<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 20, 1998.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CROPKING, INCORPORATED
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 1711 34-1368977
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
5050 GREENWICH ROAD
SEVILLE, OHIO 44273
(330) 769-2002
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
5050 GREENWICH ROAD
SEVILLE, OHIO 44273
(330) 769-2002
(ADDRESS OF PRINCIPAL PLACE OF BUSINESS OR INTENDED PRINCIPAL PLACE OF BUSINESS)
DANIEL J. BRENTLINGER, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
5050 GREENWICH ROAD
SEVILLE, OHIO 44273
(330) 769-2002
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
THOMAS T. PROUSALIS, JR., ESQ. DAVID A. CARTER, P.A.
1919 Pennsylvania Avenue, N.W. 2300 Glades Road
Suite 800 Suite 210W
Washington, D.C. 20006 Boca Raton, FL 33431
(202) 296-9400 (561) 750-6999
(202) 296-9403 Fax (561) 367-0960 Fax
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434, CHECK
THE FOLLOWING BOX. /X/
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SECURITY OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 Par Value(1)..... 1,725,000 $ 5.00 $ 8,625,000 $ 2,974
Warrants(2)......................... 2,300,000 $ .125 $ 287,500 $ 99
Common Stock Underlying
Warrants(3)........................ 2,300,000 $ 5.25 $ 12,075,000 $ 4,164
Underwriter's Common Stock
Option(4).......................... 150,000 -- -- --
Common Stock Underlying
Underwriter's Common Stock
Option(5).......................... 150,000 $ 8.00 $ 1,200,000 $ 414
Underwriter's Warrant Option(6)..... 200,000 -- -- --
Warrants Underlying Underwriter's
Warrant Option(7).................. 200,000 $ .20 $ 40,000 $ 14
Common Stock Underlying
Underwriter's Warrant Option(8).... 200,000 $ 8.00 $ 1,600,000 $ 552
Total Registration and Fee(9)..... $ 23,827,500 $ 8,216
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
(1) Includes 225,000 shares reserved for the option, exercisable within 45 days
after the date on which the Securities and Exchange Commission (the
"Commission") declares this Registration Statement effective, to cover
over-allotments, if any (the "Over-Allotment Option"), granted by the
Company to Barron Chase Securities, Inc. (the "Underwriter"). See
"Underwriting."
(2) Includes 300,000 Redeemable Common Stock Purchase Warrants (the "Purchase
Warrants" or the "Warrants") reserved for the Over-Allotment Option. The
Warrants (a) may be purchased separately from the Common Stock in the
offering, (b) are exercisable during a five-year period commencing on the
effective date of this Registration Statement, and (c) shall be redeemable,
at the option of the Company, at $.05 per Warrant upon 30 days' prior
written notice, (i) if the closing bid price, as reported on the Nasdaq
SmallCap MarketSM, or the closing sale price, as reported on a national or
regional securities exchange, as applicable, of the shares of the
Registrant's Common Stock for 30 consecutive trading days ending within ten
days of the notice of redemption of the Warrants averages in excess of
$10.00 per share, subject to adjustment, and (ii) after a then current
registration statement has been declared effective by the Commission with
regard to the shares of Common Stock to be received by the holder upon
exercise, but (iii) during the one-year period after the effective date of
this Registration Statement, only with the written consent of the
Underwriter. Pursuant to Rule 416 under the Securities Act of 1933, as
amended (the "Securities Act"), such additional number of these securities
are also being registered to cover any adjustment resulting from the
operation of the anti-dilution provisions relating to the Warrants.
(3) Reserved for issuance upon exercise of the Warrants. Pursuant to Rule 416
under the Securities Act, such additional number of shares of Common Stock
subject to the Warrants are also being registered to cover any adjustment
resulting from the operation of the anti-dilution provisions relating to the
Warrants.
(4) To be issued to the Underwriter or persons related to the Underwriter.
Pursuant to Rule 416 under the Securities Act, such additional number of
Underwriter stock options (the "Common Stock Underwriter Warrants") are also
being registered to cover any adjustment resulting from the operation of the
anti-dilution provisions relating to the Common Stock Underwriter Warrants.
(5) Reserved for issuance upon exercise of the Common Stock Underwriter
Warrants. Pursuant to Rule 416 under the Securities Act, such additional
number of shares of Common Stock subject to the Common Stock Underwriter
Warrants are also being registered to cover any adjustment resulting from
the operation of the anti-dilution provisions relating to the Common Stock
Underwriter Warrants.
(6) To be issued to the Underwriter or persons related to the Underwriter.
Pursuant to Rule 416 under the Securities Act, such additional number of
Underwriter warrant options (the "Warrant Underwriter Warrants") are also
being registered to cover any adjustment resulting from the operation of the
anti-dilution provisions relating to the Warrant Underwriter Warrants.
(7) Reserved for issuance upon exercise of the Warrant Underwriter Warrants.
Pursuant to Rule 416 under the Securities Act, such additional number of
warrants to purchase shares of Common Stock subject to the Warrant
Underwriter Warrants ("Underwriter Underlying Warrants") are also being
registered to cover any adjustment resulting from the operation of the
anti-dilution provisions relating to the Warrant Underwriter Warrants.
(8) Reserved for issuance upon exercise of the Underwriter Underlying Warrants.
Pursuant to Rule 416 under the Securities Act, such additional number of
shares of Common Stock subject to the Underwriter Underlying Warrants are
also being registered to cover any adjustment resulting from the operation
of the anti-dilution provisions relating to the Underwriter Underlying
Warrants.
(9) The requisite fee has been paid in connection with this Registration
Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
ii
<PAGE>
CROPKING, INCORPORATED
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B)
SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF FORM SB-2
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM CAPTION IN PROSPECTUS
- --------------------------------------------- ---------------------------------
<C> <S> <C>
1. Front of Registration Statement and
Outside Front Cover of Prospectus...... Facing Page; Cross-Reference
Sheet; Prospectus Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus.................... Prospectus Cover Page; Prospectus
Back Cover Page
3. Summary Information and Risk Factors.... Prospectus Summary; The Company;
Risk Factors
4. Use of Proceeds......................... Use of Proceeds
5. Determination of Offering Price......... Risk Factors; Underwriting
6. Dilution................................ Dilution and Other Comparative
Data
7. Selling Security-holders................ Description of Securities
8. Plan of Distribution.................... Prospectus Cover Page;
Underwriting
9. Legal Proceedings....................... Legal Proceedings
10. Directors, Executive Officers, Promoters
and Control Persons.................... Management; Principal
Shareholders
11. Security Ownership of Certain Beneficial
Owners and Management.................. Principal Shareholders
12. Description of Securities............... Description of Securities
13. Interest of Named Experts and Counsel... Legal Matters; Experts
14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................ Certain Transactions
15. Organization Within Five Years.......... Prospectus Summary; Business
16. Description of Business................. Business
17. Management's Discussion and Analysis or
Plan of Operation...................... Management's Discussion and
Analysis or Plan of Operation
18. Description of Property................. Business
19. Certain Relations and Related
Transactions........................... Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters.................... Description of Securities
21. Executive Compensation.................. Management
22. Financial Statements.................... Financial Statements
23. Changes in and Disagreements With
Accountants on Accounting and Financial
Disclosure............................. Not applicable
</TABLE>
iii
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 20, 1998
PROSPECTUS
[LOGO]
1,500,000 SHARES OF COMMON STOCK
2,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
CropKing, Incorporated (the "Company" or "CropKing") is offering 1,500,000
shares of Common Stock, $.01 par value per share (the "Common Stock") and
2,000,000 Redeemable Common Stock Purchase Warrants (the "Warrants"). The Common
Stock and the Warrants (collectively, the "Securities") are being offered
separately and not as units, and each are separately transferable. Each Warrant
entitles the holder to purchase one share of Common Stock at $5.25 per share
(subject to adjustment) during the five-year period commencing on the date of
this Prospectus. The Warrants are redeemable by the Company for $.05 per
Warrant, on not less than thirty (30) days nor more than sixty (60) days written
notice if the closing bid price for the Common Stock equals or exceeds $10.00
per share during any thirty (30) consecutive trading day period ending not more
than fifteen (15) days prior to the date that the notice of redemption is
mailed, and provided there is then a current effective registration statement
under the Securities Act of 1933, as amended (the "Act") with respect to the
issuance and sale of Common Stock upon the exercise of the Warrants. Any
redemption of the Warrants during the one-year period commencing on the date of
this Prospectus shall require the written consent of Barron Chase Securities,
Inc. (the "Underwriter"). See "Description of Securities" and "Underwriting."
Prior to this offering, there has been no public market for the Common Stock
or the Warrants. The initial public offering prices of the Common Stock and
Warrants and the exercise price and other terms of the Warrants have been
determined through negotiations between the Company and the Underwriter and are
not related to the Company's assets, book value, financial condition or any
other recognized criteria of value. Although the Company has applied for the
inclusion of the Common Stock and the Warrants on the Nasdaq SmallCap Market
("Nasdaq") under the symbols "CROP" and "CROPW," respectively, there can be no
assurances that such securities will be accepted for inclusion or that an active
trading market in the Company's securities will develop or be sustained.
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY IS SPECULATIVE AND INVOLVES A
HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION FROM THE PUBLIC
OFFERING PRICE OF THE COMMON STOCK AND SHOULD BE CONSIDERED ONLY BY
INVESTORS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. SEE "RISK FACTORS" ON PAGES 6-12 AND
"DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO THE
PRICE TO PUBLIC DISCOUNTS(1) COMPANY(2)(3)
<S> <C> <C> <C>
Per Share.............................. $5.00 $.50 $4.50
Per Warrant............................ $.125 $.0125 $.1125
Total(3)............................... $7,750,000 $775,000 $6,975,000
</TABLE>
(SEE "NOTES," NEXT PAGE)
The shares of Common Stock and the Warrants are being offered by the
Underwriter on a firm commitment basis, subject to prior sale, when, as and if
delivered to and accepted by the Underwriter, and subject to approval of certain
legal matters by counsel and to certain other conditions. It is expected that
delivery of the certificates representing the Common Stock and the Warrants will
be made against payment therefor at the offices of the Underwriter at 7700 West
Camino Real, Boca Raton, Florida 33433, on or about , 1998.
------------------------
[LOGO]
The date of this Prospectus is , 1998.
<PAGE>
NOTES
(1) Does not include additional underwriting compensation in the form of (i) a
non-accountable expense allowance equal to three percent of the gross
proceeds of the offering of which $50,000 has been paid to date; (ii)
Underwriter's Warrants to purchase 150,000 shares of Common Stock and
200,000 Warrants exercisable for a five-year period commencing from the
effective date of the offering at an exercise price of 160% of the price at
which the Common Stock and the Warrants are sold to the public, subject to
adjustment; and (iii) a financial advisory agreement for the Underwriter to
act as an investment banker for the Company for a period of one year at a
fee of $108,000, payable at the closing of this offering. In addition, the
Company has granted to the Underwriter certain registration rights with
respect to registration of the shares of Common Stock and the Warrants
underlying the Underwriter's Warrants and the shares of Common Stock
issuable upon exercise of the Warrants issuable upon exercise of the
Underwriter's Warrants and to indemnify the Underwriter against certain
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $875,000,
including the Underwriter's non-accountable expense allowance.
(3) The Company has granted the Underwriter an option (the "Underwriter's
Over-Allotment Option"), exercisable within 45 days from the date of this
Prospectus, to purchase up to 225,000 additional shares of Common Stock and
up to 300,000 additional Warrants solely to cover over-allotments, if any.
If the Underwriter's Over-Allotment Option is exercised in full, the total
Price to Public, Underwriting Discounts and Proceeds to Company will be
$8,912,500, $891,250 and $8,021,250, respectively. See "Underwriting."
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2, pursuant to the Securities
Act of 1933, as amended, with respect to the securities offered by this
Prospectus. This Prospectus does not contain all of the information set forth in
said Registration Statement, and the exhibits thereto. The statements contained
in this Prospectus as to the contents of any contract or other document
identified as exhibits in this Prospectus are not necessarily complete, and in
each instance, reference is made to a copy of such contract or document filed as
an exhibit to the Registration Statement, each statement being qualified in any
and all respects by such reference. For further information with respect to the
Company and the securities offered hereby, reference is made to such
Registration Statement and exhibits which may be inspected without charge at the
Commission's principal office at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, DC 20549.
Upon consummation of this offering, the Company will become subject to the
reporting requirements of the Securities Exchange Act of 1934 and in accordance
therewith will file reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549; at its New York Regional Office,
Room 1400, 7 World Trade Center, New York, New York 10048; and at its Chicago
Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,
and copies of such material can be obtained from the Public Reference Section at
prescribed rates. The Company intends to furnish its shareholders with annual
reports containing audited financial statements and such other reports as the
Company deems appropriate or as may be required by law.
The Company will provide without charge to each person who receives a
Prospectus, upon written or oral request of such person, a copy of any of the
information that were incorporated by reference in the Prospectus (not including
exhibits to the information that was incorporated by reference unless the
exhibits are themselves specifically incorporated by reference). Such requests
may be directed to Stockholder Relations, 5050 Greenwich Road, Seville, Ohio
44273, telephone (330) 769-2002.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OR
THE WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE OVER THE COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND MUST BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS,
INCLUDING NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS
OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS (I) ASSUMES NO EXERCISE
OF THE UNDERWRITER'S OVER-ALLOTMENT OPTION, THE UNDERWRITER'S PURCHASE OPTION
AND THE WARRANTS; AND (II) ASSUMES A PUBLIC OFFERING PRICE OF $5.00 PER SHARE OF
COMMON STOCK AND $.125 PER WARRANT.
THE COMPANY
CropKing, Incorporated ("Company") designs, develops, manufactures, markets
and sells proprietary, commercial hydroponic products and systems, and related
technology, equipment and supplies, to customers in the United States and abroad
for the commercial year-round production of high value, specialty, disease and
pesticide-free plant and floral crops, such as tomatoes, lettuce, peppers,
herbs, strawberries and roses. The Company's hydroponic products and systems are
offered to its prospective commercial and individual customers in standard and
custom-designed configurations, providing versatile commercial structures,
products and systems, including related technology, equipment and supplies, on a
turn-key basis. The Company's hydroponic products and systems are offered
through direct marketing and sales, dealers and distributors and by mail order.
The Company annually distributes more than 100,000 mail order catalogs and other
marketing materials to its customers and prospective customers worldwide. See
"Business."
The Company intends to principally use the proceeds of this offering for
operating costs and working capital, including business development, capital
equipment, marketing and sales and mergers and acquisitions of complementary
companies in an effort to significantly expand its business and operations. The
Company can make no assurances that the proceeds of this offering will enable it
to expand its business and operations in any manner. See "Use of Proceeds" and
"Financial Statements."
The Company was incorporated in the State of Ohio in June 1982 and
reincorporated in the State of Delaware in August 1997. The principal executive
offices of the Company are located at 5050 Greenwich Road, Seville, Ohio 44273,
and its telephone number is (330) 769-2002. The Company's Internet address is
www.cropking.com. Unless the context otherwise indicates, the terms "Company"
and "CropKing" as used in this Prospectus refer to CropKing, Incorporated.
SEE ALSO "RISK FACTORS," "MANAGEMENT" AND "CERTAIN TRANSACTIONS" FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING THE
COMPANY AND ITS BUSINESS.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered......................... 1,500,000 Shares
Warrants Offered............................. 2,000,000 Warrants
Common Stock Outstanding:
Before the Offering........................ 2,000,000 Shares
After the Offering......................... 3,500,000 Shares
Warrants Outstanding:
Before the Offering........................ None
After the Offering......................... 2,000,000
Estimated Net Proceeds(1).................... $6,100,000
Use of Proceeds.............................. Operating costs and working capital,
including business development, capital
equipment, marketing and sales, and mergers
and acquisitions.
Nasdaq Symbols(2):
Common Stock............................... CROP
Warrants................................... CROPW
Risk Factors(3).............................. An investment in the Common Stock and the
Warrants offered hereby is speculative and
involves a high degree of risk. Investors
should carefully consider the risk factors
described herein before investing in the
Common Stock and the Warrants. See "Risk
Factors" and "Dilution."
</TABLE>
- ------------------------
(1) After deducting the underwriting discounts and commissions and estimated
offering expenses of $875,000 payable by the Company including a three
percent non-accountable expense allowance to the Underwriter. These net
proceeds do not include the exercise of the Underwriter's Over-Allotment
Option. See "Underwriting."
(2) Although the Company has applied for the inclusion of the Common Stock and
the Warrants on the Nasdaq SmallCap Market under these symbols, there can be
no assurances that such securities will be accepted for inclusion or that an
active trading market in the securities will develop or be sustained. See
"Risk Factors--Possible Failure to Qualify for Nasdaq SmallCap Market
Listing."
(3) See "Risk Factors--Regulations May Impose Certain Restrictions on
Marketability of Low-priced Securities."
4
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
---------------------------- SIX MONTHS ENDING
1996 1997 JANUARY 31, 1998
------------- ------------- ------------------
<S> <C> <C> <C>
Statement of Earnings Data:
Net sales............................................ $ 3,854,000 $ 5,033,000 $ 2,970,000
Operating profit..................................... $ 176,000 $ 263,000 $ 309,000
Earnings before income taxes......................... $ 40,000 $ 191,000 $ 272,000
Net earnings......................................... $ 33,000 $ 120,000 $ 164,000
Earnings per share................................... $ .02 $ .08 $ .08
Weighted average shares outstanding.................. 1,475,000 1,475,000 1,940,082 (1)
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31, 1998
----------------------------
AS
HISTORICAL ADJUSTED (2)
------------- -------------
<S> <C> <C>
Balance Sheet Data:
Working capital...................................... $ 486,000 $ 6,586,000
Total assets......................................... $ 2,221,000 $ 8,321,000
Total liabilities.................................... $ 1,575,000 $ 1,575,000
Stockholders' equity................................. $ 646,000 $ 6,746,000
</TABLE>
- ------------------------
(1) Includes 525,000 shares issued to six persons in consideration of cash and
notes receivable. See "Note F to the accompanying Financial Statements."
(2) Adjusted to reflect the sale of the securities offered hereby, less
underwriting discounts and commissions and the payment by the Company of
expenses of this offering estimated at $875,000. See "Use of Proceeds."
5
<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK. ONLY THOSE PERSONS ABLE TO LOSE THEIR ENTIRE INVESTMENT SHOULD PURCHASE
THESE SECURITIES. PROSPECTIVE INVESTORS, PRIOR TO MAKING AN INVESTMENT DECISION,
SHOULD CAREFULLY READ THIS PROSPECTUS AND CONSIDER, ALONG WITH OTHER MATTERS
REFERRED TO HEREIN, THE FOLLOWING RISK FACTORS:
LIMITED OPERATING HISTORY
The Company was incorporated in Ohio in June 1982 and reincorporated in
Delaware in August 1997, and as such has a limited operating history. The
Company faces the risks and problems associated with new businesses and has a
limited operating history in the hydroponics industry upon which to base an
evaluation of its future prospects. Such prospects should be considered in light
of the risks, expenses and difficulties frequently encountered in the expansion
of a new business in an industry characterized by a significant number of market
entrants and intense competition. The market for the Company's hydroponic
products, systems and services is relatively new, intensely competitive, rapidly
evolving and subject to rapid change. The Company expects competition to
persist, intensify and increase in the future, from start-up companies to major
agribusinesses. Many of the Company's current and potential competitors have
larger operating histories, greater name recognition, larger installed customer
bases and significantly greater financial, technical and marketing resources
than the Company. Competition in the hydroponics business will continue to be
intense in the foreseeable future as the environment continues to deteriorate
and demand for crop foods intensifies as the population expands, and there can
be no assurance that the Company will be able to compete successfully against
current or future competitors, or that this significant competition will not
adversely affect the Company's business, operating results or financial
condition. See "Business."
NO ASSURANCE OF FUTURE PROFITABILITY OR PAYMENT OF DIVIDENDS
The Company can make no assurances that the future operations of the Company
will result in additional revenues or will be profitable. Should the operations
of the Company be profitable, it is likely that the Company would retain much or
all of its earnings in order to finance future growth and expansion. Therefore,
the Company does not presently intend to pay dividends, and it is not likely
that any dividends will be paid in the foreseeable future. See "Dividend
Policy."
IMMEDIATE AND SUBSTANTIAL DILUTION
An investor in this offering will experience immediate and substantial
dilution. As of January 31, 1998, the Company had a net tangible book value of
$646,000 or $.32 per share derived from the Company's balance sheet as of
January 31, 1998 and the total Common Stock outstanding at January 31, 1998.
After giving effect to the sale of the shares offered hereby at an assumed
offering price of $5.00 per share, after deducting underwriting discounts and
estimated offering expenses, pro forma net tangible book value would have been
$6,746,000 or $1.93 per share. The result will be an immediate increase in net
tangible book value per share of $1.61 (approximately 603%) to existing
shareholders and an immediate dilution to new investors of $3.07 (approximately
61%) per share. As a result, public investors will bear most of the risk of loss
since their shares are being purchased at a cost substantially above the price
that existing shareholders acquired their shares. See "Dilution."
POSSIBLE NEED FOR ADDITIONAL FINANCING
The Company intends to fund its operations and other capital needs for the
next 12 months substantially from the proceeds of this offering, but there can
be no assurance that such funds will be sufficient for these purposes. The
Company may require substantial amounts of the proceeds of this offering for its
future expansion, operating costs and working capital. The Company has made no
arrangements to obtain future additional financing, if required, and there can
be no assurance that such financing will be available, or that it will be
available on acceptable terms. See "Use of Proceeds."
DEPENDENCE ON MANAGEMENT
The Company's success is principally dependent on its current management
personnel for the operation of its business. In particular, Daniel J.
Brentlinger, the Company's founder, president and
6
<PAGE>
chief executive officer, has played a substantial role in the organization,
development and management of the Company, although there is no assurance that
additional managerial assistance will not be required. The analysis of new
business opportunities will be undertaken by or under the supervision of the
management of the Company. The Company has recently entered into an employment
agreement with Mr. Brentlinger. However, if the employment by the Company of Mr.
Brentlinger terminates, or he is unable to perform his duties, the Company may
be substantially affected. The agreement also contains non-compete provisions
but are limited in geographical scope. The Company has agreed to purchase
key-man life insurance on Mr. Brentlinger in the amount of $3 million prior to
the closing of this offering. The Company will be the owner and beneficiary of
the term insurance policy. See "Use of Proceeds," "Business" and "Management."
DEPENDENCE ON QUALIFIED TECHNICAL PERSONNEL
The Company believes that its future success will depend in large part upon
its continued ability to recruit and retain qualified technical personnel.
Competition for qualified technical personnel is significant, particularly in
the geographic area in which the Company's operations are located. No assurances
can be made that the Company's relationship with its employees will remain good.
See "Management."
UNCERTAINTY OF PROPOSED MERGERS AND ACQUISITIONS CAMPAIGN
Following the closing of this offering, the Company intends to engage in a
mergers and acquisitions campaign in order to merge with or acquire companies
engaged in a similar business. The Company has not entered into any negotiations
to merge with or acquire any such target companies, but the Company has
identified several such companies engaged in a complementary business. The
Company can make no assurances that it will be able to merge with or acquire any
companies. Although the Company intends to utilize approximately $500,000 of the
net proceeds of this offering in its mergers and acquisitions activities during
the 12 months following the date of this Prospectus, no assurances can be made
that such funds will enable the Company to expand its base or realize profitable
consolidated operations. In addition, the Company's stockholders may not have
the opportunity to review the financial statements of any of the companies that
may be acquired or have the opportunity to vote on any proposed acquisitions
since Delaware law does not require such review and approval. Should such funds
not be utilized in its mergers and acquisitions activities, the Company intends
to utilize the funds in equal amounts in working capital, capital equipment and
marketing and sales. See "Use of Proceeds."
BROAD DISCRETION IN APPLICATION OF PROCEEDS
The management of the Company has broad discretion to adjust the application
and allocation of the net proceeds of this offering, including funds received
upon exercise of the Warrants, of which there is no assurance, in order to
address changed circumstances and opportunities. As a result of the foregoing,
the success of the Company will be substantially dependent upon the discretion
and judgment of the management of the Company with respect to the application
and allocation of the net proceeds hereof. Pending use of such proceeds, the net
proceeds of this offering will be invested by the Company in temporary,
short-term interest-bearing obligations. See "Use of Proceeds."
UNCERTAIN PROTECTION OF PATENT, TRADEMARK, COPYRIGHT AND PROPRIETARY RIGHTS
The Company may file patent, trademark and/or copyright applications
relating to certain of the Company's hydroponic products and systems. If patent,
trademarks or copyrights were to be issued, there can be no assurance as to the
extent of the protection that will be granted to the Company as a result of
having such patents, trademarks or copyrights or that the Company will be able
to afford the expenses of any complex litigation which may be necessary to
enforce its proprietary rights. Failure of the Company's patents, trademark and
copyright applications may have a material adverse impact on the Company's
business. Except as may be required by the filing of patent, trademark and
copyright applications, the Company will attempt to keep all other proprietary
information secret and to take such actions as may be necessary to insure the
result of its development activities are not disclosed and are protected under
the common law concerning trade secrets. Such steps will include the execution
of
7
<PAGE>
nondisclosure agreement by key Company personnel and may also include the
imposition of restrictive agreements on purchasers of the Company's products and
services. There is no assurance that the execution of such agreements will be
effective to protect the Company, that the Company will be able to enforce the
provisions of such nondisclosure agreements or that technology and other
information acquired by the Company pursuant to its development activities will
be deemed to constitute trade secrets by any court of competent jurisdiction.
SUBSTANTIAL COMPETITION
Businesses in the United States and abroad that are engaged in the
hydroponic industry and related products and services are significant in number
and highly competitive. Many of the companies with which the Company intends to
compete are substantially larger and have substantially greater resources than
the Company. It is also likely that other competitors will emerge in the future.
The Company will compete with companies that have greater market recognition,
greater resources and broader capabilities than the Company. As a consequence,
there is no assurance that the Company will be able to successfully compete in
its industry. See "Business."
LIABILITY AND INSURANCE
The Company provides training and related services to its customers in
connection with its hydroponic products and systems. The Company therefore may
be exposed to the risk of liability for personal injury. The Company maintains
quality control programs in an attempt to reduce the risk of potential damage to
persons and any associated potential liability. The Company maintains $500,000
per loss event/$1,000,000 policy aggregate of liability insurance covering
damages resulting from negligent acts, errors, mistakes or omissions in
rendering or failing to render its services. The Company is not a party to any
legal proceedings and, to the best of its information, knowledge and belief,
none is contemplated or has been threatened. See "Legal Proceedings."
LIMITATION ON DIRECTOR LIABILITY
As permitted by the Delaware General Corporation Law, the Company's
Certificate of Incorporation limits the liability of directors to the Company or
its stockholders for monetary damages for breach of a director's fiduciary duty
except for liability in four specific instances. These are for (i) any breach of
the director's duty of loyalty to the Company or its stockholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of law, (iii) unlawful payments of dividends or unlawful stock
purchases or redemptions as provided in Section 174 of the Delaware General
Corporation Law, or (iv) any transaction from which the director derived an
improper personal benefit. As a result of the Company's charter provision and
Delaware law, stockholders may have more limited rights to recover against
directors for breach of fiduciary duty. See "Management -- Limitation on
Liability of Directors."
GOVERNMENT REGULATION
The Company is not currently subject to direct regulation by any state or
federal government agency other than regulations applicable to businesses
generally, and there are currently few laws or regulations directly applicable
to access to or to commerce on the Internet, a new electronic marketing medium
for the Company. However, due to the increasing popularity and use of the
Internet for electronic commerce, it is possible that a number of laws and
regulations may be adopted with respect to the Internet, conveying issues such
as user privacy, credit card use and the pricing of commercial products offered
for sale. The adoption of any such laws or regulations may stifle electronic
commerce on the Internet, which may in turn decrease the demand for the
Company's products and systems and increase the Company's cost of doing business
or otherwise have an adverse impact on the Company's business, operating results
or financial condition.
ARBITRARY OFFERING PRICE
There has been no prior public market for the Company's securities. The
price to the public of the shares offered hereby has been arbitrarily determined
by negotiations between the Company and the Representative and bears no
relationship to the Company's earnings, book value or any other recognized
criteria of value. The offering price of $5.00 per share is substantially in
excess of the net tangible book value of $.32 per share, derived from the
Company's balance sheet as of
8
<PAGE>
January 31, 1998, and in excess of the price received by the Company for shares
sold in prior transactions. See "Prospectus Summary -- Selected Financial Data,"
"Underwriting," "Dilution and Other Comparative Data" and "Certain
Transactions."
REQUIREMENTS OF CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION IN
CONNECTION WITH THE EXERCISE OF THE WARRANTS
The Company will be able to issue the securities offered hereby, shares of
its Common Stock upon the exercise of the Warrants and the Underwriter's
Purchase Option only if (i) there is a current prospectus relating to the
securities offered hereby under an effective registration statement filed with
the Securities and Exchange Commission, and (ii) such Common Stock is then
qualified for sale or exempt therefrom under applicable state securities laws of
the jurisdictions in which the various holders of Warrants reside. Although the
Company intends to maintain a current registration statement, there can be no
assurance, however, that the Company will be successful in maintaining a current
registration statement. After a registration statement becomes effective, it may
require updating by the filing of a post-effective amendment. A post-effective
amendment is required when facts or events have occurred which represent a
material change in the information contained in the registration statement. The
Company intends to qualify the sale of the Warrants in a limited number of
states, although certain exemptions under certain state securities ("Blue Sky")
laws may permit the Warrants to be transferred to purchasers in states other
than those in which the Warrants were initially qualified. Qualification for the
exercise of the Warrants in the states is essential for the establishment of a
trading market in the securities. The Company can make no assurances that it
will be able to qualify its securities in any state. The Company will be
prevented, however, from issuing Common Stock upon exercise of the Warrants in
those states where exemptions are unavailable and the Company has failed to
qualify the Common Stock issuable upon exercise of the Warrants. The Company may
decide not to seek, or may not be able to obtain qualification of the issuance
of such Common Stock in all of the states in which the ultimate purchasers of
the Warrants reside. In such a case, the Warrants of those purchasers will
expire and have no value if such Warrants cannot be exercised or sold.
Accordingly, the market for the Warrants may be limited because of the Company's
obligation to fulfill the foregoing requirements. See "Description of
Securities," and "Underwriting."
LACK OF PRIOR MARKET FOR SECURITIES OF THE COMPANY
No prior market exists for the securities being offered hereby and no
assurance can be given that a market will develop subsequent to this offering.
The Underwriter may make a market in the securities of the Company upon the
closing of this offering, but there is no assurance that it will do so, or if a
market develops that it will be sustained. See "Description of Securities" and
"Underwriting."
WARRANTS SUBJECT TO REDEMPTION
The Company is offering 1,500,000 shares of Common Stock, $.01 par value per
share (the "Common Stock") and 2,000,000 Redeemable Common Stock Purchase
Warrants (the "Warrants"). The Common Stock and the Warrants (collectively, the
"Securities") are being offered separately and not as units, and each are
separately transferable. Each Warrant entitles the holder to purchase one share
of Common Stock at $5.25 per share (subject to adjustment) during the five-year
period commencing on the date of this Prospectus. The Warrants are redeemable by
the Company for $.05 per Warrant, on not less than thirty (30) days nor more
than sixty (60) days written notice if the closing bid price for the Common
Stock equals or exceeds $10.00 per share during any thirty (30) consecutive
trading day period ending not more than fifteen (15) days prior to the date that
the notice of redemption is mailed, provided there is then a current effective
registration statement under the Securities Act of 1933, as amended (the "Act")
with respect to the issuance and sale of Common Stock upon the exercise of the
Warrants. Any redemption of the Warrants during the one-year period commencing
on the date of this Prospectus shall require the written consent of the
Underwriter. See "Description of Securities" and "Underwriting."
The Company intends to qualify the sale of the securities in a limited
number of states, although certain exemptions under certain state securities
("Blue Sky") laws may permit the Warrants to be transferred to purchasers in
states other than those in which the Warrants were initially qualified.
9
<PAGE>
The Company will be prevented, however, from issuing Common Stock upon exercise
of the Warrants in those states where exemptions are unavailable and the Company
has failed to qualify the Common Stock issuable upon exercise of the Warrants.
The Company may decide not to seek, or may not be able to obtain qualification
of the issuance of such Common Stock in all of the states in which the ultimate
purchasers of the Warrants reside. In such case, the Warrants of those
purchasers will expire and have no value if such Warrants cannot be exercised or
sold. Accordingly, the market for the Warrants may be limited because of the
Company's obligation to fulfill the foregoing requirements.
EXERCISE OF UNDERWRITER'S WARRANTS MAY HAVE DILUTIVE EFFECT ON MARKET
In connection with this offering, the Company will issue to the Underwriter
and/or persons related to the Underwriter, for nominal consideration, warrants
to purchase 150,000 shares of Common Stock and 200,000 Warrants from the
Company. The Underwriter's Warrants will be exercisable for a five year period
commencing from the effective date of the offering at an exercise price of 160%
of the price at which the Common Stock and Warrants are sold to the public
subject to adjustment. The Underwriter's Warrants may have certain dilutive
effects because the holders thereof will be given the opportunity to profit from
a rise in the market price of the underlying shares with a resulting dilution in
the interest of the Company's other shareholders. The terms on which the Company
may obtain additional capital during the life of the Underwriter's Warrants may
be adversely affected because the holders of the Underwriter's Warrants might be
expected to exercise them at a time when the Company would otherwise be able to
obtain comparable additional capital in a new offering of securities at a price
per share greater than the exercise price of the Underwriter's Warrants. The
Company has agreed that, at the request of the holders thereof under certain
circumstances, it will register under federal and state securities laws the
Underwriter's Warrants and/or the securities issuable thereunder. Exercise of
these registration rights may involve substantial expense to the Company at a
time when it could not afford cash expenditures and may adversely affect the
terms upon which the Company may obtain additional funding and may adversely
affect the price of the Common Stock. See "Underwriting."
NASDAQ SMALLCAP MARKET ELIGIBILITY AND MAINTENANCE
Under the current rules relating to the listing of securities on the Nasdaq
SmallCap Market a company must have (a) at least $4,000,000 in net tangible
assets, or $750,000 in net income in two of the last three years, or a market
capitalization of at least $50,000,000, (b) public float of at least 1,000,000
shares, (c) market value of public float of at least $5,000,000, and (d) a
minimum bid price of $4.00 per share, among other requirements. For a continued
listing, a company must maintain (a) at least $2,000,000 in net tangible assets,
or $500,000 in net income in two of the last three years, or a market
capitalization of at least $35,000,000, (b) public float of at least 500,000
shares, (c) market value of public float of at least $1,000,000 and (d) a
minimum bid price of $1.00 per share; among other requirements.
The Common Stock and the Warrants are expected to be eligible for initial
listing on the Nasdaq SmallCap Market under the current rules upon the closing
of this offering. If at any time after issuance the Common Stock and Warrants
are not listed on the Nasdaq SmallCap Market, and no other exclusion from the
definition of a "penny stock" under the Exchange Act were available,
transactions in the securities would become subject to the penny stock
regulations which impose additional sales practice requirements on
broker-dealers who offer and sell such securities.
If the Company should experience losses from operations, it may be unable to
maintain the standards for continued listing and the securities may be subject
to delisting from the Nasdaq SmallCap Market. Trading, if any, in the securities
would thereafter be conducted in the over-the-counter market on an electronic
bulletin board established for securities that do not meet the Nasdaq SmallCap
Market listing requirements or in what are commonly referred to as the "pink
sheets." As a result, an investor may find it more difficult to dispose of or to
obtain accurate quotations as to the price of the securities.
10
<PAGE>
REGULATIONS MAY IMPOSE CERTAIN RESTRICTIONS ON MARKETABILITY OF LOW-PRICED
SECURITIES
The Securities and Exchange Commission ("Commission") has adopted
regulations which generally define "penny stock" to be any equity security that
has a market price (as defined) less than $5.00 per share, subject to certain
exceptions. Upon authorization of the securities offered hereby for quotation,
such securities will initially be exempt from the definition of "penny stock."
If the securities offered hereby fall within the definition of a "penny stock"
following the effective date, the Company's securities may become subject to
rules that impose additional sales practice requirements on broker-dealers who
sell such securities to persons other than established customers and accredited
investors (generally those with assets in excess of $1,000,000 or annual income
exceeding $200,000, or $300,000 together with their spouse). For transactions
covered by these rules, the broker-dealer must make a special suitability
determination for the purchase of such securities and have received the
purchaser's written consent to the transaction prior to the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
rules require the delivery, prior to the transaction, of a risk disclosure
document mandated by the Commission relating to the penny stock market. The
broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market-maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the "penny stock" rules may
restrict the ability of broker-dealers to sell the Company's securities and may
affect the ability of purchasers in this offering to sell the Company's
securities in the secondary market. See "Description of Securities."
SHARES ELIGIBLE FOR FUTURE SALE MAY ADVERSELY AFFECT THE MARKET
All of the Company's currently outstanding shares of Common Stock are
"restricted securities" and, in the future, may be sold upon compliance with
Rule 144, adopted under the Securities Act of 1933, as amended. Rule 144
provides, in essence, that a person holding "restricted securities" for a period
of one year may sell only an amount every three months equal to the greater of
(a) one percent of the Company's issued and outstanding shares, or (b) the
average weekly volume of sales during the four calendar weeks preceding the
sale. The amount of "restricted securities" which a person who is not an
affiliate of the Company may sell is not so limited, since nonaffiliates may
sell without volume limitation their shares held for two years if there is
adequate current public information available concerning the Company. Upon the
sale of the securities, and assuming that there is no exercise of any issued and
outstanding Warrants, the Company will have 3,500,000 shares of its common stock
issued and outstanding, of which 2,000,000 shares will be "restricted
securities." Therefore, during each three month period, a holder of restricted
securities who has held them for at least the one year period may sell under
Rule 144 a number of shares up to 35,000 shares. Non-affiliated persons who hold
for the two-year period described above may sell unlimited shares once their
holding period is met. However, pursuant to the terms of the Underwriting
Agreement, the stockholders of the Company have agreed not to sell, transfer,
assign or otherwise dispose of any restricted securities of the Company for a
period of 24 months following the date of this Prospectus. See "Dilution,"
"Principal Stockholders," "Certain Transactions," "Description of Securities"
and "Underwriting."
Prospective investors should be aware that the possibility of sales may, in
the future, have a depressive effect on the price of the Company's Common Stock
in any market which may develop and, therefore, the ability of any investor to
market his shares may be dependent directly upon the number of shares that are
offered and sold. Affiliates of the Company may sell their shares during a
favorable movement in the market price of the Company's Common Stock which may
have a depressive effect on its price per share. See "Description of
Securities."
11
<PAGE>
USE OF PROCEEDS
After deducting the underwriting discounts and commissions and estimated
offering expenses of this offering, the Company will receive net proceeds from
the offering of approximately $6,100,000. These net proceeds do not include the
exercise of the Underwriter's Over-Allotment Option. These proceeds, excluding
the exercise of any of the Warrants, will be utilized in order of priority by
the Company as listed below for approximately 12 months substantially as
follows:
<TABLE>
<CAPTION>
APPROXIMATE AMOUNT
OF NET PROCEEDS %
------------------- ---------
<S> <C> <C>
OPERATING COSTS AND WORKING CAPITAL
Business Development(1)................................ $ 2,350,000 38.53
Capital Equipment(2)................................... 1,250,000 20.49
Marketing and Sales(3)................................. 750,000 12.30
Mergers and Acquisitions(4)............................ 500,000 8.19
Working Capital(5)..................................... 1,250,000 20.49
------------------- ---------
TOTAL.............................................. $ 6,100,000 100.00
------------------- ---------
------------------- ---------
</TABLE>
- ------------------------
(1) Includes hydroponic products and systems development, annual salaries for
technical and services support and training personnel. The officers and
employees of the Company also intend to receive remuneration as part of an
overall group insurance plan providing health, life and disability insurance
benefits for employees of the Company. The officers of the Company also will
receive significant compensation in the form of salaries. See "Management --
Remuneration." Also, includes annual general and administrative employee
salaries, exclusive of management salaries, associated benefits, related
office rent and miscellaneous office expenses.
(2) The Company intends to purchase and/or lease certain additional capital
equipment and product inventory including, but not limited to, hydroponic
hardware equipment and systems, computer hardware/software and systems,
telephone and facsimile systems, security systems and office equipment and
furniture.
(3) The amount allocated by the Company for marketing and sales includes
marketing materials, advertising, business travel and a significant
expansion of its marketing and sales staff.
(4) Following the closing of this offering, the Company intends to engage in a
mergers and acquisitions campaign in order to merge with or acquire
complementary companies in the $10 million to $25 million revenue range. The
Company has not entered into any negotiations, agreements, arrangements or
understandings with respect to the merger with or acquisition of any such
target companies, or has any such agreement or understandings with any
brokers or finders regarding same. The Company can make no assurances that
it will be able to merge with or acquire any companies. Although the Company
intends to utilize not more than $500,000 in its mergers and acquisitions
activities during the 12 months following the date of this Prospectus, no
assurances can be made that such funds will enable the Company to expand its
base or realize profitable consolidated operations. Whenever possible, the
Company intends to issue its securities rather than use such cash funds to
consummate a merger or acquisition. The ability of the Company to engage in
a mergers and acquisitions campaign in view of the Company's resources is
uncertain. Should such funds not be utilized in its mergers and acquisitions
activities, the Company intends to utilize the funds in equal amounts in
capital equipment and marketing and sales.
(5) Working capital will be utilized by the Company to enhance and, otherwise,
stabilize cash flow during the initial 12 months of operations following the
closing of this offering, such that any
12
<PAGE>
shortfalls between cash generated by operating revenues and costs will be
covered by working capital. Although the Company prefers to retain its
working capital in reserve, the Company may be required to expend part or
all of these proceeds as financial demands dictate.
Although it is uncertain that the Company's shares of Common Stock will rise
to a level at which the Warrants would be exercised, in the event subscribers in
this offering elect to exercise all of the Warrants herein (not including the
Underwriter's Over-allotment Option or the Underwriter's Purchase Option), the
Company will realize gross proceeds of approximately $10,500,000. Management
anticipates that the proceeds from the exercise of the Warrants would be
contributed to working capital of the Company. Nonetheless, the Company may at
the time of exercise allocate a portion of the proceeds to any other corporate
purposes. Accordingly, investors who exercise their Warrants will entrust their
funds to management, whose specific intentions regarding the use of such funds
are not presently and specifically known.
The Company is unable to predict the precise period for which this offering
will provide financing, although management believes that the Company should
have sufficient working capital to meet its cash requirements for the 12 months
period following the date of this offering. Accordingly, the Company may need to
seek additional funds through loans or other financing arrangements during this
period of time. No such arrangements exist or are currently contemplated and
there can be no assurance that they may be obtained in the future should the
need arise.
Pending utilization, management intends to make temporary investment of the
proceeds in bank certificates of deposit, interest-bearing savings accounts,
prime commercial paper or federal government securities.
13
<PAGE>
DILUTION
As of January 31, 1998, the Company had net tangible book value of $646,000
or $.32 per share, derived from the Company's balance sheet as of January 31,
1998. Net tangible book value per share means the tangible assets of the
Company, less all liabilities, divided by the number of shares of Common Stock
outstanding. After giving effect to the sale of the Common Stock offered hereby
at an assumed price of $5.00 per share after deducting underwriting discounts
and estimated offering expenses, pro forma net tangible book value would have
been $6,746,000 or $1.93 per share. The result will be an immediate increase in
net tangible book value per share of $1.61 (approximately 603%) to existing
shareholders and an immediate dilution to new investors of $3.07 (approximately
61%) per share. As a result, public investors will bear most of the risk of loss
since their shares are being purchased at a cost substantially above the price
that existing shareholders acquired their shares. "Dilution" is determined by
subtracting net tangible book value per share after the offering from the
offering price to investors. The following table illustrates this dilution
assuming no exercise of the over-allotment option:
<TABLE>
<S> <C> <C>
Public offering price per share of the Common Stock offered hereby... $ 5.00
Net tangible book value per share, before the offering............. $ .32
Increase per share attributable to the sale by the Company of the
shares offered hereby............................................. $ 1.61
---------
Pro forma net tangible book value per share, after the offering...... $ 1.93
---------
Dilution per share to new investors.................................. $ 3.07
---------
---------
</TABLE>
The above table assumes no exercise of the Warrants, the Over-allotment
Option or the Representative's Purchase Option. See "Description of Securities."
The following table summarizes the investments of all existing stockholders
and new investors after giving effect to the sale of the shares offered hereby
assuming no exercise of the Representative's Over-allotment Option:
<TABLE>
<CAPTION>
PERCENTAGE PERCENT OF AVERAGE
SHARES OF TOTAL AGGREGATE TOTAL PRICE PER
PURCHASED SHARES CONSIDERATION INVESTED SHARE
----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Present Stockholders............................. 2,000,000 57.14% $ 3,999 .05% $ --
-----
-----
Public Stockholders.............................. 1,500,000 42.86% $ 7,500,000 99.95% $ 5.00
----------- ----------- ------------- ----------- -----
-----
Total........................................ 3,500,000 100.00% $ 7,503,999 100.00% $ 2.14
----------- ----------- ------------- ----------- -----
----------- ----------- ------------- ----------- -----
</TABLE>
If the Over-allotment Option is exercised in full, the public stockholders
will have paid $8,625,000 and will hold 1,725,000 shares of Common Stock,
representing 99.95% percent of the total consideration and 46.31% percent of the
total number of outstanding shares of Common Stock. See "Description of
Securities" and "Underwriting."
