<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
/ X / Annual Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
for the fiscal year ended June 30, 1995
/ / Transition Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from __________ to ___________
Commission File Number: 0-17827
--------
SECTOR ASSOCIATES, LTD.
----------------------------------------------
(Name of small business issuer in its charter)
<TABLE>
<S> <C>
Delaware 11-2788282
- -------- ----------
(State or other (I.R.S. Employer Identification No.)
jurisdiction of
incorporation
or organization)
401 City Avenue, Suite 725
Bala Cynwyd, Pennsylvania 19004
- ------------------------------------------ --------------
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Issuer's telephone number (610) 660-5906
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of Classes:
-----------------
Common Stock, $.10 par value
Class B Warrants
Units
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
(1) Yes No X (2) Yes X No
----- ----- ----- -----
<PAGE> 2
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [___].
The number of shares outstanding of the Registrant's sole class of
common stock as of December 7, 1995 was 3,247,127 shares.
The Issuer's revenue for its most recent fiscal year was $39,988.
The aggregate market value of the voting stock held by non-affiliates
as of November 24, 1995 was approximately $32,471. This determination was
based upon an assumed nominal value of $.01 per share in view of the absence of
any trading activity in the Company's Common Stock since November 2, 1993.
Documents Incorporated by Reference: NONE
2
<PAGE> 3
PART I
ITEM 1. Description of Business.
GENERAL
Sector Associates, Ltd. (formerly "Action Associates, Inc.", and
thereafter, "SRSI Capital Group, Inc.") was incorporated under the laws of the
state of Delaware on November 4, 1985 for the purpose of seeking business
opportunities which, in the opinion of management, offered a potential for
profit including the acquisition of existing businesses or the acquisition of
assets sufficient to establish an active business for the Company.
Following the brief ownership of South Richmond Securities, Inc. in
1986, the Company commenced active business operations in 1987 upon the
acquisition of ToSi, Inc. ("ToSi"). From 1987 until January 1993, through its
ToSi subsidiary, the Company operated a number of retail furniture stores in
the South Florida region that featured Thomasville furniture. The operations
of ToSi, however, were characterized by recurring losses and by January 1993,
the Company was caused to abandon the business, discontinue its operations and
close all of its remaining retail operations. In November 1993, an affiliate
of the Company's then principal stockholder acquired 100% of the stock of ToSi
in consideration for agreeing to indemnify the Company against certain
outstanding liabilities of ToSi. This was completed in conjunction with a
broad-based reorganization of the Company's outstanding finances and
recapitalization that occurred during November 1993.
From March 1993 until June 1993, the Company also briefly engaged in
the printing and graphic arts business following the acquisition of Drew
Communications Group, Inc. ("Drew"). The business of Drew, however, incurred
immediate and unexpected operating losses and was subject to certain
unanticipated liabilities. By August 1993, management elected to suspend, and
thereafter discontinue, the operations of Drew. The Company's financial
statements do not give effect to the continued ownership of Drew.
During July, 1993, the Company initiated legal proceedings against the
former owner of Drew alleging material misrepresentations in the inducement of
the original acquisition. Concurrently, the former owner of Drew initiated a
legal proceeding against the Company and its former principal stockholder
compelling the delivery of the remainder of the acquisition price.
A settlement between the parties occurred during 1993 pursuant to
which the former principal stockholder of the Company agreed to
3
<PAGE> 4
pay $20,000 to the former owner of Drew to secure a full release and settlement
of all claims relating to the acquisition. In consideration for his agreement
to assume the responsibility for the liabilities associated with the
settlement, and in conjunction with a broad-based reorganization of the
Company, 100% of the stock of Drew was sold to the Company's former principal
stockholder during November 1993.
In view of the discontinuation of the Company's former active business
operations, management's goals since the Summer of 1993 have been to seek to
enter into strategic business combinations involving either acquisitions of
assets or stock, mergers, reorganizations, consolidations or other transactions
that are likely to capitalize on the Company's status as a public company. The
Company may also use existing capital and stock to acquire assets or stock in
an effort to commence a new business enterprise rather than combine with an
existing business.
To facilitate its goals, during November 1993, the Company reorganized
certain of its outstanding finances and capitalization in connection with the
commencement of a private placement intended to generate capital resources for
the Company. The reorganization entailed the sale of 1,132,917 shares by the
Company in a series of private placement transactions for aggregate
consideration of $3,110,875 plus securities which at the time of sale had a
market value of $1,173,000 (taking into account a 40% discount to market at
that time).
In conjunction with its reorganization, the Company also entered into
a number of transactions with George Levin, its former Chairman of the Board of
Directors and former principal stockholder, as follows: (1) Mr. Levin exchanged
approximately $769,000 of indebtedness owed to him by the Company in return for
219,717 newly issued shares of common stock; (2) the Company sold to an
affiliate of Mr. Levin 100% of its interest in the common stock of its former
ToSi subsidiary and agreed to distribute to Mr. Levin a certain leasehold
interest (which effectively was assigned as of January 1, 1994) in
consideration for Mr. Levin's agreement to indemnify the Company against
certain liabilities of ToSi; and (3) the Company sold to an affiliate of Mr.
Levin 100% of its interest in the common stock of its former Drew subsidiary in
consideration for Mr. Levin's agreement to indemnify the Company against
certain liabilities of Drew. See "ITEM 12. Certain Relationships and Related
Transactions" and "ITEM 6. Management's Discussion and Analysis or Plan of
Operations."
The Company's outstanding capitalization was again significantly
reorganized during the fourth quarter of calendar 1994 and the first quarter of
calendar 1995 when in two separate
4
<PAGE> 5
transactions the outstanding shares of the Company's stock were reduced from
3,310,025 to 2,034,129 by virtue of a partial surrender and subsequent
redemption of stock. See "ITEM 6. Management's Discussion and Analysis or
Plan of Operations" and "ITEM 12. Certain Relationships and Related
Transactions."
From January 1994 through September 1995, management performed initial
feasibility studies and conducted due diligence examinations in connection with
the identification of a significant number of acquisition candidates. More
detailed due diligence examinations were performed by the Company's
professional advisers, on-site visits conducted and acquisition documents
prepared in connection with approximately five of these candidates.
Recent Equity Investment
The Company's first completed equity investment occurred on March 10,
1995, when pursuant to the terms of a Securities Purchase Agreement dated
January 25, 1995 ("Securities Purchase Agreement"), the Company invested
$500,000 for the purchase of securities from The Eastwind Group, Inc.
("Eastwind"), a Delaware corporation, consisting of the following: 200,000
shares of Common Stock (the "Eastwind Shares"); and 250,000 Class A Common
Stock Purchase Warrants; 187,500 Class B Common Stock Purchase Warrants and
250,000 Class C Common Stock Purchase Warrants (in the aggregate, the "Eastwind
Warrants"). This purchase represented an interest in approximately twenty
(20%) percent of the issued and outstanding common stock of Eastwind at the
time of the acquisition.
Each Class A, B and C Common Stock Purchase Warrant entitles the
holder to purchase one share of Eastwind common stock at an exercise price of
$4, $5.50 and $8, respectively, until March 10, 2005, however, these exercise
prices were subsequently reduced to $3, $4 and $6, respectively. Each of the
Class A, B and C Common Stock Purchase Warrants are redeemable by Eastwind,
upon 30 days written notice, in whole or in part, at a redemption price of
$.001 per warrant, provided Eastwind has at the time of redemption satisfied
certain affirmative financial covenants.
The Eastwind Warrants were sold by the Company in a private
transaction during June 1995 for the price of $100,000. See "ITEM 12. Certain
Relationships and Related Transactions." The Company intends to distribute the
Eastwind Shares to its stockholders of record as of November 3, 1995 in
December 1995.
5
<PAGE> 6
PENDING ACQUISITION OF VIRAGEN (SCOTLAND) LIMITED
On September 20, 1995, the Company entered into an Agreement and Plan
of Reorganization pursuant to which the Company has agreed to acquire 100% of
the issued and outstanding stock of Viragen (Scotland) Limited ("VSL") in
exchange for the distribution to Viragen, Inc., the sole stockholder of VSL, of
newly issued shares of convertible preferred stock that upon conversion will
represent 78,400,000 shares of Common Stock or approximately ninety four
percent (94%) of the issued and outstanding shares of the Company.
Through an exclusive license granted by Viragen Technology, Inc., VSL
has secured certain exclusive rights to engage in the research, development
and manufacture of certain proprietary products and technologies that relate to
the therapeutic application of human leukocyte interferon. Pursuant to these
rights, on July 20, 1995 VSL entered into a License and Manufacturing Agreement
with the Common Services Agency of Scotland ("Agency"), an agency acting on
behalf of the Scottish National Blood Transfusion Service ("SNBTS") pursuant to
which SNBTS, on behalf of VSL, will manufacture VSL's natural human interferon
for exclusive distribution within the European Union and non-exclusively
worldwide in return for preferential access to the drug for Scottish patients
at a preferential price. VSL is a newly formed subsidiary of Viragen, Inc.
which commenced operations concurrent with the execution of its agreement with
the SNBTS. VSL had no material assets or liabilities as of September 20, 1995.
Viragen, Inc. is a publicly held company.
The term of the License and Manufacturing Agreement is for a five-year
period with two additional five-year extension terms at the option of VSL. The
Agreement also contains provisions protecting proprietary rights of VSL and
Viragen and the preclusion of certain competitive activities by the Agency.
VSL has been organized by Viragen to undertake clinical trials in the
European Union ("EU") and for sale of Viragen's natural alpha interferon and
related products in the EU and other countries outside the United States.
Viragen has transferred patent and related proprietary rights associated with
the production of its natural interferon ("Product") and related technology
to VSL for this purpose. The Agency has committed to manufacture the Product
in sufficient scale to accommodate the EU clinical trials and, subsequently, for
limited commercial sales in amounts to be agreed upon by the parties. The
Agency is also expected to conduct studies relevant to the Product
6
<PAGE> 7
and cooperate with VSL and Viragen Technology, Inc. to enable them to comply
with the laws and regulations of the EU in connection with the laws and
regulations of the EU's regulatory authorities in connection with the
production, clinical trials and distribution of the Product.
VSL and Viragen Technology, Inc., pursuant to the License and
Manufacturing Agreement, will provide the Agency with full access to the
proprietary technology and specialized equipment, provide suitable
training to the Agency's personnel and defray all costs associated with
securing permits and regulatory approvals, augmenting the Agency's facilities,
if necessary, to manufacture the Product and secure documentation
substantiating compliance of the Product with United Kingdom and/or EU
regulatory requirements. The Agency will receive compensation for Products
manufactured for use in clinical trials in the EU, for Products manufactured
for sales prior to obtaining new drug application approval, and for sales
following such approval, at varying percentages in relation to manufacturing
costs. Products manufactured and utilized for humanitarian purposes or for
medical use by Scottish patients will be made at substantially discounted
prices.
