<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 22, 1997
REGISTRATION NO. 333-27227
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
---------------------
AUTOMOTIVE ONE PARTS STORES, INC.
(Name of Small Business Issuer in Its Charter)
<TABLE>
<S> <C> <C>
FLORIDA 5013 59-1867299
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
701 WEST CHURCH STREET
ORLANDO, FLORIDA 32802
(407) 422-1110
(Address and Telephone Number of Principal Executive Offices
and Principal Place of Business)
ROBERT H. GENTRY, III
PRESIDENT
AUTOMOTIVE ONE PARTS STORES, INC.
701 WEST CHURCH STREET
ORLANDO, FLORIDA 32802
(407) 422-1110
(Name, Address and Telephone Number of Agent for Service)
COPIES TO:
<TABLE>
<C> <C>
RANDOLPH H. FIELDS, ESQ. WILLIAM M. PRIFTI, ESQ.
GREENBERG TRAURIG HOFFMAN LIPOFF ROSEN & 220 BROADWAY
QUENTEL, P.A. SUITE 204
111 NORTH ORANGE AVENUE, SUITE 2050 LYNNFIELD, MA 01940
ORLANDO, FLORIDA 32801 TELEPHONE: (781) 593-4525
TELEPHONE: (407) 420-1000 TELECOPIER: (781) 593-5222
TELECOPIER: (407) 420-5909
</TABLE>
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this 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 of
1933, check the following box. [X]
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
======================================================================================================================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.01 par value(2)....................... $20,160,000 $ 6,109
- ----------------------------------------------------------------------------------------------------------------------
Redeemable Common Stock Purchase Warrants(3)(4)....... $ 187,510 $ 57.82
- ----------------------------------------------------------------------------------------------------------------------
Total............................................. $20,347,510 $6,166.82
======================================================================================================================
</TABLE>
Previously Paid $9,582
Amended Fee $6,166.82
Amount Due $0
----------------------------------------------------------
(1) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457 (o) under the Securities Act of
1933, as amended.
(2) Includes (i) 1,200,000 shares of Common Stock offered hereby, (ii) 1,200,000
shares of Common Stock issuable upon exercise of the Five-year Redeemable
Common Stock Purchase Warrants (the "Warrants") offered hereby, (iii)
180,000 shares of Common Stock subject to the Underwriters' over-allotment
option, (iv) 180,000 shares of Common Stock issuable upon exercise of
Warrants subject to Underwriters' over-allotment option, (v) 120,000 shares
of Common Stock issuable upon exercise of Underwriters' Warrants and (vi)
120,000 shares of Common Stock underlying the Warrants issuable upon
exercise of Underwriters' Warrants.
(3) Includes (i) 1,200,000 Warrants offered hereby, (ii) 180,000 Warrants
subject to the Underwriters' over-allotment option and (iii) 120,000
Warrants subject to the Underwriters' Warrants.
(4) Pursuant to Rule 416 under the Securities Act of 1933, this Registration
Statement also covers such indeterminable additional shares of Common Stock
as may become issuable as a result of any future anti-dilution adjustment in
accordance with the terms of the 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 OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 22, 1997
PROSPECTUS
AUTOMOTIVE ONE LOGO
AUTOMOTIVE ONE PARTS STORES, INC.
1,200,000 SHARES OF COMMON STOCK AND
1,200,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
Automotive One Parts Stores, Inc., a Florida corporation (the "Company"),
hereby offers (the "Offering") 1,200,000 shares of common stock, $.01 par value
(the "Common Stock"), of the Company and 1,200,000 Five-year Redeemable Common
Stock Purchase Warrants (the "Warrants"). The Common Stock and the Warrants
offered hereby (sometimes hereinafter collectively referred to as the
"Securities") will be separately tradable immediately upon issuance. Each
Warrant entitles the holder to purchase one share of Common Stock at a price of
$7.20 per share (the "Exercise Price"). The Warrants are each redeemable by the
Company for $.10 per Warrant, upon thirty days' prior written notice to the
Warrant holders, provided the closing price of the Common Stock exceeds $9.00
per share for a period of ten consecutive trading days, ending on the third day
prior to the date of the Company's redemption notice. See "Description of
Securities."
Prior to this Offering, there has been no public market for the Company's
Common Stock or Warrants, and there can be no assurance that such a public
market will develop or be sustained after the completion of the Offering. The
Company has submitted an application for the listing of the Common Stock and
Warrants on the NASDAQ SmallCap Market ("NASDAQ") under the symbols [AONE] and
[AONEW], respectively, and on the Boston Stock Exchange ("BSE") under the
symbols [AOC] and [AOW], respectively. For discussion of the factors considered
in determining the offering prices of the Common Stock and Warrants, see
"Underwriting."
------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK AND IMMEDIATE SUBSTANTIAL DILUTION FROM THE PUBLIC OFFERING PRICE AND
SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED
UNDER THE CAPTION "RISK FACTORS" WHICH APPEAR BEGINNING ON PAGE 8 OF THIS
PROSPECTUS. SEE ALSO "DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=======================================================================================================================
UNDERWRITING
PRICE DISCOUNTS AND PROCEEDS
TO PUBLIC COMMISSIONS(1) TO COMPANY(2)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share of Common Stock...................... $6.00 $.60 $5.40
Per Warrant.................................... $0.125 $.0125 $.1125
Total(3)....................................... $7,350,000 $735,000 $6,615,000
=======================================================================================================================
</TABLE>
(1) In addition, the Company has agreed to pay the Underwriters in the form
of: (i) a non-accountable expense allowance equal to 3% of the gross
proceeds of this Offering, of which $25,000 has been paid to the present
Underwriter, and (ii) an Underwriters' Warrant ("Underwriters' Warrant")
for the purchase of (a) 120,000 shares of Common Stock, and (b) 120,000
Warrants at 150% of the initial public Offering price exercisable for a
period of four years, commencing one year after the Effective Date. The
Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act of
1933, as amended (the "Act"). See "Underwriting."
(2) Before deducting expenses, estimated at $556,000, payable by the
Company, including the Underwriters' non-accountable expense allowance.
(3) The Company and certain shareholders (the "Selling Shareholders") have
granted to the Underwriters an option, exercisable within 45 days from
the date of this Prospectus, to purchase up to 180,000 additional
Securities, on the same terms set forth above, solely for the purpose of
covering over-allotments, if any. Up to 90,861 shares of Common Stock
which are subject to the over-allotment option may be purchased from the
Selling Shareholders, and the Company will not receive any proceeds from
the sale of such Common Stock. The Warrants included in the Securities
which are subject to the over-allotment option will be issued by the
Company. If the over-allotment option is exercised in full, excluding
the Underwriter's non-accountable expense allowance, the total Price to
Public, Underwriting Discounts and Commissions, Proceeds to Company and
Proceeds to Selling Shareholders will be $8,452,500, $845,250,
$7,116,601 and $490,649, respectively. See "Principal and Selling
Shareholders" and "Underwriting."
-------------------------
The Securities offered by this Prospectus are being offered by the
Underwriters on a "firm commitment" basis subject to prior sale, when, as and if
accepted by the Underwriters, approval of certain legal matters by counsel for
the Underwriters and certain other conditions. The Underwriters reserve the
right to withdraw, cancel or modify such offer without notice and reject any
order in whole or in part. It is expected that delivery of the certificates
representing the Securities will be made in Orlando, Florida on or about
, 1997.
NUTMEG SECURITIES, LTD.
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE> 3
[PHOTOGRAPHS OF COMPANY FACILITIES
WITH OVERLAY OF AREA MAP
SHOWING STORE LOCATION.]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OR
WARRANTS OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK AND
WARRANTS OFFERED HEREBY, INCLUDING PURCHASES OF THE COMMON STOCK OR WARRANTS TO
STABILIZE ITS MARKET PRICE, PURCHASES OF THE COMMON STOCK OR WARRANTS TO COVER
SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK OR WARRANTS MAINTAINED BY
THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following is a summary of certain information (including financial
statements and notes thereto) contained in this Prospectus and is qualified in
its entirety by the more detailed information appearing elsewhere herein. Unless
otherwise specified, all references herein reflect a 23,600 for one split of the
Company's Common Stock which will be effected for shareholders of record
immediately prior to consummation of this Offering. Further, unless otherwise
indicated, the information in this Prospectus assumes that the Underwriters'
over-allotment option is not exercised. Each prospective investor is urged to
read this Prospectus in its entirety.
THE COMPANY
Automotive One Parts Stores, Inc. (the "Company" or "Automotive One") was
incorporated in Florida in November 1978. The Company is a specialty supplier
and retailer of automotive replacement parts, tools, supplies, equipment and
accessories ("Automotive Products") to both professional mechanics and service
technicians ("Professional Installers") and "do-it-yourself" ("DIY") customers.
The Company operates 14 auto parts stores, one machine shop, one speed shop, and
one warehouse facility in Central Florida, all of which are located in or within
one hour's drive of Orlando, Florida. The Company determined that some of its
stores service overlapping geographical areas. Thus, in July 1997, the Company
consolidated one store and, in the near future, intends to consolidate three
additional stores into other existing stores. The inventory from the closed
stores will be either returned to the Company's suppliers for credit or
transferred to other stores. The Company plans to either sell or lease the
properties vacated as a result of the consolidation. Management of the Company
hopes to retain the same market share in those market areas but at a reduced
overhead cost. In June 1997, the Company also closed a manufacturing unit
located on the premises of its corporate headquarters. All of the auto parts
stores are traditional stores selling both to Professional Installers and DIY
customers. The Company also maintains approximately 100 vehicles which guarantee
the delivery of parts to Professional Installers within 30 minutes. The
Company's customized computerized inventory control system allows it to
determine the exact location of each item of its inventory, sales from each
store and other general accounting features. Stores carry an extensive product
line of brakes, belts, hoses, filters, cooling system parts, tuneup parts, shock
absorbers, gaskets, batteries, bearings, engine parts, remanufactured
alternators and starters, chassis parts and exhaust systems, and other hard
parts ("Hard Parts"). In addition, the Company also carries: (i) maintenance
items, such as oil, antifreeze, fluids, engine additives and appearance
products; (ii) accessories such as floor mats and seat covers; (iii) automotive
tools; and (iv) professional service equipment. For the year ended December 31,
1996, approximately 95% of the Company's sales was derived from Hard Parts, and
5% from other merchandise. Approximately 75% of the Company's product sales was
derived from Professional Installers and the remaining 25% from DIY customers
during 1996.
The Company maintains its principal executive offices at 701 W. Church
Street, Orlando, Florida 32802; telephone (407) 422-1110, fax (407) 422-1041.
The Company was organized under the laws of the State of Florida in November
1978 succeeding to a sole proprietorship which commenced operations in Kentucky
in 1934.
OPERATING STRATEGIES
Accumulation of Market Share. By serving both the Professional Installer
and DIY markets through its store network, the Company believes it is able to:
(i) reach most consumers of Automotive Products within its market; (ii) offer a
broader selection of stock keeping units ("SKU's"); and (iii) provide responsive
customer service with its technically trained sales personnel and in-house
delivery force.
Inventory Management and Distribution System. The Company has agreed to
buy approximately 75% of its merchandise from A.P.S., Inc. ("APS"), a national
distributor of automotive replacement parts headquartered in Houston, Texas. APS
carries over 160,000 SKU's and distributes its products through approximately
150 suppliers. The Company's stores have next day access to these products
through a Product Purchase Agreement with APS.
3
<PAGE> 5
The Company also owns and operates its own approximately 30,000 square foot
warehouse facility. This facility is used to inventory certain items which the
Company purchases directly from manufacturers. Thus, the Company is able to
price such parts competitively within the market. The warehouse provides all the
Company's stores with same-day delivery service.
Customer Service. The Company believes that each Company store attracts
new customers and retains existing customers by conducting a variety of
advertising and promotional programs and by offering: (i) in store service
through technically trained sales personnel, (ii) call-in-delivery service
available to all wholesale customers, (iii) an extensive selection of SKU's
stocked in each store, (iv) same day or next day delivery of Automotive
Products, (v) attractive stores in convenient locations, (vi) full-time sales
personnel, (vii) competitive pricing, and (viii) a counter in each store
specifically designated for wholesale customers to provide quick service. The
Company's management believes that the Company's commitment to service
excellence has provided the foundation of a strong relationship with both the
Professional Installer and DIY segments of the aftermarket automotive parts
industry. The Company believes that while pricing is essential in the highly
competitive environment of the automotive aftermarket business, ultimately it is
customer satisfaction (whether the customer is a Professional Installer or a
DIY) through customer service that will generate increased sales and
profitability.
Development of Repeat Customers. The Company is committed to developing
repeat customers through (i) trained and experienced sales personnel who provide
customer service, (ii) a high concentration of convenient and accessible
neighborhood locations, (iii) prompt delivery service to wholesale customers
through approximately 100 vehicles and (iv) a broad selection of brand name and
other high quality products with an emphasis on replacement Hard Parts.
GROWTH STRATEGIES
Repayment of Debt. The Company has experienced recent losses due to
increased debt and an inability to take advantage of available vendor discount
programs due to cash constraints. The Company's growth strategy involves
repayment of debt from the Offering proceeds, consolidating certain stores in
the Orlando market, and acquiring additional auto parts businesses in Florida
and other areas in the Southeastern United States.
The Company will be repaying approximately $3.0 million in debt including
accrued and unpaid interest currently owed to APS from the Offering proceeds.
The Company will seek to refinance the remainder of the debt owed to APS on more
favorable terms, which refinancing has been made a condition of this Offering by
the Underwriters. As a result of the debt repayment, the Company believes it
will substantially reduce the $550,000 per year in interest payments it
currently makes to service its debt obligations. Further, the Company will be
able to take advantage of discounts offered by APS and other vendors for early
payments of invoices.
Consolidation of Overlapping Stores. The Company has 11 auto parts stores
located in the Orlando market and 3 stores located in Brevard County serving
Titusville, Cocoa Beach and Melbourne. The Company has consolidated one store
and plans to consolidate three additional stores into other existing stores
serving the same market areas. The Company expects to retain the same market
share in those areas but at a reduced overhead cost.
New Store Openings. Due to the recent trend of consolidation in the
aftermarket automotive parts industry at the expense of smaller independent
operators and less specialized mass merchandisers, the Company anticipates its
future growth will occur primarily as a result of acquisitions of single and
multiple store operations. The Company plans to concentrate its efforts on
acquiring stores in other Florida locations and in markets in the Southeastern
United States. The Company's strategy for additional store openings is to expand
into population pockets of 75,000 to 100,000 inhabitants within metropolitan
areas with populations of 1,000,000 or more.
Continuing Improvement of Merchandising. The Company stocks a broad line
of nationally recognized products (under the "Big A" label of APS) for domestic
and imported vehicles. The Company constantly seeks to improve its merchandising
concepts, primarily by broadening product selection and emphasizing the sale of
replacement Hard Parts. The Company plans on updating certain stores to improve
merchandise presentation and in-stock positions.
4
<PAGE> 6
THE OFFERING
Securities Offered......... 1,200,000 shares of Common Stock, $.01 par value.
1,200,000 Warrants. Each Warrant entitles the
holder, for $7.20, to purchase one share of Common
Stock for a period of four years commencing one
year after the date of this Prospectus (the
"Effective Date"). The Warrants are each redeemable
by the Company for $.10 per Warrant at any time,
upon thirty days' prior written notice to the
Warrant holders, provided the average closing price
of the Common Stock exceeds $9.00 per share for a
period of ten consecutive trading days ending on
the third day prior to the date of the Company's
redemption notice. See "Description of
Securities -- Warrants."
Securities Outstanding
Prior to the Offering.... 2,360,000 shares of Common Stock(1)
Securities Outstanding
Subsequent to the
Offering(2).............. 3,560,000 shares of Common Stock(1)
1,200,000 Warrants(1)
Estimated Net
Proceeds(3).............. $6,059,000
Use of Proceeds by
Company.................. The Company intends to use the net proceeds of this
Offering for repaying loans from APS and certain
other loans (including loans from certain
principals of the Company in the approximate
aggregate amount of $472,000), working capital and
general corporate purposes. See "Use of Proceeds."
Risk Factors............... Investment in the Securities offered hereby are
speculative and involve a high degree of risk and
immediate substantial dilution. See "Risk Factors"
and "Dilution."
Proposed NASDAQ SmallCap
Market Symbols(4)........ Common Stock -- [AONE]
Warrants -- [AONEW]
Proposed BSE Symbols(4).... Common Stock -- [AOC]
Warrants -- [AOW]
- ---------------
(1) Does not include (i) 500,000 shares of Common Stock reserved for future
issuance under the Company's 1997 Stock Option Plan, (ii) 120,000 shares of
Common Stock reserved for issuance upon exercise of the Underwriters'
Warrants, and (iii) 120,000 shares of Common Stock reserved for issuance
upon exercise of Warrants issuable upon exercise of the Underwriters'
Warrants. See "Management -- Consulting Agreements" and "-- Stock Option
Plan."
(2) Does not include 180,000 additional shares of Common Stock or 180,000
Warrants issuable upon exercise of the Underwriters' over-allotment option.
See "Underwriting."
(3) After deducting expenses of this Offering payable by the Company estimated
at $1,291,000 (inclusive of commissions and underwriting discounts and
assuming no exercise of the Underwriters' over-allotment option).
(4) Although the Company has applied for listing the Securities for quotation on
the NASDAQ SmallCap Market and the Boston Stock Exchange, there can be no
assurance that the Company's securities will be accepted for listing or that
if listed it will be able to continue to meet the requirements for continued
quotation, or that a public trading market will develop or that if such
market develops, it will be sustained. See "Risk Factors -- Lack of Prior
Market for Securities, "-- Possible Delisting of Securities; NASDAQ SmallCap
Market," "-- Penny Stock Regulation."
5
<PAGE> 7
SUMMARY FINANCIAL INFORMATION
The following financial data as of December 31, 1996 and for the years
ended December 31, 1995 and 1996 has been derived from the financial statements
of the Company which have been audited by Grant Thornton LLP, independent
certified public accountants, whose report on the Balance Sheet as of December
31, 1996 and the related Statements of Operations, Shareholders' Equity and Cash
Flows for each of the two years in the period ended December 31, 1996, is
included elsewhere herein. The selected financial information set forth below as
of July 31, 1997 and for the seven months ended July 31, 1996 and 1997 have been
derived from the unaudited financial statements of the Company and includes all
adjustments the Company considers necessary for a fair presentation of results
of operations for the periods presented. Operating results for the seven months
ending July 31, 1997 are not necessarily indicative of the results which may be
expected for the full year ended December 31, 1997. The summary financial
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and with the
Financial Statements (including the Notes thereto) presented elsewhere in this
Prospectus.
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<CAPTION>
JULY 31, 1997
----------------------------
ACTUAL AS ADJUSTED(1)
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<S> <C> <C>
SUMMARY BALANCE SHEET DATA
Working capital (deficiency)................................ $(2,051,035) $ 3,799,190
Total assets................................................ 10,009,139 12,599,860
Total liabilities........................................... 9,755,270 6,286,991
Shareholders' equity........................................ 253,869 6,312,869
</TABLE>
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED
YEARS ENDED DECEMBER 31, JULY 31,
------------------------- -------------------------
1995 1996 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SUMMARY INCOME STATEMENT DATA
Net sales................................... $11,691,338 $12,094,341 $ 7,127,056 $ 6,726,429
Cost of goods sold.......................... 7,689,551 8,075,176 4,758,502 4,194,460
----------- ----------- ----------- -----------
Gross profit................................ 4,001,787 4,019,165 2,368,554 2,531,969
Selling, general and administrative
expenses.................................. 3,986,570 4,463,849 2,584,768 2,428,981
----------- ----------- ----------- -----------
Earnings (loss) from operations............. 15,217 (444,684) (216,214) 102,988
Gain on sale of property.................... -- -- -- 185,707
Rental income............................... 165,245 191,804 111,808 98,685
Interest expense............................ (495,174) (785,088) (458,196) (444,774)
Offering costs.............................. -- -- -- (68,714)
----------- ----------- ----------- -----------
Net loss.................................... $ (314,712) $(1,037,968) $ (562,602) $ (126,108)
=========== =========== =========== ===========
Net (loss) per common share(2)(3)(4)........ $ (0.13) $ (0.44) $ (0.24) $ (0.05)
=========== =========== =========== ===========
Weighted average common shares
outstanding(3)............................ 2,360,000 2,360,000 2,360,000 2,360,000
=========== =========== =========== ===========
</TABLE>
- ---------------
(1) Adjusted to give effect to the sale of 1,200,000 shares of Common Stock and
1,200,000 Warrants at the assumed public offering prices of $6.00 per share
and $.125 per Warrant, less underwriting discounts and commissions and
estimated Offering expenses payable by the Company, and the application of
net proceeds therefrom. (See "Use of Proceeds"). No effect has been given to
the exercise of the (i) Warrants, (ii) the Underwriters' over-allotment
option, (iii) the Underwriters' Warrants, or (iv) other outstanding
warrants.
(2) Prior to this Offering, the Company was taxed as an S corporation.
Simultaneously with the consummation of this Offering, the Company will
convert to "C" Corporation status. Pro forma net loss for the years ended
December 31, 1995 and 1996 and the seven months ended July 31, 1996 and 1997
is not presented herein, because the Company has cumulative net operating
losses and it is not more likely than not that the tax benefit will be
realized. Therefore, the historical and pro forma net loss would be the same
for all periods presented. See Note I to Financial Statements.
6
<PAGE> 8
(3) Adjusted to give effect to 23,600-for-one stock split to be effected
immediately prior to consummation of this Offering.
(4) Supplemental pro forma earnings (loss) per common share for the year ended
December 31, 1996 and the seven months ended July 31, 1997 giving effect to
the reduction of outstanding indebtedness of approximately $3.0 million from
the use of a portion of the Offering's proceeds and the increased number of
shares, is ($0.25) and $0.03 per common share (assuming 2,922,978 and
2,940,806 weighted average common shares outstanding, respectively).
7
<PAGE> 9
RISK FACTORS
The Securities offered hereby are speculative and involve a high degree of
risk and substantial dilution and should only be purchased by investors who can
afford to lose their entire investment. Prospective investors, prior to making
an investment, should carefully consider the following risks and speculative
factors, as well as other information set forth elsewhere in this Prospectus,
associated with this Offering, including the information contained in the
Financial Statements herein.
FORWARD LOOKING STATEMENTS
This Prospectus contains certain "forward-looking statements" within the
meaning of Section 27A of the Securities Act, which represent the Company's
expectations or beliefs, including, but not limited to, statements concerning
gross margins and sales of the Company's products. These statements by their
nature involve substantial risks and uncertainties, certain of which are beyond
the Company's control, and actual results may differ materially depending on a
variety of important factors, including the level of acquisition opportunities
available to the Company and the Company's ability to efficiently price and
negotiate such acquisitions on a favorable basis, sources for sufficient
additional capital to meet the Company's growth and operations, the failure to
properly manage growth and successfully integrate acquired stores and
operations, changes in economic conditions, demand for the Company's products
and changes in competitive environment.
The Company cautions that the factors described above could cause actual
results or outcomes to differ materially from those expressed in any
forward-looking statements of the Company made by or on behalf of the Company.
Any forward-looking statement speaks only as of the date on which such statement
is made, and the Company undertakes no obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time, and it is not possible for
management to predict all of such factors. Further, management cannot assess the
impact of each such factor on the business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
Recent Losses; Going Concern. The Company had net losses of $314,712 and
$1,037,968 and $126,108 for the years ended December 31, 1995 and 1996 and the
seven months ended July 31, 1997 respectively and a working capital deficiency
of $1,847,194 and $2,051,035 at December 31, 1996 and July 31, 1997,
respectively. Furthermore, the Company has approximately $5.6 million of
outstanding indebtedness including interest, that matures no later than December
31, 1997. These matters raise substantial doubt about the Company's ability to
continue as a going concern. The Company's independent certified public
accountants have issued its report which includes an explanatory paragraph for a
going concern uncertainty on the Company's financial statements as of December
31, 1996 and for the year then ended. The Company's ability to continue as a
going concern and achieve positive earnings is dependent upon the Company's
successful implementation of its operating strategy which includes (1) reducing
certain debt from proceeds of this Offering; (2) completing its search for a
qualified Chief Financial Officer candidate to oversee the financial aspects of
the Company's business; (3) evaluating the network of its store locations in
order to determine the most advantageous number and locations of its stores to
effectively and efficiently serve the central Florida market and implementing
the results of such evaluation; and (4) implementing certain cost containment
programs in order to reduce the current level of selling, general and
administrative expenses. There can be no assurance that the implementation of
these plans along with management's plans to use a portion of the proceeds from
this Offering to reduce debt will result in increased profitability in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and the Financial Statements and Notes thereto presented
elsewhere in this Prospectus.
Reliance on One Supplier. The Company's business is dependent in a
material respect upon its close relationship with its principal vendor, APS, and
its ability to continue to purchase products from this vendor at favorable
prices and favorable terms, including those offered through financial incentives
such as cooperative advertising arrangements, other marketing incentive programs
and non-financial benefits such as distribution services. The Company has
entered into a product purchasing agreement with APS ending in October 2000 to
purchase a minimum average of 75% of the Company's cost of goods sold, less
certain allowable exceptions,
8
<PAGE> 10
over any given consecutive four month billing period. A disruption of this
vendor relationship, or a material change in any of the terms of purchase,
advertising, incentive or other programs, would likely have a material adverse
effect on the Company's business. During the year ended December 31, 1996, APS
supplied the Company with approximately 70% of its total inventory of stock
items, which represented at least 55.4% of the Company's cost of goods sold,
after deduction of certain allowable exceptions. See "Business -- Purchasing"
and "-- Inventory Management."
Growth through Acquisitions. The Company's growth strategy includes
pursuing acquisition opportunities. There can be no assurance that the Company
will be able to successfully identify suitable acquisition candidates, secure
financing on acceptable terms, complete acquisitions, integrate acquired
operations into existing operations or expand into new markets. There can also
be no assurance that future acquisitions will not have an adverse effect upon
the Company's operating results, particularly in the fiscal quarters immediately
following the completion of such acquisitions while the operations of the
acquired business are being integrated into the Company's operations. Once
integrated, acquired operations may not achieve levels of revenues,
profitability or productivity comparable with those achieved by the acquired
company's existing operations, or otherwise perform as expected. In addition,
the Company competes for acquisition and expansion opportunities with companies
that have substantially greater resources. See "Business -- Growth Strategy" and
"-- Competition."
Need for Additional Financing. The Company is dependent upon the proceeds
of this Offering to reduce the approximately $3,000,000 of it's indebtedness to
APS, to implement its growth strategy and to finance its working capital
requirements. The Company intends to have in place by the closing of this
Offering a $3,000,000 loan in order to refinance the remainder of the APS
indebtedness. Additionally, the Company anticipates expanding its business
through acquisitions. To facilitate these acquisitions, the Company intends to
utilize up to $2,000,000 of the proceeds from this Offering, as well as
obtaining, if and to the extent necessary to appropriately implement the
Company's growth strategies, a line of credit. However, currently the Company
has not entered into any preliminary agreements or understandings for a line of
credit with any lenders. To the extent that the Company incurs indebtedness to
fund growth, the Company will be subject to the risks associated with incurring
additional indebtedness, including the risks that interest rates may fluctuate
and cash flow may be insufficient to pay principal and interest on any such
indebtedness. There can be no assurance that the Company will be successful in
obtaining a line of credit or, if obtained, that it will be available to the
Company on commercially reasonable terms, or that it will be sufficient for the
Company's growth. If the proceeds of this Offering are not sufficient to fully
implement the Company's growth strategies, and if additional financing is not
available, the Company may have to curtail its long-range growth strategy. See
"Use of Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Competition. Both the Professional Installer and DIY portions of the
Company's business are highly competitive. The Company's major competitors in
the Professional Installer portion of its business include independent warehouse
distributors and parts stores, automobile dealerships and national warehouse
distributors and associations, such as National Automotive Parts Association
("NAPA"), Carquest and All Pro. Competitors in the DIY portion of the Company's
business include national and regional automotive parts chains such as AutoZone,
Western Auto and Pep Boys, independently owned parts stores, automobile
dealerships and mass or general merchandise, discount and convenience chains
that carry Automotive Products. Many of the Company's competitors are larger and
have greater financial resources than the Company. Some of the larger DIY
competitors have entered into the Professional Installer portion of the business
and this could have material adverse effect on the Company's operations. See
"Business -- Competition."
Dependence of Key Executive. The success of the Company is dependent on
the services and efforts of its existing key management personnel. Robert H.
Gentry, III has an employment agreement with the Company. The loss of the
services of Mr. Gentry would have a material adverse effect on the Company's
business. The Company intends to obtain a key-man life insurance policy on
Robert H. Gentry, III, but will not maintain life insurance policies covering
any other officer or employee. The Company's success and plans
9
<PAGE> 11
for future growth will depend on its ability to attract and retain additional
qualified personnel. There is no assurance that the Company will be able to hire
or retain such personnel in the future. See "Management."
Control by Management. Robert H. Gentry, III is currently the sole
director of the Company and as such has sole authority to manage the policies
and direction of the Company. The Company anticipates having in place an
expanded board of at least four additional members by the Effective Date, at
least three of whom will be independent directors. The Company has identified
Messrs. Lawrence S. Goldfarb, William H. Burns and Stanley G. Miller as director
candidates and those individuals have agreed to serve on the board once they are
elected. See "Management."
Immediate and Substantial Dilution. Upon completion of this Offering, the
pro forma net tangible book value per share of the Common Stock would be $1.77,
representing an immediate dilution of $4.23 of net tangible book value per
share, or 70.5%, to the public investors and an increase of $1.77 per share to
existing shareholders. The exercise of the Warrants will result in further
dilution to the public investors. See "Dilution."
Benefits to Affiliates and Insiders from Offering Proceeds. Certain
benefits will accrue to certain shareholders and management as a result of the
Offering. Robert H. Gentry, III, the Company's principal shareholder, President
and Chief Executive Officer, advanced the Company approximately $446,000 for
working capital during 1997 and secured a loan to obtain such funds with a
mortgage on his residence. The outstanding principal balance of approximately
$357,000 plus Mr. Gentry's costs incurred in connection with the loan will be
paid from Offering proceeds. Further, to the extent that the Company applies a
portion of the net proceeds of this Offering to reduce the Company's obligations
to APS and Autoparts Finance Company, Inc. ("AFCO"), an affiliate of APS, Mr.
Gentry, and certain other family members, will be relieved of their personal
guarantees of such indebtedness. In addition, the Company is indebted to
Lawrence S. Goldfarb, a director nominee,in the approximate amount of $115,000,
including interest, for advances to the Company during 1996 and 1997. The
Company plans to repay that obligation from proceeds of this Offering. See "Use
of Proceeds" and "Certain Transactions."
Control by Current Shareholders. Upon consummation of this Offering,
Robert H. Gentry, III, and his sisters, Marguerite Seifert and Jennifer Rideout
will beneficially own approximately 66%, of the shares of Common Stock
outstanding. Together, they will be in a position to control the affairs of the
Company. For example, those shareholders, individually and as a group, or
together with others, including directors and executive officers of the Company,
will be able to control the outcome of shareholder votes, including votes
concerning the election of directors, the adoption of amendments to the
Company's articles of incorporation or bylaws and the approval of certain
mergers and other significant corporate transactions, including a sale of
substantially all of the Company's assets. Such control by existing shareholders
could also have the effect of delaying, deferring or preventing a change in
control of the Company. Mrs. Rideout is the wife of William Rideout, the
Company's Vice President of Purchasing and Inventory. Marguerite Seifert is
employed by the Company in its Accounts Payable and Human Resources Departments.
See "Beneficial Ownership of Principal Stockholders and Management" and
"Description of Securities."
No Dividends Anticipated. The Company does not intend to pay dividends in
the foreseeable future. Any earnings which the Company may realize in the
foreseeable future will be retained to finance the growth of the Company. See
"Dividend Policy."
No Prior Public Market; Arbitrary Determination of Offering Prices;
Possible Volatility of Securities. Prior to this Offering, there has been no
public market for the Company's Securities. Accordingly, there can be no
assurance that an active trading market will develop or, if developed, that it
will be sustained upon the completion of this Offering or that the market prices
of the Securities will not decline below the initial public offering prices. The
initial public offering prices of the Securities and the terms of the Warrants
have been arbitrarily determined by negotiations between the Company and the
Underwriters and do not necessarily bear any relationship to the Company's
assets, book value, net earnings, net sales or other established criteria of
value, and should not be considered indicative of the actual value of the
Securities. See "Underwriting." The stock market has, from time to time,
experienced extreme price and volume fluctuations, which often have been
unrelated to the operating performance of particular companies. Regulatory
developments and economic
10
<PAGE> 12
and other external factors, as well as period-to-period fluctuations in
financial assets of the Company, may have a significant impact on market prices
of the Securities.
Prior S Corporation Status and Other Tax Matters. The Company has been
treated as an S Corporation for federal (and most state) tax purposes, however,
the Company will convert to a C Corporation upon the close of this Offering.
Unlike a C Corporation, an S Corporation is generally not subject to income tax
at the corporate level. In the event that the Internal Revenue Service were to
deny such S Corporation status for periods during which the Company was treated
as an S Corporation by reason of the failure to satisfy the S Corporation
requirements of the Internal Revenue Code of 1986, as amended (the "Code"), the
Company would be subject to income tax as a C Corporation. Any net operating
losses related to the Company's operation as an S Corporation will not be
available to offset taxable income, if any, of the Company once it converts to C
Corporation status.
Potential Adverse Effect of Redemption of Warrants. The Warrants are
subject to redemption by the Company. Redemption of the Warrants could force the
holders to exercise the Warrants and pay the exercise price at a time when it
may be disadvantageous for the holders to do so, to sell the Warrants at the
current market price when they might otherwise wish to hold the Warrants, or to
accept the redemption price, which may be substantially less than the market
value of the Warrants at the time of the redemption. The holders of the Warrants
will automatically forfeit their rights to purchase the shares of Common Stock
issuable upon exercise of such Warrants unless the Warrants are exercised before
they are redeemed. The holders of Warrants will not possess any rights as
shareholders of the Company unless and until the Warrants are exercised. See
"Description of Securities -- Warrants."
Current Prospectus and State Blue Sky Registration in Connection with
Exercise of Warrants. The Company will be able to issue shares of its Common
Stock upon exercise of the Warrants only if there is a then current prospectus
relating to the Common Stock issuable upon the exercise of the Warrants under an
effective registration statement filed with the Securities and Exchange
Commission ("SEC") and only if such Common Stock is then qualified for sale or
exempt from qualification under applicable state securities laws of the
jurisdictions in which the various holders of Warrants reside. Although the
Company will use its best efforts to meet such requirements, there can be no
assurance that the Company will be able to do so. The failure of the Company to
meet such requirements may deprive the Warrants of any value and cause the
resale or other disposition of Common Stock issued upon the exercise of the
Warrants to become unlawful. See "Description of Securities -- Warrants."
Possible Adverse Impact on Market of Warrant Exercise. In the event of the
exercise of a substantial number of Warrants within a reasonably short period of
time after the right to exercise commences, the resulting increase in the amount
of Common Stock of the Company in the trading market could substantially affect
the market price of the Common Stock. See "Description of
Securities -- Warrants."
Possible Adverse Impact of Underwriters' Warrants. In connection with the
Offering, the Company will sell to the Underwriters, for nominal consideration
of $10, Underwriters' Warrants exercisable for 120,000 shares of Common Stock
and 120,000 Warrants, exercisable per share at 150% of the initial public
offering price. The Underwriters' Warrants will be exercisable for a period of
four years, commencing one year after the date of this Prospectus. The
Underwriters' Warrants will not be redeemable by the Company. The holders of the
Underwriters' Warrants will have the opportunity to profit from a rise in the
market price of the Securities, if any, without assuming the risk of ownership.
The Company may find it more difficult to raise additional equity capital if it
should be needed for the business of the Company while the Underwriters'
Warrants are outstanding. At any time when the holders thereof might be expected
to exercise them, the Company would probably be able to obtain additional
capital on terms more favorable than those provided by the Underwriters'
Warrants.
The Underwriters have "piggy back" and demand registration rights with
respect to the Common Stock issuable upon exercise of the Underwriters' Warrants
(and the Warrants issuable thereunder). Any future exercise of these
registration rights may cause the Company to incur substantial expense and could
impair the Company's ability to raise capital through the public sale of its
securities. See "Dilution," "Shares Eligible for Future Sale" and
"Underwriting."
11
<PAGE> 13
Effect of Certain Charter and Bylaw Provisions; Antitakeover
Effects. Certain provisions of Florida law and the Company's Amended and
Restated Articles of Incorporation ("Articles of Incorporation") may deter or
frustrate a takeover attempt of the Company that a shareholder might consider in
his best interest. The Company is subject to the "affiliated transactions" and
"control share acquisition" provisions of the Florida Business Corporation Act.
These provisions require, subject to certain exceptions, that an "affiliated
transaction" be approved by the holders of two-thirds of the voting shares other
than those beneficially owned by an "interested shareholder" or by a majority of
disinterested directors. Voting rights must also be conferred on "control
shares" acquired in specified control share acquisitions, generally only to the
extent conferred by resolution approval by the shareholders, excluding holders
of shares defined as "interested shares." The Company's Articles of
Incorporation, among other things, provide that (i) any action required or
permitted to be taken by the shareholders of the Company may be effected only at
an annual or special meeting of shareholders, and not by written consent of the
shareholders, (ii) any meeting of the shareholders may be called only the Board
of Directors or upon the written demand of the holders of not less than 50% of
the votes entitled to be cast at a special meeting, (iii) an advance notice
procedure must be followed for nomination of directors and for other shareholder
proposals to be considered at annual shareholders' meetings, and (iv) the
Company's Board of Directors, divided into three classes, each of which serves
for staggered three year periods. In addition, the Company will be authorized to
issue additional shares of Common Stock and up to five million shares of
preferred stock in one or more series, having terms fixed by the Board of
Directors without shareholder approval, including voting, dividend or
liquidation rights that could be greater than or senior to the rights of holders
of Common Stock. Issuance of additional shares of Common Stock or new shares of
Preferred Stock could also be used as an anti-takeover device. Except as set
forth herein, the Company has no current intentions or plans to issue additional
Common Stock or issue Preferred Stock. See "Description of Securities."
Possible Dilutive Effect of Options and Warrants and Adverse Effect on
Market Price. No assurance can be given as to the effect, if any, that future
sales of Common Stock, or the availability of shares of Common Stock for future
sales, will have on the market price of the Common Stock from time to time.
Sales of substantial amounts of Common Stock (including shares issued upon the
exercise of warrants or stock options), or the possibility that such sales could
occur, could adversely affect the market price of the Common Stock and could
also impair the Company's ability to raise capital through an offering of its
equity securities in the future. The Company has established a Stock Option Plan
for employees, officers, directors and consultants, and has reserved 500,000
shares of Common Stock for issuance upon exercise of stock options that will be
granted under the Plan in the future. The issuance of any additional shares by
the Company in the future may result in a reduction of the book value or market
price of the then outstanding Common Stock. For the life of the Warrants, the
non-public warrants, and options granted in the future, the holders thereof may
be given the opportunity to profit from a rise in the market price of the Common
Stock. Any rise in the market price of the Common Stock may encourage the
holders to exercise such warrants or options, which may result in a dilution of
the interests of other shareholders. As a result, the Company may find it more
difficult to raise additional equity capital if it should be needed for the
business of the Company while such warrants and options are outstanding. See
"Description of Securities."
Shares Eligible for Future Sale; Registration Rights; Possible Adverse
Effect on Future Market Prices. Sales of a substantial number of shares of
Common Stock in the public market following this Offering could adversely affect
the market price of the Common Stock. Upon completion of this Offering, the
Company will have outstanding 3,560,000 shares of Common Stock, of which the
1,200,000 shares of Common Stock and 1,200,000 Warrants sold in this Offering
will be freely tradable. Of the remaining shares, the Company anticipates that
2,360,000 shares, or 2,269,139 giving effect to the Underwriters over-allotment
option, will be subject to an agreement with the Representative under which such
shares may not be offered, sold or otherwise disposed of for a period of twelve
months after the date of this Prospectus without the prior written consent of
the Representative, but will thereafter be eligible for sale pursuant to Rule
144 of the Securities Act. See "Description of Securities -- Registration
Rights" and "Shares Eligible for Future Sale."
Possible Delisting of Securities; NASDAQ SmallCap Market. Prior to this
Offering, there has been no established trading market for the Company's
Securities and there is no assurance that a trading market for
12
<PAGE> 14
such Securities will develop after the completion of this Offering. If a trading
market does in fact develop for the Securities offered hereby, there can be no
assurance that it will be sustained. Trading in such Securities is subject to
official notice of issuance that the Common Stock and the Warrants have been
approved for trading on the SmallCap Market of the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"). If the listing is
approved, the continued trading of the Common Stock and the Warrants on the
NASDAQ SmallCap Market is conditioned upon the Company meeting certain criteria.
The National Association of Securities Dealers ("NASD"), which administrators
NASDAQ, currently requires that, in order for a company's securities to be
listed on the NASDAQ SmallCap Market, the Company must have among other
requirements: (a) either $4,000,000 in net tangible assets (total assets,
excluding goodwill, minus total liabilities), or $50,000,000 market
capitalization or $750,000 net income (in the latest fiscal year or 2 of the
last 3 fiscal years); (b) a public float of 1,000,000 shares having a market
value of at least $5,000,000; (c) a minimum bid price of not less than $4 per
share; (d) 3 market makers; and (e) round lot shareholders (holders of 100
shares or more) of at least 300. Continued Listing of the Company's Securities
on the NASDAQ Small Cap Market requires, among, other things: (a) either
$2,000,000 in net tangible assets or $35,000,000 market capitalization or
$500,000 net income (in the last fiscal year or 2 of the last 3 fiscal years);
(b) a public float of 500,000 shares having a market value of at least
$4,000,000; (c) a minimum bid price of not less than $1 per share; (d) 2 market
makers; and (e) round lot shareholders of at least 300. While NASDAQ
requirements to continue a Company's listing are less strenuous, there can be no
assurances that the Company will continue to meet such standards. If the Company
fails to meet any of these criteria, the Common Stock and/or the Warrants could
be delisted from trading on the NASDAQ SmallCap Market, which delisting could
materially adversely affect the trading market for the Common Stock and/or the
Warrants. In such event, trading in the Securities would be conducted in the
over-the-counter market known as the NASD OTC Electronic Bulletin Board, or more
commonly referred to as "pink sheets." As a result, an investor may find it more
difficult to dispose of, or to obtain accurate quotations as to the market value
of, the Company's Common Stock. There can be no assurance that the Securities
will not be delisted. See "Underwriting."
