As filed with the Securities and Exchange Commission on September 19, 1997
Registration No. 333-32963
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT No. 1
to
FORM SB-2
REGISTRATION STATEMENT
under the
SECURITIES ACT OF 1933
WESTOWER CORPORATION
(Name of small business issuer in its charter)
Washington 1623 91-1825860
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization)Classification Code Number) Identification Number)
Westower Corporation
7001 NE 40th Avenue
Vancouver, Washington 98661
(360) 750-9355
(Address and telephone number of principal
executive offices and principal place of business)
Calvin J. Payne
Westower Corporation
7001 NE 40th Avenue
Vancouver, Washington 98661
(360) 750-9355
(Name, address and telephone number of agent for service)
Copies of all communications to:
Thomas W. Hughes, Esq.
Maurice J. Bates, Esq. Lisa N. Tyson, Esq.
Maurice J. Bates L.L.C. Winstead Sechrest & Minick P.C.
8214 Westchester Drive, Suite 500 1201 Elm Street, Suite 5400
Dallas, Texas 75225 Dallas, Texas 75201
(214) 692-3566 (214) 745-5201
(214) 987-2091 FAX (214) 745-5390 FAX
Approximate date of proposed sale to public: As soon as practicable
after the effective date of the Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
The Registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Westower Corporation
Showing Locations in Prospectus of Required Information
Form SB-2 Item and Caption Location in Prospectus
1. Front of Registration Statement
and Outside Front Cover of Prospectus
Cover of Prospectus Outside Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus Inside Front and Outside Back Cover
Pages;
3. Summary Information and
Risk Factors Prospectus Summary; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Outside Front Cover Page; Underwriting
6. Dilution Dilution
7. Selling Security Holders Principal and Selling Shareholders
8. Plan of Distribution Outside Front Cover Page; Underwriting
9. Legal Proceedings Business
10. Directors, Executive Officers,
Promoters and Control Persons Management
11. Security Ownership of Certain
BeneficialOwners and Management Principal and Selling Shareholders
12. Description of Securities Description of Securities
13. Interest of Named Experts
and Counsel Legal Matters; Experts
14. Disclosure of Commission
Position on Indemnification for
Securities Act Liabilities Underwriting
15. Organization Within Last 5 Years *
16. Description of Business Business
17. Management's Discussion and
Analysis or Plan of Operation Management's Discussion and Analysis
or Plan of Operation
18. Description of Property Business
19. Certain Relationships and
Related Transactions Certain Relationships and Related
Transactions
20. Market for Common Equity
and Related Stockholder Matters Risk Factors; Description of
Securities; Shares Eligible for Future
Sale
21. Executive Compensation Management
22. Financial Statements Financial Statements
23. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure *
24. Imdemnification of Directors
and Officers Management
- ------------
* Not Applicable
<PAGE>
SUBJECT TO COMPLETION, DATED September 19, 1997
PROSPECTUS
Westower Corporation
1,000,000 Units
Consisting of 1,000,000 Shares of Common Stock and
1,000,000 Redeemable Common Stock Purchase Warrants
Westower Corporation (the "Company") is hereby offering 1,000,000
Units, each unit (the "Unit") consisting of one share (the "Shares") of Common
Stock, $0.01 par value (the " Common Stock"), and one Redeemable Common Stock
Purchase Warrant (the "Warrants"). The Units, the Shares and the Warrants
offered hereby are referred to collectively as the "Securities." The Shares and
Warrants included in the Units may not be separately traded until ,1998 [six
months after the date of this Prospectus], unless earlier separated upon three
days' prior written notice from Tejas Securities Group, Inc. (the
"Representative") to the Company. Each Warrant entitles the holder thereof to
purchase one share of Common Stock at an exercise price of $9.00 per share,
commencing at any time after the Common Stock and Warrants become separately
tradable and until ,2002 [five years from the date of this Prospectus].
Commencing on [six months from the date of this Prospectus], the Warrants are
subject to redemption by the Company at $0.05 per Warrant at any time on thirty
days prior written notice, provided that the closing price quotation for the
Common Stock has equalled or exceeded $15.00 for ten consecutive trading days.
The Warrant exercise price is subject to adjustment under certain circumstances.
See "Description of Securities."
Prior to this offering, there has been no public market for the
Securities, and there can be no assurance that an active market will develop. It
is currently anticipated that the initial public offering price of the Units
will be $7.50 per Unit. See "Underwriting" for information relating to the
factors considered in determining the initial public offering price. The Company
has applied to list the Units, Common Stock and Warrants on the American Stock
Exchange under the symbols "WTCU" ,"WTC" and "WTCW", respectively. There can be
no assurance that the application for listing on the American Stock Exchange
will be approved.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE SECTION ENTITLED "RISK
FACTORS" BEGINNING ON PAGE 6 HEREOF CONCERNING THE COMPANY AND THIS OFFERING.
PROSPECTIVE INVESTORS SHOULD ALSO CONSIDER THE FACT THAT THEIR INVESTMENT WILL
RESULT IN IMMEDIATE SUBSTANTIAL DILUTION. SEE "DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIESAND
EXCHANGE COMMISSION NOR HAS THECOMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
Per Unit............................ $7.50 $0.75 $6.75
Total (2)(3).......................$7,500,000 $750,000 $6,750,000
(1) In addition, the Company has agreed to pay the Representative, a 2.00%
nonaccountable expense allowance and to sell to the Representative warrants
exerciseable for four years commencing one year from the date of this
Prospectus to purchase 100,000 Units at 120% of the public offering price
(the "Underwriters' Warrants"). The Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933 , as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting estimated expenses of $500,000 payable by the Company,
including the Representative's 2.00% nonaccountable expense allowance.
(3) Certain shareholders (the "Selling Shareholders") have granted to the
Underwriters an option, exercisable within 45 days from the date of this
Prospectus, to purchase up to 150,000 Units, on the same terms set forth
above, solely for the purpose of covering over-allotments, if any. The
Shares included in the Units which are subject to the over-allotment option
will be purchased from the Selling Shareholders, and the Company will not
receive any proceeds from the sale of such Shares. The Warrants included in
the Units which are subject to the over-allotment option will be issued by
the Company. If the over-allotment option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions, Proceeds to
Company and Proceeds to Selling Shareholders will be $8,625,000, $862,500,
$6,750,000 and $1,012,500. See "Principal and Selling Shareholders" and
"Underwriting."
The Securities are being offered, subject to prior sale, when, as and
if delivered to and accepted by the Underwriters and subject to approval of
certain legal matters by counsel and subject to certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify the offering
without notice and to reject any order, in whole or in part. It is expected that
delivery of Common Stock and Warrant certificates will be made against payment
therefor at the offices of the Representative in Austin, Texas on or about ,
1997.
Tejas Securities Group, Inc.
The date of this Prospectus is , 1997.
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation an offer to buy nor shall there be any sale of these securities in
any state in which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such state.
<PAGE>
ADDITIONAL INFORMATION
The Company has not previously been subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2, (including any amendments
thereto, the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act") with respect to the Securities offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Securities, reference is made to
the Registration Statement and the exhibits and schedules thereto. Statements
made in this Prospectus regarding the contents of any contract or document filed
as an exhibit to the Registration Statement are not necessarily complete and, in
each instance, reference is hereby made to the copy of such contract or document
so filed. Each such statement is qualified in its entirety by such reference.
The Registration Statement and the exhibits and the schedules thereto filed with
the Commission may be inspected, without charge, at the office of the Commission
at Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C. 20549. Copies of such
materials may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, NW, Washington, D.C. 20549, at prescribed rates.
The Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the Commission at http://www.se_Hlt386015968c_Hlt386015968.gov.
As a result of this offering, the Company will become subject to the
reporting requirements of the Exchange Act, and in accordance therewith will
file periodic reports, proxy statements and other information with the
Commission. The Company will furnish its shareholders with annual reports
containing audited consolidated financial statements certified by independent
public accountants following the end of each fiscal year, proxy statements and
quarterly reports containing unaudited consolidated financial information for
the first three quarters of each fiscal year following the end of such fiscal
quarter.
The Company has applied to list the Securities on the American Stock
Exchange. If the Company's application is accepted, then reports, proxy
statements and other information concerning the Company will be available for
inspection at the principal office of the American Stock Exchange at 86 Trinity
Place, New York, New York, 10006. There is no assurance the Securities will be
accepted for listing.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements (including notes thereto)
appearing elsewhere in this Prospectus. Unless otherwise indicated, the
information herein is presented on the basis that the over-allotment option and
the Underwriters' Warrants are not exercised. The Securities offered hereby
involve a high degree of risk. Investors should carefully consider the
information set forth under "Risk Factors."
The Company
Westower Corporation ("Westower" or the "Company") was incorporated in
Washington state in June 1997 for the purpose of acquiring Westower Holdings
Ltd., a Wyoming corporation ("Holdings") which owns all of the outstanding stock
of Westower Communications Ltd., a British Columbia Canada corporation and
Westower Communications Inc., a Washington corporation. Westower and its
wholly-owned subsidiaries are collectively referred to herein as the "Company."
The Company designs, builds and maintains wireless communications
transmitting and receiving facilities for providers of wireless communication
services, including U. S. Cellular, Western Wireless, Cantel, AT&T, Sprint PCS
and Microcell. These facilities are presently constructed for use with
microwave, cellular telephone, pager, and specialized mobile radio technologies.
Although bids for the installation or modification of communications facilities
are normally requested on a fixed price basis, the Company will, if requested,
provide such services on a time and materials basis. A contract for the
installation of cellular transmitting and receiving facilities may require the
Company to develop the location, including roads and grading, to install the
tower antennas and lines, assemble electronic components and test the
installation's equipment. In such instances, the Company subcontracts road or
concrete work required under the contract, performing the balance of the work
with its own employees. The service provider supplies most of the material used
in the installation process, and the Company's major cost is the cost of its
employees and subcontracted labor. Demand for the Company's services often
exceeds its ability to supply those services, and in such situations the Company
subcontracts with smaller enterprises to provide work normally performed by the
Company. Subcontracting permits the Company to evaluate the subcontractor's
quality and review the subcontractor as a potential candidate for acquisition.
The Company commenced business in 1990 as Westower Communications Ltd.
and emphasized design, construction, maintenance and modification of microwave
and cellular towers for telephone, broadcast and utility companies. The Company
continues these activities, but with the advent of cellular telephones and
personal communication systems ("PCS"), now designs and installs rooftop and
other transmission and receiving facilities. A portion of the Company's revenues
is still derived from installation of microwave facilities and the installation
of related electronic equipment. However, the rapid growth of the use of
cellular telephones has resulted in the installation of cellular transmitting
and receiving facilities being an increasingly significant component of
revenues. The Company is also a partner in a limited partnership which owns
communication towers which are leased to a telephone company.
The Company's strategy will be to capitalize on the demand for wireless
infrastructure building and implementation services by continuing to expand its
workforce and geographic presence in the marketplace. To accomplish these
objectives, the Company intends to (i) continue its geographic expansion by
opening new regional offices when demand for the Company's services or
acquisition opportunities make such expansion feasible, (ii) continue to enhance
its indigenous new employee hiring, training and retention programs as a method
for attracting, training and retaining new, highly skilled workers, and (iii)
continue to seek to acquire other companies engaged in the wireless
infrastructure building and implementation services and wireless infrastructure
electrical design and engineering services businesses that have good reputations
for quality service and highly skilled workers.
The Company's principal operations are in Washington, Oregon, Idaho,
British Columbia, Alberta, and Canada's Northern Territories. The Company's
headquarters are located at 7001 NE 40 Avenue, Vancouver, Washington 98661. The
telephone number at that location is (360) 750-9355, and its fax number is (360)
750-9354.
3
<PAGE>
The Offering
Securities offered hereby...............1,000,000 Units, each Unit consisting of
one share of Common Stock and one
Warrant, each Warrant entitling the
holder to purchase one share of Common
Stock at a price of $ 9.00 per share
until _______ , 2002 [5 years after the
date of this Prospectus]. See
"Description of Securities."
Description of the Warrants............ The Warrants
are not immediately exercisable and are
not transferable separately from the
Shares until _______, 1998 [six months
after the date of this Prospectus]. The
Warrants are redeemable by the Company
at $0.05 per Warrant under certain
conditions. See "Description of
Securities."
Common Stock to be outstanding
after the Offering....................4,000,000 shares (1)(2)
Warrants to be outstanding
after the Offering...................1,000,000 Warrants (2)(3)
Use of Proceeds.........................
Acquisitions, working capital and other
general corporate purposes. See "Use of
Proceeds."
Risk Factors............................ The
Securities offered hereby are
speculative and involve a high degree of
risk and should not be purchased by
investors who cannot afford the loss of
their entire investment. See "Risk
Factors."
Proposed American Stock Exchange Symbols
Units............................... "WTC.U"
Common Stock........................ "WTC"
Warrants............................ "WTC.WS"
- ---------------------
(1) Does not include 400,000 shares of Common Stock reserved for issuance under
the Company's 1997 Stock Option Plan (the "Stock Option Plan"). To date
156,000 options have been granted under the Stock Option Plan, none of
which are immediately exercisable. See "Management - Stock Option Plan."
(2) Does not include an aggregate of up to 1,350,000 shares issuable upon
exercise of (i) the Warrants, (ii) the over-allotment option and (iii) the
Underwriters' Warrants.
(3) Does not include up to 150,000 Warrants issuable upon exercise of the
over-allotment option or the 100,000 Warrants underlying the Underwriters'
Warrants.
4
<PAGE>
Selected Financial Information
The following selected financial data has been derived from the audited
balance sheet of the Company as of February 28, 1997, audited income statements
for the two years ended February 28, 1997 and unaudited financial statements for
the three months ended May 31, 1997 and 1996. This selected financial data
should be read in conjunction with the financial statements of the Company and
the related notes thereto included elsewhere in this Prospectus. See "Financial
Statements."
Year Ended February 28, Three Months Ended
1996 1997 May 31, 1996 May 31, 1997
---- ---- ------------ ------------
Operating Data:
Construction revenues $ 5,191,314 $11,637,141 $ 1,881,332 $ 3,288,173
Costs of construction 3,937,045 8,633,423 1,361,943 2,385,913
General and administrative (1) 915,259 1,879,004 412,567 325,923
----------- ----------- ----------- -----------
Earnings before income tax 339,010 1,124,714 106,822 576,337
Income tax 93,055 422,349 37,000 219,000
----------- ----------- ----------- -----------
Net income $ 245,955 $ 702,365 $ 69,822 $ 357,337
Earnings per share $ 0.08 $ 0.23 $ 0.02 $ 0.12
Balance Sheet Data:
February 28, May 31, May 31,
1997 1997 1997
(unaudited) As Adjusted (3)
Working capital $ (122,362) $ 133,781 $ 5,828,308
Current assets 2,442,889 3,718,892 9,413,419
Current liabilities 2,565,251 3,585,111 3,585,111
Total assets 3,989,871 5,410,663 11,105,190
Total liabilities 3,286,607 4,320,237 3,764,764
Shareholders equity 703,264 1,090,426 7,340,426
Shares outstanding 3,000,000 3,000,000 4,000,000
- -------
(1) Earnings before management bonuses are disclosed because such bonuses
Included in general and administrative expenses are management bonuses of
$117,530 in 1996 and $756,293 in 1997 which were primarily determined for
income tax planning purposes associated with private companies and are not
indicative of future operations.
(2) Assumes retroactive effect to the Company's issue of 3,000,000 shares and
does not include 400,000 shares of Common Stock reserved for issuance under
the Company's Stock Option Plan. To date 156,000 options have been granted
Under the Stock Option Plan, none of which are immediately exercisable. See
"Management Stock Option Plan."
(3) Adjusted to reflect the sale of the Units offered by this prospectus at an
assumed offering price of $7.50 per Unit and application of the net
proceeds of $6,250,000.
5
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. PROSPECTIVE INVESTORS SHOULD CONSIDER THE FOLLOWING FACTORS IN ADDITION TO
THE OTHER INFORMATION SET FORTH IN THE PROSPECTUS BEFORE PURCHASING
THE SECURITIES OFFERED HEREBY.
Dependence On The Wireless Communications Industry
The Company is dependent on the continued growth, viability and
financial stability of its customers, which are in turn substantially dependent
on the continued growth, viability and financial stability of the wireless
communications industry. The wireless communications industry is highly
competitive and has been characterized by rapid technological and regulatory
change. Examples of recent technological changes include the advent or continued
rapid development of new or enhanced wireless communications technologies such
as PCS, Enhanced Specialized Mobile Radio and satellite-based wireless
communications technologies. These technological changes could reduce, delay or
make unnecessary the expansion or construction of new wireless communications
networks, which in turn could render the Company's products and services
obsolete or noncompetitive or otherwise reduce the demand for such products and
services. An example of regulatory changes affecting the industry include the
enactment of the Telecommunications Act of 1996 which is expected to cause
significant changes in existing regulation of the telecommunications industry
that are intended to promote the competitive development of new services, to
expand public availability of telecommunications services and to streamline
regulation of the industry. In addition, many of the Company's customers are
affected by general economic conditions. Any downturn or other disruption of the
wireless communications industry caused by adverse competitive developments,
technological changes, government regulation or other factors would have a
material adverse affect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Dependence Upon Key Personnel
The business of the Company is substantially dependent on the efforts of
Calvin J. Payne, its President and Chief Executive Officer, and S. Roy Jeffrey,
its Chief Operating Officer. The Company does not have an employment contract
with Mr. Payne or Mr. Jeffrey and the loss of either would have a material
adverse effect on the Company's operations. Although the Company intends to
obtain key-man insurance in the face amount of $3,000,000 on the lives of Mr.
Payne and Mr. Jeffrey, there can be no assurance that it will be able to obtain
such insurance or that such amount will be sufficient to compensate the Company
for the loss of either individual's services. See "Management."
Acquisitions
The Company plans to grow through acquisitions. The success of this
strategy is strongly affected by personnel in the acquired organization
satisfactorily continuing employment with the Company after the acquisition. The
Company plans to utilize employment agreements in connection with acquisitions.
However, there can be no assurance that employees of an acquired enterprise will
remain with the Company or perform satisfactorily as employees of the Company.
At present, the Company is not engaged in the negotiation of any such
acquisitions and there is no assurance and no representation is made that the
Company will be successful in the negotiations of any acquisitions and, if so,
on terms that will be beneficial to the Company.
Employee Turnover
Employees of the Company travel extensively away from home. In
addition, the industry's work requires long hours and often requires working at
heights. These aspects of the industry's work environment contribute to a high
rate of employee turnover, particularly with inexperienced employees. The
Company is developing training programs and additional hiring procedures to
reduce employee turnover. Part of the Company's acquisition program is to
acquire similar businesses and retain their experienced work force that is
familiar with the nature of the industry's work environment. See "Business -
Employees."
6
<PAGE>
Mobile Communications Health Risk
Recently, certain consumers have alleged that serious health risks have
resulted from the use of portable mobile communications devices. Motorola and
other equipment manufacturers have made public announcements indicating their
belief that no health risks exist from using mobile communications devices and
Motorola has made public certain internal company studies supporting this
position. In addition, there has been recent litigation involving
electromagnetic radiation. However, there has been no convincing evidence to
support the contention that exposure to electromagnetic fields causes
demonstrable health risks. The actual or perceived health risk of mobile
communications devices could adversely affect mobile communications service
providers through reduced subscriber growth rate and reduced network usage per
subscriber, thus reducing the need for the Company's services.
Siting Moratoria
Some local and state regulators have opposed the construction of new
antenna sites citing alleged health risks associated with radio frequency,
aesthetics, or other reasons. Furthermore, some property owners have refused the
installation of antennas on their property because of the potential reaction of
tenants to alleged health risks. Industry sources estimate there are currently
200 proposed antenna sites which are delayed due to local or state moratoria or
delays. The Federal Communications Commission ("FCC") is expected to propose
guidelines in this regard. However, there is no assurance any FCC guidelines
will be effective in removing moratoria or eliminating delays. The moratoria and
delays could adversely affect wireless communication providers which would also
adversely affect the Company's growth.
Competition
Historically, the industry for wireless infrastructure building and
implementation services has been highly competitive but also highly fragmented.
As such, most participants in this industry have been relatively small firms of
three to fifty employees. However, the Company has also faced competition in the
market for wireless infrastructure building and implementation services from
wireless communications equipment manufacturers which provide such services in
conjunction with the sale of wireless communications equipment. While the
industry continues to be comprised predominately of these smaller firms, over
the past two years, the increased demand for wireless infrastructure building
and implementation services has motivated other competitors to enter the market.
These new competitors include, but are not limited to, traditional, non-wireless
engineering and construction companies and non-wireless subcontractors who have
begun to enter the market either alone or in conjunction with wireless equipment
manufacturers. In addition, the Company faces competition in the market for
wireless infrastructure electrical design and engineering services from
stand-alone electrical engineering and design firms, other providers of wireless
infrastructure building and implementation services and wireless communications
equipment manufacturers. Many of these new competitors as well as many of the
Company's historical competitors have significantly greater financial and other
resources than the Company. As demand for wireless infrastructure building and
implementation services increases, the Company expects that more non-traditional
competitors will enter the market and provide increased competition to the
Company. See "Business - Competitive Environment."
Government Regulation
The wireless communications industry is subject to regulation by state
regulatory agencies, the FCC, the Canadian Radio and Telecommunications
Commission, Congress, the courts and other governmental bodies. There can be no
assurance that any of these governmental bodies will not adopt or change
regulations or take other actions that would adversely affect the wireless
communications industry and the Company's business, financial condition and
results of operations.
In addition, the Federal Telecommunications Act of 1996 is expected to
cause significant changes in existing regulation of the telecommunications
industry that are intended to promote the competitive development of new
services, to expand public availability of telecommunications services and to
streamline regulation of the industry. These changes include requirements that
local exchange carriers must: (i) permit other competitive carriers, which may
include many wireless communications service providers, to interconnect to their
networks; (ii) establish reciprocal compensation agreements with competitive
carriers to terminate traffic on each other's networks and (iii) offer resale of
their local loop facilities. The implementation of these requirements by the FCC
and state authorities potentially involves numerous changes in established rules
and policies that could adversely affect the wireless communications industry
and the Company's business, financial condition and results of operations.
7
<PAGE>
In addition, the construction and installation of wireless transmitting
and receiving facilities are often subject of state or local zoning, land use
and other regulation. Such regulation may include zoning, environmental and
building permit approvals or other state or local certification. The
Telecommunications Act of 1996 provides that state and local authority over the
placement, construction and modification of personal wireless services
(including cellular, and other cellular mobile radio services ("CMRS") and
unlicensed wireless services) shall not prohibit or have the effect of
prohibiting personal wireless services or unreasonably discriminate among
providers of functionally equivalent services. Although state and local zoning
authorities retain their rights over land use, their actions cannot have the
effect of banning wireless services or discriminating among similar wireless
providers.
Changing Technology
Wireless telecommunications generally, and cellular telephone services
and personal communications systems in particular, are relatively new
technologies. Presently cellular telephones are predominately based on analog
technologies. Management expects a transition to digital cellular telephone
technologies will continue to be implemented in the near future. The Company
constructs facilities used in wireless communications, regardless of the
technology implemented, and plans to construct facilities for use in wireless
communications regardless of which new technology emerges. However, there can be
no assurance that the Company will adapt in the future as it has in the past to
new technologies, that any new technology will require the services of the
Company, or that any new technology will not reduce or adversely modify the
services that the Company is able to provide. In addition, new technologies may
require different disciplines or skills than those presently possessed by
existing employees and the costs and delay incurred in training or hiring new
employees may have a material adverse effect on the operations of the Company.
Transactions with Affiliates
The Company regularly purchases goods and services from Western Telecom
Construction Ltd. ("WTCL") , a corporation owned and controlled by the brother
of one of the Company's directors. The Company also regularly sells goods and
services to WTCL. Purchases amounted to $1,822,326, $805,143 and $153,949 in
fiscal years 1997, 1996 and 1995, respectively. Sales amounted to $554,181,
$856,003 and $556,575 in fiscal years 1997, 1996 and 1995 respectively. The
Company also paid $93,500 of consulting fees in fiscal year 1997 to Westower
Consulting Ltd., a corporation owned and controlled by a director and principal
shareholder of the Company. The Company does not expect to pay these consulting
fees in the future. While management believes that the transactions with WTCL
are at prices believed to be reasonable and fair, such transactions could give
rise to preferential treatment. The Company anticipates that transactions with
WTCL will continue, but that in the future, all such transactions will be
approved by the disinterested directors of the Company's Board. See "Certain
Relationships and Related Transactions."
Business Concentration
The Company's customers are concentrated in the wireless communications
industry. Sales to 12 major customers approximated 73% and 84% of total sales
for the 1996 and 1997 fiscal years, respectively. The Company expects that sales
to relatively few customers will continue to account for a high percentage of
its net sales in the foreseeable future and believes that its financial results
will depend, in significant part, upon the success of these few customers.
Although the composition of the group comprising the Company's largest customers
may vary from period to period, the loss of a significant customer or any
reduction in orders by any significant customers, including reductions due to
market, economic or competitive conditions in the wireless communications
industry, may have a material adverse effect on the Company's business,
financial condition and results of operations.
Absence of Prior Public Market - American Stock Exchange Listing
Prior to this offering, there has been no public market for the Common
Stock or the Warrants. The Company has applied to have the Securities listed on
the American Stock Exchange. Such listing, if granted, does not imply that a
meaningful, sustained market for the Common Stock or Warrants will develop.
There can be no assurance that an active trading market for the Units, Common
Stock or Warrants offered hereby will develop or, if it should develop, will
continue. There is no assurance the Company's Securities will be approved for
listing.
Risk of Redemption of Warrants
Commencing six months from the date of this Prospectus, the Company may
redeem the Warrants for $.05 per Warrant, provided that the closing sale price
of the Common Stock on the American Stock Exchange has been at least $15.00 for
ten consecutive trading days ending within fifteen days of the notice of
8
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redemption. Notice of redemption of the Warrants could force the holders
thereof: (i) to exercise the Warrants and pay the exercise price at a time when
it may be disadvantageous or difficult for the holders to do so, (ii) to sell
the Warrants at the current market price when they might otherwise wish to hold
the Warrants, or (iii) to accept the redemption price, which is likely to be
less than the market value of the Warrants at the time of the redemption. See
"Description of Securities - Warrants."
Investors May Be Unable to Exercise Warrants
For the life of the Warrants, the Company will use its best efforts to
maintain a current effective registration statement with the Commission relating
to the shares of Common Stock issuable upon exercise of the Warrants. If the
Company is unable to maintain a current registration statement the Warrant
holders would be unable to exercise the Warrants and the Warrants may become
valueless. Although the Underwriters have agreed to not knowingly sell the
Warrants in any jurisdiction in which the shares of Common Stock issuable upon
exercise of the Warrants are not registered, exempt from registration or
otherwise qualified, a purchaser of the Warrants may relocate to a jurisdiction
in which the shares of Common Stock underlying the Warrants are not so
registered or qualified. In addition, a purchaser of the Warrants in the open
market may reside in a jurisdiction in which the shares of Common Stock
underlying the Warrants are not registered, exempt or qualified. If the Company
is unable or chooses not to register or qualify or maintain the registration or
qualification of the shares of Common Stock underlying the Warrants for sale in
all of the states in which the Warrantholders reside, the Company would not
permit such Warrants to be exercised and Warrant holders in those states may
have no choice but to either sell their Warrants or let them expire. Prospective
investors and other interested persons who wish to know whether or not shares of
Common Stock may be issued upon the exercise of Warrants by Warrant holders in a
particular state should consult with the securities department of the state in
question or send a written inquiry to the Company.
See "Description of Securities - Warrants."
Arbitrary Determination of Offering Price
The public offering price for the Units offered hereby was determined
by negotiation between the Company and the Representative, and should not be
assumed to bear any relationship to the Company's asset value, net worth or
other generally accepted criteria of value. Recent history relating to the
market prices of newly public companies indicates that the market price of the
Securities following this offering may be highly volatile. See "Underwriting."
Immediate Substantial Dilution
The Company's current shareholders acquired their shares of Common
Stock at a cost substantially below the price at which such shares are being
offered in this offering. In addition, the initial public offering price of the
shares of Common Stock included in the Units being offered in this offering will
be substantially higher than the current book value per share of Common Stock.
Consequently, investors purchasing shares of Common Stock included in the Units
being offered in this offering will incur an immediate and substantial dilution
of their investment insofar as it relates to the resulting book value of Common
Stock after completion of this offering. See "Dilution."
Payment of Dividends
The Company has never paid cash dividends on the Common Stock, and does
not anticipate that it will pay cash dividends in the foreseeable future. The
payment of dividends by the Company will depend on its earnings, financial
condition and such other factors as the Board of Directors of the Company may
consider relevant. The Company currently plans to retain any earnings to provide
for the development and growth of the Company. See "Dividend Policy."
Shares Eligible for Future Sale
Upon completion of this offering, the Company's current shareholders
will own 3,000,000 shares of Common Stock, which will represent 75.0% of the
then issued and outstanding shares of Common Stock (71.3% if the over-allotment
option is exercised in full). 3,000,000 of such restricted securities have been
held for more than two years and will be eligible for resale under Rule 144
under the Securities Act of 1933, as amended (the "Securities Act"), subject to
volume limitations, beginning 90 days after the date of this Prospectus
(2,850,000 if the over-allotment option is exercised in full). Sales of
significant amounts of Common Stock by current shareholders in the public market
after this offering could adversely affect the market price of the Common Stock.
See "Shares Eligible for Future Sale" and "Principal and Selling Shareholders."
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Use of Proceeds for Unspecified Acquisitions
The Company intends to utilize substantially all of the net proceeds of
this offering for the purpose of acquisitions, joint ventures and other similar
business opportunities. Under Washington law, transactions of this nature do not
require shareholder approval except when accomplished through a merger or
consolidation. Accordingly, purchasers in this offering will necessarily rely to
a large degree upon the judgment of management of the Company in the utilization
of the net proceeds of this offering. The Company does not now have any
agreements or commitments with respect to any specific transactions, and
management has not established specific criteria to be used in making the
determination as to how to invest these proceeds. See "Business-Recent
Developments" and "Use of Proceeds."
Substantial Shares of Common Stock Reserved
The Company has reserved 400,000 shares of Common Stock for issuance to
key employees, officers, directors and consultants pursuant to the Company's
Stock Option Plan. To date 156,000 options have been granted under the Stock
Option Plan, none of which are immediately exercisable. The existence of these
options and any other options or warrants may prove to be a hindrance to future
equity financing by the Company. Further, the holders of such options may
exercise them at a time when the Company would otherwise be able to obtain
additional equity capital on terms more favorable to the Company. See "
Management - Stock Option Plan."
Effect of Outstanding Warrants and Underwriters' Warrants.
Until the date five (5) years following the date of this Prospectus,
the holders of the Warrants and Underwriters' Warrants are given an opportunity
to profit from a rise in the market price of the Common Stock, with a resulting
dilution in the interests of the other shareholders. The shares of Common Stock
underlying the Underwriters' Warrants have certain registration rights. Further,
the terms on which the Company might obtain additional financing during that
period may be adversely affected by the existence of the Warrants and
Underwriters' Warrants. The holders of the Warrants and Underwriters' Warrants
may exercise the Warrants and Underwriters' Warrants at a time when the Company
might be able to obtain additional capital through a new offering of securities
on terms more favorable than those provided herein. The Company has agreed that,
under certain circumstances, it will register under federal and state securities
laws the Underwriters' Warrants and/or the securities issuable thereunder.
Exercise of these registration rights could involve substantial expense to the
Company at a time when it could not afford such expenditures and may adversely
affect the terms upon which the Company may obtain financing. See "Description
of Securities" and "Underwriting."
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USE OF PROCEEDS
The net proceeds of this offering to the Company are anticipated to be
$6,250,000, assuming a public offering price of $7.50 per Unit and after
deducting $500,000 of expenses relating to the offering. The over-allotment
option will be fulfilled with shares held by the Selling Shareholders. See
"Principal and Selling Shareholders." The Company intends to use the net
proceeds as follows:
Amount %
Debt and liabilities retirement (1) $ 555,473 9%
Capital assets (2) 400,000 6%
Working capital (3) 5,294,527 85%
------------- -----
$ 6,250,000 100%
- ---------------
(1) $352,000 of such debt has an interest rate of 5%, and the remaining $203,473
is interest free. All $555,473 is owed to officers and directors of the Company.
Of such debt, $100,000 was incurred in February 1997 when bonuses were paid to
management and $100,000 of the bonuses were loaned to the Company for working
capital purposes. See "Certain Relationships and Related Transactions."
(2) The Company intends to use up to $400,000 of the proceeds of this offering
to construct buildings on land it currently owns and intends to open an office
in the Seattle, Washington area.
(3) The Company may also use a portion of the proceeds from this offering to
take advantage of future business opportunities as a part of its expansion
plans, although the Company has not identified any specific businesses it
intends to acquire and has not entered into negotiations with respect to any
acquisitions.
Pending application of the net proceeds of this offering, the Company
may invest the net proceeds from this offering in interest-bearing savings
accounts, United States Government obligations, certificates of deposit or
short-term interest-bearing securities.
DIVIDEND POLICY
The Company does not anticipate paying dividends on the Common Stock at
any time in the foreseeable future. The Company's Board of Directors currently
plans to retain earnings for the development and expansion of the Company's
business. Any future determination as to the payment of dividends will be at the
discretion of the Board of Directors of the Company and will depend on a number
of factors including future earnings, capital requirements, financial conditions
and such other factors as the Board of Directors may deem relevant.
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DILUTION
As of May 31, 1997, the pro forma net tangible book value of the
Company was $7,276,616 or $1.82 per share of Common Stock. The historical net
tangible book value of the Company was $1,026,616 or $.34 per share of Common
Stock. The net tangible book value of the Company is the aggregate amount of its
tangible assets less its total liabilities. The net tangible book value per
share represents the total tangible assets of the Company, less total
liabilities of the Company, divided by the number of shares of Common Stock
outstanding. After giving effect to the sale of 1,000,000 Units (1,000,000
shares of Common Stock and 1,000,000 Warrants) at an assumed offering price per
Unit of $7.50, or $7.50 per share of Common Stock (no value assigned to the
Warrants) and the application of the estimated net proceeds therefrom, the pro
forma net tangible book value per share would increase from $0.34 to $1.82. This
represents an immediate increase in net tangible book value of $1.48 per share
to current shareholders and an immediate dilution of $5.68 per share to new
investors or 75.7%, as illustrated in the following table:
Public offering price per Share $ 7.50
Net tangible book value per Share before this offering $ 0.34
Increase per share attributable to new investors 1.48
-----
Adjusted net tangible book value per share after this offering $ 1.82
Dilution per share to new investors $ 5.68
Percentage dilution 75.7%
The following table sets forth as of May 31, 1997, (i) the number of
shares of Common Stock purchased from the Company, the total consideration paid
to the Company and the average price per share paid by the current shareholders,
and (ii) the number of shares of Common Stock included in the Units to be
purchased from the Company and total consideration to be paid by new investors
(before deducting underwriting discounts and other estimated expenses) at an
assumed offering price of $7.50 per share.
