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As filed with the Securities and Exchange Commission on February 17, 1999
Registration No.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GLOBAL SOURCING GROUP, INC.
---------------------------------
(Exact Name of registrant as specified in its charter)
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Delaware 52-2068992 3540
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(State or other jurisdiction of (I.R.S. Employer (Primary Standard
incorporation or organization) Identification Number) Industrial Classification Code)
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1111 Rancho Conejo Boulevard, Suite 202
Newbury Park, California 91320
805/375-6060
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Rafael Littaua, President
1111 Rancho Conejo Boulevard, Suite 202
Newbury Park, California 91320
805/375-6060
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to: Cassidy & Associates, 1504 R Street, N.W.
Washington, D.C. 20009, 202/387-5400
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered Offering Aggregate Registration
Price Per Share Offering Price Fee (1)(2)
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Common Stock held by Selling 2,637,736 $.029 (1) $ 76,494 $ 21.00
Securityholders
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Common Stock Purchase Warrants held by 1,000,000 NA NA NA
Selling Securityholders
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Shares of Common Stock underlying 1,000,000 $ 0.75 $750,000 $209.00
Common Stock Purchase Warrants
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TOTAL $776,377 $230.00
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(1) There is no current market for the securities. The value of the Shares
being registered is based upon the book value of the Company Stock ($0.029
per share).
(2) Estimated solely for the purpose of calculating the registration fee based
on Rule 457(f)(2).
(3) Paid by electronic transfer.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
The 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>
PROSPECTUS Subject to Completion, Dated ____, 1999
GLOBAL SOURCING GROUP, INC.
2,637,736 Shares of Common Stock to be Sold by
the Holders thereof; 1,000,000 Warrants and
1,000,000 Shares of Common Stock underlying
such Warrants to be Sold by the Holders thereof.
The Registration Statement of which this Prospectus forms a part relates to
the offer and sale of certain securities of Global Sourcing Group, Inc., a
Delaware Corporation (the "Company") by the holders thereof (the "Selling
Securityholders") consisting of (i) 2,637,736 shares (the "Shares") of the
Company's common stock, par value $.0001 per share (the "Common Stock")
(ii) 1,000,000 warrants (the "Warrants") and 1,000,000 shares of common stock
underlying the Warrants. The Shares, Warrants and Common Stock underlying the
Warrants are hereinafter collectively referred to as the "Securities". All
costs incurred in the registration of the Securities are being borne by the
Company.
The Company is a direct marketer and wholesaler of specialty power tools
under its brand name "Great Tools Direct". The Company buys specialty power
tools from Chinese tool manufacturers, and merchandises the tools through
advertisements in trade magazines, direct mailing and its Internet site.
Consumers of specialty power tools can order the Company's Great Tools Direct
products through the Company's toll free number or over the Internet. The
Company also sells its product to retail stores and a mail order catalog
company.
The Company has limited operations and revenues and limited capital. Prior
to the Company's offering of the Securities as described herein, there has been
no public market for the Common Stock of the Company or the Warrants and there
are no assurances that a public market will develop following completion of
this Offering or that, if any such market does develop, it will be sustained.
The Warrants may be transferred immediately upon the effective date (the
"Effective Date") of the registration statement of which this Prospectus forms a
part (the "Registration Statement). Each Warrant allows the holder thereof to
purchase one share of Common Stock at an exercise price of $0.75 for the
12 months subsequent to the Effective Date or at an exercise price of $1.00 for
the six months thereafter.
The Securities will become tradeable on the Effective Date. Sales of the
Securities being offered by Selling Securityholders, or even the potential of
such sales, may likely have an adverse effect on the market prices of the
Securities of the Company. The Selling Securityholders will receive the
proceeds from the sale of the Securities being offered by them. The Company
will not receive any of the proceeds from such sales. The Selling
Securityholders, directly or through agents, dealers or representatives to be
designated from time to time, may sell their Securities on terms to be
determined at the time of sale. See "PLAN OF DISTRIBUTION." The Selling
Securityholders reserve the sole right to accept or reject, in whole or in part,
any proposed purchase of the Selling Securityholders' Securities being offered
by them pursuant hereto.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
CONTAINED IN THIS PROSPECTUS BEGINNING ON PAGE 5.
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.
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THE SECURITIES DESCRIBED HEREIN ARE OFFERED BY THE SELLING SHAREHOLDERS
SUBJECT TO PRIOR SALE, WITHDRAWAL, CANCELLATION OR MODIFICATION OF THE OFFERING,
WITHOUT NOTICE. IN ADDITION, THE RIGHT IS RESERVED TO CANCEL ANY CONFIRMATION OF
SALE EVEN IF THE PURCHASE PRICE HAS BEEN PAID, IF IN THE OPINION OF THE COMPANY
OR ANY PARTICIPATING BROKER-DEALER, COMPLETION OF SUCH SALE WOULD VIOLATE
FEDERAL OR STATE SECURITIES LAWS OR A RULE OR POLICY OF THE NATIONAL ASSOCIATION
OF SECURITIES DEALERS, INC.
FOLLOWING THE COMPLETION OF THIS OFFERING, CERTAIN BROKER-DEALERS MAY BE
THE PRINCIPAL MARKET MAKERS FOR THE SECURITIES OFFERED HEREBY. UNDER THESE
CIRCUMSTANCES, THE MARKET BID AND ASKED PRICES FOR THE SECURITIES MAY BE
SIGNIFICANTLY INFLUENCED BY DECISIONS OF THE MARKET MAKERS TO BUY OR SELL THE
SECURITIES FOR THEIR OWN ACCOUNT. NO ASSURANCE CAN BE GIVEN THAT ANY
MARKETMAKING ACTIVITIES OF THE MARKET MAKERS, IF COMMENCED, WILL BE CONTINUED.
FOR A PERIOD OF AT LEAST ONE YEAR FOLLOWING CLOSING OF THIS OFFERING, THE
COMPANY WILL BE REQUIRED BY THE SECURITIES EXCHANGE ACT OF 1934 TO FILE PERIODIC
REPORTS AND OTHER INFORMATION WITH THE SECURITIES AND EXCHANGE COMMISSION. SUCH
MATERIAL MAY BE INSPECTED AT THE COMMISSION'S PRINCIPAL OFFICES AT JUDICIARY
PLAZA, 450 FIFTH STREET, N.W. WASHINGTON, D.C. 20459 WHERE COPIES MAY BE
OBTAINED ON PAYMENT OF CERTAIN FEES PRESCRIBED BY THE COMMISSION OR AT ITS WEB
SITE HTTP://WWW.SEC.GOV. THE COMPANY WILL FURNISH TO HOLDERS OF ITS COMMON STOCK
ANNUAL REPORTS CONTAINING AUDITED FINANCIAL STATEMENTS EXAMINED AND REPORTED
UPON, AND WITH AN OPINION EXPRESSED BY AN INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANT. THE COMPANY MAY ISSUE OTHER UNAUDITED INTERIM REPORTS TO ITS
SHAREHOLDERS AS IT DEEMS APPROPRIATE.
CERTAIN SECURITIES HEREIN ARE TRANSFERRABLE WARRANTS. IT IS POSSIBLE THAT
THE WARRANTS MAY BE ACQUIRED BY PERSONS RESIDING IN STATES WHERE THE COMPANY IS
UNABLE TO QUALIFY THE SHARES OF COMMON STOCK UNDERLYING THE WARRANTS FOR SALE
UPON EXERCISE. WARRANTHOLDERS IN THOSE STATES WOULD HAVE NO CHOICE BUT TO
ATTEMPT TO SELL THEIR WARRANTS OR LET THEM EXPIRE UNEXERCISED. IT IS ALSO
POSSIBLE THAT THE COMPANY MAY BE UNABLE, FOR UNFORESEEN REASONS, TO CAUSE A
REGISTRATION STATEMENT COVERING THE SHARES UNDERLYING THE WARRANTS TO BE IN
EFFECT WHEN THE WARRANTS ARE EXERCISABLE. IN THAT EVENT, THE WARRANTS MAY EXPIRE
UNLESS EXTENDED BY THE COMPANY AS PERMITTED BY THE WARRANTS BECAUSE A
REGISTRATION STATEMENT MUST BE IN EFFECT IN ORDER FOR WARRANTHOLDERS TO EXERCISE
THEIR WARRANTS.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to and
should be read in conjunction with more detailed information and financial data
(including any financial statements and the notes thereto) appearing elsewhere
in this Prospectus. Each prospective investor is urged to read this Prospectus
in its entirety, including the financial data.
The Company
Global Sourcing Group, Inc. (the "Company"), incorporated under the laws
of Delaware, was formed through a merger on June 30, 1998 between its
predecessor Global Sourcing Group, L.L.C., a limited liability company
incorporated under the laws of California, and Penrith Acquisition Corporation,
a newly formed Delaware corporation. The surviving corporation was renamed
Global Sourcing Group, Inc.
The Company sells specialty power tools under the Great Tools Direct label
to department stores and a mail order catalog company. All of the products
offered by the Company are manufactured in China and labeled under the Company's
Great Tools Direct brand name. The Company offers a variety of products
consisting of approximately 90 different models of power tools, grinders,
sanders and miscellaneous power tool accessories.
The Company also markets its products through advertisements in various
consumer publications including Popular Mechanics, American Woodworker, Wood
Magazine, Popular Woodworker and American How To. The Company's customers are
users of specialty power tools including carpenters, plumbers, electricians and
other repair professionals and hobbyists. The Company also markets its products
on its Web page on the Internet.
The Offering
The Company is not offering any shares for sale. The Securities offered by
the Selling Securityholders consist of (i) 2,637,736 shares of Common Stock
(ii) 1,000,000 Warrants and (iii) 1,000,000 shares of Common Stock underlying
such Warrants. The Selling Securityholders' Shares of Common Stock offered
herein (without giving effect to the exercise of any Warrants) constitute
approximately 37% of the outstanding Common Stock of the Company.
Trading Market
The Company intends to initially apply for admission to quotation of its
securities on the NASD OTC Bulletin Board and to apply for listing on the Nasdaq
SmallCap Market when, and if, it qualifies for such admission. However, there
can be no assurance that its Securities will be listed on any such exchange.
See "RISK FACTORS--No Current Trading Market for the Company's Securities" and
"DESCRIPTION OF SECURITIES--Admission to Quotation to Nasdaq SmallCap Market and
NASD OTC Bulletin Board".
Risk Factors
There are substantial risk factors involved in investment in the Company.
Investment in the Company is speculative and no assurances can be made of any
return to investors. See "CERTAIN RISK FACTORS"
Use of Proceeds
The Company will not receive any proceeds from the sale of the Securities
offered herein.
Offered By
The Selling Securityholders are offering the Securities through their own
effort and, possibly, through one or more broker-dealers who are member firms on
the NASD, Inc. If used, broker-dealers may receive a selling commission of the
proceeds from the sale of the Securities. No selling commission will be paid to
any officer or director of the Company.
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Transfer Agent
The Company has yet to retain a transfer agent for the Securities.
Selected Financial Data
The Company is providing the following selected financial data to aid
investors in their analysis of this potential investment. This information was
derived from (1) the Company's 1997 and 1996 historical financials statements
and (2) the Company's internally prepared unaudited financials statements for
the period ended September 30, 1998. The financial statements as of
December 31, 1997 and 1996 with the notes thereto and the related reports of
Singer Lewak Greenbaum & Goldstein LLP, independent certified public
accountants, together with the Company's internally prepared unaudited financial
statements for the period ended September 30, 1998 are included elsewhere in the
Prospectus. The Company' unaudited financial statements, in the opinion of
management, include all adjustments (consisting normal recurring adjustments)
necessary for a fair presentation of the Company's financial position and
results of operations for the unaudited interim period. The selected financial
data set forth below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the Company's
financial statements and related notes thereto included elsewhere in the
prospectus.
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At September 30, At December 31, At December 31
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1998 1997 1996
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(unaudited)
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Balance Sheet Data:
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Current assets $1,155,966 256,802 284,068
Total Assets $1,175,296 286,453 309,468
Total Current Liabilities 199,244 299,673 139,141
Long-term debt 949,808 -- --
Stockholders' equity (deficit) 26,245 (13,220) 170,327
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Nine Months Ended At December 31
September 30 --------------
1998 1997 1997 1996
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(Unaudited)
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Income Statement Data:
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Net Sales 851,910 1,410,189 $1,526,464 1,368,136
Cost of Sales 540,080 813,903 701,330 691,959
Net income (loss) 39,465 (19,328) (138,578) 107,276
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The selected financial data above is a summary only and has been derived
from and is qualified in its entirety by reference to the Company's financial
statements and the report related thereto of Singer, Lewak Greenbaum & Goldstein
LLP, Certified Public Accountants, included elsewhere in this Prospectus. See
"EXPERTS" and "FINANCIAL STATEMENTS."
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RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE IN NATURE AND INVOLVE A HIGH
DEGREE OF RISK. THEREFORE, EACH PROSPECTIVE INVESTOR SHOULD, PRIOR TO PURCHASE,
CONSIDER VERY CAREFULLY THE FOLLOWING RISK FACTORS, AS WELL AS ALL OF THE OTHER
INFORMATION SET FORTH ELSEWHERE IN THIS PROSPECTUS AND THE INFORMATION CONTAINED
IN THE FINANCIAL STATEMENTS, INCLUDING ALL NOTES THERETO.
Limited Operating History
The Company, whose predecessor was incorporated in California as a limited
liability company in 1996, has a limited operating history. The likelihood of
the success of the Company must be considered in light of the problems,
expenses, difficulties, complications and delays frequently encountered in
connection with a new business and the competitive environment in which the
Company operates. No assurance can be given that the operations of the Company
will result in any revenues or that the Company will be profitable. There is
little operating history on which to determine if management will sustain
product quality, adjust to product cycle or whether consumers may tire of
existing products or the Company will increase or retain its customer base. See
"BUSINESS."
Operating At a Loss
The Company has been operating for two years and in 1997 it operated at a
cash deficit. The Company has not achieved its planned level of operations or
realized significant revenues and it has incurred losses and it may continue to
incur losses. A substantial portion of the Company's operating loss during the
1997 fiscal year resulted from an increase in operating costs triggered by an
increase in advertisements and promotions conducted by the Company in 1997. The
Company has been covering it losses with the personal funding of Rafael Littaua,
the Chief Executive Officer, President and a director of the Company. There are
no assurances that the Company will not continue operating at a net loss in the
future.
Source of Supply
Since 1996, the Company has been operating pursuant to an oral agreement
with Shanghai Tehao Company ("Tehao"), a manufacturer located in Shanghai,
China, which manufactures 70% of the products sold by the Company. Tehao has
been financing the Company's inventory with up to US$1,000,000 and it has
granted the Company certain guarantees that the price per product to the Company
will be at least ten percent less than what Tehao charges other marketers of
power tools in the United States. In exchange, Tehao receives a percentage of
profits from the wholesale sales by the Company. While the Company anticipates
that it will continue operating under the oral agreement, it entered into a
written joint venture agreement with Tehao in May, 1998. The Company entered
into this joint venture to assure it could finance a large single order of its
products. The Company anticipates that it will begin operating under this joint
venture agreement if the Company requires a large single shipment of product on
credit.
The joint venture is to last through June 30, 2003 or dissolution by mutual
agreement of the parties. Under the agreement, Tehao agreed to contribute
$500,000 worth of tools as its investment of capital into the joint venture.
Under both the joint venture and the oral agreement, the Company has agreed to
pay for the advertising, purchasing, design, marketing, overhead and the cost of
shipping the power tools to the United States. Tehao has also agreed that it
will sell all products covered by the joint venture agreement to the Company for
at least ten percent below the lowest United States landed cost Tehao charges to
any other purchasers who sell the products either directly or indirectly in the
United States.
Under both the oral agreement and joint venture, Tehao and the Company
divide the net profits annually with 51% of the net profits allocated to the
Company and 49% of the net profits allocated to Tehao. Although not expressly
defined in the joint venture agreement, the Company believes net profits means
revenue remaining after deduction from gross revenues the cost of the product
the Company pays Tehao and all costs associated with selling the product
including advertising, design, marketing, overhead, shipping, and duties. Over
the course of its
5
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relationship with Tehao, Tehao has received over $900,000 in shared profits and
the Company is current on all bills owed to Teaho.
Both the Company and Tehao will indemnify and hold harmless each other from
any and all expense and liability resulting from or arising out of any
misconduct on either company's part to the extent that the amount exceeds the
applicable insurance carried by the joint venture. Both companies also agree
that any disputes under the joint venture will be settled by the Courts of
California.
Tehao could decide to end the relationship with the Company for any reason.
Tehao could stop supplying tools under the oral agreement or choose not to
participate in the joint venture agreement. Although the Company believes that
its relations with Tehao are good, as the Company's major source of product, the
loss of this supplier or the shortage or loss of any significant product line
could adversely affect the Company's ability to supply customers and, as a
result, could have a material adverse effect on the Company's operating results.