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company, as of
January 31, 1998 and as adjusted to reflect the sale of the securities offered
hereby. The table should be read in conjunction with the Financial Statements,
and the notes thereto.
<TABLE>
<CAPTION>
JANUARY 31,
1998 AS ADJUSTED(1)
------------- --------------
<S> <C> <C>
Long-term debt (2)................................................................. $ 1,045,000 $ 1,045,000
------------- --------------
Stockholders' equity
Common Stock, $.01 par value, 25,000,000 shares authorized, 2,000,000 shares
outstanding; 3,500,000 shares outstanding, as adjusted.......................... $ 20,000 $ 35,000
Additional paid-in capital....................................................... 520,000 6,605,000
Notes receivable stockholders.................................................... (525,000) (525,000)
Retained earnings................................................................ 631,000 631,000
------------- --------------
Total stockholders' equity..................................................... 646,000 6,746,000
------------- --------------
Total capitalization........................................................... $ 1,691,000 $ 7,791,000
------------- --------------
------------- --------------
</TABLE>
- ------------------------
(1) As adjusted to reflect the net proceeds of this offering. Assumes no
exercise of (i) the Warrants; (ii) the Underwriter's Over-allotment Option
to purchase up to 225,000 shares of Common Stock and 300,000 Warrants; or
(iii) the Underwriter's Purchase Option to purchase up to 150,000 shares of
Common Stock and 200,000 Warrants. See "Description of Securities" and
"Underwriting."
(2) Long-term debt consists primarily of capital lease obligations from related
and non-related parties. See Note C to the Company's Financial Statements.
DIVIDEND POLICY
Holders of the Company's Common Stock are entitled to dividends when, as and
if declared by the Board of Directors out of funds legally available therefor.
The Company does not anticipate the declaration or payment of any dividends in
the foreseeable future. The Company intends to retain earnings, if any, to
finance the development and expansion of its business. Future dividend policy
will be subject to the discretion of the Board of Directors and will be
contingent upon future earnings, if any, the Company's financial condition,
capital requirements, general business conditions and other factors. Therefore,
there can be no assurance that any dividends of any kind will ever be paid by
the Company.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
PLAN OF OPERATION
CropKing, Incorporated ("Company") designs, develops, manufactures, markets
and sells proprietary, commercial hydroponic products and systems, and related
technology, equipment and supplies to customers in the United States and abroad
for the commercial year-round production of high value, specialty, disease and
pesticide-free plant and floral crops, such as tomatoes, lettuce, peppers,
herbs, strawberries and roses. The Company's hydroponic products and systems are
offered to its prospective commercial and individual customers in standard and
custom-designed configurations, providing versatile commercial structures,
products and systems, including related technology, equipment and supplies, on a
turn-key basis. The Company's hydroponic products and systems are offered
through direct marketing and sales, dealers and distributors and by mail order.
The Company intends to principally use the proceeds of this offering for
operating costs and working capital, including business development, capital
equipment, marketing and sales and mergers and acquisitions of complementary
companies in an effort to significantly expand its business and operations. The
Company can make no assurances that the proceeds of this offering will enable it
to expand its business and operations in any manner.
Unlike the generic greenhouses and equipment sold by other suppliers, the
Company offers a controlled environment hydroponic products and systems design
for the commercial year round production of high value, specialty, disease and
pesticide-free plant and floral crops. A significant advance over conventional
glass hothouses of the past, the Company's advanced greenhouse design utilizes
energy efficient clear double covers constructed with the most advanced polymer
technology available to keep energy costs to a minimum. The Company's
proprietary design allows it to withstand high winds and heavy snow anywhere in
the U.S. and still maintain ideal growing conditions inside.
A complete hydroponics system, which is offered in standard and
custom-designed configurations, includes heating, cooling and ventilation
equipment, as well as dehumidification, optional floor heating, computerized
environmental controller and monitor and an automated nutrient injection system.
The Company does all the work for its customers on a turn key basis in sourcing
and configuring its hydroponic products and systems from reputable and
dependable suppliers, so that all of the parts to a system will work in harmony
together. Also, the Company's technicians analyze a customer's water source to
develop an appropriate nutrient program.The Company's technical staff conducts
periodic and subsequent analyses to keep the customer's nutrients optimized for
its target crops.
The Company's marketing, distribution and sales strategy targets commercial
and independent growers, dealers and distributors, mail order customers and
Internet (address: www.cropking.com) customers. At year end July 31, 1997,
commercial and independent growers represented approximately 87 percent of
sales, dealers and distributors represented approximately seven percent of
sales, and mail order customers and Internet customers represented approximately
six percent of sales. The Company believes that its mail order and Internet
customers will gain a larger percentage of its sales in the future due to
stronger marketing efforts by the Company and a general trend in the market
towards the electronic marketplace.
The Company also uses direct marketing of its hydroponic products, systems
and services, and intends to use a variety of other marketing programs to
stimulate demand for its products, systems and services. These programs are
focused on the target markets mentioned above and are designed to leverage the
Company's mail order list (more than 100,000 current and prospective customers)
and the Internet, and both are powerful marketing vehicles. In addition, the
Company intends to develop co-marketing programs with strategic corporate
partners designed to take advantage of complementary marketing capabilities,
E.G., agribusiness companies with mail order catalogues and other marketing and
distribution channels for the Company's hydroponic products and systems.
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The Company also markets and distributes its products in the U.S. and abroad
in part by disseminating its products and systems through multiple national and
international distribution channels. The Company heretofore has had limited
resources to market and distribute its products and systems. The Company can
make no assurances as to the future success of its marketing and distribution
strategy. Furthermore, the Company has limited resources to achieve the
distribution of its products and systems and no assurances can be made that the
Company will not require additional financing, which may not be available, to
achieve such objective. The Company has designed its marketing and distribution
strategy to address the particular requirements of its commercial and
independent growers, and individual customers. Therefore, the Company's
marketing and distribution efforts consists of a direct sales force of four
persons, dealers and distributors, telesales, mail order catalogue and the
Internet. Following the closing of this offering, the Company intends to
increase its direct sales force by three persons, all of whom will work on a
base salary plus a sales commission. There can be no assurance that such
internal expansion will be successfully completed, that the cost of such
expansion will not exceed the revenues generated; or that the Company's
marketing and distribution organization will be able to successfully compete
against the significantly more extensive and well-funded marketing and
distribution operations of many of the Company's current or potential
competitors. The Company's inability to effectively manage its internal
expansion may have a material adverse effect on the Company's business,
operating results or financial condition.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JANUARY 31, 1998, COMPARED TO SIX MONTHS ENDED JANUARY 31,
1997.
For the six months ended January 31, 1998, the Company reported revenue of
$2,969,000 from the sale of its hydroponic products, systems and services, a 4%
increase compared to the same period ending January 31, 1997 where the Company
reported revenue of $2,865,000 on the sale of its products, systems and
services. The increase was primarily attributable to an increase in the sale of
hydroponic supplies and service revenues. The Company's gross margin on sales
increased to 40% in the six months ended January 31, 1998 from 37% in the six
months ended January 31, 1997. The increase in gross margin is directly
attributable to the increase in service revenue.
Selling, general and administrative expenses increased to $888,000 in the
six months ended January 31, 1998 from $806,000 in the six months ended January
31, 1997. The increase was the result of expenditures primarily in product
development and professional fees. Service related expenses also increased.
Interest and financing charges decreased in the six months ended January 31,
1998 to $58,000 from $61,000 in the same period of 1997 due to a decrease in
borrowings.
YEAR ENDED JULY 31, 1997 COMPARED TO JULY 31, 1996.
For the year ended July 31, 1997, sales of its hydroponic products, systems
and services increased to $5,032,000 as compared to $3,854,000 for the year
ended July 31, 1996 for a 31% increase. The sales increase was the result of
increased demand resulting from expanded marketing effort for the Company's
hydroponic products and systems. The Company's gross margin on sales increased
by approximately 2% for 1997 as compared to 1996 primarily due to the increase
in higher margins on hydroponic system sales and increased service revenues.
Selling, general and administrative expenses increased to $1,711,000 for the
same period in 1997 from $1,249,000 in the same period in 1996. Such increase in
expenses was the result of increased wages and benefits, freight costs and
product development expenses. The increased wages are associated with additional
management and administrative staff needed to support operations. Product
development costs also increased to $104,000 for the same period in 1997 from
$40,000 for the same period in 1996 as a result of the further technical
development of certain products and systems offered
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by the Company to its customers. As a result of increased sales, increased
management and administrative costs and increased product development costs, the
Company's operating profit was $263,000 for the same period in 1997 as compared
to $176,000 for the same period in 1996.
Interest and financing expenses increased to $120,000 in the same period in
1997 as compared to $119,000 for the same period in 1996 as a result of greater
borrowings outstanding during 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations to date have concentrated on continuing development
of its hydroponic products and systems, establishing acceptance of its products
and systems in its industry, providing technical service to its existing
customer base and expansion of its business. The Company has, historically
financed these activities through internally generated cash flows from
operations and financing through long-term obligations (see Note C to the
Company's Financial Statements). Management of the Company believes that cash
flow provided by operations and the net proceeds of this offering will be
sufficient to sustain operations for the remainder of fiscal 1998 and fiscal
1999. Additional financing may be necessary to provide for continued product
development and operations in fiscal 2000.
In January 1998, the Company entered into a letter of intent with the
Underwriter for this initial public offering of the Company's securities. The
net proceeds of this offering, aggregating approximately $6,100,000, should
provide adequate working capital for the Company to enhance and, otherwise,
stabilize cash flow during at least the 12 months of operations following the
closing of this offering, such that any shortfalls between cash generated by
operating revenues and costs will be covered by working capital. Although the
Company prefers to retain its working capital in reserve, the Company may be
required to expend part or all of these proceeds as financial demands dictate.
Although it is uncertain that the Company's shares of Common Stock will rise
to a level at which the Warrants would be exercised, in the event subscribers in
this offering elect to exercise all of the Warrants herein (not including the
Underwriter's Over-allotment Option or the Underwriter's Purchase Option), the
Company will realize gross proceeds of approximately $10,500,000. Management
anticipates that the proceeds from the exercise of the Warrants would be
contributed to working capital of the Company. Nonetheless, the Company may at
the time of exercise allocate a portion of the proceeds to any other corporate
purposes. Accordingly, investors who exercise their Warrants will entrust their
funds to management, whose specific intentions regarding the use of such funds
are not presently and specifically known.
The Company is unable to predict the precise period for which this offering
will provide financing, although management believes that the Company should
have sufficient working capital to meet its cash requirements for the 12 months
period following the date of this offering. Accordingly, the Company may need to
seek additional funds through loans or other financing arrangements during this
period of time. No such arrangements exist or are currently contemplated and
there can be no assurance that they may be obtained in the future should the
need arise.
Pending utilization, management of the Company intends to make temporary
investment of the proceeds in bank certificates of deposit, interest-bearing
savings accounts, prime commercial paper or federal government securities.
IMPACT OF INFLATION
The Company does not believe that inflation has had a material adverse
effect on income since its inception. Increases in supplies or other operating
costs may adversely affect the Company's operations; however, the Company
believes it may increase prices of its hydroponic products, systems and services
to offset increases in operating costs.
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SEASONALITY
Based on its experience to date, the Company believes that its future
operating results will not be subject to seasonal changes. Such effects, should
they occur, may be apparent in the Company's operating results during a period
of expansion. However, the Company can make no assurance that its business can
be significantly expanded.
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BUSINESS
OVERVIEW
CropKing, Incorporated ("Company") designs, develops, manufactures, markets
and sells proprietary, commercial hydroponic products and systems, and related
technology, equipment and supplies, to customers in the United States and abroad
for the commercial year-round production of high value, specialty, disease and
pesticide-free plant and floral crops, such as tomatoes, lettuce, peppers,
herbs, strawberries and roses. The Company's hydroponic products and systems are
offered to its prospective commercial and individual customers in standard and
custom-designed configurations, providing versatile commercial structures,
products and systems, including related technology, equipment and supplies, on a
turn-key basis. The Company's hydroponic products and systems are offered
through direct marketing and sales, dealers and distributors and by mail order.
The Company annually distributes more than 100,000 mail order catalogs and other
marketing materials to its customers and prospective customers worldwide.
The Company intends to principally use the proceeds of this offering for
operating costs and working capital, including business development, capital
equipment, marketing and sales and mergers and acquisitions of complementary
companies in an effort to significantly expand its business and operations. The
Company can make no assurances that the proceeds of this offering will enable it
to expand its business and operations in any manner. See "Use of Proceeds" and
"Financial Statements."
The Company was incorporated in the State of Ohio in June 1982 and
reincorporated in the State of Delaware in August 1997. The principal executive
offices of the Company are located at 5050 Greenwich Road, Seville, Ohio 44273,
and its telephone number is (330) 769-2002. The Company's Internet address is
www.cropking.com. Unless the context otherwise indicates, the terms "Company"
and "CropKing" as used in this Prospectus refer to CropKing, Incorporated.
THE HYDROPONIC INDUSTRY
Hydroponics may be generally defined as the science of growing disease and
pesticide-free plants in soilless, insert media, to which is added a water
soluble nutrient containing the essential elements needed by the plant for
optimum growth and development. It is not a new scientific endeavor, with work
being done by researchers as early as the 1600's. In the early 1930's W. F.
Gericke of the University of California applied laboratory experiments in plant
nutrition to practical and commercial use. In doing so, he termed these
nutri-culture system, "hydroponics," derived from two Greek words, HYDRO and
PONOS, hydro, meaning water, and ponos, meaning labor, or literally, working
water.
Only since the mid 1980's, has hydroponics taken a major step forward with
the introduction of two particular growing media, including rockwool and
perlite. The advantages of these two media have allowed hydroponics to move
forward and become accepted as a practical and profitable way of growing certain
crops. Gericke's application of hydroponics soon proved itself by providing food
for troops stationed on non-arable islands in the Pacific in the early 1940's.
In 1945, the U.S. Army Air Force solved its problem of providing its personnel
with fresh vegetables by practicing hydroponics on the rocky islands normally
incapable of producing such crops.
With the development of plastics, hydroponics took another large step
forward. Plastics freed growers from the costly construction of concrete tanks
and beds previously used. Today, computerized environmental control systems,
automated injector feed systems, plastic plumbing and grow bags and other
technological innovations, have allowed growers to become increasingly efficient
in their production of crops using hydroponics, thereby reducing both capital
and operational costs.
Hydroponics has become a reality for growers in all climate regions. Large
hydroponic greenhouse complexes exist throughout the world including Holland,
England, Germany, the Middle East, Spain and Africa. Holland has been a leader
in the hydroponic industry. In this small country, no larger than the state of
Connecticut, there are over ten thousand acres of greenhouses utilizing
hydroponic
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technology. Much of the production is shipped to the United States and other
countries at premium prices. England's hydroponic industry, while somewhat
smaller than Holland's, still includes well over four thousand acres of
hydroponic greenhouse production. Canada has over one thousand acres, but in the
United States, there are currently only about one thousand acres of hydroponic
greenhouse production.
Why this small amount, in a country far larger geographically and in
population than its European counterparts? It is primarily because U.S. demand
for high quality vegetables has lagged behind that of other countries. Not until
the "baby boomer" generation matured did the consumer demand the quality that
only hydroponics can provide. Thus, in the late 1970's and early 1980's as the
post-war generation entered the market, they demanded quality produce, and
exhibited a willingness to pay a premium price to obtain it.
Hydroponic production techniques have significantly improved, and
agriculturally inclined entrepreneurs have begun to meet that demand. The
growing systems used in Holland and several other countries where hydroponic
technology is advanced, include the perlite and rockwool systems and rarely is
any other system considered by these up-to-date growers. The Company has
"packaged" its own proprietary technology that the Company believes is the most
efficient, most productive technology in its industry and offers it on a
turn-key basis to its customers worldwide.
Commercial hydroponics lends itself well to individual and small business
operated greenhouse enterprises where with good management practices, it can be
profitable supplying local markets with fresh produce on a year round basis. The
Company believes that markets for hydroponically grown produce have been
established and demand currently exceeds supply.
The advantages of hydroponics VIS A VIS traditional field agriculture are
significant, including:
-Superior taste, quality, appearance, uniformity and extended shelf life of
hydroponic vegetables.
-No sterilization of growing media required and plant nutrition is easily
and completely controlled within nutrient tanks.
-No weeds, no cultivation, no soil borne diseases or insects. Allows for
uniform water availability to plants.
-Closer plant spacing is possible and moveable plant channels allow greater
production from equal areas for some crops.
-Less water is required and less fertilizer needed. Root zone heating, known
to especially benefit tomatoes and cucumbers, is feasible and practical.
-Use of biological controls including beneficial insects and safe methods of
insect control are possible in a controlled environment system.
For many of the Company's customers, tomatoes are the ideal crop to produce
due to their high demand and high market value. Since tomatoes are a universal
staple in the American diet, they are easily marketed, even in outlying rural
areas away from major markets. This ease of marketing all that a grower can
produce is an important issue to consider when choosing a hydroponic crop. Also,
with a ten day shelf life, tomatoes need no refrigeration or special treatment
prior to delivery to market.
Consumer acceptance of hydroponically grown tomatoes has also contributed to
their appeal to the large commercial grower. Most of the year consumers must
depend on field grown tomatoes, usually from Mexico, Florida or California.
These green picked, gas ripened tomatoes are usually of questionable quality and
their taste and texture leave much to be desired. Transportation costs,
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unionized labor, and climatic conditions are increasing the cost to produce
field vegetables, and are causing a shift of vegetable production closer to the
markets, making controlled environment tomato production a particular profitable
alternative for the grower who is looking to diversify.
The quality of the hydroponically grown tomato is superior, with a beautiful
appearance, smooth skin, little or no blemishes, a deep red color when fully
ripe, a real tomato aroma, a meaty texture and an excellent taste, much like
very carefully cultivated garden tomatoes. Produce buyers are anxious to find
suppliers for this quality of tomato at a reasonable price.
Most hydroponic growers prefer to grow a single tomato crop for the entire
year, with northern growers usually planting seeds in early January, and
southern growers planting in August. Some growers plant two crops per year, a
spring and a fall crop, thereby eliminating the lower price received during the
summer months and allowing a reduction in labor at those times. In the north,
while the price is lower for a month or so in the summer time, hydroponic
tomatoes bring a premium price, right through the home grown season.
To make a full time business, to generate sufficient wages for the
owner/operator customer, and to earn a reasonable profit, the Company recommends
a quarter acre, four bay greenhouse as the minimum size to begin with. Some
customer growers wishing to start out on a smaller scale choose either a 30' X
124' free-standing unit, or a two bay connect unit, which can be added onto in
the future.
Hydroponic tomatoes can be grown in several types of soilless systems, with
perlite bags being one of the most popular. Rockwool, peat bags and NFT
(Nutrient Film Technique), are also used by some growers. The perlite bag
system, developed by growers in Scotland, is becoming the most popular system
due to the lower capital costs and ease of installation and management. Although
perlite is the system included in the Company's systems, the Company is able to
offer a variety of other systems, depending on the grower's requirements.
STRATEGY
The Company believes that the hydroponic industry will be an important
industry in the foreseeable future due to four overriding environmental issues
that have worldwide implications and which are instrumental in the Company's
business strategy:
DECREASING FRESH WATER SUPPLIES AND WATER QUALITY.
During this century demands for fresh water have soared worldwide. This is
due to rapid industrialization and the needs of a rapidly expanding world
population. Almost all of open field crops in the U.S. and many other countries
draw heavily from rivers and underground aquifers. Whole agricultural regions
depend on these sources, and many water sources are fast disappearing.
For example, the Ogalala Aquifer, which stretches from Canada down through
the Southwestern U.S., is responsible for millions of acres of bountiful
croplands and grazing lands. The United States Geological Survey (USGS) reports
that this aquifer, which has only been in heavy use for less than 50 years, is
more than two-thirds depleted in some areas. It is estimated that much of this
aquifer will be close to bone dry in 30-40 years with current usage. This
aquifer may take thousands of years to replenish itself.
The many fresh water wells in the Middle East are another example. Up to 30
years ago, water in these wells was always available a few meters down--even at
the end of severe 7-12 years droughts that have been recorded periodically
during the past 3,000 years. Now, at some of these wells, it is necessary to go
down 1,000 meters and more to draw water. Moreover, as underground water table
levels decline, or pockets (known as "lenses") of fresh water become smaller,
water usually becomes more "brackish;" it has higher concentrations of dissolved
salts. When this water is used for irrigation, and the water evaporates, it
leaves a salt residue (known as "salinization"). As this salt residue builds up,
it reaches a level where plants will not grow in it.
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Many of California's formerly productive agricultural lands no longer grow
crops. They are coated by, and saturated with, salt. Something similar can be
seen along the Nile in Egypt below the Aswan Dam. The annual flooding of the
undamed Nile used to wash away evaporated salts from what was some of the most
fertile land in the world. Now the farmland shines white with salt instead of
green with crops.
Another problem is increasing contamination of rivers and aquifers with the
excessive use of chemical fertilizers and insecticides on farms, plus chemical
pollution from urban development and industry. 250 million tons of industrial
waste is generated every year, much of it released into the air. Also, heavy
metals and deadly chemicals are leached by water from garbage and toxic wastes
in landfills, finding their way into underground water and waterways, which are
often used to irrigate crops. One of many examples is cadmium. This toxic heavy
metal is readily taken up by the root system of lettuce and works its way into
the leaves. Eating those lettuce leaves in salads means ingesting a toxic
chemical that the body stores away. When enough cadmium accumulates, it means
serious health problems.
Good quality fresh water can only become more scarce, more expensive and
more controlled. A well managed hydroponic plant wastes no water. That is
because whatever the plant does not use is recirculated instead of draining
away. Excellent water utilization provides a strong competitive advantage for
the hydroponic industry.
INCREASING FREQUENCY OF CLIMATE RELATED PROBLEMS.
In recent years, farmers in the U.S. and abroad have experienced more
climate and weather related problems than ever before, severely curtailing
production of many basic crops. Freezes in southern Florida and throughout
southern U.S. have significantly damaged field tomato production for the past
several years. Droughts, floods, wind, hail, early freezes and late frosts, have
significantly upset the typical planting and harvesting schedules of farmers
throughout the U.S.
This year's El Nino storms have caused more areas of the country to be
considered disaster areas than any other single event of this century. El Nino's
heavy rains and high winds have caused substantial crop damage to tomato,
lettuce, cucumber and pepper crops in California, strawberry and tomato crops in
Florida, peach and apple orchards in the southeast, and will delay or prevent
early plantings of many food crops in the midwest this Spring.
If conditions in the 1990's are similar to two similar weather cycles of the
last century (and so far they have been worse), we may expect to continue to
encounter climate extremes of drought, flood and other severe and unusual
weather on a worldwide basis. It is predicted that a major drought combined with
current population trends may cause widespread food shortages and possibly a
worldwide food crisis, persisting for several years. World political power may
center around food and water, not necessarily on just oil or technology, as it
does today. Witness what is currently occurring in North Korea, where
alternating drought and floods have devastated the farmers' ability to feed
their countrymen.
There is recent evidence that our planet may have entered a period linked to
weather and climate extremes, plus increased volcanic and earthquake activity.
The natural forces at work may last several years. New weather patterns caused
by El Nino are already shifting rainfall and its timing. Weather patterns are
significantly changing the growing conditions in many parts of the world to such
an extent that farmers worldwide are having a difficult time knowing when and
when not to plant their crops. Many of the areas we have come to rely on as
primary crop producing regions may be affected. Until a new weather pattern
stabilizes, we should expect much more unpredictability and less favorable
growing conditions. Further, these historic climatic concerns are likely to be
magnified by the continuing erosion of the earth's ozone layer, unprecedented
overpopulation that is already straining natural resources, and the depletion of
fresh water supplies.
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This climatic environmental issue favors protected crops, controlled
environment agriculture and hydroponics. With a well designed hydroponic growing
system, a grower can do much to protect plants from drought and flooding,
unseasonable frosts and freezes, wind and hail, and other sudden and more common
changes in climate conditions. The Company believes that these are strong
competitive advantages for the hydroponic grower and represents a significant
business opportunity for the Company.
INCREASING EROSION OF TOP SOIL AND SOIL DEGRADATION.
More than three billion acres of agricultural land has sustained heavy soil
damage due to human action. That is an area the size of China and India
combined. The World Resources Institute reports that:
-22 million acres no longer support vegetation,
-740 million acres need extensive restoration, and
-2,300 million acres need major and costly reclamation.
The cost of restoration and reclamation, or even of meeting modest
regulations needed to control soil erosion and contamination, is beyond the
means of most developing countries.
Soil erosion is among the major environmental problems facing the world
today. Each year an estimated two billion tons of top soil are lost to wind or
to water runoff. Agricultural output in many areas continues to decline because
of erosion and soil degradation. Major causes cited by the World Resources
Institute include:
-Overgrazing by livestock causes 35% of soil erosion. It is widespread in
Africa and Oceania.
-Deforestation accounts for 30% of soil erosion. It is predominant in South
America and increasing in South East Asia.
-Harmful agricultural practices are responsible for 28% of soil loss and
degradation. It occurs because of over-fertilization and insufficient
fallow or rest periods. "Slash and burn" methods by poverty-stricken
inhabitants in Africa, Asia and South America leave fields vulnerable to
erosion.
-Salinization, the build up of salts in soil, has been discussed above.
-Soil compaction, due to commercial farming methods is another problem. In
addition to water and nutrients, plant roots need easy access to oxygen for
best growth.
Hydroponic crops are not grown out of depleted and/or contaminated soil.
Special nutrient formulas provide more than just basic elements, and often
include subtle trace elements that "maximize the genetic potential" of the
plant. These formulas help the plant and its fruit develop to be the best it can
be. In addition, some hydroponic growing systems maximize the oxygen that
reaches the plant's root system, and that is very beneficial to plant growth.
INCREASING RESISTANCE OF INSECT PESTS AND PLANT DISEASES TO CHEMICAL
CONTROLS.
Insects play essential roles in nature. They aid bacteria and other
organisms in soil formation. Many plants depend on insects for pollination. A
few insects produce important commercial products--honey, silk, wax, dyes and
pigments, for example. However, the United Nations Food and Agriculture
Organization ("UNFAO") estimates that one-third of all cultivated crops are now
lost to insect pests. That percentage is rapidly increasing according to UNFAO.
Direct damage is done by feeding on leaves, stems, roots or fruit. Indirect
damage occurs when insects transmits bacterial, or more frequently, viral
infections to a crop. For example, in the American Southwest and Mexico, the
white fly is known to transmit a virus that devastates both open field and
protected crops, and for which no effective control is known.
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The first large scale use of pesticides in agriculture was in the 1860's.
Massive use of pesticides and insecticides in the U.S. began in the 1940's--only
about 60 years ago. Other countries followed our practices or accepted U.S. aid
and our practices. Since the 1950's, pesticide resistant species have increased
dramatically. As of 1997 at least 520 insects and mites, at least 150 plant
diseases and at least 113 weeds have developed resistance to one or more
pesticides meant to control them. In addition, 17 insect species are resistant
to all major classes of insecticides. Several plant diseases are now immune to
most fungicides used against them.
Growing healthy plants and using biological controls are becoming
increasingly important. The Company believes that a skilled grower can have a
significant advantage in a hydroponic greenhouse. More important for customer
business, significant segments of the market are willing to seek out and to pay
a premium price for high grade produce that is grown without the use of
dangerous pesticides, insecticides and fungicides.
The Company believes that as these four environmental issues intensify, its
strategy will be to define its hydroponic products and systems as a part of the
solution to these important and overriding worldwide concerns. The Company's
hydroponic products and systems have been designed to offer a lower risk, higher
profit alternative to traditional outdoor agriculture, combining the advantages
of soilless growing techniques with a technically controlled greenhouse
environment for unprecedented control over the quality and consistency of many
high yield crops, including tomatoes, lettuce, peppers, herbs, strawberries and
roses. By providing plants with the right amounts of nutrients for optimum
growth, maintaining the right balance of temperature and humidity and applying
proper biological methods of insect control, the Company's customers should be
able to produce commercial, year-round high value, specialty, disease and
pesticide-free plants and floral crops.
Also, an important part of the Company's strategy is to stress the
significant environmental and economic advantages of its hydroponic products and
systems over traditional field agriculture.
<TABLE>
<CAPTION>
TRADITIONAL FIELD AGRICULTURE CROPKING'S HYDROPONIC PRODUCTS AND SYSTEMS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Picked green and "gassed" to maturity Fresh, vine ripened, harvested at the
peak of taste and appearance
Shipped long distances to market Grown close to market
Seasonal production, when all Grown out of season
field growers have product when demand is highest
Subject to weather-related problems; Controlled environment insures
frost, freeze, flood, drought, wind, rain optimum growing climate
Soil related problems; weeds, insects, disease No soil means no soil problems
Chemical means of insect and disease control Safe, biological means of
insect and disease control
Poor quality--poor consumer Superior quality--good consumer
acceptance acceptance
</TABLE>
HYDROPONIC PRODUCTS AND SYSTEMS
The Company designs, develops, manufactures, markets and sells proprietary,
commercial hydroponic products and systems, and related technology, equipment
and supplies, to customers in the United States and abroad for the commercial
year-round production of high value, specialty, disease and pesticide-free plant
and floral crops. The Company's hydroponic products and systems are offered to
its prospective commercial and individual customers in standard and
custom-designed configurations, providing versatile commercial structures,
products and systems, including related technology, equipment and supplies, on a
turn-key basis.
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Unlike the generic greenhouses and equipment sold by other suppliers, the
Company offers a controlled environment hydroponic products and systems design
for the commercial year round production of high value, specialty, disease and
pesticide-free plant and floral crops. A significant advance over conventional
glass hothouses of the past, the Company's advanced greenhouse design utilizes
energy efficient clear double covers constructed with the most advanced polymer
technology available to keep energy costs to a minimum. The Company's
proprietary design allows it to withstand high winds and heavy snow anywhere in
the U.S. and still maintain ideal growing conditions inside.
A complete hydroponics system, which is offered in standard and
custom-designed configurations, includes heating, cooling and ventilation
equipment, as well as dehumidification, optional floor heating, computerized
environmental controller and monitor and an automated nutrient injection system.
The Company does all the work for its customers on a turn key basis in sourcing
and configuring its hydroponic products and systems from reputable and
dependable suppliers, so that all of the parts to a system will work in harmony
together. Also, the Company's technicians analyze a customer's water source to
develop an appropriate nutrient program. The Company's technical staff conducts
periodic and subsequent analyses to keep the customer's nutrients optimized for
its target crops.
A standard 30' X 124' free standing configuration of the Company's
hydroponic system includes the following features:
1. HYDROPONIC GREENHOUSE STRUCTURE
All of the Company's hydroponic greenhouse structures feature high strength
galvanized structural steel tubing, with 50,000-55,000 PSI tensile strength.
Frame, galvanized structural steel, with 4' arch spacing, with ground stakes,
couplers, five purlins, wind braces, cross braces, connectors, driving head,
hardware and blueprints. Also includes 2" x 4" end wall brackets for attaching
endwall studs.
2. ENTRANCE DOOR
Greenhouse entrance door, steel clad, insulated door with window, aluminum
casing, handle and lockset.
3. U.V. RESISTANT COVER
Two covers, 3 year U.V. resistant cover film with inner layer of infrared
energy saving and outer layer U.V.A. clear. End cover is simple layer, 3 year
U.V.A. film.
NOTE: POLYCARBONATE ENDWALL COVERING IS OPTIONAL.
Aluminum extruded cover lock for base and cedar fascia for end arches.
Barten tape for end framing, with screws, bit and mallet.
Air inflation kit with blower and mounting hardware for double wall
insulated cover system.
4. COOLING SYSTEM
Two 48" American Coolair exhaust fans with galvanized slope wall housing,
fan guards, aluminum shutters (one 1-speed, one 2-speed).
Glacier Cor evaporative pad cooling system, with water distribution system,
pad retainer, aluminum water return system, pump, float valve plumbing kit.
NOTE: SUMP TANK IS NOT INCLUDED AND MUST BE PURCHASED LOCALLY.
5. HEATING SYSTEM
Two gas unit heaters, propeller type, with aluminized steel heat exchanger
(10 year warranty), gravity vented with standing pilot and fan time delay. 80%
Thermal Efficiency. Natural or LP.
NOTE: GALVANIZED VENT PIPE IS NOT INCLUDED AND MUST BE PURCHASED LOCALLY.
The heater hanger kits, galvanized steel, with nuts, bolts and hardware for
mounting.
NOTE: A HOT WATER, BOTTOM HEATING SYSTEM IS AVAILABLE AT ADDITIONAL COST,
BUT CAN SAVE SIGNIFICANTLY ON ENERGY COSTS AND CAN INCREASE YIELDS.
6. AIR CIRCULATION SYSTEM
One 30" fan jet system with motorized air intake shutter, housing, heat kit
and hardware.
26
<PAGE>
Air delivery kit with 120' poly air tube, punched, with support wire and
tube mounting hangers.
7. ENVIRONMENTAL CONTROLS
Q-Com, "Grower's Choice," Model 1500, with on screen programming, power
supply, 15 outputs, 9 LED status display indicators and manual switches, 6 pilot
ready outputs, temperature and humidity sensor in radiation housing. Pre-wired
to electrical panel.
8. AIR INTAKE VENT ASSEMBLY
Counterbalanced cedar baffle door framing with fiberglass covering, all
cables, pulleys and hardware.
NOTE: AUTOMATIC POWER VENT OPTIONAL.
9. PLANT SUPPORT SYSTEM
Heavy duty galvanized steel plant support system with 3" end posts and 2"
intermediate posts including wire cable, eye bolts, U-bolts and turnbuckles.
10. ELECTRICAL PANEL
Pre-wired electrical panel including interior panel box, relay box,
breakers, relays, duplex receptacle, mounted on plywood board.
NOTE: WIRE FROM SERVICE TO PANEL, AND PANEL TO MOTORS, HEATERS, ETC., IS NOT
INCLUDED AND MUST BE PURCHASED BY GROWER.
11. PERLITE NUTRIENT FEED SYSTEM
Triple Dosmatic Injector System (pre-assembled, mounted and tested), three
concentrate tanks, pressure gauge, solenoid valve and plumbing kit.
Nutrient delivery system including main nutrient feed header, T connectors
for feed lines, CNL drip emitters, plugs, stakes, feeder tubes, punch, fittings
and hardware.
12. GROWER TECH SERVICE PROGRAM
Includes two day Grower Workshop, Workshop on Video, Grower's Manual,
Construction Manual and Blueprints, Newsletter, Annual Conference Audio Tapes
and Continuing Technical Support.
27
<PAGE>
13. TESTING MISC. EQUIPMENT
<TABLE>
<S> <C>
1 Morr, Conductivity DS Meter.... $ 138.50
1 Fisher pH Test Kit with
Indicator Solution............. 41.50
1 Certified Hygrometer........... 109.95
1 Nutrient Concentrate Mixing
Pump........................... 49.95
2 Min-Max Thermometers........... 49.90
1 Tomato Pollinator, with Battery
and Recharger.................. 183.95
---------
Total Testing and Misc.
Equipment.................... $ 573.75
---------
---------
</TABLE>
14. GROWING SUPPLIES
<TABLE>
<S> <C>
FOR APPROXIMATE ONE YEAR CROP:
290 Perlite Bags................ $ 870.00
12 Pads, Rockwool Cubes,
1 1/2"......................... 80.50
1080 Rockwool Propagation Blocks,
4"............................. 430.00
1250 Trust/Match Hybrid Tomato
Seeds.......................... 251.50
1000 Tomahooks................... 110.00
4 Boxes Vine Twine............ 91.80
2 Cases Vine Clips, 3/4"...... 199.60
1 Seedling Support Mat........ 64.50
1 Greenshield, Gal............ 32.85
1 Roll, Poly Patch Tape....... 7.95
---------
Total Growing Supplies......... $2,138.70
---------
---------
</TABLE>
NOTE 1: PACKAGING SUPPLIES WILL VARY IN TYPE AND IN QUANTITIES PURCHASED
DEPENDING ON CUSTOMER'S MARKET. THEREFORE, NO PACKING SUPPLIES ARE INCLUDED IN A
PRICE SHEET. THEY MAY BE PURCHASED WITH THE PACKAGE, OR AT A LATER DATE, ONCE
PRODUCTION BEGINS.
NOTE 2: FERTILIZERS ARE NOT INCLUDED IN THE GROWING SUPPLIES ABOVE. THE
AMOUNTS OF FERTILIZER REQUIRED AND PRICING CAN BE DETERMINED ONCE A WATER
ANALYSIS HAS BEEN RECEIVED AND REVIEWED BY THE COMPANY'S HORTICULTURIST.
PRICE SUMMARY MARCH 1998
<TABLE>
<CAPTION>
ITEM
NO. DESCRIPTION PRICE
- --------- ------------------------------------------------------------------------ -------------
<S> <C> <C>
1-8 Hydroponic Greenhouse Package........................................... $ 14,915.55
9 Tomato Plant Support System............................................. 780.00
10 Electrical Panel........................................................ 990.00
11 Perlite Nutrient Feed System............................................ 3,170.00
12 Grower Tech Service Program............................................. 1,000.00
13 Testing & Misc. Equipment............................................... 573.75
14 Growing Supplies........................................................ 2,138.70
-------------
Total Price of Above Package............................................ $ 23,568.00
-------------
-------------
</TABLE>
ADDITIONAL ORDERING INFORMATION FOR THE COMPANY'S CUSTOMERS:
Additional items not provided by the Company may be necessary to complete a
package.
Blueprints are made available once a deposit has been received by the
Company and an order has been placed.
Pricing is subject to standard Terms and Conditions of Sale that is made a
part of a Sales Contract when a purchase is made of the Company's hydroponic
products and systems.
Customers are to allow three to six weeks for shipment of a complete system.
The framework and materials necessary to begin construction may be shipped
sooner if desired. All items are F.O.B. Seville, Ohio, or origin of manufacture.
One-third deposit required with an order, one-third when actual production of an
order begins, and the remaining one-third is due prior to shipment.
Specifications and prices are also subject to change without notice.
28
<PAGE>
Additional standard free standing configurations and the capacity of the
Company's hydroponic systems are as follows:
<TABLE>
<CAPTION>
BAY DIMENSIONS CAPACITY
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
30'X124' Freestanding Bay 870 tomato plants
44'X128' Freestanding 2-Bay 1,440 tomato plants
66'X128' Freestanding 3-Bay 2,160 tomato plants
88'X128' Freestanding 4-Bay 2,880 tomato plants
</TABLE>
The prices of the Company's turn-key hydroponic systems range from
$23,568.00 to approximately $75,000, subject to the customer's final custom
specifications.
MARKETING, DISTRIBUTION AND SALES
The Company's marketing, distribution and sales strategy targets commercial
and independent growers, dealers and distributors, mail order customers and
Internet (address: www.cropking.com) customers. At year end July 31, 1997,
commercial and independent growers represented approximately 87 percent of
sales, dealers and distributors represented approximately seven percent of
sales, mail order customers represented approximately six percent of sales and
Internet customers represented approximately one percent of sales. The Company
believes that its mail order and Internet customers will gain a larger
percentage of its sales in the future due to stronger marketing efforts by the
Company and a general trend in the market towards the electronic marketplace.
The Company also uses direct marketing of its hydroponic products, systems
and services, and intends to use a variety of other marketing programs to
stimulate demand for its products, systems and services. These programs are
focused on the target markets mentioned above and are designed to leverage the
Company's mail order list (more than 100,000 current and prospective customers)
and the Internet, and both are powerful marketing vehicles. In addition, the
Company intends to develop co-marketing programs with strategic corporate
partners designed to take advantage of complementary marketing capabilities,
E.G., agribusiness companies with mail order catalogues and other marketing and
distribution channels for the Company's hydroponic products and systems.
The Company also markets and distributes its products in the U.S. and abroad
in part by disseminating its products and systems through multiple national and
international distribution channels. The Company heretofore has had limited
resources to market and distribute its products and systems. The Company can
make no assurances as to the future success of its marketing and distribution
strategy. Furthermore, the Company has limited resources to achieve the
distribution of its products and systems and no assurances can be made that the
Company will not require additional financing, which may not be available, to
achieve such objective. The Company has designed its marketing and distribution
strategy to address the particular requirements of its commercial and
independent growers, and individual customers. Therefore, the Company's
marketing and distribution efforts consists of a direct sales force of four
persons, dealers and distributors, telesales, mail order catalogue and the
Internet. Following the closing of this offering, the Company intends to
increase its direct sales force by three persons, all of whom will work on a
base salary plus a sales commission. There can be no assurance that such
internal expansion will be successfully completed, that the cost of such
expansion will not exceed the revenues generated; or that the Company's
marketing and distribution organization will be able to successfully compete
against the significantly more extensive and well-funded marketing and
distribution operations of many of the Company's current or potential
competitors. The Company's inability to effectively manage its internal
expansion may have a material adverse effect on the Company's business,
operating results or financial condition.
29
<PAGE>
PATENT, TRADEMARK, COPYRIGHT AND PROPRIETARY RIGHTS
The Company may file patent, trademark and/or copyright applications
relating to certain of the Company's hydroponic products and systems. If patent,
trademarks or copyrights were to be issued, there can be no assurance as to the
extent of the protection that will be granted to the Company as a result of
having such patents, trademarks or copyrights or that the Company will be able
to afford the expenses of any complex litigation which may be necessary to
enforce its proprietary rights. Failure of the Company's patents, trademark and
copyright applications may have a material adverse impact on the Company's
business. Except as may be required by the filing of patent, trademark and
copyright applications, the Company will attempt to keep all other proprietary
information secret and to take such actions as may be necessary to insure the
result of its development activities are not disclosed and are protected under
the common law concerning trade secrets. Such steps will include the execution
of nondisclosure agreement by key Company personnel and may also include the
imposition of restrictive agreements on purchasers of the Company's products,
systems and services. There is no assurance that the execution of such
agreements will be effective to protect the Company, that the Company will be
able to enforce the provisions of such nondisclosure agreements or that
technology and other information acquired by the Company pursuant to its
development activities will be deemed to constitute trade secrets by any court
of competent jurisdiction.
GOVERNMENT REGULATION
The Company is not currently subject to direct regulation by any state or
federal government agency other than regulations applicable to businesses
generally, and there are currently few laws or regulations directly applicable
to access to or to commerce on the Internet, a new electronic marketing medium
for the Company. However, due to the increasing popularity and use of the
Internet for electronic commerce, it is possible that a number of laws and
regulations may be adopted with respect to the Internet, conveying issues such
as user privacy, credit card use, and the pricing of commercial products offered
for sale. The adoption of any such laws or regulations may stifle electronic
commerce on the Internet, which may in turn decrease the demand for the
Company's products and systems and increase the Company's cost of doing business
or otherwise have an adverse impact on the Company's business, operating results
or financial condition.
COMPETITION
The Company's success and ability to compete is dependent in part upon its
proprietary hydroponic products and systems. While the Company intends to rely
on patent, trademark, copyright and proprietary rights to protect its
proprietary hydroponic products and systems, the Company believes that such
factors as the technological and creative experience and skills of its
personnel, new product developments, frequent product enhancements, name
recognition, and reliable product and system service are more essential to
establishing and maintaining a position in the marketplace. Despite the
Company's efforts to protect its proprietary rights and trade secrets,
unauthorized parties may attempt to copy aspects of the Company's hydroponic
products and systems to "reverse engineer" the Company's proprietary designs, or
to obtain and use information that the Company regards as proprietary. In
addition, litigation may be necessary in the future to enforce the Company's
intellectual property rights, to protect the Company's trade secrets, to
determine the validity and scope of the proprietary rights of others, or to
defend against claims of infringement or invalidity. Such litigation may result
in substantial costs and diversion of resources and may have a material adverse
effect on the Company's business, operating results or financial condition.
The market for the Company's hydroponic products, systems and services is
relatively new, intensely competitive, rapidly evolving and subject to rapid
change. The Company expects competition to persist, intensify and increase in
the future, from start-up companies to major agribusinesses. Many of the
Company's current and potential competitors have larger operating histories,
greater name recognition, larger instilled customer bases and significantly
greater financial, technical and marketing resources than the Company.
Competition in the hydroponics business will continue to be
30
<PAGE>
intense in the foreseeable future as the environment continues to deteriorate
and demand for crop foods intensifies as the population expands, and there can
be no assurance that the Company will be able to compete successfully against
current or future competitors, or that this significant competition will not
adversely affect the Company's business, operating results or financial
condition.
EMPLOYEES
As of the date of this prospectus, the Company has a total of 30 employees,
all of whom are full time employees. Of the total number of employees, 20 are
engaged in the Company's management, product development, support and services,
four are engaged in marketing and sales and six are engaged in administration
and finance. Following the closing of this offering, the Company intends to hire
approximately nine additional employees, including four in the Company's
management, product development, support and services, three in marketing and
sales and two in administration and finance. The Company's future success
depends in significant part upon the continued service of its key technical and
senior management personnel and its continuing ability to attract and retain
qualified technical and managerial personnel. Competition for qualified
technical personnel is intense and there can be no assurance that the Company
will be able to retain its key technical and managerial employees or that it
will be able to attract and retain additional qualified technical and managerial
personnel in the future. None of the Company's employees is represented by labor
union. The Company has not experienced any work stoppages and considers its
relations with its employees to be good.