In accordance with EU regulations, Viragen's injectable Product is
classified as a group of "proteins identical to naturally occurring human
polypeptides and proteins." The EU regulations generally provide for a more
abbreviated amount of preclinical studies for naturally occurring substances
such as VSL's Product than for genetically engineered products. Accordingly,
VSL hopes to receive a more expeditious review of the various EU processes and
clinical trials prerequisite to market approval.
In order to conduct clinical trials, the Scottish manufacturing plant
must be approved by UK and/or EU regulatory authorities under approved
manufacturing Standard Operating Procedures. Viragen has engaged
professionally recognized consultants familiar with the European regulatory
process to assist in all matters prerequisite to UK and/or EU approval. The
SNBTS will provide its best efforts, working in conjunction with Viragen, to
obtain a manufacturing license and subsequent product approval at the
conclusion of the EU/UK clinical studies. At such time as the SNBTS obtains a
manufacturing license for Viragen's Product, Viragen intends to seek U.S. FDA
manufacturing approval of the Scottish manufacturing facility. There can be no
assurance or guarantee that the EU/UK regulators will approve the manufacturing
facility or permit clinical testing and distribution of Viragen's product
within the EU, or that the FDA will license or approve the
7
<PAGE> 8
Scottish manufacturing facility or Viragen's Product for clinical trials and
subsequent distribution in the United States.
Viragen's primary product (the "Product") is a natural human leukocyte
alpha interferon. Medical studies show that natural interferon is a group of
proteins that inhibit malignant cell growth without materially interfering
with normal cells. Natural interferon stimulates and modulates the human
immune system and, in addition, impedes the growth and propagation of various
viruses. The Product is a natural product procured from human white blood
cells. Omniferon is the tradename for Viragen's Product in injectable form.
Viragen has primarily been working with human leukocyte alpha interferon which
is one of the body's natural defenses to foreign substances such as viruses,
and is so named because it "interferes" with viral growth. Interferon consists
of multiple protein molecules that induce antiviral, antitumor and
immunomodulatory responses within the body.
There are two basic types of alpha interferon differentiated primarily
by their method of manufacturer and resultant composition. The first, as
produced by Viragen, is natural, human leukocyte alpha interferon produced by
stimulated human white blood cells. The human white blood cells are cultivated
and stimulated by the introduction of an FDA approved harmless virus that
induces the cells to produce natural interferon which, importantly contains
multiple subtypes. The natural interferon is then extracted and purified by
special processes to produce a highly concentrated product for clinical use.
The second, recombination alpha interferon, is a genetically engineered
synthetic interferon produced by recombinant DNA techniques ("Synthetic
Interferon") (not from human leukocytes) and contain only one subtype.
Studies have indicated that there may be significant differences
between the use of Natural Interferon and Synthetic Interferon. Medical studies
have found that treatment with Synthetic Interferon in certain cases may cause
an immunological response ("Neutralizing and/or Binding Antibodies") that
reduces the effectiveness of the treatment in a segment of the patient
population. Viragen believes that the production of Neutralizing and/or
Binding Antibodies is virtually non-existent in patients treated with Natural
Interferon. Furthermore, primarily due to other differences including dosage
requirements (less of the natural product may be required to treat the subject
diseases), the side effects of treatment with natural interferon, in most
instances, appears to be far less severe.
8
<PAGE> 9
Closing of the Agreement and Plan of Reorganization is contingent upon
the successful completion of certain conditions precedent and upon the Company
securing certain additional funding so as to achieve a net worth of
approximately $800,000. In this regard, the Company is currently undertaking a
private placement of 336,000 units, with each unit consisting of ten (10)
shares of Common Stock and thirty-five (35) Common Stock Purchase Warrants
offered at $2.23 per unit ("Unit"). As of the date of this Report, the Company
has sold 156,951 Units, raising approximately $350,000 of the $750,000
anticipated to be raised under the private placement. The proceeds of this
offering are anticipated to be used to satisfy the conditions precedent of the
Agreement and Plan of Reorganization, discussed below. See "ITEM 6.
Management's Discussion and Analysis or Plan of Operations."
Upon closing of the Agreement and Plan of Reorganization, the
Company's operations, activities and management will significantly change. In
the event the Agreement and Plan of Reorganization does not successfully close,
the Company will continue its prior operations of seeking potential business
combinations.
The Company does not intend to operate as an investment company and
subject itself to regulation under the Investment Company Act of 1940. It,
therefore, will not, among others, engage in the business of investing,
reinvesting, owning, holding or trading in securities or own or acquire
investment securities (defined in the Investment Company Act as all securities
other than government securities, securities issued by employees' securities
companies, and securities issued by majority-owned subsidiaries of the owner
which are not investment companies) having value exceeding 40% of the value of
the Company's total assets (exclusive of government securities and cash items)
on an unconsolidated basis.
9
<PAGE> 10
ITEM 2. Description of Property.
As of the date of this Report, the Company owns no interest in any
real property. A leasehold interest formerly held by the Company was assigned
to its former principal stockholder effective as of January 1, 1994. See "ITEM
12. Certain Relationships and Related Transactions."
Executive offices are presently maintained, on an interim basis, at no
cost to the Company, at the offices of its President at 401 City Avenue, Suite
725, Bala Cynwyd, Pennsylvania. The Company will likely relocate its executive
offices in connection with the completion of a business combination. In the
interim, however, it does not intend to incur any material rental obligations.
ITEM 3. Legal Proceedings.
Woods Vs. Sector:
In July 1994, the Plaintiff filed a suit against the Company in the
Circuit Court of Dade County, Florida alleging that (i) the Company collected
certain receivables of Drew Communications Group, Inc. in which the Plaintiff
held a security interest, and (ii) that the Company had a duty as a stockholder
to liquidate Drew Communications Group, Inc. for the benefit of the creditors.
The Company has several meritorious defenses to these claims. At the present
time, the Company has filed a motion to dismiss the lawsuit on the grounds that
the Court lacks jurisdiction to hear the claims. The Company's former
principal stockholder has assumed the defense of this matter on behalf of the
Company and has agreed to indemnify the Company from any loss resulting from
this litigation.
ITEM 4. Submission of Matters to a Vote of Security Holders.
None.
10
<PAGE> 11
PART II
ITEM 5. Market for Common Equity and Related Stockholder Matters.
A. Market Information
From February 1990 until October 1993, the Company's Common
Stock traded on the NASDAQ small-cap market under the symbol "SXTR". During
October 1993, the Company's Common Stock was removed from the NASDAQ System.
Presently, the Company's shares are eligible to trade on the significantly less
liquid over-the-counter market. However, there has been no trading in the
Company's Common Stock since November 2, 1993.
The following table sets forth certain information with
respect to the high and low market prices of the Company's Common Stock during
the fiscal years ended June 30, 1992 and June 30, 1993, the first quarter of
the fiscal year ended June 30, 1994 and the period from October 1, 1993 through
November 2, 1993 (the date on which trading ceased).
<TABLE>
<CAPTION>
BID ASK
--- ---
Fiscal 1992 HIGH LOW HIGH LOW
- ----------- ---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter 1 7/8 15/16 1/4
Second Quarter 1/16 1 1-5/16 1/8
Third Quarter 1-3/16 15/16 1-13/16 1/8
Fourth Quarter 1-5/16 15/16 1/2 1/8
Fiscal 1993
- -----------
First Quarter 1/2 1/8 1-3/4 1-3/8
Second Quarter 1-5/8 1-3/8 1-7/8 1-5/8
Third Quarter 1-5/8 1/2 1-7/8 1-13/16
Fourth Quarter 1-5/8 1/2 1-15/16 5/8
Fiscal 1994
- -----------
First Quarter 1-3/4 1/4 2-1/4 1/2
Second Quarter 1-1/2 3/8 1-11/16 5/8
(Oct. 1-Nov. 2)
</TABLE>
The high and low prices identified above have been as reported to the
Company by the National Quotations Bureau, Inc., and are rounded to the nearest
sixteenth. Such prices are inter-dealer prices without retail mark-ups,
mark-downs or commissions and may not represent actual transactions.
11
<PAGE> 12
B. Cumulative Effect of Reverse Stock Splits
The number of shares of common stock reflected in this Report
have been adjusted to take into account the cumulative effect of a 1 for 2
reverse stock split during July 1993 and a 1 for 10 reverse stock split during
December 1993.
C. Holders
To the best knowledge of the Company, the number of record
holders of the Company's common stock as of December 6, 1995 is 207. A
significant number of the Company's securities are held by financial
institutions in "street name". Accordingly, management cannot be certain of
the precise number of beneficial owners, but has reason to believe that there
are at least 300 beneficial holders.
D. Dividends
The Company has not paid any cash dividends to date and does
not anticipate or contemplate paying cash dividends in the foreseeable future.
It is the present intention of management to utilize all available funds to
satisfy the conditions precedent to the Agreement and Plan of Reorganization.
On or about October 23, 1995, the Company declared a dividend
to the record holders of the Company as of November 3, 1995. The dividend
consisted of the pro-rata distribution of the Eastwind shares which is
anticipated to occur in December 1995.
E. Preferred Stock
Within the limitations and restrictions contained in the
Company's Certificate of Incorporation, the Board of Directors has authority,
without further action by the stockholders, to issue up to 2,500,000 shares of
Preferred Stock, $.01 par value, in one or more series and to fix, as to any
such series, the dividend rate, redemption prices, preferences on liquidation
or dissolution, sinking fund terms, if any, conversion rights, voting rights
and any other preference or special rights and qualifications. Shares of
Preferred Stock issued by the Board of Directors could be utilized, under
certain circumstances, to make an attempt to gain control of the Company more
difficult or time consuming. For example, shares of Preferred Stock could be
issued with certain rights which might have the effect of diluting the
percentage of Common Stock owned by a significant stockholder or issued to
purchasers who might side with management in opposing a takeover bid which the
Board of Directors determines is not in the best interests of the Company and
its stockholders. This provision may be viewed as having possible
anti-takeover effects. A takeover transaction frequently affords stockholders
the opportunity to sell their shares at a premium over current market prices.
Except as
12
<PAGE> 13
provided hereafter, the Board of Directors has not authorized any series of
Preferred Stock, and there are no agreements, understandings or plans for the
issuance of any Preferred Stock.
In connection with the Agreement and Plan of Reorganization,
the Company has designated 2,000,000 shares of Series B Convertible Preferred
Stock ("Series B Convertible Preferred Stock") where each share of Series B
Convertible Preferred Stock is convertible into 39.1 shares of Common Stock of
the Company.
