<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 4, 1996
REGISTRATION NO. 333-
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
------
INTELLICELL CORP.*
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware* 5065 95-4467726
(state or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification number) identification number)
</TABLE>
6929 Hayvenhurst Avenue
Van Nuys, CA 91406
(818) 906-7777
(Address, including zip code, and telephone number, including area code,
of registrant's principal place of business and executive offices)
------
Ben Neman, President
Intellicell Corp.
6929 Hayvenhurst Avenue
Van Nuys, CA 91406
(818) 906-7777
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
------
Copies to:
Robert J. Mittman, Esq. Mitchell C. Littman, Esq.
Tenzer Greenblatt LLP Littman Krooks & Roth, P.C.
405 Lexington Avenue 120 West 45th Street
New York, New York 10174 New York, New York 10036
Telephone No. (212) 885-5000 Telephone No. (212) 768-4646
Telecopier No. (212) 885-5001 Telecopier No. (212) 391-0399
------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, as amended, 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. [ ]
------
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
=============================================================================
<PAGE>
CALCULATION OF REGISTRATION FEE
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=======================================================================================================
Proposed Maximum Proposed Maximum
Title of each Class of Amount to be Offering Price Aggregate Offering Amount of
Securities to be Registered Registered Per Share(1) Price(1) Registration Fee
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share ........... 1,916,667(2) $6.00 $11,500,002 $3,484.85
- -------------------------------------------------------------------------------------------------------
Representative's Warrants . 166,667 .001 $166 (3)
- -------------------------------------------------------------------------------------------------------
Common Stock, par value
$.01 per share ........... 166,667(4) $7.20 $1,200,002.40 $ 363.64
- -------------------------------------------------------------------------------------------------------
Total ......................................................................... $3,848.49
=======================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Includes 250,000 additional shares of Common Stock pursuant to an
over-allotment option.
(3) Based on Rule 457(g), no fee is required.
(4) Represents warrants to be issued by the Company to the Representative at
the time of delivery and acceptance of the securities to be sold by the
Company to the public hereunder.
* As disclosed on page 4 of the Prospectus included as part of this
Registration Statement, the Prospectus gives effect to the reincorporation
of the Company under the laws of the State of Delaware and a name change on
or prior to the effective date of this Registration Statement.
<PAGE>
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
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<CAPTION>
Item in Part I of Form S-1 Caption and Subscription in Prospectus
- -------------------------- --------------------------------------
<S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus ................... Facing page of Registration Statement; Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus ........................................ Inside Front and Outside Back Cover Pages of Prospectus
3. Summary Information; Risk Factors and Ratio of
Earnings to Fixed Charges ........................ Prospectus Summary; Risk Factors
4. Use of Proceeds .................................. Use of Proceeds
5. Determination of Offering Price .................. Outside Front Cover Page of Prospectus; Underwriting
6. Dilution ........................................ Risk Factors; Dilution
7. Selling Securityholders .......................... Not applicable
8. Plan of Distribution ............................. Outside Front Cover Page of Prospectus; Underwriting; Selling
Stockholders and Plan of Distribution
9. Description of Securities to be Registered ....... Outside Front Cover Page of Prospectus; Prospectus Summary;
Description of Securities
10. Interests of Named Experts and Counsel .......... Legal Matters; Experts
11. Information with Respect to the Registrant ...... Prospectus Summary; Risk Factors; Dilution; Dividend Policy:
Capitalization; Selected Financial Data; Management's
Discussion and Analysis of Financial Condition and Results
of Operations; Business; Management; Principal Shareholders;
Certain Transactions; Description of Securities; Shares
Eligible for Future Sale; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities .. Not applicable.
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
PRELIMINARY PROSPECTUS DATED NOVEMBER 4, 1996
SUBJECT TO COMPLETION
1,666,667 SHARES
INTELLICELL CORP.
COMMON STOCK
------
Prior to this offering, there has been no public market for the Common
Stock and there can be no assurance that any such market will develop. It is
anticipated that the Common Stock will be quoted on the Nasdaq SmallCap
Market ("Nasdaq") under the symbol "ITCL." For a discussion of the factors
considered in determining the offering price, see "Underwriting."
Brightpoint, Inc. ("Brightpoint") has agreed to convert $1,000,000
principal amount of a promissory note issued by the Company (the "Brightpoint
Note") into 186,220 shares of unregistered Common Stock upon consummation of
this offering.
------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" ON PAGE 6 AND "DILUTION."
------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
==============================================================================
Price Underwriting Proceeds
to Discounts and to
Public Commissions(1) Company(2)
- ------------------------------------------------------------------------------
Per Share .... $6.00 $.48 $5.52
- ------------------------------------------------------------------------------
Total(3) .... $10,000,002 $800,000 $9,200,002
==============================================================================
(1) In addition, the Company has agreed to pay to Sands Brothers & Co., Ltd.,
as representative of the several underwriters (the "Representative"), a
2 1/2 % non-accountable expense allowance, to sell to the Representative
warrants to purchase up to 166,667 shares of Common Stock (the
"Representative's Warrants"), and to grant the Representative a right of
first refusal in connection with future financings. The Company has
agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deducting expenses, including the non-accountable expense
allowance in the amount of $250,000 ($287,500, if the Underwriters'
over-allotment option is exercised in full), estimated at $900,000,
payable by the Company.
(3) The Company has granted the Underwriters an option, exercisable within 45
days from the date of this Prospectus, to purchase up to 250,000
additional shares of Common Stock, on the same terms set forth above,
solely for the purpose of covering over-allotments. If such option is
exercised in full, the total price to public, underwriting discounts and
commissions and proceeds to Company will be $11,500,002, $920,000 and
$10,580,002, respectively. See "Underwriting."
------
The shares of Common Stock are being offered, subject to prior sale, when,
as and if delivered to and accepted by the several Underwriters and subject
to the approval of certain legal matters by counsel and to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
the offering and to reject any order in whole or in part. It is expected that
delivery of certificates representing the shares of Common Stock will be made
against payment therefor at the offices of the Representative on or about
, 1996.
------
SANDS BROTHERS & CO., LTD.
90 Park Avenue
New York, New York 10016
(212) 697-5200
The date of this Prospectus is , 1996
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF
THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information and financial statements, including the notes
thereto, appearing elsewhere in this Prospectus. Each prospective investor is
urged to read this Prospectus in its entirety. Unless otherwise indicated,
all per share data and information in this Prospectus relating to the number
of shares of Common Stock outstanding have been adjusted to give effect to
(i) a 10,150-for-1 stock split in October 1996 and, upon consummation of
this offering (ii) the issuance of 186,220 shares of Common Stock upon
conversion of the Brightpoint Note and (iii) the repurchase by the Company of
30,000 shares of Common Stock from Ben Neman, Chairman, President and Chief
Executive Officer of the Company, in consideration of the cancellation of
$180,000 of indebtedness owed by Mr. Neman to the Company (the "Stock
Repurchase"), and assumes no exercise of the Underwriters' over-allotment
option to purchase an additional 250,000 shares of Common Stock from the
Company. See "Underwriting."
THE COMPANY
Intellicell Corp. (the "Company") is engaged in the wholesale distribution
of wireless communications products. The Company offers cellular telephones
and accessories from leading manufacturers featuring brand names such as
AT&T, Audiovox, Ericsson, Mitsubishi, Motorola, Nokia, NEC, OKI, Panasonic,
Pioneer and Sony. The Company also offers a proprietary line of accessory
products under the Intellicell(R) name. The Company has developed a customer
base of more than 1,600 wholesalers, carriers, agents, dealers and retailers.
During the past two years, the Company has grown rapidly, with revenues
increasing from approximately $37,230,000 for the six months ended June 30,
1995 to approximately $42,470,000 for the six months ended June 30, 1996, and
with pro forma net income increasing from approximately $103,000 to
approximately $372,000 during the same period.
The Company's objective is to capitalize on wireless communications
opportunities in markets in which the Company believes it can achieve
significant growth. The Company intends to implement its highly focused
business strategy by (i) offering a broad product selection, (ii) emphasizing
its accessory product line, (iii) targeting emerging foreign markets, (iv)
establishing strategic relationships and (v) expanding through acquisitions.
The Company believes that the diversity of its brand name product lines, its
proprietary accessory products and its distribution capabilities position it
to capitalize on the rapidly expanding markets for wireless communication
products and services.
The markets for wireless products and services have grown substantially in
recent years as advances in system technology and wireless communications
equipment, combined with lower retail prices, have resulted in increased
demand for wireless products and services and increasing use of such products
and services primarily for personal rather than business reasons. According
to industry sources, the number of cellular subscribers in the United States
has increased from approximately 3.5 million in 1990 to more than 37.6
million in 1996, growing by more than 3.8 million in the first six months of
1996 alone. The number of cellular and personal communication services
("PCS") subscribers in the United States is projected to reach approximately
89.3 million by the year 2000. The number of worldwide cellular subscribers
has also increased and many countries with emerging economies, including
countries in Latin America, represent fast-growing markets. These markets
present attractive expansion opportunities, and management is focused on
maximizing product penetration in new and existing geographic markets in the
United States and abroad.
Industry sources indicate that the emergence of new wireless
communications technologies and services, such as digital cellular
technology, PCS and satellite communications systems, will increase demand
for wireless communications products and services upon widespread commercial
introduction. Management believes that the emergence of new wireless
technologies will result in the proliferation of new wireless voice and data
products and a significant product replacement cycle. The Company currently
distributes cellular products for several of the manufacturers expected to
compete in new and emerging wireless communications markets, and believes
that its relationships with equipment manufacturers, wholesalers and other
potential providers of emerging wireless products will position it to
capitalize on evolving industry standards and trends.
3
<PAGE>
The Intellicell line of accessory products consists principally of
batteries, battery eliminators, conditioner and plug-in chargers, cases,
antennas and "hands-free" kits. Management plans to focus the Company's
marketing efforts on increasing sales and brand name recognition of
higher-margin, proprietary accessory products. The Company is targeting
emerging foreign markets in which low market penetration, economic growth,
high population density and the limited availability and quality of land line
service create the potential for significant growth opportunities. The
Company also intends to pursue opportunities by seeking to enter into
marketing and distribution alliances and by making acquisitions of businesses
which the Company believes will enhance its prospects. In October 1996, the
Company entered into a non-exclusive agreement with Brightpoint, a leading
worldwide distributor of wireless communications products, pursuant to which
the Company will market its proprietary line of accessory products through
Brightpoint. Although the Company has identified potential areas for
expansion, there can be no assurance that the Company will be able to
successfully expand its operations.
The Company was organized under the laws of the State of California in
March 1994 under the name Cellular Telecom Corporation, as successor to the
wholesale distribution business of Cellular Telecom Partnership (the
"Partnership"), a general partnership organized in 1991. The Company intends
to reincorporate under the laws of the State of Delaware and change its name
to Intellicell Corp. on or prior to the date of this Prospectus. The
Company's principal executive offices are located at 6929 Hayvenhurst Avenue,
Van Nuys, California 91406, and its telephone number is (818) 906-7777.
Unless otherwise indicated, all references in this Prospectus to the Company
include the wholesale operations of the Partnership prior to March 1994. See
"Certain Transactions."
THE OFFERING
Common Stock offered........... 1,666,667 shares
Common Stock to be outstanding
after the offering(1)........ 3,852,887 shares
Use of Proceeds................ The Company intends to use the net proceeds
of this offering principally in connection
with its proposed expansion, including to
finance increased levels of inventories and
accounts receivable; repayment of
indebtedness; and the balance for working
capital and general corporate purposes. See
"Use of Proceeds."
Risk Factors................... The securities offered hereby involve a high
degree of risk and immediate substantial
dilution. See "Risk Factors" and "Dilution."
Proposed Nasdaq symbol......... ITCL
- ------
(1) Includes 186,220 shares issuable upon the conversion of the Brightpoint
Note upon consummation of this offering. Does not include (i) 166,667
shares of Common Stock reserved for issuance upon exercise of the
Representative's Warrants; (ii) an aggregate of 194,250 shares of Common
Stock reserved for issuance upon exercise of outstanding options under
the Company's Stock Option Plan (the "Plan"); (iii) an aggregate of
140,750 shares of Common Stock reserved for issuance upon exercise of
options available for future grant under the Plan; (iv) 65,000 shares
issuable upon exercise of options granted outside of the Plan; (v) 30,000
shares of Common Stock to be repurchased by the Company pursuant to the
Stock Repurchase upon consummation of this offering; and (vi) 15,000
shares of Common Stock reserved for issuance upon exercise of warrants
(the "CIT Warrants") to be issued to The CIT Group/Credit Finance, Inc.
("CIT") upon consummation of this offering. See "Management-- Stock
Option Plan," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Certain Transactions" and
"Underwriting."
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
(in thousands, except share and per share data)
The summary financial information set forth below is derived from the
financial statements appearing elsewhere in this Prospectus. Such information
should be read in conjunction with such financial statements, including the
notes thereto.
STATEMENT OF INCOME DATA:
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
---------------------------------------- --------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales .............................. $ 20,496 $ 56,447 $ 69,850 $ 37,230 $ 42,470
Net income (loss) ...................... (22) 437 402 175 621
Pro forma net income(loss)(1) .......... (19) 265 236 103 372
Pro forma net income (loss) per share(1) (.01) .13 .12 .05 .18
Weighted average number of common shares
outstanding ........................... 2,030,000 2,030,000 2,030,000 2,030,000 2,030,000
</TABLE>
BALANCE SHEET DATA:
June 30, 1996
--------------------------------------------------
Actual Pro Forma(2) As Adjusted(3)
-------- ------------ --------------
Working capital .... $ 7 $ 550 $ 9,030
Total assets ....... 14,707 14,250 18,405
Short-term debt .... 4,145 4,145 --
Total liabilities .. 14,072 13,072 8,927
Stockholders' equity 635 1,178 9,478
- ------
(1) The Company has elected to be treated as an S corporation and,
accordingly, is not subject to federal or state income taxes. Pro forma
net income amounts assume that the Company was subject to federal and
state income taxes and taxed at the rates in effect for the periods
presented. The Company's election to be treated as an S corporation will
terminate upon the consummation of this offering. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and Note I to Notes to Financial Statements.
(2) Gives pro forma effect to (i) aggregate S corporation distributions
estimated to be $635,000, which the Company intends to make to its
current stockholder prior to the consummation of this offering, (ii) the
recognition of a deferred tax asset in the amount of $178,000 resulting
from the termination of the Company's S corporation status, (iii) the
conversion of $1,000,000 principal amount of the Brightpoint Note into
186,220 shares of Common Stock and (iv) the Stock Repurchase, all of
which will be effected upon the consummation of this offering. The
foregoing adjustments are collectively referred to as the "Pro Forma
Adjustments." See Note L to Notes to Financial Statements.
(3) As adjusted to give effect to the sale of the Common Stock offered hereby
and the application of the estimated net proceeds therefrom. See "Use of
Proceeds" and "Capitalization."
5
<PAGE>
RISK FACTORS
The shares offered hereby involve a high degree of risk. Each prospective
investor should carefully consider the following risk factors before making
an investment decision.
Absence of Substantial Profitability; Future Operating Results. Since
inception, the Company has operated on a high-volume, low-margin basis and
has achieved limited profitability. The Company's operating expenses have
increased and can be expected to increase significantly in connection with
the Company's proposed expansion, which will require the Company to make
substantial up-front expenditures to finance increased levels of inventories
and accounts receivable and increase marketing efforts. Accordingly, the
Company's future profitability will depend upon corresponding increases in
revenues from operations. A recent trend by original equipment manufacturers
to reduce prices of cellular products has had and could continue to have an
adverse effect on the Company's profit margins. Future events, including
unanticipated expenses, increased price competition, unfavorable economic
conditions, product returns and recalls and uncollectible accounts, could
have a material adverse effect on the Company's future operating results.
There can be no assurance that the Company's future operations will be
profitable. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Financial Statements.
Risks Associated with Expansion and Possible Acquisitions. The Company has
achieved significant growth which has placed and is expected to continue to
place a strain on its management, administrative, operational, financial,
management information systems and other resources. The Company's continued
expansion will be largely dependent upon its ability to maintain its
operating and profit margins; secure an adequate supply of competitive
products on a timely basis and on commercially reasonable terms; hire and
retain skilled marketing and other personnel; and successfully manage growth
(including monitoring operations, controlling costs and maintaining effective
management, inventory and credit controls). The Company has limited
experience in effectuating rapid expansion and there can be no assurance that
the Company will be able to successfully expand its operations or manage
growth. The Company's growth prospects will be significantly affected by its
ability to continue to successfully develop and maintain relationships with
leading manufacturers and dealers of cellular products. The Company's
prospects could be adversely affected by a decline in the cellular industry
generally or in particular geographic markets or related market segments,
which could result in reduction or deferral of expenditures by prospective
customers. The Company intends to pursue opportunities by seeking to enter
into marketing and distribution alliances and by making acquisitions of
businesses which the Company believes will enhance its prospects. While the
Company has from time to time evaluated possible acquisition opportunities,
as of the date of this Prospectus, the Company has no plans, agreements,
commitments, understandings or arrangements with respect to any such
acquisition. There can be no assurance that the Company will ultimately
effect any acquisition or that the Company will be able to successfully
integrate into its operations any business which it may acquire. Any
inability to do so, particularly in instances in which the Company has made
significant capital investments, could have a material adverse effect on the
Company. See "Use of Proceeds" and "Business -- Strategy."
Dependence on Principal Suppliers. The Company is dependent on third-party
equipment manufacturers and distributors for all of its supply of cellular
telephones and accessories. For the years ended December 31, 1994 and 1995
and the six months ended June 30, 1996, the Company's four largest suppliers
accounted for approximately 62.2%, 67.0% and 60.9%, respectively, of product
purchases. For the year ended December 31, 1995, Brightpoint, CellStar
Corporation ("CellStar"), Unplugged Communications and Best Cellular
Distributors ("Best Cellular"), accounted for approximately 28.3%, 13.7%,
13.6% and 11.4%, respectively, of product purchases, with Brightpoint, Best
Cellular, CellStar and Airtouch Communications ("Airtouch") accounting for
approximately 31.9%, 10.9%, 10.0% and 8.1%, respectively, of product
purchases for the six months ended June 30, 1996. The Company is dependent on
the ability of its suppliers to provide adequate inventories of currently
popular brand name products on a timely basis and on favorable pricing terms.
The Company generally does not maintain supply agreements and purchases
products pursuant to purchase orders placed from time to time in the ordinary
course of business. There can be no assurance that suppliers will continue to
offer competitive products to the Company on favorable terms or that the
Company will not be subject to the risk of price fluctuations and periodic
delays. Failure or delay by principal suppliers in supplying competitive
products to the Company on favorable terms would materially adversely affect
the Company's operating margins and the Company's ability to obtain and
deliver products on a timely and competitive basis. See "Business --
Suppliers" and "-- Competition."
6
<PAGE>
Intense Industry Competition. The markets for wireless communications
products are characterized by intense price competition and significant price
erosion over the life of a product. The Company competes with numerous
well-established wholesale distributors and manufacturers of wireless
equipment, including the Company's customers and suppliers, as well as with
providers of cellular services, many of which possess greater financial,
marketing, personnel and other resources than the Company. Brightpoint and
CellStar, two of the Company's principal suppliers, are two of the Company's
primary competitors. Certain of these competitors have the financial
resources necessary to enable them to withstand substantial price competition
and implement extensive advertising and promotional programs, both generally
and in response to efforts by additional competitors to enter into new
markets and introduce new products. The cellular distribution industry is
also characterized by low barriers to entry and frequent introduction of new
products. The Company's ability to continue to compete successfully will be
largely dependent on its ability to maintain its current vendor relationships
and anticipate and respond to various competitive factors affecting the
industry, including new products which may be introduced, changes in consumer
preferences, demographic trends, international, national, regional and local
economic conditions (particularly recessionary conditions adversely affecting
consumer spending), discount pricing and promotional strategies by carriers
and consolidating trends in the industry. There can be no assurance that the
Company will be able to continue to compete successfully, particularly as
domestic cellular markets mature and the Company seeks to enter into new
markets and market new products. See "Business -- Competition."
Increasing Sales Concentration and Accounts Receivable; Collection and
Credit Risks. An increasing portion of the Company's revenues has been
derived from a limited customer base. For the years ended December 31, 1994
and 1995 and the six months ended June 30, 1996, sales of cellular products
to the Company's five largest customers accounted for approximately 50.5%,
48.7% and 56.5%, respectively, of the Company's revenues. For the year ended
December 31, 1995, sales of cellular products to Downtown Cellular
Distributors ("Downtown Cellular") and Brightpoint accounted for
approximately 24.7% and 10.4%, respectively, of the Company's revenues. For
the six months ended June 30, 1996, Downtown Cellular and Brightpoint
accounted for 20.0% and 19.0%, respectively, of the Company's revenues. The
loss of these customers or other principal customers could have a material
adverse effect on the Company's financial condition and results of
operations. The Company's accounts receivable, less allowance for doubtful
accounts, at June 30, 1996 were approximately $7,545,000, as compared to
approximately $4,629,000, at December 31, 1995. At June 30, 1996, the
Company's allowance for doubtful accounts was $361,000, which the Company
believes is currently adequate for the size and nature of its receivables.
Nevertheless, delays in collection or uncollectibility of accounts receivable
could have a material adverse effect on the Company's liquidity and working
capital position. For the year ended December 31, 1995 and the six months
ended June 30, 1996, approximately 63.5% and 82.3%, respectively, of the
Company's sales were made on open account terms. In connection with the
Company's proposed expansion, the Company intends to offer open account terms
to additional customers, which will subject the Company to increased credit
risk, particularly in the event that any such receivables represent sales to
a limited number of customers or are concentrated in foreign markets, and
could require the Company to continually increase its allowance for doubtful
accounts. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business -- Customers."
Evolving Industry Standards and Trends and Rapid Technological Change. The
markets for wireless communications products are characterized by rapidly
changing technology and evolving industry standards, often resulting in
product obsolescence or short product life cycles. Accordingly, the Company's
marketing strategy and ultimate success is dependent upon its ability to
anticipate technological changes in the industry and to continually identify,
obtain and successfully market new products that satisfy evolving industry
and customer requirements. In connection with the Company's proposed
expansion, the Company intends to make increased commitments of capital to
purchase product inventories. Increased concentrations of capital in
inventory increase the risk of loss from possible inventory obsolescence.
There can be no assurance that competitors or manufacturers of cellular
products will not market products which have perceived advantages over the
Company's products or which render the products currently sold by the Company
obsolete or less marketable. In addition, the use of alternative wireless
communications technologies, including PCS and satellite communications
systems, which are expected to compete with cellular systems, may reduce
demand for existing cellular products. The Company expects that companies
which have developed or are developing new technologies or products in
related market segments will commercialize technologies which would compete
with or replace existing cellu-
7
<PAGE>
lar technology. Certain of such technologies, upon widespread commercial
introduction, could materially change the types of products sold by the
Company and its suppliers and result in significant price competition. There
can be no assurance that the Company's existing customers or consumers will
be willing, for financial or other reasons, to purchase new equipment
necessary to utilize these new technologies or that product obsolescence will
not result in significant unsold inventories. Moreover, complex hardware and
software contained in new cellular and PCS equipment could contain defects
which become apparent subsequent to widespread commercial use resulting in
product recalls and returns. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Competition."
Significant Outstanding Indebtedness; Loan Covenants and Security
Interests; Personal Guarantee. In order to finance the Company's expanded
operations, in June 1996, the Company entered into a loan agreement with The
CIT Group/Credit Finance, Inc. ("CIT"), which provides for borrowings under a
revolving line of credit of up to $7.5 million. At October 15, 1996, the
Company had approximately $4.3 million outstanding under its agreement with
CIT. All of the Company's assets (including inventory and receivables) are
pledged to CIT as collateral, and the Company is prohibited from incurring
additional indebtedness, which could, under certain circumstances, limit the
Company's ability to implement its proposed expansion. In addition to
financial covenants requiring the Company to maintain a tangible net worth of
$4.5 million and working capital of $1.5 million following the consummation
of this offering, the Company's loan agreement with CIT limits or prohibits
the Company, subject to certain exceptions, from declaring or paying cash
dividends, making capital distributions or other payments to stockholders,
merging or consolidating with another corporation, selling assets (other than
in the ordinary course of business), creating liens or security interests on
the Company's assets and entering into transactions with affiliates. The
agreement also contains default provisions, including in the event that Ben
Neman, Chairman, President and Chief Executive Officer of the Company, ceases
to own a controlling interest in the Company or ceases to be the Chief
Executive Officer, the indictment of either the Company or Mr. Neman and in
the event CIT in good faith believes that the prospect of payment or
performance is materially impaired. In the event of a violation by the
Company of any of its loan covenants or other default by the Company on its
obligations, CIT could elect to declare the Company's indebtedness to be
immediately due and payable and foreclose on the Company's assets. There can
be no assurance that the Company will continue to comply with the terms of
its loan agreement with CIT in the future. Pursuant to the terms of the loan
agreement, the Company is required to use a portion of the proceeds of this
offering to repay all amounts outstanding under its line of credit.
Ben Neman, Chairman, President and Chief Executive Officer of the Company,
has personally guaranteed up to $500,000 of the Company's indebtedness owing
to CIT, which will be released in June 1997, provided that the Company has
maintained a $4.5 million tangible net worth. Neither Mr. Neman nor any other
person has any obligation to make personal guarantees available to the
Company in the future. There can be no assurance that any such personal
guarantees will be available to the Company in the future or that the absence
of any personal guarantees will not adversely affect the Company's ability to
make future borrowings. See "Use of Proceeds" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Possible Need for Additional Financing. The Company is dependent on and
intends to use the proceeds of this offering to implement its proposed
expansion. Based on currently proposed plans and assumptions relating to its
operations, the Company anticipates that the proceeds of this offering,
together with projected cash flow from operations and available cash
resources, including its line of credit, will be sufficient to satisfy its
contemplated cash requirements for at least twelve months following the
consummation of this offering. In the event that the Company's assumptions
change or prove to be inaccurate or if the proceeds of this offering, cash
flow and available cash resources prove to be insufficient to fund operations
(due to unanticipated expenses, difficulties, problems or otherwise), the
Company may be required to seek additional financing or curtail its expansion
activities. The Company may in the future determine, depending upon the
opportunities available to it, to seek additional debt or equity financing to
fund the cost of continuing expansion. To the extent that the Company obtains
equity financing or finances an acquisition with equity securities, any such
issuance of equity securities could result in dilution to the interests of
the Company's stockholders. Additionally, to the extent that the Company
incurs additional indebtedness or issues debt securities in connection with
an acquisition, the Company will be subject to risks associated with
incurring substantial additional indebtedness including the possibility that
cash
8
<PAGE>
flow may be insufficient to pay principal and interest on any such
indebtedness. There can be no assurance that additional financing will be
available to the Company on acceptable terms, or at all. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Foreign Trade Risks. Sales of cellular products to customers in foreign
markets, primarily in Israel and Latin America, have accounted for an
increasing portion of the Company's revenues. For the years ended December
31, 1994 and 1995 and the six months ended June 30, 1996, sales of cellular
products to customers in foreign markets accounted for approximately .4%, .4%
and 5.1%, respectively, of the Company's revenues. The Company is seeking to
increase product sales in foreign markets and believes that such markets
present significant growth opportunities. There can be no assurance that the
Company will be able to do so or that any such markets will ultimately prove
to be viable. To the extent that the Company is able to successfully increase
its foreign sales, it will become increasingly subject to risks inherent in
foreign trade, including increased credit risks, customs duties and import
quotas and other trade restrictions, fluctuations in foreign currency
exchange rates, shipping delays, failure or material interruption of cellular
systems and services and international political, regulatory and economic
developments, all of which, particularly in light of the historical and
political instability of many countries in Latin America and the Middle East,
could have a material adverse effect on the Company. Although all foreign
sales are currently made in United States dollars, an increase in the value
of the dollar in relation to foreign currencies may nevertheless have an
adverse effect on potential demand for cellular products. The Company
currently does not intend to engage in foreign currency transactions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Strategy."
Possible Fluctuations in Operating Results; Seasonality. The Company's
operating results may vary from period to period as a result of purchasing
patterns of potential customers, the timing of introduction of new products
by the Company's suppliers and competitors, variations in sales by
distribution channels, product availability and pricing and the seasonal
nature of the Company's business. Sales of the Company's products are
seasonal, with peak product shipments occurring in the third and fourth
quarters. Unanticipated events, including delays in securing adequate
inventories of competitive products at the time of peak sales, or significant
decreases in sales during such periods, could result in losses which would
not be easily reversed before the following year. There can be no assurance
that the foregoing factors will not result in significant fluctuations in
operating results in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Dependence on Foreign Manufacturers. The Company currently obtains all of
its proprietary accessory products from several manufacturers in Taiwan and
is dependent on such manufacturers to provide sufficient quantities of
products on favorable terms. The Company does not maintain agreements with
any such manufacturer. Failure or delay by such manufacturers in supplying
accessory products to the Company would have an adverse effect on the
Company. In addition, Taiwan may from time to time impose duties, tariffs,
quotas or other restrictions on exports or the United States may impose
increased import duties or tariffs on the import of products, which could
adversely affect the Company's operations. The Company currently pays import
duties of between 2.4% and 5.9% of the cost of its accessory products. See
"Business -- Suppliers."
Possible Adverse Effect of Trade Sanctions. The United States has from
time to time been involved in trade disputes relating to, among other things,
the opening of certain international markets to products (including cellular
telephones) manufactured in the United States. Although the Company believes
that the United States has resolved such disputes, there can be no assurance
that trade disputes will not arise in the future or that the United States
will not impose tariffs on cellular products and components manufactured
abroad. Any imposition of significant tariffs on such products and components
manufactured abroad, resulting in increased product costs, would reduce the
Company's operating margins and possibly render the marketing of such
products uneconomical. See "Business."
Possible Medical Risks Associated with Portable Cellular Telephones.
Lawsuits have been filed against manufacturers of cellular telephones
alleging possible medical risks, including brain cancer, associated with
electromagnetic fields emitted by portable hand-held cellular telephones. To
date, there has been only limited research in this area, and such research
has not been conclusive as to what effects, if any, exposure to
electromagnetic fields emitted by portable cellular telephones has on human
cells. The Company recognizes, however, that the perception that health risks
may exist could adversely affect the Company's ability to market portable
cellular telephone products. Inasmuch as a substantial portion of the
Company's revenues is derived from sales
9
<PAGE>
of portable cellular telephones, future studies confirming possible health
risks associated with the use of such products could have a material adverse
effect on the cellular communications industry and the Company. As a
distributor of cellular telephones, the Company may be subject to lawsuits
filed by plaintiffs alleging health risks. A successful claim against the
Company could have a material adverse effect on the Company. See "Business."
Trademark Litigation. The Company currently holds a federal trademark
registration for the name "Intellicell" for use in connection with wireless
accessory products. The Company's rights in this name may be a significant
part of the Company's business. In October 1996, ArrayComm Incorporated
filed an action against the Company in United States District Court for the
Northern District of California seeking a judgment to cancel the Company's
trademark registration. Plaintiff alleges, among other things, that the
Company's use of its trademark infringes the use of plaintiff's mark
Intellicell in connection with signal producing hardware and software for
wireless communications systems. The action is in a preliminary stage and the
Company is unable to determine the ultimate outcome of the action. Although
the Company intends to vigorously defend this action, there can be no
assurance that such action will be resolved in a manner favorable to the
Company. See "Business -- Trademark."
Dependence on Key Personnel. The success of the Company is largely
dependent on the personal efforts of Ben Neman, its Chairman, President and
Chief Executive Officer, James Bunting, its Executive Vice President, Chief
Operating Officer and Chief Financial Officer, and other key personnel.
Although the Company has entered into employment agreements with each of
Messrs. Neman and Bunting, the loss or interruption of the services of such
individuals or other key employees could have a material adverse effect on
the Company's business and prospects. The Company intends to obtain "key-man"
insurance in the amount of $1 million on the life of Mr. Neman prior to the
consummation of this offering. The success of the Company will also be
dependent upon its ability to hire and retain additional qualified sales,
marketing and other personnel. Competition for qualified personnel in the
cellular distribution industry is intense, and there can be no assurance that
the Company will be able to hire or retain additional qualified personnel.
See "Management."
Control by Current Stockholder. Upon consummation of this offering, Mr.
Neman will own approximately 51.9% of the Company's outstanding Common Stock
(assuming no exercise of the Underwriters' over-allotment option).
Accordingly, Mr. Neman will be able to control the Company, elect all of the
Company's directors, increase the authorized capital, dissolve, merge, or
sell the assets of the Company and generally direct the affairs of the
Company. See "Management" and "Principal Stockholders."
Authorization and Discretionary Issuance of Preferred Stock. The Company's
Certificate of Incorporation authorizes the issuance of up to 1,000,000
shares of "blank check" preferred stock with such designations, rights and
preferences as may be determined from time to time by the Board of Directors.
Accordingly, the Board of Directors is empowered, without stockholder
approval, to issue preferred stock with dividend, liquidation, conversion,
voting or other rights which could adversely affect the voting power or other
rights of the holders of the Company's Common Stock. In the event of
issuance, the preferred stock could be utilized, under certain circumstances,
as a method of discouraging, delaying or preventing a change in control of
the Company. See "Management" and "Description of Securities -- Preferred
Stock."
No Cash Dividends. The Company has not paid any cash dividends on its
Common Stock (other than S corporation distributions made to its current
stockholders) and does not expect to declare or pay any cash dividends in the
foreseeable future. The payment of cash dividends is restricted under the
terms of the Company's loan agreement with CIT. See "Dividend Policy."
Shares Eligible for Future Sale; Registration Rights. Upon completion of
this offering, the Company will have outstanding 3,852,887 shares of Common
Stock, of which the 1,666,667 shares of Common Stock being offered hereby
will be freely tradeable without restriction under the Securities Act of 1933,
as amended (the "Securities Act"). All of the remaining 2,186,220 shares
outstanding are "restricted securities" (as that term is defined under Rule 144
promulgated under the Securities Act). Such restricted shares are eligible for
sale under such rule at various times commencing 90 days from the date of this
Prospectus. All of the Company's officers, directors and securityholders have
agreed not to sell or otherwise dispose of any securities for a period of
twelve months following the date of this Prospectus, without the prior consent
of the Representative.
10
<PAGE>
In addition, the Company has granted certain demand and "piggy-back"
registration rights to CIT and the Representative with respect to an aggregate
of 181,667 shares issuable upon exercise of warrants. The Company also has
agreed to file a registration statement under the Securities Act following the
first anniversary of the date of this Prospectus covering 217,000 outstanding
shares of Common Stock underlying options granted by Mr. Neman to an employee of
the Company (sales of which will be subject to certain volume limitations) and
186,220 shares of Common Stock issuable upon conversion of the Brightpoint Note.
No prediction can be made as to the effect, if any, that sales of shares of
Common Stock or the availability of such shares for sale will have on the market
prices prevailing from time to time. Nevertheless, the possibility that
substantial amounts of Common Stock may be sold in the public market may
adversely affect prevailing market prices for the Common Stock and could impair
the Company's ability to raise capital through the sale of its equity secur-
ities. See "Management," "Principal Stockholders," "Shares Eligible for Future
Sale" and "Underwriting."
Immediate and Substantial Dilution. This offering involves an immediate
and substantial dilution of $3.66 (60.9%) per share between the pro forma net
tangible book value per share of Common Stock and the initial public offering
price. See "Dilution."
No Assurance of Public Market; Determination of Offering Price; Possible
Volatility of Market Price for the Common Stock. Prior to this offering there
has been no public trading market for the Common Stock. Consequently, the
initial offering price of the Common Stock has been determined by
negotiations between the Company and the Representative. In addition, there
can be no assurance that a regular trading market for the Common Stock will
develop after this offering or that, if developed, it will be sustained. The
market price for the Common Stock following this offering may be highly
volatile. Factors such as the Company's operating results and announcements
by the Company or its competitors concerning technological innovations or new
products may have a significant impact on the market price for the Common
Stock. Additionally, in recent years, the stock market has experienced a high
level of price and volume volatility and market prices for the stock of many
companies have experienced wide price fluctuations not necessarily related to
the operating performance of such companies. See "Underwriting."
Broad Discretion in Application of Proceeds. A substantial portion of the
estimated net proceeds from this offering has been allocated to finance
increased levels of inventories and accounts receivable and for working
capital and general corporate purposes. Accordingly, the Company will have
broad discretion as to the application of such proceeds. See "Use of
Proceeds."
Possible Delisting of Securities from Nasdaq System; Risks Relating to
Low-Priced Stocks. It is currently anticipated that the Company's Common Stock
will be eligible for listing on the Nasdaq SmallCap Market upon the completion
of this offering. In order to continue to be listed on Nasdaq, however, the
Company must maintain $2,000,000 in total assets, a $200,000 market value of the
public float and $1,000,000 in total capital and surplus. In addition, continued
inclusion requires two market-makers and a minimum bid price of $1.00 per share;
provided, however, that if the Company falls below such minimum bid price, it
will remain eligible for continued inclusion on Nasdaq if the market value of
the public float is at least $1,000,000 and the Company has $2,000,000 in
capital and surplus. The failure to meet these maintenance criteria in the
future may result in the delisting of the Common Stock from Nasdaq, and trading,
if any, in the Common Stock would thereafter be conducted in the non-Nasdaq
over-the-counter market. As a result of such delisting, an investor could find
it more difficult to dispose of, or to obtain accurate quotations as to the
market value of, the Company's securities. In addition, if the Common Stock were
to become delisted from trading on Nasdaq and the trading price of the Common
Stock were to fall below $5.00 per share, trading in the Common Stock would also
be subject to the requirements of certain rules promulgated under the Securities
Exchange Act of 1934 (the "Exchange Act"), which require additional disclosure
by broker-dealers in connection with any trades involving a stock defined as a
penny stock (generally, any non- Nasdaq equity security that has a market price
of less than $5.00 per share, subject to certain exceptions). Such rules require
the delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith, and impose
various sales practice requirements on broker- dealers who sell penny stocks to
persons other than established customers and accredited investors (generally
institutions). For these types of transactions, the broker-dealer must make a
special suitability determination for
11
<PAGE>
the purchaser and have received the purchaser's written consent to the
transaction prior to sale. The additional burdens imposed upon broker-dealers
by such requirements may discourage broker-dealers from effecting
transactions in the Common Stock, which could severely limit the market
liquidity of the Common Stock and the ability of purchasers in this offering
to sell the Common Stock in the secondary market.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be $8,300,002. The Company expects to use the
net proceeds principally in connection with its proposed expansion, including to
finance increased levels of inventories and accounts receivable. The Company
anticipates that the proceeds of this offering will fund the Company's expanded
operations and allow it to finance inventory purchases at reduced costs. The
amount of proceeds used to finance accounts receivable will depend upon the
Company's ability to increase its revenues and offer open account terms. In
addition, in order to accommodate future growth, the Company intends to use a
portion of the proceeds to relocate its warehouse to larger facilities.
The Company intends to use a portion of the net proceeds of this offering
to repay all amounts outstanding under its revolving line of credit with CIT,
permitting it to utilize the full borrowing availability under the line of
credit. Borrowings under the line of credit vary daily based on the Company's
working capital requirements. At October 15, 1996, approximately $4.3 million
was outstanding under the line of credit. Interest accrues on advances made
under the line of credit at the prime rate established by Chase Manhattan
Bank from time to time plus 1.75% per annum. The Company's line of credit
with CIT expires in June 1998. Advances under the line of credit have been
used to finance the Company's increased level of business. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation."
The balance of the net proceeds of this offering will be used for working
capital and general corporate purposes. The Company will use a portion of the
proceeds of this offering allocated to working capital to pay $217,116 of
principal and accrued interest outstanding under the Brightpoint Note. The
Company may also use a portion of the proceeds allocated to working capital
to enter into marketing and distribution alliances or to acquire businesses
which the Company believes will enhance its business prospects. While the
Company has from time to time evaluated possible acquisition opportunities,
as of the date of this Prospectus, the Company has no agreements,
commitments, understandings or arrangements with respect to any acquisition.
If the Underwriters exercise the over-allotment option in full, the
Company will realize additional net proceeds of approximately $1,342,500,
which will be added to working capital.
The Company anticipates, based on currently proposed plans and assumptions
relating to its operations, that the proceeds of this offering, together with
projected cash flow from operations and available cash resources, including
its revolving line of credit, will be sufficient to satisfy its contemplated
cash requirements for at least twelve months following the consummation of
this offering. In the event that the Company's plans change, its assumptions
change or prove to be inaccurate or if the proceeds of this offering, cash
flow and available cash resources otherwise prove to be insufficient to fund
operations (due to unanticipated expenses, difficulties, problems or
otherwise), the Company may be required to seek additional financing sooner
than anticipated or curtail its expansion activities. There can be no
assurance that additional financing will be available to the Company, if
required, on acceptable terms, or at all.
Proceeds not immediately required for the purposes set forth above will be
invested principally in United States government securities, short-term
certificates of deposit, money market funds or other interest-bearing
investments.
DIVIDEND POLICY
To date, the Company has not declared or paid any dividends on its Common
Stock (other than S corporation distributions to its current stockholder) and
does not expect to declare or pay any cash dividends in the foreseeable
future. The payment of dividends, if any, in the future is within the
discretion of the Board of Direc-
12
<PAGE>
tors and will depend upon the Company's earnings, if any, its capital
requirements and financial condition and other relevant factors. The payment
of cash dividends is restricted under the terms of the Company's loan
agreement with CIT. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
DILUTION
The difference between the public offering price per share of Common Stock
and the pro forma net tangible book value per share after the offering
constitutes the dilution to investors in this offering. Pro forma net
tangible book value (after giving effect to Pro Forma Adjustments) is
determined by dividing the pro forma net tangible book value of the Company
(total pro forma tangible assets less total liabilities) by the number of
outstanding shares of Common Stock.
At June 30, 1996, the pro forma net tangible book value of the Company was
$552,000, or approximately $.25 per share of Common Stock. After giving
effect to the sale of the shares of Common Stock being offered hereby (less
underwriting discounts and commissions and estimated expenses of this
offering) and the application of the estimated net proceeds therefrom, the
pro forma net tangible book value of the Company at June 30, 1996 would have
been $9,032,000, or approximately $2.34 per share, representing an immediate
increase in pro forma net tangible book value of $2.09 per share to existing
stockholders and an immediate dilution of $3.66 per share to new investors.
The following table illustrates the foregoing information with respect to
dilution to new investors on a per share basis:
Public offering price ........................... $6.00
Pro forma net tangible book value before
offering ................................. $ .25
Increase attributable to new investors ..... 2.09
-----
Pro forma net tangible book value after offering 2.34
-----
Dilution to new investors ....................... $3.66
=====
If the over-allotment option is exercised in full, the net tangible book
value after the offering would be approximately $2.53 per share, resulting in
dilution to new investors of $3.47.
The following table sets forth, with respect to existing stockholders and
new investors, a comparison of the number of shares of Common Stock acquired
from the Company, the percentage ownership of such shares, the total
consideration paid, the percentage of total consideration paid and the
average price per share:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------------ -------------------------- Average
Price per
Number Percent Amount Percent Share
----------- --------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders 2,186,220 56.7% $ 1,000,000 9.1% $ .46
New investors ....... 1,666,667 43.3% 10,000,002 90.9% 6.00
----------- --------- ------------- ---------
Total ............... 3,852,887 100.0% $11,000,002 100.0%
=========== ========= ============= =========
</TABLE>
The above table gives effect to the conversion of the Brightpoint Note and
assumes no exercise of the Underwriters' over-allotment option or outstanding
options. If the over-allotment option is exercised in full, the new investors
will have paid $11,500,002 for 1,916,667 shares of Common Stock, representing
92.0% of the total consideration for 46.7% of the total number of shares of
Common Stock outstanding. See "Underwriting."
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
June 30, 1996 and on a pro forma basis to give effect to the Pro Forma
Adjustments, and as adjusted to give effect to the sale of the shares of
Common stock offered hereby and the application of the estimated net proceeds
therefrom. See Note L to Notes to Financial Statements.
<TABLE>
<CAPTION>
June 30, 1996
--------------------------------------------
Actual Pro Forma As Adjusted
------------ ------------ -------------
<S> <C> <C> <C>
Short-term debt ................................... $4,145,000 $4,145,000 $ --
============ ============ =============
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000
shares authorized; none issued or
outstanding ................................ $ -- $ -- $ --
Common Stock, $.01 par value 15,000,000 shares
authorized; 2,030,000 issued and
outstanding; 2,186,220 shares issued and
outstanding, pro forma; 3,852,887 shares
issued and outstanding, as adjusted(1) ..... 20,000 22,000 39,000
Additional paid-in capital ................... 80,000 898,000 9,181,000
Retained earnings ............................ 715,000 258,000 258,000
Due from officer ............................. (180,000) -- --
------------ ------------ -------------
Total stockholders' equity .............. 635,000 1,178,000 9,478,000
------------ ------------ -------------
Total capitalization .................... $ 635,000 $1,178,000 $9,478,000
============ ============ =============
</TABLE>
- ------
(1) Does not include (i) 166,667 shares of Common stock reserved for issuance
upon exercise of the Underwriters' Warrants; (ii) an aggregate of 194,250
shares of Common Stock reserved for issuance upon exercise of outstanding
options under the Plan; (iii) an aggregate of 140,750 shares of Common
Stock reserved for issuance upon exercise of options available for future
grant under the Plan; (iv) 65,000 shares issuable upon exercise of
options granted outside of the Plan; and (v) 15,000 shares of Common
Stock reserved for issuance upon exercise of the CIT Warrants. See
"Management -- Stock Option Plan", "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Certain Transactions"
and "Underwriting."
14
<PAGE>
SELECTED FINANCIAL DATA
(in thousands, except share and per share data)
The following selected financial data at and for the years ended December
31, 1993, 1994 and 1995 and the six months ended June 30, 1995 and 1996 has
been derived from the Company's financial statements included elsewhere in
this Prospectus and should be read in conjunction with the financial
statements and the notes thereto. The balance sheet data at December 31, 1993
is not contained in the Company's financial statements included elsewhere in
this Prospectus.
