SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Commission file number 0-23726
NORTHWOOD SERVICES, INC.
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(Exact name of registrant as specified in its charter)
6599
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(Primary Standard Industrial Classification Code Number)
25-1425218
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(I.R.S. Employer Identification No.)
4100 Rte. 8, Allison Park, PA 15101
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(Address of principal executive offices) (Zip Code)
(412)487-3200
----------------
(Telephone number)
Hal Autenreith, 4100 Rte. 8, Allison Park, PA 15101
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(Name and Address of agent of service)
(412)487-3200
----------------
(Telephone number)
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box /X/
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box /_/
Page 1 of 50 pages
Exhibit Index Begins on Page 51
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Calculation of Registration Fee
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Title of Amount to Proposed Proposed Amount of
each class be maximum maximum registration
of registered offering aggregate fee
securities price per offering
to be share price
registered
- --------------------------------------------------------------------------------
Common 1,000,000 $6.00 $6,000,000 $3,000
Shares
- --------------------------------------------------------------------------------
Shares of 300,000 6.00 $1,800,000 900
Selling
Shareholders
to be sold
in the
future
- --------------------------------------------------------------------------------
TOTAL 1,300,000 6.00 $7,800,000 3,900
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(1) Based on the proposed offering price of $6.00 per share.
(2) Represents shares held by Shareholders of the Company which are being
registered by the Company on behalf of the Shareholders.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to
Section 8(a), may determine.
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CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K and Rule 404(a) the following
cross-reference sheet shows the location in the Prospectus of the information
required to be included in response to Items of Form S-1.
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<S> <C> <C>
PART I Item Location
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Item 1 Forepart of Registration Statement and Forepart of Registration Statement and
Outside Front Cover Page of Prospectus Outside Front Cover Page of
Prospectus
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Item 2 Inside Front and Outside Back Cover Inside Front and Outside Back Cover
Pages of Prospectus Pages of Prospectus
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Item 3 Summary Information, Risk Factors and Summary, Risk Factors
Ratio of Earnings to Fixed Charges
- ----------------------------------------------------------------------------------------------------------------------
Item 4 Determination of Offering Price Determination of Offering Price
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Item 5 Use of Proceeds Use of Proceeds
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Item 6 Dilution Dilution
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Item 7 Selling Security Holders Selling Security Holders
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Item 8 Plan of Distribution Plan of Distribution
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Item 9 Description of Securities To Be Description of Securities
Registered
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Item 10 Interest of Named Experts and Counsel Not Applicable
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Item 11 Information with Respect to the The Company and Business
Registrant
- ----------------------------------------------------------------------------------------------------------------------
Item 12 Disclosure of Commission Position on Management - Indemnification of
Indemnification For Securities Act Officers and Directors
Liabilities
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PART II
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Item 13 Other Expenses of Issuance and Other Expenses of Offering
Distribution Registration and Distribution
- ----------------------------------------------------------------------------------------------------------------------
Item 14 Indemnification of Officers and Directors Indemnification
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Item 15 Recent Sales of Unregistered Securities Recent Sales of Unregistered Securities
- ----------------------------------------------------------------------------------------------------------------------
Item 16 Exhibits, Financial Statements and Exhibits, Financial Statements and
Schedules Schedules
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Item 17 Undertakings Undertakings
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Item 18 Financial Statements and Schedules Financial Statements and Schedules
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NORTHWOOD SERVICES, INC.
1,300,000 Shares (including 300,000 shares which
may be sold by selling shareholders)
($0.0001 par value common stock)
The offering price of $6.00 per Share is the price arbitrarily determined
by the Company.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK
This offering involves special risks concerning the Company, immediate
substantial dilution from the public offering price, substantial competition,
possible continuing operating losses, dependence upon management, economic
fluctuations in the real estate market, continued control by present
shareholders, possible market volatility of the share price, lack of any
commitment to purchase share, possible significant additional underwriting
compensation through the sale of Warrants and possible dilution if the Warrants
are exercised at their stated exercise price which will possible be less than
market price at date of exercise. (See "Risk Factors", "Dilution" and
"Underwriting".)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
Price to Underwriting Proceeds to
Public Commissions Company(3)
(1)(2)
- --------------------------------------------------------------------------------
Per Share $6.00 $0.60 $5.40
- --------------------------------------------------------------------------------
Total $6,000,000 $600,000 $5,400,000
(Maximum)
================================================================================
(1) The offering is being made by the Selected Dealers on a best efforts, all or
nothing, maximum 1,000,000 shares, basis. All proceeds from the sale of the
shares being offered will be promptly deposited in a non-interest bearing escrow
account (subscribers residing in states requiring the payment of interest will
be paid interest by the Company at passbook rates if the escrow does not close)
at the Iron and Glass Bank, Pittsburgh, Pennsylvania, (the "Escrow Agent").
Unless at least $6,000,000 is on deposit in the escrow account within 60 days
from the date of this Prospectus (which initial offering period may be extended
for an additional period or periods of not more than 90 days in the aggregate by
mutual consent of the Company and the Selected Dealers), the offering will be
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withdrawn and all funds will be returned promptly to subscribers by the Escrow
Agent without deduction therefrom. A subscriber's payment tendered to the Escrow
Agent will not be returned to the subscriber until the offering period has
expired or the offering has otherwise been terminated. Funds will be transmitted
to the Escrow Agent for deposit in the escrow account no later than noon on the
day following receipt by the Underwriter or participating dealer. (See
"Underwriting".)
(2) Does not include a nonaccountable expense allowance of 3% of the aggregate
proceeds realized from the sale of the shares offered hereby payable to the
selected Dealers. See "Distribution" for information concerning the Company's
agreement (a) to sell to the Selected Dealers warrants to purchase up to 100,000
shares of common stock at the rate of 10% of the number of shares sold in the
offering and (b) to indemnify the selected dealer against certain civil
liabilities, including liabilities under the Securities Act of 1933, as amended.
(3) Before deduction of expenses payable by the Company in connection with this
offering, estimated at $250,000 for filing, printing, legal fees, accounting
fees, Selected Dealers' non-accountable expense allowances and Blue Sky
expenses. The Company will pay approximately $250,000 toward these expenses.
The Company is subject to the reporting requirements of Section 13(a) of
the Exchange Act and in accordance therewith files reports and other information
with the Securities and Exchange Commission. This information (including proxy
and information statements filed pursuant to Sections 14(a) and 14(c) of the
Exchange Act) may be inspected and copied at the office of Securities and
Exchange Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC
20549. Copies of such materials can be obtained from the Public Reference
Section of the Securities and Exchange Commission, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, DC 20549, at prescribed rates. The Company undertakes
to provide, without charge, to any person to whom a Prospectus is delivered,
upon oral or written request of such person, a copy of an any and all
information if any, that has been incorporated by reference in the Prospectus.
Such information can be obtained from 3812 Rte. 8, Allison Park, PA 15101.
Telephone Number:(412)487-3200.
THE SECURITIES DESCRIBED HEREIN ARE OFFERED BY CERTAIN SELECTED DEALERS AS
AGENTS FOR THE COMPANY SUBJECT TO PRIOR SALE, WITHDRAWAL, CANCELLATION, OR
MODIFICATION OF THE OFFERING, WITHOUT NOTICE, BY THE COMPANY OR THE UNDERWRITER.
OFFERS TO PURCHASE AND CONFIRMATIONS OF SALES ISSUED BY THE SELECTED DEALERS ARE
SUBJECT TO: (I) ACCEPTANCE BY THE COMPANY AND THE SELECTED DEALER, (II) THE SALE
OF THE MINIMUM NUMBER OF SHARES SPECIFIED HEREIN, (III) THE RELEASE AND DELIVERY
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OF THE PROCEEDS OF THIS OFFERING TO THE COMPANY, (IV) THE DELIVERY OF THE
SECURITIES AND THEIR ACCEPTANCE BY THE SELECTED DEALER, AND (V) THE RIGHT OF THE
COMPANY AND THE SELECTED DEALERS TO REJECT ANY AND ALL OFFERS TO PURCHASE AND TO
CANCEL ANY SALE AT ANY TIME, PRIOR TO THE PURCHASE PRICE BEING DELIVERED TO THE
COMPANY IN EXCHANGE FOR DELIVERY TO THE SELECTED DEALER OF THE CERTIFICATE
ISSUED FOR THE PURCHASE PRICE, EVEN AFTER A CONFIRMATION HAS BEEN ISSUED AND THE
PURCHASE PRICE HAS BEEN PAID BY THE RECIPIENT OF THE CONFIRMATION, IF SUCH SALE
OR ITS COMPLETION, IN THE OPINION OF THE SELECTED DEALERS, VIOLATED OR VIOLATES
FEDERAL OR STATE SECURITIES LAWS OR A RULE OR POLICY OF THE NATIONAL ASSOCIATION
OF SECURITIES DEALERS, INC.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE HEREBY, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELECTED DEALER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THE
REGISTERED SECURITIES TO WHICH IT RELATES, OR AN OFFER TO ANY PERSON IN ANY
JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS
AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
A SIGNIFICANT AMOUNT OF THE SECURITIES DESCRIBED HEREIN MAY BE SOLD TO
CUSTOMERS OF THE SELECTED DEALERS. SUCH CUSTOMERS SUBSEQUENTLY MAY ENGAGE IN
TRANSACTIONS FOR THE SALE OR PURCHASE OF SUCH SECURITIES THROUGH AND/OR WITH THE
SELECTED DEALER. ALTHOUGH IT HAS NOT LEGAL OBLIGATIONS TO DO SO, THE SELECTED
DEALERS FROM TIME TO TIME MAY BECOME A MARKET MAKER AND OTHERWISE EFFECT
TRANSACTIONS IN SUCH SECURITIES. THE SELECTED DEALERS, IF THEY PARTICIPATE IN
THE MARKET, MAY BE A DOMINATING INFLUENCE IN THE MARKET FOR THE SECURITIES
DESCRIBED HEREIN. THE PRICES AND LIQUIDITY OF THE SECURITIES MAY BE
SIGNIFICANTLY AFFECTED BY THE DEGREE, IF ANY, OF THE SELECTED DEALERS
PARTICIPATION IN SUCH MARKET.
OFFICERS, DIRECTORS AND AFFILIATES OF THE COMPANY MAY PURCHASE UP TO AN
AGGREGATE AMOUNT OF 10% OF THE SECURITIES OFFERED HEREBY AT THE PUBLIC OFFERING
PRICE. SUCH SECURITIES IF PURCHASED WILL BE PURCHASED FOR INVESTMENT AND NOT
WITH THE INTENT OF RESALE EXCEPT IN COMPLIANCE WITH APPLICABLE LAW.
IN ADDITION THE SELECTED DEALERS, AT THE REQUEST OF THE COMPANY, MAY SELL
SHARES OFFERED HEREBY TO PERSONS DESIGNATED BY THE COMPANY, IF SUCH SALES MAY
LEGALLY BE MADE. SUCH PERSONS HAVE NOT YET BEEN SPECIFICALLY IDENTIFIED BUT
WOULD CONSIST OF FRIENDS AND BUSINESS ASSOCIATES OF MANAGEMENT.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the information and
financial statements appearing elsewhere in this Prospectus.
The Company
Northwood Realty Co. is a registered fictitious name of Northwood Services,
Inc., a corporation founded in 1982 under the laws of Pennsylvania. Northwood
operates as a large real estate brokerage in Southwestern Pennsylvania,
primarily around the city of Pittsburgh. It serves Allegheny County and seven
surrounding counties. The Company maintains its principal administrative office
at 4100 Route 8, Allison Park, Pennsylvania 15101-3060. Northwood has
thirty-five offices and 700 sales associates plus another 100 persons employed
in various management and administrative functions.
Use of Proceeds
The Company intends to use the proceeds of this offering (net of
underwriting commissions and offering expenses), assuming the maximum shares are
sold at the price set by the Company of $6.00 per share in the amounts and
priorities as follows:
Maximum
-------
Expansion of working capital
and general corporate purposes $4,475,000
Repayment of Notes $ 625,000
Totals $5,100,000
(See "The Company" and "Use of Proceeds")
Risk Factors
The Company at various times since its inception in 1982 has incurred
substantial operating losses in spite of substantial gross revenues and only in
1996 did it have an operating profit on approximately $15 million in revenues.
(See "Financial Statements" and "Selected Financial Data".) It has and will
continue to encounter substantial competition. (See "Risk Factors".) Purchasers
of the shares offered hereby will sustain substantial dilution. (See
"Dilution").
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The Offering
The Company proposes to offer 1,000,000 shares at the offering price of
$6.00 per share as determined by the Company. (See "Plan of Distribution" for
information concerning the offering price.) Certain Selling Shareholders have
registered 300,000 shares for possible sale concurrent with this offering.
Net Proceeds to the Company (1)
Maximum $5,100,000
Common stock outstanding as of
September 30, 1997 prior to offering 3,000,000 shares
Common stock outstanding after offering (2)
Maximum 4,000,000 shares
Percentage of stock to be owned by Present Shareholders after offering
(2)(3)(4)- 75%
(1) Assumes the shares are sold at $6.00 per share, after payment of the
commission to the Selected Dealers of 10% of the proceeds and the deduction of
the offering costs of $250,000.
(2) Does not include up to 200,000 shares subject to an incentive stock plan
which may be offered to certain members of the Company's management and for
agents of the company, and up to 100,000 shares underlying the Selected Dealers'
Warrants.
(3) Based upon 4,000,000 shares to be issued and outstanding after the sale of
the maximum number of shares.
(4) These percentages assume that existing shareholders purchase no shares
offered hereby. As of September 30, 1997, the Company had thirteen record
shareholders including nominees. An anticipated low trading volume of the
Company's shares would make share price susceptible to substantial price swings
should volume of any significant size and frequency occur in buying or selling
of the Company's shares.
Summary Financial Information
The following summary financial information should be read in conjunction
with the financial statements of the Company and related notes included
elsewhere in this Prospectus.
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12/31/1996 12/31/1995
-----------------------------------
Total Assets 3,652,319 3,679,854
Total Current Liabilities $ 2,674,337 $ 2,907,759
Long-term debt (net of
current portion 1,307,546 1,132,583
------------- -------------
Total 3,981,883 4,040,342
Stockholders' Equity
(Deficiency)
Capital stock - (no par
value, 100,000,000 shares
issued, 886,100 shares
outstanding, 128,900 shares
held as treasury
stock, no cost) 25,100 25,100
Retained earnings (deficit) (327,064) (357,988)
===================================
Less: Treasury stock -
9,500 shares, at cost (27,600) (27,600)
------------- -------------
(329,564) (360,488)
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$ 3,652,319 $ 3,679,854
============= =============
Revenues
Net commissions earned
from real estate
transactions $ 15,735,755 $ 13,861,509
Less commissions paid (8,433,981) (7,361,537)
------------- -------------
7,301,774 6,499,972
Tuition income 137,965 120,871
Consulting fees 109,775 94,158
Insurance commissions 24,961 22,804
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7,574,475 6,737,805
Operating Expenses 7,486,539 6,753,364
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Income (loss) from 87,936 (15,559)
operations
Other Income (Expense)
Rental income 20,000 20,000
Other income 79,217 30,144
Interest expense (232,639) (290,604)
Loss on investments (30,000)
Reduction in listing
rights amortization 103,505
-------------
(29,917) (270,460)
------------- -------------
Income (loss) before
income taxes and
extraordinary item 58,019 (286,019)
Financial information for the year ended December 31, 1996 is compared to
the year ended December 31, 1995.
The following unaudited supplementary data presents net income per share
for the fiscal year ended December 31, 1996 and the nine months ended September
30, 1997 as adjusted to give effect to the proposed sale of common stock as if
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it had occurred on December 31, 1995, for the 1996 fiscal year, or January 1,
1997, for the nine months ended September 30, 1997. The calculations assume a
sale price of $6.00 per share if the offering of shares (1,000,000) is sold and
net proceeds were used to retire indebtedness outstanding of $1,350,000 as of
January 1, of the pro forma year.
Dec. 31, 1996 Sept. 30, 1997
------------- --------------
Net income before income
taxes as reported 58,019 523,851
Adjustment to reduce
interest expense 232,639 181,122
--------- ---------
Net income as adjusted 290,658 704,973
Weighted average common
shares outstanding 3,000,000 3,000,000
Adjustment for the proposed
sale of 1 million shares 1,000,000 1,000,000
Number of common shares assumed
to be outstanding, as adjusted 4,000,000 4,000,000
Income per common shares, as reported $ .019 $ .17
Income per common
shares, as adjusted $ .072 .176
The following unaudited supplementary data presents comparative summary
financial information for the nine months ended September 30, 1997 and 1996:
Period January 1 to Sept. 30 1997 1996
- --------------------------------------------------------------------------------
Net sales and other income 6,591,275 6,157,517
Operating income 642,714 739,306
Net income (loss) before taxes 523,851 571,124
Net income (loss) per common
share $.178 $.164
Adjusted Balance Sheet Data Actual As Adjusted
for Nine months ended
September 30, 1997
- --------------------------------------------------------------------------------
Current assets 3,325,188 7,800,188
Total assets 4,932,367 9,407,367
Liabilities:
Current liabilities 3,625,313 3,000,313
Long-term debt 1,316,400 1,316,400
-----------------------------------------
Total Liabilities 4,941,713 4,316,400
Stockholders' equity (9,346) 5,090,654
=========================================
(1) Gives effect to the sale of the offering of 1,000,000 shares offered hereby
at the offering price of $6.00 per share and the receipt and application of
the net proceeds of the offering by the Company without giving effect to
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the exercise, if any, of the Selected Dealers' Warrants for up to 100,000
shares or presently exercisable outstanding Options held by officers,
directors agents and employees of the Company for up to 200,000 shares.
(See "Use of Proceeds").
COMPANY
Previous History
- ----------------
a) Northwood Realty was founded in 1956 by Vincent Werder who died shortly
thereafter. It was a proprietorship at that time and the assets of that very
small company, operating literally in one room with eight desks, were purchased
by J. Harold (Hal) Autenreith, Jr. in 1958. Northwood continued as a sole
proprietorship for the next twenty-four years, growing in the process to about
eight offices with 300 agents. In 1983 Northwood became the exclusive franchisee
of Better Homes and Gardens Real Estate Service in the Pittsburgh Area. The
Better Homes & Gardens Real Estate Service is a division of Meredith
Corporation, a fortune 500 company based in Des Moines, Iowa. Among many other
things Meredith is the publisher of Better Homes and Gardens magazine - a name
known by most of adult Americans, which is a "Brand name." The "mega-brand"
identity of Better Homes and Gardens is of significant value to the Company. As
of early 1997, there are 810 member firms of Better Homes and Gardens with more
than 1,576 offices and approximately 25,020 sales associates.
The real estate industry nationally went through a severe depression in
1980-1982 which was acutely felt in Pittsburgh, PA. At that time another large
brokerage operation, the Wunderly- Weston Agency, covered approximately the same
territory. Harold M. "Buck" Weston and his son Tex Weston were the principals of
Wunderly-Weston. Along with everyone else, they were experiencing extreme
financial difficulties and the company was, in fact, going through bankruptcy.
Northwood and Wunderly-Weston agreed upon a business combination and Northwood
Services, Inc., operating as Northwood Realty Company, was formed as a
corporation in September, 1982. Buck Weston, Tex Weston and Hal Autenreith
became directors and employees of the new corporation. Since the primary asset
of any real estate brokerage operation is the agents licensed with it, ownership
of the new corporation was structured according to the percentage of agents that
each company brought to the new corporation. Under its new structure, Northwood
continued to grow during the 1980s with the addition of more offices, agents and
employees. The company has grown almost every year since its inception through
addition of agents and offices. By internal means and through the acquisition of
several small real estate companies over the years, including 5 during the past
18 months, Northwood now operates thirty-five offices with 710 agents and an
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administrative, managerial and secretarial staff of 100. Of the 100,000 large
brokerage operations in the United States, Northwood is ranked approximately
number 65, in terms of transaction units closed annually, placing it in the
upper one tenth of 1 percent, according to various publications including the
National Association of Realtors and "Real Trends" Publications.
(b) BUSINESS OF ISSUER
General Information
- -------------------
The Marketplace
In the Western Pennsylvania marketplace, four dominant brokerage operations
have evolved among about 350 competitors. These large companies are Northwood,
Prudential Preferred, Howard Hanna Company and Coldwell Banker. Prudential
Preferred is a locally owned franchisee of Prudential Insurance Company. Howard
Hanna, too, is locally owned but operates without a national franchise. Coldwell
Banker has a few single-office franchises in the area, but the majority of their
presence in the Pittsburgh marketplace is a nationally owned operation. The four
large brokers, collectively, have approximately 50% of the market share, in
units, and about 60% in dollar volume. They are of relatively equal size and
several can claim to be "number one" depending on how and what is measured and
the time period involved. Overall, Hanna is somewhat larger than the rest with
approximately 15% market share in units and about 20% in dollar volume. The
other three are roughly equal to each other, Northwood having come up from the
smallest of the three while Coldwell Banker and Prudential have both declined
substantially. Again, these positions are dependent on what data is measured and
in what time frame. Currently, Northwood has approximately 10% of the total
marketplace, in terms of dollar volume, 12% in terms of units sold and 14% in
terms of total agents in the marketplace.
The southwestern Pennsylvania real estate market has had moderate growth
since it emerged from the devastating depression in 1980-82. The region has not
experienced the large upswings and downfalls that have occurred in other parts
of the United States, most notably in New England and in California. Growth has
occurred slowly, but nevertheless continuously, with every single year being
better than the one before. The average sale price in the area is about $119,000
compared to a national average of $127,000.
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In excess of sixty percent of all sales are made through cooperation of a
listing broker and a separate selling broker. Almost every active broker in the
area is a member of West Pennsylvania Multi-List which was started in 1980 by
five or six of the largest brokers with the object of reducing the cost and
simplifying the process of co-brokerage in residential real estate. Three of
those founding brokers were Northwood, Wunderly-Weston and Benson Realty. The
principals of those three companies continue as management employees of
Northwood up to this moment. Buck Weston and Hal Autenreith were on the initial
board of directors for the multi-list and continue in that capacity, being the
only two persons of the original seven who are still directors. Hal Autenreith
served as president of the second and third years of the Western Pennsylvania
Multi-List. Buck Weston is the current treasurer and has maintained that office
since the multi-list was founded.
Northwood's strategic plan is to become the dominant real estate company in
the Pittsburgh marketplace. The number of major competitors may be reduced from
five within a very short period of time, due to mergers, and Northwood's plans
are to be one of the survivors.
Of the 550 or so real estate companies in the Pittsburgh Market, they can
all be generally classified into one of three categories: a) small "mom and pop"
organizations with fewer than 10 agents; b) mid-sized with 10 to 50 agents; or
c) the large brokers with several hundred agents. The five large brokers produce
over 50% of the business and their combined share continues to grow a little
every year as the smaller brokers are no longer able to compete. For the most
part, there is no longevity to their operations and when the owner/broker of
such a small brokerage gets out of the business, that is the end of the company,
as they themselves are the major asset. The few "midsize" companies that have
tried to grow, seem to be doing too little too late. They are at a nearly
insurmountable competitive disadvantage against the large brokers. This mid size
broker is sometimes a candidate for merger or acquisition. The small and
mid-size companies will probably linger on for a long time, surviving on the
personal influence of the owner/broker. It is with the five large brokers that
the greatest struggle and therefore the greatest opportunity lies. The company
plans to move from a number three position with 11% market share to the number
one market position with 25% or better market share, through acquisitions of
smaller and mid-size companies, however, if a large company is presented as an
opportunity, Northwood wants to have the capital position to acquire such a
company.
Management believes that the company which is able to maintain its
operations while at the same time being able to assimilate other companies as
they become available holds an advantage. It is a delicate balancing act to
merge any two large operations, but one that Northwood is willing to attempt.
Northwood intends to grow to the largest competitor with a 25% or greater market
share as a result of the mergers, acquisitions and internal growth.
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Plan of Operation
- -----------------
Management and Operations
Hal Autenreith serves as Co-president of the Northwood Realty Co. and Buck
Weston serves as board chairman, treasurer and broker of record. (Brokerage
operations in most states, and specifically in Pennsylvania, require a
designated broker of record.) For operations purposes, Northwood is structured
into five residential regions, each overseen by a regional manager. The company
is operated in a relatively decentralized manner with the top decisions being
made by a nine member Executive Committee which meets almost weekly. The
committee consists of Hal Autenreith, Buck Weston, Tex Weston, Wendy West, who
is the daughter of Hal Autenreith, and the regional managers. The executive
committee generally supports the recommendations of the regional managers, as
well as the office managers under them, and in fact encourages then to make
their own decisions. Represented on the executive committee is almost 150 years
of experience: Hal Autenreith has been in the business for about 40 years. Buck
and Tex Weston have been in Real Estate for 45 and 26 years, respectively. Both
Carol Palomera, East Regional Manager and Ron Maszak, Regional Manager for the
North and West have been active in the business for 25 years. The South Regional
Manager, Jack Benson, has 33 years of experience. Gloria Schucolsky, with 24
years in the business, is Director of Mergers and Acquisitions and Region 5
manager. Wendy West has been in real estate or a related business for 14 years
experience in various capacities including mortgage finance, data management,
and as Vice President of Marketing.
In addition to the 35 sales offices, Northwood has seven support
departments consisting of Accounting, Relocation, Marketing, Education, two
Training departments and Technical Support and new construction and Elegant
Homes departments. Department heads and regional managers report to Hal
Autenreith. For the last three years Hal Autenreith and Tex Weston have
informally operated as co-presidents although Tex has spent time in another
related business.
Each of Northwood's 700 sales executive, operating as independent
contractors, is supported by an office coordinator and a manager. The
entrepreneurial, results oriented philosophy is reflected in the fact that
virtually all personnel are compensated, at least in part, by production
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achievement. The quality and depth of the Company's sales management is the
finest in the area. Many managers have held positions at the local and state
real estate associations over the years. Managers meet twice monthly on a
company-wide basis, twice on a regional basis and conduct one or more meetings
within their own office each month.
Northwood has an existing infrastructure that is experienced in this
marketplace. Management, departmental and ancillary services are designed to
support a company 2 or 3 times present size. The experience, depth and breadth
of the management team is equal to that of the nearest competitor. Northwood has
45 managers and department heads with another 60 persons in support staff. The
executive committee alone has over 150 years of combined experience in the
business.
Northwood belongs to a national organization of 51 of the largest United
States real estate brokers, the Realty Alliance. The purpose of this
organization is to share ideas and information with others who have somewhat
similar problems, opportunities and perspectives. The actual membership must be
in the name of one individual. For Northwood it has been, until just recently,
Buck Weston, who was one of the founders 26 years ago. Tex Weston has assumed
that membership as of September 1996. Northwood is also a member of
"Pacesetters", an organization comprised of the largest brokerage operations in
the Better Homes and Gardens network. Northwood also operates a real estate
school as a wholly owned subsidiary.
Brokerage Operations for Northwood
The Company's mission is to continuously improve the quality of life of all
the stakeholders of Northwood Realty.