F. Warrants
CLASS F WARRANTS
In connection with private placement transactions undertaken
during Fiscal 1993, the Company issued 618,750 Class F Warrants. Each Class F
Warrant entitles the holder thereof to purchase one share of Common Stock at an
exercise price of $7.50 until November 1, 1998. The Class F Warrants are
redeemable on not less than 30-days written notice provided the average of the
closing bid prices of the Common Stock as reported by The NASDAQ Stock Market
or on the over-the-counter market (or equivalent sale prices if the Common
Stock is listed on a national exchange or the NASDAQ National Market System)
equals or exceeded an average price of $10.00 for the 30 consecutive trading
days ending within 15-days of the notice of redemption.
CLASS B WARRANTS
To reflect the cumulative effect of two reverse stock splits (see
subparagraph "B" herein) and a twenty (20%) percent stock dividend granted to
non-affiliates on July 30, 1993, the exercise price and number of common shares
issuable upon the exercise of the outstanding Class B Warrants have been
adjusted. As adjusted, each Warrant entitles the holder to purchase .0537
shares, whereby approximately 18.62 Class B Warrants must be exercised to
receive one share of stock. Accordingly, the Class B Warrants bear an exercise
price of $9.30 per share.
The Class B Warrants were scheduled to expire on June 30, 1994,
however, by resolution of the Board of Directors, the expiration date thereof
has been extended until June 30, 1996.
GENERAL
The Company's outstanding warrants provide for adjustment of the
exercise price and for a change in the number of shares issuable upon exercise
to protect holders against dilution in the event of a stock dividend, stock
split, combination or reclassification of the Common Stock. The Warrants may
be exercised upon surrender of the Warrant Certificate on or prior to
13
<PAGE> 14
the expiration date (or earlier redemption date) of such Warrant at the offices
of the Company's transfer agent, with the form of "Election to Purchase"
completed and executed as indicated, accompanied by payment of the full
exercise price (by certified or bank check, payable to the order of the
Company), for the number of shares with respect to which the Warrant is being
exercised. Shares issued upon exercise of Warrants and paid for in accordance
with the terms of the Warrants will be fully paid and non-assessable.
The Warrants do not confer upon the holder thereof any voting or other
rights of the Stockholder.
ITEM 6. Management's Discussion and Analysis or Plan of Operations.
Results of Operations.
For the year ended June 30, 1995, the Company incurred a net loss of
$805,005. With the exception of interest income of $39,988, the Company had no
operations during the year. The Company's net loss was attributed to general
and administrative expenses of $363,638; an unrealized loss on decline in
market value of investment securities of $306,355 and a write-off of a loan
deemed uncollectible of $175,000.
For the year ended June 30, 1994, the Company incurred a net loss of
$1,082,059. With the exception of rental income of $125,370 from the Company's
leasehold interest (which was subsequently assigned to the Company's former
principal stockholder), the Company had no operations during the year. The
Company's net loss was principally attributed to general and administrative
expenses of $496,607; an unrealized loss on decline in market value of
investment securities of $633,000 and a loss on the disposal of the ToSi
subsidiary of $102,252.
With the exception of the amortization of leasehold rights which is
only applicable to the fiscal period ended June 30, 1994, the Company's general
and administrative expenses were principally incurred in connection with the
identification and due diligence examination of a number of acquisition
candidates. As a general matter, the Company conducts initial due diligence
examinations of acquisition candidates through its own officers or directors.
Thereafter, provided the initial review was satisfactory, the Company's
professional advisers would be engaged to review certain legal and accounting
aspects of the transaction, and thereafter the appropriate legal documentation
would be prepared.
For the fiscal period ended June 30, 1995, general and administrative
expenses consisted principally of legal and accounting of approximately
$142,685; general and travel expenses
14
<PAGE> 15
of approximately $78,190 and due diligence expenses of approximately $142,763.
For the fiscal period ended June 30, 1994, general and administrative
expenses consisted principally of legal and accounting of approximately
$360,000; amortization of leasehold rights of $72,000; travel expenses of
approximately $15,000 and general and due diligence expenses of approximately
$26,000.
The draw upon the Company's general and administrative expenses is
dependent upon the frequency and scope of review of acquisition candidates.
However, in view of the pending acquisition of VSL, it is likely that the
Company's business will change such that costs involved in the review of
acquisition candidates will not be material in the foreseeable future.
Further reference to information relative to the Company's results of
operations for the year ended June 30, 1995, and comparative information
relative to the year ended June 30, 1994 can be obtained upon review of the
financial statements made a part of this Report. In view, however, of the
discontinuation of the ToSi and Drew operations and in light of the potential
acquisition of VSL, reference to past results of operations will, in
management's view, provide no meaningful information about the Company's
anticipated results of operations or other relevant trends which would be
material in evaluating an investment in the Company.
Liquidity and Capital Resources.
As of June 30, 1995, the Company's assets consisted exclusively of
cash, certificates of deposit, notes, receivables and investments of $741,071.
As of June 30, 1995, the Company's liabilities consisted exclusively of $90,818
of accounts payable. The Company's net worth as of June 30, 1995 was $650,253.
The Company's cash and other assets were realized after November 1993
in conjunction with certain private placement transactions. These transactions
were undertaken in conjunction with a broad-based recapitalization and
reorganization of the Company that commenced in November 1993. Since November
1993, the Company completed the private placement of 1,132,970 shares ("Private
Placement") for aggregate consideration of $3,110,875, plus securities which at
the time of sale had a value of $1,173,000 (inclusive of a 40% discount from
the market value at that time). As of June 30, 1994, the aggregate fair market
value of these securities (applying consistent discounting) was $540,000. This
$633,000 reduction in fair market value has been considered a permanent
impairment and has been reflected as an unrealized loss on the Company's
Statement of Operations.
15
<PAGE> 16
Pending its identification and consummation of a business combination,
the Company's resources have been applied towards a series of short-term loans
intended to generate revenue from interest income. During the year ended June
30, 1995, the Company generated interest income of $39,988 on short-term loans.
All of the loans made by the Company were repaid prior to fiscal year end June
30, 1995. In addition to interest income in February 1995, the Company
received 10,000 shares of an unaffiliated private corporation in consideration
for the advancement of certain funds in connection with a transaction with a
former director. See "ITEM 12. Certain Relationships and Related
Transactions."
A loan in the principal amount of $175,000 made to TSS, Ltd., an
unaffiliated company, has not been repaid, and the Company was informed that
TSS no longer had adequate capital resources to remain in operation as a going
concern. Accordingly, the Company wrote off the entire advance, which results
in a charge of $175,000 during the year ended June 30, 1995.
The Company generated proceeds from the sale of certain of its
securities held for investment. During July 1995, the Company entered into a
Stock Purchase Agreement which effectuated the sale of the balance of the
53,500 shares of North American Technologies Group, Inc. to an associate of one
of the Company's principal stockholders for a promissory note of $50,000 which
was paid during August 1995. In addition, the Company entered into a Warrant
Purchase Agreement which effectuated the sale of the Eastwind Class A, B and C
Warrants for $100,000. Certain of these sales were to associates of one of the
Company's principal stockholders. See "ITEM 12. Certain Relationships and
Related Transactions."
The Company's resources were also applied to institute the redemption
of certain outstanding shares and an investment in Eastwind.
During November 1994, the Company instituted the redemption and
repurchase of 644,563 shares from individuals who had purchased shares in the
Company's November 1993 private placement at prices of $2.50 and $3.50.
Additionally, the shares of a principal stockholder who had participated in the
private placement at a price of $1.50 were also redeemed. The aggregate
redemption price was $1,623,375. See "ITEM 12. Certain Relationships and
Related Transactions."
In March 1995, the Company completed the purchase of a minority
interest in the outstanding securities of Eastwind for an aggregate purchase
price of $500,000. The shares of common stock purchased in this transaction
were not intended to remain as long-term assets of the Company, and were
distributed to the stockholders of record of the Company as of November 3,
1995. See "ITEM 1. Description of Business" and "ITEM 12. Certain
Relationships and Related Transactions."
16
<PAGE> 17
The Company's liquidity and capital resources were also effected by a
reorganization of the Company's outstanding capitalization during late 1994 and
early 1995. From October through November 1994, three of the Company's
principal stockholders and one other stockholder agreed to surrender for
cancellation 600,000 shares of the Company's common stock. In return, the
Company returned to these stockholders 122,142 of 250,000 shares of common
stock of North American Technologies Group, Inc. ("NATK") and all 35,000 shares
of Florida West Airlines, Inc. ("FWST"). At the time, these shares had been
recorded as assets on the financial statements of the Company with a book value
of $233,645. Also, during February 1995, the Company transferred 74,358 shares
of NATK to two existing stockholders (one of whom is a principal stockholder of
the Company) in consideration for certain consulting services. Subsequently,
the remaining 53,500 shares of NATK were sold during July 1995 for a promissory
note of $50,000 which was repaid during August 1995. See "ITEM 12. Certain
Relationships and Related Transactions."
The Company's historical and current liquidity and capital resources
have been based on its activities as a shell corporation with little or no
operations, however, the Company's operations will materially change upon the
closing of the Plan of Reorganization with VSL. In order to complete the
closing of the Plan of Reorganization, the Company will need to secure
additional capital so that upon the date of closing, it has a net worth of
$800,000. Toward this end, the Company has initiated a private placement
transaction whereby it seeks to raise the sum of approximately $750,000 through
the sale to a limited number of consolidated investors of up to 336,000 Units
for a purchase price of $2.23 per Unit. Each Unit consists of ten (10) shares
of Common Stock and thirty-five (35) Common Stock Purchase Warrants that have
an exercise price of $.43 per share. On November 3, 1995, the Company realized
gross proceeds of approximately $350,000 through the sale of 156,951 Units to
FAC Enterprises, Inc. See "ITEM 12. Certain Relationships and Related
Transactions."
Effects of Inflation
The Company does not expect inflation to materially effect its
results of operations.
ITEM 7. Financial Statements.
Financial Statements are set forth at ITEM 13A hereof.
17
<PAGE> 18
ITEM 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.
On November 29, 1995, the Registrant received notice from its
independent auditors Grant Thornton, LLP that it declined to stand for
re-election. On November 1, 1995, the Registrant's Board of Directors
authorized the selection and engagement of the firm of Cogen Sklar LLP of 150
Monument Road, Suite 500, Bala Cynwyd, Pennsylvania 19004 to act
as the Registrant's independent auditors. Prior to their engagement, no events
or consultations occurred which would require disclosure of the type specified
in Item 304 of Regulation S-B.