STATEMENT OF INCOME DATA:
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
---------------------------------------- --------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales ......................... $ 20,496 $ 56,447 $ 69,850 $ 37,230 $ 42,470
Cost of sales ..................... 19,846 54,402 67,485 35,964 40,595
----------- ----------- ----------- ----------- -----------
Gross profit ...................... 650 2,045 2,365 1,266 1,875
Selling, general and administrative
expenses ......................... 647 1,505 1,877 1,062 1,167
----------- ----------- ----------- ----------- -----------
Income from operations ............ 3 540 488 204 708
Other income (expense) ............ (25) 103 (86) (29) (87)
----------- ----------- ----------- ----------- -----------
Net income (loss) ................. $ (22) $ 437 $ 402 $ 175 $ 621
=========== =========== =========== =========== ===========
Pro forma net income (loss)(1) .... $ (19) $ 265 $ 236 $ 103 $ 372
=========== =========== =========== =========== ===========
Pro forma net income (loss) per
share(1) ......................... $ (.01) $ .13 $ .12 $ .05 $ .18
=========== =========== =========== =========== ===========
Weighted average number of common
shares outstanding ............... 2,030,000 2,030,000 2,030,000 2,030,000 2,030,000
=========== =========== =========== =========== ===========
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
December 31, June 30, 1996
------------------------------- ------------------------
1993 1994 1995 Actual Pro forma(2)
-------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Working capital (deficiency) ..... $ (151) $ (175) $ (243) $ 7 $ 550
Total assets ..................... 2,077 7,250 8,604 14,707 14,250
Short-term debt .................. -- -- -- 4,145 4,145
Total liabilities ................ 2,212 7,392 8,590 14,072 13,072
Stockholders' equity (deficiency) (135) (142) 14 635 1,178
</TABLE>
- ------
(1) The Company has elected to be treated as an S corporation and,
accordingly, is not subject to federal or state income taxes. Pro forma
net income amounts assume that the Company was subject to federal and
state income taxes and taxed at the rates in effect for the periods
presented. The Company's election to be treated as an S corporation will
terminate upon the consummation of this offering. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and Note I to Notes to Financial Statements.
(2) Gives effect to the Pro Forma Adjustments.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
net sales represented by certain items reflected in the Company's statement
of operations. The statement of operations contained in the Company's
financial statements and the following table include pro forma adjustment for
income taxes. See Note L to Notes to Financial Statements.
<TABLE>
<CAPTION>
Percentages of Net Sales
------------------------------------------------------
Six Months Ended
Year Ended December 31, June 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales .................................. 100.0 % 100.0% 100.0% 100.0% 100.0%
Cost of sales .............................. 96.8 96.4 96.6 96.6 95.6
Gross profit ............................... 3.2 3.6 3.4 3.4 4.4
Selling, general and administrative expenses 3.2 2.7 2.7 2.9 2.7
Income from operations ..................... .01 1.0 .7 .5 1.7
Net income ................................. .0 .8 .6 .5 1.5
Pro forma net income ....................... .0 .5 .3 .3 .9
</TABLE>
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Net sales increased by approximately $5,240,000 or 14.1%, from the six
months ended June 30, 1995 to the six months ended June 30, 1996. The
increase in net sales was primarily attributable to the expanded level of the
Company's operations and primarily reflects higher-volume sales. For the six
months ended June 30, 1996, domestic and foreign net sales were approximately
$40,308,000 and $2,162,000, respectively, or 94.9% and 5.1%, respectively of
the Company's net sales.
Gross profit increased by approximately $643,000, or 50.8%, from the six
months ended June 30, 1995 to the six months ended June 30, 1996. Gross
profit as a percentage of net sales increased from approximately 3.4% to
approximately 4.4% during these periods. The increase in gross profit was due
to the purchase of inventories at lower per unit costs as a result of volume
discounts, and increased sales of higher-margin accessory products. In future
periods, gross profit may be adversely affected by merchandise, freight and
other costs, price competition and by changes in the mix of products offered
by the Company.
Selling, general and administrative expenses increased by approximately
$71,000, or 6.7%, from the six months ended June 30, 1995 to the six months
ended June 30, 1996, but remained relatively constant as a percentage of net
sales. The increase in absolute dollars was attributable to the Company's
expanded level of operations and reflects increases in bad debt and
collection expense of $53,000. While the Company expects these expenses will
continue to increase in absolute dollars in connection with higher levels of
sales, it is anticipated that selling, general and administrative expenses as
a percentage of net sales will remain relatively constant.
Income from operations was approximately $204,000 for the six months ended
June 30, 1995, as compared to approximately $776,000 for the six months ended
June 30, 1996, an increase of approximately $572,000, or 280.4%. Income from
operations as a percentage of net sales increased from .5% to 1.7% during
these periods. The increase was primarily attributable to the increase in
gross profit, partially offset by an increase in selling, general and
administrative expenses.
Net income increased from approximately $175,000 for the six months ended
June 30, 1995 to approximately $621,000 for the six months ended June 30,
1996, an increase of approximately $446,000, or 254.9%. The increase in net
income resulted from an increase in gross profit, partially offset by higher
selling, general and administrative expense and higher interest expense. Net
income as a percentage of net sales increased from approximately .5% for the
six months ended June 30, 1995 to approximately 1.5% for the six months ended
June 30, 1996. Pro forma net income increased from $103,000 in the six months
ended June 30, 1995 to $372,000 in the six months ended June 30, 1996, an
increase of approximately 261.2%.
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Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net sales increased by approximately $13,403,000, or 23.7%, from 1994 to
1995. This increase was primar- ily attributable to the expanded level of the
Company's operations, including relocation to larger warehouse facilities to
accommodate higher levels of inventories. Domestic and foreign sales were
approximately $69,584,000 and $266,000, respectively, or 99.6% and 0.4%,
respectively, of the Company's net sales for the year ended December 31,
1995.
Gross profit increased by approximately $320,000, or 15.6%, from 1994 to
1995. Gross profit as a percentage of net sales decreased from 3.6% to 3.4%
during these periods. The decrease in gross profit as a percentage of net
sales was attributable to sales of products at lower per unit prices.
Selling, general and administrative expenses increased by approximately
$372,000, or 24.7%, from 1994 to 1995, but remained constant as a percentage
of net sales during these periods. The increase in absolute dollars was
attributable to the Company's higher level of business activities, including
increases in salary expense of $178,000 and insurance expense of $100,000.
Income from operations was approximately $488,000 for 1995, as compared to
approximately $540,000 for 1994, a decrease of approximately $52,000, or
9.6%. Income from operations as a percentage of net sales decreased from
approximately 1.0% to 0.7% during these periods. This decrease was primarily
attributable to the increase in selling, general and administrative expenses.
Net income decreased from approximately $437,000 in 1994 to approximately
$402,000 in 1995. Net income as a percentage of net sales also decreased
during these periods from approximately .8% to .6%. Pro forma net income
decreased from approximately $265,000 in 1994 to approximately $236,000 in
1995, a decrease of approximately $29,000 or 10.9%. Pro forma net income as a
percentage of net sales decreased from approximately .5% in 1994 to .3% in
1995.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Net sales increased by approximately $35,951,000, or 175.4%, from 1993 to
1994. This increase was attributable to increased trade credit available,
increased warehouse capacity and expanded marketing activities. Domestic and
foreign sales were approximately $56,236,000 and $211,000, respectively, or
99.6% and .4%, respectively, of the Company's net sales for the year ended
December 31, 1994.
Gross profit increased by approximately $1,395,000, or 214.6%, from 1993
to 1994. Gross profit as a percentage of net sales increased from 3.2% in
1993 to 3.6% in 1994. The increase was attributable to increased sales of
higher-margin accessory products.
Selling, general and administrative expenses increased by approximately
$858,000, or 132.6%, from 1993 to 1994, but decreased as a percentage of net
sales by approximately .5%. The increase in absolute dollars resulted from
expenses incurred in connection with the expansion of the Company's
operations, including increases in salary expense of $323,000 and bad debt
expense of $279,000. The decrease in such expenses as a percentage of net
sales was attributable to the fixed nature of certain of such expenses.
Income from operations was approximately $540,000 for 1994, as compared to
approximately $3,000 for 1993, an increase of approximately $537,000. Income
from operations as a percentage of net sales increased from approximately
.01% in 1993 to 1.0% in 1994. The increase was primarily attributable to the
increase in gross margin and increased sales volume.
Net income increased from a net loss of approximately $22,000 in 1993 to
net income of approximately $437,000 in 1994, an increase of approximately
$459,000. Net income as a percentage of net sales increased to .8% in 1994.
This increase was primarily attributable to increased sales volume and gross
profit margin. Pro forma net income increased from a pro forma net loss of
$19,000 in 1993 to pro forma net income of approximately $265,000 in 1994, an
increase of approximately $284,000. Pro forma net income as a percentage of
net sales increased to .5% in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements have been to fund increased levels
of inventories and accounts receivable. The Company has historically
satisfied its working capital requirements principally through cash flow from
operations and borrowings. At June 30, 1996, the Company had working capital
of approximately $7,000 compared to a working capital deficiency of
approximately ($243,000) at December 31, 1995.
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Net cash used in operating activities was approximately $1,944,000 for the
six months ended June 30, 1996, as compared to approximately $233,000 for the
six months ended June 30, 1995. The increase in cash used was primarily
attributable to increased levels of inventory and accounts receivable. Net
cash provided by investing activities was approximately $371,000 for the six
months ended June 30, 1996, as compared to net cash used in investing
activities of $22,000 for the six months ended June 30, 1995. The increase in
cash provided by investing activities was attributable to proceeds from the
repayment of loans due from affiliates. Net cash provided by financing
activities was approximately $2,391,000 for the six months ended June 30,
1996, as compared to approximately $103,000 used in financing activities for
the six months ended June 30, 1995. The increase was attributable to the
proceeds of the Company's line of credit with CIT, partially offset by the
payment of loans payable. At June 30, 1996, the Company had cash of
approximately $818,000.
Net cash provided by operating activities was approximately $246,000 for
the year ended December 31, 1995, as compared to approximately $1,361,000 for
the year ended December 31, 1994, and as compared to net cash used in
operating activities of approximately $342,000 for the year ended December
31, 1993. The decrease in cash provided by operating activities in 1995 as
compared to 1994 was primarily due to a reduction in the growth of accounts
payable, partially offset by a reduction in the growth of inventories and
accounts receivable in 1995. The increase in cash provided by operating
activities in 1994 as compared to the cash used in 1993 was primarily due to
the increased purchases of inventory resulting in increased accounts payable
balances. Net cash used in investing activities was approximately $579,000
for the year ended December 31, 1995, as compared to $69,000 for year ended
December 31, 1994. The increase was primarily attributable to loans made to
employees of the Company. Net cash used in financing activities for the year
ended December 31, 1995 was approximately $25,000, as compared to
approximately $934,000 for the year ended December 31, 1994, and as compared
to net cash provided by financing activities of approximately $305,000 for
the year ended December 31, 1993. Net cash used in financing activities
during these periods primarily reflects S corporation distributions and
proceeds and the repayment of loans and bank overdrafts.
In June 1996, the Company entered into a loan agreement with CIT which
provides for borrowings under a line of credit of up to $7.5 million.
Advances under the line of credit are based on a borrowing formula equal to
the sum of (i) 82% of eligible accounts receivable and (ii) 50% of eligible
inventory. Interest accrues on such advances at the prime lending rate
established by Chase Manhattan Bank from time to time plus 1.75% per annum
and is payable monthly. The credit line expires in June 1998. At October 15,
1996, approximately $4.3 million was outstanding under the line of credit.
The Company intends to use a portion of the proceeds of this offering to
repay all amounts outstanding under its line of credit. The Company expects
to use the resulting increased borrowing availability under the line of
credit to fund its planned expansion.
All of the Company's assets (including inventories and receivables) are
pledged to CIT as collateral for the loan, and the Company is prohibited from
incurring additional indebtedness, except for trade indebtedness, which
could, under certain circumstances, limit the Company's ability to expand its
operations. In addition to financial covenants requiring the Company to
maintain a tangible net worth of $4.5 million and working capital of $1.5
million following the consummation of this offering, the Company's agreement
with CIT limits or prohibits the Company, subject to certain exceptions, from
declaring or paying cash dividends, making capital distributions or other
payments to stockholders, merging or consolidating with another corporation,
selling assets (other than in the ordinary course of business), creating
liens or security interests on the Company's assets and entering into
transactions with affiliates.
Mr. Ben Neman, Chairman, President and Chief Executive Officer of the
Company, has personally guaranteed up to $500,000 of the Company's
indebtedness to CIT. Such guarantee will be released in June 1997, provided
the Company has a tangible net worth of $4.5 million. There can be no
assurance that any such guarantees will be available to the Company in the
future. See "Certain Transactions."
In connection with the loan agreement, the Company agreed to issue the CIT
Warrants to purchase 15,000 shares of Common Stock at an exercise price of
$6.00 per share and which are otherwise substantially similar to the
Underwriter's Warrants.
In December 1995, the Company converted $2,000,000 of a trade payable
balance to Brightpoint into a loan bearing interest at the rate of 9.1% per
annum and repayable in twelve equal monthly installments of $175,000.
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Payments under such loan were made through May 1996 and, in July 1996, the
Company issued the Brightpoint Note in order to evidence the remaining
outstanding principal balance of $1,188,577. The Brightpoint Note bears
interest at a rate of 9.1% per annum and is due on December 31, 1996. At
September 30, 1996, the Company owed Brightpoint approximately $1,217,116,
consisting of $1,888,577 principal amount of the Brightpoint Note and $28,539
of accrued interest. Upon the consummation of this offering, $1,000,000 of
the principal amount of the Brightpoint Note will automatically convert into
186,220 shares of Common Stock.
The Company has increasingly emphasized the sale of products on open
account terms and has purchased increased levels of inventories to support an
expanding customer base, which has resulted in increased accounts receivable
days outstanding and a decrease in inventory turns. Trade accounts receivable
averaged 21.5 days of sales made on open account in fiscal 1994, as compared
to an average 24.2 days in fiscal 1995 and 32.3 days through June 30, 1996,
while inventory turns increased from 16.2 times during fiscal 1994 to 20.4
times during fiscal 1995 and decreased to 14.3 times through June 30, 1996.
The Company's accounts receivable, less allowance for doubtful accounts,
at June 30, 1996 were approximately $7,545,000 as compared to approximately
$4,629,000, at December 31, 1995. As of June 30, 1996, accounts 90 or more
days past due were approximately 6.5% of aggregate trade accounts receivable.
Bad debt expense accounted for less than 1% of the Company's revenues for the
years ended December 31, 1994 and 1995.
At June 30, 1996, the Company's allowance for doubtful accounts was
$361,000, which the Company believes is currently adequate for the size and
nature of its receivables. Nevertheless, delays in collection or the
uncollectibility of accounts receivable could have an adverse effect on the
Company's liquidity and working capital position. In connection with the
Company's proposed expansion, the Company intends to offer open account terms
to additional customers, which will subject the Company to increased credit
risks, particularly in foreign markets, and could require the Company to
increase its allowance for doubtful accounts. The Company attempts to
minimize losses on credit sales by closely monitoring its customers'
creditworthiness. The Company seeks to obtain letters of credit or similar
security in connection with open account sales to customers located in
foreign markets.
The Company has elected to be taxed as an S corporation and, accordingly,
is not subject to income taxes. Net income has been taxed for federal and
state income purposes directly to the Company's stockholder. For the years
ended December 31, 1993, 1994 and 1995, the Company made S corporation
distributions to its stockholders in the amounts of $476,000, $444,000 and
$166,000, respectively. During the period from August through October 1996,
the Company made S corporation distributions of $250,000 and intends to make
an S corporation distribution of approximately $385,000 to its current
stockholder prior to the consummation of this offering. The Company's
election to be treated as an S corporation will terminate upon consummation
of this offering. See Note I to Notes to Financial Statements.
The Company is dependent on and intends to use the proceeds of this
offering to implement its proposed expansion. The Company anticipates, based
on currently proposed plans and assumptions relating to its operations, that
the proceeds of this offering, together with projected cash flow from
operations and available capital resources, including its revolving line of
credit, will be sufficient to satisfy its contemplated cash requirements for
at least twelve months following the consummation of this offering.
SEASONALITY
Sales of the Company's products are seasonal, with peak product shipments
occurring in the third and fourth quarters.
INFLATION
Inflation has historically not had a material effect on the Company's
operations.
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BUSINESS
The Company is engaged in the wholesale distribution of wireless
communications products. The Company offers cellular telephones and
accessories from leading manufacturers featuring brand names such as AT&T,
Audiovox, Ericsson, Mitsubishi, Motorola, Nokia, NEC, OKI, Panasonic, Pioneer
and Sony. The Company also offers a proprietary line of accessory products
under the Intellicell(R) name. The Company has developed a customer base of
more than 1,600 wholesalers, carriers, agents, dealers and retailers. During
the past two years, the Company has grown rapidly, with revenues increasing
from approximately $37,230,000 for the six months ended June 30, 1995, to
approximately $42,470,000 for the six months ended June 30, 1996, and with
pro forma net income increasing from approximately $103,000 to approximately
$372,000 during the same period.
THE WIRELESS COMMUNICATIONS INDUSTRY
The wireless communications industry provides voice and data
communications services through cellular telephone, PCS, satellite, enhanced
specialized mobile radio and paging services. Advances in system technology
and equipment, combined with lower equipment prices and service charges, have
increased consumer acceptance and driven dramatic increases in worldwide
demand for wireless communications products and services.
United States Market
The domestic market for wireless communications products and services has
grown substantially. According to the Cellular Telecommunications Industry
Association, the number of cellular subscribers in the United States has
increased from approximately 3.5 million in 1990 to approximately 37.6
million in 1996, growing by more than 3.8 million, or approximately 10.1%, in
the first six months of 1996 alone. The number of cellular and PCS
subscribers in the United States is projected to reach approximately 89.3
million by the year 2000. It is estimated that market penetration for
cellular subscribers in the United States, based on population, was
approximately 14.5% at June 30, 1996.
The Company believes that the United States cellular market is expanding
primarily due to decreases in monthly services fees and retail prices for
cellular telephones and a significant product replacement cycle. Many
cellular service providers are upgrading their existing cellular systems from
analog radio frequency to digital radio frequency technology. Digital systems
offer certain advantages over analog systems, including improved quality of
voice and data transmission and greater system capacity, thereby enabling
carriers to add additional subscribers. The Company believes that
proliferation of digital systems will increase demand for cellular service
and new cellular products.
International Market
The markets for cellular products and services outside the United States
also have grown significantly. According to the United States Department of
Commerce, the number of cellular subscribers outside the United States
increased from approximately eight million subscribers in 1991 to
approximately 52 million subscribers by the end of 1995, growing by
approximately 22 million subscribers, or approximately 74%, in 1995 alone. It
is estimated that market penetration for cellular subscribers outside the
United States, based on population, was less than 2% at the end of 1995.
Worldwide wireless subscriber growth is expected to grow approximately 28%
from 1996 to the year 2000, according to Malarky-Taylor / Economic and
Management Consultants International.
The Company expects that rapid growth in international markets will
continue as low market penetration, economic growth and high population
density result in increased demand for cellular communications products and
services. The Company also believes that cellular systems in certain of these
countries offer lower-cost alternatives to the construction of conventional
telephone facilities because they do not require substantial investment in
infrastructure. Due to these factors and the limited availability and quality
of land-line service, the Company believes that consumers in many countries
outside of the United States will increasingly utilize wireless services.
These markets present attractive expansion opportunities, and management is
focused on maximizing penetration in new and existing geographic markets in
the United States and abroad.
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Emerging Wireless Technologies
In addition to growth in the cellular market, the emergence of new
wireless communications technologies and services, such as the PCS, ESMR and
satellite communications systems, is expected to increase the capabilities
associated with wireless communications including seamless roaming, increased
service coverage, improved signal quality and greater data transmission
capacity. It is anticipated that PCS will consist of cellular type services,
including advanced voice and data transmissions using small, light weight
wireless telephones or hand-held computers. PCS is expected to offer greater
functionality resulting in lower cost service options and lighter handsets
with longer battery life. PCS has been recently introduced in the Washington,
D.C. and Baltimore metropolitan areas. Upon the widespread commercial
introduction of these services, demand for wireless communications products
and services is expected to increase.
Prior to 1995, the United States Federal Communications Commission (the
"FCC") allowed two carriers to provide cellular service to each metropolitan
service area. In connection with the auctioning of PCS licenses in 1995 and
1996, the FCC added three PCS carriers to every metropolitan service area,
increasing the total number of potential carriers to five per market. The
Company believes that this increase in the number of wireless service
providers will increase competition and the demand for wireless
communications products and services through lower prices, increased
advertising and improved service quality.
During late 1994, the FCC awarded three mobile satellite licenses to major
corporations that are investing in satellites which will enable them to
provide wireless phone, data, fax and paging services on a global basis. In
addition, other corporations announced their intention to enter the mobile
satellite market and launch networks which would permit computers to bypass
local telephone exchanges and connect directly to the Internet.
Regulatory Trends
The Company believes that the Telecommunications Act of 1996 will
ultimately serve to reverse the trends associated with the breakup of AT&T
and the Bell System that separated long distance and local telephone service.
Such act now permits long distance, cable and wireless companies to compete
in local markets. The Company believes that such deregulation will
significantly increase competition that will translate into lower costs and
increased numbers of subscribers.
STRATEGY
The Company's objective is to capitalize on wireless communication
opportunities in markets in which the Company believes it can rapidly achieve
significant growth. The Company has developed a highly focused strategy which
includes the following key elements:
o Offer Broad Product Selection. The Company distributes a broad
selection of popular brand name products and accessories. The Company
continually analyzes customer purchasing patterns and industry trends to
anticipate demand for new products. The emergence of new wireless
communications technologies, including digital cellular technology, PCS and
satellite communications systems, is expected to dramatically increase demand
for wireless products and services. The Company intends to evaluate cost,
effectiveness and the potential of future wireless services as primary
considerations in selecting products for particular markets. The Company
recently entered into a non-exclusive agreement with Sony Wireless
Communications Company to distribute Sony cellular telephones and accessories
to carriers and retailers. The Company believes that its relationships with
equipment manufacturers and other potential providers of emerging wireless
products and services will position it to capitalize on evolving industry
standards and trends.
o Emphasize Accessory Product Line. Consistent with its growth strategy,
the Company intends to increase sales and market recognition of its
higher-margin, proprietary Intellicell accessory product line. The Company
believes that increased awareness of the Company's trade name and accessory
product line will contribute favorably to market recognition and provide
customers with valuable access to a broad range of accessories without having
to carry significant inventories. The Company will seek to provide accessory
products directly to original equipment manufacturers.
o Target Emerging Foreign Markets. The Company is targeting emerging
foreign markets in which cellular products are believed to have potential for
significant market penetration. The Company believes that certain
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markets are likely to achieve greater penetration based on anticipated
economic growth and the increasing numbers of carriers. Many of these
markets, particularly in Latin American countries, are characterized by low
penetration rates, high population densities and inadequate land-line
service. The Company anticipates that it will initially seek to achieve
penetration in regions with fast-growing economies and wireless markets. The
Company will seek to establish a position in Latin America by developing
relationships with established carriers and industry participants.
o Establish Strategic Relationships. The Company will seek to establish
strategic marketing arrangements with partners who will provide knowledge,
experience and financial resources appropriate to a specific opportunity and
who will enhance the Company's ability to achieve significant penetration in
particular markets. The Company intends to concentrate on obtaining maximum
exposure of wireless products by targeting alternative distribution channels,
including mass merchandisers and retailers with access to significant
consumer markets. The Company will also seek to offer value-added services,
including activation, inventory management, packaging and end-user delivery.
The Company recently entered into a non-exclusive agreement with Brightpoint
pursuant to which the Company will market its proprietary line of accessory
products through Brightpoint.
o Expand Through Acquisitions. The Company may also seek to expand
through acquisitions of companies which the Company believes will provide
significant growth potential. Any decision to make an acquisition will be
based upon the business prospects and competitive position of the acquisition
candidate and the extent to which any business would enhance the Company's
prospects and maximize revenues. Potential acquisition candidates may include
companies with alternative distribution channels for cellular products. As of
the date of this Prospectus, the Company has no plans, agreements,
commitments, understandings or arrangements with respect to any such
acquisition.
The Company's strategy and current and future marketing plans are subject
to change as a result of a number of factors, including progress or delays in
the Company's expansion efforts, changes in wireless communications markets
and technologies, the nature of possible supplier or customer arrangements
which may become available to it in the future and competitive factors. There
can be no assurance that the Company will be able to successfully expand its
operations.
PRODUCTS
The Company offers a broad selection of wireless products from leading
manufacturers. The Company's product offerings include a variety of hand-held
and mobile cellular telephones featuring prominent brand names such as AT&T,
Ericsson, Mitsubishi, Motorola, Nokia, NEC, Audiovox, OKI, Panasonic, Pioneer
and Sony. The Company continually reviews and evaluates cellular products in
determining the mix of products purchased for resale to customers and seeks
to acquire distribution rights for products which the Company believes have
the potential for significant market penetration. For the year ended December
31, 1995 and the six months ended June 30, 1996, approximately 80.0% and
81.6%, respectively, of the Company's revenues were derived from sales of
cellular telephones. For such periods, a significant portion of the Company's
cellular telephone sales represented Motorola and Audiovox products.
In addition, the Company offers brand name and proprietary lines of
cellular accessory products under the Intellicell name, consisting
principally of batteries, battery eliminators, conditioner and plug-in
chargers, cases, antennas and "hands-free" kits. Accessory products typically
carry higher margins than cellular telephones. Accordingly, the Company plans
to focus its marketing efforts on increasing the distribution of such
products. For the year ended December 31, 1995 and the six months ended June
30, 1996, sales of accessories accounted for approximately 20.0% and 18.4%,
respectively, of the Company's revenues.
CUSTOMERS
The Company has developed a customer base of more than 1,600 wholesalers,
carriers, agents, dealers and retailers. The Company believes that these
categories of customers will continue to be the primary purchasers of the
Company's products. The Company expects to focus its marketing efforts on
mass merchandisers and retailers with access to significant consumer markets.
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For the years ended December 31, 1994 and 1995 and the six months ended
June 30, 1996, sales of cellular products to the Company's five largest
customers accounted for approximately 50.5%, 48.7% and 56.5%, respectively,
of the Company's revenues. For the year ended December 31, 1995, sales of
cellular products to Downtown Cellular and Brightpoint accounted for
approximately 24.7% and 10.4%, respectively, of the Company's revenues. For
the six months ended June 30, 1996, sales to Downtown Cellular and
Brightpoint accounted for 20.0% and 19.0%, respectively, of the Company's
revenues. For such periods, no other customer accounted for more than 10% of
the Company's revenues.
The Company generally sells its products pursuant to customer purchase
orders and ships product orders received by 4:00 P.M. local time the same
day. Unless otherwise requested, substantially all of the Company's products
are delivered within two days of receipt of customer orders by common
carrier. Because orders are filled shortly after receipt, backlog is not
material to the company's business.
The Company sells its products to customers in foreign markets, including
in Israel, Paraguay, Mexico, Peru and Canada and to United States-based
exporters of cellular products. For the years ended December 31, 1994 and
1995 and the six months ended June 30, 1996, sales of the Company's products
to customers in foreign markets accounted for approximately .4%, .4% and
5.1%, respectively, of the Company's revenues. The Company is seeking to
expand product sales in foreign markets.
SUPPLIERS
The Company has established relationships with leading manufacturers and
distributors of wireless equipment. The Company generally negotiates directly
with suppliers in order to ensure adequate inventories of popular brand name
products on favorable pricing terms. Inventory purchases are based on
quality, price, service, customer demand, product availability and brand name
recognition. Certain of the Company's suppliers provide favorable purchasing
terms to the Company, including price protection and cooperative advertising
and marketing allowances. Product manufacturers typically provide warranties
which the Company extends to its customers.
For the year ended December 31, 1995 and the six months ended June 30,
1996, the Company's four largest suppliers accounted for approximately 67.0%
and 60.9%, respectively, of product purchases. For the year ended December
31, 1995, Brightpoint, CellStar, Unplugged Communications and Best Cellular
accounted for approximately 28.3%, 13.7%, 13.6% and 11.4%, respectively, of
product purchases, with Brightpoint, Best Cellular, CellStar and AirTouch
accounting for approximately 31.9%, 10.9%, 10.0% and 8.1%, respectively, of
product purchases for the six months ended June 30, 1996. For these periods,
none of the Company's other suppliers accounted for more than 10% of product
purchases. Brightpoint and CellStar are two of the Company's primary
competitors. Failure or delay by these or other suppliers in supplying
competitive products on favorable terms, or at all, would materially
adversely affect the Company's operating margins and the Company's ability to
obtain and deliver products on a timely and competitive basis. See
"Competition."
In July 1996, the Company entered into a non-exclusive, one-year agreement
with Sony Wireless Telecommunications Company pursuant to which the Company
distributes Sony cellular telephones and accessories to carriers and
retailers. The agreement prohibits sales to other wholesalers, is terminable
on short notice and provides for certain territorial restrictions. The
Company purchases products from other manufacturers and distributors pursuant
to purchase orders placed from time to time in the ordinary course of
business. The Company believes that its relationships with its suppliers are
satisfactory.
The Company generally places orders to its suppliers by facsimile on a
daily basis. Purchase orders are typically filled within one to seven days
and cellular products are shipped to the Company's warehouse by common
carrier.
The Company obtains all of its proprietary accessory products from
manufacturers in Taiwan and is dependent on such manufacturers to provide
sufficient quantities of products on favorable terms. The Company currently
pays import duties of between 2.4% and 5.9% of the cost of its accessory
products.
SALES, MARKETING AND DISTRIBUTION
The Company's executive officers and sales staff of thirteen persons are
responsible for all of the Company's marketing and sales efforts. The
Company's sales personnel are paid a base salary plus commission (gen-
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erally 10% of gross profit represented by their sales). In addition, the
Company's Vice President, Sales is paid a base salary plus a bonus based on
certain performance levels. The Company maintains agreements with its sales
personnel which contain confidentiality provisions and prohibit such
individuals from competing with the Company.
The Company's Vice President, Sales is responsible for coordinating the
activities of the Company's sales staff which consists of thirteen account
executives. The Company has assigned specific customers to each account
executive, who is responsible for maintaining all customer relations with his
assigned group of customers. Because of the service-oriented nature of the
Company's business, the Company's executive officers devote a substantial
amount of time to developing and maintaining continuing personal
relationships with the Company's customers. The Company's ability to expand
its customer base may be limited by the number of marketing personnel and
will be largely dependent upon the efforts of such individuals.
In an effort to increase its sales efforts in foreign markets, the Company
recently hired a sales representative located in Miami, Florida. The Company
believes that the Florida sales representative, with an already established
customer base, will enable the Company to establish new relationships and
increase sales in Latin America.
The Company believes that product recognition by customers and consumers
is an important factor in the marketing of the products sold by the Company.
Accordingly, the Company promotes its product lines through advertising in
trade publications and attendance at national and regional trade shows. The
Company also solicits customers through direct mail and telemarketing
activities. The Company's manufacturers and dealers use a variety of methods
to promote their products directly to consumers, including print and media
advertising.
ASSET MANAGEMENT
Accounts. For the year ended December 31, 1995 and the six months ended
June 30, 1996, approximately 63.5% and 82.3%, respectively, of the Company's
sales were made on open account. The Company generally offers 30-day open
account terms to its customers. As of June 30, 1996, trade accounts
receivable average 32.3 days of sales made on open account. In connection
with the Company's proposed expansion, the Company intends to offer open
account terms to additional customers. The Company attempts to minimize
losses on credit sales by closely monitoring its customers' creditworthiness.
The Company engages two credit rating associations that provide credit rating
information in connection with individual customer accounts and seeks to
obtain advance payment or letters of credit from its foreign customers. All
foreign sales are made in United States dollars.
Inventory. On average, the Company turns inventory approximately 14 times
per year. The Company takes physical inventory on a routine basis. On an
annual basis, cumulative inventory adjustments have accounted for less than
1% of total purchases during the years ended December 31, 1994 and 1995.
Management Information Systems. The Company believes that inventory
control and other information systems are important factors in maintaining
operating margins and in providing customers with competitive prices and
rapid delivery of a variety of products. Accordingly, the Company currently
maintains financial, accounting and management controls for its operations
through the use of a centralized accounting system and a computerized
management information system. The Company's management information system is
designed to enable the Company to adapt to new product developments and to
enhance corporate productivity through the integration of sales, inventory
controls, purchasing and financial and credit control. The Company believes
that the system allows the Company to provide more value to its customers
through greater efficiency, easier order entry and enhanced product and
pricing information. Internally, the system provides management and other key
employees with detailed account information, including buying and credit
histories and current credit status, as well as pricing and product
availability information. The company believes that the management
information system will support its anticipated growth.
COMPETITION
The markets for wireless communication products are characterized by
intense price competition and significant price erosion over the life of a
product. The Company competes principally on the basis of price, prod-
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<PAGE>
uct availability and service. The Company competes with numerous
well-established wholesale distributors and manufacturers of wireless
equipment, including the Company's customers and suppliers, as well as with
providers of cellular services, many of which possess substantially greater
financial, marketing, personnel and other resources than the Company and have
established reputations for success in the sale and service of cellular
products. Certain of these competitors have the financial resources necessary
to enable them to withstand substantial price competition and implement
extensive advertising and promotional campaigns, both generally and in
response to efforts by additional competitors to enter into new markets or
introduce new products.
The cellular distribution industry is also characterized by low barriers
to entry and frequent introduction of new products. The Company's ability to
continue to compete successfully will be largely dependent on its ability to
anticipate and respond to various competitive factors affecting the industry,
including new products which may be introduced, changes in consumer
preferences, demographic trends, international, national, regional and local
economic conditions (particularly recessionary conditions adversely affecting
consumer spending) and discount pricing strategies and promotional activities
by carriers.
The Company's primary competitors include Brightpoint, CellStar and Pana
Pacific, Inc. The Company purchases Motorola products from CellStar, AirTouch
and Pana Pacific. Increased price competition relating to such products could
have an adverse effect on the Company.
The markets for wireless communications products are characterized by
rapidly changing technology and evolving industry standards, often resulting
in product obsolescence or short product life cycles. Accordingly, the
Company's success is dependent upon its ability to anticipate technological
changes in the industry and to continually identify, obtain and successfully
market new products that satisfy evolving industry and customer requirements.
The use of alternative wireless technologies, including PCS and satellite
communications systems, may reduce demand for existing cellular products.
Upon widespread commercial introduction, PCS, satellite communications
systems and other new wireless technologies could materially change the types
of products sold by the Company and its suppliers and result in significant
price competition. There can be no assurance that the Company will be able to
continue to compete successfully, particularly as domestic cellular markets
mature and the Company seeks to enter into new markets and market new
products.
TRADEMARK
The Company currently holds a federal trademark registration for the name
"Intellicell" for use in connection with wireless accessory products. The
Company's rights in this name may be a significant part of the Company's
business. In October 1996, ArrayComm Incorporated, filed an action against
the Company in United States District Court for the Northern District of
California seeking a judgment to cancel the Company's trademark registration.
Plaintiff alleges, among other things, that the Company's use of its
trademark infringes the use of plaintiff's mark Intellicell in connection
with signal producing hardware and software for wireless communications
systems. The action is in a preliminary stage and the Company is unable to
determine the ultimate outcome of the action. Although the Company intends to
vigorously defend this action, there can be no assurance that such action
will be resolved in a manner favorable to the Company.
EMPLOYEES
As of September 30, 1996 the Company had 31 employees, of which two are in
executive positions, thirteen are engaged in sales and marketing, eight are
engaged in warehouse operations and eight are engaged in administrative
activities. None of the Company's employees is covered by a collective
bargaining agreement. The Company believes that its relations with its
employees are satisfactory.
PROPERTIES
The Company's executive offices and warehouse facilities are located in
approximately 11,000 square feet of leased space in Van Nuys, California. The
lease provides for monthly rent of approximately $6,136 and is on a
month-to-month basis, terminable by the Company or its landlord upon three
months' prior written notice.
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<PAGE>
In September 1996, the Company entered into a three month lease for its
sales office, located in approximately 2,600 square feet of space in Van
Nuys, California. The lease provides for a monthly rent of approximately
$2,340.
The Company is currently engaged in site selection and is evaluating
available space in Southern California to accommodate its warehousing and
administrative needs as the Company expands. The Company believes that it
will be able to lease a larger facility on commercially reasonable terms.
LEGAL PROCEEDINGS
Other than as described above under the caption Trademark, the Company is
not a party to any material legal proceedings.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---------------- ----- -----------------------------------------------------------
<S> <C> <C>
Ben Neman 39 Chairman of the Board, President and Chief Executive Officer
James E. Bunting 48 Executive Vice President, Chief Operating Officer, Chief Financial
Officer and Director
Vinay Sharma 48 Director
</TABLE>
Ben Neman, a founder of the Company, has been Chairman, President and
Chief Executive Officer of the Company since its inception. From September
1983 to January 1991, Mr. Neman was owner and President of Car Tronics of
California, a company engaged in the retail sale of cellular and other
automotive electronic consumer products.
James E. Bunting has been Executive Vice President, Chief Operating
Officer and Chief Financial Officer of the Company since July 1996 and a
director since October 1996. Prior to joining the Company, Mr. Bunting served
as the financial officer of AirTouch Teletrac, a subsidiary of Airtouch
Communications, a company engaged in vehicle location and wireless
communications, from February 1990 to January 1996.
Vinay Sharma has been a director of the Company since October 1996. Mr.
Sharma has been a partner with the law firm Sharma & Herron since March 1992.
Mr. Sharma received his Masters in Business Administration in June 1974 and
Juris Doctor degree in May 1982 from the University of California.
All directors hold office until the next annual meeting of stockholders
and the election and qualification of their successors. Officers are elected
annually by the Board of Directors and serve at the discretion of the Board.
In addition to the Company's executive officers and directors, Mr. Meir
Abramov is a key employee of the Company. Mr. Abramov, age 28, has been a
Vice President of the Company in charge of purchasing and sales for more than
the past four years.
The Company has agreed, for a period of three years from the date of this
Prospectus, if so requested by the Representative, to nominate and use its
best efforts to elect a designee of the Representative as a director of the
Company or, at the Representative's option, as a non-voting advisor to the
Company's Board of Directors. The Representative has not yet exercised its
right to designate such a person.
EXECUTIVE COMPENSATION
The following table sets forth the compensation for the Company's
President during the fiscal year ended December 31, 1995. No officer of the
Company received compensation in excess of $100,000 during the fiscal year
ended December 31, 1995.
SUMMARY COMPENSATION TABLE
Name Principal Position Salary
---- ------------------ ------
Ben Neman ......... President $75,000
- ------
The Company did not have any long-term incentive or option plans during
the fiscal year ended December 31, 1995.
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<PAGE>
EMPLOYMENT AGREEMENTS
The Company has entered into a three-year employment agreement with Mr.
Neman, effective as of the date of this Prospectus, which is automatically
renewable and provides for an annual base compensation of $72,000 and such
bonus as the Board of Directors may from time to time determine. The
employment agreement provides for employment on a full-time basis and
contains a provision that the employee will not compete or engage in a
business competitive with the current or anticipated business of the Company
during the term of the employment agreement and for a period of one year
thereafter. The agreement provides that if Mr. Neman is terminated without
cause (including as a result of a change in control), he will be entitled to
receive severance pay equal to the base compensation through the term of the
agreement, provided that if the employee is terminated during the third year
or the last year of any renewal term, the employee will be entitled to
receive additional compensation equal to the base compensation received from
the Company during the one-year period prior to the date of termination.
The Company has entered into a three-year agreement, dated as of July 1,
1996, with Mr. Bunting, which provides for an annual base compensation of
$70,000 and such bonus as the Board of Directors may from time to time
determine. The employment agreement contains a confidentiality provision, and
a covenant not to compete with the Company for a period of one year following
termination of employment. The agreement provides that if Mr. Bunting is
terminated without cause (including as a result of a change in control), the
employee will be paid an amount equal to four months of his annual salary in
consideration of his agreement not to compete with the Company.
In connection with such employment agreement, the Company agreed to grant
to Mr. Bunting an option to purchase an aggregate of 50,000 shares of Common
Stock at an exercise price of $6.00 per share. The options are exercisable as
to one-third of the shares covered thereby on the first, second and third
anniversaries of the date of grant.
The Company has entered into a three-year employment agreement with Mr.
Abramov, effective as of the date of this Prospectus, which provides for an
annual base compensation of $66,000 and an annual bonus of $66,000.
STOCK OPTION PLAN
The Company has adopted the Plan, pursuant to which 335,000 shares of
Common Stock are currently reserved for issuance upon the exercise of options
designated as either (i) options intended to constitute incentive stock
options ("ISOs") under the Internal Revenue Code of 1986, as amended (the
"Code") or (ii) nonqualified options. ISOs may be granted under the Plan to
employees and officers of the Company. Non-qualified options may be granted
to consultants, directors (whether or not they are employees), employees or
officers of the Company.
The Plan is intended to qualify under Rule 16b-3 under the Securities
Exchange Act of 1934, and is administered by the Board of Directors. The
Board, within the limitations of the Plan, determines the persons to whom
options will be granted, the number of shares to be covered by each option,
whether the options granted are intended to be ISOs, the duration and rate of
exercise of each option, the option purchase price per share and the manner
of exercise, and the time, manner and form of payment upon exercise of an
option. Unless sooner terminated the Plan will expire in October 2006.
ISOs granted under the Plan may not be granted at a price less than the
fair market value of the Common Stock on the date of grant (or 110% of fair
market value in the case of persons holding 10% or more of the voting stock
of the Company). The aggregate fair market value of shares for which ISOs
granted to any employee are exercisable for the first time by such employee
during any calendar year (under all stock option plans of the Company) may
not exceed $100,000. Non-qualified options granted under the Plan may not be
granted at a price less than the fair market value of the Common Stock on the
date of grant. Options granted under the Plan will expire not more than ten
years from the date of grant (five years in the case of ISOs granted to
persons holding 10% or more of the voting stock of the Company). All options
granted under the Plan are not
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<PAGE>
transferable during an optionee's lifetime but are transferable at death by
will or by the laws of descent and distribution. In general, upon termination
of employment of an optionee, all options granted to such person which are
not exercisable on the date of such termination immediately terminate, and
any options that are exercisable terminate 90 days following termination of
employment.
The Plan contains anti-dilution provisions authorizing appropriate
adjustments in certain circumstances. Shares of Common Stock subject to
options which expire without being exercised or which are cancelled as a
result of the cessation of employment are available for further grants. No
shares of Common Stock of the Company may be issued to any optionee until the
full option price has been paid. The Board may grant individual options under
the Plan with more stringent provisions than those specified in the Plan.
As of the date of this Prospectus, options to purchase an aggregate of
194,250 shares have been granted under the Plan at an exercise price of $6.00
per share. Of such options, options to purchase 50,000 and 3,000 shares,
respectively, have been granted to Messrs. Bunting and Sharma at an exercise
price of $6.00 per share.
In addition, the Company granted options to purchase 65,000 shares outside of
the Plan at an exercise price of $6.00 per share.
INDEMNIFICATION AND EXCULPATION PROVISIONS
The Company's Certificate of Incorporation provides for indemnification of
officers and directors to the fullest extent permitted by Delaware law. In
addition, under the Company's Certificate of Incorporation, no director shall
be liable personally to the Company or its stockholders for monetary damages
for breach of fiduciary duty as a director; provided that the Certificate of
Incorporation does not eliminate the liability of a director for (i) any
breach of the director's duty of loyalty to the Company or its stockholders;
(ii) acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; (iii) acts or omissions in respect
of certain unlawful dividend payments or stock redemptions or repurchases; or
(iv) any transaction from which such director derives improper personal
benefit.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of the date of this
Prospectus and as adjusted to reflect the sale of the 1,666,667 shares of
Common Stock offered hereby, based on information obtained from the persons
named below, with respect to the beneficial ownership of shares of Common
Stock by (i) each person known by the Company to be the beneficial owner of
more than five percent of the outstanding shares of Common Stock, (ii) each
of the Company's directors and (iii) all executive officers and directors as
a group:
<TABLE>
<CAPTION>
Percentage of
Outstanding Shares Owned
------------------------
Name and Address of Amount and Nature of Before After
Beneficial Owner (1) Beneficial Ownership (2) Offering Offering
-------------------- ------------------------ --------- --------
<S> <C> <C> <C>
Ben Neman(3) ........................ 2,030,000 100.0% 51.9%(4)
James E. Bunting(5) ................. -- -- --
Vinay Sharma(6) ..................... -- -- --
All executive officers and directors
as a group (three persons) ......... 2,030,000 100.0% 51.9%
</TABLE>
- ------
(1) The address for each of such individuals is in care of the Company, 6929
Hayvenhurst Avenue, Van Nuys, California 91406.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this Prospectus
upon the exercise of options or warrants. Each beneficial owner's
percentage ownership is determined by assuming that options or warrants
that are held by such person (but not those held by any other person) and
which are exercisable within 60 days of the date of this Prospectus have
been exercised. Unless otherwise indicated, the Company believes that all
persons named in the table have sole voting and investment power with
respect to all shares of Common Stock beneficially owned by them.
(3) The above table does not give effect to the exercise of options to
purchase an aggregate of 217,000 shares of outstanding Common Stock
granted by Mr. Neman to Mr. Abramov, an employee of the Company, in
October 1995 at a price of $1.00 per share, which is exercisable as to
one-third of the shares covered thereby commencing on October 18, 1997.
(4) Gives effect to the Stock Repurchase and the conversion of the
Brightpoint Note. Upon the consummation of this offering, Mr. Neman will
own 2,000,000 shares of Common Stock and Brightpoint will own 186,220
shares of Common Stock or approximately 4.8% of the Company's outstanding
Common Stock. See "Certain Transactions."
(5) Does not include options to purchase 50,000 shares of Common Stock.
(6) Does not include options to purchase 3,000 shares of Common Stock.
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<PAGE>
CERTAIN TRANSACTIONS
Cellular Telecom Partnership (the "Partnership"), a partnership which was
50% owned by Mr. Ben Neman, Chairman, President and Chief Executive Officer of
the Company, was engaged in both the retail and wholesale distribution of
cellular products. In March 1994, the Partnership assigned all of the assets,
subject to the liabilities, of its wholesale distribution business to its
partners who in turn contributed such assets subject to such liabilities to the
Company in exchange for all of the outstanding Common Stock of the Company. In
August 1995, pursuant to a stockholders' agreement, Mr. Neman purchased the
remaining 50% interest in the Company from the other then existing stockholder
for an aggregate purchase price of $115,000. In September 1996, the Partnership
sold all of its remaining assets to an unaffiliated third party and was
thereafter dissolved.
Prior to September 1996, the Partnership was a customer of the Company.
For the years ended December 31, 1993, 1994 and 1995, the Company sold
approximately $126,000, $93,000 and $42,000, respectively, of cellular
products to the Partnership at cost.
Between January 1, 1995 and June 30, 1996, the Company made aggregate
non-interest bearing advances to Mr. Neman of $454,145, of which $198,000
remained outstanding at June 30, 1996. The Company has agreed to repurchase
from Mr. Neman 30,000 shares of Common Stock on the consummation of this
offering in consideration of the cancellation of $180,000 of such
indebtedness. Mr. Neman has agreed to pay the $18,000 balance on the
consummation of this offering.
Mr. Neman has personally guaranteed up to $500,000 of the Company's
indebtedness to CIT.
The Company has granted options to purchase 35,000 shares of Common Stock at
an exercise price of $6.00 per share to Mr. Neman's brother.