Penny Stock Regulation. In the event the Common Stock is delisted from
trading on NASDAQ SmallCap Market and the trading price of the Common Stock is
less than $5.00 per share, trading in the Common Stock would also be subject to
the requirements of Rule 15g-9 promulgated under the Securities Exchange Act of
1934 (the "Exchange Act"). Under such rule, broker/dealers who recommend such
low-priced securities to persons other than established customers and accredited
investors must satisfy special sales practice requirements, including a
requirement that they make an individualized written suitability determination
for the purchaser and receive the purchaser's written consent prior to the
transaction. The Securities Enforcement Remedies and Penny Stock Reform Act of
1990 also require additional disclosure in connection with any trades involving
a stock defined as a "penny stock" (generally, according to recent regulations
adopted by the Securities and Exchange Commission of less than $5.00 per share,
subject to certain exceptions), including the delivery, prior to any penny stock
transaction, of a disclosure schedule explaining the penny stock market and the
risks associated therewith. Such requirements could severely limit the market
liquidity of the Common Stock and the ability of purchasers in this Offering to
sell their securities in the secondary market. There can be no assurance that
the Common Stock will not be treated as a penny stock.
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<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,200,000 shares of
Common Stock and 1,200,000 Warrants offered hereby will be approximately $6.1
million ($6.5 million if the Underwriters' over-allotment option is exercised in
full) at an Offering price of $6.00 per share and $.125 per Warrant after
deducting aggregate underwriting discounts and the estimated expenses of the
Offering approximating $1,291,000 ($1,373,789 if the Underwriters'
over-allotment is exercised in full). See "Underwriting." The Company expects
such funds to be utilized approximately as follows:
<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE PERCENTAGE OF
APPLICATION OF PROCEEDS DOLLAR AMOUNT NET PROCEEDS
- ----------------------- ------------- -------------
<S> <C> <C>
Repayment of APS/AFCO Debt(1)............................... $3,000,000 49.5%
Repayment of Debt to Related Parties(2)..................... 472,000 7.8
Acquisitions and Expansion(3)............................... 2,000,000 33.0
Working Capital(4).......................................... 587,000 9.7
---------- ----
Total(5).......................................... $6,059,000 100%
========== ====
</TABLE>
- ---------------
(1) To be paid to APS and AFCO upon the closing of this Offering. The $3,000,000
allocation of proceeds set forth above will only be sufficient to pay
approximately half of the amount due to APS and AFCO for loans to the
Company. The Company is seeking to refinance the remainder of the APS and
AFCO indebtedness, and thereby retire that debt in full, which refinancing
has been made a condition to closing this offering by the Underwriters. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(2) This amount will be used to repay Robert H. Gentry, III, the principal
shareholder, an officer and director of the Company, and Lawrence Goldfarb,
a director nominee, for loans they have made to the Company. Of the $498,000
allocated above, approximately $383,000 (representing approximately $357,000
of remaining principal plus $26,000 accrued interest) shall be paid to
Barnett Bank, N.A. to repay a mortgage on Mr. Gentry's residence used to
secure a loan with an original principal amount of $446,000 for the benefit
of the Company. The Company also intends to repay $115,000 (including
accrued interest of approximately $10,000) owed to Lawrence Goldfarb, a
director nominee. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Certain Transactions".
(3) To be used for the implementation of the Company's growth and expansion
strategies, acquisition of new locations for the Company's auto parts stores
and expansion, where appropriate, of existing facilities.
(4) To be used for implementation of the Company's growth strategy,
refurbishment of several stores, the hiring of a Chief Financial Officer,
acquisition of a key man life insurance policy on Mr. Gentry and general
corporate purposes. The Company also intends to renegotiate interest rates
on outstanding indebtedness due to various holders of mortgages against the
Company's properties. Such amounts total $500,000 and bear interest at rates
currently ranging from 10.0% to 12.9% per annum. To the extent the Company
is unsuccessful in its renegotiations, it will repay such indebtedness. If
the Representative exercises the Underwriter's over-allotment option, the
Company, the Selling Shareholders and the Representative have agreed that
the first 89,139 shares of the Common Stock shall be sold by and on behalf
of the Company. The proceeds from this sale and the sale of the related
Warrants, approximately $475,000, shall be allocated to Working Capital by
the Company.
(5) If the Representative exercises the Underwriter's over-allotment option and
sells 89,139 shares and related warrants allocated for sale by the Company
thereunder, the net total proceeds to the Company shall be approximately
$6,528,000.
The foregoing represents the Company's current estimate of the allocation
of the net proceeds of the Offering based upon certain assumptions relating to
the costs associated with the Company's business operations. The Company
believes that the net proceeds of this Offering will satisfy the Company's
capital requirements for at least twelve months.
14
<PAGE> 16
Prior to expenditures, the net proceeds of this Offering will be invested
principally in high grade short-term interest-bearing investments. Any proceeds
received upon exercise of the over-allotment option or any of the Company's
Warrants will be used for working capital.
DILUTION
The net tangible book value of the Company at July 31, 1997 was $2,038 or
$0.00 per share of Common Stock. Net tangible book value per share is determined
by dividing the net tangible book value of the Company (total tangible assets
less total liabilities) by the number of shares of Common Stock outstanding.
After giving effect to the receipt of net proceeds from the sale of the shares
of Common Stock and warrants offered hereby by the Company at an Offering price
of $6.00 per share of Common Stock, and $.125 per Warrant and after deducting
estimated offering expenses and underwriting discounts, the net tangible book
value of the Company at July 31, 1996, would have been approximately $6,312,869
or $1.77 per pro forma share of Common Stock, representing an immediate dilution
of $4.23 (or approximately 70.5%) per share to the public investors. This
represents an immediate and substantial dilution to new investors purchasing
Common Stock in this Offering. The following table illustrates the per share
dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $6.00
Net tangible book value per share before Offering........... $0.00
Increase in net tangible book value per share attributable
to public investors....................................... 1.77
-----
Pro Forma net tangible book value per share after
Offering(1)(2)............................................ 1.77
-----
Dilution per share to public investors(5)................... $4.23
=====
</TABLE>
The following table summarizes, on a pro forma basis, as of the date of
this Prospectus, the number of shares of Common Stock purchased, the percentage
of total shares purchased, the total consideration paid, the percentage of total
consideration paid and the average price per share paid by the existing
stockholders of the Company and the investors in this Offering.
<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED(1)(2) TOTAL CONSIDERATION(1)(2) PRICE(1)
---------------------- -------------------------- ---------
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
--------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders........ 2,360,000 66.3%(4) $ 262,006 3.5%(4) $0.11(4)
Public Investors(3)(4)....... 1,200,000 33.7%(4) 7,200,000(4) 96.5%(4) $6.00(4)
--------- ----- ----------- -----
Total.............. 3,560,000 100.0% $ 7,462,006 100.0%
========= ===== =========== =====
</TABLE>
- ---------------
(1) Gives effect to the 23,600-for-one stock split to be effected immediately
prior to consummation of this Offering.
(2) Does not include: (a) up to 180,000 shares and 180,000 Warrants subject to
issuance under the overallotment option; (b) 120,000 shares and 120,000
Warrants (and shares issuable thereunder) subject to the Underwriters'
Warrants and (c) other outstanding warrants. To the extent that any warrants
are exercised, there may be further dilution to the public investors.
(3) In the event that the Underwriters exercise their over-allotment option in
full, the net tangible book value after this Offering would be $1.86 per
share which would result in an immediate dilution of $4.14 to the public
investors.
(4) Allocates no value to the Warrants offered hereby.
(5) Assumes no exercise of Warrants related to the Offering.
15
<PAGE> 17
CAPITALIZATION
The following table sets forth the debt and capitalization of the Company
at July 31, 1997, and as adjusted to give effect to the sale of 1,200,000 shares
of Common Stock and 1,200,000 Warrants by the Company in the Offering at an
Offering price of $6.00 per share of Common Stock and $.125 per Warrant, and the
application of the net proceeds therefrom. This information should be read in
conjunction with the financial statements and the notes thereto, as well as
"Summary Financial Information," appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JULY 31, 1997
---------------------------
ACTUAL(1) AS ADJUSTED(2)
--------- --------------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, including current portion................... $6,916 $ 3,454
------ -------
Shareholders' equity
Preferred Stock, $.01 par value; authorized: 5,000,000
shares; issued and outstanding: none................... -- --
Common Stock, $.01 par value; authorized: 20,000,000
shares; issued and outstanding: 2,360,000 actual and
3,560,000 as adjusted.................................. 24 36
Additional paid-in capital.................................. 435 6,482
Retained Earnings........................................... (205) (205)
------ -------
Total Shareholders' equity........................ 254 6,313
------ -------
Total capitalization...................................... $7,170 $ 9,767
====== =======
</TABLE>
- ---------------
(1) Gives effect to the 23,600-for-one stock split to be effected immediately
prior to consummation of this Offering.
(2) Does not include: (a) up to 180,000 shares and 180,000 Warrants subject to
issuance under the overallotment option; (b) 120,000 shares and 120,000
Warrants (and shares issuable thereunder) subject to the Underwriters
Warrant; or (c) other outstanding warrants.
DIVIDEND POLICY
The Company does not anticipate paying any dividends on its Common Stock in
the foreseeable future. Any earnings which the Company may realize in the
foreseeable future will be retained to finance the growth of the Company. Future
dividend policy will depend upon the Company's earnings, capital requirements,
financial condition and other factors considered relevant by the Company's Board
of Directors. See "Description of Securities."
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
financial statements and notes thereto included elsewhere in this Prospectus.
This discussion contains forward looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward looking statements. Factors that might cause
such a difference include but are not limited to those discussed in "Risk
Factors."
OVERVIEW
The Company opened its first store in Florida in 1978 and by 1996 expanded
to 15 stores, one speed shop, one machine shop, and one warehouse. In 1996, the
Company opened a manufacturing unit at its headquarters to manufacture axles.
Historically, the Company purchased its merchandise directly from various
manufacturers and distributors, including APS. However, in October, 1993, the
Company entered into a product purchasing agreement with APS, a national
distributor of auto parts, from which the Company purchases approximately 75% of
its merchandise. The agreement was subsequently amended in October 1995. So far
in 1997, the Company has consolidated one store and plans to consolidate an
additional three stores into existing stores serving the same market areas. The
Company plans to expand into other markets in Florida and the Southeast
generally through the acquisition of existing stores and/or the opening of new
stores.
RESULTS OF OPERATIONS
The following table sets forth certain selected historical operating
results for the Company as a percentage of net sales.
<TABLE>
<CAPTION>
YEAR ENDED SEVEN MONTHS ENDED
DECEMBER 31, JULY 31,
---------------- ------------------
1995 1996 1996 1997
------ ------ ------- -------
<S> <C> <C> <C> <C>
Net sales............................................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold...................................... 65.8 66.8 66.8 62.4
------ ------ ------ ------
Gross profit.......................................... 34.2 33.2 33.2 37.6
Selling, general and administrative expenses............ 34.1 36.9 36.3 36.1
------ ------ ------ ------
Earnings (loss) from operations....................... .1 (3.7) (3.1) 1.5
Rental income........................................... 1.4 1.6 1.6 1.5
Interest expense........................................ (4.2) (6.5) (6.4) (6.6)
Gain on sale of property................................ -- -- -- 2.8
------ ------ ------ ------
Offering costs.......................................... -- -- -- (1.0)
Net earnings (loss)..................................... (2.7)% (8.6)% (7.9)% (1.8)%
====== ====== ====== ======
</TABLE>
Seven Months Ended July 31, 1996 Compared to Seven Months Ended July 31, 1997
Net Sales. Product sales decreased by approximately $401,000, or
approximately 5.6%, from $7,127,056 in the seven months ended July 31, 1996 to
$6,726,429 in the seven months ended July 31, 1997. This decrease was primarily
attributable to the reorganization of the Company's product portfolio and
revisions made to the Company's purchase criteria policy. During the
refurbishment of the Company's product portfolio, certain low margin product
lines (mainly consisting of accessories) were removed from the product mix, and
as a result of the deletion of these lines the sales for this period declined,
while the Company's gross profit increased from 33.2% to 38.0%. Also,
contributing to the reduction in sales was management's decision to raise the
quantity of the Company's minimal product order amount and the requirements to
qualify for an open account credit, which are within the Company's purchase
criteria policy.
Cost of Goods Sold. Cost of goods sold decreased from $4,758,502 or 66.8%
of net sales during the seven months ended July 31, 1996 to $4,194,460 or 62.4%
of net sales during the seven months ended July 31, 1997. This decrease in
dollar amounts was primarily attributable to the Company's ability in 1997 to
purchase
17
<PAGE> 19
certain product lines on more favorable terms compared to the same period in
1996. In addition, in order to expand the Company's relationship with an
existing regional account, the Company replaced certain obsolete inventory held
by that regional account which resulted in a one-time expense write-off for
obsolete inventory totaling $118,021 during the seven months ended July 31,
1996.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses decreased from $2,584,768 or 36.3% of net sales
during the seven months ended July 31, 1996 to $2,428,981 or 36.1% of net sales
during the seven months ended July 31, 1997. The decreased dollar amount of SG&A
expenses resulted primarily from (1) a reduction of overtime costs resulting
from improved utilization of store employees, (2) the one time expense incurred
during the seven months ended July 31, 1996 for the settlement of a lawsuit
totaling approximately $50,000 and (3) reduced healthcare and other insurance
costs as the result of management's negotiation of new insurance policies.
Interest Expense. Interest expense decreased from $458,196 or 6.4% of net
sales during the seven months ended July 31, 1996 to $444,774 or 6.6% of net
sales during the seven months ended July 31, 1997. This dollar decrease was
primarily attributable to a reduction in the overall weighted average interest
rate which was partially offset by an increase in the average outstanding
indebtedness as a result of the Company's need to increase its borrowings to
fund operations.
Gain on Sale of Property. During the seven months ended July 31, 1997 the
Company sold property not being used in its core business which resulted in a
gain of $185,707. There were no such sales during the seven months ended July
31, 1996.
Rental Income. The Company receives rental income from various commercial
and residential properties it owns that are not related to its core business.
Rental income decreased minimally from $111,808 during the seven months ended
July 31, 1996 to $98,685 during the seven months ended July 31, 1997.
Offering Costs. The Company expensed $68,714 of its offering costs during
the seven months ended July 31, 1997 as a result of a delay in the Company's
Offering.
Income Taxes. The are no income taxes recorded in the seven months ended
July 31, 1996 and 1997 because the Company was an S Corporation.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1996
Net Sales. Product sales increased by approximately $400,000, or
approximately 3.5%, from $11,691,338 in 1995 to $12,094,341 in 1996. This
increase was primarily due to (1) the substantial expansion of an arrangement
with one of the Company's regional accounts during 1996 which resulted in
increased sales and (2) the continued improvement in the Company's customer
service. Total net sales to such regional account was less than 10% of the
Company's total net sales in 1995 and 1996. See "Business -- Operating
Strategy."
Cost of Goods Sold. Cost of goods sold increased from $7,689,551 or 65.8%
of net sales in 1995 to $8,075,176 million or 66.8% of net sales in 1996. The
increased dollar amount was primarily attributable to the Company's inability to
take advantage of vendor discount programs due to the Company's cash constraints
while offering sales discounts to the Company's regional accounts. Further,
marginal working capital during 1996 periodically prohibited the Company from
maintaining adequate inventory on certain items. Therefore, the Company
satisfied customer demand for such items by buying from competitors at prices
that generated minimal gross margins. In addition, in connection with its
expanded relationship with a regional account in 1996, the Company replaced
certain obsolete inventory held by that account with the Company's products at
no cost to the customers, which resulted in a one-time expense write-off for
obsolete inventory totaling $118,021 during 1996. The Company also opened a
manufacturing unit in 1996 which was not profitable. Management ceased
operations of this unit in June 1997.
Selling, General and Administrative Expenses. SG&A expenses increased from
$3,986,570 or 34.1% of net sales in 1995 to $4,463,849 or 36.9% of net sales in
1996. The increased dollar amount of SG&A expenses resulted primarily from (1)
hiring additional sales personnel in anticipation of the Company's planned
growth
18
<PAGE> 20
strategies ($330,000), (2) expenses incurred in establishing and operating the
manufacturing unit opened in 1996 ($40,000), (3) the expenses associated with
the settlement of a lawsuit ($50,000) and (4) the increased operating expenses
resulting from the Company's inadequate cash position.
Interest Expense. Interest expense increased from $495,174 in 1995 or 4.2%
of net sales to $785,088 in 1996 or 6.5% of net sales. This increase was
primarily attributable to an increase in weighted average outstanding
indebtedness from 1995 to 1996. In October 1995, the Company consolidated
various obligations into two loans from APS and AFCO totaling $4.95 million.
Many of the obligations that were consolidated were non-interest bearing.
However, the APS and AFCO loans bear interest at interest rates ranging from 10%
to prime plus 2% (10.25% at December 31, 1996), which substantially increased
the Company's interest expense. In addition, in October 1995, APS began to
charge the Company interest of 10% per annum on its open account balance.
Rental Income. The Company receives rental income from various commercial
and residential properties it owns that are not related to its core business.
Rental income increased from $165,245 in 1995 to $191,804 in 1996.
Income Taxes. There are no income taxes recorded in 1995 and 1996 because
the Company was an S Corporation.
SFAS No. 128, Earnings Per Share and SFAS No. 129, Disclosure of
Information about Capital Structure, will be effective for the Company's
financial statements issued after December 15, 1997. Early adoption of the new
standards is not permitted. SFAS 128 eliminates primary and fully diluted
earnings per share and requires presentation of basic and diluted earnings per
share together with disclosure of how the per share amounts were computed. SFAS
No. 129 requires disclosing information about an entity's capital structure. The
adoption of these new standards is not expected to have a material impact on the
disclosure of earnings per share in the financial statements.
SFAS No. 130, Reporting Comprehensive Income, is effective for fiscal years
beginning after December 15, 1997. This Statement establishes standards for the
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. The new rule requires that the Company
(a) classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in-capital in the equity
section of the balance sheet. The Company plans to adopt SFAS No. 130 in 1998
and expects no material impact to the Company's financial statement
presentation.
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, is effective for fiscal years beginning after December 15, 1997.
This Statement supersedes SFAS No. 14, Financial Reporting for Segments of a
Business Enterprise, and amends SFAS No. 94, Consolidation of All Majority-Owned
Subsidiaries. This Statement requires annual financial statements to disclose
information about products and services, geographic areas and major customers
based on a management approach, along with interim reports. The management
approach requires disclosing financial and descriptive information about an
enterprise's reportable operating segments based on reporting information the
way management organizes the segments for making business decisions and
assessing performance. It also eliminates the requirement to disclose additional
information about subsidiaries that were not consolidated. The Company plans to
adopt SFAS No. 131 in 1998 with impact only to the Company's disclosure
information and not its results of operations.
19
<PAGE> 21
LIQUIDITY AND CAPITAL RESOURCES
The following table presents a summary of the Company's cash flow:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SEVEN MONTHS ENDED JULY 31,
----------------------- ---------------------------
1995 1996 1996 1997
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities............. $(3,763,058) $ 320,812 $ 142,519 $(402,987)
Net cash provided by (used in)
investing activities............. (198,264) (248,186) (160,874) 190,592
Net cash provided by (used in)
financing activities............. 3,846,424 (86,536) (726) 235,411
----------- --------- --------- ---------
Net increase (decrease) in cash and
cash equivalents................. $ (114,898) $ (13,910) $ (19,081) $ 23,016
=========== ========= ========= =========
</TABLE>
During 1996, the Company's operations provided $320,812 compared to using
approximately $3.8 million of cash during 1995. The increase in cash provided by
operations in 1996 was due primarily to an increase in the timing of payments on
the Company's trade accounts payable and certain other working capital
liabilities due to cash constraints. In addition, in 1995 the Company
substantially reduced the amount of non-interest bearing working capital
liabilities and consolidated certain other indebtedness through the use of
proceeds obtained from interest bearing debt obtained from APS and AFCO. The
increase in cash provided from operations was also due to a slower increase in
the build up of inventory in 1996. In 1995 the Company began to expand its
product line to carry more accessory items and tools based on recommendations
made by its primary supplier. As a result, per store inventory increased
substantially in 1995. The expansion of inventory continued in 1996, however, at
a slower pace as the Company achieved its desired product mix. The Company
averaged 1.5 inventory turns in 1996 which is slightly lower than the industry
as a result of this expansion. Toward the end of 1996 the Company began to
reevaluate this new product mix and during the first quarter of 1997 has refined
its product mix to focus its efforts on the distribution of Hard Parts. The
effects of the above resulting increases were partially offset by the increase
in the net loss in 1996 compared to 1995. The allowance for doubtful accounts
represents 23.5% of the total trade accounts receivable balance due to the
Company's not writing off older receivables in order to pursue their collection.
The increase in cash used in operations for the seven months ended July 31,
1997 compared to the same period in 1996 was primarily attributable to the
payments to APS for inventory purchased in prior periods and the payment for
weekly purchases of inventory from APS in accordance with the Loan Modification
Agreement. Also contributing to the increase in cash used in operations were the
costs incurred in connection with the Company's planned public offering. These
increases were partially offset by a reduction in the Company's inventory levels
resulting from management's efforts to reduce overall store inventories and
improve its product mix.
The Company used cash for investing activities in the amount of $198,264,
$248,186 and $160,874 in 1995 and 1996 and the seven months ended July 31, 1996,
respectively, for the purchase of property and equipment. The Company provided
cash from investing activities in the amount of $190,592 during the seven months
ended July 31, 1997 primarily from proceeds from the sale of land and building
not used in its core business. This increase was partially offset by purchases
of real property and equipment of $37,558.
Net cash used in financing activities in the year ended December 31, 1996
was $86,536 compared to net cash provided from financing activities in 1995 of
$3,846,424. Cash provided by financing activities in the year ended December 31,
1995 was primarily from the proceeds of loans from APS and AFCO. The proceeds
from such indebtedness was used primarily to reduce the amount of non-interest
bearing working capital liabilities and to consolidate certain other
indebtedness. Cash was used in the year ended December 31, 1996 primarily for
the repayment of debt. The increase in cash provided from financing activities
during the seven months ended July 31, 1997 was primarily attributable to the
proceeds from a $446,000 loan from the principal owner of the Company and was
partially offset by the scheduled repayment of debt.
20
<PAGE> 22
As a result of the foregoing, the Company's independent certified public
accountants issued its report, which included an explanatory paragraph for a
going concern uncertainty, on the Company's financial statements as of December
31, 1996. The ability of the Company to continue as a going concern is dependent
on the consummation of this Offering and repayment of the APS and AFCO
obligations in the approximate amount of $5.6 million including accrued interest
of approximately $512,000 and the improvement of its future operations.
Management believes the repayment of those obligations will save the Company
approximately $550,000 in annual interest.
The Company had working capital deficiencies of $1,847,194 and $2,051,035
at December 31, 1996 and July 31, 1997, respectively. Since 1995, the Company's
cash flows have not been sufficient to finance operations due to its substantial
debt service, inability to take advantage of vendor discounts, and increased
selling, general and administrative expenses. As a result, during 1996 and the
first seven months of 1997, the Company has been dependent on loans from third
parties in order to maintain its operations. In the second quarter of 1997, the
Company borrowed $446,000 from Robert H. Gentry, III, a shareholder and
principal of the Company, who borrowed those funds from a bank. During 1996 and
1997 the Company borrowed $105,000 from Lawrence Goldfarb, a director candidate
whose company, S&G Automotive Warehouse, Inc., is one of the Company's vendors.
The $357,446 loan outstanding to Mr. Gentry at July 31, 1997, plus his expenses
incurred in connection with that loan including accrued interest, and the
obligation owed to Mr. Goldfarb ($105,000, plus accrued interest) will be paid
from the proceeds of this Offering.
In October 1995, APS and its financing affiliate, AFCO, loaned the Company
$2,450,000 (the "APS Note") and $2,500,000 (the "AFCO Note"), respectively, for
reduction of certain mortgage obligations and other debt. The APS Note had a one
year term and accrued interest of 10% per annum and matured in October 1996. The
AFCO Note has a term of 15 years, with a principal and interest payment payable
monthly at prime, plus 2% (10.25% at December 31, 1996). APS and AFCO obtained a
security interest in all of the Company's personal and real property in
connection with those loans. The outstanding principal balance and accrued and
unpaid aggregated default and non-default interest at January 31, 1997 was
approximately $2,434,995 and $437,198, respectively, on the APS loan, and
$2,465,467 and $204,529, respectively, on the AFCO loan.
On February 20, 1997, the Company entered into a Loan Modification
Agreement with APS and AFCO. Under the terms of this agreement, the APS Note and
AFCO Note will continue to accrue interest at their specific contractual
interest rates, however, no payments of principal and interest will be required
until the maturity date. The maturity date is the earlier of the date the
Company receives proceeds from its planned initial public offering of shares of
its Common Stock, or July 31, 1997. Effective July 31, 1997 the Loan
Modification Agreement was amended to extend the maturity date to December 31,
1997 (the "Second Amendment"). In addition, from the date of the Second
Amendment to the maturity date, the Company is required to pay APS before the
close of business on Monday of each week an amount equal to the preceding week's
purchases. During the period from February 27, 1997 through July 31, 1997, the
Company purchased from APS approximately $60,000 to $80,000 of product per week.
The outstanding principal balance and accrued and unpaid aggregated default and
non-default interest at July 31, 1997 was approximately $2,666,679 and $543,613,
respectively, on the APS loan and $2,465,467 and $357,734, respectively, on the
AFCO loan.
The Company's compliance with the financial covenants under the terms of
the original loan agreements with APS and AFCO were waived under the terms of
the Second Amendment. The Second Amendment contains certain financial and other
covenants that, among other things, require the Company to (1) make timely
payments to APS for its merchandise purchases, (2) file a Registration Statement
with the Securities and Exchange Commission in connection with the Company's
planned initial public offering by May 31, 1997, and (3) complete its planned
initial public offering by December 31, 1997. Failure to comply with the
covenants included in the Second Amendment would cause the Company to be in
default under the terms of such agreement. Should such default occur APS and
AFCO could foreclose on the Company's assets collateralizing the APS Note and
AFCO Note. As long as the Company complies with the terms of the Second
Amendment and repays by the maturity date, the outstanding principal and accrued
and unpaid interest amounts due under the APS Note and AFCO Note, along with
certain amounts due APS for merchandise purchases, the default interest charge
due to APS and AFCO of approximately $350,000 and
21
<PAGE> 23
$39,000, respectively, at July 31, 1997 will be waived. As of October 15, 1997,
the Company was in compliance with the terms of the Second Amendment.
Management believes that APS and AFCO will not require repayment in full on
December 31, 1997 of the Company's outstanding indebtedness, including any
accrued and unpaid interest, as long as the Company continues to proceed with
its planned initial public offering and is in compliance with the remainder of
the covenants included in the Second Amendment and remains in compliance with
such other covenants until the initial public offering is completed. However, no
assurances can be given that APS and AFCO will not require repayment of such
indebtedness on December 31, 1997.
In January 1997, the Company was 60 days in arrears of its open account
with APS and at that time owed $1,473,533. The Company has since been making
substantial payments on that account and at September 25, 1997, the account
balance was at approximately $985,886 (which amount contemplates a $193,660
credit from APS for returns). The account is considered current when the balance
is approximately $400,000. Once the account is current, as defined, the Company
will be able to take advantage of APS's 2% discount for early payment of
invoices, which it has not been able to do since February, 1996. Management
believes it will be in a position to take advantage of such discounts commencing
in the fourth quarter of 1997.
By making more efficient use of its alliance with APS, repaying the AFCO
and APS Notes, renegotiating certain high interest rate mortgage loans (up to
$500,000), taking advantage of the discount offered by APS to customers with
current accounts, and by instituting cost containment programs, management
believes that the proceeds to the Company from this Offering and cash expected
to be provided by operating activities will be sufficient to fund the capital
needs of the Company for at least the next 12 months. However, there can be no
assurance that the Company can return to profitability and generate sufficient
cash flows in the future to meet its obligations when due. The Company's future
performance is subject to general economic conditions and to financial, business
and other factors, including factors beyond the Company's control.
As part of its growth strategy, the Company plans to expand into other
urban areas in Florida and the Southeast. To facilitate acquisitions, the
Company intends to utilize up to $2,000,000 of the proceeds of this offering
and, if and to the extent necessary to appropriately implement the Company's
growth strategies, to seek a line of credit after the close of this Offering.
The Company currently does not have any preliminary agreements or understandings
with any lenders for a line of credit. To the extent that the Company incurs
indebtedness to fund growth, the Company will be subject to the risks associated
with incurring additional indebtedness, including the risks that interest rates
may fluctuate and cash flow may be insufficient to pay principal and interest on
any such indebtedness. There can be no assurance that the Company will be
successful in obtaining a line of credit or, if obtained, that it will be
available to the Company on commercially reasonable terms, or that it will be
sufficient for the Company's growth. If the proceeds of this offering are not
sufficient to fully implement the Company's growth strategy, and if additional
financing is not available, the Company may have to curtail its long-range
growth strategy.
INFLATION AND SEASONALITY
The Company does not believe its operations are materially affected by
inflation. The Company has been successful, in many cases, in reducing the
effects of merchandise cost increases principally by taking advantage of vendor
incentive programs, economies of scale resulting from increased volume of
purchases and selective forward buying.
Although store sales have historically been somewhat higher in the second
and third quarters (March through August), the Company does not consider its
business to be materially affected by seasonality.
INDUSTRY OVERVIEW
According to industry estimates, the size of the domestic automotive
aftermarket for replacement parts, maintenance items and accessories is believed
to be in excess of $70 billion of which approximately $3.4 billion is generated
in the State of Florida. The Company believes that the market is growing because
of, among other things: (i) an increase in the size and age of the country's
automotive fleet, (ii) an increase in the number of miles driven annually per
vehicle, (iii) the increased number and higher cost of new cars and
22
<PAGE> 24
(iv) the higher cost of replacement parts as a result of technological changes
in more recent models of vehicles.
The automotive aftermarket distribution channels are highly fragmented. The
Company believes, however, that the industry is consolidating as national and
regional specialty retail chains gain market share at the expense of smaller
independent operators and less specialized mass merchandisers. General repair
garages are being replaced by specialists and some stations are concentrating on
non-repair services. The Company believes that the DIY market is changing due to
the lack of tools and skills necessary to repair the newer, complex vehicle
systems. Today's consumers are depending more on the professional service
technicians. Automotive specialty chains with multiple locations in given market
areas are believed to enjoy competitive advantages in purchasing, distribution,
advertising and marketing compared to most small independent operators. In
addition, the increase in the number of automotive replacement parts caused by
the significant increase in recent years in the variety of domestic and imported
vehicle makes and models has made it difficult for smaller independent operators
and less specialized mass merchandise chains to maintain inventory selection
broad enough to meet customer demands. The Company believes that this has
created a competitive advantage for those automotive chains, such as the
Company, that have the resources and distribution capability to deliver an
inventory selection broad enough to meet customer needs.
The automotive aftermarket essentially operates three different types of
auto part outlets, the retail store, the traditional store, and the wholesale
store. These stores basically service two distinct types of customers, the
Professional Installer and the DIY customer. Each of the three different types
of outlets carries a different type of inventory selection -- a mixture of Hard
Parts and accessories (waxes, chemicals, car covers, etc.) Following are brief
descriptions of each type of outlet, its customer base, type of inventory, and
general marketing concept:
Retail Store. The retail store customer base is the DIY customer. The
store emphasizes accessories but carries Hard Parts. Both consist of mainly fast
moving items with limited stocking of less popular items. The retail store
relies on heavy advertising, sales clerks and extended store hours.
Traditional Store. The traditional store customer base is a mix of the
Professional Installer and DIY customers with a larger percentage of sales to
Professional Installers. The store emphasizes Hard Parts but carries
accessories. The larger mix of Professional Installers requires slow selling
items to be stocked as well as the fast moving items. The store uses outside
salesmen to call on the Professional Installers, has knowledgeable employees and
offers free delivery service. It generally spends less on advertising than the
retail store and keeps fewer store hours.
Wholesale Store. The wholesale customer base is limited to the
Professional Installer. Inventory consists of Hard Parts only. The store uses
outside salesmen to call on the Professional Installer, has knowledgeable
employees and offers free delivery service. Store hours are limited and
advertising is generally at a minimum.
23
<PAGE> 25
BUSINESS
The Company is a specialty supplier and retailer of automotive replacement
parts, tools, supplies, equipment and accessories to both Professionals
Installers and DIY customers. The Company operates 14 auto parts stores, one
speed shop that retails high-performance items primarily to the car enthusiast,
one machine shop engaged in the building and reconditioning of certain engine
parts, and one warehouse facility that holds inventories of specific high-volume
items which are purchased in bulk directly from manufacturers, all of which are
located in, or within a one hour drive of Orlando, Florida. The Company also
maintains approximately 100 vehicles that can make most deliveries to its
wholesale customers within 30 minutes. Stores carry an extensive product line of
Hard Parts including brakes, belts, hoses, filters, cooling system parts, tune-
up parts, shock absorbers, gaskets, batteries, bearings, engine parts,
remanufactured alternators and starters, and chassis parts. In addition, the
Company carries (i) maintenance items, such as oil, antifreeze, fluids, engine
additives and appearance products; (ii) accessories, such as floor mats and seat
covers; (iii) automotive tools and (iv) professional service equipment. For the
fiscal year ended December 31, 1996, approximately 95% of the Company's product
sales was derived from Hard Parts and 5% from other merchandise. Approximately
75% of the Company's sales was derived from Professional Installers and the
remaining 25% from DIY customers during fiscal 1996.
STORE OPERATIONS
The Company's stores are traditional stores that generally range in size
from 3,000 to 8,000 square feet. The Company believes that its stores are
"destination stores" generating their own traffic rather than relying on the
traffic created by the presence of other stores in the immediate vicinity.
Consequently, all stores are freestanding buildings situated on or near major
traffic thoroughfares, which offer ample parking and easy customer access. Each
store carries a mixture of Hard Parts and accessories. The stores carry
16,000-18,000 different SKU's of which 15,000-17,500 represent Hard Parts. The
store sales are generated by a full-time technically trained sales force, a
call-in delivery service for wholesale customers, an extensive selection of
SKU's stocked in each store, express delivery for Professional Installers (with
approximate 30-minute delivery time) on in stock items, and a separate center
for Professional Installers in each store to facilitate quick service.
Company stores service two distinct types of customers -- the Professional
Installer (wholesale) customer and the DIY (retail) customer. The Company's
stores average 75% in Professional Installer sales and 25% in DIY sales. The
Company also provides a delivery service to its wholesale customers with
approximately 100 vehicles. Each of the Company's 14 stores also receive
inventory deliveries nightly from APS and four to six deliveries daily from the
Company's own warehouse. The deliveries replenish each store with the inventory
sold the previous day and also provides a store with the ability to special
order SKU's not normally stocked by the Company's stores. This enables the
Company to provide fast response service to both the wholesale and DIY
customers.
The Company's stores offer the Professional Installer and the DIY customer
a wide selection of nationally recognized brand names and "Big A" (APS private
label) products for domestic and imported automobiles, vans and trucks. In 1996,
new and remanufactured automotive Hard Parts, such as engines and transmission
parts, alternators, starters, water pumps, and brake shoes and pads, accounted
for approximately 95% of the Company's total sales. Each store also carries an
extensive selection of maintenance items, such as oil, antifreeze, fluids,
engine additives, appearance products, and accessories, such as floor mats and
seat covers, automotive tools and professional service equipment.
OPERATING STRATEGY
Accumulation of Marketshare. Because the Company pursues both the
Professional Installer and the DIY portions of the automotive aftermarket
through its store network, the Company believes that it is able to reach most
consumers of automotive products within its market areas. The demand generated
by this customer base permits the Company to offer a broad selection of SKUs and
restock and fill special orders from its principal supplier, APS, and from the
Company's own warehouse facilities, on an overnight or in some
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<PAGE> 26
cases, a same-day basis. The Company maintains a warehouse for products it
purchases directly from the manufacturers; however, because of its distribution
arrangement with APS, the Company does not need to maintain a warehouse for
those products supplied by APS. This allows the Company to utilize its working
capital and management resources for store operations, but still provide its
customers with up to 160,000 SKUs. See "Purchasing" and "Inventory Management."
Quality Workforce. The Company believes that its service to both the
Professional Installer and DIY portions of the automotive market results in
additional benefits not generally enjoyed by competitors serving only one
portion of the market. Because the Company deals with the more
technically-oriented Professional Installer, the Company's sales personnel are
required to be more technically proficient, particularly with regard to Hard
Parts. The Company has found that such technical proficiency is also valued by
its DIY consumers, thereby enhancing the Company's ability to fulfill its
customer service strategy. The Company's philosophy is to be a wholesale
customer's one call and a DIY customer's one stop for all their automotive
needs.
Equity Financing. To enhance its potential for better financial
performance, the Company must reduce its debt obligations and improve
operations. Approximately $3.0 million of this Offering's net proceeds will be
used to reduce debt. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Further, the Company intends to retain a
Chief Financial Officer and is focusing on implementing improved receivables,
inventory and cash management systems.
The Company also plans to use some of its working capital to refurbish some
of its stores for improved merchandise presentation, and to consolidate four of
its stores that have overlapping markets into two stores. Although the Company
expects to retain market share and reduce overhead costs as a result of the
consolidation, there can be no assurance that market fluctuations, increased
competition, or other factors will not adversely impact these or other stores.
Inventory Management and Distribution System. The Company has formed an
alliance with APS, a national distributor of automotive replacement parts, which
allows the Company's stores to have next day access to over 160,000 SKUs.
Simultaneously with the APS alliance, the Company also maintains its own square
foot warehouse from which it provides same-day delivery, of inventory purchased
directly from manufacturers, to its stores. In the past, the Company maintained
a mix of high volume and lower volume items. The costs associated with carrying
the slower moving inventory affected the Company's profitability in 1995 and
1996. The Company plans to improve its operating strategy by warehousing
primarily high volume items and to take better advantage of APS's ability to
carry slower moving inventory.
Customized Computer Information Software. The Company has developed a
customized computer software program that provides inventory management and
accounts payable information to management on a timely basis. The computer
system and software is networked between the Company's corporate office and each
of the stores. By inputting data at each store, the software collates, organizes
and produces reports on inventory status, location and quantity, and accounts
payable aging and status. The Company believes that its computer software is one
of the more advanced software packages utilized in the industry. By delivering
faster and more accurate information to management, the Company believes that it
can improve in-stock positions and lower inventory carrying cost, all of which
management believes will help to increase profitability. The software is
continually upgraded to improve the quality of and speed with which the
information can be made available to management. The system is also capable of
accommodating the addition of new stores as the Company implements its growth
plan.
Customer Service. The Company believes it is not only in the business of
selling auto parts, but just as important, is in the service business. Heavy
emphasis is placed on having professional personnel provide responsive customer
service. Employees receive extensive on-the-job training.
The Company's number one priority is customer satisfaction. The Company
seeks to attract new Professional Installer and DIY customers and to retain
existing customers by conducting a variety of advertising and promotional
programs and by offering: (i) superior in-store service through highly
motivated, technically-proficient sales people; (ii) an extensive selection of
SKUs stocked in each store; (iii) next day
25
<PAGE> 27
delivery of over 160,000 SKUs, and same day delivery for inventory maintained at
the Company's warehouse; (iv) attractive stores in convenient locations; (v)
competitive pricing and (vi) a national warranty program.
Each of the Company's sales personnel is required to be technically
proficient in the workings and application of Automotive Products. This degree
of technical proficiency is essential because of the significant portion of the
Company's business represented by the Professional Installer. The Company has
found that the typical DIY customer often seeks assistance from sales people,
particularly in connection with the purchase of Hard Parts. The Company believes
that the ability of its sales personnel to provide such assistance is valued by
the DIY customers, and therefore is likely to result in repeat DIY business.
GROWTH STRATEGY
Horizontal Integration. In addition to improving the efficiency of its
internal operations, the Company's growth strategy is to expand its operations
in other urban areas of Florida and the Southeast by purchasing automotive parts
stores as they become available on terms acceptable to the Company, as well as
opening new stores. The Company's growth to date has been accomplished primarily
by opening new stores instead of acquiring existing businesses. However, the
Company believes that because of the recent trend in consolidation occurring in
the auto parts industry, its future growth will occur as a result of
acquisitions of both single and multiple store operations. Depending on the
competitive characteristics of the industry, the Company plans to pursue all
future acquisition opportunities in addition to, or in place of, new store
openings. Key factors considered by the Company in the opening of new stores or
the acquisition of existing automotive parts stores include population density
and growth-patterns, age and per capita income, vehicle traffic counts, the
number and type of existing automotive repair facilities, other auto parts
stores and other competitors within a predetermined radius, and the operational
strength of such competitors. Although the cost to acquire the business of an
independently owned parts store varies, depending primarily on the amount of
inventory and the size of real estate, if any, being acquired, the Company
estimates that the average cost to acquire such a business and convert it to a
Company store ranges from approximately $225,000 to $350,000, excluding real
estate. Of this amount, approximately $175,000 to $300,000 is allocable to
inventory and the remainder to fixed assets. The Company estimates that an
additional $50,000 would be needed to fund the stores' operations for the
initial four month period of operations. In the event acquisitions in a targeted
area are not possible, or impractical, the Company may attempt to lease a store
site and refurbish it as a Company store. The costs associated with opening a
new leased location are slightly greater than acquiring a business and
converting it to a Company store. The Company plans to focus on expanding into
areas having population pockets of 75,000 to 100,000 in an overall statistical
market area of approximately 1,000,000 population. Although the Company has
identified possible acquisition candidates, the Company has not entered into any
definitive agreements with them. None of such candidates are affiliated with the
Company, its management or shareholders, either directly or indirectly. However,
if the Company were to enter into any such transactions in the future involving
either directly or indirectly affiliates of the Company, the transactions would
be negotiated arm's length transactions. The Company anticipates that it will
consummate acquisitions through the use of cash and/or stock. To facilitate its
growth, the Company anticipates that it will be able to negotiate a line of
credit once the APS and AFCO obligations are repaid. There is no assurance that
the Company will be able to successfully identify acquisition candidates or to
successfully finance or complete such transactions. See "Risk Factors -- Growth
through Acquisitions."
Increasing Existing Store Sales. Same store growth through increased sales
and profitability is also an important part of the Company's growth strategy. To
achieve improved sales and profitability at Company stores, the Company
continually strives to improve upon the service provided to its customers. The
Company believes that while pricing is essential in the highly competitive
environment of the automotive aftermarket business, ultimately it is customer
satisfaction (whether of the Professional Installer or the DIY customer),
resulting from superior customer service, that generates increased sales and
profitability.
Quality Assurance Reviews. In order to help assure continuous store
improvement and overall high level of customer service, the Company conducts
"Quality Assurance Reviews" of each of its stores semi-annually. Each review
encompasses a comprehensive agenda of store characteristics and performance
criteria. The review teams are comprised of store managers from high performing
locations, as well as senior management
26
<PAGE> 28
from the Company's corporate office. A written evaluation is prepared for each
store reviewed. The review team meets with the location manager to discuss the
evaluation and to provide direction in seeking improvements in store
performance. Management believes these reviews help to improve overall store
performance.
