<PAGE> 1
As filed with the Securities and Exchange Commission on JANUARY 20, 1998
Registration No. 333-40083
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
\
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
BRIGHTON TECHNOLOGIES CORPORATION
(Name of Small Business Issuer in Its Charter)
<TABLE>
<CAPTION>
DELAWARE 7373 87-0460452
<S> <C> <C>
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
6 PEARL COURT
ALLENDALE, NEW JERSEY 07401
(201) 818-2889
(Address and Telephone Number of Principal Executive Offices)
KIT KUNG, CHAIRMAN
BRIGHTON TECHNOLOGIES CORPORATION
6 PEARL COURT
ALLENDALE, NEW JERSEY 07401
(201) 818-2889
(Name, Address, and Telephone Number of Agent For Service)
-------------------
Copies of all communications to:
<TABLE>
<S> <C>
DAVID L. FICKSMAN, ESQ. ALAN I. ANNEX, ESQ.
LOEB & LOEB LLP ROBERT S. MATLIN, ESQ.
1000 WILSHIRE BOULEVARD, SUITE 1800 CAMHY KARLINSKY & STEIN LLP
LOS ANGELES, CALIFORNIA 90017 1740 BROADWAY, 16TH FLOOR
TELEPHONE: (213) 688-3400 NEW YORK, NEW YORK 10019-4315
FACSIMILE: (213) 688-3460 TELEPHONE: (212) 977-6600
FACSIMILE: (212) 977-8389
</TABLE>
---------------------------
Approximate Date of Proposed Sale to the Public: As soon as practicable after
the Registration Statement becomes effective.
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. [ ]
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,
please check the following box. [ ]
<PAGE> 2
CALCULATION OF REGISTRATION FEE
================================================================================
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum Amount of
Titles of Each Class of Amount to be Offering Price Aggregate Registration
Securities to be Registered Registered Per Offering Fee
Security(2) Price(2)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units, each consisting of one share of
Common Stock, $.001 par value, and one
Redeemable Warrant to purchase one
share of Common Stock(1) ................. 1,150,000 $ 7.00 $ 8,050,000 $2,374.75
- --------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per
share, issuable upon exercise of
Redeemable Warrants(4) ................... 1,150,000 $10.50 $12,075,000 $3,562.13
- --------------------------------------------------------------------------------------------------------
Representative's Warrants ................ 100,000 $.0001 $ 10.00 (3)
- --------------------------------------------------------------------------------------------------------
Units issuable upon exercise of the
Representative's Warrants(5) ............. 100,000 $ 8.40 $ 840,000 $ 247.80
- --------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per
share, underlying the Redeemable
Warrants included in the
Representative's Warrants ................ 100,000 $ 8.40 $ 840,000 $ 247.80
- --------------------------------------------------------------------------------------------------------
Total $6,432.48*
========================================================================================================
</TABLE>
*$5,246.27 has been previously paid
(1) Based on the offering of 1,000,000 Units and 150,000 Units pursuant to the
over-allotment.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 under the Securities Act of 1933, as amended ("Securities Act").
(3) No Fee is required pursuant to Rule 457(g) under the Securities Act.
(4) Issuable upon the exercise of Redeemable Warrants to be offered to the
public. Pursuant to Rule 416 under the Securities Act, this Registration
Statement covers any additional shares of Common Stock which may become
issuable by virtue of the anti-dilution provisions of new Redeemable
Warrants.
(5) These Units are identical to the Units offered to the public. Pursuant to
Rule 416 under the Securities Act, this Registration Statement also covers
any additional Units which may become issuable by virtue of the
anti-dilution provisions of the Representative's Warrants.
(6) Issuable upon the exercise of the Redeemable Warrants included in the
Representative's Warrants. Pursuant to Rule 416 under the Securities Act,
this Registration Statement also covers any additional shares of Common
Stock which may become issuable by virtue of the anti-dilution provision of
the Redeemable Warrants.
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION ("COMMISSION"), ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
<PAGE> 3
PROSPECTUS
SUBJECT TO COMPLETION, DATED _______________, 1998
1,000,000 UNITS
[LOGO] BRIGHTON TECHNOLOGIES CORPORATION
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK
AND ONE REDEEMABLE COMMON STOCK PURCHASE WARRANT
Brighton Technologies Corporation (the "Company") is hereby offering
(the "Offering") 1,000,000 units (the "Units"), each Unit consisting of one
share of common stock (the "Common Stock"), $.001 par value per share, and one
redeemable Common Stock purchase warrant (the "Warrants"). The Units, the Common
Stock and the Warrants are sometimes referred to as the "Securities." The Common
Stock and the Warrants included in the Units may not be separately traded until
_______________, 1998, unless earlier separated upon three days' prior written
notice from National Securities Corporation (the "Representative") to the
Company at the sole discretion of the Representative. Each Warrant entitles the
holder thereof to purchase one share of Common Stock (a "Warrant Share") at an
exercise price of 150% of the offering price per Unit at any time commencing
_______________, 1999 until _______________, 2003, unless earlier redeemed. The
Warrants are subject to redemption by the Company at a price of $0.10 per
Warrant at any time commencing _______________, 1999, on thirty days prior
written notice, provided that the closing price per share of the Common Stock
has equaled or exceeded $_______________ (150% of the offer price) for twenty
consecutive trading days within the thirty-day period immediately preceding such
notice. See "DESCRIPTION OF SECURITIES" and "UNDERWRITING."
It is currently estimated that the initial public offering price per
Unit will be between $5.50 and $7.00. The Company has applied to have the Units
quoted on the Nasdaq SmallCap Market under the symbol "BRTU." The Common Stock
is presently quoted on the OTC Electronic Bulletin Board under the symbol
"BRTK." The Company has also applied to have its Common Stock quoted on the
Nasdaq SmallCap Market under the Symbol "BRTK". See "UNDERWRITING" for a
discussion of the factors to be considered in determining the initial public
offering price of the Units. On __________, 1998, the closing bid price of the
Common Stock, as reported on the OTC Electronic Bulletin Board, was $________
per share. See "MARKET PRICE FOR THE COMMON STOCK" and "DIVIDEND POLICY."
----------
THE SECURITIES OFFERED HEREBY INVOLVE SUBSTANTIAL RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE [ ] AND
"DILUTION" BEGINNING ON PAGE [ ].
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------
================================================================================
<TABLE>
<CAPTION>
Underwriting
Discounts and Proceeds to
Price to Public Commissions(1) Company(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit .......... $ $ $
- --------------------------------------------------------------------------------
Total (3) ......... $ $ $
================================================================================
</TABLE>
(1) Does not include additional compensation to be received by the
Representative as representative of the several underwriters (the
"Underwriters") consisting of a non-accountable expense allowance equal to
3% of the total price to the public. In addition, the Company has agreed to
indemnify the Underwriters against certain civil liabilities, including
liabilities under the Securities Act. See "UNDERWRITING."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $______, excluding the Representative's non-accountable expense
allowance.
(3) The Underwriters have been granted an option, expiring 45 days from the date
of this Prospectus, to purchase up to 150,000 additional Units from the
Company, solely to cover over-allotments, if any. If the over-allotment
option is exercised in full, the Total Price to the Public, Underwriting
Discounts and Commissions and proceeds the Company will be $__________,
$__________ and $__________, respectively, See "UNDERWRITING."
The Securities are being offered by the Underwriters named herein on a firm
commitment basis subject to prior sale, when, as and if delivered to and
accepted by the Underwriters, and subject to approval to certain legal matters
by their counsel and subject 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 Units will be made at the offices of National Securities in
Seattle, Washington on or about __________, 1998.
NATIONAL SECURITIES CORPORATION
The date of this Prospectus is __________, 1998
<PAGE> 4
[PHOTOS]
The Company is currently a computer network
integrator and a distributor of industrial equipment.
The Company formed a joint venture to develop, design, install and maintain
a nationwide computerized multi-market securities quotation and trading
network in China.
The Company is not currently a reporting company under the Securities Exchange
Act of 1934, as amended ("Exchange Act"). The Company intends to furnish its
stockholders with annual reports containing audited financial statements and
interim reports as it deems appropriate. The Company's year end is December 31.
In addition, as of the date of this Prospectus, the Company will be subject to
the information requirements of the Exchange Act, and in accordance therewith,
will file reports, proxy statements and other information with the Commission.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS, ON
THE NASDAQ SMALLCAP MARKET OR OTHERWISE, WHICH STABILIZE, MAINTAIN OR OTHERWISE
AFFECT THE MARKET PRICE OF THE UNITS. SPECIFICALLY, THE UNDERWRITERS MAY
OVER-ALLOT IN CONNECTION WITH THE OFFERING AND MAY BID FOR AND PURCHASE SHARES
OF UNITS IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified in its
entirety by the more detailed information and financial statements and the
related notes thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated, the information contained in this Prospectus (i) assumes that the
Underwriters' over-allotment option will not be exercised, (ii) gives
retroactive effect to a reverse stock split of 1 for 3 as a result of which the
10,450,820 outstanding Common Stock of the Company as of October 17, 1997 were
converted into 3,483,666 shares of Common Stock, and (iii) gives effect to a
reverse stock split of 1 for 3 authorized and approved by the Company's Board of
Directors and stockholders on January 13, 1998, which will go into effect on
January 26, 1998. This Prospectus contains certain forward-looking statements
that involve risks and uncertainties. The Company's actual results could differ
materially from those discussed in such forward-looking statements. Factors that
might cause a difference include, but are not limited to, those discussed in
"Risk Factors."
THE COMPANY
The Company is currently a computer network integrator and a
distributor of industrial equipment. The Company is also developing an on-line
securities trading network for the Securities Trading Automated Quotations
System (the "STAQ Exchange"), which the Company expects to be operational in the
third quarter 1998. The Company provides such services and equipment primarily
to customers in the People's Republic of China ("PRC" or "China"), as well as
other Pacific Basin countries. The Company believes that it has a strong
reputation as an independent full service provider of computer network
integration services and as a distributor of industrial equipment in China. This
belief is based on several factors, including, the Company's Chairman,
President, Chief Executive Officer and principal stockholder, Kit Kung's
experience in the business of designing and installing computer networks and
importing industrial equipment into China since 1980. Building on Mr. Kung's
business experience in China, the Company formed a joint venture with a company
controlled by the STAQ Exchange, one of four national stock exchanges in China,
to develop, design, install and maintain a nationwide computerized multi-market
securities quotation and trading network in China. (Hereinafter, reference to
the Company shall include its subsidiaries unless the context otherwise
requires).
The Company intends to maintain its focus on the Chinese market place
and its business strategy is focused as follows:
o Emphasis on network integration in the banking and finance industries
o Commercialization of the on-line securities trading network
o Expansion of the industrial equipment distribution business to meet
customer demand
Banking and Finance Oriented Information Technology. As the Chinese economy
continues to grow and the standard of living increases in China, the Company
believes that there will be an increased demand for consumer oriented financial
services such as automated teller machines ("ATMs") and retail outlets that
accept credit card transactions. The Company's strategy has been to meet this
increasing demand in the Chinese marketplace by installing wireless
telecommunications networks suitable for high volume transactions that require
instant responses, such as ATM transactions, credit card verifications,
clearance and settlements. The Company currently has contracts with the
Industrial and Commercial Bank of China ("ICBC"), the largest retail bank in
China, to design and install wireless telecommunication networks for ATM linkage
and clearance and settlements for eight of its bank branches. The Company
believes that as market demand for ATMs and retail outlets that accept credit
card transactions increases, it will be able to secure additional contracts in
this area.
3
<PAGE> 6
Securities Quotation and Trading Network. The Company is the owner of a 90%
interest in Beijing Brighton Staq Electronic System Company Limited
("Brighton-STAQ"), a PRC registered Sino-Hong Kong joint venture. The remaining
10% interest is owned by a company controlled by the STAQ Exchange, one of four
national securities exchanges in China, located in Beijing. The purpose of
Brighton-STAQ is to develop, design, install and maintain a nationwide
computerized multi-market securities quotation and trading network, similar to
the National Association of Securities Dealers Automated Quotation System
("NASDAQ") in the U.S., for trading of stocks listed on the Shanghai, Shenzhen
and STAQ Exchange (the "STAQ On-line Network"). The Company's initial plans are
to offer the STAQ On-line Network to the 550 stock brokerages (operating 2,200
offices) that are members of the STAQ Exchange in the cities of Beijing,
Chongqing, Guangzhou, Shanghai, Shenzhen and Wuhan, with plans to eventually
market the STAQ On-line Network to all 2,800 stock brokerages (operating over
10,000 offices) in China. The Company expects to initially charge an
installation fee of $6,000 and a monthly maintenance fee of $1,000 for each
terminal installed at the stock brokerages. The STAQ On-line Network project is
currently in the testing phase. The Company expects to commence commercial
operations of the STAQ On-line Network in the third quarter of 1998.
Industrial Equipment Distribution. Industrial equipment distribution accounts
for a substantial portion of the current revenues and operating income of the
Company. The types of industrial equipment which the Company has been marketing
in China include machine tools, such as machine center and grinder measurement
devices, and heavy machinery, such as gantry mills, pressing machine production
lines and dyes transfer automation systems. The Company is the exclusive
distributor for Milltronics Manufacturing Company (a U.S. company), ALO Teknik
AB (a Swedish company), Royal Master Grinders, Inc. (a U.S. company) and K.O.
Lee Company (a U.S. company) for the sale of their industrial equipment in
China. In addition to representing these manufacturers, the Company has adopted
the strategy of increasing sales by searching for industrial equipment from
manufacturers worldwide that meet both the customer's technical specifications
and budget. The Company will continue its past practice of gradually increasing
the size of its sales team to meet customer demand for industrial equipment.
CORPORATE STRUCTURE
The Company conducts its business through two principal subsidiaries:
The Brighton Industries Corporation, a Delaware corporation ("BIC"), and
Brighton Electronics Corporation Limited, the Company's Hong Kong registered
subsidiary ("BECL"). BIC acts as distributor of third-party manufactured
industrial equipment to customers in Pacific Basin countries, with primary
distribution to customers in China. BECL is an investment and holding company
for Asian-based investments focusing on data transfer networks and industrial
equipment related ventures in the Pacific Basin region. BECL holds investments
in five second-tier subsidiaries, four of which are companies organized under
the laws of Hong Kong and one of which is a Chinese joint venture company.
The Company's executive offices are located at 6 Pearl Court,
Allendale, New Jersey 07401, and its telephone number is (201) 818-2889.
4
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Securities Offered by the Company .. 1,000,000 Units, each Unit consisting of
one share of Common Stock and one Warrant.
Warrants ........................... Each Warrant will entitle the holder thereof
to purchase one share of Common Stock.
The Warrants are exercisable commencing
_______________, 1999, unless earlier
redeemed, for one share of Common Stock
each, at an exercise price of 150% of the
offering price per Unit in the Offering. The
Warrants may not be separately traded until
_______________, 1999, unless earlier
separated upon three days prior written
notice by the Representative to the Company
at the discretion of the Representative. The
Warrants are redeemable by the Company at
$0.10 per Warrant at any time commencing
_______________, 1999, on thirty days
prior written notice, provided that the
closing sale price per share for the Common
Stock has equaled or exceeded $__________
(150% of the offer price) for twenty
consecutive trading days within the thirty-
day period immediately preceding such
notice. See "DESCRIPTION OF
SECURITIES."
Offering Price ..................... $____ per Unit
Common Stock Outstanding:
Prior to the Offering ........... 1,165,111 shares
After the Offering(1) ........... 2,165,111 shares
</TABLE>
- ----------
(1) Does not include: (i) 1,000,000 shares of Common Stock issuable upon
exercise of the Warrants; (ii) 100,000 shares of Common Stock issuable upon the
exercise of the Representative's Warrants; or (iii) up to 150,000 shares of
Common Stock issuable upon exercise of the Underwriters' Over-Allotment Option.
5
<PAGE> 8
<TABLE>
<S> <C>
Use of Proceeds .................... To complete the investment required to
commercialize the STAQ On-line Network
project and for general working capital. See
"USE OF PROCEEDS."
Risk Factors ....................... The Offering involves a substantial degree
of risk, including the entry of the Company
into a new business in China, discretionary
use of proceeds, general risks associated
with operating in China, possible regulatory
constraints and possible need for additional
financing. See "RISK FACTORS."
NASDAQ SmallCap Market Symbols ..... Common Stock .................. "BRTK"
Units ......................... "BRTU"
</TABLE>
6
<PAGE> 9
SUMMARY FINANCIAL INFORMATION
The following table sets forth (i) for the periods indicated and at the
dates indicated, historical summary financial information of the Company and
(ii) adjusted historical balance sheet information of the Company as of
September 30, 1997. The historical information contained in the table as of
December 31, 1996 and for the years ended December 31, 1995 and 1996 has been
derived from audited financial statements, and is qualified in its entirety by,
and should be read in connection with, "MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION," the audited financial statements (and notes thereto) and
other financial and statistical information of the Company appearing elsewhere
in this Prospectus. The historical statements of operations and balance sheet
data as of September 30, 1997 and for the nine months ended September 30, 1996
and 1997, have been derived from unaudited financial statements. The financial
statements as of September 30, 1997 and for the nine months ended September 30,
1996 and 1997 are unaudited; however in the opinion of management all
adjustments (consisting solely of normal recurring adjustments) necessary for a
fair presentation of the financial statements for interim periods have been
made. The results of interim periods are not necessarily indicative of the
results to be obtained in a full fiscal year. The accompanying historical as
adjusted unaudited balance sheet data is adjusted to give effect to the Offering
as if it had occurred on September 30, 1997. The following data gives
retroactive effect to the 1 for 3 reverse stock split which was effective on
November 11, 1996, the 1 for 3 reverse stock split effective October 17, 1997
and the 1 for 3 reverse stock split authorized and approved by the Company's
Board of Directors and stockholders on January 13, 1998, which will go into
effect on January 26, 1998. All share and per share data have been restated for
all periods presented to reflect these splits.
<TABLE>
<CAPTION>
Years Ended Nine Months Ended
December 31, September 30,
----------------------------- -----------------------------
1995(1) 1996 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS
DATA:
Revenues $ 8,370,537 $ 8,006,260 $ 6,796,972 $ 5,913,330
Gross profit 2,205,336 2,220,753 1,802,817 1,856,123
Operating income (loss) 557,320 465,724 238,056 (257,562)
Income (loss) before
income taxes and
minority interests 560,644 514,750 287,014 (206,306)
Net income (loss) 172,347 198,524 145,351 (108,024)
Net income (loss) per
common share:
Primary and fully diluted .17 .19 .14 (.09)
Weighted average
number of common
shares and common share
equivalents outstanding:
Primary 1,008,333 1,033,965 1,008,333 1,157,289
Fully diluted 1,008,333 1,046,891 1,022,223 1,199,838
</TABLE>
(1) As restated (see "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION-OVERVIEW").
7
<PAGE> 10
<TABLE>
<CAPTION>
September 30, 1997
----------------------------------
December 31, Historical
1996 Historical As Adjusted(2)
------------ ------------ ------------
<S> <C> <C> <C>
BALANCE SHEET
DATA:
Working capital (deficiency) ($ 879,481) ($ 1,203,728) $ 3,763,620
Fixed assets, net 1,536,458 1,720,352 1,720,352
Total assets 10,187,068 8,577,178 13,307,433
Total liabilities 9,602,032 7,738,446 7,631,201
Stockholders' equity 585,036 838,732 5,676,232
</TABLE>
(2) Gives effect to the sale of 1,000,000 Units offered hereby at an assumed
price of $6.25 per Unit, reduced by $1,412,500 of costs attributable to the
Offering.
8
<PAGE> 11
RISK FACTORS
An investment in the securities offered hereby involves a substantial
degree of risk. Prospective investors, prior to making an investment decision,
should carefully consider the following risk factors. This Prospectus contains,
in addition to historical information, certain forward-looking statements that
involve risks and uncertainties. Reference is made in particular to the
description of the Company's plans and objectives for future operations,
assumptions underlying such plans and objectives and other forward-looking
statements included in "PROSPECTUS SUMMARY," "USE OF PROCEEDS," "MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS" and "BUSINESS" in this
Prospectus. Such statements are based on management's current expectations and
are subject to a number of factors and uncertainties which could cause actual
results to differ materially from those described in the forward-looking
statements. Factors which could cause such results to differ materially from
those described in such forward-looking statements include, but are not limited
to, those set forth in the risk factors below.
OPERATIONS IN CHINA. The Company conducts substantially all its
marketing and sales, and provides its services to, end-users in China. The
Company expects to continue to focus its efforts on the Chinese market. As such,
there are risks involved with the conduct of the Company's business in China,
including the following:
Internal Political Risks. During the past fifteen years, the Chinese
Government has implemented a program of reform, and is expected to continue to
open its economic and political systems. Such reforms have resulted in
significant economic growth and social progress. Many of the reforms are
unprecedented or experimental and are expected to be refined and improved upon.
Other political, economic and social factors may also lead to further
readjustment of the reform measures. This refinement and readjustment process
may not have a positive effect on the operations of the Company. The Company's
results at times may also be adversely affected by changes in China's political,
economic and social conditions, and/or by changes in the policies of the Chinese
Government, such as changes in laws and regulations (or the interpretation
thereof), including those with respect to trade with the United States,
Sino-foreign joint ventures, the introduction of measures to control inflation,
changes in the rate or method of taxation, imposition of additional restrictions
on currency conversion and remittances abroad and others.
Over the past years, there has been an increasing focus on attracting
foreign investment into China. There can be no assurance that the Chinese
Government will continue with the policy of encouraging foreign investment in
the Company's businesses, nor that the maximum levels of foreign percentage
holding allowed for joint ventures will be continued.
Government Control Over the Economy and Inflation. The economy of China
differs from the economies of most countries belonging to the Organization for
Economic Cooperation and Development ("OECD") in such respects as structure,
government involvement, level of development, growth rate, capital reinvestment,
allocation of resources, self-sufficiency, rate of inflation and balance of
payments position, among others. For almost 40 years, the economy of China has
been primarily a planned economy subject to one-, five- and 10-year State Plans.
Pursuant to such State Plans, various Central Government agencies with
jurisdiction over different industries and local Governments at various levels
formulate and implement more specific plans applicable to their respective
industries and localities. Although the majority of productive assets in China
are still owned by the Chinese Government, which relies on state-owned
enterprises for a substantial portion of its revenue, in recent years the
portion of the Chinese economy subject to State Plans has been diminishing.
Nevertheless, at times, the economic reform measures adopted by the Chinese
Government may be inconsistent or ineffectual and, therefore, the Company may
not be able at times to capitalize on such reforms.
The Chinese economy has experienced significant growth in the past five
years, but such growth has been uneven both geographically and among various
sectors of the economy. Economic growth has also been
9
<PAGE> 12
accompanied by rising inflation. The Chinese Government has implemented policies
from time-to-time to restrain the rate of such economic growth and control
inflation in order to achieve coordinated economic development. In July 1993,
the Central Government adopted a number of measures to strengthen "macroeconomic
control" of the economy, including increasing interest rates on bank loans and
deposits, and postponing certain planned price reforms. Despite some successes
in controlling economic expansion and the inflation rate, the Central Government
has stated its intention to slow further economic growth in order to combat
inflation which has seen prices rise more than 20% in some years.
A significant portion of the economic activity in China is related to
exports and may therefore be affected by developments in the economies of
China's principal trading partners. The United States annually reconsiders the
renewal of "Most Favored Nation" ("MFN") trading status for China, which
provides China with trading privileges available to trading partners of the
United States. If trade relations between China and the United States were to
deteriorate for any reason, the Company could be adversely affected.
Restrictions on Currency Conversions. The Company's income from the
STAQ On-line Network project will be received or realized in the Chinese
currency, Renminbi ("Rmb"), although the Company will be required to compute and
report its results of operations in U.S. dollars. Accordingly, changes in the
Renminbi against the U.S. dollar will result in corresponding changes in the
U.S. dollar value of the Company's assets denominated in Renminbi, and will
change the U.S. dollar value of income and dividends received or to be received
in Renminbi. The Company does not currently engage in hedging transactions and
does not intend to do so in the future.
During the last five years, the value of the Renminbi generally has
experienced a gradual but significant devaluation against most major currencies.
On January 1, 1994, the official exchange rate was abolished and a new managed
floating-rate foreign exchange system was implemented. Although the Renminbi to
U.S. dollar exchange rate has been stable since January 1, 1994 and the Central
Government has stated its intention to intervene in the future to support the
value of the Renminbi, there can be no assurance that exchange rates will not
again become volatile or that the Renminbi will not further decline in value
against the U.S. dollar.
Both the conversion of Renminbi into foreign currencies and the
remittance of foreign currencies abroad require Chinese Government approvals.
The Company believes that it will be able to obtain all required approvals for
the conversion and remittance abroad of foreign currency necessary to support
the operations of the Company and distribute dividends to stockholders should
the Company elect to do so. However, such approvals do not guarantee the
availability of foreign currency, and, no assurance can be given that the
Company will be able to convert sufficient amounts of foreign currencies in
China's foreign exchange markets. See "BUSINESS-STAQ ON-LINE NETWORK."
Restrictions on Repatriation of Foreign Currency. Foreign investment
enterprises may generally remit out of China profits or dividends derived from a
source within China, subject to the availability of foreign currency. Except for
such profits or dividends, remittance out of China by foreign investment
enterprises of any other amount (including proceeds from a disposition of an
investment in China) is subject to the approval of governmental regulatory
agencies and the availability of foreign currency. In addition, if there were to
be a deterioration in China's balance of payments, or for other reasons, China
could impose restrictions on foreign currency remittances abroad. No assurance
can be given that the Company will be able to remit out of China amounts due the
Company from any Sino-foreign joint venture with which the Company may engage in
business.
Legal System. Since 1979, many laws and regulations governing economic
matters in general have been promulgated in China. Despite these efforts in
developing the legal system, China does not have a comprehensive system of laws.
In addition, the enforcement of existing laws may be uncertain and sporadic, and
implementation and interpretation thereof inconsistent. The Chinese judiciary is
relatively inexperienced in enforcing the laws that
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exist, leading to a higher than usual degree of uncertainty as to the
outcome of any litigation. Even whereadequate laws exists in China, it may be
difficult to obtain swift and equitable enforcement of such laws, or to obtain
enforcement of a judgment by a court of another jurisdiction. The Chinese legal
system is based on written statutes and, therefore, decided legal cases are
without binding legal effect, although they are often followed by judges as
guidance. The interpretation of Chinese laws may be subject to policy changes
which reflect domestic political changes.
As the Chinese legal system develops, the promulgation of new laws,
changes to existing laws and the pre-emption of local regulations by national
laws may adversely affect the Company's businesses. The general effect of
legislation over the past 18 years, however, has been to significantly enhance
the protection afforded to foreign investment enterprises in China. However,
there can be no assurance that changes in such legislation or interpretation
thereof will not have an adverse effect upon the businesses and prospects of the
Company.
The Company's activities in China are by law subject, in certain cases,
to administrative review and approval by various national and local agencies of
the Chinese government. In particular, part of the Company's current operations
and the realization of its future expansion programs in China will be subject to
Chinese government approvals.
Enforceability of Judgements. China has not entered into treaties or
arrangements providing for the recognition and enforcement of judgements of
courts in most other countries. Accordingly, it may be difficult to secure
recognition and enforcement in China for the judgements of courts in such
jurisdictions.
Foreign Trade Corporations. In order to conduct the distribution
business in China, the Company must make most of its sales through foreign trade
corporations ("FTC's") which are legally authorized by the Chinese Government to
conduct import business. Although purchasing decisions are made by the end-user,
which is obligated to pay the applicable purchase prices, the Company enters
into a formal purchase contract with only the FTC. The FTC's make purchases on
behalf of the end-users. By virtue of its direct contractual relationship with
the FTC's, rather than the end-user, the Company is to some extent dependent
upon the continuing existence of the contractual compliance by the FTC's until
the particular transaction has been consummated. The Company's business,
however, is not dependent on any single FTC or end-user. Although sales to
certain industries involve repeat transactions with FTC's that operate in those
industries, the Company does not believe that it is dependent upon relations
with any particular FTC or that the loss of relations with any particular FTC
would have a material adverse affect on the Company. Rather, FTC's, which earn
commissions in transactions, compete with each other for the right to handle
end-users' business. See "BUSINESS-INDUSTRIAL EQUIPMENT DISTRIBUTION BUSINESS."
Hong Kong: Transfer of Sovereignty. BECL, the Company's investment and
holding company for Asian-based investments for information and industrial
equipment related ventures in the Pacific Basin region, is a Hong Kong
registered company. As a result, the Company's results of operations and
financial condition may be influenced by the political situation in Hong Kong
and by the general state of the Hong Kong economy. On July 1, 1997, sovereignty
over Hong Kong was transferred from the United Kingdom to China, and Hong Kong
became a Special Administrative Region of China (an "SAR"). As provided in the
Sino-British Joint Declaration on the Question of Hong Kong and the Basic Law of
the Hong Kong SAR of China (the "Basic Law"), the Hong Kong SAR is to have its
own legislature, legal and judicial system and full economic autonomy for 50
years. Based on the current political conditions and the Company's understanding
of the Basic Law, the Company does not believe that the transfer of sovereignty
over Hong Kong will have a material adverse impact on the Company's financial
and operating environment. There can be no assurance, however, that changes in
political or other conditions will not result in such an adverse impact. See
"BUSINESS-THE COMPANY'S CORPORATE STRUCTURE."
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BRINGING BRIGHTON-STAQ TO COMMERCIALIZATION. It is management's belief
that Brighton-STAQ represents the primary growth opportunity for the Company.
Consequently, the future success of the Company depends to a substantial extent
on the successful implementation of the Brighton-STAQ joint venture. The
Brighton-STAQ joint venture is inherently a new business for the Company. The
Company projects that Brighton-STAQ will operate at a loss for at least 1998,
the first year of operation. Prospective investors, therefore, have no
historical financial information about Brighton-STAQ upon which to evaluate the
Company's performance in this business and investment in the Units offered
hereby. The likelihood of the success of Brighton-STAQ must be considered in
light of the problems, expenses, difficulties and delays frequently encountered
in connection with the formation of a new business. See "BUSINESS-STAQ ON-LINE
NETWORK."
China's Securities Industry Related Risk. Although the Chinese
government has introduced new laws and regulations since January 1, 1994 to
modernize its securities market, China does not have a well-developed,
consolidated body of law governing the securities industry. As China continues
to develop its securities market, changes to existing laws, regulations and
policies (or in the application or enforcement thereof), the adoption of new
laws, and the pre-emption of local regulations by national laws may adversely
affect Brighton-STAQ. See "RISKS RELATING TO OPERATIONS IN CHINA."
Dependence on Strategic Relationship. The Company, through its
subsidiary, operates Brighton-STAQ as a joint venture company with Beijing
Huazheng Electronic Technology Co., Ltd. ("Huazheng"), a Chinese registered
Sino-Hong Kong equity joint venture company. Huazheng is a company controlled by
the STAQ Exchange in Beijing. It is the Company's understanding that Huazheng's
affiliation with the STAQ Exchange provides Brighton-STAQ with access to the
STAQ Exchange. The deterioration of this strategic relationship would have a
material adverse effect on Brighton-STAQ and would potentially limit the
Company's ability to continue to design, install and maintain the STAQ On-line
Network. There can be no assurance that the Company's relationship with its
strategic partner will remain on agreeable terms or that the Company's partner
will not end its relationship with the Company by selling its interest in
Brighton-STAQ. See "BUSINESS-STAQ ON-LINE NETWORK."
Limited Duration of Joint Venture. Brighton-STAQ has a term of 12
years. To the extent that the Company is unable to either extend the term of the
joint venture in 2006 or replace the revenues generated from its operations, the
Company's future earnings may be adversely affected. Although the Company
expects to be able to extend the term of Brighton-STAQ, there can be no
assurance that the Company will be successful in extending the term of the joint
venture or be able to establish new arrangements sufficient to replace such lost
revenues. See "BUSINESS-STAQ ON-LINE NETWORK."
Right of Huazheng to Buy up to 49% of Brighton-STAQ. The Company and
Huazheng, during negotiations for the establishment of Brighton-STAQ, orally
agreed that under certain financial performance criteria to be agreed upon by
the parties, Huazheng would have the right, during the term of Brighton-STAQ, to
acquire up to an additional 10% of Brighton-STAQ annually, at market valuation,
up to a total ownership of 49%. The parties have not yet agreed on the mechanism
for determining such performance criteria. The Company is uncertain with respect
to the validity of this oral agreement under Chinese law since it was not
reflected in the written agreement approved by the Chinese government providing
for the establishment of Brighton-STAQ. However, the Company believes that local
business custom dictates that the Company honor such oral agreement if so
requested by its partner. If Huazheng decides to exercise such right at a time
when Brighton-STAQ is profitable, the Company's operating results and
anticipated growth may be adversely affected. In addition, the mechanism for
determining market valuation if and when Huazheng exercises such right, which is
not yet agreed to by the parties, may possibly be unfavorable to the Company.
See "BUSINESS-STAQ ON-LINE NETWORK."
Construction and Operation of the STAQ On-line Network. In order for
the STAQ On-line Network to be fully operational, additional Chinese
governmental approvals will be required. Even in the event that the
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Company obtains all necessary governmental approvals related to, and has
adequate financing to fund construction and operation of the STAQ On-line
Network, Brighton-STAQ may experience difficulties and delays relating to the
construction and operation of such network system. There can be no assurance
that such network system will be completed in a timely manner, if at all, or
that financing will be sufficient to complete or to operate the STAQ On-line
Network. The failure to achieve these goals may have a material adverse effect
upon the liquidity, working capital requirements and anticipated growth of the
Company's business operations. See "BUSINESS-STAQ ON-LINE NETWORK."
Dependence on The People's Daily as Satellite Provider. The operation
of the STAQ On-line Network is dependent on satellite service provided by The
People's Daily, the major newspaper serving China. The Company is negotiating a
three-year contract for satellite services with The People's Daily, which it
expects to finalize in the first quarter of 1998. The People's Daily is not a
commercial provider of satellite service and itself subscribes to Asia Satellite
Telecommunications Co. Ltd. in Hong Kong for lease of a C-Band transponder and
China Telecommunications Broadcast Satellite Corporation in Beijing for lease of
a Ku-Band transponder. The Company is dependent on The People's Daily's
transponder lease agreements with the commercial satellite service providers. If
The People's Daily's transponder lease agreements were to terminate for any
reason, the Company will need to subscribe for satellite service from a
commercial provider at substantially higher cost to the Company.
See "BUSINESS-STAQ ON-LINE NETWORK."
Additional Capital Requirements. In addition to the net proceeds from
the Offering allocated to the STAQ On-line Network project, the Company may be
required to fund additional capital expenditures, development and construction
costs and working capital requirements related to the Company's development of
the STAQ On-line Network. Furthermore, the Company may decide to reallocate the
net proceeds from the Offering allocated to working capital to satisfy any
future financing requirements of the STAQ On-line Network project. The Company
cannot predict the extent to which additional capital may be required for those
purposes and there can be no assurance that the Company will be able to obtain
such additional capital on terms acceptable to the Company. To the extent that
future financing requirements are satisfied through the issuance of equity
securities, prospective investors may experience significant dilution in the net
book value of the Common Stock comprising a part of the Units offered hereby.
See "USE OF PROCEEDS."
In addition, the projected capital requirements to complete the STAQ
On-line Network exceed Brighton-STAQ's current authorized total investment
amount. Under Chinese law, the Company may not make capital contributions in
excess of authorized total investment amounts (currently $1,600,000) for
Brighton-STAQ without the consent of relevant Chinese Governmental authorities.
The Company intends to apply for approval to increase the authorized total
investment amount when the funds from the Offering are available. The Company
currently expects that the required governmental approvals will be obtained
based on several factors, including, but not limited to, the Chinese
Government's focus on attracting foreign investment into China, and that the
Company has made, to date, all of its requisite capital contributions to
Brighton-STAQ on a timely basis. Such approvals, however, are beyond the control
of the Company and Brighton-STAQ and there can be no assurance that such
approval will be granted. If such approval is not obtained, the ability of
Brighton-STAQ to meet its projected future business targets may be materially
adversely impacted. See "BUSINESS-STAQ ON-LINE NETWORK" and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS."
Competition. The STAQ On-line Network may potentially compete with the
Shanghai and Shenzhen Stock Exchanges as both the exchanges maintain their own
on-line securities quotation and trading system. Management believes that it is
unlikely that either of the two exchanges would compete with the STAQ On-line
Network because the STAQ Exchange and the Shanghai and Shenzhen Stock Exchanges
are under common control and the development of the STAQ On-line Network
complements the two stock exchanges. No assurances can be given that competition
from these exchanges will not arise.
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In addition, other businesses experienced in the systems management and
computer network integration business as well as the wireless communications
business, such as Dow Jones Markets, Inc., Reuters Limited and Bloomberg L.P.,
may compete with the Company. These competitors have greater marketing and
development budgets than the Company and have greater capital resources than the
Company. There can be no assurance that the Company will be successful in
commercializing the STAQ On-line Network.
DEPENDENCE ON NEW PRODUCTS AND TECHNOLOGIES. The Company's network
integration and STAQ On-line Network business segments operate in an industry
that is characterized by fast-changing technology. As a result, the Company will
be required to expend substantial funds for and commit significant resources to
the conduct of continuing product development, including research and
development activities and the engagement of additional engineering and other
technical personnel. Any failure by the Company to anticipate or respond
adequately to technological developments, customer requirements, or new design
and production techniques, or any significant delays in product development or
introduction, could have a material adverse effect on the operating results of
the Company.
The Company's future operating results will depend to a significant
extent on its ability to identify, develop, and market enhancements or
improvements to existing network integration applications as well as to
introduce new product lines that compare favorably on the basis of time to
introduction, cost and performance with the product lines offered by
competitors. The success of new product lines depend on various factors,
including proper market segment selection, utilization of advances in
technology, innovative development of new product concepts, timely completion
and delivery, efficient and cost-effective features, and market acceptance. Due
to the complexity of the design and implementation process required by the
Company's integration services, the Company may experience delays from time to
time in completing the design and implementation of improvements to existing
network systems or the introduction of new network integration applications. In
addition, there can be no assurance that any new network integration application
will receive or maintain customer or market acceptance. The Company's future
operating results would be adversely affected in the event that it is unable to
design and implement enhancements to existing network systems or introduce new
network integration applications on a timely and cost-effective basis. See
"BUSINESS -- COMPUTER NETWORK INTEGRATION AND STAQ ON-LINE NETWORK."
Complex network integration systems, such as those developed by the
Company, and incorporated third party hardware and software programs, often
encounter development delays and occasionally contain errors that are discovered
only after network systems have been installed and used by many different
customers in a variety of business operations. Significant development delays in
the future may result in increased product development costs, delays in market
acceptance, loss of sales, and reduction of market share, which could have a
material adverse effect on the Company's operating results. Although the Company
conducts testing of its network integration applications and systems, there can
be no assurance that the Company will successfully detect and eliminate all
programming errors.
CHANGE IN PRODUCT MIX. Historically, the Company has derived a
substantial portion of its revenue from the sale and integration of hardware and
software developed by others. The resale of hardware products manufactured by
third parties is extremely competitive and involves relatively low profit
margins. The sale of software developed by others also involves relatively low
profit margins and exposes the Company to various risks, including product
performance and market acceptance of such products as well as the strategies of
the product developers, over which the Company has little control.
The Company has changed its business strategy to emphasize the
development of its own network system in an effort to increase the relative
percentage of revenue it will derive from offering network services for
securities trading on the STAQ Exchange. The Company has completed testing of
the STAQ On-line Network using land telephone lines and is in the process of
bringing it to commercialization. There can be no assurance,
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however, that the Company will be successful in commercializing the STAQ On-line
Network. The failure of the Company to successfully develop and market the STAQ
On-line Network could have a material adverse effect on the Company. See
"BRINGING BRIGHTON-STAQ TO COMMERCIALIZATION."
MANAGEMENT OF CHANGE IN BUSINESS. The Company currently is experiencing
a period of significant growth in the development of the STAQ On-line Network.
The Company's ability to effectively manage this change in its business
operations will require it to enhance its operational, financial, and management
systems; to expand its facilities and equipment; and to successfully hire,
train, and motivate additional employees, including the technical personnel
necessary to develop the STAQ On-line Network and to integrate new software
systems with evolving hardware technologies. The failure of the Company to
manage effectively the change in its business focus could have a material
adverse effect on the Company.
DEPENDENCE ON KEY CUSTOMERS. The Company's industrial equipment
customers vary from year to year, but, historically, significant portions of its
revenues are from a limited number of customers, including China National as
described in the following paragraph. The Company expects that significant
portions of future revenues from this business segment will continue to be
generated by a limited number of customers. The Company's inability to secure
individual contracts for significant industrial equipment may result in
substantial reduction in business volume and would adversely affect operating
results. China Henan Light Industrial Products Import and Export Corporation, a
BECL customer, accounted for 17% of the Company's revenues in 1996 and Honest
Fortune International, Ltd., a BIC customer, accounted for 10% of the Company's
revenues in 1995.
CHINA NATIONAL CONTRACT. The Company's contract with China National
Chemical Construction Company ("China National") for the engineering design and
implementation for a sodium bichromate production plant with an annual
production capacity of 20,000 metric tons is an $11 million turn-key contract.
This contract accounted for 34% and 13% of the Company's revenues for the years
ended December 31, 1995 and 1996, respectively, and 40% of the Company's
revenues for the nine months ended September 30, 1997. Management does not
expect that any significant revenues will be earned from this contract during
1998. Contracts of this nature are generally discrete projects, and the Company
does not anticipate repeat business from China National after the completion of
the contract. The Company does not currently have or plan to have any projects
of this nature in the foreseeable future. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION-OVERVIEW" and "BUSINESS-CHINA NATIONAL."
COMPETITION. The network integration and industrial equipment
distribution businesses are highly competitive in China and include competition
from distributors and service providers from around the world. Certain of the
Company's competitors have considerably greater financial, marketing, personnel
and other resources than the Company, as well as greater experience and customer
recognition than the Company. In the wireless system integration area, the
Company competes with Multipoint Networks, Inc., a U.S. company, and Kb/Tel, SA,
a Mexican company, which both offer wireless telecommunication equipment with
identical features as Aria Wireless Systems, Inc.'s wireless telecommunications
system marketed by the Company (the "Aria Wireless System"). In the industrial
equipment distribution area, the Company competes with other independent
distributors, as well as manufacturers such as Cincinnati Milacron, Inc. and
Ingersoll-Rand Company. There can be no assurance that the Company will be able
to successfully compete with its competitors. See "BUSINESS-COMPUTER NETWORK
INTEGRATION-COMPETITION."
DEPENDENCE ON KEY PERSONNEL. The Company depends to a large extent on
the abilities and relationships of its Chairman, President, Chief Executive
Officer and principal stockholder, Kit Kung. Mr. Kung does not have an
employment agreement with the Company (see "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT"). The loss of Mr. Kung as an officer and
director could have a material adverse effect on the Company's business. In
addition, there is strong competition for qualified technical and management
personnel in the information, systems management and communications industries,
and the loss of key technical and management personnel or an inability to
continue to attract, retain and motivate key
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personnel could adversely affect the Company's business. There can be no
assurance that the Company will be able to retain its existing key personnel or
attract additional qualified personnel. The Company does not have a key-person
life insurance policy on Mr. Kung or any employee of the Company. The Company
will, prior to the completion of the Offering, obtain and maintain a $2,000,000
term life insurance policy covering Kit Kung which names the Company as the sole
beneficiary. See "MANAGEMENT."
CONTROL BY KIT KUNG. Upon the consummation of the Offering, Kit Kung
will own approximately 43.3% of the issued and outstanding Common Stock,
assuming the Warrants have not been converted into Common Stock, or 29.6% of the
issued and outstanding Common Stock, assuming the Warrants have been converted
into Common Stock. Accordingly, Kit Kung will be able to significantly influence
the Company's business and affairs. This concentration of ownership may have the
affect of delaying, deferring or preventing a change in control of the Company.
See "PRINCIPAL STOCKHOLDERS."
DISCRETIONARY USE OF PROCEEDS. The Company intends to use $4,000,000 of
the net proceeds from the Offering to bring the STAQ On-line Network project to
commercial operation and $837,500 for working capital and general corporate
purposes. To the extent the STAQ On-line Network project requires financing in
addition to the allocated net proceeds of the Offering, the Company may decide
to satisfy such financing requirements by reallocating the net proceeds from the
Offering from working capital to the STAQ On-line Network project. The Company's
management will, therefore, retain broad discretion in allocating all of the net
proceeds of the Offering.
See "USE OF PROCEEDS."
NO DIVIDENDS. The Company has not paid any dividends on its Common
Stock since it acquired all of the issued and outstanding capital stock of BIC
and BECL, effective November 11, 1996, and does not intend to pay dividends in
the foreseeable future. Earnings of the Company, if any, not paid as dividends
are expected to be retained to finance the expansion of the Company's business.
The payment of dividends on its Common Stock in the future will depend on the
results of operations, financial condition, capital expenditure plans and other
cash obligations of the Company and will be at the sole discretion of the Board
of Directors. See "DIVIDEND POLICY" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATIONS."
NEED FOR ADDITIONAL FINANCING. Based on the Company's operating plan,
management believes that the proceeds from the Offering, together with projected
cash flow provided by operations, will be sufficient to meet the Company's
anticipated cash needs and to finance its current plans for the STAQ On-line
Network project for at least the next 12 months from the date of this
Prospectus. However, if the Company's plans for the STAQ On-line Network project
change or if the Company decides to expand such plans, it may require additional
financing to meet the changed or expanded plans for the STAQ On-line Network
project. No assurance can be given that the Company will be successful in
obtaining additional financing on favorable terms, if at all. If the Company is
unable to obtain additional financing, its ability to meet such changed or
expanded plans for the STAQ On-line Network project could be materially
adversely affected. The Company has financed its operations to date primarily
from cash flow from operations, financing and other assistance from Kit Kung and
his family and private sales of equity. All prior financing and other assistance
from Kit Kung and his family members were provided on a case by case basis with
no commitment to provide such financing or assistance in the future by Kit Kung
or his family members. Subsequent to the completion of the Offering, the Company
will adopt a policy to the effect that any future related party transactions be
on terms no less favorable to the Company than could reasonably be obtained in
arm's length transactions with independent third parties, and that any such
transactions be approved by a majority of the Company's independent directors
disinterested in the transaction. See "USE OF PROCEEDS," "CAPITALIZATION,"
"CERTAIN TRANSACTIONS" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS."
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DILUTION. Upon completion of the Offering, prospective investors of the
Units will experience dilution in net tangible book value of their investment in
the Company of $3.64 per share of Common Stock. See "DILUTION."
NO PRIOR MARKET FOR THE UNITS; ARBITRARY DETERMINATION OF OFFERING
PRICE. Prior to the Offering, there has been no public market for the Units.
While the Company has applied for the listing of the Units on the Nasdaq
SmallCap Market, there can be no assurance that an active trading market for the
Units will be established, or if so established, sustained. The initial offering
price for the Units has been arbitrarily determined through negotiation between
the Company and the Representative based on such factors as the business
potential and earnings prospects of the Company and prevailing market
conditions. The offering price for the Units may be higher or lower than the
price of the Common Stock quoted on the OTC Electronic Bulletin Board. Such
price may not be indicative of the market price of the Units after the Offering
has been consummated. See "UNDERWRITING." The trading price of the Company's
Units may be highly volatile and could be subject to significant fluctuations in
response to variations in the Company's quarterly operating results and other
factors. In addition, the stock market is subject to price and volume
fluctuations affecting the market price for the securities of many companies
generally, which fluctuations often are unrelated to operating results.
ANTI-TAKEOVER CONSIDERATIONS. The Board of Directors has the authority
to issue up to Five Million (5,000,000) shares of preferred stock, par value
$.001 per share and to establish the rights and preferences of such shares. Such
issuance could occur without action by the holders of the Common Stock and the
holders of the Units. Such preferred stock could have voting and conversion
rights that adversely affect the voting power of the holders of Units and/or
Common Stock, or could result in one or more classes of outstanding securities
that would have dividend, liquidation or other rights superior to those of the
Units and/or Common Stock. Issuance of such preferred stock may have an adverse
effect on the then prevailing market price of the Units and/or Common Stock.
This authority, together with certain provisions in the Company's Restated
Certificate of Incorporation and ByLaws, may delay, deter or prevent a change in
control of the Company, may discourage bids for the Units and/or Common Stock at
a premium over the market price of the Units and/or Common Stock, and may
adversely affect the market price of, and the voting and other rights of the
holders of, Units and/or the Common Stock. Additionally, the Company is subject
to the anti-takeover provisions of Section 203 of the Delaware General
Corporation Law ("Delaware Law"), which prohibits the Company from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
Section 203 could have the effect of delaying or preventing a change of control
of the Company. See "DESCRIPTION OF SECURITIES."
SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of the Offering, there
will be 2,165,111 shares of Common Stock outstanding (assuming no conversion of
convertible notes), of which 1,031,279 shares of Common Stock will be
"restricted" securities within the meaning of the Securities Act and may not be
sold in the absence of registration under the Securities Act or an exemption
therefrom, including the exemptions contained in Rule 144 under the Securities
Act. Without regard to the "Lock-Up Agreements" with the Representative,
referred to below, such shares will become available for sale under Rule 144 at
various times commencing 90 days from the date of this Prospectus. No prediction
can be made as to the effect, if any, that future sales of shares of Common
Stock will have on the market price of the shares of Common Stock prevailing
from time to time. Sales of substantial amounts of Common Stock, or the
perception that these sales could occur, could adversely affect prevailing
market prices for the Common Stock and could impair the ability of the Company
to raise additional capital through the sale of its equity securities or through
debt financing. The Company and its officers, directors and current stockholders
have agreed to enter into agreements ("Lock-Up Agreements") under which they
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will agree not to sell or otherwise dispose of any of their shares of Common
Stock or other securities of the Company for a period of thirteen (13) months
commencing upon the date of this Prospectus, without the prior written consent
of the Representative. See "UNDERWRITING" and "SHARES ELIGIBLE FOR FUTURE SALE."
POSSIBLE DELISTING FROM NASDAQ SYSTEM AND MARKET ILLIQUIDITY. While the
Units meet the Nasdaq listing requirements and are expected to be initially
quoted on the Nasdaq SmallCap Market, there can be no assurance the Company will
meet the criteria for continued listing. For continued listing on the Nasdaq
SmallCap Market, a company would need to have, among other things, (A) net
tangible assets of $2,000,000, (B) a market capitalization of $35,000,000, or
net income for two of the last three fiscal years of $500,000, (C) a minimum
market value of public float of $1,000,000 and (D) a minimum bid price of $1.00
per share. Additionally, for both initial listing and continued listing on the
Nasdaq SmallCap Market, companies would be required to have at least two
independent directors, and an Audit Committee, a majority of the members of
which must be independent directors.
If the Company's Units were delisted from Nasdaq, it could become
subject to Rule 15g-9 under the Exchange Act and be considered a "penny stock"
under such Rule, which imposes additional sales practice requirements on
broker-dealers that sell such delisted securities to persons other than
established customers and "accredited investors" (generally, individuals with a
net worth in excess of $1,000,000 or annual incomes exceeding $200,000 or
$300,000 together with their spouses). For transactions covered by Rule 15g-9, a
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
the sale. Consequently, Rule 15g-9 may adversely affect the ability of
broker-dealers to sell the Company's Common Stock or Units and may adversely
affect the ability of purchasers in the Offering to sell in the secondary market
any of the Units or Common Stock acquired.
PENNY STOCK REGULATION. Broker-dealer practices in connection with
transactions in "penny stocks" are regulated by certain penny stock rules
adopted by the Commission. Penny stocks generally are equity securities with a
price of less than $5.00 (other than securities registered on certain national
securities exchanges or quoted on the Nasdaq system, provided that current price
and volume information with respect to transactions in such securities is
provided by the exchange or system). The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document that provides
information about penny stocks and the risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customer's account. In addition,
the penny stock rules generally require that prior to a transaction in a penny
stock the broker-dealer must make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction. If the Units do not qualify for quotation
on the Nasdaq SmallCap Market, or if it qualifies and is later delisted from
such Market and has a price of less than $5.00 per Unit, then unless another
exemption is available, the Units and the underlying Common Stock would be
subject to the penny stock rules. These disclosure requirements may have the
effect of reducing the level of trading activity in the secondary market for a
stock that becomes subject to the penny stock rules. If the Securities become
subject to the penny stock rules, investors in the Offering may find it more
difficult to sell their Securities.
ADVERSE CONSEQUENCES ASSOCIATED WITH WARRANTS. The Company has reserved
1,000,000 shares of Common Stock for issuance upon exercise of the Warrants, and
100,000 shares of Common Stock for issuance upon the exercise of the
Representative's Warrants. Holders of such Warrants are likely to exercise them
when, in all likelihood, the Company could obtain additional capital on terms
more favorable than those provided thereby. Furthermore, such Warrants may
adversely affect the terms on which the Company could obtain additional capital.