Vinay Sharma, a director of the Company, is a partner with the law firm
Sharma & Herron, one of the Company's attorneys. The Company paid such firm
approximately $7,200 during the year ended December 31, 1995 for legal
services rendered.
Future transactions between the Company and its officers and directors and
their respective affiliates will be on terms and conditions no less favorable
to the Company than could be obtained from unaffiliated third parties based
on similar transactions and will be approved by a majority of the independent
and disinterested members of the Board of Directors of the Company.
DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized to issue 15,000,000 shares of Common Stock, par
value $.01 per share and 1,000,000 shares of preferred stock, par value $.01
per share. As of the date of this Prospectus, there are 2,030,000 shares of
Common Stock outstanding and held of record by one holder, and no shares of
preferred stock are outstanding.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held
of record on all matters to be voted on by stockholders. There is no
cumulative voting with respect to the election of directors, with the result
that the holders of more than 50% of the shares voting for the election of
directors can elect all of the directors. The holders of Common Stock are
entitled to receive dividends when, as and if declared by the Board of
Directors in its discretion out of funds legally available therefor. In the
event of liquidation, dissolution or winding up of the Company, the holders
of Common Stock are entitled to share ratably the assets of the Company, if
any, legally available for distribution to them after payment of debts and
liabilities of the Company and after provision has been made for each class
of stock, if any, having preference over the Common Stock. Holders of shares
of Common Stock have no conversion, preemptive or other subscription rights,
and there are no redemption or sinking fund provisions applicable to the
Common Stock. All of the outstanding shares of Common Stock are, and the
shares of Common Stock offered hereby will be, when issued upon payment of
the consideration set forth in this Prospectus, fully paid and
non-assessable.
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<PAGE>
PREFERRED STOCK
The Company is authorized to issue preferred stock with such designations,
rights and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without
stockholder approval, to issue preferred stock with dividend, liquidation,
conversion, voting or other rights which could adversely affect the voting
power or other rights of the holders of the Company's Common Stock. In the
event of issuance, the preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change
in control of the Company.
DELAWARE ANTI-TAKEOVER LAW
The Company is subject to certain anti-takeover provisions under Section
203 of the Delaware General Corporation Law. In general, under Section 203, a
Delaware corporation may not engage in any business combination with any
"interested stockholder" (a person that owns, directly or indirectly, 15% or
more of the outstanding voting stock of a corporation or is an affiliate of a
corporation and was the owner of 15% or more of the outstanding voting
stock), for a period of three years following the date such stockholder
became an interested stockholder, unless (i) prior to such date the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder, or (ii) upon consummation of the transaction which resulted in
the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, or (iii) on or subsequent
to such date, the business combination is approved by the board of directors
and authorized at an annual or special meeting of stockholders by at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder. The restrictions imposed by Section 203 will not apply to a
corporation if the corporation's initial certificate of incorporation
contains a provision expressly electing not to be governed by this section or
the corporation by action of its stockholders holding a majority of
outstanding stock adopts an amendment to its certificate of incorporation or
by-laws expressly electing not to be governed by Section 203.
The Company has not elected out of Section 203, and upon consummation of
this offering and the listing of Common Stock on Nasdaq, the restrictions
imposed by Section 203 will apply to the Company. Such provision could have
the effect of discouraging, delaying or preventing a takeover of the Company,
which could otherwise be in the best interest of the Company's stockholders,
and have an adverse effect on the market price for the Company's Common
Stock.
TRANSFER AGENT AND WARRANT AGENT
The transfer and registrar agent for the Common Stock is Continental Stock
Transfer & Trust Company, New York, New York.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering, the Company will have 3,85,887
shares of Common Stock outstanding, assuming no exercise of outstanding options
and warrants. All 1,666,667 of the shares being offered hereby will be freely
tradeable without restriction or further registration under the Securities Act,
except for any shares purchased by an "affiliate" of the Company (in general, a
person who has a control relationship with the Company), which shares will be
subject to the resale limitations, described below, of Rule 144 promulgated
under the Securities Act. The remaining 2,186,220 shares are deemed to be
"restricted securities," as that term is defined under Rule 144, in that such
shares were issued and sold by the Company in private transactions not involving
a public offering and, as such, may only be sold pursuant to an effective
registration under the Securities Act, in compliance with the exemption
provisions of Rule 144 or pursuant to another exemption under the Securities
Act. Such "restricted" shares will become eligible for sale under Rule 144 at
various times commencing 90 days from the date of this Prospectus (subject to
the contractual restrictions described below).
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or persons whose shares are aggregated with an affiliate), who
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<PAGE>
has owned restricted shares of Common Stock beneficially 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 1% of the total number of outstanding
shares of the same class or, if the common stock is quoted on NASDAQ, the
average weekly trading volume during the four calendar weeks preceding the
sale and who has beneficially owned shares of Common Stock for at least three
years is entitled to sell such shares under Rule 144 without regard to any of
the limitations described above.
All of the Company's officers, directors and securityholders have agreed
not to sell or otherwise dispose of any securities for a period of twelve
months following the date of this Prospectus without the prior written
consent of the Representative. In addition, the Company has granted certain
demand and "piggy-back" registration rights to CIT and the Representative with
respect to the securities issuable upon exercise of warrants. The Company has
also agreed to file a registration statement under the Securities Act
following the first anniversary of the date of this Prospectus covering an
aggregate of 217,000 outstanding shares of Common Stock underlying options
granted by Mr. Neman to an employee of the Company (sales of which will be
subject to certain volume limitations) and 186,220 shares of Common Stock
issuable upon conversion of the Brightpoint Note.
Prior to this offering, there has been no market for the Common Stock and
no prediction can be made as to the effect, if any, that public sales of
shares of Common Stock or the availability of such shares for sale will have
on the market prices of the Common Stock and the Warrants prevailing from
time to time. Nevertheless, the possibility that substantial amounts of
Common Stock may be sold in the public market may adversely affect prevailing
market prices for the Common Stock and the Warrants and could impair the
Company's ability in the future to raise additional capital through the sale
of its equity securities.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting
Agreement, the Company has agreed to sell to each of the Underwriters named
below, for whom Sands Brothers & Co., Ltd. is acting as the Representative,
and each of the Underwriters has severally agreed to purchase from the
Company the respective number of shares of Common Stock set forth opposite
its name below.
Number of Shares
Underwriter of Common Stock
----------- ----------------
Sands Brothers & Co., Ltd.
----------------
Total .................... 1,666,667
================
The Underwriters are committed to purchase and pay for all of the shares
of Common Stock offered hereby if any shares of Common Stock are purchased.
The shares of Common Stock are being offered by the Underwriters subject to
prior sale, when, as and if delivered to and accepted by the Underwriters,
and subject to approval of certain legal matters by counsel and certain other
conditions.
The Underwriters have advised the Company that they propose to offer the
shares of Common Stock to the public at the public offering price set forth
on the cover page of this Prospectus. The Underwriters may allow to certain
dealers who are members of the National Association of Securities Dealers,
Inc. (the "NASD") concessions, not in excess of $ per share of Common
Stock, of which not in excess of $ per share of Common Stock may be
reallowed to other dealers which are members of the NASD.
The Company has granted to the Underwriters an option, exercisable for 45
days from the date of this Prospectus, to purchase up to 250,000 additional
shares of Common Stock at the public offering price set forth on the cover
page of this Prospectus, less the underwriting discounts and commissions. The
Underwriters may exercise this option in whole or, from time to time, in
part, solely for the purpose of covering over-allotments, if any, made in
connection with the sale of the shares of Common Stock offered hereby.
The Company has agreed to pay to the Representative a nonaccountable
expense allowance of two and one half percent (2 1/2 %) of the gross proceeds
of this offering, of which $50,000 has been paid to date. The Company has
also agreed to pay all expenses in connection with qualifying the shares of
Common Stock offered hereby for sale under the laws of such states as the
Underwriters may designate, including expenses of counsel retained for such
purpose by the Underwriters.
The Company has agreed to sell to the Representative or its designees, for
an aggregate of $100, warrants (the "Representative's Warrants") to purchase
up to 166,667 shares of Common Stock at an exercise price of $7.20 per share.
The Representative's Warrants may not be transferred for one year from the
date of this Prospectus, except to the officers or partners of the
Underwriter or members of the selling group, and are exercisable during the
five-year period commencing on the date of this Prospectus (the "Warrant
Exercise Term"). During the Warrant Exercise Term, the holders of the
Representative's Warrants are given, at nominal cost, the opportunity to
profit from a rise in the market price of the Company's Common Stock. To the
extent that the Representative's Warrants are exercised, dilution to the
interests of the Company's stockholders will occur. Further, the terms upon
which the Company will be able to obtain additional equity capital may be
adversely affected since the holders of the Representative's Warrants can be
expected to exercise them at a time when the Company would, in all
likelihood, be able to obtain any needed capital on terms more favorable to
the Company than those provided in the Representative's Warrants. Any profit
realized by the Representative on the sale of the Representative's Warrants
or the underlying shares of Common Stock may be deemed additional
underwriting compensation. Subject to certain limitations and exclusions, the
Company has agreed to register the shares of Common Stock issuable upon
exercise of the Representative's Warrants under the Securities Act on one
occasion during the Warrant Exercise Term and to include such underlying
shares in any appropriate registration statement which is filed by the
Company during the five years following the date of this Prospectus.
The Company has also agreed, for a period of three years from the date of
this Prospectus, if so requested by the Representative, to nominate and use
its best efforts to elect a designee of the Representative as a direc-
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<PAGE>
tor of the Company or, at the Representative's option, as a non-voting
advisor the Company's Board of Directors. The Company's officers, directors
and stockholders have agreed to vote their shares of Common Stock in favor of
such designee. The Representative has not yet exercised its right to
designate such a person.
The Company and its principal stockholders have granted the Representative
a one-year right of first refusal to underwrite or place any public or
private sale of debt or equity securities of the Company offered for sale
through a placement agent or underwriter and an eighteen month right of first
refusal for the Representative's own account or to sell for the account of
the Company's officers, directors and principal stockholders any securities
sold pursuant to Rule 144.
All of the Company's officers, directors and securityholders have agreed
not to sell or otherwise dispose of any securities of the Company for a
period of twelve months following the date of this Prospectus without the
prior written consent of the Representative.
The Company has agreed to indemnify the Underwriters against certain civil
liabilities, including liabilities under the Securities Act.
Prior to this offering, there has been no public trading market for the
Common Stock. Consequently, the initial public offering price of the Common
Stock has been determined by negotiations between the Company and the
Representative. Among the factors considered in determining the offering price
were the Company's financial condition and prospects, market prices of
similar securities of comparable publicly traded companies, certain financial
and operating information of companies engaged in activities similar to those
of the Company and the general conditions of the securities market.
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed upon for
the Company by Tenzer Greenblatt LLP, New York, New York. Littman Krooks &
Roth, P.C., New York, New York, has acted as counsel for the Underwriters in
connection with the offering. Tenzer Greenblatt LLP represents the
Representative in other matters.
EXPERTS
The balance sheets as at December 31, 1994 and December 31, 1995 and the
related statements of operations, changes in stockholders' equity (capital
deficiency) and cash flows for the years ended December 31, 1993, December
31, 1994 and December 31, 1995 included in this Prospectus have been included
herein in reliance upon the report of Richard A. Eisner & Company, LLP,
independent auditors, given upon the authority of that firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 under the Act (together with
all amendments and exhibits thereto, the "Registration Statement") with respect
to the securities offered hereby. This Prospectus, filed as part of such
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain portions of which have been omitted in
accordance with the rules and regulations of the Commission. Statements made in
this Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete and are qualified in their entirety by
reference to each such contract, agreement or other document which is filed as
an exhibit to the Registration Statement. The Registration Statement may be
inspected without charge at the Commission's principal office, 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549, at the Chicago Regional Office,
500 West Madison Street, Chicago, Illinois, 60601-2511, and at the New York
Regional Office, 7 World Trade Center, New York, New York 10048, and copies of
such materials can be obtained from the Commission's Public Reference Section at
prescribed rates. The Commission also maintains a web site located at
www.sec.gov.
Upon consummation of this offering, the Company will become subject to the
reporting requirements of the Securities Exchange Act of 1934 and in accordance
therewith will file reports, proxy statements and other information with the
Commission. The Company intends to furnish to its stockholders with annual
reports containing audited financial statements and such other reports as the
Company deems appropriate or as may be required by law.
35
<PAGE>
INTELLICELL CORP.
- I N D E X -
<TABLE>
<CAPTION>
PAGE
NUMBER
----------
<S> <C>
REPORT OF INDEPENDENT AUDITORS ............................................ F-2
BALANCE SHEETS AS OF DECEMBER 31, 1994 AND 1995, AND AS OF JUNE 30, 1996
(UNAUDITED) .............................................................. F-3
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND
1995, AND FOR THE SIX-MONTH PERIODS (UNAUDITED) ENDED JUNE 30, 1995 AND
1996 ..................................................................... F-4
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY) FOR THE
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995, AND FOR THE SIX-MONTH PERIOD
(UNAUDITED) ENDED JUNE 30, 1996 .......................................... F-5
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND
1995, AND FOR THE SIX-MONTH PERIODS (UNAUDITED) ENDED JUNE 30, 1995 AND
1996 ..................................................................... F-6
NOTES TO FINANCIAL STATEMENTS ............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Cellular Telecom Corporation (d/b/a
Intellicell Corp.)
Van Nuys, California
We have audited the accompanying balance sheets of Cellular Telecom
Corporation (d/b/a Intellicell Corp.) as at December 31, 1994 and December 31,
1995 and the related statements of operations, changes in stockholders' equity
(capital deficiency) and cash flows for each of the years in the three-year
period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our 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 financial statements enumerated above present fairly,
in all material respects, the financial position of Cellular Telecom Corporation
(d/b/a Intellicell Corp.) at December 31, 1994 and December 31, 1995 and the
results of its operations and cash flows for each of the years in the
three-year period ended December 31, 1995 in conformity with generally accepted
accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
September 13, 1996
With respect to Note H[5]
October 7, 1996
With respect to the second paragraph of Note A
October 18, 1996
With respect to Notes E[2] and H[2]
October 31, 1996
F-2
<PAGE>
INTELLICELL CORP.
BALANCE SHEETS
(NOTE D[1])
<TABLE>
<CAPTION>
June 30, 1996
-----------------------------------------------
December 31,
---------------------------- Pro Forma
1994 1995 Historical Adjustments Pro Forma
------------ ------------ ------------- -------------- ---------
(Unaudited) (Unaudited - see Note L)
<S> <C> <C> <C> <C> <C>
ASSETS
------
Current assets:
Cash .......................................... $ 358,000 $ 818,000 $ (635,000) $ 183,000
Marketable securities (Note B[2]) ............. 76,000
Accounts receivable, net of allowance for doubtful
accounts of $80,000, $200,000 and $361,000 . 3,324,000 $4,607,000 7,523,000 7,523,000
Due from officer (Note F) ..................... 48,000 192,000 18,000 18,000
Inventories (Note B[3]) ....................... 3,360,000 3,315,000 5,622,000 5,622,000
Loans receivable .............................. 211,000
Deferred tax asset ............................ 178,000 178,000
Prepaid expenses and other current assets ..... 51,000 22,000 98,000 98,000
------------ ------------ ------------- -------------- ------------
Total current assets ....................... 7,217,000 8,347,000 14,079,000 (457,000) 13,622,000
Property and equipment, net (Notes B[4] and C) .. 25,000 65,000 74,000 74,000
Goodwill (Notes B[9] and E[1]) .................. 100,000 92,000 92,000
Deferred financing costs (Note B[9]) ............ 176,000 176,000
Deferred registration costs (Note G) ............ 180,000 180,000
Other assets .................................... 8,000 92,000 106,000 106,000
------------ ------------ ------------- -------------- -------------
TOTAL ...................................... $7,250,000 $8,604,000 $14,707,000 $ (457,000) $14,250,000
============ ============ ============= ============== =============
LIABILITIES
-----------
Current liabilities:
Bank overdraft ................................ $ 96,000
Revolving credit facility (Note D[1]) ......... $ 4,145,000 $ 4,145,000
Loans payable (Note D[2]) ..................... $ 445,000 2,490,000 1,189,000 $(1,000,000) 189,000
Accounts payable and accrued expenses
(Note D[2]) ................................ 6,947,000 6,004,000 8,738,000 8,738,000
------------ ------------ ------------- -------------- -------------
Total current liabilities .................. 7,392,000 8,590,000 14,072,000 (1,000,000) 13,072,000
------------ ------------ ------------- -------------- -------------
Commitments and contingencies (Note H)
STOCKHOLDERS' EQUITY
(CAPITAL DEFICIENCY)
-----------------------
(Note E)
Preferred stock - $.01 par value, 1,000,000 shares
authorized and none issued
Common stock - $.01 par value, 15,000,000 shares
authorized, 2,186,220 (pro
forma) shares issued and
outstanding (Note A) .......................... 22,000 22,000
Common stock - no par value, 2,030,000 shares authorized,
2,030,000 shares issued and outstanding ....... 100,000 100,000 (100,000)
Additional paid-in capital ...................... 898,000 898,000
Retained earnings (accumulated deficit) ......... (142,000) 94,000 715,000 (457,000) 258,000
Due from officer (Note F) ....................... (180,000) (180,000) 180,000
------------ ------------ ------------- -------------- -------------
Total stockholders' equity (capital deficiency) (142,000) 14,000 635,000 543,000 1,178,000
------------ ------------ ------------- -------------- -------------
TOTAL ...................................... $7,250,000 $8,604,000 $14,707,000 $ (457,000) $14,250,000
============ ============ ============= ============== =============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
INTELLICELL CORP.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
---------------------------------------------- ------------------------------
1993 1994 1995 1995 1996
------------- ------------- ------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales (Note A) .............................. $20,496,000 $56,447,000 $69,850,000 $37,230,000 $42,470,000
Cost of sales ................................... 19,846,000 54,402,000 67,485,000 35,964,000 40,595,000
------------- ------------- ------------- ------------- -------------
Gross profit .................................... 650,000 2,045,000 2,365,000 1,266,000 1,875,000
Selling, general and administrative expenses .... 647,000 1,505,000 1,877,000 1,062,000 1,167,000
------------- ------------- ------------- ------------- -------------
Income from operations .......................... 3,000 540,000 488,000 204,000 708,000
Other income (expenses):
Interest (expense) ............................ (35,000) (37,000) (67,000) (10,000) (87,000)
Other income (loss) ........................... 10,000 (66,000) (19,000) (19,000)
------------- ------------- ------------- ------------- -------------
NET INCOME (LOSS) - HISTORICAL .................. (22,000) 437,000 402,000 175,000 621,000
Pro forma taxes (benefit) on income (loss) (Notes B[5]
and I) ........................................ (3,000) 172,000 166,000 72,000 249,000
------------- ------------- ------------- ------------- -------------
PRO FORMA NET INCOME (LOSS) ................. $ (19,000) $265,000 $236,000 $103,000 $372,000
============= ============= ============= ============= =============
Pro forma net income (loss) per share ........... $(.01) $.13 $.12 $.05 $.18
============= ============= ============= ============= =============
Weighted average common shares
outstanding (Note B[6]) 2,030,000 2,030,000 2,030,000 2,030,000 2,030,000
============= ============= ============= ============= =============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
INTELLICELL CORP.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
Retained
Common Stock Additional Earnings
------------------------- Paid-in (Accumulated Partners' Due From
Shares Amount Capital Deficit) Capital Officer Total
----------- ---------- ------------ ------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993 . $ 363,000 $ 363,000
Distributions to partners .. (476,000) (476,000)
Net (loss) for the year .... (22,000) (22,000)
----------- -----------
Balance at December 31, 1993 . (135,000) (135,000)
Distributions to partners for
the two months ended February
28, 1994 .................. (31,000) (31,000)
Net income for the two months
ended
February 28, 1994 ......... 84,000 84,000
----------- -----------
Balance at February 28, 1994 . (82,000) (82,000)
Transfer of partnership's net
liabilities to the Company and
issuance of common stock (Note
A) ........................ 200 $ (82,000) 82,000 - 0 -
Distributions to stockholders
for the ten months ended
December 31, 1994 ......... (413,000) (413,000)
Net income for the ten months
ended December 31, 1994 ... 353,000 353,000
----------- ------------- ----------- -----------
Balance at December 31, 1994 . 200 (142,000) - 0 - (142,000)
Distributions to stockholders (166,000) (166,000)
Capital contribution (Note
E[1]) ..................... $100,000 100,000
Net income for the year .... 402,000 402,000
Advances to officer (Note F) . $(180,000) (180,000)
----------- ---------- ------------- ----------- ------------ -----------
Balance at December 31, 1995 . 200 100,000 94,000 - 0 - (180,000) 14,000
Net income for the six months
ended June 30, 1996 ....... 621,000 621,000
To give retroactive effect to
the 10,150 for 1 stock split
(Note A) . ................ 2,029,800 - 0 -
----------- ---------- ------------- ----------- ------------ -----------
Balance at June 30, 1996 -
historical (unaudited) .... 2,030,000 100,000 715,000 - 0 - (180,000) 635,000
Pro forma adjustments:
(Unaudited)
(Note L):
Withdrawal of undistributed
subchapter S earnings . (635,000) (635,000)
Reorganization with $.01 par
value
common stock .......... (80,000) $ 80,000 - 0 -
Recording of deferred tax
asset upon
reincorporation as a
taxable
corporation ........... 178,000 178,000
Stock issued as consideration
for note payable ...... 186,220 2,000 998,000 1,000,000
Shares acquired from officer
as settlement of balance
due from officer and
retirement of such shares (30,000) (180,000) 180,000 - 0 -
----------- ---------- ------------ ------------- ----------- ------------ -----------
BALANCE AT JUNE 30, 1996 PRO
FORMA (UNAUDITED) ............ 2,186,220 $ 22,000 $ 898,000 $ 258,000 $ -0- $ -0- $1,178,000
=========== ========== ============ ============= =========== ============ ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
INTELLICELL CORP.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
--------------------------------------------- ----------------------------
1993 1994 1995 1995 1996
------------ ------------- ------------- ----------- -------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................. $ (22,000) $ 437,000 $ 402,000 $ 175,000 $ 621,000
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization .................. 14,000 12,000 5,000 2,000 13,000
Provision for doubtful accounts ................ 18,000 297,000 305,000 141,000 175,000
Provision for inventory obsolescence ........... 55,000 209,000 123,000 62,000 85,000
Acquisition of marketable securities ........... (136,000) (927,000)
Proceeds from sale of marketable securities .... 130,000 801,000 57,000 57,000
Loss (gain) on marketable securities ........... (10,000) 66,000 19,000 19,000
Changes in operating assets and liabilities:
(Increase) in accounts receivable ............ (942,000) (2,165,000) (1,588,000) (150,000) (3,091,000)
(Increase) in inventories .................... (743,000) (2,530,000) (78,000) (39,000) (2,392,000)
(Increase) decrease in prepaid expenses and other
current assets ............................ (50,000) 29,000 12,000 (76,000)
(Increase) in other assets ................... (8,000) (84,000) (42,000) (14,000)
Increase (decrease) in accounts payable and accrued
expenses .................................. 1,294,000 5,219,000 1,056,000 (470,000) 2,735,000
----------- ------------ ------------ ----------- -----------
Net cash provided by (used in) operating
activities .............................. (342,000) 1,361,000 246,000 (233,000) (1,944,000)
------------ ------------ ------------- ----------- -----------
Cash flows from investing activities:
Acquisition of fixed assets ....................... (5,000) (21,000) (44,000) (22,000) (14,000)
Advances to officer ............................... (48,000) (324,000)
Proceeds from repayments by officer ............... 31,000 174,000
Loans to employees and third parties .............. (211,000)
Proceeds from repayments by employees and third parties 11,000 211,000
------------ ------------- ------------- ----------- ------------
Net cash provided by (used in) investing
activities .............................. 37,000 (69,000) (579,000) (22,000) 371,000
------------ ------------- ------------- ----------- ------------
Cash flows from financing activities:
Bank overdraft .................................... 451,000 (451,000) 96,000 63,000 (96,000)
Advances under credit facility .................... 4,145,000
Proceeds from loans payable ....................... 484,000 445,000 490,000
Payments of loans payable ......................... (154,000) (484,000) (445,000) (1,302,000)
Distributions to stockholders ..................... (476,000) (444,000) (166,000) (166,000)
Deferred financing costs .......................... (176,000)
Deferred registration costs ....................... (180,000)
------------ ------------- ------------- ----------- ------------
Net cash provided by (used in) financing
activities .............................. 305,000 (934,000) (25,000) (103,000) 2,391,000
------------ ------------- ------------- ----------- ------------
NET INCREASE (DECREASE) IN CASH ..................... - 0 - 358,000 (358,000) (358,000) 818,000
Cash -- beginning of period ......................... - 0 - - 0 - 358,000 358,00 - 0 -
------------ ------------- ------------- ----------- ------------
CASH -- END OF PERIOD ............................... - 0 - $ 358,000 $ - 0 - $ - 0 - $ 818,000
============ ============= ============= =========== ============
Supplemental disclosures of cash flow information:
Cash paid for interest ............................ $ 35,000 $ 37,000 $ 67,000 $ 10,000 $ 90,000
Cash paid for state S Corporation taxes ........... 9,000 5,000 2,000
Supplemental schedule of noncash financing activities:
Conversion of trade payable into loan payable (Note D[2]) 2,000,000
Goodwill recorded in connection with shares
purchased by officer (Note E[1]) ............... 100,000
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
INTELLICELL CORP.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO DATA AS OF
JUNE 30, 1996 AND FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1995 AND JUNE 30, 1996)
(NOTE A) -- THE COMPANY AND BASIS OF PRESENTATION:
Cellular Telecom Corporation (d/b/a Intellicell Corp., the "Company") is
engaged in the wholesale distribution of cellular telephones and accessories.
The Company was organized under the laws of the State of California in March
1994 under the name Cellular Telecom Corporation, as successor to the wholesale
distribution business of Cellular Telecom Partnership (the "Partnership"), a
California general partnership organized in 1991 to engage in the retail and
wholesale distribution of cellular products and accessories. In March 1994, the
Partnership, in effect, transferred all of the assets, subject to the
liabilities (which exceeded the assets by $82,000), of its wholesale
distribution business to the Company in exchange for which the partners of the
Partnership received all of the outstanding shares of common stock of the
Company. The Partnership, which had the same ownership as the Company, continued
its retail operations through August 1996, at which time it was dissolved.
In October 1996, the Company effected a 10,150 for 1 stock split. The
financial statements give retroactive effect to this transaction as if it
occurred on June 30, 1996.
The Company intends to reorganize under the laws of the State of Delaware
and change its name to Intellicell Corp. on or prior to the date of the proposed
initial public offering of the Company's common stock. The Company's authorized
capital stock will consist of 15,000,000 shares of common stock, par value $.01
per share and 1,000,000 shares of preferred stock, par value $.01 per share. The
pro forma balance sheet and footnotes give effect to the reorganization (see
Note L).
The financial statements for the years ended December 31, 1993 and December
31, 1994 include the operations of the wholesale division of the Partnership
through February 28, 1994. All applicable costs and expenses were allocated from
the Partnership based on the specific identification method, which in
management's opinion reasonably matches all significant costs and expenses to
the operations of the wholesale division of the Partnership.
The financial information presented for the six-month periods ended June
30, 1995 and June 30, 1996 is unaudited, but in the opinion of management
contains all adjustments (consisting of normal recurring adjustments) necessary
for a fair presentation of such financial information. Results of operations for
interim periods are not necessarily indicative of those to be achieved for full
fiscal years.
(NOTE B) -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
[1] USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
[2] MARKETABLE SECURITIES:
The Company's marketable securities, which are classified as trading
securities, are reported at fair value and unrealized gains and losses are
included in income (loss).
[3] INVENTORIES:
Inventories consisting of cellular telephones and accessories, are stated
at the lower of cost or market. Cost is determined using the weighted average
cost method.
F-7
<PAGE>
INTELLICELL CORP.
NOTES TO FINANCIAL STATEMENTS
(Unaudited with respect to data as of
June 30, 1996 and for the six-month periods ended
June 30, 1995 and June 30, 1996) - (Continued)
(NOTE B) -- Summary of Significant Accounting Policies: - (Continued)
[4] PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Depreciation is computed using
the declining balance method over the 5 year useful lives of the assets.
[5] INCOME TAXES:
The Company has elected to be treated as an S Corporation under the
Internal Revenue Code. In lieu of Corporation income taxes, the shareholders of
an S Corporation are taxed on their proportionate share of the Company's taxable
income. Therefore, no provision or liability for federal or state income taxes
has been included in the historical financial statements. Prior to or upon
completion of its proposed initial public offering, the Company will terminate
its election as an S Corporation and will be subject to both federal and state
income taxes. See Note I for pro forma information regarding the income tax
provisions which would have been recorded if the Company had been a taxable
corporation, based on the tax laws in effect during those periods.
[6] NET INCOME (LOSS) PER SHARE OF COMMON STOCK:
Net income (loss) per share of common stock is based on the weighted
average number of shares outstanding during each period, after giving
retroactive effect to the Company's incorporation and the stock split, both
described in Note A, as if they had occurred on January 1, 1993. Therefore, in
calculating net income (loss) per common share, the number of shares outstanding
(2,030,000) have been treated as being outstanding for the entirety of the
periods before the public offering.
[7] CONCENTRATION OF CREDIT RISK AND SUPPLIER RISK:
Financial instruments that potentially subject the Company to credit risk
consist principally of trade receivables and interest bearing cash. The Company
extends credit to a substantial number of its customers and performs ongoing
credit evaluations of those customers' financial condition while, generally,
requiring no collateral. Customers that have not been extended credit by the
Company are on a cash-on-delivery basis only.
The Company maintains substantially all of its cash in one commercial bank.
See Note H[4] for details of concentration of suppliers.
[8] FAIR VALUES OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires the Company to disclose estimated
fair values for its financial instruments. The carrying amounts of cash, trade
receivables, other current assets, trade accounts payable, loans payable and
accrued expenses approximate fair value because of the short maturity of those
instruments.
[9] AMORTIZATION OF INTANGIBLE ASSETS:
Deferred financing costs are being amortized on a straight-line basis over
the two year term of the revolving credit facility.
Goodwill is being amortized on a straight-line basis over a ten-year period.
F-8
<PAGE>
INTELLICELL CORP.
NOTES TO FINANCIAL STATEMENTS
(Unaudited with respect to data as of
June 30, 1996 and for the six-month periods ended
June 30, 1995 and June 30, 1996) - (Continued)
(NOTE B) -- Summary of Significant Accounting Policies: - (Continued)
[10] STOCK-BASED COMPENSATION:
The Company accounts for stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25 and is required to make disclosures
of pro forma net income and earnings per share in accordance with Statement of
Financial Accounting Standards No. 123 ("SFAS 123").
(NOTE C) -- PROPERTY AND EQUIPMENT:
Property and equipment are summarized as follows:
December 31,
-------------------------- June 30,
1994 1995 1996
--------- --------- -----------
(Unaudited)
Furniture and equipment $15,000 $20,000 $21,000
Computer equipment ..... 16,000 53,000 59,000
Other equipment ........ 5,000 8,000 15,000
--------- --------- -----------
T o t a l .......... 36,000 81,000 95,000
Accumulated depreciation 11,000 16,000 21,000
--------- --------- -----------
B a l a n c e ...... $25,000 $65,000 $74,000
========= ========= ===========
(NOTE D) -- CREDIT FACILITY AND LOANS PAYABLE:
[1] CREDIT FACILITY:
In June 1996, the Company entered into a revolving line of credit agreement
with a finance company, which expires on June 1998 and provides for borrowings
of up to a maximum of $7,500,000 based on certain percentages, described in the
agreement, of eligible accounts receivable and inventories. Borrowings under the
agreement bear interest at prime rate plus one and three-quarters percent
(1.75%) per annum. At June 30, 1996 the Company was paying interest on advances
at a rate of 10.0% per annum. The credit facility is collateralized by
substantially all of the assets of the Company. The agreement prohibits the
Company from paying dividends and requires the Company to maintain certain
levels of tangible net worth and working capital commencing on the closing of
the proposed initial public offering and thereafter. The revolving line of
credit is guaranteed up to $500,000 by the principal stockholder of the Company.
At June 30, 1996 $4,145,000 was due under the credit facility.
[2] LOANS PAYABLE:
Loans payable consist of the following:
December 31,
-------------------------- June 30,
1994 1995 1996
---------- ------------ ----------
Loan payable -- Brightpoint, Inc.
(a) ............................... $2,000,000 $1,189,000
Loan payable -- other (b) .......... $445,000 490,000
---------- ------------ ----------
$445,000 $2,490,000 $1,189,000
========== ============ ==========
(a) In December 1995, the Company converted $2,000,000 of its trade payable
balance to Brightpoint, Inc. ("Brightpoint") (see Notes H[3] and H[4]) into a
loan payable bearing interest at a rate of approximately 9.1% per annum and
repayable in twelve monthly payments of $175,000. In July 1996, the Company
issued
F-9
<PAGE>
INTELLICELL CORP.
NOTES TO FINANCIAL STATEMENTS
(Unaudited with respect to data as of
June 30, 1996 and for the six-month periods ended
June 30, 1995 and June 30, 1996) - (Continued)
(NOTE D) -- Credit Facility and Loans Payable: - (Continued)
a $1,189,000 note payable (the "Brightpoint Note") to Brightpoint in order to
satisfy the outstanding balance of the loan payable. The Brightpoint Note bears
interest at a rate of 9.1% per annum and is due on December 31, 1996. $1,000,000
of the principal amount of the Brightpoint Note automatically converts into
186,220 shares of common stock at $5.37 per share on the effective date of the
proposed initial public offering (see Note L). If $1,000,000 of the amounts due
to Brightpoint had been converted to stock on January 1, 1995 there would be no
effect on pro forma net income per share for the year ended December 31, 1995 or
the six months ended June 30, 1996. Additionally, at December 31, 1994, December
31, 1995 and June 30, 1996 the Company owed approximately $3,036,000, $2,009,000
and $2,476,000, respectively, in trade payables to Brightpoint.
(b) Loans payable -- other, consists of unsecured loans payable bearing
interest from 10% to 12% per annum, with principal payable on demand.
(NOTE E) -- STOCKHOLDERS' EQUITY:
[1] COMMON STOCK:
In March 1994, 100 shares of the Company's common stock were issued to each
of its two stockholders, one of whom is the Company's President and Chief
Executive Officer (the "President"). In August 1995, pursuant to a stockholders'
agreement, the President purchased all of the shares owned by the other
stockholder for an aggregate of $115,000 and agreed to assume all guarantees
made to suppliers by the other stockholder on behalf of the Company. In
connection therewith, goodwill in the amount of $100,000 was recorded for the
excess of the amount paid over the proportionate share of the net assets
obtained by the President.
See Note A for details of the Company's stock split and intended
reorganization.
[2] STOCK OPTION PLAN:
In October 1996 the Company adopted a stock option plan (the "1996 Plan"),
pursuant to which options to purchase up to 335,000 shares of common stock may
be granted as either incentive stock options ("ISOs") under the Internal Revenue
Code of 1986, as amended, or nonqualified stock options. ISOs may be granted
under the 1996 Plan to employees and officers of the Company. Nonqualified stock
options may be granted to consultants, directors (whether or not they are
employees), employees or officers of the Company. The 1996 Plan is administered
by a committee of the Board of Directors which, within the limitations of the
1996 Plan, determines the persons to whom options will be granted, the number of
shares to be covered by each option, whether the options are intended to be
ISOs, the duration and rate of exercise of each option, the exercise price and
manner of exercise, and the time, manner and form of payment upon exercise of an
option. Options granted under the 1996 Plan may not be granted at a price less
than the fair market value of the common stock on the date of grant and will
expire not more than ten years from the date of grant. Subsequent to June 30,
1996, the Company agreed to issue under the 1996 Plan, subject to approval from
the Board of Directors, options to purchase 194,250 shares of common stock at
$6.00 per share. (See Note H[2]).
[3] OTHER STOCK OPTIONS:
In October 1995, the President granted to an employee options to purchase
217,000 of his shares of common stock at $1.00 per share. The options will vest
as to one third in each of October 1997, 1998 and 1999. Management believes that
the exercise price of these options reflects the fair value of the stock on the
date of grant, and accordingly, no compensation has been recorded.
F-10
<PAGE>
INTELLICELL CORP.
NOTES TO FINANCIAL STATEMENTS
(Unaudited with respect to data as of
June 30, 1996 and for the six-month periods ended
June 30, 1995 and June 30, 1996) - (Continued)
(NOTE E) -- Stockholders' Equity: - (Continued)
In addition, subsequent to June 30, 1996 the Company agreed to issue,
subject to approval from the Board of Directors, options to purchase 65,000
shares of common stock at $6.00 per share (see Note J).
The Company has determined that accounting for stock-based compensation
under SFAS 123 would not have a significant effect on pro forma net income or
pro forma net income per share for the year ended December 31, 1995 or for the
six months ended June 30, 1996.
[4] WARRANTS:
Pursuant to the revolving line of credit agreement, the Company has agreed
to grant to the finance company, upon consummation of the initial public
offering, warrants to purchase 15,000 shares of common stock at an exercise
price equal to the per share public offering price.
(NOTE F) -- DUE FROM OFFICER:
At the completion of the proposed initial public offering the Company will
purchase from the President 30,000 shares of his common stock of the Company to
retire $180,000 of his indebtedness to the Company. These shares will be retired
by the Company at the time they are acquired. The portion of the balance due
from officer which will be settled through this stock purchase has been
classified as a component of stockholders' equity. The portion classified as a
current asset reflects amounts which have been or will be repaid to the Company
(see Note J).
(NOTE G) -- PROPOSED PUBLIC OFFERING:
The Company has signed a letter of intent with an underwriter with respect
to a proposed public offering of the Company's securities. There is no assurance
that such offering will be consummated. In connection therewith, the Company
anticipates incurring substantial costs, which, if the offering is not
consummated, will be charged to expense.
(NOTE H) -- COMMITMENTS, CONTINGENCIES AND OTHER MATTERS:
[1] OPERATING LEASES:
The Company currently leases its office and warehouse facility on a
month-to-month basis. Rent expense for the years ended December 31, 1993,
December 31, 1994 and December 31, 1995 and for the six months ended June 30,
1996 was $38,000, $82,000, $73,000 and $37,000, respectively.
[2] EMPLOYMENT AGREEMENTS AND OFFICERS' SALARIES:
During the years ended December 31, 1993, December 31, 1994 and December
31, 1995 and the six months ended June 30, 1996, officers' salaries, which
represent salaries of the stockholders of the Company, aggregated $75,000,
$100,000, $150,000 and $36,000, respectively.
The Company has an employment agreement with an officer for a three-year
term commencing on July 1, 1996 and providing for minimum annual compensation of
$70,000 and the granting of options to purchase up to an aggregate of 50,000
shares of common stock at an exercise price equal to the per share public
offering price. The granting of such options is subject to approval by the
Company's Board of Directors and approval of the 1996 Plan by the Company's
stockholders. The options are exercisable as to one-third of the shares covered
thereby on the first, second and third anniversaries of the date on which they
are granted.
F-11
<PAGE>
INTELLICELL CORP.
NOTES TO FINANCIAL STATEMENTS
(Unaudited with respect to data as of
June 30, 1996 and for the six-month periods ended
June 30, 1995 and June 30, 1996) - (Continued)
(NOTE H) -- Commitments, Contingencies and Other Matters: - (Continued)
The Company also has an employment agreement with an employee which becomes
effective upon the consummation of the initial public offering and provides for
a three-year term and annual compensation of $132,000. This employee has options
to purchase 217,000 shares of the President's common stock (see Note E [3]).
In addition, the Company is in the process of finalizing an employment
agreement with the President which is expected to become effective upon the
consummation of the initial public offering and to provide for a three- year
term and minimum annual compensation of $72,000.
[3] MAJOR CUSTOMERS:
During the year ended December 31, 1995 and the six months ended June 30,
1996, Brightpoint accounted for 10% and 19%, respectively, of the Company's
sales. During the years ended December 31, 1993, December 31, 1994 and December
31, 1995 and the six months ended June 30, 1996 one other customer accounted for
21%, 32%, 25% and 20%, respectively, of the Company's sales.
[4] CONCENTRATION OF SUPPLIERS:
The Company is dependent on third-party equipment manufacturers and
distributors for all of its supply of cellular telephones and accessories.
Brightpoint accounted for 33%, 28% and 32% of the Company's purchases during the
years ended December 31, 1994 and December 31, 1995 and the six months ended
June 30, 1996, respectively. One other supplier accounted for 32% of the
Company's purchases during the year ended December 31, 1993.
The Company obtains substantially all of its proprietary accessory products
from manufacturers in Taiwan and is dependent on such manufacturers to provide
sufficient quantities of products on favorable terms.
[5] LITIGATION:
In October 1996, an action was filed against the Company seeking a
judgement to cancel the Company's trademark registration for the name
"Intellicell". The action is in a preliminary stage and the Company is unable to
determine the outcome of the action. Although the Company intends to vigorously
defend this action, there can be no assurance that such action will be resolved
in a manner favorable to the Company.
F-12
<PAGE>
INTELLICELL CORP.
NOTES TO FINANCIAL STATEMENTS
(Unaudited with respect to data as of
June 30, 1996 and for the six-month periods ended
June 30, 1995 and June 30, 1996)
- (Continued)
(NOTE I) -- PRO FORMA INCOME TAXES (BENEFIT):
As a result of the S Corporation election, the financial statements do not
include a provision for Federal and state income taxes. Upon completion of the
proposed initial public offering, the S Corporation election will be terminated
and the Company will be subject to Federal and state income taxes. Accordingly,
pro forma net income in the accompanying statements of operations includes pro
forma adjustments for income taxes which would have been provided had the S
Corporation election not been in effect and is comprised of the following:
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
-------------------------------------- -----------------------
1993 1994 1995 1995 1996
----------- ---------- ---------- --------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Current:
Federal ......................... $ 7,000 $191,000 $129,000 $53,000 $258,000
State ........................... 5,000 57,000 39,000 15,000 77,000
----------- ---------- ---------- --------- ----------
12,000 248,000 168,000 68,000 335,000
----------- ---------- ---------- --------- ----------
Deferred:
Federal ......................... (10,000) (65,000) (2,000) 3,000 (73,000)
State ........................... (5,000) (11,000) 1,000 (13,000)
----------- ---------- ---------- --------- ----------
(15,000) (76,000) (2,000) 4,000 (86,000)
----------- ---------- ---------- --------- ----------
Pro forma taxes (benefit) on income . $ (3,000) $172,000 $166,000 $72,000 $249,000
=========== ========== ========== ========= ==========
</TABLE>
The difference between pro forma income taxes at the statutory Federal
income tax rate of 15% in 1993 and 34% in 1994, 1995 and 1996 and pro forma
income taxes reported in the statements of operations are as follows:
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
------------------------------------- -----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- --------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Income taxes (benefit) at the federal
statutory rate ......................... $(3,000) $152,000 $139,000 $60,000 $210,000
State income taxes (benefit), net of
federal taxes .......................... (2,000) 27,000 25,000 11,000 37,000
Effect of change in tax rates on reversal
of prior years deferred items .......... (11,000)
Nondeductible expenses .................. 2,000 4,000 2,000 1,000 2,000
---------- ---------- ---------- --------- ----------
$(3,000) $172,000 $166,000 $72,000 $249,000
========== ========== ========== ========= ==========
</TABLE>
The pro forma income tax asset consists of the following:
June 30,
1996
-----------
(Unaudited)
Allowance for doubtful accounts $144,000
Allowance for obsolescence .... 34,000
-----------
$178,000
===========
F-13
<PAGE>
INTELLICELL CORP.
NOTES TO FINANCIAL STATEMENTS
(Unaudited with respect to data as of
June 30, 1996 and for the six-month periods ended
June 30, 1995 and June 30, 1996) - (Continued)
(NOTE I) -- Pro Forma Income Taxes (Benefit): - (Continued)
Deferred income taxes are primarily the result of temporary differences
between income tax and financial reporting purposes resulting from certain
expenses for financial reporting purposes that will be deductible for income tax
purposes in future years.
Upon termination of the S Corporation election, deferred items will be
utilized in the computation of income taxes in future accounting periods when
applicable.
(NOTE J) -- RELATED PARTY TRANSACTIONS:
The retail division of the Partnership described in Note A was a customer
of the Company. For the years ended December 31, 1993, December 31, 1994 and
December 31, 1995, the Company sold approximately $126,000, $93,000 and $42,000
of cellular products, respectively, to the Partnership at cost. The Company made
no sales to the Partnership during the six months ended June 30, 1996.
Subsequent to June 30, 1996, the Partnership was dissolved and all amounts due
from the Partnership were assumed by the President.
Subsequent to June 30, 1996 the Company agreed to issue, subject to
approval from the Board of Directors, options to purchase 35,000 shares of
common stock to the brother of the President at $6.00 per share.
(NOTE K) -- SUBSEQUENT EVENTS:
Distribution of S Corporation retained earnings:
The Company intends to distribute to the President upon or prior to the
completion of the proposed initial public offering, an amount equal to
substantially all of the Company's undistributed subchapter S earnings.
(NOTE L) -- PRO FORMA (UNAUDITED):
A pro forma balance sheet is presented to reflect the following
transactions as if they had occurred on June 30, 1996:
(1) The distribution to the President of substantially all of the
Company's undistributed subchapter S earnings (Note K);
(2) The intended reorganization as a Delaware Corporation with $.01 par
value common stock;
(3) The recording of a deferred tax asset upon the termination of the
Company's status as an S Corporation (Note I);
(4) The issuance of 186,220 common shares as consideration for
cancelling indebtedness of $1,000,000 (Note D[2]); and
(5) The acquisition and retirement of 30,000 common shares from the
President as settlement of $180,000 of the balance due from such
officer (Note F).
The pro forma balance sheet is not necessarily indicative of what the
actual financial position of the Company would have been had the transactions
described above occurred at June 30, 1996, nor does it purport to represent the
future financial position of the Company. In the opinion of the Company's
management, all adjustments necessary to present fairly such pro forma unaudited
balance sheet have been made.
F-14
<PAGE>
=============================================================================
No dealer, salesperson or any other person has been authorized to give any
information or to make representations other than those contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or the Underwriter. This
Prospectus does not constitute an offer to sell or solicitation of an offer to
buy, any security other than the securities offered by this Prospectus, or an
offer to sell or a solicitation of an offer to buy any security by any person in
any jurisdiction in which such offer or solicitation would be unlawful. Neither
the delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information in this Prospectus is
correct as of any time subsequent to the dates as of which such information is
given.
