<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 9, 1998
REGISTRATION NO. 333-58025
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
Amendment No. 2 to
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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LUMINEX LIGHTING, INC.
(Name of small business issuer in its charter)
---------------------
<TABLE>
<S> <C> <C>
CALIFORNIA 3648 95-4467158
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
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13710 Ramona Avenue 13710 Ramona Avenue
Chino, CA 91710 Chino, CA 91710
Phone: (909) 591-5653 Phone: (909) 591-5653
Facsimile: (909) 591-0643 Facsimile: (909) 591-0643
(Address and telephone number of (Address of principal place of business)
principal executive office)
Wasif Siddiqui
13710 Ramona Avenue
Chino, CA 91710
Phone: (909) 591-5653
(Name, address and telephone number of agent for service)
----------------------------
COPIES TO:
Lawrence W. Horwitz, Esq. Lawrence Nusbaum, Esq.
Horwitz & Beam Gusrae, Kaplan & Bruno
Two Venture Plaza, Suite 350 120 Wall Street
Irvine, CA 92618 New York, NY 10005
Phone: (714) 453-0300 Phone: (212) 269-1400
Facsimile: (714) 453-9416 Facsimile: (212) 809-5449
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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 of 1933 (the "Act"), please check the
following box and list the Act registration 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 Act, check the following box and list the 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
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<CAPTION>
TITLE OF EACH CLASS OF SECURITIES TO BE NUMBER OF PROPOSED PROPOSED MAXIMUM AMOUNT OF
REGISTERED SHARES OR MAXIMUM OFFERING AGGREGATE OFFERING REGISTRATION
WARRANTS TO PRICE PER SHARE OR PRICE(1)(2) FEE
BE REGISTERED WARRANT(1)
<S> <C> <C> <C> <C>
Shares of Common Stock, no par value ("Common
Stock") 500,000 $5.50 $ 2,750,000 $811.25
Warrants to Purchase Shares of Common Stock 500,000 $0.10 $ 50,000 $ 14.75
Common Stock(3) 500,000 $6.00 $ 3,000,000 $885.00
Underwriter Warrants(4) 1 ---- $ 10 --
Common Stock, Issuable Upon Exercise of
Underwriter Warrants(5) 50,000 $8.15 $ 407,500 $120.21
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<PAGE> 2
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF SECURITIES TO BE NUMBER OF PROPOSED PROPOSED MAXIMUM AMOUNT OF
REGISTERED SHARES OR MAXIMUM OFFERING AGGREGATE OFFERING REGISTRATION
WARRANTS TO PRICE PER SHARE OR PRICE(1)(2) FEE
BE REGISTERED WARRANT(1)
<S> <C> <C> <C> <C>
Warrants Issuable Upon Exercise of Underwriter
Warrants(6) 50,000 $0.14 $ 7,000 $ 2.07
Common Stock Issuable Upon Exercise of Warrants
underlying Underwriter Warrants(7) 50,000 $8.30 $ 415,000 $ 122.43
Common Stock, no par value, issued in connection
with bridge financing(8) 506,500 $6.60 $ 2,785,750 $ 821.80
Common Stock, underlying warrants issued in
connection with bridge financing(9) 500,000 $0.80 $ 400,000 $ 118.00
Common Stock, no par value, underlying options
issued pursuant to Employee Stock Option Plan(10) 500,000 $0.01 $ 5,000 $ 1.48
Total 2,756,500 $ 9,820,260 $2,896.98
</TABLE>
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(1) Estimated solely for the purpose of computing the registration fee
pursuant to Rule 457.
(2) The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the
Securities and Exchange Commission (the "Commission"), acting pursuant
to said Section 8(a), may determine.
(3) Represents Common Stock reserved for issuance upon exercise of Warrants.
(4) Warrants issuable to Platinum Equities, Inc., the Underwriter
("Underwriter Warrants") to purchase up to 50,000 Shares of Common Stock
and up to 50,000 Warrants.
(5) Represents Common Stock issuable upon exercise of the Underwriter
Warrants. Pursuant to Rule 416 promulgated under the Securities Act of
1933, this Registration Statement also covers any additional common
shares which may become issuable by reason of the antidulution
provisions of the Underwriter Warrants.
(6) Represents Warrants issuable upon exercise of Underwriter Warrants.
Pursuant to Rule 416 promulgated under the Securities Act of 1933, this
Registration Statement also covers any additional Common Shares which
may become issuable by reason of the antidulution provisions of the
Underwriter Warrants.
(7) Represents Common Stock issuable upon exercise of Warrants included in
Underwriter Warrants.
(8) Represents Common Stock issued in connection with bridge financing to
the Company.
(9) Represents Common Stock issuable upon exercise of Warrants (the "Bridge
Warrants") issued in connection with bridge financing to the Company.
Pursuant to Rule 416 of the Act, this Registration Statement also covers
any additional common shares which may become issuable by reason of the
antidilution provisions of the Bridge Warrants. Registration fee
calculated to Rule 457(g)(1).
(10) Registration fee calculated pursuant to Rule 457(h)(1).
<PAGE> 3
LUMINEX LIGHTING, INC.
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulations S-B
Showing Location in the Prospectus
of Information Required by Items of Form SB-2
<TABLE>
<CAPTION>
Form SB-2 Item Number and Caption Prospectus
<S> <C> <C>
1. Forepart of Registration Statement and Outside Facing Page of Registration Statement: Outside Fron
Front Cover Page of Prospectus............................. Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus................................................. Available Information; Incorporation of Certain
Documents by Reference; Table of Contents
3. Summary Information; Risk Factors.......................... Prospectus Summary; Risk Factors
4. Use of Proceeds............................................ Prospectus Summary; Business of the Company; Use of
Proceeds
5. Determination of Offering Price............................ Risk Factors; Underwriting
6. Dilution................................................... Dilution
7. Selling Security Holders................................... Selling Shareholders
8. Plan of Distribution....................................... Underwriting
9. Legal Proceedings.......................................... Not Applicable
10. Directors, Executive Officers, Promoters and
Control Persons............................................ Management and Principal Shareholders
11. Security Ownership of Certain Beneficial Owners
and Management............................................. Management and Principal Shareholders
12. Description of Securities to be Registered................. Description of Securities
13. Interests of Named Experts and Counsel..................... Not Applicable
14. Disclosure of Commission Position on
Indemnification for Act Liabilities....................... Indemnification of Directors and Officers
15. Organization Within Last Five Years........................ Business of the Company
16. Description of Business.................................... Business of the Company
17. Management's Discussion and Analysis of Plan of
Operation.................................................. Management's Discussion and Analysis of Financial
Condition and Results of Operations
18. Description of Property.................................... Business of the Company (Properties)
19. Certain Relationships and Related Transactions............. Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters........................................ Risk Factors; Underwriting
21. Executive Compensation..................................... Total Executive Compensation
22. Consolidated Financial Statements.......................... Consolidated Financial Statements
23. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure..................... Not Applicable
</TABLE>
<PAGE> 4
PROSPECTUS
SUBJECT TO COMPLETION, DATED NOVEMBER 9, 1998
LUMINEX LIGHTING, INC.
UP TO 500,000 SHARES OF COMMON STOCK AND
500,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
MINIMUM OFFERING: 250,000 SHARES AND 250,000 WARRANTS
Luminex Lighting, Inc., a California corporation ("the Company"),
hereby offers for sale: (i) a minimum (the "Minimum Offering") of 250,000 Shares
of Common Stock, no par value (the "Common Stock" or the "Shares") and 250,000
Redeemable Common Stock Purchase Warrants (the "Warrants"); and (ii) a maximum
(the "Maximum Offering") of 500,000 Shares of Common Stock and 500,000 Warrants.
The Common Stock and the Warrants offered hereby (sometimes referred to as the
"Securities") will be separately tradeable immediately upon issuance and MAY BE
PURCHASED SEPARATELY. The Common Stock and Warrants are being offered through
Platinum Equities, Inc. (the "Underwriter") at the public offering prices set
forth below. Each Warrant entitles the holder to purchase one share of Common
Stock at an exercise price of $6.00, subject to adjustment, during the five year
period commencing on the date of this Prospectus (the "Effective Date"). The
Warrants are redeemable, in whole or in part, by the Company at a price of $0.10
per Warrant, commencing one year after the Effective Date (or earlier with the
consent of the Underwriter), upon notice of not less than 30 days, provided that
the closing bid price (as defined) of the Common Stock for a period of 20
consecutive trading days ending on the third day prior to the day on which
notice of redemption is given shall have been at least $7.50 per share, subject
to adjustment. See "Description of Securities" and "Underwriting."
Additionally, 506,500 Shares of Common Stock (the "Private Placement
Stock") and 500,000 Shares of Common Stock underlying warrants (the "Private
Placement Warrants") (collectively, the "Private Placement Securities") of the
Company are being registered herein and will be sold from time to time by the
shareholders described herein (the "Selling Shareholders") in transactions in
the national over-the-counter market or otherwise at prices prevailing at the
time of sale. The Selling Shareholders have agreed not to sell, assign, pledge,
hypothecate, or otherwise dispose of any of the Private Placement Stock, as well
as the Shares of Common Stock underlying the Private Placement Warrants, for a
period of 12 months from the final closing of the Offering ("Closing Date")
without the prior written consent of the Underwriter. The Company will not
receive any of the proceeds from the sale of any Private Placement Securities by
the Selling Shareholders. All expenses incurred in registering the Private
Placement Securities are being borne by the Company, but all selling and other
expenses incurred by the Selling Shareholders will be borne by the Selling
Shareholders. See "Selling Shareholders."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 6.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "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.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL
DILUTION AND SHOULD NOT BE PURCHASED BY ANYONE WHO CANNOT AFFORD THE LOSS OF HIS
OR HER ENTIRE INVESTMENT. SEE "RISK FACTORS" AND "DILUTION."
ALL PAYMENTS FOR THE SECURITIES OFFERED HEREBY SHALL BE MADE BY CHECK PAYABLE TO
"AMERICAN STOCK TRANSFER & TRUST COMPANY AS ESCROW AGENT FOR LUMINEX LIGHTING,
INC."
----------------------------------
PLATINUM EQUITIES, INC.
THE DATE OF THIS PROSPECTUS IS NOVEMBER 9, 1998
<PAGE> 5
THE UNDERWRITER WILL NOT BE MAKING A MARKET IN THE SECURITIES OFFERED HEREBY.
THE ABSENCE OF SUCH ACTIVITY BY THE UNDERWRITER MAY HAVE A MATERIAL ADVERSE
AFFECT ON THE LIQUIDITY OF THE SECURITIES OFFERED HEREBY, WHICH COULD MAKE IT
MORE DIFFICULT FOR THE INVESTORS HEREIN TO SELL AND/OR PURCHASE SUCH SECURITIES.
SEE "RISK FACTORS" AND "UNDERWRITING."
<TABLE>
<CAPTION>
Price to Public Underwriting Proceeds to Issuer or
Commissions(1) Other Persons (2)(3)
<S> <C> <C> <C>
Per Share $5.50 $0.55 $4.95
Per Warrant $0.10 $0.01 $0.09
Minimum Offering(3) (250,000
Shares and 250,000 Warrants) $1,400,000 $140,000 $1,260,000
Maximum Offering (500,000
Shares and 500,000 Warrants) $2,800,000 $280,000 $2,520,000
</TABLE>
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(1) Does not include additional compensation to the Underwriter in the form
of: (i) a non-accountable expense allowance equal to 3% of the gross
proceeds of the offering; (ii) warrants to purchase up to 50,000 shares
of Common Stock of the Company and up to 50,000 Warrants at an exercise
price equal to approximately 148% of the public offering prices of the
Common Stock and approximately 138% of the exercise price of the
Warrants sold to the public, to the extent of 10% of the number of
Securities actually sold herein (the "Underwriter's Warrants"). For
every ten Shares sold, the Underwriter is entitled to one Warrant to
purchase one Share of Common Stock of the Company at an exercise price
of $8.15. For every ten Warrants sold, the Underwriter is entitled to
one Warrant to purchase one Warrant of the Company at an exercise price
of $0.14. The Company has agreed to indemnify the Underwriter against,
or contribute to losses arising from, certain liabilities, including
liabilities under the Act. See "Underwriting."
(2) Before deduction of estimated expenses of $194,000 payable by the
Company, in the event the Maximum Offering is sold, including the
Underwriter's 3% non-accountable expense allowance. See "Underwriting."
(3) There is no assurance that all or any of the Securities offered
hereunder will be sold. If the Company fails to receive subscriptions
for the Minimum Offering within 180 days from the Effective Date , the
Offering will be terminated and any subscription payments received will
be promptly refunded within five days to subscribers, without any
deduction therefrom or any interest thereon. If subscriptions for at
least the Minimum Offering are received within such period, funds will
not be returned to investors and the Company may continue the Offering
until such period expires or subscriptions for the Maximum Offering
have been received, whichever comes first. The investment funds shall
be held in an escrow account with American Stock Transfer & Trust
Company as Escrow Agent for up to 180 days. During this time, investors
cannot demand the return of their investments. If the Company does not
meet the required minimum number of Securities to be sold (250,000
Shares and 250,000 Warrants), the investors will be refunded their
investment in full without interest. Affiliates may purchase Securities
in the Offering and no limits have been imposed in this regard, but no
one has made any commitment to purchase any portion of the Offering in
order to reach the minimum.
The Private Placement Securities offered by the Selling Shareholders
have been acquired by the Selling Shareholders from the Company in private
transactions and are "restricted securities" under the Act, prior to their sale
hereunder. This Prospectus has been prepared for the purpose of registering the
Private Placement Securities under the Act to allow for future resales by the
Selling Shareholders to the public without restriction. To the knowledge of the
Company, the Selling Shareholders have made no arrangement with any brokerage
firm for the sale of the Private Placement Securities. The Selling Shareholders
may be deemed to be "underwriters" within the meaning of the Act.
<PAGE> 6
Any commissions received by a broker or dealer in connection with resales of the
Private Placement Securities may be deemed to be underwriting commissions or
discounts under the Act. See "Plan of Distribution."
Prior to this Offering, there has been no public market for the
Company's securities. The public offering prices of the Common Stock and the
Warrants, and the exercise price and other terms of the Warrants, have been
determined by negotiation between the Company and the Underwriter, and are not
necessarily related to the Company's asset value, net worth, results of
operations, or other established criteria of value. Although it is anticipated
that the Common Stock and Warrants will be traded in the over-the-counter market
on the OTC Bulletin Board maintained by the National Association of Securities
Dealers, Inc. (the "OTC Bulletin Board") under the symbols "LUMX" and "LUMXW,"
respectively, there can be no assurance that such a market will develop after
the completion of this Offering.
The Securities are being sold by the Company and offered by the
Underwriter on a "best efforts, minimum/maximum" basis, subject to prior sale,
when, as and if accepted by the Underwriter, and subject to certain conditions.
The Underwriter reserves the right to withdraw, cancel or modify such offer and
to reject orders in whole or in part. It is expected that the certificates
representing the Securities will be ready for delivery at the offices of
Platinum Equities, Inc., 80 Pine Street, 32nd Floor, New York, NY, 10005, within
ten business days after the date of each closing (the "Closing Date") of the
Offering.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements of the Company, after the end of each
fiscal year, and make available such other periodic reports as the Company may
deem appropriate or as may be required by law.
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and the
Financial Statements (including the notes thereto) appearing elsewhere in this
Prospectus and as part of the Registration Statement and Exhibits attached
thereto. Unless otherwise specifically referenced, all references to dollar
amounts refer to United States dollars. Each prospective investor is urged to
read this Prospectus in its entirety.
The Company would like to caution readers regarding certain
forward-looking statements in the Prospectus and the Registration Statement of
which this Prospectus is a part. Statements that are based on management's
projections, estimates, and assumptions are forward-looking statements. The
words "believe," "expect," "anticipate," and similar expressions generally
identify forward-looking statements. While the Company believes in the veracity
of all statements made herein, forward-looking statements are necessarily based
upon a number of estimates and assumptions that, while considered reasonable by
the Company, are inherently subject to significant business, economic, and
competitive uncertainties and contingencies. Many of these uncertainties and
contingencies can affect the Company's actual results and could cause its actual
results to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company. Some of the factors that could
cause actual results or future events to differ materially include the Company's
inability to find suitable acquisition candidates on terms commercially
reasonable to the Company, interruption or cancellation of existing sources of
supply, the pricing of and demand for distributed products and the presence of
competitors with greater financial resources. Please see "Risk Factors" for a
description of some, but not all, of these uncertainties and contingencies.
THE COMPANY
Luminex Lighting, Inc. (the "Company") distributes quality, energy
saving, fluorescent lighting fixtures. The Company designs, tools, tests,
assembles, and packages readily available lighting component parts into a
finished product, ready for distribution and sale. The Company has expanded its
customer base across the United States and is seeking to expand into emerging
global markets.
The Company believes it is currently one of the largest distributors
of cost efficient energy saving fluorescent lighting fixtures. The Company has
been in operation for over four years and has experienced substantial growth
within the lighting industry. The Company believes it has built a strong
customer base, including General Electric Lighting ("GE"), Lithonia Lighting,
Costco Wholesale, and Lamps Plus.
The Company's niche in the light fixture market is maintained
through cost efficiency and quality in its products. The Company believes it has
accumulated strength in the purchasing of raw materials. Due to the increased
volume of material that the Company purchases, it believes it is able to obtain
an advantage when negotiating with its suppliers. The Company believes its
competitive edge is based upon low cost purchasing along with low overhead
expenses, resulting in quality products at a lower price. The Company believes
it is competitive in all aspects of its operations. It believes these factors,
combined with experienced management and employees, provide the Company with
added value within the industry.
The Company is seeking to capture a significant market share in the
lighting industry. It believes opportunities are evident not only in the United
States, but around the world as well. The Company's intent is to target such
territories as Canada, Mexico, South America, and Puerto Rico. The Company
recently hired a National Sales Manager and, after the Closing of the Offering,
plans on retaining additional sales representatives familiar with these markets.
As of the date hereof, the Company had 3,306,500 Shares of Common
Stock issued and outstanding and warrants to purchase 500,000 Shares of Common
Stock at an exercise price of $0.80 per share issued and outstanding. The
Company will have 3,556,500 Shares of Common Stock outstanding if the Minimum
Offering is sold and 3,806,500 Shares of Common Stock outstanding if the Maximum
Offering is sold, without giving effect to the exercise of any
1
<PAGE> 8
warrants. Assuming exercise of all warrants, including the Warrants, the Company
will have 4,306,500 Shares of Common Stock outstanding immediately after the
Offering if the Minimum Offering is sold and 4,806,500 Shares of Common Stock if
the Maximum Offering is sold. The Company also has 500,000 Shares of Common
Stock reserved for issuance under its stock option plan, of which no options
have been issued.
Based upon the audited financial statements of the Company for the
year ended December 31, 1997, the Company had revenues and net income of
$5,852,969 and $123,097, respectively. Based upon the unaudited financial
statements of the Company for the six months ended June 30, 1998, the Company
had revenues and a net loss of $3,337,412 and $184,209, respectively. Continued
development of the Company's products and successful implementation of the
Company's marketing plan are necessary for the Company to increase its operating
revenues.
The Company was incorporated under the laws of the State of
California on January 21, 1994. The address of the Company's principal executive
offices is: 13710 Ramona Avenue, Chino, California, 91710. The Company's
telephone number is (909) 591-5653. The Company also has a branch office located
at 258 Main Street, Suite 111, Milford, Massachusetts, 01757.
2
<PAGE> 9
THE OFFERING
<TABLE>
<S> <C>
Securities Offered by
the Company......................... A minimum of 250,000 Shares of Common Stock and 250,000 Warrants and a
maximum of 500,000 Shares of Common Stock and 500,000 Warrants.
Warrants may be purchased separately from the Common Stock. Each Warrant
entitles the holder thereof to purchase one share of the Company's Common
Stock at an exercise price of $6.00, subject to adjustment, during the five year
period commencing on the Effective Date. The Warrants may be redeemed by
the Company, commencing one year after the Effective Date (or earlier with the
consent of the Underwriter), upon notice of not less than 30 days, provided that
the closing bid price of the Common Stock for a period of 20 consecutive trading
days ending on the third day prior to the day on which notice of redemption is
given shall have been at least $7.50 per share, subject to adjustment. See
"Description of Securities."
Offering Price
Common Stock..................... $5.50 per Share.
Warrants......................... $0.10 per Warrant.
Securities Offered by
Selling Shareholders................ 506,500 Shares of Common Stock and 500,000 Shares of Common Stock
underlying warrants.
Common Stock Outstanding............ 3,306,500 shares as of the date hereof; 3,556,500 shares if the Minimum
Offering is sold; 3,806,500 shares if the Maximum Offering is sold.
Warrants and Options
Outstanding......................... The Company has 500,000 warrants outstanding as of the date hereof, and will
have an additional 250,000 Warrants outstanding if the Minimum Offering is
sold and an additional 500,000 Warrants outstanding if the Maximum Offering
is sold. See "Description of Securities." The Company has 500,000 shares of
Common Stock reserved for issuance under its stock option plan, of which no
options have been issued to date. See "Management--Employment and Related
Agreements."
Proposed OTC/BB Symbol(1)
Common Stock..................... LUMX.
Warrants......................... LUMXW.
Use of Proceeds..................... The Company intends to apply the net proceeds of this Offering primarily for
research and development, sales and marketing, facility expansion, acquisition
of employees, and working capital. See "Use of Proceeds."
Risk Factors........................ The securities offered hereby are speculative, involve a high degree of risk and
immediate substantial dilution, and should not be purchased by anyone who
cannot afford the loss of his or her entire investment. See "Risk Factors" and
"Dilution."
</TABLE>
3
<PAGE> 10
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(1) Pursuant to the agreement between the Underwriter and the National
Association of Securities Dealers, Inc. ("NASD"), the Underwriter is not
authorized to make markets in securities. As a result, the Underwriter
will not make a market in the Securities offered hereby. The Underwriter's
inability to make such a market may have a material adverse effect on the
liquidity of the Securities offered hereby, which could make it more
difficult for investors in this Offering to purchase or sell such
Securities. See "Underwriting."
4
<PAGE> 11
SELECTED FINANCIAL DATA
The following table presents selected historical financial data for the
Company derived from the Company's Financial Statements. The historical
financial data are qualified in their entirety by reference to, and should be
read in conjunction with, the Financial Statements and notes thereto of the
Company, which are incorporated by reference into this Prospectus. The following
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements of
the Company and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Six Months Ended June 30 Year Ended December 31
1998 1997 1997 1996
------------ ------------ ---------- -----------
(unaudited) (unaudited) (audited) (audited)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue $ 3,337,412 $ 2,943,158 $ 5,852,969 $ 3,056,532
Net income (loss) (184,209) 124,919 123,097 (113,196)
Net income (loss) per share .04 0.04 (0.04)
Weighted average number of shares 3,306,500 3,326,500 3,326,500 2,800,000
</TABLE>
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
Actual (unaudited) As Adjusted(1) Actual (audited) As Adjusted(1)
------------------ -------------- ---------------- --------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets $ 1,561,732 $ 3,887,732 $ 1,719,795 $ 4,045,795
Total property and equipment, net 302,043 302,043 274,747 274,747
Other assets 115,192 115,192 91,179 91,179
Total assets 1,978,967 4,304,967 2,085,721 4,411,721
Total current liabilities 1,822,768 1,822,768 1,700,156 1,700,156
Accumulated deficit (371,223) (371,223) (187,014) (187,014)
Stockholder's equity 72,699 2,398,699 266,908 2,592,908
</TABLE>
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(1) Adjusted to give effect to the application of the estimated net proceeds
from the Maximum Offering. See "Use of Proceeds" and "Capitalization"
5
<PAGE> 12
RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED IN THIS PROSPECTUS INVOLVES A
HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION THEREFORE, IS SPECULATIVE
IN NATURE, AND SHOULD ONLY BE MADE BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR
ENTIRE INVESTMENT. ACCORDINGLY, PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY
THE FOLLOWING FACTORS AND THE "DILUTION" SECTION, IN ADDITION TO THE OTHER
INFORMATION CONCERNING THE COMPANY AND ITS BUSINESS CONTAINED IN THIS
PROSPECTUS, BEFORE PURCHASING THE SECURITIES OFFERED HEREBY.
LIMITED OPERATING HISTORY. The Company began operations in January
1994, and first shipped its product in October 1994. While the Company is
generating revenues, net income was not generated on an annual basis until 1997
and, based on unaudited financials for the six months ending June 30, 1998, the
Company had a net loss of $184,209 for such period. (See "History of Operating
Losses; Accumulated Deficit.") The Company's success is dependent upon the
successful development and marketing of its products, as to which there is no
assurance. Unanticipated problems, expenses, and delays are frequently
encountered in establishing a new business and marketing and developing
products. These include, but are not limited to, competition, the need to
develop customer support capabilities and market expertise, setbacks in product
development, market acceptance, sales, and marketing. The failure of the Company
to meet any of these conditions would have a materially adverse effect upon the
Company and may force the Company to reduce or curtail operations. No assurance
can be given that the Company can or will ever operate profitably. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "The Company--Marketing" and "--Competition."
RELIANCE ON ONE CUSTOMER FOR APPROXIMATELY 90% OF REVENUES.
Approximately 90% of the Company's current revenues are derived from sales of
its products to GE. The Company is currently attempting to expand its customer
base within the United States and Canada. However, any negative change in the
Company's relationship with GE would, in all likelihood, have a material adverse
impact on the Company's business, financial condition, and results of
operations. Moreover, no assurance can be given that the Company will be able to
expand its customer base or to maintain its relationship with GE.
HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT. While the Company had
net income of $123,097 for the year ended December 31, 1997, for the year ended
December 31, 1996, the Company incurred a net loss of $113,196. In addition, the
Company had an accumulated deficit of $187,014 at December 31, 1997 and an
accumulated deficit of $310,111 at December 31, 1996. The Company must continue
to increase its current rate of sales in order to continue to be profitable and
to achieve retained earnings. There can be no assurance that the Company will
maintain profitability or that its revenue growth can be sustained in the
future. See Financial Statements.
HISTORY OF NEGATIVE WORKING CAPITAL AND CASH FLOWS. The Company had
negative working capital of $261,036 for the six months ended June 30, 1998;
positive working capital of $19,639 for the year ended December 31, 1997; and
negative working capital of $288,821 for the year ended December 31, 1996. The
Company must achieve consistent profitability through increased sales and
improved gross margins in order to improve its working capital position. There
can be no assurance that the Company will achieve consistent profits or that
revenue or gross margin improvement can be sustained in the future. The
Company's cash flow has been uneven during its history. For the six months ended
June 30, 1998, the Company had negative cash flow of $164,099. While the Company
experienced a positive cash flow of $148,241 for the year ended December 31,
1997, the Company had negative cash flow of $24,652 for the year ended December
31, 1996. The Company must improve cash flow from operations in order to
stabilize its overall cash flows on an annual basis. There can be no assurance
that the Company can achieve these objectives. See Financial Statements.
FUTURE CAPITAL NEEDS COULD RESULT IN DILUTION TO INVESTORS; ADDITIONAL
FINANCING COULD BE UNAVAILABLE OR HAVE UNFAVORABLE TERMS. Since inception, the
Company has primarily funded its capital requirements through equity infusions,
bank loans, and officer loans. The Company's future capital requirements will
depend on many factors, including cash flow from operations, progress in its
research and development, competing market developments, and the Company's
ability to market its products successfully. Although the Company currently has
no specific plans or
6
<PAGE> 13
arrangements for financing other than this Offering and no commitments for
future financing, to the extent that the funds generated by this Offering are
insufficient to fund the Company's activities, it may be necessary to raise
additional funds through equity or debt financings. Any equity financings could
result in dilution to the Company's then-existing shareholders. Sources of debt
financing may result in higher interest expense. Any financing, if available,
may be on terms unfavorable to the Company. If adequate funds are not obtained,
the Company may be required to reduce or curtail operations. The Company
anticipates that its existing capital resources, together with the net proceeds
of this Offering, even if only the Minimum Offering is sold, will be adequate to
satisfy its operating expenses and capital requirements for at least 12 months
after the Offering. However, such estimates may prove to be inaccurate. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business of the Company" and Financial Statements.
FINANCIAL INSTITUTION'S PRIORITY SECURED INTEREST IN THE ASSETS OF THE
COMPANY. In February 1998, the Company entered into a new line of credit with
First Community Financial Corporation for $1 million. The line is secured by the
Company's accounts receivable and inventory and personal guaranties of certain
of the officers. The line bears interest at a rate of 3% above prime. The line
of credit expires in February 1999. In the event of the Company's liquidation or
dissolution, or in the event the line of credit is called for payment, the
Company's accounts receivable and inventory will be used first to repay the
Company's obligation under the aforementioned line of credit. This may have a
serious adverse affect on all or a portion of a person's investment in the
Company. There is no assurance that Company will be able to pay the line of
credit through normal business operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Financing" and
Financial Statements.
ECONOMIC CONDITIONS AND CONSUMER SPENDING. The Company's results may be
adversely affected by unfavorable local, regional or national economic
conditions affecting disposable consumer income. There can be no assurance that
consumer spending will not decline in response to economic conditions, thereby
adversely affecting the Company's growth, net sales, and profitability.
UNPREDICTABLE PRODUCT ACCEPTANCE; LACK OF DISTRIBUTION AGREEMENTS.
There can be no assurance that the Company's marketing and/or sales strategies
will be effective and that consumers will buy the Company's products. The
failure of the Company to broaden its markets would have a material adverse
effect upon the Company's operations and prospects. Market acceptance of the
Company's products will depend in part upon the ability of the Company to
demonstrate the advantages of its products over competing products. In addition,
the Company's sales strategy for its products contemplates sales to markets yet
to be established. Also, the Company currently has no distribution agreements
for any of its products. See "Business of the Company--Marketing" and
"--Competition."
COMPETITION. The Company will be competing with other established
businesses that market similar products. Many of these companies have greater
capital, marketing and other resources than the Company. There can be no
assurance that these or other entities will not develop new or enhanced products
that have greater market acceptance than any that may be marketed by the
Company. There can be no assurance that the Company will successfully
differentiate itself from its competitors or that the market will consider the
Company's products to be superior to or more appealing than those of its
competitors. Market entry by any significant competitor may have an adverse
effect on the Company's sales and profitability. See "Business of the
Company--Competition."
DIFFICULTY OF PLANNED EXPANSION; MANAGEMENT OF GROWTH. The Company has
expanded its operations rapidly, and it plans to continue to further expand its
level of operations in all areas following the Offering. The Company's operating
results will be adversely affected if net sales do not increase sufficiently to
compensate for the increase in operating expenses caused by this expansion. In
addition, the Company's planned expansion of operations may cause significant
strain on the Company's management, technical, financial, and other resources.
To manage its growth effectively, the Company must continue to improve and
expand its existing resources and management information systems and must
attract, train, and motivate qualified managers and employees. There can be no
assurance, however, that the Company will successfully be able to achieve these
goals. If the Company is unable to manage growth effectively, its operating
results will be adversely affected.
7
<PAGE> 14
DEPENDENCE UPON KEY PERSONNEL. The Company's success depends, to a
significant extent, upon a number of key employees. The loss of services of one
or more of these employees could have a material adverse effect on the business
of the Company. The Company believes that its future success will also depend in
part upon its ability to attract, retain, and motivate qualified personnel, and
consequently has entered into employment agreements with certain key officers.
Competition for such personnel is intense. There can be no assurance that the
Company will be successful in attracting and retaining such personnel. The
Company does not have "key person" life insurance on any of its key employees.
See "Management."
NO OUTSIDE DIRECTORS OR COMMITTEES. The Company's Board of Directors
presently consists of three (3) directors: Wasif Siddiqui, President, Chief
Executive Officer, and Chief Financial Officer; Tasneem Siddiqui, his wife,
Executive Vice President and Secretary; and Asra Rasheed, their daughter, Vice
President of Corporate Planning. Therefore, the Company's Board of Directors has
no outside directors and insiders can presently control the policies, actions,
and decisions of the Company. While the Company plans on adding one independent
director upon completion of this Offering, the inside directors will still
constitute a majority of the directors. Further, the Company currently has no
committees established to advise the Board of Directors. See
"Management--Directors and Executive Officers."
RELATED PARTY TRANSACTIONS AND POTENTIAL CONFLICTS. During the past two
years, the Company has taken loans drawn on personal lines of credit of Asra
Rasheed, Vice President of Corporate Planning and a Director and Shareholder of
the Company. The interest rate at December 31, 1997 was 12.57%. The balance of
the lines of credit at December 31, 1997 was $6,272. The funds drawn were
contributed to the Company for working capital. Subsequent to December 31, 1997,
the loans were paid in full and the Company has no plan to take any further
loans from this line of credit. Ms. Rasheed received no personal benefit from
these transactions. The Company's management believes that the terms of these
transactions were no less favorable to the Company than would have been obtained
from an unaffiliated third party in similar transactions. Any future
transactions with affiliates will be on terms no less favorable than could be
obtained from unaffiliated third parties, and will be approved by a majority of
the disinterested directors. See "Certain Transactions."