During the Registrant's two most recently completed fiscal years and
the interim period through November 29, 1995, there were no "reportable events"
with Grant Thornton, LLP which require disclosure under Item 304 of
Regulation S-B. However, the report of Grant Thornton, LLP for the fiscal year
ended June 30, 1994 contained a qualification relative to the Registrant's
ability to continue operations as a going concern and was modified so as to
emphasize certain related party transactions. With this exception, the reports
of Grant Thornton, LLP for the Registrant's last two fiscal years did not
contain any adverse opinion or disclaimer of opinion.
There existed no disagreements with the former accountant as to any
matters relative to accounting principles and practices, financial statement
disclosure or auditing scope and procedure.
PART III
ITEM 9. Directors and Executive Officers, Promoters and Control Persons,
Compliance with Section 16(a) of the Exchange Act.
A. Identification of Executive Officers and Directors
The following table sets forth certain information with respect to
each of the executive officers and directors of the Company. Each of the
directors named below will serve until the next annual meeting of the
stockholders or until their successors are elected or appointed and qualified.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Andrew Panzo 30 President and Director
Cecile T. Coady 42 Secretary/Treasurer and Director
</TABLE>
B. Significant Employees
None.
C. Family Relationships
There is no family relationship between any director or executive
officer.
18
<PAGE> 19
D. Business Experience
The following is a brief summary of the business experience of the
Company's Directors and Executive Officers during the past five years:
Andrew Panzo - has been the Company's President since November
17, 1993. Mr. Panzo is the President of American Maple Leaf Financial
Corporation, a Philadelphia-Pennsylvania based investment banking firm where he
specializes in corporate finance and analysis for development stage companies.
Mr. Panzo is also director of The Eastwind Group, Inc. and NAL Financial Group
Inc.
Cecile T. Coady - has a been a Director and Officer of the Company
since November 17, 1993. Ms. Coady is an Officer and/or Director of several
privately held corporations, including Exchequer Services Corporation, a
Philadelphia, Pennsylvania based consulting firm.
ITEM 10. Executive Compensation.
None of the current executive officers of the Company received any
cash or other compensation during the fiscal year ended June 30, 1995.
Current Employment Arrangements
The Company has no current employment arrangements with any of its
directors or executive officers. The Company does not intend to pay salaries
to any of its executive officers until a business combination is completed.
All employees will be reimbursed for out-of-pocket expenses. Consulting fees
may be paid for services provided in connection with the identification and
investigation of a business opportunity.
ITEM 11. Security Ownership of Certain Beneficial Owners and
Management.
The following table sets forth, as of December 7, 1995,
information with respect to the securities holdings of all persons which the
Company, pursuant to filings with the Securities and Exchange Commission, has
reason to believe may be deemed the beneficial owners of more than 5% of the
Company's outstanding common stock. Also sets forth in the table is the
beneficial ownership of shares of the Company's outstanding common stock, as of
such date, of all officers and directors, individually and as a group.
<TABLE>
<S> <C>
Shares owned Percentage
Beneficially of
and of Outstanding
Record(1)
--------------
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
Shares(2)
-----------
<S> <C> <C>
George Levin(3) 219,717 6.7%
16507 N.W. 8th Avenue
Miami, FL 33169
Andrew Panzo(4) 35,000 *
401 City Avenue
Suite 725
Bala Cynwyd, PA 19004
Cecile T. Coady(5) 7,500 *
c/o 401 City Avenue
Suite 725
Bala Cynwyd, PA 19004
FAC Enterprises, Inc.(6) 1,569,510 48.3%
2715 Meadowood Drive
Ft. Lauderdale, FL 33332
GRA Investments Corp.(7) 479,687 14.7%
2715 Meadowood Drive
Ft. Lauderdale, FLA 33332
All Directors and Officers 42,500 1.3%
as a Group (2 Persons)
</TABLE>
- ----------------------------
*Less than 1%.
(1) Each stockholder listed in the table possesses either sole or shared
voting and investment power with respect to the shares listed opposite
the holder's name.
(2) Calculated based upon the outstanding number of shares (3,247,127) as
of the date of this Report.
(3) Reflects shares held by Madison House Group Partnership, an affiliate
of Mr. Levin. Mr. Levin had served as Chairman of the Board of
Directors until his resignation effective December 31, 1994.
(4) Includes 20,000 shares owned of record by American Maple Leaf
Financial Corporation. Mr. Panzo is a director, officer and principal
stockholder of American Maple Leaf Financial Corporation. See "ITEM
12. Certain Relationships and Related Transactions."
(5) Includes 7,500 shares owned by Exchequer Services Corp., a corporation
controlled by Ms. Coady.
20
<PAGE> 21
(6) Includes shares purchased in a private transaction with the Company on
November 3, 1995. These shares were purchased in units that
contained, in the aggregate, 5,493,285 common stock purchase warrants
that each grant the holder the option to purchase an additional share
for an exercise price of $.43. The shares issuable, if at all, upon
the exercise of the warrants have not been included in the calculation
of beneficial ownership. Howard M. Appel is the sole stockholder of
FAC Enterprises, Inc. and is also the son of Gerald R. Appel, the sole
stockholder of GRA Investments Corp., a principal stockholder of the
Company. However, FAC Enterprises, Inc. and Howard M. Appel disclaim
any beneficial ownership of the stock of the Company held by GRA
Investments Corp. By virtue of certain investment banking and
consulting services provided by Mr. Howard M. Appel, and certain
affiliates thereof, to Crawsfield Limited, Mr. Appel and his
affiliates may be viewed as an associate of Crawsfield Limited.
Crawsfield Limited owns 127,833 shares and until November 3, 1995, was
a principal stockholder of the Company.
(7) Gerald R. Appel is the sole stockholder of GRA Investments Corp. and
is also the father of Howard M. Appel, the sole stockholder of FAC
Enterprises, Inc., a principal stockholder of the Company. However,
GRA Investments Corp. and Gerald R. Appel disclaim any beneficial
ownership of the stock of the Company held by FAC Enterprises, Inc.
ITEM 12. Certain Relationships and Related Transactions.
1. Arrangements With the Company's Chairman and Former Principal
Stockholder. In conjunction with a broad-based recapitalization of the
Company's finances and capitalization that occurred during November 1993, the
Company entered into a number of transactions with George Levin, its former
Chairman of the Board of Directors and former principal stockholder, as
follows: (1) Mr. Levin exchanged approximately $731,000 of indebtedness owed to
him by the Company in return for 219,717 newly issued shares of common stock;
(2) the Company sold to an affiliate of Mr. Levin 100% of its interest in the
common stock of its former ToSi subsidiary and agreed to distribute to Mr.
Levin a certain leasehold interest (which effectively was assigned as of
January 1, 1994) in consideration for Mr. Levin's agreement to indemnify the
Company against certain liabilities of ToSi; and (3) the Company sold to an
affiliate of Mr. Levin 100% of its interest in the common stock of its former
Drew subsidiary in consideration for Mr. Levin's agreement to indemnify the
Company against certain liabilities of Drew.
The assignment of the Company's leasehold interest to Mr. Levin was to
have occurred pursuant to the terms of an agreement in November 1993, once the
Company secured relisting of its securities upon The NASDAQ Stock Market-Small
Cap Index. However, in view of
21
<PAGE> 22
the financial accounting treatment of this arrangement (which resulted in the
removal of this asset from the Company's financial statements), on July 19,
1994, the Board of Directors waived this condition to the transfer and agreed
to permit assignment of the leasehold interest effective as of January 1, 1994.
2. Repurchase of Certain Shares of Affiliates. During November
1994, the Company instituted the redemption and repurchasing of 644,563 shares
from shareholders who has purchased shares in the Company's November 1993
private placement at prices of $2.50 and $3.50. This included the repurchase
of 30,000 shares from an affiliate of GRA Investments Corp. for $60,000. The
Company also redeemed 80,000 shares that had been purchased by Crawsfield
Limited at $1.50 per share, for a price of $120,000.
3. Transactions with Associate of Crawsfield Limited. By virtue
of certain investment banking and consulting services provided by Mr. Howard M.
Appel, and certain affiliates thereof, to Crawsfield Limited, Mr. Appel and his
affiliates may be viewed as an associate of Crawsfield Limited. Crawsfield
Limited owns 127,833 shares and until November 3, 1995, Crawsfield Limited was
a principal stockholder of the Company.
Howard M. Appel is the sole stockholder of FAC Enterprises
Inc. and is also the son of Gerald R. Appel, who is the sole stockholder of GRA
Investments Corp.,a principal stockholder of the Company.
In July 1995, the Company sold the Eastwind Warrants to a
group of 6 purchasers for the aggregate purchase price of $100,000. Two of the
purchasers of the Eastwind Warrants were corporate affiliates of Howard M.
Appel.
In July 1995, the Company sold its remaining 53,500 shares of
NATK to an affiliate of Howard M. Appel for a promissory note of $50,000, which
was repaid in August 1995, together with interest at the rate of 10% per annum.
On November 3, 1995, FAC Enterprises, Inc. purchased 156,951 units,
with each unit consisting of ten (10) shares of Common Stock of the Company and
thirty-five (35) Common Stock Purchase Warrants, for an aggregate purchase
price of approximately $350,000.
4. Distribution of Securities to Certain Principal Stockholders.
During October 1994, certain of the Company's principal stockholders agreed to
surrender for cancellation shares of the Company's common stock, in return for
which the Company agreed to return to these stockholders shares of the common
stock of NATK and FWST that had originally been contributed to the Company in
conjunction with its November 1993 reorganization.
22
<PAGE> 23
<TABLE>
<CAPTION>
Name Shares Surrendered Shares Returned
- ---- ------------------ ---------------
<S> <C> <C>
GRA Investments
Corp. 325,000 111,500 shares of NATK
Crawsfield Limited 25,000 35,000 shares of FWST
</TABLE>
GRA Investments Corp. had originally contributed 225,000 shares of
NATK to the Company on February 1, 1994 in consideration for 825,000 shares of
the Company's common stock. In addition to the NATK shares listed above, GRA
Investments Corp. received 60,000 shares of NATK in February of 1995 in
consideration for certain consulting services.
Crawsfield Limited had originally contributed 35,000 shares of FWST to
the Company on February 1, 1994 in consideration for 150,000 shares of the
Company's common stock.
5. Investment Banking Arrangements. Andrew Panzo, a director and
President of the Company, is also a principal and director of American Maple
Leaf Financial Corporation ("AMLF"), an investment banking firm which
specializes in evaluating corporate finance opportunities for development stage
companies. Additionally, Howard M. Appel is the sole stockholder of FAC
Enterprises, Inc. ("FAC").