Most of the assets of any real estate broker are intangible: the recruited
and trained agents, the commissions pending from unclosed business and the
unsold listings. The real estate industry has always been marked by a very high
turnover of agents. For Northwood specifically, this means that 20% to 30% of
all agents that are licensed at the beginning of the year will not be active in
December. Recruiting, therefore, is of utmost priority to any successful real
estate operation. Northwood maintains a very aggressive recruiting program and,
for the past three or four years, has been successful in hiring almost 30% of
all agents new to the marketplace. Extensive, in-house training is provided for
the newly hired associates as well as for experienced agents. Indeed, Northwood
enjoys the reputation in its marketplace as the company with the finest training
program. Real Estate sales agents at Northwood operate as independent
contractors, not employees and are paid entirely on commissions. This is the
common practice in most of the industry, although some brokerages in some areas
operate with agents as employees.
12
<PAGE>
The real estate brokerage business in most of the country, and particularly
in Pennsylvania, is very seasonal. In terms of originations, December is
normally the low point of the year with business peaking in March, April and
May. Closings and collection of commissions lag two months behind. For the past
ten years, Pittsburgh National Bank and Iron and Glass Bank have provided
Northwood with seasonal loans to accommodate the financial swings in the
business, with that loan amount being $450,000 in 1996. In every year, the
seasonal loan has been paid off well before December 31st.
All real estate brokers are subject to lawsuits for claims which are not
covered by ordinary liability insurance. These claims generally come under the
heading of what is called Errors and Omissions. Northwood internally operates an
Errors and Omissions Plan to minimize and offset legal expenses but carries no
formal Errors and Omissions Insurance. It is administered through the collection
of yearly and transactional sums from the agents. The plan covers all external
costs but it does not necessarily cover the internal costs of the managerial and
administrative time which are difficult to ascertain. The largest claim ever
paid out was $60,000. Most claims, however, are relatively minor, involving
leaky basements, structural defects or similar type issues and generally amount
to settlements of several thousand dollars or less.
Real estate agents, referred to as sales executives at Northwood, operate
as independent contractors and are paid entirely on commissions. This is common
practice throughout most of the industry, although some brokerages in some areas
operate with agents as employees. Northwood sales executives are paid on the
traditional split, with a portion of the commission going to the agent and a
portion going to the company. Northwood has a sliding commission plan that is
very competitive in the marketplace, with new agents beginning at 50/50 and
experienced producers earning as much as 80%. Another compensation alternative
is the "100 Percent" concept as practiced by ReMax. Under such a setup, the
agent receives all of the listing and sales commission. The broker does not
share in the commission but, instead, receives monthly and/or annual fees from
the sales agent. Northwood actually has a "100 percent style" commission plan
available for any agent that is interested, but to date, no one has elected to
go on it. The "100 percent concept" can be characterized as only moderately
successful in Pittsburgh with less than five percent of all agents in the
Multi-List affiliated with ReMax.
13
<PAGE>
OTHER COMPANY DEPARTMENTS
Accounting
- ----------
Sandy Dunmire, manager of the accounting department, is only the second
individual to hold that position in the history of the company. She trained in
the department for 8 years under her predecessor who retired 3 years ago, Sandy,
with a staff of 5 manages the commissions, payroll, accounts payable and monthly
reporting. All of these features are implemented with a Unix- based custom
software accounting system. The system is both powerful and flexible for the
Company's unique and changing needs.
Marketing/Advertising
- ---------------------
The Marketing Department is under the direction of Marnie Lutz and the
department serves a both agent and corporate needs. Supplies, printing, graphic
designing, bulk mail, newspaper and television advertising are all managed from
a separate facility located 1/2 mile from the corporate headquarters. All
corporate events such as the Company Convention, Awards Celebration and Company
Picnic are coordinated by a staff of nine part time and full time people. Marnie
has been the Marketing Coordinator for three years, making use of her background
in advertising and newspaper sales.
In the Spring of 1997, a new marketing campaign called "A Sellers Assurance
Program" designed to get a home sold ASAP was introduced. The ASAP program ties
many of Northwood's marketing tools together under one banner. In addition to
creative programs directed at the public, Northwood has many internal contests
and bonuses for listings, sales, and other real estate related activities for
both sales and management staff. Northwood has been the recipient of several
BH&G Awards for creative and successful marketing ideas.
Relocation
- ----------
Cindy DeVos, a former active Northwood agent, has a been heading up the
Relocation Division for two years. With a staff of four, Relocation coordinates
ingoing and outgoing referrals, generates corporate transferee business and
manages the inventory of "corporate-owned" properties. Relocation services are a
mandatory part of full-service real estate service, but dynamic occurrences in
the industry have made it increasingly more difficult to run the department as a
profitable operating center. Corporations and referral networks are demanding
larger fees from the business they control. In light of diminishing returns form
traditional relocation business, Northwood is pursuing alternative aspects of
this facet of the business. Northwood Family Relocation division is just
14
<PAGE>
beginning to offer complete Relocation management services including
transportation of household goods, home sale closing and equity advances. A
corporate caller, hired specifically to develop this business, is receiving very
positive response form the executives of local corporations. In conjunction with
the Relocation management services, the Company uses a new networking system
whereby leads that are generated by sales agents can receive the professional
assistance of the Relocation staff in procuring their corporate business.
Recruiting/Retention
- --------------------
With the understanding that sales agents are the primary asset of a real
estate company and the acceptance of the turnover rate, Northwood views
recruiting as a business priority. Northwood maintains a very aggressive
recruiting program. Ed Schmidt is the manager of the Airport office and as a
Director of Recruiting. The Company has 4 full-time recruiters who are
compensated on results. The Company constantly monitors share of active agents
in the marketplace as a whole, and regionally. The Company also measures the
share of new agents getting into the market. For the past three years, Northwood
has been successful in hiring 23% of all newly licensed agents. Competition for
new as well as experienced agents is high. Many different programs including
mailing, seminars, career advertising and personal networking are in place to
attract the right type of agent. Many of the recruiting strategies that
Northwood has developed over the years are now copied by competitors, so it is a
constant task to find new, getter and more creative ways to, not only recruit
new persons to the business, but to retain agents. For 8 years, one of the most
successful recruiting programs is a "company trip" that existing agents can win
if they refer an agent who joins Northwood and achieves a minimum level of
production. In 1998, the Company expects to take a group of almost 200 to Cancun
for 5 days (about 130 of which are at company expense). Even though the expense
of such a trip is great, it has proven to be a cost effective means of
recruiting.
AGENT TRAINING PROGRAM
The Company became an industry leader in designing and implementing human
resource programs to develop top producing real estate agents.
Training
- --------
Quickstart, Northwood's program of fundamental skills for new agents, has
been developed and refined over the past 12 years. The schedule is broken into
modules that allow students to enter almost at any time. Quickstart provides a
15
<PAGE>
thorough orientation to the culture and practices of Northwood as well as a
practical working base of how to get started in a productive real estate career.
Jan Brown, Director of Training and Education, administers Quickstart and
teaches many of the modules along with other instructors from within the
company. Several times a year, The Company offers eight week sessions of "Eagle"
training to help experienced agents increase their productivity. This program is
run by Bob Rebman who draws from 12 years of sales, management and training
experiences.
In the field and in the classroom, the Company attempts to teach an agent
everything he or she needs to know about selling real estate from the ground up.
Pacific Institute is a three day experience to teach an agent to become a
high performance sales person. It was created by Lou Tice and the Pacific
Institute and is presented in Pittsburgh by Northwood Realty Co./Better Homes
and Gardens. It is designed to uncover and release the untapped potential in
each agent. It covers all aspects of personal and interpersonal life - family,
professional, social, spiritual and emotional.
Training in Excellence is a comprehensive training system designed to help
a new sales associate become productive in a relatively short period of time and
continually develop the expertise of the experienced sales associate. The
program is based on a conviction that success in sales results not only from
building a knowledge base through teaching and self-study, but also from the
continual development and reinforcement of the appropriate skills and attitude
through field training, coaching and counseling on the part of management.
Numerous Agent support programs are provided by Northwood Realty Co./Better
Homes and Gardens to obtain new agents and retain existing agents.
Leads Management
- ----------------
Less than a year in existence, the Lead Management Department, internally
known as Delta, handles the day-to-day administration of the Internet site and
the buyers line system and the resultant leads that are generated from Buyers
Line. Wendy West manages this division with a staff of two. The professionally
designed and maintained Internet site provides a complete menu of real estate
information for both Buyers and Sellers as well as searching capabilities for
all Northwood listings. The Company benefits from a link with BH&G's national
site and are registered with 24 major Internet search engines. Like the World
Wide Web, the Buyers Line provides 24-hour-a-day, 7-day-a-week advertising for
all of Northwood's listings. By dialing a dedicated phone number and entering a
16
<PAGE>
five digit code that appears on all advertising, prospective Buyers are able to
obtain instant details of specific properties, run a search by price and area
and hear additional information about financing and other real estate related
topics. Northwood's Buyers line is the only one of it's kind in the market.
Although the Company has had Buyers line for 4 years, the true value is just now
becoming evident with the recent approval of Caller ID in Pennsylvania. Caller
ID allows the Company to capture the names and numbers of the public who call
the Buyers Line. No other single source of marketing has provided as many
quality leads. Over 700 leads are retrieved from the system and distributed to
sales executives each week. In addition to the obvious value in generating
business, it is a superb recruiting and retention tool. Northwood is the only
real estate company in its marketplace that is able to provide the quantity and
quality of leads to its sales executives. The Company sees this system, although
it is still evolving, as an important aspect of future business.
Elegant Homes
- -------------
Elegant Homes is also a newly created division that was started by Gloria
Schucolsky in April of 1996. Gloria continues to oversee the division with the
help of a part-time assistant. Established to procure a larger share of the
higher priced listings, the Division provides training for a selective group of
qualified agents who are able to offer the Exclusive Gold Key Marketing Plan for
listings over $300,000.
Principal products or services and their markets.
-------------------------------------------------
Real estate brokerage services for selling and purchasing real property in
the Pittsburgh, Pennsylvania greater metropolitan area are offered to the
general public.
Distribution methods of the products or services.
-------------------------------------------------
The Company has 35 offices and 710 agents to offer real estate brokerage
services to the public.
Status of any publicly announced new product or service.
--------------------------------------------------------
Not applicable.
Competition, business conditions and the small business issuer's
competitive position in the industry and methods of competition. Registrant is a
major participant among the firms which engage in the same line of business
(real estate brokerage) which Registrant has chosen as its principal area of
17
<PAGE>
business concentration in Western Pennsylvania in the Pittsburgh area. Many of
Registrant's competitors may have greater financial and personnel resources and
technical expertise than the Registrant. The combined management experience of
Registrant's officers and directors total over 150 years. Registrant has
encountered, and will continue to encounter, substantial competition from
Registrant's competitors.
Sources and availability of raw materials and the names of principal
---------------------------------------------------------------------------
suppliers.
- ----------
Not Applicable.
Dependence on one or a few major customers. Registrant is dependent on
general public, and not on only a few major customers.
Patents, trademarks, licenses, franchises, concessions, royalty agreements
or labor contracts, including duration. The Company has trademarked the name
Northwood Realty, and is reliant upon its license of the name Better Homes and
Gardens under its franchise agreement.
Need for any government approval of principal products or services. The
Company has real estate licenses as necessary and appropriate in Pennsylvania,
and in local jurisdictions.
Effect of existing or probable governmental regulations on the business.
Registrant intends to concentrate its immediate efforts in real estate
brokerage. The effect of governmental regulations on its business should not
cause Registrant to incur any delays in continuing operations, however changes
in regulations may require adjustments at expense to the Company.
Research and development activities. Registrant does not intend to engage
in any research and development activities.
Costs and effects of compliance with environmental laws.
--------------------------------------------------------
None.
Number of total employees and number of full-time employees. Registrant
employs about 100 full time staff persons in its various offices including the
executive offices in Allison Park, Pennsylvania. The Company has 710 licensed
real estate agents all of whom are independent contractors but are not
considered employees. They may work full time or part time.
Real Property
- -------------
None.
18
<PAGE>
Legal Proceedings
- -----------------
The Company, in normal course of business, is engaged in lawsuits, as a
plaintiff or defendant involving minor matters as commission disputes,
employment, contract disputes on closings and other matters related to its real
estate brokerage business. None of the lawsuits presently pending would have a
material impact upon the Company.
Submission of Matters to a Vote of Security Holders
- ---------------------------------------------------
Shareholders approved and made effective a 3.3856 for 1 forward split in
September, 1997.
RISK FACTORS
The securities being offered hereby involve a high degree of risk.
Prospective investors, prior to making an investment, should carefully read this
entire prospectus and consider, among other things, the following risks and
speculative factors inherent in and affecting the business of the Company:
1. Company History
---------------
The Company was organized as a corporation in 1982, and has engaged in
active real estate brokerage business since inception. Long-term operating
results which might enable a prospective investor to evaluate the future
prospects of the Company are available but not assured in any way. All risks
inherent in a corporate business are present in the Company's business.
2. Management
----------
Experience of management is limited to management within the real estate
industry as detailed in the Management section. (See "Management".) The
Company's Chairman, President and Co- President have been engaged in the Company
business since 1982. Prior to 1982 Messrs. Autenreith and Buck Weston had been
engaged in the real estate brokerage business for over 25 years each.
The officers and directors of the Company will devote significant time to
its business affairs but may have other investment interests.
The Company has not obtained key man life insurance on any of its officers
or directors. Notwithstanding the combined experience and time commitment of
management, loss of the services of any of these individuals would adversely
affect development of the Company's business.
19
<PAGE>
3. Limited Financing
-----------------
The Company may issue additional shares to finance its future capital and
operations requirements. Any such issuance will reduce the present percent of
ownership of previous investors (see "Risk Factor - Control") and may result in
additional dilution to investors purchasing shares from this offering.
4. Nature of Real Estate Business
------------------------------
The Company's business is speculative, involves the commitment of high-risk
capital, and exposes the Company to potentially substantial losses. In addition,
the Company will be in direct competition with other organizations which may be
significantly better financed and staffed than the Company.
5. General Economic and Other Conditions
-------------------------------------
The Company's business may be adversely affected from time to time by such
matters as changes in general economic, and industrial conditions as they exist
in the United States; changes in taxes; interest rate changes; changes in
government policy, recessions and other factors of a general nature.
6. Absence of Dividends
--------------------
The Company does not have a policy of paying dividends, and it is currently
anticipated that no cash dividends will be paid. Any future decision to pay cash
dividends will be made on the basis of earnings, alternative needs for funds,
and other conditions existing at the time.
7. Control
-------
More than fifty percent (50%) of the total number of authorized shares of
the Company will remain unissued if all the shares offered hereby are sold and
warrants are exercised. The board of directors has the power to issue such
shares without shareholder approval. The issuance of any such shares to persons
other than the existing shareholders would reduce the amount of control held by
the shareholders following this offering. There are presently no commitments,
contracts, or intentions to issue any additional shares to any other persons.
The Company may issue stock to acquire other companies; and, if opportunities
become available which can best be obtained by issuing shares of the Company's
stock, the Company will consider the issuance of its shares for such
opportunities. In the event that any such shares are issued, the proportionate
ownership and voting power of every other shareholder will be reduced.
20
<PAGE>
8. Competition
-----------
The Company will be required to compete with several entities which are
somewhat larger, and many have greater resources than the Company. Operating
losses may result from this competition and may lead to increased costs and
delays which may have a materially adverse effect on the Company.
9. Budget
------
The Company has established a detailed cash budget upon which its
expenditures and cash resources for its business are based. The "Use of
Proceeds" is subject to allocation by Management to its business activities.
(See "Use of Proceeds".)
10. Management Experience.
----------------------
All of the Company's directors and executive committee members have had
extensive experience in the Company's business. The Company's success will
depend on the abilities of Management. Management believes that it has the
experience and expertise to continue the Company's business plan. There is no
assurance, however, that the Company will be able to profitably continue the
business, due to market and economic factors.
11. Lack of Diversification.
------------------------
The Company's activities will be limited to its stated business of real
estate brokerage services and services associated with and enhancing its
brokerage business. To the extent this lack of diversification into other
businesses increases its susceptibility to real estate market downturns, the
Company will be at greater risk than a very diversified company.
RISK FACTORS RELATING TO OFFERING
1. Disproportionate Risk
---------------------
Immediate Substantial Dilution of Purchasers' Investments.
----------------------------------------------------------
The Officers, Directors and present shareholders of the Company have acquired
their stock in the Company at a cost less than that which the investors
purchasing pursuant to this prospectus will pay for their stock holdings.
Therefore, new investors will bear most of the risk of loss, while control of
the Company will remain in the hands of the present shareholders. Further,
assuming the shares offered hereby are sold, an investment in the common stock
of the Company by the purchaser will result in an immediate substantial dilution
(approximately $4.70 per share or approximately 78%) of the net tangible book
value of the common stock from the offering price which the purchasers will have
paid for their shares.
21
<PAGE>
2. Nature of Offering
------------------
Arbitrary Offering Price: The offering price of Six Dollars, ($6.00) per
Share has been arbitrarily determined and bears no relationship to book value,
par value or any other established criterion of value.
Market For Shares: there is no market for the Company's shares: on the
NASDAQ Electronic (OTC) Bulletin Board or otherwise and no assurance can be made
that a market will ever develop after this offering is concluded. The Company
will seek listing on NASDAQ concurrent with the completion of the offering.
Best Efforts Offering: The Shares are offered and shall be sold on a "best
efforts, all or none" basis by the issuer, 1,000,000 shares at $6.00 per share.
No one has made any commitment to purchase or take down any shares. There
is no assurance that all or any of the offered shares will be sold or that any
proceeds will be available to accomplish the Company's proposed program as
herein described. (See "Plan of Distribution".)
3. Speculative Nature of Investment. Due to the speculative nature of the
Company's business, it is possible that the investment in the shares offered
hereby will result in a total loss to the investor. Investors should be able to
financially bear the loss of their entire investment. Investment should,
therefore, be limited to that portion of discretionary funds not needed for
normal living purposes or for reserves for disability and retirement.
4. Lack of Record of Earnings. Potential investors should be made aware of the
difficulties encountered by any company in the real estate brokerage business,
especially in view of the intense competition from existing and more established
businesses, who are also seeking to expand market share, and from growth of real
estate brokerage franchises such as Metro Brokers, ReMax, and Century 21. If the
Company's plans prove to be unsuccessful, the stockholders may lose all or a
substantial part of their investment.
5. No Assurance of Public Market for Securities. Prior to this offering there
has been no public market for the common stock of the Company and there can be
no assurance that a trading market will develop at the conclusion of this
offering, or even if such a trading market should develop that the shares may be
resold at their original offering price or near the offering price. Any market
for the common stock of the Company that may develop will, in all likelihood, be
a substantially limited one.
22
<PAGE>
6. No Underwriter. The Shares are being offered by the Company and selected
dealers on a 1,000,000 Shares, "best efforts, all or none" basis. The Company
has not retained an underwriter to assist in offering the Shares. The officers
and directors of the Company have no experience in the offer and sale of
securities on behalf of an issuer and, the Shares may not all be sold even with
the assistance of selected broker-dealers. There is no assurance the Company and
selected broker-dealers are capable of selling all, or any, of the Shares
offered.
7. Burden to Public Investors. The financial risk of the Company's proposed
activities will be borne primarily by the public investors, who, upon completion
of this offering, will have contributed the significantly greater portion of the
Company's capital.
8. Additional Financing May Be Required. Although the Company believes that the
funds raised in this offering will be sufficient for its needs, the conduct of
the Company's business may require availability of additional funds. The Company
may encounter difficulty in obtaining these funds. Moreover, even if financing
were to become available, it is likely that the cost of such funds would be high
and possibly prohibitive.
9. No Dividends and None Anticipated. The Company has not paid any dividends nor
by reason of its present financial status and its contemplated financial
requirements, does it contemplate or anticipate paying any dividends upon its
common stock in the foreseeable future.
10. No Commitment to Purchase Shares. No entity has any obligation to purchase
any of the Shares offered. Consequently, no assurance can be given that any
Shares will be sold. This "best efforts" offering is on a 1,000,000 Share "all
or none" basis.
11. Shares Eligible For Future Sale. All outstanding Common Shares are
"restricted securities" except as registered by officers, directors and
affiliates concurrent herewith, and under certain circumstances may in the
future be sold in compliance with Rule 144 adopted under the Securities Act of
1933, as amended. Future sales of those shares under Rule 144 could depress the
market price of the Common Shares in any market which may develop. Rule 144
provides, among other things, that persons holding restricted securities for a
period of one year may each sell in brokerage transactions every three months an
amount equal to 1% of the Company's outstanding Common Shares or the average
weekly reported volume of trading during the four calendar weeks preceding the
filing of a notice of proposed sale, whichever is greater.
23
<PAGE>
<TABLE>
<CAPTION>
DILUTION AND COMPARATIVE DATA
The following table summarizes the comparative ownership and capital
contributions of existing shareholders and investors in this offering as of
September 30, 1997 assuming maximum number of shares offered hereby are sold:
Shares Percent of Total Percent of Average Price
Owned Total Consideration Total Per Share
Shares Paid Consideration
Paid
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Current Shareholders
3,000,000 75% (9,346) .2% (.003)
New Investors 1,000,000 25% 6,000,000 99.8% 6.00
------------------------------------------------------------------------------------------------------
Total 4,000,000 100% 5,990,654 100%
*Computed as pre-offering shareholders equity.
Without taking into account any changes in the net tangible book value
after September 30,1997, other than to give effect to the issuance of common
stock offered hereby at a price per share of $6.00 (after deduction of
underwriting commissions and offering expenses), the following table illustrates
the approximate dilution to be incurred by public investors:
Net Tangible Book Value per share
before offering(1) $(.011)
Net Tangible Book Value per share
after offering(2) $1.29
Increase per share attributable to
payments by new investors $1.30
Dilution per share to new investors(3)
$4.70
Dilution per share as percentage of
price to new investors(4) 78%
(1) Net Tangible Book value per share before offering is determined by dividing
the tangible net worth of the Company as of September 30, 1997 (assets less
total liabilities including minority interest and intangible assets) by the
number of outstanding shares of common stock and is exclusive of up to 100,000
warrants to be issued to the Selected Dealers, and options reserved for
officers, directors, agents and others, to purchase up to 200,000 shares, under
the Company incentive plan.
(2) Net tangible book value per share after offering is determined by dividing
the tangible net worth of the Company as of September 30, 1997 plus the
estimated net proceeds from the issuance of common stock offered hereby (9,346)
and 5,150,000 for the sale of shares, respectively.) By the number of
outstanding shares of common stock plus the number of shares issued (1,000,000
shares), exclusive of up to 100,000 warrants to be issued to the Selected
Dealers and options outstanding to officers, directors and others to purchase up
to Selected Dealers shares.
24
</TABLE>
<PAGE>
(3) Dilution is the difference between the offering price of $6.00 and the net
tangible book value per share immediately after the offering.
(4) Dilution per share as the percentage of price to new investors calculated by
dividing the net tangible book value per share after the offering by the
offering price per share of $6.00.
In the event of the full exercise of all outstanding but unexercised
options and warrants and the sale of the maximum number of shares, there would
be 4,300,000 shares issued and outstanding. On that basis (a) the present
shareholders would hold in the aggregate 3,000,000 shares (representing
approximately 73% of the outstanding shares of common stock), (b) the public
purchasers would in this offering hold in the aggregate 1,000,000 shares
representing approximately 22% of the outstanding shares of common stock, and
(c) the Selected Dealers would hold in the aggregate 100,000 shares,
representing approximately 2.1% of the outstanding shares of common stock.
SELLING SHAREHOLDERS
The Company has registered herewith, 300,000 shares held by shareholders
who previously purchased the stock, with the Securities and Exchange Commission
as part of the Registration Statement of which this Prospectus is a part. These
shares are not part of the shares being offered by Selected Dealers herein, but
such shares may be sold to the public.
Names of Selling Shareholders
-----------------------------
Autenreith Family Trust
(benefits family members of
J. Harold Autenreith Jr.*) 200,000 shares
Buck Weston* 50,000 shares
Tex Weston* 50,000 shares
*These selling shareholders presently hold positions as officers and
directors of the Company.
USE OF PROCEEDS
The net proceeds to the Company, after deducting commissions and expenses
of this offering as of the date of this Prospectus will be approximately
$5,100,000 if the shares offered hereby are sold.
The following schedule illustrates the manner and the priority in which the
proceeds of this offering are expected to be applied and allocated:
25
<PAGE>
================================================================================
Repayment of Debt to Picnic Investments 625,000
- --------------------------------------------------------------------------------
Repayment of Miscellaneous Debt 725,000
- --------------------------------------------------------------------------------
Expansion of working capital and 3,750,000
general corporate purposes(1)
================================================================================
(1) Any net proceeds received from the exercise of the Underwriter's warrants
would be added to working capital.
Repayment of Debt
- -----------------
The Company intends to utilize approximately 625,000 of the net proceeds to
retire debt owing to Picnic Investments S.A. of $625,000 and $725,000 to pay
miscellaneous debt. The repayment of debt is primarily intended to reduce the
interest expense to the Company.
Working Capital and General Corporate Purposes
- ----------------------------------------------
The Company intends to utilize approximately $3,750,000 of the net proceeds
for working capital and general corporate purposes.
Working capital will be used to fund, expansion, advertising programs and
for acquisition of other real estate companies, as the opportunities may arise.
Currently, no acquisition opportunities have been identified, nor are any in
negotiation.
The foregoing represents the Company's best estimate of its allocation of
the proceeds of this offering, based upon the current state of its business
operations, its current plans and current economic and industry conditions.
Management believes that the net proceeds of this offering, together with funds
anticipated to be generated from operations will be sufficient to satisfy the
Company's cash requirements for at least twelve (12) months following completing
of this offering. In the event of revenue shortfalls, there can be no assurance
that loans will be available under any future credit arrangements. Further,
there can be no assurance that additional funds will not be required for working
capital purposes during such period or that such funds, if required, will then
be available on terms satisfactory to the Company, if at all.
Pending utilization of all of the proceeds of this offering the Company may
utilize a portion of the net proceeds to make temporary investments in
interest-bearing savings accounts, certificates of deposit, United States
government obligations, and high grade commercial paper.
26
<PAGE>
BUDGET
Proforma Operating Budget ($ 000)
(Including Earnings Projections)
- - 12 months ending September 30, 1998
Gross Commission Income $ 16,591
Paid to Agents 8,993
Net Commission Income 7,598
Other Income 532
-----------
Total Company Income 8,130
Expenses
Salaries, Benefits, Emp. Taxes $ 2,827
Occupancy 1,640
Communications 613
General Operating Expense 428
Office Operating Expense 588
General Sales Expense 425
Advertising 1,231
Other Expense 171
-----------
Total Expense $ 7,923
Net Profit $ 207
Depreciation and Amort $ 257
EBITDA (Earnings Before Interest, $ 464
Taxes Depreciation and Amortization)
Assumptions re: IPO Proceeds
Gross Amount Raised $ 6,000,000
Issuing Expense (15%)
Balance Received by Northwood $ 5,100,000
Used for Debt Retirement 1,350,000
Balance for Acquisitions & Operations $ 3,750,000
Market for Registrant's Common Equity and Related Stockholder Matters
---------------------------------------------------------------------
(a) The Company has no shares which have been traded publicly in the past.