Should a significant portion of such Warrants be exercised, the resulting
increase in the amount
18
<PAGE> 21
of Common Stock in the public market may have the effect of reducing the per
share market price thereof. See "SHARES ELIGIBLE FOR FUTURE SALE."
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS. The Warrants are
subject to redemption by the Company at a price of $0.10 per Warrant under
certain conditions at any time commencing __________, 1999, on thirty days prior
written notice. If the Warrants are redeemed, Warrant holders will lose their
right to exercise the Warrants except during the 30 day redemption period. Upon
receipt of notice of redemption, Warrant holders would be required to: (i)
exercise the Warrants and pay the exercise price at a time when it may be
disadvantageous for them to do so, (ii) sell the Warrants at the then market
price, if any, when they might otherwise wish to hold the Warrants, or (iii)
accept the redemption price, which is likely to be substantially less than the
market value of the Warrants at the time of redemption. See "DESCRIPTION OF
SECURITIES --WARRANTS."
STOCKHOLDERS INABILITY TO VOTE ON OR REVIEW CERTAIN TRANSACTIONS. As is
customary under the Delaware Law, the Board of Directors, not the stockholders,
of the Company have authority to review many types of prospective business
transactions and approve or disapprove of the same. Although the Nasdaq SmallCap
listing requirements provide that the Company is required to seek stockholder
approval for certain acquisitions and stock offerings, the stockholders of the
Company may not have the opportunity to review the terms of any other
prospective transactions nor review the financial statements of any entities
relating to any such transactions.
REPRESENTATIVE'S INFLUENCE ON THE MARKET. A significant number of Units
offered hereby may be sold to customers of the Underwriters. Such customers
subsequently may engage in transactions for the sale or purchase of such
securities through or with the Underwriters. Although they have no obligation to
do so, the Underwriters intend to make a market in the Units and may otherwise
effect transactions in such securities. If they participate in such market, the
Underwriters may exert a dominating influence on the market, if one develops,
for the Units. Such market-making activity may be discontinued at any time.
Moreover, if the Representative exercises the Warrants, it may be required under
the Exchange Act to temporarily suspend market-making activities. The price and
liquidity of the Units may be significantly affected by the degree, if any, of
the Underwriters' participation in such market. See "UNDERWRITING."
19
<PAGE> 22
USE OF PROCEEDS
Based on an assumed offering price of $6.25 per Unit, net proceeds
to the Company from the sale of the Units in the Offering are estimated to be
$4,837,500, after deducting estimated selling commissions and other expenses
associated with the Offering. The Company intends to use such net proceeds as
set forth below:
<TABLE>
<CAPTION>
OFFERING
-----------------------
AMOUNT PERCENTAGE
----------- ------
<S> <C> <C>
Commercialization of the
STAQ On-line Network Project $4,000,000 82.7%
Working capital 837,500 17.3%
----------- ------
TOTAL $4,837,500 100.0%
=========== ======
</TABLE>
The commercialization of the STAQ On-line Network, currently in the
testing phase of linking Beijing, Chongqing, Guangzhou, Shanghai, Shenzhen and
Wuhan to the STAQ Exchange, requires aggregate capital expenditures of
$3,540,000, consisting of $3,000,000 for the necessary satellite-linking
equipment and $540,000 for other capital expenditures, and $460,000 in related
costs to establish operations in the cities of Beijing, Chongqing, Guangzhou,
Shanghai, Shenzhen and Wuhan, such as wireless systems, office facilities,
office equipment and personnel. See "BUSINESS-STAQ ON-LINE NETWORK."
The foregoing allocations are estimates only and are subject to
revision from time-to-time to meet the Company's requirements. Pending full
utilization of the proceeds of the Offering, the Company may invest the net
proceeds in insured interest-bearing savings accounts, U.S. Government
obligations, insured Certificates of Deposit or other insured short-term
investments of similar quality. See "RISK FACTORS - ADDITIONAL CAPITAL
REQUIREMENTS," "- DISCRETIONARY USE OF PROCEEDS," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATIONS" and "BUSINESS-STAQ ON-LINE NETWORK."
20
<PAGE> 23
MARKET PRICE FOR THE COMMON STOCK
The Company was formed as a result of a reverse acquisition effective
November 11, 1996, whereby the Company acquired all of the issued and
outstanding capital stock of BIC and BECL from their shareholders in exchange
for the issuance by the Company of a controlling interest in the Company to such
shareholders (the "Reverse Merger"). Since November 12, 1996, the Company's
Common Stock has been listed for trading on the OTC Electronic Bulletin Board
under the symbol "BRTK." Prior to that date, the Company's Common Stock traded
under the symbol "ZNTX." The trading market is limited and sporadic and should
not be deemed to constitute an "established trading market."
The following table sets forth the range of bid prices of the Company's
common stock as quoted on the OTC Electronic Bulletin Board during the periods
indicated. Such prices reflect prices between dealers in securities and do not
include any retail markup, markdown or commission and may not necessarily
represent actual transactions. The information set forth below was provided by
Nasdaq Trading & Market Services. All prices reflect the 1-for-3 reverse stock
split effective November 11, 1996, the 1-for-3 reverse stock split effective
October 17, 1997 and the 1-for-3 reverse stock split authorized and approved by
the Company's Board of Directors and stockholders on January 13, 1998, which
will go into effect on January 26, 1998.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, 1996 HIGH LOW
------- -------
<S> <C> <C>
Quarter Ended March 31, 1996 (1) $135.00 $ 27.00
Quarter Ended June 30, 1996 (1) 94.50 94.50
Quarter Ended September 30, 1996 (1) (2) (2)
Period from October 1, 1996 - November 11, 1996 (1) 62.46 33.75
Period from November 12, 1996 - December 31, 1996 64.17 56.25
FISCAL YEAR ENDED DECEMBER 31, 1997
Quarter Ended March 31, 1997 63.00 48.42
Quarter Ended June 30, 1997 52.92 29.25
Quarter Ended September 30, 1997 46.14 21.39
Quarter Ended December 31, 1997 21.39 4.50
</TABLE>
FISCAL YEAR ENDING DECEMBER 31, 1998
Period from January 1, 1998 to January 15, 1998 7.50 6.75
(1) High and low bid prices of the Company's Common Stock traded under the
symbol "ZNTX" prior to the reverse acquisition effective November 11, 1996.
(2) Not available.
On January 14, 1998, the closing bid price for the Common Stock as
reported by OTC Electronic Bulletin Board was $6.75.
As of December 31, 1997, the number of security holders of record of
the Company's Common Stock was 91. As of such date, 1,165,111 shares were
outstanding.
21
<PAGE> 24
DIVIDEND POLICY
The Company has not paid dividends on the Common Stock since its
acquisition of all of the issued and outstanding capital stock of BIC and BECL,
effective November 11, 1996, and does not anticipate paying dividends on its
Common Stock in the foreseeable future. It is the present policy of the Board of
Directors to retain all earnings to provide for the future growth of the
Company. Earnings of the Company, if any, not paid as dividends are expected to
be retained to finance the expansion of the Company's business. The payment of
dividends on its Common Stock in the future will depend on the results of
operations, financial condition, capital expenditure plans and other cash
obligations of the Company and will be at the sole discretion of the Board of
Directors. See "DESCRIPTION OF SECURITIES."
22
<PAGE> 25
DILUTION
The following discussion and tables allocate no value to the Warrants
contained in the Units and assumes no exercise of the Warrants, the
Underwriters' Over-Allotment Option or the Representative's Warrants. See
"UNDERWRITING" and "DESCRIPTION OF SECURITIES." The difference between the
public offering price per share of Common Stock and the pro forma net tangible
book value per share of Common Stock after the Offering constitutes the dilution
per share of Common Stock to investors in the Offering. Net tangible book value
per share of Common Stock on any given date is determined by dividing the net
tangible book value of the Company (total tangible assets less total
liabilities) on such date by the number of shares of Common Stock outstanding on
such date.
At September 30, 1997, the net tangible book value of the Company was
$575,930, or $.50 per share of Common Stock. After giving effect to the sale of
the 1,000,000 shares of Common Stock included in the Units offered by the
Company hereby at an assumed offering price of $6.25 per Unit (less underwriting
discounts and estimated expenses of the Offering), the pro forma net tangible
book value of the Company at September 30, 1997 would have been $5,650,523 or
$2.61 per share, representing an immediate increase in net tangible book value
of $2.11 to existing stockholders and an immediate dilution of $3.64 per share
of Common Stock to the purchasers of Units in the Offering.
The following table illustrates the dilution to prospective investors
on a per-share basis:
<TABLE>
<S> <C> <C>
Offering price..................................................... $6.25
Net tangible book value before the Offering................... $.50
Increase attributable to prospective investors................ 2.11
-----
Pro forma net tangible book value after the Offering............... 2.61
------
Dilution to prospective investors.................................. $3.64
=====
</TABLE>
After giving effect to the sale of 1,000,000 shares of Common Stock
included in the Units offered by the Company hereby at an assumed offering price
of $6.25 per Unit (less underwriting discounts and estimated expenses of the
Offering), and assuming conversion into Common Stock of the convertible notes
payable, the pro forma net tangible book value of the Company at September 30,
1997 would have been $6,452,628 or $2.82 per share, representing an immediate
increase in net tangible book value of $2.32 to existing stockholders and an
immediate dilution of $3.43 per share of Common Stock to the purchasers of Units
in the Offering.
The following table sets forth, as of September 30, 1997, with respect
to the existing stockholders and the purchasers of Common Stock constituting
part of the Units in the Offering, a comparison of the number and percentage of
shares of Common Stock acquired from the Company, the amount and percentage of
consideration paid and the average price per share:
23
<PAGE> 26
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
--------------------- ------------------------- Price Per
Number Percentage Amount Percentage Share
--------- ---- ---------- ---- -----
<S> <C> <C> <C> <C> <C>
Existing Stockholders 1,161,222 53.7% $2,096,703(2) 25.1% $1.81
Prospective Investors 1,000,000 46.3% 6,250,000 74.9% 6.25
--------- ----- ---------- -----
Total(1) 2,161,222 100.0% $8,346,703 100.0%
========= ===== ========== =====
</TABLE>
(1) Does not include (i) 3,889 shares of Common Stock issued to a consulting
firm in November 1997 for certain business development services; (ii) 128,337
additional shares of Common Stock issuable at the option of the holders upon
conversion of convertible notes; and (iii) 150,000 shares issuable upon the
exercise of the Underwriters' Over-Allotment option.
(2) Includes contribution to capital of net amounts owed to Kit Kung by the
Company of $1,266,973 in December 1996.
24
<PAGE> 27
CAPITALIZATION
The following table sets forth the actual short term debt and
capitalization of the Company as of September 30, 1997 and as adjusted to
reflect the sale of Units at an assumed offering price of $6.25 per Unit.
See "USE OF PROCEEDS" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------------
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
Short term debt:
Convertible demand note payable,
including accrued interest (1) $ 643,355 $ 643,355
Note payable,
including accrued interest (2) 158,750 158,750
----------- -----------
Total short term debt payable 802,105 802,105
----------- -----------
Stockholders' equity:
Preferred Stock, $.001 par value
5,000,000 shares authorized, none issued and
outstanding
Common Stock, $.001 par value
100,000,000 shares authorized, 1,161,222
shares outstanding; 2,161,222(3)
shares issued and outstanding as adjusted 1,161 2,161
Contributed capital 1,856,740 6,693,240
Accumulated deficit (1,006,919) (1,006,919)
Unearned compensation cost (12,250) (12,250)
----------- -----------
Stockholders' equity 838,732 5,676,232
----------- -----------
Total short term debt and capitalization $ 1,640,837 $ 6,478,337
=========== ===========
</TABLE>
(1) The note is payable upon demand, bears interest at 5% per annum and is
convertible into shares of Common Stock at prevailing market values.
(2) The note bears interest at 10% per annum, with interest to accrue until the
due date of February 24, 1998. Thereafter, the note will be payable upon demand,
with interest at 12% per annum.
(3) Does not include: (i) 1,000,000 shares of Common Stock issuable upon
exercise of the Warrants; (ii) 100,000 shares of Common Stock issuable upon the
exercise of the Representative's Warrants; or (iii) up to 150,000 shares of
Common Stock issuable upon exercise of the Underwriters' Over-Allotment Option;
(iv) 3,889 shares of Common Stock issued during November 1997 pursuant to a
consulting agreement; and (v) the conversion of convertible notes at the option
of the holders thereof into an aggregate of 128,337 shares of Common Stock.
25
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW:
Effective November 11, 1996, the Company acquired all of the issued and
outstanding capital stock of BIC and BECL from Kit Kung and Hong Yun (the
"Brighton Shareholders") in exchange for the issuance by the Company of an
approximate 88% controlling interest in the Company to the Brighton
Shareholders. The acquisition of BIC and BECL by the Company was accounted for
as a recapitalization of BIC and BECL, with BIC and BECL as the acquirer
(reverse acquisition). This transaction was consummated to consolidate the
operating companies (BIC and BECL) owned by the Brighton Shareholders into one
entity and to attract and facilitate investment into the Company. Accordingly,
the historical financial statements consist of the combined financial statements
of BIC and BECL for all periods presented. The consolidated financial statements
include the accounts of BIC, a United States-based company, and BECL, a Hong
Kong-based holding company with controlling interests in four Hong Kong
subsidiaries and joint ventures (See "BUSINESS-THE COMPANY'S CORPORATE
STRUCTURE.") All share and per share amounts presented herein have been adjusted
to reflect the 1 for 3 reverse stock split effective November 11, 1996, the
reverse stock split effective October 17, 1997 and the 1 for 3 reverse stock
split authorized and approved by the Company's Board of Directors and
stockholders on January 13, 1998, which will go into effect January 26, 1998.
BIC is a distributor of third party manufactured industrial equipment
to customers in China and other Pacific Basin countries. BECL is an investment
and holding company whose subsidiaries are involved in (i) the buying, selling
and installation of computer and industrial equipment, and (ii) the marketing,
sale and service of wireless telecommunication equipment used for credit card
approval and authorization systems in China and other Pacific Basin countries.
In addition, the Company is developing the STAQ On-line Network for the STAQ
Exchange, which is not yet operational. Accordingly, the Company considers its
current operations to be in two business segments - Industrial Equipment
Distribution and Networking.
On April 15, 1994, BIC entered into a long-term contract with expected
revenues of $11,000,000 with China National to provide aid in the design and
construction of a sodium bichromate production plant in Chongqing, Sichuan
Province, PRC, with an annual production capacity of 20,000 metric tons.
Although this contract and the work related to it was outside the ordinary scope
of the Company's industrial equipment distribution business, given its size and
complexity, because of certain third party technology that was available to the
Company at that time, the Company was able to successfully bid on the contract.
Contracts of this nature are project based and since the Company's current focus
is on developing other business opportunities in the PRC, the Company does not
anticipate engaging in additional projects of this type or size in the
foreseeable future. This contract was temporarily suspended in February 1996 by
the municipal government due to environmental concerns relating to China
National's proposed methods for waste disposal by the plant. The revised
proposal for waste management submitted by China National was approved by the
municipal government and the temporary suspension was lifted in January 1997.
The contract resumed following the lifting of the temporary suspension.
The Company has been advised by China National that they are currently
negotiating with third party lenders for the necessary funds to complete the
construction of the project. The Company is currently unable to predict the
ultimate outcome of these discussions. In the event that China National is
unsuccessful in its efforts to obtain such financing and construction efforts
are suspended or terminated, the Company's anticipated revenues in the future
with regard to this contract may be reduced or eliminated. Based on an
assessment of discussions with China National and the timing involved in
obtaining the necessary funds, management of the Company does not expect that
any significant revenues will be earned from this contract during the year
ending December 31, 1998. If China National is unable to complete the project,
management does not expect that the ultimate resolution of this matter will have
a material adverse impact on the Company's financial position or cash flows.
26
<PAGE> 29
Revenues under this contract for the years ended December 31, 1995 and
1996, and the nine months ended September 30, 1997, were approximately
$2,855,000, $1,048,000 and $2,337,000, respectively, or 34%, 13% and 40% of the
Company's total revenues, respectively, and 67%, 29% and 65% of industrial
equipment distribution revenues, respectively. The Company has recorded
cumulative aggregate revenues of $6,898,000 through September 30, 1997 under
this contract (including revenues of $658,000 for the year ended December 31,
1994), or approximately 63% of the contract's total expected revenues.
During 1995 and 1996, a different customer in each such year accounted
for approximately 10% and 17% of revenues, respectively. The Company has
historically relied on a limited number of customers for a substantial portion
of its total revenues. In addition, substantially all of the Company's business
is currently conducted with or in China. The Company expects that a significant
portion of its future revenues will continue to be generated by a limited number
of customers in China. The loss of any of these customers or any substantial
reduction in business volume with any of these customers, or any political or
economic difficulties between the United States and China could have a material
adverse effect on future results of operations.
27
<PAGE> 30
The following tables set forth certain historical operating data for
the periods presented. The 1995 financial statements were restated to reflect
the correction of depreciation expense recorded on project equipment, accounting
for losses related to BECL's subsidiaries, and to appropriately recognize
revenue from certain long-term projects. As a result, net income for the year
ended December 31, 1995 was reduced by $258,353.
The following table sets forth certain historical operating data for
the periods presented:
<TABLE>
<CAPTION>
Years Ended December 31, Nine Months Ended September 30,
------------------------------------------ --------------------------------------------
1995 1996 1996 1997
------------------- -------------------- -------------------- --------------------
Amount % Amount % Amount % Amount %
----------- ----- ----------- ----- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 8,370,537 100.0 $ 8,006,260 100.0 $ 6,796,972 100.0 $ 5,913,330 100.0
Cost of
Revenues 6,165,201 73.6 5,785,507 72.3 4,994,155 73.5 4,057,207 68.6
General and
Administrative
Expenses 1,648,016 19.7 1,755,029 21.9 1,564,761 23.0 1,747,255 29.6
Consulting
Fees 366,430 6.2
----------- ----- ----------- ----- ----------- ----- ----------- -----
Total
Operating
Expenses 1,648,016 19.7 1,755,029 21.9 1,564,761 23.0 2,113,685 35.8
----------- ----- ----------- ----- ----------- ----- ----------- -----
Operating
Income (Loss) 557,320 6.7 465,724 5.8 238,056 3.5 (257,562) (4.4)
Total Other
Income, Net 3,324 -- 49,026 .6 48,958 .7 51,256 .9
----------- ----- ----------- ----- ----------- ----- ----------- -----
Income (Loss)
Before Income
Taxes and
Minority
Interests 560,644 6.7 514,750 6.4 287,014 4.2 (206,306) (3.5)
Provision
(Benefit) for
Income Taxes 444,000 5.3 309,000 3.8 115,000 1.7 (89,000) (1.5)
Minority
Interests 55,703 .7 (7,226) (.1) (26,663) (.4) 9,282 .2
----------- ----- ----------- ----- ----------- ----- ----------- -----
Net Income
(Loss) $ 172,347 2.1 $ 198,524 2.5 $ 145,351 2.1 $ (108,024) (1.8)
=========== ===== =========== ===== =========== ===== =========== =====
</TABLE>
28
<PAGE> 31
Revenues from the United States consist primarily of revenues from industrial
equipment distribution export sales to the Far East, while revenues from the Far
East based operations consist of revenues from both industrial equipment
distribution and networking.
GEOGRAPHIC AREA INFORMATION
<TABLE>
<CAPTION>
Years Ended December 31, Nine Months Ended September 30,
-------------------------------------------- -----------------------------------------------
1995 1996 1996 1997
-------------------- -------------------- -------------------- -----------------------
Amount % Amount % Amount % Amount %
----------- ----- ----------- ----- ----------- ----- ----------- -----
Revenues:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
United States $ 6,497,541 77.6 $ 6,039,716 75.4 $ 4,960,347 73.0 $ 5,000,743 84.6
Far East 1,872,996 22.4 1,966,544 24.6 1,836,625 27.0 912,587 15.4
----------- ----- ----------- ----- ----------- ----- ----------- -----
Total $ 8,370,537 100.0 $ 8,006,260 100.0 $ 6,796,972 100.0 $ 5,913,330 100.0
=========== ===== =========== ===== =========== ===== =========== =====
Operating
Income
(Loss):
United States $ 927,375 166.4 $ 730,875 156.9 $ 396,717 166.6 $ 340,257 312.5
Far East (370,055) (66.4) (265,151) (56.9) (158,661) (66.6) (231,389) (212.5)
----------- ----- ----------- ----- ----------- ----- ----------- -----
Total $ 557,320 100.0 $ 465,724 100.0 $ 238,056 100.0 $ 108,868(1) 100.0
=========== ===== =========== ===== =========== ===== =========== =====
</TABLE>
29
<PAGE> 32
BUSINESS SEGMENT INFORMATION
<TABLE>
<CAPTION>
Years Ended December 31, Nine Months Ended September 30,
--------------------------------------- ------------------------------------------
1995 1996 1996 1997
------------------ ------------------ ------------------ ---------------------
Amount % Amount % Amount % Amount %
---------- ----- ---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Networking $4,102,746 49.0 $4,341,827 54.2 $3,465,793 51.0 $2,340,570 39.6
Industrial
Equipment
Distribution 4,267,791 51.0 3,664,433 45.8 3,331,179 49.0 3,572,760 60.4
---------- ----- ---------- ----- ---------- ----- ---------- -----
Total $8,370,537 100.0 $8,006,260 100.0 $6,796,972 100.0 $5,913,330 100.0
========== ===== ========== ===== ========== ===== ========== =====
Operating
Income:
Networking $ 309,891 55.6 $ 251,209 53.9 $ 104,513 43.9 $ 99,525 91.4
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31, Nine Months Ended September 30,
--------------------------------------- ------------------------------------------
1995 1996 1996 1997
------------------ ------------------ ------------------ ---------------------
Amount % Amount % Amount % Amount %
---------- ----- ---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Industrial
Equipment
Distribution 247,429 44.4 214,515 46.1 133,543 56.1 9,343 8.6
---------- ----- ---------- ----- ---------- ----- ---------- -----
Total $ 557,320 100.0 $ 465,724 100.0 $ 238,056 100.0 $ 108,868(1) 100.0
========== ===== ========== ===== ========== ===== ========== =====
</TABLE>
- ---------------------
(1) Operating income (loss) for both Geographic Area Information and Business
Segment Information exclude operating expenses relating to business development
consulting fees of $366,430.
30
<PAGE> 33
CONSOLIDATED RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997:
Revenues. Revenues for the nine months ended September 30, 1997 were
$5,913,330, as compared to $6,796,972 for the nine months ended September 30,
1996, a decrease of $883,642 or 13.0%. The decrease in revenues of $883,642 in
1997 as compared to 1996 consisted of a decrease of $1,125,223 or 32.5% from
networking, which was offset in part by an increase of $241,581 or 7.3% from
industrial equipment distribution. For the nine months ended September 30, 1997
and 1996, revenues from industrial equipment distribution represented
approximately 60.4% and 49.0% of revenues, respectively, and revenues from
networking represented approximately 39.6% and 51.0% of revenues, respectively.
The primary reason for the decrease in revenues from networking in 1997
as compared to 1996 was management's decision to allocate personnel and
resources in 1997 to continue the development of the STAQ On-line Network (See
"BUSINESS-STAQ ON-LINE NETWORK"), which, due to the Company's limited capital
and operating resources, required the Company to reduce its sales efforts with
respect to the networking business segment.
For the nine months ended September 30, 1997 and 1996, the China
National contract accounted for approximately 39.5% and 0% of revenues,
respectively, and approximately 65.4% and 0% of industrial equipment
distribution revenues, respectively. Revenues from the China National contract
were approximately $2,337,000 for the nine months ended September 30, 1997 and
$0 for the nine months ended September 30, 1996 due to the project's temporary
suspension (which suspension was imposed in February 1996 and was lifted in
January 1997). Management of the Company does not expect that any significant
revenues will be earned from this contract during the year ending December 31,
1998.
Networking revenues include revenues from the sale and installation of
the Aria Wireless System. During the nine months ended September 30, 1997, the
Company completed five agreements with ICBC to provide and install the Aria
Wireless System for ATM linkage and clearance and settlements for five of its
bank branches as transaction automation is introduced within the bank's entire
system comprising over 12,000 branches in China. For the nine months ended
September 30, 1997, revenues from the sale and installation of the Aria Wireless
System were $906,498 or 38.7% of networking revenues. The Company did not have
any revenues from the sale and installation of the Aria Wireless System during
the nine months ended September 30, 1996.
For the nine months ended September 30, 1997, United States revenues
from export sales to the Far East increased by $40,396 or 0.8%, to $5,000,743 in
1997 from $4,960,347 in 1996, and revenues from operations based in the Far East
decreased by $924,038 or 50.3%, to $912,587 in 1997 from $1,836,625 in 1996.
Revenues from operations based in the Far East decreased in 1997 as compared to
1996 as a result of the Company's focus on development of the Brighton STAQ
On-line project, which is not expected to become operational until the third
quarter of 1998. For the nine months ended September 30, 1997 and 1996, United
States export sales revenues represented approximately 84.6% and 73.0% of
consolidated revenues, respectively, and revenues from the Far East operations
represented 15.4% and 27.0% of consolidated revenues, respectively.
Gross Profit. Gross profit for the nine months ended September 30, 1997
increased by $53,306 or 3.0%, to $1,856,123 or 31.4% of revenues, as compared to
$1,802,817 or 26.5% of revenues for the nine months ended September 30, 1996.
Despite a decrease in revenues in 1997 as
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compared to 1996 of 13.0%, gross profit increased as a result of improvement in
gross margin, which was primarily a result ofincreased progress on the
completion of the China National contract in early 1997, and improved gross
margins from certain industrial equipment distribution contracts.
General and Administrative Expenses. Excluding consulting fees of
$366,430 as described below, general and administrative expenses increased by
$182,494 or 11.7% to $1,747,255 or 29.5% of revenues for the nine months ended
September 30, 1997, as compared to $1,564,761 or 23.0% of revenues for the nine
months ended September 30, 1996, primarily as a result of increases in employee
compensation and occupancy costs incurred to develop the STAQ On-line Network in
particular and to expand both Networking and Industrial Equipment Distribution
operations in general.
During the nine months ended September 30, 1997, the Company incurred
consulting fees aggregating $366,430 for certain professional, consulting and
other costs incurred in connection with the Company's ongoing business
development activities. The Company did not incur any similar costs during the
nine months ended September 30, 1996. The Company does not expect that this
category of costs will continue at these levels in 1998 subsequent to the
completion of the Offering. Included in the $366,430 of consulting fees are (i)
500 shares of Common Stock issued to a consultant for services rendered which
were valued at $17,438, and (ii) $175,000 of costs pursuant to a consulting
agreement with a consulting firm as described below at "Consulting Fees."
Consulting Fees. On February 25, 1997, the Company entered into a
consulting agreement with a consulting firm for business advisory services.
Pursuant to that agreement, the Company paid the consulting firm $25,000 and
issued a one-year note for $150,000 for services rendered. The note is
unsecured, bears interest at 10% per annum, with interest to accrue until the
due date of February 24, 1998. Thereafter, such note will become payable upon
demand, with interest at 12% per annum.
If the Company does not complete a debt or equity financing by February
24, 1998, then the Company will have the option of converting the note,
including accrued interest, into its common stock, with the value of such common
shares to be calculated at 75% of the market price on such date. The maximum
number of common shares that the Company will be required to reserve and issue
as full settlement for the note, including accrued interest, will be 25,000
shares. Such shares, if issued, will be restricted and will have piggyback
registration rights.
If the Company completes a private financing by February 24, 1998, then
the noteholder will have the option of converting the note, including accrued
interest, into the same debt or equity instrument issued in connection with such
private financing. If the Company completes a secondary public offering by
February 24, 1998, the noteholder will have the option of converting the balance
of the note, including interest, into the same securities issued in connection
with the secondary public offering at the offering price. Such securities, if
issued, will be restricted and will have piggyback registration rights. In
addition, the noteholder will have the right to elect one member of the
Company's board of directors.
Operating Income (Loss). For the nine months ended September 30, 1997,
operating loss was ($257,562) as compared to operating income of $238,056 for
the nine months ended September 30, 1996, and operating income (loss) as a
percent of revenues was (4.4%) in 1997 as compared to 3.5% in 1996. The Company
incurred an operating loss in 1997 as compared to operating income in 1996
primarily as a result of increased general and administrative expenses related
to business development activities.
For the nine months ended September 30, 1997 and 1996, operating income
from industrial equipment distribution represented approximately 0.3% and 4.0%
of industrial equipment
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distribution revenues, respectively, and operating income from networking
represented approximately 4.3% and 3.0% of networking revenues, respectively.
The decline in operating income from industrial equipment distribution in 1997
as compared to 1996 was a result of increased general and administrative
expenses, in particular from expanded operations in China, and a change in the
business mix which affected the allocation of general and administrative
expenses.
For the nine months ended September 30, 1997 and 1996, operating income
from the United States export sales to the Far East represented approximately
6.8% and 8.0% of such revenues, respectively, and operating income (loss) from
Far East based operations represented approximately (25.4%) and (8.6%) of Far
East revenues, respectively.
Other Income (Expense). For the nine months ended September 30, 1997,
interest expense and bank fees increased by $21,347 or 94.3% to $43,994, as
compared to $22,647 for the nine months ended September 30, 1996, primarily as a
result of an increase in notes payable.
For the nine months ended September 30, 1997, interest income increased
by $54,591 or 239.2%, as compared to $22,827 for the nine months ended September
30, 1996, primarily as a result of increased cash balances generated by contract
advances.
During the nine months ended September 30, 1996, miscellaneous income
aggregated $48,778, and included nonrecurring license income of $44,871.
Miscellaneous income was $17,832 for the nine months ended September 30, 1997.
Income Taxes. For the nine months ended September 30, 1997, the benefit
from income taxes was ($89,000) or 43.1% of the loss before income taxes and
minority interests, as compared to a provision for income taxes of $115,000 or
40.1% of income before income taxes and minority interests for the nine months
ended September 30, 1996, primarily as a result of a lower valuation allowance
relating to foreign tax loss carryforwards. Substantially all of the income tax
benefit for the nine months ended September 30, 1997 arises from the Company's
United States operations. As previously discussed, there were substantial
consulting fees charged in 1997 which led, in part, to a loss before taxes and
minority interests of $206,306. Based on an assessment of all available
information, including historical trends, the Company has concluded that
realization of the domestic deferred tax asset is more likely than not. The
Company's consolidated effective tax rate is increased by the effects of
valuation allowances established against net operating losses generated by BECL
subsidiaries, the realization of which cannot be considered more likely than
not.
The Company is subject to different tax rates and tax laws because it
operates in various distinct jurisdictions. As a result, the Company may not
necessarily be able to offset its income earned in one jurisdiction against
losses incurred in another jurisdiction. Therefore, the Company anticipates that
its consolidated effective tax rate may vary significantly between periods.
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Net Income (Loss). The net loss for the nine months ended September 30,
1997 was ($108,024) or ($.09) per share, as compared to net income of $145,351
or $.14 per share for the nine months ended September 30, 1996.
CONSOLIDATED RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1996:
Revenues. Revenues for the year ended December 31, 1996 were
$8,006,260, as compared to $8,370,537 for the year ended December 31, 1995, a
decrease of $364,277 or 4.4%. The decrease in revenues of $364,277 in 1996 as
compared to 1995 consisted of a decrease in revenues from industrial equipment
distribution of $603,358 or 14.1%, which was partially offset by an increase in
revenues from networking of $239,081 or 5.8%. For the years ended December 31,
1996 and 1995, revenue from industrial equipment distribution represented
approximately 45.8% and 51.0% of revenues, respectively, and revenues from
networking represented approximately 54.2% and 49.0% of revenues, respectively.
Industrial equipment distribution revenues for the year ended December
31, 1996 decreased primarily because of the temporary suspension imposed by the
municipal government from February 1996 to January 1997 relating to the
previously described contract with China National. Revenue from this long term
contract is included in the Company's industrial equipment distribution business
segment, and is recognized using the percentage of completion method. As a
result of the project's temporary suspension, revenue from this contract was
reduced by approximately $1,807,000 in 1996 as compared to 1995, from
approximately $2,855,000 in 1995 to $1,048,000 in 1996.
United States revenues from export sales to the Far East consist
primarily of revenues from industrial equipment distribution, while revenues
from operations based in the Far East consist of revenues from both industrial
equipment distribution and networking. For the year ended December 31, 1996,
revenues from the United States export sales decreased by $457,825 or 7.0%, to
$6,039,716 in 1996 from $6,497,541 in 1995, and revenues from the Far East
operations increased by $93,548 or 5.0%, to $1,966,544 in 1996 from $1,872,996
in 1995. For the years ended December 31, 1996 and 1995, revenues from the
United States export sales represented approximately 75.4% and 77.6% of
consolidated revenues, respectively, and revenues from the Far East operations
represented approximately 24.6% and 22.4% of consolidated revenues,
respectively.
Gross Profit. Gross profit for the year ended December 31, 1996 was
$2,220,753 or 27.7% of revenues, as compared to $2,205,336 or 26.3% of revenues
for the year ended December 31, 1995. The increase in the gross margin from 1995
to 1996 was primarily a result of the increase in revenues from networking, both
on an absolute basis and as a percentage of revenues.
General and Administrative Expenses. General and administrative
expenses increased by $107,013 or 6.5%, to $1,755,029 or 21.9% of revenues for
the year ended December 31, 1996, as compared to $1,648,016 or 19.7% of revenues
for the year ended December 31, 1995, primarily as a result of increases in
employee compensation and occupancy costs incurred to develop the STAQ On-line
Network in particular and to expand operations in general. These increased costs
were offset in part by decreases in travel and lodging and miscellaneous costs.
Operating Income. For the year ended December 31, 1996, operating
income decreased by $91,596 or 16.4% to $465,724, as compared to $557,320 for
the year ended December 31, 1995, and operating income as a percent of revenues
decreased to 5.8% in 1996 from 6.7% in 1995. The reduction in operating income
in 1996 as compared to 1995 reflects a decrease in revenues, primarily from the
China National
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contract, increased start-up and marketing costs in the networking business
segment and increased general and administrative costs.
For the years ended December 31, 1996 and 1995, operating income from
industrial equipment distribution represented approximately 5.9% and 5.8% of
industrial equipment distribution revenues, respectively, and operating income
from networking represented approximately 5.8% and 7.6% of networking revenues,
respectively. The decrease in operating income from industrial equipment
distribution of $32,914 or 13.3% in 1996 as compared to 1995 reflects a decrease
in revenues, primarily from the China National contract, and the decrease in
operating income from networking of $58,682 or 18.9% in 1996 as compared to 1995
reflects an increase in various operating costs.
For the years ended December 31, 1996 and 1995, operating income from
the United States represented approximately 12.1% and 14.3% of United States
revenues, respectively, and operating loss from the Far East represented
approximately (13.5%) and (19.8%) of Far East revenues, respectively. The
decrease in operating income from the United States of $196,500 or 21.2% in 1996
as compared to 1995 was a result of the decrease in revenues, primarily from the
China National contract, and the decrease in operating loss from the Far East of
$104,904 or 28.3% in 1996 as compared to 1995 was a result of an increase in
revenues.
Income Taxes. For the year ended December 31, 1996, the provision for
income taxes was $309,000 or 60.0% of income before income taxes and minority
interests, as compared to $444,000 or 79.2% of income before income taxes and
minority interests for the year ended December 31, 1995, primarily as a result
of a lower valuation allowance relating to foreign tax loss carryforwards.
Accordingly, the Company's effective tax rate is increased by the effects of
valuation allowances established against net operating losses generated by BECL
subsidiaries, the realization of which cannot be considered more likely than
not.
The Company is subject to different tax rates and tax laws because it
operates in various distinct jurisdictions. As a result, the Company may not
necessarily be able to offset its income earned in one jurisdiction against
losses incurred in another jurisdiction. Therefore, the Company anticipates that
its consolidated effective tax rate may vary significantly between periods.
Net Income. Net income for the year ended December 31, 1996 was
$198,524 ($.19 per share), as compared to net income of $172,347 ($.17 per
share) for the year ended December 31, 1995.
CONSOLIDATED FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES:
Operating. For the nine months ended September 30, 1997, the Company's
operations utilized cash resources of $873,496, as compared to generating cash
resources of $1,336,304 for the nine months ended September 30, 1996. The
Company had a net working capital deficit of ($1,203,728) at September 30, 1997,
as compared to a net working capital deficit of ($879,481) at December 31, 1996,
reflecting a current ratio of .84:1 at September 30, 1997 as compared to .91:1
at December 31, 1996. The Company's operations utilized cash resources in 1997
as compared to generating cash resources in 1996 as a result of increased
activity with respect to the China National contract and the STAQ On-line
Network project.
For the year ended December 31, 1996, the Company's cash flow from
operations was $2,741,329, as compared to $599,233 for the year ended December
31, 1995. The Company had a net working
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<PAGE> 38
capital deficit of ($879,481) at December 31, 1996, as compared to a net working
capital deficit of ($2,819,778) at December 31, 1995, reflecting current ratios
of .91:1 and .48:1, respectively. The Company's operating cash flow improved
substantially in 1996 as compared to 1995 primarily as a result of improved
project management that focused on cash collection.
Accounts receivable increased by $701,025 to $2,040,343 at September
30, 1997, from $1,339,318 at December 31, 1996, and by $1,185,943 to $1,339,318
at December 31, 1996, from $153,375 at December 31, 1995. Accounts receivable
increased during the nine months ended September 30, 1997 as a result of the
timing of certain revenues from the third quarter 1997 projects. During the nine
months ended September 30, 1997, the accounts receivable from a Hong Kong-based
customer, on an unsecured basis, was $240,700, which represents a $271,229
reduction from the December 31, 1996 balance of $511,929. This accounts
receivable balance at December 31, 1996 represented approximately 38% of total
accounts receivable. Management is currently discussing the timing of the
settlement of the remainder of this accounts receivable with the customer and
expects that it will be paid in full during the first quarter of 1998.
During the three months ended September 30, 1997, the Company received
net customer advances aggregating $2,153,628 with respect to the commencement of
the third phase of the China National contract, which has been recorded as
customer deposits at September 30, 1997, and which is expected to be utilized in
the fulfillment of the Company's obligations under that contract during the
remainder of 1997 and subsequent to such date.
As an accommodation to China National for excess funds held by the
Company, the Company has periodically loaned funds to China National. These
loans do not bear interest and do not stipulate repayment dates. As of September
30, 1997, the Company had loaned $1,132,169 to China National; such amount has
been offset against customer deposits on the December 31, 1996 and September 30,
1997 consolidated balance sheets.
Investing. During the years ended December 31, 1995 and 1996, the
Company purchased fixed assets aggregating $1,352,434 and $154,484,
respectively, primarily in the form of project equipment which will be utilized
in completing future projects. During the nine months ended September 30, 1997,
the Company acquired fixed assets aggregating $55,935, which does not include a
non-cash purchase of $185,950 of equipment for the STAQ On-line Network project
from the Company's major stockholder, as described at "CERTAIN TRANSACTIONS."
Other than equipment which the Company purchases in the fulfillment of its
contracts, the Company has no capital expenditure commitments. However, the
Company owns a 90% interest in the joint venture developing the STAQ On-line
Network project, has already invested $1,600,000 in such project, and is
obligated to provide additional funding of approximately $4,000,000 during the
first quarter of 1998, which is expected to be satisfied from the net proceeds
of the Offering. (See "BUSINESS - BRIGHTON-STAQ").
Cash set aside for customer purchases which represents prepayments by
customers that are set aside to pay project related current liabilities and
commitments, decreased by $1,276,365, from $2,636,000 at December 31, 1996 to
$1,359,635 at September 30, 1997, as a result of the utilization of a portion of
such cash balance to fulfill certain equipment contract obligations related to
the China National contract during the nine months ended September 30, 1997.
Cash set aside for customer purchases increased by $2,036,000 during
1996, from $600,000 at December 31, 1995 to $2,636,000 at December 31, 1996.
Such cash balance at December 31, 1996 secures, in part, irrevocable letters of
credit aggregating $746,230 that the Company had issued for contingent
commitments on customer purchases.
Financing. During January 1996, the Company entered into a convertible
demand note agreement with a third party, with interest at 5% per annum. The
note had a principal balance outstanding of $620,101 and $643,355 at December
31, 1996 and September 30, 1997. The note is convertible into shares of common
stock at prevailing market prices. The Company is currently negotiating with the
note holder to convert a portion of this demand note into common stock.
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During December 1996, the Company sold 11,111 shares of common stock in
a private transaction for aggregate proceeds of $450,000, less costs of
$259,824, generating net proceeds of $190,176. Subsequently, during the nine
months ended September 30, 1997, the Company sold an additional 8,002 shares of
common stock for aggregate proceeds of $352,948, less costs of $45,416,
generating net proceeds of $307,532. Such costs consist of payments to various
related and unrelated parties as compensation for services rendered. In
addition, the Company issued 2,030 shares of common stock with a value of
$89,504 to various individuals and firms for services rendered with respect to
capital raising activities. Included in the costs of $259,824 in 1996 and
$45,416 in 1997 are payments of $105,731 and $11,931, respectively, to Orient
Financial Services Limited, a Hong Kong-based company in which Nils A. Ollquist,
a director of the Company, is a principal.
In order to meet its working capital requirements, the Company
has periodically received funding from Kit Kung, the Chairman of the Board of
Directors, President and Chief Executive Officer, and his family members.
However, no funds from the Offering will be paid to Kit Kung or his family
members. The Company has also periodically made advances to the principals and
officers of the Company. Such advances are unsecured and generally bear no
stated interest rate or terms of repayment. As of December 31, 1995 and 1996,
amounts due from Kit Kung and his family members aggregated $0 and $43,239,
respectively; outstanding receivables from other related parties aggregated
$8,220 and $15,884, respectively; and amounts due to Kit Kung and his family
members aggregated $2,612,896 and $227,298, respectively. During the year ended
December 31, 1995, Kit Kung and his family members had advanced $1,612,041 to
the Company, and during the year ended December 31, 1996, the Company had repaid
$1,118,625 of such advances. During the years ended December 31, 1995 and 1996,
advances to other related parties aggregated $518,322 and $43,239, respectively,
and during the year ended December 31, 1996, $424,872 of accounts receivable
from related parties was repaid.
In December 1996, Kit Kung contributed $1,266,973 of net
borrowings, consisting of $1,515,076 of amounts owed by the Company to Kit Kung
less $248,103 of amounts owed to the Company, to contributed capital.
During the nine months ended September 30, 1997, the Company
advanced $349,834 to Kit Kung and his family members and repaid amounts due Kit
Kung and his family members aggregating $227,298, resulting in receivables from
stockholders and related parties of $200,668 at September 30, 1997, net of a
credit of $185,950 resulting from the purchase of certain equipment for the STAQ
On-line Network project from Kit Kung. Such amount is expected to be repaid or
otherwise satisfied in the ordinary course of business during the remainder of
1997 and during 1998. Subsequent to the completion of the Offering, the Company
will adopt a policy to the effect that any future transactions between it and
its officers, directors, principal stockholders and the Affiliates of the
foregoing persons be on terms no less favorable to the Company than could
reasonably be obtained in arm's length transactions with independent parties,
and that any such transactions be approved by a majority of the Company's
independent directors disinterested in the transaction.
During December 1997, in order for the Company to arrange the
purchase of certain equipment for a customer, Hong Yun, an officer and director
of the Company and the wife of Kit Kung, agreed to provide a short-term credit
facility by depositing $500,000 into a short-term interest bearing
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account with a Hong Kong bank as security for the bank's letter of credit of
approximately $2,145,000 issuable to a supplier.
Due the delays in the financing and construction of the China
National project, the Company is in the process of renegotiating the terms of
certain aspects of technological licensing arrangements that it entered into in
conjunction with the China National contract (See "BUSINESS-INDUSTRIAL EQUIPMENT
DISTRIBUTION"). The contractual value of services currently under negotiation is
approximately $450,000, and the settlement of such obligation is predicated on
the resolution of the China National project (See "OVERVIEW". The inability of
the Company to fulfill contractual terms of long-term projects or to negotiate
favorable arrangements for the use or distribution of licensed technology may
have a material adverse effect on the Company's consolidated financial
statements.
The Company anticipates, based on currently proposed plans and
assumptions relating to its operations, that its projected cash flow provided by
operations will be sufficient to support operations at current levels for at
least the 12 months following the date of this Prospectus. Although the
Company's Networking and Industrial Equipment Distribution business segments on
a combined basis generate or have available sufficient working capital to
support their operations, the Company requires additional capital in connection
with the STAQ On-line Network project (see "BUSINESS - STAQ ON-LINE NETWORK"),
which the Company anticipates obtaining from the net proceeds of the Offering.
The Company projects that Brighton- STAQ will operate at a loss for at least
1998, the first year of operation. To the extent that the Company is unable to
timely fund its $4,000,000 commitment to fund the STAQ On-line Network project
during the first quarter of 1998, the Company's interest in the project may be
reduced or eliminated, which would adversely affect the potential future
profitability of this project as it relates to the Company's consolidated
results of operations. If the Company were to be unable to fund the continuing
development of the Brighton-STAQ project, project equipment aggregating
$1,517,538 at September 30, 1997 would be liquidated at net realizable value and
the resulting loss, if any, would be charged to operations.
INFLATION AND CURRENCY MATTERS:
In recent years, the PRC economy has experienced periods of rapid
economic growth as well as high rates of inflation, which in turn has resulted
in the periodic adoption by the PRC government of various corrective measures
designed to regulate growth and contain inflation. Since 1993, the PRC
government has implemented an economic program designed to control inflation,
which has resulted in the tightening of working capital available to PRC
business enterprises. The success of the Company depends in substantial part on
the continued growth and development of the PRC economy.
Since the Company's contracts are generally denominated in U.S.
dollars and are generally of short duration, the Company is not subject to any
economic exposure from the effects of inflation in the PRC. However, the STAQ
On-line Network project will be subject to the effects of inflation in the PRC.
Foreign operations are subject to certain risks inherent in
conducting business abroad, including price and currency exchange controls, and
fluctuations in the relative value of currencies. Changes in the relative value
of currencies occur periodically and may, in certain instances, materially
affect the Company's results of operations and the ability of customers to
satisfy obligations owed to the Company. In addition, the Renminbi is not freely
convertible into foreign currencies. All foreign exchange transactions involving
the Renminbi must take place either through the Bank of China or other
institutions authorized to buy and sell foreign exchange, or at a Foreign
Exchange Adjustment Center. The ability to convert PRC currency is subject to
the availability of foreign currencies.
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RECENT ACCOUNTING PRONOUNCEMENTS:
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share," which is effective for financial
statements issued for periods ending after December 15, 1997. At that time, the
Company will be required to change the method currently used to compute earnings
per share and to restate all prior periods presented. Under the new
requirements, the Company will be required to present "basic" earnings per share
and "diluted" earnings per share. Basic earnings per share does not include the
dilutive effect of stock options and warrants. The Company does not expect that
adoption of this statement will have a material effect on reported earnings per
share.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 129, "Disclosure of Information about Capital Structure," which is
effective for financial statements issued for periods ending after December 15,
1997. The new standard reinstates various disclosure requirements previously in
effect under Accounting Principles Board Opinion No. 15, which has been
superseded by this statement. The Company does not expect that adoption of this
statement will have a material effect on its current disclosures and
presentation.
In June 1997, the Financial Accounting Standards Board issued
Statement No. 130, "Reporting Comprehensive Income," which is effective for
financial statements issued for periods ending after December 15, 1997. Earlier
application is permitted. This statement establishes standards for the reporting
and display of comprehensive income and its components in a full set of general
purpose financial statements. Comprehensive income consists of net income and
other comprehensive income. Other comprehensive income refers to revenues,
expenses, gains and losses that under generally accepted accounting principles
are included in comprehensive income but are excluded from net income. The
Company does not expect that adoption of this statement will have a material
effect on its current disclosures and presentation.
In June 1997, the Financial Accounting Standards Board issued
Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which is effective for financial statements issued for periods
ending after December 15, 1997. This statement discusses how to report operating
segments and certain information about a public company's products and services,
the geographic areas in which it operates, and its major customers. The Company
does not expect that adoption of this statement will have a material effect on
its current disclosures and presentation.
YEAR 2000 ISSUE:
The Year 2000 Issue is the result of computer programs being
written using two digits rather than four to define the applicable year.
Computer programs that have sensitive software may recognize a date using "00"
as the year 1900 rather that the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.
Based on a recent internal assessment, the Company has determined
that certain of its software programs will have to be modified or replaced so
that its computer systems will properly utilize dates beyond December 31, 1999.
The Company presently believes that the cost to modify its existing software
and/or convert to new software will not be significant.
The Company has also reviewed both the business operations in its
Networking segment in order to determine the potential impact of the Year 2000
Issue with respect to computer networks that the Company has integrated in
China. Although the current computer networks that the Company
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integrated are Year 2000 compliant, certain prior computer networks may not have
been Year 2000 compliant. However, the Company believes that any software
modifications necessary to make such computer networks Year 2000 compliant will
be provided by the companies that developed the hardware and software integrated
by the Company. In addition, based on the Company's contracts with its
customers, including its standard one year warranty provision, the Company does
not believe that it has any obligation to modify or replace any network software
that it has previously integrated that it is not Year 2000 compliant.
Accordingly, the Company does not believe that it will incur any significant
costs in this regard with respect to the year 2000 issue.
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BUSINESS
GENERAL
The Company is currently a computer network integrator and a
distributor of industrial equipment. The Company is also developing an on-line
securities trading network for the STAQ Exchange, which the Company expects to
be operational in the third quarter of 1998. The Company provides such services
and equipment primarily to customers in China, as well as other Pacific Basin
countries. The Company believes that it has a strong reputation as an
independent full service provider of computer network integration services and a
distributor of industrial equipment in China. This belief is based on several
factors, including, the Company's Chairman, President, Chief Executive Officer
and principal stockholder, Kit Kung's experience in the business of designing
and installing computer networks and importing industrial equipment in China
since 1980. Building on Mr. Kung's business experience in China, the Company
formed a joint venture with a company controlled by the STAQ Exchange, one of
four national stock exchanges in China, to develop, design, install and maintain
a nationwide computerized multi-market securities quotation and trading network
in China.
BUSINESS STRATEGY
The Company intends to maintain its focus on the Chinese market
place. Its business strategy is focused as follows:
- Emphasis on network integration in the banking and finance
industries
- Commercialization of the on-line securities trading
network
- Expansion of the industrial equipment distribution
business to meet customer demand
Banking and Finance Oriented Information Technology. As the Chinese economy
continues to grow and the standard of living increases in China, the Company
believes that there will be an increased demand for consumer oriented financial
services such as ATMs and retail outlets that accept credit card transactions.
The Company's strategy has been to meet this increasing demand in the Chinese
marketplace by installing wireless telecommunications networks suitable for high
volume transactions that require instant responses, such as ATM transactions,
credit card verifications, clearance and settlements. The Company currently has
contracts with the Industrial and Commercial Bank of China to design and install
wireless telecommunication networks for clearance and settlements for seven of
its bank branches. The Company believes that as market demand for ATMs and
retail outlets that accept credit card transactions increases, it will be able
to secure additional contracts in this area.
Securities Quotation and Trading Network. The Company is the owner of a 90%
interest in Brighton-STAQ, a PRC registered Sino-Hong Kong joint venture. The
remaining 10% interest is owned by a company controlled by the STAQ Exchange,
one of four national securities exchanges in China, located in Beijing. The
purpose of Brighton-STAQ is to develop, design, install and maintain the STAQ
On-line Network. The Company's initial plans are to offer the STAQ On-line
Network to the 550 stock brokerages (operating 2,200 offices) that are members
of the STAQ Exchange according to STAQ Exchange officials, in the cities of
Beijing, Chongqing, Guangzhou, Shanghai, Shenzhen and Wuhan, with plans to
eventually market the STAQ On-line Network to all 2,800 stock brokerages
(operating over 10,000 offices) in China. The Company expects to initially
charge an installation fee of $6,000 and a monthly maintenance fee of $1,000 for
each terminal installed at the stock brokerages. The STAQ On-line Network
project is currently in the testing phase.
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The Company expects to commence commercial operations of the STAQ On-line
Network in the third quarter of 1998.
Industrial Equipment Distribution. Industrial equipment distribution accounts
for a substantial portion of the current revenues and profits of the Company.
The type of industrial equipment which the Company has been marketing in China
include machine tools, such as machine center and grinder measurement devices,
and heavy machinery, such as gantry mills, pressing machine production lines and
dyes transfer automation systems. The Company is the exclusive distributor for
Milltronics Manufacturing Company (a U.S. company), ALO Teknik AB (a Swedish
company), Royal Master Grinders, Inc. (U.S. company) and K.O. Lee Company (a
U.S. company) for the sale of their industrial equipment in China. In addition
to representing these manufacturers, the Company has adopted the strategy of
increasing revenues by searching for industrial equipment from manufacturers
worldwide that meet both the customer's technical specifications and budget. The
Company will continue its past practice of gradually increasing the size of its
sales team to meet customer demand for industrial equipment.