TABLE OF CONTENTS
Page
--------
Prospectus Summary ........................ 3
Risk Factors .............................. 6
Use of Proceeds ........................... 12
Dividend Policy ........................... 12
Dilution .................................. 13
Capitalization ............................ 14
Selected Financial Data ................... 15
Management's Discussion and Analysis of
Financial Condition and Results of
perations ................................ 16
Business .................................. 20
Management ................................ 27
Principal and Certain Transactions ........ 30
Certain Transactions ...................... 31
Description of Securities ................. 31
Shares Eligible for Future Sale ........... 32
Underwriting .............................. 34
Legal Matters ............................. 35
Experts ................................... 35
Additional Information .................... 35
Index to Financial Statements ............. F-1
Until__ (25 days after the date of this Prospectus), all dealers effecting
transactions in the registered securities, whether or not participating in this
distribution, may be required to deliver a Prospectus. This delivery requirement
is in addition to the obligation of dealers to deliver a Prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.
=============================================================================
<PAGE>
=============================================================================
1,666,667 SHARE
INTELLICELL CORP.
COMMON STOCK
------
PROSPECTUS
------
SANDS BROTHERS & CO., LTD.
, 1996
=============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
SEC registration ............................. $3,848.49
NASD fee ..................................... 1,881.73
Nasdaq listing fee ...........................
Printing and engraving costs ................. *
Legal fees and expenses ...................... *
Accounting fees and expenses ................. *
Blue Sky fees and expenses ................... *
Transfer agent and registrar fees and expenses *
Miscellaneous ................................ *
-----------
Total ...................................... $
===========
- ------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware
provides for the indemnification of officers and directors under certain
circumstances against expenses incurred in successfully defending against a
claim and authorizes Delaware corporations to indemnify their officers and
directors under certain circumstances against expenses and liabilities incurred
in legal proceedings involving such persons because of their being or having
been an officer or director.
Section 102(b) of the Delaware General Corporation Law permits a
corporation, by so providing in its certificate of incorporation, to eliminate
or limit director's liability to the corporation and its stockholders for
monetary damages arising out of certain alleged breaches of their fiduciary
duty. Section 102(b)(7) provides that no such limitation of liability may affect
a director's liability with respect to any of the following: (i) breaches of the
director's duty of loyalty to the corporation or its stockholders; (ii) acts or
omissions not made in good faith or which involve intentional misconduct of
knowing violations of law; (iii) liability for dividends paid or stock
repurchased or redeemed in violation of the Delaware General Corporation law; or
(iv) any transaction from which the director derived an improper personal
benefit. Section 102(b)(7) does not authorize any limitation on the ability of
the corporation or its stockholders to obtain injunction relief, specific
performance or other equitable relief against directors.
Article Nine of the Company's Certificate of Incorporation and the
Company's By-laws provide that all persons who the Company is empowered to
indemnify pursuant to the provisions of Section 145 of the General Corporation
law of the State of Delaware (or any similar provision or provisions of
applicable law at the time in effect), shall be indemnified by the Company to
the full extent permitted thereby. The foregoing right of indemnification shall
not be deemed to be exclusive of any other rights to which those seeking
indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors, or otherwise.
Article Ten of the Company's Certificate of Incorporation provides that no
director of the Company shall be personally liable to the Company or its
stockholders for any monetary damages for breaches of fiduciary duty of loyalty
to the Company or its stockholders' (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing-violation of law; (iii)
under Section 174 of the General Corporation of Law of the State of Delaware; or
(iv) for any transaction from which the director derived an improper personal
benefit.
Insofar as indemnification for liabilities under the Act may be permitted
to directors, officers or persons controlling the Company pursuant to the
foregoing provisions, the Company has been informed that in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
II-1
<PAGE>
Reference is made to the Underwriting Agreement, the proposed form of which
is filed as Exhibit 1.1, pursuant to which the Underwriters agree to indemnify
the directors and certain officers of the Registrant and certain other persons
against certain civil liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Company issued 2,030,000 shares of Common Stock to Mr. Ben Neman
pursuant to a reincorporation in a transaction exempt from registration under
Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS.
(a)Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
----------- ----------
<S> <C>
1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation
3.2 Certificate of Merger and Plan and Agreement of Merger, between
Cellular Telecom Corporation, a California corporation, and the
Registrant
3.3 Bylaws*
4.1 Specimen form of Common Stock Certificate*
4.2 Form of Representative's Warrant Agreement*
5.1 Opinion of Tenzer Greenblatt LLP*
10.1 Form of 1996 Stock Option Plan of Registrant
10.2 Form of Employment Agreement between the Registrant and Ben Neman
10.3 Form of Employment Agreement between the Registrant and
James E. Bunting
10.4 Lease Agreement between the Registrant and California Cosmetics
10.5 Credit Facility and Security Agreement, dated June 18, 1996, by
and between the Registrant and CIT Group/Credit Finance, Inc., and
related documents
23.1 Consent of Tenzer Greenblatt LLP (included in Exhibit 5.1)
23.2 Consent of Richard A. Eisner & Company, LLP
24.1 Power of Attorney (included in the Registration Statement)
</TABLE>
- ------
* to be filed by amendment
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the Prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment shall be deemed a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed the initial bona fide offering
thereof.
(3) To remove by means of a post-effective amendment any of the securities
being registered which remain unsold at the termination of the offering.
II-2
<PAGE>
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrar
pursuant to any arrangement, provisions or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(4) The undersigned Registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
47(h) under the Securities Act is part of this Registration Statement as of
the time it was declared effective.
(ii) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement for 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-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form S-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, in the City of Van
Nuys, State of California, on the 1st day of November, 1996.
INTELLICELL CORPORATION
By: /s/ Ben Neman
-------------------------------
Ben Neman, President
KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Ben Neman and James E. Bunting, jointly
and severally, as his true and lawful attorney-in-fact and agent, each will
full power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each said attorney-in-fact or agent or substitute lawfully does or causes to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-1 has been signed below by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- -------
<S> <C> <C>
/s/ Ben Neman Chairman of the Board; President November 1, 1996
- ------------------------- and Chief Executive Officer
Ben Neman (Principal Executive Officer)
/s/ James E. Bunting Executive Vice President; November 1, 1996
- ------------------------- Chief Operating Officer;
James E. Bunting Chief Financial Officer
(Principal Accounting Officer)
and Director
/s/ Vinay Sharma Director November 1, 1996
- -------------------------
Vinay Sharma
</TABLE>
II-4
<PAGE>
REPORT OF INDEPENDENT AUDITORS OF SCHEDULE
To the Board of Directors of
Cellular Telecom Corporation
(d/b/a Intellicell Corp.)
The audits referred to in our report dated September 13, 1996 (with
respect to Note H[5], October 7, 1996; with respect to the second paragraph of
Note A, October 18, 1996; with respect to Notes E[2] and H[2], October 31, 1996)
included Schedule II for each of the years in the three-year period ended
December 31, 1995.
In our opinion, such schedule present fairly the information set forth
therein in compliance with the applicable accounting regulation of the
Securities and Exchange Commission.
Richard A. Eisner & Company, LLP
New York, New York
September 13, 1996
<PAGE>
SCHEDULE II
INTELLICELL CORP.
VALUATION AND QUALIFYING ACCOUNTS
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------------------------------------- ----------- ---------------------------- ------------- ------------
Additions
----------------------------
(1) (2)
Balance ------------ ------------
at the
Beginning Charged to Charged to Balance at
of the Costs and Other the End of
Description Period Expenses Accounts Deductions the Period
-------------------------------------- ----------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
For the year ended December 31, 1993:
Allowance for doubtful accounts .... $ 18,000 $ 8,000 (A) $ 10,000
Allowance for inventory obsolescense 55,000 55,000
For the year ended December 31, 1994:
Allowance for doubtful accounts .... $ 10,000 297,000 227,000 (A) 80,000
Allowance for inventory obsolescense 55,000 209,000 118,000 (B) 146,000
For the year ended December 31, 1995:
Allowance for doubtful accounts .... 80,000 305,000 185,000 (A) 200,000
Allowance for inventory obsolescense 146,000 123,000 237,000 (B) 32,000
For the six months ended June 30, 1996
(unaudited):
Allowance for doubtful accounts .... 200,000 175,000 14,000 (A) 361,000
Allowance for inventory obsolescense 32,000 85,000 32,000 (B) 85,000
</TABLE>
(A) Accounts written off.
(B) Inventories written off.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Page
----------- ---------- --------
<S> <C> <C>
1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation
3.2 Certificate of Merger and Plan and Agreement of Merger, between
Cellular Telecom Corporation, a California corporation, and
the Registrant
3.3 Bylaws*
4.1 Specimen form of Common Stock Certificate*
4.2 Form of Representative's Warrant Agreement*
5.1 Opinion of Tenzer Greenblatt LLP*
10.1 Form of 1996 Stock Option Plan of Registrant
10.2 Form of Employment Agreement between the Registrant and Ben Neman
10.3 Form of Employment Agreement between the Registrant and
James E. Bunting
10.4 Lease Agreement between the Registrant and California Cosmetics
10.5 Credit Facility and Security Agreement, dated June 18, 1996, by
and between the Registrant and CIT Group/Credit Finance, Inc., and
related documents
23.1 Consent of Tenzer Greenblatt LLP (included in Exhibit 5.1)
23.2 Consent of Richard A. Eisner & Company, LLP
24.1 Power of Attorney (included in the Registration Statement)
</TABLE>
- ------
* to be filed by amendment
<PAGE>
1,666,667 Shares
INTELLICELL CORP.
Common Stock
UNDERWRITING AGREEMENT
November , 1996
Sands Brothers & Co., Ltd.
As Representative of the Several Underwriters
90 Park Avenue
New York, New York 10016
Dear Sirs:
Intellicell Corp., a Delaware corporation (the "Company"), proposes to
issue and sell to the underwriters named in Schedule A (the "Underwriters") of
this Underwriting Agreement (the "Agreement"), for whom you are acting as
representative (the "Representative"), 1,666,667 shares (the "Firm Shares") of
Common Stock, par value $.01 per share of the Company (the "Common Stock"). In
addition, the Company has agreed to grant to the Underwriters an option (which
may be exercised by the Representative, individually) to purchase an additional
250,000 shares of Common Stock (the "Option Shares") for the purposes set forth
in Section 3 hereof. The Firm Shares and the Option Shares are hereinafter
collectively referred to as the "Shares."
The Company also proposes to issue and sell to you (for your own account
and not as Representative of the Several Underwriters) and/or your designees,
warrants (the "Representative's Warrants") to purchase an aggregate of 166,667
shares of Common Stock at an exercise price of $7.20 per share, which sale will
be consummated in accordance with the terms and conditions of the form of
Representative's Warrant Agreement filed as an exhibit to the Registration
Statement. The shares of Common Stock issuable upon exercise of the
Representative's Warrants are hereinafter sometimes referred to as the "Warrant
Shares." The Shares, the Representative's Warrants and the Warrant Shares
(collectively, the "Securities") are more fully described in the Registration
Statement and the Prospectus, as defined below.
You have advised the Company that you and the other Underwriters desire to
purchase, severally, the Firm Shares and that you have been authorized by the
Underwriters to execute this agreement on their behalf. The Company confirms the
agreements
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made by it with respect to the purchase of the Firm Shares by the several
Underwriters on whose behalf you are signing this Agreement, as follows:
1. Purchase and Sale of Firm Shares. (a) Subject to the terms and
conditions of this Agreement, and upon the basis of the representations,
warranties, and agreements herein contained, the Company agrees to issue and
sell to the Underwriters, and each such Underwriter agrees, severally and not
jointly, to buy from the Company at $5.52 for each Firm Share, at the place and
time hereinafter specified, the number of Firm Shares set forth opposite the
names of the Underwriters in Schedule A attached hereto plus any additional Firm
Shares which such Underwriters may become obligated to purchase pursuant to the
provisions of Section 9 hereof.
2. Payment and Delivery; Representative's Warrants.
(a) Delivery to the Underwriters of and payment for the Firm Shares shall
take place at 10:00 a.m., New York Time, on the third full business day (or, if
the Firm Shares are priced, as contemplated in Rule 15c6-1(c) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), after 4:30
p.m., New York Time, the fourth full business day) following the date of the
initial public offering, at the offices of the Representative, 90 Park Avenue,
New York, New York 10016 or at such time on such other date, as may be agreed
upon by the Company and the Underwriters (such date hereinafter is referred to
as the "Closing Date").
(b) The Company will make the certificates for the Shares to be purchased
by the Underwriters hereunder available to you for inspection at least 24 hours
prior to the Closing Date or the Option Closing Date (which are collectively
referred to herein as the "Closing Dates"). The certificates shall be in such
names and denominations as you may request, at least two (2) full business days
prior to the Closing Dates. Time shall be of the essence and delivery at the
time and place specified in this Agreement is a further condition to the
obligations of each Underwriter.
Definitive certificates in negotiable form for the Firm Shares to be
purchased by the Underwriters hereunder will be delivered by the Company to you
for the accounts of the several Underwriters against payment of the respective
purchase prices therefor by the several Underwriters, by federal wire transfer
to the Company. The Representative's written confirmation of the effectuation of
such federal wire transfer, detailing the specific federal wire number, shall be
satisfactory evidence that payment of the purchase price for the Firm Shares has
been made for purposes of the Closing Date and, upon presentation of such
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confirmation, the Company shall be required to deliver certificates in
negotiable form for the Firm Shares at such time.
In addition, in the event the Underwriters (or the Representative,
individually) exercise the option to purchase from the Company all or any
portion of the Option Shares pursuant to the provisions of Section 3 hereof,
payment for such securities shall be made to the Company by the effectuation of
a federal wire transfer at the date of delivery of such securities as required
by the provisions of Section 3 hereof.
It is understood that you, individually and not as Representative of the
several Underwriters, may (but shall not be obligated to) make any and all
payments required pursuant to this Section 2 on behalf of any Underwriters whose
check or checks shall not have been received by the Representative at the time
of delivery of the Firm Shares to be purchased by such Underwriter or
Underwriters. Any such payment by you shall not relieve any such Underwriter or
Underwriters of any of its or their obligations hereunder. It is also understood
that you individually rather than all of the Underwriters may (but shall not be
obligated to) purchase the Option Shares (as hereinafter defined).
It is understood that the several Underwriters propose to offer the Firm
Shares to be purchased hereunder to the public upon the terms and conditions set
forth in the Registration Statement, after the Registration Statement becomes
effective.
The cost of original issue tax stamps, if any, in connection with the
issuance and delivery of the Shares by the Company to the Underwriters shall be
borne by the Company. The Company will pay and save each Underwriter and any
subsequent holder of the Shares harmless from and any and all liabilities with
respect to or resulting from any failure or delay in paying Federal and state
stamp and other transfer taxes, if any, which may be payable or determined to be
payable in connection with the original issuance or sale to such Underwriter of
Shares sold by such entity.
(b) On the Closing Date, the Company will sell the Representative's
Warrants to Sands Brothers, for its own account and not as Representative of the
several Underwriters, or to its designees. The Representative's Warrants will be
in the form of, and in accordance with, the provisions of the Representatives
Ordinary Share Purchase Warrant attached as an exhibit to the Registration
Statement. The aggregate purchase price for the Representative's Warrants is
$100.00. The Representative's Warrants will be restricted from sale, transfer,
assignment or hypothecation for a period of one year from the Effective Date,
except to officers and shareholders of Sands Brothers. Payment for the
Representative's Warrants will be made to the Company by
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check or checks payable to its order on the Closing Date against delivery of the
certificates representing the Representative's Warrants. The certificates
representing the Representative's Warrants will be in such denominations and
such names as Sands Brothers may request prior to the Closing Date.
3. Option to Purchase Option Shares.
(a) For the purposes of covering any over-allotments in connection with the
distribution and sale of the Firm Shares as contemplated by the Prospectus, the
Company hereby grants an option to the several Underwriters (which may be
exercised, at its option, by the Representative, individually) to purchase all
or any part of the Option Shares from the Company. This option may be exercised
in whole or in part at anytime and from time to time within 45 days after the
effective date of the Registration Statement upon written notice (each, an
"Option Share Notice") by the Representative to the Company setting forth the
aggregate number of Option Shares to be purchased, the names and denominations
in which the certificates for such Option Shares are to be registered and the
time and date for such purchase. Such time and date shall be determined by the
Representative but shall be at least two and no more than five full business
days before the date specified for closing in the Option Share Notice (each an
"Option Closing Date"). Delivery of the Option Shares against payment therefor
shall take place at the offices of the Representative, 90 Park Avenue, New York,
New York 10016. The number of Option Shares to be purchased by each Underwriter,
if any, shall bear the same percentage to the total number of Option Shares
being purchased by the several Underwriters pursuant to this subsection (a) as
the number of Firm Shares such Underwriter is purchasing bears to the total
number of Firm Shares being purchased pursuant to subsection (a) of Section 1,
as adjusted, in each case by the Representative in such manner as the
Representative may deem appropriate. The purchase price to be paid for the
Option Shares will be the same price per Option Share as the price per Firm
Share set forth in Section ! hereof.
(b) Payment for any Option Shares purchased will be made to the Company by
the effectuation of a federal wire transfer, against receipt of the certificates
for such securities by the Representative for the respective accounts of the
several Underwriters registered in such names and in such denominations as the
Representative may request. The Representatives' written confirmation of the
effectuation of such federal wire transfer, detailing the specific federal wire
number, shall be satisfactory evidence that payment of the purchase price for
the Option Shares has been made for purposes of the Option Closing Date and,
upon presentation of such confirmation, the Company shall be required to deliver
certificates in negotiable form for the Option Shares at such time.
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(c) The obligation of the Underwriters to purchase and pay for any of the
Option Shares is subject to the accuracy and completeness (as of the date hereof
and as of the Option Closing Date) in all material respects of the
representations and warranties of the Company herein, to the accuracy and
completeness of the statements of the Company or its officers made in any
certificate or other document to be delivered by the Company pursuant to this
Agreement, to the performance in all material respects by the Company of its
obligations hereunder, to the satisfaction by the Company of the conditions, as
of the date hereof and as of the Option Closing Date, and to the delivery to the
Underwriters of opinions, certificates and letters dated the Option Closing Date
substantially similar in scope to those specified in Section 5, 6(b), (c), (d)
and (e) hereof, but with each reference to "Firm Shares," and "Closing Date" to
be, respectively, to the Option Shares and the Option Closing Date.
4. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the several Underwriters that:
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, with full power
and authority, corporate and other, to own or lease and operate its
properties and to conduct its business as described in the Registration
Statement and to execute, deliver and perform this Agreement and the
Representative's Warrant Agreement and to consummate the transactions
contemplated hereby and thereby. The Company is duly qualified to do
business as a foreign corporation and is in good standing in all
jurisdictions wherein such qualification is necessary and failure so to
qualify could have a material adverse effect on the financial condition,
results of operations, business or properties of the Company. The Company
has no subsidiaries (as defined in the Rules and Regulations) that are
required to be listed as subsidiaries in Exhibit 21 to the Registration
Statement. Except as set forth in the Prospectus, the Company (i) does not
own, and at the Closing Date and, if later, the Option Closing Date will
not own, directly or indirectly, any shares of stock or any other equity or
long-term debt securities of any corporation or have any equity interest in
any corporation, firm, partnership, joint venture, association or other
entity and (ii) is not, and at the Closing Date and, if later, the Option
Closing Date will not be, engaged in any discussions or a party to any
agreement or understanding, written or oral, regarding the acquisition of
an interest in any corporation, firm, partnership, joint venture,
association or other entity. Complete and correct copies of the certificate
of incorporation, the bylaws or other organizational documents of the
Company and all amendments thereto have been delivered to the
Representative, and no changes therein will be made subsequent to
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the date hereof and prior to Closing Date or, if later, the Option Closing
Date.
(b) The Company has full corporate power and authority to enter into
this Agreement and the Representative's Warrants. This Agreement has been
duly executed and delivered by the Company and constitutes the valid and
binding obligation of the Company, and the Representative's Warrant
Agreement, when executed and delivered by the Company on the Closing Date,
will be valid and binding obligations of the Company, enforceable against
the Company in accordance with their respective terms, in each case subject
to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally. The execution, delivery and performance of this
Agreement and the Representative's Warrant Agreement by the Company, the
consummation by the Company of the transactions herein and therein
contemplated and the compliance by the Company with the terms of this
Agreement and the Representative's Warrant Agreement do not and will not,
with or without the giving of notice or the lapse of time, or both, (i)
result in any violation of the certificate of incorporation, by-laws or
other organizational documents of the Company; (ii) result in a breach of
or conflict with any of the terms or provisions of, or constitute a default
under, or result in the modification or termination of, or result in the
creation or imposition of any lien, security interest, charge or
encumbrance upon any of the properties or assets of the Company pursuant to
any indenture, mortgage, note, contract, commitment or other agreement or
instrument to which the Company is a party or by which the Company or any
of its properties or assets is or may be bound or affected; (iii) violate
any existing applicable law, rule, regulation, judgment, order or decree of
any governmental agency or court, domestic or foreign, having jurisdiction
over the Company or any of their respective properties or business which,
in the case of clause (ii) or (iii), would have a material adverse effect
on the financial condition, results of operations, business or properties
of the Company or the ability of the Company to consummate the transactions
contemplated hereby.
(c) The Company has prepared in conformity with the requirements of
the Act and the rules and regulations (the "Regulations") of the Securities
and Exchange Commission (the "Commission") and filed with the Commission a
registration statement (File No. 333- ______) on Form S-1 and has filed one
or more amendments thereto, covering the registration of the Shares under
the Act, including the related preliminary prospectus or preliminary
prospectuses (each thereof being herein called a "Preliminary Prospectus")
and a proposed final prospectus. Each Preliminary Prospectus was endorsed
with the legend required by Item 501(c)(5) of Regulation S-K of the
Regulations, including, if applicable, Rule 430A of the Regulations. Such
registration
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statement including any documents incorporated by reference therein and all
financial schedules and exhibits thereto, as amended at the time it becomes
effective, and the final prospectus included therein are herein,
respectively, called the "Registration Statement" and the "Prospectus",
except that, (i) if the prospectus filed by the Company pursuant to Rule
424(b) of the Regulations differs from the Prospectus, the term
"Prospectus" will also include the prospectus filed pursuant to Rule 424
(b), and (ii) if the Registration Statement is amended or such Prospectus
is supplemented after the effective date of the Registration Statement (the
"Effective Date") and prior to the Option Closing Date (as hereinafter
defined), the terms "Registration Statement" and "Prospectus" shall include
the Registration Statement as amended or supplemented.
(d) Neither the Commission, nor to the best of the Company's
knowledge, any state regulatory authority has issued any order preventing
or suspending the use of any Preliminary Prospectus or has instituted or,
to the Company's knowledge, threatened to institute any proceedings with
respect to such an order.
(e) The Registration Statement when it becomes effective, the
Prospectus (and any amendment or supplement thereto) when it is filed with
the Commission pursuant to Rule 424(b), and both documents as of the
Closing Date, as the case may be, will comply as to form with the Act and
the Regulations and will in all material respects conform to the
requirements of the Act and the Regulations, and neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto, on
such dates, will contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, except that this representation and warranty does not
apply to statements or omissions made in reliance upon and in conformity
with information furnished in writing to the Company by or on behalf of the
Underwriters in connection with the Registration Statement or Prospectus
or any amendment or supplement thereto by the Underwriters expressly for
use therein.
(f) Richard A. Eisner & Company, LLP, the accountants who have
certified certain of the financial statements filed and to be filed with
the Commission as part of the Registration Statement and the Prospectus,
are independent public accountants within the meaning of the Act and
Regulations. The financial statements and schedules and the notes thereto
and the selected financial statements and summary financial statements
filed as part of the Registration Statement and included in the Prospectus
present fairly in all material respects the financial
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position of the Company as of the dates thereof, and the results of
operations and changes in financial position of the Company for the periods
indicated therein, in conformity with generally accepted accounting
principles (which, as applied to the Company for the periods involved, are
substantially identical in all material respects) applied on a
substantially consistent basis throughout the periods involved except as
otherwise stated in the Registration Statement and the Prospectus.
(g) The descriptions in the Registration Statement and the Prospectus
of contracts and other documents are accurate and present fairly the
information required to be disclosed, and there are no contracts or other
documents required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement under
the Act or the Regulations which have not been so described or filed as
required.
(h) The Company has filed with the appropriate federal, state and
local governmental agencies, and all foreign countries and political
subdivisions thereof, all tax returns, including, without limitation,
franchise tax and sales tax returns, which are required to be filed or has
duly obtained extensions of time for the filing thereof and has paid all
taxes shown on such returns and all assessments received by it to the
extent that the same have become due except where the failure to file tax
returns, obtain extensions of time for filing or pay such taxes and
assessment would not have a material adverse effect on the financial
position, results of operations, properties or business of the Company; and
the provisions for income taxes payable, if any, shown on the financial
statements filed with or as part of the Registration Statement are
sufficient for all accrued and unpaid foreign and domestic taxes, whether
or not disputed, and for all periods to and including the dates of such
financial statements. All payroll withholdings required to be made by the
Company with respect to employees have been made. Except as disclosed in
writing to the Underwriters, the Company has not executed or filed with any
taxing authority, foreign or domestic, any agreement extending the period
for assessment or collection of any income taxes and is not a party to any
pending action or proceeding by any foreign or domestic governmental agency
for assessment or collection of taxes; and no claims for assessment or
collection of taxes have been asserted against the Company.
(i) The Company has authorized, issued and outstanding capital stock
as set forth under the caption "Capitalization" in the Prospectus. All of
the outstanding shares of capital stock of the Company have been duly
authorized and validly issued, are fully paid and nonassessable, were
issued in compliance with all applicable state and Federal securities laws,
were not issued in violation of or subject to any preemptive rights or
other rights to subscribe for or purchase
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securities and conform to the description set forth in the Prospectus; the
Shares have been duly authorized and when issued and paid for as
contemplated herein will be validly issued, fully paid and nonassessable
and the Shares will conform to the description thereof contained in the
Prospectus; the Warrant Shares have been duly authorized, and, when issued
and paid for in accordance with the terms of the Representative's Warrants,
will be validly issued, fully paid and nonassessable; and no preemptive
rights or other rights to subscribe for or purchase exist with respect to
the issuance and sale of the Shares or with respect to the Warrant Shares.
The Company has reserved and will keep available for the exercise of the
Representative's Warrants such number of authorized but unissued shares of
Common Stock to permit the exercise in full of the Representative's
Warrants. The description of the capital stock of the Company in the
Registration Statement and the Prospectus is and at the Closing Date and,
if later, the Option Closing Date will be, complete and accurate in all
respects. Except as set forth in the Prospectus, the Company does not have
outstanding, and at the Closing Date, and, if later, the Option Closing
Date will not have outstanding, any options to purchase, or any rights or
warrants to subscribe for, any securities or obligations convertible into,
or any contracts or commitments to issue or sell, any shares of Common
Stock, or any such warrants, convertible securities or obligations. The
description of the Company's stock option and other stock plans or
arrangements, and the options or other rights granted or exercised
thereunder, set forth in the Prospectus, accurately and fairly presents the
information required to be shown with respect to such plans, arrangements
options and rights. No further approval or authority of the stockholders or
the Board of Directors of the Company will be required for sale of the
Shares by the Company as contemplated herein. No holder of any security of
the Company has any right to require registration of shares of Common Stock
or any other security of the Company because of the filing of the
Registration Statement or consummation of the transactions contemplated by
this Agreement. Except as set forth in the Prospectus, no holders of any of
the Company's securities have any rights, "demand," "piggyback" or
otherwise, to have such securities registered under the Act.
(j) The Company is not in violation of, or in default under, (i) any
term or provision of its certificate of incorporation, by-laws, or any
other organizational documents; (ii) any material term or provision or any
financial covenants of any indenture, mortgage, contract, commitment or
other agreement or instrument to which it is a party or by which it or any
of its property or business is or may be bound or affected; or (iii) any
existing applicable law, rule, regulation, judgment, order or decree of any
governmental agency or court, domestic or foreign, having jurisdiction over
the Company or any of its properties or business, which, in the case of
clause (ii) and (iii), would have
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a material adverse effect on the financial condition, results of
operations, business or properties of the Company or the ability of the
Company to consummate the transactions contemplated hereby. The Company
own, possess or have obtained all governmental and other licenses, permits,
certifications, registrations, approvals or consents and other
authorizations ("Permits") necessary to own or lease, as the case may be,
and to operate their properties, and to conduct their respective business
or operations as presently conducted, except where the failure to own,
possess or obtain such Permits would not have a material adverse effect on
the financial condition, results of operations, business or properties of
the Company. All such Permits are outstanding and in good standing, and
there are no proceedings pending or, to the best of the Company's
knowledge, threatened, or any basis therefor, seeking to cancel, terminate
or limit such Permits.
(k) Except as set forth in the Prospectus, there are no claims,
actions, suits, proceedings, arbitrations, investigations or inquiries
before any governmental agency, court or tribunal, domestic or foreign, or
before any private arbitration tribunal, pending, or, to the best of the
Company's knowledge, threatened against the Company or involving the
Company's properties or business which, if determined adversely to the
Company, would, individually or in the aggregate, have a material adverse
effect on the financial position, results of operations, properties, or
business of the Company or which question the validity of the capital stock
of the Company or this Agreement or of any action taken or to be taken by
the Company pursuant to, or in connection with, this Agreement; nor, to the
best of the Company's knowledge, except as disclosed in the Prospectus, is
there any reasonable basis for any such claim, action, suit, proceeding,
arbitration, investigation or inquiry. There are no outstanding orders,
judgments or decrees of any court, governmental agency or other tribunal
naming the Company and enjoining the Company from taking, or requiring the
Company to take, any action, or to which the Company, or the Company's
properties or business is bound or subject which would be material to the
Company.
(1) The Company has not incurred any liability for any finder's fees
or similar payments in connection with the transactions herein contemplated
other than payments previously made to the Representative.
(m) (i) The Company has sufficient title and ownership of, or license
or other rights to, or have applied for, all patents, patent applications,
trademarks, trademark applications, service marks, service mark
applications, trade names, copyrights, trade secrets, information,
proprietary rights, technologies, know-how and processes
(collectively, "Intellectual Property") necessary for its business as now
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conducted and as proposed to be conducted, as described in the Prospectus.
(ii) Except as disclosed in the Prospectus, no claims have been
asserted by any person to the ownership or use of any Intellectual
Property or challenging or questioning the validity or effectiveness
of any such license or agreement and the Company have no knowledge of
any valid basis for any such claim. The use of the Intellectual
Property by the Company does not infringe on the rights of any person
and there are no pending or, to the knowledge of the Company,
threatened claims nor has it been alleged that the Intellectual
Property is engaged in such infringements. All of the trademark and
trade name registrations, patents and copyrights are in full force and
effect. Other than potential sublicensees of the Company, no other
person has any right to use any Intellectual Property for similar or
related products in competition with the products of the Company and
no other person is infringing any of the Intellectual Property.
(iii) The Company has taken reasonable steps sufficient to
safeguard and maintain the secrecy and confidentiality of, or their
respective proprietary rights in, all of the unpatented know how,
technology, proprietary processes, formulae, and other information
owned by it. Without limiting the generality of the foregoing, the
Company has obtained confidentiality and secrecy agreements from all
past and present employees and independent third parties involved in
the invention or creation of their respective Intellectual Properties.
(n) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, the Company has not incurred any
material liability or obligation (absolute or contingent), except
liabilities and obligations incurred in the ordinary course of business,
and has not sustained any material loss or interference with its business
from fire, storm, explosion, flood or other casualty, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree; and since the respective dates as of which
information is given in the Registration Statement and the Prospectus,
there have not been, and prior to the Closing Date referred to below there
will not be, any changes in the capital stock or any material increases in
the long-term debt of the Company or any material adverse change in or
affecting the general affairs, management, financial condition,
shareholders' equity, results of operations or prospects of the Company,
other than as set forth or contemplated in the Prospectus.
(o) The Company owns no real property. The Company has good title to
all material personal property
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(tangible and intangible) owned by it, free and clear of all security
interests, charges, mortgages, liens, encumbrances and defects, except such
as are described in the Registration Statement and Prospectus or such as do
not materially affect the value or transferability of such property and do
not interfere with the use of such property made, or proposed to be made,
by the Company. The leases, licenses or other contracts or instruments
under which the Company leases, holds or is entitled to use any property,
real or personal, are valid and subsisting and neither the Company, nor, to
the best of the Company's knowledge, any other party is in default
thereunder and, to the best of the Company's knowledge, no event has
occurred which, with the passage of time or the giving of notice, or both,
would constitute a default thereunder. The Company has not received any
notice of any violation of any applicable law, ordinance, regulation, order
or requirement relating to its owned or leased properties the violation of
which would have a material adverse effect on the Company.
(p) Each material contract or other instrument (however characterized
or described) to which the Company is a party or by which its properties or
business is or may be bound or affected and to which reference is made in
the Prospectus has been duly and validly executed by the Company and,
assuming that such contracts or other instruments have been properly
executed by parties other than the Company, is in full force and effect in
all material respects and is enforceable against the parties thereto in
accordance with its terms, in each case subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar
laws affecting creditors' rights and remedies generally; and none of such
contracts or instruments has been assigned by the Company, and neither the
Company nor, to the best of the Company's knowledge, any other party is in
default thereunder and, to the best of the Company's knowledge, no event
has occurred which, with the lapse of time or the giving of notice, or
both, would constitute a default thereunder.
(q) The employment agreements between the Company and its officers and
employees, described in the Registration Statement, are binding and
enforceable obligations upon the respective parties thereto in accordance
with their respective terms, except as such enforceability may be limited
by applicable bankruptcy, insolvency, moratorium or other similar laws or
arrangements affecting creditors' rights generally and subject to
principles of equity and public policy and subject to the possible finding
by a court of competent jurisdiction that the scope, time period or
geographic range of any post-employment non-competition restriction exceeds
that required to protect the Company's legitimate interests.
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(r) Except as set forth in the Prospectus, the Company has no employee
benefit plans (including, without limitation, profit sharing and welfare
benefit plans) or deferred compensation arrangements that are subject to
the provisions of the Employee Retirement Income Security Act of 1974. To
the best of the Company's knowledge, no labor problem exists with any of
the Company's employees or is imminent which could have a material adverse
affect on the Company.
(s) The Company has filed a registration statement pursuant to Section
12(g) of the Exchange Act to register the Common Stock, has filed an
application to list the Shares on the NASDAQ SmallCap Market, and has
received notification that the listing has been approved, subject to notice
of issuance.
(t) The Company has adequately insured its properties against loss or
damage by fire or other casualty and maintains, in amounts which it deems,
in good faith, to be adequate, such other insurance, including but not
limited to, liability insurance, as is usually maintained by companies
engaged in the same or similar businesses located in its geographic area.
(u) Neither the Company nor, to its knowledge, any of its officers,
employees, agents or any other person acting on behalf of the Company has,
directly or indirectly, given or agreed to give any money, gift or similar
benefit (other than legal price concessions to customers in the ordinary
course of business) to any customer, supplier, employee or agent of a
customer or supplier, or official or employee of any governmental agency
(domestic or foreign) or instrumentality of any government (domestic or
foreign) or any political party or candidate for office (domestic or
foreign) or other person who was, is, or may be in a position to help or
hinder the business of the Company (or to assist the Company in connection
with any actual or proposed transaction) which (a) might subject the
Company or any other such person, to any damage or penalty in any civil,
criminal or governmental litigation or proceeding (domestic or foreign);
(b) if not given in the past, might have had a material adverse effect on
the assets, business or operations of the Company; or (c) if not continued
in the future, might adversely affect the assets, business, operations or
prospects of the Company, taken as a whole. The Company believes that its
international accounting controls are sufficient to cause the Company to
comply with the Foreign Corrupt Practices Act of 1977, as amended.
(v) The Company, in all material respects, has provided to Littman
Krooks & Roth, P.C., counsel to the Representative ("Representative's
Counsel") all agreements certificates, correspondence and other items and
documents
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requested by such counsel's due diligence letter dated May 6, 1996.
Any certificate signed by an officer of the Company and delivered to
the Representative or to counsel for the Representative shall be deemed to
be a representation and warranty by the Company to the Representative as to
the matters covered thereby.
5. Certain Covenants of the Company. The Company covenants with the several
Underwriters as follows:
(a) The Company will not at any time, whether before the Effective
Date or thereafter during such period as the Prospectus is required by law
to be delivered in connection with the sales of the Firm Shares by the
several Underwriters, file or publish any amendment or supplement to the
Registration Statement or Prospectus of which the Representative has not
been previously advised and furnished a copy, or to which the
Representative shall object in writing.
(b) The Company will use its best efforts to cause the Registration
Statement to become effective and will advise the Representative
immediately, and, if requested by the Representative, confirm such advice
in writing, (i) when the Registration Statement, or any post-effective
amendment to the Registration Statement or any supplemented Prospectus is
filed with the Commission; (ii) of the receipt of any comments from the
Commission; (iii) of any request of the Commission for amendment or
supplementation of the Registration Statement or Prospectus or for
additional information and (iv) 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 of the suspension of the qualification of the Firm Shares for offering
or sale in any jurisdiction, or of the initiation of any proceedings for
any of such purposes. The Company will make every reasonable effort to
prevent the issuance of any such stop order or of any order preventing or
suspending such use and to obtain as soon as possible the lifting thereof,
if any such order is issued.
(c) The Company will deliver to the several Underwriters, without
charge, from time to time until the Effective Date, as many copies of each
Preliminary Prospectus as the Underwriters may reasonably request, and the
Company hereby consents to the use of such copies for purposes permitted by
the Act. The Company will deliver to the several Underwriters, without
charge, as soon as the Registration Statement becomes effective, and
thereafter from time to time as requested, such number of copies of the
Prospectus (as supplemented, if the Company makes any supplements to the
Prospectus) as the Underwriters may reasonably request. The Company has
furnished
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or will furnish to the Representative two conformed copies of the
Registration Statement as originally filed and of all amendments thereto,
whether filed before or after the Registration Statement becomes effective,
two copies of all exhibits filed therewith and two conformed copies of all
consents and certificates of experts.
(d) The Company will comply with the Act, the Regulations, the
Exchange Act, and the rules and regulations thereunder so as to permit the
continuance of sales of and dealings in the Firm Shares, and in any Option
Shares which may be issued and sold. If, at any time when a prospectus
relating to such Securities is required to be delivered under the Act, any
event occurs as a result of which the Registration Statement and Prospectus
as then amended or supplemented would include an 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, or if it shall be necessary to amend or supplement
the Registration Statement and Prospectus to comply with the Act or the
regulations thereunder, the Company will promptly file with the Commission,
subject to Section 5(a) hereof, an amendment or supplement which will
correct such statement or omission or which will effect such compliance.
(e) The Company will furnish such proper information as may be
required and otherwise cooperate in qualifying the Securities for offering
and sale under the securities or Blue Sky laws relating to the offering or
for sale in such jurisdictions as the Representative may reasonably
designate, provided that no such qualification will be required in any
jurisdiction where, solely as a result thereof, the Company would be
subject to service of general process or to taxation or qualification as a
foreign corporation doing business in such jurisdiction.
(f) The Company will make generally available to its security holders,
in the manner specified in Rule 158(b) under the Act, and deliver to the
Representative and its counsel as soon as practicable and in any event not
later than 45 days after the end of its fiscal quarter in which the first
anniversary date of the effective date of the Registration Statement
occurs, an earning statement meeting the requirements of Rule 158(a) under
the Act covering a period of at least 12 consecutive months beginning after
the effective date of the Registration Statement.
(g) For a period of five years from the Effective Date, the Company
will deliver to the Representative and to Representative's Counsel on a
timely basis (i) a copy of each report or document, including, without
limitation, reports on Forms 8-K, 10-C, 10-KSB and 10-QSB and exhibits
thereto, filed or furnished to the Commission, any securities exchange or
the National Association of Securities Dealers, Inc. (the "NASD";
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(ii) as soon as practicable, copies of any reports or communications
(financial or other) of the Company mailed to its security holders; (iii)
as soon as practicable, a copy of any Schedule 13D, 13G, 14D-1 or 13E-3 or
Form 3, 4 and 5 received or prepared by the Company from time to time; (iv)
monthly statements setting forth such information regarding the Company's
results of operations and financial position (including balance sheet,
profit and loss statements but excluding data regarding outstanding
purchase orders) as is regularly prepared by management of the Company; and
(v) such additional information concerning the business and financial
condition of the Company as the Representative may from time to time
reasonably request and which can be prepared or obtained by the Company
without unreasonable effort or expense. The Company will furnish to its
shareholders annual reports containing audited financial statements and
such other periodic reports as it may determine to be appropriate or as may
be required by law.
(h) Neither the Company nor any person that is controlled by the
Company will take any action designed to or which might be reasonably
expected to cause or result in the stabilization or manipulation of the
price of the Firm Shares.
(i) If the transactions contemplated by this Agreement are
consummated, the Representative shall retain the Fifty Thousand Dollars
($50,000) previously paid to it, and the Company will pay or cause to be
paid the following: all costs and expenses incident to the performance of
the obligations of the Company under this Agreement, including, but not
limited to, the fees and expenses of accountants and counsel for the
Company, the preparation, printing, mailing and filing of the Registration
Statement (including financial statements and exhibits), Preliminary
Prospectuses and the Prospectus, and any amendments or supplements thereto,
the printing and mailing of the Selected Dealer Agreement, the issuance and
delivery of the Shares to the several Underwriters; all taxes, if any, on
the issuance of the Shares; the fees, expenses and other costs of
qualifying the Shares for sale under the Blue Sky or securities laws of
those states in which the Shares are to be offered or sold, the cost of
printing and mailing the "Blue Sky Survey" and fees and disbursements of
counsel in connection therewith (such fees only not to exceed the sum of
$25,000), including those of such local counsel as may have been retained
for such purpose; the filing fees incident to securing any required review
by the NASD; the cost of furnishing to the Underwriters copies of the
Registration Statement, Preliminary Prospectuses and the Prospectus as
herein provided; the costs of "bound volumes" for the Representative and
its counsel, the costs of placing a "tombstone" advertisement in such
publication as the Representative determines (the cost of such "tombstone"
advertisement not to exceed $10,000) and all other costs and expenses
incident to the performance of its
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obligations hereunder which are not otherwise specifically provided for in
this Section 5(i).
In addition, at the Closing Date or the Option Closing Date, as the
case may be, Sands Brothers will, in its individual rather than its
representative capacity, deduct from the payment for the Firm Shares or any
Option Shares purchased two and one half percent (2.5%) of the gross
proceeds of the offering (less the sum of Fifty Thousand Dollars ($50,000)
previously paid to the Representative), as payment for the Representative's
nonaccountable expense allowance relating to the transactions contemplated
hereby.
(j) In the event the transactions contemplated hereby are not
consummated by reason of any action by the Underwriter (except if such
prevention is based upon a breach by the Company of any covenant,
representation or warranty contained herein or because any other condition
to the Underwriter's obligations hereunder required to be fulfilled by the
Company is not fulfilled) the Company shall be liable for the actual
accountable out-of-pocket expenses of the Underwriter, including legal
fees. In the event the transactions contemplated hereby are not consummated
by reason of any action of the Company or because of a breach by the
Company of any covenant, representation or warranty herein, the Company
shall be liable for the actual accountable out-of-pocket expenses of the
Underwriter, including legal fees. In the event the transactions
contemplated hereby are not consummated for any reason, should the
Underwriter's out-of-pocket expenses equal an amount that is less than the
$50,000 advance received, the remaining sum will be returned to the
Company. In addition, if the Company elects not to proceed with the
offering contemplated hereby for any reason and subsequently engages in any
public offering, private placement, merger, acquisition of securities,
joint venture or other similar transaction within twelve (12) months
following the Company's election not to proceed, Representative shall have
the right to act as investment banker for the Company and to receive a fee
in connection therewith equal to five percent (5%) of the consideration
paid or received in any such transaction.
(k) The Company will apply the net proceeds from the sale of the
Shares in the manner set forth in the Prospectus under "Use of Proceeds"
and shall file such reports with the commission with respect to the sale of
the Shares and the application of the proceeds therefrom as may be required
in accordance with Rule 463 under the Act.
(l) During the twelve month period following the date hereof, none of
the Company's officers, directors or holders of five percent (5%) or more
of the shares of Common Stock (the "Principal Shareholders") will offer for
sale or sell or otherwise dispose of any securities of the Company owned by
them,
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directly or indirectly, in any manner whatsoever (including pursuant to
Rule 144 under the Act), and no holder of registration rights relating to
the securities of the Company will exercise any such registration rights,
in either case, without obtaining the prior written approval of the
Representative. The Company will deliver to the Representative the written
undertakings as of the date hereof of its officers, directors and Principal
Shareholders to this effect.
(m) The Company will not file any registration statement relating to
the offer or sale of any of the Company's securities, including any
registration statement on Form S-8, during the twelve (12) months following
the date hereof without the Representative's prior written consent.
(n) The Company maintains and will continue to maintain a system of
internal accounting controls sufficient to provide reasonable assurances
that: (i) transactions are executed in accordance with management's general
or specific authorization; (ii) transactions are recorded as necessary in
order to permit preparation of financial statements in accordance with
generally accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(o) The Company will maintain the listing of the Shares on the NASDAQ
SmallCap Market for so long as the Shares remain qualified for such
listing.
(p) Subject to the sale of the Firm Shares, the Company shall cause
its legal counsel to provide the several Underwriters with a list, to be
updated at least annually, of those states in which the shares of Common
Stock may be traded on non-issuer transactions under the Blue Sky laws of
the several states until such time as the shares of Common Stock are listed
on the New York Stock Exchange or the American Stock Exchange.
(q) Subject to the sale of the Firm Shares, for a period of not less
than three (3) years from the date hereof is received (the "Approval
Date"), the Company will, at Representative's option and if so requested by
Representative, recommend and use its best efforts to elect one designee of
Representative, at the option of Representative, either as a member of or
nonvoting advisor to its Board of Directors; such designee, if elected or
appointed, shall attend meetings of the Board and receive no more or less
compensation than is paid to other non-management directors of the Company
and shall be entitled to receive reimbursement for all reasonable costs
incurred in attending such meetings including, but not limited
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to, food, lodging and transportation. Representative shall have the right
to elect one designee as an nonvoting advisor to the Board from the
Effective Date to the Approval Date. The Company agrees to indemnify and
hold Representative and its designee harmless, to the maximum extent
permitted by law, against any and all claims, actions, awards and judgments
arising out of such designee's service as a director or advisor and in the
event the Company maintains a liability insurance policy affording coverage
for the acts of its officers and directors, to include each of
Representative and its designee as an insured under such policy.
If Representative does not exercise its option to designate such
member of or advisor to the Company's Board of Directors, Representative
shall nonetheless have the right to send a representative (who need not be
the same individual from meeting to meeting) to observe each meeting of the
Board of Directors. The Company agrees to give Representative notice of
each such meeting and to provide Representative with an agenda and minutes
of the meeting no later than it gives such notice and provides such items
to the directors.