Managing Anticipated Growth
Until recently, the Company derived almost all of it revenues from its
direct marketing distribution, however, the Company now derives most of its
revenues from sales to wholesalers. Wholesale distribution is distinct from
direct marketing because it involves selling product to large retailers and
cataloguers. Rather than shipping one item at a time as is the practice in
direct marketing, wholesale distribution requires that the Company ship large
amounts of product in a limited time period. Because the Company has limited
capital, it has entered into an agreement with Tehao to finance these larger
transactions in exchange for the Company sharing profits with Tehao. Expansion
of the Company's business into the wholesale arena may significantly increase
the Company's overhead costs which may not be necessarily recovered by revenues
from increased sales. While the Company believes the agreement it has with
Tehao is necessary for its growth strategy, there are no assurances that the
Company has properly accounted for the increases in customer support, marketing,
sales and other overhead costs which may accompany growth into wholesale
distribution. If the Company did not accurately account for the cost of growth
when negotiating its agreement with Tehao, its operating profits may be
adversely effected. See "BUSINESS - AGREEMENT WITH TEHAO".
Overseas Transactions
The Company is subject to the risks of obtaining products abroad, including
adverse fluctuations in currency exchange rates, increases in import duties,
decreases in quotas, increased customs regulations and political turmoil.
Because the Company's suppliers manufacture products in China, the following
risks relating to operations in China could adversely effect the Company's
supplier and consequently could have material adverse effect on the Company's
revenues.
Most Favored Nation Trading Status. The United States Congress annually
considers the renewal of most favored nation trading status, which currently is
in place for China. However, in the future the Congress may attach conditions to
the renewal of such status which China may decline, or be unable, to meet. Most
favored nation trading status allows countries to export goods at favorable
tariff rates. In 1994, President Clinton announced that such favored nation
status would no longer be linked to China's achievement of overall progress in
the area of human rights. Prior to this announcement, renewal of such status
had been contingent on the achievement of such progress. There can be no
assurance that renewal of such status in the future will not be linked to human
rights issues or other requirements or that, notwithstanding continuing
Presidential support for such status, Congress, for any reason in the future,
will not deny such status beyond the President's ability to veto such denial.
Revocation or conditional extension by the United States of China's most favored
nation trading status could increase the cost of importing the Company's product
from Tehao because a higher tariff would be imposed. Consequently, the
Company's profitability could be materially effected.
Internal Political Risks. The Company's interests may be adversely
affected by China's political environment. China is a socialist state which
since 1949 has been, and is expected to continue to be, controlled by the
Communist Party of China. Changes in the political leadership of the Chinese
government may have a significant impact on policy and the political and
economic environment in China. Moreover, economic reforms
6
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and growth in China have been more successful in certain provinces than in
others, and the continuation or increase of such disparities could affect
political or social stability.
Government Control Over Economy. China only recently has permitted greater
provincial and local economic autonomy and private economic activities, and the
government of China has exercised and continues to exercise substantial control
over virtually every section of the Chinese economy through regulation and state
ownership. Accordingly, government actions in the future, including any decision
not to continue to support the economic reform program that commenced in the
late 1970's and possibly to return to the more centrally-planned economy that
existed prior thereto, could have a significant effect on economic conditions in
China and on the operations of the Company's supplier.
Inflation. Over the last few years, China's economy has registered a high
growth rate and there have been recent indications that rates of inflation have
increased. In response, the Chinese government has taken measures to curb the
excessive expansion of the economy. These measures have included devaluations
of the Chinese currency, the Renminbi, restrictions on the availability of
domestic credit and limited recentralization of the approval process for
purchases of some foreign products. There can be no assurance that these
austerity measures alone will succeed in slowing down the economy's excessive
expansion or control inflation, nor that they will not result in severe
dislocations in the Chinese economy in general. To further combat inflation,
the Chinese government may adopt additional measures, including the
establishment of freezes or restraints on certain projects or markets, which may
have an adverse effect on the Company's supplier's operations.
Legal System. China' legal system is a civil law system which is based on
written statutes and in which decided legal cases have little precedential
value. China does not have a well developed, consolidated body of laws
governing foreign agreements. As a result, the administration of laws and
regulations by government agencies may be subject to considerable discretion.
As the legal system in China develops, foreign business entities may be
adversely affected by new laws, changes to existing laws, and preemption of
provincial or local laws by national laws. In circumstances where adequate laws
exist, it may not be possible to obtain swift and equitable enforcement thereof.
Government Regulations
The Company labels and markets its products under the brand name Great
Tools Direct. Government regulations regarding labeling and the marketing and
distribution of the Company's products could adversely affect the performance of
the Company. More stringent government limitations on products could impact the
Company's ability to market and distribute its products to its customers. Any
Government regulation necessitating that manufacturers place safety or other
devices on its product might increase the cost of manufacturing the product and
materially effect the Company's profitability.
Intellectual Property Matters
The Company believes that a large portion of success relies on the goodwill
it has created in its "Great Tools Direct" brand name. The Company has not
filed an application with the United States Patent and Trademark Office for
protection for the Great Tools Direct brand name nor is there assurance that the
Company will ever be issued trademark registration. The Company has conducted a
trademark search on the label Great Tools Direct which did not result in the
discovery on any other commercial entity using the Great Tools Direct or a
substantially similar label in the United States. The Company decided that it
could better use its limited capital in advertising and other expenses rather
than investing in protecting its Great Tools Direct brand name.
There is also no assurance that any of the Company's rights in protecting
its brand name will be enforceable, even if registered, against any prior users
of a similar name or competitors of the Company who seek to utilize a similar
name in areas where the Company operates. The failure to enforce any of the
Company's rights could have the effect of reducing the Company's ability to
capitalize on the goodwill associated with the brand name Great Tools Direct.
It is also possible that the Company will encounter claims from prior users of a
similar name in areas where the Company operates thereby causing the Company to
pay damages to a prior user.
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Dependence on Centralized Systems
Because the Company takes all of its orders through its Thousand Oaks,
California offices, any disruption to the telephone service in the Thousand Oaks
offices might adversely effect the ability of the Company to accept orders.
Also, a substantial electrical or communications link outage, fire, flood,
earthquake or other natural disaster might damage either the Company's computer
system it uses to manage the ordering, inventory management, and delivery
functions or the customer database it uses for marketing purposes. If either
the computer system or database were damaged, the Company's operations might be
adversely effected.
Dependence on Major Customers
Three customers account for 65% of the Company's revenues. If the Company
lost any of these three customers its operating revenues would be materially
impacted.
Computer Systems Redesigned for Year 2000
Many existing computer programs use only two digits to identify a year in
such program's date field. These programs were designed and developed without
consideration of the impact of the change in the century for which four digits
will be required to accurately report the date. If not corrected, many computer
applications could fail or create erroneous results by or following the year
2000. Many of the computer programs containing such date language problems have
been corrected by the companies or governments operating such programs.
Although none of the Company's systems are effected by this problem, the Company
could be impacted by the failure of other companies to timely correct their
computer systems. The Company's operations are dependent on the Internet, the
telephone system, and delivery systems. If any of these systems become
inoperational the Company will be directly and significantly effected.
Impact of Increased Shipping and Postage Costs
Shipping and postage are significant expenses in the operation of the
Company's business. The Company ships its products to customers generally by
United Parcel Service. There can be no assurance that the Company will be able
to pass on any significant shipping cost increases to its customers.
Additionally, strike or other service interruptions by shippers could adversely
affect the Company's ability to market or deliver product on a timely basis. Any
additional increases in shipping or postal costs could have an adverse effect on
the Company's operating results.
General Economic Conditions
Periods of sustained slow economic growth or future economic recessions may
have a material adverse effect on the Company. The Company's customers include
smaller home repair and improvement contractors, retail stores and a catalog
company and the Company may be affected by prolonged economic downturns or
significant declines in consumer spending.
The Company predicates its success on achieving certain economies of scale.
In order to be able to fund its future growth, the Company has to reach a
certain level of sales. The future profitability of the Company may be
dependent on increasing sales, higher efficiency and lower costs. The Company,
for a variety of reasons, may prove incapable of achieving and sustaining these
goals.
Reliance on Key Management
The Company's success is dependent upon the experience and ability of
Rafael Littaua, the President and Chief Executive Officer of the Company. All
decisions with respect to the daily operations of the Company will be made by
Management. The Company has not entered into an employment agreement or other
understanding with any key executive or obtained any "key man" life insurance on
any officer's life. The loss of the services of a key executive could have a
material adverse effect on the Company's ability to successfully achieve its
business objectives.
8
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Direct Marketing Strategy
The Company's products are marketed in part by advertisements in trade
magazines, and selling directly to customers over the telephone and through its
Internet Web site. Accordingly, the Company is dependent in part on the
continued growth of direct distribution channels in which to sell its products
and services. There can be no assurance that the Company's direct marketing
channels will experience growth or even be maintained at current levels or that
the larger manufacturers who currently sell products through traditional market
channels will not enter the direct market industry and gain some of the
Company's market share.
Delays in Delivery
The Company's success depends on its ability to deliver tools to its
customers promptly after receipt of customers' orders. Failure of the Company
to successfully compete with its competitors' ability to deliver tools promptly
could have a material adverse effect on the Company's revenues. The Company
imports all of its tools from China while many of its competitors' products are
manufactured domestically. There is no assurance that the Company will not be
at a competitive disadvantage due to delays in delivery from China that may
occur more frequently than delays from United States produced power tools.
Reduced Profits in Sales Through Other Distribution Channels
As the Company seeks to expand its market share and brand recognition, the
Company has increasingly utilized the wholesale distribution channels. The
Company expects that any material increase in sales through indirect
distribution channels as a percentage of total revenues would reduce the
Company's average selling prices and gross margins due to the lower unit prices
that are typically charged when selling through indirect channels. If the
Company further expands its indirect distribution channels, there can be no
assurance that the Company will be able to sell its products effectively or that
it will be able to manage conflicts among its distribution channels. The
inability to establish, manage or retain direct and indirect distribution
channels, or the Company's inability to penetrate other market segments, could
materially adversely affect the Company.
Competition from Other More Established Entities
The market in which the Company competes is highly fragmented. The Company
competes with retailers and direct marketers who sell merchandise over the
Internet and through catalogs, including merchandise similar to that sold by the
Company. Certain of the Company's competitors have greater financial resources
than the Company. Increased competition by existing and future competitors
could result in reductions in sales and pricing of Company products that could
materially adversely affect the Company's profitability. Further, as the
Company seeks to increase market penetration, its success will depend, in part,
on its ability to gain market share from established competitors. Also some
larger companies might engage in the practice of setting prices at a level that
will not allow smaller competitors, such as the Company, to compete.
Risks of Strategic Alliances and Joint Ventures
A substantial portion of the Company's operations currently relies on a
strategic alliance and in the future may rely on the joint venture agreement
between the Company and Tehao. The Company also relies on its contract with
Shanghai Hitachi Power Tools ("Hitachi"). Investment in strategic alliance
partnerships and joint ventures involve risk not otherwise present, including
among other things, the risk of bankruptcy of the partner, the inability of the
partner to undertake necessary financial obligations, the possible inconsistent
business goals or interests of an alliance partner, or a possible conflict on
business decisions or positions. If any of these events occur, the Company
could lose a supplier upon which it relies. There is no assurance that the
Company would be able to fill its orders or that even if could fill orders that
it would only be able to do so on a timely basis if it lost one of its
suppliers. If the Company is unable or late in filling orders, its revenues
could be materially impacted.
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Product Liability and Insurance
The Company merchandises power tools. Because of the possibility of injury
resulting from operating power tools, the Company may be subject to product
liability claims from consumers. The Company maintains product liability
insurance with a limit of $2,000,000. There can be no assurance that this
insurance will be sufficient to cover potential claims or that adequate levels
of coverage will be available in the future at a reasonable cost. While no
product liability claims have been alleged against the Company since its
inception, any partially or completely successful claim in the future against
the Company could materially impact the Company's financial condition and
reputation.
Integration of Prospective Acquisitions
An element of the Company's future growth strategy may include a plan to
pursue selected acquisitions that either expand or complement its business in
new or existing markets. There can be no assurance that in the future the
Company will be able to identify and to acquire acceptable candidates on terms
favorable to the Company's growth strategy. The failure to complete or
successfully integrate prospective acquisitions may have an adverse impact on
the Company's growth strategy. The Company is not currently a party to any oral
or written acquisition agreement or engaged in any negotiations with respect to
any material acquisition candidate.
Continuing Control by Present Stockholders
The number of outstanding shares of Common Stock will not change pursuant
to this Offering, except with the exercise of the Warrants. Prior to the
issuance of the Securities offered herein, officers, directors and affiliates of
the Company owned 5,500,000 shares, 77%, of the Company's outstanding Common
Stock. After sale of the Securities by the Selling Securityholders, including
certain members of Management, Management will own 62.4% of the outstanding
Common Stock of the Company assuming no exercise of the Warrants. Accordingly,
such officers and directors are in a position to elect all of the Company's
directors, to approve amendments to its Certificate of Incorporation, to
authorize issuance of additional shares of stock, to award performance bonuses
and other compensation arrangements and otherwise to direct the affairs of the
Company. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT".
Possible Need for Additional Financing to Continue Operations
The Company anticipates that the proceeds from earlier stock subscriptions,
anticipated revenue from current operations, and the line of credit available
from Gino International and Tehao will be sufficient to meet the Company's
contemplated operating and capital requirements for approximately 12 months
following the Effective Date. However, the Company's revenue from operations
depend on numerous factors, including the rate of market acceptance of the
Company's products, the Company's ability to maintain and expand its client
base, the rate of expansion of the Company's products and the level of resources
required to expand the Company's marketing and sales organization. The timing
and amount of such capital requirements cannot accurately be predicted. If
capital requirements vary materially from those currently anticipated, the
Company may require financing sooner than expected. Other than its agreement
with its supplier, the Company has no commitments for any financing, and there
can be no assurance that any such commitments can be obtained on terms
acceptable to the Company, if at all. The Company has been and anticipates in
the future that additional required financing will be provided by Rafael
Littaua, Chief Executive Officer, President and a director of the Company.
There is no assurance that Mr. Littaua will be willing or able to provide the
Company financing. Any equity financing may be dilutive to the Company's
stockholders, and debt financing, if available, may involve restrictive
covenants with respect to dividends, raising future capital and other financial
and operational matters. If the Company is unable to obtain financing as needed,
the Company may be required to reduce the scope of its operations or its
anticipated expansion, which could have a material adverse effect on the
Company, as well as the market price of the Common Stock. See "BUSINESS."
Acquisition Financing; Additional Dilution
The Company currently intends to finance some of its future acquisitions,
if any, by using shares of the Company's Common Stock, Warrants, cash, borrowed
funds or a combination thereof. If the Company's Common
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Stock does not maintain a sufficient market value, the price of the Company's
Common Stock is highly volatile, or potential acquisition candidates are
otherwise unwilling to accept the Company's Common Stock as part of the
consideration for the sale of their businesses, the Company may be required to
use more of its cash resources or more borrowed funds in order to initiate and
maintain its acquisitions program. Such limitations may cause the Company to
rely more heavily on cash or borrowed funds to support its acquisition program.
If the Company does not have sufficient cash resources, its growth could be
limited unless it is able to obtain additional capital though debt or equity
offerings. The Company may also enter into credit facilities with one or more
lenders to obtain financing to be used in connection with future acquisitions.
There can be no assurance that the Company, will be able to obtain such
financing if and when it is needed or that any such financing will be available
on terms it deems acceptable.
The Company has authorized but unissued and unreserved shares of the
Company's Common Stock which the Company will be able to issue in order to
finance acquisitions without obtaining stockholder approval for such issuance.
Existing shareholders may suffer dilution if the Company uses its Common Stock
as consideration for future acquisitions. Moreover, the issuance of additional
shares of Company Common Stock may have a negative impact on earnings per share
and may negatively impact the market price of the Company's Common Stock if any
trading market is then established.
Issuance of Future Securities May Dilute Investors Share Value
The Certificate of Incorporation of the Company authorizes the issuance of
a maximum of 100,000,000 shares of Common Stock, $.0001 par value and 20,000,000
shares of Preferred Stock, $.0001 par value. As of the date hereof there are
7,100,000 shares of Common Stock outstanding and no shares of Preferred Stock
outstanding. The future issuance of all or part of the remaining authorized
Common Stock may result in substantial dilution in the percentage of the
Company's Common Stock held by the Company's then existing shareholders,
including purchasers of the Securities offered herein. Moreover, any Common
Stock issued in the future may be valued on an arbitrary basis by the Company.
The issuance of the Company's Securities for future services or acquisitions or
other corporate actions may have the effect of diluting the value of the
Securities held by investors, and might have an adverse effect on any trading
market, should a trading market develop for the Company's Common Stock. See
"BUSINESS".
Potential Adverse Effects of Authorization of Preferred Stock
The Company has not designated or issued any shares of its authorized
shares of Preferred Stock. The Company may, without further action or vote by
shareholders of the Company, designate and issue shares of Preferred Stock. The
terms of any series of Preferred Stock, which may include priority claims to
assets and dividends and special voting rights, could adversely affect the
rights of holders of the Common Stock and thereby reduce the value of the Common
Stock. The designation and issuance of Preferred Stock favorable to current
management or shareholders could make the possible takeover of the Company or
the removal of management of the Company more difficult and discourage hostile
bids for control of the Company which might have provided shareholders with
premiums for its Securities.
Resales of the Securities under State Securities Laws--The National Securities
Market Improvement Act of 1996
The National Securities Market Improvement Act of 1996 ("NMSIA") limits the
authority of states to impose restrictions upon sales of securities made
pursuant to Sections 4(1) and 4(3) of the Securities Act of 1933, as amended
(the "Securities Act") of companies which file reports under Sections 13 or
15(d) of the Securities Exchange Act. Sales of the Securities in the secondary
trading market by Selling Securityholders are expected to be made pursuant to
Section 4(1) (sales other than by an issuer, underwriter or broker). It is
anticipated that following the Effective Date the Selling Securityholders'
Securities will be eligible for resale in the secondary market.