COMPUTER NETWORK INTEGRATION
MARKET OVERVIEW
China's information technology market has enjoyed significant
growth and will likely grow at an increasing rate in the next decade as market
demand for Western style modernization increases. In particular, growth will be
most significant for system engineering services that provide customized
products tailoring to customer's specifications. The following are the market
factors which will contribute to this growth:
(1) DEVELOPMENT OF LARGE SCALE INFORMATION "INFRASTRUCTURES":
The Chinese Central Government has made
"informationization" of the economy a priority of its most
recent five year plan, and is planning to invest
substantial amounts of capital in numerous information
super-highway type projects such as the "Golden"
projects1.
(2) GROWING DEMAND FOR COMPLEX INFORMATION SYSTEMS FROM OTHER
LARGE INFRASTRUCTURE PROJECTS: Continuous investment in
large-scale infrastructure in areas such as power
generation and transportation will drive demand for
information technology systems.
(3) GROWING DEMAND FOR INFORMATION TECHNOLOGY SYSTEMS FROM
ENTERPRISES AND GOVERNMENT AGENCIES: As the Chinese
economy develops and matures, enterprises
- --------
(1) China's State Council plans to develop the country's information
infrastructure by 2000. The plan, know as the China National Information
Infrastructure was implemented at the end of 1993 and is characterized by a
series of "Golden" Projects, including the Golden Bridge, Golden Taxation,
Golden Customs and Golden Card Projects. The Golden Bridge Project's goal is to
link, via a telecommunication network, all the cables of the Ministry of Posts
and Telecommunications and special telecommunication grids of other ministries
and official departments. The telecommunication network is expected to digitally
transmit documents, sound and pictures used for serving China's finance,
customs, foreign trade, tourism, meteorology, communication, State security,
science and technology and other information businesses. The Golden Tax and
Golden Customs Projects are extensions of the Golden Bridge Project. The Golden
Card Project is consumer oriented and expected to modernize the China's payment
and cashing services with the introduction and popularization of credit cards
and other related media and decrease the amount of cash in circulation.
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and governmental agencies will need to utilize information
technology systems to become competitive with their
counterparts in more developed countries.
In addition, due to their relative lack of technological
sophistication, Chinese customers usually require more systems engineering
services on each project than customers in more developed markets. Compared to
Western countries, China's information technology industry is relatively young,
such that most organizations do not have dedicated information technology
departments as are common in Western countries. Much of the industry's technical
resources are concentrated in companies that directly engage in the information
technology business. As a result, companies outside the industry must rely on
outside technical expertise to meet their needs. The demand for outside
technical assistance will likely increase, as most of the software packages
being developed are general platforms that require substantial customization to
meet specific needs of each organization.
OPERATIONS
The Company provides customized full service computer network and
telecommunication equipment integration, installation and maintenance for
customers in China and other Pacific Basin countries. The Company provides
integrating solutions for customers utilizing software and hardware developed by
third parties. The following examples are indicative of the Company's and its
subsidiaries' projects:
<TABLE>
<CAPTION>
CUSTOMER PROJECT DESCRIPTION DATE OF EXECUTION CONTRACTUAL BILLINGS
- -------- ------------------- ----------------- --------------------
<S> <C> <C> <C>
ICBC Bank branch networking in June 1993 $3,478,000
eight cities in China to
December 1997
Zhongzhou Hotel Hotel management September 1997 $210,000
computer system for 300-
room hotel in Zhongzhou
City, PRC
The People's Daily Office automation system November 1996 $440,000
for text retrieval and high
speed line printer
integration
</TABLE>
The Company is currently in the process of completing the
integration of a hotel management computer system for Zhongzhou Hotel, Zhongzhou
City, China. The Company has developed its own software for integration of hotel
management computer systems capable of managing reservations, telephones and
billings. The Company has installed over 60 hotel management computer systems in
China and Hong Kong. The Company's customers include Regent Hotel in Hong Kong,
The China Hotel in Guangzhou, International Hotel in Beijing and JC Mandarin
Hotel in Shanghai. The Company's gross margin for installation of hotel
management computer systems is in the range of 20-25 percent.
The Company also provides computer network integration for office
automation. The Company installed a database management system for The People's
Daily in November 1996 that is capable of scanning, storing, retrieving and
typesetting texts in Chinese characters. The Company integrated software
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from Chinese vendors with computer equipment manufactured by Digital Equipment
Corporation, with computer software from Oracle Corporation for database
management, as well as with high speed line printers. The Company's gross margin
for office automation projects is approximately 10 percent.
ARIA WIRELESS SYSTEM
The Company has introduced the Aria Wireless Systems, which is
suitable for high volume transactions that require instant responses, such as
ATM transactions, credit card verifications, clearance and settlements, in the
Chinese market place. The Company's gross margin on contracts for computer
network integration of the Aria Wireless Systems has been approximately 40
percent. In 1997, the Company secured nine contracts with ICBC to customize
integration of and install Aria Wireless Systems for ATM linkage and for
clearance and settlements for eight of its bank branches. Five of the contracts
have been completed and four of the contracts are currently in progress. The
Company's focus in the computer network integration segment of its business
currently is in wireless telecommunication systems.
GENERAL
The Company's Aria Wireless Systems utilizes radio frequency to
transmit data in metropolitan areas within a 50 kilometer (38 mile) radius.
Primary application for the Aria Wireless System is in the financial service
industry and includes ATM linkage, credit card processing and banking data
transfer. The Aria Wireless System is an industry leader for wireless data
transfer technology in on-line transactions processing applications. There are
over 5,000 remote locations connected to their respective hosts through Aria
Wireless Systems in over 50 countries throughout the world.
As the Chinese economy continues to grow and the standard of
living increases in China, there will be an increased demand for consumer
oriented financial services such as ATMs and retail outlets that accept credit
card transactions. The Company believes that the Aria Wireless System is
particularly well-suited for use by the financial services industry in China
because it offers a more reliable alternative to land telephone lines for data
transmission. Unlike Western countries, the land telephone lines in China are
not yet able to support the rapid transmission of data with the accuracy and
speed required by the financial industry. The Aria Wireless System, which
utilizes radio frequencies, will assist the financial services industry to
address the demand for consumer oriented financial services.
SALES AND MARKETING
In 1995, the Company's subsidiary, BECL, signed a
Preincorporation Agreement to form a Hong Kong joint venture company, Aria
Wireless Systems China Limited ("Aria China"), with two U.S. companies, Aria
Wireless Systems, Inc. ("Aria, Inc.") and Valdacom, Inc. ("Valdacom"), to
market, sell and service the Aria Wireless System in the China market on an
exclusive basis. The Preincorporation Agreement provided that the Company was to
receive a 59% ownership of Aria China, and the two other parties, Aria, Inc. and
Valdacom, were to receive a 23% and 18% ownership of Aria China, respectively.
Financial difficulties at Aria, Inc. delayed formation of Aria
China. Aria, Inc. filed for reorganization under Chapter 11 of the United States
Bankruptcy Code in February 1996. On May 22, 1997, Aria, Inc. emerged from
Chapter 11 under an approved reorganization plan and with a new financial
structure. Aria China was incorporated in 1995 by the Company but has remained
inactive as the parties to the Preincorporation Agreement have, to date, not
subscribed for their respective shares. The Company is currently negotiating
with Aria, Inc. to restructure the existing business arrangement. The Company
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<PAGE> 47
expects to finalize a sole distributor agreement for China between Aria, Inc.
and BIC in the first quarter of 1998. No assurance can be given that the Company
will be able to finalize this agreement.
In the meantime, the Company has been able to market and sell the
Aria Wireless Systems as a component of its network integration business and
plans to continue such sales practice. Aria, Inc.'s financial difficulties have
not affected the Company's operations to date. Since its emergence from
reorganization, the Company believes that, based upon a review of its financial
statements, Aria, Inc. will continue to be a financially viable company. Sales
of Aria Wireless Systems by the Company so far have been concentrated in the
Beijing area. The Company has plans to target sales of the Aria Wireless System
to other large metropolitan markets in China. Although there is no formal
written agreement, the Company is the sole distributor of the Aria Wireless
System in China.
The Company participates in two to three trade shows per annum
and holds two to three promotional seminars per annum throughout China and
follows up with mass mailings of product catalogues to solicit contracts for its
computer network integration services business. The Company's current focus is
the network integration of the Aria Wireless Service in the banking and
financial industry. To date, the Company's customers for this business segment
have all been PRC Government owned or controlled entities, including government
ministries, banks, universities and research facilities.
COMPETITION
The Company competes with Multipoint Networks, Inc., a U.S.
company, and Kb/Tel, SA, a Mexican company, on a worldwide basis for the
wireless system installation and service business. Both companies manufacture
wireless systems that offer features identical to the Aria Wireless System. The
Company also competes with other manufacturers of wireless systems that offer
similar features to the Aria Wireless System.
The Company believes that its technical expertise in computer
network integration makes the Aria Wireless System more competitive than the
wireless systems offered by the other two companies. The Company has 11
engineers dedicated to installing and customizing system applications for the
Aria Wireless System to customer's specifications. It is the Company's belief
that its competitors do not have technical staff with the level of expertise of
the Company's engineers and the Company is aware that the wireless systems
installed by the Company's competitors have in the past experienced numerous
technical problems due to improper integration installation.
STAQ ON-LINE NETWORK
CHINA'S SECURITIES MARKET OVERVIEW (all conversions to U.S. dollars use the
January 12, 1998 exchange rate)
The Chinese securities market comprises four national exchanges:
Shanghai, Shenzhen, STAQ and China National Securities Trading System ("NETS").
The securities industry is regulated by two organizations: The State Council
Securities Policy Committee, which is responsible for the macro policy of the
industry, and the China Securities Regulatory Commission ("CSRC"), which is
responsible for the day-to-day regulation of the securities industry. The CSRC
dictates the stock exchange on which the shares of any Chinese company, whether
state-owned or foreign-owned, is listed. The CSRC also determines the terms of
the listing, including the size of the offering of securities and the price of
the offering.
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Trade orders on all four national exchanges are computer matched.
Each exchange seat at each of the four exchanges is equipped with a computer
terminal for entering trade orders. Membership to the exchanges is limited to
licensed stock brokerages and only registered members can trade on the
respective exchanges. Non-members of the exchanges place orders with member
stock brokerages either personally or by telephone. Each exchange has taken a
different approach in developing its distribution system to its members. The
NETS Exchange, the Exchange under the control of the People's Bank of China that
was originally established for government bond clearing for the other national
exchanges, has been inactive for a number of years and is not further discussed.
The Shanghai Stock Exchange operates 21 sub-exchanges across
China. These sub-exchanges are linked to the main computer via satellite. A
member of the Shanghai Stock Exchange can obtain exchange seats at the main
exchange or at any of the sub-exchanges. The stock brokerages must place their
order with their floor agents by telephone. Stocks, debt instruments and
investment funds are traded on the Shanghai Stock Exchange. According to STAQ
Exchange officials, a seat on the Shanghai Stock Exchange is Rmb1,000,000
($120,482) and the annual membership fee is Rmb500,000 ($60,241). The Shanghai
Stock Exchange does not offer off-floor on-line trading of its stocks. In 1996,
287 companies were listed on the Shanghai Stock Exchange with market
capitalization of Rmb141.5 billion ($17.0 billion). The average daily turnover
in 1996 was Rmb446 million ($53.7 million).
The Shenzhen Stock Exchange offers direct on-line linkage to its
central computer via satellite. Each subscriptive stock brokerage is directly
linked to one satellite station. Unlike the Shanghai Stock Exchange, the
Shenzhen Stock Exchange allows connections at its members' offices. Trade orders
can be entered directly onto computer terminals at the respective stock
brokerages. This arrangement offers more flexibility and wider coverage but at a
substantial financial cost. According to STAQ Exchange officials, the annual
membership fee for the Shenzhen Stock Exchange is Rmb600,000 ($72,289) and it
charges its members an installation charge of approximately Rmb300,000 ($36,145)
to set up satellite linkage and an annual maintenance fee of Rmb60,000 ($7,229).
Stocks, debt instruments and investment funds are traded on the Shenzhen Stock
Exchange. In October 1996, 224 companies were listed on the Shenzhen Stock
Exchange with an aggregate market capitalization of Rmb394 billion ($47.5
billion). The 1996 turnover through October 1996 was Rmb735.2 billion ($88.6
billion).
The STAQ Exchange has its main trading floor in Beijing and a
sub-exchange in Xiamen. The STAQ Exchange is the official exchange for (i)
legal-person-owned shares (C Shares), that are shares of PRC state-owned
enterprises which may only be held by other PRC state-owned enterprises, and
(ii) State Treasury Bonds issued by the Ministry of Finance. In addition to
listing C Shares (total of 8 stocks) and State Treasury Bonds, the STAQ Exchange
acts as a sub-exchange for both the Shanghai and Shenzhen Stock Exchanges. A
sub-exchange functions as a branch of the main exchange. Through direct computer
linkages via satellite with both the Shanghai and Shenzhen Stock Exchanges,
members of the STAQ Exchange can directly trade stocks listed on the Shanghai
and Shenzhen Stock Exchanges from the STAQ Exchange trading floor. According to
STAQ officials, the annual membership fee for the STAQ Exchange is Rmb150,000
($18,072).
THE STAQ EXCHANGE
The STAQ Exchange was approved by the CSRC in 1992 and The Stock
Exchange Executive Council (the "SEEC"), a non-governmental advisory body to the
CSRC, was assigned the responsibility of designing and developing the STAQ
Exchange into a computer-based over-the-counter multi-point to multi-point
on-line automated quotations system for securities trading. The members of the
SEEC consist of China's largest trust and investment corporations, securities
firms, and other non-bank financial institutions authorized to engage in
securities and other financial businesses.
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About 80% of all State Treasury Bonds are distributed by the
Ministry through the STAQ Exchange and 50% of all State Treasury Bond trading is
done through STAQ. Due to the restrictive ownership requirements of C Shares,
trading of C Shares is limited and sporadic. When the STAQ Exchange was first
approved as a sub-exchange for the Shanghai and Shenzhen Stock Exchanges in 1992
and in 1993, respectively, the trading volume fluctuated substantially due to
the inherent instabilities of these two fledgling exchanges which were formally
established only in 1991 and 1990, respectively. According to STAQ Exchange
officials, the high end trading volume for the STAQ Exchange was approximately
3% of the Shanghai Stock Exchange and 10% of the Shenzhen Stock Exchange.
According to STAQ Exchange officials, trading on the STAQ Exchange has
stabilized at 1.5% and 4% of the trading volume on the Shanghai and Shenzhen
Stock Exchanges, respectively, for the last three years.
Trade orders on the STAQ Exchange are entered onto the computer
terminals located on the trading floor in either Beijing or Xiamen and are
computer matched. Members telephone their floor agents to execute transactions.
According to statistics provided by STAQ Exchange officials, there are currently
approximately 550 licensed stock brokerages (operating approximately 2,200
offices in China) that are members of the STAQ Exchange.
BRIGHTON-STAQ
Brighton-STAQ is a PRC registered Sino-Hong Kong equity joint
venture company of which the Company owns 90% and Huazheng owns 10%.
Brighton-STAQ has its registered office and principal place of business in
Beijing and a branch office registered in Shanghai. Brighton-STAQ was formed to
develop, design, install and maintain the STAQ On-line Network.
In 1992, the STAQ Exchange received a grant of $200,000 from the
World Bank for the development of the STAQ Exchange. The STAQ Exchange used part
of the funds to invite seven technical experts from NASDAQ to visit the STAQ
Exchange in Beijing and also asked the experts from NASDAQ to review the designs
for the national on-line securities trading system that was modeled after
NASDAQ. After reviewing the plans submitted, the NASDAQ experts confirmed that,
as presented, the designs were functionally suitable for the on-line securities
trading system as contemplated. Based on its expertise in the computer network
integration services business, the Company was invited by the STAQ Exchange to
submit designs for the computer network component of the on-line securities
trading system. The Company's designs for the STAQ On-line Network were
submitted, along with the designs of the securities trading system, for review
and approved by the NASDAQ experts. NASDAQ has no on-going involvement with the
STAQ Exchange or Brighton-STAQ.
The STAQ On-line Network will initially link remote computer
terminals installed at stock brokerages in the cities of Beijing and Chongqing
(with plans to expand linkage to Guangzhou, Shanghai and Shenzhen) to the STAQ
Exchange trading floor in Beijing. The Company anticipates that linkage will
eventually be on a nationwide level, with such expansion being driven by the
Company's estimated break-even for each city of approximately 15 terminals.
Through the use of the STAQ On-line Network, the stock brokerages will then be
able to obtain real time price quotations of shares traded on the Shanghai and
Shenzhen Stock Exchanges as well as C Shares and State Treasury Bonds and will
be able to trade through party-to-party negotiations on remote computer
terminals. The STAQ On-line Network is modeled after the on-line trading system
offered by NASDAQ in the U.S. although, unlike NASDAQ, with the exception of C
Shares, no stock will be quoted solely on the STAQ Exchange.
Information displayed on the remote computer terminals will be
identical to information available on the trading floor of the STAQ Exchange in
Beijing. The operation of the STAQ On-line Network, including all software
programs installed on the remote computer terminals at the stock brokerage
houses, will
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<PAGE> 50
be maintained and controlled by the STAQ Exchange. Brighton-STAQ's role is to
develop, design, install and maintain the STAQ On-line Network. The Company will
earn its revenue through an initial installation charge and a monthly
maintenance fee charged to the stock brokerage houses for each terminal. The
Company initially plans to charge a maintenance fee equivalent to approximately
$1,000 per month for each remote computer terminal. The maintenance fee will be
paid and denominated in Renminbi. The Company expects to initially charge an
installation fee equivalent to approximately $6,000 for installing each remote
computer terminal at the stock brokerages which will also be paid and
denominated in Renminbi.
Brighton-STAQ is authorized by the Ministry of Foreign Economic
Relations and Trade for a total investment of $1,600,000. To date, $1,600,000
has been contributed by the Company into the joint venture, with an additional
$4,000,000 expected to be required to complete the STAQ On-line Network project
(all of which will be the responsibility of the Company). To ensure that all
investment in Brighton-STAQ in excess of the authorized total investment is
adequately protected under Chinese law, it will be necessary for the Company to
submit for approval, a request for an increase in the total investment of the
joint venture, which application will be submitted when the funds from the
Offering are available. The Company has no reason to believe that such
application would not be approved. Additional capital contributed by the Company
will be structured as loans to Brighton-STAQ such that the Huazheng's percentage
ownership in Brighton-STAQ will not be diluted.
The joint venture has a 12-year term expiring in 2006. Extension
of the term of the joint venture is subject to the approval of the Ministry of
Foreign Economic Relations and Trade, the approval authority for Sino-Hong Kong
joint venture companies. The Company will be required to submit a formal
application for extension to the Ministry six months prior to the expiration of
the term for approval. The Company has no reason to believe that such
application would not be approved. The parties orally agreed during negotiations
for the establishment of Brighton-STAQ that under certain financial performance
criteria to be agreed by the parties, Huazheng would have the right, during the
term of Brighton-STAQ, to acquire up to an additional 10% of the joint venture
annually, at market valuation, up to a total ownership interest of 49% of
Brighton-STAQ. The Company is uncertain with respect to the validity of this
oral agreement under Chinese law since it was not reflected in the written
agreement approved by the Chinese government providing for the establishment of
Brighton-STAQ. The Company believes that local business custom dictates that the
Company honor such oral agreement if so requested by its partner. If Huazheng
decides to exercise such right at a time when Brighton-STAQ is profitable, the
Company's operating results and anticipated growth may be adversely affected. In
addition, the mechanism for determining market valuation if and when Huazheng
exercised such right, which is not yet agreed to by the parties, may possibly be
unfavorable to the Company.
CURRENT STATUS OF THE STAQ ON-LINE NETWORK
The Company has successfully tested the STAQ On-line Network
using dedicated land telephone lines leased from ChinaPac, a commercial arm of
the Ministry of Post and Telecommunications. In order to be fully commercially
operational, the Company intends to convert the STAQ On-line Network to
satellite linkage. The Company is negotiating a three-year arrangement with The
People's Daily, the major newspaper serving China, to subscribe for use of its
satellite service, which it will finalize pending completion of the Offering.
The Company is able to obtain services from The People's Daily at a rate of
one-third the rate generally charged by commercial providers of satellite
service because The People's Daily uses satellite communication only at night
for distribution of text, as is customary for daily newspaper publications. As a
result, its satellite communication resources are idle during daylight hours.
This provides the opportunity for the Company to lease the system, with
availability during key daylight trading hours, at very competitive rates. The
satellite transponder providers of The People's Daily are Asia Satellite
Telecommunications Co. Ltd. in
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Hong Kong for C-Band transponder and China Telecommunications Broadcast
Satellite Corporation in Beijing for Ku-Band transponder.
The stock price quotations from the STAQ Exchange trading floor
in Beijing will be uplinked to The People's Daily's transponder and downlinked
to various cities then being served. Two satellite communication links, one
between the STAQ Exchange trading floor in Beijing and Shanghai and the other
between the STAQ Exchange trading floor in Beijing and Chongqing, have been
completed. The cost of construction for each satellite communication link was
approximately $38,000. The satellite equipment utilized for the STAQ On-line
Network is manufactured by Hughes Electronics Corporation. After being
downlinked to the various cities, the stock price quotations will be transmitted
over a wireless system for broadcast to the remote computer terminals at the
brokerages. Nodes for receiving the data broadcasted over the wireless system
will be installed at the remote computer terminals. When a buy or sell order is
executed at the remote computer terminals, such information is transmitted back
via the wireless system and the satellite linkage to the STAQ Exchange in
Beijing. While The People's Daily provides the services of its satellite
transponders to operate the communications linkages, the Company owns the
satellite equipment necessary for uplinking and downlinking the stock price
quotations.
For local wireless communication, the Company plans to
"piggyback" on the frequencies used by the Aria Wireless Systems which it has
installed for other customers. Radio frequency is a controlled resource in
China. Current Chinese laws and regulations do not allow foreign ownership or
control of radio frequency. As a result, the Company cannot independently lease
radio frequencies from the Ministry of Post and Telecommunication to build its
wireless networks. The Company's customer, ICBC, has agreed to allot a portion
of ICBC's assigned radio frequency in Beijing and Chongqing for the Company's
use for a fee of $100 per node per year. The Company is currently negotiating
with a domestic telecommunication service provider in Shanghai to use its
assigned radio frequency for the STAQ On-line Network. The Company expects to
finalize an agreement with this telecommunication service provider in the first
quarter of 1998.
The STAQ On-Line Network is functionally similar to other on-line
transaction processing systems the Company has designed and installed for its
financial services and hospitality industry customers. On-line transaction
processing systems are designed to provide instant responses for high volume
transactions. In the last seven years, the Company and other companies
controlled by the Company's Chairman, Chief Executive Officer, President and
principal stockholder have developed, designed and installed over 35 on-line
transaction processing networks in the Pacific Basin region to customer's
specifications, including credit and authorization systems, airline ticket
reservation systems, ATM networks and bank branch networking. The Company has
applied this knowledge in the design and development of the STAQ On-Line
Network.
MARKETING
The Company plans to initially set up the satellite-linked STAQ
On-line Network in the cities of Beijing and Chongqing and install computer
terminals in a selected number of STAQ Exchange member stock brokerages for a
three month test period, which is anticipated to begin in the second quarter of
1998. During the test period, the STAQ On-line Network will be provided to the
selected stock brokerages free of charge. At the end of the test period, these
stock brokerages will have the option to subscribe for the STAQ On-line Network
by executing maintenance agreements with Brighton-STAQ. The Company plans to
host a series of seminars at these test sites for other traders from the STAQ
Exchange member stock brokerages during the test period to attract customers.
Once the Company establishes the STAQ On-line Network service in Beijing and
Chongqing, it plans to extend its coverage area to Shanghai, Shenzhen and
Guangzhou.
The Company believes that the STAQ On-line Network will increase
the STAQ Exchange's ability to offer access to trading on the exchange.
According to STAQ Exchange officials, only half of its
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members currently have seats on the trading floor because of the STAQ Exchange's
insufficient technical expertise and capital resources. The remaining members
must collaborate with seat members to trade. Eventually, Brighton-STAQ plans to
co-market the STAQ On-line Network, in cooperation with the STAQ Exchange, by
packaging it with membership to the STAQ Exchange to all stock brokerages who
are not yet members of the STAQ Exchange.
COMPETITION - BRIGHTON-STAQ
Both the Shanghai and Shenzhen Stock Exchanges maintain their own
on-line securities quotation and trading systems for internal use and both have
the potential to compete with the STAQ Exchange for trading of securities listed
on their respective stock exchanges. The Company believes that it is unlikely
that either the Shanghai or Shenzhen Stock Exchanges would compete with the STAQ
Exchange because all three exchanges are now under common control. The Shanghai
and Shenzhen Stock Exchanges were brought under direct control of the CSRC by
the PRC State Council in August 1997 to settle conflict of interest issues among
the exchanges. In addition, as their sub-exchange, the STAQ Exchange is
contributing to the development of the Shanghai and Shenzhen Stock Exchanges.
The Company believes that the development of the STAQ On-line Network by
Brighton-STAQ will likely complement the Shanghai and Shenzhen Stock Exchanges
by increasing the volume of securities traded on both exchanges.
The Company will potentially compete with other businesses
experienced in the systems management and computer network integration business
as well as the wireless communications business, which are capable of designing,
installing and maintaining on-line transaction processing systems. The Company
believes that information providers that have entered the China market and
utilize on-line transaction processing systems in their businesses, such as Dow
Jones Markets, Inc., Reuters Limited and Bloomberg L.P., are potential
competitors of the Company. These potential competitors have greater marketing
and development budgets than the Company and have greater capital resources than
the Company. In the developed securities markets in the Pacific Basin region
(such as Hong Kong, Singapore, Japan, Malaysia, Thailand and Taiwan), Dow Jones
Markets, Inc., Reuters Limited and Bloomberg L.P. have been successful in
providing trading on off-exchange floor trading for foreign securities markets,
currency trading and news and information. It should be noted that except for
China, which permits off-exchange floor trading, the stock exchanges in the
Pacific Basin region are all floor-based electronic trading systems which do not
permit off-exchange floor trading of their domestically listed securities.
INDUSTRIAL EQUIPMENT DISTRIBUTION BUSINESS
MARKET OVERVIEW
Beginning in the mid-1980's, China commenced economic reforms
that significantly decentralized the purchasing authority of government owned or
controlled entities with respect to imports. In response to this process of
decentralization and market orientation, increased numbers of industrial
equipment manufacturers and independent distributors have entered the Chinese
market to meet the market demand for modernization. Currently, the industrial
equipment distribution sector in China is highly saturated with significant
competition among manufacturers and distributors from around the world.
PRODUCTS
The Company facilitates United States, European and other
manufacturers of industrial equipment with access to the Chinese marketplace by
providing marketing, sales and technical services for their products. The
industrial equipment which the Company has been marketing in China are machine
tools, such as machine center and grinder measurement devices, and heavy
machinery, such as gantry mills, pressing machine production lines and dyes
transfer automation systems.
50
<PAGE> 53
The Company has signed exclusive distributor agreements with
several major manufacturers of industrial equipment (Milltronics Manufacturing
Company (a U.S. company), ALO Teknik AB (a Swedish company), Royal Master
Grinders, Inc. (a U.S. company) and K.O. Lee Company (a U.S. company)) for the
sale of their industrial equipment in China. However, these manufacturers may
sell the industrial equipment to their own customers based outside of China for
use in China, such as, sales to the American party of a Sino-foreign joint
venture company for use by the Sino-foreign joint venture company in China. In
such cases, these manufacturers would pay the Company a sales commission of 5%
of the sales price for the Company to provide repair and servicing for the
industrial equipment inside China. The Company also sells industrial equipment
for other manufacturers on a non-exclusive basis.
The following table sets forth the Company's sales of industrial
equipment by supplier as of December 31, 1997 and the Company's projected
revenues in 1998 based on the Company's on-going negotiations with customers:
<TABLE>
<CAPTION>
Type of Industrial
SUPPLIER Equipment 1997 1998
- -------- ------------------ ---- ----
<S> <C> <C> <C>
Adaptive Motion Tube & pipe bending $200,000 $300,000
Control Systems machine
Alo-Teknik AB Saw tooth grinders $782,000 $300,000
Forest-Line Large size milling - $1,500,000
Capdenac machines
Milltronics Machine centers $163,500 $2,000,000
Manufacturing
Corporation
Normac, Inc. Shred grinding machines - $350,000
Royal Master Centerless grinders - $450,000
Grinders, Inc.
Sullair Corporation Industrial air compressors $1,200,000 $1,500,000
and dryers
The Monarch Vertical Machine centers $1,780,000 $1,000,000
Machine Tool
Company
</TABLE>
CUSTOMERS
The Company's customers for industrial equipment are PRC
Government owned or controlled entities, including government ministries,
universities, research facilities and factories. The majority of the Company's
customers are metal handling and processing factories in the automotive, ship
building and aviation industries in China. The following sets forth the
Company's major customers for industrial equipment:
China National Chemical Construction Chongqing Company
Shenyang Blower Works
51
<PAGE> 54
Shenyang Aircraft Corporation
State-owned Benxi Toolplant
China Offshore Industrial Corporation
Dongfeng-Citroen Automobile Company Ltd.
Changan Automobile Works
Shanghai Jiao Tong University
Deyang Qitong Machinery Co. Ltd.
Shenzhen Baosheng Co. Ltd.
The Company signed three major contracts with Chinese customers
for the sale of industrial equipment in 1997 totaling approximately $6,980,000.
The Company has been awarded a $1,690,000 contract from Shenyang Aircraft
Corporation to equip five heavy duty vertical machining centers. Shenyang
Aircraft Corporation is a leading aircraft manufacturer in China and produces
sections of the Boeing 737 aircraft. The Company has entered into a contract to
provide computer-controlled auto body stamping equipment to Changan Automobile
Works, a Chinese state-owned automotive manufacturer, located in Chongqing, for
$2,890,000. Changan Automobile Works is one of the largest automotive
manufacturers in China and is a long standing customer of the Company. Delivery
for the stamping equipment is scheduled for the first quarter of 1998. The
Company has contracted to provide a gantry milling machine to Shenyang Blower
Works, in Shenyang, for $2,400,000. Shenyang Blower Works is a leading
manufacturer of air blowers and air compressors for the petroleum, chemical and
electricity generating industries in China. Due to the long manufacturing cycle
for large-size machine tools, delivery to Shenyang Blower Works is scheduled for
the fourth quarter of 1998.
The industrial equipment distribution business accounted for
approximately $4,300,000 and $3,700,000 in revenue for 1995 and 1996,
respectively. Historically, the Company has relied on a limited number of
customers for a substantial portion of its total revenues. The Company's
customers vary from year to year, but, historically, significant portions of its
revenues are from a limited number of customers. The Company expects that
significant portions of future revenues from this business segment will continue
to be generated by a limited number of customers, and revenue may vary
substantially from quarter to quarter as a result of both the large order sizes
and the long lead times characteristic of this business.
MARKETING
The Company solicits potential customers for the sale of
industrial equipment by participating in trade shows, promotional seminars and
exhibitions throughout China and following up with mass mailings of product
catalogues. At the trade shows, the Company operates a separate promotional
exhibit. When the Company receives a request for particular equipment, the
Company's sales staff in New Jersey is provided with the technical
specifications and searches for suitable equipment manufacturers in the global
market. When equipment that meets the technical specifications of the customer
is identified, a case-by-case arrangement is negotiated between the equipment
manufacturer and the Company. After a purchase agreement is signed with the
customer, the Company will purchase the equipment from the manufacturer and
resell it to the customer.
The Company's industrial equipment distribution business sales
and support teams, based in China and New Jersey, have grown from a total of
three employees in 1991 to 27 employees as of September 30, 1997. The Company's
sales teams in China for the industrial equipment distribution business are
located in Beijing (nine employees), Shanghai (eight employees) and Wuhan (eight
employees). All orders are sent to Beijing for approval and processing.
52
<PAGE> 55
FOREIGN TRADE CORPORATIONS ("FTC's")
Contracts for the sale of industrial equipment are entered into
between BIC or Brighton Equipment Corporation Limited, a wholly owned Hong Kong
subsidiary of BECL ("Brighton Equipment"), and the customer. The Company does
not place an order with the third party manufacturer for industrial equipment
until a sale has been made to the customer. As a result, the Company does not
generally need to warehouse inventory. In most cases, however, the Company does
take title to the industrial equipment and bears the risk of loss in the event
of non-payment by the customer.
Sales of the industrial equipment, regardless of the nature of
the customer, are made through FTC's, since Chinese domestic companies and
individuals are not permitted to trade directly with foreign companies. The
FTC's make purchases on behalf of the customers and are legally authorized by
the PRC Government to conduct import business. FTC's are chartered and regulated
by the government and were formed to facilitate foreign trade. Once the customer
selects the foreign vendor and the industrial equipment to be purchased, it
selects an FTC to carry out the necessary procedures for the import and purchase
of the equipment. The FTC's function as procurement arms for the customers.
Although the purchase decision is made by the customer, the Company enters into
formal purchase contracts with FTC's. The FTC's take title to the industrial
equipment and resell to the customers. The customers pay the FTC's in Renminbi
and the FTC's, which have access to foreign exchange, pay the foreign vendors in
U.S. dollars or other foreign currency.
By virtue of its direct contractual relationship with the FTC,
rather than the customer, the Company is to some extent dependent upon the
continuing existence of and contractual compliance by the FTC until the
particular transaction has been consummated. The Company's industrial equipment
sales business, however, is not dependent on any single FTC or customer.
Although sales by the Company to certain industries involve repeat transactions
with FTC's that operate in those industries, the Company does not believe that
it is dependent upon any particular FTC or that the loss of relations with any
particular FTC would have a material adverse effect on the Company. Rather,
FTC's, which earn commissions in transactions, compete with each other for the
right to handle the customer's business.
The Company believes that it is able to ensure that purchase
orders for industrial equipment by the customers are properly approved and
authorized when a purchase contract is signed with an FTC because the FTC will
review all necessary paperwork before executing contracts on the customer's
behalf. As an additional precaution, to date, all of the Company's direct sales
to its customers have been guaranteed by letters of credit. As a policy, the
Company will not ship any industrial equipment ordered until a bank letter of
credit is provided by the customer. As such, the Company has seldom experienced
nonpayment for industrial equipment orders and the risk of loss due to
nonpayment is negligible even though the Company takes title to the industrial
equipment. The Company has also never experienced a problem with obtaining
payment in U.S. dollars for the industrial equipment.
The customer is responsible for carrying out any necessary import
procedure for the industrial equipment, obtaining the import license and for
freight charges. The Company ships the ordered industrial equipment to the port
of entry specified by the customer. It is also the customer's responsibility to
clear the industrial equipment through customs and ship the industrial equipment
from the port of entry to the customer's premises. After the industrial
equipment has arrived at its destination in China, the Company arranges with the
customer for the installation of the industrial equipment and the training of
the customer's personnel in the operation of the industrial equipment. The
industrial equipment is generally warranted for a period of one year after
installation. The customer is responsible for any out of warranty service and
repairs.
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<PAGE> 56
AFTER-SALE SERVICES
In order to perform its servicing and other after-sale
responsibilities, the Company employs a staff of five engineering and technical
support personnel. The technical support engineers work out of the Company's
various offices throughout China and are trained to handle service calls
initially through advice and consultation. If necessary, the engineers travel to
the location of the unit and perform required servicing. The Company maintains
what it believes is an adequate inventory of supplies, spare parts and tools to
handle most servicing. If parts under warranty require replacement, the Company
may elect to replace that part out of its own parts inventory with the
understanding that the manufacturer would in turn replace the part in the
Company's inventory. Any post-warranty repair or servicing, charged on a time
and material basis, has historically been immaterial to the Company's business.
COMPETITION
The Company competes with other independent distributors in China
marketing similar products. Although the Company believes that it is one of the
major independent distributors of industrial equipment, there may be other
distributors with greater resources or other competitive advantages over the
Company.
In addition to other independent distributors, the Company faces
more significant competition directly from established manufacturers. With
respect to its industrial equipment, for example, the Company competes with
Cincinnati Milacron, Inc. of the U.S., which maintains its own direct sales
force in China. In addition, certain manufacturers, such as Ingersoll-Rand
Company of the U.S., are better able than the Company to establish name
recognition across industry lines as they market a wide variety of products in
China under one brand name.
Domestic Chinese entities also compete in various product areas.
Certain of these competitors, whether joint venture projects with foreign
manufacturers or all-Chinese groups, often receive preferential treatment by the
government regulatory authorities, who seek to curtail spending on imported
equipment in favor of domestic Chinese industrial development. Although the
Company competes directly with products of certain of such joint ventures and
all-Chinese groups, the Company does not believe that this preference by the
regulatory authorities is often applied to the material detriment of the
Company.
CHINA NATIONAL CONTRACT
On April 15, 1994, the Company contracted with China National to
provide, for a total of $11 million, engineering design and implementation for a
sodium bichromate production plant with an annual production capacity of 20,000
metric tons. This contract and the work related to it are outside the ordinary
course of the Company's business. However, because of certain third-party
technology that was available to it at that time, the Company was able to
successfully bid on the contract. Turn-key contracts of this nature are
generally discrete projects, and the Company does not anticipate repeat business
from China National. The Company also does not currently have or plan to have
any other projects of this nature in the foreseeable future.
The Company is responsible for the basic engineering design and
transferring to China National certain manufacturing technological know-how
licensed to the Company by AlliedSignal, Inc. ("AlliedSignal") for use in the
production of sodium bichromate, chromic anhydride and chromium sulfate. The
Company is also commissioned to procure key production equipment on China
National's behalf. To date, the Company has completed the transfer of the basic
engineering design and AlliedSignal's technology, and procurement of key
production equipment. The first and second shipments of the equipment were made
in
54
<PAGE> 57
May 1997 and October 1997, respectively. After construction of the plant is
complete and ready to commence production, the Company will provide plant
commissioning services, including supervision of final construction, equipment
installation and pre-operational testing. The contract with China National
accounted for approximately 34% and 13% of the Company's revenues for the years
ended December 31, 1995 and 1996, respectively, and approximately 67% and 28% of
industrial equipment distribution revenues for the years ended December 31, 1995
and 1996, respectively. The decrease in revenues was due to a temporary
suspension of the project imposed by the municipal government in February 1996,
due to environmental concerns relating to China National's proposed methods for
waste disposal by the plant. The revised proposal for waste management submitted
by China National was approved by the municipal government and the temporary
suspension was lifted in January 1997. The contract resumed following the
lifting of the temporary suspension. All payments from China National are
remitted to the Company in U.S. dollars.
The Company has been advised by China National that they are
currently negotiating with third party lenders for the necessary funds to
complete the construction of the project. The Company is currently unable to
predict the ultimate outcome of these discussions. In the event that China
National is unsuccessful in its efforts to obtain such financing and
construction efforts are suspended or terminated, the Company's anticipated
revenues in the future with regard to this contract may be reduced. Based on an
assessment of discussions with China National and the timing involved in
obtaining the necessary funds, management of the Company does not expect that
any significant revenues will be earned from this contract during the year
ending December 31, 1998. If China National is unable to complete the project,
management does not expect that the ultimate resolution of this matter will have
a material adverse impact on the Company's financial position or cash flows.
BACKGROUND OF THE COMPANY
The Company was incorporated in the State of Delaware on November
4, 1988 as Sirone Corporation. On November 1, 1995, the Company changed its name
to Zentex Corporation. For a period of time prior to November 11, 1996, under
previous management, the Company was engaged in the distribution in the United
States and Canada of a shampoo and conditioner treatment. In October 1996, the
Company entered into an acquisition agreement (the "Acquisition Agreement") with
BIC, BECL, and the Brighton Shareholders pursuant to which effective November
11, 1996 the Company acquired all of the issued and outstanding capital stock of
BIC and BECL from the Brighton Shareholders in exchange for the issuance by the
Company of a controlling interest in the Company to the Brighton Shareholders
(the "Reverse Merger"). The business purpose of the Reverse Merger was to
facilitate the consolidation of BIC and BECL into one publicly traded entity to
attract investment in the Company. Pursuant to the Reverse Merger, and in
furtherance of its new business plan, the Company's name was changed to
"Brighton Technologies Corporation," and its symbol on the OTC Electronic
Bulletin Board was changed to "BRTK."
Immediately prior to the Reverse Merger, the Company had a total
of 3,513,000 shares of Common Stock issued and outstanding. In connection with
the Reverse Merger, the Company issued to the Brighton Shareholders an aggregate
of 27,000,000 shares of Common Stock representing approximately 88% of the then
outstanding shares of Common Stock of the Company. On November 11, 1996, a
1-for-3 reverse stock split was effected. Effective October 17, 1997, a second
1-for-3 reverse stock split was effected. On January 13, 1998, the Company's
Board of Directors and stockholders authorized and approved a 1 for 3 reverse
stock split, which will go into effect on January 26, 1998. All Common Stock and
per share data have been restated to reflect the reverse stock splits.
55
<PAGE> 58
Pursuant to the terms of the Acquisition Agreement, the Company
transferred to two individuals who were part of the prior management (the
"Transferees") all of its operating assets existing immediately subsequent to
the closing of the Reverse Merger (excluding the shares of BIC and BECL) in
exchange for the assumption by the Transferees of all of the liabilities of the
Company as of the closing of the Reverse Merger and the delivery of a release of
all obligations owed by the Company to an affiliate of the Transferees. In
addition, at the closing of the Reverse Merger, each member of the Company's
then Board of Directors resigned, and was replaced by representatives of the
Brighton Shareholders.
56
<PAGE> 59
THE COMPANY'S CORPORATE STRUCTURE
The Company conducts its business through two principal
subsidiaries: BIC and BECL. BIC acts as distributor of third party manufactured
industrial equipment to customers in Pacific Basin countries with primary
distribution to customers in China. BIC established a representative in Wuhan,
China. BECL is an investment and holding company for Asian based investments
focusing on information and industrial equipment related ventures in the Pacific
Basin region. BECL holds investments in five second tier subsidiaries, four of
which are companies organized under the laws of Hong Kong and one is a PRC joint
venture company (the percentage of ownership of the issued and outstanding
capital stock is denoted parenthetically): (i) Brighton OLTP Systems Limited
("Brighton OLTP") (100%); (ii) Aria China 59%; (iii) Brighton-Equipment (100%);
(iv) Brighton Elevator Corporation Limited ("Brighton Elevator") (79%); and (v)
Brighton-STAQ (90%). Brighton Equipment provides computer network integration to
customers in Pacific Basin countries other than China. Brighton Elevator is a
distributor of elevator and escalators in China. Both Brighton OLTP and Aria
China are inactive companies. Brighton-STAQ is a PRC Sino-Hong Kong equity joint
venture company that was formed to develop, design, install and maintain
computer equipment for an automated securities trading and quotation system.
The following is a diagram of the Company's structure:
[BRIGHTON TECHNOLOGIES FLOWCHART]
57
<PAGE> 60
GOVERNMENT REGULATION
All foreign entities, businesses, persons and all onshore foreign
investors, including Sino-foreign cooperative joint ventures, and Sino-foreign
equity joint ventures, are prohibited from managing or participating in the
management of any telecommunication business in China. In addition, all such
telecommunication businesses are prohibited from structuring any foreign
ownership of the management of such businesses. Participation in projects
engaged in the leasing service industry is also prohibited to foreign entities,
businesses, persons and all on-shore foreign investors.
The Company believes that Brighton-STAQ does not violate the
provisions of these regulations at the present time. The Company has received an
opinion from its Chinese counsel, Zhong Xin Law Office, to the effect that the
design, installation and maintenance of the STAQ On-line Network and the charge
of a related maintenance fee by Brighton-STAQ does not violate any rules of the
relevant Chinese Governmental agencies. The telecommunication services essential
to the operation of the STAQ On-line Network will be provided by domestically
licensed third-party providers (i.e., The People's Daily and ICBC). In addition,
operation of the STAQ On-line Network is controlled directly by the STAQ
Exchange. Revenue earned by Brighton-STAQ is for the maintenance and service of
the equipment for the STAQ On-line Network.
COMPLIANCE WITH ENVIRONMENTAL LAWS
The Company has no material expenses and anticipates no material
impact on its business occasioned by compliance with environmental laws.
EMPLOYEES
The Company and its subsidiaries have approximately 130 full-time
employees of which over 80% are professionals with specialized skills. There are
32 employees based in Hong Kong, 88 based in China and 10 in the Company's
corporate office in Allendale, New Jersey, U.S.A., which serves as technical
support base for the Asian operations. Of the 88 employees in China, 27 are
dedicated to sales related activities for the industrial equipment distribution
business segment and 18 are engineering and technical support personnel in the
computer network integration business segment.
PROPERTIES
NEW JERSEY. The Company and BIC currently occupy facilities
leased by BIC in Allendale, New Jersey consisting of 5,000 square feet. The
lease expires on July 31, 2001.
HONG KONG. BECL and its subsidiaries occupy facilities leased by
BECL in Quarry Bay, Hong Kong consisting of office B and D1 on the 14th floor of
Aik San Factory Building. The lease expires on February 28, 1998.
BEIJING. The facilities occupied by Brighton-STAQ in the Ritan
Office Building, Chao Yang District, Beijing are under two separate lease
agreements. Both leases expire on April 30, 1999.
SHANGHAI. Brighton-STAQ signed a two-year lease for its branch
office, effective September 1, 1997 and expiring August 31, 1999, for office
space in Shanghai, consisting of Suite D and E on the 5th Floor of the Nan Yang
Properties Building.
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<PAGE> 61
SHENZHEN. The Brighton Elevator Shenzhen representative office
occupies office space in the Shenzhen Beijing Hotel in Shenzhen. The lease
expires June 30, 1998.
WUHAN. The Brighton Elevator Wuhan representative office occupies
120 square feet of office space in Wuhan. The lease expires on October 1, 1998.
At such time, the BIC Wuhan representative office will assume the remainder of
the lease.
PATENTS AND TRADEMARKS
The Company owns no registered patents or trademarks. The Company
believes that its business is not materially dependent on any patent or
trademark.
LEGAL MATTERS
The Company is either a plaintiff or a defendant in several
pending legal matters. In the opinion of management, the final resolution of
these matters will not have a material adverse effect on the Company's financial
position or results of operations.
59
<PAGE> 62
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table and text sets forth the names and ages of
all directors and executive officers of the Company and the key management
personnel as of December 31, 1997. The Board of Directors of the Company is
comprised of only one class. All of the directors will serve until the next
annual meeting of stockholders and until their successors are elected and
qualified, or until their earlier death, retirement, resignation or removal.
Executive officers serve at the discretion of the Board of Directors, and are
appointed to serve until the first Board of Directors meeting following the
annual meeting of stockholders. Except as otherwise noted, there are no family
relationships among directors and executive officers. Also provided is a brief
description of the business experience of each director and executive officer
and the key management personnel during the past five years and an indication of
directorships held by each director in other companies subject to the reporting
requirements under the Federal securities laws.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
BRIGHTON TECHNOLOGIES CORPORATION
<S> <C> <C>
Kit Kung 47 Chairman of the Board, President
and Chief Executive Officer
Robert N. Weingarten 45 Chief Financial Officer
Warren Wang 50 Secretary and Chief Accounting Officer
Hong Yun 43 Director;
Vice President/General Manager of
The Brighton Industries Corporation
Nils Ollquist 42 Director
Michael Muldavin 77 Director
KEY MANAGEMENT PERSONNEL
Edith Wong 47 General Manager
Brighton Electronics Corporation Ltd.
(Hong Kong)
He Ping 38 General Manager
Beijing Brighton Staq
Electronic System Company Limited
(Beijing)
Lu Jian Guo 39 General Manager
Beijing Brighton Staq Electronic System
Company Limited - Shanghai Branch Office
(Shanghai)
Ma Yong Jun 31 Manager of Finance and Administration
Brighton Electronic Corporation Ltd.
(Beijing)
</TABLE>
63
<PAGE> 63
BACKGROUND AND EXPERIENCE
KIT KUNG has been Chairman of the Board, President and Chief
Executive Officer of the Company since October 1996. Mr. Kung is the Founder of
BECL. He was born in Shanghai and emigrated to the United States in 1974. He
re-visited China in 1980, and by 1981 was the first ever to legally export
32-bit computers from the United States into China; those first computers being
two sets of VAX computer systems from Digital Equipment Corporation. From that
profile, he established an extensive network of customers and relationships in
China. Mr. Kung graduated from Rutgers University with a degree in Physics and
is a citizen of the United States. Mr. Kung has been listed in the "Who's Who
Worldwide" publication since 1993 and the "Outstanding Americans" publication
since 1994. He is the husband of Hong Yun.
ROBERT N. WEINGARTEN has served as Chief Financial Officer of
the Company since November 3, 1997. Mr. Weingarten has agreed to devote, as
necessary, up to 80% of his time to serve in this position. From July 1992 to
present, Mr. Weingarten has been the sole shareholder of Resource One Group,
Inc., a financial consulting and advisory company. From January 1, 1997 through
July 31, 1997, Mr. Weingarten was a principal in Chelsea Capital Corporation, a
merchant banking firm. From January 1991 through December 1992, Mr. Weingarten
served as a general partner of Commerce Partners, a consulting firm specializing
in financial restructurings and business reorganizations in financial
restructurings and business reorganizations. Since 1979, Mr. Weingarten has
served as a consultant with numerous public companies in various stages of
development, operation or reorganization. Mr. Weingarten currently serves as a
director of Fotoball USA, Inc. and as an officer and director of GolfGear
International, Inc., both of which are publicly held companies specializing in
sports-related products. Mr. Weingarten received an M.B.A. in Finance from the
University of Southern California and a B.A. in Accounting from the University
of Washington.
WARREN WANG has been Secretary and Chief Accounting Officer of
the Company since November 1996. From 1981 to 1996, he was Vice
President-Finance at Seavest, Inc. (a financial investment firm with interests
in real estate, securities, oil and gas, and other capital ventures). From 1979
to 1980, he was the Accounting Manager at Mailman Brothers. From 1977 to 1978,
he was with the CPA firm of Louis Sturz & Co. From 1975 to 1977, he was an
accountant with Western Union International, Inc. Mr. Wang is a certified public
accountant and received his B.B.A. in accounting from the Bernard M. Baruch
College of the City University of New York.
HONG YUN has been a director of the Company since October
1996. She founded BIC in 1989 and is the individual responsible for developing
the industrial equipment business into a significant operation. Ms. Yun is a
native of Beijing and a U.S. citizen by naturalization. Ms. Yun graduated from
Beijing University of Beijing, China specializing in electronics engineering.
She is the wife of Kit Kung.
NILS A. OLLQUIST has been a director of the Company since
October 1996. Mr. Ollquist also held the positions of Chief Financial Officer
and Vice President of the Company until his resignation, in November 1997. He is
also a Principal of Orient Financial Services Limited in Hong Kong. Mr. Ollquist
has fifteen years of experience in investment banking and corporate finance in
Hong Kong, the United States and Australia. Prior to creating Orient Financial
in 1993, he served as head of Bank of America's mergers and acquisitions group
in Asia. Before joining Bank of America in 1990, Mr. Ollquist was Director and
head of Security Pacific Australia's U.S. corporate finance and investment
banking activities. He worked for several years in Sydney with Amsterdam
Rotterdam Bank and Barclays Bank from 1980 to 1984. Prior to commencing his
investment banking career, Mr. Ollquist served for 5 years in the Australian
Treasury in Canberra. He holds degrees in Economics and Law from the Australian
National University.
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<PAGE> 64
MICHAEL MULDAVIN has been a director of the Company since
October 1996. Mr. Muldavin, currently a visiting professor at the University of
California at Los Angeles, was a pioneer in China trading, having assumed
responsibility for the family trading business in Heilongjiang province before
WWII. In 1979, Mr. Muldavin was invited by the Chinese Government to establish a
joint Chinese language magazine "Science & Technology Review." In recent years,
Mr. Muldavin has been involved in a total of more than 80 joint venture
investments in China including agribusiness, automotive and media/data systems
and communications. Mr. Muldavin founded the Benchmark Company Group, an
investment consultancy and advisory firm, and has consulted on investments and
ventures in China, Russia and Vietnam since 1980. Mr. Muldavin received his B.S.
in mathematics and engineering, M.S. in economics, joint PhDs in economics and
public administration and J.D. from Harvard College. Mr. Muldavin also holds a
M.P.H. (medical care administration and epidemiology) from the University of
California, Los Angeles.
EDITH WONG is the General Manager of BECL and is responsible
for the day-to-day operations of BECL and its Hong Kong subsidiaries. Ms. Wong
has worked with Mr. Kung in his computer integration and industrial equipment
businesses since 1984. Ms. Wong received her Bachelors Degree in Business
Administration and Post-graduate Diploma in Purchasing and Supply from
Polytechnic of North London. Ms. Wong is a resident of Hong Kong.
HE PING is the General Manager of Brighton-STAQ. Mr. He joined
the Company as the Deputy General Manager and then Acting General Manager of
Brighton-STAQ project in September 1994, and was promoted to his current
position. Prior to joining the Company, Mr. He was the Business Development
Officer and Administrative Executive in the Beijing representative office of
Imperial Chemical Industry since 1993. Mr. He graduated from Beijing TV
University in 1988 and was a graduate of the China-Europe Management Institute
MBA program in 1993. Mr. He is a native of Beijing and a Chinese national.
