<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 9, 1996
REGISTRATION NO. 333-15447
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------
Amendment No. 1 to
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
------
INTELLICELL CORP.*
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware* 5065 95-4467726
(state or other jurisdiction (Primary standard industrial (I.R.S. employer
of 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 & Ball P.C.
405 Lexington Avenue 655 Third Avenue
New York, New York 10174 New York, New York 10017
Telephone No. (212) 885-5000 Telephone No. (212) 490-2020
Telecopier No. (212) 885-5001 Telecopier No. (212) 490-2990
------
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 ADDITIONAL REGISTRATION FEE
<TABLE>
<CAPTION>
========================================================================================================
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 ........... 383,333(2) $5.00 $1,916,665 $580.81
- --------------------------------------------------------------------------------------------------------
Representative's Warrants . 33,333 .001 $33.33 (3)
- --------------------------------------------------------------------------------------------------------
Common Stock, par value
$.01 per share ........... 33,333(4) $6.00 $ 199,998 $60.61
- --------------------------------------------------------------------------------------------------------
Total(5) ...................................................................... $641.42
========================================================================================================
</TABLE>
- ------------
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Includes 50,000 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.
(5) The Registration Fee being paid herewith is in addition to the
registration fees previously paid by the Company in the aggregate amount
of $3,848.49.
* 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
<TABLE>
<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 DECEMBER 9, 1996
SUBJECT TO COMPLETION
2,000,000 SHARES
[LOGO]
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 "FONE." 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 223,464 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.
<TABLE>
<CAPTION>
================================================================================
Price Underwriting Proceeds
to Discounts and to
Public Commissions(1) Company(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share ......... $ 5.00 $.40 $ 4.60
- --------------------------------------------------------------------------------
Total(3) .......... $10,000,000 $800,000 $9,200,000
================================================================================
</TABLE>
(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 200,000 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 $1,050,000,
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 300,000
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 $11,500,000, $920,000 and
$10,580,000, 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>
[Photograph of Company's warehouse]
[Photograph of cellular phones and packaging] [LOGO]
[Photograph of proprietary accessory products and packaging]
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 223,464 shares of Common Stock upon conversion
of the Brightpoint Note and (iii) the repurchase by the Company of 36,000
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 300,000 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 $49,664,000 for the nine months ended September
30, 1995 to approximately $65,989,000 for the nine months ended September 30,
1996, and with pro forma net income increasing from approximately $99,000 to
approximately $497,000 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........... 2,000,000 shares
Common Stock to be outstanding
after the offering(1)........ 4,217,464 shares
Use of Proceeds................ The Company intends to use the net proceeds
of this offering 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......... FONE
- ------
(1) Includes 223,464 shares issuable upon the conversion of the Brightpoint
Note upon consummation of this offering. Does not include (i) 200,000
shares of Common Stock reserved for issuance upon exercise of the
Representative's Warrants; (ii) an aggregate of 245,250 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
139,750 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) 36,000
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>
Nine Months
Year Ended December 31, Ended September 30,
---------------------------------------- --------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales .............................. $ 20,496 $ 56,447 $ 69,850 $ 49,664 $ 65,989
Net income (loss) ...................... (22) 437 402 171 833
Pro forma net income(loss)(1) .......... (19) 257 236 99 497
Pro forma net income (loss) per share(1) (.01) .13 .12 .05 .24
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>
September 30, 1996
--------------------------------------------
Actual Pro Forma(2) As Adjusted(3)
-------- ------------ --------------
<S> <C> <C> <C>
Working capital (deficiency) $ (150) $ 307 $ 8,953
Total assets ............... 15,610 15,067 19,635
Short-term debt ............ 4,771 3,771 --
Total liabilities .......... 14,863 13,863 10,281
Stockholders' equity ....... 747 1,204 9,354
</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 J to Notes to Financial Statements.
(2) Gives pro forma effect to (i) aggregate S corporation distributions
estimated to be $747,000, which the Company intends to make to its
current stockholder prior to the consummation of this offering, (ii) the
reclassification of undistributed S corporation earnings (estimated to be
$80,000) to additional paid-in capital upon the termination of the
Company's status as an S corporation, (iii) the recognition of a deferred
tax asset in the amount of $204,000 resulting from the termination of the
Company's S corporation status, (iv) the conversion of $1,000,000
principal amount of the Brightpoint Note into 223,464 shares of Common
Stock and (v) 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 M 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. Pursuant to the Company's loan agreement with CIT, the Company may
not merge with or acquire an interest in any entity without the prior written
consent of CIT, which consent shall not be unreasonably withheld. 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 nine months ended September 30, 1996, the Company's four largest
suppliers accounted for approximately 62.2%, 67.0% and 55.4%, 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 Pro-Link USA accounting for approximately 27.0%,
10.8%, 9.7% and 7.8%, respectively, of product purchases for the nine months
ended September 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 peri-
6
<PAGE>
odic 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."
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."
Dependence on Sales of Cellular Telephones; Increasing Sales Concentration
and Accounts Receivable; Collection and Credit Risks. A substantial portion
of the Company's revenues are derived from the sale of cellular telephones, a
decline in the sale of which would have an adverse effect on the Company. For
the year ended December 31, 1995 and the nine months ended September 30,
1996, approximately 80.0% and 83.4%, respectively, of the Company's revenues
were derived from sales of cellular telephones. 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 nine months ended September
30, 1996, sales of cellular products to the Company's five largest customers
accounted for approximately 50.5%, 48.7% and 51.8%, 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 nine months ended September 30, 1996, Brightpoint
and Downtown Cellular accounted for approximately 18.2% and 17.8%,
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 September 30, 1996 were
approximately $6,079,000, as compared to approximately $4,607,000, at
December 31, 1995. At September 30, 1996, the Company's allowance for
doubtful accounts was $511,000, 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 nine months ended September 30,
1996, approximately 63.5% and 79.5%, 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
7
<PAGE>
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
cellular 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."
Allocation of Proceeds to Repay 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. 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. At
November 30, 1996, the Company had approximately $4.1 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.
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
8
<PAGE>
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 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."
Broad Discretion in Application of Proceeds. Approximately $1,050,000
(12.9%) of the estimated net proceeds from this offering has been allocated
to working capital and general corporate purposes. Accordingly, the Company
will have broad discretion as to the application of such proceeds. See "Use
of Proceeds."
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 nine months ended September 30, 1996, sales of
cellular products to customers in foreign markets accounted for approximately
.4%, .4% and 4.6%, 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
9
<PAGE>
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 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. In the event that it is determined that the Company is unable to use
its trademark, the Company would be required to devote resources to
establishing a new trademark and redesigning the packaging of its proprietary
accessory products, and the loss of such trademark could result in a decline
in revenues derived from sales of such products. For the year ended December
31, 1995 and the nine months ended September 30, 1996, approximately 5.6% and
2.7%, respectively, of the Company's revenues were derived from sales of
proprietary accessory products. See "Business -- Trademark."
Limited Management; 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, and James Bunting, its
Executive Vice President, Chief Operating Officer and Chief Financial
Officer, its only executive officers, 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 47.3% 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."
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 Com-
10
<PAGE>
pany 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. As a result of such provisions in the
Certificate of Incorporation and the By-Laws of the Company, stockholders may
be unable to recover damages against the directors and officers of the
Company for actions taken by them which constitute negligence, gross
negligence or a violation of their fiduciary duties, which may reduce the
likelihood of stockholders instituting derivative litigation against
directors and officers and may discourage or deter stockholders from suing
directors, officers, employees and agents of the Company for breaches of
their duty of care, even though such an action, if successful, might
otherwise benefit the Company and its stockholders. See "Management --
Indemnification and Exculpation Provisions."
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 4,217,464 shares of Common
Stock, of which the 2,000,000 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 2,217,464
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. In addition, the
Company has granted certain demand and "piggy-back" registration rights to
CIT and the Representative with respect to an aggregate of 215,000 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 223,464 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 securities. See "Management," "Principal Stockholders,"
"Shares Eligible for Future Sale" and "Underwriting."
Immediate and Substantial Dilution. This offering involves an immediate
and substantial dilution of $2.89 (57.8%) 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
11
<PAGE>
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."
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. Nasdaq has recently proposed
new maintenance criteria which, if implemented, would eliminate the exception
to the $1.00 per share minimum bid price and require, among other things,
$2,000,000 in net tangible assets, $1,000,000 market value of the public
float and adherence to certain corporate governance provisions. 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 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.
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common
Stock offered hereby are estimated to be $8,150,000 ($9,492,500 if the
Underwriters' over-allotment option is exercised in full). The Company
expects to use the net proceeds (assuming no exercise of the Underwriters'
over-allotment option) approximately as follows:
<TABLE>
<CAPTION>
Approximate
Approximate Percentage of
Application of Proceeds Dollar Amount Net Proceeds
- ---------------------- --------------- ---------------
<S> <C> <C>
Expansion activities(1) ............ $3,000,000 36.8%
Repayment of indebtedness(2) ....... 4,100,000 50.3
Working capital and general
corporate purposes(3) ............. 1,050,000 12.9
--------------- ---------------
Total ............................ $8,150,000 100.0%
</TABLE>
- ------
(1) The Company expects to use such proceeds 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 approximately
$200,000 of the proceeds to relocate its warehouse to larger facilities.
(2) 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 November 30, 1996,
approximately $4.1 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."
(3) The Company will use a portion of the proceeds of this offering
allocated to working capital to pay $215,769 of principal and accrued
interest outstanding under the Brightpoint Note. The Brightpoint Note
bears interest at the rate of 9.1% per annum and is due on December 31,
1996. 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.
13
<PAGE>
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 Directors 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 September 30, 1996, the pro forma net tangible book value of the
Company was $267,000, or approximately $.12 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 September 30, 1996 would
have been $8,913,000, or approximately $2.11 per share, representing an
immediate increase in pro forma net tangible book value of $1.99 per share to
existing stockholders and an immediate dilution of $2.89 (57.8%) per share to
new investors.
The following table illustrates the foregoing information with respect to
dilution to new investors on a per share basis:
<TABLE>
<CAPTION>
<S> <C> <C>
Public offering price ........................... $5.00
Pro forma net tangible book value before
offering ................................. $ .12
Increase attributable to new investors ..... 1.99
--------
Pro forma net tangible book value after offering 2.11
-------
Dilution to new investors ....................... $2.89
=======
</TABLE>
If the over-allotment option is exercised in full, the net tangible book
value after the offering would be approximately $2.27 per share, resulting in
dilution to new investors of $2.73.
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 2,217,464 52.6% $ 1,000,000 9.1% $ .45
New investors ....... 2,000,000 47.4% 10,000,000 90.9% 5.00
----------- --------- ------------- --------- -----------
Total ............... 4,217,464 100.0% $11,000,000 100.0%
=========== ========= ============= =========
</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 $11,500,000 for 2,300,000 shares of Common Stock, representing
92.0% of the total consideration for 50.9% of the total number of shares of
Common Stock outstanding. See "Underwriting."
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 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 M to Notes to Financial Statements.
<TABLE>
<CAPTION>
September 30, 1996
--------------------------------------------
Actual Pro Forma As Adjusted
------------ ------------ -------------
<S> <C> <C> <C>
Short-term debt .................................. $4,771,000 $3,771,000 $ --
============ ============ =============
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; 2,217,464 shares issued and
outstanding, pro forma; 4,217,464 shares
issued and outstanding, as adjusted(1) .... 20,000 22,000 42,000
Additional paid-in capital .................. 80,000 978,000 9,108,000
Retained earnings ........................... 827,000 204,000 204,000
Due from officer ............................ (180,000) -- --
------------ ------------ -------------
Total stockholders' equity ............. 747,000 1,204,000 9,354,000
------------ ------------ -------------
Total capitalization ................... $ 747,000 $1,204,000 $9,354,000
============ ============ =============
</TABLE>
- ------
(1) Does not include (i) 200,000 shares of Common stock reserved for issuance
upon exercise of the Underwriters' Warrants; (ii) an aggregate of 245,250
shares of Common Stock reserved for issuance upon exercise of outstanding
options under the Plan; (iii) an aggregate of 139,750 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."