(r) Subject to the sale of the Firm Shares, the Representative shall
have the right of first refusal with respect to future public sales of debt
and equity securities of the Company, any subsidiary or successor to the
Company or any Company securities held by any Principal Shareholders for a
one year period following the date hereof. It is understood that if such a
proposed financing is offered to Representative, Representative shall have
twenty (20) days in which to determine whether or not to accept such offer
and, if Representative refuses, and provided that such a financing is
consummated (a) with another underwriter or placement agent upon the same
terms and conditions as those offered to Representative and (b) within six
months after the end of the aforesaid thirty (30) day period, this right of
first refusal shall thereafter be forfeited and terminated; provided,
however, if the financing is not consummated under the conditions of
clauses (a) and (b) above, then the right of first refusal shall once again
be reinstated under the same terms and conditions set forth in this
paragraph.
(s) The Company hereby agrees, at its sole cost and expense, to supply
and deliver to the Representative, within a reasonable period from the date
hereof, four (4) bound volumes, including the Registration Statement, as
amended or supplemented, all exhibits to the Registration Statement, the
Prospectus and all other underwriting documents.
(t) Intentionally Omitted.
(u) The Company shall retain a transfer agent for the shares of Common
Stock, reasonably acceptable to the Representative, for a period of five
(5) years following the
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Effective Date. In addition, for a period of three (3) years from the
Effective Date, the Company, at its own expense, shall cause such transfer
agent to provide the Representative, if so requested in writing, with
copies of the Company's daily transfer sheets, and, when so requested by
the Representative, a current list of the Company's security holders,
including a list of the beneficial owners of securities held by a
depository trust company and other nominees.
(v) The Company hereby agrees, at its sole cost and expense, to supply
and deliver to the Representative, within a reasonable period from the date
hereof, four (4) bound volumes, including the Registration Statement, as
amended or supplemented, all exhibits to the Registration Statement, the
Prospectus and all other underwriting documents.
(w) The Company shall, as of the date hereof, have applied for listing
in Standard & Poor's Corporation Records Service (including annual report
information) or Moody's Industrial Manual (Moody's OTC Industrial Manual
not being sufficient for these purposes) and shall use its best efforts to
have the Company listed in such manual and shall maintain such listing for
a period of five (5) years from the Effective Date.
(x) For a period of two (2) years following the Effective Date, the
Company shall provide the Representative, on a not less than annual basis,
with internal forecasts setting forth projected results of operations for
each quarterly and annual period in the two (2) fiscal years following the
respective dates of such forecasts. Such forecasts shall be provided to the
Representative more frequently than annually if revised forecasts which
reflect more current information, and significantly revised assumptions or
indicate future results that differ materially from those set forth in the
forecasts.
(y) For a period of five (5) years following the Effective Date, or
until such earlier time as the shares of Common Stock are listed on the New
York Stock Exchange or the American Stock Exchange, the Company shall cause
its legal counsel to provide the Representative with a list, to be updated
at least annually, of those states in which the shares of Common Stock may
be traded in non-issuer transactions under the Blue Sky laws of the 50
states.
(z) For a period of five (5) years following the Effective Date, the
Company shall continue to retain Richard A. Eisner & Company, LLP (or a
nationally recognized accounting firm acceptable to the Representative) as
the Company's independent public accountants and shall promptly, upon the
Company's receipt thereof, submit to the Representative copies of such
accountants' management reports and similar correspondence between such
accountants and the Company.
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(aa) For a period of five (5) years following the Effective Date, the
Company, at its expense, shall cause its then independent certified public
accountants, as described in Section 5(x) above, to review (but not audit)
the Company's financial statements for each of the first three fiscal
quarters prior to the announcement of quarterly financial information, the
filing of the Company's 10-Q quarterly report and the mailing of quarterly
financial information to shareholders.
(ab) For a period of twenty-five (25) days following the Effective
date, the Company will not issue press releases or engage in any other
publicity without the Representative's prior written consent, other than
normal and customary releases issued in the ordinary course of the
Company's business or those releases required by law.
6. Conditions of the Underwriters' Obligation to Purchase Shares from the
Company. The obligation of the several Underwriters to purchase and pay for the
Firm Shares which it has agreed to purchase from the Company is subject (as of
the date hereof and the Closing Date) to the accuracy in all material respects
of the representations and warranties of the Company herein, to the accuracy of
the statements of the Company or its officers made pursuant hereto, to the
performance in all material respects by the Company of its obligations
hereunder, and to the following additional conditions:
(a) The Registration Statement will have become effective not later
than 10:30 A.M., New York City time, on the day following the date of this
Agreement, or at such later time or on such later date as the
Representative may agree to in writing; prior to the Closing Date, no stop
order suspending the effectiveness of the Registration Statement will have
been issued and no proceedings for that purpose will have been initiated or
will be pending or, to the best of the Representative's or the Company's
knowledge, will be contemplated by the Commission; and any request on the
part of the Commission for additional information will have been complied
with to the satisfaction of Representative's Counsel.
(b) At the time that this Agreement is executed and at the Closing
Date, there will have been delivered to the Underwriters a signed opinion
of Tenzer Greenblatt LLP, counsel for the Company, dated as of the date
hereof or the Closing Date, as the case may be (and any other opinions of
counsel referred to in such opinion of Company Counsel or relied upon by
Company Counsel in rendering their opinion), substantially as set forth in
Exhibit 6b.
(c) At the Closing Date (i) the Registration Statement and the
Prospectus and any amendments or supplements
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thereto will conform in all material respects to the requirements of the
Act and the Regulations, and neither the Registration Statement nor the
Prospectus nor any amendment or supplement thereto will contain any untrue
statement of a material fact or omit to state any material 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; (ii) since
the respective dates as of which information is given in the Registration
Statement and the Prospectus, there will not have been any material adverse
change in the financial condition, results of operations or general affairs
of the Company from that set forth or contemplated in the Registration
Statement and the Prospectus, except changes which the Registration
Statement and the Prospectus indicates might occur after the Effective
Date; (iii) since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there shall have been no
material transaction, contract or agreement entered into by the Company,
other than in the ordinary course of business, which would be required to
be set forth in the Registration Statement and the Prospectus, other than
as set forth therein; and (iv) no action, suit or proceeding at law or in
equity will be pending or, to the best of the Company's knowledge,
threatened against the Company which is required to be set forth in the
Registration Statement and the Prospectus, other than as set forth therein,
and no proceedings will be pending or, to the best of the Company's
knowledge, threatened against the Company before or by any federal, state
or other commission, board or administrative agency wherein an unfavorable
decision, ruling or finding would materially adversely affect the business,
property, financial condition or results of operations of the Company,
other than as set forth in the Registration Statement and the Prospectus.
At the Closing Date, there will be delivered to the several Underwriters a
certificate signed by the Chairman of the Board or the President or a Vice
President of the Company, dated the Closing Date, evidencing compliance
with the provisions of this Section 6(c) and stating that the
representations and warranties of the Company set forth in Section 4 hereof
were accurate and complete in all material respects when made on the date
hereof and are accurate and complete in all material respects on the
Closing Date as if then made; that the Company has performed all covenants
and complied with all conditions required by this Agreement to be performed
or complied with by the Company prior to or as of the Closing Date; and
that, as of the Closing Date, no stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that
purpose have been initiated or, to his knowledge, are contemplated or
threatened. In addition, the Representative will have received such other
and further certificates of officers of the Company as the Representative
or Representative's Counsel may reasonably request.
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(d) At the time that this Agreement is executed and at the Closing
Date, the several Underwriters will have received a signed letter from
Richard A. Eisner & Company, LLP dated the date such letter is to be
received by the Underwriters and addressed to them, confirming that it is a
firm of independent public accountants within the meaning of the Act and
Regulations and stating that: (i) insofar as reported on by them, in their
opinion, the financial statements of the Company included in the Prospectus
comply as to form in all material respects with the applicable accounting
requirements of the Act and the applicable Regulations; (ii) on the basis
of procedures and inquiries (not constituting an examination in accordance
with generally accepted auditing standards) consisting of a reading of the
unaudited interim financial statements of the Company, if any, appearing in
the Registration Statement and the Prospectus and the latest available
unaudited interim financial statements of the Company, if more recent than
that appearing in the Registration Statement and Prospectus, inquiries of
officers of the Company responsible for financial and accounting matters as
to the transactions and events subsequent to the date of the latest audited
financial statements of the Company, and a reading of the minutes of
meetings of the shareholders, the Board of Directors of the Company and any
committees of the Board of Directors, as set forth in the minute books of
the Company, nothing has come to their attention which, in their judgment,
would indicate that (A) during the period from the date of the latest
financial statements of the Company appearing in the Registration Statement
and Prospectus to a specified date not more than three business days prior
to the date of such letter, there have been any decreases in net current
assets or net assets as compared with amounts shown in such financial
statements or decreases in net sales or increases in total or per share net
loss compared with the corresponding period in the preceding year or any
change in the capitalization or long-term debt of the Company, except in
all cases as set forth in or contemplated by the Registration Statement and
the Prospectus, and (B) the unaudited interim financial statements of the
Company, if any, appearing 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 Regulations or are
not fairly presented in conformity with generally accepted accounting
principles and practices on a basis substantially consistent with the
audited financial statements included in the Registration Statement or the
Prospectus; and (iii) they have compared specific dollar amounts, numbers
of shares, numerical data, percentages of revenues and earnings, and other
financial information pertaining to the Company set forth in the Prospectus
(with respect to all dollar amounts, numbers of shares, percentages and
other financial information contained in the Prospectus, to the extent that
such amounts, numbers, percentages and information may be derived from the
general accounting records of the Company, and excluding any questions
requiring an interpretation
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by legal counsel) with the results obtained from the application of
specified readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter, and found them to be
in agreement.
(e) There shall have been duly tendered to the Representative
certificates representing the Firm Shares to be sold on the Closing Date.
(f) The NASD shall have indicated that it has no objection to the
underwriting arrangements pertaining to the sale of the Shares by the
Underwriters.
(g) No action shall have been taken by the Commission or the NASD the
effect of which would make it improper, at any time prior to the Closing
Date or the Option Closing Date, as the case may be, for any member firm of
the NASD to execute transactions (as principal or as agent) in the Shares,
and no proceedings for the purpose of taking such action shall have been
instituted or shall be pending, or, to the best of the Underwriters' or the
Company's knowledge, shall be contemplated by the Commission or the NASD.
The Company represents at the date hereof, and shall represent as of the
Closing Date or Option Closing Date, as the case may be, that it has no
knowledge that any such action is in fact contemplated by the Commission or
the NASD.
(h) All proceedings taken at or prior to the Closing Date or the
Option Closing Date, as the case may be, in connection with the
authorization, issuance and sale of the Shares shall be reasonably
satisfactory in form and substance to the Representative and to
Representative's Counsel, and such counsel shall have been furnished with
all such documents, certificates and opinions as they may reasonably
request for the purpose of enabling them to pass upon the matters referred
to in Section 6(c) hereof and in order to evidence the accuracy and
completeness of any of the representations, warranties or statements of the
Company, the performance of any covenants of the Company, or the compliance
by the Company with any of the conditions herein contained.
If any of the conditions specified in this Section 6 have not been
fulfilled, this Agreement may be terminated by the Representative on notice
to the Company.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each Underwriter and
each officer, director, partner, employee and agent of each Underwriter, and
each person, if any, who controls any Underwriter within the meaning of Section
15 of
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the Act or Section 20(a) of the Exchange Act, from and against any losses,
claims, damages or liabilities, joint or several (which shall, for all purposes
of this Agreement, include, but not be limited to, all reasonable costs of
defense and investigation and all attorneys' fees), to which they or any of them
may become subject, under the Act or otherwise, and will reimburse, as incurred,
the Underwriters and such persons for any legal or other expenses reasonably
incurred in connection with investigating, defending against or appearing as a
third party witness in connection with any losses, claims, damages or
liabilities, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in (A) the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, (B) any blue sky application or other document executed by
the Company specifically for that purpose or based upon written information
furnished by the Company filed in any state or other jurisdiction in order to
qualify any or all of the Securities under the securities laws thereof (any such
application, document or information being hereinafter called a "Blue Sky
Application"), or arise out of or are based upon the omission or alleged
omission to state in the Registration Statement, any Preliminary Prospectus,
Prospectus, or any amendment or supplement thereto, or in any Blue Sky
Application, a material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that the Company will
not be liable in any such case to the extent, but only to the extent, that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Underwriters specifically for use in the
preparation of the Registration Statement or any such amendment or supplement
thereof or any such Blue Sky Application or any such preliminary Prospectus or
the Prospectus or any such amendment or supplement thereto. This indemnity will
be in addition to any liability which the Company may otherwise have.
(b) Each Underwriter severally, but not jointly, will indemnify and hold
harmless the Company, each of its directors, each nominee (if any) for director
named in the Prospectus, each of its officers who have signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act, from and against
any losses, claims, damages or liabilities (which shall, for all purposes of
this Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees) to which the Company or any such
director, nominee, officer or controlling person may become subject under the
Act or otherwise, insofar as such
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losses, claims damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to the Company by you or by any
Underwriter through you specifically for use in the preparation thereof.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify in writing the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that if the indemnified party is an Underwriter
or a person who controls such Underwriter within the meaning of the Act, the
fees and expenses of such counsel shall be at the expense of the indemnifying
party if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both such Underwriter or such
controlling person and the indemnifying party and in the judgment of the
Representative, it is advisable for the Representative or such Underwriters or
controlling
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<PAGE>
persons to be represented by separate counsel (in which case the indemnifying
party shall not have the right to assume the defense of such action on behalf of
such Underwriter or such controlling person, it being understood, however, that
the indemnifying party shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys for all
such Underwriters and controlling persons, which firm shall be designated in
writing by you). No settlement of any action against an indemnified party shall
be made without the consent of the indemnifying party, which shall not be
unreasonably withheld in light of all factors of importance to such indemnifying
party.
8. Contribution. In order to provide for just and equitable contribution
under the Act in any case in which (i) any Underwriter makes claim for
indemnification pursuant to Section 7 hereof but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case, notwithstanding the fact
that the express provisions of Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
Underwriter, then the Company and each person who controls the Company, in the
aggregate, and any such Underwriter shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees) in either
such case (after contribution from others) in such proportions that all such
Underwriters are responsible in the aggregate for that portion of such losses,
claims, damages or liabilities represented by the percentage that the
underwriting discount per share appearing on the cover page of the Prospectus
bears to the public offering price appearing thereon, and the Company shall be
responsible for the remaining portion, provided, however, that (a) if such
allocation is not permitted by applicable law then the relative fault of the
Company and the Underwriters and controlling persons, in the aggregate, in
connection with the statements or omissions which resulted in such damages and
other relevant equitable considerations shall also be considered. The relative
fault shall be determined by reference to, among other things, whether in the
case of an untrue statement of a material fact or the omission to state a
material fact, such statement or omission relates to information supplied by the
Company or the Underwriters and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such untrue statement or
omission. The Company and the Underwriters agree that it would not be just and
equitable if the respective
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<PAGE>
obligations of the Company and the Underwriters to contribute pursuant to this
Section 7 were to be determined by pro rata or per capita allocation of the
aggregate damages (even if the Underwriters and their respective controlling
persons in the aggregate 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 the first sentence of this Section 7 and (b) that
the contribution of each contributing Underwriter shall not be in excess of its
proportionate share (based on the ratio of the number of Shares purchased by
such Underwriter to the number of Shares purchased by all contributing
Underwriters) of the portion of such losses, claims, damages or liabilities for
which the Underwriters are responsible. No person guilty of a fraudulent
misrepresentation (within the meaning of Section ll(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. As used in this paragraph, the term "Underwriter" includes
any officer, director, or other person who controls an Underwriter within the
meaning of Section 15 of the Act, the word "Company" includes any officer,
director, or person who controls the Company within the meaning of Section 15 of
the Act. If the full amount of the contribution specified in this paragraph is
not permitted by law, then any Underwriter and each person who controls any
Underwriter shall be entitled to contribution from the Company, its officers,
directors and controlling persons to the full extent permitted by law. The
foregoing contribution agreement shall in no way affect the contribution
liabilities of any persons having liability under Section 11 of the Act other
than the Company and the Underwriters. No contribution shall be requested with
regard to the settlement of any matter from any party who did not consent to the
settlement; provided, however, that such consent shall not be unreasonably
withheld in light of all factors of importance to such party.
9. Substitution of Underwriters. If any Underwriters shall for any reason
not permitted hereunder cancel their obligations to purchase the Firm Shares
hereunder, or shall fail to take up and pay for the number of Firm Shares set
forth opposite their respective names in Schedule A hereto upon tender of such
Firm Shares in accordance with the terms hereof, then:
(a) If the aggregate number of Firm Shares which such Underwriter or
Underwriters agreed but failed to purchase does not exceed 10% of the total
number of Firm Shares, the other Underwriters shall be obligated severally,
in proportion to their respective commitments hereunder, to purchase the
Firm Shares which such defaulting Underwriter or Underwriters agreed but
failed to purchase.
(b) If any Underwriter or Underwriters so default and the agreed
number of Firm Shares with respect to which such
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<PAGE>
default or defaults occurs is more than 10% of the total number of Firm
Shares, the remaining Underwriters shall have the right to take up and pay
for (in such proportion as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters agreed but failed to
purchase. If such remaining Underwriters do not, at the First Closing Date,
take up and pay for the Firm Shares which the defaulting Underwriter or
Underwriters agreed but failed to purchase, the time for delivery of the
Firm Shares shall be extended to the next business day to allow the several
Underwriters the privilege of substituting within twenty-four hours
(including nonbusiness hours) another underwriter or underwriters
satisfactory to the Company. If no such underwriter or underwriters shall
have been substituted as aforesaid, within such twenty-four hour period,
the time of delivery of the Firm Shares may, at the option of the Company,
be again extended to the next following business day, if necessary, to
allow the Company the privilege of finding within twenty-four hours
(including nonbusiness hours) another underwriter or underwriters to
purchase the Firm Shares which the defaulting Underwriter or Underwriters
agreed but failed to purchase. If it shall be arranged for the remaining
Underwriters or substituted Underwriters to take up the Firm Shares of the
defaulting Underwriter or Underwriters as provided in this Section, (i) the
Company or the Representative shall have the right to postpone the time of
delivery for a period of not more than seven business days, in order to
effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus, or in any other documents or arrangements, and
the Company agrees promptly to file any amendments to the Registration
Statement or supplements to the Prospectus which may thereby be made
necessary, and (ii) the respective numbers of Firm Shares to be purchased
by the remaining Underwriters or substituted Underwriters shall be taken at
the basis of the underwriting obligation for all purposes of this
Agreement.
If in the event of a default by one or more Underwriters and the remaining
Underwriters shall not take up and pay for all the Firm Shares agreed to be
purchased by the defaulting Underwriters or substitute another underwriter or
underwriters as aforesaid, and the Company shall not find or shall not elect to
seek another underwriter or underwriters for such Firm Shares as aforesaid, then
this Agreement shall terminate.
If, following exercise of the option provided in Section 3(a) hereof, any
Underwriter or Underwriters shall for any reason not permitted hereunder cancel
their obligations to purchase Option Shares at the Option Closing Date, or shall
fail to take up and pay for the number of Option Shares, which they become
obligated to purchase at the Option Closing Date upon tender of such Option
Shares in accordance with the terms hereof, then the remaining Underwriters or
substituted Underwriters may take up and pay for the Option Shares of the
defaulting Underwriters in
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<PAGE>
the manner provided in Section 9(b) hereof. If the remaining Underwriters or
substituted Underwriters shall not take up and pay for all such Option Shares,
then the Underwriters shall be entitled to purchase the number of Option Shares
for which there is no default or, at their election, the option shall terminate,
the exercise thereof shall be of no effect.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. In the event of termination,
there shall be no liability on the part of any nondefaulting Underwriter to the
Company, provided that the provisions of this Section 9 shall not in any event
affect the liability of any defaulting Underwriter to the Company arising out of
such default.
10. Survival of Indemnities, Contribution, Warranties and Representations.
The respective indemnity and contribution agreements of the Company and the
Underwriters contained in Sections 7 and 8 hereof, and the representations and
warranties of the Company contained herein shall remain operative and in full
force and effect, regardless of any investigation made by or on behalf of the
Underwriters, the Company or any of its directors and officers, or any
controlling person referred to in said Sections, and shall survive the delivery
of, and payment for, the Shares.
11. Termination of Agreement.
(a) The Company, by written or telegraphic notice to the Underwriter, or
the Underwriter, by written or telegraphic notice to the Company, may terminate
this Agreement prior to the earlier of (i) 11:00 A.M., New York City time, on
the first full business day after the Effective Date; or (ii) the time when the
Underwriter, after the Registration Statement becomes effective, releases the
Firm Shares for public offering. The time when the Underwriter "releases the
Firm Shares for public offering" for the purposes of this Section 10 means the
time when the Underwriter releases for publication the first newspaper
advertisement, which is subsequently published, relating to the Firm Shares or
the time when the Underwriter releases for delivery to members of a selling
group copies of the Prospectus and an offering letter or an offering telegram
relating to the Firm Shares, whichever will first occur.
(b) This Agreement, including without limitation, the obligation to
purchase the Firm Shares and the obligation to purchase the Option Shares after
exercise of the option referred to in Section 3 hereof, are subject to
termination in the absolute discretion of the Underwriter, by notice given to
the Company prior to delivery of and payment for all the Firm Shares or the
Option Shares, as the case may be, if, prior to such time, any of the following
shall have occurred: (i) the Company withdraws the
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Registration Statement from the Commission or the Company does not or cannot
expeditiously proceed with the public offering; (ii) the representations and
warranties in Section 4 hereof are not materially correct or covenants in
Section 5 hereof cannot be complied with; (iii) trading in securities generally
on the New York Stock Exchange or the American Stock Exchange will have been
suspended; (iv) limited or minimum prices will have been established on either
such Exchange; (v) a banking moratorium will have been declared either by United
States federal or New York State authorities; (vi) any other restrictions on
transactions in securities materially affecting the free market for securities
or the payment for such securities, including the Firm Shares or the Option
Shares, will be established by NASDAQ, by the Commission, by any other United
States federal or state agency, by action of the Congress or by Executive Order;
(vii) trading in any securities of the Company shall have been suspended or
halted by any national securities exchange, the NASD or the Commission; (viii)
there has been a materially adverse change in the condition (financial or
otherwise), prospects or obligations of the Company; (ix) the Company will have
sustained a material loss, whether or not insured, by reason of fire, flood,
accident or other calamity; (x) any action has been taken by the government of
the United States or any department or agency thereof which, in the judgment of
the Underwriter, has had a material adverse effect upon the market or potential
market for securities in general; or (xi) the market for securities in general
or political, financial or economic conditions will have so materially adversely
changed that, in the judgment of the Underwriter, it will be impracticable to
offer for sale, or to enforce contracts made by the Underwriter for the resale
of, the Firm Shares or the Option Shares, as the case may be.
(c) If this Agreement is terminated pursuant to Section 6 hereof or this
Section 11 or if the purchases provided for herein are not consummated because
any condition of the Underwriter's obligations hereunder is not satisfied or
because of any refusal, inability or failure on the part of the Company to
comply with any of the terms or to fulfill any of the conditions of this
Agreement, or if for any reason the Company shall be unable to or does not
perform all of its obligations under this Agreement, the Company will not be
liable to the Underwriter for damages on account of loss of anticipated profits
arising out of the transactions covered by this Agreement, but the Company will
remain liable to the extent provided in Sections 5(j), 7, 8 and 10 of this
Agreement.
12. Information Furnished by the Underwriters to the Company. It is hereby
acknowledged and agreed by the parties hereto that for the purposes of this
Agreement, including, without limitation, Sections 4(e), 7(a), 7(b) and 8
hereof, the only information given by the Underwriters to the Company for use in
the Prospectus are the statements set forth on page [2] with
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<PAGE>
respect to stabilization, under the heading "Underwriting" and the identity of
counsel to the Underwriters under the heading "Legal Matters", as such
information appears in any Preliminary Prospectus and in the Prospectus.
13. Notices and Governing Law. All communications hereunder will be in
writing and, except as otherwise provided, will be delivered at, or mailed by
certified mail, return receipt requested, or telegraphed to, the following
addresses: if to the Placement Agent, to 90 Park Avenue, New York, New York
10017, Attention: Alan Bluestine, Executive Vice President, with a copy to
Littman Krooks & Roth, P.C., Attn: Mitchell C. Littman, Esq., 120 West 45th
Street, New York, New York 10036; if to the Company, addressed to it at 6929
Hayvenhurst Avenue, Van Nuys, California 91496, Attention: Ben Nemen, President,
with a copy to Tenzer Greenblatt LLP, 405 Lexington Avenue, New York, New York
10174, Attention: Robert J. Mittman, Esq.; or, in each case, to such other
address as the parties may hereinafter designate by like notice.
This Agreement shall be deemed to have been made and delivered in New York
City and shall be governed as to validity, interpretation, construction, effect
and in all other respects by the internal laws of the State of New York. The
Company (1) agrees that any legal suit, action or proceeding arising out of or
relating to this Agreement shall be instituted exclusively in New York State
Supreme Court, County of New York, or in the United States District Court for
the Southern District of New York, (2) waives any objection which the Company
may have now or hereafter to the venue of any such suit, action or proceeding,
and (3) irrevocably consents to the jurisdiction of the New York State Supreme
Court, County of New York, and the United States District Court for the Southern
District of New York in any such suit, action or proceeding. The Company further
agrees to accept and acknowledge service of any and all process which may be
served in any such suit, action or proceeding in the New York State Supreme
Court, County of New York, or in the United States District Court for the
Southern District of New York and agrees that service of process upon the
Company mailed by certified mail) to the Company's address shall be deemed in
every respect effective service of process upon the Company, in any such suit,
action or proceeding.
14. Parties in Interest. This Agreement is made solely for the benefit of
the several Underwriters, the Company and, to the extent expressed, any person
controlling the Company or any of the Underwriters, each officer, director,
partner, shareholder, employee and agent of the several Underwriters, the
directors of the Company, its officers who have signed the Registration
Statement, and their respective executors, administrators, successors and
assigns, and, no other person will acquire or have any right under or by virtue
of this Agreement.
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The term "successors and assigns" will not include any purchaser of the Shares
from any of the several Underwriters, as such purchaser.
15. Validity. In case any term of this Agreement will be held invalid,
illegal or unenforceable, in whole or in part, the validity of any other terms
of this Agreement will not in any way be affected thereby.
16. Entire Agreement. This Agreement contains the entire agreement and
understanding of the parties with respect to the subject matter hereof, and
there are no representations, inducements, promises or agreements, oral or
otherwise, not embodied herein.
17. Counterparts. This Agreement may be executed in counterparts and each
of such counterparts will for all purposes be deemed to be an original, and such
counterparts together will constitute one and the same instrument.
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed duplicates hereof, whereupon it will
become a binding agreement between the Company and the Underwriter in accordance
with its terms.
Very truly yours,
INTELLICELL CORP.
By:
----------------------------
Name:
Title:
Confirmed and accepted in
New York, N.Y., as of the
date first above written:
SANDS BROTHERS & CO., LTD.
By:
------------------------------
For itself and as Representative
of the several Underwriters
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<PAGE>
SCHEDULE A
Name of Underwriter Number of Firm Shares to be Purchased
- ------------------- -------------------------------------
Sands Brothers & Co., Ltd.
Total: 1,666,667
=========
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<PAGE>
State of Delaware
Office of the Secretary of State
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "INTELLICELL CORPORATION", FILED IN THIS OFFICE ON THE
TWENTY-NINTH DAY OF AUGUST, A.D. 1996, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
[SEAL]
/s/ Edward J. Freel
Secretary's Office -----------------------------------
1793 Delaware 1855 Edward J. Freel, Secretary of State
2658489 8100 AUTHENTICATION: 8087797
960253309 DATE: 08-30-96
<PAGE>
CERTIFICATE OF INCORPORATION
OF
INTELLICELL CORPORATION
FIRST: The name of the Corporation is:
INTELLICELL CORPORATION
SECOND: The address of the Corporation's registered office in the State
of Delaware is 1013 Centre Road, in the City of Wlimington, County of New
Castle, 19805-1297. The name of its registered. agent at such address is The
Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the laws of the General
Corporation Law of the State of Delaware.
FOURTH: The total number of: shares of capital stock which the Corporation
shall have authority to issue is Sixteen million (16,000,000) shares, of which
Fifteen million (15,000,000) shares shall be Common Stock, par value $.01 per
share, and One million (1,000,000) shares shall be Preferred Stock, par value
$.01 per share.
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors of the Corporation is hereby expressly authorized to
provide, by resolution or resolutions duly adopted by it prior to issuance, for
the creation of each such series and to fix the designation and the powers,
preferences, rights, qualifications, limitations and restrictions relating to
the shares of each such series. The authority of the
<PAGE>
Board of Directors with respect to each series of Preferred Stock shall include,
but not be limited to, determining the following:
(a) the designation of such series, the number of shares to constitute
such series and the stated value if different from the par value thereof;
(b) whether the shares of such series shall have voting rights, in
addition to any voting rights provided by law, and, if so, the terms of such
voting rights, which may be general or limited;
(c) the dividends, if any, payable on such series, whether any such
dividends shall be cumulative, and, if so, from what dates, the conditions and
dates upon which such dividends shall be payable, and the preference or relation
which such dividends shall bear to the dividends payable on any shares of
stock of any other class or any other series of Preferred Stock;
(d) whether the shares of such series shall be subject to redemption by the
Corporation, and, if so, the times, prices and other conditions of such
redemption;
(e) the amount or amounts payable upon shares of such series upon, and the
rights of the holders of such series in the voluntary or involuntary
liquidation, dissolution or winding up, or upon any distribution of the assets,
of the Corporation;
(f) whether the shares of such series shall be subject to the operation of
a retirement or sinking fund and, if so, the extent to and manner in which any
such retirement or
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<PAGE>
sinking fund shall be applied to the purchase or redemption of the shares of
such series for retirement or other corporate purposes and the terms and
provisions relating to the operation thereof;
(g) whether the shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or any other series of
Preferred Stock or any other securities and, if so, the price or prices or the
rate or rates of conversion or exchange and the method, if any, of adjusting the
same, and any other terms and conditionsof conversion or exchange;
(h) the limitations and restrictions, if any, to be effective while any
shares of such series are outstanding upon the payment of dividends or the
making of other distributions on, and upon the purchase, redemption or other
acquisition by the Corporation of, the Common Stock or shares of stock of any
other class or any other series of Preferred Stock;
(i) the conditions or restrictsions, if any, upon the creation of
indebtedness of the Corporation or upon the issue of any additional stock,
including additional shares of such series or of any other series of Preferred
Stock or of any other class; and
(j) any other powers, preferences and relative, participating, optional
and other special rights, and any qualifications, limitations and. restrictions,
thereof.
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<PAGE>
The powers, preferences and relative, participating, optional and other
special rights of each series of Preferred Stock, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any and
all. other series at any time outstanding. All shares of any one series of
Preferred Stock shall be identical in all respects with all other shares of such
series, except that shares of any one series issued at different times may
differ as to the dates from which dividends thereof shall be cumulative.
FIFTH: The name and address of the sole incorporator is as follows:
Name Address
---- -------
Ralph D. Mosley, Jr. 405 Lexington Avenue
New York, New York 10174
SIXTH: Unless required by law or determined by the chairman of the meeting
to be advisable, the vote by stockholders on any matter, including the election
of directors, need not be by written ballot.
SEVENTH: The Corporation reserves the right to increase or decrease its
authorized capital stock, or any class or series thereof, and to reclassify the
same, and to amend, alter, change or repeal any provision contained in the
Certificate of Incorporation under which the Corporation is organized or in any
amendment thereto, in the manner now or hereafter prescribed by law, and all
rights conferred upon stockholders in said Certificate of Incorporation or any
amendment thereto are granted subject to the aforementioned reservation.
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<PAGE>
EIGHTH: The Board of Directors shall have the power at any time, and from
time to time, to adopt, amend and repeal any and all By-laws of the Corporation.
NINTH: l. Indemnification
The Corporation shall, and does hereby, indemnify to the fullest extent
permitted or authorized by the Delaware General Corporation Law or judicial or
administrative decisions, as the same exists or may hereafter be amended or
interpreted differently in the future (but, in the case of any such amendment or
interpretation, only to the extent that such amendment or interpretation permits
the Corporation to provide broader indemnification rights than permitted prior
thereto), each person (including the current and future heirs, beneficiaries,
personal representatives and estate of such person) who was or is a party, or is
threatened to be made a party, or was or is a witness, to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "Proceeding") and whether the basis of such
Proceeding is an allegation of an action in an official capacity of such person
related to the Corporation or any other capacity while such person is serving as
an officer, director, employee or agent of the Corporation, against any
liability (which for purposes of this Article shall include any judgment,
settlement, penalty or fine) or cost, charge or expense (including attorneys'
fees) asserted against him or incurred by him by reason of the fact that such
indemnified person (1) is or was a director, officer or employee of the
Corporation or (2) is or was an agent of the
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<PAGE>
Corporation and to whom the Corporation, by action of its Board of Directors,
has agreed to grant such indemnity or (3) is or was serving, at the request of
the Corporation, as a director, officer or employee of another corporation,
partnership, joint venture, trust or other enterprise (including serving as a
fiduciary of any employee benefit plan) or {4) is or was serving as an agent of
such other corporation, partnership, joint venture, trust or other enterprise
described in clause (3) whereof as to whom the Corporation, by action of its
Board of Directors, has agreed to grant such indemnity. Each director, officer,
employee or agent of the Corporation to whom indemnification rights under this
Section 1 of this Article have been granted shall be referred to as an
"Indemnified Person."
Notwithstanding the foregoing, except as specified in Section 3 of this
Article, the Corporation shall not be required to indemnify an Indemnified
Person in connection with a Proceeding (or any part thereof) initiated by such
Indemnified Person unless such authorization for such Proceeding (or any part
thereof) was not denied by the Board of Directors of the Corporation prior to
sixty (60) days after receipt of notice thereof from such Indemnified Person
stating his intent to initiate such Proceeding and only upon such terms and
conditions as the Board of Directors may deem appropriate .
2. Advance of Costs, Charges and Expenses
Costs, charges and expenses (including attorneys' fees) incurred by an
officer, director, employee or agent who is an Indemnified Person in defending a
Proceeding shall be paid by the
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<PAGE>
Corporation to the fullest extent permitted or authorized by the Delaware
General Corporation Law or judicial or administrative decisions, as the same
exists or may hereafter be amended or interpreted differently in the future
(but, in the case of any such future amendment or interpretation, only to the
extent that such amendment or interpretation permits the Corporation to
provide broader rights to advance costs, charges and expenses than permitted
prior thereto), in advance of the final disposition of such Proceeding, upon
receipt of an undertaking by or on behalf of the Indemnified Person to repay all
amounts so advanced in the event that it shall ultimately be determined by
final judicial decision that such person is not entitled to be indemnified by
the Corporation as authorized in this Article and upon such other terms and
conditions, in the case of an agent as to whom the Corporation has agreed to
grant such indemnity as the Board of Directors may deem appropriate. The
Corporation may, upon approva1 of the Indemnified Person, authorize the
Corporation's counsel to represent such person in any Proceeding, whether or not
the Corporation is a party to such Proceeding. Such authorization may be made by
the Board Of Directors by majority vote, including directors who are parties to
such Proceeding .
3. Procedure for Indemnification
Any indemnification or advance under this Article shall be made promptly
and in any event within sixty (60) days upon the written request of the
Indemnified Person (except in the case of a claim for an advancement of costs,
charges or expenses, in
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<PAGE>
which case the applicable period shall be twenty (20) days). The right to
indemnification or advances at granted by this Article shall be enforceable by
the Indemnified Person in any court of competent jurisdiction if the Corporation
denies such request under this Article, in whole or in part, or if no
disposition thereof is made within sixty (60) days or twenty (20) days, as may
be applicable. Such Indemnified Person's costs and expenses incurred in
connection with successfully establishing his right to indemnification or
advancement of costs, charges or expenses, in whole or in part, in any such
action shall also be indemnified by the Corporation. It shall be a defense to
any such action that the claimant has not met the standard of conduct, if any,
required by the Delaware General Corporation Law or judicial or administrative
decisions, as the same exists or may hereafter be amended or interpreted
differently in the future (but, in the case of any such future amendment or
interpretation, only to the extent that such amendment or interpretation does
not impose a more stringent standard of conduct than permitted prior thereto),
but the burden of proving such defense shall be on the Corporation. Neither the
failure of the Corporation (including its Board of Directors or any committee
thereof, its independent legal counsel, and its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant or advancement for the claimant is proper in the circumstances
because he has met the applicable standard of conduct, if any, nor the fact that
there has been an actual determination by the Corporation (including its Board
of
-8-
<PAGE>
Directors or any committee thereof, its independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
4. Non-Exclusivity; Survival of Indemnification
The indemnification and advancement provided by this Article shall not be
deemed exclusive of any other rights to which those Indemnified Persons may be
entitled under any agreement, vote of stockholders or disinterested directors or
recommendation of counsel or otherwise, both as to actions in such person's
official capacity and as to actions in any other capacity while holding such
office or position, and shall continue as to an Indemnified Person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, beneficiaries, personal representatives and the estate of
such person. All rights to indemnification and advancement under this Article
shall be deemed to be a contract between the Corporation and each Indemnified
Person who serves or served in such capacity at any time while this Article is
in effect . Any repeal or modification of this Article or any repeal or
modification of relevant provisions of the Delaware General Corporation Law or
any other applicable laws shall not in any way diminish any rights to
indemnification of such Indemnified Person, or the obligations of the
Corporation arising hereunder, for claims relating to matters occurring prior to
such repeal or modification.
-9-
<PAGE>
5. Insurance
The Corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise (including serving as a fiduciary of an employee benefit plan)
against any liability asserted against him and incurred by him in any such
capacity or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under the
provisions of this Article or the applicable provisions of the Delaware General
Corporation Law.
6. Savings Clause
If this Article or any portion hereof shall be invalidated on any ground by
any court of competent jurisdiction, then the Corporation shall nevertheless
indemnify and advance costs to each Indemnified Person as to costs, charges and
expenses (including attorneys' fees), judgments, fines, and amounts paid in
settlement with respect to any Proceeding, including an action by or in the
right of the Corporation, to the full extent permitted by any applicable portion
of this Article that shall not have been invalidated and as permitted by the
Delaware General Corporation Law.
TENTH: No director of the Corporation shall be personally liab1e to the
Corporation or its stockholders for any monetary damages for breaches of
fiduciary duty as a director,
-10 -
<PAGE>
provided that this provision shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to the Corporation
or its stockholders; (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law; (iii) under
Section 174 of the General Corporation Law of the State of Delaware; or (iv) for
any transaction from which the director derived an improper personal benefit. No
repeal or amendment of this Article shall adversely affect any rights of any
person pursuant to this Article TENTH which existed at the time of such repeal
or amendment with respect to acts or omissions occurring prior to such repeal or
amendment.
The undersigned incorporator hereby affirms that the statements made herein are
true under penalties of perjury, and is hereby executing this Certificate of
Incorporation this 29th day of August, 1996.
/s/ Ralph D. Mosley, Jr.
----------------------------- (L.S.)
Ralph D. Mosley, JR.
Sole Incorporator
-11-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
INTELLICELL CORPORATION
-----------------------------------------
Adopted in accordance with the provisions
of Section 241 of the General Corporation
Law of the State of Delaware
-----------------------------------------
The undersigned, being the sole incorporator of INTELLICELL CORPORATION
(the "corporation"), a corporation existing under the laws of the State of
Delaware, does hereby certify as follows:
1. That the Certificate of Incorporation of said Corporation
has been amended as follows by striking out the whole of Article FIRST thereof
as it now exists and inserting in lieu and instead thereof a new Article FIRST,
reading as follows:
"FIRST: The name of the corporation is:
INTELLICELL CORP."
2. That the Corporation has not received any payment for any of its stock
and that such amendment has been duly adopted by the written consent of the sole
incorporator of the Corporation in accordance with the provisions of Section 241
of the General Corporation Law of the State of Delaware.
<PAGE>
The undersigned incorporator affirms, under the penalties of perjury, that
the foregoing instrument is the act and deed of the Corporation and the facts
stated therein are true.
October 11, 1996 /s/ Ralph D. Mosley, Jr.
-------------------------
Ralph D. Mosley, Jr.
Sole Incorporator
-2 -
<PAGE>
CERTIFICATE OF MERGER
OF
CELLULAR TELECOM CORPORATION
(a California corporation)
INTO
INTELLICELL CORP.
(a Delaware corporation)
Pursuant to Section 252(c) of
the General Corporation Law
Intellicell Corp., a Delaware corporation, desiring to merge Cellular
Telecom Corporation, a California corporation, pursuant to the provisions of
Section 252(c) of the General Corporation Law of the State of Delaware, does
hereby certify as follows:
FIRST: The names and states of incorporation of each constituent
corporation are:
Name State of Incorporation
- ---- ----------------------
Intellicell Corp. Delaware
Cellular Telecom Corporation California
SECOND: An Agreement and Plan of Merger has been approved, adopted,
certified, executed and acknowledged by Cellular Telecom Corporation in
accordance with Section 252(c) of the General Corporation Law and approved,
adopted, certified, executed and acknowledged by Intellicell Corp. in accordance
with the second sentence of Section 251(f) of the General Corporation Law (there
being no shares of stock of such corporation issued prior to the adoption by the
Board of Directors of the resolution approving the Agreement and Plan of
Merger).
<PAGE>
THIRD: The name of the surviving corporation is Intellicell Corp., which
will continue its existence under the name Intellicell Corp. upon the effective
date of the merger pursuant to the provisions of the General Corporation Law.
FOURTH: The Certificate of Incorporation of Intellicell Corp. shall be the
Certificate of Incorporation of the surviving corporation.
FIFTH: An executed copy of the Agreement and Plan of Merger is on file at
the principal place of business of the surviving corporation, 6929 Hayvenhurst
Avenue, Van Nuys, California 91406, and a copy of the Agreement and Plan of
Merger will be furnished by the surviving corporation, on request and without
cost, to any shareholder of any constituent corporation.
SIXTH: Cellular Telecom Corporation has authorized capital stock of
2,030,000 shares of common stock.
IN WITNESS WHEREOF, Intellicell Corp. has caused this Certificate to be
executed by its President thereunto duly authorized this 18th of October, 1996
INTELLICELL CORP.
(a Delaware Corporation)
By: /s/ Ben Neman
---------------------
Ben Neman, President
AGREEMENT AND PLAN OF MERGER (the 'Plan') made the 18th day of October,
1996, between INTELLICELL CORP. , a Delaware corporation ("the Company"), and
CELLULAR TELECOM CORPORATION, a California corporation ("CTC").
WHEREAS, the Company has an authorized capital stock consisting of
15,000,000 shares of Common Stock, $.01 par value, and 1,000,000 shares of
Preferred Stock, $.01 par value, no shares of which have been issued; and
WHEREAS, CTC has an authorized capital stock consisting of 2,030,000 shares
of Common Stock all of which have been issued and are outstanding, all of which
are entitled to vote; and
WHEREAS, the Boards of Directors of the Company and of CTC deem it
advisable and in the best interests of the Company and CTC that CTC merge with
and into the Company;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein and of the mutual benefits hereby provided, it is
agreed that CTC merge with and into the Company, pursuant to the applicable laws
of the States of Delaware and California and do hereby agree to the following
terms and conditions:
1. Merger. CTC shall be merged with and into the Company in accordance with
the applicable provisions of the General Corporation Law of the States of
Delaware and California.
2. Effective Date. This Plan shall become effective immediately upon
compliance with the laws of the States of California and Delaware; the time of
such effectiveness being hereinafter called the Effective Date.
<PAGE>
3. Surviving Corporation. The Company shall survive the merger herein
contemplated and shall continue to be governed by the laws of the State of
Delaware, but the separate corporate existence of CTC shall cease forthwith upon
the Effective Date. The Company shall have the rights, privileges, immunities
and franchises of CTC and all property, real and personal, and all debts due on
whatever account and all choses in action and every other interest belonging or
due to CTC shall be taken and deemed transferred to and vested in the Company
without further act or deed. The Company shall be responsible and liable for all
liabilities and obligations of CTC. Neither the rights of creditors nor liens
upon the property of CTC shall be impaired by the merger.
4. Authorized Capital. The authorized capital stock of the Company
following the Effective Date shall be 15,000,000 shares of Common Stock, $.01
par value, and 1,000,000 shares of Preferred Stock, $.01 par value, unless and
until the same shall be changed in accordance with the laws of the State of
Delaware.
5. Certificate of Incorporation. The Certificate of Incorporation of the
Company, as in effect on the Effective Date, shall continue to be the
Certificate of Incorporation of the Company following the Effective Date unless
and until the same shall be amended in accordance with the provisions thereof
and applicable law.
6. By-Laws. The By-Laws of the Company as in effect on the Effective Date,
shall continue to be the By-Laws of the Company following the Effective Date
unless and until the same
-2-
<PAGE>
shall be amended or repealed in accordance with the provisions thereof and
applicable law.
7. Further Assurance of Title. If at any time CTC shall consider or be
advised that any acknowledgments or assurances an law or other similar actions
are necessary or desirable in order to acknowledge or confirm in and to the
Company any right, title or interest of CTC held immediately prior to the
Effective Date, CTC and its proper officers and directors shall and will execute
and deliver all such acknowledgments or assurances in law and do all things
necessary or proper to acknowledge or confirm such right, title or interest in
CTC as shall be necessary to carry out the purposes of this Plan, and CTC and
the proper officers and directors thereof are fully authorized to take any and
all such action in the name of CTC or otherwise.
8. Conversion of Outstanding Securities. On the Effective Date:
(a) None of the authorized shares, $.01 par value, of the Company, none of
which have been issued, shall be converted as a result of the merger.
(b) Each of the issued and outstanding shares of Common Stock of CTC and
all rights in respect thereof shall be converted into the right to receive one
(1) share of the Common Stock, $.01 par value, of the Company (and each such
share of the Common Stock of CTC shall be deemed cancelled and the holder
thereof shall cease to have any rights with respect thereto), and each
certificate representing such shares of the Common Stock of
-3-
<PAGE>
CTC shall thereafter and until surrendered be deemed to represent for all
corporate purposes the right to receive one (1) share of the Common Stock of the
Company. Each issued share of the Common Stock of CTC which is held in its
Treasury, if any, at the Effective Date shall be cancelled and shall cease to
exist.
(c) Each of the outstanding options, warrants and shares reserved for
issuance upon the conversion of outstanding indebtedness of CTC shall be
converted into an option, warrant or shares, as the case may be, to purchase the
number of shares of the Company Common Stock, which the holder would have owned
following the exercise or conversion thereof prior to the Effective Date, with
no other changes in the terms or conditions of such securities.