AMLF and FAC were instrumental in having identified,
negotiated and facilitated the Company's investment in Eastwind. AMLF and FAC
entered into an Investment Banking Agreement with Eastwind on January 25, 1995,
pursuant to which AMLF and FAC were retained by Eastwind to provide certain
investment banking and financial advisory services. Pursuant to the Investment
Banking Agreement, AMLF and FAC received certain shares of Eastwind common
stock and are entitled to receive certain monthly fees payable by Eastwind.
AMLF and FAC are further entitled to up to an additional 100,000 shares of
Common Stock and 150,000 Common Stock Purchase Warrants of Eastwind based upon
events such as exercise of the Company's warrants in Eastwind and AMLF and FAC
having been instrumental in securing or facilitating further equity investments
in Eastwind.
6. Advances and Fees Paid to Principal Stockholder. During
December 1993, the Company paid $105,000 to GRA Investments Corp. for
consulting services, structuring and providing financial advisory services in
connection with the Company's Private Placement transaction during the fourth
quarter of 1993. On March 15, 1995, the Company made a loan to GRA Investments
Corp. in the amount of $50,000, at an interest rate of 9%. This amount was
repaid on June 6, 1995, plus interest of $1,250.
7. Loan Involving Former Director. In February 1995, the Company
borrowed $250,000 from an unaffiliated third party (the
23
<PAGE> 24
"Third Party") for the purpose of funding the acquisition by the Company of
certain shares of the common stock of a privately held cruise line company (the
"Cruise Line Company"). The loan was due and payable on May 30, 1995, together
with interest at the rate of 15% per annum. The loan could be repaid, at the
option of the Third Party, by delivery to the Third Party of certain shares of
the Cruise Line Company to be acquired by the Company.
In a related transaction, on February 28, 1995, the Company
provided a loan of $250,000 to an affiliate of Mr. Jeffrey Binder, a former
director (the "Former Director") in connection with the acquisition by such
Former Director of shares of the common stock of the Cruise Line Company. The
purpose of this advance was to provide such Former Director with the funding to
permit the acquisition by such Former Director of shares of the Cruise Line
Company. This note provided the Former Director with the option to satisfy the
note in its entirety by delivery of certain shares of the Cruise Line Company
directly to the Third Party, and upon delivery to the Company of 10,000 shares
of the Cruise Line Company in return for facilitating the transaction.
The Company has been notified by its Former Director that he
intends to satisfy the loan by delivery to the Third Party of certain shares of
the Cruise Line Company. Similarly, the Company has received notification from
the Third Party that he has elected to exercise his option for the repayment of
the loan by delivery of shares of the Cruise Line Company, and that such
obligation shall be satisfied by the delivery of such shares by the Former
Director. The net effect of these transactions is that the Company will have
no direct financial interest in the matching loan transactions with the
exception that it is to receive 10,000 shares of the common stock of the Cruise
Line Company.
PART IV
ITEM 13. Exhibits and Reports on Form 8-K.
A. The following Financial Statements are filed as part of this
report:
<TABLE>
<CAPTION>
Page No.
-------
<S> <C>
Report of Independent Certified
Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Balance Sheets for the
years ended June 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Statements of Operations
for the years ended June 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
</TABLE>
24
<PAGE> 25
<TABLE>
<S> <C>
Statements of Stockholders'
Equity for the years ended June 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Statements of Cash Flows for the
years ended June 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8
</TABLE>
B. The following Exhibits are filed as a part of this Report:
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. TITLE METHOD OF FILING NO.
--- ----- ---------------- ---
<S> <C> <C>
3.1 Certificate of Incorporation dated Incorporated by reference to the
November 4, 1985 Company's initial Registration Statement,
File No. 33-1952-NY ("Registration
Statement")
3.2 Amended Certificate of Incorporation Incorporated by reference to the
dated April 14, 1987 Company's Registration Statement
3.3 Amended Certificate of Incorporation Incorporated by reference to the
dated October 9, 1987 Company's Annual Report on Form 10-KSB
for the fiscal year ended June 30, 1994
("1994 10-KSB")
3.4 Amended Certificate of Incorporation Incorporated by reference to the 1994
dated November 18, 1987 10-KSB
3.5 Amended Certificate of Incorporation Incorporated by reference to the 1994
dated December 9, 1987 10-KSB
3.6 Amended Certificate of Incorporation Incorporated by reference to
dated December 18, 1987 Post-Effective Amendment No. 3 to the
Company's Registration Statement filed on
or about May 2, 1989 ("Post-Effective
Amendment No. 3")
</TABLE>
25
<PAGE> 26
<TABLE>
<S> <C> <C>
3.7 Amended Certificate of Incorporation Incorporated by reference to the 1994
dated January 17, 1989 10-KSB
3.8 Amended Certificate of Incorporation Incorporated by reference to the
dated June 9, 1989 Company's Annual Report on Form 10-KSB
for the fiscal year ended June 30, 1993
("1993 10-KSB")
3.9 Amended Certificate of Incorporation Incorporated by reference to the 1993
dated August 2, 1993 10-KSB
3.10 Amended Certificate of Incorporation Incorporated by reference to the 1993
dated December 13, 1993 10-KSB
3.11 By-Laws of the Company Incorporated by reference to
Post-Effective Amendment No. 3
4.1 Form of Common Stock Certificate Incorporated by reference to Form 8-A
dated June 14, 1989
4.2 Form of Class A Redeemable Common Incorporated by reference to Form 8-A
Stock Purchase Warrant dated June 14, 1989
4.3 Form of Class B Redeemable Common Incorporated by reference to Form 8-A
Stock Purchase Warrant dated June 14, 1989
4.4 Warrant Agreement Incorporated by reference to Form 8-A
dated June 14, 1989
4.5 Amendment to Warrant Agreement Incorporated by reference to
Post-Effective Amendment No. 3
4.6 Amendment to Warrant Agreement Incorporated by reference to the 1993
10-KSB
4.7 Form of Securities Purchase Filed herewith
Agreement
</TABLE>
26
<PAGE> 27
<TABLE>
<S> <C> <C>
4.8 Form of Common Stock Purchase Filed herewith
Warrant (associated with Securities
Purchase Agreement).
10.1 Subscription Agreement and Incorporated by reference
Investment Letter - Sector to the 1993 10-KSB
Associates, Ltd. dated November 12,
1993
10.2 Securities Purchase Agreement dated Incorporated by reference
January 25, 1995 to the 1994 10-KSB
22 Subsidiaries of the Company N/A
</TABLE>
C. The Company also hereby incorporates by reference its Current
Reports on Form 8-K as follows:
During the fourth quarter of the Company's year ended June 30,
1995, the Company filed the following Reports on Form 8-K with the Securities
and Exchange Commission.
- June 1995 - Announcing that the Board of Directors had elected
to extend the date by which the Class B Warrants must be exercised to a date no
later than June 30, 1996.
27
<PAGE> 28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant certifies that it has reasonable grounds to believe that it
meets all the requirements for filing on Form 10-KSB, and has duly caused this
Form 10-KSB to be signed on its behalf by the undersigned, thereunto duly
authorized on the 7th of December, 1995.
SECTOR ASSOCIATES, LTD.
Dated: December 7, 1995
BY:/s/ANDREW PANZO
-------------------------------------
ANDREW PANZO, President
(Principal Executive Officer)
BY:/s/CECILE T. COADY
-------------------------------------
CECILE T. COADY, Secretary/Treasurer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Form 10-KSB has been signed by the following persons in the capacity and
on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ANDREW PANZO President 12/7/95
- --------------- (Principal Executive
ANDREW PANZO Officer)
/s/CECILE T. COADY Secretary/Treasurer 12/7/95
- ------------------ Director
CECILE T. COADY (Principal Accounting
Officer)
28
<PAGE> 29
SECTOR ASSOCIATES, LTD.
FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
<PAGE> 30
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors
Sector Associates, Ltd.
We have audited the accompanying balance sheet of Sector Associates, Ltd. (a
Delaware Corporation) as of June 30, 1994 and the related statements of
operations, stockholders' equity and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sector Associates, Ltd. at
June 30, 1994 and the results of its operations and its cash flows for the year
then ended in conformity with generally accepted accounting principles.
The Company had significant transactions with certain stockholders and
management as more fully described in Notes 4, 6 and 7 to the financial
statements. Whether the terms of these transactions would have been the same
had they been between wholly unrelated parties cannot be determined.
The Company discontinued all its operations in February 1993 and is currently
seeking to combine with another business. The success of this strategy is
dependent upon future events, the outcome of which is indeterminable.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred a net loss of $1,082,059 during the year ended June 30,
1994, and, as of that date, the Company had no operating assets. These factors,
among others, as discussed in Note 10 to the financial statements, raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 10. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Miami, Florida
September 18, 1994
<PAGE> 31
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Sector Associates, Ltd.
We have audited the accompanying balance sheet of Sector Associates, Ltd. (a
Delaware Corporation) as of June 30, 1995, and the related statements of
operations, stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sector Associates, Ltd. at
June 30, 1995, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
The Company had significant transactions with certain stockholders and
management as more fully described in Notes 4, 6 and 7 to the financial
statements. Whether the terms of these transactions would have been the same
had they been between wholly unrelated parties cannot be determined.
The Company discontinued all its operations in February 1993 and is currently
seeking to combine with another business. The success of this strategy is
dependent upon future events, the outcome of which is indeterminable.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial
statements, the Company incurred a net loss of $805,005 during the year ended
June 30, 1995, and, as of that date, the Company had no operating assets.
These factors, among others, as discussed in Note 10 to the financial
statements, raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans in regard to these matters are also
described in Note 10. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Bala Cynwyd, Pennsylvania
November 17, 1995
- 1
<PAGE> 32
SECTOR ASSOCIATES, LTD.
BALANCE SHEETS
JUNE 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------------- ----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 141,071 $ 2,357,600
Certificate of deposit 130,000 -
Note receivable and other receivable 20,000 380,374
Marketable equity securities 50,000 540,000
Investment 400,000 -
------------ ------------
TOTAL ASSETS $ 741,071 $ 3,277,974
============ ============
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 90,818 $ 85,190
------------ ------------
STOCKHOLDERS' EQUITY
COMMON STOCK, par value $.10 per share; 50,000,000
shares authorized; 2,034,129 shares at June 30,
1995 and 3,188,692 shares at June 30, 1994
issued and outstanding 203,413 318,869
ADDITIONAL PAID-IN CAPITAL 13,234,061 14,856,131
ACCUMULATED DEFICIT (12,787,221) (11,982,216)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 650,253 3,192,784
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 741,071 $ 3,277,974
============ ============
</TABLE>
See accompanying notes to financial statements.
