<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 18, 1996
REGISTRATION NO. 333-15447
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------
Post-Effective
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>
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>
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. The
Common Stock will be quoted on the Nasdaq SmallCap Market ("Nasdaq") under
the symbol "FONE" and on the Boston Stock Exchange under the symbol "FNE."
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 ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS" ON PAGE 6
AND "DILUTION."
------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
===============================================================================
Price Underwriting Proceeds
to Discounts and to
Public Commissions(1) Company(2)
- -------------------------------------------------------------------------------
Per Share .............. $5.00 $.40 $4.60
- -------------------------------------------------------------------------------
Total(3) ............... $10,000,000 $800,000 $9,200,000
===============================================================================
(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 % nonaccountable 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 nonaccountable 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 30
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, New York, New
York, on or about December 23, 1996.
------
SANDS BROTHERS & CO., LTD.
The date of this Prospectus is December 17, 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
reincorporated under the laws of the State of Delaware and changed its name
to Intellicell Corp. in November 1996. 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 to repay indebtedness; to
finance increased levels of inventories and
accounts receivable; 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."
Nasdaq symbol.................. FONE
Boston Stock Exchange symbol... FNE
- ------
(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 256,250 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
203,750 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 19,446
Short-term debt ............ 4,771 3,771 --
Total liabilities .......... 14,863 13,863 10,092
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 operating results. There can
be no assurance that the Company's operations will continue to 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 following 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.
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. The Company's Common Stock has been approved 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.
Representative's Potential Influence on the Company. 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 Company has agreed to facilitate the foregoing. The
election of such designee may enable the Representative to exert influence on
the Company. The Representative has not yet exercised its right to designate
such a person. See "Underwriting."
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>
Repayment of indebtedness(1) ........ $4,100,000 50.3%
Expansion activities(2) ............. 3,000,000 36.8
Working capital and general corporate
purposes(3) ........................ 1,050,000 12.9
--------------- ---------------
Total ............................. $8,150,000 100.0%
=============== ===============
</TABLE>
- ------
(1) 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."
(2) 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.
(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:
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
=======
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 256,250
shares of Common Stock reserved for issuance upon exercise of outstanding
options under the Plan; (iii) an aggregate of 203,750 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)........................... $ (.01) $ .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
-------------------------------------------------- ------------------------
1991 1992 1993 1994 1995 Actual Pro 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 ............ -- -- -- 445 2,490 4,771 3,771
Total liabilities .......... 320 589 2,212 7,392 8,590 14,863 13,863
Stockholders' equity (capital
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 $1,188,577. The Brightpoint Note bears
interest at a rate of 9.1% per annum and is due on December 31, 1996. At
September 30, 1996, the Company owed Brightpoint approximately $1,215,769,
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 32.6 days of sales made on open account in fiscal 1995 as compared
to an average of 27.7 days through September 30, 1996, while inventory turns
decreased from 24.7 times during fiscal 1994 to 20.2 times during fiscal 1995
and increased to 20.7 times on an annualized basis 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 27.7 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 20 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
Elliott 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.
Elliott 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 Accent Software
International Ltd., a publicly traded company engaged in marketing
multilingual software. 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
Name Principal Position Salary
------------ ------------------ --------
Ben Neman ................... President $75,000
- ------
The Company did not have any long-term incentive or option plans during
the fiscal year ended December 31, 1995.
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 Mr. Neman 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 he is terminated during the third year or the
last year of any renewal term, he 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 460,000 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
256,250 shares have been granted under the Plan. Of such options, options to
purchase 12,000, 50,000, 50,000 and 3,000 shares, respectively, have been
granted to Messrs. Neman, Bunting, Broidy and Sharma at an exercise price of
$5.00 per share ($5.50 in the case of Mr. Neman).
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. The Company has also obtained Directors and Officers insurance.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of the date of this
Prospectus and as adjusted to reflect the sale of the 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
Amount and Nature of ------------------------
Name and Address of Beneficial Ownership Before After
Beneficial Owner (1) (2) Offering Offering
------------------- ---------------------- ---------- ----------
<S> <C> <C> <C>
Ben Neman(3) ............................ 2,030,000 100.0% 47.3%(4)
James E. Bunting(5) ..................... -- -- --
Elliott 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.
Does not include options to purchase 12,000 shares of Common Stock.
(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.
(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 September 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 REGISTRAR
The transfer agent and registrar 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. ........................ 1,400,000
Bear, Stearns & Co., Inc. ......................... 60,000
Donaldson, Lufkin & Jenrette Securities Corporation 60,000
Goldman, Sachs & Co. .............................. 60,000
Lehman Brothers Inc. .............................. 60,000
J.C. Bradford & Co. ............................... 30,000
Cleary Gull Reiland & McDevitt Inc. ............... 30,000
Cruttenden Roth Incorporated ...................... 30,000
Dabney/Resnick/Imperial, LLC ...................... 30,000
Gerard Klauer Mattison & Co., L.L.C. .............. 30,000
Josepthal Lyon & Ross Incorporated ................ 30,000
Kaufman Bros., L.P. ............................... 30,000
Ladenburg, Thalmann & Co., Inc. ................... 30,000
Soundview Financial Group, Inc. ................... 30,000
Unterberg Harris, L.P. ............................ 30,000
Wedbush Morgan Securities Inc. .................... 30,000
Wessels, Arnold & Henderson, L.L.C. ............... 30,000
----------------
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 $.20 per share of Common
Stock, of which not in excess of $.10 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 30
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 nonaccountable
expense allowance of two and one half percent (2 1/2%) of the gross proceeds
of this offering, of which $50,000 has been paid to date. The Company has
also agreed to pay all expenses in connection with qualifying the shares of
Common Stock offered hereby for sale under the laws of such states as the
Underwriters may designate, including expenses of counsel retained for such
purpose by the Underwriters.
The Company has agreed to sell to the Representative or its designees, for
an aggregate of $100, warrants (the "Representative's Warrants") to purchase
up to 200,000 shares of Common Stock at an exercise price of $5.50 per share.
The Representative's Warrants may not be sold, transferred, assigned, pledged
or hypothecated 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
36
<PAGE>
(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 director 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.
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.
37
<PAGE>
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.
38
<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>
December 31, September 30, 1996
--------------------------- -----------------------------------------------
Pro Forma
1994 1995 Historical Adjustments Pro Forma
------------ ------------ ------------- -------------- -------------
(Unaudited) (Unaudited - see Note M)
<S> <C> <C> <C> <C> <C>
ASSETS
-------
(Note E(1)
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 ... 3,324,000 $4,607,000 6,079,000 6,079,000
$511,000
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
============ ============ ============= ============== =============
<PAGE>
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 termination of the
Company's status as an S
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>
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 2,000,000
(Note E(2) Goodwill recorded in connection with shares
purchased by officer (Note F(1) ............... 100,000
Converson of trade receivable into note reeceivable (Note
reeceivable (Note D) .............................................
</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)
(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)
(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:
<TABLE>
<CAPTION>
December 31,
------------------------- September 30,
1994 1995 1996
--------- --------- ---------------
(Unaudited)
<S> <C> <C> <C>
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
========= ========= ===============
</TABLE>
(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)
(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
---------- ------------ ---------------
(unaudited)
<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)
(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)
(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)
(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
<TABLE>
<CAPTION>
Page
--------
<S> <C>
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
Operations ................................................... 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 ........................................ 38
Index to Financial Statements ................................. F-1
</TABLE>
Until January 11, 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligation of dealers to
deliver a Prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
=============================================================================
<PAGE>
=============================================================================
2,000,000 SHARES
LOGO
COMMON STOCK
------
PROSPECTUS
------
SANDS BROTHERS & CO., LTD.
December 17, 1996
=============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<CAPTION>
<S> <C>
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
============
</TABLE>
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 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
Post-Effective 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 17th 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,
Post-Effective 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>
<S> <C> <C> <C>
Signature Title Date
----------- ----- -----
/s/ Ben Neman
- ------------------------------------ Chairman of the Board; President December 17, 1996
Ben Neman and Chief Executive Officer
(Principal Executive Officer)
*
- ------------------------------------ Executive Vice President; December 17, 1996
James E. Bunting Chief Operating Officer;
Chief Financial Officer
(Principal Accounting Officer)
and Director
*
- ------------------------------------ Director December 17, 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>
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
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
--------------------------------------- ----------- ------------ ------------ ------------- ------------
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 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>
2,000,000 Shares
INTELLICELL CORP.
Common Stock
UNDERWRITING AGREEMENT
December 17, 1996
Sands Brothers & Co., Ltd.,
As Representative of the Several Underwriters
90 Park Avenue
New York, New York 10016
Dear Sirs:
Intellicell Corp., a Delaware corporation (the "Company"),
proposes to issue and sell to the underwriters named in Schedule A (the
"Underwriters") of this Underwriting Agreement (the "Agreement"), for whom you
are acting as representative (the "Representative"), 2,000,000 shares (the "Firm
Shares") of Common Stock, par value $.01 per share of the Company (the "Common
Stock"). In addition, the Company has agreed to grant to the Underwriters an
option (which may be exercised by the Representative, individually) to purchase
an additional 300,000 shares of Common Stock (the "Option Shares") for the
purposes set forth in Section 3 hereof. The Firm Shares and the Option Shares
are hereinafter collectively referred to as the "Shares."