(b) Holders
As of September 30, 1997, there were 13 shareholders of record of the
Registrant's Common Stock.
27
<PAGE>
Registrant is authorized to issue 10 Million (10,000,000) Common Shares no
par value. 3,000,000 shares of Common Stock are issued and outstanding.
The Registrant has never paid a cash dividend on its Common Stock and has
no present intention to declare or pay cash dividends on the Common Stock in the
foreseeable future. The Registrant intends to retain any earnings which it may
realize in the foreseeable future to finance its operations. Future dividends,
if any, will depend on earnings, financing requirements and other factors.
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company as of
September 30, 1997 and (ii) such capitalization as adjusted as of such date to
give effect to the issuance and sale of the maximum shares of the common stock
offered hereby at $6.00 per share and the application of the net proceeds
therefrom.
September As
30, 1997 Adjusted
Actual
--------------------------
TOTAL CURRENT LIABILITIES $ 3,625,313 $ 3,625,313
--------------------------
LONG TERM DEBT
Deferred Income Taxes 186,263 186,263
Obligations under capital leases 88,373 88,373
Notes Payable 1,589,378 964,378
--------------------------
1,864,014 1,239,014
Less: current portion 547,614 547,614
--------------------------
1,316,400 691,400
--------------------------
$ 4,941,713 $ 4,316,713
--------------------------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Capital Stock - (no par value,
10,000,000 shares authorized,
3,000,000 shares issued and
outstanding) 24,867 5,124,867
Retained earnings (deficit) (34,213) (34,213)
--------------------------
TOTAL STOCKHOLDER'S EQUITY (9,346) 5,090,654
==========================
SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the Company
which have been derived from the Company's financial statements. The financial
statements as of and for the year ended December 31, 1996, have been audited by
Hinds, Lind, Miller & Co., the Company's independent auditors. The financial
statements for the nine months ended September 30, 1997, are unaudited, but, in
the opinion of management, include all adjustments (consisting only of normal
recurring adjustments) necessary for fair presentations of the results of
operations for these periods. The selected financial data should be read in
connection with the financial statements and related notes included elsewhere
herein.
28
<PAGE>
9/30/97 9/30/96 Year Ended
(Unaudited) (Unaudited) 12/31/96
-------------------------------------------------------
REVENUES
Net commissions
earned from real
estate transactions $14,225,090 $12,907,547 $15,735,755
Less commissions
paid (7,758,132) (6,928,914) (8,433,981)
-------------------------------------------------------
6,466,958 5,978,633 7,301,774
Tuition income 88,074 116,295 137,965
Consulting fees 14,853 14,519 109,775
Insurance 21,390 48,070 24,961
commissions
-------------------------------------------------------
6,591,275 6,157,517 7,574,475
OPERATING EXPENSES 5,948,561 5,418,211 7,486,539
-------------------------------------------------------
Income from
Operations 642,714 739,306 87,936
OTHER INCOME
(EXPENSE)
Rental Income - - 20,000
Other income 62,259 30,678 79,217
Interest expense (181,122) (198,860) (232,639)
Loss on Investments - - -
Reduction in
listing rights
amortization - - 103,505
-------------------------------------------------------
(118,863) (168,182) (29,917)
INCOME BEFORE
INCOME TAXES 523,851 571,124 58,019
INCOME TAXES
Current income tax
expense (benefit) 64,118 4,944 -
Deferred income tax
expense (benefit) 139,515 216,837 27,095
-------------------------------------------------------
203,633 221,781 30,924
-------------------------------------------------------
NET INCOME $ 320,218 $349,843 $ 30,924
=======================================================
Balance Sheet Data As of As of As of
September 30, 1997 December 31, 1996 December 31, 1995
- --------------------------------------------------------------------------------
Total Assets 4,932,367 3,652,319 3,679,854
Debt 4,941,713 3,981,883 4,042,342
Stockholders Equity (9,346) (329,564) (300,488)
Cash Dividends
Declared Per Common
Share 0 0 0
The following unaudited supplementary data present net profit per common
share for the fiscal year ended December 31, 1996, and the nine months ended
September 30, 1997, as adjusted to give effect to the proposed sale of common
stock as if it had occurred on January 1, of the pro forma year. The
calculations assume a sale price of $6.00 per share if the offered shares are
sold and net proceeds were used to retire indebtedness outstanding of $675,000
as of January 1, of the pro forma year.
29
<PAGE>
December September
31, 1996 30, 1997
---------------------------
Net profit as reported 30,924 320,218
Adjustment to reduce interest expense 232,639 181,122
---------- ----------
Net profit as adjusted 263,563 501,340
========== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
As reported 3,000,000 3,000,000
Adjustment for the proposed sale 1,000,000 1,000,000
---------- ----------
Number of common shares assumed to be
outstanding, as adjusted 4,000,000 4,000,000
========== ==========
Profit per common share, as reported $ .007 $ .107
Adjustment .058 (.018)
---------- ----------
Profit per common share, as adjusted $ .065 $ .125
========== ==========
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
CURRENT OPERATIONS AND BUDGET
The company has been managed as a private company for the benefit of its
management/shareholders for all years prior to September 1997. The company is
involved in the transition of management for a private company to the planning
and management of a public company for the profit and benefit of individual
shareholders. The capital being raised through the offering will be used:
a) to reduce debt;
b) to provide operating capital; and
c) to provide capital to make additional acquisitions to increase
market value.
At year end 1996 the Company's assets increased to $3,652,319 compared to
$3,679,654 at the end of 1995. The increase was a result of operations in the
Pittsburgh metro area.
Liabilities decreased minimally as a result of operations in the Pittsburgh
metro area. At year end 1996, liabilities were $3,981,883, an increase of .3%
over 1995 year end liabilities of $4,040,342.
Stockholders' deficit at year end 1996 was ($329,564), a decrease of 7.7%
over the 1995 stockholders' deficit of ($360,488). The Company, in other words,
continued to decrease the stockholders deficit through operations revenues.
30
<PAGE>
From the aspect of whether the Company can continue toward its business
goal of increasing market share and profitability, the Company is critically
deficient in needed capital to expand.
Nine Months Operating Results
The Company had $14,225,090 revenues in 1997 to September 30, upon which
$7,758,132 in commissions were paid. It incurred operating expenses in the
amount of $5,948,561 and had operating profits of $523,851. For the same period
in 1996, the Company had revenues of $12,907,547 upon which $6,928,914 in
commissions were paid. It incurred operating expenses of $5,418,211 for an
operating profit of $571,124. Operating, general and administrative expenses and
salaries are expected to continue at the current rate.
Net income for the nine month period was $320,218 for a profit of $.16
per share, as compared to a net profit for the same period in 1996 of $349,343
for a profit of $.12 per share.
PRIOR YEARS' OPERATING RESULTS
Comparison of Results of Operation for the Fiscal Years Ended December 31,
---------------------------------------------------------------------------
1996 and 1995
- -------------
The Company had operating revenues in 1996 of $15,735,755 and $13,861,509
in 1995.
The Company incurred operating expenses, all of which are general and
administrative in nature, totaling $7,486,539 in 1996 as compared to $6,753,364
in 1995. The Company had operating income of $87,936 in 1996 and operating
losses of($15,559) in 1995.
Salaries and management fees increased in 1996 to $2,260,462 from a total
of $2,158,257 in 1995. This trend will continue in 1997. Commissions paid to
agents totalled $8,433,981 in 1996 compared to $7,361,537 due to sales volume
increases.
Office rent, was $1,253,313 in 1996 and $1,074,463 in 1995. This may
increase again in 1997 due to expanded operations.
Legal expenses totaled $78,990 in 1996 as compared to $76,939 in 1995.
1996 expense for accounting expenses totaled $71,568, while 1995 accounting
and other professional expenses were $33,478. It should be expected that future
legal and accounting expenses will continue in amounts comparable to 1996.
31
<PAGE>
General sales expense in 1995 was $526,806 compared to $371,450 in 1995.
Advertising and Public Relations costs were $1,159,397 in 1996 and $953,019 in
1995.
The Company incurred interest expense in 1996 of $232,639 as opposed to
1995 interest of $290,604.
The Company had a net profit for 1996 of $30,924 compared to its net loss
in 1995 of ($172,944). The Company anticipates that the trend of net profit on
operations will continue in 1997 as it continues barring a major economic
downturn which affects the real estate market.
The per-share profit amounted to $.010 in 1996 as compared to a loss of
($.057) in 1995. (Adjusted for forward split in September 1997.)
(b) Liquidity and Capital Resources
At year end 1996, the Company had a cash deficit of $302,517 as compared to
$225,166 in 1995. Its total current assets were $1,677,385 at year end 1996 and
$1,554,759 in 1995. The Company investment in Fixed Assets (net of accumulated
depreciation) at 1996 year end, and related equipment, totaled $1,380,798
whereas in 1995 the Company had Fixed Assets (net) of $1,532,887.
At year end 1996 the total assets, less depreciation, were $3,652,319,
while at year end 1995 total assets stood at $3,679,854.
Other than its commission receivables, the Company had no other capital
resources. Its investment in Fixed Assets is illiquid. In order to fund future
operations and capital expenditures, if cash flow is insufficient, the Company
may have to borrow monies or make equity placements on terms which may not be
favorable to the Company.
Customer, Sales, Markets and Marketing
- --------------------------------------
The Company markets and sells its services to the general public i.e.,
those persons listing, and selling and buying real estate.
The Company also utilizes advertising, multi-list services, trade shows,
franchise affiliations and other marketing techniques such as its telemarketing
group to market and sell its services.
The following tables reflect an analysis of the Company's sales according
to different categories:
32
<PAGE>
SALES TO FOREIGN CUSTOMERS
Foreign % of Total
Sales
- --------------------------------------------------------------------------------
None 0 0
SALES TO CUSTOMERS IN EXCESS OF 10% OF SALES
Customer Amount % of Total Number of
Sales Customers
- --------------------------------------------------------------------------------
None 0 0 0
Competition
- -----------
Registrant is a significant participant among the firms which engage in the
same line of business (real estate) which Registrant has chosen as its principal
area of business concentration. Some of Registrants competitors are companies
with possibly greater financial and personnel resources than the Registrant. The
combined financial resources and management experience of Registrant's officers
and directors are extensive in real estate industry and Registrant has
encountered, and will continue to encounter, substantial competition in the real
estate industry.
Employees
- ---------
Number of total employees and number of full-time employees. Registrant at
September 30, 1997 employed approximately one hundred (100) full-time persons in
its offices in Pittsburgh metro area and had 710 non-employee real estate
agents.
Franchise Agreements
- --------------------
The Company has a five year master franchise agreement from Better Homes
and Garden International, Inc. for the greater Pittsburgh metro area.
Approximately 1% of gross COMMISSIONS are paid as a franchise fee, to the
Franchisor.
Need for any government approval of principal products or services. If
government approval is necessary and the small business issuer has not yet
received that approval, discuss the status of the approval within the government
approval process. The Company (and each of its sales offices), are obligated to
receive and maintain licenses from the Pennsylvania Real Estate Commission.
33
<PAGE>
<TABLE>
<CAPTION>
Effect of existing or probable governmental regulations on the business.
------------------------------------------------------------------------
Government Regulations, present and future, have a cost impact upon real
estate brokerage. Such items as Truth in Lending Real Estate Settlement
Procedures Act, Lead Point Disclosures, and other state or federally mandated
procedures, disclosures, or mortgage regulations may substantially impair the
profitability of the real estate brokerage business.
Property and Equipment
- ----------------------
The Registrant's executive offices in the United States are located at 4100
Rte. 8, Allison Park, PA 15101. These offices are leased from J. Hal Autenreith,
Jr..
As of September 30, 1997, Registrant also leases offices at:
=============================================================================================================================
Northwood Realty Co./Better Homes and Gardens
- -----------------------------------------------------------------------------------------------------------------------------
Office Information as of 8/7/1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Office Office # Manager Sales # Agents Approx Year
Director Sq Ft Opened
- -----------------------------------------------------------------------------------------------------------------------------
1 Hampton 102 Norma Arnold 31 5,403 1961
- -----------------------------------------------------------------------------------------------------------------------------
2 McCandless 105 Nancy Mathews 38 4,344 1977
- -----------------------------------------------------------------------------------------------------------------------------
3 Fox Chapel 122 Arch 9 2,200 1982
Autenreith
- -----------------------------------------------------------------------------------------------------------------------------
4 Cranberry 135 Ron Maszak Toni Orrico 22 3,000 1983
- -----------------------------------------------------------------------------------------------------------------------------
5 North Hills 142 Louise Rogers 28 3,000 1993
- -----------------------------------------------------------------------------------------------------------------------------
6 Sewickley 144 Penny 7 600 1994
Bobincheck 7
- -----------------------------------------------------------------------------------------------------------------------------
7 Wexford 151 Cheri Fath 22 2,172 1989
- -----------------------------------------------------------------------------------------------------------------------------
8 Franklin Park 152 Barbara 27 4,000 1986
Barricella
- -----------------------------------------------------------------------------------------------------------------------------
9 North Hills II 155 Madelyn 4 1,000 1997
Pinkerton
- -----------------------------------------------------------------------------------------------------------------------------
10 Sarver 156 Ron Maszak Kevin Deel 10 1,493 1993
- -----------------------------------------------------------------------------------------------------------------------------
11 Peters 220 Jean Watson 38 4,800 1982
- -----------------------------------------------------------------------------------------------------------------------------
12 USC 221 Bob Boss 72 5,521 1982
- -----------------------------------------------------------------------------------------------------------------------------
13 Pleasant Hills 230 Wayne Hasse 50 4,400 1985
- -----------------------------------------------------------------------------------------------------------------------------
14 Bethel 236 Mary Lou 25 3,000 1985
Enrietto
- -----------------------------------------------------------------------------------------------------------------------------
15 South Side 239 Tom Marshall 9 1,200 1993
- -----------------------------------------------------------------------------------------------------------------------------
16 Washington 246 Terry Pepper 20 2,400 1995
- -----------------------------------------------------------------------------------------------------------------------------
17 Penn Hills 304 Carol 23 5,400 1974
Bechtold
- -----------------------------------------------------------------------------------------------------------------------------
18 Monroeville 307 Larry 35 4,800 1978
Connelly
- -----------------------------------------------------------------------------------------------------------------------------
19 Greensburg 315 Debbie 51 4,100 1980
Redding
- -----------------------------------------------------------------------------------------------------------------------------
20 Murrysville 334 Margie 28 2,300 1980
McCafferty
- -----------------------------------------------------------------------------------------------------------------------------
21 City 337 Carol Betty Klein 1 2,600 1991
Palomera
- -----------------------------------------------------------------------------------------------------------------------------
22 Edgewood 338 Carol Betty Klein 1 300 1991
Palomera
34
<PAGE>
- -----------------------------------------------------------------------------------------------------------------------------
23 Cooper/East End 347 Jo Freedman 11 1,568 1996
- -----------------------------------------------------------------------------------------------------------------------------
24 Robinson 403 Joan 17 2,240 1973
Akanowicz
- -----------------------------------------------------------------------------------------------------------------------------
25 Airport 406 Ed Schmidt 24 2,800 1977
- -----------------------------------------------------------------------------------------------------------------------------
26 Beaver 427 Ruth Ann 17 2,800 1980
Bellus
- -----------------------------------------------------------------------------------------------------------------------------
27 Butler 517 Barry Woolner 8 1,300 1981
- -----------------------------------------------------------------------------------------------------------------------------
28 Kittanning 540 Lisa Bowers 8 1,500 1993
- -----------------------------------------------------------------------------------------------------------------------------
29 McBurney/New Castle 560 Jay McBurney 13 1,500 1996
- -----------------------------------------------------------------------------------------------------------------------------
30 Harshaw/Greenville 561 Chuck 8 1,500 1996
Bestwick
- -----------------------------------------------------------------------------------------------------------------------------
31 Harshaw/Grove City 562 Chuck 8 2,000 1996
Bestwick
- -----------------------------------------------------------------------------------------------------------------------------
32 Harshaw/Shenango 564 Chuck 6 1,800 1996
Bestwick
- -----------------------------------------------------------------------------------------------------------------------------
33 Uniontown 565 Franklin John 8 900 1996
- -----------------------------------------------------------------------------------------------------------------------------
34 Ellwood City 566 Jean Jamison 6 1,170 1996
- -----------------------------------------------------------------------------------------------------------------------------
1 Delta 891 Wendy West
- -----------------------------------------------------------------------------------------------------------------------------
2 Career Growth 892 Jim Skindzier
- -----------------------------------------------------------------------------------------------------------------------------
3 Career Development 991 Ed Schmidt
- -----------------------------------------------------------------------------------------------------------------------------
4 Relocation 992 Cindy DeVos
- -----------------------------------------------------------------------------------------------------------------------------
5 Marketing 993 Marnie Lutz
- -----------------------------------------------------------------------------------------------------------------------------
6 Training 994 Jan Brown
- -----------------------------------------------------------------------------------------------------------------------------
7 Accounting 995 Sandy Dunmire
- -----------------------------------------------------------------------------------------------------------------------------
8 GEM 996
- -----------------------------------------------------------------------------------------------------------------------------
9 Administrative 999
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
TOTALS 710 89,111
=============================================================================================================================
MANAGEMENT
The following table sets forth certain information concerning the Directors
and Executive Officers of the Registrant as of July 31, 1996.
Name Age Position Office Term
- --------------------------------------------------------------------------------
Hal Autenreith 70 Co-president, Director Annual
Tex Weston 53 Co-President, Director Annual
Buck Weston 76 Treasurer, Broker of
Record, Director Annual
Jack Benson 60 V.P. South
Regional Manager Annual
Carol Palomera 54 V.P. East
Regional Manager Annual
Gloria 55 V.P. Northwest
Schucolsky Regional Manager Annual
Ron Maszak 53 V.P. North and
West Regional Manager Annual
35
</TABLE>
<PAGE>
Name Age Position Office Term
- --------------------------------------------------------------------------------
Ed Schmidt 48 Director of
Career Development Annual
Wendy West 39 Secretary and Annual
V.P. Marketing
Directors are elected at the annual meeting of shareholders to serve for a
period of one year or until their successors are elected and have qualified.
Vacancies on the Board of Directors are filled by the Board of Directors.
Officers serve at the discretion of the Board of Directors.
BIOGRAPHICAL INFORMATION
- ------------------------
The following biographical information is presented for the present
Officers and Directors of Registrant as of October 31, 1997.
J. Harold (Hal) Autenreith, Jr., age 70, has been Co- President and
Director since 1994 and was President from 1982 to 1994. He attended the
University of Pittsburgh for 3 1/2 years. Mr. Autenreith has numerous
professional education courses or seminars related to real estate, sales,
finance, management, investment and motivation.
Tex Weston, age 53, has been Co-President of Northwood since 1994 and a
Director since 1982. In 1993-1995 he was President of West Financial Services,
Inc. He attended Edinboro University for 2 years, Pennsylvania State University
for 2 years, Robert Morris College for 3 years and GRI Designation, as well as
Realtor Professional Education Courses. In 1995, Tex completed a one year term
as President of the Realtors Association of Metropolitan Pittsburgh.
Buck Weston, age 76, has been a Broker of Record and Chairman of the Board
since 1982. He has also served as a Director since 1982. Mr. Weston has attended
night school classes, CRB Designation courses, and Realtor Professional
education courses.
Jack Benson, age 60, has been Vice-President, and the South Regional
Manager since 1984. His educational background includes Duke University, a BA
Degree, Graduate Realtors Institute, Certified Residential Broker of the
National Association of Realtors and Realtor Professional Education Courses.
Carol Palomera, age 54, has been Vice President and East Regional manager
since 1985. Ms. Palomera's educational background includes Pennsylvania State
University, where she received a .S. in Math in 1964 and numerous Realtor
Professional Education Courses.
36
<PAGE>
Gloria Schucolsky, age 55, has been Vice President, Region 5 since 1995.
From 1980 through 1995 she was an Owner/Broker of Choice Homes Realtors. Ms.
Schucolsky's educational background includes being a Certified Real Estate
Brokerage Manager, 1979; a Certified Residential Specialist, 1978; Graduate
Realtors Institute, 1976 and numerous Professional Education Courses.
Ron Maszak, age 53, has been Vice President, North Regional manager since
1989. Mr. Maszak education consists of West Virginia University, Certified
Residential Broker and Graduate Realtors Institute. He has also participated in
numerous Realtor Professional Education Courses.
Ed Schmidt, age 48, has been a Director of Career Development since January
1996. He has served as Airport Office Manager from 1993 to present, Regional
Recruiter in 1992-1993 and a Sales Trainer in 1991. Mr. Schmidt attended
Pennsylvania State in 1973 and has participated in numerous Realtor Professional
Education Courses.
Wendy West, age 39, has been Vice President of Marketing since 1991 and
Secretary. Ms. West attended Randolph-Macon Woman's College, Lynchburg, Virginia
and received a B.A. in Economics in 1982. She has attended numerous Realtor
Professional Education Courses as well.
Executive Compensation
----------------------
The Company paid or accrued a total of $317,163.94 compensation to the
executive officers as a group for services rendered to the Company in all
capacities during the 1996 calendar year.
The Company has an employee incentive stock option plan, and 200,000 shares
are reserved for such plan.
SPACE INTENTIONALLY LEFT BLANK
37
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE OF EXECUTIVES
----------------------------------------
Annual Compensation Awards
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Name and Year Salary ($) Bonus ($) Other Annual Restricted Securities
Principal Position Commissions Compensation Stock Underlying
($)1099 Consulting Award(s) ($) Options/
Fees SARs (#)
- ------------------------------------------------------------------------------------------------------------------------------------
Co-President and 1994 $32,800.00 $14,124.51 0 0 0
Director Hal
Autenreith ---------------------------------------------------------------------------------------------------------------
1995 $2,000.00 $6,766.47 0 0 0
---------------------------------------------------------------------------------------------------------------
1996 0* $2,098.83 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Co-President and 1994 0 0 $6,000.00 0 0
Director
Tex Weston ---------------------------------------------------------------------------------------------------------------
1995 0 0 $6,000.00 0 0
---------------------------------------------------------------------------------------------------------------
1996 0* 0 $6,000.00 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
CEO, Broker of 1994 0 0 0 0 0
Record, Director,
Buck Weston ---------------------------------------------------------------------------------------------------------------
1995 0 0 0 0 0
---------------------------------------------------------------------------------------------------------------
1996 0* 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
VP South Regional 1994 $56,130.00 0 0 0 0
Manager, Jack
Benson ---------------------------------------------------------------------------------------------------------------
1995 $28,100.52 0 0 0 0
---------------------------------------------------------------------------------------------------------------
1996 $31,330.00 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
VP East Regional 1994 $39,124.93 0 0 0 0
Manager, Carol
Palomera ---------------------------------------------------------------------------------------------------------------
1995 $38,851.55 0 0 0 0
---------------------------------------------------------------------------------------------------------------
1996 $59,914.97 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
VP - NW 1994 0 0 0 0 0
Regional Manager,
Gloria Schucolsky ---------------------------------------------------------------------------------------------------------------
1995 $36,000.00 0 0 $0 0
---------------------------------------------------------------------------------------------------------------
1996 $42,000.00 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
VP North and 1994 $157,616.04 0 0 0 0
West Regional
Manager, Ron
Maszak ---------------------------------------------------------------------------------------------------------------
1995 $81,583.62 0 0 0 0
---------------------------------------------------------------------------------------------------------------
1996 $91,994.87 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Ed Schmidt, 1994 $52,359.57 $4,107.50 0 0 0
Director of Career
Development ---------------------------------------------------------------------------------------------------------------
1995 $48,680.03 $2,099.67 0 0 0
---------------------------------------------------------------------------------------------------------------
1996 $60,958.64 $4,296.63 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Wendy West, V.P. 1994 $15,000.00 0 $3,600.00 0 0
Marketing ---------------------------------------------------------------------------------------------------------------
1995 $15,000.00 0 $3,600.00 0 0
---------------------------------------------------------------------------------------------------------------
1996 $15,000.00 0 $3,600.00 0 0
====================================================================================================================================
38
</TABLE>
<PAGE>
Option/SAR Grants Table (None)
Aggregated Option/SAR Exercises in Last Fiscal Year an FY-End Option/SAR value
(None)
Long Term Incentive Plans - Awards in Last Fiscal Year (None)
Bonuses and Deferred Compensation
- ---------------------------------
No deferred compensation was paid or earned by any officer or director
during 1996 and through September 30, 1997. Bonuses based upon commission
overrides was paid as shown in chart above and may be earned for 1997.
There are no payments of compensation or benefits to officers and directors
due upon termination without cause resulting from a change in control.
Compensation Pursuant to Plans. None.
- -------------------------------
DIRECTOR COMPENSATION FOR LAST FISCAL YEAR
(Except for compensation of Officers who are also Directors which Compensation
is listed in Summary Compensation Table of Executives)
Cash Compensation Security Grants
================================================================================
Name Annual Meeting Consulting Number of Number of
Retainer Fees ($) Fees/Other Shares (#) Securities
Fees ($) Fees ($) Underlying
Options/
SARs (#)
- --------------------------------------------------------------------------------
None 0 0 0 0 0
================================================================================
Certain Relationships and Related Transactions
----------------------------------------------
(a) Prior to 1996 year end, Picnic Investments, S.A., was owed a total of
$610,000 to the Company. In 1996, repayment of the advances was agreed to,
providing for interest at 1.5% per month.
(b) Wendy West, Secretary and Vice President of Marketing, is the daughter
of J. Harold (Hal) Autenreith, Jr., Co-President and Director.
(c) Tex Weston, Co-President and Director, is the son of Buck Weston,
Chairman and Director.
(d) The Company leases seven offices from J. Harold (Hal) Autenreith, Jr.
its Co-President and Director, for a monthly rental of $29,600 per months. The
leases are year to year.
39
<PAGE>
PRINCIPAL STOCKHOLDERS
Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The following table sets forth information, as of December 2, 1997, as to
the number of shares of the Registrant's Common Stock owned of record by (a)
beneficial owners of more than five percent of the Registrant's outstanding
Common Stock who are owned by the Registrant, and (b) the Officers and Directors
of the Registrant, individually, an the Officers and Directors of the Registrant
as a group, and (c) the percentage of ownership of the outstanding Common Stock
represented by such shares.
a)
================================================================================
% of
Owner-
Current ship
Stock Names and Address of Beneficial After
Title of Class Beneficial Owner Ownership Offering
- --------------------------------------------------------------------------------
Common Stock J. Harold Autenreith, Jr. 473,987 (15.7%) 11.8%
- --------------------------------------------------------------------------------
Common Stock Harold M. Weston 169,280 (5.6%) 4.2%
- --------------------------------------------------------------------------------
Common Stock Tex Weston 169,280 (5.6%) 4.2%
- --------------------------------------------------------------------------------
Common Stock Gary Lee Weston 169,280 (5.6%) 4.2%
- --------------------------------------------------------------------------------
Common Stock James H. Autenreith, III 473,987 (15.7%) 11.8%
- --------------------------------------------------------------------------------
Common Stock Wendy West 473,987 (15.7%) 11.8%
- --------------------------------------------------------------------------------
Common Stock Eric H. Autenreith 473,987 (15.7%) 11.8%
- --------------------------------------------------------------------------------
Common Stock Arch W. Autenreith 473,987 (15.7%) 11.8%
================================================================================
b) The following table sets forth information, as of July 31, 1997, with
respect to the beneficial ownership of the Company's $.0001 par value common
stock by the directors and officers of the Company, both individually and as a
group.