The rapid execution necessary for the Company to fully exploit the market
window for its hydroponic products and systems requires an effective planning
and management process. The Company's growth has placed, and is expected to
continue to place, a significant strain on the Company's managerial, operational
and financial resources. To manage its growth, the Company must continue to
implement and improve its operational and financial systems and to expand, train
and manage its technical employee base. For example, the Company is currently in
the process of building its internal product development and support
organization. Although the Company believes that it has made adequate allowances
for the costs and risks associated with this expansion, there can be no
assurance that the Company's systems, procedures or controls will be adequate to
support the Company's operations or that Company management will be able to
achieve the rapid execution necessary to fully exploit the market window for the
Company's products and systems. If the Company is unable to manage growth
effectively, the Company's business, operating results and financial condition
may be materially adversely affected.
FACILITIES
The Company leases approximately 25,000 square feet for its principal
executive offices located at 5050 Greenwich Road, Seville, Ohio 44273. Base
rental for the current premises is approximately $7,500 per month. The lease
requires the Company to pay certain property taxes and certain operating
expenses. The Company believes that its current facilities are suitable and
adequate for its current operations.
31
<PAGE>
MANAGEMENT
The officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------------------------ ---------------------------------------------
<S> <C>
Daniel J. Brentlinger........................... Chairman of the Board, President, Chief
Executive Officer, Chief Financial Officer
John Campanella................................. Vice President, Chief Operating Officer,
Secretary
James W. Brown.................................. Vice President, Technical Services
Arthur E. Bard.................................. Vice President, Marketing and Sales
Howard M. Resh, Ph.D............................ Director
Robert A. Chesney............................... Director
</TABLE>
Each of the directors of the Company hold office for a one-year period
expiring December 31, 1998. At present, the Company's By-laws provide for not
less than one director nor more than nine directors. Currently, there are three
directors in the Company. The By-laws permit the Board of Directors to fill any
vacancy and such director may serve until the next annual meeting of
shareholders or until his successor is elected and qualified. Officers serve at
the discretion of the Board of Directors. There are no family relationships
among any officers or directors of the Company. The officers and directors have
served as promoters of the Company and the consideration received for such
services has been limited to the compensation disclosed under "Remuneration."
The officers of the Company devote full time to the business of the Company. See
"Certain Transactions."
The principal occupation and business experience for each officer and
director of the Company for at least the last five years are as follows:
DANIEL J. BRENTLINGER, 45, has been chairman of the board, president, chief
executive officer and chief financial officer of the Company since its
organization. Mr. Brentlinger is the founder of the Company. Mr. Brentlinger has
substantial senior management, technical operations and marketing and sales
experience in the hydroponics and aquaculture industries. Since the founding of
the Company in September 1982, Mr. Brentlinger has been instrumental in the
organization, development and promotion of the Company. Mr. Brentlinger holds a
B.S. degree from Southwest Missouri State University.
JOHN CAMPANELLA, 49, has been a vice president, chief operating officer and
secretary of the Company since 1997 and an employee of the Company since 1991.
Mr. Campanella has significant management, operations and marketing and sales
experience in the hydroponics industry. From 1980 to 1990, Mr. Campanella was
national sales manager for Panasonic Industrial Company, a Secaucus, New Jersey
based industrial products company. From 1990 to 1991, Mr. Campanella was
president and chief executive officer of Northland Sport Marketing, Inc., a
Cleveland, Ohio based sporting goods company. Since 1991, Mr. Campanella has
been instrumental in the organization, development and promotion of the Company.
Mr. Campanella holds a B.S. degree from the University of Cincinnati.
JAMES W. BROWN, 53, has been vice president of technical services of the
Company since 1997 and an employee of the Company since 1983. Mr. Brown has
significant management, technical operations and marketing experience in the
hydroponics industry. Since 1983, Mr. Brown has been responsible for the
Company's training workshops for the Company's hydroponic products and systems,
has
32
<PAGE>
coordinated the Company's annual national hydroponics conference, and has
otherwise been instrumental in the organization, development and promotion of
the Company. Mr. Brown holds a B.S. degree from McGill University, a M.S. degree
from Cornell University and an M.D. degree (divinity) from Faith Theological
Seminary.
ARTHUR E. BARD, 56, has been vice president of marketing and sales of the
Company since 1997 and an employee of the Company since 1991. Mr. Bard has
significant management, technical operations and marketing and sales experience
in the hydroponics industry. Since 1991, Mr. Bard has also been responsible for
the marketing and sales of the Company's hydroponic products and systems, and
related technology, equipment and supplies, and has otherwise been instrumental
in the organization, development and promotion of the Company. Mr. Bard holds
B.S. and M.S. degrees from the University of Wyoming and a Ph.D. degree
(candidate) from the University of Arizona.
HOWARD M. RESH, PH.D., 56, has been a director of the Company since
September 1997. Dr. Resh has substantial senior management, operations and
marketing experience in the hydroponics industry. Dr. Resh is a leading
international authority in the hydroponics industry and is the author of more
than 32 professional publications in the hydroponics field. Since 1990, Dr. Resh
has been the technical director and project manager of hydroponics systems, and
related technology and products, for California Watercress, Inc., a Fillmore,
California based agribusiness. Since 1997, Dr. Resh has been instrumental in the
organization, development and promotion of the Company. Dr. Resh holds B.S. and
Ph.D. degrees from the University of British Columbia.
ROBERT A. CHESNEY, 57, has been a director of the Company since September
1997. Mr. Chesney has substantial executive management, technical operations and
marketing and sales experience in the telecommunications industry. Since 1978,
Mr. Chesney has been president and chief executive officer of Chesney
Communications, a Newport Beach, California based communications and video
production firm, which produces WINDOW ON WALL STREET, a nationally syndicated
financial video program, among other financial video programs. Chesney
Communications intends to provide video production for the Company at prices
competitive with prices charged by other companies on an arm's length basis.
Since September 1997, Mr. Chesney has been instrumental in the organization,
development and promotion of the Company. Mr. Chesney holds a B.S. degree from
the University of Miami.
33
<PAGE>
REMUNERATION
EXECUTIVE COMPENSATION
The following table sets forth remuneration in excess of $100,000 paid for
the fiscal years ended July 31, 1997 and 1996 and proposed to be paid for the
fiscal year ended July 31, 1998 to the officers and directors of the Company:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE (1)(2)
------------------------------------------------
OTHER
NAME OF INDIVIDUAL OR NUMBER ANNUAL
OF PERSONS IN GROUP POSITION WITH COMPANY YEAR SALARY BONUS COMPENSATION
- ----------------------------- ------------------------------- --------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C>
Daniel J. Brentlinger........ Chairman of the Board, 1998 $ 175,000 $ 87,500 --
President, Chief Executive 1997 $ 98,910 $ 80,000 --
Officer, Chief Financial 1996 $ 94,200 -- --
Officer
</TABLE>
- ------------------------
(1) The person named in the table immediately above reflects the only person in
the management of the Company as of the date hereof earning in excess of
$100,000 per annum. The Company has agreed to purchase key-man term life
insurance on Mr. Brentlinger in the amount of $3 million following the
closing of this offering. The Company will be the owner and beneficiary of
such life insurance policy.
(2) The officers of the Company may receive remuneration as part of an overall
group insurance plan providing health, life and disability insurance
benefits for employees of the Company. The amount allocable to each
individual officer cannot be specifically ascertained, but, in any event,
will not exceed $25,000 as to each individual.
(3) Each outside director of the Company is entitled to receive reasonable
expenses incurred in attending meetings of the Board of Directors of the
Company. The members of the Board of Directors intend to meet at least
quarterly during the Company's fiscal year, and at such other times duly
called. The Company presently has three outside directors.
EMPLOYMENT AGREEMENT
The Company has entered into an employment agreement ("Agreement") with
Daniel J. Brentlinger, the chairman of the board, president and chief executive
officer of the Company, dated as of February 1, 1998. The Agreement will expire
on January 31, 2003. The current annual salary under the Agreement is $175,000.
The salary under the Agreement may be increased to reflect annual cost of living
increases and may be supplemented by discretionary merit and performance
increases as determined by the Board of Directors of the Company. Mr.
Brentlinger is entitled to an annual bonus equal to 50 percent of the salary
provided under his Agreement, which is subject to certain financial performance
criteria as established by the compensation committee of the Company.
The Agreement provides, among other things, for participation in an
equitable manner in any profit-sharing or retirement plan for employees or
executives and for participation in other employee benefits applicable to
employees and executives of the Company. The Agreement provides for the use of
an automobile, payment of club dues and other fringe benefits commensurate with
his duties and responsibilities. The Agreement also provides for benefits in the
event of disability. The Agreement also contains non-compete provisions but are
limited in geographical scope.
Pursuant to the Agreement, employment may be terminated by the Company with
cause or by the executive with or without good reason. Termination by the
Company without cause, or by the executive for good reason, would subject the
Company to liability for liquidated damages in an amount equal to the terminated
executive's current salary and a PRO RATA portion of their bonus for the
remaining term of the Agreement, payable in a lump sum cash payment, without any
set-off for
34
<PAGE>
compensation received from any new employment. In addition, the terminated
executive would be entitled to continue to participate in and accrue benefits
under all employee benefit plans and to receive supplemental retirement benefits
to replace benefits under any qualified plan for the remaining term of the
Agreement to the extent permitted by law.
LIMITATION ON LIABILITY OF DIRECTORS
As permitted by Delaware law, the Company's Certificate of Incorporation
includes a provision which provides that a director of the Company shall not be
personally liable to the Company or its stockholders for monetary damages for a
breach of fiduciary duty as a director, except (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of the law, (iii) under Section 174 of the General Corporation Law of
the State of Delaware, which prohibits the unlawful payment of dividends or the
unlawful repurchase or redemption of stock, or (iv) for any transaction from
which the director derives an improper personal benefit. This provision is
intended to afford directors protection against, and to limit their potential
liability for monetary damages resulting from, suits alleging a breach of the
duty of care by a director. As a consequence of this provision, stockholders of
the Company will be unable to recover monetary damages against directors for
action taken by them that may constitute negligence or gross negligence in
performance of their duties unless such conduct falls within one of the
foregoing exceptions. The provision, however, does not alter the applicable
standards governing a director's fiduciary duty and does not eliminate or limit
the right of the Company or any stockholder to obtain an injunction or any other
type of nonmonetary relief in the event of a breach of fiduciary duty.
Management of the Company believes this provision will assist the Company in
securing and retaining qualified persons to serve as directors. The Company is
unaware of any pending or threatened litigation against the Company or its
directors that would result in any liability for which such director would seek
indemnification or similar protection.
Such indemnification provisions are intended to increase the protection
provided directors and, thus, increase the Company's ability to attract and
retain qualified persons to serve as directors. Because directors liability
insurance is only available at considerable cost and with low dollar limits of
coverage and broad policy exclusions, the Company does not currently maintain a
liability insurance policy for the benefit of its directors although the Company
may attempt to acquire such insurance in the future. The Company believes that
the substantial increase in the number of lawsuits being threatened or filed
against corporations and their directors and the general unavailability of
directors liability insurance to provide protection against the increased risk
of personal liability resulting from such lawsuits have combined to result in a
growing reluctance on the part of capable persons to serve as members of boards
of directors of public companies. The Company also believes that the increased
risk of personal liability without adequate insurance or other indemnity
protection for its directors could result in overcautious and less effective
direction and management of the Company. Although no directors have resigned or
have threatened to resign as a result of the Company's failure to provide
insurance or other indemnity protection from liability, it is uncertain whether
the Company's directors would continue to serve in such capacities if improved
protection from liability were not provided.
The provisions affecting personal liability do not abrogate a director's
fiduciary duty to the Company and its shareholders, but eliminate personal
liability for monetary damages for breach of that duty. The provisions do not,
however, eliminate or limit the liability of a director for failing to act in
good faith, for engaging in intentional misconduct or knowingly violating a law,
for authorizing the illegal payment of a dividend or repurchase of stock, for
obtaining an improper personal benefit, for breaching a director's duty of
loyalty (which is generally described as the duty not to engage in any
transaction which involves a conflict between the interest of the Company and
those of the director) or for violations of the federal securities laws. The
provisions also limit or indemnify against liability resulting from grossly
negligent decisions including grossly negligent business decisions relating to
attempts to change control of the Company.
35
<PAGE>
The provisions regarding indemnification provide, in essence, that the
Company will indemnify its directors against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with any action, suit or proceeding arising out of the
director's status as a director of the Company, including actions brought by or
on behalf of the Company (shareholder derivative actions). The provisions do not
require a showing of good faith. Moreover, they do not provide indemnification
for liability arising out of willful misconduct, fraud, or dishonesty, for
"short-swing" profits violations under the federal securities laws, or for the
receipt of illegal remuneration. The provisions also do not provide
indemnification for any liability to the extent such liability is covered by
insurance. One purpose of the provisions is to supplement the coverage provided
by such insurance. However, as mentioned above, the Company does not currently
provide such insurance to its directors, and there is no guarantee that the
Company will provide such insurance to its directors in the near future although
the Company may attempt to obtain such insurance.
The provisions diminish the potential rights of action which might otherwise
be available to shareholders by limiting the liability of officers and directors
to the maximum extent allowable under Delaware law and by affording
indemnification against most damages and settlement amounts paid by a director
of the Company in connection with any shareholders derivative action. However,
the provisions do not have the effect of limiting the right of a shareholder to
enjoin a director from taking actions in breach of his fiduciary duty, or to
cause the Company to rescind actions already taken, although as a practical
matter courts may be unwilling to grant such equitable remedies in circumstances
in which such actions have already been taken. Although the Company has procured
directors liability insurance coverage, there is no assurance that it will
provide coverage to the extent directors would be indemnified and, in such
event, the Company may be forced to bear a portion or all of the cost of the
director's claims for indemnification. If the Company is forced to bear the
costs for indemnification, the value of the Company stock may be adversely
affected. In the opinion of the Securities and Exchange Commission,
indemnification for liabilities arising under the Securities Act of 1933 is
contrary to public policy and, therefore, is unenforceable.
36
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the Company's
Common Stock owned on the date of this Prospectus and, as adjusted, to reflect
the sale of shares offered by this Prospectus, by (i) each person who is known
by the Company to own beneficially more than five percent of the Company's
Common Stock; (ii) each of the Company's officers and directors; and (iii) all
officers and directors as a group:
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
--------------------------
NUMBER BEFORE AFTER
NAME AND ADDRESS (1) POSITION WITH COMPANY OF SHARES OFFERING OFFERING (2)
- ---------------------------------------------------- ---------------------------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Daniel J. Brentlinger............................... Chairman of the Board, President, 1,475,000 73.75 42.14
Chief Executive Officer, Chief
Financial Officer
John Campanella..................................... Vice President, Chief Operating 75,000 3.75 2.14
Officer, Secretary
James W. Brown...................................... Vice President, Technical Services 75,000 3.75 2.14
Arthur E. Bard...................................... Vice President, Marketing and 75,000 3.75 2.14
Sales
Howard M. Resh, Ph.D................................ Director 50,000 2.50 1.43
Robert A. Chesney................................... Director 50,000 2.50 1.43
Thomas T. Prousalis, Jr., Esq.(3)................... Stockholder 200,000 10.00 5.71
All Officers and Directors
as a Group (6 persons)............................ 1,800,000 90.00 51.43
</TABLE>
- ------------------------
(1) c/o CropKing, Incorporated, 5050 Greenwich Road, Seville, Ohio 44273.
(2) Does not include the exercise of up to 2,000,000 Warrants offered herein.
Each Warrant entitles the holder to purchase one share of Common Stock at
$5.25 per share during the five-year period commencing on the date of this
Prospectus. The Warrants are redeemable upon certain conditions. Should the
Warrants be exercised, of which there is no assurance, the Company will
receive the proceeds therefrom, aggregating up to an additional $10,500,000.
See "Description of Securities."
(3) 1919 Pennsylvania Avenue, N.W., Suite 800, Washington, D.C. 20006. See
"Legal Matters."
37
<PAGE>
CERTAIN TRANSACTIONS
The Company was incorporated in the State of Ohio in June 1982 and
reincorporated in Delaware in August 1997. The Company has authorized capital of
25,000,000 shares of Common Stock, $.01 par value. The Company has 2,000,000
shares of Common Stock issued and outstanding prior to this offering. See
"Principal Stockholders" and "Description of Securities."
In August 1997, the Company issued 2,000,000 shares of its Common Stock to
seven persons, including the officers and directors of the Company, in a pro
rata exchange of securities, in connection with the reincorporation of the
Company in Delaware. See "Principal Stockholders."
All unregistered securities issued by the Company prior to this offering are
deemed "restricted securities" within the meaning of that term as defined in
Rule 144 and have been issued pursuant to certain "private placement" exemptions
under Section 4(2) of the Securities Act of 1933, as amended, and certain rules
and regulations as promulgated by the Securities and Exchange Commission,
Washington, D.C. 20549, such that the sales of the securities were transactions
by an issuer not involving any public offering. See "Description of Securities."
The Company intends to indemnify its officers and directors to the full
extent permitted by Delaware law. Under Delaware law, a corporation may
indemnify its agents for expenses and amounts paid in third party actions and,
upon court approval in derivative actions, if the agents acted in good faith and
with reasonable care. A majority vote of the Board of Directors, approval of the
shareholders or court approval is required to effectuate indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to officers, directors or persons
controlling the Company, the Company has been advised that, in the opinion of
the Securities and Exchange Commission, Washington, D.C. 20549, such
indemnification is against public policy as expressed in such Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by an officer, director or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
officer, director or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in such Act and will be governed by the final adjudication
of such issue.
Any future transactions with affiliates will be on terms no less favorable
than could be obtained from nonaffiliated parties and will be approved by a
majority of the independent and disinterested directors, as required by a
resolution of the Board of Directors. Any future loans to Company officers,
directors, affiliates and/or shareholders will be approved by a majority of the
independent and disinterested directors, as required by a resolution of the
Board of Directors.
38
<PAGE>
DESCRIPTION OF SECURITIES
COMMON STOCK
The authorized capital stock of the Company consists of 25,000,000 shares of
Common Stock, $.01 par value. The Company has 2,000,000 shares of Common Stock
issued and outstanding prior to this offering. Holders of the Common Stock do
not have preemptive rights to purchase additional shares of Common Stock or
other subscription rights. The Common Stock carries no conversion rights and is
not subject to redemption or to any sinking fund provisions. All shares of
Common Stock are entitled to share equally in dividends from sources legally
available therefor when, as and if declared by the Board of Directors and, upon
liquidation or dissolution of the Company, whether voluntary or involuntary, to
share equally in the assets of the Company available for distribution to
stockholders. All outstanding shares of Common Stock are validly authorized and
issued, fully paid and nonassessable, and all shares to be sold and issued as
contemplated hereby, will be validly authorized and issued, fully paid and
nonassessable. The Board of Directors is authorized to issue additional shares
of Common Stock, not to exceed the amount authorized by the Company's
Certificate of Incorporation, and to issue options and warrants for the purchase
of such shares, on such terms and conditions and for such consideration as the
Board may deem appropriate without further stockholder action. The above
description concerning the Common Stock of the Company does not purport to be
complete. Reference is made to the Company's Certificate of Incorporation and
By-laws which are available for inspection upon proper notice at the Company's
offices, as well as to the applicable statutes of the State of Delaware for a
more complete description concerning the rights and liabilities of stockholders.
Prior to this offering, there has been no market for the Common Stock of the
Company, and no predictions can be made of the effect, if any, that market sales
of shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of significant amounts of the
Common Stock of the Company in the public market may adversely affect prevailing
market prices, and may impair the Company's ability to raise capital at that
time through the sale of its equity securities.
Each holder of Common Stock is entitled to one vote per share on all matters
on which such stockholders are entitled to vote. Since the shares of Common
Stock do not have cumulative voting rights, the holders of more than 50 percent
of the shares voting for the election of directors can elect all the directors
if they choose to do so and, in such event, the holders of the remaining shares
will not be able to elect any person to the Board of Directors.
WARRANTS
Prior to this offering, there are no Warrants issued and outstanding. The
Warrants will be issued in registered form pursuant to an agreement dated the
date of this Prospectus (the "Warrant Agreement"), between the Company and
American Stock Transfer & Trust Company, New York, New York, as warrant agent
(the "Warrant Agent"). The following discussion of certain terms and provisions
of the Warrants is qualified in its entirety by reference to the Warrant
Agreement. A form of the certificate representing the Warrants which forms a
part of the Warrant Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part.
Each of the Warrants entitles the registered holder to purchase one share of
Common Stock. The Warrants are exercisable at a price of $5.25 (which exercise
price has been arbitrarily determined by the Company and the Underwriter)
subject to certain adjustments. The Warrants are entitled to the benefit of
adjustments in their exercise prices and in the number of shares of Common Stock
or other securities deliverable upon the exercise thereof in the event of a
stock dividend, stock split, reclassification, reorganization, consolidation or
merger.
The Warrants may be exercised at any time and continuing thereafter until
the close of five years from the date hereof, unless such period is extended by
the Company. After the expiration date, Warrant holders shall have no further
rights. Warrants may be exercised by surrendering the certificate evidencing
such Warrant, with the form of election to purchase on the reverse side of such
certificate properly completed and executed, together with payment of the
exercise price and any
39
<PAGE>
transfer tax, to the Warrant Agent. If less than all of the Warrants evidenced
by a warrant certificate are exercised, a new certificate will be issued for the
remaining number of Warrants. Payment of the exercise price may be made by cash,
bank draft or official bank or certified check equal to the exercise price.
Warrant holders do not have any voting or any other rights as shareholders
of the Company. The Company has the right at any time to redeem the Warrants, at
a price of $.05 per Warrant, by written notice to the registered holders
thereof, mailed not less than thirty (30) nor more than sixty (60) days prior to
the Redemption Date. The Company may exercise this right only if the closing bid
price for the Common Stock equals or exceeds $10 per share during a thirty (30)
consecutive trading day period ending no more than fifteen (15) days prior to
the date that the notice of redemption is mailed, provided there is then a
current registration statement under the Securities Act of 1933, as amended (the
"Act") with respect to the issuance and sale of Common Stock upon the exercise
of the Warrants. If the Company exercises its right to call Warrants for
redemption, such Warrants may still be exercised until the close of business on
the day immediately preceding the Redemption Date. If any Warrant called for
redemption is not exercised by such time, it will cease to be exercisable, and
the holder thereof will be entitled only to the repurchase price. Notice of
redemption will be mailed to all holders of Warrants or record at least thirty
(30) days, but not more than sixty (60) days, before the Redemption Date. The
foregoing notwithstanding, the Company may not call the Warrants at any time
that a current registration statement under the Act is not then in effect. Any
redemption of the Warrants during the one-year period commencing on the date of
this Prospectus shall require the written consent of the Underwriter.
The Warrant Agreement permits the Company and the Warrant Agent, without the
consent of Warrant holders, to supplement or amend the Warrant Agreement in
order to cure any ambiguity, manifest error or other mistake, or to address
other matters or questions arising thereafter that the Company and the Warrant
Agent deem necessary or desirable and that do not adversely affect the interest
of any Warrant holder. The Company and the Warrant Agent may also supplement or
amend the Warrant Agreement in any other respect with the written consent of
holders of not less than a majority in the number of Warrants then outstanding;
however, no such supplement or amendment may (i) make any modification of the
terms upon which the Warrants are exercisable or may be redeemed; or (ii) reduce
the percentage interest of the holders of the Warrants without the consent of
each Warrant holder affected thereby.
In order for the holder to exercise a Warrant, there must be an effective
registration statement, with a current prospectus on file with the Commission
covering the shares of Common Stock underlying the Warrants, and the issuance of
such shares to the holder must be registered, qualified or exempt under the laws
of the state in which the holder resides. If required, the Company will file a
new registration statement with the Commission with respect to the securities
underlying the Warrants prior to the exercise of such Warrants and will deliver
a prospectus with respect to such securities to all holders thereof as required
by Section 10(a)(3) of the Securities Act of 1933, as amended.
SHARES ELIGIBLE FOR FUTURE SALE
All of the Company's currently outstanding shares of Common Stock are
"restricted securities" and, in the future, may be sold upon compliance with
Rule 144, adopted under the Securities Act of 1933, as amended. Rule 144
provides, in essence, that a person holding "restricted securities" for a period
of one year may sell only an amount every three months equal to the greater of
(a) one percent of the Company's issued and outstanding shares, or (b) the
average weekly volume of sales during the four calendar weeks preceding the
sale. The amount of "restricted securities" which a person who is not an
affiliate of the Company may sell is not so limited, since nonaffiliates may
sell without volume limitation their shares held for two years if there is
adequate current public information available concerning the Company. Upon the
sale of the securities, and assuming that there is no exercise of any issued and
outstanding Warrants, the Company will have 3,500,000 shares of its common stock
issued and outstanding, of which 2,000,000 shares will be "restricted
securities." Therefore, during each three month period, a holder of restricted
securities who has held them for at least the one year period
40
<PAGE>
may sell under Rule 144 a number of shares up to 35,000 shares. Non-affiliated
persons who hold for the two-year period described above may sell unlimited
shares once their holding period is met. However, pursuant to the terms of the
Underwriting Agreement, the stockholders of the Company have agreed not to sell,
transfer, assign or otherwise dispose of any restricted securities of the
Company for a period of 24 months following the date of this Prospectus.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the securities of the Company is
American Stock Transfer & Trust Company located at 40 Wall Street, New York, New
York 10005.
REPORTS TO SECURITY-HOLDERS
The Company will furnish to holders of its securities annual reports
containing audited financial statements. The Company may issue other unaudited
interim reports to its security-holders as it deems appropriate.
Contemporaneously, with this offering, the Company intends to register its
securities with the Securities and Exchange Commission, Washington, D.C. 20549,
under the provisions of Section 12(g) of the Securities Exchange Act of 1934, as
amended ("Exchange Act"), and, in accordance therewith, the Company will be
required to comply with certain reporting, proxy solicitation and other
requirements of the Exchange Act.
41
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, Barron
Chase Securities, Inc. (the "Underwriter") has agreed to purchase from the
Company an aggregate of 1,500,000 Shares and 2,000,000 Warrants (collectively,
the "Securities"). The Securities are offered by the Underwriter subject to
prior sale, when, as and if delivered to and accepted by counsel and certain
other conditions. The Underwriter is committed to purchase all Securities
offered by this Prospectus, if any are purchase (other than those covered by the
Over-Allotment Option described below).
The Company has been advised by the Underwriter that the Underwriter
proposes to offer the Securities to the public at the offering prices set forth
on the cover page of this Prospectus. The Underwriter has advised the Company
that the Underwriter proposes to offer the Securities through members of the
National Association of Securities Dealers, Inc. ("NASD"), and may allow
concessions, in its discretion, to certain selected dealers who are members of
the NASD and who agree to sell the Securities in conformity with the NASD's
Conduct Rules. Such concessions will not exceed the amount of the underwriting
discount that the Underwriter is to receive.
The Company has granted to the Underwriter an Over-Allotment Option,
exercisable for 45 days from the Effective Date, to purchase up to an additional
225,000 Shares and an additional 300,000 Warrants at the respective public
offering prices less the Underwriting Discounts set forth on the cover page of
this Prospectus. The Underwriter may exercise this option solely to cover
overallotments in the sale of the Securities being offered by this Prospectus.
Officers and directors of the Company may introduce the Underwriter to
persons to consider this offering and to purchase Securities either through the
Underwriter or through participating dealers. In this connection, no Securities
have been reserved for those purchases and officers and directors will not
receive any commissions or any other compensation.
The Company has agreed to pay to the Underwriter a commission of ten percent
(10%) of the gross proceeds of this offering (the "Underwriting Discount"),
including the gross proceeds from the sale of the Over-Allotment Option, if
exercised. In addition, the Company has agreed to pay to the Underwriter the
Non-Accountable Expense Allowance of three percent (3%) of the gross proceeds of
this offering, including proceeds from any Securities purchased pursuant to the
Over-Allotment Option. The Company has paid to the Underwriter a $50,000 advance
in respect of the Non-Accountable Expense Allowance. The Underwriter's expenses
in excess of the Non-Accountable Expense Allowance will be paid by the
Underwriter. To the extent that the expenses of the Underwriter are less than
the amount of the Non-Accountable Expense Allowance received, such excess shall
be deemed to be additional compensation to the Underwriter. The Underwriter has
informed the Company it does not expect sales of discretionary accounts to
exceed five percent (5%) of the total number of Securities offered by the
Company hereby.
The Company has agreed to engage the Underwriter as a financial advisor at a
fee of $108,000, which is payable to the Underwriter on the Closing Date.
Pursuant to the terms of a financial advisory agreement, the Underwriter has
agreed to provide, at the Company's request, advice to the Company concerning
potential merger and acquisition and financing proposals, whether by public
financing or otherwise. The Company has also agreed that if the Company
participates in any transaction which the Underwriter has introduced in writing
to the Company during a period of five years after the Closing (including
mergers, acquisitions, joint ventures and any other business transaction for the
Company introduced in writing by the Underwriter), and which is consummated
after the Closing (including an acquisition of assets or stock for which it
pays, in whole or in part, with shares or other securities of the Company), or
if the Company retains the services of the Underwriter in connection with any
such transaction (an "Introduced Consummated Transaction"), then the Company
will pay for the Underwriter's services an amount equal to 5% of up to one
million dollars of value paid or received in the transaction, 4% of the next one
million dollars of such value, 3% of the next one million dollars of such value,
2% of the next one million dollars of such value, and 1% of the next million
dollars of such value and of all such value above $4,000,000.
42
<PAGE>
Prior to this offering, there has been no public market for the shares of
Common Stock or the Warrants. Consequently, the initial public offering prices
for the Securities, and the terms of the Warrants (including the exercise price
of the Warrants), have been determined by negotiation between the Company and
the Underwriter. Among the factors considered in determining the public offering
prices were the history of, and the prospects for, the Company's business, an
assessment of the Company's management, the Company's past and present
operations, its development and the general condition of the securities market
at the time of this offering. The initial public offering prices do not
necessarily bear any relationship to the Company's assets, book value, earnings
or other established criteria of value. Such prices are subject to change as a
result of market conditions and other factors, and no assurance can be given
that a public market for the Shares or the Warrants will develop after the
Closing, or if a public market in fact develops, that such public market will be
sustained, or that the Shares or the Warrants can be resold at any time at the
offering or any other price. See "Risk Factors."
At the Closing, the Company will issue to the Underwriter and/or persons
related to the Underwriter, for nominal consideration, the Common Stock
Underwriter Warrants to purchase up to 150,000 shares of Common Stock (the
"Underlying Shares") and the Warrant Underwriter Warrants to purchase up to
200,000 warrants (the "Underlying Warrants"). The Common Stock Underwriter
Warrants, the Warrant Underwriter Warrants and the Underlying Warrants are
sometimes referred to in this Prospectus as the "Underwriter Warrants." The
Common Stock Underwriter Warrants and the Warrant Underwriter Warrants will be
exercisable for a five-year period commencing on the Effective Date. The initial
exercise price of each Common Stock Underwriter Warrant shall be $8.00 per
Underlying Share (160% of the public offering price). The initial exercise price
of each Warrant Underwriter Warrant shall be $.20 per Underlying Warrant (160%
of the public offering price). Each Underlying Warrant will be exercisable for a
five-year period commencing on the Effective Date to purchase one share of
Common Stock at an exercise price of $8.00 per share of Common Stock. The
Underwriter Warrants will be restricted from sale, transfer, assignment or
hypothecation for a period of twelve months from the Effective Date by the
holder, except (i) to officers of the Underwriter and members of the selling
group and officers and partners thereof; (ii) by will; or (iii) by operation of
law.
The Common Stock Underwriter Warrants and the Warrant Underwriter Warrants
contain provisions providing for appropriate adjustment in the event of any
merger, consolidation, recapitalization, reclassification, stock dividend, stock
split or similar transaction. The Underwriter Warrants contain net issuance
provisions permitting the holders thereof to elect to exercise the Underwriter
Warrants in whole or in part and instruct the Company to withhold from the
securities issuable upon exercise, a number of securities, valued at the current
fair market value on the date of exercise, to pay the exercise price. Such net
exercise provision has the effect of requiring the Company to issue shares of
Common Stock without a corresponding increase in capital. A net exercise of the
Underwriter Warrants will have the same dilutive effect on the interests of the
Company's shareholders as will a cash exercise. The Underwriter Warrants do not
entitle the holders thereof to any rights as a shareholder of the Company until
such Underwriter Warrants are exercised and shares of Common Stock are purchased
thereunder.
The Underwriter Warrants and the securities issuable thereunder may not be
offered for sale except in compliance with the applicable provisions of the
Securities Act. The Company has agreed that if it shall cause a post-effective
amendment, a new registration statement, or similar offering document to be
filed with the Commission, the holders shall have the right, for seven (7) years
from the Effective Date, to include in such registration statement or offering
statement the Underwriter Warrants and/or the securities issuable upon their
exercise at no expense to the holders. Additionally, the Company has agreed
that, upon request by the holders of 50% or more of the Underwriter Warrants
during the period commencing one year from the Effective Date and expiring four
years thereafter, the Company will, under certain circumstances, register the
Underwriter Warrants and/or any of the securities issuable upon their exercise.
43
<PAGE>
In order to facilitate the offering of the Common Stock and Warrants, the
Underwriter may engage in transactions that stabilize, maintain or otherwise
affect the price of the Common Stock and Warrants. Specifically, the Underwriter
may overallot in connection with the offering, creating a short position in the
Common Stock and Warrant for its own account. In addition, to cover
overallotments or to stabilize the price of the Common Stock and Warrant, the
Underwriter may bid for, and purchase, shares of Common Stock and Warrants in
the open market. Finally, the Underwriter may reclaim selling concessions
allowed to a dealer for distributing the Common Stock and Warrant in the
offering, if the Underwriter repurchases previously distributed Common Stock or
Warrants in transactions to cover the Underwriter's short position in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock and Warrants above independent
market levels. The Underwriter is not required to engage in these activities,
and may end any of these activities, and may end any of these activities at any
time.
The Company has agreed to indemnify the Underwriter against any costs or
liabilities incurred by the Underwriter by reason of misstatements or omissions
to state material factors in connection with the statements made in the
Registration Statement filed by the Company with the Commission under the
Securities Act (together with all amendments and exhibits thereto, the
"Registration Statement") and this Prospectus. The Underwriter has in turn
agreed to indemnify the Company against any costs or liabilities by reason of
misstatements or omissions to state material facts in connection with the
statements made in the Registration Statement and this Prospectus, based on
information relating to the Underwriter and furnished in writing by the
Underwriter. To the extent that these provisions may purport to provide
exculpation from possible liabilities arising under the federal securities laws,
in the opinion of the Commission, such indemnification is contrary to public
policy and therefore unenforceable.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to copies
of each such agreement which are filed as exhibits to the Registration
Statement. See "Additional Information."
44
<PAGE>
LEGAL PROCEEDINGS
CropKing, Incorporated is not a party to any legal proceedings and, to the
best of its information, knowledge and belief, none is contemplated or has been
threatened.
LEGAL MATTERS
The validity of the securities being offered hereby will be passed upon for
the Company by Thomas T. Prousalis, Jr., Esq., 1919 Pennsylvania Avenue, N.W.,
Suite 800, Washington, D.C. 20006. Mr. Prousalis is the beneficial owner of
200,000 shares of Common Stock of the Company. Certain legal matters will be
passed upon for the Underwriters by David A. Carter, P.A., 2300 Glades Road,
Suite 210W, Boca Raton, Florida 33431.
EXPERTS
The financial statements of CropKing, Incorporated as of July 31, 1997,
included in the Registration Statement and this Prospectus have been included
herein in reliance on the report dated January 26, 1998, of Grant Thornton LLP,
Independent Certified Public Accountants, and upon the authority of such firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 under the Securities Act of
1933, as amended, with respect to the securities being offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement and the exhibits thereto. For further information about the Company
and the securities offered hereby, reference is made to the Registration
Statement and to the exhibits filed as a part thereof. The statements contained
in this Prospectus as to the contents of any contract or other document
identified as exhibits in this Prospectus are not necessarily complete, and in
each instance, reference is made to a copy of such contract or document filed as
an exhibit to the Registration Statement, each statement being qualified in any
and all respects by such reference. The Registration Statement, including
exhibits, may be inspected without charge at the principal reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549
and at the Los Angeles, California Regional Office of the Commission, 5757
Wilshire Boulevard, Suite 500 East, Los Angeles, California 90036-3648, and
copies of all or any part thereof may be obtained from the Commission upon
payment of fees prescribed by the Commission from the Public Reference Section
of the Commission at its principal office in Washington, D.C. set forth above.
45
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Certified Public Accountants......................................................... F-2
Financial Statements
Balance Sheets........................................................................................... F-3
Statements of Earnings................................................................................... F-5
Statements of Cash Flows................................................................................. F-6
Statements of Stockholders' Equity....................................................................... F-7
Notes to Financial Statements............................................................................ F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
CropKing, Incorporated
We have audited the accompanying balance sheet of CropKing, Incorporated as
of July 31, 1997, and the related statements of earnings, cash flows, and
stockholders' equity for each of the two years in the period ended July 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CropKing, Incorporated as of
July 31, 1997, and the results of its operations and its cash flows for each of
the two years in the period ended July 31, 1997, in conformity with generally
accepted accounting principles.
GRANT THORNTON LLP
Cleveland, Ohio
January 26, 1998
F-2
<PAGE>
CROPKING, INCORPORATED
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JULY 31,
1997
JANUARY 31, ------------
1998
------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash................................................................................ $ 135,237 $ 110,920
Accounts receivable, net of allowance for doubtful accounts of $3,000............... 149,588 148,518
Accounts receivable--affiliate...................................................... 51,552 47,344
Inventory........................................................................... 585,355 580,505
Prepaid expenses.................................................................... 75,667 9,733
Deferred taxes...................................................................... 12,000 11,000
------------ ------------
Total current assets.............................................................. 1,009,399 908,020
PROPERTY AND EQUIPMENT--AT COST
Land................................................................................ 209,280 209,280
Building............................................................................ 707,140 707,140
Furniture and fixtures.............................................................. 166,530 134,964
Leasehold improvements.............................................................. 136,768 135,013
Vehicles............................................................................ 25,758 25,758
Machinery and equipment............................................................. 248,795 240,674
------------ ------------
1,494,271 1,452,829
Less accumulated depreciation and amortization.................................... 284,786 235,682
------------ ------------
1,209,485 1,217,147
OTHER ASSETS.......................................................................... 1,806 1,806
------------ ------------
$ 2,220,690 $ 2,126,973
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements
F-3
<PAGE>
CROPKING, INCORPORATED
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JULY 31,
1997
JANUARY 31, ------------
1998
------------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term obligations............................................ $ 48,622 $ 46,295
Accounts payable.................................................................... 217,136 172,363
Customer deposits................................................................... 58,384 158,299
Accrued liabilities................................................................. 94,906 117,778
Accrued income tax.................................................................. 104,306 71,906
------------ ------------
Total current liabilities......................................................... 523,354 566,641
DEFERRED INCOME TAXES................................................................. 7,000 8,000
LONG-TERM OBLIGATIONS, NET OF CURRENT PORTION......................................... 1,044,699 1,070,330
STOCKHOLDERS' EQUITY
Common shares--$.01 par value, 25,000,000 shares authorized, 2,000,000 shares at
January 31, 1998 and 1,475,000 shares at July 31, 1997 issued and outstanding..... 20,000 14,750
Paid-in capital..................................................................... 519,750 --
Notes receivable stockholders....................................................... (525,000) --
Retained earnings................................................................... 630,887 467,252
------------ ------------
645,637 482,002
------------ ------------
$ 2,220,690 $ 2,126,973
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
CROPKING, INCORPORATED
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
FOR THE SIX MONTH PERIODS
ENDED FOR THE YEARS ENDED
JANUARY 31, JULY 31,
---------------------------- ----------------------------
1998 1997 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Net sales............................................ $ 2,969,624 $ 2,865,159 $ 5,032,630 $ 3,854,336
Cost of sales........................................ 1,772,126 1,816,157 3,058,796 2,429,478
------------- ------------- ------------- -------------
Gross profit................................... 1,197,498 1,049,002 1,973,834 1,424,858
Selling, general and administrative expenses......... 888,225 806,065 1,710,679 1,248,527
------------- ------------- ------------- -------------
Operating profit............................... 309,273 242,937 263,155 176,331
Other income (expense)
Interest income.................................... 3,200 -- 9,933 840
Interest expense................................... (57,658) (61,634) (119,705) (118,831)
Miscellaneous...................................... 16,820 28,536 37,577 16,716
Loss on disposition of fixed assets................ -- -- -- (35,169)
------------- ------------- ------------- -------------
Total other (expense)............................ (37,638) (33,098) (72,195) (136,444)
------------- ------------- ------------- -------------
Earnings before income taxes................... 271,635 209,839 190,960 39,887
Provision for income taxes........................... 108,000 72,000 71,000 6,500
------------- ------------- ------------- -------------
NET EARNINGS................................... $ 163,635 $ 137,839 $ 119,960 $ 33,387
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Earnings per share................................... $ .08 $ .09 $ .08 $ .02
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average shares outstanding.................. 1,940,082 1,475,000 1,475,000 1,475,000
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
CROPKING, INCORPORATED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTH
PERIODS ENDED FOR THE YEARS ENDED
JANUARY 31, JULY 31,
------------------------ ------------------------
1998 1997 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings............................................... $ 163,635 $ 137,839 $ 119,960 $ 33,387
Adjustments to reconcile net earnings to net cash provided
by (used in) operating activities:
Depreciation and amortization............................ 49,068 45,820 84,123 73,543
Deferred taxes........................................... (2,000) -- (11,000) (13,500)
Loss on disposal of property............................. -- -- -- 35,169
(Increase) decrease in accounts receivable............... (5,278) (117,099) (91,888) 35,055
(Increase) decrease in inventory......................... (4,850) 22,087 (130,224) (113,702)
(Increase) decrease in prepaid expenses.................. (65,934) 5,828 5,970 2,405
(Increase) decrease in other assets...................... -- 500 500 (500)
Increase (decrease) in accounts payable.................. 44,773 63,187 115,010 (7,889)
Increase (decrease) in accrued liabilities............... (22,872) 5,424 65,547 (3,352)
Increase (decrease) in other liabilities................. (99,915) 57,690 (16,197) 56,072
Increase (decrease) in income taxes...................... 32,400 64,100 65,190 (9,285)
----------- ----------- ----------- -----------
Total adjustments...................................... (74,608) 147,537 87,031 54,016
----------- ----------- ----------- -----------
Net cash provided by operating activities............ 89,027 285,376 206,991 87,403
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures....................................... (41,406) (75,886) (90,336) (184,132)
Proceeds from sale of property and equipment............... -- -- -- 9,207
----------- ----------- ----------- -----------
Net cash used in investing activities................ (41,406) (75,886) (90,336) (174,925)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt................... -- -- -- 140,588
Principal payments on long-term debt....................... (15,031) (7,643) (11,347) (47,003)
Principal payments under capital leases.................... (8,273) (13,559) (30,856) (24,267)
Principal payments on note payable to stockholder.......... -- (19,500) (25,000) --
----------- ----------- ----------- -----------
Net cash (used in) provided by financial
activities......................................... (23,304) (40,702) (67,203) 69,318
----------- ----------- ----------- -----------
INCREASE (DECREASE) IN CASH.................................. 24,317 168,788 49,452 (18,204)
Cash at beginning of year.................................... 110,920 61,467 61,468 79,672
----------- ----------- ----------- -----------
Cash at end of year.......................................... $ 135,237 $ 230,255 $ 110,920 $ 61,468
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
CROPKING, INCORPORATED
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK NOTES
OUTSTANDING ADDITIONAL RECEIVABLE
---------------------- PAID-IN RETAINED COMMON
SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL
----------- --------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT AUGUST 1, 1995........... 1,475,000 $ 14,750 $ -- $ 313,905 $ -- $ 328,655
Earnings for 1996................. -- -- -- 33,387 -- 33,387
----------- --------- ---------- ----------- ------------ -----------
BALANCE AT JULY 31, 1996............ 1,475,000 14,750 -- 347,292 -- 362,042
Earnings for 1997................. -- -- -- 119,960 -- 119,960
----------- --------- ---------- ----------- ------------ -----------
BALANCE AT JULY 31, 1997............ 1,475,000 14,750 -- 467,252 -- 482,002
[the following information is
unaudited]
Issuance of common stock for
notes............................. 525,000 5,250 519,750 -- (525,000) --
Earnings for the six month period
ended January 31, 1998.......... -- -- -- 163,635 -- 163,635
----------- --------- ---------- ----------- ------------ -----------
BALANCE AT JANUARY 31, 1998......... 2,000,000 $ 20,000 $ 519,750 $ 630,887 $ (525,000) $ 645,637
----------- --------- ---------- ----------- ------------ -----------
----------- --------- ---------- ----------- ------------ -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
CROPKING, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1997 AND 1996
NOTE A--SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows.
NATURE OF OPERATIONS
CropKing, Incorporated ("Company") designs, develops, manufactures, markets
and sells proprietary, commercial hydroponic products and systems, and related
technology, equipment and supplies to customers throughout the United States for
the commercial year-round production of specialty crops. The Company's
hydroponic products and systems including related technology, equipment and
supplies are offered to its prospective commercial and individual customers in
standard and custom-designed configurations. The Company's hydroponic products
and systems are offered through direct marketing and sales, dealers and
distributors and by mail order.
INTERIM FINANCIAL STATEMENTS
The interim financial statements as of January 31, 1998 and 1997 and for
each of the six months then ended as included herein are unaudited. However, in
the opinion of management, all adjustments, consisting only of normal recurring
adjustments necessary for a fair presentation of the information have been made.
The interim financial statements for the periods stated and notes presented
herein do not contain certain information included in the Company's annual
financial statements and notes as also herein presented. Results for interim
periods are not necessarily indicative of results expected for the full year.