PURCHASING
In October, 1995, the Company entered into a product purchase agreement
with APS, a national distributor of a broad array of "Big A" brand and
manufacturers branded automotive replacement parts, as well as tools, equipment,
supplies and accessories. Under the terms of this agreement, the Company agreed
to purchase, for a period of five years, merchandise from APS over any given
four month consecutive billing period at a minimum average of 75% of the
Company's cost of goods, less certain exceptions. Purchases under this agreement
aggregated approximately $4.5 million during both years ended December 31, 1995
and 1996. Due to the fact that the Company has not been current on certain debt
obligations owed APS, it has not been able to take advantage of discounted
payment terms offered by APS. See "Risk Factors -- Recent Losses; Going
Concern." However, the Company expects to bring its open account with APS
current before the close of this Offering and as a result will be able to take
advantage of APS's discount payment terms.
APS operates approximately 28 warehouses throughout the United States with
the nearest warehouse to the Company's stores being located in Ocala, Florida.
APS has been able to provide the Company with next day delivery of needed parts.
The Company participates in several APS "Big A" programs, among which are
the following:
- A national warranty program ("NWP"). The Company is able to offer its
customers a NWP, good at approximately 2,100 Big A parts sources across
the country. This program is fully funded by APS.
- A national advertising program. The Company believes that national
advertising is helpful in markets such as Orlando's four county market
area. The national advertising program, plus the NWP, gives the Company
stores added recognition and a competitive edge.
- A national account program. This program makes the Company a
pre-approved vendor to most national service centers such as Firestone,
Sears, Montgomery Ward, etc.
In addition to the above programs, APS provides the Company with: (i) brand
name products; (ii) pricing economies through increased purchasing power and
(iii) various services, including assistance in marketing, cataloging and
inventory control.
APS is a publicly held corporation whose shares of common stock are traded
on the NASDAQ National Market System. According to reports filed by APS with the
Securities and Exchange Commission, APS, formed in 1989, believes that it is the
second largest warehouse distributor of automotive replacement parts in the
United States. It supplies parts to more than 1,800 "Big A" parts stores owned
by independent jobbers and over 300 APS-owned auto parts stores. For the year
ended January 27, 1997, APS had net sales of approximately $858 million and a
net loss of approximately $10.8 million because of a first year write off in
connection with a major acquisition. Its total stockholders' equity at January
27, 1997 was approximately $114.6 million.
A disruption of the Company's vendor relationship with APS, or a material
change in any of the terms of purchase, advertising, incentive or other programs
offered by APS, would likely have a material adverse effect on the Company's
business. However, the Company believes that if its relationship with APS were
to end, it would be able to replace APS with another distributor of similar
parts which offers similar programs.
In addition to purchasing products from APS, the Company purchases in bulk
certain items directly from manufacturers, which it stores in its 32,000 square
foot warehouse. Purchasing such items direct in bulk enables the Company to
price such parts competitively and increase its gross margin.
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<PAGE> 29
INVENTORY MANAGEMENT
Through its alliance with APS, a national distributor of a broad range of
"Big A" brand manufacturers branded replacement parts, the Company is provided
next day access to over 160,000 different SKU's. The alliance with APS provides
the Company with flexibility and competitiveness in the aftermarket segments of
the industry. The Company constantly seeks to improve its merchandising concepts
by expanding product selection and emphasizing the sale of the high-margin Hard
Parts. As a result of its alliance with APS, the Company does not inherit all of
the extraordinary costs associated with carrying such a large inventory, such as
(i) development and maintenance of large warehouse facilities (larger than the
Company's current warehouse which houses certain items; (ii) planning,
procurement, and management of inventories and (iii) providing distribution
methods of inventory between different locations. APS provides the Company with
the ability to return slow moving APS inventory, thereby virtually eliminating
loss from obsolescence. The Company also utilizes its own 20,000 square foot
warehouse to inventory certain parts it orders direct from manufacturers to take
advantage of purchase price discounts offered on purchases from certain of its
vendors. The Company plans to improve its operating strategy by warehousing
primarily high volume items and to take better advantage of APS's ability to
carry slower moving inventory.
MARKETING
Since a majority of the Company's revenues are derived from the sale of
Automotive Products to the Professional Installer, the Company devotes
substantial time and energy to the development of its Professional Installer
business. These businesses include gas stations, new and used car dealership
service centers, oil change and quick lube shops, tire centers, muffler shops
and auto mechanic garages. There are four full-time sales people operating from
the Company's stores dedicated solely to calling upon and selling to the
Professional Installer. Moreover, each store manager participates in these
activities by calling on existing and potential new Professional Installers on a
regular and periodic basis. The Company has approximately 100 vehicles to
provide prompt delivery service to the Professional Installer. Approximately 70
inside technically trained sales personnel market products to retail and
wholesale customers.
The Company anticipates promoting sales to DIY consumers through an
advertising program which includes direct mail, newspaper and limited radio and
television advertising in selected markets. Newspaper advertisements are
generally directed toward specific product and price promotions, frequently in
connection with specific sales events and promotions. The Company also sponsors
several automotive related events in its market area each year in an effort to
reach wholesale and retail customers. Such events include sponsoring a trade
show and conducting training clinics several times a year for the Professional
Installers which focus on electrical, emission control, chassis and suspension,
and air conditioning. The Company believes that its advertising and promotional
activities have resulted in significant name recognition in its market area.
The Company believes that a competitive pricing policy is essential in
order to compete successfully. Product pricing is generally established to meet
the pricing policies of competitors in the market area selected by each store.
Most automotive products sold by the Company are priced at discounts from the
manufacturer's suggested list prices and additional savings are offered through
volume discounts and special promotional pricing.
COMPETITION
The automotive parts aftermarket is highly competitive. Automotive
products, similar or identical to those sold at the Company's stores, are
generally available from a variety of different competitors in the communities
served by the Company's stores. The principle arenas of competition are delivery
time and location, customer service, merchandise selection and availability, and
price. The Company competes either directly or indirectly with each of these
areas for the business of both Professional Installers and DIY customers.
The Company's major competitors in the Professional Installer portion of
its business include independent warehouse distributors and independently owned
parts stores, automobile dealers and national warehouse distributors and
associations, such as National Automotive Parts Association (NAPA), Carquest,
All Pro,
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<PAGE> 30
Ace Auto Parts, and Steego. The more traditional of those stores emphasize Hard
Parts which cater to the Professional Installers, but also carry accessories and
other items as demanded by the DIY segment. Those stores typically use outside
sales representatives to call on Professional Installers, maintain operating
hours similar to wholesale stores and generally spend less on advertising than
retail stores.
Competitors in the DIY portion of the Company's business within its current
market area include automotive parts chains such as AutoZone, Western Auto,
Discount Auto Parts and Pep Boys, independently owned parts stores, automobile
dealerships and mass or general merchandisers, discount and convenience chains
that carry automotive products. Such retail stores emphasize accessories and
carry few Hard Parts in inventory. They compete for the DIY customers through
heavy advertising, strong in-store customer service, and extended operating
hours. Some of the larger DIY competitors have entered into the Professional
Installer portion of the business and this could have a material adverse effect
on the Company's operations.
Since the Company's primary target market is the Professional Installer,
the Company is faced with a significant amount of direct competition from
wholesale stores. The customer base for wholesale stores is the Professional
Installer. The wholesale store limits inventory to Hard Parts, offers free
delivery service, and uses knowledgeable outside sales representatives to call
on the Professional Installers. Companies competing in this segment include
National Automotive Parts Association -- "NAPA" and APS -- "Big A."
The focus of the Company's business is on the Professional Installer
segment of the aftermarket auto parts industry. The Company, along with its
successful competitors, will compete based upon the changing needs of its
customer environment. The Company's management believes that the needs of
today's mechanics, in order of importance, are as follows: delivery time
(location), customer service, and pricing. Currently, physical location of the
store is the fundamental component of a quick delivery time. Turnaround time,
the amount of time needed to repair a car and return it to its owner, is a
primary need of the Company's secondary customer, the car owner; therefore to
help expedite a reasonable turnaround time, the parts must be delivered to the
Professional Installer quickly.
Customer service, as it applies to the Professional Installers, is
reflected in order processing time (a main ingredient of quick delivery) and
product knowledge. The multiple tasks which are combined to create order
processing time include - understanding the order, referencing the item code,
confirming the part in inventory, negotiating a price, pulling the part from
inventory, packaging the goods, and routing delivery drivers. Product knowledge
is considered a valuable competitive advantage in this industry segment based
upon the fact that often the mechanic will counsel with the parts person in
order to accurately diagnose the problem and select the appropriate replacement
part.
Although product pricing should be competitive, the Company's management
believes that having the lowest price will not guaranty the sale and that
delivery time and customer service have priority over price.
Although the Company believes that it competes effectively in its market
area with many locations in the Orlando metropolitan area, its emphasis on
customer service, and its competitive pricing, some of its competitors, or their
parent organizations, are larger in terms of sales volume and have access to
greater capital and management resources.
EMPLOYEES
As of October 1, 1997, the Company had 153 full-time employees, 64 of whom
were employed at the Company's stores including 7 at its machine shop, 65 of
whom were engaged as delivery personnel, 21 of whom were engaged as corporate
and administrative personnel, and 3 of whom worked at the warehouse facility.
The Company's employees are not subject to a collective bargaining agreement.
The Company considers its relations with its employees to be excellent.
SERVICE MARKS AND TRADEMARKS
The Company owns no registered marks or trademarks. The Company believes
that its business is not materially dependent on any patent, trademark, service
mark or copyright.
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LEGAL
The Company has instituted a lawsuit (the "Lawsuit") against The Parts
Source, Inc. d/b/a Ace Auto Parts, a prior aborted suitor, and certain former
employees of the Company for certain tortious acts alleged to have caused damage
to the Company estimated at approximately $1.5 million. The Company is also
seeking an injunction against the defendants in its Lawsuit. The Lawsuit,
currently in the pleading and discovery stage, was filed on March 20, 1997, in
the Circuit Court in and for Orange County, Florida. In the opinion of
management, the ultimate outcome of this lawsuit should not have a material
adverse impact on the Company's financial position, results of operations or
liquidity.
PROPERTIES
The Company operates, in the central Florida metropolitan area, 14 auto
parts stores, one speed shop (which retails high-performance items to car
enthusiasts), one machine shop and one warehouse. All of these facilities are
owned by the Company except for two stores, which are leased. The Company's
headquarters and administrative offices, which include the Company's warehouse,
machine shop, and manufacturing unit (which was closed on June 1, 1997), consist
of six buildings totaling 48,000 square feet and are located on 2.5 acres in
Orlando.
The Company also owns a 32,000 square foot warehouse in Virginia which the
Company leases to a manufacturing company and receives rental income from that
property of approximately $40,000 per year. The Company also owns 12 other
commercial and residential properties in the Orlando area and one residential
property in Virginia from which it receives aggregate rental income of
approximately $130,000 per year. These properties are commercial and residential
properties.
Eight of the Company's real properties are encumbered by approximately
$1,129,000 in outstanding notes, maturing between December 1, 1997 and March 3,
2010, with varying interest rates ranging from 7.00% to 12.95% per annum. The
aggregate monthly installments are $19,461, including interest. The Company is
current in its payments of those obligations. The Company intends to renegotiate
the interest rates on $500,000 of these loans.
With the exception of the Virginia property, all of the Company's
properties are encumbered by a mortgage and/or a security agreement in favor of
APS and AFCO securing two loans with an aggregate current balance of $5.7
million (including accrued and unpaid interest) at October 1, 1997. Interest
accrues at interest rates varying from 10% to prime plus 2% (10.50% at October
1, 1997), and the outstanding principal balance and accrued interest is due and
payable on or before December 31, 1997. The Company plans to retire this debt by
using a combination of $3,000,000 from the proceeds of this Offering and the
funds received from refinancing the balance of the APS indebtedness which
refinancing has been made a condition to closing this Offering by the
Underwriters. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
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<PAGE> 32
The following property schedule and accompanying footnotes identifies the
Company's corporate offices, warehouse and retail outlets, their approximate
square footage, whether leased or owned, and whether they are to be sold or
refurbished, which are in process or planned to occur within the next 18 months.
All lease agreements are with non-affiliated parties and on commercially
reasonable terms and conditions.
PROPERTY SCHEDULE: CORPORATE OFFICES, WAREHOUSES AND STORES
<TABLE>
<CAPTION>
RENT DESCRIPTION
GENERAL SQUARE ------------------------
STORE # LOCATION DESCRIPTION FOOTAGE OWN/RENT EXPENSE TERM
- --------- ----------------------------- ---------------------------------- ------- -------- ------- --------------
<C> <S> <C> <C> <C> <C> <C>
1 6464 E. Colonial, Orlando Traditional retail parts store 3,200 Rent $1,378 month-to-month
2 2619 N. Pine Hills Rd., Traditional retail parts store (1) 3,800 Own
Orlando
3 1409 N. Main, Kissimmee Traditional retail parts store 3,500 Own
4 100 S. Parramore, Orlando Traditional retail parts store (2) 5,000 Own
Warehouse 701 W. Church St., Orlando Distribution center (3) 32,000 Own
Corporate Pine Street Corporate offices 5,000 Own
Corporate 733 W. Church St., Orlando Corporate offices 12,000 Own
6 1803 S. Orange, Orlando Speed parts store 3,800 Own
7 5251 S. US Hwy. 17-92, Traditional retail parts store(4) 6,000 Own
Casselberry
8 725 W. Church St., Orlando Machine shop 8,000 Own
9 2535 French Ave., Sanford Traditional retail parts store 3,980 Own
12 104448 E. Colonial, Orlando Traditional retail parts store(5) 4,000 Own
14 715 N. Powers, Orlando Traditional retail parts store(6) 3,205 Own
15 736 S. Dillard, Winter Garden Traditional retail parts store(7) 4,200 Own
17 380 W. Hwy. 434, Winter Traditional retail parts store(8) 2,684 Own
Springs
21 1411 Cypress Dr., Melbourne Traditional retail parts store 4,800 Own
24 3412 Aloma Ave., Winter Park Traditional retail parts store(10) 4,400 Own
25 37 S. Park Ave., Titusville Traditional retail parts store 3,160 Own
27 710 W. King, Cocoa Traditional retail parts store 5,600 Own
<CAPTION>
PROPERTIES TO BE:
------------------
STORE # SOLD REFURBISHED
- --------- ---- -----------
<C> <C> <C>
1
2 x
3
4
Warehouse x
Corporate x
Corporate x
6 x
7
8
9
12
14 x
15
17 x
21 x
24 x
25 x
27
</TABLE>
- ---------------
(1) The Company relocated store 2 from 2619 No. Pine Hills Rd., Orlando to its
current location. Management expects the revenue generated by the sales
from Store 2's Pine Hills location to be captured, instead by Stores 4 and
8, located in a similar and nearby geographic region. The Company relocated
Store 2 to a new geographic region where the Company has no other presence.
(2) The Company intends to expand Store 4 in order to better position this
store to absorb some of the revenue previously generated by Stores 2 and
14, which the Company intends to close.
(3) The Company intends to expand its Warehouse and distribution center by
taking in inventory from Stores 2, 14, 17 and 18, which are closed or
scheduled to be closed.
(4) The Company intends to expand Store 7 in order to better position this
store to absorb some of the revenue previously generated by Store 17, which
the Company intends to close.
(5) The Company intends to expand Store 12 in order to better position this
store to absorb some of the revenue previously generated by Store 18, which
the Company intends to close.
(6) The Company intends to close Store 14. The Company intends to transfer the
inventory at this location to its Warehouse for use as inventory at other
of the Company's stores. Management expects the revenue generated by the
sales from this store to be captured, instead by Stores 4 and 8, located in
a similar and nearby geographic region.
(7) The Company intends to expand Store 15 in order to better position this
store to absorb some of the revenue previously generated by Stores 2 and
14, which the Company intends to close.
(8) The Company intends to close Store 17. It is expected that the inventory at
this location will either be returned to APS to reduce the outstanding
balance of that loan or transferred to Store 7 for use as inventory.
Management expects the revenue generated by the sales from this store to be
captured, instead by Store 7, located in a similar and nearby geographic
region.
(9) The Company closed Store 18 on July 31, 1997. The inventory at this
location was returned to APS to reduce the outstanding balance of that loan
and transferred to Stores 12 and 24 for use as inventory. Management
expects the revenue generated by the sales from this store to be captured,
instead by Stores 12 and 24, located a in similar and nearby geographic
region.
(10) The Company intends to expand Store 24 in order to better position this
store to absorb some of the revenue previously generated by Store 18, which
the Company closed on July 31, 1997.
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<PAGE> 33
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
William H. Burns, Jr................... 50 Director (nominee)
Robert H. Gentry, III.................. 54 President, Chief Executive Officer and
Director
Lawrence S. Goldfarb................... 70 Director (nominee)
Daniel T. Guilfoile.................... 37 Director (nominee)
Stanley G. Miller...................... 64 Director (nominee)
David O. O'Neal........................ 55 Vice President
Patrick J. Power....................... 27 Vice President -- Corporate Development
and Investor Relations
Herchel L. Rideout..................... 51 Vice President
</TABLE>
WILLIAM H. BURNS, JR., is a director nominee. From 1995 to 1996, Mr. Burns
was the Executive Vice President and Chief Operating Officer of Virtuem
Entertainment, Inc., a Chicago-based start-up corporation in the business of
entertainment, retail sales and interactive technology. From 1993 to 1995, Mr.
Burns held the position of President of the Entertainment Center Division of the
Blockbuster Entertainment Group, a new operating division responsible for the
concept development, start-up and operation of the initial Blockbuster
entertainment centers as well as the identification of acquisition candidates
for Blockbuster in the entertainment field. From 1969 through 1993, Mr. Burns
held various development and operations positions with the Walt Disney World
Company both in Orlando, Florida and Burbank, California. Mr. Burns earned a
Masters in Business Administration from Rollins College and a Bachelor of
Science in Journalism from the University of Florida.
ROBERT H. GENTRY, III, has served as President, Chief Executive Officer,
and a Director of the Company since 1980. From 1978 to 1980, Mr. Gentry was the
Company's Chief Operating Officer and was responsible for managing the Company's
stores and inventory. Mr. Gentry has been involved in the automotive parts
industry for over 34 years. Mr. Gentry attended the University of Kentucky where
he studied Accounting and Business Administration.
LAWRENCE S. GOLDFARB, is a director nominee. Since 1980, Mr. Goldfarb has
served as the President of S & G Automotive Warehouse, Inc., a seller of
automotive replacement parts in central Florida. Mr. Goldfarb has been involved
in the automotive parts industry for over 50 years.
DANIEL T. GUILFOILE, is a director nominee and the director designee of
Nutmeg Securities Ltd. (the "Representative"). Mr. Guilfoile has been employed
with the Representative since 1990, where he has served as the Director of
Investment Banking since January 1, 1997. From 1992 to December 31, 1996 Mr.
Guilfoile served as Vice President of Syndicate and Corporate Finance for the
Representative Mr. Guilfoile received a Bachelor of Arts degree in Economics
from Villanova University in 1982 and a Masters of Finance degree from Fordham
University in 1988.
STANLEY G. MILLER, is a director nominee. Although Mr. Miller has been
retired since March, 1992 he previously served as Senior Vice President for
Exide Corporation, one of the largest manufacturers of automobile batteries.
DAVID O. O'NEAL, has served as Vice President of Management Information
Systems since joining the Company in 1993. Prior thereto, from 1990 to 1993, Mr.
O'Neal was a Senior Programming Analyst at Autopower Corp., a software
development firm in Orlando. Mr. O'Neal earned a Masters of Business
Administration from the University of Central Michigan and a Bachelors of
Computer Science from the University of Southern Illinois.
32
<PAGE> 34
PATRICK J. POWER, was appointed Vice President of Corporate Development and
Investors Relations effective October 1, 1996. From November 1995 to October
1996, Mr. Power was the Director of Investor Relations for Eckler Industries,
Inc. (now known as "SmartChoice Automotive Group, Inc.", Titusville, Florida).
Prior to and concurrent with working for Eckler Industries, Mr. Power served as
the Director of Strategic Planning for Greyhouse Services Corporation, a
subsidiary of Florida Gulf Capital and Equity Corporation, from March 1994 to
October 1996. During the period from March 1993 to March 1994, Mr. Power was
employed as a researcher of municipal and federal fixed income financial
products by Olde Discount Stock Brokers Corporation. Mr. Power received a
B.S.B.A. in Finance from the University of Central Florida in 1993.
HERCHEL L. RIDEOUT, JR., was appointed Vice President of Purchasing and
Inventory in 1996. From 1980 to 1996, Mr. Rideout worked for Automotive One in a
variety of positions of increasing responsibility in the areas of business
operations and employee management, including Store Operations
Manager -- Central Florida Region, Director of Risk Management, and Human
Resources Manager. Mr. Rideout is the brother-in-law of Mr. Gentry.
The Board and Shareholders of the Company intend to authorize the expansion
of the Board to 5 members and intend to select Messrs. Miller, Goldfarb, Burns
and Guilpoile, the nominee directors identified above, to serve on the Board
with Mr. Gentry commencing on or before the Effective Date.
The Company intends to hire a qualified chief financial officer and other
management personnel as soon as possible. The Company has allocated a portion of
the proceeds from this Offering for use in attracting and retaining the services
of qualified management personnel. See, "Use of Proceeds."
EXECUTIVE COMPENSATION
The following table sets forth cash compensation paid by the Company to, as
well as any other compensation paid to or earned by, the President and Chief
Executive Officer of the Company and those executive officers compensated at or
greater than $100,000 for services rendered the Company in all capacities during
the fiscal years ended December 31, 1995 and 1996. For information regarding
current compensation paid to the Company's executive officers, see "Employment
Agreements."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
YEAR OTHER ANNUAL
NAME AND POSITION ENDED SALARY BONUS COMPENSATION(1)
- ----------------- ------------ ------- ------- ---------------
<S> <C> <C> <C> <C>
Robert H. Gentry, III 12/31/96 $60,000 -- $30,000
President, CEO 12/31/95 60,000 -- 30,000
</TABLE>
- ---------------
(1) Reflects payments made by the Company for life insurance policies and
vehicle leases or payments.
DIRECTOR COMPENSATION
Directors who are employees of the Company do not receive compensation for
serving as directors. The Company anticipates compensating its independent
directors for their services in the form of fees and/or stock options, yet to be
determined; however, the Representative's designee shall serve without
compensation. All directors will be reimbursed for their reasonable
out-of-pocket expenses incurred in connection with attending meetings of the
Board of Directors and for other expenses incurred in their capacity as
directors of the Company.
EMPLOYMENT AGREEMENTS
On May 13, 1997, the Company entered into a five-year employment agreement
with Robert H. Gentry, III, the Company's President and CEO. Upon expiration of
its initial five-year term, the agreement is
33
<PAGE> 35
renewable for successive two-year periods. Under the agreement, Mr. Gentry's
annual salary is $80,000 for 1997, increasing to $100,000 January 1, 1998
through December 31, 1999, and $120,000 January 1, 2000 through December 31,
2002. The employment agreement provides that the Company's Board of Directors
shall use its best efforts to establish by April 1, 1998 a bonus program and a
discretionary stock option plan for executive officers of the Company which will
be tied to the Company's performance. The agreement provides that in the event
Mr. Gentry's employment is terminated "without cause", he shall receive
compensation and benefits equal to those he was receiving immediately prior to
said termination for the greater of the remainder of the employment term or
twelve months. In the event Mr. Gentry's employment is terminated for any other
reason, including for "cause", he will receive severance payments in an amount
equal to the compensation that Mr. Gentry was receiving immediately prior to
such termination for a period of twelve months. Under the employment agreement,
Mr. Gentry will also be entitled to five weeks paid vacation, either an
automobile or an automobile allowance of $800 per month, and reimbursements for
expenses incurred in connection with Company business.
Effective June 1, 1997, the Company entered into a three-year employment
agreement with Patrick J. Power to serve as the Company's Vice President of
Corporate Development and Investor Relations. Under the agreement, Mr. Power's
annual salary is $35,000 per year, accruing as of June 1, 1997 but payable
commencing on the closing of this Offering in accordance with the Company's
normal payroll practices. The employment agreement provides for a starting bonus
of $35,000, representing, in part, accrued but unpaid salary, to be paid on the
Closing of this Offering. The employment agreement further provides that the
Company's Board of Directors, in their sole and exclusive discretion, may grant
a bonus to Mr. Power based on extraordinary performance or contributions to the
Company. The agreement provides that in the event Mr. Power's employment is
terminated "without cause", he shall receive compensation and benefits equal to
those he was receiving immediately prior to said termination for the greater of
the remainder of the employment term or six months. The employment agreement
recognizes that Mr. Power is engaged in other endeavors and requires Mr. Power
to devote only that portion of his time as is reasonably necessary to perform
his duties. Mr. Power will not receive any vacation, sick days or healthcare
coverage, but has been granted 30,000 non-qualified stock options under the
Company's 1997 Stock Option Plan. The options shall vest over a three year
period, and be exercisable for a period of not less than five years.
STOCK OPTION PLAN
In May 1997, the Company established a 1997 Employee Stock Option Plan (the
"Plan") under which 500,000 shares of Common Stock are reserved for issuance
upon exercise of stock options. The Plan is designed to serve as an incentive
for retaining qualified and competent employees. The Company's Board of
Directors, or a committee thereof (the "Committee"), will administer and
interpret the Plan and will be authorized to grant options thereunder to all
eligible employees of the Company, including officers and directors (whether or
not employees) of the Company and consultants.
The Plan provides for the granting of both incentive stock options and
non-qualified stock options. Options will be granted under the Plan on such
terms and at such prices as determined by the Committee, except that the per
share exercise price of incentive stock options cannot be less than the fair
market value of the Common Stock on the date of grant and the per share exercise
price of non-qualified stock options may not be less than par value. Each option
will be exercisable after the period or periods specified in the option
agreement, but no option can be exercised until six months after the date of
grant or after the expiration of 10 years from the date of grant. Options
granted under the Plan will not be transferable other than by will or by the
laws of descent and distribution.
The Plan contains anti-dilution provisions authorizing appropriate
adjustments in certain circumstances. Shares of Common Stock subject to options
which expire without being exercised or which are canceled as a result of
cessation of employment are available for further grants.
The Company has granted 30,000 non-qualified options under the Plan to Mr.
Power, Vice President -- Corporate Development and Investor Relations.
34
<PAGE> 36
The Company may grant independent directors of the Company non-qualified
stock options outside of the Plan.
INDEMNIFICATION, DIRECTORS AND OFFICERS
Under the FBCA, a director is not personally liable for monetary damages to
the corporation or any other person for any statement, vote, decision, or
failure to act unless (i) the director breached or failed to perform his duties
as a director and (ii) a director's breach of, or failure to perform, those
duties constitutes (1) a violation of the criminal law, unless the director had
reasonable cause to believe his conduct was lawful or had no reasonable cause to
believe his conduct was unlawful, (2) a transaction from which the director
derived an improper personal benefit, either directly or indirectly, (3) a
circumstance under which an unlawful distribution is made, (4) in a derivative
proceeding, conscious disregard for the best interest of the corporation or
willful misconduct, or (5) in a non-derivative proceeding, recklessness or an
act or omission which was committed in bad faith or with malicious purpose or in
a manner exhibiting wanton and willful disregard of human rights, safety, or
property. A corporation may purchase and maintain insurance on behalf of any
director or officer against any liability asserted against him and incurred by
him in his capacity or arising out of his status as a director, whether or not
the corporation would have the power to indemnify him against such liability
under the FBCA.
The Company's Amended and Restated Articles of Incorporation and Amended
and Restated Bylaws provide that the Company shall indemnify all directors and
officers of the Company to the full extent permitted by the FBCA. Under such
provisions, any director or officer, who in his capacity as such, is made or
threatened to be made, a party to any suit or proceeding, may be indemnified if
the Board of Directors determines such director or officer acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interest of the Company. The Amended and Restated Articles of
Incorporation, Amended and Restated Bylaws and the FBCA further provide that
such indemnification is not exclusive of any other rights to which such
individual may be entitled under the Amended and Restated Articles of
Incorporation, the Amended and Restated Bylaws, any agreement, vote of
shareholders or disinterested directors or otherwise.
It is anticipated that the Company's Board of Directors and executive
officers will enter into indemnification agreements with the Company. The
agreements follow the indemnification and expense advancement provisions of
FBCA. In addition, the indemnitee under the agreements is entitled to
indemnification against all expenses actually and reasonably incurred by him or
on his behalf in connection with serving as a witness in any proceeding (as
defined in the agreement) by virtue of his or her status with the Company. The
agreements also provide a procedural mechanism under which the indemnitee can
claim and obtain indemnification, including a procedure for the Board or
independent counsel to determine entitlement to indemnification under specific
situations. In the event the indemnitee does not receive the indemnification to
which he would otherwise be entitled under the terms of the agreement, the
indemnitee is entitled to seek a judicial determination. In the event the
indemnitee seeks a judicial adjudication to enforce his or her rights under, or
to recover damages for breach of, the agreement, the indemnitee is entitled to
recover from the Company his or her reasonable legal fees and other expenses in
connection with the legal proceeding, subject to proration in the event the
amount of the aware is less than the amount of indemnification sought.
The Company and the Underwriters have agreed to indemnify each other
(including officers and directors) against certain liabilities arising under the
Securities Act. See "Underwriting."
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted for directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the Securities Exchange Commission ("SEC"), such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
35
<PAGE> 37
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the Company's outstanding Common Stock as of October 1, 1997 and as
adjusted to reflect the sale of the Common Stock offered hereby by (i) each
person or entity known by the Company to be the beneficial owner of more than 5%
of the outstanding shares of Common Stock, (ii) each director of the Company who
owns any shares of Common Stock, (iii) each stockholder that has granted
over-allotment options to the Underwriters (the "Selling Shareholders") and (iv)
all directors and executive officers of the Company as a group. Except as
otherwise indicated, the persons listed below have sole voting and investment
power with respect to all shares of Common Stock owned by them, except to the
extent such power may be shared with a spouse.
<TABLE>
<CAPTION>
PERCENT SHARES BENEFICIALLY
BENEFICIALLY OWNED AFTER OFFERING
SHARES BENEFICIALLY OWNED AFTER PERCENTAGE OF IF OVER-ALLOTMENT
OWNED PRIOR TO THE OFFERING SHARES OPTIONS ARE
OFFERING(2)(3) IF OVER-ALLOTMENT SUBJECT TO EXERCISED IN FULL(2)
NAME AND ADDRESS OF ------------------- OPTIONS ARE NOT OVER-ALLOTMENT ---------------------
BENEFICIAL OWNER(1) NUMBER PERCENT EXERCISED OPTIONS NUMBER PERCENT
------------------- --------- ------- ----------------- -------------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Robert H. Gentry, III....... 1,652,000 70.0% 46.4% (6) 1,588,367 42.5%
Marguerite Siefert.......... 354,000 15.0% 9.9% (6) 340,371 9.1%
Jennifer Rideout............ 354,000 15.0% 9.9% (6) 340,371 9.1%
Stanley G. Miller(4)........ -0- -- --
William H. Burns, Jr.(4).... -0- -- --
Lawrence S. Goldfarb(4)..... -0- -- --
All Officers and Directors
as a group (8
persons)(5)............... 2,360,000 100.0% 66.2% 2,269,109 60.7%
</TABLE>
- ---------------
(1) The address of each of the beneficial owners identified is c/o Automotive
One Parts Stores, Inc., 701 West Church Street, Orlando, FL 32802.
(2) As used herein, 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 dispose or direct the disposition of)
with respect to the security through any contract, arrangement,
understanding, relationship or otherwise, including a right to acquire such
power(s) during the next 60 days. Unless otherwise noted, beneficial
ownership consists of sole ownership, voting and investment rights.
(3) Gives effect to the 23,600-for-one stock split to be effected prior to
consummation of this Offering.
(4) Messrs. Miller, Burns and Goldfarb are director candidates.
(5) Includes the director candidates.
(6) The Company, the Selling Shareholders and the Representative have agreed
that of the 180,000 shares available for sale in the Underwriter's
over-allotment, the first 89,139 shares shall be sold on behalf of the
Company. The proceeds to the Company resulting from the sale of the 89,139
shares shall be allocated to working capital. See "Use of Proceeds." The
Shares allocable to and the proceeds resulting from the sale of the
remaining 90,861 shares subject to the Underwriter's over-allotment options
shall be apportioned between Mr. Gentry, Ms. Siefert and Ms. Rideout in
accordance with their percentage of holdings.
36
<PAGE> 38
CERTAIN TRANSACTIONS
In April 1997, Mr. Gentry borrowed $446,000 from Barnett Bank, N. A., which
is secured by Mr. Gentry's residence. In turn, Mr. Gentry loaned those funds to
the Company for operations, evidenced by a promissory note made by the Company
in favor of Mr. Gentry that duplicates the terms of the Barnett Bank loan. The
Barnett Bank note has a term of thirty years and bears interest at 7 1/2% per
annum. The monthly payments are $3,410.88. The Company will repay the Barnett
Bank loan from the net proceeds of this Offering and will reimburse Mr. Gentry
out-of-pocket costs and interest payments he made in connection with the Barnett
Bank loan whereupon Mr. Gentry's note will be canceled. The Company owed Mr.
Gentry $357,446 at July 31, 1997 (not including accrued interest).
S & G Automotive Warehouse, Inc., a supplier of merchandise to the Company,
is owned by Lawrence Goldfarb, a nominated director of the Company. During the
years ended December 31, 1995 and 1996, and the seven months ended July 31, 1996
and 1997, the Company paid to S & G Automotive Warehouse, Inc. $209,341,
$258,785, $129,260 and $211,764, respectively, for merchandise.
During 1996, Lawrence Goldfarb, a nominated director, loaned the Company an
aggregate of $95,000 at an interest rate of 10% per annum. The outstanding
principal balance of those loans were consolidated into one note and currently
totals $95,000 and $105,000 at December 31, 1996 and July 31, 1997,
respectively. The note accrues interest at 10% per annum and is payable upon the
earlier of the closing of this Offering or December 31, 1997. The Company
anticipates repaying that obligation from the proceeds of this Offering.
During 1995 and 1996, the Company made advances to and borrowed money from
officers, shareholders and family members from time to time. The Company owed
$67,000 and $77,472 to these individuals at December 31, 1996 and July 31, 1997,
respectively. In addition, these individuals owed the Company $70,384 and
$24,134 at December 31, 1996 and July 31, 1997, respectively.
37
<PAGE> 39
DESCRIPTION OF SECURITIES
The following summary description relating to the capital stock and
Warrants does not purport to be complete and is qualified in its entirety by
reference to the Amended and Restated Articles and ByLaws of the Company, and
the Warrant Agreement, which are filed as exhibits to the Registration Statement
of which this Prospectus forms a part.
GENERAL
As of the date of this Prospectus, the outstanding capital stock of the
Company consisted of 100 shares of Common Stock held by three shareholders of
record. Immediately prior to the consummation of this Offering the Company will
complete a recapitalization (the "Recapitalization") pursuant to which all
outstanding shares of Common Stock will be split 23,600-for-one and exchanged
simultaneously on a one-for-one basis for shares of the Company's newly
authorized Common Stock.
The Company's Board of Directors and shareholders have approved the Amended
and Restated Articles of Incorporation and the Amended and Restated Bylaws
("Bylaws") to become effective on the Effective Date of this Offering, and the
following discussions describe the provisions of the Company's capital stock,
Amended Articles and Bylaws that will be in effect after this offering. The
following summary description relating to the capital stock does not purport to
be complete and is qualified in its entirety by reference to the Amended
Articles and Bylaws of the Company which are filed as exhibits to the
Registration Statement of which this Prospectus forms a part. Upon consummation
of the Offering, the authorized capital stock of the Company will consist of
20,000,000 shares of common stock, $.01 par value ("Common Stock"), and
5,000,000 shares of "blank check" preferred stock, $.01 par value ("Preferred
Stock"). Upon the closing of this Offering, there will be 3,560,000 shares of
Common Stock outstanding and no shares of Preferred Stock outstanding.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share. The holders
of Common Stock are entitled to receive ratably such dividends, if any, as may
be declared by the Board of Directors out of legally available funds. Shares of
Common Stock are not redeemable and have not preemptive, conversion or similar
rights. The outstanding shares of Common Stock issuable hereby will be, when and
if issued, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority without further action by the
stockholders to issue up to 5,000,000 shares of Preferred Stock in one or more
series. The Board of Directors is authorized to establish from time to time the
number of shares to be included in and the designation of, any such series, to
determine or alter the rights, preferences, privileges and restrictions, there
of without further action by the shareholders. The Board of Directors of the
Company has not designated any new series of Preferred Stock. Satisfaction of
any divided preferences of outstanding Preferred Stock, if any, would reduce the
amount of funds available for the payment of dividends on Common Stock. Also,
the holders of Preferred Stock, if any, would normally be entitled to receive a
preference payment in the event of any liquidation or other dissolution or
winding up of the Company before any payment is made to the holders of Common
Stock. In addition, any outstanding shares of Preferred Stock having conversion
rights would potentially increase the number of shares of Common Stock
outstanding.
WARRANTS
Redeemable Common Stock Purchase Warrants. Each Warrant offered hereby
entitles the holder thereof to purchase one share of Common Stock at a price of
$7.20 per share. Each Warrant is redeemable, in whole or in part, by the Company
at a price of $.10 per Warrant, upon thirty days' prior written notice to the
Warrant holders, provided that the closing price of the Company's Common Stock
exceeds $9.00 per share for a period of ten consecutive trading days ending on
the third day prior to the date of the Company's redemption
38
<PAGE> 40
notice. Pursuant to applicable federal and state securities laws, in the event a
current prospectus is not available, the Warrants may not be exercised by the
holders thereof and the Company will be precluded from redeeming the Warrants.
There can be no assurance that the Company will not be prevented by financial or
other considerations from maintaining a current prospectus. Any Warrant holder
that does not exercise prior to the redemption date, as set forth in the
Company's notice of redemption, will forfeit the right to purchase the Common
Stock underlying the Warrants, and after the redemption date or upon conclusion
of the exercise period any outstanding Warrants will become void and be of no
further force or effect, unless extended by the Board of Directors of the
Company. See "Underwriting" for the terms of the Warrants issuable pursuant to
the Underwriters' Warrants.
The number of shares of Common Stock that may be purchased is subject to
adjustment upon the occurrence of certain events including a dividend
distribution to the Company's shareholders or a subdivision, combination or
reclassification of the outstanding Common Stock. Further, the Warrant exercise
price is subject to adjustment in the event the Company issues additional stock
or rights to acquire stock at a price per share that is less than the current
market price per share of Common Stock on the record date established for the
issuance of additional stock or rights to acquire stock. The term "current
market price" is defined as the average of the daily closing prices for the
twenty consecutive trading days ending three days prior to the record date.
However, the Warrant exercise price will not be adjusted in the case of the
issuance or exercise of options pursuant to the Company's stock option plans,
the issuance of the Underwriters' Warrants or any other options or warrants
outstanding as of the date of this Offering. The Warrant exercise price is also
subject to adjustment in the event of a consolidation or merger where a
distribution by the Company is made to its shareholders of the Company's assets
or evidences of indebtedness (other than cash or stock dividends) or pursuant to
certain subscription rights or other rights to acquire Common Stock. The
Warrants are also subject to price adjustment upon the occurrence of certain
events including subdivisions or combinations of the Common Stock.
The Company may at any time, and from time to time, extend the exercise
period of the Warrants, provided that written notice of such extension is given
to the Warrant holders prior to the expiration date then in effect. Also, the
Company may reduce the exercise price of the Warrants for limited periods or
through the end of the exercise period if deemed appropriate by the Board of
Directors of the Company, in addition to the adjustments to the exercise price
arising from certain events as discussed above. Any extension of the terms
and/or reduction of the exercise price of the Warrants will be subject to
compliance with Rule 13e-4 under the Exchange Act including the filing of a
Schedule 13E-4. Notice of any extension of the exercise period and/or reduction
of the exercise price will be given to the Warrant holders. The Company does not
presently contemplate any extension of the exercise period nor does it
contemplate any reduction in the exercise price of the Warrants.
The Warrants are to be issued pursuant to the terms and conditions of a
Warrant Agreement between the Company and American Stock Transfer & Trust
Company.
REGISTRATION RIGHTS
For a description of the registration rights contained in the Underwriters'
Warrants, see "Underwriting".
ANTI-TAKEOVER EFFECTS OF FLORIDA LAW, CHARTER PROVISIONS, UNISSUED STOCK
Florida has enacted legislation that may deter or frustrate takeovers of
Florida corporations. Certain provisions of Florida law, the Company's Amended
Articles and Bylaws, may deter or frustrate a takeover attempt of the Company
that a shareholder might consider in its best interest, including attempts that
might result in a premium over the market price for the shares held by
shareholders. The Company is subject to several anti-takeover provisions under
Florida law that apply to a public corporation organized under Florida law,
unless the corporation has elected to opt out of such provisions in its articles
or bylaws. The Company is subject to the "affiliated transactions" and
"control-share acquisition" provisions of the Florida Business Corporation Act
(the "FBCA"). These provisions require, subject to certain exceptions, that an
"affiliate transaction" be approved by the holders of two-thirds of the voting
shares other than those beneficially owned
39
<PAGE> 41
by an "interested shareholder" or by a majority of disinterested directors.
Additionally, voting rights are conferred on "control shares" acquired in
specified control share acquisitions generally only to the extent conferred by
resolution approval by the shareholders, excluding holders of shares defined as
"interested shares."
In addition, certain provisions of the Company's Amended Articles or Bylaws
provide that (i) commencing with the consummation of this offering, any action
required or permitted to be taken by the shareholders of the Company may be
effected only at an annual or special meeting of shareholders, and not by
written consent of the shareholders, (ii) any meeting of shareholders may be
called only by the Chairman of the Board, or upon the affirmative vote of at
least a majority of the members of the Board of Directors or upon the written
demand of the holders of not less than 50% of the votes entitled to be cast at a
special meeting, and (iii) an advance notice procedure must be followed for the
nomination of directors and for other shareholder proposals to be considered at
annual meetings of shareholders. In general, notice of intent to nominate a
director or to raise business at such meetings must be received by the Company
not less than 60 nor more than 90 days before the meeting, and must contain
certain information concerning the person to be nominated or the matters to be
brought before the meeting and concerning the shareholder submitting the
proposal. The affirmative vote of at least a majority of the directors or the
holders of at least 66 2/3% of the voting power of the Company's voting stock is
required to alter, amend or repeal, or adopt any provision inconsistent with,
the provisions described in this paragraph.
The directors of the Company are subject to the "general standards for
directors" provisions set forth in the FBCA. These provisions provide that in
discharging his or her duties and determining what is in the best interests of
the Company, a director may consider such factors as the director deems
relevant, including the long-term prospects and interests of the Company and its
shareholders and the social, economic, legal or other effects of any proposed
action on the employees, suppliers or customers of the Company, the community in
which the Company operates and the economy in general. Consequently, in
connection with any proposed action, the Board of Directors is empowered to
consider interests of other constituencies in addition to the Company's
shareholders, and directors who take into account these other factors may make
decisions which are less beneficial to some, or a majority, of the shareholders
than if the law did not permit consideration of such other factors. The Board of
Directors is divided into three classes, with the directors of each class to be
elected for staggered terms of three years and to serve until their successors
are duly elected and qualified or until their earlier resignation, death or
removal from office.