================================================================================
Name and Address Position Shares Current * %
of Beneficial Owned Beneficial Ownership
Ownership Ownership After
Offering
- --------------------------------------------------------------------------------
J. Harold Co-president, 473,987 15.7% 11.8%
Autenreith, Jr. Director
- --------------------------------------------------------------------------------
Tex Weston Co-president, 169,280 5.6% 4.2%
Director
- --------------------------------------------------------------------------------
Buck Weston Treasurer, Broker of 169,280 5.6% 4.2%
Record, Director
- --------------------------------------------------------------------------------
Jack Benson V.P. South Regional 0 0 0
Manager
- --------------------------------------------------------------------------------
40
<PAGE>
- --------------------------------------------------------------------------------
Carol Palomera V.P. East Regional 0 0 0
Manager
- --------------------------------------------------------------------------------
Gloria Schucolsky V.P. Northwest 0 0 0
Regional Manager
- --------------------------------------------------------------------------------
Ron Maszak V.P. North and West 33,856 1.1% 0.1%
Regional Manager
- --------------------------------------------------------------------------------
Ed Schmidt Director of Career 0 0 0
Development
================================================================================
*Prior to any sales by selling shareholders.
Current
Beneficial Percent Ownership
Ownership After Offering
--------- --------------
c) Present Officers
and Directors
as a Group 28% 20.3%
Loans to Officers and Directors
- -------------------------------
None.
DESCRIPTION OF SECURITIES
General
- -------
Common Shares. The Company's Articles of Incorporation authorizes
10,000,000 shares of common stock with no par value. There are 3,000,000 common
shares are outstanding at the commencement of this offering. Each record holder
of common shares is entitled to one vote for each share held as a matter of
record on all matters properly submitted to the shareholders of the Company for
their vote. Cumulative voting is not authorized by the Articles of
Incorporation, as amended. A quorum at any shareholders meeting consists of
one-half of the common shares outstanding and entitled to vote.
Dividends
- ---------
Holders of the Company's common stock are entitled to receive dividends
when and as declared by the Company's Board of Directors out of legally
available funds. Any such dividends may be paid in cash, property or shares of
the Company's common stock. The Company has not paid any dividends since its
inception and presently anticipates that all earnings, if any, will be retained
for development of the Company's business and no dividends on its common stock
will be declared in the foreseeable future. Any future dividends will be subject
to the discretion of the Company's Board of Directors and would depend upon,
among other things, future earnings, the operating and financial condition of
41
<PAGE>
the Company, its capital requirements, and general business conditions.
Therefore, there can be no assurance that any dividends on the Company's common
stock will be paid in the future.
Miscellaneous Rights and Provisions
- -----------------------------------
Shares of the Company's common stock have no preemptive or conversion
rights, no redemption or sinking fund provisions, and are not liable to further
call or assessment. The outstanding shares of the Company's common stock are,
and any shares sold pursuant to this offering will be, fully paid and
nonassessable. Each share of the Company's common stock is entitled to share
ratable in any asset available for distribution to holders of its equity
securities upon liquidation of the Company.
Selected Dealers
- ----------------
The Company may issue up to 100,000 warrants to purchase 100,000 common
shares to the Selected Dealers in connection with this offering. (See
"Underwriting").
Reports to Stockholders
- -----------------------
The Company shall make available annual reports to its stockholders
containing audited financial statements reported upon by its independent
auditors. The Company intends to release unaudited quarterly or other interim
reports to its stockholders as it deems appropriate.
Transfer Agent and Registrar
- ----------------------------
United Stock Transfer, Inc., 13275 E. Fremont Place, Ste #302, Englewood,
Colorado 80112-3901 the transfer agent and registrar for the Company's no par
value common stock and its Preferred shares.
Shares Eligible for Future Sale
- -------------------------------
Upon the completion of this offering, the Company will have outstanding
4,000,000 shares of common stock. The 1,000,000 shares sold in this offering
will be registered under the Securities Act of 1933 and generally will have an
exemption under Federal law for resale of such shares, except for any shares
purchased by an "affiliate" as that term is defined in the Securities Act of
1933 (the "Act") of the Company, which will be subject to the resale limitations
of Rule 144. 300,000 shares have been registered for sale by principals of the
Company and other shareholders, which may be sold at any time.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted shares for at
42
<PAGE>
least two years, including "affiliates" (that is a person controlling,
controlled by or under common control with an issuer), is entitled to sell,
within any three-month period, a number of shares that does not exceed the
greater of 1% of the then outstanding shares of common stock or the average
weekly trading volume in the common stock during the four calendar weeks
preceding such sale, subject to the availability of certain current public
information about the Company and restrictions on the manner of sale set forth
in Rule 144. A person (or persons whose shares are aggregated) who is not deemed
an "affiliate" of the Company and who has beneficially owned (and paid for in
full) restricted shares for at least three years is entitled to sell such shares
under Rule 144 without regard to the volume limitations and other restrictions
described above.
In 1998, an aggregate of at least 160,000 shares (4% assuming the offering
is sold) of the Company's common stock will be eligible for sale in the public
market in reliance upon Rule 144.
PLAN OF DISTRIBUTION
Summary of Selected Dealer
- --------------------------
The Company will enter into Selected Dealer Agreement ("Agreement").
Pursuant to the terms of the Agreements, the Selected Dealers, as the Company's
agents, will to use best efforts to sell at $6.00 per share up to 1,000,000
shares of the Company's no par value common stock offered by the Prospectus
within a period of 90 days after the date of the definitive Prospectus, unless
extended for a maximum 90 additional days by mutual agreement of the Company and
the Selected Dealers. If the Selected Dealers are unable to sell at least
1,000,000 shares within this period (including the extension period), then the
offering will terminate and all money will be returned to the subscribers,
without interest (subscribers residing in states which require the payment of
interest will be paid interest at prevailing rates if the escrow does not close)
and without deduction for commissions and other expenses relating to the
offering. Pursuant to Rule 15c2-4 promulgated by the Securities and Exchange
Commission under the Securities and Exchange Act of 1934, all subscriptions for
the sale of the shares will be transmitted, by noon of the next business day
following receipt by the Selected Dealer or a participating dealer, to an escrow
account to be maintained at Mellon Bank, Pittsburgh, Pennsylvania. In the event
1,000,000 shares are not sold to the public within the 90-day period ( and any
extension period, if applicable) funds deposited with the escrow agent will be
returned forthwith to subscribers without deduction therefrom and without
interest. Purchasers of the shares will not receive stock certificates until
after termination of the escrow agreement. During the period of escrow,
subscribers will have no right to demand return of their subscriptions.
43
<PAGE>
The Selected Dealer may refuse or reject any offer or subscription to
purchase the shares offered hereby, at any time and for any reason, at its
discretion.
Subject to the sale of the minimum number of shares prior to the
termination of this offering, the Company has agreed to pay the Selected Dealer
a sales commission of 10% of the offering price ($.60 per share). The Company
may also agreed to pay the Selected Dealer a non-accountable expense allowance
up to 3% of the gross dollar amount of common stock it sells in the offering.
This will be paid upon the closing of the offering (the sale of 1,000,000
shares) and the release of funds by the Escrow Agent.
Subject to the sale of 1,000,000 shares, the Selected Dealers have the
right to purchase from the Company for $.001 per warrant, warrants to acquire
one (1) share for every ten (10) shares sold in the offering or up to 100,000
shares of the company's common stock. Such warrants may be considered additional
compensation to the Selected Dealer. (See "Selected Dealers Warrants" below).
The Selected Dealers offering the shares are licensed securities dealers
who are members of the National Association of Securities Dealers, Inc. The
Selected Dealers do not intend to sell any shares offered hereby to any account
over which it has discretionary authority.
The Company and the Selected Dealers have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act of
1933. The Securities and Exchange Commission has taken the position that such
indemnity provisions are unenforceable and against public policy.
The foregoing does not purport to be a complete statement of the terms and
conditions of the Selected Dealer Agreement, copies of which are on file at the
offices of the Selected Dealers, the Company and the Securities and Exchange
Commission.
Selected Dealers Warrants
- -------------------------
Subject to the sale of at least 1,000,000 shares prior to the termination
of this offering, the Company may agree to sell to the Selected Dealers, for
$.001 per warrant, warrants (the "Dealers' Warrants") to purchase one share of
the Company's common stock for each ten shares sold in the offering. The
Selected Dealers' Warrants are exercisable at 120% of the public offering price
per share for a 18-month period commencing 12 months from the effective date of
this offering. The Selected Dealers' Warrants may not be sold, transferred,
assigned or hypothecated except to officers of the Selected Dealers and
participating dealers and/or their officers or partners. The Selected Dealers'
Warrants will contain anti-dilution provisions providing for appropriate
44
<PAGE>
adjustments in the event of any recapitalization, reclassification, stock
dividends, stock split or similar transaction. In the event of a consolidation
or merger of the Company or a transfer of substantially all of the Company's
assets to another corporation, the holders of the Selected Dealers' Warrants
will be entitled to receive, upon exercise of the Selected Dealers' Warrants,
the securities or other property which they would have been entitled to receive
had they been stockholders on the date of such action. The holders of the
Selected Dealers' Warrants will have no voting, dividend or other rights as
stockholders of the Company in respect of the shares underlying the Selected
Dealers' Warrants until the Selected Dealers' Warrants are exercised.
The Company has agreed that at any time upon the written request of the
holders of at least 50% of the total number of the Selected Dealers' Warrants
and common stock issued upon exercise of the Selected Dealers' Warrants made
during the four (4) year period commencing 12 months after the effective date of
the offer, it will file one registration statement at its expense under the
Securities Act of 1933, as amended, including Selected Dealers' Warrants and
shares of common stock.
For the period during which the Selected Dealers' Warrants are exercisable,
the holders thereof will have the opportunity to profit form a rise in the
market value of the Company's common stock, with a resulting dilution in the
interests of the other stockholders of the Company if the exercise price is less
than net tangible book value. The holders of the Selected Dealers' Warrants can
be expected to exercise them at a time when the Company would, in all
likelihood, be able to obtain any needed capital from an offering of its
unissued common stock on terms more favorable to the Company than those provided
for in the Selected Dealers' Warrants. Such facts may adversely affect the terms
on which the Company can obtain additional financing. To the extent that the
Underwriter realizes any gain form the resale of the shares underlying the
Selected Dealers' Warrants, such gain may be deemed additional compensation.
Determination of Offering Price
- -------------------------------
Prior to this offering, there has been no public market for the shares of
the Company's Common Stock or the Warrants. The initial public offering price
has been determined by the Company. There is no direct relation between the
offering price and the assets, book value, shareholders' equity or net worth of
the Company.
In determining the offering price and the number of shares to be offered,
the Company considered such factors as the financial condition of the Company,
the experience of current management, operating history, general condition of
45
<PAGE>
the securities markets, and its longevity and present and future business
prospects and the common stock retained by Company Management. Accordingly, the
offering price set forth on the cover page of this Prospectus should not be
considered an indication of the actual value of the Company's assets, financial
performance, net worth or any other traditional criteria of value.
LEGAL MATTERS
The law firm of Michael A. Littman, Wheat Ridge, Colorado has acted as
counsel for the Company in connection with this Offering and has rendered an
opinion concerning the legality of the shares offered hereby.
EXPERTS
The financial statements and schedules of the Company as of December 31,
1996 and for the year then ended and for the periods from January 1, 1995 to
December 31, 1995 have been included in the Registration Statement in reliance
upon the Reports of Hinds, Lind, Miller & Co., independent auditor, and upon the
authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form S-1 under the
Securities Act of 1933 with the Securities and Exchange Commission, Washington,
DC, relating to the securities offered hereby. This Prospectus, filed as part of
the Registration Statement, does not contain certain information set forth in,
or annexed as exhibits to, the Registration Statement. For further information
with respect to the Company and the securities offered hereby, reference is made
to the Registration Statement, including the exhibits thereto, which may be
inspected without charge at the Securities and Exchange Commission, 450 Fifth
Street, N.W., Washington, DC 20549, or inspected and copied at, and obtained at
prescribed rates from, the Public Reference Section of the Securities and
Exchange Commission at its principal office at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, DC 20549. Statements contained in this
Prospectus regarding the contents of any contract or other document referred to
are not necessarily complete and in each instance reference is made to the copy
of the contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by that
reference.
46
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
- ----------------------------------------------------
Set forth below is a statement of expenses expected to be incurred by the
company in connection with the issuance and distribution of the securities to be
registered, other than underwriting discounts and commissions.
Legal Fees $20,000*
Accounting Fees $25,000*
Filing Fees $5,000*
Printing & Engraving
share certificate and Prospectus $8,500*
* Estimates Only
Item 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
- --------------------------------------------------
The only statute, charter provision, bylaw, contract or other arrangement
under which any Director or Officer of this Registrant is insured or indemnified
in any manner against any liability which he may incur in his capacity as such,
is contained in the Pennsylvania Corporation Act, which provides that Directors
and Officers of the Company may be indemnified in accordance with the laws of
the State of Pennsylvania.
INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to Directors, Officers and controlling persons of 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 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.
47
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
- ------------------------------------------------
Within the last three (3) years, no sales have been made of the
Registrant's no par value Voting Common Stock or any other security.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
- ---------------------------------------------------
Exhibit No. Item.
1.1 Form of Dealer Agreement
1.2 Form Dealers Purchase Option
3.1 Articles of Incorporation, Amendments to Articles of
Incorporation of Northwood Services, Inc.
3.2 Bylaws of Northwood Services, Inc.
3.3 Certificate of Incorporation of Northwood Services, Inc.
5.1 Opinion of Michael A. Littman dated December 1, 1997
10.3 Promissory Note between the Company and Picnic S.A.
10.4 Non-Qualified Stock and Option Award Plan
24.1 Consent of Michael A. Littman, dated December 1, 1997.
24.2 Consent of Hinds, Lind & Miller, & Co., dated November 26, 1997
24.3 Form of Escrow Agreement
FINANCIAL STATEMENT SCHEDULES
- -----------------------------
Consolidated Financial Statements
for Nine Months Ended September 30, 1997
and 1996 Pages F-1 - F-17
Audited Consolidated Financial Statements
for Years Ended December 31, 1996 and 1995 Pages F-18 - F-37
48
<PAGE>
UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement.
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement.
(ii) To include any material information with respect to the plan of
distribution to previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) To provide certificates in such denominations and registered in such
names as required by Selected Dealers to permit prompt delivery to each
purchaser.
(5) See Item 14 for Registrant's undertaking with respect to
indemnification.
49
<PAGE>
SIGNATURES
Pursuant to 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 S-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Pittsburgh, State of Pennsylvania, on December 1,
1997.
NORTHWOOD SERVICES, INC.
By: J. Harold Autenreith, Jr.
Its: Co-President
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/J. Harold Autenreith, Jr. Co-President
and Director December 1, 1997
/s/ Harold M. Weston Chairman of the Board December 1, 1997
and Director and Treasurer
/s/ Tex Weston Co-President
and Director December 1, 1997
50
<PAGE>
NORTHWOOD SERVICES, INC.
AND SUBSIDIARIES
-
CONSOLIDATED FINANCIAL STATEMENTS
and
SUPPLEMENTARY INFORMATION
-
Nine Months Ended September 30, 1997 and 1996
(Unaudited)
F-1
<PAGE>
NORTHWOOD SERVICES, INC.
AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
----
FINANCIAL STATEMENTS
Consolidated Balance Sheets F-3
Consolidated Statements of Income F-5
Consolidated Statements of Changes in Stockholders' Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8
SUPPLEMENTARY INFORMATION
Schedules of Operating Expenses F-17
F-2
<PAGE>
NORTHWOOD SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1997 and 1996
ASSETS
UNAUDITED
-------------------------
1997 1996
---------- ----------
CURRENT ASSETS
Accounts and loans receivable:
Commissions receivable - (net of allowance of
$ 254,557 and $ 198,352, respectively) $3,139,542 $2,446,344
Sales associates 126,482 99,888
Miscellaneous receivables and advances 54,709 52,661
Prepaid taxes 4,455 3,887
---------- ----------
TOTAL CURRENT ASSETS 3,325,188 2,602,780
---------- ----------
INVESTMENTS
Investment in trade-in and guaranteed sales
properties - (net of valuation reserve of
$ 5,300) 15,147 17,048
---------- ----------
FIXED ASSETS
Furniture, fixtures and equipment 3,064,633 2,758,258
Equipment under capital lease 271,734 526,336
Leasehold improvements 690,749 690,749
---------- ----------
4,027,116 3,975,343
Less: accumulated depreciation 2,829,593 2,551,672
---------- ----------
1,197,523 1,423,671
---------- ----------
OTHER ASSETS
Covenants not to compete - (net of
amortization of $ 50,000 and $ 47,917
respectively) -- 2,083
Goodwill - (net of amortization of $ 36,997 and
$ 18,832, respectively) 144,648 162,813
Listing Rights - (net of amortization of
$ 336,817 and $ 395,368, respectively) 39,683 104,632
Receivables - stockholders 209,628 209,628
Deferred tax benefit -- 210,384
Other assets 550 --
---------- ----------
394,509 689,540
---------- ----------
$4,932,367 $4,733,039
========== ==========
F-3
<TABLE>
<CAPTION>
<PAGE>
NORTHWOOD SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1997 and 1996
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
UNAUDITED
-------------------------------
1997 1996
----------- -----------
CURRENT LIABILITIES
<S> <C> <C>
Cash deficit $ 430,172 $ 297,043
Accounts payable 562,393 483,669
Accounts payable - related parties 38,989 37,989
Accrued interest 40,021 31,424
Accrued and withheld payroll taxes 1,377 2,286
Commissions payable 1,726,748 1,345,489
Accrued taxes - other 450 675
Accrued income taxes 64,118 4,944
Current portion of deferred income taxes 70,038 446,874
Loans payable - related parties 213,431 98,431
Current portion of long-term debt 405,273 200,043
Current portion of capital lease obligations 72,303 255,378
----------- -----------
TOTAL CURRENT LIABILITIES 3,625,313 3,204,245
----------- -----------
LONG-TERM DEBT
Deferred income taxes 186,263 --
Obligations under capital leases 88,373 288,416
Notes payable 1,589,378 1,706,944
----------- -----------
1,864,014 1,995,360
Less: current portion 547,614 455,421
----------- -----------
1,316,400 1,539,939
----------- -----------
4,941,713 4,744,184
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Capital stock - (no par value, 10,000,000
shares authorized, 1,024,500 shares
issued, 886,100 shares outstanding,
128,900 shares held as treasury
stock, no cost) -- 25,100
Capital stock - (no par value, 10,000,000 shares
authorized, 3,000,000 shares issued and
outstanding 24,867 --
Retained earnings (deficit) (34,213) (8,645)
----------- -----------
(9,346) 16,455
Less: Treasury stock - 9,500 shares, at cost -- (27,600)
----------- -----------
(9,346) (11,145)
----------- -----------
$ 4,932,367 $ 4,733,039
=========== ===========
See accompanying notes
F-4
</TABLE>
<PAGE>
NORTHWOOD SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended September 30, 1997 and 1996
UNAUDITED
----------------------------
1997 1996
------------ ------------
REVENUES
Net commissions earned from
real estate transactions $ 14,225,090 $ 12,907,547
Less commissions paid (7,758,132) (6,928,914)
------------ ------------
6,466,958 5,978,633
Tuition income 88,074 116,295
Consulting fees 14,853 14,519
Insurance commissions 21,390 48,070
------------ ------------
6,591,275 6,157,517
OPERATING EXPENSES 5,948,561 5,418,211
------------ ------------
INCOME FROM OPERATIONS 642,714 739,306
OTHER INCOME (EXPENSE)
Other income 62,259 30,678
Interest expense (181,122) (198,860)
------------ ------------
(118,863) (168,182)
------------ ------------
INCOME BEFORE INCOME TAXES 523,851 571,124
INCOME TAXES
Current income tax expense (benefit) 64,118 4,944
Deferred income tax expense (benefit) 139,515 216,837
------------ ------------
203,633 221,781
------------ ------------
NET INCOME $ 320,218 $ 349,343
============ ============
Earnings per common share $ .106 $ .116
============ ============
Weighted average common shares outstanding $ 3,000,000 $ 3,000,000
============ ============
See accompanying notes.
F-5
<PAGE>
NORTHWOOD SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1997 and 1996
1997 1996
---------------------------
OPERATIONS
Net income $ 320,218 $ 349,343
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 252,475 292,642
Deferred income taxes 139,515 216,837
(Increase) decrease in:
Commissions receivable (1,605,898) (1,057,854)
Sales associate receivables (39,857) 9,018
Miscellaneous receivables (2,348) 22
Prepaid taxes and other assets 131 1,172
Receivables - stockholders -- (50,000)
Increase (decrease) in:
Commissions payable 883,244 610,489
Accounts payable - general 35,488 68,751
Accounts payables - related parties (1,882) (2,337)
Accrued interest - other 6,931 4,998
Accrued and withheld payroll taxes 288 (42,948)
Accrued taxes - other (750) 75
Accrued income taxes 64,118 4,944
----------- -----------
NET CASH PROVIDED BY OPERATIONS 51,673 405,152
----------- -----------
INVESTMENT ACTIVITIES
Purchase of fixed assets (31,254) (45,871)
Sale of investment properties 2,551 2,073
----------- -----------
NET CASH PROVIDED (USED) BY INVESTMENT ACTIVITIES (28,703) (43,798)
----------- -----------
FINANCING ACTIVITIES
Loan proceeds 715,000 --
Payments on loans (865,625) (433,231)
----------- -----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (150,625) (433,231)
----------- -----------
NET INCREASE (DECREASE) IN CASH (127,655) (71,877)
CASH (DEFICIT) AT BEGINNING OF PERIOD (302,517) (225,166)
----------- -----------
CASH (DEFICIT) AT END OF PERIOD $ (430,172) $ (297,043)
=========== ===========
F-6
<PAGE>
NORTHWOOD SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1997 and 1996
1997 1996
---------- --------
SUPPLEMENTAL DISCLOSURES
Interest paid $ 172,525 $193,862
Income taxes paid -- --
Supplemental schedule of noncash investing and
financing activities:
Equipment acquisitions financed through
long-term debt $ -- $ 85,104
========== ========
Goodwill acquisitions financed through
long-term debt $ -- $111,644
========== ========
See accompanying notes.
F-7
<PAGE>
NORTHWOOD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Northwood Services, Inc. and
Subsidiaries (the "Company") and the methods of applying those policies conform
with generally accepted accounting principles. The accounting and reporting
policies and the methods of applying those policies which significantly affect
the determination of financial position, results of operations, and cash flows
are summarized below.
The consolidated balance sheets as of September 30, 1997 and 1996 and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the nine months ended September 30, 1997 and 1996 are unaudited
and have been prepared in accordance with the requirements for a presentation of
interim financial statements and are in accordance with generally accepted
accounting principles. In the opinion of management, all adjustments, consisting
of normal recurring adjustments, that are necessary for a fair presentation of
the interim periods have been reflected.
Organization and Operations - Northwood Services, Inc. was organized under the
laws of The Commonwealth of Pennsylvania on September 24, 1982 to sell real
estate in the southwestern Pennsylvania area.
Principle of Consolidation - The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries, Career Growth
Training Academy, Northwood Financial, Inc., and Northwood Realty Referral Co.,
Inc. All significant intercompany transactions and balances have been
eliminated.
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.
Revenue Recognition - The Company's real estate brokerage services principally
involve providing a ready, willing and able buyer of a property to the seller
pursuant to a standard written listing agreement. When these services have been
provided, the Company has earned a real estate commission. Additional real
estate brokerage services are not required. Accordingly, real estate commissions
are recognized as revenues when the buyer and seller of a property enter into a
contract of sale and a good faith deposit is made by the buyer. Generally, the
closing of a contract of sale is subject to the buyer obtaining financing as
well as the performance by the buyer and seller of certain contractual
requirements and, accordingly, recorded revenue is reduced by an allowance for
such contingencies. In the event of a default, the Company is entitled to its
real estate commission under the listing agreement with the seller or under the
purchase and sale agreement between the buyer and seller.
Funds Held in Escrow - The Company acts as Escrow agent in connection with the
performance of its real estate services. Accordingly, the Company held Escrow
funds totalling $ 966,506 and $ 867,030 as of September 30, 1997 and 1996,
respectively. These funds are not recorded in the Company's financial
statements.
F-8
<PAGE>
NORTHWOOD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997 and 1996
Depreciation - For assets purchased prior to January 1, 1992, depreciation is
computed using the straight-line method for financial reporting and income tax
purposes. For fixed assets purchased subsequent to December 31, 1991,
depreciation is computed using accelerated methods for income tax purposes and
the straight-line method for financial reporting purposes.
Amortization of Covenants Not to Compete - Covenants not to compete arose from
the purchases of real estate brokerages. The Company is amortizing these
covenants on the straight-line basis over the lives of the covenants.
Amortization expense for the nine months ended September 30, 1997 and 1996, was
$ -0- and $ 6,250, respectively.
Amortization of Goodwill - Goodwill represents the excess cost of real estate
brokerages acquired over the fair value of its net assets at the date of
acquisition. The Company is amortizing the goodwill on a straight-line basis
over a period of ten years. Amortization expense for the nine months ended
September 30, 1997 and 1996 was $ 13,623 and $ 10,832, respectively.
Amortization of Listing Rights - The Company purchased listing rights as part of
the acquisition cost of a real estate brokerage. The Company is amortizing these
listing rights over a period of five years based on actual sales. Due to a
reduction in the number of lots available for listing as of December 31, 1996,
the Company and Sandin- Thomas Real Estate Company, Inc. agreed to reduce the
balance of the listing rights by $ 123,500. Accordingly, the amortization of
listing rights was reduced by $ 103,505. Amortization expense for the nine
months ended September 30, 1997 and 1996, was $ 24,322 and $ 35,368,
respectively.
Income Taxes - Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes" was adopted by Northwood Services, Inc. and Subsidiaries for
the year ending December 31, 1993. Statement 109 requires the determination of
deferred income taxes using the liability method under which deferred tax assets
and liabilities are determined based on the differences between the financial
accounting and tax basis of assets and liabilities. Deferred tax assets or
liabilities at the end of each period will be determined using the current
enacted tax rate expected to apply to taxable income in the period in which the
deferred tax asset or liability is expected to be settled or realized.
Fair Values of Financial Instruments - The Company has a number of financial
instruments, none of which are held for trading purposes. The Company estimates
that the fair value of all financial instruments at September 30, 1997 and 1996,
does not differ materially from the aggregate carrying values of its financial
instruments recorded in the accompanying balance sheet.