LACK OF DIVIDENDS. The Company has never paid any cash dividends on its
Common Stock and does not anticipate paying any cash dividends in the
foreseeable future. The Company currently intends to retain future earnings, if
any, to fund the development and growth of its business. See "Dividend Policy."
IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of Shares of Common
Stock in the Offering will experience immediate dilution of $5.17 per share
(94%) if the Minimum Offering is sold and dilution of $4.87 per Share (88.5%) if
the Maximum Offering is sold (based on the initial public offering price of
$5.50 per share) in the net tangible book value of the shares from the initial
public offering price. Existing shareholders of the Company paid approximately
$0.13 per Share for their shares of Common Stock, while investors in this
Offering shall pay $5.50 per Share (see "Comparative Data"). Therefore,
investors in this Offering incur a greater risk of loss than the Company's
current shareholders. The shares sold by the Company in the Offering represent
7% of the total Shares of Common Stock outstanding following the Offering if the
Minimum Offering is sold or 13% of the total Shares of Common Stock outstanding
following the Offering if the Maximum Offering is sold, and represent a cash
contribution of 75.6% of the aggregate book value or cash contributions to the
Company if the minimum amount is sold or a cash contribution of 86.1% of the
aggregate book value or cash contributions to the Company if the maximum amount
is sold without giving effect to the exercise of any warrants or options. See
"Dilution."
BEST EFFORTS OFFERING: ESCROW OF INVESTORS' FUNDS FOR UP TO 180 DAYS.
This Offering is being made on a "best efforts, 250,000 Share, 250,000 Warrant
minimum" basis. Unless and until 250,000 Shares of Common Stock ($1,375,000) and
250,000 Warrants ($25,000) are sold, the Offering will not close. No assurance
can be given that the Underwriter will be able to sell the Minimum Offering and
the Underwriter hereby expressly does not make, and has not made, any commitment
to sell any of the Securities. Consequently, investors may tie up their funds
for up to 180 days, if the Offering Period is extended. Although the proceeds
will be held in an escrow account with American Stock Transfer & Trust Company
as Escrow Agent and will not be subject to loss during the Offering Period,
there will be no interest paid on the escrowed funds, regardless of whether or
not the Offering is
8
<PAGE> 15
consummated. If the Company fails to receive subscriptions for the Minimum
Offering within 180 days from the Effective Date, the Offering will be
terminated and any subscription payments received will be promptly refunded
within five business days to subscribers, without any deduction therefrom or any
interest thereon. If subscriptions for at least the Minimum Offering are
received within such period, funds will not be returned to investors and the
Company may continue the Offering until such period expires or subscriptions for
the Maximum Offering have been received, whichever comes first.
CONTROL BY EXISTING SHAREHOLDERS. Upon completion of this Offering, the
Company's existing shareholders will beneficially own approximately 90% of the
outstanding Common Stock if the minimum amount is sold or approximately 87% of
the outstanding Common Stock if the maximum amount is sold. Of these shares, the
Company's officers and directors, together with shareholders who beneficially
own more than five percent of the outstanding stock of the Company, will
beneficially own approximately 81% of the outstanding Common Stock if the
minimum amount is sold or approximately 78% of the outstanding Common Stock if
the maximum amount is sold hereunder. Investors purchasing shares pursuant to
this Offering will beneficially own approximately 10% of the outstanding Common
Stock if the minimum amount is sold or approximately 13% of the outstanding
Common Stock if the maximum amount is sold. As a result, all or certain
combinations of the Company's existing shareholders, acting in concert, will
have the ability to control the Board of Directors and policies of the Company.
See "Principal Shareholders" and "Certain Transactions."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF SHARE PRICE; ARBITRARY
DETERMINATION OF OFFERING PRICE. No public securities market existed prior to
this Offering for the Company's Securities. Although the Company has applied to
have the Securities included on the OTC Bulletin Board, there can be no
assurance that an active public trading market for such securities will be
developed or sustained. Accordingly, purchasers of the Securities may experience
substantial difficulty selling such securities. The offering price of the
Securities has been determined by negotiations between the Company and the
Underwriter on an arbitrary basis and are not necessarily related to the
Company's asset value, net worth, or other established criteria of value.
Additionally, potential investors should be aware that the securities of the
Company have been recently sold in a private offering (the "Private Placement")
at a substantial discount to the public offering price herein. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." The Company and the Underwriter
considered the following factors in pricing the securities issued in the Private
Placement at $0.50 per share of Common Stock and $0.10 per warrant versus the
initial public offering price: at the time of the Private Placement the Company
was not profitable, certain key personnel of the Company were not yet in place,
the Company was in the process of structuring its public offering plan, the
Company had not yet secured an underwriter for a public offering, and there
could be no assurance of a public market for the securities. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE. Assuming the Maximum Offering is sold
(and without giving effect to the exercise of outstanding warrants to purchase
500,000 shares of Common Stock, the Warrants offered hereby, or the Underwriters
Warrants), 2,800,000 of the total of 3,806,500 shares of Common Stock
outstanding after this Offering will be "restricted securities" within the
meaning of Rule 144 under the Securities Act of 1933 (the "Act"). All directors,
officers, and holders of any securities of the Company prior to the Offering
have agreed not to sell any Shares of Common Stock, including Shares of Common
Stock issuable upon exercise of options, warrants, or any convertible securities
of the Company, for a period of 12 months after the Final Closing Date without
the prior written consent of the Underwriter. At the end of that period, these
shares will be eligible for sale, subject in the case of restricted securities
to the holding period, volume limitations, and other conditions imposed by Rule
144. Ordinarily, under Rule 144, a person holding restricted securities for a
period of at least one year may, every three months, sell in ordinary brokerage
transactions or in transactions directly with a market maker an amount equal to
the greater of one percent of the Company's then-outstanding Common Stock or the
average weekly trading volume during the four calendar weeks prior to such sale.
Non-affiliates who hold shares for at least two years can sell their shares
without any quantity limitations. Future sales of such shares could have an
adverse effect on the market price of the Common Stock. See "Description of
Securities" and "Underwriting."
RISKS RELATING TO LOW-PRICE STOCKS; SECURITIES SOLD IN THIS OFFERING
COULD BE CONSTRUED AS "PENNY STOCKS." It is anticipated that the Common Stock
will initially be traded in the over-the-counter market on the OTC
9
<PAGE> 16
Bulletin Board. As a consequence, an investor could find it difficult to dispose
of, or to obtain accurate quotations as to the price of, the Common Stock. The
Securities Enforcement and Penny Stock Reform Act of 1990 requires additional
disclosure relating to the market for penny stocks. The SEC regulations
generally define a penny stock to be any equity security that has a market price
or exercise price of less than $5.00 per share, subject to certain exceptions.
Such exceptions include any equity security listed on Nasdaq and any equity
security issued by an issuer that has (i) net tangible assets of at least
$2,000,000, if such issuer has been in continuous operation for three years,
(ii) net tangible assets of at least $5,000,000 if such issuer has been in
continuous operation for less than three years, or (iii) average annual revenue
of at least $6,000,000 during such issuer's last three years of operations.
Unless an exception is available, the regulations require the delivery, prior to
any transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the risks associated therewith. Furthermore, in
connection with any transaction in a penny stock, brokers must also provide
investors with current bid and offer quotations therefor, the compensation of
the broker and its salesperson in connection therewith and monthly accounts
statements showing the market value of each penny stock in the investor's
account.
In addition, if the Common Stock is not quoted on Nasdaq, and the
Company does not have $2,000,000 in net tangible assets, trading in the Common
Stock would be covered by Rule 15g-9 promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") for non-Nasdaq and non-exchange
listed securities. Under such rule, broker/dealers who recommend such securities
to persons other than established customers and accredited investors must make a
special written suitability determination for the purchaser and receive the
purchaser's written agreement to a transaction prior to sale. Securities also
are exempt from this rule if the market price is at least $5.00 per share.
As of the date of this Prospectus, the Company believes that, by reason
of the $5.50 offering price of the Common Stock, that such security will be
outside the definitional scope of a penny stock. In the event the Company's
Common Stock were subsequently to become characterized as a penny stock, the
market liquidity for such securities could be adversely affected. In such an
event, the regulations on penny stocks could limit the ability of broker/dealers
to sell the Common Stock, and thus the ability of purchasers of the Common Stock
to sell such securities in the secondary market would be adversely affected.
REQUIREMENTS OF CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION IN
CONNECTION WITH THE EXERCISE OF THE WARRANTS. The Warrants offered hereby are
not exercisable unless, at the time of exercise: (i) there is a current
prospectus relating to the Common Stock issuable upon the exercise of the
Warrants under an effective registration statement filed with the Commission;
and (ii) such Common Stock is then qualified for sale or exempt therefrom under
applicable state securities laws in the jurisdictions in which the various
holders of Warrants reside. There can be no assurance, however, that the Company
will be successful in maintaining a current registration statement. After a
registration statement becomes effective, it may require updating by the filing
of a post-effective amendment. A post-effective amendment is required: (i) any
time after nine months subsequent to the effective date when any information
contained in the prospectus is over sixteen months old; (ii) when facts or
events have occurred which represent a fundamental change in the information
contained in the registration statement; or (iii) when any material change
occurs in the information relating to the plan of distribution of the securities
registered by such registration statement. The Company anticipates that this
Registration Statement will remain effective for at least nine months following
the date of this Prospectus, assuming a post-effective amendment is not filed by
the Company. The Warrants will be separately tradeable and separately
transferable from the Common Stock offered hereby immediately commencing on the
date of this Prospectus. The Company intends to qualify the Warrants and the
Shares of Common Stock issuable upon exercise of the Warrants in a limited
number of states, although certain exemptions under state securities ("blue
sky") laws may permit the Warrants to be transferred to purchasers in states
other than those in which the Warrants were initially qualified. The Company
will be prevented, however, from issuing Shares of Common Stock upon exercise of
the Warrants in those states where exemptions are unavailable and the Company
has failed to qualify the Common Stock issuable upon exercise of the Warrants.
The Company may decide not to seek, or may not be able to obtain qualification
of the issuance of such Common Stock in all of the states in which the holders
of the Warrants reside. In such a case, the Warrants of those holders will
expire and have a no value if such Warrants cannot be exercised or sold. See
"Description of Securities."
10
<PAGE> 17
LIMITED EXPERIENCE OF UNDERWRITER; UNDERWRITER WILL NOT MAKE A MARKET
IN THE COMPANY'S SECURITIES; HISTORY OF CERTAIN PRINCIPALS EMPLOYED BY
UNDERWRITER. Platinum Equities, Inc. (the "Underwriter") has little experience
in underwriting public offerings. This Offering is the second public offering
being underwritten by the Underwriter. There can be no assurance that the
Underwriter's lack of experience will not adversely affect the Offering.
Pursuant to the terms of the Underwriter's Agreement with the NASD, the
Underwriter, Platinum Equities, Inc., does not have "market maker" status with
the NASD. As a result thereof, the Underwriter will not make a market in the
Securities offered hereby. The Underwriter's inability to make such a market may
have a material adverse effect on the liquidity of the Securities offered
hereby, which could make it more difficult for investors in this Offering to
purchase or sell such securities. See "Underwriting." Two of the seven
supervising principals currently employed by the Underwriter were previously
employed by other broker-dealers, as supervisors, which broker-dealers closed
down or underwent investigations by securities regulators.
BROAD DISCRETION IN USE OF PROCEEDS. The net proceeds to the Company
from the sale of the Securities offered hereby, assuming the Maximum Offering is
sold, are estimated to be approximately $2,326,000. The Company estimates that
$440,000 (18%) of such net proceeds will be allocated to working capital. The
Company has broad discretion in the use of funds allocated to working capital.
In addition, the Company's management and Board of Directors have a broad
discretion in the allocation and reallocation of the other specified uses for
the proceeds. See "Use of Proceeds."
THE COMPANY'S CASH ACCOUNTS MAY EXCEED FEDERALLY INSURED LIMITS. The
Company maintains its cash in bank deposit accounts which, at times, may exceed
federally insured limits.
YEAR 2000. The Company has begun to address possible remedial efforts
in connection with its computer software that could be affected by the year 2000
problem. The year 2000 problem is the result of computer programs being written
using two digits rather than four to define the applicable year. Any programs
that have time-sensitive software may recognize a date using "00" as the year
1900, rather than the year 2000. This could result in a major system failure or
miscalculations. The Company has been informed by the suppliers of substantially
all of the Company's software that all of those suppliers' software that is used
by the Company is Year 2000 compliant. The Company has no internally generated
software. After reasonable investigation, the Company has not yet identified any
Year 2000 problems but will continue to monitor the issue. However, there can be
no assurances that Year 2000 problems will not occur with respect to the
company's computer systems. The Year 2000 problem may impact other entities with
which the Company transacts business, and the Company cannot predict the effect
of the year 2000 problem on such entities.
11
<PAGE> 18
DILUTION
Dilution is the difference between the public offering price of $5.50
per share for the Common Stock offered herein, and the net tangible book value
per share of the Common Stock immediately after its purchase. The Company's net
tangible book value per share is calculated by subtracting the Company's total
liabilities from its total assets less any intangible assets, and then dividing
by the number of shares then outstanding.
The net tangible book value of the Company prior to this Offering,
based on June 30, 1998 financial statements, was $72,699 or approximately $0.02
per common share. Prior to selling any shares in this Offering, the Company has
3,306,500 Shares of Common Stock outstanding.
If the Maximum Offering is sold, the Company will have 3,806,500 shares
outstanding upon completion of the Offering. The post offering pro forma net
tangible book value of the Company, which gives effect to receipt of the net
proceeds from the Offering and issuance of additional Shares of Common Stock in
the Offering, but does not take into consideration the Warrants sold in the
Offering nor any other changes in the net tangible book value of the Company
after June 30, 1998, will be $2,398,699 or $0.63 per share, approximately. This
would result in dilution to investors in this Offering of $4.87 per share or
88.5% from the public offering price of $5.50 per Share. Net tangible book value
per share would increase to the benefit of present shareholders from $0.02 prior
to the Offering to $0.63 after the Offering, or an increase of $0.61 per share
attributable to the purchase of the Shares by investors in this Offering.
If only the Minimum Offering is sold, the Company will have 3,556,500
shares outstanding upon completion of the Offering. The post offering pro forma
net tangible book value of the Company will be $1,180,699 or $0.33 per share,
approximately. This would result in dilution to investors in this Offering of
$5.17 per share or 94% from the public offering price of $5.50 per Share. Net
tangible book value per share would increase to the benefit of present
shareholders from $0.02 prior to the Offering to $0.33 after the Offering, or an
increase of $0.31 per share attributable to the purchase of the Shares by
investors in this Offering.
The following table sets forth the estimated net tangible book value
per share after the Offering and the dilution to persons purchasing Shares based
on the foregoing minimum and maximum offering assumptions
<TABLE>
<CAPTION>
MINIMUM (1) MAXIMUM (2)
----------- ------------
<S> <C> <C>
Initial public offering price (per share) $ 5.50 $ 5.50
Net tangible book value per share before the Offering $ 0.02 $ 0.02
Increase per share attributable to payments by new investors $ 0.31 $ 0.61
Pro forma net tangible book value per share after the Offering $ 0.33 $ 0.63
Dilution per share to new investors $ 5.17 (94%) $ 4.87 (88.5%)
</TABLE>
The following charts illustrate the pro forma proportionate ownership
in the Company upon completion of the Offering under alternative minimum and
maximum offering assumptions, of present shareholders and of investors in this
Offering, compared to the relative amounts paid and contributed to capital of
the Company by present shareholders and by investors in this Offering, assuming
no changes in net tangible book value other than those resulting from the
Offering.
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<PAGE> 19
<TABLE>
<CAPTION>
MINIMUM OFFERING SHARES PURCHASED TOTAL CONSIDERATION
- ---------------- ---------------------- -------------------------- AVERAGE
PRICE PER
PERCENT PERCENT SHARE
------- ------- -----
<S> <C> <C> <C> <C> <C>
Existing shareholders 3,306,500 93% $ 443,922(3) 24.4% $ 0.13
New investors 250,000 7% $ 1,375,000(4) 75.6% $ 5.50
Total 3,556,500 100% $ 1,818,922 100.0%
</TABLE>
<TABLE>
<CAPTION>
MAXIMUM OFFERING SHARES PURCHASED TOTAL CONSIDERATION
- ---------------- ---------------------- -------------------------- AVERAGE
PRICE PER
PERCENT PERCENT SHARE
------- ------- -----
<S> <C> <C> <C> <C> <C>
Existing shareholders 3,306,500 87% $ 443,922(3) 13.9% $ 0.13
New investors 500,000 13% $ 2,750,000(5) 86.1% $ 5.50
Total 3,806,500 100% $ 3,193,922 100.0%
</TABLE>
- ------------
(1) Assumes $1,108,000 net proceeds from Minimum Offering.
(2) Assumes $2,326,000 net proceeds from Maximum Offering
(3) Based on capital contributions from inception to June 30, 1998.
(4) Assumes $1,400,000 gross proceeds from Minimum Offering.
(5) Assumes $2,800,000 gross proceeds from Maximum Offering.
13
<PAGE> 20
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Securities offered
hereby, after deducting underwriting discounts and commissions, the
Underwriter's non-accountable expense allowance, and expenses of this Offering
(approximately $110,000) are estimated to be approximately $1,108,000 if the
minimum amount is raised hereunder and $2,326,000 if the maximum amount is
raised, excluding any proceeds from the sale or exercise of the Warrants.
USE OF PROCEEDS
<TABLE>
<CAPTION>
MINIMUM PERCENT MAXIMUM PERCENT
------- ------- ------- -------
<S> <C> <C> <C> <C>
Research and development(1) $ 354,560 32% $ 721,000 31%
Sales and marketing $ 277,000 25% $ 625,000 27%
Facility expansion $ 177,280 16% $ 340,000 15%
Acquisition of employees, including $ 99,720 9% $ 200,000 9%
domestic and international sales
representatives
Working capital $ 199,440 18% $ 440,000 18%
TOTALS $1,108,000 100% $2,326,000 100%
</TABLE>
The Company currently plans to use that portion of the net proceeds set
aside for working capital to retire existing trade accounts payable and to
retire existing high interest equipment loans and leases. The allocation of net
proceeds set forth above represents the Company's current estimates based upon
its current plans and upon certain assumptions regarding the progress of
development of its products, technological advances and changing competitive
conditions, the ongoing evaluation and determination of the commercial potential
of the Company's products and the Company's ability to enter into agreements. If
any of these factors change, the Company may reallocate some of the net proceeds
within or between the above-described categories. The Company believes that the
funds generated by this Offering, whether the minimum or maximum offering is
sold, together with current resources, will be sufficient to fund working
capital and capital requirements for at least 12 months from the date of this
Prospectus.
Pending their utilization, the net proceeds may be invested temporarily
in certificates of deposit, insured savings accounts, short term commercial
paper, money market funds, or government securities. The Company does not intend
to register under the Investment Company Act of 1940, and therefore, will be
limited as to the types of investments which may be temporarily made with the
proceeds.
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock and
does not anticipate paying any cash dividends in the future. The Company
currently intends to retain future earnings, if any, to fund the development and
growth of its business.
- --------------------------
(1) Management of the Company plans to use the proceeds allocated for research
and development to develop the products discussed in "Business of the
Company--Products" in the latter half of that section which discusses the
various product series currently in the development stage. These development
stage products include the Decorative Utility Light; the Plastic Series; the
Compact Fluorescent Series, the Euro Series; and the Circle Light. Management
plans to use these proceeds for the design, tooling needs, product testing,
packaging, and sample preparation for the new products.
14
<PAGE> 21
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
June 30, 1998 and as adjusted to give effect to the sale by the Company of the
Minimum Offering and the application of the net proceeds of $1,108,000 therefrom
and as adjusted to give effect to the sale by the Company of the Maximum
Offering and the application of the net proceeds of $2,326,000 therefrom.
<TABLE>
<CAPTION>
Minimum as Maximum as
June 30, 1998 Adjusted Adjusted
------------- -------- --------
(unaudited)
<S> <C> <C> <C>
DEBT:
Current Liabilities $1,822,768 $1,822,768 $1,822,768
Notes Payable 74,661 74,661 74,661
Capital Leases 8,839 8,839 8,839
Total debt: $1,906,268 $1,906,268 $1,906,268
========== ========== ==========
STOCKHOLDERS' EQUITY:
Common Stock, no par value
10,000,000 shares authorized
3,306,500 shares issued and outstanding
3,556,500 as adjusted minimum $ 417,172
3,806,500 as adjusted maximum 26,750 $1,500,172 $2,693,172
========== ==========
Additional paid-in capital (371,223) 51,750 76,750
---------
Accumulated deficit (371,223) (371,223)
$ 72,699 ---------- ---------
=========
Total stockholders' equity: $1,180,699 $2,398,699
========== ==========
</TABLE>
15
<PAGE> 22
SELECTED FINANCIAL DATA
The following selected financial data are qualified by reference to,
and should be read in conjunction with, the Financial Statements, related Notes
to Financial Statements and Report of Independent Public Accountants, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained elsewhere herein. The following tables summarize certain
selected financial data of the Company for the six months ended June 30, 1998
(unaudited), the six months ended June 30, 1997 (unaudited), and for the year
ended December 31, 1996 (audited) and the year ended December 31, 1997
(audited). The data has been derived from Financial Statements included
elsewhere in this Prospectus that were audited by Stonefield Josephson, Inc.,
Certified Public Accountants. No dividends have been paid for any of the periods
presented.
<TABLE>
<CAPTION>
Six Months Ended June 30 Year Ended December 31
1998 1997 1997 1996
---- ---- ---- ----
(unaudited) (unaudited) (audited) (audited)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue $ 3,337,412 $ 2,943,158 $ 5,852,969 $ 3,056,532
Net income (loss) (184,209) 124,919 123,097 (113,196)
Net income (loss) per share .04 0.04 (0.04)
Weighted average number of shares 3,306,500 3,326,500 3,326,500 2,800,000
</TABLE>
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
Actual (unaudited) As Adjusted(1) Actual (audited) As Adjusted(1)
------------------------------------ ----------------------------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets $ 1,561,732 $ 3,887,732 $ 1,719,795 $ 4,045,795
Total property and equipment, net 302,043 302,043 274,747 274,747
Other assets 115,192 115,192 91,179 91,179
Total assets 1,978,967 4,304,967 2,085,721 4,411,721
Total current liabilities 1,822,768 1,822,768 1,700,156 1,700,156
Accumulated deficit (371,223) (371,223) (187,014) (187,014)
Stockholder's equity 72,699 2,398,699 266,908 2,592,908
</TABLE>
- -----------
(1) Adjusted to give effect to the application of the estimated net
proceeds from the Maximum Offering. See "Use of Proceeds" and
"Capitalization"
16
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company was incorporated on January 21, 1994 for the purpose of
manufacturing and selling fluorescent lighting fixtures for both commercial and
residential uses.
The Company has experienced significant growth since its inception in
1994. The Company's growth rate has far exceeded its expectations. However,
management believes that this growth will continue at a slower rate in 1998.
Certain key factors that are necessary in maintaining and exceeding the current
growth rates are as follows:
- Further expanding the Company's customer base
- Successful integration into the emerging global markets
- Obtaining greater market share of the commercial lighting industry
- Obtaining financing at more favorable terms
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
financial information for the Company:
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS YEAR ENDED YEAR ENDED
ENDED ENDED DECEMBER 31, 1997 DECEMBER 31, 1996
JUNE 30, 1998 JUNE 30, 1997 (AUDITED) (AUDITED)
------------- ------------- ----------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Total revenue $3,337,412 $2,943,158 $5,852,969 $ 3,056,532
Cost of revenue 2,874,274 2,440,076 4,601,497 2,584,668
Gross profit 463,138 503,082 1,251,472 471,864
General, administrative, and
selling expenses 588,482 312,313 991,164 488,491
Interest expense 58,065 65,050 136,411 95,769
Income (loss) before taxes (183,409) 125,719 123,897 (112,396)
Taxes on income 800 800 800 800
Net income (loss) (184,209) 124,919 123,097 (113,196)
Net income (loss) per share (.06) .04 0.04 (0.04)
</TABLE>
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
Revenues. The Company generated revenues of $3,337,412 for the six
months ended June 30, 1998 as compared to revenues of $2,943,158 for the six
months ended June 30, 1997. The 13.4% increase in revenues for the six months
ended June 30, 1998 is a result of increased shipments to GE and increased sales
through the Company's commercial division, Energy Plus.
Gross Profit. Gross profit for the six months ended June 30, 1998 was
$463,138 (13.9% of sales) compared to $503,082 (17.1% of sales) for the six
months ended June 30, 1997. The decrease in gross profit percentage was a result
of higher direct labor costs due to increases in the minimum wage.
17
<PAGE> 24
General, administrative and selling expenses. General, administrative
and selling expenses for the six months ended June 30, 1998 were $588,482 (17.6%
of revenues) as compared to $312,313 (10.6% of revenues) for the six months
ended June 30, 1997. The total dollar increase of $276,169 is primarily a result
of additional facility rental expense of $29,811; settlement costs of $105,000
associated with a litigation matter; and $106,900 of additional legal fees
defending the litigation matter (see "Business of the Company--Litigation").
Interest expense. Interest expense for the six months ended June 30,
1998 was $58,065 compared to $65,050 for the six months ended June 30, 1997. The
reduction in interest expense was a result of the Company's ability to reduce
its borrowing costs through a new line of credit entered into in February 1998.
The Company has also reduced outstanding borrowings on its line of credit as a
result of improved collection efforts on its Accounts Receivable.
Net income (loss). Net loss for the six months ended June 30, 1998 was
($184,209) compared to net income of $124,919 for the six months ended June 30,
1997. The decrease in profitability is a direct result of increases in direct
labor costs due to minimum wage increases and legal and settlement costs
associated with the litigation matter (see "Business of the
Company--Litigation").
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31,
1996 (AUDITED)
Revenues. The Company generated revenues of $5,852,969 for the year
ended December 31, 1997 as compared to revenues of $3,056,532 for the year ended
December 31, 1996. The 91% increase in revenues for the year ended December 31,
1997 was primarily the result of shipments and increased orders to GE. The
Company began shipping product to GE in 1996.
Gross Profit. Gross profit for the year ended December 31, 1997 was
$1,251,472 (21.4% of sales) compared to $471,864 for the year ended December 31,
1996 (15.4% of sales). The 6% increase in gross profit percentage was primarily
a result of increased purchasing and production efficiencies created by the
significant increase in material needs and sales volume.
General, administrative, and selling expenses. General, administrative,
and selling expenses for the year ended December 31, 1997 were $991,164 compared
to $488,491 for the year ended December 31, 1996. The increase is primarily the
result of: increased administrative compensation expense due to additional
hirings and discretionary officer bonus programs initiated in 1997 ($386,000);
accounting and legal costs ($106,000); and increased selling expenses, due to
increased sales volume ($18,527). Administrative compensation expenses will
continue to occur in the future as the Company plans on hiring a National Sales
Manager as well as additional sales representatives. Expenses incurred in the
discretionary officer bonus program will continue as long as the Company is
profitable as the discretionary officer bonus program is based on a percentage
of gross sales allowed in the discretion of the Board of Directors. See
"Employment and Related Agreements--Employment Agreements." Increased accounting
costs are due to the preparation of audited financial information in conjunction
with this Offering; such accounting costs will continue in the future as the
Company will need to have audited financial statements prepared in accordance
with the reporting requirements of the Securities Exchange Act of 1934.
Increased legal costs were a one-time only expense incurred with the defense and
settlement of a litigation matter. See "Business of the Company--Litigation."
Selling expenses will increase or decrease in the future correspondingly with
sales of the Company's products.
Interest expense. Interest expense for the year ended December 31, 1997
was $136,411 compared to $95,769 for the year ended December 31, 1996. The
increase of $40,642 is primarily the result of increased average monthly
borrowings on the Company's line of credit during 1997. The increased borrowings
were required to fund increased inventory expenditures needed to meet the growth
in sales volume.
Net income (loss). Net income for the year ended December 31, 1997 was
$123,097 compared to a net loss of $113,196 for the year ended December 31,
1996. The increase in profitability is directly attributable to greater
purchasing and production efficiencies and increased sales volume achieved
through shipments made to GE for the year ended December 31, 1997.
18
<PAGE> 25
The Internal Revenue Code of 1986 includes provisions which may limit
the net operating loss carry forwards available for use in any given year if
certain events occur, specifically a stock ownership change of 50% or more
within a three year period. Therefore, upon completion of this Offering,
utilization of the Company's net operating loss carry forwards to offset future
income may be limited. The Company's net operating loss carry forward as of
December 31, 1997 was approximately $145,000.
BACKLOG
The Company's backlog consists of unfulfilled purchase orders, mainly
with GE. These purchase orders are subject to change and can be revised at any
time by GE. For the month of December 1997, the Company's backlog was $7,522,000
as compared to $2,022,000 for the month of December 1996. As of September 30,
1998, the Company's backlog was $5,833,000.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has primarily funded its capital
requirements through equity infusions, bank loans, and officer loans.
Initial start-up funding of $50,000 was raised through the sale of
10,000 shares of the Company's Common Stock to its founders in 1994. An
additional $113,922 was raised during 1995 through the sale of 2,590,000 shares
at a price of $0.04 per share.
On April 4, 1997, the Company commenced a private placement (the
"Private Placement") of 506,500 shares of Common Stock at a purchase price of
$0.50 per share (the "Private Placement Stock") and 500,000 warrants, each
warrant to purchase one share of the Company's Common Stock at an exercise price
of $0.80 for a term of five years at a purchase price of $0.10 per warrant (the
"Private Placement Warrants"). The Private Placement Stock and the Common Stock
underlying the Private Placement Warrants are being registered herein. The
Private Placement generated net proceeds of approximately $280,000.
At June 30, 1998, the Company had outstanding current liabilities of
$1,822,768. The Company anticipates satisfying its current liabilities in the
ordinary course of business from revenues and accounts receivable.
Capital expenditures during the period from inception through June 30,
1998, were $387,277. Over the next 12 months, the Company plans to upgrade its
management information system, telecommunications system and office equipment to
accommodate anticipated growth plans. In addition, computers and test equipment
for product development will be acquired for use in research and development.
At June 30, 1998, the Company had $568,234 outstanding in accounts
receivables from customers who have been billed.
The Company believes that proceeds from this Offering, even if only the
Minimum Offering is sold, together with revenues from the Company's operations,
and the Company's other resources, will be sufficient to cover working capital
requirements for at least 12 months after this Offering. See "Use of Proceeds."
The Company may nevertheless require additional financing to support continued
expansion of its business, marketing, and development of its existing and future
products, and the potential acquisition of other products or technologies. The
Company has made no arrangements or commitments for such financing and there can
be no assurance that the Company will be able to obtain such financing on
satisfactory terms, if at all. If adequate financing is not available or
available on satisfactory terms, the Company may be required to delay, scale
back or eliminate certain of its marketing programs, research and development
activities or expansion plans. To the extent the Company raises additional
capital by issuing equity securities, ownership dilution to the investors in
this Offering will result.
19
<PAGE> 26
FINANCING
The Company's primary source of borrowing was a $1,000,000 maximum line
of credit with a financial institution, Fremont Business Credit. The line was
secured by the Company's accounts receivable and inventory and personal
guarantees of certain of the shareholders. $279,955 was outstanding on the line
of credit as of December 31, 1997. The line bore interest at a rate of 4% above
prime. The line of credit expired in February 1998 and was paid in full.
Subsequent to December 31, 1997, the Company entered into a new line of
credit with First Community Financial Corporation, Arizona for $1,000,000. The
line is secured by the Company's accounts receivable and inventory and personal
guaranties of certain of the officers. The loan will bear interest at a rate of
3% above prime (as of September 30, 1998, such interest rate was 11.25%). The
line of credit expires in February 1999. The Company will continue to rely on
cash flow from operations and borrowings on its replacement line of credit to
fund its capital requirements.
The Company also finances its business activities using unsecured lines
of credit, short-term bank loans, and equipment lease financing. Terms under
these various facilities vary depending upon the type of facility used.
Management will continue to finance a portion of the capital requirements using
these type of facilities to the extent that they are available at terms that are
deemed favorable to the Company.
The Company does not believe that inflation has had a significant
impact on its operations since inception of the Company.
SEASONALITY
The Company's business is subject to seasonable fluctuations, with a
slight decrease in sales and revenues occurring during the month of December due
to the holidays. Because of the seasonality of the Company's business, results
for any quarter are not necessarily indicative of the results that may be
achieved for the full year.
20
<PAGE> 27
BUSINESS OF THE COMPANY
GENERAL
Luminex Lighting, Inc. (the "Company") distributes quality, energy
saving, fluorescent lighting fixtures. The Company designs, tools, tests,
assembles, and packages readily available lighting component parts into a
finished product, ready for distribution and sale. The Company has expanded its
customer base across the United States and is seeking to expand into the direct
retail and emerging global markets.
The Company believes it is currently one of the largest distributors of
cost efficient energy saving fluorescent lighting fixtures. The Company has been
in operation for over four years and has experienced substantial growth within
the lighting industry. The Company believes it has built a strong customer base,
including GE and Lamps Plus.