REVENUE RECOGNITION
The Company recognizes revenue when the product is shipped.
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 amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
the fair value of each class of financial instruments for which it is
practicable to estimate fair value.
For cash, receivables and payables, the carrying amounts approximate fair
value because of the short maturity of these instruments. For long-term
obligations, including current maturities, the fair value of the Company's
long-term obligations approximates historically recorded cost since interest
rates approximate market.
F-8
<PAGE>
CROPKING, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1997 AND 1996
NOTE A--SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
INVENTORY
Inventory consists of purchased parts and system components and is stated at
the lower of cost, determined on the first-in, first-out (FIFO) basis, or
market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided over the
estimated useful lives of the related assets. Renewals and betterments of a
nature considered to materially extend the useful life of the assets are
capitalized. Depreciation for financial reporting purposes is based on the
following policies:
<TABLE>
<S> <C> <C>
Building....................... 20 years Straight-line
Furniture and fixtures......... 5-10 years Straight-line
Leasehold improvements......... 20 years Straight-line
Vehicles....................... 3-5 years Straight-line
Machinery and equipment........ 5-10 years Straight-line
</TABLE>
ASSET IMPAIRMENT
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF ("SFAS 121"). SFAS 121 requires that
long-lived assets, certain identifiable intangible assets and goodwill be
reviewed for impairment when expected future undiscounted cash flows are less
than the carrying value of the assets. No charges were recorded pursuant to this
statement for the years ended July 31, 1997 and 1996.
ADVERTISING EXPENSES
All advertising and promotional costs incurred by the Company are expensed
the first time the advertising takes place. Advertising and promotion expense
was $194,500 and $195,700 for the years ended July 31, 1997 and 1996,
respectively, and is included in "Selling, general and administrative expenses"
in the accompanying Statements of Earnings.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs related to both present and future products
are expensed as incurred. Such costs amounted to $103,600 and $40,300 for the
years ended July 31, 1997 and 1996, respectively, and are classified as a
component of "Selling, general and administrative expenses" in the accompanying
Statements of Earnings.
INCOME TAXES
Income taxes are recorded in accordance with Statement of Financial
Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES ("SFAS No. 109"). SFAS
109 utilizes the asset and liability method,
F-9
<PAGE>
CROPKING, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1997 AND 1996
NOTE A--SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
under which deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying currently enacted statutory rates to
differences between the financial statement carrying amounts and the tax basis
of existing assets and liabilities. Under SFAS 109, the effect on deferred taxes
of a change in tax rates is recognized in income in the period that includes the
enactment date.
CASH FLOWS
For purposes of the Statement of Cash Flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
During the year ended July 31, 1996, the Company acquired approximately
$1,036,390 of land, building and equipment under a capitalized lease.
For the years ended July 31, 1997 and 1996, the Company paid interest of
$119,500 and $118,800 and paid income taxes of $22,500 and received a net refund
of $4,600, respectively.
EARNINGS PER SHARE
The Company adopted SFAS No. 128, EARNINGS PER SHARE, effective December 31,
1997 and all earnings per share amounts disclosed herein have been calculated
under the provisions of SFAS No. 128. Basic earnings per common shares were
computed by dividing net income by the weighted average number of shares of
common stock outstanding during the reporting period. The Company does not have
any potentially dilutive securities outstanding at July 31, 1997.
NEW ACCOUNTING PRONOUNCEMENTS
In 1997, the FASB issued Statement of Financial Accounting Standards No.
130, REPORTING COMPREHENSIVE INCOME ("SFAS 130") and Statement of Financial
Accounting Standards No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND
RELATED INFORMATION ("SFAS 131"). SFAS 130 establishes standards to measure all
changes in equity that result from transactions and other economic events other
than transactions with owners. Comprehensive income is the total of net income
and all other nonowner changes in equity. SFAS 131 introduces a new segment
reporting model called the "management approach". The management approach is
based on the manner in which management organizes segments within a company for
making operating decisions and assessing performance. The management approach
replaces the notion of industry and geographic segments. The Company will adopt
SFAS 130 and SFAS 131 in fiscal year 1998. The Company believes adoption of SFAS
130 and SFAS 131 will not have a significant effect on the Company's financial
statements.
NOTE B--NOTE PAYABLE STOCKHOLDER
The Company had a demand note payable to a stockholder at July 31, 1996
requiring interest payments at an annual rate of 12%. The note was paid during
the fiscal year ended July 31, 1997.
F-10
<PAGE>
CROPKING, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1997 AND 1996
NOTE C--LONG-TERM OBLIGATIONS
Long-term obligations as of July 31, 1997 consist of the following:
<TABLE>
<S> <C>
Note payable--bank, collateralized by substantially all
corporate assets, monthly payments of $760 include interest of
8.5%, matures April 1, 2000................................... $ 21,701
Note payable--bank, collateralized by substantially all
corporate assets, monthly payments of $1,350 include interest
at prime plus 5%, matures February 15, 2006................... 95,014
Obligations under capital leases (see Note D)................... 999,910
---------
1,116,625
Less current portion............................................ 46,295
---------
$1,070,330
---------
---------
</TABLE>
As of July 31, 1997, long-term obligations mature as follows:
<TABLE>
<S> <C>
FISCAL YEAR
1998............................................................ $ 46,295
1999............................................................ 51,073
2000............................................................ 49,544
2001............................................................ 37,661
2002............................................................ 40,174
Thereafter...................................................... 891,878
---------
$1,116,625
---------
---------
</TABLE>
NOTE D--CAPITAL LEASE OBLIGATIONS
Property, plant and equipment includes a building and equipment under
capital leases in the amount of $1,054,402 at July 31, 1997 and 1996.
Accumulated amortization on the related assets at those dates is $108,575 and
$56,089, respectively. The building and certain of the equipment is being leased
from a related party (see Note E).
F-11
<PAGE>
CROPKING, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1997 AND 1996
NOTE D--CAPITAL LEASE OBLIGATIONS (CONTINUED)
The following is a schedule of future minimum lease payments under capital
leases together with the present value of the minimum lease payments as of July
31, 1997:
<TABLE>
<S> <C>
1998........................................................... $ 135,149
1999........................................................... 135,149
2000........................................................... 131,282
2001........................................................... 121,358
2002........................................................... 120,000
Thereafter..................................................... 1,560,000
----------
Total minimum lease payments................................... 2,202,939
Less amount representing interest.............................. 1,203,029
----------
PRESENT VALUE OF MINIMUM LEASE PAYMENTS........................ $ 999,910
----------
----------
</TABLE>
NOTE E--RELATED PARTY TRANSACTION
The Company leases its office and warehouse facilities and certain equipment
from the president and stockholder of the Company under a capital lease. The
lease term is for five years with the right by the lessee to exercise three
consecutive five year options. Lease payments are due monthly in the amount of
$10,000. The lessee is responsible for repair and maintenance of the property.
The Company has guaranteed a debenture in the amount of $388,000 and has agreed
to the assignment of its lease payments in conjunction with the president's
financing arrangement with the U.S. Small Business Administration. The real
estate is also collateral in conjunction with additional borrowings by the
president in the amount of $683,000 and is secured by a first mortgage on the
property. The Company subleases a portion of these facilities to an affiliated
company ("Affiliate") which is owned by the president of the Company. The
Affiliate pays $2,500 per month for rent. The Company had sublease income for
1997 and 1996 in the amount of $30,000 for each year.
The Company also pays certain reimbursable expenditures for the Affiliate,
which is in the business of selling produce. The expenditures are primarily for
labor and personnel related costs which are being paid through the Company's
payroll system. Expenditures for 1997 and 1996 were approximately $188,000 and
$151,000, respectively, and have been fully reimbursed by the Affiliate to the
Company, except for the amounts which are recorded as accounts receivable
- -affiliate on the Balance Sheet.
NOTE F--STOCKHOLDERS' EQUITY
On August 22, 1997 the Company, as an Ohio corporation, issued 131.25 shares
of common stock (525,000 shares after a 4,000:1 exchange of securities, see
below) at an aggregate purchase price of $525,000 to six persons, including
officers, directors and counsel for the Company ("Purchasers"). The stock price
was determined based upon an independent professional third party appraisal. The
Purchasers entered into nonrecourse promissory notes payable to the Company
aggregating $525,000, with principal and 8% simple interest due on December 31,
2000, in payment of their securities.
F-12
<PAGE>
CROPKING, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1997 AND 1996
NOTE F--STOCKHOLDERS' EQUITY (CONTINUED)
The Company was originally incorporated as an Ohio corporation and
authorized 500 shares of no par common stock. On August 29, 1997, a Delaware
corporation was formed and 25,000,000 shares of common stock were authorized at
a $.01 par value. The Ohio corporation was then merged into the Delaware
corporation resulting in the Ohio corporation ceasing to exist. Upon the
effective date of the merger, each share of common stock was exchanged for 4,000
shares of the Delaware corporation's common stock, aggregating 2,000,000 common
shares issued and outstanding after the merger. All periods presented have been
restated to reflect this recapitalization.
On January 12, 1998 the Company entered into a letter of intent with an
underwriter for a firm commitment initial public offering of securities
consisting of 1,500,000 shares of common stock and 2,000,000 common stock
purchase warrants.
NOTE G--PROFIT SHARING PLAN
The Company has a 401(k) profit sharing plan covering substantially all full
time employees. The Company has elected to match 25% of participating employees'
elected contributions up to 3% of total salaries and wages. The Company's
matching contribution expense was $9,200 and $8,600 for the years ended July 31,
1997 and 1996, respectively.
The plan provides for discretionary contributions by the Company of up to
15% of compensation. Discretionary contributions to the plan were $34,000 and
$17,500 for the years ended July 31, 1997 and 1996, respectively.
NOTE H--INCOME TAXES
Income taxes consist of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Federal.............................................................. $ 65,000 $ 18,000
State and local...................................................... 17,000 2,000
---------- ----------
82,000 20,000
Deferred............................................................. (11,000) (13,500)
---------- ----------
$ 71,000 $ 6,500
---------- ----------
---------- ----------
</TABLE>
The following is a summary of the reconciliations of the expected Federal
Statutory Tax Rates:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Expected Statutory Tax Rate................................................... 34.0% 34.0%
Permanent nondeductible expenditures.......................................... 1.3% 3.5%
State and local income taxes.................................................. 5.7% (2.2)%
Surtax rate difference........................................................ (3.8)% (19.0)%
--------- ---------
37.2% 16.3%
--------- ---------
--------- ---------
</TABLE>
F-13
<PAGE>
CROPKING, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1997 AND 1996
NOTE H--INCOME TAXES (CONTINUED)
Deferred tax assets and liabilities at July 31, 1997 consist of the
following:
<TABLE>
<S> <C>
TEMPORARY DIFFERENCES RELATED TO:
Depreciation................................................... $ (30,000)
State taxes.................................................... 6,000
Accrued expenses and allowances................................ 5,000
Capitalized leases............................................. 22,000
---------
Net deferred taxes........................................... $ 3,000
---------
---------
Deferred tax asset--current...................................... $ 11,000
Deferred tax liabilities--noncurrent............................. (8,000)
---------
$ 3,000
---------
---------
</TABLE>
F-14
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE HEREBY. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY PERSON IN ANY JURISDICTION IN
WHICH SUCH AN OFFER WOULD BE UNLAWFUL. ANY MATERIAL MODIFICATION OF THE OFFERING
WILL BE ACCOMPLISHED BY MEANS OF AN AMENDMENT TO THE REGISTRATION STATEMENT. IN
ADDITION, THE RIGHT IS RESERVED BY THE COMPANY TO CANCEL ANY CONFIRMATION OF
SALE PRIOR TO THE RELEASE OF FUNDS, IF, IN THE OPINION OF THE COMPANY,
COMPLETION OF SUCH SALE WOULD VIOLATE FEDERAL OR STATE SECURITIES LAWS OR A RULE
OR POLICY OF THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC., WASHINGTON,
D.C. 20006.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 12
Dilution.................................................................. 14
Capitalization............................................................ 15
Dividend Policy........................................................... 15
Management's Discussion and Analysis or Plan of Operation................. 16
Business.................................................................. 20
Management................................................................ 32
Principal Stockholders.................................................... 37
Certain Transactions...................................................... 38
Description of Securities................................................. 39
Underwriting.............................................................. 42
Legal Proceedings......................................................... 45
Legal Matters............................................................. 45
Experts................................................................... 45
Additional Information.................................................... 45
Index to Financial Statements............................................. F-1
Report of Independent Certified Public Accountants........................ F-2
</TABLE>
------------------------
UNTIL , 1998 (25 DAYS AFTER THE EFFECTIVE DATE OF THIS
PROSPECTUS), ALL BROKER-DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
1,500,000 SHARES
2,000,000 WARRANTS
[LOGO]
---------------------
PROSPECTUS
---------------------
[LOGO]
7700 WEST CAMINO REAL
BOCA RATON, FLORIDA 33433
(561) 347-1200
ATLANTA, GEORGIA
BEVERLY HILLS, CALIFORNIA
BOSTON, MASSACHUSETTS
CHICAGO, ILLINOIS
CLEARWATER, FLORIDA
DULUTH, GEORGIA
EAST BOCA RATON, FLORIDA
EDISON, NEW JERSEY
EUREKA SPRINGS, ARKANSAS
HASBROOK HEIGHTS, NEW JERSEY
LA JOLLA, CALIFORNIA
MIAMI, FLORIDA
NAPLES, FLORIDA
NEW YORK, NEW YORK
ORLANDO, FLORIDA
SARASOTA, FLORIDA
TAMPA, FLORIDA
TULSA, OKLAHOMA
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART TWO
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Delaware law, the Company's Certificate of Incorporation
includes a provision which provides that a director of the Company shall not be
personally liable to the Company or its stockholders for monetary damages for a
breach of fiduciary duty as a director, except (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of the law, (iii) under Section 174 of the General Corporation Law of
the State of Delaware, which prohibits the unlawful payment of dividends or the
unlawful repurchase or redemption of stock, or (iv) for any transaction from
which the director derives an improper personal benefit. This provision is
intended to afford directors protection against, and to limit their potential
liability for monetary damages resulting from, suits alleging a breach of the
duty of care by a director. As a consequence of this provision, stockholders of
the Company will be unable to recover monetary damages against directors for
action taken by them that may constitute negligence or gross negligence in
performance of their duties unless such conduct falls within one of the
foregoing exceptions. The provision, however, does not alter the applicable
standards governing a director's fiduciary duty and does not eliminate or limit
the right of the Company or any stockholder to obtain an injunction or any other
type of nonmonetary relief in the event of a breach of fiduciary duty.
Management of the Company believes this provision will assist the Company in
securing and retaining qualified persons to serve as directors. The Company is
unaware of any pending or threatened litigation against the Company or its
directors that would result in any liability for which such director would seek
indemnification or similar protection.
Such indemnification provisions are intended to increase the protection
provided directors and, thus, increase the Company's ability to attract and
retain qualified persons to serve as directors. Because directors liability
insurance is only available at considerable cost and with low dollar limits of
coverage and broad policy exclusions, the Company does not currently maintain a
liability insurance policy for the benefit of its directors although the Company
may attempt to acquire such insurance in the future. The Company believes that
the substantial increase in the number of lawsuits being threatened or filed
against corporations and their directors and the general unavailability of
directors liability insurance to provide protection against the increased risk
of personal liability resulting from such lawsuits have combined to result in a
growing reluctance on the part of capable persons to serve as members of boards
of directors of public companies. The Company also believes that the increased
risk of personal liability without adequate insurance or other indemnity
protection for its directors could result in overcautious and less effective
direction and management of the Company. Although no directors have resigned or
have threatened to resign as a result of the Company's failure to provide
insurance or other indemnity protection from liability, it is uncertain whether
the Company's directors would continue to serve in such capacities if improved
protection from liability were not provided.
The provisions affecting personal liability do not abrogate a director's
fiduciary duty to the Company and its shareholders, but eliminate personal
liability for monetary damages for breach of that duty. The provisions do not,
however, eliminate or limit the liability of a director for failing to act in
good faith, for engaging in intentional misconduct or knowingly violating a law,
for authorizing the illegal payment of a dividend or repurchase of stock, for
obtaining an improper personal benefit, for breaching a director's duty of
loyalty (which is generally described as the duty not to engage in any
transaction which involves a conflict between the interest of the Company and
those of the director) or for violations of the federal securities laws. The
provisions also limit or indemnify against liability resulting from grossly
negligent decisions including grossly negligent business decisions relating to
attempts to change control of the Company.
II-1
<PAGE>
The provisions regarding indemnification provide, in essence, that the
Company will indemnify its directors against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with any action, suit or proceeding arising out of the
director's status as a director of the Company, including actions brought by or
on behalf of the Company (shareholder derivative actions). The provisions do not
require a showing of good faith. Moreover, they do not provide indemnification
for liability arising out of willful misconduct, fraud, or dishonesty, for
"short-swing" profits violations under the federal securities laws, or for the
receipt of illegal remuneration. The provisions also do not provide
indemnification for any liability to the extent such liability is covered by
insurance. One purpose of the provisions is to supplement the coverage provided
by such insurance. However, as mentioned above, the Company does not currently
provide such insurance to its directors, and there is no guarantee that the
Company will provide such insurance to its directors in the near future although
the Company may attempt to obtain such insurance.
The provisions diminish the potential rights of action which might otherwise
be available to shareholders by limiting the liability of officers and directors
to the maximum extent allowable under Delaware law and by affording
indemnification against most damages and settlement amounts paid by a director
of the Company in connection with any shareholders derivative action. However,
the provisions do not have the effect of limiting the right of a shareholder to
enjoin a director from taking actions in breach of his fiduciary duty, or to
cause the Company to rescind actions already taken, although as a practical
matter courts may be unwilling to grant such equitable remedies in circumstances
in which such actions have already been taken. Also, because the Company does
not presently have directors liability insurance and because there is no
assurance that the Company will procure such insurance or that if such insurance
is procured it will provide coverage to the extent directors would be
indemnified under the provisions, the Company may be forced to bear a portion or
all of the cost of the director's claims for indemnification under such
provisions. If the Company is forced to bear the costs for indemnification, the
value of the Company stock may be adversely affected. In the opinion of the
Securities and Exchange Commission, indemnification for liabilities arising
under the Securities Act of 1933 is contrary to public policy and, therefore, is
unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is an itemization of expenses, payable by the Company from the
net proceeds of this offering, incurred by the Company in connection with the
issuance and distribution of the securities of the Company being offered hereby.
All expenses are estimated except the SEC, NASD and Nasdaq Registration and
Filing Fees. See "Use of Proceeds."
<TABLE>
<S> <C>
SEC Registration and Filing Fee(1)............................. $ 8,216
NASD Registration and Filing Fee(1)............................ 2,883
Transfer Agent Fees............................................ 1,500
Financial Printing............................................. 100,000
Accounting Fees and Expenses................................... 75,000
Legal Fees and Expenses........................................ 375,000
Blue Sky Fees and Expenses..................................... 75,000
Underwriter's Nonaccountable Expense Allowance................. 232,500
Miscellaneous.................................................. 4,901
----------
TOTAL...................................................... $ 875,000
----------
----------
</TABLE>
- ------------------------
(1) Paid upon initial filing of this Registration Statement and related
Prospectus.
II-2
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The Company was incorporated in the State of Ohio in June 1982 and
reincorporated in Delaware in August 1997. The Company has authorized capital of
25,000,000 shares of Common Stock, $.01 par value. The Company has 2,000,000
shares of Common Stock issued and outstanding prior to this offering. See
"Principal Stockholders" and "Description of Securities."
In August 1997, the Company issued 2,000,000 shares of its Common Stock to
seven persons, including the officers and directors of the Company, in a pro
rata exchange of securities, in connection with the reincorporation of the
Company in Delaware. See "Principal Stockholders."
All unregistered securities issued by the Company prior to this offering are
deemed "restricted securities" within the meaning of that term as defined in
Rule 144 and have been issued pursuant to certain "private placement" exemptions
under Section 4(2) of the Securities Act of 1933, as amended, and certain rules
and regulations as promulgated by the Securities and Exchange Commission,
Washington, D.C. 20549, such that the sales of the securities were transactions
by an issuer not involving any public offering. See "Description of Securities."
Reference is also made hereby to "Dilution," "Principal Stockholders,"
"Certain Transactions" and "Description of Securities" in the Prospectus for
more information with respect to the previous issuance and sale of the Company's
securities.
All of the aforesaid securities have been appropriately marked with a
restricted legend and are "restricted securities," as defined in Rule 144 of the
rules and regulations of the Securities and Exchange Commission, Washington,
D.C. 20549. All of the aforesaid securities were issued for investment purposes
only and not with a view to redistribution, absent registration. All of the
aforesaid persons have been fully informed and advised concerning the
Registrant, its business, financial and other matters. Transactions by the
Registrant involving the sales of these securities set forth above were issued
pursuant to the "private placement" exemptions under the Securities Act of 1933,
as amended, as transactions by an issuer not involving any public offering. The
Registrant has been informed that each person is able to bear the economic risk
of his investment and is aware that the securities were not registered under the
Securities Act of 1933, as amended, and cannot be re-offered or re-sold until
they have been so registered or until the availability of an exemption
therefrom. The transfer agent and registrar of the Registrant will be instructed
to mark "stop transfer" on its ledgers to assure that these securities will not
be transferred absent registration or until the availability of an exemption
therefrom is determined.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
This following is a list of Exhibits filed herewith by CropKing,
Incorporated as part of the SB-2 Registration Statement and related Prospectus:
<TABLE>
<C> <S>
1.0 Form of Underwriting Agreement.
1.1 Selected Dealer Agreement.
3.0 Articles of Incorporation (Ohio), dated June 1982.
3.1 Certificate of Incorporation (Delaware), dated August 1997.
3.2 By-laws, as amended.
4.0 Specimen Copy of Common Stock Certificate.
4.1 Form of Warrant Certificate.
4.2 Form of Underwriter's Warrant Agreement.
5.0 Opinion of Thomas T. Prousalis, Jr., Esq. for Registrant.
10.0 Employment Agreement, Daniel J. Brentlinger, dated February 1998.
10.4 Financial Advisory Agreement.
10.5 Merger and Acquisition Agreement.
23.0 Consent of Thomas T. Prousalis, Jr., Esq. is contained on page II-6 of
the Registration Statement.
24.0 Consent of Grant Thornton LLP is contained on page II-7 of the
Registration Statement.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
25.0 Power of Attorney appointing Daniel J. Brentlinger is contained on page
II-5 of the Registration Statement.
</TABLE>
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to participating
broker-dealers, at the closing, certificates in such denominations and
registered in such names as required by the participating broker-dealers, to
permit prompt delivery to each purchaser.
The undersigned Registrant also 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 any 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:
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3 or Form S-8, and
the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the
registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference 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.
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.
This Registration Statement consists of the following:
<TABLE>
<C> <S>
1. Facing page.
2. Cross-Reference Sheet.
3. Prospectus.
4. Complete text of Items 24-28 in Part Two of Registration Statement.
5. Exhibits.
6. Signature page.
7. Consents of:
Thomas T. Prousalis, Jr., Esq.
Grant Thornton LLP
</TABLE>
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Washington, District of Columbia, on March 20, 1998.
By: DANIEL J. BRENTLINGER
-------------------------------------------
Daniel J. Brentlinger
Chairman of the Board
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Daniel J. Brentlinger his true and lawful
attorney-in-fact, with full capacities, to sign any and all Amendments
(including post-effective Amendments) to this Registration Statement, and to
file the same with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, Washington, D.C. 20549,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with 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:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------------------- -----------------------
<C> <S> <C>
DANIEL J. BRENTLINGER
--------------------------------- Chairman of the Board, President, Chief Executive March 20, 1998
Daniel J. Brentlinger Officer, Chief Financial Officer, Controller
JOHN CAMPANELLA
--------------------------------- Vice President, Chief Operating Officer, Secretary March 20, 1998
John Campanella
JAMES W. BROWN
--------------------------------- Vice President, Technical Services March 20, 1998
James W. Brown
ARTHUR E. BARD
--------------------------------- Vice President, Marketing and Sales March 20, 1998
Arthur E. Bard
HOWARD M. RESH, PH.D.
--------------------------------- Director March 20, 1998
Howard M. Resh, Ph.D.
ROBERT A. CHESNEY
--------------------------------- Director March 20, 1998
Robert A. Chesney
</TABLE>
II-5
<PAGE>
CONSENT OF COUNSEL
The consent of Thomas T. Prousalis, Jr., Esq., 1919 Pennsylvania Avenue,
N.W., Suite 800, Washington, D.C. 20006, to the use of his name in this Form
SB-2 Registration Statement, and related Prospectus, as amended, of CropKing,
Incorporated is contained in his opinion filed as Exhibit 5.0 hereto.
II-6
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 26, 1998 accompanying the Financial
Statements of CropKing, Incorporated contained in the Registration Statement and
Prospectus. We consent to the use of the aforementioned report in the
Registration Statement and Prospectus, and to the use of our name as it appears
under the caption "Experts."
GRANT THORNTON LLP
Cleveland, Ohio
March 20, 1998
II-7
<PAGE>
INDEX TO EXHIBITS
The following is a list of Exhibits filed herewith by CropKing, Incorporated
as part of the SB-2 Registration Statement and related Prospectus:
<TABLE>
<C> <S> <C>
1.0 Form of Underwriting Agreement.
1.1 Selected Dealer Agreement.
3.0 Articles of Incorporation (Ohio), dated June 1982.
3.1 Certificate of Incorporation (Delaware), dated August 1997.
3.2 By-laws, as amended.
4.0 Specimen Copy of Common Stock Certificate.
4.1 Form of Warrant Certificate.
4.2 Form of Underwriter's Warrant Agreement.
5.0 Opinion of Thomas T. Prousalis, Jr., Esq. for Registrant.
10.0 Employment Agreement, Daniel J. Brentlinger, dated February 1998.
10.4 Financial Advisory Agreement.
10.5 Merger and Acquisition Agreement.
23.0 Consent of Thomas T. Prousalis, Jr., Esq. is contained on page II-6 of
the Registration Statement.
24.0 Consent of Grant Thornton LLP is contained on page II-7 of the
Registration Statement.
25.0 Power of Attorney appointing Daniel J. Brentlinger is contained on page
II-5 of the Registration Statement.
</TABLE>
<PAGE>
Exhibit 1.0
CROPKING, INCORPORATED
1,500,000 Shares of Common Stock and
2,000,000 Common Stock Purchase Warrants
UNDERWRITING AGREEMENT
Boca Raton, Florida
, 1998
Barron Chase Securities, Inc.
7700 West Camino Real
Boca Raton, Florida 33433
Gentlemen:
CropKing, Incorporated (the "Company"), on the basis of the
representations, warranties, covenants and conditions contained herein, hereby
proposes to issue and sell to Barron Chase Securities, Inc. (the "Underwriter")
for sale in a proposed public offering pursuant to the terms of this
Underwriting Agreement (the "Agreement"), on a "firm commitment" basis,
1,500,000 shares of Common Stock (the "Shares") at $5.00 per Share and 2,000,000
Redeemable Common Stock Purchase Warrants (the "Warrants") at $.125 per Warrant.
The Shares and the Warrants are collectively referred to as the "Securities".
Each Warrant is exercisable to purchase one (1) share of Common Stock (the
"Common Stock") at $5.25 per share at any time during the period between the
Effective Date and five (5) years from the Effective Date. The date upon which
the Securities and Exchange Commission ("Commission") shall declare the
Registration Statement of the Company effective shall be the "Effective Date".
The Warrants are subject to redemption under certain circumstances. In
addition, the Company proposes to grant to the Underwriter the option referred
to in Section 2(b) to purchase all or any part of an aggregate of 225,000
additional Shares and/or 300,000 additional Warrants (the "Option Securities").
You have advised the Company that you desire to purchase the Securities,
and that you are authorized to execute this Agreement. The Company confirms the
agreements made by it with respect to the purchase of the Securities by the
Underwriter, as follows:
1
<PAGE>
1. Representations and Warranties of the Company.
The Company represents and warrants to, and agrees with the Underwriter as
of the Effective Date (as defined above), the Closing Date (as hereinafter
defined) and the Option Closing Date (as hereinafter defined) that:
(a) A registration statement (File No. ) on Form SB-2 relating to
the public offering of the Securities, including a preliminary form of the
prospectus, copies of which have heretofore been delivered to you, has been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933, as amended (the "Act"), and the rules and regulations (the "Rules
and Regulations") of the Commission thereunder, and has been filed with the
Commission under the Act. The Company has prepared in the same manner and
proposes to file, prior to the Effective Date of such registration statement, an
additional amendment or amendments to such registration statement, including a
final form of Prospectus, copies of which shall be delivered to you.
"Preliminary Prospectus" shall mean each prospectus filed pursuant to the Rules
and Regulations under the Act prior to the Effective Date. The registration
statement (including all financial schedules and exhibits) as amended at the
time it becomes effective and the final prospectus included therein are
respectively referred to as the "Registration Statement" and the "Prospectus",
except that (i) if the prospectus first filed by the Company pursuant to Rule
424(b) of the Rules and Regulations shall differ from said prospectus as then
amended, the term "Prospectus" shall mean the prospectus first filed pursuant to
Rule 424(b), and (ii) if such registration statement or prospectus is amended or
such prospectus is supplemented, after the effective date of such registration
statement and prior to the Option Closing Date (as hereinafter defined), the
terms "Registration Statement" and "Prospectus" shall include such registration
statement and prospectus as so amended, and the term "Prospectus" shall include
the prospectus as so supplemented, or both, as the case may be.
(b) At the Effective Date and at all times subsequent thereto up to the
Option Closing Date, if any, and during such longer period as the Prospectus may
be required to be delivered in connection with sales by the Underwriter or
Selected Dealers: (i) the Registration Statement and Prospectus will in all
respects conform to the requirements of the Act and the Rules and Regulations;
and (ii) neither the Registration Statement nor the Prospectus will include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make statements therein, in light of the
circumstances under which they are made, not misleading; provided, however, that
the Company makes no representations, warranties or agreement as to information
contained in or omitted from the Registration Statement or Prospectus in
reliance upon, and in conformity with, written information furnished to the
Company by the Underwriter specifically for use in the preparation thereof. It
is understood
2
<PAGE>
that the statements set forth in the Prospectus with respect to stabilization,
under the heading "Underwriting" and regarding the identity of counsel to the
Underwriter under the heading "Legal Matters" constitute the only information
furnished in writing by the Underwriter for inclusion in the Prospectus.
(c) Each of the Company and each subsidiary has been duly incorporated and
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, with full power and authority (corporate and
other) to own its properties and conduct its business as described in the
Prospectus and is duly qualified to do business as a foreign corporation and is
in good standing in all other jurisdictions in which the nature of its business
or the character or location of its properties requires such qualification,
except where failure to so qualify will not materially affect the Company's
business, properties or financial condition.
(d) The authorized, issued and outstanding securities of the Company as of
the date of the Prospectus is as set forth in the Prospectus under
"Capitalization"; all of the issued and outstanding securities of the Company
have been, or will be when issued as set forth in the Prospectus, duly
authorized, validly issued and fully paid and non-assessable; the issuances and
sales of all such securities complied in all material respect with, or were
exempt from, applicable Federal and state securities laws; the holders thereof
have no rights of rescission against the Company with respect thereto, and are
not subject to personal liability by reason of being such holders; none of such
securities were issued in violation of the preemptive rights of any holders of
any security of the Company or similar contractual rights granted by the
Company; except as set forth in the Prospectus, no options, warrants or other
rights to purchase, agreements or other obligations to issue, or agreements or
other rights to convert any obligation into, any securities of the Company have
been granted or entered into by the Company; and all of the securities of the
Company, issued and to be issued as set forth in the Registration Statement,
conform to all statements relating thereto contained in the Registration
Statement and Prospectus.
(e) The Shares are duly authorized, and when issued, delivered and paid
for pursuant to this Agreement, will be duly authorized, validly issued, fully
paid and non-assessable and free of preemptive rights of any security holder of
the Company. Neither the filing of the Registration Statement nor the offering
or sale of the Securities as contemplated in this Agreement gives rise to any
rights, other than those which have been waived or satisfied, for or relating to
the registration of any securities of the Company, except as described in the
Registration Statement.
The Warrants have been duly authorized and, when issued, delivered and paid
for pursuant to this Agreement, will have been duly authorized, validly issued
and delivered and will constitute
3
<PAGE>
valid and legally binding obligations of the Company entitling the holders to
the benefits provided by the warrant agreement pursuant to which such Warrants
are to be issued (the "Warrant Agreement"), which will be substantially in the
form filed as an exhibit to the Registration Statement. The shares of Common
Stock issuable upon exercise of the Warrants have been reserved for issuance and
when issued in accordance with the terms of the Warrants and Warrant Agreement,
will be duly and validly authorized, validly issued, fully paid and
non-assessable, free of pre-emptive rights and no personal liability will attach
to the ownership thereof. The Warrant exercise period and the Warrant exercise
price may not be changed or revised by the Company without the prior written
consent of the Underwriter. The Warrant Agreement has been duly authorized and,
when executed and delivered pursuant to this Agreement, will have been duly
executed and delivered and will constitute the valid and legally binding
obligation of the Company enforceable in accordance with its terms.
The Common Stock Underwriter Warrants, the Warrant Underwriter Warrants,
the Underlying Warrants, the shares of Common Stock issuable upon exercise of
the Common Stock Underwriter Warrants, and the shares of Common Stock issuable
upon exercise of the Underlying Warrants (all as defined in the Underwriter's
Warrant Agreement described in Section 12 herein), have been duly authorized
and, when issued, delivered and paid for, will be validly issued, fully paid,
non-assessable, free of pre-emptive rights and no personal liability will attach
to the ownership thereof, and will constitute valid and legally binding
obligations of the Company enforceable in accordance with their terms and
entitled to the benefits provided by the Underwriter's Warrant Agreement.
(f) This Agreement, the Warrant Agreement, the Financial Advisory
Agreement, the Merger and Acquisition Agreement (the "M/A Agreement") and the
Underwriter's Warrant Agreement have been duly and validly authorized, executed
and delivered by the Company, and assuming due execution of this Agreement by
the other party hereto, constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, except as
enforceability may be limited by bankruptcy, insolvency or other laws affecting
the rights of creditors generally. The Company has full power and lawful
authority to authorize, issue and sell the Securities to be sold by it hereunder
on the terms and conditions set forth herein, and no consent, approval,
authorization or other order of any governmental authority is required in
connection with such authorization, execution and delivery or with the
authorization, issue and sale of the Securities or the securities to be issued
pursuant to the Underwriter's Warrant Agreement, except such as may be required
under the Act or state securities laws, or as otherwise have been obtained.
(g) Except as described in the Prospectus, neither the
4
<PAGE>
Company nor any subsidiary is in material violation, breach of or default under,
and consummation of the transactions herein contemplated and the fulfillment of
the terms of this Agreement will not conflict with, or result in a breach of, or
constitute a material default under, or result in the creation or imposition of
any lien, charge or encumbrance upon any of the property or assets of the
Company or any subsidiary or any of the terms or provisions of any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company or any subsidiary is a party or by which the Company or any
subsidiary may be bound or to which any of the property or assets of the Company
or any subsidiary is subject, nor will such action result in any material
violation of the provisions of the Articles of Incorporation or By-Laws of the
Company or any subsidiary, as amended, or any statute or any order, rule or
regulation applicable to the Company or subsidiary of any court or of any
regulatory authority or other governmental body having jurisdiction over the
Company or each subsidiary.
(h) Subject to the qualifications stated in the Prospectus, the Company
and each subsidiary have good and marketable title to all properties and assets
described in the Prospectus as owned by each of them, free and clear of all
liens, charges, encumbrances or restrictions, except such as are not material to
its business, financial condition or results of operation; all of the material
leases and subleases under which the Company or each subsidiary is the lessor or
sublessor of properties or assets or under which the Company or each subsidiary
holds properties or assets as lessee or sublessee as described in the Prospectus
are in full force and effect, and, except as described in the Prospectus,
neither the Company nor each subsidiary is in default in any material respect
with respect to any of the terms or provisions of any of such leases or
subleases, and no claim has been asserted by anyone adverse to rights of the
Company or any subsidiary as lessor, sublessor, lessee, or sublessee under any
of the leases or subleases mentioned above, or affecting or questioning the
right of the Company or any subsidiary to continued possession of the leased or
subleased premises or assets under any such lease or sublease except as
described or referred to in the Prospectus; and the Company and each subsidiary
owns or leases all such properties described in the Prospectus as are necessary
to its operations as now conducted and, except as otherwise stated in the
Prospectus, as proposed to be conducted as set forth in the Prospectus.
(i) Grant Thornton LLP, who has given its report on certain financial
statements filed and to be filed with the Commission as part of the Registration
Statement, and which are included in the Prospectus, is with respect to the
Company, independent public accountants as required by the Act and the Rules and
Regulations.
(j) The financial statements and schedules, together with related notes,
set forth in the Prospectus and the Registration Statement present fairly the
financial condition, results of
5
<PAGE>
operations and cash flows of the Company on the basis stated in the Registration
Statement, at the respective dates and for the respective periods to which they
apply. Said statements and related notes and schedules have been prepared in
accordance with generally accepted accounting principles applied on a basis
which is consistent during the periods involved. The Company's internal
accounting controls and procedures are sufficient to cause the Company and each
subsidiary to prepare financial statements which comply in all material respects
with generally accepted accounting principles applied on a basis which is
consistent during the periods involved. During the preceding five (5) year
period, nothing has been brought to the attention of the Company's management
that would result in any reportable condition relating to the Company's internal
accounting procedures, weaknesses or controls.
(k) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and the Prospectus and to and including the
Option Closing Date, except as set forth in or contemplated by the Registration
Statement and the Prospectus, (i) neither the Company nor any subsidiary has
incurred and will not have incurred any material liabilities or obligations,
direct or contingent, and has not entered into and will not have entered into
any material transactions other than in the ordinary course of business and/or
as contemplated in the Registration Statement and the Prospectus; (ii) neither
the Company nor any subsidiary has and will not have paid or declared any
dividends or have made any other distribution on its capital stock; (iii) there
has not been any change in the capital stock of, or any incurrence of long-term
debt by, the Company or any subsidiary; (iv) neither the Company nor any
subsidiary has issued any options, warrants or other rights to purchase the
capital stock of the Company or any subsidiary; and (v) there has not been and
will not have been any material adverse change in the business, financial
condition or results of operations of the Company or any subsidiary, or in the
book value of the assets of the Company or any subsidiary, arising for any
reason whatsoever.
(l) Except as set forth in the Prospectus, there is not pending or, to the
knowledge of the Company or any subsidiary, threatened, any material action,
suit, proceeding, inquiry, arbitration or investigation against the Company or
any subsidiary, or any of the officers or directors of the Company or any
subsidiary, or any material action, suit, proceeding, inquiry, arbitration, or
investigation, which might result in any material adverse change in the
condition (financial or other), business prospects, net worth, or properties of
the Company or any subsidiary.
(m) Except as disclosed in the Prospectus, each of the Company and each
subsidiary has filed all necessary federal, state and foreign income and
franchise tax returns and has paid all taxes shown as due thereon; and there is
no tax deficiency which has been
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or to the knowledge of the Company might be asserted against the Company or any
subsidiary that has not been provided for in the financial statements.
(n) Except as set forth in the Prospectus, each of the Company and each
subsidiary has sufficient licenses, permits and other governmental
authorizations currently required for the conduct of its business or the
ownership of its property as described in the Prospectus and is in all material
respects in compliance therewith and owns or possesses adequate right to use all
material patents, patent applications, trademarks, service marks, trade-names,
trademark registrations, service mark registrations, copyrights, and licenses
necessary for the conduct of such business and has not received any notice of
conflict with the asserted rights of others in respect thereof. To the best of
the Company's knowledge, none of the activities or business of the Company or
any subsidiary are in violation of, or cause the Company or any subsidiary to
violate, any law, rule, regulation or order of the United States, any state,
county or locality, or of any agency or body of the United States or of any
state, county or locality, the violation of which would have a material adverse
impact upon the condition (financial or otherwise), business, property,
prospective results of operations, or net worth of the Company and any
subsidiary.
(o) Neither the Company nor any subsidiary has, directly or indirectly, at
any time (i) made any contributions to any candidate for political office, or
failed to disclose fully any such contribution, in violation of law or (ii) made
any payment to any state, federal or foreign governmental officer or official,
or other person charged with similar public of quasi-public duties, other than
payments or contributions required or allowed by applicable law.
(p) On the Closing Dates (herein defined) all transfer or other taxes
(including franchise, capital stock or other tax, other than income taxes,
imposed by any jurisdiction) if any, which are required to be paid in connection
with the sale and transfer of the Securities to the Underwriter hereunder will
have been fully paid or provided for by the Company and all laws imposing such
taxes will have been fully complied with.
(q) All contracts and other documents which are required to be described
in or filed as exhibits to the Registration Statement have been so described
and/or filed.
(r) Except as described in the Registration Statement and Prospectus, no
holders of Common Stock or of any other securities of the Company have the right
to include such Common Stock or other securities in the Registration Statement
and Prospectus.
(s) Except as set forth in or contemplated by the Registration Statement
and the Prospectus, neither the Company nor
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any subsidiary has any material contingent liabilities.
(t) The Company has no subsidiary corporations except as disclosed in the
Registration Statement and Prospectus, nor has it any equity interest in any
partnership, joint venture, association or other entity except as disclosed in
the Registration Statement or Prospectus. Except as described in the
Registration Statement and Prospectus, the Company owns all of the outstanding
securities of each of its subsidiaries.
(u) The Commission has not issued an order preventing or suspending the
use of any Preliminary Prospectus with respect to the offer and sale of the
Securities and each Preliminary Prospectus, as of its date, has conformed fully
in all material respects with the requirements of the Act and the Rules and
Regulations and did not include any untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein not
misleading.
(v) Neither the Company, nor, to the Company's knowledge, any of its
officers, directors, employees or stockholders, have taken or will take,
directly or indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any of the securities of the
Company.
(w) Item 26 of Part II of the Registration Statement accurately discloses
all unregistered securities sold by the Company within the three year period
prior to the date as of which information is presented in the Registration
Statement. All of such securities were sold in transactions which were exempt
from the registration provisions of the Act and not in violation of Section 5
thereof.
(x) Other than as set forth in the Prospectus, the Company has not entered
into any agreement pursuant to which any person is entitled, either directly or
indirectly, to compensation from the Company for services as a finder in
connection with the proposed offering, and the Company agrees to indemnify and
hold harmless the Underwriter against any losses, claims, damages or
liabilities, which shall include, but not be limited to, all costs to defend
against any such claim, so long as such claim arises out of agreements made or
allegedly made by the Company.
(y) Based upon written representations received by the Company, no
officer, director or five percent (5%) or greater stockholder of the Company or
any subsidiary has any direct or indirect affiliation or association with any
member of the National Association of Securities Dealers, Inc. ("NASD"), except
as disclosed to the Underwriter in writing, and no beneficial owner of the
Company's unregistered securities has any direct or indirect affiliation or
association with any NASD member except as disclosed to the Underwriter in
writing. The Company will advise the
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Underwriter and the NASD if any five percent (5%) or greater shareholder of the
Company or any subsidiary is or becomes an affiliate or associated person of an
NASD member participating in the distribution.
(z) The Company and each subsidiary is in compliance in all material
respects with all federal, state and local laws and regulations respecting the
employment of its employees and employment practices, terms and conditions of
employment and wages and hours relating thereto. There are no pending
investigations involving the Company or any subsidiary by the U.S. Department of
Labor, or any other governmental agency responsible for the enforcement of such
federal, state or local laws and regulations. There is no unfair labor practice
charge or complaint against the Company or any subsidiary pending before the
National Labor Relations Board or any strike, picketing, boycott, dispute,
slowdown or stoppage pending or to the knowledge of the Company, threatened
against or involving the Company or any subsidiary or any predecessor entity.
No question concerning representation exists respecting the employees of the
Company or any subsidiary and no collective bargaining agreement or modification
thereof is currently being negotiated by the Company or any subsidiary. No
grievance or arbitration proceeding is pending under any expired or existing
collective bargaining agreements of the Company or any subsidiary, if any.
(aa) Neither the Company nor any subsidiary maintains, sponsors nor
contributes to, nor is it required to contribute to, any program or arrangement
that is an "employee pension benefit plan", an "employee welfare benefit plan",
or a "multi-employer plan" as such terms are defined in Sections 3(2), 3(1) and
3(37), respectively, of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") ("ERISA Plans"). Neither the Company nor any subsidiary
maintained or contributed to a defined benefit plan, as defined in Section 3(35)
of ERISA.
(ab) Based upon written representations received from the officers and
directors of the Company and each subsidiary, except as disclosed in the
Prospectus, during the past five years, none of the officers or directors of the
Company or any subsidiary have been:
(1) The subject of a petition under the federal bankruptcy laws
or any state insolvency law filed by or against them, or by a
receiver, fiscal agent or similar officer appointed by a court for
their business or property, or any partnership in which either of
them was a general partner at or within two years before the time of
such filing, or any corporation or business association of which
either of them was an executive officer at or within two years before
the time of such filing;
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(2) Convicted in a criminal proceeding or a named subject of a
pending criminal proceeding (excluding traffic violations and other
minor offenses);
(3) The subject of any order, judgment, or decree not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining any of them from,
or otherwise limiting, any of the following activities:
(i) acting as a futures commission merchant, introducing
broker, commodity trading advisor, commodity pool operator, floor
broker, leverage transaction merchant, any other person regulated
by the Commodity Futures Trading Commission, or an associated
person of any of the foregoing, or as an investment adviser,
underwriter, broker or dealer in securities, or as an affiliated
person, director or employee of any investment company, bank,
savings and loan association or insurance company, or engaging in
or continuing any conduct or practice in connection with any such
activity;
(ii) engaging in any type of business practice; or
(iii) engaging in any activity in connection with the
purchase or sale of any security or commodity or in connection
with any violation of federal or state securities law or federal
commodity laws.