Shares Purchased Total Consideration Average Price
Number Percent Amount Percent Per Share
Current shareholders 3,000,000 (2) 75.0% $ 30,000 .4% $ .01
New investors 1,000,000 (2) 25.0% 7,500,000 99.6% $ 7.50 (3)
--------- ---- --------- -----
Total 4,000,000 (1)100.0% $7,530,000 (2) 100.0%
========= ===== ========= =====
- --------
(1) Does not include a total of 1,750,000 shares of Common Stock issuable upon
the exercise of: (i) the Warrants or the Underwriters' Warrants, (ii) the
over-allotment option, or (iii) employee stock options. To the extent that
these options and warrants are exercised, there will be further share
dilution to new investors.
(2) Sales by certain Selling Shareholders upon exercise of the over-allotment
option will reduce the number of shares of Common Stock owned by current
shareholders to 2,850,000 or 71.25% of the total number of shares to be
outstanding after the offering and will increase the number of shares held
by new investors to 1,150,000 or 28.75% of the total number of shares to be
outstanding after the offering. See "Principal and Selling Shareholders."
(3) This amount assumes the attribution of the Unit purchase price solely to
the Common Stock included in each Unit. See "Use of Proceeds."
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CAPITALIZATION
The following table sets forth the pro forma short-term debt and
capitalization of the Company as of May 31, 1997 and as adjusted to give effect
to the sale of 1,000,000 Units offered hereby and the application of the
estimated net proceeds therefrom. See "Use of Proceeds."
May 31, 1997
(Unaudited) As Adjusted
Short-term debt:
Current portion of notes payable and
capital lease obligations ...................... $ 316,246 $ 316,246
--------- ---------
Total short-term debt......................... $ 316,246 $ 316,246
========= =========
Long-term debt:
Notes payable and capital lease obligations .... $ 179,653 $ 179,653
Related party notes payable..................... 555,473 -
--------- ---------
..
Total long-term debt............................ 735,126 179,653
Shareholder's equity:
Common Stock, $0.01 par value,
10,000,000 shares authorized, 3,000,000
shares issued and outstanding,
4,000,000 as adjusted (1) (2)................. 30,000 40,000
Additional paid in capital...................... - 6,240,000
Foreign currency translation adjustment......... 26,777 26,777
Retained earnings............................... 1,033,649 1,033,649
Total shareholder's equity.................... 1,090,426 7,340,426
---------- -----------
Total capitalization ......................... $ 1,825,552 $ 7,520,079
========== ==========
- -------
(1) Does not include 400,000 shares of Common Stock reserved for issuance under
the Company's Stock Option Plan. See "Management - Stock Option Plan."
(2) Does not include an aggregate of up to 1,350,000 shares issuable upon
exercise of (i) the Warrants, (ii) the over-allotment option and (iii) the
Underwriters' Warrants.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in connection with the Company's
Consolidated Financial Statements, related notes and other financial information
included elsewhere in this Prospectus
Results of Operations
Over the three years ended February 28, 1997, the Company increased net
revenues by 250% to $11.6 million from $3.3 million, decreased costs of revenues
as a percentage of revenues by 4.2% while selling general and administrative
expenses as a percentage of revenues rose from 14.3% to 16.2%. Until this
offering, the Company was a private corporation and declared large bonuses to
management which were primarily income tax motivated.
The following table presents, as a percentage of net revenues, certain
financial data for the Company for the periods indicated:
Years Ended February Three Months Ended May
1997 1996 1995 1997 1996
Contract revenues 100.0% 100.0% 100.0% 100.0% 100.0%
Costs of revenues 74.2 75.8 78.1 72.6 72.4
Gross profit 25.8 24.2 21.9 27.4 27.6
Selling, general and
administrative expenses 16.2 16.9 14.3 9.5 21.3
Operating income 9.4 7.0 7.7 17.9 6.3
Interest expense 0.3 1.2 2.0 0.4 0.6
Income taxes 3.6 1.8 0.9 6.7 2.0
Net income 6.0 4.7 4.7 10.8 3.7
Comparison of Quarters Ended May 31, 1996 and May 31, 1997
Net revenues for the first quarter increased 74.8% or $1,406,841 from the
first quarter in the previous year due to continued buildup of PCS networks.
Gross profit for the quarter ended May 31 increased to $902,260 in
fiscal 1998, a 73.7% increase over $519,389 in the same period in fiscal 1997.
This $382,871 increase is attributable to the 74.8% increase in net sales. Gross
profit margins for the quarter were virtually unchanged (about 27.5% )
reflecting continued strong demand.
Selling, general and administrative expenses for the quarter ended May
31, 1997 decreased by approximately 22.1% or $88,717 to $312,411 in 1997 as
compared to $401,128 for the same quarter in 1996. This increase reflects
increased staffing to manage the growth in sales offset by a provision for
management bonuses for the first quarter of 1996 of $211,762.
Operating income improved from $318,584 in the first quarter of fiscal
1997 to $576,337 for the same period in 1998. Correspondingly, net income for
the first quarter of 1998 improved by $162,753 from $194,584 in 1997 to $357,337
in 1998. This change in profitability reflects the Company's revenue growth.
Partnership income as been included in revenues, since the amounts are
immarterial.
Comparison of the Years Ended February 29, 1996 and February 28, 1997
Net revenues in 1997 increased 124.2% or $6,445,827 from the previous
fiscal year. This increase is attributable to the buildup of PCS networks in
Oregon, Washington and British Columbia. This increase in net sales is directly
related to the growing demand for wireless communication.
Gross profit for 1997 increased 139.4% over 1996, reflecting the higher
sales volume in 1997. Gross profit margins increased from 24.2% in 1996 to 25.8%
in 1997. This modest increase is attributable to continued strong demand for the
Company's services.
Selling, general and administrative expenses excluding management
bonuses increased $354,600, or 45.8%, to $1,128,878 for the year ended February
28, 1997. This increase reflects additional expenditures made in personnel to
obtain and sustain higher sales levels in 1997.
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<PAGE>
Prior to this offering, the Company was privately held. The Company
reduced income by declaring and paying bonuses to its principals. These bonuses
were primarily tax-motivated. Bonuses increased by $638,763 or 543.5% in 1997
compared to 1996, and are included in selling, general and administrative
expenses.
Interest expense decreased by 46.2% from $62,937 in 1996 to $33,841 in
1997, reflecting a decrease in notes payable and capital lease obligations in
1997 and the fact that the Company did not use its operating loan facilities in
1997.
Operating income before interest and management bonuses was $1,922,583
in 1997, an increase of $1,394,829 or 290.6% compared to 1996. The increase is
due to the increase in sales, the modest increase in gross profit percentage,
reduced by an increase in selling, general and administrative expenses.
Comparison of the Years Ended February 28, 1995 and February 29, 1996
Net revenues in 1996 increased 57.1%, or $1,914,213 from the previous
fiscal year. This increase is attributable to the buildup of cellular networks
in Oregon, Washington and British Columbia.
Gross profit for 1996 increased 77.3% over 1995, reflecting the higher
sales volume and an improvement of 2.9% (as a percentage of revenues ) in gross
margin percentage. Gross margin percentage in 1996 was 24.8%; for 1995 it was
21.9%
Selling, general and administrative expenses excluding management
bonuses increased by $295,947 or 61.8% to $774,258 for the year ended February
29, 1996. As a percentage of revenues, selling, general and administrative
expenses increased slightly, from 14.3% to 16.9%. The increase is due to the
additional staff hired to enable the Company to meet increased demand for its
products and services.
The Company paid management bonuses of $117,530 in 1996 (none in 1995).
These bonuses were primarily tax-motivated, are not indicative of future
operations, and are included in selling, general and administrative expenses.
Interest expense was $67,881 in the 1995 fiscal year and $62,937 in
1996, a decrease of $4,944, or 7.3%. The decrease in 1996 related to the
Company's use of its operating credit facilities in 1995 to fund operations.
Operating income, before interest and management bonuses, was $480,011
in 1996, an increase of $223,033, or 87% compared to 1996. The increase is due
to increased revenues and the improved profit margin, offset by higher selling,
general and administrative expenses.
Liquidity and Capital Resources
The Company has financed its working capital requirements through
borrowings from principal shareholders and through bank debt. The Company
currently generates sufficient cash receipts from its operations to fund its
operating activities.
As of May 31, 1997, the Company had working capital of $67,543.
Included in current liabilities are deferred income taxes of $568,712, however
management does not expect to actually pay the deferred income taxes during the
next 12 months.
Cash from operations for the three months ended May 31, 1997, was
$180,017, compared to cash used in operations of $244,844 for the three months
ended May 31, 1996. The difference results mainly from changes in non-cash
current assets and liabilities.
The Company has a credit facility with a bank, whereby the Company may
borrow $450,000 for working capital requirements as needed. The Company did not
use this facility during 1997 or the first quarter of fiscal 1998.
Cash from operations for the year ended February 28, 1997 was $871,929
compared to $451,311 for the prior year. The increase in cash from operations is
due primarily to increased revenues.
The Company's subsidiary, Westower Communications Ltd. is not in
compliance with debt equity and working capital ratio requirements contained in
agreements with its bank. Therefore, term debt consisting of three mortgages and
aggregating $324,248 is included as a current liability. The bank has not
demanded payment of the mortgages and has indicated verbally that it will not
demand payment. Management believes that the Company has sufficient cash to
repay the mortgages and to fund continuing planned operations. Management
believes the interest rate of 5.75% is attractive and therefore has not repaid
the debt at this time.
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<PAGE>
The Company intends to open an office in the Seattle, Washington area
where three of the largest wireless communication companies are located with a
part of the proceeds of this offering. The Company also intends to pay $555,473
of notes payable to principal shareholders from the proceeds of this offering.
See "Certain Relationships and Related Transactions".
The Company's cash requirements for fiscal 1998 and in the future will
depend upon the level of sales, acquisitions, sales and marketing expenditures,
timing of expansion plans and capital expenditures. The Company believes that
the net proceeds from this offering, interest earned on the proceeds, reduced
interest expense obligations and anticipated revenue from operations should be
adequate for the Company's working capital requirements over the course of the
next twelve months. In the event that the Company's plans or assumptions change
or if its requirements to meet unanticipated changes in business conditions or
the proceeds of this offering prove to be insufficient to fund operations, the
Company could be required to seek additional financing prior to such time.
Accounting Standards
The Financial Accounting Standards Board ("FASB") periodically issues
statements of financial accounting standards. In February 1997, FASB issued
Statement of Financial Accounting Standards (SFAS) No. 128. The new standard
replaces primary and fully diluted earnings per share with basic and diluted
earnings per share. SFAS No. 128 is required to be adopted by the Company in the
year ending February 28, 1998. Had the Company been required to adopt SFAS No.
128 for the periods presented, the adoption would not have impacted reported
earnings per share.
In June 1997, the FASB issued SFAS No. 130 and 131. SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components. SFAS No. 131 establishes standards for reporting about operating
segments, products and services, geographic areas, and major customers. The
standards become effective for fiscal years beginning after December 15, 1997.
Management plans to adopt these standards in the year ending February 28, 1999.
Management believes that provisions of SFAS No. 130 and 131 will not have a
material effect on its financial condition or reported results of operation.
16
<PAGE>
BUSINESS
General
The Company was organized in June 1997 to acquire all of the
outstanding stock of Holdings from the principal shareholders of Holdings, three
of whom are the officers and directors of the Company.
The Company designs, builds and maintains wireless communications
transmitting and receiving facilities for providers of wireless communication
services, including U. S. Cellular, Western Wireless, Cantel, AT&T, Sprint PCS ,
and Microcell. These facilities are presently constructed for use with
microwave, cellular telephone, pager, and specialized mobile radio technologies.
Although bids for the installation or modification of communications facilities
are normally requested on a fixed price basis, the Company will, if requested,
provide such services on a time and materials basis. A contract for the
installation of cellular transmitting and receiving facilities may require the
Company to develop the location, including roads and grading, to install the
tower antennas and lines, assemble electronic components and to test the
installation's equipment. In such instances, the Company subcontracts road or
concrete work required under the contract, performing the balance of the work
with its own employees. Approximately 50% of the Company's customers supply most
of the material used in the installation process, and the Company's major cost
is the cost of its employees and subcontracted labor. Demand for the Company's
services often exceeds its ability to supply those services, and in such
situations the Company subcontracts with smaller enterprises to provide work
normally performed by the Company. Subcontracting permits the Company to
evaluate the subcontractor's quality and review the subcontractor as a potential
candidate for acquisition.
The Company commenced business in 1990 as Westower Communications Ltd.
and emphasized design, construction, maintenance and modification of microwave
and cellular towers for telephone, broadcast and utility companies. The Company
continues these activities, but with the advent of cellular telephones and
personal communication systems ("PCS"), now designs and installs rooftop and
other transmission and receiving facilities. A portion of the Company's revenues
is still derived from installation of microwave facilities and the installation
of related electronic equipment. However, the rapid growth of the use of
cellular telephones has resulted in the installation of cellular transmitting
and receiving facilities being an increasingly significant component of
revenues. The Company is also a partner in a limited partnership which owns
communication towers which are leased to a telephone company.
The Company's strategy will be to capitalize on the demand for wireless
infrastructure building and implementation services by continuing to expand its
workforce and geographic presence in the marketplace. To accomplish these
objectives, the Company intends to (i) continue its geographic expansion by
opening new regional offices when demand for the Company's services or
acquisition opportunities make such expansion feasible, (ii) continue to enhance
its indigenous new employee hiring, training and retention programs as a method
for attracting, training and retaining new, highly skilled workers, and (iii)
continue to seek to acquire other companies engaged in the wireless
infrastructure building and implementation services and wireless infrastructure
electrical design and engineering services businesses that have good reputations
for quality service and highly skilled workers.
The Company's principal operations are in Washington, Oregon, Idaho,
British Columbia, Alberta, and Canada's Northern Territories. Management
believes that the industry is highly fragmented with many companies performing
similar kinds of work throughout North America and that no single company is
dominant in the industry. The Company intends to increase its market penetration
by acquiring one or more of these businesses and to increase its market
penetration in the Western United States and Canada, ultimately having
operations from California to Alaska.
Recent Developments
Demand for the Company's services continues to be strong. The Company
has a current backlog of approximately $5,000,000.
The Company believes the growth in demand for wireless infrastructure
building and implementation services will continue as the wireless
communications industry continues to expand and develop, fueled in part by the
introduction of new and enhanced wireless communications technologies such as
PCS, ESMR and digita1 cellular. As an example, the Company anticipates that the
1995 and 1996 FCC auctions of the A-, B- and C- Block portions of the radio
spectrum allocated by the FCC for PCS licensees will result in the build out of
significant numbers of new PCS systems over the next five to ten years. This is
due in part to the fact that the FCC has mandated that recipients of PCS
licenses adhere to five-year and 10-year build out requirements. Under both
five- and 10-year build out requirements, all 30 MHZ PCS licensees (which
includes holders of all of the approximately
17
<PAGE>
595 A-, Band C-Block PCS licenses awarded as of September 1, 1996) must
construct facilities necessary to provide coverage to at least one-third of the
population in their service areas within five years from the date of initial
license grants. Service must be provided to two-thirds of the population within
ten (10) years. Violations of these regulations could result in license
revocations, forfeitures or fines.
The Company also anticipates that implementation of new PCS systems may
create significant wireless infrastructure building activity as new PCS
licensees pay to alter or relocate certain existing communications facilities
operated by holders of fixed microwave licenses that currently operate within
the same frequency ranges as the new PCS licensees. This is because, in an
effort to balance the competing interests of existing microwave users and newly
authorized PCS licensees, the FCC has ruled that for a period of up to five
years after the grant of a PCS license, PCS licensees may be required to share
their radio spectrum with existing fixed microwave licensees operating on the
same frequencies as those of the new PCS licensees. In order to initiate service
within the required time frame, many of these new PCS licensees will arrange and
pay for the relocation of certain of these existing users to alternate spectrum
locations or transmission technologies.
The Industry
The Company's success is tied to the development of wireless
communications. Originally the Company constructed microwave and cellular
transmission facilities, and later expanded to include the installation of
electronic lines and components as part of the Company's services. As microwave
technology evolved and matured, the Company performed a variety of construction
and installation services relating to those new technologies, some of which
still involved microwave technology. For example, the Company upgraded the
transmission devices to accept digital or single side band technology, often
returning to previously built facilities to upgrade the equipment. Although the
Company still performs work related to short and long haul microwave technology,
this technology has diminished in use with the installation of fiber optic
technology by long distance carriers.
Presently, cellular telephones in the United States and Canada rely
predominantly on analog technology. A cellular telephone transmits a radio
signal to the closest cellular communications facility, which contains an
antenna connected by wireline or short haul microwave to a nearby switching
office that processes signals for several cellular facilities. For transmission
to a telephone that is not a mobile phone, the switching office connects the
telephone signal to a local telephone exchange. For a phone call to another
mobile telephone, the switching office locates the receiving cellular
communication facility to which the receiving telephone is connected, and
transmits the signal to that facility, completing the connection. If one or both
of the cellular telephones is moving, such as a car phone, the local switching
station hands the signal off to a different facility as the phone moves from one
area to another.
The Company builds the communication facility and installs the
equipment to handle the radio wave from the cellular telephone to the facility
as well as the short haul microwave equipment connecting the facility to the
local cellular switching office.
Cellular telephones use radio frequencies to transmit to the
facilities. The number of frequencies that are available to transmit to a
facility is finite. In areas with heavy demand for cellular services, these
available frequencies become congested. To increase capacity, the number of
cells is increased, making each cell in the system smaller, covering a smaller
geographic area for the finite number of radio frequencies, but requiring
significantly more facilities.
The Personal Communications Industry Association estimates there are
approximately 44,000,000 cellular subscribers in the United States in 1997 with
projections of approximately 80,000,000 subscribers in the United States by
2001. Industry sources also estimate there is a current need for more than
100,000 new antenna sites in the United States.
Competitive Environment
Presently the industry of constructing wireless and, more generally,
communications transmitting and receiving facilities is highly fragmented. The
industry consists of many small operators, often as few as three or four people
and commonly entailing a dozen or so. Most of the communications facilities in
the United States are installed by such businesses. While an individual provider
of wireless communications could easily develop its own ability to construct the
facilities, management of the Company believes that these enterprises would have
a difficult time establishing the ability on a cost effective basis.
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Management believes that the most efficient manner in which to manage
its business in an expanding and maturing environment is to operate subsidiaries
with a large degree of autonomy. Employees in this industry travel away from
home regularly and extensively and can be moved from one subsidiary's area to
another as needed. Management believes that providers of wireless communications
are generally large and tend to take longer to make decisions. For this reason,
management believes it can provide its services to customers in a more
cost-effective manner than customers could perform the services themselves.
The technology of wireless communications is shifting radically. The
recent history of electronic technology is marked by smaller, faster, less
expensive technologies replacing more cumbersome processes. According to RCR, a
weekly newspaper for the wireless communications industry, there are projections
that certain digital technologies will be up to 20 times more efficient than
existing analog cellular systems, providing superior services and quality such
as Personal Communications Services and Enhanced Specialized Mobile Radio. Some
of these technologies, however, require densely located receivers that may be
located on utility poles.
Proposed satellite technologies, however, could bypass a local radio
transmission device and enable a user to transmit directly to a satellite that
retransmits the signal directly to a user. While this technology could possibly
transmit directly to a satellite, such technology would be required to struggle
with limitations on the number of frequencies available to be transmitted to a
satellite. Management of the Company believes that this technology is not yet
sufficiently defined to assess its effect on the Company.
All of the existing wireless transmission and receiving technologies,
as well as wireless transmission and receiving technologies of which the Company
is aware are being considered in developing nations to supplement or supplant
existing wireline communications techniques. The technology that is implemented
and the method in which the technology is implemented could enhance or diminish
the Company's prospects in these nations, and the Company is uncertain whether
it can exploit the opportunities that are being presented to the Company.
While there are numerous competitors in a fragmented industry, the
demand for those services is presently growing rapidly. New technologies could
alter the way in which those services are delivered and adversely affect the
Company. Other technologies could bypass the need for the Company's services.
Because of the rapid development and evolution of wireless communications, the
future market and its competitive environment cannot be accurately viewed or
perhaps anticipated in a manner that would benefit the Company. These factors
could be replayed in a variety of manners in numerous countries. There are
potential competitors, either providers of the service or traditional
engineering firms, that possess significantly greater resources, either in terms
of personnel, technology, or financial resources, than those possessed by the
Company.
The Company receives consulting services from Westower Consulting, an
enterprise under common control with the Company. Charges for these services
were approximately $0 in fiscal year 1996 and $93,500 is fiscal year 1997.
Amounts due to Westower Consulting were $36,500 at February 28, 1997. The
Company expects that payments to Westower Consulting will not continue in fiscal
year 1998 because Company employees and officers will perform the related
services. Westower Consulting charged the Company for services provided by the
Company's employees in an effort to defer income tax. Westower Consulting is
currently inactive.
Government Regulation
The wireless communications industry is subject to regulation by state
regulatory agencies, the Federal Communications Commission (the "FCC"), the
Canadian Radio and Telecommunications Commission, the United State Congress, the
courts and other governmental bodies. There can be no assurance that any of
these governmental bodies will not adopt or change regulations or take other
actions that would adversely affect the wireless communications industry and the
Company's business, financial condition and results of operations.
In addition, the Telecommunications Act of 1996 is expected to continue
to cause significant changes in existing regulation of the telecommunications
industry that are intended to promote the competitive development of new
services, to expand public availability of telecommunications services and to
streamline regulation of the industry. These changes include requirements that
local exchange carriers must:
(i.) Permit other competitive carriers, which may include many wireless
communications service providers, to interconnect to their networks;
(ii.) Establish reciprocal compensation agreements with competitive
carriers to terminate traffic on each other's networks; and
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(iii.) Offer resale of their local loop facilities.
The implementation of these requirements by the FCC and state
authorities potentially involves numerous changes in established rules and
policies that could adversely affect the wireless communications industry and
the Company's business, financial condition and results of operations.
The construction and installation of wireless transmitting and
receiving facilities are often subject to state or local zoning, land use and
other regulation. Such regulation may include zoning, environmental and building
permit approvals or other state or local certification. The Telecommunications
Act of 1996 provides that state and local authority over the placement,
construction and modification of personal wireless services (including cellular
and other CMRS and unlicensed wireless services), shall not prohibit or have the
effect of prohibiting personal wireless services or unreasonably discriminate
among providers of functionally equivalent services. Although state and local
zoning authorities retain their rights over land use, their actions cannot have
the effect of banning wireless services or picking and choosing among similar
wireless providers. However, according to the Personal Communications Industry
Association, 200 proposed antenna sites are currently delayed due to local or
state moratoria or other delays. See "Risk Factors - Siting Moratoria."
Environmental Laws
Management believes environmental laws will have only a minimal impact
on the Company's operations. Changes in environmental laws, as they relate to
the Company's operations, have not had a significant impact since the Company
was founded seven years ago.
The Company, especially in remote and rural areas, follows regulations
concerning the discovery of native artifacts, disposal of fuel and other
substances, disturbing or destroying habitat of endangered or threatened
species, contaminating water bodies, spill recovery and trash removal.
Management is not aware of any environmental laws concerning health risks
allegedly connected to mobile communication devices, but is aware of those
public concerns. See "Risk Factors - Mobile Communications Health Risk."
Business Concentration
The Company's customers are concentrated in the wireless communications
industry. Sales to 12 major customers approximated 73% and 84% of total sales
for the years ended February 29, 1996 and February 28, 1997 respectively.
The Company expects that sales to relatively few customers will
continue to account for a high percentage of its net sales in the foreseeable
future and believes that its financial results depend in significant part upon
the success of these few customers. Although the composition of the group
comprising the Company's largest customers may vary from period to period, the
loss of a significant customer or any reduction in orders by any significant
customers, including reductions due to market, economic or competitive
conditions in the wireless communications industry, may have a material adverse
effect on the Company's business, financial condition and results of operations.
Employees
As of September 15, 1997, the Company had approximately 50 full time
employees. The Company considers its employee relations to be satisfactory. The
Company believes that additional staff will be required for increased marketing,
sales, development, and support functions. None of the Company's employees are
represented by a Union.
Legal Proceedings
As of September 15, 1997, the Company was not a party to any legal
proceedings.
Facilities
The Company owns its office and plant facilities in Surrey, British
Columbia. The Company rents office, yard and warehouse space in Vancouver,
Washington for $2,250 per month. Management believes there is an adequate supply
of facilities available for rent on a reasonable basis.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information regarding the
Company's directors and executive officers:
Name Age Position
Calvin J. Payne 45 Chairman of the Board and
Chief Executive Officer
S. Roy Jeffrey 51 Chief Operating Officer and
Director
Walter Friesen 45 Senior Vice President and
Director
Peter Lucas 43 Senior Vice President and
Chief Financial Officer
Calvin J. Payne is a co-founder of the Company. Since inception in
1990, Mr. Payne has managed the Company's growth in his capacity as a director,
officer and chief engineer. Mr. Payne has 22 years of experience in all aspects
of the construction of steel communication towers. He was a construction worker
and rigger in 1975, a field engineer in 1978, a design engineer in 1979,
engineering manager in charge of a tower company's Australian operations in
1983, and chief engineer of the same company's domestic operations in 1988. Mr.
Payne has engineered over 600 towers, including a 1470 foot tower in Florida
designed to withstand hurricane winds. Mr. Payne won a design award for a steel
tower erected on a mountain top site near the Alaskan-Canadian border that was
totally enclosed in fiberglass to protect the tower and antenna from wind and
ice. Mr. Payne has assisted in the writing of design standards for communication
towers in the United States, Canada, and Australia. He is a professional
engineer registered in the United States, Canada and Australia. He received a
degree in civil engineering from the University of British Columbia in 1978 and
an MBA from the University of Western Australia in 1985.
S. Roy Jeffrey is a co-founder of the Company. Since inception in 1990,
Mr. Jeffrey has managed the Company's growth in his capacity as a director,
officer, and Chief Operating Officer. Mr. Jeffrey has 25 years experience in all
aspects of the supply and installation of communication towers and equipment.
Mr. Jeffrey was employed by a privately held communications company from 1972 to
1990, when he left to co-found the Company. He started as a high steel rigger,
was promoted to field supervisor and then promoted to branch manager where he
was responsible for as many as 36 office and field employees. Mr. Jeffrey
supervised or managed the supply and installation of towers in the United
States, Canada, the Caribbean, Australia, and Middle East. Mr. Jeffrey has
managed all aspects of communication site construction including permit
applications, surveys, road-building, foundations, and the supply and
installation of buildings, towers and antennas, and transmission lines. Mr.
Jeffrey has extensive experience in rigging tall towers.
Walter Friesen became Vice President of the Company in March 1994 and
managed Westower Communications Inc. in Vancouver Washington. Mr. Friesen has 21
years experience in the wireless communication industry. In 1976 he was a
broadcast transmitter technician for the Canadian Broadcasting Corporation
responsible for AM, FM, and television transmissions. In 1978, he joined a
privately held communications company where he held positions of increasing
responsibility until 1994, when he left to join the Company. Before leaving, Mr.
Friesen was Vice President of that company's United States eastern field
operation, with responsibility for five branch offices, 150 employees, and
$22,000,000 in annual sales. Mr. Friesen has managed all aspects of tower
construction and operation. Mr. Friesen earned an Honors Diploma in Electronics
Engineering Technology from the Northern Alberta Institute of Technology in
1976.
Peter Lucas became Senior Vice President and Chief Financial Officer of
the Company in April 1997. From August 1995 to April 1997, Mr. Lucas served as
Chief Financial Officer of Cotton Valley Resources Corporation, a Dallas based
public oil and gas company. From May 1992 to July 1995, he served as Chief
Financial Officer of Canmax Inc., a Dallas based public company that develops
software for gas stations and convenience stores. Mr. Lucas is a member of the
Canadian Institute of Chartered Accountants. He received his professional
training at Coopers & Lybrand, which he left in 1984 to form his own tax
practice. Six years later, Mr. Lucas's practice merged with Coopers & Lybrand,
with whom he was a partner until 1992. Mr. Lucas passed the AICPA reciprocity
examination in 1993, and is experienced in domestic taxation, accounting and
securities matters. He received a bachelor of commerce degree from the
University of Alberta in 1978.
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<PAGE>
Directors of the Company are elected at each annual meeting of
shareholders. The officers of the Company are elected annually by the Board of
Directors. Officers and directors hold office until their respective successors
are elected and qualified or until their earlier resignation or removal. Outside
Directors The Company has agreed to appoint two directors who are not officers,
employees or 5% shareholders or related to an officer, employee or 5%
shareholder upon conclusion of the offering. One of those directors will be
appointed by the Representative of the Underwriters. The other director nominee,
Ronald P. Erickson, 53, is principal of GlobalVision, LLC, an international
strategic consulting and corporate finance company, where he has been associated
since 1994. From 1984 to 1994, he was a director of Egghead Software, Inc.,
where he was an original investor. From 1990 to July 1995, Mr. Erickson was a
principal of Rutkowski, Erickson and Scott, a consulting firm which assisted
small emerging growth companies. From 1990 to July 1996, Mr. Erickson was
Chairman of the Board of Digital Data Networks, Inc. Mr. Erickson received his
B.A. in History from Central Washington University, his M.A. in American studies
from the University of Wyoming and his J.D. from the University of Denver.
Compensation of Directors Directors who are employees of the Company will not
receive any remuneration in their capacity as directors. Outside directors will
receive $12,000 annually, and $500 per meeting attended and related travel
expenses. Indemnification and Limitation on Liability If available at reasonable
cost, the Company intends to maintain insurance against any liability incurred
by its officers and directors in defense of any actions to which they are made
parties by any reason of their positions as officers and directors. Executive
Compensation The following table sets forth the compensation paid to the
Company's President Calvin J. Payne and Vice President Walter Friesen (the
"Named Executive Officers") for services rendered to the Company in all
capacities for the fiscal years ended February 28, 1997, 1996, and 1995. Summary
Compensation Table
Name and Annual Compensation All Other
Principal Position Fiscal Year Salary Bonus Compensation
Calvin J. Payne February 28, 1997 $75,000 $437,780 -
February 29, 1996 70,000 92,530 -
February 28, 1995 70,000 - -
Walter Friesen February 28, 1997 $75,000 $298,000 -
February 29, 1996 60,000 25,000 -
February 28, 1995 57,000 - -
Prior to this offering, the Company was a privately held corporation
and distributed much of its income to shareholders by way of bonuses for income
tax planning purposes. In the future, the Company intends to compensate its
officers in accordance with the recommendations of a compensation committee
consisting entirely of outside directors. The base salary for fiscal year ending
February 28, 1998 for each of Messrs. Payne, Jeffrey and Friesen is $75,000 and
for Mr. Lucas is $120,000.
Employment Agreements
The Company has no employment agreements.
Stock Option Plan
The 1997 Stock Option Plan, as amended (the "Stock Option Plan")
provides for the grant to employees, officers, directors, and consultants to the
Company or any parent, subsidiary or affiliate of the Company of up to 400,000
shares of the Company's Common Stock, subject to adjustment in the event of any
subdivision, combination, or reclassification of shares. The Stock Option Plan
will terminate in 2004. The Stock Option Plan provides for the grant of
incentive stock options ("ISO's") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as
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<PAGE>
amended, and non-qualified options at the discretion of the Board of Directors
or a committee of the Board of Directors (the "Committee"). The exercise price
of any option will not be less than the fair market value of the shares at the
time the option is granted. The options granted are exercisable within the times
or upon the events determined by the Board or Committee set forth in the grant,
but no option is exercisable beyond ten years from the date of the grant. The
Board of Directors or Committee administering the Stock Option Plan will
determine whether each option is to be an ISO or non-qualified stock option, the
number of shares, the exercise price, the period during which the option may be
exercised, and any other terms and conditions of the option. The holder of an
option may pay the option price in (1) cash, (2) check, (3) other shares of the
Company, (4) authorization for the Company to retain from the total number of
shares to be issued that number of shares having a fair market value on the date
of exercise equal to the exercise price for the total number of shares, (5)
irrevocable instructions to a broker to deliver to the Company the amount of
sale or loan proceeds required to pay the exercise price, (6) delivery of an
irrevocable subscription agreement for the shares which irrevocably obligates
the option holder to take and pay for shares not more than 12 months after the
date of the delivery of the subscription agreement, (7) any combination of the
foregoing methods of payment, or (8) other consideration or method of payment
for the issuance of shares as may be permitted under applicable law. The options
are nontransferable except by will or by the laws of descent and distribution.
Upon dissolution, liquidation, merger, sale of stock or sale of substantially
all assets, outstanding options, notwithstanding the terms of the grant, will
become exercisable in full at least 10 days prior to the transaction. The Stock
Option Plan is subject to amendment or termination at any time and from time to
time, subject to certain limitations.
The plan is administered by the Compensation Committee of the Board of
Directors, which is composed entirely of directors who are "disinterested
persons" as defined in Rule 16b-3 of the Securities Exchange Act of 1934, as
amended.
The following table sets forth information regarding exercised options
and the value of unexercised options held by the Named Executive Officers of the
Company as of June 30, 1997. No options were granted prior to March 1, 1997. In
June 1997 the Company granted 132,000 options at an exercise price of $8.25 and
24,000 options at an exercise price of $7.50 to certain key executives.
