As filed with the Securities and Exchange Commission on March 19, 1996
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
______________________
MICROENERGY, INC.
(Name of Small Business Issuer in its Charter)
Delaware 3679 36-3262274
(State of Incorporation) (S.I.C) (IRS Employer Identification No.)
ROBERT G. GATZA, Chairman of the Board
MicroENERGY, Inc.
350 Randy Road
Carol Stream, Illinois 60188
(708) 653-5900
(Address and telephone of Registrant's principal executive offices,
principal place of business, and agent for service of process)
______________________
Copies to
ROBERT BRANTL, ESQ. HARTLEY BERNSTEIN, ESQ
Bressler, Amery & Ross Bernstein & Wasserman, LLP
17 State Street 950 Third Avenue
New York, New York 10004 New York, NY 10022
Attorney for Issuer Attorney for Representative
212-425-9300 212-826-0730
212-425-9337 (fax) 212-371-4730 (fax)
______________________
Approximate date of commencement of public sale: As soon as
practicable after the Registration Statement becomes effective.
If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration number of the earlier effective registration
statement for the same offering. [ ].
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same offering[ ]
If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box. [x]
The Registrant hereby amends this Registration
Statement on such date or dates as may be necessary to delay its
effective date until the Registrant shall file a further
amendment which specifically states that this registration
statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the
Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
Explanatory Note
This registration statement covers the primary offering of
securities by MicroENERGY, Inc. (the "Company") and the offering of other
securities by certain selling securityholders (the "Selling Securityhold-
ers"). The Company is registering, under the primary prospectus (the
"Primary Prospectus"), 494,500 shares of Series A Cumulative Convertible
Preferred Stock and 247,250 Class A Warrants. The Selling Securityholders
are registering, under an alternate prospectus (the "Alternate Prospec-
tus"), 880,000 Class A Warrants. The Alternate Prospectus pages, which
follow the Primary Prospectus, contain certain sections which are to be
combined with all of the sections contained in the Primary Prospectus, with
the following exceptions: the front and back cover pages, and the sections
entitled "the Offering" and "Selling Securityholders." In addition, the
section entitled "Concurrent Sales" from the Alternate Prospectus pages
will be added to the Alternate Prospectus. Furthermore, all references
contained in the Alternate Prospectus to "the offering" or "this offering"
shall refer to the Company's offering under the Primary Prospectus.
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
Proposed Proposed
maximum maximum
Title of each offering aggregate Amount
class of securities Amount to price offering registr-
being registered be registered per share price ation fee
<S> <C> <C> <C> <C>
Series A Cumulative
Convertible
Preferred Shares,
$.01 par value (1) 494,500 Shares $5.00 $2,472,500 852.59
Class A Preferred Stock
Purchase Warrants (1) 247,250 Warrants .10 24,725 8.53
Common Shares, $.01 par
value (2) 989,000 Shares
Class A Preferred Stock
Purchas Warrants (3) 880,000 Warrants .10 880. .30
Series A Preferred
Stock (4) 1,127,250 Shares $5.25 $5,918,063 2,040.71
Common Shares, $.01 par
value (5) 2,254,500 Shares
Series A Cumulative
Convertible Preferred
Shares, $.01 par value 43,000 Shares
Class A Preferred Stock
Purchase Warrants (6) 21,500 Warrants $12.24 $ 263,160 90.74
Series A Preferred
Stock (7) 21,500 Shares $5.25 $ 112,875 $ 38.92
Common Shares, $.01
par value (8) 129,000 Shares
Common Shares (9) 84,333 Shares
Total (10)............................................ ..$3,031.79
<FN>
<F1>
(1) Includes 64,500 shares of Series A Preferred Stock and 32,500 Class A
Warrants subject to the Underwriter's Overallotment Option.
(2) Represents maximum number of Common Shares into which the Preferred
Shares are convertible.
(3) Represents Class A Warrants to be offered by the Selling Security
holders.
(4) Represents 247,250 Preferred Shares reserved for issuance upon
exercise of Class A Warrants sold by the Company and 880,000 Pre-
ferred Shares reserved for exercise of Class A Warrants sold by the
Selling Securityholders.
(5) Represents maximum number of Common Shares into which the Preferred
Shares issued on exercise of Class A Warrants are convertible.
(6) Represents Securities issuable upon exercise of Underwriters' War-
rants.
(7) Represents Preferred Shares reserved for exercise of Class A Warrants
included in Underwriter's Warrants.
(8) Represents maximum number of Common Shares into which the Preferred
Shares included in the Underwriter's Warrants and the Preferred
Shares issued on exercise of Class A Warrants included in the Underw-
riter's Warrants are convertible.
(9) Represents the Registrant's good faith estimate of the number of
Common Shares which may be issued as dividends on the Preferred
Shares.
(10) Plus an undetermined number of Common Shares which may be issued in
the event that the anti-dilution provisions of the Warrants become
effective.
</FN>
</TABLE>
<PAGE>
MICROENERGY, INC.
430,000 Shares of Series A Cumulative Convertible Preferred Stock
and 215,000 Redeemable Class A Warrants for Preferred Stock
The securities offered hereby consist of 430,000 shares of Series A
Cumulative Convertible Preferred Stock, $.01 par value per share ("Preferred
Stock"), of MicroENERGY, Inc. (the "Company"), and 215,000 Redeemable Class
A Warrants for Series A Preferred Stock ("Class A Warrant"). The Preferred
Stock and Class A Warrants (collectively, the "Securities") will be offered
so that an investor in this Offering will purchase twice as many shares of
Preferred Stock as Class A Warrants. The Preferred Stock is convertible,
commencing 12 months after the date of this Prospectus, and at any time
thereafter that the Preferred Stock is outstanding, into the Company's Common
Stock at a rate of no less than 1 share and no more than 2 shares for every
share of Preferred Stock, the actual conversion ratio to be determined on the
first anniversary of the date hereof based upon the market price of the
Common Stock at that time. The Preferred Stock may be converted, at the
Company's option, into Common Stock at a rate of 1 share of Common Stock for
each share of Preferred Stock either (1) on ____________, 1999 or (2) during
the 24 months following the first anniversary of the date of this Prospectus
if the closing bid price of the Common Stock exceeds $7.00 for five
consecutive trading days during that period. In the event of the liquidation
of the Company, holders of the Preferred Stock will be entitled to a
liquidation preference of $5.00 per share, plus any accrued but unpaid
dividends. Holders of the Preferred Stock will be entitled to exercise one
vote per share at all meetings of the Company's shareholders. See "DESCRIP-
TION OF SECURITIES."
Each Class A Warrant entitles the holder to purchase one share of the
Company's Series A Preferred Stock at an exercise price of $5.25, subject to
adjustment, from , 1997 through ____________, 2000. In the
event that the Company has exercised its option to convert the Series A
Preferred Stock into Common Stock, each Class A Warrant will thereafter
entitle the holder to purchase one share of Common Stock. At any time that
the Class A Warrants are exercisable, the Warrants are also subject to
redemption by the Company on not less than 30 days notice at $.01 per
Warrant, provided the closing bid price of the Common Stock exceeds $7.00 per
share for five consecutive trading days ending within fifteen days prior to
the date on which notice is sent. See "DESCRIPTION OF SECURITIES".
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE
OF RISK. AN INVESTMENT IN THESE SECURITIES SHOULD BE CONSIDERED ONLY BY
PERSONS CAPABLE OF SUSTAINING THE LOSS OF THEIR ENTIRE INVESTMENT. SEE:
"RISK FACTORS."
The registration statement of which this prospectus forms a part also
covers the offering of 880,000 Class A Warrants owned by six security-holders
(the "Selling Securityholders"). These Class A Warrants are identical to the
Class A Warrants being offered by the Company. The Securities held by the
Selling Securityholders may be sold concurrent with or after this Offering.
Sales of such securities or even the potential of such sales at any time may
have an adverse effect on the market prices of the securities offered hereby.
See "SELLING SECURITYHOLDERS".
Dividends on the Preferred Stock are cumulative from the date of issue
and are payable semi-annually at a rate of 8% per annum. At the Company's
option, the Company may pay each dividend, in whole or in part, either in
cash or in shares of the Company's Common Stock valued at the average closing
bid price for the ten days preceding the date for payment of the dividend.
The Company's Common Stock is currently quoted on the NASDAQ Bulletin
Board. There is currently no market for either the Preferred Shares or the
Class A Warrants. On April __, 1996, the closing bid price of the Common
Stock as quoted on the NASDAQ Bulletin Board was $___ per share. The Company
has applied to have the Preferred Stock, the Common Stock, and the Class A
Warrants listed on the NASDAQ SmallCap Market, and expects that listing to
occur on the effective date of this Offering.
This Prospectus also relates to the shares of Preferred Stock issuable
upon exercise of the Class A Warrants, the shares of Common Stock issuable
upon conversion of the Preferred Stock, and shares of Common Stock which may
be issued as dividends on the Preferred Stock. See "DESCRIPTION OF SECURI-
TIES."
_________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Price to Discounts and Proceeds to
Public Commissions (1) Company (2)
Per Share.............$ 5.00 $ .50 $ 4.50
Per Class A Warrant...$ .10 $ .01 $ .09
Total (3).............$2,171,500 $217,150 $1,954,350
(1) Does not include additional underwriting compensation to be paid by the
Company to the Representative in the form of (a) non-redeemable warrants
to purchase 43,000 shares of Series A Preferred Stock at $6.00 per share
and 21,500 Class A Warrants at $.12 per Warrant, exercisable over a
period of four years commencing one year from the date of this
Prospectus (the "Representative's Purchase Warrants");(b) a non-
accountable expense allowance (the "Non-Accountable Expense Allowance")
equal to three percent of the aggregate initial public offering price
of the Securities, namely $65,145 (or $74,917 assuming exercise in full
of the Over-Allotment Option, as defined below), $25,000 of which has
been advanced to the Representative, and (c) consulting fees of $48,000
payable to the Representative in full at the closing of the public
offering of the Securities. The Company and the Representative have
agreed to indemnify one another against certain liabilities, including
liabilities arising under the Securities Act of 1933, as amended. See
"UNDERWRITING".
(2) Before deducting expenses of this offering payable by the Company
estimated to be $233,000, including the Representative's non-accountable
expense allowance of $65,145 and the $48,000 financial consulting fee
referred to above. After deducting such expenses, the net proceeds to
the Company will be approximately $1,721,350. See "USE OF PROCEEDS".
(3) The Company has granted the Representative an option to purchase up to
an additional 64,500 shares of Preferred Stock and 32,250 Class A
Warrants at any time on or before 45 days from the date hereof solely
for the purpose of covering over-allotments (the "Over-Allotment
Option"). If the Over-Allotment Option is exercised in full, the total
price to the public will be $2,497,225, the total discounts and
commissions will be $249,723, and the estimated expenses of the Offering
will be $242,772. The net proceeds to the Company after deducting
expenses of the offering would then be $2,004,730. See: "USE OF
PROCEEDS".
I.A. RABINOWITZ & CO.
The date of this Prospectus is April__, 1996
<PAGE>
SHAREHOLDERS' REPORTS
The Company has not furnished its Shareholders with annual, quarterly
or other reports since 1991. The Company may in the future furnish holders
of its Common Stock and Preferred Stock with annual reports containing
audited financial statements examined and reported upon, with an opinion
expressed by the Company's independent certified public accountants, but no
determination to do so has been made.
______________________
The Securities are being offered subject to prior sale, when, as and if
delivered to and accepted by I.A. Rabinowitz & Co., and subject to certain
other conditions. The Representative reserves the right to withdraw, cancel
or modify such offer without notice and to reject orders in whole or in part.
It is expected that delivery of the Securities will be made on or about
________________, 1996.
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS.
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURI-
TIES OTHER THAN THE SECURITIES TO WHICH THIS PROSPECTUS RELATES OR AN OFFER
TO OR SOLICITATION OF ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION
THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE PREFERRED
STOCK, COMMON STOCK OR THE WARRANTS OF THE COMPANY AT A LEVEL ABOVE THAT
WHICH OTHERWISE MIGHT PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE
EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . 1
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . 6
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . 14
PRICE RANGE OF COMMON STOCK. . . . . . . . . . . . . . . 16
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . 16
DIVIDENDS. . . . . . . . . . . . . . . . . . . . . . . . 19
SELECTED FINANCIAL INFORMATION . . . . . . . . . . . . . 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . 20
CERTAIN FEDERAL INCOME TAX EFFECTS
UPON THE COMPANY. . . . . . . . . . . . . . . . . . 24
BUSINESS OF THE COMPANY. . . . . . . . . . . . . . . . . 25
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . 32
CERTAIN TRANSACTIONS . . . . . . . . . . . . . . . . . . 36
PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . 38
DESCRIPTION OF THE COMPANY'S SECURITIES. . . . . . . . . 40
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
TO INVESTORS. . . . . . . . . . . . . . . . . . . . 46
UNDERWRITING . . . . . . . . . . . . . . . . . . . . . . 52
SELLING SECURITYHOLDERS. . . . . . . . . . . . . . . . . 56
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . 58
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . 58
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . 58
INDEX TO FINANCIAL STATEMENTS. . . . . . . . . . . . . . 60
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified in its entirety by the more
detailed information, financial statements and notes thereto
appearing elsewhere in this Prospectus. All references herein to
a number of shares of Common Stock have been adjusted to reflect
the 1-for-360 reverse stock split of the Company's Common Stock on
April , 1996, the date of this Prospectus.
The Company
MicroENERGY, Inc. ("MicroENERGY" or the "Company") has
been engaged since 1984 in the business of designing and manufac-
turing high-frequency power supplies and DC-to-DC converters for
original equipment manufacturers ("OEMs") who are engaged in the
telecommunications, computer, and instrumentation segments of the
electronics industry. Each of the Company's products is custom
designed to meet the specific needs of a customer within a power
output range of 25 watts to 2500 watts.
During the Company's eleven years of operations, the
Company has acquired a reputation in the marketplace for making
timely deliveries of high-quality power supplies which incorporate
state-of-the-art engineering. In recent years, however, the
Company's growth has been stagnant, as the Company's ability to
attract new customers has been hampered by the Company's high debt-to-assets
ratio, which has caused some potential customers to
question the Company's financial stability. Since a typical
customer order anticipates deliveries over an extended period of
time - often years - to meet the customer's manufacturing schedule,
OEM customers avoid any supplier whose ability to deliver over the
long term is in doubt. Thus, despite eleven years of timely
deliveries, customer doubts about MicroENERGY's financial stability
continue to hinder sales growth.
During the second and third quarters of fiscal 1996, two
events occurred which indicate that the Company may now enter a
period of significant growth. First, the Company received pre-production
orders for new product designs from eight OEM customers.
While none of these orders create binding obligations on the
customers, the Company expects to receive production orders from
each. If all eight customers give the Company the production
orders they have quoted, the eight new products will represent
$10.2 Million in annual sales beginning in July, 1996. See
"BUSINESS OF THE COMPANY - Marketing."
The second favorable recent event was the agreement of
AT&T Global Information Systems, which was the holder of $2.33
Million of the Company's long-term debt, to accept an immediate
payment of $1.33 Million in satisfaction of the debt. The Company
was able to effectuate that debt compromise by raising approximate-
ly $1.0 Million in debt financing and $330,000 in equity financing
from the officers of the Company and the Selling Securityholders.
See "Capitalization - Debt Compromise." The effect of the debt
compromise and related financing was to reduce the Company's total
debt by $1.34 Million, reduce the Company's debt-to-assets ratio
from .88-to-1 as of December 31, 1995 to .68-to-1, and increase the
Company's net worth by $1.3 Million, resulting in a positive share-
holders equity for the first time in several years.
The Company intends to use the net proceeds of this
offering to finance the expansion of operations necessitated by the
expected new orders and to repay some of its debt. See "USE OF
PROCEEDS." Management believes that the financial improvements
brought about by this offering and the anticipated sales it will
finance will enable the Company to compete more effectively and
facilitate a period of growth.
The Company's executive offices are located at 350 Randy
Road, Carol Stream, Illinois. Telephone: 708-653-5900.
Capitalization Currently Outstanding:
Common Stock: 415,143 shares
Series A Preferred Stock:
350,000 shares
The Offering by the Company
Securities Offered 430,000 shares of Series A
Preferred Stock, $.01 par
value and 215,000 Class A
Warrants. The Securities will
be offered so that an investor
in this Offering will purchase
twice the number of shares of
Preferred Stock as the number
of Class A Warrants purchased.
See "DESCRIPTION OF SECURI-
TIES."
Representative's Compensation I.A. Rabinowitz & Co. (The
"Representative") will receive
as compensation for its ser-
vices in this offering a 10%
discount on the purchase price
of the Securities, a 3% non-accountable
expense allowance and an option to purchase
Securities equal to ten per-
cent of the Securities sold in
this offering. As part of the
underwriting arrangements, the
Company will enter into an
agreement retaining the Repre-
sentative as a financial con-
sultant to the Company for a
two-year period commencing as
of the close of the sale of
the securities offered hereby
at an annual fee of $24,000,
for a total of $48,000 payable
in full at the closing of the
Offering, and will pay an in-
vestment banking fee with re-
spect to any transaction in-
troduced and consummated, and
a 4% warrant solicitation fee.
See: "UNDERWRITING."
Preferred Stock
Payment of Dividends............. Dividends are cumulative from
the date of issue of shares of
Preferred Stock and are pay-
able semi-annually at a rate
of 8% per annum. The Company
may, at its sole discretion,
pay each dividend either in
cash or in shares of Common
Stock valued at the average
closing bid price for the ten
days preceding the record date
for the dividend or in a com-
bination of cash and Common
Stock. See "RISK FACTORS -
Restrictions on Payment of
Dividends."
Tax Consequences of Dividends.... To the extent that Common
Stock is distributed as divi-
dends on the Preferred Stock,
the amount distributed for
federal income tax purposes
(and consequently, subject to
certain exceptions, the amount
of dividend income) to the
holder of the Preferred Stock
would equal the fair market
value of such Common Stock on
the date of distribution and,
accordingly, may be greater or
less than the value of the
dividend as calculated in the
preceding section. See "RISK
FACTORS - Income Tax Consider-
ations - Distribution of Com-
mon Stock as Dividends" and
"CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS TO INVESTORS."
Redemption....................... The Preferred Stock is not
redeemable.
Conversion....................... The Preferred Stock is con-
vertible at the option of the
holder, commencing on the
first anniversary of the date
of this Prospectus. The con-
version rate will be based
upon the average closing bid
price for the Common Stock for
the twenty trading days pre-
ceding said anniversary date.
If that average exceeds $5.50,
each share of Preferred Stock
will be convertible into one
share of Common Stock. If the
average bid price is $4.51 to
$5.50, each Preferred Share
will be convertible into 1.25
Common Shares. If the average
bid price is $3.50 to $4.50,
each Preferred Share will be
convertible into 1 Common
Shares. If the average bid
price is less than $3.50, each
Preferred Share will be con-
vertible into 2 Common Shares.
Notwithstanding the foregoing,
each Preferred Share may be
converted at the Company's
option into one share of Com-
mon Stock either (1) on or
after _____________, 1999 or
(2) during the 24 months fol-
lowing the first anniversary
of the date of this Prospectus
if the closing price of the
Common Stock exceeds $7.00 for
five consecutive trading days
during that period.
Liquidation Preference........... Upon any liquidation, before
distribution is made to the
holders of Common Stock, hold-
ers of the Preferred Stock
will be entitled to receive
$5.00 per share, plus accrued
and unpaid dividends to the
date of distribution.
Voting........................... The holders of Preferred Stock
will be entitled to one vote
per share at any meeting of
the Company's shareholders.
Warrants
Terms of Class A Warrants Each Class A Warrant entitles
the holder to purchase one
share of the Company's Series
A Preferred Stock at a price
of $5.25, subject to adjust-
ment, during the three year
period beginning one year
after the date of this Pro-
spectus. After _________,
1997, the Class A Warrants are
subject to redemption by the
Company at any time during the
exercise period, on not less
than 30 days' notice at $.01
per Warrant provided the aver-
age closing price of the Com-
mon Stock exceeds $7.00 per
share for 5 consecutive trad-
ing days ending within 15 days
prior to the notice.
Proposed NASDAQ SmallCap
Market Symbols: Preferred Stock - MCREP
Common Stock - MCRE
Class A Warrants - MCREW
Risk Factors The securities are subject to
a high degree of risk. See:
"RISK FACTORS."
<PAGE>
Selected Financial Information
Six Months Ended
December 30
1995 1994
Income Data:
Revenues................ $6,721,421 $7,668,227
Operating Income........ 262,525 287,295
Net Income.............. 102,270 120,946
Net Income Per Share.... $.21 $.38
Years Ended
June 30
1995 1994 1993
Income Data:
Revenues............ $14,588,844 $12,771,067 $15,886,279
Operating Income.... 581,685 426,419 433,280
Net Income.......... 249,894 204,845 40,806
Net Income Per Share $.79 $.65 $.14
Balance Sheet Data:
As Adjusted to Reflect:
Dec. 31, Debt Public
1995 Compromise(1) Offering(2)
Working Capital................. $ 393,657 $ 393,657 $1,628,007
Total Assets.................... 6,612,062 6,612,062 7,846,412
Long-Term Debt, Net............. 3,243,819 1,900,819 1,413,819
Stockholders Equity/(Deficit) (857,711) 480,289 2,651,789
______________________________
(1) Reflects the effect of $1 Million reduction in debt to
AT&T and related financing transactions from January
through March of 1996. See "CAPITALIZATION - Debt
Compromise."
(2) Assumes no exercise of the Underwriters' Over-allotment
Option, and the use of $487,000 of net proceeds to
reduce long-term debt. See "USE OF PROCEEDS."
RISK FACTORS
In making comparisons with other investments or in
considering the success of other investments, one should bear in
mind that the success of any investment depends upon many factors
including opportunity, general economic conditions, experience
and competence of management. There is no representation that
the same positive factors are present in this Company which have
been present in like ventures that have been successful.
Any person who is considering the purchase of the
Securities offered herein should carefully consider the adverse
factors described below. Any one or more of these factors could
have a negative effect on the Company of such impact as to cause
the value of the Company's securities to be greatly diminished.
I. RISKS RELATING TO THE COMPANY
1. Poor Financial Condition. At December 31, 1995 the
Company had a negative net worth of $857,711. The debt compro-
mise that the Company contracted for in late January, 1996 has
improved the net worth to approximately $400,000, but in the
event of a liquidation all of that net worth would be allocated
to the Preferred Stock that was issued in connection with the
debt compromise.
Although the balance sheet of the Company at December
31, 1995 shows working capital of $393,657, that figure is
primarily the result of offsetting $4,225,954 in current liabili-
ties against $3,033,235 in inventory. Most of that inventory
consists of raw materials, much of which could not be liquidated
immediately, but will be used in the normal course of production
and shipment. The Company's cash position, therefore, is not
good, and the Company must depend on short-term borrowings to
finance its operations. This borrowing then exacerbates the
Company's poor debt-to-asset ratio, which gives the Company an
appearance of instability, which has had a serious negative
effect on the Company's ability to market its products. See
"BUSINESS OF THE COMPANY - Marketing."
The Company anticipates that the proceeds of this
public offering will be adequate to finance the Company until
cash flow from sales is sufficient for the operation of the
Company. If the Company is mistaken and a shortfall in cash flow
occurs, it will be difficult and perhaps impossible for the
Company to acquire additional financing, without which the
Company would most likely be forced to liquidate.
2. Risks Attendant to Plans for Growth. The Company
intends to utilize a significant portion of the net proceeds of
this offering to make capital improvements and other investments
necessary to expand the Company's sales volume. Like any busi-
ness enterprise operating in a specialized and competitive
market, the Company is subject to many business risks which
include, but are not limited to, cancellation of significant
orders, failure of expected orders to be realized, inadequate
capital, competition, and technological advances by the Company's
competitors. Many of the risks inherent in the Company's busi-
ness may be unforeseeable or beyond the control of management.
There can be no assurance that the Company will successfully
implement its business strategies in a timely or effective
manner, or that management of the Company will be able to gener-
ate sufficient sales to produce significant growth or even
maintain the current levels of operations. See: "BUSINESS OF
THE COMPANY".
3. Lack of Firm Orders. The Company is making this
public offering to acquire funds to enable it to finance an
anticipated expansion of operations based upon orders for newly
designed products received from eight OEM customers. However, as
is customary in the electronics industry, none of these orders
constitutes a firm commitment to take delivery of the Company's
products until the customer authorizes a release for shipment.
Such releases are customarily given to cover shipments for a few
months only. At January 26, 1996, the Company has released
orders from these eight customers totalling only $622,000. There
can be no assurance that the Company will receive any additional
orders. As of January 1, 1996 the Company's backlog (which
consists entirely of released orders) totalled $5,013,000, most
of which was scheduled for delivery in the Company's third fiscal
quarter. The Company's sales volume for the remainder of the
year will depend on follow-on sales of existing designs and sales
of newly designed products now in the pre-production and early
production phases. The Company cannot make any confident predic-
tion as to how much business it will receive from those sources,
and can give no assurance that sales will equal or exceed current
levels.
4. Competition; Rapid Technological Change. The
electronics industry is populated by many companies, large and
small, with the technical expertise capable of producing rapid
and significant technological advances. These advances often
result in partial or total obsolescence of products within a
relatively short time. The Company sells its products in compe-
tition with many other companies, many of which are substantially
larger than the Company and have far greater financial and other
resources. These larger competitors are capable of committing
substantial resources to research and development of new prod-
ucts, which is crucial in the markets in which the Company will
compete. As technological developments occur in the electronics
industry, the Company's relatively small capital resources may
prevent it from making the investments in research and develop-
ment necessary to remain at the forefront of power supply techno-
logy. Any technological short-fall in the Company's products
would virtually eliminate its ability to compete successfully.
See "BUSINESS OF THE COMPANY - The Industry."
5. Dependence on Major Customer. The Company has been
selling power supplies to various divisions of AT&T for several
years. The relationship expanded when the Company acquired the
power supply division of NCR Corporation, after which NCR Corpo-
ration was acquired by AT&T. The Company's sales to AT&T ac-
counted for approximately 39% of the Company's total revenues in
the first six months of fiscal 1996, 28% of the Company's total
revenues in fiscal 1995, 18% of the Company's total revenues in
fiscal 1994, and 40% of the Company's total revenues in fiscal
1993. Any termination or significant reduction of this relation-
ship would have a material adverse effect on the business of the
Company. There is no binding contract between the Company and
AT&T other than short-term purchase orders. See "BUSINESS OF
THE COMPANY - Marketing."
6. Scarcity of Semiconductors. In order to manufac-
ture its power supplies, the Company must maintain a large
inventory of semiconductors. At the present time, the worldwide
supply of certain types of semiconductors does not meet the
worldwide demand for those components. Moreover, the problem
portends to be a factor in the industry for many years to come,
as the creation of a wafer fabrication plant to produce these
components entails an investment of $1 Billion to $2 Billion and
up to two years for completion. MicroENERGY enjoys a good
relationship with its suppliers of semiconductors. Nevertheless,
the Company has no guaranteed source of semiconductors. Any
shortage in the Company's inventory of semiconductors could delay
production of power supplies and adversely affect the Company's
sales and cash flow. See "BUSINESS OF THE COMPANY - Sources of
Components."
7. Dependence on Key Personnel. The success of the
Company is dependent upon the services of its current management,
particularly Robert G. Gatza, Chairman of the Board and Chief
Executive Officer, and Robert J. Fanella, Chief Financial Offi-
cer. Although the Company has employment agreements with its
officers, those agreements do not assure the Company of the
officers' continued services. There is no assurance that the
Company would be able to locate and retain qualified persons to
replace any member of management. The prolonged unavailability
of any current member of senior management, whether as a result
of death, disability or otherwise, could have an adverse effect
upon the business of the Company. See "MANAGEMENT."
The Company will also need to attract and retain
technologically-qualified personnel with backgrounds in engineer-
ing, production and marketing. There is keen competition for
such highly qualified personnel. The Company believes that its
current professional employees are of high caliber, and intends
to actively seek out additional highly qualified personnel as
needed. But there can be no assurance that the Company will be
successful in recruiting or retaining personnel of the requisite
caliber or in the requisite number to enable the Company to
conduct its business as proposed.
8. Related Party Transactions. At several times
throughout its history the Company has relied upon the financial
resources of its officers (Robert G. Gatza and Robert J. Fanella)
to facilitate certain corporate transactions and, on occasion, to
provide working capital. See "CERTAIN TRANSACTIONS." The
Company believes that all of these transactions have been made on
terms which were equal to or more favorable to the Company than
terms which might have been available in arms-length transac-
tions. The Company may borrow funds in the future from manage-
ment when needed for operations or in connection with major
transactions, or management may be called upon to provide their
personal guarantees of one or more of the Company's obligations.
If it appears to the Board of Directors that the officers should
be compensated for providing such guarantees, the Company will do
so.
9. Product Protection. The Company has no patents,
and it is expected that most of its switching power supply
products will not be patented. The Company believes that patent
protection is not available for an entire power supply. Although
the Company has incorporated certain safeguards into the designs
for its power supplies, which will make them difficult to copy,
the designs can never be absolutely safeguarded.
10. No Dividends. The Company has paid no dividends
to its shareholders since its inception and does not plan to pay
dividends in the foreseeable future. Any earnings which it may
realize will be retained to finance the growth of the Company.
II. RISKS RELATED TO THE COMPANY'S SECURITIES
11. Effect of Issuance of Shares on Tax Attributes .
At June 30, 1995, the Company had net operating loss ("NOL")
carryforwards of approximately $3,700,000 and investment tax
credit, research and development credit, and minimum tax credit
("MTC") carryforwards totalling approximately $233,000, which,
absent an "ownership change" as described below, would generally
be available to offset future taxable income and tax liability of
the Company. The Company believes that it will experience an
"ownership change" within the meaning of Section 382 of the
Internal Revenue Code of 1986, as amended, no later than the
closing of this offering, and that, accordingly, a limitation
will be imposed under Section 382 of the Code on the utilization
of NOL and tax credit carryforwards. As a result, the Company
does not expect to be able to utilize its full NOL and tax credit
carryforwards to offset future taxable income and tax liability.
See "CERTAIN FEDERAL INCOME TAX EFFECTS UPON THE COMPANY". This
limitation would have a materially adverse effect on the Compan-
y's net income, if the Company were to generate taxable income or
tax liability materially in excess of the limitation.
12. Income Tax Considerations - Distribution of Common
Stock as Dividends. The receipt of a distribution of Common
Stock as a dividend with respect to Preferred Stock will be
taxable to the extent of the fair market value of the Common
Stock distributed on the date of the distribution, subject to
certain exceptions. Accordingly, payment of a dividend in Common
Stock may give rise to taxable income to holders of Preferred
Stock, for which taxes may be payable, notwithstanding that no
cash was distributed. See "CERTAIN FEDERAL INCOME TAX CONSIDER-
ATIONS TO INVESTORS."
13. Restrictions on Payment of Dividends. As a
Delaware corporation, the Company is permitted to declare and pay
dividends only out of either (a) capital surplus or (b) net
profits for the fiscal year in which the dividend is declared or
the preceding fiscal year. If the Company's net worth does not
exceed its stated capital and it has not realized income in the
year a dividend is due or the preceding year, dividends may not
be paid by the Company on the Preferred Stock. Any dividends not
paid will accrue. No interest will be paid on any accrued but
unpaid dividends. The Company's ability to pay dividends will
depend on the success of its operations. There can be no assur-
ance that the Company will realize sufficient financial success
to be able to pay dividends on the Preferred Stock. See "DIVI-
DENDS" and "DESCRIPTION OF SECURITIES."
14. Mandatory Conversion of Preferred Stock Under
Certain Circumstances. In the event that, during the 24 months
after the first anniversary of the date of this Prospectus, the
market price of the Company's Common Stock exceeds $7.00 for five
consecutive trading days, each share of the Preferred Stock may
be converted, at the Company's option, into 1 share of Common
Stock. Conversion at that same rate will also happen at the
Company's option on the third anniversary of the date of this
Prospectus. Upon such a mandatory conversion, shareholders will
lose all of the benefits of owning the Preferred Stock, other
than the right to receive all dividends declared and unpaid up to
the date of conversion. The Company will have no obligation to
notify shareholders prior to the effective date of a mandatory
conversion, so holders of Preferred Stock may unknowingly be
deprived of the benefits of owning the Preferred Stock. See
"DESCRIPTION OF THE COMPANY'S SECURITIES - Preferred Stock:
Conversion."
15. Dilutive Effect of Stock Dividends on Preferred
Stock. The Preferred Stock will pay dividends on a semi-annual
basis. The Company has the option to pay the entirety of each
dividend in shares of Common Stock and expects that it will
exercise that option at times. The issuance of shares of Common
Stock as dividends will have a dilutive effect on the holders of
the Company's Common Stock and may have an adverse effect on the
market price for the Common Stock and the market price of the
Preferred Stock, which is convertible into Common Stock.
16. Possible Redemption of Warrants. The Company, at
its option, may redeem the Class A Warrants at $.05 per Warrant
if the average bid price of the Common Stock exceeds $7.00 at any
time that the Warrants are exercisable. In the event of the
Company's exercise of such option, holders of Warrants called for
redemption would no longer be able to benefit from any increase
in the value of the underlying Common Stock unless they exercised
their Warrants at the Warrant exercise price. See "DESCRIPTION
OF SECURITIES - Warrants."
17. Current Prospectus and State Blue Sky Registration
Required to Exercise Warrants. Purchasers of the Class A War-
rants will have the right to exercise the Warrants only if a
current prospectus relating to the shares underlying the Warrants
is then in effect and only if such shares are qualified for sale
under applicable state securities laws of the states in which the
various holders of the Warrants reside. There is no assurance
that the Company will be able to keep this Prospectus covering
such shares current. The Warrants may be deprived of any value
if a current prospectus covering the shares issuable upon exer-
cise thereof is not kept effective or if such shares are not
registered in the states in which holders of the Warrants reside.
See "DESCRIPTION OF SECURITIES--Warrants".
18. "Penny Stock" Regulations. The Securities and
Exchange Commission (the "Commission") has adopted regulations
which generally define "penny stock" to be an equity security
that has a market price (as defined) of less than $5.00 per share
or an exercise price of less than $5.00 per share, subject to
certain exceptions. Upon authorization of the Securities offered
hereby for quotation on NASDAQ, the Securities will initially be
exempt from the definition of "penny stock". The Company has
been advised that the Company's Securities will be listed on
NASDAQ upon the Effective Date of this offering. If, however,
the Securities offered hereby are not accepted for initial
listing by NASDAQ or are removed from NASDAQ, the Company's
securities may become subject to rules that impose additional
sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and
institutional accredited investors. 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 prepared by the
Commission relating to the penny stock market. The broker-dealer
also must disclose the commissions payable to both the broker-dealer
and the registered representative, current quotations for
the securities and, if the broker-dealer is the sole market-maker,
the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. Finally, monthly
statements must be sent disclosing recent price information for
the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the "penny stock"
rules may restrict the ability of broker-dealers to sell the
Company's securities and may affect the ability of purchasers in
the offering to sell the Company's securities in the secondary
market.
19. Thinly Traded, Volatile Market For Common Stock.
The market price of the Company's Common Stock will be a very
significant factor in determining the market price for the
Preferred Stock and the Warrants. For the past several years the
Company's Common Stock has been thinly traded, as no broker-dealer
was actively seeking new customers for the Common Stock.
The market price of the Company's Common Stock, therefore, has
been relatively volatile, however, and is subject to large
changes within a brief period of time. Investors considering the
purchase of the Securities cannot rely upon the market price of
the Common Stock as a stable basis for determining whether to
purchase or sell the Securities. Moreover, should an active
market for the Preferred Stock or the Warrants develop after this
Offering, it is possible that arbitrage activity by market makers
will increase the volatility of the market for the Company's
common stock.
20. Lack of Prior Market for Preferred Stock and War-
rants. Prior to this offering, no public trading market existed
for the Preferred Stock or the Warrants. There can be no assur-
ances that a public trading market for the Securities will
develop or that a public trading market, if developed, will be
sustained. The Company anticipates that upon completion of this
offering, the Preferred Stock, Common Stock and Warrants will be
eligible for inclusion on the National Association of Securities
Dealers Automated Quotation System SmallCap Market ("NASDAQ").
If for any reason, however, such Securities are not listed on
NASDAQ or a public trading market does not develop, purchasers of
the Securities may have difficulty in selling their Securities
should they desire to do so. In any event, due to the price of
the Company's securities, many brokerage firms will not effect
transactions in the Securities and it is unlikely that any bank
or financial institution will accept such Securities as collater-
al, which could have an adverse effect in developing or sustain-
ing any market for the Company's Common Stock or Warrants.
Although it has no legal obligation to do so, the Representative
from time to time may act as market maker and otherwise effect
transactions in the Company's securities. The Representative, if
it participates in the market, may become a dominating influence
in any market that might develop for any of the Company's securi-
ties. However, there is no assurance that the Representative
will continue to be a dominating influence. The prices and
liquidity of the Company's securities may be significantly
affected by the degree, if any, of the Representative's partici-
pation in the market, the Representative's dominating influence
on any market that may develop and the fact that a significant
number of the Securities may be sold to existing customers of the
Representative. The Representative may discontinue such activi-
ties at any time. Further, the market for, and liquidity of, the
Company's securities may be adversely effected by the fact that a
significant amount of the Securities may be sold to customers of
the Representative. Under the rules of the National Association
of Securities Dealers, Inc. ("NASD"), in order to qualify for
initial quotation of securities on NASDAQ, a company, among other
things, must have at least $4,000,000 in total assets, $2,000,000
in total capital and surplus, $1,000,000 in market value of
public float, a minimum bid price of $3.00 per share and at least
two (2) market makers. For continued listing, a company, among
other things, must have $2,000,000 in total assets, $1,000,000 in
total capital and surplus, $1,000,000 in market value of public
float and a minimum bid price of $1.00 per share. If the Company
is unable to satisfy the requirements for quotation on NASDAQ,
trading if any, in the Common Stock and Warrants offered hereby
would be conducted in the over-the-counter market in what are
commonly referred to as the "pink sheets" or on the NASD's
Electronic Bulletin Board. As a result, an investor may find it
more difficult to dispose of, or to obtain accurate quotations as
to the price of, the Securities offered hereby. The above-described
rules may materially adversely affect the liquidity of
the market for the Company's Securities. See: "UNDERWRITING".
21. Restrictions on Marketmaking Activities During
Warrant Solicitation. To the extent that the Representative
solicits the exercise of Class A Warrants, the Representative may
be prohibited pursuant to the requirements of Rule 10b-6 under
the Exchange Act from engaging in marketmaking activities during
such solicitation and for a period of up to nine days preceding
such solicitation. As a result, the Representative may be unable
to continue to provide a market for the Company's securities
during certain periods while the Class A Warrants are exercis-
able. The Representative is not obligated to act as a marketmak-
er. See "UNDERWRITING".
22. Representative's Purchase Warrant. In connection
with this Offering, the Company will sell to the Representative,
for nominal consideration, a warrant to purchase 43,000 shares of
Series A Preferred Stock and 21,500 Class A Warrants (the
"Representative's Warrant"). The Representative's Warrant will
be exercisable commencing one year after the Effective Date and
ending four years after such date, at a price of $6.00 per share
and $.12 per warrant, subject to certain adjustments. The
holders of the Representative's Warrants will have the opportuni-
ty to profit from a rise in the market price of the Company's
securities, without assuming the risk of ownership. The Company
may find it more difficult to raise additional capital if it
should be needed for the business of the Company while the
Representative's Warrant is outstanding. At any time when the
holders thereof might be expected to exercise them, the Company
would probably be able to obtain additional capital on terms more
favorable than those provided by the Representative's Warrant.
See: "UNDERWRITING."
USE OF PROCEEDS
The net proceeds to be received by the Company from the
sale of the Securities being offered hereby, after the deduction
of the underwriting discounts and the expenses of this Offering,
are estimated at $1,721,350 (assuming that the Representative's
Over-Allotment Option is not exercised). The Company will not
receive any proceeds from the sale of Warrants by the Selling
Securityholders.
The Company intends to allocate the net proceeds of
this Offering in the approximate amounts set forth below:
Approximate Percentage
Approximate Amount of Net Proceeds
Capital Improvements (1) $500,000 29.0%
Financing New Sales (1) 400,000 23.2%
Repayment of Debt (2) 300,000 17.4%
Repayment of Bridge Debt (3) 187,000 10.7%
Working Capital (4) 334,350 19.4%
Total $1,721,350
_______________________________
(1) The Company has received pre-production orders for new
designs from 8 OEM customers which, if they turn into pro-
duction orders on the terms proposed by the customers, will
represent up to $10.2 Million in annual sales by the Compa-
ny. In order to satisfy those orders, should they occur,
the Company will have to purchase additional inventories of
raw material parts, pay labor costs and incur the other
upfront expenses of manufacturing the products. Moreover,
although the Company's factories have sufficient capacity to
fill the new orders, the Company will have to invest in
certain new equipment to meet the demands of the increased
sales volume.
(2) The Company will utilize a portion of the proceeds to reduce
its indebtedness on its credit line. The Company pays
interest on its credit line at a rate of prime plus 2.5%.
The line of credit is secured by all of the Company's as-
sets.
(3) Represents repayment of bridge financing consisting of
promissory notes bearing interest at 8% per annum which are
payable on the earlier of (a) April 1, 1997 or (b) the date
on which this Offering closes. See: "CAPITALIZATION -
Bridge Financing." The Company used the proceeds of the
Bridge Financing to help finance its compromise of its
largest outstanding debt. See "CAPITALIZATION."
(4) Working Capital will be used for general corporate purposes,
such as salaries and purchase of inventory.
Any additional proceeds received from the purchase of addi-
tional Securities by the Underwriter to cover overallotments or
from the exercise of the Warrants will be added to working capi-
tal.
The foregoing represents the Company's best estimate of the
allocation of net proceeds of this offering based upon the
Company's current business plan and current economic and industry
conditions. The estimate is subject to reapportionment among the
categories listed above or to new categories in response to,
among other things, changes in the Company's plans and changes in
industry conditions.
Pending application of the net proceeds, such proceeds will be
invested in certificates of deposit, government debt instruments,
and/or other short-term investments.
PRICE RANGE OF COMMON STOCK
The following table sets forth the prices for the Company's
Common Stock as quoted on the NASDAQ Bulletin Board. The prices
take into account the 1-for-360 reverse stock split on the date
of this prospectus, as the actual prices have been multiplied by
360. It should be noted, however, that quotations for securities
priced in dollars tend to show smaller differentials between bid
and asked prices than quotations for securities priced in pen-
nies. The prices listed below, therefore, may not constitute an
accurate representation of what the market for the Common Stock
would have been if the reverse stock split had occurred prior to
July 1, 1993, but are simply a mathematical extrapolation of the
market as it existed prior to the reverse stock split.
<PAGE>
Bid Asked
Quarter Ending High Low High Low
December 31, 1995 $18.00 $ 1.80 $36.00 $ 9.00
September 30, 1995 $16.20 $ .90 $28.80 $ 3.60
June 30, 1995 $ 2.88 $ .36 $ 9.00 $ 2.70
March 31, 1995 $ 1.80 $ 1.08 $ 5.40 $ 3.24
December 31, 1994 $ 5.40 $ .36 $ 8.10 $ 3.60
September 30, 1994 $ 7.20 $ 1.80 $18.00 $ 5.40
June 30, 1994 $ 4.68 $ 1.80 $11.25 $ 5.40
March 31, 1994 $ 4.68 $ 1.80 $10.80 $ 5.40
December 31, 1993 $ 7.20 $ 1.80 $18.00 $ 5.40
September 30, 1993 $10.80 $ 3.60 $16.20 $ 9.90
The foregoing quotations represent prices between deal-
ers and do not include retail mark-up, mark-down, or commissions,
and may not necessarily represent actual transactions.
As of March 18, 1996, the Company had 3,133 holders of
record of the Common Stock.
CAPITALIZATION
The following table sets forth the capitalization of the
Company and its consolidated subsidiaries. The first column sets
forth the capitalization at December 31, 1995. The second column
sets forth the capitalization as adjusted to reflect the effect
of "Debt Compromise" described immediately below and the related
financing activities. The third column shows the effect of
further adjustment to give effect to the sale of the Securities
offered hereby and the intended of the net proceeds therefrom.
<PAGE>
December 31, 1995
Before After Debt After
Offering Compromise Offering
Long-term Debt (1) $ 3,243,819 $ 1,900,819 $ 1,413,819
Shareholders Equity:
Common Stock - Par Value $.01
Per Share, Authorized -
4,000,000 Shares; Out-
standing - 415,143 Shares (2) 4,151 4,151 4,151
Preferred Stock- Par Value,
$.01 Per Share, Authorized -
4,000,000 Shares; Outstanding -
350,000; To Be Outstanding -
780,000 Shares. Liquidation
Preference of $250,000 pro
forma and $2,400,000 after Offering 250,000 2,400,000
Additional Paid In Capital 5,837,379 5,837,379 5,837,379
Accumulated Deficit (5,356,650) (4,356,650) (4,356,650)
Unearned Restricted Stock Comp. (1,428,550) (1,428,550) (1,428,550)
Stock Purchase Warrants 75 88,075 109,575
Treasury Stock, at cost ( 16,386) ( 16,386) ( 16,386)
Unrealized Gain on Securities 102,270 102,270 102,270
Total Stockholders Equity/(Deficit)( 857,711) 480,289 2,651,789
Total Capitalization $ 2,386,108 $ 2,381,108 $ 4,065,608
- ------------------------------
(1) See Note 5 to Consolidated Financial Statements.
(2) Does not include (i) Class C Warrants to purchase 56,944
shares at $22.68 per share held by Robert G. Gatza and
Robert J. Fanella (See "CERTAIN TRANSACTIONS"), (ii) shares
of Preferred Stock issuable upon exercise of the 880,000
Class A Warrants currently outstanding (See "SELLING SECUR-
ITYHOLDERS AND PLAN OF DISTRIBUTION") and the 215,000 Class
A Warrants to be sold in this offering, (iii) 43,000 shares
of Preferred Stock issuable upon exercise of the Represen-
tative's Purchase Warrant, (iv) 21,500 shares of Preferred
Stock issuable upon exercise of Class A Warrants which are
issuable upon exercise of Representative's Purchase War-
rants, (v) 13,292 shares of Common Stock which are issuable
upon the exercise of outstanding stock options, or (vi)
shares which will become issuable if the Representative
exercises its Over-Allotment Option.
Debt Compromise
At December 31, 1995 the Company was indebted to a competi-
tor in the amount of $2,332,495 arising from the Company's
acquisition in 1991 of certain assets used by that competitor in
the manufacture of power supplies. The debt was non-interest-bearing with
monthly payments in ascending amounts extending through December 1, 2002.
On January 31, 1996 the Company reached an agreement with
the debt-holder to compromise the debt. The Company paid the
debt-holder $1,332,000 in cash, and the debt-holder forgave the
balance of the obligation. The effect of the debt compromise was
to reduce the Company's debt-load by approximately $1.3 Million
(net of loans taken to finance the debt compromise), increase
shareholders equity by approximately $1 Million, and will cause
the Company to realize approximately $1.0 Million in extraordi-
nary income during the third quarter of fiscal 1996.
The Company obtained the funds necessary to pay the debt-holder by (1)
obtaining $275,000 from the Bridge Financing
described immediately below, (2) agreeing to issue 350,000 shares
of Series A Preferred Stock to Robert G. Gatza and Robert J.
Fanella, the Company's officers, in exchange for their payment of
$250,000 and their personal guarantees of approximately $800,000
in loans to the Company, and (3) utilizing $43,750 paid by Messrs
Gatza and Fanella in December of 1995 upon their exercise of
Class D Warrants for Common Stock. "CERTAIN TRANSACTIONS."
Bridge Financing
In March, 1996 the Company obtained bridge financing from
six lenders in the amount of $275,000. The lenders are the
individuals identified in this Prospectus as "Selling Security-
holders." In exchange for the $275,000, the Company gave the
Selling Securityholders non-negotiable promissory notes in the
aggregate principal amount of $187,000 plus 880,000 Class A
Warrants. The notes accrue interest at a rate of 8% per year.
Principal and interest are payable on the earlier of (a) April 1,
1997 or (b) the date on which this offering closes. The out-
standing principal of the notes will be repaid from the net
proceeds of this Offering. The proceeds of the Bridge Financing
were used by the Company to fund the debt compromise described
immediately above.
The Company's agreement with the Selling Securityholders
provided that the Company would include in this registration
statement a prospectus covering the Class A Warrants owned by the
Selling Securityholders and the underlying Preferred Stock.
Accordingly, the registration statement, of which this Prospectus
is a part, also covers the offering of the Class A Warrants
acquired by the Selling Securityholders in the bridge financing,
as well as the Preferred Stock issuable upon exercise of those
Class A Warrants. See: "SELLING SECURITYHOLDERS."
DIVIDENDS
The Preferred Stock is entitled to cumulative annual divi-
dends of 8% of the $5.00 issue price per share. The annual
dividend requirement on the Preferred Stock sold in this Offering
will be $176,000, and that amount will increase if the Over-Allotment Option is
exercised or if any of the Class A Warrants
are exercised for Preferred Stock. At the Company's option, all
or part of each dividend may be paid in shares of the Company's
Common Stock valued at 100% of the average closing bid price of
the Common Stock as reported on NASDAQ (or such exchange or
quotation service as the Common Stock may be quoted on, if it
ceases to be quoted on NASDAQ) for the ten trading days before
the record date for the dividend.
The Company is not a party to any agreement or arrangement
that restricts or limits its ability or authority to declare and
pay dividends other than as provided by law. As a Delaware
corporation, the Company is permitted to declare and pay divi-
dends only out of either (a) capital surplus or (b) net profits
for the fiscal year in which the dividend is declared or the
preceding fiscal year. If the Company's net worth does not
exceed its stated capital and it has not realized income in the
year a dividend is due or the preceding year, dividends will not
be paid by the Company on the Preferred Stock. Any dividends not
paid will accrue. No interest will be paid on any accrued but
unpaid dividends.
On December 31, 1995 the Company had no capital surplus,
and at the present time the Company has very little capital
surplus. There can be no assurance that the Company will main-
tain sufficient capital surplus to be able to pay dividends on
the Preferred Stock. The Company's ability to pay dividends in
the future will depend on whether the Company is profitable. If
the Company incurs large losses which impair its financial
resources, the Company could quickly become unable to pay divi-
dends. In any case it is likely that the Company will from
time-to-time or always determine that it is in the best interests of
the Company to retain its cash assets, and pay the entirety of a
dividend in shares of Common Stock, particularly if the market
value of the Common Stock is high. Such a payment could have an
adverse effect on the market prices of the Company's Common Stock
and Preferred Stock.
Holders of Common Stock are entitled to receive such divi-
dends as may be declared by the Board of Directors of the Compa-
ny. To date, the Company has neither declared nor paid any
dividends on its Common Stock nor does the Company anticipate
that such dividends will be paid in the foreseeable future.
Rather, the Company intends to apply any earnings to the expan-
sion and development of its business. Any payment of cash
dividends on its Common Stock in the future will be dependent
upon the prior payment of required dividends on Preferred Stock,
the Company's earnings, financial condition, capital requirements
and other factors which the Board of Directors deems relevant.
SELECTED FINANCIAL INFORMATION
The summary financial information set forth below is de-
rived from and should be read in conjunction with the more
detailed financial statements and notes appearing elsewhere in
this Prospectus
Six Months Ended
December 30
1995 1994
Income Data:
Revenues................ $6,721,421 $7,668,227
Operating Income........ 262,525 287,295
Net Income.............. 102,270 120,946
Net Income Per Share.... $.21 $.38
Years Ended
June 30
1995 1994 1993
Income Data:
Revenues............ $14,588,844 $12,771,067 $15,886,279
Operating Income.... 581,685 426,419 433,280
Net Income.......... 249,894 204,845 40,806
Net Income Per Share $.79 $.65 $.14
Balance Sheet Data:
At December 31, 1995
Working Capital................. $ 393,657
Total Assets.................... 6,612,062
Long-Term Debt, Net............. 3,243,819
Stockholders Equity/(Deficit)... (857,711)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Six Months Ending December 31, 1995 vs.
Six Months Ending December 31, 1994
Net sales for the six months ended December 31, 1995 to-
talled $6,721,421, a reduction of $946,806 (8%) from net sales in
the first six months of fiscal 1995. The primary cause of the
reduction was the termination of sales to one particular custom-
er, as that customer downgraded the overall quality of its
product, which permitted it to purchase the lower cost power
supplies available from several manufacturers. This termination
was not offset by increased sales, as the Company's poor finan-
cial condition has made it difficult to generate new OEM custom-
ers. See "BUSINESS OF THE COMPANY - Marketing." Most of the
Company's sales during the first six months of fiscal 1996 were
to established customers.
The Company at January 1, 1996 had backlog of $5,013,000,
which may be compared to backlog of $3,550,300 at January 1,
1995. This backlog consists entirely of firm released orders,
most of which will be shipped during the third quarter of fiscal
1996. The combination of that backlog with non-binding produc-
tion schedules that the Company has received on existing customer
projects, as well as the preproduction orders and early produc-
tion orders for new projects that the Company received from eight
OEM customers near the end of its second quarter, all indicate
that the shortfall in sales compared to fiscal 1995 will be
eliminated in the second half of the fiscal year.
Despite the reduction in net sales of $946,806, operating
income fell only $24,670 from the first half of fiscal 1995 to
the first half of fiscal 1996. The Company was able to offset
the drop in revenues by cutting manufacturing costs significant-
ly. For this reason, facility, preproduction and production
expense in the first half of fiscal 1996 was almost 14% lower
than in the first half of 1995, although net sales fell by only
8%. Likewise, selling, general and administrative expense fell
by 13% from the 1995 period to the 1996 period, exceeding the
percentage reduction in net sales and so contributing to the
preservation of operating income. The increased operational
efficiency evidenced in the first half of fiscal 1996 should
prove beneficial to the Company's operating statements if the
anticipated increase in net sales in the second half of the year
is realized, as a larger percentage of those net sales should
survive as net income than has been the Company's experience in
the past.