Advance Notice Requirements for Shareholder Proposals and Director
Nominations. The Company's Articles of Incorporation provide that shareholders
seeking to bring business before an annual meeting of shareholders, or to
nominate candidates for election as directors at an annual or special meeting of
shareholders, must provide timely notice thereof in writing. To be timely, a
shareholder's notice must be delivered to or mailed and received at the
principal executive offices of the Company not less than 120 days nor more than
180 days prior to the first anniversary of the date of the Company's notice of
annual meeting for the previous year's annual meeting. However, if no annual
meeting was held in the previous year or the date of the annual meeting has been
changed to be more than 30 calendar days earlier than the date contemplated by
the previous year's notice of annual meeting, such notice by the shareholder
must be delivered or received not later than the close of business on the fifty
day following the date on which notice of the date of the annual meeting is
given to shareholders or made public, whichever first occurs. The Company's
Amended Articles also specify certain requirements for a shareholder's notice to
be in proper written form. These provisions may preclude shareholders from
bringing matters before the shareholders at an annual or special meeting or from
making nominations for directors at an annual or special meeting.
Certain Effects of Authorized but Unissued Stock. Upon consummation of
this Offering, the Company will be authorized to issue additional Common Stock
and up to five million shares of preferred stock in one or more series, having
terms fixed by the Board of Directors without shareholder approval, including
voting, dividend or liquidation rights that could be greater than or senior to
the rights of holders of Common Stock. The existence of authorized but unissued
and unreserved shares of Common Stock and Preferred Stock may enable the Board
of Directors to issue shares of persons friendly to current management which
would render more difficult or discourage an attempt to obtain control of the
Company by means of proxy contest, tender
40
<PAGE> 42
offer, merger or otherwise, and thereby protect the continuity of the Company's
management. Issuance of shares of Common Stock or Preferred Stock could also be
used as an anti-takeover device. The Company has no current intentions or plans
to issue any such shares of Common Stock or Preferred Stock. See "Description of
Capital Stock."
TRANSFER AND WARRANT AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock and the warrant agent
for the Warrants is American Stock Transfer & Trust Company, 40 Wall Street, New
York, New York.
41
<PAGE> 43
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this Offering, the Company will have 3,560,000 shares
of Common Stock outstanding (3,649,139 shares, if the Underwriters'
over-allotment option is exercised in full), of which 1,200,000 shares offered
hereby (1,289,139 shares, if the underwriters' over-allotment option is
exercised in full) will be freely tradable without restriction or further
registration under the Securities Act. The remaining 2,269,139 shares are deemed
to be "restricted securities," as that term is defined under Rule 144, in that
such shares were issued and sold by the Company in private transactions not
involving a public offering and, as such, may only be sold pursuant to an
effective registration under the Securities Act, in compliance with the
exemption provisions of Rule 144 or pursuant to another exemption under the
Securities Act. The shareholders holding the 2,269,139 shares of restricted
Common Stock will be eligible to sell such shares under Rule 144 as of the date
of this Prospectus, subject to certain volume and other limitations. However,
those shareholders have agreed not to sell those shares for a period of one year
from the Effective Date, without the prior consent of the Representative. Sales
of such shares in the public market, or the availability of such shares for
sale, could adversely affect the market price for the Common Stock. The
Representative may, in its sole discretion and at any time without notice,
release all or any portion of the securities subject to the lock-up agreements.
\ In general, under Rule 144, subject to the satisfaction of certain other
conditions, a person, including an affiliate of the Company (or person whose
shares are aggregated with an affiliate), who has owned restricted shares of
Common Stock beneficially for at least one year is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of 1% of
the then outstanding shares of Common Stock (approximately 35,600 shares based
on the number of shares expected to be outstanding after this Offering exclusive
of the over-allotment) or, if the Common Stock is quoted on NASDAQ, the average
weekly trading volume during the four calendar weeks preceding the sale. Sales
under Rule 144 are also subject to certain requirements as to the manner and
notice of sale and the availability of public information concerning the
Company. A person who has not been an affiliate of the Company for at least
three months immediately preceding the sale and who has beneficially owned
shares of Common Stock for at least two years is entitled to sell such shares
under Rule 144 without regard to any of the limitations described above.
No prediction can be made as to the effect, if any, that public sales of
shares of Common Stock or the availability of such securities for sale will have
on the market prices of such securities prevailing from time to time.
Nevertheless, the possibility that substantial amounts of Common Stock may be
sold in the public market may adversely affect prevailing market prices for
these securities and could impair the Company's ability in the future to raise
additional capital through the sale of its equity securities.
42
<PAGE> 44
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to the Underwriters, severally and not jointly, and
the Underwriters have severally and not jointly agreed to purchase from the
Company, on a "firm commitment" basis, if any are purchased, the number of
Securities (exclusive of Securities issuable upon exercise of the underwriters'
over-allotment option) set forth opposite their respective names below:
<TABLE>
<CAPTION>
SHARES OF
UNDERWRITERS COMMON STOCK & WARRANTS
- ------------ -----------------------
<S> <C>
Nutmeg Securities, Ltd. ....................................
---------
Total............................................. 1,200,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Securities offered hereby are
subject to approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all shares
of Securities offered hereby (other than those covered by the over-allotment
option described below) if any such shares are purchased.
The Underwriters, for whom Nutmeg Securities, Ltd. is acting as
Representative (the "Representative"), propose to offer the Securities directly
to the public at the public offering price set forth on the cover page of this
Prospectus and may allow certain dealers who are National Association of
Securities Dealers, Inc. ("NASD") members to offer a part of the Securities at a
price which represents a concession not in excess of $ per share and
$ per Warrant. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share and $ per
Warrant to certain other dealers.
Prior to this Offering, there has not been any public market for the Common
Stock or the Warrants. The initial public offering prices of the shares of
Common Stock and the Warrants and the exercise price and other terms of the
Warrants were determined by negotiations between the Company and the
Representative and do not necessarily relate to the assets, book value or
results of operations of the Company or any other established criteria of value.
Certain Selling Shareholders and the Company have granted to the
Underwriters an option, exercisable for 45 days from the date of this
Prospectus, to purchase up to an aggregate of 180,000 additional shares of
Common Stock and 180,000 additional Warrants, at the public offering price set
forth on the cover page of this Prospectus, less the underwriting discounts and
commissions. The Representative may exercise such option solely for the purpose
of covering over-allotments, if any, in connection with the sale of the
Securities offered hereby. If the Underwriter's over-allotment option is
exercised, the Company shall be entitled to sell and receive the proceeds from
the first 89,139 shares of Common Stock sold.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriters against certain liabilities in connection with
the Registration Statement, including liabilities under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act may
be provided to officers, directors or persons controlling the Company, the
Company has been informed that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy and is therefore
unenforceable.
The Company has agreed to pay to the Underwriters at the closing of the
Offering a non-accountable expense allowance of 3% of the aggregate offering
price of the shares of Common Stock and Warrants offered hereby (including any
shares of Common Stock and Warrants purchased pursuant to the Underwriters'
over-allotment option), of which $27,500 was paid to a previous broker-dealer
and $25,000 to the present Representative.
Certain shareholders who will beneficially hold an aggregate of 2,360,000
shares of Common Stock (assuming the underwriters' warrant is not exercised)
following the close of the Offering, have agreed that for a twelve month period
following the date of this Prospectus, they will not, without the prior written
consent of the Representative offer, sell, contract to sell, or otherwise
dispose of any shares of Common Stock of the
43
<PAGE> 45
Company or any securities convertible into, or exercisable or exchangeable for
Common Stock of the Company.
The Company has agreed to sell to the Representative or its designees, for
$10.00, common stock purchase warrants (the "Underwriters' Warrants")
exercisable for 120,000 shares of Common Stock and 120,000 Warrants at a
purchase price of 150% of the initial public offering prices for these
Securities. The Underwriters' Warrants may not be sold, transferred, assigned or
hypothecated, except to officers and directors of the Underwriters, for a period
of six months after the Effective Date, and is exercisable for four years
commencing one year from the Effective Date (or until the close of business five
years after the Effective Date) (the "Exercise Term"). During the Exercise Term,
the holders of the Underwriters' Warrants are given, at nominal cost, the
opportunity to profit from a rise in the market price of the Company's Common
Stock. To the extent that the Underwriters' Warrants are exercised, dilution of
the interests of the Company's stockholders will occur. Further, the terms on
which the Company will be able to obtain additional equity capital may be
adversely affected since the holders of the Underwriters' Warrants can be
expected to exercise it any time when the Company would, in all likelihood, be
able to obtain any needed capital on terms more favorable to the Company than
those provided in the Underwriters' Warrants. Any profit realized by the
Underwriters on the sale of the shares of Common Stock underlying the
Underwriters' Warrants may be deemed additional underwriting compensation. The
Company has also agreed to pay the Representative a non-accountable expense
allowance equal to 3% of the gross proceeds from the sale of the Securities
offered hereby of which $52,500 has been prepaid by the Company.
The Underwriters have been given certain "piggyback" and demand
registration rights with respect to the Common Stock underlying the
Underwriters' Warrants for a period of four years commencing one year from the
date of this Prospectus (or until the close of business five years after the
Effective Date). The exercise of any of such registration rights by the
Underwriters may result in dilution to the interest of the Company's
shareholders, hinder efforts by the Company to arrange future financing of the
Company and/or have an adverse effect on the market price of the Securities.
In connection with this 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 Common Stock and
Warrants. Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M, pursuant to which such persons may bid
for or purchase Common Stock or Warrants for the purpose of stabilizing their
respective market prices. The Underwriters also may create a short position for
the account of the Underwriters by selling more shares of Common Stock or
Warrants in connection with the Offering than they are committed to purchase
from the Company, and in such case may purchase shares of Common Stock or
Warrants 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 it may
reclaim from an Underwriter (or dealer participating in the Offering) for the
account of other Underwriters, the selling concession with respect to shares of
Common Stock and Warrants 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 result in the maintenance of the
price of the Common Stock and Warrants 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 Company has agreed with the Representative that the Company will pay to
the Underwriters a warrant solicitation fee (the "Warrant Solicitation Fee")
equal to 3% of the exercise price of the Warrants which are exercised pursuant
to a solicitation of exercise of the warrants or in connection with a redemption
and to the extent not inconsistent with the guidelines of the NASD and the rules
and regulations of the Commission (including NASD Notice to Members 81-38). Such
Warrant Solicitation Fee will be paid to the Underwriters if (a) the market
price of the Common Stock on the date that any Warrant is exercised is greater
than the exercise price of the Warrant; (b) the exercise of such Warrant was
solicited by the Underwriters; (c) prior specific written approval for exercise
is received from the customer if the Warrant is
44
<PAGE> 46
held in a discretionary account: (d) disclosure of this compensation agreement
is made prior to or upon the exercise of such Warrant; (e) solicitation of the
exercise is not in violation of Regulation M of the Exchange Act; (f) the
Underwriters provided bona fide services in exchange for the Warrant
Solicitation Fee; and (g) the Underwriters have been specifically designated in
writing by the holders of the Warrants as the broker. Unless granted an
exemption by the Commission from Regulation M under the Exchange Act, the
Underwriters will be prohibited from engaging in any market making activities or
solicited brokerage activities with respect to the Securities for the period
from five business days prior to any solicitation by the Underwriters of the
exercise of any Warrant until the termination of such solicitation activity by
the Underwriters. The foregoing 5-day restriction period is reduced to one day
where the security has an average daily trading volume of $100,000 and the
public float for the issuer's equity securities is at least $25 million; and,
there is no restrictive period where the average daily trading volume of the
security is $1 million and the public float for the issuer's equity securities
is at least $150 million. As a result, the Underwriters may be unable to
continue to provide a market for the Securities during certain periods while the
Warrants are exercisable.
The Company has agreed that, for a period of five years following the
completion of this Offering, it will use its best efforts to cause the election
to its Board of Directors one designee of the Representative, provided that such
designee is reasonably acceptable to and approved by the Company.
The underwriting agreement provides for the retention of the Representative
for a period of 24 months at the rate of $3,000 per month to continue the
development of interest and sponsorship in the Common Stock of the Company.
The foregoing includes a summary of certain provisions of the Underwriting
Agreement which has been filed as an exhibit to the Registration Statement.
LEGAL MATTERS
The validity of the Securities being offered hereby will be passed upon for
the Company by Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A., Orlando,
Florida. Certain matters are being passed upon for the Underwriters by William
M. Prifti, Esq., Lynnfield, MA.
EXPERTS
The financial statements of the Company at December 31, 1996, and for each
of the two years in the period ended December 31, 1996, appearing in this
Prospectus and in the Registration Statement, have been audited by Grant
Thornton LLP, independent certified public accountants, as set forth in their
report thereon appearing elsewhere herein and in the Registration Statement, and
is included herein in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is not presently a reporting company and does not file reports
or other information with the SEC. Upon effectiveness of the Registration
Statement filed with the SEC in connection with this Offering, the Company will
become a reporting company. Further, the Company will register its securities
under the Exchange Act. Accordingly, upon effectiveness of its Exchange Act
registration, the Company will be subject to the additional report requirements
of the Exchange Act and in accordance therewith will file reports, proxy
statements and other information with the SEC. In addition, after the effective
date of this Offering, the Company intends to furnish its shareholders with
annual reports containing audited financial statements and interim reports, in
each case as it may determine to furnish or as may be required by law. The year
end of the Company is December 31 of each year.
The Company has filed with the Washington, D. C. Office of the SEC a
Registration Statement on Form SB-2 (with all amendments, exhibits and
schedules, thereto, the "Registration Statement") under the Securities Act of
which this Prospectus forms a part. This Prospectus does not contain all of the
information
45
<PAGE> 47
set forth in the Registration Statement, as permitted by the rules and
regulations of the SEC. For further information with respect to the Company and
the Securities offered hereby, reference is hereby made to such Registration
Statement. Statements contained in this Prospectus concerning the provisions or
contents of any contract or other document referred to herein 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.
Copies of the Registration Statement may be inspected without charge at the
SEC's principal office at 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549; and at the following Regional Offices of the Commission, except that
copies of the exhibits may not be available at certain of the Regional Offices:
Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661; and New York Regional Office, 7 World Trade Center, Suite 1300, New York,
New York 10048. Copies of all or any part of such material may be obtained from
the SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 upon
payment of certain fees prescribed by the SEC. The SEC maintains a worldwide web
site on the Internet at http://www.sec.gov that contains reports and other
information concerning the Company filed electronically with the SEC.
46
<PAGE> 48
AUTOMOTIVE ONE PARTS STORES, INC.
FINANCIAL STATEMENTS INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants.......... F-2
Balance Sheets as of December 31, 1996 and July 31, 1997
(unaudited)............................................... F-3
Statements of Operations for the years ended December 31,
1995 and 1996 and the seven months ended July 31, 1996 and
1997 (unaudited).......................................... F-4
Statement of Shareholders' Equity for the years ended
December 31, 1995 and 1996 and the seven months ended July
31, 1997 (unaudited)...................................... F-5
Statements of Cash Flows for the years ended December 31,
1995 and 1996 and the seven months ended July 31, 1996 and
1997 (unaudited).......................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 49
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Automotive One Parts Stores, Inc.
We have audited the accompanying balance sheet of Automotive One Parts
Stores, Inc. as of December 31, 1996, and the related statements of operations,
shareholders' equity, and cash flows for each of the two years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Automotive One Parts Stores,
Inc. as of December 31, 1996 and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred a net loss of $1,037,968 during the year ended December 31,
1996 and, as of that date, the Company had a working capital deficiency of
approximately $1,847,000. Management currently does not believe that the 1997
operations will be able to generate sufficient cash flow in order to satisfy
obligations maturing December 31, 1997 totaling approximately $5,331,000 at
December 31, 1996 and $5,644,000 at July 31, 1997. These factors, among others
as discussed in Note C to the financial statements, raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regards to these matters, including an initial public offering which is in
process, are also described in Note C. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
GRANT THORNTON LLP
Tampa, Florida
May 14, 1997, except for Note C
as to which the date is July 31, 1997
The foregoing auditor's report is in the form which will be signed upon
consummation of the transaction described in paragraph 2 of Note A to the
financial statements.
Grant Thornton LLP
Tampa, Florida
October 22, 1997
F-2
<PAGE> 50
AUTOMOTIVE ONE PARTS STORES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JULY 31,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................... $ 32,124 $ 55,140
Receivables
Trade accounts, less allowance for doubtful accounts of
$210,000............................................... 686,431 777,097
Note from vendor.......................................... 180,000 160,745
Employee and officer advances............................. 74,444 27,094
Inventories................................................. 5,575,768 5,477,991
Prepaid expenses............................................ 910 910
---------- -----------
Total current assets.............................. 6,549,677 6,498,977
PROPERTY AND EQUIPMENT, net................................. 2,490,246 2,416,431
PROPERTY HELD FOR SALE OR LEASE............................. 862,197 823,351
OTHER ASSETS................................................ 49,349 270,380
---------- -----------
Total assets...................................... $9,951,469 $10,009,139
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt........................ $5,501,621 $ 5,711,069
Checks written in excess of cash............................ 62,509 57,836
Accounts payable............................................ 2,356,045 1,826,375
Accrued expenses............................................ 267,557 387,645
Interest payable............................................ 209,139 567,087
---------- -----------
Total current liabilities......................... 8,396,871 8,550,012
LONG-TERM DEBT, less current portion........................ 1,174,621 1,205,258
COMMITMENTS AND CONTINGENCIES............................... -- --
SHAREHOLDERS' EQUITY
Preferred stock, $0.01 par value, 5,000,000 shares
authorized, none issued and outstanding................... -- --
Common stock, $0.01 par value, 20,000,000 shares authorized,
2,360,000 issued and outstanding.......................... 23,600 23,600
Additional paid-in capital.................................. 434,932 434,932
Accumulated deficit......................................... (78,555) (204,663)
---------- -----------
Total shareholders' equity........................ 379,977 253,869
---------- -----------
Total liabilities and shareholders' equity........ $9,951,469 $10,009,139
========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 51
AUTOMOTIVE ONE PARTS STORES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED
YEARS ENDED DECEMBER 31, JULY 31,
------------------------- -----------------------
1995 1996 1996 1997
----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales.................................. $11,691,338 $12,094,341 $7,127,056 $6,726,429
Cost of goods sold......................... 7,689,551 8,075,176 4,758,502 4,194,460
----------- ----------- ---------- ----------
Gross profit............................. 4,001,787 4,019,165 2,368,554 2,531,969
Selling, general and administrative
expenses................................. 3,986,570 4,463,849 2,584,768 2,428,981
----------- ----------- ---------- ----------
Earnings (loss) from operations.......... 15,217 (444,684) (216,214) 102,988
Other income (expense)
Gain on sale of property................. -- -- -- 185,707
Rental income............................ 165,245 191,804 111,808 98,685
Interest expense......................... (495,174) (785,088) (458,196) (444,774)
Offering costs........................... -- -- -- (68,714)
----------- ----------- ---------- ----------
Net loss......................... $ (314,712) $(1,037,968) $ (562,602) $ (126,108)
=========== =========== ========== ==========
Net loss per common share................ $ (0.13) $ (0.44) $ (0.24) $ (0.05)
=========== =========== ========== ==========
Weighted average common shares
outstanding........................... 2,360,000 2,360,000 2,360,000 2,360,000
=========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 52
AUTOMOTIVE ONE PARTS STORES, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS
COMMON PAID-IN (ACCUMULATED
STOCK CAPITAL DEFICIT) TOTAL
------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1995..................... $23,600 $238,406 $ 1,274,125 $ 1,536,131
Contributed capital -- contribution of
inventory.................................... -- 196,526 -- 196,526
Net loss....................................... -- -- (314,712) (314,712)
------- -------- ----------- -----------
Balance at December 31, 1995................... 23,600 434,932 959,413 1,417,945
Net loss....................................... -- -- (1,037,968) (1,037,968)
------- -------- ----------- -----------
Balance at December 31, 1996................... 23,600 434,932 (78,555) 379,977
Net loss (unaudited)........................... -- -- (126,108) (126,108)
------- -------- ----------- -----------
Balance at July 31, 1997 (unaudited)........... $23,600 $434,932 $ (204,663) $ (253,869)
======= ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE> 53
AUTOMOTIVE ONE PARTS STORES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED
YEARS ENDED DECEMBER 31, JULY 31,
------------------------- ---------------------
1995 1996 1996 1997
----------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Increase (decrease) in cash
Cash flows from operating activities:
Net earnings (loss)....................... $ (314,712) $(1,037,968) $(562,602) $(126,108)
Adjustments to reconcile net earnings
(loss) to net cash provided by (used
in) operating activities:
Gain on sale of property............... -- -- -- (185,707)
Depreciation and amortization.......... 173,318 181,410 105,113 107,777
Interest expense added to principal.... -- 231,684 -- --
Changes in assets and liabilities:
Trade accounts receivable............ (118,047) 25,762 (18,339) (90,666)
Employee and officer advances
receivable........................ (22,483) (51,961) (5,601) 47,350
Inventories.......................... (1,275,368) (646,563) (8,422) 97,777
Prepaid expenses and other assets.... (33,710) 14,490 (10,845) (201,776)
Accounts payable..................... (1,887,386) 1,339,526 317,532 (529,670)
Accrued expenses..................... (274,002) 102,547 87,528 120,088
Interest payable..................... (10,668) 161,885 238,155 357,948
----------- ----------- --------- ---------
Net cash provided by (used in)
operating activities............ (3,763,058) 320,812 142,519 (402,987)
----------- ----------- --------- ---------
Cash flows from investing activities
Acquisition of property and equipment..... (198,264) (248,186) (160,874) (37,558)
Proceeds from sale of property and
equipment.............................. -- -- -- 228,150
----------- ----------- --------- ---------
Net cash provided by (used in) investing
activities............................. (198,264) (248,186) (160,874) 190,592
----------- ----------- --------- ---------
Cash flows from financing activities:
Net change in checks written in excess of
cash................................... 106,375 (43,866) 24,140 (4,673)
Proceeds from long-term debt.............. 5,662,992 368,377 247,316 475,172
Repayments of long-term debt.............. (1,922,943) (411,047) (272,182) (235,088)
----------- ----------- --------- ---------
Net cash provided by (used in)
financing activities............ 3,846,424 (86,536) (726) 235,411
----------- ----------- --------- ---------
Net increase (decrease) in cash............. (114,898) (13,910) (19,081) 23,016
Cash, beginning of year..................... 160,932 46,034 46,034 32,124
----------- ----------- --------- ---------
Cash, end of year........................... $ 46,034 $ 32,124 $ 26,953 $ 55,140
=========== =========== ========= =========
Supplemental cash flow information:
Cash paid for interest.................... $ 505,842 $ 391,519 $ 220,041 $ 43,835
=========== =========== ========= =========
</TABLE>
Non-cash financing activities:
During 1996, approximately $232,000 of interest payable was added to the
principal of the note payable.
During 1995, approximately $197,000 of inventory was contributed by a
related party to the Company.
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 54
AUTOMOTIVE ONE PARTS STORES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A -- DESCRIPTION OF ORGANIZATION AND BUSINESS
BUSINESS
Automotive One Parts Stores, Inc. (the "Company") was incorporated in
Florida in November 1978. The Company is a specialty supplier and retailer of
automotive replacement parts, tools, supplies, equipment and accessories to both
professional installers and, do-it-yourself customers throughout the Central
Florida area.
In connection with the planned initial public offering, the Board of
Directors plans to increase the Company's Common Stock authorized from 100
shares of $1.00 par value to 20,000,000 shares of $0.01 par value Common Stock.
The Company's increase in the issued and outstanding Common Stock will be
effected through a stock split whereby each share of common stock will be
exchanged for 23,600 shares of new Common Stock. All share and per share data
presented herein have been retroactively restated for all periods in
contemplation of this planned transaction.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN FINANCIAL STATEMENTS
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. There were no cash
equivalents at December 31, 1996 or July 31, 1997.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is principally
determined by the first-in, first-out (FIFO) method.
The Company periodically evaluates its inventory for obsolescence and
expenses any inventory considered obsolete.
PROPERTY AND EQUIPMENT, NET
Property and equipment are recorded at cost less accumulated depreciation
and amortization. Depreciation and amortization are provided for using the
straight-line or declining balance methods over the estimated service lives of
the assets. Accelerated methods are used for tax purposes.
Property held for sale is stated at the lower of cost or estimated net
realizable value and includes certain property no longer used in the Company's
operations.
Expenditures for additions, major renewals or betterments are capitalized
and expenditures for repairs and maintenance are charged to earnings as
incurred.
DEFERRED OFFERING COSTS
Deferred offering costs, which are included in other assets at December 31,
1996 and July 31, 1997, amounted to approximately $31,000 and $252,000,
respectively. These costs consist of legal and accounting fees and other direct
costs attributable to the Company's current planned initial public offering.
These costs are being deferred until the proceeds from the offering have been
received, at which time they will be charged
F-7
<PAGE> 55
AUTOMOTIVE ONE PARTS STORES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
against the gross proceeds. Offering costs totalling approximately $68,000 were
charged to expense as a result of a delay in the offering. If the offering is
not successful, the remaining costs will be charged to earnings.
ADVERTISING
The Company expenses its share of all advertising costs as such costs are
incurred. The portion of advertising expenditures which are to be recovered from
vendors and other cooperative programs are recorded as receivables. The Company
does not defer any portion of its share of advertising costs. During the years
ended December 31, 1995 and 1996 and the seven months ended July 31, 1996 and
1997, the Company incurred advertising costs of approximately $73,000 and
$76,000, $38,000 and $23,000, respectively.
INCOME TAXES
The Company is taxed as an S Corporation under the provisions of the
Internal Revenue Code. As such, the Company's taxable income is includable in
the individual income tax returns of its stockholders for federal and state
income tax purposes. Accordingly, no provisions for federal and state income
taxes have been recorded in the accompanying historical financial statements.
In conjunction with the completion of the initial public offering, the
Company will terminate its S Corporation election and become subject to
corporate income taxes from that date forward (See Note I).
CONCENTRATION OF RISK
The Company grants credit to customers who meet pre-established credit
requirements. The Company does not require collateral when trade credit is
granted to customers. Credit losses are provided for in the financial statements
and have consistently been within management's expectations.
Currently, the Company purchases most of its inventory from one vendor. A
sufficient number of other suppliers and/or manufacturers could supply the same
inventory. A disruption of this vendor relationship, or a material reduction in
any of the terms of purchase, advertising, incentive or other programs, would
likely materially, adversely affect the Company's business.
IMPAIRMENT OF LONG-LIVED ASSETS
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed Of ("SFAS"). Under SFAS No. 121, impairment
losses on long-lived assets are recognized when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amounts. The impairment loss is equal
to the difference between the carrying amount of the long-lived asset and the
estimated fair value of such asset. SFAS No. 121 also addresses the accounting
for long-lived assets that are expected to be disposed of. The adoption of SFAS
No. 121 by the Company did not result in an impairment loss. The Company did not
incur an impairment loss during the year ended December 31, 1996 and the seven
months ended July 31, 1997.
STOCK BASED COMPENSATION
Effective January 1, 1996 the Company adopted SFAS No. 123, Accounting for
Stock Based Compensation. As it relates to stock options granted to employees,
SFAS No. 123 permits companies who have not done so already to, either adopt the
accounting method promulgated by Accounting Principles Board Opinion No. 25 (APB
No. 25), Accounting for Stock Issued to Employees to measure compensation, or to
adopt the fair value base method prescribed by SFAS No. 123. If APB No. 25's
method is followed, pro forma disclosures are required as if SFAS No. 123
accounting recognition method was adopted. SFAS No. 123 pertains to stock
options granted after December 31, 1995. Management has determined not to adopt
SFAS No. 123's accounting recognition provisions related to stock options
granted to employees and accordingly, will continue following APB No. 25's
accounting provisions. All other provisions of SFAS No. 123 have been
F-8
<PAGE> 56
AUTOMOTIVE ONE PARTS STORES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
implemented effective January 1, 1996. The implementation of SFAS No. 123 did
not have an effect on the Company's financial statements.
UNAUDITED FINANCIAL STATEMENTS
The unaudited financial statements and related notes thereto for July 31,
1996 and 1997 include all normal and recurring adjustments which in the opinion
of management are necessary for a fair presentation and are prepared on the same
basis as the audited annual statements. The interim results are not necessarily
indicative of the results that may be expected for the full year.
NEW ACCOUNTING PRONOUNCEMENT
SFAS No. 128, Earnings Per Share and SFAS No. 129, Disclosure of
Information about Capital Structure, will be effective for the Company's
financial statements issued after December 15, 1997. Early adoption of the new
standards is not permitted. SFAS 128 eliminates primary and fully diluted
earnings per share and requires presentation of basic and diluted earnings per
share together with disclosure of how the per share amounts were computed. SFAS
No. 129 requires disclosing information about an entity's capital structure. The
adoption of these new standards is not expected to have a material impact on the
disclosure of earnings per share in the financial statements.
SFAS No. 130, Reporting Comprehensive Income, is effective for fiscal years
beginning after December 15, 1997. This Statement establishes standards for the
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. The new rule requires that the Company
(a) classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in-capital in the equity
section of the balance sheet. The Company plans to adopt SFAS No. 130 in 1998
and expects no material impact to the Company's financial statement
presentation.
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, is effective for fiscal years beginning after December 15, 1997.
This Statement supersedes SFAS No. 14, Financial Reporting for Segments of a
Business Enterprise, and amends SFAS No. 94, Consolidation of All Majority-Owned
Subsidiaries. This Statement requires annual financial statements to disclose
information about products and services, geographic areas and major customers
based on a management approach, along with interim reports. The management
approach requires disclosing financial and descriptive information about an
enterprise's reportable operating segments based on reporting information the
way management organizes the segments for making business decisions and
assessing performance. It also eliminates the requirement to disclose additional
information about subsidiaries that were not consolidated. The Company plans to
adopt SFAS No. 131 in 1998 with impact only to the Company's disclosure
information and not its results of operations.
NOTE C -- REALIZATION OF ASSETS
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of the
Company as a going concern. Continuation of the Company as a going concern
contemplates the realization of assets and settlement of liabilities and
commitments in the normal course of business. However, the Company had a net
loss of $1,037,968 and $31,037 for the year ended December 31, 1996 and the
seven months ended July 31, 1997, respectively and a working capital deficiency
of $1,847,194 and $2,051,035 at December 31,1996 and July 31, 1997,
respectively. In addition, the Company was in default under the terms of its
indebtedness to APS, Inc. ("APS") and Autoparts Finance Company, Inc. ("AFCO"),
an affiliate of APS, at December 31, 1996. In February 1997, the Company entered
into a Loan Modification Agreement with APS and AFCO whereby the maturity date
on such indebtedness was extended to not later than July 31, 1997, (See Note E).
On July 31, 1997, the Loan
F-9
<PAGE> 57
AUTOMOTIVE ONE PARTS STORES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Modification Agreement was amended to extend the maturity date to December 31,
1997. The Company is not currently able to generate sufficient cash flows from
its existing operations to repay the amounts due to APS and AFCO by the maturity
date of such indebtedness. These factors, among others, raise substantial doubt
about the ability of the Company to continue as a going concern.
Management recognizes that the Company must generate additional financial
resources and reduce operating costs to continue its operations as follows:
- The Company is in the process of obtaining a line of credit and
completing an initial public offering of its Common Stock in order to
generate sufficient proceeds to repay APS and AFCO and to finance the
acquisition of additional auto parts stores.
- The Company is evaluating its current network of store locations in
order to determine the most advantageous number and location of its
stores in order to effectively and efficiently serve the central
Florida market, its primary service area. To date the Company has
identified four existing stores that can be merged into two store
locations.
- The Company has begun to institute certain cost containment measures
in order to reduce its current level of selling, general and
administrative expenses. Management cannot presently determine the
financial impact of these cost containment measures, however, it
believes such cost containment measures will not have an impact on the
services provided to its customers.
If the Company is not successful in completing its planned initial public
offering and is unable to obtain alternative financing in order to repay APS and
AFCO, APS and AFCO could foreclose on substantially all the assets of the
Company.
In view of the matters described in the preceding paragraphs,
recoverability of a substantial portion of the recorded asset amounts shown in
the accompanying balance sheet is dependent upon continued operations of the
Company, which in turn is dependent upon the Company's ability to generate
sufficient proceeds from its planned initial public offering to repay its
obligations to APS and AFCO, and to succeed in its future operations. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset and liability amounts that
might be necessary should the Company be unable to continue in existence.
NOTE D -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, LIFE JULY 31,
1996 (YEARS) 1997
------------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Land................................................ $ 1,026,177 $1,026,177
Buildings........................................... 2,055,859 40 2,055,859
Vehicles............................................ 1,067,303 3-5 1,068,893
Equipment........................................... 825,535 5 825,535
Computer equipment.................................. 243,291 2 257,011
Furniture and fixtures.............................. 39,151 5-7 39,151
------------ ----------
5,257,316 5,272,626
Less: accumulated depreciation and amortization..... 2,767,070 2,856,195
------------ ----------
$ 2,490,246 $2,416,431
============ ==========
</TABLE>
F-10
<PAGE> 58
AUTOMOTIVE ONE PARTS STORES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E -- LONG-TERM DEBT
Long-term debt consists of the following:
MORTGAGE LOANS
<TABLE>
<CAPTION>
DECEMBER 31, JULY 31,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Various notes payable; maturing between December 1997 and
March 2010, varying interest rates ranging from 7% to 12.95%
per annum, due in monthly installments of $19,461 including
interest; collateralized by real property................... $ 1,129,418 $1,065,182
Adjustable rate note payable to AFCO, interest at the prime
rate plus 2% per annum (10.25% at December 31, 1996)
principal and interest due and payable not later than July
31, 1997; collateralized by real property, inventory,
equipment, and all other assets of the Company.............. 2,465,467 2,465,467
Note payable to APS; 10% interest per annum, principal and
interest due and payable not later than July 31, 1997;
collateralized by real property, inventory, equipment, and
all other assets of the Company............................. 2,666,679 2,666,679
VEHICLE LOANS
7.25% to 11% notes payable to banks; due in monthly
installments of $5,436 including interest through October
1999; collateralized by vehicles............................ 112,859 67,642
INVENTORY LOANS
9% note payable to a vendor; payable in monthly installments
of $5,612, including interest through February 1, 1998;
collateralized by inventory................................. 74,322 43,342
UNSECURED LOANS
7.50% unsecured demand note payable to an individual; due in
monthly installments of $500 plus accrued interest, through
August 2002................................................. 34,000 30,625
10% to 12% unsecured demand notes payable to individuals;
principal due on demand with quarterly payments of accrued
interest.................................................... 126,497 143,197
RELATED PARTY LOANS
Unsecured note payable to the principal shareholder; 8%
interest per annum, principal and interest is due and
payable at February 12, 2000................................ -- 357,446
12% unsecured demand note payable to an individual; with
interest in the amount of $650 due in monthly
installments................................................ 65,000 65,000
Non-interest bearing demand notes payable to an officers and
directors................................................... 2,000 11,747
------------ ----------
Total long-term debt.............................. 6,676,242 6,916,327
Less current portion.............................. 5,501,621 5,711,069
------------ ----------
$ 1,174,621 $1,205,258
============ ==========
</TABLE>
F-11
<PAGE> 59
AUTOMOTIVE ONE PARTS STORES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate maturities of long-term obligations are as follows for the years
ending December 31,
<TABLE>
<S> <C>
1997........................................................ $5,501,621
1998........................................................ 148,343
1999........................................................ 112,597
2000........................................................ 108,000
2001........................................................ 118,509
Thereafter.................................................. 687,172
----------
$6,676,242
==========
</TABLE>
The note payable to APS ("APS Note") matured on October 24, 1996 and had
not been repaid by the Company as of December 31, 1996. In addition, the Company
ceased making scheduled payments on the adjustable rate note due to AFCO ("AFCO
Note") during the year ended December 31, 1996. As a result of these conditions,
the Company was in default of these obligations along with its trade accounts
payable balance due to APS of approximately $1,333,000 at December 31, 1996. As
a result of the default on its indebtedness to APS and AFCO, the Company
incurred an additional default interest charge on such indebtedness totaling
approximately $113,000 at December 31, 1996.
On February 20, 1997, the Company entered into a Loan Modification
Agreement with APS and AFCO. Under the terms of this agreement, the APS Note and
AFCO Note will continue to accrue interest at their specific contractual
interest rates, however, no payments of principal and interest will be required
until the maturity date. The maturity date is the earlier of the date the
Company receives proceeds from its planned initial public offering of shares of
its Common Stock, or July 31, 1997. On July 31, 1997 the Loan Modification
Agreement was amended to extend the maturity date to December 31, 1997. In
addition, from the date of the Loan Modification Agreement and the maturity
date, the Company is required to pay APS before the close of business on Monday
of each week an amount equal to the preceding week's purchases of merchandise
from APS.
The Company's compliance with the financial covenants under the terms of
the original loan agreements with APS and AFCO were waived under the terms of
the Loan Modification Agreement. The Loan Modification Agreement contains
certain financial and other covenants that, among other things, require the
Company to: 1) make timely payments to APS for its merchandise purchases; 2)
file a Registration Statement with the Securities and Exchange Commission in
connection with the Company's planned initial public offering by May 31, 1997
and 3) complete its planned initial public offering by July 31, 1997. On July
31, 1997 the Loan Modification Agreement was amended to extend the maturity date
to December 31, 1997. Failure to comply with the covenants included in the Loan
Modification Agreement would cause the Company to be in default under the terms
of such agreement. Should such default occur APS and AFCO could foreclose on the
Company's assets collateralizing the APS Note and AFCO Note. As long as the
Company complies with the terms of the Loan Modification Agreement and repays by
the maturity date, the outstanding principal and accrued and unpaid interest
amounts due under the APS Note and AFCO Note, along with certain amounts due APS
for merchandise purchases, the default interest charge due to APS and AFCO will
be waived. As of October 15, 1997, the Company was in compliance with the terms
of the Loan Modification Agreement. The APS Note and AFCO Note balances are
included in the current portion of long-term debt as of December 31, 1996 and
July 31, 1997.
Management believes that APS and AFCO will not require repayment in full of
the Company's outstanding indebtedness, including any accrued and unpaid
interest, on December 31, 1997, as long as the Company continues to proceed with
its planned initial public offering and is in compliance with the remainder of
the covenants included in the Loan Modification Agreement dated February 20,
1997 and remains in compliance with such other covenants until the initial
public offering is completed. However, no assurances can be given that APS and
AFCO will not require repayment of such indebtedness on December 31, 1997.
F-12
<PAGE> 60
AUTOMOTIVE ONE PARTS STORES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- SHAREHOLDERS' EQUITY
PREFERRED STOCK
The Board of Directors is authorized, without further shareholder action,
to divide any or all shares of the authorized Preferred Stock into series and to
fix and determine the designation, preferences, privileges, options or other
special rights, and qualifications, limitations, or restrictions thereon, of any
series so established, including voting powers, dividend rights, liquidation
preferences, redemption rights, and conversion privileges. In May 1997, the
Board has authorized 5,000,000 shares of $0.01 par value preferred stock. No
shares of Preferred Stock have been issued and there are no plans, agreements or
understandings for the issuance of any shares of Preferred Stock.
COMMON STOCK
In connection with its planned public offering, the Company plans to effect
a stock split (See Note A).
STOCK OPTION PLAN
In May 1997, the Company established a 1997 Employee Stock Option Plan (the
"Plan") under which 500,000 shares of Common Stock have been reserved for
issuance upon exercise of stock options. The Plan is designed to serve as an
incentive for retaining qualified and competent employees. The Company's Board
of Directors, or a committee thereof (the "Committee"), will administer and
interpret the Plan and will be authorized to grant options thereunder to all
eligible employees of the Company, including officers and directors (whether or
not employees) of the Company and consultants.
The Plan provides for the granting of both incentive stock options and
non-qualified stock options. Options will be granted under the Plan on such
terms and at such prices as determined by the Committee, except that the per
share exercise price of incentive stock options cannot be less than the fair
market value of the Common Stock on the date of grant and the per share exercise
price of non-qualified stock options will not be less than par value on the date
of grant. Each option will be exercisable after the period or periods specified
in the option agreement, but no option can be exercised until six months after
the date of grant or after the expiration of 10 years from the date of grant.
Options granted under the Plan will not be transferable other than by will or by
the laws of descent and distribution.
The Plan contains anti-dilution provisions authorizing appropriate
adjustments in certain circumstances. Shares of Common Stock subject to options
which expire without being exercised or which are canceled as a result of
cessation of employment are available for further grants. The Company has not
granted a non-qualified option to purchase 30,000 shares of Common Stock under
the Plan to its Vice President of Corporate Development and Investor Relations.
NOTE G -- COMMITMENTS AND CONTINGENCIES
PURCHASE COMMITMENTS
In 1995, the Company entered into a product purchase agreement with APS, a
national distributor of replacement auto parts. Under the terms of this
agreement, the Company agreed, for a fifteen-year period commencing on January
1, 1995, to purchase 75% of the resale merchandise inventory from APS, less
certain exceptions and not perform a bulk transfer of assets nor transfer its
leasehold interests in properties where it conducts business without giving APS
a 45-day written notice and giving APS the right of first refusal. In February
1997, in connection with the modification of the Company's loan agreements (see
Note E) with APS and AFCO in February 1997; the Company and APS amended the
product purchase agreement. Under the terms of this amended agreement, the term
of the agreement was reduced from fifteen years to five years. In addition, the
period required to provide APS with written notice of the Company's intent to
bulk transfer its
F-13
<PAGE> 61
AUTOMOTIVE ONE PARTS STORES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
assets and/or transfer its leasehold interests was reduced from 45 days to 20
days. Purchases under the agreement with APS aggregated approximately $4.5
million in both 1995 and 1996.
The Company has a $180,000 agreement with APS for the reimbursement of
costs incurred by the Company to refurbish certain of its store locations. Such
costs were incurred by the Company in connection with the execution of the
product purchase agreement with APS. At July 31, 1997 the Company had a
receivable of $160,745 in connection with this agreement.
LEASES
The Company leases two of its stores under month-to-month leases. All other
facilities are owned by the Company. The Company also leases an insignificant
amount of equipment.
LITIGATION
The Company has instituted a lawsuit (the "Lawsuit") against The Parts
Source, Inc. d/b/a Ace Auto Parts, a prior aborted suitor and certain former
employees of the Company for certain tortious acts alleged to have caused damage
to the Company estimated at approximately $1.5 million dollars. The Company is
also seeking an injunction against the defendants in its Lawsuit. The Lawsuit,
currently in the pleading and discovery stage of the case, was filed on March
20, 1997, in the Circuit Court in and for Orange County, Florida. In the opinion
of management, the ultimate outcome of this Lawsuit should not have a material
adverse impact on the Company's financial position, results of operations or
liquidity.
NOTE H -- RELATED PARTY TRANSACTIONS
The Company makes advances to and borrows money from officers, shareholders
and family members from time to time. As discussed in Note E above, the Company
owed $67,000 and $77,472 to these individuals at December 31, 1996 and July 31,
1997, respectively. In addition, these individuals owed the Company $70,384 and
$24,134 at December 31, 1996 and July 31, 1997, respectively.
During the year ended December 31, 1995 the son of the principal
shareholder of the Company contributed inventory to the Company that had a
carrying value (cost) to the son of $196,526, which also approximated the fair
value of such inventory.