(4) The subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated of any federal or state
authority barring, suspending or otherwise limiting for more than
sixty (60) days their right to engage in any activity described in
paragraph (3)(i) above, or be associated with persons engaged in any
such activity;
(5) Found by any court of competent jurisdiction in a civil
action or by the Securities and Exchange Commission to have violated
any federal or state securities law, and the judgment in such civil
action or finding by the Commission has not been subsequently
reversed, suspended or vacated; or
(6) Found by a court of competent jurisdiction in a civil action
or by the Commodity Futures Trading Commission to have violated any
federal commodities law, and the judgment in such civil action or
finding by the Commodity Futures Trading Commission has not been
subsequently reversed, suspended or vacated.
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(ac) Based upon written representations received from the officers and
directors of the Company, each of the officers and directors of the Company has
reviewed the sections in the Prospectus relating to their biographical data and
equity ownership position in the Company, and all information contained therein
is true and accurate.
2. Purchase, Delivery and Sale of the Securities.
(a) Subject to the terms and conditions of this Agreement and based upon
the representations, warranties and agreements herein contained, the Company
hereby agrees to issue and sell to the Underwriter an aggregate of 1,500,000
Shares at $4.50 per Share and 2,000,000 Warrants at $.1125 per Warrant, (the
public offering price less ten percent (10%)) at the place and time hereinafter
specified. The price at which the Underwriter shall sell the Securities to the
public shall be $5.00 per Share and $.125 per Warrant.
Delivery of the Securities against payment therefor shall take place at the
offices of Barron Chase Securities, Inc., 7700 West Camino Real, Boca Raton,
Florida 33433 (or at such other place as may be designated by the Underwriter)
at 10:00 a.m., Eastern Time, on such date after the Registration Statement has
become effective as the Underwriter shall designate, but not later than ten (10)
business days (holidays excepted) following the first date that any of the
Securities are released to you, such time and date of payment and delivery for
the Securities being herein called the "Closing Date".
(b) In addition, subject to the terms and conditions of this Agreement,
and based upon the representations, warranties and agreements herein contained,
the Company hereby grants an option to the Underwriter to purchase all or any
part of an aggregate of an additional 225,000 Shares and 300,000 Warrants at the
same price per Share and Warrant as the Underwriter shall pay for the Securities
being sold pursuant to the provisions of subsection (a) of this Section 2 (such
additional Securities being referred to herein as the "Option Securities").
This option may be exercised within forty-five (45) days after the Effective
Date of the Registration Statement upon notice by the Underwriter to the Company
advising as to the amount of Option Securities as to which the option is being
exercised, the names and denominations in which the certificates for such Option
Securities are to be registered and the time and date when such certificates are
to be delivered. Such time and date shall be determined by the Underwriter but
shall not be later than ten (10) full business days after the exercise of said
option, nor in any event prior to the Closing Date, and such time and date is
referred to herein as the "Option Closing Date". Delivery of the Option
Securities against payment therefor shall take place at the offices of the
Underwriter. The Option granted hereunder may be exercised only to cover
overallotments in the sale by the Underwriter of the Securities referred to in
subsection (a)
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above. In the event the Company declares or pays a dividend or distribution on
its Common Stock, whether in the form of cash, shares of Common Stock or any
other consideration, prior to the Option Closing Date, such dividend or
distribution shall also be paid on the Option Closing Date.
(c) The Company will make the certificates for the Securities to be sold
hereunder available to you for inspection at least two (2) full business days
prior to the Closing Date at the offices of the Underwriter, and such
certificates shall be registered in such names and denominations as you may
request. Time shall be of the essence and delivery at the time and place
specified in this Agreement is a further condition to the obligations of the
Company to each Underwriter.
Definitive certificates in negotiable form for the Securities to be
purchased by the Underwriter hereunder will be delivered by the Company to you
for the account of the Underwriter against payment of the purchase prices by the
Underwriter, by certified or bank cashier's checks in New York Clearing House
funds, payable to the order of the Company or by wire transfer in New York
Clearing House funds.
In addition, in the event the Underwriter exercises the option to purchase
from the Company all or any portion of the Option Securities pursuant to the
provisions of subsection (b) above, payment for such Securities shall be made
payable in New York Clearing House funds at the offices of the Underwriter, or
by wire transfer, at the time and date of delivery of such Securities as
required by the provisions of subsection (b) above, against receipt of the
certificates for such Securities by the Underwriter for the account of the
Underwriter registered in such names and in such denominations as the
Underwriter may request.
It is understood that the Underwriter proposes to offer the Securities to
be purchased hereunder to the public upon the terms and conditions set forth in
the Registration Statement, after the Registration Statement is declared
effective by the Commission.
3. Covenants of the Company. The Company covenants and agrees with the
Underwriter that:
(a) The Company, upon notification from the Commission that the
Registration Statement has become effective, will so advise you and will not at
any time, whether before or after the Effective Date, file any amendment to the
Registration Statement or supplement to the Prospectus of which you shall not
previously been advised and furnished with a copy or to which you or your
counsel shall have objected in writing, acting reasonably, or which is not in
compliance with the Act and the Rules and Regulations. At any time prior to the
later of (i) the completion by the Underwriter of the distribution of the
Securities as contemplated hereby; or (ii) 25 days after the date on which the
Registration Statement shall
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<PAGE>
have become or been declared effective, the Company will prepare and file with
the Commission, promptly upon your request, any amendments or supplements to the
Registration Statement or Prospectus which may be necessary or advisable in
connection with the distribution of the Securities and as mutually agreed by the
Company and the Underwriter.
After the Effective Date and as soon as the Company is advised thereof, the
Company will advise you, and confirm the advice in writing, of the receipt of
any comments of the Commission, of the effectiveness of any post-effective
amendment to the Registration Statement, of the filing of any supplement to the
Prospectus or any amended Prospectus, of any request made by the Commission for
amendment of the Registration Statement or for supplementing of the Prospectus
or for additional information with respect thereto, of the issuance by the
Commission or any state or regulatory body of any stop order or other order
suspending the effectiveness of the Registration Statement or any order
preventing or suspending the use of any Preliminary Prospectus, or of the
suspension of the qualification of the Securities for offering in any
jurisdiction, or of the institution of any proceedings for any of such purposes,
and will use its best efforts to prevent the issuance of any such order, and, if
issued, to obtain as soon as possible the lifting thereof.
The Company has caused to be delivered to you copies of each Preliminary
Prospectus and Definitive Prospectus, and the Company has consented and hereby
consents to the use of such copies for the purposes permitted by the Act. The
Company authorizes the Underwriter and Selected Dealers to use the Prospectus in
connection with the sale of the Securities for such period as in the opinion of
counsel to the Underwriter the use thereof is required to comply with the
applicable provisions of the Act and the Rules and Regulations. In case of the
happening, at any time within such period as a Prospectus is required under the
Act to be delivered in connection with sales by the Underwriter or Selected
Dealers, of any event of which the Company has knowledge and which materially
affects the Company or the securities of the Company, or which in the opinion of
counsel for the Company or counsel for the Underwriter, should be set forth in
an amendment to the Registration Statement or a supplement to the Prospectus, in
order to make the statements therein not then misleading, in light of the
circumstances existing at the time the Prospectus is required to be delivered to
a purchaser of the Securities, or in case it shall be necessary to amend or
supplement the Prospectus to comply with law or with the Act and the Rules and
Regulations, the Company will notify you promptly and forthwith prepare and
furnish to you copies of such amended Prospectus or of such supplement to be
attached to the Prospectus, in such quantities as you may reasonably request, in
order that the Prospectus, as so amended or supplemented, will not contain any
untrue statement of a material fact or omit to state any material facts
necessary in order to make the statements in the Prospectus, in the light of the
circumstances under which
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<PAGE>
they are made, not misleading. The preparation and furnishing of any such
amendment or supplement to the Registration Statement or amended Prospectus or
supplement to be attached to the Prospectus shall be without expense tothe
Underwriter.
The Company will comply with the Act, the Rules and Regulations thereunder,
the Securities Exchange Act of 1934 (the "1934 Act"), and the rules and
regulations thereunder in connection with the offering and issuance of the
Securities.
(b) The Company will act in good faith and use its best efforts and
cooperate with you and your counsel to qualify to register the Securities for
sale under the securities or "blue sky" laws of such jurisdictions as the
Underwriter may designate and will make such applications and furnish such
information as may be required for that purpose and to comply with such laws,
provided the Company shall not be required to qualify as a foreign corporation
or a dealer in securities or to execute a general consent to service of process
in any jurisdiction in any action other than one arising out of the offering or
sale of the Securities. The Company will, from time to time, prepare and file
such statements and reports as are or may be required to continue such
qualification in effect for so long a period as the Underwriter may reasonably
request.
(c) If the sale of the Securities provided for herein is not consummated,
the Company shall pay all costs and expenses incident to the performance of the
Company's obligations hereunder, including, but not limited to, all such
expenses itemized in Section 8(a) and 8(c) hereof, and either (i) the
out-of-pocket expenses of the Underwriter, not to exceed the $50,000 previously
paid if the Underwriter elects to terminate the offering for any reason; or (ii)
the out-of-pocket expenses of the Underwriter if the Company elects to terminate
the offering for any reason. For the purposes of this sub-paragraph, the
Underwriter shall be deemed to have assumed such expenses when they are billed
or incurred, regardless of whether such expenses have been paid. The
Underwriter shall not be responsible for any expenses of the Company or others,
or for any charges or claims relative to the proposed public offering if it is
not consummated.
(d) The Company will deliver to you at or before the Closing Date two
signed copies of the Registration Statement, including all financial statements
and exhibits filed therewith, and of each amendment or supplement thereto. The
Company will deliver to or upon the order of the Underwriter, from time to time
until the Effective Date of the Registration Statement, as many copies of any
Preliminary Prospectus filed with the Commission prior to the Effective Date of
the Registration Statement as the Underwriter may reasonably request. The
Company will deliver to the Underwriter on the Effective Date of the
Registration Statement and thereafter for so long as a Prospectus is required to
be delivered under the Act, from time to time, as many copies of the Prospectus,
in final form,
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<PAGE>
or as thereafter amended or supplemented as the Underwriter may from time to
time reasonably request.
(e) For so long as the Company is a reporting company under either Section
12 or 15 of the 1934 Act, the Company, at its expense, will furnish to the
Underwriter during the period ending five (5) years from the Effective Date, (i)
as soon as practicable after the end of each fiscal year, a balance sheet of the
Company and any of its subsidiaries as at the end of such fiscal year, together
with statements of income, surplus and cash flow of the Company and any
subsidiaries for such fiscal year, all in reasonable detail and accompanied by a
copy of the certificate or report thereon of independent accountants; (ii) as
soon as they are available, a copy of all reports (financial or other) mailed to
security holders; (iii) as soon as they are available, a copy of all
non-confidential documents, including annual reports, periodic reports and
financial statements, furnished to or filed with the Commission under the Act
and the 1934 Act; (iv) copies of each press release, news item and article with
respect to the Company's affairs released by the Company; and (v) such other
information as you may from time to time reasonably request.
(f) In the event the Company has an active subsidiary or subsidiaries,
such financial statements referred to in subsection (e) above will be on a
consolidated basis to the extent the accounts of the Company and its subsidiary
or subsidiaries are consolidated in reports furnished to its stockholders
generally.
(g) The Company will make generally available to its stockholders and to
the registered holders of its Warrants and deliver to you as soon as it is
practicable, but in no event later than the first day of the sixteenth full
calendar month following the Effective Date, an earnings statement (which need
not be audited) covering a period of at least twelve consecutive months
beginning with the Effective Date of the Registration Statement, which shall
satisfy the requirements of Section 11(a) of the Act.
(h) On the Closing Date, the Company shall have taken the necessary action
to become a reporting company under Section 12 of the 1934 Act, and the Company
will make all filings required to, and will have obtained approval for, the
listing of the Shares and Warrants on The Nasdaq Small Cap Market System, and
will use its best efforts to maintain such listing for at least seven (7) years
from the date of this Agreement.
(i) For such period as the Company's securities are registered under the
1934 Act, the Company will hold an annual meeting of stockholders for the
election of Directors within 180 days after the end of each of the Company's
fiscal years and, within nine (9) months after the end of each of the Company's
fiscal years will provide the Company's stockholders with the audited financial
statements of the Company as of the end of the fiscal year just completed prior
thereto. Such financial
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statements shall be those required by Rule 14a-3 under the 1934 Act and shall be
included in an annual report pursuant to the requirements of such Rule.
(j) The Company will apply the net proceeds from the sale of the
Securities substantially in accordance with its statement under the caption "Use
of Proceeds" in the Prospectus, and will file such reports with the Commission
with respect to the sale of the Securities and the application of the proceeds
therefrom as may be required by Sections 12, 13 and/or 15 of the 1934 Act and
pursuant to Rule 463 under the Act.
(k) The Company will, promptly upon your request, prepare and file with
the Commission any amendments or supplements to the Registration Statement,
Preliminary Prospectus or Prospectus and take any other action, which in the
reasonable opinion of counsel to the Underwriter and the Company may be
reasonably necessary or advisable in connection with the distribution of the
Securities and will use its best efforts to cause the same to become effective
as promptly as possible.
(l) On the Closing Date, the Company shall execute and deliver to you the
Underwriter's Warrant Agreement. The Underwriter's Warrant Agreement and
Warrant Certificates will be substantially in the form of the Underwriter's
Warrant Agreement filed as an Exhibit to the Registration Statement.
(m) The Company will reserve and keep available for issuance that maximum
number of its authorized but unissued securities which are issuable upon
exercise of the Underwriter's Warrants outstanding from time to time.
(n) All existing beneficial owners of the Company's securities (including
Warrants, Options and Common Stock of the Company), as of the Effective Date,
shall agree in writing, in a form satisfactory to the Underwriter, not to sell,
transfer or otherwise dispose of any of such securities or underlying securities
for a period of twenty-four (24) months from the Effective Date, or any longer
period required by the NASD, Nasdaq, or any State.
(o) The Company will obtain, on or before the Closing Date, key person
life insurance on the life of Daniel J. Brentlinger in an amount of not less
than $3,000,000, and will use its best efforts to maintain such insurance for a
period of at least five (5) years from the Effective Date.
(p) Prior to the Closing Date, the Company shall, at its own expense,
undertake to list the Company's securities in the appropriate recognized
securities manual or manuals published by Standard & Poor's Corporation and such
other manuals as the
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Underwriter may designate, such listings to contain the information required by
such manuals and the Uniform Securities Act. The Company hereby agrees to use
its best efforts to maintain such listing for a period of not less than five (5)
years. The Company shall take such action as may be reasonably requested by the
Underwriter to obtain a secondary market trading exemption in such states as may
be reasonably requested by the Underwriter.
(q) During the one hundred eighty (180) day period commencing on the
Closing Date, the Company will not, without the prior written consent of the
Underwriter, grant options or warrants to purchase the Company's Common Stock at
a price less than the initial per share public offering price.
(r) Prior to the Closing Date, neither the Company nor any subsidiary will
issue, directly or indirectly, without your prior consent, any press release or
other communication or hold any press conference with respect to the Company or
its activities or the offering of the Securities other than routine customary
advertising of the Company's products and services, and except as required by
any applicable law or the directives of any relevant regulatory authority in any
relevant jurisdiction.
(s) At the Closing Date, the Company will engage the Underwriter as a
non-exclusive financial advisor to the Company for a period of twelve (12)
months commencing on the first day of the month following the Company's receipt
of the proceeds of this offering, at an aggregate fee of $108,000, all of which
shall be payable to the Underwriter on the Closing Date. The financial advisory
agreement will provide that the Underwriter shall, at the Company's request,
provide advice and consulting services to the Company concerning potential
merger and acquisition proposals and the obtaining of short or long-term
financing for the Company, whether by public financing or otherwise.
(t) The Company shall employ the services of a firm of independent
certified public accountants in connection with the preparation of the financial
statements to be included in any registration statement or similar disclosure
document to be filed by the Company hereunder, or any amendment or supplement
thereto. For a period of five (5) years from the Effective Date, the Company,
at its expense, shall cause its regularly engaged independent certified public
accountants to review (but not audit) the Company's financial statements for
each of the first three (3) fiscal quarters prior to the announcement of
quarterly financial information, the filing of the Company's quarterly report
and the mailing of quarterly financial information to stockholders.
(u) The Company shall retain American Stock Transfer & Trust Company as
the transfer agent for the securities of the Company, or such other transfer
agent as you may agree to in writing. In addition, the Company shall direct
such transfer agent to furnish the Underwriter with daily transfer sheets as to
each of the
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Company's securities as prepared by the Company's transfer agent and copies of
lists of stockholders and warrantholders as reasonably requested by the
Underwriter, for a five (5) year period commencing from the Closing Date.
(v) The Company shall cause the Depository Trust Company, or such other
depository of the Company's securities, to furnish special security position
reports (ADTC Tracking Reports@) to the Underwriter on a daily and weekly basis
at the expense of the Company, for a five (5) year period from the Effective
Date. It is anticipated that the DTC Tracking Reports may cost up to $10,000
for the initial two (2) month period from the Effective Date, after which time
the Company=s obligation to furnish such tracking reports will be reviewed by
the Company and the Underwriter.
(w) Following the Effective Date, the Company shall, at its sole cost and
expense, prepare and file such Blue Sky applications with such jurisdictions as
the Underwriter shall designate and the Company may reasonably agree.
(x) On the Effective Date and for a period of three (3) years thereafter,
the Company's Board of Directors shall consist of a minimum of five (5) persons,
two (2) of whom shall be independent and not otherwise affiliated with the
Company or associated with any of the Company's affiliates. The Underwriter
shall have the opportunity to invite an observer to attend Board of Directors
meetings of the Company at the expense of the Company.
(y) On the Closing Date, the Company shall execute and deliver to you a
non-exclusive M/A Agreement with the Underwriter in a form satisfactory to the
Underwriter, providing:
(1) that the Underwriter will be paid a finder's fee, of from five
percent (5%) of the first $1,000,000 ranging in $1,000,000 increments down
to one percent (1%) of the excess, if any, over $4,000,000 of the
consideration involved in any transaction introduced by the Underwriter
(including mergers, acquisitions, joint ventures, and any other business
for the Company introduced by the Underwriter) consummated by the Company,
as an "Introduced, Consummated Transaction", by which the Underwriter
introduced the other party to the Company during a period ending five (5)
years from the date of the M/A Agreement; and
(2) that any such finder's fee due to the Underwriter will be paid in
cash or stock as mutually agreed at the closing of the particular
Introduced, Consummated Transaction for which the finder's fee is due.
(z) After the Closing Date, the Company shall prepare and publish
"tombstone" advertisements of at least 5 x 5 inches in publications to be
designated by the Underwriter at a total cost not to exceed $15,000.
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(aa) For such period as any Warrants are outstanding, the Company shall use
its best efforts to cause post-effective amendments to the Registration
Statement or a new Registration Statement to become effective in compliance with
the Act and without any lapse of time between the effectiveness of any such
post-effective amendments and cause a copy of each Prospectus, as then amended,
to be delivered to each holder of record of a Warrant and to furnish the
Underwriter and each dealer as many copies of each such Prospectus as the
Underwriter or such dealer may reasonably request. Such post-effective
amendments or new Registration Statements shall also register the Underwriter's
Warrants and all the securities underlying the Underwriter's Warrants. The
Company shall not call for redemption any of the Warrants unless a Registration
Statement covering the securities underlying the Warrants has been declared
effective by the Commission and remains current at least until the date fixed
for redemption. In addition, the Warrants shall not be redeemable during the
first year after the Effective Date without the written consent of the
Underwriter.
(ab) Until such time as the securities of the Company are listed or quoted
on either the New York Stock Exchange or the American Stock Exchange, the
Company shall engage the Company's legal counsel to deliver to the Underwriter a
written opinion detailing those states in which the Shares and Warrants of the
Company may be traded in non-issuer transactions under the Blue Sky laws of the
fifty states ("Secondary Market Trading Opinion"). The initial Secondary Market
Trading Opinion shall be delivered to the Underwriter on the Effective Date, and
the Company shall continue to update such opinion and deliver same to the
Underwriter on a timely basis, but in any event at the beginning of each fiscal
quarter, for a five (5) year period, if required.
(ac) As promptly as practicable after the Closing Date, the Company will
prepare, at its own expense, hard cover "bound volumes" relating to the
offering, and will distribute such volumes to the individuals designated by the
Underwriter or counsel to the Underwriter.
4. Conditions of Underwriters' Obligations. The obligation of the
Underwriter to purchase and pay for the Securities which the Underwriter has
agreed to purchase hereunder from the Company is subject, as of the date hereof
and as of the Closing Date and the Option Closing Date, to the execution of this
Agreement by the Underwriter, to the continuing accuracy of, and compliance
with, the representations and warranties of the Company herein, to the accuracy
of statements of officers of the Company made pursuant to the provisions hereof,
to the performance by the Company of its obligations hereunder, and to the
following additional conditions:
(a) (i) The Registration Statement shall have become effective not later
than 5:00 p.m., Eastern Time, on the date of this Agreement, or at such later
time or on such later date as you
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may agree to in writing; (ii) at or prior to the Closing Date, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the Commission and no proceeding for that purpose shall have been
initiated or pending, or shall be threatened, or to the knowledge of the
Company, contemplated by the Commission; (iii) no stop order suspending the
effectiveness of the qualification or registration of the Securities under the
securities or "blue sky" laws of any jurisdiction (whether or not a jurisdiction
which you shall have specified) shall be threatened or to the knowledge of the
Company contemplated by the authorities of any such jurisdiction or shall have
been issued and in effect; (iv) any request for additional information on the
part of the Commission or any such authorities shall have been complied with to
the satisfaction of the Commission and any such authorities, and to the
satisfaction of counsel to the Underwriter; and (v) after the date hereof no
amendment or supplement to the Registration Statement or the Prospectus shall
have been filed unless a copy thereof was first submitted to the Underwriter and
the Underwriter did not object thereto.
(b) At the Closing Date, since the respective dates as of which
information is presented in the Registration Statement and the Prospectus, (i)
there shall not have been any material change in the capital stock or other
securities of the Company or any subsidiary or any material adverse change in
the long-term debt of the Company or any material subsidiary except as set forth
in or contemplated by the Registration Statement, (ii) there shall not have been
any material adverse change in the general affairs, business, properties,
condition (financial or otherwise), management, or results of operations of the
Company or any subsidiary, whether or not arising from transactions in the
ordinary course of business, in each case other than as set forth in or
contemplated by the Registration Statement or Prospectus; (iii) neither the
Company nor any subsidiary shall have sustained any material interference with
its business or properties from fire, explosion, flood or other casualty,
whether or not covered by insurance, or from any labor dispute or any court or
legislative or other governmental action, order or decree, which is not set
forth in the Registration Statement and Prospectus; and (iv) the Registration
Statement and the Prospectus and any amendments or supplements thereto shall
contain all statements which are required to be stated therein in accordance
with the Act and the Rules and Regulations, and shall in all material respects
conform to the requirements thereof, and neither the Registration Statement nor
the Prospectus nor any amendment or supplement thereto shall contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstance under which they are made, not misleading.
(c) Except as set forth in the Prospectus, there is not pending or, to the
knowledge of the Company or any subsidiary, threatened, any material action,
suit, proceeding, inquiry,
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arbitration or investigation against the Company or any subsidiary, or any of
the officers or directors of the Company or any subsidiary, or any material
action, suit, proceeding, inquiry, arbitration, or investigation, which might
result in any material adverse change in the condition (financial or other),
business prospects, net worth, or properties of the Company or any subsidiary.
(d) Each of the representations and warranties of the Company contained
herein shall be true and correct as of this date and at the Closing Date as if
made at the Closing Date, and all covenants and agreements herein contained to
be performed on the part of the Company and all conditions herein contained to
be fulfilled or complied with by the Company at or prior to the Closing Date
shall have been duly performed, fulfilled or complied with.
(e) At each Closing Date, you shall have received the opinion, dated as of
each Closing Date, from Thomas T. Prousalis, Jr., Esq., counsel for the Company,
in form and substance satisfactory to counsel for the Underwriter, which in the
aggregate shall state:
(i) the Company and each subsidiary has been duly incorporated and is
validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, with full corporate power and authority to
own its properties and conduct its business as described in the
Registration Statement and Prospectus and is duly qualified or licensed to
do business as a foreign corporation and is in good standing in each other
jurisdiction in which the ownership or leasing of its properties or conduct
of its business requires such qualification except for jurisdictions in
which the failure to so qualify would not have a material adverse effect on
the Company and each subsidiary as a whole;
(ii) the authorized capitalization of the Company is as set forth
under "Capitalization" in the Prospectus; all shares of the Company's
outstanding stock and other securities requiring authorization for issuance
by the Company's Board of Directors have been duly authorized, validly
issued, are fully paid and non-assessable and conform to the description
thereof contained in the Prospectus; the outstanding shares of Common Stock
of the Company and other securities have not been issued in violation of
the preemptive rights of any shareholder and the shareholders of the
Company do not have any preemptive rights or, to such counsel's knowledge,
other rights to subscribe for or to purchase securities of the Company,
nor, to such counsel's knowledge, are there any restrictions upon the
voting or transfer of any of the securities of the Company, except as
disclosed in the Prospectus; the Common Stock, the Shares, the Warrants,
and the securities contained in the Underwriter's Warrant Agreement conform
to the respective descriptions thereof contained in the Prospectus;
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the Common Stock, the Shares, the Warrants, the shares of Common Stock to
be issued upon exercise of the Warrants and the securities contained in the
Underwriter's Warrant Agreement, have been duly authorized and, when
issued, delivered and paid for, will be duly authorized, validly issued,
fully paid, non-assessable, free of pre-emptive rights and no personal
liability will attach to the ownership thereof; all prior sales by the
Company of the Company's securities have been made in compliance with or
under an exemption from registration under the Act and applicable state
securities laws and no shareholders of the Company have any rescission
rights against the Company with respect to the Company's securities; a
sufficient number of shares of Common Stock has been reserved for issuance
upon exercise of the Warrants and the Underwriter Warrants, and to the best
of such counsel's knowledge, neither the filing of the Registration
Statement nor the offering or sale of the Securities as contemplated by
this Agreement gives rise to any registration rights or other rights, other
than those which have been waived or satisfied or described in the
Registration Statement;
(iii) this Agreement, the Underwriter's Warrant Agreement, the
Warrant Agreement, the Financial Advisory Agreement, and the M/A Agreement
have been duly and validly authorized, executed and delivered by the
Company and, assuming the due authorization, execution and delivery of this
Agreement by the Underwriter, are the valid and legally binding obligations
of the Company, enforceable in accordance with their terms, except (a) as
such enforceability may be limited by applicable bankruptcy, insolvency,
moratorium, reorganization or similar laws from time to time in effect
which effect creditors' rights generally; and (b) no opinion is expressed
as to the enforceability of the indemnity provisions or the contribution
provisions contained in this Agreement;
(iv) the certificates evidencing the outstanding securities of the
Company, the Shares, the Common Stock and the Warrants are in valid and
proper legal form;
(v) to the best of such counsel's knowledge, except as set forth in
the Prospectus, there is not pending or, to the knowledge of the Company,
threatened, any material action, suit, proceeding, inquiry, arbitration or
investigation against the Company or any subsidiary or any of the officers
of directors of the Company or any subsidiary, nor any material action,
suit, proceeding, inquiry, arbitration, or investigation, which might
materially and adversely affect the condition (financial or otherwise),
business prospects, net worth, or properties of the Company or any
subsidiary;
(vi) the execution and delivery of this Agreement, the
22
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Underwriter's Warrant Agreement, the Warrant Agreement, the Financial
Advisory Agreement, and the M/A Agreement, and the incurrence of the
obligations herein and therein set forth and the consummation of the
transactions herein or therein contemplated, will not result in a violation
of, or constitute a default under (a) the Articles of Incorporation or
By-Laws of the Company and each subsidiary; (b) to the best of such
counsel's knowledge, any material obligations, agreement, covenant or
condition contained in any bond, debenture, note or other evidence of
indebtedness or in any contract, indenture, mortgage, loan agreement,
lease, joint venture or other agreement or instrument to which the Company
or any subsidiary is a party or by which it or any of its properties is
bound; or (c) to the best of such counsel's knowledge, any material order,
rule, regulation, writ, injunction, or decree of any government,
governmental instrumentality or court, domestic or foreign;
(vii) the Registration Statement has become effective under the Act,
and to the best of such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement is in effect, and no
proceedings for that purpose have been instituted or are pending before, or
threatened by, the Commission; the Registration Statement and the
Prospectus (except for the financial statements and other financial data
contained therein, or omitted therefrom, as to which such counsel need
express no opinion) comply as to form in all material respects with the
applicable requirements of the Act and the Rules and Regulations; and
(viii) no authorization, approval, consent, or license of any
governmental or regulatory authority or agency is necessary in connection
with the authorization, issuance, transfer, sale or delivery of the
Securities by the Company, in connection with the execution, delivery and
performance of this Agreement by the Company or in connection with the
taking of any action contemplated herein, or the issuance of the
Underwriter's Warrants or the Securities underlying the Underwriter's
Warrants, other than registrations or qualifications of the Securities
under applicable state or foreign securities or Blue Sky laws and
registration under the Act.
Such opinion shall also cover such matters incident to the transactions
contemplated hereby as the Underwriter or counsel for the Underwriter shall
reasonably request. In rendering such opinion, such counsel may rely upon
certificates of any officer of the Company or public officials as to matters of
fact; and may rely as to all matters of law, upon opinions of counsel
satisfactory to you and counsel to the Underwriter. The opinion of such counsel
to the Company shall state that the opinion of any such other counsel is in form
satisfactory to such counsel and that the Underwriter and they are justified in
relying thereon.
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Such counsel shall also include a statement to the effect that such counsel
has participated in the preparation of the Registration Statement and the
Prospectus and nothing has come to the attention of such counsel to lead such
counsel to believe that the Registration Statement or any amendment thereto at
the time it became effective contained any untrue statement of a material fact
or omitted to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
are made, not misleading or that the Prospectus or any supplement thereto
contains any untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary in order to make statements
therein, in light of the circumstances under which they are made, not misleading
(except, in the case of both the Registration Statement and any amendment
thereto and the Prospectus and any supplement thereto, for the financial
statements, notes thereto and other financial information and statistical data
contained therein, as to which such counsel need express no opinion).
(f) You shall have received on each Closing Date a certificate dated as of
each Closing Date, signed by the Chief Executive Officer and the Chief Financial
Officer of the Company and such other officers of the Company as the Underwriter
may request, certifying that:
(i) No Order suspending the effectiveness of the Registration
Statement or stop order regarding the sale of the Securities in effect and
no proceedings for such purpose are pending or are, to their knowledge,
threatened by the Commission;
(ii) They do not know of any litigation instituted or, to their
knowledge, threatened against the Company or any subsidiary or any officer
or director of the Company or any subsidiary of a character required to be
disclosed in the Registration Statement which is not disclosed therein;
they do not know of any contracts which are required to be summarized in
the Prospectus which are not so summarized; and they do not know of any
material contracts required to be filed as exhibits to the Registration
Statement which are not so filed;
(iii) They have each carefully examined the Registration Statement
and the Prospectus and, to the best of their knowledge, neither the
Registration Statement nor the Prospectus nor any amendment or supplement
to either of the foregoing contains an untrue statement of any material
fact or omits to state any material fact required to be stated therein or
necessary to make the statement therein, in light of the circumstances
under which they are made, not misleading; and since the Effective Date, to
the best of their knowledge, there has occurred no event required to be set
forth in an amended or supplemented Prospectus which has not been so set
24
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forth;
(iv) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there has not been any
material adverse change in the condition of the Company or any subsidiary,
financial or otherwise, or in the results of its operations, except as
reflected in or contemplated by the Registration Statement and the
Prospectus and except as so reflected or contemplated since such date,
there has not been any material transaction entered into by the Company or
any subsidiary;
(v) The representations and warranties set forth in this Agreement
are true and correct in all material respects and the Company has complied
with all of its agreements herein contained;
(vi) Neither the Company nor any subsidiary is delinquent in the
filing of any federal, state and other tax return or the payment of any
federal, state or other taxes; they know of no proposed redetermination or
re-assessment of taxes, adverse to the Company or any subsidiary, and the
Company and each subsidiary has paid or provided by adequate reserves for
all known tax liabilities;
(vii) They know of no material obligation or liability of the Company
or any subsidiary, contingent or otherwise, not disclosed in the
Registration Statement and Prospectus;
(viii) This Agreement, the Underwriter's Warrant Agreement, the
Warrant Agreement, the Financial Advisory Agreement, and the M/A Agreement,
the consummation of the transactions therein contemplated, and the
fulfillment of the terms thereof, will not result in a breach by the
Company of any terms of, or constitute a default under, the Company's
Articles of Incorporation or By-Laws, any indenture, mortgage, lease, deed
of trust, bank loan or credit agreement or any other material agreement or
undertaking of the Company or any subsidiary including, by way of
specification but not by way of limitation, any agreement or instrument to
which the Company or any subsidiary is now a party or pursuant to which the
Company or any subsidiary has acquired any right and/or obligations by
succession or otherwise;
(ix) The financial statements and schedules filed with and as part of
the Registration Statement present fairly the financial position of the
Company as of the dates thereof all in conformity with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved. Since the respective dates of such financial statements, there
have been no material adverse change in the condition or general affairs of
the Company, financial or otherwise, other than as referred to in the
Prospectus;
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(x) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, except as may otherwise
be indicated therein, neither the Company nor any subsidiary has, prior to
the Closing Date, either (i) issued any securities or incurred any material
liability or obligation, direct or contingent, for borrowed money, or (ii)
entered into any material transaction other than in the ordinary course of
business. The Company has not declared, paid or made any dividend or
distribution of any kind on its capital stock;
(xi) They have reviewed the sections in the Prospectus relating to
their biographical data and equity ownership position in the Company, and
all information contained therein is true and accurate; and
(xii) Except as disclosed in the Prospectus, during the past five
years, they have not been:
(1) The subject of a petition under the federal bankruptcy laws
or any state insolvency law filed by or against them, or by a
receiver, fiscal agent or similar officer appointed by a court for
their business or property, or any partnership in which either of
them was a general partner at or within two years before the time of
such filing, or any corporation or business association of which
either of them was an executive officer at or within two years before
the time of such filing;
(2) Convicted in a criminal proceeding or a named subject of a
pending criminal proceeding (excluding traffic violations and other
minor offenses);
(3) The subject of any order, judgment, or decree not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining any of them from,
or otherwise limiting, any of the following activities:
(i) acting as a futures commission merchant, introducing
broker, commodity trading advisor, commodity pool operator, floor
broker, leverage transaction merchant, any other person regulated
by the Commodity Futures Trading Commission, or an associated
person of any of the foregoing, or as an investment adviser,
underwriter, broker or dealer in securities, or as an affiliated
person, director or employee of any investment company, bank,
savings and loan association or insurance company, or engaging in
or continuing any conduct or practice in connection with any such
activity;
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<PAGE>
(ii) engaging in any type of business practice; or
(iii) engaging in any activity in connection with the
purchase or sale of any security or commodity or in connection
with any violation of federal or state securities law or federal
commodity laws.
(4) The subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated of any federal or state
authority barring, suspending or otherwise limiting for more than
sixty (60) days their right to engage in any activity described in
paragraph (3)(i) above, or be associated with persons engaged in any
such activity;
(5) Found by any court of competent jurisdiction in a civil
action or by the Securities and Exchange Commission to have violated
any federal or state securities law, and the judgment in such civil
action or finding by the Commission has not been subsequently
reversed, suspended or vacated; or
(6) Found by a court of competent jurisdiction in a civil action
or by the Commodity Futures Trading Commission to have violated any
federal commodities law, and the judgment in such civil action or
finding by the Commodity Futures Trading Commission has not been
subsequently reversed, suspended or vacated.
(g) The Underwriter shall have received from Grant Thornton LLP,
independent auditors to the Company, certificates or letters, one dated and
delivered on the Effective Date and one dated and delivered on the Closing Date,
in form and substance satisfactory to the Underwriter, stating that:
(i) they are independent certified public accountants with respect to
the Company within the meaning of the Act and the applicable Rules and
Regulations;
(ii) the financial statements and the schedules included in the
Registration Statement and the Prospectus were examined by them and, in
their opinion, comply as to form in all material respects with the
applicable accounting requirements of the Act, the Rules and Regulations
and instructions of the Commission with respect to Registration
Statements on Form SB-2;
(iii) on the basis of inquiries and procedures conducted by them (not
constituting an examination in accordance with generally accepted auditing
standards), including a reading of the latest available unaudited interim
financial statements or
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<PAGE>
other financial information of the Company (with an indication of the date
of the latest available unaudited interim financial statements), inquiries
of officers of the Company who have responsibility for financial and
accounting matters, review of minutes of all meetings of the shareholders
and the Board of Directors of the Company and other specified inquiries and
procedures, nothing has come to their attention as a result of the
foregoing inquiries and procedures that causes them to believe that:
(a) during the period from (and including) the date of the
financial statements in the Registration Statement and the Prospectus
to a specified date not more than five days prior to the date of such
letters, there has been any change in the Common Stock, long-term debt
or other securities of the Company (except as specifically
contemplated in the Registration Statement and Prospectus) or any
material decreases in net current assets, net assets, shareholder's
equity, working capital or in any other item appearing in the
Company's financial statements as to which the Underwriter may request
advice, in each case as compared with amounts shown in the balance
sheet as of the date of the financial statement in the Prospectus,
except in each case for changes, increases or decreases which the
Prospectus discloses have occurred or will occur;
(b) during the period from (and including) the date of the
financial statements in the Registration Statement and the Prospectus
to such specified date there was any material decrease in revenues or
in the total or per share amounts of income or loss before
extraordinary items or net income or loss, or any other material
change in such other items appearing in the Company's financial
statements as to which the Underwriter may request advice, in each
case as compared with the fiscal period ended as of the date of the
financial statement in the Prospectus, except in each case for
increases, changes or decreases which the Prospectus discloses have
occurred or will occur;
(c) the unaudited interim financial statements of the Company
appearing in the Registration Statement and the Prospectus (if any) do
not comply as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and Regulations or
are not fairly presented in conformity with generally accepted
accounting principles and practices on a basis substantially
consistent with the audited financial statements included in the
Registration Statements or the Prospectus.
(iv) they have compared specific dollar amounts, numbers
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of shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the Prospectus
in each case to the extent that such amounts, numbers, percentages,
statements and information may be derived from the general accounting
records, including work sheets, of the Company and excluding any questions
requiring an interpretation by legal counsel, with the results obtained
from the application of specified readings, inquiries and other appropriate
procedures (which procedures do not constitute an examination in accordance
with generally accepted auditing standards) set forth in the letter and
found them to be in agreement; and
(v) they have not during the immediately preceding five (5) year
period brought to the attention of the Company's management any reportable
condition related to the Company's internal accounting procedures,
weaknesses and/or controls.
Such letters shall also set forth such other information as may be
requested by counsel for the Underwriter. Any changes, increases or decreases
in the items set forth in such letters which, in the judgment of the
Underwriter, are materially adverse with respect to the financial position or
results of operations of the Company shall be deemed to constitute a failure of
the Company to comply with the conditions of the obligations to the Underwriter
hereunder.
(h) Upon exercise of the option provided for in Section 2(b) hereof, the
obligation of the Underwriter to purchase and pay for the Option Securities
referred to therein will be subject (as of the date hereof and as of the Option
Closing Date) to the following additional conditions:
(i) The Registration Statement shall remain effective at the Option
Closing Date, and no stop order suspending the effectiveness thereof shall
have been issued and no proceedings for that purpose shall have been
instituted or shall be pending, or, to your knowledge or the knowledge of
the Company, shall be contemplated by the Commission, and any reasonable
request on the part of the Commission for additional information shall have
been complied with to the satisfaction of counsel to the Underwriter.
(ii) At the Option Closing Date, there shall have been delivered to
you the signed opinions from Thomas T. Prousalis, Jr., Esq., counsel for
the Company, dated as of the Option Closing Date, in form and substance
satisfactory to counsel to the Underwriter, which opinions shall be
substantially the same in scope and substance as the opinions furnished to
you at the Closing Date pursuant to Section 4(e) hereof, except that such
opinions, where appropriate, shall cover the Option Securities.
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(iii) At the Option Closing Date, there shall have been delivered to
you a certificate of the Chief Executive Officer and Chief Financial
Officer of the Company, dated the Option Closing Date, in form and
substance satisfactory to counsel to the Underwriter, substantially the
same in scope and substance as the certificate furnished to you at the
Closing Date pursuant to Section 4(f) hereof.
(iv) At the Option Closing Date, there shall have been delivered to
you a letter in form and substance satisfactory to you from Grant Thornton
LLP, independent auditors to the Company, dated the Option Closing Date and
addressed to the Underwriter confirming the information in their letter
referred to in Section 4(g) hereof and stating that nothing has come to
their attention during the period from the ending date of their review
referred to in said letter to a date not more than five business days prior
to the Option Closing Date, which would require any change in said letter
if it were required to be dated the Option Closing Date.
(v) All proceedings taken at or prior to the Option Closing Date in
connection with the sale and issuance of the Option Securities shall be
satisfactory in form and substance to the Underwriter, and the Underwriter
and counsel to the Underwriter shall have been furnished with all such
documents, certificates, and opinions as you may request in connection with
this transaction in order to evidence the accuracy and completeness of any
of the representations, warranties or statements of the Company or its
compliance with any of the covenants or conditions contained herein.
(i) No action shall have been taken by the Commission or the NASD, the
effect of which would make it improper, at any time prior to the Closing Date,
for members of the NASD to execute transactions (as principal or agent) in the
Common Stock and no proceedings for the taking of such action shall have been
instituted or shall be pending, or, to the knowledge of the Underwriter or the
Company, shall be contemplated by the Commission or the NASD. The Company
represents that at the date hereof it has no knowledge that any such action is
in fact contemplated by the Commission or the NASD. The Company shall advise
the Underwriter of any NASD affiliations of any of its officers, directors, or
stockholders or their affiliates in accordance with paragraph 1(y) of this
Agreement.
(j) At the Effective Date, you shall have received from counsel to the
Company, dated as of the Effective Date, in form and substance satisfactory to
counsel for the Underwriter, a written Secondary Market Trading Opinion
detailing those states in which the Shares and Warrants may be traded in
non-issuer transactions under the Blue Sky laws of the fifty (50) states after
the Effective Date, in accordance with paragraph 3(ab) of this Agreement.
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(k) The authorization and issuance of the Securities and delivery thereof,
the Registration Statement, the Prospectus, and all corporate proceedings
incident thereto shall be satisfactory in all respects to counsel for the
Underwriter, and such counsel shall be furnished with such documents,
certificates and opinions as they may reasonably request to enable them to pass
upon the matters referred to in this sub-paragraph.
(l) Prior to the Effective Date, the Underwriter shall have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Underwriter, as described in the Registration Statement.
(m) If any of the conditions provided for in this Section shall not have
been fulfilled as of the date indicated, this Agreement and all obligations of
the Underwriter under this Agreement may be canceled at, or at any time prior
to, the Closing Date and/or the Option Closing Date by the Underwriter notifying
the Company of such cancellation in writing or by facsimile at or prior to the
applicable Closing Date. Any such cancellation shall be without liability of
the Underwriter to the Company.
5. Conditions of the Obligations of the Company. The obligation of the
Company to sell and deliver the Securities is subject to the execution of this
Agreement by the Company, and to the following conditions:
(i) The Registration Statement shall have become effective not later
than 5:00 p.m., Eastern Time, on the date of this Agreement, or on such
later time or date as the Company and the Underwriter may agree in writing;
and
(ii) At the Closing Date and the Option Closing Date, no stop orders
suspending the effectiveness of the Registration Statement shall have been
issued under the Act or any proceedings therefore initiated or threatened
by the Commission.
If the conditions to the obligations of the Company provided for in this
Section have been fulfilled on the Closing Date but are not fulfilled after the
Closing Date and prior to the Option Closing Date, then only the obligation of
the Company to sell and deliver the Securities on exercise of the option
provided for in Section 2(b) hereof shall be affected.
6. Indemnification. (a) The Company indemnifies and holds harmless the
Underwriter and each person, if any, who controls the Underwriter within the
meaning of the Act against any losses, claims, damages or liabilities, joint or
several (which shall, for all purposes of this Agreement, include but not be
limited to, all reasonable costs of defense and investigation and all attorneys'
fees), to which the Underwriter or such controlling person may become subject,
under the Act or otherwise, insofar as such losses,
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claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in (i) the Registration Statement, any Preliminary Prospectus,
the Prospectus, or any amendment or supplement thereto, (ii) any blue sky
application or other document executed by the Company specifically for that
purpose or based upon written information furnished by the Company and filed in
any state or other jurisdiction in order to qualify any or all of the Securities
under the securities laws thereof (any such application, document or information
being hereinafter called a "Blue Sky Application"), or arise out of or are based
upon the omission or alleged omission to state in the Registration Statement,
any Preliminary Prospectus, Prospectus, or any amendment or supplement thereto,
or in any Blue Sky Application, a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
the Company will not be liable in any such cases to the extent, but only to the
extent, that any such losses, claim, damages or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company by the Underwriter specifically for use in
the Registration Statement or any amendment or supplement thereof or any Blue
Sky Application or any Preliminary Prospectus or the Prospctus or any such
amendment or supplement thereto. Notwithstanding the foregoing, the Company
shall have no liability under this section if such untrue statement or omission
made in a Preliminary Prospectus is cured in the Prospectus and the Prospectus
is not delivered to the person or persons alleging the liability upon which
indemnification is being sought. This indemnity will be in addition to any
liability which the Company may otherwise have.