15
<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 nine months ended September 30, 1995 and 1996
have 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 selected financial data at and for the
years ended December 31, 1991 and 1992 and the balance sheet data at December
31, 1993 are not contained in the Company's financial statements included
elsewhere in this Prospectus.
STATEMENT OF INCOME DATA:
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31, Ended September 30,
-------------------------------------------------------------------- --------------------------
1991 1992 1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales ................ $ 2,451 $ 8,146 $ 20,496 $ 56,447 $ 69,850 $ 49,664 $ 65,989
Cost of sales ............ 2,383 7,885 19,846 54,402 67,485 47,982 62,852
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit ............. 68 261 650 2,045 2,365 1,682 3,137
Selling, general and
administrative expenses . 98 245 647 1,505 1,877 1,442 2,025
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from operations (30) 16 3 540 488 240 1,112
Other income (expense) ... -- -- (25) (103) (86) (69) (279)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) ........ $ (30) $ 16 $ (22) $ 437 $ 402 $ 171 $ 833
=========== =========== =========== =========== =========== =========== ===========
Pro forma net income (loss)(1) $ (26) $ 14 $ (19) $ 257 $ 236 $ 99 $ 497
=========== =========== =========== =========== =========== =========== ===========
Pro forma net income (loss)
per share(1) ........... $ (0.01) $ 0.01 $ (.01) $ .13 $ .12 $ .05 $ .24(2)
=========== =========== =========== =========== =========== =========== ===========
Weighted average number of
common shares outstanding 2,030,000 2,030,000 2,030,000 2,030,000 2,030,000 2,030,000 2,030,000
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
December 31, September 30, 1996
-------------------------------------------------- -----------------------
Pro
1991 1992 1993 1994 1995 Actual forma(3)
------- ------ -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital (deficiency) ..... $(13) $338 $ (151) $ (175) $ (243) $ (150) $ 307
Total assets ..................... 317 952 2,077 7,250 8,604 15,610 15,067
Short-term debt .................. -- -- -- -- -- 4,771 3,771
Total liabilities ................ 320 589 2,212 7,392 8,590 14,863 13,863
Stockholders' equity (deficiency) . (3) 363 (135) (142) 14 747 1,204
</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 J to Notes to Financial Statements.
(2) Supplemental pro forma net income per share of $.25 is computed by
dividing supplemental net income (which includes pro forma net income
plus interest expense, net of the related income tax benefit) by the
weighted average number of shares that would have been outstanding after
giving effect to the number of shares that would be required to be sold
to repay borrowings under the Company's revolving line of credit.
(3) Gives effect to the Pro Forma Adjustments.
16
<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 M to Notes to Financial Statements.
<TABLE>
<CAPTION>
Percentages of Net Sales
-----------------------------------------------------------------
Nine Months Ended
Year Ended December 31, September 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 95.2
Gross profit ............................... 3.2 3.6 3.4 3.4 4.8
Selling, general and administrative expenses 3.2 2.7 2.7 2.9 3.1
Income from operations ..................... .01 1.0 .7 .5 1.7
Net income ................................. .0 .8 .6 .3 1.3
Pro forma net income ....................... .0 .5 .3 .2 .8
</TABLE>
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September
30, 1995
Net sales increased by approximately $16,325,000 or 32.9%, from the nine
months ended September 30, 1995 to the nine months ended September 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
nine months ended September 30, 1996, domestic and foreign net sales were
approximately $62,943,000 and $3,046,000, respectively, or 95.4% and 4.6%,
respectively of the Company's net sales.
Gross profit increased by approximately $1,455,000, or 86.5%, from the
nine months ended September 30, 1995 to the nine months ended September 30,
1996. Gross profit as a percentage of net sales increased from approximately
3.4% to approximately 4.8% during these periods. The increase in gross profit
was primarily due to the purchase of inventories at lower per unit costs as a
result of volume discounts and, to a lesser extent, increased sales of
higher-margin cellular telephones and 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
$583,000, or 40.4%, from the nine months ended September 30, 1995 to the nine
months ended September 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 interest
expense of $229,000 in connection with the Company's line of credit and in
bad debt and collection expense of $133,000. 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 $240,000 for the nine months
ended September 30, 1995, as compared to approximately $1,112,000 for the
nine months ended September 30, 1996, an increase of approximately $872,000,
or 363.3%. 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 $171,000 for the nine months ended
September 30, 1995 to approximately $833,000 for the nine months ended
September 30, 1996, an increase of approximately $662,000, or 387.1%. 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 .3% for the nine months ended September 30, 1995 to
approximately 1.3% for the nine months ended September 30, 1996. Pro forma
net income increased from $99,000 in the nine months ended September 30, 1995
to $497,000 in the nine months ended September 30, 1996, an increase of
approximately 402.0%.
17
<PAGE>
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 primarily 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 $257,000 in 1994 to approximately $236,000 in
1995, a decrease of approximately $21,000 or 8.2%. 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 $257,000 in 1994, an
increase of approximately $276,000. 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 September 30, 1996, the Company had a working
capital deficiency of approximately ($150,000) compared to a working capital
deficiency of approximately ($243,000) at December 31, 1995.
18
<PAGE>
Net cash used in operating activities was approximately $145,000 for the
nine months ended September 30, 1996, as compared to approximately $81,000
for the nine months ended September 30, 1995. The increase in cash used was
primarily attributable to increased levels of inventory and accounts
receivable, partially offset by an increase in accounts payable. Net cash
provided by investing activities was approximately $369,000 for the nine
months ended September 30, 1996, as compared to net cash used in investing
activities of $239,000 for the nine months ended September 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 $1,413,000 for the nine months
ended September 30, 1996, as compared to approximately $38,000 used in
financing activities for the nine months ended September 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 September 30,
1996, the Company had cash of approximately $1,637,000.
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 November 30,
1996, approximately $4.1 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
$5.00 per share and which are otherwise substantially similar to the
Representative'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.
19
<PAGE>
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 $1,888,577. 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 $1,215,769,
consisting of $1,188,577 principal amount of the Brightpoint Note and $27,192
of accrued interest. Upon the consummation of this offering, $1,000,000 of
the principal amount of the Brightpoint Note will automatically convert into
223,464 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 31.5 days through September 30,
1996, while inventory turns increased from 16.2 times during fiscal 1994 to
20.4 times during fiscal 1995 and decreased to 13.9 times through September
30, 1996.
The Company's accounts receivable, less allowance for doubtful accounts,
at September 30, 1996 were approximately $6,079,000 as compared to
approximately $4,607,000, at December 31, 1995. As of September 30, 1996,
accounts 90 or more days past due were approximately 11.2% 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 September 30, 1996, the Company's allowance for doubtful accounts was
$511,000, 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 and the nine months ended September
30, 1996, the Company made S corporation distributions to its stockholders in
the amounts of $476,000, $444,000, $166,000 and $100,000, respectively. In
October 1996, the Company made S corporation distributions of $150,000 and
intends to make an S corporation distribution of approximately $597,000 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 J to Notes to Financial Statements.
The Company is a defendant in a lawsuit relating to its Intellicell
trademark. 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. In the event that it
is determined that the Company is unable to use its trademark, the Company
would be required to devote resources to establishing a new trademark and
redesigning the packaging of its proprietary accessory products, and the loss
of such trademark could result in a decline in revenues derived from sales of
such products. For the year ended December 31, 1995 and the nine months ended
September 30, 1996, approximately 5.6% and 2.7%, respectively, of the
Company's revenues were derived from sales of proprietary accessory products.
The Company is dependent on and intends to use the proceeds of this
offering to implement its proposed expansion. To accommodate future growth,
the Company intends to use approximately $200,000 of the proceeds of this
offering to relocate its warehouse to larger facilities. The Company is
currently engaged in site selection and anticipates that it may use a portion
of such proceeds to make leasehold improvements and purchase furniture,
fixtures and equipment. Other than in connection with relocating its
warehouse facilities, as of the date of this Prospectus, the Company has no
material commitments for capital expenditures. The Company anticipates,
20
<PAGE>
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.
21
<PAGE>
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 $49,664,000 for the nine months ended September 30, 1995,
to approximately $65,989,000 for the nine months ended September 30, 1996,
and with pro forma net income increasing from approximately $99,000 to
approximately $497,000 during the same period.
THE WIRELESS COMMUNICATIONS INDUSTRY
The wireless communications industry provides voice and data
communications services through cellular telephone, personal communications
services ("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.
22
<PAGE>
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
23
<PAGE>
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 years ended
December 31, 1993, 1994 and 1995 and the nine months ended September 30,
1996, approximately 87.4%, 81.3%, 80.0% and 83.4%, 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 years ended December 31, 1993, 1994 and 1995 and the nine
months ended September 30, 1996, sales of accessories accounted for
approximately 12.6%, 18.7%, 20.0% and 16.6%, respectively, of the Company's
revenues. The Company commenced marketing its proprietary line of accessory
products in 1995. For such year and the nine months ended September 30, 1996,
sales of proprietary accessory products accounted for approximately 5.6% and
2.7%, respectfully, 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.
24
<PAGE>
For the years ended December 31, 1994 and 1995 and the nine months ended
September 30, 1996, sales of cellular products to the Company's five largest
customers accounted for approximately 50.5%, 48.7% and 51.8%, 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 nine months ended September 30, 1996, sales to Brightpoint and Downtown
Cellular accounted for 18.2% and 17.8%, 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 nine months ended September 30, 1996, sales of the Company's
products to customers in foreign markets accounted for approximately .4%, .4%
and 4.6%, 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 nine months ended September
30, 1996, the Company's four largest suppliers accounted for approximately
67.0% and 55.4%, 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 Pro-Link USA accounting for approximately 27.0%, 10.8%, 9.7% and 7.8%,
respectively, of product purchases for the nine months ended September 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-
25
<PAGE>
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 nine months ended
September 30, 1996, approximately 63.5% and 79.5%, 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 September 30, 1996, trade
accounts receivable averaged 31.5 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-
26
<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. In the event that it
is determined that the Company is unable to use its trademark, the Company
would be required to devote resources to establishing a new trademark and
redesigning the packaging of its proprietary accessory products, and the loss
of such trademark could result in a decline in revenues derived from sales of
such products.
EMPLOYEES
As of November 30, 1996 the Company had 32 employees, of which two are in
executive positions, thirteen are engaged in sales and marketing, eight are
engaged in warehouse operations and nine 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.
27
<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. In November 1996, the Company extended such lease through
February 1997 with a monthly rent of $2,470.
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.
28
<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
Elliot B. Broidy . 39 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.
Elliot B. Broidy has been a director of the Company since December 1996.
Mr. Broidy has been an independent investor since May 1991. From 1982 to
1991, Mr. Broidy was Managing Director of Bell Enterprises, a private
investment company. Mr. Broidy also serves as a director of Urethane
Technologies, Inc., a chemicals and manufacturing company, and Accent
Software International Ltd., a company engaged in marketing multilingual
software, each of which are publicly traded companies. Mr. Broidy began his
career with Arthur Andersen & Co., and is a certified public accountant.
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
<TABLE>
<CAPTION>
Name Principal Position Salary
------------ ------------------ --------
<S> <C> <C>
Ben Neman .............. President $75,000
</TABLE>
- ------
The Company did not have any long-term incentive or option plans during
the fiscal year ended December 31, 1995.