The Company also proposes to issue and sell to you (for your
own account and not as Representative of the Several Underwriters) and/or your
designees, warrants (the "Representative's Warrants") to purchase an aggregate
of 200,000 shares of Common Stock at an exercise price of $5.50 per share, which
sale will be consummated in accordance with the terms and conditions of the form
of Representative's Warrant Agreement filed as an exhibit to the Registration
Statement. The shares of Common Stock issuable upon exercise of the
Representative's Warrants are hereinafter sometimes referred to as the "Warrant
Shares." The Shares, the Representative's Warrants and the Warrant Shares
(collectively, the "Securities") are more fully described in the Registration
Statement and the Prospectus, as defined below.
You have advised the Company that you and the other Underwriters desire
to purchase, severally, the Firm Shares and that you have been authorized by the
Underwriters to execute this agreement on their behalf. The Company confirms the
agreements made by it with respect to the purchase of the Firm Shares by the
several Underwriters on whose behalf you are signing this Agreement, as follows:
<PAGE>
1. Purchase and Sale of Firm Shares. (a) Subject to the terms
and conditions of this Agreement, and upon the basis of the representations,
warranties, and agreements herein contained, the Company agrees to issue and
sell to the Underwriters, and each such Underwriter agrees, severally and not
jointly, to buy from the Company at $4.60 for each Firm Share, at the place and
time hereinafter specified, the number of Firm Shares set forth opposite the
names of the Underwriters in Schedule A attached hereto plus any additional Firm
Shares which such Underwriters may become obligated to purchase pursuant to the
provisions of Section 9 hereof.
2. Payment and Delivery; Representative's Warrants.
(a) Delivery to the Underwriters of and payment for the Firm
Shares shall take place at 10:00 a.m., New York Time, on the third full business
day (or, if the Firm Shares are priced, as contemplated in Rule 15c6-1(c) under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), after 4:30
p.m., New York Time, the fourth full business day) following the date of the
initial public offering, at the offices of the Representative, 90 Park Avenue,
New York, New York 10016 or at such time on such other date, as may be agreed
upon by the Company and the Underwriters (such date hereinafter is referred to
as the "Closing Date").
(b) The Company will make the certificates for the Shares to
be purchased by the Underwriters hereunder available to you for inspection at
least 24 hours prior to the Closing Date or the Option Closing Date (which are
collectively referred to herein as the "Closing Dates"). The certificates shall
be in such names and denominations as you may request, at least two (2) full
business days prior to the Closing Dates. Time shall be of the essence and
delivery at the time and place specified in this Agreement is a further
condition to the obligations of each Underwriter.
Definitive certificates in negotiable form for the Firm Shares
to be purchased by the Underwriters hereunder will be delivered by the Company
to you for the accounts of the several Underwriters against payment of the
respective purchase prices therefor by the several Underwriters, by federal wire
transfer to the Company. The Representative's written confirmation of the
effectuation of such federal wire transfer, detailing the specific federal wire
number, shall be satisfactory evidence that payment of the purchase price for
the Firm Shares has been made for purposes of the Closing Date and, upon
presentation of such confirmation, the Company shall be required to deliver
certificates in negotiable form for the Firm Shares at such time.
In addition, in the event the Underwriters (or the
Representative, individually) exercise the option to purchase from the Company
all or any portion of the Option Shares pursuant to the provisions of Section 3
hereof, payment for such securities shall be made to the Company by the
effectuation of a federal wire transfer at the date of delivery of such
securities as required by the provisions of Section 3 hereof.
-2-
<PAGE>
It is understood that you, individually and not as
Representative of the several Underwriters, may (but shall not be obligated to)
make any and all payments required pursuant to this Section 2 on behalf of any
Underwriters whose check or checks shall not have been received by the
Representative at the time of delivery of the Firm Shares to be purchased by
such Underwriter or Underwriters. Any such payment by you shall not relieve any
such Underwriter or underwriters of any of its or their obligations hereunder.
It is also understood that you individually rather than all of the Underwriters
may (but shall not be obligated to) purchase the Option Shares (as hereinafter
defined).
It is understood that the several Underwriters propose to
offer the Firm Shares to be purchased hereunder to the public upon the terms and
conditions set forth in the Registration Statement, after the Registration
Statement becomes effective.
The cost of original issue tax stamps, if any, in connection
with the issuance and delivery of the Shares by the Company to the Underwriters
shall be borne by the Company. The Company will pay and save each Underwriter
and any subsequent holder of the Shares harmless from and any and all
liabilities with respect to or resulting from any failure or delay in paying
Federal and state stamp and other transfer taxes, if any, which may be payable
or determined to be payable in connection with the original issuance or sale to
such Underwriter of Shares sold by such entity.
(b) On the Closing Date, the Company will sell the
Representative's Warrants to Sands Brothers, for its own account and not as
Representative of the several Underwriters, or to its designees. The
Representative's Warrants will be in the form of, and in accordance with, the
provisions of the Representative's Warrant Agreement attached as an exhibit to
the Registration Statement. The aggregate purchase price for the
Representative's Warrants is $100.00. The Representative's Warrants will be
restricted from sale, transfer, assignment or hypothecation for a period of one
year from the Effective Date, except to officers and partners of Sands Brothers.
Payment for the Representative's Warrants will be made to the Company by check
or checks payable to its order on the Closing Date against delivery of the
certificates representing the Representative's Warrants. The certificates
representing the Representative's Warrants will be in such denominations and
such names as Sands Brothers may request prior to the Closing Date.
3. Option to Purchase Option Shares.
(a) For the purposes of covering any overallotments
in connection with the distribution and sale of the Firm Shares as contemplated
by the Prospectus, the Company hereby grants an option to the several
Underwriters (which may be exercised, at its option, by the Representative,
individually) to purchase all or any part of the Option Shares from the Company.
This option may be exercised in whole or in part at anytime and from time to
time within 30 days after the effective date of the Registration Statement upon
written notice (each, an "Option Share Notice") by the Representative to the
Company setting forth the aggregate number of Option Shares to be purchased, the
names and denominations in which
-3-
<PAGE>
the certificates for such Option Shares are to be registered and the time and
date for such purchase. Such time and date shall be determined by the
Representative but shall be at least two and no more than five full business
days before the date specified for closing in the Option Share Notice (each an
"Option Closing Date"). Delivery of the Option Shares against payment therefor
shall take place at the offices of the Representative, 90 Park Avenue, New York,
New York 10016. The number of Option Shares to be purchased by each Underwriter,
if any, shall bear the same percentage to the total number of Option Shares
being purchased by the several Underwriters pursuant to this subsection (a) as
the number of Firm Shares such Underwriter is purchasing bears to the total
number of Firm Shares being purchased pursuant to subsection (a) of Section 1,
as adjusted, in each case by the Representative in such manner as the
Representative may deem appropriate. The purchase price to be paid for the
Option Shares will be the same price per Option Share as the price per Firm
Share set forth in Section 1 hereof.
(b) Payment for any Option Shares purchased will be
made to the Company by the effectuation of a federal wire transfer, against
receipt of the certificates for such securities by the Representative for the
respective accounts of the several Underwriters registered in such names and in
such denominations as the Representative may request. The Representatives'
written confirmation of the effectuation of such federal wire transfer,
detailing the specific federal wire number, shall be satisfactory evidence that
payment of the purchase price for the Option Shares has been made for purposes
of the Option Closing Date and, upon presentation of such confirmation, the
Company shall be required to deliver certificates in negotiable form for the
Option Shares at such time.
(c) The obligation of the Underwriters to purchase
and pay for any of the Option Shares is subject to the accuracy and completeness
(as of the date hereof and as of the Option Closing Date) in all material
respects of the representations and warranties of the Company herein, to the
accuracy and completeness of the statements of the Company or its officers made
in any certificate or other document to be delivered by the Company pursuant to
this Agreement, to the performance in all material respects by the Company of
its obligations hereunder, to the satisfaction by the Company of the conditions,
as of the date hereof and as of the Option Closing Date, and to the delivery to
the Underwriters of opinions, certificates and letters dated the Option Closing
Date substantially similar in scope to those specified in Section 6(b), (c), (d)
and (e) hereof, but with each reference to "Firm Shares," and "Closing Date" to
be, respectively, to the Option Shares and the Option Closing Date.
4. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the several Underwriters that:
(a) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
with full corporate power and authority to own or lease and operate its
properties and to conduct its business as described in the Registration
Statement and to execute, deliver and perform this Agreement and the
Representative's Warrant Agreement and to consummate the transactions
contemplated hereby
-4-
<PAGE>
and thereby. The Company is duly qualified to do business as a foreign
corporation and is in good standing in all jurisdictions wherein such
qualification is necessary and failure so to qualify could have a material
adverse effect on the financial condition, results of operations, business or
properties of the Company. The Company has no subsidiaries (as defined in the
Rules and Regulations, as defined below) that are required to be listed as
subsidiaries in Exhibit 21 to the Registration Statement. Except as set forth in
the Prospectus, the Company (i) does not own, and at the Closing Date and, if
later, the Option Closing Date will not own, directly or indirectly, any shares
of stock or any other equity or long-term debt securities of any corporation or
have any equity interest in any corporation, firm, partnership, joint venture,
association or other entity and (ii) is not, and at the Closing Date and, if
later, the Option Closing Date will not be, engaged in any discussions or a
party to any agreement or understanding, written or oral, regarding the
acquisition of an interest in any corporation, firm, partnership, joint venture,
association or other entity. Complete and correct copies of the certificate of
incorporation, the bylaws or other organizational documents of the Company and
all amendments thereto have been filed as Exhibits to the Registration
Statement.