(b) The Underwriter indemnifies and holds harmless the Company, each of
its directors, each nominee (if any) for director named in the Prospectus, each
of the persons who have signed the Registration Statement, and each person, if
any, who controls the Company within the meaning of the Act, against any losses,
claims, damages or liabilities (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees) to which the Company or any such director, signer of the
Registration Statement, officer or controlling person may become subject under
the Act or otherwise, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statements or alleged
untrue statement or omission or alleged omission was made in the Registration
Statement, any
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<PAGE>
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto,
in reliance upon and in conformity with written information furnished to the
Company by the Underwriter specifically for use in such Registration Statement
or Prospectus. Notwithstanding the foregoing, the Underwriter shall have no
liability under this section if such untrue statement or omission made in a
Preliminary Prospectus is cured in the Prospectus and the Prospectus is not
delivered to the person or persons alleging the liability upon which
indemnification is being sought through no fault of the Underwriter. This
indemnity agreement will be in addition to any liability which the Underwriter
may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify in writing the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that if the indemnified party is an Underwriter
or a person who controls such Underwriter within the meaning of the Act, the
fees and expenses of such counsel shall be at the expense of the indemnifying
party if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include boh the Underwriter or such
controlling person and the indemnifying party and in the reasonable judgment of
the Underwriter, it is advisable for the Underwriter or such Underwriter or
controlling persons to be represented by separate counsel (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the Underwriter or such controlling person). No settlement of any
action against an indemnified party shall be made without the consent of the
indemnifying party, which shall not be unreasonably withheld in light of all
factors of importance to such indemnifying
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<PAGE>
and indemnified parties.
7. Contribution. In order to provide for just and equitable contribution
under the Act in any case in which (i) the Underwriter makes claim for
indemnification pursuant to Section 6 hereof but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case, notwithstanding the fact
that the express provisions of Section 6 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of the
Underwriter, then the Company and each person who controls the Company, in the
aggregate, and the Underwriter shall contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (which shall, for all
purposes of this Agreement, include, but not be limited to, all reasonable costs
of defense and investigation and all reasonable attorneys' fees) in either such
case (after contribution from others) in such proportions that the Underwriter
is responsible in the aggregate for that portion of such losses, claims, damages
or liabilities represented by the percentage that the underwriting discount per
Share appearing on the cover page of the Prospectus bears to the public offering
price appearing thereon, and the Company shall be responsible for the remaining
portion, provided, however, that if such allocation is not permitted by
applicable law then the relative fault of the Company and the Underwriter and
controlling persons, in the aggregate, in connection with the statements or
omissions which resulted in such damages and other relevant equitable
considerations shall also be considered. The relative fault shall be determined
by reference to, among other things, whether in the case of an untrue statement
of a material fact or the omission to state a material fact, such statement or
omission relates to information supplied by the Company, or the Underwriter and
the parties' relative intent, knoledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The Company and the
Underwriter agree that it would not be just and equitable if the respective
obligations of the Company and the Underwriter to contribute pursuant to this
Section 7 were to be determined by pro rata or per capita allocation of the
aggregate damages (even if the Underwriter and its controlling persons in the
aggregate were treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations referred
to in the first sentence of this Section. No person ultimately determined to be
guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who is not ultimately
determined to be guilty of such fraudulent misrepresentation. As used in this
paragraph, the term "Underwriter" includes any officer, director, or other
person who controls the Underwriter within the meaning of Section 15 of the Act,
and the word "Company" includes any officer, director, or person who controls
the Company within the meaning of Section 15 of the Act. If the full amount of
the contribution specified in this
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<PAGE>
paragraph is not permitted by law, then the Underwriter and each person who
controls the Underwriter shall be entitled to contribution from the Company, its
officers, directors and controlling persons to the full extent permitted by law.
This foregoing agreement shall in no way affect the contribution liabilities of
any persons having liability under Section 11 of the Act other than the Company
and the Underwriter. No contribution shall be requested with regard to the
settlement of any matter from any party who did not consent to the settlement;
provided, however, that such consent shall not be unreasonably withheld in light
of all factors of importance to such party.
8. Costs and Expenses. (a) Whether or not this Agreement becomes
effective or the sale of the Securities to the Underwriter is consummated, the
Company will pay all costs and expenses incident to the performance of this
Agreement by the Company including but not limited to the fees and expenses of
counsel to the Company and of the Company's accountants; the costs and expenses
incident to the preparation, printing, filing and distribution under the Act of
the Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), Preliminary Prospectus and the Prospectus, as
amended or supplemented; the fee of the National Association of Securities
Dealers, Inc. ("NASD") in connection with the filing required by the NASD
relating to the offering of the Securities contemplated hereby; all state filing
fees, expenses and disbursements and legal fees of counsel to the Company who
shall serve as Blue Sky counsel to the Company in connection with the filing of
applications to register the Securities under the state securities or blue sky
laws; the cost of printing and furnishing to the Underwriter copies of the
Registration Statement, each Preliminary Prospectus, the Prospectus, this
Agreement, the Selected Dealers Agreement, and the Blue Sky Memorandum; the cost
of printing the certificates evidencing the securities comprising the
Securities; the cost of preparing and delivering to the Underwriter and its
counsel bound volumes containing copies of all documents and appropriate
correspondence filed with or received from the Commission and the NASD and all
closing documents; and the fees and disbursements of the transfer agent for the
Company's securities. The Company shall pay any and all taxes (including any
original issue, transfer, franchise, capital stock or other tax imposed by any
jurisdiction) on sales to the Underwriter hereunder. The Company will also pay
all costs and expenses incident to the furnishing of any amended Prospectus or
of any supplement to be attached to the Prospectus. The Copany shall also
engage the Company's counsel to provide the Underwriter with a written Secondary
Market Trading Opinion in accordance with paragraphs 3(ab) and 4(j) of this
Agreement.
(b) In addition to the foregoing expenses, the Company shall at the
Closing Date pay to the Underwriter a non-accountable expense allowance equal to
three percent (3%) of the gross proceeds received from the sale of the
Securities, of which an advance of $50,000 has been paid to date. In the event
the overallotment option is exercised, the Company shall pay to the Underwriter
at
35
<PAGE>
the Option Closing Date an additional amount equal to three percent (3%) of the
gross proceeds received upon exercise of the overallotment option.
(c) Other than as disclosed in the Registration Statement, no person is
entitled either directly or indirectly to compensation from the Company, from
the Underwriter or from any other person for services as a finder in connection
with the proposed offering, and the Company agrees to indemnify and hold
harmless the Underwriter against any losses, claims, damages or liabilities,
which shall, for all purposes of this Agreement, include, but not be limited to,
all costs of defense and investigation and all attorneys' fees, to which the
Underwriter may become subject insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon the
claim of any person (other than an employee of the party claiming indemnity) or
entity that he or it is entitled to a finder's fee in connection with the
proposed offering by reason of such person's or entity's influence or prior
contact with the indemnifying party.
9. Effective Date. The Agreement shall become effective upon its
execution except that you may, at your option, delay its effectiveness until
11:00 a.m., Eastern time, on the first full business day following the execution
of this Agreement; or at such earlier time after the Effective Date of the
Registration Statement as you in your discretion shall first commence the public
offering of any of the Securities. The time of the public offering shall mean
the time after the effectiveness of the Registration Statement when the
Securities are first generally offered by you to the Selected Dealers. This
Agreement may be terminated by you at any time before it becomes effective as
provided above, except that Sections 3(c), 6, 7, 8, 12, 13, 14, 15, 16 and 17
shall remain in effect notwithstanding such termination.
10. Termination. (a) This Agreement, except for Sections 3(c), 6, 7, 8,
12, 13, 14, 15, 16, and 17 hereof, may be terminated at any time prior to the
Closing Date, and the option referred to in Section 2(b) hereof, if exercised,
may be cancelled at any time prior to the Option Closing Date, by you if in your
judgment it is impracticable to offer for sale or to enforce contracts made by
the Underwriter for the resale of the Securities agreed to be purchased
hereunder by reason of: (i) the Company having sustained a material adverse
loss, whether or not insured, by reason of fire, earthquake, flood, accident or
other calamity, or from any labor dispute or court or government action, order
or decree; (ii) trading in securities on the New York Stock Exchange or the
American Stock Exchange having been suspended or limited; (iii) material
governmental restrictions having been imposed on trading in securities generally
(not in force and effect on the date hereof); (iv) a banking moratorium having
been declared by Federal or New York or Florida state authorities; (v) an
outbreak of major international hostilities or other national or international
calamity having occurred; (vi) the passage by the Congress of the United States
or by any state legislative body of similar impact,
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<PAGE>
of any act or measure, or the adoption of any orders, rules or regulations by
any governmental body or any authoritative accounting institute or board, or any
governmental executive, which is reasonably believed likely by the Underwriter
to have a material adverse impact on the business, financial condition or
financial statements of the Company or the market for the securities offered
hereby; (vii) any material adverse change in the financial or securities markets
beyond normal market fluctuations having occurred since the date of this
Agreement; (viii) any material adverse change having occurred, since the
respective dates as of which information is given in the Registration Statement
and Prospectus, in the earnings, business prospects or general condition of th
Company, financial or otherwise, whether or not arising in the ordinary course
of business; (ix) a pending or threatened legal or governmental proceeding or
action relating generally to the Company's business, or a notification having
been received by the Company of the threat of any such proceeding or action,
which could, in the reasonable judgment of the Underwriter, materially adversely
affect the Company; (x) except as contemplated by the Prospectus, the Company is
merged or consolidated into or acquired by another company or group or there
exists a binding legal commitment for the foregoing or any other material change
of ownership or control occurs; or (xi) the Company shall not have complied in
all material respects with any term, condition or provisions on their part to be
performed, complied with or fulfilled (including but not limited to those set
forth in this Agreement) within the respective times therein provided.
(b) If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section, the Company shall be
promptly notified by you, by telephone, telegram or facsimile, confirmed by
letter.
11. Underwriter's Warrant Agreement. At the Closing Date, the Company
will issue to the Underwriter and/or persons related to the Underwriter, for an
aggregate purchase price of $10, and upon the terms and conditions set forth in
the form of Underwriter's Warrant Agreement annexed as an exhibit to the
Registration Statement, Underwriter Warrants to purchase up to an aggregate of
150,000 Shares and 200,000 Warrants, in such denominations as the Underwriter
shall designate. In the event of conflict in the terms of this Agreement and
the Underwriter's Warrant Agreement, the language of the form of Underwriter's
Warrant Agreement shall control.
12. Representations, Warranties and Agreements to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company and its principal officers, where appropriate, and the
Underwriter set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation made by or on behalf of the
Underwriter, the Company or any of its officers or directors or any controlling
person and will survive delivery of and payment for the Securities and the
termination of this Agreement.
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<PAGE>
13. Notice. All communications hereunder will be in writing and, except
as otherwise expressly provided herein, will be mailed, delivered or telefaxed,
and confirmed:
If to the Underwriter: Robert T. Kirk, President
Barron Chase Securities, Inc.
7700 West Camino Real
Boca Raton, Florida 33433
Copy to: David A. Carter, P.A.
2300 Glades Road, Suite 210W
Boca Raton, Florida 33431
If to the Company: Daniel J. Brentlinger, President
CropKing, Incorporated
5050 Greenwich Road
Seville, Ohio 44273
Copy to: Thomas T. Prousalis, Jr., Esq.
1919 Pennsylvania Avenue, N.W.
Suite 800
Washington, D.C. 20006
14. Parties in Interest. This Agreement herein set forth is made solely
for the benefit of the Underwriter, the Company and, to the extent expressed,
any person controlling the Company or the Underwriter, and directors of the
Company, nominees for directors (if any) named in the Prospectus, each person
who has signed the Registration Statement, and their respective executors,
administrators, successors, assigns and no other person shall acquire or have
any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include any purchaser of the Securities, as such purchaser,
from the Underwriter.
15. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida applicable to contracts made
and to be performed entirely within the State of Florida. The parties agree
that any action brought by any party against another party in connection with
any rights or obligations arising out of this Agreement shall be instituted
properly in a federal or state court of competent jurisdiction with venue only
in the Fifteenth Judicial Circuit Court in and for Palm Beach County, Florida or
the United States District Court for the Southern District of Florida, West Palm
Beach Division. A party to this Agreement named as a Defendant in any action
brought in connection with this Agreement in any court outside of the above
named designated county or district shall have the right to have the venue of
said action changed to the above designated county or district or, if necessary,
have the case dismissed, requiring the other party to refile such action in an
appropriate court in the above designated county or federal district.
16. Counterparts. This Agreement may be executed in any
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<PAGE>
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and such counterparts shall together constitute but
one and the same instrument.
17. Entire Agreement. This Agreement and the agreements referred to
within this Agreement constitute the entire agreement of the parties, and
supersedes all prior agreement, understanding, negotiations and discussions,
whether written or oral, of the parties hereto.
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return this Agreement, whereupon it will become a binding
Agreement between the Company and the Underwriter in accordance with its terms.
Very truly yours,
CROPKING, INCORPORATED
BY:
--------------------------------------
Daniel J. Brentlinger, President
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
BARRON CHASE SECURITIES, INC.
BY:
--------------------------------------
Robert T. Kirk, President
<PAGE>
Exhibit 1.1
CROPKING, INCORPORATED
1,500,000 Shares of Common Stock and
2,000,000 Common Stock Purchase Warrants
SELECTED DEALER AGREEMENT
Boca Raton, Florida
, 1998
Gentlemen:
1. Barron Chase Securities, Inc. (the "Underwriter") is offering for sale
an aggregate of 1,500,000 Shares of Common Stock (the "Shares") and 2,000,000
Warrants (the "Warrants") (collectively the "Firm Securities") of CropKing,
Incorporated (the "Company"), which the Underwriter has agreed to purchase from
the Company, and which are more particularly described in the Registration
Statement, Underwriting Agreement and Prospectus. In addition, the Underwriter
has been granted an option to purchase from the Company up to an additional
225,000 Shares and an additional 300,000 Warrants (the "Option Securities") to
cover overallotments in connection with the sale of the Firm Securities. The
Firm Securities and any Option Securities purchased are herein called the
"Securities". The Securities and the terms under which they are to be offered
for sale by the Underwriter is more particularly described in the Prospectus.
2. The Securities are to be offered to the public by the Underwriter at
the price per Share and price per Warrant set forth on the cover page of the
Prospectus (the "Public Offering Price"), in accordance with the terms of
offering set forth in the Prospectus.
3. The Underwriter, subject to the terms and conditions hereof, is
offering a portion of the Securities for sale to certain dealers who are
actually engaged in the investment banking or securities business and who are
either (a) members in good standing of the National Association of Securities
Dealers, Inc. (the "NASD"), or (b) dealers with their principal places of
business located outside the United States, its territories and its
possessions and not registered as brokers or dealers under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), who have agreed not to
make any sales within the United States, its territories or its possessions
or to persons who are nationals thereof or residents therein (such dealers
who shall agree to sell Securities hereunder being herein called "Selected
Dealers") at the public offering price, less a selling concession (which may
be changed) of not in excess of $ per Share and/or $ per Warrant
payable as hereinafter provided, out of which concession an amount not
exceeding $ per Share and/or $ per
1
<PAGE>
Warrant may be reallowed by Selected Dealers to members of the NASD or
foreign dealers qualified as aforesaid. The Selected Dealers who are members
of the NASD agree to comply with all of the provisions of the NASD Conduct
Rules. Foreign Selected Dealers agree to comply with the provisions of Rule
2740 of the NASD Conduct Rules, and, if any such dealer is a foreign dealer
and not a member of the NASD, such Selected Dealer also agrees to comply with
the NASD's Interpretation with Respect to Free-Riding and Withholding, and to
comply, as though it were a member of the NASD, with the provisions of Rules
2730 and 2750 of the NASD Conduct Rules, and to comply with Rule 2420 thereof
as that Rule applies to non-member foreign dealers. The Underwriter has
agreed that, during the term of this Agreement, it will be governed by the
terms and conditions hereof.
4. Barron Chase Securities, Inc. shall act as Underwriter and shall have
full authority to take such action as we may deem advisable in respect to all
matters pertaining to the public offering of the Securities.
5. If you desire to act as a Selected Dealer, and purchase any of the
Securities, your application should reach us promptly by facsimile, letter or
telegraph at the offices of Barron Chase Securities, Inc., 7700 West Camino
Real, Boca Raton, Florida 33433, Attention: Robert T. Kirk. We reserve the
right to reject subscriptions in whole or in part, to make allotments, and to
close the subscription books at any time without notice. The Securities
allotted to you will be confirmed, subject to the terms and conditions of
this Selected Dealers Agreement (the "Agreement").
6. The privilege of subscribing for the Securities is extended to you
only on the condition that the Underwriter may lawfully sell the Securities
to Selected Dealers in your state or other applicable jurisdiction.
7. Any Securities to be purchased by you under the terms of this
Agreement may be immediately reoffered to the public in accordance with the
terms of offering as set forth herein and in the Prospectus, subject to the
securities or Blue Sky laws of the various states or other jurisdictions.
You agree to pay us on demand for the account of the Underwriter an
amount equal to the Selected Dealer concession as to any Securities purchased
by you hereunder which, prior to the completion of the public offering as
defined in paragraph 8 below, we may purchase or contract to purchase for our
account and, in addition, we may charge you with any broker's commission and
transfer tax paid in connection with such purchase or contract to purchase.
Certificates for Securities delivered on such repurchases need not be the
identical certificates originally purchased.
2
<PAGE>
You agree to advise us from time to time, upon request, of the number of
Securities purchased by you hereunder and remaining unsold at the time of
such request, and, if in our opinion any such Securities shall be needed to
make delivery of the Securities sold or overallotted for the account of the
Underwriter, you will, forthwith upon our request, grant to us for the
account of the Underwriter the right, exercisable promptly after receipt of
notice from you that such right has been granted, to purchase, at the Public
Offering Price less the selling concession or such part thereof as we shall
determine, such number of Securities owned by you as shall have been
specified in our request.
No expenses shall be charged to Selected Dealers. A single transfer
tax, if payable, upon the sale of the Securities by the Underwriter to you
will be paid when such Securities are delivered to you. However, you shall
pay any transfer tax on sales of Securities by you and you shall pay your
proportionate share of any transfer tax (other than the single transfer tax
described above) in the event that any such tax shall from time to time be
assessed against you and other Selected Dealers as a group or otherwise.
Neither you nor any other person is or has been authorized to give any
information or to make any representation in connection with the sale of the
Securities other than as contained in the Prospectus.
8. The first three paragraphs of Section 7 hereof will terminate when
we shall have determined that the public offering of the Securities has been
completed and upon telefax notice to you of such termination, but, if not
theretofore terminated, they will terminate at the close of business on the
30th full business day after the date hereof; provided, however, that we
shall have the right to extend such provisions for a further period or
periods, not exceeding an additional 30 days in the aggregate upon telefax
notice to you.
9. For the purpose of stabilizing the market in the Securities, we
have been authorized to make purchases and sales of the Securities of the
Company, in the open market or otherwise, for long or short account, and, in
arranging for sales, to overallot.
10. On becoming a Selected Dealer, and in offering and selling the
Securities, you agree to comply with all the applicable requirements of the
Securities Act of 1933, as amended (the "1933 Act"), and the 1934 Act. You
confirm that you are familiar with Rule 15c2-8 under the 1934 Act relating to
the distribution of preliminary and final prospectuses for securities of an
issuer (whether or not the issuer is subject to the reporting requirements of
Section 13 or 15(d) of the 1934 Act) and confirm that you have complied and
will comply therewith.
3
<PAGE>
We hereby confirm that we will make available to you such number of copies
of the Prospectus (as amended or supplemented) as you may reasonably request for
the purposes contemplated by the 1933 Act or the 1934 Act, or the rules and
regulations thereunder.
11. Upon request, you will be informed as to the states and other
jurisdictions in which we have been advised that the Securities are qualified
for sale under the respective securities or Blue Sky laws of such states and
other jurisdictions, but we shall not assume any obligation or responsibility
as to the right of any Selected Dealer to sell the Securities in any state or
other jurisdiction or as to the eligibility of the Securities for sale
therein. We will, if requested, file a Further State Notice in respect of
the Securities pursuant to Article 23-A of the General Business Law of the
State of New York.
12. No Selected Dealer is authorized to act as agent for the
Underwriter, or otherwise to act on our behalf, in offering or selling the
Securities to the public or otherwise or to furnish any information or make
any representation except as contained in the Prospectus.
13. Nothing will constitute the Selected Dealers an association or
other separate entity or partners with the Underwriter, or with each other,
but you will be responsible for your share of any liability or expense based
on any claim to the contrary. We shall not be under any liability for or in
respect of value, validity or form of the Securities, or the delivery of the
certificates for the Securities, or the performance by anyone of any
agreement on its part, or the qualification of the Securities for sale under
the laws of any jurisdiction, or for or in respect of any other matter
relating to this Agreement, except for lack of good faith and for obligations
expressly assumed by us or by the Underwriter in this Agreement and no
obligation on our part shall be implied herefrom. The foregoing provisions
shall not be deemed a waiver of any liability imposed under the 1933 Act.
14. Payment for the Securities sold to you hereunder is to be made at
the Public Offering Price less the above-mentioned selling concession on such
time and date as we may advise, at the office of Barron Chase Securities,
Inc., 7700 West Camino Real, Boca Raton, Florida 33433, Attention: Robert T.
Kirk, by wire transfer to the account of the Underwriter or by a certified or
official bank check in current New York Clearing House funds, payable to the
order of Barron Chase Securities, Inc., as Underwriter, against delivery of
certificates for the Securities so purchased. If such payment is not made
at such time, you agree to pay us interest on such funds at the prevailing
broker's loan rate.
15. Notices to us should be addressed to us at the offices of Barron
Chase Securities, Inc., 7700 West Camino Real, Boca Raton, Florida 33433,
Attention: Robert T. Kirk. Notices to you shall be
4
<PAGE>
deemed to have been duly given if telephoned, telefaxed, telegraphed or
mailed to you at the address to which this Agreement or accompanying Selected
Dealer Letter is addressed.
16. This Agreement shall be governed by and construed in accordance
with the laws of the State of Florida without giving effect to the choice of
law or conflicts of law principles thereof.
17. If you desire to purchase any Securities and act as a Selected
Dealer, please confirm your application by signing and returning to us your
confirmation on the duplicate copy of the Selected Dealer Letter enclosed
herewith, even though you may have previously advised us thereof by
telephone, letter or telegraph. Our signature hereon may be by facsimile.
Very truly yours,
BARRON CHASE SECURITIES, INC.
BY:_____________________________
Authorized Officer
5
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SELECTED DEALER LETTER
Robert T. Kirk, President
Barron Chase Securities, Inc.
7700 West Camino Real
Boca Raton, Florida 33433
We hereby subscribe for ___________ Shares and/or ___________ Warrants
of CropKing, Incorporated in accordance with the terms and conditions stated
in the foregoing Selected Dealers Agreement and this Selected Dealer letter.
We hereby acknowledge receipt of the Prospectus referred to in the Selected
Dealers Agreement and Selected Dealer letter. We further state that in
purchasing said Shares and/or Warrants we have relied upon said Prospectus
and upon no other statement whatsoever, whether written or oral. We confirm
that we are a dealer actually engaged in the investment banking or securities
business and that we are either (i) a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD"); or (ii) a dealer with its
principal place of business located outside the United States, its
territories and its possessions and not registered as a broker or dealer
under the Securities Exchange Act of 1934, as amended, who hereby agrees not
to make any sales within the United States, its territories or its
possessions or to persons who are nationals thereof or residents therein. As
a member of the NASD, we hereby agree to comply with all of the provisions of
NASD Conduct Rules. If we are a foreign Selected Dealer, we agree to comply
with the provisions of Rule 2740 of the NASD Conduct Rules, and if we are a
foreign dealer and not a member of the NASD, we agree to comply with the
NASD's interpretation with respect to free-riding and withholding, and agree
to comply, as though we were a member of the NASD, with provisions of Rules
2730 and 2750 of the NASD Conduct Rules, and to comply with Rule 2420 of the
NASD Conduct Rules as that Rule applies to non-member foreign dealers.
Firm: ___________________________
By: ___________________________
(Name and Position)
Address: ___________________________
___________________________
Telephone No.: ___________________________
Dated:________________ , 1998
6
<PAGE>
Exhibit 3.0
Department of State
The State of Ohio
Anthony J. Celebrezze, Jr.
Secretary of State
596444
Certificate
It is hereby certified that the Secretary of State of Ohio has custody of
the Records of Incorporation and Miscellaneous Filings; that said records
show the filing and recording of:__________________________________________
___________________________________________________________________________
CROPKING INCORPORATED
United States of America
State of Ohio
Office of the Secretary of State
Recorded on Roll F091 at Frame 1563 of the Records of
Incorporation and Miscellaneous Filings.
Witness my hand and the seal of the Secretary of State, at the
City of Columbus, Ohio, this 21st day of June,
A.D. 1982.
/s/ Anthony J. Celebrezze, Jr.
------------------------------
Anthony J. Celebrezze, Jr.
Secretary of State
<PAGE>
By MG
Date 6-21-82
Amount $75.00
Articles of Incorporation
-of-
CROPKING INCORPORATED
- ------------------------------------------------------------------------------
(Name of Corporation)
The undersigned, a majority of whom are citizens of the United States,
desiring to form a corporation, for profit, under Sections 1701.01 et seq. of
the Revised Code of Ohio, do hereby certify:
FIRST. The name of said corporation shall be CROPKING INCORPORATED
____________________________________________________________________________
SECOND. The place in Ohio where its principal office is to be located is
762 W. Smith Road, Medina, OH, Medina County.
- ----------------------------------------------------------------------
(City, Village or Township)
THIRD. The purposes for which it is formed are:________________________
____________________________________________________________________________
To engage in any acts or activities for which natural persons
may lawfully associate.
<PAGE>
Five hundred (500) with no par value.
FIFTH. The amount of stated capital with which the corporation shall
begin business is Five hundred**** Dollars ($500.00)
IN WITNESS WHEREOF, We have hereunto subscribed our names, this 7th day
of June, 1982
CropKing Incorporated
-------------------------------------------
(Name of Corporation)
/s/ Daniel J. Brentlinger
--------------------------------------------
Daniel J. Bretlinger (Sole Incorporator)
/s/ Illegible
--------------------------------------------
(INCORPORATORS' NAMES SHOULD BE TYPED OR
PRINTED BENEATH SIGNATURES)
<PAGE>
Exhibit 3.1
<PAGE>
State of Delaware
Office of the Secretary of State
----------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "CROPKING, INCORPORATED'', FILED IN THIS OFFICE ON THE
TWENTY-NINTH DAY OF AUGUST, A.D. 1997, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
[LOGO] /s/ EDWARD J. REED
--------------------------------
Edward J. Reed, Secretary of State
AUTHENTICATION: 8651992
DATE: 09-16-97
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
P.O. BOX 896
DOVER, DELAWARE 19903
09-16-97
9069024
THOMAS T. PROUSALIS, JR.
SUITE 800
1919 PENNSYLVANIA AVE., N.W.
WASHINGTON DC 20006
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
--------------------- --------
<S> <C> <C>
CROPKING, INCORPORATED
2796592 0102S Incorp Delaware Stock Co.
Incorporation Fee............................. 50.00
Receiving/Indexing............................ 25.00
Certification Fee............................. 30.00
Doc/Maint Fee, New Castle..................... 6.00
Document Page Fee, New Castle................. 36.00
Cert Page Fee, New Castle..................... 9.00
FILING TOTAL ............................... 156.00
TOTAL PAYMENTS ............................. 116.00
CHARGED TO ACCOUNT ......................... 40.00
</TABLE>
<PAGE>
CERTIFICATE OF INCORPORATION
OF
CROPKING, INCORPORATED
I, the undersigned, in order to form a corporation for the purposes
hereinafter stated and under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, certify as follows:
FIRST: The name of the corporation is
CROPKING, INCORPORATED
SECOND: The registered office of the corporation is to be located at
1209 Orange Street, County of New Castle, Wilmington, DE 19801. The name of
its registered agent at that address is The Corporation Trust Company.
THIRD: The purposes of the corporation are:
To furnish, perform and conduct services, undertakings, projects and
assignments of all kinds related to or useful in connection with
corporation, commercial, business, environmental, medical, bio-medical,
bio-technology, hydroponics, aquaculture, engineering, telecommunications,
computers, software, real estate, aviation, management, consulting,
insurance, investments, mortgages, securities, mergers and acquisitions.
To create, purchase, finance, invest in, lend to, own, control, operate,
manage, engage in conduct or otherwise acquire, take any other interest in,
deal with, and dispose of corporations, businesses, joint ventures,
undertakings and projects of very description in the United States and any
other country, and to furnish services and assistance of all kinds to and on
behalf of other corporations, persons and entities, including managerial,
planning, advisory, financial, investment, technical, administrative,
consulting, marketing, promotional, distributive, research and reporting and
reporting services on a state, national and international scale.
The corporation shall have the power to do any and all acts and things
necessary or useful to its business and purposes, and shall have the general,
specific and incidental powers and privileges granted to if by statute,
including, but not limited to:
To enter into and perform contracts; to acquire and exploit patents,
trademarks, rights of all kinds and related and other interests; to acquire,
use, deal in and with, encumber and dispose of real and personal property
without limitation, including obligations and securities; to borrow and lend
money for its corporate purposes; to invest and reinvest its funds, and to
take, hold and deal with real and personal property as security for the
payment of funds loaned or invested or otherwise; to vary any investment or
employment of capital of the corporation from time to time; to create or
participate with other corporations and entities for the performance of all
undertakings as partner, joint venturer, or otherwise, and to share or
delegate control therewith or thereto.
To pay pensions and establish and carry out pension, profit sharing,
stock option, stock purchase,
<PAGE>
stock bonus, retirement, benefit, incentive or commission plans, trusts and
provisions for any or all of the directors, officers and employees of its
subsidiaries; and to provide insurance for its benefit on the life of any of
its directors, officers or employees, or on the life of any stockholder for
the purpose of acquiring at his death shares of its stock owned by such
holder.
To invest in, merger or consolidate with any corporation in such manner as
may be permitted by law; to aid in any manner any corporation whose stocks,
bonds or other obligations are held or in any manner guaranteed by this
corporation or in which this corporation is in any way interested; to do any
other act or thing for the preservation, protection, improvement or
enhancement of the value of any such stock, bonds or other securities and
while owner thereof to exercise all the rights, powers and privileges of
ownership and any voting powers thereon; and to guarantee the indebtedness of
others and the payment of dividends upon the stock the principal and/or
interests of any bonds or other securities, and the performance of any
contracts.
To do all and everything necessary, suitable and proper for the
accomplishment of any of the purposes, the attainment of any of the
objects, or the furtherance of any of the powers hereinbefore set forth
either alone or in association with other corporations, firms, partnerships
or individual; to do every other act and thing incidental or opportunent to
growing out of or connected with the aforesaid business or powers to the
extent permitted by the laws of Delaware under which this corporation is
organized, and to do all such acts and things, conduct business, have one or
more offices, and exercise its corporate powers in any and all places without
limitation.
FOURTH: 1) The total number of shares of common stock which this
corporation is authorized to issue twenty-five million (25,000,000) shares
$.01 par value per share.
2) The corporation is hereby empowered to issue from time to time its
authorized shares and securities, options, warrants, and other rights
convertible thereinto for such lawful consideration, whether money or
otherwise, as the Board of Directors shall determine. Any shares issued for
which the consideration so fixed has been paid or deliver shall be fully
paid stock and the holder of such shares shall not be liable for any further
call or assessment or any other payment thereon, provided that the actual
value of such consideration is not less than the par value of the shares to
be issued.
3) The stockholders of the corporation do not have any preemptive or
prefinancial right to subscribe to or purchase unissued shares of any class
of stock of the corporation whether such shares are now or hereafter
authorized, or any Treasury shares to be sold by the corporation.
Transferability of the shares of the corporation is restricted in the
following manner:
The price to be paid for the shares which shall be set forth in the
written offers and notices prescribed above, shall be the fair market value
thereof, or, if there is no established market value, the book value thereof
(""book value'' being the appraised value of all corporate assets and
liabilities as of the date of the last balance sheet), or at a price not
exceeding the amount offered in writing by a bona fide offer to purchase said
shares, whichever shall be higher.
These terms shall be binding upon all stockholders of record, their
heirs, executors, administrators and assigns, and shall include transfers by
will, gift, intestacy, and all third parties or otherwise.
All offers and notices, if mailed, shall be deemed to have been
delivered on the day mailed postage
2
<PAGE>
prepaid, addressed to the shareholders of the corporation, as above,
according to the books of the corporation, and the shares shall be
transferable, other than to the corporation's shareholders in the manner
required herein, only upon proof of the compliance herewith.
FIFTH: The corporation is to have perpetual existence.
SIXTH: The private property of the stockholders shall not be subject to
the payment of corporate debts to any extent whatever, and they shall not be
personally liable for the payment of the corporation's debts except as they
may be liable by reason of their own conduct or acts.
SEVENTH: The following provisions are inserted for the management of the
business and the conduct of affairs of the corporation, and for further
definition, limitation and regulation of the powers of the corporation and of
its directors and stockholders;
1) The number of directors comprising the Board of Directors of the
corporation shall be such as from time to time shall be fixed by or in the
manner provided in the By-Laws, but shall not be less than one. Election of
directors need not be by ballot unless the By-Laws so provide.
2) The Board of Directors shall have the power, unless and to the
extent that the Board may from time to time by resolution relinquish or
modify the power, without the asset or vote of the shareholders.
a) To make, alter, amend, change, add to or repeal the By-Laws
of the corporation; to fix and vary the amount of capital of the
corporation to be reserved for any proper purpose; to authorize and
cause to be executed mortgages and liens upon all or any part of the
property of the corporation; to determine the use and disposition of
any surplus or net profits, and to fix the times for the declaration
and payment of dividends.
3) The Board of Directors in its discretion may submit any contract or
act for approval or ratification at any annual meeting of the stockholders or
at any meeting of the stockholders called for the purpose of considering any
act or contract. Any contract or act that shall be approved or ratified by
the vote of the holders of a majority of the stock represented in person or
by proxy at such meeting and entitled to vote (provided that a lawful quorum
of stockholders be there represented in person or by proxy) shall be as valid
and as binding upon the corporation and its stockholders as though it had
been approved or ratified by every stockholder of the corporation, whether or
not the contract or act would otherwise be open to legal attack because of a
director's interest or for any other reason.
4) No contract or transaction between this corporation and one or more
of its directors or officers or between this corporation and any other
corporation, partnership, association or other organization in which one or
more of its directors or officers are directors or officers or have a
financial interest shall be void or voidable solely for this reason or solely
because the director or officer is present at or participates in the meeting
of the board or committee thereof which authorizes the contract or
transaction is fair as to the corporation or if the material facts relating
thereto are disclosed to or are known by the directors or shareholders, and
are approved thereby pursuant to Section 144 of Title 8 of the Delaware Code.
5) In addition to the powers and authorities hereinbefore or by statute
expressly conferred upon them, the Board of Directors is hereby enpowered to
exercise all such powers and to do all such acts and things as may be
exercised or done by the corporation, subject to the provisions of the
statutes of
3
<PAGE>
Delaware, of this certificate, and to any By-Laws from time to time made by
the stockholders, and provided that no By-Laws so made shall invalidate any
prior act of the board which would have been valid if such By-Law had not
been made.
EIGHTH: The corporation shall, to the fullest extent permitted by
Section 145 of the Delaware General Corporation Law as amended from time to
time, indemnify all persons whom it may indemnify pursuant thereto. To the
fullest extent permitted by the Delaware General Corporation Law as the same
exists or may hereafter be amended, a director of the corporation shall not
be liable to the corporation or its stockholders for monetary damages for the
breach of fiduciary duty as a director.
NINTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them, any court of equitable
jurisdiction within the State of Delaware may, in the application in a
summary way of this corporation of any receiver or receivers appointed for
this corporation under the provisions of Section 291 of Title 8 of the
Delaware Code or on the application of the trustees in dissolution or of any
receiver or receivers appointed for this corporation under the provisions of
Section 279 of Title 8 of the Delaware Code, order a meeting of the creditors
or class of creditors or of the stockholders or class of stockholders of this
corporation, as the case may be, to be summoned in such manner as the said
court directs. If a majority in number representing three-fourths in value of
the creditors or class of creditors or of the stockholders or class of
stockholders, as the case may be, agree to any compromise or arrangement or
to any reorganization of this corporation as a consequence of such
compromise or arrangement, said compromise, arrangement, or reorganization
shall, if sanctioned by the court to which the said application has been
made, be binding on all the creditors or class of creditors or on all the
stockholders or class of stockholders, as the case may be, and also on this
corporation.
TENTH: The corporation reserves the right to amend, alter, change or
repeat any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by law, and all rights and powers
conferred herein on stockholders, directors and officers are subject to this
reserved power.
ELEVENTH: The name and address of the incorporator is:
Daniel Brentlinger
5050 Greenwich Road
Seville, Ohio 44273
TWELFTH: The name and address of each person who is to serve as a
director until the first annual meeting of stockholders or until his or their
successors are elected and qualified shall be as follows:
Daniel Brentlinger
5050 Greenwich Road
Seville, Ohio 44273
Executed on this 28 day of August, 1997.
/s/ Daniel Brentlinger
----------------------------------
Daniel Brentlinger
Incorporator
4
<PAGE>
Exhibit 3.2
<PAGE>
BYLAWS
OF
CROPKING, INCORPORATED
ARTICLE I. OFFICES
- -------------------
1.1 REGISTERED OFFICE. The corporation shall maintain a registered
office and registered agent in the State of Delaware. The corporation may have
other offices, including its executive offices, either within or without the
State of Delaware at such place or places as the Board of Directors may from
time to time appoint or the business of the corporation may require.
ARTICLE II. MEETINGS OF STOCKHOLDERS
- ------------------------------------
2.1 ANNUAL MEETINGS. An annual meeting of stockholders for the
election of directors and for the transaction of any other proper business
shall be held at the executive office of the corporation or at such other
place and at such time and date as the Board of Directors, by resolution,
shall determine and shall cause to be specified in the notice of the meeting,
provided that in the absence of any contrary determination by the Board of
Directors the time and date of the annual meeting shall be.
If the date of the annual meeting shall fall upon a legal holiday,
the meeting shall be held on the next succeeding business day. At each annual
meeting, the stockholders entitled to vote shall elect a Board of Directors
and they may transact such other corporate business as shall be stated in the
notice of the meeting.
2.2 SPECIAL MEETINGS. Special meetings of the stockholders for any
purpose or purposes may be held at the call of the President or by resolution
of the directors or by the written request of a majority of the stockholders,
to be held at such time and place within or without the State of Delaware as
shall be stated in the notice of the meeting.
2.3 VOTING. Each stockholder entitled to vote in accordance with the
terms of the Certificate of Incorporation and in accordance with the
provisions of these By-Laws shall be entitled to one vote, in person or by
proxy, for each share of stock entitled to vote held by him, but no proxy
shall be voted after three years from its date unless such proxy provides for
a longer period. Upon the demand of any stockholder, the vote for directors
and the vote upon any question before the meeting shall be by ballot. All
elections for directors shall be decided by plurality vote; all other
questions shall be decided by majority vote, except as otherwise provided by
the Certificate of Incorporation or the laws of the State of Delaware.
<PAGE>
A complete list of the stockholders entitled to vote at the ensuing
election, arranged in alphabetical order with the address of each and the
number of shares held by each, shall be open to examination by any
stockholder for any purpose germane to the meeting during ordinary business
hours for a period of at least ten days prior to the meeting either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time thereof and may be
inspected by any stockholder who is present.
2.4 QUORUM. Except as otherwise required by law, the Certificate of
Incorporation or these By-Laws, the presence in person or by proxy of
stockholders holding a majority of stock of the corporation entitled to vote
shall constitute a quorum at all meetings of stockholders. In case a quorum
shall not be present at any meeting, a majority in interest of stockholders
entitled to vote thereat, present in person or by proxy, shall have power to
adjourn the meeting from time to time without notice, other than announcement
at the meeting, until the requisite amount of stock entitled to vote shall be
present. At any adjourned meeting at which the requisite amount of stock
entitled to vote shall be represented, any business may be transacted which
might have been transacted at the meeting as originally noticed, but only
those stockholders entitled to vote at the meeting as originally noticed
shall be entitled to vote at any adjournment.
2.5 NOTICE OF MEETINGS. Written notice of all meetings stating the
place, date, and time of the meeting and the general nature of the business
to be considered shall be given to each stockholder entitled to vote thereat,
at his address as it appears on the records of the corporation, not less than
ten nor more than sixty days before the date of the meeting. No business
other than that stated in the notice shall be transacted at any meeting
without the unanimous consent of all the stockholders entitled to vote
thereat.
2.6 ACTION WITHOUT MEETING. Unless otherwise provided by the
Certificate of Incorporation, any action required or which may be taken at an
annual or special meeting of stockholders may be taken without a meeting and
without prior notice and a vote if a consent in writing setting forth the
action so taken shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. Prompt notice of the taking of corporate
action without a meeting by less than unanimous written consent shall be
given to those stockholders who have not consented in writing.
ARTICLE III. DIRECTORS
3.1 NUMBER AND TERM. The number of directors comprising the Board
of Directors shall be not less than one nor more than nine. The number of
directors may from time to time be increased or decreased by amendment of
this Section but shall in no event be reduced to less than one. The Board
shall be elected at the annual meeting of stockholders and each director
shall be elected to serve until his successor is elected and qualified.
Directors need not be stockholders.
2
<PAGE>
3.2 RESIGNATIONS. Any director, member of a committee or other
officer may resign at any time. Such resignation shall be made in writing and
shall take effect at the time specified therein, or if no time be specified,
at the time of its receipt by the President or Secretary. The acceptance of a
resignation shall not be necessary to make it effective.
3.3 VACANCIES. If the office of a director, a member of a committee
or other officer becomes vacant, the remaining directors in office, though
less than a quorum, or the sole remaining directors may be a majority vote
appoint any qualified person to fill such vacancy, who shall hold office for
the unexpired term or until his successor is duly chosen.
3.4 REMOVAL. A director may be removed either for or without cause
at any time by the affirmative vote of the holders of a majority of all the
shares of stock outstanding and entitled to vote at a special meeting of the
stockholders called for that purpose and the vacancy thus created may be
filled by the affirmative vote of a majority in interest of the stockholders
entitled to vote thereat.
3.5 INCREASE OF NUMBER. The number of directors may be increased by
amendment of these By-Laws by the affirmative vote of a majority of the
directors, though less than a quorum, or by the affirmative vote of a
majority in interest of the stockholders at the annual meeting or at a
special meeting called for that purpose. By like vote, additional directors may
be chosen at such meeting to hold office until the next annual election and
until their successors are elected and qualified.
3.6 POWERS. The Board of Directors shall exercise all powers of the
corporation except those which by law or the Certificate of Incorporation or
these By-Laws are conferred upon or reserved to stockholders.
3.7 COMMITTEES. The Board of Directors may by resolution passed by
a majority of directors designate one or more committees, each committee to
consist of one or more directors. The Board may designate one or more
directors as alternate members of any committee, who may replace an absent
or disqualified member at any meeting of the committee. Any such committee,
to the extent provided in the resolution, shall have and may exercise the
powers of the Board of Directors in the management of business and affairs of
the corporation and may require it. However, in the absence or
disqualification of any member of such committee, the members thereof present
at the meeting and not disqualified from voting, whether constituting a
quorum or not, may unanimously appoint another member of the Board of
Directors to act in the place of such absent or disqualified member.
3.8 MEETINGS. The newly elected directors may hold their first
meeting for the purpose of organization and the transaction of business
immediately after the annual meeting of the stockholders, if a quorum be
present, or the time and place of such meeting may be fixed by the consent in
writing of all directors.
Regular meetings of the directors may be held without notice at
such place and time as shall be determined by resolution of the directors.
3
<PAGE>
Special meetings of the Board may be called by the President or by
the Secretary on the written request of any two directors on at least two
days notice to each director and shall be held at such place as may be
determined by the directors or as shall be stated in the call of the meeting.
3.9 QUORUM. A majority of the directors shall constitute a quorum
for the transaction of business. If at any meeting of the Board there shall
be less than a quorum present, a majority of those present may adjourn the
meeting from time to time until a quorum is obtained and no further notice
thereof need be given other than by announcement at the meeting so adjourned.
3.10 COMPENSATION. Directors shall not receive any stated salary
for their services as directors or as members of committees, but by
resolution of the Board, a fixed fee and expenses of attendance may be
allowed for attendance at each meeting.
Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, or otherwise and from receiving compensation therefor.
3.11 ACTION WITHOUT MEETING. Any action required or permitted to be
taken at any meeting of the Board of Directors, or any committee thereof may
be taken without a meeting if all members of the Board or Committee, as the
case may be, consent thereto in writing and the writing or writings are filed
with the minutes of proceedings of the Board or Committee.
