
Reduction in officers' compensation.................................................. $ 3,209
Reduction in rents to related parties................................................ 304
Pro forma income from operations..................................................... 7,446
Pro forma provision for income taxes................................................. 2,835
Pro forma net income................................................................. $ 4,246
========
Pro forma net income per share....................................................... $ .68
========
Shares used in pro forma net income per share calculation............................ 6,246,970
========
</TABLE>
<TABLE>
<CAPTION>
JULY 31,
-------------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................... $ 4,695 $ 6,274 $ 7,701 $ 9,189 $ 9,841
Total assets.............................. 21,662 22,002 25,879 31,635 37,761
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Short-term debt, including current
maturities of capital lease
obligation............................. 3,500 2,200 5,400 5,600 6,952
Capital lease obligation, excluding
current maturities..................... -- -- -- -- 175
Shareholders' equity...................... 6,676 7,808 9,584 11,247 12,914
</TABLE>
- ---------------
(1) Officers' compensation was $3,940, $1,897, $1,988, $4,990 and $4,334 for the
fiscal years ended July 31, 1992, 1993, 1994, 1995 and 1996, respectively.
(2) Pro forma to give effect to the assumed reduction in (i) officers'
compensation payable to the Company's Chief Executive Officer, Executive
Vice President and Chief Financial Officer to an aggregate of $1,125,
exclusive of fringe benefits, to reflect (A) the annual compensation that
the Company's Chief Executive Officer and Executive Vice President have
agreed to receive without any diminished duties or responsibilities, and (B)
the reduction from the amount of annual compensation paid to the former
Chief Financial Officer to the annual compensation currently payable to the
present Chief Financial Officer, and (ii) rent paid to related parties to
amounts stipulated in current leases. See "Management" and "Certain
Transactions."
15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations of the Company should be read in conjunction with the Consolidated
Financial Statements of the Company and Notes thereto appearing elsewhere in
this Prospectus. The following discussion contains certain forward-looking
statements which involve risks and uncertainties. The Company's actual results
could differ materially from the results anticipated in those forward-looking
statements as a result of certain of the factors set forth in the section of
this Prospectus entitled "Risk Factors" as well as elsewhere herein.
GENERAL
Manchester is a systems integrator and reseller of computer hardware,
software and networking products, primarily for commercial customers. The
Company offers its customers single-source solutions customized to their
information systems needs by combining value-added services with hardware,
software, networking products and peripherals from leading vendors. To date,
most of the Company's revenues have been derived from product sales. The Company
generally does not develop or sell software products. However, certain computer
hardware products sold by the Company are loaded with pre-packaged software
products.
As a result of intense price competition within the computer industry as
well as other industry conditions, the Company has experienced increasing
pressure on its gross profit and operating margins with respect to the sale of
products. Manchester's strategy includes increasing its focus on providing
value-added services with operating margins that are higher than those obtained
with respect to the sale of products. The Company's future performance will
depend in part on its ability to manage successfully a continuing shift in its
operations towards value-added services.
The Company's largest customer accounted for approximately 14%, 22% and 16%
of the Company's revenues for the fiscal years ended July 31, 1994, 1995 and
1996, respectively, substantially all of which revenues were derived from the
sale of hardware products. There can be no assurance that the Company will
continue to derive substantial revenues from this customer.
The Company's profitability has been enhanced by its ability to obtain
volume discounts from certain manufacturers, which has been dependent, in part,
upon Manchester's ability to sell large quantities of products to computer
resellers, including VARs. There can be no assurance that the Company will be
able to continue to sell products to resellers and thereby obtain the desired
discounts from manufacturers or that the Company will be able to increase sales
to end-users to offset the need to rely upon sales to resellers.
The markets for the Company's products and services are characterized by
rapidly changing technology and frequent introductions of new hardware and
software products and services, which render many existing products
noncompetitive, less profitable or obsolete. The Company believes that its
inventory controls have contributed to its ability to respond effectively to
these technological changes. As of July 31, 1994, 1995 and 1996, inventories
represented 28%, 30% and 24% of total assets, respectively. During these same
fiscal years, the Company's average inventory turnover was 17, 16 and 18 times,
respectively. The failure of the Company to anticipate technology trends or to
continue to effectively manage its inventory could have a material adverse
effect on the Company's business, results of operations and financial condition.
The Company believes its controls on accounts receivable have contributed
to its profitability. The Company's bad debt expense represented .3%, .1% and
.1% of total revenues for the fiscal years ended July 31, 1994, 1995 and 1996,
respectively.
The Company's quarterly revenues and operating results have varied
significantly in the past and are expected to continue to do so in the future.
Quarterly revenues and operating results generally fluctuate as a result of the
demand for the Company's products and services, the introduction of new hardware
and software technologies with improved features, the introduction of new
services by the Company and its competitors, changes in the level of the
Company's operating expenses, competitive conditions and economic conditions. In
particular, the Company currently is
16
<PAGE> 18
increasing its fixed operating expenses, including a significant increase in
personnel, as part of its strategy to increase its focus on providing higher
margin, value-added services. Accordingly, the Company believes that
period-to-period comparisons of its operating results should not be relied upon
as an indication of future performance. In addition, the results of any
quarterly period are not indicative of results to be expected for a full fiscal
year.
As a result of the rapid changes which are taking place in computer and
networking technologies, product life cycles are short. Accordingly, the
Company's product offerings change constantly. Prices of products change with
generally higher prices early in the life cycle of the product and lower prices
near the end of the product's life cycle. The Company believes that the impact
of price or volume changes of any particular product or products is not material
to the Company's Consolidated Financial Statements.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, information
derived from the Company's Consolidated Statements of Income expressed as a
percentage of revenues.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
FOR
THE YEAR ENDED JULY 31,
-------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Revenues................................................. 100.0% 100.0% 100.0%
Cost of revenues......................................... 85.5 85.7 86.0
----- ----- -----
Gross profit............................................. 14.5 14.3 14.0
Selling, general and administrative expenses............. 12.6 12.4 11.9
----- ----- -----
Income from operations................................... 1.9 1.9 2.1
Interest and other expenses, net......................... 0.1 0.2 0.2
----- ----- -----
Income before income taxes and cumulative effect of
change in accounting................................... 1.8 1.7 1.9
Provision for income taxes............................... 0.8 0.7 0.8
Cumulative effect of change in accounting for income
taxes.................................................. 0.3 -- --
----- ----- -----
Net income............................................... 1.3% 1.0% 1.1%
===== ===== =====
</TABLE>
YEAR ENDED JULY 31, 1995 COMPARED TO YEAR ENDED JULY 31, 1996
Revenues. The Company's revenues increased $18.8 million or 11.0% from
$170.8 million in fiscal 1995 to $189.7 million in fiscal 1996 due to increased
revenues from both new and existing customers. Many factors contributed to this
increase, including new product introductions, special product purchases and
volume and price changes with no one factor having any material effect on this
increase.
Gross Profit. Cost of revenues includes the direct costs of products sold,
freight and the personnel costs associated with providing technical services,
offset in part by manufacturers' market development funds. All other operating
costs are included in selling, general and administrative expenses. Gross profit
increased $2.0 million or 8.3% from $24.5 million in fiscal 1995 to $26.5
million in fiscal 1996 primarily as a result of the increase in revenues. Gross
profit as a percentage of revenues decreased from 14.3% to 14.0%. The decrease
in the gross profit percentage was due to changes in product mix as well as
increased pricing pressures prevalent within the industry. Competitive
pressures, changes in the types of products or services sold and product
availability result in fluctuations in gross profit from period to period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.3 million or 6.2% from $21.3 million in
fiscal 1995 to $22.6 million in fiscal 1996. Approximately $261,000 of this
increase related to higher payroll and related costs due primarily to a $917,000
increase associated with the hiring of additional technical and administrative
staff in support of the Company's strategy to increase its value-added services
revenue partially offset by a $656,000 reduction in officers' compensation from
approximately $5.0 million in fiscal 1995 to approximately $4.3 million in
fiscal 1996. Rent and occupancy costs increased by approximately $408,000 due
primarily to higher rent principally paid to related parties as well as the
leasing of an additional facility to meet the Company's current and future
needs. In addition, commissions paid to
17
<PAGE> 19
the Company's sales force increased approximately $328,000 due to the increase
in revenues in fiscal 1996.
The Company's Chief Executive Officer has entered into an employment
agreement with the Company under which he will receive $550,000 in compensation,
exclusive of fringe benefits, for each of the fiscal years ending July 31, 1997
and 1998. In addition, the Company's Executive Vice President has agreed to
receive base compensation, exclusive of fringe benefits, of $450,000 for the
fiscal years ending July 31, 1997 and 1998. These officers have agreed that they
will not be entitled to any bonuses for fiscal 1997 and that any bonus payable
to either of these officers in fiscal 1998 will require the approval of a
majority of the independent directors of the Company. The compensation to be
paid to the Company's President and Executive Vice President in fiscal 1999 and
thereafter will be based upon agreements to be negotiated at the expiration of
their current respective employment agreements, which compensation the Company
believes will reflect the then fair value of the services to be rendered to the
Company by such individuals. If the revised compensation terms had been in
effect for the entire fiscal 1996 period, and had the Company's former Chief
Financial Officer been compensated at the annual compensation payable to the
current Chief Financial Officer, officers' compensation would have been reduced
by approximately $3.2 million. See "Management." Each of the leases with related
parties has been amended effective with the closing of this offering, to reduce
the rent payable under that lease to current market rates. See "Certain
Transactions." If the revised leases had been in effect for the entire fiscal
1996 period, rent expense would have been reduced by $304,000 from the reported
amount. Giving pro forma effect to the foregoing reductions in officers'
compensation and rents to related parties, the pro forma selling, general and
administrative expenses would have been approximately $19.1 million or 10.1% of
revenues in fiscal 1996.
Interest Expense, Net. Interest expense, net increased from $346,000 in
fiscal 1995 to $374,000 in fiscal 1996 primarily due to increased borrowings.
Provision for Income Taxes. The effective income tax rate decreased
slightly from approximately 41% in fiscal 1995 to approximately 40% in fiscal
1996.
YEAR ENDED JULY 31, 1994 COMPARED TO YEAR ENDED JULY 31, 1995
Revenues. Revenues increased $33.5 million or 24.4% from $137.4 million in
fiscal 1994 to $170.8 million in fiscal 1995. This increase was due primarily to
the increased demand for pentium-based personal computers and notebook computers
and increased sales to the Company's largest customer.
Gross Profit. Gross profit increased $4.5 million or 22.6% from $20.0
million in fiscal 1994 to $24.5 million in fiscal 1995 principally as a result
of increased revenues. Gross profit as a percentage of revenues decreased from
14.5% in fiscal 1994 to 14.3% in fiscal 1995 as a result of changes in the mix
of products sold by the Company during the periods and increasing pricing
pressures prevalent in the industry. During the year ended July 31, 1994, the
Company was related, through common ownership and control, to Electrograph
Systems, Inc. ("Electrograph"), a value-added distributor of microcomputer
peripherals, components and accessories. Purchases from Electrograph during this
period were $385,000 substantially all of which was paid by July 31, 1994. In
August 1994, Electrograph was acquired by an unrelated company.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $3.9 million or 22.4% from $17.4 million in
fiscal 1994 to $21.3 million in fiscal 1995. These costs decreased as a
percentage of revenues from 12.6% to 12.4% as a result of the 24.4% increase in
revenues as compared to the 22.4% increase in selling, general and
administrative expenses. The dollar increase was principally due to higher
payroll and related costs, principally an increase of approximately $3.0 million
in officers' compensation from approximately $2.0 million to approximately $5.0
million, as well as lower market development funds and higher sales commissions
due to the increase in revenues in fiscal 1995. This increase was partially
offset by lower bad debt expense.
Interest Expense, Net. Interest expense, net increased from $236,000 in
fiscal 1994 to $346,000 in fiscal 1995, principally due to increased borrowings.
18
<PAGE> 20
Provision for Income Taxes. The effective income tax rate decreased from
approximately 43% in fiscal 1994 to approximately 41% in fiscal 1995. This
decrease was primarily due to lower state income taxes in fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of financing have been the internally
generated working capital from profitable operations and a line of credit from a
financial institution.
For the year ended July 31, 1996, cash provided by operations increased to
$4.2 million as compared to cash provided by operations of $1.6 million in
fiscal 1995 and cash used in operations of $4.1 million in fiscal 1994. The
increase in cash provided by operations in fiscal 1996 as compared to fiscal
1995 was primarily due to higher net income and reduced inventory levels. The
increase in cash provided by operations in fiscal 1995 as compared to fiscal
1994 was primarily due to increased balances in accounts payable and accrued
expenses. The Company's accounts receivable and accounts payable and accrued
expenses balances as well as its investment in inventory can fluctuate
significantly from one year end to the next due to the receipt of large customer
orders or payments or variations in product availability and vendor shipping
patterns at any particular date. Generally, the Company's experience is that
increases in accounts receivable, inventory and accounts payable and accrued
expenses will coincide with growth in revenue and increased operating levels.
Cash used in investing activities increased from approximately $448,000 in
fiscal 1994 and $440,000 in fiscal 1995 to $1.0 million in fiscal 1996. In
addition, during fiscal 1996, the Company acquired $305,000 of computer
equipment through a capital lease obligation resulting in total fixed asset
additions for fiscal 1996 of $1.3 million. This increased level of spending
reflects the initial expenditures related to the Company's plans to expand its
operations and facilities to accommodate current and anticipated increases in
revenues.
Cash provided by financing activities in fiscal 1996 was approximately
$751,000 compared to $200,000 in fiscal 1995 and $3.2 million in fiscal 1994.
The change in cash provided by financing activities is primarily reflective of
increases in borrowing by the Company under its line of credit with a financial
institution. Similar to the items discussed above, the Company's level of
borrowing will fluctuate significantly in order to provide cash for operations
and capital expenditures.
The Company's line of credit agreement with a financial institution
provides for a maximum of $9.5 million of borrowings and is due on demand.
Interest on borrowings is computed at the Company's option based on the
financial institution's prime rate (8.25% at July 31, 1996) or at LIBOR plus 2%
(7.69% at July 31, 1996). The line provides for a general security interest
first lien on all of the Company's assets, to the extent a first lien is
available. The line is guaranteed by Barry M. Steinberg, the Company's
President, Chief Executive Officer and majority shareholder. At July 31, 1996,
borrowings of $6.5 million were outstanding under the line of credit. A portion
of the net proceeds of this offering will be applied to repay the outstanding
indebtedness under the line. Following this offering, the Company expects to
maintain the line, may utilize it to fund operations and intends to eliminate
Mr. Steinberg's guarantee.
The Company believes that the net proceeds of this offering together with
current working capital, expected cash flows from operations and available
borrowings under the line of credit will be adequate to support current
operating levels for the foreseeable future, specifically through at least the
end of fiscal 1998. The Company currently has no major commitments for capital
expenditures. Future capital requirements of the Company include those for the
growth of working capital items such as accounts receivable and inventory and
the purchase of equipment and expansion of facilities as well as the possible
opening of new offices. The Company's ability to implement its expansion
strategy is dependent upon its ability to generate sufficient cash flow to meet
its obligations on a timely basis and to obtain additional funds through equity
or debt financings or from other sources, as may be required.
19
<PAGE> 21
INFLATION
The Company does not believe that inflation has had a material effect on
the Company's operations.
NEW ACCOUNTING STANDARD
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("Statement 123"). Statement 123 establishes financial accounting
and reporting standards for stock-based compensation plans. Statement 123 also
applies to transactions in which an entity issues its equity instruments to
acquire goods or services from nonemployees. Statement 123 encourages a fair
value based method of accounting for employee stock options or other similar
equity instruments. Entities electing not to adopt a fair value method must make
pro forma disclosures of net income and earnings per share as if a fair value
based method had been applied. Statement 123 is effective for fiscal year 1997.
The Company has elected not to adopt a fair value based accounting method for
employee stock options and therefore does not expect that the adoption of
Statement 123 will have a material impact on its financial position or results
of operations. The Company will disclose, commencing in fiscal 1997, the pro
forma net income and earnings per share as if such method had been used to
account for stock-based compensation cost.
20
<PAGE> 22
BUSINESS
GENERAL
Manchester Equipment Co., Inc. is a systems integrator and reseller of
computer hardware, software and networking products, primarily for commercial
customers. The Company offers its customers single-source solutions customized
to their information systems needs by combining value-added services with
hardware, software, networking products and peripherals from leading vendors.
Over the past 20 years, the Company has forged long-standing relationships with
both customers and suppliers and capitalized on the rapid developments in the
computer industry, including the shift toward client/server-based platforms.
Manchester's marketing focus is on mid- to large-sized companies, which
have become increasingly dependent upon complex information systems in an effort
to gain competitive advantages. While many of these companies have the financial
resources to make the required capital investments in information systems, often
they do not have the necessary information technology personnel to design,
install or maintain complex systems or to incorporate the continuously evolving
technologies. As a result, these companies are turning to independent third
parties to procure, design, install, maintain and upgrade their information
systems.
The Company offers its customers a variety of value-added services, such as
consulting, integration and support services, together with a broad range of
computer and networking products from leading vendors. Consulting services
include systems design, performance analysis, security analysis and migration
planning. Integration services include product procurement, configuration,
testing and systems installation and implementation. Support services include
network management, "help-desk" support, and enhancement, maintenance and repair
of computer systems. Significant customers of the Company currently include
Barnes & Noble Inc., Cabletron Systems Inc., Conde Nast Publications Inc., J&R
Music World, National Broadcasting Company Inc., Pfizer Inc., Reuters America
Inc., Time Warner Inc., The Toronto Dominion Bank, United Parcel Service of
America Inc. and the United States Merchant Marine Academy. The Company offers
these services and products from its headquarters in Long Island, New York, and
its regional offices in New York City, Needham, Massachusetts and Boca Raton and
Tampa, Florida. Most of the Company's revenues are derived from sales to
customers located in the New York Metropolitan area, with approximately 90% of
the Company's revenues being generated from its Long Island and New York City
offices.
The Company was incorporated in New York in 1973 and has one active
wholly-owned subsidiary, Manchester International, Ltd., a New York corporation
which sells computer hardware, software and networking products to resellers
domestically and internationally.
INDUSTRY
Businesses have become increasingly dependent upon complex information
systems in an effort to gain competitive advantages or to maintain competitive
positions. Computer technology and related products are continuously evolving,
making predecessor technologies or products obsolete within a few years or, in
some cases, within months. The constant changes in hardware and software and the
competitive pressure to upgrade existing products create significant challenges
to companies.
Over the last several years, the increase in performance of personal
computers, the development of a variety of effective business productivity
software programs and the ability to interconnect personal computers in high
speed networks have led to an industry shift away from mainframe computer
systems to client/server systems based on personal computer technology. In such
systems, the client computer, in addition to its stand-alone capabilities, is
able to obtain resources from a central server or servers. Accordingly, personal
computers may share everything from data files to printers. Recently, networked
applications such as electronic mail and work group productiv-
21
<PAGE> 23
ity software, coupled with widespread acceptance of Internet technologies, have
led companies to implement corporate intranets (networks that enable end-users
(e.g., employees) to share information). The use of a corporate intranet allows
a company to warehouse valuable information, which may be "mined" or accessed by
employees or other authorized users through readily available Internet tools
such as Web browsers and other graphical user interfaces.
With these advances in information systems and networking, many companies
are reengineering their businesses using these technologies to enhance their
revenues and productivity. However, as the design of information systems has
become more complex to accommodate the proliferating network applications, the
configuration, selection and integration of the necessary hardware and software
products have become increasingly more difficult and complicated. While many
companies have the financial resources to make the required capital investments,
they often do not have the necessary information technology personnel to design,
install or maintain complex systems and may not be able to provide appropriate
or sufficient funding or internal management for the maintenance of their
information systems. As a result, such companies are increasingly turning to
independent third parties to procure, design, install, maintain and upgrade
their information systems. By utilizing the services of such third parties,
companies are able to acquire state-of-the-art equipment and expertise on a
cost-effective basis.
THE MANCHESTER SOLUTION
Manchester offers its customers single-source solutions customized to their
information systems needs. The Manchester solution includes a variety of
value-added services, including consulting, integration, network management,
"help-desk" support, and enhancement, maintenance and repair of computer
systems, together with a broad range of computer and networking products from
leading vendors. Manchester believes it provides state-of-the-art,
cost-effective information systems designed to meet its customers' particular
needs.
As a result of the Company's long-standing relationships with certain
suppliers and its large volume purchases, the Company is often able to obtain
significant purchase discounts which can result in cost-savings for its
customers. Manchester's relationships with its suppliers, its inventory
management system and industry knowledge generally enable it to procure desired
products on a timely basis and therefore to offer its customers timely product
delivery.
STRATEGY
The key elements of the Company's strategy include:
EMPHASIZING VALUE-ADDED SERVICES. Value-added services, such as
consulting, integration and support services, generally provide higher profit
margins than computer hardware sales. The Company intends to increase its focus
on providing these services through a number of key strategies. The Company
plans to recruit additional technical personnel with broad-based knowledge in
systems design and specialized knowledge in different areas of systems
integration, including application software, inter-networking (including
bridges, routers and switches), database design and management and security. The
Company plans to actively promote the benefits of corporate intranets and
intends to introduce additional services, including remote network management
services and fee-based "help desk" services. The remote network management
system is expected to consist of dedicated servers and software located at the
Company's Long Island headquarters. This system is intended to allow the
Company's specially trained engineers to solve their customers' network systems
problems from the Company's facilities. The fee-based "help desk" services are
anticipated to be available for end-users, regardless of whether they purchase
products or other services from the Company.
INCREASING MARKETING FOCUS ON COMPANIES OUTSIDE THE FORTUNE
500. Manchester has decided to increase its marketing focus on those companies
outside the Fortune 500 in order to increase its value-added services revenue.
Manchester's experience is that these companies are
22
<PAGE> 24
increasingly looking to third parties to provide a complete solution to their
information systems needs from both a service and product standpoint. These
companies often do not have the necessary information technology personnel to
procure, design, install or maintain complex systems or to incorporate
continuously evolving technologies. Manchester believes that it can provide
these companies with solutions to their information systems requirements by
providing a variety of value-added services together with a broad range of
computer and networking products.
INTRODUCING AN ELECTRONIC ORDERING SYSTEM. Manchester is in the process of
implementing an electronic ordering system. This ordering system will enable
customers to access the Company via the Internet, review various products,
systems and services offered by the Company and place their orders on-line.
Customers will also be able to obtain immediate customized information regarding
products, systems and services that meet their specific requirements. The
ordering system will produce a matrix of alternative fully compatible packages,
together with their availability and related costs, based on parameters
indicated by the customer. Customers will not be granted access to this system
without prior credit clearance.
INCREASING SALES FORCE PRODUCTIVITY. Manchester is addressing a variety of
strategies to increase sales force productivity. The Company is in the process
of implementing an electronic sales information system utilizing similar
technology to the electronic ordering system described above. The electronic
sales information system will allow the Company's sales representatives to
obtain immediate customized information regarding products and services that
meet the specific system requirements of customers and the availability and
related costs of such products and services. The Company believes that this
system will increase the productivity of its sales representatives by enabling
them to offer rapid and comprehensive solutions to their customers' needs while
reducing the possibility of returns based on incompatible products.
Manchester also is upgrading its internal telecommunications system.
Through its enhanced system, anticipated to be implemented during the first
calendar quarter of 1997, telephone calls can be automatically placed to a
targeted list of existing or potential customers and, upon connection, will be
routed automatically to available sales representatives with on-screen
information containing product and service data for current customers and market
demographic data for potential customers. The system also will have the
capability to route automatically in-coming calls to available sales
representatives in response to a caller's answers to automated queries.
The Company also intends to provide increased training of its sales
representatives in matters relating to value-added services, such as consulting
and integration services. To facilitate such training, the Company plans to
construct a dedicated training facility to be located in one of its existing
offices in Long Island.
EXPANDING NEW YORK METROPOLITAN AREA PRESENCE. The Company believes that
it has a strong presence and wide name recognition in the New York Metropolitan
area, where there is a growing corporate demand for computer products and
services. Manchester is seeking to expand its presence in this area by enlarging
its New York City office and increasing the sales and service capabilities of
such office, and expanding its sales, service and training capabilities at its
Long Island headquarters. The Company believes that these steps will enable it
to capture a greater percentage of the New York Metropolitan area market.
EXPANDING INTO ADDITIONAL BUSINESS CENTERS. The Company has regional
offices in Needham, Massachusetts and Boca Raton and Tampa, Florida, from which
it derived approximately 10% of its revenues for the fiscal year ended July 31,
1996. The Company intends to continue to expand geographically into growing
business centers in the eastern half of the United States. It is anticipated
that each office would have the capability to perform a broad array of services
as well as engage in product sales.
23
<PAGE> 25
SERVICES AND PRODUCTS
The Company offers customized single-source solutions to its customers'
information systems requirements, including consulting, integration and support
services, together with a broad range of computer and networking products from a
variety of leading vendors. The Company provides its services through a skilled
staff of engineers who are trained and certified in leading products and
technology, including Microsoft Windows NT, Novell NetWare and Cisco Systems
routers and switches.
SERVICES. The Company's services include consulting, integration and
support services.
Consulting. The Company's staff of senior systems engineers provides
consulting services consisting of systems design, performance and security
analysis and migration planning services.
Systems design services include network, communications, applications
and custom solutions design. Network design services involve analysis of a
customer's overall network needs, including access to the Internet;
communications design services involve analysis and creation of enterprise-wide
networks, including corporate intranets; applications design services include
creation of relational databases meeting customers' specific business
requirements; and custom solutions design services include design of storage
systems, remote access systems and document retention through scanning
technology.
Performance analysis involves analyzing a customer's information
systems to assess potential points of failure, to determine where performance
could be increased and to prepare for change and growth. This service includes
the evaluation of applications and their interaction with the network in order
to maximize existing computer resources. Through this evaluation process, which
includes a detailed report to the end-user, a plan for the optimization of the
customer's existing system is created, as well as recommendations for
enhancements and future systems.
Security analysis involves working with customers to develop security
policies covering network and data security, as well as risk analysis. After a
policy is developed, a security strategy is planned and deployed using a variety
of tools, including physical firewalls, packet filtering, encryption and user
authentication.
Migration planning involves the performance of a detailed assessment of
existing mission critical systems, followed by an analysis of the end-user's
future requirements. Working closely with the customer, Manchester's consultants
develop a migration strategy using a defined project plan that encompasses
skills transfer and training, checking for data integrity, project management
and consolidation and reallocation of resources. The primary objective of this
service is to rapidly move the customer from a slow or expensive system to a
newer, more efficient and cost-effective solution.
Integration. Integration services include product procurement,
configuration, testing, installation and implementation.
The Company maintains a sophisticated systems build and test area,
adjacent to its warehousing facilities, where computer systems are configured
and tested through the use of automated systems. Manchester manages the
installation and implementation of its customers' information systems, and
provides critical path analysis, vendor management and facility management
services. Critical path analysis involves the management and coordination of the
various hardware and software networking components of a systems design project.
The Company's engineers prepare reports setting forth coordinated timetables
with respect to installing and integrating the customer's information systems.
Vendor management includes interfacing with the suppliers of computer products
in installing a project; facility management involves management of the labor
aspects of a project, including supervision of electricians and other tradesmen.
24
<PAGE> 26
Support. The Company offers support services for its customers'
existing information systems, including network management, "help-desk"
services, and enhancement, maintenance and repair.
Network management consists of managing the compatibility of, and
communication between, the various components comprising a customer's
information system. The increased expense associated with the ownership of
information systems has encouraged customers to outsource the management of
computer networks, including local area networks ("LANs") and wide area networks
("WANs"). Currently, the Company's engineers provide network management services
on site at customers' facilities. The Company plans to expand these services by
enabling its specially trained engineers to solve many of their customers'
network systems problems on a remote basis from the Company's facilities.
"Help-desk" services consist of providing customers with telephone
support. The Company is in the process of expanding its "help-desk" capabilities
and intends to develop a fee-based "help-desk." In addition, the Company's
service call management system, which the Company is in the process of
enhancing, will enable the Company's "help-desk" technicians to access an
archive of prior service calls concerning similar problems and their solutions,
resulting in a more efficient response to customers' calls.
Enhancement, maintenance and repair services range from broad on-site
coverage to less expensive, basic maintenance and repair of itemized hardware or
software, as well as enhancements such as upgrades of existing systems. Field
representatives are equipped with notebook computers to facilitate the exchange
of information with both the information systems at the Company's headquarters
and with technical databases available on the Internet. The Company maintains a
laboratory at its Long Island facilities where the Company prototypes customer
problems for quicker solutions without jeopardizing customers' information
systems.
PRODUCTS. Manchester offers a wide variety of personal computer and
networking products and peripherals, including:
<TABLE>
<S> <C>
Bridges and Routers Servers
Desktop Computers Software
Internet Access Products Storage Subsystems
Modems Switches
Monitors Supplies and Accessories
Network Equipment Teleconferencing Equipment
Notebook Computers Terminals
Printers Wireless Products
Scanners Workstations
</TABLE>
The Company has long-standing relationships with many manufacturers, which
the Company believes assists it in procuring desired products on a timely basis
and on desirable financial terms. The Company sells products from most major
manufacturers, including:
<TABLE>
<S> <C>
AST Research, Inc. NEC Technologies, Inc.
Bay Networks, Inc. Novell, Inc.
Cisco Systems, Inc. Philips Electronics N.V.
Compaq Computer Corporation Seagate Technology, Inc.
Epson America, Inc. Standard Microsystems Corporation
Hayes Microcomputer Products, Inc. Texas Instruments Inc.
Hewlett-Packard Company 3Com Corp.
Intel Corporation Toshiba America Information Systems, Inc.
Microsoft Corporation U.S. Robotics Corporation
Motorola, Inc.
</TABLE>
25
<PAGE> 27
For the fiscal years ended July 31, 1994, 1995 and 1996, sales by the
Company of products manufactured by Toshiba, Hewlett-Packard, NEC and Compaq
collectively comprised approximately 51%, 52% and 53%, respectively, of the
Company's revenues. In these fiscal years, sales of products manufactured by
Toshiba accounted for approximately 23%, 24% and 23%, respectively, of the
Company's revenues, substantially all of which were sales of notebook computers
and related accessories. The total dollar volume of products purchased directly
from manufacturers, as opposed to distributors or resellers, was approximately
$89 million, $118 million and $117 million for the fiscal years ended July 31,
1994, 1995 and 1996, respectively, and as a percentage of total cost of products
sold was approximately 77%, 82% and 72%, respectively.
The Company seeks to obtain volume discounts for large customer orders
directly from manufacturers and through aggregators and distributors.
CUSTOMERS
The Company believes that it benefits from its long-standing relationships
with many of its customers, providing opportunities for continued sales and
services. Manchester believes that its broad range of capabilities with respect
to both products and services is attractive to companies of all sizes. Although
Manchester is planning to target companies outside the Fortune 500 as one part
of its strategy, it has sold, and anticipates that it will continue to sell, to
some of the largest companies in the United States. For the fiscal years ended
July 31, 1994, 1995 and 1996, approximately 14%, 22% and 16% of the Company's
total revenues, respectively, were derived from United Parcel Service of
America, Inc. Some of the Company's other significant commercial customers
currently include Barnes & Noble Inc., Cabletron Systems Inc., Cablevision
Systems Corp., Conde Nast Publications Inc., J&R Music World, National
Broadcasting Company Inc., Pfizer Inc., Reuters America Inc., SONY Theaters,
Time Warner Inc., The Toronto Dominion Bank, United Nations International
Children's Emergency Fund and the United States Merchant Marine Academy.
The Company's return policy generally allows customers to return hardware
and unopened software, without restocking charges, within 30 days of the
original invoice date, subject to advance approval and certain other conditions.
The Company grants credit to customers meeting specified criteria and
maintains a centralized credit department that reviews credit applications.
Accounts are regularly monitored for collectibility and appropriate action is
taken upon indication of risk.
SALES AND MARKETING
The Company's sales are generated primarily by its 59 person sales force.
These sales representatives generally are responsible for meeting all of their
customers' product and service needs and are supervised by sales managers with
significant industry experience. The sales managers are responsible for
overseeing sales representative training, establishing sales objectives and
monitoring account management principles and procedures. Sales representatives
attend seminars conducted by manufacturers' representatives at the Company's
facilities, at which the Company's new and existing product and service
offerings are discussed.
The Company's sales representatives are assisted by technical personnel who
support and supplement the sales efforts. The responsibilities of technical
support personnel include answering preliminary inquiries from customers
regarding systems design, and on-site visits to customers' facilities. At
customers' facilities, the technical personnel gather information necessary to
assist customers in making informed decisions regarding their information
systems. Such data include the nature of the customer's current information
systems, the existing hardware and networking environment, the customer's level
of expertise and its applications needs.
Manchester believes that its name is widely recognized for high quality,
competitively priced products and services. The Company promotes name
recognition and the sale of its products and
26
<PAGE> 28
services through regional business directories, trade magazine advertisements,
radio advertisements, direct mailings to customers and participation in computer
trade shows and special events. The Company advertises at numerous sporting
events in the New York metropolitan region, including full page four-color
advertisements in yearbooks and/or program guides for sports teams such as the
New York Mets, the New York Knicks and the New York Rangers, and has advertised
on New York Mets and New York Yankees tickets. The Company also promotes
interest in its products and services through its website on the Internet, and
intends to expand its website information to provide an electronic catalog of
its products and services. Several manufacturers offer market development funds,
cooperative advertising and other promotional programs, on which the Company
relies for many of its advertising and promotional campaigns. See "Risk
Factors -- Dependence on Major Manufacturers."
Sales force training is an integral part of the Company's strategy to
increase its focus on providing value-added services. As client/server-based
systems, applications and network capabilities grow in complexity, the need for
technically knowledgeable sales personnel becomes critical to the sale of
value-added services. Accordingly, the Company anticipates expanding its
training capabilities at one of its Long Island facilities to conduct seminars
for sales representatives. The seminars will address such topics as general
developments in the computer industry, systems integration services and the
Company's management information systems. The Company intends to utilize its
technical personnel to conduct such seminars and may hire additional dedicated
trainers as needed.
MANAGEMENT INFORMATION SYSTEMS
The Company currently uses an IBM AS/400 integrated management information
system, which is a real-time, on-line system enabling instantaneous access and
processing. The Company maintains a proprietary inventory management system on
its computer system pursuant to which product purchases and sales are
continually tracked and analyzed. The Company's computer system is also used for
accounting, billing and invoicing.
The Company's information system assists management in maintaining controls
over the Company's inventory and receivables. Manchester's average inventory
turnover was 17, 16 and 18 times for the fiscal years ended July 31, 1994, 1995
and 1996, respectively, and Manchester experienced bad debt expense of less than
.3% of revenues in each of these years.
During the fiscal year ended July 31, 1996, the Company invested in its
management information systems, including upgrading and expanding the IBM AS/400
system, implementing a client/server-based management system to track services
rendered for customers, and upgrading servers and network infrastructures for
its headquarters. The Company utilizes experienced in-house technical personnel,
assisted by the Company's senior engineers, to upgrade and integrate additional
functions into the Company's management information systems.
COMPETITION
The computer industry is characterized by intense competition. The Company
directly competes with local, regional and national systems integrators,
value-added resellers and distributors as well as with certain computer
manufacturers that market through direct sales forces. While the Company's
competitors vary depending upon the particular market, some of the national and
regional competitors of the Company include AmeriData Technologies, Inc.,
CompuCom Systems, Inc., Dataflex Corporation, Entex Information Services, Inc.,
Vanstar Corporation and Electronic Data Systems Corporation. The computer
industry has recently experienced a significant amount of consolidation through
mergers and acquisitions, and manufacturers of personal computers may increase
competition by offering a range of services in addition to their current product
and service offerings. In the future, the Company may face further competition
from new market entrants and possible alliances between existing competitors.
Some of the Company's competitors have, or may
27
<PAGE> 29
have, greater financial, marketing and other resources, and may offer a broader
range of products and services, than the Company. As a result, they may be able
to respond more quickly to new or emerging technologies or changes in customer
requirements, benefit from greater purchasing economies, offer more aggressive
hardware and service pricing or devote greater resources to the promotion of
their products and services.
The Company's ability to compete successfully depends on a number of
factors such as breadth of product and service offerings, sales and marketing
efforts, product and service pricing, and quality and reliability of services.