LU JIAN GUO is based in the Brighton-STAQ Shanghai branch
office and is responsible for the Eastern China operations of the Company. Mr.
Lu joined BIC in 1995 as the Deputy General Manager of Eastern Region
operations. Prior to joining the Company, Mr. Lu held a number of managerial
positions with Sino-Foreign joint venture companies in southern and eastern
China from 1991 to 1995. Mr. Lu graduated from Eastern Normal China University
in 1983 majoring in mechanical design. He was a lecturer for Shanghai University
from 1983 to 1991. Mr. Lu is a native of Shanghai and a Chinese national.
MA YONG JUN was employed by BECL in September 1994 as the
Manager of Finance and Administration for BECL's Beijing based operations. Prior
to joining Brighton, Mr. Ma worked as the Accounting Executive and Financial
Manager for Bei Chen Group, a large scale real estate company, from 1990 to
1994. Mr. Ma has had more than eight years in managing financial and
administrative matters. Presently, Mr. Ma is responsible for the corporate
planning for the China based operations for BIC and BECL. Mr. Ma graduated from
the University of Beijing Finance & Accounting College majoring in Finance in
1986. Mr. Ma is native of Beijing and a Chinese national.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid during
fiscal years ended December 31, 1995 and 1996 to the Company's Chief Executive
Officer. No officer of the Company received annual compensation in excess of
$100,000 per annum.
65
<PAGE> 65
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and
Principal Position Year Salary
<S> <C> <C>
Kit Kung, Chairman, President and Chief 1996 $80,000
Executive Officer 1995 $80,000
</TABLE>
COMPENSATION AGREEMENTS
There are currently no long-term employment or consulting
agreements between the Company and the executive officers or directors of the
Company.
BOARD OF DIRECTORS
During the year ended December 31, 1996, no meetings of the Board
of Directors were held; all corporate actions were conducted by unanimous
written consent of the Board of Directors. Directors receive no compensation for
serving on the Board of Directors, but are reimbursed for any out-of-pocket
expenses incurred in attending board meetings. The Company had no audit,
nominating or compensation committees, or committees performing similar
functions, during the year ended December 31, 1996. Subsequent to the Offering,
the Company will be required under the Nasdaq SmallCap Market listing rules to
have at least two independent directors and to form an audit committee with a
majority of the members being independent directors.
STOCK OPTION PLAN
As of December 31, 1997, the Company has not adopted a stock
option plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Restated Certificate of Incorporation includes
provisions which limit the liability of its directors. As permitted by
applicable provisions of the Delaware Law, directors will not be liable to the
Company for monetary damages arising from a breach of their fiduciary duty as
directors in certain circumstances. This limitation does not affect liability
for any breach of a director's duty to the Company or its stockholders (i) with
respect to approval by the director of any transaction from which he or she
derives an improper personal benefit, (ii) with respect to acts or omissions
involving an absence of good faith, that the director believes to be contrary to
the best interests of the Company or its stockholders, that involve intentional
misconduct or a knowing and culpable violation of law, that constitute an
unexcused pattern or inattention that amounts to an abdication of his or her
duty to the Company or its stockholders, or that show a reckless disregard for
duty to the Company or its stockholders in circumstances in which he or she was,
or should have been aware, in the ordinary course of performing his or her
duties, of a risk of serious injury to the Company or its stockholders, or (iii)
based on transactions between the Company and its directors or another
corporation with interrelated directors or based on improper distributions,
loans or guarantees under applicable sections of Delaware Law. This limitation
of directors' liability also does not affect the availability of equitable
remedies, such as injunctive relief or rescission.
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<PAGE> 66
The Company has been advised that it is the position of the
Commission that insofar as the provision in the Company's Restated Certificate
of Incorporation may be invoked for liabilities arising under the Securities
Act, the provision is against public policy as expressed in the Securities Act
and is therefore unenforceable.
KEY MAN INSURANCE
The Company will, prior to the completion of the Offering, obtain
and maintain a $2,000,000 term life insurance policy covering Kit Kung which
names the Company as the sole beneficiary.
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<PAGE> 67
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of the date
of this Prospectus with respect to (i) the beneficial ownership of the Common
Stock of the Company by each beneficial owner of more than 5% of the outstanding
shares of Common Stock of the Company, each director, each executive officer and
all executive officers and directors of the Company as a group, (ii) the number
of shares of Common Stock owned by each such person and group and (iii) the
percent of the Company's Common Stock so owned.
As used in this section, the term beneficial ownership with
respect to a security is defined by Rule 13d-3 under the Exchange Act as
consisting of sole or shared voting power (including the power to vote or direct
the vote) and/or sole or shared investment power (including the power to dispose
of or direct the disposition of) with respect to the security through any
contract, arrangement, understanding, relationship or otherwise, subject to
community property laws where applicable. Each person has sole voting and
investment power with respect to the shares of Common Stock, except as otherwise
indicated. Beneficial ownership consists of a direct interest in the shares of
Common Stock, except as otherwise indicated.
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
NUMBER OF SHARES OF OUTSTANDING COMMON OUTSTANDING COMMON
NAME AND ADDRESS OF COMMON STOCK STOCK BENEFICIALLY STOCK BENEFICIALLY
BENEFICIAL OWNER BENEFICIALLY OWNED OWNED BEFORE OFFERING OWNED AFTER OFFERING
<S> <C> <C> <C>
Kit Kung 937,642(1),(2) 80.5% 43.3%
c/o Brighton Technologies
Corporation
6 Pearl Court
Allendale, NJ 07401
Hong Yun 55,556(3) 4.8% 2.6%
c/o Brighton Technologies
Corporation
6 Pearl Court
Allendale, NJ 07401
Nils Ollquist 3,890 0.3% 0.2%
c/o Orient Financial
Services 13C, Chinaweal
Centre
414-424 Jaffe Road
Wanchai, Hong Kong
Robert N. Weingarten -- -- --
c/o Brighton Technologies
Corporation
6 Pearl Court
Allendale, NY 07401
Warren Wang -- -- --
c/o Brighton Technologies
Corporation
6 Pearl Court
Allendale, NJ 07401
</TABLE>
68
<PAGE> 68
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
NUMBER OF SHARES OF OUTSTANDING COMMON OUTSTANDING COMMON
NAME AND ADDRESS OF COMMON STOCK STOCK BENEFICIALLY STOCK BENEFICIALLY
BENEFICIAL OWNER BENEFICIALLY OWNED OWNED BEFORE OFFERING OWNED AFTER OFFERING
<S> <C> <C> <C>
Michael Muldavin -- -- --
c/o Brighton Technologies
Corporation
6 Pearl Court
Allendale, NJ 07401
All Directors and 997,088 85.6% 46.1%
executive Officers as a
group
(6 persons)
</TABLE>
(1) Does not include 55,556 shares of Common Stock owned by Hung Yun, Mr.
Kung's wife. Mr. Kung disclaims beneficial ownership of such shares.
(2) On April 15, 1997, Mr. Kung executed an agreement granting two
individuals, who are also stockholders, an option to purchase an aggregate of
6,803 shares of Common Stock owned by Mr. Kung at the exercise price of $4.50
per share through June 30, 1998. Such options have not yet been exercised and
the shares of Common Stock underlying such options are included herein.
(3) Does not include 937,642 shares of Common Stock owned by Kit Kung,
Ms. Yun's husband. Ms. Yun disclaims beneficial ownership of such shares.
CHANGES IN CONTROL
The Company is unaware of any contract or other arrangement, the
operation of which may at a subsequent date result in a change in control of the
Company.
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<PAGE> 69
CERTAIN TRANSACTIONS
In order to meet its working capital requirements, the Company
has periodically received funding from Kit Kung, the Chairman of the Board of
Directors, President and Chief Executive Officer, and his family members. The
Company has also periodically made advances to the principals and officers of
the Company. The advances relate to personal travel and related expenses
incurred on corporate charge cards. Such advances are unsecured and generally
bear no stated interest rate or terms of repayment. As of December 31, 1995 and
1996, amounts due from Kit Kung and his family members aggregated $0 and
$43,239, respectively; outstanding receivables from other related parties
aggregated $8,220 and $15,884, respectively; and amounts due to Kit King and his
family members aggregated $2,612,896 and $227,298, respectively.
At December 31, 1995, BIC had a net receivable, funded by
advances from Kit Kung, from Brighton Information Systems Corporation (now known
as Greater China Corporation) of $493,751. Kit Kung had previously served as a
director and officer of Greater China Corporation until his resignation in
September 1994 but continued to serve as officer and director of certain
subsidiaries until January 1997. In partial settlement of this indebtedness, the
Company received an assignment of fixed assets and accounts receivable during
1996 valued at $381,433, resulting in a balance of $112,318. During the year
ended December 31, 1995, Kit Kung and his family members had advanced $1,612,041
to the Company, and during the year ended December 31, 1996, the Company had
repaid $1,118,625 of such advances. During the years ended December 31, 1995 and
1996, advances to other related parties aggregated $518,322 and $43,239,
respectively, and during the year ended December 31, 1996, $424,872 of accounts
receivable from related parties was repaid.
Through November 1996, BECL had $248,103 of advances to
affiliates of Greater China Corporation, which were funded by advances from Kit
Kung. Kit Kung agreed to assume responsibility for settlement of such advances
(and the previously described balance of $112,318 owed to BIC) and such amounts
were offset against advances to stockholders.
In December 1996, Kit Kung contributed approximately $1,266,973
of net borrowings, consisting of $1,515,076 of the net amounts owed by the
Company to Kit Kung less $248,103 of amounts Kit Kung owed to the Company, to
contributed capital.
During September 1997, Kit Kung sold project equipment to the
Company with a fair market value of $185,950, which is equivalent to the price
that the Company would have had to pay to purchase such equipment in the open
market, in exchange for an equivalent reduction in the amount due the Company
from Kit Kung.
During the nine months ended September 30, 1997, the Company
advanced $349,834 to Kit Kung and his family members and repaid amounts due Kit
Kung and his family members aggregating $227,298, resulting in receivables from
stockholders and related parties of $200,668 at September 30, 1997, net of a
credit of $185,950 resulting from the sale of certain equipment for the STAQ On-
line Network project from Kit Kung as described above.
During December 1997, in order for the Company to arrange the
purchase of certain equipment for a customer, Hong Yun, an officer and director
of the Company and the wife of Kit Kung, provided a short-term credit facility
by depositing $500,000 into a short-term interest bearing account with a Hong
Kong bank as security for the bank's letter of credit of approximately
$2,145,000 issuable to a supplier.
Subsequent to the completion of the Offering, the Company will
adopt a policy to the effect that any future transactions between it and its
officers, directors, principal stockholders and the affiliates
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<PAGE> 70
of the foregoing persons be on terms no less favorable to the Company than could
reasonably be obtained in arm's length transactions with independent parties,
and that any such transactions be approved by a majority of the Company's
independent directors disinterested in the transaction.
The Company has in the past relied on Kit Kung and his family
members, from time to time, for financing requirements and assistance. All prior
financing and other assistance were provided on a case by case basis with no
commitment to provide any such financing or assistance in the future by Kit Kung
or his family members.
During the year ended December 31, 1996, $105,731 was paid to
Orient Financial Services Limited, a Hong Kong-based company in which Nils A.
Ollquist is a principal: $60,000 was paid as a retainer fee with respect to
advisory services provided in relation to the reverse merger with Zentex
Corporation (the former name of the Company) and fund raising activities and
$45,731 was reimbursement of travel and related expenses. During the nine months
ended September 30, 1997, $19,308 was paid to Orient Financial Services Limited.
DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized by its Restated Certificate of
Incorporation to issue an aggregate of 100,000,000 shares of Common Stock, par
value $.001 per share, and 5,000,000 shares of preferred stock, par value $.001
per share, which preferred stock may be issued with such rights, designations
and privileges (including redemption and voting rights) as the Board of
Directors may, from time to time, determine.
The following summary descriptions are qualified in their
entirety by reference to the Company's Restated Certificate of Incorporation, a
copy of which has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part.
COMMON STOCK
The Company is authorized to issue 100,000,000 shares of Common
Stock, par value $.001 per share. As of December 31, 1997, 1,165,111 shares of
Common Stock were issued and outstanding and held of record by 91 stockholders.
Each stockholder is entitled to one vote per share of Common Stock owned by such
stockholder on all matters submitted to a vote of the stockholders.
The Common Stock is not entitled to preemptive rights and is not
subject to redemption. Subject to the dividend rights of holders of any then
outstanding preferred stock, holders of Common Stock are entitled to receive
dividends at such times and in such amounts as the Board of Directors, from time
to time, may determine. Subject to the liquidation preference of any then
outstanding preferred stock, holders of Common Stock are entitled to receive, on
a pro rata basis, all remaining assets of the Company available for distribution
to the holders of Common Stock in the event of the liquidation, dissolution or
winding up of the Company.
All outstanding shares of Common Stock are, and the shares of the
Common Stock issued pursuant to the Offering will be, validly issued, fully paid
and non-assessable.
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<PAGE> 71
PREFERRED STOCK
The Board of Directors has the authority to cause the Company to
issue, without any further vote or action by the stockholders, up to 5,000,000
shares of preferred stock, par value $.001 per share, in one or more series, to
designate the number of shares constituting any series, and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
voting rights, rights and terms of redemption, redemption price or prices and
liquidation preferences of such series. The issuance of preferred stock may have
the effect of delaying, deferring or preventing a change in control of the
Company without further action by the stockholders. The issuance of preferred
stock with voting and conversion rights may adversely effect the voting power of
the holders of Common Stock, including the loss of voting control. The Company
has no present plans to issue any shares of preferred stock.
WARRANTS
The Warrants sold in the Offering will be issued pursuant to a
warrant agreement (the "Warrant Agreement") among the Company, the
Representative and Continental Stock Transfer & Trust Co. (the "Warrant Agent"),
and will be evidenced by warrant certificates in registered form. The following
summary is qualified in its entirety by the text of the Warrant Agreement.
Each Warrant entitles the registered holder thereof to purchase
one share of Common Stock at a price of 150% of the offering price per Unit at
any time commencing _______________, 1999 until _______________, 2003, unless
previously redeemed. The Warrants comprising part of the Units will not be
transferable separately from the Units until ____________, 1998, unless earlier
separated upon three days' prior written notice from the Representative at the
sole discretion of the Representative.
The Warrants are subject to redemption by the Company at a price
of $0.10 per Warrant, at any time commencing _______________, 1999, on 30 day's
prior written notice, provided that the closing price per share of the Common
Stock has equaled or exceeded $____________ (150% of the offering price) for
twenty consecutive trading days within the thirty-day period immediately
preceding such notice.
The exercise price of the Warrants and the number of shares of
Common Stock or other securities issuable upon the exercise thereof are subject
to adjustment in certain circumstances, including, but not limited to, any stock
dividend on the Common Stock, any subdivision, combination or reclassification
of the Common Stock, any distribution to all stockholders or rights, warrants or
options to subscribe for or purchase shares of Common Stock (or securities
convertible into Common Stock), or any distribution to all stockholders of
assets or evidence of indebtedness of the Company. Adjustments also would be
made upon a merger or consolidation where the Company is not the surviving
entity, or the sale of all or substantially all of the assets of the Company, so
as to enable warrantholders to purchase the kind and number of shares of stock
or other securities or property (including cash) receivable in such event by a
holder of the number of shares of Common Stock that might otherwise have been
purchased upon exercise of such Warrant.
The exercise price of the Warrants bears no relation to any
objective criteria of value and should not be regarded as an indication of the
future market price of the Securities offered hereby.
The Warrants do not confer upon the holder any voting or any
rights of a stockholder of the Company. Upon written notice to the
warrantholders, the Company has the right to reduce the exercise price or extend
the expiration date of the Warrants.
72
<PAGE> 72
SECTION 203 OF DELAWARE LAW
Section 203 of the Delaware Law prohibits a publicly-held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless (i)
prior to the date of the business combination, the transaction is approved by
the board of directors of the corporation; (ii) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock, or (iii) on or after such date, the business combination is
approved by the board of directors and by the affirmative vote of at least
66-2/3% of the outstanding voting stock that is not owned by the interested
stockholder. A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the stockholder. An "interested
stockholder" is a person, who, together with affiliates and associates, owns (or
within three years, did own) 15% or more of the corporation's voting stock.
Section 203 may have a depressive effect on the market price of the Common Stock
and/or the Units.
TRANSFER AGENT
The Company has appointed Continental Stock Transfer & Trust Co.,
New York, New York, as transfer agent for the Units.
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<PAGE> 73
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for the
Units or the Redeemable Warrants. No prediction can be made of the effect, if
any, that future market sales of the Common Stock, the Redeemable Warrants or
the availability of such shares or warrants for sale will have on
the prevailing market price of the securities following this Offering.
Nevertheless, sales of substantial amounts of such shares or warrants in the
open market following this Offering could adversely affect the prevailing
market price of the Units or the Common Stock.
Upon completion of the Offering, the Company will have 1,165,111
shares of Common Stock outstanding, of which 1,031,279 shares are "restricted
securities" as that term is defined in Rule 144 under the Securities Act and,
under certain circumstances, may be sold without registration pursuant to Rule
144. Generally, under Rule 144, each person holding restricted securities of a
period of one year may, every three months, sell in ordinary brokerage
transactions or to market makers an amount of shares equal to no more than the
greater of 1% of the Company's then outstanding Common Stock or the average
weekly trading volume for the four weeks prior to the proposed sale. This
limitation on the amount of shares which may be sold under the Rule 144 does not
apply to restricted securities sold for the account of a person who is not or
has not been an affiliate of the Company during the three months prior to the
sale and who has beneficially owned the restricted securities for at least two
years. The Company's officers, directors and substantially all of its principal
stockholders have agreed not to publicly sell any securities of the Company
owned by them without the written consent of the Underwriters prior to
_________________, 1999. Any sales of restricted securities must be in
compliance with Rule 144, pursuant to registration under the Securities Act or
pursuant to an exemption therefrom. The public sale of restricted securities
pursuant to Rule 144, an effective registration statement, or otherwise, may
have an adverse affect on the market price of the Common Stock. The 133,832
share balance of the 1,165,111 shares of Common Stock currently outstanding plus
the 1,000,000 shares of Common Stock issuable upon exercise of the Warrants are
freely tradable.
UNDERWRITING
The Underwriters named below, for whom the Representative is
acting as representative, has agreed, subject to the terms and conditions of the
Underwriting Agreement between the Company and the Underwriters (the
"Underwriting Agreement"), to purchase from the Company, and the Company has
agreed to sell to the Underwriters on a firm commitment basis, the respective
number of Units set forth opposite their names:
<TABLE>
<CAPTION>
Underwriter Number of Units
----------- ---------------
<S> <C>
National Securities Corporation.........................
___________ ............................................
Total................................................... 1,000,000
=========
</TABLE>
The Underwriters are committed to purchase all of the Units
offered hereby, if any of such Units are purchased. The Underwriting Agreement
provides that the obligations of the several Underwriters are subject to
conditions precedent specified therein.
The Company has been advised by the Representative that the
Underwriters propose initially to offer the Units to the public at the initial
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such prices less concessions not in excess of $___ per Unit.
Such dealers may re-allow a concession not in excess of $___ per Unit to certain
other dealers. After the initial public offering, the public offering price
concession and reallowance may be changed by the Representative.
The Company has agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act, or to
contribute to payments that the Underwriters may be required to make. The
Company has agreed to pay to the Representative a non-accountable expense
allowance equal to 3% of
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<PAGE> 74
the gross proceeds of the Offering, of which $25,000 has already been paid. The
Company has also agreed to pay all of the costs of qualifying the Units under
federal and state securities laws, together with legal and accounting fees,
printing and other costs in connection with the Offering.
The Company has granted to the Underwriters an over-allotment
option exercisable for 45 days from the date of this Prospectus, to purchase up
to 150,000 Units at the initial public offering price per Unit offered hereby,
less underwriting discounts and commissions, if any (the "Over-Allotment
Option"). The Underwriters may exercise this option, in whole or in part, from
time to time, solely for the purpose of covering over-allotments, if any, made
in connection with the sale of the Units. To the extent the Over-Allotment
Option is exercised in whole or in part, each Underwriter will have a firm
commitment, subject to certain conditions, to purchase the number of Units
proportionate to its initial commitment. Such option may be exercised only for
the purpose of covering over-allotments, if any, incurred in the sale of the
Units offered hereby.
In connection with the Offering, the Company has agreed to sell
to the Representative and its designees, for nominal consideration, warrants to
purchase from the Company up to 100,000 Units (the "Representative's Warrants").
The Representative's Warrants are initially exercisable at a price of $___ per
Unit (120% of the initial public offering price per Unit) for a period of five
years commencing on the effectiveness of the Offering. The Representative's
Warrants may not be sold, transferred, assigned or hypothecated for a period of
one year from the date of this Prospectus, except to officers and directors of
the Representative. The Representative's Warrants provide for adjustments in the
number of shares of Common Stock and Warrants and in the exercise price of the
Representative's Warrants as a result of certain events, including subdivisions
and combinations of the Securities. The Representative's Warrants grant to the
holders thereof certain rights of registration for the Common Stock and Warrants
issuable upon exercise of the Representative's Warrants.
The Company and all of the officers, directors and holders of all
outstanding securities of the Company as of the date of this Prospectus have
agreed not to, without the Representative's prior written consents, sell,
transfer, assign, pledge, hypothecate or otherwise dispose of any equity
securities of the Company, or any securities convertible into, or exercisable or
exchangeable for, any equity securities of the Company, for a period of 13
months following the effective date of the Registration Statement, except
pursuant to the Over-Allotment Option. An appropriate legend shall be marked on
the reverse of the certificates representing such securities.
The Company has agreed that, for a period of five (5) years from
the date of this Prospectus, if so requested by the Representative, the Company
shall nominate and use its best efforts to cause an individual designated by the
Representative to be elected as a member of the Board of Directors of the
Company. In the event that the Representative elects not to designate a person
to serve on the Board of Directors of the Company, the Representative shall have
the right to designate one person to attend meetings of the Board of Directors
of the Company. Such person shall be entitled to attend all such meetings and to
receive all notices and other correspondence and communications sent by the
Company to members of its 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 has agreed to reimburse the designee of the
Representative for such designee's out-of-pocket expenses incurred in connection
with such designee's attendance of meetings of the Company's Board of Directors.
Prior to the Offering, there has been no public trading market
for the Units. Consequently, the initial public offering price of the Units has
been determined by negotiations between the Company and the Representative and
does not necessarily bear any relationship to the Company's asset value, net
worth, or other
75
<PAGE> 75
established criteria of value. Among the factors considered in determining the
offering price, in addition to prevailing market conditions, were the Company's
financial condition, prospects and management. There can be no assurance
however, that the price at which the Units will sell in any public market after
the Offering will not be lower than the offering price. Neither the
Representative nor any of the participants of the underwriting group have a
material relationship with the promoters, officers and/or directors of the
Company.
In connection with the Offering, certain Underwriters and selling
group members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Units. Such
transactions may include stabilization transactions effected in accordance with
Rule 104 of Regulation M, pursuant to which, such person may bid for or purchase
Units for the purpose of stabilizing its market price. The Underwriters also may
create a short position for the account of the Underwriters by selling more
Units in connection with the Offering than they are committed to purchase from
the Company, and in such case may purchase Units in the open market following
completion of the Offering to cover all or a portion of such short position. The
Underwriters may also cover all or a portion of such short position by
exercising the Over-Allotment Option. In addition, the Representative, on behalf
of the Underwriters, may impose "penalty bids" under contractual arrangements
with the Underwriters whereby they may reclaim from an Underwriter (or dealer
participating in the Offering) for the account of other Underwriters, the
selling concession with respect to Units that are distributed in the Offering
but subsequently purchased for the account of the Underwriters in the open
market. Any of the transactions described in this paragraph may stabilize or
maintain the price of the Units at a level above that which might otherwise
prevail in the open market. None of the transactions described in this paragraph
is required, and, if they are undertaken, they may be discontinued at any time.
The foregoing is a brief summary of the agreements described
above and does not purport to be complete. Reference is made to copies of each
such agreement which are filed as exhibits to the Registration Statement. See
"ADDITIONAL INFORMATION."
LEGAL MATTERS
The validity of the shares of Units offered hereby will be passed
upon for the Company by Loeb & Loeb LLP, Los Angeles, California. Camhy
Karlinsky & Stein LLP, New York, New York, has acted as counsel for the
Underwriters in connection with the Offering.
EXPERTS
The 1996 financial statements and schedules included in this
Prospectus and in the Registration Statement have been audited by BDO Seidman,
LLP, independent certified public accountants, to the extent and for the period
set forth in their report appearing elsewhere herein and in the Registration
Statement, and are included in reliance upon such report given upon the
authority of said firm as experts in auditing and accounting. The 1995 financial
statements and schedules included in this Prospectus and in the Registration
Statement have been audited by Russo and Shapiro and Francis S. L. Yan & Co.,
independent certified public accountants, to the extent and for the period set
forth in their reports appearing elsewhere herein and in the Registration
Statement, and are included in reliance upon such reports given upon the
authority of said firm as experts in auditing and accounting.
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<PAGE> 76
CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
Effective October 23, 1996, Zentex Corporation ("Zentex"),
formerly known as Sirone Corporation, an inactive non-reporting public company,
acquired BIC and BECL in a transaction accounted for as a reverse merger, and
was renamed Brighton Technologies Corporation ("Brighton") on November 12, 1996.
Accordingly, BIC and BECL are each wholly-owned subsidiaries of the Company, and
Brighton, BIC and BECL are collectively referred to herein as the "Company".
Tanner & Co. audited the financial statements of Zentex for the
years ended December 31, 1993 and 1994, and certain prior periods. Zentex's
financial statements were not audited for the year ended December 31, 1995. As a
result of the reverse merger, Tanner & Co. was dismissed as Zentex's independent
accountants effective December 3, 1996. The decision to dismiss Tanner & Co. was
approved by the Company's board of directors. Tanner & Co.'s reports for the
years ended December 31, 1993 and 1994 did not contain an adverse opinion or a
disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope, or accounting principles.
During the years ended December 31, 1993 and 1994, and the period
from January 1, 1995 to December 3, 1996, there were no disagreements with
Tanner & Co. on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements if not
resolved to the satisfaction of Tanner & Co., would have caused such firm to
make reference to the subject matter of the disagreements in connection with its
reports on Zentex's financial statements.
The Company has provided Tanner & Co. with a copy of the
disclosures contained herein, and Tanner & Co. has furnished the Company with a
letter addressed to the Commission confirming that it agrees with the statements
made by the Company in response to Item 304(a) of Regulation S-B under the
Securities Act regarding such firm's involvement with Zentex as independent
accountants.
Russo and Shapiro audited the consolidated financial statements
of the Company for the year ended December 31, 1995, on the basis that the
reverse merger had occurred effective January 1, 1995. Russo and Shapiro was
dismissed as independent accountants of the Company effective December 3, 1996.
The decision to dismiss Russo and Shapiro was approved by the Company's board of
directors. Russo and Shapiro's report on such financial statements for the year
ended December 31, 1995 did not contain an adverse opinion or a disclaimer of
opinion, nor was it qualified or modified as to uncertainty, audit scope, or
accounting principles.
In connection with Russo and Shapiro's audit of the consolidated
financial statements of the Company for the year ended December 31, 1995, BECL's
financial statements were audited by Francis S.L. Yan & Co., whose report was
furnished to Russo and Shapiro. Russo and Shapiro's opinion, insofar as it
related to amounts included for BECL in the consolidated financial statements
for the year ended December 31, 1995, was based solely on the report of Francis
S.L. Yan & Co. As a result of the dismissal of Russo and Company, Francis S.L.
Yan & Co. was also dismissed. The decision to dismiss Francis S.L. Yan & Co. was
approved by the Board with the consent of the majority of the Company's
stockholders. Francis S.L. Yan & Co.'s report on such financial statements for
the year ended December 31, 1995 did not contain an adverse opinion or a
disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit
scope, or accounting principles.
During the year ended December 31, 1995, and the period from
January 1, 1996 to December 3, 1996, there were no disagreements with Russo and
Shapiro on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not
77
<PAGE> 77
resolved to the satisfaction of Russo and Shapiro, would have caused such firm
to make reference to the subject matter of the disagreements in connection with
its report on the Company's financial statements.
During the year ended December 31, 1995, and the period from
January 1, 1996 to November 11, 1997, there were no disagreements with Francis
S.L. Yan & Co. on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of Francis S.L. Yan & Co., would have caused
such firm to make reference to the subject matter of the disagreements in
connection with its report on BECL's financial statements.
The Company has provided Russo and Shapiro with a copy of the
disclosures contained herein, and Russo and Shapiro has furnished the Company
with a letter addressed to the Commission confirming that it agrees with the
statements made by the Company in response to Item 304(a) regarding such firm's
involvement with the Company as independent accountants.
The Company has provided Francis S.L. Yan & Co. with a copy of
the disclosures contained herein, and Francis S.L. Yan & co. has furnished the
Company with a letter addressed to the Securities and Exchange Commission
confirming that it agrees with the statements made by the Company in response to
Item 304(a) regarding such firm's involvement with BECL as independent
accountants.
Effective December 3, 1996, the Company engaged BDO Seidman, LLP
as the Company's independent accountants to audit the Company's consolidated
financial statements for the year ended December 31, 1996. Prior to the
engagement of BDO Seidman, LLP, the Company did not consult with such firm
regarding the application of accounting principles to a specified transaction,
either completed or proposed, or the type of audit opinion that might be
rendered on the Company's financial statements, or any matter that was either
the subject of a disagreement or a reportable event.
The Company has provided BDO Seidman, LLP with a copy of the
disclosures contained herein, and BDO Seidman, LLP has indicated that no letter
will be provided containing any new information, clarification of the Company's
expression of its views, or the respect in which it does not agree with the
statements made by the Company in response to Item 304(a).
78
<PAGE> 78
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange
Commission, Washington, D.C. 20549, a registration statement ("Registration
Statement"), together with exhibits thereto, under the Securities Act with
respect to the Units offered hereby. This Prospectus, which constitutes a part
of the Registration Statement, omits certain of the information set forth in the
Registration Statement in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and to the Units
offered hereby, reference is made to such Registration Statement and such
exhibits filed as a part thereof. Statements contained in this Prospectus as to
the content of any contract or other document referred to are not necessarily
complete, and in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. The Registration
Statement and exhibits can be inspected and copied at the public reference
section at the Commission's principal office, 450 5th Street, N.W., Judiciary
Plaza, Washington, D.C. 20549, the Commission's Regional Offices located at the
Northwestern Atrium Center, Suite 1400, 500 West Madison Street, Chicago,
Illinois 60661-2511, and 7 World Trade Center, 13th Floor, New York, New York
10048 and through the Commission's Web site (http://www.sec.gov). Copies may be
obtained from the Commission's principal office upon payment of the fees
prescribed by the Commission.
79
<PAGE> 79
BRIGHTON TECHNOLOGIES CORPORATION
Brighton Technologies Corporation and Subsidiaries
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
Report of Independent Certified Public Accountants -
Russo and Shapiro.........................................................F-2
Francis S.L. Yan & Co.....................................................F-3
BDO Seidman, LLP..........................................................F-5
Consolidated Balance Sheets -
December 31, 1995 (as restated) and 1996..................................F-6
Consolidated Statements of Income -
Years Ended December 31, 1995 (as restated) and 1996......................F-7
Consolidated Statements of Stockholders' Equity -
Years Ended December 31, 1995 (as restated) and 1996......................F-8
Consolidated Statements of Cash Flows -
Years Ended December 31, 1995 (as restated) and 1996......................F-9
Notes to Consolidated Financial Statements
Years Ended December 31, 1995 (as restated) and 1996.....................F-10
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF
SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1996 AND 1997
Condensed Consolidated Balance Sheet -
September 30, 1997.......................................................F-28
Condensed Consolidated Statements of Operations -
Nine Months Ended September 30, 1996 and 1997............................F-30
Condensed Consolidated Statements of Stockholders'
Equity - Nine Months Ended September 30, 1997............................F-32
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1996 and 1997............................F-33
Notes to Condensed Consolidated Financial Statements.......................F-35
</TABLE>
F-1
<PAGE> 80
[RUSSO AND SHAPIRO LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
Brighton Technologies Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheet of Brighton
Technologies Corporation and subsidiaries as of December 31, 1995, and the
related statements of income, stockholders' equity and cash flows for the year
then ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit. We did not audit the 1995
financial statements of Brighton Electronics Corporation Limited, which are
included in the financial statements of Brighton Technologies Corporation which
statements reflect total assets of $2,634,859 as of December 31, 1995, and total
revenues of $1,872,996 for the year then ended. Those statements were audited by
other auditors whose report has been furnished to us, and our opinion, insofar
as it relates to the amounts included for Brighton Electronics Corporation
Limited, is based solely on the report of the other auditors.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, based on our audit and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Brighton Technologies Corporation
and subsidiaries as of December 31, 1995, and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
As discussed in Note 3 to the financial statements, the 1995 financial
statements have been restated to reflect the correction of depreciation expenses
recorded on project equipment, accounting for
F-2
<PAGE> 81
losses related to joint ventures and in the recognition of revenue on certain
long-term projects. Accordingly, the Company's financial statements for the year
ended December 31, 1995 have been restated to reflect the correction of these
errors.
/s/ Russo and Shapiro
New York, New York
September 25, 1997
F-3
<PAGE> 82
[FRANCIS S. L. YAN & CO. LETTERHEAD]
REPORT OF THE AUDITORS TO THE MEMBERS OF
BRIGHTON ELECTRONICS CORPORATION LIMITED
We have audited the financial statements on pages 3 to 9 which have been
prepared in accordance with accounting principles generally accepted in Hong
Kong.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The Companies Ordinance requires the directors to prepare financial statements
which give a true and fair view. In preparing financial statements which give a
true and fair view it is fundamental that appropriate accounting policies are
selected and applied consistently.
It is our responsibility to form an independent opinion, based on our audit, on
those statements and to report our opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Statements of Auditing Standards
issued by the Hong Kong Society of Accountants. An audit includes examination,
on a test basis, of evidence relevant to the amounts and disclosures in the
financial statements. It also includes an assessment of the significant
estimates and judgments made by the directors in the preparation of the
financial statements, and of whether the accounting policies are appropriate to
the company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance as to whether the financial
statements are free from material misstatement. In forming our opinion we also
evaluated the overall adequacy of the presentation of information in the
financial statements. We believe that our audit provides a reasonable basis for
our opinion.
The financial statements have been audited on 13th August, 1996. In view of the
benefits of the subsequent information available and the change of the
accounting policy of the Group after that date, the financial statements have
been re-stated to cancel the interest charges of $1,287,000.00 from the Company
to its subsidiary, to write off the subsidiary's preliminary expenses of
$950,193.53 in setting up its representative office in China and to consolidate
the accounts of the Company and its subsidiaries on 31st December, 1995.
F-4
<PAGE> 83
[FRANCIS S. L. YAN & CO. LETTERHEAD]
REPORT OF THE AUDITORS TO THE MEMBERS OF
BRIGHTON ELECTRONICS CORPORATION LIMITED
OPINION
In our opinion the financial statements give a true and fair view, in all
material respects, of the state of the Company's and the Group's affairs as at
31st December, 1995 and of the results of the Group for the year then ended and
have been properly prepared in accordance with the Companies Ordinance.
/s/Francis S.L. Yan & Co.
FRANCIS S. L. YAN & CO.
Certified Public Accountants
Hong Kong 11 Nov 1997
F-5
<PAGE> 84
[THE FORM OF REPORT TO BE FURNISHED UPON COMPLETION OF THE JANUARY 26, 1998
REVERSE STOCK SPLIT DISCUSSED IN THE LAST PARAGRAPH OF NOTE 8]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Brighton Technologies Corporation
and Subsidiaries
Allendale, New Jersey
**5 We have audited the consolidated balance sheet of Brighton Technologies
Corporation and Subsidiaries (the "Company") as of December 31, 1996, and the
related consolidated statements of income, stockholders' equity and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
** 6 We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
** 7 In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Brighton Technologies
Corporation and Subsidiaries at December 31, 1996, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
BDO Seidman LLP
Woodbridge, New Jersey
May 29, 1997 (January ___, 1998 as to the last paragraph of Note 8)
F-6
<PAGE> 85
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
1995
(As restated)
December 31, (Note 3) 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT:
Cash and cash equivalents $ 137,067 $ 716,699
Cash set aside for customer purchases (Note 2) 600,000 2,636,000
Accounts receivable (net of allowance for doubtful
accounts of $30,000 in 1995 and 1996) (Note 11) 153,375 1,339,318
Costs and accumulated gross profit in excess of billings
on uncompleted contracts (Note 6) 747,168 2,056,987
Receivables from stockholders and related parties (Note 4) 17,622 43,239
Prepaid expenses 529,460 310,677
Deferred taxes (Note 9) 408,000 1,315,000
Other 1,207 4,700
------------ ------------
TOTAL CURRENT ASSETS 2,593,899 8,422,620
------------ ------------
FIXED ASSETS, NET (NOTE 5) 1,349,757 1,536,458
OTHER ASSETS:
Non-current accounts receivable - related parties (Note 4) 484,349 15,884
Deposits -- 9,245
Prepaid contract fees 314,375 171,875
Organization costs, net 365 30,986
------------ ------------
TOTAL OTHER ASSETS 2,148,846 1,764,448
------------ ------------
TOTAL ASSETS $ 4,742,745 $10,187,068
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Accounts payable $ 427,877 $ 958,550
Accrued expenses 252,716 313,337
Accrued licensing costs 600,000 450,000
Billings in excess of costs and accumulated gross profit
on uncompleted contracts (Note 6) 1,160,188 4,971,394
Deferred revenue -- 83,421
Demand note payable (Note 7) -- 620,101
Payable to stockholders (Note 4) 2,612,896 227,298
Taxes payable (Note 10) 360,000 1,678,000
------------ ------------
TOTAL CURRENT LIABILITIES 5,413,677 9,302,101
------------ ------------
LONG-TERM:
Deferred taxes (Note 9) 263,000 156,000
Minority interests (Note 2) 136,705 143,931
------------ ------------
TOTAL LIABILITIES 5,813,382 9,602,032
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTE 10)
STOCKHOLDERS' EQUITY (DEFICIT) (NOTES 4 AND 8):
Common stock; $.001 par value; shares authorized - 100,000,000; issued and
outstanding - 1,008,333 and 1,149,559 in 1995 and 1996, respectively 1,008 1,150
Preferred stock; $.001 par value; shares authorized -
5,000,000; none issued and outstanding -- --
Contributed capital 25,774 1,482,781
Accumulated deficit (1,097,419) (898,895)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (1,070,637) 585,036
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 4,742,745 $10,187,068
============ ============
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 86
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1995
(As restated)
Year ended December 31, (Note 3) 1996
----------- -----------
<S> <C> <C>
REVENUES (NOTES 6 AND 11) .............................. $ 8,370,537 $ 8,006,260
COST OF REVENUES (NOTE 6) .............................. 6,165,201 5,785,507
----------- -----------
GROSS PROFIT ........................... 2,205,336 2,220,753
----------- -----------
GENERAL AND ADMINISTRATIVE EXPENSES:
Salaries, payroll taxes and employee
benefits (Note 4) ...................................... 579,713 765,035
Rent and premises (Note 10) ......................... 299,365 377,154
Travel and lodging .................................. 234,565 84,402
Depreciation and amortization ....................... 6,007 38,738
Foreign transaction (gains) losses .................. 4,615 5,268
Miscellaneous ....................................... 523,751 484,432
----------- -----------
TOTAL GENERAL AND ADMINISTRATIVE
EXPENSES ............................... 1,648,016 1,755,029
----------- -----------
OPERATING INCOME ....................... 557,320 465,724
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense and bank fees (Note 7) ............. (38,488) (33,170)
Interest income ..................................... 27,949 37,451
Miscellaneous income ................................ 13,863 44,745
----------- -----------
3,324 49,026
----------- -----------
INCOME BEFORE INCOME TAXES AND
MINORITY INTERESTS ..................... 560,644 514,750
PROVISION FOR INCOME TAXES (NOTE 9) .................... 444,000 309,000
----------- -----------
MINORITY INTERESTS (NOTE 2) ............................ 55,703 (7,226)
----------- -----------
NET INCOME ............................................. $ 172,347 $ 198,524
----------- -----------
EARNINGS PER SHARE DATA:
Primary and fully diluted ........................... $ .17 $ .19
=========== ===========
Weighted average shares outstanding - primary ....... 1,008,333 1,033,965
=========== ===========
Weighted average common shares and common equivalents
outstanding - fully diluted ......................... 1,008,333 1,046,891
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE> 87
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Years ended December 31, 1995 and 1996
Common Stock
------------------------- Contributed Accumulated
Shares Amount Capital Deficit
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1995 (NOTE 3) 1,008,333 $ 1,008 $ 25,774 $ (755,013)
Adjustment for the
effect on prior years
of correction of errors
(Note 3) -- -- -- (514,753)
----------- ----------- ----------- -----------
BALANCE AT JANUARY 1,
1995, AS RESTATED (NOTE 3) 1,008,333 1,008 25,774 (1,269,766)
Net income, as restated, for 1995 -- -- -- 172,347
----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1995 1,008,333 1,008 25,774 (1,097,419)
Net shares issued in
connection with reverse
merger (Note 1) 130,115 131 (131) --
Sale of common stock 11,111 11 449,989 --
Costs associated with
the sale of common stock -- -- (259,824) --
Conversion of advances
from majority
stockholder (Note 4) -- -- 1,266,973 --
Net income -- -- -- 198,524
----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1996 1,149,559 $ 1,150 $ 1,482,781 $ (898,895)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-9
<PAGE> 88
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1995
(As restated)
Year ended December 31, (Note 3) 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 172,347 $ 198,524
----------- -----------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 143,508 176,238
Deferred income taxes 75,000 (1,014,000)
Minority interests (55,703) 7,226
Changes in assets and liabilities:
Accounts receivable 2,299,745 (1,185,943)
Costs and accumulated gross profit in
excess of billings (747,168) (1,309,819)
Other current assets (513,530) 208,941
Other assets 63,809 (38,227)
Accounts payable (1,946,011) 530,673
Billings in excess of costs and
accumulated gross profits 160,013 3,811,206
Taxes payable 573,000 1,318,000
Other liabilities and deferred revenue 374,223 38,510
----------- -----------
TOTAL ADJUSTMENTS 426,886 2,542,805
----------- -----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 599,233 2,741,329
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES (NOTE 2):
Increase in cash set aside for customer
purchases (600,000) (2,036,000)
Purchases of fixed assets (1,352,434) (154,484)
----------- -----------
NET CASH USED IN INVESTING
ACTIVITIES (1,952,434) (2,190,484)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES (NOTE 2):
Proceeds from demand note payable -- 575,603
Issuance of common stock, net of related
costs -- 190,176
Proceeds from Stockholder advances 1,612,041 --
Repayments on Stockholder advances -- (1,118,625)
Repayment of accounts receivable -
related parties -- 424,872
Advances to related parties (518,322) (43,239)
----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 1,093,719 28,787
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (259,482) 579,632
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR 396,549 137,067
----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 137,067 $ 716,699
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Taxes paid $ 221,466 $ 5,358
Interest expense paid 38,488 18,046
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-10
<PAGE> 89
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
F-11
<PAGE> 90
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
1. ORGANIZATION OF General
COMPANY
Brighton Technologies Corporation (the
"Company") serves as the ultimate parent
of Brighton Industries Corporation
("BIC"), a United States of America
based company, and Brighton Electronics
Corporation Limited ("BECL"), a Hong
Kong based holding company for two Hong
Kong subsidiaries and interests in two
active joint ventures.
On October 23, 1996, Zentex Corporation
("Zentex"), an inactive public company,
affected a reverse non-cash merger
transaction of BIC and BECL structured
in the following manner. Stockholders of
BIC and BECL transferred ownership of
their shares to Zentex in exchange for
the issuance of shares representing a
controlling interest in Zentex. Pursuant
to the terms of the agreement, Zentex
transferred to the predecessor Zentex
shareholders all of its operating assets
(excluding the shares of BIC and BECL)
in exchange for the assumption of
liabilities existing immediately
subsequent to the closing of the
transaction. As part of the transaction,
Zentex received a release of all
obligations owed by it to an affiliate
of the predecessor Zentex shareholders.
In addition, at the closing, each member
of the predecessor Zentex Board of
Directors resigned and was replaced by
representatives of the BIC and BECL
stockholders. On November 12, 1996,
Zentex was renamed Brighton Technologies
Corporation. This transaction was
consummated to facilitate the
consolidation of the operating companies
of BIC and BECL's founder and majority
stockholder (the "Stockholder) into one
entity. The Stockholder and members of
his family control the operations of the
Company and its subsidiaries. Prior to
this transaction, the Stockholder and
his family had full ownership of BIC and
BECL. Since the BIC and BECL
Stockholders obtained control of the
Company, the accompanying financial
statements reflect the operations of BIC
and BECL for periods prior to the
consummation of the transaction. The
issuance of shares to the predecessor
Zentex shareholders was accounted for as
the issuance of equity by the Company
for no consideration.
</TABLE>
F-12
<PAGE> 91
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
BIC, a Delaware Corporation, principally
conducts its business in the People's
Republic of China ("PRC") through
registered PRC offices, where it acts as
the purchaser and distributor of third
party manufactured industrial,
telecommunication and computer equipment
and technological processes to PRC
customers. The Company is actively
marketing similar services in other
Pacific basin countries. The Company has
also entered into a long-term contract
with China National Chemical
Construction Chongqing Company ("China
National") to aid in the design and
construction of a sodium bichromate
production plant in the PRC. Management
does not expect to enter into any
significant long-term contracts of this
type in the future (see Note 11).
BECL is located in and incorporated in
Hong Kong and is an investment and
holding company for Asian based
companies. BECL subsidiaries are
involved in the buying, selling and
installation of computer and industrial
equipment and in the development of
credit card approval and authorization
systems.
One joint venture in which BECL has a
90% interest ("STAQ") has been formed to
design, install and maintain a computer
network for the trading of securities in
the PRC. The minority interest holders
of STAQ have the right to acquire an
additional 10% ownership interest per
annum (at the then determinable fair
values) up to a maximum interest of 49%.
Under the STAQ joint venture
arrangements, the Company is required to
invest approximately $4,000,000
($1,600,000 of which has been invested)
at December 31, 1996.
</TABLE>
F-13
<PAGE> 92
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
2. SUMMARY OF Business Combination and Consolidation
SIGNIFICANT Policy
ACCOUNTING
POLICIES
The combination of the Company's
subsidiaries, which were previously
under the common control of the
Stockholder, has been accounted for in a
manner similar to the
pooling-of-interests method of business
combinations. This method presents the
Company's financial position, results of
operations and cash flows as if BIC and
BECL were combined for all periods
presented. Accordingly, the consolidated
financial statements include the
accounts of the Company and its direct
subsidiaries and joint ventures in which
the Company has a controlling interest.
All intercompany accounts and
transactions have been eliminated in
consolidation.
Minority Interests
BECL consolidates the accounts of three
joint ventures in which it holds
controlling interests. Income (loss)
allocable to minority interests is
recorded in the accompanying
consolidated financial statements.
Operating losses are allocated to the
minority interests only to the extent of
the minority interests' investment in
these joint ventures. The Company is
responsible for losses in excess of the
minority interests' investments. At
December 31, 1996, the excess of such
investments over accumulated losses was
approximately $39,000.
Foreign Currencies
For BECL subsidiaries and BIC branch
offices, whose functional currency is
the Hong Kong Dollar or the PRC
Renminbi, balance sheet accounts are
translated at exchange rates in effect
at the end of the year and income
statement accounts are translated at
average exchange rates for the year.
Translation adjustments are not material
as of December 31, 1996 and 1995. For
the majority of BIC transactions,
revenue and costs are invoiced in U.S.
dollars. Accordingly, the effects of
foreign exchange transaction gains or
losses are not material. The Company
does not enter into foreign currency
forward exchange contracts to hedge
foreign currency exposures.
</TABLE>
F-14
<PAGE> 93
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Revenue Recognition
The Company accounts for long-term
contracts on the percentage-of-
completion method and income is
recognized as work on contracts
progresses, but estimated losses on
contracts in progress are charged to
operations immediately. The Company
generally bills customers in accordance
with contractual terms. At December 31,
1996 and 1995, management estimated that
the Company will, at a minimum, recover
its outlay for expenses when the
projects are completed. Accordingly, no
loss provisions for such contracts were
recorded during 1996 and 1995.
For short-term contracts and projects,
revenue is recognized on the accrual
basis as goods are shipped and services
are performed.
Income Taxes
The Company accounts for income taxes
using the liability method, which
requires an entity to recognize deferred
tax liabilities and assets for the
expected future tax consequences of
events that have been recognized in the
Corporation's financial statements or
tax returns. Under this method, deferred
tax liabilities and assets are
determined based on the difference
between the financial statement carrying
amounts and tax basis of liabilities and
assets using enacted tax rates in effect
in years in which the differences are
expected to reverse.
Income tax expense (benefit) is
determined on a separate company basis
and includes current Federal, foreign
and state taxes and deferred taxes. For
U.S. purposes, the Company files its
income tax returns on a cash basis.
Cash Equivalents
The Company considers all highly liquid
debt instruments with a maturity of
three months or less at the date of
purchase to be cash equivalents.
Cash Set Aside for Customer Purchases
Cash that is set aside to pay project
related liabilities and commitments
totaled $600,000 and $2,636,000 at
December 31, 1995 and 1996,
respectively.
</TABLE>
F-15
<PAGE> 94
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Provisions for Doubtful Accounts
The Company performs initial and ongoing
credit evaluations of its customers, and
periodically reviews the collectibility
of accounts receivable and provides an
allowance for its estimate of accounts
deemed to be uncollectible. A significant
portion of the Company's business is done
on the basis of letters of credit or cash
advances with a relatively limited number
of customers, and as a result, the Company
did not experience any significant bad
debt expense in 1996 or 1997 (See Note 11).
Non-Cash Investing and Financing Activities
During 1996, the Stockholder contributed
$1,266,973 of net advances owed by the
Company to contributed capital. In 1996,
the Company received fixed assets valued
at $67,297 in lieu of payments on 1995
accounts receivable balances.
In connection with the merger described
in Note 1, 130,115 shares of common
stock were issued to Zentex stockholders
with no proceeds to the Company. The
increase in common stock was offset by a
reduction to contributed capital in the
accompanying financial statements.
Organization Costs
Costs incurred in connection with the
incorporation of the Company and the
formation of its current structure are
capitalized and amortized over a period
of five years.
Fixed Assets
Fixed assets are carried at cost and are
depreciated over the estimated useful
lives of the related assets (generally 2
to 5 years) on a straight line bases.
The cost of leasehold improvements is
amortized over the lesser of the length
of the related leases or the estimated
useful lives of the assets. Assets
purchased, but not utilized in
operations, are not subject to
depreciation.
Prepaid Contract Fees
Prepaid contract fees are principally
comprised of prepayments for services to
be rendered over the life of a long-term
contract. The related amortization
expense for the years ended December 31,
1995 and 1996 was $137,500.
Benefit Plans
BIC has no pension or profit sharing
plans. BECL has a defined contribution
plan covering qualified participants.
The amount of contributions for the
years ended December 31, 1995 and 1996
were $13,586 and $20,416, respectively.
</TABLE>
F-16
<PAGE> 95
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
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 and
disclosure of contingent assets and
liabilities at the date of the financial
statements and the reported amounts of
revenues and expenses during the
reporting period. The Company utilizes
estimates in measuring and projecting
revenue, costs and gross profit on
long-term contracts, in providing for an
allowance for doubtful accounts (also
see Note 11) and in recording accrued
liabilities. Actual results could differ
from those estimates.
Fair Values of Financial Instruments
At December 31, 1995 and 1996, the
carrying values of cash equivalents,
restricted cash, accounts receivable
(current and non-current), related party
receivables and payables, accounts
payable, demand notes payable and
long-term debt approximates fair values
due to the immediate or short-term
maturity of these financial instruments.
Earnings Per Share
Earnings per share is based on the
weighted average number of common stock
shares (also see Note 8). For purposes
of determining fully diluted earnings
per share, the conversion of the demand
note into common stock equivalents was
valued using the average sales price of
the Company's common stock sold in 1996.
In February 1997, the Financial
Accounting Standards Board issued
Statement of Financial Accounting
Standards No. 128, "Earnings per Share"
("SFAS 128"). This statement is
effective for the Company's 1997
financial statements and establishes
criteria for the calculation and
presentation of "Basic" and "Diluted"
earnings per share. Based on an
assessment of its current capital
structure, management believes that
adoption of SFAS 128 will not have a
significant effect on the Company's
reported earnings per share.
Reclassifications
Certain prior period amounts have been
reclassified to conform with the current
year presentation (also see Note 3).