29
<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 $5.00 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
In October 1996, the Company adopted the Plan, as amended, pursuant to
which 385,000 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 transferable during an optionee's lifetime but
are transferable at death by will or by the laws of descent and dis-
30
<PAGE>
tribution. 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
245,250 shares have been granted under the Plan at an exercise price of $5.00
per share. Of such options, options to purchase 50,000, 50,000 and 3,000
shares, respectively, have been granted to Messrs. Bunting, Broidy and
Sharma.
In addition, the Company granted options to purchase 65,000 shares outside
of the Plan at an exercise price of $5.00 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.
31
<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 2,000,000 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% 47.3%(4)
James E. Bunting(5) ..................... -- -- --
Elliot B. Broidy(5) ..................... -- -- --
Vinay Sharma(6) ......................... -- -- --
All executive officers and directors as a
group (four persons) ................... 2,030,000 100.0% 47.3%
</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 1,994,000 shares of Common Stock and Brightpoint will own 223,464
shares of Common Stock or approximately 5.3% 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.
32
<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 36,000 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.
For the years ended December 31, 1994 and 1995 and the nine months ended
September 30, 1996, the Company made S corporation distributions to Mr. Neman
in the amounts of $222,000, $83,000 and $100,000, respectively. During
October 1996, the Company made S corporation distributions to Mr. Neman of
$150,000 and intends to make an S corporation distribution of approximately
$597,000 to Mr. Neman prior to the consummation of this offering.
Mr. Neman has personally guaranteed up to $500,000 of the Company's
indebtedness to CIT.
Cellular Specialists, a company controlled by Mr. Neman's brother, is a
customer of the Company. For the years ended December 31, 1993, 1994 and 1995
and the nine months ended September 30, 1996, the Company sold approximately
$86,000, $134,000, $675,000 and $368,000, respectively, of cellular products
to Cellular Specialists on terms no less favorable to the Company than could
be obtained from an unaffiliated third party. The Company has granted options
to purchase 35,000 shares of Common Stock at an exercise price of $5.00 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.
33
<PAGE>
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.
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 in relation to Mr. Neman.
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 4,217,464
shares of Common Stock outstanding, assuming no exercise of outstanding
options and warrants. All 2,000,000 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
34
<PAGE>
under the Securities Act. The remaining 2,217,464 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
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 223,464 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.
35
<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.
<TABLE>
<CAPTION>
Number of Shares
Underwriter of Common Stock
--------------------------- ----------------
<S> <C>
Sands Brothers & Co., Ltd. ................................
----------------
Total .................... .............................. 2,000,000
================
</TABLE>
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 300,000 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 non-accountable
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 200,000 shares of Common Stock at an exercise price of $6.00 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-
36
<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
& Ball 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 and the schedule
included elsewhere in the Registration Statement have been included herein
and therein in reliance upon the reports 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.
37
<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 SEPTEMBER 30,
1996 (UNAUDITED) ......................................................... F-3
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND
1995, AND FOR THE NINE-MONTH PERIODS (UNAUDITED) ENDED SEPTEMBER 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 NINE-MONTH
PERIOD (UNAUDITED) ENDED SEPTEMBER 30, 1996 .............................. F-5
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND
1995, AND FOR THE NINE-MONTH PERIODS (UNAUDITED) ENDED SEPTEMBER 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 I[5]
October 7, 1996
With respect to the second paragraph of Note A
October 18, 1996
With respect to Notes F[2] and I[2]
October 31, 1996
F-2
<PAGE>
INTELLICELL CORP.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1996
December 31, -------------------------------------------
---------------------------- Pro Forma
1994 1995 Historical Adjustments Pro Forma
------------ ------------ ------------- -------------- -------------
(Unaudited) (Unaudited - see Note M)
<S> <C> <C> <C> <C> <C>
ASSETS
--------
(Note E)
Current assets:
Cash .......................................... $ 358,000 $ 1,637,000 $ (747,000) $ 890,000
Marketable securities (Note B[2]) ............. 76,000
Accounts receivable, net of allowance for
doubtful accounts of $80,000, $200,000 and
$511,000 .................................... 3,324,000 $4,607,000 6,079,000 6,079,000
Due from officer (Note G) ..................... 48,000 192,000 18,000 18,000
Inventories (Note B[3]) ....................... 3,360,000 3,315,000 4,784,000 4,784,000
Loans receivable .............................. 211,000
Note receivable (Note D) ...................... 555,000 555,000
Deposits for purchases of inventory ........... 1,445,000 1,445,000
Deferred tax asset (Note J) ................... 204,000 204,000
Prepaid expenses and other current assets ..... 51,000 22,000 195,000 195,000
------------ ------------ ------------- -------------- -------------
Total current assets ....................... 7,217,000 8,347,000 14,713,000 (543,000) 14,170,000
Property and equipment, net (Notes B[4] and C) .. 25,000 65,000 68,000 68,000
Goodwill (Notes B[9] and F[1]) .................. 100,000 90,000 90,000
Deferred financing costs (Note B[9]) ............ 147,000 147,000
Deferred registration costs (Note H) ............ 496,000 496,000
Other assets .................................... 8,000 92,000 96,000 96,000
------------ ------------ ------------- -------------- -------------
TOTAL ...................................... $7,250,000 $8,604,000 $15,610,000 $ (543,000) $15,067,000
============ ============ ============= ============== =============
LIABILITIES
-----------
Current liabilities:
Bank overdraft ................................ $ 96,000
Revolving credit facility (Note E[1]) ......... $ 3,582,000 $ 3,582,000
Loans payable (Note E[2]) ..................... $ 445,000 2,490,000 1,189,000 $(1,000,000) 189,000
Accounts payable (Note E[2]) .................. 6,891,000 5,975,000 9,947,000 9,947,000
Accrued expenses .............................. 56,000 29,000 145,000 145,000
------------ ------------ ------------- -------------- -------------
Total current liabilities .................. 7,392,000 8,590,000 14,863,000 (1,000,000) 13,863,000
------------ ------------ ------------- -------------- -------------
Commitments and contingencies (Note I)
STOCKHOLDERS' EQUITY
(CAPITAL DEFICIENCY)
--------------------
(Notes E[1] and F)
Preferred stock - $.01 par value, 1,000,000 shares
authorized and none issued
Common stock - $.01 par value, 15,000,000 shares
authorized, 2,217,464 (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 ...................... 978,000 978,000
Retained earnings (accumulated deficit) ......... (142,000) 94,000 827,000 (623,000) 204,000
Due from officer (Note G) ....................... (180,000) (180,000) 180,000
------------ ------------ ------------- -------------- -------------
Total stockholders' equity (capital deficiency) (142,000) 14,000 747,000 457,000 1,204,000
------------ ------------ ------------- -------------- -------------
TOTAL ...................................... $7,250,000 $8,604,000 $15,610,000 $ (543,000) $15,067,000
============ ============ ============= ============== =============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
INTELLICELL CORP.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 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 $49,664,000 $65,989,000
Cost of sales ............................... 19,846,000 54,402,000 67,485,000 47,982,000 62,852,000
------------- ------------- ------------- ------------- -------------
Gross profit ................................ 650,000 2,045,000 2,365,000 1,682,000 3,137,000
Selling, general and administrative expenses . 647,000 1,505,000 1,877,000 1,442,000 2,025,000
------------- ------------- ------------- ------------- -------------
Income from operations ...................... 3,000 540,000 488,000 240,000 1,112,000
Other income (expenses):
Interest (expense) ........................ (35,000) (37,000) (67,000) (50,000) (279,000)
Other income (loss) ....................... 10,000 (66,000) (19,000) (19,000)
------------- ------------- ------------- ------------- -------------
NET INCOME (LOSS) - HISTORICAL .............. (22,000) 437,000 402,000 171,000 833,000
Pro forma taxes (benefit) on income (loss)
(Notes B[5] and J) ........................ (3,000) 180,000 166,000 72,000 336,000
------------- ------------- ------------- ------------- -------------
PRO FORMA NET INCOME (LOSS) ................. $ (19,000) $ 257,000 $ 236,000 $ 99,000 $ 497,000
============= ============= ============= ============= =============
Pro forma net income (loss) per share ....... $ (.01) $ .13 $ .12 $ .05 $ .24
============= ============= ============= ============= =============
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 F[1]). ...... $100,000 100,000
Net income for the year ................ 402,000 402,000
Advances to officer (Note G) ........... $(180,000) (180,000)
-------- ---------- ------------- ---------- --------- -----------
Balance at December 31, 1995 ........... 200 100,000 94,000 -0- (180,000) 14,000
Distributions to stockholder ........... (100,000) (100,000)
Net income for the nine months ended
September 30, 1996 .................... 833,000 833,000
To give retroactive effect to the 10,150
for 1 stock split (Note A) . .......... 2,029,800 -0-
----------- ---------- ------------- ----------- --------- -----------
Balance at September 30, 1996 -
historical(unaudited) ................. 2,030,000 100,000 827,000 -0- (180,000) 747,000
Pro forma adjustments: (unaudited)
(Note M):
Withdrawal of undistributed S
corporation earnings .............. (747,000) (747,000)
Reclassification of undistributed S
corporation earnings upon the
termination of S corporation status. $ 80,000 (80,000) -0-
Reorganization with $.01 par value
common stock ...................... (80,000) $ 80,000 -0-
Recording of deferred tax asset upon
reincorporation as a taxable
corporation ....................... 204,000 204,000
Stock to be issued as consideration
for note payable .................. 223,464 2,000 998,000 1,000,000
Shares acquired from officer as
settlement of balance due from
officer and retirement of such
shares.............................. (36,000) (180,000) 180,000 -0-
----------- ---------- ------------ ------------- ----------- --------- -----------
BALANCE AT SEPTEMBER 30, 1996 PRO
FORMA (UNAUDITED)..................... 2,217,464 $ 22,000 $ 978,000 $ 204,000 $ -0- $ -0- $1,204,000
=========== ========== ============ ============= =========== ========= ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
INTELLICELL CORP.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
--------------------------------------------- ----------------------------
1993 1994 1995 1995 1996
------------ ------------- ------------- ----------- -------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................. $ (22,000) $ 437,000 $ 402,000 $ 171,000 $ 833,000
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization .................. 14,000 12,000 5,000 4,000 52,000
Provision for doubtful accounts ................ 18,000 297,000 305,000 229,000 319,000
Provision for inventory obsolescence ........... 55,000 209,000 123,000 123,000 54,000
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) (511,000) (2,346,000)
(Increase) in inventories .................... (743,000) (2,530,000) (78,000) (448,000) (1,523,000)
Deposits for purchases of inventory .......... (1,445,000)
(Increase) decrease in prepaid expenses and
other current assets ...................... (50,000) 29,000 3,000 (173,000)
(Increase) in other assets ................... (8,000) (84,000) (83,000) (4,000)
Increase in accounts payable and accrued
expenses.................................... 1,294,000 5,219,000 1,056,000 355,000 4,088,000
------------ ------------- ------------- ----------- -------------
Net cash provided by (used in) operating
activities .............................. (342,000) 1,361,000 246,000 (81,000) (145,000)
------------ ------------- ------------- ----------- -------------
Cash flows from investing activities:
Acquisition of fixed assets ....................... (5,000) (21,000) (44,000) (1,000) (16,000)
Advances to officer ............................... (48,000) (324,000) (181,000)
Proceeds from repayments by officer ............... 31,000 174,000
Loans to employees and third parties .............. (211,000) (57,000)
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) (239,000) 369,000
------------ ------------- ------------- ----------- -------------
Cash flows from financing activities:
Bank overdraft .................................... 451,000 (451,000) 96,000 183,000 (96,000)
Advances under credit facility .................... 3,582,000
Proceeds from loans payable ....................... 484,000 445,000 490,000 390,000
Payments of loans payable ......................... (154,000) (484,000) (445,000) (445,000) (1,301,000)
Distributions to stockholders ..................... (476,000) (444,000) (166,000) (166,000) (100,000)
Deferred financing costs .......................... (176,000)
Deferred registration costs ....................... (496,000)
------------ ------------- ------------- ----------- -------------
Net cash provided by (used in) financing
activities .............................. 305,000 (934,000) (25,000) (38,000) 1,413,000
------------ ------------- ------------- ----------- -------------
NET INCREASE (DECREASE) IN CASH ..................... -0- 358,000 (358,000) (358,000) 1,637,000
Cash -- beginning of period ......................... -0- -0- 358,000 358,000 -0-
------------ ------------- ------------- ----------- -------------
CASH -- END OF PERIOD ............................... $ -0- $ 358,000 $ -0- $ -0- $ 1,637,000
============ ============= ============= =========== =============
Supplemental disclosures of cash flow information:
Cash paid for interest ............................ $ 35,000 $ 37,000 $ 67,000 $ 50,000 $ 252,000
Cash paid for state S corporation taxes ........... 9,000 5,000 4,000
Supplemental schedule of noncash financing activities:
Conversion of trade payable into loan payable
(Note E[2]) ..................................... 2,000,000
Goodwill recorded in connection with shares
purchased by officer (Note F[1]) ............... 100,000
Converson of trade receivable into note reeceivable
(Note D) ....................................... 555,000
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
INTELLICELL CORP.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO DATA AS OF
SEPTEMBER 30, 1996 AND FOR THE NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1995 AND SEPTEMBER 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 ownership percentages of each
owner in the Partnership and the Company before and immediately after this
transaction were the same. As such, the Company accounted for this
transaction as a combination of entities under common control similar to a
pooling of interests. 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 September 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 M).