EMPLOYEES
At August 31, 1996, the Company had 222 full-time employees consisting of
23 sales representatives, 26 management personnel, 50 technical personnel and
123 distribution and clerical personnel. In addition, at August 31, 1996, the
Company had 36 independent sales representatives. The Company is not a party to
any collective bargaining agreements and believes its relations with its
employees are good.
INTELLECTUAL PROPERTY
The Company owns one federally registered service mark with respect to its
name and logo. Most of the Company's various dealer agreements permit the
Company to refer to itself as an "authorized dealer" of the products of those
manufacturers and to use their trademarks and trade names for marketing
purposes. The Company considers the use of these trademarks and trade names in
its marketing to be important to its business.
PROPERTIES
The Company's main offices and warehouses are located in four buildings in
Hauppauge, New York, consisting of approximately 40,000 and 60,000 square feet
of office and warehouse space, respectively, under leases expiring between
January 1998 and October 2005, for aggregate annual lease payments of
approximately $1,040,000 in fiscal 1996. Three of these buildings are leased
from entities controlled by, or affiliated with, certain of the Company's
executive officers and principal shareholders. Effective with the closing of
this offering, the leases with related parties have been amended to provide
terms comparable to those that could be obtained from independent third parties.
Giving effect to these amended leases, the aggregate annual lease payments for
all four buildings in Hauppauge, New York will be approximately $778,000 in
fiscal 1997. The Company leases an additional office in Massapequa, Long Island
for $10,572 per annum on a month-to-month basis from an entity of which Messrs.
Rothlein and Bivona own 25% and 50%, respectively. See "Certain Transactions."
The Company leases additional offices in New York City, Needham, Massachusetts
and Boca Raton and Tampa, Florida, under leases expiring in January 1999, April
1997, July 1998 and December 1996, respectively, for aggregate rental payments
of approximately $164,000 and $148,000 in fiscal 1996 and fiscal 1997,
respectively, with options to renew in Needham and Tampa. The Company believes
that its Hauppauge and regional offices and warehouse space are well maintained
and are adequate for present requirements. The Company intends to relocate or
expand its New York City office as part of its strategy. See
"Strategy -- Expanding New York Metropolitan Area Presence."
28
<PAGE> 30
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------- --- ----------------------------------------------------
<S> <C> <C>
Barry R. Steinberg............. 54 Chairman of the Board, President, Chief Executive
Officer and Director
Joel G. Stemple, Ph.D.......... 54 Executive Vice President, Secretary and Director
Joseph Looney.................. 39 Chief Financial Officer
William F. Scheibel, Jr........ 41 Chief Technology Officer
Joel Rothlein, Esq............. 67 Director
George Bagetakos............... 50 Director(1)
Julian Sandler................. 52 Director(1)
</TABLE>
- ---------------
(1) Appointment will become effective as of the closing of this offering.
Barry R. Steinberg, the founder of the Company, has served as its Chairman
of the Board, President and Chief Executive Officer and as a director since
Manchester's formation in 1973. Mr. Steinberg previously served as a systems
analyst for Sleepwater, Inc. and Henry Glass and Co.
Joel G. Stemple, Ph.D. has served as Executive Vice President since
September 1996 and as Vice President and as a director since August 1982. Dr.
Stemple previously performed consulting services for the Company and, from 1966
to 1982, served as Assistant and Associate Professor of Mathematics at Queens
College, City University of New York.
Joseph Looney has served as the Company's Chief Financial Officer since May
1996. Prior to joining the Company, from 1984 to 1996, Mr. Looney served in
various positions with KPMG Peat Marwick LLP, including Senior Audit Manager at
the end of his tenure at such firm. Mr. Looney is a Certified Public Accountant,
a member of the AICPA, the New York State Society of Certified Public
Accountants and the Institute of Internal Auditors.
William F. Scheibel, Jr. has served as the Company's Chief Technology
Officer since September 1996 and served as Manager of Technical Services and
Support from September 1995 through August 1996. Before joining the Company,
from 1990 to 1995, Mr. Scheibel served in various positions with Bay Networks,
Inc., a manufacturer of computer networking equipment, including Director of
Field Support for North and South America at the end of his tenure at such firm.
Joel Rothlein, Esq. has been a director of the Company since October 1996.
Mr. Rothlein is a partner in the law firm of Kressel Rothlein & Roth, Esqs.,
Massapequa, New York, where he has practiced law since 1955. Kressel Rothlein &
Roth, Esqs. and its predecessor firms have acted as outside general counsel to
the Company since the Company's inception.
George Bagetakos has been appointed as a director to be effective as of the
closing of this offering. Mr. Bagetakos has been the Director of Sales, Major
Accounts for Northern Telecom, Inc., a supplier of telecommunications equipment
products, since July 1995, and served as Manager, National Accounts for Northern
Telecom, Inc. from 1984 to June 1995. Prior to joining Northern Telecom, Mr.
Bagetakos was Corporate Vice President, Telecommunications for American Express
Company from 1979 to 1983.
Julian Sandler has been appointed as a director to be effective as of the
closing of this offering. Mr. Sandler is Chief Executive Officer of Rent-a-PC,
Inc., a full-service provider of short-term computer rentals, which Mr. Sandler
founded in 1984. Mr. Sandler is also the founder and was the President from 1974
to 1993 of Brookvale Associates, a national organization specializing in the
remarketing of hardware manufactured by Digital Equipment Corporation. Mr.
Sandler also co-founded and from 1970 to 1973 was Vice President of Periphonics
Corporation, a developer and manufacturer of voice response systems.
29
<PAGE> 31
As a result of his managerial position, stock ownership and activities
relating to the organization of the Company, Barry R. Steinberg may be deemed a
"promoter" as that term is defined in the Securities Act.
Officers are elected annually and serve at the pleasure of the Board of
Directors, subject to rights, if any, under contracts of employment.
BOARD OF DIRECTORS
Independent Directors. As of the closing of this offering, Messrs. George
Bagetakos and Julian Sandler will be appointed to the Board as independent
directors within the meaning of the rules of the Nasdaq National Market.
Committees of the Board of Directors. As of the closing of this offering,
the Board of Directors will establish an Audit Committee, comprised of the two
independent directors and Dr. Stemple. It is anticipated that the Audit
Committee will be responsible for reviewing the Company's internal accounting
practices as well as the scope of the work performed by the Company's
independent auditors.
Director Compensation. Non-employee directors receive a fee of $500 for
attending Board of Directors' and committee meetings, and are reimbursed for
expenses incurred in connection with the performance of their respective duties
as directors of the Company. Additionally, as of the closing of this offering,
each of the two independent directors will be granted options under the
Company's stock option plan to purchase 2,500 shares of Common Stock at the
initial public offering price of the shares of Common Stock offered hereby.
These options will become first exercisable one year after the date of grant.
See "Stock Option Plan" below.
EXECUTIVE COMPENSATION
Summary Compensation. The following table sets forth a summary of the
compensation paid or accrued by the Company during the fiscal year ended July
31, 1996 to the Company's Chief Executive Officer and the other executive
officers whose compensation exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
FISCAL 1996 ANNUAL COMPENSATION
----------------------------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
- ----------------------------------------------------- -------- ---------- ------------
<S> <C> <C> <C>
Barry R. Steinberg, Chief Executive Officer.......... $271,800 $1,816,439 $ 54,210(1)
Joel G. Stemple, Executive Vice President............ $251,800 $1,669,193 $ 29,000(2)
Michael Bivona, Chief Financial Officer(3)........... $ 77,312 $ 216,463 $ 28,417(2)
</TABLE>
- ---------------
(1) Includes $50,000 of premiums paid by the Company for a whole life insurance
policy in the name of Mr. Steinberg having a face value of $1,300,000 and
naming his daughters as the beneficiaries.
(2) Includes $25,000 of premiums paid by the Company for a whole life insurance
policy in the name of the executive officer having a face value of $600,000
and naming his spouse as the beneficiary.
(3) Resigned as Chief Financial Officer effective June 30, 1996 upon his
retirement.
The executive officers named in the Summary Compensation Table have not
been granted, and do not hold, options to purchase shares of Common Stock, nor
have they received any other long-term incentive compensation during the 1996
fiscal year.
Barry R. Steinberg has agreed with the Company that his annual base salary
for services rendered to the Company in his current positions as President and
Chief Executive Officer shall be $550,000 in each of the fiscal years ending
July 31, 1997 and 1998. Mr. Steinberg has agreed that he will not be eligible to
receive any bonus in fiscal 1997 and that any bonus payable for fiscal 1998 will
require the approval of a majority of the independent directors of the Company.
The Company will continue to make available to him the car allowance and
deferred compensation benefits that he is currently receiving. See Note 5 of
Notes to Consolidated Financial Statements. Mr. Steinberg will also be able to
participate in other benefits that the Company makes generally available to its
30
<PAGE> 32
employees, such as medical and other insurance, and Mr. Steinberg will be able
to participate under the Company's stock option plan. In the event Mr.
Steinberg's employment with the Company were terminated, he would not be
precluded from competing with the Company.
The Company has an employment agreement with Joel G. Stemple, Ph.D., under
which Dr. Stemple receives a base salary of $450,000 in each of the fiscal years
ending July 31, 1997 and 1998. Under the employment agreement, Dr. Stemple is
not eligible to receive any bonus in fiscal 1997 and any bonus payable to Dr.
Stemple for fiscal 1998 must be approved by a majority of the independent
directors of the Company. Under the employment agreement, the Company provides
Dr. Stemple with an automobile and certain deferred compensation benefits and
provides Dr. Stemple with medical and other benefits generally offered by the
Company to its employees. Dr. Stemple also is able to participate in the
Company's stock option plan. The employment agreement is terminable by either
party on 90 days' prior notice. In the event the Company so terminates Dr.
Stemple's employment, or the Company elects not to renew his employment
agreement, he is entitled to severance equal to 12 months of his then current
base salary. This severance will be payable in accordance with the Company's
customary payroll practices. Under the employment agreement, if Dr. Stemple
terminates his employment, or the Company terminates his employment for cause,
Dr. Stemple is prohibited, for a two-year period from such termination, from
competing with the Company in the eastern half of the United States.
STOCK OPTION PLAN
Under the Company's Amended and Restated 1996 Incentive and Non-Incentive
Stock Option Plan (the "Plan"), which was approved by the Company's shareholders
in October 1996, an aggregate of 1,100,000 shares of Common Stock are reserved
for issuance upon exercise of options thereunder. The Plan will be administered
by the Board of Directors. Under the Plan, incentive stock options, as defined
in section 422 of the Internal Revenue Code of 1986, as amended, may be granted
to employees, and non-incentive stock options may be granted to employees,
directors and such other persons as the Board of Directors may determine. The
Board of Directors will also determine (i) the exercise price of each option
which must be equal to at least 100% (with respect to incentive stock options)
and at least 85% (with respect to non-incentive stock options) of the fair
market value of the Common Stock on the date of grant, (ii) the number of shares
of Common Stock subject to each option, (iii) the term of each stock option up
to a maximum of 10 years (or, in the case of incentive options, five years for
certain employees) and (iv) the time or times when the stock option becomes
exercisable. Incentive stock options expire three months from the date of the
holder's termination of employment with the Company other than by reason of
death or disability, in which event the option may be exercised during the
12-month period following the date of termination of employment to the extent
such option was exercisable on the date of termination of employment but in no
event beyond the term of such option. The maximum number of shares of Common
Stock underlying options which may be granted to any person in any calendar year
is 200,000. Options may be exercised in cash, Common Stock, or any combination
thereof. No options have been granted to date under the Plan. Upon the closing
of this offering, the Company expects to grant options to purchase 2,500 shares
of Common Stock at an exercise price equal to the initial public offering price
of the Common Stock offered hereby to each of the independent directors.
In the event of a Change in Control (as defined below), all outstanding
options under the Plan shall accelerate and become immediately fully
exercisable. Under the Plan, a Change in Control means (i) the sale or other
disposition to a person, entity or group of 50% or more of the Company's
consolidated assets, (ii) the acquisition of 50% or more of the outstanding
shares by a person or group or (iii) if the majority of the Company's Board of
Directors consists of persons other than the Continuing Directors (as defined
below). The term "Continuing Director" shall mean any member of the Company's
Board of Directors on the effective date of the Plan and any other member of the
Board of Directors who shall be recommended or elected to succeed or become a
Continuing Director by a majority of the Continuing Directors who are then
members of the Board of Directors.
31
<PAGE> 33
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the Common Stock as of the date of this Prospectus, and as adjusted
to reflect the sale of the Common Stock offered hereby, by (i) each person known
by the Company to own beneficially five percent or more of such Common Stock,
(ii) each director of the Company, (iii) each person named in the Summary
Compensation Table, (iv) the Selling Shareholder and (v) all executive officers
and directors as a group, together with the number of shares of Common Stock
being sold by the Selling Shareholder hereby.
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING
SHARES OWNED
---------------------
SHARES BENEFICIALLY SHARES BEING BEFORE AFTER
NAME AND ADDRESS OWNED SOLD OFFERING OFFERING
----------------------------------- ------------------- ------------ -------- --------
<S> <C> <C> <C> <C>
Barry R. Steinberg(1).............. 5,010,101 375,000 80.8% 55.7%
Joel G. Stemple(1)................. 626,263 -- 10.1 7.5
Michael Bivona(2)(3)............... 563,636 -- 9.1 6.8
Joel Rothlein...................... -- -- -- --
George Bagetakos(4)................ -- -- -- --
Julian Sandler(4).................. -- -- -- --
All executive officers and
directors as a group (2
persons)......................... 5,636,364 375,000 90.9 63.2
</TABLE>
- ---------------
(1) Address is 160 Oser Avenue, Hauppauge, New York 11788.
(2) Resigned as Chief Financial Officer and a director effective June 30, 1996
upon his retirement. See "Certain Transactions."
(3) Address is 684 Broadway, Massapequa, New York 11758.
(4) Appointment as a director will become effective as of the closing of this
offering.
32
<PAGE> 34
CERTAIN TRANSACTIONS
Until August 1994, the Company was affiliated with Electrograph Systems,
Inc. ("Electrograph"), a value-added distributor of microcomputer peripherals,
components and accessories. Barry R. Steinberg, the Company's President and
Chief Executive Officer and its majority shareholder, served as Electrograph's
Chairman of the Board and Chief Financial Officer and had beneficial ownership
(directly and through shares held by his spouse and certain trusts, of which his
children are beneficiaries) of 35.5% of the outstanding shares of common stock
of Electrograph. During the fiscal years ended July 31, 1993 and 1994, the
Company paid approximately $322,000 and $385,000, respectively, to Electrograph
for the purchase of products. In August 1994, Bitwise Designs, Inc. ("Bitwise"),
a publicly-traded company engaged in the manufacture and distribution of
document imaging systems, personal and industrial computers and related
peripherals, acquired Electrograph through a stock-for-stock merger; Mr.
Steinberg acquired beneficial ownership of less than 1% of the outstanding
capital stock of Bitwise for the common stock of Electrograph in which he had a
direct or indirect beneficial interest. Mr. Steinberg served as a director of,
and provided consulting services to, Bitwise from August 1994 through September
17, 1996.
Three of the Company's four Hauppauge, New York facilities are leased from
entities affiliated with certain of the Company's executive officers, directors
or principal shareholders. The property located at 40 Marcus Boulevard,
Hauppauge, New York is leased from a limited liability company owned 70% by Mr.
Steinberg and his relatives, 20% by Joel G. Stemple, Ph.D., the Company's
Executive Vice President and a principal shareholder, and 10% by Michael Bivona,
a principal shareholder of the Company. For the fiscal year ended July 31, 1996,
the Company made lease payments of $216,000 to such entity. The Company's
offices at 160 Oser Avenue, Hauppauge, New York are leased from a limited
liability company owned 65% by Mr. Steinberg, 17.5% by Dr. Stemple and 17.5% by
Mr. Bivona. For the fiscal years ended July 31, 1994, 1995 and 1996, the Company
made lease payments of $244,000, $255,000 and $360,000, respectively, to such
entity. The property located at 50 Marcus Boulevard, Hauppauge, New York is
leased from Mr. Steinberg doing business in the name of Marcus Realty. For the
fiscal years ended July 31, 1994, 1995 and 1996, the Company made lease payments
of $399,000, $417,000 and $435,000, respectively, to such entity. Effective with
the closing of this offering, the leases with the affiliated parties with
respect to the leases of the Hauppauge, New York facilities have been amended to
provide terms comparable to those that could be obtained from independent third
parties. Giving effect to these amended leases, the rent for the properties
located at 40 Marcus Boulevard, 160 Oser Boulevard and 50 Marcus Boulevard will
be $170,375, $255,000 and $324,225, respectively, for fiscal 1997. The Company
leases an additional office in Massapequa, New York at $10,572 per annum on a
month-to-month basis from an entity of which Messrs. Rothlein and Bivona own 25%
and 50%, respectively. See "Business -- Properties."
Mr. Steinberg personally guarantees the Company's obligations under its
bank line of credit for which he receives no compensation. Following this
offering, the Company intends to eliminate Mr. Steinberg's guarantee. See Note 7
of Notes to Consolidated Financial Statements.
On May 7, 1996, following his retirement as the Company's Chief Financial
Officer which became effective June 30, 1996, Mr. Bivona elected, under an
agreement with the Company, to require the Company to purchase 62,626 shares of
Common Stock held by him for $471,000 payable in four equal quarterly
installments, without interest, commencing May 7, 1996. In September 1996, Mr.
Bivona agreed with the Company to terminate transfer restrictions previously
applicable to the balance of the shares of Common Stock owned by Mr. Bivona. In
connection therewith, Mr. Bivona terminated certain put rights he had with
respect to such shares, agreed to the 180-day lock-up required by the
Representatives and agreed that upon expiration of the 180-day period, he may
sell his shares of Common Stock, solely in brokerage transactions, in an amount,
in any three month period, not to exceed the greater of (i) 1% of the then
outstanding shares of Common Stock, and (ii) the average weekly trading volume
in the Common Stock, in the over-the-counter market, during the preceding four
calendar weeks. Pursuant to the agreement, Mr. Bivona has certain piggyback
registration rights in the event of a registration of Common Stock in which Mr.
Steinberg is a selling shareholder. Mr. Bivona has waived these rights with
respect to this offering. See "Shares Eligible For Future Sale."
Joel Rothlein, Esq., a director of the Company, is a partner of Kressel
Rothlein & Roth, Esqs., which, with its predecessor firms, has acted as outside
general counsel to the Company since the Company's inception. Kressel Rothlein &
Roth, Esqs. was paid approximately $89,000 from the Company for legal fees and
disbursements in the fiscal year ended July 31, 1996 and anticipates receiving
fees of approximately $350,000 from the Company (exclusive of disbursements) for
services to be rendered to the Company in the fiscal year ending July 31, 1997.
33
<PAGE> 35
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 8,325,000 shares of
Common Stock outstanding. Of these shares, the 2,500,000 shares sold in this
offering will be freely tradeable without restriction or further registration
under the Securities Act, except that any shares purchased by "affiliates" of
the Company, as that term is defined in Rule 144 ("Rule 144") under the
Securities Act ("Affiliates"), may generally only be sold in compliance with the
limitations of Rule 144 described below.
Prior to this offering, there has been no public market for the Common
Stock of the Company, and no assurance can be given that a significant public
market for the Common Stock can be developed or sustained after this offering.
Future sales of substantial amounts of Common Stock in the public market could
have a material adverse effect on the market price of the Common Stock from time
to time.
SALE OF RESTRICTED SHARES
The 5,825,000 shares of Common Stock not being sold in this offering are
deemed "restricted securities" under Rule 144 and may be eligible for sale in
the public market in accordance with certain volume and other restrictions under
Rule 144 beginning 90 days after the date of this Prospectus. Notwithstanding
the ability to resell their shares under Rule 144, the current shareholders have
executed lock-up agreements ("Lock-up Agreements") with the Representatives
providing that such shareholders will not offer, sell or otherwise dispose of
any of their shares of Common Stock without the prior written consent of
Ladenburg Thalmann & Co. Inc., on behalf of the Representatives, for a period of
180 days after the date of this Prospectus.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an Affiliate, who has beneficially owned
restricted securities for at least two years is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of (i)
one percent of the then outstanding shares of Common Stock (approximately 83,250
shares immediately after this offering) and (ii) the average weekly trading
volume in the Common Stock in the over-the-counter market during the four
calendar weeks preceding the date on which notice of such sale is filed,
provided certain requirements concerning the availability of public information,
manner of sale and notice of sale are satisfied. In addition, Affiliates must
comply with the restrictions and requirements of Rule 144, other than the
two-year holding period requirement, in order to sell shares of Common Stock
which are not restricted securities. Also, under Rule 144(k), a person who is
not an Affiliate and has not been an Affiliate for at least three months prior
to the sale and who has beneficially owned restricted securities for at least
three years may resell such shares without compliance with the foregoing
requirements. In meeting the two and three year holding periods described above,
a holder of restricted securities can include the holding periods of a prior
owner who was not an Affiliate. The Securities and Exchange Commission has
proposed an amendment to Rule 144 which would reduce the holding period required
for shares subject to Rule 144 to become eligible for sale in the public market
from two years to one year, and from three years to two years in the case of
Rule 144(k).
SHARES RESERVED FOR ISSUANCE
Options. The Company has reserved 1,100,000 shares of Common Stock for
issuance upon exercise of stock options granted under its stock option plan. No
options have been granted to date under the Plan. Upon the closing of this
offering, the Company expects to grant options to purchase 2,500 shares of
Common Stock at an exercise price equal to the initial public offering price of
the Common Stock offered hereby to each of the independent directors. See
"Management -- Stock Option Plan."
The Company intends to file a Registration Statement on Form S-8 under the
Securities Act to register all shares of Common Stock issuable pursuant to the
Company's stock option plan. The
34
<PAGE> 36
Company expects to file such Registration Statement 90 days following the
closing of this offering, and such Registration Statement is expected to become
effective upon filing. Shares covered by such Registration Statement will
thereupon be eligible for sale in the public markets, subject to Rule 144
limitations with respect to Affiliates.
Warrants. The Company has reserved 250,000 shares of Common Stock for
issuance upon exercise of the Representatives' Warrants. The holders of the
Representatives' Warrants have certain demand and piggyback registration rights.
See "Underwriting."
LOCK-UP AGREEMENTS
The Company and all of its officers, directors and current shareholders
have agreed, pursuant to the Lock-up Agreements, not to directly or indirectly,
without the prior written consent of Ladenburg Thalmann & Co. Inc., on behalf of
the Representatives, offer, sell, or otherwise dispose of any shares of Common
Stock beneficially owned by them for a period of 180 days after the date of this
Prospectus.
No predictions can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the
prevailing market price of the Common Stock. Sales of substantial amounts of
Common Stock, or the perception that such sales could occur, could materially
adversely affect the prevailing market prices for the Common Stock and could
impair the Company's future ability to obtain capital through an offering of
equity securities.
35
<PAGE> 37
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 5,000,000 shares of Preferred Stock,
$.01 par value, none of which is outstanding, and 25,000,000 shares of Common
Stock, $.01 par value, 6,200,000 of which are issued and outstanding and held by
three shareholders.
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors in one or more series and classes and with such dividend rights,
conversion rights, voting rights, redemption provisions, liquidation preferences
and other rights and restrictions as the Board of Directors may determine. The
issuance of the Preferred Stock permits the Board of Directors, without
shareholder approval, to utilize the Preferred Stock as an anti-takeover device
which could have an adverse effect on the market price of the Common Stock. The
Company has no present intention to issue any shares of Preferred Stock.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share held of
record. Subject to the rights of any holders of Preferred Stock which may be
issued in the future, the holders of outstanding shares of Common Stock are
entitled to share ratably on a share-for-share basis with respect to any
dividends when, as and if declared by the Board of Directors out of funds
legally available therefor. Upon liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in the assets
remaining after payment of all liabilities and liquidation preferences, if any.
Shares of Common Stock are not redeemable and have no preemptive or similar
rights to subscribe for additional shares. All outstanding shares of Common
Stock are, and the shares of Common Stock offered hereby will upon issuance and
payment be, fully paid and nonassessable.
LIMITED LIABILITY AND INDEMNIFICATION
As permitted by the New York Business Corporation Law ("BCL"), the
Company's Restated Certificate of Incorporation provides that, to the fullest
extent permitted by the BCL, no director of the Company shall be liable to the
Company or its shareholders for monetary damages for the breach of fiduciary
duty in such capacity. Such provision does not eliminate or limit the liability
of any director (i) if a judgment or other final adjudication adverse to such
director establishes that his acts or omissions were in bad faith or involved
intentional misconduct or a knowing violation of law or that he personally
gained in fact a material profit or other advantage to which he was not legally
entitled or that his acts violated Section 719 of the BCL, or (ii) for any act
or omission prior to the adoption of this provision. As a result of this
provision, the Company and its shareholders may be unable to obtain monetary
damages from a director for breach of his duty of care. Although shareholders
may continue to seek injunctive or other equitable relief for an alleged breach
of fiduciary duty by a director, shareholders may not have any effective remedy
against the challenged conduct if equitable remedies are unavailable. In
addition, under the Restated Certificate of Incorporation, the Company has
agreed to indemnify its officers, directors, employees and agents to the fullest
extent permitted by the BCL against actions that may arise against them in such
capacities, and to advance expenses in connection with any such actions.
36
<PAGE> 38
NEW YORK BUSINESS COMBINATION STATUTE
Section 912 of the BCL prohibits a company from entering into a business
combination (e.g., a merger, consolidation, sale of 10% or more of a company's
assets, or issuance of securities with an aggregate market value of 5% or more
of the aggregate market value of all of the company's outstanding capital stock)
with a beneficial owner of 20% or more of a company's securities (a "20%
shareholder") for a period of five years following the date such beneficial
owner became a 20% shareholder (the "stock acquisition date"), unless, among
other things, such business combination or the purchase of stock resulting in
the 20% shareholder's beneficial ownership was approved by the company's board
of directors prior to the stock acquisition date or the business combination is
approved by the affirmative vote of the holders of a majority of the outstanding
voting stock exclusive of the stock beneficially owned by the 20% shareholder.
The applicability of this provision to the Company may discourage unsolicited
takeover bids by third parties.
TRANSFER AGENT
American Stock Transfer & Trust Company, 40 Wall Street, New York, New York
10005 is the transfer agent and registrar for the Common Stock.
37
<PAGE> 39
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, a copy
of which has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part, the Underwriters named below have, severally and not
jointly, agreed, through Ladenburg Thalmann & Co. Inc. and Cruttenden Roth
Incorporated (the "Representatives"), the representatives of the Underwriters,
to purchase from the Company and the Selling Shareholder, and the Company and
the Selling Shareholder have agreed to sell to the Underwriters, the aggregate
number of shares set forth opposite their respective names:
<TABLE>
<CAPTION>
NAME OF UNDERWRITERS NUMBER OF SHARES
-------------------------------------------------------------------- ----------------
<S> <C>
Ladenburg Thalmann & Co. Inc. ......................................
Cruttenden Roth Incorporated........................................
---------
Total..................................................... 2,500,000
=========
</TABLE>
The Underwriters are committed to take and to pay for all of the shares of
Common Stock offered hereby, if any are purchased.
The Underwriters have advised the Company that they propose to offer all or
part of the Common Stock offered hereby directly to the public initially at the
price set forth on the cover page of this Prospectus, that they may offer shares
to certain dealers at a price that represents a concession of not more than
$ per share, and that the Underwriters may allow, and such dealers may
reallow, a concession of not more than $ per share to certain other
dealers. After the commencement of this offering, the price to the public and
the concessions may be changed.
The Company has granted to the Underwriters an option, exercisable within
30 days after the date of this Prospectus, to purchase up to an additional
375,000 shares of Common Stock at the same price per share as the initial
2,500,000 shares to be purchased by the Underwriters. The Underwriters may
exercise this option only to cover over-allotments, if any. To the extent the
Underwriters exercise this option, each of the Underwriters will have a firm
commitment, subject to certain conditions, to purchase the same percentage
thereof as the percentage of the initial 2,500,000 shares to be purchased by
that Underwriter.
The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities, including certain liabilities under
the Securities Act, and to contribute to payments the Underwriters may be
required to make in respect thereof.
The Company has agreed to issue to the Representatives, for their own
account, warrants (the "Representatives' Warrants") to purchase an aggregate of
250,000 shares of Common Stock, exercisable for a period of four years
commencing one year after the date hereof, at a price equal to 120% of the
public offering price, subject to adjustment in certain events. The
Representatives' Warrants contain certain registration rights relating to the
shares issuable thereunder. For the life of the Representatives' Warrants, the
Representatives will have the opportunity to profit from a rise in the market
price for the Common Stock.
The Company, its officers, directors and present shareholders (including
the Selling Shareholder) have agreed not to sell or otherwise dispose of any
equity securities of the Company or any securities convertible into or
exchangeable for, or any rights to purchase or acquire, equity securities of the
Company for a period of 180 days after the date of this Prospectus without the
prior written consent of Ladenburg Thalmann & Co. Inc., on behalf of the
Representatives.
38
<PAGE> 40
The Company has agreed, for the two-year period following the date of this
Prospectus, not to appoint anyone as syndicate manager, broker or agent in
connection with any public or private debt or equity financing, or registered
public offering, unless the Company has first offered the same to Ladenburg
Thalmann & Co. Inc., upon specified terms and conditions, and if Ladenburg
Thalmann & Co. Inc. fails to accept such terms and conditions within 30 days,
then the Company will be free to appoint any other firm or organization as its
syndicate manager, broker or agent upon terms and conditions that are not more
favorable to such firm or organization than those offered to Ladenburg Thalmann
& Co. Inc.
The Representatives have informed the Company that the Underwriters do not
expect sales to discretionary accounts to exceed 5% of the total number of
shares offered hereby and that the Underwriters do not intend to confirm sales
of shares to any account over which they exercise discretionary authority.
The Underwriters have reserved for sale, at the initial public offering
price, up to 5% of the Common Stock offered hereby for employees and directors
of the Company and certain other individuals who have expressed an interest in
purchasing such shares of Common Stock in this offering. The number of shares
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares not so purchased will
be offered by the Underwriters to the general public on the same basis as other
shares offered hereby.
Prior to this offering, there has been no public market for the Common
Stock. The proposed initial offering price has been determined by negotiations
between the Representatives, the Company and the Selling Shareholder. Among the
factors considered in such negotiations were the Company's results of operations
and financial condition, the prospects for the Company and for the industry in
which the Company operates, the Company's capital structure, and the general
condition of the securities market. The estimated offering price set forth on
the cover of this Prospectus is subject to change as a result of market
conditions and other factors.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of Common
Stock offered hereby will be passed upon for the Company and the Selling
Shareholder by Epstein Becker & Green, P.C., New York, New York. Certain legal
matters will be passed upon for the Underwriters by Fulbright & Jaworski L.L.P.,
New York, New York.
EXPERTS
The consolidated financial statements of Manchester Equipment Co., Inc., as
of July 31, 1995 and 1996 and for each of the years in the three-year period
ended July 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 such
firm as experts in accounting and auditing.
39
<PAGE> 41
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-1 with the
Securities and Exchange Commission (the "Commission"), Washington, D.C., in
accordance with the provisions of the Securities Act with respect to the Common
Stock offered hereby, 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 Common Stock offered hereby, reference is made to
the Registration Statement and the exhibits filed as a part thereof. Statements
made in this Prospectus concerning the provisions of any document are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. The Registration
Statement and the exhibits may be inspected, without charge at, or copies
thereof obtained at prescribed rates from, the Public Reference Section of the
Commission at Room 1024 at its principal office, located at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and also will be available for
inspection and copying at the regional offices of the Commission located at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and at 7 World
Trade Center, Suite 1300, New York, New York 10048. The Registration Statement
and the exhibits and schedules thereto can also be accessed through EDGAR
terminals located in the Commission's public reference rooms in Washington,
D.C., Chicago and New York or through the World Wide Web at http://www.sec.gov.
The Company has not previously been subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Upon
completion of this offering, the Company will become subject to the
informational requirements of the Exchange Act and, in accordance therewith,
will file reports, proxy statements and other information with the Commission.
Such reports, proxy statements and other information filed by the Company with
the Commission can be inspected, without charge, and copies may be obtained at
prescribed rates, at the offices of the Commission referenced above.
40
<PAGE> 42
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report......................................................... F-2
Consolidated Financial Statements:
Balance Sheets as of July 31, 1995 and 1996........................................ F-3
Statements of Income for the years ended July 31, 1994, 1995 and 1996.............. F-4
Statements of Shareholders' Equity for the years ended July 31, 1994, 1995 and F-5
1996............................................................................
Statements of Cash Flows for the years ended July 31, 1994, 1995 and 1996.......... F-6
Notes to Consolidated Financial Statements......................................... F-7
</TABLE>
F-1
<PAGE> 43
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Manchester Equipment Co., Inc.:
We have audited the accompanying consolidated balance sheets of Manchester
Equipment Co., Inc. and subsidiaries as of July 31, 1996 and 1995 and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the years in the three-year period ended July 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Manchester Equipment
Co., Inc. and subsidiaries at July 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended July 31, 1996, in conformity with generally accepted accounting
principles.
As discussed in note 1 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in fiscal 1994.
KPMG PEAT MARWICK LLP
Jericho, New York
September 13, 1996, except as
to note 10, which is as of
October 30, 1996
F-2
<PAGE> 44
MANCHESTER EQUIPMENT CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 31, 1995 AND 1996
<TABLE>
<CAPTION>
JULY 31,
-------------------
1995 1996
------- -------
(IN THOUSANDS,
EXCEPT SHARE
AMOUNTS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 1,834 $ 5,774
Accounts receivable, net of allowance for doubtful accounts of $718
and $800, respectively............................................ 17,500 19,068
Inventory............................................................ 9,505 8,957
Deferred income taxes................................................ 302 334
Prepaid expenses and other current assets............................ 238 197
------ ------
Total current assets......................................... 29,379 34,330
Property and equipment, net............................................ 1,430 2,244
Deferred income taxes.................................................. 341 395
Other assets........................................................... 485 792
------ ------
$31,635 $37,761
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities under capital lease obligation.................... $ -- $ 99
Notes payable -- bank................................................ 5,600 6,500
Notes payable -- shareholder......................................... -- 353
Accounts payable and accrued expenses................................ 14,398 17,113
Deferred service contract revenue.................................... 102 129
Income taxes payable................................................. 90 295
------ ------
Total current liabilities.................................... 20,190 24,489
Capital lease obligation, less current maturities...................... -- 175
Deferred compensation payable.......................................... 198 183
Commitments and contingencies (note 6)
Shareholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized, none
issued............................................................ -- --
Common stock, $.01 par value; 25,000,000 shares authorized, 6,262,626
and 6,200,000 shares issued and outstanding in 1995 and 1996...... 63 62
Retained earnings.................................................... 11,184 12,852
------ ------
Total shareholders' equity................................... 11,247 12,914
------ ------
$31,635 $37,761
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 45
MANCHESTER EQUIPMENT CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JULY 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
--------------------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS EXCEPT SHARE AND
PER SHARE AMOUNTS)
<S> <C> <C> <C>
HISTORICAL
Revenues.......................................... $137,361 $170,818 $189,659
Cost of revenues.................................. 117,377 146,323 163,128
-------- -------- --------
Gross profit................................. 19,984 24,495 26,531
Selling, general and administrative expenses...... 17,380 21,280 22,598
-------- -------- --------
Income from operations.......................... 2,604 3,215 3,933
Other income (expense):
Interest, net................................... (236) (346) (374)
Other........................................... 64 (46) 9
-------- -------- --------
Income before provision for income taxes and
cumulative effect of change in accounting for
income taxes................................. 2,432 2,823 3,568
Provision for income taxes........................ 1,042 1,160 1,430
-------- -------- --------
Income before cumulative effect of change in
accounting for income taxes..................... 1,390 1,663 2,138
Cumulative effect of change in accounting for
income taxes (Notes 1 and 8).................... 386 -- --
-------- -------- --------
Net income.............................. $ 1,776 $ 1,663 $ 2,138
========= ========= =========
PRO FORMA (UNAUDITED) (NOTE 12):
Income before income taxes, as reported........... $ 3,568
Reduction in officers' compensation............... 3,209
Reduction in rent to related parties.............. 304
--------
Pro forma income before income taxes.............. 7,081
Pro forma provision for income taxes.............. 2,835
--------
Pro forma net income.............................. $ 4,246
=========
Pro forma net income per share.................... $ .68
=========
Shares used in pro forma net income per share..... 6,246,970
--------
--------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 46
MANCHESTER EQUIPMENT CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JULY 31, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED COMMON RETAINED
STOCK STOCK EARNINGS TOTAL
--------- ------ -------- -------
<S> <C> <C> <C> <C>
Balance July 31, 1993............................ $ -- $ 63 $ 7,745 $ 7,808
Net income....................................... -- -- 1,776 1,776
--------- ------ -------- -------
Balance July 31, 1994............................ -- 63 9,521 9,584
Net income....................................... -- -- 1,663 1,663
--------- ------ -------- -------
Balance July 31, 1995............................ -- 63 11,184 11,247
Net income....................................... -- -- 2,138 2,138
Purchase and retirement of stock................. -- (1) (470) (471)
--------- ------ -------- -------
Balance July 31, 1996............................ $ -- $ 62 $ 12,852 $12,914
======= ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 47
MANCHESTER EQUIPMENT CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
-------------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................. $ 1,776 $ 1,663 $ 2,138
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization.......................... 360 395 473
Bad debt expense....................................... 398 161 132
Cumulative effect of change in accounting.............. (386) -- --
Deferred income taxes.................................. (118) (71) (86)
Loss (gain) on disposition of assets................... -- 71 (9)
Change in assets and liabilities:
Increase in accounts receivable...................... (3,817) (1,954) (1,700)
(Increase) decrease in inventory..................... (1,362) (2,382) 548
(Increase) decrease in prepaid expenses and
other current assets.............................. 182 (24) 41
Increase in other assets............................. (9) (113) (307)
Increase (decrease) in accounts payable and accrued
expenses.......................................... (1,486) 4,371 2,715
(Decrease) increase in deferred service contract
revenue........................................... (52) (79) 27
Increase (decrease) in income taxes payable.......... 440 (468) 205
Decrease in deferred compensation payable............ -- -- (15)
------- ------- -------
Net cash (used in) provided by operating
activities...................................... (4,074) 1,570 4,162
------- ------- -------
Cash flows from investing activities:
Capital expenditures...................................... (448) (545) (1,028)
Proceeds from the sale of assets.......................... -- 105 55
------- ------- -------
Net cash used in investing activities............. (448) (440) (973)
------- ------- -------
Cash flows from financing activities:
Net proceeds from borrowings.............................. 3,200 200 900
Payments on note payable -- shareholder................... -- -- (118)
Payments on capital lease obligation...................... -- -- (31)
------- ------- -------
Net cash provided by financing activities......... 3,200 200 751
------- ------- -------
Net (decrease) increase in cash and cash equivalents........ (1,322) 1,330 3,940
Cash and cash equivalents at beginning of year............ 1,826 504 1,834
------- ------- -------
Cash and cash equivalents at end of year.................... $ 504 $ 1,834 $ 5,774
======= ======= =======
Cash paid during the year for:
Interest.................................................. $ 189 $ 378 $ 399
======= ======= =======
Income taxes.............................................. $ 494 $ 1,729 $ 1,290
======= ======= =======
Other noncash transactions:
Capital lease obligation for purchase of equipment........ $ -- $ -- $ 305
======= ======= =======
Purchase of stock with note payable -- shareholder........ $ -- $ -- $ 471
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 48
MANCHESTER EQUIPMENT CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1994, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(1) BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Business
Manchester Equipment Co., Inc. (the "Company") is a systems integrator and
reseller of computer hardware, software and networking products, primarily for
commercial customers. The Company offers its customers single-source solutions
customized to their information systems needs by combining value-added services
with hardware, software, networking products and peripherals from leading
vendors.