</TABLE>
F-17
<PAGE> 96
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
3. RESTATEMENTS The 1995 financial statements have been restated
to reflect the correction of depreciation expense
recorded on project equipment, accounting for
losses related to joint ventures, and to
appropriately recognize revenue from certain long-
term projects. In prior periods, BIC recognized
revenue on long-term projects as certain stages of
a project were completed, rather than on a ratable
basis over the term of the entire contract. As a
result, accumulated deficit at January 1, 1995 was
increased by $514,753 and net income for the year
ended December 31, 1995 was reduced by $258,353
($.26 per share) from amounts previously
published.
4. RELATED PARTIES Receivables and Liabilities
From time to time, the Company receives
funding from or provides funding to the
Stockholder, his family members,
principals and officers. Such advances
generally bear no stated interest rate
or terms of payments.
Outstanding balances with stockholders
and related parties at December 31, 1995
and 1996 were as follows:
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995 1996
- ------------ ---------- ----------
<S> <C> <C>
Receivables (current and non-current):
Stockholder and family members $ -- $ 43,239
Brighton Information
Systems Corporation (a) and (b) 493,751 --
Other 8,220 15,884
---------- ----------
$ 501,971 $ 59,123
========== ==========
Liabilities:
Stockholder and family members $2,612,896 $ 227,298
========== ==========
</TABLE>
F-18
<PAGE> 97
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
(a) At December 31, 1995, BIC had a net
receivable, funded by the Stockholder, from
Brighton Information System Corporation (now
known as Greater China Corporation, "Greater
China") in the amount of $493,751. The
Stockholder had previously served as a
director and officer of Greater China until
his resignation in March 1996. In partial
settlement of this indebtedness in 1996, the
Company received an assignment of fixed assets
and accounts receivable valued at $381,433.
(b) Through November 1996, BECL had $248,103 of
advances to affiliates of Greater China, which
were funded by advances from the Stockholder.
Accordingly, the Stockholder has agreed to
assume responsibility for settlement of such
advances (and the balance owed to BIC after
the transactions described in (a) above) and
such amounts were offset against "Advances to
stockholders." In December 1996, the
Stockholder contributed outstanding borrowings
(net of these advances) to the Company's
capital structure (see below).
Conversion of Advances
In December 1996, the Stockholder
elected to contribute $1,266,973 of net
borrowings ($248,103 of amounts the
Stockholder owed to the Company and
$1,515,076 of the net amounts owed by
the Company) into the Company's capital
structure.
Professional Fees
Fees paid to Directors and their
affiliates for financial advisory
services totaled $0 and $105,731 for the
years ended December 31, 1995 and 1996,
respectively. The entire amount in 1996
was charged to contributed capital (see
Note 8).
General and Administrative Expenses
Salaries and incentives expenses for the
Stockholder and members of his family
totaled approximately $135,000 in each
of the years ended December 31, 1995 and
1996.
</TABLE>
F-19
<PAGE> 98
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
5. FIXED ASSETS Fixed assets at December 31, 1995 and 1996 are
comprised of the following:
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995 1996
- ------------ ----------- -----------
<S> <C> <C>
Equipment $ 18,707 $ 210,367
Furniture and fixtures 6,572 18,834
Leasehold improvements 6,850 18,027
Less: Accumulated depreciation (7,278) (42,358)
----------- -----------
24,851 204,870
Project equipment (assets to
be utilized in completing
future projects) 1,324,906 1,331,588
----------- -----------
Total $ 1,349,757 $ 1,536,458
=========== ===========
</TABLE>
<TABLE>
<S> <C>
6. LONG-TERM At December 31, 1995 and 1996, costs, estimated
CONTRACTS gross profit and billings on uncompleted long-term
contracts accounted for on the percentage of
completion method are summarized as follows:
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995 1996
- ------------ ------------ ------------
<S> <C> <C>
Costs incurred on long-term $ 4,078,131 $ 6,205,662
contracts
Estimated gross profit 834,357 1,242,824
------------ ------------
4,912,488 7,448,486
Less: Billings to date (5,325,508) (10,362,893)
------------ ------------
$ (413,020) $ (2,914,407)
============ ============
</TABLE>
F-20
<PAGE> 99
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
These amounts are included in the
accompanying balance sheets under the
following captions:
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995 1996
- ------------ ---------- ----------
<S> <C> <C>
Costs and accumulated gross profit in
excess of billing on uncompleted contracts $ 747,168 $2,056,987
Billings in excess of costs and
accumulated gross profit on
uncompleted contracts 1,160,188 4,971,394
========= =========
</TABLE>
<TABLE>
<S> <C>
7. DEMAND NOTE In 1996, BECL entered into a convertible demand
note agreement with a third party. The note is
convertible to common shares at prevailing market
values. The balance outstanding at December 31,
1996 was $620,101. The fixed interest rate at
December 31, 1996 was 5% per annum. Interest
expense for the year ended December 31, 1996 was
$15,124.
The Company and the creditor are in the
process of negotiating the conversion of
$440,000 of the note to common shares.
8. STOCKHOLDERS' Private Placement
EQUITY
In December 1996, the Company sold
11,111 shares of common stock in a
private underwriting for aggregate net
proceeds (before the costs discussed in
the following paragraph) of
approximately $450,000. In 1997, the
Company sold an additional 8,002 shares
of common stock for net proceeds of
approximately $350,000.
Costs directly related to the completion
of these offerings amounted to $259,824
and have been charged to contributed
capital in 1996.
Public Offering
</TABLE>
F-21
<PAGE> 100
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Subject to certain conditions in 1997,
the Company is considering a public
offering of an unspecified number of
shares of its common stock. Proceeds
from this sale, if consummated, will be
used for general corporate purposes and
investments in joint ventures.
Common Stock Reserved for Issuance
At December 31, 1996, the Company had
reserved 13,778 shares for fulfilling
the conversion of a demand note payable
to common stock. The conversion terms
are based on the fair market value of
the Company's common stock. Subsequent
to December 31, 1996, the Company
issued, at nominal cost, 3,141 shares of
common stock to various individuals and
firms. Of this issuance, 2,033 shares
related to services rendered in
connection with the Private Placement
and contemplated Public Offering.
The balance of the authorized, but not
outstanding, common stock are not
reserved.
Preferred Stock
The Company has 5,000,000 authorized
shares of Preferred Stock (with a par
value of $.001 per share), none of which
have been issued or remained outstanding
as of and for the years ended December
31, 1995 and 1996. The Company's Board
of Directors reserves the right to
determine the ownership privileges of
the Preferred Stockholders and terms of
the security prior to its issuance.
Dividends
There were no dividends declared or paid
on the Company's common stock in 1995
and 1996.
Increase in Authorized Shares
In 1996, the Company's stockholders
approved an amendment to the Company's
Certificate of Incorporation to
establish the number of authorized
shares of common stock of the Company at
100,000,000 shares, with a par value of
$.001 per share and also approved a
three for one stock split of the
Company's common stock outstanding at
that time. On October 17, 1997 and
January 26, 1998, the Company
subsequently effected separate one for
three reverse stock splits. All share
and per share data have been restated
for all periods presented to reflect
these splits.
</TABLE>
F-22
<PAGE> 101
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
F-23
<PAGE> 102
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
9. INCOME TAXES The domestic and foreign
components of income (loss) before
income taxes and minority interests are
as follows:
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995 1996
- ------------ --------- ---------
<S> <C> <C>
Domestic $ 936,307 $ 764,000
Foreign (375,663) (249,250)
--------- ---------
$ 560,644 $ 514,750
========= =========
</TABLE>
<TABLE>
<S> <C>
The components of the provision
(benefit) for income taxes are as
follows:
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995 1996
- ------------ ----------- -----------
<S> <C> <C>
Current:
Federal $ 274,000 $ 988,000
Foreign 16,000 47,000
State 79,000 288,000
----------- -----------
369,000 1,323,000
----------- -----------
Deferred:
Federal 59,000 (802,000)
Foreign (87,000) (29,000)
State 16,000 (212,000)
----------- -----------
(12,000) (1,043,000)
----------- -----------
Net change in valuation
allowance 87,000 29,000
----------- -----------
Provision for income taxes $ 444,000 $ 309,000
=========== ===========
</TABLE>
F-24
<PAGE> 103
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
The following table presents the
principal reasons for the difference
between the actual income tax provision
and the tax provision computed by
applying the U.S. Federal statutory
income tax rate to income before income
taxes and minority interests:
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995 1996
- ------------ -------- --------
<S> <C> <C>
U.S. Federal income tax
provision at statutory
rates $191,000 $175,000
State income taxes, net of
Federal benefit 63,000 50,000
Effects of foreign operations
and tax rate differentials 66,000 44,000
Valuation allowance - foreign
loss carryforwards 87,000 29,000
Non-deductible losses and
expenses 30,000 7,000
Other, net 7,000 4,000
-------- --------
Provision for income taxes $444,000 $309,000
======== ========
</TABLE>
F-25
<PAGE> 104
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
The statutory tax rates in the United
States (including applicable net state
rates), Hong Kong and the PRC are 40%,
16.5% and 33%, respectively. There are
no tax holidays, exemptions and
incentives afforded to the Company for
its off-shore operations.
Deferred income taxes as recorded in the
accompanying consolidated balance sheets
are comprised of the following:
</TABLE>
<TABLE>
<CAPTION>
1995 1996
----------------------------------------- -----------------------------------------
December 31, Asset Liability Net ASSET LIABILITY NET
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Current deferred
income taxes:
Accrued account
receivables $ -- $ (88,000) $ (88,000) $ -- $ (371,000) $ (371,000)
Contract costs -- (234,000) (234,000) -- -- --
Liabilities 733,000 -- 733,000 1,706,000 -- 1,706,000
Other current -- (3,000) (3,000) -- (20,000) (20,000)
----------- ----------- ----------- ----------- ----------- -----------
$ 733,000 $ (325,000) $ 408,000 $ 1,706,000 $ (391,000) $ 1,315,000
=========== =========== =========== =========== =========== ===========
Non-current deferred
income taxes:
Foreign net operating
loss carryforwards $ 87,000 $ -- $ 87,000 $ 116,000 $ -- $ 116,000
Deferred costs -- (258,000) (258,000) -- (146,500) (146,500)
Fixed assets -- (4,500) (4,500) -- (9,000) (9,000)
Other non-current -- (500) (500) -- (500) (500)
Valuation allowance (87,000) -- (87,000) (116,000) -- (116,000)
----------- ----------- ----------- ----------- ----------- -----------
$ -- $ (263,000) $ (263,000) $ -- $ (156,000) $ (156,000)
=========== =========== =========== =========== =========== ===========
</TABLE>
F-26
<PAGE> 105
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
At December 31, 1995 and 1996, the
Company had established a valuation
allowance on the deferred tax assets
related to the foreign net operating
loss carryforwards of BECL. Reductions
to the valuation allowance will be
recorded when, in the opinion of
management, BECL's ability to generate
taxable income in the future is
considered more likely than not.
At December 31, 1996, the Company has
net operating loss carryforwards for
Hong Kong tax purposes of approximately
$702,000, which can be carried forward
indefinitely.
10. COMMITMENTS AND Operating Leases
CONTINGENCIES
The Company and its subsidiaries lease
administrative office space and
equipment under operating leases which
expire prior to the end of 2001. Total
future minimum lease payments as of
December 31, 1996 are:
</TABLE>
<TABLE>
<S> <C>
1997 $284,055
1998 187,899
1999 85,817
2000 43,750
2001 25,521
--------
Total minimum lease payments $627,042
========
</TABLE>
<TABLE>
<S> <C>
Rent expense and related costs for 1995
and 1996 were $149,880 and $260,396,
respectively.
Legal Matters
The Company is either a plaintiff or a
defendant in several pending legal
matters. In the opinion of management,
the final resolution of these matters
will not have a material adverse effect
on the Company's financial position or
results of operations.
</TABLE>
F-27
<PAGE> 106
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Contractual Obligations
The Company may also be subject to
claims and penalties arising from
failure to comply with specific
contractual requirements on the
progression of long-term projects.
Management does not believe that it has
any measurable exposures related to such
contingencies at December 31, 1996. The
Company is also in the process of
renegotiating the terms of certain
aspects of technological licensing
arrangements. The contractual value of
services currently under negotiation
approximates $450,000. The inability of
the Company to fulfill contractual terms
of long-term projects or to negotiate
favorable arrangements on the use or
distribution of licensed technology may
have a material adverse effect on the
Company's financial statements.
Letters of Credit
At December 31, 1996, the Company had
issued irrevocable letters of credit of
$746,230 (included in the determination
of Cash set aside for customer purchases
at December 31, 1996) representing
contingent commitments on equipment
purchases.
11. CONCENTRATIONS Major Customers
China National accounted for
approximately 34% and 13% of revenues
for the years ended December 31, 1995
and 1996, respectively. A BECL customer
accounted for approximately 17% of
revenues in 1996 and a BIC customer
accounted for approximately 10% of
revenues in 1995.
The Company had an unsecured accounts
receivable balance of approximately
$512,000 at December 31, 1996 with a
Hong Kong based customer. Management is
currently discussing the timing of the
settlement of this account receivable
with the customer and expects full
payment in 1997.
Historically, the Company has relied on
a limited number of customers for a
substantial portion of its total
revenues. The Company expects that a
significant portion of its future
revenues will continue to be generated
by a limited number of customers. The
loss of any of these customers or any
substantial reduction in business volume
with any of these customers could
materially adversely affect operating
results.
</TABLE>
F-28
<PAGE> 107
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Suppliers
The Company purchases a substantial
amount of equipment and licenses
technology from a limited number of
entities. Based on the number of
alternate qualified suppliers,
management does not believe that the
Company has a concentration of risks
under its current arrangements.
Geographical
The vast majority of the Company's
revenues are derived from customers
based in countries outside the United
States. Such operations subject the
Company to certain operational risks.
The Company's prospective results of
operations could be negatively affected
by adverse consequences arising from
these risks. Although management
believes that the likelihood of such
factors occurring is remote, the
possibility of unanticipated events
disrupting the Company's operations
exists.
12. SEGMENT Operations by Geographic Area
INFORMATION
Net revenues, operating income (loss)
and identifiable assets from United
States export sales to the Far East and
for the Company's operations based in
the Far East (principally, PRC and Hong
Kong) are as follows:
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995 United States Far East Eliminations Consolidated
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues $ 6,497,541 $ 1,872,996 $ -- $ 8,370,537
Operating
income (loss) 927,375 (370,055) -- 557,320
Identifiable
assets 2,574,807 2,634,859 (466,921) 4,742,745
=========== =========== =========== ===========
December 31, 1996
Net revenues $ 6,039,716 $ 1,966,544 $ -- $ 8,006,260
Operating
income (loss) 730,875 (265,151) -- 465,724
Identifiable
assets 7,152,549 4,299,370 (1,264,851) 10,187,068
=========== =========== =========== ===========
</TABLE>
F-29
<PAGE> 108
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Substantially all of the Company's
United States revenues are derived from
customers based in the Far East.
</TABLE>
F-30
<PAGE> 109
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Operations by Segment
The Company's predominant businesses are
equipment distribution and networking.
Net revenues, operating income and
allocated assets for the Company's
segments are as follows:
</TABLE>
<TABLE>
<CAPTION>
Equipment
December 31, 1995 Distribution Networking Consolidated
------------ ----------- ------------
<S> <C> <C> <C>
Net revenues $ 4,267,791 $ 4,102,746 $ 8,370,537
Operating income 247,429 309,891 557,320
Identifiable assets 1,757,405 2,985,340 4,742,745
Purchases of fixed assets 27,049 1,325,385 1,352,434
Depreciation and
amortization expense 5,887 120 6,007
=========== =========== ===========
December 31, 1996
Net revenues $ 3,664,433 $ 4,341,827 $ 8,006,260
Operating income 214,515 251,209 465,724
Identifiable assets 4,179,102 6,007,966 10,187,068
Purchases of fixed assets 20,083 134,401 154,484
Depreciation and
amortization expense 33,702 5,036 38,738
=========== =========== ===========
</TABLE>
F-31
<PAGE> 110
BRIGHTON TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 556,940
Cash set aside for customer purchases (Note 4) 1,359,635
Accounts receivable, net 2,040,343
Costs and accumulated gross profit
in excess of billings
on uncompleted contracts 945,107
Receivables from stockholders
and related parties 200,668
Prepaid expenses 45,376
Deferred taxes 1,164,000
----------
Total current assets 6,312,069
----------
Fixed assets:
Project equipment (Notes 7 and 8) 1,517,538
Furniture and equipment, net 202,814
----------
Net fixed assets 1,720,352
----------
Other assets:
Non-current accounts receivable -
related parties 22,339
Deposits 30,883
Prepaid contract fees 228,733
Deferred offering costs
(Notes 5 and 10) 237,093
Organization costs, net 25,709
----------
Total other assets 544,757
----------
Total assets $8,577,178
==========
</TABLE>
(continued)
F-32
<PAGE> 111
BRIGHTON TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,628,857
Accrued expenses 378,038
Accrued licensing costs (Note 4) 450,000
Billings in excess of costs
and accumulated gross profit
on uncompleted contracts 516,725
Deferred revenue 94,444
Notes payable (Note 2) 802,105
Customer deposits, net (Note 4) 2,153,628
Taxes payable 1,492,000
----------
Total current liabilities 7,515,797
----------
Long-term liabilities:
Deferred taxes 88,000
Minority interests 134,649
----------
Total long-term liabilities 222,649
----------
Commitments and contingencies (Notes 4 and 8)
Stockholders' equity (Notes 1 and 3):
Preferred stock; $.001 par value;
shares authorized - 5,000,000;
issued and outstanding - none
Common stock; $.001 par value;
shares authorized - 100,000,000;
issued and outstanding - 1,161,222 1,161
Contributed capital 1,856,740
Accumulated deficit (1,006,919)
Unearned compensation cost (12,250)
----------
Total stockholders' equity 838,732
----------
Total liabilities and
stockholders' equity $8,577,178
==========
</TABLE>
See accompanying notes to condensed
consolidated financial statements.
F-33
<PAGE> 112
BRIGHTON TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------
1996 1997
---------- ----------
<S> <C> <C>
Revenues $6,796,972 $5,913,330
Cost of revenues 4,994,155 4,057,207
---------- ----------
Gross profit 1,802,817 1,856,123
---------- ----------
General and administrative expenses:
Salaries, payroll taxes and
employee benefits 578,837 868,887
Rent and premises 321,678 326,783
Travel and lodging 289,412 169,394
Depreciation and amortization 21,332 63,269
Foreign transaction losses 3,108 20,895
Consulting fees (Note 6) 366,430
Miscellaneous 350,394 298,027
---------- ----------
Total general and
administrative expenses 1,564,761 2,113,685
---------- ----------
Operating income (loss) 238,056 (257,562)
---------- ----------
Other income (expense):
Interest expense and bank fees (22,647) (43,994)
Interest income 22,827 77,418
Miscellaneous income 48,778 17,832
---------- ----------
Total other income, net 48,958 51,256
---------- ----------
Income (loss) before income taxes
and minority interests 287,014 (206,306)
Provision (benefit) for income taxes 115,000 (89,000)
Minority interests (26,663) 9,282
---------- ----------
Net income (loss) $ 145,351 $ (108,024)
========== ==========
</TABLE>
(continued)
F-34
<PAGE> 113
BRIGHTON TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------
1996 1997
--------- ----------
<S> <C> <C>
Net income (loss) per common share (Note 1):
Primary and fully diluted $.14 $ (.09)
========= =========
Weighted average number of common shares
and common share equivalents
outstanding (Note 1):
Primary 1,008,333 1,157,289
========= =========
Fully diluted 1,022,223 1,199,838
========= =========
</TABLE>
See accompanying notes to condensed
consolidated financial statements.
F-35
<PAGE> 114
BRIGHTON TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
UNEARNED
COMMON STOCK CONTRIBUTED ACCUMULATED COMPENSATION
SHARES AMOUNT CAPITAL DEFICIT COST
--------- ------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 1,149,559 $1,150 $1,482,781 $ (898,895)
Sale of common stock 8,002 8 352,940
Costs associated with the sale
of common stock (45,416)
Issuance of common stock for
costs associated with the
sale of common stock 2,030 2 (2)
Issuance of restricted common
stock to employee 1,111 1 48,999 $(49,000)
Issuance of restricted common
stock for consulting fees 500 17,438
Issuance of common stock
from rounding as a result
of reverse stock split 20
Amortization of unearned
compensation
36,750
Net loss for the nine months
ended September 30, 1997 (108,024)
--------- ------ ---------- ----------- --------
Balance at September 30, 1997 1,161,222 $1,161 $1,856,740 $(1,006,919) $(12,250)
========= ====== ========== ============ ========
</TABLE>
See accompanying notes to condensed
consolidated financial statements.
F-36
<PAGE> 115
BRIGHTON TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------
1996 1997
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 145,351 $ (108,024)
---------- -----------
Adjustments to reconcile net
income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 124,457 166,394
Deferred income taxes (707,000) 83,000
Minority interests (32,321) (9,282)
Non-cash compensation expense 54,187
Note payable issued
for consulting fees 150,000
Interest accrued on notes payable 36,936 32,004
Changes in operating assets
and liabilities:
Accounts receivable, net (863,629) (701,025)
Costs and accumulated
gross profit in
excess of billings on
uncompleted contracts (1,133,197) 1,111,880
Prepaid expenses (424,615) 105,318
Other current assets (20,682) 4,700
Deposits (30,182) (21,638)
Accounts payable 146,300 670,307
Accrued expenses 245,415 64,701
Billings in excess of
costs and accumulated
gross profit on
uncompleted contracts 2,615,452 (4,454,669)
Deferred revenue 540,901 11,023
Customer deposits, net 2,153,628
Taxes payable 693,118 (186,000)
---------- ----------
Total adjustments 1,190,953 (765,472)
---------- ----------
Net cash provided by
(used in) operating
activities 1,336,304 (873,496)
---------- ----------
</TABLE>
(continued)
F-37
<PAGE> 116
BRIGHTON TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------
1996 1997
----------- -----------
<S> <C> <C>
Cash flows from investing activities:
(Increase) decrease in cash set aside for customer purchases $ (610,000) $ 1,276,365
Acquisition of fixed assets (51,852) (55,935)
Organization costs (211)
----------- -----------
Net cash provided by
(used in) investing activities (662,063) 1,220,430
----------- -----------
Cash flows from financing activities:
Proceeds from demand note payable 575,603
Sale of common stock, net of related costs 307,532
(Advances to) repayments from stockholder
and related parties 501,971 (349,834)
Decrease in payable to stockholders (1,297,876) (227,298)
Deferred offering costs (86,147) (237,093)
------------ -----------
Net cash used in financing
activities (306,449) (506,693)
----------- -----------
Net increase (decrease) in cash and
cash equivalents 367,792 (159,759)
Cash and cash equivalents, at
beginning of period 137,067 716,699
----------- -----------
Cash and cash equivalents, at
end of period $ 504,859 $ 556,940
=========== ===========
</TABLE>
See accompanying notes to condensed
consolidated financial statements.
F-38
<PAGE> 117
BRIGHTON TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
1. Basis of Presentation
The accompanying condensed consolidated financial statements as of
September 30, 1997 and for the nine months ended September 30, 1996 and 1997 are
unaudited but, in the opinion of management of the Company, contain all
adjustments necessary to present fairly the financial position at September 30,
1997, the results of operations for the nine months ended September 30, 1996 and
1997, and cash flows for the nine months ended September 30, 1996 and 1997.
These adjustments are of a normal recurring nature. The accompanying condensed
consolidated financial statements include the accounts of the Company and its
direct subsidiaries and joint ventures in which the Company has a controlling
interest. All intercompany accounts and transactions have been eliminated in
consolidation.
Certain information and footnote disclosures normally included in
financial statements that have been prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission, although
management of the Company believes that the disclosures contained in these
financial statements are adequate to make the information presented therein not
misleading. For further information, refer to the Company's consolidated
financial statements and notes thereto for the years ended December 31, 1995 and
1996.
The results of operations for the nine months ended September 30, 1997
are not necessarily indicative of the results of operations to be expected for
the full fiscal year ending December 31, 1997.
Net income (loss) per share for the nine months ended September 30,
1996 and 1997 is based on the weighted average number of shares of common stock
outstanding for each respective period. For purposes of determining fully
diluted net income (loss) per share, the conversion of the demand note (See Note
2) into common stock equivalents was calculated using the average market price
of the Company's common stock during September 1997, and the conversion of the
note payable issued for a consulting fee (See Note 2) into common stock
equivalents was calculated at the estimated offering price.
All common share and per share amounts have been restated for all
periods presented to reflect the 1 for 3 reverse stock split effective October
17, 1997 and the 1 for 3 reverse stock split which will go into effect on
January 26, 1998.
2. Notes Payable
During 1996, Brighton Electronics Corporation Limited, a Hong
Kong-based subsidiary of the Company, entered into a convertible demand note
agreement with a third party, with interest at 5% per annum. The note is
convertible into common stock of the Company at prevailing market values. The
note, including accrued interest, had a balance of $643,355 at September 30,
1997.
On February 25, 1997, the Company entered into a consulting agreement
with a consulting firm for business advisory services. Pursuant to that
agreement, the Company paid the consulting firm $25,000 and issued a one-year
note for $150,000 for services rendered. This amount was charged to operations
during the nine months ended September 30, 1997. The note is unsecured, bears
interest at 10% per annum, with interest to accrue until the due date of
February 24, 1998. Thereafter, such note will become payable upon demand, with
interest at 12% per annum.
F-39
<PAGE> 118
Brighton Technologies Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited) (continued)
Nine Months Ended September 30, 1996 and 1997
If the Company does not complete a debt or equity financing by February
24, 1998, then the Company will have the option of converting the note,
including accrued interest, into its common stock, with the value of such common
shares to be calculated at 75% of the market price on such date. The maximum
number of common shares that the Company will be required to reserve and issue
as full settlement for the note, including accrued interest, will be 25,000
shares. Such shares, if issued, will be restricted and will have piggyback
registration rights.
If the Company completes a private financing by February 24, 1998, then
the noteholder will have the option of converting the note, including accrued
interest, into the same debt or equity instrument issued in connection with such
private financing. If the Company completes a secondary public offering (See
Note 10) by February 24, 1998, the noteholder will have the option of converting
the balance of the note, including accrued interest, into the same securities
issued in connection with the secondary public offering at the offering price.
Such securities, if issued, will be restricted and will have piggyback
registration rights. In addition, the noteholder will have the right to elect
one member of the Company's board of directors.
3. Stockholders' Equity
Transactions affecting the Company's capital structure during the nine
months ended September 30, 1997 consisted of the following:
a. The Company sold 8,002 shares of common stock for proceeds of
$352,948, and incurred related costs of $134,920 of which $45,416 was paid in
cash (including $11,931 to an affiliate of a director) and $89,504 was paid by
the issuance of 2,030 shares of common stock to various individuals and firms
for services rendered in connection therewith. The 2,030 shares of common stock
were recorded as a charge to contributed capital at par value. The values
ascribed to such shares were based on the sales price of the Company's common
stock sold in comparable periods.
b. The Company granted 1,111 shares of restricted common stock to
an employee. The aggregate value of the shares of $49,000 was recorded as a
reduction to stockholders' equity as deferred compensation cost and is being
amortized to operations, as earned, during the year ending December 31, 1997. At
September 30, 1997, the balance of unearned compensation cost was $12,250.
c. In July 1997, the Company issued 500 shares of common stock
with an aggregate value of $17,438 to a consultant for services rendered, which
was recorded as a charge to operations during the nine months ended September
30, 1997.
d. Effective September 13, 1997, the Company entered into a
letter of agreement with a public relations firm to provide corporate and
investor relations. In conjunction therewith, the Company issued the public
relations firm a three year stock option to purchase 2,778 shares of common
stock with an exercise price of $22.50 per share, which was the fair market
value on the date of grant. The imputed fair value of this stock option is
$23,000, which will be amortized to operations, as earned, during the period
from October 1997 through March 1998.
F-40
<PAGE> 119
Brighton Technologies Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited) (continued)
Nine Months Ended September 30, 1996 and 1997
4. China National Project and Related Contractual Obligations
The original turn-key contract with China National Chemical
Construction Company ("China National") for the engineering design and
implementation for a sodium bichromate production plant with an annual
production capacity of 20,000 metric tons was expected to generate total
revenues of $11,000,000 for the Company. Revenues under this contract for the
years ended December 31, 1995 and 1996, and the nine months ended September 30,
1997, were approximately $2,855,000, $1,048,000 and $2,337,000, respectively, or
34%, 13% and 40% of the Company's total revenues, respectively. The Company has
recorded cumulative aggregate revenues of $6,898,000 through September 30, 1997
under this contract (including revenues of $658,000 for the year ended December
31, 1994), or approximately 63% of the contract's total expected revenues.
The Company has been advised by China National that they are currently
negotiating with third party lenders for the necessary funds to complete the
construction of the project. The Company is currently unable to predict the
ultimate outcome of these discussions. In the event that China National is
unsuccessful in its efforts to obtain such financing and construction efforts
are suspended or terminated, the Company's anticipated revenues in the future
with regard to this contract may be reduced or eliminated. Based on an
assessment of discussions with China National and the timing involved in
obtaining the necessary funds, management of the Company does not expect that
any significant revenues will be earned from this contract during the year
ending December 31, 1998. If China National is unable to complete the project,
management does not expect that the ultimate resolution of this matter will have
a material adverse impact on the Company's financial position or cash flows.
As an accommodation to China National for excess funds held by the
Company, the Company has periodically loaned funds to China National. These
loans do not bear interest and do not stipulate repayment dates. As of September
30, 1997, the Company had loaned $1,132,169 to China National; such amount has
been offset against customer deposits on the December 31, 1996 and September 30,
1997 consolidated balance sheets.
Due to delays in the financing and construction of the China National
project, the Company is in the process of renegotiating the terms of certain
aspects of technological licensing arrangements that it entered into in
conjunction with the China National contract. The contractual value of services
currently under negotiation is approximately $450,000, and the settlement of
such obligation is predicated on the resolution of the matter described above.
The inability of the Company to fulfill contractual terms of long-term projects
or to negotiate favorable arrangements on the use or distribution of licensed
technology may have a material adverse effect on the Company's consolidated
financial statements.
5. Deferred Offering Costs
Deferred offering costs aggregating $237,093 at September 30, 1997
represent certain legal, accounting and underwriter costs incurred in connection
with the contemplated public sale of the Company's securities (See Note 10).
These costs have been capitalized and will be charged to stockholders' equity
upon successful completion of the offering or charged to operations if the
offering is not completed.
6. Consulting Fees
Consulting fees aggregating $366,430 were charged to operations during
the nine months ended September 30, 1997 for certain professional, consulting
and other costs incurred in connection with the
F-41
<PAGE> 120
Brighton Technologies Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited) (continued)
Nine Months Ended September 30, 1996 and 1997
Company's ongoing business development activities. Of such amount, $19,308 was
paid to an affiliate of a director during the nine months ended September 30,
1997 and $175,000 was incurred pursuant to an agreement with a consulting firm
(See Note 2).
7. Related Party Transactions
During September 1997, the Company's founder and majority stockholder
sold project equipment to the Company with a fair market value of $185,950,
which is equivalent to the price that the Company would have had to pay to
purchase such equipment in the open market, in exchange for an equivalent
reduction in the amount due the Company from the stockholder.
8. Brighton STAQ Project
The Company owns a 90% interest in the joint venture developing the
STAQ On-line Network project, has already invested $1,600,000 in such project,
and is obligated to provide additional funding of approximately $4,000,000
during the first quarter of 1998. The Company accounts for the joint venture on
a consolidated basis.
The Company currently expects to meet its funding obligation through
the sale of its equity securities in the contemplated public offering (See Note
10), although there can be no assurances that the Company will be successful in
this regard. To the extent that the Company is unable to timely fund its
$4,000,000 commitment to fund the STAQ On-line Network project during the first
quarter of 1998, the Company's interest in the project may be reduced or
eliminated, which would adversely affect the potential future profitability of
this project as it relates to the Company's consolidated results of operations.
If the Company were to be unable to fund the continuing development of the
Brighton-STAQ project, project equipment aggregating $1,517,538 at September 30,
1997 would be liquidated at net realizable value and the resulting loss, if any,
would be charged to operations.
9. Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share," which is effective for financial
statements issued for periods ending after December 15, 1997. At that time, the
Company will be required to change the method currently used to compute earnings
per share and to restate all prior periods presented. Under the new
requirements, the Company will be required to present "basic" earnings per share
and "diluted" earnings per share. Basic earnings per share does not include the
dilutive effect of stock options and warrants. The Company does not expect that
adoption of this statement will have a material effect on reported earnings per
share.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 129, "Disclosure of Information about Capital Structure," which is
effective for financial statements issued for periods ending after December 15,
1997. The new standard reinstates various disclosure requirements previously in
effect under Accounting Principles Board Opinion No. 15, which has been
superseded by this statement. The Company does not expect that adoption of this
statement will have a material effect on its current disclosures and
presentation.
In June 1997, the Financial Accounting Standards Board issued Statement
No. 130, "Reporting Comprehensive Income," which is effective for financial
statements issued for periods ending after December
F-42
<PAGE> 121
Brighton Technologies Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited) (continued)
Nine Months Ended September 30, 1996 and 1997
15, 1997. Earlier application is permitted. This statement establishes standards
for the reporting and display of comprehensive income and its components in a
full set of general purpose financial statements. Comprehensive income consists
of net income and other comprehensive income. Other comprehensive income refers
to revenues, expenses, gains and losses that under generally accepted accounting
principles are included in comprehensive income but are excluded from net
income. The Company does not expect that adoption of this statement will have a
material effect on its current disclosures and presentation.
In June 1997, the Financial Accounting Standards Board issued Statement
No. 131, "Disclosures about Segments of an Enterprise and Related Information,"
which is effective for financial statements issued for periods ending after
December 15, 1997. This statement discusses how to report operating segments and
certain information about a public company's products and services, the
geographic areas in which it operates, and its major customers. The Company does
not expect that adoption of this statement will have a material effect on its
current disclosures and presentation.
10. Public Offering
a. On May 7, 1997, the Company entered into a Letter of Intent
agreement with an underwriter ("Representative"), as representative of certain
underwriters ("Underwriters"), to act as managing underwriter in a firm
commitment underwriting for a proposed offering ("Offering") and sale to the
public of 1,000,000 units ("Units") of the Company's securities at an offering
price ranging from $5.50 to $7.00 per Unit.
Each Unit consists of one share of common stock and one redeemable
common stock purchase warrant ("Warrant") of the Company. Each Warrant entitles
the holder to purchase one share of common stock for 150% of the offering price
per Unit, subject to adjustment in certain circumstances, at any time commencing
__________, 1999 until _______________, unless earlier redeemed.
The Company has granted to the Underwriters an option, exercisable for
45 days from the date of the Offering, to purchase up to 150,000 additional
Units at the Unit offering price, less the underwriting discounts and the
nonaccountable allowance, for the sole purpose of covering over-allotments, if
any.
In connection with the Offering, the Company has agreed to sell to the
Representative and its designees, for a nominal consideration, an option ("Unit
Purchase Option") to purchase up to 100,000 Units. The Unit Purchase Option is
exercisable initially at 120% of the Offering price per Unit for a period of
five years commencing on the effectiveness of the Offering.
11. Subsequent Events
a. Effective October 1, 1997, the Company entered into a
consulting agreement with a firm to provide certain business development
services in exchange for 3,889 shares of common stock with a fair market value
of approximately $29,000, which will be amortized to operations, as earned,
during the period from October 1997 through June 1998. The shares were issued on
November 3, 1997.
b. During December 1997, in order for the Company to arrange the
purchase of certain equipment for a customer. The wife of the Company's founder
and majority stockholder, who is an officer and director of the Company,
provided a short-term credit facility by depositing $500,000 into a short-term
interest bearing account with a Hong Kong bank as security for the bank's letter
of credit of approximately $2,145,000 issuable to a supplier. The Company will
record a credit
F-43
<PAGE> 122
Brighton Technologies Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited) (continued)
Nine Months Ended September 30, 1996 and 1997
to contributed capital and a charge to operations for the estimated imputed cost
of such credit facility during the period for which it is outstanding.
F-44
<PAGE> 123
The Company maintains offices in the following cities in
China -- Beijing, Hong Kong, Shanghai, Shenzhen and Wuhan.
<PAGE> 124
No dealer, salesperson or other person has been authorized to give any
information or to make any representation other than those contained in this
Prospectus in connection with the offer made by this Prospectus. If given or
made, such information or representations must not be relied upon as having been
authorized by the Company or the Underwriters. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create any
implication that there has been no change in the affairs of the Company since
the date hereof. This Prospectus does not constitute an offer to, or
solicitation of, anyone in any jurisdiction in which such offer or solicitation
is not authorized or in which the person making such offer or solicitation is
not qualified to do so or to anyone to whom it is unlawful to make such offer or
solicitation.
----------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary.........................................................
Risk Factors...............................................................
Use of Proceeds............................................................
Market Price for Common Stock..............................................
Dividend Policy............................................................
Dilution...................................................................
Capitalization.............................................................
Management's Discussion and Analysis
or Plan of Operations..................................................
Industry Overview..........................................................
Business Development.......................................................
Business...................................................................
Management.................................................................
Certain Transactions.......................................................
Principal Stockholders.....................................................
Description of Securities..................................................
Shares Eligible for Future Sale............................................
Underwriting...............................................................
Legal Matters..............................................................
Experts....................................................................
Changes in Registrant's
Certifying Accountants.................................................
Additional Information.....................................................
Index to Financial Statements..............................................
</TABLE>
--------------------
Until __________, 1998 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities offered hereby, whether or
not participating in the Offering, may be required to deliver a prospectus. This
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.
1,000,000 UNITS
[LOGO]
BRIGHTON
TECHNOLOGIES
CORPORATION
UNITS
----------
PROSPECTUS
----------
________________, 1998
<PAGE> 125
PART II
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Restated Certificate of Incorporation includes provisions
which limit the liability of its directors. As permitted by applicable
provisions of the Delaware Law, directors will not be liable to the Company for
monetary damages arising from a breach of their fiduciary duty as directors in
certain circumstances. This limitation does not affect liability for any breach
of a director's duty to the Company or its stockholders (i) with respect to
approval by the director of any transaction from which he or she derives an
improper personal benefit, (ii) with respect to acts or omissions involving an
absence of good faith, that the director believes to be contrary to the best
interests of the Company or its stockholders, that involve intentional
misconduct or a knowing and culpable violation of law, that constitute an
unexcused pattern or inattention that amounts to an abdication of his or her
duty to the Company or its stockholders, or that show a reckless disregard for
duty to the Company or its stockholders in circumstances in which he or she was,
or should have been aware, in the ordinary course of performing his or her
duties, of a risk of serious injury to the Company or its stockholders, or (iii)
based on transactions between the Company and its directors or another
corporation with interrelated directors or based on improper distributions,
loans or guarantees under applicable sections of Delaware Law. This limitation
of directors' liability also does not affect the available of equitable
remedies, such as injunctive relief or rescission.
The Company has been advised that it is the position of the Commission
that insofar as the provision in the Company's Restated Certificate of
Incorporation may be invoked for liabilities arising under the Securities Act,
the provision is against public policy and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses for the issuance and distribution of the Units
registered hereby, other than underwriting commissions, fees and
Representative's nonaccountable expense allowance are set forth in the following
table:
<TABLE>
<CAPTION>
ITEM AMOUNT
<S> <C>
SEC Registration Fee....................................... $6,556.38
NASD Filing Fee............................................ 2,231.21
Nasdaq SmallCap Market Filing Fee.......................... 10,000.00
Blue Sky Fees and Expenses................................. 25,000.00
Transfer Agent Fees........................................ 2,500.00
Legal Fees................................................. 200,000.00
Accounting Fees............................................ 220,000.00
Printing and Engraving Costs............................... 70,000.00
Miscellaneous.............................................. 63,712.41
Total........................................... $600,000.00
===========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following is information for all securities that the Company has
sold within the past three years without registering the securities under the
Securities Act (all share information reflect the 1 for 3 reverse stock split
effective November 11, 1996, the 1 for
II-1
<PAGE> 126
3 reverse stock split effective October 17, 1997 and the 1 for 3 reverse stock
split authorized and approved by the Company's Board of Directors and
stockholders on January 13, 1998 which will go into effect on January 26, 1998):
1. On November 28, 1995, the Company issued an aggregate of
62,222 share of common stock to 24 investors. The offering was done as a private
placement pursuant to Rule 505 of Regulation D.
2. On November 30, 1995, the Company issued an aggregate of 5,556
shares of common stock to two investors, the offering was done pursuant to Rule
504 of Regulation D.
3. On October 1, 1996, the Company issued an aggregate of 100,481
shares of common stock to eight investors. The offering was done pursuant to
Rule 504 of Regulation D for a total offering price of $60,000.
4. On October 22, 1996, the Company issued an aggregate of
944,444 shares of common stock to Mr. Kit Kung and 55,556 shares to Ms. Hong Yun
in connection with the Reverse Acquisition. The shares were issued pursuant to
Section 4(2) of the Securities Act.
5. On October 22, 1996, the Company issued an aggregate of 8,333
shares of common stock to a consultant for the Company in connection with the
Reverse Acquisition. The Shares were issued pursuant to Section 4(2) of the
Securities Act.
6. On November 27, 1996, the Company issued an aggregate of
11,111 shares of common stock. The offering was done pursuant to Rule 504 of
Regulation D for an aggregate offering price of $500,000.
7. On March 5, 1997, the Company issued an aggregate of 3,141
shares of common stock to five consultants or employees of the Company for
services rendered. The shares were issued pursuant to Section 4(2) of the
Securities Act.
8. From March 5 through April 28, 1997, the Company issued an
aggregate of 8,002 shares of common stock to twelve investors for an aggregate
purchase price of $352,948. The offering was done pursuant to Rule 504 of
Regulation D.
9. In July 1997, the Company issued 500 shares of common stock,
with an aggregate value of $17,438 to a consultant for services rendered.
10. On November 3, 1997, the Company issued 3,889 shares of common
stock to a consultant for services to be rendered, of which 3,333 shares were
issued pursuant to Rule 504 of the Securities Act and 556 shares were issued
pursuant to Rule 701 of the Securities Act.
The Company believes that the transactions described above were
exempt from registration under Section 3(a)(9), 3(b) or 4(2) of the Securities
Act because the Company was not subject to reporting under the Exchange Act and
was not a development stage company, the aggregate amount of the subject
securities was less than $1,000,000 and the subject securities were,
respectively, either (i) issued pursuant to a compensatory benefit plan pursuant
to Rule 701 under the Securities Act; or (ii) sold to a limited group of
persons, each of whom was believed to have been a sophisticated investor or had
a pre-existing business or personal relationship with the Company or its
management and was purchasing for investment without a view to further
distribution. Restrictive legends were placed on Stock Certificates evidencing
the shares.
II-2
<PAGE> 127
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Title
- ------ -----
<S> <C>
1.1 Form of Underwriting Agreement
2.1 Acquisition Agreement with BIC, BECL, Kit Kung and Hung Yun* 3.1 Certificate
of Incorporation as filed with the Delaware Secretary of State*
3.2 Certificate of Correction of Certificate of Incorporation, as filed
with the Delaware Secretary of State on January 17, 1989*
3.3 Articles of Amendment to the Articles of Incorporation, as filed with
the Delaware Secretary of State on November 1, 1995*
3.4 Certificate of Amendment to Certificate of Incorporation, as filed
with the Delaware Secretary of State on October 31, 1996*
3.5 Certificate of Amendment to Certificate of Incorporation, as filed
with the Delaware Secretary of State on October 10, 1997*
3.6 By-laws*
4.1 Form of Common Stock Certificate
4.2 Form of Representative's Warrant Agreement (including form of
Representative's Warrants)
4.3 Form of Redeemable Warrant Agreement
5.1 Opinion of Loeb & Loeb, LLP
10.1 Lease Agreement (Allendale - The Company's and BIC's facilities)*
10.2 Lease Agreement (Hong Kong -- BECL's and its subsidiaries' facilities)*
10.3 Lease Agreement Summary (Beijing)*
10.4 Lease Agreement Summary (Beijing)*
10.5 Lease Agreement Summary (Shanghai)*
10.6 Lease Agreement Summary (Shenzhen)*
10.7 Lease Agreement Summary (Wuhan)*
10.8 Agreement with China National*
10.9 Agreement with AlliedSignal*
10.10 Agreement with Huazheng for establishment of Brighton-STAQ*
10.11 Form of Lock-Up Agreement
10.12 Lease Extension Summary (Shenzhen)
16.1 Letter of Tanner & Co., Independent Certified Accountants
16.2 Letter of Russo & Shapiro, Independent Certified Accountants
16.3 Letter of Francis S.L. Yan & Co., Independent Certified Accountants
21.1 Subsidiaries of Registrant*
23.1 Consent of BDO Seidman, LLP, Independent Certified Public Accountants
23.2 Consent of Russo & Shapiro, Independent Certified Public Accountants*
23.3 Consent of Francis S.L. Yan & Co., Independent Certified Public
Accountants*
23.4 Consent of Loeb & Loeb, LLP (included in the opinion to be filed as
Exhibit 5.1)
23.5 Consent of Zhong Xin Law Office
24.1 Power of Attorney (included on signature page)*
27.1 Financial Data Schedule
</TABLE>
- --------------------
* Previously filed.
II-3
<PAGE> 128
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes as follows:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events
which, individually or together, represent a fundamental change in the
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.
(2) To provide to the Underwriters at the closing specified in
the Underwriting Agreement (filed herewith as Exhibit 1.1) certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
(3) Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described above in Item 24,
or otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, 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 of 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) For purposes of determining any liability under the
Securities Act, to treat the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1), or (4), or 497(h) under the Securities Act as part of this
Registration Statement as of the time the Commission declared it effective.
(5) For the purpose of determining any liability under the
Securities Act, to treat each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities offered in the
Registration Statement, and the offering of such securities at that time as the
initial bona fide offering of those securities.
II-4
<PAGE> 129
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing Form SB-2 and authorized this Amendment No. 1
to this Registration Statement to be signed on its behalf by the undersigned, in
the City of Allendale, State of New Jersey, on the 16th day of January, 1998.
BRIGHTON TECHNOLOGIES CORPORATION
By:/s/ Kit Kung
-----------------------------------------
Kit Kung
Chairman, President and Chief
Executive Officer
II-5
<PAGE> 130
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Kit Kung, as his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments (including post-effective amendments) to this Amendment No. 1
to this Registration Statement on Form SB-2 of Brighton Technologies
Corporation, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
grant unto said attorney-in-fact and agent, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the foregoing, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 1 to this Registration Statement has been signed by the following
persons in the capacities and on the date stated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Kit Kung President, Chief Executive January 16, 1998
- -------------------------------
Kit Kung Officer and Chairman
of the Board of Directors
(Principal Executive Officer)
* Chief Financial Officer January 16, 1998
- -------------------------------
Robert N. Weingarten
* Secretary and Chief January 16, 1998
- -------------------------------
Warren Wang Accounting Officer
* Director January 16, 1998
- -------------------------------
Nils Ollquist
* Director January 16, 1998
- -------------------------------
Hong Yun
* Director January 16, 1998
- -------------------------------
Michael Muldavin
</TABLE>
II-6
<PAGE> 1
EXHIBIT 1.1
FORM OF UNDERWRITING AGREEMENT DRAFT DATED 1/15/98
BRIGHTON TECHNOLOGIES CORPORATION.
1,000,000 UNITS
UNDERWRITING AGREEMENT
Allendale, New Jersey
January __, 1998
National Securities Corporation
As Representative of the Several Underwriters
c/o National Securities Corporation
1001 Fourth Avenue, Suite 2200
Seattle, Washington 98154
Ladies and Gentlemen:
Brighton Technologies Corporation, a Delaware corporation (the
"Company"), hereby agrees with National Securities Corporation ("National") and
each of the underwriters named in Schedule A hereto (collectively, the
"Underwriters," which term shall also include any underwriter substituted as
hereinafter provided in Section 11), for whom National is acting as
representative (in such capacity, National shall hereinafter be referred to as
"you" or the "Representative") with respect to the sale by the Company and the
purchase by the Underwriters, acting severally and not jointly, of the
respective amount of units (the "Units") set forth in said Schedule A, each Unit
consisting of one (1) share of the Company's Common Stock, par value $.001 per
share (the "Common Stock"), and one (1) warrant (the "Warrants") to purchase one
(1) share of Common Stock at an exercise price of $____ (150% of the offering
price per Unit and exercisable at any time over a _______ (__) month period
commencing upon the date of the Prospectus, pursuant to a Warrant Agreement, as
defined herein, to be entered into at the Closing, which aggregate to 1,000,000
Units (collectively, the "Shares"). The Units shall not be separately tradeable
until _______ (__) months after the date of the Prospectus or, at the sole
discretion of the Representative, earlier upon three (3) days prior written
notice by the Representative to the Company at the discretion of the
Representative. The Warrants will be
<PAGE> 2
redeemable by the Company commencing ________ (__) months after the date of the
Prospectus, with the prior written consent of the Representative, at $0.10 per
Warrant on thirty (30) days' prior written notice if the closing bid price of
the Common Stock as reported on the Nasdaq SmallCap Market averages an amount
equal to or exceeding $____ per share of Common Stock (150% of the offering
price per Unit) for any twenty (20) trading days within a period of thirty (30)
consecutive trading days immediately preceding such notice. Upon your request,
as provided in Section 2(b) of this Agreement, the Company shall also issue and
sell to the Underwriters, acting severally and not jointly, up to an additional
aggregate of 150,000 Units for the purpose of covering over-allotments, if any.
Such Units are hereinafter referred to as the "Option Shares." The Company also
proposes to issue and sell to you warrants (the "Representative's Warrants")
pursuant to the Representative's Warrant Agreement (the "Representative's
Warrant Agreement") for the purchase of an additional 100,000 Units. The Units
and the shares of Common Stock and the Warrants underlying such Units, and the
shares of Common Stock underlying the Warrants, all issuable upon exercise of
the Representative's Warrants, are hereinafter referred to as the
"Representative's Shares." The Shares, Option Shares, the Representative's
Warrants, and the Representative's Shares are more fully described in the
Registration Statement and the Prospectus referred to below.
1. Representations and Warranties of the Company.
(A) The Company represents and warrants to, and agrees with, each
of the Underwriters as of the date hereof, and as of the Closing Date and the
Option Closing Date, if any, as follows:
(a) The Company has prepared and filed with the Securities
and Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form SB-2 (No.333- ) and a registration
statement filed pursuant to Rule 462(b), including any related preliminary
prospectus ("Preliminary Prospectus"), for the registration of the Shares, the
Option Shares, the Representative's Warrants, and the Representative's Shares
(collectively, hereinafter referred to as the "Registered Securities") under the
Securities Act of 1933, as amended (the "Act"), which registration statement and
amendment or amendments have been prepared by the Company in conformity with the
requirements of the Act, and the Regulations (as defined below) of the
Commission under the Act. The Company will not file any other amendment thereto
to which the Underwriters shall have objected in writing after having been
furnished with a copy thereof. Except as the context may otherwise require, such
registration statement, as amended, on file with the Commission at the time the
registration statement becomes effective (including the prospectus, financial
statements, schedules, exhibits and all other documents filed as a part thereof
or incorporated therein and all information deemed to be a part thereof as of
such time pursuant to paragraph (b) of Rule 430(A) of the Regulations), is
hereinafter called the "Registration Statement," and the form of prospectus in
the form first filed with the Commission pursuant to Rule 424(b) of the
Regulations, is hereinafter called the "Prospectus." For purposes hereof,
"Regulations" mean the rules and regulations
-2-
<PAGE> 3
adopted by the Commission under either the Act or the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory
authority has issued any order preventing or suspending the use of any
Preliminary Prospectus, the Registration Statement or the Prospectus and no
proceedings for a stop order suspending the effectiveness of the Registration
Statement have been instituted, or, to the Company's knowledge, are threatened.
Each of the Preliminary Prospectus, the Registration Statement and the
Prospectus at the time of filing thereof conformed in all material respects with
the requirements of the Act and Regulations, and none of the Preliminary
Prospectus, the Registration Statement or the Prospectus at the time of filing
thereof contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein and 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 made in reliance upon and in conformity with written information
furnished to the Company with respect to the Underwriters by or on behalf of the
Underwriters expressly for use in such Preliminary Prospectus, Registration
Statement or Prospectus.
(c) When the Registration Statement becomes effective and
at all times subsequent thereto up to the Closing Date (as defined in Section
2(c) hereof) and each Option Closing Date (as defined in Section 2(b) hereof),
if any, and during such longer period as the Prospectus may be required to be
delivered in connection with sales by the Underwriters or a dealer, the
Registration Statement and the Prospectus, as amended or supplemented as
required, will contain all statements which are required to be stated therein in
accordance with the Act and the Regulations, and will conform in all material
respects to the requirements of the Act and the Regulations; 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, provided, however, that this representation and warranty does
not apply to statements made or statements omitted in reliance upon and in
conformity with information furnished to the Company in writing by or on behalf
of any Underwriter expressly for use in the Registration Statement or the
Prospectus or any amendment thereof or supplement thereto.