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 nine-month periods ended
September 30, 1995 and September 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
September 30, 1996 and for the nine-month periods ended
September 30, 1995 and September 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 J 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 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
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 I[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
September 30, 1996 and for the nine-month periods ended
September 30, 1995 and September 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,
------------------------- September 30,
1994 1995 1996
--------- --------- ---------------
(Unaudited)
Furniture and fixtures . $15,000 $20,000 $25,000
Computer equipment ..... 16,000 53,000 60,000
Other equipment ........ 5,000 8,000 8,000
Leasehold improvements . 3,000
--------- --------- ---------------
T o t a l .......... 36,000 81,000 96,000
Accumulated depreciation 11,000 16,000 28,000
--------- --------- ---------------
B a l a n c e ...... $25,000 $65,000 $68,000
========= ========= ===============
(NOTE D) -- NOTE RECEIVABLE:
In October 1996, the Company converted $555,000 of trade receivables from
one of its major customers into a note receivable. The note, which is not
collateralized, bears interest at a rate of 10% per annum and is due in five
equal monthly payments of principal and interest of approximately $114,000
beginning in November 1996.
(NOTE E) -- 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 in 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 September 30, 1996 the Company
was paying interest on advances at a rate of 10% per annum. The credit
facility is collateralized by substantially all of the assets of the Company.
The agreement prohibits the Company from paying dividends or incurring
additional indebtedness except for trade indebtedness 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 September 30, 1996 $3,582,000 was
due under the credit facility.
F-9
<PAGE>
INTELLICELL CORP.
NOTES TO FINANCIAL STATEMENTS
(Unaudited with respect to data as of
September 30, 1996 and for the nine-month periods ended
September 30, 1995 and September 30, 1996) -- (Continued)
(NOTE E) -- Credit Facility and Loans Payable: -- (Continued)
[2] LOANS PAYABLE:
Loans payable consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------- September 30,
1994 1995 1996
---------- ------------ ---------------
<S> <C> <C> <C>
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
========== ============ ===============
</TABLE>
(a) In December 1995, the Company converted $2,000,000 of its trade
payable balance to Brightpoint, Inc. ("Brightpoint") (see Notes I[3] and
I[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 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 223,464 shares of common stock at $4.475 per
share on the effective date of the proposed initial public offering. 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 nine months ended September 30,
1996. Additionally, at December 31, 1994, December 31, 1995 and September 30,
1996 the Company owed approximately $3,036,000, $2,009,000 and $5,158,000,
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 F) -- 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, as amended, options to purchase up to 385,000
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
F-10
<PAGE>
INTELLICELL CORP.
NOTES TO FINANCIAL STATEMENTS
(Unaudited with respect to data as of
September 30, 1996 and for the nine-month periods ended
September 30, 1995 and September 30, 1996) -- (Continued)
(NOTE F) -- Stockholders' Equity: -- (Continued)
[2] STOCK OPTION PLAN: -- (CONTINUED)
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 September 30, 1996, the
Company agreed to issue under the 1996 Plan options to purchase 245,250
shares of common stock at $5.00 per share, 50,000 of which are subject to
approval from the Board of Directors.
[3] OTHER STOCK OPTIONS:
In October 1995, the President granted to an employee options to purchase
217,000 of his (split adjusted) 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.
In addition, subsequent to September 30, 1996 the Company agreed to issue
to other individuals options to purchase 65,000 shares of common stock at
$5.00 per share (see Note K).
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 nine months ended September 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. The fair value of these
warrants, which management estimates to be $15,000 or $1.00 per warrant, will
be charged to operations over the remaining term of the agreement (see Note
E[1]).
(NOTE G) -- DUE FROM OFFICER:
At the completion of the proposed initial public offering the Company will
purchase from the President 36,000 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 are to be
repaid to the Company (see Note K).
(NOTE H) -- 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.
F-11
<PAGE>
INTELLICELL CORP.
NOTES TO FINANCIAL STATEMENTS
(Unaudited with respect to data as of
September 30, 1996 and for the nine-month periods ended
September 30, 1995 and September 30, 1996)
(NOTE I) -- 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 nine months ended
September 30, 1996 was $38,000, $82,000, $73,000 and $61,000, respectively.
[2] EMPLOYMENT AGREEMENTS AND OFFICERS' SALARIES:
During the years ended December 31, 1993, December 31, 1994 and December
31, 1995 and the nine months ended September 30, 1996, officers' salaries,
which principally represent salaries of the stockholders of the Company,
aggregated $75,000, $100,000, $150,000 and $54,000, respectively.
The Company has an oral employment agreement with the President which
provides for a three-year term, effective upon the consummation of the
initial public offering, and minimum annual compensation of $72,000 and such
bonus as the Board of Directors may from time to time determine.
The Company has an employment agreement with an officer for a three-year
term which commenced on July 1, 1996 and provides for minimum annual
compensation of $70,000 and such bonus as the Board of Directors may from
time to time determine 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 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.
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 F [3]).
[3] MAJOR CUSTOMERS:
During the year ended December 31, 1995 and the nine months ended
September 30, 1996, Brightpoint accounted for 10% and 18%, respectively, of
the Company's sales. During the years ended December 31, 1993, December 31,
1994 and December 31, 1995 and the nine months ended September 30, 1996 one
other customer accounted for 21%, 32%, 25% and 18%, 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 27% of the Company's purchases during
the years ended December 31, 1994 and December 31, 1995 and the nine months
ended September 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.
F-12
<PAGE>
INTELLICELL CORP.
NOTES TO FINANCIAL STATEMENTS
(Unaudited with respect to data as of
September 30, 1996 and for the nine-month periods ended
September 30, 1995 and September 30, 1996) -- (Continued)
(NOTE I) -- Commitments, Contingencies and Other Matters: -- (Continued)
[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.
(NOTE J) -- 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>
Nine Months Ended
Year Ended December 31, September 30,
-------------------------------------- -------------------------
1993 1994 1995 1995 1996
----------- ---------- ---------- ---------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Current:
Federal ......................... $(1,000) $161,000 $164,000 $ 83,000 $ 354,000
State ........................... (1,000) 49,000 50,000 25,000 107,000
----------- ---------- ---------- ---------- -----------
(2,000) 210,000 214,000 108,000 461,000
----------- ---------- ---------- ---------- -----------
Deferred:
Federal ......................... (1,000) (25,000) (41,000) (31,000) (106,000)
State ........................... (5,000) (7,000) (5,000) (19,000)
----------- ---------- ---------- ---------- -----------
(1,000) (30,000) (48,000) (36,000) (125,000)
----------- ---------- ---------- ---------- -----------
Pro forma taxes (benefit) on income . $(3,000) $180,000 $166,000 $ 72,000 $ 336,000
=========== ========== ========== ========== ===========
</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>
Nine Months Ended
Year Ended December 31, September 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 $283,000
State income taxes (benefit), net of
federal taxes .......................... (2,000) 27,000 25,000 10,000 50,000
Effect of change in tax rates on reversal
of prior years deferred items .......... (2,000)
Nondeductible expenses .................. 2,000 3,000 2,000 2,000 3,000
---------- ---------- ---------- --------- ----------
$(3,000) $180,000 $166,000 $72,000 $336,000
========== ========== ========== ========= ==========
</TABLE>
Deferred income taxes are primarily the result of temporary differences
between income tax and financial reporting resulting from certain expenses
for financial reporting purposes that will be deductible for income tax
purposes in future years.
F-13
<PAGE>
INTELLICELL CORP.
NOTES TO FINANCIAL STATEMENTS
(Unaudited with respect to data as of
September 30, 1996 and for the nine-month periods ended
September 30, 1995 and September 30, 1996) -- (Continued)
(NOTE J) -- Pro Forma Income Taxes (Benefit): -- (Continued)
The pro forma income tax asset of $204,000 at September 30, 1996 is
attributable to the allowance for doubtful accounts.
Upon termination of the S corporation election, the deferred item will be
utilized in the computation of income taxes in future accounting periods when
applicable.
(NOTE K) -- 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, respectively, of cellular products to the Partnership at cost. The
Company made no sales to the Partnership during the nine months ended
September 30, 1996. In August 1996, the Partnership was dissolved and all
amounts due from the Partnership were assumed by the President.
During the years ended December 31, 1993, December 31, 1994, December 31,
1995 and the nine months ended September 30, 1996 the Company sold
approximately $86,000, $134,000, $675,000 and $368,000, respectively, of
cellular products to a company which is owned by the President's brother.
Subsequent to September 30, 1996 the Company agreed to issue options to
purchase 35,000 shares of Common Stock to the brother of the President at
$5.00 per share. The Company agreed to grant these options, which management
determined have a fair value of $1.00 per option, as compensation for
introducing the Company to one of its suppliers. Accordingly, $35,000 will be
charged to operations upon the issuance of such options.
(NOTE L) -- 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 S corporation earnings.
(NOTE M) -- PRO FORMA (UNAUDITED):
A pro forma balance sheet is presented to reflect the following
transactions as if they had occurred on September 30, 1996:
(1) The distribution to the President of substantially all of the
Company's undistributed S corporation earnings (Note L);
(2) The reclassification of undistributed S corporation earnings to
additional paid-in capital upon the termination of the Company's
status as an S corporation;
(3) The intended reorganization as a Delaware corporation with $.01 par
value common stock;
(4) The recording of a deferred tax asset upon the termination of the
Company's status as an S corporation (Note J);
(5) The issuance of 223,464 common shares as consideration for
cancelling indebtedness of $1,000,000 (Note E[2]); and
(6) The acquisition and retirement of 36,000 common shares from the
President as settlement of $180,000 of the balance due from such
officer (Note G).
F-14
<PAGE>
INTELLICELL CORP.