9. Directors and Officers. The directors and officers of the Company, on
the Effective Date, shall continue to serve as directors and officers of the
Company for the balance of the terms of the directors and officers of the
Company and until their successors are elected and qualified as provided by law
and the By-Laws of the Company.
10. Vacancies. If, upon the Effective Date, a vacancy shall exist in the
Board of Directors or in any of the offices of the Company, such vacancy shall
thereafter be filled in the manner provided by law and the By-Laws of the
Company.
11. Abandonment. Anything herein or elsewhere to the contrary
notwithstanding, and notwithstanding shareholder approval hereof, this Plan may
be terminated and abandoned by action of the Board of Directors of any of the
corporations party
-4-
<PAGE>
hereto at any time prior to the Effective Date of this Plan for any cause.
IN WITNESS WHEREOF, each of the parties hereto have caused this Plan to be
executed by its duly authorized officers on the day and year first above
written.
INTELLICELL CORP.
(A Delaware Corporation)
By: /S/ Ben Neman
-------------------------
Ben Neman, President
By: /S/ James E. Bunting
-------------------------
James E. Bunting, Secretary
CELLUAR TELECOM CORPORATION
(A California Corporation)
By: /S/ Ben Neman
-------------------------
Ben Neman, President
By: /S/ James E. Bunting
-------------------------
James E. Bunting, Secretary
-5-
1996 STOCK OPTION PLAN
OF
Intellicell Corp.
1. Purpose
-------
Intellicell Corp. (the "Company") desires to attract and retain the best
available talent and encourage the highest level of performance in order to
continue to serve the best interests of the Company, and its stockholders. By
affording key personnel the opportunity to acquire proprietary interests in the
Company and by providing them incentives to put forth maximum efforts for the
success of the business, the 1996 Stock Option Plan of Intellicell Corp. (the
"1996 Plan") is expected to contribute to the attainment of those objectives.
The word "Subsidiary" or "Subsidiaries" as used herein, shall mean any
corporation, fifty percent or more of the voting stock of which is owned by the
Company.
2. Scope and Duration
------------------
Options under the 1996 Plan may be granted in the form of incentive stock
options ("Incentive Options") as provided in Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), or in the form of nonqualified stock
options ("Non-Qualified Options"). (Unless otherwise indicated, references in
the 1996 Plan to "options" include Incentive Options and Non-Qualified Options.)
The maximum aggregate number of shares as to which options may be granted from
time to time under the 1996 Plan is 335,000 shares of the Common Stock of the
Company ("Common Stock"), which shares may be, in whole or in part, authorized
but unissued shares or shares reacquired by the Company. If an option shall
expire, terminate or be surrendered for cancellation for any reason without
having been exercised in full, the shares represented by the option or portion
thereof not so exercised shall (unless the 1996 Plan shall have been terminated)
become available for subsequent option grants under the 1996 Plan. As provided
in paragraph 13, the 1996 Plan shall become effective on October 31, 1996, and
unless terminated sooner pursuant to paragraph 14, the 1996 Plan shall terminate
on October 31, 2006, and no option shall be granted hereunder after that date.
3. Administration
--------------
The 1996 Plan shall be administered by the Board of Directors of the
Company. The Board of Directors shall have plenary authority in its discretion,
subject to and not inconsistent with the express provisions of the 1996 Plan, to
grant options, to determine the purchase price of the Common Stock covered by
each option, the term of each option, the persons to
<PAGE>
whom, and the time or times at which, options shall be granted and the number of
shares to be covered by each option; to designate options as Incentive Options
or Non-Qualified Options; to interpret the 1996 Plan; to prescribe, amend and
rescind rules and regulations relating to the 1996 Plan; to determine the terms
and provisions of the option agreements (which need not be identical) entered
into in connection with options under the 1996 Plan; and to make all other
determinations deemed necessary or advisable for the administration of the 1996
Plan. The Board of Directors may delegate to one or more of its members or to
one or more agents such administrative duties as it may deem advisable, and the
Board of Directors or any person to whom it has delegated duties as aforesaid
may employ one or more persons to render advice with respect to any
responsibility the Board of Directors or the Committee or such person may have
under the 1996 Plan.
4. Eligibility; Factors to be Considered in Granting Options
---------------------------------------------------------
Incentive Options shall be limited to persons who are employees of the
Company or its present and future Subsidiaries and at the date of grant of any
option are in the employ of the Company or its present and future Subsidiaries.
In determining the employees to whom Incentive Options shall be granted and the
number of shares to be covered by each Incentive Option, the Board of Directors
shall take into account the nature of employees' duties, their present and
potential contributions to the success of the Company and such other factors as
it shall deem relevant in connection with accomplishing the purposes of the 1996
Plan. An employee who has been granted an option or options under the 1996 Plan
may be granted an additional option or options, subject, in the case of
Incentive Options, to such limitations as may be imposed by the Code on such
options. Except as provided below, a Non-Qualified Option may be granted to any
person, including, but not limited to, employees, independent agents,
consultants and attorneys, who the Board of Directors believes has contributed,
or will contribute, to the success of the Company.
5. Option Price
------------
The purchase price of the Common Stock covered by each option shall be
determined by the Board of Directors but in no event shall the purchase price be
less than 100% of the Fair Market Value (as defined in paragraph 15 below) of a
share of the Common Stock on the date on which the option is granted. Such price
shall be subject to adjustment as provided in paragraph 12 below. The Board of
Directors shall determine the date on which an option is granted; in the absence
of such a determination, the date on which the Board of Directors adopts a
resolution granting an option shall be considered the date on which such option
is granted.
-2-
<PAGE>
6. Term of Options
---------------
The term of each option shall be not more then ten years from the date of
grant, as the Board of Directors shall determine, subject to earlier termination
as provided in paragraphs 10 and 11 below.
7. Exercise of Options
-------------------
(a) Subject to the provisions of the 1996 Plan and unless otherwise
provided in the option agreement, options granted under the 1996 Plan shall
become exercisable as determined by the Board of Directors. In its discretion,
the Board of Directors may, in any case or cases, prescribe that options granted
under the 1996 Plan become exercisable in installments or provide that an option
may be exercisable in full immediately upon the date of its grant. The Board of
Directors may, in its sole discretion, also provide that an option granted
pursuant to the 1996 Plan shall immediately become exercisable in full upon the
happening of any of the following events; (i) the first purchase of shares of
Common Stock pursuant to a tender offer or exchange offer (other than an offer
by the Company) for all, or any part of, the Common Stock, (ii) the approval by
the stockholders of the Company of an agreement for a merger in which the
Company will not survive as an independent, publicly owned corporation, a
consolidation, or a sale, exchange or other disposition of all or substantially
all of the Company's assets, (iii) with respect to an employee, on his 65th
birthday, or (iv) with respect to an employee, on the employee's involuntary
termination from employment, except as provided in Section 10 herein. In the
event of a question or controversy as to whether or not any of the events
hereinabove described has taken place, a determination by the Board of Directors
that such event has or has not occurred shall be conclusive and binding upon the
Company and participants in the 1996 Plan.
(b) Any option at any time granted under the 1996 Plan may contain a
provision to the effect that the optionee (or any persons entitled to act under
Paragraph 11 hereof) may, at any time at which Fair Market Value is in excess of
the exercise price and prior to exercising the option, in whole or in part,
request that the Company purchase all or any portion of the option as shall then
be exercisable at a price equal to the difference between (i) an amount equal to
the option price multiplied by the number of shares subject to that portion of
the option in respect of which such request shall be made and (ii) an amount
equal to such number of shares multiplied by the fair market value of the
Company's Common Stock (within the meaning of Section 422 of the Code and the
treasury regulations promulgated thereunder) on the date of purchase. The
Company shall have no obligation to make any purchase pursuant to such request,
but if it elects to do so, such portion of the option as to which the request is
made shall be surrendered to the Company. The purchase price for the portion of
the option to be so surrendered shall be paid by the Company, at
-3-
<PAGE>
the election of the Board of Directors either in cash or in shares of Common
Stock (valued as of the date and in the manner provided in clause (ii) above),
or in any combination of cash and Common Stock, which may consist, in whole or
in part, of shares of authorized but unissued Common Stock or shares of Common
Stock held in the Company's treasury. No fractional share of Common Stock shall
be issued or transferred and any fractional share shall be disregarded. Shares
covered by that portion of any option purchased by the Company pursuant hereto
and surrendered to the Company shall not be available for the granting of
further options under the Plan. All determinations to be made by the Company
hereunder shall be made by the Board of Directors.
(c) An option may be exercised, at any time or from time to time (subject,
in the case of Incentive Options, to such restrictions as may be imposed by the
Code), as to any or all full shares as to which the option has become
exercisable until the expiration of the period set forth in Paragraph 6 hereof,
by the delivery to the Company, at its principal place of business, of (i)
written notice of exercise in the form specified by the Board of Directors
specifying the number of shares of Common Stock with respect to which the option
is being exercised and signed by the person exercising the option as provided
herein, (ii) payment of the purchase price; and (iii) in the case of
Non-Qualified Options, payment in cash of all withholding tax obligations
imposed on the Company by reason of the exercise of the option. Upon acceptance
of such notice, receipt of payment in full, and receipt of payment of all
withholding tax obligations, the Company shall cause to be issued a certificate
representing the shares of Common Stock purchased. In the event the person
exercising the option delivers the items specified in (i) and (ii) of this
Subsection (c), but not the item specified in (iii) hereof, if applicable, the
option shall still be considered exercised upon acceptance by the Company for
the full number of shares of Common Stock specified in the notice of exercise
but the actual number of shares issued shall be reduced by the smallest number
of whole shares of Common Stock which, when multiplied by the Fair Market Value
of the Common Stock as of the date the option is exercised, is sufficient to
satisfy the required amount of withholding tax.
(d) The purchase price of the shares as to which an option is exercised
shall be paid in full at the time of exercise. Payment shall be made in cash,
which may be paid by check or other instrument acceptable to the Company; in
addition, subject to compliance with applicable laws and regulations and such
conditions as the Board of Directors may impose, the Board of Directors in its
sole discretion, may on a case-by-case basis elect to accept payment in shares
of Common Stock of the Company which are already owned by the option holder,
valued at the Fair Market Value thereof (as defined in paragraph 15 below) on
the date of exercise; provided, however, that with respect to Incentive Options,
no such discretion may be exercised unless the option agreement permits the
payment of the purchase price in that manner.
-4-
<PAGE>
(e) Except as provided in paragraphs 10 and 11 below, no option granted to
an employee may be exercised at any time by such employee unless such employee
is then an employee of the Company or a Subsidiary.
8. Incentive Options
-----------------
(a) With respect to Incentive Options granted, the aggregate Fair Market
Value (determined in accordance with the provisions of paragraph 15 at the time
the Incentive Option is granted) of the Common Stock or any other stock of the
Company or its current or future Subsidiaries with respect to which incentive
stock options, as defined in Section 422 of the Code, are exercisable for the
first time by any employee during any calendar year (under all incentive stock
option plans of the Company and its parent and subsidiary corporation's, as
those terms are defined in Section 424 of the Code) shall not exceed $100,000.
(b) No Incentive Option may be awarded to any employee who immediately
prior to the date of the granting of such Incentive Option owns more than 10% of
the combined voting power of all classes of stock of the Company or any of its
Subsidiaries unless the exercise price under the Incentive Option is at least
110% of the Fair Market Value and the option expires within 5 years from the
date of grant.
(c) In the event of amendments to the Code or applicable regulations
relating to Incentive Options subsequent to the date hereof, the Company may
amend the provisions of the 1996 Plan, and the Company and the employees holding
options may agree to amend outstanding option agreements, to conform to such
amendments.
9. Non-Transferability of Options
------------------------------
Options granted under the 1996 Plan shall not be transferable otherwise
than by will or the laws of descent and distribution, and options may be
exercised during the lifetime of the optionee only by the optionee. No transfer
of an option by the optionee by will or by the laws of descent and distribution
shall be effective to bind the Company unless the Company shall have been
furnished with written notice thereof and a copy of the will and such other
evidence as the Company may deem necessary to establish the validity of the
transfer and the acceptance by the transferor or transferees of the terms and
conditions of such option.
10. Termination of Employment
-------------------------
In the event that the employment of an employee to whom an option has been
granted under the 1996 Plan shall be terminated (except as set forth in
paragraph 11 below), such option may be, subject to the provisions of the 1996
Plan, exercised (to the extent that the employee was entitled to do so at the
termination of his employment) at any time within ninety (90) days after such
-5-
<PAGE>
termination, but not later than the date on which the option terminates;
provided, however, that any option which is held by an employee whose employment
is terminated for cause or voluntarily without the consent of the Company shall,
to the extent not theretofore exercised, automatically terminate as of the date
of termination of employment. As used herein, "cause" shall mean conduct
amounting to fraud, dishonesty, negligence, or engaging in competition or
solicitations in competition with the Company and breaches of any applicable
employment agreement between the Company and the optionee. Options granted to
employees under the 1996 Plan shall not be affected by any change of duties or
position so long as the holder continues to be a regular employee of the Company
or any of its current or future Subsidiaries. Any option agreement or any rules
and regulations relating to the 1996 Plan may contain such provisions as the
Board of Directors shall approve with reference to the determination of the date
employment terminates and the effect of leaves of absence. Nothing in the 1996
Plan or in any option granted pursuant to the 1996 Plan shall confer upon any
employee any right to continue in the employ of the Company or any of its
Subsidiaries or parent or affiliated companies or interfere in any way with the
right of the Company or any such Subsidiary or parent or affiliated companies to
terminate such employment at any time.
11. Death or Disability of Employee
-------------------------------
If an employee to whom an option has been granted under the 1996 Plan shall
die while employed by the Company or a Subsidiary or within ninety (90) days
after the termination of such employment (other than termination for cause or
voluntary termination without the consent of the Company), such option may be
exercised, to the extent exercisable by the employee on the date of death, by a
legatee or legatees of the employee under the employee's last will, or by the
employee's personal representative or distributees, at any time within one year
after the date of the employee's death, but not later than the date on which the
option terminates. In the event that the employment of an employee to whom an
option has been granted under the 1996 Plan shall be terminated as the result of
a disability, such option may be exercised, to the extent exercisable by the
employee on the date of such termination, at any time within one year after the
date of such termination, but not later than the date on which the option
terminates.
12. Adjustments Upon Changes in Capitalization, Etc.
------------------------------------------------
Notwithstanding any other provision of the 1996 Plan, the Board of
Directors may, at any time, make or provide for such adjustments to the 1996
Plan, to the number and class of shares issuable thereunder or to any
outstanding options as it shall deem appropriate to prevent dilution or
enlargement of rights, including adjustments in the event of changes in the
outstanding Common Stock by reason of stock dividends, split-ups,
recapitalizations,
-6-
<PAGE>
mergers, consolidations, combinations or exchanges of shares, separations,
reorganizations, liquidations and the like. In the event of any offer to holders
of Common Stock generally relating to the acquisition of their shares, the Board
of Directors may make such adjustment as it deems equitable in respect of
outstanding options and rights, including in its discretion revision of
outstanding options and rights so that they may be exercisable for the
consideration payable in the acquisition transaction. Any such determination by
the Board of Directors shall be conclusive. Any fractional shares resulting from
such adjustments shall be eliminated.
13. Effective Date
--------------
The 1996 Plan shall become effective on _________, 1996.
14. Termination and Amendment
-------------------------
The Board of Directors of the Company may suspend, terminate, modify or
amend the 1996 Plan, provided that any amendment that would increase the
aggregate number of shares which may be issued under the 1996 Plan, materially
increase the benefits accruing to participants under the 1996 Plan, or
materially modify the requirements as to eligibility for participation in the
1996 Plan, shall be subject to the approval of the Company's stockholders,
except that any such increase or modification that may result from adjustments
authorized by paragraph 12 does not require such approval. No suspension,
termination, modification or amendment of the 1996 Plan may, without the consent
of the employee to whom an option shall theretofore have been granted, effect
the rights of such employee under such option.
15. Miscellaneous
-------------
As said term is used in the 1996 Plan, the "Fair Market Value" of a share
of Common Stock on any day means: (a) if the principal market for the Common
Stock is a national securities exchange or the National Association of
Securities Dealers Automated Quotations System ("NASDAQ"), the closing sales
price of the Common Stock on such day as reported by such exchange or market
system, or on a consolidated tape reflecting transactions on such exchange or
market system, or (b) if the principal market for the Common Stock is not a
national securities exchange and the Common Stock is not quoted on NASDAQ, the
mean between the highest bid and lowest asked prices for the Common Stock on
such day as reported by the National Quotation Bureau, Inc.; provided that if
clauses (a) and (b) of this paragraph are both inapplicable, or if no trades
have been made or no quotes are available for such day, the Fair Market Value of
the Common Stock shall be determined by the Board of Directors shall be
conclusive as to the Fair Market Value of the Common Stock.
-7-
<PAGE>
The Board of Directors or the Committee may require, as a condition to the
exercise of any options granted under the 1996 Plan, that to the extent required
at the time of exercise, (i) the shares of Common Stock reserved for purposes of
the 1996 Plan shall be duly listed, upon official notice of issuance, upon stock
exchange(s) on which the Common Stock is listed, (ii) a Registration Statement
under the Securities Act of 1933, as amended, with respect to such shares shall
be effective, and/or (iii) the person exercising such option deliver to the
Company such documents, agreements and investment and other representations as
the Board of Directors shall determine to be in the best interests of the
Company.
During the term of the 1996 Plan, the Board of Directors in its discretion,
may offer one or more option holders the opportunity to surrender any or all
unexpired options for cancellation or replacement. If any options are so
surrendered, the Board of Directors may then grant new Non-Qualified or
Incentive Options to such holders for the same or different numbers of shares at
higher or lower exercise prices than the surrendered options. Such new options
may have a different term and shall be subject to the provisions of the 1996
Plan the same as any other option.
Anything herein to the contrary notwithstanding, the Board of Directors
may, in its sole discretion, impose more restrictive conditions on the exercise
of an option granted pursuant to the 1996 Plan; however, any and all such
conditions shall be specified in the option agreement limiting and defining such
option.
16. Compliance with SEC Regulations.
--------------------------------
It is the Company's intent that the 1996 Plan comply in all respects with
Rule 16b-3 of the Act and any regulations promulgated thereunder. If any
provision of the 1996 Plan is later found not to be in compliance with said
Rule, the provisions shall be deemed null and void. All grants and exercises of
Incentive Options under the 1996 Plan shall be executed in accordance with the
requirements of Section 16 of the Act, as amended, and any regulations
promulgated thereunder.
-8-
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT dated as of __________________, 199_ between INTELLICELL CORP., a
Delaware corporation (the "Employer" or the "Company"), and Ben Neman (the
"Employee").
W I T N E S S E T H :
---------------------
WHEREAS, the Employee is currently the Company's Chairman, President and
Chief Executive Officer;
WHEREAS, the Employer desires to continue to employ the Employee as its
Chairman, President and Chief Executive Officer and to be assured of his
services as such on the terms and conditions hereinafter set forth; and
WHEREAS, the Employee is willing to accept such employment on such terms
and conditions; and
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, and intending to be legally bound hereby, the Employer
and the Employee hereby agree as follows:
1. Term. Employer hereby agrees to continue to employ Employee, and
Employee hereby agrees to continue to serve Employer for a three-year period
commencing on the effective date of the Registration Statement relating to the
Company's initial public offering (the "Effective Date") (such period being
herein referred to as the "Initial Term," and any year commencing on the
Effective Date or any anniversary of the Effective Date being hereinafter
referred to as an "Employment Year"). After the Initial Term, this Agreement
shall be renewable automatically for successive one year periods (each such
period being referred to as a "Renewal Term"), unless, more than thirty days
prior to the expiration of the Initial Term or any Renewal Term, either the
Employee or the Company give written notice that employment will not be renewed.
2. Employee Duties.
(a) During the term of this Agreement, the Employee shall have the duties
and responsibilities of Chairman, President and Chief Executive Officer of the
Employer, reporting directly to the Board of Directors of the Employer (the
"Board"). It is understood that such duties and responsibilities shall be
reasonably related to the Employee's position.
(b) The Employee shall devote substantially all of his business time,
attention, knowledge and skills faithfully, diligently and to the best of his
ability, in furtherance of the
<PAGE>
business and activities of the Company. The principal place of performance by
the Employee of his duties hereunder shall be the Company's principal executive
offices or such other place as the Board shall determine, although the Employee
may be required to travel outside of the area where the Company's principal
executive offices are located in connection with the business of the Company.
3. Compensation.
(a) During the term of this Agreement, the Employer shall pay the Employee
a salary (the "Salary") at a rate of $72,000 per annum in respect of each
Employment Year, payable in equal installments semi-monthly, or at such other
times as may mutually be agreed upon between the Employer and the Employee. Such
Salary may be increased from time to time at the discretion of the Board.
(b) In addition to the foregoing, the Employee shall be entitled to such
other cash bonuses and such other compensation in the form of stock, stock
options or other property or rights as may from time to time be awarded to him
by the Board during or in respect of his employment hereunder.
4. Benefits.
(a) During the term of this Agreement, the Employee shall have the right to
receive or participate in all benefits and plans which the Company may from time
to time institute during such period for its employees and for which the
Employee is eligible. Nothing paid to the Employee under any plan or arrangement
presently in effect or made available in the future shall be deemed to be in
lieu of the salary or any other obligation payable to the Employee pursuant to
this Agreement.
(b) During the term of this Agreement, the Employee will be entitled to the
number of paid holidays, personal days off, vacation days and sick leave days in
each calendar year as are determined by the Company from time to time. Such
vacation may be taken in the Employee's discretion with the prior approval of
the Employee, and at such time or times as are not inconsistent with the
reasonable business needs of the Company.
5. Travel Expenses. All travel and other expenses incident to the rendering
of services reasonably incurred on behalf of the Company by the Employee during
the term of this Agreement shall be paid by the Employer. If any such expenses
are paid in the first instance by the Employee, the Employer shall reimburse him
therefor on presentation of appropriate receipts for any such expenses.
-2-
<PAGE>
6. Termination. Notwithstanding the provisions of Section 1 hereof, the
Employee's employment with the Employer may be earlier terminated as follows:
(a) By action taken by the Board, the Employee may be discharged
for cause (as hereinafter defined), effective as of such time as the
Board shall determine. Upon discharge of the Employee pursuant to this
Section 6(a), the Employer shall have no further obligation or duties
to the Employee, except for payment of Salary through the effective
date of termination, and as provided in Sections 5 and 8, and the
Employee shall have no further obligations or duties to the Employer,
except as provided in Section 7.
(b) In the event of (i) the death of the Employee or (ii) by
action of the Board and the inability of the Employee, by reason of
physical or mental disability, to continue substantially to perform
his duties hereunder for a period of 180 consecutive days, during
which 180 day period Salary and any other benefits hereunder shall not
be suspended or diminished. Upon any termination of the Employee's
employment under this Section 6(b), the Employer shall have no further
obligations or duties to the Employee, except as provided in Sections
5 and 8.
(c) In the event that Employee's employment with the Employer is
terminated by action taken by the Board without cause, including
termination upon a Change in Control (as hereinafter defined), then
the Employer shall have no further obligation or duties to Employee,
except for payment of the amounts described below and as provided in
Sections 5 and 8, and Employee shall have no further obligations or
duties to the Employer, except as provided in Section 7. In the event
of such termination, the Employer shall continue to pay Salary to the
Employee for the remainder of the Initial Term, or the remainder of
the current Renewal Term if this Agreement has been renewed; provided,
however, that if such termination occurs during the third year of the
Initial Term or the final year of any Renewal Term, the Employer shall
also pay to the Employee an amount equal to the total Salary received
by the Employee during the 12 months prior to the date of termination.
If such termination occurs upon a Change in Control, all amounts
payable to the Employee pursuant to this Section 6(c) shall be paid in
one lump-sum payment payable immediately upon such termination.
(d) For purposes of this Agreement, the Company shall have
"cause" to terminate the Employee's employment under this Agreement
upon (i) the failure by the Employee to substantially perform his
duties under this Agreement, (ii) the engaging by the Employee in
criminal misconduct (including embezzlement and criminal fraud) which
is materially injurious to the Company, monetarily or otherwise, (iii)
the conviction of the Employee of a felony, (iv) gross negligence on
the part of the Employee or (v) other misconduct of the Employee in
the performance of his
-3-
<PAGE>
duties hereunder. The Company shall give written notice to the
Employee, which notice shall specify the grounds for the proposed
termination and the Employee shall be given thirty (30) days to cure
if the grounds arise under clauses (i) or (v) above.
(e) For purposes of this Agreement a "Change in Control" shall be
deemed to occur, unless previously consented to in writing by the
Employee, upon the election of directors constituting a majority of
the Board who have not been nominated or approved by the Employee.
7. Confidentiality; Noncompetition.
(a) The Employer and the Employee acknowledge that the services to be
performed by the Employee under this Agreement are unique and extraordinary and,
as a result of such employment, the Employee will be in possession of
confidential information relating to the business practices of the Company. The
term "confidential information" shall mean any and all information (verbal and
written) relating to the Company or any of its affiliates, or any of their
respective activities, other than such information which can be shown by the
Employee to be in the public domain (such information not being deemed to be in
the public domain merely because it is embraced by more general information
which is in the public domain) other than as the result of breach of the
provisions of this Section 7(a), including, but not limited to, information
relating to: trade secrets, personnel lists, financial information, research
projects, services used, pricing, customers, customer lists and prospects,
product sourcing, marketing and selling and servicing. The Employee agrees that
he will not, during or for a period of two years after the termination of
employment, directly or indirectly, use, communicate, disclose or disseminate to
any person, firm or corporation any confidential information regarding the
clients, customers or business practices of the Company acquired by the Employee
during his employment by Employer, without the prior written consent of
Employer; provided, however, that the Employee understands that Employee will be
prohibited from misappropriating any trade secret (as defined for purposes of
Indiana law) at any time during or after the termination of employment.
(b) The Employee hereby agrees that he shall not, during the period of his
employment and for a period of one (1) year following such employment, directly
or indirectly, within any county (or adjacent county) in any State within the
United States or territory outside the United States in which the Company is
engaged in business during the period of the Employee's employment or on the
date of termination of the Employee's employment, engage, have an interest in or
render any services to any business (whether as owner, manager, operator,
licensor, licensee, lender, partner, stockholder, joint venturer,
-4-
<PAGE>
employee, consultant or otherwise) competitive with the Company's business
activities.
(c) The Employee hereby agrees that he shall not, during the period of his
employment and for a period of one (1) year following such employment, directly
or indirectly, take any action which constitutes an interference with or a
disruption of any of the Company's business activities including, without
limitation, the solicitations of the Company's customers, or persons listed on
the personnel lists of the Company. At no time during the term of this
Agreement, or thereafter shall the Employee directly or indirectly, disparage
the commercial, business or financial reputation of the Company.
(d) For purposes of clarification, but not of limitation, the Employee
hereby acknowledges and agrees that the provisions of subparagraphs 7(b) and (c)
above shall serve as a prohibition against him, during the period referred to
therein, directly or indirectly, hiring, offering to hire, enticing, soliciting
or in any other manner persuading or attempting to persuade any officer,
employee, agent, lessor, lessee, licensor, licensee or customer who has been
previously contacted by either a representative of the Company, including the
Employee, (but only those suppliers existing during the time of the Employee's
employment by the Company, or at the termination of his employment), to
discontinue or alter his, her or its relationship with the Company.
(e) Upon the termination of the Employee's employment for any reason
whatsoever, all documents, records, notebooks, equipment, price lists,
specifications, programs, customer and prospective customer lists and other
materials which refer or relate to any aspect of the business of the Company
which are in the possession of the Employee including all copies thereof, shall
be promptly returned to the Company.
(f) (i) The Employee agrees that all processes, technologies and
inventions ("Inventions"), including new contributions, improvements, ideas and
discoveries, whether patentable or not, conceived, developed, invented or made
by him during his employment by Employer shall belong to the Company, provided
that such Inventions grew out of the Employee's work with the Company are
related in any manner to the business (commercial or experimental) of the
Company or are conceived or made on the Company's time or with the use of the
Company's facilities or materials. The Employee shall further: (a) promptly
disclose such Inventions to the Company; (b) assign to the Company, without
additional compensation, all patent and other rights to such Inventions for the
United States and foreign countries; (c) sign all papers necessary to carry out
the foregoing; and (d) give testimony in support of his inventorship;
-5-
<PAGE>
(ii) If any Invention is described in a patent application or is disclosed
to third parties, directly or indirectly, by the Employee within two years after
the termination of his employment by the Company, it is to be presumed that the
Invention was conceived or made during the period of the Employee's employment
by the Company; and
(iii) The Employee agrees that he will not assert any rights to any
Invention as having been made or acquired by him prior to the date of this
Agreement, except for Inventions, if any, disclosed to the Company in writing
prior to the date hereof.
(g) The Company shall be the sole owner of all products and proceeds of the
Employee's services hereunder, including, but not limited to, all materials,
ideas, concepts, formats, suggestions, developments, arrangements, packages,
programs and other intellectual properties that the Employee may acquire,
obtain, develop or create in connection with and during the term of the
Employee's employment hereunder, free and clear of any claims by the Employee
(or anyone claiming under the Employee) of any kind or character whatsoever
(other than the Employee's right to receive payments hereunder). The Employee
shall, at the request of the Company, execute such assignments, certificates or
other instruments as the Company may from time to time deem necessary or
desirable to evidence, establish, maintain, perfect, protect, enforce or defend
its right, or title and interest in or to any such properties.
(h) The parties hereto hereby acknowledge and agree that (i) the Company
would be irreparably injured in the event of a breach by the Employee of any of
his obligations under this Section 7, (ii) monetary damages would not be an
adequate remedy for any such breach, and (iii) the Company shall be entitled to
injunctive relief, in addition to any other remedy which it may have, in the
event of any such breach.
(i) The parties hereto hereby acknowledge that, in addition to any other
remedies the Company may have under Section 7(h) hereof, the Company shall have
the right and remedy to require the Employee to account for and pay over to the
Company all compensation, profits, monies, accruals, increments or other
benefits (collectively, "Benefits") derived or received by the Employee as the
result of any transactions constituting a breach of any of the provisions of
Section 7, and the Employee hereby agrees to account for any pay over such
Benefits to the Company.
(j) Each of the rights and remedies enumerated in Section 7(h) and 7(i)
shall be independent of the other, and shall be severally enforceable, and all
of such rights and remedies shall be in addition to, and not in lieu of, any
other
-6-
<PAGE>
rights and remedies available to the Company under law or in equity.
(k) If any provision contained in this Section 7 is hereafter construed to
be invalid or unenforceable, the same shall not affect the remainder of the
covenant or covenants, which shall be given full effect, without regard to the
invalid portions.
(1) If any provision contained in this Section 7 is found to be
unenforceable by reason of the extent, duration or scope thereof, or otherwise,
then the court making such determination shall have the right to reduce such
extent, duration, scope or other provision and in its reduced form any such
restriction shall thereafter be enforceable as contemplated hereby.
(m) It is the intent of the parties hereto that the covenants contained in
this Section 7 shall be enforced to the fullest extent permissible under the
laws and public policies of each jurisdiction in which enforcement is sought
(the Employee hereby acknowledging that said restrictions are reasonably
necessary for the protection of the Company). Accordingly, it is hereby agreed
that if any of the provisions of this Section 7 shall be adjudicated to be
invalid or unenforceable for any reason whatsoever, said provision shall be
(only with respect to the operation thereof in the particular jurisdiction in
which such adjudication is made) construed by limiting and reducing it so as to
be enforceable to the extent permissible, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of said
provision in any other jurisdiction.
8. Indemnification. The Employer shall indemnify and hold harmless the
Employee against any and all expenses reasonably incurred by him in connection
with or arising out of (a) the defense of any action, suit or proceeding in
which he is a party, or (b) any claim asserted or threatened against him, in
either case by reason of or relating to his being or having been an employee,
officer or director of the Company, whether or not he continues to be such an
employee, officer or director at the time of incurring such expenses, except
insofar as such indemnification is prohibited by law. Such expenses shall
include, without limitation, the fees and disbursements of attorneys, amounts of
judgments and amounts of any settlements, provided that such expenses are agreed
to in advance by the Employer. The foregoing indemnification obligation is
independent of any similar obligation provided in the Employer's Certificate of
Incorporation or Bylaws, and shall apply with respect to any matters
attributable to periods prior to the Effective Date, and to matters attributable
to his employment hereunder, without regard to when asserted.
-7-
<PAGE>
9. General. This Agreement is further governed by the following provisions:
(a) Notices. All notices relating to this Agreement shall be in
writing and shall be either personally delivered, sent by telecopy
(receipt confirmed) or mailed by certified mail, return receipt
requested, to be delivered at such address as is indicated below, or
at such other address or to the attention of such other person as the
recipient has specified by prior written notice to the sending party.
Notice shall be effective when so personally delivered, one business
day after being sent by telecopy or five days after being mailed.
To the Employer:
Intellicell Corp.
6929 Hayvenhurst Avenue
Van Nuys, California 91406
Attention: James E. Bunting
To the Employee:
Mr. Ben Neman
2180 Stradella Road
Los Angeles, California 90077
With, in either case, a copy in the same manner to:
Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
Attention: Robert J. Mittman, Esq.
(b) Parties in Interest. Employee may not delegate his duties or
assign his rights hereunder. This Agreement shall inure to the benefit
of, and be binding upon, the parties hereto and their respective
heirs, legal representatives, successors and permitted assigns.
(c) Entire Agreement. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties hereto with
respect to the employment of the Employee by the Employer and contains
all of the covenants and agreements between the parties with respect
to such employment in any manner whatsoever. Any modification or
termination of this Agreement will be effective only if it is in
writing signed by the party to be charged.
(d) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
-8-
<PAGE>
(e) Warranty. Employee hereby warrants and represents as follows:
(i) That the execution of this Agreement and the discharge
of Employee's obligations hereunder will not breach or conflict
with any other contract, agreement, or understanding between
Employee and any other party or parties.
(ii) Employee has ideas, information and know-how relating
to the type of business conducted by Employer, and Employee's
disclosure of such ideas, information and know-how to Employer
will not conflict with or violate the rights of any third party
or parties.
(f) Severability. In the event that any term or condition in this
Agreement shall for any reason be held by a court of competent
jurisdiction to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any
other term or condition of this Agreement, but this Agreement shall be
construed as if such invalid or illegal or unenforceable term or
condition had never been contained herein.
(g) Execution in Counterparts. This Agreement may be executed by
the parties in one or more counterparts, each of which shall be deemed
to be an original but all of which taken together shall constitute one
and the same agreement, and shall become effective when one or more
counterparts has been signed by each of the parties hereto and
delivered to each of the other parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
INTELLICELL CORP.
By:
--------------------------------
Name: James E. Bunting
Title: Chief Operating Officer
------------------------------------
Ben Neman
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<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT dated as of July 1, 1996 between Cellular Telecom Corporation
d/b/a INTELLICELL CORP., a California corporation (the "Employer" or the
"Company"), and James E. Bunting (the "Employee").
W I T N E S S E T H :
---------------------
WHEREAS, the Employer desires, subject to approval of the Board of
Directors of the Company (the "Board"), to employ the Employee as its Executive
Vice President, Chief Operating Officer and Chief Financial Officer and to be
assured of his services as such on the terms and conditions hereinafter set
forth; and
WHEREAS, the Employee is willing to accept such employment on such terms
and conditions;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, and intending to be legally bound hereby, the Employer
and the Employee hereby agree as follows:
1. Term. Employer hereby agrees to employ Employee, and Employee hereby
agrees to serve Employer for a three-year period commencing effective as of July
1, 1996 (the "Effective Date") (such period being herein referred to as the
"Term").
2. Employee Duties.
(a) During the term of this Agreement, the Employee shall have the duties
and responsibilities of Executive Vice President, Chief Operating Officer and
Chief Financial Officer of the Employer, reporting directly to the President of
Employer and the Board.
(b) The Employee shall devote all of his business time, attention,
knowledge and skills faithfully, diligently and to the best of his ability, in
furtherance of the business and activities of the Company. The principal place
of performance by the Employee of his duties hereunder shall be the Company's
principal executive offices or such other place as the Board shall determine,
although the Employee may be required to travel outside of the area where the
Company's principal executive offices are located in connection with the
business of the Company.
3. Compensation.
(a) During the term of this Agreement, the Employer shall pay the Employee
a salary (the "Salary") at a rate of $70,000 per annum, payable in accordance
with the Company's
<PAGE>
payroll procedure, or at such other times as may mutually be agreed upon between
the Employer and the Employee. Such Salary may be increased at the discretion of
the Board.
(b) In addition to the foregoing, the Employee shall be entitled to such
other cash bonuses and such other compensation in the form of stock, stock
options or other property or rights as may from time to time be awarded to him
by the Board during the term of his employment hereunder. The Company agrees,
subject to Board approval and approval of the Company's Stock Option Plan by its
shareholders, to grant to Employee options to purchase an aggregate of 50,000
shares of Common Stock, exercisable as to one-third of the Shares covered
thereby on the first, second and third anniversaries of the date of grant,
respectively, at an exercise price equal to the public offering price per share
of an initial public offering of the Company's Common Stock. Such options will
be exercisable for a period of five (5) years following the date of grant.
4. Benefits.
(a) During the term of this Agreement, the Employee shall have the right to
participate in such health and disability insurance plans which the Company may
provide to its senior executive officers and for which the Employee is eligible,
the premiums of which shall be paid by the Company.
(b) During the term of this Agreement, the Employee will be entitled to
paid vacation in accordance with the Company's policy. Such vacation may be
taken in the Employee's discretion with the prior approval of the Employer, and
at such time or times as are not inconsistent with the reasonable business needs
of the Company.
5. Travel Expenses. All travel and other expenses, including business class
air fare (or coach fares when business class is not available), incident to the
rendering of services reasonably incurred on behalf of the Company by the
Employee during the term of this Agreement shall be paid by the Employer
provided that such expenses are preapproved by the President of the Company,
upon presentation of appropriate documentation therefor.
6. Termination. Notwithstanding the provisions of Section 1 hereof, the
Employee's employment with the Employer may be earlier terminated as follows:
(a) By action taken by the Board, the Employee may be discharged for cause
(as hereinafter defined), effective as of such time as the Board shall
determine. Upon discharge of the Employee pursuant to this Section 6(a), the
Employer shall have no further obligation or duties to the Employee, except for
payment of Salary through the effective date of termination, and
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<PAGE>
as provided in Section 5, and the Employee shall have no further obligations or
duties to the Employer, except as provided in Section 7.
(b) In the event of (i) the death of the Employee or (ii) by action of the
Board in the event of the inability of the Employee, by reason of physical or
mental disability, to continue substantially to perform his duties hereunder for
an aggregate period of 180 days during the term of this agreement, during which
180 day period Salary and any other benefits hereunder shall not be suspended or
diminished. Upon any termination of the Employee's employment under this Section
6(b), the Employer shall have no further obligations or duties to the Employee,
except as provided in Section 5, and the Employee shall have no further
obligations or duties to the Employer, except as provided in Section 7.
(c) In the event that Employee's employment with the Employer is terminated
by action taken by the Board without cause, then the Employer shall have no
further obligation or duties to Employee, except for payment of Salary through
the second full month following the effective date of termination and as
provided in Section 5 and Section 7, and Employee shall have no further
obligations or duties to the Employer, except as provided in Section 7.
(d) For purposes of this Agreement, the Company shall have "cause" to
terminate the Employee's employment under this Agreement upon (i) the failure by
the Employee to substantially perform his duties under this Agreement, (ii) the
engaging by the Employee in criminal misconduct (including embezzlement and
criminal fraud) which is materially injurious to the Company, monetarily or
otherwise, (iii) the conviction of the Employee of a felony, (iv) gross
negligence on the part of the Employee or (v) other misconduct of the Employee
in the performance of his duties hereunder. The Company shall give written
notice to the Employee, which notice shall specify the grounds for the proposed
termination and the Employee shall be given thirty (30) days to cure if the
grounds arise under clauses (i) or (v) above.
7. Confidentiality; Noncompetition.
(a) The Employer and the Employee acknowledge that the services to be
performed by the Employee under this Agreement are unique and extraordinary and,
as a result of such employment, the Employee will be in possession of
confidential information relating to the business practices of the Company. The
term "confidential information" shall mean any and all information (verbal or
written) relating to the Company or any of its affiliates, or any of their
respective activities, other than such information which can be shown by the
Employee to be in the public domain (such information not being deemed to be in
the public domain merely because it is embraced by more general
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<PAGE>
information which is in the public domain) other than as the result of breach of
the provisions of this Section 7(a), including, but not limited to, information
relating to: trade secrets, personnel lists, financial information, research
projects, services used, pricing, customers, customer lists and prospects,
product sourcing, marketing and selling and servicing. The Employee agrees that
he will not, during his employment or subsequent to the termination of
employment, directly or indirectly, use, communicate, disclose or disseminate to
any person, firm or corporation any confidential information regarding the
clients, customers or business practices of the Company acquired by the Employee
during his employment by Employer, without the prior written consent of
Employer; provided, however, that the Employee understands that Employee will be
prohibited from misappropriating any trade secret (as defined for purposes of
California law) at any time during or after the termination of employment. At no
time during the term of this Agreement, or thereafter shall the Employee
directly or indirectly, disparage the commercial, business or financial
reputation of the Company.
(b) In consideration of Employer's hiring Employee, the payment by the
Employer to the Employee as described below and for other good and valuable
consideration, the Employee hereby agrees that he shall not, during the period
of his employment and for a period of one (1) year following such employment,
directly or indirectly, within any county (or adjacent county) in any State
within the United States or territory outside the United States in which the
Company is engaged in business during the period of the Employee's employment or
on the date of termination of the Employee's employment, engage, have an
interest in or render any services to any business (whether as owner, manager,
operator, licensor, licensee, lender, partner, stockholder, joint venturer,
employee, consultant or otherwise) competitive with the Company's business
activities. The Employee hereby further agrees that he shall not, during the
period of his employment and for a period of one (1) year following such
employment, directly or indirectly, take any action which constitutes an
interference with or a disruption of any of the Company's business activities
including, without limitation, the solicitations of the Company's customers,
employees or agents. If Employee is terminated by the Board pursuant to Section
6(c) hereof, Employer shall pay to Employee on the date of such termination an
amount equal to four full months of the Employee's annual salary in effect at
the time of termination. However, if the Employee resigns or is terminated
pursuant to Sections 6(a) and 6(b) hereof, the Employee shall not be entitled to
such payment.
(c) For purposes of clarification, but not of limitation, the Employee
hereby acknowledges and agrees that the provisions of subparagraphs 7(b) above
shall serve as a prohibition against him, during the period referred to therein,
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<PAGE>
directly or indirectly, hiring, offering to hire, enticing, soliciting or in any
other manner persuading or attempting to persuade any officer, employee, agent,
lessor, lessee, licensor, licensee or customer who has been previously contacted
by either a representative of the Company, including the Employee, (but only
those suppliers existing during the time of the Employee's employment by the
Company, or at the termination of his employment), to discontinue or alter his,
her or its relationship with the Company.
(d) Upon the termination of the Employee's employment for any reason
whatsoever, all documents, records, notebooks, equipment, price lists,
specifications, programs, customer and prospective customer lists and other
materials which refer or relate to any aspect of the business of the Company
which are in the possession or under the control of the Employee including all
copies thereof, shall be promptly returned to the Company.
(e) (i) The Employee agrees that all processes, technologies and inventions
("Inventions"), including new contributions, improvements, ideas and
discoveries, whether patentable or not, conceived, developed, invented or made
by him during his employment by Employer shall belong to the Company, provided
that such Inventions grew out of the Employee's work with the Company or are
related in any manner to the business (commercial or experimental) of the
Company or are conceived or made on the Company's time or with the use of the
Company's facilities or materials. The Employee shall further: (a) promptly
disclose such Inventions to the Company; (b) assign to the Company, without
additional compensation, all patent and other rights to such Inventions for the
United States and foreign countries; (c) sign all papers necessary to carry out
the foregoing; and (d) give testimony in support of his inventorship;
(ii) If any Invention is described in a patent application or is
disclosed to third parties, directly or indirectly, by the Employee within
two years after the termination of his employment by the Company, it is to
be presumed that the Invention was conceived or made during the period of
the Employee's employment by the Company; and
(iii) The Employee agrees that he will not assert any rights to any
Invention as having been made or acquired by him prior to the date of this
Agreement, except for Inventions, if any, disclosed to the Company in
writing prior to the date hereof.
(f) The Company shall be the sole owner of all products and proceeds of the
Employee's services hereunder, including, but not limited to, all materials,
ideas, concepts, formats, suggestions, developments, arrangements, packages,
programs and other intellectual properties that the Employee may
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<PAGE>
acquire, obtain, develop or create in connection with and during the term of the
Employee's employment hereunder, free and clear of any claims by the Employee
(or anyone claiming under the Employee) of any kind or character whatsoever
(other than the Employee's right to receive payments hereunder). The Employee
shall, at the request of the Company, execute such assignments, certificates or
other instruments as the Company may from time to time deem necessary or
desirable to evidence, establish, maintain, perfect, protect, enforce or defend
its right, or title and interest in or to any such properties.
(g) The parties hereto hereby acknowledge and agree that (i) the Company
would be irreparably injured in the event of a breach by the Employee of any of
his obligations under this Section 7, (ii) monetary damages would not be an
adequate remedy for any such breach, and (iii) the Company shall be entitled to
injunctive relief, in addition to any other remedy which it may have, in the
event of any such breach.
(h) The parties hereto hereby acknowledge that, in addition to any other
remedies the Company may have under Section 7(g) hereof, the Company shall have
the right and remedy to require the Employee to account for and pay over to the
Company all compensation, profits, monies, accruals, increments or other
benefits (collectively, "Benefits") derived or received by the Employee as the
result of any transactions constituting a breach of any of the provisions of
Section 7, and the Employee hereby agrees to account for any pay over such
Benefits to the Company.
(i) Each of the rights and remedies enumerated in Section 7(g) and 7(h)
shall be independent of the other, and shall be severally enforceable, and all
of such rights and remedies shall be in addition to, and not in lieu of, any
other rights and remedies available to the Company under law or in equity.
(j) If any provision contained in this Section 7 is hereafter construed to
be invalid or unenforceable, the same shall not affect the remainder of the
covenant or covenants, which shall be given full effect, without regard to the
invalid portions.
(k) If any provision contained in this Section 7 is found to be
unenforceable by reason of the extent, duration or scope thereof, or otherwise,
then the court making such determination shall have the right to reduce such
extent, duration, scope or other provision and in its reduced form any such
restriction shall thereafter be enforceable as contemplated hereby.
(1) It is the intent of the parties hereto that the covenants contained in
this Section 7 shall be enforced to
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<PAGE>
the fullest extent permissible under the laws and public policies of each
jurisdiction in which enforcement is sought (the Employee hereby acknowledging
that said restrictions are reasonably necessary for the protection of the
Company). Accordingly, it is hereby agreed that if any of the provisions of this
Section 7 shall be adjudicated to be invalid or unenforceable for any reason
whatsoever, said provision shall be (only with respect to the operation thereof
in the particular jurisdiction in which such adjudication is made) construed by
limiting and reducing it so as to be enforceable to the extent permissible,
without invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of said provision in any other jurisdiction.