Subsequent to December 31, 1996, the principal shareholder of the Company
loaned $446,000 to the Company for operations. The loan plus out-of-pocket costs
and interest payments made by such individual are to be repaid from the proceeds
of the Company's planned initial public offering.
At December 31, 1996 and July 31, 1997, respectively the company had
outstanding indebtedness to a director candidate of $95,000 and $105,000 at an
interest rate of 10.0% per annum. The Company plans to repay such indebtedness,
including any accrued and unpaid interest from the proceeds of the Company's
planned initial public offering.
NOTE I -- PRO FORMA INFORMATION
PRO FORMA INCOME TAXES
In conjunction with the completion of its planned initial public offering,
the Company will terminate its S Corporation election and become subject to
corporate income taxes from that date forward.
The statements of operations for all periods presented reflect the pro
forma effect on income taxes (benefits) as if the Company's losses had been
subjected to federal and state income taxes as a C Corporation.
F-14
<PAGE> 62
AUTOMOTIVE ONE PARTS STORES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In the determination whether to recognize any tax benefits from the
Company's operating losses on a pro forma basis, management considered the
Company's history of net operating losses. During the two years ended December
31, 1996, the Company incurred a cumulative net loss of approximately $1.3
million. Management believes using the more likely than not criteria established
by SFAS No. 109, Accounting for Income Taxes, that no tax benefits should be
recognized for any reported period.
Reconciliation of the federal statutory income tax rate of 34% to the
effective income tax rate reflected herein is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEVEN MONTHS
DECEMBER 31, ENDED MAY 31,
------------- -------------
1995 1996 1996 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Federal income tax (benefit) at statutory rates........ (34.0)% (34.0)% (34.0)% (34.0)%
State income taxes, net of Federal benefit............. (3.3) (3.3) (3.3) (3.3)
Net operating losses, not currently utilizable......... 37.3 37.3 37.3 --
Utilization of net operating loss carryforwards........ -- -- -- (37.3)
----- ----- ----- -----
Income tax expense..................................... --% --% --% --%
===== ===== ===== =====
</TABLE>
Since the Company's cumulative net operating losses have passed directly to
its S Corporation shareholders, the losses will not be available to the Company
upon conversion to C Corporation status.
At December 31, 1995 and 1996 and July 31, 1996 and 1997, there were
differences between the bases for the Company's assets and liabilities as
reported for income tax return purposes and as reported for financial statement
purposes. The aggregate bases difference at these dates are not material to the
Company (principally accrued vacation, depreciation and inventory).
NOTE J -- NET LOSS PER COMMON SHARE
Net loss per share is computed by dividing net loss by the weighted average
number of shares of common stock outstanding during the period (see Note A). Pro
forma net loss is the same as historical net loss because no pro forma provision
for income taxes is required as a result of the historical net losses for all
years presented, assuming the Company had been subject to income taxes during
the period it was an S Corporation for income tax purposes. Net loss per share
does not include the assumed exercise of these warrant since the inclusion would
have been anti-dilutive.
The Company is contemplating an initial public offering of which
approximately $3.0 million of the total proceeds therefrom will be used to pay
down or retire debt. The supplementary pro forma net income (loss) per common
share for 1996 and the seven months ended July 31, 1997 as if this debt was
retired at the beginning of the respective periods, would be $(0.25) and $0.03 a
share respectively (assuming 2,922,978 and 2,940,806 weighted average common
shares outstanding).
NOTE K -- FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 1996 and July 31, 1997, the carrying amount of cash,
accounts receivable, accounts payable and accrued expenses approximate fair
value because of the short-term maturities of these items.
The carrying amounts of current and long-term portions of debt approximate
fair market value since the interest rates on these instruments generally
approximate market interest rates.
F-15
<PAGE> 63
(FOUR PHOTOGRAPHS OF COMPANY WAREHOUSE,
MACHINE SHOP, AND STORES WITH COMPANY LOGO
IN CENTER OF PAGE.)
<PAGE> 64
======================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, OR ANY UNDERWRITER OR BROKER/DEALER. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY BY ANY PERSON
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 IN SUCH
JURISDICTION.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.................... 3
RISK FACTORS.......................... 8
USE OF PROCEEDS....................... 14
DILUTION.............................. 15
CAPITALIZATION........................ 16
DIVIDEND POLICY....................... 16
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 17
INDUSTRY OVERVIEW..................... 22
BUSINESS.............................. 24
MANAGEMENT............................ 32
PRINCIPAL AND SELLING SHAREHOLDERS.... 36
CERTAIN TRANSACTIONS.................. 37
DESCRIPTION OF SECURITIES............. 38
SHARES ELIGIBLE FOR FUTURE SALE....... 42
UNDERWRITING.......................... 43
LEGAL MATTERS......................... 45
EXPERTS............................... 45
AVAILABLE INFORMATION................. 45
FINANCIAL STATEMENTS INDEX............ F-1
</TABLE>
------------------
UNTIL 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS 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.
======================================================
======================================================
1,200,000 SHARES
OF COMMON STOCK
AND
1,200,000 REDEEMABLE
COMMON STOCK
PURCHASE WARRANTS
AUTOMOTIVE ONE LOGO
AUTOMOTIVE ONE PARTS
STORES, INC.
-------------------------
PROSPECTUS
-------------------------
NUTMEG SECURITIES, LTD.
495 POST ROAD EAST
WESTPORT, CT 06880
(203) 226-1857
, 1997
======================================================
<PAGE> 65
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant has authority under the Florida Business Corporation Act to
indemnify its directors and officers to the extent provided in such statute. The
Registrant's Articles of Incorporation provide that the Registrant shall
indemnify its executive officers and directors to the fullest extent permitted
by law either now or hereafter. The Registrant is also entering into an
agreement with each of its directors and certain of its officers wherein it is
agreeing to indemnify each of them to the fullest extent permitted by law. In
general, Florida law permits a Florida corporation to indemnify its directors,
officers, employees and agents, and persons serving at the corporation's request
in such capacities for another enterprise against liabilities arising from
conduct that such persons reasonably believed to be in, or not opposed to, the
best interest of the corporation and, with respect to any criminal action or
proceeding, had not reasonable cause to believe their conduct was unlawful.
The provisions of the Florida Business Corporation Act that authorize
indemnification do not eliminate the duty of care of a director and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of nonmonetary relief will remain available under Florida law. In addition, each
director will continue to be subject to liability for (a) violations of the
criminal law, unless the director had reasonable cause to believe his conduct
was lawful or had no reasonable cause to believe his conduct was unlawful, (b)
deriving an improper personal benefit from a transaction, (c) voting for or
assenting to an unlawful distribution, and (d) willful misconduct or a conscious
disregard for the best interests of the Registrant in a proceeding by or in the
right of the Registrant to procure a judgment in its favor or in a proceeding by
or in the right of a shareholder. The statute does not affect a director's
responsibilities under any other law, such as the Federal securities laws or
state or Federal environmental laws.
At present, there is no pending litigation or proceeding involving a
director or officer of the Registrant as to which indemnification is being
sought from the Registrant, nor is the Registrant aware of any threatened
litigation that may result in claims for indemnification from the Registrant by
any officer or director.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Registration fee............................................ $ 9,582
National Association of Securities Dealers, Inc............. 2,535
NASDAQ listing fee.......................................... 10,000*
Boston Stock Exchange Listing Fee........................... 15,000*
Printing and engraving expenses............................. 65,000*
Accounting fees and expenses................................ 50,000*
Legal fees and expenses..................................... 150,000*
Blue sky fees and expenses.................................. 25,000*
Transfer agent and registrar fees........................... 7,500*
Underwriters' non-accountable expense allowance (assuming no
exercise of over-allotment option)........................ 220,500
Miscellaneous............................................... 883*
--------
Total............................................. $556,000
========
</TABLE>
- ---------------
* Estimated expenses.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
None.
II-1
<PAGE> 66
ITEM 27. EXHIBITS
The following exhibits are filed as part of this registration statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
1.1 Form of Underwriting Agreement
1.2 Agreement Among Underwriters
1.3 Selected Dealer Agreement
3.1 Form of Amended and Restated Articles of Incorporation**
3.2 Form of Amended and Restated ByLaws(1)
4.1 Form of Underwriters' Warrant Agreement
4.2 Specimen of Common Stock Certificate*
4.3 Specimen of Redeemable Common Stock Purchase Warrant*
4.4 Form of Warrant Agreement between the Company and American
Stock Transfer & Trust Company*
5 Opinion of Greenberg Traurig Hoffman Lipoff Rosen & Quentel,
P. A., Counsel for the Company*
10.1 1997 Stock Option Plan**
10.2 Promissory Note in the principal amount of $2,450,000 in
favor of A. P. S., Inc.**
10.3 Promissory Note in the principal amount of $2,500,000 in
favor of Autoparts Finance Company, Inc.**
10.4 Loan Agreement between the Company, Autoparts Finance
Company, Inc., and A.P.S., Inc.**
10.4.1 Loan Modification Agreement between the Company, A.P.S.,
Inc., and Autoparts Finance Company, Inc.**
10.4.2 Second Amendment to Loan Agreement between the Company,
A.P.S., Inc., and Autoparts Finance Company, effective July
31, 1997.
10.5 Amended and Restated Guaranty Agreement between Robert H.
Gentry, III and Janice Sue Gentry, his wife, A.P.S., Inc.
and Autoparts Finance Company, Inc.**
10.6 Product Purchase Agreement, between A.P.S., Inc. and the
Company.**
10.6.1 First Amendment to Product Purchase Agreement dated February
20, 1997 between A.P.S., Inc. and the Company.**
10.7 Form of Indemnification Agreement between the Company and
Indemnitee.**
10.8.1 Employment Agreement between the Company and Robert H.
Gentry, III.**
10.8.2 Employment Agreement between the Company and Patrick J.
Power.*
10.9 Financial Consulting Agreement between the Underwriter and
the Company
23.1 Consent of Independent Certified Public Accountants.
23.2 Consent of Greenberg Traurig Hoffman Lipoff Rosen & Quentel,
P. A. (included in Exhibit 5).*
27 Financial Data Schedule (for SEC use only).
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
(1) Refiled here to reflect an amendment of Article III, Section 2 regarding the
removal of directors.
ITEM 28. UNDERTAKINGS.
(a) The small business issuer will:
(1) file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Act");
II-2
<PAGE> 67
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered, (if
the total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Act, treat each post-effective
amendment as a new registration statement of the securities offered, and
the offering of the securities at that time to be the initial bona fide
offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(b) The small business issuer will provide to the underwriter at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer 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 small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(d) The small business issuer will:
(1) For determining any liability under the Act, 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 small business issuer under Rule 424(b)(l) or (4) or 497(h)
under the Act as part of this registration statement as of the time the
Commission declared it effective.
(2) For determining any liability under the Act, 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 that offering of the securities at that time as the initial
bona fide offering of those securities.
II-3
<PAGE> 68
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form SB-2
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Orlando, State of Florida, on October 22, 1997.
AUTOMOTIVE ONE PARTS STORES, INC.
By: /s/ ROBERT H. GENTRY, III
------------------------------------
Robert H. Gentry, III
President and Chief Executive
Officer
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement was signed by the following
persons in the capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ ROBERT H. GENTRY, III Sole Director, President, and October 22, 1997
- ----------------------------------------------------- Chief Executive Officer
Robert H. Gentry, III
</TABLE>
II-4
<PAGE> 69
ITEM 27. EXHIBITS
The following exhibits are filed as part of this registration statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
1.1 Form of Underwriting Agreement
1.2 Agreement Among Underwriters
1.3 Selected Dealer Agreement
3.1 Form of Amended and Restated Articles of Incorporation**
3.2 Form of Amended and Restated ByLaws(1)
4.1 Form of Underwriters' Warrant Agreement
4.2 Specimen of Common Stock Certificate*
4.3 Specimen of Redeemable Common Stock Purchase Warrant*
4.4 Form of Warrant Agreement between the Company and American
Stock Transfer & Trust Company*
5 Opinion of Greenberg Traurig Hoffman Lipoff Rosen & Quentel,
P. A., Counsel for the Company*
10.1 1997 Stock Option Plan**
10.2 Promissory Note in the principal amount of $2,450,000 in
favor of A. P. S., Inc.**
10.3 Promissory Note in the principal amount of $2,500,000 in
favor of Autoparts Finance Company, Inc.**
10.4 Loan Agreement between the Company, Autoparts Finance
Company, Inc., and A.P.S., Inc.**
10.4.1 Loan Modification Agreement between the Company, A.P.S.,
Inc., and Autoparts Finance Company, Inc.**
10.4.2 Second Amendment to Loan Agreement between the Company,
A.P.S., Inc., and Autoparts Finance Company, effective July
31, 1997.
10.5 Amended and Restated Guaranty Agreement between Robert H.
Gentry, III and Janice Sue Gentry, his wife, A.P.S., Inc.
and Autoparts Finance Company, Inc.**
10.6 Product Purchase Agreement, between A.P.S., Inc. and the
Company.**
10.6.1 First Amendment to Product Purchase Agreement dated February
20, 1997 between A.P.S., Inc. and the Company.**
10.7 Form of Indemnification Agreement between the Company and
Indemnitee.**
10.8.1 Employment Agreement between the Company and Robert H.
Gentry, III.**
10.8.2 Employment Agreement between the Company and Patrick J.
Power.*
10.9 Financial Consulting Agreement between the Underwriter and
the Company
23.1 Consent of Independent Certified Public Accountants.
23.2 Consent of Greenberg Traurig Hoffman Lipoff Rosen & Quentel,
P. A. (included in Exhibit 5).*
27 Financial Data Schedule (for SEC use only).
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
(1) Refiled here to reflect an amendment of Article III, Section 2 regarding the
removal of directors.
<PAGE> 1
EXHIBIT 1.1
AUTOMOTIVE ONE PARTS STORES,INC.
1,200,000 SHARES
OF COMMON STOCK
AND
1,200,000 FIVE-YEAR REDEEMABLE WARRANTS
UNDERWRITING AGREEMENT
, 19
Nutmeg Securities ,Ltd.
495 Post Road East
Westport, CT 06880
DEAR SIRS:
Automotive One Parts Stores, Inc., a Florida corporation (the "Company"),
proposes to issue and sell to the several Underwriters named in Schedule I
hereto (the "Underwriters"), one million two hundred thousand shares of common
stock and one million two hundred thousand five-year redeemable warrants to
acquire common stock of the Company (the "Securities"). The Company hereby
confirms the agreement made by it with respect to the purchase of the Securities
by the Underwriter, which Securities are more fully described in the
Registration Statement referred to below. Nutmeg Securities, Ltd. is referred
to herein as the "Underwriter" or the "Representative."
You have advised the Company that the Underwriters desire to act on a firm
commitment basis to publicly offer and sell the Securities for the Company and
that you are authorized to execute this Agreement. The Company confirms the
agreement made by it with respect to the relationship with the Underwriters as
follows:
1. Filing of Registration Statement with S.E.C. and Definitions. A
Registration Statement and Prospectus on Form SB-2 (File No. ) with respect to
the Securities has been carefully and accurately prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as amended (the
"Act"), and the published rules and regulations (the "Rules and Regulations")
thereunder or under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and has been filed with the Securities and Exchange Commission
(the "Commission") and such other states that the Underwriter deems necessary in
its discretion to so file to permit a public offering and trading thereunder.
Such registration statement, including the prospectus, Part II, and all
financial schedules and exhibits thereto, as amended at the time when it shall
become effective, is herein referred to as the "Registration Statement," and the
prospectus included as part of the Registration Statement on file with the
Commission that discloses all the information that was omitted from the
prospectus on the effective date pursuant to Rule 430 A of the Rules and
Regulations with any changes contained in any prospectus filed with the
Commission by the Company with the Underwriters consent after the effective date
of the Registration Statement, is herein referred to as the "Final Prospectus."
The prospectus included as part of the Registration Statement of the Company and
in any amendments thereto prior to the effective date of the Registration
Statement is referred to herein as a "Preliminary Prospectus."
2. Discount, Delivery, and Sale of the Securities
(a) Subject to the terms and conditions of this Agreement, and on the basis
of the representations, warranties, and agreements herein contained, the Company
agrees to sell to, and the Underwriters agree to buy from the Company at a
purchase price of $ 5.40 per share and $.1125 per warrant before any underwriter
expense allowances, an aggregate of 1,200,000 shares of Common Stock and
1,200,000 Redeemable Warrants on a firm commitment basis the "Initial
Securities".
It is understood that the Underwriters propose to offer the Securities to be
purchased hereunder to the public upon the terms and conditions set forth in the
Registration Statement, after the Registration Statement becomes effective.
1
<PAGE> 2
(b) Delivery of the Securities against payment of the purchase price
therefor by certified or official bank check or checks or wire transfer in
next-day funds, payable to the order of the Company shall take place at the
offices of the clearing broker for the Underwriter at New York City, within
three (3) business days after the Securities are first traded (or such other
place as may be designated by agreement between you and the Company) at 11:00
A.M., New York time or such time and date as you and the Company may agree upon
in writing, such time and date of payment and delivery for the Securities being
herein called the "Initial Closing Date."
The Company will make the certificates for the shares of Common Stock and
Redeemable Warrants to be purchased by the Underwriters hereunder available to
the Underwriter for inspection and packaging at least two (2) full business days
prior to the Initial Closing Date. The certificates shall be in such names and
denominations as the Underwriter may request to the Company in writing at least
two (2) full business days prior to any Closing Date.
(c) In addition, subject to the terms and conditions of this Agreement and
on the basis of the representations, warranties and agreements herein contained,
the Company grants an option to the Underwriters to purchase up to an additional
180,000 shares of Common Stock and or 180,000 Redeemable Warrants ("Option
Securities") at the same terms as the Underwriters shall pay for the Initial
Securities being sold by the Company pursuant to the provisions of Section 2(a)
hereof. This option may be exercised from time to time, for the purpose of
covering overallotments, within forty-five (45) days after (i) the effective
date of the Registration Statement if the Company has elected not to rely on
Rule 430A under the Rules and Regulations or (ii) the date of this Agreement if
the Company has elected to rely upon Rule 430A under the Rules and Regulations,
upon written notice by the Underwriter setting forth the number of Option
Securities as to which the Underwriter is exercising the option and the time and
date at which such certificates are to be delivered. Such time and date shall be
determined by the Underwriter but shall not be earlier than four (4) nor later
than ten (10) full business days after the date of the exercise of said option.
Nothing herein shall obligate the Underwriter to make any overallotment.
The Option shares to be made available to the Representative may be
provided by Robert H. Gentry, III in an amount not to exceed the amount
available to the Representative from the Company. The purchase price and terms
of payment if the Option shares are purchased from Robert H. Gentry, III will be
the same as described in the preceding paragraph, i.e. on the same terms as if
the shares were being purchased from the Company. The selling stockholder
covenants to pay all federal and other taxes, if any, on the transfer and sale
of the shares of Common Stock being sold by him to the Representative.
(d) Definitive certificates in negotiable form for the Securities to be
purchased by the Underwriter hereunder will be delivered at the closing by the
Company to the Underwriters against payment of the purchase price by the
Underwriters by certified or bank cashier's checks or wire transfer in next day
funds payable to the order of the Company.
(e) The information set forth under "Underwriting" in any preliminary
prospectus and Prospectus relating to the Securities and the information set
forth in the last paragraph on the front cover page, under the last paragraph on
page 2 concerning stabilization and over-allotment by the Underwriters, and
(insofar as such information relates to the Underwriters) constitutes the only
information furnished by the Underwriter to the Company for inclusion therein,
and you represent and warrant to the Company that the statements made therein
are correct.
(f) On the Initial Closing Date, the Company shall issue and sell to the
Representative, warrants (the "Representative's Warrants") at a purchase price
of $120, which shall entitle the holders thereof to purchase an aggregate of
120,000 shares of Common Stock and 120,000 Redeemable Warrants The shares of
common stock issuable upon the exercise of the Representative's Warrants are
hereafter referred to as the "Representative's Securities" or "Representative's
Warrants." The shares of common stock issuable upon exercise of the redeemable
warrants are hereinafter referred to collectively as the "Warrant Shares". The
Representative's Warrants shall be exercisable for a period of four (4) years
commencing one (1) year from the effective date of the Registration
2
<PAGE> 3
Statement at a price equaling one hundred thirty five percent (150%) of the
initial public offering price of the Securities. The form of Representative's
Warrant Certificate shall be substantially in the form filed as an Exhibit to
the Registration Statement. Payment for the Representative's Warrant shall be
made on the Initial Closing Date.
3. Representations and Warranties of the Company.
(a) The Company represents and warrants to you as follows:
(i) The Company has prepared and filed with the Commission a registration
statement, and an amendment or amendments thereto, on Form SB-2 (No.333- ),
including any related preliminary prospectus ("Preliminary Prospectus"), for the
registration of the Securities, the Representative's Warrant and the Warrant
Shares (sometimes referred to herein collectively as the "Registered
Securities"), under 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 Rules and Regulations. The Company will promptly file a
further amendment to said registration statement in the form heretofore
delivered to the Underwriter and will not file any other amendment thereto to
which the Underwriter shall have objected verbally or 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, any schedules, exhibits and all other documents filed as a
part thereof or that may be incorporated therein (including, but not limited to
those documents or information incorporated by reference therein) and all
information deemed to be a part thereof as of such time pursuant to paragraph
(b) of Rule 430(A) of the Rules and 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 Rules and Regulations, is
hereinafter called the "Prospectus."
(ii) Neither the Commission nor any state regulatory authority has issued
any order preventing or suspending the use of any Prospectus or the Registration
Statement and no proceeding for an order suspending the effectiveness of the
Registration Statement or any of the Company's securities has been instituted or
is pending or threatened. Each such Prospectus and/or any supplement thereto has
conformed in all material respects with the requirements of the Act and the
Rules and Regulations and on its date did not include any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein not misleading, in light of the circumstances under which they were made
and (i) the Prospectus and/or any supplement thereto will contain all statements
which are required to be stated therein by the Act and Rules and Regulations,
and (ii) the Prospectus and/or any supplement thereto will not include 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 not misleading,
in light of the circumstances under which they were made; provided, however,
that no representations, warranties or agreements are made hereunder as to
information contained in or omitted from the Prospectus in reliance upon, and in
conformity with, the written information furnished to the Company by you as set
forth in Section 2(e) above.
(iii) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the state of its incorporation,
with full power and authority (corporate and other) to own its properties and
conduct its businesses as described in the Prospectus and is duly qualified to
do business as a foreign corporation in good standing in all other jurisdictions
in which the nature of its business or the character or location of its
properties requires such qualification, except where the failure to so qualify
would not have a material adverse effect on the business, properties or
operations of the Company and the subsidiaries as a whole.
(iv) The Company has full legal right, power and authority to authorize,
issue, deliver and sell the Securities, the Option Securities and the
Representative's Securities and to enter into this Agreement, the
Representative's Warrant dated as of the initial closing date to be exercised
and delivered by the Company to the Representative (the "Representative's
Warrant Agreement"), and to consummate the transactions provided for in such
agreements, and each of such agreements has been duly and properly authorized,
and on the Initial Closing Date will be duly and
3
<PAGE> 4
properly executed and delivered by the Company. This Agreement constitutes and
on the Initial Closing Date the Representative's Warrant Agreement will then
constitute valid and binding agreements, enforceable in accordance with their
respective terms (except as the enforceability thereof may be limited by
bankruptcy or other similar laws affecting the rights of creditors generally or
by general equitable principles and except as the enforcement of indemnification
provisions may be limited by federal or state securities laws).
(v) Except as disclosed in the Prospectus, the Company is not in
violation of its respective certificate or articles of incorporation or bylaws
or in default in the performance or observance of any material obligation,
agreement, covenant or condition contained in any material bond, debenture, note
or other evidence of indebtedness or in any material contract, indenture,
mortgage, loan agreement, lease, joint venture, partnership or other agreement
or instrument to which the Company is a party or by which it may be bound or is
not in material violation of any law, order, rule, regulation, writ, injunction
or decree of any governmental instrumentality or court, domestic or foreign; and
the execution and delivery of this Agreement, the Representative's Warrant
Agreement ;and the consummation of the transactions contemplated therein and in
the Prospectus and compliance with the terms of each such agreement will not
conflict with, or result in a material breach of any of the terms, conditions or
provisions of, or constitute a material default under, or result in the
imposition of any material lien, charge or encumbrance upon any of the property
or assets of the Company pursuant to, any material bond, debenture, note or
other evidence of indebtedness or any material contract, indenture, mortgage,
loan agreement, lease, joint venture, partnership or other agreement or
instrument to which the Company is a party nor will such action result in the
material violation by the Company of any of the provisions of its respective
certificate or articles of incorporation or bylaws or any law, order, rule,
regulation, writ, injunction, decree of any government, governmental
instrumentality or court, domestic or foreign, except where such violation will
not have a material adverse effect on the financial condition of the Company.
(vi) The authorized, issued and outstanding capital stock of the Company is
as set forth in the Prospectus and the Company will have the adjusted
capitalization set forth therein on the Initial Closing Date; all of the shares
of issued and outstanding capital stock of the Company set forth therein have
been duly authorized, validly issued and are fully paid and nonassessable; the
holders thereof do not have any rights of rescission with respect therefor and
are not subject to personal liability for any obligations of the Company by
reason of being stockholders under the laws of the State in which the Company is
incorporated; none of such outstanding capital stock is subject to or was issued
in violation of any preemptive or similar rights of any stockholder of the
Company; and such capital stock (including the Securities, the Option Securities
and the Representative's Securities) conforms in all material respects to all
statements relating thereto contained in the Prospectus.
(vii) 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 or as described in the
Prospectus. The Securities, the Option Securities and the Representative's
Securities are not and will not be subject to any preemptive or other similar
rights of any stockholder, 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 to the respective descriptions thereof
contained in the Prospectus; except for payment of the applicable purchase price
paid upon exercise of the options or warrants, as the case may be 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 Securities, the Option Securities and the Representative's Securities has
been duly and validly taken; and the certificates representing the Securities,
the Option Securities and the Representative's Securities will be in due and
proper form. Upon the issuance and delivery pursuant to the terms hereof of the
Securities, the Option Securities and the Representative's Securities to be sold
by the Company hereunder, the Underwriter will acquire good and marketable title
to such Securities, Option Securities and Representative's Securities free and
clear of any lien, charge, claim, encumbrance, pledge, security interest, defect
or other restriction of any kind whatsoever other than restrictions as may be
imposed under the securities laws.
(viii) The Company has good and marketable title to all properties and
assets described in the Prospectus as owned by it, free and clear of all liens,
charges, encumbrances or restrictions, except such as are described or referred
to in the Prospectus or which are not materially significant or important in
relation to its business or which have been incurred in the ordinary course of
business; except as described in the Prospectus all of the leases and subleases
under which the Company holds properties or assets as lessee or sublessee as
described in the Prospectus are in full force
4
<PAGE> 5
and effect, and the Company is not in material default in respect of any of the
terms or provisions of any of such leases or subleases, and no claim has been
asserted by anyone adverse to the Company's rights as lessor, sublessor, lessee
or sublessee under any of the leases or subleases mentioned above or affecting
or questioning the Company's right to the continued possession of the leased or
subleased premises or assets under any such lease or sublease; and the Company
owns or leases all such properties as are necessary to its operations as now
conducted and as contemplated to be conducted, except as otherwise stated in the
Prospectus.
(ix) The financial statements, together with related notes, set forth
in the Prospectus fairly present the financial position and results of
operations of the Company at the respective dates and for the respective periods
to which they apply. Said statements and related notes have been prepared in
accordance with generally accepted accounting principles applied on a basis
which is consistent in all material respects during the periods involved but any
stub period has not been audited by an independent accounting firm. There has
been no material adverse change or material development involving a prospective
change in the condition, financial or otherwise, or in the prospects, value,
operation, properties, business or results of operations of the Company 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.
(x) Subsequent to the respective dates as of which information is
given in the Prospectus as it may be amended or supplemented, and except as
described in the Prospectus, the Company has not, directly or indirectly,
incurred any liabilities or obligations, direct or contingent, not in the
ordinary course of business or entered into any transactions not in the ordinary
course of business, which are material to the business of the Company as a whole
and there has not been any change in the capital stock of, or any incurrence of
long term debts by, the Company or any issuance of options, warrants or rights
to purchase the capital stock of the Company or declaration or payment of any
dividend on the capital stock of the Company or any material adverse change in
the condition (financial or other), net worth or results of operations of the
Company as a whole and the Company has not become a party to, any material
litigation whether or not in the ordinary course of business.
(xi) To the knowledge of the Company, there is no pending or
threatened, action, suit or proceeding to which the Company is a party before or
by any court or governmental agency or body, which might result in any material
adverse change in the condition (financial or other), business or prospects of
the Company as a whole or might materially and adversely affect the properties
or assets of the Company as a whole nor are there any actions, suits or
proceedings against the Company related to environmental matters or related to
discrimination on the basis of age, sex, religion or race which might be
expected to materially and adversely affect the conduct of the business,
property, operations, financial condition or earnings of the Company as a whole;
and no labor disturbance by the employees of the Company individually exists or
is, to the knowledge of the Company, imminent which might be expected to
materially and adversely affect the conduct of the business, property,
operations, financial condition or earnings of the Company as a whole.
(xii) Except as may be disclosed in the Prospectus, the Company has
properly prepared and filed all necessary federal, state, local and foreign
income and franchise tax returns, has paid all taxes shown as due thereon, has
established adequate reserves for such taxes which are not yet due and payable,
and does not have any tax deficiency or claims outstanding, proposed or assessed
against it.
(xiii) The Company has sufficient licenses, permits, right to use trade
or service marks and other governmental authorizations currently required for
the conduct of its business as now being conducted and as contemplated to be
conducted and the Company is in all material respects complying therewith.
Except as set forth in the Prospectus, the expiration of any such licenses,
permits, or other governmental authorizations would not materially affect the
Company's operations. To its knowledge, none of the activities or businesses of
the Company are in material violation of, or cause the Company to materially
violate any law, rule, regulations, or order of the United States, any state,
county or locality, or of any agency or body of the United States or of any
state, county or locality.
(xiv) The Company has not at any time (i) made any contributions to any
candidate for political office in violation of law, or failed to disclose fully
any such contribution, or (ii) made any payment to any state, federal or
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foreign governmental officer or official, or other person charged with similar
public or quasi public duties, other than payments required or allowed by
applicable law.
(xv) Except as set forth in the Prospectus the Company knows of no
outstanding claims for services either in the nature of a finder's fee,
brokerage fee or otherwise with respect to this financing for which the Company
or the Underwriters may be responsible, or which may affect the Underwriter's
compensation as determined by the National Association of Securities Dealers,
Inc. ("NASD") except as otherwise disclosed in the Prospectus or known by the
Underwriters.
(xvi) The Company has its property adequately insured against loss or
damage by fire and maintains such other insurance as is customarily maintained
by companies in the same or similar business.
(xvii) The Representative's Warrants herein described are duly and
validly authorized and upon delivery to the Representative in accordance
herewith will be duly issued and legal, valid and binding obligations of the
Company, except as the enforceability thereof may be limited by bankruptcy or
other similar laws affecting the rights of creditors generally or by equitable
principles, and except as the enforcement of indemnification provisions may be
limited by federal or state securities laws.
The Representative's Securities issuable upon exercise of any
of the Representative's Warrants have been duly authorized, and when issued upon
payment of the exercise price therefor, will be validly issued, fully paid and
nonassessable.
(xviii) Except as set forth in the Prospectus, no default exists in the
due performance and observance of any term, covenant or condition of any
material license, contract, indenture, mortgage, installment sale agreement,
lease, deed of trust, voting trust agreement, stockholders agreement, note, loan
or credit agreement, purchase order, or any other agreement or instrument
evidencing an obligation for borrowed money, or any other material agreement or
instrument to which the 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.
(xix) To the best of the Company's knowledge it has generally enjoyed a
satisfactory employer-employee relationship with its employees and, to the best
of its knowledge, is in substantial compliance in all material respects with all
federal, state, local, and foreign laws and regulations respecting employment
and employment practices, terms and conditions of employment and wages and
hours. To the best of 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. To the best of the Company's
knowledge, 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 threatened against
or to its knowledge involving the Company, or any predecessor entity, and none
has ever occurred. To the best of the Company's knowledge, no representation
question is pending respecting the employees of the Company, and no collective
bargaining agreement or modification thereof is currently being negotiated by
the Company. To the best of the Company's knowledge, no grievance or arbitration
proceeding is pending or to its knowledge threatened under any expired or
existing collective bargaining agreements of the Company. No labor dispute with
the employees of the Company is pending, or, to its knowledge is imminent; and
the Company is not aware of any pending or imminent labor disturbance by the
employees of any of its principal suppliers, manufacturers or contractors which
may result in any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs, position, prospects, value,
operation, properties, business or results of operations of the Company.
(xx) Except as may be set forth in the Registration Statement, 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(l) 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,
now or at any time previously, 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
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<PAGE> 7
meaning of Section 406 of ERISA or Section 4975 of the Internal Revenue Code
(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."
(xxi) None of the Company, or any of its employees, directors,
stockholders, or affiliates (within the meaning of the Rules and Regulations)
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, under the
Exchange Act, or otherwise, stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Securities,
Option Securities, Representative's Securities or otherwise.
(xxii) None of the patents, patent applications, trademarks, service
marks, trade names, copyrights, and licenses and rights to the foregoing
presently owned or held by the Company, are in dispute or, to the best knowledge
of the Company's management are in any conflict with the right of any other
person or entity. The Company (i) except as disclosed in the Prospectus owns or
has the right to use, all patents, trademarks, service marks, trade names and
copyrights, technology and licenses and rights with respect to the foregoing,
used in the conduct of its business as now conducted or proposed to be conducted
without infringing upon or otherwise acting adversely to the right or claimed
right of any person, corporation or other entity under or with respect to any of
the foregoing, and except as set forth in the Prospectus or otherwise disclosed
to the Underwriter in writing, to the best knowledge of the Company's management
is not obligated or under any liability whatsoever to make any material payments
by way of royalties, fees or otherwise to any owner or licensee of, or other
claimant to, any patent, trademark, service mark, trade name, copyright,
know-how, technology or other intangible asset, with respect to the use thereof
or in connection with the conduct of its business or otherwise.
(xxiii) Except as disclosed in the Prospectus the Company owns and has
adequate right to use to the best knowledge of the Company's management all
trade secrets, know-how (including all other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), inventions,
designs, processes, works of authorship, computer programs and technical data
and information (collectively herein "intellectual property") required for or
incident to the development, manufacture, operation and sale of all products and
services sold or proposed to be sold by the Company. The Company is not aware of
any such development of similar or identical trade secrets or technical
information by others. The Company has valid and binding confidentiality
agreements with all of its officers, covering its intellectual property (subject
to the equitable powers of any court), which agreements have remaining terms of
at least two years from the effective date of the Registration Statement except
where the failure to have such agreements would not materially and adversely
effect the Company's business taken as a whole. 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
interests, defects, 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.
(xxiv) Grant Thornton LLP, whose reports are filed with the Commission
as a part of the Registration Statement, are independent certified public
accountants as required by the Act and the Rules and Regulations.
(xxv) The Company has agreed to cause to be duly executed agreements
pursuant to which each of the Company's officers and directors and shareholders
and any person or entity deemed to be an affiliate of the Company pursuant to
the Rules and Regulations has agreed not to, directly or indirectly, sell,
assign, transfer, or otherwise dispose of any shares of Common Stock or
securities convertible into, 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 Rules and Regulations or otherwise) for a period of not less
than eighteen (18) months following such effective date without the prior
written consent of the Underwriter. The Company will cause the Transfer Agent,
as defined below, to mark an appropriate legend on the face of stock
certificates representing all of such securities and to place "stop transfer"
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<PAGE> 8
orders on the Company's stock ledgers. In addition the Company shall also obtain
from all other shareholders of the Company, written commitments restricting the
sale of 100% of the common shares of stock outstanding for thirteen (13) months
after the closing.
(xxvi) The Registered Securities have been approved for listing on NASDAQ
or an Exchange.
(xxvii) Except as set forth in the Prospectus or disclosed in writing to
the Underwriter (which writing specifically refers to this Section), no officer
or director of the Company, holder of 5% or more of securities of the Company or
any "affiliate" or "associate" (as these terms are defined in Rule 405
promulgated under the Rules and Regulations) of any of the foregoing persons or
entities has or has had, either directly or indirectly, (i) an interest in any
person or entity which (A) furnishes or sells services or products which are
furnished or sold or are proposed to be furnished or sold by the Company, or (B)
purchases from or sells or furnishes to the Company any goods or services, or
(ii) a 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 under "Certain Transactions" or disclosed in writing to the
Underwriter (which writing specifically refers to this Section) there are no
existing agreements, arrangements, understandings or transactions, or proposed
agreements, arrangements, understandings or transactions, between or among the
Company, and any officer, director, principal stockholder of the Company, or any
partner, affiliate or associate of any of the foregoing persons or entities.
(xxviii) Any certificate signed by any officer of the Company, and
delivered to the Underwriter or to the Underwriter's counsel (as defined herein)
shall be deemed a representation and warranty by the Company to the Underwriter
as to the matters covered thereby.
(xxix) Each of the minute books of the Company has been made available to
the Underwriter and contains a complete summary of all meetings and actions of
the directors and stockholders of the Company, since the time of its
incorporation and reflect all transactions referred to in such minutes
accurately in all respects.
(xxx) As of the Initial Closing Date, the Company will enter into the
Consulting Agreement substantially in the form filed as an exhibit to the
Registration Statement with respect to the rendering of consulting services by
the Representative to the Company.
(xxxi) Except and only to the extent described in the Prospectus or
disclosed in writing to the Underwriter (which writing specifically refers to
this Section), 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 in the Registration
Statement or any registration statement to be filed by the Company 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. Except as disclosed in the Prospectus, all rights so described or
disclosed have been waived or have not been triggered with respect to the
transactions contemplated by this Agreement and the Representative's Warrant
Agreement (including the warrants issuable thereunder).
(xxxii) The Company has not entered into any employment agreements with its
executive officers, except as disclosed in the Prospectus.
(xxxiii) 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 issuance of the Underwriter's
Warrants, the performance of this 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
Securities, the Option Securities and the Underwriter's Securities, except such
as have been or may be obtained under the Act, otherwise or may be required
under state securities or blue sky laws in connection with the Underwriter's
purchase and distribution of the Securities, the Option Securities, the
Representative's Securities and the Underwriter's Warrants to be sold by the
Company hereunder or may be required by the Rules of the National Association of
Securities Dealer, Inc. ("NASD").
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(xxxiv) 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. The descriptions
in the Registration Statement of agreements, contracts and other documents are
accurate 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 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.
(xxxv) Within the past five (5) years, none of the Company's independent
public accountants has brought to the attention of the Company's management any
"material weakness" as defined in the Statement of Auditing Standard No. 60 in
any of the Company's internal controls.
4. Covenants of the Company. The Company covenants and agrees with you that:
(a) It will cooperate in all respects in making the Prospectus effective and
will not at any time, whether before or after the effective date, file any
amendment to or supplement to the Prospectus of which you shall not previously
have been advised and furnished with a copy or to which you or your counsel
shall have reasonably objected or which is not in material compliance with the
Act and the Rules and Regulations or applicable state law.
As soon as the Company is advised thereof, the Company will advise you, and
confirm the advice in writing, of the receipt of any comments of the Commission
or any state securities department, when the Registration Statement 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, of the effectiveness of any posteffective amendment to the Registration
Statement or Prospectus, or the filing of any supplement to the Prospectus or
any amended Prospectus, of any request made by the Commission or any state
securities department for amendment of the Prospectus or for supplementing of
the Prospectus or for additional information with respect thereto, of the
issuance of any stop order suspending the effectiveness of the Prospectus or any
order preventing or suspending the use of any Prospectus or any order suspending
trading in the Common Stock of the Company, or of the suspension of the
qualification of the Securities, the Option Securities or the Representatives
Securities for offering in any jurisdiction, or of the institution of any
proceedings for any such purposes, and will use its best efforts to prevent the
issuance of any such order and, if issued, to obtain as soon as possible the
lifting or dismissal thereof.
The Company has caused to be delivered to you copies of such Prospectus, and the
Company has consented and hereby consents to the use of such copies for the
purposes permitted by law. The Company authorizes you and the dealers to use the
Prospectus and such copies of the Prospectus in connection with the sale of the
Securities, the Option Securities and the Representative's Securities for such
period as in the opinion of your counsel and our counsel the use thereof is
required to comply with the applicable provisions of the Act and the Rules and
Regulations. The Company will prepare and file with the states, promptly upon
your request, any such amendments or supplements to the Prospectus, and take any
other action, as, in the opinion of your counsel, may be necessary or advisable
in connection with the initial sale of the Securities, the Option Securities and
the Underwriter's Securities and will use its best efforts to cause the same to
become effective as promptly as possible.
The Company shall file the Prospectus (in form and substance satisfactory to
the Underwriter) or transmit the Prospectus by a means reasonably calculated to
result in filing with the Commission pursuant to rule 424(b)(1) or pursuant to
Rule 424(b)(3) not later than the Commission's close of business on the earlier
of (i) the second business day following the execution and delivery of this
Agreement, and (ii) the fifth business day after the effective date of the
Registration Statement.
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In case of the happening, at any time within such period as a Prospectus is
required under the Act to be delivered in connection with the initial sale of
the Securities, the Option Securities and the Representative's Securities of any
event of which the Company has knowledge and which materially affects the
Company, or the securities thereof, and which should be set forth in an
amendment of or a supplement to the Prospectus in order to make the statements
therein not then misleading, in light of the circumstances existing at the time
the Prospectus is required under the Act to be delivered, or in case it shall be
necessary to amend or supplement the Prospectus to comply with the Act, the
Rules and Regulations or any other law, the Company will forthwith prepare and
furnish to you copies of such amended Prospectus or of such supplement to be
attached to the Prospectus, in such quantities as you may reasonably request, in
order that the Prospectus, as so amended or supplemented, will not 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 not misleading
in light of the circumstances under which they are made. The preparation and
furnishing of any such amendment or supplement to the Prospectus or supplement
to be attached to the Prospectus shall be without expense to you.
The Company will to the best of its ability comply with the Act, the
Exchange Act and applicable state securities laws so as to permit the initial
offer and sales of the Securities, the Option Securities and the Representatives
Securities under the Act, the Rules and Regulations, and applicable state
securities laws.
(b) It will cooperate to qualify the Securities and the Option Securities
and the Representative's Securities for initial sale under the securities laws
of such jurisdictions as you may designate and will make such applications and
furnish such information as may be required for that purpose, provided the
Company shall not be required to qualify as a foreign corporation or a dealer in
securities. The Company will, from time to time, prepare and file such
statements and reports as are or may be required to continue such qualification
in effect for so long as the Underwriter may reasonably request.
(c) So long as any of the Securities, the Option Securities or the
Representative's Securities remain outstanding in the hands of the public, the
Company, at its expense, will annually furnish to its shareholders a report of
its operations to include financial statements audited by independent public
accountants, and will furnish to the Underwriter as soon as practicable after
the end of each fiscal year, a balance sheet of the Company as at the end of
such fiscal year, together with statements of operations, shareholders' equity,
and changes in cash flow of the Company for such fiscal year, all in reasonable
detail and accompanied by a copy of the certificate or report thereon of
independent public accountants.