<PAGE>
Year Ending June 30, 1995 vs.
Year Ending June 30, 1994
Net sales for the twelve month ended June 30, 1995 were
$14,588,844, as compared to net sales of $12,771,067 in the
fiscal year ending June 30, 1994. This represents a 14% increase
in revenues on a year to year basis. The primary reason for the
increase was a $1.8 Million increase in sales to AT&T, the
Company's largest customer, whose orders represented 18% of sales
in fiscal 1994 and 29% of sales in fiscal 1995. The Company
continues to do business with AT&T, with sales to it during the
first six months of fiscal 1996 representing 39% of the Company's
total net sales. One reason for this public offering, however,
is to provide funds to enable the Company to expand its customer
base, which will reduce the Company's dependence on this one
customer.
Operating income in fiscal 1995 increased by $155,266 from
$426,419 to $581,685, representing an increase of 36%. The
primary reason for the increase was the fact that research and
development expense increased by 3% while net sales increased by
22%. The reason for the small relative increase in research and
development expense was the Company's lack of cash resources to
devote to research and development, and does not represent
Company policy. The Company intends to expand its research and
development activities as its business expands to insure that it
remains in the forefront of power supply technology.
The increase in operating income was also due in part to
the relatively small increase in "general and administrative"
expense, which rose only 5% between fiscal 1994 and fiscal 1995.
The small increase relative to net sales is attributable to the
fact that the Company has established its management and account-
ing systems and other corporate infrastructure, and is capable of
handling expanded operations without a significant expansion of
infrastructure. Indeed, management has estimated that the
Company could expand to a level of $40 Million in sales without
major additions to facilities or senior management. This situa-
tion should prove financially advantageous if the anticipated
increase in sales in fiscal 1997 is realized.
The other elements of operating expense necessarily in-
creased in proportion to the increase in net sales. Facility,
preproduction and production expenses in fiscal 1995 were 79.3%
of net sales in that year, as compared to 78.7% of net sales in
the prior year. The change was primarily due to product mix and,
to a smaller extent, increased costs in the electronic component
cost areas, especially semiconductors. Selling & marketing
expenses increased by 18% from $418,830 $494,000. The increase
in sales & marketing was due to the increased commissions paid to
the Company's independent manufacturers representatives as a
result of the higher sales level. Moreover, the Company spent
funds in building and solidifying its network of independent
manufacturer representatives. At the same time, the amount spent
on advertising was reduced slightly.
Net income for the fiscal year ended June 30, 1995 was
$249,894, a 22% increase over the $204,845 recognized in fiscal
1994. In fiscal 1994, however, the Company's net income had been
increased by $100,000 due to the reversal in 1994 of a reserve
taken in 1992 in connection with the Company's investment in an
Indian power supply manufacturer. See "Note 4 to the Consolidat-
ed Financial Statements." Accordingly, the increase in net
income from fiscal 1994 to fiscal 1995, excluding the extraordi-
nary item relating to the India investment, totalled $145,049 or
138%.
Year Ending June 30, 1994 vs.
Year Ending June 30, 1993
Net sales for the fiscal year ended June 30, 1994 were
$12,771,067, as compared to net sales of $15,886,279 in the
fiscal year ended June 30, 1993. The reduction in sales was a
result of the Company's continuing effort to remove low margin
business. Specifically the Company's sales to its largest
customer were reduced by almost $4 Million. The Company had been
supplying power supplies in a wide variety of specifications and
performance criteria to six divisions of this customer. The
Company is now focusing on selling only high performance power
supplies to one division. That focus will have the immediate
effect of reducing net sales, but the long term effect of in-
creasing profitability, particularly as increased sales to this
division with favorable margins are expected.
Since the Company reorganized its operational structure in
1992, there has been an ongoing effort to reduce expenses until a
sustainable increase in net sales justifies expansion. In
connection with that program, most of the areas of indirect
expense were reduced. Research & development was $326,000 less
in fiscal 1994 than in fiscal 1993. Selling & marketing expense
was $97,000 less in fiscal 1994 than in 1993. And General &
Administration expense was $264,000 less, compared to fiscal
1993. Production costs remained stable, representing 78.7% of
net sales in the 1994 fiscal year as compared to 78.5% of net
sales in the prior fiscal year.
Since expenses were reduced in proportion to net sales,
there was no significant change in operating income between
fiscal 1993 and fiscal 1994. Net income, however, increased by
$164,039 from $40,806 in 1993 to $204,845 in 1994. The two
reasons for the increase were (1) the $100,000 reversal of a
reserve against the Company's investment in India (discussed in
the preceding section) and (2) a $101,584 reduction in interest
cost achieved by renegotiating the terms of several of the
Company's loans.
Liquidity and Capital Resources
At December 31, 1995, the Company had working capital of
$393,657, which was not significantly different from the $443,359
it held at June 30, 1995, the end of its last fiscal year. In
calculating working capital, however, the Company includes
$3,033,235 of inventory, most of which consists of raw material
parts held for use in manufacturing power supplies. The current
assets which will readily turn into cash, cash and accounts
receivable, were, then, considerably exceeded by the Company's
current liabilities. The debt compromise which the Company
effected after the end of the second quarter had the effect of
reducing the Company's current and long-term liabilities by a
total of approximately $1.3 Million. See "CAPITALIZATION - Debt
Compromise." Nevertheless, the Company will require the proceeds
of this offering to achieve a cash reserve suitable for its
current plan of operations.
Because of the Company's high debt-to-assets ratio, debt
service remains a significant drain on cash resources. During
fiscal 1995 the Company used $781,831 for debt service, approxi-
mately equal to the debt service for fiscal 1994. In the first
six months of fiscal 1996, debt service totalled $420,494. The
debt compromise had the effect of reducing debt service consider-
ably. Moreover, the Company intends to utilize approximately
$520,000 from the proceeds of this offering to reduce debt
(including the Bridge Financing debt), which will have the effect
of further reducing debt service. Nevertheless, the Company
projects that after completion of this offering its debt service
for fiscal 1997 will be approximately $885,000.
The Company's primary source of operating funds has been
its credit line. The primary bank lender, Comerica Bank, has an
asset-based loan facility of up to $2,000,000 dependent on
predetermined formulas involving the Company's accounts receiv-
able and inventories. The balance outstanding on the credit line
at December 31, 1995 was $1,656,091. The total amount available
to borrow at that date was $1,667,091.
The Company's inventory at December 31, 1995 totalled
$3,033,235, as compared to $2,712,224 at June 30, 1995. The 12%
increase in inventory was due to the effect of capacity planning
for the third and fourth fiscal quarters. In anticipation of the
orders for new customer programs, the Company brought in invento-
ry for existing programs earlier than normal so that the existing
programs could be built earlier and inventoried, thereby releas-
ing manufacturing capacity to be utilized in the start-up of the
new programs.
The Company's accounts receivable at December 31, 1995
totalled $1,500,700, which was higher than at any time since
1993. The increase of 26% in the first half of 1996 was primari-
ly a result of a faulty year-end wire transfer from one customer
of $256,000, which arrived in January. After adjusting the
balance for the effect of the wire transfer, the average days
outstanding remained relatively constant with the fiscal year end
average of 38 days. The Company does not believe the increase
represents a trend, and expects the growth of accounts receivable
to be proportionate to the growth in net sales in the future.
The Company expects that the available borrowings from the
asset-based line of credit when combined with the cash flow
expected from current operations will be sufficient to service
the Company's debt and fund operations for the following fiscal
year.
CERTAIN FEDERAL INCOME TAX EFFECTS UPON THE COMPANY
At December 31, 1995, for United States federal income tax
purposes, the Company had consolidated NOL carryforwards of
approximately $3.7 Million due to expire commencing in 2000. The
Company also had investment tax credit ("ITC") and research and
development credit ("RDC") of approximately $ due to
expire commencing in 1999, and MTC credit carryforwards of
approximately $ . The availability of these carry-forwards to
reduce or offset future taxable income and tax
liability of the Company is subject to various limitations under
the Internal Revenue Code of 1986, as amended (the "Code"). In
particular, the Company's ability to utilize the carryforwards
would be restricted upon the occurrence of an "ownership change"
within the meaning of section 382 of the Code.
Although the determination of whether an ownership change
has occurred is subject to factual and legal uncertainties, the
Company believes that an ownership change will occur no later
than the closing of this Offering. As a result of the "ownership
change," the Company will generally be permitted to utilize NOL
carryforwards (available on the date of such change) in any year
thereafter to reduce its income to the extent that the amount of
such income does not exceed the product of (the "Section 382
Limit") (i) the fair market value of the Company's outstanding
equity at the time of the ownership change (reduced by the amount
of certain capital contributions such as those received pursuant
to this Offering) and (ii) a long-term tax-exempt rate published
by the Internal Revenue Service (currently 5.31% for ownership
changes occurring in March of 1996). Further, the Company's
ability to utilize its ITC, RDC and MTC carryforwards will also
be limited as a result of the ownership change in an amount
determined by reference to the Section 382 limit. As a result,
the Company does not expect to utilize its full NOL and tax
credit carryforwards to offset future taxable income and tax
liability. This limitation would have a materially adverse
effect on the Company's net income, if the Company were to
generate taxable income (or tax liability) materially in excess
of the limitation on the utilization of NOL and tax credit
carryforwards.
In addition, the issuance of the Preferred Stock in this
Offering (if an ownership change occurred prior to such issu-
ance), the exercise of the Class A Warrants, the issuance of
Common Stock as dividends, and the conversion of the Preferred
Stock into Common Stock or any other issuance of equity securi-
ties by the Company may each contribute to the occurrence of
subsequent ownership changes. Any such subsequent ownership
changes could have the effect of further limiting the Company's
ability to utilize its NOL, ITC, RDC and MTC carryforwards.
BUSINESS OF THE COMPANY
MicroENERGY, Inc., was incorporated in Delaware on November
30, 1983. The Company designs and manufactures high frequency
power supplies and DC-to-DC converters for OEM customers who are
engaged in the telecommunications, computer, and instrumentation
segments of the electronics industry. The Company currently
offers single and multiple output switching power supplies and
DC-to-DC converters in the power output range of 25 watts to 2500
watts. All of the Company's products are customized to satisfy
the unique requirements of each customer's application.
Power Supplies and DC-to-DC Converters
A power supply is a component of electrically-powered
products which converts alternating current ("AC"), the general-
ly-available form of electricity, into direct current ("DC"),
which is required for electronic circuits to function. Since the
electric energy available is seldom in a form usable by electri-
cal apparatus, most incorporate a power supply. For example,
modern microprocessors require 5 VDC (volts direct current) to
operate, while 120 VAC (volts alternating current) is generally
available. Many large electronics manufacturers maintain "cap-
tive" power supply producers to manufacture what the OEM needs.
As the technology has in the past decade become more and more
sophisticated, the percentage of power supplies which are manu-
factured "in-house" by captive producers has fallen. Today
almost half of the power supplies used in electronic equipment
are purchased from independent vendors.
A DC/DC converter is an electronic sub-system that converts
one DC input voltage into one or more DC output voltages. DC/DC
converters are used in conjunction with power supplies, such as
those manufactured by MicroEnergy.
The principal application for the DC/DC converters designed
by MicroEnergy is the telecommunications industry. For example,
a smart telephone (i.e., a telephone with a memory), will utilize
a DC/DC converter to change the 48 VDC which powers its motor to
5 VDC, the output necessary to power its memory chips. If a
small DC/DC converter were not available in each telephone, it
would be necessary to run a 5 VDC wire from a central location to
each telephone.
A similar application is made in robotics systems. The
converter is installed in each robot sensor and converts the DC
voltages used to operate the robot's motors into the lower
voltage needed to power the robot's microprocessors. The use of
DC/DC converters in this fashion facilitates the development of
efficient "intelligence" in robot systems.
The Industry
Because of emerging technology, the size and growth of the
market, and the unique design requirements of each customer, the
market is fragmented. There are approximately 100 companies
which identify switching power supplies in their product line
portfolio, and no one of them dominates the market. The largest
manufacturer of switchers is Astec, Inc., a subsidiary of the
British company, BSR. Astec manufactures standard and customized
switcher units.
Other large U.S. manufacturers include AT&T, Lambda, Delta
Products, Shindengen, and Lorain Products, each of which has
annual sales worldwide in excess of $260 Million. The competi-
tors in this DC-to-DC converter market are primarily the same as
those in the switching power supply market, with the significant
addition of General Instrument Corporation and General Electric
Corporation. All of these manufacturers, however, concentrate on
sales of standardized power supplies. Their strategy is to
provide a line of inexpensive models that are within the range of
the existing specifications of OEMs.
MicroENERGY, on the other hand, provides state-of-the-art
custom units to meet exact specifications on short notice at
competitive prices. In that market the principal method of
competing is by emphasis on design ability and timely delivery.
MicroENERGY's technology and reputation for service have allowed
it to compete successfully in this market for over ten years
despite limited financial resources.
Marketing
MicroEnergy's products are marketed to manufacturers of
electronic equipment by independent manufacturers representa-
tives. At the present time, the Company's products are offered
by 10 representative firms, whose territories include all or part
of 36 states plus Puerto Rico. The lag time from initial contact
with a prospective OEM customer to receipt of a purchase order is
typically 6 months. An additional 3-4 months is usually required
before actual shipment can begin. Since each customer requires a
unique customization of one of the Company's basic product
series, much of the lag time from initial customer contact to
purchase order is attributable to customization and technical
review by the customer.
Prior to placing purchase orders, customers evaluate the
Company's technology and other capabilities, as well as their own
requirements. At this point, assuming that their level of
interest is high, the firm will send a request for quotation
("RFQ") for price and delivery of specific power supplies. The
RFQ's generally cover the customer's requirements for 12 months.
The average age of these quotes is 45 days.
Actual orders are received by the Company in two forms.
The Company's customers have generally given the Company a
"preproduction" order for several units for initial evaluation.
The entry of preproduction order indicates a considerable level
of interest, since the Company normally includes an upfront
charge for nonrecurring engineering in the cost. Generally some,
but not all, of the Company's preproduction orders result in
production orders.
The final stage in the ordering process is the production
order. These orders constitute a firm commitment to take
delivery of the Company's products only when the customer autho-
rizes a release for shipment.
Backlog
The Company generally advises customers that the Company
can deliver product within twelve weeks after the production
order is placed. Accordingly, most customers place orders for
one quarter at a time, although most customers are ordering for
production programs that will extend over a much longer period of
time. For that reason, the Company's current backlog of re-
leased orders of $5,013,000 is a reliable indication that (1) the
Company will deliver approximately that much during the next
twelve weeks, and (2) the programs which its customers are
ordering for are approximately 42% larger than was the case a
year earlier, when backlog totalled only $3,550,300. Based on
its extrapolation from backlog as well as the production sched-
ules which the Company receives from its customers, the Company
is generally able to plan its production schedules, including
purchasing of necessary components and related engineering, for
six to eight months in advance.
Near the end of 1995 the Company received preproduction
orders for new power supply designs from eight customers. The
RFQ's received from these customers projected annual power supply
requirements which, if met by the Company, would represent a
total of approximately $10.2 Million in sales. Indications from
four of the customers designated as new projects show that annual
production quantities for these four in fiscal year 1997 should
approximate $8.0 Million. The Company believes that it may be
awarded all of these orders, although there is never a certainty
of an order until the release for shipment is given by the
customer. Three of the customers have given the Company produc-
tion orders; the remainder are still in the preproduction stage.
The Company has sufficient confidence that it will receive a
significant portion of these orders that it has already begun to
increase its raw materials inventory in anticipation of the
expanded business and is allocating the greater portion of the
net proceeds of this offering to financing of the new business.
There can be no assurance, however, that any amount of these
orders will be realized and completed by the Company.
Major Customer; Export Sales
The Company has only one customer that represents more than
10% of the Company's net sales. The Company's sales to various
divisions of AT&T Inc. accounted for approximately 39% of the
Company's total revenues in the first six months of fiscal 1996,
28% of the Company's total revenues in fiscal 1995, 18% of the
Company's total revenues in fiscal 1994, and 40% of the Company's
total revenues in fiscal 1993. During fiscal year 1995, the
Company had $5,250,000 in export sales.
In the fiscal year ended June 30, 1995 the Company's export
sales amounted to approximately 36% of the Company's total
revenues, compared to 38% in 1994 and 24% in 1993. All export
sales by the Company are denominated in U.S. Dollars. Due to the
fact that the Company's products are customized and require a
substantial lead-time for production, short-term foreign currency
fluctuations generally have no effect on the Company's sales.
Any long-term strengthening of the Dollar, however, could ad-
versely affect export sales.
The MicroENERGY Technology
The Company's research and development efforts have been
focused on advancing the state-of-the-art in the design of power
supplies and the method employed in manufacturing such power
supplies. For the immediate future, the Company's research and
development will continue to focus on that subject. During the
fiscal year ended June 30, 1995 the Company spent $949,002 on
Company-sponsored research and development. During the fiscal
year ended June 30, 1994 the Company spent $920,391 on Company-
sponsored research and development. During the fiscal year ended
June 30, 1993, the Company spent $1,246,965 on Company-sponsored
research and development.
Among the more significant results of this research and
development activity has been the Company's ability to vertically
integrate Surface Mounted Technology ("SMT") into its entire
manufacturing operation. SMT, which was developed by a number of
electronics manufacturers in the 1980s, represents a major
miniaturization of electronic components by elimination of the
external packaging of components. A component produced using SMT
technology, such as a transistor, consists of only the device
itself with no capsule surrounding it. The SMT component is
placed directly onto the printed circuit board (which itself is
greatly reduced in size). The Company utilizes this technology
in its manufacturing processes, which enables the Company to
provide more power in a smaller power supply, thus expanding the
engineering capabilities of our customer, and facilitating more
applications for our power supplies.
Recently the Company's on-going efforts to be at the fore-
front of its industry were recognized by the primary accrediting
organization for the industry. The International Standards
Organization ("ISO") is based in Geneva, Switzerland, and was
organized to create internationally recognized standards for
design and manufacturing processes. During 1995 the Company was
granted ISO 9001 status by Underwriters Laboratories. The ISO
9001 designation will indicate to potential customers that
MicroENERGY has achieved the state-of-the-art in power supply
design and manufacturing.
Sources of Components
The raw materials for the Company's products are primarily
standardized components which are available from an adequate
number of suppliers. Those raw materials which must be custom-
ized for the Company are also available from a number of quali-
fied component manufacturers. During fiscal 1989, the Company
increased its access to components by acquiring all of the
capital stock of Tru-Way, Inc., an Illinois corporation engaged
in the business of manufacturing fabricated metal parts used in
the Company's principal product.
One problem in raw material procurement which has caused
significant concern in the power supply industry in recent years
is the worldwide shortage of semi-conductor components. At the
present time, the worldwide supply of certain types of semi-conductors
does not meet the worldwide demand for those components.
Moreover, the problem portends to be a factor in the
industry for many years to come, as the creation of a wafer
fabrication plant to produce these components entails an invest-
ment of $1 Billion to $2 Billion and up to two years for comple-
tion.
MicroENERGY anticipated the shortage in semi-conductors
many years ago, and has positioned itself well to withstand the
effects. Several years ago MicroENERGY adopted a policy of
purchasing its semi-conductors from distributors rather than
manufacturers. That policy occasionally resulted in increased
raw material costs. But as a result, MicroENERGY now enjoys a
priority relationship with its suppliers of semi-conductors.
Even if manufacturers are allocating their production among their
customers, thus causing shortages for all, the distributors from
whom MicroENERGY purchases its semi-conductors have made a
practice of meeting all of MicroENERGY's orders in timely fash-
ion. Indeed, the Company experienced relatively few component
shortages during 1995, which indicates the efficacy of its
strategy. Although there is no contract binding any supplier to
continue to satisfy MicroENERGY'S semi-conductor requirements,
the existing relationship, as long as it continues, provides
MicroENERGY the ability to meet the shipment schedules of its own
customers at a time when many of its competitors are experiencing
difficulty doing so due to the shortage of semi-conductors.
Employees
The Company is located in a "Research Corridor" west of
Chicago, in which a substantial portion of the Midwest's elec-
tronics industry is located. The presence of Bell Laboratories,
Motorola, Inc., and Zenith Corporation, among others, as well as
Illinois Institute of Technology and Northwestern University,
means that the Company can recruit its employees from a large
local pool of talented individuals. Moreover, since experienced
technicians and engineers are generally available, the Company
has not experienced any material "lag time" in training new
employees.
The Company currently has 216 full-time employees (includ-
ing 175 production employees), two of whom are officers of the
Company. During the remainder of fiscal 1996 the Company expects
no substantial increases in the Company's non-direct labor force.
None of the Company's employees belongs to a union. The Company
believes that its relationships with its employees is good.
Properties
The Company currently has five locations. The Company's
general offices are located in a 3,100 square foot office facili-
ty in Carol Stream, Illinois. The Company's manufacturing
operations are located in a leased facility in Quincy, Illinois
and a Company-owned facility in Memphis, Missouri, which are
located approximately 70 miles from each other. The total space
in Quincy is 59,555 square feet and in Memphis is 9,600 square
feet. The Quincy and Memphis facilities are located in a good
labor market and are large enough to meet the expected capacity
requirements of the Company for the foreseeable future. The
Company's Longwood, Florida facility contains the research and
development center in a 13,002 square foot leased facility. The
metal fabrication business conducted by the Company's subsidiary,
Tru-Way, Inc., is located in a 10,800 square foot facility in
Northlake, Illinois.
The table set forth below identifies the properties leased
by the Company and its subsidiaries for an annual rental of
$10,000 or more. The Company believes that these facilities are
adequate for its operations as presently structured.
Term and
Annual
Company Lessor Premises Rental
MicroENERGY Nardi Asset 350 Randy Road Through
Management Carol Stream, IL 12/31/97
$38,600
MicroENERGY Guardtree Ltd 1400 N. 30th St. Through
Quincy, IL 8/31/01
$193,590
MicroENERGY Pizzuti Inc. 745 West State Road 434Through
Suite J 2/28/97
Longwood, FL $146,628
Tru-Way, Inc. ARQUBE(1) 36 West Lake Street Through
Northlake, IL 7/30/98
$54,000
__________________________________
(1) ARQUBE is a partnership, whose partners are Robert G. Gatza
and Robert J. Fanella, the officers of the Company. See
"CERTAIN TRANSACTIONS."
MANAGEMENT
The following table sets forth certain information regarding
the officers and directors of the Company as of March 18, 1996:
Name Age Position
Robert G. Gatza 53 Chairman of the Board,
President,
Chief Executive Officer
Robert J. Fanella 45 Chief Financial Officer,
Secretary, Director
George M. Bradshaw 49 Director
Directors hold office until the annual meeting of the
Company's shareholders and the election and qualification of
their successors. Officers hold office, subject to removal at
any time by the Board, until the meeting of directors immediately
following the annual meeting of shareholders and until their
successors are appointed and qualified.
Background of Management
Robert G. Gatza was a co-founder of MicroENERGY in 1983, and
has served as its Chief Executive Officer since that founding.
Prior to forming MicroENERGY, Mr. Gatza was employed by Motorola,
Inc. as Director of Operations for its cathode ray tube business.
Mr. Gatza was awarded a Master of Science degree in Mathematics
and a Master of Science degree in Operations Management, both by
Witchita State University.
Robert J. Fanella was a co-founder of MicroENERGY in 1983,
and has served as its Chief Financial Officer since that found-
ing. Prior to founding MicroENERGY, Mr. Fanella was employed by
Motorola Inc as Controller of a Business Group. Mr. Fanella was
awarded a Master of Business Administration degree by the Univer-
sity of Chicago, and is a Certified Public Accountant.
George M. Bradshaw has served as an attorney for MicroENERGY
since it was founded. He has served on its Board of Directors
since 1988. Mr. Bradshaw is an attorney with the firm of Huck,
Bouma, Martin, Charlton & Bradshaw in Wheaton, Illinois, special-
izing in corporate, real estate and commercial law.
Executive Compensation
The following table sets forth all compensation awarded to,
earned by, or paid by the Company to the following persons for
services rendered in all capacities to the Company during each of
the fiscal years ended June 30, 1995, 1994 and 1993: (1) the
Company's Chief Executive Officer, and (2) each of the other
executive officers whose total salary and bonus for the fiscal
year ended June 30, 1995 exceeded $100,000.
SUMMARY COMPENSATION TABLE
(a)
Name and (b) (c)
Principal Position Year Salary
Robert G, Gatza 1995 $210,001
Chief Executive Officer 1994 $212,281
1993 $208,950
Robert J. Fanella 1995 $203,801
Chief Financial Officer 1994 $204,301
1993 $201,150
Employment Agreements
In 1996 the Company entered into employment agreements with
Robert G. Gatza and Robert J. Fanella. The employment agreements
are substantially identical to each other. The agreements
provide for full-time employment and include a covenant that the
officer will not compete with the Company for one year after his
employment terminates. The agreements terminate on January 31,
2000. They provide that each officer will be paid a salary
determined by the Board, but that his annual salary shall be no
less than his average salary for the preceding two years.
Restricted Stock Grant Program
On May 19, 1989, the shareholders of the Company adopted a
Restricted Stock Grant Program (the "Program"), pursuant to which
58,333 shares of common stock were reserved for issuance. On
July 3, 1989, a portion of the reserved shares were issued to
two "Grantees", namely Robert G. Gatza (34,722 shares) and Robert
J. Fanella (18,056 shares). Messrs. Gatza and Fanella are the
Company's officers.
The shares issued under the terms of the Program are subject
to the following restrictions:
1. The shares granted under the Program cannot be sold,
assigned, pledged, transferred or hypothecated in any
manner, by operation of law or otherwise, other than by writ or
the laws of descent and distribution, and shall not be subject to
execution, attachment or similar process. This restriction shall
lapse, with respect to 3 % of the number of shares granted under
the Program, and those shares will become unrestricted stock, on
the last day of the Company's 1996 fiscal year. The restriction
shall lapse with respect to each additional 3 % of such number
of shares on the last day of each successive fiscal year of the
Company, until the 27th year in which the final 13 % will vest.
2. The restriction shall also lapse as to all shares
granted to a Grantee on the first to occur of (i) the termination
of that Grantee's employment with the Company by reason of his
disability, (ii) the Grantee's death, (iii) termination of the
Grantee's employment by the Company without good reason, or (iv)
a change of control of the Company. The Program defines "Change
of Control" as an acquisition by a person or group of more than
50% of the Company's outstanding shares, a transfer of the
Company's property to an entity of which the Company does not own
at least 50%, or the election of directors constituting a majori-
ty of the Board who have not been approved by the existing Board.
3. Shares which have not become unrestricted under the
circumstances referred to in Item 1 or Item 2 above shall be
forfeited to the Company upon termination of the Grantee's
employment with the Company.
4. During any tax year in which a Grantee realizes taxable
income by reason of the lapse of the restrictions on the shares
granted under the Program, the Company shall pay to such Grantee
a "Gross-Up Bonus" in cash equal to the aggregate of (i) the
additional federal, state and local income taxes incurred by
Grantee as a result of realization of such taxable income, and
(ii) the federal, state and local income tax incurred by the
Grantee as a result of the Gross-Up Bonus. In no event shall the
Gross-Up Bonus exceed the aggregate of (i) the amount of the tax
deduction for which the Company receives a benefit for the tax
year of the Company beginning during the tax year of the Grantee
in which he realizes taxable income by virtue of the lapse of the
restrictions referred to in Item 1 above, and (ii) the amount of
the tax deduction for which the Company receives a benefit for
such tax year of the Company by virtue of the Gross-Up Bonus.
Incentive Stock Option Plan
On December 6, 1984 the shareholders of the Company
approved the 1984 Incentive Stock Option Plan and the 1985
Incentive Stock Option Plan, and on February 24, 1992 the share-
holders of the Company approved the 1992 Incentive Stock Option
Plan. Options granted under the Plans are intended to qualify as
"incentive stock options", as defined in Section 422A of the
Internal Revenue Code. The 1984 and 1985 Plans expired after ten
years, but options for 7736 shares of Common Stock remain out-
standing under those Plans. The 1992 Plan is authorized to issue
options for 5,555 shares, none of which are presently outstand-
ing. No options have been issued under the Plans to any present
officer or director of the Company. The average exercise price
of the options which are outstanding is $.0149.
The following tables set forth certain information regarding
the stock options or warrants acquired by the officers of the
Company during the year ended June 30, 1995 and those options or
warrants held by them on June 30, 1995.
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
Percent Potential Realizable
of Total Value at Assumed
Options Annual Rates of
Number of Granted Stock Price
Securities to Appreciation
underlying Employees Exercise For Option Term
option in Fiscal Price Expiration
Name Granted (#) Year ($/Sh) Date 5% ($) 10% ($)
Robert G. 21,000,000 60% $.00125 12/31/01 $3,297 $14,673
Gatza
Robert J. 14,000,000 40% $.00125 12/31/01 $2,198 $ 9,782
Fanella
AGGREGATED FISCAL YEAR OPTION VALUES
Number of Securities Underlying Value of Unexercised in-
Unexercised Options at Fiscal the-Money Options at
Name Year-End (#) Fiscal Year-End ($)
Robert G. Gatza 13,800,000 Exercisable $0
21,000,000 Unexercisable $141,750
Robert J. Fanella 6,700,000 Exercisable $0
14,000,000 Unexercisable $ 94,500
Remuneration of Directors
The Directors of the Company receive no compensation for
their services, but are reimbursed for out-of-pocket expenses
incurred on the Company's behalf.
Limitation of Liability
The Company's Articles of Incorporation contain a provision
stating that no officer or director of the Company will be liable
personally to the Company for damages for breach of fiduciary
duty as a director or officer unless he is responsible for
payment of an illegal dividend or for acts or omissions which
involve a knowing violation of law, intentional misconduct, or
fraud.
Representative's Right to Appoint Director
The Underwriting Agreement between the Company and I.A.
Rabinowitz & Co. (the "Representative") provides that for three
years after the completion of this Offering, the Representative
will have the right to nominate one person to serve on the
Company's Board of Directors, and upon such nomination the Board
shall take the action necessary to cause the Representative's
nominee to be elected to the Board. If the Representative does
not exercise this right, it may appoint an advisor, who will be
entitled to attend all meeting of the Board of Directors. To
date, the Representative has not advised the Company as to
whether it intends to exercise either right.
CERTAIN TRANSACTIONS
Transactions Relating to Tru-Way, Inc.
On December 30, 1988, Robert Gatza and Robert Fanella, who
are directors and officers of the Company (together referred to
as the "Partners") formed an Illinois partnership called ARQUBE.
Under the terms of their partnership agreement, the ownership
interest of the Partners in ARQUBE is as follows:
Robert Gatza - 66 %
Robert Fanella - 33 %
ARQUBE was formed for the purpose of acquiring the land and
fixed assets owned by Tru-Way, Inc. an Illinois corporation
engaged in the business of manufacturing fabricated metal parts
used in the Company's products. The assets purchased by ARQUBE
included all of the machinery and equipment and an industrial
building in Stone Park, Illinois. The total purchase price was
$350,000. ARQUBE obtained a loan for the amount of $350,000.
The loan is personally guaranteed by the Partners. The land and
industrial building were placed in trust with the lender and
secure ARQUBE's obligation.
Subsequent to ARQUBE's acquisition of Tru-Way's land and
fixed assets, the Company purchased all of the capital stock of
TRU-Way, Inc. On July 1, 1990 the Company caused Tru-Way to
enter into a lease with ARQUBE for the Stone Park facility.
On July 22, 1993 the Stone Park facility was sold and ARQUBE
purchased a larger facility in Northlake, Illinois (10,800 square
feet versus 5,100 square feet). At this date the operations of
Tru-Way were consolidated into this larger facility, the July 1,
1990 lease between ARQUBE and Tru-Way was terminated and new
leases for the facility and equipment were entered into. The
lease for the facility is for a five year period, with monthly
rental payments of $4,500, and the equipment lease is for a five
year period, with monthly payments of $12,000. The two leases
will expire on July 30, 1998. On December 1, 1993, a lease for
additional metal fabricating equipment was entered into between
ARQUBE and Tru-Way. The terms of this lease were $3,025 per
month, for a period of three years. The Company has recorded
these three leases as capital leases.
Transactions Relating to Acquisition of Power Supply Assets
On July 1, 1991 the Company acquired from a competitor
certain assets used in the manufacture and sale of power sup-
plies. The total purchase price for the assets consisted of
$3,553,063 plus a 3% royalty on certain sales. In order to
finance the acquisition, the Company increased its bank line of
credit, and borrowed $750,000 from the Illinois Department of
Commerce and Community Affairs ("DCCA") and $400,000 from the
City of Quincy, Illinois. DCCA and the City of Quincy each
required that Robert Gatza and Robert Fanella personally guaran-
tee the Company's debt, and DCCA also required that Messrs. Gatza
and Fanella guarantee a previously outstanding debt of $115,600.
In order to induce Messrs. Gatza and Fanella to provide the
personal guarantees, the Board of Directors granted to Mr. Gatza
a Class C Warrant to purchase up to 38,333 shares of common stock
between April 10, 1992 and April 10, 1998, and granted to Mr.
Fanella a Class C Warrant to purchase up to 18,611 shares of
common stock during the same period. The Class C Warrants were
exercisable at $22.68 per share, which was 101% of the market bid
price on April 10, 1991, the date of grant.
Transactions Relating to Debt Renegotiation
In 1994 the Company was forced to renegotiate the terms of
all of its term debt due to cash flow inadequacies. The renego-
tiated debt included the debts to the City of Quincy and the
DCCA, both of which were personally guaranteed by Messrs. Gatza
and Fanella. The City of Quincy loan payout was extended approx-
imately two years and the DCCA loan one year beyond the original
term. The total amount outstanding at the time of renegotiation
was $357,000 for the City of Quincy loan and $435,000 for the
DCCA loan. As part of the renegotiations, the personal guaran-
tees needed to be extended for the additional time.
In order to induce Messrs. Gatza and Fanella to provide the
extension of the personal guarantees, the Board of Directors
granted to Mr. Gatza a Class D Warrant to purchase up to 58,333
shares of common stock between December 13, 1995 and December 13,
2001, and granted to Mr. Fanella a Class D warrant to purchase up
to 38,889 shares of common stock during the same period. The
Class D Warrants are exercisable at $.45 per share, which was
125% of the market bid price on December 13, 1994, the date of
grant. The market value at the date of grant was equal to
approximately 6% of the amount guaranteed at the time of renego-
tiation.
In December of 1995 Messrs Gatza and Fanella exercised their
Class D Warrants, purchasing a total of 97,222 shares of Common
Stock for a total purchase price of $43,750.
Transaction Relating to Debt Compromise
In January, 1996 the Company reached agreement with its
major creditor to compromise a long-term debt of approximately
$2,350,000 by the immediate payment of $1,323,000. The compro-
mise was intended to improve the Company's financial condition,
and to increase the net worth of the Company sufficiently that
upon the completion of this offering the Company will be eligible
to have its securities listed on the NASDAQ SmallCap Market.
In order to obtain the funds needed to finance the debt
compromise, the Company raised $275,000 in the Bridge Financing.
See "CAPITALIZATION - Bridge Financing." The Company also sold
350,000 shares of Series A Preferred Stock in equal parts to
Messrs Gatza and Fanella in exchange for their cash payment of
$250,000 and their personal guarantees of a loan of $800,000.
The Series A Preferred Stock issued to Messrs Gatza and Fanella
is identical to that which is being sold in this offering.
The Company believes that the terms of all of the transac-
tions discussed in this section were no less favorable to the
Company than those which could have been obtained from non-affiliated parties.
PRINCIPAL SHAREHOLDERS
The following table sets forth the equity securities of the
Company beneficially owned by any person who, to the knowledge of
the Company, owned beneficially more than 5% of either class of
voting stock as of March 18, 1996, by all directors of the
Company, and by the directors and officers of the Company as a
group. The table also indicates the number of votes to which
each person would be entitled in the event of a shareholders
meeting and the percentage of the total voting power represented
thereby. None of the persons identified below owns any securi-
ties of the Company other than the Common Stock and the Series A
Preferred Stock listed below.
<PAGE>
Amount and Percent-
Name and Business Nature of age of
Address of Beneficial Percentage Voting
Title of Class Beneficial Owner Ownership of Class(1) Votes Power(1)
Common Stock Robert G. Gatza (4) 134,407 29.6% 134,407 16.7%
$.001 par value shares of
record (2)(3)
Series A Robert G. Gatza (4) 175,000 50.0% 175,000 21.8%
Preferred Stock shares of
$.01 par value record
Common Stock Robert J. Fanella (4) 87,662 20.2% 87,662 11.2%
$.001 par value shares of
record (2)
Series A Robert J. Fanella (4) 175,000 50.0% 175,000 22.3%
Preferred Stock shares of
$.01 par value record
Common Stock George M. Bradshaw 7,699 0.2% 7,699 0.1%
$.001 par value 550 Pennsylvania shares of
Glen Ellyn, IL record
Common Stock All officers and 229,767 48.1% 229,767 27.8%
$.001 par value directors as a shares of
group (3 persons) record(1)
Series A All officers and 350,000 100.0% 350,000 42.3%
Preferred Stock directors as a shares of
$.01 par value group (3 persons) record
(1) In determining the percentage of outstanding shares or the
percentage of voting power, all presently-exercisable op-
tions owned by the shareholder or the group are treated as
having been exercised.
(2) Include shares of Common Stock issued pursuant to the Re-
stricted Stock Grant Program as follows: Robert G. Gatza -
34,722 shares, Robert J. Fanella - 18,056 shares. See
"MANAGEMENT - Restricted Stock Grant Program." Also in-
cludes Class C Warrants to purchase shares of Common Stock
at $22.68 per share as follows: Robert G. Gatza - 38,333
shares, Robert J. Fanella - 18,611 shares. See "CERTAIN
TRANSACTIONS."
(3) Does not include 18,192 shares owned by Carol Ann Gatza, Mr.
Gatza's wife. Mr. Gatza does not share voting power or
investment power with respect to those shares and, accord-
ingly, disclaims beneficial ownership of them.
(4) The business address of Messrs. Gatza and Fanella is c/o
MicroENERGY, Inc., 350 Randy Road, Carol Stream, Illinois
60188.
DESCRIPTION OF THE COMPANY'S SECURITIES
The authorized capital stock of the Company consists of
4,000,000 shares of Common Stock and 4,000,000 shares of Pre-
ferred Stock. On the date of this Prospectus, the Company had
415,143 shares of Common Stock outstanding and 350,000 shares of
Preferred Stock outstanding.
Common Stock
Holders of the Common Stock are entitled to one vote for
each share in the election of directors and in all other matters
to be voted on by the stockholders. There is no cumulative
voting in the election of directors. Holders of Common Stock are
entitled to receive such dividends as may be declared from time
to time by the Board of Directors with respect to the Common
Stock out of funds legally available therefor and, in the event
of liquidation, dissolution or winding up of the Company, to
share ratably in all assets remaining after payment of liabil-
ities. The holders of Common Stock have no preemptive or conver-
sion rights and are not subject to further calls or assessments.
There are no redemption or sinking fund provisions applicable to
the Common Stock. The Common Stock currently outstanding is, and
the Common Stock issuable upon exercise of the Warrants (de-
scribed below) will, when issued, be validly issued, fully paid
and nonassessable.
Preferred Stock
The Company is authorized to issue 4,000,000 shares of
preferred stock, $.01 par value per share. The preferred stock
could, without action by the shareholders of the Company, be
issued by the Board of Directors from time to time in one or more
series for such consideration and with such relative rights,
privileges and preferences as the Board may determine. According-
ly, the Board has the power to fix the dividend rate and to
establish the provisions, if any, relating to voting rights,
redemption rate, sinking fund, liquidation preferences and
conversion rights for any series of preferred stock issued in the
future. It is not possible to state the actual effect of the
authorization of any other series of preferred stock upon the
rights of holders of the Common Stock or the Series A Cumulative
Convertible Preferred Stock until the Board determines the
specific rights of the holders of any series of preferred stock.
The only series of Preferred Stock presently outstanding is
the Series A Preferred Stock, of which 350,000 shares were issued
by the Company to Robert G. Gatza and Robert J. Fanella in
connection with its financing of the recent debt compromise. See
"CAPITALIZATION - Debt Compromise." The Company has no present
plans to issue any shares of preferred stock other than the
Series A Cumulative Convertible Preferred Stock being sold in
this offering.
Series A Cumulative Convertible Preferred Stock
This offering includes shares of Series A Cumulative Con-
vertible Preferred Stock (the "Preferred Stock"). The Board of
Directors of the Company has designated the following rights,
privileges and preferences for the Series A Cumulative Convert-
ible Preferred Stock.
Dividend Rights
Holders of shares of Preferred Stock are entitled to re-
ceive, out of the assets of the Company legally available for the
payment of dividends, dividends payable semi-annually on the 1st
day of each January and July after issuance. Dividends upon the
Preferred Stock are cumulative and accrue from the date of
original issue. No cash dividend may be declared and paid or set
apart for payment upon the Common Stock until any past quarterly
dividend on any outstanding series of Preferred Stock has been
fully paid or declared and set apart for payment. See "Risk
Factors - Restrictions on Payment of Dividends."
At the Company's option, the Company may pay all or part of
each dividend in shares of Common Stock. The Common Stock so
issued will be valued based on 100% of the average closing bid
price of the Common Stock as reported on NASDAQ (or such exchange
or quotation service as the Common Stock may be quoted on, if it
ceases to be quoted on NASDAQ) for the ten trading days before
the record date for the dividend.
Voting Rights
The holder of each share of Preferred Stock will be entitled
to cast one vote at any meeting of the shareholders of the
Company, as will the holder of each share of Common Stock. Upon
completion of this offering (without exercise of the Over-Allot-
ment Option) there will be 415,143 shares of Common Stock out-
standing and 780,000 shares of Preferred Stock. Accordingly, at
a shareholders meeting held immediately after completion of this
offering, there would be 1,195,143 votes authorized, of which the
holders of Preferred Stock would be entitled to cast 780,000.
Conversion
Each share of Preferred Stock may be voluntarily converted
by the record holder thereof into Common Stock on the terms
described below. Each share of Preferred Stock is also subject
to "mandatory" conversion into Common Stock, at the Company's
option, upon the occurrence of circumstances described below.
In the event that a share of Preferred Stock is automatically
converted into Common Stock, the holder thereof will lose the
right of voluntary conversion with respect to that share.
Voluntary Conversion. After _____________, 1997 , each
share of the Preferred Stock is convertible, at the option of the
holder thereof, into between one and two shares of Common Stock.
The number of shares of Common Stock into which each share of
Preferred Stock is convertible (the "Voluntary Conversion Rate")
will be determined on the first anniversary of the date of this
prospectus. The Voluntary Conversion Rate will be based upon the
average of the closing bid prices for the Common Stock as report-
ed on NASDAQ (or such exchange or quotation service as the Common
Stock may be quoted on, if it ceases to be quoted on NASDAQ) for
the twenty trading days preceding said anniversary date (the
"Closing Average"), as follows:
Each Share of
Preferred Stock
If the Closing Will Be Convertible Into
Average is Shares of Common Stock
Over $5.50 1.00
$4.51 to $5.50 1.25
$3.50 to $4.50 1.75
Under $3.50 2.00
A holder of Preferred Stock may convert his shares to Common
Stock by surrendering to American Stock Transfer & Trust Company
(the "Exchange Agent") each certificate covering shares to be
converted together with a statement of the name or names in which
the shares of Common Stock shall be registered upon issuance.
Such a notice of election to convert shall have the effect of
creating a contract between the shareholder and the Company
whereby the shareholder shall be deemed to have agreed to surren-
der the shares of Preferred Stock and to release the Company from
all further obligation thereon, and whereby the Company shall be
deemed to have agreed to issue the appropriate number of shares
of Common Stock upon the surrender of the shares of Preferred
Stock. The conversion right will terminate at the close of
business of the redemption date as to any shares of Preferred
Stock being redeemed on that date.
Mandatory Conversion. In the event that during the first 24
months after the first anniversary of the date of this Prospectus
the closing bid price of the Company's Common Stock exceeds $7.00
for five consecutive trading days, each share of the Preferred
Stock may, at the Company's option, be converted after the fifth
such day into 1 share of Common Stock (the "Mandatory Conversion
Rate"). Likewise, after the third anniversary of the date of
this Prospectus, each share of the Preferred Stock may, at the
Company's option, be converted into 1 shares of Common Stock.
Holders of the Preferred Stock will receive notice of the conver-
sion of their shares promptly after the conversion takes place.
The following provisions apply with respect to either
Voluntary Conversion or Mandatory Conversion.
All dividends declared and unpaid up to the date of conver-
sion shall be paid by the Company at the time of conversion
unless that payment date has not yet occurred, in which event the
dividend shall be paid upon the payment date for such dividend
set forth in the Preferred Stock certificate. Any such unpaid
dividends must be paid in full to the holder prior to the decla-
ration and payment of any other dividend or distribution by the
Company with respect to its Common Stock and must be paid pari
passu to the holder with payment of any other dividend or distri-
bution by the Company with respect to the Preferred Stock. The
Company will not issue any note or other evidence of indebtedness
with respect to unpaid dividends. If the Company does not make
payment of any dividends when due, the remedy of a Preferred
Stockholder will be to undertake a legal action in a court of
competent jurisdiction.
The Voluntary Conversion Rate and the Mandatory Conversion
Rate are both subject to adjustment upon the occurrence of the
following events: the issuance of shares of Common Stock or other
securities of the Company as a dividend or distribution on shares
of Common Stock of the Company to the holders of all of its out-
standing shares of Common Stock; subdivisions, combinations, or
certain reclassifications of shares of Common Stock of the
Company; or the distribution to the holders of shares of Common
Stock of the Company generally of evidences of indebtedness or
assets (excluding cash dividends and distributions made out of
current or retained earnings) or rights, options, or warrants to
subscribe for securities of the Company other than those men-
tioned above. No adjustment in the conversion rates will be
required to be made with respect to the Preferred Stock until
cumulative adjustments amount to one percent or more; however,
any such adjustment not required to be made will be carried
forward and taken into account in any subsequent adjustment. In
lieu of fractional shares of Common Stock, there will be paid to
the holder of the Preferred Stock at the time of conversion an
amount in cash equal to the same fraction of the current market
value of a share of Common Stock of the Company.
In the event of any consolidation with or merger of the
Company into another corporation, or sale of all or substantially
all of the properties and assets of the Company to any other
corporation, or in case of any reorganization of the Company,
each share of Preferred Stock would thereupon become convertible
only into the number of shares of stock or other securities,
assets or cash to which a holder of the number of shares of
Common Stock of the Company issuable (at the time of such consol-
idation, merger, sale or reorganization) upon conversion of such
share of Preferred Stock would have been entitled upon such
consolidation, merger, sale or reorganization.
Liquidation Preference
In the event of a voluntary or involuntary liquidation or
winding up of the Company, the holders of Preferred Stock will be
entitled to receive out of the assets of the Company available
for distribution to shareholders $5.00 per share plus all accrued
and unpaid dividends before any distribution is made to the
holders of Common Stock or any other class or series of stock
ranking junior to the Preferred Stock as to distribution of
assets.
After payment of the full amount of the liquidating distri-
bution to which they are entitled, the holders of shares of
Preferred Stock will not be entitled to any further participation
in any distribution of assets by the Company. The foregoing
liquidation rights shall not be operative in the event of (i) any
consolidation or merger of the Company with or into any other
corporation, (ii) any dissolution, liquidation, winding up or
reorganization of the Company immediately followed by reincor-
poration of a successor corporation or creation of a successor
partnership or (iii) a sale or other disposition of all or
substantially all of the Company's assets to another corporation
or a partnership if, in each case, effective provision is made in
the certificate of incorporation of the resulting or surviving
corporation or the articles of partnership of the resulting
partnership or otherwise, for the protection of the rights of the
holders of the Preferred Stock.
Preemptive Rights
Holders of Preferred Stock shall have no preemptive right to
purchase any securities of the Company.
Warrants
The Redeemable Class A Warrants are immediately transfer-
able. Each Redeemable Class A Warrant entitles the holder
thereof to purchase one share of Series A Preferred Stock at an
exercise price of $5.25 from _____________, 1997 until _________-
___, 2000, subject to certain adjustments. In the event that the
Company has exercised its option to convert the Series A Pre-
ferred Stock into Common Stock, each Class A Warrant will there-
after entitle the holder to purchase one share of Common Stock.
The Redeemable Warrants may be exercised in whole or in part.
The Redeemable Warrants will be issued under a warrant
agreement dated as of the closing date of this offering (the
"Warrant Agreement") between the Company and American Stock
Transfer & Trust Company (the "Warrant Agent"). The following is
a general summary of certain provisions contained in the Warrant
Agreement and is qualified in its entirety by reference to the
Warrant Agreement, a copy of which as been filed as an exhibit to
the Registration Statement of which this Prospectus is a part.
The Board of Directors of the Company has the right to amend
the terms of the Warrant Agreement at its discretion to, among
other things, reduce the exercise price or extend the exercise
period of the Warrants; provided, however, that no amendment
adversely affecting the rights of the holders of Warrants may be
made without the approval of the holders of a majority of the
affected Warrants.
At any time during the exercise period (but not before
___________, 1997) the Company has the right to redeem all the
Class A Warrants at a price of $.05 per Warrant upon not less
than 30 days' prior written notice; provided that before any
redemption of Class A Warrants can take place, the average
closing bid price of the Company's Common Stock as reported on
NASDAQ shall have been $7.00 per share for 5 consecutive trading
days ending within 15 days prior to the date on which notice of
redemption is sent.
In order for a holder to exercise his or her Redeemable
Warrants, and as required in the Warrant Agreement, there must be
a current registration statement on file with the Securities and
Exchange Commission and various state securities commissions to
continue registration of the shares of Common Stock underlying
such warrants. The Company will be required to file post-effec-
tive amendments when events require such amendments. There can
be no assurance that the registration statement can be kept
current. If it is not kept current for any reason, the Redeem-
able Warrants will not be exercisable and will be deprived of any
value. The Company has agreed to use its best efforts to main-
tain a current registration statement to permit the issuance of
the Preferred Stock upon exercise of the Redeemable Warrants.
Holders of the Redeemable Warrants will be protected against
dilution of the interest represented by the underlying shares of
Preferred Stock upon the occurrence of certain events, including,
but not limited to, stock dividends, stock-splits, reclassifica-
tions and mergers. In the event of the complete liquidation and
dissolution of the Company, the Redeemable Warrants terminate.
Holders of the Redeemable Warrants will not have voting power and
will not be entitled to dividends. In the event of liquidation,
dissolution or winding up of the Company, holders of the Redeem-
able Warrants will not be entitled to participate in the Comp-
any's assets.
Pursuant to the Underwriting Agreement, the Company has
agreed to pay to the Representative and/or any registered broker-dealer
which is a member of the National Association of Securities Dealers, Inc.
("NASD") a commission equal to four percent of
the exercise price of each Redeemable Warrant exercised provided:
(1) at least one year has elapsed from the date of this Prospec-
tus; (2) the market price for the Preferred Stock is greater than
the exercise price of the Redeemable Warrants; (3) the Represent-
ative or such other NASD broker-dealer member has solicited the
holder to exercise the Redeemable Warrant with such solicitation
being confirmed in writing by each holder; and (4) the compensa-
tion arrangements were disclosed to the holder at the time of
exercise, such disclosure being confirmed in writing by said
holder. The commission is further conditioned upon the Company's
warrant agent being furnished by the Representative or NASD
broker-dealer member with a certificate stating that:
(i) the Redeemable Warrants exercised were not held in
a discretionary account;
(ii) the Representative or the NASD member did not,
within 10 business days immediately preceding the solicita-
tion of the exercise of the Redeemable Warrant or the date
of such exercise, bid for or purchase the Preferred Stock of
the Company or any securities of the Company immediately
convertible into or exchangeable for the Preferred Stock
(including the Redeemable Warrants) or otherwise engage in
any activity that would be prohibited by Rule 10b-6 under
the Securities Exchange Act of 1934, as amended, to one
engaged in a distribution of the Company's securities; and
(iii) in connection with the solicitation, the Repre-
sentative and/or the NASD member disclosed the compensation
it would receive upon exercise of the Redeemable Warrant.
Transfer Agent/Warrant Agent
The Company's transfer agent for the Preferred Stock, Common
Stock and the Warrants is American Stock Transfer & Trust Compa-
ny, 40 Wall Street, New York, New York 10005. American Stock
Transfer & Trust Company also serves as the Warrant Agent for the
Warrants.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS TO INVESTORS
The following discussion is a summary of the opinion of
Bressler, Amery & Ross, counsel to the Company, regarding the
material federal income tax consequences of acquiring, holding
and disposing of the Securities, based on the law as it exists on
the date hereof. It does not purport to be a complete discussion
of all tax considerations possibly relevant to potential inves-
tors.
The term "Common Stock" as hereinafter used in this "Certain
Federal Income Tax Considerations" section refers only to the
Common Stock issued (i) on conversion of the Preferred Stock,
(ii) on the exercise of the Class A Warrants or (iii) as divi-
dends with respect to the Preferred Stock. This discussion does
not address federal income tax considerations relevant to persons
in special tax situations including life insurance companies,
banks, tax-exempt entities, securities dealers, S corporations,
foreign corporations and nonresident alien individuals. This
discussion is addressed to investors who will hold the Preferred
Stock, the Common Stock and the Class A Warrants as "capital
assets" within the meaning of Section 1221 of the Internal
Revenue Code of 1986, as amended (the "Code"). This discussion
does not address any state, local or foreign tax considerations
which may be relevant to an investor and is based on relevant
provisions of the Code, the Treasury Regulations promulgated
thereunder (the "Regulations"), and administrative and judicial
interpretations thereof, as in effect at the date of this Regis-
tration Statement.