(b) The Company has full corporate power and
authority to enter into this Agreement and the Representative's Warrants. This
Agreement has been duly executed and delivered by the Company and constitutes
the valid and binding obligation of the Company, and the Representative's
Warrant Agreement, when executed and delivered by the Company on the Closing
Date, will be valid and binding obligations of the Company, enforceable against
the Company in accordance with their respective terms, in each case subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally,
and except that rights to indemnification and contribution hereunder and
thereunder may be limited by applicable law and public policy. The execution,
delivery and performance of this Agreement and the Representative's Warrant
Agreement by the Company, the consummation by the Company of the transactions
herein and therein contemplated and the compliance by the Company with the terms
of this Agreement and the Representative's Warrant Agreement do not and will
not, with or without the giving of notice or the lapse of time, or both, (i)
result in any violation of the certificate of incorporation or by-laws of the
Company; (ii) result in a breach of or conflict with any of the terms or
provisions of, or constitute a default under, or result in the modification or
termination of, or result in the creation or imposition of any lien, security
interest, charge or encumbrance upon any of the properties or assets of the
Company pursuant to any indenture, mortgage, note, contract, commitment or other
agreement or instrument to which the Company is a party or by which the Company
or any of its properties or assets is or may be bound or affected; (iii) violate
any existing applicable law, rule, regulation, judgment, order or decree of any
governmental agency or court, domestic or foreign, having jurisdiction over the
Company or any of its properties or business which, in the case of clause (ii)
or (iii), that would have a material adverse effect on the financial condition,
results of operations, business or properties of the Company or the ability of
the Company to consummate the transactions contemplated hereby.
-5-
<PAGE>
(c) The Company has prepared in conformity with the
requirements of the Securities Act of 1933 (the"Act") and the rules and
regulations (the "Regulations") of the Securities and Exchange Commission (the
"Commission") and filed with the Commission a registration statement (File No.
333-15447 ) on Form S-1 and has filed one or more amendments thereto, covering
the registration of the Shares under the Act, including the related preliminary
prospectus or preliminary prospectuses (each thereof being herein called a
"Preliminary Prospectus") and a proposed final prospectus. Each Preliminary
Prospectus was endorsed with the legend required by Item 501(c)(5) of Regulation
S-K of the Regulations, including, if applicable, Rule 430A of the Regulations.
Such registration statement including any documents incorporated by reference
therein and all financial schedules and exhibits thereto, as amended at the time
it becomes effective, and the final prospectus included therein are herein,
respectively, called the "Registration Statement" and the "Prospectus," except
that, (i) if the prospectus filed by the Company pursuant to Rule 424(b) of the
Regulations differs from the Prospectus, the term "Prospectus" will also include
the prospectus filed pursuant to Rule 424(b), and (ii) if the Registration
Statement is amended or such Prospectus is supplemented after the effective date
of the Registration Statement (the "Effective Date") and prior to the Option
Closing Date (as hereinafter defined), the terms "Registration Statement" and
"Prospectus" shall include the Registration Statement as amended or
supplemented.
(d) Neither the Commission, nor to the best of the
Company's knowledge, any state regulatory authority has issued any order
preventing or suspending the use of any Preliminary Prospectus or has instituted
or, to the Company's knowledge, threatened to institute any proceedings with
respect to such an order.
(e) The Registration Statement when it becomes
effective, the Prospectus (and any amendment or supplement thereto) when it is
filed with the Commission pursuant to Rule 424(b), and both documents as of the
Closing Date, as the case may be, will comply as to form with the Act and the
Regulations and will in all material respects conform to the requirements of the
Act and the Regulations, and neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, on such dates, will contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
that this representation and warranty does not apply to statements or omissions
made in reliance upon and in conformity with information furnished in writing to
the Company by or on behalf of the Underwriters in connection with the
Registration Statement or Prospectus or any amendment or supplement thereto by
the Underwriters expressly for use therein.
(f) To the best of the Company's knowledge, Richard
A. Eisner & Company, LLP, the accountants who have certified certain of the
financial statements filed and to be filed with the Commission as part of the
Registration Statement and the Prospectus, are independent public accountants
within the meaning of the Act and Regulations. The financial statements and
schedules and the notes thereto and the selected financial statements and
summary financial statements filed as part of the Registration Statement and
included in the
-6-
<PAGE>
Prospectus present fairly in all material respects the financial position of the
Company as of the dates thereof, and the results of operations and changes in
financial position of the Company for the periods indicated therein, in
conformity with generally accepted accounting principles (which, as applied to
the Company for the periods involved, are substantially identical in all
material respects) applied on a substantially consistent basis throughout the
periods involved except as otherwise stated in the Registration Statement and
the Prospectus.
(g) The Company had at the date or dates indicated in
the Prospectus a duly authorized and outstanding capitalization as set forth in
the Registration Statement and the Prospectus. Based on the assumptions stated
in the Registration Statement and the Prospectus, the Company will have on the
Closing Date referred to below the adjusted stock capitalization set forth
therein. Except as disclosed in the Registration Statement or the Prospectus, on
the Effective Date and on the Closing Date referred to below, there will be no
options to purchase, warrants or other rights to subscribe for, or any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of the Company's capital stock or any such warrants,
convertible securities or obligations. Except as set forth in the Prospectus, no
holders of any of the Company's securities have any rights, "demand,"
"piggyback" or otherwise, to have such securities registered under the Act.
(h) The descriptions in the Registration Statement
and the Prospectus of contracts and other documents are accurate and present
fairly the information required to be disclosed, and there are no contracts or
other documents required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement under the
Act or the Regulations which have not been so described or filed as required.
(i) The Company has filed with the appropriate
federal, state and local governmental agencies, and all foreign countries and
political subdivisions thereof, all tax returns, including, without limitation,
franchise tax and sales tax returns, which are required to be filed or has duly
obtained extensions of time for the filing thereof and has paid all taxes shown
on such returns and all assessments received by it to the extent that the same
have become due, except where the failure to file tax returns, obtain extensions
of time for filing or pay such taxes and assessment would not have a material
adverse effect on the financial position, results of operations, properties or
business of the Company; and the provisions for income taxes payable, if any,
shown on the financial statements filed with or as part of the Registration
Statement are sufficient for all accrued and unpaid foreign and domestic taxes,
whether or not disputed, and for all periods to and including the dates of such
financial statements. All payroll withholdings required to be made by the
Company with respect to employees have been made. Except as disclosed in writing
to the Underwriters, the Company has not executed or filed with any taxing
authority, foreign or domestic, any agreement extending the period for
assessment or collection of any income taxes and is not a party to any pending
action or proceeding by any foreign or domestic governmental agency for
assessment or collection of taxes; and no claims for assessment or collection of
taxes have been asserted against the Company.
-7-
<PAGE>
(j) The outstanding shares of Common Stock and
outstanding options and warrants to purchase shares of Common Stock have been
duly authorized and validly issued. The outstanding shares of Common Stock are
fully paid and nonassessable. The outstanding options and warrants to purchase
Common Stock constitute the valid and binding obligations of the Company,
enforceable in accordance with their terms, in each case subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally, and except that
rights to indemnification and contribution thereunder and under this Agreement
may be limited by United States or state securities laws or public policy
relating thereto. None of the outstanding shares of Common Stock or options or
warrants to purchase shares of Common Stock has been issued in violation of the
preemptive rights of any shareholder of the Company. None of the holders of the
outstanding Common Stock is subject to personal liability solely by reason of
being such a holder. The offers and sales of the outstanding Common Stock and
outstanding options and warrants to purchase Common Stock were at all relevant
times either registered under the Act, the applicable state securities or Blue
Sky laws or exempt from such registration requirements. The authorized Common
Stock and outstanding options and warrants to purchase Common Stock conform in
all material respects to the descriptions thereof contained in the Registration
Statement and Prospectus.
(k) The issuance and sale of the Securities have been
duly authorized and, when issued and delivered against payment therefor as
contemplated by this Agreement or by the Warrant Agreement, as the case may be,
the Securities will be validly issued, fully paid and nonassessable. The holders
of the Securities will not be subject to personal liability solely by reason of
being such holders and none of the Securities will be subject to preemptive
rights of any shareholder of the Company.
(l) The issuance and sale of the Representative's
Warrants have been duly authorized and, when issued, paid for and delivered
pursuant to the terms of this Agreement or the Representative's Warrant
Agreement, as the case may be, the Representative's Warrants will constitute
valid and binding obligations of the Company, enforceable as to the Company in
accordance with their terms, in each case subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and except that rights to
indemnification and contribution thereunder and under this Agreement may be
limited by United States or state securities laws or public policy relating
thereto. A sufficient number of shares of Common Stock have been duly reserved
for issuance upon exercise of the Representative's Warrants in accordance with
the provisions of the Representative's Warrants. The Representative's Warrants
conform in all material respects to the descriptions thereof contained in the
Registration Statement and Prospectus.
(m) The Company is not in violation of, or in default
under, (i) any term or provision of its certificate of incorporation or by-laws;
(ii) any material term or provision or any financial covenants of any indenture,
mortgage, contract, commitment or other
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<PAGE>
agreement or instrument to which it is a party or by which it or any of its
property or business is or may be bound or affected; or (iii) any existing
applicable law, rule, regulation, judgment, order or decree of any governmental
agency or court, domestic or foreign, having jurisdiction over the Company or
any of its properties or business, which, in the case of clause (ii) and (iii),
would have a material adverse effect on the financial condition, results of
operations, business or properties of the Company or the ability of the Company
to consummate the transactions contemplated hereby. The Company owns, possesses
or has obtained all governmental and other licenses, permits, certifications,
registrations, approvals or consents and other authorizations ("Permits")
necessary to own or lease, as the case may be, and to operate its properties,
and to conduct its business or operations as presently conducted, except where
the failure to own, possess or obtain such Permits would not have a material
adverse effect on the financial condition, results of operations, business or
properties of the Company. All such Permits are outstanding and in good
standing, and there are no proceedings pending or, to the best of the Company's
knowledge, threatened, or any basis therefor, seeking to cancel, terminate or
limit such Permits.