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No Current Trading Market for the Company's Securities
There is currently no established public trading market for the Securities.
No assurance can be given that an active trading market in the Company's
securities will develop after completion of the Offering, or, if developed, that
it will be sustained. No assurance can be given that the market price of the
Company's securities will not fall below the initial sales price. The Company
intends to apply for admission to quotation of the Securities on the NASD OTC
Bulletin Board. If it should become qualified, of which there is no assurance,
the Company intends to apply for listing on the Nasdaq SmallCap Market. See
"DESCRIPTION OF SECURITIES". There can be no assurance that a regular trading
market for the Common Stock will develop or that, if developed, it will be
sustained. There is no assurance that the Company will ever meet the
requirements for admission to the Nasdaq SmallCap Market. Various factors, such
as the Company's operating results, changes in laws, rules or regulations,
general market fluctuations, changes in financial estimates by securities
analysts and other factors may have a significant impact on the market price of
the Securities. The market price for the securities of public companies often
experience wide fluctuations which are not necessarily related to the operating
performance of such public companies.
Limitation of Liability and Indemnification of Officers and Directors
The Certificate of Incorporation and By-Laws of the Company provide that
the Company shall indemnify its officers and directors against losses sustained
or liabilities incurred which arise from any transaction in such officer's or
director's respective managerial capacity unless such officer or director
violates a duty of loyalty, did not act in good faith, engaged in intentional
misconduct or knowingly violated the law, approved an improper dividend, or
derived an improper benefit from the transaction. The Company's Certificate of
Incorporation and By-Laws also provide for the indemnification by it of its
officers and directors against any losses or liabilities incurred as a result of
the manner in which such officers and directors operate the Company's business
or conduct its internal affairs, provided that in connection with these
activities they act in good faith and in a manner which they reasonably believe
to be in, or not opposed to, the best interests of the Company, and their
conduct does not constitute gross negligence, misconduct or breach of fiduciary
obligations. See "MANAGEMENT--Indemnification of Officers, Directors,
Employees, and Agents".
Penny Stock Regulation
The Company's Common Stock may be considered "penny stocks". "Penny
stocks" generally are equity securities with a price of less than $5.00 per
share other than securities registered on certain national securities exchanges
or quoted on the Nasdaq Stock Market, provided that current price and volume
information with respect to transactions in such securities is provided by the
exchange or system, and are subject to certain additional rules. The penny stock
rules 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 disclosure schedule
prescribed 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 and current quotations for the securities.
Finally, monthly statements must be sent disclosing recent price 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. The
foregoing required penny stock restrictions will apply to the Company's
securities unless such securities maintain a market price of $5.00 or greater.
There can be no assurance that the price of the Company's securities will
achieve or be maintained at such a level.
Additional Securities Entering Public Market without Additional Capital Pursuant
to Rule 144
All the issued and outstanding shares of the Company other than those
registered herein to the extent not sold or transferred pursuant to this
Offering, are "restricted securities" as such term is defined in Rule 144 ("Rule
144") of the General Rules and Regulations of the Securities and Exchange
Commission (the "Rules") promulgated
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under the Securities Act. In general, under Rule 144, if adequate public
information is available with respect to a company, a person who has satisfied a
one-year holding period as to his restricted securities or an affiliate who
holds unrestricted securities may sell, within any three month period, a number
of that company's shares that does not exceed the greater of one percent of the
then outstanding shares of the class of securities being sold or, if the
securities are then listed on the Nasdaq SmallCap market or an exchange the
average weekly trading volume during the four calendar weeks prior to such sale.
Sales of restricted securities by a person who is not an affiliate of the
Company (as defined in the Securities Act) and who has satisfied a two-year
holding period may be made without any volume limitation. After the expiration
of the two-year holding period certain shares of Common Stock now restricted for
trading will become eligible for trading in the public market without any
payment therefore or increase to the Company's capitalization. Possible or
actual sales of the Company's outstanding Common Stock by all or some of the
present stockholders may have an adverse effect on the market price of the
Company's Shares should a public trading market develop. The additional
availability of such shares to be traded in the public market would increase the
public float of the Company without any corresponding increase in the Company's
capital.
Selling Securityholders May Sell Securities at any Price or Time
Selling Securityholders may offer and sell their Securities at a price and
time determined by the particular Selling Securityholder. The timing of such
sales and the price at which the Selling Securityholder Securities are sold by
the individual Selling Securityholder could have an adverse effect upon the
public market for the Securities, should one develop.
Factors Beyond the Company's Control
Numerous conditions beyond the Company's control may substantially affect
its success such as rates of, and costs associated with, new customer
acquisition, customer retention, capital expenditures and other costs relating
to the expansion of operations, including upgrading the Company's systems and
infrastructure, the timing and market acceptance of new products, changes in the
pricing policies of the Company and its competitors, changes in operating
expenses, personnel changes, the introduction of alternative technologies, the
effect of potential acquisitions, increased competition in the Company's markets
and other general economic factors.
Forward Looking Statements
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in these risk factors and elsewhere in this
Prospectus.
THE COMPANY
On June 30, 1998 Global Sourcing Group, L.L.C., the Company's predecessor
company a California limited liability company, merged with and into Penrith
Acquisition Corporation, a newly formed Delaware corporation. Penrith
Acquisition Corporation, the surviving corporation, was renamed Global Sourcing
Group, Inc. The Company through its predecessor, Global Sourcing Group L.L.C.,
began operations in 1996 as a direct marketer and wholesaler of specialty power
tools under the brand name "Great Tools Direct". See "DESCRIPTION OF
SECURITIES".
Properties
The Company leases its principle executive offices, as well as its
administrative offices, which are located in a 3,840 square feet office park
facility at 1111 Rancho Conejo Boulevard, Suite 202, Newbury Park, California
91320. This facility also houses the Company's customer service, warehouse and
distribution center functions. The Company leases this unit on a month to month
tenancy for its primary rental unit at a monthly rental fee of $2,403. The
offices of the Company are located Its telephone number is 805/375-6060 and its
fax number is 805/375-6064. The Company's Web site address on the Internet is
http://www.greattools.com.
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The Company also maintains an approximately 600 square feet showroom at
Tehao's's offices in Shanghai, China. The Company uses the showroom to display
its products to potential buyers. The Showroom is provided to the Company as
part of its agreement with Tehao.
Employees
The Company employs six full time individuals: two in customer service, two
in the warehouse and two in operations and management. The Company also employs
one part time employee who works in the customer service area. All of the
Company's employees are located at its headquarters in Newbury Park, except for
one employee who runs the Company's show room in Tehao's office in China. The
Company's employees are not unionized. The Company considers its relations with
its employees to be good.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Securities
being registered herein. The Company will receive the proceeds, if any, of which
there can be no assurance, from the exercise of the Warrants.
DIVIDEND POLICY
The Company has not to date nor does it plan on paying any dividends on its
Common Stock.
DILUTION
Purchasers of the Securities may experience immediate and substantial
dilution in the value of the Common Stock. Dilution represents the difference
between the price per share paid by the purchasers in the Offering and the net
tangible book value per share. Net tangible book value per share represents the
net tangible assets of the Company (total assets less total liabilities),
divided by the number of shares of Common Stock outstanding upon closing of the
Offering.
The price paid by the purchasers of the Securities does not necessarily
bear any relationship to the Company's assets, net worth or established criteria
of value. The future issuance of all or part of the remaining authorized
Common Stock may result in substantial dilution in the percentage of the
Company's Common Stock held by the Company's then existing shareholders,
including purchasers of the Securities offered herein. Moreover, any Common
Stock issued in the future may be valued on an arbitrary basis by the Company.
The issuance of the Company's Securities for future services or acquisitions or
other corporate actions may have the effect of diluting the value of the
Securities held by investors, and might have an adverse effect on any trading
market, should a trading market develop for the Company's Common Stock. See
"BUSINESS".
BUSINESS
General
The Company sells power tools primarily through wholesale business
distribution. Its largest customers include large retailers and cataloguers
including Damark International, Inc. ("Damark International"), Menard
Corporation ("Menard"), United Hardware Stores, Inc. ("United Hardware"), and
Northern Hydraulics, Inc. ("Northern Hydraulics"). Sales to these four
companies account for 70% of the Company's revenues. The Company also sells
directly to retail customers by marketing its products under the label Great
Tools Direct through display advertisements in various consumer publications
including Popular Mechanics, American Woodworker, Wood Magazine, Popular
Woodworker and American How To. Retail customers order the merchandise directly
through the Company's toll free telephone number or through its Web site. The
Company targets customers who use tools for light to heavy industrial
applications. These customers include professionals who use power tools in
their daily activities such as plumbers, carpenters, electricians, repair
personnel and other service oriented people. The Company also targets customers
who use tools for home based chores and hobbies.
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All orders are received at the Company's Newbury Park, California
headquarters which also serves as the warehousing and merchandise shipping
center. The Company maintains an inventory of most of the products it offers
for sale directly to retail customers and can directly ship a product on order.
If the Company does not have the product in stock or a large order from a
wholesaler is placed, the products are shipped direct from Tehao or Hitachi to
the individual customer or wholesaler. The Company's business has been designed
to conserve capital with no direct investment in manufacturing operations and
minimum investment in home delivery.
Industry Overview
The Company operates in a large, fragmented industry characterized by
multiple channels of distribution. The distribution channels in the power tools
market include retail outlets, small distributorships, national, regional and
local distributors, direct mail suppliers, large warehouse stores and a
manufacturers' own sales force. Products imported from low-cost labor countries
have increased the competitive pressure on pricing. Cost pressures from more
established name brands are providing a focus on high quality and low cost
alternatives. Aggressive value pricing has redefined the basis for competing in
many segments of the industry.
There are many discount retailers in the industry and discount stores
offering merchandise at competitive prices have blurred the line between retail
and wholesale. Warehouse clubs and other category leaders are establishing a
new economic framework for the retail business that is forcing industry
participants to reduce cost. Major marketers have focused on value pricing
strategies that have changed the nature of merchandising throughout the
industry.
Product Offerings
Most of the Company's products are manufactured in China by Tehao and
Hitachi and labeled under the Company's Great Tools Direct brand-name. The
Company offers a variety of products aggregating approximately 90 different
models of cordless drills, batteries, cutting tools, sanders, grinders and
miscellaneous power tool accessories. The Company's main product and primary
source of revenue is the cordless drill. The Company offers a variety of
cordless drills from the least powerful 2.4 volt model to the more advanced
18.8 volt power drill. The 14.4 volt cordless drill has become the standard
consumer drill for household use. The Company offers a 16.8 volt drill and an
18.8 volt drill at discounted prices. The Company has recently introduced a 24
volt drill and plans on introducing other products based on Management's
assessment of trends and market demand.
The Company maintains a standard refund policy to any consumer who
purchases a defective product. Since the Company began operations in 1996, the
Company has refunded on the average less than one percent of its sales.
Customers and Marketing
The Company sells 70% of its products directly to Damark International,
Menard, United Hardware and Northern Hydraulics. Damark International is a
national mail catalog company while Menard, United Hardware and Northern
Hydraulics are chain retail stores. The Company also sells products directly
to consumers in the United States and Canada from its Thousand Oaks, California
office by orders placed on its toll free phone service or Internet Web site.
The market targeted by the Company consists of retail customers and
wholesale buyers throughout the United States and Canada. No one end customer
represents a significant portion of the Company's sales. The Company targets
consumers who use power tools for light to heavy industrial applications but
choose not to pay the high prices usually associated with established brands.
These include professionals who require power tools in their daily activity such
as plumbers, carpenters, electricians and a variety of other service and repair
professionals. The Company also targets consumers who use power tools for
household applications. These include hobbyists, homemakers, students and
housekeepers who have the responsibility of maintaining the household.
The Company's market development strategy is based on several marketing
channels:
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Entry Into Wholesale Business Distribution Channel. The Company's current
marketing strategy focuses on targeting larger retailers. Damark
International, a catalog retailer with sales in excess of $350 million, has
placed a orders for the Company's power drills accounting for approximately 30%
of the Company's revenues. Approximately 25% of all of the Company's revenues
are generated from sales to Menards, a chain with over 300 stores.
Approximately 10% of the Company's revenues are generated from sales to United
Hardware and approximately 5% of the Company's revenues are generated from sales
to Northern Hydraulics. For these larger customers, the Company forwards the
order to Tehao which then fills the order directly to the chain store. In
exchange, the Company shares its wholesale profits with Tehao.
Direct Response Advertising. The Company advertises in specialty magazines
and consumer publications with large exposure to prospective customers. These
magazines include Popular Mechanics (circulation: 1,000,000), American
Woodworker (circulation: 400,000), Wood Magazine (circulation: 650,000), Popular
Woodworker (circulation: 220,000) and American How To (circulation: 750,000).
This strategy reflects the Company's belief that these publications are the most
overall efficient medium to reach its target market. The advertisements feature
a toll free telephone number, inviting the customer to purchase a product with
their credit card. The advertisements emphasize value, and prices, pictures and
detailed specifications of the advertised product are included in a typical
layout. The Company delivers directly to the customer's home via United Parcel
Service.
Database Marketing. The Company has created a database of customers for
repeat sales and special promotions. It contains approximately 35,000 names.
Because of the ability to sort consumers by various criteria, the Company
believes it receives a greater percentage of responses from the database targets
than it would receive from a generic mass mailing. The Company repeatedly mails
marketing material, catalogs and brochures to its customers. The Company
catalog, produced once a year, lists the products the Company maintains in its
warehouse and products it can directly order from Tehao. The Catalog is mailed
to all of the 35,000 names on its mailing list as well as new potential
customers generated by the Company's Web site and regular advertisements. The
informational material sent directly to the customer contains a toll free
telephone number, allowing the customer to directly purchase a product with
their credit card.
World Wide Web Site. The Company's home page on the Internet at
http://www.greattools.com features advertisements and promotions, allowing
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direct access to interested visitors. The Company's Web site provides
potential and actual customers with product information and the ability to
directly purchase a product over the Internet by providing credit card
information. As of the date hereof, the Company receives approximately 3% of
all of its orders through the Internet.
Manufacturing By Tehao
Approximately 70% of the Company's products are manufactured by Shanghai
Tehao ("Tehao"), a large power tool manufacturer located in Shanghai, China.
Tehao is among the world's largest manufacturers of power tools and the Company
believes that Tehao is capable of supplying the Company's current and
anticipated need for power tools. Since the Company's inception, it has been
operating under an oral understanding with Tehao under which the Company
purchases product from Tehao at a per unit price for the tools it sells directly
to the customers and stocks its warehouse with drills and batteries and then
sells and ships the product directly to the customer. For the larger wholesale
business marketing channel, Tehao has agreed to finance the Company's inventory.
Specifically, when a retailer places a large order, the Company will send the
order directly to Tehao which finances that order and ships the product directly
to the retailer. In exchange the Company shares profits with Tehao. Profits
in this agreement are defined as revenue remaining after deducting from
revenues, the cost of the product the Company pays Tehao and all costs
associated with selling the product including advertising, design, marketing,
overhead, shipping, and duties.
Joint Venture Agreement with Tehao
The Company entered into a California joint venture agreement with Tehao on
April 22, 1998. The Company entered into this joint venture agreement to
provide a formal credit facility for handling single large orders the Company
anticipates it will receive in the future. The terms of the joint venture are
substantially similar to the terms of the oral agreement. The joint venture is
to last through June 30, 2003 or dissolution by mutual agreement
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of the parties. Under the agreement, Tehao has agreed to contribute $500,000
worth of tools as its investment of capital into the joint venture. The Company
has agreed to pay for the advertising, purchasing, design, marketing, overhead
and the cost of shipping the power tools to the United States. Tehao has also
agreed to sell all products covered by the joint venture agreement to the
Company for at least ten percent below the lowest United States landed cost
Tehao charges to any other purchasers who will sell the products either directly
or indirectly in the United States.
At the end of each year, the net profits from the venture will be divided
with 51% of the net profits allocated to the Company and 49% of the net profits
allocated to Tehao. Although not expressly defined, the Company understands net
profits to mean revenue remaining after deduction from gross revenues, the cost
of the product the Company pays Tehao and all costs associated with selling the
product including advertising, design, marketing, overhead, shipping, and
duties. Pursuant to the agreement, both companies are entitled to draw out
funds against the profits of the venture but neither company may draw more than
70% of its share of the profits under the agreement. At all times the joint
venture will maintain a cash reserve equal to one month's operating overhead of
the joint venture.
The Company and Tehao will indemnify and hold harmless each other from any
and all expense and liability resulting from or arising out of any misconduct on
either company's part to the extent that the amount exceeds the applicable
insurance carried by the joint venture.
Agreement with Shanghai Hitachi Power Tools
Approximately 30% of the Company's products are manufactured by Shanghai
Hitachi Power Tools ("Hitachi"), a Chinese power tool manufacturer. Under its
agreement with Hitachi, the Company purchases 18 and 14 volt cordless drills
from Hitachi and the Company pays Hitachi 90% of the invoice within 14 days
after the shipment of the product. Under the terms of this agreement, the
Company guaranteed Hitachi that it would sell 50,000 of Hitachi's drills within
the first year of the contract. In exchange, the Company was granted the
exclusive right to sell Hitachi's 18 volt drills in the United States. The
Company is current on all money owed to Hitachi and there have been no material
disagreements between the Company and Hitachi.