There can be no assurance that future changes in applicable
law, including changes in applicable law pursuant to legislative
proposals currently under consideration, or administrative and
judicial interpretations thereof will not adversely affect the
tax consequences described herein. TAX CONSEQUENCES OF AN
INVESTMENT IN THE SECURITIES MAY VARY DEPENDING ON EACH HOLDER'S
PARTICULAR SITUATION. POTENTIAL INVESTORS SHOULD CONSULT THEIR
OWN TAX ADVISORS AS TO THE TAX CONSEQUENCES OF THE OWNERSHIP AND
DISPOSITION OF THE PREFERRED STOCK, THE COMMON STOCK OR THE
WARRANTS IN THEIR PARTICULAR CIRCUMSTANCES, INCLUDING THE APPLI-
CATION AND EFFECT OF FOREIGN, STATE OR LOCAL TAX LAWS AND ESTATE
AND GIFT TAX CONSIDERATIONS.
Distributions on Preferred Stock and Common Stock
Distributions by the Company with respect to the Preferred
Stock or the Common Stock will be characterized as dividends for
federal income tax purposes to the extent of the Company's
current or accumulated earnings and profits allocable to such
distributions. To the extent that Common Stock is distributed
with respect to the Preferred Stock ("Distributed Common Stock"),
the amount distributed shall be the fair market value of the
Distributed Common Stock on the date of such distribution and
such amount distributed would be characterized as a dividend for
federal income tax purposes to the extent of the Company's
current or accumulated earnings and profits allocable to such
distribution. Since the amount distributed with respect to a
distribution of Distributed Common Stock is based on the fair
market value of such Distributed Common Stock on the date of such
distribution, and is not based on the pre-record date average
trading price of the Common Stock, such amount distributed (and,
subject to the existence of earnings and profits allocable to
such distribution, the amount of dividend income) may be greater
or less than $.40 per share which is stated as the amount of the
annual dividend. See "Dividends." In general, distributions
classified as dividends for federal income tax purposes consti-
tute ordinary income and are taxable in the year of receipt. A
distribution in excess of the Company's current or accumulated
earnings and profits allocable to such distribution (including
the fair market value of any Distributed Common Stock in excess
of the Company's current or accumulated earnings and profits
allocable to such distribution) would be treated first as a
nontaxable recovery of any basis in the stock with respect to
which such distribution was made and then would be treated as
capital gain from the sale or exchange of such stock. Any such
gain would be long-term capital gain if the taxpayer's holding
period for such stock exceeds one year. The amount of the
Company's current or accumulated earnings and profits depends, in
part, upon the Company's results of operations and cannot be
predicted. Accordingly, there can be no assurance that all or
any portion of a distribution with respect to the Preferred Stock
or the Common Stock would be classified as a dividend for federal
income tax purposes.
Dividends Received Deduction -- Corporate Shareholders
Dividends received by corporate holders with respect to the
Preferred Stock and the Common Stock may be eligible for the 70%
dividends received deduction (80%, if the Company is a "20% owned
corporation" with respect to the corporate stockholder, within
the meaning of Section 243 of the Code). To be eligible for the
dividends received deduction, a corporate holder must hold its
shares of Common Stock or Preferred Stock with respect to which
dividend distributions are made for certain minimum periods
(generally 46 days) and must meet certain other requirements. A
holder's holding period, for this purpose, is generally reduced
for periods during which the holder's risk of loss with respect
to the stock on which dividend distributions are made is dimin-
ished. The dividends received deduction may be reduced or
eliminated if a holder's shares of Preferred Stock or Common
Stock are deemed to be debt-financed portfolio stock within the
meaning of Section 246A of the Code. Under the adjusted current
earnings rules of the alternative minimum tax provisions of the
Code, and depending upon a corporate holder's particular tax
situation, up to 75% of any dividends received deduction may be
added back in the computation of alternative minimum taxable
income.
Under Section 1059 of the Code, a corporate holder may be
required to reduce its adjusted basis (or, upon disposition,
recognize additional gain) for a share of stock in an amount
generally equal to the dividends received deduction allowable
with respect to an "extraordinary dividend" on such share of
stock, if such share were held for not more than 2 years before
the "dividend announcement date" for such extraordinary dividend.
An extraordinary dividend is, generally, a dividend in excess of
5% or 10% of a holder's basis for (or, at the holder's election,
the fair market value of) a share of Preferred Stock or Common
Stock, respectively. For this purpose, dividends having ex-dividend
dates within the same 85 day period are aggregated.
Additionally, dividends with respect to a share of stock having
ex-dividend dates within the same 365 day period are treated as
extraordinary if such dividends exceed 20% of a holder's basis
for (or, electively, the fair market value determined on a
weighted average basis, of) such share of stock. Due to the
existence of options on the part of both the Company and the
holders of Preferred Stock to convert the Preferred Stock to
Common Stock and the absence of relevant authority, no opinion
can be given as to whether the rules applicable under Section
1059 of the Code to preferred stock or to common stock would be
applicable to the Preferred Stock.
Under Section 1059(f) of the Code, dividends with respect to
"disqualified preferred stock" are subject to the basis reduction
rules of Section 1059 of the Code without the regard to the
period the taxpayer has held the stock or the amount of the
dividend. Disqualified preferred stock includes any stock which
is preferred as to dividends if the "issue price" of such stock
exceeds it "liquidation rights." Since the exercise price of a
Class A Warrant ($5.25) exceeds the amount of the liquidation
preference of a share of Preferred Stock ($5.00), Section 1059(f)
of the Code may be applicable to dividends received by holders
(including holders other than the initial holders) of shares of
Preferred Stock issued upon the exercise of the Class A Warrants
("Exercise Preferred Shares"). In such event, holders of Exer-
cise Preferred Shares may be required to reduce the adjusted
basis for an Exercise Preferred Share by the amount, of any
dividends received deduction with respect to such Exercise
Preferred Share; possibly below the amount of the liquidation
preference of such Exercise Preferred Share. Further, if the
allocation of the offering price of the Preferred Stock and the
Class A Warrants as set forth in this offering were not respected
(see Tax Treatment of Class A Warrants) and the "issue price" of
Preferred Stock issued pursuant to this offering were treated as
being in excess of the amount of the "liquidation rights" with
respect to such Preferred Stock, Section 1059(f) of the Code
could possibly apply to require a reduction in the adjusted basis
of such Preferred Stock. Due to the existence of options on the
part of both the Company and the holders of Preferred Stock to
convert the Preferred Stock to Common Stock and the absence of
relevant authority with respect to the application of Section
1059(f) and the terms "issue price" and "liquidation rights" to
convertible preferred stock issued upon exercise of a stock
warrant, no opinion can be given as the application to Section
1059(f) to Exercise Preferred Shares or Preferred Stock.
If, in the event of a redemption of Preferred Stock, a
holder is treated as having received a distribution taxable as a
dividend (see discussion of Sale or Redemption of Preferred
Stock, below), such holder may be subject to the basis reduction
requirements of Section 1059 of the Code without regard to the
amount of such deemed distribution or the holder's holding period
for the redeemed Preferred Stock.
Recently proposed legislation would, if enacted into law,
reduce the dividends received deduction percentage. It cannot be
known at the present time whether such legislation will be
enacted or, if enacted, the form such legislation will ultimately
take. A corporation considering an investment in the Securities
is urged to consult its tax advisor regarding the application of
the dividends received deduction and related rules to its partic-
ular situation, and the effect of any potential legislation on
such application.
Sale or Redemption of Preferred Stock
A sale or redemption of Preferred Stock for cash would be a
taxable event. The sale of Preferred Stock would generally be
treated as a taxable sale or exchange resulting in the recog-
nition of capital gain or loss equal to the difference between
the amount realized and the holder's adjusted tax basis for the
Preferred Stock sold. The redemption of Preferred Stock for cash
may be treated as a taxable sale or exchange resulting in the
recognition of capital gain or loss in an amount equal to the
difference between the amount of cash received and the holder's
adjusted tax basis for the Preferred Stock redeemed. Gain or
loss resulting from the redemption (if treated as a sale or
exchange) or sale of Preferred Stock would be long-term capital
gain or loss if the holding period for the Preferred Stock were
to exceed one year at the time of such redemption or sale. Under
certain circumstances, however (such as where a stockholder's
interest in the Company is not sufficiently reduced), a redemp-
tion of Preferred Stock would not be treated as a sale or ex-
change, and the entire amount of the cash received upon redemp-
tion of the Preferred Stock would be treated as a distribution by
the Company. Such distribution would be subject to the rules
described above with respect to distributions on Preferred Stock
and Common Stock. A redemption of Preferred Stock would be
treated as a sale or exchange and not as a distribution as to a
stockholder who completely terminates his interest in the Company
(taking into account shares deemed owned by the stockholder by
reason of the constructive ownership rules set forth in Section
302(c) of the Code) as a result of such redemption. A redemption
of Preferred Stock would generally be treated as a sale or
exchange and not as a distribution as to a stockholder who, after
the redemption (taking into account such constructive ownership
rules) owns less than (i) 50% of the total combined voting power
of all classes of stock of the Company, (ii) 80% of the percent-
age of the voting stock of the Company that such stockholder
owned immediately before the redemption, and (iii) 80% of the
percentage of the common stock of the Company that such stock-
holder owned immediately before the redemption. Further, a
redeemed holder of Preferred Stock whose relative stock interest
in the Company is minimal (for example, an interest of less than
1%) and who exercises no control over the Company's affairs,
should be treated as having sold or exchanged his stock if such
holder experiences an actual reduction in his proportionate
interest in the Company (taking into account the constructive
ownership rules mentioned above). Additionally, sale or exchange
treatment may be available to a redeeming holder of Preferred
Stock under other circumstances.
Distributed Common Stock
A holder's initial tax basis in Distributed Common Stock
would be the fair market value thereof on the date of distribu-
tion and a holder's holding period for such Distributed Common
Stock would commence on the date after the date of distribution.
Tax Treatment of Class A Warrants
The exercise of a Class A Warrant would not be taxable. The
tax basis of the shares of Preferred Stock received upon such
exercise would equal the adjusted tax basis of the Class A
Warrants exercised, plus the exercise price paid. The holding
period of the Preferred Stock received would begin upon the date
of exercise. On redemption, sale or expiration of a Warrant, the
holder would recognize gain or loss equal to the difference
between the amount realized on the redemption, sale or expiration
and the holder's tax basis in the Warrant. Such gain or loss
generally would be capital gain or loss and would be long-term
capital gain or loss if the holding period for the Warrant were
to exceed one year.
Although the Offering provides that the offering price of a
share of Preferred Stock is $5.00 and the offering price of a
Class A Warrant is $.10, since the Preferred Stock and the Class
A Warrants are not offered separately, no assurance can be given
that the Internal Revenue Service would not challenge such
allocation. If the Internal Revenue Service were to challenge
such allocation and were to prevail with respect to such chal-
lenge, then a holder would be required to adjust the tax basis
for the Preferred Stock and the Class A Warrants accordingly.
<PAGE>
Conversion of Preferred Stock to Common Stock
The conversion of the Preferred Stock into shares of Common
Stock, whether pursuant to the option of the holder or the
Company, generally would not be taxable. However, if cash is
received in exchange for a fractional share of Common Stock the
holder should be treated as if the holder had received the
fractional share of Common Stock in exchange for which cash was
received and then had such fractional share of Common Stock
redeemed for cash.
The tax basis for the shares of Common Stock received upon
conversion would be equal to the adjusted tax basis of the
Preferred Stock converted, reduced by the portion of such basis
allocable to any fractional interest exchanged for cash. The
holding period for the shares of Common Stock received upon
conversion would include the holding period of the Preferred
Stock converted.
Adjustment of Conversion Price
Section 305 of the Code and Regulations issued thereunder
may treat holders of the Preferred Stock or Class A Warrants as
having received a constructive distribution taxable as a dividend
to the extent of the current or accumulated earnings and profits
of the Company allocable to such constructive distribution, upon
any adjustment in the conversion ratio to reflect certain distri-
butions with respect to the Common Stock into which the Preferred
Stock or Class A Warrants are convertible. The amount of the
distribution would be determined, pursuant to the applicable
Regulations, based upon the fair market value of the increase in
the proportionate interest in the Company of the person to whom
the constructive distribution is deemed to have been made.
Backup Withholding
Under Section 3406 of the Code and applicable Regulations, a
holder of Preferred Stock or Common Stock may be subject to
backup withholding at the rate of 31% with respect to dividends
paid on, or the proceeds of a sale, exchange or redemption of,
the Preferred Stock or Common Stock. If (i) the holder ("payee")
fails to furnish a taxpayer identification number ("TIN") to the
Company (or other payor), (ii) the Internal Revenue Service
notifies the Company (or other payor) that the TIN furnished by
the payee is incorrect, (iii) there has been a "notified payee
underreporting" described in Section 3406 of the Code or (iv)
there has been a failure of the payee to certify under penalty of
perjury that the payee is not subject to withholding under
Section 3406(a)(1)(C) of the Code, the Company (or other payor)
will be required to withhold an amount equal to 31% of any
dividend or redemption payment made with respect to the Preferred
Stock or Common Stock. Amounts paid as backup withholding do not
constitute an additional tax and can be credited against the
holder's federal income tax liabilities.
UNDERWRITING
Subject to the terms and conditions set forth in the Under-
writing Agreement by and between the Company and the Representa-
tive ("Underwriting Agreement"), the Company has agreed to sell
to the Underwriters, as set forth below, for whom I.A. Rabinowitz
& Co. is the Representative, on a "firm commitment" basis, a
total of 430,000 shares of Preferred Stock, $.01 par value, and
215,000 Class A Redeemable Common Stock Purchase Warrants, as
follows:
Underwriters Preferred Shares Class A Warrants
I.A. Rabinowitz & Co.
[ ]
Total
The Company has agreed to sell the Securities to the Under-
writers at a discount of ten percent of the public offering price
thereof. The Company has also agreed to pay the Representative a
nonaccountable expense allowance in the amount of 3% of the
offering price of the Securities, including Securities purchased
pursuant to the Over-Allotment Option, of which $25,000 has been
advanced to the Representative. In addition, the Company has
agreed to pay all costs of issuance of the Securities, including
blue sky fees and related counsel fees but not including fees and
expenses of the Representative's counsel. The Company estimates
that it will incur costs of $120,000 in connection with this
Offering, not including the Representative's 3% non-accountable
expense allowance and the $48,000 financial consulting fee
payable to the Representative. As part of the underwriting ar-
rangements, the Company will enter into a contract to retain the
Representative as a financial consultant to the Company for a
two-year period commencing as of the close of the sale of the
Securities offered hereby at an annual fee of $24,000, for a
total of $48,000, payable in full at the closing of this offer-
ing. The Company has agreed to pay the Representative an invest-
ment banking fee for future consummated transactions, if any,
introduced by the Representative including mergers, acquisitions
and joint ventures during the five years following the completion
of the Offering equal to 5% of the first $4,000,000 of consider-
ation involved in the transaction, 4% of the next $1,000,000, 3%
of the next $1,000,000, and 2% of the excess, if any, over
$6,000,000.
The Company has agreed to indemnify the Representative
against certain liabilities which may be incurred in connection
with this offering, including certain civil liabilities under the
Securities Act of 1933, as amended, and where such indemnifica-
tion is not available, to contribute to the payments the Repre-
sentative may be required to make in respect of such liabilities.
The Underwriting Agreement further provides that for three
years after the completion of this Offering, the Representative
will have the right to nominate one person to serve on the
Company's Board of Directors, and upon such nomination the Board
shall take the action necessary to cause the Representative's
nominee to be elected to the Board. If the Representative does
not exercise this right, it may appoint an advisor, who will be
entitled to attend all meetings of the Board of Directors.
The Company's officers and directors have agreed not to
issue, sell, offer to sell or otherwise dispose of any shares of
the Company's Common Stock, or securities convertible into Common
Stock owned by them, for a period of 18 months from the date of
this Prospectus without the prior written consent of the Repre-
sentative.
The Company has granted the Representative an Over-Allotment
Option, which is exercisable for 45 days from the date hereof, to
purchase up to an aggregate of 64,500 shares of Preferred Stock
and an additional 32,250 Class A Warrants, all at the offering
price, less the underwriting discount, set forth on the cover
page of this Prospectus. The Representative may exercise the
Over-Allotment Option solely for the purpose of covering over-al-
lotments incurred in the sale of Securities offered hereby.
The Representative has advised the Company that sales to
certain dealers may be made at a public offering price less a
concession not in excess of 5%. The Representative does not
intend to confirm sales of more than one percent of the Securi-
ties offered hereto to any accounts over which it exercises
discretionary authority.
There has been no previous established trading market for
the Preferred Stock or the Class A Warrants. The major factors
considered by the Company and the Representative in determining
the public offering price of the Securities and the exercise
price of the Class A Warrants, in addition to prevailing market
conditions, were the existing market for the Common Stock, the
Company's financial condition, historical performance and growth
rates; an assessment of the Company's management, technology,
business potential and earnings prospects; the present state of
the Company's development and the above factors in relation to
market valuations of other similar technology-based companies.
The public offering price may not bear any relationship to the
assets or book value, net worth or other criteria of value of or
applicable to the Company.
The Company has agreed, upon completion of this offering, to
sell to the Representative or its nominee for a total of $64.50
Representative's Purchase Warrants to purchase 43,000 shares of
Series A Preferred Stock and 21,500 Class A Warrants. The
Representative's Warrants will be exercisable for a four-year
term, commencing one year after the date of this Prospectus, at
an exercise price of $6.00 per share and $.12 per warrant, i.e.
120% of the public offering price of the Securities. The Class A
Warrants underlying the Representative's Warrants will have the
same terms as the Class A Warrants offered hereby to the public.
The Representative's Warrants will be restricted from exercise,
sale, transfer (except to officers of the Representative or of
any other broker-dealer which participates in this Offering),
assignment or hypothecation, for a period of one year from the
date of this Prospectus. The Representative's Warrants also
provide that on two occasions, upon the request of the Represent-
ative or holders of a majority of the Representative's Warrants
or underlying securities, at any time during the four-year period
commencing one year after the Effective Date, the Company will
prepare and file a post-effective amendment or new registration
statement permitting the sale of the Representative's Warrants
and/or underlying securities and use its best efforts to keep the
registration statement effective for a nine-month period follow-
ing the effective date of such post-effective amendment or new
registration statement. The Company will bear the cost of the
first such registration statement, but the holders will bear all
costs incident to the second such registration statement. If the
Company files a registration statement relating to an equity
offering under the provisions of the Securities Act at any time
during the five-year period commencing on the date of this
Prospectus, the holders of the Representative's Warrants or
underlying securities will have the right, subject to certain
conditions, to include in such registration statement, at the
Company's expense, all or part of the underlying securities at
the request of the holders. The number of securities covered by
the Representative's Warrants and the exercise price are subject
to adjustment upon certain events to prevent dilution.
For the life of the Representative's Warrants, the holders
thereof will have the opportunity to profit from a rise in the
market price of the Securities with a resulting dilution in the
interests of other stockholders. The Representative's regis-
tration rights may result in substantial expense to the Company
at a time when it may not be able to afford such expense and may
impede future financing. The Company may find that the terms on
which it could obtain additional capital may be adversely affect-
ed while the Representative's Warrants are outstanding.
The Company has also agreed to pay the Representative a
warrant solicitation fee equal to 4% of the Warrant exercise
price for any of the publicly held Warrants, when exercised, at
any time commencing one year after the date of this Prospectus,
provided that the Representative or any NASD member firm has
solicited such exercise, as evidenced in writing signed by the
warrant holder, and that (a) the market price of the Preferred
Stock on the date that any such Warrant is exercised is greater
than the exercise price of the Warrant; (b) the Warrantholder
represents in writing that the Representative or NASD member firm
solicited the exercise of such Warrant; (c) prior specific
written approval for exercise is received from the customer if
the Warrant is held in a discretionary account; (d) disclosure of
this compensation arrangement is made prior to or upon the
exercise of such Warrant; (e) solicitation of the exercise is not
in violation of Rule 10b-6 of the Exchange Act; and (f) solicita-
tion of the exercise is in compliance with NASD Notice to Members
81-38. In addition, unless granted an exemption by the Commis-
sion from Rule 10b-6 under the Exchange Act, the Representative
will be prohibited from engaging in any market making activities
or solicited brokerage activities with respect to the Company's
Securities for the period from nine business days prior to any
solicitation of the exercise of any Warrant or nine business days
prior to the exercise of any Warrant based on a prior solicita-
tion until the later of the termination of such solicitation
activity or the termination (by waiver or otherwise) of any right
the Representative may have to receive a fee for the exercise of
the Warrants following such solicitation. As a result, the
Representative may be unable to continue to provide a market for
the Company's Securities during certain periods while the War-
rants are exercisable. See: "Description of Securities -
Warrants".
SELLING SECURITYHOLDERS
The Registration Statement of which this Prospectus is a
part also relates to the offer and sale of 880,000 Class A
Warrants (the "Bridge Securities") to be offered by the Selling
Securityholders. All of such securities are expected to become
tradeable on or about the date of this Prospectus. Sales of the
Warrants being offered by Selling Securityholders, or even the
potential of such sales, would likely have an adverse effect on
the market prices of the Securities being offered for sale by the
Company.
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 prior to the Offering and after the Offering, assuming all
of the Warrants owned by the Selling Securityholders are sold.
Class A Percent of Class A
Warrants Owned Warrants Owned
Name of Prior to After Prior to After
Beneficial Owner Offering Offering Offering Offering
Dune Holdings 400,000 -- 45.5% 0%
Rifky Weiner 208,000 -- 23.6% 0%
James R. Solakian 128,000 -- 14.5% 0%
Harold Pretter 48,000 -- 5.5% 0%
JM Holdings 48,000 -- 5.5% 0%
Robert Brantl 48,000 -- 5.5% 0%
Total 880,000 0 100.00% 0%
None of the Selling Securityholders is affiliated with the
Company in any capacity or has had any business relationship with
the Company at any time, except that Robert Brantl is of counsel
to the firm of Bressler, Amery & Ross, which has served as
counsel to the Company since it was founded.
Plan of Distribution
The securities offered thereby may be sold from time to time
directly by the Selling Securityholders. Alternatively, the
Selling Securityholders may from time to time offer such securi-
ties through underwriters, dealers or agents. The distribution
of securities by the Selling Securityholders may be effected in
one or more transactions that may take place on the over-the-counter
market, including ordinary broker's transactions, pri-
vately-negotiated transactions or through sales to one or more
broker-dealers for resale of such securities as principals, at
market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. Usual
and customary or specifically negotiated brokerage fees or
commissions may be paid by the Selling Securityholders in connec-
tion with such sales of securities. The Selling Securityholders
and intermediaries through whom such securities are sold may be
deemed "underwriters" within the meaning of the Act with respect
to the securities offered, and any profits realized or commis-
sions received may be deemed underwriting compensation.
At the time a particular offer of securities is made by or
on behalf of a Selling Securityholder, to the extent required, a
prospectus will be distributed which will set forth the number of
securities being offered and the terms of the offering, including
the name or names of any underwriters, dealers or agents, if any,
the purchase price paid by any underwriter for securities pur-
chased from the Selling Securityholder and any discounts, commis-
sions or concessions allowed or reallowed or paid to dealers, and
the proposed selling price to the public.
Under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the regulations thereto, any person engaged
in a distribution of the securities of the Company offered by the
Selling Securityholders may not simultaneously engage in market-making
activities with respect to such securities of the Company
during the applicable "cooling off" period (9 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, including without limitation,
Rule 10b-6 and 10b-7, in connection with transactions in such
securities, which provisions may limit the timing of purchases
and sales of such securities by the Selling Securityholders.
LEGAL MATTERS
The validity of the Securities offered hereby and of the
Common Stock issuable upon exercise of the Warrants has been
passed upon for the Company by Bressler, Amery & Ross, 17 State
Street, New York, New York. Robert Brantl, who is of counsel to
Bressler Amery & Ross, is one of the Selling Securityholders in
this Offering. Certain legal matters in connection with this
Offering will be passed upon for the Underwriter by Bernstein &
Wasserman, LLP, 950 Third Avenue, New York, New York.
EXPERTS
The Company's audited financial statements included herein
and elsewhere in the Registration Statement, of which this
Prospectus is a part, are included in reliance upon the report of
Selden Fox and Associates, Ltd., independent certified public
accountants, with respect to the financial statements as of and
for the years ended June 30, 1995 and 1994, and upon the authori-
ty of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed at the office of the Securities and
Exchange Commission (the "Commission") in Washington, D.C. a
Registration Statement on Form SB-2 under the Act with respect to
the Securities offered hereby. This Prospectus, which is part of
said Registration Statement, does not contain all of the informa-
tion set forth in the Registration Statement, as permitted by the
rules and regulations of the Commission. For further information
with respect to the Company and the Securities, reference is made
to the Registration Statement (including amendments) and the
exhibits and schedules filed therewith, which may be inspected
without charge and copied at prescribed rates at the Commission's
Public Reference Section, 450 Fifth Street, N.W., Washington,
D.C. 20549. Statements contained in this Prospectus as to the
contents of any contract or other document are not necessarily
complete, and in each instance reference is made to the copy of
such contract or document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by
such reference.<PAGE>
INDEX TO FINANCIAL STATEMENTS
I. Audited Financial Statements for the Years
Ended June 30, 1995 and 1994
Pages
Report of Certified Public Accountants dated
September 7, 1995 F-1
Consolidated Balance Sheet F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Changes in Stock-
holders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-7
II. Unaudited Financial Statements for the
Six Months Ended December 31, 1995 and 1994
Consolidated Balance Sheets F-21
Consolidated Statements of Operations F-22
Consolidated Statements of Cash Flows F-23
Notes to Consolidated Financial Statements F-24
<PAGE>
SELDON, FOX AND ASSOCIATES, LTD.
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and
Shareholders of MicroENERGY, Inc.
We have audited the accompanying consolidated balance
sheet of MicroENERGY, Inc. and Subsidiary as of June 30, 1995 and
1994, and the related consolidated statements of operations,
changes in stockholders' equity (deficit) and cash flows for the
years ended June 30, 1995, 1994 and 1993. 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 audits to obtain reasonable assurance about
whether the financial statements are free of material misstate-
ment. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial state-
ments, 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 consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of MicroENERGY, Inc. and its Subsidiary at
June 30, 1995 and 1994, and the results of their operations and
cash flows for the years ended June 30, 1995, 1994 and 1993, in
conformity with generally accepted accounting principles.
Certified Public Accountants
September 7, 1995
F-1
MicroENERGY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
June 30, 1995 and 1994
1995 1994
ASSETS
Current assets:
Cash $ 113,227 $ 45,792
Accounts receivable 1,193,995 1,253,619
Inventories 2,712,224 2,594,549
Other current assets 53,725 66,492
Total current assets 4,073,171 3,960,452
Property and equipment 4,390,516 4,217,383
Accumulated depreciation (2,604,333) (2,031,852)
1,786,183 2,185,531
Other assets, net 289,177 155,891
$ 6,148,531 $ 6,301,874
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable $ 1,165,211 $ 1,200,849
Current portion of long-term
obligations 858,808 1,164,860
Accounts payable 1,149,587 803,554
Amounts due related parties - 109,770
Accrued expenses 456,206 408,066
Total current liabilities 3,629,812 3,687,099
Long-term obligations 3,514,009 3,954,150
Total liabilities 7,143,821 7,641,249
Commitments
Stockholders' deficit:
Convertible preferred stock, no par value -
800 shares authorized; 769 issued and
converted
Common stock, $.001 par value - 180,000,000
shares authorized; 113,961,563 shares
issued in 1995 and 114,111,563 in 1994 113,961 114,111
Additional paid-in capital 5,678,919 5,678,919
Accumulated deficit (5,356,650) (5,606,544)
Unearned restricted stock compensation (1,455,550) (1,509,550)
Common stock purchase warrants 75 75
Treasury stock, at cost, 683,159 shares ( 16,386) ( 16,386)
Unrealized gain on marketable securities 40,341 -
Total stockholders' deficit ( 995,290) (1,339,375)
$ 6,148,531 $ 6,301,874
See accompanying notes.
F-2<PAGE>
MicroENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended June 30, 1995, 1994 and 1993
1995 1994 1993
Net sales $ 14,588,844 $ 12,771,067 $ 15,886,279
Expenses:
Facility, preproduction
and production 11,566,567 10,054,423 12,474,737
Research and development 949,002 920,391 1,246,965
Selling and marketing 494,392 418,830 515,679
General and administrative 997,198 951,004 1,215,618
14,007,159 12,344,648 15,452,999
Operating income 581,685 426,419 433,280
Interest expense, net 331,791 321,574 423,158
Foreign investment income - (100,000) -
Gain on debt restructuring, net - - (30,684)
Net income $ 249,894 $ 204,845 $ 40,806
Net income
per share $ .0022 $ .0018 $ .0004
Weighted average number
of shares of common
stock outstanding 114,036,563 115,111,563 114,544,896
See accompanying notes.
F-3<PAGE>
MICROENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the Years Ended June 30, 1995, 1994 and 1993
(Page 1 of 2)
Common Unearned
Stock Additional Restricted
Common Purchase Paid-in Stock
Stock Warrants Capital Compensation
Net balance at
June 30, 1992 $ 113,761 $75 $ 5,866,154 $ (1,789,763)
Amortization of
restricted
stock awards - - - 59,664
Issuance of
restricted stock 2,350 - - -
Net income - - -
Net balance at
June 30, 1993 116,111 75 5,866,154 (1,730,099)
Amortization of
restricted
stock awards - - - 54,000
Forfeiture of
restricted
stock award (2,000) - (187,000) 166,549
Net income - - -
Net balance at
June 30, 1994 114,111 75 5,678,919 (1,509,550)
Amortization of
restricted
stock awards - - - 54,000
Cancellation of
150,000 shares (150) - - -
Net income - - - -
Change in unrealized
gain on investment - - -
Net balance at
June 30, 1995$ $ 113,961 $ 75 $ 5,678,919 $(1,455,550)
F-4<PAGE>
MICROENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the Years Ended June 30, 1995, 1994 and 1993
(Page 2 of 2)
Unrealized Stockholders'
Treasury Accumulated Gain On Total Equity
Stock Deficit Investments (Deficit)
Net balance at
June 30, 1992 $ (16,386) $ (5,852,195)$ - $ (1,678,354)
Amortization of
restricted
stock awards - - - 59,664
Issuance of
restricted stock - - - 2,350
Net income - 40,806 - 40,806
Net balance at
June 30, 1993 (16,386) 5,811,389 - (1,575,534)
Amortization of
restricted
stock awards - - - 54,000
Forfeiture of
restricted
stock award - - - (22,686)
Net income - 204,845 - 204,845
Net balance at
June 30, 1994 (16,386) (5,606,544) - 1,339,375
(1,509,550)
Amortization of
restricted
stock awards - - - 54,000
Cancellation of
150,000 shares - - - (150)
Net income - 249,894 - 249,894
Change in unrealized
gain on investment - - 40,341 40,341
Net balance at
June 30, 1995$ $ (16,386) $(5,356,650) $ 40,341 $ (995,290)
See accompanying notes.
F-4a<PAGE>
MicroENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 1995, 1994 and 1993
1995 1994 1993
Cash flows from operating
activities:
Net income $ 249,894 $ 204,845 $ 40,806
Adjustments to reconcile net
income to net cash from
operating activities:
Depreciation 572,481 536,121 452,228
Property and equipment
write-off - 7,194 -
Amortization - 16,052 16,800
Foreign investment income - ( 100,000) -
Compensation paid in common
stock, net of forfeiture 53,850 31,315 62,014
Interest added to debt
principal - - 50,577
Changes in assets and
liabilities:
Accounts receivable 59,624 494,487 1,087,140
Inventories ( 117,675) ( 306,271) 1,421,313
Other current assets 12,767 ( 24,399) ( 18,761)
Other assets ( 33,946) 2,206 ( 857)
Accounts payable 346,034 121,658 (1,349,957)
Accrued expenses ( 61,630) ( 74,585) ( 132,889)
Net cash from
operating activities 1,081,399 908,623 1,628,414
Cash flows from investing activities:
Additions to property and
equipment ( 173,133) ( 152,392) ( 290,024)
Increase in foreign investment ( 59,000) - -
Net cash from
investing activities ( 232,133) ( 152,392) ( 290,024)
Cash flows from financing
activities:
Issuance of long-term obligations - - 1,104,108
Payment of long-term obligations ( 746,193) ( 498,432) ( 251,318)
Net payments of notes payable ( 35,638) ( 265,741) (2,360,346)
Net cash from
financing activities ( 781,831) ( 764,173) (1,507,556)
Net increase (decrease)
in cash 67,435 ( 7,942) ( 169,166)
Cash at beginning of year 45,792 53,734 222,900
Cash at end of year $ 113,227 $ 45,792 $ 53,734
F-5<PAGE>
MicroENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (cont'd)
Supplemental schedule of non-cash investing
and financing activities:
Capital Leases
In 1994, the Company entered into capital leases for a build-
ing and certain equipment (see Note 6). In connection with
the capital leases, the Company recorded property, equipment
and long-term obligations of $889,861 in 1994.
Other Supplemental Disclosures
Actual interest payments were $331,667, $357,218 and $368,531
for the years ended June 30, 1995, 1994 and 1993, respective-
ly.
See accompanying notes.
F-6<PAGE>
MicroENERGY, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business
MicroENERGY, Inc. (MicroENERGY) designs, manufactures and
markets switching power supplies which are used as components
in the electronics systems market.
2. Summary of Significant Accounting Policies
Principles of Consolidation - The consolidated financial
statements include the accounts of MicroENERGY and its whol-
ly-owned subsidiary, Tru-Way, Inc. All significant intercom-
pany balances and transactions have been eliminated in con-
solidation.
Cash and Cash Equivalents - MicroENERGY considers all short-term
deposits with initial maturities of three months or less
to be cash equivalents.
Accounts Receivable - Accounts receivable for sales to cus-
tomers are unsecured and consist of the following:
1995 1994
Accounts receivable $ 1,243,995 $ 1,303,619
Less allowance for
doubtful accounts ( 50,000) ( 50,000)
$ 1,193,995 $ 1,253,619
Inventories - Inventories are stated at the lower of cost or
market. Cost is determined using the first-in, first-out
method. The components of inventories are:
1995 1994
Raw materials $ 1,852,373 $ 1,686,024
Work in process 937,533 963,733
Finished goods 372,854 395,328
3,162,760 3,045,085
Less excess and obsolete
reserve ( 450,536) ( 450,536)
$ 2,712,224 $ 2,594,549
F-7<PAGE>
2. Summary of Significant Accounting Policies (cont'd)
Property and Equipment - Property and equipment is stated at
cost. Depreciation is calculated using the straight-line
method over the estimated useful lives of the assets for
financial reporting purposes and the accelerated cost recov-
ery methods for tax reporting purposes. Expenditures for
repairs and maintenance are expensed as incurred. The compo-
nents of property and equipment are:
1995 1994
Machinery and equipment $ 3,072,601 $ 2,938,654
Leasehold improvements 386,496 347,310
Capitalized leases:
Building 216,780 216,780
Equipment 714,639 714,639
$ 4,390,516 $ 4,217,383
Research and Development - Expenditures for research and
development activities are charged to expense as incurred.
Income Taxes - Effective July 1, 1993, MicroENERGY adopted
the asset-liability approach of accounting for income taxes
(Note 9). In 1993 and prior, income taxes were recognized
for all items included in the income statement.
Earnings Per Share - Earnings per common share are computed
based on the weighted average number of common shares out-
standing during each period plus the dilutive effect, if any,
of outstanding common stock equivalents.
3. Management Review of Fiscal 1995
In fiscal year 1995, management finalized the renegotiation
of its debt agreement from the acquisition of a power systems
division from a major customer (Note 10) and note payable to
the State of Illinois as discussed in Note 5. These agree-
ments complete the restructuring management initiated in
1993. MicroENERGY remains current with all of its notes
payable and long-term obligations.
As a result of management's plan to grow the business by
expanding the independent sales representative organization,
sales grew by $1,817,777 or 14% over fiscal 1994. Profit-
ability increased by 22% due to the increase in sales as well
as management's philosophy of continuous improvement in
conjunction with cost containment.
F-8
3. Management Review of Fiscal 1995 (cont'd)
Based upon the history of profitable operating results for
1993, 1994 and 1995 and current sales levels, management
believes that the Company has the ability to continue to meet
its current obligations as they become due including all
scheduled debt repayments without further renegotiation of
debt or disposition of assets outside the ordinary course of
business.
4. Foreign Investment - In July 1988, MicroENERGY entered into
an agreement with MicroENERGY (India) Limited (INDIA), a
Private Limited Company registered under the Indian Companies
Act. MicroENERGY was to provide the technical and manufac-
turing knowledge and training with regards to the manufacture
of power supply products in exchange for $150,000.
MicroENERGY was to purchase a 20% equity interest in INDIA
with $50,000 of the proceeds. The net amount of $100,000 had
been recorded as a miscellaneous receivable from INDIA in
1989. During 1992, a $100,000 reserve was recorded as no
activity under the agreement had yet taken place.
On January 14, 1994, MicroENERGY entered into a revised
agreement with INDIA to again provide the technical and
manufacturing knowledge and training in exchange for $150,000
to be received when certain stipulations had taken place.
The proceeds are to be used to purchase a 7.9% equity inter-
est after the public offering of the stock of INDIA. The
public offering took place in August 1994 and the issue was
oversubscribed.
Coincident with the above, the allowance on the original
$100,000 INDIA receivable, classified under long-term assets,
had been eliminated and income from foreign investment had
been recorded during 1994.
During 1995, MicroENERGY received 5,007,000 shares of stock
at a purchase price of $159,000. This investment, included
in noncurrent other assets, is classified as an available for
sale security and accordingly recorded at fair value. The
gross unrealized gain of $40,341 is recorded as a separate
component of stockholders' equity (deficit).
Once production commences, MicroENERGY will be paid a commis-
sion of 5% of the export sales of INDIA or 3% of their total
sales, whichever is greater. During 1995, MicroENERGY re-
ceived $74,000 of revenue for consulting services performed
for INDIA.
F-9<PAGE>
5. Notes Payable and Long-term Obligations
Notes payable - MicroENERGY has a line of credit agreement
with a bank at an interest rate of prime (9% at June 30,
1995) plus 2.5%. In 1994, the interest rate was at prime
(7.25% at June 30, 1994) plus 3%. The agreement permits the
Company to borrow the lesser of defined percentages of out-
standing accounts receivable and inventory or $2,000,000.
Borrowings under the line of credit at June 30, 1995 and 1994
aggregated $1,165,211 and $1,200,849, respectively. At
June 30, 1995, $250,175 was available to borrow. The line of
credit is payable on demand, and secured by a primary inter-
est in accounts receivable and inventory and a subordinate
interest in all other assets.
Long-term Obligations - The components of debt obligations
are as follows:
June 30,
1995 1994
Note payable to bank with
interest at prime plus 2%,
originally due in quarterly
installments of $31,500, in-
cluding interest, through
March 1995. During 1994, the
terms were renegotiated to
monthly payments of interest
through December 15, 1993 and
monthly payments of $5,250
principal plus interest from
January 15, 1994 through De-
cember 15, 1998. The note is
secured by a primary interest
in certain machinery and
equipment and a subordinate
interest in accounts receiv-
able and inventories and all
other equipment. The City of
Quincy, Illinois has guaran-
teed the lesser of $230,000 or
36.5% of the indebtedness.<PAGE>
$ 220,500 $283,500
F-10
<PAGE>
5. Notes Payable and Long-term Obligations (cont'd)
Long-term Obligations (cont'd)
June 30,
1995 1994
Note payable to bank with interest
at prime plus 2%, originally due
in monthly installments of $5,000,
plus interest. During 1994, the
terms were renegotiated to monthly
payments of $2,000 principal plus
interest through December 15, 1993
and $5,000 principal plus interest
from January 15, 1994 through
April 15, 1996. The note is secured
by a primary interest in certain
machinery and equipment and a
subordinate interest in accounts
receivable, inventories and all
other equipment. $ 65,000 $ 125,000
3% note payable to the City of Quincy,
Illinois, originally due in quarterly
installments of $27,015, including
interest. During 1994, the terms were
renegotiated to monthly interest
payments through December 31, 1993,
and monthly principal and interest
payments of $4,660 from January 1,
1994 through December 1, 1998. The
note is secured by a subordinate
interest in accounts receivable,
inventories and equipment. 185,572 235,115
3% note payable to the City of Quincy,
Illinois, originally due in monthly
installments of $4,625, including
interest. During 1994, the terms were
renegotiated to monthly interest
payments through December 31, 1993,
and monthly principal and interest
payments of $4,265 from January 1,
1994 through December 1, 1988. The
note is secured by a subordinate
interest in accounts receivable,
inventories and equipment. 169,852 215,198
F-11
5. Notes Payable and Long-term Obligations (cont'd)
Long-term Obligations (cont'd)
June 30,
1995 1994
3% note payable to the City of Quincy,
Illinois, originally due in monthly
installments of $7,187, including
interest. During 1994, the terms
were renegotiated to monthly interest
payments through December 31, 1993 and
monthly principal and interest payments
of $6,516 from January 1, 1994 through
December 1, 1998. The note is secured
by a subordinate interest in accounts
receivable, inventories and equipment
and guaranteed by certain
shareholders. $ 259,495 $ 328,773
Note payable to the State of Illinois,
originally due in monthly installments
of $17,842, including interest at 15%,
through August 21, 1996. During 1994,
the terms were renegotiated to add
$50,577 of accrued interest to the
loan balance and decrease the interest
rate to 5%. Monthly payments of
principal and interest of $13,053
were due with a balloon payment of
$446,711 due in May 1995. In May 1995,
the balloon payment was renegotiated to
be paid over a two year period at
monthly payments of $19,997 which
includes interest at 9.5% for the
first year and at prime rate thereafter.
The note is secured by a subordinate
interest in accounts receivable,
inventories and equipment and
guaranteed by certain shareholders. 418,970 556,104
Note payable to bank at prime plus
2%, due in monthly installments of
$3,833 principal plus interest, through
June 25, 1997, secured by a primary
interest in certain equipment and the
assignment of certain rents and leases
paid to the Quincy landlord. 99,772 145,772
F-12<PAGE>
5. Notes Payable and Long-term Obligations (cont'd)
Long-term Obligations (cont'd)
June 30,
1995 1994
Notes payable, acquisition of power
systems division. MicroENERGY had
an oral agreement for the note to be
non-interest bearing with monthly
payments of $41,042 for a five year
period beginning in August 1993.
However, final documents had not been
received and no payments were made
during 1994. On September 20, 1994,
the repayment terms were again
renegotiated to payments of $10,000 per
month from October 1, 1994 through
June 1, 1998; $37,824 per month from
July 1, 1998 through September 1, 2002
and $27,824 per month from October 1,
2002 through December 1, 2002. The
notes remain non-interest bearing.
These notes were classified at
June 30, 1994 according to their
revised terms. The notes are secured
by equipment purchased from the
creditor and a subordinate interest
in inventory and other equipment. $ 2,372,495 $ 2,462,495
Capital lease obligations 581,161 767,053
Total debt 4,372,817 5,119,010
Less current portion ( 858,808) (1,164,860)
Long-term obligations $ 3,514,009 $ 3,954,150
F-13<PAGE>
5.
Notes Payable and Long-term Obligations (cont'd)
Long-term Obligations (cont'd)
Future maturities of debt obligations are as follows:
Year Ending
June 30 Amount
1996 $ 858,808
1997 804,137
1998 557,661
1999 593,608
2000 453,888
Thereafter 1,104,715
$ 4,372,817
6. Leased Property
Capital Leases - MicroENERGY has capital lease arrangements for
certain machinery and equipment, including certain leases for
its Tru-Way manufacturing facility, machinery and equipment.
The majority of the lease agreements are with a partnership
consisting of officers of the Company.
During 1994, the partnership sold the facility occupied by Tru-Way
and purchased a new building for $390,000. The net book
value of the old building approximated the remaining balance of
the obligation under capital lease. The new building is leased
by Tru-Way over a five-year term. The prior equipment lease
was rewritten for a new five year term. Minimum monthly lease
payments for the real estate and equipment total $16,500. In
addition, another equipment lease was entered into with the
partnership in December 1993 for a three year term with minimum
monthly lease payments of $3,025.
Actual payments to the partnership totalled $351,587 in 1995
and $259,600 in 1994. In 1993, lease payments to the partner-
ship totalled $162,000 which included $36,000 of contingent
rent paid based on sales volume.
Property and equipment and related accumulated depreciation
under these capital leases was $931,419 and $374,115, respec-
tively, at June 30, 1995 and $931,419 and $177,535, respective-
ly, at June 30, 1994. Amortization charges related to capital-
ized assets are included in depreciation expense.
F-14
6. Leased Property (cont'd)
Operating Leases - MicroENERGY leases its manufacturing facili-
ty space under a ten year operating lease and its office space
under two five year operating leases.
Total rent expense under operating lease agreements approximat-
ed $377,128, $355,534, and $406,265 in 1995, 1994 and 1993,
respectively.
Future minimum lease payments under capital and operating
leases with commitments beyond one year are as follows:
Capital Operating
Year Ending June 30 Leases Leases
1996 $ 236,331 $ 375,792
1997 213,125 328,980
1998 198,000 212,567
1999 16,500 191,838
2000 - 191,838
Thereafter - 223,811
Total minimum lease payments 663,956 $1,524,826
Imputed interest ( 82,795)
$ 581,161
Subsequent to June 30, 1995, MicroENERGY entered into a capi-
tal lease for certain equipment. The equipment and related
obligation will be recorded at $141,710. The lease has an
initial payment of $21,257 and thirty-five monthly payments of
$4,134 thereafter.
7. Stockholders' Equity
Restricted Stock Grant Program - The Company maintains a
restricted stock grant program. In 1990, certain key employ-
ees received 21,000,000 shares of restricted stock of the
Company. The restricted stock vests ratably beginning July 1,
1993 through 2026. The restrictions lapse in the event of the
key employee's death, permanent disability or termination of
employment by the Company without good reason, or a change in
control of the Company (as defined). The total market value
of the shares awarded under the plan as of the grant date
aggregating $1,968,750 was recorded as unearned restricted
stock award compensation and reported as a separate component
of stockholders' equity. 2,000,000 shares were forfeited in
1994 as one of the employees resigned.
F-15
7. Stockholders' Equity (cont'd)
Restricted Stock Grant Program (cont'd)
Compensation expense is being amortized over the period in
which participants perform services and the restrictions on
the stock awards lapse. In 1993, an additional 2,350,000
shares of restricted stock were issued to employees and an
independent contractor. The total market value approximated
par value at the date of grant and was recorded as
compensation expense during the year.
Stock Purchase Warrants - Stock purchase warrants were issued
to certain officers of the Company in consideration for per-
sonal guarantees provided on certain debt. On April 10, 1991,
MicroENERGY issued Class C warrants which give certain offi-
cers the right to convert such warrants to 20,500,000 shares
of common stock at an exercise price ($.063) approximating
market value at the date of grant. The warrants became exer-
cisable on April 10, 1992, and expire April 10, 1998. In
addition, the Company entered into a contingent loan agreement
with the warrant holders pursuant to which the Company will
lend the holders funds necessary to exercise the Class C
warrants in the event that a person or group acquired 10% of
the Company's common stock. None of the warrants have been
exercised to date.
On December 13, 1994, MicroENERGY issued Class D warrants
which give certain officers the right to convert such warrants
to 35,000,000 shares of common stock at an exercise price of
$.00125, which approximated 125% of market value at date of
grant. The warrants become exercisable on December 13, 1995
and expire December 13, 2001. None of the warrants have been
exercised to date.
Stock Option Plans - The stockholders of MicroENERGY have
approved three Incentive Stock Option Plans (the "plans").
Options granted under these plans are intended to qualify as
"incentive stock options," as defined by the Internal Revenue
Code. A total of 5,000,000 shares of common stock are re-
served for issuance upon exercise of options granted under the
plans. Options for 2,785,000, 1,755,000 and 2,005,000 shares
were outstanding at June 30, 1995, 1994 and 1993, respective-
ly. During 1995, options for 1,120,000 shares were granted,
no options were exercised and 90,000 options were cancelled.
During 1994, options for 250,000 shares were cancelled.
During 1993, 1,430,000 options were granted, no options exer-
cised, and 1,000,000 options were cancelled. The
F-16
7. Stockholders' Equity (cont'd)
Stock Option Plans (cont'd)
options have exercise prices ranging from $.01 to $.0450, with
an average exercise price of the options outstanding of
$.0149. Options granted under the plans are not exercisable
until one year after the date of the grant, vest ratably over
a five year period and may only be exercised while the holder
is an employee of MicroENERGY. Options expire no later than
ten years after the date of grant. At June 30, 1995,
2,785,000 shares are exercisable.
On November 12, 1990, the Board of Directors of the Company
also approved a nonqualified stock option plan which granted
an outside Director the option to purchase up to 2,000,000
shares of common stock at an exercise price of $.033 which
exceeded market value at the date of grant. The options were
exercisable upon award and expire ten years from the date of
grant. At June 30, 1995, no options have been exercised.
8. Employee Benefit Plan
The Company sponsors the MicroENERGY, Inc. Savings and Invest-
ment Plan, a defined contribution 401(k) plan covering all
full-time employees who meet certain age and length of service
requirements. Employer matching contributions are at the
Company's sole discretion. Employer contributions expensed
for the year ended June 30, 1995, 1994 and 1993 totaled
$26,211, $22,326 and $19,805, respectively.
9. Income Taxes
During 1994, the Company adopted FASB Statement Number 109,
"Accounting for Income Taxes". The statement requires the use
of an asset and liability approach for financial accounting
and reporting for income taxes. A valuation allowance is
recognized if it is more likely than not that a deferred tax
asset will not be realized. The adoption of this statement
had no effect on 1994 net income, nor was there a cumulative
effect of a change in accounting because no provision had been
recorded for federal or state income taxes for the years ended
June 30, 1993 and 1992 due to net operating losses incurred in
those years.
The following is a reconciliation of income taxes at the
federal statutory rate:
F-17
9. Income Taxes (cont'd)
For the Year Ended
June 30,
1995 1994
Computed income taxes
at federal statutory rate
of 34% $ 84,964 $ 69,647
State taxes, net of federal
benefit 16,872 7,088
Effect of graduated rates ( 469) ( 9,882)
Permanent differences 9,573 12,052
Temporary differences for which
deferred taxes had not been
recognized 24,868 (31,342 )
Benefit of tax loss carryforward (135,808) (47,563)
Total provision for income
taxes $ - $ -
Provision for income taxes:
Current $ 135,808 $ 47,563
Benefit of tax loss
carryforward (135,808) (47,563)
$ - $ -
At June 30, 1995, the cumulative net operating loss carryforward
available to MicroENERGY for income tax purposes was approxi-
mately $3,700,000. If not used to offset future taxable income,
the net operating loss carryforwards will expire in various
years beginning in 2000 and continuing through 2008. In the
event of a change in ownership of the Company these net operat-
ing loss carryforwards may be limited. In addition, the Company
has investment tax credit, research and development credit and
AMT credit carryforwards of approximately $18,000, $203,000 and
$12,000, respectively, at June 30, 1995. If not used to offset
future taxes, the carryforwards expire in years beginning in
1999 and continuing through 2006. A deferred tax asset for
these carryforwards of approximately $1,660,000 at June 30, 1995
and $1,510,000 at June 30, 1994 has been offset by a valuation
allowance in an equal amount.
In addition to the benefit of tax carryforward items, deferred
taxes are also recorded based upon temporary differences between
the financial statement and tax basis of assets and liabilities.
F-18
9. Income Taxes (cont'd)
Temporary differences as of June 30, 1995 and 1994 are as
follows:
June 30,
1995 1994
Total Deferred Total Deferred
Amount Tax Amount Tax
Current:
Inventory:
Uniform
capitalization $ 391,300 $151,300 $407,200 $130,300
Obsolescence and
excess reserve 732,600 283,300 732,600 234,500
Allowance for bad
debts 50,000 19,300 50,000 16,000
Accrued expenses 132,800 51,300 132,200 42,300
Long-term:
Depreciation (105,200) (40,700) (122,200) (39,100)
Capital lease 44,500 17,200 26,900 8,600
Stock benefit plans 324,000 125,300 270,100 86,400
$1,570,000 $607,000 $1,496,800 $479,000
The deferred tax assets totalling $607,000 at June 30, 1995
and $479,000 at June 30, 1994 have been offset by a valuation
allowance in an equal amount.
F-19<PAGE>
10. Major Customers
Revenues are generated from sales to OEM customers who are
engaged in the telecommunications, computer, and instrumenta-
tion segments of the electronics industry.
During 1995, net sales to one customer was 28% of total net
sales. However, the major customer is comprised of five
autonomous purchasing units. If considered separately, one
unit would be considered a major customer with 26% of total
net sales.
During 1994, net sales to two customers were 19% and 11%,
respectively. However the first major customer is comprised
of ten autonomous purchasing units. If considered separately,
one unit would be considered a major customer with 14% of
total net sales. During 1993, net sales to one customer
totaled 41% of total net sales. The major customer was
comprised of eight autonomous purchasing units. If considered
separately, one unit would be considered a major customer,
with 10.6% of total net sales. Accounts receivable from these
customers totaled $470,341 and $376,045 at June 30, 1995 and
1994, respectively.
During 1995, 1994 and 1993, export sales, principally to
Europe and Canada, were 36%, 38% and 24%, respectively, of
total net sales.
F-20
MICROENERGY, INC.