8. Board of Directors. The Company will, during the term of this Agreement,
recommend and use its reasonable best efforts to have the Employee elected as a
member of the Board.
9. General. This Agreement is further governed by the following provisions:
(a) Notices. All notices relating to this Agreement shall be in
writing and shall be either personally delivered, sent by telecopy (receipt
confirmed) or mailed by certified mail, return receipt requested, to be
delivered at such address as is indicated below, or at such other address
or to the attention of such other person as the recipient has specified by
prior written notice to the sending party. Notice shall be effective when
so personally delivered, one business day after being sent by telecopy or
five days after being mailed.
To the Employer:
Intellicell Corp.
6929 Hayvenhurst Avenue
Van Nuys, California 91406
Attention: Ben Neman
To the Employee:
James E. Bunting
775 San Rafael Terrace
Pasadena, California 91105
With, in either case, a copy in the same manner to:
Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
Attention: Robert J. Mittman, Esq.
(b) Parties in Interest. Employee may not delegate his duties or
assign his rights hereunder. This
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<PAGE>
Agreement shall inure to the benefit of, and be binding upon, the parties
hereto and their respective heirs, legal representatives, successors and
permitted assigns.
(c) Entire Agreement. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties hereto with
respect to the employment of the Employee by the Employer and contains all
of the covenants and agreements between the parties with respect to such
employment in any manner whatsoever. Any modification or termination of
this Agreement will be effective only if it is in writing signed by the
party to be charged.
(d) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California. Employee agrees to
and hereby does submit to jurisdiction before any state or federal court of
record in Los Angeles County, California, or in the state and county in
which such violation may occur, at Employer's election.
(e) Warranty. Employee hereby warrants and represents as follows:
(i) That the execution of this Agreement and the discharge of
Employee's obligations hereunder will not breach or conflict with any
other contract, agreement, or understanding between Employee and any
other party or parties.
(ii) Employee has ideas, information and know-how relating to the
type of business conducted by Employer, and Employee's disclosure of
such ideas, information and know-how to Employer will not conflict
with or violate the rights of any third party or parties.
(f) Severability. In the event that any term or condition in this
Agreement shall for any reason be held by a court of competent jurisdiction
to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other term or condition
of this Agreement, but this Agreement shall be construed as if such invalid
or illegal or unenforceable term or condition had never been contained
herein.
(g) Execution in Counterparts. This Agreement may be executed by the
parties in one or more counterparts, each of which shall be deemed to be an
original but all of which taken together shall constitute one and the same
agreement, and shall become effective when one or more counterparts has
been signed by each of the parties hereto and delivered to each of the
other parties hereto.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
CELLULAR TELECOM CORPORATION D/B/A
INTELLICELL CORP.
By: ____________________________________
Name: Ben Neman, President
____________________________________
JAMES E. BUNTING
<PAGE>
MONTHLY RENTAL AGREEMENT
THIS LEASE is made on the 28 day of July 1995
The Landlord hereby agrees to lease to the Tenant' and the Tenant hereby agrees
to hire and take from the Landlord, the Leased Premises described below pursuant
to the terms and conditions specified herein:
LANDLORD: California Cosmetics TENANT(S): Cellular Telecom Cord Addre5523 901
Address: Calabasas Rd #2068 Address 15366 Dickens St
Calabasas, CA 91302 Sherman Oaks, CA 91403
1. Leased Premises. The Leased Premises are those described as: 6929 Havvenhurst
Ave, Van Nuys CA. 91406
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2. Term, Term of the Lease shall be a month-to-month tenancy commencing on the 1
day of August 1995.
3. Termination. Either Landlord or Tenant may Terminate the Lease at any time
by giving the other party at least 3 full month's prior written notice.
4. Rent. The monthly rental mnount for the Leased Premises is $6,136 per month.
The rent payment must be paid on the first day of the month at the Landlord's
address listed above. The first month's rent is to be paid when Tenant signs
this lease. Landlord need not give notice to Tenant regarding Tenant's
obligation to pay rent.
5. Security Deposit. The Tenant shall make a security deposit of $6,136 to
Landlord in order to ensure that Tenant complies with all terms and conditions
of the Lease. If Tenant fully complies, landlord will return the security
deposit within 1 week(s) after the date Tenant delivers possession of the
Premises to Landlord. If Tenant does not fully comply with the terms of the
Lease, Landlord may use the security to pay amounts owed by Tenant, including
damages.
6. Occupants. The Leased Premises shall be on occupied by the following persons
only:
Cellular Telecom Corp.
7. Repairs. Tenant must take good care of the Leased Premises and all equipment
and fixtures contained [herein. Tenant is liable for damages caused by his acts
or neglect and any acts and neglect of his family, invitees or guests. Tenant
must make Marc all repairs and replacements when it results from an act of
negligence. If Tenant fails to make as needed repairs or replacement, Landlord
may do it and add the expenses to he rent.
8. Alterations. Tenant must obtain landlord's prior written consent to paint or
wallpaper the demised Premises or to install any paneling, flooring, partitions,
railings or make any other alterations. Tenant must not change the plumbing,
ventilation, air-conditioning, heating or electric systems. All the alterations,
installtions or improvements shall become property of Landlord when completed
and paid for, and shall be surrendered as part of the leased Premises at the ene
of the term Landlord is not required to pay for any of the work performed under
this section unless he has agreed to pay as indicted in his prior written
consent.
9. Maintenance of Leased Premises. Tenant shall maintain the premises in a
cleand and sanitary condition at all times. At the end of teh Term, Tenenat will
leave the Leased Premiese cleand and in good condition, subject to ordinary wear
and tear. Tenant shall remove all Tenant's belongings.
10. Assignment/Subletting Restrictions. Tenant may not assign this agreement or
sublet the Leased Premises without the prior written consent of the Landlord.
11. Utilities/Services. Tenant is responsible for the payment of all utilities
and services, except for the following: which shall be paid by Landlord.
<PAGE>
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12. Landlords Right to Enter. Landlord may, at reasonable times, enter the
Leased Premises to inspect it, to make repairs or alterations, and to show it
to potential buyers, lenders or tenants.
13. Pets. Tenant may not bring or keep pets in the Leased Premises without the
prior written consent of the Landlord.
14. Laws and Regulations. Tenant must, at Tenant's expense comply with all laws,
regulations, requirements of all municipal, state and federal authorities during
the term of the lease agreement, pertaining to the use of the premises. Tenat
must not do anything that inceases the Landlord's insurance premiums.
15. Default/Abandonment. If Tenant defaults in the payment of rent or any
other term or condition of this Lease, Landlaord
may give Tenant written
notice to cure such default. If Tenant fails to cure such default within 15 days
of receiving notice, Landlord may elect to terminate the Lease, re-enter the
Leased Premises and remove the Tenant, all other occupants and their
possessions.
If Tenant abandons or vacates the Leased Premises during the Term of this Lease,
Landlord may elect to re-enter the premises without liability for prosecution or
owing damages to Tenant, and, at his option, relet the Leased Premises. If the
landlord opts not lo relet the Leased Premises, Tenant shall be liable for the
remainder of the rent due under the Lease until its expiration. If the Landlord
relets the Leased Premises but is unable to relet the Leased Premises for such
rent as would have been paid by Tenant during the period between Tenant's
abandonment and the end of the term, Tenenat shall be liable to Landlord for the
difference. Landlord may also dispose of any property left by Tenant after
abandonment without liability and apply the proceeds to reduce such difference.
16. Legal Fees. The successful party in any legal action or proceeding between
Landlord and Tenant relating to the non-payment of rent or recovery of
possession of the Leased Premises, may, if legally available recover legal fees
and costs from the unsuccessful party.
17. Binding Obligations. This lease agreement is binding on the Landlord and
Tenant and those that lawfully succeeed to their rights or take their place.
Tenant and Landlord have both read this lease and all promises made by the
parties are contained in this lease.
[LOGO]
REDIFORM 10255
(c) Copyright Rediform 1993 [BAR CODE]
77925 10255
<PAGE>
18. Addtional Terms And Conditions Agreed To By Both Parties:
1. This lease is good and valid for a minimum of one year and maximum of
the length of the whol original lease.
2. This lease will be for August 1, 1995 to August 1, 1996.
This lease is effective when Landlord delivers a copy signed by all parties to
the Tenant. Parties have signed this agreement in duplicate the day and year
written above.
/s/
-----------------------------------------
(Landlord)
/s/
-----------------------------------------
(Tenant)
-----------------------------------------
(Tenant)
-----------------------------------------
(Tenant)
Read the instructions and other important information on the package. When using
this form you will be acting as your own attorney since Rediform, its advisors
and retailers do not render legal advice or services. Rediform, its advisors and
retailers assume no liability for loss or damage resulting from the use of this
form.
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REDIFORM. 10255
--------
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MONTHLY RENTAL
AGREEMENT
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LANDLORD
TENANT
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DATED:
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<PAGE>
CELLULAR TELECOM CORPORATION d/b/a INTELLICELL CORP.
LOAN AND SECURITY AGREEMENT
This Agreement is between the undersigned Borrower and the undersigned
Lender concerning loans and other credit accommodations to be made by Lender to
Borrower.
SECTION 1. PARTIES
1.1 The "Borrower" is the person, firm, corporation or other entity,
identified as the Borrower in Section 10.6(c) and its successors and assigns. If
more than one Borrower is specified in Section 10.6(c), all references to
Borrower shall mean each of them, jointly and severally, individually and
collectively, and the successors and assigns of each.
1.2 The "Lender" is The CIT Group/Credit Finance, Inc. and its successors
and assigns. SECTION 2. LOANS AND OTHER CREDIT ACCOMMODATIONS
SECTION 2. LOANS AND OTHER CREDIT ACCOMODATIONS
2.1 Revolving Loans. Lender shall, subject to the terms and conditions
contained herein, make revolving loans to Borrower ("Revolving Loans") in
amounts requested by Borrower from time to time, but not in excess of the Net
Availability existing immediately prior to the making of the requested loan and
provided the requested loan would not cause the outstanding Obligations to
exceed the Maximum Credit.
(a) The "Maximum Credit" is set forth in Section 10.1(a) hereof.
(b) The "Gross Availability" shall be calculated at any time as the
product obtained by multiplying the outstanding amount of Eligible Accounts, net
of all taxes, discounts, allowances and credits given or claimed, by the
Eligible Accounts Percentage set forth in Section 10.1(b) (subject to the
sublimits on availability relating to certain Eligible Accounts, as more fully
set forth in Section lO.l(d)),
plus: the product(s) obtained by multiplying the applicable
Eligible Inventory Percentage(s), if any, set forth in Section
10.1(b) by the values (as determined by Lender based on the lower
of cost or market) of Eligible Inventory, but the amount so added
shall not exceed any sub-limits set forth in Section lO.l(c),
minus: any Reserves.
<PAGE>
(c) The "Net Availability" shall be calculated at any time as an
amount equal to the Gross Availability minus the aggregate amount of all
then-outstanding Obligations to Lender other than the then outstanding principal
balance of the Term Loan, if any.
(d) "Eligible Accounts" are accounts created by Borrower in the
ordinary course of its business which are and remain acceptable to Lender for
lending purposes. General criteria for Eligible Accounts are set forth below but
may be revised from time to time by Lender, in its sole judgment, on fifteen
(15) days' prior written notice to Borrower. Lender shall, in general, except as
otherwise set forth elsewhere in this Agreement, deem accounts to be Eligible
Accounts if: (1) such accounts arise from bona fide completed transactions and
have not remained unpaid for more than the number of days after the invoice date
and otherwise satisfy the criteria set forth in Section 10.1(d); (2) the amounts
of the accounts reported to Lender are absolutely owing to Borrower and do not
arise from sales on consignment, guaranteed sale or other terms under which
payment by the account debtors may be conditional or contingent; (3) the account
debtor's chief executive office or principal place of business is located in the
United States or Canada (excluding Quebec), or if the account debtor's chief
executive office or principal place of business is located other than in the
United States or Canada (excluding Quebec), such accounts are secured by a
letter of credit issued or confirmed by a domestic bank acceptable to Lender,
containing terms and conditions acceptable to Lender and Lender has physical
possession of the original letter of credit and Lender has a perfected lien upon
and security interest in the proceeds of such letter of credit; (4) such
accounts do not arise from progress billings or retainages or bill and hold
sales; (5) there are no contra relationships (other than in respect of account
debtors that have submitted no-offset letters to Lender which have been accepted
or approved by Lender), setoffs, counterclaims or disputes (other than usual and
customary discounts offered by Borrower to its customers for prompt payment not
exceeding two percent (2%) of the invoice amount, in the ordinary course of
business, which are set forth on the invoice issued by Borrower) existing with
respect thereto and there are no other facts existing or threatened which would
impair or delay the collectibility of all or any portion thereof; (6) the goods
giving rise thereto were not at the time of the sale subject to any liens except
those permitted in this Agreement; (7) such accounts are not accounts with
respect to which the account debtor or any officer or employee thereof is an
officer, employee or agent of or is affiliated with Borrower, directly or
indirectly, whether by virtue of family membership, ownership, control,
management or otherwise; (8) such accounts are not accounts with respect to
which the account debtor is the United States or any State or political
subdivision thereof or any department, agency or
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<PAGE>
instrumentality of the United States, any State or political subdivision, unless
there has been compliance with the Assignment of Claims Act or any similar State
or local law, if applicable; (9) Borrower has delivered to Lender or Lender's
representative such original documents as Lender may have requested pursuant to
Section 5.8 hereof in connection with such accounts and Lender shall have
received a verification of such account, satisfactory to it, if sent to the
account debtor or any other obligor or any bailee pursuant to Section 5.4
hereof; (10) there are no facts existing or threatened and known to Borrower or
Lender which might result in any material adverse change in the account debtor's
financial condition; (11) such accounts owed by a single account debtor or its
affiliates, other than Downtown Cellular Corp., do not represent more than
twenty (20%) percent of all otherwise Eligible Accounts (accounts excluded from
Eligible Accounts solely by reason of this subsection (11) shall nevertheless be
considered Eligible Accounts to the extent of the amount of such accounts which
does not exceed twenty (20%) percent of all otherwise Eligible Accounts); (12)
such accounts are not owed by an account debtor who is or whose affiliates are
past due upon other accounts owed to Borrower comprising more than fifty (50%)
percent of the accounts of such account debtor or its affiliates owed to
Borrower; (13) such accounts are owed by account debtors whose total
indebtedness to Borrower does not exceed the amount of any customer credit
limits as established, and changed, from time to time by Lender on notice to
Borrower (accounts excluded from Eligible Accounts solely by reason of this
subsection (13) shall nevertheless be considered Eligible Accounts to the extent
the amount of such accounts does not exceed such customer credit limit); (14)
such accounts are owed by account debtors deemed credit-worthy at all times by
Lender.
(e) "Eligible Inventory" is inventory 100% owned by Borrower which is
and remains acceptable to Lender, in Lender's sole discretion, for lending
purposes, is located at one of the addresses set forth in Section 10.6(e), and
meets all of the general criteria for Eligible Inventory set forth below, which
criteria may be revised from time to time by Lender, in its sole discretion, on
fifteen (15) days' prior written notice to Borrower:
(i) Such inventory has been purchased and received by Borrower,
and is held by Borrower free and clear of all liens and claims whatever except
the lien of Lender and Permitted Liens (defined below), except that inventory
which is in-transit to Borrower and which would otherwise qualify as Eligible
Inventory will so qualify provided that (a) it is backed by a letter of credit
issued through Lender or paid for in full in advance by Borrower, (b) Lender is
satisfied that title has passed to Borrower, and (c) Borrower has prepaid all
applicable freight charges;
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<PAGE>
(ii) Such inventory is in merchantable condition, not obsolete or
slow-moving, not defective, and is usable for the purposes for which it has been
purchased, held and processed;
(iii) Such inventory has not been returned by any purchaser as
the subject of any defense or claim on the basis that it is defective or not
merchantable or fit for the purposes for which sold;
(iv) Borrower continues to hold the inventory for sale in the
ordinary course of business, with the reasonable expectation that it will be
sold;
(v) Such inventory has not been shipped (whether or not an
account receivable has arisen), and has not been sold or delivered under any
contract or in any transaction which, as of any date of reference, has given
rise to an account, contract right or general intangible in the hands of
Borrower;
(vi) Such inventory is not held for sale to any affiliate of
Borrower;
(vii) Such inventory is not located in a country other than the
United States.
(viii) Such inventory is not located or warehoused in a location
where Borrower has not obtained a landlord's, mortgagee's or bailee's waiver, as
the case may be, in form and substance satisfactory to, and in favor of, Lender.
(f) In addition to the $750,000.00 reserve against Gross Availability
deducted by Lender on the date hereof as a dilution reserve ("Dilution
Reserve"), Lender shall have a continuing right to deduct reserves in
determining the Gross Availability (collectively "Reserves"), and to increase
and decrease such Reserves from time to time, if and to the extent that, in
Lender's sole judgement, such Reserves are necessary to protect Lender against
any state of facts which does, or would, with notice or passage of time or both,
constitute an Event of Default or have an adverse effect on any Collateral.
Lender may, at its option, implement Reserves by designating as ineligible a
sufficient amount of accounts or inventory which would otherwise be Eligible
Accounts or Eligible Inventory so as to reduce Gross Availability by the amount
of the intended Reserve.
(g) Subject to the terms and conditions hereof, including but not
limited to the existence of sufficient Gross and Net Availability, Borrower
agrees to borrow amounts from time to time such that the outstanding Revolving
Loans shall at all times equal or exceed the principal amount set forth in
Section lO.l(e) as the Minimum Borrowing. Borrower covenants, represents
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<PAGE>
and warrants to Lender that it will maintain Gross and Net Availability at
all times in amounts sufficient to permit Borrower to comply with the
Minimum Borrowing requirement.
2.2 Term Loan. The amount of any term loan being made by Lender to Borrower
is set forth in Section 10.2 ("Term Loan"). Such Term Loan shall be evidenced
by a promissory note (the "Promissory Note") delivered by Borrower to Lender
and shall be repaid, together with interest and other amounts, in accordance
with this Agreement and the Promissory Note.
2.3 Accommodations.
(a) Lender may, in its sole discretion, issue or cause to be issued,
from time to time at Borrower's request and on terms and conditions and for
purposes satisfactory to Lender, credit accommodations consisting of letters of
credit, bankers' acceptances, merchandise purchase guaranties or other
guaranties or indemnities for Borrower's account ("Accommodations"). Borrower
shall execute and perform additional agreements relating to the Accommodations
in form and substance acceptable to Lender and the issuer of any Accommodations,
all of which shall supplement the rights and remedies granted herein. Any
payments made by Lender or any affiliate of Lender in connection with the
Accommodations shall constitute additional Revolving Loans to Borrower.
(b) In addition to the fees and costs of any issuer in connection with
issuing or administering Accommodations, Borrower shall pay monthly to Lender,
on the first day of each month, a charge on open Accommodations at the rate per
annum set forth in Section 10.3(a) (the "Accommodation Charges").
(c) No Accommodation will be issued unless the full amount of the
Accommodation requested, plus fees and costs for issuance, is less than the Net
Availability existing immediately prior to the issuance of the requested
Accommodation, or if the requested Accommodation would cause the outstanding
Obligations to exceed the Maximum Credit, or cause the open amount of
Accommodations to exceed, at any time, the Accommodation sublimit set forth in
Section 10.3(b).
(d) All indebtedness, liabilities and obligations of any sort
whatsoever, however arising, whether present or future, fixed or contingent,
secured or unsecured, due or to become due, paid or incurred, arising or
incurred in connection with any Accommodation shall be included in the term
"Obligations", as defined herein, and shall include, without limitation, (i) all
amounts due or which may become due under any Accommodation; (ii) all amounts
charged or chargeable to Borrower or to Lender by any bank, other financial
institution or correspondent bank which opens, issues or is involved with such
Accommodations; (iii)
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<PAGE>
Lender's Accommodation Charges and all fees, costs and other charges of any
issuer of any Accommodation; and (iv) all duties, freight, taxes, costs,
insurance and all such other charges and expenses which may pertain directly or
indirectly to any Obligations or Accommodations or to the goods or documents
relating thereto.
(e) Borrower unconditionally agrees to indemnify and hold Lender
harmless from any and all loss, claim or liability (including reasonable
attorneys' fees) arising from any transactions or occurrences relating to any
Accommodation established or opened for Borrower's account, the Collateral
relating thereto and any drafts or acceptances thereunder, including any such
loss or claim due to any action taken by an issuer of any Accommodation.
Borrower further agrees to indemnify and hold Lender harmless for any errors or
omissions in connection with the Accommodations, whether caused by Lender, by
the issuer of any Accommodation or otherwise. Borrower's unconditional
obligation to indemnify and hold Lender harmless under this provision shall not
be modified or diminished for any reason or in any manner whatsoever, except for
Lender's wilful misconduct or gross negligence. Borrower agrees that any charges
made to Lender by any issuer of any Accommodation shall be conclusive on
Borrower and may be charged to Borrower's account.
(f) Lender shall not be responsible for: the conformity of any goods
to the documents presented; the validity or genuineness of any documents; delay,
default, or fraud by the Borrower or shipper and/or anyone else in connection
with the Accommodations or any underlying transaction.
(g) Borrower agrees that any action taken by Lender, if taken in good
faith, or any action taken by an issuer of any Accommodation, under or in
connection with any Accommodation, shall be binding on Borrower and shall not
create any resulting liability to Lender. In furtherance thereof, Lender shall
have the full right and authority to clear and resolve any questions of
non-compliance of documents; to give any instructions as to acceptance or
rejection of any documents or goods; to execute for Borrower's account any and
all applications for steamship or airway guarantees, indemnities or delivery
orders; to grant any extensions of the maturity of, time of payment for, or time
of presentation of, any drafts, acceptances, or documents; and to agree to any
amendments, renewals, extensions, modifications, changes or cancellations of any
of the terms or conditions of any of the applications or Accommodations. All of
the foregoing actions may be taken in Lender's sole name, and the issuer thereof
shall be entitled to comply with and honor any and all such documents or
instruments executed by or received solely from Lender, all without any notice
to or any consent from Borrower. None of the foregoing actions described in this
subsection (g)
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may be taken by Borrower without Lender's express written consent.
2.4 Certain Amounts Due on Demand. Lender may, in its sole discretion, make
or permit Revolving Loans, Accommodations or other Obligations in excess of the
Maximum Credit, Gross or Net Availability or applicable formulas or sub-limits.
All or any portion of such excess(es) shall become immediately due and payable,
upon Lender's demand.
2.5 Consent to Loan Participation. Borrower consents to any sale now or
hereafter made by Lender of an interest or interests (a "Participation
Interest") in the loans and Obligations evidenced by this Agreement and any
other agreements contemplated hereby or ancillary hereto, to any persons or
entities (even though not identified herein) which have or may hereafter
purchase a Participation Interest (a "Participating Lender") and to any
repurchase by Lender of any such Participation Interest. Borrower acknowledges
and agrees that, subject to and as provided by the terms of a participation
agreement between Lender and the Participating Lender(s), the Participating
Lender(s) (i) shall be considered as the absolute owner(s) of the Participation
Interest(s), and Lender shall act on behalf of the Participating Lender(s) as
agent ("Agent") in the servicing of the loans evidenced hereby, (ii) shall, with
respect to its participation, be entitled to all of the rights of Lender and
(iii) may exercise any and all rights of setoff or banker's lien (if available
under applicable law) with respect thereto, in each case as fully as though
Borrower were directly indebted to the Participating Lender(s) in the amount of
the Participation Interest. Lender may disclose to prospective participants such
information regarding Borrower's affairs as Lender possesses from time to time.
Lender shall not be required to give notice to Borrower of the grant of such
Participation Interest(s). Lender shall use its reasonable best efforts to
maintain confidential and to have prospective participants maintain
confidential, all information provided to it by Borrower, relating to Borrower
and Borrower's customers and suppliers, other than information concerning any of
the foregoing which is available in the public domain, and except for any
disclosure by Lender otherwise required (and then only to the extent required)
by law or in connection with any claims or controversies between Lender and
Borrower.
SECTION 3. INTEREST AND FEES
3.1 (a) Interest on the Revolving Loans shall be payable by Borrower on the
first day of each month, calculated upon the closing daily balances in the loan
account of Borrower for each day during the immediately preceding month, at the
per annum rate set forth as the Interest Rate in Section 10.4(a). The Interest
Rate shall increase or decrease by an amount equal to each
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increase or decrease, respectively, in the Prime Rate, effective as of the date
of each such change. On and after any Event of Default or termination or
non-renewal hereof, interest on all unpaid matured Obligations shall accrue at a
rate equal to two percent (2%) per annum in excess of the Interest Rate
otherwise payable until such time as all Obligations are indefeasibly paid in
full (notwithstanding entry of any judgment against Borrower or the exercise of
any other right or remedy by Lender), and all such interest shall be payable on
demand. In no event shall charges constituting interest exceed the rate
permitted under any applicable law or regulation, and if any provision of this
Agreement is in contravention of any such law or regulation, such provision
shall be deemed amended to conform thereto.
(b) The "Prime Rate" is the rate of interest publicly announced by
Chemical Bank (or its successor) in New York, New York, from time to time as its
prime rate (the Prime Rate is not intended to be the lowest rate of interest
charged by Chemical Bank to its borrowers).
3.2 (a) Borrower shall pay Lender a Facility Fee in the amount set forth in
Section 10.4(b), which fee constitutes a part of the Obligations and shall be
earned and payable as set forth in Section 10.4(b) below.
(b) Borrower, shall also pay to Lender a facility fee for each year of
any renewal Term equal to one-half of one percent (.5%) of the Maximum Credit,
which fee will be earned and payable on the first day of each year of any
renewal Term.
3.3 Borrower shall pay Lender monthly, on the first day of each month
during the initial and each renewal Term an Account Servicing Fee for the
immediately preceding month (or part thereof) in the amount set forth in Section
10.4(c).
3.4 Borrower shall pay Lender monthly, on the first day of each month, in
arrears, an Unused Line Fee for each month during the initial and each renewal
Term at the rate per annum set forth in Section 10.4(d), calculated upon the
amount, if any, by which the Maximum Credit exceeds the average outstanding
daily principal balance during the preceding month of all Revolving Loans,
Accommodations and any Term Loan.
3.5 At Lender's option, all principal, interest, fees, costs, expenses and
other charges provided for in this Agreement, or in any other agreement now or
hereafter existing between Lender and Borrower, may be charged to any loan
account of Borrower maintained by Lender. Interest, fees for Accommodations, the
Unused Line Fee and any other amounts payable by Borrower to Lender based on a
per annum rate shall be calculated on the basis of actual days elapsed over a
360-day year.
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SECTION 4. GRANT OF SECURITY INTEREST
4.1 To secure the payment and performance in full of all Obligations,
Borrower hereby grants to Lender a continuing security interest in and lien
upon, and a right of setoff against, and Borrower hereby assigns and pledges to
Lender, all of the Collateral, including any Collateral not deemed eligible for
lending purposes.
4.2 "Obligations" shall mean any and all Revolving Loans, Term Loans,
Accommodations and all other indebtedness, liabilities and obligations of every
kind, nature and description owing by Borrower to Lender and/or its affiliates,
including principal, interest, charges, fees and expenses, however evidenced,
whether as principal, surety, endorser, guarantor or otherwise, whether arising
under this Agreement or otherwise, whether now existing or hereafter arising,
whether arising before, during or after the initial or any renewal Term or after
the commencement of any case with respect to Borrower under the United States
Bankruptcy Code or any similar statute, whether direct or indirect, absolute or
contingent, joint or several, due or not due, primary or secondary, liquidated
or unliquidated, secured or unsecured, original, renewed or extended and whether
arising directly or howsoever acquired by Lender including from any other entity
outright, conditionally or as collateral security, by assignment, merger with
any other entity, participations or interests of Lender in the obligations of
Borrower to others, assumption, operation of law, subrogation or otherwise and
shall also include all amounts chargeable to Borrower under this Agreement or in
connection with any of the foregoing.
4.3 "Collateral" shall mean all of the following property of Borrower:
All now owned and hereafter acquired right, title and interest of Borrower
in, to and in respect of all: accounts, interests in goods represented by
accounts, returned, reclaimed or repossessed goods with respect thereto and
rights as an unpaid vendor; contract rights; chattel paper; investment property,
general intangibles (including, but not limited to, tax and duty claims and
refunds, registered and unregistered patents, trademarks, service marks,
copyrights, trade names, applications for the foregoing, trade secrets,
goodwill, processes, drawings, blueprints, customer lists, licenses, whether as
licensor or licensee, choses in action and other claims, and existing and future
leasehold interests in equipment, real estate and fixtures); documents;
instruments; letters of credit, bankers' acceptances or guaranties; cash monies,
deposits, securities, bank accounts, deposit accounts, credits and other
property now or hereafter held in any capacity by Lender, its affiliates or any
entity which, at any time, participates in Lender's financing of Borrower or at
any other depository or other institution;
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agreements or property securing or relating to any of the items referred to
above;
All now owned and hereafter acquired right, title and interest of Borrower
in, to and in respect of goods, including, but not limited to:
All inventory, wherever located, whether now owned or hereafter acquired,
of whatever kind, nature or description, including all raw materials,
work-in process, finished goods, and materials to be used or consumed in
Borrower's business; and all names or marks affixed to or to be affixed
thereto for purposes of selling same by the seller, manufacturer, lessor or
licensor thereof and all inventory which may be returned to Borrower by its
customers or repossessed by Borrower and all of Borrower's right, title and
interest in and to the foregoing (including all of Borrower's rights as a
seller of goods);
All equipment and fixtures, wherever located, whether now owned or
hereafter acquired, including, without limitation, all machinery,
equipment, motor vehicles, furniture and fixtures, and any and all
additions, substitutions, replacements (including spare parts), and
accessions thereof and thereto (including, but not limited to Borrower's
rights to acquire any of the foregoing, whether by exercise of a purchase
option or otherwise);
All consumer goods, farm products, crops, timber, minerals or the like
(including oil and gas), wherever located, whether now owned or hereafter
acquired, of whatever kind, nature or description;
All now owned and hereafter acquired right, title and interests of Borrower
in, to and in respect of any real or other personal property in or upon which
Lender has or may hereafter have a security interest, lien or right of setoff;
All present and future books and records relating to any of the above
including, without limitation, all computer programs, printed output and
computer readable data in the possession or control of the Borrower, any
computer service bureau or other third party;
All products and proceeds of the foregoing in whatever form and wherever
located, including, without limitation, all insurance proceeds and all claims
against third parties for loss or destruction of or damage to any of the
foregoing.
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4.4 As additional security for the timely payment and performance in full
of the Obligations, contemporaneously with the execution and delivery by
Borrower of this Agreement:
(i) Ben Neman ("Guarantor") shall execute and deliver to Lender a
guaranty and suretyship agreement in form satisfactory to Lender (the
"Guaranty").
SECTION 5. COLLECTION AND ADMINISTRATION
5.1 Borrower is authorized to collect the accounts and any other proceeds
of Collateral on behalf of and in trust for Lender, at Borrower's expense, but
such authority shall automatically terminate upon an Event of Default. Lender
may modify or terminate such authority at any time whether or not an Event of
Default has occurred and directly collect the accounts and other monetary
obligations included in the Collateral; provided however that Lender shall
provide Borrower with copies of correspondence to account debtors of Borrower by
which Lender requests or demands that future payments due to Borrower be paid
directly to Lender and copies of checks and remittance advices received by
Lender from such account debtors. Borrower shall, at Borrower's expense and in
the manner requested by Lender from time to time, direct that remittances and
all other proceeds of accounts and other Collateral shall be (a) sent to a post
office box designated by and/or in the name of Lender, or in the name of
Borrower, but as to which access is limited to Lender and/or (b) deposited into
a bank account maintained in the name of Lender and/or a blocked bank account
under arrangements with the depository bank under which all funds deposited to
such blocked bank account are required to be transferred solely to Lender. In
connection therewith, Borrower shall execute such post office box, lock box,
and/or blocked bank account agreements as Lender shall specify. Notwithstanding
anything herein to the contrary, upon at least three (3) business days prior
written notice to Lender, and so long as at the time of such notice there are no
Obligations outstanding and no Event of Default has occurred or is continuing,
Borrower may advise Lender to remit proceeds from the lock box directly to
Borrower's operating account instead of to Lender's collateral proceeds account.
Borrower acknowledges that during such period of time while proceeds are
deposited from the lock box to Borrower's operating account, Borrower will not
be permitted to borrow money from or have Accommodations issued through Lender.
Borrower shall give Lender at least fifteen (15) calendar days prior written
notice of its desire to reinstitute the deposit of proceeds from the lock box to
Lender's collateral proceeds account. Upon receipt of such notice, Lender
reserves the right to conduct a field examination. At the end of such fifteen
(15) calendar day period, so long as Borrower is otherwise in compliance with
its obligations under this Agreement, and so long as proceeds from the lock box
are again being deposited to Lender's collateral proceeds account, Borrower
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shall again be permitted to borrow money from and have Accommodations issued
through Lender, pursuant to the terms and conditions of this Agreement.
5.2 All Obligations shall be payable at Lender's office set forth below or
at Lender's bank designated in Section 10.6(b) or at such other bank or place as
Lender may expressly designate from time to time for purposes of this Section.
Lender shall apply all proceeds of accounts or other Collateral received by
Lender and all other payments in respect of the Obligations to the Revolving
Loans whether or not then due or to any other Obligations then due, in whatever
order or manner Lender shall determine; provided however, that Borrower shall be
obligated to deposit to Lender's collateral proceeds account only that portion
of the net proceeds received by Borrower from its initial public offering of
common stock on or about the IPO Closing Date (defined below) as equals the
then-outstanding Obligations hereunder. For purposes of determining Gross
Availability and Net Availability, remittances and other payments with respect
to the Collateral and Obligations will be treated as credited to the loan
account of Borrower maintained by Lender and Collateral balances to which they
relate, upon the date of Lender's receipt of advice from Lender's bank that such
remittances or other payments have been credited to Lender's account or in the
case of remittances or other payments received directly in kind by Lender, upon
the date of Lender's deposit thereof at Lender's bank, subject to final payment
and collection. In computing interest charges, the loan account of Borrower
maintained by Lender will be credited with remittances and other payments three
(3) business days after Lender has received advice of receipt of remittances in
Lender's account at Lender's bank.
5.3 Lender shall render to Borrower monthly a loan account statement. Each
statement shall be considered correct and binding upon Borrower as an account
stated, except to the extent that Lender receives, within sixty (60) days after
the mailing of such statement to the address set forth in Section 9.4 herein,
written notice from Borrower of any specific exceptions by Borrower to that
statement.
5.4 Lender may, at any time, whether or not an Event of Default has
occurred, without notice to or assent of Borrower, (a) notify any account debtor
that the accounts and other Collateral which includes a monetary obligation have
been assigned to Lender by Borrower and that payment thereof is to be made to
the order of and directly to Lender, (b) send, or cause to be sent by its
designee, requests (which may identify the sender by a pseudonym) for
verification of accounts and other Collateral directly to any account debtor or
any other obligor or any bailee with respect thereto, and (c) demand, collect or
enforce payment of any accounts or such other Collateral, but without any duty
to do so, and Lender shall not be liable for any
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failure to collect or enforce payment thereof. At Lender's request, all invoices
and statements sent to any account debtor, other obligor or bailee, shall state
that the accounts and such other Collateral have been assigned to Lender and are
payable directly and only to Lender.
5.5 Borrower hereby appoints Lender and any designee of Lender as
Borrower's attorney-in-fact and authorizes Lender or such designee, at
Borrower's sole expense, to exercise at any times in Lender's or such designee's
discretion all or any of the following powers, which powers of attorney, being
coupled with an interest, shall be irrevocable until all Obligations have been
paid in full: (a) receive, take, endorse, assign, deliver, accept and deposit,
in the name of Lender or Borrower, any and all cash, checks, commercial paper,
drafts, remittances and other instruments and documents relating to the
Collateral or the proceeds thereof, (b) transmit to account debtors, other
obligors or any bailees notice of the interest of Lender in the Collateral or
request from account debtors or such other obligors or bailees at any time, in
the name of Borrower or Lender or any designee of Lender, information concerning
the Collateral and any amounts owing with respect thereto, (c) notify account
debtors or other obligors to make payment directly to Lender, or notify bailees
as to the disposition of Collateral, (d) take or bring, in the name of Lender or
Borrower, all steps, actions, suits or proceedings deemed by Lender necessary or
desirable to effect collection of or other realization upon the accounts and
other Collateral, (e) after an Event of Default, change the address for delivery
of mail to Borrower and to receive and open mail addressed to Borrower, (f)
after an Event of Default, extend the time of payment of, compromise or settle
for cash, credit, return of merchandise, and upon any terms or conditions, any
and all accounts or other Collateral which includes a monetary obligation and
discharge or release the account debtor or other obligor, without affecting any
of the Obligations, and (g) execute in the name of Borrower and file against
Borrower in favor of Lender financing statements or amendments with respect to
the Collateral, including, without limitation, amendments for the purpose of
changing the name of Lender thereon to evidence Lender's status as Agent in
connection with a sale of a Participation Interest.
5.6 Borrower hereby releases and exculpates Lender, its officers, employees
and designees, from any 1iability arising from any acts under this Agreement or
in furtherance thereof, whether as attorney-in-fact or otherwise, whether of
omission or commission, and whether based upon any error of judgment or mistake
of law or fact, except for wilful misconduct or gross negligence. In no event
will Lender have any liability to Borrower for lost profits or other special,
exemplary, punitive, or consequential damages.
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5.7 After written notice by Lender to Borrower and automatically, without
notice, after an Event of Default, Borrower shall not, without the prior written
consent of Lender in each instance, (a) grant any extension of time of payment
of any of the accounts or any other Collateral which includes a monetary
obligation, (b) compromise or settle any of the accounts or any such other
Collateral for less than the full amount thereof, (c) release in whole or in
part any account debtor or other person liable for the payment of any of the
accounts or any such other Collateral, or (d) grant any credits, discounts,
allowances, deductions, return authorizations or the like with respect to any of
the accounts or any such other Collateral, unless, both before and after giving
effect to such credits, discounts, allowances, deductions, return authorizations
or the like, Borrower has Net Availability in excess of $500,000.
5.8 At such times as Lender may request and in the manner specified by
Lender, Borrower shall deliver to Lender or Lender's representative original
invoices, agreements, proofs of rendition of services and delivery of goods and
other documents evidencing or relating to the transactions which gave rise to
accounts or other Collateral, together with customer statements, schedules
describing the accounts or other Collateral and/or statements of account and
confirmatory assignments to Lender of the accounts or other Collateral, in form
and substance satisfactory to Lender and duly executed by Borrower. Without
limiting the provisions of Section 5.7, Borrower's granting of credits,
discounts, allowances, deductions, return authorizations or the like will be
promptly reported to Lender in writing. In no event shall any such schedule or
confirmatory assignment (or the absence thereof or omission of any of the
accounts or other Collateral therefrom) limit or in any way be construed as a
waiver, limitation or modification of the security interests or rights of Lender
or the warranties, representations and covenants of Borrower under this
Agreement. Any documents, schedules, invoices or other paper delivered to Lender
by Borrower may be destroyed or otherwise disposed of by-Lender nine (9) months
after receipt by Lender, unless Borrower requests their return in writing in
advance and makes prior arrangements for their return, at Borrower's expense.
5.9 From time to time as requested by Lender, at the sole expense of
Borrower, Lender or its designee shall have access, prior to an Event of Default
upon at least three (3) days notice, during reasonable business hours and on or
after an Event of Default at any time and without notice, to all of the premises
where Collateral is located for the purposes of inspecting the Collateral, and
all Borrower's books and records, and Borrower shall permit Lender or its
designee to make such copies of such books and records or extracts therefrom as
Lender may request. Without expense to Lender, Lender may use such of Borrower's
personnel, equipment, including computer equipment, programs, printed output and
computer readable media, supplies and premises
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Borrower shall deliver to Lender audited financial statements of Borrower
prepared by and accompanied by the unqualified report and opinion thereon of
independent certified public accountants acceptable to Lender, together with a
certificate signed by such accountant to the effect that such accountant does
not then know of any Event of Default specified in Section 7 hereof or the
occurrence or continuance of any event which, with the giving of notice or the
passage of time or both, would constitute such an Event of Default or if such
accountant shall have obtained knowledge of any such Event of Default or other
event, specifying the nature thereof. Lender acknowledges that as of the date
hereof, but subject to contrary determination at a future time in its reasonable
discretion, Richard A. Eisner & Company, LLP, are independent certified public
accountants acceptable to Lender. Borrower will provide Lender with copies of
all periodic reports and other documents and materials filed with the Securities
and Exchange Commission (including all filings in connection with Borrower's
proposed initial public offering) and all press releases, as and when the same
are filed or released, as the case may be.
6.2 Borrower may from time to time render invoices to account debtors under
its trade names set forth in Section 10.6(g) after Lender has received prior
written notice from Borrower of the use of such trade names and as to which,
Borrower agrees that: (a) each trade name does not refer to another corporation
or other legal entity, (b) all accounts and proceeds thereof (including any
returned merchandise) invoiced under any such trade names are owned exclusively
by Borrower and are subject to the security interest of Lender and the other
terms of this Agreement, and (c) all schedules of accounts and confirmatory
assignments including any sales made or services rendered using the trade name
shall show Borrower's name as assignor and Lender is authorized to receive,
endorse and deposit to any loan account of Borrower maintained by Lender all
checks or other remittances made payable to any trade name of Borrower
representing payment with respect to such sales or services.
6.3 Borrower shall promptly notify Lender in writing of any loss, damage,
investigation, action, suit, proceeding or claim in relating to a material
portion of the Collateral or which may result in any material adverse change
in Borrower's business, assets, liabilities or condition, financial or
otherwise.
6.4 Borrower's books and records concerning accounts and its chief
executive office are and shall be maintained only at the address set forth in
Section 10.6(d). Borrower's only other places of business and the only other
locations of Collateral, if any, are and shall be the addresses set forth in
Section 10.6 hereof, except Borrower may change such locations or open a new
place of business after fifteen (15) business days prior written notice to
Lender. Prior to any change in location or opening of
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any new place of business, Borrower shall execute and deliver or cause to be
executed and delivered to Lender such financing statements, financing documents
and security and other agreements as Lender may reasonably require, including,
without limitation, those described in Section 6.14.
6.5 Borrower has and at all times will continue to have good and marketable
title to all of the Collateral, free and clear of all liens, security interests,
claims or encumbrances of any kind except in favor of Lender and except, if any,
those set forth on Schedule A hereto (Permitted Liens").
6.6 Borrower shall not, directly or indirectly: (a) sell, lease, transfer,
assign, abandon or otherwise dispose of any part of the Collateral (including,
without limitation, the return of inventory to vendors, provided however, that
(i) during any period of time during the Term that there are no Obligations
outstanding, Borrower may return inventory to vendors, and (ii) returns of
inventory to vendors in amounts less than $200,000 at any one time will be
permitted so long as Borrower provides Lender with simultaneous notice thereof
and so long as after giving effect to any such return, Borrower's Net
Availability is in excess of $500,000) or any material portion of its other
assets (other than sales of inventory to buyers in the ordinary course of
business or as otherwise permitted by section 6.12(e) and other than the sale,
abandonment or other disposition of surplus, obsolete or non-working equipment
which is no longer useful in the ordinary course of Borrower's business, having
an aggregate value in any calendar year of not more than $25,000.00, provided
however that on and after the closing date of the transactions contemplated by
Borrower's registration statement (the "Registration Statement") to be filed
under the Securities Act of 1933, as amended, for the initial public offering of
shares of Borrower's Common Stock (as defined below) (the "IPO Closing Date"),
such amount shall increase to $100,000, so long as all proceeds thereof are
immediately deposited into Borrower's collateral proceeds account with Lender)
or (b) change its corporate name or trade or otherwise conduct business under
any assumed or fictitious name, other than "Intellicell Corp". Borrower shall
not, directly or indirectly, without the prior written consent of Lender, which
consent shall not be unreasonably withheld: (x) consolidate with or merge with
or into any other entity, or permit any other entity to consolidate with or
merge with or into Borrower, or (y) form or acquire any interest in any firm,
corporation or other entity, provided, however, that (i) Borrower may, upon at
least 10 business days prior written notice to Lender, form a Delaware
corporation ("Newco") and merge Borrower with and into Newco in order to change
Borrower's domiciliary state to Delaware, so long as no material assets of
Borrower are transferred to Newco and so long as the merger of Borrower into
Newco is not consummated until Lender has recorded WCC-1 Financing Statements
against Newco in
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all jurisdictions where Lender deems necessary or proper and until Newco has
executed such documents and instruments in favor of Lender as Lender deems
necessary, and (ii) after the IPO Closing Date, so long as Borrower has and at
all times thereafter maintains a Tangible Net Worth (defined in Section 10.5(a))
of at least $4,500,000.00, Borrower shall be permitted to enter into and
consummate acquisitions of substantially all of the assets of other entities or
acquire all of the outstanding capital stock of other entities (but not merge
with or into such other entities or merge such other entities into Borrower),
without first obtaining Lender's consent, so long as after giving effect to any
such transaction, Borrower remains in compliance with all of the financial
covenants set forth in this Agreement and otherwise remains in compliance with
all other terms and conditions of this Agreement. Lender shall not be obligated
to lend money to Borrower against any of the assets acquired pursuant to, or in
connection with, any of the acquisition transactions permitted pursuant to the
preceding sentence.
6.7 Borrower shall at all times maintain, with insurers acceptable to
Lender, casualty insurance with respect to the Collateral and other assets. All
such insurance policies shall be in such form, substance, amounts and coverage
as may be satisfactory to Lender and shall provide for thirty (30) days' prior
written notice to Lender of cancellation or reduction of coverage. Borrower
hereby irrevocably appoints Lender and any designee of Lender as
attorney-in-fact for Borrower to obtain at Borrower's expense, any such
insurance should Borrower fail to do so and, after an Event of Default, to
adjust or settle any claim or other matter under or arising pursuant to such
insurance or to amend or cancel such insurance. Borrower shall deliver to Lender
evidence of such insurance and a lender's loss payable endorsement satisfactory
to Lender as to all existing and future insurance policies with respect to the
Collateral. Borrower shall deliver to Lender, in kind, all instruments
representing proceeds of insurance received by Borrower. Lender may apply any
insurance proceeds received at any time to the cost of repairs to or replacement
of any portion of the Collateral and/or, at Lender's option, to payment of or as
security for any of the Obligations, whether or not due, in any order or manner
as Lender determines.