Sales of hardware, software and networking products comprise most of the
Company's revenues. Service revenues have not comprised a significant part of
revenues to date. The Company has entered into agreements with certain suppliers
and manufacturers which provide the Company favorable pricing and price
protection in the event the vendor reduces its prices.
In July 1996, the Company executed a letter of intent with an investment
banking firm for a proposed initial public offering ("IPO"). The terms of the
proposed IPO include the sale of 2,125,000 shares of Common Stock by the
Company, plus an option in favor of the underwriters for an additional 375,000
shares to provide for potential over-allotments and warrants in favor of the
representatives of the underwriters to purchase 250,000 shares of Common Stock.
The net proceeds of the IPO will be used to retire indebtedness under the bank
line of credit, to relocate or expand the Company's New York City office, for
training and expanded sales facilities in Long Island, to upgrade the Company's
internal telecommunications system and for working capital.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All material intercompany transactions and
balances have been eliminated in consolidation.
(c) Cash Equivalents
The Company considers all highly liquid investments with original
maturities at the date of purchase of three months or less to be cash
equivalents.
(d) Revenue Recognition
Revenues from product sales are recognized at the time of shipment to the
customer. Revenues for services are recognized when the related services are
performed. When product sales and services are bundled, revenue is recognized
upon completion of the installation. Service contract fees are recognized as
revenue ratably over the period of the applicable contract or as the services
are provided. Deferred service contract revenue represents the unearned portion
of service contract fees. The Company generally does not develop or sell
software products. However, certain computer hardware products sold by the
Company are loaded with prepackaged software products. The net impact on the
Company's financial statements of product returns, primarily for defective
products, has been insignificant.
(e) Market Development Funds
The Company receives various market development funds including cooperative
advertising funds from certain vendors, principally based on volume purchases of
products. The Company
F-7
<PAGE> 49
MANCHESTER EQUIPMENT CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JULY 31, 1994, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
records such amounts related to volume purchases as purchase discounts which
reduce cost of revenues and other incentives that require specific incremental
action on the part of the Company, such as training, advertising or other
pre-approved market development activities as an offset to the related costs
included in selling, general and administrative expenses. Total market
development funds amounted to $1,400, $906 and $943 for the years ended July 31,
1994, 1995 and 1996, respectively.
(f) Inventory
Inventory, consisting of computer hardware and peripherals, software and
related supplies, is valued at the lower of cost (first-in, first-out) or market
value.
(g) Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
the straight-line and accelerated methods over the economic lives of the assets,
generally from five to seven years. Leasehold improvements are amortized over
the shorter of the underlying lease term or asset life.
(h) Income Taxes
Effective August 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes" ("Statement
109"). Statement 109 requires the use of the asset and liability approach for
financial accounting and reporting of income taxes. Under this method, deferred
taxes are recognized for the future tax consequences attributable to temporary
differences between the carrying amounts of assets and liabilities for financial
statement purposes and income tax purposes using enacted tax rates expected to
be in effect when such amounts are realized or settled. The effect on deferred
taxes of a change in tax rates is recognized in income in the period that
includes the enactment date. The Company previously accounted for income taxes
in conformity with APB No. 11. The adoption of Statement 109 resulted in a
cumulative effect adjustment in the Company's 1994 financial statements of $386
and prior years' financial statements were not restated.
(i) Net Income Per Share
Net income per share is based on the weighted average number of shares of
Common Stock and dilutive common stock equivalents (stock options and warrants)
outstanding during the period.
(j) Impairment of Long Lived Assets
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121
("Statement 121") that establishes accounting standards for the impairment of
long lived assets, certain intangibles, and goodwill related to those assets to
be held and used, and for long-lived assets and certain identifiable intangibles
to be disposed of. In conformity with Statement 121, it is the Company's policy
to evaluate and recognize an impairment if it is probable that the recorded
amounts are in excess of anticipated undiscounted future cash flows.
(k) 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 at the date of
F-8
<PAGE> 50
MANCHESTER EQUIPMENT CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JULY 31, 1994, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
the financial statements and the reported amounts of revenues and expenses
during the reporting period to prepare these financial statements in conformity
with generally accepted accounting principles. Actual results could differ from
those estimates.
(l) Fair Value of Financial Instruments
The fair values of cash and cash equivalents, accounts receivable, prepaid
expenses, accounts payable and accrued expenses, capital lease obligation and
notes payable -- shareholder are estimated to be their carrying values at July
31, 1996 due to the short maturity of such instruments. The book value of notes
payable -- bank approximated fair value since those instruments carry prime or
LIBOR based interest rates that are adjusted for market rate fluctuations.
(m) Reclassifications
Certain reclassifications were made to prior year amounts to conform with
the fiscal 1996 presentation format.
(2) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
JULY 31,
-----------------
1995 1996
------ ------
<S> <C> <C>
Furniture and fixtures......................................... $1,539 $1,824
Machinery and equipment........................................ 1,358 1,668
Transportation equipment....................................... 382 361
Leasehold improvements......................................... 1,405 1,656
------ ------
4,684 5,509
Less accumulated depreciation and amortization................. 3,254 3,265
------ ------
$1,430 $2,244
====== ======
</TABLE>
Depreciation and amortization expense amounted to $360, $395 and $473 for
the years ended July 31, 1994, 1995 and 1996, respectively.
(3) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
<TABLE>
<CAPTION>
JULY 31,
-------------------
1995 1996
------- -------
<S> <C> <C>
Accounts payable, trade........................................ $10,791 $12,973
Accrued salaries and wages..................................... 2,140 2,552
Customer deposits.............................................. 502 629
Other accrued expenses......................................... 965 959
------- -------
$14,398 $17,113
======= =======
</TABLE>
The Company has entered into financing agreements for the purchase of
inventory. These agreements are secured by the related inventory and/or accounts
receivables. In each of the years in the three year period ended July 31, 1996,
the Company has repaid all balances outstanding
F-9
<PAGE> 51
MANCHESTER EQUIPMENT CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JULY 31, 1994, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
under these agreements within a provided 30 day non-interest bearing payment
period. Accordingly, amounts outstanding under such agreements of $650 and
$1,450 at July 31, 1995 and 1996, respectively, are included within accounts
payable and accrued expenses. Pursuant to certain intercreditor agreements,
these financing agreements are subordinated to the Company's line of credit
agreement except as to specific inventory purchased under these financing
agreements.
(4) CAPITAL LEASE OBLIGATION
In January 1996, the Company entered into a capital lease obligation for
certain computer equipment. Future minimum payments required under such lease
are as follows:
<TABLE>
<S> <C>
Year ending July 31,
1997....................................................................... $109
1998....................................................................... 109
1999....................................................................... 74
----
Total minimum lease payments................................................. 292
Less: Amount representing interest........................................... 18
----
Present value of minimum lease payments...................................... 274
Less: Current portion........................................................ 99
----
$175
====
</TABLE>
(5) EMPLOYEE BENEFIT PLANS
The Company maintains a qualified defined contribution plan with a salary
deferral provision, commonly referred to as a 401(k) plan. The Company matches
50% of employee contributions up to three percent of each employee's
compensation. The Company's contribution amounted to $130, $125 and $124 for the
years ended July 31, 1994, 1995 and 1996, respectively.
The Company also has a deferred compensation plan which is available to
certain eligible key employees. The plan consists of life insurance policies
purchased by the Company for the participants. Upon vesting, which occurs after
ten years in the plan (three years for certain key executives), the participant
becomes entitled to have ownership of the policy transferred to him or her at
termination of employment with the Company. As of July 31, 1995 and 1996, the
Company has recorded an asset (included in other assets) of $198 and $183,
respectively, representing the cash surrender value of policies owned by the
Company and a liability of the same amount relating to the unvested portion of
benefits due under this plan. For the years ended July 31, 1994, 1995 and 1996,
the Company recorded an expense of $93, $97 and $72, respectively, in connection
with this plan.
(6) COMMITMENTS AND CONTINGENCIES
Leases
The Company leases most of its executive offices and warehouse facilities
from related parties (Note 9). In addition, the Company is obligated under lease
agreements for sales offices and additional warehouse space. Aggregate rent
expense under these leases amounted to $827, $849 and $1,212 for the years ended
July 31, 1994, 1995 and 1996, respectively.
F-10
<PAGE> 52
MANCHESTER EQUIPMENT CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JULY 31, 1994, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following represents the Company's commitment under all operating
leases for the years ending July 31:
<TABLE>
<S> <C>
1997........................................................................ $1,307
1998........................................................................ 1,100
1999........................................................................ 800
2000........................................................................ 783
2001........................................................................ 363
Thereafter.................................................................. 1,755
-------
$6,108
=======
</TABLE>
Litigation
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, based on advice from
its legal counsel, the ultimate disposition of these matters will not have a
material adverse effect on the Company's business, results of operations or
financial condition.
(7) LINE OF CREDIT
The Company has a line of credit agreement with a bank that provides for a
maximum of $9,500 of borrowings and is due on demand. Interest on borrowings is
computed at the Company's option based on the bank's prime rate (8.25% at July
31, 1996) or at LIBOR plus 2% (7.69% at July 31, 1996). The credit facility
provides for a general security interest first lien on all of the Company's
assets, to the extent one can be obtained. The line is personally guaranteed by
the Company's president and majority shareholder. At July 31, 1995 and 1996
amounts outstanding under the agreement totaled $5,600 and $6,500, respectively.
(8) INCOME TAXES
The provision (benefit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
----------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Current
Federal.............................................. $ 873 $ 997 $1,166
State................................................ 287 302 350
------ ------ ------
1,160 1,299 1,516
------ ------ ------
Deferred
Federal.............................................. (101) (113) (73)
State................................................ (17) (26) (13)
------ ------ ------
(118) (139) (86)
------ ------ ------
$1,042 $1,160 $1,430
====== ====== ======
</TABLE>
F-11
<PAGE> 53
MANCHESTER EQUIPMENT CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JULY 31, 1994, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The difference between the provision for income taxes at the Company's
effective income tax rate and the Federal statutory rate of 34% is as follows:
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
----------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Income taxes at statutory rate......................... $ 827 $ 960 $1,213
State taxes, net of Federal benefit.................... 178 182 222
Other.................................................. 37 18 (5)
------ ------ ------
Provision for income taxes............................. $1,042 $1,160 $1,430
====== ====== ======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset at July 31, 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
JULY 31,
---------------
1995 1996
---- ----
<S> <C> <C>
Allowance for doubtful accounts receivable......................... $288 $321
Deferred compensation.............................................. 288 317
Other.............................................................. 67 91
---- ----
Deferred tax asset............................................ $643 $729
==== ====
</TABLE>
A valuation allowance has not been provided in connection with the
Company's deferred tax assets since, based on historical pre-tax earnings and
expected taxable income in the future, the Company believes that it is more
likely than not that such deferred tax assets will be recovered.
As discussed in Note 1, the Company adopted Statement 109 as of August 1,
1993. The cumulative effect of the change in accounting for income taxes of $386
was determined as of August 1, 1993 and is reported separately in the
consolidated statement of income for the year ended July 31, 1994. The
cumulative effect adjustment related principally to the establishment under
Statement 109 of deferred tax assets arising due to the nondeductability of the
allowance for doubtful accounts and deferred compensation expenses.
(9) RELATED PARTY TRANSACTIONS
The Company leases executive offices and warehouse space as well as its
corporate offices and sales facilities from entities owned or controlled by
shareholders or officers of the Company. The leases generally cover a period of
ten years and expire at various times from 1998 through 2005. Lease terms
generally include annual increases of five percent. Rent expense for these
facilities aggregated $654, $683 and $1,022 for the years ended July 31, 1994,
1995 and 1996, respectively.
During the year ended July 31, 1994, the Company was related, through
common ownership and control, to Electrograph Systems, Inc. ("Electrograph"), a
value-added distributor of microcomputer peripherals, components and
accessories. Purchases from Electrograph during this period were $385,
substantially all of which was paid by July 31, 1994. In August 1994,
Electrograph was acquired by an unrelated company.
(10) SHAREHOLDERS' EQUITY
Recapitalization
In connection with the planned IPO, on October 1, 1996, the Company
effected a recapitalization, which increased the authorized number of shares of
Common Stock from 5,000 to 25,000,000, authorized 5,000,000 shares of Preferred
Stock, effected a 6262.63 for one stock split for all
F-12
<PAGE> 54
MANCHESTER EQUIPMENT CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JULY 31, 1994, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
outstanding shares of Common Stock on that date and established a $.01 per share
par value for Common Stock. All references in the accompanying consolidated
financial statements and notes thereto relating to per share and share data have
been retroactively adjusted to reflect the recapitalization.
Shareholders' Agreement
The Company is a party to an agreement among its shareholders whereby upon
termination, retirement, or death of either of the Company's two minority
shareholders, the Company is required to redeem his interest at differing values
stated in the agreement. The Company maintains term life insurance with a face
value of $1,500 to be used towards the purchase of the shares in the event of
the death of each shareholder. One of the minority shareholders retired in
fiscal 1996 and based upon the terms of agreements, payment for the
shareholder's interest in the Company (626,263 shares at that time) was fixed at
$4,710. One of these agreements provided this shareholder an annual option to
redeem one-tenth of his shares commencing in fiscal 1996, at an annual price of
$471 to be paid in equal quarterly installments over the following year. In
connection with these agreements, in May 1996 the Company purchased 62,626
shares of Common Stock from the retired shareholder. The purchase price was
$471, to be paid in four non-interest bearing equal quarterly installments
beginning on May 1, 1996. Such shares were subsequently retired.
In September 1996, among other provisions, the retired shareholder agreed
to terminate his option to sell his remaining shares to the Company, subject to
successful completion of the IPO. In addition, the Company's shareholders
entered into an agreement to terminate the shareholders' agreement upon the
effective date of the IPO.
New Accounting Standard
In October 1995, the Financial Accounting Standards Board issued SFAS 123,
"Accounting for Stock-Based Compensation" ("Statement 123"). Statement 123
establishes financial accounting and reporting standards for stock-based
employee compensation plans. The Statement also applies to transactions in which
an entity issues its equity instruments to acquire goods or services from
nonemployees. Statement 123 encourages a fair value based method of accounting
for employee stock options or similar equity instruments. Entities electing not
to adopt a fair value method must make pro forma disclosures of net income and
earnings per share as if a fair value based method had been applied. The
Statement is effective for fiscal year 1997. The Company has elected not to
adopt a fair value based accounting method for employee stock options and
therefore does not expect that the adoption of Statement 123 will have a
material impact on its financial position or results of operations. The Company
will disclose, commencing in fiscal 1997, the pro forma net income and income
per share as if such method had been used to account for stock-based
compensation costs.
Stock Option Plan
Under the Company's Amended and Restated 1996 Incentive and Non-Incentive
Stock Option Plan (the "Plan"), which was approved by the Company's shareholders
in October 1996, an aggregate of 1,100,000 shares of Common Stock are reserved
for issuance upon exercise of options thereunder. Under the Plan, incentive
stock options may be granted to employees and non-incentive stock options may be
granted to employees, directors and such other persons as the Board of Directors
may determine, at exercise prices equal to at least 100% (with respect to
incentive stock options) and at least 85% (with respect to non-incentive stock
options ) of the fair market value of the Common Stock on the date of grant. In
addition to selecting the optionees, the
F-13
<PAGE> 55
MANCHESTER EQUIPMENT CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JULY 31, 1994, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Board of Directors will determine the number of shares of Common Stock subject
to each option, the term of each stock option up to a maximum of ten years (five
years for certain employees for incentive stock options), the time or times when
the stock option becomes exercisable, and otherwise administer the Plan.
Incentive stock options expire three months from the date of the holder's
termination of employment with the Company other than by reason of death or
disability. Options may be exercised with cash or Common Stock previously owned
for in excess of six months. No options have been granted through October 30,
1996 under the Plan.
(11) MAJOR CUSTOMER AND VENDORS AND CONCENTRATION OF CREDIT RISK
The Company sells products and services to customers that are located
primarily in the eastern United States. One customer accounted for approximately
14%, 22% and 16% of total revenues for the years ended July 31, 1994, 1995 and
1996, respectively.
The Company's top four vendors accounted for 20%, 12%, 11% and 10% of total
product purchases for the year ended July 31, 1996. The Company's top two
vendors accounted for 22% and 16% of total product purchases for the year ended
July 31, 1995. The Company's top two vendors accounted for 22% and 15% of total
product purchases for the year ended July 31, 1994.
No individual customer accounted for more than 5% of the Company's accounts
receivable at July 31, 1996.
(12) PRO FORMA INFORMATION (UNAUDITED)
The pro forma adjustment discussed below has been made to the historical
results of operations to make the presentations more comparable with respect to
future officer compensation expense and rent expense to related parties.
In connection with the planned IPO, the Company's Chief Executive Officer
has agreed to receive a base salary of $550 for each of the fiscal years ending
July 31, 1997 and 1998 and to forego any bonus for fiscal 1997. In addition, in
connection with the planned IPO, the Company's Executive Vice President has
agreed to receive a base salary of $450 in each of the fiscal years ending July
31, 1997 and 1998 and to forego any bonus for fiscal 1997. These officers have
further agreed that any bonus payable to either of these officers in fiscal 1998
will require the approval of a majority of the independent directors of the
Company. Pro forma net income includes adjustments to increase net income for
the amounts by which aggregate officers' compensation payable to the Company's
Chief Executive Officer, Executive Vice President and Chief Financial Officer,
during the fiscal year ended July 31, 1996 exceeded the total of the annual
amounts to be paid under the agreements with the Company's Chief Executive
Officer and Executive Vice President plus the current annual salary of the
Company's present Chief Financial Officer as well as rents paid to related
parties in excess of rents that will be payable under current leases, as
amended, net of applicable income taxes. The weighted average number of shares
outstanding used to determine pro forma net income per share for the year ended
July 31, 1996 was computed as follows:
<TABLE>
<S> <C>
Shares of Common Stock outstanding during the entire year ended
July 31, 1996.................................................. 6,200,000
Weighted average shares repurchased during fiscal 1996........... 46,970
---------
Weighted average shares outstanding for the year ended July 31,
1996........................................................... 6,246,970
=========
</TABLE>
F-14
<PAGE> 56
HELPING CUSTOMERS THROUGH THE USE OF TECHNOLOGY
Manchester provides its customers with client/server solutions such as this
corporate intranet.
The use of intranets allows employees and other authorized users to access
information using readily available Internet tools.
<PAGE> 57
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN
SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH
DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 12
Dividend Policy....................... 12
Dilution.............................. 13
Capitalization........................ 14
Selected Consolidated Financial
Data................................ 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
Business.............................. 21
Management............................ 29
Principal and Selling Shareholders.... 32
Certain Transactions.................. 33
Shares Eligible for Future Sale....... 34
Description of Capital Stock.......... 36
Underwriting.......................... 38
Legal Matters......................... 39
Experts............................... 39
Available Information................. 40
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
------------------------
Until , 1996 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligations of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
2,500,000 SHARES
LOGO
MANCHESTER EQUIPMENT CO., INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
'LADENBURG LOGO'
'LADENBURG LOGO'
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 58
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of this offering are as follows:
<TABLE>
<S> <C>
S.E.C. Registration Fee.................................................. $ 11,897
N.A.S.D. Filing Fee...................................................... 3,950
Nasdaq National Market Qualification Fee................................. 39,250
Accounting Fees.......................................................... 120,000
Legal Fees and Expenses.................................................. 500,000
Blue Sky Qualification Fees and Expenses................................. 25,000
Printing and Engraving................................................... 80,000
Transfer Agent's Fees and Expenses....................................... 10,000
Miscellaneous Expenses................................................... 34,903
--------
Total.......................................................... $ 825,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 722 of the New York Business Corporation Law grants corporations
the power to indemnify their directors, officers, employees and agents in
accordance with the provisions thereof. Article Ninth of Registrant's Restated
Certificate of Incorporation provides for indemnification of Registrant's
directors, officers, agents and employees to the full extent permissible under
Section 722 of the New York Business Corporation Law.
See also Section 10 of the Underwriting Agreement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 16. EXHIBITS
(a) Exhibits:
<TABLE>
<C> <S> <C>
1 -- Form of Underwriting Agreement.
4.1 -- Form of Specimen Common Stock Certificate of Registrant.
4.2 -- Form of Representatives' Warrants.
10.1 -- Amended and Restated 1996 Incentive and Non-Incentive Stock Option Plan of
Registrant.
10.3 -- Compensation Agreement dated November 6, 1996 between Registrant and Barry
Steinberg (supersedes October 1, 1996 agreement).
10.4a. -- Amendment dated November 6, 1996 to Agreement of Employment dated September 30,
1996 between Registrant and Joel G. Stemple
10.10 -- Agreement for Authorized Resellers dated March 1, 1996 between Hewlett-Packard
Company and Registrant.
23.1 -- Consent of KPMG Peat Marwick LLP (contained on page II-4).
99.1 -- Consent of George Bagetakos.
99.2 -- Consent of Julian Sandler.
</TABLE>
II-1
<PAGE> 59
ITEM 17. UNDERTAKINGS.
Registrant hereby undertakes 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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of Registrant pursuant to the provisions of its Restated
Certificate of Incorporation, its By-Laws, or otherwise, Registrant 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. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant for expenses incurred or
paid by a director, officer or controlling person of 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, 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 Act and will be governed by the final adjudication of
such issue.
Registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Act, 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 Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-2
<PAGE> 60
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Registrant has
duly caused this Amendment to the Registration Statement or amendment thereto to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
Town of Hauppauge, State of New York, on the 6th day of November, 1996.
MANCHESTER EQUIPMENT CO., INC.
By: /s/ Barry R. Steinberg
------------------------------------
Barry R. Steinberg
President and Chief Executive
Officer
POWER OF ATTORNEY TO SIGN AMENDMENTS
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below does hereby constitute and appoint BARRY R. STEINBERG and JOEL G. STEMPLE,
and each of them, with full power to act without the other, his true and lawful
attorney-in-fact and agent for him and in his name, place and stead, in any and
all capacities, to sign any or all amendments to this Registration Statement and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises in order to effectuate the same, as fully, for all
intents and purposes, as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- -------------------
<C> <S> <C>
/s/ Barry R. Steinberg President, Chief Executive November 6, 1996
- ------------------------------------------ Officer, Chairman of the
Barry R. Steinberg Board and Director
(Principal Executive
Officer)
/s/ Joel G. Stemple Director November 6, 1996
- ------------------------------------------
Joel G. Stemple
* Chief Financial Officer November 6, 1996
- ------------------------------------------ (Principal Financial and
Joseph Looney Accounting Officer)
* Director November 6, 1996
- ------------------------------------------
Joel Rothlein
*By: /s/ Barry R. Steinberg
- ------------------------------------------
Barry R. Steinberg
as attorney-in-fact
</TABLE>
II-3
<PAGE> 61
INDEPENDENT AUDITORS' REPORT ON SCHEDULE AND CONSENT
The Board of Directors
Manchester Equipment Co., Inc.
The audits referred to in our report dated September 13, 1996, except as to
note 10 which is as of October 30, 1996, included the related financial
statement schedule for each of the years in the three-year period ended July 31,
1996, included in the registration statement. This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audits. In
our opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
Our report dated September 13, 1996, except as to note 10 which is as of
October 30, 1996, refers to a change, in 1994, in the Company's method of
accounting for income taxes.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Jericho, New York
November 6, 1996
II-4
<PAGE> 62
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- -------- --------------------------------------------------------------------- ------------
<C> <S> <C> <C>
1 -- Form of Underwriting Agreement.......................................
4.1 -- Form of Specimen Common Stock Certificate of Registrant..............
4.2 -- Form of Representatives' Warrants....................................
10.1 -- Amended and Restated 1996 Incentive and Non-Incentive Stock Option
Plan of Registrant...................................................
10.3 -- Compensation Agreement dated November 6, 1996 between Registrant and
Barry Steinberg (superseding October 1, 1996 agreement)..............
10.4a. -- Amendment dated November 6, 1996 to Agreement of Employment dated
September 30, 1996 between Registrant and Joel G. Stemple.
10.10 -- Agreement for Authorized Resellers dated March 1, 1996 between
Hewlett-Packard Company and Registrant...............................
23.1 -- Consent of KPMG Peat Marwick LLP (contained on page II-4)............
99.1 -- Consent of George Bagetakos..........................................
99.2 -- Consent of Julian Sandler............................................
</TABLE>
<PAGE> 1
Exhibit 1
2,500,000 Shares
MANCHESTER EQUIPMENT COMPANY, INC.
Common Stock
UNDERWRITING AGREEMENT
New York, New York
November __, 1996
Ladenburg Thalmann & Co. Inc.
Cruttenden Roth Incorporated
As Representatives of the several
Underwriters named in Schedule A hereto
590 Madison Avenue
New York, New York 10022
The undersigned, Manchester Equipment Company, Inc. (the "Company"), a
New York corporation, and Barry R. Steinberg (the "Selling Stockholder") hereby
confirm their agreement with you and the other underwriters named in Schedule A
annexed hereto.
Section 1. Underwriters and Representatives. The term "Underwriters,"
as used herein, will mean and refer collectively to you and the other
underwriters named in Schedule A annexed hereto, and the term "Representatives"
will refer to you in your capacity as the representatives of the Underwriters.
Except as may be expressly set forth below, any reference to you in this
Agreement shall be solely in your capacity as the Representatives.
Section 2. Shares Offered. The Company proposes to issue and sell to
the Underwriters an aggregate of 2,125,000 shares of its authorized and unissued
common stock, $.01 par value per share (the "Common Stock"), and the Selling
Stockholder proposes to sell to the Underwriters an aggregate of 375,000 issued
outstanding shares of Common Stock (collectively, the "Firm Shares"). The
Company also proposes to grant to the Underwriters an Option (hereinafter
defined) to purchase up to an additional aggregate of 375,000 shares (the
"Option Shares") of its authorized and unissued Common Stock on the terms and
for the purposes set forth in Section 4(b) hereof. The Firm Shares and the
Option Shares are hereinafter sometimes together called the "Shares."
<PAGE> 2
Section 3. Representations and Warranties. (a) The Company represents
and warrants to each Underwriter that:
(i) A registration statement (File No. 333-13345) on
Form S-1, relating to the Shares, including a preliminary
prospectus, has been prepared by the Company in conformity in
all material respects with the requirements of the Securities
Act of 1933, as amended (the "Act"), and the rules,
regulations and instructions (the "Rules and Regulations") of
the Securities and Exchange Commission (the "Commission")
thereunder and has been filed by the Company with the
Commission. One or more amendments to such registration
statement, including in each case a revised preliminary
prospectus, have been so prepared and filed. If such
registration statement has not become effective as of the
execution and delivery of this Agreement, and the filing of a
further amendment (the "Final Amendment") to such registration
statement is necessary to permit such registration statement
to become effective, such amendment will promptly be filed by
the Company with the Commission. If such registration
statement has become effective and any post-effective
amendment has been filed with the Commission prior to the
execution and delivery of this Agreement, the most recent such
amendment has been declared effective by the Commission. If
such registration statement has become effective, a final
prospectus (the "Rule 430A Prospectus") containing information
permitted to be omitted at the time of effectiveness by Rule
430A of the Rules and Regulations will promptly be filed by
the Company pursuant to Rule 424(b) of the Rules and
Regulations. The term "preliminary prospectus" as used herein
means each prospectus subject to completion included at any
time as part of such registration statement or any amendment
thereto or filed with the Commission pursuant to Rule 424(a)
of the Rules and Regulations; such registration statement as
amended at the time that it becomes or became effective, or,
if applicable, as amended at the time the most recent
post-effective amendment to such registration statement filed
with the Commission prior to the execution and delivery of
this Agreement became effective, including financial
statements and all exhibits (whether filed or incorporated by
reference) and information deemed to be a part thereof at such
time pursuant to Rule 430A of the Rules and Regulations is
herein called the "Registration Statement"; and the term
"Prospectus" as used herein means the final prospectus
relating to the Shares in the form first filed with the
Commission pursuant to Rule 424(b)(1) or (4) of the Rules and
Regulations or if no such filing is required, the form of
final prospectus included in the Registration Statement at the
Effective Date (as hereinafter defined). The date on which the
Registration Statement becomes effective is hereinafter called
the "Effective Date."
(ii) When the Registration Statement becomes
effective, and at all subsequent times to and including the
Closing Time (hereinafter defined), and at each Option
Exercise Time (hereinafter defined), or for such longer period
as the
-2-
<PAGE> 3
Prospectus may be required to be delivered in connection with
sales of the Shares by the Underwriters or a dealer, the
Registration Statement and the Prospectus (as amended or as
supplemented if the Company shall have filed with the
Commission any amendment thereof or supplement thereto;
provided, that no amendment or supplement to the Registration
Statement or the Prospectus shall be made without prior
consultation with you) will comply in all material respects
with the requirements of the Act and the Rules and
Regulations, will contain all statements required to be stated
therein in accordance with the Act and the Rules and
Regulations, will not contain an untrue statement of a
material fact and will not omit to state a material fact
required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however,
that the representations and warranties in this subsection
(ii) do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon and made
in conformity with written information furnished to the
Company by or on behalf of any Underwriter specifically for
inclusion therein.
(iii) The Commission has not issued an order
preventing or suspending the use of any preliminary prospectus
with respect to the Shares and has not instituted or
threatened to institute any proceedings with respect to such
an order. Each preliminary prospectus, when filed with the
Commission, conformed in all material respects with the
requirements of the Act and the Rules and Regulations and, as
of its date, did not include any untrue statement of a
material fact or omit to state a material fact necessary to
make the statements therein, in light of the circumstances
under which they were made, not misleading; provided, however,
that the representations and warranties in this sentence do
not apply to statements or omissions in each such preliminary
prospectus based upon and made in conformity with written
information furnished to the Company through the
Representatives by or on behalf of any Underwriter
specifically for inclusion therein.
(iv) The Company is, and at the Closing Time, and at
each Option Exercise Time will be, a corporation duly
organized, validly existing and in good standing under the
laws of the State of New York. The Company has, and at the
Closing Time and at each Option Exercise Time will have, only
one active subsidiary, Manchester International, Ltd. (the
"Subsidiary"); the Subsidiary is, and at the Closing Time, and
at each Option Exercise Time will be, a corporation duly
organized, validly existing and in good standing under the
laws of the State of its incorporation. The Company owns, free
and clear of all mortgages, pledges, liens, security
interests, conditional sale agreements, charges, encumbrances
and restrictions of every nature, all of the outstanding
shares of the capital stock of the Subsidiary, and all of such
shares have been duly and validly authorized and issued and
are fully paid and non-assessable. Each of the
-3-
<PAGE> 4
Company and the Subsidiary has, and at the Closing Time and at
each Option Exercise Time will have, the corporate power and
authority and all necessary approvals, orders, licenses,
certificates, permits and other governmental authorizations to
conduct all of the activities conducted by it, to own or lease
all of the assets owned or leased by it and to conduct its
business as described in the Registration Statement and the
Prospectus, except where failure to have any such approval,
order, license, certificate, permit or governmental
authorization would not have a material adverse effect upon
the Company and the Subsidiary taken as a whole; and is, and
at the Closing Time and at each Option Exercise Time will be,
duly licensed or qualified to do business and in good standing
as a foreign corporation in all jurisdictions in which the
nature of the activities conducted by it and/or the character
of the assets owned and leased by it makes such license or
qualification necessary, except for such jurisdictions in
which the failure to be so licensed or qualified or in good
standing would not have a material adverse effect upon the
Company and the Subsidiary taken as a whole. Except for the
shares of the stock of the Subsidiary owned by the Company and
for shares of stock of certain wholly-owned corporations both
of which are inactive, neither the Company nor the Subsidiary
owns, and at the Closing Time and at each Option Exercise Time
neither the Company nor the Subsidiary will own, any shares of
stock or any other securities of any corporation or have any
equity interest in any firm, partnership, association or other
entity; provided, however, that the foregoing representation
shall not be applicable to the investment of the net proceeds
from the sale of the Shares in short-term interest bearing
notes or money market instruments defined as "Eligible
Investments" in subsection (m) of Section 7 hereof. A complete
and correct copy of the amended certificate of incorporation
of the Company, the certificate of incorporation of the
Subsidiary, the by-laws of the Company and the by-laws of the
Subsidiary as currently in effect have been delivered to you,
and no changes therein will be made subsequent to the date
hereof and prior to the Closing Time or each Option Exercise
Time.
(v) The Company is, and at the Closing Time and at
the Option Exercise Time will be, authorized to issue only
25,000,000 shares of Common Stock and 5,000,000 shares of
preferred stock, $.01 par value (the "Preferred Stock"), and
has heretofore validly issued, and has outstanding, and at the
Closing Time and at each Option Exercise Time will have
outstanding, fully paid and nonassessable, 6,200,000 shares of
the Common Stock, without giving effect to the issuance of
Shares by the Company pursuant to this Agreement, and has no
shares of Preferred Stock outstanding. The Company has, and at
the Closing Time and at each Option Exercise Time will have,
reserved for issuance 1,100,000 shares of Common Stock under
the Company's Amended and Restated 1996 Incentive and
Non-Incentive Stock Option Plan (the "1996 Plan"), pursuant to
which no options to purchase shares are outstanding or will be
outstanding at
-4-
<PAGE> 5
the Closing Time. Subsequent to the date hereof and prior to
the Closing Time, the Company will not issue or acquire any
securities of the Company, except the Warrants (as hereinafter
defined) or as set forth in this subsection (v). The Company
does not have outstanding, and at the Closing Time the Company
will not have outstanding, any options to purchase, or any
rights or warrants to subscribe for, or any securities or
obligations convertible into, or any contracts or commitments
to issue or sell shares of capital stock or any warrants,
convertible securities or obligations, except the Warrants.