CONDENSED BALANCE SHEETS
Six Months
Ending Year Ended
12/31/95 6/30/95
(unaudited) (audited)
ASSETS
Current assets:
Cash $ 9,618 $ 113,227
Accounts receivable 1,500,700 1,193,995
Inventories 3,033,235 2,712,224
Other current assets 50,433 53,725
Total current assets 4,593,986 4,073,171
Machinery and equipment 4,639,195 4,390,516
Accumulated depreciation (2,891,554) (2,604,333)
1,747,641 1,786,183
Other assets, net 270,435 289,177
$ 6,612,062 $6,148,531
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 1,656,090 $1,165,211
Current portion of long-term obligations 908,958 858,808
Accounts payable 1,397,327 1,149,587
Accrued expenses 263,579 456,206
Total current liabilities 4,225,954 3,629,812
Long-term obligations 3,243,819 3,514,009
Total liabilities 7,469,773 7,143,821
Stockholders' equity:
Convertible preferred stock, no par value -
800 shares authorized; 769 issued and
converted
Common stock, $.001 par value - 180,000,000
shares authorized in 1995 and 1994;
114,111,563 shares issued in 1995 and
116,111,563 in 1994 149,451 113,961
Additional paid-in capital 5,692,079 5,678,919
Accumulated deficit (5,356,650) (5,356,650)
Unearned restricted stock compensation (1,428,550) (1,455,550)
Common stock purchase warrants, 75 75
Treasury stock, at cost, 850,659 shares (16,386) (16,386)
Unrealized gain on marketable securities 40,341
Current Year Earnings 102,270
Total stockholders' equity (857,711) (995,290)
$ 6,612,062 $6,148,531
F-21
MICROENERGY, INC.
STATEMENTS OF OPERATIONS
3 Months 3 Months 6 Months 6 Months
Ended Ended Ended Ended
12/31/95 12/31/94 12/31/95 12/31/94
Sales $ 3,334,156 $ 3,991,362 $ 6,721,421 $ 7,668,227
Expenses:
Facility, pre-
production and
production 2,734,806 3,280,762 5,429,931 6,297,291
Research and
Development 182,538 190,739 402,677 364,979
Selling, Gen and
Administrative 295,792 363,541 626,288 718,762
Interest exp, net 81,967 84,628 160,255 166,249
Net Profit After Tax 39,053 71,692 102,270 120,946
Net earnings/(loss)
per share $ 0.001 $ 0.001 $ 0.001 $ 0.001
Weighted avg number
of shares of
common stock 114,350,451 114,111,563 114,350,451 114,111,563
F-22<PAGE>
MICROENERGY, INC.
STATEMENTS OF CASH FLOWS
6 Months 6 Months
Ending Ending
12/31/95 12/31/94
Cash flows from operating
activities:
Net (losses) earnings $ 102,270 $ 120,946
Adjustments to reconcile net
(losses) earnings to net cash
provided by operations:
Depreciation 287,221 286,722
Changes in assets and
liabilities:
Accounts receivable (306,705) (146,109)
Inventories (321,011) 142,307
Other current assets 22,034 (87,200)
Accounts payable 247,740 198,411
Accrued expens (192,627) 183,866
(263,348) 577,997
Net cash provided (used) by
operating activities (161,078) 698,943
Cash flows (used in) provided by
investing activities:
Additions to equipment (248,679) (116,771)
Cash flows provided by (used in)
financing activities:
Notes Payable 541,029 (462,948)
Long-term debt, net of payments (270,190) (179,937)
Equity Transactions 35,309 27,000
Net cash provided by (used in)
financing activities 306,148 (615,885)
Net increase (decrease) in cash (103,609) (33,713)
Cash at beginning of year 113,227 45,792
Cash at end of year $ 9,618 $ 12,079
F-23<PAGE>
MICROENERGY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONDENSED FINANCIAL STATEMENTS
The condensed balance sheet as of December 31, 1995, the
consolidated statement of income for the three and six month
periods ending December 31, 1995 and December 31, 1994 and the
condensed statement of cash flows for the six month period ending
December 31, 1995 and December 31, 1994 have been prepared by the
Company, without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of
operations and changes in financial position at December 31, 1995
and for all periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
It is suggested that these condensed statements be read in
conjunction with the financial statements and notes thereto
included in the Company's June 30, 1995 10K report. The results
of operations for the period ended December 31, 1995 is not
necessarily indicative of the operating results for the full
year.
2. NOTES TO THE CONDENSED FINANCIAL STATEMENTS
On December 12, 1995, MicroENERGY purchased a 9,600 square foot
industrial building on 1.34 acres in Memphis, Missouri. A bank
financed 100% of the purchase price with a loan for $80,000.00 at
5% interest. The loan requires monthly principal and interest
payments amortizing over ten (10) years with a five (5) year
maturity. The loan is secured with a first mortgage on the
building and land. The transformer, toroid and cable assembly
departments currently located in Quincy, Illinois will be moved
to this facility in early 1996.
On December 29, 1995, Officers of the Company exercised Class D
Stock Purchase Warrants for 35,000,000 shares of common stock at
an exercise price of $.00125 per share.
F-24
ALTERNATIVE PROSPECTUS
MICROENERGY, INC.
880,000 Redeemable Class A Preferred Stock Purchase Warrants
The securities offered hereby are 880,000 Redeemable Class A
Preferred Stock Purchase Warrants ("Class A Warrant") of MicroENE-
RGY, Inc., a Delaware corporation, ("MicroENERGY" or the "Company")
held by certain securityholders of the Company identified herein
(the "Selling Securityholders"). See: "THE SELLING SECURITYHOLDE-
RS." Each Class A Warrant entitles the holder to purchase one
share of the Company's Series A Preferred Stock, at an exercise
price of $5.25, subject to adjustment, from ____________, 1997
through ____________, 2000. In the event that the Company has
exercised its option to convert the Series A Preferred Stock into
Common Stock, each Class A Warrant will thereafter entitle the
holder to purchase one share of Common Stock. The Class A Warrants
are subject to redemption by the Company at any time after
______________, 1997 on not less than 30 days' notice at $.05 per
Warrant, provided the average closing price of the Common Stock for
5 consecutive trading days ending within 15 days prior to the
notice exceeds $7.00 per share. See "DESCRIPTION OF SECURITIES".
The Class A Warrants offered by this Prospectus may be sold from
time to time by the Selling Securityholders or their transferees.
No underwriting arrangements have been entered into by the Selling
Securityholders. The distribution of the Class A Warrants by the
Selling Securityholders may be effected in one or more transactions
that take place in the over-the-counter market including ordinary
broker's transactions, privately negotiated transactions, or
through sales to one or more dealers for resale of such shares as
principals at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated
prices. Usual and customary or specially negotiated brokerage fees
may be paid by the Selling Securityholders in connection with the
sale of the Class A Warrants.
On the date hereof the Company commenced a public offering of
430,000 shares of Series A Preferred Stock, $.01 par value, and
215,000 Class A Warrant. See: "CONCURRENT SALES."
The Company will not receive any of the proceeds from the sale of
the Class A Warrants offered hereby by the Selling Securityholders.
All costs incurred in the registration of the Class A Warrants
being offered by the Selling Securityholders are being borne by the
Company. See: "SELLING SECURITYHOLDERS."
The Company's Common Stock is currently quoted on the NASDAQ
Bulletin Board. There is currently no market for either the
Preferred Shares or the Class A Warrants. On April __, 1996, the
closing bid price of the Common Stock as quoted on the NASDAQ
Bulletin Board was $___ per share. The Company has applied to have
the Preferred Stock, the Common Stock, and the Class A Warrants
listed on the NASDAQ SmallCap Market, and expects that listing to
occur on the effective date of this Offering.
An investment in the securities offered hereby involves a high
degree of risk and immediate substantial dilution. An investment
in these securities should be considered only by persons capable of
sustaining the loss of their entire investment. See "RISK
FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is April__, 1996
<PAGE>
THE OFFERING
Securities Offered 880,000 Class A Warrants. The
Class A Warrants offered hereby
are identical to the Class A
Warrants being offered by the
Company to the public in its
initial public offering. See
"DESCRIPTION OF SECURITIES".
Securities to Be Outstanding 415,143 shares of Common Stock
After Completion of the Offering 780,000 shares of Series A
(assuming no exercise of Over- Preferred Stock
Allotment Option) 1,095,000 Class A Warrants
(including 880,000 being offered
by Selling Securityholders).
Terms of Class A Warrants Each Class A Warrant entitles
the holder to purchase one
share of the Company's Series A
Preferred Stock at a price of
$5.25, subject to adjustment,
during the three year period
beginning one year after the
date of this Prospectus. After
_________, 1997, the Class A
Warrants are subject to redemp-
tion by the Company at any time
during the exercise period, on
not less than 30 days' notice
at $.05 per Warrant provided
the average closing bid price
of the Common Stock exceeds
$7.00 per share for 5 consecu-
tive trading day ending within
15 days prior to the notice.
Proposed NASDAQ SmallCap
Market Symbols:
Preferred Stock - MCREP
Common Stock - MCRE
Class A Warrants - MCREW
Risk Factors The securities are subject to a
high degree of risk. See:
"Risk Factors."
Selected Financial Information
Six Months Ended
December 30
1995 1994
Income Data:
Revenues................ $6,721,421 $7,668,227
Operating Income........ 262,525 287,295
Net Income.............. 102,270 120,946
Net Income Per Share.... $.21 $.38
Years Ended
June 30
1995 1994 1993
Income Data:
Revenues............ $14,588,844 $12,771,067 $15,886,279
Operating Income.... 581,685 426,419 433,280
Net Income.......... 249,894 204,845 40,806
Net Income Per Share $.79 $.65 $.14
Balance Sheet Data:
As Adjusted to
Reflect:
At Dec. 31, 1995 Debt Compromise(1) Public Offer-
ing(2)
Working Capital................. $ 393,657 $ 393,657 $1,628,007
Total Assets.................... 6,612,062 6,612,062 7,846,412
Long-Term Debt, Net............. 3,243,819 1,900,819 1,413,819
Stockholders Equity/(Deficit) (857,711) 480,289 2,651,789
______________________________
(1) Reflects the effect of $1 Million reduction in debt to
AT&T and related financing transactions from January
through March of 1996. See "CAPITALIZATION - Debt
Compromise."
(2) Assumes no exercise of the Underwriters' Over-allotment
Option, and the use of $487,000 of net proceeds to reduce
long-term debt. See "USE OF PROCEEDS."
CONCURRENT SALES
On the date of this Prospectus, a Registration Statement
under the Securities Act with respect to an underwritten public
offering (the "Offering") of Securities by the Company was declared
effective by the Securities and Exchange Commission ("SEC") and the
Company commenced the sale of the Securities offered thereby. The
Securities consist of 430,000 shares of Series A Preferred Stock,
$.01 par value, and 215,000 Class A Warrants to purchase Series A
Preferred Stock (without giving effect to the Over-Allotment Option
granted to the Underwriters of the Offering). Sales of securities
under this Prospectus by the Selling Security-holders or even the
potential of such sales would likely have an adverse effect on the
market price of the Company's securities.
SELLING SECURITYHOLDERS
The Registration Statement of which this Prospectus is a
part also relates to the offer and sale of 880,000 Class A Warrants
(the "Bridge Securities") to be offered by the Selling Securityhol-
ders. All of such securities are expected to become tradeable on
or about the date of this Prospectus. Sales of the Warrants being
offered by Selling Securityholders, or even the potential of such
sales, would likely have an adverse effect on the market prices of
the Securities being offered for sale by the Company.
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 prior to the Offering and after the Offering, assuming all of
the Warrants owned by the Selling Securityholders are sold.
Class A Percent of Class A
Warrants Owned Warrants Owned
Name of Prior to After Prior to After
Beneficial Owner Offering Offering Offering Offering
Dune Holdings 400,000 -- 45.5% 0%
Rifky Weiner 208,000 -- 23.6% 0%
James R. Solakian 128,000 -- 14.5% 0%
Harold Pretter 48,000 -- 5.5% 0%
JM Holdings 48,000 -- 5.5% 0%
Robert Brantl 48,000 -- 5.5% 0%
Total 880,000 0 100.00% 0%
None of the Selling Securityholders is affiliated with
the Company in any capacity or has had any business relationship
with the Company at any time, except that Robert Brantl is of
counsel to the firm of Bressler, Amery & Ross, which has served as
counsel to the Company since it was founded.
Plan of Distribution
The securities offered hereby may be sold from time to
time directly by the Selling Securityholders. Alternatively, the
Selling Securityholders may from time to time offer such securities
through underwriters, dealers or agents. The distribution of
securities by the Selling Securityholders may be effected in one or
more transactions that may take place on the over-the-counter
market, including ordinary broker's transactions, privately-negotiated
transactions or through sales to one or more broker-dealers for resale
of such securities as principals, at market
prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Usual and
customary or specifically negotiated brokerage fees or commissions
may be paid by the Selling Securityholders in connection with such
sales of securities. The Selling Securityholders and intermediar-
ies through whom such securities are sold may be deemed "underwrit-
ers" within the meaning of the Act with respect to the securities
offered, and any profits realized or commissions received may be
deemed underwriting compensation.
At the time a particular offer of securities is made by
or on behalf of a Selling Securityholder, to the extent required,
a prospectus will be distributed which will set forth the number of
securities being offered and the terms of the offering, including
the name or names of any underwriters, dealers or agents, if any,
the purchase price paid by any underwriter for securities purchased
from the Selling Securityholder and any discounts, commissions or
concessions allowed or reallowed or paid to dealers, and the
proposed selling price to the public.
Under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the regulations thereto, any person
engaged in a distribution of the securities of the Company offered
by the Selling Securityholders may not simultaneously engage in
market-making activities with respect to such securities of the
Company during the applicable "cooling off" period (9 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, including without limitation, Rule 10b-6
and 10b-7, in connection with transactions in such securities,
which provisions may limit the timing of purchases and sales of
such securities by the Selling Securityholders.
<PAGE>
Part II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Section 145 of the General Corporation Law of the State
of Delaware authorizes a corporation to provide indemnification to
a director, officer, employee or agent of the corporation, includ-
ing attorneys' fees, judgments, fines and amounts paid in settle-
ment, actually and reasonably incurred by him in connection with
such action, suit or proceeding, if such party acted in good faith
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, had no reasonable cause to believe
his conduct was unlawful as determined in accordance with the
statute, and except that with respect to any action which results
in a judgment against the person and in favor of the corporation
the corporation may not indemnify unless a court determines that
the person is fairly and reasonably entitled to the indemnifica-
tion.
Section 145 further provides that indemnification shall
be provided if the party in question is successful on the merits.
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 (the "Act") may be permitted to
directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the
small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforce-
able. If 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 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 jurisdic-
tion 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.
Item 25. Other Expenses of Issuance and Distributions
The following are the estimated expenses in connection
with the distribution of the securities being registered here
under:
S.E.C. Registration Fee. . . . . .$ 3,032
N.A.S.D. Filing Fee. . . . . . . . 1,379
Blue Sky fees. . . . . . . . . . . 17,000 *
Representative's Non-Accountable
Expense Allowance. . . . . . . . 65,145
Representative's Financial
Consulting Fee . . . . . . . . . 48,000
Accounting fees. . . . . . . . . . 24,000 *
Transfer Agent . . . . . . . . . . 2,000 *
Legal fees . . . . . . . . . . . . 42,000 *
Printing expenses. . . . . . . . . 30,000 *
Miscellaneous. . . . . . . . . . . 444 *
TOTAL . . . . . . . . . $233,000 *
____________________
* Estimated
Item 26. Recent Sales of Unregistered Securities.
In February and March of 1996, the Company sold 880,000
Class A Warrants to the Selling Securityholders identified
elsewhere in this Registration Statement. The sale was exempt
pursuant to Section 4(2) of the Act since the sale was not made in
a public offering and was made to individuals who had access to
detailed information about the Company and were buying for their
own account. There were no underwriters.
Item 27. Exhibits and Financial Statement Schedules
Exhibits
1-a. Form of Underwriting Agreement.
1-b Form of Agreement Among Underwriters.
1-c Form of Selected Dealers Agreement.
3-a. Certificate of Incorporation, as amended - filed as an
Exhibit to the Company's S-18 Registration Statement dated
February 2, 1984 and incorporated by reference herein as an
exhibit hereto.
3-a(1) Certificate of Amendment to Certificate of Incorporation
dated February 12, 1987 - filed as an Exhibit to the
Company's Annual Report on Form 10K for the fiscal year
ended June 30, 1987 and incorporated by reference as an
exhibit hereto.
3-a(2) Certificate of Amendment to Certificate of Incorporation
dated December 20, 1990 - filed as an Exhibit to the
Company's Annual Report on Form 10K for the fiscal year
ended June 30, 1991 and incorporated by reference as an
exhibit hereto.
3-a(3) Form of Certificate of Amendment to Certificate of Incorpo-
ration (1)
3-a(4) Form of Certificate of Designation of Series A Preferred
Stock. (1)
3-b. By-laws, as amended, have been filed as an Exhibit to the
Company's Annual Report on Form 10K for the fiscal year
ended June 30, 1984 and are incorporated by reference as an
exhibit hereto.
4-a. Specimen of Common Stock Certificate (1)
4-b Specimen of Series A Preferred Stock Certificate (1)
4-c. Specimen of Class A Warrant (1)
4-d. Form of Warrant Agreement
4-e. Form of Representative's Purchase Warrant
5 Opinion of Bressler, Amery & Ross.
7 Opinion of Bressler Amery & Ross on Liquidation Prefer-
ence (1)
8 Tax opinion of Bressler, Amery & Ross
10-a Lease for premises at 350 Randy Road, Carol Steam, Illinois
- filed as an exhibit to the Company's Annual Report on
Form 10K for the year ended June 30, 1993 and incorporated
by reference as an exhibit hereto.
10-b 1992 Incentive Stock Option Plan and form of Stock Option
-- filed with the Company's proxy materials used in connec-
tion with the Annual Meeting on February 24, 1992 and
incorporated herein by reference.
10-c Lease dated August 20, 1986 for premises in Quincy,
Illinois - filed as an Exhibit to the Company's Report on
Form 10K for the year ended June 30, 1986 and incorporated
by reference as an exhibit hereto.
10-c(1) Amendment to Lease for premises in Quincy, Illinois - filed
as an Exhibit to the Company's Report on Form 10K for the
year ended June 30, 1993 and incorporated by reference as
an exhibit hereto.
10-d Loan and Development Agreement with Promissory Note dated
August 20, 1986 between the Company and the City of Quincy,
Illinois - filed as an Exhibit to the Company's Report on
Form 10K for the year ended June 30, 1986 and incorporated
by reference as an exhibit hereto.
10-e Promissory Note and Collateral Security Agreement dated
August 20, 1986 between the Company and Boatmen's Bank of
Quincy - filed as an Exhibit to the Company's Report on
Form 10K for the year ended June 30, 1986 and incorporated
by reference as an exhibit hereto.
10-f Credit Agreement between the Company and Boatmen's Bank of
Quincy - filed as an Exhibit to the Company's Annual Report
on Form 10K for the fiscal year ended June 30, 1988 and
incorporated by reference as an exhibit hereto.
10-g 1991 financing documents relating to the State of Illinois,
City of Quincy and Comerica Bank - filed as an Exhibit to
the Company's Annual Report on Form 10K for the fiscal year
ended June 30, 1991 and incorporated by reference as an
exhibit hereto.
10-g(1) 1994 and 1995 amendments to 1991 financing documents
relating to the State of Illinois, City of Quincy and
Comerica Bank - filed as an Exhibit to the Company's Annual
Report on Form 10K for the fiscal year ended June 30, 1995
and incorporated by reference as an exhibit hereto.
10-h Restricted Stock Grant Program - filed with the Company's
proxy materials used in connection with the Annual Meeting
on May 19, 1989 and incorporated by reference as an exhibit
hereto.
10-i Asset Purchase Agreement between the Company and NCR
Corporation dated July 1, 1990 - filed as an Exhibit to the
Company's Report on Form 10K for the year ended June 30,
1991 and incorporated by reference as an exhibit hereto.
10-i(1) Amendment to Agreement between the Company and NCR Corpora-
tion relating to Debt and Licensing Agreement contained in
the Asset Purchase Agreement - filed as an Exhibit to the
Company's Report on Form 10K for the year ended June 30,
1993 and incorporated by reference as an exhibit hereto.
10-i(2) Amendment to Agreement between the Company and NCR Corpora-
tion relating to payment terms - filed as an Exhibit to the
Company's Report on Form 10K for the year ended June 30,
1994 and incorporated by reference as an exhibit hereto.
10-i(3) Amendment to Agreement between the Company and NCR Corpora-
tion relating to payment terms dated January 31, 1996.
10-j Class C Warrants - filed with the Company's proxy materials
used in connection with the Annual Meeting on February 24,
1992 and incorporated by reference as an exhibit hereto.
10-k Class D Warrants - filed as an Exhibit to the Company's
Report on Form 10K for the year ended June 30, 1995 and
incorporated by reference as an exhibit hereto.
10-l Employment Agreement with Robert G. Gatza dated February 1,
1996.
10-m Employment Agreement with Robert J. Fanella dated February
1, 1996.
10-n Leases for premises and equipment in Northlake, Illinois -
filed as an Exhibit to the Company's Report on Form 10K for
the year ended June 30, 1993 and incorporated by reference
as an exhibit hereto.
10-o Form of Financial Consulting Agreement
10-p(1) Subscription Agreement dated February 1, 1996 between the
Company and Robert G. Gatza
10-p(2) Subscription Agreement dated February 1, 1996 between the
Company and Robert J. Fanella
22 Subsidiaries - Tru-Way, Inc., an Illinois corporation.
24 Consent of Selden Fox & Associates, Ltd.
__________________
(1) To be filed by Amendment
Item 28. Undertakings
See Item 24 for the undertaking regarding the indemnification
of officers, directors and controlling persons.
The Company hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, post-effective amendments 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 regis-
tration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggre-
gate, 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;
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective amend-
ment shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a Post-
Effective Amendment any of the securities being registered which
remain unsold at the termination of the offering.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act
of 1933, the Company certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form
SB-2 and authorized this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Town
of Carol Stream and the State of Illinois on the 18th day of
March, 1996.
MICROENERGY, INC.
By:/s/Robert G. Gatza
Robert G. Gatza
Chief Executive Officer
In accordance with to the requirements of the Securities
Act of 1933, this registration statement has been signed below by
the following persons in the capacities indicated on March 18,
1996.
Name Title
/s/Robert G. Gatza Chief Executive Officer and
Robert G. Gatza Chairman of the Board
/s/Robert J. Fanella Chief Financial Officer and
Robert J. Fanella Director
/s/George M. Bradshaw Director
George M. Bradshaw
<PAGE>
INDEX TO EXHIBITS
1-a. Form of Underwriting Agreement.
1-b Form of Agreement Among Underwriters.
1-c Form of Selected Dealers Agreement.
4-d. Form of Warrant Agreement
4-e. Form of Representative's Purchase Warrant
5 Opinion of Bressler, Amery & Ross.
8 Tax opinion of Bressler, Amery & Ross
10-i(3) Amendment to Agreement between the Company and NCR
Corporation relating to payment terms dated January 31,
1996.
10-l Employment Agreement with Robert G. Gatza dated February
1, 1996.
10-m Employment Agreement with Robert J. Fanella dated
February 1, 1996.
10-o Form of Financial Consulting Agreement
10-p(1) Subscription Agreement dated February 1, 1996 between the
Company and Robert G. Gatza
10-p(2) Subscription Agreement dated February 1, 1996 between the
Company and Robert J. Fanella
24 Consent of Selden Fox & Associates, Ltd.
<PAGE>
430,000 Shares of Series A Cumulative Convertible
Preferred Stock,
par value $.01 per share
and
215,000 Redeemable Class A Warrants for Preferred Stock
MICROENERGY, INC.
UNDERWRITING AGREEMENT
New York, New York
___________, 1996
I. A. Rabinowitz & Co.
99 Wall Street
New York, New York 10005
MicroEnergy, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to you, as representative of the several
underwriters referred to in the Prospectus (as defined below) (the
"Representative"), an aggregate of 430,000 shares of Series A
Cumulative Convertible Preferred Stock, par value $.01 per share
("Preferred Stock" or "Shares"), and 215,000 Redeemable Class A
Warrants for Preferred Stock ("Warrants"). The Preferred Stock and
Warrants may be collectively referred to hereinafter as the
"Securities". The Preferred Stock is convertible, commencing
__________, 1997 and at any time thereafter that the Preferred
Stock is outstanding, into the Company's common stock, par value
$_____ per share ("Common Stock") at a rate of no less than 1 share
and no more than 2 shares for every share of Preferred Stock, the
actual conversion ratio to be determined on ___________, 1997 based
upon the market price of the Common Stock at that time (all as
described in the Prospectus). The Preferred Stock may be
converted, at the Company's option, in accordance with the
provisions contained in the Prospectus. In the event the Company
exercises its conversion rights, each Warrant will thereafter
entitle the holder thereof to purchase 1 share of Common Stock.
Each Warrant entitles the registered holder thereof to purchase one
(1) share of Preferred Stock at an exercise price of $5.25 per
share for a period of three (3) years, commencing ___________, 1997
(one (1) year from the Effective Date) through ___________, 2000.
The Warrants are subject to redemption by the Company at any time
after ___________, 1997 at $.01 per warrant, if the closing bid
price per share of Common Stock has equaled or exceeded $7.00 per
share for any 5 consecutive trading days ending within 15 days of
the written notice of redemption. In addition, the Company
proposes to grant to the Representative the option referred to in
Section 2(b) to purchase all or any part of an aggregate of 64,500
additional shares of Preferred Stock and 32,250 additional
Warrants.
You have advised the Company that you desire to purchase
the Securities. The Company confirms the agreements made by it
with respect to the purchase of the Securities by the
Representative as follows:
1. Representations and Warranties of the Company. The
Company represents and warrants to, and agrees with you that:
(a) A registration statement (File No. 33-________) on Form SB-2
relating to the public offering of the Securities, including a form
of prospectus subject to completion, copies of which have
heretofore been delivered to you, has been prepared in conformity
with the requirements of the Securities Act of 1933, as amended
(the "Act"), and the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder, and has been filed with the Commission
under the Act and one or more amendments to such registration
statement may have been so filed. After the execution of this
Agreement, the Company will file with the Commission either (i) if
such registration statement, as it may have been amended, has been
declared by the Commission to be effective under the Act, a
prospectus in the form most recently included in an amendment to
such registration statement (or, if no such amendment shall have
been filed in such registration statement), with such changes or
insertions as are required by Rule 430A under the Act or permitted
by Rule 424(b) under the Act and as have been provided to and
approved by you prior to the execution of this Agreement, or (ii)
if such registration statement, as it may have been amended, has
not been declared by the Commission to be effective under the Act,
an amendment to such registration statement, including a form of
prospectus, a copy of which amendment has been furnished to and
approved by you prior to the execution of this Agreement. As used
in this Agreement, the term "Company" means MicroEnergy, Inc.
and/or each of its subsidiaries; the term "Registration Statement"
means such registration statement, as amended at the time when it
was or is declared effective, including all financial schedules and
exhibits thereto and including any information omitted therefrom
pursuant to Rule 430A under the Act and included in the Prospectus
(as hereinafter defined); the term "Preliminary Prospectus" means
each prospectus subject to completion filed with such registration
statement or any amendment thereto (including the prospectus
subject to completion, if any, included in the Registration
Statement or any amendment thereto at the time it was or is
declared effective); and the term "Prospectus" means the prospectus
first filed with the Commission pursuant to Rule 424(b) under the
Act, or, if no prospectus is required to be filed pursuant to said
Rule 424(b), such term means the prospectus included in the
Registration Statement; except that if such registration statement
or prospectus is amended or such prospectus is supplemented, after
the effective date of such registration statement and prior to the
Option Closing Date (as hereinafter defined), the terms
"Registration Statement" and "Prospectus" shall include such
registration statement and prospectus as so amended, and the term
"Prospectus" shall include the prospectus as so supplemented, or
both, as the case may be.
(b) The Commission has not issued any order preventing
or suspending the use of any Preliminary Prospectus. At the time
the Registration Statement becomes effective and at all times
subsequent thereto up to and on the First Closing Date (as
hereinafter defined) or the Option Closing Date, as the case may
be, (i) the Registration Statement and Prospectus will in all
respects conform to the requirements of the Act and the Rules and
Regulations; and (ii) neither the Registration Statement nor the
Prospectus will include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make statements therein not misleading; provided,
however, that the Company makes no representations, warranties or
agreements as to information contained in or omitted from the
Registration Statement or Prospectus in reliance upon, and in
conformity with, written information furnished to the Company by or
on behalf of the Representative specifically for use in the
preparation thereof. It is understood that the statements set
forth in the Prospectus with respect to stabilization, under the
heading "Underwriting", and the identity of counsel to the
Representative under the heading "Legal Matters" constitute for
purposes of this Section and Section 6(b) the only information
furnished in writing by or on behalf of the Representative for
inclusion in the Registration Statement and Prospectus, as the case
may be.
(c) The Company and its subsidiaries ("Subsidiaries"),
have been duly incorporated and are validly existing as
corporations in good standing under the laws of their respective
jurisdictions of incorporation with full corporate power and
authority to own its properties and conduct its business as
described in the Prospectus and are duly qualified or licensed to
do business as a foreign corporation and is in good standing in the
State of Illinois and each other jurisdiction in which the nature
of its business or the character or location of its properties
requires such qualification, except where the failure to so qualify
will not materially adversely affect the Company's business,
properties or financial condition. The Company owns all of the
issued and outstanding capital stock of the Subsidiaries.
(d) The authorized, issued and outstanding capital stock
of the Company, including the predecessors of the Company, is as
set forth the Company's financial statements contained in the
Registration Statement; the shares of issued and outstanding
capital stock of the Company set forth therein have been duly
authorized, validly issued and are fully paid and nonassessable;
except as set forth in the Prospectus, no options, warrants, or
other rights to purchase, agreements or other obligations to issue,
or agreements or other rights to convert any obligation into, any
shares of capital stock of the Company have been granted or entered
into by the Company; and the capital stock conforms to all
statements relating thereto contained in the Registration Statement
and Prospectus.
(e) The shares of Preferred Stock, when paid for, issued
and delivered pursuant to this Agreement, will have been duly
authorized, issued and delivered and will constitute valid and
legally binding obligations of the Company enforceable in
accordance with their terms, except as enforceability may be
limited by bankruptcy, insolvency or other laws affecting the right
of creditors generally or by general equitable principles, and
entitled to the rights and preferences provided by the Certificate
of Incorporation, which will be in the form filed as an exhibit to
the Registration Statement. The terms of the Preferred Stock
conform to the description thereof in the Registration Statement
and Prospectus.
The shares of Common Stock issuable upon conversion of
the Preferred Stock or upon exercise of the Warrants, when issued,
will be duly authorized, validly issued, fully paid, and non-assessable,
free of preemptive rights, and no personal liability
will attach to the ownership thereof.
The Warrants, when paid for, issued and delivered
pursuant to this Agreement, will have been duly authorized, issued
and delivered and will constitute valid and legally binding
obligations of the Company enforceable in accordance with their
terms, except as enforceability may be limited by bankruptcy,
insolvency or other laws affecting the right of creditors generally
or by general equitable principles, and entitled to the benefits
provided by the warrant agreement pursuant to which such Warrants
are to be issued (the "Warrant Agreement"), which will be
substantially in the form filed as an exhibit to the Registration
Statement. The shares of Preferred Stock issuable upon exercise of
the Warrants have been reserved for issuance upon the exercise of
the Warrants and when issued in accordance with the terms of the
Warrants and Warrant Agreement, will be duly and validly authorized
validly issued, fully paid and non-assessable and free of
preemptive rights. The Warrant Agreement has been duly authorized
and, when executed and delivered pursuant to this Agreement,
assuming due authorization, execution and delivery by the transfer
agent, will have been duly executed and delivered and will
constitute the valid and legally binding obligation of the Company
enforceable in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency or other laws affecting
the rights of creditors generally or by general equitable
principles. The Warrants and Warrant Agreement conform to the
respective descriptions thereof in the Registration Statement and
Prospectus.
The Shares and Warrants contained in the Underwriter's
Purchase Option (as defined in the Registration Statement) have
been duly authorized and, when paid for, issued and delivered
pursuant to this Agreement, will constitute valid and legally
binding obligations of the Company enforceable in accordance with
their terms and entitled to the benefits provided by the Purchase
Option, except as enforceability may be limited by bankruptcy,
insolvency or other laws affecting the rights of creditors
generally or by general equitable principles. The Securities
issuable upon exercise of the Purchase Option (and the shares of
Preferred Stock issuable upon exercise of the Warrants and the
shares of Common Stock issuable upon conversion of the Preferred
Stock) when issued and paid for in accordance with this Agreement,
the Purchase Option and the Warrant Agreement, will be duly
authorized, validly issued, fully paid and non-assessable and free
of preemptive rights.
(f)This Agreement and the Purchase Option have been
duly and validly authorized, executed and delivered by the Company.
The Company has full power and authority to authorize, issue and
sell the Securities to be sold by it hereunder on the terms and
conditions set forth herein, and no consent, approval,
authorization or other order of any governmental authority is
required in connection with such authorization, execution and
delivery or in connection with the authorization, issuance and sale
of the Securities or the Purchase Option, except such as may be
required under the Act or state securities laws.
(g) Except as described in the Prospectus, or which
would not have a material adverse effect on the condition
(financial or otherwise), business prospects, net worth or
properties of the Company and the Subsidiaries taken as a whole (a
"Material Adverse Effect"), neither the Company nor its
Subsidiaries is in violation, breach or default of or under, and
consummation of the transactions herein contemplated and the
fulfillment of the terms of this Agreement will not conflict with,
or result in a breach or violation of, any of the terms or
provisions of, or constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any
of the property or assets of the Company or its Subsidiaries
pursuant to the terms of any material indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which the
Company or its Subsidiaries is a party or by which the Company or
its Subsidiaries may be bound or to which any of the property or
assets of the Company or its Subsidiaries is subject, nor will such
action result in any violation of the provisions of the certificate
of incorporation or the by-laws of the Company or its Subsidiaries,
as amended, or any statute or any order, rule or regulation
applicable to the Company or its Subsidiaries of any court or of
any regulatory authority or other governmental body having
jurisdiction over the Company or its Subsidiaries.
(h) Subject to the qualifications stated in the
Prospectus, the Company and its Subsidiaries have good and
marketable title to all properties and assets described in the
Prospectus as owned by them, free and clear of all liens, charges,
encumbrances or restrictions, except such as are not materially
significant or important in relation to their business; all of the
material leases and subleases under which the Company or its
Subsidiaries is the lessor or sublessor of properties or assets or
under which the Company or its Subsidiaries hold properties or
assets as lessee or sublessee as described in the Prospectus are in
full force and effect, and, except as described in the Prospectus,
the Company and its Subsidiaries are not in default in any material
respect with respect to any of the terms or provisions of any of
such leases or subleases, and, to the best knowledge of the
Company, no claim has been asserted by anyone adverse to rights of
the Company or its Subsidiaries, as lessor, sublessor, lessee or
sublessee under any of the leases or subleases mentioned above, or
affecting or questioning the right of the Company or its
Subsidiaries to continued possession of the leased or subleased
premises or assets under any such lease or sublease except as
described or referred to in the Prospectus; and the Company and its
Subsidiaries own or lease all such properties described in the
Prospectus as are necessary to their operations as now conducted
and, except as otherwise stated in the Prospectus, as proposed to
be conducted as set forth in the Prospectus.
(i) Selden, Fox and Associates, Ltd., which has given
its report on certain financial statements filed with the
Commission as a part of the Registration Statement, is with respect
to the Company, independent public accountants as required by the
Act and the Rules and Regulations.
(j) The financial statements, and schedules together
with related notes, set forth in the Prospectus or the Registration
Statement present fairly the financial position and results of
operations and changes in cash flow position of the Company and its
Subsidiaries on the basis stated in the Registration Statement, at
the respective dates and for the respective periods to which they
apply. Said statements and schedules and related notes have been
prepared in accordance with generally accepted accounting
principles applied on a basis which is consistent during the
periods involved except as disclosed in the Prospectus and
Registration Statement.
(k) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus
and except as otherwise disclosed or contemplated therein, the
Company and its Subsidiaries have not incurred any liabilities or
obligations, direct or contingent, not in the ordinary course of
business, or entered into any transaction not in the ordinary
course of business, which would have a Material Adverse Effect, and
there has not been any change in the capital stock of, or any
incurrence of short-term or long-term debt by, the Company or its
Subsidiaries, or any issuance of options, warrants or other rights
to purchase the capital stock of the Company or its Subsidiaries,
or any material adverse change or any development involving, so far
as the Company or its Subsidiaries can now reasonably foresee a
prospective adverse change in the condition (financial or
otherwise), net worth, results of operations, business, key
personnel or properties of it which would have a Material Adverse
Effect.
(l) Except as set forth in the Prospectus, there is not
now pending or, to the knowledge of the Company, threatened, any
action, suit or proceeding to which the Company or its Subsidiaries
are a party before or by any court or governmental agency or body,
which might result in any material adverse change in the financial
condition, business prospects, net worth, or properties of the
Company or its Subsidiaries, nor are there any actions, suits or
proceedings related to environmental matters or related to
discrimination on the basis of age, sex, religion or race; and no
labor disputes involving the employees of the Company or its
Subsidiaries exist or to the knowledge of the Company, are
threatened which might be expected to have a Material Adverse
Effect.
(m) Except as disclosed in the Prospectus, the Company
and its Subsidiaries have filed all necessary federal, state and
foreign income and franchise tax returns required to be filed as of
the date hereof and have paid all taxes shown as due thereon; and
there is no tax deficiency which has been, or to the knowledge of
the party, may be asserted against the Company or its Subsidiaries.
(n) Except as disclosed in the Registration Statement or
Prospectus, the Company and its Subsidiaries have sufficient
licenses, permits and other governmental authorizations currently
necessary for the conduct of their business or the ownership of
their properties as described in the Prospectus and is in all
material respects complying therewith and owns or possesses
adequate rights to use all material patents, patent applications,
trademarks, service marks, trade-names, trademark registrations,
service mark registrations, copyrights and licenses necessary for
the conduct of such businesses and have not received any notice of
conflict with the asserted rights of others in respect thereof. To
the best knowledge of the Company, none of the activities or
business of the Company or its Subsidiaries are in violation of, or
cause the Company or its Subsidiaries to violate, any law, rule,
regulation or order of the United States, any state, county or
locality, or of any agency or body of the United States or of any
state, county or locality, the violation of which would have a
Material Adverse Effect.
(o) Neither the Company nor its Subsidiaries have,
directly or indirectly, at any time (i) made any contributions to
any candidate for political office, or failed to disclose fully any
such contribution in violation of law or (ii) made any payment to
any state, federal or foreign governmental officer or official, or
other person charged with similar public or quasi-public duties,
other than payments or contributions required or allowed by
applicable law. The Company's internal accounting controls and
procedures are sufficient to cause the Company to comply in all
material respects with the Foreign Corrupt Practices Act of 1977,
as amended.
(p) On the Closing Dates (hereinafter defined) all
transfer or other taxes, (including franchise, capital stock or
other tax, other than income taxes, imposed by any jurisdiction) if
any, which are required to be paid in connection with the sale and
transfer of the Securities to the Representative hereunder will
have been fully paid or provided for by the Company and all laws
imposing such taxes will have been complied with in all material
respects.
(q) All contracts and other documents of the Company and
its Subsidiaries which are, under the Rules and Regulations,
required to be filed as exhibits to the Registration Statement have
been so filed.
(r)Except as disclosed in the Registration Statement,
the Company has no subsidiaries.
(s) Except as disclosed in the Registration Statement,
the Company has not entered into any agreement pursuant to which
any person is entitled either directly or indirectly to
compensation from the Company for services as a finder in
connection with the proposed public offering.
(t) Except as previously disclosed in writing by the
Company to counsel to the Representative or as disclosed in the
Registration Statement, no officer, director or stockholder of the
Company has any National Association of Securities Dealers, Inc.
(the "NASD") affiliation.
(u) The Company is a reporting company under Section
12(g) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), and as such, since becoming a reporting company thereunder,
the Company and all directors, officers and principal
securityholders made all required filings, and done so on a timely
basis, and all of such filings conform to the requirements of the
Exchange Act and the rules and regulations thereunder and none of
such filings contains any untrue statement of a material fact or
omits to state any material fact required to be stated therein or
necessary to make statements therein not misleading.
<PAGE>
2. Purchase, Delivery and Sale of the Securities.
(a) Subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties,
and agreements herein contained, the Company agrees to issue and
sell to the Representative and the Representative agrees to buy
from the Company at $4.50 per share of Preferred Stock and $.09 per
Warrant, at the place and time hereinafter specified, 430,000
shares of Preferred Stock and 215,000 Warrants (the "First
Securities").
Delivery of the First Securities against payment therefor
shall take place at the offices of Bernstein & Wasserman, LLP,
950 Third Avenue, New York, New York (or at such other place as may
be designated by agreement between the Representative and the
Company) at 10:00 a.m., New York time, on _______, 1996, or at such
later time and date as the Representative may designate in writing
to the Company at least two business days prior to such purchase,
but not later than _______, 1996 such time and date of payment and
delivery for the First Securities being herein called the "First
Closing Date."
(b) In addition, subject to the terms and conditions of
this Agreement, and upon the basis of the representations,
warranties and agreements herein contained, the Company hereby
grants an option to the Representative (the "Over-Allotment
Option") to purchase all or any part of an aggregate of an
additional 64,500 shares of Preferred Stock and 32,250 Warrants to
cover over allotments at the same price per share of Preferred
Stock and per Warrant as the Representative shall pay for the First
Securities being sold pursuant to the provisions of subsection (a)
of this Section 2 (such additional Securities being referred to
herein as the "Option Securities"). This option may be exercised
within 45 days after the effective date of the Registration
Statement upon written notice by the Representative to the Company
advising as to the amount of Option Securities as to which the
option is being exercised, the names and denominations in which the
certificates for such Option Securities are to be registered and
the time and date when such certificates are to be delivered. Such
time and date shall be determined by the Representative but shall
not be earlier than four nor later than ten full business days
after the exercise of said option (but in no event more than 60
days after the First Closing Date), nor in any event prior to the
First Closing Date, and such time and date is referred to herein as
the "Option Closing Date." Delivery of the Option Securities
against payment therefor shall take place at the offices of
Bernstein & Wasserman, LLP, 950 Third Avenue, New York, NY 10022
(or at such other place as may be designated by agreement between
the Representative and the Company). The option granted hereunder
may be exercised only to cover over-allotments in the sale by the
Representative of First Securities referred to in subsection (a)
above. No Option Securities shall be delivered unless all First
Securities shall have been delivered to the Representative as
provided herein.
(c) The Company will make the certificates for the
Securities to be purchased by the Representative hereunder
available to you for checking at least two full business days prior
to the First Closing Date or the Option Closing Date (which are
collectively referred to herein as the "Closing Dates"). The
certificates shall be in such names and denominations as you may
request, at least three full business days prior to the Closing
Dates. Delivery of the certificates at the time and place
specified in this Agreement is a further condition to the
obligations of the Representative.
Definitive certificates in negotiable form for the
Securities to be purchased by the Representative hereunder will be
delivered by the Company to you for the account of the
Representative against payment of the respective purchase prices by
the Representative, by wire transfer or certified or bank cashier's
checks in New York Clearing House funds, payable to the order of
the Company.
In addition, in the event the Representative exercises
the option to purchase from the Company all or any portion of the
Option Securities pursuant to the provisions of subsection (b)
above, payment for such Securities shall be made to or upon the
order of the Company by wire transfer or certified or bank
cashier's checks payable in New York Clearing House funds at the
offices of Bernstein & Wasserman, LLP, 950 Third Avenue, New York,
N.Y., at the time and date of delivery of such Securities as
required by the provisions of subsection (b) above, against receipt
of the certificates for such Securities by you for your account
registered in such names and in such denominations as you may
reasonably request.
It is understood that the Representative proposes to
offer the Securities to be purchased hereunder to the public upon
the terms and conditions set forth in the Registration Statement,
after the Registration Statement becomes effective.
3. Covenants of the Company. The Company covenants and
agrees with the Representative that:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective. If required, the
Company will file the Prospectus and any amendment or supplement
thereto with the Commission in the manner and within the time
period required by Rule 424(b) under the Act. Upon notification
from the Commission that the Registration Statement has become
effective, the Company will so advise you and will not at any time,
whether before or after the effective date, file any amendment to
the Registration Statement or supplement to the Prospectus of which
you shall not previously have been advised and furnished with a
copy or to which you or your counsel shall have reasonably objected
in writing or which is not in compliance with the Act and the Rules
and Regulations. At any time prior to the later of (A) the
completion by the Representative of the distribution of the
Securities contemplated hereby (but in no event more than nine
months after the date on which the Registration Statement shall
have become or been declared effective) and (B) 25 days after the
date on which the Registration Statement shall have become or been
declared effective, the Company will prepare and file with the
Commission, promptly upon your request, any amendments or supple-
ments to the Registration Statement or Prospectus which, in the
opinion of counsel to the Company and the Representative, may be
reasonably necessary or advisable in connection with the
distribution of the Securities.
As soon as the Company is advised thereof, the Company
will advise you, and provide you copies of any written advice, of
the receipt of any comments of the Commission, of the effectiveness
of any post-effective amendment to the Registration Statement, of
the filing of any supplement to the Prospectus or any amended
Prospectus, of any request made by the Commission for an amendment
of the Registration Statement or for supplementing of the
Prospectus or for additional information with respect thereto, of
the issuance by the Commission or any state or regulatory body of
any stop order or other order or threat thereof suspending the
effectiveness of the Registration Statement or any order preventing
or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Securities for offering in
any jurisdiction, or of the institution of any proceedings for any
of such purposes, and will use its best efforts to prevent the
issuance of any such order, and, if issued, to obtain as soon as
possible the lifting thereof.
The Company has caused to be delivered to you copies of
each Preliminary Prospectus, and the Company has consented and
hereby consents to the use of such copies for the purposes
permitted by the Act. The Company authorizes the Representative
and dealers to use the Prospectus in connection with the sale of
the Securities for such period as in the opinion of counsel to the
Representative and the Company the use thereof is required to
comply with the applicable provisions of the Act and the Rules and
Regulations. In case of the happening, at any time within such
period as a Prospectus is required under the Act to be delivered in
connection with sales by the Representative or dealer of any event
of which the Company has knowledge and which materially affects the
Company or the securities of the Company, or which in the opinion
of counsel for the Company and counsel for the Representative
should be set forth in an amendment of the Registration Statement
or a supplement to the Prospectus in order to make the statements
therein not then misleading, in light of the circumstances existing
at the time the Prospectus is required to be delivered to a
purchaser of the Securities or in case it shall be necessary to
amend or supplement the Prospectus to comply with law or with the
Rules and Regulations, the Company will notify you promptly and
forthwith prepare and furnish to you copies of such amended
Prospectus or of such supplement to be attached to the Prospectus,
in such quantities as you may reasonably request, in order that the
Prospectus, as so amended or supplemented, will not contain any
untrue statement of a material fact or omit to state any material
facts necessary in order to make the statements in the Prospectus,
in the light of the circumstances under which they are made, not
misleading. The preparation and furnishing of any such amendment
or supplement to the Registration Statement or amended Prospectus
or supplement to be attached to the Prospectus shall be without
expense to the Representative, except that in case the
Representative is required, in connection with the sale of the
Securities to deliver a Prospectus nine months or more after the
effective date of the Registration Statement, the Company will upon
request of and at the expense of the Representative, amend or
supplement the Registration Statement and Prospectus and furnish
the Representative with reasonable quantities of prospectuses
complying with Section 10(a)(3) of the Act.
The Company will comply with the Act, the Rules and
Regulations and the Securities Exchange Act of 1934 (the "Exchange
Act") and the rules and regulations thereunder in connection with
the offering and issuance of the Securities.
(b) The Company will furnish such information as may be
required and to otherwise cooperate and use its best efforts to
qualify or register the Securities for sale under the securities or
"blue sky" laws of such jurisdictions as you may designate and will
make such applications and furnish such information as may be
required for that purpose and to comply with such laws, provided
the Company shall not be required to qualify as a foreign
corporation or a dealer in securities or to execute a general
consent of service of process in any jurisdiction in any action
other than one arising out of the offering or sale of the
Securities. The Company will, from time to time, prepare and file
such statements and reports as are or may be required to continue
such qualification in effect for so long a period as the counsel to
the Company and the Representative deem reasonably necessary.
(c)If the sale of the Securities provided for herein is
not consummated as a result of the Company not performing its
obligations hereunder in all material respects, the Company shall
pay all costs and expenses incurred by it which are incident to the
performance of the Company's obligations hereunder, including but
not limited to, all of the expenses itemized in Section 8,
including the accountable expenses of the Representative, up to
$100,000 (including the reasonable fees and expenses of counsel to
the Representative).
(d) The Company will use its best efforts to (i) cause
a registration statement under the Exchange Act to be declared
effective concurrently with the completion of this offering and
will notify you in writing immediately upon the effectiveness of
such registration statement, and (ii) if requested by you, to
obtain and keep current a listing in the Standard & Poors or
Moody's OTC Industrial Manual.
(e) For so long as the Company is a reporting company
under either Section 12(g) or 15(d) of the Exchange Act, the
Company, at its expense, will furnish to its stockholders an annual
report (including financial statements audited by independent
public accountants), in reasonable detail and at its expense, will
furnish to you during the period ending five (5) years from the
date hereof, (i) as soon as practicable after the end of each
fiscal year, but no earlier than the filing of such information
with the Commission a balance sheet of the Company and any of its
subsidiaries as at the end of such fiscal year, together with
statements of income, surplus and cash flow of the Company and any
subsidiaries for such fiscal year, all in reasonable detail and
accompanied by a copy of the certificate or report thereon of
independent accountants; (ii) as soon as practicable after the end
of each of the first three fiscal quarters of each fiscal year, but
no earlier than the filing of such information with the Commission,
consolidated summary financial information of the Company for such
quarter in reasonable detail; (iii) as soon as they are publicly
available, a copy of all reports (financial or other) mailed to
security holders; (iv) as soon as they are available, a copy of all
non-confidential reports and financial statements furnished to or
filed with the Commission or any securities exchange or automated
quotation system on which any class of securities of the Company is
listed; and (v) such other information as you may from time to time
reasonably request.
(f) In the event the Company has an active subsidiary or
subsidiaries, such financial statements referred to in subsection
(e) above will be on a consolidated basis to the extent the
accounts of the Company and its subsidiary or subsidiaries are
consolidated in reports furnished to its stockholders generally.
(g) The Company will deliver to you at or before the
First Closing Date two signed copies of the Registration Statement
including all financial statements and exhibits filed therewith,
and of all amendments thereto, and will deliver to the
Representative such number of conformed copies of the Registration
Statement, including such financial statements but without
exhibits, and of all amendments thereto, as the Representative may
reasonably request. The Company will deliver to or upon your
order, from time to time until the effective date of the
Registration Statement, as many copies of any Preliminary
Prospectus filed with the Commission prior to the effective date of
the Registration Statement as you may reasonably request. The
Company will deliver to the Representative on the effective date of
the Registration Statement and thereafter for so long as a Prospec-
tus is required to be delivered under the Act, from time to time,
as many copies of the Prospectus, in final form, or as thereafter
amended or supplemented, as the Representative may from time to
time reasonably request.
(h) The Company will make generally available to its
security holders and to the registered holders of its Warrants and
deliver to you as soon as it is practicable to do so but in no
event later than 90 days after the end of twelve months after its
current fiscal quarter, an earnings statement (which need not be
audited) covering a period of at least twelve consecutive months
beginning after the effective date of the Registration Statement,
which shall satisfy the requirements of Section 11(a) of the Act.
(i) The Company will apply the net proceeds from the
sale of the Securities substantially for the purposes set forth
under "Use of Proceeds" in the Prospectus.
(j) The Company will promptly prepare and file with the
Commission any amendments or supplements to the Registration
Statement, Preliminary Prospectus or Prospectus and take any other
action, which in the opinion of counsel to the Representative and
counsel to the Company, may be reasonably necessary or advisable in
connection with the distribution of the Securities, and will use
its best efforts to cause the same to become effective as promptly
as possible.
(k) The Company will reserve and keep available that
maximum number of its authorized but unissued securities which are
issuable upon exercise of the Purchase Option outstanding from time
to time.
(l) (1) For a period of eighteen (18) months from the
First Closing Date, no officer or director of any securities prior
to the offering will, directly or indirectly, offer, sell
(including any short sale), grant any option for the sale of,
acquire any option to dispose of, or otherwise dispose of any
shares of Common Stock or securities convertible into Common Stock
without the prior written consent of the Representative, other than
as set forth in the Registration Statement. In order to enforce
this covenant, the Company shall impose stop-transfer instructions
with respect to the securities owned by such individuals prior to
the offering until the end of such period (subject to any
exceptions to such limitation on transferability set forth in the
Registration Statement). If necessary to comply with any
applicable Blue-sky Law, the shares held by such individuals will
be escrowed with counsel for the Company or otherwise as required.
(2) Except for the issuance of shares of capital
stock by the Company in connection with a dividend,
recapitalization, reorganization or similar transactions or as
result of the exercise of warrants or options disclosed in or
issued or granted pursuant to plans disclosed in the Registration
Statement, the Company shall not, for a period of eighteen (18)
months following the First Closing Date, directly or indirectly,
offer, sell, issue or transfer any shares of its capital stock, or
any security exchangeable or exercisable for, or convertible into,
shares of the capital stock or register any of its capital stock
without the prior written consent of the Representative, which
shall not be unreasonably withheld.
(m) Upon completion of this offering, the Company will
make all filings required, including registration under the
Exchange Act, to obtain the listing of the Common Stock, Preferred
Stock and the Warrants in the NASDAQ Small Cap Market, and will use
its best efforts to effect and maintain such listing for at least
five years from the date of this Agreement.
(n) Except for the transactions contemplated by this
Agreement and as disclosed in the Prospectus, the Company
represents that it has not taken and agrees that it will not take,
directly or indirectly, any action designed to or which has
constituted or which might reasonably be expected to cause or
result in the stabilization or manipulation of the price of any of
the Securities.
(o) On the First Closing Date and simultaneously with
the delivery of the Securities, the Company shall execute and
deliver to you the Purchase Option. The Purchase Option will be
substantially in the form filed as an Exhibit to the Registration
Statement.
(p) On the First Closing Date, the Company will have in
force key person life insurance on the lives of Messrs. Gatza and
Fanella in an amount of not less than $1,000,000, payable to the
Company, and will use its best efforts to maintain such insurance
during the three year period commencing with the First Closing
Date.