NOTE B - UNCERTAINTIES
As shown in the accompanying financial statements, the Company has negative
working capital and a cash deficit of approximately $ 430,000. Management is in
the process of renegotiating or refinancing its various debt obligations, in
addition to pursuing other areas to generate investment capital. As described in
Note G, the Company has extended the due date of the Picnic S.A. debt until June
1999. Additionally, the Company reduced debt by $ 151,000 during the nine months
ended September 30, 1997. During 1996, management revised the Company's
commission program with agents and reduced operating expenses. During 1997, the
Company is monitoring its operating costs including occupancy expenses for
possible reductions.
F-9
<PAGE>
NORTHWOOD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997 and 1996
NOTE C - ASSETS SUBJECT TO LIEN
The accounts receivable, fixed assets and intangible assets of the Company have
been pledged as security for the repayment of various long term obligations. The
amounts of these assets subject to these pledges were $ 4,702,587 and $
4,292,092 at September 30, 1997 and 1996.
NOTE D - MISCELLANEOUS RECEIVABLES
At various times, the Company advances funds for several large customers in
order to facilitate the sale of homes. Typically these receivables are collected
at the time of closing. At September 30, 1997 and 1996, $ 52,361 was included in
miscellaneous receivables.
NOTE E - RECEIVABLES - STOCKHOLDERS
The Company advanced a stockholder $ 184,628 to purchase a 50% interest in a
local real estate broker. The Company has an option to buy the stockholder's
interest in exchange for this receivable. There are no repayment terms related
to this receivable.
The Company has also advanced a minority shareholder $ 25,000. There are no
repayment terms related to this receivable.
NOTE F - OBLIGATIONS UNDER CAPITAL LEASES
At September 30, 1997 and 1996, the Company had capital lease obligations
secured by furniture, fixtures and equipment in the amount of $ 88,373 and $
288,416. Lease terms range from 11 to 60 months, with interest rates from 11% to
18% per annum. Amortization of the leased property is included in depreciation
expense.
Schedule of future minimum lease payments is as follows:
1998 $ 83,149
1999 17,068
2000 1,412
---------
101,629
Less amount representing interest 13,256
Present value of net minimum lease payments $ 88,373
=========
F-10
<PAGE>
<TABLE>
<CAPTION>
NORTHWOOD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997 and 1996
NOTE G - NOTES PAYABLE
The Company had the following additional notes payable at September 30, 1997 and
1996:
1997 1996
----------- -----------
<S> <C> <C>
Note payable to Small Business Administration, bearing interest at 4%
per annum, payable in monthly installments of $ 1,847 including
interest, final payment due August, 2006, secured by personal
assets of stockholders. The purpose of this loan was to provide
additional capital needed for repairs
caused by flood damages. $ 165,790 $ 181,106
Note payable to Iron and Glass Bank, bearing interest at the prime
rate (8.25%), payable in monthly installments of $ 11,000
including interest, final payment due February, 2001, secured by
the Company's accounts receivable, chattel paper, documents,
instruments, general tangibles and equipment and the personal
assets of stockholders. 400,000 -
Note payable to Picnic Investments, S.A., bearing interest at 18% per
annum. Subsequent to December 31, 1996, the Company and Picnic
Investments S.A. agreed to extend the due date of the note until
June 1999. 610,000 610,000
Note payable to Sandin-Thomas Real Estate Company, secured by real
estate listing rights and listings. Commissions earned from
listings and sales of lots are applied to reduce principal. Due
to a reduction in the number of lots available for listing, the
Company and Sandin-Thomas Real Estate Company agreed to reduce
the balance of the note payable by $ 123,500. Final payment is
due June 30, 1998. 154,778 404,797
Note payable to former employee, bearing interest at 15%, no defined
repayment terms, unsecured. - 5,000
Note payable to Community Savings Bank, bearing interest at 11% per
annum, payable in monthly installments of $ 6,195 including
interest, final payment due December 2000; secured by
fixed assets of Northwood. 139,968 199,980
F-11
<PAGE>
NORTHWOOD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997 and 1996
Note payable to Iron and Glass Bank, bearing interest at 9.25% per
annum, payable in monthly installments of $ 11,000 including
interest, final
payment due November 1997. 17,211 143,473
Note payable to Harshaw Real Estate, Inc., for the acquisition of this
agency, bearing interest at 9% per annum, payable in monthly
installments of $ 3,889 including
interest, final payment due April 1999. 68,578 107,213
Note payable to McBurney & Co., Inc. for the acquisition of this
agency, bearing interest at 9% per annum, payable in monthly
installments of $ 2,200 including interest, final payment due
January 1999. 38,053 55,375
----------- -----------
1,589,378 1,706,944
Less: current portion 405,273 200,043
----------- -----------
$ 1,184,105 $ 1,506,901
=========== ===========
Schedule of estimated maturities is as follows:
1998 $ 405,273
1999 840,741
2000 162,561
2001 82,147
2002 18,556
Thereafter 80,100
----------
$1,589,378
==========
NOTE H - LOANS PAYABLE - RELATED PARTIES
1997 1996
----------- --------
Note payable to related party consists of
advances. Amounts are unsecured with
no set terms for repayment. The note
bears interest at 9% per annum. $ 213,431 $ 123,431
=========== ===========
NOTE I - LEASES
The Company leases space for 38 real estate offices under leases expiring at
various times, some of which have renewal options. Net rental expenses at
September 30, 1997 and 1996, amounted to $ 1,004,009 and $ 909,598,
respectively. Seven of the offices are owned by a stockholder. One of the
offices is owned by a minority stockholder.
F-12
</TABLE>
<PAGE>
NORTHWOOD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997 and 1996
The following is a schedule of future minimum rental payments required under the
above operating leases:
1997 (3 months) $ 302,768
1998 612,123
1999 338,501
2000 157,561
2001 and thereafter 136,213
-----------
$ 1,547,166
===========
NOTE J - INCOME TAXES
Income tax expense (benefit) is summarized as follows:
September 30,
------------------------------
1997 1996
---------- ----------
Federal:
Current tax (benefit) $ - $ -
Deferred 151,500 164,756
========== ==========
State:
Current $ 64,118 $ 4,944
Deferred (11,985) 52,081
========== ==========
Totals:
Current $ 64,118 $ 4,944
Deferred 139,515 216,837
---------- ----------
$ 203,633 $ 221,781
========== ==========
Effective tax rate 38.87% 38.83%
========== ==========
The differences between actual income tax expense (benefit) and the amount
computed by applying the federal statutory income tax rate of 34% to income
before taxes are reconciled as follows:
1997 1996
------------------------------
Computed income tax expense $ 178,109 $ 194,182
(benefit)
Increase (decrease) resulting in:
State income tax, net of federal benefit 34,302 37,390
Surtax and other differences (8,778) (9,791)
---------- ----------
Actual income tax expense $ 203,633 $ 221,781
(benefit) ========== ==========
F-13
<PAGE>
NORTHWOOD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997 and 1996
The components of net deferred tax assets and liabilities are as follows:
September 30,
--------------------------
1997 1996
----------- -----------
Deferred tax assets:
Intangible assets $ 107,339 $ 126,812
Federal net operating loss carryforward 20,231 202,929
State net operating loss carryforward 2,738 2,746
Book to tax basis of accounting adjustment -- 626,698
----------- -----------
130,308 959,185
----------- -----------
Deferred tax liabilities:
Fixed assets (103,720) (119,357)
Section 481(a) adjustment (210,113) --
Book to tax basis of accounting adjustment -- (1,073,572)
----------- -----------
(313,833) (1,192,929)
----------- -----------
(183,523) (233,744)
Valuation allowance - State Net Operating Loss (2,738) (2,746)
----------- -----------
Net deferred asset (liability) $ (186,263) $ (236,490)
=========== ===========
At September 30, 1997 and 1996, the Company has Federal net operating loss
carryforwards of $ 750,000 and $ 767,000 available to offset future taxable
income through the years 1999 to 2011. The Company expects to utilize the
carryforwards before expiration.
Changes were made to the Pennsylvania tax law in June 1994. The law now permits
the use of prior year net operating losses to offset future taxable income. The
Company has net operating loss carryforwards totaling approximately $ 130,000
and $ 153,000 at September 30, 1997 and 1996. These carryovers expire between
1996 and 1997. The Company expects to utilize the carryforwards before
expiration. Deferred tax benefits relating to Pennsylvania net operating loss
carryforwards of $ 10,200 and $ 12,500 have been recognized for financial
statement purposes at September 30, 1997 and 1996.
The Company has changed its basis of accounting for tax purposes to the same
basis of accounting for its financial reporting purposes as of January 1, 1997.
NOTE K - CAPITAL STOCK TRANSACTIONS
On September 30, 1997, the Company approved a forward stock split of 3.3856
shares per one share of issued and outstanding shares, resulting in 10,000,000
shares authorized and 3,000,000 shares outstanding.
On September 30, 1997, the Company retired all 138,400 shares of capital stock
previously held in treasury. The stated value of these shares of $ 233 was
charged to capital stock and the balance of the cost of these shares of $ 27,367
was charged to retained earnings.
F-14
<PAGE>
NORTHWOOD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997 and 1996
NOTE L - CONSULTING FEES - RELATED PARTY
The Company received consulting fee income from a corporation that is controlled
by a stockholder. During the nine months ended September 30, 1997 and 1996,
consulting fees were $ 37,950 and $ 51,875. There are no formal agreements
between the companies for Northwood to continue providing consulting services.
NOTE M - CONCENTRATION OF CREDIT RISK
At times, the Company may maintain more than $ 100,000 in cash at a financial
institution. Account balances are insured by the Federal Deposit Insurance
Corporation up to $ 100,000.
NOTE N - CONTINGENCIES
In the ordinary course of business, the Company is involved in various lawsuits
related to real estate sales contracts, employment issues and real estate
ownership. The Company's legal counsels believe that unfavorable outcomes, if
any, will not have a material adverse effect on the Company.
F-15
<PAGE>
SUPPLEMENTARY INFORMATION
F-16
<PAGE>
NORTHWOOD SERVICES, INC.
AND SUBSIDIARIES
SCHEDULE OF OPERATING EXPENSES
Nine Months Ended September 30, 1997 and 1996
1997 1996
----------- -----------
OPERATING EXPENSES
Salaries, bonuses and management fees $ 1,950,278 $ 1,696,279
Rent 946,579 926,990
Utilities 144,171 141,779
Office maintenance and janitorial services 144,287 131,353
Telephone and telephone answering service 376,253 342,879
Advertising and public relations 1,019,750 841,715
Insurance 30,710 31,020
Employee benefits 35,550 33,704
Legal and legal claims 87,247 45,311
Accounting 28,539 41,542
Payroll tax expense 185,253 150,209
Other taxes 8,429 8,035
Automobile expenses 9,950 5,741
Dues, subscriptions and licenses 47,752 30,104
Supplies and printing 237,699 242,390
Postage and courier service 124,652 93,293
Equipment maintenance 10,843 27,831
Miscellaneous office and operating expenses 60,438 42,702
General sales expense 317,475 319,544
Multi-list expenses 17,390 51,052
Bad debt expenses 2,481 8,080
Training 5,638 --
PA capital stock taxes 867 450
Depreciation 191,773 219,936
Amortization of covenants not to compete -- 6,250
Amortization of listings and rights 24,322 35,368
Amortization of goodwill 13,624 10,832
Amortization of leasehold improvements 22,756 20,256
Errors and omissions funding (96,145) (86,434)
----------- -----------
$ 5,948,561 $ 5,418,211
=========== ===========
See accountant's report.
F-17
<PAGE>
NORTHWOOD SERVICES, INC.
AND SUBSIDIARIES
-
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
and
SUPPLEMENTARY INFORMATION
-
Years Ended December 31, 1996 and 1995
F-18
<PAGE>
TABLE OF CONTENTS
PAGE
----
INDEPENDENT AUDITOR'S REPORT F-20
FINANCIAL STATEMENTS
Consolidated Balance Sheets F-21
Consolidated Statements of Income (Loss) F-23
Consolidated Statements of Retained Earnings (Deficit) F-24
Consolidated Statements of Cash Flows F-25
Notes to Consolidated Financial Statements F-27
SUPPLEMENTARY INFORMATION
Schedules of Operating Expenses F-37
F-19
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders
Northwood Services, Inc.
We have audited the accompanying consolidated balance sheets of Northwood
Services, Inc. (the "Company" or "Northwood") as of December 31, 1996 and 1995,
and the related consolidated statements of income (loss), retained earnings
(deficit) and cash flows for the years then ended. These consolidated financial
statements are the responsibility of Northwood's management. Our responsibility
is to express an opinion on these consolidated financial statements based on our
audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Northwood Services,
Inc. as of December 31, 1996 and 1995, and the results of operations and cash
flows for the year then ended in conformity with generally accepted accounting
principles.
As more fully described in Note Q, subsequent to the issuance of the Company's
December 31, 1996 and 1995 financial statements and our report thereon dated May
22, 1997, we became aware that those financial statements did not reflect
completely the Company's income tax provision.
Pittsburgh, Pennsylvania
May 22, 1997, except as to the last paragraph above and Notes K, L and Q which
are as of October 23, 1997
F-20
<PAGE>
NORTHWOOD SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
ASSETS
1996 1995
---------- ----------
CURRENT ASSETS
Accounts and loans receivable:
Commissions receivable - (net of allowance
of $ 185,551 and $ 104,510, respectively) $1,533,644 $1,388,490
Sales associates 86,625 108,906
Miscellaneous receivables or advances 52,361 52,683
Prepaid taxes 4,755 4,680
---------- ----------
TOTAL CURRENT ASSETS 1,677,385 1,554,759
---------- ----------
INVESTMENTS
Investment in trade-in and guaranteed sales
properties - (net of valuation reserve of
$ 5,300) 17,698 19,121
---------- ----------
FIXED ASSETS
Furniture, fixtures and equipment 2,822,652 2,583,779
Equipment under capital lease 482,461 619,840
Leasehold improvements 690,749 640,749
---------- ----------
3,995,862 3,844,368
Less: accumulated depreciation 2,615,064 2,311,481
---------- ----------
1,380,798 1,532,887
---------- ----------
OTHER ASSETS
Covenants not to compete - (net of
amortization of $ 50,000 and $ 41,667
respectively) -- 8,333
Goodwill - (net of amortization of
$ 23,373 and $ 8,000, respectively) 158,272 62,000
Listing Rights - (net of amortization of
$ 312,495 and $ 360,000, respectively) 64,005 140,000
Receivable - stockholders 209,628 159,628
Deferred tax benefit 144,152 202,745
Other assets 381 381
---------- ----------
576,438 573,087
---------- ----------
$3,652,319 $3,679,854
========== ==========
F-21
<PAGE>
NORTHWOOD SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
1996 1995
---------------------------
CURRENT LIABILITIES
Cash deficit $ 302,517 $ 225,166
Accounts payable 526,905 414,918
Accounts payable - related parties 40,871 40,326
Accrued interest 33,090 26,426
Accrued and withheld payroll taxes 1,089 45,234
Commissions payable 843,504 735,000
Accrued taxes 1,200 600
Deferred income taxes 190,900 222,398
Line of credit 225,000 75,000
Loans payable - related parties 98,431 123,431
Current portion of long-term debt 249,971 798,129
Current portion of capital lease obligations 160,859 201,131
----------- -----------
TOTAL CURRENT LIABILITIES 2,674,337 2,907,759
----------- -----------
LONG-TERM DEBT
Obligations under capital leases 224,607 433,760
Notes payable 1,493,769 1,698,083
----------- -----------
1,718,376 2,131,843
Less: current portion 410,830 999,260
----------- -----------
1,307,546 1,132,583
----------- -----------
3,981,883 4,040,342
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Capital stock - (no par value, 10,000,000
shares authorized, 1,024,500 shares
issued, 886,100 shares outstanding,
128,900 shares held as treasury stock,
no cost) 25,100 25,100
Retained earnings (deficit) (327,064) (357,988)
----------- -----------
(301,964) (332,888)
Less: Treasury stock - 9,500 shares, at cost (27,600) (27,600)
----------- -----------
(329,564) (360,488)
----------- -----------
$ 3,652,319 $ 3,679,854
=========== ===========
See accompanying notes and accountant's report.
F-22
<PAGE>
<TABLE>
<CAPTION>
NORTHWOOD SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Years Ended December 31, 1996 and 1995
1996 1995
-----------------------------
REVENUES
<S> <C> <C>
Net commissions earned from
real estate transactions $ 15,735,755 $ 13,861,509
Less commissions paid (8,433,981) (7,361,537)
------------ ------------
7,301,774 6,499,972
Tuition income 137,965 120,871
Consulting fees 109,775 94,158
Insurance commissions 24,961 22,804
------------ ------------
7,574,475 6,737,805
OPERATING EXPENSES 7,486,539 6,753,364
------------ ------------
INCOME (LOSS) FROM OPERATIONS 87,936 (15,559)
OTHER INCOME (EXPENSE)
Rental income 20,000 20,000
Other income 79,217 30,143
Interest expense (232,639) (290,604)
Loss on investments -- (30,000)
Reduction in listing rights amortization 103,505 --
------------ ------------
(29,917) (270,461)
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 58,019 (286,020)
INCOME TAXES
Deferred income tax expense (benefit) 27,095 (84,606)
------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 30,924 (201,414)
Extraordinary item - forgiveness of lease rents
net of applicable taxes of $ -0- -- 28,470
------------ ------------
NET INCOME (LOSS) $ 30,924 $ (172,944)
============ ============
Earnings per common share $ .03 $ (.20)
============ ============
Weighted average common shares outstanding 886,100 886,100
============ ============
See accompanying notes and accountant's report.
F-23
</TABLE>
<PAGE>
NORTHWOOD SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT)
Years Ended December 31, 1996 and 1995
1996 1995
-------------------------
RETAINED EARNINGS (DEFICIT) AT BEGINNING
OF YEAR AS PREVIOUSLY REPORTED $(357,988) $ 113,867
Add (deduct): prior period adjustments -- (298,911)
--------- ---------
Balance at beginning of year, as restated (357,988) (185,044)
Net income (loss) 30,924 (172,944)
--------- ---------
RETAINED EARNINGS (DEFICIT) AT END OF YEAR $(327,064) $(357,988)
========= =========
See accompanying notes and accountant's report.
F-24
<PAGE>
NORTHWOOD SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996 and 1995
1996 1995
-----------------------
OPERATIONS
Net income (loss) $ 30,924 $(172,944)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Loss on investments -- 30,000
Depreciation and amortization 383,289 523,761
Deferred income taxes 27,095 (84,606)
Reductions in listing rights - amortization (103,505) --
(Increase) decrease in:
Commissions receivable (145,154) 4,510
Sales associate receivables 22,281 (58,237)
Miscellaneous receivables 322 19,233
Prepaid taxes (75) 3,602
Prepaid advertising -- 12,383
Increase (decrease) in:
Commissions payable 108,504 (3,000)
Accounts payable - general 111,987 (6,516)
Accrued taxes 600 600
Accrued interest - other 6,664 11,583
Accrued and withheld payroll taxes (44,145) 43,951
Accounts payables - related parties 545 19,447
--------- ---------
NET CASH PROVIDED BY OPERATIONS 399,332 343,767
--------- ---------
INVESTMENT ACTIVITIES
Purchase of fixed assets (66,390) (62,502)
Sale of investment properties 1,423 (10,079)
Payments made for goodwill -- (30,000)
--------- ---------
NET CASH PROVIDED (USED) BY INVESTMENT ACTIVITIES (64,967) (102,581)
--------- ---------
FINANCING ACTIVITIES
Advances to shareholder (50,000) (29,628)
Loan proceeds 225,000 681,970
Payments on loans (586,716) (636,934)
--------- ---------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (411,716) 15,408
--------- ---------
NET INCREASE (DECREASE) IN CASH (77,351) 256,594
CASH (DEFICIT) AT BEGINNING OF YEAR (225,116) (481,760)
--------- ---------
CASH (DEFICIT) AT END OF YEAR $(302,517) $(225,166)
========= =========
F-25
<PAGE>
NORTHWOOD SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996 and 1995
1996 1995
-------- --------
SUPPLEMENTAL DISCLOSURES
Interest paid $225,975 $290,604
Income taxes paid -- 2,733
Supplemental schedule of noncash investing and
financing activities:
Equipment acquisitions financed through
long-term debt $ 85,104 $ 58,972
======== ========
Goodwill acquisitions financed through
long-term debt $111,644 $ --
======== ========
Reduction of listing rights and note payable -
Sandin Thomas agreement modifications $123,500 $ --
======== ========
Reduction of listing rights - amortization $103,505 $ --
======== ========
See accompanying notes and accountant's report.
F-26
<PAGE>
NORTHWOOD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Northwood Services, Inc. and
Subsidiaries (the "Company") and the methods of applying those policies conform
with generally accepted accounting principles. The accounting and reporting
policies and the methods of applying those policies which significantly affect
the determination of financial position, results of operations, and cash flows
are summarized below.
Organization and Operations - Northwood Services, Inc. was organized under the
laws of The Commonwealth of Pennsylvania on September 24, 1982 to sell real
estate in the southwestern Pennsylvania area.
Principle of Consolidation - The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries, Career Growth
Training Academy, Northwood Financial, Inc., and Northwood Realty Referral Co.,
Inc. All significant intercompany transactions and balances have been
eliminated.
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.
Revenue Recognition - The Company's real estate brokerage services principally
involve providing a ready, willing and able buyer of a property to the seller
pursuant to a standard written listing agreement. When these services have been
provided, the Company has earned a real estate commission. Additional real
estate brokerage services are not required. Accordingly, real estate commissions
are recognized as revenues when the buyer and seller of a property enter into a
contract of sale and a good faith deposit is made by the buyer. Generally, the
closing of a contract of sale is subject to the buyer obtaining financing as
well as the performance by the buyer and seller of certain contractual
requirements and, accordingly, recorded revenue is reduced by an allowance for
such contingencies. In the event of a default, the Company is entitled to its
real estate commission under the listing agreement with the seller or under the
purchase and sale agreement between the buyer and seller.
Funds Held in Escrow - The Company acts as Escrow agent in connection with the
performance of its real estate services. Accordingly, the Company held Escrow
funds totalling $ 727,526 and $ 769,130 as of December 31, 1996 and 1995,
respectively. These funds are not recorded in the Company's financial
statements.
Depreciation - For assets purchased prior to January 1, 1992, depreciation is
computed using the straight-line method for financial reporting and income tax
purposes. For fixed assets purchased subsequent to December 31, 1991,
depreciation is computed using accelerated methods for income tax purposes and
the straight-line method for financial reporting purposes.
Amortization of Covenants Not to Compete - Covenants not to compete arose from
the purchases of real estate brokerages. The Company is amortizing these
covenants on the straight-line basis over the lives of the covenants.
Amortization expense for the year ended December 31, 1996 and 1995, was $ 8,333
and $ 16,666, respectively.
F-27
<PAGE>
NORTHWOOD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
Amortization of Goodwill - Goodwill represents the excess cost of real estate
brokerages acquired over the fair value of its net assets at the date of
acquisition. The Company is amortizing the goodwill on a straight-line basis
over a period of ten years. Amortization expense for the year ended December 31,
1996 and 1995 was $ 15,373 and $ 2,000, respectively.
Amortization of Listing Rights - The Company purchased listing rights as part of
the acquisition cost of a real estate brokerage. The Company is amortizing these
listing rights over a period of five years based on actual sales. Due to a
reduction in the number of lots available for listing, the Company and Sandin-
Thomas Real Estate Company, Inc. agreed to reduce the balance of the listing
rights by $ 123,500. Accordingly, the amortization of listing rights has been
reduced by $ 103,505. This reduction is shown as other income on the
consolidated statement of income (loss). Amortization expense for the year ended
December 31, 1996 and 1995, was $ 56,000 and $ 170,000, respectively.
Income Taxes - Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes" was adopted by Northwood Services, Inc. and Subsidiaries for
the year ending December 31, 1993. Statement 109 requires the determination of
deferred income taxes using the liability method under which deferred tax assets
and liabilities are determined based on the differences between the financial
accounting and tax basis of assets and liabilities. Deferred tax assets or
liabilities at the end of each period will be determined using the current
enacted tax rate expected to apply to taxable income in the period in which the
deferred tax asset or liability is expected to be settled or realized.
Fair Values of Financial Instruments - The Company has a number of financial
instruments, none of which are held for trading purposes. The Company estimates
that the fair value of all financial instruments at December 31, 1996 and 1995,
does not differ materially from the aggregate carrying values of its financial
instruments recorded in the accompanying balance sheet.
NOTE B - UNCERTAINTIES
As shown in the accompanying financial statements, the Company has incurred
losses over the past several years and has negative working capital and a
stockholders' deficiency. Management is in the process of renegotiating or
refinancing its various debt obligations, in addition to pursuing other areas to
generate investment capital. As described in Note G, the Company has extended
the due date of the Picnic S.A. debt until June 1999. Also as described in Note
O, the Company has obtained additional capital subsequent to December 31, 1996.
During 1996, management revised the Company's commission program with agents and
reduced operating expenses including advertising. During 1997, the Company is
monitoring its operating costs including occupancy expenses for possible
reductions.
NOTE C - ASSETS SUBJECT TO LIEN
The accounts receivable, fixed assets and intangible assets of the Company have
been pledged as security for the repayment of various long term obligations. The
amounts of these assets subject to these pledges were $ 3,275,705 and $
3,293,299 at December 31, 1996 and 1995.
F-28
<PAGE>
NORTHWOOD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE D - MISCELLANEOUS RECEIVABLES
At various times, the Company advances funds for several large customers in
order to facilitate the sale of homes. Typically these receivables are collected
at the time of closing. At December 31, 1996 and 1995, $ 52,361 and $ 52,683 was
included in miscellaneous receivables, respectively.
NOTE E - RECEIVABLES - STOCKHOLDERS
The Company advanced a stockholder $ 184,628 to purchase a 50% interest in a
local real estate broker. The Company has an option to buy the stockholder's
interest in exchange for this receivable. There are no repayment terms related
to this receivable.
The Company has also advanced a minority shareholder $ 25,000. There are no
repayment terms related to this receivable.
NOTE F - LINE OF CREDIT
The Company has been granted a $ 450,000 line of credit with Iron and Glass Bank
which expired April 1997. The terms of the loan require interest to be paid
monthly at the bank's announced prime rate (8.25%), with principal due on
demand. The Company is required to maintain the balance at $ -0- for at least 30
days during the year. The loan is secured by all of the Company's accounts
receivable, chattel paper, documents, instruments, general tangibles, and
equipment. In addition, the principal stockholder and his spouse have personally
guaranteed any borrowings against the bank line of credit. The principal balance
outstanding at December 31, 1996 and 1995 was $ 225,000 and $ 75,000,
respectively.
Subsequent to April of 1997, the Company re-established the line of credit with
Iron and Glass Bank in the amount of $ 450,000
NOTE G - OBLIGATIONS UNDER CAPITAL LEASES
At December 31, 1996 and 1995, the Company had capital lease obligations secured
by furniture, fixtures and equipment in the amount of $ 224,607 and $ 433,760.
Lease terms range from 11 to 60 months, with interest rates from 11% to 18% per
annum. Amortization of the leased property is included in depreciation expense.