Aggregated Option Exercises in Last Fiscal Year
and FY-End Option Values
Number of Securities
Underlying Unexercised
Options at June 30, 1997
Shares Acquired Exercisable/
Name on Exercise Value Realized Unexercisable
- ---------------- ----------- -------------- -------------
Calvin J. Payne - - 0/54,000
S. Roy Jeffrey - - 0/54,000
Walter Friesen - - 0/24,000
Peter Lucas - - 0/24,000
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PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership as of June 30, 1997 of the Common Stock by (a) each person
known by the Company to be a beneficial owner of more than 5% of the outstanding
shares of Common Stock and by each Selling Shareholder, (b) each director of the
Company, (c) each Named Executive Officer, and (d) all directors and executive
officers of the Company as a group. Unless otherwise noted, each beneficial
owner named below has sole investment and voting power with respect to the
Common Stock shown below as beneficially owned by him.
Shares Owned Shares Owned
Prior to Offering After Offering
Name and Address of Number of Percent Number of Percent
Beneficial Owner Shares Owned Owned Shares Owned Owned
Calvin J. Payne (1) (3) 1,125,000 37.50% 1,125,000 28.13%
5264 Drayton Harbour Road
Blaine, WA 98230
S. Roy Jeffrey (1) (4) 1,125,000 37.50% 1,125,000 28.13%
18375 - 67 Avenue
Surrey, British Columbia V3S 8E7
Walter Friesen(2) (5) 375,000 12.50% 375,000 9.38%
11208 N.E. 32 Avenue
Vancouver, WA 98686
Peter Lucas - - - -
670 South Pekin Road
Woodland, Washington 98674
Valdis V. Rundans(2) (6) 375,000 12.50% 375,000 9.38%
#14 - 26112 Township Road 511
Spruce Grove, Alberta T7Y 1B6
All Executive Officers and Directors 2,625,000 87.50% 2,625,000 65.63%
as a group (4 persons) (7)
- -----------
(1) If the over-allotment option is exercised in full, holdings would be
1,068,750 or 26.72%.
(2) If the over-allotment option is exercised in full, holdings would be
356,250 or 8.91%.
(3) Includes the following shares, beneficial ownership of which is
disclaimed: 100,000 shares held by Mr. Payne's spouse and 925,000 held
by the Calvin J. Payne Family Trust of which Mr. Payne is sole Trustee.
(4) Includes the following shares, beneficial ownership of which is
disclaimed: 100,000 shares held by Mr. Jeffrey's spouse and 925,000
held by the S. Roy Jeffrey Family Trust of which Mr. Jeffrey is sole
Trustee..
(5) Includes the following shares, beneficial ownership of which is
disclaimed: 80,000 shares held by Mr. Friesen's spouse and 215,000 held
by the Walter Friesen Family Trust of which Mr. Friesen is sole
Trustee.
(6) Includes the following shares, beneficial ownership of which is
disclaimed: 80,000 shares held by Mr. Rundans' spouse and 215,000 held
by the Valdis V. Rundans Family Trust of which Mr. Rundans is sole
Trustee.
(7) If the over-alloment option is exercised in full, holdings would be
2,493,750 or 62.34%.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company purchases goods and services from Western Telecom
Construction Ltd. ("WTCL"), an Alberta corporation, controlled by Peter Jeffrey,
the brother of S. Roy Jeffrey. The Company also sells goods and services to
WTCL. Purchases amounted to $1,822,326, $805,143 and $153,949 in fiscal years
1997, 1996, and 1995 respectively and sales amounted to $554,181, $856,003 and
$556,575 in fiscal years 1997, 1996, and 1995 respectively.
The Company has a 50% interest in an Alberta limited partnership which
owns six towers which are used by a telephone company under a license granted by
the partnership. The general partner is an Alberta corporation controlled by
Valdis Rundans, who owns more than 5% of the Company's issued stock. Other
partners are an Alberta corporation controlled by Valdis Rundans' spouse and an
Alberta corporation controlled by Peter Jeffrey. The Company receives 50% of the
partnership's income and had no other transactions with the partnership during
the 1997, 1996 or 1995 fiscal years.
Approximately $555,437 of the proceeds of this offering will be used to
repay amounts due to Calvin J. Payne and his spouse, Walter Friesen, and a
corporation controlled by S. Roy Jeffrey. The amount due to Calvin Payne and his
spouse arose when amounts were distributed to them by the Company for tax
planning purposes and then loaned back to the Company in 1993. The amount due to
a corporation controlled by S. Roy Jeffrey was loaned to the Company to assist
the Company in purchasing land in 1993. The amount payable to Walter Friesen
arose in February 1997, when bonuses were distributed and a portion of the
bonuses loaned back to the Company.
In the past, the Company received consulting services from Westower
Consulting, an enterprise under common control with the Company. Charges for
these services were approximately $0 in fiscal year 1996 and $93,500 is fiscal
year 1997. Amounts due to Westower Consulting were $36,500 at February 28, 1997.
The Company expects that payments to Westower Consulting will not continue in
fiscal year 1998 because Company employees and officers will perform the related
services. Westower Consulting charged the Company for services provided by the
Company's employees in an effort to defer income tax. Westower Consulting is
currently inactive.
The Company has extensive experience in costing the services it
provides, and management of the Company believes that its costing to affiliated
entities is consistent with its general costing. Similarly, products or services
received by the Company from affiliated entities have been at substantially the
same rates charged other enterprises. The Company has compared these rates prior
to engagement with independent quotes or with rates charged by other entities.
None of the agreements or arrangements with affiliates are subject to
adjustment.
While there has been no independent determination as to the fairness of
the Company's transactions with affiliated entities, in the future all such
transactions will be approved by the disinterested members of the Board of
Directors. These contract services have been provided at what management
estimates to be market or below market rates.
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<PAGE>
DESCRIPTION OF SECURITIES
Units
Each Unit consists of one share of Common Stock and one Warrant. The Shares
and the Warrants included in the Units may not be separately traded for six
months after the date of this Prospectus, unless earlier separated upon three
day's written notice from the Representative to the Company. Common Stock
The Company is authorized to issue 10,000,000 shares of Common Stock,
$0.01 par value. As of June 30, 1997 there were 3,000,000 shares of Common Stock
issued. There were 4 holders of record of Common Stock, as of June 30, 1997.
The holders of outstanding shares of all classes of Common Stock are
entitled to share ratably in any dividends paid on the Common Stock when, as and
if declared by the Board of Directors out of funds legally available. Each
holder of Common Stock is entitled to one vote for each share held of record.
The Common Stock is not entitled to cumulative voting or preemptive rights and
is not subject to redemption. Upon liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in the net
assets legally available for distribution. All outstanding shares of Common
Stock are fully paid and non-assessable. Warrants
The Warrants will be issued in registered form under, governed by, and
subject to the terms of a warrant agreement (the "Warrant Agreement") between
the Company and American Stock Transfer & Trust Company as warrant agent (the
"Warrant Agent"). The following statements are brief summaries of certain
provisions of the Warrant Agreement. Copies of the Warrant Agreement may be
obtained from the Company or the Warrant Agent and have been filed with the
Commission as an exhibit to the Registration Statement of which this Prospectus
is a part.
Each Warrant entitles the holder thereof to purchase at any time one
share of Common Stock at an exercise price of $9.00 per share at any time after
the Common Stock and Warrants become separately tradable until [five years from
the date of this Prospectus]. The right to exercise the Warrants will terminate
at the close of business on [five years from the date of this Prospectus]. The
Warrants contain provisions that protect the Warrant holders against dilution by
adjustment of the exercise price in certain events, including but not limited to
stock dividends, stock splits, reclassification or mergers. A Warrant holder
will not possess any rights as a shareholder of the Company. Shares of Common
Stock, when issued upon the exercise of the Warrants in accordance with the
terms thereof, will be fully paid and non-assessable.
Commencing six months after the date of this Prospectus, the Company
may redeem some or all of the Warrants at a call price of $0.05 per Warrant,
upon thirty (30) day's prior written notice if the closing sale price of the
Common Stock on the American Stock Exchange has equaled or exceeded $15.00 for
ten (10) consecutive days.
The Warrants may be exercised only if a current prospectus relating to
the underlying Common Stock is then in effect and only if the shares are
qualified for sale or exempt from registration under the securities laws of the
state or states in which the purchaser resides. So long as the Warrants are
outstanding, the Company has undertaken to file all post-effective amendments to
the Registration Statement required to be filed under the Securities Act, and to
take appropriate action under federal law and the securities laws of those
states where the Warrants were initially offered to permit the issuance and
resale of the Common Stock issuable upon exercise of the Warrants. However,
there can be no assurance that the Company will be in a position to effect such
action, and the failure to do so may cause the exercise of the Warrants and the
resale or other disposition of the Common Stock issued upon such exercise to
become unlawful. The Company may amend the terms of the Warrants, but only by
extending the termination date or lowering the exercise price thereof. The
Company has no present intention of amending such terms. However, there can be
no assurances that the Company will not alter its position in the future with
respect to this matter. Transfer Agent and Registrar
The Transfer Agent and Registrar for the Units, the Common Stock and
the Warrants is American Stock Transfer & Trust Company, 40 Wall Street, New
York, New York 10005.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 4,000,000
shares of Common Stock outstanding. Of these shares, the 1,000,000 shares sold
in this offering (1,150,000 if the over-allotment option is exercised in full)
will be freely tradable in the public market without restriction under the
Securities Act, except shares purchased by an "affiliate" (as defined in the
Securities Act) of the Company. The remaining 3,000,000 shares (the "Restricted
Shares") (2,850,000 if the over-allotment option is exercised in full) will be
"restricted shares" within the meaning of the Securities Act and may be publicly
sold only if registered under the Securities Act or sold in accordance with an
applicable exemption from registration, such as those provided by Rule 144 under
the Securities Act.
In general, under Rule 144, as currently in effect, a person (or
persons whose shares are aggregated) is entitled to sell Restricted Shares if at
least one year has passed since the later of the date such shares were acquired
from the Company or any affiliate of the Company. Rule 144 provides, however
that within any three-month period such person may only sell up to the greater
of 1% of the then outstanding shares of the Company's Common Stock
(approximately 40,000 shares following the completion of this offering) or the
average weekly trading volume in the Company's Common Stock during the four
calendar weeks immediately preceding the date on which the notice of the sale is
filed with the Commission. Sales pursuant to Rule 144 also are subject to
certain other requirements relating to manner of sale, notice of sale and
availability of current public information. Any person who has not been an
affiliate of the Company for a period of 90 days preceding a sale of Restricted
Shares is entitled to sell such shares under Rule 144 without regard to such
limitations if at least two years have passed since the later of the date such
shares were acquired from the Company or any affiliate of the Company. Shares
held by persons who are deemed to be affiliated with the Company are subject to
such volume limitations regardless of how long they have been owned or how they
were acquired.
Without consideration of contractual restrictions described below, an
aggregate of 3,000,000 shares of Common Stock, representing 75.0% of the
outstanding shares of the Common Stock, or 2,850,000 shares representing 71.3%
if the over-allotment option is exercised in full will be eligible for sale in
the public market pursuant to Rule 144 after the completion of this offering.
The Company is unable to estimate the number of shares that may be sold from
time to time under Rule 144, since such number will depend upon the market price
and trading volume for the Common Stock, the personal circumstances of the
sellers and other factors.
After this offering, executive officers, directors and senior
management will own 2,625,000 shares of the Common Stock (assuming the
Underwriter's over-allotment option is not exercised). The Company's
shareholders and directors have entered into an agreement with the Underwriters
providing that they will not sell or otherwise dispose of any shares of Common
Stock held by them for a period of one year after the date of this Prospectus
without the prior written consent of the Underwriters, except for shares sold
upon exercise of the over-allotment option.
The Company can make no prediction as to the effect, if any, that offer
or sale of these shares would have on the market price of the Common Stock.
Nevertheless, sales of significant amounts of Restricted Shares in the public
markets could adversely affect the fair market price of Common Stock, as well as
impair the ability of the Company to raise capital through the issuance of
additional equity securities.
27
<PAGE>
UNDERWRITING
Pursuant to the terms and subject to the conditions contained in the
Underwriting Agreement, the Company has agreed to sell to the Underwriters named
below, and each of the Underwriters, for whom Tejas Securities Group, Inc. (the
"Representative") is acting as Representative, has severally agreed to purchase
the number of Units set forth opposite its name in the following table.
Underwriters Number of Units
Tejas Securities Group, Inc..........................
Total................................................ 1,000,000
=========
The Representative has advised the Company that the Underwriters
propose to offer the Units to the public at the initial public offering price
per share set forth on the cover page of this Prospectus and to certain dealers
at such price less a concession of not more than $0.375 per Unit, of which $0.15
may be reallowed to other dealers. After the initial public offering, the public
offering price, concession and reallowance to dealers may be reduced by the
Representative. No such reduction shall change the amount of proceeds to be
received by the Company as set forth on the cover page of this Prospectus.
The Company and the Selling Shareholders have granted to the
Underwriters an option, exercisable during the 45-day period after the date of
this Prospectus, to purchase up to 150,000 additional Units to cover
over-allotments, if any, at the same price per Unit as the Company will receive
for the 1,000,000 Units that the Underwriters have agreed to purchase. To the
extent that the Underwriters exercise such option, each of the Underwriters will
have a firm commitment to purchase approximately the same percentage of such
additional Units that the number of Units to be purchased by it shown in the
above table represents as a percentage of the 1,000,000 Units offered hereby. If
purchased, such additional Units will be sold by the Underwriters on the same
terms as those on which the 1,000,000 Units are being sold. All of the shares of
Common Stock included in these Units will be sold to the Underwriters by Selling
Shareholders, and the Company will not receive any proceeds from the sale of
such shares. The Warrants included in these Units will be issued by the Company.
See "Principal and Selling Shareholders."
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Shareholders against certain civil
liabilities, including liabilities under the Securities Act.
The holders of approximately 3,000,000 shares of the Common Stock after
the offering have agreed with the Representative that, until one year after the
date of this Prospectus, subject to certain limited exceptions, they will not
sell, contract to sell, or otherwise dispose of any shares of Common Stock, any
options to purchase shares of Common Stock, or any securities convertible into,
exercisable for or exchangeable for shares of Common Stock, owned directly by
such holders or with respect to which they have the power of disposition,
without the prior written consent of the Representative, except for shares sold
upon exercise of the over-allotment option. Substantially all of such shares
will be eligible for immediate public sale following expiration of the lock-up
periods, subject to the provisions of Rule 144. In addition, the Company has
agreed that until 365 days after the date of this Prospectus, the Company will
not, without the prior written consent of the Representative, subject to certain
limited exceptions, issue, sell, contract to sell, or otherwise dispose of, any
shares of Common Stock, any options to purchase any shares of Common Stock or
any securities convertible into, exercisable for or exchangeable for shares of
Common Stock other than the Company's sales of shares in this offering, the
issuance of Common Stock upon the exercise of outstanding options or warrants or
the issuance of options under its employee stock option plan. See "Shares
Eligible for Future Sale."
The Underwriters have the right to offer the Securities offered hereby
only through licensed securities dealers in the United States who are members of
the National Association of Securities Dealers, Inc. and may allow such dealers
such portion of its ten (10%) percent commission as the Underwriters may
determine.
28
<PAGE>
The Underwriters will not confirm sales to any discretionary accounts
without the prior written consent of their customers.
The Company has agreed to pay the Representative a non-accountable
expense allowance of 2.00% of the gross amount of the Units sold ($150,000 upon
the sale of the Units offered) at the closing of the offering. The Underwriters'
expenses in excess thereof will be paid by the Representative. To the extent
that the expenses of the underwriting are less than that amount, such excess
shall be deemed to be additional compensation to the Underwriters. In the event
this offering is terminated before its successful completion, the Company may be
obligated to pay the Underwriters a maximum of $25,000 on an accountable basis
for expenses incurred by the Underwriters in connection with this offering.
The Company has agreed that for a period of five years from the closing
of the sale of the Shares offered hereby, it will nominate for election as a
director a person designated by the Representative, and during such time as the
Representative has not exercised such right, the Representative shall have the
right to designate an observer, who shall be entitled to attend all meetings of
the Board and receive all correspondence and communications sent by the Company
to the members of the Board. The Representative has not yet identified to the
Company the person who is to be nominated for election as a director or
designated as an observer.
The Underwriting Agreement provides for indemnification among the
Company, the Selling Shareholders and the Underwriters against certain civil
liabilities, including liabilities under the Securities Act. In addition, the
Underwriters' Warrants provide for indemnification among the Company and the
holders of the Underwriters' Warrants and underlying shares against certain
civil liabilities, including liabilities under the Securities Act, and the
Exchange Act.
Underwriters' Warrants
Upon the closing of this offering, the Company has agreed to sell to
the Underwriters for nominal consideration, the Underwriters' Warrants. The
Underwriters' Warrants are exercisable at 120% of the public offering price for
a four-year period commencing one year from the effective date of this offering.
The Underwriters' Warrants may not be sold, transferred, assigned or
hypothecated for a period of one year from the date of this offering except to
the officers of the Underwriters and their successors and dealers participating
in the offering and/or their partners or officers. The Underwriters' Warrants
will contain antidilution provisions providing for appropriate adjustment of the
number of shares subject to the Warrants under certain circumstances. The
holders of the Underwriters' Warrants have no voting, dividend or other rights
as shareholders of the Company with respect to shares underlying the
Underwriters' Warrants until the Underwriters' Warrants have been exercised.
The Company has agreed, during the four year period commencing one year
from the date of this offering, to give advance notice to the holders of the
Underwriters' Warrants or underlying securities of its intention to file a
registration statement, other than in connection with employee stock options,
mergers, or acquisitions, and in such case the holders of the Underwriters'
Warrants and underlying securities shall have the right to require the Company
to include their securities in such registration statement at the Company's
expense.
For the term of the Underwriters' Warrants, the holders thereof will be
given the opportunity to profit from a rise in the market value of the Company's
shares, with a resulting dilution in the interest of other shareholders. The
holders of the Underwriters' Warrants can be expected to exercise the
Underwriters' Warrants at a time when the Company would, in all likelihood, be
able to obtain needed capital by an offering of its unissued shares on terms
more favorable to the Company than those provided by the Underwriters' Warrants.
Such facts may adversely affect the terms on which the Company can obtain
additional financing. Any profit realized by the Underwriters on the sale of the
Underwriters' Warrants or shares issuable upon exercise of the Underwriters'
Warrants may be deemed additional underwriting compensation.
If the Representative, at its election, at any time one year after the
date of this Prospectus, solicits the exercise of the Warrants, the Company will
be obligated, subject to certain conditions, to pay the Representative a
solicitation fee equal to 5% of the aggregate proceeds received by the Company
as a result of the solicitation. No warrant solicitation fees will be paid
within one year after the date of this Prospectus. No solicitation fee will be
paid if the market price of the Common Stock is lower than the then exercise
price of the Warrants, no solicitation fee will be paid if the Warrants being
exercised are held in a discretionary account at the time of exercise, except
where prior specific approval for exercise is received from the customer
exercising the Warrants, and no solicitation fee will be paid unless the
customer exercising the Warrants states in writing that the exercise was
solicited and
29
<PAGE>
designates in writing the Representative or other broker-dealer to receive
compensation in connection with the exercise. The Representative may reallow a
portion of the fee to soliciting broker-dealers.
Determination of Offering Price
The initial public offering price was determined by negotiations
between the Company and the Representative. The factors considered in
determining the public offering price include the Company's revenue growth since
its organization, the industry in which it operates, the Company's business
potential and earning prospects and the general condition of the securities
markets at the time of the offering. The offering price does not bear any
relationship to the Company's assets, book value, net worth or other recognized
objective criteria of value.
Prior to this offering, there has been no public market for the
Securities, and there can be no assurance than an active market will develop.
American Stock Exchange
The Company has applied for listing of the Securities on the American
Stock Exchange. It is anticipated that after the offering, the Securities will
be quoted on the American Stock Exchange. However, there can be no assurance
that the Securities will be listed, that a market for the Securities will
develop or if it does develop that it will be maintained.
LEGAL MATTERS
The validity of the issuance of the Securities offered hereby will be
passed upon for the Company by Maurice J. Bates L.L.C., Dallas, Texas. Certain
legal matters in connection with the sale of the Securities offered hereby will
be passed upon for the Underwriters by Winstead Sechrest & Minick P. C., Dallas,
Texas.
EXPERTS
The financial statements as of February 28, 1997 and for each of the
two years in the period ended February 28, 1997 included in this Prospectus have
been so included in reliance on the report of Moss Adams LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
30
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants F-2
Consolidated Balance Sheet as of February 28, 1997 F-3
Consolidated Statement of Income for the years ended February 29, 1996 F-4
and February 28, 1997
Consolidated Statement of Changes in Shareholder's Equity for years ended F-5
February 29, 1996, and February 28, 1997
Consolidated Statement of Cash Flows for the years ended February 29, 1996, F-6
and February 28, 1997
Notes to Consolidated Financial Statements F-7
Consolidated Balance Sheet as of May 31, 1996 and 1997 (unaudited) F-16
Consolidated Statement of Income for the three months ended F-17
May 31, 1996 and 1997 (unaudited)
Consolidated Statement of Cash Flows for the three months ended F-18
May 31, 1996 and 1997(unaudited)
Notes to the Consolidated Financial Statements for the F-19
three months ended May 31, 1996 and 1997
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Westower Holdings Ltd. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Westower Holdings
Ltd. (a British Columbia corporation) and Subsidiaries as of February 28, 1997,
and the related consolidated statements of income, stockholders' equity, and
cash flows for the years ended February 29, 1996 and February 28, 1997. 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 audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Westower Holdings Ltd. and Subsidiaries as of February 28, 1997, and the results
of its operations and its cash flows for the years ended February 29, 1996 and
February 28, 1997 in conformity with generally accepted accounting principles.
/s/MOSS ADAMS LLP
MOSS ADAMS LLP
Bellingham, Washington
July 21, 1997
F-2
<PAGE>
WESTOWER HOLDINGS LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
February 28, 1997
ASSETS
CURRENT ASSETS
Cash $ 451,466
Accounts receivable, net 1,535,734
Costs and estimated earnings in excess of billings on
uncompleted contracts (Note 3) 357,150
Inventory - parts and supplies 94,666
Prepaid expenses 3,873
------------
Total current assets 2,442,889
PROPERTY AND EQUIPMENT, net (Notes 4 and 5) 1,426,265
INVESTMENT IN PARTNERSHIP (Note 7) 92,998
OTHER ASSETS 27,719
------------
TOTAL ASSETS $ 3,989,871
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable (Note 8) $ 1,326,698
Other current liabilities (Note 11) 251,850
Billings in excess of costs and estimated earnings on
uncompleted contracts (Note 3) 129,644
Current portion of long-term debt 358,662
Income taxes payable (Note 6) 148,685
Deferred income taxes (Note 6) 349,712
------------
Total current liabilities 2,565,251
LONG-TERM DEBT, excluding current portion 49,145
NOTES PAYABLE TO RELATED PARTIES (Note 8) 672,211
------------
Total liabilities 3,286,607
------------
COMMITMENTS (Note 12)
STOCKHOLDERS' EQUITY (Note 9)
Common stock of no par value, 10,000 shares authorized,
200 shares issued and outstanding 175
Foreign currency translation adjustment (Note 2) 26,777
Retained earnings 676,312
-------------
Total stockholders' equity 703,264
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,989,871
=============
F-3
<PAGE>
WESTOWER HOLDINGS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Years Ended February 29, 1996 and February 28, 1997
1996 1997
------- ------
CONTRACT REVENUES EARNED $ 5,191,314 $ 11,637,141
COSTS OF REVENUES EARNED 3,937,045 8,633,423
---------- ---------
Gross profit 1,254,269 3,003,718
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (Note 11) 891,788 1,885,171
OPERATING INCOME 362,481 1,118,547
OTHER INCOME (EXPENSE)
Equity from partnership (Note 7) 39,446 40,008
Interest expense (62,937) (33,841)
----------- -------------
INCOME BEFORE INCOME TAXES 339,010 1,124,714
INCOME TAXES (Note 6) 93,055 422,349
------- --------
NET INCOME $ 245,955 $ 702,365
========== ===========
EARNINGS PER SHARE $ 0.08 $ 0.23
=========== ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
BASED UPON CAPITAL STRUCTURE SUBSEQUENT TO
YEAR END (Notes 9 and 10) 3,000,000 3,000,000
========== ==========
F-4
<PAGE>
WESTOWER HOLDINGS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years Ended February 29, 1996 and February 28, 1997
Foreign
Retained Currency
Common Stock Earnings Translation
Shares Amount (Deficit) Adjustment Total
BALANCE, March 1, 1995 200 $175 $(276,564) $31,333 $(245,056)
Net Income - - 245,955 - 245,955
Translation adjustment - - 2,734 (2,734) -
------ ---------- -------- ------------- ----------
BALANCE, February 29, 1996 200 175 (27,875) 28,599 899
Net Income - - 702,365 - 702,365
Translation adjustment - - 1,822 (1,822) -
------ --------- --------- ------------ ---------
BALANCE, February 28, 1997 200 $ 175 $676,312 $ 26,777 $ 703,264
====== ========= ========= ========= =========
F-5
<PAGE>
WESTOWER HOLDINGS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Years Ended February 29, 1996 and February 28, 1997
Increase (Decrease) in Cash
1996 1997
CASH FROM OPERATING ACTIVITIES
Net income $245,955 $702,365
Adjustments to reconcile net income to
net cash from operating activities
Depreciation 75,184 86,154
Deferred income taxes 60,803 246,126
Income from partnership (39,466) (40,008)
Changes in operating assets and liabilities
Accounts receivable 67,003 (960,177)
Costs and estimated earnings in excess of billings on
uncompleted contracts (77,147) (170,935)
Other current assets 7,550 (96,458)
Other assets (32) (5,539)
Trade accounts payable (1,647) 828,757
Billings in excess of costs and estimated earnings on
uncompleted contracts 50,646 78,998
Other current liabilities 99,241 58,888
Income taxes payable (36,779) 143,758
--------- --------
Net cash flows from operating activities 451,311 871,929
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in partnership - (45,221)
Sales of property and equipment 155,544 -
Purchase of property and equipment (3,721) (995,367)
-------- ----------
Net cash flows from investing activities 151,823 (1,040,588)
-------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt (423,315) (250,614)
Proceeds from debt incurred 65,690 465,480
------- --------
Net cash flows from financing activities (357,625) 214,866
------- --------
NET INCREASE IN CASH 245,509 46,207
CASH AND CASH EQUIVALENTS, beginning of year 159,750 405,259
-------- --------
CASH AND CASH EQUIVALENTS, end of year $405,259 $451,466
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Taxes paid $69,031 $32,465
======== ========
Interest paid $62,937 $33,841
======== ========
F-6
<PAGE>
WESTOWER HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 29, 1996 and February 28, 1997
NOTE 1 - NATURE OF OPERATIONS
Westower Holdings Ltd. was incorporated in the Province of British Columbia,
Canada, and reincorporated
in Wyoming in July 1997.
Westower Holdings Ltd. has two subsidiaries, Payne Holdings Ltd. and Westower
Communications Ltd. (both British Columbia corporations), and Westower
Communications Ltd. has a wholly-owned subsidiary, Westower Communications, Inc.
(a Washington Corporation). Westower Holdings Ltd., and its subsidiaries are
herein referred to as the "Company".
The Company designs, builds, installs, modifies and maintains wireless
communications transmitting and receiving facilities primarily for providers of
wireless communications services. In addition, the Company provides design,
engineering, and testing services (collectively, "wireless infrastructure design
engineering services") and site acquisition and evaluation services ("site
acquisition services") in connection with the installation and relocation of
wireless communications facilities. The Company also manufactures and sells
unmanned communications shelters designed to be located adjacent to wireless
transmitting and receiving facilities to house electrical equipment associated
with such facilities. The Company's customers are located throughout North
America, but predominantly in the western United States and Canada.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Presentation - These financial statements are presented in U.S. currency and
prepared in conformity with U.S. Generally Accepted Accounting Principles.
(b) Principles of Consolidation - The consolidated financial statements include
the financial statements of Westower Holdings Ltd. and its wholly-owned
subsidiaries, Payne Holdings Ltd., Westower Communications Ltd. and Westower
Communications Inc. All significant intercompany balances and transactions have
been eliminated in consolidation.
(c) Invesment in Partnership - The Company owns a 50% interest in WTC Leasing
Partnership, an Alberta limited partnership which constructs and licenses
communication towers in western Canada. The Company accounts for its investment
using the equity method whereby the investment is increased for additional
contributions and the Company's pro-rata share of earnings and decreased by
amounts withdrawn and the Company's pro-rata share of losses.
(d) Contract Revenue and Cost Recognition - Revenue from fixed-price
construction contracts is recognized on the percentage-of-completion method.
Revenues from contracts based upon time and materials are recognized based upon
revenues earned for hours worked and materials consumed. Most of the Company's
contracts are short-term and are completed in two to three months. Contract
costs include all direct material and labor costs and those indirect costs
related to contract performance. Selling, general and administrative costs are
charged to expense as incurred. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined.
Costs and estimated earnings in excess of billings on uncompleted contracts
represents revenues recognized in excess of amounts billed. Billings in excess
of costs and estimated earnings on uncompleted contracts represents billings in
excess of revenues earned.
(e) Cash and Cash Equivalents - For purposes of cash flows reporting, cash and
cash equivalents consist of cash in banks and money market investments on
deposit with major Canadian and Northwest financial institutions.
(f) Accounts Receivable - The Company offers short-term credit to its customers.
Accounts receivable are considered fully collectible and are not collateralized.
(g) Inventory - The Company's inventory of parts and supplies is stated at the
lower of cost, computed on a first-in, first-out (FIFO) basis or market.
F-7
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(h) Property, Equipment and Depreciation - Property and equipment are stated at
cost less accumulated depreciation. Improvements which increase the useful life
of property, and replacements of major components of property are capitalized,
while maintenance, repairs and minor replacements are expensed as incurred.
Depreciation is provided using the straight-line method over the estimated
useful lives of the respective assets. Estimated useful lives by major
depreciable property and equipment category are as follows: buildings rented to
others, 20 years; furniture, fixtures and equipment, 3 to 10 years; and
vehicles, 5 years. SFAS No. 121 Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of requires that long-lived
assets and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstance indicate that
the carrying amount of an asset may not be fully recoverable. The Company has
adopted Statement 121 and believes all significant long-lived assets are fully
recoverable.
(i) Income Taxes - Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes currently due plus the
change in deferred taxes. Deferred taxes are recognized for differences between
the basis of assets and liabilities for financial statement and income tax
purposes. The differences relate primarily to the timing and recognition of
depreciation on depreciable assets and profit on uncompleted contracts. The
deferred tax amounts represent the future tax consequences of those differences,
which will either be deductible or taxable when the assets and liabilities are
recovered or settled.
(j) Translation of Foreign Currencies - Assets and liabilities of foreign
operations, where the functional currency is the local currency, are translated
in U.S. dollars at the rate of exchange in effect on the balance sheet date,
except for property and equipment, which is translated at the historical rates
of exchange in effect when the associated assets were purchased. Revenue and
expenses are translated using the average rates of exchange prevailing during
the year. Related translation adjustments are reflected in the stockholders
equity section of the consolidated balance sheet.
(k) 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.
Significant estimates subject to revisions and possibly material adjustment,
upon the outcome of future unknown events include the following:
(1) Contract Revenue and Cost Recognition - A significant portion of
construction revenues and costs are based upon management's estimates
which are in turn based upon past experience, reports from the field
and economic trends and long-term agreements. Actual revenues and costs
are therefore not known until contracts are completed and all revenues
are billed and costs invoiced and accepted. (2) Depreciation -
Depreciation represents an expense allocation matching asset costs to
revenue earned over the estimated lives of assets owned by the Company.
Periodically, the Company re-evaluates the lives and methods of
depreciation applied to its property and equipment and considers such
things as general condition and utility, technological status and
economic viability. Such evaluations may result in the Company's
revision and downward adjustment of asset carrying values in relatively
short-term time periods. (3) Income Taxes - The Company operates in a
number of taxing jurisdictions and endeavors to comply with all tax
laws as applicable, consistent with minimizing taxes paid by the
Company where possible. To comply with these laws the Company must
allocate and prorate certain items of revenue and expense in addition
to establishing appropriate transfer pricing policies. These
allocations and policies are subject to scrutiny and audit which may
result in the Company's need to adjust its tax accruals and provisions
as a result of its interactions with taxing authorities.
F-8
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(4) Translation Of Foreign Currencies - The Company's business
operations currently include significant operations in Canada. In
recent history the exchange rates between U.S. and Canadian currencies
have been relatively stable and translation adjustments have not been
significant. Exchange rates are affected by factors outside the
Company's control including political policies and actions and economic
trends and events. Accordingly, the values of assets and liabilities
denominated in the Canadian currency are subject to adjustment based
upon many factors.
(l) New Accounting Standards - In February 1997, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 128. The new standard replaces primary and fully diluted earnings per share
with basic and diluted earnings per share. SFAS No. 128 is required to be
adopted by the Company in the year ending February 28, 1998. Had the Company
been required to adopt SFAS No. 128 for the periods presented, the adoption
would not have impacted reported earnings per share.
In June 1997, the FASB issued SFAS No. 130 and 131. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its components.
SFAS No. 131 establishes standards for reporting about operating segments,
products and services, geographic areas, and major customers. The standards
become effective for fiscal years beginning after December 15, 1997. Management
plans to adopt these standards in the year ending February 28, 1999. Management
believes that provisions of SFAS No. 130 and 131 will not have a material effect
on its financial condition or reported results of operation.
NOTE 3 - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
The Company's costs, earnings and billings on uncompleted contracts at February
28, 1997 are as follows:
Costs incurred on uncompleted contracts $ 4,081,377
Estimated earnings 361,435
Less billings to date (4,215,306)
-------------
Total $ 227,506
=============
Included in the accompanying balance sheet
Costs and estimated earnings in excess of billings on
uncompleted contracts $357,150
Billings in excess of costs and estimated earnings on
uncompleted contracts (129,644)
------------
Total $ 227,506
============
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at February 28, 1997:
Land $ 804,573
Buildings 185,946
Vehicles 299,424
Furniture and fixtures 151,915
Equipment 188,606
Leasehold improvements 26,341
-------------
1,656,805
Less accumulated depreciation 230,540
$ 1,426,265
Depreciation expense on property, plant and equipment in 1996 and 1997 was
$75,184 and $86,154, respectively.
F-9
<PAGE>
NOTE 5 - LONG-TERM DEBT
The Company's long-term debt consists of the following at
February 28, 1997: Note payable to bank, due on demand, in
Canadian dollars, monthly principal payments of $1,764 plus
interest at the bank's prime rate (4.75%) plus 1%, and
secured by a mortgage on land and a security agreement on
all corporate assets. $211,700
Note payable to bank, due on demand, in Canadian dollars,
monthly principal payments of $2,172, plus interest at the
bank's prime rate (4.75%) plus 1% and secured by a mortgage
on land and buildings, and an assignment of rental income.