(vi) The consolidated financial statements of the
Company and its Subsidiary (including the footnotes thereto)
filed with and as part of the Registration Statement and the
Prospectus present fairly the financial position of the
Company and the Subsidiary as of the respective dates thereof
and the consolidated statements of income, shareholders'
equity and cash flows of the Company and its Subsidiary for
the respective periods covered thereby, all in conformity with
generally accepted accounting principles applied on a basis
consistent with prior periods. KPMG Peat Marwick LLP (the
"Company's accountants"), who have reported on certain of such
financial statements, are independent accountants with respect
to the Company as required by the Act and the Rules and
Regulations. The pro forma financial information included in
the Registration Statement and the Prospectus has been
properly compiled and complies in form in all material
respects with the applicable accounting requirements of
Regulation S-X of the Rules and Regulations. Such pro forma
financial information included in the Registration Statement
and the Prospectus presents fairly, on a basis consistent with
that of the audited consolidated financial statements included
therein, what the pro forma income from operations and pro
forma net income of the Company would have been for the
one-year period ended July 31, 1996, and what the pro forma
net income per share would have been at July 31, 1996, based
upon the assumptions set forth in the notes thereto and as
adjusted based upon the assumptions set forth in the notes
thereto. No other financial statements are required to be
included in the Registration Statement and the Prospectus.
(vii) The Company has a duly authorized and
outstanding capitalization as disclosed in the Prospectus
under "Capitalization" and will have the adjusted
capitalization set forth therein at the Closing Time (based on
the assumptions set forth therein). The financial and
numerical information and data set forth in the Prospectus
under "Prospectus Summary, "The Company," "Risk Factors," "Use
of Proceeds," "Dividend Policy," "Capitalization," "Dilution,"
"Selected Consolidated Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of
Operations," "Business," "Management," "Principal
Shareholders" and "Description of Capital Stock" are fairly
presented
-5-
<PAGE> 6
and prepared on a basis consistent with the audited
consolidated financial statements of the Company.
(viii) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus and prior to the Closing Time and to each Option
Exercise Time, except as set forth in or contemplated by the
Registration Statement and the Prospectus (A) each of the
Company and the Subsidiary has and will have conducted its
business in substantially the same manner as on July 31, 1996;
(B) neither the Company nor the Subsidiary has incurred or
will have incurred any material liabilities or obligations,
direct or contingent, or entered into any material
transactions, not in the ordinary course of business; (C)
there has been no material adverse change with respect to the
inventory owned by the Company or the Subsidiary such that
such inventory is not, as of the date hereof, current and
readily merchantable, containing no material amount of slow
moving, obsolete or damaged goods which have not been written
down in conformity with generally accepted accounting
principles applied on a basis consistent with prior periods;
(D) neither the Company nor the Subsidiary has paid or
declared nor will pay or declare any dividends or other
distributions on its capital stock; and (E) there has not been
and will not have been any change in the capitalization of the
Company or the Subsidiary or any material adverse change in
the business, business prospects, financial condition or
results of operations of the Company and the Subsidiary taken
as a whole or in the condition of the Company and the
Subsidiary taken as a whole or in the value of the assets of
the Company and the Subsidiary taken as a whole arising for
any reason whatsoever.
(ix) Except as set forth in or contemplated by the
Registration Statement and the Prospectus, neither the Company
nor the Subsidiary has, nor at the Closing Time and at each
Option Exercise Time will have, any material contingent
obligations.
(x) There are no actions, suits or proceedings at law
or in equity pending, or to the knowledge of the Company
threatened, against the Company or the Subsidiary, any of
their respective assets or any of their respective officers or
directors, which have not been disclosed to you, before or by
any federal, state, county or local commission, regulatory
body, administrative agency or other governmental body,
domestic or foreign, wherein an unfavorable ruling, decision
or finding would materially adversely affect the Company and
the Subsidiary as a whole, or their businesses, business
prospects, financial conditions, results of operations or
properties taken as a whole. Neither the Company nor the
Subsidiary is involved in any labor dispute nor, to their
knowledge, is any such dispute threatened, which dispute would
have a material
-6-
<PAGE> 7
adverse effect upon the properties, business, financial
condition or results of operations of the Company and its
Subsidiary taken as a whole.
(xi) Each of the Company and the Subsidiary has, and
at the Closing Time and at each Option Exercise Time will
have, complied in all respects with all laws, regulations and
orders applicable to it or its business, the violation of
which would have a material adverse effect upon its legal
existence or its business, business prospects, financial
condition, results of operations, earnings or properties. Each
of the Company and the Subsidiary has, and at the Closing Time
and at each Option Exercise Time will have, in all material
respects performed all of the contractual obligations required
to be performed by it, and is not, and at the Closing Time and
at each Option Exercise Time will not be, in material default
under (there being no existing state of facts which with
notice or lapse of time or both would constitute a material
default under) any indenture, mortgage, deed of trust, voting
trust agreement, loan agreement, letter of credit agreement,
bond, debenture, note agreement or other evidence of
indebtedness, lease, contract or other agreement or instrument
to which it is a party or by which it or any of its property
is bound, and, to the knowledge of the Company, no other party
under any such agreement or instrument to which the Company or
the Subsidiary is a party is in material default thereunder.
(xii) The Company (i) keeps books, records and
accounts that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
Company and its Subsidiary and (ii) maintains a system of
internal accounting controls sufficient to provide reasonable
assurances that (A) transactions are executed in accordance
with management's general or specific authorization, (B)
transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for
assets, (C) access to assets is permitted only in accordance
with management's general or specific authorization and (D)
the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action
is taken with respect to any differences. Neither the Company
nor the Subsidiary has made any payment to any state, federal
or foreign governmental officer or official or other person
charged with similar public or quasi-public duties (other than
payments required or permitted by the laws of the United
States or any jurisdiction thereof).
(xiii) Neither the Company nor the Subsidiary is in
violation of its certificate of incorporation or by-laws, in
each case as amended as of the date hereof.
(xiv) The outstanding shares of the Common Stock have
been, and all of the Shares, and the shares of Common Stock
issuable upon exercise of the
-7-
<PAGE> 8
Warrants (as hereinafter defined), will, upon issuance and
payment therefor, be, duly authorized, validly issued, fully
paid and nonassessable and not subject to preemptive rights or
similar contractual rights to purchase securities issued by
the Company. The holders of shares of the Common Stock will
not be subject to personal liability for the obligations of
the Company solely by reason of being such holders. The shares
of Common Stock issuable upon exercise of the Warrants have
been duly and validly reserved for issuance. The Common Stock
and the Shares conform, and when the Registration Statement
becomes effective and at the Closing Time and at each Option
Exercise Time will conform, to all statements with regard
thereto contained in the Registration Statement and the
Prospectus.
(xv) The Company has the corporate power and
authority to execute and deliver the Warrants on the terms and
conditions set forth herein and in the Warrants, and has taken
all corporate action necessary therefor; no consent, approval,
authorization or other order of any regulatory agency is
required for such execution or delivery except as may be
required under the Act or state securities or "blue sky" laws;
and when executed and delivered pursuant to the provisions of
this Agreement, the Warrants will constitute the valid,
binding and legally enforceable obligation of the Company.
(xvi) This Agreement has been duly authorized,
executed and delivered by the Company and constitutes a valid
and binding agreement of the Company enforceable in accordance
with its terms, except as the indemnification and contribution
provisions hereunder may be limited by applicable law and the
enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws affecting creditors'
rights generally and by general principles of equity; the
performance of this Agreement and the consummation of the
transactions contemplated hereby will not conflict with or
result in a breach or violation of any of the terms and
provisions of, or constitute a default under (there being no
existing state of events which with notice or lapse of time or
both would constitute a default) or result (or with the giving
of notice or lapse of time or both result) in the creation or
imposition of any lien, charge, or encumbrance upon the assets
or properties of the Company or its Subsidiary, pursuant to
any indenture, mortgage, deed of trust, voting trust
agreement, loan agreement, letter of credit agreement, bond,
debenture, note agreement or other evidence of indebtedness,
lease, contract or other agreement or instrument to which the
Company or the Subsidiary is a party or by which the Company
or the Subsidiary or any of their respective properties is
bound, or under the certificate of incorporation or by-laws of
the Company or the Subsidiary or under any statute or under
any order, rule or regulation applicable to the Company or the
Subsidiary or their respective businesses or properties or of
any court or other governmental body; and no consent,
approval, authorization or order of any court
-8-
<PAGE> 9
or governmental agency or body is required for the
consummation by the Company of the transactions on its part
herein contemplated, except such as may be required under the
Act or under state securities or blue sky laws.
(xvii) Each of the Company and the Subsidiary has
good and marketable title to all properties and assets owned
by it, free and clear of all liens, charges, encumbrances or
restrictions, except such as are described in or referred to
in the Prospectus or are not significant or important in
relation to the business of the Company and its Subsidiary
taken as a whole. Each of the Company and the Subsidiary has
valid, subsisting and enforceable leases for the properties
described in the Prospectus as leased by it, with such
exceptions as are not material and do not materially interfere
with the use made, and proposed to be made, of such properties
by it.
(xviii) There is no document or contract of a
character required to be described in the Prospectus or to be
filed as an exhibit to the Registration Statement which is not
described or filed as required. No transaction has occurred
between or among the Company and its Subsidiary and any of
their officers, directors or stockholders or any affiliate of
any such officer, director or stockholder that is required to
be described in and is not described in the Registration
Statement and the Prospectus.
(xix) The Company believes that each of it and the
Subsidiary has sufficient trademarks, trade names, registered
service marks, patents, patent applications, patent rights,
licenses, permits, copyright protection and governmental or
other authorizations currently required for the conduct of its
business, and each of the Company and the Subsidiary is in all
material respects complying therewith, and the products and
services, and the marks associated therewith, used by the
Company and the Subsidiary do not, to the knowledge of the
Company, violate or infringe in any material respect any
trademarks, trade names, registered service marks, patents,
patent rights, licenses, permits or copyrights held or owned
by any other party. Neither the Company nor the Subsidiary has
received any notice of violation or infringement of or
conflict with asserted rights of others with respect to any
trademarks, trade names, registered service marks, patents,
patent rights, licenses, permits, copyrights or authorizations
owned or used by the Company or the Subsidiary.
(xx) The Company intends to apply its proceeds from
the sale of the Shares for the purposes set forth in the
Prospectus under "Use of Proceeds."
(xxi) The Company is not, and does not intend to
conduct its business in a manner in which it would become, an
"investment company" as defined in
-9-
<PAGE> 10
Section 3(a) of the Investment Company Act of 1940 as amended
(the "Investment Company Act").
(xxii) All issuances and sales of securities by the
Company were exempt from registration under the Act and
complied in all material respects with the provisions of all
applicable federal and state securities laws. No holder of any
securities of the Company has the right to require
registration of shares of the Common Stock or other securities
of the Company because of the filing or effectiveness of the
Registration Statement.
(xxiii) Neither the Company nor any of its officers
or directors or affiliates (as defined in the Rules and
Regulations) has taken or will take, directly or indirectly,
any action designed to stabilize or manipulate the price of
any security of the Company, or which has constituted or which
might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of
the Company, to facilitate the sale or resale of any of the
Shares.
(xxiv) The Company has not, and at the Closing Time
and at each Option Exercise Time will not have, incurred any
liability for finder's or brokerage fees or agent's
commissions in connection with the offer and sale of the
Shares, this Agreement or the transactions hereby
contemplated, except for the Underwriters' discounts and
commissions provided for in this Agreement.
(xxv) The Company and the Subsidiary have filed all
federal, state and local income and franchise tax returns
required to be filed through the date hereof and have paid all
taxes due thereon, and no tax deficiency has been, nor does
the Company have any knowledge of any tax deficiency which
might be, asserted against the Company or the Subsidiary which
could materially adversely affect the earnings, assets,
affairs, business prospects or financial condition of the
Company and its Subsidiary taken as a whole.
(b) The Selling Stockholder represents and warrants to each
Underwriter that:
(i) The Selling Stockholder (A) has the
power and authority to execute and deliver this
Agreement on the terms and conditions set forth
herein; (B) is, and when the Registration Statement
shall become effective and at the Closing Time will
be, the owner of the Shares to be sold by him to the
respective Underwriters pursuant to the terms hereof,
in each case free and clear of all liens, charges,
encumbrances and restrictions; (C) has paid to the
Company the full purchase price required to be paid
for such Shares; and (D) has, and when the
Registration Statement shall become effective and at
the Closing Time will have, the power and
-10-
<PAGE> 11
authority to convey good and valid title to such
Shares, in each case free and clear of all liens,
charges, encumbrances and restrictions.
(ii) Neither the execution and delivery or
performance of this Agreement or the consummation of
the transactions herein contemplated nor the
compliance with the terms hereof by the Selling
Stockholder will conflict with, or result in a breach
of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of
trust, guaranty, purchase agreement or other
agreement or instrument to which the Selling
Stockholder or any of the Selling Stockholder's
property is bound, or under any statute or under any
order, rule or regulation applicable to the Selling
Stockholder or any of the Selling Stockholder's
property of any court or other governmental agency;
and no consent, approval, authorization or order of
any court or governmental agency or body is required
for the consummation by the Selling Stockholder of
the transactions on the Selling Stockholder's part
herein contemplated, except such as may be required
under the Act or under state securities or blue sky
laws.
(iii) At the Closing Time, all stock
transfer or other taxes (other than income taxes)
which are required to be paid in connection with the
sale and transfer of the Shares to be sold by the
Selling Stockholder to the several Underwriters
hereunder will have been fully paid or provided for
by the Selling Stockholder and all laws imposing such
taxes will have been fully complied with.
(iv) The Selling Stockholder has read each
preliminary prospectus referred to in Section 3(a)(i)
hereof (as amended or as supplemented if the Company
shall have filed with the Commission prior to the
date this representation is given an amendment
thereof or supplement thereto including, without
limitation, the Prospectus) and does not believe or
have any reasonable grounds to believe that any
untrue statement of a material fact is included
therein or that there is omitted therefrom a material
fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstance in which they were made, not misleading.
(v) The Selling Stockholder does not believe
or have any reasonable grounds to believe that any of
the representations and warranties of the Company
contained herein are false or misleading.
-11-
<PAGE> 12
(vi) The Selling Stockholder has not, and at
the Closing Time will not have, taken directly or
indirectly, any action to cause or result in, or
which has constituted, or might reasonably be
expected to constitute, the stabilization or
manipulation of the price of the shares of the Common
Stock to facilitate the sale or the resale of any of
the Shares.
Section 4. Purchase, Sale and Delivery of the Shares; Closing Time.
(a)(i) On the basis of the representations and warranties
contained in this Agreement, and subject to the terms and conditions herein set
forth, (A) the Company agrees to sell to the Underwriters, and the Underwriters
agree to purchase from the Company, 2,125,000 Shares at and for a price of
$_____ per Share; and (B) the Selling Stockholder agrees to sell to the
Underwriters 375,000 Shares, and the Underwriters agree to purchase from the
Selling Stockholder, such Shares at and for a price of $_____ per Share. The
number of Shares to be purchased from the Company and the number of Shares to be
purchased from the Selling Stockholder respectively (as adjusted by the
Representatives to eliminate fractions), by each of the Underwriters shall be
determined by multiplying the aggregate number of such Shares to be sold by the
Company or the Selling Stockholder, as the case may be, by a fraction, the
numerator of which is the total number of Firm Shares set forth opposite the
name of such Underwriter in Schedule A hereto and the denominator of which is
the aggregate number of Firm Shares set forth in Schedule A hereto. The
obligations of the Underwriters under this Agreement are several and not joint.
(ii) Delivery of the Firm Shares shall be made to you
for the accounts of the respective Underwriters, at the
offices of Ladenburg Thalmann & Co. Inc. at 590 Madison
Avenue, New York, New York, or such other location in the New
York metropolitan area as you shall advise the Company and the
Selling Stockholder by at least one full business day's notice
in writing, against payment by you on behalf of the respective
Underwriters of the purchase price therefor to the Company by
wire transfer of same-day federal funds of the amount to which
the Company is entitled, at 10:00 A.M., New York City Time, on
____________ 1996, or on such other time and business day
(Saturdays, Sundays and legal holidays in the City or State of
New York not being considered business days for the purposes
of this Agreement), as the Representatives and the Company may
agree upon or as the Representatives may determine pursuant to
Section 12 hereof, which time and date are herein called the
"Closing Time." Delivery of the Firm Shares shall be made in
registered form in such name or names and in such
denominations as you shall request by at least two full
business days' notice in writing. The cost of original issue
tax stamps and transfer stamps, if any, in connection with the
issuance and delivery or sale of the Firm Shares by the
Company to the respective Underwriters shall be borne by the
Company; the cost of transfer stamps, if any, in connection
with the sale of the Firm Shares by the
-12-
<PAGE> 13
Selling Stockholder to the respective Underwriters shall be
borne by the Selling Stockholder. The Company will pay and
save each Underwriter or its nominees, and any subsequent
holder of the Firm Shares, harmless from any and all
liabilities with respect to or resulting from any failure or
delay in paying federal or state stamp and other transfer
taxes, if any, which may be payable or determined to be
payable in connection with the sale by the Company or the
Selling Stockholder to such Underwriter of the Firm Shares or
any portion thereof.
(iii) The Company and the Selling Stockholder will
make the certificates for the Firm Shares available to you for
examination at the offices of Ladenburg Thalmann & Co. Inc. at
590 Madison Avenue, New York, New York, or at such other place
as you shall request, not later than 2:00 P.M., New York City
Time, on the business day next preceding the Closing Time.
(b) Purchase, Sale and Delivery of the Option Shares. (i) The
Company hereby grants to the respective Underwriters an option (the "Option") to
purchase from the Company up to 375,000 Option Shares, in the same proportion as
each Underwriter has agreed to purchase the Firm Shares, at and for a price of
$______ for each Option Share; provided, however, that the Option may be
exercised only for the purpose of covering any over-allotments which may be made
by you in connection with the distribution and sale of the Firm Shares.
(ii) The Option is exercisable by you in whole or in
part at any time or times on or before 12:00 noon, New York
City time, on the day prior to the Closing Time, and at any
time or times thereafter during the period ending 30 days
after the date of the Prospectus (or if such thirtieth day
shall be a Saturday, Sunday or holiday, on the next business
day thereafter when the New York Stock Exchange is open for
trading), in each case by giving notice to the Company in the
manner provided in Section 13 hereof, setting forth the number
of Option Shares as to which the Option is being exercised,
the name or names in which the certificates for such Option
Shares are to be registered, the denominations of such
certificates and the date of delivery of such Option Shares,
which date, if not the Closing Time, shall not be less than
two nor more than three business days after such notice.
(iii) Upon each exercise of the Option, the Company
shall sell to the respective Underwriters the aggregate number
of Option Shares specified in the notice exercising the Option
and the Underwriters, on the basis of the representations and
warranties of the Company contained herein and in each
certificate and document contemplated under this Agreement to
be delivered to you, but subject to the terms and conditions
of this Agreement, and the respective Underwriters shall
purchase from the Company the aggregate number of Option
Shares specified in such notice.
-13-
<PAGE> 14
(iv) Delivery of the Option Shares with respect to
which the Option shall have been exercised shall be made to
you for the account of the respective Underwriters, at the
offices of Ladenburg Thalmann & Co. Inc. at 590 Madison
Avenue, New York, New York, or such other location in the New
York metropolitan area as you shall determine and advise the
Company, against payment by you, on behalf of the respective
Underwriters, of the purchase price therefor to the Company by
wire transfer of same-day federal funds of the amount to which
the Company is entitled, at 10:00 A.M., New York City Time, on
the date designated for delivery of the Option Shares in the
notice given by you as above provided for, unless some other
place, time and date is agreed upon (such time and date being
herein called an "Option Exercise Time"). The cost of original
issue tax stamps or transfer stamps, if any, in connection
with each issuance and delivery of the Option Shares by the
Company to the respective Underwriters shall be borne by the
Company. The Company will pay and save each Underwriter, and
any subsequent holder of Option Shares, harmless from any and
all liabilities with respect to or resulting from any failure
or delay in paying federal and state stamp taxes, if any,
which may be payable or determined to be payable as a result
of the sale by the Company to such Underwriter of the Option
Shares or any portion thereof.
(v) The Company will make the certificates for the
Option Shares to be purchased at each Option Exercise Time
available to you for examination at the offices of Ladenburg
Thalmann & Co. Inc. at 590 Madison Avenue, New York, New York,
or such other place as you shall request, not later than 2:00
P.M., New York City Time, on the business day next preceding
each Option Exercise Time.
(vi) The obligation of the respective Underwriters to
purchase and pay for Option Shares at each Option Exercise
Time shall be subject to compliance as of such date with all
the conditions specified in Section 9 hereof and the delivery
to you of opinions, certificates and letters, each dated the
respective Option Exercise Time, substantially similar in
scope to those specified in Section 9 hereof, and to the
absence of any occurrence referred to in Section 11 hereof.
(c) Wire Transfer Payment; Closing. Each of the Company and
the Selling Stockholder hereby acknowledge that the wire transfer by or on
behalf of the Underwriters of the purchase price for any of the Shares does not
constitute closing of a purchase and sale of the Shares. Only execution and
delivery of a receipt for any of the Shares by the Underwriters indicates
completion of the closing of a purchase of those Shares from the Company and the
Selling Stockholder. Furthermore, in the event that the Underwriters wire funds
to the Company or the Selling Stockholder prior to the completion of the closing
of a purchase of any of the Shares, each of the Company and the Selling
Stockholder hereby acknowledge that until the
-14-
<PAGE> 15
Underwriters execute and deliver a receipt for those Shares, by facsimile or
otherwise, the Company and the Selling Stockholder will not be entitled to the
wired funds and shall return the wired funds to the Underwriters as soon as
practicable (by wire transfer of same-day funds) upon demand. In the event that
the closing of a purchase of any of the Shares is not completed and the wired
funds are not returned by the Company or the Selling Stockholder to the
Underwriters on the same day the wired funds were received by the Company, each
of the Company and the Selling Stockholder agree to pay to the Underwriters in
respect of each day the wired funds are not returned by the Company or the
Selling Stockholder, in same-day funds, interest on the amount of such wired
funds in an amount representing the Underwriters' cost of financing as
reasonably determined by the Representatives.
Section 5. Warrants. In order to induce you to enter into this
Agreement, the Company shall execute and deliver to you, in your individual
capacities and not as the Representatives, for an aggregate purchase price of
$2,500.00, five-year warrants (the "Warrants") to purchase an aggregate of
250,000 shares of the Common Stock at an exercise price per share equal to 120%
of the initial public offering price per share set forth on the cover page of
the Prospectus. The Warrants shall be in the form of Exhibit 4.2 to the
Registration Statement. Execution and delivery of Warrants, registered in your
names or the names of such of your officers as you shall notify the Company in
writing, shall be made to you, at the offices of Ladenburg Thalmann & Co. Inc.
at 590 Madison Avenue, New York, New York, at the Closing Time.
Section 6. Registration Statement and Prospectus. (a) The Company will
deliver to you, without charge, three fully signed copies of the Registration
Statement and of each amendment thereto, including all financial statements and
exhibits, and to each Underwriter the number of conformed copies of the
Registration Statement and of each amendment thereto, including all financial
statements, but excluding exhibits, as each Underwriter may reasonably request.
(b) The Company has delivered to each Underwriter, and each of
the Selected Dealers (hereinafter defined), without charge, as many copies as
you have requested of each preliminary prospectus heretofore filed with the
Commission and will deliver to each Underwriter and to others whose names and
addresses are furnished by such Underwriter or a Selected Dealer, without
charge, on the Effective Date, and thereafter from time to time during the
period in which the Prospectus is required by law to be delivered in connection
with sales of Shares by an Underwriter or a dealer, as many copies of the
Prospectus (and, in the event of any amendment of or supplement to the
Prospectus, of such amended or supplemented Prospectus) as you may reasonably
request; without limiting the application of this Section 6(b), the Company, not
later than (i) 6:00 PM, New York City time, on the date of determination of the
public offering price, if such determination occurred at or prior to 12:00 Noon,
New York City time, on such date or (ii) 6:00 PM, New York City time, on the
business day following the date of determination of the public offering price,
if such determination occurred after 12:00 Noon, New York City time, on such
date, will deliver to the Representatives, without charge,
-15-
<PAGE> 16
as many copies of the Prospectus and any amendment or supplement thereto as the
Representatives may reasonably request for purposes of confirming orders that
are expected to settle at the Closing Time.
(c) The Company has authorized the Underwriters to use, and
make available for use by prospective dealers, the preliminary prospectuses, and
authorizes each Underwriter, all dealers (the "Selected Dealers") selected by
you in connection with the distribution of the Shares and all dealers to whom
any of such Shares may be sold by the Underwriters or by any Selected Dealer, to
use the Prospectus, as from time to time amended or supplemented, in connection
with the sale of the Shares in accordance with the applicable provisions of the
Act, the applicable Rules and Regulations and applicable state law until
completion of the public offering of the Shares and for such longer period as
you may request if the Prospectus is required to be delivered in connection with
sales of the Shares by an Underwriter or a dealer.
Section 7. Covenants. (a) The Company covenants and agrees with each
Underwriter that:
(i) After the execution and delivery of this
Agreement, the Company will not, at any time, whether before
or after the Effective Date, file any amendment of or
supplement to the Registration Statement or the Prospectus of
which you shall not previously have been advised and furnished
with a copy, or which you or Fulbright & Jaworski L.L.P.
("counsel for the Underwriters") shall not have approved (such
approval to not be unreasonably withheld or denied), or which
is not in compliance in all material respects with the Act or
the Rules and Regulations.
(ii) If the Registration Statement has not become
effective, the Company will promptly file the Final Amendment
with the Commission and will use its best efforts to cause the
Registration Statement to become effective. If the
Registration Statement has become effective, the Company will
file the Rule 430A Prospectus or other Prospectus that
constitutes a part thereof with the Commission as promptly as
practicable, but in no event later than that permitted by Rule
424(b). The Company will promptly advise you (A) when the
Registration Statement, or any post effective amendment
thereto, shall have become effective, or any amendments or
supplements to the Prospectus shall have been filed with the
Commission; (B) of any request of the Commission or any state
or other regulatory body for any amendment or supplement of
the Registration Statement or the Prospectus or for additional
information and the nature and substance thereof; (C) of the
issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order
preventing or suspending the use of any preliminary prospectus
or prohibiting the offer or sale of any of the Shares or of
the initiation of any proceedings for such purpose; (D) of any
receipt by the Company of any notification with respect to the
-16-
<PAGE> 17
suspension of qualification of the Shares for sale in any
jurisdiction or the initiation or threatening of any
proceeding for such purpose; and (E) of the happening of any
event during the periods in which the Prospectus is to be used
in conjunction with the offer or sale of Shares which makes
any statement of any material fact made in the Registration
Statement or the Prospectus untrue or which requires the
making of any changes in the Registration Statement or the
Prospectus in order to make the statements of material fact
therein not misleading. The Company will use its best efforts
to prevent the issuance of any stop order or any order
preventing or suspending the use of the Registration Statement
or Prospectus and, if such order is issued, to obtain the
lifting thereof as promptly as possible.
(iii) The Company will prepare and file with the
Commission, upon your request, any such amendments of or
supplements to the Registration Statement or the Prospectus,
in form and substance reasonably satisfactory to each of
Epstein Becker & Green, P.C. and Kressel, Rothlein & Roth,
Esqs. (collectively, "counsel for the Company"), as in the
opinion of counsel for the Underwriters may be necessary or
advisable in connection with the distribution of the Shares or
any change in the price at which, or the terms upon which, the
Shares may be offered by you, and will use its best efforts to
cause the same to become effective as promptly as possible.
(iv) The Company will comply with the Act and the
Rules and Regulations and the Securities Exchange Act of 1934,
as amended (the "Exchange Act") and the rules and regulations
thereunder so as to permit the continuance of sales of and
dealings in the Shares under the Act and the Exchange Act. If
at any time when a prospectus is required to be delivered
under the Act an event shall have occurred as a result of
which it is necessary to amend or supplement the Prospectus in
order to make the statements of material fact therein not
untrue or misleading or to make the Prospectus comply with the
Act, the Company will notify you promptly thereof and will,
subject to the provisions of Section 7 hereof, furnish to you
an amendment or supplement which will correct such statement
in accordance with the requirements of Section 10 of the Act.
(v) The Company will comply in all material respects
with all of the provisions of any undertakings contained in
the Registration Statement.
(vi) The Company will take all necessary actions to
furnish to whomever you direct, when and as requested by you,
all necessary documents, exhibits, information, applications,
instruments and papers as may be required or, in the opinion
of counsel for the Underwriters, desirable in order to permit
or facilitate the sale of the Shares. The Company will use its
best efforts to qualify or register the Shares for sale under
the so-called blue sky laws of such
-17-
<PAGE> 18
jurisdictions as you shall request, to make such applications,
file such documents and furnish such information as may be
required for such purpose and to comply with such laws so as
to continue such qualification in effect so long as required
for the purposes of the distribution of the Shares; provided,
however, that the Company shall not be required to qualify as
a foreign corporation in any jurisdiction or to file a consent
to service of process in any jurisdiction in any action other
than one arising out of the offering or sale of the Shares.
(vii) During the period of three years commencing on
the Effective Date, the Company will furnish to the
Representatives, in such number of copies as the
Representatives may reasonably request, (A) within 120 days
after the end of each fiscal year of the Company, either (1) a
consolidated balance sheet of the Company and its then
consolidated subsidiaries, and a separate balance sheet of
each subsidiary if any, of the Company the accounts of which
are not included in such consolidated balance sheet, as of the
end of such fiscal year, and consolidated statements of income
and stockholders' equity of the Company and its consolidated
subsidiaries, and separate statements of income and
stockholders' equity of each of the subsidiaries, if any, of
the Company the accounts of which are not included in such
consolidated statements, for the fiscal year then ended, all
in reasonable detail, prepared in accordance with generally
accepted accounting principles, consistently applied, and all
certified by independent accountants (within the meaning of
the Act and the Rules and Regulations), or (2) the Company's
Form 10-K for such fiscal year as filed with the Commission in
accordance with the Exchange Act; (B) within 60 days after the
end of each of the first three fiscal quarters of each fiscal
year, either (1) similar balance sheets as of the end of such
fiscal quarter and similar statements of income and
stockholders' equity for the fiscal quarter then ended, all in
reasonable detail, and all certified by the Company's
principal financial officer or the Company's principal
accounting officer as having been prepared in accordance with
generally accepted accounting principles, consistently
applied, or (2) the Company's Form 10-Q for such fiscal
quarter as filed with the Commission in accordance with the
Exchange Act; (C) as soon as available, each report furnished
to or filed with the Commission or any securities exchange and
each report and financial statement furnished to the Company's
stockholders generally; and (D) as soon as available, such
other material as the Representatives may from time to time
reasonably request regarding the financial condition and
operations of the Company and its subsidiaries.
(viii) The Company will make generally available to
its security holders and to the Representatives as soon as
practicable, but not later than 45 days after the end of the
12-month period beginning at the end of the fiscal quarter of
the Company during which the Effective Date occurs (or 90
days, if such 12-month period coincides with the Company's
fiscal year), an earnings statement of the
-18-
<PAGE> 19
Company, which will be in reasonable detail, but need not be
audited, and will cover a period of twelve months commencing
after the Effective Date. Such earnings statement shall comply
with the requirements of Section 11(a) of the Act or Rule 158
of the Rules and Regulations. During the period of five years
commencing on the Effective Date, the Company will furnish to
its stockholders (A) within 75 days after the end of the first
three fiscal quarters of each fiscal year, quarterly reports
containing unaudited financial information, and (B) within 120
days after the end of each fiscal year, an annual report
containing audited financial information.
(ix) Counsel for the Company, the Company's
accountants and the officers of the Company will respectively
furnish the opinions, the letters and the certificates
referred to in subsections (e), (f), (g) and (h) of Section 9
hereof, and, in the event that the Company shall file any
amendment to the Registration Statement relating to the
offering of the Shares or any amendment or supplement to the
Prospectus relating to the offering of the Shares subsequent
to the Effective Date, whether pursuant to subsection (a)(iii)
of this Section 7 or otherwise, such counsel, such accountants
and such officers will, at the time of such filing or at such
subsequent time as you shall specify, respectively, furnish to
you such opinions, letters and certificates, each dated the
date of its delivery, of the same nature as the opinions, the
letters and the certificates referred to in said subsections
(e), (f), (g) and (h) respectively, as you may reasonably
request, or, if any such opinion, letter or certificate cannot
be furnished by reason of the fact that such counsel or such
accountants or any such officer believes that the same would
be inaccurate, such counsel or such accountants or any such
officer will furnish an accurate opinion, letter or
certificate with respect to the same subject matter.
(x) Prior to the later to occur of the termination of
the Option and the Option Exercise Time, the Company will not
issue, directly or indirectly, without your prior consent and
that of counsel for the Underwriters not to be unreasonably
withheld or delayed, any press release or other communication
or hold any press conference with respect to the Company or
its activities or this offering.
(xi) The Company will not, without your prior written
consent, sell, contract to sell or otherwise dispose of any
securities, including shares of Common Stock, for a period of
180 days after the date of this Agreement, except the sale of
the Shares, the issuance of the Warrants and the grant of
options and the issuance of shares of Common Stock pursuant to
the 1996 Plan and in accordance with Section 3(a)(v) hereof;
and the Company has caused each of its officers, directors and
all holders of 5% or more of the Common Stock, including any
holder of a warrant, option or other security convertible into
Common Stock,
-19-
<PAGE> 20
and any affiliate thereof, to deliver to you on or before the
date of this Agreement an agreement, satisfactory in form and
substance to you and counsel for the Underwriters, whereby
each agrees, for a period of 180 days after the date of this
Agreement, not to offer, pledge, sell or contract to sell,
transfer or otherwise dispose of any shares of Common Stock,
directly or indirectly, without your prior written consent,
except for the sale of Shares to the Underwriters pursuant to
this Agreement; provided, however, that each officer, director
and holder of 5% or more of the Common Stock may sell,
contract to sell, transfer, donate or bequeath any shares of
Common Stock during this period if the transaction is exempt
from registration under the Act and the transferee agrees,
prior to the transaction, to be bound by all of the terms and
conditions of this Section 7(a)(xi).
(xii) The Company will not at any time, directly or
indirectly, take any action designed to or which will
constitute or which might reasonably be expected to cause or
result in the stabilization of the price of the Shares to
facilitate the sale or resale of any of the Shares.
(xiii) The Company will apply the net proceeds from
the sale of the Shares in the manner set forth under "Use of
Proceeds" in the Prospectus. Prior to the application of such
net proceeds, the Company will invest or reinvest such
proceeds only in Eligible Investments (hereinafter defined).
"Eligible Investments" shall mean the following investments so
long as they have maturities of one year or less (A)
obligations issued or guaranteed by the United States or by
any person controlled or supervised by or acting as an
instrumentality of the United States pursuant to authority
granted by Congress; (B) obligations issued or guaranteed by
any state or political subdivision thereof rated either Aa or
higher, or MIG 1 or higher, by Moody's Investors Service, Inc.
or AA or higher, or an equivalent, by Standard & Poor's
Corporation, both of New York, New York, or their successors;
(C) commercial or finance paper which is rated either Prime-1
or higher or an equivalent by Moody's Investors Service, Inc.
or A-1 or higher or an equivalent by Standard & Poor's
Corporation, both of New York, New York, or their successors;
and (D) certificates of deposit or time deposits of banks or
trust companies, organized under the laws of the United States
or any state thereof, having a minimum equity of $500,000,000.
(xiv) During the period of 180 days commencing on the
date hereof, the Company will not, without the prior written
consent of the Representatives, grant options to purchase
shares at a price less than the initial public offering price
per share set forth on the cover page of the Prospectus, other
than options granted in accordance with Section 3(a)(v) hereof
and (i) pursuant to the 1996 Plan or (ii) with an exercise
price equal to or greater than fair market value.
-20-
<PAGE> 21
(xv) The Company has caused the Common Stock to be
duly included for quotation on the Nasdaq Stock Market's
National Market (the "National Market").