(d) The Company and each of its subsidiaries have been
duly organized and are validly existing as corporations in good standing under
the laws of the respective states of their incorporation. The Company does not
own or control, directly or indirectly, any corporation, partnership, trust,
joint venture or other business entity other than the subsidiaries listed in
Exhibit 21 of the Registration Statement. Each of the Company and its
subsidiaries is duly qualified and licensed and in good standing as a foreign
corporation in each jurisdiction in which its ownership or leasing of any
properties or the character of its operations require such qualification or
licensing and where the failure to do so qualify or be licensed could have a
-3-
<PAGE> 4
material adverse effect on the financial condition, results of operations or
business of the Company. Each of the Company and its subsidiaries has all
requisite power and authority (corporate and other), and has obtained any and
all necessary authorizations, approvals, orders, licenses, certificates,
franchises and permits of and from all governmental or regulatory officials and
bodies (including, without limitation, those having jurisdiction over
environmental or similar matters), to own or lease its properties and conduct
its business as described in the Prospectus, except where the failure to do so
would not have a material adverse effect on the financial condition, results of
operations or business of the Company; the Company and each of its subsidiaries
have been doing business in compliance with all such authorizations, approvals,
orders, licenses, certificates, franchises and permits and all federal, state,
local and foreign laws, rules and regulations; and neither the Company nor any
of its subsidiaries have received any notice of proceedings relating to the
revocation or modification of any such authorization, approval, order, license,
certificate, franchise, or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would materially and
adversely affect the condition, financial or otherwise, or the business affairs,
operations, properties, or results of operations of the Company and its
subsidiaries, taken as a whole. The disclosures in the Registration Statement
concerning the effects of federal, state, local, and foreign laws, rules and
regulations on the Company's business as currently conducted and as contemplated
are correct in all material respects and do not omit to state a material fact
necessary to make the statements contained therein not misleading in light of
the circumstances in which they were made.
(e) The Company has a duly authorized, issued and
outstanding capitalization as set forth in the Prospectus under the headings
"Capitalization" and "Description of Securities" and will have the adjusted
capitalization set forth therein on the Closing Date and the Option Closing
Date, if any, based upon the assumptions set forth therein, and the Company is
not a party to or bound by any instrument, agreement or other arrangement
providing for it to issue any capital stock, rights, warrants, options or other
securities, except for this Agreement and as described in the Prospectus. The
Registered Securities and all other securities issued or issuable by the Company
conform or, when issued and paid for, will conform, in all material respects to
all statements with respect thereto contained in the Registration Statement and
the Prospectus. All issued and outstanding shares of capital stock of each
subsidiary of the Company have been duly authorized and validly issued and are
fully paid and nonassessable. Except as disclosed in or contemplated by the
Prospectus and the financial statements of the Company and the related notes
thereto included in the Prospectus, neither the Company nor any subsidiary has
outstanding any options to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations convertible into, or
any contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations. The description
of the Company's stock option, stock bonus and other stock plans or arrangements
and the options or other rights granted and exercised thereunder as set forth in
the Prospectus conforms in all material respects with the requirements of the
Act. All issued and outstanding securities of the Company have been duly
authorized and validly issued and are fully paid and non-assessable, and the
holders thereof have no rights of rescission
-4-
<PAGE> 5
with respect thereto and are not subject to personal liability by reason of
being such holders; and none of such securities were issued in violation of the
preemptive rights of any holders of any security of the Company or similar
contractual rights granted by the Company.
(f) The Registered Securities are not and will not be
subject to any preemptive or other similar rights of any shareholder, have been
duly authorized and, when issued, paid for and delivered in accordance with the
terms hereof, will be validly issued, fully paid and non-assessable and will
conform in all material respects to the description thereof contained in the
Prospectus; the holders thereof will not be subject to any liability solely as
such holders; all corporate action required to be taken for the authorization,
issue and sale of the Registered Securities has been duly and validly taken; and
the certificates representing the Registered Securities will be in due and
proper form. Upon the issuance and delivery pursuant to the terms hereof of the
Registered Securities to be sold by the Company hereunder, the Underwriters or
the Representative, as the case may be, will acquire good and marketable title
to such Registered Securities free and clear of any lien, charge, claim,
encumbrance, pledge, security interest, defect, or other restriction or equity
of any kind whatsoever. No shareholder of the Company has any right which has
not been waived in writing to require the Company to register the sale of any
shares owned by such shareholder under the Act in the public offering
contemplated by this Agreement. No further approval or authority of the
shareholders or the Board of Directors of the Company will be required for the
issuance and sale of the Shares, the Option Shares and the Representative's
Warrants to be sold by the Company as contemplated herein.
(g) The financial statements of the Company, together with
the related notes and schedules thereto, included in the Registration Statement,
each Preliminary Prospectus and the Prospectus fairly present the financial
position, changes in shareholders' equity and the results of operations of the
Company at the respective dates and for the respective periods to which they
apply and such financial statements have been prepared in conformity with
generally accepted accounting principles and the Regulations, consistently
applied throughout the periods involved. There has been no material adverse
change or development involving a material prospective change in the condition,
financial or otherwise, or in the business, affairs, operations, properties, or
results of operation of the Company and its subsidiaries taken as a whole
whether or not arising in the ordinary course of business since the date of the
financial statements included in the Registration Statement and the Prospectus
and the outstanding debt, the property, both tangible and intangible, and the
business of the Company and its subsidiaries taken as a whole conform in all
material respects to the descriptions thereof contained in the Registration
Statement and the Prospectus. Financial information set forth in the Prospectus
under the headings "Prospectus Summary," "Selected Financial Data,"
"Capitalization," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," fairly present, on the basis stated in the
Prospectus, the information set forth therein and have been derived from or
compiled on a basis consistent with that of the audited financial statements
included in the Prospectus.
-5-
<PAGE> 6
(h) Except as otherwise disclosed in the Company's balance
sheet contained in the Prospectus, the Company (i) has paid all federal, state,
local, franchise, and foreign taxes for which it is liable, including, but not
limited to, withholding taxes and amounts payable under Chapters 21 through 24
of the Internal Revenue Code of 1986, as amended (the "Code"), and has furnished
all information returns it is required to furnish pursuant to the Code, (ii) has
established adequate reserves for such taxes which are not due and payable, and
(iii) does not have any tax deficiency or claims outstanding, proposed or
assessed against it.
(i) No transfer tax, stamp duty or other similar tax is
payable by or on behalf of the Underwriters in connection with (i) the issuance
by the Company of the Registered Securities, (ii) the purchase by the
Underwriters of the Registered Securities from the Company and the purchase by
the Representative of the Representative's Warrants from the Company, (iii) the
consummation by the Company of any of its obligations under this Agreement, or
(iv) resales of the Registered Securities in connection with the distribution
contemplated hereby.
(j) There is no claim, action, suit, proceeding, inquiry,
arbitration, mediation, investigation, litigation, governmental or other
proceeding (including, without limitation, those having jurisdiction over
environmental or similar matters), domestic or foreign, pending or threatened
against (or circumstances that may give rise to the same), or involving the
properties or businesses of, the Company which (i) questions the validity of the
capital stock of the Company, this Agreement, the Warrant Agreement or the
Representative's Warrant Agreement, or of any action taken or to be taken by the
Company pursuant to or in connection with this Agreement, the Warrant Agreement
or the Representative's Warrant Agreement, (ii) is required to be disclosed in
the Registration Statement which is not so disclosed (and such proceedings as
are summarized in the Registration Statement are accurately summarized in all
material respects), or (iii) might materially and adversely affect the
condition, financial or otherwise, or the business, affairs, position,
shareholders' equity, operation, properties, or results of operations of the
Company and its subsidiaries taken as a whole.
(k) The Company has the corporate power and authority to
authorize, issue, deliver, and sell the Registered Securities and to enter into
this Agreement, the Warrant Agreement and the Representative's Warrant
Agreement, and to consummate the transactions provided for in such agreements;
and this Agreement, the Warrant Agreement and the Representative's Warrant
Agreement have each been duly and properly authorized, executed, and delivered
by the Company. Each of this Agreement, the Warrant Agreement and the
Representative's Warrant Agreement constitutes a legal, valid and binding
agreement of the Company enforceable against the Company in accordance with its
respective terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights and the
application of equitable principles in any action, legal or equitable, and
except as rights to indemnity or contribution may be limited by applicable law),
and none of the Company's issue and sale of the Registered Securities,
execution, delivery or performance of
-6-
<PAGE> 7
this Agreement, the Warrant Agreement and the Representative's Warrant
Agreement, its consummation of the transactions contemplated herein and therein,
or the conduct of its businesses as described in the Registration Statement, the
Prospectus, and any amendments or supplements thereto, conflicts with or will
conflict with or results or will result in any breach or violation of any of the
terms or provisions of, or constitutes or will constitute a default under, or
result in the creation or imposition of any lien, charge, claim, encumbrance,
pledge, security interest, defect or other restriction or equity of any kind
whatsoever upon, any property or assets (tangible or intangible) of the Company
pursuant to the terms of (i) the articles of incorporation or by-laws of the
Company, as amended and restated, (ii) any license, contract, indenture,
mortgage, deed of trust, voting trust agreement, shareholders agreement, note,
loan or credit agreement or any other agreement or instrument to which the
Company is a party or by which it is or may be bound or to which its properties
or assets (tangible or intangible) is or may be subject, or any indebtedness, or
(iii) any statute, judgment, decree, order, rule or regulation applicable to the
Company of any arbitrator, court, regulatory body or administrative agency or
other governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign, having
jurisdiction over the Company of any of their activities or properties.
(l) No consent, approval, authorization or order of, and
no filing with, any court, regulatory body, government agency or other body,
domestic or foreign, is required for the issuance of the Registered Securities
pursuant to the Prospectus and the Registration Statement, the performance of
this Agreement, the Warrant Agreement, the Representative's Warrant Agreement,
and the transactions contemplated hereby and thereby, including without
limitation, any waiver of any preemptive, first refusal or other rights that any
entity or person may have for the issue and/or sale of any of the Registered
Securities, except such as have been or may be obtained under the Act or may be
required under state securities or Blue Sky laws in connection with the
Underwriters' purchase and distribution of the Registered Securities to be sold
by the Company hereunder.
(m) All executed agreements, contracts or other documents
or copies of executed agreements, contracts or other documents filed as exhibits
to the Registration Statement to which the Company is a party or by which it may
be bound or to which its assets, properties or businesses may be subject have
been duly and validly authorized, executed and delivered by the Company and
constitute the legal, valid and binding agreements of the Company enforceable
against the Company in accordance with their respective terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law). The descriptions in the
Registration Statement of such agreements, contracts and other documents are
accurate in all material respects and fairly present the information required to
be shown with respect thereto by Form SB-2, and there are no contracts or other
documents which are required by the Act to be described in the
-7-
<PAGE> 8
Registration Statement or filed as exhibits to the Registration Statement which
are not described or filed as required, and the exhibits which have been filed
are complete and correct copies of the documents of which they purport to be
copies.
(n) Since the respective dates as of which information is
given in the Registration Statement and Prospectus, and except as described in
or specifically contemplated by the Prospectus (i) the Company has not incurred
any material liabilities or obligations, indirect, direct or contingent, or
entered into any material verbal or written agreement or other transaction which
is not in the ordinary course of business or which could result in a material
reduction in the future earnings of the Company; (ii) the Company has not
sustained any material loss or interference with its business or properties from
fire, flood, windstorm, accident or other calamity, whether or not covered by
insurance; (iii) the Company has not paid or declared any dividends or other
distributions with respect to its capital stock, and the Company is not in
default in the payment of principal or interest on any outstanding debt
obligations; (iv) there has not been any change in the capital stock (other than
upon the sale of the Shares, the Option Shares and the Representative's Shares
hereunder and upon the exercise of options and warrants described in the
Registration Statement) of, or indebtedness material to, the Company (other than
in the ordinary course of business); (v) the Company has not issued any
securities or incurred any liability or obligation, primary or contingent, for
borrowed money; and (vi) there has not been any material adverse change in the
condition (financial or otherwise), business, properties, results of operations,
or prospects of the Company.
(o) Except as disclosed in or specifically contemplated by
the Prospectus, (i) the Company has sufficient trademarks, trade names, patent
rights, copyrights, licenses, approvals and governmental authorizations to
conduct its business as now conducted; (ii) the expiration of any trademarks,
trade names, patent rights, copyrights, licenses, approvals or governmental
authorizations would not have a material adverse effect on the condition
(financial or otherwise), business, results of operations or prospects of the
Company; (iii) the Company has no knowledge of any infringement by it or its
subsidiaries of trademark, trade name rights, patent rights, copyrights,
licenses, trade secret or other similar rights of others; and (iv) there is no
claim being made against the Company regarding trademark, trade name, patent,
copyright, license, trade secret or other infringement which could have a
material adverse effect on the condition (financial or otherwise), business,
results of operations or prospects of the Company.
(p) Except as otherwise disclosed in the Prospectus, no
default exists, which would have a material adverse effect on the Company, in
the due performance and observance of any term, covenant or condition of any
license, contract, indenture, mortgage, installment sale agreement, lease, deed
of trust, voting trust agreement, shareholders agreement, note, loan or credit
agreement, or any other material agreement or instrument evidencing an
obligation for borrowed money, or any other material agreement or instrument to
which the
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<PAGE> 9
Company is a party or by which the Company may be bound or to which
the property or assets (tangible or intangible) of the Company is subject or
affected.
(q) To the Company's knowledge, there are no pending
investigations involving the Company by the U.S. Department of Labor, or any
other governmental agency responsible for the enforcement of such federal,
state, local, or foreign laws and regulations. There is no unfair labor practice
charge or complaint against the Company pending before the National Labor
Relations Board or any strike, picketing, boycott, dispute, slowdown or stoppage
pending or to its knowledge threatened against or involving the Company. No
representation question exists respecting the employees of the Company. No
collective bargaining agreement, or modification thereof is currently being
negotiated by the Company. No grievance or arbitration proceeding is pending
under any expired or existing collective bargaining agreements of the Company.
No labor dispute with the employees of the Company exists or to its knowledge is
imminent.
(r) Except as described in the Prospectus, the Company
does not maintain, sponsor or contribute to any program or arrangement that is
an "employee pension benefit plan, " an "employee welfare benefit plan," or a
"multiemployer plan" as such terms are defined in Sections 3(2), 3(1) and 3(37),
respectively, of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") ("ERISA Plans"). The Company does not maintain or contribute to a
defined benefit plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or
any trust created thereunder) has engaged in a "prohibited transaction" within
the meaning of Section 406 of ERISA or Section 4975 of the Code, which could
subject the Company to any tax penalty on prohibited transactions and which has
not adequately been corrected. Each ERISA Plan is in compliance with all
material reporting, disclosure and other requirements of the Code and ERISA as
they relate to any such ERISA Plan. Determination letters have been received
from the Internal Revenue Service with respect to each ERISA Plan which is
intended to comply with Code Section 401(a), stating that such ERISA Plan and
the attendant trust are qualified thereunder. The Company has never completely
or partially withdrawn from a "multiemployer plan."
(s) Neither the Company, nor, to the best of the Company's
knowledge, any of its employees, directors, shareholders, or affiliates (within
the meaning of the Regulations) of any of the foregoing has taken or will take
directly or indirectly, any action designed to or which has constituted or which
might be expected to cause or result in stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Registered Securities.
(t) The Company has good and marketable title to, or valid
and enforceable leasehold estates in, all items of real and personal property
stated in the Prospectus to be owned or leased by it, free and clear of all
liens, charges, claims, encumbrances, pledges, security
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<PAGE> 10
interests, or other restrictions or equities of any kind whatsoever other than
those referred to in the Prospectus and liens for taxes not yet due and payable.
(u) To the best of the Company's knowledge, BDO Seidman,
LLP ("BDO Seidman"), whose report is filed with the Commission as a part of the
Registration Statement, are independent certified public accountants as required
by the Act and the Regulations.
(v) The Company has caused to be duly executed legally
binding and enforceable agreements pursuant to which all persons or entities
that directly or beneficially own Common Stock, as of the effective date of the
Registration Statement, have agreed not to, directly or indirectly, offer, offer
to sell, sell, grant any option for the sale of, transfer, assign, pledge,
hypothecate or otherwise encumber or dispose of any shares of Common Stock or
securities convertible into Common Stock, exercisable or exchangeable for or
evidencing any right to purchase or subscribe for any shares of Common Stock
(either pursuant to Rule 144 of the Regulations or otherwise) or dispose of any
interest therein for a period from the date of the Prospectus until thirteen
(13) months following the date that the Registration Statement becomes
effective, without the prior written consent of National (the "Lock-up
Agreements"). The Company will cause the Transfer Agent (as defined herein) to
place "stop transfer" orders on the Company's stock ledgers to effect the
Lock-up Agreements.
(w) There are no claims, payments, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Registered
Securities hereunder or any other arrangements, agreements, understandings,
payments or issuance with respect to the Company or any of its officers,
directors, shareholders, employees or affiliates that may affect the
Underwriters' compensation as determined by the Commission and NASD Regulation,
Inc. (the "NASD").
(x) The Registered Securities have been approved for
quotation on the Nasdaq SmallCap Market.
(y) Neither the Company, nor any of its officers,
employees, agents or any other person acting on behalf of the Company has,
directly or indirectly, given or agreed to give any money, gift or similar
benefit (other than legal price concessions to customers in the ordinary course
of business) to any customer, supplier, employee or agent of a customer or
supplier, or official or employee of any governmental agency (domestic or
foreign) or instrumentality of any government (domestic or foreign) or any
political party or candidate for office (domestic or foreign) or other person
who was, is, or may be in a position to help or hinder the business of the
Company (or assist the Company in connection with any actual or proposed
transaction) which 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). The Company believes that its internal
accounting controls are sufficient to cause the Company to comply with the
Foreign Corrupt Practices Act of 1977, as amended.
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<PAGE> 11
(z) Except as set forth in the Prospectus, no officer,
director or shareholder of the Company, or any "affiliate" or "associate" (as
these terms are defined in Rule 405 promulgated under the 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 beneficiary 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 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 shareholder (as such term is used in the Prospectus) of the
Company, or any affiliate or associate of any of the foregoing persons or
entities.
(aa) The Company is not, and does not intend to conduct
its business in a manner in which it would become an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
(ab) Any certificate signed by any officer of the Company
and delivered to the Underwriters or to the Underwriters' Counsel (as defined in
Section 4(d) herein) shall be deemed a representation and warranty by the
Company to the Underwriters as to the matters covered thereby.
(ac) The minute books of the Company have been made
available to the Underwriters and contain a complete summary of all meetings and
actions of the directors and shareholders of the Company, since the time of its
incorporation, and reflect all transactions referred to in such minutes
accurately in all material respects.
(ad) The Company has not distributed and will not
distribute prior to the Closing Date any offering material in connection with
the offering and sale of the Shares in this offering other than the Prospectus,
the Registration Statement and the other materials permitted by the Act. Except
as described in the Prospectus, no holders of any securities of the Company or
of any options, warrants or other convertible or exchangeable securities of the
Company have the right to include any securities issued by the Company as part
of the Registration Statement or to require the Company to file a registration
statement under the Act and no person or entity holds any anti-dilution rights
with respect to any securities of the Company.
(ae) Each of the Company and its subsidiaries maintains
insurance by insurers of recognized financial responsibility of the types and in
the amounts as are prudent, customary and adequate for the business in which it
is engaged, including, but not limited to, insurance covering real and personal
property owned or leased by the Company and its subsidiaries against theft,
damage, destruction, acts of vandalism and all other risks customarily insured
against, all of which insurance is in full force and effect. The Company has no
reason
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<PAGE> 12
to believe that it will not be able to renew existing insurance coverage with
respect to the Company as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business, in
either case, at a cost that would not have a material adverse effect on the
financial condition, operations, business, assets or properties of the Company.
The Company has not failed to file any claims, has no material disputes with its
insurance company regarding any claims submitted under its insurance policies,
and has complied with all material provisions contained in its insurance
policies.
(af) The Company has entered into a warrant agreement (the
"Warrant Agreement") substantially in the form filed as Exhibit 4.4 to the
Registration Statement with Continental Stock Transfer & Trust Company, in form
and substance satisfactory to the Representative, with respect to the Warrants
providing for the payment of commissions contemplated by Section 4(y), hereof.
The Warrant Agreement has been duly and validly authorized by the Company and,
assuming due execution by the parties thereto other than the Company,
constitutes a valid and legally binding agreement of the Company, enforceable
against the Company in accordance with its terms, except (i) as such
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally, (ii) as enforceability of
any indemnification provision may be limited under the federal and state
securities laws, and (iii) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to the equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
(ag) None of the Company's services or products have or
will have any malfunctions or other usage problems in connection with the use of
the Year 2000 and beyond as distinguished from the use of the years 1990 through
1999 and earlier years.
2. Purchase, Sale and Delivery of the Registered Securities.
(a) On the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to sell to each Underwriter, and
each Underwriter, severally and not jointly agrees to purchase from the Company,
at a price equal to $_____ per Unit, that number of Shares set forth in Schedule
A opposite the name of such Underwriter, subject to such adjustment as the
Representative in its discretion shall make to eliminate any sales or purchases
of fractional shares, plus any additional numbers of Shares which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 11 hereof.
(b) In addition, on the basis of the representations,
warranties, covenants and agreements, herein contained, but subject to the terms
and conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase all or any part of the
Option Shares at a price equal to $_____ per Unit. The option granted hereby
will expire 45 days after (i) the date the Registration Statement becomes
effective, if the
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<PAGE> 13
Company has elected not to rely on Rule 430A under the Regulations, or (ii) the
date of this Agreement if the Company has elected to rely upon Rule 430A under
the Regulations, and may be exercised in whole or in part from time to time (but
not on more than two (2) occasions) only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Shares upon notice by the Representative to the Company
setting forth the number of Option Shares as to which the several Underwriters
are then exercising the option and the time and date of payment and delivery for
any such Option Shares. Any such time and date of delivery (an "Option Closing
Date") shall be determined by the Representative, but shall not be later than
three full business days after the exercise of said option, nor in any event
prior to the Closing Date, as hereinafter defined, unless otherwise agreed upon
by the Representative and the Company. Nothing herein contained shall obligate
the Underwriters to exercise the over-allotment option described above. No
Option Shares shall be delivered unless the Shares shall be simultaneously
delivered or shall theretofore have been delivered as herein provided.
(c) Payment of the purchase price for, and delivery of
certificates for, the Shares shall be made at the offices of National, at 1001
Fourth Avenue, Suite 2200, Seattle, Washington, or at such other place as shall
be agreed upon by the Representative and the Company. Such delivery and payment
shall be made at 9:00 a.m. (New York time) on _________, 1998 or at such other
time and date as shall be agreed upon by the Representative and the Company, but
no more than four (4) business days after the date hereof (such time and date of
payment and delivery being herein called the "Closing Date"). In addition, in
the event that any or all of the Option Shares are purchased by the
Underwriters, payment of the purchase price for, and delivery of certificates
for, such Option Shares shall be made at the above mentioned office of National
or at such other place as shall be agreed upon by the Representative and the
Company on each Option Closing Date as specified in the notice from the
Representative to the Company. Delivery of the certificates for the Shares and
the Option Shares, if any, shall be made to the Underwriters against payment by
the Underwriters, of the purchase price for the Shares and the Option Shares, if
any, to the order of the Company. In the event such option is exercised, each of
the Underwriters, acting severally and not jointly, shall purchase that
proportion of the total number of Option Shares then being purchased which the
total number of Shares set forth in Schedule A hereto opposite the name of such
Underwriter bears to the total number of Shares, subject in each case to such
adjustments as the Representative in their discretion shall make to eliminate
any sales or purchases of fractional shares. Certificates for the Shares and the
Option Shares, if any, shall be in definitive, fully registered form, shall bear
no restrictive legends and shall be in such denominations and registered in such
names as the Underwriters may request in writing at least three (3) business
days prior to Closing Date or the relevant Option Closing Date, as the case may
be. The certificates for the Shares and the Option Shares, if any, shall be made
available to the Representative at such office or such other place as the
Representative may designate for inspection, checking and packaging no later
than 9:30 a.m. on the last business day prior to Closing Date or the relevant
Option Closing Date, as the case may be.
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<PAGE> 14
(d) On the Closing Date, the Company shall issue and sell
to the Representative the Representative's Warrants at a purchase price of
$0.0001 per warrant, which warrants shall entitle the holders thereof to
purchase an aggregate of 100,000 Units. The Representative's Warrants shall
expire five (5) years after the effective date of the Registration Statement and
shall be exercisable commencing one (1) year from the effective date of the
Registration Statement at a price equaling one hundred and twenty percent (120%)
of the initial public offering price of the Units. The Representative's Warrant
Agreement and form of Warrant Certificate shall be substantially in the form
filed as Exhibit 4.2 to the Registration Statement. Payment for the
Representative's Warrants shall be made on the Closing Date.
3. Public Offering of the Shares. As soon after the Registration
Statement becomes effective as the Representative deems advisable, the
Underwriters shall make a public offering of the Shares (other than to residents
of or in any jurisdiction in which qualification of the Shares is required and
has not become effective) at the price and upon the other terms set forth in the
Prospectus. The Representative may from time to time increase or decrease the
public offering price after distribution of the Shares has been completed to
such extent as the Representative, in its sole discretion deems advisable. The
Underwriters may enter into one or more agreements as the Underwriters, in each
of their sole discretion, deem advisable with one or more broker-dealers who
shall act as dealers in connection with such public offering. In addition, the
Units shall not be separately tradeable until _______ (__) months after the date
of the Prospectus or, at the sole discretion of the Representative, earlier upon
three (3) days prior written notice by the Representative to the Company at the
discretion of the Representative.
4. Covenants of the Company. The Company covenants and agrees
with each of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as practicable and will not at any time, whether before or after the
effective date of the Registration Statement, file any amendment to the
Registration Statement or supplement to the Prospectus or file any document
under the Act or Exchange Act before termination of the offering of the Shares
by the Underwriters of which the Representative shall not previously have been
advised and furnished with a copy, or to which the Representative shall have
objected or which is not in compliance with the Act, the Exchange Act or the
Regulations.
(b) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Representative and confirm the notice in
writing, (i) when the Registration Statement, as amended, becomes effective, if
the provisions of Rule 430A promulgated under the Act will be relied upon, when
the Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective, (ii)
of the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding, suspending the effectiveness of the Registration
Statement
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<PAGE> 15
or any order preventing or suspending the use of the Preliminary Prospectus or
the Prospectus, or any amendment or supplement thereto, or the institution of
proceedings for that purpose, (iii) of the issuance by the Commission or by any
state securities commission of any proceedings for the suspension of the
qualification of any of the Registered Securities for offering or sale in any
jurisdiction or of the initiation, or the threatening, of any proceeding for
that purpose, (iv) of the receipt of any comments from the Commission; and (v)
of any request by the Commission for any amendment to the Registration Statement
or any amendment or supplement to the Prospectus or for additional information.
If the Commission or any state securities commission authority shall enter a
stop order or suspend such qualification at any time, the Company will use its
best efforts to obtain promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and
substance satisfactory to the Representative) in accordance with the
requirements of the Act.
(d) The Company will give the Representative notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
by the Underwriters in connection with the offering of the Registered Securities
which differs from the corresponding prospectus on file at the Commission at the
time the Registration Statement becomes effective, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) of the Regulations),
and will furnish the Representative with copies of any such amendment or
supplement a reasonable amount of time prior to such proposed filing or use, as
the case may be, and will not file any such amendment or supplement to which the
Representative or Camhy Karlinsky & Stein LLP ("Underwriters' Counsel") shall
reasonably object.
(e) The Company shall endeavor in good faith, in
cooperation with the Representative, at or prior to the time the Registration
Statement becomes effective, to qualify the Registered Securities for offering
and sale under the securities laws of such jurisdictions as the Representative
may reasonably designate to permit the continuance of sales and dealings therein
for as long as may be necessary to complete the distribution, and shall make
such applications, file such documents and furnish such information as may be
required for such purpose; provided, however, the Company shall not be required
to qualify as a foreign corporation or become subject to service of process in
any such jurisdiction. In each jurisdiction where such qualification shall be
effected, the Company will, unless the Representative agree that such action is
not at the time necessary or advisable, use all reasonable efforts to file and
make such statements or reports at such times as are or may reasonably be
required by the laws of such jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be
delivered under the Act, the Company shall use all reasonable efforts to comply
with all requirements imposed upon it by the Act, as now and hereafter amended,
and by the Regulations, as from time to time
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<PAGE> 16
in force, so far as necessary to permit the continuance of sales of or dealings
in the Registered Securities in accordance with the provisions hereof and the
Prospectus, or any amendments or supplements thereto. If at any time when a
prospectus relating to the Registered Securities is required to be delivered
under the Act, any event shall have occurred as a result of which, in the
opinion of counsel for the Company or Underwriters' Counsel, the Prospectus, as
then amended or supplemented, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, or if it is necessary at any time to amend or
supplement the Prospectus to comply with the Act, the Company will notify the
Representative promptly and prepare and file with the Commission an appropriate
amendment or supplement in accordance with Section 10 of the Act, each such
amendment or supplement to be satisfactory to Underwriters' Counsel, and the
Company will furnish to the Underwriters copies of such amendment or supplement
as soon as available and in such quantities as the Underwriters may request.
(g) As soon as practicable, but in any event not later
than 45 days after the end of the 12-month period beginning on the day after the
end of the fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), the Company shall make
generally available to its security holders, in the manner specified in Rule
158(b) of the Regulations, and to the Representative, an earnings statement
which will be in the detail required by, and will otherwise comply with, the
provisions of Section 11(a) of the Act and Rule 158(a) of the Regulations, which
statement need not be audited unless required by the Act, covering a period of
at least 12 consecutive months after the effective date of the Registration
Statement.
(h) During a period of five (5) years after the date
hereof, the Company will furnish to its shareholders, as soon as practicable,
annual reports (including financial statements audited by independent public
accountants) and unaudited quarterly reports of earnings, and will deliver to
the Representative:
(i) concurrently with furnishing such quarterly
reports to its shareholders, statements of income of the Company
for each quarter in the form furnished to the Company's
shareholders;
(ii) concurrently with furnishing such annual
reports to its shareholders, a balance sheet of the Company as at
the end of the preceding fiscal year, together with statements of
operations, shareholders' equity, and cash flows of the Company
for such fiscal year, accompanied by a copy of the report thereon
of independent certified public accountants;
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<PAGE> 17
(iii) as soon as they are available, copies of all
reports (financial or other) mailed to shareholders;
(iv) as soon as they are available, copies of all
reports and financial statements furnished to or filed with the
Commission, the Nasdaq SmallCap Market or any securities
exchange;
(v) every press release and every material news
item or article of interest to the financial community in respect
of the Company or its affairs which was released or prepared by
or on behalf of the Company; and
(vi) any additional information of a public nature
concerning the Company (and any future subsidiaries) or its
businesses which the Representative may reasonably request.
During such five-year period, if the Company has active
subsidiaries, the foregoing financial statements will be on a consolidated basis
to the extent that the accounts of the Company and its subsidiaries are
consolidated, and will be accompanied by similar financial statements for any
significant subsidiary which is not so consolidated.
(i) The Company will maintain a transfer and warrant agent
(the "Transfer Agent") and, if necessary under the jurisdiction of incorporation
of the Company, a registrar (which may be the same entity as the transfer agent)
for the Units, Common Stock, Warrants and the Representative's Warrants.
(j) The Company will furnish to the Representative or on
the Representative's order, without charge, at such place as the
Representative may designate, copies of each Preliminary Prospectus, the
Registration Statement and any pre-effective or post-effective amendments
thereto (two of which copies will be signed and will include all financial
statements and exhibits), each Preliminary Prospectus, the Prospectus, and all
amendments and supplements thereto, including any prospectus prepared after the
effective date of the Registration Statement, in each case as soon as available
and in such quantities as the Representative may reasonably request.
(k) On or before the effective date of the Registration
Statement, the Company shall provide the Representative with true copies of duly
executed, legally binding and enforceable Lock-up Agreements. On or before the
Closing Date, the Company shall deliver instructions to the Transfer Agent
authorizing it to place appropriate stop transfer orders on the Company's
ledgers.
(l) The Company shall use its best efforts to cause its
officers, directors, shareholders or affiliates (within the meaning of the
Regulations) not to take, directly or
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<PAGE> 18
indirectly, any action designed to, or which might in the future reasonably be
expected to cause or result in, stabilization or manipulation of the price of
any securities of the Company.
(m) The Company shall apply the net proceeds from the sale
of the Registered Securities substantially in the manner, and subject to the
conditions, set forth under "Use of Proceeds" in the Prospectus.
(n) The Company shall timely file all such reports, forms
or other documents as may be required from time to time, under the Act, the
Exchange Act, and the Regulations, and all such reports, forms and documents
filed will comply as to form and substance with the applicable requirements
under the Act, the Exchange Act, and the Regulations.
(o) The Company shall cause the Registered Securities to
be quoted on the Nasdaq SmallCap Market and for a period of two (2) years from
the date hereof shall use its best efforts to maintain the quotation of the
Registered Securities to the extent outstanding.
(p) For a period of two (2) years from the Closing Date,
the Company shall furnish to the Representative, at the Company's sole expense,
monthly consolidated transfer sheets relating to the Common Stock.
(q) For a period of five (5) years after the effective
date of the Registration Statement the Company shall use its best efforts, at
the Company's sole expense, to take all necessary and appropriate actions to
further qualify the Company's securities in all jurisdictions of the United
States in order to permit secondary sales of such securities pursuant to the
Blue-Sky laws of those jurisdictions which do not require the Company to qualify
as a foreign corporation or to file a general consent to service of process.
(r) The Company (i) prior to the effective date of the
Registration Statement, has filed a Form 8-A with the Commission providing for
the registration of the Common Stock under the Exchange Act and (ii) as soon as
practicable, will use its best efforts to take all necessary and appropriate
actions to be included in Standard and Poor's Corporation Descriptions and
Moody's OTC Manual and to continue such inclusion for a period of not less than
five (5) years.
(s) The Company agrees that for a period of thirteen (13)
months following the effective date of the Registration Statement it will not,
without the prior written consent of National, offer, issue, sell, contract to
sell, grant any option for the sale of or otherwise dispose of any Units or
Common Stock, or securities convertible into Common Stock, except for the
issuance of the Option Shares, the Representative's Warrants, and shares of
Common Stock upon the exercise of currently outstanding warrants or options
issued under any stock option plan in
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<PAGE> 19
effect on the Closing Date or options to purchase shares of Common Stock granted
pursuant to any stock option plan in effect on the Closing Date.
(t) Until the completion of the distribution of the
Registered Securities, the Company shall not without the prior written consent
of National or Underwriters' Counsel, issue, directly or indirectly any press
release or other communication or hold any press conference with respect to the
Company or its activities or the offering contemplated hereby, other than trade
releases issued in the ordinary course of the Company's business consistent with
past practices with respect to the Company's operations.
(u) For a period equal to the lesser of (i) five (5) years
from the date hereof, and (ii) the sale to the public of the Representative's
Shares, the Company will not take any action or actions which may prevent or
disqualify the Company's use of Form SB-2 (or other appropriate form) for the
registration under the Act of the Representative's Shares.
(v) The Company agrees that upon the request of National
it shall use its best efforts, which shall include, but shall not be limited to,
the solicitation of proxies, to elect one (1) designee of National to the
Company's Board of Directors for a period of five (5) years following the
Closing, provided that such designee is reasonably acceptable to the Company. In
the event National does not exercise its right to designate a member of the
Board of Directors, then it shall have the right to designate one person to
attend all meetings of the Board of Directors of the Company, and all committees
thereof, as an observer. Such observer shall be entitled to receive notices of
all such meetings, and all correspondence and communications sent by the Company
to members of its Board of Directors, and to attend all such meetings. The
Company shall reimburse the designee of National for his out-of-pocket expenses
incurred in connection with their attendance at such meetings.
(w) The Company agrees that within forty-five (45) days
after the Closing it shall retain a public relations firm which is acceptable to
National. The Company shall keep such public relations firm, or any replacement,
for a period of three (3) years from the Closing. Any replacement public
relations firm shall be retained only with the consent of National.
(x) The Company agrees that any and all future
transactions between the Company and its officers, directors, principal
shareholders and the affiliates of the foregoing persons will be on terms no
less favorable to the Company than could reasonably be obtained in arm's length
transactions with independent third parties, and that any such transactions also
be approved by a majority of the Company's outside independent directors
disinterested in the transaction.
(y) The Company shall prepare and deliver, at the
Company's sole expense, to National within the one hundred and twenty (120) day
period after the later of the effective date of the Registration Statement or
the latest Option Closing Date, as the case may
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<PAGE> 20
be, four (4) bound volumes containing all correspondence with regulatory
officials, agreements, documents and all other materials in connection with the
offering as requested by the Underwriters' Counsel.
(z) The Company shall pay the Representative a commission
equal to five percent (5%) of the exercise price of each Warrant exercised for
the period commencing twelve (12) months after the effective date of the
Registration Statement until the expiration of the term of the Warrants, payable
on the date of such exercise on terms provided for in the Warrant Agreement. The
Company will not solicit the exercise of the Warrants other than through the
Representative. However, no compensation will be paid to the Representative in
connection with the exercise of the Warrants if (i) the Warrants are held in a
discretionary account, or (ii) the Warrants are exercised in an unsolicited
transaction. Further, the Representative must be designated in writing by the
account holder as having solicited the transaction, otherwise the Representative
shall not be paid the fee. In addition, the Representative will not receive any
commission with respect to the exercise of the Warrants contained in the Units
to be received upon the exercise of the Representative's Warrants, unless held
by a person or entity other than any of the Underwriters.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of the
Closing Date and each Option Closing Date (to the extent not previously paid)
all expenses and fees (other than fees of Underwriters' Counsel, except as
provided in (iv) below) incident to the performance of the obligations of the
Company under this Agreement, the Warrant Agreement, and the Representative's
Warrant Agreement, including, without limitation, (i) the fees and expenses of
accountants and counsel for the Company, (ii) all costs and expenses incurred in
connection with the preparation, duplication, printing, filing, delivery and
mailing (including the payment of postage with respect thereto) of the
Registration Statement and the Prospectus and any amendments and supplements
thereto and the duplication, mailing (including the payment of postage with
respect thereto) and delivery of this Agreement, the Agreement Among
Underwriters, the Selected Dealers Agreements, the Powers of Attorney, and
related documents, including the cost of all copies thereof and of the
Preliminary Prospectuses and of the Prospectus and any amendments thereof or
supplements thereto supplied to the Underwriters and such dealers as the
Underwriters may request, in quantities as hereinabove stated, (iii) the
printing, engraving, issuance and delivery of the certificates representing the
Registered Securities, (iv) the qualification of the Registered Securities under
state or foreign securities or "Blue Sky" laws and determination of the status
of such securities under legal investment laws, including the costs of printing
and mailing the "Preliminary Blue Sky Memorandum," the "Supplemental Blue Sky
Memorandum" and "Legal Investments Survey," if any, and reasonable disbursements
and fees of counsel in connection therewith, (v) advertising costs and expenses,
including but not limited to the costs and expenses incurred in connection with
the "road show," information meetings and presentations, bound volumes and
prospectus memorabilia and "tombstone" advertisement
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<PAGE> 21
expenses, (vi) costs and expenses in connection with due diligence
investigations, including but not limited to the fees of any independent counsel
or consultant retained, (vii) fees and expenses of the transfer agent and
registrar, (viii) the fees payable to the Commission and the NASD, (ix) the fees
and expenses incurred in connection with the listing of the Registered
Securities on the Nasdaq SmallCap Market, and any other market or exchange, and
(x) applications for assignments of a rating of the Securities by qualified
rating agencies.
(b) If this Agreement is terminated by the Underwriters in
accordance with the provisions of Section 6, Section 10(a) or Section 11, the
Company shall reimburse and indemnify the Representative for all of their actual
out-of-pocket expenses, including the fees and disbursements of Underwriters'
Counsel, less any amounts already paid pursuant to Section 5(c) hereof.
(c) The Company further agrees that, in addition to the
expenses payable pursuant to subsection (a) of this Section 5, it will pay to
the Representative on the Closing Date by certified or bank cashier's check or,
at the election of the Representative, by deduction from the proceeds of the
offering contemplated herein a non-accountable expense allowance equal to three
percent (3%) of the gross proceeds received by the Company from the sale of the
Shares, $25,000 of which has been paid to date. In the event the Representative
elects to exercise the over-allotment option described in Section 2(b) hereof,
the Company further agree to pay to the Representative on the Option Closing
Date (by certified or bank cashier's check or, at the Representative's election,
by deduction from the proceeds of the offering) a non-accountable expense
allowance equal to three percent (3%) of the gross proceeds received by the
Company from the sale of the Option Shares.
6. Conditions of the Underwriters' Obligations. The obligations
of the Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date and each Option Closing Date, if any, as if they had been
made on and as of the Closing Date or each Option Closing Date, as the case may
be; the accuracy on and as of the Closing Date or Option Closing Date, if any,
of the statements of officers of the Company made pursuant to the provisions
hereof; and the performance by the Company on and as of the Closing Date and
each Option Closing Date, if any, of its covenants and obligations hereunder and
to the following further conditions:
(a) The Registration Statement shall have become effective
not later than 5:00 p.m., New York City time, on the date of this Agreement or
such later date and time as shall be consented to in writing by the
Representative, and, at Closing Date and each Option Closing Date, if any, no
stop order suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been instituted or
shall be pending or contemplated by the Commission and any request on the part
of the Commission for additional information shall have been complied with to
the reasonable satisfaction of
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<PAGE> 22
Underwriters' Counsel. If the Company has elected to rely upon Rule 430A of the
Regulations, the price of the Shares and any price-related information
previously omitted from the effective Registration Statement pursuant to such
Rule 430A shall have been transmitted to the Commission for filing pursuant to
Rule 424(b) of the Regulations within the prescribed time period, and prior to
Closing Date the Company shall have provided evidence satisfactory to the
Representative of such timely filing, or a post-effective amendment providing
such information shall have been promptly filed and declared effective in
accordance with the requirements of Rule 430A of the Regulations.
(b) The Representative shall not have advised the Company
that the Registration Statement, or any amendment thereto, contains an untrue
statement of fact which, in the Representative's opinion, is material, or omits
to state a fact which, in the Representative's opinion, is material and is
required to be stated therein or is necessary to make the statements therein not
misleading, or that the Prospectus, or any supplement thereto, contains an
untrue statement of fact which, in the Representative's reasonable opinion, is
material, or omits to state a fact which, in the Representative's reasonable
opinion, is material and is required to be stated therein or is necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(c) On or prior to the Closing Date, the Underwriters
shall have received from Underwriters' Counsel such opinion or opinions with
respect to the organization of the Company, the validity of the Registered
Securities, the Registration Statement, the Prospectus and other related matters
as the Representative may request and Underwriters' Counsel shall have received
from the Company such papers and information as they request to enable them to
pass upon such matters.
(d) At Closing Date, the Underwriters shall have received
the favorable opinion of Loeb & Loeb LLP ("Loeb & Loeb"), counsel to the
Company, dated the Closing Date, addressed to the Underwriters and in form and
substance satisfactory to Underwriters' Counsel, to the effect that:
(i) the Company (A) has been duly organized and is
validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation, (B) is duly
qualified and licensed and in good standing as a foreign
corporation in each jurisdiction in which its ownership or
leasing of any properties or the character of its
operations requires such qualification or licensing, and
(C) to the best of such counsel's knowledge, has the
requisite corporate power and authority and has obtained
the necessary authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all
governmental or regulatory officials and bodies including,
without limitation, those having jurisdiction over
environmental or similar matters (the absence of which
would have a
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<PAGE> 23
material adverse effect on the Company), to own or lease
its properties and conduct its business as described in
the Prospectus.
(ii) except as described in the Prospectus, and to
the best of such counsel's knowledge after reasonable
investigation, the Company does not own an interest in any
corporation, limited liability company, partnership, joint
venture, trust or other business entity;
(iii) the Company has a duly authorized, issued and
outstanding capitalization as set forth in the Prospectus,
and any amendment or supplement thereto, under
"Capitalization" and "Description of Securities," and to
the best knowledge of such counsel, the Company is not a
party to or bound by any instrument, agreement or other
arrangement providing for it to issue any capital stock,
rights, warrants, options or other securities, except for
this Agreement, the Warrant Agreement, the
Representative's Warrant Agreement, and as described in
the Prospectus. The Registered Securities and all other
securities issued or issuable by the Company conform in
all material respects to the statements with respect
thereto contained in the Registration Statement and the
Prospectus. All issued and outstanding securities of the
Company have been duly authorized and validly issued and
are fully paid and non-assessable; and to the best of such
counsel's knowledge, none of such securities were issued
in violation of the preemptive rights of any holders of
any security of the Company. The Registered Securities to
be sold by the Company hereunder and under the Warrant
Agreement and Representative's Warrant Agreement are not
and will not, to the best of such counsel's knowledge, be
subject to any preemptive or other similar rights of any
shareholder, have been duly authorized and, when issued,
paid for and delivered in accordance with their terms,
will be validly issued, fully paid and non-assessable and
conform in all material respects to the description
thereof contained in the Prospectus; all corporate action
required to be taken for the authorization, issue and sale
of the Registered Securities has been duly and validly
taken; and the certificates representing the Registered
Securities are in due and proper form. The
Representative's Warrants constitute valid and binding
obligations of the Company to issue and sell, upon
exercise thereof and payment therefor, the number and type
of securities of the Company called for thereby (except as
such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or
other laws of general application relating to or affecting
enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable,
and except as rights to indemnity or contribution may be
limited by applicable law). Upon the issuance and
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<PAGE> 24
delivery pursuant to this Agreement of the Registered
Securities to be sold by the Company, the Company will
convey, against payment therefor as provided herein, to
the Underwriters and the Representative, respectively,
good and marketable title to the Registered Securities
free and clear of all liens and other encumbrances;
(iv) the Registration Statement is effective under
the Act, and, if applicable, filing of all pricing
information has been timely made in the appropriate form
under Rule 430A, and no stop order suspending the use of
the Preliminary Prospectus, the Registration Statement or
Prospectus or any part of any thereof or suspending the
effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been
instituted or are pending or, to the best of such
counsel's knowledge, threatened or contemplated under the
Act;
(v) each of the Preliminary Prospectus, the
Registration Statement, and the Prospectus and any
amendments or supplements thereto (other than the
financial statements and other financial and statistical
data included therein as to which no opinion need be
rendered) comply as to form in all material respects with
the requirements of the Act and the Regulations. Such
counsel shall state that such counsel has participated in
conferences with officers and other representatives of the
Company and the Representative and representatives of the
independent public accountants for the Company, at which
conferences the contents of the Preliminary Prospectus,
the Registration Statement, the Prospectus, and any
amendments or supplements thereto were discussed, and,
although such counsel is not passing upon and does not
assume any responsibility for the accuracy, completeness
or fairness of the statements contained in the Preliminary
Prospectus, the Registration Statement and Prospectus, and
any amendments or supplements thereto, on the basis of the
foregoing, no facts have come to the attention of such
counsel which lead them to believe that either the
Registration Statement or any amendment thereto, at the
time such Registration Statement or amendment became
effective or the Preliminary Prospectus or Prospectus or
amendment or supplement thereto as of the date of such
opinion contained any untrue statement of a material fact
or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading (it being understood that such counsel need
express no opinion with respect to the financial
statements and schedules and other financial and
statistical data included in the Preliminary Prospectus,
the Registration Statement or Prospectus, and any
amendments or supplements thereto);
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<PAGE> 25
(vi) to the best of such counsel's knowledge after
reasonable investigation, (A) there are no agreements,
contracts or other documents required by the Act to be
described in the Registration Statement and the Prospectus
and filed as exhibits to the Registration Statement other
than those described in the Registration Statement and the
Prospectus and filed as exhibits thereto; (B) the
descriptions in the Registration Statement and the
Prospectus and any supplement or amendment thereto of
contracts and other documents to which the Company is a
party or by which it is bound are accurate in all material
respects and fairly represent the information required to
be shown by Form SB-2; (C) there is not pending or
threatened against the Company any action, arbitration,
suit, proceeding, litigation, governmental or other
proceeding (including, without limitation, those having
jurisdiction over environmental or similar matters),
domestic or foreign, pending or threatened against the
Company which (x) is required to be disclosed in the
Registration Statement which is not so disclosed (and such
proceedings as are summarized in the Registration
Statement are accurately summarized in all material
respects), (y) questions the validity of the capital stock
of the Company or this Agreement, the Warrant Agreement or
the Representative's Warrant Agreement, or of any action
taken or to be taken by the Company pursuant to or in
connection with any of the foregoing; and (D) there is no
action, suit or proceeding pending or threatened against
the Company before any court or arbitrator or governmental
body, agency or official in which there is a reasonable
possibility of an adverse decision which may result in a
material adverse change in the financial condition,
business, affairs, shareholders' equity, operations,
properties, business or results of operations of the
Company, which could adversely affect the present or
prospective ability of the Company to perform its
obligations under this Agreement, the Warrant Agreement or
the Representative's Warrant Agreement or which in any
manner draws into question the validity or enforceability
of this Agreement, the Warrant Agreement or the
Repre-sentative's Warrant Agreement;
(vii) the Company has the corporate power and
authority to enter into each of this Agreement, the
Warrant Agreement and the Representative's Warrant
Agreement and to consummate the transactions provided for
therein; and each of this Agreement, the Warrant Agreement
and the Representative's Warrant Agreement has been duly
authorized, executed and delivered by the Company. Each of
this Agreement, the Warrant Agreement and the
Representative's Warrant Agreement, assuming due
authorization, execution and delivery by each other party
thereto, constitutes a legal, valid and binding agreement
of the Company
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<PAGE> 26
enforceable against the Company in accordance with its
terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application relating
to or affecting enforcement of creditors' rights and the
application of equitable principles in any action, legal
or equitable, and except as rights to indemnity or
contribution may be limited by applicable law), and none
of the Company's execution, delivery or performance of
this Agreement, the Warrant Agreement and the
Representative's Warrant Agreement, its consummation of
the transactions contemplated herein or therein, or the
conduct of its business as described in the Registration
Statement, the Prospectus, and any amendments or
supplements thereto conflicts with or results in any
breach or violation of any of the terms or provisions of,
or constitutes a default under, or result in the creation
or imposition of any lien, charge, claim, encumbrance,
pledge, security interest, defect or other restriction or
equity of any kind whatsoever upon, any property or assets
(tangible or intangible) of the Company pursuant to the
terms of (A) the articles of incorporation or by-laws of
the Company, as amended, (B) any license, contract,
indenture, mortgage, deed of trust, voting trust
agreement, shareholders' agreement, note, loan or credit
agreement or any other agreement or instrument known to
such counsel to which the Company is a party or by which
it is bound, or (C) any federal, state, local or foreign
statute, rule or regulation applicable to the Company or
any judgment, decree or order known to such counsel of any
arbitrator, court, regulatory body or administrative
agency or other governmental agency or body (including,
without limitation, those having jurisdiction over
environmental or similar matters), domestic or foreign,
having jurisdiction over the Company or any of its
activities or properties;
(viii) no consent, approval, authorization or
order, and no filing with, any court, regulatory body,
government agency or other body (other than such as may be
required under federal securities or Blue Sky laws, as to
which no opinion need be rendered) is required in
connection with the issuance of the Registered Securities
pursuant to the Prospectus, and the Registration
Statement, the performance of this Agreement, the Warrant
Agreement and the Representative's Warrant Agreement, and
the transactions contemplated hereby and thereby, except
such as have been obtained under the Securities Act and
the Regulations;
(ix) to the best knowledge of such counsel, and
except as disclosed in Registration Statement and the
Prospectus, the Company is not in breach of, or in default
under, any material term or provision of any license,
contract, indenture, mortgage, installment sale agreement,
deed
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<PAGE> 27
of trust, lease, voting trust agreement, shareholders'
agreement, note, loan or credit agreement or any other
agreement or instrument evidencing an obligation for
borrowed money, or any other agreement or instrument to
which the Company is a party or by which the Company is
bound or to which the property or assets (tangible or
intangible) of the Company is subject; and the Company is
not in violation of any term or provision of its articles
of incorporation or by-laws, as amended, and to the best
of such counsel's knowledge after reasonable
investigation, not in violation of any franchise, license,
permit, judgment, decree, order, statute, rule or
regulation which would have a material adverse effect on
the Company;
(x) the statements in the Prospectus under
"Dividend Policy" and "Description of Securities," have
been reviewed by such counsel, and insofar as they refer
to statements of law, descriptions of statutes, licenses,
rules or regulations or legal conclusions, are accurate
summaries and fairly and correctly present the information
called for therein;
(xi) the Units, Common Stock and Warrants have been
accepted for quotation on the Nasdaq Small Cap;
(xii) except as otherwise described in the
Prospectus, to the best of such counsel's knowledge and
based upon a review of the outstanding securities and the
contracts furnished to such counsel by the Company, no
person, corporation, trust, partnership, association or
other entity has the right to include and/or register any
securities of the Company in the Registration Statement,
require the Company to file any registration statement or,
if filed, to include any security in such registration
statement;
(xiii) assuming due execution by the parties
thereto other than the Company, each Lock-Up Agreement is
a legal, valid and binding obligation of the party
thereto, enforceable against the party and any subsequent
holder of the securities subject thereto in accordance
with its terms (except as such enforceablity may be
limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general
application relating to or affecting enforcement of
creditors' rights and the application of equitable
principles in any action, legal or equitable, and except
as rights to indemnity or contribution may be limited by
applicable law).