(n) Except as set forth in the Prospectus, there are
no claims, actions, suits, proceedings, arbitrations, investigations or
inquiries before any governmental agency, court or tribunal, domestic or
foreign, or before any private arbitration tribunal, pending, or, to the best of
the Company's knowledge, threatened against the Company or involving the
Company's properties or business which, if determined adversely to the Company,
would, individually or in the aggregate, have a material adverse effect on the
financial position, results of operations, properties, or business of the
Company or which question the validity of the capital stock of the Company or
this Agreement or of any action taken or to be taken by the Company pursuant to,
or in connection with, this Agreement; nor, to the best of the Company's
knowledge, except as disclosed in the Prospectus, is there any reasonable basis
for any such claim, action, suit, proceeding, arbitration, investigation or
inquiry. There are no outstanding orders, judgments or decrees of any court,
governmental agency or other tribunal naming the Company and enjoining the
Company from taking, or requiring the Company to take, any action, or to which
the Company, or the Company's properties or business is bound or subject which
would be material to the Company.
(o) The Company has not incurred any liability for
any finder's fees or similar payments in connection with the transactions herein
contemplated other than payments previously made to the Representative.
(p) (i) The Company has sufficient title and
ownership of, or license or other rights to, or have applied for, all patents,
patent applications, trademarks, trademark applications, service marks, service
mark applications, trade names, copyrights, trade secrets, information,
proprietary rights, technologies, know-how and processes (collectively,
"Intellectual Property") necessary for its business as now conducted and as
proposed to be conducted, as described in the Prospectus.
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<PAGE>
(ii) Except as disclosed in the Prospectus,
no claims have been asserted by any person to the ownership or use of any
Intellectual Property or challenging or questioning the validity or
effectiveness of any such license or agreement and the Company has no knowledge
of any valid basis for any such claim. To the best of its knowledge, the use of
the Intellectual Property by the Company does not infringe on the rights of any
person and there are no pending or, to the knowledge of the Company, threatened
claims nor has it been alleged that the Intellectual Property is engaged in such
infringements. All of the trademark and trade name registrations, patents and
copyrights are in full force and effect. Other than potential sublicensees of
the Company, no other person has any right to use any Intellectual Property for
similar or related products in competition with the products of the Company and
no other person is infringing any of the Intellectual Property.
(iii) To the best of its knowledge, the
Company has taken reasonable steps sufficient to safeguard and maintain the
secrecy and confidentiality of its proprietary rights in, all of the unpatented
know how, technology, proprietary processes, formulae, and other information
owned by it.
(q) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus, the
Company has not incurred any material liability or obligation (absolute or
contingent), except liabilities and obligations incurred in the ordinary course
of business, and has not sustained any material loss or interference with its
business from fire, storm, explosion, flood or other casualty, whether or not
covered by insurance, or from any labor dispute or court or governmental action,
order or decree; and since the respective dates as of which information is given
in the Registration Statement and the Prospectus, there have not been, and prior
to the Closing Date referred to below there will not be, any changes in the
capital stock or any material increases in the long-term debt of the Company or
any material adverse change in or affecting the general affairs, management,
financial condition, shareholders' equity, results of operations or prospects of
the Company, other than as set forth or contemplated in the Prospectus.
(r) The Company owns no real property. The Company
has good title to all material personal property (tangible and intangible) owned
by it, free and clear of all security interests, charges, mortgages, liens,
encumbrances and defects, except such as are described in the Registration
Statement and Prospectus or such as do not materially affect the value or
transferability of such property and do not interfere with the use of such
property made, or proposed to be made, by the Company. The leases, licenses or
other contracts or instruments under which the Company leases, holds or is
entitled to use any property, real or personal, are valid and subsisting and
neither the Company, nor, to the best of the Company's knowledge, any other
party is in default thereunder and, to the best of the Company's knowledge, no
event has occurred which, with the passage of time or the giving of notice, or
both, would constitute a default thereunder. The Company has not received any
notice of any violation of any applicable law, ordinance, regulation, order or
requirement relating to its owned or leased properties the violation of which
would have a material adverse effect on the Company.
-10-
<PAGE>
(s) Each material contract or other instrument
(however characterized or described) to which the Company is a party or by which
its properties or business is or may be bound or affected and to which reference
is made in the Prospectus has been duly and validly executed by the Company and,
assuming that such contracts or other instruments have been properly executed by
parties other than the Company, is in full force and effect in all material
respects and is enforceable against the parties thereto in accordance with its
terms, in each case subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally; and none of such contracts or instruments has
been assigned by the Company, and neither the Company nor, to the best of the
Company's knowledge, any other party is in default thereunder and, to the best
of the Company's knowledge, no event has occurred which, with the lapse of time
or the giving of notice, or both, would constitute a default thereunder.
(t) The employment agreements between the Company and
its officers and employees, described in the Registration Statement, are binding
and enforceable obligations upon the respective parties thereto in accordance
with their respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, moratorium or other similar laws or
arrangements affecting creditors' rights generally and subject to principles of
equity and public policy and subject to the possible finding by a court of
competent jurisdiction that the scope, time period or geographic range of any
post-employment non-competition restriction exceeds that required to protect the
Company's legitimate interests.
(u) Except as set forth in the Prospectus, the
Company has no employee benefit plans (including, without limitation, profit
sharing and welfare benefit plans) or deferred compensation arrangements that
are subject to the provisions of the Employee Retirement Income Security Act of
1974. To the best of the Company's knowledge, no labor problem exists with any
of the Company's employees or is imminent which could have a material adverse
affect on the Company.
(v) The Company has filed a registration statement
pursuant to Section 12(g) of the Exchange Act to register the Common Stock, has
filed an application to list the Shares on the NASDAQ SmallCap Market, and has
received notification that the listing has been approved, subject to notice of
issuance.
(w) The Company has adequately insured its properties
against loss or damage by fire or other casualty and maintains, in amounts which
it deems, in good faith, to be adequate, such other insurance, including but not
limited to, liability insurance, as is usually maintained by companies engaged
in the same or similar businesses located in its geographic area.
(x) Neither the Company nor, to its knowledge, any of
its officers, employees, agents or any other person acting on behalf of the
Company has, directly or indirectly, given or agreed to give any money, gift or
similar benefit (other than legal price concessions to customers in the ordinary
course of business) to any customer, supplier,
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<PAGE>
employee or agent of a customer or supplier, or official or employee of any
governmental agency (domestic or foreign) or instrumentality of any government
(domestic or foreign) or any political party or candidate for office (domestic
or foreign) or other person who was, is, or may be in a position to help or
hinder the business of the Company (or to assist the Company in connection with
any actual or proposed transaction) which (a) might subject the Company or any
other such person, to any damage or penalty in any civil, criminal or
governmental litigation or proceeding (domestic or foreign); (b) if not given in
the past, might have had a material adverse effect on the assets, business or
operations of the Company; or (c) if not continued in the future, might
adversely affect the assets, business, operations or prospects of the Company,
taken as a whole. The Company believes that its international accounting
controls are sufficient to cause the Company to comply with the Foreign Corrupt
Practices Act of 1977, as amended.
(y) Except as set forth in Prospectus, no officer,
director, principal stockholder or partner of the Company, or any "affiliate" or
"associate" (as these terms are defined in Rule 405 promulgated under the Rules
and Regulations) of any of the foregoing persons or entities has or has had,
either directly or indirectly, (i) an interest in any person or entity which (A)
furnishes or sells services or products which are furnished or sold or are
proposed to be furnished or sold by the Company or (B) purchases from or sells
or furnishes to the Company any goods or services, or (ii) a beneficial interest
in any contract or agreement to which the Company is a party or by which it may
be bound or affected. Except as set forth in the Prospectus under "Certain
Transactions," there are no existing agreements, arrangements, understandings or
transactions, or proposed agreements, arrangements, understandings or
transactions, between or among the Company, and any officer, director, Principal
Stockholder (i.e., holders of more than 5% of the Company's Common Stock) of the
Company, or any partner, affiliate or associate of any of the foregoing persons
or entities.
(z) Copies of the minutes of the Board of Directors
and Stockholders of the Company have been made available to the Underwriters and
are complete in all material respects of all meetings and actions of the
directors and stockholders of the Company since the time of its respective
incorporation, and accurately reflects all transactions referred to in such
minutes in all material respects.
(aa) The Company as of the effective date of the
Registration Statement maintains term key-man insurance on the life of Mr. Ben
Neman in the amount of $1,000,000, which policy names the Company as the sole
beneficiary thereof.
(ab) The Company, in all material respects, has
provided to Littman Krooks Roth & Ball P.C., counsel to the Representative
("Representative's Counsel"), all applicable agreements, certificates,
correspondence and other items and documents requested by such counsel's due
diligence letter dated May 6, 1996.
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<PAGE>
Any certificate signed by an officer of the Company and
delivered to the Representative or to counsel for the Representative shall be
deemed to be a representation and warranty by the Company to the Representative
as to the matters covered thereby.
5. Certain Covenants of the Company. The Company covenants
with the several Underwriters as follows:
(a) The Company will not at any time, whether before
the Effective Date or thereafter during such period as the Prospectus is
required by law to be delivered in connection with the sales of the Firm Shares
by the several Underwriters, file or publish any amendment or supplement to the
Registration Statement or Prospectus of which the Representative has not been
previously advised and furnished a copy, or to which the Representative shall
object in writing.