(xvi) Until the expiration of two years from the
Closing Time, in connection with any public or private debt or
equity financing by the Company, the Company shall not appoint
anyone as syndicate manager, broker or agent for such
financing or registered public offering, unless the Company
shall first offer the same to Ladenburg Thalmann & Co. Inc.,
upon specified terms and conditions, and if Ladenburg Thalmann
& Co. Inc. shall fail to accept such terms and conditions
within thirty days, then the Company shall be free to appoint
any other firm or organization as its syndicate manager,
broker or agent upon terms and conditions which shall not be
more favorable to such firm or organization than those so
offered to you.
(b) The Selling Stockholder covenants and agrees with each
Underwriter that:
(i) The Selling Stockholder will not, directly or
indirectly, take any action designed to or which will
constitute or which might reasonably be expected to cause or
result in the stabilization of the price of the Shares to
facilitate the sale or the resale of any of the Shares.
(ii) If, subsequent to the date hereof, the Selling
Stockholder shall believe or have any reasonable grounds to
believe that the Prospectus (as amended or as supplemented if
the Company shall have filed with the Commission any amendment
thereof or supplement thereto) contains any untrue statement
of a material fact or omits to state a material fact required
to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which
they were made, not misleading, or that any of the
representations and warranties of the Company or the Selling
Stockholder contained herein or in any certificate or document
contemplated under this Agreement to be delivered to you are
false when made, the Selling Stockholder will promptly notify
you, as the Representatives, to such effect.
(iii) The Selling Stockholder will not, without your
prior written consent, sell, contract to sell or otherwise
dispose of any shares of Common Stock owned by or held of
record in his name, except the sale of Shares to the
Underwriters pursuant to this Agreement, for a period of 180
days after the Effective Date; provided, however, that the
Selling Stockholder may sell, contract to sell, transfer,
donate or bequeath any shares of Common Stock during this
period if the transaction is exempt from registration under
the Act and the transferee agrees, prior to the transaction,
to be bound by all of the terms and conditions of this Section
7(b)(iii).
-21-
<PAGE> 22
(iv) The Selling Stockholder will furnish the
certificates referred to in subsections (a)(viii) and (ix) of
Section 9 hereof.
Section 8. Expenses. The Company will pay and bear all costs, fees,
taxes and expenses incident to the performance of the obligations of the Company
and the Selling Stockholder under this Agreement, including, but not limited to
(a) the costs incident to the issuance, sale and delivery to the Underwriters of
the Shares (except that the Company will not be responsible for the underwriting
discounts and commissions with respect to shares of common stock being sold by
the Selling Stockholder); (b) the costs incident to the preparation, printing
and filing under the Act of each preliminary prospectus, the Prospectus, the
Registration Statement and any amendments or supplements thereof and exhibits
thereto; (c) the costs of distributing the Registration Statement and any
post-effective amendments thereto; (d) the costs of printing and distributing to
the Representatives, the other Underwriters and any Selected Dealers copies of
any preliminary prospectus, the Prospectus, the Registration Statement and any
amendment or supplement to the Prospectus or Registration Statement required by
this Agreement or the Act; (e) the costs of preparation, printing, mailing,
delivery, filing and distribution of preliminary and final blue sky memoranda,
Underwriters' Questionnaires and Powers of Attorney, letters to prospective
Underwriters, the Agreement Among Underwriters, the Selling Agreement, this
Agreement and all documents related thereto; (f) the filing fees of the
Commission; (g) the costs of qualification or registration of the Shares in the
jurisdictions referred to in subsection (f) of Section 7 hereof, including the
legal fees and expenses of counsel for the Underwriters in connection therewith,
and all filing fees in connection therewith, provided, however, that these
expenses shall not exceed $25,000; (h) the cost of preparation, including the
legal fees and expenses of counsel for the Underwriters in connection therewith,
of all filings with the National Association of Securities Dealers, Inc.
("NASD") and all filing fees in connection therewith; (i) fees and expenses of
counsel for the Company, the Company's accountants and the Company's
consultants; (j) fees in connection with the quotation of the Common Stock on
the National Market; and (k) all other costs and expenses incurred or to be
incurred by the Company in connection with the transactions contemplated by this
Agreement. If the Firm Shares are not sold to the Underwriters, for any reason
whatsoever, other than as a result of the Underwriters without cause under, or
in breach of, this Agreement refusing to proceed with the purchase of the Firm
Shares, the Company will pay all accountable out-of-pocket expenses which you
may incur in connection with this Agreement and the transactions hereby
contemplated, including all fees and expenses of counsel for the Underwriters in
connection therewith. The provisions of this Section 8 are intended to relieve
the Underwriters from payment of costs and expenses which the Company hereby
agrees to pay and shall not effect any agreement between the Company and the
Selling Stockholder for the sharing of such costs and expenses.
Section 9. Conditions of the Underwriters' Obligations. The
Underwriters' obligations hereunder to purchase and pay for the Shares are
subject (as of the date hereof, the Closing Time and each Option Exercise Time)
to the accuracy of and compliance with the representations and warranties of the
Company and the Selling Stockholder herein and in each
-22-
<PAGE> 23
certificate and document contemplated under this Agreement to be delivered, to
the accuracy of the statements of the Company and the Selling Stockholder and of
the officers of the Company and the Selling Stockholder made pursuant to the
provisions hereof, to the performance by the Company and the Selling Stockholder
of their respective covenants and agreements hereunder and under each such
certificate and document, and to the following additional conditions:
(a) (i) The Registration Statement shall have become effective
not later than 5:00 P.M., New York City Time, on the date of this Agreement, or
at such later time or on such later date as you may agree to in writing; (ii) if
required, the Prospectus shall have been filed with the Commission pursuant to
Rules 424(b)(1) or (4) of the Rules and Regulations within the applicable time
period prescribed for such filing thereunder and in accordance with the
provisions of Section 7(b) hereof; (iii) at or prior to the Closing Time, no
stop order suspending the effectiveness of the Registration Statement or the
qualification or registration of the Shares under the blue sky laws of any
jurisdiction (whether or not a jurisdiction which you shall have specified)
shall have been issued and no proceeding for that purpose shall have been
initiated or shall be threatened or contemplated by the Commission or the
authorities of any such jurisdiction; (iv) any request for additional
information on the part of the Commission or any such authorities shall have
been complied with to the satisfaction of the Commission or such authorities and
counsel for the Underwriters; (v) the NASD, upon review of the terms of the
public offering of Shares, shall not have objected to such offering, such terms,
or the Underwriters' participation in the same; and (vi) after the date hereof,
no amendment or supplement to the Registration Statement or the Prospectus shall
have been filed without your prior consent.
(b) You shall not have advised the Company, and the Selling
Stockholder shall not have advised any Underwriter or the Company, that the
Registration Statement or the Prospectus or any amendment thereof or supplement
thereto contains an untrue statement of a fact which is material, or omits to
state a fact which is material and is required to be stated therein or is
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(c) Between the time of the execution and delivery of this
Agreement and the Closing Time, there shall be no litigation instituted against
the Company or the Subsidiary or any of their respective officers or directors,
and between such dates there shall be no proceeding instituted or threatened
against the Company or the Subsidiary or any of their respective officers or
directors before or by any federal, state, county or local commission,
regulatory body, administrative agency or other governmental body, domestic or
foreign, in which litigation or proceeding an unfavorable ruling, decision or
finding could materially adversely affect the Company and its Subsidiary taken
as a whole, or their businesses, business prospects or properties, or materially
adversely affect the financial condition or results of operations of the Company
and its Subsidiary taken as a whole.
-23-
<PAGE> 24
(d) Each of the representations and warranties of the Company
and the Selling Stockholder contained herein and in each certificate and
document contemplated under this Agreement to be delivered shall be true and
correct at the Closing Time as if made at the Closing Time, and all covenants
and agreements contained herein, and in each such certificate and document, to
be performed on the part of the Company or the Selling Stockholder and all
conditions contained herein and in each such certificate and document to be
fulfilled or complied with by the Company or the Selling Stockholder at or prior
to the Closing Time shall have been duly performed, fulfilled or complied with.
(e) Counsel for the Company and the Selling Stockholder shall
furnish to you opinions, in form and substance reasonably satisfactory to you,
dated the Closing Date, as follows:
(i) Epstein Becker & Green, P.C. shall furnish an
opinion in the form of Exhibit 1 annexed hereto; and
(ii) Kressel, Rothlein & Roth, Esqs. shall furnish an
opinion in the form of Exhibit 2 annexed hereto.
Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company, and
representatives of the independent public accountants for the Company at which
conferences the officers, representatives and accountants discussed the contents
of the preliminary prospectus, the Registration Statement, the Prospectus, and
related matters and, although such counsel is not passing upon and does not
assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement and Prospectus, on the basis
of the foregoing, nothing has come to the attention of such counsel which lead
them to believe that either the Registration Statement or any amendment thereto,
at the time such Registration Statement or amendment became effective or the
Prospectus or any amendment or supplement thereto as of its date or the date of
such opinions contained or contains any untrue statement of a material fact or
omitted or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading (it being understood that such counsel need
express no opinion with respect to the financial statements and other financial
or accounting data included in the Registration Statement or Prospectus).
Such opinions shall be to such further effect with respect to
other legal matters relating to this Agreement and the sale of the Shares
hereunder as counsel for the Underwriters may reasonably request. In rendering
the opinions set forth above, such counsel may rely upon, inter alia,
representations and warranties contained herein and certificates of the officers
of the Company and the Selling Stockholder and public officials as to matters of
fact. In rendering such opinions, such counsel may state that no opinions are
expressed therein concerning any laws other than those of the State of New York
and Federal laws.
-24-
<PAGE> 25
(f) Concurrently with the execution and delivery of this
Agreement and at the Closing Time, the Company's accountants shall have
furnished to you a letter, dated as of the date of its delivery, addressed to
you and in form and substance satisfactory to you, to the effect that:
(i) Such accountants are independent certified public
accountants with respect to the Company and the Subsidiary as
required by the Act and the Rules and Regulations, and the
answer to Item 10 of the Registration Statement is correct
insofar as it relates to them.
(ii) In their opinion the consolidated financial
statements and schedules and notes examined by them and
included in the Registration Statement and the Prospectus
comply as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and
Regulations with respect to registration statements on Form
S-1.
(iii) On the basis of inquiries and procedures
conducted by them, including a reading of the latest available
unaudited interim financial statements of the Company and the
Subsidiary, inquiries of officials of the Company and the
Subsidiary responsible for operational, financial and
accounting matters, a reading of the minute books of the
Company and the Subsidiary and other specified procedures and
inquiries, nothing has come to their attention that caused
them to believe that (A) any unaudited financial statements of
the Company and the Subsidiary set forth in the Registration
Statement and the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements
of the Act and the Rules and Regulations or are not fairly
presented in conformity with generally accepted accounting
principles applied on a basis consistent with that of the
audited financial statements, and (B) during the period from
July 31, 1996 to a specified date not more than five days
prior to the date of such letter there was any change in the
consolidated capital stock or consolidated debt of the Company
and its Subsidiary, or any decrease in the consolidated total
assets or consolidated shareholders' equity of the Company and
its Subsidiary, each as compared with the amounts shown in the
balance sheet as of July 31, 1996 included in the Registration
Statement or any decrease from August 1, 1996 to the specified
date, on a proportional basis with the fiscal year ended July
31, 1996, in revenues, earnings from operations, net earnings,
pro forma net earnings and pro forma net earnings per share,
except in all instances for changes, decreases or increases
which the Registration Statement and the Prospectus disclose
have occurred or may occur and except for such other changes,
decreases or increases which you shall in your sole discretion
accept.
(iv) In addition to their examination referred to in
their reports included in the Registration Statement and the
Prospectus and the inquiries and limited
-25-
<PAGE> 26
procedures referred to in clause (iii) above, they have
performed other procedures, not constituting an audit, with
respect to certain numerical data and financial information
appearing in the Registration Statement and the Prospectus,
requested by you and specified in such letter and have
compared such data and information with the accounting records
of the Company and found them to be in agreement.
(v) On the basis of a reading of the pro forma
consolidated financial statements included in the Registration
Statement and the Prospectus, carrying out certain specified
procedures that would not necessarily reveal matters of
significance with respect to the comments set forth in this
clause (v), inquiries of certain officials of the Company and
its consolidated subsidiaries who have responsibility for
financial and accounting matters and proving the arithmetic
accuracy of the application of the pro forma consolidated
financial statements, nothing came to their attention that
caused them to believe that the pro forma consolidated
financial statements do not comply in form in all material
respects with the applicable accounting requirements of
Regulation S-X or that the pro forma adjustments have not been
properly applied to the historical amounts in the compilation
of such statements.
(g) At the Closing Time, there shall be furnished to you, on
behalf of the Company, an accurate certificate, dated the date of its delivery,
signed by each of the chief executive officer and the chief financial officer of
the Company, in form and substance satisfactory to you, to the effect that:
(i) Each signer of such certificate has carefully
examined the Registration Statement and the Prospectus and (A)
to his knowledge, as of the date of such certificate, the
statements in the Registration Statement and the Prospectus
are and were true and correct in all material respects and
neither the Registration Statement nor the Prospectus omits to
state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading;
(B) in the case of a certificate delivered after the date of
this Agreement, since the Effective Date, no event has
occurred of which he has knowledge and which was required by
the Act or the Rules and Regulations to be set forth in a
supplement to or amendment of the Prospectus but which has not
been so set forth; and (C) since the dates as of which and the
periods for which information is given in the Registration
Statement and the Prospectus, there has not been to his
knowledge any material adverse change, in the financial
condition or business prospects of the Company from that set
forth in the Registration Statement and the Prospectus, other
than changes which the Registration Statement and the
Prospectus specifically disclose have occurred or may occur
subsequent to the Effective Date.
-26-
<PAGE> 27
(ii) No stop order suspending the effectiveness of
the Registration Statement has been issued, and no proceedings
for such purpose have been commenced or are, to the knowledge
of each signer of such certificate, threatened or contemplated
by the Commission.
(iii) No stop order suspending the qualification or
registration of any of the Shares under the blue sky laws of
any jurisdiction (whether or not a jurisdiction you shall have
specified) has been issued, and no proceedings for such
purpose have been commenced or are, to the knowledge of each
signer of such certificate, threatened or contemplated by any
jurisdiction.
(iv) The conditions, separately set forth in such
certificate, contained in subsections (a), (c) and (j) of this
Section 9 have been complied with.
(v) There has been no breach of any of the terms or
provisions of the agreements referred to in Section 7(a)(xi)
hereof.
(vi) Each of the representations and warranties of
the Company contained in this Agreement and in each
certificate and document contemplated under this Agreement to
be delivered to you was, when originally made and is, at the
time such certificate is dated, true and correct.
(vii) Each of the covenants required herein to be
performed by the Company on or prior to the date of such
certificate has been duly, timely and fully performed and each
condition herein required to be complied with by the Company
on or prior to the date of such certificate has been duly,
timely and fully complied with by the Company.
(h) The Selling Stockholder shall have performed all of the
covenants contained herein and in any certificate or document contemplated under
this Agreement to be delivered to you and required to be performed by the
Selling Stockholder at or prior to the Closing Time, and you shall have received
at the Closing Time, to the effect that the representations and warranties of
the Selling Stockholder contained in this Agreement and in each such certificate
and document are true and correct in all respects on and as of the date of such
certificate as if made on and as of such date, and each of the covenants and
conditions required to be performed or complied with by the Selling Stockholder
on or prior to the date of such certificate has been duly, timely and fully
performed or complied with.
(i) The Company and the Selling Stockholder shall have
furnished to you such certificates, in addition to those specifically mentioned
herein, as you may have reasonably requested in a timely manner as to the
accuracy and completeness, at the Closing Time, of any statement in the
Registration Statement or the Prospectus; as to the accuracy, at the Closing
Time, of the representations and warranties of the Company and the Selling
Stockholder herein
-27-
<PAGE> 28
and in each certificate and document contemplated under this Agreement to be
delivered to you; as to the performance by the Company and the Selling
Stockholder of their respective obligations hereunder and under each such
certificate and document; or as to the fulfillment of the conditions concurrent
and precedent to your obligations hereunder.
(j) Except as contemplated by the Registration Statement and
the Prospectus, since the date hereof, there shall not have been any change in
the capitalization of the Company or any material adverse change in the
business, business prospects, financial condition or results of operations of
the Company or in the value of the assets of the Company, or any material
change, without your consent, in the conduct of the business of the Company,
arising for any reason whatsoever.
(k) Each of the agreements referred to in Section 7(a)(xi)
hereof shall have been delivered to you and there shall have been no breach of
any such agreement.
(l) All corporate proceedings and other legal matters relating
to the sale and transfer of the Shares, this Agreement, the Warrants, the
Registration Statement, the Prospectus and other related matters shall be
reasonably satisfactory in all material respects to counsel for the
Underwriters, who shall have furnished to you at the Closing Time such opinion,
in form and substance reasonably satisfactory to you, with respect to the
sufficiency of the aforementioned corporate proceedings and other legal matters
as you may reasonably require; and the Company shall have furnished to such
counsel such records and documents as such counsel may have reasonably requested
in a timely manner for the purpose of enabling them to pass upon such matters.
(m) The Common Stock shall be authorized for quotation on the
National Market.
All of the opinions, letters, evidence and certificates
mentioned above or elsewhere in this Agreement shall be deemed to be in
compliance with the provisions hereof only if they are in form and substance
reasonably satisfactory to counsel for the Underwriters. You reserve the right
to waive any condition hereinabove set forth. Each opinion, certificate, letter
or other document required to be delivered at the Closing Time shall also be
required to be delivered at each Option Exercise Time.
Section 10. Indemnification and Contribution. (a) The Company and the
Selling Stockholder, jointly and severally, agree to indemnify and hold harmless
each Underwriter and each person who controls an Underwriter within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act and each and all of
them, from and against any and all losses, claims, damages, liabilities or
actions, joint or several (including any reasonable investigation, legal or
other expense incurred in connection with, and any amount paid in settlement of,
any action, suit or proceeding or any claim asserted), to which an Underwriter
or they or any of them may become subject under the Act, the Exchange Act or
otherwise but only insofar as such
-28-
<PAGE> 29
losses, claims, damages, liabilities or actions arise out of, or are based upon,
(i) any untrue statement or alleged untrue statement made by the Company or the
Selling Stockholder in Section 3 of this Agreement; (ii) any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement, any preliminary prospectus, the Prospectus or any amendment or
supplement thereto or in any application or other document executed by the
Company or the Selling Stockholder based upon written information furnished by
or on behalf of the Company or the Selling Stockholder filed in any jurisdiction
in order to register or qualify the Shares under the securities laws thereof or
filed with the Commission, or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; or (iii) the employment by the Company or the Selling
Stockholder of any device, scheme or artifice to defraud, or the engaging by the
Company or the Selling Stockholder in any act, practice or course of business
which operates or would operate as a fraud or deceit, or any conspiracy with
respect thereto, in which the Company or the Selling Stockholder shall
participate, in connection with the issuance and sale of any of the Shares;
provided, however, that (i) the indemnity agreement contained in this subsection
(a) shall not extend to any Underwriter in respect of any such losses, claims,
damages, liabilities or actions arising out of, or based upon, any such untrue
statement or alleged untrue statement or any such omission or alleged omission,
if such statement or omission was made in reliance upon information furnished in
writing to the Company through you or on behalf of any Underwriter specifically
for use in connection with the preparation of the Registration Statement, any
preliminary prospectus or the Prospectus or any such amendment or supplement
thereto; and (ii) the obligations of the Selling Stockholder to indemnify the
Underwriters and the aforementioned controlling persons under the provisions of
subsection (a) shall be limited to the product of the number of Shares sold by
the Selling Stockholder and the initial public offering price set forth on the
cover page of the Prospectus (net of underwriting discounts and commissions but
before deducting expenses); and provided, further, that if any preliminary
prospectus or the Prospectus contained any alleged untrue statement or allegedly
omitted to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading and such statement or
omission shall have been corrected in a revised preliminary prospectus or in the
Prospectus or in an amended or supplemented Prospectus, neither the Company nor
the Selling Stockholder shall be liable to any Underwriter under this subsection
(a) with respect to such alleged untrue statement or alleged omission to the
extent that any such loss, claim, damage or liability of such Underwriter
results from the fact that such Underwriter sold Shares to a person to whom
there was not sent or given, at or prior to the written confirmation of such
sale, such revised preliminary prospectus or Prospectus or amended or
supplemented Prospectus. The Company and the Selling Stockholder, jointly and
severally, agree to pay any legal and other expenses for which it is liable
under this subsection (a) from time to time (but not more frequently than
monthly) within 30 days after its receipt of a bill therefor.
(b) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company, its directors, its officers who shall
have signed the Registration Statement, each person, if any, who controls the
Company within the meaning of Section 15 of
-29-
<PAGE> 30
the Act or Section 20 of the Exchange Act and the Selling Stockholder to the
same extent as the foregoing indemnity from the Company and the Selling
Stockholder to such Underwriter, but in each case to the extent, and only to the
extent, that any statement in or omission from or alleged omission from the
Registration Statement, any preliminary prospectus, the Prospectus or any
amendment or supplement thereto was made in reliance upon information furnished
in writing to the Company by such Underwriter specifically for use in connection
with the preparation of the Registration Statement, any preliminary prospectus
or the Prospectus or any such amendment or supplement thereto; provided,
however, that the obligation of each Underwriter to indemnify the Company and
the Selling Stockholder under the provisions of this subsection (b) shall be
limited to the product of the number of Shares purchased by such Underwriter and
the initial public offering price set forth on the cover page of the Prospectus.
Each Underwriter agrees to pay any legal and other expenses for which it is
liable under this subsection (b) from time to time (but not more frequently than
monthly) within 30 days after receipt of a bill therefor.
(c) If any action is brought against a person entitled to
indemnification pursuant to the foregoing subsections (a) or (b) (an
"indemnified party") in respect of which indemnity may be sought against a
person granting indemnification (an "indemnifying party") pursuant to such
subsections, such indemnified party shall promptly notify such indemnifying
party in writing of the commencement thereof; but the omission so to notify the
indemnifying party of any such action shall not release the indemnifying party
from any liability it may have to such indemnified party otherwise than on
account of the indemnity agreement contained in subsection (a) or (b) of this
Section 10. In case any such action is brought against an indemnified party and
it notifies an indemnifying party of the commencement thereof, the indemnifying
party against which a claim is to be made will be entitled to participate
therein at its own expense and, to the extent that it may wish, to assume at its
own expense the defense thereof, with counsel reasonably satisfactory to such
indemnified party; provided, however, that (i) if the defendants in any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded based upon advice of counsel
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party shall have the right to select
separate counsel to assume such legal defenses and otherwise to participate in
the defense of such action on behalf of such indemnified party or parties; and
(ii) in any event, the indemnified party shall be entitled to have counsel
chosen by such indemnified party participate in, but not conduct, the defense.
Upon receipt of notice from the indemnifying party to such indemnified party of
its election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 10 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed such counsel in
connection with the assumption of legal defenses in accordance with proviso (i)
to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel); or (ii) the indemnifying party shall not have employed
counsel
-30-
<PAGE> 31
reasonably satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of commencement of the action. An
indemnifying party shall not be liable for any settlement of any action or
proceeding effected without its written consent.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in subsection (a) or
(b) of this Section 10 is judicially determined (by entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) to be unenforceable in accordance
with its terms, the Company, the Selling Stockholder and, subject to the
limitations set forth below, the Underwriters shall contribute to the aggregate
losses, claims, damages and liabilities, of the nature contemplated by said
indemnity agreement, incurred by the Company, the Selling Stockholder and one or
more Underwriters, in such proportions as are applicable to reflect the relative
benefits received by the Company and the Selling Stockholder, on the one hand,
and the Underwriters, on the other hand, from the offering of the Shares;
provided, however, that if such allocation is not permitted by applicable law or
if the indemnified party failed to give the notice required under subsection (c)
of this Section 10, then the relative fault of the Company and the Selling
Stockholder, on the one hand, and the Underwriters, on the other hand, in
connection with the statements or omissions which resulted in such losses,
claims, damages and liabilities and other relevant equitable considerations will
be considered together with such relative benefits. The relative benefits
received by the Company and the Selling Stockholder, on the one hand, and the
Underwriters, on the other hand, shall be deemed to be in such proportion as the
total proceeds from the offering (net of underwriting discounts and commissions
but before deducting expenses) received by the Company and the Selling
Stockholder bear to the total underwriting discount received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus and in the notes thereto. The relative fault of the Company and the
Selling Stockholder and of the Underwriters, on the other, shall be determined
by reference to, among other things, whether in the case of an untrue statement
or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact, such statement or omission relates to
information supplied by the Company or the Selling Stockholder, on the one hand,
or by the Underwriters, on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The Company, the Selling Stockholder and the
Underwriters agree that it would not be just and equitable if contribution
pursuant to this subsection (d) were determined by pro-rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any other
method of allocation that does not take account of the equitable considerations
referred to in this subsection (d). The amount paid or payable by the
indemnified party as a result of the losses, claims, damages or liabilities
referred to above in this subsection (d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending against or appearing as a third-party witness in any
such action or claim. Notwithstanding the provisions of this subsection (d), (i)
no Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Shares purchased by it were offered
to the public exceeds the amount of any damages which such Underwriter has
otherwise
-31-
<PAGE> 32
been required to pay in respect of any loss, claim, damage, liability or action
covered by this Section; (ii) the Selling Stockholder shall not be required to
contribute any amount in excess of the amount by which the proceeds of the
Shares sold by him (net of underwriting discounts and commissions but before
deducting expenses) exceeds the amount of any damages which the Selling
Stockholder has otherwise been required to pay in respect to any loss, claim,
damage, liability or action covered by this Section; and (iii) no person guilty
of fraudulent misrepresentation within the meaning of Section 11(f) of the Act
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. For purposes of this subsection (d), each person,
if any, who controls an Underwriter within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act shall have the same rights to contribution as
such Underwriter. The Underwriters' obligations to contribute pursuant to this
subsection (d) are several in proportion to their respective underwriting
commitments and not joint.
(e) The respective indemnity and contribution agreements by
the Underwriters, the Selling Stockholder and the Company contained in
subsections (a), (b), (c) and (d) of this Section 10, and the covenants,
representations and warranties of the Company and the Selling Stockholder set
forth in Sections 2, 3, 4, 5, 6, 7 and 8 hereof, shall remain operative and in
full force and effect regardless of (i) any investigation made by any
Underwriter, on its behalf or by or on behalf of any person who controls an
Underwriter, the Company or any controlling person of the Company or any
director or officer of the Company or the Selling Stockholder; or (ii)
acceptance of any of the Shares and payment therefor; and shall survive the
delivery of the Shares, and any successor of any Underwriter or the Company, or
of any person who controls any Underwriter or the Company, as the case may be,
shall be entitled to the benefit of such respective indemnity and contribution
agreements. The respective indemnity and contribution agreements by the
Underwriters, the Company and the Selling Stockholder contained in subsections
(a), (b), (c) and (d) of this Section 10 shall be in addition to any liability
which the Underwriters, the Company and the Selling Stockholder may otherwise
have.
Section 11. Termination. This Agreement (except for the provisions of
Sections 8 and 10 hereof) may be terminated by you by notifying the Company and
the Selling Stockholder at any time:
(a) prior to the earliest of (i) 11:00 a.m., New York City
time, on the business day immediately following the date hereof, (ii) the time
of release by the Representatives for publication of the first newspaper
advertisement which subsequently is published with respect to the Shares or
(iii) the time when the Shares are first generally offered by the
Representatives to dealers by letter or telegram;
(b) at or prior to the Closing Time if any of the conditions
specified in Section 9 hereof shall not have been fulfilled when and as required
by this Agreement to be fulfilled or if any of the covenants, representations or
warranties contained herein or in any certificate or document contemplated under
this Agreement to be delivered to you shall not have
-32-
<PAGE> 33
been satisfied or fulfilled in all material respects within the respective times
herein provided for, unless compliance therewith or performance or satisfaction
thereof shall have been expressly waived by you in writing; or
(c) at or prior to the Closing Time if any one or more of the
following shall have occurred or have been established between the time of your
execution of this Agreement and the Closing Time and in your judgment the same
has made or makes it inadvisable or impracticable for you generally to proceed
with the offering, sale, delivery, or collection of payment for, the Shares
pursuant to the public offering contemplated by this Agreement (i) a general
suspension of, or a general limitation on prices for, trading in securities on
the New York Stock Exchange, American Stock Exchange, National Market or in the
over-the-counter market; (ii) any new legal or regulatory restriction affecting
the distribution of securities generally or of the Shares; (iii) a material
adverse change in general market or economic conditions, either domestic or
foreign, from such conditions on the date hereof; (iv) a declaration of a
banking moratorium by Federal or New York State authorities; (v) any outbreak of
major hostilities or other national or international calamity; (vi) a material
interruption in the mail service or other means of communications within the
United States; (vii) an action by any government in respect of its monetary
affairs which, in your opinion, has a material adverse effect on the United
States securities markets; or (viii) any material adverse change or any material
adverse development involving a prospective change not contemplated in the
Registration Statement and affecting particularly the business or properties of
the Company or the Subsidiary.
Your right to terminate will not be waived or otherwise
relinquished because you do not give the required notice of termination prior to
the time that the event stated in this Section 11(c) giving rise to the right to
terminate shall have ceased to exist, provided that you give the required notice
prior to the Closing Time. Any termination of this Agreement pursuant to this
Section 11 shall be without liability of the Company or the Selling Stockholder
to the Underwriters, except as otherwise provided in Sections 8 and 10 hereof.
Section 12. Default of Underwriters. If any Underwriter or Underwriters
default in their obligation to take and pay for Firm or Option Shares and the
aggregate number of Firm or Option Shares which such defaulting Underwriter or
Underwriters agreed but failed to purchase does not exceed 10% of the aggregate
number of Firm or Option Shares, as the case may be, the other Underwriters
shall be obligated severally in proportion to their respective commitments
hereunder to purchase the Firm or Option Shares which such defaulting
Underwriter or Underwriters agreed but failed to purchase. If any Underwriter or
Underwriters so default and the aggregate number of Firm or Option Shares with
respect to which such default or defaults occur is more than 10% of the
aggregate number of Firm or Option Shares, as the case may be, and arrangements
satisfactory to you for the purchase of such Firm or Option Shares by other
persons (who may include one or more of the non-defaulting Underwriters
including you) are not made within 36 hours after such default, this Agreement
may be terminated by you without liability on the part of any non-defaulting
Underwriter or the
-33-
<PAGE> 34
Company, except for the expenses to be paid or reimbursed by the Company
pursuant to Section 8 and except for the provisions of Section 10 hereof. In the
event of any default by one or more Underwriters as described in this Section
12, the Representatives shall have the right to postpone the Closing Time or the
Option Exercise Time, as the case may be, established as provided in Section 4
hereof for not more than seven business days in order that any necessary changes
may be made in the arrangements or documents for the purchase and delivery of
the Firm Shares or Option Shares, as the case may be. As used in this Agreement,
the term "Underwriter" includes any person substituted for an Underwriter under
this Section 12. Nothing herein shall relieve a defaulting Underwriter from
liability for its default.
Section 13. Notice. Except as otherwise expressly provided in this
Agreement, whenever advice or a notice, objection, designation, request or
report is given or is required by the provisions of this Agreement to be given,
such advice, notice, objection, designation, request or report shall be in
writing and shall be delivered by first-class mail, postage prepaid, nationally
recognized courier or by telecopy, (a) if to the Company, or the Selling
Stockholder, addressed to it or him and delivered at 160 Oser Avenue, Hauppauge,
New York 11788 (telecopier number 516/435-1044), Attention: Barry R. Steinberg,
with a copy to (i) Epstein Becker & Green, P.C. (telecopier number
212/661-0989), Attention: Seth I. Truwit, Esq. and (ii) Stebel & Paseltiner,
P.C. (telecopier number 516/496-8112), Attention: Bernard Stebel, Esq.; and (b)
if to you or the Underwriters, addressed to Ladenburg Thalmann & Co. Inc., and
delivered at 590 Madison Avenue, New York, New York 10022 (telecopier number
212/872-1730), Attention: Ronald Kramer, with a copy to Fulbright & Jaworski
L.L.P., 666 Fifth Avenue, New York, New York 10103 (telecopier number
212/752-5958), Attention: Richard H. Gilden, Esq., or at such other address or
telecopier number as a party hereto may give notice in accordance herewith.
Section 14. Miscellaneous. (a) This Agreement is made solely for the
benefit of the Underwriters, the Selling Stockholder, and the Company, the
Company's directors, the Company's officers who shall have signed the
Registration Statement and any controlling person referred to in Section 10
hereof, and their respective successors and assigns, and no other person,
partnership, association or corporation shall acquire or have any right under or
by virtue of this Agreement. The term "successor" or the term "successors and
assigns" as used in this Agreement shall not include any buyer, as such, of any
of the Shares from the Underwriters. All of the obligations of the Underwriters
hereunder are several and not joint.
(b) The information in the Prospectus under the section
"Underwriting" with respect to (i) the names of, and number of Shares to be
purchased by, each of the Underwriters and (ii) the amounts of the selling
concession and reallowance shall constitute the only information furnished in
writing by or on behalf of the several Underwriters for use in connection with
the preparation of the Registration Statement as originally filed or in any
amendment thereto, any preliminary prospectus or the Prospectus as the case may
be.
-34-
<PAGE> 35
(c) This Agreement shall supersede any agreement or
understanding, oral or in writing, express or implied, between the Company, the
Selling Stockholder and you relating to the sale of any of the Shares.
(d) No change, amendment or supplement to, or waiver of, this
Agreement or any term, provision or condition contained herein, shall be valid
or of any effect unless in writing and signed by the party against whom such is
asserted.
(e) This Agreement shall be governed by and construed in
accordance with the law of the State of New York applicable to contracts made
and to be performed therein without giving effect to the principles of conflicts
of law thereof. If any action or proceeding shall be brought by any of the
Underwriters in order to enforce any right or remedy under this Agreement, the
Company and the Selling Stockholder hereby consent to and submit to the
jurisdiction of the courts of the State of New York and of any federal court
sitting in the Borough of Manhattan, City of New York.
(f) This Agreement may be signed in two or more counterparts
with the same effect as if the signatures to each counterpart were upon a single
instrument, and all such counterparts together shall be deemed an original of
this Agreement.
(g) Wherever, in this Agreement, reference is made to the
acknowledgment, agreement, approval, consent, demand, determination, election or
request by a party or parties hereto, the same must be in writing.
(h) Descriptive headings are for convenience only and shall in
no way define, limit or affect this Agreement.
-35-
<PAGE> 36
Please confirm that the foregoing correctly sets forth the agreement
between the Company, the Selling Stockholder, and you.
Very truly yours,
MANCHESTER EQUIPMENT CO., INC.
By:_______________________________________
__________________________________________
Barry R. Steinberg
Accepted as of the date
first above written
LADENBURG THALMANN & CO. INC.
CRUTTENDEN ROTH INCORPORATED
By: LADENBURG THALMANN & CO., INC.
By:_________________________________
Acting on behalf of itself and as
the Representatives of the other
Underwriters named in Schedule
A attached hereto.
-36-
<PAGE> 37
SCHEDULE A
<TABLE>
<CAPTION>
Number
Name of Underwriter of Shares
- ------------------- ---------
<S> <C>
Ladenburg Thalmann & Co. Inc.
Cruttenden Roth Incorporated
---------
Total 2,500,000
=========
</TABLE>
<PAGE> 38
EXHIBIT 1
FORM OF OPINION OF EPSTEIN BECKER & GREEN, P.C.
(i) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the state of its incorporation. The Company
has the corporate power and authority to own or lease all of the assets owned or
leased by it, and conduct its business as described in the Registration
Statement and the Prospectus.
(ii) Based upon such counsel's review of statutes, rules and
regulations which, in such counsel's experience, are normally applicable to
transactions of the type provided for in this Agreement, but without such
counsel having made any special investigation concerning any other statutes,
rules and regulations, authorization, approval, consent or license of any
governmental or regulatory body, except as may be required under the Act or the
securities or blue sky laws of any jurisdictions, is required in connection with
the (A) authorization, issuance, transfer, sale or delivery of the Shares to be
sold by the Company; (B) authorization, issuance or delivery of the Warrants or
issuance of shares of Common Stock upon exercise of the Warrants; (C) transfer,
sale or delivery of the Shares to be sold by the Selling Stockholder; (D)
execution, delivery and performance of this Agreement by the Company and the
Selling Stockholder; or (E) taking of any action contemplated herein, or if so
required all such authorizations, approvals, consents and licenses, have been
obtained.