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws other than the laws, rules and
regulations of the United States and the laws, rules and regulations of the
State of New Jersey, to the extent such counsel deems proper and
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<PAGE> 28
to the extent specified in such opinion, if at all, upon an opinion or opinions
(in form and substance satisfactory to Underwriters' Counsel) of other counsel
acceptable to Underwriters' Counsel, familiar with the applicable laws; (B) as
to matters of fact, to the extent they deem proper, on certificates and written
statements of responsible officers of the Company and certificates or other
written statements of officers of departments of various jurisdictions having
custody of documents respecting the corporate existence or good standing of the
Company, provided that copies of any such statements or certificates shall be
delivered to Underwriters' Counsel if requested. The opinion of such counsel
shall state that knowledge shall not include the knowledge of a director or
officer of the Company who is affiliated with such firm in his or her capacity
as an officer or director of the Company. The opinion of such counsel for the
Company shall state that the opinion of any such other counsel is in form
satisfactory to such counsel.
At each Option Closing Date, if any, the Underwriters shall have
received the favorable opinion of Loeb & Loeb, counsel to the Company, dated the
Option Closing Date, addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel confirming as of such Option Closing Date
the statements made by Loeb & Loeb in their opinion delivered on the Closing
Date.
(e) On or prior to each of the Closing Date and the Option
Closing Date, if any, Underwriters' Counsel shall have been furnished such
documents, certificates and opinions as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in
subsection (c) of this Section 6, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions of the Company or herein contained.
(f) Prior to each of the Closing Date and each Option
Closing Date, if any, (i) there shall have been no material adverse change nor
development involving a prospective change in the condition, financial or
otherwise, prospects, shareholders' equity or the business activities of the
Company, whether or not in the ordinary course of business, from the latest
dates as of which such condition is set forth in the Registration Statement and
Prospectus; (ii) there shall have been no transaction, not in the ordinary
course of business, entered into by the Company, from the latest date as of
which the financial condition of the Company is set forth in the Registration
Statement and Prospectus which is adverse to the Company; (iii) the Company
shall not be in default under any provision of any instrument relating to any
outstanding indebtedness which default has not been waived; (iv) the Company
shall not have issued any securities (other than the Registered Securities) or
declared or paid any dividend or made any distribution in respect of its capital
stock of any class and there has not been any change in the capital stock, or
any material increase in the debt (long or short term) or liabilities or
obligations of the Company (contingent or otherwise); (v) no material amount of
the assets of the Company shall have been pledged or mortgaged, except as set
forth in the Registration Statement and Prospectus; (vi) no action, suit or
proceeding, at law or in equity, shall have been
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<PAGE> 29
pending or threatened (or circumstances giving rise to same) against the
Company, or affecting any of its respective properties or businesses before or
by any court or federal, state or foreign commission, board or other
administrative agency wherein an unfavorable decision, ruling or finding may
materially adversely affect the business, operations, prospects or financial
condition or income of the Company, except as set forth in the Registration
Statement and Prospectus; and (vii) no stop order shall have been issued under
the Act and no proceedings therefor shall have been initiated, threatened or
contemplated by the Commission.
(g) At each of the Closing Date and each Option Closing
Date, if any, the Underwriters shall have received a certificate of the Company
signed on behalf of the Company by the principal executive officer of the
Company, dated the Closing Date or Option Closing Date, as the case may be, to
the effect that such executive has carefully examined the Registration
Statement, the Prospectus and this Agreement, and that:
(i) The representations and warranties of the
Company in this Agreement are true and correct, as if made
on and as of the Closing Date or the Option Closing Date,
as the case may be, and the Company has complied with all
agreements and covenants and satisfied all conditions
contained in this Agreement on its part to be performed or
satisfied at or prior to such Closing Date or Option
Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of
the Registration Statement or any part thereof has been
issued, and no proceedings for that purpose have been
instituted or are pending or, to the best of each of such
person's knowledge after due inquiry, are contemplated or
threatened under the Act;
(iii) The Registration Statement and the Prospectus
and, if any, each amendment and each supplement thereto,
contain all statements and information required by the Act
to be included therein, and none of the Registration
Statement, the Prospectus nor any amendment or supplement
thereto includes any untrue statement of a material fact
or omits to state any material fact required to be stated
therein or necessary to make the statements therein not
misleading and neither the Preliminary Prospectus or any
supplement, as of their respective dates, thereto included
any untrue statement of a material fact or omitted 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;
and
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<PAGE> 30
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, (a) the Company has not incurred up to and
including the Closing Date or the Option Closing Date, as
the case may be, other than in the ordinary course of its
business, any material liabilities or obligations, direct
or contingent; (b) the Company has not paid or declared
any dividends or other distributions on its capital stock;
(c) the Company has not entered into any transactions not
in the ordinary course of business; (d) there has not been
any change in the capital stock or material increase in
long-term debt or any increase in the short-term
borrowings (other than any increase in the short-term
borrowings in the ordinary course of business) of the
Company, (e) the Company has not sustained any loss or
damage to its property or assets, whether or not insured,
(f) there is no litigation which is pending or threatened
(or circumstances giving rise to same) against the Company
or any affiliated party of any of the foregoing which is
required to be set forth in an amended or supplemented
Prospectus which has not been set forth, and (g) there has
occurred no event required to be set forth in an amended
or supplemented Prospectus which has not been set forth.
References to the Registration Statement and the Prospectus in this subsection
(g) are to such documents as amended and supplemented at the date of such
certificate.
(h) By the Closing Date, the Underwriters will have
received clearance from the NASD as to the amount of compensation allowable or
payable to the Underwriters.
(i) At the time this Agreement is executed, the
Underwriters shall have received a letter, dated such date, addressed to the
Underwriters in form and substance satisfactory in all respects (including the
non-material nature of the changes or decreases, if any, referred to in clause
(iii) below) to the Underwriters and Underwriters' Counsel, from BDO Seidman:
(i) confirming that they are independent certified
public accountants with respect to the Company within the
meaning of the Act and the applicable Rules and
Regulations;
(ii) stating that it is their opinion that the
financial statements and supporting schedules of the
Company included in the Registration Statement comply as
to form in all material respects with the applicable
accounting requirements of the Act and the Regulations
thereunder and that the Underwriters may rely upon the
opinion of BDO Seidman with respect to the financial
statements and supporting schedules included in the
Registration Statement;
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<PAGE> 31
(iii) stating that, on the basis of a limited
review which included a reading of the latest available
unaudited interim financial statements of the Company
(with an indication of the date of the latest available
unaudited interim financial statements), a reading of the
latest available minutes of the shareholders and board of
directors and the various committees of the board of
directors of the Company, consultations with officers and
other employees of the Company responsible for financial
and accounting matters and other specified procedures and
inquiries, nothing has come to their attention which would
lead them to believe that (A) the unaudited financial
statements and supporting schedules of the Company
included in the Registration Statement, if any, 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 applied on a
basis substantially consistent with that of the audited
financial statements of the Company included in the
Registration Statement, or (B) at a specified date not
more than five (5) days prior to the effective date of the
Registration Statement, there has been any change in the
capital stock or material increase in long-term debt of
the Company, or any material decrease in the shareholders'
equity or net current assets or net assets of the Company
as compared with amounts shown in the balance sheet
included in the Registration Statement, other than as set
forth in or contemplated by the Registration Statement,
or, if there was any change or decrease, setting forth the
amount of such change or decrease.
(iv) stating that they have compared specific
dollar amounts, numbers of shares, percentages of revenues
and earnings, statements and other financial information
pertaining to the Company set forth in the Prospectus in
each case to the extent that such amounts, numbers,
percentages, statements and information may be derived
from the general accounting records, including work
sheets, 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; and
(v) statements as to such other material matters
incident to the transaction contemplated hereby as the
Representative may reasonably request.
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<PAGE> 32
(j) At the Closing Date and each Option Closing Date, if
any, the Underwriters shall have received from BDO Seidman a letter, dated as of
the Closing Date or the Option Closing Date, as the case may be, to the effect
that they reaffirm that statements made in the letter furnished pursuant to
Subsection (i) of this Section 6, except that the specified date referred to
shall be a date not more than five (5) days prior to Closing Date or the Option
Closing Date, as the case may be, and, if the Company has elected to rely on
Rule 430A of the Rules and Regulations, to the further effect that they have
carried out procedures as specified in clause (iv) of Subsection (i) of this
Section 6 with respect to certain amounts, percentages and financial information
as specified by the Representative and deemed to be a part of the Registration
Statement pursuant to Rule 430A(b) and have found such amounts, percentages and
financial information to be in agreement with the records specified in such
clause (iv).
(k) On each of Closing Date and Option Closing Date, if
any, there shall have been duly tendered to the Representative for the several
Underwriters' accounts the appropriate number of Registered Securities.
(l) No order suspending the sale of the Registered
Securities in any jurisdiction designated by the Representative pursuant to
subsection (e) of Section 4 hereof shall have been issued on either the Closing
Date or the Option Closing Date, if any, and no proceedings for that purpose
shall have been instituted or shall be contemplated.
(m) On or before the Closing Date, the Company shall have
executed and delivered to the Representative, (i) the Representative's Warrant
Agreement, substantially in the form filed as Exhibit 4.2, to the Registration
Statement, in final form and substance satisfactory to the Representative, and
(ii) the Representative's Warrants in such denominations and to such designees
as shall have been provided to the Company.
(n) On or before Closing Date, the Units, Common Stock and
Warrants shall have been duly approved for quotation on the Nasdaq SmallCap
Market.
(o) On or before Closing Date, there shall have been
delivered to the Representative all of the Lock-up Agreements in final form and
substance satisfactory to Underwriters' Counsel.
(p) On or before the Closing Date, the Company shall have
executed the Warrant Agreement, substantially in the form filed as Exhibit 4.4
to the Registration Statement, in final form and substance satisfactory to the
Representative and their counsel.
If any condition to the Underwriters' obligations
hereunder to be fulfilled prior to or at the Closing Date or the relevant Option
Closing Date, as the case may be, is not so fulfilled, the Representative may
terminate this Agreement or, if the Representative so elect,
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<PAGE> 33
they may waive any such conditions which have not been fulfilled or extend the
time for their fulfillment.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each
of the Underwriters (for purposes of this Section 7 "Underwriters" shall include
the officers, directors, partners, employees, agents and counsel of the
Underwriters, including specifically each person who may be substituted for an
Underwriter as provided in Section 11 hereof), and each person, if any, who
controls the Underwriter ("controlling person") within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act, from and against any and all
loss, liability, claim, damage, and expense whatsoever (including, but not
limited to, reasonable attorneys' fees and any and all reasonable expense
whatsoever incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever and any and all
amounts paid in settlement of any claim or litigation provided that the
indemnified persons may not agree to any such settlement without the prior
written consent of the Company), as and when incurred, arising out of, based
upon or in connection with (i) any untrue statement or alleged untrue statement
of a material fact contained (A) in any Preliminary Prospectus, the Registration
Statement or the Prospectus (as from time to time amended and supplemented); or
(B) in any application or other document or communication (in this Section 7
collectively called "application") executed by or on behalf of the Company or
based upon written information furnished by or on behalf of the Company in any
jurisdiction in order to qualify the Registered Securities under the securities
laws thereof or filed with the Commission, any state securities commission or
agency, The Nasdaq Stock Market, Inc. or any securities exchange; or any
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading (in the case
of the Prospectus, in the light of the circumstances under which they were
made), unless such statement or omission was made in reliance upon and in
conformity with written information furnished to the Company with respect to any
Underwriter by or on behalf of such Underwriter expressly for use in any
Preliminary Prospectus, the Registration Statement or Prospectus, or any
amendment thereof or supplement thereto, or in any application, as the case may
be; or (ii) any breach of any representation, warranty, covenant or agreement of
the Company contained in this Agreement. The indemnity agreement in this
subsection (a) shall be in addition to any liability which the Company may have
at common law or otherwise.
(b) Each of the Underwriters agrees severally, but not
jointly, to indemnify and hold harmless the Company, each of its directors, each
of its officers who has signed the Registration Statement, and each other
person, if any, who controls the Company, within the meaning of the Act, to the
same extent as the foregoing indemnity from the Company to the Underwriters but
only with respect to statements or omissions, if any, made in any Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any application made in reliance upon, and in strict
conformity with, written
-33-
<PAGE> 34
information furnished to the Company with respect to any Underwriter by such
Underwriter or the Representative expressly for use in such Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any such application, provided that such written
information or omissions only pertain to disclosures in the Preliminary
Prospectus, the Registration Statement or Prospectus directly relating to the
transactions effected by the Underwriters in connection with this Offering. The
Company acknowledges that the statements with respect to the public offering of
the Registered Securities set forth under the heading "Underwriting" and the
stabilization legend in the Prospectus have been furnished by the Underwriters
expressly for use therein and constitute the only information furnished in
writing by or on behalf of the Underwriters or the Representative for inclusion
in the Prospectus. The indemnity agreement in this subsection (b) shall be in
addition to any liability which the Underwriters may have at common law or
otherwise.
(c) Promptly after receipt by an indemnified party under
this Section 7 of notice of the commencement of any action, suit or proceeding,
such indemnified party shall, if a claim in respect thereof is to be made
against one or more indemnifying parties under this Section 7, notify each party
against whom indemnification is to be sought in writing of the commencement
thereof (but the failure to so notify an indemnifying party shall not relieve it
from any liability which it may have otherwise or which it may have under this
Section 7, except to the extent that it has been prejudiced in any material
respect by such failure). In case any such action is brought against any
indemnified party, and it notifies an indemnifying party or parties of the
commencement thereof, the indemnifying party or parties will be entitled to
participate therein, and to the extent it may elect by written notice delivered
to the indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. Notwithstanding the foregoing, the
indemnified party or parties shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by the indemnifying parties
in connection with the defense of such action at the expense of the indemnifying
party, (ii) the indemnifying parties shall not have employed counsel reasonably
satisfactory to such indemnified party to have charge of the defense of such
action within a reasonable time after notice of commencement of the action, or
(iii) such indemnified party or parties shall have reasonably concluded, based
on the advise of counsel, that there may be defenses available to it or them
which are different from or additional to those available to one or all of the
indemnifying parties and that it is a conflict of interest for the indemnified
party or parties to be represented by such counsel (in which case the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
the reasonable fees and expenses of one additional counsel shall be borne by the
indemnifying parties. In no event shall the indemnifying parties be liable for
fees and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general
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<PAGE> 35
allegations or circumstances. Anything in this Section 7 to the contrary
notwithstanding, an indemnifying party shall not be liable for any settlement of
any claim or action effected without its written consent; provided, however,
that such consent was not unreasonably withheld.
(d) In order to provide for just and equitable
contribution in any case in which (i) an indemnified party makes claim for
indemnification pursuant to this Section 7, 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 this Section 7 provide for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand, from the offering of
the Registered Securities or (B) if the allocation provided by clause (A) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of each of the contributing parties, on the one hand, and the
party to be indemnified on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages, expenses or
liabilities, as well as any other relevant equitable considerations. In any case
where the Company is contributing parties and the Underwriters are the
indemnified party, the relative benefits received by the Company on the one
hand, and the Underwriters, on the other, shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Registered
Securities (before deducting expenses other than underwriting discounts and
commissions) bear to the total underwriting discounts received by the
Underwriters hereunder, in each case as set forth in the table on the Cover Page
of the Prospectus. Relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Underwriters, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, expenses or
liabilities (or actions in respect thereof) referred to above in this
subdivision (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subdivision (d) the Underwriters shall not be required to contribute any amount
in excess of the underwriting discount applicable to the Registered Securities
purchased by the Underwriters hereunder. No person guilty of fraudulent
misrepresentation (within the meaning of Section 12(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 7, each person, if any, who
controls the Company within the meaning of the Act, each officer of the Company
who has signed the Registration Statement, and each director of the Company
shall have the same rights to contribution as the Company, subject in
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<PAGE> 36
each case to this subparagraph (d). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect to which a claim for contribution may
be made against another party or parties under this subparagraph (d), notify
such party or parties from whom contribution may be sought, but the omission so
to notify such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have hereunder or
otherwise than under this subparagraph (d), or to the extent that such party or
parties were not adversely affected by such omission. The contribution agreement
set forth above shall be in addition to any liabilities which any indemnifying
party may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements of the Company,
at the Closing Date and the Option Closing Date, as the case may be, and such
representations, warranties and agreements of the Company, and the respective
indemnity and contribution agreements contained in Section 7 hereof shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any Underwriter, the Company, any controlling person of either
the Underwriter or the Company, and shall survive termination of this Agreement
or the issuance and delivery of the Registered Securities to the Underwriters
and the Representative, as the case may be.
9. Effective Date.
This Agreement shall become effective at __:00 _.m., New York
City time, on the date hereof. For purposes of this Section 9, the Registered
Securities to be purchased hereunder shall be deemed to have been so released
upon the earlier of dispatch by the Representative of telegrams to securities
dealers releasing such shares for offering or the release by the Representative
for publication of the first newspaper advertisement which is subsequently
published relating to the Registered Securities.
10. Termination.
(a) Subject to subsection (b) of this Section 10, the
Representative shall have the right to terminate this Agreement, (i) if any
domestic or international event or act or occurrence has materially disrupted,
or in the Representative's reasonable opinion will in the immediate future
materially disrupt the financial markets; or (ii) any material adverse change in
the financial markets shall have occurred; or (iii) if trading on the New York
Stock Exchange, the American Stock Exchange, or in the over-the-counter market
shall have been suspended, or minimum or maximum prices for trading shall have
been fixed, or maximum ranges for prices for securities shall have been required
on the over-the-counter market by the NASD or by order of the Commission or any
other government authority having jurisdiction; or (iv) if the United States
shall have become involved in a war or major hostilities, or if there shall have
been an
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<PAGE> 37
escalation in an existing war or major hostilities or a national emergency shall
have been declared in the United States; or (v) if a banking moratorium has been
declared by a state or federal authority; or (vi) if the Company shall have
sustained a loss material or substantial to the Company by fire, flood,
accident, hurricane, earthquake, theft, sabotage or other calamity or malicious
act which, whether or not such loss shall have been insured, will, in the
Representative's opinion, make it inadvisable to proceed with the delivery of
the Registered Securities; or (viii) if there shall have been such a material
adverse change in the prospects or conditions of the Company, or such material
adverse change in the general market, political or economic conditions, in the
United States or elsewhere as in the Representative's judgment would make it
inadvisable to proceed with the offering, sale and/or delivery of the Registered
Securities.
(b) If this Agreement is terminated by the Representative
in accordance with any of the provisions of Section 6, Section 10(a) or Section
11, the Company shall promptly reimburse and indemnify the Underwriters pursuant
to Section 5(b) hereof. Notwithstanding any contrary provision contained in this
Agreement, any election hereunder or any termination of this Agreement
(including, without limitation, pursuant to Sections 6, 10, 11 and 12 hereof),
and whether or not this Agreement is otherwise carried out, the provisions of
Section 5 and Section 7 shall not be in any way affected by such election or
termination or failure to carry out the terms of this Agreement or any part
hereof.
11. Substitution of the Underwriters. If one or more of the
Underwriters shall fail (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 6, Section 10 or
Section 12 hereof) to purchase the Registered Securities which it or they are
obligated to purchase on such date under this Agreement (the "Defaulted
Securities"), the Representative shall have the right, within 24 hours
thereafter, to make arrangement for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
terms herein set forth. If, however, the Representative shall not have completed
such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed
10% of the total number of Shares to be purchased on such date, the
non-defaulting Underwriters shall be obligated to purchase the full amount
thereof in the proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all non-defaulting
Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of
the total number of Shares, this Agreement shall terminate without liability on
the part of any non-defaulting Underwriters.
No action taken pursuant to this Section shall relieve any
defaulting Underwriter from liability in respect of any default by such
Underwriter under this Agreement.
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<PAGE> 38
In the event of any such default which does not result in
a termination of this Agreement, the Representative shall have the right to
postpone the Closing Date for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or Prospectus or in
any other documents or arrangements.
12. Default by the Company. If the Company shall fail at the
Closing Date or any Option Closing Date, as applicable, to sell and deliver the
number of Registered Securities which it is obligated to sell hereunder on such
date, then this Agreement shall terminate (or, if such default shall occur with
respect to any Option Shares to be purchased on an Option Closing Date, the
Underwriters may at the Representative's option, by notice from the
Representative to the Company, terminate the Underwriters' obligation to
purchase Option Shares from the Company on such date) without any liability on
the part of any non-defaulting party other than pursuant to Section 5, Section 7
and Section 10 hereof. No action taken pursuant to this Section shall relieve
the Company from liability, if any, in respect of such default.
13. Notices. All notices and communications hereunder, except as
herein otherwise specifically provided, shall be in writing and shall be deemed
to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representative, c/o National Securities Corporation, 1001 Fourth Avenue, Suite
2200, Seattle, Washington 98154, Attention: Steven Rothstein, with a copy, which
shall not constitute notice, to Camhy Karlinsky & Stein LLP, 1740 Broadway, 16th
Floor, New York, New York 10019, Attention: Alan I. Annex, Esq. Notices to the
Company shall be directed to the Company at Brighton Technologies Corporation, 6
Pearl Court, Allendale, New Jersey 07401, Attention: CEO, with a copy, which
shall not constitute notice, to Loeb & Loeb LLP, 1000 Wilshire Boulevard, Suite
1800, Los Angeles, California 90017, Attn: David L. Ficksman, Esq.
14. Parties. This Agreement shall inure solely to the benefit of
and shall be binding upon the Underwriters, the Company and the controlling
persons, directors and officers referred to in Section 7 hereof and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained. No purchaser of Registered Securities from any Underwriter shall be
deemed to be a successor by reason merely of such purchase.
15. Construction. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
without giving effect to the choice of law or conflict of laws principles.
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<PAGE> 39
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
17. Entire Agreement; Amendments. This Agreement, the Warrant
Agreement and the Representative's Warrant Agreement constitute the entire
agreement of the parties hereto and supersede all prior written or oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may not be amended except in a writing, signed by the
Representative, and the Company.
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<PAGE> 40
If the foregoing correctly sets forth the understanding among the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
BRIGHTON TECHNOLOGIES CORPORATION
By:
---------------------------------------
Name: Kit Kung
Title: Chief Executive Officer
CONFIRMED AND ACCEPTED AS OF THE DATE FIRST ABOVE WRITTEN:
NATIONAL SECURITIES CORPORATION
By:
-----------------------------------------
Name: Steven A. Rothstein
Title: Chairman
For itself and as Representative of the Underwriters named in Schedule A hereto.
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<PAGE> 41
SCHEDULE A
<TABLE>
<CAPTION>
Total Number of
Name of Units to be
Underwriters Purchased
- ------------ ---------
<S> <C>
National Securities Corporation
TOTAL 1,000,000
</TABLE>
<PAGE> 1
EXHIBIT 4.1
NOT VALID UNLESS COUNTERSIGNED BY TRANSFER AGENT
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP NO. 109444 208
BRIGHTON TECHNOLOGIES CORPORATION
AUTHORIZED COMMON STOCK: 150,000,000 SHARES
PAR VALUE: $.061
THIS CERTIFIES THAT
IS THE HOLDER OF
Shares of common stock of BRIGHTON TECHNOLOGIES CORPORATION
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid until countersigned by the Transfer Agent and registered by the
Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
[BRIGHTON TECHNOLOGIES
CORPORATION SEAL]
Dated:
[SIG] [SIG]
- --------------------------- ------------------------------
SECRETARY PRESIDENT
<PAGE> 2
Notice: Signature must be guaranteed by a firm which is a member of a
registered national stock exchange, or by a bank (other than a saving
bank), or a trust company. The following abbreviations, when used in
the inscription on the face of this certificate, shall be construed
as though they were written out in full according to applicable laws
or regulations:
TEN COM - as tenants in common UNIF GIFT MINA CT - Custodian
TEN ENT - as tenants by the entireties ---------------
JT TEN - as joint tenants with right of (Cust) (Minor)
survivorship and not as tenants under Uniform Gifts to Minors
in common Act ____________________
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, __________________ hereby sell, assign and transfer
unto
PLEASE INSERT SOCIAL SECURIYY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
_________________________________________________________________ Shares of the
capital stock represented by the within certificate, and do hereby irrevocably
constitute and appoint
_____________________________________________________________________Attorney
to transfer the said stock on the books of the within name Corporation with
full power of substitution in the premises.
Dated __________________________
---------------------------------------------------------
NOTICE: The signature to this assignment must correspond
with the name as written upon the face of the certificate
in every particular without alteration or enlargement or
any change whatever
<PAGE> 1
EXHIBIT 4.2
FORM OF REPRESENTATIVE'S WARRANT AGREEMENT
------------------------------------------
BRIGHTON TECHNOLOGIES CORPORATION
AND
NATIONAL SECURITIES CORPORATION
REPRESENTATIVE'S
WARRANT AGREEMENT
DATED AS OF ______ __, 1998
------------------------------------------
<PAGE> 2
REPRESENTATIVE'S WARRANT AGREEMENT dated as of _________ __,
1998, between BRIGHTON TECHNOLOGIES CORPORATION, a Delaware corporation (the
"Company"), and NATIONAL SECURITIES CORPORATION and its assignees or designees
(each hereinafter referred to variously as a "Holder" or "Representative").
W I T N E S S E T H :
WHEREAS, the Representative has agreed pursuant to the
underwriting agreement (the "Underwriting Agreement") between the Representative
and the Company, to act as the representative of the several underwriters listed
therein (the "Underwriters") in connection with the Company's proposed public
offering of 1,000,000 Units (the "Units"), consisting of one (1) share of Common
Stock (as hereinafter defined) and one (1) warrant (the "Warrant") to purchase
one (1) share of Common Stock at an exercise price of $____ (150% of the
offering price per Unit), at a public offering price of $_______ per Unit (the
"Public Offering").
WHEREAS, pursuant to the Underwriting Agreement, the Company
proposes to issue warrants to the Representative to purchase up to an aggregate
of 100,000 Units (the "Representative's Warrants").
WHEREAS, the Representative's Warrants to be issued pursuant to
this Agreement will be issued on the Closing Date (as such term is defined in
the Underwriting Agreement) by the Company to the Representative in
consideration for, and as part of the Underwriters' compensation in connection
with, the Representative acting as the representative pursuant to the
Underwriting Agreement.
<PAGE> 3
NOW, THEREFORE, in consideration of the premises, the payment by
the Representative to the Company of an aggregate of ten dollars ($10.00), the
agreements herein set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Grant. The Representative is hereby collectively granted the
right to purchase, at any time from ___________, 1999 until 5:30 p.m., New York
time, on ____________, 2003 (5 years from the Effective Date of the Registration
Statement), at which time the Representative's Warrants expire, up to an
aggregate 100,000 Units (subject to adjustment as provided in Section 8 hereof),
each Unit consisting of one (1) share of common stock, $.001 par value per
share, of the Company (the "Common Stock") and one (1) Warrant to purchase one
(1) share of Common Stock at an exercise price of $_______ (150% of the offering
price per Unit), at an initial exercise price (subject to adjustment as provided
in Section 11 hereof) of $____ (120% of the offering price per Unit) (the
"Exercise Price").
2. Representative's Warrant Certificates. The Representative's
warrant certificates (the "Warrant Certificates") delivered and to be delivered
pursuant to this Agreement shall be in the form set forth in Exhibit A, attached
hereto and made a part hereof, with such appropriate insertions, omissions,
substitutions, and other variations as required or permitted by this Agreement.
3. Registration of Warrant. The Representative's Warrants shall
be numbered and shall be registered on the books of the Company when issued.
-2-
<PAGE> 4
4. Exercise of Representative's Warrant.
4.1 Method of Exercise. The Representative's Warrants
initially are exercisable at the Exercise Price (subject to adjustment as
provided in Section 11 hereof) per Representative's Warrant set forth in Section
8 hereof payable by certified or official bank check in New York Clearing House
funds. Upon surrender of a Representative's Warrant Certificate with the annexed
Form of Election to Purchase duly executed, together with payment of the
Exercise Price for the Units purchased at the Company's principal offices in New
Jersey (presently located at 6 Pearl Street, Allendale, New Jersey 07401), the
registered holder of a Representative's Warrant Certificate ("Holder" or
"Holders") shall be entitled to receive a certificate or certificates for the
Units so purchased. The purchase rights represented by each Representative's
Warrant Certificate are exercisable at the option of the Holder thereof, in
whole or in part (but not as to fractional Units underlying the Representative's
Warrants). In the case of the purchase of less than all of the Units purchasable
under any Representative's Warrant Certificate, the Company shall cancel said
Representative's Warrant Certificate upon the surrender thereof and shall
execute and deliver a new Representative's Warrant Certificate of like tenor for
the balance of the Units purchasable thereunder.
4.2 Exercise by Surrender of Representative's Warrant. In
addition to the method of payment set forth in Section 4.1 and in lieu of any
cash payment required thereunder, the Holder(s) of the Representative's Warrants
shall have the right at any time and from time to time as specified in Section 1
hereof, to exercise the Representative's Warrants in full or in part by
surrendering the Warrant Certificate in the manner specified in Section 4.1 in
exchange
-3-
<PAGE> 5
for the number of Units equal to the product of (x) the number of Units as to
which the Representative's Warrants are being exercised, multiplied by (y) a
fraction, the numerator of which is the Market Price of the Units (as defined in
Section 9.3(d) hereof) on the date on which the form of election attached hereto
is deemed to have been sent to the Company pursuant to Section 15 hereof minus
the Exercise Price of the Units and the denominator of which is the Market Price
per Unit; provided, however, that if on the date on which the form of election
attached hereto is deemed to have been sent to the Company pursuant to Section
15 the Units have been separated and each of the Common Stock and the Warrants
underlying the Representative's Warrant are separately listed and traded, for
the purposes of this Section 4.2, the Representative's Warrant shall be treated
as two separate warrants: one for the underlying Common Stock and one for the
underlying Warrants. In such event, this Section 4.2 shall be applicable for
both such Representative's Warrants and "Market Price" shall mean the respective
Market Price for the Common Stock and for the Warrants.
5. Issuance of Certificates. Upon the exercise of the
Representative's Warrant, the issuance of certificates for Units or other
securities, properties or rights underlying such Representative's Warrant shall
be made forthwith (and in any event within five (5) business days thereafter)
without charge to the Holder thereof including, without limitation, any tax
which may be payable in respect of the issuance thereof, and such certificates
shall (subject to the provisions of Sections 7 and 9 hereof) be issued in the
name of, or in such names as may be directed by, the Holder thereof; provided,
however, that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
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<PAGE> 6
such certificates in a name other than that of the Holder and the Company shall
not be required to issue or deliver such certificates unless or until the person
or persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
The Representative's Warrant Certificates and the certificates
representing the Units or other securities, property or rights issued upon
exercise of the Representative's Warrant shall be executed on behalf of the
Company by the manual or facsimile signature of the then present President or
any Vice President of the Company under its corporate seal reproduced thereon,
attested to by the manual or facsimile signature of the then present Secretary
or any Assistant Secretary of the Company. Representative's Warrant Certificates
shall be dated the date of execution by the Company upon initial issuance,
division, exchange, substitution or transfer.
6. Transfer of Representative's Warrant. The Representative's
Warrant shall be transferable only on the books of the Company maintained at its
principal office, where its principal office may then be located, upon delivery
thereof duly endorsed by the Holder or by its duly authorized attorney or
representative accompanied by proper evidence of succession, assignment or
authority to transfer. Upon any registration transfer, the Company shall execute
and deliver the new Representative's Warrant to the person entitled thereto.
7. Restriction On Transfer of Representative's Warrant. The
Holder of a Representative's Warrant Certificate, by its acceptance thereof,
covenants and agrees that the
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<PAGE> 7
Representative's Warrant is being acquired as an investment and not with a view
to the distribution thereof, and that the Representative's Warrant may not be
sold, transferred, assigned, hypothecated or otherwise disposed of, in whole or
in part, for the term of the Representative's Warrant, except to officers or
partners of the Underwriters, or by operation of law.
8. Exercise Price and Number of Securities. Except as otherwise
provided in Section 10 hereof, each Representative's Warrant is exercisable to
purchase one Unit at an initial exercise price equal to the Exercise Price. The
Exercise Price and the number of Units for which the Representative's Warrant
may be exercised shall be the price and the number of Units which shall result
from time to time from any and all adjustments in accordance with the provisions
of Section 11 hereof.
9. Registration Rights.
9.1 Registration Under the Securities Act of 1933. Each
Representative's Warrant Certificate and each certificate representing Units and
any of the other securities issuable upon exercise of the Representative's
Warrant (collectively, the "Warrant Shares") shall bear the following legend
unless (i) such Representative's Warrant or Warrant Shares are distributed to
the public or sold to the underwriters for distribution to the public pursuant
to Section 9 hereof or otherwise pursuant to a registration statement filed
under the Securities Act of 1933, as amended (the "Act"), or (ii) the Company
has received an opinion of counsel, in
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<PAGE> 8
form and substance reasonably satisfactory to counsel for the Company, that such
legend is unnecessary for any such certificate:
THE REPRESENTATIVE'S WARRANT REPRESENTED BY THIS CERTIFICATE AND
THE OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE EXTENT
APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER
SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN
OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY
SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE REPRESEN-
TATIVE'S WARRANT REPRESENTED BY THE
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH
THE REPRESENTATIVE'S WARRANT AGREEMENT
REFERRED TO HEREIN.
9.2 Piggyback Registration. If, at any time commencing after
the effective date of the Registration Statement and expiring five (5) years
thereafter, the Company proposes to register any of its securities under the Act
(other than in connection with a merger or pursuant to Form S-4 or Form S-8) it
will give written notice by registered mail, at least thirty (30) days prior to
the filing of each such registration statement, to the Holders of the
Representative's Warrants and/or the Warrant Shares of its intention to do so.
If any of the Holders of the Representative's Warrants and/or Warrant Shares
notify the Company within twenty (20) days after mailing of any such notice of
its or their desire to include any such securities in such
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<PAGE> 9
proposed registration statement, the Company shall afford such Holders of the
Representative's Warrants and/or Warrant Shares the opportunity to have any such
Representative's Warrants and/or Warrant Shares registered under such
registration statement. In the event that the managing underwriter for said
offering advises the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering without causing a diminution in the offering
price or otherwise adversely affecting the offering, the Company will include in
such registration (a) first, the securities the Company proposes to sell, (b)
second, the securities held by the entities that made the demand for
registration, (c) third, the Representative's Warrants and/or Warrant Shares
requested to be included in such registration which in the opinion of such
underwriter can be sold, pro rata among the Holders of Representative's Warrants
and/or Warrant Shares on the basis of the number of Representative's Warrants
and/or Warrant Shares requested to be registered by such Holders, and (d)
fourth, other securities requested to be included in such registration.
Notwithstanding the provisions of this Section 9.2, the Company
shall have the right at any time after it shall have given written notice
pursuant to this Section 9.2 (irrespective of whether a written request for
inclusion of any such securities shall have been made) to elect not to file any
such proposed registration statement or to withdraw the same after the filing
but prior to the effective date thereof.
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<PAGE> 10
9.3 Demand Registration.
(a) At any time commencing one (1) year after the
effective date of the Registration Statement and expiring five (5) years from
the effective date of the Registration Statement, the Holders of the
Representative's Warrants and/or Warrant Shares representing a "Majority" (as
hereinafter defined) of the Representative's Warrants and/or Warrant Shares
shall have the right (which right is in addition to the registration rights
under Section 9.2 hereof), exercisable by written notice to the Company, to have
the Company prepare and file with the Securities and Exchange Commission (the
"Commission"), on one occasion, a registration statement and such other
documents, including a prospectus, as may be necessary in the opinion of both
counsel for the Company and counsel for the Holders, in order to comply with the
provisions of the Act, so as to permit a public offering and sale by such
Holders and any other Holders of the Representative's Warrant and/or Warrant
Shares who notify the Company within fifteen (15) days after the Company mails
notice of such request pursuant to Section 9.3(b) hereof (collectively, the
"Requesting Holders") of their respective Warrant Shares for the earlier of (i)
six (6) consecutive months or (ii) until the sale of all of the Warrant Shares
requested to be registered by the Requesting Holders.
(b) The Company covenants and agrees to give written
notice of any registration request under this Section 9.3 by any Holder or
Holders representing a Majority of the Representative's Warrants and/or Warrant
Shares to all other registered Holders of the Representative's Warrants and the
Warrant Shares within ten (10) days from the date of the receipt of any such
registration request.
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<PAGE> 11
(c) In addition to the registration rights under
Section 9.2 and subsection (a) of this Section 9.3, at any time commencing one
(1) year after the effective date of the Registration Statement and expiring
five (5) years from the effective date of the Registration Statement, the
Holders of a Majority of the Representative's Warrants and/or Warrant Shares
shall have the right on one occasion, exercisable by written request to the
Company, to have the Company prepare and file with the Commission a registration
statement so as to permit a public offering and sale by such Holders of their
respective Warrant Shares for the earlier of (i) six (6) consecutive months or
(ii) until the sale of all of the Warrant Shares requested to be registered by
such Holders; provided, however, that the provisions of Section 9.4(b) hereof
shall not apply to any such registration request and registration and all costs
incident thereto shall be at the expense of the Holder or Holders making such
request. If the Holders have exercised their rights under Section 9.3(a) then
the Holders may not exercise their rights under Section 9.3(c) for a period of
six (6) months following the effective date of any registration statement filed
pursuant to Section 9.3(a).
(d) Notwithstanding anything to the contrary contained
herein, if the Company shall not have filed a registration statement for the
Warrant Shares within the time period specified in Section 9.4(a) hereof
pursuant to the written notice specified in Section 9.3(a) of the Holders of a
Majority of the Representative's Warrants and/or Warrant Shares, the Company, at
its option, may repurchase (i) any and all Warrant Shares at the higher of the
Market Price (as defined in Section 9.3(e)) per share of Common Stock on (x) the
date of the notice sent pursuant to Section 9.3(a) or (y) the expiration of the
period specified in Section
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<PAGE> 12
9.4(a) and (ii) any and all Representative's Warrant at such Market Price less
the exercise price of such Representative's Warrant. Such repurchase shall be in
immediately available funds and shall close within two (2) days after the later
of (i) the expiration of the period specified in Section 9.4(a) or (ii) the
delivery of the written notice of election specified in this Section 9.3(d).
(e) Definition of Market Price. As used herein, the
phrase "Market Price" at any date shall be deemed to be the last reported sale
price, or, in case no such reported sale takes place on such day, the average of
the last reported sale prices for the last three (3) trading days, in either
case as officially reported by the principal securities exchange on which the
Units or Common Stock is listed or admitted to trading, or, if the Units or
Common Stock is not listed or admitted to trading on any national securities
exchange, the average closing sale price as furnished by the NASD through The
Nasdaq Stock Market, Inc. ("Nasdaq") or similar organization if Nasdaq is no
longer reporting such information, or if the Units or Common Stock is not quoted
on Nasdaq, as determined in good faith by resolution of the Board of Directors
of the Company, based on the best information available to it.
9.4 Covenants of the Company With Respect to Registration.
In connection with any registration under Sections 9.2 or 9.3 hereof, the
Company covenants and agrees as follows:
(a) The Company shall use its best efforts to file a
registration statement within ninety (90) days of receipt of any demand
therefor, and to have any registration
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<PAGE> 13
statements declared effective at the earliest possible time, and shall furnish
each Holder desiring to sell Warrant Shares such number of prospectuses as shall
reasonably be requested.
(b) The Company shall pay all costs (excluding fees and
expenses of Holder(s)' counsel and any underwriting or selling commissions),
fees and expenses in connection with all registration statements filed pursuant
to Sections 9.2 and 9.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses. The
Holder(s) will pay all costs, fees and expenses (including those of the Company)
in connection with the registration statement filed pursuant to Section 9.3(c).
(c) The Company will take all necessary action which
may be required in qualifying or registering the Warrant Shares included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as reasonably are requested by the Holder(s), provided that
the Company shall not be obligated to execute or file any general consent to
service of process or to qualify as a foreign corporation to do business under
the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the
Warrant Shares to be sold pursuant to any registration statement and each
person, if any, who controls such Holders within the meaning of Section 15 of
the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), against all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become subject
under the Act, the Exchange Act
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<PAGE> 14
or otherwise, arising from such registration statement but only to the same
extent and with the same effect as the provisions pursuant to which the Company
has agreed to indemnify each of the Underwriters contained in Section 7 of the
Underwriting Agreement.
(e) The Holder(s) of the Warrant Shares to be sold
pursuant to a registration statement, and their successors and assigns, shall
severally, and not jointly, indemnify the Company, its officers and directors
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim,
damage or expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished by or on behalf of such Holders, or their successors
or assigns, for specific inclusion in such registration statement to the same
extent and with the same effect as the provisions contained in Section 7 of the
Underwriting Agreement pursuant to which the Underwriters have agreed to
indemnify the Company.
(f) Nothing contained in this Agreement shall be
construed as requiring the Holder(s) to exercise their Representative's Warrant
prior to the initial filing of any registration statement or the effectiveness
thereof.
(g) The Company shall not permit the inclusion of any
securities other than the Warrant Shares to be included in any registration
statement filed pursuant to Section 9.3 hereof, or permit any other registration
statement to be or remain effective during the
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<PAGE> 15
effectiveness of a registration statement filed pursuant to Section 9.3 hereof,
without the prior written consent of National Securities Corporation or as
otherwise required by the terms of any existing registration rights granted
prior to the date of this Agreement by the Company to the holders of any of the
Company's securities.
(h) The Company shall furnish to each Holder
participating in the offering and to each underwriter, if any, a signed
counterpart, addressed to such Holder or underwriter, of (i) an opinion of
counsel to the Company, dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, an opinion
dated the date of the closing under the underwriting agreement), and (ii) a
"cold comfort" letter dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, a letter
dated the date of the closing under the underwriting agreement) signed by the
independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities.
(i) The Company shall as soon as practicable after the
effective date of the registration statement, and in any event within 15 months
thereafter, make "generally
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<PAGE> 16
available to its security holders" (within the meaning of Rule 158 under the
Act) an earnings statement (which need not be audited) complying with Section
11(a) of the Act and covering a period of at least 12 consecutive months
beginning after the effective date of the registration statement.
(j) The Company shall enter into an underwriting
agreement with the managing underwriters selected for such underwriting by
Holders holding a Majority of the Warrant Shares requested to be included in
such underwriting, which may be the Representative. Such agreement shall be
satisfactory in form and substance to the Company, each Holder and such managing
underwriters, and shall contain such representations, warranties and covenants
by the Company and such other terms as are customarily contained in agreements
of that type used by the managing underwriter. The Holders shall be parties to
any underwriting agreement relating to an underwritten sale of their Warrant
Shares and may, at their option, require that any or all the representations,
warranties and covenants of the Company to or for the benefit of such
underwriters shall also be made to and for the benefit of such Holders. Such
Holders shall not be required to make any representations or warranties to or
agreements with the Company or the underwriters except as they may relate to
such Holders and their intended methods of distribution.
(k) For purposes of this Agreement, the term "Majority"
in reference to the Representative's Warrants or Warrant Shares, shall mean in
excess of fifty percent (50%) of the then outstanding Representative's Warrants
or Warrant Shares that (i) are not held by the
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<PAGE> 17
Company, an affiliate, officer, creditor, employee or agent thereof or any of
their respective affiliates, members of their family, persons acting as nominees
or in conjunction therewith or (ii) have not been resold to the public pursuant
to a registration statement filed with the Commission under the Act.
10. Obligations of Holders. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to Section 9 hereof
that each of the selling Holders shall:
(a) Furnish to the Company such information regarding
themselves, the Warrant Shares held by them, the intended method of sale or
other disposition of such securities, the identity of and compensation to be
paid to any underwriters proposed to be employed in connection with such sale or
other disposition, and such other information as may reasonably be required to
effect the registration of their Warrant Shares.
(b) Notify the Company, at any time when a prospectus
relating to the Warrant Shares covered by a registration statement is required
to be delivered under the Act, of the happening of any event with respect to
such selling Holder as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing.
11. Adjustments to Exercise Price and Number of Securities. The
Exercise Price in effect at any time and the number and kind of securities
purchased upon the exercise
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<PAGE> 18
of the Representative's Warrant shall be subject to adjustment from time to time
only upon the happening of the following events:
11.1 Stock Dividend, Subdivision and Combination. In case
the Company shall (i) declare a dividend or make a distribution on its
outstanding shares of Common Stock in shares of Common Stock, (ii) subdivide or
reclassify its outstanding shares of Common Stock into a greater number of
shares, or (iii) combine or reclassify its outstanding shares of Common Stock
into a smaller number of shares, the Exercise Price in effect at the time of the
record date for such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be adjusted so that it shall
equal the price determined by multiplying the Exercise Price by a fraction, the
denominator of which shall be the number of shares of Common Stock outstanding
after giving effect to such action, and the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such action.
Such adjustment shall be made successively whenever any event listed above shall
occur.
11.2 Adjustment in Number of Securities. Upon each
adjustment of the Exercise Price pursuant to the provisions of this Section 11,
the number of Warrant Shares issuable upon the exercise at the adjusted Exercise
Price of each Representative's Warrant shall be adjusted to the nearest number
of whole shares of Common Stock by multiplying a number equal to the Exercise
Price in effect immediately prior to such adjustment by the number of Warrant
Shares issuable upon exercise of the Representative's Warrant immediately prior
to such adjustment and dividing the product so obtained by the adjusted Exercise
Price.
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<PAGE> 19
11.3 Definition of Common Stock. For the purpose of this
Agreement, the term "Common Stock" shall mean (i) the class of stock designated
as Common Stock in the Articles of Incorporation of the Company as amended as of
the date hereof, or (ii) any other class of stock resulting from successive
changes or reclassifications of such Common Stock consisting solely of changes
in par value, or from par value to no par value, or from no par value to par
value.
11.4 Merger or Consolidation. In case of any consolidation
of the Company with, or merger of the Company into, another corporation (other
than a consolidation or merger which does not result in any reclassification or
change of the outstanding Common Stock), the corporation formed by such
consolidation or merger shall execute and deliver to the Holder a supplemental
warrant agreement providing that the Holder of each Representative's Warrant
then outstanding or to be outstanding shall have the right thereafter (until the
expiration of such Representative's Warrant) to receive, upon exercise of such
Representative's Warrant, the kind and amount of shares of stock and other
securities and property receivable upon such consolidation or merger by a holder
of the number of shares of Common Stock for which such Representative's Warrant
might have been exercised immediately prior to such consolidation, merger, sale
or transfer. Such supplemental warrant agreement shall provide for adjustments
which shall be identical to the adjustments provided in Section 11. The above
provision of this subsection shall similarly apply to successive consolidations
or mergers.
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<PAGE> 20
11.5 No Adjustment of Exercise Price in Certain Cases. No
adjustment of the Exercise Price shall be made:
(a) Upon the issuance or sale of the Representative's
Warrant or the Warrant Shares;
(b) Upon the issuance or sale of Common Stock (or any
other security convertible, exercisable, or exchangeable into shares of Common
Stock) upon the direct or indirect conversion, exercise, or exchange of any
options, rights, warrants, or other securities or indebtedness of the Company
outstanding as of the date of this Agreement or granted pursuant to any stock
option plan of the Company in existence as of the date of this Agreement,
pursuant to the terms thereof; or
(c) If the amount of said adjustment shall be less than
two cents ($.02) per share, provided, however, that in such case any adjustment
that would otherwise be required then to be made shall be carried forward and
shall be made at the time of and together with the next subsequent adjustment
which, together with any adjustment so carried forward, shall amount to at least
two cents ($.02) per Representative's Warrant.
11.6 Adjustment of Warrants' Exercise Price. With respect to
any of the Warrants whether or not the Warrants have been exercised (or are
exercisable) and whether or not the Warrants are issued and outstanding, the
Warrant exercise price and the number of shares of Common stock underlying such
Warrants shall be automatically adjusted in accordance
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<PAGE> 21
with Section 8 of the Warrant Agreement between the Company and Continental
Stock Transfer & Trust Company dated _________, 1998 (the "Warrant Agreement"),
upon the occurrence of any of the events described therein. Thereafter, the
underlying Warrants shall be exercisable at such adjusted Warrant exercise price
for such adjusted number of underlying shares of Common Stock or other
securities, properties or rights.
11.7. Exchange and Replacement of Representative's Warrant
Certificates. Each Representative's Warrant Certificate is exchangeable, without
expense, upon the surrender thereof by the registered Holder at the principal
executive office of the Company for a new Representative's Warrant Certificate
of like tenor and date representing in the aggregate the right to purchase the
same number of Warrant Shares in such denominations as shall be designated by
the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of any Representative's
Warrant Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Representative's Warrant, if mutilated, the Company will make and deliver a
new Warrant Certificate of like tenor, in lieu thereof.
12. Elimination of Fractional Interests. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
upon the exercise of the Representative's Warrant, nor shall it be required to
issue scrip or pay cash in lieu of fractional
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<PAGE> 22
interests, it being the intent of the parties that all fractional interests
shall be eliminated by rounding any fraction up to the nearest whole number of
shares of Common Stock or other securities, properties or rights.
13. Reservation and Listing of Securities. The Company shall at
all times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issuance upon the exercise of the
Representative's Warrant and the Warrant, such number of shares of Common Stock
or other securities, properties or rights as shall be issuable upon the exercise
thereof. Every transfer agent ("Transfer Agent") for the Common Stock and other
securities of the Company issuable upon the exercise of the Representative's
Warrant will be irrevocably authorized and directed at all times to reserve such
number of authorized shares of Common Stock and other securities as shall be
requisite for such purpose. The Company will keep a copy of this Agreement on
file with every Transfer Agent for the Common Stock and other securities of the
Company issuable upon the exercise of the Representative's Warrant. The Company
will supply every such Transfer Agent with duly executed stock and other
certificates, as appropriate, for such purpose. The Company covenants and agrees
that, upon exercise of the Representative's Warrant and payment of the Exercise
Price therefor, all shares of Common Stock and other securities issuable upon
such exercise shall be duly and validly issued, fully paid, non-assessable and
not subject to the preemptive rights of any stockholder. As long as the
Representative's Warrant shall be outstanding, the Company shall use its best
efforts to cause all shares of Common Stock issuable upon the exercise of the
Representative's Warrant to be listed (subject to official notice of issuance)
on all securities exchanges on which the Common
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<PAGE> 23
Stock issued to the public in connection herewith may then be listed and/or
quoted on Nasdaq SmallCap Market.
14. Notices to Representative's Warrant Holders. Nothing
contained in this Agreement shall be construed as conferring upon the Holders
the right to vote or to consent or to receive notice as a stockholder in respect
of any meetings of stockholders for the election of directors or any other
matter, or as having any rights whatsoever as a stockholder of the Company. If,
however, at any time prior to the expiration of the Representative's Warrants
and their exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a dividend
or distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or distribution on the
books of the Company; or
(b) the Company shall offer to all the holders of its
Common Stock any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the Company, or
any option, right or warrant to subscribe therefor; or
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<PAGE> 24
(c) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation or merger) or a sale of
all or substantially all of its property, assets and business as an entirety
shall be proposed;
then in any one or more of said events, the Company shall give written notice of
such event at least fifteen (15) days prior to the date fixed as a record date
or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
15. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly made and sent when delivered, or mailed by registered or certified mail,
return receipt requested:
(a) if to the registered Holder of the Representative's
Warrant, to the address of such Holder as shown on the books of the Company; or
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<PAGE> 25
(b) if to the Company, to the address set forth in Section
4 hereof or to such other address as the Company may designate by notice to the
Holders.
16. Warrants. The form of the certificate representing Warrants
(and the form of election to purchase shares of Common Stock upon the exercise
of Warrants and the form of assignment period on the reverse thereof) shall be
substantially as set forth in Exhibit "A" to the Warrant Agreement. Each Warrant
issuable upon exercise of the Representative's Warrants shall evidence the right
to initially purchase one fully paid and non-assessable share of Common Stock at
an initial purchase price of $_____ per share commencing on the Initial Exercise
Date and ending at 5:00 p.m. New York time on the Warrant Expiration Date at
which time the Warrant shall expire. The exercise price of the Warrants and the
number of shares of Common Stock issuable upon the exercise of the Warrants are
subject to adjustment, whether or not the Representative's Warrants have been
exercised and the Warrants have been issued, in the manner and upon the
occurrence of the events set forth in Section 8 of the Warrant Agreement, which
is hereby incorporated herein by reference and made a part hereof as if set
forth in its entirety herein. Subject to the provisions of this Agreement and
upon issuance of the Warrants underlying the Representative's Warrants, each
registered holder of such Warrants shall have the right to purchase from the
Company (and the Company shall issue to such registered holders) up to the
number of fully paid and non-assessable shares of Common Stock (subject to
adjustment as provided herein and in the Warrant Agreement), free and clear of
all preemptive rights of stockholders, provided that such registered holder
complies with the terms governing exercise of the Warrants set forth in the
Warrant Agreement, and pays the applicable exercise
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<PAGE> 26
price, determined in accordance with the terms of the Warrant Agreement. Upon
exercise of the Warrants, the Company shall forthwith issue to the registered
holder of any such Warrant in his name or in such name as may be directed by
him, certificates for the number of shares of Common Stock so purchased. Except
as otherwise provided herein, the Warrants underlying the Representative's
Warrants shall be governed in all respects by the terms of the Warrant
Agreement. The Warrants shall be transferable in the manner provided in the
Warrant Agreement, and upon any such transfer, a new Warrant Certificate shall
be issued promptly to the transferee. The Company covenants to, and agrees with,
the Holder(s) that without the prior written consent of the Holder(s), the
Warrant Agreement will not be modified, amended, cancelled, altered or
superseded, and that the Company will send to each Holder, irrespective of
whether or not the Warrants have been exercised, any and all notices required by
the Warrant Agreement to be sent to holders of Warrants.