Schedule of future minimum lease payments is as follows:
1997 $ 184,988
1998 54,937
1999 18,374
---------
258,299
Less amount representing interest 33,692
---------
Present value of net minimum lease payments $ 224,607
=========
F-29
<PAGE>
<TABLE>
<CAPTION>
NORTHWOOD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE H - NOTES PAYABLE
The Company had the following additional notes payable at December 31, 1996 and
1995:
1996 1995
----------- -----------
<S> <C> <C>
Note payable to Small Business Administration, bearing interest at 4%
per annum, payable in monthly installments of $ 1,847 including
interest, final payment due August, 2006, secured by personal
assets of stockholders. The purpose of this loan was to provide
additional capital needed for repairs
caused by flood damages. $ 177,368 $ 192,104
Note payable to Picnic Investments, S.A., a related party bearing
interest at 18% per annum. Subsequent to December 31, 1996, the
Company and Picnic Investments S.A. agreed to extend the due date
of the note until June 1999. 610,000 610,000
Note payable to Sandin-Thomas Real Estate Company, secured by real
estate listing rights and listings. Commissions earned from
listings and sales of lots are applied to reduce principal. Due
to a reduction in the number of lots available for listing, the
Company and Sandin-Thomas Real Estate Company agreed to reduce
the balance of the note payable by $ 123,500. Final payment is
due June 30, 1998. 257,013 417,981
Note payable to former employee, bearing interest at 15%, no defined
repayment terms, unsecured. 5,000 5,000
Note payable to Community Savings Bank, bearing interest at 11% per
annum, payable in monthly installments of $ 6,195 including
interest, final payment due December 2000; secured by
fixed assets of Northwood. 184,977 244,989
Note payable to Iron and Glass Bank, bearing interest at 9.25% per
annum, payable in monthly installments of $ 11,000 including
interest, final
payment due November 1997. 111,541 228,009
Note payable to Harshaw Real Estate, Inc., for the acquisition of this
agency, bearing interest at 9% per annum, payable in monthly
installments of $ 3,889 including
interest, final payment due April 1999. 97,889 -
F-30
<PAGE>
NORTHWOOD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
Note payable to McBurney & Co., Inc. for the acquisition of this
agency, bearing interest at 9% per annum, payable in monthly
installments of $ 2,200 including interest, final payment due
January 1999. 49,981 -
----------- -----------
1,493,769 1,698,083
Less: current portion 249,971 798,129
----------- -----------
$ 1,243,798 $ 899,954
=========== ===========
Schedule of estimated maturities is as follows:
1997 $ 249,971
1998 403,368
1999 711,012
2000 17,303
2001 18,008
Thereafter 94,107
-----------
$ 1,493,769
===========
NOTE I - LOANS PAYABLE - RELATED PARTIES
1996 1995
----------- -----------
Notes payable to stockholder consists of
advances. Amounts are unsecured with no
set terms for repayment. Interest at 9%
per annum has been waived by the stockholder
through December 31, 1995. $ - $ 25,000
Note payable to related party consists of
advances. Amounts are unsecured with
no set terms for repayment. The note
bears interest at 9% per annum. 98,431 98,431
----------- -----------
$ 98,431 $ 123,431
=========== ===========
NOTE J - LEASES
The Company leases space for 38 real estate offices under leases expiring at
various times, some of which have renewal options. Net rental expenses at
December 31, 1996 and 1995, amounted to $ 1,230,107 and $ 1,045,993,
respectively. Seven of the offices are owned by a stockholder. One of the
offices is owned by a minority stockholder. During 1995, $ 28,470 of rent
expense was forgiven by the stockholders.
F-31
</TABLE>
<PAGE>
NORTHWOOD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
The following is a schedule of future minimum rental payments required under the
above operating leases:
1997 $ 1,211,072
1998 612,123
1999 338,501
2000 157,561
2001 and thereafter 136,213
-----------
$ 2,455,470
===========
NOTE K - INCOME TAXES
Income tax expense (benefit) is summarized as follows:
December 31,
------------------------------
1996 1995
---------- ----------
Federal:
Current tax (benefit) $ - $ -
Deferred tax (benefit) 20,350 (44,630)
========== ==========
State:
Current $ - $ -
Deferred 6,745 (39,976)
========== ==========
Totals:
Current $ - $ -
Deferred 27,095 (84,606)
========== ==========
Effective tax rate 46.7% 29.6%
========== ==========
The differences between actual income tax expense (benefit) and the amount
computed by applying the federal statutory income tax rate of 34% to income
before taxes are reconciled as follows:
1996 1995
------------------------------
Computed income tax expense $ 19,726 $ (97,246)
(benefit)
Increase (decrease) resulting in:
State tax, net of federal benefit 3,825 -
Surtax and other differences 3,544 12,640
------------------------------
Actual income tax expense $ 27,095 $ (84,606)
(benefit) ==============================
F-32
<PAGE>
NORTHWOOD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
The components of net deferred tax assets and liabilities are as follows:
December 31,
-----------------------
1996 1995
--------- ---------
Deferred tax assets:
Intangible assets $ 69,073 $ 96,945
Federal net operating loss carryforward 147,159 204,781
State net operating loss carryforward 12,930 15,263
Book to tax basis of accounting adjustment 284,647 285,705
--------- ---------
513,809 602,694
--------- ---------
Deferred tax liabilities:
Fixed assets (82,272) (111,498)
Book to tax basis of accounting adjustment (475,547) (508,103)
--------- ---------
(557,819) (619,601)
--------- ---------
(44,010) 16,907
Valuation allowance - State Net Operating Loss (2,738) (2,746)
--------- ---------
Net deferred asset (liability) $ (46,748) $ (19,653)
========= =========
At December 31, 1996 and 1995, the Company has Federal net operating loss
carryforwards of $ 750,000 and $ 767,000 available to offset future taxable
income through 2010. The Company expects to utilize the carryforwards before
expirations.
Changes were made to the Pennsylvania tax law in June 1994. The law now permits
the use of prior year net operating losses to offset future taxable income. The
Company has net operating loss carryforwards totaling approximately $ 130,000
and $ 153,000 at December 31, 1996 and 1995. These carryovers expire between
1996 and 1997. The Company expects to utilize the carryforwards before
expiration. Deferred tax benefits relating to Pennsylvania net operating loss
carryforwards of $ 10,200 and $ 12,500 have been recognized for financial
statement purposes at December 31, 1996 and 1995.
F-33
<PAGE>
NORTHWOOD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE L - PRIOR PERIOD ADJUSTMENTS
The December 31, 1994 financial statements were not audited or reviewed by an
independent accountant. As a result of an examination of the balance sheet
amounts at January 1, 1996 and 1995, it was determined that retained earnings
needed to be restated at December 31, 1994 to correct errors in the balance
sheet. Therefore, the following adjustments were made to the beginning balance
of retained earnings at January 1, 1996 and 1995:
1996 1995
----------------------
Adjust accumulated depreciation for
incorrect depreciable lives of
leasehold improvements and furniture
and fixtures, net of taxes of
$ 67,765 $ -- $ 100,254
Adjust commission receivable to
actual at December 31, 1994, net of
tax benefit of $ 135,068 -- (199,823)
Adjust accumulated amortization for
an incorrect life on listings
and rights, net of taxes of $ 48,398 -- (71,602)
To write off uncollectible receivables,
net of taxes of $ 62,499 -- (92,464)
Adjust deferred taxes to actual at
December 31, 1994 -- (35,276)
------ ---------
Net decrease in retained earnings at
December 31, 1995 and 1994 $ -- $(298,911)
====== =========
NOTE M - CONSULTING FEES - RELATED PARTY
The Company received consulting fee income from a corporation that is controlled
by a stockholder. During the year ended December 31, 1996 and 1995, consulting
fees were $ 93,000 and $ 165,000. There are no formal agreements between the
companies for Northwood to continue providing consulting services.
NOTE N - CONCENTRATION OF CREDIT RISK
At times, the Company may maintain more than $ 100,000 in cash at a financial
institution. Account balances are insured by the Federal Deposit Insurance
Corporation up to $ 100,000.
F-34
<PAGE>
NORTHWOOD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE O - CONTINGENCIES
In the ordinary course of business, the Company is involved in various lawsuits
related to real estate sales contracts, employment issues and real estate
ownership. The Company's legal counsels believe that unfavorable outcomes, if
any, will not have a material adverse effect on the Company.
NOTE P - SUBSEQUENT EVENTS
During the 1997 fiscal year, the Company was able to obtain a loan of $ 200,000
from First Federal Savings Bank. The terms of the note require interest to be
paid at a rate of prime plus 1% (9.5%). The principal balance was due on or
before June 30, 1997. The principal stockholder personally guaranteed the
repayment of this debt.
The Company has obtained additional capital of $ 90,000 from a related party.
There are no repayment terms.
NOTE Q - PREVIOUSLY ISSUED FINANCIAL STATEMENTS
Subsequent to the issuance of the Company's December 31, 1996 and 1995 financial
statements, management became aware that the Company's income tax provision was
misstated. This misstatement was due to the nonrecognition of the tax effects
relating to differences between the book and tax basis of intangible assets.
The effect on net income of adjustments to the previously issued financial
statements for the years ending December 31, 1996 and 1995 is as follows:
1996 1995
--------- ---------
Net income (loss) as previously reported $ 42,186 $(279,858)
Adjustments
Income tax benefit 11,262 106,914
--------- ---------
Net income (loss) as restated $ 30,924 $(172,944)
========= =========
F-35
<PAGE>
SUPPLEMENTARY INFORMATION
F-36
<PAGE>
NORTHWOOD SERVICES, INC.
AND SUBSIDIARIES
SCHEDULE OF OPERATING EXPENSES
Year Ended December 31, 1996 and 1995
1996 1995
----------- -----------
OPERATING EXPENSES
Salaries, bonuses and management fees $ 2,260,462 $ 2,158,257
Rent 1,253,313 1,074,463
Utilities 184,918 172,463
Office maintenance and janitorial services 172,537 166,683
Telephone and telephone answering service 465,483 442,030
Advertising and public relations 1,159,397 953,019
Insurance 41,726 35,816
Employee benefits 54,229 59,829
Legal and legal claims 78,990 76,939
Accounting 71,568 33,478
Payroll tax expense 195,600 218,018
Other taxes 8,886 30,482
Automobile expenses 9,808 6,251
Dues, subscriptions and licenses 36,377 19,885
Supplies and printing 316,183 262,831
Postage and courier service 147,728 126,966
Equipment maintenance 32,019 10,288
Miscellaneous office and operating expenses 65,806 61,929
General sales expense 526,806 371,450
Multi-list expenses 94,260 64,847
Bad debt expenses 18,191 --
PA capital stock taxes 557 2,733
Depreciation 275,742 315,599
Amortization of covenants not to compete 8,333 16,666
Amortization of listings and rights 56,000 170,000
Amortization of goodwill 15,373 2,000
Amortization of leasehold improvements 27,841 20,341
Errors and omissions funding (91,594) (119,899)
----------- -----------
$ 7,486,539 $ 6,753,364
=========== ===========
See accountant's report.
F-37
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
---------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------------
NORTHWOOD SERVICES, INC.
(Exact name of Registrant as specified in charter)
-------------------------------
EXHIBITS
51
<PAGE>
EXHIBIT INDEX
Exhibit No. Item.
1.1 Form of Dealer Agreement
1.2 Form Dealers Purchase Option
3.1 Articles of Incorporation, Amendments to Articles of
Incorporation of Northwood Services, Inc.
3.2 Bylaws of Northwood Services, Inc.
3.3 Certificate of Incorporation of Northwood Services, Inc.
5.1 Opinion of Michael A. Littman dated December 1, 1997
10.3 Promissory Note between the Company and Picnic S.A.
10.4 Non-Qualified Stock and Option Award Plan
24.1 Consent of Michael A. Littman, dated December 1, 1997.
24.2 Consent of Hinds, Lind & Miller, & Co., dated November 26, 1997
24.3 Form of Escrow Agreement
52
EXHIBIT 1.1
53
<PAGE>
SELECTED
DEALER AGREEMENT
_________________________, 1998
Gentlemen:
Northwood Services, Inc., a Pennsylvania corporation (the "Company") hereby
confirms our agreement with you as follows:
1. Description of the Offering. The Company contemplates offering to the
public 1,000,000 shares of its no par value Common Stock (the "Stock") at an
offering price of $6.00 per share.
2. Representations and Warranties of the Company. The Company represents
and warrants to you that:
(a) On or about _________________________, the Company filed with the
Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act"), a registration
statement on Form S-1, (SEC File No. 33 _________D) including a
preliminary Prospectus, a copy of which is furnished to you herewith,
relating to the offering, and may file with the commission on or
before the effective date of the Registration Statement an amendment
or amendments thereto. As used herein the term "Registration
Statement: shall, except where the context otherwise requires, mean
said Registration Statement (and all exhibits thereto) as amended by
all amendments filed prior to its effective date, and the term
"Prospectus" shall, except where the context otherwise requires, means
the final prospectus filed with the Commission upon the effectiveness
of the Registration Statement.
(b) When the Registration Statement becomes effective and at all times
subsequent thereto during the period of the offering thereunder, the
Registration Statement and the Prospectus will contain all material
statements which are required to be made therein in accordance with
the Act and the Rules and Regulations of the Commission thereunder
(the "Rule and Regulations"), and will in all material respects,
conform to the requirements of the Act and the rules and Regulations;
and at such times neither the Registration statement nor the
Prospectus will include any untrue statement of material fact or omit
to state any material fact required to be stated therein or necessary
to make the statements herein not misleading; and
54
<PAGE>
(c) The balance sheet of the Company set forth in the Prospectus will
fairly present the financial condition of the company as of the date
indicated, in conformity with generally accepted accounting
principles, and the independent public accountants whose certificate
with respect thereto is included therein are independent public
accountants within the meaning of the Act the Rules and Regulations.
3. Appointment of Agent.
(a) On the basis of the representations and warranties and subject to
the terms and conditions herein set forth, the Company hereby appoints
you its nonexclusive agent to offer to the public the opportunity to
purchase the Units in accordance with the Prospectus, and you agree to
use your best efforts to this end. Purchase of the shares shall be
evidenced by your normal order slips. It is understood that no
subscription shall be regarded as effective unless it is accompanied
by full payment to the company and until accepted by the Company, as
more fully set forth herein.
(b) You are hereby allocated up to __________________ of the shares
for sale within 90 days, unless extended for an additional 90 days by
the Company from the date the Registration Statement has become
effective. However, the Company reserves the right to reduce this
amount at any time by delivering written notice to you.
(c) You hereby agree to deliver to _______________________, (the
"Escrow Agent"), by 12:00 noon of the next business day following
receipt thereof, all proceeds from the sale of the Units in the Public
Offering at an initial public offering of $6.00 per share, together
with a written account for each sale, which account shall set forth,
among other things, the names and addresses of the purchasers, the
number of shares purchased by each, the amount paid therefore, and
whether the consideration received is in the form of cash or evidenced
by a check. All cashier's checks, checks or other negotiable
instruments shall be made payable to the Escrow Agent.
(d) The offering is conditional upon all of the shares being sold
(1,000,000 shares). All amounts received by the company will be placed
in Escrow with Mellon Bank under an escrow agreement until 1,000,000
shares are sold. If 1,000,000 shares are not sold within 90 days of
the date of the Registration Statement becomes effective, unless
extended for an additional 90 days by the Company, the offering will
be terminated, and all amounts in escrow will be returned without
interest. A copy of the escrow agreement is provided to you herewith.
55
<PAGE>
(e) (1) You will be entitled to receive from the Company, as a
commission for services as agent in the offering of the shares, 10% of
the principal amount of shares sold by you. All money received from
sale of the shares will be forwarded to the Company's escrow agent in
accordance with the terms thereof; and commissions will be paid
directly by the Company.
(2) For each ten shares sold, you will be entitled to purchase for
$.001 a warrant to purchase one share of common stock of the company
at $7.20 per share for a period of two years from the effective date
of the registration statement.
4. Particular Agreements of the Company.
(a) The Company will deliver to you one copy of the Registration
Statement as originally filed on Form S-1 and of all amendments
thereto. The Company will also deliver to you, as soon as practicable
after the Registration Statement becomes effective and from time to
time thereafter, such number of copies of the Prospectus as you may
reasonably request.
(b) The Company will use its best efforts to cause the Registration
Statement to become and remain effective during the period of the
offering thereunder. The Company will immediately advise you by
telephone, confirming such advice in writing (i) when notice is
received from the Commission that the Registration Statement has
become or will become effective (ii) of any order suspending the
effectiveness of the Registration Statement or of any proceedings or
examination under the Act, as soon as the Company is advised thereof,
and (iii) of any order or communication of any public authority
addressed to the Company suspending or threatening to suspend
registration or qualification of the offering in those states where
such authority has jurisdiction.
(c) During the period of the offering under the Registration
Statement, if any event affecting the Company shall occur which, in
the opinion of your counsel and counsel for the Company, would be set
forth in a supplement to or an amendment of the Prospectus, the
Company will forthwith at its own expense prepare and furnish to you a
reasonable number of copies of a supplement or amendment to the
Prospectus so that the Prospectus, as so supplemented or amended, will
not contain an untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they are made,
no misleading.
56
<PAGE>
(d) The Company will provide you or your duly authorized
representative access to and the right of inspection of all books,
records and physical facilities during the period of this Agency
Agreement.
(e) The Company will use its best efforts to qualify the offering at
its expense under the securities or Blue Sky Laws of the following
states or jurisdictions: New York, Pennsylvania, Colorado, Florida,
and such other states as may be selected by the Company, and to
continue such qualification in effect so long as required for the
purpose of the distribution of the Units.
(f) Whether or not the transactions contemplated by this Agency
Agreement shall be consummated, the Company will pay or cause to be
paid all expenses incident without limitation all expenses in
connection with the preparation, printing, filing and reasonable
distribution of the Registration Statement, any preliminary Prospectus
and the Prospectus, the bringing of this Agency Agreement, qualifying
the offering for the sale under the Securities or Blue Sky Laws of
those states listed in Section 4(e) above (including counsel fees and
disbursements) and all taxes and other expenses in connection with the
offering.
5. Condition of Your Obligation. Your obligation to distribute copies of
the Prospectus and to solicit the execution by prospective Subscribers of forms
of Subscriptions Agreements shall be subject to the accuracy of the
representations and warranties contained in Section 2 hereof, to performance by
the Company of its obligations hereunder, and to the following conditions:
(a) The Registration Statement shall have become effective and no stop
order suspending the effectiveness thereof shall have been issued and
no proceedings therefore shall have been commenced by the Commission.
(b) The Stock shall be qualified as provided in Section 4(e) and each
qualification shall be in effect and not subject to any stop order or
other proceeding on the effective state of the Registration Statement.
The Company will provide a "Blue Sky Memorandum" to you listing the
status of each such qualification as of the effective date of the
Registration Statement. The Company will provide an amendment of the
Blue Sky Memorandum to you at such times as is necessary.
57
<PAGE>
6. Indemnification.
(a) The Company agrees to indemnify and hold harmless you and each
person, if any, who controls you within the meaning of Section 15 of
the Act and their respective successors (hereinafter in this Section
separately and collectively referred to as the "defendants") against
any and all losses, claims, damages, liabilities and expenses
(including reasonable costs of investigation) against, out of, or
based upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement of Prospectus,
or in any amendment or supplement thereto, or arising out of or based
upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading (except insofar as such losses, claims, damages
or liabilities arise out of or are based upon any such untrue
statement or omission or allegation thereof which has been included
herein in reliance upon and in conformity with information furnished
to the Company by or on behalf of the defendants expressly for use in
connection therewith). If any action shall be brought against any
defendant in respect of which indemnity may be sought from the Company
pursuant to the provisions of the preceding paragraph, such defendant
shall promptly notify the Company in writing, and the Company shall
assume the defense thereof, including the employment of counsel,
(which shall be satisfactory to such defendant) and the payment of all
expenses. Any defendant shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
defendant unless (i) the employment thereof has been specifically
authorized by the Company in writing or (ii) the Company has failed to
assume such defense and to employ counsel.
7. Representations and Warranties of the Agent. You represent and warrant
to the Company that:
(a) You are registered as a broker-dealer with the Commission, are a
member in good standing with the National Association of Securities
Dealers, Inc., are registered as a broker-dealer in the states and
jurisdictions listed in Section 4(e) (or in such states and
jurisdictions as you intend to solicit and accept subscriptions for
the Units) and will supervise all activities of your Registered
Representatives in connection with the offer of the Units to the
Public.
(b) There is not now pending or, to your knowledge, threatened against
you any action or proceeding of which you have been advised, whether
in any court or before the Commission or any state securities
commission, concerning your activities as a broker or dealer.
58
<PAGE>
(c) You have undertaken to comply with all requirements of Sections 8,
24, 25, 36, or Article III of the Rules of Fair Practice.
(d) You will not reallow commissions to any non-member broker/dealer,
inducing foreign broker/dealers registered pursuant to the Securities
and Exchange Act of 1935.
8. Certain Agreements of the Agent. It is understood and agreed that you
are not authorized to make any representations other than those contained in the
Prospectus or to act as the agent of the Company or for the Company in any other
capacity except as expressly set forth herein. In acting as agent hereunder, you
agree (a) only to make use of the Prospectus or such other material as may be
supplied for the purpose by the Company; (b) to deliver a copy of the definitive
Prospectus at least 48 hours prior to mailing a confirmation of such sale; and
(c) to offer to persons the opportunity to subscribe for the Units only in those
states listed in Section 4(e) above as confirmed by the Blue Sky Memorandum and
by such persons and in such manner as shall be permitted by the laws of those
states.
9. Terms. This Agency Agreement shall continue in effect until the offering
of Stock is fully subscribed or until 90 days (unless extended for an additional
90 days by the Company) after the Registration Statement becomes effective,
unless sooner terminated pursuant to the provisions of Section 3(b) or 5 hereof.
10. Notices. All notices or other communications hereunder shall be in
writing and shall be mailed, telegraphed or delivered and confirmed to you at
the Company:
11. Miscellaneous. This Agency Agreement shall be governed by the laws of
Pennsylvania and shall inure to the benefit of and be binding upon the
successors of the Company and you. Nothing expressed or mentioned in this Agency
Agreement is intended or shall be construed to give any person or corporation
other than the parties hereto and their successors, and the controlling persons
and directors and officers referred to in Section 6 hereof, any legal or
equitable right, remedy or claim under or in respect of this Agency Agreement or
any provision hereof. The terms "successors" shall not include any participant
merely by his being a party to an Agreement. This Agency Agreement may not be
amended or modified, except by written instrument signed by both parties hereto.
In the foregoing expresses our agreement to you, kindly confirm by signing the
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acceptance on the enclosed counterpart hereof and return the same to us,
whereupon this letter and your acceptance shall become and constitute a binding
agreement between the Company and you in accordance with its terms.
Very truly yours,
Northwood Services, Inc.
By:
---------------------------------
The foregoing Agency Agreement is hereby confirmed and accepted as of the
date first above written.
- -------------------------------------
(Broker/Dealer)
By:
----------------------------------
Authorized Officer
60
EXHIBIT 1.2
61
<PAGE>
VOID AFTER:
DEALERS PURCHASE WARRANT FOR
SHARES OF COMMON STOCK
OF
NORTHWOOD SERVICES, INC.
NO._______________________ WARRANT TO PURCHASE
____________ UNITS
(INCORPORATED UNDER THE LAWS OF THE STATE OF PENNSYLVANIA)
THIS IS TO CERTIFY THAT (the "Warrant Holder") is entitled, upon the due
exercise hereof and subject to the terms and conditions hereof, upon call by the
company at any time after the effective date of the Registration Statement
referred to in paragraph 2 herein, and, subject to the provisions of paragraph 5
below, before the close of business on _________________, (which date is 2 years
from after the effective date of said Registration Statement), to purchase from
Northwood Services, Inc. (the "Company") at a price of $7.20 per share up to
____________ shares of Common Stock, $._____ par value, (herein called "Common
Shares" of the Company, upon surrender hereof, with the subscription form on the
reverse side hereof duly filled out, at the Office of the company or any
transfer agent for the Company's Common Shares, and upon simultaneous payment
therefore in cash or by certified or official bank check payable to the order of
the Company in New York Clearing House funds, at the price of $7.20 per share
(hereinafter referred to as the "Purchase Price"); the number of shares which
may be purchased, and the price, are subject to adjustments provided herein.
1. The Company agrees that the Company will use its best efforts to keep a
current Registration Statement or to take such other action as may be required,
to permit a public trading of the Stock of the Company. The Company will bear
the out-of-pocket expenses, disbursements and fees incurred by the Company in
connection with its Registration Statement filed or other action taken pursuant
to the paragraph, including all expenses, disbursements and fees in connection
with such filings.
2. The Warrant holder agrees, for himself and all subsequent holders of
these Warrants, to cooperate with the Company in the preparation and filing of
any Registration Statement or the taking of any other action by the Company
pursuant to paragraph 1 above.
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3. Unless this Warrants is surrendered and payment made as herein provided
before the close of business on ___________________ (the "Expiration Date"),
this Warrant will become wholly void and all rights evidenced hereby will
terminate.
4. Subject to the provisions of paragraph 1 above, this Warrant may be
exchanged for a number of Warrants of the same tenor as this Warrant for the
purchase in the aggregate of the same number of Common Shares of the company as
are purchasable upon the exercise of this Warrant, upon surrender hereof at the
office of the Company or any transfer agent of the Company's Common Shares with
written instructions as to the denominations of the Warrants to be issued in
exchange.
5. If this Warrant is exercised for less than all the shares purchasable
upon the exercise hereof, the holder shall be entitled to receive a new Warrant
or Warrants of the same tenor as this Warrant for the purchase in the aggregate
of the number of shares in respect of which this Warrant shall not have been
exercised.
6. The number of Common Shares of the Company purchasable on the Exercise
of this Warrant and the Purchase Price per share shall be increased or decreased
proportionately, as the case may be, without change in the aggregate purchase
price, in case of the payment by the Company in Common Shares of dividends on
the outstanding Common Share of the Company or in case of the subdivision,
reclassification, combination of the outstanding Common Shares of the Company,
or an similar issuance of Common Shares of the Company for no consideration. In
case the Company is reorganized, or merged or consolidated with another
corporation, the holder of this Warrant shall be entitled thereafter, upon the
exercise hereof, to receive the number and kind of securities of such
reorganized, merged or consolidated corporation he would have been entitled to
receive in connection with such reorganization, merger to consolidation if he
had been a holder of the number of Common Shares of the Company purchasable upon
the exercise hereof immediately prior to the time such reorganization, merger or
consolidation because effective. In no event shall the Company be required to
issue any fractional share or script in lieu thereof or make any adjustment
therefore in cash or otherwise in respect of any fraction of a share issuable
upon the exercise hereof.