112,548
Notes payable to bank, maturing from April 1, 1998 to
September 1, 1999, with interest at rates from 7.5% to
9.99%, monthly payments of $2,573 and secured by vehicles.
48,580
Vehicle purchase financing with interest at 9.33%, monthly
payments of $788 and secured by a vehicle. 34,979
------
Total long-term debt 407,807
Less current portion (358,662)
---------
Long-term portion $ 49,145
=========
Long-term debt matures as follows:
Year Ending
February 28,
1998 $ 358,662
1999 21,200
2000 14,862
2001 13,083
----------
$ 407,807
The Company's loan agreements with banks contain covenants requiring a
subsidiary of the Company to maintain a working capital ratio of 1.25:1 and a
debt to equity ratio of 2.5:1. At February 28, 1997, both the Company and the
subsidiary were in breach of these two ratio requirements, as the consolidated
working capital ratio was .95:1 and the consolidated debt to equity ratio was
4.7:1. Under the terms of the agreements, the bank may declare a default and
call the notes if the Company is in violation of these requirements. As of July
21, 1997, the bank has not waived the ratio requirements, and the entire amount
of the bank notes of $324,248 is considered current at February 28, 1997.
NOTE 6 - INCOME TAXES
The provision for income taxes is comprised by the following:
1996 1997
---- ----
Current Canadian taxes $ 32,252 $ 43,399
Deferred Canadian taxes 60,803 248,474
Current U.S. Federal taxes - 118,712
Deferred U.S. Federal taxes (2,348)
Current State taxes - 14,112
---------- ----------
Total income tax provision $ 93,055 $ 422,349
========== ==========
F-10
<PAGE>
NOTE 6 - INCOME TAXES (Continued)
The total tax provision differs from the amount computed using the statutory
Federal and Canadian income tax rates as follows:
Canadian U.S. Total
Income Income Income
1996
Pretax net income $262,258 $76,752 $339,010
Statutory rates 45% 34% 43%
Tax at statutory 118,016 26,096 144,112
Benefit of graduated rates (24,961) - (24,961)
Effect of net operating loss carryover - (26,096) (26,096)
Provision for income taxes 93,055 - 93,055
Effective tax rates 35% 0% 27%
Canadian U.S. Total
Income Income Income
1997
Pretax net income $766,586 $358,128 $1,124,714
Statutory rates 45% 34% 41%
Tax at statutory rates 344,963 121,764 466,727
Benefit of graduated rates (53,090) (602) (53,692)
State income taxes, net of U.S. tax benefit - 9,314 9,314
Provision for income taxes 291,873 130,476 422,349
Effective tax rates 38% 36% 38%
The significant components of deferred income tax expense are as follows:
1996 1997
---- ----
Canadian Taxes
Depreciation of property and equipment $1,196 $(5,772)
Revenues recognized on uncompleted contracts 59,607 254,246
-------- -----------
Subtotal deferred income tax
expense for foreign taxes 60,803 248,474
Federal taxes
Depreciation of property and equipment - (2,348)
--------- ------------
Total deferred income tax expense $ 60,803 $ 246,126
========= =========
The tax effects of temporary differences that give rise to significant portions
of the deferred tax liability are as follows:
Property and equipment, principally due to depreciation
differences $ 1,235
Costs and estimated earnings in excess of billings on
uncompleted contracts 547,109
Billings in excess of costs and estimated earnings on
uncompleted contracts (198,712)
-----------
Total deferred tax liability $ 349,712
=========
NOTE 7 - INVESTMENT IN WTC LEASING PARTNERSHIP
(a) Nature of Operation - The Company owns a 50% interest in WTC Leasing, an
Alberta limited partnership (the Partnership). The Partnership constructed six
communication towers in western Canada, and generates substantially all revenues
through license agreements with a single wireless communication service
provider.
(b) Summary Financial Information - The following is summary financial
information for the Partnership as a whole:
F-11
<PAGE>
NOTE 7 - INVESTMENT IN WTC LEASING PARTNERSHIP (Continued)
SUMMARY BALANCE SHEET
1977
Assets
Current assets $ 24,572
Property and equipment, net 334,850
-----------
Total assets $ 359,422
===========
Liabilities and Equity
Accounts payable $ 18,234
Note payable 155,194
Equity 185,994
-----------
Total liabilities and equity $ 359,422
============
SUMMARY OPERATING RESULTS
1996 1997
---- ----
Revenues $151,562 $163,076
-------- --------
Expenses
Operating expenses 41,624 56,538
Depreciation 11,052 11,052
Interest 19,954 15,470
--------- --------
Total expenses 72,630 83,060
--------- --------
Pre-Tax income $ 78,932 $ 80,016
========= ========
(c) Property and Equipment - The Partnership purchased communication towers and
related equipment shelters from the Company and from another related party
entity holding an interest in the Partnership. Property and equipment is
depreciated using the straight-line method, over a twenty-year life for towers
and shelters. Costs and accumulated depreciation for the property and equipment
is as follows:
1996 1997
----- -----
Towers $ 281,340 $ 281,340
Shelters 100,482 89,430
---------- ------------
381,822 370,770
Less accumulated depreciation (42,955) (62,046)
---------- ------------
$ 338,867 $ 308,724
============ =============
The Company periodically evaluates the remaining useful life and recoverability
of such equipment in light of the unexpired term of the Licensing Agreements
discussed in paragraph (d) below. Since the renewal of the Licensing Agreements
through the estimated 20 year life of the equipment is not guaranteed, it is
reasonably possible that the Company's estimate that it will recover the
carrying amount of the equipment from future operations will change in the near
term.
(d) Licensing Agreements - The Partnership derives 100% of its revenues from
licensing agreements, for utilization of space on the Partnership's
communication towers. Substantially all of the agreements are with one customer.
At the expiration of the agreements in 1998 and 1999, the licensee may terminate
the agreements with no further obligation, renew the agreements for a five year
term at rates to be negotiated, or negotiate to purchase the towers on which the
license is held. Management expects the licensee to either renew the agreements
at similar terms, or negotiate to purchase the towers at the expiration of the
agreements. Future minimum license revenues under the agreements are due as
follows:
1998 $ 195,180
1999 151,765
(e) Debt Guarantee - The note payable owed to a bank by the Partnership in the
amount of $155,194 is collateralized by a General Security Agreement on the
assets of Westower Communications Ltd. and guaranteed by personal guarantees of
corporate officers.
F-12
<PAGE>
NOTE 8 - RELATED PARTY TRANSACTIONS
The Company receives consulting services from Westower Consulting, an enterprise
under common control with the Company. Charges for these services were
approximately $-0- in fiscal year 1996 and $93,500 in fiscal year 1997. Amounts
due to Westower Consulting were $36,500 at February 28, 1997. The Company
expects that payments to Westower Consulting will not continue in fiscal year
1998 because the related services will be performed by Company employees and
officers.
The Company purchases goods and services from Western Telecom Construction Ltd.,
a corporation owned by a family member of one of the stockholders of the
Company. During the years ended February 29, 1996 and February 28, 1997,
purchases by the Company from Western Telecom Construction Ltd. were $805,143
and $1,822,326, respectively. Trade accounts payable to Western Telecom were
$483,379 at February 28, 1997. The Company also sold goods and services to
Western Telecom Construction, Ltd. in the amount of $856,003 in 1996 and
$554,181 in 1997. Additionally, as discussed in Note 7(c), a portion of the cost
of communication towers was purchased from Western Telecom Construction Ltd. in
1994 for $196,626.
Notes payable to related parties are detailed as follows:
Unsecured notes payable to a member of Company management
and his spouse, in Canadian dollars, with interest at 5% per
year, and by agreement, no principal payments required prior
to June 30, 1998, thereafter due on demand. $ 452,199
Unsecured note payable to a corporation controlled by a
director, in Canadian dollars, without interest and by
agreement, no principal payments required prior to June 30,
1998. 120,012
Unsecured note payable to a director without interest and by
agreement, no principal payments required prior to June 30,
1998. 100,000
-------
$ 672,211
As discussed in Note 9, the Company intends to raise capital through a sale of
securities to the public in 1997, the proceeds of which are intended in part to
be used to retire this existing related party debt.
NOTE 9 - SUBSEQUENT EVENTS
In June 1997, Westower Corporation was incorporated in Washington, and
subsequently acquired all the issued shares of Westower Holdings Ltd., in
exchange for 3,000,000 shares of its common stock. Westower Corporation has
10,000,000 shares of common stock authorized. In July 1997, Westower Holdings
Ltd. renounced its incorporation in British Columbia, and received a Certificate
of Incorporation in the state of Wyoming. The Company intends to raise capital
in the new Company through an underwritten public offering of 1,000,000 shares
of common stock and 1,000,000 Redeemable Common Stock Purchase Warrants
registered with the Securities and Exchange Commission on Form SB-2. Expected
gross proceeds are approximately $7,500,000.
Subsequent to year end, Westower Corporation authorized and implemented a stock
option plan for the purposes of awarding options to employees. Westower
Corporation authorized and reserved 400,000 shares for this purpose. In June
1997, options for 132,000 shares were granted to key executives at an exercise
price of $8.25 per share and 24,000 at an exercise price of $7.50 per share.
One-third of the options will become exercisable in January 1998, with the
second one-third exercisable in January 1999, and the final one-third
exercisable in January 2000.
Earnings per share have been presented by giving retroactive effect to the
Company's issuance of 3,000,000 shares, no shares were deemed outstanding
through stock options as the exercise price of the issued options equals or
exceeds the contemplated initial offering price.
F-13
<PAGE>
NOTE 9 - SUBSEQUENT EVENTS (Continued)
On March 31, 1997 the Company obtained a $250,000 line of credit from Hong Kong
Bank of Canada for a six-month period. The agreement contains certain covenants
and restrictions including a limitation on the payment of dividends.
NOTE 10 - EARNINGS PER SHARE
Earnings per common share are computed by dividing net income by the total of
the number of common shares outstanding assuming a retroactive issuance of
3,000,000 shares.
NOTE 11 - RETIREMENT PLAN
The Company's Washington subsidiary, Westower Communications Inc. adopted a
defined contribution retirement plan, effective January 1, 1997. The plan
contains certain participation criteria and allows for both employee and
employer discretionary contributions. The total Company funded discretionary
contribution for 1997 was $46,114.
NOTE 12 - COMMITMENTS
The Company is a guarantor on a bank loan held by WTC Leasing Partnership
(discussed further in Note 7), in the amount of $155,194 at February 28, 1997.
The Company leases office space in Washington under a noncancelable lease
expiring December 31, 1999. The following is a schedule of future minimum
noncancelable lease payments under this agreement:
Year Ending
February 28,
1998 $ 27,000
1999 27,000
2000 22,500
----------
Total $ 76,500
=========
Rent expense for the year ended February 28, 1997 was $27,450.
NOTE 13 - INFORMATION ABOUT CREDIT RISK AND BUSINESS CONCENTRATIONS
Assets for which the Company has credit risk include trade accounts receivable,
which amounted to $1,535,734 at February 28, 1997. The Company's trade customers
are concentrated in the wireless communications industry. Sales to 12 major
customers approximated 73% and 84% of total sales for the years ended February
29, 1996 and February 28, 1997, respectively. Amounts due from four customers
approximated 73% of the total accounts receivable at February 28, 1997.
The Company expects that sales to relatively few customers will continue to
account for a high percentage of its net sales in the foreseeable future and
believes that its financial results depend in significant part upon the success
of these few customers. Although the composition of the group comprising the
Company's largest customers may vary from period to period, the loss of a
significant customer or any reduction in orders by any significant customers,
including reductions due to market, economic or competitive conditions in the
wireless communications industry, may have a material adverse effect on the
Company's business, financial condition and results of operations.
F-14
<PAGE>
NOTE 13 - INFORMATION ABOUT CREDIT RISK AND BUSINESS CONCENTRATIONS (Continued)
The following table represents approximate sales and net income (1996 and 1997)
and net assets (1997) related to the geographic regions in which the Company
operates.
1996
Total United States Canada
Sales 100% 30% 70%
=== == ==
Net Income 100% 31% 69%
=== == ==
1997
Total United States Canada
Sales 100% 40% 60%
=== == ==
Net Income 100% 32% 68%
=== == ==
Net Assets 100% 31% 69%
=== == ==
NOTE 14 - DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB Statement No. 107, Disclosures About Fair Value of Financial Instruments,
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate that value.
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash, accounts receivable, trade accounts payable and other current liabilities
- - The carrying value amounts reported in the balance sheet for these items
approximate those accounts fair values.
Long-term Debt - The fair value of long-term debt approximates carrying value.
Notes Payable to Related Parties - It is not practica1 to estimate fair value of
notes payable to related parties as these creditors have a history of liberally
modifying terms in favor of the Company to accommodate working capital and
liquidity requirements. Accordingly, the exact payment dates are not
determinable and it is not practicable to estimate the value of the flexibility
available to the Company inherent in the note payable arrangements with these
related parties. However, it is expected that these obligations will be paid if
the Company is successful in raising capital through a public offering..
F-15
<PAGE>
WESTOWER HOLDINGS LTD.
CONSOLIDATED BALANCE SHEETS
May 31, 1996 and 1997
(Unaudited)
ASSETS
1996 1997
------ ------
CURRENT ASSETS
Cash $ 67,649 $ 366,334
Contracts receivable, net 1,265,005 2,068,472
Costs and estimated earnings in excess
of billings on uncompleted contracts 297,776 1,062,260
Inventory (note 2) -- 221,826
---------- ----------
1,630,430 3,718,892
PROPERTY AND EQUIPMENT, net 693,465 1,528,155
Investment in Partnership 73,900 99,806
Other assets, net 23,740 63,810
---------- ----------
$2,421,535 $5,410,663
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 911,438 $1,390,309
Billings in excess of costs and estimated
earnings on uncompleted contracts 149,915 997,130
Current portion of long-term debt 155,058 247,022
Bonuses payable 284,762 244,550
Income taxes 7,417 137,388
Deferred income taxes 138,238 568,712
---------- ----------
Total current liabilities 1,646,828 3,585,111
LONG-TERM DEBT 37,533 179,653
NOTES PAYABLE TO RELATED PARTIES 664,631 585,298
---------- ----------
Total liabilities 2,348,992 4,350,062
---------- ----------
STOCKHOLDERS' EQUITY
Capital Stock 175 175
Foreign Currency Translation Adjustment 28,599 26,777
Retained Earnings 43,769 1,033,649
---------- ----------
Total stockholders' equity 72,543 1,060,601
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,421,535 $5,410,663
========== ==========
F-16
<PAGE>
WESTOWER HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF INCOME
FOR THREE MONTHS ENDED MAY 31, 1996 AND 1997
(Unaudited)
1996 1997
------ ------
Contract Revenues Earned $1,881,332 $3,288,173
Costs of Revenues Earned 1,361,943 2,385,913
---------- ----------
Gross Profit 519,389 902,260
Selling, General and Administrative Expenses 401,128 312,411
---------- ----------
Earnings Before the Following 118,261 589,849
Interest Expense 11,439 13,512
---------- ----------
Earnings Before Income Taxes 106,822 576,337
Income Taxes 37,000 219,000
---------- ----------
Net Income $ 69,822 $ 357,337
========== ==========
F-17
<PAGE>
WESTOWER HOLDINGS LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED MAY 31, 1996 AND 1997
(Unaudited)
1996 1997
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 69,822 $ 357,337
Adjustment to reconcile net earnings to net
cash provided by earnings
Depreciation and amortization 15,411 46,005
Changes in non-cash current assets
and liabilities (net) (330,077) (223,325)
--------- ---------
Net cash provided by (used in)
Operating activities (244,844) 180,017
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (87,324) (133,535)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt (6,147) (162,029)
--------- ---------
NET INCOME (DECREASE) IN CASH (338,315) (115,547)
CASH - beginning of period 405,964 451,466
--------- ---------
CASH - end of period $ 67,649 $ 366,334
========= =========
SUPPLEMENTAL DISCLOSURE
Interest paid $ 6,564 $ 8,938
========= =========
F-18
<PAGE>
WESTOWER HOLDINGS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MAY 31, 1996 AND 1997
(Unaudited)
Notes 1: Basis of Presentation
The notes to the consolidated financial statements do not present all
disclosures required under generally accepted accounting principles but instead,
as permitted by Securities and Exchange Commission regulations, presume that
users of the interim financial statements have read or have access to the
February 28, 1997 audited consolidated financial statements and that the
adequacy of additional disclosure needed for a fair presentation may be
determined in that context.
The financial information included herein reflects all adjustments (consisting
of normal recurring adjustments) which are, in the opinion of management,
necessary to a fair presentation of the results for interim periods. The results
of operations for the three-month period ended May 31, 1996 and 1997
respectively are not necessarily indicative of the results to be expected for
the full year.
Note 2: Inventory
Inventory is stated at the lower of cost and estimated net realizable value
using the first in first out method. Inventory consists of materials purchased
for future construction not associated with specific jobs.
F-19
<PAGE>
No person has been authorized to give any information or to make any
representation in connection with this offering other than those contained in
this Prospectus and, if given or made, such information or representation 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 securities to which it relates or an
offer to sell or the solicitation of an offer to buy such securities in any
circumstances in which such offer or solicitation is unlawful. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstance, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information herein is
correct as of any time subsequent to the date hereof.
TABLE OF CONTENTS
PAGE
Additional Information.................... 2
Prospectus Summary........................ 3
Risk Factors.............................. 6
Use of Proceeds........................... 11
Dividend Policy........................... 11
Dilution.................................. 12
Capitalization............................ 13
Management's Discussion and
Analysis of Financial Condition
and Results of Operation................. 14
Business.................................. 17
Management................................ 21
Principal Shareholders.................... 24
Certain Relationships
and Related Transactions............... 25
Description of Securities................. 26
Shares Eligible For Future Sale........... 27
Underwriting.............................. 28
Legal Matters............................. 30
Experts................................... 30
Index to Financial Statements............. F-1
..........Until ____ , 1997 (25 days from the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligations of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
1,000,000 UNITS
Each Unit Consisting of
One Share of Common Stock
and
One Redeemable Common
Stock Purchase Warrant
OFFERING PRICE
$7.50
PER UNIT
Westower
Corporation
Prospectus
, 1997
Tejas Securities Group, Inc.
1250 Capital of Texas Hwy. South
Austin, Texas 78746
1-800-846-6803 Extension 241
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers. Pursuant to Section
23B.08.500 of the Washington Business Corporation Act, a corporation may
indemnify an individual made a party to a proceeding because the individual is
or was a director against liability incurred in his official capacity with the
corporation including expenses and attorneys fees. Article VII of the Bylaws
provides that the Company may indemnify and hold harmless to the full extent
permitted by applicable law each person who was or is made party to or is
threatened to be made a party to or is involved in an actual or threatened
action, suit or other proceeding, civil or criminal, by reason of the fact that
he is or was a director, officer, employee or agent of the Company against all
expenses, liabilities and losses, including attorneys fees, judgements, fines,
and ERISA excise taxes or penalties, actually or reasonably incurred or suffered
by such person in connection with any such action. Article VI of Articles of
Incorporation provides that any personal liability of a director to the
corporation or its shareholders for monetary damages for conduct as a director
is eliminated, except for any liability for any acts or omissions that involve
intentional misconduct by a director or a knowing violation of a law by a
director, for conduct violating RCW 23B.08.310, for any transaction from which
the director will personally receive a benefit in money, property, or services
to which the director is not legally entitled, or for any act or omission
occurring prior to the date when this Article becomes effective. If after this
Article becomes effective the Washington Business Corporation Act is amended to
authorize further elimination or limitation of liability of a director, then,
upon the effective date of the amendment, the liability of a director shall be
further eliminated and limited without further act to the fullest extent so
authorized. No amendment or repeal of these Articles of Incorporation shall
reduce the extent of any elimination or limitation of liability of a director
existing immediately prior to the amendment or repeal. Article VII of the
Articles of Incorporation provides for indemnification of the directors and
officers as follows: "ARTICLE VII INDEMNIFICATION OF DIRECTORS AND OFFICERS 7.1
Right to Indemnification. EACH INDIVIDUAL (including an individual's personal
representative) who was or is made a party or is threatened to be made a party
to, or is otherwise involved (including, without limitation, as a witness) in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, investigative or by or in the right of the
corporation, or otherwise (a "Proceeding") because the individual or another
individual of whom the individual is a personal representative: (a) is or was a
director or officer of the corporation or any predecessor entity, or
(b) being or having been such a director or officer, is or was serving at the
request of the corporation or any predecessor entity as a director, officer,
partner, trustee, employee, agent, or in any other relationship or capacity
whatsoever, of any other foreign or domestic corporation, partnership, joint
venture, employee benefit plan or trust or other trust, enterprise or other
private or governmental entity, agency, board, commission, body or other unit
whatsoever ( (a) and (b) collectively, an "Indemnitee")
SHALL BE INDEMNIFIED AND HELD HARMLESS by the corporation to the fullest extent
not prohibited by the Washington Business Corporation Act as the same exists or
may hereafter be amended (but, in the case or any amendment, only to the extent
that the amendment does not prohibit the corporation from providing broader
indemnification rights than prior to the amendment) IF the Indemnitee acted in
good faith and reasonably believed the Indemnitee's conduct was in the
corporation's best interests (in the case of conduct in the Indemnitee's
official capacity with the corporation) and (in all other cases) was at least
not opposed to the corporation's best interests and is fairly and reasonably
entitled to indemnification in view of all the relevant circumstances
("Corporation's Standards for Indemnification"), WITHOUT REGARD TO the
limitations in RCW 23B.08.510 through 23B.08.550, AND WHETHER OR NOT the
Indemnitee met the standard of conduct set forth in RCW 23B.08.510 or any other
standard of conduct set forth in RCW 23B.08.500 through RCW 23B.08.580, AGAINST
ALL DIRECT AND INDIRECT EXPENSES, LIABILITIES AND LOSSES (including but not
limited to attorney fees, judgments, settlements, penalties, fines, ERISA and
employee benefit plan and other excise taxes and other taxes and penalties,
environmental and remediation expenses, settlements, penalties and fines, and
other adverse effects) that are actually incurred or suffered by the Indemnitee
in connection with the Proceeding (whether or not the basis of the Proceeding is
alleged conduct, action or inaction in an official capacity as a director,
officer, partner, trustee, employee, agent, or in any other relationship or
capacity whatsoever).
The indemnification granted in the Article is a contract right and includes the
right to payment by, and the right to receive reimbursement from, the
corporation of all the Indemnitee's expenses as they are incurred, including
advances in advance of final disposition of the Proceeding. The term "expenses"
as used in this Article includes without limitation all counsel and attorneys'
fees and costs. Notwithstanding the foregoing, an advance for expenses incurred
by an Indemnitee who is a party to a Proceeding because the Indemnitee is or was
a director of the corporation or any predecessor entity shall be made in advance
of final disposition of the Proceeding only upon receipt by the corporation of
(i) a written undertaking (hereinafter an "undertaking") executed personally or
on the Indemnitee's behalf to repay the advance if and to the extent it is
ultimately determined by order of a court having jurisdiction (which
determination shall become final upon expiration of all rights to appeal,
hereinafter a "final adjudication") that the Indemnittee is not entitled to be
indemnified for such expenses under this Article, and (ii) a written affirmation
by the Indemnitee of the Indemnitee's good faith belief that the Indemnitee has
net the Corporation's Standards for Indemnification as defined in this Article
for the amount claimed. The undertaking must be an unlimited general obligation
of the Indemnitee, unsecured and without reference to financial ability to make
repayment. 7.2 Court-Ordered Indemnification or Advance; Presumption. If any
claim for indemnification or advance of expenses under Section 7.1 of this
Article is not paid in full by the corporation within 30 days after a written
claim has been received by the corporation, the Indemnitee may at any time
thereafter apply for indemnification or advance of expenses to the court
conducting the Proceeding or to another court of competent jurisdiction. If the
Indemnitee is successful in whole or in part in any such application, the
corporation shall also pay to Indemnitee all the Indemnitee's expenses in
connection with the application. The Indemnitee shall be presumed to be entitled
to indemnification and advances of expenses under this Article upon the
corporation's receipt of Indemnitee's written claim (and in any application to a
court for indemnification or advance of expenses), and thereafter the
corporation shall have the burden of proof to overcome that presumption. Neither
the fact that the corporation (including its board of directors, special legal
counsel or its shareholders under RCW 23B.08.550, or otherwise) did, nor the
fact that the corporation (including its board of directors, special legal
counsel or its shareholders under RCW 23B.08.550, or otherwise) did not, make a
determination that the Indemnitee is or is not entitled to indemnification or
advance of expenses, shall be a defense to the application or create a
presumption that the Indemnitee is not so entitled. If the Indemnitee applies to
a court having jurisdiction for determination of the right to indemnity or
advance of expenses, or amount thereof, the court's determination shall become
final upon expiration of all rights to appeal, and such a final adjudication
shall supersede any other determination made in accordance with RCW 23B.08.550,
or otherwise.
7.3 Nonexclusivity of Rights, Severability. The right to
indemnification (including but not limited to payment, reimbursement and
advances of expenses) granted in this Article is not exclusive of any other
rights that any individual may have or hereafter acquire under any statute,
common law, provision of the Articles of Incorporation or Bylaws of the
corporation, agreement, vote or resolution of shareholders or disinterested
directors, or otherwise. Notwithstanding any amendment to or repeal of this
Article, any Indemnitee shall be entitled to indemnification and advance of
expenses in accordance with the provisions of this Article with respect to any
conduct, acts or omissions of the Indemnitee occurring prior to the amendment or
repeal. If any provision or term of this Article is determined to be void or
unenforceable for any reason, the remaining provisions and terms shall remain in
full force and effect.
7.4 Insurance, Contracts and Funding. The corporation may purchase and
maintain insurance, at its expense, to protect itself and any individual
(including an individual's personal representative) who is or was a director,
officer, employee or agent of the corporation or any predecessor entity or who
being or having been such a director or officer, is or was serving at the
request of the corporation or any predecessor entity as a director, officer,
partner, trustee, employee, agent, or in any other relationship or capacity
whatsoever, of any foreign or domestic corporation, partnership, joint venture,
employee benefit plan or trust or other trust, enterprise or other private or
governmental entity, agency, board, commission, body or other unit whatsoever,
against any expense, liability or loss, whether or not the corporation would
have power to indemnify the individual against the same expense, liability or
loss under the Washington Business Corporation Act, or RCW 23B.08.510 or
23B.08.520, or otherwise. The corporation may grant indemnity, and may enter
into contracts granting indemnity, to any such individual, whether or not in
furtherance of the provisions of this Article, and may create trust funds, grant
security interests and use other means (including, without limitation, letters
of credit) to secure and ensure the payment of indemnification amounts.
7.5 Partial Indemnification. If an Indemnitee is entitled to
indemnification by the corporation for some or a portion of expenses,
liabilities or losses, but not for the total amount thereof, the corporation
shall nevertheless indemnify the Indemnitee for the portion of the expenses,
liabilities and losses to which the Indemnitee is entitled. 7.6 Successors and
Assigns. All obligations of the corporation to indemnify any Indemnitee: (i) are
binding upon all successors and assigns of the corporation (including any
transferee of all or substantially all of its assets and any successor by merger
or otherwise by operation of law), (ii) are binding on and inure to the benefit
of the spouse, heirs, personal representatives and estate of the Indemnitee, and
(iii) shall continue as to an Indemnitee who has ceased to be a director,
officer, partner, trustee, employee, or agent (or other relationship or
capacity) included in the definition of Indemnitee in Section 7.1 of this
Article. The corporation shall not effect any sale or other transfer of
substantially all of its assets, merger, consolidation or other reorganization
unless the purchaser, transferee, successor or surviving entity (as the case may
be) agrees in writing to assume all such obligations of the corporation." Item
25. Other Expenses of Issuance and Distribution Estimated expenses in connection
with the public offering by the Company of the securities offered hereunder are
as follows:
Securities and Exchange Commission Filing Fee $ 6,296
NASD Filing Fee 2,502
Blue Sky Fees and Expenses* 5,000
American Stock Exchange Application and Listing Fee* 30,000
Accounting Fees and Expenses* 40,000
Legal Fees and Expenses* 70,000
Printing* 85,000
Fees of Transfer Agents and Registrar* 5,000
Underwriters' Non-Accountable Expense Allowance 150,000
Miscellaneous* 106,262
--------
Total* $500,000
========
- --------
* Estimated.
Item 26. Recent Sales of Unregistered Securities
The following is a summary of the only transaction by the Registrant
during the last three years involving the sale of securities which were not
registered under the Securities Act:
In June 1997, the Registrant issued 3,000,000 shares of its Common Stock to the
four shareholders of Westower Holdings Ltd. ("Ltd") in exchange for all of the
outstanding shares of Ltd. Three of the four shareholders of Ltd. were officers
and directors of that company and in the transaction became officers and
directors of the Registrant. The fourth shareholder continues as a principal
shareholder of the registrant as he was with Ltd. No underwriter was involved in
the transaction. The transaction was exempt from registration under the
Securities Act pursuant to Section 4 (2) thereunder as a transaction not
involving a public offering.
Item 27. Exhibits
Exhibit No. Item
- ----------- ----
Exhibit 1.1 Form of Underwriting Agreement as Amended.(1)
Exhibit 1.2 Form of Underwriters' Warrant Agreement as Amended.(1)
Exhibit 1.3 Form of Selected Dealer Agreement as Amended.(1)
Exhibit 1.4 Form of Agreement Among Underwriters as Amended.(1)
Exhibit 3.1 Articles of Incorporation.(3)
Exhibit 3.2 Bylaws of the Registrant(3)
Exhibit 5.1 Opinion of Maurice J. Bates LLC(1)
Exhibit 10.1 Form of Warrant Agreement.(3)
Exhibit 10.2 1997 Stock Option Plan(3)
Exhibit 10.3 Consent of Outside Director(1)
Exhibit 21.1 Revied Subsidiaries of the Registrant.(1)
Exhibit 23.1 Consent of Moss Adams, LLP Certified Public Accountants.(1)
Exhibit 23.2 Consent of Maurice J. Bates LLC. is contained in his opinion
filed as Exhibit 5.1 .(1)
Exhibit 27.1 Financial Data Schedule (1)
(1) Filed herewith
(2) To be filed by amendment
(3) Prevoisly filed
Item 28. Undertakings
The undersigned registrant hereby undertakes as follows:
(1) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
(2) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to: (i) Include any Prospectus required by Section
10(a)(3) of the Securities Act; (ii) Reflect in the Prospectus
any facts or events which, individually or together,
represent a fundamental change in the information in
the Registration Statement Notwithstanding the
foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation form the low or high
end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424 (b) if, in the
aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration
Statement; and
(iii) Include any additional or changed material information
on the plan of distribution.
(3) For determining any liability under the Securities Act, treat
each post-effective amendment that as a new Registration
Statement of the securities offered, and the offering of the
securities at that time to be deemed to be the initial bona
fide offering
(4) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering..
(5) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or
persons controlling the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised
that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy, as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
shares of the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
(7) For determining any liability under the Securities Act, treat
the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the small
business issuer under Rule 424(b)(1), or (4) or 497(h) under
the Securities Act as part of this Registration Statement as
of the time the Commission declared it effective.
(8) For determining any liability under the Securities Act, treat
each post-effective amendment that contains a form of
prospectus s anew registration statement for the securities
offered in the registration statement, and that offering of
the securities at that time as the initial bona fide offering
of those securities.
<PAGE>
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 authorizes this Amedment No. 1
to the registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Vancouver, State of Washington on
September 19, 1997.
Westower Corporation.
By:/s/ Calvin J. Payne
Calvin J. Payne, Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose
signature appears below constitutes and appoints Calvin J. Payne, S. Roy
Jeffrey, and Peter Lucas, and each for them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities (until revoked in writing), to sign any and all further amendments to
this Registration Statement (including post-effective amendments), and to file
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto such
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person thereby ratifying and confirming all that said
attorneys-in-fact and agents, and each of them, or their substitutes may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ Calvin J. Payne
- ------------------------------
Calvin J. Payne Chairman of the Board and September 19, 1997
Chief Executive Officer
/s/ S. Roy Jeffery* (Principal Executive Officer)
- ------------------------------
S. Roy Jeffrey Director September 19, 1997
/s/ Walter Friesen*
- ------------------------------
Walter Friesen Director September 19, 1997
/S/ Peter Lucas*
- ------------------------------
Peter Lucas Chief Financial Officer September 19, 1997
(Principal Financial
and Accounting Officer)
* By Power of Attorney
<PAGE>
1,000,000 Units
WESTOWER CORPORATION
Each Unit Consisting of
One share of Common Stock and
One Redeemable Common Stock Purchase Warrant
, 1997
UNDERWRITING AGREEMENT
TEJAS SECURITIES GROUP, INC.
As Representative of the Several Underwriters
c/o: Tejas Securities Group, Inc.
1250 Capital of Texas Hwy. South Building Two
Suite 500
Austin, Texas 78746
Dear Sirs:
Westower Corporation, a Washington Corporation (the "Company"),
proposes to sell, in each case to you and the other underwriters named in
Schedule I hereto (collectively, the "Underwriters"), for whom Tejas Securities
Group, Inc. is acting as managing underwriter and representative (the
"Representative"), in the respective amounts set forth opposite each
Underwriter's name in Schedule I hereto an aggregate of 1,000,000 units, each
Unit consisting of one share of Common Stock, $.01 par value per share, of the
Company (the "Common Stock"), and one redeemable common stock purchase warrant
(individually, a "Redeemable Warrant"), each of which entitles the holder
thereof to purchase one share of Common Stock at a price of $___. Such Units,
together with (a) the shares of Common Stock and Redeemable Common Stock
Purchase Warrant comprising such Units and (b) the shares of Common Stock
issuable upon exercise of such Redeemable Common Stock Purchase Warrant are
collectively referred to herein as the "Underwritten Securities"). The Company
and certain shareholders (the "Selling Shareholderss") also propose to grant to
the Underwriters (i) the Underwriters' Option (described in Section 2(b) hereof)
to purchase up to an aggregate of 150,000 additional Units solely to cover
over-allotments in the sale of the Underwritten Securities (such additional
Units, together with (a) the shares of Common Stock and Redeemable Common Stock
Purchase Warrants comprising such additional Units and (b) the shares of Common
Stock issuable upon exercise of such Redeemable Common Stock Purchase Warrants,
are collectively referred to herein as the "Option Securities"); and (ii) the
Underwriters' Warrants (described in Section 7 hereof) to purchase 100,000
additional Units, which additional Units are identical to the Units described
above (individually, such Underwriters' Warrants and additional Units, together
with (a) the shares of Common Stock and Redeemable Common Stock Purchase
Warrants comprising such additional Units and (b) the shares of Common Stock
issuable upon exercise of such Redeemable Common Stock Purchase Warrants, are
collectively referred to herein as the ("Underwriters' Securities"). The
Underwritten Securities, the Option Securities and the Underwriters' Securities
are collectively referred to herein as the "Securities."