3.12 ACTION BY TELEPHONE CONFERENCE. Members of the Board of
Directors or any committee designated thereby may participate in any meeting
of such Board or Committee by means of conference telephone or similar
communications equipment in which all persons participating can hear each
other. Participation in a meeting pursuant to this section shall constitute
presence in person at such meeting.
ARTICLE IV. OFFICERS
4.1 OFFICERS. The officers of the corporation shall be a President,
a Treasurer, and a Secretary, all of whom shall be elected by the Board of
Directors and shall hold office until their successors are elected and
qualified. In addition, the Board of Directors may elect a Chairman, one or
more Vice Presidents and such Assistant Secretaries and Assistant Treasurers
as they may deem proper. None of the officers of the corporation need be
directors. The officers shall be elected at the First meeting of the Board of
Directors after each annual meeting. Any number of offices may be held by the
same person.
4.2 OTHER OFFICERS AND AGENTS. The Board of Directors may appoint
such other officers and agents as it may deem advisable. They shall hold
their offices for such terms and exercise such powers and perform such duties
as may be determined from time to time by the Board of Directors.
4
<PAGE>
4.3 CHAIRMAN. The Chairman of the Board of Directors, if one be
elected, shall preside at all meetings of the Board of Directors and he
shall have and perform such other duties as from time to time may be assigned
to him by the Board of Directors.
4.4 PRESIDENT. The President shall be the chief executive officer
of the corporation and shall have the general powers and duties of
supervision and management usually vested in the office of President of a
corporation. He shall preside at all meetings of stockholders if present
thereat and, in the absence or non-election of a Chairman of the Board of
Directors, at all meetings of the Board of Directors. He shall have general
supervision, direction and control of the business of the corporation and,
except as the Board of Directors shall authorize the execution thereof in
some other manner, shall execute bonds, mortgages and other contracts in
behalf of the corporation and cause the seal to be affixed to any instrument
requiring it. When so affixed, the seal shall be attested by the signature of
the Secretary or the Treasurer, or an Assistant Secretary or an Assistant
Treasurer.
4.5 VICE PRESIDENT. Each Vice President shall have such powers and
perform such duties as shall be assigned to him by the directors.
4.6 TREASURER. The Treasurer shall have custody of corporate funds
and securities and keep full and accurate account of receipts and
disbursements in books belonging to the corporation. He shall deposit all
moneys and other valuables in the name and to the credit of the corporation
in such depositaries as may be designated by the Board of Directors.
The Treasurer shall disburse funds of the corporation as ordered by
the Board of Directors or the President, taking proper vouchers for such
disbursements. He shall render to the President and the Board of Directors at
its regular meetings of the Board of Directors, or whenever the directors may
request it, an account of all his transactions as Treasurer and of the
financial condition of the corporation. If required by the Board of Directors
he shall give the corporation a bond for the faithful discharge of his duties
in such amount and with such surety as the Board shall prescribe.
4.7 SECRETARY. The secretary shall give or cause to be given notice
of all meetings of stockholders and directors, and all other notices required
by law or by these By-Laws. In case of his absence, refusal or neglect to do
so, the notice may be given by any person thereunto directed by the
President, the directors, or the stockholders, upon whose requisition the
meeting is called as provided in these By-Laws. He shall record all
proceedings of the meetings of the corporation and its directors in a book to
be kept for that purpose, and shall perform such other duties as may be
assigned to him by the directors or the President. He shall have custody of
the corporate seal, affix it to all instruments requiring it when authorized
by the directors or the President, and attest the same.
4.8 ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. Assistant
Treasurers and Assistant Secretaries, if any, shall be elected and shall have
such powers and perform such duties as shall be assigned to them respectively
by the directors.
5
<PAGE>
ARTICLE V. MISCELLANEOUS
5.1 CERTIFICATES OF STOCK. Certificates of stock, signed by the
Chairman or Vice Chairman of the Board of Directors, if they be elected, the
President or Vice President and the Treasurer or an Assistant Treasurer, or
the Secretary or an Assistant Secretary, shall be issued to each stockholder
certifying the number of shares owned by him in the corporation. When such
certificates are countersigned (1) by a transfer agent other than the
corporation or its employee, or (2) by a registrar other than the
corporation or its employee, the signatures of such officers may be facsimiles.
5.2 LOST CERTIFICATES. A new certificate of stock may be issued in
the place of any certificate theretofore issued by the Corporation alleged to
have been lost or destroyed. The directors may, in their discretion, require
the owner of the lost or destroyed certificate, or his legal representatives
to give the corporation a bond in such sum as they may direct not exceeding
double the value of the stock, to indemnify the corporation against any claim
that may be made against it on account of the alleged loss of certificates or
the issuance of all new certificates.
5.3 TRANSFER OF SHARES. Shares of stocks of the corporation shall
be transferable only upon its books by the holders thereof in person or by
their duly authorized attorneys or legal representatives. Upon such transfer
the old certificates shall be surrendered to the corporation by delivery
thereof to the person in charge of the stock and transfer books and ledgers,
or to such other person as the directors may designate, by whom they shall be
cancelled and new certificates issued. A record shall be made of each
transfer and whenever a transfer shall be made for collateral security, and
not absolutely, it shall be so expressed in the entry of the transfer.
5.4 STOCKHOLDERS RECORD DATE. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of
dividends or other distribution or allotment of rights, or entitled to
exercise rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix in
advance a record date, which shall not be more than sixty days nor less than
ten days before the date of such meeting nor more than sixty days prior to
any other action. A determination of stockholders shall apply to any
adjournment of the meeting, provided that the Board of Directors may fix a
new record date for the adjourned meeting.
5.5 DIVIDENDS. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors may, out of funds legally available
therefor at any regular or special meeting, declare dividends upon the
capital stock of the corporation as and when they deem expedient. Before
declaring any dividend there may be set apart out of funds of the corporation
available for dividends such sums as the directors from time to time in their
discretion deem proper for working capital, a reserve to meet contingencies,
equalizing dividends, or such other purposes as the directors shall deem
conducive to the interests of the corporation.
5.6 SEAL. The corporate seal shall be circular in form and shall
contain the name of the corporation, the year of its creation and the words
"CORPORATE SEAL DELAWARE". The seal may be used by causing it or a facsimile
to be impressed, affixed or reproduced.
6
<PAGE>
5.7 FISCAL YEAR. The fiscal year of the corporation shall close
on such date as the Board of Directors may from time to time determine and
specify by Resolution, provided that in the absence of any contrary
determination by the Board of Directors the fiscal year shall close on
December 31.
5.8 CHECKS. 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 be determined from time to time
by resolution of the Board of Directors.
5.9 NOTICE AND WAIVER OF NOTICE. Whenever any notice is required
by these By-Laws, personal notice is not meant unless expressly so stated.
Any notice so required shall be deemed to be sufficient if given by
depositing the same in the United States mail, postage prepaid, addressed to
the person entitled thereto at his address as it appears on the records of
the corporation, and such notice shall be deemed to have been given on the
day of mailing. Stockholders not entitled to vote shall not be entitled to
receive notice of any meetings except as otherwise provided by Statute.
Whenever notice is required to be given under the provisions of any
law or under the provisions of the Certificate of Incorporation or these
By-Laws, a waiver thereof in writing signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be
deemed equivalent thereto.
These By-Laws may be altered, repealed, or new By-Laws adopted at
any annual or special meeting of stockholders, if notice thereof is contained
in the notice of such meeting, by affirmative vote of a majority of the
holders of issued and outstanding stock entitled to vote thereat, or by
affirmative vote of a majority of directors at any regular or special meeting
of the Board, if notice thereof is contained in the notice of such special
meeting.
7
<PAGE>
Exhibit 4.0
<PAGE>
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
[GRAPHIC]
CropKing, Incorporated
AUTHORIZED TO ISSUE 25,000,000 SHARES PAR VALUE, PER SHARE
This Certifies that _________________________________________ is the
registered holder of ________________________________________ Shares
of the capital stock of the above named corporation, fully paid and
non-assessable transferable only on the books of the Corporation by the
holder hereof in a person or by Attorney upon surrender of this Certificate
properly enclosed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed.
this day of A. D. 19
--------------------- ----------------------
- ----------------------------- ----------------------
SECRETARY PRESIDENT
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
<TABLE>
<S> <C> <C>
TEN COM -as tenants in common UNIF GIFT MIN ACT-...........Custodian........
(Cust) (Minor)
TEN ENT -as tenants by the Entireties under Uniform Gifts to Minors
JT TEN -as joint tenants with right of
survivorship and not as tenants Act...........................
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received, ______ hereby sell, assign and transfer
unto __________________________________________________________
_________________________________________________________Shares
represented by the within Certificate and do hereby
irrevocably constitute and appoint
______________________________________________________(Attorney
to transfer the said Shares on the books of the within named
Corporation with full power of substitution in the premises.
Dated ____________________ 19___
In presence of _______________________________
______________________________
NOTICE THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME
AS WRITTEN UPON THE FACE OF THE CERTIFICATE, OR EVERY PARTICULAR WITHOUT
ALTERATION OR ENHANCEMENT OR ANY CHANGE WHATEVER.
<PAGE>
CROPKING, INCORPORATED
WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M, EASTERN TIME ON _____________, 2003
<TABLE>
<S> <C>
NO. W-_________
_________ Common Stock _________ Warrant
Underwriter Underwriter
Warrants Warrants
or
_________ Underlying
Warrants
</TABLE>
This Warrant Certificate certifies that __________________________, or
registered assigns, is the registered holder of ________________ Common Stock
Underwriter Warrants and/or __________________Warrant Underwriter Warrants
and/or _________________ Underlying Warrants of CROPKING, INCORPORATED (the
"Company"). Each Common Stock Underwriter Warrant permits the Holder hereof
to purchase initially, at any time from _________________, 1998 ("Purchase
Date") until 5:30 p.m. Eastern Time on _________________, 2003 ("Expiration
Date"), one (1) share of the Company's Common Stock at the initial exercise
price, subject to adjustment in certain events (the "Exercise Price"), of
$8.00 per share (160% of the public offering price). Each Warrant Underwriter
Warrant permits the Holder hereof to purchase initially, at any time from the
Purchase Date until five (5) years from the Purchase Date, one (1) Underlying
Warrant at the Exercise Price of $.20 per Underlying Warrant. Each Underlying
Warrant permits the Holder thereof to purchase, at any time from the Purchase
Date until five (5) years from the Purchase Date, one (1) share of the
Company's Common Stock at the Exercise Price of $8.00 per share.
21
<PAGE>
Any exercise of Common Stock Underwriter Warrants and/or Warrant
Underwriter Warrants and/or Underlying Warrants shall be effected by
surrender of this Warrant Certificate and payment of the Exercise Price at an
office or agency of the Company, but subject to the conditions set forth
herein and in the Underwriter's Warrant Agreement dated as of _____________,
1998, between the Company and Barron Chase Securities, Inc. (the
"Underwriter's Warrant Agreement"). Payment of the Exercise Price shall be
made by certified check or official bank check in New York Clearing House
funds payable to the order of the Company in the event there is no cashless
exercise pursuant to Section 3.1(ii) of the Underwriter's Warrant Agreement.
The Common Stock Underwriter Warrants, the Warrant Underwriter Warrants, and
the Underlying Warrants are collectively referred to as "Warrants".
No Warrant may be exercised after 5:30 p.m., Eastern Time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Underwriter's Warrant
Agreement, which Underwriter's Warrant Agreement is hereby incorporated by
reference in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation or rights, obligations, duties and
immunities thereunder of the Company and the holders (the words "holders" or
"holder" meaning the registered holders or registered holder) of the Warrants.
The Underwriter's Warrant Agreement provides that upon the occurrence of
certain events, the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Underwriter's Warrant Agreement.
Upon due presentment for registration or transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Underwriter's
Warrant Agreement, without any charge except for any tax or other governmental
charge imposed in connection with such transfer.
22
<PAGE>
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Underwriter's Warrant Agreement shall have the meanings assigned to them in the
Underwriter's Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated as of , 1998
CROPKING, INCORPORATED
BY:
---------------------------------
Daniel J. Brentlinger, President
Attest:
- ---------------------------
John Campanella, Secretary
23
<PAGE>
EXHIBIT "A"
FORM OF SUBSCRIPTION (CASH EXERCISE)
(To be signed only upon exercise of Warrant)
TO: Daniel J. Brentlinger, President
CropKing, Incorporated
5050 Greenwich Road
Seville, Ohio 44273
The undersigned, the Holder of Warrant Certificate number ______________
(the "Warrant"), representing ___________ Common Stock Underwriter Warrants
and/or ________ Warrant Underwriter Warrants and/or ________ Underlying
Warrants of CROPKING, INCORPORATED (the "Company"), which Warrant Certificate
is being delivered herewith, hereby irrevocably elects to exercise the
purchase right provided by the Warrant Certificate for, and to purchase
thereunder, __________ Shares and/or ______________ Underlying Warrants of
the Company, and herewith makes payment of $___________ therefor, and
requests that the certificates for such securities be issued in the name of,
and delivered to, ___________________, whose address is
______________________________________, all in accordance with the
Underwriter's Warrant Agreement and the Warrant Certificate.
Dated:
------------------------------
---------------------------------
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant Certificate)
---------------------------------
---------------------------------
(Address)
24
<PAGE>
EXHIBIT "B"
FORM OF SUBSCRIPTION (CASHLESS EXERCISE)
TO: Daniel J. Brentlinger, President
CropKing, Incorporated
5050 Greenwich Road
Seville, Ohio 44273
The undersigned, the Holder of Warrant Certificate number
_______________ (the "Warrant"), representing _________________ Common Stock
Underwriter Warrants and/or ________________ Underlying Warrants of CROPKING,
INCORPORATED (the "Company"), which Warrant is being delivered herewith,
hereby irrevocably elects the cashless exercise of the purchase right
provided by the Underwriter's Warrant Agreement and the Warrant Certificate
for, and to purchase thereunder, Shares of the Company in accordance with the
formula provided at Section three (3) of the Underwriter's Warrant Agreement.
The undersigned requests that the certificates for such Shares be issued in
the name of, and delivered to,_____________________________ , whose address
is,___________________________ , all in accordance with the Warrant Certificate.
Dated:
---------------------
--------------------------
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant Certificate)
--------------------------
25
<PAGE>
(FORM OF ASSIGNMENT)
(To be exercised by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED_________________________________________________
hereby sells, assigns and transfers unto
(Print name and address of transferee)
this Warrant Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint _____________
Attorney, to transfer the within Warrant Certificate on the books of the
within-named Company, and full power of substitution.
Dated: Signature:
-----------------------
-------------------------------
(Signature must conform in all
respects to name of holder as
specified on the fact of the
Warrant Certificate)
-------------------------------
(Insert Social Security or
Other Identifying Number of
Assignee)
26
<PAGE>
Exhibit 4.2
UNDERWRITER'S WARRANT AGREEMENT (the "Underwriter's Warrant Agreement"
or "Agreement"), dated as of ___________________, 1998, between CROPKING
INCORPORATED (the "Company"), and BARRON CHASE SECURITIES, INC. (the
"Underwriter").
W I T N E S S E T H:
WHEREAS, the Underwriter has agreed, pursuant to the underwriting agreement
(the "Underwriting Agreement") dated as of the date hereof between the Company
and the Underwriter, to act as the Underwriter in connection with the Company's
proposed public offering of 1,500,000 shares of the Company's Common Stock at
$5.00 per share and 2,000,000 Warrants ("Public Warrants") at $.125 per Public
Warrant (the "Public Offering"); and
WHEREAS, the Company proposes to issue to the Underwriter and/or persons
related to the Underwriter as those persons are defined in Rule 2710 of the NASD
Conduct Rules (the "Holder"), 150,000 warrants ("Common Stock Underwriter
Warrants") to purchase 150,000 shares of the Company's Common Stock (the
"Shares") and 200,000 warrants ("Warrant Underwriter Warrants") to purchase
200,000 Common Stock Purchase Warrants ("Underlying Warrants") exercisable to
purchase 200,000 shares of the Company's Common Stock. The "Common Stock
Underwriter Warrants" and the "Warrant Underwriter Warrants" are collectively
referred to as the "Warrants". The "Shares" and the "Underlying Warrants" are
collectively referred to as the "Warrant Securities"; and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Holders in consideration for, and as part of
the compensation in connection with, the Underwriter acting as Underwriter
pursuant to the Underwriting Agreement.
NOW, THEREFORE, in consideration of the premises, the payment to the
Company of TEN DOLLARS AND NO CENTS ($10.00), the agreements herein set forth
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. Grant and Period.
The above recitals are true and correct. The Public Offering has been
registered under a Registration Statement on Form SB-2 (File No. ________)
and declared effective by the Securities and Exchange Commission (the "SEC"
or "Commission") on ___________, 1998 (the "Effective Date"). This Agreement,
relating to the purchase of the Warrants, is entered into pursuant to the
Underwriting Agreement between the Company and the Underwriter in connection
with the Public Offering.
1
<PAGE>
Pursuant to the Warrants, the Holders are hereby granted the right to
purchase from the Company, at any time during the period commencing on the
Effective Date and expiring five (5) years thereafter (the "Expiration Time"),
up to 150,000 Shares at an initial exercise price (subject to adjustment as
provided in Article 8 hereof) of $8.00 per share (160% of the public offering
price) and/or 200,000 non-redeemable Underlying Warrants at an initial exercise
price of $.20 per warrant (160% of the public offering price) (the "Exercise
Price" or "Purchase Price"), subject to the terms and conditions of this
Agreement. Each Underlying Warrant is exercisable to purchase one (1) share of
Common Stock at $8.00 per share during the five (5) year period commencing on
the Effective Date.
Except as specifically otherwise provided herein, the Shares and the
Underlying Warrants constituting the Warrant Securities shall bear the same
terms and conditions as such securities described under the caption "Description
of Securities" in the Registration Statement, and as designated in the Company's
Articles of Incorporation and any amendments thereto, and the Underlying
Warrants shall be governed by the terms of the Warrant Agreement executed in
connection with the Company's public offering (the "Warrant Agreement"), except
as provided herein, and the Holders shall have registration rights under the
Securities Act of 1933, as amended (the "Act"), for the Warrants, the Shares,
the Underlying Warrants, and the shares of Common Stock underlying the
Underlying Warrants, as more fully described in paragraph seven (7) of this
Underwriter's Warrant Agreement. In the event of any extension or change of the
expiration date or reduction or change of the exercise price of the Public
Warrants, the same such changes to the Underlying Warrants shall be
simultaneously effected, except that the Underlying Warrants shall expire no
later than five (5) years from the Effective Date.
2. Warrant Certificates.
The warrant certificates (the "Warrant Certificate") delivered and to be
delivered pursuant to this Agreement shall be in the form set forth in the form
of Warrant Certificate, attached hereto and made a part hereof, with such
appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
3. Exercise of Warrant.
3.1 Full Exercise.
(i) The Holder hereof may effect a cash exercise of the Common Stock
Underwriter Warrants and/or the Warrant Underwriter Warrants and/or the
Underlying Warrants by surrendering the Warrant Certificate, together with
a Subscription in the form of Exhibit "A" attached thereto, duly
2
<PAGE>
executed by such Holder to the Company, at any time prior to the Expiration
Time, at the Company's principal office, accompanied by payment in cash or
by certified or official bank check payable to the order of the Company in
the amount of the aggregate purchase price (the "Aggregate Price"), subject
to any adjustments provided for in this Agreement. The aggregate price
hereunder for each Holder shall be equal to the exercise price as set forth
in Section six (6) hereof multiplied by the number of Warrants, Underlying
Warrants or Shares that are the subject of each Holder's Warrant (as
adjusted as hereinafter provided).
(ii) The Holder hereof may effect a cashless exercise of the Common
Stock Underwriter Warrants and/or the Underlying Warrants by delivering the
Warrant Certificate to the Company together with a Subscription in the form
of Exhibit "B" attached thereto, duly executed by such Holder, in which
case no payment of cash will be required. Upon such cashless exercise, the
number of Shares to be purchased by each Holder hereof shall be determined
by dividing: (i) the number obtained by multiplying the number of Shares
that are the subject of each Holder's Warrant Certificate by the amount, if
any, by which the then Market Value (as hereinafter defined) exceeds the
Purchase Price; by (ii) the per share purchase price. In no event shall the
Company be obligated to issue any fractional securities and, at the time it
causes a certificate or certificates to be issued, it shall pay the Holder
in lieu of any fractional securities or shares to which such Holder would
otherwise be entitled, by the Company check, in an amount equal to such
fraction multiplied by the Market Value. The Market Value shall be
determined on a per Share basis as of the close of the business day
preceding the exercise, which determination shall be made as follows: (a)
if the Common Stock is listed for trading on a national or regional stock
exchange or is included on the NASDAQ National Market or Small-Cap Market,
the average closing sale price quoted on such exchange or the NASDAQ
National Market or Small-Cap Market which is published in The Wall Street
Journal for the ten (10) trading days immediately preceding the date of
exercise, or if no trade of the Common Stock shall have been reported
during such period, the last sale price so quoted for the next day prior
thereto on which a trade in the Common Stock was so reported; or (b) if the
Common Stock is not so listed, admitted to trading or included, the average
of the closing highest reported bid and lowest reported ask price as quoted
on the National Association of Securities Dealer's OTC Bulletin Board or in
the "pink sheets" published by the National Daily Quotation Bureau for the
first day immediately preceding the date of exercise on which the Common
Stock is traded.
3.2 Partial Exercise. The securities referred to in
3
<PAGE>
paragraph 3.1 above also may be exercised from time to time in part by
surrendering the Warrant Certificate in the manner specified in Section 3.1
hereof, except that with respect to a cash exercise, the Purchase Price
payable shall be equal to the number of securities being purchased
hereunder multiplied by the per security Purchase Price, subject to any
adjustments provided for in this Agreement. Upon any such partial exercise,
the Company, at its expense, will forthwith issue to the Holder hereof a
new Warrant Certificate or Warrants of like tenor calling in the aggregate
for the number of securities (as constituted as of the date hereof) for
which the Warrant Certificate shall not have been exercised, issued in the
name of the Holder hereof or as such Holder (upon payment by such Holder of
any applicable transfer taxes) may direct.
4. Issuance of Certificates.
Upon the exercise of the Warrants and/or the Underlying Warrants, the
issuance of certificates for the shares of Common Stock and/or other securities
shall be made forthwith (and in any event within three (3) business days
thereafter) without charge to the Holder thereof including, without limitation,
any tax which may be payable in respect of the issuance thereof, and such
certificates shall (subject to the provisions of Sections 5 and 7 hereof) be
issued in the name of, or in such names as may be directed by, the Holder
thereof; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of any such certificates in a name other than that of the Holder and
the Company shall not be required to issue or deliver such certificates unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the shares of
Common Stock and/or other securities shall be executed on behalf of the Company
by the manual or facsimile signature of the then present Chairman or Vice
Chairman of the Board of Directors or President or Vice President of the Company
under its corporate seal reproduced thereon, attested to by the manual or
facsimile signature of the then present Secretary or Assistant Secretary of the
Company. Warrant Certificates shall be dated the date of execution by the
Company upon initial issuance, division, exchange, substitution or transfer.
5. Restriction On Transfer of Warrants.
The Holder of a Warrant Certificate, by acceptance thereof, covenants and
agrees that the Warrants may not be sold, transferred, assigned, hypothecated or
otherwise disposed of, in whole or in part, for a period of one (1) year from
the Effective Date of the Public Offering, except (a) to officers of the
4
<PAGE>
Underwriter or to officers and partners of the Selected Dealers participating in
the Public Offering; (b) by will; or (c) by operation of law.
6. Exercise Price.
6.1 Initial and Adjusted Exercise Prices.
The initial exercise price of each Common Stock Underwriter Warrant shall
be $8.00 per share (160% of the public offering price). The initial exercise
price of each Warrant Underwriter Warrant shall be $.20 per Underlying Warrant
(160% of the public offering price). The initial exercise price of each
Underlying Warrant shall be $8.00 per share. The adjusted exercise price shall
be the price which shall result from time to time from any and all adjustments
of the initial exercise price in accordance with the provisions of Section 8
hereof. The Warrant Underwriter Warrants and the Underlying Warrants are
exercisable during the five (5) year period commencing on the Effective Date.
6.2 Exercise Price.
The term "Exercise Price" herein shall mean the initial exercise price or
the adjusted exercise price, depending upon the context.
7. Registration Rights.
7.1 Registration Under the Securities Act of 1933.
The Warrants, the Shares, the Underlying Warrants and the shares of Common
Stock issuable upon exercise of the Underlying Warrants (collectively the
"Registrable Securities") have been registered under the Securities Act of 1933,
as amended (the "Act"). Upon exercise, in part or in whole, of the Warrants,
certificates representing the Shares, the Underlying Warrants and/or the shares
of Common Stock issuable upon exercise of the Underlying Warrants shall bear the
following legend in the event there is no current registration statement
effective with the Commission at such time as to such securities:
The securities represented by this certificate may not be offered or sold
except pursuant to (i) an effective registration statement under the Act,
(ii) to the extent applicable, Rule 144 under the Act (or any similar rule
under such Act relating to the disposition of securities), or (iii) an
opinion of counsel, if such opinion shall be reasonably satisfactory to
counsel to the issuer, that an exemption from registration under such Act
and applicable state securities laws is available.
5
<PAGE>
7.2 Piggyback Registration.
If, at any time commencing after the Effective Date of the offering and
expiring seven (7) years thereafter, the Company prepares and files a
post-effective amendment to the Registration Statement, or a new Registration
Statement under the Act, or files a Notification on Form 1-A or otherwise
registers securities under the Act, or files a similar disclosure document with
the Commission (collectively the "Registration Documents") as to any of its
securities under the Act (other than under a Registration Statement pursuant to
Form S-8), it will give written notice by registered mail, at least thirty (30)
days prior to the filing of each such Registration Document, to the Underwriter
and to all other Holders of the Registrable Securities of its intention to do
so. If the Underwriter and/or other Holders of the Registrable Securities notify
the Company within twenty (20) days after receipt of any such notice of its or
their desire to include any such Registrable Securities in such proposed
Registration Documents, the Company shall afford the Underwriter and such
Holders of such Registrable Securities the opportunity to have any Registrable
Securities registered under such Registration Documents or any other available
Registration Document.
Notwithstanding the provisions of this Section 7.2, the Company shall have
the right at any time after it shall have given written notice pursuant to this
Section 7.2 (irrespective of whether a written request for inclusion of any such
securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
7.3 Demand Registration.
(a) At any time commencing one (1) year after the Effective Date of the
Public Offering, and expiring four (4) years thereafter, the Holders of
Registrable Securities representing more than 50% of such securities at that
time outstanding shall have the right (which right is in addition to the
registration rights under Section 7.2 hereof), exercisable by written notice to
the Company, to have the Company prepare and file with the Commission, on one
occasion, a registration statement and/or such other documents, including a
prospectus, and/or any other appropriate disclosure document as may be
reasonably necessary in the opinion of both counsel for the Company and counsel
for the Underwriter and Holders, in order to comply with the provisions of the
Act, so as to permit a public offering and sale of their respective Registrable
Securities for nine (9) consecutive months (or such longer period of time as
permitted by the Act) by such Holders and any other Holders of any of the
Registrable Securities who notify the Company within ten (10) days after being
given notice from the Company of such request. A Demand Registration shall not
be counted as a Demand Registration hereunder until such Demand
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Registration has been declared effective by the SEC and maintained continuously
effective for a period of at least nine months or such shorter period when all
Registrable Securities included therein have been sold in accordance with such
Demand Registration, provided that a Demand Registration shall be counted as a
Demand Registration hereunder if the Company ceases its efforts in respect of
such Demand Registration at the request of the majority Holders making the
demand for a reason other than a material and adverse change in the business,
assets, prospects or condition (financial or otherwise) of the Company and its
subsidiaries taken as a whole.
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 7.3 by the majority of the Holders to
all other registered Holders of any of the Registrable Securities within ten
(10) days from the date of the receipt of any such registration request.
(c) In addition to the registration rights under Section 7.2 and subsection
(a) of this Section 7.3, at any time commencing one (1) year after the Effective
Date of the offering, and expiring four (4) years thereafter, the Holders of a
majority of the Registrable Securities shall have the right, exercisable by
written request to the Company, to have the Company prepare and file, on one
occasion, with the Commission a registration statement or any other appropriate
disclosure document so as to permit a public offering and sale for nine (9)
consecutive months (or such longer period of time as permitted by the Act) by
any such Holder of Registrable Securities; provided, however, that the
provisions of Section 7.4(b) hereof shall not apply to any such registration
request and registration and all costs incident thereto shall be at the expense
of the Holder or Holders participating in the offering pro-rata.
(d) Any written request by the Holders made pursuant to this Section 7.3
shall:
(i) specify the number of Registrable Securities which the Holders
intend to offer and sell and the minimum price at which the Holders intend
to offer and sell such securities;
(ii) state the intention of the Holders to offer such securities for
sale;
(iii) describe the intended method of distribution of such securities;
and
(iv) contain an undertaking on the part of the Holders to provide
all such information and materials concerning the Holders and take all such
action as may be reasonably required to permit the Company to comply with
all applicable requirements of the Commission and to obtain acceleration of
the effective date of the registration statement.
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7.4 Covenants of the Company With Respect to Registration.
In connection with the filing of any Registration Document by the Company,
the Company covenants and agrees as follows:
(a) The Company shall use its best efforts to file a registration statement
within forty-five (45) days of receipt of any demand pursuant to Section 7.3,
and shall use its best efforts to have any such registration statement declared
effective at the earliest practicable time. The Company will promptly notify
each seller of such Registrable Securities and confirm such advice in writing,
(i) when such registration statement becomes effective, (ii) when any
post-effective amendment to such registration statement becomes effective and
(iii) of any request by the SEC for any amendment or supplement to such
registration statement or any prospectus relating thereto or for additional
information.
The Company shall furnish to each seller of such Registrable Securities
such number of copies of such registration statement and of each such amendment
and supplement thereto (in each case including each preliminary prospectus and
summary prospectus) in conformity with the requirements of the Act, and such
other documents as such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities by such seller.
(b) The Company shall pay all costs (excluding transfer taxes, if any, and
fees and expenses of Holder(s)' counsel and the Holder's pro-rata portion of the
selling discount or commissions), fees and expenses in connection with all
registration statements filed pursuant to Sections 7.2 and 7.3(a) hereof
including, without limitation, the Company's legal and accounting fees, printing
expenses, blue sky fees and expenses. The Holder(s) will pay all costs, fees and
expenses in connection with any registration statement filed pursuant to Section
7.3(c). If the Company shall fail to comply with the provisions of Section
7.3(a), the Company shall, in addition to any other equitable or other relief
available to the Holder(s), be liable for any or all special and consequential
damages sustained by the Holder(s) requesting registration of their Registrable
Securities.
(c) The Company shall prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be reasonably necessary to keep such registration statement
effective for at least nine months (or such longer period as permitted by the
Act), and to comply with the provisions of the Act with respect to the
disposition of all securities covered by such registration statement during such
period in accordance with the intended methods of disposition by the seller or
sellers of Registrable Securities set forth in such registration statement. If
at any time the SEC should institute or threaten to institute any
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proceedings for the purpose of issuing a stop order suspending the effectiveness
of any such registration statement, the Company will promptly notify each seller
of such Registrable Securities and will use all reasonable efforts to prevent
the issuance of any such stop order or to obtain the withdrawal thereof as soon
as possible. The Company will use its good faith reasonable efforts and take all
reasonably necessary action which may be required in qualifying or registering
the Registrable Securities included in a registration statement for offering and
sale under the securities or blue sky laws of such states as reasonably are
required by the Holder(s), provided that the Company shall not be obligated to
execute or file any general consent to service of process or to qualify as a
foreign corporation to do business under the laws of any such jurisdiction. The
Company shall use its good faith reasonable efforts to cause such Registrable
Securities covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities of the United States
or any State thereof as may be reasonably necessary to enable the seller or
sellers thereof to consummate the disposition of such Registrable Securities.
(d) The Company shall indemnify the Holder(s) of the Registrable Securities
to be sold pursuant to any registration statement and each person, if any, who
controls such Holders within the meaning of Section 15 of the Act or Section
20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"),
against all loss, claim, damage, expense or liability (including all expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which any of them may become subject under the Act, the Exchange
Act or otherwise, arising from such registration statement but only to the same
extent and with the same effect as the provisions pursuant to which the Company
has agreed to indemnify the Underwriter as contained in the Underwriting
Agreement.
(e) If requested by the Company prior to the filing of any registration
statement covering the Registrable Securities, each of the Holder(s) of the
Registrable Securities to be sold pursuant to a registration statement, and
their successors and assigns, shall severally, and not jointly, indemnify the
Company, its officers and directors and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, against all loss, claim, damage or expense or liability (including
all expenses reasonably incurred in investigating, preparing or defending
against any claim whatsoever) to which they may become subject under the Act,
the Exchange Act or otherwise, arising from written information furnished by
such Holder, or their successors or assigns, for specific inclusion in such
registration statement to the same extent and with the same effect as the
provisions contained in the Underwriting Agreement pursuant to which the
Underwriter has agreed to indemnify the
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<PAGE>
Company, except that the maximum amount which may be recovered from each Holder
pursuant to this paragraph or otherwise shall be limited to the amount of net
proceeds received by the Holder from the sale of the Registrable Securities.
(f) Nothing contained in this Agreement shall be construed as requiring the
Holder(s) to exercise their Warrants or Underlying Warrants prior to the filing
of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any securities other than
the Registrable Securities to be included in any registration statement filed
pursuant to Section 7.3 hereof without the prior written consent of the Holders
of the Registrable Securities representing a majority of such securities.
(h) The Company shall furnish to each Holder participating in the offering
and to each underwriter, if any, a signed counterpart, addressed to such Holder
or underwriter, of (i) an opinion of counsel to the Company, dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, an opinion dated the date of the closing under the
underwriting agreement), and (ii) a "cold comfort" letter dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, a letter dated the date of the closing under the
underwriting agreement) signed by the independent public accountants who have
issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
(i) The Company shall deliver promptly to each Holder participating in the
offering requesting the correspondence and memoranda described below and the
managing underwriter copies of all correspondence between the Commission and the
Company, its counsel or auditors and all memoranda relating to discussions with
the Commission or its staff with respect to the registration statement and
permit each Holder and underwriter to do such investigation, upon reasonable
advance notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. ("NASD"). Such investigation shall include access to books,
records and properties and opportunities to discuss the business of the Company
with its officers and independent auditors, all to such reasonable extent and at
such reasonable times and as
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often as any such Holder shall reasonably request.
(j) With respect to a registration statement filed pursuant to Section 7.3,
the Company, if requested, shall enter into an underwriting agreement with the
managing underwriter, reasonably satisfactory to the Company, selected for such
underwriting by Holders holding a majority of the Registrable Securities
requested to be included in such underwriting. Such agreement shall be
satisfactory in form and substance to the Company, each Holder and such managing
underwriters, and shall contain such representations, warranties and covenants
by the Company and such other terms as are customarily contained in agreements
of that type used by the managing underwriter. The Holders, if required by the
Underwriter to be parties to any underwriting agreement relating to an
underwritten sale of their Registrable Securities, may, at their option, require
that any or all the representations, warranties and covenants of the Company to
or for the benefit of such underwriters shall also be made to and for the
benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders and their intended
methods of distribution.
(k) Notwithstanding the provisions of paragraph 7.2 or paragraph 7.3 of
this Agreement, the Company shall not be required to effect or cause the
registration of Registrable Securities pursuant to paragraph 7.2 or paragraph
7.3 hereof if, within thirty (30) days after its receipt of a request to
register such Registrable Securities (i) counsel for the Company delivers an
opinion to the Holders requesting registration of such Registrable Securities,
in form and substance satisfactory to counsel to such Holder(s), to the effect
that the entire number of Registrable Securities proposed to be sold by such
Holder(s) may otherwise be sold, in the manner proposed by such Holder(s),
without registration under the Securities Act, or (ii) the SEC shall have issued
a no-action position, in form and substance satisfactory to counsel for the
Holder(s) requesting registration of such Registrable Securities, to the effect
that the entire number of Registrable Securities proposed to be sold by such
Holder(s) may be sold by it, in the manner proposed by such Holder(s), without
registration under the Securities Act.
(l) After completion of the Public Offering, the Company shall not,
directly or indirectly, enter into any merger, business combination or
consolidation in which (a) the Company shall not be the surviving corporation
and (b) the stockholders of the Company are to receive, in whole or in part,
capital stock or other securities of the surviving corporation, unless the
surviving corporation shall, prior to such merger, business combination or
consolidation, agree in writing to assume the obligations of the Company under
this Agreement, and for that purpose references hereunder to "Registrable
Securities" shall be deemed to include
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<PAGE>
the securities which the Holders would be entitled to receive in exchange for
Registrable Securities under any such merger, business combination or
consolidation, provided that to the extent such securities to be received are
convertible into shares of Common Stock of the issuer thereof, then any such
shares of Common Stock as are issued or issuable upon conversion of said
convertible securities shall also be included within the definition of
"Registrable Securities".
(m) In the event the Company receives from the Holders of any Registrable
Securities representing more than 50% of such securities at that time
outstanding, a request that the Company effect a registration on Form SB-2 with
respect to the Registrable Securities and if Form SB-2 is available for such
offering, the Company shall, as soon as practicable, effect such registration as
would permit or facilitate the sale and distribution of the Registrable
Securities as are specified in the request. All expenses incurred in connection
with a registration requested pursuant to this Section shall be borne by the
Company. Registrations effected pursuant to this Section 7.3(e) shall not be
counted as registrations pursuant to Section 7.3(a) and 7.3(c) hereof.
8. Adjustments to Exercise Price and Number of Securities.
8.1 Adjustment for Dividends, Subdivisions, Combinations or
Reclassifications.
In case the Company shall (a) pay a dividend or make a distribution in
shares of its capital stock (whether shares of Common Stock or of capital stock
of any other class), (b) subdivide its outstanding shares of Common Stock into a
greater number of shares, (c) combine its outstanding shares of Common Stock
into a smaller number of shares, or (d) issue by reclassification of its shares
of Common Stock any shares of capital stock of the Company; then, and in each
such case, the per share Exercise Price and the number of Warrant Securities in
effect immediately prior to such action shall be adjusted so that the Holder of
this Warrant thereafter upon the exercise hereof shall be entitled to receive
the number and kind of shares of the Company which such Holder would have owned
immediately following such action had this Warrant been exercised immediately
prior thereto. An adjustment made pursuant to this Section shall become
effective immediately after the record date in the case of a dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification. If, as a result of
an adjustment made pursuant to this Section, the Holder of this Warrant shall
become entitled to receive shares of two or more classes of capital stock of the
Company, the Board of Directors of the Company (whose determination shall be
conclusive) shall determine the allocation of the adjusted Exercise Price
between or among shares of such class of capital stock.
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Immediately upon any adjustment of the Exercise Price pursuant to this
Section, the Company shall send written notice thereof to the Holder of Warrant
Certificates (by first class mail, postage prepaid), which notice shall state
the Exercise Price resulting from such adjustment, and any increase or decrease
in the number of Warrant Securities to be acquired upon exercise of the
Warrants, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
8.2 Adjustment For Reorganization, Merger or Consolidation.
In case of any reorganization of the Company or consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental Warrant agreement providing that the Holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger, by a holder of the number
of shares of Common Stock of the Company for which such warrant might have been
exercised immediately prior to such reorganization, consolidation, merger,
conveyance, sale or transfer. Such supplemental Warrant agreement shall provide
for adjustments which shall be identical to the adjustments provided in Section
8 and such registration rights and other rights as provided in this Agreement.
The Company shall not effect any such consolidation, merger, or similar
transaction as contemplated by this paragraph, unless prior to or simultaneously
with the consummation thereof, the successor corporation (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing, receiving, or leasing such assets or other appropriate corporation
or entity shall assume, by written instrument executed and delivered to the
Holders, the obligation to deliver to the Holders, such shares of stock,
securities, or assets as, in accordance with the foregoing provisions, such
holders may be entitled to purchase, and to perform the other obligations of the
Company under this Agreement. The above provision of this Subsection shall
similarly apply to successive consolidations or successively whenever any event
listed above shall occur.
8.3 Dividends and Other Distributions.
In the event that the Company shall at any time prior to the exercise of
all of the Warrants and/or Underlying Warrants distribute to its stockholders
any assets, property, rights, evidences of indebtedness, securities (other than
a distribution
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<PAGE>
made as a cash dividend payable out of earnings or out of any earned surplus
legally available for dividends under the laws of the jurisdictions of
incorporation of the Company), whether issued by the Company or by another, the
Holders of the unexercised Warrants shall thereafter be entitled, in addition to
the shares of Common Stock or other securities and property receivable upon the
exercise thereof, to receive, upon the exercise of such Warrants, the same
property, assets, rights, evidences of indebtedness, securities or any other
thing of value that they would have been entitled to receive at the time of such
distribution as if the Warrants had been exercised immediately prior to such
distribution. At the time of any such distribution, the Company shall make
appropriate reserves to ensure the timely performance of the provisions of this
subsection or an adjustment to the Exercise Price, which shall be effective as
of the day following the record date for such distribution.
8.4 Adjustment in Number of Securities.
Upon each adjustment of the Exercise Price pursuant to the provisions of
this Section 8, the number of securities issuable upon the exercise of each
Warrant and/or Underlying Warrant shall be adjusted to the nearest full amount
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of securities issuable upon exercise of the
Warrants and/or the Underlying Warrants immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
8.5 No Adjustment of Exercise Price in Certain Cases.
No adjustment of the Exercise Price shall be made if the amount of said
adjustment shall be less than 5 cents ($.05) per Share, provided, however, that
in such case any adjustment that would otherwise be required then to be made
shall be carried forward and shall be made at the time of and together with the
next subsequent adjustment which, together with any adjustment so carried
forward, shall amount to at least 5 cents ($.05) per Share.
8.6 Accountant's Certificate of Adjustment.
In each case of an adjustment or readjustment of the Exercise Price or the
number of any securities issuable upon exercise of the Warrants and/or
Underlying Warrants, the Company, at its expense, shall cause independent
certified public accountants of recognized standing selected by the Company (who
may be the independent certified public accountants then auditing the books of
the Company) to compute such adjustment or readjustment in accordance herewith
and prepare a certificate showing such adjustment or readjustment, and shall
mail such certificate, by first class mail, postage prepaid, to any Holder of
the Warrants and/or Underlying Warrants at the Holder's address as shown on the
Company's books.
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The certificate shall set forth such adjustment or readjustment, showing in
detail the facts upon which such adjustment or readjustment is based including,
but not limited to, a statement of (i) the Exercise Price at the time in effect,
and (ii) the number of additional securities and the type and amount, if any, of
other property which at the time would be received upon exercise of the Warrants
and/or Underlying Warrants.
8.7 Adjustment of Underlying Warrant Exercise Price.
With respect to any of the Underlying Warrants whether or not the
Underlying Warrants have been exercised (or are exercisable) and whether or not
the Underlying Warrants are issued and outstanding, the Underlying Warrant
exercise price and the number of shares of Common Stock underlying such
Underlying Warrants shall be automatically adjusted in accordance with the
Warrant Agreement between the Company and the Company's transfer agent, upon
occurrence of any of the events relating to adjustments described therein.
Thereafter, the Underlying Warrants shall be exercisable at such adjusted
Underlying Warrant exercise price for such adjusted number of underlying shares
of Common Stock or other securities, properties or rights.
9. Exchange and Replacement of Warrant Certificates.
Each Warrant Certificate is exchangeable without expense, upon the
surrender thereof by the registered Holder at the principal executive office of
the Company, for a new Warrant Certificate of like tenor and date representing
in the aggregate the right to purchase the same number of securities in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
10. Elimination of Fractional Interest.
The Company shall not be required to issue certificates representing
fractions of shares of Common Stock upon the exercise of the Warrants and/or
Underlying Warrants, nor shall it be required to issue script or pay cash in
lieu of fractional interests, it being the intent of the parties that all
fractional interests may be eliminated, at the Company's option, by rounding any
fraction up to the nearest whole number of shares of Common Stock or other
securities, properties or rights, or in lieu thereof
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paying cash equal to such fractional interest multiplied by the current value of
a share of Common Stock.
11. Reservation, Validity and Listing.
The Company covenants and agrees that during the exercise period, the
Company shall at all times reserve and keep available out of its authorized
shares of Common Stock, solely for the purpose of issuance upon the exercise of
the Warrants and the Underlying Warrants, such number of shares of Common Stock
or other securities, properties or rights as shall be issuable upon the exercise
under this Warrant Certificate. The Company covenants and agrees that, upon
exercise of the Warrants and/or the Underlying Warrants, and payment of the
Exercise Price therefor, all shares of Common Stock and other securities
issuable upon such exercise shall be duly authorized, validly issued, fully
paid, non-assessable and not subject to the preemptive rights of any
stockholder. As long as the Warrants and/or Underlying Warrants shall be
outstanding, the Company shall use its best efforts to cause all shares of
Common Stock issuable upon the exercise of the Warrants and the Underlying
Warrants to be listed and quoted (subject to official notice of issuance) on all
securities Exchanges and Systems on which the Common Stock and/or the Public
Warrants may then be listed and/or quoted, including Nasdaq.