NOTES TO FINANCIAL STATEMENTS
(Unaudited with respect to data as of
September 30, 1996 and for the nine-month periods ended
September 30, 1995 and September 30, 1996) -- (Continued)
(NOTE M) -- Pro Forma (Unaudited): - (Continued)
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 September 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-15
<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 ........................... 13
Dividend Policy ........................... 14
Dilution .................................. 14
Capitalization ............................ 15
Selected Financial Data ................... 16
Management's Discussion and Analysis of
Financial Condition and Results of
perations ................................ 17
Business .................................. 22
Management ................................ 29
Principal Stockholders .................... 32
Certain Transactions ...................... 33
Description of Securities ................. 33
Shares Eligible for Future Sale ........... 34
Underwriting .............................. 36
Legal Matters ............................. 37
Experts ................................... 37
Additional Information .................... 37
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>
=============================================================================
2,000,000 SHARES
LOGO
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 ............................. $ 4,489.91
NASD fee ..................................... 2,093.39
Nasdaq listing fee ........................... 10,000.00
Printing and engraving costs ................. 50,000.00
Legal fees and expenses ...................... 150,000.00
Accounting fees and expenses ................. 500,000.00
Blue Sky fees and expenses ................... 40,000.00
Transfer agent and registrar fees and expenses 3,500.00
Miscellaneous ................................ $ 39,916.70
------------
Total ...................................... $800,000.00
============
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.
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.
II-1
<PAGE>
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>
- ------
* Filed herewith
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser, and:
(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
Amendment No. 1 to this Registration Statement to be signed on its behalf by
the undersigned, in the City of Van Nuys, State of California, on the 6th day
of December, 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,
Amendment No. 1 to 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 December 6, 1996
- ------------------------------------ and Chief Executive Officer
Ben Neman (Principal Executive Officer)
* Executive Vice President; December 6, 1996
- ------------------------------------ Chief Operating Officer;
James E. Bunting Chief Financial Officer
(Principal Accounting Officer)
and Director
* Director December 6, 1996
- ------------------------------------
Vinay Sharma
- ------------------------------------ Director December , 1996
Elliot B. Broidy
*By: /s/ Ben Neman
--------------------------------
Ben Neman, as Attorney-in-Fact
</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 I[5], October 7, 1996; with respect to the second paragraph
of Note A, October 18, 1996; with respect to Notes F[2], and I[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 presents 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> <C>
For the year ended December 31, 1993:
Allowance for doubtful accounts ... $ 18,000 $ 8,000 (A) $ 10,000
For the year ended December 31, 1994:
Allowance for doubtful accounts ... $ 10,000 297,000 227,000 (A) 80,000
For the year ended December 31, 1995:
Allowance for doubtful accounts ... 80,000 305,000 185,000 (A) 200,000
For the nine months ended September
30, 1996 (unaudited):
Allowance for doubtful accounts ... 200,000 319,000 8,000 (A) 511,000
</TABLE>
(A) Accounts 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>
- ------
* Filed herewith
<PAGE>
INTELLICELL CORP.
BY-LAWS
ARTICLE I
OFFICES
1. The location of the registered office of the Corporation in
the State of Delaware is 32 Loockerman Square, Suite L-100, in the City of
Dover, County of Kent, and the name of its registered agent at such address is
The Prentice-Hall Corporation System, Inc.
2. The Corporation shall in addition to its registered office
in the State of Delaware establish and maintain an office or offices at such
place or places as the Board of Directors may from time to time find necessary
or desirable.
ARTICLE II
CORPORATE SEAL
The corporate seal of the Corporation shall have inscribed
thereon the name of the Corporation and may be in such form as the Board of
Directors may determine. Such seal may be used by causing it or a facsimile
thereof to be impressed, affixed or otherwise reproduced.
<PAGE>
ARTICLE III
MEETINGS OF STOCKHOLDERS
1. All meetings of the stockholders shall be held at the
registered office of the Corporation in the State of Delaware or at such other
place as shall be determined from time to time by the Board of Directors.
2. The annual meeting of stockholders shall be held on such
day and at such time as may be determined from time to time by resolution of the
Board of Directors. The election of Directors and any other proper business may
be transacted at the annual meeting.
3. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business, except as otherwise expressly provided by statute, by
the Certificate of Incorporation or by these By-laws. If, however, such majority
shall not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or by proxy, shall have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting (except as otherwise provided by statute). At such
adjourned meeting at which the requisite amount of voting stock shall be
represented any business may be transacted which might have been transacted at
the meeting as originally notified.
4. At all meetings of the stockholders each stockholder having
the right to vote shall be entitled to vote in person, or by
-2-
<PAGE>
proxy appointed by an instrument in writing subscribed by such stockholder and
bearing a date not more than three years prior to said meeting, unless such
instrument provides for a longer period.
5. At each meeting of the stockholders each stockholder shall
have one vote for each share of capital stock having voting power, registered in
his name on the books of the Corporation at the record date fixed in accordance
with these By-laws, or otherwise determined, with respect to such meeting.
Except as otherwise expressly provided by statute, by the Certificate of
Incorporation or by these By-laws, all matters coming before any meeting of the
stockholders shall be decided by the vote of a majority of the number of shares
of stock present in person or represented by proxy at such meeting and entitled
to vote thereat, a quorum being present.
6. Notice of each meeting of the stockholders shall be mailed
to each stockholder entitled to vote thereat not less than 10 nor more than 60
days before the date of the meeting. Such notice shall state the place, date and
hour of the meeting and, in the case of a special meeting, the purposes for
which the meeting is called.
7. Special meetings of the stockholders, for any pur- pose or
purposes, unless otherwise prescribed by statute, may be called by the President
or by the Board of Directors, and shall be called by the Secretary at the
request in writing of stockholders owning a majority of the amount of the entire
capital stock of the Corporation issued and outstanding and entitled to vote.
Such
-3-
<PAGE>
request by stockholders shall state the purpose or purposes of the
proposed meeting.
8. Business transacted at each special meeting shall be
confined to the purpose or purposes stated in the notice of such meeting.
9. The order of business at each meeting of stockholders
shall be determined by the presiding officer.
ARTICLE IV
DIRECTORS
1. The business and affairs of the Corporation shall be
managed under the direction of a Board of Directors, which may exercise all such
powers and authority for and on behalf of the Corporation as shall be permitted
by law, the Certificate of Incorporation or these By-laws.
2. The Board of Directors may hold their meetings within or
outside of the State of Delaware, at such place or places as it may from time to
time determine.
3. The number of directors comprising the Board of Directors
shall be such number as may be from time to time fixed by resolution of the
Board of Directors and shall not be less than two or more than six.
4. The directors shall be elected by the holders of shares of
stock of the Corporation entitled to vote on the election of directors, and
directors shall be elected by a plurality vote. A director shall hold office
until the annual meeting for the year in which his term expires and until the
successor shall be elected
-4-
<PAGE>
and shall qualify, subject, however to prior death, resignation, retirement,
disqualification or removal from office.
5. Any vacancy occurring in the Board of Directors, including
any vacancy created by reason of an increase in the number of directors, shall
be filled for the unexpired term by the concurring vote of a majority of the
directors then in office, whether or not a quorum, and any director so chosen
shall hold office for the remainder of the full term of the class of directors
in which the new directorship was created or the vacancy occurred and until such
director's successor shall have been elected and qualified.
6. Any director may resign at any time by giving written
notice of his resignation to the Board of Directors. Any such resignation shall
take effect upon receipt thereof by the Board, or at such later date as may be
specified therein. Any such notice to the Board shall be addressed to it in care
of the Secretary.
7. Any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares
entitled to vote at an election of directors.
ARTICLE V
COMMITTEES OF DIRECTORS
1. By resolutions adopted by a majority of the whole Board of
Directors, the Board may designate an Executive Committee and one or more other
committees, each such committee to consist of one or more directors of the
Corporation. The Executive Committee
-5-
<PAGE>
shall have and may exercise all the powers and authority of the Board in the
management of the business and affairs of the Corporation (except as otherwise
expressly limited by statute), including the power and authority to declare
dividends and to authorize the issuance of stock, and may authorize the seal of
the corporation to be affixed to all papers which may require it. Each such
committee shall have such of the powers and authority of the Board as may be
provided from time to time in resolutions adopted by a majority of the whole
Board.
2. The requirements with respect to the manner in which the
Executive Committee and each such other committee shall hold meetings and take
actions shall be set forth in the resolutions of the Board of Directors
designating the Executive Committee or such other committee.
ARTICLE VI
COMPENSATION OF DIRECTORS
The directors shall receive such compensation for their
services as may be authorized by resolution of the Board of Directors, which
compensation may include an annual fee and a fixed sum for expense of attendance
at regular or special meetings of the Board or any committee thereof. Nothing
herein contained shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
-6-
<PAGE>
ARTICLE VII
MEETINGS OF DIRECTORS; ACTION WITHOUT A MEETING
1. Regular meetings of the Board of Directors may be held
without notice at such time and place, either within or without the State of
Delaware, as may be determined from time to time by resolution of the Board.
2. Special meetings of the Board of Directors shall be held
whenever called by the President of the Corporation or the Board of Directors on
at least 24 hours' notice to each director. Except as may be otherwise
specifically provided by statute, by the Certificate of Incorporation or by
these By-laws, the purpose or purposes of any such special meeting need not be
stated in such notice, although the time and place of the meeting shall be
stated.
3. At all meetings of the Board of Directors, the presence in
person of a majority of the members of the Board of Directors shall be necessary
and sufficient to constitute a quorum for the transaction of business, and,
except as otherwise provided by statute, by the Certificate of Incorporation or
by these By-laws, if a quorum shall be present the act of a majority of the
directors present shall be the act of the Board.
4. Any action required or permitted to be taken at any meeting
of the Board of Directors or of any committee thereof may be taken without a
meeting if all the members of the Board or such committee, as the case may be,
consent thereto in writing and the writing or writings are filed with the
minutes of proceedings of the Board of committee. Any director may participate
in a meeting of the Board, or any committee designated by the Board, by means of
-7-
<PAGE>
a conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting pursuant to this sentence shall constitute presence in person at such
meeting.
ARTICLE VIII
OFFICERS
1. The officers of the Corporation shall be chosen by the
Board of Directors and shall be a Chairman of the Board, a President, one or
more Executive Vice Presidents, a Secretary and a Treasurer. The Board may also
choose one or more Assistant Secretaries and Assistant Treasurers, and such
other officers as it shall deem necessary. Any number of offices may be held by
the same person.
2. The salaries of all officers of the Corporation shall be
fixed by the Board of Directors, or in such manner as the Board may prescribe.
3. The officers of the Corporation shall hold office until
their successors are elected and qualified, or until their earlier resignation
or removal. Any officer may be at any time removed from office by the Board of
Directors, with or without cause. If the office of any officer becomes vacant
for any reason, the vacancy may be filled by the Board of Directors.
4. Any officer may resign at any time by giving written notice
of his resignation to the Board of Directors. Any such resignation shall take
effect upon receipt thereof by the Board or
-8-
<PAGE>
at such later date as may be specified therein. Any such notice to the Board
shall be addressed to it in care of the Secretary.
ARTICLE IX
CHAIRMAN OF THE BOARD
The Chairman of the Board shall have general supervision and
management of the business of the Corporation and shall see that all orders and
resolutions of the Board are carried into effect. He shall preside at meetings
of the stockholders and of the Board of Directors.
ARTICLE X
PRESIDENT
The President shall be the chief executive officer of the
Corporation. Subject to the supervision and direction of the Board of Directors,
he shall be responsible for managing the affairs of the Corporation. He shall
have supervision and direction of all of the other officers of the Corporation
and shall have the powers and duties usually and customarily associated with the
office of the President. In the absence of the Chairman, he shall preside at
meetings of the stockholders.
ARTICLE XI
EXECUTIVE VICE PRESIDENTS
The Executive Vice Presidents shall have such powers and
duties as may be delegated to them by the President.
-9-
<PAGE>
ARTICLE XII
SECRETARY AND ASSISTANT SECRETARY
1. The Secretary shall attend all meetings of the Board of
Directors and of the stockholders, and shall record the minutes of all
proceedings in a book to be kept for that purpose. He shall perform like duties
for the committees of the Board when required.