(iii) The Company has an authorized capital stock and authorized and
outstanding stock options and warrants as set forth in the Registration
Statement and the Prospectus. All of the Shares (including the Shares to be sold
by the Selling Stockholder) will, upon payment therefor, be duly authorized,
validly issued, fully paid and nonassessable, to the knowledge of such counsel
are not subject to pre-emptive rights and have not been issued in violation of
any statutory pre-emptive rights or, to the best of such counsel's knowledge,
similar contractual rights.
(iv) To such counsel's knowledge, no holder of any securities of the
Company has the right to require registration of shares of the Common Stock or
other securities of the Company because of the filing or effectiveness of the
Registration Statement. The description of the Common Stock and the Shares
contained in the Registration Statement and the Prospectus conforms to the
rights set forth in the instruments defining the same and is in conformity in
all material respects with the requirements of Item 9 of the Registration
Statement.
(v) The Company is not an "investment company" as defined in Section
3(a) of the Investment Company Act and, if the Company conducts its business as
set forth in the Registration Statement and the Prospectus, will not become an
"investment company" and will not be required to register under the Investment
Company Act; the Company has not been
-1-
<PAGE> 39
required to make any filings pursuant to the Exchange Act, other than the
registration statement on Form 8-A.
(vi) The Company has full corporate power and authority to enter into
the Warrants. The Warrants have been duly authorized, executed, issued and
delivered and constitute the valid and legally enforceable obligation of the
Company, except as the indemnification and contribution provisions thereunder
may be limited by applicable law and the enforcement hereof may be limited by
bankruptcy, insolvency, reorganization, moratorium and other laws affecting
creditors' rights generally and by general principles of equity. The shares of
Common Stock required to be sold or issued by the Company upon exercise of the
Warrants have been duly authorized and reserved for sale or issuance, and, when
sold or issued and delivered upon payment of the exercise price therefor as
provided in the Warrants, will be duly and validly issued, fully paid and
nonassessable.
(vii) The Company has full corporate power and authority to enter into
this Agreement, and this Agreement has been duly authorized, executed and
delivered by the Company.
(viii) The Registration Statement and the Prospectus, and each
amendment thereof or supplement thereto, comply as to form in all material
respects with the requirements of the Act and the Rules and Regulations (except
that no opinion need be expressed as to financial statements and other financial
or accounting data contained in the Registration Statement or the Prospectus).
(ix) Such counsel does not know of any contracts or documents required
to be summarized or disclosed in the Registration Statement or the Prospectus or
filed as exhibits thereto which have not been so summarized or disclosed or so
filed, and such counsel does not know of any pending or threatened legal or
governmental proceedings required to be disclosed in the Prospectus which have
not been described as required.
(x) The Registration Statement has become effective under the Act, and,
to the knowledge of such counsel, no stop order suspending the effectiveness of
the Registration Statement or use of the Prospectus has been issued and no
proceedings for that purpose have been instituted or are threatened, pending or
contemplated. The opinion delivered at the Closing Time shall state that all
filings required by Rules 424 and 430A of the Rules and Regulations have been
made.
(xi) The execution and delivery of this Agreement and the Warrants by
the Company, the consummation by the Company of the transactions herein or
therein contemplated and the compliance with the terms of this Agreement and the
Warrants do not and will not conflict with or result in a breach of any of the
terms or provisions of or violate or constitute a default under, the certificate
of incorporation or by-laws of the Company, or any indenture, mortgage or other
agreement or instrument known to such counsel (as a result of being an exhibit
to the Registration Statement or identified in response to counsel's due
diligence checklist) to which
-2-
<PAGE> 40
the Company or the Selling Stockholder is a party or by which the Company or the
Selling Stockholder or any of its or his respective properties is bound.
(xii) Upon delivery of the certificates for the Shares to be sold by
the Selling Stockholder and payment therefor in accordance with the terms
hereof, each of the Underwriters will have the status of a "bona fide purchaser"
of such Shares under Article 8 of the Uniform Commercial Code as currently in
effect in the State of New York and will take free of any adverse claims
assuming that such Underwriter purchased such Shares in good faith and without
notice of any adverse claims.
-3-
<PAGE> 41
EXHIBIT 2
FORM OF OPINION OF KRESSEL, ROTHLEIN & ROTH, ESQS.
(i) The Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of the state of its incorporation. The
Subsidiary has the corporate power and authority to own or lease all of the
assets owned or leased by it, and conduct its business as described in the
Registration Statement and the Prospectus, and each of the Company and the
Subsidiary is duly licensed or qualified to do business and in good standing as
a foreign corporation in all jurisdictions in which the nature of the activities
conducted by it and/or the character of the assets owned and leased by it makes
such qualification or license necessary, except for such jurisdictions in which
the failure to be so licensed or qualified or in good standing would not have a
material adverse effect upon the Company and the Subsidiary taken as a whole. To
the knowledge of such counsel, each of the Company and the Subsidiary is in
compliance in all material respects with all laws, regulations and orders
applicable to it or its business, the violation of which would have a material
adverse effect upon its legal existence or its business, business prospects,
financial condition, results of operations, earnings or properties. The Company
and the Subsidiary have, to the knowledge of such counsel, all necessary
authorizations, approvals, consents, licenses, certificates and permits of and
from all Federal and state governmental or regulatory bodies or officials, to
conduct all the activities conducted by them, to own or lease all the assets
owned or leased by them and to conduct their businesses, as described in the
Registration Statement and the Prospectus, except where failure to have any such
authorization, approval, consent, license, certificate or permit would not have
a material adverse effect upon the Company and the Subsidiary taken as a whole.
(ii) The Company has outstanding capital stock as set forth in the
Registration Statement and the Prospectus. The outstanding shares of the Common
Stock (including the Shares to be sold by the Selling Stockholder) have been
duly authorized, validly issued, fully paid and nonassessable, to the knowledge
of such counsel are not subject to pre-emptive rights and have not been issued
in violation of any statutory pre-emptive rights or, to the best of such
counsel's knowledge, similar contractual rights.
(iii) All of the issued and outstanding shares of the capital stock of
the Subsidiary are validly issued, fully paid and nonassessable and, to the best
of such counsel's knowledge, all of the issued and outstanding shares of stock
of the Subsidiary are owned by the Company free and clear of all mortgages,
pledges, liens, security interests, conditional sales agreements, charges,
encumbrances and restrictions of every nature.
(iv) To such counsel's knowledge, no holder of any securities of the
Company has the right to require registration of shares of the Common Stock or
other securities of the Company because of the filing or effectiveness of the
Registration Statement.
-1-
<PAGE> 42
(v) Such counsel does not know of any contracts or documents required
to be summarized or disclosed in the Registration Statement or the Prospectus or
filed as exhibits thereto which have not been so summarized or disclosed or so
filed, and such counsel does not know of any pending or threatened legal or
governmental proceedings required to be disclosed in the Prospectus which have
not been described as required.
(vi) Upon delivery of the certificates for the Shares to be sold by the
Selling Stockholder and payment therefor in accordance with the terms hereof,
each of the Underwriters will have the status of a "bona fide purchaser" of such
Shares under Article 8 of the Uniform Commercial Code as currently in effect in
the State of New York and will take free of any adverse claims assuming that
such Underwriter purchased such Shares in good faith and without notice of any
adverse claims.
-2-
<PAGE> 1
Exhibit 4.1
[MANCHESTER EQUIPMENT CO., INC. COMMON STOCK CERTIFICATE]
MANCHESTER EQUIPMENT CO., INC.
NUMBER SHARES
MEC
INCORPORATED UNDER THE LAWS OF THE STATE OF NEW YORK
COMMON STOCK SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 562154 10 4
- --------------------------------------------------------------------------------
THIS
CERTIFIES
that
is the owner of
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE, OF
MANCHESTER EQUIPMENT CO., INC.
transferable only on the books of the corporation by the holder hereof in person
or by a duly authorized attorney upon surrender of this certificate properly
endorsed. This Certificate is not valid until countersigned and registered by
the Transfer Agent and Register.
IN WITNESS WHEREOF, the corporation has caused this certificate to be signed
by the facsimile signatures of its duly authorized officers and to be sealed
with the facsimile seal of the corporation.
Dated:
/s/ JOEL G. STAMPLE /s/ BARRY STEINBERG
VICE PRESIDENT AND SECRETARY CHAIRMAN OF THE BOARD AND PRESIDENT
[MANCHESTER EQUIPMENT CO., INC. CORPORATE SEAL]
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
------------------------------------------------------------------
| AMERICAN BANK NOTE COMPANY NOV 6, 1996fm |
| 9504 ATLANTIC AVENUE |
| SUITE 12 |
| LONG BEACH, CA 90807 047326fc |
| (310) 989-2333 |
| (FAX) (310) 426-7450 308-19x PROOF [INITIALS] REV 1 |
------------------------------------------------------------------
<PAGE> 2
This corporation is authorized to issue shares of both common and preferred
stock. This corporation will furnish to each shareholder of record, without
charge, on written request to this corporation at its principal place of
business or registered office, a full statement of all the designations,
relative rights, preferences and limitations applicable to each class or series
and the variations and rights, preferences and limitations determined for each
class or series and the authority, if any, of the Board of Directors of this
corporation to determine variations for any class or series.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in
full according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT - ___ Custodian_______
(Cust) (Minor)
TEN ENT -- as tenants by the entireties under Uniform Gifts to Minors
JT TEN -- as joint tenants with right of Act________________________
survivorship and not as tenants (State)
in common
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,______________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the common stock represented by the within Certificate and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated ____________________________
______________________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
______________________________________________________
SIGNATURE(S) GUARANTEED: THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17 Ad-15.
__________________________________________
AMERICAN BANK NOTE COMPANY NOV 5, 1996 dw
3504 ATLANTIC AVENUE
SUITE 12
LONG BEACH, CA 90807 047326bk
(310) 989-2333
(FAX) (310) 426-7450 proof DT NEW
_________________________________________
<PAGE> 1
Exhibit 4.2
MANCHESTER EQUIPMENT COMPANY, INC.
WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK
No. 1 ________ Shares
FOR VALUE RECEIVED, Manchester Equipment Co., Inc., a New York
corporation (the "COMPANY"), hereby certifies that ____________________ or its
permitted assigns, is entitled to purchase from the Company, at any time or from
time to time commencing on [one year from effective date], 1997 and prior to
5:00 P.M., New York City time, on [five years from effective date], 2001,
_______________________ (_________) fully paid and nonassessable shares of the
common stock, $.01 par value per share, of the Company for an aggregate purchase
price of $__________ (computed on the basis of $______(1) per share).
(Hereinafter, (i) said common stock, together with any other equity securities
which may be issued by the Company with respect thereto or in substitution
therefor, is referred to as the "COMMON STOCK," (ii) the shares of the Common
Stock purchasable hereunder or under any other Warrant (as hereinafter defined)
are referred to individually as a "WARRANT SHARE" and collectively as the
"WARRANT SHARES," (iii) the aggregate purchase price payable for the Warrant
Shares hereunder is referred to as the "AGGREGATE WARRANT PRICE," (iv) the price
payable for each of the Warrant Shares hereunder is referred to as the "PER
SHARE WARRANT PRICE," (v) this Warrant, all similar Warrants issued on the date
hereof and all Warrants hereafter issued in exchange or substitution for this
Warrant or such similar Warrants are referred to as the "WARRANTS" and (vi) the
holder of this Warrant is referred to as the "HOLDER" and the holder of this
Warrant and all other Warrants or Warrant Shares issued upon the exercise of any
Warrant are referred to as the "HOLDERS.") The Aggregate Warrant Price is not
subject to adjustment. The Per Share Warrant Price is subject to adjustment as
hereinafter provided; in the event of any such adjustment, the number of Warrant
Shares shall be adjusted by dividing the Aggregate Warrant Price by the Per
Share Warrant Price in effect immediately after such adjustment.
1. EXERCISE OF WARRANT. (a) The Holder may exercise this Warrant, in
whole or in part, as follows:
(i) By presentation and surrender of this Warrant to
the Company at the address set forth in Subsection 9(a) hereof,
with the Subscription Form annexed hereto (or a reasonable
facsimile thereof) duly executed and accompanied by payment of the
Per Share Warrant Price for each Warrant Share to be purchased.
Payment for Warrant Shares shall be made by certified or official
bank check payable to the order of the Company; or
- --------
(1) 120% of public offering price.
<PAGE> 2
(ii) By presentation and surrender of this Warrant to
the Company at the address set forth in Subsection 9(a) hereof,
with a Cashless Exercise Form annexed hereto (or a reasonable
facsimile thereof) duly executed (a "CASHLESS EXERCISE"). Such
presentation and surrender shall be deemed a waiver of the
Holder's obligation to pay all or any portion of the Aggregate
Warrant Price. In the event of a Cashless Exercise, the Holder
shall exchange its Warrant for that number of shares of Common
Stock determined by multiplying the number of Warrant Shares being
exercised by a fraction, the numerator of which shall be the
difference between the then current market price per share of the
Common Stock and the Per Share Warrant Price, and the denominator
of which shall be the then current market price per share of
Common Stock. For purposes of any computation under this Section
1(a)(ii), the then current market price per share of Common Stock
at any date shall be deemed to be the average for the thirty
consecutive business days immediately prior to the Cashless
Exercise of the daily closing prices of the Common Stock on the
principal national securities exchange on which the Common Stock
is admitted to trading or listed, or if not listed or admitted to
trading on any such exchange, the closing prices as reported by
the Nasdaq National Market, or if not then listed on the Nasdaq
National Market, the average of the highest reported bid and
lowest reported asked prices as reported by the National
Association of Securities Dealers, Inc. Automated Quotations
System ("NASDAQ") or if not then publicly traded, the fair market
price of the Common Stock as determined by the Board of Directors.
(b) If this Warrant is exercised in part, this Warrant must be
exercised for a number of whole shares of the Common Stock, and the Holder is
entitled to receive a new Warrant covering the Warrant Shares which have not
been exercised and setting forth the proportionate part of the Aggregate Warrant
Price applicable to such Warrant Shares. Upon such surrender of this Warrant,
the Company will issue a certificate or certificates, in such denominations as
are requested for delivery by the Holder, in the name of the Holder for the
largest number of whole shares of the Common Stock to which the Holder shall be
entitled and, if this Warrant is exercised in whole, in lieu of any fractional
share of the Common Stock to which the Holder shall be entitled, pay to the
Holder cash in an amount equal to the fair value of such fractional share
(determined in such reasonable manner as the Board of Directors of the Company
shall determine).
2. RESERVATION OF WARRANT SHARES; LISTING. The Company agrees that,
prior to the expiration of this Warrant, the Company will at all times (a) have
authorized and in reserve, and will keep available, solely for issuance or
delivery upon the exercise of this Warrant, the shares of the Common Stock
issuable upon the exercise of this Warrant, free and clear of all restrictions
on sale or transfer and free and clear of all preemptive rights and rights of
first refusal and (b) if the Company hereafter lists its Common Stock on any
national securities exchange, keep the shares of the Common Stock receivable
upon the exercise of this Warrant authorized for listing on such exchange upon
notice of issuance.
-2-
<PAGE> 3
3. PROTECTION AGAINST DILUTION. (a) In case the Company shall hereafter
(i) pay a dividend or make a distribution on its capital stock in shares of
Common Stock, (ii) subdivide its outstanding shares of Common Stock into a
greater number of shares, (iii) combine its outstanding shares of Common Stock
into a smaller number of shares or (iv) issue by reclassification of its Common
Stock any shares of capital stock of the Company, the Per Share Warrant Price
shall be adjusted so that the Holder upon the exercise hereof shall be entitled
to receive the number of shares of Common Stock or other capital stock of the
Company which he would have owned immediately following such action had such
Warrant been exercised immediately prior thereto. An adjustment made pursuant to
this Subsection 3(a) shall become effective immediately after the record date in
the case of a dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification.
(b) If, at any time or from time to time after the date of
this Warrant, the Company shall issue or distribute to the holders of shares of
Common Stock evidences of its indebtedness, any other securities of the Company
or any cash, property or other assets (excluding a subdivision, combination or
reclassification, or dividend or distribution payable in shares of Common Stock,
referred to in Subsection 3(a), and also excluding cash dividends or cash
distributions paid out of net profits legally available therefor if the full
amount thereof, together with the value of other dividends and distributions
made substantially concurrently therewith or pursuant to a plan which includes
payment thereof, is equivalent to not more than 5% of the Company's net worth)
(any such nonexcluded event being herein called a "SPECIAL DIVIDEND"), the Per
Share Warrant Price shall be adjusted by multiplying the Per Share Warrant Price
then in effect by a fraction, the numerator of which shall be the then current
market price of the Common Stock (defined as the average for the thirty
consecutive business days immediately prior to the record date of the daily
closing price of the Common Stock as reported by the national securities
exchange upon which the Common Stock is then listed or if not listed on any such
exchange, the average of the closing prices as reported by Nasdaq National
Market, or if not then listed on the Nasdaq National Market, the average of the
highest reported bid and lowest reported asked prices as reported by NASDAQ, or
if not then publicly traded, the fair market price as determined by the
Company's Board of Directors) less the fair market value (as determined by the
Company's Board of Directors) of the evidences of indebtedness, cash, securities
or property, or other assets issued or distributed in such Special Dividend
applicable to one share of Common Stock and the denominator of which shall be
such then current market price per share of Common Stock. An adjustment made
pursuant to this Subsection 3(b) shall become effective immediately after the
record date of any such Special Dividend.
(c) In case of any capital reorganization or reclassification,
or any consolidation or merger to which the Company is a party other than a
merger or consolidation in which the Company is the continuing corporation, or
in case of any sale or conveyance to another entity of the property of the
Company as an entirety or substantially as an entirety, or in the case of any
statutory exchange of securities with another corporation (including any
exchange effected in connection with a merger of a third corporation into the
Company), the
-3-
<PAGE> 4
Holder of this Warrant shall have the right thereafter to receive on the
exercise of this Warrant the kind and amount of securities, cash or other
property which the Holder would have owned or have been entitled to receive
immediately after such reorganization, reclassification, consolidation, merger,
statutory exchange, sale or conveyance had this Warrant been exercised
immediately prior to the effective date of such reorganization,
reclassification, consolidation, merger, statutory exchange, sale or conveyance
and in any such case, if necessary, appropriate adjustment shall be made in the
application of the provisions set forth in this Section 3 with respect to the
rights and interests thereafter of the Holder of this Warrant to the end that
the provisions set forth in this Section 3 shall thereafter correspondingly be
made applicable, as nearly as may reasonably be, in relation to any shares of
stock or other securities or property thereafter deliverable on the exercise of
this Warrant. The above provisions of this Subsection 3(c) shall similarly apply
to successive reorganizations, reclassifications, consolidations, mergers,
statutory exchanges, sales or conveyances. The issuer of any shares of stock or
other securities or property thereafter deliverable on the exercise of this
Warrant shall be responsible for all of the agreements and obligations of the
Company hereunder. Notice of any such reorganization, reclassification,
consolidation, merger, statutory exchange, sale or conveyance and of said
provisions so proposed to be made, shall be mailed to the Holders of the
Warrants not less than 15 days prior to such event. A sale of all or
substantially all of the assets of the Company for a consideration consisting
primarily of securities shall be deemed a consolidation or merger for the
foregoing purposes.
(d) If at any time or from time to time the Company shall take
any action affecting its Common Stock or any other capital stock of the Company,
not otherwise described in any of the foregoing subsections of this Section 3,
then, if the failure to make any adjustment would not fairly protect the
purchase rights represented by this Warrant in accordance with the essential
intent and principles hereof then, in each such case, the Holders of Warrants
representing the right to purchase a majority of the Warrant Shares subject to
all outstanding Warrants may appoint a firm of independent public accountants of
recognized national standing reasonably acceptable to the Company, which shall
give their opinion as to the adjustment, if any, on a basis consistent with the
essential intent and principles established herein, necessary to preserve the
purchase rights represented by the Warrants. Upon receipt of such opinion, the
Company will promptly mail a copy thereof to the Holder of this Warrant and
shall make the adjustments described therein. The fees and expenses of such
independent public accountants shall be borne by the Company.
(e) No adjustment in the Per Share Warrant Price shall be
required unless such adjustment would require an increase or decrease of at
least $0.05 per share of Common Stock; provided, however, that any adjustments
which by reason of this Subsection 3(e) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment; provided
further, however, that adjustments shall be required and made in accordance with
the provisions of this Section 3 (other than this Subsection 3(e)) not later
than such time as may be required in order to preserve the tax-free nature of a
distribution to the Holder of this Warrant or Common Stock issuable upon
exercise hereof. All calculations under this Section 3 shall be
-4-
<PAGE> 5
made to the nearest cent or to the nearest 1/100th of a share, as the case may
be. Anything in this Section 3 to the contrary notwithstanding, the Company
shall be entitled to make such reductions in the Per Share Warrant Price, in
addition to those required by this Section 3, as it in its discretion shall deem
to be advisable in order that any stock dividend, subdivision of shares or
distribution of rights to purchase stock or securities convertible or
exchangeable for stock hereafter made by the Company to its shareholders shall
not be taxable.
(f) Whenever the Per Share Warrant Price is adjusted as
provided in this Section 3 and upon any modification of the rights of a Holder
of Warrants in accordance with this Section 3, the Company shall cause its Chief
Financial Officer to set forth the Per Share Warrant Price and the number of
Warrant Shares after such adjustment or the effect of such modification, a brief
statement of the facts requiring such adjustment or modification and the manner
of computing the same and cause copies of such certificate to be mailed to the
Holders of the Warrants.
(g) If, as a result of an adjustment made pursuant to this
Section 3, the Holder of any Warrant thereafter surrendered for exercise shall
become entitled to receive shares of two or more classes of capital stock or
shares of Common Stock and other capital stock of the Company, the Board of
Directors (whose determination shall be conclusive and shall be described in a
written notice to the Holder of any Warrant promptly after such adjustment)
shall determine the allocation of the adjusted Per Share Warrant Price between
or among shares or such classes of capital stock or shares of Common Stock and
other capital stock.
4. FULLY PAID STOCK; TAXES. The Company agrees that the shares of the
Common Stock represented by each and every certificate for Warrant Shares
delivered on the exercise of this Warrant shall, at the time of such delivery,
be validly issued and outstanding, fully paid and nonassessable, and not subject
to preemptive rights or rights of first refusal, and the Company will take all
such actions as may be necessary to assure that the par value or stated value,
if any, per share of the Common Stock is at all times equal to or less than the
then Per Share Warrant Price. In the event that the Warrant Shares are not
registered pursuant to an effective registration statement filed under the
Securities Act of 1933 (the "Act"), the certificates representing the Warrant
Shares shall bear a restrictive legend in form and substance reasonably
satisfactory to counsel for the Company.
5. REGISTRATION UNDER SECURITIES ACT OF 1933. (a) The Company agrees
that if, at any time during the period commencing on [one year from the
effective date], 1997 and ending on [five years from the effective date], 2001,
the Holder and/or the Holders of any other Warrants and/or Warrant Shares who or
which shall hold not less than 50% of the Warrants and/or Warrant Shares
outstanding at such time and not previously sold pursuant to this Section 5
shall request that the Company file, under the Act, a registration statement
under the Act covering not less than 50% of the Warrant Shares issued or
issuable upon the exercise of the Warrants and not so previously sold, the
Company will (i) promptly notify each Holder of the Warrants and each holder of
Warrant Shares not so previously sold that such registration
-5-
<PAGE> 6
statement will be filed and that the Warrant Shares which are then held, and/or
may be acquired upon exercise of the Warrants by the Holder and such Holders,
will be included in such registration statement at the Holder's and such
Holders' request, (ii) cause such registration statement to be filed with the
Securities and Exchange Commission within thirty days of such request and to
cover all Warrant Shares which it has been so requested to include, (iii) use
its reasonable efforts to cause such registration statement to become effective
as soon as practicable, and (iv) take all other action necessary under any
Federal or state law or regulation of any governmental authority to permit all
Warrant Shares which it has been so requested to include in such registration
statement to be sold or otherwise disposed of, and will maintain such compliance
with each such Federal and state law and regulation of any governmental
authority for the period necessary for such Holders to effect the proposed sale
or other disposition, provided that the Company shall not be required to
maintain the registration statement in effect for a period in excess of nine
months. The Company shall be required to effect a registration or qualification
pursuant to this Subsection 5(a) on one occasion only.
(b) The Company agrees that if, at any time and from time to
time during the period commencing on [one year from the effective date], 1997
and ending on [five years from the effective date], 2001, the Board of Directors
of the Company shall authorize the filing of a registration statement (any such
registration statement being hereinafter called a "SUBSEQUENT REGISTRATION
STATEMENT") under the Act (otherwise than pursuant to Subsection 5(a) hereof, or
other than a registration statement on Form S-8 or S-4 or other form which does
not include substantially the same information as would be required in a form
for the general registration of securities) in connection with the proposed
offer of any of its securities by it or any of its shareholders, the Company
will (i) promptly notify the Holder and each of the Holders, if any, of other
Warrants and/or Warrant Shares not previously sold pursuant to this Section 5
that such Subsequent Registration Statement will be filed and that the Warrant
Shares which are then held, and/or which may be acquired upon the exercise of
the Warrants, by the Holder and such Holders, will, at the Holder's and such
Holders' request, be included in such Subsequent Registration Statement, (ii)
upon the written request of a Holder made within 20 days after the giving of
such notice by the Company, include in the securities covered by such Subsequent
Registration Statement all Warrant Shares which it has been so requested to
include, (iii) use its reasonable efforts to cause such Subsequent Registration
Statement to become effective as soon as practicable, with such Registration
Statement to have a duration of not more than [6] months from its date of
effectiveness, and (iv) take all other action necessary under any Federal or
state law or regulation of any governmental authority to permit all Warrant
Shares which it has been so requested to include in such Subsequent Registration
Statement to be sold or otherwise disposed of, and will maintain such compliance
with each such Federal and state law and regulation of any governmental
authority for the period necessary for the Holder and such Holders to effect the
proposed sale or other disposition, provided that the Company shall not be
required to maintain the Subsequent Registration Statement in effect for a
period in excess of nine months.
-6-
<PAGE> 7
(c) Whenever the Company is required pursuant to the
provisions of this Section 5 to include Warrant Shares in a registration
statement, the Company shall (i) furnish each Holder of any such Warrant Shares
and each underwriter of such Warrant Shares with such copies of the prospectus,
including the preliminary prospectus, conforming to the Act (and such other
documents as each such Holder or each such underwriter may reasonably request)
in order to facilitate the sale or distribution of the Warrant Shares, (ii) use
its reasonable efforts to register or qualify such Warrant Shares under the blue
sky laws (to the extent applicable) of such jurisdiction or laws (to the extent
applicable) of such jurisdiction or jurisdictions as the Holders of any such
Warrant Shares and each underwriter of Warrant Shares being sold by such Holders
shall reasonably request and (iii) take such other actions as may be reasonably
necessary or advisable to enable such Holders and such underwriters to
consummate the sale or distribution in such jurisdiction or jurisdictions in
which such Holders shall have reasonably requested that the Warrant Shares be
sold. Nothing contained in this Warrant shall be construed as requiring a Holder
to exercise its Warrant prior to the closing of an offering pursuant to a
registration statement referred to in Subsection 5(a) or 5(b).
(d) In the event of an underwritten public offering pursuant
to this Section 5, the Company shall furnish to each underwriter a signed
counterpart, addressed to such underwriter, of (i) an opinion of counsel to the
Company, dated the date of the closing under the underwriting agreement, and
(ii) a "comfort" letter dated the effective date of such registration statement
and a letter dated the date of the closing under the underwriting agreement
signed by the independent public accountants who have issued a report on the
Company's financial statements included in such registration statement, in each
case covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities.
(e) The Company shall enter into an underwriting agreement
with the managing underwriters selected by Holders holding 50% of the Warrant
Shares requested to be included in a registration statement filed pursuant to
Section 5(a). Such agreement shall be reasonably satisfactory in form and
substance to the Company, each Holder and such managing underwriters, and shall
contain such representations, warranties and covenants by the Company and such
other terms as are customarily contained in agreements of that type used by the
managing underwriter. The Holders shall be parties to any underwriting agreement
relating to an underwritten sale of their Warrant Shares. Such Holders shall not
be required to make any representations or warranties to or agreements with the
Company or the underwriters except as they may relate to such Holders and their
intended methods of distribution.
(f) The Company shall pay all expenses incurred in connection
with any registration statement or other action pursuant to the provisions of
this Section 5, other than the fees and expenses of one counsel representing the
Holders of Warrant Shares included in any
-7-
<PAGE> 8
such registration statement and underwriting discounts and applicable transfer
taxes relating to the Warrant Shares.
(g) The Company will indemnify, and, if such indemnity is
unavailable, will agree to just and equitable contribution to, the Holders of
Warrant Shares which are included in each registration statement referred to in
Subsections 5(a) and 5(b), and the underwriters of such Warrant Shares,
substantially to the same extent as the Company has indemnified, and agreed to
just and equitable contribution to, the underwriters (the "UNDERWRITERS") of its
public offering of Common Stock pursuant to the Underwriting Agreement (the
"UNDERWRITING AGREEMENT"), dated ___________________, 1996, by and among the
Company, Barry R. Steinberg and Ladenburg Thalmann & Co. Inc., Cruttenden Roth
Incorporated and the other underwriters named in Schedule A thereto. Each
selling Holder of Warrant Shares (i) shall be obligated to furnish information
in writing to the Company, upon the Company's reasonable request therefor, for
use in connection with the preparation of such Registration Statement, and (ii)
severally and not jointly, will indemnify and hold harmless the Company, its
directors, its officers who shall have signed any such registration statement
and each person, if any, who controls the Company within the meaning of Section
15 of the Act to the same extent as the foregoing indemnity from the Company,
but in each case to the extent, and only to the extent, that any statement in or
omission from or alleged omission from such registration statement, any final
prospectus, or any amendment or supplement thereto was made in reliance upon
information furnished in writing to the Company by such selling Holder
specifically for use in connection with the preparation of such registration
statement, any final prospectus or any such amendment or supplement thereto;
provided, however, that the obligation of any Holder of Warrant Shares to
indemnify the Company under the provisions of this Subsection (g) shall be
limited to the excess of (1) the product of (A) the number of Warrant Shares
being sold by the selling Holder and (B) the market price of the Common Stock on
the date of the sale to the public of such Warrant Shares over (2) the aggregate
amount, if any, paid to the Company by such Holder in connection with the
issuance of such Warrant Shares.
(h) Notwithstanding any provisions to the contrary herein, to the
extent that the sales of Warrant Shares proposed to be made by the Holder
pursuant to a registration statement under this Section 5 can, in the opinion of
counsel to the Company, be effected without volume or other material limitations
pursuant to Rule 144 or any other available exemption from registration under
the Act, the Holder will not be entitled to request registration of such shares
hereunder.
(i) In connection with any underwritten public offering in which
the Holder is entitled to participate pursuant to this Section 5, the Holder
will agree to any reasonable "lockup" arrangements requested by the managing
underwriter, provided that the lock-up period will not exceed 90 days unless a
longer period is agreed to by other shareholders selling shares in the offering.
-8-
<PAGE> 9
6. LIMITED TRANSFERABILITY. This Warrant may not be sold, transferred,
assigned or hypothecated by the Holder (a) except in compliance with the
provisions of the Act, and (b) until the first anniversary hereof except (i) to
any successor firm or corporation of Ladenburg Thalmann & Co. Inc. or Cruttenden
Roth Incorporated, (ii) to any of the officers of Ladenburg Thalmann & Co. Inc.
or Cruttenden Roth Incorporated, or of any such successor firm or (iii) in the
case of an individual, pursuant to such individual's last will and testament or
the laws of descent and distribution, and is so transferable only upon the books
of the Company which it shall cause to be maintained for the purpose. The
Company may treat the registered Holder of this Warrant as he or it appears on
the Company's books at any time as the Holder for all purposes. The Company
shall permit any Holder of a Warrant or his duly authorized attorney, upon
written request during ordinary business hours, to inspect and copy or make
extracts from its books showing the registered holders of Warrants. All Warrants
issued upon the transfer or assignment of this Warrant will be dated the same
date as this Warrant, and all rights and obligations of the Holder thereof shall
be identical to those of the Holder.
7. LOSS, ETC., OF WARRANT. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant, and of
indemnity reasonably satisfactory to the Company, if lost, stolen or destroyed,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
shall execute and deliver to the Holder a new Warrant of like date, tenor and
denomination.
8. WARRANT HOLDER NOT SHAREHOLDER. Except as otherwise provided herein,
this Warrant does not confer upon the Holder any right to vote or to consent to
or receive notice as a shareholder of the Company, as such, in respect of any
matters whatsoever, or any other rights or liabilities as a shareholder, prior
to the exercise hereof.
9. NOTICES. All notices and other communications required or permitted
to be given under this Warrant shall be in writing and shall be deemed to have
been duly given if delivered by facsimile transmission, or sent by recognized
overnight courier or by certified mail, return receipt requested, postage paid,
to the parties hereto as follows:
(a) if to the Company at 160 Oser Avenue, Hauppauge, New York
11788, Att.: Joel G. Stemple, facsimile no. (516) 435-1004, or such other
address as the Company has designated in writing to the Holder, or
(b) if to the Holder at __________________, ________, ________
_____, Att.: _____________, facsimile no. ______________, or such other address
or facsimile number as the Holder has designated in writing to the Company.
10. HEADINGS. The headings of this Warrant have been inserted as a
matter of convenience and shall not affect the construction hereof.
-9-
<PAGE> 10
11. APPLICABLE LAW. This Warrant shall be governed by and construed in
accordance with the law of the State of New York without giving effect to the
principles of conflicts of law thereof.
IN WITNESS WHEREOF, Manchester Equipment Co., Inc. has caused this
Warrant to be signed by its President and its corporate seal to be hereunto
affixed and attested by its Secretary this ____ day of ____________, 1996.
MANCHESTER EQUIPMENT CO., INC.
By:__________________________________________
President
ATTEST:
_________________________________
Secretary
[Corporate Seal]
-10-
<PAGE> 11
ASSIGNMENT
FOR VALUE RECEIVED ____________________________ hereby sells,
assigns and transfers unto __________________________ the foregoing Warrant and
all rights evidenced thereby, and does irrevocably constitute and appoint
_______________________, attorney, to transfer said Warrant on the books of
Manchester Equipment Co., Inc.
Dated: _________________________ Signature:______________________________
Address: _______________________________
_______________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED __________________________ hereby assigns and
transfers unto ____________________________ the right to purchase ______________
shares of the Common Stock of Manchester Equipment Co., Inc. covered by the
foregoing Warrant, and a proportionate part of said Warrant and the rights
evidenced thereby, and does irrevocably constitute and appoint
_____________________, attorney, to transfer that part of said Warrant on the
books of Manchester Equipment Co., Inc.
Dated: _________________________ Signature:______________________________
Address: _______________________________
_______________________________
-11-
<PAGE> 12
SUBSCRIPTION FORM
(To be executed upon exercise of Warrant pursuant to Section 1 (a)(i))
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant for, and to purchase thereunder,
______________ shares of Common Stock, as provided for in Section 1(a)(i), and
tenders herewith payment of the purchase price in full in the form of cash or a
certified or official bank check in the amount of
$___________.
Please issue a certificate or certificates for such Common Stock
in the name of, and pay any cash for any fractional share to:
(Please print name, address and Social Security No.)
Name:______________________________________________
Address:___________________________________________
___________________________________________________
___________________________________________________
Social Security Number:____________________________
Signature:_________________________________________
NOTE: The above signature should correspond
exactly with the name on the first page of
this Warrant or with the name of the
assignee appearing in the assignment form
below.
And if said number of shares shall not be all the shares purchasable
under the within Warrant, a new Warrant is to be issued in the name of said
undersigned for the balance remaining of the shares purchasable thereunder.
-12-
<PAGE> 13
CASHLESS EXERCISE FORM
(To be executed upon exercise of Warrant pursuant to Section 1(a)(ii))
The undersigned hereby irrevocably elects to surrender _______ shares
purchasable under this Warrant for such shares of Common Stock issuable in
exchange therefor pursuant to the Cashless Exercise provisions of the within
Warrant, as provided for in Section 1(a)(ii) of such Warrant.
Please issue a certificate or certificates for such Common Stock in the
name of, and pay cash for fractional shares to:
(Please print name, address and Social Security No.)