The terms which follow, when used in this Agreement, shall have the
meanings indicated. The term "Effective Date" shall mean each date that the
Registration Statement (as defined below) and any post-effective amendment or
amendments thereto became or become effective. "Execution Time" shall mean the
date and time that this Agreement is executed and delivered by the parties
hereto. The term "Preliminary Prospectus" shall mean any preliminary prospectus
referred to in Section 1(a)(i) below with respect to the offering of the
Securities, and any preliminary prospectus included in the Registration
Statement at the Effective Date that omits Rule 430A Information (as defined
below). Capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in the most recent Preliminary Prospectus which predates or
coincides with the Execution Time. "Prospectus" shall mean the final prospectus
with respect to the offering of the Securities that contains the Rule 430A
Information. "Registration Statement" shall mean the registration statement
referred to in Section 1(a)(i) below, including Exhibits and Financial
Statements, in the form in which it has or shall become effective and, in the
event any post-effective amendment thereto becomes effective prior to the
Closing Date (as hereinafter defined) or any settlement date pursuant to Section
3(c) hereof, shall also mean such registration statement as so amended on such
date. Such term shall include Rule 430A Information (as defined below) deemed to
be included therein at the Effective Date as provided by Rule 430A. "Rule 424"
and "Rule 430A" refer to such rules under the Securities Act of 1933, as amended
(the "Act"). "Rule 430A Information" means information with respect to the
Securities and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A.
1. Representations and Warranties of the Company.
The Company represents and warrant to, and agrees with, each
Underwriter that:
(a) The Company meets the requirements for the use of Form
SB-2 under the Act and has filed with the Securities and Exchange
Commission (the "Commission") a registration statement, including a
related preliminary prospectus ("Preliminary Prospectus"), on Form SB-2
(Commission File No._______) (the "Registration Statement") for the
registration under the Act of the Securities. The Company may have
filed one or more amendments thereto, including related Preliminary
Prospectuses, each of which has previously been furnished to you. The
Company will next file with the Commission either, prior to
effectiveness of such Registration Statement, a further amendment
thereto (including the form of Prospectus) or, after effectiveness of
such Registration Statement, a Prospectus in accordance with Rules 430A
and 424(b)(1) or (4). As filed, such amendment and form of Prospectus,
or such Prospectus, shall include all Rule 430A Information and, except
to the extent the Representative shall agree in writing to a
modification, shall be in all substantive respects in the form
furnished to you prior to the Execution Time or, to the extent not
completed at the Execution Time, shall contain only such specific
additional information and other changes (beyond that contained in the
latest Preliminary Prospectus) as the Company has advised you in
writing, prior to the Execution Time, will be included or made therein.
(b) Each Preliminary Prospectus, at the time of filing
thereof, conformed in all material respects with the applicable
requirements of the Act and the rules and regulations thereunder and
did not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading. If the Effective
Date is prior to or simultaneous with the Execution Time, (i) on the
Effective Date, the Registration Statement conformed in all material
respects to the requirements of the Act and the rules and regulations
thereunder and did not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading, and
(ii) at the Execution Time, the Registration Statement conforms, and at
the time of filing of the Prospectus pursuant to Rule 424(b), the
Registration Statement and the Prospectus will conform, in all material
respects to the requirements of the Act and the rules and regulations
thereunder, and neither of such documents includes, or will include,
any untrue statement of a material fact or omits, or will omit, to
state a material fact required to be stated therein or necessary in
order to make the statements therein (and, in the case of the
Prospectus, in the light of the circumstances under which they were
made) not misleading. If the Effective Date is subsequent to the
Execution Time, on the Effective Date, the Registration Statement and
the Prospectus will conform in all material respects to the
requirements of the Act and the rules and regulations thereunder, and
neither of such documents will contain any untrue statement of any
material fact or will omit to state any material fact required to be
stated therein or necessary to make the statements therein (and, in the
case of the Prospectus, in the light of the circumstances under which
they were made) not misleading. The two preceding sentences do not
apply to statements in or omissions from the Registration Statement or
the Prospectus (or any supplements thereto) based upon and in
conformity with information furnished in writing to the Company by or
on behalf of any Underwriter through the Representative specifically
for use in connection with the preparation of the Registration
Statement or the Prospectus (or any supplements thereto).
(c) The Company has no subsidiaries other than those listed in
the Registration Statement as of the Effective Date.
(d) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction in which it is chartered or organized, with full corporate
power and corporate authority to own its properties and conduct its
business as described in the Prospectus, and is duly qualified to do
business as a foreign corporation and is in good standing under the
laws of each jurisdiction in which it conducts its business or owns
property and in which the failure, individually or in the aggregate, to
be so qualified would have a material adverse effect on the properties,
assets, operations, business or condition (financial or otherwise) of
the Company ("Material Adverse Effect"). The Company has all necessary
authorizations, approvals, orders, licenses, certificates and permits
of and from all government regulatory officials and bodies, to own its
properties and conduct its business as described in the Prospectus
except where the absence of any such authorization, approval, order,
license, certificate or permit would not have a Material Adverse
Effect.
(e) The Company does not own any shares of capital stock or
any other securities of any corporation or any equity interest in any
firm, partnership, association or other entity other than as described
in the Registration Statement and ownership interests that would not
have a Material Adverse Effect.
(f) The Company's equity capitalization is as set forth in the
Prospectus; the capital stock of the Company conforms in all material
respects to the description thereof contained in the Prospectus; all
outstanding shares of Common Stock have been duly and validly
authorized and issued and are fully paid and nonassessable, and the
certificates therefor are in valid and sufficient form; there are, and,
on the Effective Date, the "Closing Date" (as defined in Section 3(a)
hereof) and any settlement date pursuant to Section 3(b) hereof, there
will be, no other classes of stock outstanding except Common Stock; all
outstanding options to purchase shares of Common Stock have been duly
and validly authorized and issued; except as described in the
Prospectus, there are, and, on the Closing Date and any settlement date
pursuant to Section 3(b) hereof, there will be, no options, warrant or
rights to acquire, or debt instruments convertible into or exchangeable
for, or other agreements or understandings to which the Company is a
party, outstanding or in existence, entitling any person to purchase or
otherwise acquire shares of capital stock of the Company; the issuance
and sale of the Securities have been duly and validly authorized and,
when issued and delivered and paid for, the Securities will be fully
paid and nonassessable and free from preemptive rights, and will
conform in all respects to the description thereof contained in the
Prospectus; the Redeemable Warrant and Underwriters' Warrant will, when
issued, constitute valid and binding obligations of the Company
enforceable in accordance with their terms and the Company has reserved
a sufficient number of shares of Common Stock for issuance upon
exercise thereof; the Redeemable Warrant and Underwriters' Warrant
will, when issued, possess the rights, privileges and characteristics
as represented in the forms Exhibits to the Registration Statement and
as described in the Prospectus; the Securities (other than the
Underwriters' Warrant) have been approved for listing on the American
Stock Exchange upon notice of issuance thereof; the certificates for
the Securities are in valid and sufficient form. Each offer and sale of
securities of the Company referred to in Item 26 of Part II of the
Registration Statement was effected in compliance with the Act and the
rules and regulations thereunder, and with all applicable blue sky
("Blue Sky") laws.
(g) Other than as described in the Prospectus, there is no
pending or, to the best knowledge of the Company, threatened action,
suit or proceeding before any court or governmental agency, authority
or body, domestic or foreign, or any arbitrator involving the Company
of a character required to be disclosed in the Registration Statement
or the Prospectus. There is no contract or other document of a
character required to be described in the Registration Statement or
Prospectus or to be filed as an exhibit that is not described or filed
as required.
(h) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes the legal, valid and binding
agreement of the Company, enforceable against the Company in accordance
with its terms, except as rights of indemnity and contribution
hereunder may be limited by public policy and except as the
enforceability hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally and general principles of equity.
(i) The Company has full corporate power and corporate
authority to enter into and perform its obligations under this
Agreement and to issue, sell and deliver the Securities in the manner
provided in this Agreement. The Company has taken all necessary
corporate action to authorize the execution and delivery of, and the
performance of its obligations under, this Agreement.
(j) Neither the offering, issue and sale of the Securities,
nor the consummation of any other of the transactions contemplated
herein, nor the fulfillment of the terms hereof, will conflict with or
result in a breach or violation of, or constitute a default under, or
result in the imposition of a lien on any properties of the Company or
an acceleration of indebtedness pursuant to, the Certificate of
Incorporation or bylaws of the Company, or any of the terms of any
indenture or other agreement or instrument to which the Company is a
party or by which the Company or any of its properties are bound, or
any law, order, judgment, decree, rule or regulation applicable to the
Company of any court, regulatory body, administrative agency,
governmental body, stock exchange or arbitrator having jurisdiction
over the Company. The Company is not in violation of its Certificate of
Incorporation or bylaws or in breach of or default under any of the
terms of any indenture or other agreement or instrument to which it is
a party or by which it or its properties are bound, which breach or
default would, individually or in the aggregate, have a Material
Adverse Effect.
(k) Except as disclosed in the Prospectus, no person has the
right, contractual or otherwise, to cause the Company to issue to it
any shares of capital stock in consequence of the issue and sale of the
Securities, nor does any person have preemptive rights, or rights of
first refusal or other rights to purchase any of the Securities. Except
as referred to in the Prospectus, no person holds a right to require or
participate in a registration under the Act of Common Stock or any
other equity securities of the Company.
(l) The Company has not (i) taken and will not take, directly
or indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to cause or result
in, under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or otherwise, stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale
of the Securities or (ii) effected any sales of shares of securities
that are required to be disclosed in response to Item 26 of Part II of
the Registration Statement (other than transactions disclosed in the
Registration Statement or the Prospectus).
(m) No consent, approval, authorization or order of, or
declaration or filing with, any court or governmental agency or body is
required to be obtained or filed by or on behalf of the Company in
connection with the transactions contemplated herein, except such as
may have been obtained or made and registration of the Securities under
the Act, and such as may be required under the Blue Sky laws of any
jurisdiction in connection with the purchase and distribution of the
Securities by the Underwriters.
(n) The accountants who have certified the Financial
Statements filed or to be filed with the Commission as part of the
Registration Statement are independent accountants as required by the
Act.
(o) No stop order preventing or suspending the use of any
Preliminary Prospectus has been issued, and no proceedings for that
purpose are pending or, to the best knowledge of the Company,
threatened or contemplated by the Commission; no stop order suspending
the sale of the Securities in any jurisdiction has been issued and no
proceedings for that purpose have been instituted or, to the best
knowledge of the Company, threatened or are contemplated; and any
request of the Commission for additional information (to be included in
the Registration Statement or the Prospectus or otherwise) has been
complied with.
(p) The Company has not sustained since February 28, 1997, any
material loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree,
and, since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there have not been any
changes in the capital stock or long-term debt of the Company, or any
material adverse change, or a development known to the Company that
could reasonably be expected to cause or result in a material adverse
change, in the general affairs, management, financial position,
stockholders' equity, results of operations or prospects of the
Company, otherwise than as set forth in the Prospectus. Except as set
forth in the Prospectus, there exists no present condition or state of
facts or circumstances known to the Company involving its customers
which the Company can now reasonably foresee would have a Material
Adverse Effect or which would result in a termination or cancellation
of any agreement with any customer whose purchases, individually or in
the aggregate, are material to the business of the Company, or which
would result in any material decrease in sales to any such customer or
purchases from any supplier, or which would prevent the Company from
conducting its business as described in the Prospectus in essentially
the same manner in which it has heretofore been conducted.
(q) The Financial Statements and the related notes of the
Company included in the Registration Statement and the Prospectus
present fairly the financial position, results of operations, cash flow
and changes in stockholders' equity of the Company and the Subsidiaries
at the dates and for the periods indicated, subject in the case of the
Financial Statements for interim periods, to normal and recurring
year-end adjustments. The Financial Statement schedules included in the
Registration Statement present fairly the information required to be
stated therein. Such Financial Statements and schedules were prepared
in conformity with the Commission's rules and regulations and in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods involved, except as stated
therein. The financial information of the Company and the Subsidiaries
set forth in the Prospectus under the captions "Capitalization" and
"Management's Discussion and Analysis or Plan Operations" fairly
present, on the basis stated in the Prospectus, the information
included therein. The inventories reflected on the Financial
Statements, and thereafter acquired by the Company through the date
hereof, taken as a whole, are in all material respects of a quality and
quantity usable or salable in the normal course of the business of the
Company and the Subsidiaries at values (taken as a whole) at least
equal to the values at which such items are carried on the Financial
Statements. The values at which such inventories are carried on the
Financial Statements reflect the normal inventory valuation policy of
the Company and the Subsidiaries (including the writing down of the
value of any slow moving or obsolete inventory) of stating inventories
at the lower of cost or market on a first-in-first-out basis.
(r) The Company owns or possesses, or has the right to use
pursuant to licenses, sublicenses, agreements, permissions or
otherwise, adequate patents, copyrights, trade names, trademarks,
service marks, licenses and other intellectual property rights
necessary to carry on its business as described in the Prospectus, and,
except as set forth in the Prospectus. The Company has not received any
notice of either (i) default under any of the foregoing or (ii)
infringement of or conflict with asserted rights of others with respect
to, or challenge to the validity of, any of the foregoing which, in the
aggregate, if the subject of an unfavorable decision, ruling or
finding, could have a Material Adverse Effect, and the Company knows of
no fact which could reasonably be anticipated to serve as the basis for
any such notice.
(s) Subject to such exceptions as are not material (A) the
Company owns all properties and assets described in the Registration
Statement and the Prospectus as being owned by it and (B) the Company
has good title to all properties and assets owned by it, free and clear
of all liens, charges, encumbrances and restrictions, except as
otherwise disclosed in the Prospectus and except for (i) liens for
taxes not yet due, (ii) mortgages and liens securing debt reflected on
the Financial Statements included in the Prospectus, (iii)
materialmen's, workmen's, vendor's and other similar liens incurred in
the ordinary course of business that are not delinquent, individually
or in the aggregate, and do not have a material adverse effect on the
value of such properties or assets to the Company, or on the use of
such properties or assets by the Company, in its respective business,
and (iv) any other liens that, individually or in the aggregate, are
not likely to result in a Material Adverse Effect. All leases to which
the Company is a party and which are material to the conduct of the
business of the Company are valid and binding and no material default
by the Company has occurred and is continuing thereunder; and the
Company enjoys peaceful and undisturbed possession under all such
material leases to which it is a party as lessee.
(t) The books, records and accounts of the Company accurately
and fairly reflect, in reasonable detail, the transactions in and
dispositions of the assets of the Company. The system of internal
accounting controls maintained by the Company is sufficient to provide
reasonable assurances that (i) transactions are executed in accordance
with management's general or specific authorization; (ii) transactions
are recorded as necessary to permit preparation of financial statements
in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted
only in accordance with management's general or specific authorization;
and (iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(u) Except as set forth in the Prospectus, subsequent to the
respective dates as of which information is given in the Registration
Statement and the Prospectus, the Company has not incurred any
liabilities or obligations, direct or contingent, or entered into any
transactions, in each case, which are likely to result in a Material
Adverse Effect, and there has not been any payment of or declaration to
pay any dividends or any other distribution with respect to the shares
of the capital stock of the Company .
(v) The Company has obtained and delivered to the
Representative the written agreements, in substantially the forms of
Exhibit A-1, attached hereto, of each of the persons listed in Exhibit
A-2 attached hereto, restricting dispositions of shares of capital
stock of the Company on the terms contained in such Exhibits.
(w) The Company is in compliance in all material respects with
all applicable laws, rules and regulations, including, without
limitation, employment and employment practices, immigration, terms and
conditions of employment, health and safety of workers, customs and
wages and hours, and is not engaged in any unfair labor practice. No
property of the Company has been seized by any governmental agency or
authority as a result of any violation by the Company or any
independent contractor of the Company of any provisions of law. There
is no pending unfair labor practice complaint or charge filed with any
governmental agency against the Company. There is no labor strike,
material dispute, slow down or work stoppage actually pending or, to
the best knowledge of the Company, threatened against or affecting the
Company; no grievance or arbitration arising out of or under any
collective bargaining agreements is pending against the Company; no
collective bargaining agreement which is binding on the Company
restricts the Company from relocating or closing any of its operations
and the Company has not experienced any work stoppage or other labor
dispute at any time.
(x) The Company has accurately, properly and timely (giving
effect to any valid extensions of time) filed all federal, state, local
and foreign tax returns (including all schedules thereto) that are
required to be filed, and has paid all taxes and assessments shown
thereon. All tax deficiencies asserted or assessed against the Company
by the Internal Revenue Service ("IRS") or any other foreign or
domestic taxing authority have been paid or finally settled with no
remaining amounts owed. Neither the IRS nor any other foreign or
domestic taxing authority has examined any tax returns of the Company.
The charges, accruals and reserves shown in the Financial Statements
included in the Prospectus in respect of taxes for all fiscal periods
to date are adequate, and nothing has occurred subsequent to the date
of such Financial Statements that makes such charges, accruals or
reserves inadequate. The Company is not aware of any proposal (whether
oral or written) by any taxing authority to adjust any tax return filed
by the Company.
(y) Except as set forth in the Prospectus, there are no
outstanding loans, advances or guaranties of indebtedness by the
Company to or for the benefit of its affiliates, or any of its officers
or directors, or any of the members of the families of any of them,
which are required to be disclosed in the Registration Statement or the
Prospectus.
(z) The Company is not an investment company subject to
registration under the Investment Company Act of 1940, as amended.
(aa) Except as set forth in the Prospectus, the Company has
insurance of the types and in the amounts that it reasonably believes
is adequate for its business, including, but not limited to, casualty
and general liability insurance covering all real and personal property
owned or leased by the Company or such Subsidiary, as applicable,
against theft, damage, destruction, acts of vandalism and all other
risks customarily insured against.
(bb) The Company has not at any time (i) made any
contributions to any candidate for political office, or failed to
disclose fully any such contribution, in violation of law; (ii) made
any payment to any state, federal or foreign governmental officer or
official, or other person charged with similar public or quasi-public
duties, other than payments required or allowed by all applicable laws;
or (iii) violated, nor is it in violation of, any provision of the
Foreign Corrupt Practices Act of 1977.
(cc) The preparation and the filing of the Registration
Statement with the Commission have been duly authorized by and on
behalf of the Company, and the Registration Statement has been duly
executed pursuant to such authorization by and on behalf of the
Company.
(dd) All documents delivered or to be delivered by the Company
or any of its directors or officers to the Underwriters, the Commission
or any state securities law administrator in connection with the
issuance and sale of the Securities were, on the dates on which they
were delivered, and will be, on the dates on which they are to be
delivered, true, complete and correct in all material respects.
(ee) With such exceptions as are not likely to result in a
Material Adverse Effect, the Company is in compliance with all Federal,
state, foreign and local laws and regulations relating to pollution or
protection of human health or the environment ("Environmental Laws"),
there are no circumstances that may prevent or interfere with such
compliance other than as set forth in the Prospectus, and the Company
has not received any notice or other communication alleging a currently
pending violation of any Environmental Laws. With such exceptions as
are not likely to result in a Material Adverse Effect, other than as
set forth in the Prospectus, there are no past or present actions,
activities, circumstances, conditions, events or incidents, including,
without limitation, the release, emission, discharge or disposal of any
chemicals, pollutants, contaminants, wastes, toxic substances,
petroleum and petroleum products, that may result in the imposition of
liability on the Company or any claim against the Company or, to the
Company's, best knowledge, against any person or entity whose liability
for any claim the Company has or may have assumed either contractually
or by operation of law, and the Company has not received any notice or
other communication concerning any such claim against the Company or
such person or entity.
(ff) Except as described in the Prospectus, the Company does
not maintain, nor does any other person maintain on behalf of the
Company, any retirement, pension (whether deferred or non-deferred,
defined contribution or defined benefit) or money purchase plan or
trust. There are no unfunded liabilities of the Company with respect to
any such plans or trusts that are not accrued or otherwise reserved for
on the Financial Statements.
(gg) Any certificates signed by an officer of the Company and
delivered to the Representative or the Underwriters or to counsel for
the Underwriters shall also be deemed a representation and warranty of
the Company to the Underwriters as to the matters covered thereby. Any
certificate delivered by the Company to its counsel for purposes of
enabling such counsel to render the opinions referred to in Section
6(b) will also be furnished to the Representative and counsel for the
Underwriters and shall be deemed to be additional representations and
warranties by the Company to the Underwriters as to the matters covered
thereby.
2. Purchase and Sale.
(a) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company and Selling
Shareholderss agree to issue and sell to the Underwriters an aggregate of
150,000 Units. Each of the Underwriters agrees, severally and not jointly, to
purchase from the Company the number of Units set forth opposite its name in
Schedule I hereto. The purchase price per Unit to be paid by the several
Underwriters to the Company shall be $___ per Unit. No value shall be
attributable to the Redeemable Warrant.
(b) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company hereby grants an
option (the "Underwriters' Option") to the several Underwriters to purchase,
severally and not jointly, up to an aggregate of 150,000 Units, consisting of
one share of Common Stock and one Common Stock Purchase Warrant, at the purchase
price of $6.75 per Unit for use solely in covering any over-allotments made by
the Representative for the account of the Underwriters in the sale and
distribution of the Underwritten Securities. Said Underwriters' Option may be
exercised in whole or in part at any time on or before the 45th day after the
Effective Date upon written or telegraphic notice by the Representative to the
Company setting forth the number of Units which the several Underwriters are
electing to purchase pursuant to the Underwriters' Option and the settlement
date. Delivery of certificates for such Units by the Company and Selling
Shareholderss, and payment therefor to the Selling Shareholders, shall be made
as provided in Section 3 hereof. The number of Units to be so purchased by each
Underwriter pursuant to the Underwriters' Option shall be determined by
multiplying the number of Units to be sold by the Company pursuant to the
Underwriters' Option, as exercised, by a fraction, the numerator of which is the
number of Units to be purchased by such Underwriter as set forth opposite its
name in Schedule I and the denominator of which is the total number of Units to
be purchased by all of the Underwriters as set forth on Schedule I (subject to
such adjustments to eliminate any fractional Unit purchases as the
Representative in its discretion may make).
3. Delivery and Payment.
(a) If the Underwriters' Option described in Section 2(b) hereof is
exercised on or before the third business day prior to the Closing Date (as
defined below), delivery of the certificates for the Units described in Sections
2(a) and the shares of Common Stock described in Section 2(b) hereof shall be
made by the Company and Selling Shareholderss through the facilities of the
Depository Trust Company ("DTC"), and payment therefor, shall be made at the
office of the Company at _____a.m. _______ time, on______, 1997 or such later
date (not later than_____, 1997) as the Representative shall designate, which
date and time may be postponed by agreement among the Representative and the
Company or as provided in Section 9 hereof (such date, time of delivery and
payment for such Securities being herein called the ("Closing Date"). Delivery
of the certificates for such Securities to be purchased on the Closing Date
shall be made as provided in the preceding sentence for the respective accounts
of the several Underwriters against payment by the several Underwriters through
Tejas Securities Group, Inc. of the aggregate purchase price of such Securities
being sold by the Company, to or upon the order of the Company, by certified or
official bank check or checks drawn on or by a _______ Clearing House bank and
payable in next day funds. Certificates for such Securities shall be registered
in such names and in such denominations as the Representative may request not
less than one full business days in advance of the Closing Date. The Company
agrees to have the certificates for the Securities to be purchased on the
Closing Date available at the office of the DTC, not later than ____ a.m. _____
time at least one business day prior to the Closing Date.
(b) If the Underwriters' Option is exercised after the third business
day prior to the Closing Date, (i) delivery of the certificates for the Units
described in Section 2(a) hereof and payment therefor will be governed by the
provisions of Section 3(a) hereof and (ii) the Company will deliver (at the
expense of the Company) on the date specified by the Representative (which shall
not be less than one nor more than five business days after exercise of the
Underwriters' Option), certificates for the Units described in Section 2(b)
hereof in such names and denominations as the Representative shall have
requested against payment at the office of Tejas Securities Group, Inc. of the
purchase price therefor, to or upon the order of the Company, by certified or
official bank check or checks drawn on or by a Dallas Clearing House bank and
payable in next day funds. If settlement for such Securities occurs after the
Closing Date, the Company will deliver to the Representative on the settlement
date for such Securities, and the obligation of the Underwriters to purchase
such Securities shall be conditioned upon receipt of, supplemental opinions,
certificates and letters confirming as of such date the opinions, certificates
and letters delivered on the Closing Date pursuant to Section 6 hereof. The
Company agrees to have the certificates for the Securities to be purchased after
the Closing Date available at the office of the DTC, not later than ____a.m.
_____ time at least one business day prior to the settlement date.
4. Offering by Underwriters. It is understood that the several Underwriters
propose to offer the Securities for sale to the public as set forth in the
Prospectus.
5. Agreements. The Company agrees with the several Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement, and any amendment thereof, if not effective at the Execution Time, to
become effective as promptly as possible. If the Registration Statement has
become or becomes effective pursuant to Rule 430A, or filing of the Prospectus
is otherwise required under Rule 424(b), the Company will file the Prospectus,
properly completed, pursuant to Rule 424(b) within the time period prescribed
and will provide evidence satisfactory to the Representative of such timely
filing. The Company will promptly advise the Representative (i) when the
Registration Statement shall have become effective, (ii) when any post-effective
amendment thereto shall have become effective, (iii) of any request by the
Commission for any amendment or supplement of the Registration Statement or the
Prospectus or for any additional information with respect thereto, (iv) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the receipt by the Company of any notification with
respect to the institution or threatening of any proceeding for that purpose and
(v) of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Securities for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose. The Company
will use its best efforts to prevent the issuance of any such stop order or
suspension and, if issued, to obtain as soon as possible the withdrawal thereof.
The Company will not file any amendment to the Registration Statement or
supplement to the Prospectus without the prior consent of the Representative.
The Company will prepare and file with the Commission, promptly upon your
request, any amendment to the Registration Statement or supplement to the
Prospectus that you reasonably determine to be necessary or advisable in
connection with the distribution of the Securities by you, and will use its best
efforts to cause the same to become effective as promptly as possible. The
Company shall keep the Registration Statement current during the term of the
Redeemable Warrant.
(b) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event occurs as a result of which
the Prospectus as then supplemented would include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it otherwise shall be necessary to supplement the
Prospectus to comply with the Act or the rules or regulations thereunder, the
Company will promptly prepare and file with the Commission, subject to Section
5(a) hereof, a supplement that will correct such statement or omission or a
supplement that will effect such compliance.
(c) As soon as practicable (but not later than ________, 199_), the
Company will make generally available to its security holders and to the
Representative an earnings statement or statements (which need not be audited)
of the Company covering a period of at least twelve months after the Effective
Date (but in no event commencing later than 90 days after such date), which will
satisfy the provisions of Section 11(a) of the Act and Rule 158 promulgated
thereunder.
(d) The Company will furnish to each of you and counsel for the
Underwriters, without charge, one signed copies of the Registration Statement
and any amendments thereto (including exhibits thereto) and to each other
Underwriter a conformed copy of the Registration Statement and any amendments
thereto (without exhibits thereto) and, so long as delivery of a prospectus by
an Underwriter or dealer may be required by the Act, as many copies of the
Prospectus and each Preliminary Prospectus and any supplements thereto as the
Representative may reasonably request. The Company will furnish or cause to be
furnished to the Representative copies of all reports on Form SR required by
Rule 463 under the Act.
(e) The Company will take all actions necessary for the registration or
qualification of the Securities for sale under the laws of such jurisdictions
within the United States and its territories as the Representative may
designate, will maintain such qualifications in effect so long as required for
the distribution of the Securities and will pay the fee of the National
Association of Securities Dealers, Inc. (the "NASD") in connection with its
review of the offering, provided that the Company shall not be required to
qualify as a foreign corporation or to consent to service of process under the
laws of any such jurisdiction (except service of process with respect to the
offering and sale of the Securities). Without limiting the foregoing, the
Company will use its best efforts to register or qualify the shares of Common
Stock underlying the Redeemable Warrant in any jurisdiction where the registered
holders of 5 % or more of such Warrant reside, and will use its best efforts to
keep such registrations or qualifications in effect during the term of the
Redeemable Warrant.
(f) The Company will apply the net proceeds from the offering received
by it in the manner set forth under the caption "Use of Proceeds" in the
Prospectus.
(g) The Company will (i) cause the Securities (other than the
Underwriters' Warrant) to be listed on American Stock Exchange, (ii) comply with
all registration, filing and reporting requirements of the Exchange Act, the
American Stock Exchange which may from time to time be applicable to the Company
and (iii) file a report of sales and use of proceeds on Form SR as required by
Rule 463 under the Act.
(h) During the five-year period commencing on the date hereof, the
Company will furnish to its stockholders, as soon as practicable after the end
of each respective period, annual reports (including financial statements
audited by independent certified public accountants) and unaudited quarterly
reports of earnings and will furnish to you and, upon request, to the other
Underwriters hereunder (i) concurrent with furnishing such quarterly reports to
its stockholders, statements of income and other information of the Company for
such quarter in the form furnished to the Company's stockholders; (ii)
concurrent with furnishing such annual reports to its stockholders, a balance
sheet of the Company as at the end of such fiscal year, together with statements
of income and surplus and of cash flow of the Company for such fiscal year, all
in reasonable detail and accompanied by a copy of the certificate or report
thereon of its independent certified public accountants; (iii) as soon as they
are available, copies of all reports and financial statements furnished to or
filed with the Commission, the NASD, the American Stock Exchange, or any other
securities exchange; (iv) every press release and every material news item or
article in respect of the Company or its affairs which was released or prepared
by the Company; and (v) any additional information of a public nature concerning
the Company or its business that you may reasonably request. During such
five-year period, if the Company shall have active subsidiaries, the foregoing
financial statements shall be on a consolidated basis to the extent that the
accounts of the Company and its subsidiaries are consolidated, and shall be
accompanied by similar financial statements for any significant subsidiary that
is not so consolidated.
(i) The Company will maintain a transfer agent and, if necessary under
the jurisdiction of incorporation of the Company, a registrar (which may be the
same entity as the transfer agent) for the Securities.
(j) The Company will not, for a period of 90 days following the
Effective Date, without the prior written consent of the Representative, offer,
sell, contract to sell (including, without limitation, any short sale),
transfer, assign, pledge, encumber, hypothecate or grant any option to purchase
or otherwise dispose of, any capital stock, or any options, rights or warrant to
purchase any capital stock of the Company, or any securities or indebtedness
convertible into or exchangeable for shares of capital stock of the Company,
except for (i) sales of the Securities as contemplated by this Agreement and
(ii) sales of Common Stock upon the exercise of Redeemable Warrant or
outstanding options described in the Prospectus.
(k) The Company has reserved and shall continue to reserve a sufficient
number of shares of Common Stock for issuance upon exercise of the Underwriters'
Warrant and Redeemable Warrant.
6. Conditions to the Obligations of the Underwriters. The obligations of the
Underwriters to purchase the Units described in Sections 2(a) and 2(b) hereof
shall be subject to (i) the accuracy of the representations and warranties on
the part of the Company contained herein as of the Execution Time, the Closing
Date and (in the case of any Units delivered after the Closing Date) any
settlement date pursuant to Section 3(b) hereof, (ii) the accuracy of the
statements of the Company made in any certificates delivered pursuant to the
provisions hereof, (iii) the performance by the Company of its obligations
hereunder, and (iv) the following additional conditions:
(a) The Registration Statement shall have become effective (or, if a
post-effective amendment is required to be filed pursuant to Rule 430A under the
Act, such post-effective amendment shall become effective) not later than ___
p.m. _____ time, on the execution date hereof or at such later date and time as
you may approve in writing and, at the Closing Date (and any settlement date
pursuant to Section 3(b) hereof), no stop order suspending the effectiveness of
the Registration Statement or any qualification in any jurisdiction shall have
been issued and no proceedings for that purpose shall have been with.
(b) The Company shall have furnished to the Representative the opinion
of Lane Powell Spears Lubersky, LLP, counsel for the Company, addressed to the
Underwriters and dated the Closing Date (and any settlement date pursuant to
Section 3(b) hereof), or other evidence satisfactory to the Representative to
the effect that:
(i) The Registration Statement has become effective under the
Act; any required filing of the Prospectus or any supplements thereto
pursuant to Rule 424(b) has been made in the manner and within the time
period required by Rule 424(b); to the best knowledge of such counsel,
no stop order suspending the effectiveness of the Registration
Statement or any qualification in any jurisdiction has been issued and
no proceedings for that purpose have been instituted or threatened; any
request from the Commission for additional information has been
complied with; the Registration Statement and the Prospectus (and any
supplements thereto) comply as to form in all material respects with
the applicable requirements of the Act and the rules and regulations
thereunder.
(ii) The Company has no subsidiaries other than those
described in the Registration Statement.
(iii) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction in which it is chartered or organized, with full corporate
power and corporate authority to own its properties and conduct its
business as described in the Prospectus, and is duly qualified to do
business as a foreign corporation and is in good standing under the
laws of each jurisdiction in which it conducts its business or owns
property and in which the failure, individually or in the aggregate, to
be so qualified would have a Material Adverse Effect. The Company has
all necessary and material authorizations, approvals, orders, licenses,
certificates and permits of and from all government regulatory
officials and bodies, to own is properties and conduct is business as
described in the Prospectus, except where failure to obtain such
authorizations, approvals, orders, licenses, certificates or permits
would not have a Material Adverse Effect.
(iv) the Company does not own any shares of capital stock or
any other equity securities of any corporation or any equity interest
in any firm, partnership, association or other entity other than as
described in the Prospectus and ownership interests that would not have
a Material Adverse Effect.