2. The Secretary shall give, or cause to be given, notice of
meetings of the stockholders, of the Board of Directors and of the committees of
the Board. He shall keep in safe custody the seal of the Corporation, and when
authorized by the President, an Executive Vice President or a Vice President,
shall affix the same to any instrument requiring it, and when so affixed it
shall be attested by his signature or by the signature of an Assistant
Secretary. He shall have such other powers and duties as may be delegated to him
by the President.
3. The Assistant Secretary shall, in case of the absence of
the Secretary, perform the duties and exercise the powers of the Secretary, and
shall have such other powers and duties as may be delegated to them by the
President.
ARTICLE XIII
TREASURER AND ASSISTANT TREASURER
1. The Treasurer shall have the custody of the corporate funds
and securities, and shall deposit or cause to be deposited under his direction
all moneys and other valuable effects in the name and to the credit of the
Corporation in such depositories as may be designated by the Board of Directors
or
-10-
<PAGE>
pursuant to authority granted by it. He shall render to the President and the
Board whenever they may require it an account of all his transactions as
Treasurer and of the financial condition of the Corporation. He shall have such
other powers and duties as may be delegated to him by the President.
2. The Assistant Treasurer shall, in case of the absence of
the Treasurer, perform the duties and exercise the powers of the Treasurer, and
shall have such other powers and duties as may be delegated to them by the
President.
ARTICLE XIV
CERTIFICATES OF STOCK
The certificates of stock of the Corporation shall be numbered
and shall be entered in the books of the Corporation as they are issued. They
shall exhibit the holder's name and number of shares and shall be signed by the
President or an Executive Vice President or Vice President, and by the Treasurer
or an Assistant Treasurer, or the Secretary or an Assistant Secretary.
ARTICLE XV
CHECKS
All checks, drafts and other orders for the payment of money
and all promissory notes and other evidences of indebtedness of the Corporation
shall be signed by such officer or officers or such other person as may be
designated by the Board of Directors or pursuant to authority granted by it.
-11-
<PAGE>
ARTICLE XVI
FISCAL YEAR
The fiscal year of the Corporation shall be as determined from
time to time by resolution duly adopted by the Board of Directors.
ARTICLE XVII
NOTICES AND WAIVERS
1. Whenever by statute, by the Certificate of Incorporation or
by these By-laws it is provided that notice shall be given to any director or
stockholder, such provision shall not be construed to require personal notice,
but such notice may be given in writing, by mail, by depositing the same in the
United States mail, postage prepaid, directed to such stockholder or director at
his address as it appears on the records of the Corporation, and such notice
shall be deemed to be given at the time when the same shall be thus deposited.
Notice of regular or special meetings of the Board of Directors may also be
given to any director by telephone or by telex, telegraph or cable, and in the
latter event the notice shall be deemed to be given at the time such notice,
addressed to such director at the address hereinabove provided, is transmitted
by telex (with confirmed answerback), or delivered to and accepted by an
authorized telegraph or cable office.
2. Whenever by statute, by the Certificate of Incorporation or
by these By-laws a notice is required to be given, a written waiver thereof,
signed by the person entitled to notice, whether before or after the time stated
therein, shall be deemed
-12-
<PAGE>
equivalent to notice. Attendance of any stockholder or director at any meeting
thereof shall constitute a waiver of notice of such meeting by such stockholder
or director, as the case may be, except as otherwise provided by statute.
ARTICLE XVIII
INDEMNIFICATION
All persons who the Corporation 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 Corporation to the full extent
permitted thereby. The foregoing right of indemnification shall not be deemed to
be exclusive of any other such rights to which those seeking indemnification
from the Corporation may be entitled, including, but not limited to, any rights
of indemnification to which they may be entitled pursuant to any agreement,
insurance policy, other by-law or charter provision, vote of stockholders or
directors, or otherwise. No repeal or amendment of this Article XVIII shall
adversely affect any rights of any person pursuant to this Article XVIII which
existed at the time of such repeal or amendment with respect to acts or
omissions occurring prior to such repeal or amendment.
-13-
<PAGE>
ARTICLE XIX
ALTERATION OF BY-LAWS
The By-laws of the Corporation may be altered, amended or
repealed, and new By-laws may be adopted, by the majority vote of the
stockholders or by the Board of Directors; provided, however, that the
provisions of Section 4 of Article IV of the By-Laws may be altered, amended or
repealed only by the affirmative vote of the holders of 66 2/3% of the voting
power of the Corporation's stock outstanding and entitled to vote thereon.
-14-
<PAGE>
NUMBER COMMON STOCK
IC
SHARES
INTELLICELL CORP.
SEE REVERSE FOR CETAIN
DEFINITIONS
CUSIP 45815F 10 6
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VAUE OF $.01 EACH OF THE COMMON
STOCK OF
INTELLICELL CORP.
transerrable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed.
This certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
DATED:
AMERICAN BANK NOTE COMPANY DECEMBER 4, 1996 fm
3504 ATLANTIC AVENUE
SUITE 12
LONG BEACH, CA 90807 047352fc
(310) 989-2333
(FAX)(310)426-7450 400-19X Proof /s/CC REV1
COUNTERSIGNED AND REGISTERED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(Jersey City, NJ)
TRANSFER AGENT AND REGISTRAR,
AUTHORIZED OFFICER
EXECUTIVE VICE PRESIDENT [CORPORATE SEAL] PRESIDENT
<PAGE>
The Corporation will furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - Custodian
-----------------------------
(Cust) (Minor)
under Uniform Gifts to Minors
Act
-------------------------
(State)
Additional abbreviations may also be used though not in the above list.
For value received,
------------------------hereby sell, asign and transfer unto
Please insert social security or other
identifying number of assignee
- ---------------------------------------
- ---------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ------------------------------------------------------------------------Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
----------------------------------
NOTICE:
----------------------------------------------------------------------
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
----------------------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
AMERICAN BANK NOTE COMPANY NOV 6, 1996 fm
3504 ATLANTIC AVENUE
SUITE 12
LONG BEACH, CA 90807 047352bk
(310) 989-2333
(FAX)(310)426-7450 400-19X Proof /s/RH NEW
<PAGE>
Exhibit 4.2
WARRANT AGREEMENT dated as of , 1996 between Intellicell
Corp., a Delaware corporation (the "Company"), and Sands Brothers & Co., Ltd.
(hereinafter referred to as the "Representative").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Representative, in its
individual capacity and not as representative of the several Underwriters
(defined below) warrants ("Warrants") to purchase up to an aggregate of 200,000
shares (the "Shares") of common stock of the Company, $.01 par value (the
"Common Stock"); and
WHEREAS, the Representative has agreed, pursuant to the underwriting
agreement (the "Underwriting Agreement") dated , 1996 between the
Representative, as representative of the several Underwriters named in Schedule
A to the Underwriting Agreement (the "Underwriters") and the Company, to act as
one of the underwriters in connection with the Company's proposed public
offering (the "Public Offering") of 2,000,000 shares of Common Stock at an
initial public offering price of $5.00 per share of Common Stock; and
WHEREAS, the Warrants issued pursuant to this Agreement are being
issued by the Company to the Representative or officers or partners of the
Representative and members of the selling group or the underwriting syndicate
and/or their officers or partners, in consideration for, and as part of the
Representative's compensation in connection with, the Representative acting as
one of the underwriters pursuant to the Underwriting Agreement;
<PAGE>
NOW, THEREFORE, in consideration of the premises, the payment by the
Representative to the Company of ONE HUNDRED DOLLARS ($100.00), the agreements
herein set forth and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Grant.
The Representative, and/or its designees who are officers or partners
of the Representative or members of the selling group or underwriting syndicate
in connection with the Public Offering, are hereby granted the right to
purchase, at any time from __________ __, 1997 [One Year Anniversary of
Effective Date] until 5:00 P.M., New York City time, on _______ __, 2001 [Five
Year Anniversary of Effective Date] (the "Warrant Exercise Term"), up to 200,000
Shares at an initial exercise price (subject to adjustment as provided in
Article 8 hereof) of $6.00 per Share.
2. Warrant Certificates.
The warrant certificates (the "Warrant Certificates") delivered and to
be delivered pursuant to this Agreement shall be in the form set forth as
Exhibit A, attached hereto and made a part hereof, with such appropriate
insertions, omissions, substitutions and other variations as required or
permitted by this Agreement.
3. Exercise of Warrants.
3.1 Cash Exercise. The Warrants initially are exercisable at
a price of $6.00 per Share purchased, payable in cash or by check to the order
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<PAGE>
of the Company, or any combination of cash or check, subject to adjustment as
provided in Article 8 hereof. Upon surrender of the Warrant Certificate with the
annexed Form of Election to Purchase duly executed, together with payment of the
Exercise Price (as hereinafter defined) for the Shares purchased, at the
principal office of the Company in California (presently located at 6929
Hayvenhurst Avenue, Van Nuys, California 91406) or at the office of its transfer
agent, the registered holder of a Warrant Certificate ("Holder" or "Holders")
shall be entitled to receive a certificate or certificates for the Shares so
purchased. The purchase rights represented by each Warrant Certificate are
exercisable at the option of the Holder hereof, in whole or in part (but not as
to fractional Shares). In the case of the purchase of less than all the Shares
purchasable under any Warrant Certificate, the Company shall cancel said Warrant
Certificate upon the surrender thereof and shall execute and deliver a new
Warrant Certificate of like tenor for the balance of the Shares purchasable
thereunder.
3.2 Cashless Exercise. At any time during the Warrant Exercise
Term, the Holder may, at its option, exchange this Warrant, in whole or in part
(a "Warrant Exchange"), into the number of Shares determined in accordance with
this Section 3.2, by surrendering this Warrant at the principal office of the
Company or at the office of its transfer agent, accompanied by a notice stating
such Holder's intent to effect such exchange, the number of Shares to be
exchanged and the date on which the Holder requests that such Warrant Exchange
occur (the "Notice of Exchange"). The Warrant Exchange shall take place on the
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<PAGE>
date specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Company (the "Exchange Date"). Certificates for the
Shares issuable upon such Warrant Exchange and, if applicable, a new warrant of
like tenor evidencing the balance of the Shares remaining subject to this
Warrant, shall be issued as of the Exchange Date and delivered to the Holder
within three (3) days following the Exchange Date. In connection with any
Warrant Exchange, this Warrant shall represent the right to subscribe for and
acquire (I) the number of Shares (rounded to the next highest integer) equal to
(i) the number of Shares specified by the Holder in its Notice of Exchange (the
"Total Number") less (ii) the number of Shares equal to the quotient obtained by
dividing (A) the product of the Total Number and the existing Exercise Price (as
hereinafter defined) by (B) the current market value of a Public Share.
Notwithstanding the foregoing, the exercising Holder must pay the nominal value
of each share of Common Stock that is issued by the Company pursuant to any such
exercise.
4. Issuance of Certificates.
Upon the exercise of the Warrants, the issuance of certificates for the
Shares purchased shall be made forthwith (and in any event within three business
days thereafter) without charge to the Holder thereof including, without
limitation, any tax which may be payable in respect of the issuance thereof, and
such certificates shall (subject to the provisions of Article 5 hereof) be
issued in the name of, or in such names as may be directed by, the Holder
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<PAGE>
thereof; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of any such certificates in a name other than that of the Holder and
the Company shall not be required to issue or deliver such certificates unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the Shares
shall be executed on behalf of the Company by the manual or facsimile signature
of the present or any future Chairman or Vice Chairman of the Board of Directors
or President or Vice President of the Company under its corporate seal
reproduced thereon, attested to by the manual or facsimile signature of the
present or any future Secretary or Assistant Secretary of the Company. Warrant
Certificates shall be dated the date of execution by the Company upon initial
issuance, division, exchange, substitution or transfer.