The Agreement between Hitachi and the Company does not provide a formal
procedure for settling disputes nor does it contain any provisions detailing the
consequences if either party breaches the contract.
Financing
The Company has entered into a financing agreement with Gino International
("GINO"), a Chinese trading Company. The Company entered into this agreement as
a method to finance tools it anticipates purchasing in the future from
manufactures other than Tehao. Under the terms of the agreement, GINO has
extended to the Company a five year revolving line of credit for $1,500,000
ending May 30, 2003. The amount of funding available to the Company from time
to time is the difference between $1,500,000 and funds previously advanced to
the Company under this line of credit agreements. The Company has yet to borrow
on the line of credit.
Under the terms of the agreement, the Company has agreed to pay GINO
interest on any money withdrawn from the line of credit at 1% per month on the
balance due to GINO from the Company. Any interest not paid will be added to
the balance and will be treated as if it had been advanced to the Company by
GINO.
Under the terms of the agreement, the Company will pay GINO thirty percent
of net profits it earns from products it sells that were financed by the GINO
line of credit. Net profits, in the context of this agreement, is defined as
the revenue remaining after deducting all sales made under the contract with
Tehao and all expenses incurred by the Company in selling product.
Operations
The Company's headquarters are at 1111 Rancho Conejo Boulevard, Suite 202,
Newbury Park, California 91320. The headquarters occupy 3,840 square feet of
office and warehouse space in an industrial park outside Los
17
<PAGE>
Angeles. The leased facility is designed to house the corporate, marketing,
finance and administrative departments and serve as the warehousing and shipping
center. Customer service representatives are also at that location.
The Company's products are manufactured in China by Tehao and Hitachi. The
Company distributes to its direct marketing customers via United Parcel Service.
The Company employs two on site customer service representatives to respond to
customer inquiries and comments. The Company uses an in-house computer system
to manage the ordering, inventory management, and delivery functions. The
computer system also tracks customer satisfaction and market penetration.
Competition
The power tool market in which the Company operates is extremely
competitive, and the Company expects such competition to intensify in the
future. The Company's current and prospective competitors include many large
companies that have substantially greater market presence and financial,
technical, marketing and other resources than the Company. The Company competes
with many retailers and direct marketers who sell merchandise over the Internet
and through catalogs. It also competes with retailers who sell similar
merchandise to that sold by the Company. Those retailers usually offer brand
name products at prices higher than the Company's. As newer and more powerful
tools are being introduced into the market, intense competition between
manufacturers has developed. Companies in the industry are developing new
features to attract customers and tools are becoming more reliable, efficient
and quiet. At the same time, prices are becoming more competitive as power tool
companies are vying to gain market share. Companies with greater resources have
the ability to set prices at a level that may preclude the ability of a smaller
Company to compete.
The Company believes that its ability to compete successfully depends on a
number of factors, including its ability to continually offer quality products
at prices lower than the prices usually charged for name brand products. The
Company's success will also depend on the adequacy of the Company's customer
support services, its ability to support its current product and introductions
of new product, and its ability to sell its product to wholesalers. There can
be no assurance that the Company will have financial resources, marketing and
support capabilities to compete successfully.
Acquisition Strategy
The Company believes there are acquisition opportunities among the many
small sellers of power tools. In furtherance of its acquisition strategy, the
Company anticipates reviewing and conducting investigations of potential
acquisitions. If the Company believes a favorable opportunity exists, the
Company anticipates that it will enter into discussions with the owners of such
businesses regarding the possibility of a acquisition by the Company. As of the
date hereof, the Company does not have any agreements or pending acquisitions
and has not entered into any letters of intent with respect to pending
acquisitions.
Intellectual Property Rights
The Company believes that a large portion of its potential success relies
on the reputation it has created in its "Great Tools Direct" brand name.
However, the Company does not have any specific plans to protect its mark "Great
Tools Direct" by filing a trademark application with the United States Patent
and Trademark office (PTO). The Company has conducted a trademark search on the
label Great Tools Direct which did not result in the discovery of any other
commercial entity using the Great Tools Direct or a substantially similar label
in the United States. The Company decided that it could better use its limited
capital in advertising and other expenses rather than investing in protecting
its Great Tools Direct brand name.
Certain Transactions
During the year ended December 31, 1997, the Company was advanced $65,000
by Rafael Littaua, its Chief Executive Officer, President and a director and
$20,644 by one of its directors, Eric Manlunas in the form of promissary notes.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
The Company is a marketing company, selling power tools, hand tools and
related small tools direct to consumers and to wholesale customers.
Results and Plan of Operation
The following table sets forth certain items reflected in the statements of
operations contained in the financial statements of the Company, expressed as a
percentage of the net sales for the six months ended June 30, 1998 compared to
the six months ended June 30, 1997.
<TABLE>
<CAPTION>
Percentage of Net Sales
-----------------------
Nine Months ended
-----------------
(unaudited)
6/30/98 6/30/97
------- -------
<S> <C> <C>
Net Sales 100% 100%
Cost of Sales 63.4% 42.8%
Gross Profit 36.6% 57.2%
Operating Expenses 31.9% 58.8%
Net income (loss) 4.6% 2.4%
</TABLE>
The Company's net sales decreased $425,359 or 66.7%, to $851,910 for the
nine months ending September 30, 1998 from $1,277,269 for the nine months ending
September 30, 1997. The decrease is a result of the drill and batteries
business declining because of product cycles that ended and exhaustion of
consumer demand for some of the Company's products.
Gross Profits decreased by $418,701 or 42.7% to $311,830 in the nine months
ending September 30, 1998 from $730,531 in the nine months ending September 30,
1997. Gross profit margin decreased to 36.6% in the nine months ending
September 30, 1998 compared to 57.2% in the nine months ending September 30,
1997, primarily as a result of the partial transition to wholesale distribution.
Operating expenses decreased by 36.2% to $271,822 for the nine months
ending September 30, 1998, compared to $751,139 in the nine months ending
September 30, 1997. As a percent of sales, operating expenses was 31.9% for the
nine months ending September 30, 1998 compared to 58.8% for the nine months
ending September 30, 1997. The decrease was due to cost cutting measures and
adjusting to lower level of sales and a substantial decrease in advertising
costs related to the switch in emphasis from retail to wholesale environments.
Net income was $39,465 (4.6% of sales) for the nine months ending
September 30, 1998, compared to net loss of $30,639 (2.4% of sales) for the nine
months ending September 30, 1997.
Liquidity and Capital Resources
Cash provided by operating activities continues to be the Company's primary
source of funds to finance operating needs and internal growth opportunities.
Cash provided in 1998 has been used to finance the Company's inventory growth
and advertising. The Company has no outside sources of capital except Tehao
which finances up to $1 million of the Company's inventory and GINO which
provides $1.5 million as a line of credit. The Company does not know any trends
expected to make a material impact on the Company's liquidity, sales, revenues
or income. The Company does experience seasonal impacts on its operations as
most sales are typically in the months of November and December in anticipation
of holidays, while June and July are the slowest sales months.
19
<PAGE>
Computer Systems Redesigned for Year 2000
Many existing computer programs use only two digits to identify a year in
such program's date field. These programs were designed and developed without
consideration of the impact of the change in the century for which four digits
will be required to accurately report the date. If not corrected, many computer
applications could fail or create erroneous results by or following the year
2000. Many of the computer programs containing such date language problems have
been corrected by the companies or governments operating such programs.
Although none of the Company's systems are effected by this problem, the Company
could be impacted by the failure of other companies to timely correct their
computer systems. The Company's operations are dependent on the Internet, the
telephone system, and delivery systems. If any of these systems become
inoperational the Company will be directly and significantly effected.
MANAGEMENT
Officers and Directors
The officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
Name Title
---- -----
<S> <C>
Rafael Littaua President and Chief Executive Officer,
Director
Eric Manlunas Director
</TABLE>
All directors of the Company hold office until the next annual meeting of
shareholders or until their successors are elected and qualified. The principal
occupation and business experience for each officer and director of the Company,
for at least the last five years are as follows:
Rafael Littaua, 41, has been Chairman of the Board, Chief Executive Officer
since the Company's organization. Prior to founding Global Sourcing Group ,
L.L.C., the predecessor to the Company, Mr Littaua was an executive with Harbor
Freight Tools, an Oxnard, California wholesaler and retailer of power tools. At
Harbor Freight Tools, Mr. Littaua served the following positions: Head
Buyer/Merchandiser (1993-1996); International Buyer (1991-1993); Buyer for
Domestic Merchandise (1990-1991); and Import Manager (1986-1990). From 1983 to
1986, Mr. Littaua worked for Frank P. Dow Co. and James J. Boyle Co. as a
Customs House Broker. Mr. Littaua received his Masters of Business
Administration in finance from Golden Gate University in 1983 and he received
his Bachelor of Science degree in Business Management from Ateneo De Manilla in
1979.
Eric Manlunas, 30, has been a Director of the Company since February of
1996. Mr. Manlunas manages Gateway Holdings, a private equity fund based in Los
Angeles. Prior to Founding Gateway, Mr. Manlunas was a Senior Consultant of
Arthur Andersen & Company specializing in complex distribution processes and
formulation of store operations strategies in the retail channel. Mr Manlunas is
also Chief Executive Officer of Holland American International Supplies, and he
serves as Director for MenuDirect Corporation and Xcel Medical Pharmacy. Mr.
Manlunas received a Bachelor of Science degree in Journalism from the Florida
International University and he earned a Masters of Business Administration
degree from Pepperdine University.
Remuneration
Directors and Officers of the Company may receive compensation as
determined by the Company from time to time by vote of the Board of Directors.
Such compensation might be in the form of stock options. Directors may be
reimbursed by the Company for expenses incurred in attending meetings of the
Board of Directors.
20
<PAGE>
The following table sets forth the total compensation paid or accrued by
the Company on behalf of the Chief Executive Officer and President of the
Company during 1997. No officer of the Company received a salary and bonus in
excess of $100,000 for services rendered during 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
OTHER LONG-TERM ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS AWARDS COMPENSATION COMPENSATION
<S> <C> <C> <C> <C> <C> <C>
Rafael Littaua 1997 $60,000 N/A N/A N/A N/A
Chief Executive Officer
</TABLE>
Employment Agreements
The Company has not entered into employment agreements with any of its
officers or employees. All key employees serve in their positions until further
action of the President of the Company or the Board of Directors.
Indemnification of Officers, Directors, Employees and Agents
The Certificate of Incorporation and Bylaws of the Company provide that the
Company shall, to the fullest extent permitted by applicable law, as amended
from time to time, indemnify all directors of the Company, as well as any
officers or employees of the Company to whom the Company has agreed to grant
indemnification.
Section 145 of the Delaware General Corporation Law ("DGCL") empowers a
corporation to indemnify its directors and officers and to purchase insurance
with respect to liability arising out of their capacity or status as directors
and officers provided that this provision shall not eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty to
the corporation or its shareholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) arising under Section 174 (relating to liability for unauthorized
acquisitions or redemptions of, or dividends on, capital stock) of the Delaware
General Corporation Law, or (iv) for any transaction from which the director
derived an improper personal benefit.
The Delaware General Corporation Law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's by-laws, any agreement, vote of shareholders or otherwise.
The effect of the foregoing is to require the Company to indemnify the
officers and directors of the Company for any claim arising against such persons
in their official capacities if such person acted in good faith and in a manner
that he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT OF
1933, AS AMENDED, MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING
THE COMPANY PURSUANT TO THE FOREGOING PROVISIONS, IT IS THE OPINION OF THE
SECURITIES AND EXCHANGE COMMISSION THAT SUCH INDEMNIFICATION IS AGAINST PUBLIC
POLICY AS EXPRESSED IN THE ACT AND IS THEREFORE UNENFORCEABLE.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of the Effective
Date regarding the beneficial ownership of the Company's Common Stock by each
officer and director of the Company and by each person who owns in excess of
five percent of the Company's Common Stock.
21
<PAGE>
<TABLE>
<CAPTION>
Percentage of Shares Owned:
Shares of Common Stock ----------------------------------
Name, Position and Address Beneficially Owned Prior to Offering After Offering
- ----------------------------------- ---------------------- ----------------- --------------
<S> <C> <C> <C>
Rafael Littaua 4,427,666 62.4% 62.4%
5663 Camino Deville
Camarillo, CA 93012
Gateway Holdings (1) 1,037,736 14.6% 0%
1800 Century Park East
Suite 600
Los Angeles, CA 90067
TPG Capital Corporation (2) 587,500 8.3% 0%
1504 R Street, N.W.
Washington, D.C. 20009
Kessef Investment Corporation (3) 1,012,500 14.2% 0%
1 First Canadian Place
100 King Street West, Suite 700
Toronto, Ontario M5X 1C7 Canada
All the officers and directors as 5,465,402 77.0% 62.4%
a group (2 persons)
</TABLE>
(1) Eric Manlunas is a principal of Gateway Holdings, a venture capital firm.
Mr. Manlunas is a director of the Company.
(2) TPG Capital Corporation is an affiliate of Cassidy & Associates, the law
firm which prepared this registration statement.
SALES BY SELLING SECURITYHOLDERS
The Selling Securityholders are offering for sale (i) 2,637,736 shares of
Common Stock (ii) 1,000,000 Warrants and (iii) 1,000,000 shares of Common Stock
underlying such Warrants. The amount of discounts or commissions, if any, which
may be paid by the Selling Securityholders on the sale of their Securities
registered herein is not now known.
The Company intends to apply for admission to the NASD OTC Bulletin Board
for the Securities; however, there can be no assurance that the Securities will
be so listed. See "RISK FACTORS--Absence of Trading Market" and "DESCRIPTION OF
SECURITIES--Admission to Quotation on the Nasdaq SmallCap Market or NASD OTC
Bulletin Board".
The following table sets forth the beneficial ownership of the Securities
of the Company held by each person who is a Selling Securityholder and by all
Selling Securityholders as a group.
<TABLE>
<CAPTION>
Percent of Stock Owned
---------------------------------------
Name and Address of Beneficial Owner Common Stock Prior to Offering(1) After Offering(2)
- -------------------------------------- ------------ -------------------- -----------------
<S> <C> <C> <C>
Gateway Holdings 1,037,736 14.6% 0%
1800 Century Park East
Suite 600
Los Angeles, CA 90067 (1)
TPG Capital Corporation 587,500 8.3% 0%
1504 R Street, N.W.
Washington, D.C. 20009 (2)
Kessef Investment Corporation 1,012,500 14.2% 0%
1 First Canadian Place
100 King Street West, Suite 700
Toronto, Ontario M5X 1C7 Canada
All Selling Securityholders 2,637,736 37.1% 0%
as a Group
</TABLE>
________________________
(1) Gateway Holdings is a venture capital company whose Chief Investment
Officer is Eric Manlunas, a director of the Company.
22
<PAGE>
DESCRIPTION OF SECURITIES
Incorporation
The Company was originally incorporated in 1996 in California as a limited
liability company and reincorporated in the state of Delaware on June 30, 1998
through a merger with Penrith Acquisition Corporation, a newly formed Delaware
Corporation. The Company's Certificate of Incorporation, By-Laws and corporate
governance, including matters involving the issuance, redemption and conversion
of securities, are subject to the provisions of the Delaware General Corporation
Law, as amended and interpreted from time to time.
Common Stock
The Company's Certificate of Incorporation authorizes the issuance of
100,000,000 shares of Common Stock, $.0001 value per share, of which 7,100,000
shares are outstanding as of the date hereof. Holders of shares of Common Stock
are entitled to one vote for each share on all matters to be voted on by the
shareholders. Holders of Common Stock do not have cumulative voting rights.
Holders of Common Stock are entitled to share ratably in dividends, if any, as
may be declared from time to time by the Board of Directors in its discretion
from funds legally available therefor. In the event of a liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share pro rata all assets remaining after payment in full of all
liabilities. All of the outstanding shares of Common Stock are, and the shares
of Common Stock offered by the Company pursuant to this offering will be, when
issued and delivered, fully paid and non-assessable.
Holders of Common Stock have no preemptive rights to purchase the Company's
Common Stock. There are no conversion or redemption rights or sinking fund
provisions with respect to the Common Stock.
All outstanding shares of Common Stock are validly issued, fully paid and
nonassessable, and all Shares to be sold and issued as contemplated hereby will
be fully paid and nonassessable when sold in accordance with the terms hereof
and pursuant to a valid and current prospectus. The Board of Directors is
authorized to issue additional shares, on such terms and conditions and for such
consideration as the Board may deem appropriate without further stockholder
action.
Preferred Stock
The Company's Certificate of Incorporation authorizes the issuance of
20,000,000 shares of Preferred Stock, $.0001 par value per share (the "Preferred
Stock"), none of which have been designated and issued.