The Company's niche in the light fixture market is maintained through
cost efficiency and quality in its products. The Company believes it has
accumulated strength in the purchasing of raw materials. Due to the increased
volume of material that the Company purchases, it believes it is able to obtain
an advantage when negotiating with its suppliers. The Company believes its
competitive edge is based upon low cost purchasing along with low overhead
expenses, resulting in quality products at a lower price. The Company is
competitive in all aspects of its operations. It believes these factors,
combined with experienced management and employees, provide the Company with
added value within the industry.
The Company is seeking to capture a significant market share in the
lighting industry. It believes opportunities exist not only in the United
States, but internationally as well. The Company intends to target such
territories as Canada, Mexico, South America, and Puerto Rico. Presently, the
Company does not make any sales into markets outside the United States. With a
portion of the proceeds of this Offering, the Company plans on retaining sales
representatives familiar with both domestic and foreign markets. (See "Use of
Proceeds.") In February 1999, the Company plans to attend the
Hardware/Housewares and Building Material Show of the Caribbean (the "Hardware
Show"). This will mark the beginning of the Company's expansion into foreign
markets. The Hardware Show will be held in Puerto Rico and generally attracts
over 12,000 buyers from South America, the Caribbean, Central America, and parts
of Europe.
The Company was incorporated under the laws of the State of California
on January 21, 1994. The address of the Company's principal executive offices
is: 13710 Ramona Avenue, Chino, California, 91710. The Company's telephone
number is (909) 591-5653. The Company also has a branch office located at 258
Main Street, Suite 111, Milford, Massachusetts, 01757.
21
<PAGE> 28
OVERVIEW OF THE COMPANY'S MARKETS
Based on industry reports and evaluations done by Business Trend
Analysis, the residential lighting fixtures market is expected to outperform all
other types of lighting markets in 1998. (Energy Information Administration,
Office of Energy Markets and End Use; Lighting Research Center, Rensselaer
Polytechnic Institute, 1997.)
Households in the U.S. contain a total of 523 million lights that are on one or
more hours a day -- 282 million of these are on four or more hours a day.
(Energy Information Administration, 1993.)
Based on the 1995 Commercial Buildings Energy Consumption Survey (CBECS),
approximately 77% of all commercial buildings are lit by fluorescent lights.
Therefore, both the U.S. residential and commercial lighting markets are large
and wide-spread.
The Company produces its products primarily as an OEM (original
equipment manufacturer) for GE, its major customer. The Company believes the OEM
market alone has great potential for further expansion of the Company's
products. The Company believes the OEM market gives the Company the ability to
acquire pre-existing national distribution channels. The Company is currently in
discussions with various customers in order to expand and generate further
revenue through the OEM markets.
During 1998, the Company began entering into the direct retail market
by introducing new products under the Luminex Lighting private label. Thus far,
the Company has received orders for its private label products from Costco
Wholesale and Lithonia Lighting. The Company expects to further introduce its
product line to markets such as home improvement retail stores; retail outlets
such as Kmart, Target, and Wal-Mart; drug stores; and office supply stores.
Again, the Company believes the potential to expand into this market is great
and if the Company successfully enters the direct retail market, it will provide
the following benefits: establishing its own private label, creating brand
recognition, and enabling the Company to acquire extensive national distribution
channels.
The Company also plans on expanding its Energy Plus division which
currently consists of products being sold mainly to the commercial and
industrial markets. These products are used for the construction of new homes,
buildings, medical centers, and shopping plazas. They are also sold to smaller
home improvement and retail lighting outlets.
The overall lighting market is wide in scope. The Company has developed
various products which represent the scope of products offered by both the
commercial and residential lighting industries.
BUSINESS STRATEGY
Currently, the Company is highly concentrated within the OEM
distribution channel. Its primary customer at this time is GE. GE plays a
significant role in the generation of revenue for Luminex Lighting.
Luminex would like to further diversify its business through entering
into the direct retail market and by further expanding its commercial and
wholesale distribution division, Energy Plus (see "Sales, Marketing and
Distribution"). The Company is currently in the process of structuring and
preparing itself for entry into the direct retail market. Direct sale to the
retail market provides higher margins, increased profitability, and establishes
Company recognition within the lighting industry. The Company has developed many
new products to support the market and has created a new image for the Luminex
label.
The Company began its direct retail program
22
<PAGE> 29
in the second half of 1998 by retaining a National Sales Manager in order to
develop business, and by improving its packaging. The Company plans on taking
these additional actions to continue to expand its direct retail program:
- retainment of additional sales representatives across the
United State and Canada;
- further development of creative lighting fixtures appealing to
the consumer;
- establishing brand recognition and Company image;
- new and creative catalogs appealing to buyers;
- increased marketing of product through advertising and
specials;
- additional investment in product research and development; and
- introduction of fluorescent product lines to home centers,
hardware chains, drug stores, supermarket chains, and several
independent hardware stores.
The Company's ability to continue this direct retail program and the
timing of these actions are dependent upon the Company's receiving the net
proceeds from this Offering. The Company anticipates that, if it receives the
net proceeds from the Minimum Offering, it will be able to take all of the
actions listed above expeditiously. However, if no funds are raised from this
Offering, the Company's plans will be delayed until such time as the Company
generates enough revenue to take these actions.
The Company believes that market opportunities exist not only
domestically but internationally. Currently, the Company is marketing its
products extensively within the United States region. However, due to
insufficient amounts of working capital, the Company has not been able to expand
and reach its fullest potential in the international market.
The Company intends to target such territories as Canada, Mexico, South America,
and Puerto Rico.
PRODUCTS
The Company has integrated a variety of lighting products into its
inventory. Its product lines are highly diversified and guaranteed the highest
quality within the lighting industry. The Company provides a five year warranty
on all of its products. Luminex produces products that are energy efficient. For
example, an 18 watt compact fluorescent light produces the same number of lumens
as a 75 watt incandescent. These energy savings are passed on to the consumer.
According to research conducted by the United States Chamber of Commerce in
1993, U.S. households used a total of 90.8 billion kWh for electricity for
lighting. If households replaced all incandescent bulbs used four or more hours
per day with compact fluorescent lights, they could save 31.7 kWh annually, or
35% of all electricity used for residential lighting. Management of the Company
believes that replacements have generally not been made mainly because the
consumer has not been educated on savings presented by compact fluorescent light
fixtures. Also, the Company believes that the introduction of electronics and
compact fluorescent lights has not been marketed to its fullest potential.
In addition to the energy efficient products that Luminex produces, the
Company has gone a step further by implementing electronic ballasts into many of
their products. CBECS data suggests greater energy savings will occur by
replacing existing fluorescent lights with more energy - efficient equipment
such as electronic ballasts, which increase fluorescent efficiency by up to 25%.
Following is a brief overview of the various products the Company
currently offers and an introduction of the new and innovative products the
Company will attempt to add to its product lines.
23
<PAGE> 30
1. CEILING MOUNT FIXTURES are used for commercial and residential
purposes where efficient higher light output fixtures can be used in new or
existing construction to replace inefficient incandescent fixtures. These
fixtures include the cloud series and decorative wraparound series.
2. DECORATIVE VANITY SERIES fixtures are efficient and attractive in
design and provide uniform low glare diffusers. This series is excellent for
residential and commercial use such as restrooms or hotels, motels, and health
care facilities. These fixtures also save energy.
3. COMPACT CEILING MOUNTS include contemporary fluorescent cloud
fixtures and contoured cloud fixtures. These mounts are popular because of their
soft lines and shallow appearance. These products are used both in residential
and commercial applications. These fixtures feature the latest in long life
compact fluorescent and circleline lamps. These fixtures are ideal for small
rooms, entrance areas, accent areas, or hallways.
4. UNDERCABINET SERIES. Supplying this product to its constantly
growing customer base, including GE as the largest purchaser and distributor,
the Company is also being asked by other competitors to produce the product for
them as the Company believes that other companies are unable to compete with the
quality and price the Company offers. The Company's Undercabinet Series has a
very low profile, excellent in energy saving, multipurpose use and has now
become the most popular item among all the Company's products.
5. PLASTIC BLACKLIGHT SERIES. At the current time, the Company is
producing the plastic Blacklight Series for GE only. However, there is no
exclusive contract between the Company and GE. GE then sells this product to
many retailers including Spencer Gifts, Target, and other novelty stores, so
this popular fixture is constantly in demand. On some days the Company produces
more than 10,000 Blacklight fixtures. Recent estimates from GE suggest that
Blacklight orders within the next twelve months will be approximately 750,000
units.
All of the Company's products are 100% tested electrically prior to
shipment, are monitored for finish (i.e., the aesthetic appearance free from
scratches, dents, etc.) as well as mechanical fit, and are Underwriters
Laboratories ("UL"), Canadian Standards Association ("CSA"), and Canadian
Underwriters Laboratories ("CUL") approved. The Company believes that these
factors, combined with the Company's management, strategically place the Company
in a position to capture a significant portion of the commercial and residential
lighting industry.
During 1999, the Company plans to introduce a minimum of four new
fixture series to its present family of products. These products, in addition to
the current products being sold, will be marketed to the D14 retail market under
the Luminex Lighting label. The various product series currently in the
development stage are the following:
1. DECORATIVE UTILITY LIGHT is an inexpensive, portable utility light
which can be used for homes, offices, commercial, and residential purposes.
2. PLASTIC SERIES, with similar construction to the Blacklight, will
enable consumers to purchase multipurpose lighting fixtures at an economical
price.
3. COMPACT FLUORESCENT SERIES leads the market in compact energy
efficient products utilizing the latest "state of the art" lamp technology. This
series will be offered in a variety of products including ceiling and wall
lights.
4. EURO SERIES. The Euro Single Strip, Euro Twin Light, Euro 15" Strip
Light, and Euro Nightlite are included in this series. This inexpensive and
affordable product line is characterized by its rounded dimensions and is
designed to fit almost anywhere. These lights can be used to brighten up areas
such as the kitchen, laundry area, garage, office, and almost anywhere around
the home or office. As one of the newer lighting developments by Luminex, the
Euro Series has created a great deal of interest in Luminex and its product
lines. This series will be marketed extensively through the do it yourself
("DIY")/retail market under the Luminex label. The "do it yourself" market
encompasses companies which sell products to the consumer for the consumer to
install, such as Home Depot, Home Base, and Orchard Supply Hardware. The
expected launch date for this program is late 1998.
24
<PAGE> 31
5. CIRCLE LIGHT. Luminex will be introducing a new line of energy
efficient, screw-in fluorescent Circle Light adapters. This product easily
replaces the 75 watt and 150 watt incandescent lamps with only 22 watts and 30
watts respectively. The 22 watt system consists of a compact and dependable
Circle Light lamp and magnetic adapter. The 30 watt system utilizes high color
rendering lamps with sophisticated and state of the art electronic ballast for
quick starting and long life efficient operation.
CUSTOMERS
The largest customers of the Company for the last two years are as
follows:
General Electric Company
Lithonia Lighting
Costco Wholesale
Lamps Plus, Inc.
United Electric Supply Company, Inc.
The Orman Grubb Company
California Commercial Lighting Supply, Inc.
All Sale Electric, Inc.
COMPETITION
The Company faces competition from numerous companies, certain of which
are more established, benefit from greater market recognition, and have greater
financial, production and marketing resources than the Company. The Company's
products compete on the basis of certain factors, including first to market
product capabilities, product performance, price, support of industry standard,
ease of use, customer support as well as user productivity.
The lighting industry is large and composed of many companies. Much of
the competition that the Company faces is centralized within California.
Companies such as American Power Products, Lights of America, Lampi Corporation,
and Lamar Lighting manufacture similar lighting fixtures to those sold by the
Company. The Undercabinet line in particular is in direct competition with
various other manufacturers of similar lines. Such competition may diminish the
Company's market share or its ability to gain entry into the market, and may
consequently have a material adverse effect on the Company.
COMPETITIVE ADVANTAGES
Management of the Company believes that the Company has the following
advantages over its competition:
- - The Company is able to purchase material at below market cost thereby
enabling the final price of the finished product to be competitive
within the industry.
- - All products assembled by the Company are tested and inspected by the
Company's team of Quality Control Specialists thereby resulting in a
100% product satisfaction guarantee to its customers. Customers receive
a replacement or full refund on any defective product.
- - The Company's diverse product lines offer ease of use in both the
commercial and residential settings.
- - The Company is consistently applying the newest technology to its
various products. In the lighting industry, technology changes rapidly.
The Company has a team of specialists who are able to apply these new
innovations to its lighting products giving the Company a competitive
edge against the general market.
25
<PAGE> 32
SALES, MARKETING, AND DISTRIBUTION
GENERAL
The Company is currently marketing its products throughout the United
States and Canada. Currently, the Company's revenues are largely based on OEM
customers such as GE. Management feels that there are significant opportunities
within the OEM market and intends to capitalize and expand its revenue base from
this market.
Aside from OEM manufacturing, the Company is currently selling its wide
range of fluorescent lighting fixtures through various distributors and
independent sales representatives. This accounts for approximately 5% of
revenues for the Company. The remaining approximately 95% of sales is derived
from GE.
Distribution takes place through the Company's Chino, California
assembly and distribution center.
ENERGY PLUS - A DIVISION OF LUMINEX LIGHTING, INC.
Energy Plus, a division of Luminex Lighting, Inc., has been
specifically set up to target the commercial and electrical distribution
markets. This market includes lighting needs for home and industrial
construction, electrical distributors, and electrical wholesalers. Currently,
Energy Plus provides the market with several fixtures, including over 93 various
options. Products being sold through Energy Plus include all undercabinet series
(plastic and metal), flushmounts, sidemounts, various cloud designs,
wraparounds, decorative vanity, decorative cloud, all open strip fixtures,
industrial use fixtures, enclosed fixtures, and gasket fixtures.
Energy Plus recently acquired a new Sales Manager at the end of 1997
and formed a strong team of sales representatives and customer service
representatives to support its division. The Company believes the restructuring
of the division has dramatically increased annual sales and has proven that
Energy Plus can be competitive within the electrical and commercial markets.
During the first half of 1998, Energy Plus reached a level of $278,469 in gross
sales. The Company believes that there will be continued growth within this
division based on increased orders by new and existing customers.
In order to establish new clients, Energy Plus is continuously
searching for sales representatives across the United States and Canada.
Currently, Energy Plus retains over 20 sales representatives who mainly cover
the Western and Midwestern states. In order to facilitate the forecasted growth
for Energy Plus, it will be necessary to expand its customer base through the
acquisition of additional sales representatives. The division plans on
aggressively expanding its representative base during the remainder of 1998 and
during 1999. Also, it will be necessary to maintain on hand inventory of the
products being offered and to ensure rapid turn around time. Energy Plus will
continue to stay focused on customer service and quality control enabling the
division to further expand competitively.
Energy Plus is a significant part of Luminex's business. Due to the
direct sale of product to the customer, Energy Plus is able to maintain higher
margins than those of Luminex Lighting, Inc. The higher margins attained within
this division significantly contribute to the overall profitability of the
business. Therefore, Luminex will continue to support the Energy Plus division
and continue to acquire the business available in the commercial and electrical
wholesale market.
Energy Plus has recently launched a new PRODUCT PROMOTION PROGRAM. This
program is a tool which the Company believes will enable the Company to
strategically acquire new business through special promotions of products every
two months. The Company believes this form of advertising and marketing will
promote additional sales with electrical distributors and will provide the
distributors with an incentive to purchase the product that is being promoted
that particular month. This program is planned to be aggressively marketed
through their in house sales force along with their independent representatives
across the United States.
26
<PAGE> 33
LUMINEX-MEXICO
Luminex identified an opportunity to reduce costs by manufacturing
components in Mexico where direct labor costs are significantly lower than those
in the United States. Therefore, in 1998, the Company, in conjunction with
Enertech-Mexico, began manufacturing certain component parts for its lighting
fixtures in order to increase margins. The Company is manufacturing several
different types of ballasts for use in its fixtures. It is also manufacturing
starter assemblies at the Mexico facility. There is no affiliation between
Enertech-Mexico and the Company other than the manufacturing arrangement.
The Company may also move the assembly of certain lighting fixtures to
Mexico later in the year. The Company believes this move will enable Luminex to
realize significant cost savings by assembling certain of its lighting fixtures
in Mexico.
WEB SITE
The Company has established an interactive website which it believes
will enable potential and existing clients to access the website and receive
information, price quotes, and an opportunity to place orders. This will also
allow interaction with international prospects. Again, the Company believes this
website provides additional tools for marketing its products domestically and
internationally. The Company's website address is www.luminexlighting.com.
EMPLOYEES
As of the date of this Prospectus, the Company employed 80 full-time
employees and no part-time employees. The Company hires independent contractors
on an "as needed" basis only. The Company has no collective bargaining
agreements with its employees. The Company believes that its employee
relationships are satisfactory. The Company plans on hiring additional part-time
sales staff in the immediate future with the proceeds of this Offering. Long
term, the Company will attempt to hire additional employees as needed based on
its growth rate. In particular, if at least the Minimum Offering is sold, the
Company plans on hiring a national sales manager to market the Company's own
brand label products in the U.S. and Canadian retail markets. See "Use of
Proceeds."
PROPERTIES
The Company leases a 25,000 square foot warehouse, including office
space, in Chino, California which is the Company's headquarters. The Chino
facility is comprised of the following areas: office space - 2,900 square feet;
assembly/manufacturing space - 5,200 square feet; and inventory stocking area -
16,900 square feet. The lease term expires in October 2000. The lease contains
two options to extend the lease term for a period of three years each. The
monthly lease payment is $11,250.
The Company also leases approximately 500 square feet of office space
in Milford, Massachusetts. The monthly lease payment is $275 and the lease
expires November 30, 1998.
LITIGATION
On March 11, 1997, the Company was served with a Complaint in the
matter of David P. Holmes, Plaintiff ("Plaintiff") vs. Luminex Lighting, Inc., a
California corporation; Wasif Siddiqui, an individual; Tasneem Siddiqui, an
individual; and Does 1 through 20, inclusive, Defendants ("Defendants"),
Superior Court of the State of California for the County of Orange, Case No.
776430. Plaintiff is a former employee of the Company who was terminated.
Plaintiff alleged he had an implied employment contract with Defendants such
that he would be employed by Defendants so long as his performance was
satisfactory, and that Defendants would not discharge him without good and just
cause. Plaintiff alleged the following causes of action in his complaint: breach
of contract for continued employment; breach of implied contract of continued
employment; and breach of implied covenant of good faith and fair dealing. On
June 18, 1997, Defendants filed a Cross-Complaint against Plaintiff for
misappropriation of trade secrets; interference with a significant
27
<PAGE> 34
business relationships; conversion of trade secrets; and unfair competition. On
May 27, 1998, Defendants entered into a settlement agreement with Plaintiff
whereby Defendants would pay to Plaintiff the total sum of $105,000 according to
the following payment schedule: $25,000 initial lump sum payment and $10,000 per
month for eight months. All settlement payments will be made by the Company on
behalf of all Defendants.
Management of the Company believes that there are no other litigation
matters pending or threatened against the Company.
28
<PAGE> 35
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and officers of the Company as of the date of this
Prospectus are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Wasif Siddiqui 52 President, Chief Executive Officer, Chief Financial Officer,
Director
Tasneem Siddiqui 44 Executive Vice President, Secretary, Director
Asra Rasheed 25 Vice President of Corporate Planning, Director
</TABLE>
The number of directors may be fixed from time to time by the Board of
Directors. The Board of Directors presently consists of three directors, all of
whom are inside directors. The Company will add one independent director at the
completion of this Offering. This individual has yet to be determined. Each of
the Company's directors hold office until their respective successors are
elected at the next annual meeting of shareholders. Vacancies in the Board of
Directors are filled by a majority vote of the remaining directors or by a
shareholder vote called expressly for such purpose. The Company currently has no
committees established to advise the Board of Directors. See "Risk Factors--No
Outside Directors or Committees."
WASIF SIDDIQUI, PRESIDENT, CHIEF EXECUTIVE OFFICER, CHIEF FINANCIAL OFFICER, AND
DIRECTOR, has over 15 years of experience within the lighting industry. He is
one of the original founders of the Company and spent 1993 forming the Company
which was incorporated in January 1994. From 1987 through 1993, he was President
and Chief Executive Officer of American Power Products, a lighting Company with
sales volume that exceeded 35 million dollars. 1 Prior to his term as President
of both companies, Mr. Siddiqui specialized in various management positions with
three different Fortune 500 companies. His experience in management, along with
his expertise in the lighting industry, has brought the Company a strong and
committed leader focused on the growth and success of the Company. Mr. Siddiqui
earned his Masters Degree in Business Administration from Northrop University,
Los Angeles, California.
TASNEEM SIDDIQUI, EXECUTIVE VICE PRESIDENT, SECRETARY, AND DIRECTOR, brings to
the Company insight and experience in financial and manufacturing management.
She is an original founder of the Company and spent 1993 forming the Company
with Mr. Siddiqui. Ms. Siddiqui was Manager of Finance with American Power
Products from 1991 through 1992.2 Ms. Siddiqui was the owner and operator of
National Products, a multi-million dollar artificial plant manufacturing
Company, from 1986 through 1991. Through this venture, she gained experience in
overseeing production and manufacturing. Ms. Siddiqui is responsible for the
daily management and supervision of various departments such as Accounts Payable
and Production, of the Company. She has a B.S. Degree in Economics. Tasneem
Siddiqui, Executive Vice President, Secretary, and a Director of the Company is
the wife of Wasif Siddiqui, President, Chief Executive Officer, Chief Financial
Officer, and a Director of the Company.
ASRA S. RASHEED, VICE PRESIDENT OF CORPORATE PLANNING, AND DIRECTOR, brings to
the Company expertise in business and financial analysis. She joined the Company
in October 1996. She was previously employed at Wells Fargo Bank from August
1991 through September 1996 as a Personal Banking Officer and Customer Service
Representative where
- --------
1 American Power Products is still in business operating in Chino,
California. Mr. and Mrs. Siddiqui are no longer officers, directors, or
employees of American Power Products. They have no connection whatsoever to
American Power Products.
29
<PAGE> 36
she gained experience in the sales and financial industry. Ms. Rasheed is
responsible for long term forecasting and financial structuring for the Company
as well as overseeing day-to-day sales and accounts receivable activity that
funnel through the Company. Ms. Rasheed has a B.S. Degree in Finance (with
emphasis on Corporate Finance and Investments). Asra Rasheed, Vice President of
Corporate Planning and a Director of the Company, is the daughter of Tasneem
Siddiqui, Executive Vice President, Secretary, and a Director of the Company,
and Wasif Siddiqui, President, Chief Executive Officer, Chief Financial Officer,
and a Director of the Company.
EXECUTIVE COMPENSATION
The following officers of the Company receive the following annual cash
salaries and other compensation:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and Principal Position Year Annual Bonus(2) Awards(3)
Salary(1)
Restricted Securities
Stock Awards(4) Underlying
Options
<S> <C> <C> <C> <C> <C>
Wasif Siddiqui, President, Chief 1998 $96,000 $-0- -0- -0-
Executive Officer, Chief Financial 1997 $96,000 $175,589 -0- -0-
Officer 1996 $62,000 $-0- -0- -0-
Tasneem Siddiqui, Executive Vice 1998 $72,000 $-0- -0- -0-
President and Secretary 1997 $72,000 $-0- -0- -0-
1996 $36,000 $-0- -0- -0-
Asra Rasheed, Vice President of 1998 $39,000 $-0- -0- -0-
Corporate Planning 1997 $36,000 $-0- -0- -0-
1996 $ 9,000 $-0- -0- -0-
</TABLE>
- ----------------
(1) The table does not include any amounts for personal benefits extended
to officers of the Company, such as the cost of automobiles, life
insurance and supplemental medical insurance, because the specific
dollar amounts of such personal benefits cannot be ascertained.
Management believes that the value of non-cash benefits and
compensation distributed to executive officers of the Company
individually or as a group during fiscal year 1998 will not exceed the
lesser of $50,000 or ten percent of such officers' individual cash
compensation or, with respect to the group, $50,000 times the number of
persons in the group or ten percent of the group's aggregate cash
compensation.
(2) Mr. Wasif Siddiqui and Ms. Tasneem Siddiqui have bonus compensation
agreements. For fiscal 1998, Mr. Siddiqui shall receive bonus
compensation equal to 3% of gross annual sales; such amount is
presently not ascertainable. For fiscal 1998, Ms. Siddiqui shall
receive bonus compensation up to 1% of gross annual sales in the
discretion of the board of directors; such amount is presently not
ascertainable.
(3) No officers received or will receive any long term incentive plan
(LTIP) payouts or other payouts during fiscal 1998.
(4) No officers received or will receive any restricted stock awards or
options during fiscal 1998.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The laws of the State of California and the Company's Bylaws provide
for indemnification of the Company's directors for liabilities and expenses that
they may incur in such capacities. In general, directors and officers are
indemnified with respect to actions taken in good faith in a manner reasonably
believed to be in, or not opposed to, the best interests of the Company, and
with respect to any criminal action or proceeding, actions that the indemnitee
had no reasonable cause to believe were unlawful.
The Company has been advised that in the opinion of the Commission,
indemnification for liabilities arising under the Act is against public policy
as expressed in the Act and is, therefore, unenforceable.
30
<PAGE> 37
EMPLOYMENT AND RELATED AGREEMENTS
INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN
On May 5, 1997, the Company enacted an Incentive and Nonstatutory Stock
Option Plan (the "Plan") for its employees and consultants under which a maximum
of 500,000 options may be granted to purchase Common Stock of the Company. Two
types of options may be granted under the Plan: (1) Incentive Stock Options
(also known as Qualified Stock Options) which only may be issued to employees of
the Company and whereby the exercise price of the option is not less than the
fair market value of the Common Stock on the date it was reserved for issuance
under the Plan; and (2) Nonstatutory Stock Options which may be issued to either
employees or consultants of the Company and whereby the exercise price of the
option is less than the fair market value of the Common Stock on the date it was
reserved for issuance under the Plan. Grants of options may be made to employees
and consultants without regard to any performance measures. Any options issued
pursuant to the Plan vest over an 18 month period from the date of the grant per
the following schedule: 33% of the options vest on the date which is six months
from the date of the grant; 33% of the options vest on the date which is 12
months from the date of the grant; and 34% of the options vest on the date which
is 18 months from the date of the grant. Any options issued pursuant to the Plan
are nontransferable and subject to forfeiture. As of the date of this
Prospectus, the Company had not issued any options under the Plan.
EMPLOYMENT AGREEMENTS
Effective as of January 1, 1997, the Company entered into an "Annual
Salary and Bonus Compensation Plan" with Wasif Siddiqui (the "Wasif Siddiqui
Employment Agreement"). The term of the Wasif Siddiqui Employment Agreement is
five years and is renewable subject to Board approval at the expiration of the
initial term. This Employ ment Agreement provides for annual salary compensation
of $96,000 per year with a 5% increase every year for a period of five years.
The Wasif Siddiqui Employment Agreement provides for bonus compensation of 3% of
gross annual sales of the Company each fiscal year, provided that the bonus does
not create a net loss before taxes for the Company.
Effective January 1, 1997, the Company entered into a Bonus Plan with
Charles Boulos, an employee (the " Boulos Bonus Plan"). This Bonus Plan provides
for a bonus each fiscal year in a range between 0.5% and 1% of gross annual
sales of the Company. The actual percentage for the bonus to be determined by
the Board of Directors of the Company at the annual meeting, but no less than
0.5% nor more than 1% of gross annual sales. The Boulos Bonus Plan contains no
other provisions and is subject to amendment or termination at will. Mr. Boulos
does not have an employment agreement with the Company and his employment is
terminable at will.
Effective as of June 1, 1997, the Company entered into an "Annual
Salary and Bonus Compensation Plan" with Tasneem Siddiqui (the "Tasneem Siddiqui
Employment Agreement"). The term of the Tasneem Siddiqui Employment Agreement is
five years and is renewable subject to Board approval at the expiration of the
initial term. This Employment Agreement provides for annual salary compensation
of $72,000 per year with a 5% increase every year for five years thereafter. The
Tasneem Siddiqui Employment Agreement provides for bonus compensation of up to
1% of gross annual sales of the Company each fiscal year, provided that the
bonus does not create a net loss before taxes for the Company.
CERTAIN TRANSACTIONS
During the past two years, the Company had taken loans drawn on
personal lines of credit of Asra Rasheed, Vice President of Corporate Planning
and a Director and Shareholder of the Company. The interest rate at December 31,
1997 was 12.51%. The balance of the lines of credit at December 31, 1997 was
$6,272. The funds drawn were contributed to the Company for working capital.
Subsequent to December 31, 1997, the loans were paid in full and the Company has
no plan to take any further loans from this line of credit.
31
<PAGE> 38
The Company's management believes that the terms of these transactions
are no less favorable to the Company than would have been obtained from an
unaffiliated third party in similar transactions. All future transactions with
affiliates will be on terms no less favorable than could be obtained from
unaffiliated third parties, and will be approved by a majority of the
disinterested directors.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock, as of the date hereof and as adjusted
to reflect the sale of the Shares offered hereby by (i) each shareholder known
by the Company to be the beneficial owner of more than five percent of the
outstanding Common Stock, (ii) each director of the Company, (iii) each officer
of the Company, and (iv) all directors and officers as a group. Unless otherwise
indicated, the address for each shareholder is 13710 Ramona Avenue, Chino, CA
91710.
Percentage Beneficially Owned(1)
<TABLE>
<CAPTION>
Number
Name Of Shares
Before After After
Offering Minimum Maximum
Offering Offering
<S> <C> <C> <C> <C>
Wasif A. Siddiqui and Tasneem Siddiqui, held 2,600,000 78.6% 73.1% 68.3%
jointly
Whittington Investments, Ltd., a corporation(2) 237,000 7.2% 6.5% 6.2%
Suite M2 Charlotte House
P.O. Box N4825
Nassau, Bahamas
Clearweather Investment, Ltd.(3) 210,000 6.4% 5.6% 5.5%
65 Main Street, P.O. Box 3463
Road Town/Tortola
British Virgin Islands
Asra Rasheed 200,000 6.0% 5.6% 5.3%
Knightrider Investments Limited, a corporation(4) 175,000 5.3% 4.7% 4.6%
c/o John King
Worldwide Trust Services Limited
Charlotte House, Charlotte St.
Nassau, Bahamas
All officers and directors as a group (3 persons) 2,800,000 84.7% 78.7% 73.6%
</TABLE>
- ----------
* Less than one percent
(1) Except as otherwise indicated, the Company believes that the beneficial
owners of Common Stock listed below, based on information furnished by
such owners, have sole investment and voting power with respect to such
shares, subject to community property laws where applicable. Beneficial
ownership is determined in accordance with the rules of the Commission
and generally includes voting or investment power with respect to
securities. Shares of Common Stock subject to options or warrants
currently exercisable, or exercisable within 60 days, are deemed
outstanding for purposes of computing the percentage of the person
holding such options or warrants, but are not deemed outstanding for
purposes of computing the percentage of any other person.
(2) Includes 115,000 Private Placement Warrants
(3) Includes 200,000 Private Placement Warrants
(4) Includes 150,000 Private Placement Warrants
32
<PAGE> 39
SELLING SHAREHOLDERS
The following table sets forth the number of Shares of Common Stock
which may be offered for sale from time to time by the Selling Shareholders. The
shares offered for sale constitute all of the Shares of Common Stock known to
the Company to be beneficially owned by the Selling Shareholders. To the best of
management's knowledge, none of the Selling Shareholders has or have any
material relationship with the Company, except as otherwise set forth below.
<TABLE>
<CAPTION>
NAME OF SHARES OF
SELLING SHAREHOLDER COMMON STOCK OFFERED(1)
- ------------------- --------------------
<S> <C>
Whittington Investments, Ltd. 122,000
Whittington Investments, Ltd. 115,000(2)
Horwitz & Beam, Inc., a California corporation(3) 5,000
Horwitz & Beam, Inc., a California corporation(3) 25,000(2)
Clarence W. Coffey, an individual 20,000
Rockspitz Stiftung 9,500
Rockspitz Stiftung 5,000(2)
Richard Houlihan, an individual 20,000
Stephen Leslie Schneider, an individual 30,000
Joseph T. Doino and Carm M. Doino, JTWROS 25,000
Graham Thorogood, an individual 5,000(2)
Gregory A. Majka, an individual 10,000
Z.T. Global, Inc., a corporation 20,000
Clearweather Investments 10,000
Clearweather Investments 200,000(2)
Montague Securities International Ltd., a corporation 10,000
Irfan Mustafa, an individual 50,000
Equitrade Securities Corp. 10,000
Winthrop Venture Fund, Ltd. 80,000
C.R. Hanson, an individual 20,000
Knightrider Investments Limited, a corporation 25,000
Knightrider Investments Limited, a corporation 150,000(2)
Michael Preston, an individual 20,000
Steven Lampert, an individual 20,000
Total 1,006,500
</TABLE>
- ---------------
(1) All of these Shares are currently restricted under Rule 144 of the 1933
Act.