(d) It will deliver to you at or before the Initial Closing Date three
signed copies of the Registration Statement including all financial statements
and exhibits filed therewith, whether or not incorporated by reference. The
Company will deliver to you, from time to time until the effective date of the
Prospectus, as many copies of the Prospectus as you may reasonably request. The
Company will deliver to you on the effective date of the Prospectus and
thereafter for so long as a Prospectus is required to be delivered under the Act
and the Rules and Regulations as many copies of the Prospectus, in final form,
or as thereafter amended or supplemented, as you may from time to time
reasonably request.
(e) The Company will apply the net proceeds from the sale of the Securities
and the Option Securities substantially in the manner set forth under "Use of
Proceeds" in the Prospectus. No portion of the proceeds shall be used, directly
or indirectly, to acquire any securities issued by the Company, without the
prior written consent of the Underwriter.
(f) As soon as it is practicable, but in any event not later than the first
(lst) day of the fifteenth (15th) full calendar month following the effective
date of the Registration Statement, the Company will make available to its
security holders and the Underwriter an earnings statement (which need not be
audited) covering a period of at least twelve (12) consecutive months beginning
after the effective date of the Registration Statement, which shall satisfy the
requirements of Section 11(a) of the Act and Rule 158(a) of the Rules and
Regulations.
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(g) Non-Accountable Expense Allowance and other Costs and Expenses.
The Company shall pay to the Underwriter at each closing date, and to
be deducted from the purchase price for the Securities and the Option
Securities, an amount equal to three percent (3%) of the gross proceeds received
by the Company from the sale of the Securities and the Option Securities at such
closing date less in the case of the Initial Closing Date, the sum of $25,000
previously paid by the Company. If the sale of the Securities by the Underwriter
is not consummated for any reason not attributable to the Underwriter, or if (i)
the Company withdraws the Registration Statement from the Commission or does not
proceed with the public offering, or (ii) the representations in Section 3
hereof are not correct or the covenants cannot be complied with, or (iii) there
has been a materially adverse change in the condition, prospects or obligations
of the Company or a materially adverse change in stock market conditions from
current conditions, all as determined by the Underwriter, then the Company shall
reimburse the Underwriter for its out of pocket expenses including without
limitation, its legal fees and disbursements all on an accountable basis but not
to exceed $75,000 (less the $25,000 previously paid by the Company), and if any
excess remains from the advance previously paid, such excess will be returned to
the Company.
Costs and Expenses. Subject to the provisions above the Company will
pay all costs and expenses incident to the performance of this Agreement by the
Company including, but not limited to, the fees and expenses of counsel to the
Company and of the Company's accountants; the costs and expenses incident to the
preparation, printing, filing and distribution under the Act of the Registration
Statement and Prospectus (including the fee of the Commission, any securities
exchange and the NASD in connection with the filing required by the NASD
relating to the offering of the Securities contemplated hereby); all expenses,
including fees of counsel, which shall be due and payable on the Closing Date in
connection with the qualification of the Securities under the state securities
or blue sky laws; the cost of furnishing to you copies of the Prospectus, this
Agreement, the cost of printing the certificates representing the Securities and
of preparing and photocopying the Underwriting Agreement and related
Underwriting documents, the cost of three underwriter's bound volumes, any
advertising costs and expenses, including but not limited to the Company's
expenses on "road show" information meetings and presentations, prospectus
memorabilia, issue and transfer taxes, if any. The Company will also pay all
costs and expenses incident to the furnishing of any amended Prospectus of or
any supplement to be attached to the Prospectus.
(h) As a condition of the closing, the Company shall obtain from its officers
and directors and certain stockholders of the Company written commitments
restricting the sale of 100% of their common stock for (12) months after the
closing.
(i) During a date five years after the date hereof, the Company will make
available to its shareholders, as soon as practicable, and deliver to the
Underwriter:
(1) as soon as they are available, copies of all reports
(financial or other) mailed to shareholders;
(2) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the
NASD or any securities exchange;
(3) 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 prepared and released by or on behalf of the
Company; and
(4) any additional information of a public nature concerning the
Company (and any future subsidiaries) or its businesses which the
Underwriter may 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.
(j) The Company will maintain a 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 its Common Stock.
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(k) The Company will furnish to the Underwriter or on the Underwriter's
order, without charge, at such place as the Underwriter may designate, copies of
each Preliminary Prospectus, the Final 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), 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 Underwriter may request.
(1) Neither the Company nor any of its officers, directors, stockholders or
any of its affiliates will take, directly or 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 of the Company's securities.
(m) 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
Rules and 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 Rules and Regulations.
(n) The Company shall cause the Securities to be listed on the NASDAQ Small
Cap Market or on an exchange for a period of five (5) years from the date
hereof, and use its best efforts to maintain the listing of the Securities to
the extent they are outstanding.
(o) As soon as practicable, (i) before the effective date of the
Registration Statement, file a Form 8-A with the Commission providing for the
registration under the Exchange Act of the Securities and (ii) but in no event
more than 30 days from the effective date of the Registration Statement, take
all necessary and appropriate actions to be included in Standard and Poor's
Corporation Descriptions and/or Moody's OTC Manual and to continue such
inclusion for a period of not less than five years if the securities are not
listed on an exchange.
(p) Until the completion of the distribution of the Securities, the Company
shall not without the prior written consent of the Underwriter and its counsel
which consent shall not be unreasonably withheld or delayed, 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.
(q) Until the earlier of (i) five (5) years from the date hereof or (ii) the
sale to the public of the Warrant 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 Warrant Shares
and the Representative's Securities.
(r) Commencing one year from the effective date of the Registration
Statement, the Company agrees to pay the Representative a 3% solicitation fee
for any exercise of the Redeemable Warrants that are solicited by the
Representative , such solicitation being subject to applicable SEC and NASDR
Rules.
5. Conditions of the Underwriter's Obligations. The obligation of the
Underwriters to offer and sell the Securities and the Option Securities is
subject to the accuracy (as of the date hereof, and as of the Closing Dates) of
and compliance with the representations and warranties of the Company to the
performance by it of its agreement and obligations hereunder and to the
following additional conditions:
(a) The Registration Statement shall have become effective as and when
cleared by the Commission, and you shall have received notice thereof, on or
prior to any closing date no stop order suspending the effectiveness of the
Prospectus shall have been issued and no proceedings for that or similar purpose
shall have been instituted or shall be pending, or, to your knowledge or to the
knowledge of the Company, shall be contemplated by the Commission; any request
on the part of the Commission for additional information shall have been
complied with to the reasonable satisfaction of counsel to the Underwriter; and
qualification, under the securities laws of such states as you may
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<PAGE> 13
designate, of the issue and sale of the Securities upon the terms and conditions
herein set forth or contemplated and containing no provision unacceptable to you
shall have been secured, and no stop order shall be in effect denying or
suspending effectiveness of such qualification nor shall any stop order
proceedings with respect thereto be instituted or pending or threatened under
such law.
(b) On any closing date and, with respect to the letter referred to in
subparagraph (iii), as of the date hereof, you shall have received:
(i) the opinion, together with such number of signed or facsimile copies of
such opinion as you may reasonably request, addressed to youby Greenberg Traurig
Hoffman Lipoff Rosen & Quentel, P.A., Esqs., counsel for the Company, in form
and substance reasonably satisfactory to the Underwriter and William M. Prifti,
Esq., counsel to the Underwriter, dated each such closing date, to the effect
that:
(A) The Company has been duly incorporated and is a validly existing
corporation in good standing under the laws of the jurisdiction in which it is
incorporated and has all necessary corporate power and authority to carry on its
business as described in the Prospectus.
(B) The Company is qualified to do business in each jurisdiction in which
conducting its business requires such qualification, except where the failure to
be so qualified would not have a material adverse effect on the Company's
business or assets.
(C) The Company has the full corporate power and authority to enter into
this Agreement, the Representative's Warrant Agreement and to consummate the
transactions provided for therein and each such Agreement has been duly and
validly authorized, executed and delivered by the Company. Each of this
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 enforceable against the
Company in accordance with its terms, subject to bankruptcy, insolvency or
similar laws governing the rights of creditors and to general equitable
principles, and provided that no opinion need be given as to the enforceability
of any indemnification or contribution provisions, and none of the Company's
execution or delivery of this Agreement, or the Representative's Warrant
Agreement, its performance hereunder or thereunder, 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 will conflict with or results or will
result in any material breach or violation of any of the terms or provisions of,
or constitutes or will constitute a material default under, or result in the
creation or imposition of any material lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction 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, (B) to the
knowledge of such counsel, any material license, contract, indenture, mortgage,
deed of trust, voting trust agreement, stockholders' 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 (C) to the knowledge of such
counsel, any statute, judgment, decree, order, rule or regulation applicable to
the Company, whether domestic or foreign.
(D) The Company had authorized and outstanding capital stock as set forth in
the Prospectus under the heading "Capitalization" as of the date set forth
therein, and all of such issued and outstanding shares of capital stock have
been duly and validly authorized and issued, and to the knowledge of such
counsel are fully paid and nonassessable, and to the knowledge of such counsel
no stockholder of the Company is entitled to any preemptive rights to subscribe
for, or purchase shares of the capital stock and to the knowledge of such
counsel none of such securities were issued in violation of the preemptive
rights of any holders of any securities of the Company.
(E) To the 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 Representative's Warrant Agreement, and except as described in
the Prospectus. The Common Stock, the Warrants and the Representative's Warrants
each conforms in all material respects to the respective descriptions thereof
contained in the Prospectus. The outstanding shares of Common Stock, the
Redeemable Warrant
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<PAGE> 14
and the Warrant Stock and the Representative's Warrant Stock, upon issuance and
delivery and payment therefore in the manner described herein, the Warrant
Agreement and the Representative Agreement, as the case may be, will be, duly
authorized, validly issued, fully paid and nonassessable. There are no
preemptive or other rights to subscribe for or to purchase, or any restriction
upon the voting or transfer of, any shares of Common Stock pursuant to the
Company's articles of incorporation, by-laws, other governing documents or any
agreement or other instrument known to such counsel to which the Company is a
party or by which it is bound.
(F) The certificates representing the Securities comprising the Common Stock
are in due and proper form and and the Representative's Warrant has been duly
authorized and reserved for issuance and when issued and delivered in accordance
with the respective terms of the Warrant Agreement and Representative's Warrant
Agreement, respectively, will duly and validly issued, fully paid and
nonassessable.
(G) To the knowledge of such counsel, there are no claims, suits or other
legal proceedings pending or threatened against the Company in any court or
before or by any governmental body which might materially affect the business of
the Company or the financial condition of the Company as a whole, except as set
forth in or contemplated by the Prospectus.
(H) Based on oral and/or written advice from the staff of the Commission,
the Registration Statement has become effective and, to the knowledge of such
counsel, no stop order suspending the effectiveness of the Prospectus is in
effect and no proceedings for that purpose are pending before, or threatened by,
federal or by a state securities administrator.
(I) To the knowledge of such counsel, there are no legal or governmental
proceedings, actions, arbitrations, investigations, inquiries or the like
pending or threatened against the Company of a character required to be
disclosed in the Prospectus which have not been so disclosed, questions the
validity of the capital stock of the Company or this Agreement or the
Representative's Warrant Agreement or might adversely affect the condition,
financial or otherwise, or the prospects of the Company or which could adversely
affect the Company's ability to perform any of its obligations under this
Agreement, or the Representative's Warrant Agreement.
(J) To such counsel's knowledge, there are no material agreements, contracts
or other documents known to such counsel 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, and to such counsel's
knowledge (A) the exhibits which have been filed are correct copies of the
documents of which they purport to be copies; (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, including any document to which the Company is a party or by
which it is bound incorporated by reference into the Prospectus and any
supplement or amendment thereto, are accurate in all material respects and
fairly represent the information required to be shown by Form SB-2.
(K) No consent, approval, order or authorization from any regulatory board,
agency or instrumentality having jurisdiction over the Company, or its
properties (other than registration under the Act or qualification under state
or foreign securities law or approval by the NASD) is required for the valid
authorization, issuance, sale and delivery of the Securities, the Option
Securities or the Representative's Warrant.
(L) The statements in the Prospectus under "Risk Factors- Dependence of Key
Executives", ,Control by Current Shareholders," "Limited Liability and
Indemnification" , "Anti-Takeover Effects of Florida Law" "Description of the
Securities," and "Shares Eligible For Future Sale" 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 correct in
all material respects.
In addition, such counsel shall state that such counsel has participated in
conferences with officials and other representatives of the Company, the
Representatives, Underwriters' Counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and
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<PAGE> 15
related matters were discussed, and although they have not certified the
accuracy or completeness of the statements contained in the Registration
Statement or the Prospectus, nothing has come to the attention of such counsel
which leads them to believe that, at the time the Registration Statement became
effective and at all times subsequent thereto up to and on the Closing Date and
on any later date on which Option Shares are to be purchased, the Registration
Statement and any amendment or supplement, when such documents became effective
or were filed with the Commission (other than the financial statements including
the notes thereto and supporting schedules and other financial and statistical
information derived therefrom, as to which such counsel need express no comment)
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, or at the Closing Date or any later date on which the Option
Shares are to be purchased, as the case may be, the Prospectus and any amendment
or supplement thereto (other than the financial statements including the notes
thereto and other financial and statistical information derived therefrom, as to
which such counsel need express no comment) contained any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
Such opinion shall also cover such other matters incident to the
transactions contemplated hereby and the offering Prospectus as you or counsel
to the Underwriter shall reasonably request. In rendering such opinion, to the
extent deemed reasonable by them, such counsel may rely upon certificates of any
officer of the Company or public officials as to matters of fact of which the
maker of such certificate has knowledge.
(ii) a certificate, signed by the Chief Executive Officer and the Principal
Financial or Accounting Officer of the Company dated the Closing Date, to the
effect that with regard to the Company, each of the conditions set forth in
Section 5(d) have been satisfied.
(iii) a letter, addressed to the Underwriter and in form and substance
satisfactory to the Underwriter in all respects (including the nonmaterial
nature of the changes or decreases, if any, referred to in clause (D) below),
fromGrant Thornton LLP dated, respectively, as of the effective date of the
Registration Statement and as of the Closing Date, as the case may be:
(A) Confirming that they are independent public accountants with respect to
the Company and its consolidated subsidiaries, if any, within the meaning of the
Act and the applicable published Rules and Regulations.
(B) Stating that, in their opinion, the financial statements, related notes
and schedules of the Company and its consolidated subsidiaries, if any, included
in the Registration Statement examined by them comply as to form in all material
respects with the applicable accounting requirements of the Act and the
published Rules and Regulations thereunder.
(C) Stating that, with respect to the period from December 31, 1996, to a
specified date (the specified date") not earlier than five (5) business days
prior to the date of such letter, they have read the minutes of meetings of the
stockholders and board of directors (and various committees thereof) of the
Company and its consolidated subsidiaries, if any, for the period from December
31, 1996 through the specified date, and made inquiries of officers of the
Company and its consolidated subsidiaries, if any, responsible for financial and
accounting matters and, especially as to whether there was any decrease in
sales, income before extraordinary items or net income as compared with the
corresponding period in the preceding year; or any change in the capital stock
of the Company or any change in the longterm debt or any increase in the
short-term bank borrowings or any decrease in net current assets or net assets
of the Company or of any of its consolidated subsidiaries, if any, and further
stating that while such procedures and inquiries do not constitute an
examination made in accordance with generally accepted auditing standards,
nothing came to their attention which caused them to believe that during the
period from December 31, 1996, through the specified date there were any
decreases as compared with the corresponding period in the preceding year in
sales, income before extraordinary items or net income; or any change in the
capital stock of the Company or consolidated subsidiary, if any, or any change
in the long term debt or any increase in the short-term bank borrowings (other
than any increase in short-term bank borrowings in the ordinary course of
business) of the Company or any
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<PAGE> 16
consolidated subsidiary, if any, or any decrease in the net current assets
or net assets of the Company or any consolidated subsidiary, if any; and
(D) Stating that they have carried out certain specified procedures
(specifically set forth in such letter or letters) as specified by the
Underwriter (after consultations with Grant Thornton ,LLP relating to such
procedures), not constituting an audit, with respect to certain tables,
statistics and other financial data in the Prospectus specified by the
Underwriter and such financial data not included in the Prospectus but from
which information in the Prospectus is derived, and which have been obtained
from the general accounting records of the Company or consolidated subsidiaries,
if any, or from such accounting records by analysis or computation, and having
compared such financial data with the accounting records of the Company or the
consolidated subsidiaries, if any, stating that they have found such financial
data to agree with the accounting records of the Company.
(c) All corporate proceedings and other legal matters relating to this
Agreement, the Prospectus and other related matters shall be satisfactory to or
approved by counsel to the Underwriter and you shall have received from
Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A. a signed opinion dated as
of each closing date, with respect to the incorporation of the Company, the
validity of the Securities, the form of the Prospectus, (other than the
financial statements together with related notes and other financial and
statistical data contained in the Prospectus or omitted therefrom, as to which
such counsel need express no opinion), the execution of this Agreement and other
related matters as you may reasonably require.
(d) At each closing date, (i) the representations and warranties of the
Company contained in this Agreement shall be true and correct in all material
respects with the same effect as if made on and as of such closing date; (ii)
the Prospectus and any amendments or supplements thereto shall contain all
statements which are required to be stated therein in accordance with the Act
and the Rules and Regulations and in all material respects conform to the
requirements thereof, and neither the Prospectus nor any amendment or supplement
thereto shall contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary, in light of the
circumstances under which they were made, in order to make the statements
therein not misleading; (iii) there shall have been since the respective dates
as of which information is given no material adverse change in the business,
properties or condition (financial or otherwise), results of operations, capital
stock, longterm debt or general affairs of the Company from that set forth in
the Prospectus, except changes which the Prospectus indicates might occur after
the effective date of the Prospectus, and the Company shall not have incurred
any material liabilities or material obligations, direct or contingent, or
entered into any material transaction, contract or agreement not in the ordinary
course of business other than as referred to in the Prospectus and which would
be required to be set forth in the Prospectus; and (iv) except as set forth in
the Prospectus, no action, suit or proceeding at law or in equity shall be
pending or threatened against the Company which would be required to be set
forth in the Prospectus, and no proceedings shall be pending or threatened
against the Company or any subsidiary before or by any commission, board or
administrative agency in the United States or elsewhere, wherein an unfavorable
decision, ruling or finding would materially and adversely affect the business,
property, condition (financial or otherwise), results of operations or general
affairs of the Company.
(e) On the Initial Closing Date, the Company shall have executed and
delivered to the Underwriter, (i) the Representatives' Warrant Agreement
substantially in the form filed as an Exhibit to the Registration Statement in
final form and substance satisfactory to the Underwriter, and (ii) the
Representative's Warrants in such denominations and to such designees as shall
have been provided to the Company.
(f) On or before the Initial Closing Date, the Securities shall have been
duly approved for listing on an exchange or on NASDAQ, Small Cap Market.. .
(g) On or before the Initial Closing Date, there shall have been delivered
to the Underwriter all of the Lock-up Agreements required to be delivered
pursuant to Section 3(a)(xxv) and 4(h), in form and substance satisfactory to
the Underwriter and Underwriter's counsel.
If any condition to the Underwriter's 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 Underwriter may terminate this Agreement
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<PAGE> 17
or, if the Underwriter so elects, it may waive any such conditions which have
not been fulfilled or extend the time for their fulfillment.
6. Conditions of the Company's Obligations. The obligation of the Company to
sell and deliver the Securities is subject to the following:
(a) The provisions regarding the effective date, as described in
Section 10.
(b) At the Initial Closing Date, no stop order suspending the
effectiveness of the Prospectus shall have been issued under the Act or any
proceedings therefor initiated or threatened by the Commission or by any state
securities department.
(c) Tender of payment by the Underwriter in accord with Section 2
hereof.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each Underwriter and
its employees and each person, if any, who controls you within the meaning of
the Act, against any losses, claims, damages or liabilities, joint or several
(which shall, for any purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorneys' fees), to which
each Underwriter or such controlling person may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission made in the Prospectus, or such amendment or supplement to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, which is in reliance upon and in conformity
with written information furnished by the Company to you specifically for use in
the preparation thereof, and provided further that the indemnity agreement
contained in this subsection (a) shall not inure to the benefit of you with
respect to any person asserting any such loss, claim, damage or liability who
has purchased the Securities which are the subject thereof if you or any
participants failed to send or give a copy of the Prospectus to such person at
or prior to the written confirmation of the sale of such Securities to such
person and except that, with respect to any untrue statement or omission or any
alleged untrue statement or omission, made in any Pre-Effective Prospectus, the
indemnity agreement contained in this subsection (a) shall not inure to the
benefit of any Underwriter ( or to any person controlling any such underwriter)
from whom the person asserting any such loss, claim, damage or liability
purchased the securities concerned to the extent that such untrue statement or
omission, or alleged untrue statement or omission, has been corrected in a later
Pre-Effective Prospectus or in the Final Prospectus unless the Underwriter
circulated a later Pre-Effective Prospectus or the Final Prospectus to such
person
(b) Each Underwriter will indemnify and hold harmless the Company, each of
its directors, each of its officers, each person, if any, who controls the
Company within the meaning of the Act against any losses, claims, damages or
liabilities, joint or several (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees) to which the Company or any such director, officer or
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission was made in the Prospectus, or such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by you specifically for use in the preparation thereof. This indemnity
will be in addition to any liability which any Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify the indemnifying party of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than
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<PAGE> 18
under this Section. In case any such action is brought against any indemnified
party, and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party, similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation. The indemnified party shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall not be at the expense
of the indemnifying party if the indemnifying party has assumed the defense of
the action with counsel reasonably satisfactory to the indemnified party;
provided that, if the indemnified party is you or a person who controls you, the
fees and expenses of such counsel shall be at the expense of the indemnifying
party if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both you or such controlling person
and the indemnifying party and you or such controlling person shall have been
advised by such counsel that there is a conflict of interest which would prevent
counsel for the indemnifying party from representing the indemnifying party and
you or such controlling person (in which case the indemnifying party shall not
have the right to assume the defense of such action on behalf of you or such
controlling person, it being understood, however, that the indemnifying party
shall not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction or which are consolidated
into the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys for you and all such controlling persons, which firm
shall be designated in writing by you). No settlement of any action against an
indemnified party shall be made without the consent of the indemnified party,
which shall not be unreasonably withheld in light of all factors of importance
to such indemnified party.
8. Contribution. In order to provide for just and equitable contribution
tinder the Act in any case in which (i) the indemnifying party makes a claim for
indemnification pursuant to Section 7 hereof but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that the express provisions of Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of the
Underwriters, then the Company and the Underwriters in the aggregate shall
contribute to the aggregate losses, claims, damages, or liabilities to which
they may be subject (which shall, for all purposes of this Agreement, include,
but not be limited to, all costs of defense and investigation and all attorneys'
fees) in either such case (after contribution from others) in such proportions
that the Underwriters are responsible in the aggregate for that portion of such
losses, claims, damages or liabilities determined by multiplying the total
amount of such losses, claims, damages or liabilities times the difference
between the public offering price and the commission to the Underwriter and
dividing the product thereof by the public offering price, and the Company, if
applicable, shall be responsible for that portion of such losses, claims,
damages or liabilities times the commission to the Underwriters and dividing the
product thereof by the public offering price; provided, however, that the
Underwriters shall not be required to so contribute any amount in excess of the
underwriting discount applicable to the Securities purchased by the Underwriters
hereunder if such allocation is not permitted by applicable law, then the
relative fault of the Company and the Underwriters in connection with the
statements or omissions which resulted in such damages and other relevant
equitable considerations shall also be considered. No person guilty of a
fraudulent misrepresentation (within the meaning of Section 12(2) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. The foregoing contribution agreement shall in no
way affect the contribution liabilities of any person having liability under
Section 12 of the Act other than the Company and the Underwriter. As used in
this paragraph, the term "Underwriters" includes any person who controls the
Underwriters within the meaning of Section 15 of the Act. If the full amount of
the contribution specified in this paragraph is not permitted by law, then any
Underwriter and each person who controls any Underwriter shall be entitled to
contribution from the Company, to the full extent permitted by law.
9. Effective Date. This Agreement shall become effective at 10:00 a.m. New
York time on the next full business day following the effective date of
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<PAGE> 19
the Registration Statement, or at such other time after the effective date of
the Prospectus as you in your discretion shall first commence the public
offering of any of the Securities covered thereby, provided, however, that at
all times the provisions of Sections 7, 8, 9 and 11 shall be effective.
10. Termination.
(a) This Agreement, may be terminated at any time prior to the Closing
Date by you if in your judgment it is impracticable to offer for sale or to
enforce contracts made by you for the sale of the Securities agreed to be sold
hereunder by reason of (i) the Company as a whole having sustained a material
loss, whether or not insured, by reason of fire, earthquake, flood, accident or
other calamity, or from any labor dispute or court or government action, order
or decree, (ii) trading in securities of the Company having been suspended by a
state securities administrator or by the Commission, (iii) material governmental
restrictions having been imposed on trading in securities generally (not in
force and effect on the date hereof) or trading on the New York Stock Exchange,
American Stock Exchange, or in the over-the-counter market shall have been
suspended, (iv) a banking moratorium having been declared by federal or New York
State authorities, (v) an outbreak or escalation of hostilities or other
national or international calamity having occurred, (vi) the passage by the
Congress of the United States or by any state legislative body, of any act or
measure, or the adoption of any orders, rules or regulations by any governmental
body or any authoritative accounting institute or board, or any governmental
executive, which is believed likely by you to have a material impact on the
business, financial condition or financial statements of the Company; or (vii)
any material adverse change having occurred, since the respective dates as of
which information is given in the Prospectus, in the condition, financial or
otherwise, of the Company as a whole, whether or not arising in the ordinary
course of business, (viii) Robert H. Gentry, III ceases to be employed by the
Company in his present capacity; (ix) the Securities are not listed the American
Stock Exchange or any other exchange or on NASDAQ.
(b) If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section 10 or in Section 9, the
Company shall be promptly notified by you, by telephone or telegram, confirmed
by letter.
11. Representations, Warrants and Agreements to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company (or its officers) and the Underwriter set forth in or
made pursuant to this Agreement will remain in full force and effect, regardless
of any investigation made by or on behalf of the Underwriter, the Company, or
any of their officers or directors and will survive delivery of and payment for
the Securities.
Notices. All communications hereunder will be in writing and, except as
otherwise expressly provided herein, if sent to you, will be mailed,
delivered or telephoned and confirmed to you at, Nutmeg Securities,Ltd.,
495 Post Road East, Westport, Ct 06880 Attn: Daniel T. Guilfoile,Director,
Investment Banking Division; to the Company at 701 West Church Street,
Orlando, Florida 32805.
Parties in Interest. This Agreement is made solely for the benefit of the
Underwriter(s), and the Company, and their respective controlling persons,
directors and officers, and their respective successors, assigns, executors
and administrators. No other person shall acquire or have any right under
or by virtue of this Agreement.
14. Headings. The Section headings in this Agreement have been inserted
as a matter of convenience of reference and are not a part of this Agreement.
15. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut, without giving effect to
conflict of law principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which together shall constitute one and the same
instrument.
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If the foregoing correctly sets forth the understanding between the Company
and you, as Representative of the several underwriters, please so indicate in
the space provided below for such purpose, whereupon this letter and your
acceptance shall constitute a binding agreement between us.
Very truly yours,
Automotive One Parts Stores, Inc.
By:
---------------------------------
(Authorized Officer)
Robert H. Gentry, III, President
Accepted as of the date first above written:
Nutmeg Securities, Ltd.
As Representative of the several Underwriters
By:
----------------------------------------
(Authorized Officer)
, (Vice) President
Director, Investment Banking Division
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<PAGE> 21
EXHIBIT A
SCHEDULE 1
UNDERWRITERS
Shares of
Common Stock
and
Redeemable Warrants
Underwriter
Nutmeg Securities, Ltd.
<TABLE>
<S> <C>
TOTAL 1,200,000
</TABLE>
21
<PAGE> 1
EXHIBIT 1.2
AUTOMOTIVE ONE PARTS STORES, INC.
1,200,000 SHARES
OF COMMON STOCK
AND
1,200,000 REDEEMABLE WARRANTS
AGREEMENT AMONG UNDERWRITERS
, 19
Nutmeg Securities, Ltd
495 Post Road East
Westport, Ct 06880
as Representative
GENTLEMEN:
We wish to confirm as follows the agreement among you, the undersigned and
the other members of the Underwriting Group named in Schedule I to the
Underwriting Agreement, as it is to be executed (all such parties being herein
called the "Underwriters"), with respect to the purchase by the Underwriters
severally from Automotive One Parts Stores, Inc. ("Company") of 1,200,000 shares
of Common Stock and 1,200,000 five-year Redeemable Warrants ("Securities") set
forth in Schedule I to the Underwriting Agreement. The number of Securities to
be purchased by each Underwriter from the Company shall be determined in
accordance with Section 2 of the Underwriting Agreement. It is understood that
changes may be made in those who are to be Underwriters and in the respective
numbers of Securities to be purchased by them, but that the Underwriting
Agreement will not be changed without our consent, except as provided herein,
and in the Underwriting Agreement. The obligations of the Underwriters to
purchase the number of Securities set opposite their respective names in
Schedule I to the Underwriting Agreement, are herein called their "underwriting
obligations." The number of Securities set opposite our name in said Schedule I,
are herein called "our Securities." For purposes of this Agreement the following
definitions shall be applicable:
(a) "Manager's Concession" shall be the compensation to you for acting as
Manager as provided in Paragraph 1 of not less than percent ( %) of the
underwriting discount. The Manager's Concession shall include the right to a
portion of the warrants to be issued pursuant to the Underwriting Agreement and,
the right to the nonaccountable expenses to be paid pursuant to the Underwriting
Agreement.
(b) "Underwriting Group Concession" shall mean compensation to members of
the Underwriting Group for assuming the underwriting risk and shall be not less
than percent ( %) of the underwriting discount.
(c) "Dealer's Concession" shall mean compensation to Dealers, who are
members of the Selling Group and shall, as to Dealers who have executed an
agreement with you, be not less than percent ( %) of the underwriting
discount.
(d) "Dealer's Reallowance Concession" shall mean the compensation allowed
Dealers by Underwriters other than you and shall be one-half (1/2) of the
Dealer's Concession.
(e) It is contemplated that the underwriting discount will be ten percent
(10%) of the offering price. You, in your absolute discretion, shall determine,
within the foregoing limitations, the precise allocation of the underwriting
discount and shall notify us of same at least twenty-four (24) hours prior to
the execution of the Underwriting Agreement.
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<PAGE> 2
1. Authority and Compensation of Representative. We hereby authorize you,
as our Representative and on our behalf, (a) to enter into an agreement with the
Company substantially in the form attached hereto as Exhibit A ("Underwriting
Agreement"), but with such changes therein as in your judgment are not
materially adverse to the Underwriters, (b) to exercise all the authority and
discretion vested in the Underwriters and in you by the provisions of the
Underwriting Agreement, and (c) to take all such action as you, in your
discretion, may deem necessary or advisable in order to carry out the provisions
of the Underwriting Agreement and this Agreement and the sale and distribution
of the Securities, provided, however, that the time within which the
Registration Statement is required to become effective pursuant to the
Underwriting Agreement will not be extended more than forty-eight (48) hours
without the approval of a majority in interest of the Underwriters (including
you). We authorize you, in executing the Underwriting Agreement on our behalf,
to set forth in Schedule I of the Underwriting Agreement as our commitment to
purchase the number of Securities (which shall not be substantially in excess of
the number of Securities included in your invitation to participate unless we
have agreed otherwise) included in a wire, telex, or similar means of
communication transmitted by you to us at least twenty-four (24) hours prior to
the commencement of the offering as our finalized underwriting participation.
As our share of the compensation for your services hereunder, we will pay you,
and we authorize you to charge to our account, a sum equal to the Manager's
Concession.
2. Public Offering. A public offering of the Securities is to be made, as
herein provided, as soon after the Registration Statement relating thereto shall
become effective as in your judgment is advisable. The Securities shall be
initially offered to the public at the public offering price of $ 6.00 per share
and $.125 per Redeemable Warrant. You will advise us by telegraph or telephone
when the Securities shall be released for offering. We authorize you as
Representative of the Underwriters, after the initial public offering, to vary
the public offering price, in your sole discretion, by reason of changes in
general market conditions or otherwise. The public offering price of the
Securities at any time in effect is herein called the "Offering Price."
We hereby agree to deliver all preliminary and final Prospectuses as
required for compliance with the provisions of Rule 15c2-8 under the Securities
Exchange Act of 1934 and Section 5(b) of the Securities Act of 1933. You have
heretofore delivered to us such preliminary Prospectuses as have been requested
by us, receipt of which is hereby acknowledged, and will deliver such final
Prospectuses as will be requested by us.
3. Offering to Dealers and Group Sales. We authorize you to reserve for
offering and sale, and on our behalf to sell, to institutions or other retail
purchasers (such sales being herein called "Group Sales") and to dealers
selected by you (such dealers being herein called the "Dealers") all or any part
of our Securities as you may determine. Such sales of Securities, if any, shall
be made (i) in the case of Group Sales, at the Offering Price, and (ii) in the
case of sales to Dealers, at -the Offering Price less the Dealer's Concession.
Any Group Sales shall be as nearly as practicable in proportion to the
underwriting obligations of the respective Underwriters. Any sales to Dealers
made for our account shall be as nearly as practicable in the ratio that the
Securities reserved for our account for offering to Dealers bears to the
aggregate of all Securities of all Underwriters, including you, so reserved. On
any Group Sales or sales to Dealers made by you on our behalf, we shall be
entitled to receive only the Underwriter's Concession.
You agree to notify us not less than twenty-four (24) hours prior to the
commencement of the public offering as to the number of Securities, if any,
which we may retain for direct sale. Prior to the termination of this Agreement,
you may reserve for offering and sale, as herein before provided, any Securities
remaining unsold theretofore retained by us and we may, with your consent,
retain any Securities remaining unsold theretofore reserved by you. Sales to
Dealers shall be made under a Selected Dealers Agreement, attached hereto as
Exhibit B and by this reference incorporated herein. We authorize you to
determine the form and manner of any communications with Dealers, and to make
such changes in the Selected Dealers Agreement, as you may deem appropriate. In
the event that there shall be any such agreements with Dealers, you are
authorized to act as managers thereunder, and we agree, in such event, to be
governed by the terms and conditions of such agreements. Each Underwriter agrees
that it will not offer any of the Securities for sale at a price below the
Offering Price or allow any concession therefrom, except as herein
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<PAGE> 3
otherwise provided. We, as to our Securities, may enter into agreements with
Dealers, but any Dealer's Reallowance Concession shall not exceed half of the
Dealer's Concession.
It is understood that any person to whom an offer may be made, as herein before
provided, shall be a member of the National Association of Securities Dealers,
Inc. ("NASD") or dealers or institutions with their principal place of business
located outside of the United States, its territories or possessions, and who
are not eligible for membership under Section 1 of the Bylaws of the NASD who
agree to make no sales within the United States, its territories or possessions,
or to persons who are nationals thereof, or residents therein, and, in making
sales, to comply with the NASD's Rules of Fair Practice.
We authorize you to determine the form and manner of any public
advertisement of the Securities.
Nothing in this Agreement contained shall be deemed to restrict our right,
subject to the provisions of this Section 3, to offer our Securities prior to
the effective date of the Registration Statement, provided, however, that any
such offer shall be made in compliance with any applicable requirements of the
Securities Act of 1933 and the Securities Exchange Act of 1934 and the rules and
regulations of the Securities and Exchange Commission thereunder and of any
applicable state securities laws.
4. Repurchases in the Open Market. Any Securities sold by us (otherwise
than through you) which, prior to the termination of this Agreement, or such
earlier date as you may determine, shall be contracted for or purchased in the
open market by you on behalf of any Underwriter or Underwriters, shall be
repurchased by us on demand at a price equal to the cost of such purchase plus
commissions and taxes, if any, on redelivery. Any Securities delivered on such
repurchase need not be the identical Securities originally sold by us. In lieu
of delivery of such Securities to us, you may (i) sell such Securities in any
manner for our account and charge us with the amount of any loss or expense, or
credit us with the amount of any profit, less any expense, resulting from such
sale, or (ii) charge our account . t with an amount not in excess of the
concession to Dealers on such Securities.
5. Delivery and Payment. We agree to deliver to you, at or before 9:00
A.M., New York, New York Time, on the Closing Date referred to in the
Underwriting Agreement, at your office, a certified or bank cashier's check
payable to your order for the offering price of the Securities less Dealer's
Concession of the Securities which we retained for direct sale by us, the
proceeds of which check shall be delivered to you, in the manner provided in
the Underwriting Agreement, to or for the account of the Company against
delivery of certificates for such Securities to you for our account. You are
authorized to accept such delivery and to give receipts therefor. You may
advance funds for Securities which have been sold or reserved for sale to
retail purchasers or Dealers for our account. If we fail (whether or not such
failure shall constitute a default hereunder) to deliver to you, or you fail to
receive, our check and/or payment for sales made by you for our account for the
Securities which we have agreed to purchase, you, individually and not as
Representative of the Underwriters, are authorized (but shall not be obligated)
to make payment, in the manner provided in the Underwriting Agreement, to or
for the account of the Company for such Securities for our account, but any
such payment by you shall not relieve us of any of our obligations under the
Underwriting Agreement or under this Agreement and we agree to repay you on
demand the amount so advanced for our account.
We also agree on demand to take up and pay for or to deliver to you
funds sufficient to pay for at cost any Securities of the Company purchased by
you for our account pursuant to the provisions of Section 9 hereof, and to
deliver to you on demand any Securities sold by you for our account, pursuant to
any provision of this Agreement.
We authorize you to deliver our Securities, and any other Securities
purchased by you for our account pursuant to the provisions of Section 9 hereof,
against sales made by you for our account pursuant to any provision of this
Agreement.
Upon receipt by you of payment for the Securities sold by us and/or through
you for our account, you will remit to us promptly an amount equal to the
Underwriter's Concession on such Securities. You agree to cause to be delivered
to us, as soon as practicable after the Closing Date referred to in the
Underwriting Agreement, such part of our Securities purchased on such Closing
Date as shall not have been sold or reserved for sale by your for our account.
3
<PAGE> 4
In case any Securities reserved for sale in Group Sales or to Dealers shall
not be purchased and paid for in due course as contemplated hereby, we agree to
accept delivery when tendered by you of any Securities so reserved for our
account and not so purchased and pay you the offering price less the Dealer's
and Underwriter's Concessions.
6. Authority to Borrow. We authorize you to advance your funds for our
account (charging current interest rates) and to arrange loans for our account
for the purpose of carrying out this Agreement, and in connection therewith to
execute and deliver any notes or other instruments, and to hold, or pledge as
security therefor, all or any part of our Securities of the Company purchased
hereunder for our account. Any lending bank is hereby authorized to accept your
instructions as Representative in all matters relating to such loans. Any part
of our Securities held by you, may be delivered to us for carrying purposes, and
if so delivered, will be redelivered to you upon demand.
7. Allocation of Expense and Liability. We authorize you to charge our
account with, and we agree to pay (a) all transfer taxes on sales made by you
for our account, except as herein otherwise provided, and (b) our proportionate
share (based on our underwriting obligations) of all expenses in excess of those
reimbursed by the Company incurred by you in connection with the purchase,
carrying and distribution, or proposed purchase and distribution, of the
Securities and all other expenses arising under the terms of the Underwriting
Agreement or this Agreement. Your determination of all such expenses and your
allocation thereof shall be final and conclusive. Funds for our account at any
time in your hands as our Representative may be held in your general funds
without accountability for interest. As soon as practicable after the
termination of this Agreement, the net credit or debit balance in our account,
after proper charge and credit for all interim payments and receipts, shall be
paid to or paid by us, provided, however, that you, in your discretion, may
reserve from distribution an amount to cover possible additional expenses
chargeable to the several Underwriters.
8. Liability for Future Claims. Neither any statement by you, as
Representative of the Underwriters, of any credit or debit balance in our
account nor any reservation from distribution to cover possible additional
expenses relating to the Securities shall constitute any representation by you
as to the existence or nonexistence of possible unforeseen expenses or
liabilities of or charges against the several Underwriters. Notwithstanding the
distribution of any net credit balance to us or the termination of this
Agreement, or both, we shall be and remain liable for, and will pay on demand,
(a) our proportionate share (based on our underwriting obligations) of all
expenses and liabilities which may be incurred by, or for the accounts of the
Underwriters, including any liability which may be incurred by the Underwriters
or any of them, and (b) any transfer taxes paid after such settlement on account
of any sale or transfer for our account.
9. Stabilization. We authorize you, until the termination of this
Agreement, (a) to make purchases and sales of the Securities, in the open market
or otherwise, for long or short account, and on such terms, and at such prices
as you in your discretion may deem desirable, (b) in arranging for sales of
Securities, to overallot, and (c) either before or after the termination of this
Agreement, to cover any short position incurred pursuant to this Section 9;
subject, however, to the applicable rules and regulations of the Securities and
Exchange Commission under the Securities Exchange Act of 1934. All such
purchases, sales and overallotments shall be made for the accounts of the
several Underwriters as nearly as practicable in proportion to their respective
underwriting obligations; provided, however, that our net position resulting
from such purchases and sales and overallotments shall not at any time exceed,
either for long or short account, fifteen percent (15%) of the number of
Securities agreed to be purchased by us.
If you engage in any stabilizing transactions as representative of the
underwriters, you shall promptly notify us of that fact and in like manner you
agree to promptly notify and file with us any stabilizing transaction in
accordance with the requirements of Rule 17a-2(d) under the Securities Exchange
Act of 1934.
We agree to advise you from time to time, upon request, until the settlement of
accounts hereunder, of the number of Securities at the time retained by us
unsold, and we will upon request sell to you, for the accounts of one or more of
the several Underwriters, such number of our unsold Securities as you may
designate, at the Offering Price less such amount, not in excess of the
concession to Dealers, as you may determine.
4
<PAGE> 5
10. Open Market Transactions. We agree that, except with your consent and
except as herein provided upon advice from you, we will not make purchases or
sales on the open market or otherwise, or attempt to induce others to make
purchases or sales, either before or after the purchase of the Securities, and
prior to the completion (as defined in Regulation M of the Securities Exchange
Act of 1934) of our participation in the distribution, we will otherwise comply
with Regulation M. Nothing in this Section 10 contained shall prohibit us from
acting as broker or agent in the execution of unsolicited orders of customers
for the purchase or sale of any securities of the Company.
11. Blue Sky. Prior to the initial offering by the Underwriters, you will
inform us as to the states under the respective securities or Blue Sky laws of
which it is believed that the Securities have been qualified or are exempt for
sale, but you do not assume any responsibility or obligation as to the accuracy
of such information or as to the right of any Underwriter or Dealer to sell the
Securities in any jurisdiction. We will not sell any Securities in any other
state or jurisdiction and we will not sell Securities in any state or
jurisdiction unless we are qualified or licensed to sell securities in such
state or jurisdiction. We authorize you, if you deem it inadvisable in arranging
sales of Securities for our account hereunder, to sell any of our Securities to
any particular Dealer, or other buyer, because of the securities or Blue Sky
laws of any jurisdiction, to sell our Securities to one or more other
Underwriters at the Offering Price less, in the case of a sale to any Dealer,
such amount, not in excess of the concession to Dealers thereon, as you may
determine. The transfer tax on any such sales among Underwriters shall be
treated as an expense and charged to the respective accounts of the several
Underwriters, in proportion to their respective underwriting obligations.