(q) So long as any Warrants are outstanding and the
exercise price of the Warrants is less than the market price of the
Preferred Stock, the Company shall use its best efforts to cause
post-effective amendments to the Registration Statement to become
effective in compliance with the Act and without any lapse of time
between the effectiveness of any such post-effective amendments and
cause a copy of each Prospectus, as then amended, to be delivered
to each holder of record of a Warrant and to furnish to the
Representative as many copies of each such Prospectus as such
Representative or dealer may reasonably request. The Company shall
not call for redemption of any of the Warrants unless a
registration statement covering the securities underlying the
Warrants has been declared effective by the Commission and remains
current at least until the date fixed for redemption.
(r) For a period of five (5) years following the
Effective Date, the Company will maintain registration with the
Commission pursuant to Section 12(g) of the Exchange Act and will
provide to the Representative copies of all filings made with the
Commission pursuant to the Exchange Act. In the event that the
Company fails to maintain registration with the Commission pursuant
to Section 12(g) during such five year period, the Company will
provide reasonable access to an independent accountant designated
by the Representative, to all books, records and other documents or
statements that reflect the Company's financial status at least
once each quarter, at the Company's expense.
(s) The Company agrees to pay the Representative a
warrant solicitation fee of 4.0% of the exercise price of any of
the Warrants exercised beginning one (1) year after the Effective
Date (not including warrants exercised by the Representative) if
(a) the market price of the Company's Preferred Stock on the date
the Warrant is exercised is greater than the exercise price of the
Warrant, (b) the exercise of the Warrant was solicited by the
Representative and the holder of the warrant designates the
Representative in writing as having solicited such Warrant, (c) the
Warrant is not held in a discretionary account, (d) disclosure of
the compensation arrangement is made upon the sale and exercise of
the Warrants, (e) soliciting the exercise is not in violation of
Rule 10b-6 under the Securities Exchange Act of 1934, and (f)
solicitation of the exercise is in compliance with the NASD Notice
to Members 81-38 (September 22, 1981).
(t) For a period of three years from the Effective Date,
at the request of the Representative, the Company shall provide
promptly, at the expense of the Company, copies of the Company's
daily transfer sheets furnished to it by its transfer agent and
copies of the securities position listings provided to it by the
Depository Trust Company.
(u) The Company hereby agrees that it will pay a
finder's fee to the Representative, equal to five percent (5%) of
the first $4,000,000 of the consideration involved in any
transaction, 4% of the next $1,000,000 of consideration involved in
the transaction, 3% of the next $1,000,000, 2% of the excess, if
any, over $6,000,000, for future consummated transactions, if any,
introduced by the Representative (including mergers, acquisitions,
joint ventures, and any other business for the Company introduced
by the Representative) consummated by the Company (an "Introduced,
Consummated Transaction"), in which the Representative introduced
the other party to the Company during a period ending five years
following the First Closing Date.
(v) Upon the first Closing Date and simultaneously with
the delivery of the Securities, the Company shall execute and
deliver to the Representative, a two year financial consulting
agreement in the form attached as an Exhibit to the Registration
Statement which shall require the Company to pay the Representative
$48,000 on the First Closing Date (the "Financial Consulting
Agreement").
(w) For a period of five (5) years following the
Effective Date the Company, at its expense, shall cause its
regularly engaged independent certified public accountants to
review (but not audit) the Company's financial statements for each
of the first three (3) fiscal quarters prior to the announcement of
quarterly financial information, the filing of the Company's 10-Q
quarterly report and the mailing of quarterly financial information
to stockholders, provided that the Company shall not be required to
file a report of such accountants relating to such review with the
Commission. The Company will retain its present legal counsel and
independent certified public accountants for at least one year from
the Closing Date.
(x) For the three (3) year period commencing on the
First Closing Date, the Representative shall have the right to
nominate a member of the Company's Board of Directors. If the
Representative does not exercise this right, it may appoint an
advisor who will be able to attend all meetings of the Board of
Directors. However, if the Board of Directors determines that
confidential information is to be discussed during any part of any
meeting attended by such advisor, it shall have the right to
exclude the advisor from the meeting during such discussion. The
Representative shall also have the right to obtain copies of the
minutes, if requested, from all Board of Directors meetings for
three (3) years following the Effective Date of the Registration
Statement, whether or not a nominee of the Representative attends
or participates in any such Board meeting. The Company agrees to
reimburse the Representative immediately upon the Representative's
request therefor of any reasonable travel and lodging expenses
directly incurred by the Representative in connection with its
representative attending Company Board meetings on the same basis
for other Board members.
4. Conditions of Representative's Obligation. The
obligations of the Representative to purchase and pay for the
Securities which it has agreed to purchase hereunder, are subject
to the accuracy (as of the date hereof, and as of the Closing
Dates) of and compliance with the representations and warranties of
the Company herein, to the performance by the Company of its
obligations hereunder, and to the following conditions:
(a) The Registration Statement shall have become
effective and you shall have received notice thereof not later than
10:00 A.M., New York time, on the day following the date of this
Agreement, or at such later time or on such later date as to which
you may agree in writing; on or prior to the Closing Dates no stop
order suspending the effectiveness of the Registration Statement
shall have been issued and no proceedings for that or a similar
purpose shall have been instituted or shall be pending or, to your
knowledge or to the knowledge of the Company, shall be contemplated
by the Commission; any request on the part of the Commission for
additional information shall have been complied with to the
satisfaction of the Commission; and no stop order shall be in
effect denying or suspending effectiveness of such qualification
nor shall any stop order proceedings with respect thereto be
instituted or pending or threatened. If required, the Prospectus
shall have been filed with the Commission in the manner and within
the time period required by Rule 424(b) under the Act.
(b) At the First Closing Date, you shall have received
the opinion, dated as of the First Closing Date, of Bressler, Amery
& Ross, counsel for the Company, in form and substance satisfactory
to counsel for the Representative, to the effect that:
(i) the Company and the Subsidiaries have been duly
incorporated and are validly existing as corporations in good
standing under the laws of the their respective jurisdictions of
incorporation, with all requisite corporate power and authority to
own their properties and conduct their business as described in the
Registration Statement and Prospectus and are duly qualified or
licensed to do business as a foreign corporation and are in good
standing in Illinois and each other jurisdiction in which the
ownership or leasing of its properties or conduct of its business
requires such qualification except where the failure to qualify or
be licensed will not have a Material Adverse Effect. The Company
owns all of the issued and outstanding capital stock of the
Subsidiaries;
(ii) the authorized capitalization of the Company as
of _____________, 1996 is as set forth in the Registration
Statement; the Securities as set forth in the Registration
Statement have been duly authorized and upon payment of
consideration therefore, will be validly issued, fully paid and
non-assessable and conform in all material respects to the description
thereof contained in the Prospectus; to such counsel's knowledge
the outstanding shares of capital stock of the Company have not
been issued in violation of the preemptive rights of any
shareholder and to such counsel's knowledge the shareholders of the
Company do not have any preemptive rights or other rights to
subscribe for or to purchase, nor are there any restrictions upon
the voting or transfer of any of the capital stock except as
provided in the Prospectus or as required by law. The Securities,
the Purchase Option and the Warrant Agreement conform in all
material respects to the respective descriptions thereof contained
in the Prospectus; the shares of Preferred Stock, and the shares of
Preferred Stock issuable upon exercise of Warrants, the Purchase
Option, and the Warrant Agreement (and the shares of Common Stock
issuable upon conversion of the Preferred Stock) will have been
duly authorized and, when issued and delivered in accordance with
their respective terms, will be duly and validly issued, fully
paid, non-assessable, free of preemptive rights; to the best of
their knowledge, all prior sales by the Company of the Company's
securities have been made in compliance with or under an exemption
from registration under the Act and applicable state securities
laws; a sufficient number of shares of Preferred Stock has been
reserved for issuance upon exercise of the Warrants, the Purchase
Option and a sufficient number of Common Stock has been reserved
for issuance upon exercise of the conversion rights of the
Preferred Stock and to the best of such counsel's knowledge,
neither the filing of the Registration Statement nor the offering
or sale of the Securities as contemplated by this Agreement gives
rise to any registration rights other than those which have been
waived or satisfied;
(iii) this Agreement, the Purchase Option, and
the Warrant Agreement have been duly and validly authorized,
executed and delivered by the Company;
(iv) the certificates evidencing the Securities as
described in the Registration Statement comply in all material
respects with the descriptions set forth therein, and comply with
the Delaware General Corporation Law, as in effect on the date
hereof; each Warrant will be exercisable for one share of the
Preferred Stock of the Company, respectively, and at the prices
provided for in the Warrant Agreement;
(v) except as otherwise disclosed in the
Registration Statement, such counsel knows of no pending or
threatened legal or governmental proceedings to which the Company
or its Subsidiaries is a party which would materially adversely
affect the business, property, financial condition or operations of
the Company or its Subsidiaries; or which question the validity of
the Securities, this Agreement, the Warrant Agreement or the
Purchase Option, or of any action taken or to be taken by the
Company pursuant to this Agreement, the Warrant Agreement or the
Purchase Option; to such counsel's knowledge there are no
governmental proceedings or regulations required to be described or
referred to in the Registration Statement which are not so
described or referred to;
(vi) the execution and delivery of this Agreement,
the Purchase Option or the Warrant Agreement and the incurrence of
the obligations herein and therein set forth and the consummation
of the transactions herein or therein contemplated, will not result
in a breach or violation of, or constitute a default under the
certificate of incorporation or by-laws of the Company or its
Subsidiaries, or to the best knowledge of counsel after due
inquiry, in the performance or observance of any material
obligations, agreement, covenant or condition contained in any
bond, debenture, note or other evidence of indebtedness or in any
material contract, indenture, mortgage, loan agreement, lease,
joint venture or other agreement or instrument to which the Company
or its Subsidiaries is a party or by which it or any of its
properties is bound or in violation of any order, rule, regulation,
writ, injunction, or decree of any government, governmental
instrumentality or court, domestic or foreign the result of which
would have a Material Adverse Effect;
(vii) the Registration Statement has become
effective under the Act, and to the best of such counsel's
knowledge, no stop order suspending the effectiveness of the
Registration Statement is in effect, and no proceedings for that
purpose have been instituted or are pending before, or threatened
by, the Commission; the Registration Statement and the Prospectus
(except for the financial statements and other financial data
contained therein, or omitted therefrom, as to which such counsel
need express no opinion) as of the Effective Date comply as to form
in all material respects with the applicable requirements of the
Act and the Rules and Regulations;
(viii) in the course of preparation of the
Registration Statement and the Prospectus such counsel has
participated in conferences with the President of the Company with
respect to the Registration Statement and Prospectus and such
discussions did not disclose to such counsel any information which
gives such counsel reason to believe that the Registration
Statement or any amendment thereto at the time it became effective
contained any untrue statement of a material fact required to be
stated therein or omitted to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading or that the Prospectus or any supplement thereto
contains any untrue statement of a material fact or omits to state
a material fact necessary in order to make statements therein, in
light of the circumstances under which they were made, not
misleading (except, in the case of both the Registration Statement
and any amendment thereto and the Prospectus and any supplement
thereto, for the financial statements, notes thereto and other
financial information (including without limitation, the pro forma
financial information) and schedules contained therein, as to which
such counsel need express no opinion);
(ix) all descriptions in the Registration Statement
and the Prospectus, and any amendment or supplement thereto, of
contracts and other agreements to which the Company or its
Subsidiaries is a party are accurate and fairly present in all
material respects the information required to be shown, and such
counsel is familiar with all contracts and other agreements
referred to in the Registration Statement and the Prospectus and
any such amendment or supplement or filed as exhibits to the
Registration Statement, and such counsel does not know of any
contracts or agreements to which the Company or its Subsidiaries is
a party of a character required to be summarized or described
therein or to be filed as exhibits thereto which are not so
summarized, described or filed;
(x) no authorization, approval, consent, or license
of any governmental or regulatory authority or agency is necessary
in connection with the authorization, issuance, transfer, sale or
delivery of the Securities by the Company, in connection with the
execution, delivery and performance of this Agreement by the
Company or in connection with the taking of any action contemplated
herein, or the issuance of the Purchase Option or the Securities
underlying the Purchase Option, other than registrations or
qualifications of the Securities under applicable state or foreign
securities or Blue Sky laws and registration under the Act;
(xi) the shares of Common Stock, Preferred Stock and
the Warrants have been duly authorized for quotation on the NASDAQ
Small Cap Market ("NASDAQ"); and
(xii) The Company is a reporting Company under
Section 12(g) of the Securities Exchange Act of 1934, as amended
("Exchange Act") and as such, since becoming a reporting company
thereunder the Company and all directors, officers and principal
stockholders have made all required filings, and done so on a
timely basis, and all of such filings conform to the requirements
of the Exchange Act and the rules and regulations thereunder and
none of such filings contains any untrue statement of a material
fact or omits to state any material fact required to be stated
therein or necessary to make statement therein not misleading.
Such opinion shall also cover such matters incident to
the transactions contemplated hereby as the Representative or
counsel for the Representative shall reasonably request. In
rendering such opinion, such counsel may rely upon certificates of
any officer of the Company or public officials as to matters of
fact; and may rely as to all matters of law other than the law of
the United States or of the State of New York or Delaware upon
opinions of counsel satisfactory to you, in which case the opinion
shall state that they have no reason to believe that you and they
are not entitled to so rely.
(c) Intentionally Omitted.
(d) All corporate proceedings and other legal matters
relating to this Agreement, the Registration Statement, the
Prospectus and other related matters shall be satisfactory to or
approved by Bernstein & Wasserman, LLP, counsel to the
Representative.
(e) You shall have received a letter prior to the
Effective Date and again on and as of the First Closing Date from
Selden, Fox and Associates, Ltd., independent public accountants
for the Company, substantially in the form reasonably acceptable to
you, providing you with such "cold comfort" as you may reasonably
require.
(f) At the Closing Dates, (i) the representations and
warranties of the Company contained in this Agreement shall be true
and correct in all material respects with the same effect as if
made on and as of the Closing Dates taking into account for the
Option Closing Dates the effect of the transactions contemplated
hereby and the Company shall have performed all of its obligations
hereunder and satisfied all the conditions on its part to be
satisfied at or prior to such Closing Date; (ii) the Registration
Statement and the Prospectus and any amendments or supplements
thereto shall contain all statements which are required to be
stated therein in accordance with the Act and the Rules and
Regulations, and shall in all material respects conform to the
requirements thereof, and neither the Registration Statement nor
the Prospectus nor any amendment or supplement thereto shall
contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to
make the statements therein not misleading; (iii) there shall have
been, since the respective dates as of which information is given,
no material adverse change, or to the Company's knowledge, any
development involving a prospective material adverse change, in the
business, properties, condition (financial or otherwise), results
of operations, capital stock, long-term or short-term debt or
general affairs of the Company or its Subsidiaries from that set
forth in the Registration Statement and the Prospectus, except
changes which the Registration Statement and Prospectus indicate
might occur after the effective date of the Registration Statement,
and the Company and its Subsidiaries shall not have incurred any
material liabilities or entered into any material agreement not in
the ordinary course of business other than as referred to in the
Registration Statement and Prospectus; (iv) except as set forth in
the Prospectus, no action, suit or proceeding at law or in equity
shall be pending or threatened against the Company or its
Subsidiaries which would be required to be set forth in the
Registration Statement, and no proceedings shall be pending or
threatened against the Company and its Subsidiaries before or by
any commission, board or administrative agency in the United States
or elsewhere, wherein an unfavorable decision, ruling or finding
would materially and adversely affect the business, property,
condition (financial or otherwise), results of operations or
general affairs of the Company and its Subsidiaries, and (v) you
shall have received, at the First Closing Date, a certificate
signed by each of the President and the principal operating officer
of the Company, dated as of the First Closing Date, evidencing
compliance with the provisions of this subsection (f).
(g) Upon exercise of the Over-Allotment Option provided
for in Section 2(b) hereof, the obligations of the Representative
to purchase and pay for the Option Securities referred to therein
will be subject (as of the date hereof and as of the Option Closing
Date) to the following additional conditions:
(i) The Registration Statement shall remain
effective at the Option Closing Date, and no stop order suspending
the effectiveness thereof shall have been issued and no proceedings
for that purpose shall have been instituted or shall be pending,
or, to your knowledge or the knowledge of the Company, shall be
contemplated by the Commission, and any reasonable request on the
part of the Commission for additional information shall have been
complied with to the satisfaction of the Commission.
(ii) At the Option Closing Date there shall have
been delivered to you the signed opinion of Bressler, Amery & Ross,
counsel to the Company, dated as of the Option Closing Date, in
form and substance reasonably satisfactory to Bernstein &
Wasserman, LLP, counsel to the Representative, which opinion shall
be substantially the same in scope and substance as the opinion
furnished to you at the First Closing Date pursuant to Sections
4(b) hereof, except that such opinion, where appropriate, shall
cover the Option Securities.
(iii) At the Option Closing Date there shall
have be delivered to you a certificate of the President and the
principal operating officer of the Company, dated the Option
Closing Date, in form and substance reasonably satisfactory to
Bernstein & Wasserman, LLP, counsel to the Representative,
substantially the same in scope and substance as the certificate
furnished to you at the First Closing Date pursuant to Section 4(f)
hereof.
(iv) At the Option Closing Date there shall have
been delivered to you a letter in form and substance satisfactory
to you from Selden, Fox and Associates, Ltd., dated the Option
Closing Date and addressed to the Representative confirming the
information in their letter referred to in Section 4(e) hereof and
stating that nothing has come to their attention during the period
from the ending date of their review referred to in said letter to
a date not more than five business days prior to the Option Closing
Date, which would require any change in said letter if it were
required to be dated the Option Closing Date.
(v) All proceedings taken at or prior to the Option
Closing Date in connection with the sale and issuance of the Option
Securities shall be reasonably satisfactory in form and substance
to you, and you and Bernstein & Wasserman, LLP, counsel to the
Representative, shall have been furnished with all such documents,
certificates, and opinions as you may reasonably request in
connection with this transaction in order to evidence the accuracy
and completeness of any of the representations, warranties or
statements of the Company or its compliance with any of the
covenants or conditions contained herein.
(h) No action shall have been taken by the Commission or
the NASD the effect of which would make it improper, at any time
prior to the Closing Date, for members of the NASD to execute
transactions (as principal or agent) in the Securities and no
proceedings for the taking of such action shall have been
instituted or shall be pending, or, to the knowledge of the
Representative or the Company and its Subsidiaries, shall be
contemplated by the Commission or the NASD. The Company and the
Representative represent that at the date hereof each has no
knowledge that any such action is in fact contemplated against it
by the Commission or the NASD.
(i) If any of the conditions herein provided for in this
Section shall not have been fulfilled in all material respects as
of the date indicated, this Agreement and all obligations of the
Representative under this Agreement may be canceled at, or at any
time prior to, each Closing Date by the Representative notifying
the Company of such cancellation in writing or by telegram at or
prior to the applicable Closing Date. Any such cancellation shall
be without liability of the Representative to the Company.
5. Conditions of the Obligations of the Company, The
obligation of the Company to sell and deliver the Securities is
subject to the following conditions:
(a) The Registration Statement shall have become
effective not later than 10:00 A.M. New York time, on the day
following the date of this Agreement, or on such later date as the
Company and the Representative may agree in writing.
(b) At the Closing Dates, no stop orders suspending the
effectiveness of the Registration Statement shall have been issued
under the Act or any proceedings therefor initiated or threatened
by the Commission.
If the conditions to the obligations of the Company
provided for in this Section have been fulfilled on the First
Closing Date but are not fulfilled after the First Closing Date and
prior to the Option Closing Date, then only the obligation of the
Company to sell and deliver the Securities on exercise of the
Over-Allotment Option provided for in Section 2(b) hereof shall be
affected.
<PAGE>
6. Indemnification.
(a) The Company agrees (i) to indemnify and hold
harmless the Representative and each person, if any, who controls
the Representative within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act against any losses, claims,
damages or liabilities, joint or several (which shall, for all
purposes of this Agreement, include, but not be limited to, all
reasonable costs of defense and investigation and all reasonable
attorneys' fees), to which such Representative or such controlling
person may become subject, under the Act or otherwise, and (ii) to
reimburse, as incurred, the Representative and such controlling
persons for any legal or other expenses reasonably incurred in
connection with investigating, defending against or appearing as a
third party witness in connection with any losses, claims, damages
or liabilities; insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) relating to (i) and
(ii) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in (A) the
Registration Statement, any Preliminary Prospectus, the Prospectus,
or any amendment or supplement thereto, (B) any blue sky
application or other document executed by the Company specifically
for that purpose containing written information specifically
furnished by the Company and filed in any state or other
jurisdiction in order to qualify any or all of the Securities under
the securities laws thereof (any such application, document or
information being hereinafter called a "Blue Sky Application"), or
arise out of or are based upon the omission or alleged omission to
state in the Registration Statement, any Preliminary Prospectus,
Prospectus, or any amendment or supplement thereto, or in any Blue
Sky Application, a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided,
however, that the Company will not be required to indemnify the
Representative and any controlling person or be liable in any such
case to the extent, but only to the extent, that any such loss,
claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the
Representative specifically for use in the preparation of the
Registration Statement or any such amendment or supplement thereof
or any such Blue Sky Application or any such preliminary Prospectus
or the Prospectus or any such amendment or supplement thereto,
provided, further that the indemnity with respect to any
Preliminary Prospectus shall not be applicable on account of any
losses, claims, damages, liabilities or litigation arising from the
sale of Securities to any person if a copy of the Prospectus was
not delivered to such person at or prior to the written
confirmation of the sale to such person. This indemnity will be in
addition to any liability which the Company may otherwise have.
(b) The Representative will indemnify and hold harmless
the Company, each of its directors, each nominee (if any) for
director named in the Prospectus, each of its officers who have
signed the Registration Statement and each person, if any, who
controls the Company within the meaning of the Act, against any
losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all
costs of defense and investigation and reasonable attorneys' fees)
to which the Company or any such director, nominee, officer or
controlling person may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto,
or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto,
or any Blue Sky Application in reliance upon and in conformity with
written information furnished to the Company by the Representative
specifically for use in the preparation thereof and for any
violation by the Representative in the sale of such Securities of
any applicable state or federal law or any rule, regulation or
instruction thereunder relating to violations based on unauthorized
statements by Representative or its representative; provided that
such violation is not based upon any violation of such law, rule or
regulation or instruction by the party claiming indemnification or
inaccurate or misleading information furnished by the Company or
its representatives, including information furnished to the
Representative as contemplated herein. This indemnity agreement
will be in addition to any liability which the Representative may
otherwise have.
(c) Promptly after receipt by an indemnified party under
this Section of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party under this Section, notify in
writing the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it
from any liability which it may have to any indemnified party
otherwise than under this Section. In case any such action is
brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, subject to the provisions
herein stated, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to
such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation. The indemnified party shall have the right to
employ separate counsel in any such action and to participate in
the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with
counsel reasonably satisfactory to the indemnified party; provided
that the reasonable fees and expenses of such counsel shall be at
the expense of the indemnifying party if (i) the employment of such
counsel has been specifically authorized in writing by the
indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both the indemnified
party and the indemnifying party and in the reasonable judgment of
the counsel to the indemnified party, it is advisable for the
indemnified party to be represented by separate counsel (in which
case the indemnifying party shall not have the right to assume the
defense of such action on behalf of such indemnified party, it
being understood, however, that the indemnifying party shall not,
in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one
separate firm of attorneys for the indemnified party, which firm
shall be designated in writing by the indemnified party). No
settlement of any action against an indemnified party shall be made
without the consent of the indemnified party, which shall not be
unreasonably withheld in light of all factors of importance to such
indemnified party. If it is ultimately determined that
indemnification is not permitted, then an indemnified party will
return all monies advanced to the indemnifying party.
7. Contribution.
In order to provide for just and equitable contribution
under the Act in any case in which the indemnification provided in
Section 6 hereof is requested but it is judicially determined (by
the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of
the last right of appeal) that such indemnification may not be
enforced in such case, notwithstanding the fact that the express
provisions of Section 6 provide for indemnification in such case,
then the Company and each person who controls the Company, in the
aggregate, and the Representative shall contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject
(which shall, for all purposes of this Agreement, include, but not
be limited to, all reasonable costs of defense and investigation
and all reasonable attorneys' fees) (after contribution from
others) in such proportions that the Representative is responsible
in the aggregate for that portion of such losses, claims, damages
or liabilities represented by the percentage that the underwriting
discount for each of the Securities appearing on the cover page of
the Prospectus bears to the public offering price appearing thereon
and the Company shall be responsible for the remaining portion;
provided, however, that if such allocation is not permitted by
applicable law then allocated in such proportion as is appropriate
to reflect relative benefits but also the relative fault of the
Company and the Representative and controlling persons, in the
aggregate, in connection with the statements or omissions which
resulted in such damages and other relevant equitable consider-
ations shall also be considered. The relative fault shall be
determined by reference to, among other things, whether in the case
of an untrue statement of a material fact or the omission to state
a material fact, such statement or omission relates to information
supplied by the Company or the Representative and the parties'
relative intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission. The
Company and the Representative agree that it would not be just and
equitable if the respective obligations of the Company and the
Representative to contribute pursuant to this Section 7 were to be
determined by pro rata or per capita allocation of the aggregate
damages or by any other method of allocation that does not take
account of the equitable considerations referred to in this Section
7. No person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation. As used in this paragraph, the word "Company"
includes any officer, director, or person who controls the Company
within the meaning of Section 15 of the Act. If the full amount of
the contribution specified in this paragraph is not permitted by
law, then the Representative and each person who controls the
Representative shall be entitled to contribution from the Company,
its officers, directors and controlling persons, and the Company,
its officers, directors and controlling persons shall be entitled
to contribution from the Representative to the full extent
permitted by law. The foregoing contribution agreement shall in no
way affect the contribution liabilities of any persons having
liability under Section 11 of the Act other than the Company and
the Representative. No contribution shall be requested with regard
to the settlement of any matter from any party who did not consent
to the settlement; provided, however, that such consent shall not
be unreasonably withheld in light of all factors of importance to
such party.
8. Costs and Expenses.
(a) Whether or not this Agreement becomes effective or
the sale of the Securities to the Representative is consummated,
the Company will pay all costs and expenses incident to the
performance of this Agreement by the Company including, but not
limited to, the fees and expenses of counsel to the Company and of
the Company's accountants; the costs and expenses incident to the
preparation, printing, filing and distribution under the Act of the
Registration Statement (including the financial statements therein
and all amendments and exhibits thereto), Preliminary Prospectus
and the Prospectus, as amended or supplemented, the fee of the NASD
in connection with the filing required by the NASD relating to the
offering of the Securities contemplated hereby; all expenses,
including reasonable fees and disbursements of counsel to the
Representative, in connection with the qualification of the
Securities under the state securities or blue sky laws which the
Representative shall designate; the cost of printing and furnishing
to the Representative copies of the Registration Statement, each
Preliminary Prospectus, the Prospectus, this Agreement, and the
Blue Sky Memorandum, any fees relating to the listing of the Common
Stock and Warrants on NASDAQ or any other securities exchange, the
cost of printing the certificates representing the Securities; fees
for bound volumes and prospectus memorabilia and the fees of the
transfer agent and warrant agent. The Company shall pay any and
all taxes (including any transfer, franchise, capital stock or
other tax imposed by any jurisdiction) on sales to the
Representative hereunder. The Company will also pay all costs and
expenses incident to the furnishing of any amended Prospectus or of
any supplement to be attached to the Prospectus as called for in
Section 3(a) of this Agreement except as otherwise set forth in
said Section.
(b) In addition to the foregoing expenses, the Company
shall at the First Closing Date pay to the Representative a
non-accountable expense allowance of $65,145. In the event the
overallotment option is exercised, the Company shall pay to the
Representative at the Option Closing Date an additional amount in
the aggregate equal to 3% of the gross proceeds received upon
exercise of the overallotment option. In the event the
transactions contemplated hereby are not consummated by reason of
any action by the Representative (except if such prevention is
based upon a breach by the Company of any covenant, representation
or warranty contained herein or because any other condition to the
Representative's obligations hereunder required to be fulfilled by
the Company is not fulfilled) the Company shall not be liable for
any expenses of the Representative, including the Representative's
legal fees. In the event the transactions contemplated hereby are
not consummated by reason of the Company being unable to perform
its obligations hereunder in all material respects, the Company
shall be liable for the actual accountable out-of-pocket expenses
of the Representative, including reasonable legal fees, not to
exceed in the aggregate $100,000.
(c) Except as disclosed in the Registration Statement,
no person is entitled either directly or indirectly to compensation
from the Company, from the Representative or from any other person
for services as a finder in connection with the proposed offering,
and the Company agrees to indemnify and hold harmless the
Representative, against any losses, claims, damages or liabilities,
joint or several (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and
investigation and all reasonable attorneys' fees), to which the
Representative or person may become subject insofar as such losses,
claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon the claim of any person (other than
an employee of the party claiming indemnity) or entity that he or
it is entitled to a finder's fee in connection with the proposed
offering by reason of such person's or entity's influence or prior
contact with the indemnifying party.
9. Effective Date.
The Agreement shall become effective upon its execution
except that you may, at your option, delay its effectiveness until
11:00 A.M., New York time on the first full business day following
the effective date of the Registration Statement, or at such
earlier time on such business day after the effective date of the
Registration Statement as you in your discretion shall first
commence the public offering of the Securities. The time of the
initial public offering shall mean the time of release by you of
the first newspaper advertisement with respect to the Securities,
or the time when the Securities are first generally offered by you
to dealers by letter or telegram, whichever shall first occur.
This Agreement may be terminated by you at any time before it
becomes effective as provided above, except that Sections 3(c), 6,
7, 8, 12, 13, 14 and 15 shall remain in effect notwithstanding such
termination.
10. Termination.
(a) After this Agreement becomes effective, this
Agreement, except for Sections 3(c), 6, 7, 8, 12, 13, 14 and 15
hereof, may be terminated at any time prior to the First Closing
Date, by you if in your judgment (i) the Company or its
Subsidiaries have sustained a material loss, whether or not
insured, by reason of fire, earthquake, flood, accident or other
calamity, or from any labor dispute or court or government action,
order or decree, (ii) trading in securities on the New York Stock
Exchange or the American Stock Exchange having been suspended or
limited, (iii) material governmental restrictions have been imposed
on trading in securities generally (not in force and effect on the
date hereof), (iv) a banking moratorium has been declared by
federal or New York state authorities, (v) an outbreak of major
international hostilities involving the United States or other
substantial national or international calamity has occurred, (vi)
a pending or threatened legal or governmental proceeding or action
relating generally to the Company's or its Subsidiaries' business,
or a notification has been received by the Company or its
Subsidiaries of the threat of any such proceeding or action, which
would materially adversely affect the Company or its Subsidiaries;
(vii) except as contemplated by the Prospectus, the Company or its
Subsidiaries is merged or consolidated into or acquired by another
company or group or there exists a binding legal commitment for the
foregoing or any other material change of ownership or control
occurs; (viii) the passage by the Congress of the United States or
by any state legislative body of similar impact, of any act or
measure, or the adoption of any orders, rules or regulations by any
governmental body or any authoritative accounting institute or
board, or any governmental executive, which is reasonably believed
likely by the Representative to have a material adverse impact on
the business, financial condition or financial statements of the
Company or its Subsidiaries; (ix) any material adverse change in
the financial or securities markets beyond normal market
fluctuations having occurred since the date of this Agreement, or
(x) any material adverse change having occurred, since the
respective dates of which information is given in the Registration
Statement and Prospectus, in the earnings, business prospects or
general condition of the Company or its Subsidiaries, financial or
otherwise, whether or not arising in the ordinary course of
business.
(b) If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this
Section 10, the Company shall be promptly notified by you, by
telephone or telegram, confirmed by letter.
11. Purchase Option.
At or before the First Closing Date, the Company will
sell the Representative or its designees for a consideration of
$21.50, and upon the terms and conditions set forth in the form of
Purchase Option annexed as an exhibit to the Registration
Statement, a Purchase Option to purchase an aggregate of 21,500
Units consisting of 43,000 shares of Preferred Stock and 21,500
Warrants. In the event of conflict in the terms of this Agreement
and the Purchase Option with respect to language relating to the
Purchase Option, the language of the Purchase Option shall
control.
12. Representations and Warranties of the Representative.
The Representative represents and warrants to the Company
that it is registered as a broker-dealer in all jurisdictions in
which it is offering the Securities and that it will comply with
all applicable state or federal laws relating to the sale of the
Securities, including but not limited to, violations based on
unauthorized statements by the Representative or its
representatives.
13. Representations, Warranties and Agreements to Survive Delivery.
The respective indemnities, agreements, representations,
warranties and other statements of the Company and the
Representative and the undertakings set forth in or made pursuant
to this Agreement will remain in full force and effect until three
years from the date of this Agreement, regardless of any
investigation made by or on behalf of the Representative, the
Company or any of its officers or directors or any controlling
person and will survive delivery of and payment of the Securities
and the termination of this Agreement.
14. Notice.
Any communications specifically required hereunder to be
in writing, if sent to the Representative, will be mailed,
delivered or telecopied and confirmed to them at I. A. Rabinowitz
& Co., 99 Wall Street, New York, NY 10005, with a copy sent to
Bernstein & Wasserman, LLP, 950 Third Avenue, New York, New York
10022, Attention: Hartley T. Bernstein, or if sent to the Company,
will be mailed, delivered or telecopied and confirmed to it at 350
Randy Road, Carol Stream, Illinois 60188, with a copy sent to
Bressler, Amery & Ross, 17 State Street, New York, NY 10004, Attn:
Robert Brantl, Esq. Notice shall be deemed to have been duly given
if mailed or transmitted by any standard form of telecommunication.
15. Parties in Interest.
The Agreement herein set forth is made solely for the
benefit of the Representative, the Company, any person controlling
the Company or the Representative, and directors of the Company,
nominees for directors (if any) named in the Prospectus, its
officers who have signed the Registration Statement, and their
respective executors, administrators, successors, assigns and no
other person shall acquire or have any right under or by virtue of
this Agreement. The term "successors and assigns" shall not
include any purchaser, as such purchaser, from the Representative
of the Securities.
16. Applicable Law.
This Agreement will be governed by, and construed in
accordance with, of the laws of the State of New York applicable to
agreements made and to be entirely performed within New York.
17. Counterparts.
This agreement may be executed in one or more
counterparts each of which shall be deemed to constitute an
original and shall become effective when one or more counterparts
have been signed by each of the parties hereto and delivered to the
other parties (including by fax, followed by original copies by
overnight mail).
18. Entire Agreement; Amendments.
This Agreement constitutes the entire agreement of the
parties hereto and supersedes all prior written or oral agreements,
understandings and negotiations with respect to the subject matter
hereof. This Agreement may not be amended except in writing,
signed by the Representative and the Company.
If the foregoing is in accordance with your understanding
of our agreement, kindly sign and return this agreement, whereupon
it will become a binding agreement between the Company and the
Representative in accordance with its terms.
Very truly yours,
MICROENERGY, INC.
By:
Name: Robert G. Gatza
Title: Chairman
The foregoing Underwriting Agreement is hereby confirmed
and accepted as of the date first above written.
I. A. RABINOWITZ & CO.
By:
Name:
Title:
The undersigned agree to be bound by the provisions of
Section 3(l)(l).
________________________________
Robert G. Gatza
________________________________
Robert J. Fanella
________________________________
George M. Bradshaw<PAGE>
MICROENERGY, INC.
430,000 SHARES OF SERIES A
CUMULATIVE CONVERTIBLE PREFERRED STOCK,
PAR VALUE $.01 PER SHARE
AND
215,000 REDEEMABLE CLASS A WARRANTS
AGREEMENT AMONG UNDERWRITERS
__________, 1996
Dear Sirs:
We wish to confirm our agreement among you the undersigned and
the other underwriters set forth on Schedule A attached hereto
(collectively, the "Underwriters") with respect to the purchase by
the Underwriters severally, on a firm commitment basis, from
MicroEnergy, Inc., a Delaware corporation (the "Company"), of up
to 430,000 shares of Series A Cumulative Convertible Preferred
Stock, par value $.01 per share and 215,000 Redeemable Class A
Warrants (the "Securities").
The Company has filed a registration statement with respect
to the Securities with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the
"Act"), which is more particularly described in the Underwriting
Agreement hereinafter referred to. As used herein, the
"Registration Statement" means such registration statement, as
amended and supplemented from time to time in accordance with the
Act, and the "Prospectus" means the prospectus constituting a part
of the Registration Statement, as amended and supplemented from
time to time in connection with the offering of the Securities.
One or more amendments or supplements to the Registration
Statement or the Prospectus have been or may be filed in which,
with our consent hereby given, we have been or will be named as
one of the underwriters of the Securities, but no such amendment
or supplement shall release us from or otherwise affect our
obligations hereunder or under the Underwriting Agreement.
1. Underwriting Agreement. Annexed hereto is a copy of a
proposed agreement (the "Underwriting Agreement") with the Company
providing for the purchase of the Securities from the Company by
each Underwriter, severally and not jointly, of the respective
amount of the Securities set forth opposite its name in Schedule
A hereto, and providing for the grant by the Company to the
Underwriters, as provided in the Underwriting Agreement, of the
right to purchase Securities pursuant to the Over-Allotment Option
(as defined therein). We authorize you to execute the
Underwriting Agreement on our behalf in substantially the form
annexed hereto. It is understood that the number of Securities to
be purchased by us (hereinafter referred to as "our Securities")
as set forth in the Underwriting Agreement will not be changed
without our consent except as provided herein or in the
Underwriting Agreement. The term "Underwriting Commitment", with
respect to any Underwriter, shall refer to the number of
Securities which such Underwriter is obligated to purchase
pursuant to the provisions of the Underwriting Agreement.
2. Authority of Representative. We authorize you, as
Representative of the several Underwriters, (i) to act as our
representative in all matters concerning the Underwriting
Agreement, this Agreement, and the purchase, carrying, sale and
distribution of the Securities thereunder, (ii) to exercise all
authority vested in the Underwriters or the Representative by the
Underwriting Agreement, including the determination of whether and
to what extent to purchase the Securities pursuant to the Over-Allotment
Option on behalf of the Underwriters, and (iii) to take
such action as you may deem necessary or advisable in respect of
all matters pertaining thereto, including the determination of the
time of the public offering and the furnishing to the Company of
the information to be included in the Prospectus with respect to
the terms of the offering. We understand that you will advise us
when the Securities are released for sale to the public. You will
furnish to us as soon as possible copies of the Prospectus to be
used in connection with the offering of the Securities. We
authorize you on our behalf, in your discretion, to approve or
object to any amendments or supplements to the Registration
Statement or the Prospectus.
We authorize you to reserve for sale and to sell for our
account (a) to institutions and other retail purchasers and (b) to
dealers selected by you ("Selected Dealers"), including
Underwriters, such amounts of our Securities as you determine, and
we authorize you to fix the concessions and reallowances in
connection with any such sales to Selected Dealers. Such
concessions and reallowances may be allowed only as consideration
for services rendered in distribution to Selected Dealers who are
actually engaged in the investment banking or securities business,
and who are either (i) members in good standing of the National
Association of Securities Dealers, Inc., ("NASD") and who agree in
writing to comply with Section 24 of the NASD's Rules of Fair
Practice (the "Rules") or (ii) foreign dealers who are not
eligible for membership in the NASD and (a) who agree that (x) in
making sales of Securities outside the United States they will
comply with the NASD's Interpretation with Respect to Free-Riding
and Withholding and (y) they will not offer or sell any Securities
in the United States and (b) who agree in writing that in making
sales of the Securities outside the United States they will comply
with the provisions of Sections 8, 24 and 36 of Article III of
such Rules and with Section 25 of such Rules as that Section
applies to a non-member broker or dealer in a foreign county.
Except for sales for the accounts of Underwriters designated by a
purchaser, aggregate sales of Securities to institutions and for
the accounts of Underwriters designated by a purchaser, aggregate
sales of Securities to institutions and other retail purchasers
will be made for the accounts of the several Underwriters as
nearly as practicable in proportion to their respective
Underwriting Commitments. Sales of Securities to Selected Dealers
will be made for the accounts of the several Underwriters in such
proportions as you determine.
We authorize you in your discretion, after the Securities are
released for sale to the public, to change the public offering
price of the Securities, the concessions and reallowances in
connection with sales to Selected Dealers and other terms of sale
hereunder and under the agreements with Selected Dealers.
Sales of the Securities between Underwriters may be made with
your prior consent, or as you deem advisable for Blue Sky
purposes.
At or prior to the time when the Securities are released for
sale, you will advise us of the amounts so sold or reserved for
sale for our account. We will retain for direct sale any
Securities purchased by us and not sold or reserved for sale for
our account. With your consent, we may obtain release from you
for direct sale of Securities reserved for sale to Selected
Dealers but not sold and paid for, in which event the amount
reserved for our account for sale to Selected Dealers will be
correspondingly reduced.
After advice from you that the Securities are released for
sale to the public, we will offer for sale to the public in
conformity with the terms of offering set forth in the Prospectus
such of our Securities as you advise us are not sold or reserved
for sale for our account.
We will advise you from time to time, at your request, of the
number of Securities retained by us remaining unsold. You may at
any time (a) reserve any of such Securities for sale by you for
our account or (b) purchase any of such Securities which, in your
opinion, is needed to enable you to make deliveries for the
accounts of the several Underwriters pursuant to this Agreement.
Such purchases will be made at the public offering price or, at
your option, at such price less any part of the Selected Dealers'
concession.
In respect of any Securities sold directly by us and
thereafter purchased by you at or below the public offering price
prior to the termination of this Agreement (or such longer period
as may be necessary to cover any short position with respect to
the offering), you may charge our account with an amount equal to
the Selected Dealers' concession with respect thereto and credit
such amount against the cost thereof, or you may require us to
purchase such Securities at a price equal to the total cost
thereof, including any commissions and transfer taxes on
redelivery.
3. Stabilization and Trading in Securities. We authorize
you, at any time prior to Termination (as defined in Section 5
hereof), in your discretion (a) to make purchase and sales of
Securities in the open market or otherwise, either for long or
short accounts, and on such terms and at such prices as you may
determine and (b) in arranging for sales of Securities pursuant to
Section 2 hereof, to over-allot, and to make purchases for the
purpose of covering any over-allotment so made; provided, however,
that in no time will the aggregate of our net commitments
resulting from such purchases and sales and over-allotments,
whether for long or short account, exceed 15% of our Underwriting
Commitment. All such purchases, sales and over-allotments will be
made for the respective accounts of several Underwriters as nearly
as practicable in proportion to their respective Underwriting
Commitments. We agree to take up at cost on demand any of the
Securities so purchased for our account and to deliver on demand
any of the Securities so sold or over-allotted for our account.
Without limiting the generality of the foregoing, you may buy or
take over for the accounts of the several Underwriters, all in the
proportion and within the limits set forth above, at the price at
which reserved, any Securities of any Underwriter reserved for
sale by you, but not purchased and paid for.
Except as permitted by you, we will not bid for, purchase,
attempt to induce others to purchase, or sell, directly or
indirectly, any Securities otherwise than by (a) the purchase and
sale of Securities as provided in the Underwriting Agreement, this
Agreement or the agreements with Selected Dealers, (b) the
purchase from or sale to other Underwriters or Selected Dealers of
Securities at the public offering price or at such price less any
part of the Selected Dealers' concession and (c) as brokers
pursuant to unsolicited orders. We confirm that we have at all
times complied and agree that we will at all times comply with the
provisions of Rule 10b-6 of the Commission under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), applicable to
this offering.
We understand that, in the event that you effect stabilization
pursuant to this Section, you will notify us promptly of the date
and time at which the first stabilizing purchase is effected and
the date and time when stabilizing is terminated. We agree (and
such agreement will survive Termination) to comply with all
requirements of the 1934 Act and the rules and regulations
thereunder applicable to us with respect to notifications and
keeping of records of stabilizing transactions.
4. Delivery and Payment. At your request, we will furnish
you with funds in an amount equal to the public offering price,
less the Selected Dealers' concession, of either our Securities or
our unreserved Securities, as you may direct, and we authorize you
to make payment therewith pursuant to the provisions of the
Underwriting Agreement. Such payment will be credited to our
account. You may in your discretion make such payment on our
behalf with your own funds, in which event we will reimburse you
on request.
You will promptly deliver to us any Securities purchased by
us and not sold or reserved for sale by you. You may in your
discretion deliver such Securities to us through the facilities of
The Depository Trust Company if transactions in the Securities may
be settled through its facilities and if we are a member or, if we
are not a member, through our ordinary correspondent who is a
member, unless we promptly give you written instructions
otherwise. All other Securities which you then hold for our
account will be delivered to us upon Termination, or prior thereto
in your discretion, and may at any time be delivered to us for
carrying purposes only, subject to redelivery upon demand. If,
upon Termination, the amount of Securities reserved by you which
remains unsold does not exceed ten percent of the aggregate
Underwriting Commitments of all of the Underwriters, you may, in
your discretion, sell such Securities at such prices as you may
determine.
We authorize you, in connection with the purchase,
distribution and resale of the Securities, to advance your own
funds for our account (in which event we will reimburse you on
request), charging current interest rates, or to arrange loans for
our account and execute on our behalf any note in connection
therewith, and to hold or pledge all or any part of our Securities
as security therefor. Any lender is hereby authorized to accept
your instructions with respect thereto.
You will promptly remit to us or credit to our account (a) the
proceeds of any loan made on our behalf and (b) upon payment to
you for any unreserved Securities sold for our account, an amount
equal to the sale price of such Securities received by you, less
transfer taxes, if any, and expenses, and (c) upon payment to you
for any reserved Securities sold for our account, the purchase
price (if any) paid by us for such Securities, and you will debit
or credit, as appropriate, our account with the difference between
the sale price and the purchase price of reserved Securities sold
for our account.
5. Termination and Settlement. Termination of this
Agreement ("Termination") will occur (a) at the close of business
on the forty fifth day after the date of the Underwriting
Agreement, or (b) on such earlier or later date, not more than 30
days after the date specified in (a), as you may determine, or (c)
on the date of termination of the Underwriting Agreement, if the
same shall be terminated as provided by its terms.
Upon Termination, all authorizations, rights and obligations
hereunder will cease, except (a) the mutual obligation to settle
account hereunder, (b) our obligation to pay any claims referred
to in the last paragraph of this Section, (c) our obligation with
respect to purchases which may be made by you from time to time
thereafter to cover any short position with respect to the
offering and (d) the obligations with respect to indemnity and
contribution set forth in Section 7 hereof, all of which will
continue until fully discharged, and except your authority with
respect to matters to be determined by you, or by you and the
Company pursuant to the terms of the Underwriting Agreement, which
will survive Termination.
The accounts arising pursuant to this Agreement will be
settled and paid as soon as practicable after Termination. The
determination by you of the amounts to be paid to or by us will be
final and conclusive.
We authorize you to charge our account with (a) any transfer
taxes on sales made for our account, (b) our proportionate share
(based upon our Underwriting Commitment) of all expenses (other
than transfer taxes) incurred by you, as Representative of the
several Underwriters, in connection with the negotiations for,
purchase of and distribution of the Securities and (c) the
compensation to the Representative referred to in Section 6.
Notwithstanding any settlement upon Termination, we will pay
our proportionate share of an amount asserted against and
discharged by the Underwriters, or any of them, based upon the
claim that the Underwriters constitute an association,
unincorporated business or other separate entity, or based upon or
arising out of a claim that this Agreement or the Underwriting
Agreement is invalid or illegal for any reason, including any
expense incurred in defending against such claim, and will pay any
transfer taxes which may be assessed thereafter on account of any
sale or transfer of Securities for our account.
6. Indemnity and Contribution. Each Underwriter, including
yourselves, agrees to indemnity, hold harmless and reimburse each
other Underwriter, each person who controls any other Underwriter
within the meaning of Section 15 of the Act, and any successor of
any other Underwriter, all if and to the extent that each
Underwriter will be obligated in the Underwriting Agreement to
indemnify, hold harmless and reimburse the Company, each of its
directors, each of its officers who signed the Registration
Statement and each person, if any, who controls the Company within
the meaning of the Act.
Each Underwriter (including yourselves) will pay upon request,
as contribution, its proportionate share, based upon its
Underwriting Commitment, of any losses, claims, damages or
liabilities, joint or several, paid or incurred by any Underwriter
to any person other than an Underwriter arising out of or based
upon any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, the
Prospectus or any related preliminary prospectus or any other
selling or advertising material approved by you for use by the
Underwriters in connection with the sale of the Securities, or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the
statements therein not misleading (other than an untrue statement
or alleged untrue statement or omission or alleged omission made
in reliance upon and in conformity with written information
furnished to the Company by an Underwriter specifically for use
therein); and will pay such proportionate share of any legal or
other expenses reasonably incurred by you or with your consent in
connection with investigating or defending any such loss, claim
damage or liability, or any action in respect thereof. In
determining the amount of any Underwriter's obligation under this
paragraph, appropriate adjustment may be made by you to reflect
any amounts received by any one or more Underwriters in respect of
such claim from the Company, pursuant to the Underwriting
Agreement or otherwise. There will be credited against any amount
paid or payable by us pursuant to this paragraph any loss, damage,
liability or expense which is incurred by us as a result of any
such claim asserted against us, and if such loss, claim, damage,
liability or expense is incurred by us subsequent to any payment
by us pursuant to this paragraph, appropriate provision will be
made to effect such credit, by refund or otherwise. If any such
claim is asserted, you may take such action in connection
therewith as you deem necessary or desirable, including retention
of counsel for the underwriters, and in your discretion separate
counsel for any particular Underwriter or group of Underwriters,
and the fees and disbursements of any counsel so retained by you,
including fees and disbursements for a successful defense, will be
included in the amounts payable pursuant to this paragraph. In
determining amounts payable pursuant to this paragraph, any loss,
claim, damage, liability or expense incurred by any person
controlling any Underwriter within the meaning of Section 15 of
the Act or Section 20 of the 1934 Act which has been incurred by
reason of such control relationship will be deemed to have been
incurred by such Underwriter. Any Underwriter may elect to retain
at its own expense its own counsel. You may settle or consent to
the settlement of any such claim, on advice of counsel retained by
you, with the approval of a majority in interest of the
Underwriters. Whenever you receive notice of the assertion of any
claim to which the provisions of this paragraph would be
applicable, you will give prompt notice thereof to each
Underwriter. You will also furnish each Underwriter with periodic
reports, at such times as you deem appropriate, as to the status
of such claim and the action taken by you in connection therewith.
If any Underwriter or Underwriters default in their obligations to
make any payments under this paragraph, each non-defaulting
Underwriter will be obligated to pay its proportionate share of
all defaulted payments, based upon such Underwriter's Underwriting
Commitment as related to the Underwriting Commitments of all non-defaulting
Underwriters.
7. Position of Representative. In taking any action under
this Agreement, you will act only as agent to the Underwriters and
will be under no liability to us except for lack of good faith,
for obligations expressly assumed by you in this Agreement and for
any liability imposed by the Act.
8. Miscellaneous. If the Underwriting Agreement provides
that the obligations of the Underwriters thereunder are subject to
the condition that the Registration Statement, as defined therein,
shall have become effective not later than a specified time on a
specified date following the date of the of the of Underwriting
Agreement, you are hereby authorized, in your discretion, to
extend such date to not later than the same specified time on the
second full business day following such specified date, and, with
the consent of Underwriters, including yourselves, who have agreed
to purchase in the aggregate at least a majority of the Firm
Securities, to extend such date to any subsequent date and to
execute on our behalf any supplementary agreement that may be
necessary for such purpose.
With respect to the Underwriting Agreement, you are authorized
in your discretion (a) to postpone the Closing Date, or any other
date specified therein and (b) to exercise any right of
cancellation or termination.
Default by any of the other Underwriters with respect to the
Underwriting Agreement will release us from any of our obligations
thereunder and hereunder only if the Underwriting Agreement is
thereupon terminated in accordance with its terms. If one or more
Underwriters default under the Underwriting Agreement, you may
arrange for the purchase by others, including non-defaulting
Underwriters, of Securities not taken up by the defaulting
Underwriter or Underwriters.
Nothing herein contained will constitute the Underwriters a
partnership, association or separate entity, and the obligations
of ourselves and of each of the other Underwriters are several and
not joint. If for Federal income tax purposes the several
Underwriters should be deemed to constitute a partnership, then
each Underwriter elects to be excluded from the application of
Subchapter K, Chapter 1, Subtitle A, of the Internal Revenue Code
of 1986, as amended. You, as Representative of the several
Underwriters, are authorized, in your discretion, to execute on
behalf of the Underwriters such evidence of such election as may
be required by the Internal Revenue Service.
We authorize you to file with any governmental agency any
reports required to be field by you in connection with the
transactions contemplated by this Agreement or the Underwriting
Agreement, and we will furnish any information in our possession
needed for such reports. You do not assume any responsibility or
obligation as to our right to sell the Stock in any jurisdiction,
notwithstanding any information you may furnish in that
connection.
We will not advertise over our name until after the first
public advertisement made by you and then only at our own expense
and risk. We authorize you to exercise complete discretion with
regard to the first public advertisement.
You will not be under any duty to account for any interest on
our funds at any time in your hands.
We hereby confirm that we are willing to accept the
responsibilities under the Act of an Underwriter named in the
Registration Statement. We agree that we will deliver all
preliminary and final prospectuses required for compliance with
the provisions of Rule 15c2-8 under the 1934 Act. We agree to
purchase our Securities, set forth on Schedule A, on a "firm
committment basis" and that we will meet all net capital
requirements to do so.
Any notice from you to us will be deemed to have been duly
given if mailed, telexed or sent by facsimile or other written
communication to us at the address set forth on the signature page
hereof. Any notice to you will be deemed to have been duly given
if mailed, telexed or sent by facsimile or other written
communication to you at 99 Wall Street, New York, New York 10005
Attention: Mr. Isaac Rabinowitz, President, with a copy to
Bernstein & Wasserman, LLP 950 Third Avenue, New York, New York
10022, Attention: Hartley T. Bernstein, or at such other address
as you shall specify.