Name:______________________________________________
Address:___________________________________________
___________________________________________________
___________________________________________________
Social Security Number:____________________________
Signature:_________________________________________
NOTE: The above signature should correspond
exactly with the name on the first page of
this Warrant or with the name of the
assignee appearing in the assignment form
below.
And if said number of shares shall not be all the shares exchangeable
or purchasable under the within Warrant, a new Warrant is to be issued in the
name of the undersigned for the balance remaining of the shares purchasable
thereunder.
-13-
<PAGE> 1
Exhibit 10.1
MANCHESTER EQUIPMENT CO., INC.
AMENDED AND RESTATED
1996 INCENTIVE AND NON-INCENTIVE
STOCK OPTION PLAN
1. Purpose of Plan.
The purpose of this Amended and Restated 1996 Incentive and
Non-Incentive Stock Option Plan ("Plan") is to further the growth and
development of Manchester Equipment Co., Inc. ("Company") and any direct and
indirect subsidiaries thereof (collectively, "Subsidiaries" and each, singly, a
"Subsidiary") by encouraging selected employees, directors and other persons who
contribute and are expected to contribute materially to the Company's success to
obtain a proprietary interest in the Company through the ownership of stock,
thereby providing such persons with an added incentive to promote the best
interests of the Company and affording the Company a means of attracting to its
service persons of outstanding ability.
2. Stock Subject to this Plan.
An aggregate of 1,100,000 shares of the Company's Common Stock, par
value $.01 per share ("Common Stock"), subject, however, to adjustment or change
pursuant to Article 10 hereof, shall be reserved for issuance upon the exercise
of options which may be granted from time to time in accordance with this Plan
("Options"). Such shares may be, in whole or in part, authorized but unissued
shares or issued shares which have been reacquired by the Company. If, for any
reason, an Option shall lapse, expire or terminate without having been exercised
in full, the unpurchased shares covered thereby shall again be available for
purposes of this Plan.
3. Administration.
(a) The Board of Directors of the Company shall have and may
exercise any and all of the powers relating to the
administration of this Plan and the grant of Options
hereunder as are set forth herein.
1
<PAGE> 2
(b) The Board shall administer this Plan and, subject to the
provisions of this Plan, shall have sole authority in its
discretion to determine the persons to whom, and the time or
times at which, Options shall be granted, the number of shares
to be subject to each such Option and whether all or any
portion of such Options shall be incentive stock options
("Incentive Options") qualifying under Section 422 of the
Internal Revenue Code of 1986, as amended ("Code"), or stock
options which do not so qualify ("Non-Incentive Options").
Both Incentive Options and Non-Incentive Options may be
granted to the same person at the same time provided each type
of Option is clearly designated. In making such
determinations, the Board may take into account the nature of
the services rendered by such persons, their present and
potential contributions to the Company's success and such
other factors as the Board in its sole discretion may deem
relevant. Subject to the express provisions of this Plan, the
Board shall also have the authority to interpret this Plan, to
prescribe, amend and rescind rules and regulations relating
thereto, to determine the terms and provisions of the
respective Option Agreements, which shall be, subject to the
rights granted to the Company and the Board hereunder,
substantially in the forms attached hereto as Exhibit A and
Exhibit B, with such changes thereto as may be necessary to
reflect the terms and conditions of the grant in question, and
to make all other determinations necessary or advisable for
the administration of this Plan, all of which determinations
shall be conclusive and not subject to review.
4. Eligibility for Receipt of Options.
(a) Incentive Options.
Incentive Options may be granted only to employees (including
officers) of the Company and/or any of its Subsidiaries.
The aggregate Fair Market Value (as defined in Article 5 of
this Plan), determined as of the time the Incentive Option is
granted, of the shares of the Company's Common Stock
purchasable hereunder exercisable for the first time by an
employee during any calendar year may not exceed $100,000.
A director of the Company or any Subsidiary who is not an
employee of the Company or of one of its Subsidiaries is not
eligible to receive Incentive Options under this Plan.
Further, Incentive Options may not be granted to any person
who, at the time the Incentive Option is granted, owns (or is
considered as owning within the meaning of Section 424(d) of
the Code) stock possessing more than 10% of the total combined
voting powers of all classes of stock of the Company or any
Subsidiary (a "10% Owner"), unless at the time the Incentive
Option is granted to a 10% Owner, the option price is at least
110% of the fair market value of the
2
<PAGE> 3
Common Stock subject thereto and such Incentive Option by its
terms is not exercisable subsequent to five years from the
date of grant.
(b) Non-Incentive Options.
Non-Incentive Options may be granted to any employees
(including employees who have been granted Incentive Options),
directors, consultants, agents, independent contractors and
other persons whom the Board determines will contribute to
the Company's success.
(c) Notwithstanding the forgoing, the maximum aggregate number of
shares with respect to which Options, whether Incentive or
Non-Incentive, may be granted to any person eligible therefor
under this Plan within any one calendar year is 200,000
shares.
5. Option Price.
The purchase price of the shares of Common Stock under each Option
shall be determined by the Board, which determination shall be conclusive
and not subject to review, but in no event shall such purchase price be less
than (i) 100% of the fair market value of the Common Stock on the date of grant
of Incentive Options (110% of the fair market value of Common Stock on the date
of grant where the grant of Incentive Options is made to a 10% Owner), and (ii)
85% of the fair market value of the Common Stock on the date of grant for
Non-Incentive Options.
In determining the fair market value of the Common Stock as of a
specified date ("Fair Market Value"), the Board shall consider, if the
Common Stock is: (a) publicly traded and listed on the New York Stock Exchange
or another national securities exchange or The Nasdaq Stock Market, the closing
sale price of the Common Stock on the business day immediately preceding the
date as of which the Fair Market Value is being determined, or on the next
preceding date on which such Common Stock is traded if no Common Stock was
traded on such immediately preceding business day, or, if the Common Stock is
not so listed on a national securities exchange or The Nasdaq Stock Market, but
publicly traded, the representative closing sale price in the over-the-counter
market as quoted by the National Quotation Bureau or a recognized dealer in the
Common Stock, on the date immediately preceding the date as of which the Fair
Market Value is being determined, or on the next preceding date on which such
Common Stock is traded if no Common Stock was traded on such immediately
preceding business day; or (b) not publicly traded, the fair market value as
determined by the Board in good faith based on such factors as it shall deem
appropriate. The Board may also consider such other factors as it shall deem
appropriate.
For purposes of this Plan, the date of grant of an Option shall be the
date on which the Board shall by resolution duly authorize such Option.
3
<PAGE> 4
6. Term of Options; Termination.
(a) The term of each Option shall be such number of years as the
Board shall determine, subject to earlier termination as
provided herein and in the Option Agreement (and each
Incentive Option being subject to the limitations set forth in
Section 4(a) of this Plan with respect to grants to 10%
Owners), but in no event shall the term of any Option be more
than ten years from the date of grant. No Option may be
exercised following termination thereof.
(b) If an Incentive Option holder's employment with the Company or
a Subsidiary is terminated for any reason other than by reason
of death or disability (within the meaning of Section 22(e)(3)
of the Code), such holder's Incentive Option shall terminate
on the earlier of (i) three (3) months from the date of such
termination of employment, or (ii) the expiration date of the
term of such Option. Absence on leave approved by the employer
corporation shall not be considered an interruption of
employment for any purpose under this Plan.
(C) If an Incentive Option holder's employment with the Company or
a Subsidiary is terminated by reason of such holder's
disability within the meaning of Section 22(e)(3) of the Code,
subject to paragraph 6(d) hereof, such holder's Incentive
Option shall terminate on the earlier of (i) one (1) year from
the date of such termination, or (ii) the expiration date of
the term of such Option.
(d) If an Incentive Option holder dies while in the employ of the
Company or a Subsidiary (or within one (1) year following
termination of employment due to disability within the meaning
of Section 22(e)(3) of the Code), such holder's Incentive
Option shall terminate on the earlier of (i) one (1) year from
the date of death, or (ii) the expiration date of the term of
the Option. To the extent such Incentive Option was
exercisable by such holder at the date of death (or the date
of termination of employment due to disability within the
meaning of Section 22(e)(3) of the Code), such Option may be
exercised by the legatee or legatees of such person under such
person's Last Will, or by such person's personal
representative or distributees, within one (1) year from the
date of death but in no event subsequent to the expiration
date of the Incentive Option.
7. Exercise of Options.
(a) Incentive and Non-Incentive Options shall be exercisable
within the times or upon the events determined by the
Board as set forth in the Option Agreements.
(b) An Option may not be exercised for fractional shares of the
Company's Common Stock.
(c) In the event of a Change in Control (as defined herein), all
outstanding Options shall accelerate and become immediately
fully exercisable. For purposes of this
4
<PAGE> 5
Plan, a "Change In Control" shall mean (i) the sale or other
disposition to a person, entity or group (as such term is
defined in Rule 13d-5 under the Securities Exchange Act of
1934, as amended) of 50% or more of the Company's consolidated
assets, (ii) the acquisition of 50% or more of the outstanding
shares by a person or group (as such term is defined in Rule
13d-5) or (iii) if the majority of the Company's Board of
Directors consists of persons other than the Continuing
Directors (as defined herein). The term "Continuing Director"
shall mean any member of the Company's Board of Directors on
the effective date of this Plan and any other member of the
Board of Directors who shall be recommended or elected to
succeed or become a Continuing Director by a majority of the
Continuing Directors who are then members of the Board of
Directors. The aggregate Fair Market Value (determined at the
time an Option is granted) of Incentive Options which first
become exercisable in the year of such Change in Control
cannot exceed $100,000. Any remaining accelerated Options
shall be Non-Incentive Options.
(d) If an Option holder ceases to be an employee, director,
consultant, agent, independent contractor or other person
employed by or engaged in performing services for the Company
and/or a Subsidiary, the Option held by such person shall be
exercisable after the date of termination of employment or
engagement only to the extent such Option was exercisable by
such holder at the date of termination. In no event shall such
option be exercisable following the expiration of its term or
earlier termination.
(e) The exercise of an Option shall be contingent upon receipt by
the Company from the holder of such Option of a written
representation that at the time of such exercise it is the
Optionholder's then present intention to acquire the Option
shares for investment and not with a view to the distribution
or resale thereof (unless a Registration Statement covering
the shares purchasable upon exercise of the Options shall have
been declared effective by the Securities and Exchange
Commission) and upon receipt by the Company of cash, or a
check to its order, for the full purchase price of such
shares. In addition, the holder of such Option must agree to
refrain from selling or offering to sell any securities of the
Company for such reasonable period of time after the effective
date of any registration statement relating to an underwritten
offering of securities of the Company, as may be requested by
the managing underwriter of such underwritten offering, and
approved by the Board of Directors. The Company shall be under
no obligation to register the Shares with the Securities and
Exchange Commission or to effect compliance with the
Securities Act of 1933 or with the registration or
qualification requirement of any state securities laws or
stock exchange.
(f) Payment for the shares of Common Stock may be made (i) in cash
or by check to the order of the Company; (ii) by surrender of
shares of Common Stock having a Fair Market Value equal to the
exercise price of the Option; or (iii) by any combination of
the foregoing
5
<PAGE> 6
where approved by the Board in its sole discretion;
provided, however, in the event of payment for the shares of
Common Stock by method (ii) above, the shares of Common Stock
so surrendered, if originally issued to the Optionholder upon
exercise of an Option(s) granted by the Company, shall have
been held by the Optionholder for more than six months.
(g) The holder of an Option shall have none of the rights of a
shareholder with respect to the shares purchasable upon
exercise of the Option until a certificate for such shares
shall have been issued to the holder upon due exercise of the
Option.
6
<PAGE> 7
(h) The proceeds received by the Company upon exercise of an
Option shall be added to the Company's working capital and be
available for general corporate purposes.
8. Non-Transferability of Incentive Options.
No Incentive Option granted pursuant to this Plan shall be transferable
otherwise than by will or the laws of descent or distribution and an Incentive
Option may be exercised during the lifetime of the Option holder only by such
Option holder.
9. No Right of Employment.
Nothing in this Plan or in any Option Agreement granted hereunder
shall: (a) confer upon any Option holder any right to continue in the employ of
the Company or any Subsidiary or obligate the Company or any Subsidiary to
continue the engagement of any Option holder; or (b) interfere in any way with
the right of the Company or any such Subsidiary to terminate such Option
holder's employment or engagement at any time.
10. Adjustments Upon Changes in Capitalization.
If at any time after the date of grant of an Option, the Company shall
by stock dividend, split-up, combination, reclassification or exchange, or
through merger or consolidation or otherwise, change its shares of Common Stock
into a different number or kind or class of shares or other securities or
property, then the number of shares covered by such Option and the price per
share thereof shall be proportionately adjusted for any such change by the
Board, whose determination thereon shall be conclusive. In the event that a
fraction of a share results from the foregoing adjustment, said fraction shall
be eliminated and the price per share of the remaining shares subject to the
Option adjusted accordingly.
11. Vesting of Rights Under Options.
Nothing contained in this Plan or in any resolution adopted or to be
adopted by the Board or the shareholders of the Company shall constitute the
vesting of any rights under any Option. The vesting of such rights shall take
place only when a written Option Agreement, substantially in the form of the
Incentive Stock Option Agreement attached hereto as Exhibit A or the
Non-Incentive Stock Option Agreement attached hereto as Exhibit B (with such
changes to such Exhibits as may be necessary to reflect the terms and conditions
of the grant in question), shall be duly executed and delivered by and on behalf
of the Company and the person to whom the Option shall be granted, subject,
however, in either event, to the rights granted to the Company and the Committee
hereunder and to the terms and conditions of the Option Agreement.
7
<PAGE> 8
12. Withholding Taxes.
Whenever under this Plan shares are to be issued in satisfaction of the
exercise of Options granted hereunder, the Company shall have the right to
require the recipient to remit to the Company an amount sufficient to satisfy
federal, state and local withholding tax requirements prior to the delivery of
any certificate or certificates for such shares.
13. Restrictions on Shares.
At the discretion of the Board, the Company may reserve to itself
or its assignee(s) in the Option Agreement (a) a right of first refusal to
purchase any shares that an Optionholder (or a subsequent transferee) may
propose to transfer to a third party and (b) a right to repurchase any or all
shares held by an Optionholder upon the Optionee's termination of employment or
service with the Company or a subsidiary for any reason within a specified time
as determined by the Board at the time of grant at (i) the Optionholder's
original purchase price, (ii) the Fair Market Value of such shares as determined
by the Board in good faith, or (iii) a price determined by a provision set
forth in the Option Agreement.
14. Termination and Amendment.
The Board may at any time terminate, amend or modify this Plan in
any respect (including, but not limited to, any form of grant, agreement or
instrument to be executed pursuant to this Plan); provided, however, that
shareholder approval shall be required to be obtained by the Company if required
to comply with the Incentive Option provisions or Section 162(m) of the Code, or
the listed company requirements of The Nasdaq Stock Market or of a national
securities exchange on which the shares of Common Stock are traded, or other
applicable provisions of state or federal law or self-regulatory agencies;
provided, further, that no termination, amendment or modification of this Plan
may materially adversely affect the rights of a holder of an Option previously
granted under this Plan without the written consent of such Optionholder.
15. Term of Plan.
This Plan was originally adopted by the Board of Directors on October
1, 1996 and approved by the shareholders of the Company on October 1, 1996. No
Option shall be granted pursuant to this Plan on or after September 30, 2006,
but Options theretofore granted may extend beyond that date and the terms of
this Plan shall continue to apply to such Options and to any shares of Common
Stock acquired upon exercise thereof.
16. Applicable Law.
The validity, interpretation and enforcement of this Plan shall be
governed in all respects by the laws of the State of New York and the United
States of America.
17. Issuance of Shares.
8
<PAGE> 9
The Shares, when issued and paid for pursuant to the Options granted
hereunder, shall be fully paid and non-assessable Shares.
18. Partial Invalidity.
The invalidity or illegality of any provision herein shall not be
deemed to affect the validity of any other provision.
9
<PAGE> 10
EXHIBIT A
INCENTIVE STOCK OPTION AGREEMENT
To:
We are pleased to notify you that by the determination of the
Board of Directors (hereinafter called the "Board") an incentive stock
option to purchase ________ shares of the Common Stock of Manchester Equipment
Co., Inc. (herein called the "Company") at a price of $______ per share has this
____ day of _______________, been granted to you under the Company's 1996
Incentive and Non-Incentive Stock Option Plan, as amended (herein called the
"Plan"). This option may be exercised only upon the terms and conditions set
forth below.
A. Purpose of Option.
The purpose of this Plan under which this incentive stock
option has been granted is to further the growth and development of the Company
and its direct and indirect subsidiaries by encouraging key employees,
directors, consultants, agents, independent contractors and other persons who
contribute and are expected to contribute materially to the Company's success to
obtain a proprietary interest in the Company through the ownership of stock,
thereby providing such persons with an added incentive to promote the best
interests of the Company, and affording the Company a means of attracting to its
service persons of outstanding ability.
1. Acceptance of Option Agreement.
Your execution of this incentive stock option
agreement will indicate your acceptance of and your willingness to be bound by
its terms; it imposes no obligation upon you to purchase any of the shares
subject to the option. Your obligation to purchase shares can arise only upon
your exercise of the option in the manner set forth in Article 3 hereof.
2. When Option May Be Exercised.
The option granted you hereunder may not be exercised
for a period of [one year] from the date of its grant by the Board as set
forth above. Thereafter, this option shall be exercisable as follows:
(i) at the end of [one year] from the date of
grant, up to [25%] of the total shares
subject to the option;
(ii) at the end of the [second year] from the
date of grant, up to [50%] of such shares;
(iii) at the end of the [third year] from the date
of grant, up to [75%] of such shares;
1
<PAGE> 11
(iv) at the end of the fourth year from the date
of grant, up to [100%] of such shares.
This option may not be exercised for less than ten shares at any one time (or
the remaining shares then purchasable if less than ten) and expires at the end
of ten years from the date of grant whether or not it has been duly exercised,
unless sooner terminated as provided in Articles 5, 6 and 7 hereof.
3. How Option May Be Exercised.
This option is exercisable by a written notice signed
by you and delivered to the Company at its executive offices, signifying your
election to exercise the option. The notice must state the number of shares of
Common Stock as to which your option is being exercised, must contain a
statement by you (in a form acceptable to the Company) that such shares are
being acquired by you for investment and not with a view to their distribution
or resale (unless a registration statement covering the shares purchasable has
been declared effective by the Securities and Exchange Commission) and must be
accompanied by payment as set forth in Article 4 hereof for the full purchase
price of the share being purchased. No share shall be issued until full payment
therefor has been made.
If notice of the exercise of this option is given by
a person or persons other than you, the Company may require, as a condition to
the exercise of this option, the submission to the Company of appropriate proof
of the right of such person or persons to exercise this option.
Certificates for shares of the Common Stock so
purchased will be issued as soon as practicable. The Company, however, shall not
be required to issue or deliver a certificate for any shares until it has
complied with all requirements of the Securities Act of 1933, the Securities
Exchange Act of 1934, any stock exchange on which the Company's Common Stock may
then be listed and all applicable state laws in connection with the issuance or
sale of such shares or the listing of such shares on said exchange. Until the
issuance of the certificate for such shares, you or such other person as may be
entitled to exercise this option, shall have none of the rights of a shareholder
with respect to shares subject to this option.
You shall promptly advise the Company of any sale of
shares of Common Stock issued upon exercise of this option which occurs within
one (1) year from the date of the exercise of this option relating to the
issuance of such shares.
4. Payment of Options.
Payment for the shares of Common Stock may be made
(i) in cash or by check to the order of the Company, (ii) by surrender of
shares of Common Stock having a Fair Market Value equal to the exercise price
of the Option; or (iii) by any combination of the foregoing where approved by
the Board in its sole discretion; provided, however, in the event of
payment for the shares of Common Stock by method (ii) above, the shares of
Common Stock so surrendered, if originally issued to you upon exercise of an
option(s) granted by the Company, shall have been held by you for more than
six months.
2
<PAGE> 12
5. Termination of Employment.
If your employment with the Company (or a subsidiary
thereof) is terminated for any reason other than by death or disability, this
option shall terminate three (3) months from the date of such termination of
employment (but in no event shall you be able to exercise this option after ten
years from the date this option was granted to you), provided, however, you
shall only be entitled to exercise that portion of this option which was
exercisable by you at the date of such termination of employment.
6. Disability.
If your employment with the Company (or a subsidiary
thereof) is terminated by reason of your disability, you may exercise, within
one (1) year from the date of such termination, that portion of this option
which was exercisable by you at the date of such termination, provided, however,
that such exercise occurs within ten years from the date this option was granted
to you.
3
<PAGE> 13
7. Death.
If you die while employed by the Company (or a
subsidiary thereof) or within one (1) year after termination of your employment
due to disability, that portion of this option which was exercisable by you at
the date of your death may be exercised by your legatee or legatees under your
Last Will, or by your personal representatives or distributees, within one (1)
year from the date of your death, provided, however, that such exercise occurs
within ten years from the date this option was granted to you.
8. Non-Transferability of Option.
This option shall not be transferable except by Last
Will or the laws of descent and distribution, and may be exercised during your
lifetime only by you.
9. Adjustments upon Changes in Capitalization.
If at any time after the date of grant of this
option, the Company shall, by stock dividend, split-up, combination,
reclassification or exchange, or through merger or consolidation, or otherwise,
change its shares of Common Stock into a different number or kind or class of
shares or other securities or property, then the number of shares covered by
this option and the price of each such share shall be proportionately adjusted
for any such change by the Board whose determination shall be conclusive.
Any fraction of a share resulting from any adjustment shall be eliminated and
the price per share of the remaining shares subject to this options adjusted
accordingly.
10. Subject to Terms of this Plan.
This incentive stock option agreement shall be
subject in all respects to the terms and conditions of this Plan and in the
event of any question or controversy relating to the terms of this Plan, the
decision of the Board shall be conclusive.
Sincerely yours,
MANCHESTER EQUIPMENT CO., INC.
By:______________________________________
Barry R. Steinberg, President
Agreed to and accepted this
______day of__________________, 199__.
_____________________________________
Signature of Optionholder
4
<PAGE> 14
EXHIBIT B
NON-INCENTIVE STOCK OPTION AGREEMENT
_______________
To:
We are pleased to notify you that by the determination of the
Board of Directors (hereinafter called the "Board") a non-incentive
stock option to purchase _______ shares of the Common Stock of Manchester
Equipment Co., Inc. (herein called the "Company") at a price of $_______ per
share has this ___ day of ______________, been granted to you under the
Company's 1996 Incentive and Non-Incentive Stock Option Plan, as amended (herein
called the "Plan"). This option may be exercised only upon the terms and
conditions set forth below.
1. Purpose of Option.
The purpose of this Plan under which this
non-incentive stock option has been granted is to further the growth and
development of the Company and its direct and indirect subsidiaries by
encouraging key employees, directors, consultants, agents, independent
contractors and other persons who contribute and are expected to contribute
materially to the Company's success to obtain a proprietary interest in the
Company through the ownership of stock, thereby providing such persons with an
added incentive to promote the best interests of the Company, and affording the
Company a means of attracting to its service persons of outstanding ability.
2. Acceptance of Option Agreement.
Your execution of this non-incentive stock option
agreement will indicate your acceptance of and your willingness to be bound by
its terms; it imposes no obligation upon you to purchase any of the shares
subject to the option. Your obligation to purchase shares can arise only upon
your exercise of the option in the manner set forth in Article 4 hereof.
3. When Option May Be Exercised.
THE OPTION GRANTED YOU HEREUNDER SHALL BE EXERCISABLE
AS FOLLOWS:
This option may not be exercised for less than ten
shares at any one time (or the remaining shares then purchasable if less than
ten) and expires at the end of [INDICATE TERM OF OPTION, NOT TO EXCEED TEN
YEARS] years from the date of grant whether or not it has been duly exercised,
unless sooner terminated as provided in Article 6 hereof.
1
<PAGE> 15
4. How Option May Be Exercised.
This option is exercisable by a written notice signed
by you and delivered to the Company at its executive offices, signifying your
election to exercise the option. The notice must state the number of shares of
Common Stock as to which your option is being exercised, must contain a
statement by you (in a form acceptable to the Company) that such shares are
being acquired by you for investment and not with a view to their distribution
or resale (unless a registration statement covering the shares purchasable has
been declared effective by the Securities and Exchange Commission) and must be
accompanied by payment as set forth in Article 5 hereof for the full purchase
price of the shares being purchased, plus such amount, if any, as is required
for withholding taxes. No share shall be issued until full payment therefor has
been made.
If notice of the exercise of this option is given by
a person or persons other than you, the Company may require, as a condition to
the exercise of this option, the submission to the Company of appropriate proof
of the right of such person or persons to exercise this option.
Certificates for shares of the Common Stock so
purchased will be issued as soon as practicable. The Company, however, shall not
be required to issue or deliver a certificate for any shares until it has
complied with all requirements of the Securities Act of 1933, the Securities
Exchange Act of 1934, any stock exchange on which the Company's Common Stock may
then be listed and all applicable state laws in connection with the issuance or
sale of such shares or the listing of such shares on said exchange. Until the
issuance of the certificate for such shares, you or such other person as may be
entitled to exercise this option, shall have none of the rights of a shareholder
with respect to shares subject to this option.
5. Payment of Options.
Payment for the shares of Common Stock may be made
(i) in cash or by check to the order of the Company, (ii) by surrender of shares
of Common Stock having a Fair Market Value equal to the exercise price of the
Option; or (iii) by any combination of the foregoing where approved by the
Board in its sole discretion; provided, however, in the event of payment for
the shares of Common Stock by method (ii) above, the shares of Common Stock so
surrendered, if originally issued to you upon exercise of an option(s) granted
by the Company, shall have been held by you for more than six months.
2
<PAGE> 16
6. Termination of Employment or Engagement.
If your employment or engagement with the Company (or
a subsidiary thereof) is terminated for any reason, [INSERT TERMS UPON WHICH
NON-INCENTIVE OPTION HOLDER'S OPTIONS SHALL LAPSE AND EXPIRE.] [INSERT TERMS
UPON WHICH NON-INCENTIVE OPTIONS SHALL SURVIVE THE TERMINATION OF A HOLDER'S
EMPLOYMENT OR ENGAGEMENT, BUT IN SUCH EVENT THE OPTION SHALL BE EXERCISABLE ONLY
TO THE EXTENT EXERCISABLE ON THE DATE OF SUCH TERMINATION AND IN NO EVENT SHALL
THE OPTION BE EXERCISABLE AFTER THE EXPIRATION DATE OF THIS OPTION.] [IF THE
OPTION SURVIVES THE DEATH OF THE OPTION HOLDER, ADD LANGUAGE THAT IT MAY BE
EXERCISED BY THE HOLDER'S LEGATEE OR LEGATEES UNDER HIS LAST WILL, OR BY HIS
PERSONAL REPRESENTATIVES OR DISTRIBUTEES.]
7. Adjustments upon Changes in Capitalization.
If at any time after the date of grant of this
option, the Company shall, by stock dividend, split-up, combination,
reclassification or exchange, or through merger or consolidation, or otherwise,
change its shares of Common Stock into a different number or kind or class of
shares or other securities or property, then the number of shares covered by
this option and the price of each such share shall be proportionately adjusted
for any such change by the Board whose determination shall be conclusive.
Any fraction of a share resulting from any adjustment shall be eliminated and
the price per share of the remaining shares subject to this option adjusted
accordingly.
3
<PAGE> 17
8. Subject to Terms of this Plan.
This non-incentive stock option agreement shall be
subject in all respects to the terms and conditions of this Plan and in the
event of any question or controversy relating to the terms of this Plan, the
decision of the Board shall be conclusive.
9. Tax Status.
This option does not qualify as an "incentive stock
option" under the provisions of Section 422 of the Internal Revenue Code of
1986, as amended, and the income tax implications of your receipt of a
non-incentive stock option and your exercise of such an option should be
discussed with your tax counsel.
Sincerely yours,
MANCHESTER EQUIPMENT CO., INC.
By:______________________________________
Barry R. Steinberg, President
Agreed to and accepted this
_________day of________________, 199__
_________________________
Signature of Optionholder
4
<PAGE> 1
Exhibit 10.3
MANCHESTER EQUIPMENT CO., INC.
160 Oser Avenue
Hauppauge, New York 11788
November 6, 1996
Mr. Barry R. Steinberg
13 Harbor Point
Northport, New York 11768
Re: Employment Compensation
-----------------------
Dear Mr. Steinberg:
This letter will confirm your agreement with Manchester Equipment Co.,
Inc. (the "Company") to continue to serve as the Company's Chief Executive
Officer, Chairman of the Board and President, in the manner in which you
heretofore have acted, for an annual base salary of $550,000 with respect to
each of the Company's fiscal years ending July 31, 1997 and July 31, 1998. You
have further agreed that you will not be eligible for any bonuses in the 1997
fiscal year. Any bonus payable for fiscal 1998 will be subject to the approval
of a majority of the independent directors of the Company. The Company
will continue to make available to you the car allowance and
deferred compensation benefits that you are currently receiving and you will
also be able to participate in other benefits that the Company makes generally
available to its employees, such as medical and other insurance. You will also
be eligible to participate under the Company's stock option plan.
This letter supersedes any other or prior employment or compensatory
agreement between you and the Company, including, without limitation, the letter
agreements dated October 1, 1996 and November 4, 1996, and may not be amended,
modified or renewed, nor may any of the provisions hereof be waived, except by
a writing signed by the parties hereto.
If this accurately sets forth our agreement, please sign where set
forth below.
Sincerely,
MANCHESTER EQUIPMENT CO., INC.
By: /s/ JOEL G. STEMPLE
-----------------------------------
Joel G. Stemple, Executive Vice President
ACCEPTED AND AGREED
/s/ BARRY STEINBERG
- -------------------------------
Barry R. Steinberg
<PAGE> 1
Exhibit 10.4A
MANCHESTER EQUIPMENT CO., INC.
160 Oser Avenue
Hauppauge, New York 11788
November 6, 1996
Mr. Joel G. Stemple
46 Old Brook Road
Dix Hills, New York 11746
Re: Amendment of Employment Agreement
----------------------------------
Dear Joel:
The following are the terms of the agreement we have reached regarding
the Agreement of Employment between you and Manchester Equipment Co., Inc. (the
"Company"), dated September 30, 1966 (the "Agreement").
1. The third paragraph of Article 6 of the Agreement, pertaining to
the payment of bonuses for the Company's 1997 and 1998 fiscal years, is hereby
deleted, and the following substituted in its place:
"It is specifically understood and agreed that the Employee will
not be eligible for any bonus for the Employer's 1997 fiscal year.
The Employee will be eligible for a bonus for the Employer's 1998
fiscal year, provided such bonus is approved by a majority of the
independent members of the Employer's Board of Directors."
2. Except as, and to the extent, expressly amended hereby, the
Agreement, and all of the terms, conditions, representations, warranties and
other provisions thereof, will remain in full force and effect throughout the
term thereof.
If this accurately sets forth our agreement, please sign where set
forth below.
Sincerely,
MANCHESTER EQUIPMENT CO., INC.
By: /s/ Barry R. Steinberg
----------------------------------
Barry R. Steinberg, President
ACCEPTED AND AGREED
/s/ Joel G. Stemple
- -------------------
Joel G. Stemple
<PAGE> 1
Exhibit 10.10
[HEWLETT-PACKARD LETTERHEAD]
January 1, 1996
1996 Agreement #: 57AHE
MANCHESTER EQUIPMENT COMPANY
50 MARCUS BLVD
HAUPPAUGE NY 11788
Customer ICN: 1963
Dear MANCHESTER EQUIPMENT COMPANY,
In HP's quest to simplify the contracting and negotiating process, your 1996 HP
Agreement and Addendum is based substantially on your 1995 Agreement and
Addendum.
In fact, the text of the 1995 Agreement, Addendum and Exhibit L as negotiated
between HP and you is carried forward and repeated in 1996, except for those
modifications indicated in this letter. All other terms and conditions of your
1995 Agreement remain unchanged.
Included with this letter are the new companion documents which form a part of
your 1996 Agreement, the Operations Policy Manual, Product Acquisition and
Resale Categories and Product Exhibits.
AMENDMENTS TO YOUR U.S. RESELLER AGREEMENT:
SECTION 2.A.3
Status Change: Modify to read as follows:
"Undergo a merger, acquisition, consolidation or other reorganization with the
result that any entity controls 50% or more of Reseller's capital stock or
assets after such transaction: or"
SECTION 10
Price Adjustments; Price Protection: Deleted and moved to the Operations Policy
Manual (OPM) as modified.
SECTION 16
Reseller Record Keeping: Modify to read as follows:
"HP or HP's designated will be given prompt access DURING NORMAL BUSINESS
HOURS, either on sight or through other means specified by HP to Reseller's
customer records of account SPECIFICALLY RELATED TO HP PRODUCTS as HP believes
are reasonably necessary to verify and audit Reseller's compliance with this
Agreement"
AMENDMENT TO YOUR U.S. DEALER ADDENDUM:
SECTION 3.E
Dealer Responsibilities: Deleted and moved as modified to the HP Product
Acquisition and Resale Categories.
<PAGE> 2
SECTION 5
Volume Commitment Levels: Modify to read as follows:
DEALERS AT LEVEL I DISCOUNT
A. Dealer volume commitment levels are described on the attached Product
Exhibits and are based upon 12 month purchase volume levels.
DEALERS AT LEVEL II DISCOUNT
B. Dealer volume commitment levels are described on the attach Product Exhibits
and are based upon 12 month SELL-THROUGH volume levels.
If the term of this Agreement or any new Addendum or Product Exhibit is less
than 12 months, an applicable 12 month volume commitment level will be
calculated for Dealer by projection over a full 12 month term.
SECTION 6
Dealer Order Milestones; Modify to read as follows:
A. Unless otherwise specified in the Product Exhibits, as of 5 months after the
effective date of this Agreement, HP will review Dealer's progress towards
its volume commitment.
DEALERS AT LEVEL I DISCOUNT
1. If Dealer's orders in those first 5 months represent less than 35% of its 12
month volume commitment level, HP may terminate all or any part of this
Agreement.
2. If Dealer's SELL-THROUGH in the first 5 months is 42% or more of the 12 month
volume commitment level required for greater Dealer discounts, then Dealer
orders during the remaining term of this Agreement will be subject to those
greater discounts.
3. If Dealer later cancels any order that resulted in HP granting Dealer a
higher discount level, HP may reduce Dealer's discount to the level which
would have applied had all orders never been placed.
DEALERS AT LEVEL II DISCOUNT
4. If Dealer's SELL-THROUGH in those first 5 months represent less than 35% of
its 12 month volume commitment level, then Dealer's orders during the
remaining term of this Agreement will be subject to the lower Dealer
discounts corresponding to the 12 month volume commitment level projected by
Dealer's orders in those first 5 months. If the projected orders are below
HP's minimum volume commitment level, HP may terminate all or any part of
this Agreement.
B. Dealer discounts for orders during the first 5 months of this Agreement will
not be affected by the milestone adjustments above.
PRODUCT EXHIBIT(S):
U20I/U30I
Effective March 1, 1996 the U20I AND U30I PRODUCT EXHIBITS WILL BE MERGED
TOGETHER INTO THE U20I FULL LINE RESELLER EXHIBIT. The 10M commitment level
will continue to be based on orders. The 135M commitment level will be changed
from order based to SELL-THROUGH based.
<PAGE> 3
SIGNATURE PAGE
- --------------
Change effective date to 3/1/96 and the expiration date to 2/28/97.
AUTHORIZED SIGNATURES HEWLETT-PACKARD COMPANY
/s/ Joel Gilberts -- V.P. /s/ Sue Weatherman
- ------------------------- ------------------------------------------
Authorized Signature Sue Weatherman, Reseller Contracts Manager
Joel Gilberts
- -------------------------
Typed Name
Vice President 3/1/96
- ------------------------- ------------------------------------------
Title Date
January 9, 1996
- -------------------------
Date
<PAGE> 4
[HEWLETT PACKARD LOGO]
HEWLETT-PACKARD COMPANY
U.S. AGREEMENT FOR AUTHORIZED RESELLERS
SIGNATURE PAGE
ICN# 1963
LEGAL BUSINESS NAME MANCHESTER EQUIPMENT COMPANY
ADDRESS 50 MARCUS BLVD
CITY, STATE, ZIP HAUPPAUGE NY 11788
PHONE, FAX (516) 434-8700
DBA(S)
The documents below govern the relationship between HP and you for the purchase
and resale of HP products.