7. The holder of this Warrant shall not be entitled to any rights of a
shareholder of the Company in respect of any shares purchasable upon the
exercise hereof, including voting, dividend or dissolution rights, until such
shares have been paid for in full and issued to him. As soon a practicable after
such exercise, the Company shall deliver a certificate or certificates for the
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<PAGE>
number of full Common Shares issuable upon such exercise, all of which shall be
fully paid and non-assessable, to the person or persons entitled to receive the
same; provided, however, that such certificate or certificates delivered to the
holder of the surrendered Warrant shall bear a legend reading substantially as
follows:
Transfer of the shares represented by this Certificate is subject
to certain restrictions set forth in certain Warrants pursuant to
which these shares were purchased from the Company. Copies of
these restrictions are on file at the principal office of the
Company and at the office of the Transfer Agent for the Common
Stock of the Company. No sale, offer to sell or transfer of such
shares or of this certificate, or of any shares or other
securities issued in exchange for or in respect of such shares
shall be made unless a registration statement under the
Securities Act of 1933, as amended, with respect to such shares,
is in effect or an exception from the registration requirements
of such Act is then in fact applicable to such shares.
Dated:_________________________ Northwood Services, Inc.
By:_______________________________
ATTEST:
By:____________________________
Secretary
64
EXHIBIT 3.1
65
<PAGE>
COMMONWEALTH OF PENNSYLVANIA
DEPARTMENT OF STATE
CORPORATION BUREAU
ARTICLES OF INCORPORATION
DOMESTIC BUSINESS CORPORATION
In compliance with the requirements of section 294 of the Business
Corporation Law, act of May 5, 1933(P.L.364) (15 P.S. ss.1204) the undersigned,
desiring to be incorporated as a business corporation, hereby certifies
(certify) that:
1. The name of the corporation is:
NORTHWOOD SERVICES, INC.
- --------------------------------------------------------------------------------
2. The location and post office address of the initial registered office of the
corporation in this Commonwealth is:
234 Brownsville Road
Pittsburgh, Pennsylvania 15210
3. The corporation is incorporated under the Business Corporation Law of the
Commonwealth of Pennsylvania for the following purpose or purposes:
To have the unlimited power to engage in any or all lawful business for
which corporations may be incorporated under the act of May 5, 1933, as amended,
under which this corporation is incorporated.
4. The term for which the corporation is to exist is: perpetual.
5. The aggregate number of shares which the corporation shall have authority to
issue is: 10 million shares of common stock, no par value.
6. The name(s) and post office address(es) of each incorporator(s) and the
number and class of shares subscribed by such incorporator(s) is(are):
Address
(including street Number and
Name and number, if any) Class of Shares
John C. Mohan 234 Brownsville Road 10
Pittsburgh, PA 15210
IN TESTIMONY WHEREOF, the incorporator(s) has (have) signed and sealed
these Articles of Incorporation this 22nd day of September, 1982.
(SEAL) /s/ John S. Mohan (SEAL)
- ------------------------- ----------------------------
JOHN C. MOHAN
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<PAGE>
Commonwealth of Pennsylvania
Department of State
Office of the
Secretary of the Commonwealth
To all to whom these Presents shall come, Greeting:
I DO HEREBY CERTIFY THAT NORTHWOOD SERVICES, INC. is a Pennsylvania
corporation, with Pennsylvania registered office located at 234 Brownsville
Road, Pittsburgh, Pennsylvania 15210.
Carrying on or conducting business under the assumed or fictitious name,
style, or designation of Northwood Realty Company with its place of business
located at 234 Brownsville Road, Pittsburgh, Pennsylvania 15210 has this 8th day
of November A.D. 1982 files in this Department the APPLICATION provided for in
Act No. 374 of the General Assembly of the Commonwealth of Pennsylvania,
entitled "An Act making it unlawful for any corporation to carry on any business
under an assumed or fictitious name, style, or designation, other than its
proper corporate name, unless an application is filed with the Secretary of the
Commonwealth and the Prothonotary," etc., approved July 11, 1957.
IN TESTIMONY WHEREOF, I have hereunto set my hand and caused the Seal of
the Secretary's Office to be affixed at the City of Harrisburg the day and year
above written.
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<PAGE>
OFFICE OF THE PROTHONOTARY
JOHN P. JOYCE, PROTHONOTARY
Allegheny County, Pennsylvania
Pittsburgh, PA. November 24, 1982
I do hereby certify
that.....................................
..........................NORTHWOOD SERVICES,
INC.................
conducting business under the assumed or fictitious name, style
or designation of............NORTHWOOD REALTY
COMPANY................
and in this office an APPLICATION FOR REGISTRATION as provided for in the Act of
Assembly of the Commonwealth of Pennsylvania, Act No. 374, approved the 11th day
of July 1957, known as FICTITIOUS CORPORATE NAME ACT, which Act makes it
unlawful for any corporation to carry on any business under an assumed or
fictitious name style or designation other than its proper corporate name until
it complies with said Act.
In Testimony Whereof, I have hereunto set my hand and caused the Seal of
the Court to be affixed the day and year above written.
/s/__________________________
Prothonotary
By /s/__________________________
Deputy
68
EXHIBIT 3.2
69
<PAGE>
BY-LAWS
OF
NORTHWOOD SERVICES, INC.
ARTICLE I. OFFICES
The principal office of the corporation in the State of Pennsylvania shall
be located in the Township of Hampton, County of Allegheny. The corporation may
have such other offices, either within or without the State of Pennsylvania, as
the Board of Directors may designate or as the business of the corporation may
require from time to time.
ARTICLE II. SHAREHOLDERS
SECTION 1. Annual Meeting. The annual meeting of the shareholders shall be
held on the 3rd day in the month of January in each year, beginning with the
year 1983, at the hour of 10:00 o'clock A.M., for the purpose of electing
Directors and for the transaction of such other business as may come before the
meeting. If the day fixed for the annual meeting shall be a legal holiday in the
State of Pennsylvania, such meeting shall be held on the next succeeding
business day. If the election of Directors shall not be held on the day
designated herein for any annual meeting of the shareholders, or at any
adjournment thereof, the Board of Directors shall cause the election to be held
at a special meeting of the shareholders as soon thereafter as conveniently may
be.
SECTION 2. Special Meetings. Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by statute, may be called by
the President or by the Board of Directors, and shall be called by the President
at the request of the holders of not less than thirty (30%) percent of all the
outstanding shares of the corporation entitled to vote at the meeting.
SECTION 3. Place of Meeting. The Board of Directors may designate any
place, either within or without the State of Pennsylvania unless otherwise
prescribed by statute, as the place of meeting for any annual meeting or for any
special meeting called by the Board of Directors. A waiver of notice signed by
all shareholders entitled to vote at a meeting may designate any place, either
within or without the State of Pennsylvania, unless otherwise prescribed by
statute, as the place for the holding of such meeting. If no designation is
made, or if a special meeting be otherwise called, the place of meeting shall be
the principal office of the corporation in the State of Pennsylvania.
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SECTION 4. Notice of Meeting. Written notice stating the place, day and
hour of the meeting and, in case of special meeting, the purpose of purposes for
which the meeting is called, shall unless otherwise prescribed by statue, be
delivered not less than two (2) nor more than seven (7) days before the date of
the meeting, either personally or by mail, by or at the direction of the
President, or the Secretary, or the persons calling the meeting, to each
shareholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail,
addressed to the shareholder at his address as it appears on the stock transfer
books of the corporation, with postage thereon prepaid.
SECTION 5. Closing of Transfer Books or Fixing of Record Date. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors of the
corporation may provide that the stock transfer books shall be closed for a
stated period but not to exceed, in any case, 30 days. If the stock transfer
books shall be closed for the purpose of determining shareholders entitled to
notice of or to vote at a meeting of shareholders, such books shall be closed
for at least 5 days immediately preceding such meeting. In lieu of closing the
stock transfer books, the Board of Directors may fix in advance a date as the
record date for any such determination of shareholders, such date in any case to
be not more than 30 days and, in case of a meeting of shareholders, not less
than 5 days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. If the stock transfer books are
not closed and no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or shareholders
entitled to receive payment of a dividend, the date on which notice of the
meeting is mailed or the date on which the resolution of the Board of Directors
declaring such dividend is adopted, as the case may be, shall be the record date
for such determination of shareholders. When a determination of shareholders
entitled to vote at any meeting of shareholders has been made as provided in
this section, such determination shall apply to any adjournment thereof.
SECTION 6. Voting Lists. The officer or agent having charge of the stock
transfer books for shares of the corporation shall make a complete list of the
shareholders entitled to vote at each meeting of shareholders or any adjournment
thereof, arranged in alphabetical order, with the address of and the number of
shares held by each. Such list shall be produced and kept open at the time and
place of the meeting and shall be subject to the inspection of any shareholder
during the whole time of the meeting for the purposes thereof.
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SECTION 7. Quorum. A majority of the outstanding shares of the corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If less than a majority of the outstanding shares
are represented at a meeting, a majority of the shares so represented may
adjourn the meeting from time to time without further notice. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
SECTION 8. Proxies. At all meetings of shareholders, a shareholder may vote
in person or by proxy executed in writing by shareholder or by his duly
authorized attorney in fact. Such proxy shall be filed with the secretary of the
corporation before or at the time of the meeting. No proxy shall be valid after
12 months from the date of its execution, unless otherwise provided in the
proxy.
SECTION 9. Voting of Shares. Subject to the provisions of Section 12 of
this Article II, each outstanding share entitled to vote shall be entitled to
one vote upon each matter submitted to a vote at a meeting of shareholders.
SECTION 10. Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted by such officer, agent or proxy as the
by-laws of such corporation may prescribe, or, in the absence of such provision,
as the Board of Directors of such corporation may determine.
Shares held by an administrator, executor, guardian or conservator may be
voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into this name if authority so to do be
contained in an appropriate order of the court by which such receiver was
appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
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Shares of its own stock belonging to the corporation shall not be voted,
directly or indirectly, at any meeting, and shall not be counted in determining
the total number of outstanding shares at any given time.
SECTION 11. Informal Action by Shareholders. Unless otherwise provided by
law, any action required to be taken at a meeting of the shareholders, or any
other action which may be taken at a meeting of the shareholders, may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the shareholders entitled to vote with respect to the
subject matter thereof.
SECTION 12. Cumulative Voting. Unless otherwise provided by law, at each
election for Directors every shareholder entitled to vote at such election shall
have the right to vote, in person or by proxy, the number of shares owned by him
for as many persons as there are Directors to be elected and for whose election
he has a right to vote, or to cumulate his votes by giving one candidate as many
votes as the number of such Directors multiplied by the number of his shares
shall equal, or by distributing such votes on the same principle among any
number of candidates.
ARTICLE III. BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the corporation
shall be managed by its Board of Directors.
SECTION 2. Number, Tenure and Qualifications. The number of directors of
the corporation shall be 3. Each director shall hold office until the next
annual meeting of shareholders and until his successor shall have been elected
and qualified.
SECTION 3. Regular Meeting. A regular meeting of the Board of Directors
shall be held without other notice than this by-law immediately after, and at
the same place as, the annual meeting of shareholders. The Board of Directors
may provide, by resolution, the time and place for the holding of additional
regular meetings without other notice than such resolution.
SECTION 4. Special Meetings. Special meetings of the Board of Directors may
be called by or at the request of the President or any two directors. The person
or persons authorized to call special meetings of the Board of Directors may fix
the place for holding any special meeting of the Board of Directors called by
them.
SECTION 5. Notice. Notice of any special meeting shall be given at least 2
days previously thereto by written notice delivered personally or mailed to each
director at his business address, or by telegram. If mailed, such notice shall
73
<PAGE>
be deemed to be delivered when deposited in the United States mail so addressed,
with postage thereon prepaid. If notice be given by telegram, such notice shall
be deemed to be delivered when the telegram is delivered to the telegraph
company. Any director may waive notice of any meeting. The attendance of a
director at a meeting shall constitute a waiver of notice of such meeting,
except where a director attends a meeting for the express purpose of objecting
to the transaction of any business because the meeting is not lawfully called or
convened.
SECTION 6. Quorum. A majority of the number of directors fixed by Section 2
of this Article III shall constitute a quorum for the transaction of business at
any meeting of the Board of Directors, but if less than such majority is present
at a meeting, a majority of the directors present may adjourn the meeting from
time to time without further notice.
SECTION 7. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors.
SECTION 8. Action Without a Meeting. Any action that may be taken by the
Board of Directors at a meeting may be taken without a meeting if a consent in
writing, setting forth the action so to be taken, shall be signed before such
action by all of the Directors.
SECTION 9. Vacancies. Any vacancy occurring in the Board of Directors may
be filled by the affirmative vote of a majority of the remaining directors
though less than quorum of the Board of Directors, unless otherwise provided by
law. A director elected to fill a vacancy shall be elected for the unexpired
term of his predecessor in office. Any directorship to be filled by reason of an
increase in the number of directors may be filled by election by the Board of
Directors for a term of office continuing only until the next election of
Directors by the shareholders.
SECTION 10. Compensation. By resolution of the Board of Directors, each
Director may be paid his expenses, if any, of attendance at each meeting of the
Board of Directors, and may be paid a stated salary as director or a fixed sum
for attendance at each meeting of the Board of Directors or both. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
SECTION 11. Presumption of Assent. A director of the corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his dissent shall be entered in the minutes of the meeting or unless he shall
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<PAGE>
file his written dissent to such action with the person acting as the secretary
of the meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary of the corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a Director
who voted in favor of such action.
ACTION IV. OFFICERS
SECTION 1. Number. The officers of the corporation shall be a President, a
Vice-President, a Secretary and a Treasurer, each of whom shall be elected by
the Board of Directors. Such other officers and assistant officers as may be
deemed necessary may be elected or appointed by the Board of Directors.
SECTION 2. Election and Term of Office. The officers of the corporation to
be elected by the Board of Directors shall be elected annually by the Board of
Directors at the first meeting of the Board of Directors held after each annual
meeting of the shareholders. If the election of officers shall not be held at
such meeting, such election shall be held as soon thereafter as conveniently may
be. Each officer shall hold office until his successor shall have been duly
elected and shall have qualified or until his death or until he shall resign or
shall have been removed in the manner hereinafter provided.
SECTION 3. Removal. Any officer or agent may be removed by the Board of
Directors whenever in its judgment, the best interests of the corporation will
be served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Election or appointment of an officer
or agent shall not of itself create contract rights.
SECTION 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the Board
of Directors for the unexpired portion of the term.
SECTION 5. President. The President shall be the principal executive
officer of the corporation and, subject to the control of the Board of
Directors, shall in general supervise and control all of the business and
affairs of the corporation. He shall, when present, preside at all meetings of
the shareholders and of the Board of Directors. He may sign, with the Secretary
or any other proper officer of the corporation thereunto authorized by the Board
of Directors, certificates for shares of the corporation, any deeds, mortgages,
bonds, contracts, or other instruments which the Board of Directors has
authorized to be executed, except in cases where the signing and execution
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<PAGE>
thereof shall be expressly delegated by the Board of Directors or by these
By-Laws to some other officer or agent of the corporation, or shall be required
by law to be otherwise signed or executed; and in general shall perform all
duties incident to the office of President and such other duties as may be
prescribed by the Board of Directors from time to time.
SECTION 6. Vice-President. In the absence of the President or in event of
his death, inability or refusal to act, the Vice-President shall perform the
duties of the President, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the President. The Vice-President shall
perform such other duties as from time to time may be assigned to him by the
President or by the Board of Directors.
SECTION 7. Secretary. The Secretary shall: (a) keep the minutes of the
proceedings of the shareholders and of the Board of Directors in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these By-Laws or as required by law; (c) be
custodian of the corporate records and of the seal of the corporation and see
that the seal of the corporation is affixed to all documents the execution of
which on behalf of the corporation under its seal is duly authorized; (d) keep
register of the post office address of each shareholder which shall be furnished
to the Secretary by such shareholder; (e) sign with the President, certificates
for shares of the corporation, the issuance of which shall have been authorized
by resolution of the Board of Directors; (f) have general charge of the stock
transfer books of the corporation; and (g) in general perform all duties
incident to the office of Secretary and such other duties as from time to time
may be assigned to him by the President or by the Board of Directors.
SECTION 8. Treasurer. The Treasurer shall: (a) have charge and custody of
and be responsible for all funds and securities of the corporation; (b) receive
and give receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in such
banks, trust companies or other depositaries as shall be selected in accordance
with the provisions of Article V of these By-Laws; and (c) in general perform
all of the duties incident to the office of Treasurer and such other duties as
from time to time may be assigned to him by the President or by the Board of
Directors. If required by the Board of Directors, the Treasurer shall give a
bond for the faithful discharge of his duties in such sum and with such surety
or sureties as the Board of Directors shall determine.
SECTION 9. Salaries. The salaries of the officers shall be fixed from time
to time by the Board of Directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
corporation.
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ARTICLE V. CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. Contracts. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the corporation, and such authority
may be general or confined to specific instances.
SECTION 2. Loans. No loans shall be contracted on behalf of the corporation
and no evidences of indebtedness shall be issued in its name unless authorized
by a resolution of the Board of Directors. Such authority may be general
confined to specific instances.
SECTION 3. Checks, Drafts, etc. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the corporation, shall be signed by such officer or officers, agent or agents of
the corporation and in such manner as shall from time to time be determined by
resolution of the Board of Directors.
SECTION 4. Deposits. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositaries as the Board of Directors may
select.
ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. Certificates for Shares. Certificates representing shares of the
corporation shall be in such form as shall be determined by the Board of
Directors. Such certificates shall be signed by the President and by the
Secretary or by such other officers authorized by law and by the Board of
Directors so to do, and sealed with the corporate seal. All certificates for
shares shall be consecutively numbered or otherwise identified. The name and
address of the person to whom the shares represented thereby are issued, with
the number of shares and date of issue, shall be entered on the stock transfer
books of the corporation. All certificates surrendered to the corporation for
transfer shall be canceled and no new certificate shall be issued until the
former certificate for a like number of shares shall have been surrendered and
canceled, except that in case of a lost, destroyed or mutilated certificate a
new one may be issued therefor upon such terms and indemnity to the corporation
as the Board of Directors may prescribe.
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SECTION 2. Transfer of Shares. Transfer of shares of the corporation shall
be made only on the stock transfer books of the corporation by the holder of
record thereof or by his legal representative, who shall furnish proper evidence
of authority to transfer, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the corporation, and on
surrender for cancellation of the certificate for such shares. The person in
whose name shares stand on the books of the corporation shall be deemed by the
corporation to be the owner thereof for all purposes.
ARTICLE VII. FISCAL YEAR
The fiscal year of the corporation shall begin on the 1st day of January
and end on the 31st day of December in each year.
ARTICLE VIII. DIVIDENDS
The Board of Directors may from time to time declare, and the corporation
may pay, dividends on its outstanding shares in the manner and upon the terms
and conditions provided by law and its articles of incorporation.
ARTICLE IX. CORPORATE SEAL
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the corporation
and the state of incorporation and the words, "Corporate Seal".
ARTICLE X. WAIVER OF NOTICE
Unless otherwise provided by law, whenever any notice is required to be
given to any shareholder or director of the corporation under the provisions of
these By-Laws or under the provisions of the articles of incorporation or under
the provisions of the Business Corporation Act, a waiver thereof in writing,
signed by the person or persons entitled to such notice, whether before or after
the time stated therein, shall be deemed equivalent to the giving of such
notice.
ARTICLE XI. AMENDMENTS
These By-Laws may be altered, amended or repealed and new By-Laws may be
adopted by the Board of Directors at any regular or special meeting of the Board
of Directors.
78
EXHIBIT 3.3
79
<PAGE>
CERTIFICATE
of
ARTICLES OF INCORPORATION
Commonwealth of Pennsylvania
Department of State
CERTIFICATE OF INCORPORATION
Office of the Secretary of the Commonwealth
To All to Whom These Presents Shall Come, Greeting:
WHEREAS, Under the provisions of the Laws of the Commonwealth, the Secretary of
the Commonwealth is authorized and required to issued a "Certificate of
Incorporation" evidencing the incorporation of an entity.
WHEREAS, The stipulations and conditions of the Law have been fully complied
with by:
NORTHWOOD SERVICES, INC.
THEREFORE, KNOW YE, that subject to the Constitution of this Commonwealth, and
under the authority of the Laws thereof, I do by these presents, which I have
caused to be sealed with the Great Seal of the Commonwealth, declare and certify
the creation, erection and incorporation of the above in deed and in law by the
name chosen hereinbefore specified.
Such corporation shall have and enjoy and shall be subject to all the
powers, duties, requirements, and restrictions, specified and enjoined in and by
the applicable laws of this Commonwealth.
GIVEN under my Hand and the Great Seal of the Commonwealth, at the City of
Harrisburg, this 24th day of September in the year of our Lord one thousand nine
hundred and eighty-two and of the Commonwealth the two hundred seventh
/s/__________________________________
Secretary of the Commonwealth
80
EXHIBIT 5.1
81
<PAGE>
Michael A. Littman
Attorney at Law
10200 W. 44th Ave., #400
Wheat Ridge, CO 80033
(303) 422-8127 Fax: (303) 422-7796
December 1, 1997
Northwood Services, Inc.
4100 Rte. 8
Allison Park, PA 15101
Re: S-1 for Northwood Services, Inc.
Gentlemen:
At your request, I have examined the form of Registration Statement No.,
______________ which you are filing with the Securities and Exchange Commission,
on Form S-1 (the "Registration Statement"), in connection with the registration
under the Securities Act of 1933, as amended, of 1,300,000 shares of your Common
Stock (the "Stock") issuable pursuant to the 1997 MANAGEMENT, EMPLOYEE AND
AGENTS STOCK COMPENSATION AND AWARDS PLAN (the "Plan").
In rendering the following opinion, I have examined and relied only upon
the documents, and certificates of officers and directors of the Company as are
specifically described below. In my examination, I have assumed the genuineness
of all signatures, the authenticity, accuracy and completeness of the documents
submitted to me as originals, and the conformity with the original documents of
all documents submitted to me as copies. My examination was limited to the
following documents and not others:
1. Certificate of Incorporation of the Company, as amended to date;
2. Bylaws of the Company, as amended to date;
3. Certified Resolutions adopted by the Board of Directors of the Company
authorizing the Plan and the issuance of the Stock.
4. The Registration Statements.
5. The Form of Plan.
I have not undertaken, nor do I intend to undertake, any independent
investigation beyond such documents and records, or to verify the adequacy of
accuracy of such documents and records.
82
<PAGE>
Based on the foregoing, it is my opinion that the Stock to be issued under
the Plan, subject to effectiveness of the Registration Statement and compliance
with applicable blue sky laws, and execution of the Plan in the form referred to
herein, when issued under the Plan, will by duly and validly authorized, fully
paid and non-assessable.
I express no opinion as to compliance with the securities or "blue sky"
laws of any state in which the Stock is proposed to be offered and sold or as to
the effect, if any, which non-compliance with such laws might have on the
validity of issuance of the Stock.
I consent to the filing of this opinion as an exhibit to any filing made
with the Securities and Exchange Commission or under any state or other
jurisdiction's securities act for the purpose of registering, qualifying or
establishing eligibility for an exemption from registration or qualification of
the Stock described in the Registration Statement in connection with the
offering described therein. Other than as provided in the preceding sentence,
this opinion (i) is addressed solely to you, (ii) may not be relied upon by any
other party, (iii) covers only matters of Kansas and federal law and nothing in
this opinion shall be deemed to imply any opinion related to the laws of any
other jurisdiction, (iv) may not be quoted or reproduced or delivered by you to
any other person, and (v) may not be relied upon for any other purpose
whatsoever. Nothing herein shall be deemed to relate to or constitute an opinion
concerning any matters not specifically set forth above.
By giving you this opinion and consent, I do not admit that I am a expert
with respect to any part of the Registration Statement or Prospectus within the
meaning of the term "expert" as used in Section 11 of the Securities Act of
1933, as amended, or the Rules and Regulations of the Securities and Exchange
Commission promulgated thereunder.
The information set forth herein is as of the date of this letter. I
disclaim any undertaking to advise you of changes which may be brought to my
attention after the effective date of the Registration Statement.
Sincerely,
/s/ Michael A. Littman
----------------------------------------
Michael A. Littman
83
EXHIBIT 10.3
84
<PAGE>
COMMERCIAL PROMISSORY NOTE
$610,000 Dated: December 1, 1996
FOR VALUE RECEIVED, the undersigned, Northwood Services, Inc., a
Pennsylvania corporation (hereinafter "Maker"), promises to pay to Picnic
Investments, Inc., (the "Holder"), _______________________________________, or
at such other place as the Holder may designate in writing, the principal sum of
Six Hundred Ten Thousand and No One-hundredths Dollars ($610,000.00), together
with 18% interest only annually, due June 30, 1999.
Maker has the right to prepay this Note in whole or in part at any time
during the term of this Note without premium or penalty.
In event Maker shall (i) default in the performance of any of the
obligations, covenants or agreements legally imposed by the terms of this Note,
or the Security Agreement, executed simultaneously herewith, or (ii) apply for
or consent in writing to the appointment of a receiver, trustee, or liquidator
of Maker or (iii) file a voluntary petition in bankruptcy, or admit in writing
Maker's inability to pay Maker's debts as they come due, or (iv) make general
assignments for the benefit of creditors, or (v) file a petition or answer
seeking reorganization or rearrangement with creditors or taking advantage of
any insolvency law, or (vi) file an answer admitting the material allegations of
a petition filed against Maker in any bankruptcy, reorganization, insolvency or
similar proceedings, at the option of the Holder, the whole indebtedness
evidenced hereby may be declared due and payable whereupon the entire unpaid
principal balance of this Note and all interest accrued thereon from last
payment date @ 18% per annum shall thereupon at once mature and become due and
payable without presentment or demand for payment or notice of the intent to
exercise such option or notice of the exercise of such option by the Holder, or
notice of any kind, all of which are hereby expressly waived by Maker and may be
collected by suit or other legal proceedings.
If all or any part of the amount of this Note be declared due in accordance
with the other provisions hereof, or if any installment herein provided is not
paid when due, the principal balance as the case may be, shall bear interest at
the lesser of (i) eighteen percent (18%) per annum, or (ii) the Maximum Rate
allowed under applicable law until paid in full or until the Note is reinstated.
Notice of Default shall be given, in writing, to Maker, after five days after
occurrence of default. Maker shall have 10 days after written Notice of Default,
within which to cure the default plus interest at default rate, legal fees and
costs incurred.
Except as otherwise provided herein, the undersigned and all sureties,
guarantors and endorsers of this Note severally waive all notices, demands,
presentments for payment, notices of non-payment, notice of intention to
accelerate the maturity, notices of acceleration, notices of dishonor, protest
and notice of protest, diligence in collecting or bringing suit as to this Note
and as to each, every and all installments hereof and all obligations hereunder
and against any party hereto and to the application of any payment on this
obligation, or as an offset hereto, and agree to all extensions, renewals,
85
<PAGE>
partial payments, substitutions or evidence of indebtedness and the taking,
release or substitution of all or any part of the security or the release of any
party liable hereon with or without notice before or after maturity.