(b) The Company will use its best efforts to cause
the Registration Statement to become effective and will advise the
Representative immediately, and, if requested by the Representative, confirm
such advice in writing, (i) when the Registration Statement, or any
post-effective amendment to the Registration Statement or any supplemented
Prospectus is filed with the Commission; (ii) of the receipt of any comments
from the Commission; (iii) of any request of the Commission for amendment or
supplement to the Registration Statement or Prospectus or for additional
information and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of any order
preventing or suspending the use of any Preliminary Prospectus, or of the
suspension of the qualification of the Firm Shares for offering or sale in any
jurisdiction, or of the initiation of any proceedings for any of such purposes.
The Company use its reasonable best effort to prevent the issuance of any such
stop order or of any order preventing or suspending such use and to obtain as
soon as possible the lifting thereof, if any such order is issued.
(c) The Company will deliver to the several
Underwriters, without charge, from time to time until the Effective Date, as
many copies of each Preliminary Prospectus as the Underwriters may reasonably
request, and the Company hereby consents to the use of such copies for purposes
permitted by the Act. The Company will deliver to the several Underwriters,
without charge, as soon as the Registration Statement becomes effective, and
thereafter from time to time as requested, such number of copies of the
Prospectus (as supplemented, if the Company makes any supplements to the
Prospectus) as the Underwriters may reasonably request. The Company has
furnished or will furnish to the Representative two conformed copies of the
Registration Statement as originally filed and of all amendments thereto,
whether filed before or after the Registration Statement becomes effective, two
copies of all exhibits filed therewith and two conformed copies of all consents
and certificates of experts.
(d) The Company will comply with the Act, the
Regulations, the Exchange Act, and the rules and regulations thereunder so as to
permit the continuance of sales
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<PAGE>
of and dealings in the Firm Shares, and in any Option Shares which may be issued
and sold. If, at any time when a prospectus relating to such Firm or Option
Shares is required to be delivered under the Act, any event occurs as a result
of which the Registration Statement and Prospectus as then amended or
supplemented would include an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or if it shall be
necessary to amend or supplement the Registration Statement and Prospectus to
comply with the Act or the regulations thereunder, the Company will promptly
file with the Commission, subject to Section 5(a) hereof, an amendment or
supplement which will correct such statement or omission or which will effect
such compliance.
(e) The Company will furnish such proper information
as may be required and otherwise cooperate in qualifying the Firm or Option
Shares for offering and sale under the securities or Blue Sky laws relating to
the offering or for sale in such jurisdictions as the Representative may
reasonably designate, provided that no such qualification will be required in
any jurisdiction where, solely as a result thereof, the Company would be subject
to service of general process or to taxation or qualification as a foreign
corporation doing business in such jurisdiction.
(f) The Company will make generally available to its
security holders, in the manner specified in Rule 158(b) under the Act, and
deliver to the Representative and its counsel as soon as practicable and in any
event not later than 45 days after the end of its fiscal quarter in which the
first anniversary date of the effective date of the Registration Statement
occurs, an earning statement meeting the requirements of Rule 158(a) under the
Act covering a period of at least 12 consecutive months beginning after the
effective date of the Registration Statement.
(g) For a period of five years from the Effective
Date, the Company will deliver to the Representative and to Representative's
Counsel on a reasonably timely basis (i) a copy of each report or document,
including, without limitation, reports on Forms 8-K, 10-C, 10-K and 10-Q and
exhibits thereto, filed or furnished to the Commission, any securities exchange
or the National Association of Securities Dealers, Inc. (the "NASD"); (ii) as
soon as practicable, copies of any reports or communications (financial or
other) of the Company mailed to its security holders; (iii) as soon as
practicable, a copy of any Schedule 13D, 13G, 14D-1 or 13E-3 or Form 3, 4 and 5
received or prepared by the Company from time to time; and (iv) such additional
information concerning the business and financial condition of the Company as
the Representative may from time to time reasonably request and which can be
prepared or obtained by the Company without unreasonable effort or expense. The
Company will furnish to its shareholders annual reports containing audited
financial statements and such other periodic reports as it may determine to be
appropriate or as may be required by law.
(h) Neither the Company nor any person that is
controlled by the Company will take any action designed to or which might be
reasonably expected to cause or result in the stabilization or manipulation of
the price of the Firm Shares.
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<PAGE>
(i) If the transactions contemplated by this
Agreement are consummated, the Representative shall retain the Fifty Thousand
Dollars ($50,000) previously paid to it, and the Company will pay or cause to be
paid the following: all costs and expenses incident to the performance of the
obligations of the Company under this Agreement, including, but not limited to,
the fees and expenses of accountants and counsel for the Company, the
preparation, printing, mailing and filing of the Registration Statement
(including financial statements and exhibits), Preliminary Prospectuses and the
Prospectus, and any amendments or supplements thereto, the printing and mailing
of the Selected Dealer Agreement, the issuance and delivery of the Shares to the
several Underwriters; all taxes, if any, on the issuance of the Shares; the
fees, expenses and other costs of qualifying the Shares for sale under the Blue
Sky or securities laws of those states in which the Shares are to be offered or
sold, the cost of printing and mailing the "Blue Sky Survey" and fees and
disbursements of counsel in connection therewith (such fees only not to exceed
the sum of $25,000), including those of such local counsel as may have been
retained for such purpose; the filing fees incident to securing any required
review by the NASD; the cost of furnishing to the Underwriters copies of the
Registration Statement, Preliminary Prospectuses and the Prospectus as herein
provided; the costs of "bound volumes" for the Representative and its counsel,
the costs of placing a "tombstone" advertisement in such publication as the
Representative determines (the cost of such "tombstone" advertisement not to
exceed $10,000).
In addition, at the Closing Date or the Option
Closing Date, as the case may be, Sands Brothers will, in its individual rather
than its representative capacity, deduct from the payment for the Firm Shares or
any Option Shares purchased, two and one half percent (2.5%) of the gross
proceeds of the offering (less the sum of Fifty Thousand Dollars ($50,000)
previously paid to the Representative), as payment for the Representative's
nonaccountable expense allowance relating to the transactions contemplated
hereby.
(j) In the event the transactions contemplated hereby
are not consummated by reason of any action by the Representative (except if
such prevention is based upon a breach by the Company of any covenant,
representation or warranty contained herein or because any other condition to
the Representative's obligations hereunder required to be fulfilled by the
Company is not fulfilled) the Company shall be liable for the actual accountable
out-of-pocket expenses of the Representative, including legal fees. In the event
the transactions contemplated hereby are not consummated by reason of any action
of the Company or because of a breach by the Company of any covenant,
representation or warranty herein, the Company shall be liable only for the
actual accountable out-of-pocket expenses of the Representative, including legal
fees. In the event the transactions contemplated hereby are not consummated for
any reason, should the Representative's out-of-pocket expenses equal an amount
that is less than the $50,000 advance received, the remaining sum will be
returned to the Company.
(k) The Company will apply the net proceeds from the
sale of the Shares in the manner set forth in the Prospectus under "Use of
Proceeds" and shall file such
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<PAGE>
reports with the commission with respect to the sale of the Shares and the
application of the proceeds therefrom as may be required in accordance with Rule
463 under the Act.
(l) During the twelve month period following the date
hereof, none of the Company's officers, directors or holders of five percent
(5%) or more of the shares of Common Stock (the "Principal Shareholders") will
offer for sale or sell or otherwise dispose of any securities of the Company
owned by them, directly or indirectly, in any manner whatsoever (including
pursuant to Rule 144 under the Act), and no holder of registration rights
relating to the securities of the Company will exercise any such registration
rights, in either case, without obtaining the prior written approval of the
Representative. The Company will deliver to the Representative the written
undertakings as of the date hereof of its officers, directors and Principal
Shareholders to this effect.
(m) The Company will not file any registration
statement relating to the offer or sale of any of the Company's securities,
including any registration statement on Form S-8, during the twelve (12) months
following the date hereof without the Representative's prior written consent.
(n) The Company maintains and will continue to
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that: (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are recorded
as necessary in order to permit preparation of financial statements in
accordance with generally accepted accounting principles and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(o) The Company will maintain the listing of the
Shares on the NASDAQ SmallCap Market for so long as the Shares remain qualified
for such listing.
(p) Intentionally omitted.
(q) Subject to the sale of the Firm Shares, for a
period of not less than three (3) years from the date hereof is received, the
Company will, at Representative's option and if so requested by Representative,
recommend and use its best efforts to elect one designee of Representative, at
the option of Representative, either as a member of or nonvoting advisor to its
Board of Directors; such designee, if elected or appointed, shall attend
meetings of the Board and receive no more or less compensation than is paid to
other non-management directors of the Company and shall be entitled to receive
reimbursement for all reasonable costs incurred in attending such meetings
including, but not limited to, food, lodging and transportation. The Company
agrees to indemnify and hold Representative and its designee harmless, to the
maximum extent permitted by law, against any and all claims, actions, awards and
judgments arising out of such designee's service as a director or advisor and in
the event the Company maintains a liability insurance policy affording coverage
for the acts of its
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<PAGE>
officers and directors, to include each of Representative and its designee as an
insured under such policy, to the extent not excessively expensive.
If the Representative does not exercise its option to
designate such member of or advisor to the Company's Board of Directors, the
Representative shall nonetheless have the right to send a representative (who
shall not be the same individual from meeting to meeting) to observe each
meeting of the Board of Directors. The Company agrees to give Representative
notice of each such meeting and to provide Representative with an agenda and
minutes of the meeting no later than it gives such notice and provides such
items to the directors.