(2) Represents Shares underlying Private Placement Warrants.
(3) Legal counsel to the Company. Horwitz & Beam, Inc. acquired the
securities in the Private Placement as an investor on April 24, 1997
pursuant to a subscription agreement and the payment of $5,000.
PLAN OF DISTRIBUTION
The Shares will be offered and sold by the Selling Shareholders for
their own accounts. The Company will not receive any of the proceeds from the
sale of the Shares by the Selling Shareholders pursuant to this Prospectus. The
Company will pay all of the expenses of the registration of the Shares, but
shall not pay any commissions, discounts, and fees of underwriters, dealers, or
agents.
The Selling Shareholders may offer and sell the Shares from time to
time in transactions in the over-the-counter market or in negotiated
transactions, at market prices prevailing at the time of sale or at negotiated
prices. The Selling Shareholders have agreed not to sell, assign, pledge,
hypothecate, or otherwise dispose of any of the Private Placement
33
<PAGE> 40
Stock, as well as the Shares of Common Stock underlying the Private Placement
Warrants, for a period of 12 months from the final closing of the Offering
without the prior written consent of the Underwriter. The Selling Shareholders
have advised the Company that they have not entered into any agreements,
understandings, or arrangements with any underwriters or broker-dealers
regarding the distribution of their Shares, nor is there an underwriter or
coordinating broker acting in connection with the proposed sale of Shares by the
Selling Shareholders. Sales may be made directly or to or through broker-dealers
who may received compensation in the for of discounts, concessions, or
commissions from the Selling Shareholders or the purchasers of the Shares for
whom such broker-dealers may act as agent or to whom they may sell as principal,
or both (which compensation as to a particular broker-dealer may be in excess of
customary commissions).
The Selling Shareholders and any broker-dealers acting in connection
with the sale of the Shares hereunder may be deemed to be "underwriters' within
the meaning of Section 2(11) of the Act, and any commissions received by them
and any profit realized by them on the resale of Shares as principals may be
deemed underwriting compensation under the Act.
Under the Exchange Act and the regulations thereunder, any person
engaged in a distribution of the Shares offered by this Prospectus may not
simultaneously engage in market making activities with respect to the Common
Stock of the Company during the applicable "cooling off" periods prior to the
commencement of such distribution. In addition, and without limiting the
foregoing, the Selling Shareholders will be subject to applicable provisions of
the Exchange Act and the rules and regulations thereunder, including, without
limitation, Regulation M, which provisions may limit the timing of purchases and
sales of Common Stock by the Selling Shareholders.
Selling Shareholders may also use Rule 144 under the Act to sell the
Shares if they meet the criteria and conform to the requirements of such Rule.
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of ten million
Shares of Common Stock, no par value. The Company's Transfer Agent is Oxford
Transfer & Registrar, 317 S.W. Alder, Suite 1120, Portland, Oregon, 97204.
The following summary of the material terms of the Company's securities
does not purport to be complete and is subject to, and qualified in its entirety
by, the provisions of the Company's Articles of Incorporation and Bylaws, which
are included as exhibits to the Registration Statement of which this Prospectus
is a part, and the provisions of applicable law.
COMMON STOCK
As of the date of this Prospectus, there are 3,306,500 Shares of Common
Stock outstanding, and after completion of this Offering, 3,556,500 Shares of
Common Stock will be issued and outstanding if the minimum amount hereunder is
sold and 3,806,500 Shares of Common Stock if the maximum amount hereunder is
sold (without giving effect to the exercise of any warrants). Holders of Common
Stock are entitled to one vote for each share held of record on all matters
submitted to a vote of the shareholders. At all elections of directors of the
Company, each holder of stock possessing voting power is entitled to as many
votes as equal to the number of his or her shares of stock multiplied by the
number of directors to be elected, and he or she may cast all of such votes for
a single director or may distribute them among the number to be voted for or any
two or more of them, as he or she may see fit (cumulative voting). Subject to
preferences that may be applicable to any then outstanding Preferred Stock,
holders of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor. See
"Dividend Policy." In the event of a liquidation, dissolution or winding up of
the Company, holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preference of any
then outstanding Preferred Stock. Holders of Common Stock have no right to
convert their Common Stock into any other securities. The Common Stock has no
preemptive or other subscription rights. There are no redemption or sinking fund
provisions applicable to the Common Stock. All outstanding Shares of Common
Stock are, and the
34
<PAGE> 41
Common Stock to be outstanding upon completion of this Offering will be, duly
authorized, validly issued, fully paid and nonassessable.
WARRANTS
As of the date of this Prospectus, there are 500,000 warrants
outstanding (the "Private Placement Warrants"). These warrants were issued by
the Company to private individuals in connection with the Company's Private
Placement Bridge Financing commenced on April 4, 1997. The Private Placement
Warrants are each exercisable for one share of Common Stock of the Company at
$0.80 per share. The term of the Private Placement Warrants is five years from
the date of issuance.
The Company is also offering hereunder, a minimum of 250,000 warrants
and a maximum of 500,000 warrants (the "Warrants"). The Warrants are each
exercisable for one share of Common Stock of the Company at $6.00 per share,
subject to adjustment. The term of the Warrants is five years from the Effective
Date.
The exercise price of the Warrants and the number of Shares of Common
Stock or other securities and property issuable upon exercise of the Warrants
are subject to adjustment in certain circumstances, including stock splits,
stock dividends, subdivisions, combinations, reclassification or issuances of
stock at a price lower than the current market price. Additionally, an
adjustment will be made upon the sale of all or substantially all of the assets
of the Company in order to enable the holders of the Warrants to purchase the
kind and number of shares of stock or other securities or property (including
cash) receivable in such event by a holder of the number of Shares of Common
Stock that might otherwise have been purchased upon exercise of the Warrants.
The Warrants do not confer upon the holder any voting or any other
rights of a shareholder of the Company. Upon notice to the holders of the
Warrants, the Company has the right to reduce the exercise or extend the
expiration date of the Warrants.
Warrants may be exercised upon surrender of the Warrant certificate
evidencing those Warrants on or prior to the expiration date (or earlier
redemption date) of the Warrants to American Stock Transfer & Trust Company as
warrant agent (the "Warrant Agent"), with the form of "Election to Purchase" on
the reverse side of the Warrant certificate completed and executed as indicated,
accompanied by payment of the full exercise price (in United States funds, by
cash or certified bank check payable to the order of the Warrant Agent) for the
number of Warrants being exercised.
No fractional shares will be issued upon exercise of the Warrants.
However, if a holder of a Warrant exercises all Warrants then owned of record by
him, the Company will pay to that holder in lieu of the issuance of any
fractional share which would otherwise be issuable, an amount in cash based on
the market value of the Common Stock on the last trading day prior to the
exercise date.
No Warrant will be exercisable unless at the time of exercise the
Company has filed with the Commission a current prospectus covering the issuance
of Shares of Common Stock issuable upon exercise of the Warrants and the
issuance of shares has been registered or qualified or is deemed to be exempt
from registration or qualification under the securities laws of the state of
residence of the holder of the Warrant. The Company has undertaken to use its
best efforts to maintain a current prospectus relating to the issuance of Shares
of Common Stock upon the exercise of the Warrants until the expiration of the
Warrants, subject to the terms of the Warrant Agreement. While it is the
Company's intention to maintain a current prospectus, there is no assurance that
it will be able to do so.
The Warrants are redeemable, in whole or in part, by the Company at a
price of $0.10 per Warrant, commencing 12 months from the Effective Date (except
the Warrants may be redeemed earlier with the Underwriter's express written
consent), and prior to their expiration, provided that: (i) prior written notice
of not less than 30 days is given to the holders of the Warrants
("Warrantholders"); and (ii) the closing bid price of the Company's Common Stock
for the 20 consecutive trading days ending on the third day prior to the date on
which the notice of redemption is given,
35
<PAGE> 42
shall have exceeded $7.50 per share. The Warrantholders shall have exercise
rights until the close of business, the day preceding the date fixed for
redemption.
If the Minimum Offering is sold, the Company will have a total of
750,000 warrants outstanding. If the Maximum Offering is sold, the Company will
have a total of 1,000,000 warrants outstanding. Additionally, the Company has
agreed to issue to the Underwriter, upon the closing of this offering,
Underwriter's Warrants exercisable to purchase up to 50,000 Shares of Common
Stock at $8.15 per share and/or 50,000 Warrants at an exercise price of $8.30
per Share and $0.14 per Warrant.
The Company has agreed with certain state securities regulators that it
will not grant options and warrants in excess of 10% of the shares outstanding
at the conclusion of the Offering and that the exercise price will not be less
than 85% of the initial public offering price on the date of grant, except for
options issued to employees which meet the requirements of Section 424(b) of the
Internal Revenue Code (as amended) pursuant to the Company's Incentive and
Statutory Stock Option Plan. See "Employment and Related Agreements-- Incentive
and Nonstatutory Stock Option Plan" for a complete description of the Company's
Stock Option Plan.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
3,556,500 shares of Common Stock if the Minimum Offering is sold hereunder and
3,806,500 shares if the Maximum Offering is sold (without giving effect to the
exercise of any warrants). All shares acquired in this Offering, other than
shares that may be acquired by "affiliates" of the Company as defined by Rule
144 under the Act, will be freely transferable without restriction or further
registration under the Act.
All of the 3,306,500 shares outstanding prior to this offering were
shares issued by the Company and sold by the Company in private transactions in
reliance on an exemption from registration. Accordingly, such shares are
"restricted shares" within the meaning of Rule 144 and cannot be resold without
registration, except in reliance on Rule 144 or another applicable exemption
from registration.
All directors, officers, and holders of any securities of the Company
prior to the Offering have agreed not to sell any Shares of Common Stock,
including Shares of Common Stock issuable upon exercise of options, warrants, or
any convertible securities of the Company, for a period of 12 months after the
final Closing Date without the prior written consent of the Underwriter.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated), including any affiliate of the
Company, who beneficially owns "restricted shares" for a period of at least one
year is entitled to sell within any three-month period, shares equal in number
to the greater of (i) 1% of the then outstanding Shares of Common Stock, or (ii)
the average weekly trading volume of the Common Stock during the four calendar
weeks preceding the filing of the required notice of sale with the Commission.
The seller also must comply with the notice and manner of sale requirements of
Rule 144, and there must be current public information available about the
Company. In addition, any person (or persons whose shares are aggregated) who is
not, at the time of the sale, nor during the preceding three months, an
affiliate of the Company, and who has beneficially owned restricted shares for
at least two years, can sell such shares under Rule 144 without regard to
notice, manner of sale, public information or the volume limitations described
above.
The Private Placement Stock and the shares underlying the Private
Placement Warrants are being registered herein. Therefore, 506,500 shares of
Common Stock and 500,000 shares of Common Stock issuable upon exercise of
warrants will be freely tradeable upon the effective date hereof.
36
<PAGE> 43
UNDERWRITING
Platinum Equities, Inc. (the "Underwriter") has agreed, subject to the
terms and conditions contained in the Underwriting Agreement, to act as the
exclusive agent for the Company to sell the Securities on a "best efforts
250,000 Shares of Common Stock and 250,000 Warrants minimum ('Minimum
Offering'), 500,000 Shares of Common Stock and 500,000 Warrants maximum
('Maximum Offering')" basis. The Underwriter has made no commitment to purchase
any or all of the Shares of Common Stock or Warrants. It has agreed only to use
its best efforts to find purchasers for the Shares of Common Stock and Warrants
within a period of 180 days from the date of this Prospectus.
All proceeds from subscriptions will be deposited promptly in a
non-interest bearing account with American Stock Transfer & Trust Company as
escrow agent (the "Escrow Agent"), pursuant to an escrow agreement between the
Company, the Underwriter, and the Escrow Agent. Funds will be transmitted to the
Escrow Agent for deposit in the escrow account no later than noon of the
business day following receipt. All checks must be made payable to "American
Stock Transfer & Trust Company, Escrow Agent -- Luminex Lighting, Inc." In the
event the Minimum Offering is not sold within the 180 day offering period ,
funds will be refunded promptly to subscribers in full without deduction
therefrom or interest thereon. During the 180 day offering period and any
extension, no subscriber will be entitled to a refund of any subscription, and
no funds will be released from escrow until the Minimum Offering is sold, or the
termination of the Offering. There are none, nor will there be, any arrangements
between the Company and the Underwriter whereby Shares of Common Stock or
Warrants will be reserved to persons associated or affiliated with management of
the Company or its affiliated persons, although such persons may purchase Shares
of Common Stock or Warrants in order to insure that the Minimum Offering is
sold. Any purchases made by any persons affiliated with the Company for the
explicit purpose of meeting the minimum contingency must be made for investment
purposes only, and not with a view toward redistribution.
The Underwriter has advised the Company that it proposes to offer the
Securities to the public at the public offering price set forth on the cover
page of this Prospectus and that it may allow to certain dealers who are members
of the National Association of Securities Dealers, Inc. ("NASD") concessions not
in excess of $0.25 per Share of Common Stock and $0.005 per Warrant.
The Underwriter is to receive cash commission of 10% of the gross
offering. In addition, the Company has agreed to pay to the Underwriter a
non-accountable expense allowance of 3% of the gross proceeds of this Offering.
The Company has also agreed to pay all expenses in connection with qualifying
the Common Stock and Warrants offered hereby for sale under the laws of such
states as the Underwriter may designate, including expenses of counsel retained
for such purpose by the Underwriter.
The Company has agreed to sell to the Underwriter for $10, upon the
closing of this Offering, Underwriter's Warrants exercisable to purchase up to
50,000 Shares of Common Stock for $8.15 per Share and/or 50,000 Warrants at an
exercise price of $8.30 per Share of Common Stock at a purchase price of $0.14
per Warrant. This means that, for every ten Shares sold, the Underwriter is
entitled to one Warrant to purchase one Share of Common Stock of the Company at
an exercise price of $8.15. For every ten Warrants sold, the Underwriter is
entitled to one Warrant to purchase one Warrant of the Company at an exercise
price of $0.14; this Warrant is exercisable at $8.30 for one Share of Common
Stock. The Underwriter's Warrants may not be sold, transferred, assigned, or
hypothecated for one year from the date of this Prospectus, except to the
officers or partners of the Underwriter and members of the selling group, and
are exercisable during the four-year period commencing one year from the
Effective Date (the "Warrant Exercise Term"). During the Warrant Exercise Term,
the holders of the Underwriter's Warrants are given, at nominal cost, the
opportunity to profit from a rise in the market price of the Common Stock. To
the extent that the Underwriter's Warrants are exercised, dilution to the
interests of the Company's shareholders will occur. Further, the terms upon
which the Company will be able to obtain additional equity capital may be
adversely affected since the holders of the Underwriter's Warrants can be
expected to exercise them at a time when the Company would, in all likelihood,
be able to obtain any needed capital on terms more favorable to the Company than
those provided in the Underwriter's Warrants. Any profit realized by the
Underwriter on the sale of the Underwriter's Warrants may be
37
<PAGE> 44
deemed additional underwriting compensation. Subject to certain limitations and
exclusions, the Company has agreed, at the request of the holders of a majority
of the Underwriter's Warrants to register the Underwriter's Warrants, the
underlying Shares of Common Stock and the underlying Warrants under the Act on
two occasions (one at the Company's expense and one at the holder's expense)
during the Warrant Exercise Term and to include such Underwriter's Warrants, the
underlying Shares of Common Stock and the underlying Warrants in any appropriate
registration statement which is filed by the Company during the five years
following the date of this Prospectus.
Additionally, the Underwriter has been engaged as the Company's warrant
solicitation agent, and pursuant thereto may participate in the solicitation of
the exercise of the Warrants. Upon the exercise of the Warrants, commencing one
year from the Effective Date, the Company will pay the Underwriter a commission
of 7% of the aggregate exercise price of the Warrants exercised. In accordance
with the NASD Notice to Members 92-98, no fee shall be paid: (i) upon the
exercise of warrants where the market price of the underlying Common Stock is
lower than the exercise price; (ii) upon the exercise of any Warrants not
solicited by the Underwriter; (iii) for the exercise of Warrants held in any
discretionary account; or (iv) upon the exercise of Warrants where disclosure of
compensation arrangements has not been made and documents have not been provided
to customers both as part of the original offering and at the time of exercise.
Further, the exercise of any Warrant shall be presumed unsolicited unless the
holder of such Warrant states in writing that the transaction was solicited by
the Underwriter. Notwithstanding the foregoing, no fees will be paid to the
Underwriter or any other NASD members upon exercise of the Warrants within the
first twelve months from the Effective Date.
The Company has agreed that it will not issue, sell, or agree to issue
or sell any other securities (except the shares of Common Stock underlying the
Warrants being offered and sold by the Selling Shareholders, the Underwriter's
Warrants, or the Company's Stock Option Plan) for a period of 18 months from the
Final Closing Date without the prior written consent of the Underwriter.
All of the directors, officers, and holders of any securities of the
Company prior to the offering have agreed not to sell any shares of Common
Stock, including Shares of Common Stock issuable upon exercise of options,
Warrants, or any convertible securities of the Company, for a period of 12
months from the Final Closing Date without the prior written consent of the
Underwriter.
During the three-year period from the Final Closing Date, the
Underwriter shall have a right of first refusal to act as underwriter or agent
of any and all public or private offerings of securities of the Company by the
Company or any secondary offering of the Company's securities by one of its
officers, directors, or principal shareholders.
Although the Underwriting Agreement will provide that, for a period of
three years from the Initial Closing Date, the Underwriter may designate for
election one person to the Company's Board of Directors, the Underwriter has
advised the Company that it has not selected such individual and has no
immediate plans to do so. If the Underwriter elects not to assert such right,
then it may designate one person to attend all Board of Directors meetings as an
observer. In the event that such an individual is designated, such individual
shall receive reimbursement of expenses for attending the meetings of the Board
of Directors.
The Company has agreed to indemnify the Underwriter against certain
civil liabilities, including liabilities under the Act. To the extent this
section may purport to provide exculpation from possible liabilities arising
under the Federal securities laws, it is the opinion of the Commission that such
indemnification is against public policy and is therefore unenforceable.
This section contains the material terms of the Underwriting Agreement
and the Underwriter's Warrants. Potential investors may also review the complete
Underwriting Agreement and Underwriter's Warrants which are filed as exhibits to
the Registration Statement of which this Prospectus forms a part. These
documents can be found at the SEC's web site at www.sec.gov in the Edgar
database or copies may be requested from the Underwriter.
38
<PAGE> 45
The Underwriter has little experience in underwriting public offerings.
This Offering is the second public offering being underwritten by the
Underwriter. Prospective purchasers of the Securities offered hereby should
consider the Underwriter's lack of experience in being a manager of an
underwritten public offering.
The Underwriter has informed the Company that it does not expect sales
to be made to discretionary accounts to exceed 1% of the Securities offered
hereby.
Prior to this Offering, there has been no public market for the Common
Stock or the Warrants. Accordingly, the Offering and exercise price of such
Securities being offered hereby was determined, in large part, by negotiations
between the Company and the Underwriters on an arbitrary basis and bear no
direct relationship to the assets, earnings, or other recognized criterion of
value. Factors considered in determining such prices, in addition to prevailing
market conditions, include the history and business prospects of the Company, as
well as such other factors as were deemed relevant, including an evaluation of
management and the general economic climate. The prices should in no event,
however, be regarded as an indication of any future market price of the Common
Stock or the Warrants.
Pursuant to agreement with the NASD, the Underwriter, Platinum
Equities, Inc., is not authorized to make markets in securities. The predecessor
owner of the Underwriter did not want to make markets and requested permission
from the NASD not to make markets. The Underwriter has now requested permission
from the NASD to have market making capabilities, but must go through the NASD
process of amending the Underwriter's agreement with the NASD which can take
many months. Therefore, the Underwriter does not anticipate that it will have
the ability to make a market in the securities of the Company or any other
securities in the near future. Further, the Underwriter's ability to make
markets is within the discretion of the NASD and the NASD may not allow the
Underwriter to make markets at all. The Underwriter's inability to make such a
market may materially affect the liquidity of the Securities offered hereby,
which could make it more difficult for investors in this Offering to purchase or
sell their Securities. The Underwriter, however, may execute buy and sell orders
for its customers in the Common Stock and Warrants offered hereby on an agency
basis. See "Risk Factors -- Underwriter Will Not Make a Market in the Company's
Securities."
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for
the Company by Horwitz & Beam, Irvine, California. Certain legal matters in
connection with this Offering will be passed upon for the Underwriters by
Gusrae, Kaplan & Bruno. Horwitz & Beam, Inc., a California corporation, is the
owner of 5,000 shares of Private Placement Stock and 25,000 Private Placement
Warrants which are being registered for resale herein along with the securities
held by all of the Selling Shareholders (see "Selling Shareholders"). Horwitz &
Beam, Inc. acquired such securities in the Private Placement as an investor on
April 28, 1997 pursuant to a subscription agreement and the payment of $5,000.
EXPERTS
The Financial Statements of the Company included herein and elsewhere
in the registration statement, have been included herein and in the registration
statement in reliance on the report of Stonefield Josephson, Inc., Certified
Public Accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company is not presently subject to the reporting requirements of
the Securities Exchange Act of 1934. The Company has filed with the Commission a
Registration Statement on Form SB-2 (together with all amendments and exhibits
thereto, the "Registration Statement") under the Securities Act of 1933, as
amended (the "Act") with respect to the Securities offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, omits
certain information contained in the Registration Statement on file with the
Commission pursuant to the Act and the rules and regulations of the Commission
thereunder. The Registration Statement, including the exhibits thereto, may be
inspected
39
<PAGE> 46
and copied at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. Copies of such
material may be obtained by mail at prescribed rates from the Public Reference
Branch of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
40
<PAGE> 47
LUMINEX LIGHTING, INC.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Balance Sheets 2
Statements of Income (Operations) 3
Statements of Stockholders' Equity (Deficiency) 4
Statements of Cash Flows 5-6
Notes to Financial Statements 7-15
</TABLE>
<PAGE> 48
[STONEFIELD JOSEPHSON, INC. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
Board of Directors
Luminex Lighting, Inc.
Chino, California
We have audited the accompanying balance sheets of Luminex Lighting, Inc. as of
December 31, 1997 and 1996, and the related statements of income (operations),
stockholders' equity (deficiency) and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
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 Luminex Lighting, Inc. as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
[SIG]
CERTIFIED PUBLIC ACCOUNTANTS
Santa Monica, California
March 10, 1998
1
<PAGE> 49
LUMINEX LIGHTING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
Six months ended Year ended
March 31, December 31,
ASSETS 1998 1997 1996
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 32,828 $ 89,264 $ 665
Cash - restricted 21,800 17,000 --
Accounts receivable, net of allowance for bad
debts of $11,900 and $10,000, respectively 568,234 389,137 958,584
Prepaid expenses 10,852 6,606 --
Inventory 928,018 1,217,788 445,893
Due from stockholder -- -- 16,950
----------- ----------- -----------
Total current assets 1,561,732 1,719,795 1,422,092
----------- ----------- -----------
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and amortization 302,043 274,747 174,039
----------- ----------- -----------
OTHER ASSETS:
Deferred offering costs 69,854 57,158 --
Deposits 31,624 17,768 10,118
Other 13,714 16,253 6,116
----------- ----------- -----------
Total other assets 115,192 91,179 16,234
----------- ----------- -----------
$ 1,978,967 $ 2,085,721 $ 1,612,365
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Lines of credit $ 519,801 $ 301,199 $ 790,219
Accounts payable and accrued expenses 1,228,532 1,321,719 880,524
Loans payable, stockholder -- 6,272 11,517
Current maturities of long-term debt 57,030 55,767 21,192
Current portion of obligations under capital leases 17,405 15,199 7,461
----------- ----------- -----------
Total current liabilities 1,822,768 1,700,156 1,710,913
----------- ----------- -----------
NOTES PAYABLE 74,661 102,761 29,077
----------- ----------- -----------
CAPITAL LEASES 8,839 15,896 18,564
----------- ----------- -----------
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock, no par value; 10,000,000
shares authorized, 3,326,500 and 2,800,000
shares issued and outstanding at December 31,
1997 and 1996, respectively 417,172 427,172 163,922
Additional paid-in capital 26,750 26,750 --
Accumulated deficit (371,223) (187,014) (310,111)
----------- ----------- -----------
Total stockholders' equity (deficiency) 72,699 266,908 (146,189)
----------- ----------- -----------
$ 1,978,967 $ 2,085,721 $ 1,612,365
=========== =========== ===========
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
2
<PAGE> 50
LUMINEX LIGHTING, INC.
STATEMENTS OF INCOME (OPERATIONS)
<TABLE>
<CAPTION>
Six months ended Six months ended Year ended Year ended
June 30, 1998 June 30, 1997 December 31, 1997 December 31, 1996
-------------------- --------------------- -------------------- --------------------
Amount Percent Amount Percent Amount Percent Amount Percent
----------- ------- ----------- ------- ----------- ------- ----------- -------
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET SALES $ 3,337,412 100.0% $ 2,943,158 100.0% $ 5,852,969 100.0% $ 3,056,532 100.0%
COST OF SALES 2,874,274 86.1 2,440,076 82.9 4,601,497 78.6 2,584,668 84.6
----------- ----- ----------- ----- ----------- ----- ----------- -----
GROSS PROFIT 463,138 13.9 503,082 17.1 1,251,472 21.4 471,864 15.4
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 588,482 17.6 312,313 10.6 991,164 16.9 488,491 16.0
INTEREST EXPENSE 58,065 1.7 65,050 2.2 136,411 2.3 95,769 3.1
----------- ----- ----------- ----- ----------- ----- ----------- -----
NET INCOME (LOSS) BEFORE INCOME TAXES (183,409) (5.5) 125,719 4.3 123,897 2.2 (112,396) (3.7)
PROVISION FOR INCOME TAXES 800 800 800 800
----------- ----- ----------- ----- ----------- ----- ----------- -----
NET INCOME (LOSS) $ (184,209) (5.5)% $ 124,919 4.3% $ 123,097 2.2% $ (113,196) (3.7)%
=========== ===== =========== ===== =========== ===== =========== =====
NET INCOME (LOSS) PER SHARE:
Basic $ (.06) $ .04 $ .04 $ (.04)
=========== =========== =========== ===========
Diluted $ (.05) $ .03 $ .03 $ (.03)
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 3,306,500 3,326,500 3,326,500 3,326,500
=========== =========== =========== ===========
Diluted 3,806,500 3,826,500 3,826,500 3,826,500
=========== =========== =========== ===========
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
3
<PAGE> 51
LUMINEX LIGHTING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Total
Additional stockholders'
Common stock paid-in equity
Shares Amount capital Deficiency (deficiency)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 2,800,000 $ 163,922 $ $ (196,915) $ (32,993)
Net loss (113,196) (113,196)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1996 2,800,000 163,922 (310,111) (146,189)
Issuance of common stock through
private offering 526,500 263,250 26,750 290,000
Net income 123,097 123,097
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 3,326,500 427,172 26,750 (187,014) 266,908
Redemption of common stock issued
through private offering (20,000) (10,000) (10,000)
Net loss for the six months
ended June 30, 1998 (unaudited) (184,209) (184,209)
----------- ----------- ----------- ----------- -----------
Balance at June 30, 1998 $ 3,306,500 $ 417,172 $ 26,750 $ (371,223) $ 72,699
=========== =========== =========== =========== ===========
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
4
<PAGE> 52
LUMINEX LIGHTING, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Three months ended March 31, Years ended December 31,
1998 1997 1997 1996
--------- --------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES:
Net income (loss) $(184,209) $ 124,919 $ 123,097 $(113,196)
--------- --------- --------- ---------
ADJUSTMENTS TO RECONCILE NET INCOME
(LOSS) TO NET CASH PROVIDED BY (USED
FOR) OPERATING ACTIVITIES:
Depreciation and amortization 19,164 5,000 46,269 16,894
Allowance for bad debt -- -- 1,900 --
CHANGES IN ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS:
Accounts receivable (179,098) (118,572) 570,045 (889,097)
Prepaid expenses (4,246) (19,078) (6,606) --
Inventory 289,770 (211,876) (771,894) (338,556)
Deposits (13,856) -- (7,651) (3,918)
Other assets 2,539 (10,892) (10,425) 759
INCREASE (DECREASE) IN LIABILITIES -
accounts payable and accrued expenses (205,650) (74,806) 483,797 702,049
--------- --------- --------- ---------
Total adjustments (91,377) (193,080) 305,435 (511,869)
--------- --------- --------- ---------
Net cash provided by (used for)
operating activities (275,586) (68,161) 428,532 (625,065)
--------- --------- --------- ---------
CASH FLOWS USED FOR INVESTING ACTIVITIES -
purchase of property, plant and equipment (46,460) (40,241) (136,697) (106,359)
--------- --------- --------- ---------
CASH FLOWS PROVIDED BY (USED FOR)
FINANCING ACTIVITIES:
Proceeds (payments) on line of credit 218,602 (3,685) (489,020) 716,101
Principal (payments) proceeds on loan
payable, stockholder (6,272) (3,813) (5,245) 11,517
Proceeds from note payable -- -- 166,082 --
Principal payments proceeds on notes payable (26,837) (4,756) (57,822) 2,749
Principal payments on lease obligations (4,850) (3,549) 5,069 (6,645)
(Redemption) issuance of common stock
in private offering (10,000) 290,000 290,000 --
Deferred offering costs (12,696) (40,000) (57,158) --
Loan fees -- -- (12,450) --
Decrease (increase) in due from stockholder -- (4,185) 16,950 (16,950)
--------- --------- --------- ---------
Net cash provided by (used for)
financing activities 157,947 230,012 (143,594) 706,772
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH (164,099) 121,610 148,241 (24,652)
CASH, beginning of year 106,264 (41,977) (41,977) (17,325)
--------- --------- --------- ---------
CASH, end of year $ (57,835) $ 79,633 $ 106,264 $ (41,977)
========= ========= ========= =========
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
5
<PAGE> 53
LUMINEX LIGHTING, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Six months ended June 30, Years ended December 31,
---------------------------- ------------------------
1998 1997 1997 1996
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid $ 58,065 $ 65,050 $136,411 $ 73,752
======== ======== ======== ========
Income taxes paid $ 800 $ 800 $ 800 $ 800
======== ======== ======== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING
ACTIVITIES:
Capital lease obligation incurred for use of
equipment -- -- $ 14,115 $ 32,670
Automobile acquired in exchange for a note
payable -- -- 11,978 --
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
6
<PAGE> 54
LUMINEX LIGHTING, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
(1) GENERAL:
Luminex Lighting, Inc. ("the Company") was incorporated under the laws
of the State of California on January 21, 1994.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS ACTIVITY:
The Company assembles a diversified product line of energy
saving fluorescent fixtures.
USE OF ESTIMATES:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
FAIR VALUE:
Unless otherwise indicated, the fair values of all reported
assets and liabilities which represent financial instruments
(none of which were held for trading purposes), approximate
carrying values of such amounts.
CASH:
Equivalents
For purposes of the statement of cash flows, cash equivalents
include all highly liquid debt instruments with original
maturities of three months or less which are not securing any
corporate obligations.
Concentration
The Company maintains its cash in bank deposit accounts which,
at times, may exceed federally insured limits. The Company has
not experienced any such losses in such accounts.
NET INCOME (LOSS) PER SHARE:
The Company has adopted Statement of Financial Accounting
Standard No. 128, Earnings per Share ("SFAS No. 128"), which is
effective for annual and interim financial statements issued
for periods ending after December 15, 1997. SFAS No. 128 was
issued to simplify the standards for calculating earnings per
share ("EPS") previously in APB No. 15, Earnings Per Share.
SFAS No. 128 replaces the presentation of primary EPS with a
presentation of basic EPS. The new rules also require dual
presentation of basic and diluted EPS on the face of the
statement of operations.
See accompanying independent auditors' report.
7
<PAGE> 55
LUMINEX LIGHTING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
NET INCOME (LOSS) PER SHARE, CONTINUED:
For the six months ended June 30, 1998, and the years ended
December 31, 1997 and 1996, the per share data is based on the
weighted average number of common and common equivalent shares
outstanding, and are calculated in accordance with Staff
Accounting Bulletin of the Securities and Exchange Commission
(SAB) No. 98 whereby common stock, options or warrants to
purchase common stock or other potentially dilutive
instruments issued for nominal consideration must be reflected
in basic and diluted per share calculations for all periods in
a manner similar to a stock split, even if anti-dilutive.
Accordingly, in computing basic earnings per share, nominal
issuance of common stock are reflected in a manner similar to
a stock split or dividend. In computing diluted earnings per
share, nominal issuance of common stock and potential common
stock are reflected in a manner similar to a stock split or
dividend.
STOCK OPTION PLANS:
The Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25), and related interpretations in accounting for the employee
stock options, rather than adopt the alternative fair value
accounting provided under The Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation".
INCOME TAXES:
Deferred income taxes are reported using the liability method.
Deferred tax assets are recognized for deductible temporary
differences and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes
in tax laws and rates on the date of enactment.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF:
On January 1, 1996, the Company adopted the provision of
Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of. This statement requires that
long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying
amounts of the assets exceed the fair values of the assets.
Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell. Adoption of
this statement did not have a material impact on the Company's
financial position, results of operations or liquidity.
See accompanying independent auditors' report.
8
<PAGE> 56
LUMINEX LIGHTING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
INVENTORY:
Inventory, consisting principally of raw materials, is valued
at the lower of cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost and are depreciated
over their estimated useful lives, generally five to seven
years, by the straight-line method for financial reporting
purposes and by accelerated methods for income tax purposes. For
assets included as capital leases, amortization is based upon
the lease term and is included with depreciation expense.
REVENUE RECOGNITION:
Sales of fluorescent fixtures are recorded when a shipment is
made.
CONCENTRATION:
For the years ended December 31, 1997 and 1996, the Company's
largest customer accounted for approximately 90% of total
revenue for each year. Included in accounts receivable from this
customer is approximately $284,000 and $860,000, for the years
ended December 31, 1997 and 1996, respectively.
Included in accounts payable and accrued expenses is
approximately $475,000 due to two suppliers and $297,000 due to
one supplier at December 31, 1997 and 1996, respectively. Total
purchases amounted to approximately $2,150,000 and $840,000 for
the years ended December 31, 1997 and 1996, respectively.
INTERIM FINANCIAL STATEMENTS (UNAUDITED):
The accompanying unaudited condensed financial statements for
the interim periods ended June 30, 1998 and 1997 have been
prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Regulation SB. Accordingly, they do not include
all of the information and footnotes required by generally
accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results
for the six months ended June 30, 1998 are not necessarily
indicative of the results that may be expected for the year
ending December 31, 1998.
(3) CASH - RESTRICTED:
At December 31, 1997, $17,000 of cash was pledged as collateral for
letters of credit related to inventory purchases and is classified as
restricted cash on the balance sheet. There are no outstanding letters
of credit at year-end.
See accompanying independent auditors' report.
9
<PAGE> 57
LUMINEX LIGHTING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
(4) PROPERTY AND EQUIPMENT:
A summary is as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Machinery and equipment $ 255,362 $ 173,456
Furniture and office equipment 53,176 30,808
Leasehold improvements 20,445 -
Automobile 11,978 -
----------------- -----------------
340,961 204,264
Less accumulated depreciation 66,214 30,225
----------------- -----------------
$ 274,747 $ 174,039
================= =================
</TABLE>
Depreciation and amortization expense for the years ended December 31,
1997 and 1996 amounted to $46,269 and $16,894, respectively.
(5) DEFERRED OFFERING COSTS:
The Company is in the registration process of a proposed public
offering. Deferred stock offering costs of $57,158 will be charged
against the proceeds of the proposed public offering when, and if, it
becomes effective.
(6) ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
A summary is as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Accounts payable, trade and non-trade $ 1,161,148 $ 819,381
Accrued bonus, officer-stockholder (Note 11) 123,511 -
Accrued bonus, other (Note 11) 17,000 18,501
Accrued salaries 14,037 -
Accrued interest 6,023 -
Bank overdraft - 42,642
----------------- ------------------
$ 1,321,719 $ 880,524
================= ==================
</TABLE>
See accompanying independent auditors' report.
10
<PAGE> 58
LUMINEX LIGHTING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
(7) LINES OF CREDIT:
The Company has a $25,000 revolving line of credit with a bank.
Interest is due monthly on the outstanding balance at a rate of 3%
above the bank's reference rate. Currently, the line of credit incurs
interest at the annual rate of 11.5%. $21,244 and $23,588 was drawn on
the line at December 31, 1997 and 1996, respectively.
The Company has a $1,000,000 maximum line of credit with a financial
institution. Interest is due monthly on the outstanding balance at a
rate of 4% above the reference rate. Currently, the line of credit
incurs interest at the annual rate of 12.5%. The term of the line
expired on February 7, 1998 (see Note 17). The line is primarily
secured by the Company's accounts receivable and inventory. The
financial institution will make advances on the line of 80% of eligible
accounts receivable and 25% of inventory. The borrowing is personally
guaranteed by the majority stockholders. $279,955 and $766,631 was
drawn on the line at December 31, 1997 and 1996, respectively. The line
was paid in full by the Company upon termination.
(8) LONG-TERM DEBT:
A summary is as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Note payable, bank, secured by inventory and accounts
receivable, monthly payments of $1,298 including interest at
the bank's prime rate plus 2%. The borrowing is personally
guaranteed by the majority stockholders. $ - $ 36,703
Note payable, bank, secured by inventory and accounts
receivable, monthly payments of $4,946 including interest at
bank's prime rate plus 2.5%, due October 15, 2000. The
borrowing is personally guaranteed by the
majority stockholders. 142,613 -
Note payable, secured by equipment, monthly
payments of $850 including interest at 24.0%,
due on July 1, 1998. 5,168 13,566
Note payable, secured by automobile, monthly
payments of $524 including interest at 11.8%,
due on November 30, 1999. 10,747 -
158,528 50,269
Less current maturities 55,767 21,192
------------ ------------
$ 102,761 $ 29,077
============ ============
</TABLE>
See accompanying independent auditors' report.
11
<PAGE> 59
LUMINEX LIGHTING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
(8) LONG-TERM DEBT, CONTINUED:
Aggregate principal payment requirements are as follows as of December
31, 1997:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1998 $ 55,767
1999 56,229
2000 46,532
----------
$ 158,528
==========
</TABLE>
(9) LOANS PAYABLE, STOCKHOLDER:
The Company is making payments for loans drawn on personal lines of
credit of a stockholder. The interest rate at December 31, 1997 was
12.57%. The balance of the lines of credit at December 31, 1997 and
1996 was $6,272 and $11,517, respectively. The funds drawn were
contributed to the Company for working capital.
(10) CAPITAL LEASES:
Obligations under capital leases represents the present value of future
net minimum lease payments under agreements with a cost of $46,786 and
$32,671 and accumulated depreciation of $7,326 and $1,639 as of
December 31, 1997 and 1996, respectively. Depreciation expense for
these assets is included in the amounts indicated in Note 4.
The following is a schedule by years of future minimum lease payments
required under capital leases together with the present value of the
net minimum lease payments as of December 31, 1997:
<TABLE>
Year ending December 31,
<S> <C>
1998 $ 15,199
1999 13,768
2000 9,607
2001 1,018
---------
Total minimum lease payments 39,592
Less amounts representing interest 8,497
---------
Present value of net minimum lease payments 31,095
Less current portion 15,199
---------
$ 15,896
=========
</TABLE>
See accompanying independent auditors' report.
12
<PAGE> 60
LUMINEX LIGHTING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
(11) BONUS COMPENSATION PLANS:
The Company's Board of Directors approved an Executive Salary and Bonus
Compensation Plan (the "Plan") with an officer-stockholder of the
Company, effective January 1, 1997. The Plan specifies that the
officer-stockholder receive an annual salary of $96,000 per annum, with
an annual increase of 5.0%. The Plan also specifies that a bonus equal
to 3.0% of annual gross sales be paid within ninety (90) days of year
end. Accordingly, approximately $123,000 has been accrued, which
represents the unpaid portion at December 31, 1997 (Note 6).
The Company's Board of Directors approved a Bonus Compensation Plan
with an employee of the Company effective January 1, 1997. The employee
shall receive bonus compensation in a range between 0.5% and 1.0% of
gross annual sales. The bonus compensation shall be paid within ninety
(90) days of year end. Accordingly, $17,000 has been accrued, which
represents the unpaid portion at December 31, 1997 (Note 6).
(12) INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN:
On May 5, 1997, the Company enacted an Incentive and Nonstatutory Stock
Option Plan (the "Plan") for its employees and consultants under which
a maximum of 500,000 options may be granted to purchase common stock of
the Company. Two types of options may be granted under the Plan: (1)
Incentive Stock Options (also know as Qualified Stock Options) which
may only be issued to employees of the Company and whereby the exercise
price of the option is not less than the fair market value of the
common stock on the date it was reserved for issuance under the Plan;
and (2) Nonstatutory Stock Options which may be issued to either
employees or consultants of the Company and whereby the exercise price
of the option is less than the fair market value of the common stock on
the date it was reserved for issuance under the plan. Grants of options
may be made to employees and consultants without regard to any
performance measures. All options issued pursuant to the Plan vest over
an 18 month period from the date of the grant per the following
schedule: 33% of the options vest on the date which is six months from
the date of the grant; 33% of the options vest on the date which is 12
months from the date of the grant; and 34% of the options vest on the
date which is 18 months from the date of the grant. All options issued
pursuant to the Plan are nontransferable and subject to forfeiture. As
of December 31, 1997, the Company had not issued any options pursuant
to the Plan.
(13) PRIVATE PLACEMENT:
On April 4, 1997, the Company commenced a private placement (the
"Private Placement") of 526,500 shares of the Company's common stock at
a purchase price of $0.50 per share (the "Private Placement Stock") and
500,000 warrants, each warrant to purchase one share of the Company's
common stock at an exercise price of $0.80 for a term of five years at
a purchase price of $0.10 per warrant (the "Private Placement
Warrants"). The Private Placement was exempt from the registration
provisions of the Act by virtue of Section 4(2) of the Act, as
transactions by an issuer not involving any public offering. The
securities issued pursuant to the Private Placement were restricted
securities as defined in Rule 144. The offering generated gross
proceeds of $313,250.
See accompanying independent auditors' report.
13
<PAGE> 61
LUMINEX LIGHTING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
(14) INCOME TAXES:
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Net operating loss (carryforward) $ 65,376 $ 118,308
Valuation allowance (65,376) (118,308)
------------- ------------
Net deferred tax asset $ - $ -
============= ============
</TABLE>
The Company has a federal net operating loss carryforward of $148,012
and $271,109 for the years ended December 31, 1997 and 1996,
respectively, which will expire in 2011.
The Company also has a state net operating loss carryforward of
$167,246 and $290,343, for the years ended December 31, 1997 and 1996,
respectively, which will expire in 2002.
The provision (benefit) for income taxes consist of the following:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Current $ 800 $ 800
Deferred $ - $ -
</TABLE>
(15) COMMITMENTS:
The following is a schedule by years of future minimum rental payments
required under operating leases that have noncancellable lease terms in
excess of one year as of December 31, 1997:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1998 $ 148,299
1999 148,299
2000 119,799
2001 1,109
----------
$ 417,506
==========
</TABLE>
Rent expense amounted to $101,012 and $59,711 for the years ended
December 31, 1997 and 1996, respectively.
(16) CONTINGENCIES:
The Company is a defendant in a civil action. The Company intends to
vigorously defend this action which it considers groundless. The
ultimate resolution of this matter is not ascertainable at this time.
In the opinion of management, this matter will not have a material
effect upon the financial position of the Company.
See accompanying independent auditors' report.
14
<PAGE> 62
LUMINEX LIGHTING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
(17) SUBSEQUENT EVENT:
In February 1998, the Company obtained two promissory demand notes for
principal up to $850,000 and $150,000 with First Community Financial
Corporation ("FCFC"). The notes are collateralized by the Company's
inventory and accounts receivable and incur interest at an annual rate
of Bank One's prime rate plus 3%. The unpaid outstanding balances are
due in full in February 1999 and January 2000, respectively.
See accompanying independent auditors' report.
15
<PAGE> 63
================================================================================
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
ORDINARY SHARES TO WHICH IT RELATES OR AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary 1
Risk Factors 6
Dilution 11
Use of Proceeds 13
Dividend Policy 13
Capitalization 14
Selected Financial Data 15
Management's Discussion and Analysis of
Financial Condition and Results of Operations 16
Business of the Company 20
Management 27
Employment and Related Agreements 28
Certain Transactions 29
Principal Shareholders 30
Selling Shareholders 31
Plan of Distribution 31
Description of Securities 32
Shares Eligible for Future Sale 34
Underwriting 34
Legal Matters 37
Experts 37
Additional Information 37
Index to Financial Statements F-1
</TABLE>
----------------------------------------
UNTIL DECEMBER 14, 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE 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 WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
UP TO 500,000 SHARES OF COMMON
STOCK AND 500,000 WARRANTS TO
PURCHASE ONE SHARE OF COMMON
STOCK FOR $6.00
MINIMUM OFFERING: 250,000 SHARES
OF COMMON STOCK AND
250,000 WARRANTS
$5.50 PER SHARE
$0.10 PER WARRANT
LUMINEX LIGHTING, INC.
--------------
PROSPECTUS
--------------
PLATINUM EQUITIES, INC.
----------------------------------
NOVEMBER 9, 1998
================================================================================
<PAGE> 64
LUMINEX LIGHTING, INC.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The California Corporation Law and the Company's Certificate of
Incorporation and Bylaws authorize indemnification of a director, officer,
employee or agent of the Company against expenses incurred by him or her in
connection with any action, suit, or proceeding to which such person is named a
party by reason of having acted or served in such capacity, except for
liabilities arising from such person's own misconduct or negligence in
performance of duty. In addition, even a director, officer, employee or agent of
the Company who was found liable for misconduct or negligence in the performance
of duty may obtain such indemnification if, in view of all the circumstances in
the case, a court of competent jurisdiction determines such person is fairly and
reasonably entitled to indemnification. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 (the "Act") may be
permitted to directors, officers, or persons controlling the Company pursuant to
the foregoing provisions, the Company has been informed that in the opinion of
the Commission, such indemnification is against public policy as expressed in
the Act and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
SEC Registration Fee $ 2,897
NASD Fee $ 1,466
Accounting Fees and Expenses $ 10,000
Legal Fees and Expenses $ 50,000
Printing Expenses $ 10,000
Blue Sky Fees and Expenses $ 35,000
Underwriters' Non-accountable Expense Allowance $ 84,000
Miscellaneous $ 637
---------
Total $ 194,000
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On December 31, 1995, the Company issued 2,600,000 shares of its Common
Stock, jointly to Wasif A. Siddiqui and Tasneem Siddiqui, in consideration of
past services rendered for the Company. This transaction was exempt from the
registration provisions of the Act by virtue of Section 4(2) of the Act, as
transactions by an issuer not involving any public offering. The securities
issued pursuant to this transaction were restricted securities as defined in
Rule 144.
Also on December 31, 1995, the Company issued 200,000 shares of its
Common Stock to Asra Rasheed to entice Ms. Rasheed to begin working with the
Company. This transaction was exempt from the registration provisions of the Act
by virtue of Section 4(2) of the Act, as transactions by an issuer not involving
any public offering. The securities issued pursuant to this transaction were
restricted securities as defined in Rule 144.
On April 4, 1997, the Company commenced a private placement (the
"Private Placement") of 506,500 shares of the Company's common stock at a
purchase price of $0.50 (the "Private Placement Stock") and 500,000 warrants,
each warrant to purchase one share of the Company's common stock at an exercise
price of $0.80 for a term of five years at a purchase price of $0.10 (the
"Private Placement Warrants"). The Private Placement was exempt from the
registration provisions of the Act by virtue of Section 4(2) of the Act, as
transactions by an issuer not involving any public offering. The securities
issued pursuant to the Private Placement were restricted securities as defined
in Rule 144.
II-1
<PAGE> 65
The Private Placement Stock and the Common Stock underlying the Private
Placement Warrants are being registered herein. The offering generated net
proceeds of approximately $280,000. All investors in the Private Placement were
accredited investors as that term is defined in Rule 501 of Regulation D adopted
under the Securities Act of 1933.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
Exhibit
<S> <C>
1.1 Form of Underwriting Agreement
1.2 Form of Underwriter's Warrant
1.3 Selected Dealers Agreement (form)*
3.1 Articles of Incorporation of Luminex Lighting, Inc., a California
corporation, dated January 21, 1994*
3.2 Amended Articles of Incorporation of Luminex Lighting, Inc., a
California corporation, dated September 5, 1997*
3.3 Bylaws of Luminex Lighting, Inc., dated January 22, 1994*
3.4 Certificate of Amendment of Bylaws of Luminex Lighting, Inc., dated
October 15, 1995*
4.1 Lock-Up Agreement (form)*
4.2 Specimen of Common Stock Certificate of Luminex Lighting, Inc.*
4.3 Form of Warrant Agreement and Warrant Certificate*
4.4 Subscription Agreement*
5 Opinion of Horwitz & Beam*
10.1 Lease Agreement, Chino, California, dated June 26, 1997*
10.2 Luminex Lighting, Inc. Benefit Plan, Annual Salary, and Bonus
Compensation Plan for Wasif Siddiqui, dated June 30, 1996*
10.3 Luminex Lighting, Inc. Bonus Compensation Plan for Charles Boulos,
dated December 15, 1996*
10.4 Luminex Lighting, Inc. 1997 Incentive and Nonstatutory Stock Option
Plan, dated May 5, 1997*
10.5 Luminex Lighting, Inc. Annual Salary and Bonus Compensation Plan for
Tasneem Siddiqui, dated August 19, 1997*
10.6 Lease Agreement, Milford, Massachusetts, dated November 19, 1996*
23.1 Consent of Stonefield Josephson, Inc., Certified Public Accountants
23.2 Consent of Horwitz & Beam (included in their opinion set forth in
Exhibit 5 hereto)*
24 Power of Attorney (see signature page)
</TABLE>
- -----------------
*Previously filed.
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes to:
(1) 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 Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company 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.
(2) File, during any period in which it offers or sells securities, a post
effective amendment to this registration statement to:
II-2
<PAGE> 66
(i) Include any prospectus required by section 10(a)(3) of the
Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
For determining liability under the Securities, 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.
File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Supplement the prospectus if an amount between 5% and 10% of the Private
Placement Securities are released from the 12 month lock-up agreement with the
Underwriter and file an amendment to the registration statement if in excess of
10% of the Private Placement Securities are released from the 12 month lock-up
with the Underwriter.
II-3
<PAGE> 67
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of Chino,
State of California on November 9, 1998.
LUMINEX LIGHTING, INC.
BY: /s/ WASIF SIDDIQUI
------------------------------------------
Wasif Siddiqui, President, Chief Executive
Officer, Chief Financial Officer, Director
POWER OF ATTORNEY
Each person whose signature appears appoints Wasif Siddiqui and Tasneem
Siddiqui, in the alternative, as his agents and attorneys-in-fact, with full
power of substitution to execute for him and in his name, in any and all
capacities, all amendments (including post-effective amendments) to this
Registration Statement to which this power of attorney is attached. In
accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Wasif Siddiqui President, Chief Executive Officer, November 9, 1998
- ----------------------------
Wasif Siddiqui Chief Financial Officer, Principal
Accounting Officer, Director
/s/ Tasneem Siddiqui Executive Vice President, Secretary, Director November 9, 1998
- ----------------------------
Tasneem Siddiqui
/s/ Asra Rasheed Vice President of Corporate Planning, Director November 9, 1998
- ----------------------------
</TABLE>
Asra Rasheed
II-4
<PAGE> 68
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
<S> <C>
1.1 Form of Underwriting Agreement
1.2 Form of Underwriter's Warrant
1.3 Selected Dealers Agreement (form)*
3.1 Articles of Incorporation of Luminex Lighting, Inc., a California
corporation, dated January 21, 1994*
3.2 Amended Articles of Incorporation of Luminex Lighting, Inc., a
California corporation, dated September 5, 1997*
3.3 Bylaws of Luminex Lighting, Inc., dated January 22, 1994*
3.4 Certificate of Amendment of Bylaws of Luminex Lighting, Inc., dated
October 15, 1995*
4.1 Lock-Up Agreement (form)*
4.2 Specimen of Common Stock Certificate of Luminex Lighting, Inc.*
4.3 Form of Warrant Agreement and Warrant Certificate*
4.4 Subscription Agreement*
5 Opinion of Horwitz & Beam*
10.1 Lease Agreement, Chino, California, dated June 26, 1997*
10.2 Luminex Lighting, Inc. Benefit Plan, Annual Salary, and Bonus
Compensation Plan for Wasif Siddiqui, dated June 30, 1996*
10.3 Luminex Lighting, Inc. Bonus Compensation Plan for Charles Boulos,
dated December 15, 1996*
10.4 Luminex Lighting, Inc. 1997 Incentive and Nonstatutory Stock Option
Plan, dated May 5, 1997*
10.5 Luminex Lighting, Inc. Annual Salary and Bonus Compensation Plan for
Tasneem Siddiqui, dated August 19, 1997*
10.6 Lease Agreement, Milford, Massachusetts, dated November 19, 1996*
23.1 Consent of Stonefield Josephson, Inc., Certified Public Accountants
23.2 Consent of Horwitz & Beam (included in their opinion set forth in
Exhibit 5 hereto)*
24 Power of Attorney (see signature page)
</TABLE>
- ----------------------
* Previously Filed
II-5
<PAGE> 1
EXHIBIT 1.1
UNDERWRITING AGREEMENT (FORM)
<PAGE> 2
LUMINEX LIGHTING, INC.
Up to 500,000 Shares of Common Stock
and
Up to 500,000 Redeemable Common Stock Purchase Warrants
UNDERWRITING AGREEMENT
_____________ ___, 1998
Platinum Equities, Inc.
80 Pine Street, Suite 3200
New York, New York 10005
Dear Sirs:
LUMINEX LIGHTING, INC., a California corporation (the "Company") hereby
confirms the agreement made with respect to the retention of Platinum Equities,
Inc. (the "Underwriter") as the exclusive agent of the Company to publicly offer
and sell, pursuant to the terms of this Underwriting Agreement (the
"Agreement"), an aggregate of 500,000 shares ("Shares") of Common Stock, no par
value per share (the "Common Stock"), and 500,000 redeemable Common Stock
purchase warrants (the "Warrants," and collectively with the Common Stock, the
"Securities") of the Company on a "best efforts, minimum 250,000 Shares and
250,000 Warrants ("Minimum Offering"), maximum 500,000 Shares and 500,000
Warrants ("Maximum Offering")" basis. The offering of the Securities
contemplated hereby may sometimes be referred to as the "Offering."
1. Description of the Securities.
(a) The Warrants.
Each Warrant shall entitle the holder to purchase one share of Common
Stock at an exercise price of $6.00, subject to adjustment. The Warrants are
exercisable at any time during the five year-period commencing on the effective
date of the Registration Statement, as defined in Paragraph 2(a) herein (the
"Effective Date"), subject to prior redemption by the Company. The Shares of
Common Stock issuable upon the exercise of the Warrants are hereinafter referred
to as the "Warrant Shares."
The Warrants will be redeemable at a price of $0.10 per Warrant,
commencing twelve (12) months after the Effective Date, or earlier with the
prior written consent of the Underwriter, upon at least 30 days prior written
notice provided that the closing bid price of the Common Stock (or closing sales
price if listed on an exchange or on a reporting system that provides last sales
prices) for twenty (20) consecutive trading days ending on the third day prior
to the date on which notice of redemption is given, shall exceed $7.50 per
share, subject to the right of the holder to exercise his purchase rights
thereunder until redemption.
(b) Underwriter's Warrants.
On the Closing Date, the Company will sell to the Underwriter, for $10,
a warrant to purchase one share of Common Stock and one Warrant for each ten
Shares of Common Stock and ten Warrants sold in this Offering (a maximum of
50,000 Shares of Common Stock and 50,000 Warrants) at a price equal to $8.15 per
share of Common Stock and $.14 per Warrant (the "Warrants," and collectively
with the Securities underlying the Underwriter's Warrants, the "Underwriter's
Securities"). The Warrants underlying the Underwriter's Warrants shall be
exercisable at a price of $8.30 per Warrant. The Underwriter's Warrants shall
not be sold, transferred, assigned, pledged or hypothecated (other than to (i)
officers of the Underwriter, and (ii) members of the selling group and their
officers or partners) for a period of 12 months following the Effective Date.
Thereafter, they
1
<PAGE> 3
are transferable for a period of four years. If the Warrants underlying the
Underwriter's Warrants are not exercised during their term, they shall, by their
terms, automatically expire. The Underwriter's Securities shall be registered
for sale to the public and shall be included in the Registration Statement filed
in connection with the Offering.
2. Representations and Warranties of the Company.
The Company hereby represents and warrants to the Underwriter
that:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission"), a registration statement on Form SB-2 (File No.
333- 58025), including any related preliminary prospectus ("Preliminary
Prospectus"), for the registration of the Securities under the Securities Act of
1933, as amended (the "Act"). The Company will file further amendments to said
registration statement in the form to be delivered to you and will not, before
the registration statement becomes effective, file any other amendment thereto
to which you shall have objected in writing after having been furnished with a
copy thereof. Except as the context may otherwise require, such registration
statement, as amended, on file with the Commission at the time the registration
statement becomes effective (including the prospectus, financial statements,
exhibits and all other documents filed as a part thereof or incorporated
therein), is hereinafter called the "Registration Statement", and the
prospectus, in the form filed with the Commission pursuant to Rule 424(b) of the
General Rules and Regulations of the Commission under the Act (the "Rules and
Regulations") or, if no such filing is made, the definitive prospectus used in
the Offering, is hereinafter called the "Prospectus". The Company has delivered
to you copies of each Preliminary Prospectus as filed with the Commission and
has consented to the use of such copies for purposes permitted by the Act.
(b) The Commission has not issued any orders preventing or
suspending the use of any Preliminary Prospectus, and each Preliminary
Prospectus has conformed in all material respects with the requirements of the
Act and has not included any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, subject to the provisions set forth below and except as such
untrue statement or omission has been cured in the a subsequent preliminary
prospectus or in the final prospectus.
(c) When the Registration Statement becomes effective under
the Act and at all times subsequent thereto including each of the Closing Dates
(hereinafter defined) and for such longer periods as in the opinion of counsel
for the Underwriter, a Prospectus is required to be delivered in connection with
the sale of the Securities by the Underwriter, the Registration Statement and
Prospectus, and any amendment thereof or supplement thereto, will contain all
material statements which are required to be stated therein in accordance with
the Act and the Regulations, and will in all material respects conform to the
requirements of the Act and the Regulations, and neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto, will
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
provided, however, that this representation and warranty does not apply to
statements or omissions made in reliance upon and in conformity with written
information furnished to the Company by you, for use in connection with the
preparation of the Registration Statement or Prospectus, or in any amendment
thereof or supplement thereto. It is understood that (i) the statements set
forth under the heading "Underwriting" in the Prospectus with respect to the
amounts of the selling concession; (ii) the information in the Risk Factor
entitled "Inexperienced Underwriter;" (iii) the identity of counsel to the
Underwriter under the heading "Legal Matters"; and (iv) the information
concerning the NASD affiliation of the Underwriter constitute for purposes of
this Section the only information furnished in writing by or on behalf of the
Underwriter for inclusion in the Registration Statement and Prospectus, as the
case may be.
(d) The Company is, and at each Closing Date will be, a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation. The Company is, and at each Closing
Date will be, duly qualified or licensed and in good standing as a foreign
corporation in each jurisdiction in which its ownership or leasing of any
properties or the character of its operations requires such qualification or
licensing, except those jurisdictions in which the failure to so qualify would
not have a material adverse effect. The Company has
2
<PAGE> 4
all requisite corporate powers and authority, and, except as set forth in the
Registration Statement, the Company and its employees have all material and
necessary authorizations, approvals, orders, licenses, certificates and permits
of and from all governmental regulatory officials and bodies to own or lease its
properties and conduct its businesses as described in the Prospectus, and the
Company is doing business and has been doing business during the period
described in the Registration Statement in compliance with all such material
authorizations, approvals, orders, licenses, certificates and permits and all
material federal, state and local laws, rules and regulations concerning the
businesses in which the Company is engaged. The disclosures in the Registration
Statement concerning the effects of federal, state and local regulation on the
Company's business as currently conducted and as contemplated are correct in all
material respects and do not omit to state a material fact. The Company has all
corporate power and authority to enter into this Agreement and carry out the
provisions and conditions hereof, and all consents, authorizations, approvals
and orders required in connection therewith have been obtained or will have been
obtained prior to the dates of each of the closings (the "Closing Dates") of the
Offering.
(e) This Agreement has been duly and validly authorized and
executed by the Company. The Securities (including the Common Stock and the
Warrants), the Warrant Shares, the Underwriter's Warrants to be issued and sold
by the Company pursuant to this Agreement, the Securities issuable upon exercise
of the Underwriter's Warrants and payment therefor, and the Common Stock and
Warrant Shares underlying such Underwriter's Warrants, have been duly authorized
(and, in the case of the Common Stock and the Warrant Shares, have been duly
reserved for issuance) and, when issued and paid for in accordance with this
Agreement (and, in the case of the Warrant Shares, upon exercise of the Warrants
and payment to the Company of the exercise price therefor), the Common Stock and
Warrant Shares will be validly issued, fully paid and non-assessable; the Common
Stock, Warrants, Warrant Shares, Underwriter's Warrants and Underwriter's
Warrant Shares are not and will not be subject to the preemptive rights of any
shareholder of the Company and conform and at all times up to and including
their issuance will conform in all material respects to all statements with
regard thereto contained in the Registration Statement and Prospectus; and all
corporate action required to be taken for the authorization, issuance and sale
of the Common Stock, Warrants, Warrant Shares and Underwriter's Warrants has
been taken, and this Agreement constitutes a valid and binding obligation of the
Company, enforceable in accordance with its terms, to issue and sell, upon
exercise in accordance with the terms thereof, the number and kind of securities
called for thereby.
(f) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof will not result in a breach or
violation of any of the terms or provisions of, or constitute a default under,
the Articles of Incorporation, as amended, or Bylaws of the Company or of any
evidence of indebtedness, lease, contract or other agreement or instrument to
which the Company is a party or by which the Company or any of its respective
properties is bound, or under any applicable law, rule, regulation, judgment,
order or decree of any government, professional advisory body, administrative
agency or court, domestic or foreign, having jurisdiction over the Company or
any of its respective properties, or result in the creation or imposition of any
lien, charge or encumbrance upon any of the properties or assets of the Company;
and no consent, approval, authorization or order of any court or governmental or
other regulatory agency or body is required for the consummation by the Company
of the transactions on its part herein contemplated, except such as may be
required under the Act or under state securities or blue sky laws, except where
a breach, violation or failure to obtain such consent would not have a material
adverse effect upon the business or operation of the Company.
(g) Subsequent to the date hereof, and prior to the Closing
Dates the Company will not issue or acquire any equity securities except that
the Company may make short-term investments as contemplated in the "Use of
Proceeds" section of the Prospectus. Except as described in the Registration
Statement, the Company does not have, and at the Closing Dates will not have,
outstanding any options to purchase or rights or warrants to subscribe for, or
any securities or obligations convertible into or exchangeable for, or any
contracts or commitments to issue or sell shares of its Preferred Stock, Common
Stock or any such options, warrants, convertible securities or obligations.
(h) The financial statements and notes thereto included in the
Registration Statement and the Prospectus fairly present the financial position
and the results of operations of the Company at the respective dates and
3
<PAGE> 5
for the respective periods to which they apply; and such financial statements
have been prepared in conformity with generally accepted accounting principles,
consistently applied throughout the periods involved.
(i) Except as set forth in the Registration Statement, the
Company is not at the Closing Dates nor will be, in violation or breach of, or
default in, the due performance and observance of any term, covenant or
condition of any indenture, mortgage, deed of trust, note, loan or credit
agreement, or any other agreement or instrument evidencing an obligation for
borrowed money, or any other agreement or instrument to which the Company is a
party or by which the Company may be bound or to which any of the property or
assets of the Company is subject, which violations, breaches, default or
defaults, singularly or in the aggregate, would have a material adverse effect
on the Company. The Company has not and will not have taken any action in
material violation of the provisions of the Articles of Incorporation, as
amended, or the Bylaws of the Company or any statute or any order, rule or
regulation of any court or regulatory authority or governmental body having
jurisdiction over or application to the Company, its business or properties.
(j) The Company has, and at the Closing Dates will have, 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, claims,
security interests, restrictions and defects of any material nature whatsoever,
except such as are described or referred to in the Prospectus and liens for
taxes not yet due and payable. All of the material leases and subleases under
which the Company is the lessor or sublessor of properties or assets or under
which the Company holds properties or assets as lessee as described in the
Prospectus are, and will on the Closing Dates be, in full force and effect, and
except as described in the Prospectus, the Company is not and will not be in
default in respect to any of the terms or provisions of any of such leases or
subleases (which would have a material adverse effect on the business, business
prospects or operations of the Company), and no claim has been asserted by
anyone adverse to rights of the Company as lessor, sublessor, lessee or
sublessee under any of the leases or subleases mentioned above, or affecting or
questioning the right of the Company to continue possession of the leased or
subleased premises or assets under any such lease or sublease except as
described or referred to in the Prospectus, and the Company owns or leases all
such properties as are necessary to its operations as now conducted and, except
as otherwise stated in the Prospectus, as proposed to be conducted set forth in
the Prospectus (which would have a material adverse effect on the business,
business prospects or operations of the Company).
(k) The authorized, issued and outstanding capital stock of
the Company as of December 31, 1997 and as of the date of the Prospectus is as
set forth in the Prospectus under "Capitalization"; the shares of issued and
outstanding capital stock of the Company set forth thereunder have been duly
authorized, validly issued and are fully paid and non-assessable; except as set
forth in the Prospectus, no options, warrants or other rights to purchase,
agreements or other obligations to issue, or agreements or other rights to
convert any obligation into, any shares of capital stock of the Company have
been granted or entered into by the Company; and the Common Stock, the Warrants
and all such options and warrants conform in all material respects, to all
statements relating thereto contained in the Registration Statement and
Prospectus.