In the case of the voluntary or involuntary liquidation, dissolution or
winding up of the Company, holders of shares of Preferred Stock are entitled to
receive the liquidation preference before any payment or distribution is made to
the holders of Common Stock or any other series or class of the Company's stock
hereafter issued that ranks junior as to liquidation rights to the Preferred
Stock, but holders of the shares of the Preferred Stock will not be entitled to
receive the liquidation preference of such shares until the liquidation
preference of any other series or class of the Company's stock hereafter issued
that ranks senior as to liquidation rights to the Preferred Stock has been paid
in full. The holders of Preferred Stock and all series or classes of the
Company's stock hereafter issued that rank on
23
<PAGE>
a parity as to liquidation rights with the Preferred Stock are entitled to share
ratable, in accordance with the respective preferential amounts payable on such
stock, in any distribution (after payment of the liquidation preference of the
senior liquidation stock) which is not sufficient to pay in full the aggregate
of the amounts payable thereon. After payment in full of the liquidation
preference of the shares of the Preferred Stock, the holders of such shares will
not be entitled to any further participation in any distribution of assets by
the Company. Neither a consolidation or merger of the Company with another
corporation, nor a sale or transfer of all or part of the Company's assets for
cash, securities or other property will be considered a liquidation, dissolution
or winding up of the Company.
The Board of Directors is authorized to provide for the issuance of
additional shares of Preferred Stock in series and, by filing a certificate
pursuant to the applicable law of the State of Delaware, to establish from time
to time the number of shares to be included in each such series, and to fix the
designation, powers, preferences and rights of the shares of each such series
and the qualifications, limitations or restrictions thereof without any further
vote or action by the shareholders. Any shares of Preferred Stock so issued
would have priority over the Common Stock with respect to dividend or
liquidation rights. Any future issuance of Preferred Stock may have the effect
of delaying, deferring or preventing a change in control of the Company without
further action by the shareholders and may adversely affect the voting and other
rights of the holders of Common Stock. At present, the Company has no plans to
issue any Preferred Stock nor adopt any series, preferences or other
classification of Preferred Stock.
Additional Information Describing Stock
The above descriptions concerning the Common and Preferred Stock of the
Company do not purport to be complete. Reference is made to the Company's
Certificate of Incorporation and By-Laws which are included in the Registration
Statement of which this Prospectus is a part and which are available for
inspection at the Company's offices. Reference is also made to the applicable
statutes of the State of Delaware for a more complete description concerning
rights and liabilities of shareholders.
Warrants
This is a summary of certain provisions governing the Warrants, but such
summary does not purport to be complete and is qualified in all respects by
reference to the Warrant agreement filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. Prior to the merger, Penrith
Acquisition Corporation issued 1,000,000 Warrants. Each Warrant entitles the
holder thereof to purchase one share of the Company's Common Stock for an
exercise price of $0.75 for one year following the Effective date of this
registration statement and for an exercise price of $1.00 for six months
thereafter.
The Company has also issued 1,500,000 warrants to the management of the
Company ("Management Warrants")simultaneous to the merger of Global Sourcing
Group, L.L.C. and Penrith Acquisition Corporation. Each Management Warrant
entitles the holder to purchase one share of the Company's Common Stock for an
exercise price of $2.00 per share for a term of three years following the date
of issuance.
Admission to Quotation to Nasdaq SmallCap Market and NASD OTC Bulletin Board
The Company intends to apply for quotation of the Securities on the NASD
OTC Bulletin Board. The over-the-counter market differs from national and
regional stock exchanges in that it (1) is not cited in a single location but
operates through communication of bids, offers and confirmations between broker-
dealers and (2) securities admitted to quotation are offered by one or more
broker-dealers rather than the "specialist" common to stock exchanges. To
qualify for quotation on the NASD OTC Bulletin Board, an equity security must
have one registered broker-dealer, known as the market maker, willing to list
bid or sale quotations and to sponsor such a Company listing.
To qualify for listing on the Nasdaq SmallCap Market, an equity security
must, in relevant summary, (1) be registered under the Securities Exchange Act
of 1934; (2) have at least three registered and active market makers, one of
which may be a market maker entering a stabilizing bid; (3) for initial
inclusion, be issued by a company with $4,000,000 in net tangible assets, or
$50,000,0000 in market capitalization, or $750,000 in net income in two of the
last three years (if operating history is less than one year than market
capitalization must be at least $50,000,000); (4)
24
<PAGE>
have at a public float of at least 1,000,000 shares with a value of at least
$5,000,000; (5) have minimum a bid price of $4.00 per share; and (6) have at
least 300 beneficial shareholders.
If admitted for quotation, the Company's Securities will trade on the NASD
OTC Bulletin Board until such future time, if ever, the Company's Securities
qualify for listing on the Nasdaq SmallCap Market. There is no assurance that
the Company's Securities will ever be accepted for listing on the Nasdaq
SmallCap Market.
Trading of Securities
There are no outstanding options, warrants to purchase, or securities
convertible into, the shares of the Company other than those offered herein and
1,500,000 warrants owned by the Company's Management. The Management Warrants
are convertible into Company Common Stock for $2 per share for a period of three
years.
Transfer Agent and Registrar
The Company has yet retained a transfer agent for its Securities.
Reports to Shareholders
The Company will furnish to its shareholders annual reports containing
audited financial statements examined and reported upon, and with an opinion
expressed by, an independent certified public accountant. The Company may issue
other unaudited interim reports to its shareholders as it deems appropriate.
PLAN OF DISTRIBUTION
The Company will not receive the proceeds of any sale of Securities by the
Selling Securityholders pursuant to this Prospectus. The Selling Securityholder
Securities may be sold to purchasers from time to time directly by and subject
to the discretion of the Selling Securityholders. The Selling Securityholders
may from time to time offer their Securities for sale through underwriters,
dealers or agents, who may receive compensation in the form of underwriting
discounts, concessions or commissions from the Selling Securityholders and/or
the purchasers of the Securities for whom they may act as agents. Any
underwriters, dealers or agents who participate in the distribution of the
Securities may be deemed to be "underwriters" under the Securities Act and any
discounts, commissions or concessions received by any such underwriters, dealers
or agents may be deemed to be underwriting discounts and commissions under the
Securities Act.
At the time a particular offer is made by or on the behalf of the Selling
Securityholders, a Prospectus, including any necessary supplement thereto, will
be distributed which will set forth the number of shares of Common Stock and
other Securities being offered and the terms of the offering, including the name
or names of any underwriters, dealers or agents, the purchase price paid by any
underwriter for the Securities purchased from the Selling Securityholders, any
discounts, commissions and other items constituting compensation from the
Selling Securityholders, any discounts, commissions or concessions allowed,
reallowed or paid to dealers, and the proposed selling price to the public.
The Securities sold by the Selling Securityholders may be sold from time to
time in one or more transactions: (i) at an offering price that is fixed or that
may vary from transaction to transaction depending upon the time of sale or (ii)
at prices otherwise negotiated at the time of sale. Such prices will be
determined by the Selling Securityholders or by agreement between the Selling
Securityholders and any underwriters.
In order to comply with the applicable securities laws of certain states,
the Securities may be offered or sold in such states through registered or
licensed brokers or dealers. In addition, in certain states, the Securities may
not be offered or sold unless they have been registered or qualified for sale in
such states or an exemption from such registration or qualification requirement
is available with which the Company has complied.
Under applicable rules and regulations promulgated under the Exchange Act,
any person engaged in a distribution of securities may not simultaneously bid
for or purchase securities of the same class for a period of two
25
<PAGE>
business days prior to the commencement of such distribution. In addition and
without limiting the foregoing, the Selling Securityholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder in connection with transactions in Securities during the
effectiveness of the Registration Statement of which this Prospectus is a part.
The Company will pay all of the expenses incident to the registration of
the Selling Securityholders' Securities (including registration pursuant to the
securities laws of certain states) other than commissions, expenses,
reimbursements and discounts of underwriters, dealers or agents, if any.
LEGAL MATTERS
Legal Proceedings
The Company is not a party to any litigation and Management has no
knowledge of any threatened or pending litigation against the Company.
Legal Opinion
Cassidy & Associates, Washington, D.C. has given its opinion as attorneys-
at-law that the Securities, when sold pursuant to the terms hereof and pursuant
to a valid and current prospectus in which those Securities are registered, will
be fully paid and non-assessable. James M. Cassidy, a principal of Cassidy &
Associates, is the President and a shareholder of TPG Capital Corporation, a
Selling Securityholder.
EXPERTS
The financial statements of Global Sourcing Group, L.L.C., as of
December 31, 1996 and 1997 and for each of the two years in the period ended
December 31, 1997 included in the Prospectus have been so included in reliance
on the report of Singer Lewak Greenbaum & Goldstein LLP, independent
accountants, given on authority of said firm as experts in auditing and
accounting.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 (the "Registration
Statement") under the Securities Act with respect to the securities offered
hereby. This Prospectus does not contain all the information contained in the
Registration Statement. For further information regarding the Company and the
securities offered hereby, reference is made to the Registration Statement,
including all exhibits and schedules thereto, which may be inspected without
charge at the public reference facilities of the Commission's Washington, D.C.
office, 450 Fifth Street, N.W., Washington, D.C. 20549. Each statement
contained in this Prospectus with respect to a document filed as an exhibit to
the Registration Statement is qualified by reference to the exhibit for its
complete terms and conditions.
The Company will be subject to the informational requirements of the
Securities Exchange Act of 1934 ("Exchange Act") and in accordance therewith
will file reports and other information with the Commission. Reports, proxy
statements and other information filed by the Company can be inspected and
copied on the Commission's home page on the World Wide Web at http://www.sec.gov
or at the public reference facilities of the Commission, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, as well as the following
Regional Offices: 7 World Trade Center, Suite 1300, New York, N.Y. 10048;
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Such material can also be inspected at the New York, Boston,
Midwest, Pacific and Philadelphia Stock Exchanges. Copies can be obtained from
the Commission by mail at prescribed rates. Request should be directed to the
Commission's Public Reference Section, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549.
26
<PAGE>
FINANCIAL STATEMENTS
The audited financial statements for the fiscal years ended December 31,
1996, and 1997 and the unaudited financial statements for the period ended
September 30, 1998 follow herewith.
<PAGE>
GLOBAL SOURCING GROUP, LLC
CONTENTS
December 31, 1997
================================================================================
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Operations and Members' Interest 3
Statements of Cash Flows 4
Notes to Financial Statements 5 - 8
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Members of
Global Sourcing Group, LLC
We have audited the accompanying balance sheets of Global Sourcing Group, LLC as
of December 31, 1997 and 1996, and the related statements of operations and
members' interest and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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 Global Sourcing Group, LLC as
of December 31, 1997 and 1996, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
April 28, 1998
<PAGE>
GLOBAL SOURCING GROUP, LLC
BALANCE SHEETS
December 31,
================================================================================
ASSETS
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Current assets
Cash $ 31,672 $ 96,101
Accounts receivable 10,795 38,516
Inventory 114,335 119,014
Prepaid expenses - 30,437
-------- --------
Total current assets 256,802 284,068
Furniture and equipment, net 22,672 18,172
Other assets 6,979 7,228
-------- --------
Total assets $286,453 $309,468
======== ========
LIABILITIES AND MEMBERS' INTEREST (DEFICIT)
Current liabilities
Accounts payable $253,440 $124,816
Notes payable to related parties 25,644 -
Other accrued liabilities 8,989 7,525
Taxes payable 7,600 3,800
Deferred warranty revenue 4,000 3,000
-------- --------
Total current liabilities 299,673 139,141
-------- --------
Commitments
Members' interest (deficit) (13,220) 170,327
-------- --------
Total liabilities and members' interest (deficit) $286,453 $309,468
======== ========
</TABLE>
<PAGE>
GLOBAL SOURCING GROUP, LLC
STATEMENTS OF OPERATIONS AND MEMBERS' INTEREST
For the Years Ended December 31,
================================================================================
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Net sales $1,526,464 $1,368,136
Cost of sales 701,330 691,959
---------- ----------
Gross profit 825,134 676,177
Operating expenses 944,771 569,473
---------- ----------
Income (loss) from operations (119,637) 106,704
---------- ----------
Other income (expense)
Interest income 1,535 1,647
Interest expense (16,676) (1,075)
---------- ----------
Total other income (expense) (15,141) 572
---------- ----------
Income (loss) before provision for income taxes (134,778) 107,276
Provision for income taxes 3,800 3,800
----------
Net income (loss) (138,578) 103,476
Members' interest, beginning of year 170,327 56,123
Member contributions - 195,000
Distributions to members (44,969) (184,272)
---------- ----------
Members' interest (deficit), end of year $ (13,220) $ 170,327
========== ==========
</TABLE>
<PAGE>
GLOBAL SOURCING GROUP, LLC
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
================================================================================
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $(138,578) $ 103,476
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation and amortization 6,811 1,853
(Increase) decrease in
Accounts receivable (72,278) (13,927)
Inventory 4,679 (90,207)
Prepaid expenses 30,436 (30,436)
Other assets 249 (7,228)
Increase (decrease) in
Accounts payable 128,623 124,816
Other accrued liabilities 5,265 11,325
Deferred warranty revenue 1,000 3,000
--------- ---------
Net cash provided by (used in) operating activities (33,793) 102,672
--------- ---------
Cash flows from investing activities
Purchases of furniture and equipment (11,311) (20,026)
--------- ---------
Net cash used in investing activities (11,311) (20,026)
--------- ---------
Cash flows from financing activities
Principal payments in notes payable (60,000) -
Proceeds from note payable 85,644 -
Member contributions - 195,000
Distributions to members (44,969) (184,272)
--------- ---------
Net cash provided by (used in) financing activities (19,325) 10,728
--------- ---------
Net increase (decrease) in cash (64,429) 93,374
Cash, beginning of year 96,101 2,727
--------- ---------
Cash, end of year $ 31,672 $ 96,101
========= =========
Supplemental disclosures of cash flow information
Interest paid $ 16,676 $ 1,075
========= =========
Income taxes paid $ - $ -
========= =========
</TABLE>
<PAGE>
GLOBAL SOURCING GROUP, LLC
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31,
================================================================================
NOTE 1 - SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Line of Business
---------------------------------
Global Sourcing Group, LLC (the "Company") was formed originally as a
California general partnership on November 6, 1995 under the name of Global
Sourcing Group. The Company conducts its business under the name of Great
Tools Direct. On September 22, 1996, the Company became a limited liability
company under the laws of California and changed its name to Global
Sourcing Group, LLC. As of December 31, 1997, the Company had a total of
seven members.
The Company is a direct-to-the-consumer marketing company selling cordless
drills, drill bits, battery-powered hand tools, and related small tools and
parts to consumers both domestically and internationally.
Estimates
---------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of sales and expenses
during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition
-------------------
Substantially all sales are made through credit cards and are recorded at
the time of shipment. A reserve for anticipated merchandise returns, net of
exchanges, is recorded based on the Company's prior returns experience.
Inventory
---------
Inventory, which consists primarily of merchandise held for sale, is stated
at the lower of cost (first-in, first-out method) or market.
Advertising
-----------
The Company expenses the costs of advertisements placed in magazines and
other publication media when the advertising takes place. The Company has
no direct-response advertising costs which have to be capitalized and
amortized over their expected period of future benefits.
Furniture and Equipment
-----------------------
Furniture and equipment are stated at cost and are depreciated or amortized
using the straight-line method over the estimated useful lives of the
assets as follows:
Furniture and equipment 5 to 7 years
Leasehold improvements 18 to 24 months
F-5
<PAGE>
GLOBAL SOURCING GROUP, LLC
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31,
================================================================================
NOTE 1 - SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Furniture and Equipment (Continued)
-----------------------
Betterments, renewals, and extraordinary repairs that extend the lives of
the assets are capitalized; other repairs and maintenance charges are
expensed as incurred. The cost and related accumulated depreciation
applicable to assets retired are removed from the accounts, and the gain or
loss on disposition is recognized in current operations.
Income Taxes
------------
The Company has elected to be taxed under sections of federal and
California income taxes whereby the members separately account for their
pro rata share of the Company's items of income, deductions, losses, and
credits. The provision for income taxes represents the statutory California
franchise tax applicable to limited liability companies.
Fair Value of Financial Instruments
-----------------------------------
The Company measures its financial assets and liabilities in accordance
with generally accepted accounting principles. For certain of the Company's
financial instruments, including cash, accounts receivable, accounts
payable, and other accrued liabilities, the carrying amounts approximate
fair value due to their short maturities. The amounts shown for the note
payable also approximate fair value because current interest rates and
terms offered to the Company for similar debt are substantially the same.
Concentrations of Credit Risk
-----------------------------
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash and trade receivables. The
Company places its cash with high quality financial institutions and at
times cash may exceed the FDIC $100,000 insurance limit. Concentrations of
credit risk with respect to receivables are limited due to the large number
of customers and their dispersion across geographic areas. The Company does
not send out a product until the customer's payment is received and
verified. The Company has one major supplier which accounted for
approximately 90% and 99% of the Company's purchases during the years ended
December 31, 1997 and 1996, respectively.
NOTE 2 - ACCOUNTS RECEIVABLE
Accounts receivable at December 31 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Amounts due from credit card companies for
shipped customer orders and trade accounts $ 18,911 $38,516
Vendor adjustment credits receivable for
returned goods 91,884 -
-------- -------
Total $110,795 $38,516
======== =======
</TABLE>
F-6
<PAGE>
GLOBAL SOURCING GROUP, LLC
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31,
================================================================================
NOTE 2 - ACCOUNTS RECEIVABLE (Continued)
The Company considers all receivables to be fully collectible; accordingly,
no allowance for doubtful accounts is required.