<TABLE>
<S> <C>
AGREEMENT: APPLICATION:
X U.S. Reseller U.S. Networking Products QD
- --- ---------
ADDENDA: EXHIBITS:
U.S. GSA Schedule Holder EXHIBIT L Approved Locations
- --- ---------
U.S. Calculator Dealer EXHIBIT U11 Calculator and Palmtop Computing Products
- --- ---------
U.S. Calculator Mass Merchandiser X[caret]* EXHIBIT U201 See Exhibit Election Below
- --- ---------
X U.S. Dealer X * EXHIBIT U241 QD Networking Products
- --- ---------
U.S. Direct Value Added Reseller X[caret]* EXHIBIT U301 See Exhibit Election Below
- --- ---------
X U.S. Networking Reseller X EXHIBIT U40A Accessory Products
- --- ---------
X EXHIBIT U40C Consumable Products
---------
AMENDMENTS: [caret] EXHIBIT U66 See Exhibit Election Below
---------
X U.S. DAVAR Sales * EXHIBIT U701 CMS Products
- --- ---------
U.S. International Direct VAR EXHIBIT UM Calculator Mass Merchandiser Products
- --- ---------
</TABLE>
================================================================================
EXHIBIT ELECTION
Reseller and HP agree that Reseller volume level at net Reseller price, for HP
Products on these Exhibits (noted with a [caret] above) for the term of this
Agreement is:
<TABLE>
<CAPTION>
EXHIBIT U201 EXHIBIT U301
COMPUTER RELATED PRODUCTS DESKTOP PERSONAL COMPUTER AND SERVER
PRODUCTS
<S> <C> <S> <C>
X LEVEL I $10,000,000-134,999,999 X LEVEL I $1,000,000-34,999,999
- --- ---
LEVEL II $135,000,000-and up LEVEL II $35,000,000-and up
- --- ---
EXHIBIT U66
NETWORKING RESELLER PRODUCTS
<S> <C>
LEVEL I $3,000,000-8,999,999
---
LEVEL II $9,000,000-and up
---
</TABLE>
SHIPMENT ELECTION
Please check one. Shipment elections made on March 1, 1995 regarding shipping
options apply to all products on Exhibits designated with an * above.
<TABLE>
<S> <C> <C>
OUTLET HP will ship to all Reseller's approved shipment locations as listed on Exhibit L.
---
X CENTRALIZED HP will ship to no more than 6 approved shipment locations as listed on Exhibit L.
---
</TABLE>
================================================================================
<PAGE> 5
STATEMENT OF OWNERSHIP:
Form of Organization: (i.e. Corporation, General Partnership, Limited
Partnership, Sole Proprietor): CORPORATION
--------------------------------------------
For a Corporation, specify whether: Publicly Held: Privately Held: X
----- ---
State of Incorporation/Organization: New York
--------
Identify Company ownership and management structure as follows (attach
additional pages if necessary):
- - Sole Proprietor: Identify all owners, officers and ownership
percentages held.
- - Trust: Identify Trustee(s): Administrators and Beneficiaries of Trust.
- - Partnership: Identify all General Partners, Limited
Partners, Officers and ownership percentages
held. Specify dollar investment of limited
partners.
- - Privately Held Corporation: Identify all shareholders with class and
percentage ownership, Officers and Board of
Director Members.
- - Publicly Held Corporation: Identify owners of 20% or more of each class of
shares with class and percentage, ownership,
Officers and Board of Director Members.
<TABLE>
<CAPTION>
NAMES TITLES OWNERSHIP INTEREST
PERCENTAGE OWNERSHIP TYPE OF OWNERSHIP INTEREST
(DOLLAR INVESTMENT IN LIMITED (ASSETS, COMMON OR PREFERRED
PARTNERS) SHARES)
<S> <C> <C> <C>
BARRY STEINBERG PRESIDENT 80% COMMON
- ----------------------- --------------------------- ----------------------------- ----------------------------
JOEL GILBERTS VICE PRESIDENT 10% COMMON
- ----------------------- --------------------------- ----------------------------- ----------------------------
MICHAEL BIVONA VICE PRESIDENT 10% COMMON
- ----------------------- --------------------------- ----------------------------- ----------------------------
- ----------------------- --------------------------- ----------------------------- ----------------------------
- ----------------------- --------------------------- ----------------------------- ----------------------------
</TABLE>
If Company is 100% owned by another corporation, identify the parent
corporation's ownership and management structure above and the identity of the
parent corporation below.
- --------------------------------------------------------------------------------
Parent/Owner (including DBA's)
- --------------------------------------------------------------------------------
Address
( )
- --------------------------------------------------------------------------------
City State Zip Telephone
( )
- --------------------------------------------------------------------------------
State of Parent/Owner's Incorporation Fax
AUTHORIZED SIGNATURES HEWLETT-PACKARD COMPANY
/s/ JOEL GILBERTS /s/ SUSAN WEATHERMAN
- ------------------------------ --------------------------------
Authorized Signature Susan Weatherman
Reseller Contracts Manager
JOEL GILBERTS
- ------------------------------
Typed Name
VICE PRESIDENT 3/1/95 February 28, 1996
- ------------------------------ -------------- -----------------
Title Effective Date Expiration Date
<PAGE> 6
U.S. DEALER
TABLE OF CONTENTS
U.S. RESELLER AGREEMENT
1. APPOINTMENT
2. STATUS CHANGE
3. INTENTIONALLY OMITTED
4. MULTIPLE AGREEMENT DISCOUNTS
5. INTENTIONALLY OMITTED
6. INTENTIONALLY OMITTED
7. PRICES
8. PAYMENT AND SECURITY TERMS
9. ORDERS; SHIPMENTS; CANCELLATIONS AND CHANGES
10. PRICE ADJUSTMENTS; PRICE PROTECTION
11. SOFTWARE
12. TRADEMARKS
13. WARRANTY
14. LIMITATION OF REMEDIES AND LIABILITY
15. INTELLECTUAL PROPERTY INDEMNITY
16. RESELLER RECORD-KEEPING
17. AMENDMENTS
18. TERMINATION OF AGREEMENT
19. RELATIONSHIP
20. POLICIES & PROGRAMS
21. GENERAL CONDITIONS
22. NOTICES
U.S. DEALER ADDENDUM
1. APPOINTMENT
3. DEALER RESPONSIBILITIES
5. VOLUME COMMITMENT LEVELS
6. DEALER ORDER MILESTONES
9. ORDERS; SHIPMENT; CANCELLATIONS AND CHANGES
<PAGE> 7
U.S. RESELLER AGREEMENT
1. APPOINTMENT
Hewlett-Packard Company ("HP") appoints Reseller as an authorized,
non-exclusive Reseller for marketing the HP Products listed on the
Product Exhibits. Reseller's appointment is subject to the terms and
conditions set forth in this U.S. Reseller Agreement and the associated
Addenda, Product Exhibits, HP Product Acquisition and Resale Categories
("Product Categories") and Operations Policy Manual (collectively,
"Agreement") for the period from the effective date through the
expiration date of this Agreement. Reseller accepts appointment on these
terms.
2. STATUS CHANGE
A. If Reseller wishes to:
1. Change its name or that of any approved location;
2. Add, close or change an approved location;
3. Undergo a merger, acquisition, consolidation or other
reorganization with the result that any entity controls
20% or more of Reseller's capital stock or assets after
such transaction; or
4. Undergo a significant change in control or management
of Reseller operations
then Reseller shall notify HP in writing prior to the intended
date of change.
B. HP agrees to promptly notify Reseller of its approval or
disapproval of any proposed change, provided that Reseller has
given HP all information and documents reasonably requested
by HP.
C. HP must approve proposed Reseller changes prior to any
obligation of HP to perform under this Agreement with Reseller
as changed.
3. MULTIPLE AGREEMENT DISCOUNTS
Unless otherwise specified by HP in writing, purchases of HP Products
under this Agreement and purchases under any other HP Agreement are
exclusive of each other for the purpose of calculating volume commitment
and discount levels.
7. PRICES
A. HP's corporate price lists are internal data bases indicating
current List Prices for HP Products ("List Prices"). HP reserves
the right to change List Prices and discounts upon reasonable
notice to Reseller. If Reseller is unsure of the List Price to
use in calculating net Reseller price for any HP Product,
Reseller should contact its HP sales representative.
B. Net Reseller price for HP Products purchased under this
Agreement will be the List Price at the time of Reseller's
orders, less the discounts based on Reseller's volume or other
commitments or elections specified in the Product Exhibits.
C. Net Reseller price includes shipment arranged by HP. HP
reserves the right to charge Reseller for any special routing,
handling or insurance requested by Reseller and agreed to by HP.
Orders shipped special routing will be F.O.B. Origin.
D. Net Reseller price excludes State and local taxes. HP will
invoice Reseller for these taxes, based on point of delivery,
unless the appropriate resale exemption certificates are on file
at HP's order-entry point or HP agrees the sale is otherwise
exempt.
E. Upon request from Reseller, at its discretion HP may grant
special pricing for particular end-user customer transactions.
In good faith, HP may retract the special pricing at any time
before acceptance by the end-user customer. HP may extend the
pricing on an exclusive or non-exclusive basis and may condition
the pricing on a pass-through of all or part of the non-standard
offering extended by HP.
8. PAYMENT AND SECURITY TERMS
A. Reseller will pay invoices within 30 days from the date of the
invoice. HP reserves the right to change credit terms at any
time when in HP's opinion Reseller's financial condition or
previous payment record so warrants.
B. Any Reseller claim for adjustment of an invoice is agreed to be
waived if Reseller fails to present it within 90 days from date
of HP invoice. No claims, credits or offsets may be deducted
from any invoice.
C. If Reseller fails to pay any sum due within 15 days of HP's
written notice of delinquency, HP may discontinue performance
under this Agreement and may revise credit terms for unshipped
orders.
D. [Deleted]
9. ORDERS; SHIPMENTS; CANCELLATIONS AND CHANGES
A. Reseller's orders must comply with the minimum order, release,
ship-to and other requirements specified in this Agreement.
B. HP will honor written, fax and telephone orders from Reseller's
approved locations. Reseller is responsible for ensuring that
only authorized employees place, change or delete orders and
that the orders conform to all requirements of this Agreement.
C. Reseller's requested date for shipment must be within 90 days
after order date. HP reserves the right to schedule and
reschedule any order, at HP's discretion, and to decline any
order for credit reasons or because the order specifies an
unreasonably large quantity or makes an unreasonable shipment
request.
D. HP will use reasonable efforts to meet scheduled shipment
dates. However, HP will not be liable for delay in meeting a
scheduled shipment date.
E. Reseller must own more than 50% of its business at each approved
location. HP will ship HP Products to Reseller under HP's
standard shipment terms and conditions but only to approved
Shipment Locations authorized by HP on Exhibit L. Shipment
Locations may be the same as company-owned Selling Locations.
All Reseller's sales, advertising and promotional activities for
HP Products must be conducted from Selling Locations approved by
HP. No sales, advertisement or promotion of HP Products may be
conducted from Shipment
<PAGE> 8
Locations which are not also approved company-owned Selling Locations.
However, HP will ship to a maximum of six approved Shipment Locations
and will accept orders only from a single order point. An exception will
be made where a Product Exhibit indicates drop shipment is available for
a specific HP Product under a special program; drop shipment for those
HP Products will be subject to limitations indicated in the Product
Exhibits.
F. Shipments are subject to availability. If HP Products are in short
supply, HP will allocate them equitably, at HP's discretion.
G. Title to HP Products and risk of loss and damage will pass to Reseller
F.O.B. Destination.
10. PRICE ADJUSTMENTS; PRICE PROTECTION
A. If HP raises Net Reseller prices (either through List Price increases or
Product Exhibit discount reductions) HP will invoice Reseller based on
the old List Price or discount for affected HP Product orders placed by
Reseller within one month after the effective date of the increase.
Limited quantity restrictions may apply.
B. If HP reduces Net Reseller prices (either through a List Price reduction
or a combination of List Price and discount changes), HP will invoice
Reseller based on the reduced Net Reseller price for affected HP
Products shipped on or after the effective date of the reduction.
C. If HP offers a limited time promotional HP Product discount to all
Resellers (excluding rebates and spiffs of all forms), HP will invoice
Reseller based on the Net Reseller price less the promotional discount
for orders conforming to and shipments made pursuant to the terms and
conditions of the promotion.
D. If HP reduces Net Reseller prices or offers a limited time HP Product
promotional discount to all Resellers and the HP Products are eligible
for price protection as designated on the Product Exhibits, then HP will
grant Reseller a price protection credit calculated by one of the two
following methods at HP's discretion;
1. The credit will equal the total reduction in Net Reseller price
(less any previous promotional discount available from HP) for those
HP Products in Reseller's inventory and in transit to Reseller on
the effective date of the reduction, using a verification process
determined by HP; or
2. The credit will equal 100% of the total reduction in Net Reseller
price (less any previous promotional discount available from HP) for
those HP Products shipped within 30 days before the effective date
of the reduction, or 75% of the reduction for those HP Products
shipped within 60 days before that date, whichever is greater.
E. To receive a price protection credit by the inventory method, Reseller
upon notification of a change in price from HP and upon request, will
complete, sign and return to HP a form showing the number of units
(including serial numbers) in inventory and in transit to Reseller on
the effective date of the reduction. The format for the form may be
defined by Reseller but must meet the approval of HP. If Reseller fails
to submit the form within 30 days of the effective date of the
reduction, Reseller will receive no price protection for eligible
products.
F. In all cases, HP may require that Reseller accumulate a minimum credit
of $200 within a particular month before HP extends price protection to
Reseller for that month.
G. HP reserves the right to offer Reseller obsolete, used or refurbished HP
Products and to offer Reseller HP Products through special promotions at
discounts different from those in the Product Exhibits and on terms
which may not include rights to price protection, stock adjustment,
promotional funds allowance or count towards Reseller's volume
commitment levels.
11. SOFTWARE
Reseller is granted the right to distribute software materials supplied by
HP only in accordance with the license terms supplied with these materials.
Reseller may alternatively acquire the software materials from HP for its
own demonstration purposes in accordance with the terms for use in those
license terms.
12. TRADEMARKS
A. From time to time, HP may authorize Reseller to display one or more
designated HP trademarks. Reseller may display the trademarks solely to
promote HP Products. Any display of the trademarks must be in good
taste, in a manner that preserves their value as HP trademarks, and in
accordance with standards provided by HP for their display. Reseller
will not use any name or symbol in a way which may imply that Reseller
is an agency or branch of HP; Reseller will discontinue any such use of
a name or mark as requested by HP, Any rights or purported rights in any
HP trademarks acquired through Reseller's use belong solely to HP.
B. Reseller grants HP the non-exclusive, royalty free right to display
Reseller's trademarks in advertising and promotional material solely for
directing prospective purchasers of HP Products to Reseller's Selling
Locations. Any display of the trademarks must be in good taste, in a
manner that preserves their value as Reseller's trademarks, and in
accordance with standards provided by Reseller for their display. Any
rights or purported rights in any Reseller trademarks acquired through
HP's use belong solely to Reseller.
13. WARRANTY
A. HP Product User Warranties are described on the Product Exhibits and
apply only to end-user purchasers of HP Products. HP revisions to the
User Warranties will be effective on the date specified by HP. Copies of
User Warranties will be supplied with HP Products. Reseller must provide
a copy of the associated User Warranty for an HP Product to each
end-user prior to sale.
B. HP Product Warranty begins upon purchase by the end-user customer and
shall be verified by proof of acquisition by the end-user or via HP's
electronic warranty verification system.
C. HP PRODUCT USER WARRANTIES ARE THE EXCLUSIVE WARRANTIES COVERING HP
PRODUCTS AND ARE IN LIEU OF ANY OTHER WARRANTIES, WRITTEN OR ORAL,
EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
D. Some HP Products may contain selected remanufactured parts equivalent to
new in performance.
14. LIMITATION OF REMEDIES AND LIABILITY
A. The remedies provided in this Agreement are Reseller's sole and
exclusive remedies against HP.
B. HP will be liable for damage to tangible property, bodily injury or
death to the extent a court of competent jurisdiction determines that an
HP Products sold under this Agreement is defective and has directly
caused such damage, injury or death, provided that HP's liability for
damage to tangible property will be limited to $300,000 per incident.
<PAGE> 9
C. HP will be liable to Reseller for any net credits due from HP
pursuant to the express provisions of this Agreement. In no
event will HP be liable for loss of data, for indirect, special,
incidental or consequential damages (including lost profits) or
for any other damages whether based on contract, tort, or other
legal theory.
15. INTELLECTUAL PROPERTY INDEMNITY
A. HP will defend any claim against Reseller that any HP Product
infringes a patent, utility model, industrial design, copyright,
mask work or trademark in the country where Reseller acquires or
sells the Product from HP, provided that Reseller:
1. Promptly notifies HP in writing of the claim; and
2. Cooperates with HP in and grants HP sole authority to control
the defense and any related settlement.
HP will pay the cost of such defense or settlement and any costs
and damages finally awarded by a court against Reseller.
B. HP's indemnity shall extend to Reseller's customers and end-users
under this Agreement provided they comply with the obligations
above.
C. HP may procure for Reseller, its customers and end-users the
right to continued sale or use, as appropriate, of the Product or
HP may modify or replace the Product. If a court enjoins the sale
or use of the Product and HP determines that none of the above
alternatives is reasonably available, HP will accept return of the
Product and refund its depreciated value.
D. HP has no obligation for any claim of infringement arising from:
1. HP's compliance with any designs, specifications or instructions
of Reseller;
2. Modification of the Product by Reseller or a third party;
3. Use of the Product in a way not specified by HP; or
4. Use of the Product with products not supplied by HP.
E. This Section states HP's entire liability to Reseller and its
customers and end-users for infringement.
16. RESELLER RECORD-KEEPING
A. For contract compliance verification, product safety information,
operational problem correction and the like, Reseller must
maintain records of customer purchases of printers, plotters, taxes,
scanners and computers for one year. Records must include
customer name, address, phone number, ship-to address, serial
number and date of sale of the above products.
B. HP may require Reseller to provide HP or HP's designate with HP
Product inventory and sales data including, but not limited to,
information such as total units of selected HP Products sold and
held in inventory by month for each approved location, in a format
specified by HP. HP may require monthly reporting incorporating
the previous month's data for each approved location.
C. In addition, Reseller must comply with any reporting requirements
for HP programs.
D. At HP's discretion and upon notice to Reseller, HP or HP's
designate will be given prompt access, either on site or through
other means specified by HP, to Reseller's customer records,
inventory records and other books and records of account as HP
believes are reasonably necessary to verify and audit Reseller's
compliance with this Agreement.
E. Failure to promptly comply with HP's request will be considered a
repudiation of this Agreement justifying HP's termination of
this Agreement on 30 days' notice--without further cause.
F. HP may recover all reasonable actual costs associated with
compliance verification procedures from any promotional funds,
rebate funds or any other HP accrued funds due Reseller.
G. HP may debit Reseller for all wrongfully claimed discounts, rebates,
promotional allowances or other amounts determined as a result
of HP's audit.
17. AMENDMENTS
A. From time to time, HP may add products to or delete them from the
Product Exhibits, or implement or change HP policies or programs
at HP's discretion, after reasonable notice to Reseller.
Additionally, HP may give Reseller written notice of any other
amendment to this Agreement upon at least 30 days' advance notice.
B. Any amendment will automatically become a part of this Agreement
on the effective date specified in the notice.
C. Each party agrees that the other has made no commitments regarding
the duration or renewal of this Agreement beyond those expressly
stated in this Agreement.
18. TERMINATION OF AGREEMENT
A. Either party may terminate this Agreement without cause at any
time upon 30 days' written notice or with cause at any time upon
15 days' written notice to the other party.
B. If either party gives the other notice of termination or advises
the other of its intent not to renew this Agreement, HP may require
that Reseller pay cash in advance for additional shipments during
the remaining term, regardless of Reseller's previous credit
status, and may withhold all such shipments until Reseller pays
its outstanding balance.
C. Upon termination or expiration of this Agreement for any reason,
Reseller will immediately cease to be an authorized HP Reseller
and will refrain from representing itself as such and from using
any HP trademark or trade name.
D. Upon any termination or expiration, either party may require that
HP purchase from Reseller any HP Products purchased under this
Agreement that are on HP's then current Product Exhibits, which
are in their unopened, original packaging and marketable as
new merchandise. The repurchase price shall be the lower of either
the Net Reseller Price on the date of termination or expiration or
Reseller's original purchase price, in each case less any
promotional or other discounts or price protection or other
credit extended by HP to Reseller for the HP Product. Reseller
should contact its HP sales representative for information about
the items eligible for repurchase and instructions for their
return at HP's expense.
E. Upon termination of this Agreement or expiration without renewal
all rights to any accrued Advantage Program or other promotional
funds will automatically lapse.
F. The indemnities provided in this Agreement will survive termination
or expiration of this Agreement.
19. RELATIONSHIP
A. Reseller's relationship with HP will be that of an independent
contractor. Nothing stated in this Agreement shall be construed as
making Reseller and HP a franchise, joint venture or
partnership.
<PAGE> 10
B. Unless expressly authorized by HP in writing in advance, any commitment
made by Reseller to its customers with respect to price, quantities,
delivery, specifications, warranties, modifications, interfacing
capability or suitability will be Reseller's sole responsibility, and
Reseller will indemnify HP from liability for any such commitment by
Reseller.
C. List Prices are suggested prices for resale to end-user customers and a
basis for calculating Net Reseller price. Reseller has the right to
determine its own resale prices, and no HP representative will require
that any particular resale price be charged by Reseller or grant or
withhold any treatment to Reseller based on Reseller's resale pricing
policies. Reseller agrees that it will promptly report any effort by
HP personnel to interfere with its pricing policies directly to an HP
officer or manager.
D. This Agreement applies only to the HP Products listed on the Product
Exhibits (U.S. versions only). Reseller acknowledges that HP may
market other products, including products in competition with those
listed on the Product Exhibits without making them available to
Reseller. HP reserves the right to advertise, promote and sell any
product, including HP Products on the Product Exhibits, in competition
with Reseller.
20. POLICIES & PROGRAMS
From time to time, HP may offer or change HP policies and programs, such as
but not limited to the Advantage Program, Premier Support program and other
programs and policies in HP's Operations Policy Manual, participation in
which will be on the current terms and conditions of the policies &
programs.
21. GENERAL CONDITIONS
A. Neither party may assign any rights or obligations in this Agreement
without the prior written consent of the other party. Any attempted
assignment will be deemed void.
B. Neither party's failure to enforce any provision of this Agreement
will be deemed a waiver of that provision or of the right to enforce
it in the future.
C. This Agreement, including the attached Addenda, associated Product
Exhibits and Product Categories contains the entire understanding
between the parties relating to its subject matter. HP hereby gives
notice of objection to any additional or inconsistent terms set forth
in any purchase order or other document issued by Reseller. Except as
provided in paragraphs 17A and 17B of this Agreement, no modification of
this Agreement will be binding on either party unless made in writing
and signed by both parties.
D. No U.S. Government procurement regulations will be deemed included in
this Agreement or binding on either party unless specifically accepted
in writing and signed by both parties.
E. This Agreement will be governed by the laws of the State of California.
F. If any clause of this Agreement is held invalid, the remainder of this
Agreement will continue unaffected.
22. NOTICES
All notices and demands issued under the terms of this Agreement shall be in
writing, delivered by fax, personal service, first class mail postage
prepaid, or by registered mail to a location set forth in this Agreement or
to HP at 5301 Stevens Creek Boulevard, P.O. Box 58059, Santa Clara,
California 95052-8059 or to the assigned local HP sales representative.
<PAGE> 11
- -------------------------------------------------------------------------------
U.S. DISTRIBUTOR SUMMARY MATRIX
DECEMBER 1, 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGGREGATORS NATIONAL CONSUMER CALCULATOR OFFICE
COMMERCIAL PRODUCTS DISTRIBUTORS MACHINE
DISTRIBUTORS DISTRIBUTORS DISTRIBUTORS
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
VanStar Ingram Micro Azerty Arrowhead Arrowhead
Business Business
Machines Machines
- ------------------------------------------------------------------------------------------------
Intelligent Merisel Daisytek Common-Wealth Azerty
Electronics Distributors
- ------------------------------------------------------------------------------------------------
InaCom Tech Data Ingram Micro Douglas Stewart Daisytek
- ------------------------------------------------------------------------------------------------
MicroAge Gates F.A. Merisel El Dorado Trading El Dorado Trading
Group Group
- ------------------------------------------------------------------------------------------------
Arrow Electronics Tech Data InaCom Neamco
- ------------------------------------------------------------------------------------------------
Hall-Mark United Stationers Intelligent New Age
Electronics Electronics
- ------------------------------------------------------------------------------------------------
GBC Technologies John Kealy Co. Pro Distributors
- ------------------------------------------------------------------------------------------------
MicroAge United Stationers
- ------------------------------------------------------------------------------------------------
Neamco
- ------------------------------------------------------------------------------------------------
Pro Distributors
- ------------------------------------------------------------------------------------------------
S.P. Richards
Company
- ------------------------------------------------------------------------------------------------
Taylor Electric
Company
- ------------------------------------------------------------------------------------------------
United Stationers
- ------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 12
U.S. DEALER ADDENDUM
1. APPOINTMENT
A. HP appoints the Reseller as a Dealer.
3. DEALER RESPONSIBILITIES
A. Dealer will advertise, promote and sell HP Products only
through the company name(s) and approved Selling Locations
listed on Exhibit L and only to end-user customers (including
government and corporate users as well as individual users)
or to resellers as permitted in the Product Categories.
B. Dealer agrees to:
1. Advertise, promote, demonstrate and sell HP Products on
a face-to-face basis and provide pre-sales support and
post-sales technical support to all Customers.
2. Maintain at each approved Selling Location a facility in
which HP Products are displayed or demonstrated on a
regular basis to end-user customers.
3. Use catalogs and telemarketing sales techniques only in
conformity with current HP policies and only as a
complement to face-to-face sales activity unless
nationwide advertising for the HP Product is permitted
in the Product Categories.
4. Ensure that no sale, advertising, promotion, display or
disclosure of any features, availability or price of any
new HP Product takes place before HP's public
announcement of that Product.
5. Identify and keep current a primary and secondary
support contact for both marketing communications and
post-sales technical support at each approved Selling
Location.
6. Report promptly to HP all suspected defects in HP
Products.
7. Assist its customers in obtaining warranty repairs for
HP Products by either repairing the product itself,
referring the customer to HP or an approved HP repair
provider, or returning the HP Product to HP. If Dealer
elects to provide warranty repair services to its
customers, Dealer will comply with the terms and
conditions outlined in the HP Premier Support Program
Guide.
8. Ensure that its employees complete any required training
courses and certification programs designated by HP.
C. Without HP's prior written consent, Dealer will not export HP
Products to any customer outside the U.S., nor will Dealer sell
HP Products for export outside the U.S.
D. Except for sales to resellers permitted in the Product
Categories, Dealer may not sell HP Products to or buy them from
other resellers for stock balancing or any other reason.
E. Dealer may not sell, rent or lease HP Products to rental
companies or leasing companies for their subsequent rental or
lease.
5. VOLUME COMMITMENT LEVELS
A. Dealer volume commitment levels are described on the attached
Product Exhibits and are based upon 12 month purchase volume
levels.
B. If the term of this Agreement or any new Addendum or Product
Exhibit is less than 12 months, an applicable 12 month volume
commitment level will be calculated for Dealer by projection
over a full 12 month term.
6. DEALER ORDER MILESTONES
A. Unless otherwise specified in the Product Exhibits, as of 5
months after the effective date of this Agreement, HP will
review Dealer's progress towards its volume commitment.
1. If Dealer's orders in the first 5 months are less than
35% of its 12 month volume commitment level, then
Dealer's orders during the remaining term of this
Agreement will be subject to the lower Dealer discounts
corresponding to the 12 month volume commitment level
projected by Dealer's orders in the first 5 months. If
the projected orders are below HP's minimum volume
commitment level, HP may terminate all or any part of
this Agreement.
2. If Dealer's orders in the first 5 months are 42% or
more of the 12 month volume commitment level required
for greater Dealer discounts, then Dealer's orders
during the remaining term of this Agreement will be
subject to those greater discounts.
3. Dealer discounts for orders during the first 5 months
of this Agreement will not be affected by the milestone
adjustments above.
B. If Dealer later cancels any order that resulted in HP granting
Dealer a higher discount level, HP may reduce Dealer's discount
to the level which would have applied had all canceled orders
never been placed.
9. ORDERS; SHIPMENTS; CANCELLATIONS AND CHANGES
A. Minimum resale shipments for 12 months for each approved
location are $100,000 of HP Products measured by Dealer's
Net Reseller price from HP.
B. Notwithstanding Section 9.E of the U.S. Reseller Agreement,
Dealer may elect more than six ship to locations. This election
will result in a 1% reduction in Dealers discount. In either
case, the single order point requirement of Section 9.E of the
U.S. Reseller Agreement remains. Dealer's election can be
changed only at the time of the 5 month milestone review.
C. Regardless of Dealer's shipment election, supplies and
accessories on Exhibit U40X will be drop shipped to approved
Shipment Locations without charge to Dealer.
<PAGE> 13
U.S. DAVAR SALES AMENDMENT
[EFFECTIVE ONLY THROUGH MAY 31, 1995]
1. Sales to DAVARs must meet the published requirements of HP's DAVAR Program
including, but not limited to the following:
A. HP's DAVAR program expires May 31, 1995. Reseller may sell HP Products
through May 31, 1995 only to those DAVARs who have an existing DAVAR
Certification from HP. No new DAVAR applications will be accepted by HP.
B. Reseller is responsible for understanding, monitoring, and enforcing the
DAVAR Program terms and conditions. Unauthorized sales by DAVAR may
result in termination of both Reseller and the DAVAR.
C. Reseller will apply any Advantage Program funds or other promotional
funds, facilities or services in conformity with HP guidelines and a
mutually agreed plan between Reseller and DAVAR.
D. Reseller agrees that all Record-Keeping provisions of its Agreement
apply to its sales of HP Products to DAVARs, including the monthly
reporting of sales and inventory and the recovery of HP audit costs from
Reseller for audits of DAVARs.
E. HP may withdraw its permission for sales to a DAVAR, with or without
cause at any time, by notifying Reseller in writing.
<PAGE> 14
Hewlett Packard LOGO
Qualified Distribution Application
U.S. Networking Products
Instructions
1. Please complete this application, attach the required documentation, and
return the application to your HP Sales Representative or Distributor.
Incomplete application will be denied approval.
2. HP reserves the right to grant or withdraw approval at its discretion. Once
approved, purchases of the HP Products associated with this application
will be governed both by the terms and conditions of this application and
the associated agreement you have with HP. This application authorizes
purchase of HP Products listed on the U.S. Networking Products Exhibit (R24)
or the U.S. Retail Networking Products Exhibit (R24R). Your Distributor can
provide you with a list of HP Networking QD Products.
Reseller Information
Legal Name: Manchester Equipment Company, Inc.
Doing-Business-As Name: Manchester Equipment Company, Inc.
Business Address: 50 Marcus Blvd
City: Hauppauge State: New York Zip: 11788
Owner/Manager: Barry Steinberg Telephone: 516-435-1199
HP Contract# 540JAG Outlet ID or Authorization #(10 digits): 0019630001
HP Sales Rep Name/HP Distribution Mike Pelligrino
Qualification Criteria
Each Qualified Selling Location must be able to provide full end-user training
and support on these Networking Products. Networking Product sales and support
expertise must be maintained at each Qualified Selling Location. You must
provide proof that each Selling Location seeking qualification meets at least
ONE of these criteria. Proof can be indicated by supplying a copy of a
certificate from the vendor or letter on the vendor's letterhead that states
the Selling Location has met the specified criteria. Additional documentation
may be required. Check the criteria below that is applicable for the above
listed sales location.
1. Employee at Selling Location is Hewlett-Packard Network Professional
Internet Routing certified. [X]
2. Selling Location has achieved 3Com Netbuilder II reseller authorization. [ ]
3. Employee at Selling Location is 3Com Advanced Internetworking Program
certified. [ ]
4. Selling Location has achieved Cisco reseller authorization. [ ]
5. Employee at Selling Location is Cisco-Certified Internetwork Expert (CCIE)
certified. [ ]
6. Selling Location has achieved Wellfleet reseller authorization. [ ]
Do you have more than one selling location seeking authorization to sell HP
Network QD Products?
[X] Yes [ ] No
If you answered yes to this question, complete the following Sales Location
Details section.
<PAGE> 15
Selling Location Details
Remember, you must provide proof that each Selling Location meets the specified
criteria.
For each Selling Location seeking qualification, please provide the following
information. Attach an additional page if necessary.
Business Address: 160 Oser Avenue
City: Hauppauge State: New York Zip: 11788
Outlet ID or Authorization # (10 digits): 0019630006
Which of the six listed Networking QD Criteria does this Sales Location meet
(enter 1-6)? 1
Business Address: 50 Marcus Blvd
City: Hauppauge State: New York Zip: 11788
Outlet ID or Authorization # (10 digits): 0019630001
Which of the six listed Networking QD Criteria does this Sales Location meet
(enter 1-6)? 1
Business Address: 352 7th Avenue, floor 12A
City New York State: New York Zip: 10001
Outlet ID or Authorization # (10 digits): 0019630002
Which of the six listed Networking QD Criteria does this Sales Location meet
(enter 1-6)? 1
Business Address: 161 Highland Avenue
City: Needham State: MA Zip: 02194
Outlet ID or Authorization # (10 digits): 0019630003
Which of the six listed Networking QD Criteria does this Sales Location meet
(enter 1-6)? 1
Reseller Certification
I certify that the statements in this application and in the attached documents
are true and complete. I authorize HP to verify from any third party the
information provided in this application.
Printed Name Joel Gilberts
Title Vice President
Authorized Signature Joel Gilberts V.P.
Date February 15, 1995
Hewlett-Packard Signature of Approval
HP Contracts: Susan Weatherman Date: 2-28-95
<PAGE> 16
Selling Location Details
Remember, you must provide proof that each Selling location meets the specified
criteria.
For each Selling Location seeking qualification, please provide the following
information. Attach an additional page if necessary.
Business Address: 902 Clint Moore Road, Suite 144
City: Boca Raton State: Florida Zip: 33487
Outlet ID or Authorization #(10 digits): 0019630004
Which of the six listed Networking QD Criteria does this Sales Location meet
(enter 1-6)? 1
Business Address: 6304 Benjamin Road, Suite 501
City: Tampa State: Florida Zip: 33634
Outlet ID or Authorization #(10 digits): 0019630005
Which of the six listed Networking QD Criteria does this Sales Location meet
(enter 1-6)? 1
Business Address:
City: State: Zip:
Outlet ID or Authorization #(10 digits):
Which of the six listed Networking QD Criteria does this Sales Location meet
(enter 1-6)?
Business Address:
City: State: Zip:
Outlet ID or Authorization #(10 digits):
Which of the six listed Networking QD Criteria does this Sales Location meet
(enter 1-6)?
Reseller Certification
I certify that the statements in this application and in the attached documents
are true and complete. I authorize HP to verify from any third party the
information provided in this application.
Printed Name Joel Gilberts
Title Vice-President
Authorized Signature Joel Gilberts - V.P.
Date February 15, 1995
Hewlett-Packard signature of Approval
HP Contracts: Reseller Contracts 54U HC Date: 2-28-95
Susan Weatherum
REV.08/01/94
NETAPP
<PAGE> 1
EXHIBIT 99.1
CONSENT
In connection with the filing by Manchester Equipment Co., Inc., a New
York corporation (the "Company"), of a Registration Statement on Form S-1 (the
"Registration Statement") relating to the offer and sale of up to 2,875,000
shares of its Common Stock, par value $.01 per share (the "Offering"), the
undersigned hereby consents to being named in the Registration Statement in
connection with the appointment of the undersigned to the Board of Directors of
the Company effective with the closing of the Offering.
Dated: October 31, 1996 /s/ GEORGE BAGETAKOS
-----------------------------
George Bagetakos
<PAGE> 1
EXHIBIT 99.2
CONSENT
In connection with the filing by Manchester Equipment Co., Inc., a New
York corporation (the "Company"), of a Registration Statement on Form S-1 (the
"Registration Statement") relating to the offer and sale of up to 2,875,000
shares of its Common Stock, par value $.01 per share (the "Offering"), the
undersigned hereby consents to being named in the Registration Statement in
connection with the appointment of the undersigned to the Board of Directors of
the Company effective with the closing of the Offering.
Date: October 31, 1996 /s/ JULIAN SANDLER
-----------------------------
Julian Sandler