(l) Except as described in the Prospectus, the Company does
not own or control any capital stock or securities of, or have any proprietary
interest in, or otherwise participate in any other corporation, partnership,
joint venture, firm, association or business organization; provided, however,
that this provision shall not be applicable to the investment, if any, of the
net proceeds from the sale of the Securities sold by the Company in certificates
of deposits, savings deposits, short-term obligations of the United States
Government, money market instruments or other short-term investments.
(m) Stonefield Josephson, Inc., who have given their reports
on certain financial statements filed and to be filed with the Commission as a
part of the Registration Statement, which are incorporated in the Prospectus,
are with respect to the Company, independent public accountants as required by
the Act and the Rules and Regulations.
(n) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company
4
<PAGE> 6
has not (i) issued any securities or incurred any liability or obligation,
direct or contingent, for borrowed money; or (ii) entered into any transaction
other than in the ordinary course of business; or (iii) declared or paid any
dividend or made any other distribution on or in respect to its capital stock.
(o) There is no litigation or governmental proceeding pending
or to the knowledge of the Company threatened against, or involving the
properties or business of the Company which might materially adversely affect
the value, assets or the operation of the properties or the business of the
Company, except as referred to in the Prospectus. Further, except as referred to
in the Prospectus, there are no pending actions, suits or proceedings related to
environmental matters or related to discrimination on the basis of age, sex,
religion or race, nor is the Company charged with or, to its knowledge, under
investigation with respect to any violation of any statutes or regulations of
any regulatory authority having jurisdiction over its business or operations,
and no labor disturbances by the employees of the Company exist or, to the
knowledge of the Company, have been threatened.
(p) The Company has, and at each Closing Date will have, filed
all necessary federal, state and foreign income and franchise tax returns or has
requested extensions thereof (except in any case where the failure to so file
would not have a material adverse effect on the Company), and has paid all taxes
which it believes in good faith were required to be paid by it except for any
such tax that currently is being contested in good faith or as described in the
Prospectus.
(q) The Company maintains insurance policies including, but
not limited to, general liability and property insurance, which sufficiently
insures the Company and its employees against such losses and risks generally
insured against by comparable businesses, and the Company (i) has not failed to
give notice or present any insurance claim with respect to any matter including,
but not limited to, the Company's business, property or employees, under the
insurance policy or surety bond in a due and timely manner, (ii) have any
disputes or claims against any underwriter of such insurance policies or surety
bonds or has not failed to pay any premiums due and payable thereunder, or (iii)
have failed to comply with all conditions contained in such insurance policies
and surety bonds. There are no facts or circumstances under any such insurance
policy or surety bond which would relieve any insurer of its obligation to
satisfy in full any valid claim of the Company.
(r) The Company is in compliance with the requirements of
Section 13(b)(2) of the Securities Exchange Act of 1934, as amended, and all
rules and regulations promulgated thereunder (the "Exchange Act") and, except as
disclosed in the Prospectus, to the Company's knowledge, neither the Company,
nor any of its employees, officers, directors, agents or affiliates, have made,
directly or indirectly, any payment of funds of such entity or received or
retained funds in violation of any law, rule or regulation, which payment,
receipt or retention is of a character which is required to be disclosed in the
Prospectus.
(s) Neither the Company nor any of its employees, directors,
stockholders, or affiliates (as defined by the Rules and Regulations) of any of
the foregoing, have 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 Common Stock or Warrants.
(t) The Company has not, at any time, (i) made any
contribution to any candidate for political office, or failed to disclose fully
any such contribution, in violation of law, or (ii) made any payment to any
state, federal, foreign governmental or professional regulatory agency, officer
or official or other person charged with similar public, quasi-public or
professional regulatory duties, other than payments or contributions required or
allowed by applicable law.
(u) Except as set forth in the Registration Statement, to the
knowledge of the Company, neither the Company nor any officer, director,
employee or agent of the Company has made any payment or transfer of any funds
or assets of the Company or conferred any personal benefit by use of the
Company's assets or received any funds, assets or personal benefit in violation
of any law, rule or regulation, which is required to be stated in the
Registration
5
<PAGE> 7
Statement or necessary to make the statements therein not misleading, nor is
there any business relationship, arrangement of conflict of interest between the
Company and any Majority Shareholder which could have a material adverse effect
upon the Company or its business..
(v) On the Closing Date all transfer or other taxes, if any
(other than income tax) which are required to be paid, and are due and payable,
in connection with (i) the sale and transfer of the Securities by the Company to
the Underwriter; (ii) the consummation by the Company of any of its obligations
hereunder; and (iii) any tax deficiency or claims outstanding, proposed or
assessed against it, will have been fully paid or provided for by the Company as
the case may be, and all laws imposing such taxes will have been fully complied
with in all material respects.
(w) There are no contracts or other documents of the Company
which are of a character required to be described in the Registration Statement
or Prospectus or filed as exhibits to the Registration Statement which have not
been so described or filed.
(x) The Company maintains a system of internal accounting controls sufficient to
provide reasonable assurance that (1) transactions are executed in accordance
with management's general or specified authorizations; (2) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
accountability for assets; (3) access to assets is permitted only in accordance
with management's general or specific authorizations; and (4) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(y) Except as set forth in the Prospectus, no holder of any
securities of the Company has the right to require registration of any
securities because of the filing or effectiveness of the Registration Statement.
(z) To the Company's knowledge, there are no claims for
services in the nature of a finder's origination fee with respect to the sale of
the Securities hereunder, except as set forth in the Prospectus.
(aa) No right of first refusal exists with respect to any sale
of securities by the Company, except that right of first refusal, granted by the
Company to the Underwriter to (1) underwrite or place any public or private
offering of any debt or equity securities of the Company (excluding sales to
employees of the Company) or any of its subsidiaries or affiliates, or (2) act
as its investment banker with respect to any merger, acquisition or disposition
of assets of the Company or any of its subsidiaries which it introduces or
generates for two years following the Closing Date, and as to which the
Underwriter shall have twenty (20) days after its receipt of written notice
thereof to accept or decline such offering. If the Underwriter declines to
participate in such offering, and if thereafter the terms of such offering are
modified, the Underwriter shall have up to ten (10) days thereafter to accept or
decline the modified terms.
(bb) The Company has generally enjoyed satisfactory
employer/employee relationships with its respective employees and is in
compliance with all federal, state and local laws and regulations respecting the
employment of their respective employees and employment practices, terms and
conditions of employment and wages and hours relating thereto. To the knowledge
of the Company, there are no pending or threatened investigations involving the
Company by the U.S. Department of Labor or any other federal, state or local
agency responsible for the enforcement of such laws and regulations. To the
knowledge of the Company, there are no unfair labor practice charges or
complaints against the Company or any subsidiary pending before the National
Labor Relations Board or any strikes, picketing, boycotts, disputes, slowdowns
or stoppage pending or threatened against or involving the Company or any
subsidiary, or any predecessor entity, and none has occurred. No collective
bargaining agreements or modifications thereof are currently in effect or being
negotiated by the Company or any subsidiary and their respective employees. No
grievance or arbitration proceeding is pending under any expired or existing
collective bargaining of the Company or any subsidiary.
6
<PAGE> 8
(cc) The Company has not maintained or contributed to any
deferred compensation, profit sharing, savings, retirement, pension or other
benefit plan or arrangements with or for the benefit of any person resulting
form a relationship with the Company, except as may be disclosed in the
Prospectus.
(dd) The Company is in compliance with all federal and state
laws, rules, and regulations relating to consumer protection, occupational
safety and health and to the storage, handling or transportation of hazardous or
toxic materials and the Company has received all permits, licenses or other
approvals required of the Company under applicable federal and state
occupational safety and health and environmental laws and regulations to conduct
its business and the Company is in compliance with all terms and conditions of
any such permit, license or approval, except any such violation of law or
regulation, failure to receive required permits, licenses or other approvals
which would not, singly or in the aggregate, result in a material adverse change
in the condition (financial or otherwise), business, net worth or results of
operations of the Company, except as the case may be, as may be described in or
contemplated by the Prospectus.
(ee) Any certificate signed by any officer of the Company, and
delivered to the Underwriter or counsel to the Underwriter, shall be deemed a
representation and warranty by the Company to the Underwriter as to the matters
covered thereby.
(ff) The minute books of the Company contain 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 material respects.
(gg) The Company has received, and promptly presented to the
Underwriter and counsel for the Underwriter, copies of all duly executed and
delivered "lock-up" letters from each of the officers, directors and
shareholders of the Company regarding any Common Stock of the Company or
securities convertible into or exchangeable for such Common Stock, that each of
the foregoing is thereby restricted from selling, hypothecating, pleading or
otherwise disposing of any shares of Common Stock or securities convertible into
or exchangeable for Common Stock, for twelve (12) months from the Effective Date
(or one year with the prior written consent of the Underwriter).
(hh) The Company has received, and promptly presented to the
Underwriter and counsel for the Underwriter, "10b-5" letters form each of the
officers, directors, and holders of at least five percent of the outstanding
shares of any class of equity stock of the Company, whereby such individuals
stated that the information contained in the Registration Statement and the
Prospectus was accurate, and affirmed that he or she has not, in the five years
preceding the Effective Date (or as disclosed in the Registration Statement and
Prospectus), been the subject of any court order, judgment or decree restricting
in any way such person's involvement in the securities or commodities
industries, convicted in or named in a criminal proceeding, the subject of any
bankruptcy, petition or found by a court of competent jurisdiction of violating
any securities or federal commodities law.
(ii) No statement, representation, warranty or covenant made
by the Company in this Agreement or made in any certificate or document required
by this Agreement to be delivered to Underwriter was, when made, or as of the
Closing Date will be materially inaccurate, untrue or incorrect.
3. Covenants of the Company.
The Company covenants and agrees that:
(a) It will deliver to each of the Underwriter and counsel to
the Underwriter, without charge, two conformed copies and two copies,
cumulatively marked to show changes from the immediately preceding amendment, of
each Registration Statement and of each amendment or supplement thereto,
including all financial statements and exhibits.
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<PAGE> 9
(b) The Company will cause the Common Stock and Warrants to be
registered pursuant to Section 12 of the Exchange Act, not later than the
Effective Date.
(c) The Company will deliver to the Underwriter, and each of
the Selected Dealers (as hereinafter defined) without charge, as many copies as
have been requested of each Preliminary Prospectus heretofore filed with the
Commission in accordance with and pursuant to the Commission's Rule 430 under
the Act and will deliver to the Underwriter and to others whose names and
addresses are furnished by the Underwriter or a Selected Dealer, without charge,
on the Effective Date, and thereafter from time to time during such reasonable
period as you may request if, in the opinion of counsel for the Underwriter, the
Prospectus is required by law to be delivered in connection with sales by the
Underwriter or a dealer, as many copies of the Prospectus (and, in the event of
any amendment of or supplement to the Prospectus, of such amended or
supplemented Prospectus) as the Underwriter may request for the purposes
contemplated by the Act. The Company will take all necessary actions to furnish
to whomever directed by the Underwriter, when and as requested by the
Underwriter, all necessary documents, exhibits, information, applications,
instruments and papers as may be reasonably required or, in the opinion of
counsel to the Underwriter desirable, in order to permit or facilitate the sale
of the Securities.
(d) The Company will file with the NASD, as long as the
securities are quoted on the OTC Bulletin Board, and once as long as the
Securities are quoted on the NASDAQ National Market System or SmallCap Market,
all documents required thereby to maintain listing or quotation thereupon, and
will take any and all actions required to comply with and maintain all
continuing requirements for listing thereupon.
(e) The Company will notify the Underwriter and counsel for
the Underwriter immediately of any actual or threatened or impending
investigations (formal or informal) or any delisting or other proceedings
brought by NASDAQ, the NASD, SEC or any other governmental or regulatory agency
or body or any other exchange, including the issuance or threatened issuance of
any "suspension orders" or "stop orders" or other prohibitions preventing or
impairing the proposed Offering. In the event of any of the foregoing, the
Company shall not acquire in any of the foregoing if such acquiescence would, in
all likelihood, adversely affect the Underwriter, and further agrees to actively
defend against or appeal any such action unless counsel for each of the Company
and the Underwriter advises such parties that the probability of successfully
appealing or defending such action is remote.
(f) The Company has authorized the Underwriter to use, and
make available for use by prospective dealers, the Preliminary Prospectus, and
authorizes the Underwriter, all dealers selected by you in connection with the
distribution of the Securities (the "Selected Dealers") to be purchased by the
Underwriter and all dealers to whom any of such Securities may be sold by the
Underwriter or by any Selected Dealer, to use the Prospectus, as from time to
time amended or supplemented, in connection with the sale of the Securities in
accordance with the applicable provisions of the Act, the applicable Regulations
and applicable state law, until completion of the distribution of the Securities
and for such longer period as you may request if the Prospectus is required
under the Act, the applicable Regulations or applicable state law to be
delivered in connection with sales of the Securities by the Underwriter or the
Selected Dealers.
(g) The Company will use its best efforts to cause the
Registration Statement to become effective and will notify the Underwriter
immediately, and confirm the notice in writing: (i) when the Registration
Statement or any post-effective amendment thereto becomes effective, if the
provisions of Rule 497 promulgated under the Act will be relied upon and when
the Prospectus has been filed in accordance with said Rule 497; (ii) of the
issuance by the Commission of any stop order or of the initiation, or to the
best of the Company's knowledge, the threatening, of any proceedings for that
purpose; (iii) the suspension of the qualification of the Securities and the
Underwriter's Warrants, or underlying securities, for offering or sale in any
jurisdiction or of the initiating, or to the best of the Company's knowledge the
threatening, of any proceeding for that purpose; and (iv) of the receipt of any
comments from the Commission. If the Commission shall enter a stop order at any
time, the Company will make every reasonable effort to obtain the lifting of
such order at the earliest possible moment.
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<PAGE> 10
(h) The Company shall enter into an escrow agreement with the
Underwriter and an escrow agent to be designated by the Underwriter, in form and
substance satisfactory to the parties, and agrees to faithfully perform its
obligations thereunder.
(i) During the time when a prospectus is required to be
delivered under the Act, the Company will comply with all requirements imposed
upon it by the Act and the Securities Exchange Act of 1934 (the "Exchange Act"),
as now and hereafter amended and by the Regulations, as from time to time in
force, as necessary to permit the continuance of sales of or dealings in the
Securities in accordance with the provisions hereof and the Prospectus. If at
any time when a prospectus relating to the Securities is required to be
delivered under the Act, any event shall have occurred as a result of which, in
the opinion of counsel for the Company or counsel for the Underwriter, the
Prospectus as then amended or supplemented includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if it is necessary at any time to
amend the Prospectus to comply with the Act, the Company will notify you
promptly and prepare and file with the Commission an appropriate amendment or
supplement in accordance with Section 10 of the Act and will furnish to you
copies thereof.
(j) The Company will endeavor in good faith, in cooperation
with you, at or prior to the time the Registration Statement becomes effective,
to qualify the Securities for offering and sale under the securities laws or
blue sky laws of such jurisdictions as you may reasonably designate. In each
jurisdiction where such qualification shall be effected, the Company will,
unless you agree that such action is not at the time necessary or advisable,
file and make such statements or reports at such times as are or may reasonably
be required by the laws of such jurisdiction or reasonably requested by
Underwriter's counsel.
(k)
The Company will make generally available to its security holders, as soon as
practicable, but in no event later than the first day of the fifteenth full
calendar month following the Effective Date of the Registration Statement, an
earnings statement of the Company, which will be in reasonable detail but which
need not be audited, covering a period of at least twelve months beginning after
the Effective Date of the Registration Statement, which earnings statements
shall satisfy the requirements of Section 11(a) of the Act and the Regulations
as then in effect. The Company may discharge this obligation in accordance with
Rule 158 of the Regulations.
(l) During the period of five years commencing on the
Effective Date of the Registration Statement, the Company will furnish to its
stockholders an annual report (including financial statements audited by its
independent public accountants), in reasonable detail, and, at its expense,
furnish each of the Underwriters (i) within 90 days after the end of each fiscal
year of the Company, a consolidated balance sheet of the Company and its
consolidated subsidiaries and a separate balance sheet of each subsidiary of the
Company the accounts of which are not included in such consolidated balance
sheet as of the end of such fiscal year, and consolidated statements of
operations, stockholders' equity and cash flows of the Company and its
consolidated subsidiaries and separate statements of operations, stockholders'
equity and cash flows of each of the subsidiaries of the Company the accounts of
which are not included in such consolidated statements, for the fiscal year then
ended all in reasonable detail and all certified by independent accountants
(within the meaning of the Act and the Regulations), (ii) within 45 days after
the end of each of the first three fiscal quarters of each fiscal year, similar
balance sheets as of the end of such fiscal quarter and similar statements of
operations, stockholders' equity and cash flows for the fiscal quarter then
ended, all in reasonable detail, and subject to year end adjustment, all
certified by the Company's principal financial officer or the Company's
principal accounting officer as having been prepared in accordance with
generally accepted accounting principles applied on a consistent basis, (iii) as
soon as available, each report furnished to or filed with the Commission or any
securities exchange and each report and financial statement furnished to the
Company's shareholders generally and (iv) as soon as available, such other
material as the Underwriter may from time to time reasonably request regarding
the financial condition and operations of the Company.
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<PAGE> 11
(m) For a period of eighteen months from the initial Closing,
the Company, at its expense, shall cause its regularly engaged independent
certified public accountants to review (but not audit), the Company's financial
statements for each of the first three quarters prior to the announcement of
quarterly financial information, the filing of the Company's 10-Q quarterly
report and the mailing of quarterly financial information to stockholders.
(n) Prior to the Closing Dates, the Company will not issue,
directly or indirectly, without your prior written consent and that of counsel
for the Underwriter, any press release or other public announcement or hold any
press conference with respect to the Company or its activities with respect to
this Offering.
(o) The Company will deliver to you and to our counsel, prior
to filing, any amendment or supplement to the Registration Statement or
Prospectus proposed to be filed after the Effective Date of the Registration
Statement and will not file any such amendment or supplement to which you or
your counsel shall reasonably object after being furnished such copy.
(p) During the period of 120 days commencing on the date
hereof, neither the Company nor any Majority Shareholder will, at any time,
take, directly or indirectly, any action designed to, or which will constitute
or which might reasonably be expected to cause or result in stabilization or
manipulation of the price of the Securities to facilitate the sale or resale of
any of the Securities.
(q) The Company will apply the net proceeds from the Offering
received by it in the manner set forth under "Use of Proceeds" in the
Prospectus. No portion of the net proceeds will be used, directly or indirectly,
to acquire any securities issued by the Company.
(r) Counsel for the Company, the Company's accountants, and
the officers and directors of the Company will, respectively, furnish the
opinions, the letters and the certificates referred to in subsections of
Paragraph 10 hereof, and, in the event that the Company shall file any amendment
to the Registration Statement relating to the offering of the Securities or any
amendment or supplement to the Prospectus relating to the offering of the
Securities subsequent to the Effective Date of the Registration Statement, such
counsel, such accountants, such officers and directors, respectively, will, at
the time of each such filing , and at such subsequent time as you shall specify,
so long as securities being registered by such amendment or supplement are being
underwritten by the Underwriter, furnish to you such opinions, letters and
certificates, each dated the date of its delivery, of the same nature as the
opinions, the letters and the certificates referred to in said Paragraph 10, as
you may reasonably request, or, if any such opinion or letter or certificate
cannot be furnished by reason of the fact that such counsel or such accountants
or any such officer or director believes that the same would be inaccurate, such
counsel or such accountants or such officer or director will furnish an accurate
opinion or letter or certificate with respect to the same subject matter.
(s) The Company will comply with all of the provisions of any
undertakings contained in the Registration Statement in all material respects.
(t) The Company will reserve and keep available for issuance
that maximum number of its authorized but unissued Shares of Common Stock which
are issuable upon exercise of the Warrants and issuable upon exercise of the
Underwriter's Warrants (including the underlying securities) outstanding from
time to time.
(u) Following the Effective Date and from time to time
thereafter, so long as the Warrants are outstanding, the Company will timely
prepare and file at its sole cost and expense one or more post-effective
amendments to the Registration Statement or a new registration statement as
required by law as will permit Warrant holders to be furnished with a current
prospectus in the event Warrants are exercised, and to use its best efforts and
due diligence to have same be declared effective. The Company will deliver a
draft of each such post-effective amendment or new registration statement to the
Underwriter at least ten days prior to the filing of such post-effective
amendment or registration statement.
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<PAGE> 12
(v) Following the Effective Date and from time to time
thereafter so long as any of the Warrants remain outstanding, the Company will
timely deliver and supply to its warrant agent sufficient copies of the
Company's current Prospectus, as will enable such Warrant Agent to deliver a
copy of such Prospectus to any Warrant or other holder where such Prospectus
delivery is by law required to be made.
(w) During a period of three years, commencing on the
Effective Date, the Company will furnish to you and any Selected Dealers, who
may so request copies of such financial statements and other periodic and
special reports as the Company may from time to time distribute generally to the
holders of any class of its capital stock, and will furnish to you and such
Selected Dealers who may request a copy of each annual or other report which the
Company is required to file with the Commission.
(x) So long as any of the Warrants remain outstanding, the
Company shall continue to employ the services of a firm of independent certified
public accountants reasonably acceptable to the Underwriter in connection with
the preparation of the financial statements to be included in any registration
statement to be filed by the Company hereunder, or any amendment or supplement
thereto (it being understood that Stonefield Josephson, Inc. is acceptable to
the Underwriter). During the same period, the Company shall employ the services
of a law firm(s) acceptable to the Underwriter in connection with all legal work
of the Company, including the preparation of a registration statement to be
filed by the Company hereunder, or any amendment or supplement thereto.
(y) So long as any of the Warrants remain outstanding, the
Company shall continue to appoint a Warrant Agent for the Warrants, who shall be
reasonably acceptable to the Underwriter.
(z) The Company agrees that it will, upon the initial Closing,
for a period of no less than three (3) years, engage a designee of the
Underwriter as an advisor (the "Advisor") to its Board of Directors where such
Advisor shall attend meetings of the Board, receive all notices and other
correspondence and communications sent by the Company to members of its Board of
Directors and shall be entitled to receive compensation therefor equal to the
entitlement of all non-employee directors. Such Advisor shall also be entitled
to receive reimbursement for all reasonable costs incurred in attending such
meetings including, but not limited to, food, lodging, and transportation. The
Company further agrees that during said three (3) year period, it shall schedule
no less than four (4) formal and "in person" meetings of its Board of Directors
in each such year and thirty (30) days advance notice of such meetings shall be
given to the Advisor. Further, during such three (3) year period, the Company
shall give notice to the Underwriter with respect to any proposed acquisitions,
mergers, reorganizations or other similar transactions. In lieu of the
Underwriter's three-year right to designate an Advisor, the Underwriter shall
have the right from time to time during such three-year period, in its sole
discretion, to designate one person for election as a Director of the Company
and the Company will utilize its best efforts to obtain the election of such
person who shall be entitled to receive the same compensation, expense
reimbursements and other benefits set forth above.
The Company agrees to indemnify and hold the Underwriter and
such Advisor or Director harmless against any and all claims, actions, damages,
costs and expenses, and judgments arising solely out of the attendance and
participation of your designee at any such meeting described herein. In the
event the Company maintains a liability insurance policy affording coverage for
the acts of its of officers and directors, it agrees, if possible, to include
the Underwriter's designee as an insured under such policy.
(aa) The Company's Common Stock and Warrants shall be listed
on the OTC Bulletin Board (the "OTC Bulletin Board") maintained by the National
Association of Securities Dealers, Inc. (the "NASD") not later than the final
Closing Date. Immediately following the final Closing Date, the Company will
make all filings required, including registration under the Exchange Act, and
will use its best efforts to obtain the quotation of the Common Stock and
Warrants on the Nasdaq Small Cap Market ("Nasdaq") and maintain such listing
(unless the Company is quoted upon Nasdaq National Market System ("NASDAQ/NMS")
or listed upon the New York Stock Exchange or American Stock Exchange, or is
acquired) for at least five years from the date of this Agreement.
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<PAGE> 13
(bb) The Company will apply for listing in Standard and Poors
Corporation Reports or Moodys OTC Guide and shall use its best efforts to have
the Company included in such publications continuously for at least five years
from the final Closing Date.
(cc) Within thirty (30) days following the final Closing Date,
the Company's accountants shall prepare an audited balance sheet as of the month
ending subsequent to such final Closing Date.
(dd) For a period of twelve (12) months from the Effective
Date, no officer, director or holder of any securities of the Company prior to
the Offering will, directly or indirectly, offer, sell (including any short
sale), grant any option for the sale of, acquire any option to dispose of, or
otherwise dispose of any Shares of Common Stock, including Shares of Common
Stock issuable upon exercise of options, warrants or any convertible securities
of the Company, without the prior written consent of the Underwriter, other than
as set forth in the Registration Statement. In order to enforce this covenant,
the Company shall impose stop-transfer instructions with respect to the
securities owned by every stockholder prior to the Offering until the end of
such period (subject to any exceptions to such limitation on transferability set
forth in the Registration Statement). If necessary to comply with any applicable
Blue-sky Law, the shares held by such stockholders will be escrowed with counsel
for the Company or otherwise as required.
(ee) Except for the issuance of shares of capital stock by the
Company in connection with a dividend, recapitalization, reorganization or
similar transactions or as result of the exercise of warrants or options
disclosed in or issued or granted pursuant to plans disclosed in the
Registration Statement, the Company shall not, for a period of eighteen (18)
months following the Final Closing Date, directly or indirectly, offer, sell,
issue or transfer any shares of its capital stock, or any security exchangeable
or exercisable for, or convertible into, shares of the capital stock or register
any of its capital stock (under any form of registration statement, including
Form S-8), without the prior written consent of the Underwriter. Options granted
pursuant to plans must be exercisable at the fair market value on the date of
grant.
(ff) During the three-year period from the Final Closing Date,
the Underwriter shall have a right of first refusal to act as underwriter or
agent of any and all public or private offerings of the securities of the
Company, or any successor to or subsidiary of the Company or any other entity in
which the Company has an equity interest (collectively referred to herein as the
"Company"), by the Company or any secondary offering of the Company's securities
by any of its officers, directors and 5% or greater stockholders ("Principal
Stockholders"). The Company has caused such Principal Stockholders to deliver to
the Underwriter on or before the date of this Agreement, an agreement to this
effect, as it relates to any proposed secondary offering by such Principal
Stockholders, in form and substance satisfactory to the Underwriter and to
counsel for the Underwriter.
(gg) The Company will use its best efforts to obtain, as soon
after the first Closing Date as is reasonably possible, liability insurance
covering its officers and directors.
(hh) The Company agrees that any conflict of interest arising
between a member of the Company's Board of Directors or Majority Shareholders
and the Company in connection with such Director's dealing with, or obligations
to, the Company, shall be resolved by a vote of the majority of the independent
members of the Board of Directors.
(ii) The Company agrees that, if it deems necessary, in its
sole discretion, it will employ the services of a financial public relations
firm acceptable to the Underwriter for a period of at least twelve months
following the Final Closing Date. The Company will acquire the consent of the
Underwriter for its selection.
(jj) For a period of five (5) years from the Effective Date,
at the request of the Underwriter, the Company shall on a weekly basis provide
promptly, at its expense, copies of the Company's transfer sheets furnished to
it by its transfer agent and copies of the securities positions provided to it
by the Depository Trust Company ("DTC sheets"), and the list of holders of all
of the Company's securities.
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<PAGE> 14
(kk) The Company shall take all action necessary or required
to effectuate and preserve the registration rights granted to the Underwriter,
or other holders, pursuant to the Underwriter's Warrant.
4. Appointment of Agent to Sell the Securities.
(a) Subject to the terms and conditions of this Agreement, and
upon the basis of the representations, warranties, and agreements herein
contained, the Company hereby appoints the Underwriter as its exclusive agent
for a period of 180 days from the Effective Date (the "Offering Period"), to
sell the Securities, and the Underwriter, on the basis of the representations
and warranties of the Company herein, accepts such appointment and agrees to use
its best efforts on a "minimum 250,000 Shares and 250,000 Warrants ("Minimum
Offering"), maximum 500,000 Shares and 500,000 Warrants ("Maximum Offering")"
basis to find purchasers for the Securities. The price at which the Underwriter
shall sell the Securities to the public as agent for the Company, shall be $5.50
per share of Common Stock and $.10 per Warrant, less an underwriting discount of
ten percent (10%) of the offering price for each security. The Underwriter may
allow a concession not exceeding $0.25 per share of Common Stock and $0.005 per
Warrant to selected dealers who are members of the National Association of
Securities Dealers, Inc. ("NASD"), and to certain foreign dealers, but all such
sales by selected dealers shall be made by the Company, acting through the
Underwriter as agent, and not for the account of the Underwriter.
(b) Provided that the Minimum Offering is sold and paid for,
the Company agrees to pay the Underwriter for its expenses a non-accountable
expense allowance equal to 3% of the gross proceeds of the offering, subject to
the provisions of Paragraph 9 herein.
(c) It is a condition of this Agreement that the Underwriter
shall use its best efforts to sell the Securities on behalf of the Company, that
any and all funds received from such sale, without any deduction therefrom
whatsoever, including, but not limited to, any underwriting commission or any
dealer concession or otherwise, shall be forthwith deposited into an escrow
account with American Stock Transfer & Trust Company as Escrow Agent, pursuant
to the terms of an Escrow Agreement entered into by and among the Company, the
Underwriter and the Escrow Agent. In the event the Minimum Offering is not sold
within the Offering Period, all funds will be promptly refunded to the
subscribes in full, without deduction therefrom or interest thereon.
Certificates will be issued to purchasers only if the proceeds from the
Securities offered hereby are released from escrow to the Company. Until such
time as the funds have been released and the certificates delivered to the
purchasers thereof, such purchasers, if any, will be deemed subscribers and not
stockholders. The funds in escrow will be held for the benefit of those
subscribers until released to the Company and will not be subject to creditors
of the Company or utilized for the expenses of this Offering. When certificates
for the Securities are to be issued in the name of a participating dealer for
the benefit of its customer, the Escrow Agent may hold such funds with the
dealer reflected as the subscriber.
5. Delivery and Payment.
(a) In the event the Minimum Offering is sold during the
Offering Period, delivery of the certificates representing the Shares and
Warrants against payment therefor shall take place at the offices of Platinum
Equities, Inc., 80 Pine Street, Suite 3200, New York, New York 10005 (or at such
other place as may be designated by agreement between you and the Company), at
10:00 a.m., New York time, on such date after the Offering has been completed as
the Underwriter shall designate, on at least three (3) full business days' prior
written notice, such time and date of payment and delivery of the Securities
being herein called the "Closing Date." After the Minimum Offering is sold,
subsequent Closings shall be held at the discretion of the Company and the
Underwriter with respect to additional Shares and Warrants up to the Maximum
Offering during the Offering Period.
(b) The Company will make the certificates for the Shares and
Warrants sold hereunder available to the Underwriter for checking at least two
full business days prior to a Closing Date at the offices of the Company's
transfer agent. The certificates shall be in such names and denominations as you
may request, at least two full business days prior to a Closing Date.
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(c) The cost of original issue tax stamps, if any, in
connection with the issuance and delivery of the Securities by the Company to
the Underwriter shall be borne by the Company. The Company will pay and hold the
Underwriter, and any subsequent holder of the Securities, harmless from any and
all liabilities with respect to or resulting from any failure or delay in paying
federal and state stamp taxes, if any, which may be payable or determined to be
payable in connection with the original issuance or sale to the Underwriter of
the Securities or any portions thereof.
6. Offering of Securities on Behalf of the Company.
It is understood that the Underwriter proposes to offer the Securities
to the public solely as agent for the Company, upon the terms and conditions set
forth in the Registration Statement. The Underwriter shall commence making such
offer as agent for the Company on the Effective Date, or as soon thereafter as
the Underwriter deems advisable.
7. Warrant Solicitation Fee.
The Company agrees to pay to the Underwriter, commencing one year from
the Effective Date, a fee of seven percent (7%) of the aggregate exercise price
of the Warrants if: (i) the market price of the Common Stock is greater than the
exercise price of the Warrants on the date of exercise; (ii) the exercise of the
Warrants are solicited by the Underwriter; (iii) the Warrants are not held in a
discretionary account; (iv) the disclosure of compensation arrangements was made
both at the time of the Offering and at the time of the exercise of the Warrant;
and (v) the solicitation of the Warrant is not in violation of Regulation M
promulgated under the Exchange Act. The Company agrees not to solicit the
exercise of any Warrants other than through the Underwriter and will not
authorize any other dealer to engage in such solicitation without the prior
written consent of the Underwriter which will not be unreasonably withheld. The
Warrant solicitation fee will not be paid in a non-solicited transaction. No
Warrant solicitation by the Underwriter will occur prior to one year from the
Effective Date. Additionally, there will be no warrant solicitation by the
Underwriter without the prior written authorization of the Company.