NOTE 3 - FURNITURE AND EQUIPMENT
Furniture and equipment at December 31 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
------- --------
<S> <C> <C>
Furniture and equipment $27,444 $ 6,645
Leasehold improvements 3,892 3,380
------- -------
31,336 20,025
Less accumulated depreciation and amortization 8,664 1,853
------- -------
Total $22,672 $18,172
======= =======
</TABLE>
NOTE 4 - NOTES PAYABLE TO RELATED PARTIES
Notes payable at December 31 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
------- -----
<S> <C> <C>
Short-term unsecured note payable to a member
of the Company. The note bears interest at
12% per annum with no stated due date $ 5,000 $ 0-
Short-term unsecured note payable to an officer
and member of the Company for $20,644.
The note bears interest at 12% per annum
and will be due on November 30, 1998. 20,644 -
-------
Total $25,644 $ -
======= =====
</TABLE>
F-7
<PAGE>
GLOBAL SOURCING GROUP, LLC
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31,
================================================================================
NOTE 5 - COMMITMENTS
During the year ended December 31, 1997, the Company entered into an
agreement with its major overseas supplier, whereby the Company shares
profits in the sale of its products at the rate of 51% to the Company and
49% to its supplier. This supplier is responsible for substantially all of
the Company's product requirements.
The Company conducts its operations in a leased facility located in
Thousand Oaks, California. The lease, originally signed on April 1, 1996,
is guaranteed by a member of the Company and expires on April 30, 1998.
Future minimum rental payments are as follows:
Year Ending
December 31,
------------
1998 $4,368
======
Rent expense for the years ended December 31, 1997 and 1996 was $21,189 and
$8,106, respectively.
NOTE 6 - SUBSEQUENT EVENTS (UNAUDITED)
Subsequent to April 1998, the Company's operating lease on its primary
facility expired. The Company is currently leasing the same facility on a
month-to-month basis with required monthly payments of $1,092. The Company
does not anticipate relocating its facilities in the near future.
Global Sourcing Group, LLC was merged into Penrith Acquisition Corporation
("Penrith"), a newly-formed Delaware company, on June 30, 1998. The
surviving corporation was renamed Global Sourcing Group, Inc. Penrith was
incorporated under the Laws of Delaware on December 16, 1997 with an
authorized capitalization of 100,000,000 shares of common stock, par value
of $0.0001 per share, and 20,000,000 shares of preferred stock.
F-8
<PAGE>
GLOBAL SOURCING GROUP, INC.
Unaudited Financial Statements
for Period Ending September 30, 1998
Global Sourcing Group
Balance Sheets
For the Nine Months Ended September 30, 1998
and Year Ended December 31, 1997
- ------------------------------------------------
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
(unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 6,940 $ 31,672
Credit Card Receivables 521
Trade receivables, net of reserve for -
doubtful accounts 410,348 110,795
Inventory on hand 738,177 114,335
---------- ---------
Prepaid expenses -
---------- ---------
Total Current Assets 1,155,986 256,802
---------- ---------
Property and equipment, net 14,952 22,672
Undeposited funds
Other assets 4,358 6,979
---------- ---------
$1,175,296 $ 286,453
========== =========
Liabilities And Shareholders' Equity
Current liabilities
Notes Payable to Related Parties $ 27,100 $ 25,644
Accounts payable 145,044 253,440
Taxes Payable 1,524
Accrued expenses and other current liabilities 25,575 20,589
---------- ---------
Total current liabilities 199,244 299,673
---------- ---------
Long Term debt 949,808
Members' Interest (deficit) 26,245 (13,220)
---------- ---------
$1,175,296 $ 286,453
</TABLE>
F-9
<PAGE>
Global Sourcing Group
Unaudited Statements of Income
For the Nine Months and Three Months
Ended September 30, 1998 and 1997
- ------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended Three Months Ended Three Months Ended
September 30, 1998 September 30, 1997 September 30, 1998 September 30, 1997
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Net Revenue $851,910 $1,410,189 $485,679 $297,866
Cost of Sales 540,080 813,903 344,493 170,861
-------- ---------- -------- --------
Gross Margin 311,830 596,285 141,186 127,005
Selling, General, and Administrative 271,822 603,229 74,346 205,670
-------- ---------- -------- --------
Income from Operations 40,008 (6,943) 66,840 (78,665)
Other Income (expense) (543) (12,385) - (5,118)
-------- ---------- -------- --------
Net Income $ 39,465 $ (19,328) $ 66,840 $(83,784)
</TABLE>
F-10
<PAGE>
Global Sourcing Group
Unaudited Statement of Cash Flows
For the Nine Months Ended September 30, 1998 and 1997
- ------------------------------------------------------
<TABLE>
<CAPTION>
9 months ended 9 months ended
September 30,1998 September 30,1997
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities
Net Income (loss) $ 39,465 $ (19,328)
Adjustments to reconcile
Provided by (used in) operating activities
Depreciation and Amortization 7,721 4,481
(Increase) decrease in
Accounts receivable (299,553) 16,335
Inventory (623,842) (162,544)
Other Assets 2,100 6,544
Increase (decrease) in
Accounts payable (108,396) (74,664)
Other accrued liabilities 10,511 3,591
Deferred Warranty Revenue (4,000) (6,523)
--------- ---------
Net Cash provided by (used in) operating activities (975,995) (231,748)
Cash flows from investing activities
Purchases of fixed assets - (10,868)
--------- ---------
Net cash used in investing activities - (10,868)
Cash flows from financing activities
Principal payments on notes payable to related parties (44,833)
Proceeds from notes payable to related parties 46,289 147,041
Proceeds from long term notes payable 949,808 -
---------
Net cash provided by (used in) financing activities 951,264 147,041
--------- ---------
Net increase (decrease) in cash (24,732) (95,575)
========= =========
Cash, beginning of period 31,672 96,101
Cash, end of period $ 6,940 $ 526
========= =========
0 (0)
</TABLE>
F-11
<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and, if given or made, such information or representations may
not be relied on as having been authorized by the Company or by any of the
Underwriters. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create an implication that there has
been no change in the affairs of the Company since the date hereof. This
Prospectus does not constitute an offer to sell, or solicitation of any offer to
buy, by any person in any jurisdiction in which it is unlawful for any such
person to make such offer or solicitation. Neither the delivery of this
Prospectus nor any offer, solicitation or sale made hereunder, shall under any
circumstances create any implication that the information herein is correct as
of any time subsequent to the date of the Prospectus.
------------------------
TABLE OF CONTENTS
Page
Prospectus Summary..............................................................
Risk Factors....................................................................
The Company.....................................................................
Use of Proceeds.................................................................
Dividend Policy.................................................................
Dilution........................................................................
Business........................................................................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.....................................................................
Management......................................................................
Security Ownership of Certain
Beneficial Owners and Management...............................................
Sales by Selling Securityholders................................................
Description of Securities.......................................................
Plan of Distribution............................................................
Legal Matters...................................................................
Experts.........................................................................
Available Information...........................................................
Index to Financial Statements...................................................
Until 90 days after the release of the registered securities from the
Escrow Account, all dealers effecting transactions in the registered securities,
whether or not participating in this distribution, may be required to deliver a
prospectus. This is in addition to the obligations of dealers to deliver a
Prospectus when Acting as underwriters and with respect to their unsold
allotments or subscriptions.
=======================
GLOBAL SOURCING GROUP, INC.
2,637,736 Shares of Common Stock to be Sold
by the Holders thereof;
1,000,000 Warrants and 1,000,000 Shares
of Common Stock underlying such Warrants
to be Sold by the Holders thereof.
----------
PROSPECTUS
----------
_________, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses in connection with this
Registration Statement. All of such expenses are estimates, other than the
filing fees payable to the Securities and Exchange Commission.
<TABLE>
<CAPTION>
<S> <C>
Filing Fee - Securities and Exchange Commission $ 230
Fees and Expenses of Accountants and Legal Counsel 1,000
Blue Sky Fees and Expenses 3,000
Printing and Engraving Expenses 3,000
Miscellaneous Expenses 1,500
Total $8,730
======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is incorporated in Delaware. Under Section 145 of the General
Corporation Law of the State of Delaware, a Delaware corporation has the power,
under specified circumstances, to indemnify its directors, officers, employees
and agents in connection with actions, suits or proceedings brought against them
by a third party or in the right of the corporation, by reason of the fact that
they were or are such directors, officers, employees or agents, against expenses
incurred in any action, suit or proceeding. The Certificate of Incorporation
and the By-laws of the Company provide for indemnification of directors and
officers to the fullest extent permitted by the General Corporation Law of the
State of Delaware.
The General Corporation Law of the State of Delaware provides that a
certificate of incorporation may contain a provision eliminating the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director provided that such provision
shall not eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 (relating to liability for
unauthorized acquisitions or redemptions of, or dividends on, capital stock) of
the General Corporation Law of the State of Delaware, or (iv) for any
transaction from which the director derived an improper personal benefit. The
Company's Certificate of Incorporation contains such a provision.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Global Sourcing Group, a California limited liability company was merged
into a Delaware Company on June 30, 1998.
As listed below, the Company issued shares in the limited liability company
to the following individuals or entities for the consideration as listed in cash
or services. All sales made within the United States or to United States
citizens or residents, were made in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act of 1933.
<TABLE>
<CAPTION>
Date Buyer Shares Consideration
- --------- ----------------------------- --------- -------------
<S> <C> <C> <C> <C>
6/26/98 First Agate Capital Corporation 587,500 59
6/26/98 Kessef Investment Corporation 1,012,500 101
6/30/98 Richard Haines 103,774 $ 5,000 *
6/30/98 Rafael Littaua 4,358,490 5,000 *
6/30/98 Gateway Holdings 1,037,736 185,000 *
</TABLE>
* Consideration paid for shares of Global Sourcing Group, L.L.C. which shares
were exchanged for shares of the Company.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
3.1 Certificate of Incorporation
3.2 By-Laws of the Company
4.1* Form of Common Stock Certificate
4.2* Warrant Agreement and form of Warrant
5.1* Opinion of Cassidy & Associates
10.1* Joint Venture Agreement with Shanghai Tehao
10.2* Supply Agreement with Shanghai Hitachi Power Tools
10.3* Credit Extension Agreement between Global Sourcing Group and Gino
International-GSG
10.4* Lease for 587 Ventu Park Road
24.1 Consent of Accountant
24.2* Consent of Cassidy & Associates (included in Exhibit 5)
27* Financial Data Schedule
- ---------------
* To be filed by Amendment.
(b) The following financial statement schedules are included in this
Registration Statement.
None.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(a) 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.
(b) 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 is that 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.
(c) The undersigned registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(ii) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Global Sourcing Group, Inc. certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form SB-2 and has duly
caused this Registration Statement on Form SB-2 to be signed on its behalf by
the undersigned, hereunto duly authorized, in the City of Thousand Oaks,
California on the 10/th/ day of February, 1999.
GLOBAL SOURCING GROUP, INC.
By /s/ Rafael Littaua
--------------------
Rafael Littaua
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/Rafael Littaua Director, President 2/10/99
Rafael Littaua
/s/ Eric Manlunas Director 2/10/99
Eric Manlunas
II-4
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
of
GLOBAL SOURCING GROUP, INC.
ARTICLE ONE
NAME
The name of the Corporation is Global Sourcing Group, Inc.
ARTICLE TWO
DURATION
The Corporation shall have perpetual existence.
ARTICLE THREE
PURPOSE
The purpose for which this Corporation is organized is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of Delaware.
ARTICLE FOUR
SHARES
The total number of shares of stock which the Corporation shall have
authority to issue is 120,000,000 shares, consisting of 100,000,000 shares of
Common Stock having a par value of $.0001 per share and 20,000,000 shares of
Preferred Stock having a par value of $.0001 per share.
The Board of Directors is authorized to provide for the issuance of the
shares of Preferred Stock in series and, by filing a certificate pursuant to the
applicable law of the State of Delaware, to establish from time to time the
number of shares to be included in each such series, and to fix the designation,
powers, preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions thereof.
The authority of the Board of Directors with respect to each series of
Preferred Stock shall include, but not be limited to, determination of the
following:
<PAGE>
CERTIFICATE OF INCORPORATION PAGE NUMBER 2
- --------------------------------------------------------------------------------
A. The number of shares constituting that series and the distinctive
designation of that series;
B. The dividend rate on the shares of that series, whether dividends shall
be cumulative, and, if so, from which date or dates, and the relative rights of
priority, if any, of payment of dividends on share of that series;
C. Whether that series shall have voting rights, in addition to the voting
rights provided by law, and, if so, the terms of such voting rights;
D. Whether that series shall have conversion privileges, and, if so, the
terms and conditions of such conversion, including provision for adjustment of
the conversion rate in such events as the Board of Directors shall determine;
E. Whether or not the shares of that series shall be redeemable, and, if
so, the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable, and the amount per share payable
in case of redemption, which amount may vary under different conditions and at
different redemption dates;
F. Whether that series shall have a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;
G. The rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, and the
relative rights of priority, if any, of payment of shares of that series; and
H. Any other relative rights, preferences and limitations of that series.
ARTICLE FIVE
COMMENCEMENT OF BUSINESS
The Corporation is authorized to commence business as soon as its
certificate of incorporation has been filed.
ARTICLE SIX
PRINCIPAL OFFICE AND REGISTERED AGENT
The post office address of the initial registered office of the Corporation
and the name of its initial registered agent and its business address is
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CERTIFICATE OF INCORPORATION PAGE NUMBER 3
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The Prentice-Hall Corporation System, Inc.
1013 Centre Road
Wilmington, Delaware 19805 (County of New Castle)
The initial registered agent is a resident of the State of Delaware.
ARTICLE SEVEN
INCORPORATOR
Lee W. Cassidy, 1504 R Street, N.W., Washington, D.C. 20009.
ARTICLE EIGHT
PRE-EMPTIVE RIGHTS
No Shareholder or other person shall have any pre-emptive rights
whatsoever.
ARTICLE NINE
BY-LAWS
The initial by-laws shall be adopted by the Shareholders or the Board of
Directors. The power to alter, amend, or repeal the by-laws or adopt new by-
laws is vested in the Board of Directors, subject to repeal or change by action
of the Shareholders.
ARTICLE TEN
NUMBER OF VOTES
Each share of Common Stock has one vote on each matter on which the share
is entitled to vote.
ARTICLE ELEVEN
MAJORITY VOTES
A majority vote of a quorum of Shareholders (consisting of the holders of a
majority of the shares entitled to vote, represented in person or by proxy) is
sufficient for any action which
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CERTIFICATE OF INCORPORATION PAGE NUMBER 4
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requires the vote or concurrence of Shareholders, unless otherwise required or
permitted by law or the by-laws of the Corporation.
ARTICLE TWELVE
NON-CUMULATIVE VOTING
Directors shall be elected by majority vote. Cumulative voting shall not
be permitted.
ARTICLE THIRTEEN
INTERESTED DIRECTORS, OFFICERS AND SECURITYHOLDERS
A. VALIDITY. If Paragraph (B) is satisfied, no contract or other
transaction between the Corporation and any of its directors, officers or
securityholders, or any corporation or firm in which any of them are directly or
indirectly interested, shall be invalid solely because of this relationship or
because of the presence of the director, officer or securityholder at the
meeting of the Board of Directors or committee authorizing the contract or
transaction, or his participation or vote in the meeting or authorization.
B. DISCLOSURE, APPROVAL, FAIRNESS. Paragraph (A) shall apply only if:
(1) The material facts of the relationship or interest of each such
director, officer or securityholder are known or disclosed:
(a) to the Board of Directors or the committee and it nevertheless
authorizes or ratifies the contract or transaction by a majority of the
directors present, each such interested director to be counted in determining
whether a quorum is present but not in calculating the majority necessary to
carry the vote; or
(b) to the Shareholders and they nevertheless authorize or ratify the
contract or transaction by a majority of the shares present, each such
interested person to be counted for quorum and voting purposes; or
(2) the contract or transaction is fair to the Corporation as of the time
it is authorized or ratified by the Board of Directors, the committee or the
Shareholders.
ARTICLE FOURTEEN
INDEMNIFICATION AND INSURANCE
A. PERSONS. The Corporation shall indemnify, to the extent provided in
Paragraphs (B), (D) or (F) and to the extent permitted from time to time by law:
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CERTIFICATE OF INCORPORATION PAGE NUMBER 5
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(1) any person who is or was director, officer, agent or employee of the
Corporation, and
(2) any person who serves or served at the Corporation's request as a
director, officer, agent, employee, partner or trustee of another corporation or
of a partnership, joint venture, trust or other enterprise.
B. EXTENT--DERIVATIVE SUITS. In case of a suit by or in the right of the
Corporation against a person named in Paragraph (A) by reason of his holding a
position named in Paragraph (A), the Corporation shall indemnify him, if he
satisfies the standard in Paragraph (C), for expenses (including attorney's fees
but excluding amounts paid in settlement) actually and reasonably incurred by
him in connection with the defense or settlement of the suit.
C. STANDARD--DERIVATIVE SUITS. In case of a suit by or in the right of
the Corporation, a person named in Paragraph (A) shall be indemnified only if:
(1) he is successful on the merits or otherwise, or
(2) he acted in good faith in the transaction which is the subject of the
suit, and in a manner he reasonably believed to be in, or not opposed to, the
best interests of the Corporation. However, he shall not be indemnified in
respect of any claim, issue or matter as to which he has been adjudged liable
for negligence or misconduct in the performance of his duty to the Corporation
unless (and only to the extent that) the court in which the suit was brought
shall determine, upon application, that despite the adjudication but in view of
all the circumstances, he is fairly and reasonably entitled to indemnity for
such expenses as the court shall deem proper.