12. Notices to Warrant Holders.
Nothing contained in this Agreement shall be construed as conferring upon
the Holders of the Warrants and/or Underlying Warrants the right to vote or to
consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrants and/or Underlying Warrants and their
exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or distribution on
the books of the Company; or
(b) the Company shall offer to all the holders of its Common Stock any
additional shares of capital stock of the Company or securities convertible
into or exchangeable for shares of capital stock of the Company, or any
option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the
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Company (other than in connection with a consolidation or merger) or a sale
of all or substantially all of its property, assets and business as an
entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date of the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertibl or exchangeable
securities or subscription rights, or entitled to vote on such proposed
dissolution, liquidation, winding up or sale. Such notices shall specify such
record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
13. Underlying Warrants.
The form of the certificate representing the Underlying Warrants (and the
form of election to purchase shares of Common Stock upon the exercise of the
Underlying Warrants and the form of assignment printed on the reverse thereof)
shall be substantially as set forth in the exhibits to the Warrant Agreement.
Subject to the terms of this Agreement, one (1) Underlying Warrant shall
evidence the right to initially purchase one (1) fully-paid and non-assessable
share of Common Stock at an initial purchase price of $8.00 during the five (5)
year period commencing on the Effective Date of the Registration Statement, at
which time the Underlying Warrants, unless the exercise period has been
extended, shall expire. The exercise price of the Underlying Warrants and the
number of shares of Common Stock issuable upon the exercise of the Underlying
Warrants are subject to adjustment, whether or not the Warrants have been
exercised and the Underlying Warrants have been issued, in the manner and upon
the occurrence of the events set forth in the Warrant Agreement, which is hereby
incorporated herein by reference and made a part hereof as if set forth in its
entirety herein. Subject to the provisions of this Agreement and upon issuance
of the Underlying Warrants, each registered holder of such Underlying Warrant
shall have the right to purchase from the Company (and the Company shall issue
to such registered holders) up to the number of fully-paid and non-assessable
shares of Common Stock (subject to adjustment as provided in the Warrant
Agreement) set forth in such Warrant Certificate, free and clear of all
preemptive rights of stockholders, provided that such registered Holder complies
with the terms governing exercise of the Underlying Warrant set forth in the
Warrant Agreement, and pays the applicable exercise price, determined in
accordance with the terms of the Warrant Agreement. Upon exercise of the
Underlying Warrants, the
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Company shall forthwith issue to the registered Holder of any such Underlying
Warrant in his name or in such name as may be directed by him, certificates for
the number of shares of Common Stock so purchased. Except as otherwise provided
herein and in this Agreement, the Underlying Warrants shall be governed in all
respects by the terms of the Warrant Agreement. The Underlying Warrants shall be
transferrable in the manner provided in the Warrant Agreement, and upon any such
transfer, a new Underlying Warrant certificate shall be issued promptly to the
transferee. The Company covenants to send to each Holder, irrespective of
whether or not the Warrants have been exercised, any and all notices required by
the Warrant Agreement to be sent to holders of Underlying Warrants.
14. Notices.
All notices, requests, consents and other communications hereunder shall be
in writing and shall be deemed to have been duly given when sent by facsimile
and personally delivered, or mailed by registered or certified mail, return
receipt requested:
(a) If to the registered Holder of any of the Registrable Securities,
to the address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth below or to such other
address as the Company may designate by notice to the Holders.
Daniel J. Brentlinger, President
CropKing, Incorporated
5050 Greenwich Road
Seville, Ohio 44273
With copies to: Thomas T. Prousalis, Jr., Esq.
1919 Pennsylvania Avenue, N.W.
Suite 800
Washington, D.C. 20006
and
David A. Carter, P.A.
2300 Glades Road, Suite 210W
Boca Raton, Florida 33431
15. Entire Agreement: Modification.
This Agreement (and the Underwriting Agreement and Warrant Agreement to the
extent applicable) contain the entire understanding between the parties hereto
with respect to the subject matter hereof, and the terms and provisions of this
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Agreement may not be modified, waived or amended except in a writing executed by
the Company and the Holders of at least a majority of Registrable Securities
(based on underlying numbers of shares of Common Stock). Notice of any
modification, waiver or amendment shall be promptly provided to any Holder not
consenting to such modification, waiver or amendment.
16. Successors.
All the covenants and provisions of this Agreement shall be binding upon
and inure to the benefit of the Company, the Holders and their respective
successors and assigns hereunder.
17. Termination.
This Agreement shall terminate at the close of business on _____________,
2005. Notwithstanding the foregoing, the indemnification provisions of Section 7
shall survive such termination.
18. Governing Law; Submission to Jurisdiction.
This Agreement and each Warrant Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of Florida and for all
purposes shall be construed in accordance with the laws of said State without
giving effect to the rules of said State governing the conflicts of laws. The
Company, the Underwriter and the Holders hereby agree that any action,
proceeding or claim arising out of, or relating in any way to, this Agreement
shall be brought and enforced in a federal or state court of competent
jurisdiction with venue only in the Fifteenth Judicial Circuit Court in and for
Palm Beach County, Florida or the United States District Court for the Southern
District of Florida, West Palm Beach Division, and irrevocably submits to such
jurisdiction, which jurisdiction shall be exclusive. The Company, the
Underwriter and the Holders hereby irrevocably waive any objection to such
exclusive jurisdiction or inconvenient forum. A party to this Agreement named as
a Defendant in any action brought in connection with this Agreement in any court
outside of the above named designated county or district shall have the right to
have the venue of said action changed to the above designated county or district
or, if necessary, have the case dismissed, requiring the other party to refile
such action in an appropriate court in the above designated county or federal
district.
19. Severability.
If any provision of this Agreement shall be held to be invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision of this Agreement.
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20. Captions.
The caption headings of the Sections of this Agreement are for convenience
of reference only and are not intended, nor should they be construed as, a part
of this Agreement and shall be given no substantive effect.
21. Benefits of this Agreement.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Underwriter and any other registered
Holder(s) of the Warrant Certificates or Registrable Securities any legal or
equitable right, remedy or claim under this Agreement; and this Agreement shall
be for the sole and exclusive benefit of the Company and the Underwriter and any
other Holder(s) of the Warrant Certificates or Registrable Securities.
22. Counterparts.
This Agreement may be executed in any number of counterparts and each of
such counterparts shall for all purposes be deemed to be an original, and such
counterparts shall together constitute but one and the same instrument.
IN WITNESS HEREOF, the parties hereto have caused this Agreement to be duly
executed, as of the day and year first above written.
CROPKING, INCORPORATED
BY:
---------------------------------
Daniel J. Brentlinger, President
Attest:
- --------------------------
John Campanella, Secretary
BARRON CHASE SECURITIES, INC.
By:
-----------------------------
Robert Kirk, President
20
<PAGE>
Exhibit 5.0
<PAGE>
LAW OFFICES
THOMAS T. PROUSALIS, JR.
SUITE 800
1919 PENNSYLVANIA AVENUE N.W.
WASHINGTON D.C. 20006
(202) 296-9400
FEDERAL PRACTICE FACSIMILE (202) 296-9403
March 20, 1998
Board of Directors
CropKing, Incorporated
5050 Greenwich Road
Seville, Ohio 44273
Re: CropKing, Incorporated
SB-2 Registration Statement, and related Prospectus
Gentlemen:
As counsel to CropKing, Incorporated (""Registrant''), a Delaware
corporation, in connection with the above-referenced SB-2 Registration
Statement, and related Prospectus (""Registration Statement''), relating to
the registration of 1,500,000 shares of common stock, $.01 par value per
share, and 2,000,000 redeemable common stock purchase warrants, I have
examined the Certificate of Incorporation and By-laws of the Registration, and
such other materials as I have deemed relevant and material. Based on the
foregoing, and certain representations of the officers, directors and
representatives of the Registrant, it is the opinion of this office that:
1. The Registrant has been duly organized and is validly existing and
in good standing in the State of Delaware, the jurisdiction of its
corporation.
2. The aforementioned securities are delivered against payment in
accordance with the Registration Statement, and related Prospectus, such
securities will be validly authorized and issued, fully paid and nonassessable
in accordance with the general requirements of corporation law.
3. When, as and if the aforementioned securities are delivered against
payment in accordance with the Registration Statement, and related
Prospectus, such securities will be validly authorized and issued, fully paid
and nonassessable in accordance with the general requirements of corporation
law.
I hereby consent to the use of the opinion of this office as Exhibit 5.0
to the Registration Statement of the Registrant, and further consent to the
reference to its name in such Registration Statement, as amended, and related
Prospectus.
<PAGE>
Board of Directors
March , 1998
Page 2
Very truly yours,
/s/ Thomas T. Prousalis, Jr.
----------------------------
Thomas T. Prousalis, Jr.
TTP:dl
cc: Grant Thornton LLP
Securities and Exchange Commission
The Nasdaq Stock Market, Inc.
<PAGE>
Exhibit 10.0
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), dated as of February 1, 1998, is
by and between CropKing, Incorporated, a Delaware corporation ("Company") and
Daniel J. Brentlinger ("Employee").
WHEREAS, the Employee is currently serving as Chairman of the Board,
President and Chief Executive Officer of the Company;
WHEREAS, the parties desire to enter into this Agreement setting forth
the terms and conditions for the employment relationship of the Employee with
the Company; and
WHEREAS, the Board of Directors of the Company ("Board") has approved and
authorized the entry into this Agreement with the Employee;
NOW, THEREFORE, it is agreed as follows:
1. Employment. From the date hereof through the term of this Agreement
the Employee is employed as Chairman of the Board, President and Chief
Executive Officer of the Company and of any subsidiary or other affiliate
that it may acquire. The Employee shall render executive, policy and other
management services to the Company and subsidiaries/affiliates of the type
customarily performed by persons serving in similar executive officer
capacities. The Employee shall devote substantially all of his working time
and his best efforts to the Company and his position, which shall include
such duties as the Board may from time to time reasonably direct that are
reasonably consistent with the Employee's education, experience and
background. During the term of this Agreement, there shall be no material
increase or decrease in the duties and responsibilities of the Employee
otherwise than as provided herein, unless the parties otherwise agree in
writing.
2. Compensation.
(a) Salary. The Company agrees to pay the Employee from the date
hereof at an annual rate equal to $175,000, with such subsequent increases in
salary during the term of this Agreement as may be determined by the
Compensation Committee of the Board; provided, however, that during the first
three years following the effective date of the registration statement with
respect to the initial public offering of the Company's stock, the Employee's
salary hereunder shall not exceed $250,000 per annum without the approval of
the Compensation Committee. In determining salary increases, the
Compensation Committee may compensate the Employee for increases in the cost
of living and may also provide for performance or merit increases. The salary
of the Employee shall not be decreased at any time during the term of this
Agreement from the amount then in effect, unless the Employee otherwise
agrees in writing. Participation in deferred compensation, bonus,
discretionary
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payable to the Employee under this Section 2(a). The salary under this
Section 2(a) shall be payable to the Employee not less frequently than
monthly. The Employee shall not be entitled to receive fees for serving as a
director of the Company or of any subsidiary or affiliate of the company or
for serving as a member of any committee of any such board of directors.
(b) Annual Bonus. In addition to his salary under
Section 2(a) above, the Company shall pay to the Employee an annual bonus
of 50% of his salary under such subsection, subject to financial performance
criteria as established by the Compensation Committee. The annual bonus shall
be payable in January following each calendar year during the term of this
Agreement and shall be prorated for any partial years.
3. Discretionary and Performance Incentive Bonuses. During the term of
this Agreement, the Employee shall be entitled to participate in an equitable
manner with all other executive employees of the Company in such
discretionary bonuses as may be authorized, declared and paid by the
Compensation Committee to its executive employees. The Company will adopt an
incentive bonus plan providing for the payment of annual performance
incentive bonuses to the Employee and other executive officers based upon the
increase in the Company's operating profit or other appropriate performance
objectives. The incentive bonus arrangement will provide the Employee with an
opportunity to earn additional incentive compensation in an amount up to five
percent of the annual increase in the Company's net income before taxes as
reported in the Company's audited annual financial statement (for fiscal year
1995, net income shall be determined on a pro forma basis). No other
compensation provided for in this Agreement shall be deemed a substitute for
the Employee's right to participate in such bonuses.
4. Insurance, Retirement and Employee Benefit Plans, Fringe Benefits:
Business Expenses.
(a) Other Benefits and Prerequisites. The Employee shall be
entitled to participate in any plan of the Company relating to stock options,
restricted stock, employee stock purchase or ownership, pension, thrift,
profit sharing, group life insurance, medical coverage, education or other
retirement or employee benefit plans or arrangements that the Company has
adopted or may adopt for the benefit of its employees or executive officers.
The Employee shall also been titled to participate in, or enjoy the benefit
of, any other fringe benefits or perquisites that are now or may be or become
applicable to the Company's executive employees. The Employee shall also be
provided with the use of a suitable automobile at Company expense and will be
entitled to have access to and use, consistent with the rules and regulations
of such facility, a club membership to be obtained in the name of the
Company. The Employee shall account to the Company for the business use of
such automobile and club.
(b) Business Expenses. During the term of the Employee's employment
by the Company, the Company shall promptly reimburse the Employee for all
reasonable and customary expenses incurred by the Employee in performing
services for the Company, including all expenses of travel and living
expenses while away from home on business or at the request of and in the
service of the Company, provided that such expenses are incurred and
accounted for in accordance with the policies and procedures established by
the Company.
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<PAGE>
5. Term. The initial term of employment under this Agreement shall be
from the date of this Agreement until January 31, 2003. This Agreement shall
be automatically renewed for an additional five-year term, unless either
Employee or the Company gives contrary written notice to the other party
hereto not less than 180 days before the scheduled expiration of the term of
this Agreement. Each term and all such renewed terms are collectively
referred to herein as the term of this Agreement.
6. Voluntary Absences: Vacations. The Employee shall be entitled,
without loss of pay, to be absent voluntarily for reasonable periods of time
from the performance of the duties and responsibilities under this Agreement.
All such voluntary absences shall count as paid vacation time, unless the
Board otherwise approves. The Employee shall be entitled to an annual paid
vacation of at least six weeks per year or such longer period as the Board
may approve. The timing of paid vacations shall be scheduled in a reasonable
manner by the Employee.
7. Termination of Employment. The Employee's employment may be
terminated without any breach of this Agreement only under the following
circumstances:
(a) Death. The Employee's Employment shall terminate upon his death.
(b) Disability. The Company may terminate the Employee's employment
because of disability. For this purpose, "Disability" shall mean the
inability of the Employee to perform his duties under this Agreement because
of physical or mental illness or incapacity for a continuous period of six
months during which the Employee shall have been absent from his duties under
this Agreement on a substantially full-time basis.
(c) Cause. The Company may terminate the Employee's employment for
Cause. For purposes of this Agreement, the Company shall have "Cause" to
terminate the Employee's employment only in the event of (1) the willful and
continued failure by the Employee to substantially perform his duties
hereunder (other than any such failure resulting from the Employee's
inability to perform such duties as a result of physical or mental illness or
incapacity or any such actual or anticipated failure after the delivery of a
Notice of Termination, as defined in Section 7(c), by the Employee for Good
Reason, as defined in Section 7(d)(2), after delivery to the Employee of a
written demand for substantial performance that specifically identifies the
manner in which the Company believes that the Employee has not substantially
performed his duties and a reasonable opportunity to cure; (2) willful
misconduct by the Employee that causes substantial and material injury to the
business and operations of the Company, the continuation of which, in the
reasonable judgment of the Board, will continue to substantially and
materially injure the business and operations of the Company in the future;
or (3) conviction of the Employee of a felony. No act or failure to act shall
be considered "willful" for this purpose unless done, or omitted to be done,
by the Employee other than in good faith and other than with a reasonable
belief that his action or omission was in the best interests of the Company.
The Employee shall not be deemed to have been terminated for Cause unless the
Employee shall have been provided with (i) a reasonable notice setting forth
the reasons that the Company believes constitute Cause for the termination of
his employment; (ii) a Notice of
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Termination as defined in Section 7(e), from the Board finding that, in the
reasonable good faith opinion of the Board, Cause for the termination exists
and specifying the particulars thereof in reasonable detail.
(d) Termination by the Employees.
(1) The Employee may terminate his employment (A) for Good
Reason by giving ten days prior written notice to the Company or (B) at any
time by giving 120 days prior written notice to the Company.
(2) For this purpose, "Good Reason" shall mean (A) the
assignment to the Employee of any duties inconsistent with the Employee's
status as Chairman of the Board of the Company or any substantial adverse
alteration in the nature or status of the Employee's responsibilities; (B)
any change in the Employee's reporting responsibility such that the Employee
is required to report other than exclusively to the Board; (C) any purported
termination of the Employee's employment by the Company that is not effected
pursuant to a Notice of Termination satisfying the requirements of Section
7(e) hereof; (D) any other failure by the Company to comply with any material
provision of this Agreement which failure continues for more than ten days
after written notice of such noncompliance from the Employee; or (E) any
notices given by the Company to the Employee under Section 5 hereof that this
Agreement will not be renewed on any anniversary date.
(e) Notice of Termination. Any termination of the Employee's
employment by the Company or by the Employee (other than termination pursuant
to Section 7(a) or 7(b) hereof) shall be communicated to the other party by a
written Notice of Termination. Any Notice of Termination given by a party
shall specify the particular termination provision of this Agreement relied
upon by such party and shall set forth in reasonable detail the facts and
circumstances relied upon as providing a basis for the termination under the
provision so specified.
(f) Termination Date. The Termination Date shall mean (1) if the
Employee's employment is terminated by his death, the date of his death; (2)
if the Employee's employment is terminated pursuant to Section 7(b) hereof,
the date specified in the Notice of Termination, which shall be after the
expiration of the six-month period specified in that subsection; (3) if the
Employee's employment is terminated by the Company for Cause, the date
specified in the Notice of Termination; or (4) if the Employee's employment
is terminated for any other reason, sixty days following the date on which
the Notice of Termination is given.
8. Compensation Upon Termination of Employment.
(a) Termination because of Death for Cause or Without Good Reason.
If the Employee's employment is terminated because of his death, by the
Company for Cause or by the Employee other than for Good Reason, the Company
shall pay the Employee his salary and a pro rata portion of the bonus
specified in Section 2(b) (based upon the bonus paid in respect of the
preceding
4
<PAGE>
year) through the Termination Date of the Company shall have no further
obligation to the Employee hereunder.
(b) Termination because of Disability. If the Employee's employment
is terminated by the Company because of Disability under Section 7(b) hereof
the Company shall pay the Employee an annual disability benefit equal to the
excess of (1) 60 percent of his salary at the rate in effect under Section
2(a) hereof on the Termination Date plus 60 percent of the bonus amount
specified in Section 2(b) hereof (based upon the bonus paid in respect of the
preceding year) over (2) the amount of the long term disability benefit that
is payable to the Employee under any policy of disability insurance provided
for the Employee by the Company at its expense. The disability benefit shall
be paid for such period as is determined by the Board of Directors for the
Company's senior executives but shall not be less than the remainder of the
scheduled term of employment.
(c) Termination without Cause of with Good Reason. If (i) in breach
of this Agreement, the Company shall terminate the Employee's employment
other than (A) for Cause or (B) because of Disability or (ii) the Employee
shall terminate his employment for Good Reason; then:
(l) The Company shall pay the Employee his salary and a pro
rata portion of the bonus specified in Section 2(b) hereof (based upon the
bonus paid in respect of the preceding year) through the Termination Date and
all other unpaid and pro rata amounts to which the Employee is entitled as of
the Termination Date under any compensation plan or program of the Company,
including, without limitation, any incentive performance bonus and all
accrued vacation time;
(2) The Company shall pay as liquidated damages to the
Employee, and in lieu of any further salary payments hereunder for periods
after the Termination Date, the Employee's then current salary (payable in
installments in accordance with the Company's normal payroll practices) for
the remainder of the scheduled term of employment and the product of (A) the
sum of (i) the Employee's annual bonus specified in Section 2(b) hereof
(based upon the bonus paid in respect of the preceding year) and (ii) the
maximum annual bonus amount that could have been paid to the Employee under
the Company's performance incentive bonus plan for the year in which the
Termination Date occurs, and (B) the number of years (and any fraction of a
year) remaining in the term of this Agreement under Section 5 hereof as of
the Termination Date, which amount shall be payable in equal monthly
installments during the remainder of the scheduled term of employment;
(3) In addition to the liquidated amounts that are payable to
the Employee, the following shall apply: (A) the Employee shall continue to
participate in, and accrue benefits under, all retirement, pension, profit
sharing, employee stock ownership, thrift and other deferred compensation
plans of the Company for the remaining term of this Agreement as if the
termination of employment of the Employee had not occurred (with the Employee
being deemed to receive annually for the purposes of such plans the
Employee's then current salary and bonus (at the time of his termination)
under Section 2(a) and (b) of this Agreement), except to the extent that such
plan constitutes a "qualified plan" under Section 401 of the Internal Revenue
Code of 1986, as amended ("Code"), by the terms of the plan, in which case
the Company shall provide the Employee a substantially
5
<PAGE>
equivalent, unfunded, non-qualified benefit; (B) the Employee shall be
entitled to continue to receive all other employee benefits and then existing
fringe benefits referred to in Section 4(a) and (b) hereof for the remaining
term of this Agreement as if the termination of employment had not occurred;
and (C) all insurance or other provisions for indemnification, defense or
hold-harmless of officers or directors of the Company that are in effect on
the date the Notice of Termination is sent to the Employee shall continue for
the benefit of the Employee with respect to all of his acts and omissions
while an officer or director as fully and completely as if such termination
had not occurred, and until the final expiration or running of all periods of
limitation against action which may be applicable to such acts or omissions;
and
(4) The liquidated amount and other benefits provided for in
this Section 8(c) shall not be reduced by any compensation or benefits that
the Employee may receive for other employment with another employer through
self-employment after termination of employment with the Company.
(d) Cost of Enforcement. In the event the employment of the
Employee is terminated by the Company because of Disability or without Cause,
or by the Employee for Good Reason, and the Company fails to make timely
payment of the amounts owed to the Employee under this Agreement, the
Employee shall be entitled to reimbursement for all reasonable costs,
including attorney's fees, incurred in the Employee in taking action to
collect such amounts or otherwise to enforce this Agreement, plus interest on
such amounts at the rate of one percent above the prime rate (defined as the
base rate on corporate loans at large U.S. money center commercial banks as
published by The Wall Street Journal), compounded monthly, for the period
from the date of employment termination until payment is made to the
Employee. Such reimbursement and interest shall be in addition to all rights
to which the Employee is otherwise entitled under this Agreement.
(e) Parachute Payment Limitation. If any payment or benefit to the
Employee under this Agreement would be considered a "parachute payment"
within the meaning of Section 280(g)(b)(2) of the Code and if, after reduction
for any applicable federal excise tax imposed by Section 4999 of the Code
("Excise Tax") and federal income tax imposed by the Code, the Employee's net
proceeds of the amounts payable and the benefits provided under this
Agreement would be less than the amount of the Employee's net proceeds
resulting from the payment of the Reduced Amount described below, after
reduction for federal income taxes, then the amount payable and the benefits
provided under this Agreement shall be limited to the Reduced Amount. The
"Reduced Amount" shall be the largest amount that could be received by the
Employee under this Agreement such that no amount paid to the Employee under
this Agreement and any other agreement, contract or understanding heretofore
or hereafter entered into between the Employee and the Company ("Other
Agreements") and any formal or informal plan or other arrangement heretofore
or hereafter adopted by the Company for the direct or indirect provision of
compensation to the Employee (including groups or classes or participants or
beneficiaries of which the Employee is a member), whether or not such
compensation is deferred, is in cash, or is in the form of a benefit to or
for the Employee ("Benefit Plan") would be subject to the Excise Tax. In the
event that the amount payable to the Employee shall be limited to the Reduced
Amount, the Employee shall have the right, in the Employee's sole discretion,
to designate those payments or benefits under this
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Agreement, any other Agreements, and/or Benefit Plank, that should be reduced
or eliminated so as to avoid having the payment to the Employee under this
Agreement be subject to the Excise Tax.
9. Confidentiality. In consideration of the willingness of the Company to
employ the Employee and the compensation to be paid and benefits to be
received therefor, any for other good and valuable consideration, the receipt
and adequacy of which is hereby acknowledged, the Employee agrees as follows:
(a) The Company Owns All of the Employee's Work. All improvements,
discoveries, inventions, designs, documents, licenses and patents, or other
data devised, conceived, made, developed, obtained, filed, perfected,
acquired, or first reduced to practice, in whole or in part, or in the
regular cause of employment by the Employee during the term of this
Agreement, and related in any way to the Business, including development and
research, of the Company or any subsidiary or affiliate engaged in business
substantially similar to that of the Company shall be promptly disclosed to
the Company. The Employee hereby assigns and transfers to the Company all his
right, interest and title thereto, and such improvements, discoveries,
inventions, designs, documents, licenses and patents, or other data shall
become the property of the Company. During the term of this Agreement and at
any time thereafter, upon request of the Company, the Employee will join and
render assistance in any proceedings and execute any papers necessary to file
and prosecute applications for, and to acquire, maintain and enforce, letters
patent, trademarks, registrations and/or copyrights, both domestic and
foreign, with respect to such improvements, discoveries, inventions, designs,
documents, licenses and patents, or other data as required for vesting and
maintaining title to same in the Company.
(b) Non-Disclosure of Confidential Information. The Employee agrees
and acknowledges that the term "Confidential and Proprietary Information"
shall mean any and all information not in the public domain, in any form,
emanating from or relating to the Company and its subsidiaries and
affiliates, including, but not limited to, trade secrets, technical
information, costs, designs, drawings, processes, systems, methods of
operation and procedures, formulae, test data, know-how, improvements, price
lists, financial data, code books, invoices and other financial statements,
computer programs, discs and printouts, sketches, and plans (engineering,
architectural or otherwise), customer lists, telephone numbers, names,
addresses, information about equipment and processes (including
specifications and operating manuals), or any other complication of
information written or unwritten that is used in the business of the Company
or any subsidiary or affiliate that gives the Company or any subsidiary or
affiliate any opportunity to obtain an advantage over competitors of the
Company who do not know or use such information. The Employee agrees and
acknowledges that all Confidential and Proprietary Information, in any form,
and all copies and extracts thereof, is and are and shall remain the sole and
exclusive property of the Company and, upon termination of his employment
with the Company, the Employee hereby agrees to return to the Company the
originals and all copies of any Confidential and Proprietary Information
provided to or acquired by the Employee during the period of his employment.
Except as ordered by a court of competent jurisdiction, the Employee
expressly agrees never to disclose to any person (except to other Company
employees, and then only on a "need to know" basis) or entity any
Confidential and
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Proprietary Information either during the term of this Agreement or at any
time after termination of his employment, except with the express written
authorization and consent of the Company.
(c) Customer's Information. The Employee understands and
acknowledges that each customer of the Company or its subsidiaries or
affiliates will disclose information that will be within the Company's
control in connection with the Company's furnishing of services to its
customer. The Employee covenants and agrees to hold such information in the
strictest confidence and shall treat such information in the same manner and
be obligated by the provisions of this Agreement as if such information were
Confidential and Proprietary Information, as defined in Section 9(b) hereof.
10. Covenant Not to Compete. During the term of employment and for a
period of three (3) years after the termination of the Employee's employment
by the Company, the Employee shall not directly or indirectly own, manage,
operate, control or be employed by or participate in the ownership,
management, operation or control of any business in the Northern Virginia
area which is the type and character engaged in and competitive with that of
the Employer. The Employee shall not, during the term of this Agreement, have
any other paid employment other than with a subsidiary or affiliate of the
Company, except with the Prior approval of the Board.
11. Amendments or Additions: Action by Board. No amendments or additions
to the Agreement shall be binding unless in writing and signed by all parties
thereto. The prior approval by a majority affirmative vote of the full Board
shall be required in order for the Company to authorize any amendments or
additions to this Agreement, to give any consents or waivers of provisions of
this Agreement, or to take any other action under this Agreement including
any Notice of Termination.
12. Miscellaneous.
(a) Notices. Any notice required or permitted hereunder shall be
given in writing and shall be personally delivered or mailed by first class
registered or certified mail, postage prepaid, return-receipt-requested, or
transmitted by facsimile, telegram or telex, addressed to the Company or the
Employee at the address set forth on the signature page of this Agreement, or
at such other addresses as such party may designate by five business day
advance written notice to the other party.
Each notice or communication that shall have been transmitted
in the manner described above, or that shall have been delivered to a
telegraph company, shall be deemed sufficiently given, served, sent or
received for purposes at such time as it is sent to the addressee (with the
return receipt, delivery receipt or (with respect to a telex) the answer back
being deemed conclusive, but not exclusive, evidence of such sending) or at
such time as delivery is refused by the addressee upon presentation.
(b) Servability. Nothing in this Agreement shall be construed so as
to require the commission of any act contrary to law and wherever there is
any conflict between any provision of this Agreement and any law, statute,
ordinance, order or regulation, the latter shall prevail, but in such event
any necessary action will be taken to bring it within applicable legal
requirements. If any
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provision of this Agreement should be held invalid or unenforceable, the
remaining provisions shall be unaffected by such a holding.
(c) Complete Agreement. This Agreement contains the entire Agreement
and understanding between the parties relating to the subject matter hereof,
and supersedes any prior understandings, agreements or representations by or
between the parties, written or oral, relating to the subject matter hereof.
(d) Successors or Assigns. This Agreement and the rights and
obligations of the parties hereto shall bind and inure to the benefit of any
successor or successors of the Company by way of reorganization, merger or
consolidation and any assignee of all or substantially all of its business
assets, but except as to any such successor or assignee of the Company,
neither this Agreement nor any rights or benefits hereunder may be assigned
by the Company or the Employee. However, in the event of death of the
Employee all rights to receive payments hereunder shall become rights or
benefits hereunder may be assigned by the Company or the Employee. However,
in the event of the death of the Employee all rights to receive payments
hereunder shall become rights of the Employee's estate.
(e) Section Headings. The section headings used in this Agreement
are included solely for convenience and shall not affect, or be used in
connection with, the interpretation of this Agreement.
(f) Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement on the day and year first above written.
CROPKING, INCORPORATED EMPLOYEE
By: /s/ John Campanella By: /s/ Daniel J. Brentling
------------------------ -----------------------
John Campanella Daniel J. Brentling
Secretary
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Exhibit 10.4
FINANCIAL ADVISORY AGREEMENT
This Agreement is made and entered into as of the day of ,
1998, between CropKing, Incorporated (the "Company") and Barron Chase
Securities, Inc. (the "Financial Advisor").
W I T N E S S E T H :
WHEREAS, The Company has engaged the Financial Advisor to act as the
Underwriter in connection with the public offering of the Company's securities;
and
WHEREAS, the Financial Advisor has experience in providing financial and
business advice to public and private companies; and
WHEREAS, the Company is seeking and the Financial Advisor is willing to
furnish business and financial related advice and services to the Company on the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of, and for the mutual promises and
covenants contained herein, and for other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties agree as follows:
1. Purpose. The Company hereby engages the Financial Advisor on a
non-exclusive basis for the term specified in this Agreement to render
financial advisory and consulting advice to the Company as an investment
banker relating to financial and similar matters upon the terms and
conditions set forth herein. However, the advisory will only be rendered if
specifically requested in writing by the CEO of the Company.
2. Representations of the Financial Advisor and the Company. The
Financial Advisor represents and warrants to the Company that (i) it is a
member in good standing of the National Association of Securities Dealers,
Inc. ("NASD") and that it is engaged in the securities brokerage business;
(ii) in addition to its securities brokerage business, the Financial Advisor
provides consulting advisory services; and (iii) it is free to enter into
this Agreement and the services to be provided pursuant to this Agreement are
not in conflict with any other contractual or other obligation to which the
Financial Advisor is bound. The Company acknowledges that the Financial
Advisor is in the business of providing financial services and consulting
advice (of the type contemplated by this Agreement) to others and that
nothing herein contained shall be construed to limit or restrict the
Financial Advisor in conducting such business with respect to others, or
rendering such advice to others.
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3. Duties of the Financial Advisor. During the term of this
Agreement, the Financial Advisor will provide the Company with consulting
advice as specified below at the request of the Company, provided that the
Financial Advisor shall not be required to undertake duties not reasonably
within the scope of the consulting advisory service in which the Financial
Advisor is engaged generally. In performance of these duties, the Financial
Advisor shall provide the Company with the benefits of its best judgment and
efforts. It is understood and acknowledged by the parties that the value of
the Financial Advisor's advice is not measurable in any quantitative manner,
and that the amount of time spent rendering such consulting advice shall be
determined according to the Financial Advisor's discretion.
The Financial Advisor's duties may include, but will not necessarily be
limited to:
1) Advice relating to corporate financing activities;
2) Recommendations relating to specific business operations and
investments;
3) Advice relating to financial planning; and
4) Advice regarding future financings involving securities of the
Company or any subsidiary.
4. Term. The term of this Agreement shall be for twelve (12) months
commencing on the first day of the month following the Company's receipt of
the proceeds from the contemplated public offering (the "Commencement Date");
provided, however, that this Agreement may be renewed or extended upon such
terms and conditions as may be mutually agreed upon by the parties hereto.
5. Fee. The Company shall pay the Financial Advisor a fee of $108,000
for the financial services to be rendered pursuant to this Agreement, all of
which shall be payable at the Closing Date of the Company's proposed public
offering.
6. Expenses. In addition to the fees payable hereunder, the Company
shall reimburse the Financial Advisor, within five (5) business days of its
request, for any and all reasonable out-of-pocket expenses incurred in
connection with the services performed by the Financial Advisor and its
counsel pursuant to this Agreement, including (i) reasonable hotel, food and
associated expenses; (ii) reasonable charges for travel; (iii) reasonable
long-distance telephone calls; and (iv) other reasonable expenses spent or
incurred on the Company's behalf. All such expenses in excess of $500 shall
be pre-approved by the Company.
7. Introduction of Customers, Origination of Line of Credit and
Similar Transactions. In the event the Financial Advisor
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originates a line of credit with a lender or a corporate partner, the Company
and the Financial Advisor will mutually agree on a satisfactory fee and the
terms of payment of such fee. In the event the Financial Advisor introduces
the Company to a joint venture partner or customer and sales develop as a
result of the introduction, the Company agrees to pay a fee of five percent
(5%) of total sales generated directly from this introduction during the
first two years following the date of the first sale. Total sales shall mean
cost receipts less any applicable refunds, returns, allowances, credits and
shipping charges and monies paid by the Company by way of settlement or
judgment arising out of claims made by or threatened against the Company.
Commission payments shall be paid on the 15th day of each month following the
receipt of customers' payments. In the event any adjustments are made to the
total sales after the commission has been paid, the Company shall be entitled
to an appropriate refund or credit against future payments under this
Agreement.
All fees to be paid pursuant to this paragraph, except as otherwise
specified, are due and payable to the Financial Advisor in cash at the
closing or closings of any transaction specified in this paragraph. In the
event that this Agreement shall not be renewed or if terminated for any
reason, notwithstanding any such non-renewal or termination, the Financial
Advisor shall be entitled to a full fee as provided under this paragraph for
any transaction for which the discussions were initiated during the term of
this Agreement and which is consummated within a period of twelve months
after non-renewal or termination of this Agreement. Nothing herein shall
impose any obligation on the part of the Company to enter into any
transaction or to use any services of the Financial Advisor offered pursuant
to this paragraph or this Agreement.
8. Use of Advice by the Company; Public Market for the Company's
Securities. The Company acknowledges that all opinions and advice (written
or oral) given by the Financial Advisor to the Company in connection with the
engagement of the Financial Advisor are intended solely for the benefit and
use of the Company in considering the transaction to which they relate, and
the Company agrees that no person or entity other than the Company shall be
entitled to make use of or rely upon the advice of the Financial Advisor to
be given hereunder, and no such opinion or advice shall be used for any other
purpose or reproduced, disseminated, quoted or referred to at any time, in
any manner or for any purpose, nor may the Company make any public references
to the Financial Advisor, or use of the Financial Advisor's name in any
annual reports or any other reports or releases of the Company without the
prior written consent of the Financial Advisor.
The Company acknowledges that the Financial Advisor makes no commitment
whatsoever as to making a public trading market in the Company's securities
or to recommending or advising its clients to purchase the Company's
securities. Research reports or corporate
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finance reports that may be prepared by the Financial Advisor will, when and
if prepared, be done solely on the merits or judgment and analysis of the
Financial Advisor or any senior corporate finance personnel of the Financial
Advisor.
9. Company Information; Confidentially. The Company recognizes and
confirms that, in advising the Company and in fulfilling its engagement
hereunder, the Financial Advisor will use and rely on data, material and
other information furnished to the Financial Advisor by the Company. The
Company acknowledges and agrees that in performing its services under this
engagement, the Financial Advisor may rely upon the data, material and other
information supplied by the Company without independently verifying the
accuracy, completeness or veracity of same. In addition, in the performance
of its services, the Financial Advisor may look to such others for such
factual information, economic advice and/or research upon which to base its
advice to the Company hereunder as the Financial Advisor shall in good faith
deem appropriate.
Except as contemplated by the terms hereof or as required by applicable
law, the Financial Advisor shall keep confidential all non-public information
provided to it by the Company, and shall not disclose such information to any
third party without the Company's prior written consent, other than such of
its employees and advisors as the Financial Advisor determines to have a need
to know.
10. Indemnification. The Company shall indemnify and hold harmless the
Financial Advisor against any and all liabilities, claims, lawsuits,
including any and all awards and/or judgments to which it may become subject
under the Securities Act of 1933, (the "Act"), the Securities Exchange Act of
1934, as amended (the "1934 Act") or any other federal or state statute, at
common law or otherwise, insofar as said liabilities, claims and lawsuits
(including costs, expenses, awards and/or judgments) arise out of or are in
connection with the services rendered by the Financial Advisor or any
transactions in connection with this Agreement, except for any liabilities,
claims and lawsuits (including awards and/or judgments), arising out of
willful misconduct or willful omissions of the Financial Advisor. In
addition, the Company shall also indemnify and hold harmless the Financial
Advisor against any and all reasonable costs and expenses, including
reasonable counsel fees, incurred relating to the foregoing.
The Financial Advisor shall give the Company prompt notice of any such
liability, claim or lawsuit which the Financial Advisor contends is the
subject matter of the Company's indemnification and the Company thereupon
shall be granted the right to take any and all necessary and proper action,
at its sole cost and expense, with respect to such liability, claim and
lawsuit, including the right to settle, compromise and dispose of such
liability, claim or lawsuit, excepting therefrom any and all proceedings or
hearings
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before any regulatory bodies and/or authorities.
The Financial Advisor shall indemnify and hold the Company harmless
against any and all liabilities, claims and lawsuits, including any and all
awards and/or judgments to which it may become subject under the Act, the
1934 Act or any other federal or state statute, at common law or otherwise,
insofar as said liabilities, claims and lawsuits (including costs, expenses,
awards and/or judgments) arise out of or are based upon willful misconduct or
willful omissions of the Financial Advisor. In addition, the Financial
Advisor shall also indemnify and hold the Company harmless against any and
all reasonable costs and expenses, including reasonable counsel fees,
incurred relating to the foregoing.
The Company shall give the Financial Advisor prompt notice of any such
liability, claim or lawsuit which the Company contends is the subject matter
of the Financial Advisor's indemnification and the Financial Advisor
thereupon shall be granted the right to take any and all necessary and proper
action, at its sole cost and expense, with respect to such liability, claim
and lawsuit, including the right to settle, compromise or dispose of such
liability, claim or lawsuit, excepting therefrom any and all proceedings or
hearings before any regulatory bodies and/or authorities.
11. The Financial Advisor as an Independent Contractor. The Financial
Advisor shall perform its services hereunder as an independent contractor and
not as an employee of the Company or an affiliate thereof. It is expressly
understood and agreed to by the parties hereto that the Financial Advisor
shall have no authority to act for, represent or bind the Company or any
affiliate thereof in any manner, except as may be agreed to expressly by the
Company in writing from time to time.
12. Miscellaneous.
(a) This Agreement between the Company and the Financial Advisor
constitutes the entire agreement and understanding of the parties hereto, and
supersedes any and all previous agreements and understandings, whether oral
or written, between the parties with respect to the matters set forth herein.
(b) Any notice or communication permitted or required hereunder shall
be in writing and shall be deemed sufficiently given if hand-delivered or
sent by facsimile and postage prepaid by certified or registered mail, return
receipt requested, to the respective parties as set forth below, or to such
other address as either party may notify the other in writing:
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If to the Company: Daniel J. Brentlinger, President
CropKing, Incorporated
5050 Greenwich Road
Seville, Ohio 44273
Copy to: Thomas T. Prousalis, Jr., Esq.
1919 Pennsylvania Avenue, N.W.
Suite 800
Washington, D.C. 20006
If to the
Financial Advisor: Robert T. Kirk, President
Barron Chase Securities, Inc.
7700 West Camino Real
Boca Raton, Florida 33433
Copy to: David A. Carter, P.A.
2300 Glades Road, Suite 210W
Boca Raton, Florida 33431
(c) This Agreement shall be binding upon and inure to the benefit of
each of the parties hereto and their respective successors, legal
representatives and assigns.
(d) This Agreement may be executed in any number of counterparts, each
of which together shall constitute one and the same original document.
(e) No provision of this Agreement may be amended, modified or waived,
except in a writing signed by all of the parties hereto.
(f) This Agreement shall be governed by and construed in accordance
with the laws of the State of Florida applicable to contracts made and to be
performed entirely within the State of Florida. The parties agree that any
action brought by any party against another party in connection with any
rights or obligations arising out of this Agreement shall be instituted
properly in a federal or state court of competent jurisdiction with venue
only in the Fifteenth Judicial Circuit Court in and for Palm Beach County,
Florida or the United States District Court for the Southern District of
Florida, West Palm Beach Division. A party to this Agreement named as a
Defendant in any action brought in connection with this Agreement in any
court outside of the above named designated county or district shall have the
right to have the venue of said action changed to the above designated county
or district or, if necessary, have the case dismissed, requiring the other
party to refile such action in an appropriate court in the above designated
county or federal district.
(g) This Agreement has been duly authorized, executed and delivered by
and on behalf of the Company and the Financial Advisor.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
Very truly yours,
CROPKING, INCORPORATED
BY:________________________________
Daniel J. Brentlinger, President
BARRON CHASE SECURITIES, INC.
BY:________________________________
Robert T. Kirk, President
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Exhibit 10.5
, 1998
Daniel J. Brentlinger, President
CropKing, Incorporated
5050 Greenwich Road
Seville, Ohio 44273
Re: Merger and Acquisition Agreement
Dear Mr. Brentlinger:
You have agreed that Barron Chase Securities, Inc., (the "Finder") may
act as a non-exclusive finder or financial consultant for you in various
transactions in which CropKing, Incorporated (the "Company") may be involved,
including but not limited to, mergers, acquisitions, business combinations,
joint ventures, debt or equity placements or other on-balance or off-balance
sheet corporate transactions. The Company hereby agrees that in the event
that the Finder shall first introduce to the Company another party or entity,
and that as a result of such introduction, a transaction between such entity
and the Company is consummated ("Consummated Transaction"), then the Company
shall pay to the Finder a finder's fee as follows:
a. Five percent (5%) of the first $1,000,000 of the consideration paid in
such transaction;
b. Four percent (4%) of the consideration in excess of $1,000,000 and up
to $2,000,000;
c. Three percent (3%) of the consideration in excess of $2,000,000 and up
to $3,000,000;
d. Two percent (2%) of any consideration in excess of $3,000,000 and up
to $4,000,000; and
e. One percent (1%) of any consideration in excess of $4,000,000.
The fee due the Finder shall be paid by the Company in cash and/or in
stock at the closing of the Consummated Transaction as mutually agreed
between the Company and the Finder, without regard to whether the Consummated
Transaction involves payments in cash, in stock, or a combination of stock
and cash, or is made on an installment sale basis. By way of example, if the
Consummated Transaction involves securities of the acquiring entity (whether
securities of the Company, if the Company is the acquiring party, or
securities of another entity, if the Company is the selling party) having a
value of $5,000,000, the consideration to be paid by the Company to the
Finder at closing shall be $150,000.
However, both parties agree that it is the purpose of the Company to use
the proceeds of the offering in the acquisition, merger, purchase of shares
or any other kind of association with
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foreign companies as described in the prospectus. To the extent that the
Company has any prior relationships with such foreign companies these foreign
companies are specifically excluded from this Agreement.
In the event that for any reason the Company shall fail to pay to the
Finder all or any portion of the finder's fee payable hereunder when due,
interest shall accrue and be payable on the unpaid balance due hereunder from
the date when first due through and including that date when actually
collected by the Finder, at a rate equal to two (2) points over the prime
rate of Citibank, N.A. in New York, New York, computed on a daily basis and
adjusted as announced from time to time.
This agreement shall be effective on the date hereof and shall expire on
the fifth anniversary of the date hereof.
Notwithstanding anything herein to the contrary, if the Company shall,
within 180 days immediately following the termination of the five year period
provided above, conclude a Consummated Transaction with any party introduced
by the Finder to the Company prior to the termination of said five year
period, the Company shall also pay the Finder the fee determined above.
The Company represents and warrants to the Finder that the engagement of
the Finder hereunder has been duly authorized and approved by the Board of
Directors of the Company and this letter agreement has been duly executed and
delivered by the Company and constitutes a legal, valid and binding
obligation of the Company.
This agreement has been executed and delivered in the State of Florida
and shall be governed by the laws of such state, without giving effect to the
conflicts of laws rules thereunder.
This agreement shall be binding upon, and enforceable against, the
successors and assigns of each of the undersigned.
Please sign this letter at the place indicated below, whereupon it will
constitute our mutually binding agreement with respect to the matters
contained herein.
Very truly yours,
BARRON CHASE SECURITIES, INC.
BY:
-------------------------
Robert T. Kirk, President
Agreed to and Accepted:
CROPKING, INCORPORATED
BY:
--------------------------------
Daniel J. Brentlinger, President