You represent that you are a member in good standing of the
NASD and we represent that we are actually engaged in the
investment banking or securities business and are a member in good
standing of the NASD or a foreign dealer not eligible for
membership in the NASD and we agree that, if the former, we will
comply with the provisions of Section 24 of the Rules, and, if the
latter, that (i) in making sales of the Securities outside the
United States, we will comply with the provisions of Sections 8,
24 and 36 of such rules, with Section 25 of such Rules as that
Section applies to a non-member broker or dealer in a foreign
country and with the requirements of the NASD's Interpretation
with Respect to Free-Riding and Withholding, and (ii) we will not
offer or sell any of the Securities in the United States except
through you.
The Agreement will be governed by and construed in accordance
with the laws of the State of New York, without regard to the
principles of conflict of law.
The Agreement is being executed by us and delivered to you in
duplicate. Please indicate your receipt of identical agreements
from each of the other Underwriters by signing and returning to us
one counterpart of this Agreement whereupon it will constitute a
binding contract between us.
Very truly yours,
[Name of Underwriter]
By
Name:
Title:
Address:
Confirmed as of the day and year first above written
I.A. RABINOWITZ & CO.
As Representative of the Underwriters
By:
Name:
Title: <PAGE>
Schedule A
Name Preferred Stock Warrants
I.A. Rabinowitz & Co.
___________________
_______________ __________
Total 430,000 215,000
<PAGE>
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET
BECOME EFFECTIVE. NO OFFER TO BUY THE SECURITIES CAN BE ACCEPTED
AND NO PART OF THE PURCHASE PRICE CAN BE RECEIVED UNTIL THE
REGISTRATION STATEMENT HAS BECOME EFFECTIVE, AND ANY SUCH OFFER
MAY BE WITHDRAWN OR REVOKED, WITHOUT OBLIGATION OR COMMITMENT OF
ANY KIND, AT ANY TIME PRIOR TO NOTICE OF ITS ACCEPTANCE GIVEN
AFTER THE EFFECTIVE DATE.
MICROENERGY, INC.
430,000 SHARES OF SERIES A PREFERRED STOCK, $.01 PAR VALUE
AND
215,000 REDEEMABLE CLASS A WARRANTS
SELECTED DEALERS AGREEMENT
_______ __, 1996
Dear Sirs:
1. I. A. Rabinowitz & Co., as representative of the several
underwriters (the "Representative"), has agreed to offer on a firm
commitment basis, subject to the terms and conditions and
execution of the Underwriting Agreement, 430,000 shares of Series
A Cumulative Convertible Preferred Stock, $.01 par value per share
("Preferred Stock") of MicroEnergy, Inc. (the "Company") and
215,000 Redeemable Class A Warrants ("Warrants") (hereinafter,
collectively referred to as the "Securities"; including any shares
of Preferred Stock and Warrants offered pursuant to an over-allotment
option, the "Firm Securities"). The Preferred Stock is
convertible into the Company's Common Stock as described in the
Preliminary Prospectus. Each Warrant is exercisable to purchase
one (1) share of Preferred Stock. The Firm Securities are more
particularly described in the enclosed Preliminary Prospectus,
additional copies of which, as well as the Prospectus (after
effective date), will be supplied in reasonable quantities upon
request.
2. The Representative is soliciting offers to buy
Securities, upon the terms and conditions hereof, from Selected
Dealers, who are to act as principals, including you, who are (i)
registered with the Securities and Exchange Commission ("the
Commission") as broker-dealers under the Securities Exchange Act
of 1934, as amended ("the 1934 Act"), and members in good standing
with the National Association of Securities Dealers, Inc. ("the
NASD"), or (ii) dealers of institutions with their principal place
of business located outside the United States, its territories and
possessions and not registered under the 1934 Act who agree to
make no sales within the United States, its territories and
possessions or to persons who are nationals thereof or residents
therein and, in making sales, to comply with the NASD's
interpretation with respect to free-riding and withholding. The
Securities are to be offered to the public at a price of $5.00 per
share of Preferred Stock and $.10 per Warrant. Selected Dealers
will be allowed a concession of not less than __% of the aggregate
offering price. You will be notified of the precise amount of
such concession prior to the effective date of the Registration
Statement. The offer is solicited subject to the issuance and
delivery of the Securities and their acceptance by the
Representative, to the approval of legal matters by counsel and to
the terms and conditions as herein set forth.
3. Your offer to purchase may be revoked in whole or in part
without obligation or commitment of any kind by you any time prior
to acceptance and no offer may be accepted by us and no sale can
be made until after the registration statement covering the
Securities has become effective with the Commission. Subject to
the foregoing, upon execution by you of the Offer to Purchase
below and the return of same to us, you shall be deemed to have
offered to purchase the number of Securities set forth in your
offer on the basis set forth in paragraph 2 above. Any oral
notice by us of acceptance of your offer shall be immediately
followed by written or telegraphic confirmation preceded or
accompanied by a copy of the Prospectus. If a contractual
commitment arises hereunder, all the terms of this Selected
Dealers Agreement shall be applicable. We may also make available
to you an allotment to purchase Securities, but such allotment
shall be subject to modification or termination upon notice from
us any time prior to an exchange of confirmations reflecting
completed transactions. All references hereafter in this
Agreement to the purchase and sale of the Securities assume and
are applicable only if contractual commitments to purchase are
completed in accordance with the foregoing.
4. You agree that in re-offering the Securities, if your
offer is accepted after the Effective Date, you will make a bona
fide public distribution of same. You will advise us upon request
of the Securities purchased by you remaining unsold, and we shall
have the right to repurchase such Securities upon demand at the
public offering price less the concession as set forth in
paragraph 2 above. Any of the Securities purchased by you
pursuant to this Agreement are to be re-offered by you to the
public at the public offering price, subject to the terms hereof
and shall not be offered or sold by you below the public offering
price before the termination of this Agreement.
5. Payment for Securities which you purchase hereunder shall
be made by you on such date as we may determine by certified or
bank cashier's check payable in New York Clearinghouse funds to I.
A. Rabinowitz & Co. Certificates for the Securities shall be
delivered as soon as practicable at the offices of I. A.
Rabinowitz & Co., 99 Wall Street, 14th Floor, New York, NY 10005.
Unless specifically authorized by us, payment by you may not be
deferred until delivery of certificates to you.
6. A registration statement covering the offering has been
filed with the Commission in respect to the Securities. You will
be promptly advised when the registration statement becomes
effective. Each Selected Dealer in selling the Securities
pursuant hereto agrees (which agreement shall also be for the
benefit of the Company) that it will comply with the applicable
requirements of the Securities Act of 1933 and of the 1934 Act and
any applicable rules and regulations issued under said Acts. No
person is authorized by the Company or by the Representative to
give any information or to make any representations other than
those contained in the Prospectus in connection with the sale of
the Securities. Nothing contained herein shall render the
Selected Dealers a member of the underwriting group or partners
with the Representative or with one another.
7. You will be informed by us as to the states in which we
have been advised by counsel the Securities have been qualified
for sale or are exempt under the respective securities or blue sky
laws of such states, but we have not assumed and will not assume
any obligation or responsibility as to the right of any Selected
Dealer to sell Securities in any state.
8. The Representative shall have full authority to take such
action as we may deem advisable in respect of all matters
pertaining to the offering or arising thereunder. The
Representative shall not be under any liability to you, except
such as may be incurred under the Securities Act of 1933 and the
rules and regulations thereunder, except for lack of good faith
and except for obligations assumed by us in this Agreement, and no
obligation on our part shall be implied or inferred herefrom.
9. Selected Dealers will be governed by the conditions
herein set forth until this Agreement is terminated. This
Agreement will terminate when the offering is completed. Nothing
herein contained shall be deemed a commitment on our part to sell
you any Securities; such contractual commitment can only be made
in accordance with the provisions of paragraph 3 hereof.
10. You represent that you are a member in good standing of
the National Association of Securities Dealers, Inc.
("Association") and registered as a broker-dealer or are not
eligible for membership under Section I of the By-Laws of the
Association who agree to make no sales within the United States,
its territories or possessions or to persons who are nationals
thereof or residents therein and, in making sales, to comply with
the NASD's interpretation with respect to free-riding and
withholding. Your attention is called to the following: (a)
Article III, Sections 1, 8, 24, 25, 26 and 36 of the Rules of Fair
Practice of the Association and the interpretations of said
Section promulgated by the Board of Governors of such Association
including the interpretation with respect to "Free-Riding and
Withholding"; (b) Section 10(b) of the 1934 Act and Rules 10b-6
and 10b-10 of the general rules and regulations promulgated under
said Act; (c) Securities Act Release #3907; (d) Securities Act
Release #4150; and (e) Securities Act Release #4968 requiring the
distribution of a Preliminary Prospectus to all persons reasonably
expected to be purchasers of Securities from you at least 48 hours
prior to the time you expect to mail confirmations. You, if a
member of the Association, by signing this Agreement, acknowledge
that you are familiar with the cited law, rules and releases, and
agree that you will not directly and/or indirectly violate any
provisions of applicable law in connection with your participation
in the distribution of the Securities.
11. In addition to compliance with the provisions of
paragraph 10 hereof, you will not, until advised by us in writing
or by wire that the entire offering has been distributed and
closed, bid for or purchase Securities or its component securities
in the open market or otherwise make a market in such securities
or otherwise attempt to induce others to purchase such securities
in the open market. Nothing contained in this paragraph 11 shall,
however, preclude you from acting as agent in the execution of
unsolicited orders of customers in transactions effectuated for
them through a market maker.
12. You understand that the Representative may in connection
with the offering engage in stabilizing transactions. If the
Representative contracts for or purchases in the open market in
connection with such stabilization any Securities sold to you
hereunder and not effectively placed by you, the Representative
may charge you the Selected Dealer's concession originally allowed
you on the Securities so purchased, and you agree to pay such
amount to us on demand.
13. By submitting an Offer to Purchase you confirm that your
net capital is such that you may, in accordance with Rule 15c3-1
adopted under the 1934 Act, agree to purchase the number of
Securities you may become obligated to purchase under the
provisions of this Agreement.
14. You agree that (i) you shall not recommend to a customer
the purchase of Firm Securities unless you shall have reasonable
grounds to believe that the recommendation is suitable for such
customer on the basis of information furnished by such customer
concerning the customer's investment objectives, financial
situation and needs, and any other information known to you, (ii)
in connection with all such determinations, you shall maintain in
your files the basis for such determination, and (iii) you shall
not execute any transaction in Firm Securities in a discretionary
account without the prior specific written approval of the
customer.
15. You represent that neither you nor any of your affiliates
or associates owns any capital stock of the Company.
<PAGE>
16. All communications from you should be directed to us at
the office of I. A. Rabinowitz & Co., 99 Wall Street, 14th Floor,
New York, NY 10005. All communications from us to you shall be
directed to the address to which this letter is mailed.
Very truly yours,
I. A. RABINOWITZ & CO.
By:
Name:
Title:
ACCEPTED AND AGREED TO AS OF THE ______
DAY OF ____________, 1996
[Name of Dealer]
By: ____________________________
Its<PAGE>
TO: I. A. Rabinowitz & Co.
99 Wall Street
14th Floor
New York, NY 10005
We hereby subscribe for Shares of Preferred
Stock, $.01 par value per share, of MicroEnergy, Inc. and ______
Class A Warrants in accordance with the terms and conditions
stated in the foregoing letter. We hereby acknowledge receipt of
the Prospectus referred to in the first paragraph thereof relating
to said Securities. We further state that in purchasing said
Securities we have relied upon said Prospectus and upon no other
statement whatsoever, whether written or oral. We confirm that we
are a dealer actually engaged in the investment banking or
securities business and that we are either (i) a member in good
standing of the National Association of Securities Dealers, Inc.
(the "NASD") or (ii) a dealer with its principal place of business
located outside the United States, its territories and its
possessions and not registered as a broker or dealer under the
Securities Exchange Act of 1934, as amended, who hereby agrees not
to make any sales within the United States, its territories or its
possessions or to persons who are nationals thereof or residents
therein. We hereby agree to comply with the provisions of Section
24 of Article III of the Rules of Fair Practice of the NASD, and
if we are a foreign dealer and not a member of the NASD, we also
agree to comply with the NASD's interpretation with respect to
free-riding and withholding, to comply, as though we were a member
of the NASD, with the provisions of Sections 8 and 36 of Article
III thereof as that Section applies to non-member foreign dealers.
Name of
Dealer:
By:
Address:
Dated: , 1996
<PAGE>
WARRANT AGREEMENT
AGREEMENT, dated as of this _____ day of
_____________________, 1996, by and between MICROENERGY, INC., a
Delaware corporation ("Company"), and AMERICAN STOCK TRANSFER &
TRUST COMPANY, as Warrant Agent (the "Warrant Agent").
WITNESSETH:
WHEREAS, in connection with a public offering of up to 430,000
shares of Series A Cumulative Preferred Stock, $.01 par value of
the Company ("Shares"), and 215,000 Class A Redeemable Preferred
Stock Purchase Warrants ("Warrants") pursuant to an underwriting
agreement (the "Underwriting Agreement") dated
_____________________, 1996 between the Company and I. A.
Rabinowitz & Co. ("Rabinowitz") and the issuance to Rabinowitz or
its designees of a Purchase Option to purchase 43,000 Shares and
21,500 Warrants (the "Purchase Option"), and the issuance to
certain bridge lenders of 880,000 Warrants, the Company will issue
up to 1,116,500 Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing to so act,
in connection with the issuance, registration, transfer, exchange
and redemption of the Warrants, the issuance of certificates
representing the Warrants, the exercise of the Warrants, and the
rights of the holders thereof;
NOW, THEREFORE, in consideration of the premises and the
mutual agreements hereinafter set forth and for the purpose of
defining the terms and provisions of the Warrants and the
certificates representing the Warrants and the respective rights
and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the
parties hereto agree as follows:
I. Definitions. As used herein, the following terms shall have
the following meanings, unless the context shall otherwise
require:
1. "Corporate Office" shall mean the office of the
Warrant Agent (or its successor) at which at any particular time
its principal business shall be administered, which office is
located at the date hereof at 40 Wall Street, New York, New York
10005.
2. "Exercise Date" shall mean, as to any Warrant, the
date on which the Warrant Agent shall have received both (a) the
Warrant Certificate representing such Warrant, with the exercise
form thereon duly executed by the Registered Holder thereof or his
attorney duly authorized in writing, and (b) payment in cash, or
by official bank or certified check made payable to the Company,
of an amount in lawful money of the United States of America equal
to the applicable Purchase Price.
3. "Initial Warrant Exercise Date" shall mean
_____________________, 1997.
4. "Preferred Stock" shall mean Series A Cumulative
Convertible Preferred Stock of the Company, $.01 par value, and
shall also include any capital stock of any class of the Company
thereafter authorized which shall not be limited to a fixed sum or
percentage in respect to the rights of the holders thereof to
participate in dividends and in the distribution of assets upon
the voluntary liquidation, dissolution, or winding up of the
Company; provided, however, that the shares issuable upon exercise
of the Warrants shall include (i) only shares of such class
designated in the Company's Certificate of Incorporation as
Preferred Stock on the date of the original issue of the Warrants
or (ii), in the case of any reclassification, change,
consolidation, merger, sale, or conveyance of the character
referred to in Section 9(c) hereof, the stock, securities, or
property provided for in such section or (iii), in the case of any
reclassification or change in the outstanding shares of Preferred
Stock issuable upon exercise of the Warrants as a result of a
subdivision or combination of shares or consisting of a change in
par value, or from par value to no par value, or from no par value
to par value, such shares of Preferred Stock as so reclassified or
changed.
5. "Purchase Price" shall mean the purchase price per
share to be paid upon exercise of each Warrant in accordance with
the terms hereof, which price shall be $5.25 per share, subject to
adjustment from time to time pursuant to the provisions of
Section 9 hereof, and subject to the Company's right, in its sole
discretion, to reduce the Purchase Price upon notice to all
warrantholders.
6. "Redemption Price" shall mean the price at which the
Company may, at its option, redeem the Warrants, in accordance
with the terms hereof, which price shall be $0.01 per Warrant.
7. "Registered Holder" shall mean as to any Warrant and
as of any particular date, the person in whose name the
certificate representing the Warrant shall be registered on that
date on the books maintained by the Warrant Agent pursuant to
Section 6.
8. "Transfer Agent" shall mean American Stock
Transfer & Trust Company, as the Company's transfer agent, or its
authorized successor, as such.
9. "Warrant Expiration Date" shall mean 5:00 P.M. (New
York time) on _____________________, 2000 or the Redemption Date
as defined in Section 8, whichever is earlier; provided that if
such date shall in the State of New York be a holiday or a day on
which banks are authorized or required to close, then 5:00 P.M.
(New York time) on the next following day which in the State of
New York is not a holiday or a day on which banks are authorized
or required to close. Upon notice to all warrantholders the
Company shall have the right to extend the warrant expiration
date.
A. Warrants and Issuance of Warrant Certificates.
1. A Warrant initially shall entitle the Registered
Holder of the Warrant Certificate representing such Warrant to
purchase one (1) share of Preferred Stock upon the exercise
thereof, in accordance with the terms hereof, subject to
modification and adjustment as provided in Section 9.
2. Upon execution of this Agreement, Warrant
Certificates representing the number of Warrants sold pursuant to
the Underwriting Agreement shall be executed by the Company and
delivered to the Warrant Agent. Upon written order of the Company
signed by its President or Chairman or a Vice President and by its
Secretary or an Assistant Secretary, the Warrant Certificates
shall be countersigned, issued, and delivered by the Warrant
Agent.
3. From time to time, up to the Warrant Expiration
Date, the Transfer Agent shall countersign and deliver stock
certificates in required whole number denominations representing
up to an aggregate of 1,116,500 shares of Preferred Stock, subject
to adjustment as described herein, upon the exercise of Warrants
in accordance with this Agreement.
4. From time to time, up to the Warrant Expiration
Date, the Warrant Agent shall countersign and deliver Warrant
Certificates in required whole number denominations to the persons
entitled thereto in connection with any transfer or exchange
permitted under this Agreement; provided that no Warrant
Certificates shall be issued except (i) those initially issued
hereunder, (ii) those issued on or after the Initial Warrant
Exercise Date, upon the exercise of fewer than all Warrants
represented by any Warrant Certificate, to evidence any
unexercised warrants held by the exercising Registered Holder,
(iii) those issued upon any transfer or exchange pursuant to
Section 6; (iv) those issued in replacement of lost, stolen,
destroyed, or mutilated Warrant Certificates pursuant to
Section 7; (v) those issued pursuant to the Purchase Option; and
(vi) those issued at the option of the Company, in such form as
may be approved by the its Board of Directors, to reflect any
adjustment or change in the Purchase Price, the number of shares
of Preferred Stock purchasable upon exercise of the Warrants or
the Redemption Price therefor made pursuant to Section 9 hereof.
5. Pursuant to the terms of the Purchase Option,
Rabinowitz may purchase up to 21,500 Warrants.
B. Form and Execution of Warrant Certificates.
1. The Warrant Certificates shall be substantially in
the form annexed hereto as Exhibit A (the provisions of which are
hereby incorporated herein) and may have such letters, numbers, or
other marks of identification or designation and such legends,
summaries, or endorsements printed, lithographed, or engraved
thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be
required to comply with any law or with any rule or regulation
made pursuant thereto or with any rule or regulation of any stock
exchange on which the Warrants may be listed, or to conform to
usage or to the requirements of Section 2(b). The Warrant
Certificates shall be dated the date of issuance thereof (whether
upon initial issuance, transfer, exchange, or in lieu of
mutilated, lost, stolen, or destroyed Warrant Certificates) and
issued in registered form. Warrant Certificates shall be numbered
serially with the letters WA.
2. Warrant Certificates shall be executed on behalf of
the Company by its Chairman of the Board, President, or any Vice
President and by its Secretary or an Assistant Secretary, by
manual signatures or by facsimile signatures printed thereon, and
shall have imprinted thereon a facsimile of the Company's seal.
Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so
countersigned. In case any officer of the Company who shall have
signed any of the Warrant Certificates shall cease to be an
officer of the Company or to hold the particular office referenced
in the Warrant Certificate before the date of issuance of the
Warrant Certificates or before countersignature by the Warrant
Agent and issue and delivery thereof, such Warrant Certificates
may nevertheless be countersigned by the Warrant Agent, issued and
delivered with the same force and effect as though the person who
signed such Warrant Certificates had not ceased to be an officer
of the Company or to hold such office. After countersignature by
the Warrant Agent, Warrant Certificates shall be delivered by the
Warrant Agent to the Registered Holder without further action by
the Company, except as otherwise provided by Section 4 hereof.
C. Exercise. Each Warrant may be exercised by the
Registered Holder thereof at any time on or after the Initial
Exercise Date, but not after the Warrant Expiration Date, upon the
terms and subject to the conditions set forth herein and in the
applicable Warrant Certificate. A Warrant shall be deemed to have
been exercised immediately prior to the close of business on the
Exercise Date and the person entitled to receive the securities
deliverable upon such exercise shall be treated for all purposes
as the holder of those securities upon the exercise of the Warrant
as of the close of business on the Exercise Date. As soon as
practicable on or after the Exercise Date the Warrant Agent shall
deposit the proceeds received from the exercise of a Warrant and
shall notify the Company in writing of the exercise of the
Warrant. Promptly following, and in any event within five days
after the date of such notice from the Warrant Agent, the Warrant
Agent, on behalf of the Company, shall cause to be issued and
delivered by the Transfer Agent, to the person or persons entitled
to receive the same, a certificate or certificates for the
securities deliverable upon such exercise (plus a certificate for
any remaining unexercised Warrants of the Registered Holder),
provided that the Warrant Agent shall refrain from causing such
issuance of certificates pending clearance of checks received in
payment of the Purchase Price pursuant to such Warrants. Upon the
exercise of any Warrant and clearance of the funds received, the
Warrant Agent shall promptly remit the payment received for the
Warrant (the "Warrant Proceeds") to the Company or as the Company
may direct in writing.
D. Reservation of Shares; Listing; Payment of Taxes, etc.
1. The Company covenants that it will at all times
reserve and keep available out of its authorized Preferred Stock
and Common Stock, solely for the purpose of issue upon exercise of
Warrants, such number of shares of Preferred Stock and Common
Stock as shall then be issuable upon the exercise of all
outstanding Warrants or upon conversion of the Preferred Stock.
The Company covenants that all shares of Preferred Stock and
Common Stock which shall be issuable upon exercise of the Warrants
or upon conversion of the Preferred Stock shall, at the time of
delivery, be duly and validly issued, fully paid, nonassessable,
and free from all taxes, liens, and charges with respect to the
issue thereof, (other than those which the Company shall promptly
pay or discharge) and that upon issuance such shares shall be
listed on each national securities exchange or eligible for
inclusion in each automated quotation system, if any, on which the
other shares of outstanding Preferred Stock or Common Stock of the
Company are then listed or eligible for inclusion.
2. The Company covenants that if any securities to be
reserved for the purpose of exercise of Warrants hereunder require
registration with, or approval of, any governmental authority
under any federal securities law before such securities may be
validly issued or delivered upon such exercise, then the Company
will, to the extent the Purchase Price is less than the Market
Price (as hereinafter defined), in good faith and as expeditiously
as reasonably possible, endeavor to secure such registration or
approval and will use its reasonable efforts to obtain appropriate
approvals or registrations under state "blue sky" securities laws.
With respect to any such securities, however, Warrants may not be
exercised by, or shares of Preferred Stock (or Common Stock if
Common Stock is issuable under the Warrants as provided in 5(e)
below) issued to, any Registered Holder in any state in which such
exercise would be unlawful.
3. The Company shall pay all documentary, stamp, or
similar taxes and other governmental charges that may be imposed
with respect to the issuance of Warrants, or the issuance, or
delivery of any shares upon exercise of the Warrants; provided,
however, that if the shares of Preferred Stock or Common Stock are
to be delivered in a name other than the name of the Registered
Holder of the Warrant Certificate representing any Warrant being
exercised, then no such delivery shall be made unless the person
requesting the same has paid to the Warrant Agent the amount of
transfer taxes or charges incident thereto, if any.
4. The Warrant Agent is hereby irrevocably authorized
to requisition the Company's Transfer Agent from time to time for
certificates representing shares of Preferred Stock and Common
Stock issuable upon exercise of the Warrants (or upon conversion
of the Preferred Stock), and the Company will authorize the
Transfer Agent to comply with all such proper requisitions. The
Company will file with the Warrant Agent a statement setting forth
the name and address of the Transfer Agent of the Company for
shares of Preferred Stock and Common Stock issuable upon exercise
of the Warrants (or upon conversion of the Preferred Stock).
5. In the even the Company has exercised its option to
convert the Preferred Stock into the Company's Common Stock, each
Warrant will thereafter entitle the holder to purchase one share
of Common Stock.
E. Exchange and Registration of Transfer.
1. Warrant Certificates may be exchanged for other
Warrant Certificates representing an equal aggregate number of
Warrants of the same class or may be transferred in whole or in
part. Warrant Certificates to be exchanged shall be surrendered
to the Warrant Agent at its Corporate Office, and upon
satisfaction of the terms and provisions hereof, the Company shall
execute and the Warrant Agent shall countersign, issue, and
deliver in exchange therefor the Warrant Certificate or
Certificates which the Registered Holder making the exchange shall
be entitled to receive.
2. The Warrant Agent shall keep at its office books in
which, subject to such reasonable regulations as it may prescribe,
it shall register Warrant Certificates and the transfer thereof in
accordance with its regular practice. Upon due presentment for
registration of transfer of any Warrant Certificate at such
office, the Company shall execute and the Warrant Agent shall
issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number
of Warrants.
3. With respect to all Warrant Certificates presented
for registration or transfer, or for exchange or exercise, the
subscription form on the reverse thereof shall be duly endorsed,
or be accompanied by a written instrument or instruments of
transfer and subscription, in form satisfactory to the Company and
the Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
4. A service charge may be imposed by the Warrant Agent
for any exchange or registration of transfer of Warrant
Certificates. In addition, the Company may require payment by
such holder of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith.
5. All Warrant Certificates surrendered for exercise
or for exchange in case of mutilated Warrant Certificates shall be
promptly cancelled by the Warrant Agent and thereafter retained by
the Warrant Agent until termination of this Agreement or
resignation as Warrant Agent, or disposed of or destroyed, at the
direction of the Company.
6. Prior to due presentment for registration of
transfer thereof, the Company and the Warrant Agent may deem and
treat the Registered Holder of any Warrant Certificate as the
absolute owner thereof and of each Warrant represented thereby
(notwithstanding any notations of ownership or writing thereon
made by anyone other than a duly authorized officer of the Company
or the Warrant Agent) for all purposes and shall not be affected
by any notice to the contrary. The Warrants which are being
publicly offered with shares of Preferred Stock pursuant to the
Underwriting Agreement are being offered separately from the
Preferred Stock and transferable separately therefrom.
F. Loss or Mutilation. Upon receipt by the Company and the
Warrant Agent of evidence satisfactory to them of the ownership of
and loss, theft, destruction, or mutilation of any Warrant
Certificate and (in case of loss, theft, or destruction) of
indemnity satisfactory to them, and (in the case of mutilation)
upon surrender and cancellation thereof, the Company shall execute
and the Warrant Agent shall (in the absence of notice to the
Company and/or Warrant Agent that the Warrant Certificate has been
acquired by a bona fide purchaser) countersign and deliver to the
Registered Holder in lieu thereof a new Warrant Certificate of
like tenor representing an equal aggregate number of Warrants.
Applicants for a substitute Warrant Certificate shall comply with
such other reasonable regulations and pay such other reasonable
charges as the Warrant Agent may prescribe.
G. Redemption.
1. Subject to the provisions of paragraph 2(e) hereof,
on not less than thirty (30) days notice given at any time after
the Initial Warrant Exercise Date, the Warrants may be redeemed,
at the option of the Company, at a redemption price of $0.01 per
Warrant, provided the Market Price of the Common Stock receivable
upon exercise of the Warrant shall equal or exceed $7.00 (the
"Target Price"), subject to adjustment as set forth in
Section 8(f) below. Market Price for the purpose of this
Section 8 shall mean the average closing bid price for any five
(5) consecutive trading days ending within fifteen (15) days prior
to the date of the notice of redemption, which notice shall be
mailed no later than five days thereafter, of the Common Stock as
reported by the National Association of Securities Dealers, Inc.,
Automatic Quotation System, or the National Quotation Bureau
Incorporated.
2. If the conditions set forth in Section 8(a) are met,
and the Company desires to exercise its right to redeem the
Warrants, it shall mail a notice of redemption to each of the
Registered Holders of the Warrants to be redeemed, first class,
postage prepaid, not later than the thirtieth day before the date
fixed for redemption, at such holder's last address as shall
appear on the records maintained pursuant to Section 6(b). Any
notice mailed in the manner provided herein shall be conclusively
presumed to have been duly given whether or not the Registered
Holder receives such notice.
3. The notice of redemption shall specify (i) the
redemption price, (ii) the date fixed for redemption, (iii) the
place where the Warrant Certificates shall be delivered and the
redemption price paid, and (iv) that the right to exercise the
Warrant shall terminate at 5:00 p.m. (New York time) on the
business day immediately preceding the date fixed for redemption.
The date fixed for the redemption of the Warrant shall be the
Redemption Date. No failure to mail such notice nor any defect
therein or in the mailing thereof shall affect the validity of the
proceedings for such redemption except as to a Registered Holder
(a) to whom notice was not mailed or (b) whose notice was
defective. An affidavit of the Warrant Agent or of the Secretary
or an Assistant Secretary of the Company that notice of redemption
has been mailed shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.
4. Any right to exercise a Warrant shall
terminate at 5:00 p.m. (New York time) on the business day immediately
preceding the Redemption Date. On and after the Redemption Date,
Holders of the Warrants shall have no further rights except to
receive, upon surrender of the Warrant, the Redemption Price.
5. From and after the Redemption Date,
the Company shall, at the place specified in the notice of redemption, upon
presentation and surrender to the Company by or on behalf of the
Registered Holder thereof of one or more Warrant Certificates
evidencing Warrants to be redeemed, deliver or cause to be
delivered to or upon the written order of such Holder a sum in
cash equal to the redemption price of each such Warrant. From and
after the Redemption Date and upon the deposit or setting aside by
the Company of a sum sufficient to redeem all the Warrants called
for redemption, such Warrants shall expire and become void and all
rights hereunder and under the Warrant Certificates, except the
right to receive payment of the redemption price, shall cease.
6. If the shares of the Company's Preferred Stock are
subdivided or combined into a greater or smaller number of shares
of Preferred Stock, the Target Price shall be proportionally
adjusted by the ratio which the total number of shares of
Preferred Stock outstanding immediately prior to such event bears
to the total number of shares of Preferred Stock to be outstanding
immediately after such event.
H. Adjustment of Exercise Price and Number of Shares of
Preferred Stock, Preferred Stock, or Warrants.
1. Subject to the exceptions referred to in
Section 9(g) below, in the event the Company shall, at any time or
from time to time after the date hereof, sell any shares of
Preferred Stock for a consideration per share less than the Market
Price of the Preferred Stock (as defined in Section 8) on the date
of the sale or issue of any shares of Preferred Stock as a stock
dividend to the holders of Preferred Stock, or subdivide or
combine the outstanding shares of Preferred Stock into a greater
or lesser number of shares (any such sale, issuance, subdivision,
or combination being herein called a "Change of Shares"), then,
and thereafter upon each further Change of Shares, the Purchase
Price in effect immediately prior to such Change of Shares shall
be changed to a price (including any applicable fraction of a
cent) determined by multiplying the Purchase Price in effect
immediately prior thereto by a fraction, the numerator of which
shall be the sum of the number of shares of Preferred Stock
outstanding immediately prior to the issuance of such additional
shares and the number of shares of Preferred Stock which the
aggregate consideration received (determined as provided in
subsection 9(f) below) for the issuance of such additional shares
would purchase at such current market price per share of Preferred
Stock, and the denominator of which shall be the sum of the number
of shares of Preferred Stock outstanding immediately after the
issuance of such additional shares. Such adjustment shall be made
successively whenever such an issuance is made.
Upon each adjustment of the Purchase Price pursuant
to this Section 9, the total number of shares of Preferred Stock
purchasable upon the exercise of each Warrant shall (subject to
the provisions contained in Section 9(b) hereof) be such number of
shares (calculated to the nearest tenth) purchasable at the
Purchase Price in effect immediately prior to such adjustment
multiplied by a fraction, the numerator of which shall be the
Purchase Price in effect immediately prior to such adjustment and
the denominator of which shall be the Purchase Price in effect
immediately after such adjustment.
2. The Company may elect, upon any adjustment of the
Purchase Price hereunder, to adjust the number of Warrants
outstanding, in lieu of the adjustment in the number of shares of
Preferred Stock purchasable upon the exercise of each Warrant as
hereinabove provided, so that each Warrant outstanding after such
adjustment shall represent the right to purchase one share of
Preferred Stock. Each Warrant held of record prior to such
adjustment of the number of Warrants shall become that number of
Warrants (calculated to the nearest tenth) determined by
multiplying the number one by a fraction, the numerator of which
shall be the Purchase Price in effect immediately prior to such
adjustment and the denominator of which shall be the Purchase
Price in effect immediately after such adjustment. Upon each
adjustment of the number of Warrants pursuant to this Section 9,
the Company shall, as promptly as practicable, cause to be
distributed to each Registered Holder of Warrant Certificates on
the date of such adjustment Warrant Certificates evidencing,
subject to Section 10 hereof, the number of additional Warrants to
which such Holder shall be entitled as a result of such adjustment
or, at the option of the Company, cause to be distributed to such
Holder in substitution and replacement for the Warrant
Certificates held by him prior to the date of adjustment (and upon
surrender thereof, if required by the Company) new Warrant
Certificates evidencing the number of Warrants to which such
Holder shall be entitled after such adjustment.
3. In case of any reclassification, capital
reorganization, or other change of outstanding shares of Preferred
Stock, or in case of any consolidation or merger of the Company
with or into another corporation (other than a consolidation or
merger in which the Company is the continuing corporation and
which does not result in any reclassification, capital
reorganization, or other change of outstanding shares of Preferred
Stock), or in case of any sale or conveyance to another
corporation of the property of the Company as, or substantially
as, an entirety (other than a sale/leaseback, mortgage, or other
financing transaction), the Company shall cause effective
provision to be made so that each holder of a warrant then
outstanding shall have the right thereafter, by exercising such
Warrant, to purchase the kind and number of shares of stock or
other securities or property (including cash) receivable upon such
reclassification, capital reorganization, or other change,
consolidation, merger, sale, or conveyance by a holder of the
number of shares of Preferred Stock that might have been purchased
upon exercise of such Warrant immediately prior to such
reclassification, capital reorganization, or other change,
consolidation, merger, sale, or conveyance. Any such provision
shall include provision for adjustments that shall be as nearly
equivalent as may be practicable to the adjustments provided for
in this Section 9. The Company shall not effect any such
consolidation, merger, or sale unless prior to or simultaneously
with the consummation thereof the successor (if other than the
Company) resulting from such consolidation or merger or the
corporation purchasing assets or other appropriate corporation or
entity shall assume, by written instrument executed and delivered
to the Warrant Agent, the obligation to deliver to the holder of
each Warrant such shares of stock, securities, or assets as, in
accordance with the foregoing provisions, such holders may be
entitled to purchase and the other obligations under this
Agreement. The foregoing provisions shall similarly apply to
successive reclassifications, capital reorganizations, and other
changes of outstanding shares of Preferred Stock and to successive
consolidations, mergers, sales, or conveyances.
4. Irrespective of any adjustments or changes in the
Purchase Price or the number of shares of Preferred Stock
purchasable upon exercise of the Warrants, the Warrant
Certificates theretofore and thereafter issued shall, unless the
Company shall exercise its option to issue new Warrant
Certificates pursuant to Section 2(d) hereof, continue to express
the Purchase Price per share, the number of shares purchasable
thereunder, and the Redemption Price therefor as the Purchase
Price per share, the number of shares purchasable thereunder and
the Redemption Price therefor were expressed in the Warrant
Certificates when the same were originally issued.
5. After each adjustment of the Purchase Price pursuant
to this Section 9, the Company will promptly prepare a certificate
signed by the Chairman or President, and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary, of
the Company setting forth: (i) the Purchase Price as so adjusted,
(ii) the number of shares of Preferred Stock purchasable upon
exercise of each Warrant after such adjustment, and, if the
Company shall have elected to adjust the number of Warrants, the
number of Warrants to which the registered holder of each Warrant
shall then be entitled, and the adjustment in Redemption Price
resulting therefrom, and (iii) a brief statement of the facts
accounting for such adjustment. The Company will promptly file
such certificate with the Warrant Agent and cause a brief summary
thereof to be sent by ordinary first class mail to Rabinowitz and
to each registered holder of Warrants at his last address as it
shall appear on the registry books of the Warrant Agent. No
failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity thereof except as to the
holder to whom the Company failed to mail such notice, or except
as to the holder whose notice was defective. The affidavit of an
officer of the Warrant Agent or the Secretary or an Assistant
Secretary of the Company that such notice has been mailed shall,
in the absence of fraud, be prima facie evidence of the facts
stated therein.
6. For purposes of Section 9(a) and 9(b) hereof, the
following provisions (i) to (vii) shall also be applicable:
a. The number of shares of Preferred Stock
outstanding at any given time shall include shares of Preferred
Stock owned or held by or for the account of the Company, and the
sale or issuance of such treasury shares or the distribution of
any such treasury shares shall not be considered a Change of
Shares for purposes of said sections.
b. No adjustment of the Purchase Price shall be
made unless such adjustment would require an increase or decrease
of at least $.10 in such price; provided that any adjustments
which by reason of this subsection (ii) are not required to be
made shall be carried forward and shall be made at the time of and
together with the next subsequent adjustment which, together with
any adjustment(s) so carried forward, shall require an increase or
decrease of at least $.10 in the Purchase Price then in effect
hereunder.
c. In case of (1) the sale by the Company for cash
of any rights or warrants to subscribe for or purchase, or any
options for the purchase of, Preferred Stock or any securities
convertible into or exchangeable for Preferred Stock without the
payment of any further consideration other than cash, if any (such
convertible or exchangeable securities being herein called
"Convertible Securities"), or (2) the issuance by the Company,
without the receipt by the Company of any consideration therefor,
of any rights or warrants to subscribe for or purchase, or any
options for the purchase of, Preferred Stock or Convertible
Securities, in each case, if (and only if) the consideration
payable to the Company upon the exercise of such rights, warrants,
or options shall consist of cash, whether or not such rights,
warrants, or options, or the right to convert or exchange such
Convertible Securities, are immediately exercisable, and the price
per share for which Preferred Stock is issuable upon the exercise
of such rights, warrants, or options or upon the conversion or
exchange of such Convertible Securities (determined by dividing
(x) the minimum aggregate consideration payable to the Company
upon the exercise of such rights, warrants, or options, plus the
consideration received by the Company for the issuance or sale of
such rights, warrants, or options, plus, in the case of such
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, other than such Convertible Securities,
payable upon the conversion or exchange thereof, by (y) the total
maximum number of shares of Preferred Stock issuable upon the
exercise of such rights, warrants, or options or upon the
conversion or exchange of such Convertible Securities issuable
upon the exercise of such rights, warrants, or options) is less
than the fair market value of the Preferred Stock on the date of
the issuance or sale of such rights, warrants, or options, then
the total maximum number of shares of Preferred Stock issuable
upon the exercise of such rights, warrants, or options or upon the
conversion or exchange of such Convertible Securities (as of the
date of the issuance or sale of such rights, warrants, or options)
shall be deemed to be outstanding shares of Preferred Stock for
purposes of Sections 9(a) and 9(b) hereof and shall be deemed to
have been sold for cash in an amount equal to such price per
share.
d. In case of the sale by the Company for cash of
any Convertible Securities, whether or not the right of conversion
or exchange thereunder is immediately exercisable, and the price
per share for which Preferred Stock is issuable upon the
conversion or exchange of such Convertible Securities (determined
by dividing (x) the total amount of consideration received by the
Company for the sale of such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any,
other than such Convertible Securities, payable upon the
conversion or exchange thereof, by (y) the total maximum number of
shares of Preferred Stock issuable upon the conversion or exchange
of such Convertible Securities) is less than the fair market value
or the Preferred Stock on the date of the sale of such Convertible
Securities, then the total maximum number of shares of Preferred
Stock issuable upon the conversion or exchange of such Convertible
Securities (as of the date of the sale of such Convertible
Securities) shall be deemed to be outstanding shares of Preferred
Stock for purposes of Sections 9(a) and 9(b) hereof and shall be
deemed to have been sold for cash in an amount equal to such price
per share.
e. In case the Company shall modify the rights of
conversion, exchange, or exercise of any of the securities
referred to in subsection (iii) above or any other securities of
the Company convertible, exchangeable, or exercisable for shares
of Preferred Stock, for any reason other than an event that would
require adjustment to prevent dilution, so that the consideration
per share received by the Company after such modification is less
than the market price on the date prior to such modification, the
Purchase Price to be in effect after such modification shall be
determined by multiplying the Purchase Price in effect immediately
prior to such event by a fraction, of which the numerator shall be
the number of shares of Preferred Stock outstanding multiplied by
the market price on the date prior to the modification plus the
number of shares of Preferred Stock which the aggregate
consideration receivable by the Company for the securities
affected by the modification would purchase at the market price
and of which the denominator shall be the number of shares of
Preferred Stock outstanding on such date plus the number of shares
of Preferred Stock to be issued upon conversion, exchange, or
exercise of the modified securities at the modified rate. Such
adjustment shall become effective as of the date upon which such
modification shall take effect.
f. On the expiration of any such right, warrant,
or option or the termination of any such right to convert or
exchange any such Convertible Securities, the Purchase Price then
in effect hereunder shall forthwith be readjusted to such Purchase
Price as would have obtained (a) had the adjustments made upon the
issuance or sale of such rights, warrants, options, or Convertible
Securities been made upon the basis of the issuance of only the
number of shares of Preferred Stock theretofore actually delivered
(and the total consideration received therefor) upon the exercise
of such rights, warrants, or options or upon the conversion or
exchange of such Convertible Securities and (b) had adjustments
been made on the basis of the Purchase Price as adjusted under
clause (a) for all transactions (which would have affected such
adjusted Purchase Price) made after the issuance or sale of such
rights, warrants, options, or Convertible Securities.
g. In case of the sale for cash of any shares of
Preferred Stock, any Convertible Securities, any rights or
warrants to subscribe for or purchase, or any options for the
purchase of, Preferred Stock or Convertible Securities, the
consideration received by the Company therefore shall be deemed to
be the gross sales price therefor without deducting therefrom any
expense paid or incurred by the Company or any underwriting
discounts or commissions or concessions paid or allowed by the
Company in connection therewith.
7. No adjustment to the Purchase Price of the Warrants
or to the number of shares of Preferred Stock purchasable upon the
exercise of each Warrant will be made, however,
a. upon the sale or exercise of the Warrants,
including without limitation the sale or exercise of any of the
Warrants comprising the Purchase Option; or
b. upon the sale of any shares of Preferred Stock
in the Company's initial public offering, including, without
limitation, shares sold upon the exercise of any over-allotment
option granted to Rabinowitz in connection with such offering; or
c. upon the issuance or sale of Preferred Stock
or Convertible Securities upon the exercise of any rights or
warrants to subscribe for or purchase, or any options for the
purchase of, Preferred Stock or Convertible Securities, whether or
not such rights, warrants, or options were outstanding on the date
of the original sale of the Warrants or were thereafter issued or
sold; or
d. upon the issuance or sale of Preferred Stock
upon conversion or exchange of any Convertible Securities, whether
or not any adjustment in the Purchase Price was made or required
to be made upon the issuance or sale of such Convertible
Securities and whether or not such Convertible Securities were
outstanding on the date of the original sale of the Warrants or
were thereafter issued or sold; or
e. upon the issuance or sale of Preferred Stock
or Convertible Securities in a private placement unless the
issuance or sale price is less than 85% of the fair market value
of the Preferred Stock on the date of issuance, in which case the
adjustment shall only be for the difference between 85% of the
fair market value and the issue or sale price; or
f. upon the issuance or sale of Preferred Stock
or Convertible Securities to shareholders of any corporation which
merges into the Company, or from which the Company acquires assets
and some or all of the consideration consists of equity securities
of the Company if such issuance or sale to such shareholders is in
proportion to their stock holdings of such corporation immediately
prior to the acquisition but only if no adjustment is required
pursuant to any other provision of this Section 9.
8. As used in this Section 9, the term "Preferred
Stock" shall mean and include the Company's Series A Cumulative
Convertible Preferred Stock authorized on the date of the original
issue of the Preferred Stock and shall also include any capital
stock of any class of the Company thereafter authorized which
shall not be limited to a fixed sum or percentage in respect of
the rights of the holders thereof to participate in dividends and
in the distribution of assets upon the voluntary liquidation,
dissolution, or winding up of the Company; provided, however, that
the shares issuable upon exercise of the Warrants shall include
only shares of such class designated in the Company's Certificate
of Incorporation as Preferred Stock on the date of the original
issue of the Preferred Stock or (i), in the case of any
reclassification, change, consolidation, merger, sale, or
conveyance of the character referred to in Section 9(c) hereof,
the stock, securities, or property provided for in such section or
(ii), in the case of any reclassification or change in the
outstanding shares of Preferred Stock issuable upon exercise of
the Warrants as a result of a subdivision or combination or
consisting or a change in par value, or from par value to no par
value, or from no par value to par value, such shares of Preferred
Stock as so reclassified or changed.
9. Any determination as to whether an adjustment in the
Purchase Price in effect hereunder is required pursuant to
Section 9, or as to the amount of any such adjustment, if
required, shall be binding upon the holders of the Warrants and
the Company if made in good faith by the Board of Directors of the
Company.
10. If and whenever the Company shall grant to the
holders of Preferred Stock, as such, rights or warrants to
subscribe for or to purchase, or any options for the purchase of,
Preferred Stock or securities convertible into or exchangeable for
or carrying a right, warrant, or option to purchase Preferred
Stock, the Company shall concurrently therewith grant to each
Registered Holder as of the record date for such transaction of
the Warrants then outstanding, the rights, warrants, or options to
which each Registered Holder would have been entitled if, on the
record date used to determine the stockholders entitled to the
rights, warrants, or options being granted by the Company, the
Registered Holder were the holder of record of the number of whole
shares of Preferred Stock then issuable upon exercise (assuming,
for purposes of this section 9(j), that exercise of warrants is
permissible during periods prior to the Initial Warrant Exercise
Date) of his Warrants. Such grant by the Company to the holders
of the Warrants shall be in lieu of any adjustment which otherwise
might be called for pursuant to this Section 9.
11. Upon the conversion by the Company of the Preferred
Stock into shares of Common Stock, all provisions of this Section
9 relating to adjustment shall be applicable, commencing the date
of such conversion, to the Common Stock.
I. Reduction of Purchase Price and Extension of Expiration
Date Notwithstanding anything herein to the contrary, the Company
shall have the right, subject to compliance with Rule 13e-4
promulgated under the Securities Exchange Act of 1934 and the
filing of Schedule 13e-4 with the Securities and Exchange
Commission, and upon not less than thirty (30) days' written
notice given to every holder of a Warrant, to reduce the Purchase
Price and/or to extend the Warrant Expiration Date.
J. Fractional Warrants and Fractional Shares.
1. If the number of shares of (or Common Stock, as the
case may be) Preferred Stock purchasable upon the exercise of each
Warrant is adjusted pursuant to Section 9 hereof, the Company
nevertheless shall not be required to issue fractions of shares,
upon exercise of the Warrants or otherwise, or to distribute
certificates that evidence fractional shares. With respect to any
fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such
fraction multiplied by the current market value of such fractional
share, determined as follows:
a. If the Preferred Stock (or the Common Stock,
as the case may be) is listed on a National Securities Exchange or
admitted to unlisted trading privileges on such exchange or listed
for trading on the NASDAQ Quotation System, the current value
shall be the last reported sale price of the Preferred Stock (or
the Common Stock, as the case may be) on such exchange on the last
business day prior to the date of exercise of this Warrant or if
no such sale is made on such day, the average of the closing bid
and asked prices for such day on such exchange; or
b. If the Preferred Stock (or the Common Stock,
as the case may be) is not listed or admitted to unlisted trading
privileges, the current value shall be the mean of the last
reported bid and asked prices reported by the National Quotation
Bureau, Inc. on the last business day prior to the date of the
exercise of this Warrant; or
c. If the Preferred Stock (or the Common Stock,
as the case may be) is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported,
the current value shall be an amount determined in such reasonable
manner as may be prescribed by the Board of Directors of the
Company.
K. Warrant Holders Not Deemed Stockholders. No holder of
Warrants shall, as such, be entitled to vote or to receive
dividends or be deemed the holder of Preferred Stock (or the
Common Stock, as the case may be) that may at any time be issuable
upon exercise of such Warrants for any purpose whatsoever, nor
shall anything contained herein be construed to confer upon the
holder of Warrants, as such, any of the rights of a stockholder of
the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether
upon any recapitalization, issue or reclassification of stock,
change of par value or change of stock to no par value,
consolidation, merger, or conveyance or otherwise), or to receive
notice of meetings, or to receive dividends or subscription
rights, until such Holder shall have exercised such Warrants and
been issued shares of Preferred Stock (or Common Stock, as the
case may be) in accordance with the provisions hereof.
L. Rights of Action. All rights of action with respect to
this Agreement are vested in the respective Registered Holders of
the Warrants, and any Registered Holder of a Warrant, without
consent of the Warrant Agent or of the holder of any other
Warrant, may, in his own behalf and for his own benefit, enforce
against the Company his right to exercise his Warrants for the
purchase of shares of Preferred Stock (or the Common Stock, as the
case may be) in the manner provided in the Warrant Certificate and
this Agreement.
M. Agreement of Warrant Holders. Every holder of a Warrant,
by his acceptance thereof, consents and agrees with the Company,
the Warrant Agent and every other holder of a warrant that:
1. The Warrants are transferable only on the registry
books of the Warrant Agent by the Registered Holder thereof in
person or by his attorney duly authorized in writing and only if
the Warrant Certificates representing such Warrants are
surrendered at the office of the Warrant Agent, duly endorsed or
accompanied by a proper instrument of transfer satisfactory to the
Warrant Agent and the Company in their sole discretion, together
with payment of any applicable transfer taxes; and
2. The Company and the Warrant Agent may deem and treat
the person in whose name the Warrant Certificate is registered as
the holder and as the absolute, true, and lawful owner of the
Warrants represented thereby for all purposes, and neither the
Company nor the Warrant Agent shall be affected by any notice or
knowledge to the contrary, except as otherwise expressly provided
in Section 7 hereof.
N. Cancellation of Warrant Certificates. If the Company
shall purchase or acquire any Warrant or Warrants, the Warrant
Certificate or Warrant Certificates evidencing the same shall
thereupon be delivered to the Warrant Agent and cancelled by it
and retired. The Warrant Agent shall also cancel Preferred Stock
following exercise of any or all of the Warrants represented
thereby or delivered to it for transfer, splitup, combination, or
exchange.
O. Concerning the Warrant Agent. The Warrant Agent acts
hereunder as agent and in a ministerial capacity for the Company,
and its duties shall be determined solely by the provisions
hereof. The Warrant Agent shall not, by issuing and delivering
Warrant Certificates or by any other act hereunder be deemed to
make any representations as to the validity, value, or
authorization of the Warrant Certificates or the Warrants
represented thereby or of any securities or other property
delivered upon exercise of any Warrant or whether any stock issued
upon exercise of any Warrant is fully paid and nonassessable.
The Warrant Agent shall not at any time be under any duty
or responsibility to any holder of Warrant Certificates to make or
cause to be made any adjustment of the Purchase Price or the
Redemption Price provided in this Agreement, or to determine
whether any fact exists which may require any such adjustments, or
with respect to the nature or extent of any such adjustment, when
made, or with respect to the method employed in making the same.
It shall not (i) be liable for any recital or statement of facts
contained herein or for any action taken, suffered, or omitted by
it in reliance on any warrant Certificate or other document or
instrument believed by it in good faith to be genuine and to have
been signed or presented by the proper party or parties, (ii) be
responsible for any failure on the part of the Company to comply
with any of its covenants and obligations contained in this
Agreement or in any Warrant Certificate, or (iii) be liable for
any act or omission in connection with this Agreement except for
its own negligence or wilful misconduct.
The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company) and shall
incur no liability or responsibility for any action taken,
suffered or omitted by it in good faith in accordance with the
opinion or advice of such counsel.
Any notice, statement, instruction, request, direction,
order, or demand of the Company shall be sufficiently evidenced by
an instrument signed by the Chairman of the Board, President, any
Vice President, its Secretary, or Assistant Secretary, (unless
other evidence in respect thereof is herein specifically
prescribed). The Warrant Agent shall not be liable for any action
taken, suffered or omitted by it in accordance with such notice,
statement, instruction, request, direction, order, or demand
believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for
its reasonable expenses hereunder; it further agrees to indemnify
the Warrant Agent and save it harmless against any and all losses,
expenses, and liabilities, including judgments, costs, and counsel
fees, for anything done or omitted by the Warrant Agent in the
execution of its duties and powers hereunder except losses,
expenses, and liabilities arising as a result of the Warrant
Agent's negligence or wilful misconduct.