Upon exercise, in part or in whole, of the Warrants, certificates
representing the Shares shall bear a legend substantially similar to the
following:
"The securities represented by this certificate and the other
securities issuable upon exercise thereof have not been registered
under the Securities Act of 1933, as amended (the "Act"), and may not
be offered or sold except (i) pursuant to an effective registration
statement under the Act, (ii) to the extent applicable, pursuant to
Rule 144 under the Act (or any similar rule under such Act relating to
the disposition of securities), or (iii) upon the delivery by the
holder to the Company of an opinion of counsel, reasonably satisfactory
to counsel to the Company, stating that an exemption from registration
under such Act is available."
-5-
<PAGE>
5. Restriction on Transfer of Warrants.
The Holder of a Warrant Certificate, by its acceptance thereof,
covenants and agrees that the Warrants are being acquired as an investment and
not with a view to the distribution thereof, and that the Warrants may not be
sold, transferred, assigned, hypothecated or otherwise disposed of, in whole or
in part, for a period of one (1) year from the date hereof, except to officers
or partners of the Representative or to any member of the selling group
participating in the distribution to the public of the Common Stock and/or their
respective officers or partners.
6. Price.
6.1 Initial and Adjusted Exercise Price. The initial exercise
price of each Warrant shall be $6.00 per Share. The adjusted exercise price
shall be the price which shall result from time to time from any and all
adjustments of the initial exercise price in accordance with the provisions of
Article 8 hereof.
6.2 Exercise Price. The term "Exercise Price" herein shall mean
the initial exercise price or the adjusted exercise price, depending upon the
context.
7. Registration Rights.
7.1 Registration Under the Securities Act of 1933. The Warrants
and the Shares have not been registered for purposes of public distribution
under the Securities Act of 1933, as amended (the "Act").
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<PAGE>
7.2 Registrable Securities. As used herein the term
"Registrable Security" means each of the Warrants, the Shares and any shares of
Common Stock issued upon any stock split or stock dividend in respect of such
Shares; provided, however, that with respect to any particular Registrable
Security, such security shall cease to be a Registrable Security when, as of the
date of determination, (i) it has been effectively registered under the Act and
disposed of pursuant thereto, (ii) registration under the Act is no longer
required for subsequent public distribution of such security or (iii) it has
ceased to be outstanding. The term "Registrable Securities" means any and/or all
of the securities falling within the foregoing definition of a "Registrable
Security." In the event of any merger, reorganization, consolidation,
recapitalization or other change in corporate structure affecting the Common
Stock, such adjustment shall be made in the definition of "Registrable Security"
as is appropriate in order to prevent any dilution or enlargement of the rights
granted pursuant to this Article 7.
7.3 Piggyback Registration. If, at any time during the five
years following the date of this Agreement, the Company proposes to prepare and
file one or more post-effective amendments to the registration statement filed
in connection with the Public Offering or any new registration statement or
post-effective amendments thereto covering equity or debt securities of the
Company, or any such securities of the Company held by its shareholders (in any
such case, other than in connection with a merger, acquisition or pursuant to
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<PAGE>
Form S-8 or successor form), (for purposes of this Article 7, collectively, a
"Registration Statement"), it will give written notice of its intention to do so
by registered mail ("Notice"), at least thirty (30) business days prior to the
filing of each such Registration Statement, to all holders of the Registrable
Securities. Upon the written request of such a holder (a "Requesting Holder"),
made within twenty (20) business days after receipt of the Notice, that the
Company include any of the Requesting Holder's Registrable Securities in the
proposed Registration Statement, the Company shall, as to each such Requesting
Holder, use its best efforts to effect the registration under the Act of the
Registrable Securities which it has been so requested to register ("Piggyback
Registration"), at the Company's sole cost and expense and at no cost or expense
to the Requesting Holders.
7.4 Demand Registration.
(a) At any time during the Warrant Exercise Term, any
"Majority Holder" (as such term is defined in Section 7.4(c) below) of the
Registrable Securities shall have the right (which right is in addition to the
piggyback registration rights provided for under Section 7.3 hereof),
exercisable by written notice to the Company (the "Demand Registration
Request"), to have the Company prepare and file with the Securities and Exchange
Commission (the "Commission"), on one occasion, at the sole expense of the
Company, a Registration Statement and such other documents, including a
prospectus, as may be necessary (in the opinion of both counsel for the Company
and counsel for such Majority Holder), in order to comply with the provisions of
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<PAGE>
the Act, so as to permit a public offering and sale of the Registrable
Securities by the holders thereof, for twelve (12) consecutive months.
(b) The Company covenants and agrees to give written notice
of any Demand Registration Request to all holders of the Registrable Securities
within ten (10) days from the date of the Company's receipt of any such Demand
Registration Request. After receiving notice from the Company as provided in
this Section 7.4(b), holders of Registrable Securities may request the Company
to include their Registrable Securities in the Registration Statement to be
filed pursuant to Section 7.4(a) hereof by notifying the Company of their
decision to include such securities within ten (10) days of their receipt of the
Company's notice.
(c) The term "Majority Holder" as used in this Section 7.4
shall mean any holder or any combination of holders of Registrable Securities,
if included in such holders' Registrable Securities are that aggregate number of
Shares (including Shares already issued and Shares issuable pursuant to the
exercise of outstanding Warrants) as would constitute a majority of the
aggregate number of Shares (including Shares already issued and Shares issuable
pursuant to the exercise of outstanding Warrants) included in all of the
Registrable Securities.
7.5 Covenants of the Company With Respect to Registration. The
Company covenants and agrees as follows:
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<PAGE>
(a) In connection with any registration under Section 7.4
hereof, the Company shall file the Registration Statement as expeditiously as
possible, but in no event later than thirty (30) days following receipt of any
demand therefor, shall use its best efforts to have any such Registration
Statements declared effective at the earliest possible time, and shall furnish
each holder of Registrable Securities such number of prospectuses as shall
reasonably be requested.
(b) The Company shall pay all costs, fees and expenses in
connection with all Registration Statements filed pursuant to Sections 7.3 and
7.4(a) hereof including, without limitation, the Company's legal and accounting
fees, printing expenses, and blue sky fees and expenses.
(c) The Company will take all necessary action which may be
required in qualifying or registering the Registrable Securities included in a
Registration Statement for offering and sale under the securities or blue sky
laws of such states as are requested by the holders of such securities, provided
that the Company shall not be obligated to execute or file any general consent
to service of process or to qualify as a foreign corporation to do business
under the laws of any such jurisdiction.
(d) The Company shall indemnify any holder of the
Registrable Securities to be sold pursuant to any Registration Statement and any
underwriter or person deemed to be an underwriter under the Act and each person,
if any, who controls such holder or underwriter or person deemed to be an
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<PAGE>
underwriter within the meaning of Section 15 of the Act or Section 20(a) of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), against all loss,
claim, damage, expense or liability (including all expenses reasonably incurred
in investigating, preparing or defending against any claim whatsoever) to which
any of them may become subject under the Act, the Exchange Act or otherwise,
arising from such registration statement to the same extent and with the same
effect as the provisions pursuant to which the Company has agreed to indemnify
the Underwriters contained in Section 7 of the Underwriting Agreement and to
provide for just and equitable contribution as set forth in Section 8 of the
Underwriting Agreement.
(e) Any holder of Registrable Securities to be sold
pursuant to a Registration Statement, and its successors and assigns, shall
severally, and not jointly, indemnify, the Company, its officers and directors
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, against all loss, claim,
damage or expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished in writing by or on behalf of such holder, or its
successors or assigns, for specific inclusion in such Registration Statement to
the same extent and with the same effect as the provisions contained in Section
7 of the Underwriting Agreement pursuant to which the Underwriters have agreed
to indemnify the Company and to provide for just and equitable contribution as
set forth in Section 8 of the Underwriting Agreement.
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<PAGE>
(f) Nothing contained in this Agreement shall be construed
as requiring any Holder to exercise his Warrants prior to the initial filing of
any Registration Statement or the effectiveness thereof.
(g) If the Company shall fail to comply with the provisions
of this Article 7, the Company shall, in addition to any other equitable or
other relief available to the holders of Registrable Securities, be liable for
any or all incidental, special and consequential damages sustained by the
holders of Registrable Securities, requesting registration of their Registrable
Securities.
(h) Except as set forth in Section 7.5(j) hereof, the
Company shall not permit the inclusion of any securities other than the
Registrable Securities to be included in any Registration Statement filed
pursuant to Section 7.4 hereof, or permit any other registration statement to be
or remain effective during the effectiveness of a Registration Statement filed
pursuant to Section 7.4 hereof, without the prior written consent of the
Majority Holders, which consent shall not be unreasonably withheld.
(i) The Company shall deliver promptly to each holder of
Registrable Securities participating in the offering in which such Holder's
shares are being registered pursuant to Section 7.3 hereof and requesting the
correspondence and memoranda described in this Section 7.5(i) and to the
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<PAGE>
managing underwriter, if any, copies of all correspondence between the
Commission and the Company, its counsel or auditors and all memoranda relating
to discussions with the Commission or its staff with respect to the Registration
Statement and permit each holder of Registrable Securities and underwriters to
do such investigation, upon reasonable advance notice, with respect to
information contained in or omitted from the Registration Statement as it deems
reasonably necessary to comply with applicable securities laws or rules of the
National Association of Securities Dealers, Inc. Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such holder
of Registrable Securities or underwriter shall reasonably request.
(j) Upon the written request therefor by any holders of
Registrable Securities, the Company shall include in the Registration Statement
covering any of the Registrable Securities any other securities of the Company
held by such holders of Registrable Securities as of the date of filing of such
Registration Statement, including, without limitation, restricted shares of
Common Stock, options, warrants or any other securities convertible into shares
of Common Stock.
8. Adjustments of Exercise Price and Number of Shares. The
following adjustments apply to the Exercise Price of the Warrants with respect
to the Shares and the number of Shares purchasable upon exercise of the
Warrants.
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<PAGE>
8.1 Computation of Adjusted Price. In case the
Company shall at any time after the date hereof pay a dividend in Common Stock
or make a distribution in Common Stock, then upon such dividend or distribution
the Exercise Price in effect immediately prior to such dividend or distribution
shall forthwith be reduced to a price determined by dividing:
(a) an amount equal to the total number of shares of Common
Stock outstanding immediately prior to such dividend or distribution multiplied
by the Exercise Price in effect immediately prior to such dividend or
distribution, by
(b) the total number of shares of Common Stock outstanding
immediately after such issuance or sale.
For the purposes of any computation to be
made in accordance with the provisions of this Section 8.1, the Common Stock
issuable by way of dividend or other distribution on any stock of the Company
shall be deemed to have been issued immediately after the opening of business on
the date following the date fixed for the determination of stockholders entitled
to receive such dividend or other distribution.
8.2 Subdivision and Combination. In case the Company shall at
any time subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
8.3 Adjustment in Number of Shares. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Article 8, the number of
Shares issuable upon the exercise of each Warrant shall be adjusted to the
nearest full Share by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of Shares issuable upon
exercise of the Warrants immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
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<PAGE>
8.4 Reclassification, Consolidation, Merger, etc. In case of
any reclassification or change of the outstanding shares of Common Stock (other
than a change in par value to no par value, or from no par value to par value,
or as a result of a subdivision or combination), or in the case of any
consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the Company is the
surviving corporation and which does not result in any reclassification or
change of the outstanding shares of Common Stock, except a change as a result of
a subdivision or combination of such shares or a change in par value, as
aforesaid), or in the case of a sale or conveyance to another corporation of the
property of the Company as an entirety, the Holders shall thereafter have the
right to purchase the kind and number of shares of stock and other securities
and property receivable upon such reclassification, change, consolidation,
merger, sale or conveyance as if the Holders were the owners of both the Shares
immediately prior to any such events at a price equal to the product of (x) the
number of shares of Common Stock issuable upon exercise of the Holders' Warrants
(y) the Exercise Price in effect immediately prior to the record date for such
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<PAGE>
reclassification, change, consolidation, merger, sale or conveyance as if such
Holders had exercised the Warrants.