- 2
<PAGE> 33
SECTOR ASSOCIATES, LTD.
STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
--------------- ----------------
<S> <C> <C>
REVENUES
Rental income $ - $ 125,370
Interest income 39,988 55,183
--------------- ----------------
39,988 180,553
--------------- ----------------
COSTS AND EXPENSES
General and administrative 363,638 496,607
Interest expense - 35,138
Unrealized loss on marketable equity securities 306,355 633,000
Loss on sale of subsidiary - 102,252
Bad debt 175,000 32,615
Other - (37,000)
--------------- -----------------
844,993 1,262,612
--------------- ----------------
NET LOSS $ (805,005) $ (1,082,059)
================ =================
NET LOSS PER COMMON SHARE $ (.32) $ (.51)
================ =================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
2,485,567 2,111,091
================ =================
</TABLE>
See accompanying notes to financial statements.
- 3
<PAGE> 34
SECTOR ASSOCIATES, LTD.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE, 1995 AND 1994
<TABLE>
<CAPTION>
Additional Accumulated
Common Stock Paid-in Capital Deficit
------------ --------------- ------------------
<S> <C> <C> <C>
Balance, June 30, 1993 $ 78,171 $10,195,298 $(10,900,157)
Issuance of 1,000,000 shares of common stock to a
related party and an unrelated party for
marketable equity securities in two unaffiliated
companies 100,000 1,073,000 -
Issuance of 1,132,917 shares common stock, and
618,750 Class F warrants, in a series of private
placements, net of expenses of $113,037 113,292 2,884,547 -
Stock dividend of 54,344 shares of common stock
(20%) to unaffiliated common stock stockholders 5,434 (5,434) -
Issuance of 219,717 shares of common stock to
satisfy related party debt obligations 21,972 708,720 -
Net loss - - (1,082,059)
-------- ----------- ------------
Balance, June 30, 1994 318,869 14,856,131 (11,982,216)
Return and cancellation of 225,000 shares of
common stock from a related party (22,500) 22,500 -
Issuance of 90,000 shares of common stock to a
significant stockholder previously contributed
for Drew acquisition 9,000 (9,000) -
Return and cancellation of 375,000 shares of
common stock to a related and unrelated party for
marketable equity securities (37,500) (76,651) -
Repurchase of 644,563 shares of common stock (64,456) (1,558,919) -
Net loss - - (805,005)
-------- ----------- ------------
Balance, June 30, 1995 $203,413 $13,234,061 $(12,787,221)
======== =========== =============
</TABLE>
See accompanying notes to financial statements.
- 4
<PAGE> 35
SECTOR ASSOCIATES, LTD.
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
-------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (805,005) $(1,082,059)
Adjustments to reconcile net loss to net
cash used in operating activities
Amortization - 71,880
Consulting fees 69,494 -
Write-off of stock subscription receivable - 1,250
Loss of investment in subsidiary - 102,252
Bad debt expense - 32,615
Unrealized loss on marketable equity securities 306,355 633,000
Changes in assets and liabilities
Increase in other receivable - net (20,000) -
Decrease in due from affiliates - 6,851
Increase in accounts payable and accrued 5,628 8,921
expenses
Decrease in due to affiliates - (4,695)
------------- ------------
Net cash used in operating activities (443,528) (229,985)
-------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment (500,000) -
Sale of investment 100,000 -
Decrease (increase) in note receivable 380,374 (380,374)
Purchase of certificate of deposit (130,000) -
-------------- -----------
Net cash used in investing activities (149,626) (380,374)
-------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal repayments on notes payable - (29,999)
Proceeds from sale of common stock - 3,110,876
Repurchase of common stock (1,623,375) -
Payment of expenses related to private placement - (113,037)
------------- ------------
Net cash provided by (used in) financing (1,623,375) 2,967,840
-------------- -----------
NET INCREASE (DECREASE) IN CASH (2,216,529) 2,357,481
CASH - BEGINNING OF YEAR 2,357,600 119
------------- -----------
CASH - END OF YEAR $ 141,071 $2,357,600
============= ==========
</TABLE>
See accompanying notes to financial statements.
- 5
<PAGE> 36
SECTOR ASSOCIATES, LTD.
STATEMENTS OF CASH FLOWS (Continued)
YEARS ENDED JUNE 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------------- ------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest $ - $35,138
================= =======
</TABLE>
NONCASH TRANSACTIONS FROM INVESTING AND FINANCING ACTIVITIES:
In November 1993, the Company issued 1,000,000 shares of common stock to a
related party and an unrelated party in return for stock in two
unaffiliated companies originally valued at $1,173,000 (see Note 4).
In April 1994, the board of directors approved the transfer of 90,000
shares held in escrow to a significant stockholder. These shares were
originally contributed to the Company by the significant stockholder for
the acquisition of Drew Communication Group, Inc. in 1993. These shares
were placed into escrow until the completion of the acquisition of Drew.
Litigation arose prior to the transfer of the shares to the owners of Drew.
As part of the settlement, the shares were returned to the Company and the
Company returned the shares to the significant stockholder, who had
originally contributed them for the purpose of the acquisition.
In July 1993, the board of directors declared a 20% common stock dividend
of 54,344 new shares to unaffiliated stockholders.
In November 1993, the Company issued 219,717 shares of common stock in
payment of $730,692 of indebtedness to affiliates.
In November 1993, the Company sold its subsidiary to a significant
stockholder for assumption of debt of $642,428 by buyer and the transfer of
assigned leasehold income of $754,680 for a loss of $102,252.
In November 1994, the Company returned certain marketable securities valued
at $114,151 (see Note 4) in exchange for cancellation of 375,000 shares of
the Company's common stock.
See accompanying notes to financial statements.
- 6
<PAGE> 37
SECTOR ASSOCIATES, LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
Organization
Sector Associates, Ltd. (a Delaware corporation) (the "Company") was formed in
1985 for the purpose of seeking business opportunities through acquisitions.
The Company commenced active operations in 1987 upon the acquisition of ToSI,
Inc. ("ToSI") which operated a number of retail furniture stores in the South
Florida region. Due to recurring losses, these operations were discontinued in
January 1993 and in November 1993 the Company sold 100% of the stock to an
affiliate of the Company's then principal stockholder. From March 1993 until
June 1993, the Company briefly engaged in the printing and graphic arts
business following the acquisition of Drew Communications Group, Inc. ("Drew")
until it ceased operations in July 1993. Presently the Company has no
continuing active business, however, as discussed in Note 10 - Future Plans for
Recovery, the Company is currently seeking to acquire operating businesses.
Principles of Consolidation
The financial statements for the year ended June 30, 1994 include the accounts
of Sector Associates, Ltd. and its wholly-owned subsidiary, ToSI, Inc.,
through November 1993, its date of sale. All significant intercompany accounts
and transactions are eliminated in consolidation.
Investment in Marketable Securities
On July 1, 1994, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 115 relating to investments in debt and equity
securities. Although the adoption of SFAS 115 changed the Company's reporting
for investments, it did not have a material impact upon its financial condition
or results of operations. The Company has classified all marketable equity
securities as trading, as management of the Company plans to sell these
securities in the near future and have been reported at fair value with
unrealized gains and losses recorded in the statement of operations.
Prior to July 1, 1994, marketable equity securities were stated at the lower of
aggregate cost or market at the balance sheet date. Unrealized losses were
recorded in the statement of operations.
Income Taxes
Deferred income taxes are determined in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". Under the
liability method specified by SFAS 109, deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax
bases of assets and liabilities as measured by the enacted tax rates which will
be in effect when these differences are settled or realized. Deferred tax
expense is the result of changes in deferred tax assets and liabilities.
Loss Per Common Share
Loss per common share is computed by dividing net loss applicable to common
stockholders by the weighted average number of common shares outstanding during
each year. Common stock equivalents are not included since their effect is
antidilutive.
NOTE 2 - CONCENTRATION OF CREDIT RISK
The Company maintains cash balances and a certificate of deposit at several
financial institutions located in the Northeast. Accounts at each institution
are insured by the Federal Deposit Insurance Corporation up to $100,000.
Uninsured balances aggregating approximately $53,000 at June 30, 1995. The
Company has not experienced any losses in such accounts and believes it is not
exposed to any significant credit risk on cash balances and the certificate of
deposit.
- 7
<PAGE> 38
SECTOR ASSOCIATES, LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
NOTE 3 - NOTES RECEIVABLE
In July 1994, the Company advanced $175,000 to TSS, Ltd. TSS owns and operates
proprietary electronic advertising and promotional network. TSS is a publicly
held company. In August 1994, the Company was informed that TSS no longer had
adequate capital resources to remain in operation as a going concern.
Accordingly, the Company wrote off the entire advance, which resulted in a
charge of $175,000 during the year ended June 30, 1995.
In the second quarter of fiscal 1994, the Company advanced $380,000 at an
interest rate of 10% per annum to Fertech Environmental, Inc. ("Fertech").
Fertech, whose operations commenced in 1992, is an environmental remediation
company with offices in Missouri, Texas, California and Alaska. The loan was
convertible at the Company's option into 500,000 shares of common stock of FAC,
Inc., a Delaware holding company whose sole asset is 100% of the common stock
of Fertech. The loan was payable on demand by lender, subject to sixty days
prior notice. The promissory note was collateralized by a blanket lien on the
assets of Fertech and a personal guaranty by the president of Fertech. The
conversion option was never exercised and, as a result, the promissory note was
repaid in August 1994.
NOTE 4 - MARKETABLE EQUITY SECURITIES
In November 1993, the board of directors approved the issuance of 1,000,000
shares of the Company's common stock for 250,000 shares of North American
Technologies Group, Inc. ("NATK") and 35,000 shares of Florida West Airlines,
Inc. (FWA) which transaction was valued at $1,173,000.
At June 30, 1994, due to a decline in market value below cost deemed to be
other than temporary, the securities were valued at $540,000 and an unrealized
loss of $633,000 was recorded in the statement of operations for the year ended
June 30, 1994.
During the first quarter of fiscal 1995, there was a further decline in market
value and an unrealized loss of $306,355 is reflected in the statement of
operations for the year ended June 30, 1995.
In November 1994, the Board of Directors approved the return of NATK and FWA
stock in exchange for the Company's stock because certain business transactions
that were contemplated at the time of the original transfer were not pursued.