(v) The Company has an authorized share capitalization as set
forth in the Prospectus; the capital stock of the Company conforms in
all material respects to the description thereof contained in the
Prospectus; all outstanding shares of Common Stock have been duly and
validly authorized and issued and are fully paid and nonassessable and
the certificates therefor are in valid and sufficient form; there are
no other classes of stock outstanding except Common Stock and as
described in the Prospectus; all outstanding options to purchase shares
of Common Stock have been duly and validly authorized and issued;
except as described in the Prospectus, there are no options, warrant or
rights to acquire, or debt instruments convertible into or exchangeable
for, or other agreements or understandings to which the Company is a
party, outstanding or in existence, entitling any person to purchase or
otherwise acquire any shares of capital stock of the Company; the
issuance and sale of the Securities have been duly and validly
authorized and, when issued and delivered and paid for, the Securities
will be fully paid and nonassessable and free from preemptive rights,
and will conform in all respects to the description thereof contained
in the Prospectus; the Redeemable Warrant and Underwriters' Warrant
constitute valid and binding obligations of the Company enforceable in
accordance with their terms and the Company has reserved a sufficient
number of shares of Common Stock for issuance upon exercise thereof;
the Redeemable Warrant and Underwriters' Warrant possess the rights,
privileges and characteristics as represented in the forms filed as
Exhibits to the Registration Statement and as described in the
Prospectus; the Securities (other than the Underwriters' Warrant) have
been approved for listing on the American Stock Exchange upon notice of
issuance thereof; the certificates for the Securities are in valid and
sufficient form. Each offer and sale of securities of the Company
described in Item 26 of Part II of the Registration Statement was
effected in compliance with the Act and the rules and regulations
thereunder and with all applicable Blue Sky laws.
(vi) Other than as described in the Prospectus, there is no
pending or, to the best knowledge of such counsel, threatened action,
suit or proceeding before any court or governmental agency, authority
or body, domestic or foreign, or any arbitrator involving the Company
of a character required to be disclosed in the Registration Statement
or the Prospectus that is not adequately disclosed in the Prospectus,
and, to the best knowledge of such counsel, there is no contract or
other document of a character required to be described in the
Registration Statement or the Prospectus, or to be filed as an exhibit,
which is not described or filed as required.
(vii) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes the legal, valid and binding
agreement and obligation of the Company enforceable against it in
accordance with its terms (subject to standard bankruptcy and equitable
remedy exceptions, and limitations under the Act as to the
enforceability of indemnification provisions).
(viii) The Company has full corporate power and corporate
authority to enter into and perform is obligations under this Agreement
and to issue, sell and deliver the Securities in the manner provided in
this Agreement; and the Company has taken all necessary corporate
action to authorize the execution and delivery of, and the performance
of is obligations under, this Agreement.
(ix) Neither the offering, issue and sale of the Securities
nor the consummation of any other of the transactions contemplated
herein, nor the fulfillment of the terms hereof, will conflict with or
result in a breach or violation of, or constitute a default under, or
result in the imposition of a lien on any properties of the Company, or
an acceleration of indebtedness pursuant to, the Certificate of
Incorporation or bylaws of the Company, or any of the terms of any
indenture or other agreement or instrument to which the Company is a
party or by which is properties are bound, or any law, order, judgment,
decree, rule or regulation applicable to the Company of any court,
regulatory body, administrative agency, governmental body, stock
exchange or arbitrator having jurisdiction over the Company. The
Company is not in violation of is Certificate of Incorporation or
bylaws or in breach of or default under any of the terms of any
indenture or other agreement or instrument to which it is a party or by
which it or its properties are bound, which breach or default would,
individually or in the aggregate, have a Material Adverse Effect.
(x) Except as disclosed in the Prospectus, no person has the
right, contractual or otherwise, to cause the Company to issue to it
any shares of capital stock in consequence of the issue and sale of the
Securities to be sold by the Company hereunder nor does any person have
preemptive rights, or rights of first refusal or other rights to
purchase any of the Securities. Except as referred to in the
Prospectus, no person holds a right to require or participate in a
registration under the Act of Common Stock or any other equity
securities of the Company.
(xi) No consent, approval, authorization or order of, or
declaration or filing with, any court or governmental agency or body is
required to be obtained or filed by or on behalf of the Company in
connection with the transactions contemplated herein, except such as
may have been obtained or made and registration of the Securities under
the Act, and such as may be required under the Blue Sky laws of any
jurisdiction.
(xii) The Company is not in violation of or default under any
judgment, ruling, decree or order or any statute, rule or regulation of
any court or other United States governmental agency or body, including
any applicable laws respecting employment, immigration and wages and
hours, in each case, where such violation or default could have a
Material Adverse Effect. The Company is not involved in any labor
dispute, nor, to the best knowledge of such counsel, is any labor
dispute threatened.
(xiii) The Company is not an investment company subject to
registration under the Investment Company Act of 1940, as amended.
(xiv) The preparation and the filing of the Registration
Statement with the Commission have been duly authorized by and on
behalf of the Company, and the Registration Statement has been duly
executed pursuant to such authorization by and on behalf of the
Company.
(xv) The Company owns or possesses, or has the right to use
pursuant to licenses, sublicenses, agreements, permissions or
otherwise, adequate patents, copyrights, trade names, trademarks,
service marks, licenses and other intellectual property rights
necessary to carry on its business as described in the Prospectus, and,
except as set forth in the Prospectus, neither the Company n has
received any notice of either (i) default under any of the foregoing or
(ii) infringement of or conflict with asserted rights of others with
respect to, or challenge to the validity of, any of the foregoing
which, in the aggregate, if the subject of an unfavorable decision,
ruling or finding, could have a Material Adverse Effect, and counsel
knows of no facts which could reasonably be anticipated to serve as the
basis for any such notice.
In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of the
Company, representatives of the independent public accountants of the Company
and representatives of the Underwriters at which the contents of the
Registration Statement and Prospectus were discussed and, although such counsel
is not passing upon and does not assume responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or Prospectus (except as and to the extent stated in the first one
clauses of subparagraph (v) above), on the basis of the foregoing and on such
counsel's participation in the preparation of the Registration Statement and the
Prospectus, nothing has come to the attention of such counsel that causes such
counsel to believe that the Registration Statement, at the Effective Date and at
the Closing Date (and any settlement date pursuant to Section 3(b) hereof),
contained or contains any untrue statement of a material fact or omitted or
omits to state 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 the Prospectus, at the date of such Prospectus or
at the Closing Date (or any settlement date pursuant to Section 3(b) hereof),
contained or contains any untrue statement of a material fact or omitted or
omits to state 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 (it being understood that such counsel need express no
comment with respect to the Financial Statements and schedules and other
financial or statistical data included in the Registration Statement or
Prospectus).
References to the Prospectus in this Section 6(b) shall include any
supplements thereto.
(c) The Representative shall have received from Winstead Schrest &
Mjnick, P.C., counsel for the Underwriters, an opinion dated the Closing Date
(and any settlement date pursuant to Section 3(b) hereof), with respect to the
issuance and sale of the Securities, and with respect to the Registration
Statement, the Prospectus and other related matters as the Representative may
reasonably require, and the Company shall have furnished to such counsel such
documents as they may reasonably request for the purpose of enabling them to
pass upon such matters.
(d) The Company shall have furnished to the Representative a
certificate of the Company, signed by its President and Chief Executive Officer,
and Vice President-Finance and Secretary, dated the Closing Date (and any
settlement date pursuant to Section 3(b) hereof), to the effect that each has
carefully examined the Registration Statement, the Prospectus (and any
supplements thereto) and this Agreement, and, after due inquiry, that:
(i) As of the Closing Date (and any settlement date pursuant
to Section 3(b) hereof), the statements made in the Registration
Statement and the Prospectus are true and correct and the Registration
Statement and the Prospectus do not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(ii) No order suspending the effectiveness of the Registration
Statement or the qualification or registration of the Securities under
the securities or Blue Sky laws of any jurisdiction is in effect and no
proceeding for such purpose is pending before or, to the knowledge of
such officers, threatened or contemplated by the Commission or the
authorities of any such jurisdiction; and any request for additional
information with respect to the Registration Statement or the
Prospectus on the part of the staff of the Commission or any such
authorities brought to the attention of such officers has been complied
with to the satisfaction of the staff of the Commission or such
authorities.
(iii) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not
been any change in the capital stock or long-term debt of the Company,
except as set forth in or contemplated by the Registration Statement
and the Prospectus, (y) there has not been any material adverse change
in the general affairs, business, prospects, properties, management,
results of operations or condition (financial or otherwise) of the
Company, whether or not arising from transactions in the ordinary
course of business, in each case, other than as set forth in or
contemplated by the Registration Statement and the Prospectus, and (z)
the Company has not sustained any material interference with its
business or properties from fire, explosion, flood or other casualty,
whether or not covered by insurance, or from any labor dispute or any
court or legislative or other governmental action, order or decree,
which is not set forth in the Registration Statement and the
Prospectus.
(iv) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has been
no litigation instituted against the Company, any of its respective
officers or directors, or (to the best knowledge of such officers) any
affiliate or promoter of the Company, and since such dates there has
been no proceeding instituted or, to the best knowledge of such
officers, threatened against the Company, any of its officers or
directors, or (to the best knowledge of such officers) any affiliate or
promoter of the Company, before any federal, state or county court,
commission, regulatory body, administrative agency or other
governmental body, domestic or foreign, in which litigation or
proceeding an unfavorable ruling, decision or finding could have a
Material Adverse Effect.
(v) Each of the representations and warranties of the Company
in this Agreement is true and correct in all material respects on and
as of the Execution Time and the Closing Date (and any settlement date
pursuant to Section 3(b) hereof) with the same effect as if made on and
as of the Closing Date (and any settlement date pursuant to Section
3(b) hereof).
(vi) Each of the covenants required in this Agreement to be
performed by the Company on or prior to the Closing Date (and any
settlement date pursuant to Section 3(b) hereof) has been duly, timely
and fully performed, and each condition required herein to be complied
with by the Company on or prior to the Closing Date (and any settlement
date pursuant to Section 3(b) hereof) has been duly, timely and fully
complied with.
(e) At the Execution Time and on the Closing Date (and any settlement
date pursuant to Section 3(b) hereof), Moss Adams, shall have furnished to the
Representative letters, dated as of such dates, in form and substance
satisfactory to the Representative, confirming that they are independent
accountants within the meaning of the Act and the applicable rules and
regulations thereunder and stating in effect that:
(i) In their opinion, the audited Financial statements of the
Company for the fiscal year ended February 28, 1997, and the unaudited
Financial statements for the periods ended May 31, 1996 and 1997, and
the notes to the Financial Statements and Financial Statement schedules
for those periods included in the Registration Statement and the
Prospectus, comply in form in all material respects with the applicable
accounting requirements of the Act and the applicable rules and
regulations thereunder.
(ii) On the basis of a reading of the latest unaudited
Financial Statements made available by the Company, carrying out
certain specified procedures (but not an examination in accordance with
generally accepted auditing standards), a reading of the minutes of the
meetings of the stockholders, directors and committees of the Company,
and inquiries of certain officials of the Company who have
responsibility for financial and accounting matters of the Company,
nothing came to their attention that caused them to believe that with
respect to the period subsequent to February 28, 1997, at a specified
date not more than five business days prior to the date of the letter,
(y) there were any changes in the long-term debt or capital stock of
the Company, or decreases in net current assets, net assets or
stockholders' equity of the Company as compared with the amounts shown
on the February 28, 1997 balance sheets included in the Registration
Statement and the Prospectus or (z) there were any decreases in
reserves, sales, net income or income from operations, of the Company,
as compared with the corresponding period in the preceding year, except
for changes or decreases which the Registration Statement discloses
have occurred or may occur and except for changes or decreases, set
forth in such letter, in which case (A) the letter shall be accompanied
by an explanation by the Company as to the significance thereof unless
said explanation is not deemed necessary by the Representative and (B)
such changes or decreases and the explanation thereof shall be
acceptable to the Representative, in its sole discretion.
(iii) They have performed certain other specified procedures
as a result of which they determined that all information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of the Company ) set forth in the
Registration Statement and the Prospectus and specified by you prior to
the Execution Time, agrees with the accounting records of the Company.
(iv) On the basis of a reading of the unaudited pro forma
balance sheet as of May 31, 1997 and the related unaudited pro forma
statements of income for the one fiscal years ended February 28, 1997,
and the three months ended May 31, 1996 and May 31, 1997, and the
procedures specified by you prior to the Execution Time, nothing came
to their attention that caused them to believe that the above described
pro forma balance sheet and statements of income had not been properly
compiled on the pro forma bases described in the notes thereto.
References to the Prospectus in this Section 6(e) shall
include any supplements thereto.
The Representative shall also have also received from Moss
Adams, a letter stating that the Company's system of internal
accounting controls taken as a whole are sufficient to meet the broad
objectives of internal accounting control insofar as those objectives
pertain to the prevention or detection of errors or irregularities in
amounts that would be material to the Financial statements of the
Company.
(f) Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus, there shall not have been (i)
any changes or decreases from that specified in the letters referred to in
Section 6(e) hereof or (ii) any change, or any development involving a
prospective change, in or affecting the properties, assets, results of
operations, business, capitalization, net worth, prospects, general affairs or
condition (financial or otherwise) of the Company the effect of which is, in the
sole judgment of the Representative, so material and adverse as to make it
impractical or inadvisable to proceed with the public offering or delivery of
the Securities as contemplated by the Registration Statement and the Prospectus.
(g) On or prior to the Effective Date, the Securities shall have been
approved for listing on the American Stock Exchange.
(h) The Company shall not have sustained any uninsured substantial loss
as a result of fire, flood, accident or other calamity.
(i) The Company shall have furnished to the Representative certificate
of the Secretary of the Company certifying as to certain information and other
matters as the Representative may reasonably request.
(j) The Company shall have furnished to the Representative such further
information, certificates and documents as the Representative may reasonably
request.
If any of the conditions specified in this Section 6 shall not have
been fulfilled in any respect when and as provided in this Agreement, or if any
of the opinions and certificates mentioned above or elsewhere in this Agreement
shall not be in all respects reasonably satisfactory in form and substance to
the Representative and its counsel, this Agreement and all obligations of the
Underwriters hereunder may be canceled at, or at any time prior to, the Closing
Date (or any settlement date, pursuant to Section 3(b) hereof), by the
Representative. Notice of such cancellation shall be given to the Company in
writing or by telephone, facsimile or telegraph confirmed in writing.
7. Fees and Expenses and Underwriters' Warrant. The Company agrees to pay or
cause to be paid the following:
(a) the fees, disbursements and expenses of is own counsel and
accountants in connection with the registration of the Securities under the Act
and all other expenses in connection with the preparation, printing and filing
of the Registration Statement, any Preliminary Prospectus, any Prospectus, and
any drafts thereof, and amendments and supplements thereto, and the mailing and
delivery of copies thereof to the Underwriters and dealers;
(b) all expenses in connection with the qualification of the Securities
for offering under state securities laws, including the fees and disbursements
of counsel for the Underwriters in connection with such qualification and in
connection with the Blue Sky Memorandum;
(c) all filing and other fees in connection with filing with the NASD,
and complying with applicable review requirements thereof;
(d) the cost of preparing and printing certificates for the Securities;
(e) all expenses, taxes, fees and commissions, including, without
limitation, any and all fixed transfer duties sellers' and buyers' stamp taxes
or duties on the purchase and sale of the Securities and stock exchange
brokerage and transaction levies with respect to the purchase and, if
applicable, the sale of the Securities (the latter to the extent paid and not
reimbursed) (i) incident to the sale and delivery by the Company of the
Securities to the Underwriters and (ii) incident to the sale and delivery of the
Securities by the Underwriters to the initial purchasers thereof;
(f) the costs and charges of any transfer agent and registrar;
(g) the fees and expenses in connection with qualification of the
Securities for listing on the American Stock Exchange;
(h) a nonaccountable expense allowance of 2.0% of the proceeds derived
from the offering (including the Units described in Section 2(b) hereof) payable
to the Representative, and
(i) all other costs and expenses incident to the performance of the
Company's obligations hereunder which are not otherwise specifically provided
for in this Section 7.
In addition to the sums payable to the Representative as provided
elsewhere herein and in addition to the Underwriters' Option, the Underwriters
shall be entitled to receive, as partial compensation for their services, unit
purchase warrant (the "Underwriters' Warrant") for the purchase of an additional
100,000 Units. The Underwriters' Warrant shall be issued pursuant to the
Underwriters' Warrant and Registration Rights Agreement in the form of Exhibit B
attached hereto and shall be exercisable, in whole or in part, for a period of
four years commencing one year from the date of the Prospectus, at 120% of the
public offering price of the Units. The Underwriters' Warrant, including the
Redeemable Warrant issuable upon exercise thereof, shall be non-transferable for
one year from the date of issuance of the Underwriters' Warrant, except for (i)
transfers to officers or partners of the Underwriters, (ii) in connection with a
merger, consolidation or reorganization of the Company or (iii) transfers
occurring by operation of law. The terms of the Units subject to the
Underwriters' Warrant shall be the same as the Units sold to the public.
Without limiting in any respect the foregoing obligations of the
Company, which obligations shall survive any termination of this Agreement, if
the sale of the Securities provided for herein is not consummated because any
condition to the obligations of the Underwriters set forth in Section 6 hereof
is not satisfied, because of any termination pursuant to Section 10 hereof, or
because of any refusal, inability or failure on the part of the Company to
perform any agreement herein or comply with any provision hereof other than by
reason of a default by any of the Underwriters, the Company agrees to reimburse
the Underwriters, upon demand, for all out-of-pocket expenses (including
reasonable fees and disbursements of counsel) that shall have been incurred by
them in connection with the proposed purchase and sale of the Securities to the
extent the amounts paid pursuant to Section 7(h) hereof are insufficient
therefor.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person who controls any Underwriter within the meaning of the Act or
the Exchange Act against any and all losses, claims, damages or liabilities,
joint or several, to which they or any of them may become subject under the Act,
the Exchange Act or other federal or state statutory law or regulation, at
common law 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 a material fact contained in (i)
Section 1 of this Agreement, the Registration Statement, any Preliminary
Prospectus or the Prospectus, or in any amendment thereof or supplement thereto,
or (ii) any application or other document, or any amendment or supplement
thereto, executed by the Company or based upon written information furnished by
or on behalf of the Company filed in any jurisdiction in order to qualify the
Securities under the securities or Blue Sky laws thereof or filed with the
Commission or any securities association or securities exchange, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and agrees to reimburse each such indemnified party, as
incurred, for any legal or other expenses reasonably incurred by it 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 to the extent that any such loss, claim, damage or liability
arises out of or is based upon any such untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
any Underwriter through the Representative specifically for use in the
Registration Statement or Prospectus; provided further, that with respect to any
untrue statement or omission, or any alleged untrue statement or omission, made
in any Preliminary Prospectus, the indemnity agreement contained in this
subsection (a) shall not inure to the benefit of any Underwriter (or to the
benefit of any person controlling any such Underwriter) from whom the person
asserting any such losses, claims, damages, liabilities or expenses purchased
the Securities concerned to the extent that such untrue statement or omission,
or alleged untrue statement or omission, has been corrected in the Prospectus
and the failure to deliver the Prospectus was not a result of the Company's
failure to comply with its obligations under Section 5(d) hereof. The indemnity
agreement will be in addition to any liability which the Company may otherwise
have. The Company will not, without the prior written consent of each
Underwriter, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not such Underwriter or any
person who controls such Underwriter within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act is a party to such claim, action, suit or
proceeding), unless the settlement or compromise or consent includes an
unconditional release of such Underwriter and each such controlling person from
all liability arising out of such claim, action, suit or proceeding,
satisfactory in form and substance to the Representative.
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each of its directors, each of its officers who signs the
Registration Statement, and each person who controls the Company within the
meaning of the Act or the Exchange Act to the same extent as the foregoing
indemnity from the Company to each Underwriter, but only with reference to
written information relating to such Underwriter furnished to the Company by or
on behalf of such Underwriter through the Representative specifically for use in
the Registration Statement or Prospectus. The Company acknowledges that the
corporate names of the Underwriters and the information under the heading
"Underwriting" in the Prospectus and in any Preliminary Prospectus constitute
the only information furnished in writing by or on behalf of the several
Underwriters. The obligations of each Underwriter under this subsection (b)
shall be in addition to any liability which the Underwriters may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section 8
of notice of the commencement of any action, suit or proceeding, such
indemnified party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party in
writing of the commencement thereof and the indemnifying party shall assume the
defense thereof, including the employment of counsel reasonably satisfactory to
the indemnified party and the payment of all expenses; but the omission so to
notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party, unless such omission results in the
forfeiture of substantive rights or defenses by the indemnifying party. All such
expenses shall be paid by the indemnifying party as incurred by an indemnified
party. Any such indemnified party shall have the right to employ separate
counsel in any such action and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such indemnified
party unless (i) the indemnifying party has agreed to pay such fees and expenses
or (ii) the indemnifying party shall have failed promptly after notice by such
indemnified party to assume the defense of such action or proceeding and employ
counsel reasonably satisfactory to the indemnified party in any such action,
suit or proceeding or (iii) the named parties in any such action or proceeding
(including any impleaded parties) include both such indemnified party and the
indemnifying party, and such indemnified party shall have been advised by
counsel that there may be one or more legal defenses available to such
indemnified party which are different from or additional to those available to
the indemnifying party (in which case, if such indemnified party notifies the
indemnifying party in writing that it elects to employ separate counsel at the
expense of the indemnifying party, the indemnifying party shall not have the
right to assume the defense of such action or proceeding on behalf of the
indemnified party or parties, it being understood, however, that the
indemnifying party shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of more than
one separate firm of attorneys (together with appropriate local counsel) at any
time for all such indemnified parties, which firm shall be designated in writing
to the indemnifying party). Any such fees and expenses payable by the
indemnifying party shall be paid to or on behalf of the indemnified party
entitled thereto as incurred. An indemnifying party shall not be liable for any
settlement of any action or claim effected without its consent, which shall not
be unreasonably withheld.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in Section 8(a) or 8(b)
is applicable in accordance with its terms but is for any reason held by a court
to be unavailable from the indemnifying party on grounds of policy or otherwise,
the Company and the Underwriters shall contribute to the aggregate losses,
claims, damages and liabilities (including legal or other expenses reasonably
incurred in connection with investigating or defending same) to which the
Company and one or more of the Underwriters may be subject in such proportion so
that the Underwriters are responsible in the aggregate for that portion
represented by the percentage that the underwriting discount appearing on the
cover page of the Prospectus bears to the public offering price appearing
thereon and the Company is responsible for the balance; provided, however, that
(i) in no case shall any Underwriter (except as may be provided in the Agreement
Among Underwriters relating to the offering of the Securities) be responsible
for any amount in excess of the underwriting discount applicable to the Units to
be purchased by such Underwriter hereunder and (ii) no person guilty of
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. For purposes of this Section 8, each person who
controls an Underwriter within the meaning of the Act shall have the same rights
to contribution as such Underwriter, and each person who controls the Company
within the meaning of the Act, each officer of the Company who shall have signed
the Registration Statement and each director of the Company shall have the same
rights to contribution as the Company, subject in each case to clause (ii) of
this Section 8(d). Any party entitled to contribution will, promptly after
receipt of notice of commencement of any action, suit or proceeding against such
party in respect of which a claim for contribution may be made against another
party or parties under this Section 8(d), notify such party or parties from whom
contribution may be sought, but the omission so to notify such party or parties
shall not relieve the party or parties from whom contribution may be sought from
any other obligation it or they may have hereunder or otherwise.
9. Default by an Underwriter. If any one or more Underwriters shall fail to
purchase and pay for any of the Units agreed to be purchased by such Underwriter
or Underwriters hereunder and such failure to purchase shall constitute a
default in the performance of its or their obligations under this Agreement, the
remaining Underwriters shall be obligated severally to take up and pay for (in
the respective proportions which the number of Units set forth opposite their
names in Schedule I hereto bears to the aggregate number of Units set forth
opposite the names of all the remaining Underwriters) the Units which the
defaulting Underwriter or Underwriters agreed but failed to purchase; provided,
however, that if the aggregate number of Units which the defaulting Underwriter
or Underwriters agreed but failed to purchase shall exceed 10% of the aggregate
number of Units set forth in Schedule I hereto, the remaining Underwriters shall
have the right to purchase all, but shall not be under any obligation to
purchase any, of such Units, and if such nondefaulting Underwriters do not
purchase all of such Units, this Agreement will terminate without liability to
any non-defaulting Underwriter or the Company except as otherwise provided in
Section 7. In the event of a default by any Underwriter as set forth in this
Section 9, the Closing Date shall be postponed for such period, not exceeding
seven days, as the Representative shall determine in order that the required
changes in the Registration Statement and the Prospectus or in any other
documents or arrangements may be effected. Nothing contained in this Agreement
shall relieve any defaulting Underwriter of its liability, if any, to the
Company or any nondefaulting Underwriter for damages occasioned by its default
hereunder.
10. Termination. This Agreement shall be subject to termination in the absolute
discretion of the Representative, by notice given to the Company prior to
delivery of and payment for the Securities, if prior to such time (a) a
suspension or material limitation in trading in securities generally on the New
York or American Stock Exchange, any over-the-counter market, the Chicago Board
Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade
shall have occurred, (b) a banking moratorium shall have been declared by
federal, New York or California state authorities, (c) the United States shall
have engaged in hostilities which shall have resulted in the declaration, on or
after the date hereof, of a national emergency or war, or (d) a change in
national or international political, financial or economic conditions or
national or international equity markets or currency exchange rates shall have
occurred, if the effect of any such event specified above is, in the sole
judgment of the Representative, so material and adverse as to make it
impractical or inadvisable to proceed with the public offering or delivery of
the Securities as contemplated by the Registration Statement and the Prospectus.
11. Representations and Indemnities to Survive. The respective agreements,
representations, warranties, indemnities and other statements of the Company,
its officers and the Underwriters set forth in, referred to in, or made pursuant
to this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or the Company or any of
the officers, directors or controlling persons referred to in Section 8 hereof,
and will survive delivery of and payment for the Securities. The provisions of
Sections 7 and 8 hereof shall survive the termination or cancellation of this
Agreement.
12. Notices. All communications hereunder will be in writing and effective only
on receipt, and will be mailed, delivered, telegraphed or sent by facsimile
transmission and confirmed:
to the Representative at:
Tejas Securities Group, Inc.
1250 Capital of Texas Hwy. South Building Two, Suite 500
Austin, Texas 78746
Attention: Robert A. Shuey, III
Facsimile No. (512) 306-1528
to the Company at:
Westower Corporation
19440 Enterprise Way
Surrey, B.C. V3S 6J9
Facsimile No. (604) 533-9808
13. Successors. This Agreement will inure to the benefit of and be binding upon
the parties hereto and their respective successors and the officers, directors
and controlling persons referred to in Section 8 hereof, and no other person
will have any right or obligation hereunder.
14. Counterparts. This Agreement may be signed in one or more counterparts, each
of which shall be an original, with the same effect as if the signatures thereon
and hereon were on the same instrument.
15. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the State of Texas.
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us the enclosed duplicate hereof, whereupon this
letter and your acceptance shall represent a binding agreement among the Company
and the several Underwriters.
Very truly yours,
Westower Corporation
By:
Calvin J. Payne, President
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
Tejas Securities Group, Inc.
By:
Robert A. Shuey, III
For itself and the other several Underwriters in Schedule I to the foregoing
Agreement.
<PAGE>
Warrant Agreement
____, 1997
Tejas Securities Group, Inc.
As Representative of the Several Underwriters
c/o Tejas Securities Group, Inc.
1250 Capital of Texas Hwy. South
Suite 500
Austin Texas 78746
Gentlemen:
WesTower Corporation, a Washinton corporation (the "Company"), hereby
agrees to sell to you, the several underwriters, and you hereby agree to
purchase from the Company at a purchase price of $____, stock purchase warrants
(the "Underwriter Warrants") covering 100,000 of the Company's units (the
"Units"), each Unit consisting of one share of the Company's Common Stock (the
"Shares") and one Redeemable Common Stock Purchase Warrant (the "Warrants")
issued in accordance with the terms of a warrant agreement (the "Warrant
Agreement") dated as of, 1997 between the Company and American Stock Transfer
Company, as warrant agent (the "Warrant Agent"). The Underwriter Warrants will
be exercisable by you as to all or any lesser number of Units covered thereby,
at the Purchase Price per Unit as defined below, at any time and from time to
time on and after the first anniversary of the date hereof and ending at 5:00
pm. on the fifth anniversary of the date hereof.
1. Definitions.
As used herein the following terms, unless the context otherwise
requires, shall have for all purposes hereof the following meanings:
(a) The term "Class A Common Stock" refers to all stock of any class or classes
(however designated) of the Company, now or hereafter authorized, the holders of
which shall have the right without limitation as to amount, either to all or to
a part of the balance of current dividends and liquidating dividends after the
payment of dividends and distributions on any shares entitled to preference, and
the holders of which shall ordinarily, in the absence of contingency, be
entitled to vote for the election of a majority of the directors of the Company
(even though the right so to vote has been suspended by the occurrence of such a
contingency).
(b) The term "Underlying Common Stock" refers to the shares of
Common Stock (or Other Securities) issuable under this Warrant
Agreement pursuant to the exercise, in whole or in part, of
the Warrants or the Underwriter Warrants.
(c) The term "Other Securities" refers to any stock (other than
Units) and other securities of the Company or any other person
(corporate or otherwise) which the holders of the Underwriter
Warrants at any time shall be entitled to receive, or shall
have received, upon the exercise of the Underwriter Warrants,
in lieu of or in addition to Common Stock and Warrants, or
which at any time shall be issuable or shall have been issued
in exchange for or in replacement of Units or Other Securities
pursuant to Section 6 below or otherwise.
(d) The term "Registration Statement" refers to the Registration
Statement relating to the Prospectus in the form first filed
with the Securities and Exchange Commission (the "Commission")
pursuant to the Rules and Regulations of the Commission under
the Securities Act of 1933, as amended (the "Act").
(e) The term "Purchase Price" refers to the purchase price of the
Units subject to this Agreement. The Purchase Price shall
equal 120% of the offering price per Unit as set forth in the
Registration Statement. The Purchase Price is subject to
adjustment as provided in Section 6 below.
(f) The term "Warrant Stock" refers to shares of Common Stock
issued upon the exercise of the Warrants or the Underwriter's
Underwriter Warrants.
The purchase and sale of the Underwriter Warrants shall take place, and the
purchase price therefore shall be paid by delivery of your check, simultaneously
with the purchase of and payment for any Units of the Company as provided in
that certain Underwriting Agreement relating to the public offering covered by
the Registration Statement.
2. Representations and Warranties.
The Company represents and warrants to you as follows:
(a) Corporate Action. The Company has all requisite cooperate power and
authority, and has taken all necessary corporate action, to execute and deliver
this Agreement, to issue and deliver the Underwriter Warrants and certificates
evidencing same, and to authorize and reserve for issuance, and upon payment
from time to time of the Purchase Price to issue and deliver, the Units,
including the Common Stock and the Warrants and shares of Common Stock
Underlying the Warrants.
(b) No Violation. Neither the execution nor delivery of this Agreement, the
consummation of the actions herein contemplated nor compliance with the terms
and provisions hereof will conflict with, or result in a breach of, or
constitute a default or an event permitting acceleration under, any of the
terms, provisions or conditions of the Certificate of Incorporation or Bylaws of
the Company or any indenture, mortgage, deed of trust, note, bank loan, credit
agreement, franchise, license, lease, permit, judgment, decree, order, statute,
rule or regulation or any other agreement, understanding or instrument to which
the Company is a party or by which it is bound.
3. Compliance with the Act.
(a) Transferability of Underwriter Warrants. You agree that the Underwriter
Warrants may not be transferred, sold, assigned or hypothecated, except to (i)
persons who are officers of you; (ii) a successor to you in a merger or
consolidation; (iii) a purchaser of all or substantially all of your assets;
(iv) your shareholders in the event you are liquidated or dissolved; (v) persons
who are officers of a participating broker-dealers.
(b) Registration of Underlying Common Stock. The Underlying Common Stock
issuable upon the exercise of the Underwriter's Underwriter Warrants have not
been registered under the Act. You agree not to make any sale or other
disposition of the Underlying Common Stock except pursuant to a new registration
statement which has become effective under the Act, setting forth the terms of
such offering, the underwriting discount and the commissions and any other
pertinent data with respect thereto, unless you have provided the Company with
an opinion of counsel reasonably acceptable to the Company that such
registration is not required.
(c) Inclusion in Registration of Other Securities. If at any time after the
first anniversary of the effective date hereof but prior to the fifth
anniversary of the effective date hereof, the Company shall propose the
registration on an appropriate form under the Act of any shares of Common Stock
or Other Securities, the Company shall at least 30 days prior to the filing of
such registration statement give you written notice, or telegraphic or
telephonic notice followed as soon as practicable by written confirmation
thereof, of such proposed registration and, upon written notice, or telegraphic
or telephonic notice followed as soon as practicable by written confirmation
thereof, given to the Company within five business days after the giving of such
notice by the Company, shall include or cause to be included in any such
registration statement all or such portion of the Underwriter's Warrant, the
Underlying Common Stock and the Warrant Stock as you may request, provided,
however, that the Company may at any time withdraw or cease proceeding with any
such registration if it shall at the same time withdraw or cease proceeding with
the registration of such Common Stock or such Other Securities originally
proposed to be registered.
Notwithstanding any provision of this Agreement to the contrary, if any holder
of any of the Underwriter Warrants exercises his Underwriter Warrants but shall
not have included all the Underlying Common Stock in a registration statement
containing a Registration Statement which complies with Section 10(a)(3) of the
Act, which has been effective for at least 30 calendar days following the
exercise of the Underwriter Warrants, the registration rights set forth in this
Subsection 3(c) shall be extended until such time as (i)the registration
statement containing such a Registration Statement has been effective for at
least 30 calendar days or (ii) in the opinion of counsel satisfactory to you and
the Company, registration is not required under the Act or under applicable
state laws for resale of the Underlying Common Stock in the manner proposed.