D. EXTENT--NONDERIVATIVE SUITS. In case of a suit, action or proceeding
(whether civil, criminal, administrative or investigative), other than a suit by
or in the right of the Corporation against a person named in Paragraph (A) by
reason of his holding a position named in Paragraph (A), the Corporation shall
indemnify him, if he satisfies the standard in Paragraph (E), for amounts
actually and reasonably incurred by him in connection with the defense or
settlement of the suit as
(1) expenses (including attorneys' fees),
(2) amounts paid in settlement
(3) judgments, and
(4) fines.
E. STANDARD--NONDERIVATIVE SUITS. In case of a nonderivative suit, a
person named in Paragraph (A) shall be indemnified only if:
(1) he is successful on the merits or otherwise, or
(2) he acted in good faith in the transaction which is the subject of the
nonderivative suit, and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the Corporation and , with respect to any
criminal action or proceeding, he had no reason to believe his conduct was
unlawful. The termination of a nonderivative suit by judgement, order,
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CERTIFICATE OF INCORPORATION PAGE NUMBER 6
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settlement, conviction, or upon a plea of nolo contendere or its equivalent
shall not, of itself, create a presumption that the person failed to satisfy
this Paragraph (E) (2).
F. DETERMINATION THAT STANDARD HAS BEEN MET. A determination that the
standard of Paragraph (C) or (E) has been satisfied may be made by a court of
law or equity or the determination may be made by:
(1) a majority of the directors of the Corporation (whether or not a
quorum) who were not parties to the action, suit or proceeding, or
(2) independent legal counsel (appointed by a majority of the directors of
the Corporation, whether or not a quorum, or elected by the Shareholders of the
Corporation) in a written opinion, or
(3) the Shareholders of the Corporation.
G. PRORATION. Anyone making a determination under Paragraph (F) may
determine that a person has met the standard as to some matters but not as to
others, and may reasonably prorate amounts to be indemnified.
H. ADVANCE PAYMENT. The Corporation may pay in advance any expenses
(including attorney's fees) which may become subject to indemnification under
paragraphs (A) - (G) if:
(1) the Board of Directors authorizes the specific payment and
(2) the person receiving the payment undertakes in writing to repay unless
it is ultimately determined that he is entitled to indemnification by the
Corporation under Paragraphs (A) - (G).
I. NONEXCLUSIVE. The indemnification provided by Paragraphs (A) - (G)
shall not be exclusive of any other rights to which a person may be entitled by
law or by by-law, agreement, vote of Shareholders or disinterested directors, or
otherwise.
J. CONTINUATION. The indemnification and advance payment provided by
Paragraphs (A) - (H) shall continue as to a person who has ceased to hold a
position named in paragraph (A) and shall inure to his heirs, executors and
administrators.
K. INSURANCE. The Corporation may purchase and maintain insurance on
behalf of any person who holds or who has held any position named in Paragraph
(A) against any liability incurred by him in any such positions or arising out
of this status as such, whether or not the Corporation would have power to
indemnify him against such liability under Paragraphs (A) - (H).
L. REPORTS. Indemnification payments, advance payments, and insurance
purchases and payments made under Paragraphs (A) - (K) shall be reported in
writing to the Shareholders of the Corporation with the next notice of annual
meeting, or within six months, whichever is sooner.
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CERTIFICATE OF INCORPORATION PAGE NUMBER 7
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M. AMENDMENT OF ARTICLE. Any changes in the General Corporation Law of
Delaware increasing, decreasing, amending, changing or otherwise effecting the
indemnification of directors, officers, agents, or employees of the Corporation
shall be incorporated by reference in this Article as of the date of such
changes without further action by the Corporation, its Board of Directors, of
Shareholders, it being the intention of this Article that directors, officers,
agents and employees of the Corporation shall be indemnified to the maximum
degree allowed by the General Corporation Law of the State of Delaware at all
times.
ARTICLE FIFTEEN
LIMITATION ON DIRECTOR LIABILITY
A. SCOPE OF LIMITATION. No person, by virtue of being or having been a
director of the Corporation, shall have any personal liability for monetary
damages to the Corporation or any of its Shareholders for any breach of
fiduciary duty except as to the extent provided in Paragraph (B).
B. EXTENT OF LIMITATION. The limitation provided for in this Article
shall not eliminate or limit the liability of a director to the Corporation or
its Shareholders (i) for any breach of the director's duty of loyalty to the
Corporation or its Shareholders (ii) for any acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law (iii) for
any unlawful payment of dividends or unlawful stock purchases or redemptions in
violation of Section 174 of the General Corporation Law of Delaware or (iv) for
any transaction for which the director derived an improper personal benefit.
IN WITNESS WHEREOF, the incorporator hereunto has executed this certificate
of incorporation on this 23rd day of June, 1998.
________________________________
Lee W. Cassidy, Incorporator
<PAGE>
EXHIBIT 3.2
PENRITH ACQUISITION CORPORATION
By-Laws
Article I
The Stockholders
Section 1.1. Annual Meeting. The annual meeting of the stockholders of
Penrith Acquisition Corporation (the "Corporation") shall be held on the third
Thursday in May of each year at 10:30 a.m. local time, or at such other date or
time as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting, for the election of directors and for the
transaction of such other business as may come before the meeting.
Section 1.2. Special Meetings. A special meeting of the stockholders may
be called at any time by the written resolution or request of two-thirds or more
of the members of the Board of Directors, the president, or any executive vice
president and shall be called upon the written request of the holders of two-
thirds or more in amount, of each class or series of the capital stock of the
Corporation entitled to vote at such meeting on the matters(s) that are the
subject of the proposed meeting, such written request in each case to specify
the purpose or purposes for which such meeting shall be called, and with respect
to stockholder proposals, shall further comply with the requirements of this
Article.
Section 1.3. Notice of Meetings. Written notice of each meeting of
stockholders, whether annual or special, stating the date, hour and place where
it is to be held, shall be served either personally or by mail, not less than
fifteen nor more than sixty days before the meeting, upon each stockholder of
record entitled to vote at such meeting, and to any other stockholder to whom
the giving of notice may be required by law. Notice of a special meeting shall
also state the purpose or purposes for which the meeting is called and shall
indicate that it is being issued by, or at the direction of, the person or
persons calling the meeting. If, at any meeting, action is proposed to be taken
that would, if taken, entitle stockholders to receive payment for their stock,
the notice of such meeting shall include a statement of that purpose and to that
effect. If mailed, notice shall be deemed to be delivered when deposited in the
United States mail or with any private express mail service, postage or delivery
fee prepaid, and shall be directed to each such stockholder at his address, as
it appears on the records of the stockholders of the Corporation, unless he
shall have previously filed with the secretary of the Corporation a written
request that notices intended for him be mailed to some other address, in which
case, it shall be mailed to the address designated in such request.
Section 1.4. Fixing Date of Record. (a) In order that the Corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders, or any adjournment thereof, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than sixty nor less than ten days before the
date of such meeting. If no record date is fixed by the Board of Directors, the
record date for determining stockholders entitled to notice of, or to vote at, a
meeting of stockholders shall be at the close of business on
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BY-LAWS PAGE NUMBER 2
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the day next preceding the day on which notice is given, or if notice is waived,
at the close of business on the day next preceding the day on which the meeting
is held. A determination of stockholders of record entitled to notice of, or to
vote at, a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting (to the extent that
such action by written consent is permitted by law, the Certificate of
Incorporation and these By-Laws), the Board of Directors may fix a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which date shall not
be more than ten days after the date upon which the resolution fixing the record
date is adopted by the Board of Directors. If no record date has been fixed by
the Board of Directors, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is required by law, shall be the first date on which a
signed written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation by delivery to its registered office in its state
of incorporation, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
(c) In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any 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 a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
Section 1.5. Inspectors. At each meeting of the stockholders, the polls
shall be opened and closed and the proxies and ballots shall be received and be
taken in charge. All questions touching on the qualification of voters and the
validity of proxies and the acceptance or rejection of votes, shall be decided
by one or more inspectors. Such inspectors shall be appointed by the Board of
Directors before or at the meeting, or, if no such appointment shall have been
made, then by the presiding officer at the meeting. If for any reason any of
the inspectors previously appointed shall fail to attend or refuse or be unable
to serve, inspectors in place of any so failing to attend or refusing or unable
to serve shall be appointed in like manner.
Section 1.6. Quorum. At any meeting of the stockholders the holders of
such number of all of the outstanding shares of the capital stock of the
Corporation taken together as a single class as represents one-third of all
votes that may be made at such meeting, present in person or
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BY-LAWS PAGE NUMBER 3
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represented by proxy, shall constitute a quorum of the stockholders for all
purposes, unless the representation of a larger number shall be required by law,
and, in that case, the representation of the number so required shall constitute
a quorum.
If the holders of the amount of stock necessary to constitute a quorum
shall fail to attend in person or by proxy at the time and place fixed in
accordance with these By-Laws for an annual or special meeting, a majority in
interest of the stockholders present in person or by proxy may adjourn, from
time to time, without notice other than by announcement at the meeting, until
holders of the amount of stock requisite to constitute a quorum shall attend.
At any such adjourned meeting at which a quorum shall be present, any business
may be transacted which might have been transacted at the meeting as originally
notified.
Section 1.7. Business. The chairman of the Board, if any, the president,
or in his absence the vice-chairman, if any, or an executive vice president, in
the order named, shall call meetings of the stockholders to order, and shall act
as chairman of such meeting; provided, however, that the Board of Directors or
executive committee may appoint any stockholder to act as chairman of any
meeting in the absence of the chairman of the Board. The secretary of the
Corporation shall act as secretary at all meetings of the stockholders, but in
the absence of the secretary at any meeting of the stockholders, the presiding
officer may appoint any person to act as secretary of the meeting.
Section 1.8. Stockholder Proposals. No proposal by a stockholder shall be
presented for vote at a special or annual meeting of stockholders unless such
stockholder shall, not later than the close of business on the fifth day
following the date on which notice of the meeting is first given to
stockholders, provide the Board of Directors or the secretary of the Corporation
with written notice of intention to present a proposal for action at the
forthcoming meeting of stockholders, which notice shall include the name and
address of such stockholder, the number of voting securities that he holds of
record and that he holds beneficially, the text of the proposal to be presented
to the meeting and a statement in support of the proposal.
Any stockholder who was a stockholder of record on the applicable record
date may make any other proposal at an annual meeting or special meeting of
stockholders and the same may be discussed and considered, but unless stated in
writing and filed with the Board of Directors or the secretary prior to the date
set forth hereinabove, such proposal shall be laid over for action at an
adjourned, special, or annual meeting of the stockholders taking place sixty
days or more thereafter. This provision shall not prevent the consideration and
approval or disapproval at the annual meeting of reports of officers, directors,
and committees, but in connection with such reports, no new business proposed by
a stockholder, qua stockholder, shall be acted upon at such annual meeting
---
unless stated and filed as herein provided.
Notwithstanding any other provision of these By-Laws, the Corporation shall
be under no obligation to include any stockholder proposal in its proxy
statement materials or otherwise present any such proposal to stockholders at a
special or annual meeting of stockholders if the Board of Directors reasonably
believes the proponents thereof have not complied with Sections 13 or 14 of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder; nor
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BY-LAWS PAGE NUMBER 4
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shall the Corporation be required to include any stockholder proposal not
required to be included in its proxy materials to stockholders in accordance
with any such section, rule or regulation.
Section 1.9. Proxies. At all meetings of stockholders, a stockholder
entitled to vote may vote either in person or by proxy executed in writing by
the stockholder or by his duly authorized attorney-in-fact. Such proxy shall be
filed with the secretary before or at the time of the meeting. No proxy shall be
valid after eleven months from the date of its execution, unless otherwise
provided in the proxy.
Section 1.10. Voting by Ballot. The votes for directors, and upon the
demand of any stockholder or when required by law, the votes upon any question
before the meeting, shall be by ballot.
Section 1.11. Voting Lists. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares of stock registered in the name of each
stockholder. Such list shall be open to the examination of 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.
Section 1.12. Place of Meeting. The Board of Directors may designate any
place, either within or without the state of incorporation, as the place of
meeting for any annual meeting or any special meeting called by the Board of
Directors. If no designation is made or if a special meeting is otherwise
called, the place of meeting shall be the principal office of the Corporation.
Section 1.13. Voting of Stock of Certain Holders. Shares of capital stock
of the Corporation standing in the name of another corporation, domestic or
foreign, may be voted by such officer, agent, or proxy as the by-laws of such
corporation may prescribe, or in the absence of such provision, as the board of
directors of such corporation may determine.
Shares of capital stock of the Corporation standing in the name of a
deceased person, a minor ward or an incompetent person may be voted by his
administrator, executor, court-appointed guardian or conservator, either in
person or by proxy, without a transfer of such stock into the name of such
administrator, executor, court-appointed guardian or conservator. Shares of
capital stock of the Corporation standing in the name of a trustee may be voted
by him, either in person or by proxy.
Shares of capital stock of the Corporation standing in the name of a
receiver may be voted, either in person or by proxy, by such receiver, and stock
held by or under the control of a receiver may be voted by such receiver without
the transfer thereof into his name if authority to do so is contained in any
appropriate order of the court by which such receiver was appointed.
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A stockholder whose stock is pledged shall be entitled to vote such stock,
either in person or by proxy, until the stock has been transferred into the name
of the pledgee, and thereafter the pledgee shall be entitled to vote, either in
person or by proxy, the stock so transferred.
Shares of its own capital stock belonging to this Corporation shall not be
voted, directly or indirectly, at any meeting and shall not be counted in
determining the total number of outstanding stock at any given time, but shares
of its own stock held by it in a fiduciary capacity may be voted and shall be
counted in determining the total number of outstanding stock at any given time.
Article II
Board of Directors
Section 2.1. General Powers. The business, affairs, and the property of
the Corporation shall be managed and controlled by the Board of Directors (the
"Board"), and, except as otherwise expressly provided by law, the Certificate of
Incorporation or these By-Laws, all of the powers of the Corporation shall be
vested in the Board.
Section 2.2. Number of Directors. The number of directors which shall
constitute the whole Board shall be not fewer than one nor more than five.
Within the limits above specified, the number of directors shall be determined
by the Board of Directors pursuant to a resolution adopted by a majority of the
directors then in office.
Section 2.3. Election, Term and Removal. Directors shall be elected at
the annual meeting of stockholders to succeed those directors whose terms have
expired. Each director shall hold office for the term for which elected and
until his or her successor shall be elected and qualified. Directors need not be
stockholders. A director may be removed from office at a meeting expressly for
that purpose by the vote of stockholders holding not less than two-thirds of the
shares entitled to vote at an election of directors.
Section 2.4. Vacancies. Vacancies in the Board of Directors, including
vacancies resulting from an increase in the number of directors, may be filled
by the affirmative vote of a majority of the remaining directors then in office,
though less than a quorum; except that vacancies resulting from removal from
office by a vote of the stockholders may be filled by the stockholders at the
same meeting at which such removal occurs provided that the holders of not less
than two-thirds of the outstanding capital stock of the Corporation (assessed
upon the basis of votes and not on the basis of number of shares) entitled to
vote for the election of directors, voting together as a single class, shall
vote for each replacement director. All directors elected to fill vacancies
shall hold office for a term expiring at the time of the next annual meeting of
stockholders and upon election and qualification of his successor. No decrease
in the number of directors constituting the Board of Directors shall shorten the
term of an incumbent director.
Section 2.5. Resignations. Any director of the Corporation may resign at
any time by giving written notice to the president or to the secretary of the
Corporation. The resignation of any director shall take effect at the time
specified therein and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
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Section 2.6. Place of Meetings, etc. The Board of Directors may hold its
meetings, and may have an office and keep the books of the Corporation (except
as otherwise may be provided for by law), in such place or places in or outside
the state of incorporation as the Board from time to time may determine.
Section 2.7. Regular Meetings. Regular meetings of the Board of Directors
shall be held as soon as practicable after adjournment of the annual meeting of
stockholders at such time and place as the Board of Directors may fix. No
notice shall be required for any such regular meeting of the Board.
Section 2.8. Special Meetings. Special meetings of the Board of Directors
shall be held at places and times fixed by resolution of the Board of Directors,
or upon call of the chairman of the Board, if any, or vice-chairman of the
Board, if any, the president, an executive vice president or two-thirds of the
directors then in office.
The secretary or officer performing the secretary's duties shall give not
less than twenty-four hours' notice by letter, telegraph or telephone (or in
person) of all special meetings of the Board of Directors, provided that notice
need not given of the annual meeting or of regular meetings held at times and
places fixed by resolution of the Board. Meetings may be held at any time
without notice if all of the directors are present, or if those not present
waive notice in writing either before or after the meeting. The notice of
meetings of the Board need not state the purpose of the meeting.
Section 2.9. Participation by Conference Telephone. Members of the Board
of Directors of the Corporation, or any committee thereof, may participate in a
regular or special or any other meeting of the Board or committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such participation
shall constitute presence in person at such meeting.
Section 2.10. Action by Written Consent. Any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting if prior or subsequent to such action
all the members of the Board or such committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
the proceedings of the Board or committee.