12. Default by Underwriters. Default by one or more Underwriters, in
respect to their obligations under the Underwriting Agreement shall not release
us from any of our obligations. In case of such default by one or more
Underwriters, you are authorized to increase, pro rata, with the other
nondefaulting Underwriters, the number of defaulted Securities which we shall be
obligated to purchase from the Company, provided, however, that the aggregate
amount of all such increases for all Underwriters shall not exceed ten percent
(10%) of such Securities, and, if the aggregate number of the Securities not
taken up by such defaulting Underwriters exceeds such ten percent (10%), you are
further authorized, but shall not be obligated, to arrange for the purchase by
other persons, who may include yourselves, of all or a portion of the Securities
not taken up by such Underwriters. In the event any such increases or
arrangements are made, the respective numbers of Securities to be purchased by
the nondefaulting Underwriters and by any such other person or persons shall be
taken as the basis for the underwriting obligations under this Agreement, but
this shall not in any way affect the liability of any defaulting Underwriters to
the other Underwriters for damages resulting from such default.
In the event of default by one or more Underwriters in respect of their
obligations under this Agreement to take up and pay for any Securities purchased
by your for their respective accounts, pursuant to Section 9 hereof, or to
deliver any such Securities sold or overallotted by you for their respective
accounts pursuant to any provisions of this Agreement, and to the extent that
arrangements shall not have been made by you for other persons to assume the
obligations of such defaulting Underwriter or Underwriters, each nondefaulting
Underwriter shall assume its proportionate share of the aforesaid obligations of
each such defaulting Underwriter without relieving any such Underwriter of its
liability therefor.
13. Termination of Agreement. Unless earlier terminated by you, the
provisions of Sections 2, 3, 4, 6, 9 and 10 of this Agreement shall, except as
otherwise provided therein, terminate thirty (30) full business days after the
effective date of the Registration Statement herein referred to, but may be
extended by you for an additional period or periods not exceeding thirty (30)
full business days in the aggregate. You may, however, terminate this Agreement,
or any provisions hereof, at any time by written or telegraphic notice to us.
14. General Position of the Representative. In taking action under this
Agreement, you shall act only as agent of the several Underwriters. Your
authority as Representative of the several Underwriters shall include the taking
of such action as you may deem advisable in respect of all matters pertaining to
any and all offers and sales of the Securities, including the right to make any
modifications which you consider necessary or desirable in the arrangements with
Dealers or others. You shall be under no liability for or in respect of the
value of the Securities or the validity or the form thereof, the Registration
Statement, the Prospectus, the Underwriting Agreement, or other instruments
executed by the Company or others of any agreement on its or their part; nor
shall you, as such Representative or otherwise, be liable under any of the
provisions hereof, or for any matters connected herewith,
5
<PAGE> 6
except for want of good faith, and except for any liability arising under the
Securities Act of 1933; and no obligation not expressly assumed by you as such
Representative herein shall be implied from this Agreement. In representing the
Underwriters hereunder, you shall act as the representative of each of them
respectively. Nothing herein contained shall constitute the several Underwriters
partners with you or with each other, or render any Underwriter liable for the
commitments of any other Underwriter, except as otherwise provided in Section 12
hereof. The commitments and liabilities of each of the several Underwriters are
several in accordance with their respective underwriting obligations and are not
joint.
15. Acknowledgment of Registration Statement, etc. We hereby confirm that
we have examined the Registration Statement (including all amendments thereto)
relating to the Securities as heretofore filed with the Securities and Exchange
Commission, that we are familiar with the amendment(s) to the Registration
Statement and the final form of Prospectus proposed to be filed, that we are
willing to accept the responsibilities of an underwriter thereunder, and that we
are willing to proceed as therein contemplated. We further confirm that the
statements made under the heading "Underwriting" in such proposed final form of
Prospectus are correct and we authorize you so to advise the Company on our
behalf. We understand that the aforementioned documents are subject to further
change and that we will be supplied with copies of any amendment or amendments
to the Registration Statement and of any amended Prospectus promptly, if and
when received by you, but the making of such changes and amendments shall not
release us or affect our obligations hereunder or under the Underwriting
Agreement.
16. Indemnification. Each Underwriter, including you, agrees to indemnify
and hold harmless each other Underwriter and each person who controls any other
Underwriter within the meaning of Section 15 of the Securities Act of 1933, as
amended, to the extent of their several commitments under the Underwriting
Agreement and upon the terms that such Underwriter agrees to indemnify and hold
harmless the Company as set forth in Section 7 of the Underwriting Agreement.
The Agreement contained in this Section 16 shall survive any termination of this
Agreement Among Underwriters.
17. Capital Requirements. We confirm that our ratio of aggregate
indebtedness to net capital is such that we may, in accordance with and pursuant
to Rule 15c3-1, promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, agree to purchase the number of Securities we
may be obligated to purchase under any provision of the Underwriting Agreement
or this Agreement.
18. Miscellaneous. We have transmitted herewith a completed Underwriters'
Questionnaire on the form thereof supplied by you. Any notice hereunder from you
to us or from us to you shall be deemed to have been duly give if sent by
registered mail, telegram, teletype, telex, telecopier, graphic scan, or other
written form of telecommunication to us at our address as set forth in the
Underwriting Agreement, or to you at the address set forth on the first page of
this Agreement.
You hereby confirm that you are registered as a broker-dealer with the
United States Securities and Exchange Commission and that you are a member of
the NASD and we confirm that we are either a member of the NASD or a foreign
broker-dealer not eligible for membership under Section I of the Bylaws of the
NASD, who agrees to make no sales within the United States, its territories or
possessions, or to persons who are nationals thereof or residents therein, and,
in making sales, to comply with the requirements of the NASD's Interpretation
with Respect to Free Riding and Withholding, and with Sections 2730, 2740 and
2420 to the extent applicable to foreign nonmember brokers or dealers, and
Section 2750 of the NASD's Rules of Fair Practice.
We will comply with all applicable federal laws, the laws of the states or
other jurisdictions concerned and the Rules and Regulations of the NASD,
including, but not limited to, Section 2740 of the Rules of Fair Practice.
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<PAGE> 7
This instrument may be signed by the Underwriters in various counterparts
which together shall constitute one and the same agreement among all the
Underwriters and shall become effective as between us at such time as you shall
have confirmed same by returning an executed copy to us, and thereafter, as to
us and the other Underwriters, upon execution by them of counterparts which are
confirmed by you. In no event, however, shall we have any liability under this
Agreement if the Underwriting Agreement is not executed.
Please confirm that the foregoing correctly states the understanding
between us by signing and returning to us a counterpart hereof.
Very truly yours,
-------------------------------------
Attorney-in-Fact
for the several Underwriters
named in Schedule I
to the Underwriting Agreement
Confirmed as of the date first above written.
NUTMEG SECURITIES,LTD.
As Representative
By
------------------------------------------
President or Director Investment Banking
7
<PAGE> 1
EXHIBIT 1.3
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. NO
OFFER TO BUY THE SECURITIES CAN BE ACCEPTED AND NO PART OF THE PURCHASE PRICE
CAN BE RECEIVED UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE, AND ANY
SUCH OFFER MAY BE WITHDRAWN OR REVOKED, WITHOUT OBLIGATION OR COMMITMENT OF ANY
KIND, AT ANY TIME PRIOR TO NOTICE OF ITS ACCEPTANCE GIVEN AFTER THE EFFECTIVE
DATE. YOUR EXECUTION HEREOF WELL INVOLVE NO OBLIGATION OR COMMITMENT OF ANY KIND
UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE.
AUTOMOTIVE ONE PARTS STORES,INC.
SELECTED DEALERS AGREEMENT
, 19
Dear Sirs:
1. Nutmeg Securities ,Ltd.. named as the Underwriter ("Underwriter") in
the enclosed preliminary Prospectus, proposes to offer on a firm commitment
basis, subject to the terms and conditions and execution of the Underwriting
Agreement, 1,200,000 Shares of Common Stock at $6.00 per share and 1,200,000
Five-year Redeemable Warrants at $.125 per Warrant ("Securities") of the above
Company. The Securities are more particularly described in the enclosed
preliminary Prospectus, additional copies of which will be supplied in
reasonable quantities upon request. Copies of the definitive Prospectus will be
supplied after the effective date of the Registration Statement.
2. The Underwriter is soliciting offers to buy, upon the terms and
conditions hereof, a part of the Securities from Selected Dealers, including you
who are to act as principal and who are (i) registered with the Securities and
Exchange Commission ("Commission") as broker-dealers under the Securities
Exchange Act of 1934, as amended ("1934 Act"), and members in good standing with
the National Association of Securities Dealers, Inc. ("NASD"), or (ii) dealers
or institutions with their principal place of business located outside the
United States, its territories and possessions who are not eligible for
membership in the NASD and who agree to make no sales within the United States,
its territories or possessions or to persons who are nationals thereof or
residents therein and, in making sales, to comply with the NASD's Interpretation
with Respect to FreeRiding and Withholding and with Sections 2730,2740,2420, to
the extent applicable to foreign nonmember brokers or dealers, and Section
2750of the NASD's Rules of Fair Practice. The Securities are to be offered at a
public price of $ 6.00 per share of Common Stock and $.025 per Warrant. Selected
Dealers will be allowed a concession of not less than $ per share and
$ per Warrant except as provided below. You will be notified of the
precise amount of such concession prior to the effective date of the
Registration Statement. You may reallow not in excess of $ per share
and $ per Warrant to dealers who meet the requirements set forth in
this Section 2. This offer is solicited subject to the issuance and delivery of
the Securities and their acceptance by the Underwriter, to the approval of
legal matters by counsel and to the terms and conditions as herein set forth.
3. Your offer to purchase may be revoked in whole or in part without
obligation or commitment of any kind by you and any time prior to acceptance and
no offer may be accepted by us and no sale can be made until after the
registration statement covering the Securities has become effective with the
Commission. Subject to the foregoing, upon execution by you of the Offer to
Purchase below and the return of same to us, you shall be deemed to have offered
to purchase the number of Securities set forth in your offer on the basis set
forth in paragraph 2 above. Any
1
<PAGE> 2
oral notice by us of acceptance of your offer shall be immediately followed by
written or telegraphic confirmation preceded or accompanied by a copy of the
Prospectus. If a contractual commitment arises hereunder, all the terms of this
Selected Dealers Agreement shall be applicable. We may also make available to
you an allotment to purchase Securities, but such allotment shall be subject to
modification or termination upon notice from us any time prior to an exchange of
confirmations reflecting completed transactions. All references hereafter in
this Agreement to the purchase and sale of Securities assume and are applicable
only if contractual commitments to purchase are completed in accordance with the
foregoing..
4. You agree that in reoffering said Securities, if your offer is
accepted after the effective date, you will make a bona fide public distribution
of same. You will advise us upon request of Securities purchased by you
remaining unsold and we shall have the right to repurchase such Securities upon
demand at the public offering price without paying the concession with respect
to any Securities so repurchased. Any of the Securities purchased by you
pursuant to this Agreement are to be subject to the terms hereof. Securities
shall not be offered or sold by you below the public offering price before the
termination of this Agreement.
5. Payment for Securities which you purchase hereunder shall be made by
you on or before three (3) business days after the date of each confirmation by
certified or bank cashier's check payable to the Underwriter. Certificates for
the Securities shall be delivered as soon as practicable after delivery
instructions are received by the Underwriter.
6. A registration statement covering the offering has been filed with the
Securities and Exchange Commission in respect to the Securities. You will be
promptly advised when the registration statement becomes effective. Each
Selected Dealer in selling Securities pursuant hereto agrees (which agreement
shall also be for the benefit of the Company) that it will comply with the
applicable requirements of the Securities Act of 1933 and of the Securities
Exchange Act of 1934 and any applicable rules and regulations issued under said
Acts. No person is authorized by the Company or by the Underwriter to give any
information or to make any representations other than those contained in the
Prospectus in connection with the sale of the Securities. Nothing contained
herein shall render the Selected Dealers a member of the Underwriting Group or
partners with the Underwriter or with one another.
7. You will be informed by us as to the states in which we have been
advised by counsel the Securities have been qualified for sale or are exempt
under the respective securities or blue sky laws of such states, but we have not
assumed and will not assume any obligation or responsibility as to the right of
any Selected Dealer to sell Securities in any state. You agree not to sell
Securities in any other state or jurisdiction and to not sell Securities in any
state or jurisdiction unless you are qualified or licensed to sell securities in
such state or jurisdiction.
8. The Underwriter shall have full authority to take such action as it
may deem advisable in respect of all matters pertaining to the offering or
arising thereunder. The Underwriter shall not be under any liability to you,
except such as may be incurred under the Securities Act of 1933 and the rules
and regulations thereunder, except for lack of good faith and except for
obligations assumed by us in this Agreement, and no obligation on our part shall
be implied or inferred herefrom.
9. Selected Dealers will be governed by the conditions herein set forth
until this Agreement is terminated. This Agreement will terminate when the
offering is completed. Nothing herein contained shall be deemed a commitment on
our part to sell you any Securities; such contractual commitment can only be
made in accordance with the provisions of paragraph 3 hereof.
10. You represent that you are a member in good standing of the NASD and
registered as a broker-dealer with the Commission, or that you are a foreign
broker-dealer not eligible for membership under Section 1 of the Bylaws of the
NASD who agrees to make no sales within the United States, its territories or
possessions or to persons who are nationals thereof or residents therein and, in
making sales, to comply with the NASD's interpretation with Respect to
FreeRiding and Withholding and with Sections 2730, 2740 2420 to the extent
applicable to foreign nonmember brokers and dealers, and Section 2750 of the
NASD's Rules of Fair Practice. Your attention is called to and you agree to
comply with the following: (a) Article III, Section 1 of the Rules of Fair
Practice of the NASD and the interpretations of said Section promulgated by the
Board of Governors of the NASD including Section 24 and the
2
<PAGE> 3
interpretation with respect to "Free-Riding and Withholding;" (b) Section 10(b)
of the 1934 Act and Regulation M and Rule 10b-10 of the general rules and
regulations promulgated under the 1934 Act; and (c) Rule 15c2-8 of the general
rules and regulations promulgated under the 1934 Act requiring the distribution
of a preliminary Prospectus to all persons reasonably expected to be purchasers
of the Securities from you at least 48 hours prior to the time you expect to
mail confirmations. You, as a member of the NASD, by signing this Agreement,
acknowledge that you are familiar with the cited laws and rules and agree that
you will not directly and/or indirectly violate any provisions of applicable law
in connection with your participation in the distribution of the Securities.
11. In addition to compliance with the provisions of paragraph 10 hereof,
you will not, until advised by us in writing or by wire that the entire offering
has been distributed and closed, bid for or purchase Securities in the open
market or otherwise make a market in the Securities or otherwise attempt to
induce others to purchase the Securities in the open market. Nothing contained
in this paragraph 11 shall, however, preclude you from acting as agent in the
execution of unsolicited orders of customers in transactions effectuated for
them through a market maker.
12. You understand that the Underwriter may in connection with the
offering engage in stabilizing transactions. If the Underwriter contracts for or
purchases in the open market in connection with such stabilization any
Securities sold to you hereunder and not effectively placed by you, the
Underwriter may charge you the Selected Dealer's concession originally allowed
you on the Securities so purchased and you agree to pay such amount to us on
demand.
13. By submitting an Offer to Purchase you confirm that you may, in
accordance with Rule 15c3-1 adopted under the 1934 Act, agree to purchase the
number of Securities you may become obligated to purchase under the provisions
of this Agreement.
14. All communications from you should be directed to us at 495 Post Road
East, Westport, CT 06880 Attn: Daniel T. Guilfoile, Director Investment Banking
Division( 203-226-1857 ) and fax ( 203-226-5343). All communications from us to
you shall be directed to the address to which this letter is mailed.
Very truly yours,
Nutmeg Securities, Ltd.
By
------------------------------------
(Authorized Officer)
3
<PAGE> 4
OFFER TO PURCHASE
The undersigned does hereby offer to purchase (subject to the right to
revoke as set forth in paragraph 3) _______________* Securities in accordance
with the terms and conditions set forth above. We hereby acknowledge receipt of
the Prospectus referred to in the first paragraph thereof relating to such
Securities. We further state that in purchasing such Securities we have relied
upon such Prospectus and upon no other statement whatsoever, written or oral.
- --------------------------------------
By
------------------------------------
(Authorized Officer)
*If a number appears here which does not correspond with what you wish to offer
to purchase, you may change the number by crossing out the number, inserting a
different number and initializing the change.
4
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
AUTOMOTIVE ONE PARTS STORES, INC.
(A FLORIDA CORPORATION)
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
ARTICLE ONE - OFFICES .......................................................... 1
1. Registered Office .................................................. 1
2. Other Offices ...................................................... 1
ARTICLE TWO - MEETINGS OF SHAREHOLDERS ......................................... 1
1. Place .............................................................. 1
2. Time of Annual Meeting ............................................. 1
3. Call of Special Meetings ........................................... 1
4. Conduct of Meetings ................................................ 1
5. Notice and Waiver of Notice ........................................ 1
6. Business and Nominations for Annual and Special Meetings ........... 2
7. Quorum ............................................................. 2
8. Voting Rights Per Share ............................................ 2
9. Voting of Shares ................................................... 3
10. Proxies ........................................................... 3
11. Shareholder List .................................................. 4
13. Fixing Record Date 4
14. Inspectors and Judges ............................................. 4
15. Voting for Directors .............................................. 5
ARTICLE THREE - DIRECTORS ...................................................... 5
1. Number; Term; Election; Qualification .............................. 5
2. Resignation; Vacancies; Removal .................................... 5
3. Powers ............................................................. 5
4. Place of Meetings .................................................. 5
5. Annual Meetings .................................................... 5
6. Regular Meetings ................................................... 5
7. Special Meetings and Notice ........................................ 5
8. Quorum and Required Vote ........................................... 6
9. Action Without Meeting ............................................. 6
10. Conference Telephone or Similar Communications Equipment Meetings.. 6
11. Committees ........................................................ 6
12. Compensation of Directors ......................................... 7
ARTICLE FOUR - OFFICERS ........................................................ 7
1. Positions .......................................................... 7
2. Election of Specified Officers by Board ............................ 7
3. Election or Appointment of Other Officers .......................... 7
4. Compensation ....................................................... 7
5. Term; Resignation; Removal; Vacancies .............................. 8
6. Chairman of the Board .............................................. 8
7. President .......................................................... 8
8. Vice Presidents .................................................... 8
9. Secretary .......................................................... 8
10. Chief Financial Officer ........................................... 9
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
11. Treasurer ......................................................... 9
12. Other Officers; Employees and Agents .............................. 9
ARTICLE FIVE - CERTIFICATES FOR SHARES ......................................... 9
1. Issue of Certificates .............................................. 9
2. Legends for Preferences and Restrictions on Transfer ............... 10
3. Facsimile Signatures ............................................... 10
4. Lost Certificates .................................................. 10
5. Transfer of Shares ................................................. 10
6. Registered Shareholders ............................................ 11
7. Redemption of Control Shares ....................................... 11
ARTICLE SIX - GENERAL PROVISIONS ............................................... 11
1. Dividends .......................................................... 11
2. Reserves ........................................................... 11
3. Checks ............................................................. 11
4. Fiscal Year ........................................................ 11
5. Seal ............................................................... 11
6. Gender ............................................................. 11
ARTICLE SEVEN - AMENDMENT OF BYLAWS ............................................ 12
</TABLE>
(ii)
<PAGE> 4
AUTOMOTIVE ONE PARTS STORES, INC.
AMENDED AND RESTATED BYLAWS
ARTICLE ONE
OFFICES
Section 1. Registered Office. The registered office of AUTOMOTIVE ONE
PARTS STORES, INC., a Florida corporation (the "Corporation"), shall be located
at 701 West Church Street, Orlando, Florida 32801, unless otherwise determined
by the Board of Directors of the Corporation (the "Board of Directors") in
accordance with applicable law.
Section 2. Other Offices. The Corporation may also have offices at such
other places, either within or without the State of Florida, as the Board of
Directors may from time to time determine or as the business of the Corporation
may require.
ARTICLE TWO
MEETINGS OF SHAREHOLDERS
Section 1. Place. All annual meetings of shareholders shall be held at
such place, within or without the State of Florida, as may be designated by the
Board of Directors and stated in the notice of the meeting or in a duly executed
waiver of notice thereof. Special meetings of shareholders may be held at such
place, within or without the State of Florida, and at such time as shall be
stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
Section 2. Time of Annual Meeting. Annual meetings of shareholders
shall be held on such date and at such time fixed, from time to time, by the
Board of Directors, provided, that there shall be an annual meeting held every
calendar year at which the shareholders shall elect a board of directors and
transact such other business as may properly be brought before the meeting.
Section 3. Call of Special Meetings. Special meetings of the
shareholders shall be held if called in accordance with the procedures set forth
in the Corporation's Amended and Restated Articles of Incorporation (the
"Articles of Incorporation") for the call of a special meeting of shareholders.
Section 4. Conduct of Meetings. The Chairman of the Board (or in his
absence, the President or such other designee of the Chairman of the Board)
shall preside at the annual and special meetings of shareholders and shall be
given full discretion in establishing the rules and procedures to be followed in
conducting the meetings, except as otherwise provided by law or in these Bylaws.
Section 5. Notice and Waiver of Notice. Except as otherwise provided by
law, written or printed notice stating the place, date and time of the meeting
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called, shall be delivered not less than ten (10) nor more than sixty
(60) days before the date of the meeting, either personally or by first-class
mail or other legally sufficient means, by or at the direction of the Chairman
of the
<PAGE> 5
Board, President, the Secretary, or the officer or person calling the meeting,
to each shareholder of record entitled to vote at such meeting. If the notice is
mailed at least thirty (30) days before the date of the meeting, it may be done
by a class of United States mail other than first class. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail
addressed to the shareholder at his address as it appears on the stock transfer
books of the Corporation, with postage thereon prepaid. If a meeting is
adjourned to another time and/or place, and if an announcement of the adjourned
time and/or place is made at the meeting, it shall not be necessary to give
notice of the adjourned meeting unless the Board of Directors, after
adjournment, fixes a new record date for the adjourned meeting. Whenever any
notice is required to be given to any shareholder, a waiver thereof in writing
signed by the person or persons entitled to such notice, whether signed before,
during or after the time of the meeting stated therein, and delivered to the
Corporation for inclusion in the minutes or filing with the corporate records,
shall constitute an effective waiver of such notice. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
shareholders need be specified in any written waiver of notice. Attendance of a
person at a meeting shall constitute a waiver of (a) lack of or defective notice
of such meeting, unless the person objects at the beginning to the holding of
the meeting or the transacting of any business at the meeting, or (b) lack of or
defective notice of a particular matter at a meeting that is not within the
purpose or purposes described in the meeting notice, unless the person objects
to considering such matter when it is presented.
Section 6. Business and Nominations for Annual and Special Meetings.
Business transacted at any special meeting shall be confined to the purposes
stated in the notice thereof. At any annual meeting of shareholders, only such
business shall be conducted as shall have been properly brought before the
meeting in accordance with the requirements and procedures set forth in the
Articles of Incorporation. Only such persons who are nominated for election as
directors of the Corporation in accordance with the requirements and procedures
set forth in the Articles of Incorporation shall be eligible for election as
directors of the Corporation.
Section 7. Quorum. Shares entitled to vote as a separate voting group
may take action on a matter at a meeting only if a quorum of those shares exists
with respect to that matter. Except as otherwise provided in the Articles of
Incorporation or applicable law, shares representing a majority of the votes
pertaining to outstanding shares which are entitled to be cast on the matter by
the voting group constitute a quorum of that voting group for action on that
matter. If less than a quorum of shares are represented at a meeting, the
holders of a majority of the shares so represented may adjourn the meeting from
time to time. After a quorum has been established at any shareholders' meeting,
the subsequent withdrawal of shareholders, so as to reduce the number of shares
entitled to vote at the meeting below the number required for a quorum, shall
not affect the validity of any action taken at the meeting or any adjournment
thereof. Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.
Section 8. Voting Rights Per Share. Each outstanding share, regardless
of class, shall be entitled to vote on each matter submitted to a vote at a
meeting of shareholders, except to the extent that the voting rights of the
shares of any class are limited or denied by or pursuant to the Articles of
Incorporation or the Florida Business Corporation Act.
Section 9. Voting of Shares. A shareholder may vote at any meeting of
shareholders of the Corporation, either in person or by proxy. Shares standing
in the name of another
-2-
<PAGE> 6
corporation, domestic or foreign, may be voted by the officer, agent or proxy
designated by the bylaws of such corporate shareholder or, in the absence of any
applicable bylaw, by such person or persons as the board of directors of the
corporate shareholder may designate. In the absence of any such designation, or,
in case of conflicting designation by the corporate shareholder, the chairman of
the board, the president, any vice president, the secretary and the treasurer of
the corporate shareholder, in that order, shall be presumed to be fully
authorized to vote such shares. Shares held by an administrator, executor,
guardian, personal representative, or conservator may be voted by him, either in
person or by proxy, without a transfer of such shares into his name. Shares
standing in the name of a trustee may be voted by him, either in person or by
proxy, but no trustee shall be entitled to vote shares held by him without a
transfer of such shares into his name or the name of his nominee. Shares held by
or under the control of a receiver, a trustee in bankruptcy proceedings, or an
assignee for the benefit of creditors may be voted by such person without the
transfer thereof into his name. If shares stand of record in the names of two or
more persons, whether fiduciaries, members of a partnership, joint tenants,
tenants in common, tenants by the entirety or otherwise, or if two or more
persons have the same fiduciary relationship respecting the same shares, unless
the Secretary of the Corporation is given notice to the contrary and is
furnished with a copy of the instrument or order appointing them or creating the
relationship wherein it is so provided, then acts with respect to voting shall
have the following effect: (a) if only one votes, in person or by proxy, his act
binds all; (b) if more than one vote, in person or by proxy, the act of the
majority so voting binds all; (c) if more than one vote, in person or by proxy,
but the vote is evenly split on any particular matter, each faction is entitled
to vote the share or shares in question proportionally; or (d) if the instrument
or order so filed shows that any such tenancy is held in unequal interest, a
majority or a vote evenly split for purposes hereof shall be a majority or a
vote evenly split in interest. The principles of this paragraph shall apply,
insofar as possible, to execution of proxies, waivers, consents, or objections
and for the purpose of ascertaining the presence of a quorum.
Section 10. Proxies. Any shareholder of the Corporation, other person
entitled to vote on behalf of a shareholder pursuant to law, or attorney-in-fact
for such persons may vote the shareholder's shares in person or by proxy. Any
shareholder of the Corporation may appoint a proxy to vote or otherwise act for
him by signing an appointment form, either personally or by his
attorney-in-fact. An executed telegram or cablegram appearing to have been
transmitted by such person, or a photographic, photostatic, or equivalent
reproduction of an appointment form, shall be deemed a sufficient appointment
form. An appointment of a proxy is effective when received by the Secretary of
the Corporation (the "Secretary") or such other officer or agent which is
authorized to tabulate votes, and shall be valid for up to 11 months, unless a
longer period is expressly provided in the appointment form. The death or
incapacity of the shareholder appointing a proxy does not affect the right of
the Corporation to accept the proxy's authority unless notice of the death or
incapacity is received by the Secretary or other officer or agent authorized to
tabulate votes before the proxy exercises his authority under the appointment.
An appointment of a proxy is revocable by the shareholder unless the appointment
form conspicuously states that it is irrevocable and the appointment is coupled
with an interest.
Section 11. Shareholder List. After fixing a record date for a meeting
of shareholders, the Corporation shall prepare an alphabetical list of the names
of all its shareholders who are entitled to notice of the meeting, arranged by
voting group with the address of, and the number and class and series, if any,
of shares held by each. The shareholders' list must be available for inspection
by any shareholder for a period of ten (10) days prior to the meeting or such
shorter time as exists between the record date and the meeting and continuing
through the meeting at the
-3-
<PAGE> 7
Corporation's principal office, at a place identified in the meeting notice in
the city where the meeting will be held, or at the office of the Corporation's
transfer agent or registrar. Any shareholder of the Corporation or his agent or
attorney is entitled on written demand to inspect the shareholders' list
(subject to the requirements of law), during regular business hours and at his
expense, during the period it is available for inspection. The Corporation shall
make the shareholders' list available at the meeting of shareholders, and any
shareholder or his agent or attorney is entitled to inspect the list at any time
during the meeting or any adjournment. The shareholders' list is prima facie
evidence of the identity of shareholders entitled to examine the shareholders'
list or to vote at a meeting of shareholders.
Section 12. Fixing Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or entitled to receive payment of any dividend, or in
order to make a determination of shareholders for any other proper purposes, the
Board of Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than seventy
(70) days, and, in case of a meeting of shareholders, not less than ten (10)
days, before the meeting or action requiring such determination of shareholders.
If no record date is fixed for the determination of shareholders entitled to
notice of or to vote at a meeting of shareholders or the determination of
shareholders entitled to receive payment of a dividend, the date before the day
on which the first notice of the meeting is mailed or the date on which the
resolutions of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this Section, such determination shall
apply to any adjournment thereof, except where the Board of Directors fixes a
new record date for the adjourned meeting.
Section 14. Inspectors and Judges. The Board of Directors in advance of
any meeting may, but need not, appoint one or more inspectors of election or
judges of the vote, as the case may be, to act at the meeting or any adjournment
thereof. If any inspector or inspectors, or judge or judges, are not appointed,
the person presiding at the meeting may, but need not, appoint one or more
inspectors or judges. In case any person who may be appointed as an inspector or
judge fails to appear or act, the vacancy may be filled by the Board of
Directors in advance of the meeting, or at the meeting by the person presiding
thereat. The inspectors or judges, if any, shall determine the number of shares
of stock outstanding and the voting power of each, the shares of stock
represented at the meeting, the existence of a quorum, the validity and effect
of proxies, and shall receive votes, ballots and consents, hear and determine
all challenges and questions arising in connection with the right to vote, count
and tabulate votes, ballots and consents, determine the result, and do such acts
as are proper to conduct the election or vote with fairness to all shareholders.
On request of the person presiding at the meeting, the inspector or inspectors
or judge or judges, if any, shall make a report in writing of any challenge,
question or matter determined by him or them, and execute a certificate of any
fact found by him or them.
Section 15. Voting for Directors. Unless otherwise provided in the
Articles of Incorporation, directors shall be elected by a plurality of the
votes cast by the shares entitled to vote in the election at a meeting at which
a quorum is present.
-4-
<PAGE> 8
ARTICLE THREE
DIRECTORS
Section 1. Number; Term; Election; Qualification. The number of
directors of the Corporation shall be fixed from time to time, within the limits
specified by the Articles of Incorporation, by resolution of the Board of
Directors. Directors shall be elected in the manner and hold office for the term
as prescribed in the Articles of Incorporation. Directors must be natural
persons who are 18 years of age or older but need not be residents of the State
of Florida, shareholders of the Corporation or citizens of the United States;
provided, however, that at all times at least one (1) director shall be a
resident of the State of Florida and a citizen of the United States.
Section 2. Resignation; Vacancies; Removal. A director may resign at
any time by giving written notice to the Board of Directors or the Chairman of
the Board. Such resignation shall take effect at the date of receipt of such
notice or at any later time specified therein; and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective. In the event the notice of resignation specifies a later effective
date, the Board of Directors may fill the pending vacancy (subject to the
provisions of the Corporation's Articles of Incorporation) before the effective
date if they provide that the successor does not take office until the effective
date. Director vacancies shall be filled, in the manner prescribed in the
Corporation's Articles of Incorporation. Except as otherwise provided by
statute, any director may be removed, either with or without cause, at any time,
by the shareholders at a special meeting thereof.
Section 3. Powers. The business and affairs of the Corporation shall be
managed by its Board of Directors, which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by statute or by
the Articles of Incorporation or by these Bylaws directed or required to be
exercised and done by the shareholders.
Section 4. Place of Meetings. Meetings of the Board of Directors,
regular or special, may be held either within or without the State of Florida.
Section 5. Annual Meetings. Unless scheduled for another time by the
Board of Directors, the first meeting of each newly elected Board of Directors
shall be held, without call or notice, immediately following each annual meeting
of shareholders.
Section 6. Regular Meetings. Regular meetings of the Board of Directors
may also be held without notice at such time and at such place as shall from
time to time be determined by the Board of Directors.
Section 7. Special Meetings and Notice. Special meetings of the Board
of Directors may be called by the President or Chairman of the Board and shall
be called by the Secretary on the written request of any two directors. At least
forty-eight (48) hours' prior written notice of the date, time and place of
special meetings of the Board of Directors shall be given to each director.
Except as required by law, neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting. Notices to
directors shall be in writing and delivered to the directors at their addresses
appearing on the books of the Corporation by personal delivery, mail or other
legally sufficient means. Notice by mail shall be deemed to be given at the time
when the same shall be received. Notice to directors may also be given by
telegram, teletype or other form of
-5-
<PAGE> 9
electronic communication. Whenever any notice is required to be given to any
director, a waiver thereof in writing signed by the person or persons entitled
to such notice, whether before, during or after the meeting, shall constitute an
effective waiver of such notice. Attendance of a director at a meeting shall
constitute a waiver of notice of such meeting and a waiver of any and all
objections to the place of the meeting, the time of the meeting and the manner
in which it has been called or convened, except when a director states, at the
beginning of the meeting or promptly upon arrival at the meeting, any objection
to the transaction of business because the meeting is not lawfully called or
convened.
Section 8. Quorum and Required Vote. A majority of the prescribed
number of directors determined as provided in the Articles of Incorporation
shall constitute a quorum for the transaction of business and the act of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors, unless a greater number is required
by the Articles of Incorporation. Whenever, for any reason, a vacancy occurs in
the Board of Directors, a quorum shall consist of a majority of the remaining
directors until the vacancy has been filled. If a quorum shall not be present at
any meeting of the Board of Directors, a majority of the directors present
thereat may adjourn the meeting to another time and place, without notice other
than announcement at the time of adjournment. At such adjourned meeting at which
a quorum shall be present, any business may be transacted that might have been
transacted at the meeting as originally notified and called.
Section 9. Action Without Meeting. Any action required or permitted to
be taken at a meeting of the Board of Directors or committee thereof may be
taken without a meeting if a consent in writing, setting forth the action taken,
is signed by all of the members of the Board of Directors or the committee, as
the case may be, and such consent shall have the same force and effect as a
unanimous vote at a meeting. Action taken under this Section 9 is effective when
the last director signs the consent, unless the consent specifies a different
effective date. A consent signed under this Section 9 shall have the effect of a
meeting vote and may be described as such in any document.
Section 10. Conference Telephone or Similar Communications Equipment
Meetings. Directors and committee members may participate in and hold a meeting
by means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other.
Participation in such a meeting shall constitute presence in person at the
meeting, except where a person participates in the meeting for the express
purpose of objecting to the transaction of any business on the ground the
meeting is not lawfully called or convened.
Section 11. Committees. The Board of Directors, by resolution adopted
by a majority of the whole Board of Directors, may designate from among its
members an executive committee and one or more other committees, each of which,
to the extent provided in such resolution, shall have and may exercise all of
the authority of the Board of Directors in the business and affairs of the
Corporation except where the action of the full Board of Directors is required
by statute. Each committee must have two or more members who serve at the
pleasure of the Board of Directors. The Board of Directors, by resolution
adopted in accordance with this Article Three, may designate one or more
directors as alternate members of any committee, who may act in the place and
stead of any absent member or members at any meeting of such committee.
Vacancies in the membership of a committee may be filled only by the Board of
Directors at a regular or special meeting of the Board of Directors. The
executive committee shall keep regular minutes of
-6-
<PAGE> 10
its proceedings and report the same to the Board of Directors when required. The
designation of any such committee and the delegation thereto of authority shall
not operate to relieve the Board of Directors, or any member thereof, of any
responsibility imposed upon it or him by law.
Section 12. Compensation of Directors. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings. Directors may receive such other
compensation as may be approved by the Board of Directors.
ARTICLE FOUR
OFFICERS
Section 1. Positions. The officers of the Corporation shall consist of
a Chairman of the Board, a President, one or more Vice Presidents (any one or
more of whom may be given the additional designation of rank of Executive Vice
President or Senior Vice President), a Secretary, a Chief Financial Officer and
a Treasurer. Any two or more offices may be held by the same person. Officers
other than the Chairman of the Board need not be members of the Board of
Directors. The Chairman of the Board must be a member of the Board of Directors.
Section 2. Election of Specified Officers by Board. The Board of
Directors at its first meeting after each annual meeting of shareholders shall
elect a Chairman of the Board, President, one or more Vice Presidents (including
any Senior or Executive Vice Presidents), a Secretary, a Chief Financial Officer
and a Treasurer.
Section 3. Election or Appointment of Other Officers. Such other
officers and assistant officers and agents as may be deemed necessary may be
elected or appointed by the Board of Directors, or, unless otherwise specified
herein, appointed by the Chairman of the Board. The Board of Directors shall be
advised of appointments by the Chairman of the Board at or before the next
scheduled Board of Directors meeting.
Section 4. Compensation. The salaries, bonuses and other compensation
of the Chairman of the Board and all officers of the Corporation to be elected
by the Board of Directors pursuant to Section 2 of this Article Four shall be
fixed from time to time by the Board of Directors or pursuant to its direction.
The salaries of all other elected or appointed officers of the Corporation shall
be fixed from time to time by the Chairman of the Board or pursuant to his
direction.
Section 5. Term; Resignation; Removal; Vacancies. The officers of the
Corporation shall hold office until their successors are chosen and qualified.
Any officer or agent elected or appointed by the Board of Directors or the
Chairman of the Board may be removed, with or without cause, by the Board of
Directors, but such removal shall be without prejudice to the contract rights,
if any, of the person so removed. Any officer or agent appointed by the Chairman
of the Board pursuant to Section 3 of this Article Four may also be removed from
such office or position by the Board of Directors or the Chairman of the Board,
with or without cause. Any
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<PAGE> 11
vacancy occurring in any office of the Corporation by death, resignation,
removal or otherwise shall be filled by the Board of Directors, or, in the case
of an officer appointed by the Chairman of the Board, by the Chairman of the
Board or the Board of Directors. Any officer of the Corporation may resign from
his respective office or position by delivering notice to the Corporation. Such
resignation shall be effective when delivered unless the notice specifies a
later effective date. If a resignation is made effective at a later date and the
Corporation accepts the future effective date, the Board of Directors may fill
the pending vacancy before the effective date if the Board provides that the
successor does not take office until such effective date.
Section 6. Chairman of the Board. The Chairman of the Board shall be
the Chief Executive Officer of the Corporation. Subject to the control of the
Board of Directors, the Chairman of the Board shall have general and active
management of the business of the Corporation and shall see that all orders and
resolutions of the Board of Directors are carried into effect. The Chairman of
the Board shall preside at all meetings of the shareholders and the Board of
Directors. The Chairman of the Board shall also serve as the chairman of any
executive committee.
Section 7. President. The President shall be the Chief Operating
Officer of the Corporation. In the absence of the Chairman of the Board or in
the event the Board of Directors shall not have designated a Chairman of the
Board, the President shall preside at meetings of the shareholders and the Board
of Directors. The President shall have such powers and perform such duties as
may be prescribed by the Board of Directors or the Chairman of the Board. The
President shall also serve as the vice-chairman of any executive committee.
Section 8. Vice Presidents. The Vice Presidents, in the order of their
seniority, unless otherwise determined by the Board of Directors, shall, in the
absence or disability of the President, perform the duties and exercise the
powers of the President. They shall perform such other duties and have such
other powers as the Board of Directors or Chairman of the Board shall prescribe
or as the President may from time to time delegate. Executive Vice Presidents
shall be senior to Senior Vice Presidents, and Senior Vice Presidents shall be
senior to all other Vice Presidents.
Section 9. Secretary. The Secretary shall attend all meetings of the
shareholders and all meetings of the Board of Directors and record all the
proceedings of the meetings of the shareholders and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. He shall give, or cause to be given, notice
of all meetings of the shareholders and special meetings of the Board of
Directors and shall keep in safe custody the seal of the Corporation and, when
authorized by the Board of Directors, affix the same to any instrument requiring
it. He shall perform such other duties as may be prescribed by the Board of
Directors, the Chairman of the Board or the President.
Section 10. Chief Financial Officer. The Chief Financial Officer shall
be responsible for maintaining the financial integrity of the Corporation, shall
prepare the financial plans for the Corporation and shall monitor the financial
performance of the Corporation and its subsidiaries, as well as performing such
other duties as may be prescribed by the Board of Directors, the Chairman of the
Board or the President.
Section 11. Treasurer. The Treasurer shall have the custody of
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books
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<PAGE> 12
belonging to the Corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the Corporation in such depositories as
may be designated by the Board of Directors. He shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, taking proper vouchers
for such disbursements, and shall render to the Chairman of the Board and the
Board of Directors at its regular meetings or when the Board of Directors so
requires an account of all his transactions as Treasurer and of the financial
condition of the Corporation. The Treasurer shall perform such other duties as
may be prescribed by the Board of Directors, the Chairman of the Board or the
President.
Section 12. Other Officers; Employees and Agents. Each and every other
officer, employee and agent of the Corporation shall possess, and may exercise,
such power and authority, and shall perform such duties, as may from time to
time be assigned to him by the Board of Directors, the officer so appointing him
or such officer or officers who may from time to time be designated by the Board
of Directors to exercise such supervisory authority.
ARTICLE FIVE
CERTIFICATES FOR SHARES
Section 1. Issue of Certificates. The shares of the Corporation shall
be represented by certificates, provided that the Board of Directors of the
Corporation may provide by resolution or resolutions that some or all of any or
all classes or series of its stock shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until such
certificate is surrendered to the Corporation. Notwithstanding the adoption of
such a resolution by the Board of Directors, every holder of stock represented
by certificates (and upon request every holder of uncertificated shares) shall
be entitled to have a certificate signed by or in the name of the Corporation by
the Chairman of the Board or a Vice Chairman of the Board, or the President or
Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary of the Corporation, representing the number of shares
registered in certificate form.
Section 2. Legends for Preferences and Restrictions on Transfer. The
designations, relative rights, preferences and limitations applicable to each
class of shares and the variations in rights, preferences and limitations
determined for each series within a class (and the authority of the Board of
Directors to determine variations for future series) shall be summarized on the
front or back of each certificate. Alternatively, each certificate may state
conspicuously on its front or back that the Corporation will furnish the
shareholder a full statement of this information on request and without charge.