(r) Subject to the sale of the Firm Shares, the
Representative shall have the right of first refusal with respect to future
public sales of debt and equity securities of the Company, any subsidiary or
successor to the Company or any Company securities held by any Principal
Shareholders (including purchasing for Sands Brothers' account or to sell for
the Principal's account any securities sold pursuant to Rule 144 under the Act)
for a one year period following the date hereof. It is understood that if such a
proposed financing is offered to Representative, Representative shall have
twenty (20) days (one (1) day in the event of a sale under Rule 144) in which to
determine whether or not to accept such offer and, if Representative refuses,
and provided that such a financing is consummated (a) with another underwriter
or placement agent upon the same terms and conditions as those offered to
Representative and (b) within six months after the end of the aforesaid thirty
(30) day period, this right of first refusal shall thereafter be forfeited and
terminated; provided, however, if the financing is not consummated under the
conditions of clauses (a) and (b) above, then the right of first refusal shall
once again be reinstated under the same terms and conditions set forth in this
paragraph.
(s) The Company hereby agrees, at its sole cost and
expense, to supply and deliver to the Representative, within a reasonable period
from the date hereof, four (4) bound volumes, including the Registration
Statement, as amended or supplemented, all exhibits to the Registration
Statement, the Prospectus and all other underwriting documents.
(t) Intentionally Omitted.
(u) The Company shall retain a transfer agent for the
shares of Common Stock, reasonably acceptable to the Representative, for a
period of five (5) years following the Effective Date. In addition, for a period
of three (3) years from the Effective Date, the Company, at its own expense,
shall cause such transfer agent to provide the Representative, if so requested
in writing, with copies of the Company's daily transfer sheets, and, when so
requested by the Representative, a current list of the Company's security
holders, including a list of the beneficial owners of securities held by a
depository trust company and other nominees.
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(v) The Company shall, as soon as reasonably
practicable following the Closing Date, have applied for listing in Standard &
Poor's Corporation Records Service (including annual report information) or
Moody's Industrial Manual (Moody's OTC Industrial Manual not being sufficient
for these purposes) and shall use its best efforts to have the Company listed in
such manual and shall maintain such listing for a period of five (5) years from
the Effective Date.
(w) Intentionally omitted.
(x) Intentionally omitted.
(y) For a period of five (5) years following the
Effective Date, the Company shall continue to retain Richard A. Eisner &
Company, LLP (or a nationally recognized accounting firm acceptable to the
Representative) as the Company's independent public accountants and shall
promptly, upon the Company's receipt thereof, submit to the Representative
copies of such accountants' management reports and similar correspondence
between such accountants and the Company.
(z) For a period of five (5) years following the
Effective Date, the Company, at its expense, shall cause its then independent
certified public accountants, as described in Section 5(x) above, to read (but
not review or audit) the Company's financial statements for each of the first
three fiscal quarters prior to the announcement of quarterly financial
information, the filing of the Company's 10-Q quarterly report and the mailing
of quarterly financial information to shareholders.
(aa) For a period of twenty-five (25) days following
the Effective date, the Company will not issue press releases or engage in any
other publicity without the Representative's prior written consent, other than
normal and customary releases issued in the ordinary course of the Company's
business or those releases required by law.
6. Conditions of the Underwriters' Obligation to Purchase
Shares from the Company. The obligation of the several Underwriters to purchase
and pay for the Firm Shares which it has agreed to purchase from the Company is
subject (as of the date hereof and the Closing Date) to the accuracy in all
material respects of the representations and warranties of the Company herein,
to the accuracy of the statements of the Company or its officers made pursuant
hereto, to the performance in all material respects by the Company of its
obligations hereunder, and to the following additional conditions:
(a) The Registration Statement will have become
effective not later than 10:30 A.M., New York City time, on the day following
the date of this Agreement, or at such later time or on such later date as the
Representative may agree to in writing; prior to the Closing Date, no stop order
suspending the effectiveness of the Registration Statement will have been issued
and no proceedings for that purpose will have been initiated or will be
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pending or, to the best of the Representative's or the Company's knowledge, will
be contemplated by the Commission; and any request on the part of the Commission
for additional information will have been complied with to the satisfaction of
Representative's Counsel.
(b) At the Closing Date, there will have been
delivered to the Underwriters a signed opinion of Tenzer Greenblatt LLP, counsel
for the Company, dated as of the Closing Date and the opinion of Hamburg,
Hanover, Edwards & Martin, substantially as set forth in Exhibit 6b.
(c) At the Closing Date (i) the Registration
Statement and the Prospectus and any amendments or supplements thereto will
conform in all material respects to the requirements of the Act and the
Regulations, and neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto will contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; (ii) since the respective dates as of
which information is given in the Registration Statement and the Prospectus,
there will not have been any material adverse change in the financial condition,
results of operations or general affairs of the Company from that set forth or
contemplated in the Registration Statement and the Prospectus, except changes
which the Registration Statement and the Prospectus indicates might occur after
the Effective Date; (iii) since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there shall have been no
material transaction, contract or agreement entered into by the Company, other
than in the ordinary course of business, which would be required to be set forth
in the Registration Statement and the Prospectus, other than as set forth
therein; and (iv) no action, suit or proceeding at law or in equity will be
pending or, to the best of the Company's knowledge, threatened against the
Company which is required to be set forth in the Registration Statement and the
Prospectus, other than as set forth therein, and no proceedings will be pending
or, to the best of the Company's knowledge, threatened against the Company
before or by any federal, state or other commission, board or administrative
agency wherein an unfavorable decision, ruling or finding would materially
adversely affect the business, property, financial condition or results of
operations of the Company, other than as set forth in the Registration Statement
and the Prospectus. At the Closing Date, there will be delivered to the several
Underwriters a certificate signed by the Chairman of the Board or the President
or a Vice President of the Company, dated the Closing Date, evidencing
compliance with the provisions of this Section 6(c) and stating that the
representations and warranties of the Company set forth in Section 4 hereof were
accurate and complete in all material respects when made on the date hereof and
are accurate and complete in all material respects on the Closing Date as if
then made; that the Company has performed all covenants and complied with all
conditions required by this Agreement to be performed or complied with by the
Company prior to or as of the Closing Date; and that, as of the Closing Date, no
stop order suspending the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been initiated or, to his
knowledge, are contemplated or threatened. In
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addition, the Representative will have received such other and further
certificates of officers of the Company as the Representative or
Representative's Counsel may reasonably request.
(d) At the time that this Agreement is executed and
at the Closing Date, the several Underwriters will have received a signed letter
from Richard A. Eisner & Company, LLP dated the date such letter is to be
received by the Underwriters and addressed to them, confirming that it is a firm
of independent public accountants within the meaning of the Act and Regulations
and stating that: (i) insofar as reported on by them, in their opinion, the
financial statements of the Company included in the Prospectus comply as to form
in all material respects with the applicable accounting requirements of the Act
and the applicable Regulations; (ii) on the basis of procedures and inquiries
(not constituting an examination in accordance with generally accepted auditing
standards) consisting of a reading of the unaudited interim financial statements
of the Company, if any, appearing in the Registration Statement and the
Prospectus and the latest available unaudited interim financial statements of
the Company, if more recent than that appearing in the Registration Statement
and Prospectus, inquiries of officers of the Company responsible for financial
and accounting matters as to the transactions and events subsequent to the date
of the latest audited financial statements of the Company, and a reading of the
minutes of meetings of the shareholders, the Board of Directors of the Company
and any committees of the Board of Directors, as set forth in the minute books
of the Company, nothing has come to their attention which, in their judgment,
would indicate that (A) during the period from the date of the latest financial
statements of the Company appearing in the Registration Statement and Prospectus
to a specified date not more than three business days prior to the date of such
letter, there have been any decreases in net current assets or net assets as
compared with amounts shown in such financial statements or decreases in net
sales or increases in total or per share net loss compared with the
corresponding period in the preceding year or any change in the capitalization
or long-term debt of the Company, except in all cases as set forth in or
contemplated by the Registration Statement and the Prospectus, and (B) the
unaudited interim financial statements of the Company, if any, appearing in the
Registration Statement and the Prospectus, do not comply as to form in all
material respects with the applicable accounting requirements of the Act and the
Regulations or are not fairly presented in conformity with generally accepted
accounting principles and practices on a basis substantially consistent with the
audited financial statements included in the Registration Statement or the
Prospectus; and (iii) they have compared specific dollar amounts, numbers of
shares, numerical data, percentages of revenues and earnings, and other
financial information pertaining to the Company set forth in the Prospectus
(with respect to all dollar amounts, numbers of shares, percentages and other
financial information contained in the Prospectus, to the extent that such
amounts, numbers, percentages and information may be derived from the general
accounting records of the Company, and excluding any questions requiring an
interpretation by legal counsel) with the results obtained from the application
of specified readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter, and found them to be in
agreement.
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(e) There shall have been duly tendered to the
Representative certificates representing the Firm Shares to be sold on the
Closing Date.
(f) The NASD shall have indicated that it has no
objection to the underwriting arrangements pertaining to the sale of the Shares
by the Underwriters.
(g) No action shall have been taken by the Commission
or the NASD the effect of which would make it improper, at any time prior to the
Closing Date or the Option Closing Date, as the case may be, for any member firm
of the NASD to execute transactions (as principal or as agent) in the Shares,
and no proceedings for the purpose of taking such action shall have been
instituted or shall be pending, or, to the best of the Underwriters' or the
Company's knowledge, shall be contemplated by the Commission or the NASD.