The Company returned 122,142 shares of NATK in exchange for cancellation of
350,000 shares of the Company's stock and 35,000 shares of FWA in exchange for
cancellation of 25,000 shares of the Company's stock. The aggregate value of
the securities on the date of exchange was $114,151. Also in February 1995,
the Board of Directors approved the transfer of an additional 74,358 shares of
North American Technologies Group, Inc., valued at $69,494, held by the Company
to the original holders of the stock in consideration for certain consulting
services provided by such stockholders. The net result of these transactions
taking into account the various transfers that occurred in November 1994 and
February 1995, was that the Company retained 53,500 shares of NATK in return
for the issuance of a net amount of 625,000 shares of the Company's common
stock. In July 1995, the Company sold the remaining 53,500 shares of NATK for
$50,000.
- 8
<PAGE> 39
SECTOR ASSOCIATES, LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
NOTE 5 - INVESTMENT
In January 1995, the Company entered into an agreement to purchase 200,000
shares of common stock, 250,000 Class A Warrants (1 share of common stock for
$4.00), 187,500 Class B Warrants (1 share of common stock for $5.50), 250,000
Class C Warrants (1 share of common stock for $8.80) of Eastwind Group, Inc.
(Eastwind) for $500,000. The 200,000 shares represent approximately 21% of the
966,000 shares outstanding of Eastwind. Because the ownership is temporary,
the investment of $400,000 at June 30, 1995 is being carried at cost, which
approximates market.
In June 1995, the Company entered into an agreement to sell to an investor
group of six, of which two were affiliated, the Class A, Class B and Class C
Warrants for $100,000 of which $80,000 was received in June 1995 and the
remaining $20,000 in July 1995. At June 30, 1995, the $20,000 is reflected as
other receivables.
The Board of Directors authorized the distribution of the 200,000 shares of
common stock of Eastwind to its stockholders of record as of November 3, 1995.
The shares of Eastwind will be held in escrow by a Trustee and will be
distributed upon the effectiveness of the registration statement which has been
filed by Eastwind with the Securities and Exchange Commission.
NOTE 6 - RELATED PARTY TRANSACTIONS
Acquisition and Disposition of Subsidiaries
The Company's historic operations from 1987 until January 1993 had been
undertaken through its ToSI subsidiary and for a brief period following March
1993, through its Drew Communications Group, Inc. ("Drew") subsidiary.
During 1993, in accordance with escrow agreements from the purchase of ToSI in
1989, subsequently 305,000 shares of common stock were forfeited and placed in
the Company's treasury and cancelled for failure of ToSI to obtain specified
earnings levels.
On March 31, 1993, the Company acquired 100% of the common stock of Drew, a
Florida Corporation, in exchange for 90,000 shares of the Company's common
stock valued at $1,130,000 which were placed in escrow. These shares were
originally contributed to the Company by a significant stockholder for the
purchase of Drew. This acquisition was recorded on the Company's books as a
purchase. Advances of approximately $358,000 were made to Drew. Drew ceased
operations in July 1993, however, the investment and advances to Drew were
charged to operations in fiscal 1993.
The Company commenced legal action against the former owner of Drew for breach
of contract, damages and a rescission of the acquisition. In November 1993,
the Company transferred the Drew common stock to the significant stockholder
for indemnification of all liabilities, suits, actions and judgments against
the Company. In April 1994, the significant stockholder settled all litigation
relating to the Drew acquisition and since the 90,000 Sector shares were
returned to the Company as part of the settlement, the Company returned the
shares to the significant stockholder who had originally contributed them for
the purpose of the acquisition.
As a result of the foregoing, since June 1993 the Company deconsolidated Drew
and Drew's operations have never been included in the Company's financial
statements.
- 9
<PAGE> 40
SECTOR ASSOCIATES, LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
NOTE 6 - RELATED PARTY TRANSACTIONS (Continued)
In November 1993, the Company's then principal stockholder acquired 100% of the
stock of ToSI from the Company. In return for the stockholder assuming
$652,428 of ToSI debt with no assets, the Company assigned its assigned
leasehold income to the stockholder conditioned upon the Company securing
relisting of its outstanding common stock on the NASDAQ Stock Market - Small
Cap Index. On July 19, 1994, the Board of Directors of the Company waived all
conditions to such transfer and agreed to transfer the leasehold interest to
the principal stockholder effective as of January 1, 1994 with a book value of
$754,680, and also agreed to charge operations with the intercompany receivable
of $32,615. The stockholder agreed to indemnify the Company of any claims
resulting from ToSI. The Company recorded a loss on sale of the subsidiary of
$102,252 for the year ended June 30, 1994.
As a result of the foregoing, commencing with its quarterly financial
statements for the period ended March 31, 1994, the Company deconsolidated ToSI
and ToSI has not been included in the Company's financial statements.
Loan Involving Former Director
In February 1995, the Company borrowed $250,000 from an unaffiliated third
party for the purpose of funding the acquisition by the Company of certain
shares of the common stock of a privately held cruise line company (the "Cruise
Line Company"). The loan was due and payable on May 30, 1995, together with
interest at the rate of 15% per annum. The loan could be repaid, at the option
of the Third Party, by delivery to the Third Party of certain shares of the
Cruise Line Company to be acquired by the Company.
In a related transaction, on February 28, 1995, the Company provided a loan of
$250,000 to an affiliate of Mr. Jeffrey Binder, a former director (the "Former
Director") in connection with the acquisition by such Former Director of shares
of the common stock of the Cruise Line Company. The purpose of this advance
was to provide such Former Director with the funding to permit the acquisition
by such Former Director of shares of the Cruise Line Company. This note
provided the Former Director with the option to satisfy the note in its
entirety by delivery of certain shares of the Cruise Line Company directly to
the Third Party, and upon delivery to the Company of 10,000 shares of the
Cruise Line Company in return for facilitating the transaction.
The Company has been notified by its Former Director that he intends to satisfy
the loan by delivery to the Third Party of certain shares of the Cruise Line
Company. Similarly, the Company has received notification from the Third Party
that he has elected to exercise his option for the repayment of the loan by
delivery of shares of the Cruise Line company, and that such obligation shall
be satisfied by the delivery of such shares by the Former Director. The net
effect of these transactions is that the Company will have no direct financial
interest in the matching loan transactions with the exception that it is to
receive 10,000 shares of the common stock of the Cruise Line Company. As of
June 30, 1995, the Company has not assigned a value to these shares, since
there is no established market for the Common Stock.
Loan to Principal Stockholder
On March 15, 1995, the Company made a loan to a principal stockholder in the
amount of $50,000, at an interest rate of 9%. This amount was repaid on June
6, 1995, plus interest of $1,250.
Consulting Services
During 1994, the Company paid a significant stockholder $105,000 for consulting
services in connection with the Company's private placements in November 1993.
These amounts were charged against the proceeds received.
Administrative Support
Executive office space is provided at no cost by the president of the Company
who conducts significant other business operations out of the same offices.
Executive officers have not received any compensation for the years ended 1995
and 1994.
- 10
<PAGE> 41
SECTOR ASSOCIATES, LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
NOTE 7 - COMMON STOCK
In November 1993, the Company's then majority stockholder agreed to exchange
approximately $769,000 ($702,772 at June 1993) of indebtedness owed to him and
affiliated companies for 219,717 shares of the Company's common stock. The
stockholder also agreed to acquire 100% of the stock of ToSI, Inc. and to
indemnify the Company for any obligations or liabilities of ToSI. The Company
agreed to transfer its assigned leasehold income to a significant stockholder
subject to certain conditions. In January 1994, these assigned rights were
transferred to the stockholder (see Note 6 - Related Party Transactions).
In November 1993, the Company agreed to issue 1,000,000 shares of common stock
for: (i) shares of common stock of two unaffiliated companies valued at the
time at $1,173,000 in the aggregate; at June 30, 1994 the investments have a
carrying (market) value of $540,000 (see Note 4); and (ii) a firm commitment to
secure an additional $1,500,000 of equity financing.
Also in November 1993, the Company issued a total of 1,132,917 shares of common
stock in a series of private placements of securities for an aggregate of
$3,110,875 as follows: 381,500 shares of common stock at $1.50 per share or
$572,250 in the aggregate; 164,000 shares of common stock at $2.50 per share or
$410,000 in the aggregate; and 618,750 units at $3.50 per unit or $2,165,625 in
the aggregate. Each $3.50 unit consists of one share of common stock and one
Class F redeemable warrant.
Each Class F warrant entitles the holder to purchase one share of common stock
at an exercise price of $7.50 until November 1, 1998.
In October 1994, a significant stockholder agreed to return 225,000 shares of
common stock for cancellation.
In November 1994, the Company exchanged certain marketable securities (see Note
4) for the return and cancellation of 375,000 shares of common stock.
In November 1994, the Board of Directors approved the repurchase of 644,563
shares of the Company's stock for $1,623,375. The shares were repurchased
because the stock was originally sold in contemplation of certain transactions
taking place which did not occur. The repurchase represents approximately 57%
of the stock originally sold and 52% of the proceeds.
Stock Dividend and Stock Splits
In July 1993, the Company authorized a 20% stock dividend to all unaffiliated
stockholders and announced a 2 for 1 reverse stock split. In November 1993,
the Company effected a 10 for 1 reverse stock split. All common stock amounts
reflected in the accompanying financial statements have been restated to
reflect these reverse stock splits.
Redeemable Warrants
The Board of Directors elected to extend the date by which the Class B Warrants
must be exercised to a date no later than June 30, 1996. The total Class B
Warrants outstanding is 2,638,000 and each Class B Warrant entitles the holder
to purchase .0537 shares whereby approximately 18.62 Class B Warrants must be
exercised to receive one share of common stock. Accordingly, the Class B
Warrants bear an exercise price of $9.30 per share. At June 30, 1995 and 1994,
approximately 141,675 shares of common stock were reserved for exercise of the
Class B Warrants.
- 11
<PAGE> 42
SECTOR ASSOCIATES, LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
NOTE 8 - CONTINGENCIES
The Company was involved in several lawsuits. All of these lawsuits, except as
noted below, were resolved without any material impact to the Company.
The Company is currently involved in litigation regarding a creditor of Drew.
The Company acquired Drew in March 1993 and Drew ceased operations in July 1993
(See Note 6 - Related Party Transactions - Acquisition and Disposition of
Subsidiaries). The creditor is seeking collection of amounts owed of $825,000
and undefined punitive damages for improper liquidation of Drew to the benefit
of the Company and avoiding payments to creditors. This case has recently been
refiled but the Company feels there are several meritorious defenses to these
claims. The significant stockholder, who acquired Drew in November 1993, has
indemnified the Company relating to these claims. In the event that there is
an adverse judgment and this stockholder is unable to fully indemnify the
Company, the Company could incur expenses associated with this lawsuit. The
Company does not believe there will be any material adverse effect on the
Company from the lawsuit.
NOTE 9 - INCOME TAXES
The net operating loss carryforwards available to offset future taxable income
is approximately $1,204,000, which expire through 2010.