8. Representations and Warranties of the Underwriter.
The Underwriter represents and warrants to the Company that:
(a) The Underwriter is a member in good standing of the
National Association of Securities Dealers, Inc., and has complied with all NASD
requirements concerning net capital and compensation to be received in
connection with the Offering.
(b) To the Underwriter's knowledge, there are no claims for
services in the nature of a finder's origination fee with respect to the sale of
the Securities hereunder to which the Company is, or may become, obligated to
pay.
9. Payment of Expenses.
(a) Whether or not this Agreement becomes effective or the
sale of the Securities by the Company is completed, the Company will pay and
bear all costs, fees, taxes and expenses incident to and in connection with: (i)
the issuance, offer, sale and delivery of the Securities, including all expenses
and fees incident to the preparation, printing, filing and mailing (including
the payment of postage with respect to such mailing) of the Registration
Statement (including all exhibits thereto), each Preliminary Prospectus, the
Prospectus, and amendments and post- effective amendments thereof and
supplements thereto, and this Agreement and related documents, Preliminary and
Final Blue Sky Memoranda, including the cost of preparing , copying and
distributing all copies thereof, including two bound volumes of complete sets of
executed closing documents to each of the Underwriter and counsel to the
Underwriter, in quantities deemed necessary by the Underwriter; (ii) the costs
of preparing and printing all "Tombstone" and other appropriate advertisements;
(iii) the printing, engraving, issuance and
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<PAGE> 16
delivery of the Common Stock, Warrants, Warrant Shares, Underwriter's Warrants
and the securities underlying the Underwriter's Warrant, including any transfer
or other taxes payable thereon in connection with the original issuance thereof;
(iv) the qualification of the Common Stock and Warrants under the state or
foreign securities or "Blue Sky" laws selected by the Underwriter and the
Company, and disbursements and reasonable fees of counsel for the Underwriter in
connection therewith ($35,000) plus all expenses and disbursements of such
counsel) plus the filing fees for such states; (v) fees of counsel for the
Underwriter for the preparation of a secondary trading memorandum ($15,000);
(vi) fees and disbursements of counsel and accountants for the Company; (vii)
other expenses and disbursements incurred on behalf of the Company (viii) the
filing fees payable to the Commission and the NASD; and (ix) any listing of the
Common Stock and Warrants on a securities exchange or on NASDAQ.
(b) In addition to the expenses to be paid and borne by the
Company referred to in Paragraph 9(a) above, the Company shall reimburse you at
each Closing Date for expenses incurred by you in connection with the Offering
(for which you need not make any accounting), in the amount of 3% of the price
to the public of the Securities sold in the Offering. This 3% non-accountable
expense allowance shall cover the fees of your legal counsel, but shall not
include any expenses for which the Company is responsible under Paragraph 9(a)
above, including the reasonable fees and disbursements of your legal counsel
with respect to Blue Sky matters. As of the date hereof, no funds have been
advanced by the Company to the Underwriter with respect to such non-accountable
expense allowance.
(c) In the event that the Company does not or cannot, for any
reason whatsoever other than a default by the Underwriters, expeditiously
proceed with the Offering, or if any of the representations, warranties or
covenants contained in this Agreement are not materially correct or cannot be
complied with by the Company, or business prospects or obligations of the
Company are adversely affected and the Company does not commence or continue
with the Offering at any time or terminates the proposed transaction prior to a
Closing Date, the Company shall reimburse the Underwriter on an accountable
basis for all out-of-pocket expenses actually incurred in connection with the
Underwriting, this Agreement and all of the transactions hereby contemplated,
including, without limitation, the Underwriter's legal fees and expenses, less
such sums which have already been paid, and the Underwriter shall not be
responsible for any expense of the Company or others or for any change or claim
related to the Offering contemplated hereunder in the event that the Offering is
not consummated.
10. Conditions of Underwriter's Obligations.
The obligations of the Underwriter to consummate the transactions
contemplated by this Agreement shall be subject to the continuing accuracy of
the representations and warranties of the Company contained herein as of the
date hereof and as of the Closing Dates, the accuracy of the statements of the
Company and its officers and directors made pursuant to the provisions hereof,
and to the performance by the Company of its covenants and agreements hereunder
and under each certificate, opinion and document contemplated hereunder and to
the following additional conditions:
(a) The Registration Statement shall have become effective not
later than 5:00 p.m., New York time, on the date following the date of this
Agreement, or such later date and time as shall be consented to in writing by
you and, on or prior to each Closing Date, no stop order suspending the
effectiveness of the Registration Statement or the qualification or registration
of the Securities under the securities laws of any jurisdiction shall have been
issued and no proceedings for that purpose shall have been instituted or shall
be pending or to your knowledge or the knowledge of the Company, shall be
contemplated by the Commission or any such authorities of any jurisdiction and
any request on the part of the Commission or any such authorities for additional
information shall have been complied with to the reasonable satisfaction of the
Commission or such authorities and counsel to the Underwriter and after the date
hereof no amendment or supplement shall have been filed to the Registration
Statement or Prospectus without your prior consent.
(b) As of each Closing Date, the Registration Statement or the
Prospectus or any amendment thereof or supplement thereto shall not contain an
untrue statement of a fact which is material, or omit to state a fact
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<PAGE> 17
which is material and is required to be stated therein or is necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
(c) Between the time of the execution and delivery of this
Agreement and each Closing Date, (i) there shall be no litigation instituted
against the Company or any of its officers or directors and between such dates
there shall be no proceeding instituted or, to the Company's knowledge,
threatened against the Company or any of its officers or directors before or by
any federal, state or county commission, regulatory body, administrative agency
or other governmental body, domestic or foreign, in which litigation or
proceeding an unfavorable ruling, decision or finding would, individually or in
the aggregate, have a material adverse effect on the Company or its business,
business prospects or properties, or have a material adverse effect on the
financial condition or results of operation of the Company, and (ii) no
executive officer of the Company listed as such in the Prospectus shall have
died, become physically or mentally disabled, resigned or been removed or
discharged.
(d) Each of the representations and warranties of the Company
contained herein and each certificate and document contemplated under this
Agreement to be delivered to you shall be true and correct at each Closing Date
as if made at each such Closing Date, and all covenants and agreements contained
herein and in each such certificate and document to be performed on the part of
the Company, and all conditions contained herein and in each such certificate
and document to be fulfilled or complied with by the Company at or prior to the
Closing Dates shall be fulfilled or complied with.
(e) At each Closing Date, you shall have received the opinion
of Horwitz & Beam, counsel to the Company, dated as of each such Closing Date,
addressed to the Underwriter and in form and substance satisfactory to counsel
to the Underwriter, as follows:
(i) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation with full corporate power and authority, and all licenses,
permits, certifications, registrations, approvals, consents and franchises to
own or lease and operate its properties and to conduct its business as described
in the Registration Statement. The Company is duly qualified to do business as a
foreign corporation and is in good standing in all jurisdictions wherein such
qualification is necessary and failure so to qualify could have a material
adverse effect on the financial condition, results of operations, business or
properties of the Company;
(ii) The Company has full corporate power and
authority to execute, deliver and perform the Underwriting Agreement, the
Warrant Agreement and the Underwriter's Warrants and to consummate the
transactions contemplated thereby. The execution, delivery and performance of
the Underwriting Agreement, the Warrant Agreement and the Underwriter's Warrants
by the Company, the consummation by the Company of the transactions therein
contemplated and the compliance by the Company with the terms of the
Underwriting Agreement, the Warrant Agreement and the Underwriter's Warrants
have been duly authorized by all necessary corporate action, and each of the
Underwriting Agreement, the Warrant Agreement and the Underwriter's Warrants
have been duly executed and delivered by the Company. Each of the Underwriting
Agreement, the Warrant Agreement and the Underwriter's Warrants is a valid and
binding obligation of the Company, enforceable in accordance with their
respective terms, subject, as to enforcement of remedies, to applicable
bankruptcy, insolvency, reorganization, moratorium and other laws affecting the
rights of creditors generally and the discretion of courts in granting equitable
remedies and except that enforceability of the indemnification provisions and
the contribution provisions set forth in the Underwriting Agreement may be
limited by the federal securities laws or public policy underlying such laws;
(iii) The execution, delivery and performance of the
Underwriting Agreement, the Warrant Agreement and the Underwriter's Warrants by
the Company, the consummation by the Company of the transactions therein
contemplated and the compliance by the Company with the terms of the
Underwriting Agreement, the Warrant Agreement and the Underwriter Warrants do
not, and will not, with or without the giving of notice or the lapse of time, or
both, (A) result in a violation of the Certificate
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<PAGE> 18
of Incorporation, as the same may be amended, or Bylaws of the Company or any of
its Subsidiaries, (B) to the best of our knowledge, result in a breach of, or
conflict with, any terms or provisions of or constitute a default under, or
result in the modification or termination of, or result in the creation or
imposition of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company or any of its Subsidiaries pursuant to, any
indenture, mortgage, note, contract, commitment or other material agreement or
instrument to which the Company or any of its Subsidiaries are a party or by
which the Company or any of its Subsidiaries or any of their properties or
assets are or may be bound or affected, except where any of the foregoing would
not result in a material adverse effect upon the Company's or any Subsidiaries
business or operations; (C) to the best of our knowledge, violate any existing
applicable law, rule or regulation or judgment, order or decree known to us of
any governmental agency or court, domestic or foreign, having jurisdiction over
the Company or any of its Subsidiaries or any of their properties or businesses;
or (D) to the best of our knowledge, have any effect on any permit,
certification, registration, approval, consent, license or franchise necessary
for the Company or any of its Subsidiaries to own or lease and operate their
properties and to conduct their business or the ability of the Company or any of
its Subsidiaries to make use thereof;
(iv) To the best of our knowledge, no authorization,
approval, consent, order, registration, license or permit of any court or
governmental agency or body (other than under the Act, the Regulations and
applicable state securities or Blue Sky laws) is required for the valid
authorization, issuance, sale and delivery of the Securities, the Common Stock,
the Warrants, the Warrant Shares, or the Underwriter's Warrants, and the
consummation by the Company of the transactions contemplated by the Underwriting
Agreement, the Consulting Agreement, the Warrant Agreement or the Underwriter's
Warrants;
(v) The Registration Statement was declared effective
under the Act on _________, 1998 and is effective thereunder, and filing of all
pricing information (if applicable) has been timely made in the appropriate form
under Rule 430A; and, to the best of our knowledge, no stop order suspending the
effectiveness of the Registration Statement, the Preliminary Prospectus, or the
final Prospectus or any part thereof, has been issued, and no proceedings for
that purpose have been instituted or are pending, threatened or contemplated
under the Act or applicable state securities laws;
(vi) The Registration Statement and the Prospectus,
as of the Effective Date (except for the financial statements and other
financial data included therein or omitted therefrom, as to which we express no
opinion), comply as to form in all material respects with the requirements of
the Act and Regulations and the conditions for use of a registration statement
on Form SB-2 have been satisfied by the Company;
(vii) The description in the Registration Statement
and the Prospectus of statutes, regulations, contracts and other documents have
been reviewed by us, and, based upon such review, are accurate in all material
respects and present fairly the information required to be disclosed, and to the
best of our knowledge, there are no material statutes or regulations, or, to the
best of our knowledge, material contracts or documents, of a character required
to be described in the Registration Statement or the Prospectus or to be filed
as exhibits to the Registration Statement, which are not so described or filed
as required.
To the best of our knowledge, none of the material provisions of the contracts
or instruments described above violates any existing applicable law, rule or
regulation or judgment, order or decree known to us of any United States
governmental agency or court having jurisdiction over the Company or any of its
assets or businesses;
(viii) The outstanding Common Stock , Warrants, and
all other securities of the Company, have been duly authorized and validly
issued. The outstanding Common Stock is fully paid and nonassessable. To the
best of our knowledge, none of the outstanding Common Stock has been issued in
violation of the preemptive rights of any stockholder of the Company. None of
the holders of the outstanding Common Stock is subject to personal liability
solely by reason of being such a holder. The authorized Common Stock conforms to
the description thereof contained in the Registration Statement and Prospectus.
To the best of our knowledge, except as set forth in the Prospectus, no holders
of any of the Company's securities have any rights, "demand," "piggyback" or
otherwise, to have such securities registered under the Act;
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<PAGE> 19
(ix) The issuance and sale of the Securities,
including the Common Stock, the Warrants, the Warrant Shares and the
Underwriter's Warrants have been duly authorized and when issued will be validly
issued, fully paid and nonassessable, and the holders thereof will not be
subject to personal liability solely by reason of being such holders. Neither
the Common Stock nor the Warrants or Warrant Shares are subject to preemptive
rights of any stockholder of the Company. The certificates representing the
Securities are in proper legal form;
(x) The issuance and sale of the Warrant Shares
and the Underwriter's Warrants have been duly authorized and, when paid for,
issued and delivered pursuant to the terms of the Warrant Agreement or the
Underwriter's Warrants, as the case may be, the Warrants, the Warrant Shares and
the Underwriter's Warrants will constitute the valid and binding obligations of
the Company, enforceable in accordance with their terms, to issue and sell the
Warrants, the Warrant Shares and/or Underwriter's Warrants. All corporate action
required to be taken for the authorization, issuance and sale of the securities
has been duly, validly and sufficiently taken. The Common Stock and the Warrants
have been duly authorized by the Company to be offered in the form of the
Securities. The Warrants, the Warrant Shares and the Underwriter Warrants
conform to the descriptions thereof contained in the Registration Statement and
Prospectus;
(xi) The Underwriter has acquired good title to the
Securities, free and clear of all liens, encumbrances, equities, security
interests and claims, provided that the Underwriter is a bona fide purchaser as
defined in Section8-302 of the Uniform Commercial Code;
(xii) To the best of our knowledge, after due
inquiry, there are no claims, actions, suits, proceedings, arbitrations,
investigations or inquiries before any governmental agency, court or tribunal,
foreign or domestic, or before any private arbitration tribunal, pending or
threatened against the Company or any of its Subsidiaries or involving their
properties or businesses, other than as described in the Prospectus, such
description being accurate, and other than litigation incident to the kind of
business conducted by the Company or any of its Subsidiaries which, individually
and in the aggregate, is not material, and, except as otherwise disclosed in the
Prospectus and the Registration Statement, the Company and its Subsidiaries have
complied with all federal and state laws, statutes and regulations concerning
its business;
(xiii) All sales of the Company's securities have
been made in compliance with or under an exemption from the registration
requirements of the Act, and no purchaser of such securities in any such sale
has a right of action against the Company for failure to comply with the
registration or filing requirement of any state;
(xiv) The Company owns or possesses, free and clear
of all liens or encumbrances and rights thereto or therein by third parties, the
requisite licenses or other rights to use all trademarks, service marks,
copyrights, service names, trade names, patents, patent applications and
licenses necessary to conduct its business (including, without limitation, any
such licenses or rights described in the Prospectus as being owned or possessed
by the Company), and to the best of such counsel's knowledge after reasonable
investigation there is no claim or action by any person pertaining to, or
proceeding, pending, or threatened which challenges the exclusive rights of the
Company with respect to any trademarks, service marks, copyrights, service
names, trade names, patents, patent applications and licenses used in the
conduct of the Company's business (including, without limitations, any such
licenses or rights described in the Prospectus as being owned or possessed by
the Company);
(xv) Except as described in the Prospectus, the
Company does not (a) maintain, sponsor, or contribute to any ERISA Plans, (b)
maintain or contribute, now or at any time previously, to a defined benefit
plan, as defined in Section 3(35) of ERISA, and (c) has not, completely or
partially, withdrawn from a "multi employer plan," with respect to any employees
of or who perform duties on behalf of the Company;
(xvi) The Company has no subsidiaries.
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<PAGE> 20
(xvii) Company counsel has participated in reviews
and discussions in connection with the preparation of the Registration Statement
and the Prospectus. Although we are not passing upon and do not assume
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement, no facts came to our attention which
lead us to believe that (A) the Registration Statement (except as to the
financial statements and other financial data contained therein, as to which we
express no opinion), on the Effective Date, contained any untrue statement of a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or that (B) the Prospectus (except as to the financial statements
and other financial data contained therein, as to which we express no opinion)
contains any untrue statement or a material fact or omits to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(xviii) Company counsel has reviewed the Prospectus,
and insofar as it refers to statements of law, description of statues, licenses,
rules or regulations or legal conclusions, it is correct in all material
respects;
(xix) To Company counsel's knowledge, the persons
listed in the Principal Stockholders or Management sections of the Prospectus
are the respective "beneficial owners" (as such phrase is defined in Regulation
13d-3 promulgated under the Exchange Act) of the securities set forth opposite
their respective names thereunder as and to the extent set forth therein;
(xx) To such counsel's knowledge, except as described
in the Prospectus, no person, corporation, trust partnership, association or
other entity has the right to include and/or register any securities of the
Company in the Registration Statement, require the Company to file any
registration statement or, if filed, to include any security in such
registration statement;
(xxi) To such counsel's knowledge, except as
described in the Prospectus, there are no claims, payments, issuances,
arrangements or understandings for services in the nature of a finder's or
origination fee with respect to the sale of the Shares hereunder or the
financial consulting arrangement or any other arrangements, agreements,
understandings, payments or issuances, that may affect the Underwriter's
compensation, as determined by the NASD;
(f) On or prior to each Closing Date, counsel for the
Underwriter shall have been furnished such documents, certificates and opinions
as they may reasonably require for the purpose of enabling them to review the
matters referred to in subparagraphs (e) of this Paragraph 10, or in order to
evidence the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions herein contained.
(g) Prior to each Closing Date:
(i) There shall have been no material adverse change
in the condition or prospects or the business activities, financial or
otherwise, of the Company from the latest dates as of which such condition is
set forth in the Registration Statement and Prospectus;
(ii) There shall have been no transaction, outside
the ordinary course of business, entered into by the Company from the latest
date as of which the financial condition of the Company is set forth in the
Registration Statement and Prospectus which is material to the Company, which is
either (x) required to be disclosed in the Prospectus or Registration Statement
and is not so disclosed, or (y) likely to have material adverse effect on the
Company's business or financial condition;
(iii) The Company shall not be in default under any
material provision of any instrument relating to any outstanding indebtedness,
except as described in the Prospectus;
(iv) No material amount of the assets of the Company
shall have been pledged, mortgaged or otherwise encumbered, except as set forth
in the Registration Statement and Prospectus;
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<PAGE> 21
(v) No action, investigation, suit or proceeding, at
law or in equity, shall have been pending or to its knowledge threatened against
the Company or affecting any of its properties or businesses before or by any
court or federal or state commission, board or other administrative agency
wherein an unfavorable decision, ruling or finding would materially and
adversely affect the business, operations, prospects or financial condition or
income of the Company, taken as a whole, except as set forth in the Registration
Statement and Prospectus; and
(vi) No stop order shall have been issued under the
Act and no proceedings therefor shall have been initiated or, to the Company's
knowledge, threatened by the Commission.
(vii) Each of the representations and warranties of
the Company contained in this Agreement and in each certificate and document
contemplated under this Agreement to be delivered to you was, when originally
made and is at the time such certificate is dated, true and correct.
(h) Concurrently with the execution and delivery of this
Agreement and at each Closing Date, you shall have received a certificate of the
Company signed by the Chief Executive Officer of the Company and the principal
financial officer of the Company, dated as of the Closing Date, to the effect
that the conditions set forth in subparagraph (g) above have been satisfied and
that, as of the Closing Date, the representations and warranties of the Company
set forth in Paragraph 2 herein and the statements in the Registration Statement
and Prospectus were and are true and correct. Any certificate signed by any
officer of the Company and delivered to you or for counsel for the Underwriter
shall be deemed a representation and warranty by the Company to the Underwriter
as to the statements made therein.
(i) At the time this Agreement is executed, and at each
Closing Date, you shall have received a "cold comfort" letter, addressed to the
Underwriter and in form and substance satisfactory in all respects to you and
counsel for the Underwriter, from Stonefield Josephson, Inc., dated as of the
date of this Agreement and as of each Closing Date:
(i) to the effect that they are independent certified
public accountants with respect to the Company within the meaning of the Act and
the Exchange Act and the applicable Rules and Regulations;
(ii) stating that it is their opinion that the
financial statements and supporting schedules of the Company included in the
Registration Statement comply as to form in all material respects with the
applicable accounting requirements of the Act and the Exchange Act and the Rules
and Regulations thereunder;
(iii) and stating that, on the basis of a limited
review which included a reading of the latest available unaudited interim
financial statements of the Company, a reading of the latest available minutes
of the stockholders, and Board of Directors and the various committees of the
Board of Directors of the Company, consultations with officers and other
employees of the Company responsible for financial and accounting matters and
other specified procedures and inquiries, nothing has come to their attention
which would lead them to believe that (A) the unaudited financial statements and
supporting schedules of the Company, as applicable, included in the Registration
Statement do not comply as to form in all material respects with the applicable
accounting requirements of the Act and the Exchange Act and the Rules and
Regulations or are not fairly presented in conformity with generally accepted
accounting principles applied on a basis substantially consistent with that of
the audited financial statements and supporting schedules of the Company,
included in the Registration Statements, (B) at a specified date not more than
five days prior to the later of the date of this Agreement on the Effective Date
of the Registration Statement, there has been any change in the capital stock or
long-term debt of the Company or any decrease in the stockholders' equity or net
current assets or net assets of the Company, as compared with amounts, shown in
the December 31, 1997 balance sheet included in the Registration Statement other
than as set forth in or contemplated by the Registration Statement, or, if there
was any change or decrease, setting forth the amount of such change or decrease,
and (C) during the period from December 31, 1997 to a specified date not more
than five days prior to the later of the date of this Agreement or the Effective
Date of the Registration Statement, there was any decrease in net revenues, net
earnings or net earnings per common share of the Company, as compared with the
corresponding period beginning December 31, 1997, other than
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<PAGE> 22
as set forth in or contemplated by the Registration Statement, or, if there was
any such decrease, setting forth the amount of such decrease;
(iv) stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and earnings, statements
and/or other financial information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts, numbers, percentages,
statements and information may be derived from the general accounting records,
including work sheets, of the Company and excluding any questions requiring an
interpretation by legal counsel with the results obtained from the application
of specified readings, inquiries and other appropriate procedures (which
procedures need not constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter and found them to be in
agreement;
(v) statements as to such other matters incident to
the transaction contemplated hereby as you may reasonably request; and
(vi) reaffirming that statements made in such letter
furnished pursuant to the foregoing clauses (i) through (v), except that the
specified date referred to shall be a date not more than five days prior to the
Closing Date and, if the Company has elected to rely on Rule 430A of the Rules
and Regulations, to the further extent that they have carried out procedures as
specified above, with respect to certain amounts, percentages and financial
information as specified by you and deemed to be a part of the Registration
Statement pursuant to Rule 430A(b) and have found such amounts, percentages and
financial information to be in agreement with the records so specified above.
(j) All proceedings taken in connection with the
authorization, issuance or sale of the Common Stock, Warrants, Warrant Shares,
the Underwriter's Warrants and the Underwriter's Warrant Shares as herein
contemplated shall be satisfactory in form and substance to you and to counsel
to the Underwriter, and the Underwriter shall have received from such counsel an
opinion, dated as each Closing Date with respect to such of these proceedings as
you may reasonably require.
(k) The Company shall have furnished to you such certificates,
additional to those specifically mentioned herein, as you may have reasonably
requested in a timely manner as to the accuracy and completeness, at each
Closing Date, of any statement in the Registration Statement or the Prospectus,
as to the accuracy, at each Closing Date, of the representations and warranties
of the Company herein and in each certificate and document contemplated under
this Agreement to be delivered to you, as to the performance by the Company of
its obligations hereunder and under each such certificate and document or as to
the fulfillment of the conditions concurrent and precedent to your obligations
hereunder.
(l) On or before the Closing Date, the Company shall cause to
be provided, and the Underwriter shall have received from each officer, director
and shareholder of the Company, "lock-up" agreements from each such person
restricting any sales, transfers, pledges or other hypothecations of such
person's shares of any class of equity security of the Company for a period of
twelve (12) months from the Closing Date.
(m) The obligation of the Underwriter to sell any Securities
hereunder is subject to the accuracy of the representations and warranties of
the Company contained herein on and as of each Closing Date and to the
satisfaction on and as of each Closing Date of the conditions set forth herein.
(n) On each Closing Date there shall have been duly tendered
to you for the purchasers of the Securities the appropriate number of Shares of
Common Stock and Warrants constituting the Securities and the appropriate number
of Underwriter's Warrants.
(o) No action shall have been taken by the Commission or the
NASD the effect of which would make it improper, at any time prior to the
Closing Date, for members of the NASD to execute transactions (as principal or
agent) in the Securities and no proceedings for the taking of such action shall
have been instituted or shall be pending
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<PAGE> 23
or, to the knowledge of the Representative, the Company shall be contemplated by
the Commission or the NASD. The Company and the Underwriter represent that at
the date hereof each has no knowledge that any such action is in fact
contemplated against any of them by the Commission or the NASD.
(p) Prior to the Effective Date, the Company will make all
filings required, including registration under the Exchange Act, to obtain, and
shall thereafter have obtained and shall use its best efforts to maintain, the
quotation of the Common Stock and Warrants on the OTC Bulletin Board.
(q) If any of the conditions herein provided for in this
paragraph shall not have been fulfilled, or all "lock-up" letters restricting
sales, pledges, transfers or hypothications of any kind by officers, directors
or all shareholders of the Company for twelve (12) months after the Closing Date
have not been received, as of the date indicated, this Agreement and all
obligations of the Underwriter under this Agreement may be canceled at, or at
any time prior to, each Closing Date by the Underwriter notifying the Company of
such cancellation in writing or by telegram at or prior to the applicable
Closing Date. Any such cancellation shall be without liability of the
Underwriter to the Company.
11. Indemnification and Contribution.
(a) Subject to the conditions set forth below, the Company
agrees to indemnify and hold harmless the Underwriter and each person, if any,
who controls the Underwriter ("controlling person") within the meaning of either
Section 15 of the Act or Section 20 of the Exchange Act, against any and all
losses, liabilities, claims, damages, actions and expenses or liability, joint
or several, whatsoever (including but not limited to any and all expense
whatsoever reasonably incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever), joint or
several, to which it or such controlling persons may become subject under the
Act, the Exchange Act or under any other statute or at common law or otherwise
or under the laws of foreign countries, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or any Preliminary Prospectus or the Prospectus (as from
time to time amended and supplemented); in any post-effective amendment or
amendments or any new registration statement and prospectus in which is included
the Warrant Shares of the Company issued or issuable upon exercise of the
Warrants, or Underwriter's Warrant Shares upon exercise of the Underwriter's
Warrants; or in any application or other document or written communication (in
this Paragraph 10 collectively called "application") executed by the Company or
based upon written information furnished by the Company filed in any
jurisdiction in order to qualify the Common Stock, Warrants, Warrant Shares,
Underwriter's Warrants and Underwriter's Warrant Shares (including the Shares
issuable upon exercise of the Warrants underlying the Underwriter's Warrants)
under the securities laws thereof or filed with the Commission or any securities
exchange; or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein not
misleading (in the case of the Prospectus, in the light of the circumstances
under which they were made), unless such statement or omission was made in
reliance upon or in conformity with written information furnished to the Company
with respect to the Underwriter by or on behalf of the Underwriter expressly for
use in any Preliminary Prospectus, the Registration Statement or Prospectus, or
any amendment or supplement thereof, or in application, as the case may be.
Notwithstanding the foregoing, the Company shall have no liability under this
Paragraph 11(a) if any such untrue statement or omission made in a Preliminary
Prospectus, is cured in the Prospectus and the Underwriter failed to deliver to
the person or persons alleging the liability upon which indemnification is being
sought, at or prior to the written confirmation of such sale, a copy of the
Prospectus. This indemnity will be in addition to any liability which the
Company may otherwise have.
(b) The Underwriter agrees to indemnify and hold harmless the
Company and each of the officers and directors of the Company who have signed
the Registration Statement and each other person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, to the same extent as the foregoing indemnity from the Company to
the Underwriter in Paragraph 11(a), but only with respect to any untrue
statement or alleged untrue statement of any material fact contained in or any
omission or alleged omission to state a material fact required to be stated in
any Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment or supplement thereof or necessary to make the statements therein not
misleading or in any application made
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<PAGE> 24
solely in reliance upon, and in conformity with, written information furnished
to the Company by you specifically expressly for use in the preparation of such
Preliminary Prospectus, the Registration Statement or Prospectus directly
relating to the transactions effected by the Underwriter in connection with this
Offering. This indemnity agreement will be in addition to any liability which
the Underwriter may otherwise have. Notwithstanding the foregoing, the
Underwriter shall have no liability under this Paragraph 11(b) if any such
untrue statement or omission made in a Preliminary Prospectus is cured in the
Prospectus, and the Prospectus is delivered to the person or persons alleging
the liability upon which indemnification is being sought.
(c) If any action is brought against any indemnified party
(the "Indemnitee") in respect of which indemnity may be sought against another
party pursuant to the foregoing (the "Indemnitor"), the Indemnitor shall assume
the defense of the action, including the employment and fees of counsel
(reasonably satisfactory to the Indemnitee) and payment of expenses. Any
Indemnitee shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
Indemnitee unless the employment of such counsel shall have been authorized in
writing by the Indemnitor in connection with the defense of such action. If the
Indemnitor shall have employed counsel to have charge of the defense or shall
previously have assumed the defense of any such action or claim, the Indemnitor
shall not thereafter be liable to any Indemnitee in investigating, preparing or
defending any such action or claim. Each Indemnitee shall promptly notify the
Indemnitor of the commencement of any litigation or proceedings against the
Indemnitee in connection with the issue and sale of the Common Stock, Warrants,
Warrants Shares, Underwriter's Securities or in connection with the Registration
Statement or Prospectus.
(d) In order to provide for just and equitable contribution
under the Act in any case in which: (i) the Underwriter makes a claim for
indemnification pursuant to Paragraph 11 hereof, but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the time to appeal has expired or the last right of appeal has been denied)
that such indemnification may not be enforced in such case notwithstanding the
fact that this Paragraph 11 provides for indemnification of such case; or (ii)
contribution under the Act may be required on the part of the Underwriter in
circumstances for which indemnification is provided under this Paragraph 11,
then, and in each such case, the Company and the Underwriter shall contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after any contribution from others) in such proportion so that the
Underwriter is responsible for the portion represented by dividing the total
compensation received by the Underwriter herein by the total purchase price of
all Securities sold in the public offering and the Company is responsible for
the remaining portion; provided, that in any such case, no person guilty of a
fraudulent misrepresentation (within the meaning of Section 11 (f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
The foregoing contribution agreement shall in no way affect the
contribution liabilities of any persons having liability under Section 11 of the
Act other than the Company and the Underwriter. As used in this Paragraph 11,
the term "Underwriter" includes any officer, director, or other person who
controls the Underwriter within the meaning of Section 15 of the Act, and the
word "Company" includes any of officer, director or person who controls the
Company within the meaning of Section 15 of the Act. If the full amount of the
contribution specified in this paragraph is not permitted by law, then the
Underwriter and each person who controls the Underwriter shall be entitled to
contribution from the Company to the full extent permitted by law. No
contribution shall be requested with regard to the settlement of any matter from
any party who did not consent to the settlement.
(e) Within fifteen (15) days after receipt by any party to
this Agreement (or its representative) of notice of the commencement of any
action, suit or proceeding, such party will, if a claim for contribution in
respect thereof is made against another party (the "contributing party"), notify
the contributing party of the commencement thereof, but the omission so to
notify the contributing party will not relieve it from any liability it may have
to any other party other than for contribution hereunder.
In case any such action, suit or proceeding is brought against any
party, and such party notifies a contributing party or his or its representative
of the commencement thereof within the aforesaid fifteen (15) days, the
contributing
23
<PAGE> 25
party will be entitled to participate therein with the notifying party and any
other contributing party similarly notified. Any such contributing party shall
not be liable to any party seeking contribution on account of any settlement of
any claim, action or proceeding effected by such party seeking contribution
without the written consent of such contributing party. The indemnification
provisions contained in this Paragraph 11 are in addition to any other rights or
remedies which either party hereto may have with respect to the other or
hereunder.
12. Representations, Warranties and Agreements to Survive Delivery.
The respective indemnity and contribution agreements by the Underwriter
and the Company contained in Paragraph 11 hereof, and the covenants,
representations and warranties of the Company and the Underwriter set forth in
this Agreement, shall remain operative and in full force and effect regardless
of (i) any investigation made by the Underwriter or on its behalf or by or on
behalf of any person who controls the Underwriter, or by the Company or any
controlling person of the Company or any director or any of officer of the
Company, (ii) acceptance of any of the Securities and payment therefor, or (iii)
any termination of this Agreement, and shall survive the delivery of the
Securities and any successor of the Underwriter or the Company, or of any person
who controls you or the Company or any other indemnified party, as the case may
be, shall be entitled to the benefit of such respective indemnity and
contribution agreements. The respective indemnity and contribution agreements by
the Underwriter and the Company contained in this Paragraph 12 shall be in
addition to any liability which the Underwriter and the Company may otherwise
have.