(h) All proceedings taken at or prior to the Closing
Date or the Option Closing Date, as the case may be, in connection with the
authorization, issuance and sale of the Shares shall be reasonably satisfactory
in form and substance to the Representative and to Representative's Counsel, and
such counsel shall have been furnished with all such documents, certificates and
opinions as they may reasonably request for the purpose of enabling them to pass
upon the matters referred to in Section 6(c) hereof and in order to evidence the
accuracy and completeness of any of the representations, warranties or
statements of the Company, the performance of any covenants of the Company, or
the compliance by the Company with any of the conditions herein contained.
If any of the conditions specified in this Section 6
have not been fulfilled, this Agreement may be terminated by the Representative
on notice to the Company.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless
each Underwriter and each officer, director, partner, employee and agent of each
Underwriter, and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from and
against any losses, claims, damages or liabilities, joint or several (which
shall, for all purposes of this Agreement, include, but not be limited to, all
reasonable costs of defense and investigation and all attorneys' fees), to which
they or any of them may become subject, under the Act or otherwise, and will
reimburse, as incurred, the Underwriters and such persons for any legal or other
expenses reasonably incurred in connection with investigating, defending against
or appearing as a third party witness in connection with any losses, claims,
damages or liabilities, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in (A) the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, (B) any blue sky application or other document
executed by the Company specifically for that purpose or based upon written
information furnished by the Company filed in any state or other jurisdiction in
order to qualify any or all of the Firm or Options Shares
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under the securities laws thereof (any such application, document or information
being hereinafter called a "Blue Sky Application"), or arise out of or are based
upon the omission or alleged omission to state in the Registration Statement,
any Preliminary Prospectus, Prospectus, or any amendment or supplement thereto,
or in any Blue Sky Application, a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading; provided, however, that the Company will not be
liable in any such case to the extent, but only to the extent, that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Underwriters specifically for use in the
preparation of the Registration Statement or any such amendment or supplement
thereof or any such Blue Sky Application or any such preliminary Prospectus or
the Prospectus or any such amendment or supplement thereto; provided, however,
that the indemnity agreement contained in this Section 7(a) with respect to any
Preliminary Prospectus will not inure to the benefit of any Underwriter (or to
the benefit of any other person that may be indemnified pursuant to this Section
7(a)) if (A) the person asserting any such losses, claims, damages, expenses or
liabilities purchased the Shares which are the subject thereof from the
Representative or other indemnified person; (B) the Representative or other
indemnified person failed to send or give a copy of the Prospectus to such
person at or prior to the written confirmation of the sale of such Shares to
such person; and (C) the Prospectus did not contain any untrue statement or
alleged untrue statement or omission or alleged omission giving rise to such
cause, claim, damage, expense or liability.
(b) Each Underwriter severally, but not jointly, will
indemnify and hold harmless the Company, each of its directors, each nominee (if
any) for director named in the Prospectus, each of its officers who have signed
the Registration Statement, and each person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, from and against any losses, claims, damages or liabilities (which shall,
for all purposes of this Agreement, include, but not be limited to, all costs of
defense and investigation and all attorneys' fees) to which the Company or any
such director, nominee, officer or controlling person may become subject under
the Act or otherwise, and will reimburse, as incurred, the Company and such
persons for any legal or other expenses reasonably incurred in connection with
investigating, defending against or appearing as a third party witness in
connection with any losses, claims, damages or liabilities, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to
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the Company by you or by any Underwriter through you specifically for use in the
preparation thereof.
(c) Promptly after receipt by an indemnified party
under this Section of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the indemnifying
party under this Section, notify in writing the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under this Section. In case any such action is brought against
any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate in,
and, to the extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, subject to the provisions
herein stated, with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. The indemnified
party shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that if the indemnified party is an Underwriter
or a person who controls such Underwriter within the meaning of the Act, the
fees and expenses of such counsel shall be at the expense of the indemnifying
party if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both such Underwriter or such
controlling person and the indemnifying party and in the judgment of the
Representative, it is advisable for the Representative or such Underwriters or
controlling persons to be represented by separate counsel (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of such Underwriter or such controlling person, it being understood,
however, that the indemnifying party shall not, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys for all such Underwriters and controlling persons, which firm shall be
designated in writing by you). No settlement of any action against an
indemnified party shall be made without the consent of the indemnifying party,
which shall not be unreasonably withheld in light of all factors of importance
to such indemnifying party.
8. Contribution. In order to provide for just and equitable
contribution under the Act in any case in which (i) any Underwriter makes claim
for indemnification pursuant to Section 7 hereof but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case, notwithstanding the
fact that the express provisions of Section 7 provide for indemnification in
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such case, or (ii) contribution under the Act may be required on the part of any
Underwriter, then the Company and each person who controls the Company, in the
aggregate, and any such Underwriter shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees) in either
such case (after contribution from others) in such proportions that all such
Underwriters are responsible in the aggregate for that portion of such losses,
claims, damages or liabilities represented by the percentage that the
underwriting discount per share appearing on the cover page of the Prospectus
bears to the public offering price appearing thereon, and the Company shall be
responsible for the remaining portion, provided, however, that (a) if such
allocation is not permitted by applicable law then the relative fault of the
Company and the Underwriters and controlling persons, in the aggregate, in
connection with the statements or omissions which resulted in such damages and
other relevant equitable considerations shall also be considered. The relative
fault shall be determined by reference to, among other things, whether in the
case of an untrue statement of a material fact or the omission to state a
material fact, such statement or omission relates to information supplied by the
Company or the Underwriters and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such untrue statement or
omission. The Company and the Underwriters agree that it would not be just and
equitable if the respective obligations of the Company and the Underwriters to
contribute pursuant to this Section 7 were to be determined by pro rata or per
capita allocation of the aggregate damages (even if the Underwriters and their
respective controlling persons in the aggregate were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in the first sentence of this Section 7
and (b) that the contribution of each contributing Underwriter shall not be in
excess of its proportionate share (based on the ratio of the number of Shares
purchased by such Underwriter to the number of Shares purchased by all
contributing Underwriters) of the portion of such losses, claims, damages or
liabilities for which the Underwriters are responsible. No person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. As used in this paragraph, the term "Underwriter"
includes any officer, director, or other person who controls an Underwriter
within the meaning of Section 15 of the Act, the word "Company" includes any
officer, director, or person who controls the Company within the meaning of
Section 15 of the Act. If the full amount of the contribution specified in this
paragraph is not permitted by law, then any Underwriter and each person who
controls any Underwriter shall be entitled to contribution from the Company, its
officers, directors and controlling persons to the full extent permitted by law.
The foregoing contribution agreement shall in no way affect the contribution
liabilities of any persons having liability under Section 11 of the Act other
than the Company and the Underwriters. No contribution shall be requested with
regard to the settlement of any matter from any party who did not consent to the
settlement; provided, however, that such consent shall not be unreasonably
withheld in light of all factors of importance to such party.
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9. Substitution of Underwriters. If any Underwriters shall for
any reason not permitted hereunder cancel their obligations to purchase the Firm
Shares hereunder, or shall fail to take up and pay for the number of Firm Shares
set forth opposite their respective names in Schedule A hereto upon tender of
such Firm Shares in accordance with the terms hereof, then:
(a) If the aggregate number of Firm Shares which such
Underwriter or Underwriters agreed but failed to purchase does not exceed 10% of
the total number of Firm Shares, the other Underwriters shall be obligated
severally, in proportion to their respective commitments hereunder, to purchase
the Firm Shares which such defaulting Underwriter or Underwriters agreed but
failed to purchase.
(b) If any Underwriter or Underwriters so default and
the agreed number of Firm Shares with respect to which such default or defaults
occurs is more than 10% of the total number of Firm Shares, the remaining
Underwriters shall have the right to take up and pay for (in such proportion as
may be agreed upon among them) the Firm Shares which the defaulting Underwriter
or Underwriters agreed but failed to purchase. If such remaining Underwriters do
not, at the First Closing Date, take up and pay for the Firm Shares which the
defaulting Underwriter or Underwriters agreed but failed to purchase, the time
for delivery of the Firm Shares shall be extended to the next business day to
allow the several Underwriters the privilege of substituting within twenty-four
hours (including nonbusiness hours) another underwriter or underwriters
satisfactory to the Company. If no such underwriter or underwriters shall have
been substituted as aforesaid, within such twenty-four hour period, the time of
delivery of the Firm Shares may, at the option of the Company, be again extended
to the next following business day, if necessary, to allow the Company the
privilege of finding within twenty-four hours (including nonbusiness hours)
another underwriter or underwriters to purchase the Firm Shares which the
defaulting Underwriter or Underwriters agreed but failed to purchase. If it
shall be arranged for the remaining Underwriters or substituted Underwriters to
take up the Firm Shares of the defaulting Underwriter or Underwriters as
provided in this Section, (i) the Company or the Representative shall have the
right to postpone the time of delivery for a period of not more than seven
business days, in order to effect whatever changes may thereby be made necessary
in the Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees promptly to file any amendments to the
Registration Statement or supplements to the Prospectus which may thereby be
made necessary, and (ii) the respective numbers of Firm Shares to be purchased
by the remaining Underwriters or substituted Underwriters shall be taken at the
basis of the underwriting obligation for all purposes of this Agreement.
If in the event of a default by one or more Underwriters and the
remaining Underwriters shall not take up and pay for all the Firm Shares agreed
to be purchased by the defaulting Underwriters or substitute another underwriter
or underwriters as aforesaid, and the Company shall not find or shall not elect
to seek another underwriter or underwriters for such Firm Shares as aforesaid,
then this Agreement shall terminate.