Every certificate representing shares that are restricted as to the sale,
disposition, or transfer of such shares shall also indicate that such shares are
restricted as to transfer, and there shall be set forth or fairly summarized
upon the certificate, or the certificate shall indicate that the Corporation
will furnish to any shareholder upon request and without charge, a full
statement of such restrictions. If the Corporation issues any shares that are
not registered under the Securities Act of 1933, as amended, or not registered
or qualified under the applicable state securities laws, the transfer of any
such shares shall be restricted substantially in accordance with the following
legend:
"THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR UNDER ANY APPLICABLE STATE LAW. THEY MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR
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<PAGE> 13
PLEDGED WITHOUT (1) REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND
ANY APPLICABLE STATE LAW, OR (2) AT HOLDER'S EXPENSE, AN OPINION
(SATISFACTORY TO THE CORPORATION) OF COUNSEL (SATISFACTORY TO THE
CORPORATION) THAT REGISTRATION IS NOT REQUIRED"
Section 3. Facsimile Signatures. Any and all signatures on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon such
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
Section 4. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost or destroyed. When authorizing such issue of
a new certificate or certificates, the Corporation may, in its discretion and as
a condition precedent to the issuance thereof, require the owner of such lost or
destroyed certificate or certificates, or his legal representative, to advertise
the same in such manner as it shall require and/or to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost or destroyed.
Section 5. Transfer of Shares. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 6. Registered Shareholders. The Corporation shall be entitled
to recognize the exclusive rights of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person, whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of the State
of Florida.
Section 7. Redemption of Control Shares. As provided by the Florida
Business Corporation Act, if a person acquiring control shares of the
Corporation does not file an acquiring person statement with the Corporation,
the Corporation may, at the discretion of the Board of Directors, redeem the
control shares at the fair value thereof at any time during the 60-day period
after the last acquisition of such control shares. If a person acquiring control
shares of the Corporation files an acquiring person statement with the
Corporation, the control shares may be redeemed by the Corporation, at the
discretion of the Board of Directors, only if such shares are not accorded full
voting rights by the shareholders as provided by law.
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<PAGE> 14
ARTICLE SIX
GENERAL PROVISIONS
Section 1. Dividends. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in
cash, property, stock (including its own shares) or otherwise pursuant to law
and subject to the provisions of the Articles of Incorporation.
Section 2. Reserves. The Board of Directors may by resolution create a
reserve or reserves out of earned surplus for any proper purpose or purposes,
and may abolish any such reserve in the same manner.
Section 3. Checks. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 4. Fiscal Year. The fiscal year of the Corporation shall end on
December 31 of each year, unless otherwise fixed by resolution of the Board of
Directors.
Section 5. Seal. The corporate seal shall have inscribed thereon the
name and state of incorporation of the Corporation. The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or in any other
manner reproduced.
Section 6. Gender. All words used in these Bylaws in the masculine
gender shall extend to and shall include the feminine and neuter genders.
ARTICLE SEVEN
AMENDMENT OF BYLAWS
These Bylaws may be altered, amended or repealed or new Bylaws may be
adopted at any meeting of the Board of Directors at which a quorum is present,
by the affirmative vote of a majority of the directors present at such meeting.
Bylaws fixing the number of directors or their classifications, qualifications,
or terms of office, or prescribing procedures for removing directors or filling
vacancies in the Board of Directors may be adopted, amended, or repealed only
by the affirmative vote of the holders of 66 2/3% of the combined voting power
of the then outstanding voting stock of the Corporation, voting as a single
class.
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<PAGE> 1
EXHIBIT 4.1
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE
SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF ANY EFFECTIVE REGISTRATION STATEMENT AS TO SUCH
SECURITIES FILED UNDER THE ACT, OR AN EXEMPTION FROM REGISTRATION, AND
COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS. THE ISSUER MAY REQUIRE AN
OPINION OF COUNSEL SATISFACTORY TO THE ISSUER HEREOF THAT SUCH REGISTRATION IS
NOT REQUIRED AND THAT SUCH LAWS ARE COMPLIED WITH.
VOID AFTER 3:30 P.M., EASTERN TIME, ON , 2002.
AUTOMOTIVE ONE PARTS STORES,INC.
REPRESENTATIVE'S
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
AND
REDEEMABLE WARRANTS
This is to Certify That, FOR VALUE RECEIVED,
(the "Holder") is entitled to purchase, subject to the provisions of this
Warrant, from Automotive One Parts Store, Inc. ("Company"), a Texas
corporation, at any time on or after , 1998, and not later than
3:30 p.m., Eastern Time, on , 2002, Shares of Common Stock
of the Company ("Securities") exercisable at a purchase price for the shares of
Common Stock which is 150% of the public offering price of the Common Stock
($ ). The number of Securities to be received upon the exercise of this
Warrant and the price to be paid for the Securities may be adjusted from time
to time as hereinafter set forth. The purchase price of a share of Common Stock
in effect at any time and as adjusted from time to time is hereinafter
sometimes referred to as the "Exercise Price." This Warrant is or may be one of
a series of Warrants identical in form issued by the Company to purchase an
aggregate of 120,000 shares of Common Stock and 120,000 Redeemable Warrants.
The shares of Common Stock, as adjusted from time to time underlying the
Warrants are hereinafter sometimes referred to as "Warrant Stock". The Common
Stock issuable upon the exercise hereof are in all respects identical to the
Common Stock being purchased by the Underwriter for resale to the public
pursuant to the terms and conditions of the Underwriting Agreement.
(a) Exercise of Warrant. Subject to the provisions of Section (g) hereof, this
Warrant may be exercised in whole or in part at anytime or from time to time on
or after , 1998, but not later than 3:30 p.m., Eastern Time on ,
2002, or if , 2002, is a day on which banking institutions are
authorized by law to close, then on the next succeeding day which shall not be
such a day, by presentation and surrender hereof to the Company or at the
office of its stock transfer agent, if any, with the Purchase Form annexed
hereto duly executed and accompanied by payment of the Exercise Price for the
number of shares specified in such Form, together with all federal and state
taxes applicable upon such exercise. The Company agrees to provide notice to
the Holder that any tender offer is being made for the Company's shares of
Common Stock no later than the day the Company becomes aware that any tender
offer is being made for the Company's shares of Common Stock. If this Warrant
should be exercised in part only, the Company shall, upon surrender of this
Warrant for cancellation, execute and deliver a new Warrant evidencing the
right of the Holder to purchase the balance of the shares purchasable hereunder
along with any additional Redeemable Warrants not exercised. Upon receipt by
the Company of this Warrant at the office of the Company or at the office of
the Company's stock transfer agent, in proper form for exercise and accompanied
by the total Exercise Price, the Holder shall be deemed to be the holder of
record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares of Common Stock shall not
then be actually delivered to the Holder.
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<PAGE> 2
(b) Reservation of Securities. The Company hereby agrees that at all times
there shall be reserved for issuance and/or delivery upon exercise of this
Warrant such number of shares of its Common Stock as shall be required for
issuance or delivery upon exercise of this Warrant. The Company covenants and
agrees that, upon exercise of the Warrants 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 Warrants
shall be outstanding, the Company shall use its best efforts to cause all shares
of Common Stock issuable upon the exercise of the Warrants to be listed (subject
to official notice of issuance) on all securities exchanges on which the Common
Stock issued to the public in connection herewith may then be listed and/or
quoted on NASDAQ.
(c) Fractional Shares. No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant. With respect to any
fraction of a share called for upon any exercise hereof, the Company shall pay
to the Holder an amount in cash equal to such fraction multiplied by the current
market value of such fractional share, determined as follows:
(1) If the Common Stock is listed on a national securities exchange or
admitted to unlisted trading privileges on such exchange, the current value
shall be the last reported sale price of the Common Stock on such exchange on
the last business day prior to the date of exercise of this Warrant or if no
such sale is made on such day, the average of the closing bid and asked prices
for such day on such exchange; or
(2) If the Common Stock is not so listed or admitted to unlisted trading
privileges, the current value shall be the mean of the last reported bid and
asked prices reported by the National Association of Securities Dealers
Automated Quotation System (or, if not so quoted on NASDAQ or by the National
Quotation Bureau, Inc.) on the last business day prior to the date of the
exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to unlisted trading
privileges and bid and asked prices are not so reported, the current value shall
be an amount, not less than book value, determined in such reasonable manner as
may be prescribed by the Board of Directors of the Company, such determination
to be final and binding on the Holder.
(d) Exchange, Assignment or Loss of Warrant. This Warrant is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company or at the office of its stock transfer
agent, if any, for other Warrants of different denominations entitling the
Holder thereof to purchase (under the same terms and conditions as provided by
this Warrant) in the aggregate the same number of shares of Common Stock
purchasable hereunder. This Warrant may not be sold, transferred, assigned, or
hypothecated until after one year from the effective date of the registration
statement except that it may be (i) assigned in whole or in part to the officers
of the "Underwriter", and (ii)transferred to any successor to the business of
the "Underwriter." Any such assignment shall be made by surrender of this
Warrant to the Company, or at the office of its stock transfer agent, if any,
with the Assignment Form annexed hereto duly executed and with funds sufficient
to pay any transfer tax; whereupon the Company shall, without charge, execute
and deliver a new Warrant in the name of the assignee named in-such instrument
of assignment, and this Warrant shall promptly be canceled. This Warrant may be
divided or combined with other Warrants which carry the same rights upon
presentation hereof at the office of the Company or at the office of its stock
transfer agent, if any, together with a written notice specifying the names and
denominations in which new Warrants are to be issued and signed by the Holder
hereof. The term "Warrant" as used herein includes any Warrants issued in
substitution for or replacement of this Warrant, or into which this Warrant may
be divided or exchanged. Upon receipt by the Company of evidence satisfactory to
it of the loss, theft, destruction or mutilation of this Warrant, and (in the
case of loss, theft or destruction) of reasonably satisfactory indemnification,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will execute and deliver a new Warrant of like tenor and date. Any such new
Warrant executed and delivered shall constitute an additional contractual
obligation on the part of the Company, whether or not this Warrant so lost,
stolen, destroyed, or mutilated shall be at any time enforceable by anyone.
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<PAGE> 3
(e) Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) Notices to Warrant Holders. So long as this Warrant shall be outstanding
and unexercised (i) if the Company shall make any stock distribution upon the
Common Stock, or (ii) if the Company shall offer to the holders of Common Stock
for subscription or purchase by them any shares of stock of any class or any
other rights, or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then, in any such case, the Company shall
cause to be delivered to the Holder, at least ten (10) days prior to the date
specified in (x) or (y) below, as the case may be, a notice containing a brief
description of the proposed action and stating the date on which (x) a record is
to be taken for the purpose of such dividend, distribution or rights, or (y)
such reclassification, reorganization, consolidation, merger, conveyance, lease,
dissolution, liquidation or winding up is to take place and the date, if any, is
to be fixed, as of which the holders of Common Stock of record shall be entitled
to exchange their shares of Common Stock for equivalent securities or other
property deliverable upon such reclassification, reorganization, consolidation,
merger, conveyance, dissolution, liquidation or winding up.
(g) Adjustment of Exercise Price and Number of Shares of Common Stock
Deliverable.
(A)(i) Except as hereinafter provided, in the event the Company shall, at
any time or from time to time after the date hereof, issue any shares of Common
Stock as a stock dividend to the holders of Common Stock, or subdivide or
combine the outstanding shares of Common Stock into a greater or lesser number
of shares (any such issuance, subdivision or combination being herein call a
"Change of Shares"), then, and thereafter upon each further Change of Shares,
the Exercise Price for the Warrants (whether or not the same shall be issued and
outstanding) in effect immediately prior to such Change of Shares shall be
changed to a price (including any applicable fraction of a cent to the nearest
cent) determined by dividing (i) the sum of (a) the total number of shares of
Common Stock outstanding immediately prior to such Change of Shares, multiplied
by the Exercise Price in effect immediately prior to such Change of Shares, and
(b) the consideration, if any, received by the Company upon such issuance,
subdivision or combination by (ii) the total number of shares of Common Stock
outstanding immediately after such Change of Shares; provided, however, that in
no event shall the Exercise Price be adjusted pursuant to this computation to an
amount in excess of the Exercise Price in effect immediately prior to such
computation, except in the case of a combination of outstanding shares of Common
Stock.
For the purposes of any adjustment to be made in accordance with this
Section (g) the following provisions shall be applicable:
(I) Shares of Common Stock issuable by way of dividend or other distribution
on any capital stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of shareholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued without consideration.
(II) The number of shares of Common Stock at any one time outstanding shall
not be deemed to include the number of shares issuable (subject to readjustment
upon the actual issuance thereof) upon the exercise of options, rights or
warrants and upon the conversion or exchange of convertible or exchangeable
securities.
(ii) Upon each adjustment of the Exercise Price pursuant to this Section
(g), the number of shares of Common Stock purchasable upon the exercise of each
Warrant shall be the number derived by multiplying the number of shares of
Common Stock purchasable immediately prior to such adjustment by the Exercise
Price in effect prior to such adjustment and dividing the product so obtained by
the applicable adjusted Exercise Price.
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<PAGE> 4
(B) In case of any reclassification or change of outstanding shares of
Common Stock issuable upon exercise of the Warrants (other than a change in par
value, or from par value to no par value, or from no par value to par value or
as a result of a subdivision or combination), or in case of any consolidation or
merger of the Company with or into another corporation other than a merger with
a "Subsidiary" (which shall mean any corporation or corporations, as the case
may be, of which capital stock having ordinary power to elect a majority of the
Board of Directors of such corporation (regardless of whether or not at the time
capital 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 in which merger the Company is
the continuing corporation and which does not result in any reclassification or
change of the then outstanding shares of Common Stock or other capital stock
issuable upon exercise of the Warrants (other than a change in par value, or
from par value to no par value, or from no par value to par value or as a result
of subdivision or combination) or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, then, as a condition of such reclassification, change, consolidation,
merger, sale or conveyance, the Company, or such successor or purchasing
corporation, as the case may be, shall make lawful and adequate provision
whereby the Holder of each Warrant then outstanding shall have the right
thereafter to receive on exercise of such Warrant the kind and amount of
securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the number of
securities issuable upon exercise of such Warrant immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance and shall
forthwith file at the principal office of the Company a statement signed by its
President or a Vice President and by its Treasurer or an Assistant Treasurer or
its Secretary or an Assistant Secretary evidencing such provision. Such
provisions shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in Section
(g)(A). The above provisions of this Section (g)(B) shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.
(C) Irrespective of any adjustments or changes in the Exercise Pi ice or the
number of shares of Common Stock purchasable upon exercise of the Warrants, the
Warrant Certificates theretofore and thereafter issued shall, unless the Company
shall exercise its option to issue new Warrant Certificates pursuant hereto,
continue to express the Exercise Price per share and the number of shares
purchasable thereunder as the Exercise Price per share and the number of shares
purchasable thereunder as expressed in the Warrant Certificates when the same
were originally issued.
(D) After each adjustment of the Exercise Price pursuant to this Section
(g), the Company will promptly prepare a certificate signed by the Chairman or
President, and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary, of the Company setting forth: (i) the Exercise Price as so
adjusted, (ii) the number of shares of Common Stock purchasable upon exercise of
each Warrant, after such adjustment, and (iii' a brief statement of the facts
accounting for such adjustment. The Company will promptly file such certificate
in the Company's minute books and cause a brief summary thereof to be sent by
ordinary first class mail to each Holder at his last address as it shall appear
on the registry books of the Company. No failure to mail such notice nor any
defect therein or in the mailing thereof shall affect the validity thereof
except as to the holder to whom the Company failed to mail such notice, or
except as to the holder whose notice was defective. The affidavit of an officer
or the Secretary or an Assistant Secretary of the Company that such notice has
been mailed shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
(E) No adjustment of the Exercise Price shall be made as a result of or in
connection with the issuance or sale of shares of Common Stock if the amount of
said adjustment shall be less than $.10, 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 that shall amount, together with any adjustment so carried forward,
to at least $.10. In addition, Holders shall not be entitled to cash dividends
paid by the Company prior to the exercise of any Warrant or Warrants held by
them.
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<PAGE> 5
(F) In the event that the Company shall at any time prior to the exercise of
all Warrants declare a dividend consisting solely of shares of Common Stock or
otherwise distribute to its stockholders any assets, property, rights, evidences
of indebtedness, the Holders of the unexercised Warrants shall thereafter be
entitled, in addition to the shares of Common Stock or other securities and
property receivable upon the exercise thereof, to receive, upon the exercise of
such Warrants, the same property, assets, rights, evidences of indebtedness,
that they would have been entitled to receive at the time of such dividend or
distribution as if the Warrants had been exercised immediately prior to such
dividend or distribution. At the time of any such dividend or distribution, the
Company shall make appropriate reserves to ensure the timely performance of the
provisions of this Section (g).
(h) Piggyback Registration. If, at any time commencing one year from the
date hereof and expiring six (6) years thereafter, the Company proposes to
register any of its securities under the Securities Act of 1933, as amended (the
"Act") (other than in connection with a merger or pursuant to Form S-8, S-4 or
other comparable registration statement) it will give written notice by
registered mail, at least thirty (30) days prior to the filing of each such
registration statement, to the Underwriter and to all other Holders of the
Warrants and/or the Warrant Stock of its intention to do so. If the Underwriter
or other Holders of the Warrants and/or Warrant Stock notify the Company within
twenty (20) days after receipt of any such notice of its or their desire to
include any such securities in such proposed registration statement, the Company
shall afford each of the Underwriter and such Holders of the Warrants and/or
Warrant Stock the opportunity to have any such Warrant Stock registered under
such registration statement.
Notwithstanding the provisions of this Section, the Company shall have the
right at any time after it shall have given written notice pursuant to this
Section (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.
(i) Demand Registration.
(1) At any time commencing one year from the date hereof and expiring four
(4) years thereafter, the Holders of the Representative's Warrants and/or
Warrant Stock representing a "Majority" (as hereinafter defined) of such
securities (assuming the exercise of all of the Underwriter's Warrants) shall
have the right (which right is in addition to the registration rights under
Section (i) 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 Underwriter and Holders, in order to
comply with the provisions of the Act, so as to permit a public offering and
sale of their respective Warrant Stock for nine (9) consecutive months by such
Holders and any other holders of the Representative's Warrants and/or Warrant
Stock who notify the Company within ten (10) days after receiving notice from
the Company of such request.
(2) The Company covenants and agrees to give written notice of any
registration request under this Section (i) by any Holder or Holders to all
other registered Holders of the Representative's Warrants and the Warrant Stock
within ten (10) days from the date of the receipt of any such registration
request.
(3) In addition to the registration rights under this Section (i) at any
time commencing one year after the date hereof and expiring four (4) years
thereafter, the Holders of Representative's Warrants and/or Warrant Stock shall
have the right, exercisable by written request to the Company, to have the
Company prepare and file, on one occasion, with the Commission a registration
statement so as to permit a public offering and sale for nine (9) consecutive
months by such Holders of its Warrant Stock; provided, however, that the
provisions of Section (i)(2) 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.
(4) The Company shall include such Underwriter's Warrants in the
Registration Statement relating to this offering and shall keep such
Registration Statement current at least until the expiration of such
Underwriter's Warrants or shall bear all of the costs of a new registration
statement in the event the Underwriter"s Warrants are to be exercised. In the
event the Company grants the public investors any benefits upon the exercise of
the Public Redeemable Warrants not
5
<PAGE> 6
set forth in the terms thereof, then the Underwriter shall be entitled to
receive the identical benefits in the event it elects to exercise any of its
Underwriter's Warrant
(j) Covenants of the Company With Respect to Registration. In connection with
any registration under Section (h) or (i) hereof, the Company covenants and
agrees as follows:
(i) The Company shall use its best efforts to file a registration statement
within sixty (60) days of receipt of any demand therefor, shall use its best
efforts to have any registration statement declared effective at the earliest
possible time, and shall furnish each Holder desiring to sell Warrant Stock
such number of prospectuses as shall reasonably be requested.
(ii) 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 (h),
(i) and (j)) hereof including, without limitation, the Company's legal and
accounting fees, printing expenses, blue sky fees and expenses. If the Company
shall fail to comply with the provisions of Section (j)(i), the Company shall,
in addition to any other equitable or other relief available to the Holder(s),
extend the Exercise Period by such number of days as shall equal the delay
caused by the Company's failure.
(iii) The Company will take all necessary action which may be required in
qualifying or registering the Warrant Stock 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.
(iv) The Company shall indemnify the Holder(s) of the Warrant Stock 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"), from
and against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or otherwise, arising from such registration statement but only to
the same extent and with the same effect as the provisions pursuant to which the
Company has agreed to indemnify the Underwriter contained in Section 7 of the
Underwriting Agreement.
(v) The Holder(s) of the Warrant Stock 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 with the
same effect as the provisions contained in Section 7 of the Underwriting
Agreement pursuant to which the Underwriter has agreed to indemnify the Company.
(vi) The Holder(s) shall exercise their Warrants prior to the initial
filing of any registration statement or the effectiveness thereof.
(vii) The Company shall not permit the inclusion of any securities other
than the Warrant Stock to be included in any registration statement filed
pursuant to Section (i) hereof, or permit any other registration statement to be
or remain effective during the effectiveness of a registration statement filed
pursuant to Section (i) hereof, other than a secondary offering of equity
securities by the Company, without the prior written consent of the Holders of
the Warrants and Warrant Stock representing a Majority of such securities
(assuming an exercise of all the Warrants underlying the Warrants).
(viii) The Company shall furnish to each Holder participating in the
offering and to each
6
<PAGE> 7
underwriter, if any, a signed counterpart, addressed to such Holder or
underwriter, of (x) 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 (y) 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.
(ix) 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 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.
(x) The Company shall deliver promptly to each Holder participating in the
offering requesting the correspondence and memoranda described below and to the
managing underwriters, copies of all correspondence between the Commission and
the Company, its counsel or auditors and all memoranda relating to discussions
with the Commission or its staff with respect to the registration statement and
permit each Holder and underwriter to do such investigation, upon reasonable
advance notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. ("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 any such Holder or underwriter shall
reasonably request.
(xi) The Company shall enter into an underwriting agreement with the
managing underwriters, which may be the Underwriter. Such agreement shall be
satisfactory in form and substance to the Company, 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; provided however, that no Holder
shall be required to make any representations, warranties or covenants or grant
any indemnity to which it shall object in any such underwriting agreement. The
Holders shall be parties to any underwriting agreement relating to an
underwritten sale of their Warrant Securities 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.
(xii)For purposes of this Agreement, the term " Majority" in reference to
the Holders of Warrants or Warrant Stock, shall mean in excess of fifty (50%) of
the then outstanding Warrants or Warrant Stock that (i) are not held by the
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.
(k) The Company's obligation under Section 6) hereof shall be conditioned as
to each such public offering, upon a timely receipt by the Company in writing
of:
(A) Information as to the terms of such public offering furnished by or on
behalf of the Holders making a public distribution of their Warrant Stock; and
7
<PAGE> 8
(B) Such other information as the Company may reasonably require from such
Holder, or any underwriter for any of them, for inclusion in such registration
statement or offering statement or post-effective amendment.
(C) An agreement by the Holder to sell his Warrants and Warrant Stock on
the basis provided in the Underwriting Agreement.
(1) The Company's agreements with respect to the Warrant Stock in this
Warrant will continue in effect regardless of the exercise or surrender of this
Warrant.
(m) Any notices or certificates by the Company to the Holder and by the
Holder to the Company shall be deemed delivered if in writing and delivered
personally or sent by certified mail, to the Holder, addressed to him or sent to
Nutmeg Securities, Ltd., 495 Post Road East, Westport, CT 06880, or, if the
Holder has designated, by notice in writing to the Company, any other address,
to such other address, and, if to the Company, addressed to it at 701 West
Church Street, Orlando, Florida 32805. The Company may change its address by
written notice to Nutmeg Securities, Ltd.
(n) Limited Transferability. This Warrant Certificate and the Warrant may
not be sold, transferred, assigned or hypothecated for a one-year period after
the effective date of the Registration Statement except to underwriters of the
Offering referred to in the Underwriting Agreement or to individuals who are
either partners or officers and shareholder of such an underwriter or by will or
by operation of law. The Warrant may be divided or combined, upon request to the
Company by the Warrantholder, into a certificate or certificates evidencing the
same aggregate number of Warrants. The Warrant may not be offered, sold,
transferred, pledged or hypothecated in the absence of any effective
registration statement as to such Warrant filed under the Act, or an exemption
from the requirement of such registration, and compliance with the applicable
state securities laws. The Company may require an opinion of counsel
satisfactory to the Company that such registration is not required and that such
laws are complied with. The Company may treat the registered holder of this
Warrant as he or it appears on the Company's book at any time as the Holder for
all purposes. The Company shall permit the Holder or his duly authorized
attorney, upon written request during ordinary business hours, to inspect and
copy or make extracts from its books showing the registered holders of Warrants.
(o) Transfer to Comply With the Securities Act of 1933. The Company may
cause the following legend, or one similar thereto, to be set forth on the
Warrants and on each certificate representing Warrant Stock, or any other
security issued or issuable upon exercise of this Warrant not theretofore
distributed to the public or sold to underwriters for distribution to the public
pursuant to Sections (h) or (i) hereof; unless counsel satisfactory to the
Company is of the opinion as to any such certificate that such legend, or one
similar thereto, is unnecessary:
"The warrants represented by this certificate may not be offered for sale,
sold or otherwise transferred except pursuant to an opinion of counsel
satisfactory to the Company is obtained stating that such offer or sale is in
compliance wrath state and federal securities law.
(p) Applicable Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of Connecticut , without giving effect to
conflict of law principles.
(q) This Warrant may not be extended except in a writing signed by each
Holder and the Company.
8
<PAGE> 9
(r) The indemnification provisions of this Warrant shall survive until
, 2005.
Automotive One Parts Stores, Inc.
A Florida Corporation
By
-----------------------------
R.H. Gentry,III, President
Date:
-----------------
S E A L
Attest:
- ----------------------
Secretary
9
<PAGE> 10
PURCHASE FORM
Dated 19
---------- ---
The undersigned hereby irrevocably elects to exercise the Warrant to the
extent of purchasing __________ shares of Common Stock and hereby makes payment
of $__________ in payment of the actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name
----------------------------------------------------------------------------
(please typewrite or print in block letters)
Address
-------------------------------------------------------------------------
Signature
-----------------------------------------------------------------------
10
<PAGE> 11
ASSIGNMENT FORM
FOR VALUE RECEIVED,
-------------------------------------------------------------
hereby sells, assigns and transfers unto
Name
----------------------------------------------------------------------------
(please typewrite or print in block letters)
Address
-------------------------------------------------------------------------
the right to purchase Common Stock as represented by this Warrant to the extent
of __________shares or Redeemable Warrants as to which such right is exercisable
and does hereby irrevocably constitute and appoint ______________, attorney, to
transfer the same on the books of the Company with full power of substitution
in the premises.
Signature
-----------------------------------------------------------------------
Dated: 19
---------- ---
11
<PAGE> 1
EXHIBIT 10.4.2
SECOND AMENDMENT TO
LOAN AGREEMENT
THIS SECOND AMENDMENT TO LOAN AGREEMENT (the "Second Amendment") made
and entered into as of the 31st day of July, 1997 by and between:
AUTOMOTIVE ONE PARTS STORES, INC., a Florida corporation, whose mailing
address is 701 West Church Street, Orlando, Florida 32801 (hereinafter
referred to "Automotive One")
and
A.P.S., INC., a Delaware corporation, and AUTOPARTS FINANCE COMPANY,
INC., a Delaware corporation, each of whose mailing address is 15710
John F. Kennedy Boulevard, Suite 700, Houston, Texas 77032 (hereinafter
respectively referred to as "APS and AFCO")
WITNESSETH
WHEREAS, on or about February 20, 1997, Automotive One, APS and AFCO
entered into a certain Loan Modification Agreement (the "INITIAL LOAN
AGREEMENT") dated February 20, 1997 pursuant to which APS and AFCO renewed,
reinstated and extended to Automotive One certain existing indebtedness
(collectively, the "INDEBTEDNESS") as described in the Initial Loan Agreement.
The Initial Loan Agreement, along with other Loan documents (as defined in the
Initial Loan Agreement) were executed at that time to provide relief to
Automotive One through July 31, 1997 (the "MATURITY DATE") at its request and
as an alternative to APS and AFCO exercising one or more of its creditor rights
or remedies in connection with the indebtedness; and
WHEREAS, Automotive One for one or more reasons in not able to pay off
the Indebtedness by the Maturity Date and has requested additional time in
order to raise the necessary funds to pay off the Indebtedness in full.
Accordingly, Automotive One has requested APS and AFCO to extend the Maturity
Date of July 31, 1997 to December 31, 1997 (the "EXTENDED MATURITY DATE").
Automotive One is also requesting that in regard to the Delinquent Amount
(hereinafter defined), that Automotive One not be required to pay that Amount
at this
<PAGE> 2
time but that said Delinquent Amount be added to the Open Account Indebtedness
and, in effect, be paid on or before the Extended Maturity Date. APS and AFCO
are prepared to agree to said requests by Automotive One pursuant to the terms
and conditions of this Second Amendment.
NOW, THEREFORE, for and in consideration of the above premises and the
mutual covenants and agreements contained herein, Automotive One, APS and AFCO
agree as follows:
1. DEFINITIONS.
(a) Unless defined or re-defined in this Second Amendment,
capitalized terms contained herein shall have the meanings defined and
set forth in the Initial Loan Agreement.
(b) The term "DELINQUENT AMOUNT" shall mean the delinquent
portion of the Open Account Indebtedness.
2. AMENDMENT OF EXISTING DEFINITIONS. The following definitions set forth
in Section 1.01 of the Initial Loan Agreement are hereby amended as follows:
(a) "MATURITY DATE" shall mean the earlier to occur of (i)
the date of receipt by Automotive One of the proceeds of a public
offering of shares of its common stock which are registered with the
Securities Exchange Commission or (ii) December 31, 1997.
3. AMENDMENTS TO INITIAL LOAN AGREEMENT. The Initial Loan Agreement
is hereby amended as follows:
(a) In regard to Section 2.1, the following sets forth as
of the dates set forth below the following amounts due on each
Indebtedness described below:
<TABLE>
<CAPTION>
TOTAL
ACCRUED & UNPAID ACCRUED & UNPAID
PRINCIPAL INTEREST AT NON- INTEREST AT
BALANCE DEFAULT RATE DEFAULT RATE
--------- ----------------- ----------------
<S> <C> <C> <C>
APS Indebtedness $2,434,995.73 $425,492.32 $349,803.50
(as of 7/31/97)
AFCO Indebtedness $2,465,467.67 $318,667.96 $39,065.77
(as of 7/31/97)
Open Account Indebtedness
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
(i) Outstanding Past Due $ 438,759.55 To be determined To be determined
Balance(1)
(ii) Delinquent past due $ 450,041.34 To be determined To be determined
balance (i.e. the
"DELINQUENT
AMOUNT")(as of
9/2/97)(2)
(iii) Outstanding Current $ 121,657.00 N/A $ 99,679.31
Balance(3)
------------- ---------------- ----------------
TOTALS $5,910,921.29 $ 744,160.28(4) $ 488,548.78(5)
</TABLE>
(1) This represents the amount of the Open Account Indebtedness which
was due and owing as of January 25, 1997 less payments and credits
which have been applied to said Indebtedness from January 25, 1997 to
July 31, 1997.
(2) This represents the amount which Automotive One owes to APS as of
September 2, 1997 for the purchase of product and which has not been
paid and is in default. Under Section 3.1 of the Initial Loan
Agreement, Automotive One was required on a weekly basis to pay to
APS the amount due for the immediately preceding weeks purchase of
merchandise from APS. This amount represents said purchases for
which payment is past due as of September 2, 1997 and has not been
made and is inclusive of all credits which may be charged against
said amount. This is the amount referred to above as the Delinquent
Amount.
(3) This represents what is referred to as the current portion of the
Open Account Indebtedness and represents the amounts due for
merchandise purchases for the period beginning August 13, 1997.
This amount must be paid as set forth in Section 3.1 of the Initial
Loan Agreement, i.e. on a weekly basis.
(4) This does not include additional interest which is to be determined
and is to be added to these Totals as set forth in the above Table.
As set forth in Section 5 below, Automotive One reaffirms Section 2.3 of the
Initial Loan Agreement as to the foregoing amounts due and agrees that said
amounts are now absolutely and unconditionally due and owing to APS and AFCO in
accordance with the terms of the loan documents, as modified hereby, and are not
subject to any claim, counterclaim, or other right of off-set.
(b) In regard to Section 2.4, said Section is reaffirmed and so that
there will be no misunderstanding, Automotive One understands and agrees the
following in regard to Product Return Credit:
(i) In regard to any such Credits arising with respect to
cores and defects, said Credits shall be credited by APS first
against the Outstanding Current
3
<PAGE> 4
Balance which, as set forth above, is the amount due on a weekly basis
PROVIDED, HOWEVER, if Automotive One again becomes delinquent in paying the
Outstanding Current Balance then, in that event, APS may apply any such
Credits to such of the Open Account Indebtedness as it determines in its
discretion.
(ii) In regard to any other Product Return Credits (i.e. such Credits
arising from a return of merchandise other than cores and defects), such
Credits shall be applied as follows:
A. First to the Delinquent Amounts (which, as set forth in
subparagraph 3(a) above is the amount of $450,041.34).
B. Next to the Outstanding Past Due Balance.
C. Last to the Outstanding Current Balance.
Again, Automotive One understands and agrees that in regard to any Product
Return Credit, any such return and resulting credit must be in strict
compliance with the product return policy of APS.
(iii) In Section 2.4 of the Initial Loan Agreement, it sets forth in
subsection (c) the date of December 25, 1996, which is an acknowledgement
by all parties that all Product Return Credits have been processed for
returns received from Automotive One on or prior to said date. The Parties
now agree that said date of "DECEMBER 25, 1996" is amended to read "JUNE
25, 1997").
(c) Section 2.4 of the Initial Loan Agreement also provides that
Automotive One is available to receive certain change over credits ("CHANGE
OVER CREDITS") in accordance with that certain letter dated February 25,
1997 from Mr. Michael L. Preston of APS to Mr. Bobby Gentry of Automotive
One. In regard to these Change Over Credits, provided Automotive One is not
in default, and otherwise fulfills all its duties and obligations under the
Loan Documents, as modified by the Initial Loan Agreement and this Second
Amendment. APS agrees to extend to January 2, 1998 the time period within
which Automotive One may apply for Change Over Credits. If,
4
<PAGE> 5
however, Automotive One defaults under the Loan Documents, as modified by
the Initial Loan Agreement and this Second Amendment (and said default is
not cured within any applicable grace or notice period), then unless waived
by APS, Automotive One shall not be entitled to receive any further Change
Over Credits including any Change Over Credits for which Automotive One has
by said date made application for but not yet received. Automotive One
acknowledges that, as of the date of this Second Amendment, APS has issued
a credit of $22,572.13 in respect of Change Over Credits.
(d) Default interest shall remain subject to the provisions of Section
3.3. If the indebtedness is paid by Automotive One in accordance with
Section 3.1, then APS and AFCO agree to waive any right to default
interest.
(e) In regard to payments to be made by Automotive One for the
purchase of merchandise (under Open Account Indebtedness) under Section 3.1
of the Initial Loan Agreement, all payments shall continue to be made in
accordance with the procedure set forth in the Initial Loan Agreement
provided, however, in the event any check furnished by Automotive One
should be returned for non-payment due to any reason whatsoever, then, in
that event, all future payments at the election of AFCO or APS shall be
made by cashier checks.
4. REAFFIRMATION OF REMEDIES. In connection hereto, Automotive One has
reviewed (with the advice of counsel) the provisions of Article IV of the
Initial Loan Agreement and fully understands the provisions of all said
Sections. Based upon said review, Automotive One specifically and expressly
reaffirms and ratifies all of the provisions of said Article IV. APS and AFCO
have requested this specific paragraph, in addition to the provisions set forth
in paragraph 3(a) above, as APS and AFCO have agreed to the extensions requested
of Automotive One as set forth in this Second Amendment in express reliance upon
the provisions set forth in Article IV, and elsewhere in the Initial Loan
Agreement.
5. AMOUNTS OWING ON INDEBTEDNESS. Automotive One does hereby state and
agree with APS and AFCO that the amounts set forth in paragraph 3(a) of this
Second Amendment are absolutely and unconditionally due and owing to APS and
AFCO as of the date hereof or the date described above, as applicable, and that
said amounts are not subject to any claims, counterclaims, defenses or other
right of off-sets whatsoever, PROVIDED, HOWEVER, Automotive One shall be
entitled to Product Return Credits and Change Over Credits as expressly
permitted under the terms of the Initial Loan Agreement and this Second
Amendment. To the extend Automotive One does have any claim, counterclaim,
defense or other right of off-
5
<PAGE> 6
set (again, other than for Product Return Credits and Change Over Credits),
Automotive One does hereby (after consultation with counsel) expressly and
unconditionally waive any such claim, counterclaim, defense or other right of
off-set not only against the Indebtedness set forth above, but as to any and
all other matters involving APS and AFCO. Automotive One understands and
acknowledges that, among other provisions of this Second Amendment, APS and
AFCO would not have agreed to the requested extensions by Automotive One if
Automotive One was unwilling to reaffirm the Indebtedness and provide for the
waivers as set forth in this paragraph.
6. LOAN AGREEMENT. From and after the date of this Second
Amendment, the term "LOAN AGREEMENT", shall mean the Initial Loan Agreement as
modified by this Second Amendment. Further, to the extent applicable, all Loan
Documents shall be deemed hereof to be automatically amended so as to refer to
and reflect the transactions contemplated by the Initial Loan Agreement and
this Second Amendment. This Second Amendment shall be deemed to be a permitted
amendment to the Initial Loan Agreement and, accordingly, shall be deemed to be
a Loan Document.
7. GURANTORS. By their individual execution of this Agreement,
Mr. Robert N. Gentry, III and Janice Sue Gentry, his wife, each a shareholder
of Automotive One, do hereby execute this Second Amendment for the following
purposes:
(a) To acknowledge and agree that the obligations
of APS and AFCO as set forth herein are due and owing as set
forth in this Second Amendment.
(b) To confirm and ratify each Loan Document.
(c) To confirm that the Guaranty is in full force
and effect and is not subject to any claim, counterclaim,
defense, or other right of off-set.
8. COSTS AND ATTORNEYS' FEES. In regard to the cost and
attorneys' fees incurred by APS and AFCO in connection with the matters
contemplated by the Initial Loan Agreement as well as by this Second Amendment,
those costs and attorneys' fees will be added to the Indebtedness. As such,
the indebtedness does not include costs and attorneys' fees occurred by APS and
APCO either in connection with the Initial Loan Agreement or this Second
Amendment, all of which will be added to the indebtedness.
9. RATIFICATION. Except as set forth in this Second Amendment,
Automotive One does hereby ratify and confirm the Initial Loan Agreement, and
all other Loan Documents.
[SIGNATURES ON FOLLOWING PAGE]
6
<PAGE> 7
IN WITNESS WHEREOF, each of the parties hereto has caused this Second
Amendment to be executed, sealed and delivered, as applicable, by their duly
authorized officers on the day and year first above written.
AUTOMOTIVE ONE PARTS STORES, INC.
By:/s/ Robert H. Gentry
---------------------------------------
Robert H. Gentry, III
President
/s/ Robert H. Gentry
---------------------------------------
Robert H. Gentry, III, Individually
Guarantor
/s/ Janice Sue Gentry
---------------------------------------
Janice Sue Gentry, Individually
Guarantor
A.P.S., INC.
By:/s/ E. Eugene Lauver
---------------------------------------
E. Eugene Lauver,
Vice President
AUTOPARTS FINANCE COMPANY, INC.
By:/s/ E. Eugene Lauver
---------------------------------------
E. Eugene Lauver,
Vice President
7
<PAGE> 1
EXHIBIT 10.9
AUTOMOTIVE ONE PARTS STORES,INC.
CONSULTING AGREEMENT
,1997
Dear Mr. Gentry:
This will confirm the arrangements, terms and conditions, whereby
Nutmeg Securities, Ltd., Inc.. (hereinafter referred to as "Consultant") has
been retained by you to serve as financial consultant and advisor to Audiogard
International Limited (hereinafter referred to as the "Company"), on a
nonexclusive basis for a period of 24 months commencing on the closing date of
the public offering (the "Closing"). The undersigned hereby agree to the
following terms and conditions:
1. Consulting Services. Consultant will render financial
consulting and advice pertaining to the Company's business affairs as you may
from time to time request.
2. Financing. Consultant will assist and represent you in
obtaining both short and long-term financing whether from banks or the sale of
the Company's debt or equity.
3. Wall Street Liaison. Consultant will when appropriate arrange
meetings with individuals and financial institutions in the investment community
such as security analysts, portfolio managers, and market makers and
representatives of the Company.
4. Compensation. The Company agrees to pay the Consultant in the
aggregate ,the sum of One hundred-eight thousand ($72,000) Dollars at the rate
of Three Thousand ($3,000) Dollars per month with the full amount payable at the
closing of the Offering.
5. Relationship. Nothing herein shall constitute Consultant as
employee or agent of the Company except to such extent as might hereafter be
agreed upon for a particular purpose. Except as expressly agreed, Consultants
shall not have the authority to obligate or commit the Company in any manner
whatsoever.
6. Assignment and Termination. This Agreement shall not be
assignable by any party except to successors to all or substantially all of the
business of either the Consultant or the Company nor may this Agreement be
terminated by either party for any reason whatsoever without the prior written
consent of the other party, which consent may not be arbitrarily withheld by the
party whose consent is required.
Very truly yours,
Nutmeg Securities, Ltd.
By:
Title:
Agreed and Accepted By:
Automotive One Parts Stores,Inc.
By:
R.H. Gentry, III , President
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report (which includes an explanatory paragraph for a going
concern uncertainty) dated May 14, 1997 except for Note C as to which the date
is July 31, 1997 accompanying the financial statements of Automotive One Parts
Stores, Inc. contained in the Registration Statement and Prospectus which will
be signed upon consummation of the transaction described in paragraph two of
Note A to the financial statements. We consent to the use of the aforementioned
report in the Amendment No. 1 to the Registration Statement (File No.
333-27227) and Prospectus, and to the use of our name as it appears under the
caption "Experts" and "Summary Financial Information."
GRANT THORNTON LLP
Tampa, Florida
October 22, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AUTOMOTIVE ONE PARTS STORES, INC. FOR THE SEVEN
MONTH PERIOD ENDED JULY 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 7-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUL-31-1997
<EXCHANGE-RATE> 1
<CASH> 55
<SECURITIES> 0
<RECEIVABLES> 987
<ALLOWANCES> 210
<INVENTORY> 5,478
<CURRENT-ASSETS> 6,499
<PP&E> 5,273
<DEPRECIATION> 2,856
<TOTAL-ASSETS> 10,009
<CURRENT-LIABILITIES> 8,550
<BONDS> 1,205
0
0
<COMMON> 24
<OTHER-SE> 230
<TOTAL-LIABILITY-AND-EQUITY> 10,009
<SALES> 6,726
<TOTAL-REVENUES> 7,010
<CGS> 4,194
<TOTAL-COSTS> 4,194
<OTHER-EXPENSES> 2,497
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 445
<INCOME-PRETAX> (126)
<INCOME-TAX> 0
<INCOME-CONTINUING> (126)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (126)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