(d) Company's Obligations in Registration. In the event you timely elect to
participate in an offering by including your Underwriter's Underwriter Warrants,
the Underlying Common Stock or the Warrant Stock in a registration statement
pursuant to Subsection 3(c) above, the Company shall:
(i) Notify you as to the filing thereof and of all amendments or supplements
thereto filed prior to the effective date thereof;
(ii) Comply with all applicable rules and regulations of the Commission;
(iii) Notify you immediately, and confirm the notice in writing, (1) when the
registration statement becomes effective, (2) of the issuance by the Commission
of any stop order or of the initiation, or the threatening, of any proceedings
for that purpose, (3) of the receipt by the Company of any notification with
respect to the suspension of qualification of the Underlying Common Stock for
sale in any jurisdiction or of the initiation, or the threatening, of any
proceedings for that purpose and (4) of the receipt of any comments, or requests
for additional information, from the Commission or any state regulatory
authority. If the Commission or any state regulatory authority shall enter such
a stop order or order suspending qualification at any time, the Company will
make every reasonable effort to obtain the lifting of such order as promptly as
practicable.
(iv) During the time when a Registration Statement is required to be delivered
under the Act during the period required for the distribution of the Underlying
Common Stock, comply so far as it is able with all requirements imposed upon it
by the Act, as hereafter amended, and by the rules and regulations promulgated
thereunder, as from time to time in force, so far as necessary to permit the
continuance of sales of or dealings in the Underlying Common Stock. If at any
time when a Registration Statement relating to the Underlying Common Stock 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 your counsel, the
Registration Statement relating to the Underlying Common Stock 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 such
Registration Statement to comply with the Act, the Company will promptly prepare
and file with the Commission an appropriate amendment or supplement (in form
satisfactory to you).
(v) Endeavor in good faith, in cooperation with you, at or prior to the time the
registration statement becomes effective, to qualify the Underlying Common Stock
for offering and sale under the securities laws relating to the offering or sale
of the Underlying Common Stock of such jurisdictions as you may reasonably
designate and to continue the qualifications in effect so long as required for
purposes of the sale of the Underlying Common Stock; provided that no such
qualification shall be required in any jurisdiction where, as a result thereof,
the Company would be subject to service of general process, or to taxation as a
foreign corporation doing business in such jurisdiction. 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. For the purposes of this paragraph, "good faith" is
defined as the same standard of care and degree of effort as the Company will
use to qualify its securities other than the Underlying Common Stock.
(vi) Make generally available to its security holders as soon as practicable,
but not later than the first day of the eighteenth full calendar month following
the effective date of the registration statement, an earnings statement (which
need not be certified by independent public or independent certified public
accountants unless required by the Act or the rules and regulations promulgated
thereunder, but which shall satisfy the provisions of Section 11(a) of the Act)
covering a period of at least twelve months beginning after the effective date
of the registration statement.
(vii) After the effective date of such registration statement, prepare, and
promptly notify you of the proposed filing of, and promptly file with the
Commission, each and every amendment or supplement thereto or to any
Registration Statement forming a part thereof as may be necessary to make any
statements therein not misleading in any material respect; provided that no such
amendment or supplement shall be filed if you shall object thereto in writing
promptly after being furnished a copy thereof.
(viii) Furnish to you, as soon as available, copies of any such registration
statement and each preliminary or final Registration Statement, or supplement or
amendment prepared pursuant thereto, all in such quantities as you may from time
to time reasonably request;
(ix) Make such representations and warranties to any underwriter of the
Underlying Common Stock, and use your best efforts to cause Company counsel to
render such opinions to such underwriter, as such underwriter may reasonably
request; and
(x) Pay all costs and expenses incident to the performance of the Company's
obligations under Subsection 3(c) above and under this Subsection 3(f),
including without limitation the fees and disbursements of Company auditors,
engineers and legal counsel, of legal counsel for you and of legal counsel
responsible for qualifying the Underlying Common Stock under blue sky laws, all
filing fees and printing expenses, all expenses in connection with the transfer
and delivery of the Underlying Common Stock, and all expenses in connection with
the qualification of the Underlying Common Stock under blue sky laws provided,
however, that the Company shall not be responsible for compensation and
reimbursement of expenses to underwriters or selling agents for the included
Underlying Common Stock.
(e) Agreements by Warrant Holder. In connection with the filing of a
registration statement pursuant to Subsection 3(c) above, if you participate in
the offering of the Underlying Common Stock by including shares owned by you,
you agree:
(i) To furnish the Company all material information
requested by the Company concerning yourself and
your holdings of securities of the Company and the
proposed method of sale or other disposition of
the Underlying Common Stock and such other
information and undertakings as shall be
reasonably required in connection with the
preparation and filing of any such registration
statement covering all or a part of the Underlying
Common Stock and in order to ensure full
compliance with the Act; and
(ii) To cooperate in good faith with the Company and
its underwriters, if any, in connection with such
registration, including placing the shares of
Underlying Common Stock to be included in such
registration statement in escrow or custody to
facilitate the sale and distribution thereof.
(f) Indemnification. The Company shall indemnify and hold harmless you and any
underwriter (as defined in the Act) for you, and each person, if any, who
respectively controls you or such underwriter within the meaning of Section 15
of the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), against any loss, liability, claim, damage and expense
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 any of you or such underwriter or such controlling person becomes
subject, under the Act or otherwise, insofar as such loss, liability, claim,
damage and expense (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 (i) a registration statement covering the Underlying Common Stock, in the
Registration Statement contained therein, or in an amendment or supplement
thereto or (ii) in any application or other document or communication (in this
Subsection collectively called "application") executed by or on behalf of the
Company or based upon written information furnished by or on behalf of the
Company filed in any jurisdiction in order to qualify the Underlying Common
Stock under the securities laws thereof or filed with the Commission, or arise
out of or based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading provided, however, that the Company shall not be
obligated to indemnify in any such case to the extent that any such loss, claim,
damage, expense or liability arises out of or is based upon any untrue statement
or alleged untrue statement or omission or alleged omission made in reliance
upon, and in conformity with, written information respectively furnished by you
or such underwriter or such controlling person for use in the registration
statement, or any amendment or supplement thereto, or any application, as the
case may be.
If any action is brought against a person in respect of which
indemnity may be sought against, the Company pursuant to the foregoing
paragraph, such person shall promptly notify the Company in writing of the
institution of such action and the Company shall assume the defense of the
action, including the employment of counsel (satisfactory to the indemnified
person in its reasonable judgment) and payment of expenses. The indemnified
person shall have the right to employ its or their own counsel in any such case,
but the fees and expenses of such counsel shall be at the expense of such
indemnified person or unless the employment of such counsel shall have been
authorized in writing by the Company in connection with the defense of the
action or the Company shall not have employed counsel to have charge of the
defense of the action or the indemnified person shall have reasonably concluded
that there may be defenses available to it or them which are different from or
additional to those available to the Company (in which case the Company shall
not have the right to direct the defense of the action on behalf of the
indemnified person), in any of which events these fees and expenses shall be
borne by the Company. Anything in this paragraph to the contrary
notwithstanding, the Company shall not be liable for any settlement of any claim
or action effected without its written consent. The Company's indemnity
agreements contained in this Subsection shall remain in full force and effect
regardless of any investigation made by or on behalf of any indemnified person,
and shall survive any termination of this Agreement. The Company agrees promptly
to notify you of the commencement of any litigation or proceedings against the
Company or any of its officers or directors in connection with the registration
statement pursuant to Subsection 3(c) above.
If you choose to include all or a part of the Underlying Common Stock in a
public offering pursuant to Subsection 3(c), then you agree to indemnify and
hold harmless the Company and each of its directors and officers who have signed
any such registration statement, and any underwriter for the Company (as defined
in the Act), and each person, if any, who controls the Company or such
underwriter within the meaning of the Act, to the same extent as the indemnity
by the Company in this Subsection 3(f) but only with respect to statements or
omissions, if any, made in such registration statement, or any amendment or
supplement thereto, or in any application in reliance upon, and in conformity
with, written information furnished by you to the Company for use in the
registration statement, or any amendment or supplement thereto, or any
application, as the case may be. In case any action shall be brought in respect
of which indemnity may be sought against you, you shall have the rights and
duties given to the Company, and the persons so indemnified shall have the
rights and duties given to you by the provisions of the first paragraph of this
Subsection.
The Company further agrees that, if the indemnity provisions of the foregoing
paragraphs are held to be unenforceable, any holder of a Warrant or controlling
person of such a holder may recover contribution from the Company in an amount
which, when added to contributions such holder or controlling person has
theretofore received or concurrently receives from officers and directors of the
Company or controlling persons of the Company, will reimburse such holder or
controlling person for all losses, claims, damages or liabilities and legal or
other expenses; provided, however, that if the full amount of the contribution
specified in this Subsection 3(f) is not permitted by law, then such holder or
controlling person shall be entitled to contribution from the Company and its
officers, directors and controlling persons to the full extent permitted by law.
4. Exercise of Underwriter Warrants; Partial Exercise.
(a) Exercise in Full. Each Warrant may be exercised in full by the holder
thereof by surrender of the Warrant Certificate, with the form of subscription
at the end thereof duly executed by such holder, to the Company at its principal
office, accompanied by payment, in cash or by certified or bank cashiers check
payable to the order of the Company, in the respective amount obtained by
multiplying the number of shares of the Underlying Common Stock represented by
the Warrant Certificate (after giving effect to any adjustment therein as
provided in Section 6 below) by the Purchase Price per share.
(b) Partial Exercise. Each Warrant may be exercised in part by surrender of the
Warrant Certificate in the manner and at the place provided in Subsection 4(a)
above, accompanied by payment, in cash or by certified or bank cashiers check
payable to the order of the Company, in the respective amount obtained by
multiplying the number of shares of the Underlying Common Stock designated by
the holder in the form of subscription attached to the Warrant Certificate by
the Purchase Price per share (after giving effect to any adjustment therein as
provided in Section 6 below). Upon any such partial exercise, the Company at its
expense will forthwith issue and deliver to or upon the order of the purchasing
holder, a new Warrant Certificate or Certificates of like tenor, in the name of
the holder thereof or as such holder (upon payment by such holder of any
applicable transfer taxes) may request calling in the aggregate for the purchase
of the number of shares of the Underlying Common Stock equal to the number of
such shares called for on the face of the Warrant Certificate (after giving
effect to any adjustment therein as provided in Section 6 below) minus the
number of such shares (after giving effect to such adjustment) designated by the
holder in the aforementioned form of subscription.
(c) Company to Reaffirm Obligations. The Company will, at the time of any
exercise of any Warrant, upon the request of the holder thereof, acknowledge in
writing its continuing obligation to afford to such holder any rights (including
without limitation any right to registration of the shares of the Underlying
Common Stock issued upon such exercise) to which such holder shall continue to
be entitled after such exercise in accordance with the provisions of this
Agreement provided, however, that if the holder of a Warrant shall fail to make
any such request, such failure shall not affect the continuing obligation of the
Company to afford to such holder any such rights.
5. Delivery of Certificates, etc, on Exercise.
As soon as practicable after the exercise of any Warrant in full or in
part, and in any event within twenty days thereafter, the Company at its expense
(including the payment by it of any applicable issue taxes) will cause to be
issued in the name of and delivered to the purchasing holder thereof, a
certificate or certificates for the number of Units, Warrants and fully paid and
nonassessable shares of the Underlying Common Stock to which such holder shall
be entitled upon such exercise, plus in lieu of any fractional share to which
such holder would otherwise be entitled, cash in an amount determined pursuant
to Section 7(g), together with any other stock or other securities and property
(including cash, where applicable) to which such holder is entitled upon such
exercise pursuant to Section 6 below or otherwise.
6. Anti-dilution Provisions.
The Underwriter Warrants are subject to the following terms and
conditions during the term thereof:
(a) Stock Distributions and Splits. In case (i) the outstanding shares of the
Common Stock (or Other Securities) shall be subdivided into a greater number of
shares or (ii) a dividend in Common Stock (or Other Securities) shall be paid in
respect of Common Stock (or Other Securities), the Purchase Price per share in
effect immediately prior to such subdivision or at the record date of such
dividend or distribution shall simultaneously with the effectiveness of such
subdivision or immediately after the record date of such dividend or
distribution be proportionately reduced; and if outstanding shares of Common
Stock (or Other Securities) shall be combined into a smaller number of shares
thereof, the Purchase Price per share in effect immediately prior to such
combination shall simultaneously with the effectiveness of such combination be
proportionately increased. Any dividend paid or distributed on the Common Stock
(or Other Securities) in stock or any other securities convertible into shares
of Common Stock (or Other Securities) shall be treated as a dividend paid in
Common Stock (or Other Securities) to the extent that shares of Common Stock (or
Other Securities) are issuable upon the conversion thereof.
(b) Adjustments. Whenever the Purchase Price per share is adjusted as provided
in Subsection 6(a) above, the number of shares of the Underlying Common Stock
purchasable upon exercise of the Underwriter Warrants immediately prior to such
Purchase Price adjustment shall be adjusted, effective simultaneously with such
Purchase Price adjustment, to equal the product obtained (calculated to the
nearest full share) by multiplying such number of shares of the Underlying
Common Stock by a fraction, the numerator of which is the Purchase price per
share in effect immediately prior to such Purchase Price adjustment and the
denominator of which is the Purchase Price per share in effect upon such
Purchase Price adjustment, which adjusted number of shares of the Underlying
Common stock shall thereupon be the number of shares of the Underlying Common
Stock purchasable upon exercise of the Underwriter Warrants until further
adjusted as provided herein.
(c) Reorganizations. In case the Company shall be recapitalized by reclassifying
its outstanding Common Stock (or Other Securities) into a stock with a different
par value or by changing its outstanding Common Stock (or Other Securities) with
par value to stock without par value, then, as a condition of such
reorganization, lawful and adequate provision shall be made whereby each holder
of a Warrant shall thereafter have the right to purchase, upon the terms and
conditions specified herein, in lieu of the shares of Common Stock (or Other
Securities) theretofore purchasable upon the exercise of the Underwriter
Warrants, the kind and amount of shares of stock and other securities receivable
upon such recapitalization by a holder of the number of shares of Common Stock
(or Other Securities) which the holder of an Underwriter Warrant might have
purchased immediately prior to such recapitalization. If any consolidation or
merger of the Company with another corporation, or the sale of all or
substantially all of its assets to another corporation, shall be effected in
such a way that holders of Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for Common Stock, then, as a
condition of such consolidation, merger or sale, lawful and adequate provisions
shall be made whereby the holder hereof shall thereafter have the right to
purchase and receive upon the basis and upon the terms and conditions specified
in this Warrant Agreement and in lieu of the shares of the Common Stock of the
Company immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby, such shares of stock, securities or assets as may
be issued or payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of such stock
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby had such consolidation, merger or sale not taken
place, and in any such case, appropriate provision shall be made with respect to
the rights and interests of the holders of Underwriter Warrants to the end that
the provisions hereof (including without limitation provisions for adjustments
of the Purchase Price and of the number of shares purchasable and receivable
upon the exercise of the Underwriter Warrants) shall thereafter be applicable,
as nearly as may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise hereof (including an immediate
adjustment, by reason of such consolidation or merger, of the Purchase Price to
the value for the Common Stock reflected by the terms of such consolidation or
merger if the value so reflected is less than the Purchase Price in effect
immediately prior to such consolidation or merger). In the event of a merger or
consolidation of the Company with or into another corporation as a result of
which a number of shares of common stock of the surviving corporation greater or
lesser than the number of shares of Common Stock of the Company outstanding
immediately prior to such merger or consolidation are issuable to holders of
Common Stock of the Company, then the Purchase Price in effect immediately prior
to such merger or consolidation shall be adjusted in the same manner as though
there were a subdivision or combination of the outstanding shares of Common
Stock of the Company. The Company will not effect any such consolidation, merger
or sale, unless prior to the consummation thereof the successor corporation (if
other than the Company) resulting from such consolidation or merger or the
corporation purchasing such assets shall assume by written instrument executed
and mailed or delivered to the registered holder hereof at the last address of
such holder appearing on the books of the Company, the obligation to deliver to
such holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such holder may be entitled to purchase. If a
purchase, tender or exchange offer is made to and accepted by the holders of
more than of the outstanding shares of Common Stock of the Company, the Company
shall not effect any consolidation, merger or sale with the Person having made
such offer or with any Affiliate of such Person, unless prior to the
consummation of such consolidation, merger or sale the holders of Underwriter
Warrants shall have been given a reasonable opportunity to then elect to receive
upon the exercise of Underwriter Warrants either the stock, securities or assets
then issuable with respect to the Common Stock of the Company or the stock,
securities or assets, or the equivalent issued to previous holders of the Common
Stock in accordance with such offer. The term "Person" as used in this
subparagraph shall mean and include an individual, a partnership, a corporation,
a trust, a joint venture, an unincorporated organization and a government or any
department or agency thereof. For the purposes of this subparagraph, an
"Affiliate" of any Person shall mean any Person directly or indirectly
controlling, controlled by or under direct or indirect common control with, such
other Person. A Person shall be deemed to control a corporation if such Person
possesses, directly or indirectly, the power to direct or cause the direction of
the management and policies of such corporation, whether through the ownership
of voting securities, by contract or otherwise.
(d) Effect of Dissolution or Liquidation. In case the Company shall dissolve or
liquidate all or substantially all of its assets, all rights under this
Agreement shall terminate as of the date upon which a certificate of dissolution
or liquidation shall be filed with the Secretary of the State of Delaware (or,
if the Company theretofore shall have been merged or consolidated with a
corporation incorporated under the laws of another state, the date. upon which
action of equivalent effect shall have been taken); provided, however, that (i)
no dissolution or liquidation shall affect the rights under Subsection 6(c) of
any holder of a Warrant and (ii) if the Company's Board of Directors shall
propose to dissolve or liquidate the Company, each holder of a Warrant shall be
given written notice of such proposal at the earlier of (i) the time when the
Company's shareholders are first given notice of the proposal or (ii) the time
when notice to the Company's shareholders is first required.
(e) Notice of Change of Purchase Price. Whenever the Purchase Price per share or
the kind or amount of securities purchasable under the Underwriter Warrants
shall be adjusted pursuant to any of the provisions of this Agreement, the
Company shall forthwith thereafter cause to be sent to each holder of a Warrant,
a certificate setting forth the adjustments in the Purchase Price per share
and/or in such number of shares, and also setting forth in detail the facts
requiring, such adjustments, including without limitation a statement of the
consideration received or deemed to have been received by the Company for any
additional shares of stock issued by it requiring such adjustment. In addition,
the Company at its expense shall within 90 days following the end of each of its
fiscal years during the term of this Agreement, and promptly upon the reasonable
request of any holder of a Warrant in connection with the exercise from time to
time of all or any portion of any Warrant, cause independent certified public
accountants of recognized standing selected by the Company to compute any such
adjustment in accordance with the terms of the Underwriter Warrants and prepare
a certificate setting forth such adjustment and showing in detail the facts upon
which such adjustment is based.
(f) Notice of a Record Date. In the event of (i) any taking by the Company of a
record of the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend (other than a cash
dividend payable out of earned surplus of the Company) or other distribution, or
any right to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other right,
(ii) any capital reorganization of the Company, or any reclassification or
recapitalization of the capital stock of the Company, or any transfer of all or
substantially all of the assets of the Company to, or consolidation or merger of
the Company with or into, any other person or (iii) any voluntary or involuntary
dissolution or liquidation of the Company, then and in each such event the
Company will mail or cause to be mailed to each holder of a Warrant a notice
specifying not only the date on which any such record is to be taken for the
purpose of such dividend, distribution or right and stating the amount and
character of such dividend, distribution or right, but also the date on which
any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to take place,
and the time, if any, as of which the holders of record of Common Stock (or
Other Securities) shall be entitled to exchange their shares of Common Stock (or
other Securities) for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up. Such notice shall be mailed at
least 20 days prior to the proposed record date therein specified.
7. Further Covenants of the Company.
(a) Reservation of Stock. The Company shall at all times reserve and keep
available, solely for issuance and delivery upon the exercise of the Underwriter
Warrants, all shares of the Underlying Common Stock from time to time issuable
upon the exercise of the Warrants and the Underwriter Warrants and shall take
all necessary actions to ensure that the par value per share, if any, of the
Underlying Common Stock is, at all times equal to or less than the then
effective Purchase Price per share.
(b) Title to Units. All Units and shares of the Underlying Common Stock
delivered upon the exercise of the Underwriter Warrants shall be validly issued,
fully paid and nonassessable; each holder of an Underwriter Warrant shall
receive good and marketable title to the Units and Underlying Common Stock, free
and clear of all voting and other trust arrangements, liens, encumbrances,
equities and claims whatsoever; and the Company shall have paid all taxes, if
any, in respect of the issuance thereof.
(c) Listing on Securities Exchanges; Registration. If the Company at any time
shall list any Units, Common Stock or Warrants on any national securities
exchange, the Company will, at its expense, simultaneously list on such
exchange, upon official notice of issuance upon the exercise of the Underwriter
Warrants, and maintain such listing of, all Units, Warrants and shares of the
Underlying Common Stock from time to time issuable upon the exercise of the
Underwriter Warrants; and the Company will so list on any national securities
exchange, will so register and will maintain such listing of, any Other
Securities if and at the time that any securities of like class or similar type
shall be listed on such national securities exchange by the Company.
(d) Exchange of Underwriter Warrants. Subject to Subsection 3(a) hereof, upon
surrender for exchange of any Warrant Certificate to the Company, the Company at
its expense will promptly issue and deliver to or upon the order of the holder
thereof a new Warrant Certificate or certificates of like tenor, in the name of
such holder or as such holder (upon payment by such holder of any applicable
transfer taxes) may direct, calling in the aggregate for the purchase of the
number of shares of the Underlying Common Stock called for on the face or faces
of the Warrant Certificate or Certificates so surrendered.
(e) Replacement of Underwriter Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrant Certificate and, in the case of any such loss, theft or destruction,
upon delivery of an indemnity agreement reasonably satisfactory in form and
amount to the Company or, in the case of any such mutilation, upon surrender and
cancellation of such Warrant Certificate, the Company, at the expense of the
Warrant holder will execute and deliver, in lieu thereof, a new Warrant
Certificate of like tenor.
(f) Reporting by the Company. The Company agrees that, if it files a
Registration Statement during the term of the Underwriter Warrants, it will use
its best efforts to keep current in the filing of all forms and other materials
which it may be required to file with the appropriate regulatory authority
pursuant to the Exchange Act, and all other forms and reports required to be
filed with any regulatory authority having jurisdiction over the Company.
(g) Fractional Shares. No fractional shares of Underlying Common Stock are to be
issued upon the exercise of any Warrant, but the Company shall pay a cash
adjustment in respect of any fraction of a share which would otherwise be
issuable in an amount equal to the same fraction of the highest market price per
share of Underlying Common Stock on the day of exercise, as determined by the
Company.
8. Other Holders.
The Underwriter Warrants are issued upon the following terms, to all of
which each holder or owner thereof by the taking thereof consents and agrees as
follows: (a) any person who shall become a transferee, within the limitations on
transfer imposed by Subsection 3(a) hereof, of a Warrant properly endorsed shall
take such Warrant subject to the provisions of Subsection 3(a) hereof and
thereupon shall be authorized to represent himself as absolute owner thereof
and, subject to the restrictions contained in this Agreement, shall be empowered
to transfer absolute title by endorsement and delivery thereof to a permitted
bona fide purchaser for value; (b) each prior taker or owner waives and
renounces all of his equities or rights in such Warrant in favor of each such
permitted bona fide purchaser, and each such permitted bona fide purchaser shall
acquire absolute title thereto and to all rights presented thereby; (c) until
such time as the respective Warrant is transferred on the books of the Company,
the Company may treat the registered holder thereof as the absolute owner
thereof for all purposes, notwithstanding any notice to the contrary and (d) all
references to the word "you" in this Warrant Agreement shall be deemed to apply
with equal effect to any person to whom a Warrant Certificate or Certificates
have been transferred in accordance with the terms hereof, and where
appropriate, to any person holding Units, Warrants or shares of the Underlying
Common Stock.
9. Miscellaneous.
All notices, certificates and other communications from or at the
request of the Company to the holder of any Warrant shall be mailed by first
class, registered or certified mail, postage prepaid, to such address as may
have been furnished to the Company in writing by such holder, or, until an
address is so furnished, to the address of the last holder of such Warrant who
has so furnished an address to the Company, except as otherwise provided herein.
This Agreement and any of the terms hereof may be changed, waived, discharged or
terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought. This
Agreement shall be construed and enforced in accordance with and governed by the
laws of the State of Texas. The headings in this Agreement are for reference
only and shall not limit or otherwise affect any of the terms hereof. This
Agreement, together with the forms of instruments annexed hereto as Schedule I,
constitutes the full and complete agreement of the parties hereto with respect
to the subject matter hereof.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on this
_____ day of ______1997, in Dallas, Texas, by its proper corporate officers
thereunto duly authorized.
WesTower Corporation
By
Calvin Payne, President
The above Warrant Agreement is confirmed this __ day of _____1997.
Tejas Securities Group, Inc.
By:
Robert A. Shuey III
<PAGE>
SCHEDULE I
WESTOWER CORPORATION
Unit Purchase Warrant
Certificate Evidencing Right to Purchase
100,000 Units
This is to certify that Tejas Securities Group, Inc. ("Tejas") or assigns, is
entitled to purchase at any time or from time to time after 9 A.M., Dallas,
Texas time, on____, 1996 and until 9 A.M., Dallas, Texas time, on ________, 2002
up to the above referenced number of Units consisting of three shares of the
Company's Common Stock (the "Shares") and two Common Stock Purchase Warrant (the
"Warrants"), of Westower Corporation, a Washington corporation (the "Company"),
for the consideration specified in Subsection 1(e) of the Warrant Agreement
dated ________ 1997 between the Company and Tejas (the "Warrant Agreement"),
pursuant to which this Warrant is issued. All rights of the holder of this
Warrant Certificate are subject to the terms and provisions of the Warrant
Agreement, copies of which are available for inspection at the office of the
Company.
The Units issuable upon the exercise of this Warrant have not been
registered under the Securities Act of 1933, as amended (the "Act"), and no
distribution of the Shares or Warrants issuable upon exercise of this Warrant
may be made until the effectiveness of a registration statement under the Act
covering such Units. Transfer of this Warrant Certificate is restricted as
provided in Subsection 3(a) of the Warrant Agreement.
This Warrant has been issued to the registered owner in reliance upon
written representations necessary to ensure that this Warrant was issued in
accordance with an appropriate exemption from registration under any applicable
state and federal securities laws, rules and regulations. This Warrant may not
be sold, transferred, or assigned unless, in the opinion of the Company and its
legal counsel, such sale, transfer or assignment will not be in violation of the
Act, applicable rules and regulations of the Securities and Exchange Commission,
and any applicable state securities laws.
Subject to the provisions of the Act and of such Warrant Agreement,
this Warrant Certificate and all rights hereunder are transferable, in whole or
in part, at the offices of the Company, by the holder hereof in person or by
duly authorized attorney, upon surrender of this Warrant Certificate, together
with the Assignment hereof duly endorsed. Until transfer of this Warrant
Certificate on the books of the Company, the Company may treat the registered
holder hereof as the owner hereof for all purposes.
Any Units, Warrants or Common Stock which is acquired pursuant to the
exercise of this Warrant shall be acquired in accordance with the Warrant
Agreement and certificates representing all securities so acquired shall bear a
restrictive legend reading substantially as follows:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
UNDER ANY APPLICABLE STATE LAW. THEY MAY NOT BE offered FOR SALE, SOLD,
TRANSFERRED OR PLEDGED WITHOUT (1) REGISTRATION UNDER THE SECURITIES ACT OF 1933
AND ANY APPLICABLE STATE LAW, OR (2) AN OPINION OF COUNSEL (SATISFACTORY TO THE
CORPORATION) THAT REGISTRATION IS NOT REQUIRED.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
executed on this ___ day of ________ , 1997, in Dallas, Texas, by its proper
corporate officer's thereunto duly authorized.
WesTower Corporation
By: Attest:
Calvin Payne, President
<PAGE>
SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: WesTower Corporation
The undersigned, the holder of the enclosed Warrant Certificate, hereby
irrevocably elects to exercise the purchase right represented by such Warrant
Certificate for, and to purchase thereunder, _________________ Units (as defined
in the Warrant Agreement to which the form of this Subscription was attached)
and herewith makes payment of $______________ therefor, and requests that the
certificate or certificates for such shares be issued in the name of and
delivered to the undersigned.
Date:
(Signature must conform
in all respects to name
of holder as specified on
the face of the Warrant
Certificate)
(Address)
Insert the number of shares called for on the face of the Warrant
Certificate (or, in the case of a partial exercise, the portion thereof as to
which the Warrant is being exercised), in either case without making any
adjustment for additional Units or other securities or property or cash which,
pursuant to the adjustment provisions of the Warrant, may be deliverable upon
exercise.
<PAGE>
ASSIGNMENT
(To be signed only upon transfer of Warrant)
For value received, the undersigned hereby sells, assigns and transfers unto
_______________________________ the right represented by the enclosed Warrant
Certificate to purchase ________ Units with full power of substitution in the
premises.
The undersigned represents and warrants that the transfer, in whole in
or in part, of such right to purchase represented by the enclosed Warrant
Certificate is permitted by the terms of the Warrant Agreement pursuant to which
the enclosed Warrant has been issued, and the transferee hereof, by his
acceptance of this Assignment, represents and warrants that he is familiar with
the terms of such Warrant Agreement and agrees to be bound by the terms thereof
with the same force and effect as if a signatory thereto.
Date:
(Signature must conform
in all respects to name of
holder as specified on
the face of the Warrant
Certificate)
(Address)
Signed in the presence of:
1,000,000 Units
WESTOWER CORPORATION
Each Unit Consisting of
One share of Common Stock and
One Redeemable Common Stock Purchase Warrants
, 1997
SELECTED DEALER AGREEMENT
Dear Sirs:
Tejas Securities Group, Inc. ("Tejas"), and the several underwriters
(collectively, the "Underwriters"), on whose behalf Tejas is acting as managing
underwriter and representative (the "Representative"), have severally agreed to
purchase from Westower Corporation, a Washington corporation (the "Company") (a)
an aggregate of 1,000,000 Units, each Unit consisting of one share of the
Company's common stock, $.01 par value per share ("Common Stock"), and one
redeemable common stock purchase warrants (individually, a "Redeemable
Warrant"), each of which entitles the holder thereof to purchase one share of
Common Stock at a price of $9.00 (such Units, together with (A) the shares of
Common Stock and Redeemable Common Stock Purchase Warrants comprising the Units
and (B) the shares of Common Stock issuable upon exercise of such Redeemable
Common Stock Purchase Warrants, are collectively referred to herein as the
"Underwritten Securities"), plus (b) up to 150,00 additional Units pursuant to
an option for the purpose of covering over-allotments (such additional Units,
together with (A) the shares of Common Stock and Redeemable Common Stock
Purchase Warrants comprising such additional Units and (B) the shares of Common
Stock issuable upon exercise of such Redeemable Common Stock Purchase Warrants,
are collectively referred to herein as the "Option Securities"; the Underwritten
Securities and the Option Securities are collectively referred to herein as the
"Securities"; and the Units included in the Securities are collectively referred
to herein as the "Registered Units"), all as set forth in the Preliminary
Prospectus dated ______ 1997, as amended and supplemented from time to time, and
subject to the terms of the Underwriting Agreement referred to therein. The
Registered Units and the terms upon which they are to be offered for sale by the
several Underwriters are more particularly described in the Preliminary
Prospectus, additional copies of which will be supplied in reasonable quantities
upon request to the Underwriters.
1. Offering to Dealers. The Registered Units are to be offered to the
public by the Underwriters at the price per share set forth on the cover page of
the Preliminary Prospectus (the "Public Offering Price"). The several
Underwriters, acting through the Representative, and subject to the terms and
conditions hereof, are severally offering a portion of the Registered Units to
certain dealers (the "Dealers") as principals, at the Public Offering Price of
$7.50 per Unit, less a selling concession of $0.375 per Unit (the "Selling
Concession"). Dealers must be actually engaged in the investment banking or
securities business and be either (i) a member in good standing of the National
Association of Securities Dealers, Inc. (the "NASD") who agrees that in making
sales of the Registered Units it will comply with the Rules of Fair Practice,
including Sections 8, 24 and 36 of Article m, and the Interpretation of the
Board of Governors of the NASD with respect to Free-Riding and Withholding, or
(ii) dealers with their principal place of business located outside the United
States, its territories and possessions and not registered as brokers or dealers
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), who
have agreed not to make any sales within the United States, its territories or
its possessions or to persons who are nationals thereof or residents therein,
and who agree that in making sales of the Registered Units outside the United
States, they will comply with the requirements of the Rules of Fair Practice of
the NASD, including Sections 8, 24 and 36 of Article m of such Rules, and
Section 25 of such Article as that Section applies to non-member foreign
dealers, and the Interpretation of the Board of Governors of the NASD with
respect to Free-Riding and Withholding.
Under this Agreements the Representative shall have full authority to
take such action as they may deem advisable in respect to all matters pertaining
to the public offering of the Registered Units.
If you desire to purchase any of the Registered Units, your
confirmation should reach the Representative promptly by mail or facsimile
transmission at the office of the Representative Tejas Securities Group, Inc.,
1250 Capital of Texas Hwy. South Building Two, Suite 500, Austin, Texas 78746,
attention: Robert A. Shuey, III, facsimile number (512) 306-1528. The
Representatives reserve the right to reject subscriptions in whole or in part,
to make allotments and to close the subscription books at any time without
notice. The Registered Units allotted to you and the method and terms of the
offering of the Registered Units will be confirmed to you.
2. Offering by Dealers. Any Registered Units purchased by you under the
terms of this Agreement may be immediately reoccurred to the public in
conformity with the terms of the offering set forth herein and in the
Preliminary Prospectus, subject to the securities or blue sky laws of the
various states or other jurisdictions.
Neither you nor any other person is, or has been, authorized by the
Company or the Representative to give any information or make any representation
in connection with the sale of the Registered Units other than those contained
in the Preliminary Prospectus.
It is assumed that the Registered Units will be effectively placed for
investment. If during the term of this Agreement, the Representative shall
purchase or contract to purchase any Registered Units purchased by you
hereunder, the Representative may, at their election, either (a) require you to
repurchase such Registered Units at a price equal to the total costs of such
purchase by the Representative, including brokerage commissions, if any, and
transfer taxes on the redelivery, or (b) charge you with and collect from you an
amount equal to the Selling Concession originally allowed you with respect to
the Registered Units so purchased by you.