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If, following exercise of the option provided in Section 3(a) hereof,
any Underwriter or Underwriters shall for any reason not permitted hereunder
cancel their obligations to purchase Option Shares at the Option Closing Date,
or shall fail to take up and pay for the number of Option Shares, which they
become obligated to purchase at the Option Closing Date upon tender of such
Option Shares in accordance with the terms hereof, then the remaining
Underwriters or substituted Underwriters may take up and pay for the Option
Shares of the defaulting Underwriters in the manner provided in Section 9(b)
hereof. If the remaining Underwriters or substituted Underwriters shall not take
up and pay for all such Option Shares, then the Underwriters shall be entitled
to purchase the number of Option Shares for which there is no default or, at
their election, the option shall terminate, the exercise thereof shall be of no
effect.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. In the event of termination,
there shall be no liability on the part of any nondefaulting Underwriter to the
Company, provided that the provisions of this Section 9 shall not in any event
affect the liability of any defaulting Underwriter to the Company arising out of
such default.
10. Survival of Indemnities, Contribution, Warranties and
Representations. The respective indemnity and contribution agreements of the
Company and the Underwriters contained in Sections 7 and 8 hereof, and the
representations and warranties of the Company contained herein shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of the Underwriters, the Company or any of its directors and
officers, or any controlling person referred to in said Sections, and shall
survive the delivery of, and payment for, the Shares.
11. Termination of Agreement.
(a) The Company, by written or telegraphic notice to
the Underwriter, or the Underwriter, by written or telegraphic notice to the
Company, may terminate this Agreement prior to the earlier of (i) 11:00 A.M.,
New York City time, on the first full business day after the Effective Date; or
(ii) the time when the Underwriter, after the Registration Statement becomes
effective, releases the Firm Shares for public offering. The time when the
Underwriter "releases the Firm Shares for public offering" for the purposes of
this Section 10 means the time when the Underwriter releases for publication the
first newspaper advertisement, which is subsequently published, relating to the
Firm Shares or the time when the Underwriters release for delivery to members of
a selling group copies of the Prospectus and an offering letter or an offering
telegram relating to the Firm Shares, whichever will first occur.
(b) This Agreement, including without limitation, the
obligation to purchase the Firm Shares and the obligation to purchase the Option
Shares after exercise of the option referred to in Section 3 hereof, are subject
to termination in the absolute discretion of the Representative, by notice given
to the Company prior to delivery of and payment for all
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the Firm Shares or the Option Shares, as the case may be, if, prior to such
time, any of the following shall have occurred: (i) the Company withdraws the
Registration Statement from the Commission or the Company does not or cannot
expeditiously proceed with the public offering; (ii) the representations and
warranties in Section 4 hereof are not materially correct or covenants in
Section 5 hereof cannot be materially complied with; (iii) trading in securities
generally on the New York Stock Exchange or the American Stock Exchange will
have been suspended; (iv) limited or minimum prices will have been established
on either such Exchange; (v) a banking moratorium will have been declared either
by United States federal or New York State authorities; (vi) any other
restrictions on transactions in securities materially affecting the free market
for securities or the payment for such securities, including the Firm Shares or
the Option Shares, will be established by NASDAQ, by the Commission, by any
other United States federal or state agency, by action of the Congress or by
Executive Order; (vii) trading in any securities of the Company shall have been
suspended or halted by any national securities exchange, the NASD or the
Commission; (viii) there has been a materially adverse change in the condition
(financial or otherwise), prospects or obligations of the Company; (ix) the
Company will have sustained a material loss, whether or not insured, by reason
of fire, flood, accident or other calamity; (x) any action has been taken by the
government of the United States or any department or agency thereof which, in
the reasonable judgment of the Underwriter, has had a material adverse effect
upon the market or potential market for securities in general; or (xi) the
market for securities in general or political, financial or economic conditions
will have so materially adversely changed that, in the reasonable judgment of
the Underwriter, it will be impracticable to offer for sale, or to enforce
contracts made by the Underwriter for the resale of, the Firm Shares or the
Option Shares, as the case may be.
(c) If this Agreement is terminated pursuant to
Section 6 hereof or this Section 11 or if the purchases provided for herein are
not consummated because any condition of the Underwriter's obligations hereunder
is not satisfied or because of any refusal, inability or failure on the part of
the Company to comply with any of the terms or to fulfill any of the conditions
of this Agreement, or if for any reason the Company shall be unable to or does
not perform all of its obligations under this Agreement, the Company will not be
liable to the Underwriter for damages on account of loss of anticipated profits
arising out of the transactions covered by this Agreement, but the Company will
remain liable to the extent provided in Sections 5(j), 7, 8 and 10 of this
Agreement.
12. Information Furnished by the Underwriters to the Company.
It is hereby acknowledged and agreed by the parties hereto that for the purposes
of this Agreement, including, without limitation, Sections 4(e), 7(a), 7(b) and
8 hereof, the only information given by the Underwriters to the Company for use
in the Prospectus are the statements set forth on page 2 with respect to
stabilization, under the heading "Underwriting" and the identity of counsel to
the Underwriters under the heading "Legal Matters"], as such information appears
in any Preliminary Prospectus and in the Prospectus.
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13. Notices and Governing Law. All communications hereunder
will be in writing and, except as otherwise provided, will be delivered at, or
mailed by certified mail, return receipt requested, or telegraphed to, the
following addresses: if to the Placement Agent, to 90 Park Avenue, New York, New
York 10017, Attention: Alan Bluestine, Executive Vice President, with a copy to
Littman Krooks Roth & Ball, P.C., Attn: Mitchell C. Littman, Esq., 655 Third
Avenue, New York, New York 10017; if to the Company, addressed to it at 6929
Hayvenhurst Avenue, Van Nuys, California 91496, Attention: Ben Neman, President,
with a copy to Tenzer Greenblatt LLP, 405 Lexington Avenue, New York, New York
10174, Attention: Robert J. Mittman, Esq.; or, in each case, to such other
address as the parties may hereinafter designate by like notice.
This Agreement shall be deemed to have been made and
delivered in New York City and shall be governed as to validity, interpretation,
construction, effect and in all other respects by the internal laws of the State
of New York. The Company (1) agrees that any legal suit, action or proceeding
arising out of or relating to this Agreement shall be instituted exclusively in
New York State Supreme Court, County of New York, or in the United States
District Court for the Southern District of New York, (2) waives any objection
which the Company may have now or hereafter to the venue of any such suit,
action or proceeding, and (3) irrevocably consents to the jurisdiction of the
New York State Supreme Court, County of New York, and the United States District
Court for the Southern District of New York in any such suit, action or
proceeding. The Company further agrees to accept and acknowledge service of any
and all process which may be served in any such suit, action or proceeding in
the New York State Supreme Court, County of New York, or in the United States
District Court for the Southern District of New York and agrees that service of
process upon the Company mailed by certified mail to the Company's address shall
be deemed in every respect effective service of process upon the Company, in any
such suit, action or proceeding.
14. Parties in Interest. This Agreement is made solely for the
benefit of the several Underwriters, the Company and, to the extent expressed,
any person controlling the Company or any of the Underwriters, each officer,
director, partner, shareholder, employee and agent of the several Underwriters,
the directors of the Company, its officers who have signed the Registration
Statement, and their respective executors, administrators, successors and
assigns, and, no other person will acquire or have any right under or by virtue
of this Agreement. The term "successors and assigns" will not include any
purchaser of the Shares from any of the several Underwriters, as such purchaser.
15. Validity. In case any term of this Agreement will be held
invalid, illegal or unenforceable, in whole or in part, the validity of any
other terms of this Agreement will not in any way be affected thereby.
16. Entire Agreement. This Agreement contains the entire
agreement and understanding of the parties with respect to the subject matter
hereof, and there are no representations, inducements, promises or agreements,
oral or otherwise, not embodied herein.
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<PAGE>
17. Counterparts. This Agreement may be executed in
counterparts and each of such counterparts will for all purposes be deemed to be
an original, and such counterparts together will constitute one and the same
instrument.
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<PAGE>
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement between the Company and the
Representative in accordance with its terms.
Very truly yours,
INTELLICELL CORP.
By: /s/ Ben Neman
-----------------
Name: Ben Neman
Title: President
Confirmed and accepted in
New York, N.Y., as of the
date first above written:
SANDS BROTHERS & CO., LTD.
By: /s/ Steven B. Sands
---------------------------------
Steven B. Sands, Co-Chairman
For itself and as Representative
of the several Underwriters
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<PAGE>
SCHEDULE A
Name of Underwriter Number of Firm Shares to be Purchased
- ------------------- -------------------------------------
Sands Brothers & Co., Ltd..............................................1,400,000
Bear, Stearns & Co. Inc...................................................60,000
Donaldson, Lufkin & Jenrette Securities Corporation.......................60,000
Goldman, Sachs & Co.......................................................60,000
Lehman Brothers...........................................................60,000
J.C. Bradford & Co........................................................30,000
Clearly Gull Reiland & McDevitt Inc.......................................30,000
Cruttenden Roth Incorporated..............................................30,000
Dabney/Resnick, Inc.......................................................30,000
Gerard Klauer Mattison & Co...............................................30,000
Josepthal Lyon & Ross Incorporated........................................30,000
Kaufman Bros, L.P.........................................................30,000
Ladenburg, Thalmann & Co. Inc.............................................30,000
Soundview Financial Group, Inc............................................30,000
Unterberg Harris..........................................................30,000
Wedbush Morgan Securities.................................................30,000
Wessels, Arnold & Handerson...............................................30,000
Total:.................................................................2,000,000
==========
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