Section 2.11. Quorum. A majority of the total number of directors then in
office shall constitute a quorum for the transaction of business; but if at any
meeting of the Board there be less than a quorum present, a majority of those
present may adjourn the meeting from time to time.
Section 2.12. Business. Business shall be transacted at meetings of the
Board of Directors in such order as the Board may determine. At all meetings of
the Board of Directors, the chairman of the Board, if any, the president, or in
his absence the vice-chairman, if any, or an executive vice president, in the
order named, shall preside.
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Section 2.13. Interest of Directors in Contracts. (a) No contract or
transaction between the Corporation and one or more of its directors or
officers, or between the Corporation and any other corporation, partnership,
association, or other organization in which one or more of the Corporation's
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 which authorizes the contract or transaction, or solely because his or
their votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or
(2) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified, by the Board of Directors,
a committee of the Board of Directors or the stockholders.
(b) Interested directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or of a committee which authorizes
the contract or transaction.
Section 2.14. Compensation of Directors. Each director of the Corporation
who is not a salaried officer or employee of the Corporation, or of a subsidiary
of the Corporation, shall receive such allowances for serving as a director and
such fees for attendance at meetings of the Board of Directors or the executive
committee or any other committee appointed by the Board as the Board may from
time to time determine.
Section 2.15. Loans to Officers or Employees. The Board of Directors may
lend money to, guarantee any obligation of, or otherwise assist, any officer or
other employee of the Corporation or of any subsidiary, whether or not such
officer or employee is also a director of the Corporation, whenever, in the
judgment of the directors, such loan, guarantee, or assistance may reasonably be
expected to benefit the Corporation; provided, however, that any such loan,
guarantee, or other assistance given to an officer or employee who is also a
director of the Corporation must be authorized by a majority of the entire Board
of Directors. Any such loan, guarantee, or other assistance may be made with or
without interest and may be unsecured or secured in such manner as the Board of
Directors shall approve, including, but not limited to, a pledge of shares of
the Corporation, and may be made upon such other terms and conditions as the
Board of Directors may determine.
Section 2.16. Nomination. Subject to the rights of holders of any class
or series of stock having a preference over the common stock as to dividends or
upon liquidation, nominations for
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the election of directors may be made by the Board of Directors or by any
stockholder entitled to vote in the election of directors generally. However,
any stockholder entitled to vote in the election of directors generally may
nominate one or more persons for election as directors at a meeting only if
written notice of such stockholder's intent to make such nomination or
nominations has been given, either by personal delivery or by United States
mail, postage prepaid, to the secretary of the Corporation not later than
(i) with respect to an election to be held at an annual meeting of stockholders,
the close of business on the last day of the eighth month after the immediately
preceding annual meeting of stockholders, and (ii) with respect to an election
to be held at a special meeting of stockholders for the election of directors,
the close of business on the fifth day following the date on which notice of
such meeting is first given to stockholders. Each such notice shall set forth:
(a) the name and address of the stockholder who intends to make the nomination
and of the person or persons to be nominated; (b) a representation that the
stockholder is a holder of record of stock of the Corporation entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder; (d) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission, had the nominee been nominated, or
intended to be nominated, by the Board of Directors, and; (e) the consent of
each nominee to serve as a director of the Corporation if so elected. The
presiding officer at the meeting may refuse to acknowledge the nomination of any
person not made in compliance with the foregoing procedure.
Article III
Committees
Section 3.1. Committees. The Board of Directors, by resolution adopted by
a majority of the number of directors then fixed by these By-Laws or resolution
thereto, may establish such standing or special committees of the Board as it
may deem advisable, and the members, terms, and authority of such committees
shall be set forth in the reslutions establishing such committee.
Section 3.2. Executive Committee Number and Term of Office. The Board of
Directors may, at any meeting, by majority vote of the Board of Directors, elect
from the directors an executive committee. The executive committee shall
consist of such number of members as may be fixed from time to time by
resolution of the Board of Directors. The Board of Directors may designate a
chairman of the committee who shall preside at all meetings thereof, and the
committee shall designate a member thereof to preside in the absence of the
chairman.
Section 3.3. Executive Committee Powers. The executive committee may,
while the Board of Directors is not in session, exercise all or any of the
powers of the Board of Directors in all cases in which specific directions shall
not have been given by the Board of Directors; except that the executive
committee shall not have the power or authority of the Board of Directors to
(i) amend the Certificate of Incorporation or the By-Laws of the Corporation,
(ii) fill vacancies on the Board of Directors, (iii) adopt an agreement or
certification of ownership, merger or
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consolidation, (iv) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, or a
dissolution of the Corporation or a revocation of a dissolution, (v) declare a
dividend, or (vi) authorize the issuance of stock.
Section 3.4. Executive Committee Meetings. Regular and special meetings
of the executive committee may be called and held subject to the same
requirements with respect to time, place and notice as are specified in these
By-Laws for regular and special meetings of the Board of Directors. Special
meetings of the executive committee may be called by any member thereof. Unless
otherwise indicated in the notice thereof, any and all business may be
transacted at a special or regular meeting of the executive meeting if a quorum
is present. At any meeting at which every member of the executive committee
shall be present, in person or by telephone, even though without any notice, any
business may be transacted. All action by the executive committee shall be
reported to the Board of Directors at its meeting next succeeding such action.
The executive committee shall fix its own rules of procedure, and shall
meet where and as provided by such rules or by resolution of the Board of
Directors, but in every case the presence of a majority of the total number of
members of the executive committee shall be necessary to constitute a quorum.
In every case, the affirmative vote of a quorum shall be necessary for the
adoption of any resolution.
Section 3.5. Executive Committee Vacancies. The Board of Directors, by
majority vote of the Board of Directors then in office, shall fill vacancies in
the executive committee by election from the directors.
Article IV
The Officers
Section 4.1. Number and Term of Office. The officers of the Corporation
shall consist of, as the Board of Directors may determine and appoint from time
to time, a chief executive officer, a president, one or more executive vice-
presidents, a secretary, a treasurer, a controller, and/or such other officers
as may from time to time be elected or appointed by the Board of Directors,
including such additional vice-presidents with such designations, if any, as may
be determined by the Board of Directors and such assistant secretaries and
assistant treasurers. In addition, the Board of Directors may elect a chairman
of the Board and may also elect a vice-chairman as officers of the Corporation.
Any two or more offices may be held by the same person. In its discretion, the
Board of Directors may leave unfilled any office except as may be required by
law.
The officers of the Corporation shall be elected or appointed from time to
time by the Board of Directors. Each officer shall hold office until his
successor shall have been duly elected or appointed or until his death or until
he shall resign or shall have been removed by the Board of Directors.
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Each of the salaried officers of the Corporation shall devote his entire
time, skill and energy to the business of the Corporation, unless the contrary
is expressly consented to by the Board of Directors or the executive committee.
Section 4.2. Removal. Any officer may be removed by the Board of
Directors whenever, in its judgment, the best interests of the Corporation would
be served thereby.
Section 4.3. The Chairman of the Board. The chairman of the Board, if
any, shall preside at all meetings of stockholders and of the Board of Directors
and shall have such other authority and perform such other duties as are
prescribed by law, by these By-Laws and by the Board of Directors. The Board of
Directors may designate the chairman of the Board as chief executive officer, in
which case he shall have such authority and perform such duties as are
prescribed by these By-Laws and the Board of Directors for the chief executive
officer.
Section 4.4. The Vice-Chairman. The vice-chairman, if any, shall have
such authority and perform such other duties as are prescribed by these By-Laws
and by the Board of Directors. In the absence or inability to act of the
chairman of the Board and the president, he shall preside at the meetings of the
stockholders and of the Board of Directors and shall have and exercise all of
the powers and duties of the chairman of the Board. The Board of Directors may
designate the vice-chairman as chief executive officer, in which case he shall
have such authority and perform such duties as are prescribed by these By-Laws
and the Board of Directors for the chief executive officer.
Section 4.5. The President. The president shall have such authority and
perform such duties as are prescribed by law, by these By-Laws, by the Board of
Directors and by the chief executive officer (if the president is not the chief
executive officer). The president, if there is no chairman of the Board, or in
the absence or the inability to act of the chairman of the Board, shall preside
at all meetings of stockholders and of the Board of Directors. Unless the Board
of Directors designates the chairman of the Board or the vice-chairman as chief
executive officer, the president shall be the chief executive officer, in which
case he shall have such authority and perform such duties as are prescribed by
these By-Laws and the Board of Directors for the chief executive officer.
Section 4.6. The Chief Executive Officer. Unless the Board of Directors
designates the chairman of the Board or the vice-chairman as chief executive
officer, the president shall be the chief executive officer. The chief
executive officer of the Corporation shall have, subject to the supervision and
direction of the Board of Directors, general supervision of the business,
property and affairs of the Corporation, including the power to appoint and
discharge agents and employees, and the powers vested in him by the Board of
Directors, by law or by these By-Laws or which usually attach or pertain to such
office.
Section 4.7. The Executive Vice-Presidents. In the absence of the
chairman of the Board, if any, the president and the vice-chairman, if any, or
in the event of their inability or refusal to act, the executive vice-president
(or in the event there is more than one executive vice-president, the executive
vice-presidents in the order designated, or in the absence of any designation,
then in the order of their election) shall perform the duties of the chairman of
the
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Board, of the president and of the vice-chairman, and when so acting, shall have
all the powers of and be subject to all the restrictions upon the chairman of
the Board, the president and the vice-chairman. Any executive vice-president may
sign, with the secretary or an authorized assistant secretary, certificates for
stock of the Corporation and shall perform such other duties as from time to
time may be assigned to him by the chairman of the Board, the president, the
vice-chairman, the Board of Directors or these By-Laws.
Section 4.8. The Vice-Presidents. The vice-presidents, if any, shall
perform such duties as may be assigned to them from time to time by the chairman
of the Board, the president, the vice-chairman, the Board of Directors, or these
By-Laws.
Section 4.9. The Treasurer. Subject to the direction of chief executive
officer and the Board of Directors, the treasurer shall have charge and custody
of all the funds and securities of the Corporation; when necessary or proper he
shall endorse for collection, or cause to be endorsed, on behalf of the
Corporation, checks, notes and other obligations, and shall cause the deposit of
the same to the credit of the Corporation in such bank or banks or depositary as
the Board of Directors may designate or as the Board of Directors by resolution
may authorize; he shall sign all receipts and vouchers for payments made to the
Corporation other than routine receipts and vouchers, the signing of which he
may delegate; he shall sign all checks made by the Corporation (provided,
however, that the Board of Directors may authorize and prescribe by resolution
the manner in which checks drawn on banks or depositaries shall be signed,
including the use of facsimile signatures, and the manner in which officers,
agents or employees shall be authorized to sign); unless otherwise provided by
resolution of the Board of Directors, he shall sign with an officer-director all
bills of exchange and promissory notes of the Corporation; whenever required by
the Board of Directors, he shall render a statement of his cash account; he
shall enter regularly full and accurate account of the Corporation in books of
the Corporation to be kept by him for that purpose; he shall, at all reasonable
times, exhibit his books and accounts to any director of the Corporation upon
application at his office during business hours; and he shall perform all acts
incident to the position of treasurer. If required by the Board of Directors,
the treasurer shall give a bond for the faithful discharge of his duties in such
sum and with such sure ties as the Board of Directors may require.
Section 4.10. The Secretary. The secretary shall keep the minutes of all
meetings of the Board of Directors, the minutes of all meetings of the
stockholders and (unless otherwise directed by the Board of Directors) the
minutes of all committees, in books provided for that purpose; he shall attend
to the giving and serving of all notices of the Corporation; he may sign with an
officer-director or any other duly authorized person, in the name of the
Corporation, all contracts authorized by the Board of Directors or by the
executive committee, and, when so ordered by the Board of Directors or the
executive committee, he shall affix the seal of the Corporation thereto; he may
sign with the president or an executive vice-president all certificates of
shares of the capital stock; he shall have charge of the certificate books,
transfer books and stock ledgers, and such other books and papers as the Board
of Directors or the executive committee may direct, all of which shall, at all
reasonable times, be open to the examination of any director, upon application
at the secretary's office during business hours; and he shall in general perform
all the duties incident to the office of the secretary, subject to the control
of the chief executive officer and the Board of Directors.
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Section 4.11. The Controller. The controller shall be the chief
accounting officer of the Corporation. Subject to the supervision of the Board
of Directors, the chief executive officer and the treasurer, the controller
shall provide for and maintain adequate records of all assets, liabilities and
transactions of the Corporation, shall see that accurate audits of the
Corporation's affairs are currently and adequately made and shall perform such
other duties as from time to time may be assigned to him.
Section 4.12. The Assistant Treasurers and Assistant Secretaries. The
assistant treasurers shall respectively, if required by the Board of Directors,
give bonds for the faithful discharge of their duties in such sums and with such
sureties as the Board of Directors may determine. The assistant secretaries as
thereunto authorized by the Board of Directors may sign with the chairman of the
Board, the president, the vice-chairman or an executive vice-president,
certificates for stock of the Corporation, the issue of which shall have been
authorized by a resolution of the Board of Directors. The assistant treasurers
and assistant secretaries, in general, shall perform such duties as shall be
assigned to them by the treasurer or the secretary, respectively, or chief
executive officer, the Board of Directors, or these By-Laws.
Section 4.13. Salaries. The salaries of the officers shall be fixed from
time to time by the Board of Directors, and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
Corporation.
Section 4.14. Voting upon stocks. Unless otherwise ordered by the Board
of Directors or by the executive committee, any officer, director or any person
or persons appointed in writing by any of them, shall have full power and
authority in behalf of the Corporation to attend and to act and to vote at any
meetings of stockholders of any corporation in which the Corporation may hold
stock, and at any such meeting shall possess and may exercise any and all the
rights and powers incident to the ownership of such stock, and which, as the
owner thereof, the Corporation might have possessed and exercised if present.
The Board of Directors may confer like powers upon any other person or persons.
Article V
Contracts and Loans
Section 5.1. Contracts. The Board of Directors may authorize any officer
or officers, agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances.
Section 5.2. Loans. No loans shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. Such authority may be
general or confined to specific instances.
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Article VI
Certificates for Stock and Their Transfer
Section 6.1. Certificates for Stock. Certificates representing stock of
the Corporation shall be in such form as may be determined by the Board of
Directors. Such certificates shall be signed by the chairman of the Board, the
president, the vice-chairman or an executive vice-president and/or by the
secretary or an authorized assistant secretary and shall be sealed with the seal
of the Corporation. The seal may be a facsimile. If a stock certificate is
countersigned (i) by a transfer agent other than the Corporation or its
employee, or (ii) by a registrar other than the Corporation or its employee, any
other signature on the certificate may be a facsimile. In the event that any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent, or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if he were such officer, transfer
agent or registrar at the date of issue. All certificates for stock shall be
consecutively numbered or otherwise identified. The name of the person to whom
the shares of stock represented thereby are issued, with the number of shares of
stock and date of issue, shall be entered on the books of the Corporation. All
certificates surrendered to the Corporation for transfer shall be canceled and
no new certificates shall be issued until the former certificate for a like
number of shares of stock shall have been surrendered and canceled, except that,
in the event of a lost, destroyed or mutilated certificate, a new one may be
issued therefor upon such terms and indemnity to the Corporation as the Board of
Directors may prescribe.
Section 6.2. Transfers of Stock. Transfers of stock of the Corporation
shall be made only on the books of the Corporation by the holder of record
thereof or by his legal representative, who shall furnish proper evidence of
authority to transfer, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the secretary of the Corporation, and on
surrender for cancellation of the certificate for such stock. The person in
whose name stock stands on the books of the Corporation shall be deemed the
owner thereof for all purposes as regards the Corporation.
Article VII
Fiscal Year
Section 7.1. Fiscal Year. The fiscal year of the Corporation shall begin
on the first day of January in each year and end on the last day of December in
each year.
Article VIII
Seal
Section 8.1. Seal. The Board of Directors shall approve a corporate seal
which shall be in the form of a circle and shall have inscribed thereon the name
of the Corporation.
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Article IX
Waiver of Notice
Section 9.1. Waiver of Notice. Whenever any notice is required to be
given under the provisions of these By-Laws or under the provisions of the
Certificate of Incorporation or under the provisions of the corporation law of
the state of incorporation, waiver thereof in writing, signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice. Attendance of
any person at a meeting for which any notice is required to be given under the
provisions of these By-Laws, the Certificate of Incorporation or the corporation
law of the state of incorporation shall constitute a waiver of notice of such
meeting except when the person attends for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
Article X
Amendments
Section 10.1. Amendments. These By-Laws may be altered, amended or
repealed and new By-Laws may be adopted at any meeting of the Board of Directors
of the Corporation by the affirmative vote of a two-thirds or more of the
members of the Board, or by the affirmative vote of the holders of 75 percent or
more of the outstanding capital stock of the Corporation (assessed upon the
basis of votes and not on the basis of number of shares) entitled to vote
generally in the election of directors, voting together as a single class, cast
at a meeting of the stockholders called for that purpose.
Article XI
Indemnification
Section 11.1. Indemnification. The Corporation shall indemnify its
officers, directors, employees and agents to the fullest extent permitted by the
General Corporation Law of Delaware, as amended from time to time.
<PAGE>
EXHIBIT 24.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated April 28, 1998, accompanying the financial
statements of Global Sourcing Group, LLC 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".
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
February 12, 1999