17. Supplements; Amendments; Entire Agreement. This Agreement
(including the Underwriting Agreement to the extent portions thereof are
referred to herein) contains the entire understanding between the parties hereto
with respect to the subject matter hereof and may not be modified or amended
except by a writing duly signed by the party against whom enforcement of the
modification or amendment is sought. The Company and the Representative may from
time to time supplement or amend this Agreement without the approval of any
holders of Representative's Warrant Certificates (other than the Representative)
in order to cure any ambiguity, to correct or supplement any provision contained
herein which may be defective or inconsistent with any provisions herein, or to
make any other provisions in regard to matters or
-25-
<PAGE> 27
questions arising hereunder which the Company and the Representative may deem
necessary or desirable and which the Company and the Representative deem shall
not adversely affect the interests of the Holders of Representative's Warrant
Certificates.
18. Successors. All of the covenants and provisions of this
Agreement shall be binding upon and inure to the benefit of the Company, the
Holders and their respective successors and assigns hereunder.
19. Survival of Representations and Warranties. All statements in
any schedule, exhibit or certificate or other instrument delivered by or on
behalf of the parties hereto, or in connection with the transactions
contemplated by this Agreement, shall be deemed to be representations and
warranties hereunder. Notwithstanding any investigations made by or on behalf of
the parties to this Agreement, all representations, warranties and agreements
made by the parties to this Agreement or pursuant hereto shall survive.
20. Governing Law. This Agreement and each Representative's
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of New York and for all purposes shall be construed in
accordance with the laws of said State without giving effect to the rules of
said State governing the conflicts of laws.
21. Severability. If any provision of this Agreement shall be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision of this Agreement.
-26-
<PAGE> 28
22. Captions. The caption headings of the Sections of this
Agreement are for convenience of reference only and are not intended, nor should
they be construed as, a part of this Agreement and shall be given no substantive
effect.
23. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company and the
Representative and any other registered Holder(s) of the Representative's
Warrant Certificates or Warrant Shares any legal or equitable right, remedy or
claim under this Agreement; and this Agreement shall be for the sole and
exclusive benefit of the Company and the Underwriters and any other Holder(s) of
the Representative's Warrant Certificates or Warrant Shares.
-27-
<PAGE> 29
24. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
IN WITNESS OF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.
ATTEST: BRIGHTON TECHNOLOGIES CORPORATION
By:
- ------------------------- ----------------------------------------
Warren Wang Name: Kit Kung
Secretary Title: President and Chief Operating
Officer
NATIONAL SECURITIES CORPORATION
By:
---------------------------------------
Name: Steven A. Rothstein
Title: Chairman
-28-
<PAGE> 30
EXHIBIT A
[FORM OF REPRESENTATIVE'S WARRANT CERTIFICATE]
THE REPRESENTATIVE'S WARRANT REPRESENTED BY THIS CERTIFICATE AND THE OTHER
SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR
RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN
OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL
FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE REPRESENTATIVE'S WARRANT
REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE
WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, ______ __, 2003
Representative's Warrant No.
100,000 Units
WARRANT CERTIFICATE
This Warrant Certificate certifies that National Securities
Corporation, or its registered assigns, is the registered holder of Warrants to
purchase initially, at any time from ________, 1999 until 5:30 p.m., New York
time on _________, 2003 ("Expiration Date"), up to 100,000 Units (the "Units"),
each Unit consisting of one (1) share of fully-paid and non-assessable common
stock, $.001 par value ("Common Stock") of Brighton Technologies Corporation, a
Delaware corporation (the "Company") and one (1) warrant to purchase one (1)
share of Common Stock at an exercise price of $_______ of the Company, at the
initial exercise price, subject to adjustment in certain events, of $______ per
Unit (the "Exercise Price") upon surrender of this Representative's Warrant
Certificate and payment of the Exercise Price at an office or agency of the
Company, but subject to the conditions set forth herein and in the
Representative's Warrant Agreement dated as of __________, 1998 among the
Company and National Securities Corporation (the "Warrant Agreement"). Payment
of the Exercise Price shall be made by certified or official bank check in New
York Clearing House funds payable to the order of the Company.
EXH. A-1
<PAGE> 31
No Warrant may be exercised after 5:30 p.m., New York time, on
the Expiration Date, at which time all Representative's Warrant evidenced
hereby, unless exercised prior thereto, shall thereafter be void.
The Representative's Warrants evidenced by this Warrant
Certificate are part of a duly authorized issue of Representative's Warrants
issued pursuant to the Warrant Agreement, which Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Company and the holders (the words
"holders" or "holder" meaning the registered holders or registered holder) of
the Representative's Warrant.
The Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the
Representative's Warrant; provided, however, that the failure of the Company to
issue such new Warrant Certificates shall not in any way change, alter, or
otherwise impair, the rights of the holder as set forth in the Warrant
Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Representative's Warrant shall be issued to the transferee(s) in exchange for
this Warrant Certificate, subject to the limitations provided herein and in the
Warrant Agreement, without any charge except for any tax or other governmental
charge imposed in connection with such transfer.
Upon the exercise of less than all of the Representative's
Warrant evidenced by this Certificate, the Company shall forthwith issue to the
holder hereof a new Warrant Certificate representing such numbered unexercised
Representative's Warrant.
The Company may deem and treat the registered holder(s) hereof as
the absolute owner(s) of this Warrant Certificate (notwithstanding any notation
of ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in
the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
EXH. A-2
<PAGE> 32
This Warrant Certificate does not entitle any holder thereof to
any of the rights of a shareholder of the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of ________, 1998.
ATTEST: BRIGHTON TECHNOLOGIES CORPORATION
By:
- ------------------------------ ----------------------------------------
Warren Wang Name:Kit Kung
Secretary Title: President and Chief Operating
Officer
EXH. A-3
<PAGE> 33
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.11]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase Units and herewith tenders
in payment for such securities a certified or official bank check payable in New
York Clearing House Funds to the order of Brighton Technologies Corporation (the
"Company") in the amount of $_____, all in accordance with the terms of Section
3.1 of the Representative's Warrant Agreement dated as of __________, 1998 among
the Company and National Securities Corporation. The undersigned requests that a
certificate for such securities be registered in the name of ___________________
__________________________, whose address is ___________________________________
and that such certificate be delivered to____________________ , whose address is
_____________________, and if said number of shares shall not be all the shares
purchasable hereunder, that a new Warrant Certificate for the balance of the
shares purchasable under the within Warrant Certificate be registered in the
name of the undesigned warrantholder or his assignee as below indicated and
delivered to the address stated below.
Dated: _____________________
Signature:__________________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant Certificate.)
Address: _____________________________________________
_____________________________________________
------------------------------------------------------
(Insert Social Security or Other Identifying Number of
Holder)
Signature Guaranteed: __________________________________________________________
(Signature must be guaranteed by a bank savings and loan association,
stockbroker, or credit union with membership in an approved signature guaranty
Medallion Program pursuant to Securities Exchange Act Rule 17Ad-15.)
EXH. A-4
<PAGE> 34
[FORM OF ASSIGNMENT]
(TO BE EXECUTED BY THE REGISTERED HOLDER IF SUCH HOLDER
DESIRES TO TRANSFER THE WARRANT CERTIFICATE.)
FOR VALUE RECEIVED __________________ here sells, assigns and transfers unto
[NAME OF TRANSFEREE] this Warrant Certificate, together with all right, title
and interest therein, and does hereby irrevocably constitute and appoint
_________________________ Attorney, to transfer the within Warrant Certificate
on the books of the within-named Company, with full power of substitution.
Dated: _____________________________
Signature: ______________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
Address: _________________________________
_________________________________
__________________________________________
(Insert Social Security or Other
Identifying Number of Holder)
Signature Guaranteed: __________________________________________________________
(Signature must be guaranteed by a bank savings and loan association,
stockbroker, or credit union with membership in an approved signature guaranty
Medallion Program pursuant to Securities Exchange Act Rule 17Ad-15.)
EXH. A-5
<PAGE> 1
EXHIBIT 4.3
FORM OF PUBLIC WARRANT Draft
1/15/98
================================================================================
BRIGHTON TECHNOLOGIES CORPORATION
AND
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
----------------
WARRANT AGREEMENT
DATED AS OF ______________, 1998
================================================================================
<PAGE> 2
WARRANT AGREEMENT, dated this ___ day of ________ 1998 [the effective
date of the Registration Statement], by and between BRIGHTON TECHNOLOGIES
CORPORATION, a Delaware corporation (the "Company"), and CONTINENTAL STOCK
TRANSFER & TRUST COMPANY.
WITNESSETH:
WHEREAS, in connection with (i) the offering (the "Offering") to the
public of 1,000,000 units (the "Units"), each Unit consisting of one share of
the Company's common stock, $.001 par value per share (the "Common Stock"), and
one redeemable warrant (the "Warrants"), each redeemable warrant entitling the
holder thereof to purchase one share of Common Stock, (ii) the over-allotment
option granted to National Securities Corporation, the representative (the
"Representative") of the several underwriters (the "Underwriters") in the public
offering referred to above, to purchase up to an additional 150,000 Units (the
"Over-Allotment Option"), and (iii) the sale to the Representative of warrants
(the "Representative's Warrants") to purchase up to 100,000 Units, the Company
will issue up to 1,250,000 Warrants (subject to increase as provided herein);
WHEREAS, the Company desires to provide for the issuance of certificates
representing the Warrants; and
WHEREAS, the Company desires the Warrant Agent (as defined in Section
1(u) hereof) to act on behalf of the Company, and the Warrant Agent is willing
to so act, in connection with the issuance, registration, transfer and exchange
of certificates representing the Warrants and the exercise of the Warrants.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder
<PAGE> 3
of the Company, the Representative, the holders of certificates representing the
Warrants and the Warrant Agent, the parties hereto agree as follows:
SECTION 1. Definitions. As used herein, the following terms shall have
the following meanings, unless the context shall otherwise require:
(a) "Act" shall mean the Securities Act of 1933, as amended.
(b) "Commission" shall mean the Securities and Exchange
Commission.
(c) "Common Stock" shall have the meaning set forth in Section
8(d) hereof.
(d) "Company" shall have the meaning assigned to such term in the
first (1st) paragraph of this Agreement.
(e) "Corporate Office" shall mean the office of the Warrant Agent
at which at any particular time its principal business in New York, New York
shall be administered, which office is located on the date hereof at 2 Broadway,
New York, New York 10004.
(f) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(g) "Exercise Date" shall mean, subject to the provisions of
Section 5(b) hereof, as to any Warrant, the date on which the Warrant Agent
shall have received both (i) the Warrant Certificate representing such Warrant,
with the exercise form thereon duly executed by the Registered Holder (as
defined in Section 1(m) hereof) thereof or his attorney duly authorized in
writing, and (ii) payment in cash or by check made payable to the Warrant Agent
for the account of the Company of an amount in lawful money of the United States
of America equal to the applicable Purchase Price (as defined in Section 1(k)
hereof).
(h) "Initial Warrant Exercise Date" shall mean __________, 1998
[the effective date of the Registration Statement].
2
<PAGE> 4
(i) "Initial Warrant Redemption Date" shall mean __________, 1998
[the date _____ (__) months after the effective date of the Registration
Statement].
(j) "NASD" shall mean the NASD Regulation, Inc.
(k) "Purchase Price" shall mean, subject to modification and
adjustment as provided in Section 8 hereof, $ [150% of the initial public
offering price per Unit] per Share.
(l) "Redemption Date" shall mean the date (which may not occur
before the Initial Warrant Redemption Date) fixed for the redemption of the
Warrants in accordance with the terms hereof.
(m) "Registered Holder" shall mean the person in whose name any
certificate representing the Warrants shall be registered on the books
maintained by the Warrant Agent pursuant to Section 6(b) hereof.
(n) "Representative's Warrant Agreement" shall mean the agreement
dated as of __________, 1998 [the effective date of the Registration Statement]
between the Company and the Representative relating to and governing the terms
and provisions of the Representative's Warrants.
(o) "Subsidiary" or "Subsidiaries" shall mean any corporation or
corporations, as the case may be, of which stock having ordinary power to elect
a majority of the board of directors of such corporation or corporations
(regardless of whether or not at the time the stock of any other class or
classes of such corporation shall have or may have voting power by reason of the
happening of any contingency) is at the time directly or indirectly owned by the
Company or by one or more Subsidiaries, or by the Company and one or more
Subsidiaries.
3
<PAGE> 5
(p) "Transfer Agent" shall mean Continental Stock Transfer &
Trust Company of New York, New York or its authorized successor.
(q) "Underwriting Agreement" shall mean the underwriting
agreement dated _______________, 1998 [the effective date of the Registration
Statement] between the Company and the Representative relating to the purchase
for resale to the public of 1,000,000 Units (without giving effect to the
Over-Allotment Option).
(r) "Warrant Agent" shall mean Continental Stock Transfer & Trust
Company of New York, New York or its authorized successor.
(s) "Warrant Certificate" shall mean a certificate representing
each of the Warrants substantially in the form annexed hereto as Exhibit A.
(t) "Warrant Expiration Date" shall mean, unless the Warrants are
redeemed as provided in Section 9 hereof prior to such date, 5:00 p.m. (New York
time) on __________, 2003 [the 60 month anniversary of issuance] or, if such
date shall in the State of New York be a holiday or a day on which banks are
authorized to close, then 5:00 p.m. (New York time) on the next following day
which in the State of New York is not a holiday or a day on which banks are
authorized to close.
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) One Warrant shall initially entitle the Registered Holder of
the Warrant Certificate representing such Warrant to purchase at the Purchase
Price therefor from the Initial Warrant Exercise Date until the Warrant
Expiration Date one (1) share of Common Stock upon the exercise thereof, subject
to modification and adjustment as provided in Section 8 hereof.
(b) Upon execution of this Agreement, Warrant Certificates
representing 1,000,000 Warrants to purchase up to an aggregate of 1,000,000
shares of Common Stock
4
<PAGE> 6
(subject to modification and adjustment as provided in Section 8 hereof), shall
be executed by the Company and delivered to the Warrant Agent.
(c) Upon exercise of the Over-Allotment Option, in whole or in
part, Warrant Certificates representing up to 150,000 Warrants to purchase up to
an aggregate of 150,000 shares of Common Stock (subject to modification and
adjustment as provided in Section 8 hereof) shall be executed by the Company and
delivered to the Warrant Agent.
(d) Upon exercise of the Representative's Warrants as provided
therein, Warrant Certificates representing 100,000 Warrants to purchase up to an
aggregate of 100,000 shares of Common Stock (subject to modification and
adjustment as provided in Section 8 hereof and in the Representative's Warrant
Agreement), shall be countersigned, issued and delivered by the Warrant Agent
upon written order of the Company signed by its Chairman of the Board, President
or a Vice President and by its Treasurer or an Assistant Treasurer or its
Secretary or an Assistant Secretary.
(e) From time to time, up to the Warrant Expiration Date, the
Warrant Agent shall countersign and deliver Warrant Certificates in required
denominations of one or whole number multiples thereof to the person entitled
thereto in connection with any transfer or exchange permitted under this
Agreement. No Warrant Certificates shall be issued except (i) Warrant
Certificates initially issued hereunder, (ii) Warrant Certificates issued upon
any transfer or exchange of Warrants, (iii) Warrant Certificates issued in
replacement of lost, stolen, destroyed or mutilated Warrant Certificates
pursuant to Section 7 hereof, and (iv) Warrant Certificates issued pursuant to
the Representative's Warrant Agreement (including Warrants in excess of the
100,000 Representative's Warrants issued as a result of the antidilution
provisions contained in the Representative's Warrant Agreement) and (v) at the
option of the Company, Warrant Certificates in such form as may be approved by
its Board of Directors, to reflect any
5
<PAGE> 7
adjustment or change in the Purchase Price, the number of shares of Common Stock
purchasable upon the exercise of a Warrant or the redemption price therefor.
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially in the form
annexed hereto as Exhibit A (the provisions of which are hereby incorporated
herein) and may have such letters, numbers or other marks of identification or
designation and such legends, summaries or endorsements printed, lithographed or
engraved thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
law or with any rule or regulation made pursuant thereto or with any rule or
regulation of any stock exchange on which the Warrants may be listed, or to
conform to usage. The Warrant Certificates shall be dated the date of issuance
thereof (whether upon initial issuance, transfer, exchange or in lieu of
mutilated, lost, stolen or destroyed Warrant Certificates).
(b) Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, President or any Vice President and by its
Treasurer or an Assistant Treasurer or its Secretary or an Assistant Secretary,
by manual signatures or by facsimile signatures printed thereon, and shall have
imprinted thereon a facsimile of the Company's seal. Warrant Certificates shall
be manually countersigned by the Warrant Agent and shall not be valid for any
purpose unless so countersigned. In case any officer of the Company who shall
have signed any of the Warrant Certificates shall cease to be such officer of
the Company before the date of issuance of the Warrant Certificates or before
countersignature by the Warrant Agent and issue and delivery thereof, such
Warrant Certificates, nevertheless, may be countersigned by the Warrant Agent
and issued and delivered with the same force and effect as though the officer of
the Company who signed such Warrant Certificates had not ceased to hold such
office.
6
<PAGE> 8
SECTION 4. Exercise.
(a) Warrants in denominations of one or whole number multiples
thereof may be exercised commencing at any time on or after the Initial Warrant
Exercise Date, but not after the Warrant Expiration Date, upon the terms and
subject to the conditions set forth herein (including the provisions set forth
in Sections 5 and 9 hereof) and in the applicable Warrant Certificate. A Warrant
shall be deemed to have been exercised immediately prior to the close of
business on the Exercise Date, provided that the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder thereof or his attorney duly authorized in writing, together
with payment in cash or by check made payable to the Warrant Agent for the
account of the Company of an amount in lawful money of the United States of
America equal to the applicable Purchase Price, have been received by the
Warrant Agent. The person entitled to receive the securities deliverable upon
such exercise shall be treated for all purposes as the holder of such securities
as of the close of business on the Exercise Date. As soon as practicable on or
after the Exercise Date and in any event within five (5) business days after
such date, the Warrant Agent, on behalf of the Company, shall cause to be issued
to the person or persons entitled to receive the same a Common Stock certificate
or certificates for the shares of Common Stock deliverable upon such exercise,
and the Warrant Agent shall deliver the same to the person or persons entitled
thereto. Upon the exercise of any Warrants, the Warrant Agent shall promptly
notify the Company in writing of such fact and of the number of securities
delivered upon such exercise and, subject to Section 4(b) hereof, shall cause
all payments in cash or by check made payable to the order of the Company in
respect of the Purchase Price to be deposited promptly in the Company's bank
account or delivered to the Company.
7
<PAGE> 9
(b) At any time upon the exercise of any Warrants after one year
and one day from the date hereof, the Warrant Agent shall, on a daily basis,
within two business days after such exercise, notify the Representative, its
successors or assigns of the exercise of any such Warrants and shall, on a
weekly basis (subject to collection of funds constituting the tendered Purchase
Price, but in no event later than five business days after the last day of the
calendar week in which such funds were tendered), for services rendered by the
Representative to the Registered Holders of the Warrants then being exercised,
remit to the Representative an amount equal to five percent (5%) of the Purchase
Price of such Warrants then being exercised unless the Representative shall have
notified the Warrant Agent that the payment of such amount with respect to such
Warrant is violative of the General Rules and Regulations promulgated under the
Exchange Act, or the rules and regulations of the NASD or applicable state
securities or "blue sky" laws, or the Warrants are those underlying the
Representative's Warrants in which event, the Warrant Agent shall have to pay
such amount to the Company; provided, that, the Warrant Agent shall not be
obligated to pay any amounts pursuant to this Section 4(b) during any week that
such amounts payable are less than $1,000 and the Warrant Agent's obligation to
make such payments shall be suspended until the amount payable aggregates
$1,000, and provided further, that, in any event, any such payment (regardless
of amount) shall be made not less frequently than monthly.
(c) The Company shall not be obligated to issue any fractional
share interests or fractional warrant interests upon the exercise of any Warrant
or Warrants, nor shall it be obligated to issue scrip or pay cash in lieu of
fractional interests. Any fractional interest shall be eliminated by rounding
any fraction up to the next full share or Warrant, as the case may be, or other
securities, properties or rights.
8
<PAGE> 10
SECTION 5. Reservation of Shares, Listing, Payment of Taxes, etc.
(a) The Company covenants that it will at all times reserve and
keep available out of its authorized Common Stock, solely for the purpose of
issuance upon the exercise of Warrants, such number of shares of Common Stock as
shall then be issuable upon the exercise of all outstanding Warrants. The
Company covenants that, upon exercise of the Warrants and payment of the
Purchase Price for the shares of Common Stock underlying the Warrants, all
shares of Common Stock which shall be issuable upon such exercise shall be duly
and validly issued, fully paid, non-assessable, free from all preemptive or
similar rights, and free from all taxes, liens and charges with respect to the
issuance thereof, and that upon issuance such shares shall be listed or quoted
on each securities exchange, if any, on which the other shares of outstanding
Common Stock are then listed or quoted, or if not then so listed or quoted on
each place (whether the Nasdaq Stock Market, Inc. (National Market or SmallCap
Market, the NASD OTC Electronic Bulletin Board, the National Quotation Bureau
"pink sheets" or otherwise) on which the other shares of outstanding Common
Stock are listed or quoted.
(b) The Company covenants that if any securities reserved for the
purpose of exercise of Warrants hereunder require registration with, or approval
of, any governmental authority under any federal securities law before such
securities may be validly issued or delivered upon such exercise, then the
Company will file a registration statement under the federal securities laws or
a post-effective amendment to a registration statement, use its best efforts to
cause the same to become effective, keep such registration statement current
while any of the Warrants are outstanding and deliver a prospectus which
complies with Section 10(a)(3) of the Act, to the Registered Holder exercising
the Warrant (except, if in the opinion of counsel to the Company, such
registration is not required under the federal securities law or if the Company
receives a letter from the staff of the Commission stating that it would not
take any
9
<PAGE> 11
enforcement action if such registration is not effected). The Company will use
its best efforts to obtain appropriate approvals or registrations under the
state "blue sky" securities laws of all states in which Registered Holders
reside. Warrants may not be exercised by, nor may shares of Common Stock be
issued to, any Registered Holder in any state in which such exercise would be
unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes
and other governmental charges that may be imposed with respect to the issuance
of Warrants, or the issuance or delivery of any shares of Common Stock upon
exercise of the Warrants; provided, however, that if shares of Common Stock are
to be delivered in a name other than the name of the Registered Holder of the
Warrant Certificate representing any Warrant being exercised, then no such
delivery shall be made unless the person requesting the same has paid to the
Warrant Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized as the
Transfer Agent to requisition from time to time certificates representing shares
of Common Stock or other securities required upon exercise of the Warrants, and
the Company will comply with all such requisitions.
SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants or may be
transferred in whole or in part. Warrant Certificates to be so exchanged shall
be surrendered to the Warrant Agent at its Corporate Office, and the Company
shall execute and the Warrant Agent shall countersign, issue and deliver in
exchange therefor the Warrant Certificate or Certificates which the Registered
Holder making the exchange shall be entitled to receive.
10
<PAGE> 12
(b) The Warrant Agent shall keep, at such office, books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer thereof. Upon due presentment for
registration of transfer of any Warrant Certificate at such office, the Company
shall execute and the Warrant Agent shall issue and deliver to the transferee or
transferees a new Warrant Certificate or Certificates representing an equal
aggregate number of Warrants.
(c) With respect to any Warrant Certificates presented for
registration of transfer, or for exchange or exercise, the subscription or
assignment form, as the case may be, on the reverse thereof shall be duly
endorsed or be accompanied by a written instrument or instruments of
subscription or assignment, in form satisfactory to the Company and the Warrant
Agent, duly executed by the Registered Holder thereof or his attorney duly
authorized in writing.
(d) No service charge shall be made for any exchange or
registration of transfer of Warrant Certificates. However, the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for
exchange shall be promptly cancelled by the Warrant Agent.
(f) Prior to due presentment for registration or transfer
thereof, the Company and the Warrant Agent may deem and treat the Registered
Holder of any Warrant Certificate as the absolute owner thereof of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than the Company or the Warrant Agent) for all
purposes and shall not be affected by any notice to the contrary.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and the
Warrant Agent of evidence satisfactory to them of the ownership of and the loss,
theft, destruction or
11
<PAGE> 13
mutilation of any Warrant Certificate and (in the case of loss, theft or
destruction) of indemnity satisfactory to them, and (in case of mutilation) upon
surrender and cancellation thereof, the Company shall execute and the Warrant
Agent shall countersign and deliver in lieu thereof a new Warrant Certificate
representing an equal number of Warrants. Applicants for a substitute Warrant
Certificate shall also comply with such other reasonable regulations and pay
such other reasonable charges as the Warrant Agent may prescribe.
SECTION 8. Adjustments to Purchase Price and Number of Securities.
(a) Subdivision and Combination. In case the Company shall at any
time subdivide or combine the outstanding shares of Common Stock, the Purchase
Price shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
(b) Stock Dividends and Distributions. In case the Company shall
pay dividend in, or make a distribution of, shares of Common Stock or of the
Company's capital stock convertible into Common Stock, the Purchase Price shall
forthwith be proportionately decreased. An adjustment made pursuant to this
Section 8(b) shall be made as of the record date for the subject stock dividend
or distribution.
(c) Adjustment in Number of Securities. Upon each adjustment of
the Purchase Price pursuant to the provisions of this Section 8, the number of
Warrant Securities issuable upon the exercise at the adjusted Purchase Price of
each Warrant shall be adjusted to the nearest whole number by multiplying a
number equal to the Purchase Price in effect immediately prior to such
adjustment by the number of Warrant Securities issuable upon exercise of the
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Purchase Price.
12
<PAGE> 14
(d) Definition of Common Stock. For the purpose of this
Agreement, the term "Common Stock" shall mean (i) the class of stock designated
as Common Stock in the Certificate of Incorporation of the Company as may be
amended or restated as of the date hereof, or (ii) any other class of stock
resulting from successive changes or reclassifications of such Common Stock
consisting solely of changes in par value, or from par value to no par value, or
from no par value to par value. In the event the Company shall after the date
hereof issue Common Stock with greater or superior voting rights than the shares
of Common Stock outstanding as of the date hereof, each Holder, at its option,
may receive upon exercise of any Warrant either shares of Common Stock or a like
number of such securities with greater or superior voting rights.
(e) Merger or Consolidation or Sale.
(i) In case of any consolidation of the Company with, or merger
of the Company with, or merger of the Company into, another corporation (other
than a consolidation or merger which does not result in any reclassification or
change of the outstanding Common Stock), the corporation formed by such
consolidation or surviving such merger shall execute and deliver to the Holder a
supplemental warrant agreement providing that the holder of each Warrant then
outstanding or to be outstanding shall have the right thereafter (until the
expiration of such Warrant) to receive, upon exercise of such Warrant, the kind
and amount of shares of stock and other securities and property receivable upon
such consolidation, merger, sale or transfer by a Holder of the number of shares
of Common Stock of the Company for which such Warrant might have been exercised
immediately prior to such consolidation, merger, sale or transfer. Such
supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in this Section 8. The above provision of
this subsection shall similarly apply to successive consolidations or mergers.
13
<PAGE> 15
(ii) In the event of (A) the sale by the Company of all or
substantially all of its assets, or (B) the engagement by the Company or any of
its affiliates in a "Rule 13e-3 transaction" as defined in paragraph (a)(3) of
Rule 13e-3 of the General Rules and Regulations under the Exchange Act or (C) a
distribution to the Company's stockholders of any cash, assets, property,
rights, evidences of indebtedness, securities or any other thing of value, or
any combination thereof, the Holders of the unexercised Warrants shall receive
notice of such sale, transaction or distribution twenty (20) days prior to the
date of such sale or the record date for such transaction or distribution, as
applicable, and, if they exercise such Warrants prior to the date of such
transaction or distribution, they shall be entitled, in addition to the shares
of Common Stock issuable upon the exercise thereof, to receive such property,
cash, assets, rights, evidence of indebtedness, securities or any other thing of
value, or any combination thereof, on the payment date of such sale, transaction
or distribution.
(f) No Adjustment of Exercise Price in Certain Cases. No
adjustment of the Exercise Price shall be made if the amount of said adjustment
shall be less than ten cents (10(cent)) per share of Common Stock, provided,
however, that in such case any adjustment that would otherwise be required then
to be made shall be carried forward and shall be made at the time of and
together with the next subsequent adjustment which, together with any adjustment
so carried forward, shall amount to at least ten cents (10(cent)) per share of
Common Stock.
SECTION 9. Redemption.
(a) Commencing on the Initial Warrant Redemption Date, the
Company may (but not without the prior written consent of the Representative),
on thirty (30) days' prior written notice, redeem all of the Warrants, in whole
and not in part, at a redemption price of five cents ($.10) per Warrant;
provided, however, that before any such call for redemption of Warrants can take
place, the (i) average closing bid price for the Common Stock, as reported
14
<PAGE> 16
by the National Association of Securities Dealers Automated Quotation System, or
(ii) if not so quoted, as reported by any other recognized quotation system on
which the Common Stock is quoted, shall have for any twenty (20) trading days
within a period of thirty (30) consecutive trading days ending on the fifth
(5th) trading day prior to the date on which the notice contemplated by Sections
9(b) and 9(c) hereof is given, equalled or exceeded 150% of the Offering Price
per Unit (subject to adjustment in the event of any stock splits or other
similar events as provided in Section 8 hereof).
(b) In case the Company shall exercise its right to redeem all of
the Warrants, it shall give or cause to be given notice to the Registered
Holders of the Warrants, by mailing to such Registered Holders a notice of
redemption, first class, postage prepaid, at their last address as shall appear
on the records of the Warrant Agent. Any notice mailed in the manner provided
herein shall be conclusively presumed to have been duly given whether or not the
Registered Holder receives such notice. Not less than five (5) business days
prior to the mailing to the Registered Holders of the Warrants of the notice of
redemption, the Company shall deliver or cause to be delivered to the
Representative or its successors or assigns a similar notice telephonically and
confirmed in writing, together with a list of the Registered Holders (including
their respective addresses and number of Warrants beneficially owned by them) to
whom such notice of redemption has been or will be given.
(c) The notice of redemption shall specify (i) the redemption
price, (ii) the date fixed for redemption, which shall in no event be less than
thirty (30) days after the date of mailing of such notice, (iii) the place where
the Warrant Certificates shall be delivered and the redemption price shall be
paid, and (iv) that the Representative is the Company's exclusive warrant
solicitation agent and shall receive the commission contemplated by Section 4(b)
hereof and (v) that the right to exercise the Warrant shall terminate at 5:00
p.m. (New York time) on
15
<PAGE> 17
the business day immediately preceding the date fixed for redemption. The date
fixed for the redemption of the Warrants shall be the "Redemption Date" for
purposes of this Agreement. No failure to mail such notice nor any defect
therein or in the mailing thereof shall affect the validity of the proceedings
for such redemption except as to a holder (A) to whom notice was not mailed or
(B) whose notice was defective. An affidavit of the Warrant Agent or the
Secretary or Assistant Secretary of the Company that notice of redemption has
been mailed shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 p.m.
(New York time) on the business day immediately preceding the Redemption Date.
The redemption price payable to the Registered Holders shall be mailed to such
persons at their addresses of record.
(e) The Company shall indemnify the Representative and each
person, if any, who controls the Representative within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act against all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which any
of them may become subject under the Act, the Exchange Act or otherwise, arising
from the registration statement or prospectus referred to in Section 5(b) hereof
to the same extent and with the same effect (including the provisions regarding
contribution) as the provisions pursuant to which the company has agreed to
indemnify the Representative contained in Section __ of the Underwriting
Agreement.
(f) Five business days prior to the Redemption Date, the Company
shall furnish to the Representative (i) opinions of counsel to the Company,
dated such date and addressed to the Representative, and (ii) a "cold comfort"
letter dated such date addressed to the Representative, signed by the
independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering
16
<PAGE> 18
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities, including, without limitation, those matters covered in Sections
___, ____ and ____ of the Underwriting Agreement.
(g) The Company shall as soon as practicable after the Redemption
Date, and in any event within 15 months thereafter, make "generally available to
its security holders" (within the meaning of Rule 158 under the Act) an earnings
statement (which need not be audited) complying with Section 11(a) of the Act
and covering a period of at least 12 consecutive months beginning after the
Redemption Date.
(h) The Company shall deliver within five business days prior to
the Redemption Date copies of all correspondence between the Commission and the
Company, its counsel or auditors and all memoranda relating to discussions with
the Commission or its staff with respect to such registration statement and
permit the Representative to do such investigation, upon reasonable advance
notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the NASD. Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as the
Representative shall reasonably request.
SECTION 10. Concerning the Warrant Agent.
(a) The Warrant Agent acts hereunder as agent and in a
ministerial capacity for the Company and the Representative, and its duties
shall be determined solely by the
17
<PAGE> 19
provisions hereof. The Warrant Agent shall not, by issuing and delivering
Warrant Certificates or by any other act hereunder, be deemed to make any
representations as to the validity or value or authorization of the Warrant
Certificates or the Warrants represented thereby or of any securities or other
property delivered upon exercise of any Warrant or whether any stock issued upon
exercise of any Warrant is fully paid and non-assessable.
(b) The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price provided in this Agreement, or to determine
whether any fact exists which may require any such adjustment, or with respect
to the nature or extent of any such adjustment, when made, or with respect to
the method employed in making the same. It shall not (i) be liable for any
recital or statement of fact contained herein or for any action taken, suffered
or omitted by it in reliance on any Warrant Certificate or other document or
instrument believed by it in good faith to be genuine and to have been signed or
presented by the proper party or parties, (ii) be responsible for any failure on
the part of the Company to comply with any of its covenants and obligations
contained in this Agreement or in any Warrant Certificate, or (iii) be liable
for any act or omission in connection with this Agreement except for its own
gross negligence or willful misconduct.
(c) The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company or the Representative)
and shall incur no liability or responsibility for any action taken, suffered or
omitted by it in good faith in accordance with the opinion or advice of such
counsel.
(d) Any notice, statement, instruction, request, direction, order
or demand of the Company shall be sufficiently evidenced by an instrument signed
by the Chairman of the Board of Directors, President or any Vice President
(unless other evidence in respect thereof is
18
<PAGE> 20
herein specifically prescribed). The Warrant Agent shall not be liable for any
action taken, suffered or omitted by it in accordance with such notice,
statement, instruction, request, direction, order or demand.
(e) The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its reasonable
expenses hereunder; the Company further agrees to indemnify the Warrant Agent
and hold it harmless against any and all losses, expenses and liabilities,
including judgments, costs and counsel fees, for anything done or omitted by the
Warrant Agent in the execution of its duties and powers hereunder except losses,
expenses and liabilities arising as a result of the Warrant Agent's gross
negligence or willful misconduct.
(f) The Warrant Agent may resign its duties and be discharged
from all further duties and liabilities hereunder (except liabilities arising as
a result of the Warrant Agent's own gross negligence or willful misconduct),
after giving thirty (30) days' prior written notice to the Company. At least
fifteen (15) days prior to the date such resignation is to become effective, the
Warrant Agent shall cause a copy of such notice of resignation to be mailed to
the Registered Holder of each Warrant Certificate at the Company's expense. Upon
such resignation the Company shall appoint in writing a new warrant agent. If
the Company shall fail to make such appointment within a period of thirty (30)
days after it has been notified in writing of such resignation by the resigning
Warrant Agent, then the Registered Holder of any Warrant Certificate may apply
to any court of competent jurisdiction for the appointment of a new warrant
agent. Any new warrant agent, whether appointed by the Company or by such a
court, shall be a bank or trust company having a capital and surplus, as shown
by its last published report to its stockholders, of not less than ten million
dollars ($10,000,000) or a stock transfer company doing business in New York,
New York. After acceptance in writing of such
19
<PAGE> 21
appointment by the new warrant agent is received by the Company, such new
warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the warrant agent,
without any further assurance, conveyance, act or deed; but if for any reason it
shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning Warrant
Agent. Not later than the effective date of any such appointment, the Company
shall file notice thereof with the resigning Warrant Agent and shall forthwith
cause a copy of such notice to be mailed to the Registered Holder of each
Warrant Certificate.
(g) Any corporation into which the Warrant Agent or any new
warrant agent may be converted or merged, any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party, or any corporation succeeding to the corporate trust business of the
Warrant Agent or any new warrant agent shall be a successor warrant agent under
this Agreement without any further act, provided that such corporation is
eligible for appointment as successor to the Warrant Agent under the provisions
of the preceding paragraph. Any such successor warrant agent shall promptly
cause notice of its succession as warrant agent to be mailed to the Company and
to the Registered Holders of each Warrant Certificate.
(h) The Warrant Agent, its subsidiaries and affiliates, and any
of its or their officers or directors, may buy and hold or sell Warrants or
other securities of the Company and otherwise deal with the Company in the same
manner and to the same extent and with like effect as though it were not Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
20
<PAGE> 22
(i) The Warrant Agent shall retain for a period of two (2) years
from the date of exercise any Warrant Certificate received by it upon such
exercise.
SECTION 11. Modification of Agreement.
The Warrant Agent and the Company may by supplemental agreement make any
changes or corrections in this Agreement (a) that they shall deem appropriate to
cure any ambiguity or to correct any defective or inconsistent provision or
manifest mistake or error herein contained, or (b) that they may deem necessary
or desirable and which shall not adversely affect the interests of the holders
of Warrant Certificates; provided, however, that this Agreement shall not
otherwise be modified, supplemented or altered in any respect except with the
consent in writing of the Registered Holders holding not less than sixty-six and
two-thirds percent (66-2/3%) of the Warrants then outstanding; provided,
further, that no change in the number or nature of the securities purchasable
upon the exercise of any Warrant, and no change that increases the Purchase
Price of any Warrant, other than such changes as are specifically set forth in
this Agreement as originally executed, shall be made without the consent in
writing of each Registered Holders affected by such change. In addition, this
Agreement may not be modified, amended or supplemented without the prior written
consent of the Representative or its successors or assigns, other than to cure
any ambiguity or to correct any defective or inconsistent provision or manifest
mistake or error herein contained or to make any such change that the Warrant
Agent and the Company deem necessary or desirable and which shall not adversely
affect the interests of the Representative or its successors or assigns.
SECTION 12. Notices.
All notices, requests, consents and other communications hereunder shall
be in writing and shall be deemed to have been made when delivered or mailed
first-class postage prepaid or delivered to a telegraph office for transmission,
if to the Registered Holder of a Warrant
21
<PAGE> 23
Certificate, at the address of such holder as shown on the registry books
maintained by the Warrant Agent; if to the Company at Brighton Technologies
Corporation, 6 Pearl Court, Allendale, New Jersey 07401, Attention: Kit Kung,
President and Chief Executive Officer, or at such other address as may have been
furnished to the Warrant Agent in writing by the Company; and if to the Warrant
Agent, at its Corporate Office. Copies of any notice delivered pursuant to this
Agreement shall be delivered to National Securities Corporation, 1001 Fourth
Avenue, Suite 2200, Seattle, Washington 98154, Attn: Stephen A. Rothstein,
Chairman or at such other address as may have been furnished to the Company and
the Warrant Agent in writing.
SECTION 13. Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York without giving effect to conflicts of laws rules
or principals.
SECTION 14. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
Company, the Warrant Agent and their respective successors and assigns and the
holders from time to time of Warrant Certificates or any of them. Except as
hereinafter stated, nothing in this Agreement is intended or shall be construed
to confer upon any other person any right, remedy or claim or to impose upon any
other person any duty, liability or obligation. The Representative is, and shall
at all times irrevocably be deemed to be, a third-party beneficiary of this
Agreement, with full power, authority and standing to enforce the rights granted
to it hereunder.
SECTION 15. Counterparts.
This Agreement may be executed in several counterparts, which taken
together shall constitute a single document.
22
<PAGE> 24
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
BRIGHTON TECHNOLOGIES CONTINENTAL STOCK TRANSFER
CORPORATION & TRUST COMPANY
As Warrant Agent
By:________________________________ By:_______________________________
Name: Kit Kung Name:
Title: President and Title:
Chief Executive Officer
23
<PAGE> 25
EXHIBIT A
No. W ___________ VOID AFTER ____________________, 2003
_________ WARRANTS
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE SHARES OF COMMON STOCK
BRIGHTON TECHNOLOGIES CORPORATION
CUSIP ___
THIS CERTIFIES THAT, FOR VALUE RECEIVED __________________________________
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Warrants (the "Warrants") specified above. One Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and non-assessable share of Common Stock, $.001 par
value per share, of Brighton Technologies Corporation, a Delaware corporation
(the "Company"), at any time from _____________, 1998 [the effective date of the
Registration Statement] and prior to the Expiration Date (as hereinafter
defined) upon the presentation and surrender of this Warrant Certificate with
the Subscription Form on the reverse hereof duly executed, at the corporate
office of Continental Stock Transfer & Trust Company, 2 Broadway, New York, New
York 10004 as Warrant Agent, or its successor (the "Warrant Agent"), accompanied
by payment of $_____ [150% of the initial public offering price per Unit]
subject to adjustment (the "Purchase Price"), in lawful money of the United
States of America in cash or by check made payable to the Warrant Agent for the
account of the Company.
This Warrant Certificate is, and each Warrant represented hereby are,
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement"), dated __________,
1998 [the effective date of the Registration Statement], by and between the
Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all of the Warrants represented hereby, the Company
shall cancel this Warrant Certificate upon the surrender hereof and shall
execute and deliver a new Warrant Certificate or Warrant Certificates of like
tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
A-1
<PAGE> 26
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
__________, 2003 [the 60 month anniversary of the issuance of the Warrant]. If
such date shall in the State of New York be a holiday or a day on which banks
are authorized to close, then the Expiration Date shall mean 5:00 p.m. (New York
time) on the next day which in the State of New York is not a holiday or a day
on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended (the "Act"), with respect to such securities
is effective or an exemption thereunder is available. The Company has covenanted
and agreed that it will file a registration statement under the Federal
securities laws, use its best efforts to cause the same to become effective, to
keep such registration statement current, if required under the Act, while any
of the Warrants are outstanding, and deliver a prospectus which complies with
Section 10(a)(3) of the Act to the Registered Holder exercising this Warrant.
This Warrant shall not be exercisable by a Registered Holder in any state where
such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may be
redeemed at the option of the Company, in whole and not in part, at a redemption
price of $.10 per Warrant, at any time commencing __________, 1998 provided that
the average closing bid price for the Company's Common Stock, as reported by the
National Association of Securities Dealers Automated Quotation System (or, if
not so quoted, as reported by any other recognized quotation system on which the
price of the Common Stock is quoted), shall have, for any twenty (20) trading
days within a period of thirty (30) consecutive trading days ending on the fifth
(5th) trading day prior to the date on which the Notice of Redemption (as
defined below) is given, equalled or exceeded 150% of the initial offering price
of the Units (subject to adjustment in the event of any stock splits or other
similar events). Notice of redemption (the "Notice of Redemption") shall be
given not later than the thirtieth (30th) day before the date fixed for
redemption, all as provided in the Warrant Agreement. On and after the date
fixed for redemption, the Registered Holder shall have no rights with respect to
this Warrant except to receive the $.10 per Warrant upon surrender of this
Certificate.
A-2
<PAGE> 27
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to
conflicts of laws.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated: ___________, 1998
BRIGHTON TECHNOLOGIES
CORPORATION
[SEAL]
By: _____________________________
Name: Kit Kung
Title: President and
Chief Executive Officer
ATTEST:
By: _____________________________
Name:
Title:
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
By: _________________________
Authorized Officer
A-3
<PAGE> 28
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrant
The undersigned Registered Holder hereby irrevocably elects to exercise
_____ Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
_______________________________
_______________________________
_______________________________
_______________________________
(please print or type name and address)
and be delivered to
_______________________________
_______________________________
_______________________________
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
A-4
<PAGE> 29
IMPORTANT: PLEASE COMPLETE THE FOLLOWING:
1. If the exercise of this Warrant was
solicited by National Securities
Corporation please check the
following box [ ]
2. The exercise of this Warrant was
solicited by [ ]
--------------------------
3. If the exercise of this Warrant was
not solicited, please check the
following box [ ]
Dated: ______________________ X____________________________
____________________________
____________________________
Address
____________________________
Social Security or Taxpayer
Identification Number
____________________________
Signature Guaranteed
____________________________
A-5
<PAGE> 30
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, __________________________, hereby sells, assigns
and transfers unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER
----------------------------------
----------------------------------
----------------------------------
(please PRINT or TYPE name and address)
________________________ of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints
____________________ Attorney to transfer this Warrant Certificate on the books
of the Company, with full power of substitution in the premises.
Dated: _______________________ X__________________________
---------------------------
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE,
MIDWEST STOCK EXCHANGE OR BOSTON STOCK EXCHANGE.
A-6
<PAGE> 1
[LOEB & LOEB LLP LETTERHEAD]
EXHIBIT 5.1
213-688-3698
e-mail: [email protected]
January 15, 1998
Brighton Technologies Corporation
Six Pearl Court
Allendale, New Jersey 07401
Re: Registration Statement
on Form SB-2
Registration No. 333-40083
Ladies and Gentlemen:
We have acted as counsel to Brighton Technologies Corporation, a
Delaware corporation (the "Company"), in connection with the preparation and
filing with the Securities and Exchange Commission under the Securities Act of
1933, as amended, of the above-captioned Registration Statement (the
"Registration Statement") for the purpose of registering 1,000,000 of the
Company's units (the "Units") (including an over-allotment option of up to
100,000 Units), each unit consisting of one of the Company's common stock, par
value $.001 per share and one common stock purchase warrant, to be sold by the
Company.
In so acting, we have examined and relied upon the originals or
copies, certified or otherwise identified to our satisfaction, of such Company
records, documents, certificates and other instruments as in our judgment are
necessary or appropriate to enable us to render the opinions expressed below.
Based upon the foregoing and such examination of law as we have deemed
necessary, we are of the opinion that:
1. The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware.
2. When the 1,000,000 Units to be sold by the Company have been
issued and sold as contemplated in the Registration Statement, and in accordance
with the terms of
<PAGE> 2
Brighton Technologies Corporation
January 15, 1998
Page 2
the Underwriting Agreement filed as Exhibit 1.1 to the Registration Statement,
they will be legally issued, fully paid and nonassessable.
We consent to the use of this letter as an Exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" included in the Prospectus forming a part of the Registration
Statement.
By: /s/David L. Ficksman
---------------------------------,
David L. Ficksman,
a Partner of the Firm
<PAGE> 1
EXHIBIT 10.11
January __, 1998
Brighton Technologies Corporation
Six Pearl Court
Allendale, New Jersey 07401
National Securities Corporation
1001 Fourth Avenue
Suite 2200
Seattle, Washington 98154-1100
Ladies and Gentlemen:
In order to induce National Securities Corporation (the "Underwriter")
and The Brighton Technologies Corporation (the "Company") to enter into an
underwriting agreement (the "Underwriting Agreement") with respect to the
offering of securities issued by the Company, the undersigned intending to be
legally bound hereby agrees that for a period commencing on the date hereof and
ending thirteen (13) months following the effective date of the registration
statement (the "Registration Statement") relating to the underwritten public
offering of securities issued by the Company, he, she or it will not, without
the prior written consent of the Underwriter, directly or indirectly, issue,
offer to sell, sell, grant an option for the sale of, assign, transfer, pledge,
hypothecate or otherwise encumber or dispose of any securities issued by the
Company, including common stock or securities convertible into or exchangeable
or exercisable for or evidencing any right to purchase or subscribe for any
shares of common stock (the "Securities") (either pursuant to Rule 144 of the
regulations under the Securities Act of 1933, as amended, or otherwise) whether
or not beneficially owned by the undersigned, or dispose of any beneficial
interest therein.
In order to enable the aforesaid covenants, the undersigned
hereby consents to the placing of legends and/or stop-transfer orders with the
Transfer Agent of the Company's Securities with respect to any of the Company's
Securities registered in the name of the undersigned or beneficially owned by
the undersigned.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York without giving effect to the
choice of law or conflicts of laws principles thereof.
<PAGE> 2
Brighton Technologies Corporation
National Securities Corporation
January __, 1998
Page 2
Dated: _____________, 1998 ___________________________
Name (Please print or type)
- --------------------------- ---------------------------
Address (Please print or type) Signature
- --------------------------- ---------------------------
Social Security or
___________________________ Federal Tax I.D. Number
<PAGE> 1
EXHIBIT 10.12
Summary of Lease Extension
Date of Extension: December 11, 1997
Extension: December 31, 1997 - June 30, 1998
Lessor: Shenzhen Beijing Hotel
Lessee: Brighton Elevators Corporation Limited Shenzhen
Representative Office
Rent: Rmb 5,500/month (U.S. $663/month)
Terms: All other terms unchanged.
<PAGE> 1
[TANNER & CO. LETTERHEAD]
EXHIBIT 16.1
CERTIFYING ACCOUNTANTS' CONSENT
December 30, 1997
U.S. Securities and Exchange Commission
Washington, D.C. 20549
We have reviewed the section entitled, "Changes in Registrant's
Certifying Accountant" in this registration statement and as pertaining to our
firm, we agree with the statements contained therein.
Sincerely,
/s/ Tanner & Co.
<PAGE> 1
EXHIBIT 16.2
[RUSSO & SHAPIRO LETTERHEAD]
Certified Public Accountants
Anthony J. Russo
Nelson Shapiro
295 Madison Avenue, Suite 1700
New York, New York 10017-6304
Tel: (212) 687-2420
Fax: (212) 687-1815
Fed. I.D. # 13-3770301
December 23, 1997
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Dear Sir/Madam,
We have reviewed the section entitled "Changes in Registrant's Certifying
Accountant" as pertaining to our firm and we agree with the statement contained
therein.
Sincerely yours,
/s/ Russo & Shapiro
<PAGE> 1
EXHIBIT 16.3
[FRANCIS S.L. YAN & CO. LETTERHEAD]
2nd January 1998
U.S. Securities and Exchange Commission
Washington, D.C. 20549,
USA.
Dear Sir,
Re: Brighton Electronics Corporation Limited
We have reviewed the section entitled "Changes in Registrant's Certifing
Accountant" as pertained to our firm and we agree with the statements contained
therein which are set out hereinbelow:
" Brighton Electronics Corporation Limited's (BECL) financial statements
for the year ended 31st December 1995 were audited by Francis S. L. Yan
& Co."
" The decision to dismiss Francis S. L. Yan & Co. was approved by the
Company's shareholders. Francis S. L. YAN & Co.'s report on such
financial statements for the year ended December 31, 1995 did not
contain an adverse opinion or an disclaimer of opinion, nor was it
qualified or modified as to uncertainty, audit scope, or accounting
principles."
" During the year ended December 1995, and the period from January 1,
1995 to 11th November 1997, there were no disagreements with Francis S.
L. Yan & Co. on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Francis S. L. Yan
& Co., would have caused such firm to make reference to the subject
matter of the disagreements in connection with its report on BECL's
financial statements."
Yours faithfully,
/s/ Francis S.L. Yan & Co.
FRANCIS S.L. YAN & Co.
Certified Public Accountants.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Brighton Technologies Corporation
Allendale, New Jersey
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated May 29, 1997 (January __, 1998 as to
the last paragraph of Note 8), relating to the consolidated financial statements
of Brighton Technologies Corporation, which is contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO SEIDMAN, LLP
----------------------
Woodbridge, New Jersey
January 16, 1998
<PAGE> 1
EXHIBIT 23.5
(Translation)
Letterhead of Zhong Xin Law Office
Brighton Technologies Corporation
New Jersey, United States of America
We hereby consent to the use of our opinion regarding the legal
inquiry request made by Brighton Electronics Corporation Limited, dated July 9,
1997, and our name as part of the Prospectus of Brighton Technologies
Corporation.
/s/ Lian Yan, Attorney
Seal of Zhong Xin Law Office
December 18, 1997
CERTIFICATE
The undersigned hereby certifies that he is the Secretary of
Brighton Technologies Corporation; and that the foregoing is a fair and accurate
English translation of the Consent of Zhong Xin Law Office.
Dated this 9th day of January, 1998.
/s/ Warren Wang
------------------------------------
Warren Wang, Secretary
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