The Warrant Agent may resign its duties and be discharged
from all further duties and liabilities hereunder (except
liabilities arising as a result of the Warrant Agent's own
negligence or wilful misconduct), after giving 30 days' prior
written notice to the Company. At least 15 days prior to the date
such resignation is to become effective, the Warrant Agent shall
cause a copy of such notice of resignation to be mailed to the
Registered Holder of each Warrant Certificate at the Company's
expense. Upon such resignation, or any inability of the Warrant
Agent to act as such hereunder, the Company shall appoint a new
warrant agent in writing. If the Company shall fail to make such
appointment within a period of 15 days after it has been notified
in writing of such resignation by the resigning Warrant Agent,
then the Registered Holder of any Warrant Certificate may apply to
any court of competent jurisdiction for the appointment of a new
warrant agent. Any new warrant agent, whether appointed by the
Company or by such a court, shall be a bank or trust company
having a capital and surplus, as shown by its last published
report to its stockholders, of not less than $10,000,000 or a
stock transfer company. After acceptance in writing of such
appointment by the new warrant agent is received by the Company,
such new warrant agent shall be vested with the same powers,
rights, duties, and responsibilities as if it had been originally
named herein as the Warrant Agent, without any further assurance,
conveyance, act, or deed; but if for any reason it shall be
necessary or expedient to execute and deliver any further
assurance, conveyance, act, or deed, the same shall be done at the
expense of the Company and shall be legally and validly executed
and delivered by the resigning Warrant Agent. Not later than the
effective date of any such appointment the Company shall file
notice thereof with the resigning Warrant Agent and shall
forthwith cause a copy of such notice to be mailed to the
Registered Holder of each Warrant Certificate.
Any corporation into which the Warrant Agent or any new
warrant agent may be converted or merged or any corporation
resulting from any consolidation to which the Warrant Agent or any
new warrant agent shall be a party or any corporation succeeding
to the trust business of the Warrant Agent shall be a successor
warrant agent under this Agreement without any further act,
provided that such corporation is eligible for appointment as
successor to the Warrant Agent under the provisions of the
preceding paragraph. Any such successor warrant agent shall
promptly cause notice of its succession as warrant agent to be
mailed to the Company and to the Registered Holder of each Warrant
Certificate.
The Warrant Agent, its subsidiaries and affiliates, and
any of its or their officers or directors, may buy and hold or
sell Warrants or other securities of the Company and otherwise
deal with the Company in the same manner and to the same extent
and with like effects as though it were not Warrant Agent.
Nothing herein shall preclude the Warrant Agent from acting in any
other capacity for the Company or for any other legal entity.
P. Modification of Agreement. The Warrant Agent and the
Company may by supplemental agreement make any changes or
corrections in this Agreement (i) that they shall deem appropriate
to cure any ambiguity or to correct any defective or inconsistent
provision or manifest mistake or error herein contained; or (ii)
that they may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Warrant
Certificates; provided, however, that this Agreement shall not
otherwise be modified, supplemented, or altered in any respect
except with the consent in writing of the Registered Holders of
Warrant Certificates representing not less than 50% of the
Warrants then outstanding; and provided, further, that no change
in the number or nature of the securities purchasable upon the
exercise of any Warrant, or the Purchase Price therefor, or the
acceleration of the Warrant Expiration Date, shall be made without
the consent in writing of the Registered Holder of the Warrant
Certificate representing such Warrant, other than such changes as
are specifically prescribed by this Agreement as originally
executed or are made in compliance with applicable law.
Q. Notices. All notices, requests, consents, and other
communications hereunder shall be in writing and shall be deemed
to have been made when delivered or mailed first class, registered
or certified mail, postage prepaid as follows: if to the
Registered Holder of a Warrant Certificate, at the address of such
holder as shown on the registry books maintained by the Warrant
Agent; if to the Company, 350 Randy Road, Carol Stream, Illinois
60188, Attention: President, with a copy sent to Bressler, Amery
& Ross, 17 State Street, New York, NY 10004, Attention: Robert
Brantl, Esq.; or at such other address as may have been furnished
to the Warrant Agent in writing by the Company; and if to the
Warrant Agent, at its Corporate office.
R. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York,
without reference to principles of conflict of laws.
S. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the Company, the Warrant Agent and their
respective successors and assigns, and the holders from time to
time of Warrant Certificates. Nothing in this Agreement is
intended or shall be construed to confer upon any other person any
right, remedy, or claim, in equity or at law, or to impose upon
any other person any duty, liability, or obligation.
T. Termination. This Agreement shall terminate at the close
of business on the Warrant Expiration Date of all the Warrants or
such earlier date upon which all Warrants have been exercised,
except that the Warrant Agent shall account to the Company for
cash held by it and the provisions of Section 15 hereof shall
survive such termination.
U. Counterparts. This Agreement may be executed in several
counterparts, which taken together shall constitute a single
document.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
MICROENERGY, INC.
By: ______________________________
Its
AMERICAN STOCK TRANSFER & TRUST
COMPANY
By: ______________________________
Its
Authorized Officer<PAGE>
EXHIBIT A
[Form of Face of Class A Warrant Certificate]
No.
Void after _____________________, 2000
CLASS A REDEEMABLE PREFERRED STOCK PURCHASE WARRANT CERTIFICATE
FOR PURCHASE OF PREFERRED STOCK
MICROENERGY, INC.
This certifies that For Value Received
or registered assigns (the "Registered Holder") is the owner of the
number of Class A Redeemable Preferred Stock Purchase Warrants
("Warrants") specified above. Each Warrant initially entitles the
Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as
hereinafter defined), one (1) fully paid and nonassessable share of
Series A Cumulative Convertible Preferred Stock, $.01 par value, of
MICROENERGY, INC., a Delaware corporation (the "Company"), at any
time after _____________________, 1997 (the "Separation Date") and
prior to the Expiration Date (as hereinafter defined), upon the
presentation and surrender of this Warrant Certificate with the
Subscription Form on the reverse hereof duly executed, at the
corporate office of AMERICAN STOCK TRANSFER & TRUST COMPANY as
Warrant Agent, or its successor (the "Warrant Agent"), accompanied by
payment of $5.25 (the "Purchase Price") in lawful money of the United
States of America in cash or by official bank or certified check made
payable to MicroEnergy, Inc.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and
conditions set forth in the Warrant Agreement (the "Warrant
Agreement") dated _____________________, 1996, by and between the
Company and the Warrant Agent.
In the event of certain contingencies provided for in the
Warrant Agreement, the Purchase Price or the number of shares of
Preferred Stock subject to purchase upon the exercise of each Warrant
represented hereby are subject to modifications or adjustment.
Each Warrant represented hereby is exercisable at the option of
the Registered Holder, but no fractional shares of Preferred Stock
will be issued. In the case of the exercise of less than all the
Warrants represented hereby, the Company shall cancel this Warrant
Certificate upon the surrender hereof and shall execute and deliver a
new Warrant Certificate or Warrant Certificates of like tenor, which
the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York time)
on _____________________, 2000, or such earlier date as the Warrants
shall be redeemed. If such date shall in the State of New York be a
holiday or a day on which the banks are authorized to close, then the
Expiration Date shall mean 5:00 p.m. (New York time) the next
following day which in the State of New York is not a holiday or a
day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities
pursuant to the exercise of this Warrant unless a registration
statement under the Securities Act of 1933, as amended, with respect
to such securities is effective. The Company has covenanted and
agreed that it will file a registration statement and will use its
best efforts to cause the same to become effective and to keep such
registration statement current while any of the Warrants are
outstanding. This Warrant shall not be exercisable by a Registered
Holder in any state in which it would be unlawful for the Company to
deliver the shares of Preferred Stock upon exercise of this Warrant.
This Warrant Certificate is exchangeable, upon the surrender
hereof by the Registered Holder at the corporate office of the
Warrant Agent, for a new Warrant Certificate or Warrant Certificates
of like tenor representing an equal aggregate number of Warrants,
each of such new Warrant Certificates to represent such number of
Warrants as shall be designated by such Registered Holder at the time
of such surrender. Upon due presentment of this Warrant Certificate
at such office for registration of transfer, together with any
transfer fee in addition to any tax or other governmental charge
imposed in connection with such transfer, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of
Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a
stockholder of the Company, including, without limitation, the right
to vote or to receive dividends or other distributions, and shall not
be entitled to receive any notice of any proceedings of the Company,
except as provided in the Warrant Agreement.
This Warrant may be redeemed at the option of the Company, at a
redemption price of $.01 per Warrant at any time after
_____________________, 1997, provided the Market Price (as defined in
the Warrant Agreement) for the Company's Common Stock shall exceed
$7.00 per share (as provided for in the Warrant Agreement). Notice
of redemption shall be given not later than the thirtieth day before
the date fixed for redemption, all as provided in the Warrant
Agreement. On and after the date fixed for redemption, the
Registered Holder shall have no rights with respect to this Warrant
except to receive the $.01 per Warrant upon surrender of this
Certificate.
If the Company exercises its right to convert all of the issued
and outstanding Preferred Stock of the Company into shares of Common
Stock, this Warrant will entitle the holder to purchase one (1) share
of Common Stock at a price equal to the Purchase Price.
Prior to due presentment for registration of transfer hereof,
the Company and the Warrant Agent may deem and treat the Registered
Holder as the absolute owner hereof and of each Warrant represented
hereby (notwithstanding any notations of ownership or writing hereon
made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by
the Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile by two of
its officers thereunto duly authorized, and a facsimile of its
corporate seal to be imprinted hereon.
MICROENERGY, INC.
By ______________________________
Its
By ______________________________
Its
Date: ______________________________
[Seal]
Countersigned:
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
By ______________________________
Its
Authorized Officer<PAGE>
[Form of Reverse of Class A Warrant Certificate]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrants
THE UNDERSIGNED REGISTERED HOLDER hereby irrevocably elects to
exercise _____ Warrants represented by this Warrant Certificate, and
to purchase the securities issuable upon the exercise of such
Warrants, and requests that certificates for such securities shall be
issued in the name of
____________________________________________
(please insert social security or other identifying number)
and be delivered to
____________________________________________
____________________________________________
____________________________________________
____________________________________________
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants
evidenced by this Warrant Certificate, that a new Warrant Certificate
for the balance of such Warrants be registered in the name of, and
delivered to, the Registered Holder at the address stated below:
____________________________________________
____________________________________________
____________________________________________
(Address)
_________________________________
(Date)
_________________________________
(Taxpayer Identification Number)
<PAGE>
Signature Guaranteed
ASSIGNMENT
To Be Executed by the Registered Holder in Order to Assign Warrants
FOR VALUE RECEIVED, the undersigned registered holder hereby
sells, assigns, and transfers unto
____________________________________________
(please insert social security or other identifying number)
____________________________________________
____________________________________________
____________________________________________
____________________________________________
(please print or type name and address)
all (if not all, insert number of Warrants to be transferred
_________) of the Warrants represented by this Warrant Certificate,
and hereby irrevocably constitutes and appoints
_________________________________ Attorney to transfer this Warrant
Certificate on the books of the Company, with full power of
substitution in the premises.
_________________________________
(Date)
_________________________________
Signature of Registered Holder
Signature Guaranteed
The signature to the assignment or the Subscription Form must
correspond to the name as written upon the face of this Warrant
Certificate in every particular, without alteration or enlargement or
any change whatsoever, and must be guaranteed by a commercial bank or
trust company or a member firm of the American Stock Exchange,
New York Stock Exchange, Pacific Stock Exchange or Midwest Stock
Exchange.<PAGE>
Option to Purchase
43,000 Shares of Preferred Stock
and
21,500 Warrants
MICROENERGY, INC.
PURCHASE OPTION
Dated: ___________, 1996
THIS CERTIFIES that ___________, 99 Wall Street, New York, NY
10005(hereinafter sometimes referred to as the "Holder"), is entitled
to purchase from MICROENERGY, INC. (hereinafter referred to as the
"Company"), at the prices and during the periods as hereinafter
specified, up to 43,000 shares of Series A Cumulative Convertible
Preferred Stock, par value $.01 per share ("Preferred Stock"), and
21,500 Redeemable Class A Warrants ("Warrants"). The Preferred Stock
is convertible into the Company's Common Stock ("Common Stock") as
described in the Registration Statement (defined below). Each
Warrant entitles the registered holder thereof to purchase one (1)
share of Preferred Stock at an exercise price of $5.25 per share.
The Warrants (hereinafter, the "Warrants") are exercisable for a
three year period, commencing ___________, 1997 (one (1) year from
the Effective Date). The Preferred Stock and Warrants shall
collectively be referred to as the "Securities." Hereinafter, the
shares of Preferred Stock and Warrants shall be referred to as an
"Option Securities" or "Securities."
The Securities have been registered under a Registration
Statement on Form SB-2 (File No. 33-_____) declared effective by the
Securities and Exchange Commission on ___________, 1996 (the
"Registration Statement"). This Option (the "Option") to purchase
43,000 shares of Preferred Stock and 21,500 Warrants was originally
issued pursuant to an underwriting agreement between the Company and
I. A. Rabinowitz & Co., as representative of the several underwriters
(the "Representative"), in connection with a public offering of
430,000 shares of Preferred Stock and 215,000 Warrants (collectively,
the "Public Securities") through the Representative, in consideration
of $64.50 received for the Option.
Except as specifically otherwise provided herein, the Preferred
Stock and the Warrants issued pursuant to this Option shall bear the
same terms and conditions as described under the caption "Description
of Securities" in the Registration Statement, and the Warrants shall
be governed by the terms of the Warrant Agreement dated as of
___________, 1996, executed in connection with such public offering
(the "Warrant Agreement"), except that the holder shall have
registration rights under the Securities Act of 1933, as amended (the
"Act"), for the Option, the Preferred Stock and the Warrants included
in the Option, the shares of Preferred Stock underlying the Warrants,
and the shares of Common Stock underlying the Preferred Stock, as
more fully described in paragraph 6 of this Option. In the event of
any reduction of the exercise price of the Warrants included in the
Public Securities, the same changes to the Warrants included in the
Option and the components thereof shall be simultaneously effected.
1. The rights represented by this Option shall be exercised
at the prices, subject to adjustment in accordance with paragraph 8
of this Option, and during the periods as follows:
(a) Between ___________, 1997 (one (1) year from the
Effective Date) and ___________, 2001, inclusive, the Holder shall
have the option to purchase Preferred Stock and Warrants hereunder at
prices of $6.00 and $.12, respectively (subject to adjustment
pursuant to paragraph 8 hereof) (the "Exercise Price").
(b) After __________ 2001, the Holder shall have no right to
purchase any Option Securities hereunder.
2. The rights represented by this Option may be exercised at
any time within the period above specified, in whole or in part, by
(i) the surrender of this Option (with the purchase form at the end
hereof properly executed) at the principal executive office of the
Company (or such other office or agency of the Company as it may
designate by notice in writing to the Holder at the address of the
Holder appearing on the books of the Company); (ii) payment to the
Company of the Exercise Price then in effect for the number of Option
Securities specified in the above-mentioned purchase form together
with applicable stock transfer taxes, if any; and (iii) delivery to
the Company of a duly executed agreement signed by the person(s)
designated in the purchase form to the effect that such person(s)
agree(s) to be bound by the provisions of paragraph 6 and
subparagraphs (b), (c) and (d) of paragraph 7 hereof. This Option
shall be deemed to have been exercised, in whole or in part to the
extent specified, immediately prior to the close of business on the
date this Option is surrendered and payment is made in accordance
with the foregoing provisions of this paragraph 2, and the person or
persons in whose name or names the certificates for shares of
Preferred Stock and Warrants shall be issuable upon such exercise
shall become the holder or holders of record of such Preferred Stock
and Warrants at that time and date. The Preferred Stock and Warrants
and the certificates for the Preferred Stock and Warrants so
purchased shall be delivered to the Holder within a reasonable time,
not exceeding ten (10) days, after the rights represented by this
Option shall have been so exercised.
3. This Option shall not be transferred, sold, assigned, or
hypothecated for a period of one (1) year from the Effective Date,
except that it may be transferred to successors of the Holder, and
may be assigned in whole or in part to any person who is an officer
of the Holder during such period. Any such assignment shall be
effected by the Holder (i) executing the form of assignment at the
end hereof and (ii) surrendering this Option for cancellation at the
office or agency of the Company referred to in paragraph 2 hereof,
accompanied by a certificate (signed by an officer of the Holder if
the Holder is a corporation), stating that each transferee is a
permitted transferee under this paragraph 3 hereof; whereupon the
Company shall issue, in the name or names specified by the Holder
(including the Holder) a new Option or Options of like tenor and
representing in the aggregate rights to purchase the same number of
Option Securities as are purchasable hereunder.
4. The Company covenants and agrees that all shares of
Preferred Stock which may be issued as part of the Option Securities
purchased hereunder, the Preferred Stock which may be issued upon
exercise of the Warrants and the Common Stock which may be issued
upon conversion of the Preferred Stock will, upon issuance, be duly
and validly issued, fully paid and nonassessable. The Company
further covenants and agrees that during the periods within which
this Option may be exercised, the Company will at all times have
authorized and reserved a sufficient number of shares of its
Preferred Stock to provide for the exercise of this Option, that it
will have authorized and reserved a sufficient number of shares of
Preferred Stock for issuance upon exercise of the Warrants included
in the Option Securities and that it will have authorized and
reserved a sufficient number of shares of Common Stock for issuance
upon conversion of the Preferred Stock.
5. This Option shall not entitle the Holder to any voting,
dividend, or other rights as a stockholder of the Company.
6. (a) During the period set forth in paragraph l(a)hereof,
the Company shall advise the Holder or its transferee, whether the
Holder holds the Option or has exercised the Option and holds Option
Securities or any of the securities underlying the Option Securities,
by written notice at least 30 days prior to the filing of any post-effective
amendment to the Registration Statement or of any new
registration statement or post-effective amendment thereto under the
Act covering any securities of the Company, for its own account or
for the account of others (other than a registration statement on
Form S-4 or S-8 or any successor forms thereto), and will for a
period of five years from the effective date of the Registration
Statement, upon the request of the Holder, include in any such post-
effective amendment or registration statement, such information as
may be required to permit a public offering of the Option, all or any
of the Preferred Stock, or Warrants included in the Securities or the
Preferred Stock issuable upon the exercise of the Warrants or Common
Stock issuable upon conversion of the Preferred Stock (the
"Registrable Securities"). The Company shall supply prospectuses and
such other documents as the Holder may request in order to facilitate
the public sale or other disposition of the Registrable Securities,
use its best efforts to register and qualify any of the Registrable
Securities for sale in such states as such Holder designates provided
that the Company shall not be required to qualify as a foreign
corporation or a dealer in securities or execute a general consent to
service of process in any jurisdiction in any action and do any and
all other acts and things which may be reasonably necessary or
desirable to enable such Holders to consummate the public sale or
other disposition of the Registrable Securities, and furnish
indemnification in the manner provided in paragraph 7 hereof. The
Holder shall furnish information and indemnification as set forth in
paragraph 7 except that the maximum amount which may be recovered
from the Holder shall be limited to the amount of proceeds received
by the Holder from the sale of the Registrable Securities. The
Company shall use its best efforts to cause the managing underwriter
or underwriters of a proposed underwritten offering to permit the
holders of Registrable Securities requested to be included in the
registration to include such securities in such underwritten offering
on the same terms and conditions
as any similar securities of the Company included therein.
Notwithstanding the foregoing, if the managing underwriter or
underwriters of such offering advises the holders of Registrable
Securities that the total amount of securities which they intend to
include in such offering is such as to materially and adversely
affect the success of such offering, then the amount of securities to
be offered for the accounts of holders of Registrable Securities
shall be eliminated, reduced, or limited to the extent necessary to
reduce the total amount of securities to be included in such offering
to the amount, if any, recommended by such managing underwriter or
underwriters (any such reduction or limitation in the total amount of
Registrable Securities to be included in such offering to be borne by
the holders of Registrable Securities proposed to be included therein
pro rata). The Holder will pay its own legal fees and expenses and
any underwriting discounts and commissions on the securities sold by
such Holder and shall not be responsible for any other expenses of
such registration.
(b) If any 50% holder (as defined below) shall give notice to
the Company at any time during the period set forth in paragraph l(a)
hereof to the effect that such holder desires to register under the
Act this Option or any of the underlying securities contained in the
Option Securities underlying the Option under such circumstances that
a public distribution (within the meaning of the Act) of any such
securities will be involved then the Company will promptly, but no
later than 60 days after receipt of such notice, file a post-effective
amendment to the current Registration Statement or a new
registration statement pursuant to the Act, to the end that the
Option and/or any of the Securities underlying the Option Securities
may be publicly sold under the Act as promptly as practicable
thereafter and the Company will use its best efforts to cause such
registration to become and remain effective for a period of 120 days
(including the taking of such steps as are reasonably necessary to
obtain the removal of any stop order); provided that such holder
shall furnish the Company with appropriate information in connection
therewith as the Company may reasonably request in writing. The 50%
holder (which for purposes hereof shall mean any direct or indirect
transferee of such holder) may, at its option, request the filing of
a post-effective amendment to the current Registration Statement or a
new registration statement under the Act with respect to the
Registrable Securities on only two occasions during the term of this
Option. The Holder may at its option request the registration of the
Option and/or any of the securities underlying the Option in a
registration statement made by the Company as contemplated by Section
6(a) or in connection with a request made pursuant to this Section
6(b) prior to acquisition of the Securities issuable upon exercise of
the Option and even though the Holder has not given notice of
exercise of the Option. The 50% holder may, at its option, request
such post-effective amendment or new registration statement during
the described period with respect to the Option or separately as to
the Preferred Stock and/or Warrants included in the Option and/or the
Preferred Stock issuable upon the exercise of the Warrants and/or the
Common Stock issuable upon the conversion of the Preferred Stock, and
such registration rights may be exercised by the 50% holder prior to
or subsequent to the exercise of the Option. Within ten business
days after receiving any such notice pursuant to this subsection (b)
of paragraph 6, the Company shall give notice to the other holders of
the Options, advising that the Company is proceeding with such post-
effective amendment or registration statement and offering to include
therein the securities underlying the Options of the other holders.
Each holder electing to include its Registrable Securities in any
such offering shall provide written notice to the Company within
twenty (20) days after receipt of notice from the Company. The
failure to provide such notice to the Company shall be deemed
conclusive evidence of such holder's election not to include its
Registrable Securities in such offering. Each holder electing to
include its Registrable Securities shall furnish the Company with
such appropriate information (relating to the intentions of such
holders) in connection therewith as the Company shall reasonably
request in writing. All costs and expenses of only one such post-
effective amendment or new registration statement shall be borne by
the Company, except that the holders shall bear the fees of their own
counsel and any underwriting discounts or commissions applicable to
any of the securities sold by them.
The Company shall be entitled to postpone the filing of any
registration statement pursuant to this Section 6(b) otherwise
required to be prepared and filed by it if (i) the Company is engaged
in a material acquisition, reorganization, or divestiture, (ii) the
Company is currently engaged in a self-tender or exchange offer and
the filing of a registration statement would cause a violation of
Rule 10b-6 under the Securities Exchange Act of 1934, (iii) the
Company is engaged in an underwritten offering and the managing
underwriter has advised the Company in writing that such a
registration statement would have a material adverse effect on the
consummation of such offering or (iv) the Company is subject to an
underwriter's lock-up as a result of an underwritten public offering
and such underwriter has refused in writing, the Company's request to
waive such lock-up. In the event of such postponement, the Company
shall be required to file the registration statement pursuant to this
Section 6(b), within 60 days of the consummation of the event
requiring such postponement.
The Company will use its best efforts to maintain such
registration statement or post-effective amendment current under the
Act for a period of at least six months (and for up to an additional
three months if requested by the Holder) from the effective date
thereof. The Company shall supply prospectuses, and such other
documents as the Holder may reasonably request in order to facilitate
the public sale or other disposition of the Registrable Securities,
use its best efforts to register and qualify any of the Registrable
Securities for sale in such states as such holder designates,
provided that the Company shall not be required to qualify as a
foreign corporation or a dealer in securities or execute a general
consent to service of process in any jurisdiction in any action and
furnish indemnification in the manner provided in paragraph 7 hereof.
(c) The term "50% holder" as used in this paragraph 6 shall mean
the holder of at least 50% of the Preferred Stock (or the Common
Stock issuable upon conversion thereof) and the Warrants underlying
the Option (or the Preferred Stock issuable upon exercise of the
Warrants) (considered in the aggregate) and shall include any owner
or combination of owners of such securities, which ownership shall be
calculated by determining the number of shares of Preferred Stock (or
the Common Stock issuable upon conversion thereof) held by such owner
or owners as well as the number of shares then issuable upon exercise
of the Warrants (or the Preferred Stock issuable upon exercise of the
Warrants).
7. (a) Whenever pursuant to paragraph 6 a registration
statement relating to the Option or any shares or warrants issued or
issuable upon the exercise of any Options, is filed under the Act,
amended or supplemented, the Company will indemnify and hold harmless
each holder of the securities covered by such registration statement,
amendment, or supplement (such holder being hereinafter called the
"Distributing Holder"), and each person, if any, who controls (within
the meaning of the Act) the Distributing Holder, and each underwriter
(within the meaning of the Act) of such securities and each person,
if any, who controls (within the meaning of the Act) any such
underwriter, against any losses, claims, damages, or liabilities,
joint or several, to which the Distributing Holder, any such
controlling person or any such underwriter may become subject, under
the Act or otherwise, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material
fact contained in any such registration statement or any preliminary
prospectus or final prospectus constituting a part thereof or any
amendment or supplement thereto, or arise out of or are based upon
the omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading;
and will reimburse the Distributing Holder and each such controlling
person and underwriter for any legal or other expenses reasonably
incurred by the Distributing Holder or such controlling person or
underwriter in connection with investigating or defending any such
loss, claim, damage, liability, or action; provided, however, that
the Company will not be liable in any such case to the extent that
any such loss, claim, damage, or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or
alleged omission made in said registration statement, said
preliminary prospectus, said final prospectus, or said amendment or
supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder or any other
Distributing Holder, for use in the preparation thereof.
(b) The Distributing Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed
said registration statement and such amendments and supplements
thereto, each person, if any, who controls the Company (within the
meaning of the Act) against any losses, claims, damages, or
liabilities, joint and several, to which the Company or any such
director, officer, or controlling person may become subject, under
the Act or otherwise, insofar as such losses, claims, damages, or
liabilities arise out of or are based upon any untrue or alleged
untrue statement of any material fact contained in said registration
statement, said preliminary prospectus, said final prospectus, or
said amendment or supplement, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the
extent that such untrue statement or alleged untrue statement or
omission or alleged omission was made in said registration statement,
said preliminary prospectus, said final prospectus, or said amendment
or supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder for use in the
preparation thereof; and will reimburse the Company or any such
director, officer, or controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability, or action.
(c) Promptly after receipt by an indemnified party under this
paragraph 7 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made
against any indemnifying party, give the indemnifying party notice of
the commencement thereof; but the omission so to notify the
indemnifying party will not relieve it from any liability which it
may have to any indemnified party otherwise than under this Paragraph
7.
(d) In case any such action is brought against any indemnified
party, and it notifies an indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in,
and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party
will not be liable to such indemnified party under this paragraph 7
for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof.
8. The Exercise Price in effect at any time and the number
and kind of securities purchasable upon the exercise of this Option
shall be subject to adjustment from time to time upon the happening
of certain events as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Preferred Stock in shares
of Preferred Stock, (ii) subdivide or reclassify its outstanding
shares of Preferred Stock into a greater number of shares, or (iii)
combine or reclassify its outstanding shares of Preferred Stock into
a smaller number of shares, the Exercise Price in effect at the time
of the record date for such dividend or distribution or of the
effective date of such subdivision, combination or reclassification
shall be adjusted so that it shall equal the price determined by
multiplying the Exercise Price by a fraction, the denominator of
which shall be the number of shares of Preferred Stock outstanding
after giving effect to such action, and the numerator of which shall
be the number of shares of Preferred Stock outstanding immediately
prior to such action. Notwithstanding anything to the contrary
contained in the Warrant Agreement, in the event an adjustment to the
Exercise Price is effected pursuant to this Subsection (a) (and a
corresponding adjustment to the number of Option Securities is made
pursuant to Subsection (d) below), the exercise price of the Warrants
shall be adjusted so that it shall equal the price determined by
multiplying the exercise price of the Warrants by a fraction, the
denominator of which shall be the number of shares of Preferred Stock
outstanding immediately after giving effect to such action and the
numerator of which shall be the number of shares of Preferred Stock
outstanding immediately prior to such action. In such event, there
shall be no adjustment to the number of shares of Preferred Stock or
other securities issuable upon exercise of the Warrants. Such
adjustment shall be made successively whenever any event listed above
shall occur.
(b) In case the Company shall fix a record date for the issuance
of rights or warrants to all holders of its Preferred Stock entitling
them to subscribe for or purchase shares of Preferred Stock (or
securities convertible into Preferred Stock) at a price (the
"Subscription Price") (or having a conversion price per share) less
than the current market price of the Preferred Stock (as defined in
Subsection (e) below) on the record date mentioned below, the
Exercise Price shall be adjusted so that the same shall equal the
price determined by multiplying the number of shares then comprising
an Option Securities by the product of the Exercise Price in effect
immediately prior to the date of such issuance multiplied by a
fraction, the numerator of which shall be the sum of the number of
shares of Preferred Stock outstanding on the record date mentioned
below and the number of additional shares of Preferred Stock which
the aggregate offering price of the total number of shares of
Preferred Stock so offered (or the aggregate conversion price of the
convertible securities so offered) would purchase at such current
market price per share of the Preferred Stock, and the denominator of
which shall be the sum of the number of shares of Preferred Stock
outstanding on such record date and the number of additional shares
of Preferred Stock offered for subscription or purchase (or into
which the convertible securities so offered are convertible). Such
adjustment shall be made successively whenever such rights or
warrants are issued and shall become effective immediately after the
record date for the determination of shareholders entitled to receive
such rights or warrants; and to the extent that shares of Preferred
Stock are not delivered (or securities convertible into Preferred
Stock are not delivered) after the expiration of such rights or
warrants the Exercise Price shall be readjusted to the Exercise Price
which would then be in effect had the adjustments made upon the
issuance of such rights or warrants been made upon the basis of
delivery of only the number of shares of Preferred Stock (or
securities convertible into Preferred Stock) actually delivered.
(c) In case the Company shall hereafter distribute to the
holders of its Preferred Stock evidences of its indebtedness or
assets (excluding cash dividends or distributions and-dividends or
distributions referred to in Subsection (a) above) or subscription
rights or warrants (excluding those referred to in Subsection (b)
above), then in each such case the Exercise Price in effect
thereafter shall be determined by multiplying the number of shares
then comprising an Option Securities by the product of the Exercise
Price in effect immediately prior thereto multiplied by a fraction,
the numerator of which shall be the total number of shares of
Preferred Stock outstanding multiplied by the current market price
per share of Preferred Stock (as defined in Subsection (e) below),
less the fair market value (as determined by the Company's Board of
Directors) of said assets or evidences of indebtedness so distributed
or of such rights or warrants, and the denominator of which shall be
the total number of shares of Preferred Stock outstanding multiplied
by such current market price per share of Preferred Stock. Such
adjustment shall be made successively whenever such a record date is
fixed. Such adjustment shall be made whenever any such distribution
is made and shall become effective immediately after the record date
for the determination of shareholders entitled to receive such
distribution.
(d) Whenever the Exercise Price payable upon exercise of this
Option is adjusted pursuant to Subsections (a), (b) or (c) above, the
number of Option Securities purchasable upon exercise of this Option
shall simultaneously be adjusted by multiplying the number of Option
Securities initially issuable upon exercise of this Option by the
Exercise Price in effect on the date hereof and dividing the product
so obtained by the Exercise Price, as adjusted.
(e) For the purpose of any computation under Subsections (b) or
(c) above, the current market price per share of Preferred Stock at
any date shall be deemed to be the average of the daily closing
prices for 20 consecutive business days before such date. The
closing price for each day shall be the last sale price regular way
or, in case no such reported sale takes place on such day, the
average of the last reported bid and asked prices regular way, in
either case on the principal national securities exchange on which
the Preferred Stock is admitted to trading or listed, or if not
listed or admitted to trading on such exchange, the average of the
highest reported bid and lowest reported asked prices as reported by
NASDAQ, or other similar organization if NASDAQ is no longer
reporting such information, or if not so available, the fair market
price as determined by the Board of Directors.
(f) No adjustment in the Exercise Price shall be required unless
such adjustment would require an increase or decrease of at least
fifteen cents ($0.15) in such price; provided, however, that any
adjustments which by reason of this Subsection (i) are not required
to be made shall be carried forward and taken into account in any
subsequent adjustment required to be made hereunder. All calculations
under this Section 8 shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be. Anything in
this Section 8 to the contrary notwithstanding, the Company shall be
entitled, but shall not be required, to make such changes in the
Exercise Price, in addition to those required by this Section 8, as
it shall determine, in its sole discretion, to be advisable in order
that any dividend or distribution in shares of Preferred Stock, or
any subdivision, reclassification or combination of Preferred Stock,
hereafter made by the Company shall not result in any Federal Income
tax liability to the holders of Preferred Stock or securities
convertible into Preferred Stock (including Warrants issuable upon
exercise of this Option).
(g) Whenever the Exercise Price is adjusted, as herein provided,
the Company shall promptly, but no later than 10 days after any
request for such an adjustment by the Holder, cause a notice setting
forth the adjusted Exercise Price and adjusted number of Option
Securities issuable upon exercise of this Option and, if requested,
information describing the transactions giving rise to such
adjustments, to be mailed to the Holder, at the address set forth
herein, and shall cause a certified copy thereof to be mailed to its
transfer agent, if any. The Company may retain a firm of independent
certified public accountants selected by the Board of Directors (who
may be the regular accountants employed by the Company) to make any
computation required by this Section 8, and a certificate signed by
such firm shall be conclusive evidence of the correctness of such
adjustment.
(h) In the event that at any time, as a result of an adjustment
made pursuant to Subsection (a) above, the Holder thereafter shall
become entitled to receive any shares of the Company, other than
Preferred Stock, thereafter the number of such other shares so
receivable upon exercise of this Option shall be subject to
adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the
Preferred Stock contained in Subsections (a) to (g), inclusive above.
9. This Agreement shall be governed by and in accordance with
the laws of the State of New York.
IN WITNESS WHEREOF, MicroEnergy, Inc., has caused this Option to
be signed by its duly authorized officers under its corporate seal,
and this Option to be dated ___________, 1996.
MICROENERGY, INC.
By: ______________________________
Robert G. Gatza
Chairman
(Corporate Seal)
<PAGE>
PURCHASE FORM
(To be signed only upon exercise of option)
THE UNDERSIGNED, the holder of the foregoing Option, hereby
irrevocably elects to exercise the purchase rights represented by
such Option for, and to purchase thereunder,
____ Shares of Preferred Stock, $.01 par value per share, of
MicroEnergy, Inc. and _____ Warrants and herewith makes payment of
$______________ therefor, and requests that the Warrants and
certificates for shares of Preferred Stock be issued in the name(s)
of, and delivered to _________________________ whose address(es) is
(are) _____________________________________________.
Dated:<PAGE>
TRANSFER FORM
(To be signed only upon transfer of the Option)
For value received, the undersigned hereby sells, assigns, and
transfers unto _________________________________ the right to
purchase Securities, consisting of Preferred Stock and Warrants of
MicroEnergy, Inc., in the numbers set forth below represented by the
foregoing Option to the extent of _____ shares of Preferred Stock and
_________ Warrants, and appoints _________________________________
attorney to transfer such rights on the books of MicroEnergy, Inc.,
with full power of substitution in the premises.
Dated:
By: ______________________________
Address:
______________________________
______________________________
______________________________
In the presence of:<PAGE>
BRESSLER, AMERY & ROSS
17 State Street
New York, NY 10004
212-425-9300 (phone)
212-425-9337 (fax)
March 19, 1996
MicroENERGY, Inc.
350 Randy Road
Carol Stream, IL 60188
Gentlemen:
We have acted as counsel for MicroENERGY, Inc., a Delaware
corporation (the "Company") in connection with the registration
statement on Form SB-2 (No. 33- ) filed by the Company under the
Securities Act of 1933 with respect to the offering of 430,000 shares
of Series A Preferred Stock, $.01 par value, and 215,000 Class A
Preferred Stock Purchase Warrants, all being issued and sold by the
Company as set forth in the Registration Statement.
In addition, pursuant to the Registration Statement, the
Company has agreed to sell to the Representative of the Underwriters
warrants (the "Representative's Warrants") to purchase 43,000 shares
of Series A Preferred Stock and 21,500 Class A Preferred Stock
Warrants at an exercise price equal to 120% of the public offering
price of the Securities.
In connection with the Registration Statement, we have
examined such records and documents and such questions of law as we
have deemed necessary or appropriate for purposes of this opinion,
including but not limited to the following:
(a) Articles of Incorporation, as amended to date, of the Company
certified by the Delaware Secretary of State;
(b) By-Laws of the Company;
(c) Minutes, resolutions and documentary evidence of other
actions taken by the shareholders and Board of Directors of the
Company through March 18, 1996;
(d) Specimen of the certificate for the Company's Series A
Preferred Stock, Common Stock and Warrants;
(e) The form of Warrant Agreement between the Company and
American Stock Transfer and Trust Company, as filed as an exhibit to
the Registration Statement.
Additionally, we have consulted with officers and directors
of the Company and have obtained such representations from such
persons with respect to matters of fact as we deem necessary or
advisable.
Based on the forgoing and on all other instruments,
documents and matters examined and necessary for the rendering of
this opinion, we are of the opinion that, subject to the filing with
the Secretary of State of Delaware of a certificate designating the
terms of the Preferred Stock, and to the effectiveness of the
Registration Statement with the SEC, and to registration or
qualification under the securities laws of the states in which the
Shares may be sold as of the date hereof:
(1) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Delaware;
(2) The shares registered pursuant to the Registration
Statement have been duly and validly authorized for issuance by
action of the Board of Directors of the Company, and will, when sold,
be legally issued, fully paid, and non-assessable.
(3) A sufficient number of shares of Preferred Stock has
been duly authorized and has been reserved for issuance upon exercise
of the Class A Warrants and, when issued and paid for, will be duly
and validly issued, fully paid and non-assessable.
(4) A sufficient number of shares of Common Stock has been
duly authorized and has been reserved for issuance upon conversion of
the Series A Preferred Stock and, when issued and paid for, will be
duly and validly issued, fully paid and non-assessable.
(5) A sufficient number of shares of Series A Preferred
Stock has been duly authorized and has been reserved for issuance
upon exercise of the Representative's Warrants and, when issued and
paid for, will be duly and validly issued, fully paid and non-assessable.
<PAGE>
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and to the reference to us
under the caption "Legal Matters" in the prospectus constituting a
part of the Registration Statement.
Very truly yours,
BRESSLER, AMERY & ROSS
By:/s/
A Member of the Firm
RB/rk
<PAGE>
BRESSLER, AMERY & ROSS
17 State Street
New York, NY 10004
212-425-9300 (phone)
212-425-9337 (fax)
March 19, 1996
MicroENERGY, Inc.
350 Randy Road
Carol Stream, IL 60188
Gentlemen:
We have acted as counsel for MicroENERGY, Inc., a Delaware
corporation (the "Company") in connection with the registration
statement on Form SB-2 (No. 33- ) filed by the Company under the
Securities Act of 1933 with respect to the offering of 430,000 shares
of Series A Preferred Stock, $.01 par value, and 215,000 Class A
Preferred Stock Purchase Warrants, all being issued and sold by the
Company as set forth in the Registration Statement.
We have examined such documents, records and other
instruments that we deemed necessary as a basis for the opinion set
forth below. In rendering this opinion letter, we have assumed that
factual statements and information contained in the Registration
Statement and other documents, records and instruments supplied to us
are correct.
Based upon the Internal Revenue Code of 1986, as amended
(the "Code"), the Treasury Regulations issued thereunder, Internal
Revenue Service ("IRS") Rulings and the relevant case law, as of the
date hereof, and on the facts and assumptions set forth above, and
the documents, records and other instruments we have reviewed, the
information in the prospectus forming a part of the Registration
Statement (the "Prospectus"), under the caption "Certain Federal
Income Tax Considerations to Investors", represents our opinion of
the material federal income tax consequences of acquiring, holding
and disposing of the securities being offered, based on the law as it
exists on the date hereof.
This opinion letter is based upon our analysis of the code,
the Treasury Regulations, IRS Rulings and case law which we deem
relevant as of the date hereof. No assurances can be given that
there will not be a change in the existing law or that the IRS will
not alter its present views, either prospectively or retroactively,
or adopt new views with regard to any of the matters upon which we
are rendering this opinion letter.
<PAGE>
We hereby consent to the filing of this opinion letter as a
exhibit to the Registration Statement and to the reference to us
under the caption "Certain Federal Income Tax consequences to
Investors" in the Prospectus.
Very truly yours,
BRESSLER, AMERY & ROSS
By:/s/
A Member of the Firm
RB/rk
<PAGE>
AMENDMENT TO AGREEMENT
This Amendment is made effective the 31st day of January, 1996, and
amends the Amendment to Agreement entered into among NCR Corporation,
now known as AT&T Global Information Systems (AT&T), and MicroEnergy,
Inc. (MEI), Gatza and Fanella on October 22, 1992.
WHEREAS, AT&T and MEI have also agreed on terms to extend the time
for repayment of MEI's debt to AT&T; (1) evidenced by the Promissory
Notes dated September 28, 1992; (2) evidenced by the Promissory Notes
dated July 1, 1991 delivered in conjunction with the Asset Purchase
Agreement; and (3) arising under the Asset Purchase Agreement for an
adjustment to the price paid by MEI to AT&T for inventory
(collectively the "Notes').
Whereas, AT&T and MEI agree that the outstanding balance owed to AT&T
for the Notes by MEI as of December 15, 1995, the effective date of
this amendment, is $2,332,495.
It is THEREFORE agreed by AT&T and MEI:
1. Full payment of Notes.
a. MEI is to pay to AT&T within 120 days of the effective date
of this agreement, $1,332,000.00 in full and final payment for all
Notes owed to AT&T.
b. If MEI fails to make payment by April 15, 1996, the following
payment by the noted date will be required to make full and final
payment:
if paid by amount
April 30, 1996 $1,336,000.00
May 15, 1996 1,340,000.00
May 30, 1996 1,344,000.00
c. AT&T will release all liens and mark said Notes paid upon
verified receipt of the funds.
2. October 22, 1992 Amendment to Agreement remains in effect.
Except as stated in this Amendment, the terms of the October 22, 1992
Agreement remain in full force and effect.
3. September 20, 1994 Amendment to Agreement remains in effect.
Except as stated in this Amendment, the terms of the September 20,
1994 Amendment to Agreement remain in full force and effect.
4. If payment is not made by MEI per this Amendment to Agreement,
then payments due under the prior agreements will be paid current and
payments will resume under the terms of the Amendment to Agreement
dated September 20, 1994.
5. This amendment supersedes all discussions, correspondence and
representations, and constitutes the entire agreement, associated
with its subject matter.
IN WITNESS WHEREOF, the parties have signed this Amendment as of the
date shown below.
Micro Energy, Inc. AT&T Global Information
Solutions Company
By: By:
Its: Its:
Date: Date:
Robert G. Gatza
Date:
Robert J. Fanella
Date:
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT - ROBERT G. GATZA
AGREEMENT made as of the 1st day of February, 1996 by and
between MicroEnergy, Inc., a Delaware corporation with offices at 350
Randy Road, Carol Stream, Illinois 60188 (the "Company"), and Robert
G. Gatza, residing at 22 W. 309 Elmwood Drive, Glen Ellyn, Illinois
60137 ("Executive").
WHEREAS, the Executive has served the Company as an
executive officer for over eleven years and has performed good and
valuable services, and the continued services of the Executive are
essential to the future prosperity of the Company; and
WHEREAS, the Company desires to assure the continued
services of the Executive, and to provide the Executive with
assurance of compensation and terms of employment which will retain,
and competitively motivate the Executive.
NOW, THEREFORE, in consideration of the mutual promises and
covenants hereinafter set forth, the parties hereto, intending to be
legally bound, agree as follows:
1. Revocation of Prior Employment Agreement. That certain
Executive Employment Agreement dated as of December 2, 1991 between
the Company and Executive, together with all modifications and
extensions thereof, is hereby revoked.
2. Employment. The Company hereby employs Executive to
perform those duties generally described in this Agreement, and
Executive hereby accepts such employment upon the terms and
conditions hereinafter set forth.
3. Term.
(a) The term of this Agreement shall commence on the date
hereof and continue for a period of four (4) years. The period
during which Executive is employed hereunder is referred to herein as
the "Employment Period".
(b) Within sixty (60) days after each anniversary of the
date of this Agreement, the Company's Board of Directors shall
consider and act upon a proposal to offer to the Executive a
modification of this Agreement extending the term of the Agreement by
one (1) year.
4. Duties. Executive is hereby employed as President and
Chief Executive Officer of the Company. Executive's powers and
duties shall be determined by the Board of Directors ("Board"), in
accordance with the Company's By-Laws and consistent with the
capacity in which Executive serves. Executive agrees to serve as a
member of the Board of Directors of the Company for no additional
compensation. During the Employment Period, Executive shall devote
substantially all of Executive's normal business time, attention and
energies to the performance of Executive's duties, and faithfully and
diligently serve and further the interests of the Company according
to the best of Executive's ability.
5. Compensation.
(a) Salary. For all services rendered to the Company by
Executive during the term of this Agreement, the Company shall pay
Executive an annual salary at a rate which will be determined by the
Board of Directors from time to time but which shall be no less in
any fiscal year than the average of the salaries paid to the
Executive during the two preceding fiscal years. Executive's salary
shall be payable in equal installments and at the same time and
frequency as other employees of the Company are paid. All salary
payments shall be subject to withholding and other applicable taxes.
(b) Benefits. Executive shall be entitled to receive such
health, medical, disability and life insurance benefits as are made
available to executive employees of the Company.
(c) Vacations. Executive shall be entitled to four weeks
paid vacation and three weeks paid sick leave during each calendar
year of the Employment Period.
(d) Reimbursement of Expenses. Executive shall be entitled
to reimbursement of all reasonable business expenses actually
incurred by Executive in the discharge of Executive's duties
hereunder, including expenses for entertainment, travel, attendance
at conventions, employee training and similar items, upon submission
to the Company with satisfactory documentation thereof.
(e) Automobile. The Company acknowledges that Executive
will require the use of an automobile to effectively discharge his
duties hereunder. Accordingly, the Company agrees to provide
Executive with an automobile suitable for the performance of such
duties and to pay all maintenance, repair, insurance and other costs
and charges in connection therewith. Alternatively, at the option of
the Company, it may provide Executive with an automobile allowance in
an amount of up to $800 per month as required to compensate Executive
for the use of his personal automobile for business purposes.
6. Termination of Employment.
(a) Termination for Cause. The Company may terminate this
Agreement, without liability, for "Cause" (as defined below) by
delivering to Executive fourteen (14) days' advance written notice of
termination setting forth the reasons for such termination. As used
herein, the term "Cause" shall mean only the following: (i)
material, willful or gross misconduct by Executive in the performance
of his duties hereunder; (ii) the failure by Executive to perform or
observe any substantial lawful obligation of such employment (which
failure is likely to have a material adverse effect on the Company)
that is not remedied within fifteen (15) days after the receipt of
written notice thereof from the Board of Directors (provided such
neglect or failure is unrelated to disability); or (iii) a final
non-appealable conviction of or a plea of guilty or nolo contendere by
Executive to any felony or misdemeanor involving fraud, embezzlement,
theft or dishonesty. Upon delivery of such notice of termination,
all obligations of the Company hereunder shall cease. Executive
shall have the right to purchase from the Company any life or other
insurance policies carried by the Company for the benefit of
Executive at a price equal to the interpolated terminal reserve value
of such policies. In addition, the Company shall provide Executive
with the same insurance coverage, or access to insurance coverage,
required by "COBRA" regardless of whether the Company is legally
required to provide such coverage on the termination date of
Executive's employment.
(b) By Death. This Agreement shall terminate automatically
upon the death of Executive, and all obligations of the Company
hereunder, other than those set forth in Section 6(d) below, shall
cease.
(c) By Disability. If, in the discretion of the Company's
Board of Directors, Executive shall be prevented from properly
performing his duties hereunder by reason of any physical or mental
incapacity for a period of more than one hundred twenty (120)
consecutive calendar days in any twelve-month period, then, to the
extent permitted by law, the Board of Directors may terminate this
Agreement by delivery of thirty (30) days' advance written notice of
termination. Thirty (30) days' following delivery of such notice of
termination, all obligations of the Company hereunder, other than
those set forth in Section 6(d) below, shall cease.
(d) In the event of a termination of this Agreement by
reason of the death or disability of the Executive, the Company will
pay to the Executive or his estate an amount equal to the product of
(i) the aggregate compensation paid to the Executive during the
twelve months preceding termination multiplied by (ii) the number of
full and partial years remaining in the term of this Agreement.
Payment shall be made in equal installments through the term which
would have remained in the Agreement but for the termination, and at
the same time and frequency as employees of the Company are paid.
7. Proprietary Information/Covenant Not to Compete.
(a) Defined. "Proprietary Information" is all information
and any ideas in whatever form, tangible or intangible, pertaining in
any manner to the business of the Company, its parents or
subsidiaries unless (i) the information is or becomes publicly known
through lawful means, or (ii) the information is disclosed to Execu-
tive without confidential or proprietary restriction by a third party
who rightfully possesses the information (without confidential or
proprietary restriction) and did not learn of it, directly or
indirectly, from the Company.
(b) General Restrictions On Use. Executive agrees to hold
all Proprietary Information in confidence and not to, directly or
indirectly, disclose, use, copy, publish, summarize or remove from
the Company's premises any Proprietary Information (or remove from
the Company's premises any other property of the Company), except (i)
during the term of this Agreement to the extent necessary to carry
out Executive's responsibilities under this Agreement, and (ii) after
termination of this Agreement as specifically authorized in writing
by the Board of Directors.
(c) Interference with Business: Competitive Activities.
Executive acknowledges that the pursuit of the activities forbidden
by this Section 7(c) would necessarily involve the use or disclosure
of Proprietary Information in breach of Section 7(b), but that proof
of such breach would be extremely difficult. To forestall such
disclosure, use, or breach, and in consideration of the employment
under this Agreement, Executive agrees that for a period of one (1)
year after termination of this Agreement, Executive shall not, for
Executive or any third party, directly or indirectly divert or
attempt to divert from the Company any business of any kind in which
it is engaged, including, without limitation, the solicitation of or
interference with any of its suppliers or customers, unless Executive
can prove that any action taken in contravention of this Section 7(c)
was done without the use in any way of Proprietary Information.
(d) Covenant Not to Compete. Executive agrees that for a
period of one year subsequent to the termination of this Agreement,
he will not, directly or indirectly, provide services to any
business, corporation or other entity that:
(i) provides services or products which are competitive
with the services or products provided by the Company to past,
present or prospective customers of the Company;
(ii) competes with the services or products provided by
the Company in any geographic market; or
(iii) is undertaking entry into a geographic market that
is competitive with the markets of the Company.
The covenants contained in this paragraph shall be
construed as a series of separate covenants, one for each state in
the United States of America and one for each country outside the
United States of America. Except for geographical coverage, each
separate covenant shall be deemed identical in its terms. If in any
judicial proceeding, a court shall refuse to enforce any of the
separate covenants deemed included in this paragraph, the
unenforceable covenant shall be deemed eliminated from this paragraph
for the purpose of that proceeding and to the extent necessary to
permit the remaining separate covenants (meaning the covenants with
respect to the remaining geographical areas) to be enforced. The
provisions of this paragraph shall not be construed as restricting
Executive's right to own shares or other equity interests in any
corporation or association provided that Executive does not perform
services for, or participate in any way in the management of such
entity in violation of the provisions of this paragraph and that
Executive owns five percent (5%) or less of the equity of any such
business or association. The provisions of this paragraph shall
survive the termination of this Agreement for a period of one year.
(e) Remedies. Nothing in this Section 7 is intended to
limit any remedy of the Company otherwise available under law.
8. Consent to Injunctive Relief. Executive hereby
specifically acknowledges that monetary damages to the Company for
the breach of Section 7 hereof may be difficult to determine and/or
inadequate to compensate the Company for a breach thereof and hereby
agrees that in the event of any breach by Executive of such
provisions, the Company, in addition to any other remedies it may
have under the terms of this Agreement or at law, shall have the
right to bring an action in equity for an injunction against the
breach or threatened breach of such obligations. The provisions of
this paragraph shall survive the termination of this Agreement.
9. Indemnification. The Company shall indemnify Executive
to the fullest extent authorized by the Delaware Corporation Law.
The Company shall use its best efforts to obtain coverage for
Executive under any insurance policy now in force or hereinafter
obtained during the term of this Agreement insuring officers and
directors of the Company against such liability; provided that the
Company shall not be required to obtain such coverage in the event
the Board of Directors determines that the cost of such insurance is
prohibitive in relation to the Company's available working capital.
10. Notices. Any notice or other written instrument
required or permitted to be given, made or sent hereunder shall be in
writing, signed by the party giving or making the same, and shall be
sent by registered or certified mail or through courier delivery
service to the other party hereto at his or its respective address
hereinabove set forth. Any party hereto shall have the right to
change the place to which any such notice or writing shall be sent by
a similar notice sent in like manner to the other party hereto.
11. Waiver of Breach. The waiver by the Company of a
breach by Executive of any provision of this Agreement shall not
operate or be construed as a waiver of any subsequent breach by
Executive. No waiver shall be valid unless in writing and signed by
an authorized officer of the Company.
12. Assignment. The Company and Executive acknowledge
that the relationship established hereby is unique and personal and
that neither the Company nor Executive may assign or delegate any of
their respective rights and/or obligations hereunder without the
prior written consent of the other party except as follows:
In the event of a future disposition of (or including) the
properties and business of the Company, substantially as an entirety,
by merger, consolidation, sale of assets, or otherwise, then the
Company shall be obligated to assign this Agreement and all of its
rights and obligations hereunder to the acquiring or surviving
corporation, and such acquiring or surviving corporation shall assume
in writing all of the obligations of the Company hereunder; provided,
however, that the Company (in the event and so long as it remains in
business as an independent going enterprise) shall remain liable for
the performance of its obligations hereunder in the event of a
failure of the acquiring corporation to perform its obligations under
this Agreement.
13. Severability. The invalidity or unenforceability of
any provision hereof shall in no way affect the validity or enforce-
ability of any other provision.
14. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original.
15. Governing Law. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of Illinois.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.
MICROENERGY, INC.