6.8 Borrower is and at all times will continue to be in compliance with the
requirements of all material laws, rules, regulations and orders of any
governmental authority relating to its business (including laws, rules,
regulations and orders relating to taxes, payment and withholding of payroll
taxes, employer and employee contributions and similar items, securities,
employee retirement and welfare benefits, employee health and safety, or
environmental matters) and all material agreements or other instruments binding
on Borrower or its property. To the extent applicable to Borrower, all of
Borrower's inventory shall be produced in accordance with the
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requirements of the Federal Fair Labor Standards Act of 1938, as amended and all
rules, regulations and orders related thereto. Borrower shall pay and discharge
all taxes, assessments and governmental charges against Borrower or any
Collateral prior to the date on which penalties are imposed or liens attach with
respect thereto, unless the same are being contested in good faith and, at
Lender's option, Reserves are established for the amount contested and penalties
which may accrue thereon.
6.9 With respect to each account deemed an Eligible Account, except as
reported in writing to Lender, Borrower has no knowledge that any of the
criteria for eligibility are not or are no longer satisfied. As to each account,
except as disclosed in writing to Lender at the time such account arises (a)
each is valid and legally enforceable and represents an undisputed bona fide
indebtedness incurred by the account debtor for the sum reported to Lender, (b)
each arises from an absolute and unconditional sale of goods, without any right
of return or consignment (other than as expressly permitted pursuant to Section
5.7(d) herein and subject to the right of purchasers of goods in the ordinary
course of business to return or reject goods deemed non-conforming under the
applicable contract of sale), or from a completed rendition of services, (c)
each is not, at the time such account arises, subject to any defense, offset,
dispute, contra relationship, counterclaim, or any given or claimed credit,
allowance or discount, and (d) all statements made and all unpaid balances and
other information appearing in the invoices, agreements, proofs of rendition of
services and delivery of goods and other documentation relating to the accounts,
and all confirmatory assignments, schedules, statements of account and books and
records with respect thereto, are true and correct and in all respects what they
purport to be.
6.10 With respect to Borrower's equipment, such equipment is, and Borrower
shall keep the equipment, in good order and repair, and in running and
marketable condition, ordinary wear and tear and damage by casualty excepted.
6.11 Borrower shall at all times maintain working capital and tangible net
worth (except as otherwise defined herein, each as determined in accordance with
GAAP, in effect on the date hereof, consistently applied) in the amounts set
forth in Section 10.5 and Borrower shall not, directly or indirectly, expend or
commit to expend, for fixed or capital assets (including capital lease
obligations) an amount in excess of the capital expenditure limit set forth in
Section 10.5 in any fiscal year of Borrower.
6.12 Borrower will not, directly or indirectly: (a) lend or advance money
or property to, guarantee or assume indebtedness of, or invest (by capital
contribution or otherwise) in any person, firm, corporation or other entity,
except (i) as otherwise specifically permitted by Section 6.6 hereof, (ii) to
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employees to cover travel and other bona fide business expenses incurred by
such employees in the ordinary course of Borrower's business, (iii)
investments by Borrower of the proceeds from the sale of its securities in
short-term interest-bearing U.S. government securities, short term
certificates of deposit, time deposits and money market accounts and high
quality money market instruments, and (iv) the making of endorsements of
negotiable instruments for deposit or collection in the ordinary course of
business, indemnity agreements in the ordinary course of business and
indemnity agreements in favor of the underwriter of the initial public
offering of Borrower's common stock set forth in the underwriting agreement
and in related agreements between Borrower and such underwriter; or (b)
declare, pay or make any cash dividend, redemption or other distribution on
account of any shares of any class of stock of Borrower now or hereafter
outstanding, other than dividends in the form of shares of Borrower's
capital stock distributed to Borrower's stockholders; or (c) make any
payment of the principal amount of or interest on any indebtedness owing to
any officer, director, shareholder, or affiliate of Borrower; or (d) make
any loans or advances to any officer, director, employee, shareholder or
affiliate of Borrower; or (e) enter into any sale, lease or other
transaction with any officer, director, employee, shareholder or affiliate
of Borrower on terms that are less favorable to Borrower than those which
might be obtained at the time from persons who are not an officer,
director, employee, shareholder or affiliate of Borrower, provided, however
that in respect of Subsections (d) and (e) above, Borrower shall be
permitted to make (i) advances to employees permitted by Section 6.12(a)
above, (ii) S Corporation distributions to shareholders of Borrower, which
prior to the IPO Closing Date shall be limited to distributions to such
shareholders in amounts not to exceed the federal, state and local income
taxes on Borrower's S Corporation income attributable to such shareholders,
and on the IPO Closing Date shall not exceed any remaining retained
earnings of Borrower in respect of which such shareholders have paid or are
liable to pay federal, state or local income taxes; and (iii) sales of
inventory to employees for their personal use (and not for resale) at
reduced or discounted prices not below Borrower's cost not to exceed
$50,000 in the aggregate during any fiscal year of Borrower.
6.13 Borrower shall pay, on Lender's demand, all costs, expenses, filing
fees and taxes payable in connection with the preparation, execution, delivery,
recording, administration, collection, liquidation, enforcement and defense of
the Obligations, Lender's rights in the Collateral, this Agreement and all other
existing and future agreements or documents contemplated herein or related
hereto, including any amendments, waivers, supplements or consents which may
hereafter be made or entered into in respect hereof, or in any way involving
claims or defenses asserted by Lender or claims or defenses against Lender
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asserted by Borrower, any guarantor or any third party directly or indirectly
arising out of or related to the relationship between Borrower and Lender or any
guarantor and Lender, including, but not limited to the following, whether
incurred before, during or after the initial or any renewal Term or after the
commencement of any case with respect to Borrower or any guarantor under the
United States Bankruptcy Code or any similar statute: (a) all costs and expenses
of filing or recording (including Uniform Commercial Code financing statement
filing taxes and fees, documentary taxes, intangibles taxes and mortgage
recording taxes and fees, if applicable); (b) all title insurance and other
insurance premiums, appraisal fees, fees incurred in connection with any
environmental report, audit or survey and search fees; (c) all fees relating to
the wire transfer of loan proceeds and other funds and fees for returned checks;
(d) all expenses and costs heretofore and from time to time hereafter incurred
by Lender during the course of periodic field examinations of the Collateral and
Borrower's operations, plus a per diem charge at the rate of $650 per person,
per day for Lender's examiners in the field and office, provided however that so
long as no Event of Default has occurred, the aggregate amount of fees and
expenses payable by Borrower pursuant to this subsection 6.13(d) shall be
limited to $14,000 for each 12-month period hereafter; and (e) the costs, fees
and disbursements of in-house and outside counsel to Lender.
6.14 At the request of Lender, at any time and from time to time, at
Borrower's sole expense, Borrower shall execute and deliver or cause to be
executed and delivered to Lender, such agreements, documents and instruments,
including waivers, consents and subordination agreements from mortgagees or
other holders of security interests or liens, landlords or bailees, and do or
cause to be done such further acts as Lender, in its discretion, deems necessary
or desirable to create, preserve, perfect or validate any security interest of
Lender or the priority thereof in the Collateral and otherwise to effectuate the
provisions and purposes of this Agreement. Borrower hereby authorizes Lender to
file financing statements or amendments against Borrower in favor of Lender with
respect to the Collateral, without Borrower's signature and to file as financing
statements any carbon, photographic or other reproductions of this Agreement or
any financing statements signed by Borrower.
6.15 Borrower is a business corporation, duly organized, validly existing
and in good standing under the laws of the State set forth in Exhibit D-1 hereto
and will (i) do or cause to be done all things necessary to obtain, preserve,
renew and keep in full force and effect its existence and its qualification to
do business and good standing in such State and any other jurisdiction(s)) in
which such qualification is necessary for the proper conduct of its business or
wherein it owns or leases any property, a schedule of which is attached hereto
as Exhibit D-2,
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and conduct and operate its business in substantially the manner in which same
is presently conducted and operated; (ii) at all times maintain, preserve and
protect all material patents, franchises, trademarks, trade names, copyrights
and other general intangibles; (iii) preserve the condition of all property
useful in the conduct of its business and keep the same in good repair, working
order and condition (reasonable wear and tear and damage by casualty excepted)
and from time to time make, or cause to be made, all repairs, renewals,
replacements, betterments and improvements thereto, to the extent that the same
are necessary for the proper and advantageous conduct of its business; and (iv)
comply with all material agreements to which it is subject.
6.16 (i) Borrower hereby indemnifies and agrees to protect, defend and hold
harmless Lender and Lender's directors, officers, employees, agents, attorneys
and shareholders from and against any and all losses, damages, expenses or
liabilities of any kind or nature and from any suits, claims, or demands,
including all reasonable counsel fees incurred in investigating, evaluating or
defending such claim, suffered by any of them and caused by, relating to,
arising out of, resulting from, or in any way connected with this Agreement, or
any other collateral document, and any transaction contemplated herein or
therein (other than actions arising out of the wilful misconduct or gross
negligence of Lender), including but not limited to, claims based upon any act
or failure to act by Lender in connection with this Agreement or any other
collateral document, and any transaction contemplated herein or therein. If
Borrower shall have knowledge of any claim or liability hereby indemnified
against, it shall give prompt written notice thereof to Lender. This covenant
shall survive payment of the Obligations.
(ii) Lender shall give Borrower prompt notice of all suits or actions
instituted against Lender with respect to which Borrower has indemnified Lender,
and Borrower shall have the right to participate in any such suit or action.
Lender shall also have the right, at the sole expense of Borrower, to
participate in, or at Lender's election, assume the defense or prosecution of
such suit, action, or proceeding, and in the latter event the Borrower may
employ counsel and participate therein. Lender shall have the right to adjust,
settle, or compromise any claim, suit, or judgment after notice to Borrower,
unless Borrower desires to litigate such claim, defend such suit, or appeal such
judgment and simultaneously therewith deposit with Lender additional collateral
security sufficient to pay any judgment rendered, with interest, costs, and
expenses; and the right of Lender to indemnification under this Agreement shall
extend to any money paid by Lender in settlement or compromise of any such
claims, suits, and judgments in good faith, after notice to Borrower.
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(iii) If any suit, action, or other proceeding is brought by Lender
against Borrower for breach of this covenant of indemnity, separate suits may be
brought as causes of action accrue, without prejudice or bar to the bringing of
subsequent suits on any other cause of action, whether theretofore or thereafter
accruing.
6.17 Borrower has the lawful power to own its properties and to engage in
the businesses it conducts; and has no subsidiaries or joint venture partners
other than as set forth on Schedule B hereto.
6.18 Except as described on Schedule C attached hereto, Borrower is not a
party to or, to its best knowledge, threatened with, any litigation, suit,
action, investigation (whether civil or criminal), proceedings or controversy
before any Court, administrative agency or other governmental authority and
Borrower is not in violation of or in default with respect to any judgment,
order, writ, injunction, decree or rule of any court, administrative agency or
governmental instrumentality or in any material respect under any regulation of
any administrative agency or governmental instrumentality.
6.19 Borrower has no knowledge of any environmental hazards, risks or
liabilities applicable to it or its assets or business, or of any violations by
it or them of any state or federal statutes, regulations, laws or orders
pertaining to environmental matters, including, without limitation, the Federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), the Federal Resource Conservation and Recovery Act ("RCRA") or
applicable State laws. Borrower has not received a summons, citation, notice,
directive, letter or other communication, written or oral, from any state or
federal agency concerning any intentional or unintentional action or omission by
Borrower or any present or former affiliate resulting in any releasing,
spilling, leaking, pumping, pouring, emitting, emptying, dumping or otherwise
disposing of "Hazardous Waste" (as defined in 42 U.S.C. Section 6903(5)) or
"Hazardous Substance" (as defined in 42 U.S.C. Section 9609(14)). No lien
arising under or in connection with RCRA or CERCLA, or applicable State law, has
attached to any revenues or to any real or personal property (including, but not
limited to the Collateral) owned by Borrower.
6.20 Borrower holds no United States or foreign patents and has no United
States or foreign patent applications pending and has no federally registered
trademarks or tradenames and operates under no fictitious names, other than as
disclosed in Section 10.6(g) below.
6.21 On the IPO Closing Date, Borrower shall issue to Lender a certain
common stock purchase warrant (the "Lender's Warrant")
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which will entitle Lender to purchase up to Fifteen Thousand (15,000) fully
paid, validly issued and nonassessable shares of common stock of Borrower (the
"Common Stock") at a price equal to the initial public offering price of the
Common Stock per share, as shall be set forth in the Registration Statement as
of the effective time thereof (or if appropriate, in the Rule 424(b)
prospectus), and pursuant to such other terms and conditions in form and
substance substantially similar to and no less favorable than, the terms and
conditions contained in the common stock purchase warrant which is issued by
Borrower to Sands Brothers & Co., Ltd. (the "Sands Brothers' Warrant") on or
about the IPO Closing Date, except that the Lender's Warrant shall (i) include
piggy back registration rights (a) with respect to any demand or piggy back
registration rights set forth in the Sands Brother's Warrant, and (b) with
respect to any other registration statement filed on behalf of Borrower (other
than registration statements on Form S-4 or on Form S-8) or on behalf of any
other warrant holder or on behalf of any other stockholder of Borrower; provided
however no such piggy back registration rights may be exercised by Lender for a
period of 12 months after the IPO Closing Date and (ii) otherwise be in form and
substance reasonably satisfactory to Lender, Borrower and Sands Brothers.
SECTION 7. EVENTS OF DEFAULT AND REMEDIES
7.1 All Obligations shall be immediately due and payable, without notice or
demand, and any provisions of this Agreement as to future loans and credit
accommodations by Lender shall terminate automatically, upon the termination or
non-renewal of this Agreement or, at Lender's option, upon or at any time after
the occurrence or existence of any one or more of the following "Events of
Default":
(a) Borrower fails to pay when due any of the Obligations or fails to
perform any of the terms of this Agreement or any other existing or future
financing, security or other agreement between Borrower and Lender or any
affiliate of Lender;
(b) Any representation, warranty or statement of fact made by Borrower
to Lender in this Agreement or any other agreement, schedule, confirmatory
assignment or otherwise, or to any affiliate of Lender, shall prove materially
inaccurate or misleading;
(c) Any guarantor of the Obligations revokes, terminates or fails to
perform any of the terms of any guaranty, endorsement or other agreement of such
party in favor of Lender or any affiliate of Lender;
(d) Any judgment or judgments aggregating in excess of $200,000, or
any injunction or attachment is obtained against
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Borrower or any guarantor which remains unstayed or undischarged for a period
of ten (10) days or is enforced;
(e) Borrower or any guarantor or a general partner of a guarantor or
Borrower (which is a partnership), being a natural person, dies, or Borrower or
any guarantor which is a partnership or corporation, is dissolved, or Borrower
or any guarantor which is a corporation fails to maintain its corporate
existence in good standing, or the usual business of Borrower or any guarantor
ceases or is suspended;
(f) Ben Neman ceases to (i) be the chief executive officer of Borrower
or (ii) own a controlling interest in Borrower's outstanding voting capital
stock, which interest may be less than 51% of such outstanding stock; Lender
hereby acknowledges that on and after the IPO Closing Date, Ben Neman may own
approximately 42% of such stock on a fully diluted basis, which 42% amount shall
be deemed to constitute a controlling interest;
(g) Borrower or any guarantor becomes insolvent, makes an assignment
for the benefit of creditors, makes or sends notice of a bulk transfer or calls
a general meeting of its creditors or principal creditors;
(h) Any petition or application for any relief under the bankruptcy
laws of the United States now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed by or against Borrower or any guarantor; except that, with
respect to the commencement of any case against Borrower or any guarantor under
Title 11 of the United States Code, as amended, the same shall not constitute an
Event of Default hereunder unless such case is not dismissed within sixty (60)
days after the date of its filing or Borrower or such guarantor shall file any
answer admitting or not contesting the commencement of such case or indicates
its consent to, acquiescence in or approval of any such case or proceeding or
the relief requested is granted sooner; provided however, that after the filing
of a petition against Borrower and thereafter during the pendency of such case,
Lender shall have no obligation whatsoever to make any advances or loans
hereunder unless an Order of the bankruptcy court or other court of competent
jurisdiction is entered, which Order shall be in form and substance satisfactory
to Lender in all respects;
(i) The indictment of Borrower or any guarantor under any criminal
statute, or commencement of civil proceedings where the amount in controversy is
more than $200,000 or criminal proceedings, against Borrower or any guarantor
pursuant to which statute or proceedings the penalties or remedies sought or
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available include forfeiture of any of the property of Borrower or such
guarantor;
(j) Any default or event of default under any financing, security or
other agreement, document or instrument at any time executed and/or delivered
to, with or in favor of Lender or any of its affiliates by any affiliate of
Borrower; or
(k) Lender in good faith believes that either (i) the prospect of
payment or performance of the Obligations is materially impaired or (ii) the
Collateral is not sufficient to secure fully the Obligations and such
insufficiency is not remedied to Lender's satisfaction within forty eight (48)
hours after Borrower is so advised.
7.2 Upon the occurrence of an Event of Default and at any time thereafter,
Lender shall have all rights and remedies provided in this Agreement, any other
agreements between Borrower and Lender, the Uniform Commercial Code or other
applicable law, all of which rights and remedies may be exercised without notice
to Borrower, all such notices being hereby waived, except such notice as is
expressly provided for hereunder or is not waivable under applicable law. All
rights and remedies of Lender are cumulative and not exclusive and are
enforceable, in Lender's discretion, alternatively, successively, or
concurrently on any one or more occasions and in any order Lender may determine.
Without limiting the foregoing, Lender may (a) accelerate the payment of all
Obligations and demand immediate payment thereof to Lender, (b) with or without
judicial process or the aid or assistance of others, enter upon any premises on
or in which any of the Collateral may be located and take possession of the
Collateral or complete processing, manufacturing and repair of all or any
portion of the Collateral, (c) require Borrower, at Borrower's expense, to
assemble and make available to Lender any part or all of the Collateral at any
place and time designated by Lender, (d) collect, foreclose, receive,
appropriate, setoff and realize upon any and all Collateral, (e) extend the time
of payment of, compromise or settle for cash, credit, return of merchandise, and
upon any terms or conditions, any and all accounts or other Collateral which
includes a monetary obligation and discharge or release the account debtor or
other obligor, without affecting any of the Obligations, (f) sell, lease,
transfer, assign, deliver or otherwise dispose of any and all Collateral
(including, without limitation, entering into contracts with respect thereto, by
public or private sales at any exchange, broker's board, any office of Lender or
elsewhere) at such prices or terms as Lender may deem reasonable, for cash, upon
credit or for future delivery, with the Lender having the right to purchase the
whole or any part of the Collateral at any such public sale, all of the
foregoing being free from any right or equity of redemption of Borrower, which
right or equity of redemption is hereby expressly waived and released by
Borrower.
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If any of the Collateral is sold or leased by Lender upon credit terms or for
future delivery, the Obligations shall not be reduced as a result thereof until
payment therefor is finally collected by Lender. If notice of disposition of
Collateral is required by law, seven (7) days prior notice by Lender to Borrower
designating the time and place of any public sale or the time after which any
private sale or other intended disposition of Collateral is to be made, shall be
deemed to be reasonable notice thereof and Borrower waives any other notice. In
the event Lender institutes an action to recover any Collateral or seeks
recovery of any Collateral by way of prejudgment remedy, Borrower waives the
posting of any bond which might otherwise be required.
7.3 Lender may apply the cash proceeds of Collateral actually received by
Lender from any sale, lease, foreclosure or other disposition of the Collateral
to payment of any of the Obligations, in whole or in part (including reasonable
attorneys' fees and legal expenses incurred by Lender with respect thereto or
otherwise chargeable to Borrower) and in such order as Lender may elect, whether
or not then due. Borrower shall remain liable to Lender for the payment of any
deficiency together with interest at the highest rate provided for herein and
all costs and expenses of collection or enforcement, including reasonable
attorneys' fees and legal expenses.
7.4 Lender may, at its option, cure any default by Borrower under any
agreement with a third party or pay or bond on appeal any judgment entered
against Borrower, discharge taxes, liens, security interests or other
encumbrances at any time levied on or existing with respect to the Collateral
and pay any amount, incur any expense or perform any act which, in Lender's sole
judgment, is necessary or appropriate to preserve, protect, insure, maintain, or
realize upon the Collateral. Lender may charge Borrower's loan account for any
amounts so expended, such amounts to be repayable by Borrower on demand. Lender
shall be under no obligation to effect such cure, payment, bonding or discharge,
and shall not, by doing so, be deemed to have assumed any obligation or
liability of Borrower.
SECTION 8. JURY TRIAL WAIVER: CERTAIN OTHER WAIVERS AND
CONSENTS
8.1 Borrower and Lender each waive all rights to trial by jury in any
action or proceeding instituted by either of them against the other which
pertains directly or indirectly to this Agreement, the Obligations, the
Collateral, any alleged tortious conduct by Borrower or Lender, or, in any way,
directly or indirectly, arises out of or relates to the relationship between
Borrower and Lender. In no event will Lender be liable for lost profits or other
special or consequential damages.
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8.2 Borrower waives all rights to interpose any claims, deductions, setoffs
or counterclaims of any kind, nature or description in any action or proceeding
instituted by Lender with respect to this Agreement, the Obligations, the
Collateral or any matter arising therefrom or relating thereto, except
compulsory counterclaims.
8.3 Borrower hereby irrevocably submits and consents to the nonexclusive
jurisdiction of the State and Federal Courts located in the State of New York
and any other State where any Collateral is located with respect to any action
or proceeding arising out of this Agreement, the Obligations, the Collateral or
any matter arising therefrom or relating thereto. In any such action or
proceeding, Borrower waives personal service of the summons and complaint or
other process and papers therein and agrees that the service thereof may be made
by mail directed to Borrower at its chief executive office set forth herein or
other address thereof of which Lender has received notice as provided herein,
service to be deemed complete five (5) days after mailing, or as permitted under
the rules of either of said Courts. Any such action or proceeding commenced by
Borrower against Lender will be litigated only in a Federal Court located in the
district, or a State Court in the State and County, in which the office of
Lender designated in Section 10.6(a) is located and Borrower waives any
objection based on forum non conveniens and any objection to venue in connection
therewith.
8.4 Lender shall not, by any act, delay, omission or otherwise be deemed to
have expressly or impliedly waived any of its rights or remedies unless such
waiver shall be in writing and signed by an authorized officer of Lender. A
waiver by Lender of any right or remedy on any one occasion shall not be
construed as a bar to or waiver of any such right or remedy which Lender would
otherwise have on any future occasion, whether similar in kind or otherwise.
SECTION 9. TERM OF AGREEMENT: MISCELLANEOUS
9.1 This Agreement shall only become effective upon execution and delivery
by Borrower and Lender and shall continue in full force and effect for a term of
two (2) years from the date hereof and shall be deemed automatically renewed for
successive terms of two (2) years thereafter unless terminated as of the end of
the initial or any renewal term (each a "Term") by either party giving the other
written notice at least sixty (60) days' prior to the end of the then-current
Term.
9.2 Borrower may also terminate this Agreement by giving Lender at least
thirty (30) days prior written notice at any time upon payment in full of all of
the Obligations as provided herein, including the early termination fee provided
below. Lender shall also have the right to terminate this Agreement at
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any time upon or after the occurrence of an Event of Default. If Lender
terminates this Agreement upon or after the occurrence of an Event of Default,
or if Borrower shall terminate this Agreement as permitted herein effective
prior to the end of the then-current Term, in addition to all other Obligations,
Borrower shall pay to Lender, upon the effective date of termination, in view of
the impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Lender's lost
profits, an early termination fee equal to three percent (3%) of the Maximum
Credit if termination occurs at any time during the first year of the initial
Term, and one percent (1%) of the Maximum Credit if termination occurs during
the second year of the initial Term or during any renewal Term.
9.3 Upon termination of this Agreement by Borrower, as permitted herein, in
addition to payment of all Obligations which are not contingent, Borrower shall
deposit such amount of cash collateral as Lender determines, in its sole
discretion, is necessary to secure Lender from loss, cost, damage or expense,
including reasonable attorneys' fees, in connection with any open Accommodations
or remittance items or other payments provisionally credited to the Obligations
and/or to which Lender has not yet received final and indefeasible payment.
9.4 Except as otherwise provided, all notices, requests and demands
hereunder shall be (a) made to Lender at its address set forth in Section
10.6(a) and to Borrower at its chief executive office set forth in Section
10.6(d), or to such other address as either party may designate by written
notice to the other in accordance with this provision, and (b) deemed to have
been given or made: if by hand, immediately upon delivery; if by telex, telegram
or telecopy (fax), immediately upon receipt; if by overnight delivery service,
one day after dispatch; and if by first class or certified mail, three (3) days
after mailing.
9.5 If any provision of this Agreement is held to be invalid or
unenforceable, such provision shall not affect this Agreement as a whole, but
this Agreement shall be construed as though it did not contain the particular
provision held to be invalid or unenforceable.
9.6 This Agreement and the Promissory Note referred to in Section 2.2, if
any, contain the entire agreement of the parties as to the subject matter
hereof, all prior commitments, proposals and negotiations concerning the subject
matter hereof being merged herein. Neither this Agreement nor any provision
hereof shall be amended, modified or discharged orally or by course of conduct,
but only by a written agreement signed by an authorized officer of Lender. This
Agreement shall be binding upon and inure to the benefit of each of the parties
hereto and their respective successors and assigns, except that any obligation
of Lender
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under this Agreement shall not be assignable or inure to the successors and
assigns of Borrower.
9.7 No termination of this Agreement shall relieve or discharge Borrower of
its Obligations, grants of Collateral, duties and covenants hereunder or
otherwise until such time as all Obligations to Lender have been indefeasibly
paid and satisfied in full, including, without limitation, the continuation and
survival in full force and effect of all security interests and liens of Lender
in and upon all then-existing and thereafter-arising or acquired Collateral and
all warranties and waivers of Borrower.
9.8 All terms used herein which are defined in the Uniform Commercial Code
shall have the meanings set forth therein unless otherwise defined in this
Agreement and all references to the singular or plural herein shall also mean
the plural or singular, respectively.
9.9 This Agreement shall be governed by and construed in accordance with
the laws of the State of New York (without regard to New York conflicts of laws
principles).
9.10 Notwithstanding anything to the contrary contained in this Agreement
or in any other agreement signed by Borrower with or in favor of Lender relating
to or in connection with this Agreement whether executed now or hereafter
(except for an amendment to this Agreement), if there exists a conflict between
the provisions of this Agreement and any other such agreement, the provisions of
this Agreement, or any amendment thereto, will govern.
SECTION 10. ADDITIONAL DEFINITIONS AND TERMS
- ---------- --------------------------------
10.1 (a) Maximum Credit:
$7,500,000.00.
(b) Gross Availability Formulas
Eligible Accounts Percentage:
Eighty Two Percent (82%), so long as the dilution percentage of
such accounts ("dilution percentage" is defined as the sum of all
credits, allowances, write-offs, contra-accounts, and other
offsets which reduce the value of accounts, divided by the gross
invoices), as calculated on a rolling 90-day basis, remains less
than or equal to six percent (6%). If the dilution percentage is
greater than six percent (6%) then the advance formula will be
decreased by one percentage point for each percentage point or
fraction thereof that such dilution percentage exceeds six
percent (6%).
Eligible Inventory Percentage:
Fifty Percent (50%)
(c) Inventory Sub-limit(s):
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Lesser of $2,500,000.00 or 100% of the in-formula outstanding
accounts receivable advances.
(d) Maximum days after Invoice Date for Eligible Accounts:
Sixty (60) days past due date, but in no event longer than ninety
(90) days after invoice date, except in the case of accounts with
COD terms, which will be limited to up to thirty (30) days after
invoice date; provided that, subject to change in the sole
discretion of Lender, the aggregate borrowings outstanding
against accounts due from Downtown Cellular Corp. and its
subsidiaries shall not exceed the lesser of $1,250,000.00 or
thirty percent (30%) of Borrower's gross accounts receivable; and
provided further, that the aggregate borrowings outstanding at
any one time against Canadian accounts shall be limited to
$1,000,000.00.
(e) Minimum Borrowing: N/A
10.2 Term Loan: N/A
10.3 Accommodations:
(a) Lender's Charge for Accommodations:
Two and one-half percent (2.5%) per annum.
(b) Sub-limit for Accommodations: $2,000,000.00
10.4 Fees:
(a) Interest Rate:
Prime Rate plus one and three-quarters percent (1.75%) per
annum.
(b) Facility Fee:
The Facility Fee shall be equal to the sum of (i) $56,250.00,
earned and payable at closing; plus (ii) one-half of one percent
(.5%) of the Maximum Credit, earned and payable on each
anniversary of the closing.
(c) Account Servicing Fee: N/A
(d) Unused Line Fee:
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<PAGE>
One-half of one percent (.5%) per annum.
10.5 Financial Covenants:
(a) Tangible Net Worth - Commencing on the IPO Closing Date and continuing
thereafter throughout the Term, not less than $4,500,000.00. For purposes
of this agreement, "Tangible Net Worth" shall mean, at any time, the
aggregate stockholders' equity (determined in accordance with GAAP), less
all intangible assets of the Borrower, including, without limitation,
organization costs, securities issuance costs, unamortized debt discount
and expense, goodwill, excess of purchase costs over net assets acquired,
patents, trademarks, trade names, copyrights, trade secrets, know-how,
licenses, franchises, capitalized research and development expenses,
amounts owing from officers and/or affiliates and any amount reflected as
treasury stock.
(b) Working Capital - Commencing on the IPO Closing Date and continuing
thereafter throughout the Term, not less than $1,500,000.00. For purposes
hereof, "Working Capital" shall mean at any time, the amount by which
current assets (determined in accordance with GAAP) exceeds current
liabilities (determined in accordance with GAAP), less any amounts due from
any affiliate to the extent that such amount is included in current assets.
10.6 (a) Lender's Office:
135 West 50th Street
New York, New York 10020
(b) Lender's Bank:
Chemical Bank
270 Park Avenue
New York, New York
(c) Borrower: Cellular Telecom Corporation
(d) Borrower's Chief Executive Office:
6929 Hayvenhurst Avenue
Van Nuys, California 91406
(e) Locations of Eligible Inventory
Collateral:
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<PAGE>
6929 Hayvenhurst Avenue
Van Nuys, California 91406
(f) Borrower's Other Offices and Locations of Collateral:
None
(g) Borrower's Trade Names for Invoicing:
Intellicell Corp.
IN WITNESS WHEREOF, and intending to be legally bound, Borrower and Lender
have duly executed this Agreement this 19th day of June, 1996.
THE CIT GROUP/CREDIT FINANCE INC.,
individually and as Agent
By: /s/ (illegible)
-----------------------
Title: Asst Vice President
--------------------
CELLULAR TELECOM CORPORATION,
d/b/a INTELLICELL CORP.
By: /s/ Ben Neman
----------------------
Ben Neman, President
STATE OF :
:
COUNTY OF :
On the______ day of June, 1996, before me personally came Ben Neman, to me
known, who, being by me duly sworn, did depose and say that he is the President
of Cellular Telecom corporation, d/b/a Intellicell Corp., the corporation
described herein and which executed the foregoing instrument; that said
instrument was signed and sealed on behalf of said corporation by authority of
its board of directors; and that they acknowledged said instrument to be the
free act and deed of said corporation.
---------------------------
Notary Public
My Commission Expires:______
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<PAGE>
GUARANTY AND SURETYSHIP AGREEMENT
Ben Neman
June 19, 1996
The CIT Group/Credit Finance, Inc.
135 West 50th Street
New York, New York 10020
RE: Cellular Telecom Corporation d/b/a Intellicell Corp. ("Borrower")
Gentlemen:
Reference is made to the financing arrangements between The CIT
Group/Credit Finance, Inc. ("Lender") and Borrower, pursuant to which Lender may
extend loans, advances and other financial accommodations to Borrower as set
forth in a certain Loan and Security Agreement, dated on or about the date
hereof, between Borrower and Lender (the "Loan Agreement"), and various other
agreements, documents and instruments now or at any time executed and/or
delivered in connection therewith or otherwise related thereto, including, but
not limited to, this Guaranty and Suretyship Agreement ("Guaranty") (all of the
foregoing, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, being collectively
referred to herein as the "Financing Agreement").
Due to the close business and financial relationships between Borrower and
the undersigned ("Guarantor"), in consideration of the benefits which will
accrue to Guarantor, and as an inducement for and in consideration of Lender at
any time providing or extending loans, advances and other financial
accommodations to Borrower, whether pursuant to the Financing Agreements or
otherwise, Guarantor hereby, irrevocably and unconditionally, guarantees and
agrees to be liable (a) for the prompt indefeasible and full payment and
performance of all revolving loans, term loans, letters of credit, bankers'
acceptances, merchandise purchase guaranties or other guaranties or indemnities
for Borrower's account and all other obligations, liabilities and indebtedness
of every kind, nature or description owing by Borrower to Lender and/or its
affiliates, including principal, interest, charges, fees and expenses, however
evidenced, whether as principal, surety, endorser, guarantor or otherwise,
whether arising under any of the Financing Agreements or otherwise, whether now
existing or hereafter arising, whether arising before, during or after the
initial or any renewal term of the Financing Agreements or after the
commencement of any case with respect to Borrower under the United States
Bankruptcy Code or any similar statute, whether direct or indirect, absolute or
contingent, joint or several, due or not due, primary or secondary, liquidated
or unliquidated, secured or unsecured, original, renewed or extended, and
whether arising directly or howsoever acquired by Lender including from any
other entity outright, conditionally or as collateral security, by assignment,
merger with any other entity, participations or interests of Lender in the
obligations of Borrower to others, assumption, operation of law, subrogation or
otherwise and (b) to pay to Lender on demand the amount of all expenses
(including, without limitation, attorneys' fees and legal expenses) incurred by
Lender in connection with the preparation, execution, delivery, recording,
administration, collection, liquidation, enforcement and defense of Borrower's
obligations, liabilities and indebtedness as aforesaid to Lender, Lender's
rights in any collateral or under this Guaranty and all other Financing
Agreements or in any way involving claims by or against Lender directly or
indirectly arising out of or related to the relationship between Borrower and
Lender, Guarantor and Lender, or any other Obligor (as hereinafter defined) and
Lender, whether such expenses are incurred before, during or after the initial
or any renewal term of the Financing Agreements or after the commencement of any
case with respect to Borrower, Guarantor or any other Obligor under the United
States Bankruptcy Code or any similar statute (all of which being collectively
referred to herein as the "Guaranteed Obligations.).
<PAGE>
Notice of acceptance of this Guaranty, the making of loans, advances and
extensions of credit or other financial accommodations to, and the incurring of
any expenses by or in respect of, Borrower, and presentment, demand, protest,
notice of protest, notice of nonpayment or default and all other notices to
which Borrower or Guarantor are or may be entitled are hereby waived. Guarantor
also waives notice of, and hereby consents to, (i) any amendment, modification,
supplement, renewal, restatement or extensions of time of payment of or increase
or decrease in the amount of any of the Guaranteed Obligations or to the
Financing Agreements and any collateral, and the guarantee and surety made
herein shall apply to the Guaranteed Obligations as so amended, modified,
supplemented, renewed, restated or extended, increased or decreased, (ii) the
taking, exchange, surrender and releasing of collateral or guarantees now or at
any time held by or available to Lender for the obligations of Borrower or any
other party at any time liable for or in respect of the Guaranteed Obligations
(individually and collectively, the "Obligors".), (iii) the exercise of, or
refraining from the exercise of any rights against Borrower, Guarantor or any
other Obligor or any collateral, and (iv) the settlement, compromise or release
of, or the waiver of any default with respect to, any Guaranteed Obligations.
Guarantor agrees that the amount of the Guaranteed Obligations shall not be
diminished and the liability of Guarantor hereunder shall not be otherwise
impaired or affected by any of the foregoing.
This Guaranty is a guaranty and surety of payment and not of collection.
Guarantor agrees that Lender need not attempt to collect any Guaranteed
Obligations from Borrower or any other Obligor or to realize upon any
collateral, but may require Guarantor to make immediate payment of the
Guaranteed Obligations to Lender when due or at any time thereafter. Lender may
apply any amounts received in respect of the Guaranteed Obligations to any of
the Guaranteed Obligations, in whole or in part (including reasonable attorneys'
fees and legal expenses incurred by Lender with respect thereto or otherwise
chargeable to Borrower or Guarantor) and in such order as Lender may elect,
whether or not then due.
No invalidity, irregularity or unenforceability of all or any part of the
Guaranteed Obligations shall affect, impair or be a defense to this Guaranty,
nor shall any other circumstance which might otherwise constitute a defense
available to, or legal or equitable discharge of Borrower in respect of any of
the Guaranteed Obligations or Guarantor in respect of this Guaranty, affect,
impair or be a defense to this Guaranty. Without limitation of the foregoing,
the liability of Guarantor hereunder shall not be discharged or impaired in any
respect by reason of any failure by Lender to perfect or continue perfection of
any lien or security interest in any collateral for the Guaranteed Obligations
or any delay by Lender in perfecting any such lien or security interest. As to
interest, fees and expenses, whether arising before or after the commencement of
any case with respect to Borrower under the United States Bankruptcy Code or any
similar statute, Guarantor shall be liable therefor, even if Borrower's
liability for such amounts does not, or ceases to, exist by operation of law.
This Guaranty is absolute, unconditional and continuing. Payment by
Guarantor shall be made to Lender at its office from time to time on demand as
Guaranteed Obligations become due. One or more successive or concurrent actions
may be brought hereon against Guarantor, either in the same action in which
Borrower or any other Obligors are sued or in separate actions.
Payment of all amounts now or hereafter owed to Guarantor by Borrower or
any other Obligor is hereby subordinated in right of payment to the indefeasible
payment in full to Lender of the Guaranteed Obligations and is hereby assigned
to Lender as security therefor; provided however, that in the absence of an
event of default under the Loan Agreement, the payment subordination described
above shall not apply to the payment by Borrower to Guarantor of (i)
compensation and related fringe benefit payments and payments for Guarantor's
services to the Borrower as an officer and director thereof, which on an annual
basis in the aggregate shall not exceed $250,000.00 and (ii) distributions to
Guarantor as a shareholder of Borrower of Borrower's retained earnings to the
extent permitted by the Loan Agreement. Until all of the Guaranteed Obligations
have been indefeasibly paid, satisfied and discharged in full, Guarantor hereby
irrevocably and unconditionally waives and relinquishes all statutory,
contractual, common law, equitable and all other claims against Borrower, any
collateral for the Guaranteed Obligations or other assets of Borrower or any
other
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<PAGE>
Obligor, for subrogation, reimbursement, exoneration, contribution,
indemnification, setoff or other recourse in respect of sums paid or payable to
Lender by Guarantor hereunder and Guarantor hereby further irrevocably and
unconditionally waives and relinquishes any and all other benefits which
Guarantor might otherwise directly or indirectly receive or be entitled to
receive by reason of any amounts paid by or collected or due from Guarantor,
Borrower or any other Obligor upon the Guaranteed Obligations or realized from
their property.
All sums at any time owed by Lender to Guarantor or to the
credit of Guarantor and any property of Guarantor on which Lender at any time
has a lien or security interest or of which Lender at any time has possession,
shall secure payment and performance of all Guaranteed Obligations and all other
obligations of Guarantor to Lender however arising.
In case proceedings be instituted by or against Guarantor or
any other Obligor, in bankruptcy or insolvency, or for reorganization,
arrangement, receivership, or the like, or if Guarantor or any other Obligor
calls a meeting of creditors or makes any assignment for the benefit of
creditors, or upon the occurrence of any event which constitutes an event of
default under the Financing Agreements, the liability of Guarantor for the
entire Guaranteed Obligations shall mature, even if the liability of Borrower or
any other Obligor therefor does not; provided, however that in the case of any
involuntary bankruptcy proceeding filed against Guarantor, Guarantor shall have
a period of sixty (60) days from the date of such filing to cause the same to be
terminated or withdrawn before the same shall result in the liability of
Guarantor for the entire Guaranteed Obligations to mature.
Guarantor shall continue to be liable hereunder until one of
Lender's officers actually receives a written termination notice by certified
mail; but the giving of such notice shall not relieve Guarantor from liability
for any Guaranteed Obligations incurred before termination or for
post-termination collection expenses and interest pertaining to any Guaranteed
Obligations arising before termination.
Guarantor agrees that this Guaranty shall remain in full force
and effect or be reinstated, as the case may be, if at any time payment of any
of the Guaranteed Obligations is rescinded or otherwise restored by Lender to
Borrower or to any other person who made such payment, or to the creditors or
creditors' representative of Borrower or such other person.
Lender's books and records showing the account between Lender
and Borrower shall be admissible in evidence in any action or proceeding as
prima facie proof of the items therein set forth, and any written statements
rendered by Lender to Borrower, to the extent to which no written objection is
made within sixty (60) days after the date thereof, shall be considered correct
and be binding on Guarantor as an account stated for purposes of this Guaranty.
No delay on Lender's part in exercising any rights hereunder
or failure to exercise the same shall constitute a waiver of such rights. No
notice to, or demand on, Guarantor shall be deemed to be a waiver of the
obligation of Guarantor to take further action without notice or demand as
provided herein. No waiver of any of Lender's rights hereunder, and no
modification or amendment of this Guaranty, shall be deemed to be made by Lender
unless the same shall be in writing, duly signed on Lender's behalf, and each
such waiver, if any, shall apply only with respect to the specific instance
involved and shall in no way impair Lender's rights or the obligations of
Guarantor to Lender in any other respect at any other time.
Guarantor hereby releases and exculpates Lender, its officers,
employees and designees, from any liability arising from any acts under this
Guaranty or in furtherance thereof, whether as attorney-in-fact or otherwise,
whether of omission or commission, and whether based upon any error of judgment
or mistake of law or fact, except for willful misconduct or gross negligence.
This Guaranty is binding upon Guarantor and Guarantor's heirs,
representatives and assigns and shall benefit Lender and its successors,
endorsees, transferees and assigns. The term "Guarantor" wherever
- 3 -
<PAGE>
used herein shall mean the undersigned and any one or more heirs,
representatives and assigns. All references to Borrower and Lender herein shall
include their respective successors and assigns. This instrument shall be
governed by, and construed and interpreted in accordance with, the laws of the
State of New York (without regard to New York conflicts of laws principles).
Guarantor and Lender waive all rights to trial by jury in any action or
proceeding instituted by either of them against the other which pertains
directly or indirectly to this Guaranty, any alleged tortious conduct by
Guarantor or Lender, or, in any way, directly or indirectly, arising out of or
related to the relationship between Guarantor and Lender or Borrower and Lender.
GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT TO
TRIAL BY JURY IN ANY SUCH ACTION OR PROCEEDING. In no event will Lender be
liable for lost profits or other special, exemplary, punitive or consequential
damages.
Guarantor waives all rights to interpose any claims, deductions, setoffs or
counterclaims of any kind, nature or description in any action or proceeding
instituted by Lender with respect to this Guaranty or any matter arising
herefrom or relating hereto, except compulsory counterclaims.
Guarantor hereby irrevocably submits and consents to the non-exclusive
jurisdiction of the State and Federal Courts located in the State and City of
New York with respect to any action or proceeding arising out of this Guaranty
or any matter arising herefrom or relating hereto. Any such action or proceeding
commenced by Guarantor against Lender will be litigated only in a Federal Court
located in the district, or a State Court in the State and County of New York,
and Guarantor waives any objection based on forum non conveniens and any
objection to venue in connection therewith.
In any such action or proceeding, Guarantor waives personal service of the
summons and complaint or other process and papers therein and agrees that any
process or notice of motion or other application to any of said Courts or a
judge thereof, or any notice in connection with any proceedings hereunder may be
served (i) inside or outside such State by registered or certified mail, return
receipt requested, addressed to Guarantor at the address set forth below or
which Guarantor has previously advised Lender in writing and as indicated in the
records of Lender and service or notice so served shall be deemed complete five
(5) days after the same shall have been posted or (ii) in such other manner as
may be permissible under the rules of said Courts. GUARANTOR ACKNOWLEDGES THAT
THE WAIVERS SET FORTH IN THIS GUARANTY ARE SPECIFIC AND MATERIAL ASPECTS OF THIS
GUARANTY AND THAT LENDER WOULD NOT EXTEND CREDIT TO THE BORROWER IF THE WAIVERS
SET FORTH IN THIS GUARANTY WERE NOT A PART OF THIS GUARANTY.
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, THE MAXIMUM LIABILITY OF THE
GUARANTOR FOR THE GUARANTEED OBLIGATIONS SHALL NOT EXCEED THE SUM OF (A)
$500,000, PLUS (B) INTEREST ON SUCH $500,000 AT THE THEN APPLICABLE RATE
PROVIDED FOR IN THE LOAN AGREEMENT FROM THE DATE OF DEMAND FOR ANY PAYMENT
HEREUNDER PLUS ANY AND ALL COSTS AND EXPENSES OF COLLECTION HEREUNDER (INCLUDING
WITHOUT LIMITATION ATTORNEYS' FEES AND OTHER EXPENSES).
IF (I) THE TANGIBLE NET WORTH (AS DEFINED IN THE LOAN AGREEMENT) OF BORROWER IS
EQUAL TO OR GREATER THAN $4,500,000 AT ALL TIMES DURING THE PERIOD COMMENCING ON
THE CLOSING DATE OF THE TRANSACTIONS CONTEMPLATED BY BORROWER'S REGISTRATION
STATEMENT FOR THE INITIAL PUBLIC OFFERING OF ITS COMMON STOCK AND CONTINUING
UNTIL THE FIRST ANNIVERSARY OF THE DATE OF THIS GUARANTY, AND (II) SO LONG AS NO
EVENT OF DEFAULT HAS OCCURRED UNDER THE LOAN AGREEMENT, THEN THIS GUARANTY SHALL
THEREUPON BE TERMINATED AND SHALL BE OF NO FURTHER FORCE OR EFFECT.
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<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound hereby, Guarantor has
executed and delivered this Guaranty as of the day and year first above written.
/s/ Ben Neman
--------------------------------
Ben Neman
Address: 6929 Mayvonhuyrst Ave
Van Nuys, Ca, 91496
STATE OF )
) ss.
COUNTY OF )
On this_____day of June, 1996, before me personally came Ben Neman, to me
known, who, being by me duly sworn, did depose and say that he executed the
foregoing instrument as his free act and deed for the purposes therein
contained.
--------------------------------
Notary Public
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<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this Registration Statement on Form S-1
of our report dated September 13, 1996 (October 7, 1996 with respect to Note
H[5]; October 18, 1996 with respect to the second paragraph of Note A; October
31, 1996 with respect to Notes E[2] and H[2]) on the financial statements of
Cellular Telecom Corporation (d/b/a Intellicell Corp.) as at December 31, 1994
and December 31, 1995 and for each of the years in the three-year period ended
December 31, 1995. We also consent to the reference to our firm under the
caption "Experts" in the Prospectus.
Richard A. Eisner & Company, LLP
New York, New York
October 31, 1996