13. Effective Date of This Agreement and Termination Thereof.
(a) This Agreement shall become effective on the date of
execution by the parties hereto.
(b) This Agreement may be terminated by the Underwriter by
notifying the Company at any time on or before the Closing Date, if any domestic
or international event or act or occurrence has materially disrupted, or in your
opinion will in the immediate future materially disrupt, securities markets; or
if trading on the New York Stock Exchange, the American Stock Exchange, or in
the over-the-counter market shall have been suspended, or minimum or maximum
prices for trading shall have been fixed, or maximum ranges for prices for
securities shall have been required on the over-the-counter market by the NASD
or NASDAQ or by order of the Commission or any other governmental authority
having jurisdiction; or if a moratorium in foreign exchange trading by major
international banks or persons has been declared; or if the Company shall have
sustained a loss material or substantial to the Company taken as a whole by
fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity
or malicious act which, whether or not such loss shall have been insured, will,
in your opinion, make it inadvisable to proceed with the delivery of the
Securities; or if there shall have been a material adverse change in the
conditions of the securities market in general, as in your reasonable judgment
would make it inadvisable to proceed with the offering, sale and delivery of the
Securities; or if there shall have been a material adverse change in the
financial or securities markets, particularly in the over-the-counter market, in
the United States having occurred since the date of this Agreement.
(c) If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Paragraph 12, the
Company shall be notified promptly by you by telephone or facsimile, confirmed
by letter.
(d) If this Agreement shall not become effective by reason of
an election of the Underwriter pursuant to this Paragraph 13 or if this
Agreement shall not be carried out within the time specified herein by reason of
any failure on the part of the Company to perform any undertaking, or to satisfy
any condition of this Agreement by it to be performed or satisfied, the sole
liability of the Company to the Underwriter, in addition to the obligations
assumed by the Company pursuant to Paragraph 8 herein, will be to reimburse the
Underwriter for the following: (i) Blue Sky counsel fees and expenses to the
extent set forth in Paragraph 9(a)(iv); (ii) Blue Sky filing fees; and (iii)
such reasonable out-of-pocket expenses of the Underwriter (including the fees
and disbursements of their counsel), to the
24
<PAGE> 26
extent set forth in Paragraph 9(c), in connection with this Agreement and the
proposed offering of the Securities, less such amounts already paid.
Notwithstanding any contrary provision contained in this Agreement, any
election hereunder or any termination of this Agreement, and whether or not this
Agreement is otherwise carried out, the provisions of Paragraph 9 and 11 hereof
shall not be in any way affected by such election or termination or failure to
carry out the terms of this Agreement or any part hereof.
14. Notices.
All communications hereunder, except as herein otherwise specifically
provided, shall be in writing and, if sent to the Underwriter, shall be mailed,
faxed with electronic confirmation receipt, or delivered personally with receipt
acknowledged or by a nationally recognized next day courier service with
delivery confirmed to the Underwriter at Platinum Equities, Inc., 80 Pine
Street, Suite 3200, New York, New York 10005, Attention: John Kenny, with a copy
thereof to Lawrence Nusbaum, Esq., Gusrae, Kaplan & Bruno, 120 Wall Street, New
York, New York 10005, and, if sent to the Company, shall be mailed, faxed with
electronic confirmation receipt, or delivered personally with receipt
acknowledged or by a nationally recognized next day courier service with
delivery confirmed to the Company at 13710 Ramona Avenue, Chino, California
91710, Attention: Wasif Siddiqui, President, with a copy thereof to Horwitz &
Beam, Two Venture Plaza, Suite 350, Irvine, California 92618, Attention:
Lawrence W. Horwitz, Esq.
15. Parties.
This Agreement shall inure solely to the benefit of and shall be
binding upon, the Underwriter, the Company and the controlling persons,
directors and officers referred to in Paragraph 11 hereof, and their respective
successors, legal representatives and assigns, and no other person shall have or
be construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provision herein contained.
16. Construction.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York and shall supersede any
agreement or understanding, oral or in writing, express or implied, between the
Company and you relating to the sale of any of the Securities.
17. Jurisdiction and Venue.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York with respect to contracts made and to be fully
performed therein, without regard to the conflicts of laws principles thereof.
The parties hereto hereby agree that any suit or proceeding arising under this
Agreement, or in connection with the consummation of the transactions
contemplated hereby, shall be brought solely in a federal or state court located
in the City, County and State of New York, or in any court of competent
jurisdiction selected by the Underwriter. By its execution hereof, the Company
hereby consents and irrevocably submits to the in personam jurisdiction of the
federal and state courts located in the City, County and State of New York (or
any such other court of competent jurisdiction selected by the Underwriter) and
agrees that any process in any suit or proceeding commenced in such courts by
this Agreement may be served upon it personally or by certified registered mail,
return receipt requested, or by Federal Express or other courier service, with
the same force and effect as if personally served upon it in New York City (or
in the city or county in which such other court is located). The parties hereto
each waive any claim that any such jurisdiction is not a convenient forum for
any such suit or proceeding and any defense of lack of in personam jurisdiction
with respect thereto.
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<PAGE> 27
18. Counterparts.
This agreement may be executed in counterparts.
If the foregoing correctly sets forth the understanding between the
Underwriter and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement between
us.
Very truly yours,
LUMINEX LIGHTING, INC.
By:__________________________
Wasif Siddiqui, President
Accepted as of the date first above written:
PLATINUM EQUITIES, INC.
By:___________________________
26
<PAGE> 1
EXHIBIT 1.2
UNDERWRITER'S WARRANT (FORM)
<PAGE> 2
NO SALE OR TRANSFER OF THIS WARRANT OR THE SECURITIES
UNDERLYING THIS WARRANT MAY BE MADE UNTIL
THE EFFECTIVENESS OF A REGISTRATION STATEMENT
OR OF A POST-EFFECTIVE AMENDMENT THERETO
UNDER THE SECURITIES ACT OF 1933 (THE "ACT"),
COVERING THIS WARRANT OR THE SECURITIES UNDERLYING
THIS WARRANT, OR UNTIL THE COMPANY IS IN RECEIPT OF AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM
THE REGISTRATION REQUIREMENTS OF THE ACT. TRANSFER OF
THIS WARRANT IS RESTRICTED UNDER PARAGRAPH 2 BELOW.
UNDERWRITER'S WARRANT TO PURCHASE
COMMON STOCK AND/OR REDEEMABLE WARRANTS
LUMINEX LIGHTING, INC.
(a California corporation)
Dated:______________ ___, 1998
1
<PAGE> 3
THIS CERTIFIES THAT Platinum Equities, Inc. (the "Underwriter", and
together with its assigns, the "Holder") is entitled to purchase from Luminex
Lighting, Inc., a California corporation (the "Company"), for an aggregate price
of $10, an option ("Purchase Option"), during the period as hereinafter
specified, for up to 50,000 shares of the Company's common stock, no par value
per share (the "Common Stock"), and up to 50,000 redeemable Common Stock
purchase warrants (the "Warrants," and collectively with the Common Stock, the
"Securities"), at a purchase price of $8.15 per share of Common Stock and $.14
per Warrant which Warrant is exercisable at $8.30 per share of Common Stock (the
"Exercise Price") (the "Underwriter's Warrant").
This Underwriter's Warrant is issued pursuant to an Underwriting
Agreement dated , 1998, between the Company and the Underwriter in connection
with a public offering through the Underwriter (the "Public Offering") of
500,000 shares of Common Stock and 500,000 Warrants.
1. Exercise of the Underwriter's Warrant.
(a) The rights represented by this Underwriter's Warrant shall
be exercised at the prices and during the periods as follows:
(i) During the period from __________, 1998 to
__________, 1999, inclusive, the Holder shall have no right to purchase any
Securities hereunder.
(ii) Between ___________ , 1999 and ___________ ,
2003, inclusive, the Holder shall have the option to purchase shares of Common
Stock and Warrants hereunder at a price of $8.15 and $.14, respectively, the
purchase price of the Common Stock and the Warrant being 120% of the public
offering price for the Securities set forth in the Prospectus forming a part of
the registration statement on Form SB-2 (File No. 333- 58025) of the Company, as
amended (the "Registration Statement").
(iii) After ________ __, 2003, the Holder shall have
no right to purchase any Securities hereunder and this Underwriter's Warrant
shall expire effective at 5:00 p.m., New York time.
(b) The rights represented by this Underwriter's Warrant may
be exercised at any time within the period above specified, in whole or in part,
by (i) the surrender of this Underwriter's Warrant (with the purchase form at
the end hereof properly executed) at the principal executive of office of the
Company (or such other of office or agency of the Company as it may designate by
notice in writing to the Holder at the address of the Holder appearing on the
books of the Company); (ii) payment to the Company of the Exercise Price then in
effect for the number of shares of Common Stock and Warrants specified in the
above-mentioned purchase form together with applicable stock transfer taxes, if
any; and (iii) delivery to the Company of a duly executed agreement signed by
the person(s) designated in the purchase form to the effect that such person(s)
agree(s) to be bound by the provisions of Paragraph 5 and subparagraphs (b), (c)
and (d) of Paragraph 6 hereof. This Underwriter's Warrant shall be deemed to
have been exercised, in whole or in part to the extent specified, immediately
prior to the close of business on the date this Underwriter's Warrant is
surrendered and payment is made in accordance with the foregoing provisions of
this Paragraph 1, and the person or persons in whose name or names the
certificates for the Securities shall be issuable upon such exercise shall
become the Holder or Holders of record of such Common Stock and Warrants at that
time and date. The Common Stock and Warrants so purchased shall be delivered to
the Holder within a reasonable time, not exceeding ten (10) business days, after
the rights represented by this Underwriter's Warrant shall have been so
exercised.
2. Restrictions on Transfer.
This Underwriter's Warrant shall not be transferred, sold,
assigned, or hypothecated for a period of one year commencing _______ __, 1998,
except that it may be transferred to successors of the Holder, and may be
assigned in whole or in part to any person who is an of officer of the
Underwriter or an officer or partner of any other member of the underwriting
syndicate or selling group member during such period; and after such one-year
period, such a transfer may occur providing the Underwriter's Warrant is
exercised immediately upon transfer, and if not exercised immediately on
transfer, the Underwriter's Warrant shall lapse. Any such assignment shall be
effected by the Holder
2
<PAGE> 4
by (i) completing and executing the form of assignment at the end hereof and
(ii) surrendering this Underwriter's Warrant with such duly completed and
executed assignment form for cancellation, accompanied by funds sufficient to
pay any transfer tax, at the office or agency of the Company referred to in
Paragraph 1 hereof, accompanied by a certificate (signed by a duly authorized
representative of the Holder), stating that each transferee is a permitted
transferee under this Paragraph 2 hereof; whereupon the Company shall issue, in
the name or names specified by the Holder (including the Holder) a new
Underwriter's Warrant or Underwriter's Warrants of like tenor and representing
in the aggregate rights to purchase the same number of Securities as are then
purchasable hereunder.
3. Covenants of the Company.
(a) The Company covenants and agrees that all Common Stock and
Common Stock issuable upon exercise of the Warrants will, upon issuance, be duly
and validly issued, fully paid and nonassessable and no personal liability will
attach to the holder thereof by reason of being such a holder, other than as set
forth herein.
(b) The Company covenants and agrees that during the period
within which this Underwriter's Warrant may be exercised, the Company will at
all times have authorized and reserved a sufficient number of shares of Common
Stock to provide for the exercise of this Underwriter's Warrant and the Warrants
included therein.
(c) The Company covenants and agrees that for so long as the
Securities shall be outstanding, the Company shall use its best efforts to cause
all shares of Common Stock issuable upon the exercise of the Underwriter's
Warrant and the Warrants contained therein, to be listed on or quoted by the
over-the-counter bulletin board system or on the Nasdaq SmallCap Market.
4. No Rights of Stockholder.
This Underwriter's Warrant shall not entitle the Holder to any
voting rights or other rights as a stockholder of the Company, either at law or
in equity, and the rights of the Holder are limited to those expressed in this
Underwriter's Warrant and are not enforceable against the Company except to the
extent set forth herein.
5. Registration Rights.
(a) The Company shall advise the Holder or its transferee,
whether the Holder holds this Underwriter's Warrant or has exercised this
Underwriter's Warrant and holds Common Stock and Warrants, or Common Stock
underlying the Warrants (the "Warrant Shares"), by written notice at least 30
days prior to the filing of any post-effective amendment to the Registration
Statement or of any new registration statement or post-effective amendment
thereto under the Act, covering any securities of the Company, for its own
account or for the account of others, and will for a period of four years from ,
1999 upon the request of the Holder, include in any such post-effective
amendment or registration statement such information as may be required to
permit a public offering of any of the Common Stock or Warrants issuable
hereunder, and/or the Warrant Shares (the "Registerable Securities"), provided
however that this Section 5(a) is not applicable to any registration statement
by the Company on Forms S-4 or S-8 (including any Form S-3 related to such Form
S-8) or any other comparable form. The Company shall supply prospectuses in
order to facilitate the public sale or other disposition of the Registerable
Securities, use its best efforts to register and qualify any of the Registerable
Securities for sale in such states as such Holder reasonably designates,
provided such qualification is not solely for the purpose of subjecting the
Company to jurisdiction in that state or is not unduly burdensome, and do any
and all other acts and things which may be necessary to enable such Holder to
consummate the public sale of the Registerable Securities, and furnish
indemnification in the manner provided in Paragraph 6 hereof. The Holder shall
furnish information reasonably requested by the Company in accordance with such
post-effective amendments or registration statements, including its intentions
with respect thereto, and shall furnish indemnification as set forth in
Paragraph 6. The Company shall continue to advise the Holders of the
Registerable Securities of its intention to file a registration statement or
amendment pursuant to this Paragraph 5(a) until the earlier of (i) , 2003; or
(ii) such time as all of the Registerable Securities have been registered and
sold under the Act.
3
<PAGE> 5
(b) If any fifty-one (51%) percent holder (as defined below)
shall give notice to the Company at any time during the four (4) year period
beginning one (1) year from , 1998 to the effect that such holder desires to
register under the Act any Registerable Securities, under such circumstances
that a public distribution (within the meaning of the Act) of any such
Registerable Securities will be involved, then the Company will as promptly as
practicable after receipt of such notice, but not later than thirty (30) days
after receipt of such notice, file a post effective amendment to the current
Registration Statement or a new registration statement pursuant to the Act to
the end that the Registerable Securities may be publicly sold under the Act as
promptly as practicable thereafter and the Company will use its best efforts to
cause such registration to become and remain effective as provided herein
(including the taking of such steps as are necessary to obtain the removal of
any stop order); provided, that such fifty-one (51%) percent holder shall
furnish the Company with appropriate information in connection therewith as the
Company may reasonably request; and provided, further, that the Company shall
not be required to file such a post effective amendment or registration
statement on more than one occasion at its expense. The Company will maintain
such registration statement or post-effective amendment current under the Act
for a period of at least six (6) months from the effective date thereof. The
Company shall supply prospectuses in order to facilitate the public sale of the
Registerable Securities, use its best efforts to register and qualify any of the
Registerable Securities for sale in such states as such holder reasonably
designates, provided such qualification is not solely for the purpose of
subjecting the Company to jurisdiction in that state or is not unduly
burdensome, and furnish indemnification in the manner provided in Paragraph 6
hereof.
(c) The Holder may, in accordance with Paragraphs 5(a) or (b),
at his or its option, and subject to the limitations set forth in Paragraph 1(a)
hereof, request the registration of any of the Registerable Securities in a
filing made by the Company prior to the acquisition of the Securities upon
exercise of this Underwriter's Warrant. The Holder may thereafter exercise the
Warrants at any time or from time to time subsequent to the effectiveness under
the Act of the registration statement in which the Common Stock underlying the
Underwriter's Warrants and Warrants were included.
(d) The term "51% holder," as used in this Paragraph 5, shall
include any owner or combination of owners of Underwriter's Warrants or
Registerable Securities if the aggregate number of Common Shares and Warrant
Shares included in and underlying the Underwriter's Warrants and Registerable
Securities held of record by it or them, would constitute a majority of the
aggregate of such Common Shares and Warrant Shares.
(e) The following provisions of this Paragraph 5 shall also be
applicable:
(i) Within ten (10) days after receiving any notice
pursuant to Paragraph 5(b), the Company shall give notice to the other Holders
of Underwriter's Warrants or Registerable Securities, advising that the Company
is proceeding with such post-effective amendment or registration and offering to
include therein the Registerable Securities of such other Holders, provided that
they shall furnish the Company with all information in connection therewith as
shall be necessary or appropriate and as the Company shall reasonably request in
writing. Following the effective date of such post-effective amendment or
registration, the Company shall, upon the request of any Holder of Registerable
Securities, forthwith supply such number of prospectuses meeting the
requirements of the Act, as shall be reasonably requested by such Holder. The
Company shall use its best efforts to qualify the Registerable Securities for
sale in such states as the 51% holder shall designate, provided such
qualification is not solely for the purpose of subjecting the Company to
jurisdiction in that state or is not unduly burdensome, at such times as the
registration statement is effective under the Act.
(ii) The Company shall bear the entire cost and
expense of any registration of securities initiated by it under Paragraph 5(a)
hereof notwithstanding that the Registerable Securities subject to this
Underwriter's Warrant may be included in any such registration. The Company
shall also comply with one request for registration made by the 51% holder
pursuant to Paragraph 5(b) hereof at the Company's own expense and without
charge to any holder of the Registerable Securities, and with one request at the
expense of the Holders thereof. Notwithstanding the foregoing, any Holder whose
Registerable Securities are included in any such registration statement pursuant
to this Paragraph 5 shall, however, bear the fees of any counsel retained by him
and any transfer taxes or underwriting discounts or commissions applicable to
the Registerable Securities sold by him pursuant thereto and, in the case of a
4
<PAGE> 6
registration pursuant to Paragraph 5(a) hereof, any additional registration fees
attributable to the registration of such Holder's Registerable Securities.
(iii) If the managing underwriter in any such
underwritten offering shall advise the Company that it declines to include a
portion or all of the Registerable Securities requested by the Holders to be
included in the registration statement, then distribution of all or a specified
portion of the Registerable Securities shall be excluded from such registration
statement (in case of an exclusion as to a portion of such Registerable
Securities, such portion to be allocated among such Holders in proportion to the
respective numbers of Registerable Securities requested to be registered by each
such Holder). In such event the Company shall give the Holder prompt notice of
the number of Registerable Securities excluded. Further, in such event the
Company shall, within six (6) months of the completion of such subsequent
offering, file and use its best efforts to have declared effective, at its sole
expense, a registration statement relating to such excluded securities.
6. Indemnification.
(a) Whenever pursuant to Paragraph 5, a registration statement
relating to any Registerable Securities is filed under the Act, amended or
supplemented, the Company will indemnify and hold harmless each Holder of the
Registerable Securities covered by such registration statement, amendment or
supplement (such holder hereinafter referred to as the "Distributing Holder"),
each person, if any, who controls (within the meaning of the Act) the
Distributing Holder, and each officer, employee, partner or agent of the
Distributing Holder, if the Distributing Holder is a broker or dealer, against
any losses, claims, damages or liabilities, joint or several, to which the
Distributing Holder 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 any such registration statement or any
preliminary prospectus or final prospectus constituting a part thereof or any
amendment or supplement thereto, or arise out of or are based upon the omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading; and will reimburse the Distributing
Holder for any legal or other expenses reasonably incurred by the Distributing
Holder, in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in any such case (i) to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus or said amendment or
supplement in reliance upon and in conformity with written information furnished
by such Distributing Holder, any other Distributing Holder or any such
underwriter for use in the preparation thereof, and (ii) such losses, claims,
damages or liabilities arise out of or are based upon any actual or alleged
untrue statement or omission made in or from any preliminary prospectus, but
corrected in the final prospectus, as amended or supplemented.
(b) Whenever pursuant to Paragraph 5 a registration statement
relating to the Registerable Securities is filed under the Act, or is amended or
supplemented, the Distributing Holder will indemnify and hold harmless the
Company, each of its directors, each of its of officers who have signed said
registration statement and such amendments and supplements thereto, and each
person, if any, who controls the Company (within the meaning of the Act) against
any losses, claims, damages or liabilities 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 or alleged untrue
statement of any material fact contained in any such registration statement or
any preliminary prospectus or final prospectus constituting a part thereof, 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 said registration statement,
said preliminary prospectus, said final prospectus or said amendment or
supplement in reliance upon and in conformity with written information furnished
by such Distributing Holder for use in the preparation thereof; and will
reimburse the Company or any such director, officer or controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action.
5
<PAGE> 7
(c) Promptly after receipt by an indemnified party under this
Paragraph 6 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof; but the
omission to so notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Paragraph 6.
(d) In case any such action is brought against any indemnified
party, and it notifies an 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 with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election to so assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Paragraph 6 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
7. Adjustments of Exercise Price and Number of Securities.
(a) The Warrant Price shall be subject to adjustment from time
to time as follows:
(1) In case the Company shall at any time after the
date hereof pay a dividend in shares of Common Stock or make a distribution in
shares of Common Stock, then upon such dividend or distribution the Warrant
Price in effect immediately prior to such dividend or distribution shall
forthwith be reduced to a price determined by dividing:
(a) an amount equal to the total number of
shares of Common Stock outstanding immediately prior to such dividend or
distribution multiplied by the Warrant Price in effect immediately prior to such
dividend or distribution, by
(b) the total number of shares of Common
Stock outstanding immediately after such issuance or sale.
For the purposes of any computation to be made in accordance with the
provisions of this clause (i), the following provisions shall be applicable:
Common Stock issuable by way of dividend or other distribution on any stock of
the Company shall he deemed to have been issued immediately after the opening of
business on the date following the date fixed for the determination of
stockholders entitled to receive such dividend or other distribution.
(2) In case the Company shall at any time subdivide
or combine the outstanding Common Stock, the Warrant Price shall forthwith be
proportionately decreased in the case of subdivision or increased in the case of
combination to the nearest one cent. Any such adjustment shall become effective
at the time such subdivision or combination shall become effective.
(3) Within a reasonable time after the close of each
quarterly fiscal period of the Company during which the Warrant Price has been
adjusted as herein provided, the Company shall:
(a) Deliver to the Underwriter a
certificate signed by the President or Vice President of the Company and by the
Treasurer or Assistant Treasurer or the Secretary or an Assistant Secretary of
the Company, showing in detail the facts requiring all such adjustments
occurring during such period and the Warrant Price after each such adjustment.
(b) Notwithstanding anything contained
herein to the contrary, no adjustment of the Warrant Price shall be made if the
amount of such adjustment shall be less than $.05, but 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 and together
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with the next subsequent adjustment which, together with any adjustment so
carried forward, shall amount to not less than $.05.
(c) In the event that the number of
outstanding shares of Common Stock is increased by a stock dividend payable in
Common Stock or by a subdivision of the outstanding Common Stock, then, from and
after the time at which the adjusted Warrant Price becomes effective pursuant to
Subsection (b) of this Section by reason of such dividend or subdivision, the
number of shares of Common Stock issuable upon the exercise of each Warrant
shall be increased in proportion to such increase in outstanding shares. In the
event that the number of shares of Common Stock outstanding is decreased by a
combination of the outstanding Common Stock, then, from and after the time at
which the adjusted Warrant Price becomes effective pursuant to Subsection (b) of
this Section by reason of such combination, the number of shares of Common Stock
issuable upon the exercise of each Warrant shall be decreased in proportion to
such decrease in the outstanding shares of Common Stock.
(d) In case of any reorganization or
reclassification of the outstanding Common Stock (other than a change in par
value, or from par value to no par value, or as a result of a subdivision or
combination), or in case of any consolidation of the Company with, or merger of
the Company into, another corporation (other than a consolidation or merger in
which the Company is the continuing corporation and which does not result in any
reclassification of the outstanding Common Stock), 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, the holder of each Warrant then outstanding
shall thereafter have the right to purchase the kind and amount of shares of
Common Stock and/or other securities and property receivable upon such
reorganization, reclassification, consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock which the holder of such Warrant
shall then be entitled to purchase; such adjustments shall apply with respect to
all such changes occurring between the date of this Warrant Agreement and the
date of exercise of such Warrant.
(e) Subject to the provisions of this
Section, in case the Company shall, at any time prior to the exercise of the
Warrants, make any distribution of its assets to holders of its Common Stock as
a liquidating or a partial liquidating dividend, then the holder of Warrants who
exercises his Warrants after the record date for the determination of those
holders of Common Stock entitled to such distribution of assets as a liquidating
or partial liquidating dividend shall be entitled to receive for the Warrant
Price per Warrant, in addition to each share of Common Stock, the amount of such
distribution (or, at the option of the Company, a sum equal to the value of any
such assets at the time of such distribution as determined by the Board of
Directors of the Company in good faith), which would have been payable to such
holder had he been the holder of record of the Common Stock receivable upon
exercise of his Warrant on the record date for the determination of those
entitled to such distribution.
(f) In case of the dissolution, liquidation
or winding-up of the Company, all rights under the Warrants shall terminate on a
date fixed by the Company, such date to be no earlier than ten (10) days prior
to the effectiveness of such dissolution, liquidation or winding-up and not
later than five (5) days prior to such effectiveness. Notice of such termination
of purchase rights shall be given to the last registered holder of the Warrants,
as the same shall appear on the books of the Company maintained by the Warrant
Agent, by registered mail at least thirty (30) days prior to such termination
date.
(g) In case the Company shall, at any time
prior to the expiration of the Warrants and prior to the exercise thereof, offer
to the holders of its Common Stock any rights to subscribe for additional shares
of any class of the Company, then the Company shall give written notice thereof
to the last registered holder thereof not less than thirty (30) days prior to
the date on which the books of the Company are closed or a record date is fixed
for the determination of the stockholders entitled to such subscription rights.
Such notice shall specify the date as to which the books shall be closed or
record date fixed with respect to such offer of subscription and the right of
the holder thereof to participate in such offer of subscription shall terminate
if the Warrant shall not be exercised on or before the date of such closing of
the books or such record date.
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<PAGE> 9
(h) Any adjustment pursuant to the
aforesaid provisions shall be made on the basis of the number of shares of
Common Stock which the holder thereof would have been entitled to acquire by the
exercise of the Warrant immediately prior to the event giving rise to such
adjustment.
(i) Irrespective of any adjustments in the
Warrant Price or the number or kind of shares purchasable upon exercise of the
Warrants, Warrants previously or thereafter issued may continue to express the
same price and number and kind of shares as are stated in the similar Warrants
initially issuable pursuant to this Warrant Agreement.
(j) The Company may retain a firm of
independent public accountants (who may be any such firm regularly employed by
the Company) to make any computation required under this Section, and any
certificate setting forth such computation signed by such firm shall be
conclusive evidence of the correctness of any computation made under this
Section.
(k) If at any time, as a result of an
adjustment made pursuant to paragraph (d) above, the holders of a Warrant or
Warrants shall become entitled to purchase any securities other than shares of
Common Stock, thereafter the number of such securities so purchasable upon
exercise of each Warrant and the Warrant Price for such shares shall be subject
to adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
paragraphs (b) and (c).
(l) No adjustment to the Warrant Price or
to the number of shares of Common Stock purchasable upon the exercise of such
Warrants will be made, however under the following circumstances:
(i) upon the grant or exercise of any
of the options presently outstanding (or options which may hereafter be granted
and/or exercised) under the Company's Stock Option Plan for officers, directors
and/or employees, consultants and similar situated parties of the Company; or
(ii) upon the sale or exercise of the
Warrants issued to the public pursuant to the ________ __, 1998 Prospectus; or
(iii) upon exercise of this Warrant; or
(iv) upon exercise or sale of the
Warrants issuable upon exercise of the Underwriter's Warrant; or
(v) upon any amendment to or change
in the term of any rights or warrants to subscribe for or purchase, or options
for the purchase of Common Stock or convertible securities, including, but not
limited to, any extension of any expiration date of any such right, warrant or
option, any change in any exercise or purchase price provided for in any such
right, warrant or option, any extension of any date through which any
convertible securities are convertible into or exchangeable for Common Stock or
any change in the rate at which any convertible securities are convertible into
or exchangeable for Common Stock (other than rights, warrants, options or
convertible securities issued or sold after the close of business on the date of
the original issue of the Common Stock, (i) for presently outstanding
securities, or (ii) for which an adjustment in the Warrant Price then in effect
was theretofore made or required to be made, upon issuance or sale thereof).
8. Fractional Shares.
(a) The Company shall not be required to issue fractions of
shares of Common Shares on the exercise of the Warrants subject to this
Underwriter's Warrant. The Company shall not be obligated to issue any
fractional share interests or fractional warrant interests upon the exercise of
any Warrant or Warrants, nor shall it be obligated to issue scrip or pay cash in
lieu of fractional interests, provided, however, that if a holder exercises all
the
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<PAGE> 10
Warrants held of record by such holder, the fractional interests shall be
eliminated by rounding any fraction up to the nearest whole number of shares.
(b) The Holder of this Underwriter's Warrant, by acceptance
hereof, expressly waives his right to receive any fractional share of Common
Stock upon exercise of the Warrants subject to this Underwriter's Warrant.
9. Redemption of Warrants underlying the Underwriter's Warrant.
The Warrants underlying the Underwriter's Warrant shall not be subject
to redemption by the Company until they have been exercised and the underlying
Warrants are outstanding.
10. Miscellaneous.
(a) This Underwriter's Warrant shall be governed by and in
accordance with the laws of the State of New York.
(b) All notices, requests, consents and other communications
hereunder shall be made in writing and shall be deemed to have been duly made
when delivered, or mailed by registered or certified mail, return receipt
requested: (i) if to a Holder, to the address of such Holder as shown on the
books of the Company, or (ii) if to the Company, 13710 Ramona Avenue, Chino, CA
91710.
(c) The Company and the Underwriter may from time to time
supplement or amend this Underwriter's Warrant without the approval of any other
Holders in order to cure any ambiguity, to correct or supplement any provision
contained herein which may be defective or inconsistent with any provisions
herein, or to make any other provisions in regard to matters or questions
arising hereunder which the Company and the Underwriter may deem necessary or
desirable and which the Company and the Underwriter deem not to adversely affect
the interest of the Holders.
(d) All the covenants and provisions of this Underwriter's
Warrant by or for the benefit of the Company and the Holders inure to the
benefit of their respective successors and assigns hereunder.
(e) Nothing in this Underwriter's Warrant shall be construed
to give to any person or corporation other than the Company and the Underwriter
and any other registered Holder or Holders, any legal or equitable right and
that any such right is for the sole and exclusive benefit of the Company and the
Underwriter and any other Holder or Holders.
(f) This Underwriter's Warrant may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and such counterparts shall together constitute but one and
the same instrument.
IN WITNESS WHEREOF, Luminex Lighting, Inc. has caused this
Underwriter's Warrant to be signed by its duly authorized officer and dated
____________ __, 1998.
LUMINEX LIGHTING, INC.
By:___________________________
Wasif Siddiqui, President
Its: President
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PURCHASE FORM
(To be signed only upon exercise of the Underwriter's Warrant)
The undersigned, the Holder of the foregoing Underwriter's Warrant,
hereby irrevocably elects to exercise the purchase rights represented by such
Underwriter's Warrant for, and to purchase thereunder, ________ shares of Common
Stock and/or ___ Warrants of Luminex Lighting, Inc. and herewith makes payment
of $______ thereof, and requests that the certificates for Common Stock/or
Warrants be issued in the name(s) of, and delivered to ____________ whose
address(es) is (are) ___________________________
Dated: __________________
- -------------------------
- -------------------------
Address
<PAGE> 12
TRANSFER FORM
(To be signed only upon transfer of the Underwriter's Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto _______________________ the right to purchase shares of Common
Stock and/or Warrants of Luminex Lighting, Inc. represented by the foregoing
Underwriter's Warrant to the extent of _____________ shares of Common Stock
and/or ____ Warrants, and appoints ______________, attorney to transfer such
rights on the books of Luminex Lighting, Inc., with full power of substitution
in the premises.
Dated:__________________
- ------------------------
(name of holder)
- ------------------------
Address
- ------------------------
In the presence of:
- ------------------------
- ------------------------
<PAGE> 1
EXHIBIT 23.1
CONSENT OF STONEFIELD JOSEPHSON, INC.
CERTIFIED PUBLIC ACCOUNTANTS
<PAGE> 2
CONSENT OF STONEFIELD JOSEPHSON, INC.
CERTIFIED PUBLIC ACCOUNTANTS
The undersigned independent certified public accounting firm hereby
consents to the inclusion of its report on the financial statements of Luminex
Lighting, Inc. for the year ending December 31, 1996 and year ending December
31, 1997, and to the reference to it as experts in accounting and auditing
relating to said financial statements, in the Registration Statement for Luminex
Lighting, Inc.
/s/ Stonefield Josephson, Inc.
- --------------------------------------------
STONEFIELD JOSEPHSON, INC.
Certified Public Accountants
Santa Monica, California
Dated: November 9, 1998