8.5 Determination of Outstanding Shares of Common Stock. The
number of shares of Common Stock at any one time outstanding shall include the
aggregate number of shares issued or issuable upon the exercise of options,
rights, warrants and upon the conversion or exchange of convertible or
exchangeable securities.
8.6 Dividends and Other Distributions with Respect to
Outstanding Securities. In the event that the Company shall at any time prior to
the exercise of all Warrants declare a dividend (other than a dividend
consisting solely of shares of Common Stock or a cash dividend or distribution
or otherwise distribute to its shareholders any monies, assets, property,
rights, evidences of indebtedness, securities (other than shares of Common
Stock), whether issued by the Company or by another person or entity, or any
other thing of value, the Holder or Holders of the unexercised Warrants shall
thereafter be entitled, in addition to the shares of Common Stock or other
securities receivable upon the exercise thereof, to receive, upon the exercise
of such Warrants, the same monies, property, assets, rights, evidences of
indebtedness, securities or any other thing of value that they would have been
entitled to receive at the time of such dividend or distribution. At the time of
any such dividend or distribution, the Company shall make appropriate reserves
to ensure the timely performance of the provisions of this Subsection 8.6.
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<PAGE>
8.7 Subscription Rights for Shares of Common Stock or Other
Securities. In the case the Company or an affiliate of the Company shall at any
time after the date hereof and prior to the exercise of all the Warrants issue
any rights to subscribe for shares of Common Stock or any other securities of
the Company or of such affiliate to all the shareholders of the Company, the
Holders of the unexercised Warrants shall be entitled, in addition to the shares
of Common Stock or other securities receivable upon the exercise of the
Warrants, to receive such rights at the time such rights are distributed to the
other shareholders of the Company.
9. Exchange and Replacement of Warrant Certificates. Each
Warrant Certificate is exchangeable without expense, upon the surrender hereof
by the registered Holder at the principal executive office of the Company, for a
new Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Shares in such denominations as shall be
designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
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10. Elimination of Fractional Interests.
The Company shall not be required to issue certificates
representing fractions of Shares upon the exercise of the Warrants nor shall it
be required to issue scrip or pay cash in lieu of fractional interests, it being
the intent of the parties that all fractional interests shall be eliminated by
rounding any fraction up to the nearest whole number of Shares.
11. Reservation and Listing of Securities.
The Company shall at all times reserve and keep avail-
able out of its authorized shares of Common Stock , solely for the purpose of
issuance upon the exercise of the Warrants, such number of shares of Common
Stock as shall be issuable upon the exercise thereof. The Company covenants and
agrees that, upon exercise of the Warrants and payment of the Exercise Price
therefor, all Shares issuable upon such exercise shall be duly and validly
issued, fully paid, non-assessable and not subject to the preemptive rights of
any shareholder. As long as the Warrants shall be outstanding, the Company shall
use its best efforts to cause all shares of Common Stock issuable upon the
exercise of the Warrants to be listed on or quoted by the NASDAQ SmallCap
Market, or listed on such national securities exchanges as requested by the
Representative.
12. Notices to Warrant Holders.
Nothing contained in this Agreement shall be construed as
conferring upon the Holder or Holders the right to vote or to consent or to
receive notice as a shareholder in respect of any meetings of shareholders for
the election of directors or any other matter, or as having any rights
whatsoever as a shareholder of the Company. If, however, at any time prior to
the expiration of the Warrants and their exercise, any of the following events
shall occur:
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(a) the Company shall take a record of the
holders of its shares of Common Stock for the purpose of
entitling them to receive a dividend or distribution payable
otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or
distribution on the books of the Company; or
(b) the Company shall offer to all the
holders of its shares of Common Stock any additional shares of
capital stock of the Company or securities convertible into or
exchangeable for shares of capital stock of the Company, or
any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up
of the Company (other than in connection with a consolidation
or merger) or a sale of all or substantially all of its
property, assets and business as an entirety shall be
proposed; or
(d) reclassification or change of the
outstanding shares of Common Stock (other than a change in par
value to no par value, or from no par value to par value, or
as a result of a subdivision or combination),
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<PAGE>
consolidation of the Company with, or merger of the Company
into, another corporation (other than a consolidation or
merger in which the Company is the surviving corporation and
which does not result in any reclassification or change of the
outstanding shares of Common Stock, except a change as a
result of a subdivision or combination of such shares or a
change in par value, as aforesaid), or a sale or conveyance to
another corporation of the property of the Company as an
entirety is proposed; or
(e) The Company or an affiliate of the
Company shall propose to issue any rights to subscribe for
shares of Common Stock or any other securities of the Company
or of such affiliate to all the shareholders of the Company;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
shareholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, options or warrants, or entitled
to vote on such proposed dissolution, liquidation, winding up or sale. Such
notice shall specify such record date or the date of closing the transfer books,
as the case may be. Failure to give such notice or any defect therein shall not
affect the validity of any action taken in connection with the declaration or
payment of any such dividend or distribution, or the issuance of any
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convertible or exchangeable securities or subscription rights, options or
warrants, or any proposed dissolution, liquidation, winding up or sale.
13. Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt requested:
(f) If to a registered Holder of the
Warrants, to the address of such Holder as shown on the books
of the Company; or
(g) If to the Company, to the address set
forth in Section 3 of this Agreement or to such other address
as the Company may designate by notice to the Holders.
14. Supplements and Amendments.
The Company and the Representative may from time to time
supplement or amend this Agreement without the approval of any Holders of
Warrant Certificates in order to cure any ambiguity, to correct or supplement
any provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Representative may deem
necessary or desirable and which the Company and the Representative deem not to
adversely affect the interests of the Holders of Warrant Certificates.
-21-
<PAGE>
15. Successors.
All the covenants and provisions of this Agreement by or for
the benefit of the Company and the Holders inure to the benefit of their
respective successors and assigns hereunder.
16. Termination.
This Agreement shall terminate at the close of business on
__________, 200_ [Three years after last date of exercise of Warrants to give
sufficient coverage for registration of the securities and period of sale.]
Notwithstanding the foregoing, this Agreement will terminate on any earlier date
when all Warrants and Underlying Warrants have been exercised and all Warrant
Securities have been resold to the public; provided, however, that the
provisions of Section 7.4 shall survive such termination until the close of
business on _________, 200_ [Three years plus the time period above in this
Section 16.].
17. Governing Law.
This Agreement and each Warrant Certificate issued hereunder
shall be deemed to be a contract made under the laws of the State of New York
and for all purposes shall be construed in accordance with the laws of said
State.
18. Benefits of This Agreement.
Nothing in this Agreement shall be construed to give to any
person or corporation other than the Company and the Underwriter and any other
registered holder or holders of the Warrant Certificates, or Warrant Securities
any legal or equitable right, remedy or claim under this Agreement; and this
Agreement shall be for the sole and exclusive benefit of the Company and the
Underwriter and any other holder or holders of the Warrant Certificates,
Warrants or the Shares.
-22-
<PAGE>
19. Counterparts.
This Agreement may be executed in any number of counterparts
and each of such counterparts shall for all purposes be deemed to be an
original, and such counterparts shall together constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
[SEAL] INTELLICELL CORP.
By:
-------------------------------
Name:
Title:
Attest:
- -----------------------
SANDS BROTHERS & CO., LTD.
By:
-------------------------------
Name:
Title:
-23-
<PAGE>
EXHIBIT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE,
PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO
THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREE-
MENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, _________, 199_
No. W- _______ Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that Sands Brothers & Co.,
Ltd. or registered assigns, is the registered holder of _______ Warrants to
purchase, at any time from _______, 199_ until 5:00 P.M. New York City time on
________, 199_ ("Expiration Date"), up to _____ fully paid and non-assessable
shares ("Shares") of Common Stock, par value $.01 per share ("Common Stock"), of
Intellicell Corp., a Delaware corporation (the "Company"), at the initial
exercise price, subject to adjustment in certain events (the "Exercise Price"),
of $6.00 per Share, upon surrender of this Warrant Certificate and payment of
the Exercise Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the warrant agreement dated as of
____________, 1996 between the Company and Sands Brothers & Co., Ltd. (the
"Warrant Agreement"). Payment of the Exercise Price may be made in cash, or by
certified or official bank check in New York Clearing House funds payable to the
order of the Company, or any combination of cash or check.
No Warrant may be exercised after 5:00 P.M., New York City
time, on the Expiration Date, at which time all Warrants evidenced hereby,
unless exercised prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to in a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder) of the Warrants.
<PAGE>
The Warrant Agreement provides that upon the occurrence of
certain events, the Exercise Price and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax, or
other governmental charge imposed in connection therewith.
Upon the exercise of less than all of the Warrants evidenced
by this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated: ___________, 199_ INTELLICELL CORP.
[SEAL]
By:
-------------------------------
Name:
Title:
Attest:
- ----------------------
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase _________ Shares and
herewith tenders in payment for such Shares cash or a certified or official bank
check payable in New York Clearing House Funds to the order of INTELLICELL CORP.
in the amount of $ , all in accordance with the terms hereof. The undersigned
requests that a certificate for such Shares be registered in the name of , whose
address is __________________, and that such Certificate be delivered to
__________________, whose address is _____________.
Dated: Signature:_____________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
--------------------------------------
--------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such
holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED__________________________________________
hereby sells, assigns and transfers unto _____________________________________
______________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _______________, Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: Signature:
----------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate)
- -------------------------------
- -------------------------------
(Insert Social Security or Other
Identifying Number of Assignee)
<PAGE>
December 6, 1996
Intellicell Corp.
6929 Hayvenhurst Avenue
Van Nuys, California 91406
Gentlemen:
You have requested our opinion with respect to the public
offering and sale by you, Intellicell Corp., a Delaware corporation (the
"Company"), pursuant to a Registration Statement (the "Registration Statement")
on Form S-1 (No. 333-15447), under the Securities Act of 1933, as amended (the
"Act"), of up to 2,300,000 shares (the "Shares") of Common Stock, par value $.01
per share, of the Company.
We have examined originals, or copies certified or otherwise
identified to our satisfaction, of such documents and corporate and public
records as we deem necessary as a basis for the opinion hereinafter expressed.
With respect to such examination, we have assumed the genuineness of all
signatures appearing on all documents presented to us as originals, and the
conformity to the originals of all documents presented to us as conformed or
reproduced copies. Where factual matters relevant to such opinion were not
independently established, we have relied upon certificates of appropriate state
and local officials, and upon certificates of executive officers and responsible
employees and agents of the Company.
Based upon the foregoing, it is our opinion that the Shares
have been duly and validly authorized and when sold, paid for and issued as
contemplated by the Registration Statement will be duly and validly issued and
fully paid and nonassessable.
We hereby consent to the use of this opinion as Exhibit 5 to
the Registration Statement, and to the use of our name as counsel in connection
with the Registration Statement and in the
<PAGE>
Intellicell Corp.
December 6, 1996
Page 2
Prospectus forming a part thereof. In giving this consent, we do not thereby
concede that we come within the categories of persons whose consent is required
by the Act or the General Rules and Regulations promulgated thereunder.
Very truly yours,
TENZER GREENBLATT LLP
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in Amendment No. 1 to the Registration
Statement on Form S-1 of our reports dated September 13, 1996 (October 7,
1996 with respect to Note I[5]; October 18, 1996 with respect to the second
paragraph of Note A; October 31, 1996 with respect to Notes F[2] and I[2]) on
the financial statements and Schedule II 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
December 6, 1996