By:
Robert J. Fanella
Executive Vice President
EXECUTIVE:
ROBERT G. GATZA
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT - ROBERT J. FANELLA
AGREEMENT made as of the 1st day of February, 1996 by and
between MicroEnergy, Inc., a Delaware corporation with offices at 350
Randy Road, Carol Stream, Illinois 60188 (the "Company"), and Robert
J. Fanella, residing at 220 Regent, Glen Ellyn, Illinois 60137
("Executive").
WHEREAS, the Executive has served the Company as an
executive officer for over eleven years and has performed good and
valuable services, and the continued services of the Executive are
essential to the future prosperity of the Company; and
WHEREAS, the Company desires to assure the continued
services of the Executive, and to provide the Executive with
assurance of compensation and terms of employment which will retain,
and competitively motivate the Executive.
NOW, THEREFORE, in consideration of the mutual promises and
covenants hereinafter set forth, the parties hereto, intending to be
legally bound, agree as follows:
1. Revocation of Prior Employment Agreement. That certain
Executive Employment Agreement dated as of December 2, 1991 between
the Company and Executive, together with all modifications and
extensions thereof, is hereby revoked.
2. Employment. The Company hereby employs Executive to
perform those duties generally described in this Agreement, and
Executive hereby accepts such employment upon the terms and
conditions hereinafter set forth.
3. Term.
(a) The term of this Agreement shall commence on the date
hereof and continue for a period of four (4) years. The period
during which Executive is employed hereunder is referred to herein as
the "Employment Period".
(b) Within sixty (60) days after each anniversary of the
date of this Agreement, the Company's Board of Directors shall
consider and act upon a proposal to offer to the Executive a
modification of this Agreement extending the term of the Agreement by
one (1) year.
4. Duties. Executive is hereby employed as Executive Vice
President and Chief Financial Officer of the Company. Executive's
powers and duties shall be determined by the Board of Directors
("Board"), in accordance with the Company's By-Laws and consistent
with the capacity in which Executive serves. Executive agrees to
serve as a member of the Board of Directors of the Company for no
additional compensation. During the Employment Period, Executive
shall devote substantially all of Executive's normal business time,
attention and energies to the performance of Executive's duties, and
faithfully and diligently serve and further the interests of the
Company according to the best of Executive's ability.
5. Compensation.
(a) Salary. For all services rendered to the Company by
Executive during the term of this Agreement, the Company shall pay
Executive an annual salary at a rate which will be determined by the
Board of Directors from time to time but which shall be no less in
any fiscal year than the average of the salaries paid to the
Executive during the two preceding fiscal years. Executive's salary
shall be payable in equal installments and at the same time and
frequency as other employees of the Company are paid. All salary
payments shall be subject to withholding and other applicable taxes.
(b) Benefits. Executive shall be entitled to receive such
health, medical, disability and life insurance benefits as are made
available to executive employees of the Company.
(c) Vacations. Executive shall be entitled to four weeks
paid vacation and three weeks paid sick leave during each calendar
year of the Employment Period.
(d) Reimbursement of Expenses. Executive shall be entitled
to reimbursement of all reasonable business expenses actually
incurred by Executive in the discharge of Executive's duties
hereunder, including expenses for entertainment, travel, attendance
at conventions, employee training and similar items, upon submission
to the Company with satisfactory documentation thereof.
(e) Automobile. The Company acknowledges that Executive
will require the use of an automobile to effectively discharge his
duties hereunder. Accordingly, the Company agrees to provide
Executive with an automobile suitable for the performance of such
duties and to pay all maintenance, repair, insurance and other costs
and charges in connection therewith. Alternatively, at the option of
the Company, it may provide Executive with an automobile allowance in
an amount of up to $800 per month as required to compensate Executive
for the use of his personal automobile for business purposes.
6. Termination of Employment.
(a) Termination for Cause. The Company may terminate this
Agreement, without liability, for "Cause" (as defined below) by
delivering to Executive fourteen (14) days' advance written notice of
termination setting forth the reasons for such termination. As used
herein, the term "Cause" shall mean only the following: (i)
material, willful or gross misconduct by Executive in the performance
of his duties hereunder; (ii) the failure by Executive to perform or
observe any substantial lawful obligation of such employment (which
failure is likely to have a material adverse effect on the Company)
that is not remedied within fifteen (15) days after the receipt of
written notice thereof from the Board of Directors (provided such
neglect or failure is unrelated to disability); or (iii) a final
non-appealable conviction of or a plea of guilty or nolo contendere by
Executive to any felony or misdemeanor involving fraud, embezzlement,
theft or dishonesty. Upon delivery of such notice of termination,
all obligations of the Company hereunder shall cease. Executive
shall have the right to purchase from the Company any life or other
insurance policies carried by the Company for the benefit of
Executive at a price equal to the interpolated terminal reserve value
of such policies. In addition, the Company shall provide Executive
with the same insurance coverage, or access to insurance coverage,
required by "COBRA" regardless of whether the Company is legally
required to provide such coverage on the termination date of
Executive's employment.
(b) By Death. This Agreement shall terminate automatically
upon the death of Executive, and all obligations of the Company
hereunder, other than those set forth in Section 6(d) below, shall
cease.
(c) By Disability. If, in the discretion of the Company's
Board of Directors, Executive shall be prevented from properly
performing his duties hereunder by reason of any physical or mental
incapacity for a period of more than one hundred twenty (120)
consecutive calendar days in any twelve-month period, then, to the
extent permitted by law, the Board of Directors may terminate this
Agreement by delivery of thirty (30) days' advance written notice of
termination. Thirty (30) days' following delivery of such notice of
termination, all obligations of the Company hereunder, other than
those set forth in Section 6(d) below, shall cease.
(d) In the event of a termination of this Agreement by
reason of the death or disability of the Executive, the Company will
pay to the Executive or his estate an amount equal to the product of
(i) the aggregate compensation paid to the Executive during the
twelve months preceding termination multiplied by (ii) the number of
full and partial years remaining in the term of this Agreement.
Payment shall be made in equal installments through the term which
would have remained in the Agreement but for the termination, and at
the same time and frequency as employees of the Company are paid.
7. Proprietary Information/Covenant Not to Compete.
(a) Defined. "Proprietary Information" is all information
and any ideas in whatever form, tangible or intangible, pertaining in
any manner to the business of the Company, its parents or
subsidiaries unless (i) the information is or becomes publicly known
through lawful means, or (ii) the information is disclosed to Execu-
tive without confidential or proprietary restriction by a third party
who rightfully possesses the information (without confidential or
proprietary restriction) and did not learn of it, directly or
indirectly, from the Company.
(b) General Restrictions On Use. Executive agrees to hold
all Proprietary Information in confidence and not to, directly or
indirectly, disclose, use, copy, publish, summarize or remove from
the Company's premises any Proprietary Information (or remove from
the Company's premises any other property of the Company), except (i)
during the term of this Agreement to the extent necessary to carry
out Executive's responsibilities under this Agreement, and (ii) after
termination of this Agreement as specifically authorized in writing
by the Board of Directors.
(c) Interference with Business: Competitive Activities.
Executive acknowledges that the pursuit of the activities forbidden
by this Section 7(c) would necessarily involve the use or disclosure
of Proprietary Information in breach of Section 7(b), but that proof
of such breach would be extremely difficult. To forestall such
disclosure, use, or breach, and in consideration of the employment
under this Agreement, Executive agrees that for a period of one (1)
year after termination of this Agreement, Executive shall not, for
Executive or any third party, directly or indirectly divert or
attempt to divert from the Company any business of any kind in which
it is engaged, including, without limitation, the solicitation of or
interference with any of its suppliers or customers, unless Executive
can prove that any action taken in contravention of this Section 7(c)
was done without the use in any way of Proprietary Information.
(d) Covenant Not to Compete. Executive agrees that for a
period of one year subsequent to the termination of this Agreement,
he will not, directly or indirectly, provide services to any
business, corporation or other entity that:
(i) provides services or products which are competitive
with the services or products provided by the Company to past,
present or prospective customers of the Company;
(ii) competes with the services or products provided by
the Company in any geographic market; or
(iii) is undertaking entry into a geographic market that
is competitive with the markets of the Company.
The covenants contained in this paragraph shall be
construed as a series of separate covenants, one for each state in
the United States of America and one for each country outside the
United States of America. Except for geographical coverage, each
separate covenant shall be deemed identical in its terms. If in any
judicial proceeding, a court shall refuse to enforce any of the
separate covenants deemed included in this paragraph, the
unenforceable covenant shall be deemed eliminated from this paragraph
for the purpose of that proceeding and to the extent necessary to
permit the remaining separate covenants (meaning the covenants with
respect to the remaining geographical areas) to be enforced. The
provisions of this paragraph shall not be construed as restricting
Executive's right to own shares or other equity interests in any
corporation or association provided that Executive does not perform
services for, or participate in any way in the management of such
entity in violation of the provisions of this paragraph and that
Executive owns five percent (5%) or less of the equity of any such
business or association. The provisions of this paragraph shall
survive the termination of this Agreement for a period of one year.
(e) Remedies. Nothing in this Section 7 is intended to
limit any remedy of the Company otherwise available under law.
8. Consent to Injunctive Relief. Executive hereby
specifically acknowledges that monetary damages to the Company for
the breach of Section 7 hereof may be difficult to determine and/or
inadequate to compensate the Company for a breach thereof and hereby
agrees that in the event of any breach by Executive of such
provisions, the Company, in addition to any other remedies it may
have under the terms of this Agreement or at law, shall have the
right to bring an action in equity for an injunction against the
breach or threatened breach of such obligations. The provisions of
this paragraph shall survive the termination of this Agreement.
9. Indemnification. The Company shall indemnify Executive
to the fullest extent authorized by the Delaware Corporation Law.
The Company shall use its best efforts to obtain coverage for
Executive under any insurance policy now in force or hereinafter
obtained during the term of this Agreement insuring officers and
directors of the Company against such liability; provided that the
Company shall not be required to obtain such coverage in the event
the Board of Directors determines that the cost of such insurance is
prohibitive in relation to the Company's available working capital.
10. Notices. Any notice or other written instrument
required or permitted to be given, made or sent hereunder shall be in
writing, signed by the party giving or making the same, and shall be
sent by registered or certified mail or through courier delivery
service to the other party hereto at his or its respective address
hereinabove set forth. Any party hereto shall have the right to
change the place to which any such notice or writing shall be sent by
a similar notice sent in like manner to the other party hereto.
11. Waiver of Breach. The waiver by the Company of a
breach by Executive of any provision of this Agreement shall not
operate or be construed as a waiver of any subsequent breach by
Executive. No waiver shall be valid unless in writing and signed by
an authorized officer of the Company.
12. Assignment. The Company and Executive acknowledge
that the relationship established hereby is unique and personal and
that neither the Company nor Executive may assign or delegate any of
their respective rights and/or obligations hereunder without the
prior written consent of the other party except as follows:
In the event of a future disposition of (or including) the
properties and business of the Company, substantially as an entirety,
by merger, consolidation, sale of assets, or otherwise, then the
Company shall be obligated to assign this Agreement and all of its
rights and obligations hereunder to the acquiring or surviving
corporation, and such acquiring or surviving corporation shall assume
in writing all of the obligations of the Company hereunder; provided,
however, that the Company (in the event and so long as it remains in
business as an independent going enterprise) shall remain liable for
the performance of its obligations hereunder in the event of a
failure of the acquiring corporation to perform its obligations under
this Agreement.
13. Severability. The invalidity or unenforceability of
any provision hereof shall in no way affect the validity or enforce-
ability of any other provision.
14. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original.
15. Governing Law. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of Illinois.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.
MICROENERGY, INC.
By:
Robert G. Gatza
President
EXECUTIVE:
ROBERT J. FANELLA
<PAGE>
FINANCIAL CONSULTING AGREEMENT
Agreement made this ___ day of ________, 1996 by and between
I.A. Rabinowitz & Co. ("Consultant") and MicroEnergy, Inc. (the
"Company").
WHEREAS, the Company desires to obtain Consultant's
consulting services in connection with the Company's business and
financial affairs, and Consultant is willing to render such services as
hereinafter more fully set forth.
NOW, THEREFORE, the parties hereby agree as follows:
1. The Company hereby engages and retains Consultant and
Consultant hereby agrees to use its best efforts, to render to the
Company the consulting services hereinafter described for a period of
two years commencing as of, and conditioned upon, the closing of the
underwriting contemplated in the Registration Statement on Form SB-2,
No. 33-_____, declared effective by the Securities and Exchange
Commission on __________________.
2. Consultant's services hereunder shall consist of
consultations with the Company concerning investment banking and other
financial matters to be determined by the Company.
3. The Company agrees that Consultant shall not be
precluded during the term of this Agreement from providing other
consulting services or engaging in any other business activities
whether or not such consulting services or business activities are
pursued for gain, profit or other pecuniary advantage and whether or
not such consulting activities are in direct or indirect competition
with the business activities of the Company.
4. The Company agrees to pay to Consultant for its services
hereunder the sum of Twenty Four Thousand Dollars ($24,000) per year
for each of the two years of the term of this Agreement. The Company
agrees that the entire sum due to Consultant hereunder, Forty Eight
Thousand Dollars ($48,000), shall be paid in full on the date hereof.
5. Consultant shall be entitled to reimbursement by the
Company of such reasonable out-of-pocket expenses as Consultant may
incur in performing services under this Agreement.
6. All final decisions with respect to consultations or
services rendered by Consultant pursuant to this Agreement shall be
those of the Company, and there shall be no liability on the part of
the Consultant in respect thereof. This Agreement and the Underwriting
Agreement dated __________________, 1996 contain the entire agreement
of the parties hereto with respect to the subject matter hereof, and
there are no representations or warranties other than as shall be
herein or therein set forth. No waiver or modification hereof shall be
valid unless in writing. No waiver of any term, provision or condition
of this Agreement, in any one or more instance, shall constitute a
waiver of any other provision thereof, whether or not similar, nor
shall such waiver constitute a continuing waiver.
7. This Agreement shall be governed, construed and enforced
in accordance with the laws of the State of New York, without regard to
the principals of conflicts of laws.
IN WITNESS WHEREOF, the parties hereto have caused the
agreement to be signed as of the day and year first above written.
MICROENERGY, INC.
By:____________________________
Name:
Title:
I.A. RABINOWITZ & CO.
By:___________________________
Name:
Title:
<PAGE>
MICROENERGY, INC.
Series A Cumulative Convertible Preferred Stock
SUBSCRIPTION AGREEMENT
WHEREAS, Microenergy, Inc. (the "Company") entered into a
certain agreement with AT&T Global Information Systems ("AT&T") under
which the Company became liable for the payment of $2,332,495 (the
"Debt") to AT&T;
WHEREAS, on January 31, 1996, AT&T agreed to accept a payment of
$1,330,000 (the "Discounted Payment") in full satisfaction of the
Debt conditioned on AT&T receiving the Discounted Payment no later
than May 31, 1996;
WHEREAS, the Company desires to deliver the Discounted Payment
to AT&T prior to May 31, 1996 in order to fully satisfy the Debt;
WHEREAS, to partly finance the Discounted Payment, the Company
will borrow approximately $800,000 (the "Commercial Loans") from
certain commercial lenders;
WHEREAS, the commercial lenders require that certain officers
and directors of the Company personally guarantee the Company's
obligations under the Commercial Loans;
WHEREAS, Robert G. Gatza ("Gatza"), who is President, Chief
Executive Officer and director of the Company, and Robert J. Fanella
("Fanella"), who is Vice President, Chief Financial Officer and
director of the Company have agreed to personally guarantee up to
$800,000 of the Company's obligations arising under the Commercial
Loans;
WHEREAS, to further finance the Discounted Payment, the Company
desires to obtain, on demand, an aggregate contribution of $250,000
from Gatza and Fanella;
WHEREAS, in exchange for their personal guarantees and
contributions, the Company desires to issue shares of Series A
Cumulative Convertible Preferred Stock ("Preferred Stock") to Gatza
and Fanella;
WHEREAS, the number of authorized shares of Preferred Stock
available for issuance by the Company is presently 31;
WHEREAS, the board of directors of the Company has resolved to
amend its certificate of incorporation to provide for an increase in
the number of authorized shares of Preferred Stock; and
WHEREAS, the shareholders of the Company have not yet approved
the amendment to the certificate of incorporation.
NOW, THEREFORE, in consideration of the mutual promises and
covenants hereinafter set forth, the parties hereto, intending to be
legally bound, agree as follows:
1. SUBSCRIPTION. The undersigned hereby makes application to
purchase shares of Series A Cumulative Convertible Preferred Stock
("Preferred Stock") in the following manner.
(a) If, within 180 days of this Subscription Agreement, the
certificate of incorporation is amended to increase the number of
authorized shares of Preferred Stock to 350,000 or more, the
undersigned will purchase 175,000 shares of Preferred Stock of the
Company.
(b) If, within 180 days of this Subscription Agreement, the
certificate of incorporation is not amended to increase the number of
authorized shares of Preferred Stock to 350,000 or more, the
undersigned will purchase 14 shares of Preferred Stock of the
Company.
2. REPRESENTATIONS OF SUBSCRIBER. The undersigned subscriber
represents and warrants to the Company as follows:
(a) The subscriber is an "Accredited Investor," as defined in
the Rules of the Securities and Exchange Commission ("SEC").
(b) The undersigned recognizes that the Preferred Stock has
neither been registered under the Securities Act of 1933, as amended
(the "Act"), nor under the securities laws of any state, and,
therefore, cannot be resold unless the Preferred Stock is registered
under the Act or unless an exemption from registration is available.
(c) The undersigned is acquiring the Preferred Stock for his
own account for long-term investment and not with a view toward
resale, fractionalization or division, or distribution thereof, and
he does not presently have any reason to anticipate any change in his
circumstances, financial or otherwise, or any particular occasion or
event which would necessitate or require his or her sale or
distribution of the Preferred Stock. No one other than the
undersigned has any beneficial interest in any of the Preferred
Stock;
3. REPRESENTATIONS BY THE COMPANY. The Company represents and
warrants to the undersigned subscriber that:
(a) If the undersigned purchases 175,000 shares of Preferred
Stock pursuant to paragraph 1(a) of this Subscription Agreement, each
share of Preferred Stock will give the holder those rights set forth
on Schedule A attached hereto.
(b) If the undersigned purchases 14 shares of Preferred Stock
pursuant to paragraph 1(b) of this Subscription Agreement, each share
of Preferred Stock will give the holder those rights set forth on
Schedule B attached hereto.
4. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
5. PURCHASE PRICE. The undersigned hereby subscribes to
purchase the number of shares of Preferred Stock set forth in either
paragraph 1(a) or 1(b), whichever is applicable, in exchange for the
following:
(a) The undersigned's execution and delivery of a non-interest
bearing demand note in favor of the Company in the face amount of
$125,000; and
(b) The undersigned's personal guarantee, in the aggregate
amount of $800,000, of the Company's obligations arising under the
Commercial Loans. In order to memorialize such guarantee, the
undersigned agrees to execute and deliver all documents and
instruments required by any commercial lender in connection with the
Commercial Loans.
6. SUBSCRIPTION. This Subscription Agreement is executed
as of this 1st day of February, 1996 and shall bind the parties
hereto and their respective heirs, executors, administrators,
distributees, successors and assigns.
Robert G. Gatza /s/Robert G. Gatza
Investor Signature
ACCEPTED BY THE COMPANY THIS
1ST DAY OF FEBRUARY, 1996
MICROENERGY, INC.
BY:
Robert J. Fanella
Executive Vice President
<PAGE>
SCHEDULE A
Series A Cumulative Convertible Preferred Stock
The Board of Directors of the Company has designated the follow-
ing rights, privileges and preferences for the Series A Cumulative
Convertible Preferred Stock ("Preferred Stock").
1. Dividend Rights
Holders of shares of Preferred Stock are entitled to receive,
out of the assets of the Company legally available for the payment of
dividends, dividends payable semi-annually on the 1st day of each
January and July after issuance at the rate of $.40 per annum per
share. Dividends upon the Preferred Stock are cumulative and accrue
from the date of original issue. No cash dividend may be declared and
paid or set apart for payment upon the Common Stock until any past
quarterly dividend on any outstanding series of Preferred Stock has
been fully paid or declared and set apart for payment.
At the Company's option, the Company may pay all or part of each
dividend in shares of Common Stock. The Common Stock so issued will
be valued based on 100% of the average closing bid price of the
Common Stock as reported on NASDAQ (or such exchange or quotation
service as the Common Stock may be quoted on, if it ceases to be
quoted on NASDAQ) for the ten trading days before the record date for
the dividend.
2. Voting Rights
The holder of each share of Preferred Stock will be entitled to
cast one vote at any meeting of the shareholders of the Company.
3. Conversion
Each share of Preferred Stock may be voluntarily converted by
the record holder thereof into Common Stock on the terms described
below. Each share of Preferred Stock is also subject to "mandatory"
conversion into Common Stock upon the occurrence of circumstances
described below. In the event that a share of Preferred Stock is
converted into Common Stock by mandatory conversion, the holder
thereof will lose the right of voluntary conversion with respect to
that share.
(a) Voluntary Conversion. One year after the effective date of
the Company's next prospectus, each share of the Preferred Stock is
convertible, at the option of the holder thereof, into between one
and two shares of Common Stock. The number of shares of Common Stock
into which each share of Preferred Stock is convertible (the
"Voluntary Conversion Rate") will be determined on the first
anniversary of the date of said prospectus. The Voluntary Conversion
Rate will be based upon the average of the closing bid prices for the
Common Stock as reported on NASDAQ (or such exchange or quotation
service as the Common Stock may be quoted on, if it ceases to be
quoted on NASDAQ) for the twenty trading days preceding said anniver-
sary date (the "Closing Average"), as follows:
Each Share of Preferred Stock
If the Closing Will Be Convertible Into
Average is Shares of Common Stock
Over $5.50 1.00
$4.51 to $5.50 1.25
$3.50 to $4.50 1.75
Under $3.50 2.00
A holder of Preferred Stock may convert his shares to Common
Stock by surrendering to American Stock Transfer & Trust Company (the
"Exchange Agent") each certificate covering shares to be converted
together with a statement of the name or names in which the shares of
Common Stock shall be registered upon issuance. Such a notice of
election to convert shall have the effect of creating a contract
between the shareholder and the Company whereby the shareholder shall
be deemed to have agreed to surrender the shares of Preferred Stock
and to release the Company from all further obligation thereon, and
whereby the Company shall be deemed to have agreed to issue the
appropriate number of shares of Common Stock upon the surrender of
the shares of Preferred Stock. The conversion right will terminate
at the close of business of the redemption date as to any shares of
Preferred Stock being redeemed on that date.
(b) Mandatory Conversion. In the event that during the first
24 months after the first anniversary of the date of the Company's
next prospectus the closing bid price of the Company's Common Stock
exceeds $7.00 for five consecutive trading days, each share of the
Preferred Stock may, at the Company's option, be converted after the
fifth such day into one share of Common Stock (the "Mandatory
Conversion Rate"). Likewise, after the third anniversary of the date
of said prospectus, each share of the Preferred Stock may, at the
Company's option, be converted into one share of Common Stock.
Holders of the Preferred Stock will receive notice of the conversion
of their shares promptly after the conversion takes place.
(c) The following provisions apply with respect to either
Voluntary Conversion or Mandatory Conversion.
All dividends declared and unpaid up to the date of conversion
shall be paid by the Company at the time of conversion unless that
payment date has not yet occurred, in which event the dividend shall
be paid upon the payment date for such dividend set forth in the Pre-
ferred Stock certificate. Any such unpaid dividends must be paid in
full to the holder prior to the declaration and payment of any other
dividend or distribution by the Company with respect to its Common
Stock and must be paid pari passu to the holder with payment of any
other dividend or distribution by the Company with respect to the
Preferred Stock. The Company will not issue any note or other
evidence of indebtedness with respect to unpaid dividends. If the
Company does not make payment of any dividends when due, the remedy
of a Preferred Stockholder will be to undertake a legal action in a
court of competent jurisdiction.
The Voluntary Conversion Rate and the Mandatory Conversion Rate
are both subject to adjustment upon the occurrence of the following
events: the issuance of shares of Common Stock or other securities of
the Company as a dividend or distribution on shares of Common Stock
of the Company to the holders of all of its outstanding shares of
Common Stock; subdivisions, combinations, or certain
reclassifications of shares of Common Stock of the Company; or the
distribution to the holders of shares of Common Stock of the Company
generally of evidences of indebtedness or assets (excluding cash
dividends and distributions made out of current or retained earnings)
or rights, options, or warrants to subscribe for securities of the
Company other than those mentioned above. No adjustment in the
conversion rates will be required to be made with respect to the Pre-
ferred Stock until cumulative adjustments amount to one percent or
more; however, any such adjustment not required to be made will be
carried forward and taken into account in any subsequent adjustment.
In lieu of fractional shares of Common Stock, there will be paid to
the holder of the Preferred Stock at the time of conversion an amount
in cash equal to the same fraction of the current market value of a
share of Common Stock of the Company.
In the event of any consolidation with or merger of the Company
into another corporation, or sale of all or substantially all of the
properties and assets of the Company to any other corporation, or in
case of any reorganization of the Company, each share of Preferred
Stock would thereupon become convertible only into the number of
shares of stock or other securities, assets or cash to which a holder
of the number of shares of Common Stock of the Company issuable (at
the time of such consolidation, merger, sale or reorganization) upon
conversion of such share of Preferred Stock would have been entitled
upon such consolidation, merger, sale or reorganization.
4. Liquidation Preference
In the event of a voluntary or involuntary liquidation or
winding up of the Company, the holders of Preferred Stock will be
entitled to receive out of the assets of the Company available for
distribution to shareholders $5.00 per share plus all accrued and
unpaid dividends before any distribution is made to the holders of
Common Stock or any other class or series of stock ranking junior to
the Preferred Stock as to distribution of assets.
After payment of the full amount of the liquidating distribution
to which they are entitled, the holders of shares of Preferred Stock
will not be entitled to any further participation in any distribution
of assets by the Company. The foregoing liquidation rights shall not
be operative in the event of (i) any consolidation or merger of the
Company with or into any other corporation, (ii) any dissolution,
liquidation, winding up or reorganization of the Company immediately
followed by reincorporation of a successor corporation or creation of
a successor partnership or (iii) a sale or other disposition of all
or substantially all of the Company's assets to another corporation
or a partnership if, in each case, effective provision is made in the
certificate of incorporation of the resulting or surviving
corporation or the articles of partnership of the resulting
partnership or otherwise, for the protection of the rights of the
holders of the Preferred Stock.
5. Preemptive Rights
Holders of Preferred Stock shall have no preemptive right to
purchase any securities of the Company.
<PAGE>
SCHEDULE B
Series A Cumulative Convertible Preferred Stock
The Board of Directors of the Company has designated the follow-
ing rights, privileges and preferences for the Series A Cumulative
Convertible Preferred Stock ("Preferred Stock").
1. Dividend Rights
Holders of shares of Preferred Stock are entitled to receive,
out of the assets of the Company legally available for the payment of
dividends, dividends payable semi-annually on the 1st day of each
January and July after issuance at the rate of $5000 per annum.
Dividends upon the Preferred Stock are cumulative and accrue from the
date of original issue. No cash dividend may be declared and paid or
set apart for payment upon the Common Stock until any past quarterly
dividend on any outstanding series of Preferred Stock has been fully
paid or declared and set apart for payment.
At the Company's option, the Company may pay all or part of each
dividend in shares of Common Stock. The Common Stock so issued will
be valued based on 100% of the average closing bid price of the
Common Stock as reported on NASDAQ (or such exchange or quotation
service as the Common Stock may be quoted on, if it ceases to be
quoted on NASDAQ) for the ten trading days before the record date for
the dividend.
2. Voting Rights
The holder of each share of Preferred Stock will be entitled to
cast 12,500 votes at any meeting of the shareholders of the Company.
3. Conversion
Each share of Preferred Stock may be voluntarily converted by
the record holder thereof into Common Stock on the terms described
below. Each share of Preferred Stock is also subject to "mandatory"
conversion into Common Stock upon the occurrence of circumstances
described below. In the event that a share of Preferred Stock is
converted into Common Stock by mandatory conversion, the holder
thereof will lose the right of voluntary conversion with respect to
that share.
(a) Voluntary Conversion. After February 1, 1997, each share
of the Preferred Stock is convertible, at the option of the holder
thereof, into between 12,500 and 25,000 shares of Common Stock. The
number of shares of Common Stock into which each share of Preferred
Stock is convertible (the "Voluntary Conversion Rate") will be
determined on the first anniversary of the date of this Subscription
Agreement. The Voluntary Conversion Rate will be based upon the
average of the closing bid prices for the Common Stock as reported on
NASDAQ (or such exchange or quotation service as the Common Stock may
be quoted on, if it ceases to be quoted on NASDAQ) for the twenty
trading days preceding said anniversary date (the "Closing Average"),
as follows:
Each Share of Preferred Stock
If the Closing Will Be Convertible Into
Average is Shares of Common Stock
Over $5.50 12,500
$4.51 to $5.50 15,625
$3.50 to $4.50 21,875
Under $3.50 25,000
A holder of Preferred Stock may convert his shares to Common
Stock by surrendering to American Stock Transfer & Trust Company (the
"Exchange Agent") each certificate covering shares to be converted
together with a statement of the name or names in which the shares of
Common Stock shall be registered upon issuance. Such a notice of
election to convert shall have the effect of creating a contract
between the shareholder and the Company whereby the shareholder shall
be deemed to have agreed to surrender the shares of Preferred Stock
and to release the Company from all further obligation thereon, and
whereby the Company shall be deemed to have agreed to issue the
appropriate number of shares of Common Stock upon the surrender of
the shares of Preferred Stock. The conversion right will terminate
at the close of business of the redemption date as to any shares of
Preferred Stock being redeemed on that date.
(b) Mandatory Conversion. In the event that during the first
24 months after the first anniversary of the date of this
Subscription Agreement the closing bid price of the Company's Common
Stock exceeds $7.00 for five consecutive trading days, each share of
the Preferred Stock may, at the Company's option, be converted after
the fifth such day into 12,500 shares of Common Stock (the "Mandatory
Conversion Rate"). Likewise, after the third anniversary of the date
of this Subscription Agreement, each share of the Preferred Stock
may, at the Company's option, be converted into 12,500 shares of
Common Stock. Holders of the Preferred Stock will receive notice of
the conversion of their shares promptly after the conversion takes
place.
(c) The following provisions apply with respect to either
Voluntary Conversion or Mandatory Conversion.
All dividends declared and unpaid up to the date of conversion
shall be paid by the Company at the time of conversion unless that
payment date has not yet occurred, in which event the dividend shall
be paid upon the payment date for such dividend set forth in the Pre-
ferred Stock certificate. Any such unpaid dividends must be paid in
full to the holder prior to the declaration and payment of any other
dividend or distribution by the Company with respect to its Common
Stock and must be paid pari passu to the holder with payment of any
other dividend or distribution by the Company with respect to the
Preferred Stock. The Company will not issue any note or other
evidence of indebtedness with respect to unpaid dividends. If the
Company does not make payment of any dividends when due, the remedy
of a Preferred Stockholder will be to undertake a legal action in a
court of competent jurisdiction.
The Voluntary Conversion Rate and the Mandatory Conversion Rate
are both subject to adjustment upon the occurrence of the following
events: the issuance of shares of Common Stock or other securities of
the Company as a dividend or distribution on shares of Common Stock
of the Company to the holders of all of its outstanding shares of
Common Stock; subdivisions, combinations, or certain
reclassifications of shares of Common Stock of the Company; or the
distribution to the holders of shares of Common Stock of the Company
generally of evidences of indebtedness or assets (excluding cash
dividends and distributions made out of current or retained earnings)
or rights, options, or warrants to subscribe for securities of the
Company other than those mentioned above. No adjustment in the
conversion rates will be required to be made with respect to the Pre-
ferred Stock until cumulative adjustments amount to one percent or
more; however, any such adjustment not required to be made will be
carried forward and taken into account in any subsequent adjustment.
In lieu of fractional shares of Common Stock, there will be paid to
the holder of the Preferred Stock at the time of conversion an amount
in cash equal to the same fraction of the current market value of a
share of Common Stock of the Company.
In the event of any consolidation with or merger of the Company
into another corporation, or sale of all or substantially all of the
properties and assets of the Company to any other corporation, or in
case of any reorganization of the Company, each share of Preferred
Stock would thereupon become convertible only into the number of
shares of stock or other securities, assets or cash to which a holder
of the number of shares of Common Stock of the Company issuable (at
the time of such consolidation, merger, sale or reorganization) upon
conversion of such share of Preferred Stock would have been entitled
upon such consolidation, merger, sale or reorganization.
4. Liquidation Preference
In the event of a voluntary or involuntary liquidation or
winding up of the Company, the holders of Preferred Stock will be
entitled to receive out of the assets of the Company available for
distribution to shareholders $62,500.00 per share plus all accrued
and unpaid dividends before any distribution is made to the holders
of Common Stock or any other class or series of stock ranking junior
to the Preferred Stock as to distribution of assets.
After payment of the full amount of the liquidating distribution
to which they are entitled, the holders of shares of Preferred Stock
will not be entitled to any further participation in any distribution
of assets by the Company. The foregoing liquidation rights shall not
be operative in the event of (i) any consolidation or merger of the
Company with or into any other corporation, (ii) any dissolution,
liquidation, winding up or reorganization of the Company immediately
followed by reincorporation of a successor corporation or creation of
a successor partnership or (iii) a sale or other disposition of all
or substantially all of the Company's assets to another corporation
or a partnership if, in each case, effective provision is made in the
certificate of incorporation of the resulting or surviving
corporation or the articles of partnership of the resulting
partnership or otherwise, for the protection of the rights of the
holders of the Preferred Stock.
5. Preemptive Rights
Holders of Preferred Stock shall have no preemptive right to
purchase any securities of the Company.
<PAGE>
MICROENERGY, INC.
Series A Cumulative Convertible Preferred Stock
SUBSCRIPTION AGREEMENT
WHEREAS, Microenergy, Inc. (the "Company") entered into a
certain agreement with AT&T Global Information Systems ("AT&T") under
which the Company became liable for the payment of $2,332,495 (the
"Debt") to AT&T;
WHEREAS, on January 31, 1996, AT&T agreed to accept a payment of
$1,330,000 (the "Discounted Payment") in full satisfaction of the
Debt conditioned on AT&T receiving the Discounted Payment no later
than May 31, 1996;
WHEREAS, the Company desires to deliver the Discounted Payment
to AT&T prior to May 31, 1996 in order to fully satisfy the Debt;
WHEREAS, to partly finance the Discounted Payment, the Company
will borrow approximately $800,000 (the "Commercial Loans") from
certain commercial lenders;
WHEREAS, the commercial lenders require that certain officers
and directors of the Company personally guarantee the Company's
obligations under the Commercial Loans;
WHEREAS, Robert G. Gatza ("Gatza"), who is President, Chief
Executive Officer and director of the Company, and Robert J. Fanella
("Fanella"), who is Vice President, Chief Financial Officer and
director of the Company have agreed to personally guarantee up to
$800,000 of the Company's obligations arising under the Commercial
Loans;
WHEREAS, to further finance the Discounted Payment, the Company
desires to obtain, on demand, an aggregate contribution of $250,000
from Gatza and Fanella;
WHEREAS, in exchange for their personal guarantees and
contributions, the Company desires to issue shares of Series A
Cumulative Convertible Preferred Stock ("Preferred Stock") to Gatza
and Fanella;
WHEREAS, the number of authorized shares of Preferred Stock
available for issuance by the Company is presently 31;
WHEREAS, the board of directors of the Company has resolved to
amend its certificate of incorporation to provide for an increase in
the number of authorized shares of Preferred Stock; and
WHEREAS, the shareholders of the Company have not yet approved
the amendment to the certificate of incorporation.
NOW, THEREFORE, in consideration of the mutual promises and
covenants hereinafter set forth, the parties hereto, intending to be
legally bound, agree as follows:
7. SUBSCRIPTION. The undersigned hereby makes application to
purchase shares of Series A Cumulative Convertible Preferred Stock
("Preferred Stock") in the following manner.
(a) If, within 180 days of this Subscription Agreement, the
certificate of incorporation is amended to increase the number of
authorized shares of Preferred Stock to 350,000 or more, the
undersigned will purchase 175,000 shares of Preferred Stock of the
Company.
(b) If, within 180 days of this Subscription Agreement, the
certificate of incorporation is not amended to increase the number of
authorized shares of Preferred Stock to 350,000 or more, the
undersigned will purchase 14 shares of Preferred Stock of the
Company.
8. REPRESENTATIONS OF SUBSCRIBER. The undersigned subscriber
represents and warrants to the Company as follows:
(a) The subscriber is an "Accredited Investor," as defined in
the Rules of the Securities and Exchange Commission ("SEC").
(b) The undersigned recognizes that the Preferred Stock has
neither been registered under the Securities Act of 1933, as amended
(the "Act"), nor under the securities laws of any state, and,
therefore, cannot be resold unless the Preferred Stock is registered
under the Act or unless an exemption from registration is available.
(c) The undersigned is acquiring the Preferred Stock for his
own account for long-term investment and not with a view toward
resale, fractionalization or division, or distribution thereof, and
he does not presently have any reason to anticipate any change in his
circumstances, financial or otherwise, or any particular occasion or
event which would necessitate or require his or her sale or
distribution of the Preferred Stock. No one other than the
undersigned has any beneficial interest in any of the Preferred
Stock;
9. REPRESENTATIONS BY THE COMPANY. The Company represents and
warrants to the undersigned subscriber that:
(a) If the undersigned purchases 175,000 shares of Preferred
Stock pursuant to paragraph 1(a) of this Subscription Agreement, each
share of Preferred Stock will give the holder those rights set forth
on Schedule A attached hereto.
(b) If the undersigned purchases 14 shares of Preferred Stock
pursuant to paragraph 1(b) of this Subscription Agreement, each share
of Preferred Stock will give the holder those rights set forth on
Schedule B attached hereto.
10. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
11. PURCHASE PRICE. The undersigned hereby subscribes to
purchase the number of shares of Preferred Stock set forth in either
paragraph 1(a) or 1(b), whichever is applicable, in exchange for the
following:
(a) The undersigned's execution and delivery of a non-interest
bearing demand note in favor of the Company in the face amount of
$125,000; and
(b) The undersigned's personal guarantee, in the aggregate
amount of $800,000, of the Company's obligations arising under the
Commercial Loans. In order to memorialize such guarantee, the
undersigned agrees to execute and deliver all documents and
instruments required by any commercial lender in connection with the
Commercial Loans.
12. SUBSCRIPTION. This Subscription Agreement is executed
as of this 1st day of February, 1996 and shall bind the parties
hereto and their respective heirs, executors, administrators,
distributees, successors and assigns.
Robert J. Fanella /s/Robert J. Fanella
Investor Signature
ACCEPTED BY THE COMPANY THIS
1ST DAY OF FEBRUARY, 1996
MICROENERGY, INC.
BY:
Robert G. Gatza
President
<PAGE>
SCHEDULE A
Series A Cumulative Convertible Preferred Stock
The Board of Directors of the Company has designated the follow-
ing rights, privileges and preferences for the Series A Cumulative
Convertible Preferred Stock ("Preferred Stock").
1. Dividend Rights
Holders of shares of Preferred Stock are entitled to receive,
out of the assets of the Company legally available for the payment of
dividends, dividends payable semi-annually on the 1st day of each
January and July after issuance at the rate of $.40 per annum per
share. Dividends upon the Preferred Stock are cumulative and accrue
from the date of original issue. No cash dividend may be declared and
paid or set apart for payment upon the Common Stock until any past
quarterly dividend on any outstanding series of Preferred Stock has
been fully paid or declared and set apart for payment.
At the Company's option, the Company may pay all or part of each
dividend in shares of Common Stock. The Common Stock so issued will
be valued based on 100% of the average closing bid price of the
Common Stock as reported on NASDAQ (or such exchange or quotation
service as the Common Stock may be quoted on, if it ceases to be
quoted on NASDAQ) for the ten trading days before the record date for
the dividend.
2. Voting Rights
The holder of each share of Preferred Stock will be entitled to
cast one vote at any meeting of the shareholders of the Company.
3. Conversion
Each share of Preferred Stock may be voluntarily converted by
the record holder thereof into Common Stock on the terms described
below. Each share of Preferred Stock is also subject to "mandatory"
conversion into Common Stock upon the occurrence of circumstances
described below. In the event that a share of Preferred Stock is
converted into Common Stock by mandatory conversion, the holder
thereof will lose the right of voluntary conversion with respect to
that share.
(a) Voluntary Conversion. One year after the effective date of
the Company's next prospectus, each share of the Preferred Stock is
convertible, at the option of the holder thereof, into between one
and two shares of Common Stock. The number of shares of Common Stock
into which each share of Preferred Stock is convertible (the
"Voluntary Conversion Rate") will be determined on the first
anniversary of the date of said prospectus. The Voluntary Conversion
Rate will be based upon the average of the closing bid prices for the
Common Stock as reported on NASDAQ (or such exchange or quotation
service as the Common Stock may be quoted on, if it ceases to be
quoted on NASDAQ) for the twenty trading days preceding said anniver-
sary date (the "Closing Average"), as follows:
Each Share of Preferred Stock
If the Closing Will Be Convertible Into
Average is Shares of Common Stock
Over $5.50 1.00
$4.51 to $5.50 1.25
$3.50 to $4.50 1.75
Under $3.50 2.00
A holder of Preferred Stock may convert his shares to Common
Stock by surrendering to American Stock Transfer & Trust Company (the
"Exchange Agent") each certificate covering shares to be converted
together with a statement of the name or names in which the shares of
Common Stock shall be registered upon issuance. Such a notice of
election to convert shall have the effect of creating a contract
between the shareholder and the Company whereby the shareholder shall
be deemed to have agreed to surrender the shares of Preferred Stock
and to release the Company from all further obligation thereon, and
whereby the Company shall be deemed to have agreed to issue the
appropriate number of shares of Common Stock upon the surrender of
the shares of Preferred Stock. The conversion right will terminate
at the close of business of the redemption date as to any shares of
Preferred Stock being redeemed on that date.
(b) Mandatory Conversion. In the event that during the first
24 months after the first anniversary of the date of the Company's
next prospectus the closing bid price of the Company's Common Stock
exceeds $7.00 for five consecutive trading days, each share of the
Preferred Stock may, at the Company's option, be converted after the
fifth such day into one share of Common Stock (the "Mandatory
Conversion Rate"). Likewise, after the third anniversary of the date
of said prospectus, each share of the Preferred Stock may, at the
Company's option, be converted into one share of Common Stock.
Holders of the Preferred Stock will receive notice of the conversion
of their shares promptly after the conversion takes place.
(c) The following provisions apply with respect to either
Voluntary Conversion or Mandatory Conversion.
All dividends declared and unpaid up to the date of conversion
shall be paid by the Company at the time of conversion unless that
payment date has not yet occurred, in which event the dividend shall
be paid upon the payment date for such dividend set forth in the Pre-
ferred Stock certificate. Any such unpaid dividends must be paid in
full to the holder prior to the declaration and payment of any other
dividend or distribution by the Company with respect to its Common
Stock and must be paid pari passu to the holder with payment of any
other dividend or distribution by the Company with respect to the
Preferred Stock. The Company will not issue any note or other
evidence of indebtedness with respect to unpaid dividends. If the
Company does not make payment of any dividends when due, the remedy
of a Preferred Stockholder will be to undertake a legal action in a
court of competent jurisdiction.
The Voluntary Conversion Rate and the Mandatory Conversion Rate
are both subject to adjustment upon the occurrence of the following
events: the issuance of shares of Common Stock or other securities of
the Company as a dividend or distribution on shares of Common Stock
of the Company to the holders of all of its outstanding shares of
Common Stock; subdivisions, combinations, or certain
reclassifications of shares of Common Stock of the Company; or the
distribution to the holders of shares of Common Stock of the Company
generally of evidences of indebtedness or assets (excluding cash
dividends and distributions made out of current or retained earnings)
or rights, options, or warrants to subscribe for securities of the
Company other than those mentioned above. No adjustment in the
conversion rates will be required to be made with respect to the Pre-
ferred Stock until cumulative adjustments amount to one percent or
more; however, any such adjustment not required to be made will be
carried forward and taken into account in any subsequent adjustment.
In lieu of fractional shares of Common Stock, there will be paid to
the holder of the Preferred Stock at the time of conversion an amount
in cash equal to the same fraction of the current market value of a
share of Common Stock of the Company.
In the event of any consolidation with or merger of the Company
into another corporation, or sale of all or substantially all of the
properties and assets of the Company to any other corporation, or in
case of any reorganization of the Company, each share of Preferred
Stock would thereupon become convertible only into the number of
shares of stock or other securities, assets or cash to which a holder
of the number of shares of Common Stock of the Company issuable (at
the time of such consolidation, merger, sale or reorganization) upon
conversion of such share of Preferred Stock would have been entitled
upon such consolidation, merger, sale or reorganization.
4. Liquidation Preference
In the event of a voluntary or involuntary liquidation or
winding up of the Company, the holders of Preferred Stock will be
entitled to receive out of the assets of the Company available for
distribution to shareholders $5.00 per share plus all accrued and
unpaid dividends before any distribution is made to the holders of
Common Stock or any other class or series of stock ranking junior to
the Preferred Stock as to distribution of assets.
After payment of the full amount of the liquidating distribution
to which they are entitled, the holders of shares of Preferred Stock
will not be entitled to any further participation in any distribution
of assets by the Company. The foregoing liquidation rights shall not
be operative in the event of (i) any consolidation or merger of the
Company with or into any other corporation, (ii) any dissolution,
liquidation, winding up or reorganization of the Company immediately
followed by reincorporation of a successor corporation or creation of
a successor partnership or (iii) a sale or other disposition of all
or substantially all of the Company's assets to another corporation
or a partnership if, in each case, effective provision is made in the
certificate of incorporation of the resulting or surviving
corporation or the articles of partnership of the resulting
partnership or otherwise, for the protection of the rights of the
holders of the Preferred Stock.
5. Preemptive Rights
Holders of Preferred Stock shall have no preemptive right to
purchase any securities of the Company.
<PAGE>
SCHEDULE B
Series A Cumulative Convertible Preferred Stock
The Board of Directors of the Company has designated the follow-
ing rights, privileges and preferences for the Series A Cumulative
Convertible Preferred Stock ("Preferred Stock").
1. Dividend Rights
Holders of shares of Preferred Stock are entitled to receive,
out of the assets of the Company legally available for the payment of
dividends, dividends payable semi-annually on the 1st day of each
January and July after issuance at the rate of $5000 per annum.
Dividends upon the Preferred Stock are cumulative and accrue from the
date of original issue. No cash dividend may be declared and paid or
set apart for payment upon the Common Stock until any past quarterly
dividend on any outstanding series of Preferred Stock has been fully
paid or declared and set apart for payment.
At the Company's option, the Company may pay all or part of each
dividend in shares of Common Stock. The Common Stock so issued will
be valued based on 100% of the average closing bid price of the
Common Stock as reported on NASDAQ (or such exchange or quotation
service as the Common Stock may be quoted on, if it ceases to be
quoted on NASDAQ) for the ten trading days before the record date for
the dividend.
2. Voting Rights
The holder of each share of Preferred Stock will be entitled to
cast 12,500 votes at any meeting of the shareholders of the Company.
3. Conversion
Each share of Preferred Stock may be voluntarily converted by
the record holder thereof into Common Stock on the terms described
below. Each share of Preferred Stock is also subject to "mandatory"
conversion into Common Stock upon the occurrence of circumstances
described below. In the event that a share of Preferred Stock is
converted into Common Stock by mandatory conversion, the holder
thereof will lose the right of voluntary conversion with respect to
that share.
(a) Voluntary Conversion. After February 1, 1997, each share
of the Preferred Stock is convertible, at the option of the holder
thereof, into between 12,500 and 25,000 shares of Common Stock. The
number of shares of Common Stock into which each share of Preferred
Stock is convertible (the "Voluntary Conversion Rate") will be
determined on the first anniversary of the date of this Subscription
Agreement. The Voluntary Conversion Rate will be based upon the
average of the closing bid prices for the Common Stock as reported on
NASDAQ (or such exchange or quotation service as the Common Stock may
be quoted on, if it ceases to be quoted on NASDAQ) for the twenty
trading days preceding said anniversary date (the "Closing Average"),
as follows:
Each Share of Preferred Stock
If the Closing Will Be Convertible Into
Average is Shares of Common Stock
Over $5.50 12,500
$4.51 to $5.50 15,625
$3.50 to $4.50 21,875
Under $3.50 25,000
A holder of Preferred Stock may convert his shares to Common
Stock by surrendering to American Stock Transfer & Trust Company (the
"Exchange Agent") each certificate covering shares to be converted
together with a statement of the name or names in which the shares of
Common Stock shall be registered upon issuance. Such a notice of
election to convert shall have the effect of creating a contract
between the shareholder and the Company whereby the shareholder shall
be deemed to have agreed to surrender the shares of Preferred Stock
and to release the Company from all further obligation thereon, and
whereby the Company shall be deemed to have agreed to issue the
appropriate number of shares of Common Stock upon the surrender of
the shares of Preferred Stock. The conversion right will terminate
at the close of business of the redemption date as to any shares of
Preferred Stock being redeemed on that date.
(b) Mandatory Conversion. In the event that during the first
24 months after the first anniversary of the date of this
Subscription Agreement the closing bid price of the Company's Common
Stock exceeds $7.00 for five consecutive trading days, each share of
the Preferred Stock may, at the Company's option, be converted after
the fifth such day into 12,500 shares of Common Stock (the "Mandatory
Conversion Rate"). Likewise, after the third anniversary of the date
of this Subscription Agreement, each share of the Preferred Stock
may, at the Company's option, be converted into 12,500 shares of
Common Stock. Holders of the Preferred Stock will receive notice of
the conversion of their shares promptly after the conversion takes
place.
(c) The following provisions apply with respect to either
Voluntary Conversion or Mandatory Conversion.
All dividends declared and unpaid up to the date of conversion
shall be paid by the Company at the time of conversion unless that
payment date has not yet occurred, in which event the dividend shall
be paid upon the payment date for such dividend set forth in the Pre-
ferred Stock certificate. Any such unpaid dividends must be paid in
full to the holder prior to the declaration and payment of any other
dividend or distribution by the Company with respect to its Common
Stock and must be paid pari passu to the holder with payment of any
other dividend or distribution by the Company with respect to the
Preferred Stock. The Company will not issue any note or other
evidence of indebtedness with respect to unpaid dividends. If the
Company does not make payment of any dividends when due, the remedy
of a Preferred Stockholder will be to undertake a legal action in a
court of competent jurisdiction.
The Voluntary Conversion Rate and the Mandatory Conversion Rate
are both subject to adjustment upon the occurrence of the following
events: the issuance of shares of Common Stock or other securities of
the Company as a dividend or distribution on shares of Common Stock
of the Company to the holders of all of its outstanding shares of
Common Stock; subdivisions, combinations, or certain
reclassifications of shares of Common Stock of the Company; or the
distribution to the holders of shares of Common Stock of the Company
generally of evidences of indebtedness or assets (excluding cash
dividends and distributions made out of current or retained earnings)
or rights, options, or warrants to subscribe for securities of the
Company other than those mentioned above. No adjustment in the
conversion rates will be required to be made with respect to the Pre-
ferred Stock until cumulative adjustments amount to one percent or
more; however, any such adjustment not required to be made will be
carried forward and taken into account in any subsequent adjustment.
In lieu of fractional shares of Common Stock, there will be paid to
the holder of the Preferred Stock at the time of conversion an amount
in cash equal to the same fraction of the current market value of a
share of Common Stock of the Company.
In the event of any consolidation with or merger of the Company
into another corporation, or sale of all or substantially all of the
properties and assets of the Company to any other corporation, or in
case of any reorganization of the Company, each share of Preferred
Stock would thereupon become convertible only into the number of
shares of stock or other securities, assets or cash to which a holder
of the number of shares of Common Stock of the Company issuable (at
the time of such consolidation, merger, sale or reorganization) upon
conversion of such share of Preferred Stock would have been entitled
upon such consolidation, merger, sale or reorganization.
4. Liquidation Preference
In the event of a voluntary or involuntary liquidation or
winding up of the Company, the holders of Preferred Stock will be
entitled to receive out of the assets of the Company available for
distribution to shareholders $62,500.00 per share plus all accrued
and unpaid dividends before any distribution is made to the holders
of Common Stock or any other class or series of stock ranking junior
to the Preferred Stock as to distribution of assets.
After payment of the full amount of the liquidating distribution
to which they are entitled, the holders of shares of Preferred Stock
will not be entitled to any further participation in any distribution
of assets by the Company. The foregoing liquidation rights shall not
be operative in the event of (i) any consolidation or merger of the
Company with or into any other corporation, (ii) any dissolution,
liquidation, winding up or reorganization of the Company immediately
followed by reincorporation of a successor corporation or creation of
a successor partnership or (iii) a sale or other disposition of all
or substantially all of the Company's assets to another corporation
or a partnership if, in each case, effective provision is made in the
certificate of incorporation of the resulting or surviving
corporation or the articles of partnership of the resulting
partnership or otherwise, for the protection of the rights of the
holders of the Preferred Stock.
5. Preemptive Rights
Holders of Preferred Stock shall have no preemptive right to
purchase any securities of the Company.
<PAGE>
SELDEN, FOX AND ASSOCIATES, LTD.
March 19, 1996
The Board of Directors
MicroENERGY, Inc.
We hereby consent to the use of our independnet auditor's report
dated September 7, 1995 which expresses an unqualified opinion on the
consolidated financial statements of MicroENERGY, Inc. and its
Subsidiary at June 30, 1995 and 1994, and for the years ended June
30, 1995, 1994 and 1993, which will be incuded with those financial
statements reprinted in their entirety and without modifications, in
Form SB-2 Registration Statement to be filed with the Securities and
Exchange Commissions in March 1996 and to the reference to our firm
under the heading "experts" in the prospectus.
Certified Public Accountants