It is the intention of the parties hereto to comply with the usury laws
applicable to this loan if any, accordingly it is agreed that notwithstanding
any provision to the contrary in this Note or in any of the documents securing
payment hereof no such provision shall require the payment or permit the
collection of interest in excess of the maximum permitted by law. If any excess
of interest is provided for, contracted for, charged for or received, then the
provisions of this paragraph shall govern and control and neither the Maker
hereof nor any other party liable for the payment hereof shall be obligated to
pay the amount of such excess interest. Any such excess interest which may have
been collected shall be, at the Holder's option, either applied as a credit
against the then unpaid principal amount hereof or refunded to Maker. The
effective rate of interest shall be automatically subject to reduction to the
maximum lawful contract rate allowed under the usury laws as now or hereafter
construed. It is further agreed that without limitation of the foregoing, all
calculations of the rate of interest contracted for, charged for, or received
under this Note which are made for the purposes of determining whether such rate
exceeds the maximum lawful rate, shall be made, to the extent permitted by law,
by amortizing, prorating, allocating and spreading in equal parts during the
full stated term of this Note, all interest contracted for, charged for or
received from the Maker or otherwise by the Note Holder.
In the event this Note is placed in the hands of an attorney for collection
(whether or not suit is filed), or in the event it is collected by suit or
through bankruptcy, probate, receivership or other legal proceedings (including
foreclosure), the undersigned hereby agrees to pay to the Holder as attorney's
fees a reasonable amount in addition to the principal and interest then due
hereon, and all other costs of collection.
IN WITNESS WHEREOF, Maker has fully executed this Note as of the date first
above written.
Northwood Services, Inc.,
a Pennsylvania Corporation
Corporate Seal
by:/s/ J. Harold Autenreith, Jr.
----------------------------------------
Co-President
Attest:
by:/s/ Wendy West
----------------------------------------
Secretary
86
EXHIBIT 10.4
87
<PAGE>
1997 MANAGEMENT, EMPLOYEE AND AGENTS STOCK COMPENSATION
-------------------------------------------------------
AND AWARDS PLAN
---------------
NORTHWOOD SERVICES, INC.
1. Purpose of the Plan.
- -----------------------
This Management, Employee and Agents Stock Compensation Plan is intended to
further the growth and advance the best interest of Northwood Services, Inc., a
Pennsylvania corporation (the "Company"), and Affiliated Corporations, by
supporting and increasing the Company's ability to attract, retain and
compensate persons of experience and ability and whose services are considered
valuable, to encourage the sense of proprietorship in such persons, and to
stimulate the active interest of such persons in the development and success of
the Company and Affiliate Corporations. This Plan provides for stock
compensation through the award of the Company's Common Stock, as a bonus or in
lieu of cash compensation for services rendered.
2. Definitions.
- ---------------
Whenever used in this Plan, except where the context might clearly indicate
otherwise, the following terms shall have the meanings set forth in this
section:
a. "Act" means the U.S. Securities Act of 1933, as amended.
b. "Affiliated Corporation" means any Parent or Subsidiary.
c. "Award" means any grant of Common Stock made under this Plan, as a
bonus, or in lieu of cash compensation for services rendered.
d. "Board of Directors" means the Board of Directors of the Company.
e. "Code" means the Internal Revenue Code of 1986, as amended.
f. "Common Stock" or "Common Shares" means the common stock, $.001 par
value per share, of the Company, or in the event that the outstanding
Common Shares are hereafter changed into or exchanged for different
shares of securities of the Company, such other shares or securities.
g. "Date of Grant" means the day the Board of Directors authorizes the
grant of an Award or such later date as may be specified by the Board
of Directors as the date a particular Award will become effective.
h. "Employee" means any person or entity that renders bona fide services
to the Company, including, without limitation, (i) a person employed
88
<PAGE>
by the Company or an Affiliate Corporation in a key capacity; (ii) an
officer or director of the Company or an Affiliate Corporation; (iii)
a person or company engaged by the Company or an Affiliate Corporation
as a consultant or advisor; or (iv) a lawyer, law firm, accountant or
accounting firm, engaged by the Company or an Affiliate Corporation.
i. "Parent" means any corporation owning 50% or more of the total
combined voting stock of all classes of the Company or of another
corporation qualifying as a Parent within this definition.
j. "Participant" or "recipient" means an Employee Management or Agent to
whom an Award of Plan Shares has been made.
k. "Plan Shares" means shares of Common Stock from time to time subject
to this Plan.
l. "Subsidiary" means a corporation more than 50% of whose total combined
capital stock of all classes is held by the Company or by another
corporation qualifying as a Subsidiary within this definition.
3. Effective Date of the Plan.
- ------------------------------
The effective date of this Plan is January 1, 1997. No Plan Shares
hereunder may be issued after December 31, 1999.
4. Administration of the Plan.
- ------------------------------
The Board of Directors will be responsible for the administration of this
Plan, and acting as an Awards Committee, will grant Awards under this Plan,
Subject to the express provisions of this Plan, the Board of Directors shall
have full authority and sole and absolute discretion to interpret this Plan, to
prescribe, amend and rescind rules and regulations relating to it, and to make
all other determinations which it believes to be necessary or advisable in
administering this Plan. The determination of those eligible to receive Plan
Shares shall rest in the sole discretion of the Board of Directors, subject to
the provisions of this Plan. The Board of Directors may correct any defect,
supply any omission or reconcile any inconsistency in this Plan in such manner
and to such extent it shall deem necessary to carry it into effect. Any decision
made, or action taken, by the Board of Directors arising out of or in connection
with the interpretation and administration of the Plan shall be final and
conclusive. The Board of Directors may appoint a compensation committee from
among the members of the full Board of Directors to administer this Plan.
5. Stock Subject to the Plan.
- -----------------------------
The maximum number of Plan Shares as to which Awards may be granted under
this Plan is 200,000 shares.
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<PAGE>
6. Persons Eligible to Receive Awards.
- --------------------------------------
There shall be three classes of awards:
1) Officers & Directors
a) The awards committee shall as of December 30 each year, make
stock awards to each officer and director based upon 1% of the
gross revenues of the company divided by the then current market
bid price per share of common stock as quoted by NASDAQ or other
quotation;
b) In the event certain officers or directors are instrumental in
obtaining, finding, and negotiating an acquisitions for the
company, the awards committee shall award shares in the year of
the acquisition as a bonus to such officers or directors in an
amount equal to 1% of the acquisition value, or 1% of the shares
issued for the acquisition.
2) Management
The awards committee shall, as of December 30 each year make stock awards
to management deemed deserving by the awards committee at its sole discretion
based upon performance of the person during the year. The guideline shall be: Up
to 2.5% of the Employees salary or contractual income may be awarded as a bonus.
3) Non-Management Employees and Agents
The awards committee shall as of December 30 each year make stock awards to
non management employees and agents deemed deserving, by the awards committee at
its sole discretion based upon the performance of the employee or agent during
the year.
In the event of termination of an employee or agent for cause, no awards
shall be made. In the event of termination due to health, sale of a unit,
reorganization, or voluntary separation, the awards committee shall consider the
person's contribution to date of termination of employment, and may award stock
to a terminated employee, or agent.
7. Grants of Awards.
- --------------------
Except as otherwise provided herein, the Board of Directors shall have
complete discretion to determine when and to which Awards are to be granted, and
the number of Plan Shares to be Awarded to each person. No grant will be made
if, in the judgment of the Board of Directors, such a grant would constitute a
public distribution with the meaning of the Act or the rules and regulations
promulgated thereunder.
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<PAGE>
8. Delivery of Stock Certificates.
- ----------------------------------
As promptly as practicable after authorizing the grant of an Award, the
Company shall deliver to the person who is the recipient of the award, a
certificate or certificates registered in that person's name, representing the
number of Plan Shares that were granted. Unless the Plan Shares have been
registered under the Act, each certificate evidencing Plan Shares shall bear a
legend to indicate that such shares represented by the certificate were issued
in a transaction which was not registered under the Act, and may only be sold or
transferred in a transaction that is registered under the Act or is exempt from
the registration requirements of the Act.
9. Assignability.
- -----------------
No Award of Plan Shares may be assigned. Plan Shares may be assigned after
such shares have been delivered, only in accordance with law and any transfer
restrictions imposed at the time of Award.
10. Employment.
- ---------------
Nothing in this Plan or in the grant of an Award shall confer upon any
Employee or agent or person the right to continue in the employ of the Company
or Affiliated Corporation nor shall it interfere with or restrict in any way the
lawful rights of the Company or any Affiliated Corporation to discharge any
Person at any time for any reason whatsoever, with or without cause.
11. Laws and Regulations.
- -------------------------
The obligation of the Company to sell and deliver Plan Shares on the grant
of an Award under this Plan shall be subject to the condition that the Company
be satisfied that the sale and delivery thereof will not violate the Act or any
other applicable laws, rules or regulations.
12. Withholding of Taxes.
- -------------------------
If subject to withholding tax, the Company or any Affiliated Corporation
may require that the Award Recipient concurrently pay to the Company the entire
amount or a portion of any taxes which the Company or Affiliated Corporation is
required to withhold by reason of granting an Award, in such amount as the
Company or Affiliated Corporation in its discretion may determine. In lieu of
part or all of any such payment, the Recipient may elect to have the Company or
Affiliated Corporation withhold from the Plan Shares issued hereunder a
sufficient number of shares to satisfy withholding obligations. If the Company
or Affiliated Corporation becomes required to pay withholding taxes to any
federal, state or other taxing authority as a result of the granting of an
Award, and the Recipient fails to provide the Company or Affiliated Corporation
with the funds with which to pay that withholding tax, the Company or Affiliated
Corporation may withhold up to 50% of each payment of salary or bonus to the
Recipient (which will be in addition to any required or permitted withholding),
until the Company or Affiliated Corporation has been reimbursed for the entire
withholding tax it was required to pay in respect of issuance of any Plan
Shares.
91
<PAGE>
13. Reservation of Shares.
- --------------------------
The stock subject to this Plan shall, at all times, consist of authorized
but unissued shares of Common Stock reacquired or held by the Company equal to
the maximum number of shares the Company may be required to issue on the grant
of Awards under this Plan, and such number of Common Shares hereby is reserved
for such purpose. The Board of Directors may decrease the number of shares
subject to this Plan, but not increase such number, except as a consequence of a
stock split or other reorganization or recapitalization affecting all Common
Shares.
14. Amendment and Termination of the Plan.
- ------------------------------------------
The Board of Directors may suspend or terminate this Plan at any time or
from time to time, but no such action shall adversely affect the rights of a
person granted an Award under this Plan prior to that date. Otherwise, this Plan
shall terminate on the earlier of the terminal date stated in Section 3 of this
Plan or the date when all Plan Shares have been issued. The Board of Directors
shall have absolute discretion to amend this Plan, subject to any limitations
expressly set forth herein.
15. Delivery of Plan.
- ---------------------
A copy of this Plan shall be delivered to all participants, together with a
copy of the resolution or resolutions of the Board of Directors authorizing the
granting of the Award and establishing the terms, if any of participation, prior
to an Award of Plan Shares.
16. Liability.
- --------------
No member of the Board of Directors, any committee of directors, or
officers, employees or agents of the Company or any Affiliated Corporation shall
be personally liable for any action, omission or determination made in good
faith in connection with this Plan.
17. Miscellaneous Provisions.
- -----------------------------
The place of administration of the Plan shall be in the State of
Pennsylvania, and the validity, construction, interpretation and effect of this
Plan and of its rules, regulations and rights relating to it, shall be
determined solely in accordance with the laws of such state.
Without amending this Plan, the Board of Directors may issue Plan Shares to
employees of the Company who are foreign nationals or employed outside the
United States, or both, on such terms and conditions different form those
specified in this Plan but consistent with the purpose of this Plan, as it deems
necessary and desirable to create equitable opportunities given differences in
tax laws in other countries.
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All expenses of administering this Plan and issuing Plan Shares shall be
borne by the Company.
By signature below, the undersigned officers of the Company hereby certify
that the foregoing is a true and correct copy of the 1997 Management, Employee
and Agents Stock Compensation Plan of the Company.
Dated: ______________________.
NORTHWOOD SERVICES, INC.
BY:/s/ J. Harold Autenreith, Jr.
----------------------------------
Co-President
Attest:
By:/s/ Wendy West
-----------------------------
Secretary
93
EXHIBIT 24.1
94
<PAGE>
Michael A. Littman
Attorney at Law
10200 W. 44th Ave., #400
Wheat Ridge, CO 80033
(303) 422-8127 Fax: (303) 422-7796
CONSENT
I hereby consent to the use in the Form S-1 of Northwood Services, Inc.,
under the Securities Act of 1933, of my opinion letter dated December 1, 1997.
/s/ Michael A. Littman
---------------------------------
Michael A. Littman
Attorney at Law
December 1, 1997
95
EXHIBIT 24.2
96
<PAGE>
Hinds, Lind, Miller & Co.
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
9401 McKnight Road Phone (412) 364-6070
Pittsburgh, Pennsylvania 15237-6000 Fax (412) 364-6176
- --------------------------------------------------------------------------------
CONSENT OF INDEPENDENT AUDITORS
NORTHWOOD SERVICES, INC.
We consent to the reference of our firm under the caption "Experts" and the
use of our report dated May 22, 1997, except as to the last paragraph and Notes
K, L, and Q which are as of October 23, 1997, with respect to the December 31,
1996 restated and December 31, 1995 consolidated financial statements of
Northwood Services, Inc. included in the Registration Statement (Form S-1).
/s/ Hinds, Lind, Miller & Co.
-------------------------------------
Pittsburgh, Pennsylvania
November 26, 1997
97
EXHIBIT 24.3
98
<PAGE>
ESCROW AGREEMENT
AGREEMENT made this _____ day of _______________, 19__, by and among
Northwood Services, Inc., a Pennsylvania corporation, with its principal offices
at 234 Brownsville Road, Pittsburgh, Pennsylvania 15210 (the "Corporation"), and
Mellon Bank of Pittsburgh, Pennsylvania, (the "Escrow Agent").
WITNESSETH:
WHEREAS, the Escrow Agent has been advised that the Company is organized
under the laws of the State of Pennsylvania and
WHEREAS, the Escrow Agent has been advised that the Company is authorized
to issue 10,000,000 shares of Common Stock, having no par value; and
WHEREAS, the Escrow Agent has been advised that the Company has filed with
the Securities and Exchange commission (the "SEC") a registration statement on
Form S-1 (the "Registration Statement") pursuant to the General Rules and
Regulations under the Securities Act of 1933, as amended (the "Act"), covering a
proposed public offering (the "Offering") of 1,000,000 shares of the Company's
securities at an offering price of $6.00 per share.
WHEREAS, the Escrow Agent has been advised that the Company proposes to
offer the shares and warrants (hereinafter "securities"), through agents who are
NASD Broker/Dealers, for sale to the public on a "best efforts, 1,000,000 shares
or none: basis; and
WHEREAS, in compliance with Rule 240.15c2-4 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended, the Company
and the Underwriter propose to establish an escrow account with the Escrow
Agent; and
WHEREAS, the Escrow Agent is willing to establish an escrow account on the
terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained the parties hereby agree as follows:
1. Establishment of Escrow Account. Prior to the date on which the
Registration Statement is declared effective (the "Effective Date") by the SEC,
or as soon as practicable thereafter, the parties hereto shall establish, and by
execution of this Agreement hereby agree to establish, a non-interest bearing
escrow account with a designated branch of the Escrow Agent, which escrow
account shall be entitled, Mellon Bank, as Escrow Agent for Subscribers to
Northwood, Inc." (the "Escrow Agent").
2. Deposits into the Escrow Account. The Agents promptly shall deposit all
monies received from prospective purchasers of the securities (the "Fund") in
the Escrow Account.
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<PAGE>
Such deposits, properly made payable to the order of "Mellon Bank", as Escrow
Agent", shall be delivered to the Escrow Agent before 12:00 P.M. on the next
business day following receipt by the Agents of payments by subscribers for the
securities. Simultaneously with each such deposit, the Agents shall inform the
Escrow Agent, by confirmation slip or other writing, of the name and address of
each prospective purchaser and of the number of securities subscribed for by
such purchaser. In this regard, the Escrow Agent shall have the right to rely
fully on the confirmation slips or other writings so furnished by the Agents.
Promptly after the SEC shall declare the Registration Statement effective, the
Corporation shall advise the Escrow Agent in writing of the Effective Date.
3. Disbursements from the Escrow Account.
(a) In the event that the Escrow Agent does not receive $6,000,000 (which
represents the proceeds from the sale of 1,000,000 shares from the Agents
for deposit in the Escrow Account within 90 business days from the
Effective Date (which period may be extended for an additional 90 business
days by mutual consent of the Company and the Underwriter, upon the
furnishing of written notice thereof to the Escrow Agent jointly signed by
the Company and the Agents), the Escrow Agent shall refund to each
prospective purchaser the amount actually received from such purchaser,
without interest thereon or deduction therefrom, and the Escrow Agent shall
notify the Agents and the Company of its distribution of the Fund.
(b) In the event that the Escrow Agent receives the $6,000,000 from the
Agents for deposit in the Escrow Account within 90 business days from the
Effective Date (which period may be extended for an additional 90 business
days pursuant to (a) above), the Escrow Agent shall notify the Corporation
of such fact in writing within a reasonable time. The Escrow Agent shall
hold such monies in escrow, until given instructions in writing by the
Company and the Agents as to the disposition of the Fund and such other
documents as may be necessary in the opinion of the Escrow Agent.
(c) Upon the disbursement of the Fund pursuant to either (a) or (b) above,
the Escrow Agent will be under no further responsibility with respect to
this Agreement. In this regard, it expressly is agreed and understood that
in no event shall the aggregate amount of payments made by the Escrow Agent
exceed the amount of the Fund.
4. Rights, Duties and Responsibilities of Escrow Agent. It is understood
and agreed that the duties of the Escrow Agent are purely ministerial in nature.
It is further agreed that:
(a) The Escrow Agent shall not be required to enforce any of the terms or
conditions of the Agency Agreement or any other agreement between the
Agents and the Company, nor shall the Escrow Agent be responsible for the
performance by the Agents or the Company of their respective obligations
under this Agreement;
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(b) The Escrow Agent shall not be required to accept from the Agents any
confirmation slips or other writings issued to prospective purchasers
hereunder unless the same are accompanied by cash, checks, drafts or other
instruments for the payment of money, nor shall the Escrow Agent be
required to keep records of any information on checks, drafts or other
instruments received or collected by the Escrow Agent from the Agents
except as to the amount of same; however, the Escrow Agent shall notify the
Agents within a reasonable time, by wire or otherwise, of any discrepancy
between the amount set forth on any such confirmation slip or other writing
and the sum, or sums, delivered to the Escrow Agent by the Agents
therewith;
(c) The Escrow Agent shall be under no duty or responsibility to enforce
collection of any check, draft or other instrument for the payment of money
delivered to it hereunder, but the Escrow Agent, within a reasonable time,
shall return to the Agent any check, draft or other instrument received
from the Agent which is dishonored, together with the confirmation slip or
other writing, if any, which accompanied such check, draft or other
instruments;
(d) The Escrow Agent shall have the right to act in reliance upon any
document, instrument or signature believed by it to be genuine and to
assume that any person purporting to give any notice or instructions in
accordance with this Agreement or in connection with any transaction to
which this Agreement relates has been duly authorized to do so. The Escrow
Agent shall not be obligated to make any inquiry as to the authority,
capacity, existence or identity of any person purporting to give any such
notice or instructions;
(e) In the event that the Escrow Agent shall be uncertain as to its duties
or rights, hereunder or shall receive instructions with respect to the Fund
which, in its sole opinion, are in conflict with either other instructions
received by it or any provision of this Agreement, it shall be entitled to
hold the Fund, or a portion thereof, in the Escrow Account pending the
resolution of such uncertainly to the Escrow Agent's sole satisfaction, by
final judgment of a court or courts of competent jurisdiction or otherwise;
or the Escrow Agent, at its option, may deposit the Fund in the registry of
a court of competent jurisdiction in a proceeding to which all parties in
interest are joined;
(f) The Escrow Agent shall not be liable for any action taken or omitted
hereunder except in the case of its willful misconduct, nor shall it be
liable for the default or misconduct of any employee, agent or attorney
appointed to it. The Escrow Agent shall be entitled to consult with counsel
of its own choosing and shall not be liable for any action taken, suffered
or omitted by it in accordance with the advice of such counsel; and
(g) The Escrow Agent shall have no responsibility at any time to ascertain
whether or not any security interest exists in the Fund or any part thereof
or to file any financing statement under the Uniform commercial code with
respect to the Fund or any part thereof.
101
<PAGE>
5. Amendment; Resignation. This Agreement and/or the terms of the Offering
may be altered or amended only with the written consent of the Corporation, the
Agents and the Escrow Agent. Should the Company and/or the Agents attempt to
change the Agreement and/or the terms of the Offering in a manner which, in the
Escrow Agent's sole opinion, is undesirable, the Escrow Agent may resign as
Escrow Agent upon 5 days written notice to the Company and the Agents. In the
case of the Escrow Agent's resignation, its only duty shall be to hold and
dispose of the Fund in accordance with the original provisions of this Agreement
until a successor Escrow Agent shall be appointed and written notice of the name
and address of such successor Escrow Agent shall be given to the Escrow Agent by
the Company and the Agent, whereupon the Escrow Agent's only duty shall be to
pay over to the successor Escrow Agent the Fund, less any portion thereof
previously paid out in accordance with this Agreement.
6. Warranties. The Company and the Agent warrant to and agree with the
Escrow Agent that, unless otherwise expressly set forth in this Agreement:
(a) No party other than the parties hereto and the prospective purchasers
have, or shall have, any lien, claim or security interest in the Fund or
any party thereof;
(b) As of the date of this Agreement, the Registration Statement has ben
declared effective by the SEC; and
(c) No financing statement under the Uniform Commercial Code is on file in
any jurisdiction claiming a security interest in or describing (whether
specially or generally) the Fund or any part thereof.
7. Fees and Expenses. The Escrow Agent shall be entitled to a fee of
$_________________ for services rendered by it as Escrow Agent. The Escrow Agent
also shall be reimbursed by the Company and the Agent for any reasonable
expenses incurred in connection with this Agreement, including, but not limited
to, reasonable counsel fees.
8. Indemnification and Contribution.
(a) The company and the Agents (collectively referred to as the
"Indemnitors") jointly and severally agree to indemnify the Escrow Agent
and its officers, agents, directors and stockholders (jointly and severally
the "Indemnitees") against, and hold them harmless of and from, any and all
loss, liability, cost, damage and expense, including, without limitation,
reasonable counsel fees, which the Indemnitees may suffer or incur by
reason of any action, claim or proceeding brought against the indemnitees,
arising out or relating in any way to this Agreement or any transaction to
which this Agreement relates, whether or not any such action, claim or
proceeding is the result of the negligence of the Indemnitees. If any
person shall assert any claim (whether or not by the institution of any
action, suit or other proceeding) against any of the Indemnitees arising
out of this Agreement or any transaction to which this Agreement relates,
whether or not such claim ultimately is established, the Indemnitors shall
102
<PAGE>
pay all costs and expenses of the defense of such claim, including, without
limitation, reasonable counsel fees, liability, cost, damage and expense
against which the Indemnitees are indemnified hereunder, all sums which any
of the Indemnitees may pay in settlement of any such claim.
(b) If the indemnification provided for in this Section 8 is applicable,
but for any reason is held to be unavailable, the Indemnitors shall
contribute such amounts as are just and equitable to pay (or to reimburse
the Indemnitees for) the aggregate of any and all losses, liability, costs,
damages and expenses, including counsel fees, actually incurred by the
Indemnitees as a result of or in connection with, and any amount paid in
settlement of, any action, claim or proceeding arising out of or relating
in any way to any acts or omissions of the Indemnitors.
(c) The Escrow Agent shall have a lien upon the Fund to the extent of all
losses, liabilities, damages, costs or expenses, including reasonable
counsel fees, for which it is to be indemnified hereunder and for all fees
due it hereunder. In the event of any claim, action or proceeding against
the Indemnities relating to this Agreement or any transaction to which this
Agreement relates or if any fee due the Escrow Agent hereunder shall remain
unpaid, the Escrow Agent may retain the Fund or any part thereof until the
Escrow Agent's lien upon the Fund shall have been determined and satisfied
or secured adequately, in the sole opinion on the Escrow Agent.
(d) Any Indemnitee which proposes to assert the right to be indemnified
under this Section 8, promptly after receipt of notice of commencement of
any action, suit or proceeding against such Indemnitee in respect of which
a claim is to be made against the Indemnitors under this Section 8, will
notify the Indemnitors of the Commencement of such action, suit or
proceeding, enclosing a copy of all papers served, but the omission so to
notify the Indemnitors of any such action, suite or proceeding shall not
relieve the Indemnitors from any liability which they may have to any
Indemnitee otherwise than under this Section 8 in case such action, suite
or proceeding shall be brought against any Indemnitee and it shall notify
the Indemnitors of the commencement thereof, the Indemnitors shall be
entitled to participate in and, to the extent that they shall wish, to
assume the defense thereof, with counsel satisfactory to such Indemnitee,
and after notice from the Indemnitors to such Indemnitee of their election
so to assume the defense thereof the Indemnitors shall not be liable to
such Indemnitee for any legal or other expenses, other than reasonable
costs of investigation subsequently incurred by such Indemnitee in
connection with the defense thereof. The Indemnitee shall have the right to
employ its counsel in any such action, but the fees and expenses of such
counsel shall be at the expense of such Indemnitee unless (i) the
employment of counsel by such Indemnitee has been authorized by the
Indemnitors, (ii) the Indemnitee shall have concluded reasonably that there
may be a conflict of interest among the Indemnitors and the Indemnitee in
the conduct of the defense of such action (in which case the Indemnitors
shall not have the right to direct the defense of such action on behalf of
the Indemnitee) or (iii) the Indemnitors in fact shall not have employed
counsel to assume the defense of such action, in each of which cases the
fees and expenses of counsel shall be borne by the Indemnitors.
103
<PAGE>
9. Governing Law and Assignment. This Agreement shall be construed in
accordance with and governed by the laws of the State of Pennsylvania and shall
be binding upon the parties hereto and their respective successors and assigns;
provided, rights under this Agreement or with respect to the Fund shall be void
as against the Escrow Agent unless:
(a) written notice thereof shall be given to the Escrow Agent, and
(b) The Escrow Agent shall have consented in writing to such assignment or
transfer.
10. Notices. All notices required to be given in connection with this
Agreement shall be sent by registered or certified mail, return receipt
requested, and addressed to: the company at 234 Brownsville Road, Pittsburgh, PA
15210, and the Escrow Agent Attention: Trust Department: Mellon Bank,
Pittsburgh, PA.
11. Severability. The application thereof to any person or circumstance
shall be determined to be invalid or unenforceable, the remaining provisions of
the Agreement or the application of such provision to persons or circumstances
other than those to which it is held invalid or enforceable shall not be
affected thereby and shall be valid and enforceable to the fullest extent
permitted by law.
12. Execution in Several Counterparts. This Agreement may be executed in
several counterparts or by separate instruments, and all of such counterparts
and instruments shall constitute one agreement, binding on all of the parties
hereto.
13. Pronouns. All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine, neuter, singular or plural as the context may
require.
14. Captions. All captions are for convenience only and shall not limit or
define the test hereof.
15. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings (written or oral) of the
parties in connection herewith.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.
MELLON BANK
By:____________________________
Northwood Services, Inc.
By:____________________________
104
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<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
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<INCOME-CONTINUING> 30,924 320,218
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