3. Payment and Delivery. Payment for the Registered Units that you have
agreed to purchase hereunder shall be made by you through the Depository Trust
Company ("DTC"), payable in same-day funds to the order of Tejas Securities
Group, Inc. at such time and on such date as Tejas may designate, against
delivery of such Registered Units to you through he facilities of the DTC. The
above payment shall be made by you at $___ per Unit.
4. Blue Sky Matters. Upon request, you will be informed as to the
states and other jurisdictions in which the Underwriters have been advised that
the Registered Units are qualified for sale under the respective securities or
blue sky laws of such states or jurisdictions. However, neither the
Representative nor any of the other Underwriters shall have any obligation or
responsibility with respect to the right of any Dealer to sell the Registered
Units in any jurisdiction and you shall indemnify and hold harmless the
Representative and the other Underwriters and any person controlling the
Representatives and the other Underwriters from and against any and all losses,
claims, damages, expenses or liabilities to which any of them may become subject
as a result of your failure to comply with the laws of any jurisdiction in
connection with the offer and the sale of Registered Units. In compliance with
the General Business law of the State of New York, it may be necessary for you
to file a Further State Notice respecting the Registered Units, in the form
required by said law, prior to offering any of the Registered Units in such
state.
5. Termination. This Agreement shall terminate when the Representative
shall have determined that the public offering of the Registered Units has been
completed and upon facsimile notice to you of such termination, or, if not
theretofore terminated, it shall terminate 45 days after the initial public
offering of the Registered Units; provided, however, that the Representative
shall have the right to extend this Agreement for a period or periods not to
exceed an additional 45 days in the aggregate upon facsimile notice to you. The
Representative may terminate this Agreement at any time without prior notice to
you. Notwithstanding termination of this Agreement, you shall remain liable for
your portion of any transfer tax or other liability that may be asserted or
assessed against the Representative, any of the other Underwriters or any of the
Dealers based upon the claim that the Dealers or any of them constitute a
partnership, an association, an unincorporated business or other separate
entity.
6. Obligations and Positions of Dealers. Notwithstanding any provision
herein, your confirmation hereof will constitute a binding obligation on your
part to purchase, upon the terms and conditions hereof, the aggregate amount of
the Registered Units reserved for you and accepted by you and to perform and
observe all the terms and conditions hereof. You are not authorized to act as
agent of the Representative or the other Underwriters in offering the Registered
Units to the public or otherwise. Nothing contained herein shall constitute the
Dealers an association or other separate entity, or partners with the
Representative or the other Underwriters, but you will be responsible for your
share of any liability or expense based on any claim to the contrary. Neither
the Representative nor the other Underwriters shall be under any liability to
you for or in respect of the value, validity or form of the Registered Units, or
the delivery of the Registered Units, or the performance by anyone of any
agreement on its part, or the qualification of the Registered Units for sale
under the laws of any jurisdiction, or for or in respect of any other matter
relating to this Agreement, except for lack of good faith and matters expressly
assumed by the Representative and the other Underwriters in this Agreement, and
no obligation on the part of the Representative or the other Underwriters shall
be implied therefrom. The foregoing provisions shall not be deemed a waiver of
any liability imposed under the Securities Act of 1933, as amended (the "Act"),
or the Exchange Act.
You agree that at any time or times prior to the termination of the
Agreement you will, upon the request of the Representative, report to the
Representative the number of Registered Units purchased by you under this
Agreement that then remain unsold by you and will, upon the request of the
Representative at such time or times, sell to the Underwriters for their
account, such number of unsold Registered Units as the Representative may
designate, at the Public Offering Price, less the Selling Concession or such
part thereof as the Representative may determine.
The Representatives shall have full authority to take such actions as
they may deem advisable in respect of all matters pertaining to the offering of
the Registered Units or arising hereunder. No obligation not expressly assumed
by the Representative in this Agreement shall be implied hereby or inferred
herefrom.
7. Compliance with Securities Laws. On becoming a Dealer, and in
offering and selling the Registered Units, you agree to comply with all of the
applicable requirements of the Act and the Exchange Act. You confirm that you
are familiar with Rule 15c2-8 under the Exchange Act relating to the
distribution of preliminary and final prospectuses for securities of an issuer
and confirm that you have complied and will comply therewith with respect to the
offering of the Registered Units.
8. Stabilization and Over-Allotment. Each Underwriter has authorized
the Representative, in the discretion of the Representative, to make purchases
and sales of Registered Units, for long or short account, on such terms and at
such prices as the Representative deem advisable, to cover any short position so
incurred and to over-allot in arranging sales.
Each Underwriter has agreed that, during the term of the Agreement
Among Underwriters, or such shorter period as the Representative may determine,
it will not buy or sell any Securities of the Company except as a broker
pursuant to unsolicited orders and as otherwise provided in said Agreement.
Your attention is directed to Rule 10b-6 of the General Rules and
Regulations under the 1934 Act, which contains certain prohibitions against
trading by a person interested in a distribution until such person has completed
its participation in such distribution.
9. Notices. Any notice from you to the Representatives should be mailed
or sent by facsimile transmission to both of the Representatives at the
addresses and facsimile numbers set forth in Section 1 hereof. Any notice from
the Representative to you shall be mailed or sent by facsimile transmission to
you at the address and facsimile number set forth on the confirmation executed
by you in the form attached hereto as Exhibit A. Mailed notices shall be sent by
registered mail, return receipt requested. Notices shall be effective upon
receipt.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas without giving effect to the
choice of law or conflicts of law or principles thereof.
If you desire to purchase any Registered Units, please confirm your
agreement by signing and returning to the Representative by mail or facsimile
transmission your confirmation in the form attached hereto as Exhibit A even
though you may have previously advised the Representative thereof.
Very truly yours,
TEJAS SECURITIES GROUP, INC.
By:
Robert A. Shuey, III
For itself and the other several Underwriters
in Schedule I to the Underwriting Agreement
<PAGE>
EXHIBIT A
Confirmation
TEJAS SECURITIES GROUP, INC.
1250 Capital of Texas Hwy. South Building Two, Suite 500
Austin, Texas 78746
Facsimile Number (214) 987-2091
Dear Sirs:
The undersigned hereby confirms its agreement to purchase Units of
Westower Corporation, a Washington corporation (the "Registered Units"), each
Registered Unit consisting of one share of Common Stock, $.01 par value, and one
Redeemable Common Stock Purchase Warrants, each of which entitles the holder
thereof to purchase one share of Common Stock at a price of $9.00. The purchase
price shall be $7.50 per Registered Unit, less a selling concession of $0.375
per Registered Unit, subject to the terms and conditions of the foregoing
Selected Dealer Agreement, and the undersigned agrees to take up and pay for
such Registered Units on the terms and conditions set forth in such Agreement.
The undersigned hereby acknowledges receipt of the Preliminary Prospectus
relating to the Securities (as defined in the Selected Dealer Agreement) and
confirms that in agreeing to purchase the Registered Units it has relied on said
Preliminary Prospectus and on no other statement whatsoever, written or oral.
The undersigned represents that it has complied and will comply with the
requirements of Rule 15c2-8 under the Securities Exchange Act of 1934, as
amended, with respect to the offering of the Registered Units.
The undersigned confirms that it is a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD") and represents
that in making sales of the Registered Units it will comply with the Rules of
Fair Practice (including Sections 8, 24 and 36 of Article m) and the
Interpretation of the Board of Governors of the NASD with respect to Free-Riding
and Withholding; alternatively, the undersigned represents that it is a foreign
dealer that is not eligible for membership in the NASD and agrees not to offer
or sell the Registered Units in the United States, its territories or its
possessions or to persons it has reason to believe are nationals thereof or
residents therein, and further agrees that in making sales of the Registered
Units outside the United States, it will comply with the requirements of the
Rules of Fair Practice (including Sections 8, 24 and 36 of Article m, and
Section 25 of such Article as that Section applies to non-member foreign
dealers) and the Interpretation of the Board of Governors of the NASD with
respect to Free-Riding and Withholding.
By:
Name:
Title:
Address:
Facsimile
Number:
Dated:_________, 1997
1,000,000 Units
WESTOWER CORPORATION
Each Unit Consisting of
One share of Common Stock and
One Redeemable Common Stock Purchase Warrant
, 1997
AGREEMENT AMONG UNDERWRITERS
TEJAS SECURITIES GROUP, INC..
1250 Capital of Texas Hwy. South Building Two
Suite 500
Austin, Texas 78746
Dear Sirs:
1. Underwriting Agreement. We understand that Westower Corporation., a
Washington corporation (the "Company"), and certain stockholders of the Company
(the "Selling Stockholders"), propose to enter into an underwriting agreement
(the "Underwriting Agreement"), with you as managing underwriter ("Managing
Underwriter") and other prospective underwriters, including ourselves, acting
severally and not jointly, providing for (a) the purchase by the Underwriters
(as defined in Section 3 hereof) of 1,000,000 Units, each Unit consisting of one
share of Common Stock, $.01 par value, of the Company ("Common Stock"), and one
redeemable common stock purchase warrant (individually, a "Redeemable Warrant"),
each of which entitles the holder thereof to purchase one share of Common Stock
at a price of $9.00 (such Units, together with (A) the shares of Common Stock
and Redeemable Common Stock Purchase Warrants comprising such Units and (B) the
shares of Common Stock issuable upon exercise of such Redeemable Common Stock
Purchase Warrants, are collectively referred to herein as the "Underwritten
Securities") and (b) the grant by the Company and the Selling Stockholder to the
Underwriters, as provided in Section 2(b) of the Underwriting Agreement, of an
option to purchase from the Company and the Selling Stockholder up to an
aggregate of 150,000 additional Units (such additional Units, together with (A)
the shares of Common Stock and Redeemable Common Stock Purchase Warrants
comprising such additional Units and (B) the shares of Common Stock issuable
upon exercise of such Redeemable Common Stock Purchase Warrants, are
collectively referred to herein as the "Option Securities") solely for the
purpose of covering over-allotments in the sale of the Underwritten Securities;
in each case, upon the conditions stated in the Underwriting Agreement, in which
we agree, in accordance with the terms thereof and subject to adjustment
pursuant to Section 9 thereof, to purchase the number of Units included within
the Underwritten Securities set forth opposite our names in Schedule I thereof
and our pro rata portion of the number of Units included within the Option
Securities, determined in accordance with Section 2(b) of the Underwriting
Agreement, with respect to which the over-allotment option is exercised. The
Underwritten Securities and the Option Securities are hereinafter referred to as
the "Securities" and the Units included therein are hereinafter referred to as
the "Registered Units."
2. Registration Statement and Prospectus. The Securities are more
particularly described in the registration statement relating thereto filed with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Act"). Amendments to such registration statement have been or may
be filed, in which, with our consent hereby confirmed, we have been or will be
named as one of the Underwriters of the Securities. Copies of the registration
statement and the related preliminary prospectus have heretofore been delivered
to us, and we confirm that they are correct insofar as they relate to us. You
are authorized to approve on our behalf any amendments or any supplements to the
registration statement, any preliminary prospectus and the prospectus which you
consider necessary or appropriate. The registration statement and related
prospectus, as amended and supplemented from time to time, are hereinafter
respectively referred to as the "Registration Statement" and "Prospectus." We
agree, if you so request, to furnish a copy of any revised preliminary
prospectus to each person to whom we have delivered a copy of any previous
preliminary prospectus. We further represent that we have delivered all
preliminary prospectuses and agree that we will deliver all final prospectuses
required for compliance with the provisions of Rule l5c2-8 of the General Rules
and Regulations under the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
3. Authority of Managing Underwriters. We authorize you, as Managing
Underwriter, (a) to execute and deliver on our behalf the Underwriting Agreement
in the form annexed hereto as Exhibit A, with such changes therein as in your
discretion may be necessary or advisable, including changes in those who are to
be Underwriters and in the respective number of Registered Units to be purchased
by them (but not any change in the number of Registered Units to be purchased by
us except with our consent or as provided in the Underwriting Agreement), (b) to
take such action as in your discretion may be necessary or advisable to carry
out the Underwriting Agreement, this Agreement and the transactions for the
accounts of the several Underwriters contemplated thereby and hereby, including,
in your discretion, whether to purchase any or all of the Registered Units
included within the Option Securities for the accounts of the several
Underwriters, and (c) to take such action as in your discretion may be necessary
or advisable to carry out the purchase, carrying, sale and distribution of the
Registered Units. The parties on whose behalf you execute the Underwriting
Agreement, including yourself as Managing Underwriters, are herein called the
"Underwriters."
4. Public Offering. We authorize you to supply the Company with the
information to be included in the Registration Statement and Prospectus with
respect to the terms of the offering, to determine the time of the initial
public offering after the Registration Statement becomes effective, to vary the
public offering price of the Registered Units and the concessions and discounts
to dealers after the initial public offering, and to determine all matters
relating to the advertisement of the Securities and communication with dealers
or others.
We authorize you, with respect to any Registered Units which we so agree to
purchase, to reserve for sale and to sell for our account such number of our
Registered Units as you shall determine, to securities dealers ("Dealers"),
including any of the Underwriters. We authorize you to determine the form and
manner of any communications or agreements with Dealers. If there shall be any
such agreements with Dealers, you are authorized to act as manager thereunder,
and we agree, in such event, to be governed by the terms and conditions of such
agreements to the extent we act as a Dealer. The form of Selected Dealer
Agreement attached hereto as Exhibit B is satisfactory to us. If there shall not
be any written agreements with Dealers, we agree to be governed by the terms and
conditions of such Selected Dealer Agreement to the extent we act as a Dealer.
After the Registration Statement becomes effective, you will advise us of
the number of our Registered Units not so reserved but retained by us for direct
sale. Any of our Registered Units reserved but not sold may, from time to time,
on our request and in your discretion, be released to us, and Registered Units
so released will not thereafter be deemed to be reserved, except that any time
prior to termination of the provisions of the last paragraph of this Section 4,
we will on request advise you of the number of our retained unsold Registered
Units and you may in your discretion add all or any number of such retained
unsold Registered Units to those reserved by you for sale. Sales of reserved
Registered Units to Dealers will be made at $ per Unit for the accounts of the
several Underwriters as nearly as practicable in proportion to their respective
underwriting obligations.
You may in your discretion sell to another Underwriter any of the Registered
Units so reserved for our account if you determine that such sales are advisable
for Blue Sky purposes. The transfer tax on any such sales shall be charged to
the accounts of the several Underwriters in proportion to their respective
underwriting obligations.
You, and any of the Underwriters with your consent, may make purchases and
sales of Registered Units from or to any other Underwriter at the public
offering price less a concession equivalent to all or any part of the gross
underwriting spread. You are authorized to purchase Registered Units for our
account from Dealers at the public offering price less a concession not
exceeding the concession to Dealers. We will offer to the public, in conformity
with the terms of the offering set forth in the Prospectus, our Registered Units
not reserved by you.
5. Payment and Delivery. Payment for Registered Units retained by us for
direct sale shall be made by us through the Depository Trust Company ("DTC"),
payable in same-day funds to the order of Tejas Securities Group, Inc. at such
time or times as you may designate, against delivery of such Registered Units to
us through the facilities of the DTC. The above payment will be made by us at
$___ per Unit; however you will promptly reimburse us the amount of $___ per
Unit.
If our funds are not received by you when required, you are authorized, in
your individual capacities or as Managing Underwriter, but shall not be
obligated, to make payment pursuant to the Underwriting Agreement for our
account in accordance with the provisions of Section 6 hereof. Any such payment
by you shall not relieve us from any of our obligations hereunder or under the
Underwriting Agreement.
We authorize you to hold and deliver to Dealers, against payment, our
Registered Units reserved by you for offering to them. Upon receiving payment
for Registered Units so sold for our account, you will remit to us as promptly
as practicable the amount of $___ per Unit.
As soon as practicable after termination of the provisions referred to in
the first paragraph of Section 10 hereof, you shall deliver to us, against
payment therefor unless such has already been made, any of our Registered Units
reserved by you for sale but not sold, except that if the aggregate of all such
reserved and unsold Registered Units of all Underwriters does not exceed __% of
the total number of Registered Units, you are authorized in your discretion to
sell such Registered Units for the accounts of the several Underwriters at such
price or prices as you may determine.
6. Authority to Borrow. In connection with the purchase or carrying for our
account of any Registered Units purchased for our account under this Agreement
or the Underwriting Agreement, we authorize you, in your discretion and
individual capacity, to advance your own funds for our account, charging current
interest rates as Managing Underwriters to arrange and make loans on our behalf
and for our account, and to execute and deliver any notes or security as may be
necessary or advisable in your discretion. Any lending bank is hereby authorized
to rely upon your instructions in all matters relating to any such loan. We
shall be paid or credited with the proceeds of any such advance or loan made for
our account and shall be debited with any repayment.
You may deliver to us from time to time, for carrying purposes only, any of
our reserved Registered Units held by you for our account which have not been
sold. We will redeliver to you on demand any Registered Units so delivered to us
for carrying purposes.
7. Stabilization. We ratify and confirm your stabilization transactions, if
any, for the accounts of the several Underwriters prior to the date hereof, and
we authorize you, in your discretion, to buy and sell Registered Units in the
open market or otherwise, on a when-issued basis or otherwise, for either long
or short account, at such prices and on such terms as you may determine, and to
over-allot in arranging for sales. We authorize you in your discretion to cover
any short position incurred for the accounts of the several Underwriters
pursuant to this Section 7 by exercising the over-allotment option referred to
in Section 2(b) of the Underwriting Agreement and by buying Registered Units,
and, in lieu of delivering to the several Underwriters any of the Registered
Units held for their respective accounts pursuant to Section 4 hereof, to sell
such Registered Units for the accounts of each of the Underwriters, in each case
at such prices and on such terms as you may determine. All such purchases, sales
and over-allotments will be for the accounts of the several Underwriters as
nearly as practicable in proportion to their respective underwriting
obligations, and at no time will our net commitment under the foregoing
provisions of this paragraph, either for long or short account, exceed 15% of
our original underwriting obligations. We will take up at cost on demand any of
the Registered Units so purchased for our account and deliver on demand any of
the Registered Units sold or over-allotted for our account. In the event of
default by one or more Underwriters with respect to their obligations under this
paragraph, each nondefaulting Underwriter shall assume its proportionate share
of the obligations of such defaulting Underwriter without relieving such
defaulting Underwriter of its liability hereunder. The existence of this
provision is no assurance that the price of any of the aforesaid Registered
Units will be stabilized or that stabilizing, if commenced, will not be
discontinued at any time.
We authorize you on our behalf to maintain the records required by Rule
17a-2 of the General Rules and Regulations under the Exchange Act and to file
any reports required in connection with any transaction made by you pursuant to
this Section 7, and we agree to furnish you with any information needed for such
reports. You agree that if stabilization is undertaken you will notify the
several Underwriters promptly upon the initiation and termination of such
stabilization. We agree, if stabilization is undertaken, promptly, and in any
event, within one business days following such stabilization, to transmit to
you, the price, date and time at which such stabilizing purchase was effected.
In addition, we agree to promptly notify you of the date and time when
stabilizing was terminated.
We agree to advise you, from time to time upon your request, of the number
of Registered Units retained by or released to us and remaining unsold, and
will, upon your request, release to you for the accounts of one or more of the
several Underwriters such number of Registered Units as you may designate at
such price, not less than the net price to Dealers nor more than the public
offering price, as you may determine.
If, pursuant to the provisions of this Section 7, you purchase or contract
to purchase any Registered Units that were retained by or released to us for
direct sale, we authorize you in your discretion either to require us to
repurchase such Registered Units at a price equal to the total cost of such
purchase, including commissions and transfer tax on redelivery, to sell for our
account such Registered Units and debit or credit our account for the profit or
loss resulting from such sale, or to charge our account with an amount equal to
the concession to Dealers with respect thereto.
Upon the termination of this Agreement, you are authorized in your
discretion, in lieu of delivering to the several Underwriters any Registered
Units then held for their respective accounts pursuant to this Section 7, to
sell such Registered Units for the accounts of each of the Underwriters at such
price or prices as you may determine.
8. Open Market Transactions. We and you agree not to bid for, purchase,
attempt to induce others to purchase, or sell, directly or indirectly, any of
the Securities, including the Registered Units, for our own account or for the
accounts of customers except as brokers pursuant to unsolicited orders and as
otherwise provided in this Agreement or the Underwriting Agreement.
9. Allocation of Expenses. We authorize you to charge our account with all
transfer taxes on sales made by you for our account (except as otherwise
provided herein) and our proportionate share (based upon our underwriting
obligation) of all other expenses incurred by you in finding and developing this
public offering, and arising under the terms of this Agreement or the
Underwriting Agreement, or in connection with the purchase, carrying, sale or
distribution of the Registered Units. Your determination of the amount and
allocation of such expenses shall be final and conclusive. In the event of the
default of any Underwriter in carrying out its obligations hereunder, the
expenses arising from such default may be proportionately charged by you against
the other Underwriters not so defaulting without, however, relieving such
defaulting Underwriter from its liability therefor.
10. Termination and Settlement. The provisions of the last paragraph of
Section 4 hereof, the first sentence and fourth paragraph of Section 7 hereof,
and Section 8 hereof will terminate at the close of business 45 days after the
date of the initial public offering unless extended by you by notice to us for a
further period not exceeding an additional 45 days. Such provisions may be
terminated at such earlier time as you determine in your discretion, by notice
to us stating that such provisions are terminated.
As promptly as practicable after termination of the provisions referred to
in the first paragraph of this Section 10, our account will be settled and paid,
provided that you reserve from distribution to the several Underwriters such
amounts as you may deem advisable to cover possible additional expenses. You may
at any time make partial distribution of credit balances or call on the several
Underwriters to pay their respective debit balances. Any of our funds in your
hands may be held with your general funds without accountability for interest
and may be commingled with your general funds. Notwithstanding termination of
this Agreement or any settlement, we agree to pay (a) our proportionate share
(based on our underwriting obligation) of all expenses and liabilities which may
be incurred by or for the account of the Underwriters and (b) any transfer taxes
paid after such settlement on account of any sale or transfer for our account.
If the Underwriting Agreement shall be terminated or canceled, or if it
shall be executed but shall not become effective, our obligations hereunder
shall immediately cease and terminate except for the obligation to pay our
proportionate share of all expenses and except for obligations, if any, incurred
for our account under Section 7 hereof and our obligations under the second
paragraph of this Section 10 and under Section 14 hereof.
11. Default by Underwriters. Default by one or more Underwriters in respect
of their obligations under the Underwriting Agreement will not release us from
any of our obligations or in any way affect the liability of any defaulting
Underwriter to the other Underwriters for damages resulting from such default.
In case of such default with respect to the purchase of 10% or less of the
Registered Units included within the Underwritten Securities, we will purchase
additional Registered Units as set forth in Section 9 of the Underwriting
Agreement. If such default exceeds 10% of the Registered Units included within
the Underwritten Securities, you are authorized, but shall not be obligated, to
arrange for the purchase by other persons, who may include yourself or any
nondefaulting Underwriter, of that defaulted portion in excess of 10%. If such
arrangements are made, we will purchase Registered Units not exceeding our
original commitments under Section 9 of the Underwriting Agreement, and the
additional number of Registered Units to be purchased by the nondefaulting
Underwriters and by such other persons, if any, shall be added to our original
commitments and shall together be taken as the basis for determining the
proportionate several obligations and benefits hereunder and under the
Underwriting Agreement, but this shall in no way affect the liability of any
defaulting Underwriter for damages resulting from such default. If there is any
default as to the purchase of any portion of the Registered Units, you are
authorized, but shall not be obligated, to purchase or to arrange for the
purchase by the nondefaulting Underwriters of the defaulted portion.
12. Position of the Managing Underwriters. Except as in this Agreement
otherwise specifically provided, you shall have full authority to take such
action as you deem necessary or advisable in respect of all matters pertaining
to the Underwriting Agreement and this Agreement in connection with the
purchase, carrying, sale and distribution of the Registered Units, but you shall
be under no liability to us, except for your own lack of good faith, for
obligations expressly assumed by you in this Agreement and for any liabilities
imposed upon you by the Act. No obligations on your part shall be implied or
inferred herefrom. Authority with respect to matters to be determined by you, or
by you and the Company pursuant to the Underwriting Agreement, shall survive the
termination of this Agreement.
Nothing herein contained shall be construed as making us partners with you
or with other Underwriters or shall be construed as making the several
Underwriters an association or other separate entity, and the rights and
liabilities of ourselves and each of the other Underwriters (including you) are
several and not joint.
13. Underwriters' Warrants. We agree that the Underwriters' Warrants (as
defined in the Underwriting Agreement) shall be allocated as follows: 100% to
you as Managing Underwriters.
14. Indemnification.
(a) Each Underwriter agrees to indemnify and hold harmless each other
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act to the extent
and under the terms set forth in the Underwriting Agreement upon which each
Underwriter agrees to indemnify the Company, and the Company's respective
directors, officers and controlling persons. Such indemnity shall survive the
termination of this Agreement and any investigation made by or on behalf of any
Underwriter or any person so controlling an Underwriter.
(b) We agree that you shall be under no liability in respect of any matters
connected herewith or actions taken by you pursuant to this Agreement, except
for obligations expressly assumed by you in this Agreement. If at any time any
claim or claims shall be asserted against you, as Managing Underwriters, or
otherwise involving the Underwriters generally, relating to any preliminary
prospectus, the Prospectus, the Registration Statement, the public offering of
the Securities, any state or other securities or Blue Sky law qualification
matters, or any of the transactions contemplated by this Agreement, we authorize
you to make such investigation, to retain such counsel and to take such other
actions as you may deem necessary or desirable under the circumstances,
including settlement of any such claim or claims if such course of action shall
be recommended by counsel retained by you. We agree to pay you, upon request,
our proportionate share (based on our underwriting obligation) of all expenses
incurred by you (including, but not limited to, the disbursements and fees of
counsel retained by you) in investigating and defending against such claim or
claims, and our proportionate share (based on our underwriting obligation) of
any liability incurred by you in respect of such claim or claims, whether such
liability shall be the result of a judgment against you or the result of any
such settlement. In determining amounts payable pursuant to this Section 14(b),
any loss, claim, damage, liability or expense (i) incurred by any person
controlling any Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, and (ii) for which such Underwriter actually
receives indemnification pursuant to Section 14(a) above or contribution or
indemnification pursuant to the Underwriting Agreement, shall reduce the amount
payable pursuant to this Section 14(b) by the amount so incurred and received.
If any Underwriter or Underwriters default in their obligations to make any
payments under this Section 14(b), then, without relieving such defaulting
Underwriter of its liability hereunder, each nondefaulting Underwriter shall be
obligated to pay its proportionate share of all defaulted payments.
15. Blue Sky Matters. You will not have any responsibility with respect to
the right of any Underwriter or other person to sell any of the Registered Units
in any jurisdiction, notwithstanding any information that we may furnish in that
connection. We understand that you will file a New York Further State Notice, if
required, and we authorize you to take such other action as may be necessary or
advisable to qualify the Securities for offering and sale in any jurisdiction.
16. Notices. Any notice from you to us will be deemed to have been duly
given if mailed or sent by facsimile transmission to us at our address and
facsimile number set forth below. Any notice to you shall be deemed to have been
given if mailed or sent by facsimile transmission to Tejas Securities Group,
Inc., 1250 Capital of Texas Hwy. South Building Two, Suite 500, Austin, Texas
78746, attention: Robert A. Shuey, III, facsimile number (512) 306-1528. Mailed
notices shall be sent by registered mail, return receipt requested. Notices
shall be effective upon receipt.
17. Miscellaneous.
(a) We authorize you to file with any governmental agency any
reports required to be filed by you in connection with the transactions
contemplated by this Agreement or the Underwriting Agreement, and we will
furnish any information in our possession needed for such reports.
(b) In connection with the transactions contemplated by this
Agreement or the Underwriting Agreement, we will not advertise over our name
until after the first public advertisement made by you and then only at our own
expense and risk. We authorize you to exercise complete discretion with regard
to the first public advertisement.
(c) We hereby confirm (i) that we have examined the
Registration Statement and the Prospectus and are familiar with the proposed
further amendment thereto or final Prospectus, (ii) that the information therein
is correct and is not misleading insofar as it relates to us and (iii) that we
are willing to accept the responsibilities under the Act of an Underwriter named
in such Registration Statement. You are authorized, in your discretion, on our
behalf, to approve of or to object to any further amendments or supplements to
the Registration Statement or the Prospectus.
(d) We confirm that we are actually engaged in the investment
banking or securities business and are either (i) a member in good standing of
the National Association of Securities Dealers, Inc. (the "NASD") and our
commitment to purchase Registered Units pursuant to the Underwriting Agreement
will not result in a violation of the financial responsibility requirements of
Rule l5c3-1 under the Exchange Act, or of any similar provisions of any
applicable rules of any securities exchange to which we are subject or of any
restriction imposed upon us by any such exchange or any governmental authority
or (ii) a foreign dealer not eligible for membership in the NASD who hereby
agrees to make no sales within the United States, its territories or its
possessions (except that we may participate in sales to Dealers and others under
Section 4 hereof) or to persons who are citizens thereof or residents therein.
In making sales of Registered Units, if we are such a member, we agree to comply
with all applicable rules of the NASD, including, without limitation, the
Interpretation of the Board of Governors of the NASD with Respect to Free-Riding
and Withholding and Sections 8, 24 and 36 of Article III of the NASD's Rules of
Fair Practice, or, if we are such a foreign dealer, we agree to comply with such
Interpretation and Sections 8, 24 and 36 of such Article as though we were such
a member and Section 25 of such Article as that Section applies to a non-member
foreign dealer.
(e) We confirm that the ratio of our aggregate indebtedness to
our net capital is such that we may, in accordance with and pursuant to Rule
l5c3-1 under the Exchange Act, obligate ourselves to purchase, and purchase, the
number of Registered Units that we agree to purchase under the Underwriting
Agreement.
(f) This Agreement will be governed by, and construed in
accordance with, the laws of the State of Washington without reference to
Washington' conflict of laws rules.
(g) This Agreement may be signed in any number of counterparts
which taken together shall constitute one and the same instrument.
Very truly yours,
NAME:
By:
Address:
Facsimile.:
NAME:
By:
Address:
Facsimile No.:
NAME:
By:
Address:
Facsimile No.:
NAME:
By:
Address:
Facsimile No.:
Confirmed as of the date first written:
TEJAS SECURITIES GROUP, INC.
By:
Robert A. Shuey, III
<PAGE>
<PAGE>
MAURICE J. BATES, L.L.C.
ATTORNEY AT LAW
8214 WESTCHESTER SUITE, 500
DALLAS , TEXAS 75225
Telephone (214) 692-3566
Fax (214) 987-2091
September , 1997
Westower Corporation
7001 NE 40th Avenue
Vancouver, Washington 98661
Re: Registration Statement on Form SB-2
Offering of 1,000,000 Units by the Company
Gentlemen:
I have acted as counsel to Westower Corporation, a Washington
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended, (the "Securities Act"), of 1,000,000 units,
each unit consisting of one share (the "Shares") of common stock, $.01 par
value, (the "Common Stock") and one Redeemable Common Stock Purchase Warrant
(the "Warrants") to purchase one share of Common Stock of the Company (the
"Units") to be offered to the public by the Company in a firm commitment
underwriting by Tejas Securities Group, Inc.. The Registration Statement
(defined below) also includes 150,000 additional Units to cover over-allotments,
if any. The Shares subject to the Underwriter's over-allotment option will be
purchased from certain selling shareholders of the Company and the Warrants
included in such Units will be issued by the Company.
A registration statement on Form SB-2 (SEC File No. 333-32963) was
filed with the Securities and Exchange Commission on August 6, 1997 (the
"Registration Statement") and Amendment No. 1 thereto is being filed herewith.
In connection with rendering this opinion I have examined executed copies of the
Registration Statement and all exhibits thereto and Amendment No. 1 and all
exhibits thereto. I have also examined and relied upon the original, or copies
certified to my satisfaction, of (i) the Articles of Incorporation and the
By-laws of the Company, (ii) minutes and records of the corporate proceedings of
the Company with respect to the issuance of the Units, the Common Stock and the
Warrants, and related matters, and (iii) such other agreements and instruments
relating to the Company as I deemed necessary or appropriate for purposes of the
opinion expressed herein. In rendering such opinion, I have made such further
investigation and inquiries relevant to the transaction contemplated by the
Registration Statement as I have deemed necessary for the opinion expressed
herein, and I have relied, to the extent I deemed reasonable, on certificates
and certain other information provided to me by officers of the Company and
public officials as to matters of fact of which the maker of such certificate or
the person providing such other information had knowledge.
Furthermore, in rendering my opinion, I have assumed that the signatures on all
documents examined by me are genuine, that all documents and corporate record
books submitted to me as originals are accurate and complete, and that all
documents submitted to me are true, correct and complete copies of the originals
thereof.
Based upon the foregoing, I am of the opinion that the Units, the
Shares, the Warrants and the shares of Common Stock issuable upon the exercise
of the Warrants, to be issued by the Company as described in the Registration
Statement, have been duly authorized for issuance and sale and the Units, the
Shares, the Warrants and the shares of Common Stock issuable upon exercise of
the Warrants, when issued by the Company, will be validly issued, fully paid and
nonassessable.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
Maurice J. Bates, L.L.C.
/s/ Maurice j. Bates
By Maurice J. Bates
<PAGE>
Consent of Director Nominee
I, Ronald P. Erickson, hereby consent to the use of my name as a
director nominee in the registration statement filed by Westower
Corporation on Form SB-2 and all amendments thereto.
Seattle, Washington /s/ Ronald P. Erickson
September 18, 1997 Ronald P. Erickson
<PAGE>
Exhibit 21
Subsidiaries of the Registrant
Westower Corporation
State or
Jurisdiction Other Jurisdictions
Name (1) of Incorporation Which Qualified Amount Owned
- -------- ---------------- --------------- ------------
Westower Holdings
Ltd. Wyoming None 100%
Westower
Communications,
Inc Washington California, Idaho 100%
Hawaii, Oregon
Westower
Communications
Ltd. British Columbia, Canada
Alberta, 100%
Saskatchewan,
_________________ Canada
(1) No assumed names.
INDEPEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders
Westower Holdings Ltd. and Subsidiaries
We consent to the use in this Amemdment No. 1 to Registration Statement of
Westower Corporation on Form SB-2 of our report dated July 21, 1997, appearing
in the Prospectus, which is part of this Registration Statement, and to the
references to us under the headings "Experts" in such Prospectus.
/s/ MOSS ADAMS LLP
MOSS ADAMS LLP
Bellingham, Washington
September 17, 1997
<PAGE>