As a result of significant capital transactions described in Note 7, the
Company is subject to limitation on the future utilization of its remaining net
operating loss carryforwards. These limitations, described in Section 382 of
the Internal Revenue Code, limit the amount of future taxable income which may
be offset by pre-change net operating loss and capital loss carryforwards.
This limitation is calculated by reference to the value of the Company
immediately before the change date, multiplied by a discount factor, known as
the "long term tax-exempt rate". Due to the limited market for the stock, it
is difficult to ascertain what value would be assigned to the Company for
purposes of Section 382. However, Section 382 of the Code also provides that
in the event the business enterprise of the loss corporation is not continued
for the two year period commencing on the change date, the net operating loss
carryforwards may no longer be available.
The difference between the net operating losses available for income tax
purposes and the accumulated deficit of the Company are primarily caused by the
following: uniform cost capitalization requirements for income tax purposes
but not for financial reporting; the allocation to the Company and subsidiaries
of available tax net operating losses from prior consolidated groups; the
characterization of certain items as capital loss for tax purposes; permanent
differences in cost bases of certain investments and income-producing assets;
treatment of certain items as capital items for book purposes; and timing
differences in recognizing revenues and expenses for income tax and financial
reporting purposes.
The Company's loss in connection with its acquisition of Drew for year ended
June 30, 1993 and loss on marketable securities for year ended June 30, 1995
resulted in a capital loss of $970,000 and $785,000 for federal income tax
purposes. This loss may be carried forward and used to offset capital gains in
future years, expiring at the close of fiscal year 1998 and 2000. As discussed
herein, the changes in ownership of the Company may limit the availability of
such capital loss carryforwards for tax purposes.
There is no income tax benefit for operating losses for the years ended June
30, 1995 and 1994 due to the following:
- - Current tax benefit - the operating losses cannot be carried back to
earlier years.
- - Deferred tax benefit - the tax benefit of the net operating and capital
loss carryforwards and temporary differences described above amounting to
approximately $1,094,000 and$1,350,000 at June 30, 1995 and 1994 were
offset by a 100% valuation allowance. Management believes that a valuation
allowance is considered necessary since it is more likely than not that the
deferred tax asset will not be realized through future taxable income.
- 12
<PAGE> 43
SECTOR ASSOCIATES, LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
NOTE 10 - FUTURE PLANS FOR RECOVERY
On September 20, 1995, the Company entered into an Agreement and Plan of
Reorganization pursuant to which the Company has agreed to acquire 100% of the
issued and outstanding stock of Viragen (Scotland) Limited ("VSL") in exchange
for the distribution to Viragen, Inc., the sole stockholder of VSL, of newly
issued shares of convertible preferred stock that upon conversion will
represent 78,400,000 shares of Common Stock or approximately ninety-four
percent (94%) of the issued and outstanding shares of the Company.
Through a license granted by Viragen, Inc., VSL has secured certain rights to
engage in the research, development and manufacture of certain proprietary
products and technologies that relate to the therapeutic application of human
leukocyte interferon to various diseases that affect the human immune system.
Pursuant to these rights, on July 20, 1995 VSL entered into a License and
Manufacturing Agreement with the Common Services Agency ("Agency"), an agency
acting on behalf of the Scottish National Blood Transfusion Service ("SNBTS")
pursuant to which SNBTS, on behalf of VSL, will manufacture and supply VSL's
natural human interferon product to VSL for distribution in the United Kingdom
in return for certain fees. SNBTS' services will be subject to all the rules,
regulations and procedures that control the manufacture and distribution of the
interferon product and will also be subject to the terms of the License and
Manufacturing Agreement. It was critical to VSL's operations and to conduct
clinical trials to secure a facility which has available a sufficient qualified
source of blood. VSL is a newly formed corporation which commenced operations
concurrent with the execution of its agreement with the SNBTS.
The Company's historical and current liquidity and capital resources have been
based on its activities as a shell corporation with little or no operations,
however, the Company's operations will materially change upon the closing of
the Plan of Reorganization with VSL. In order to complete the closing of the
Plan of Reorganization, the Company will need to secure additional capital so
that upon the date of closing, it has a net worth of $800,000. Toward this
end, the Company has initiated a private placement transaction whereby it seeks
to raise the sum of approximately $750,000 through the sale to a limited number
of consolidated investors of up to 336,000 Units for a purchase price of $2.23
per Unit. Each Unit consists of ten (10) shares of Common Stock and
thirty-five (35) Common Stock Purchase Warrants that have an exercise price of
$.43 per share. On November 3, 1995, the Company realized gross proceeds of
approximately $350,000 through the sale of 156,951 Units to FAC Enterprises,
Inc. See "ITEM 12. Certain Relationships and Related Transactions" of Form
10-KSB for further information. In the event the Agreement and Plan of
Reorganization does not successfully close, the Company will continue its prior
operations of seeking potential business combinations.
Based on the foregoing, it is management's opinion that there will be
sufficient cash flow from current and future operations to meet the Company's
expected obligations. The ability of the Company to maintain and improve its
financial condition is dependent upon its ability to acquire a profitable
operating Company. The outcome of this matter cannot be predicted with
certainty.
- 13
<PAGE> 44
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. TITLE METHOD OF FILING
--- ----- ----------------
<S> <C> <C>
3.1 Certificate of Incorporation dated Incorporated by reference to the
November 4, 1985 Company's initial Registration Statement,
File No. 33-1952-NY ("Registration
Statement")
3.2 Amended Certificate of Incorporation Incorporated by reference to the
dated April 14, 1987 Company's Registration Statement
3.3 Amended Certificate of Incorporation Incorporated by reference to the
dated October 9, 1987 Company's Annual Report on Form 10-KSB
for the fiscal year ended June 30, 1994
("1994 10-KSB")
3.4 Amended Certificate of Incorporation Incorporated by reference to the 1994
dated November 18, 1987 10-KSB
3.5 Amended Certificate of Incorporation Incorporated by reference to the 1994
dated December 9, 1987 10-KSB
3.6 Amended Certificate of Incorporation Incorporated by reference to
dated December 18, 1987 Post-Effective Amendment No. 3 to the
Company's Registration Statement filed on
or about May 2, 1989 ("Post-Effective
Amendment No. 3")
3.7 Amended Certificate of Incorporation Incorporated by reference to the 1994
dated January 17, 1989 10-KSB
3.8 Amended Certificate of Incorporation Incorporated by reference to the
dated June 9, 1989 Company's Annual Report on Form 10-KSB
for the fiscal year ended June 30, 1993
("1993 10-KSB")
</TABLE>
<PAGE> 45
<TABLE>
<S> <C> <C>
3.9 Amended Certificate of Incorporation Incorporated by reference to the 1993
dated August 2, 1993 10-KSB
3.10 Amended Certificate of Incorporation Incorporated by reference to the 1993
dated December 13, 1993 10-KSB
3.11 By-Laws of the Company Incorporated by reference to
Post-Effective Amendment No. 3
4.1 Form of Common Stock Certificate Incorporated by reference to Form 8-A
dated June 14, 1989
4.2 Form of Class A Redeemable Common Incorporated by reference to Form 8-A
Stock Purchase Warrant dated June 14, 1989
4.3 Form of Class B Redeemable Common Incorporated by reference to Form 8-A
Stock Purchase Warrant dated June 14, 1989
4.4 Warrant Agreement Incorporated by reference to Form 8-A
dated June 14, 1989
4.5 Amendment to Warrant Agreement Incorporated by reference to
Post-Effective Amendment No. 3
4.6 Amendment to Warrant Agreement Incorporated by reference to the 1993
10-KSB
4.7 Form of Securities Purchase Filde herewith
Agreement
4.8 Form of Common Stock Purchase Filed herewith
Warrant (associated with Securities
Purchase Agreement).
10.1 Subscription Agreement and Incorporated by reference to the 1993
Investment Letter - Sector 10-KSB
Associates, Ltd. dated November 12,
1993
</TABLE>
<PAGE> 46
<TABLE>
<S> <C> <C>
10.2 Securities Purchase Agreement dated Incorporated by reference to the 1994
January 25, 1995 10-KSB
22 Subsidiaries of the Company N/A
</TABLE>
<PAGE> 1
Exhibit 4.7
<PAGE> 2
EXHIBIT 4.7
SECTOR ASSOCIATES, LTD.
-------------------------------------------
Securities Purchase Agreement
-------------------------------------------
Units consisting of ten (10) shares of Common Stock
and Thirty-Five (35) Common Stock Purchase
Warrants offered at $2.23 per Unit
-------------------------------------------
<PAGE> 3
CONFIDENTIAL
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is entered as of
the ___ day of _______, 1995, by and between Sector Associates, Ltd., a
Delaware corporation (the "Company"), and the investor whose name appears at
the end of this Agreement (in the alternative "Purchaser" or "Subscriber").
R E C I T A L S:
The Company wishes to obtain additional financing and the Purchaser
desires to provide such financing to the Company through the purchase of
certain Units which consist of Shares of Common Stock and Common Stock Purchase
Warrants being privately offered by the Company.
NOW, THEREFORE, in consideration of the premises hereof and the
agreements set forth herein below, the parties hereto hereby agree as follows:
1. Sale and Purchase of Units.
(a) Subject to the terms and conditions herein, on the
Closing Date, as defined in Section 4 hereof, the Company agrees to issue and
sell, and the Purchaser agrees to purchase, that number of Units as are
indicated on the last page of this Agreement, each Unit consisting of ten (10)
shares of the Common Stock of the Company and thirty-five (35) Common Stock
Purchase Warrants (the "Warrants"). The purchase price per Unit shall be $2.23
(the "Purchase Price"). Each Warrant entitles the holder to purchase one share
of Common Stock at an exercise price of $.43 per share for a three-year period
from the date hereof.
(b) The Shares of Common Stock, Warrants and Shares
of Common Stock being offered pursuant to this Securities Purchase
Agreement constitute "restricted securities" under Rule 144 promulgated under
the Securities Act of 1933, as amended (the "Act"). As such, the resale of such
securities are subject to significant restrictions upon resale. See Paragraph 7
hereafter "Understanding of Investment Risks." The Shares of Common Stock and
Shares of Common Stock issuable upon exercise of the Warrants are subject to
certain registration rights being offered by the Company more fully identified
at Paragraph 3 hereafter - "Registration Rights."
Purchaser's
Initials________
<PAGE> 4
(c) Prior to the exercise of the Warrants, holders of the
Warrants will be entitled to no voting rights or other rights provided by law
to security holders of the Company.
2. Units Offered In A Private Placement Transaction.
(a) The Units subject to this Securities Purchase
Agreement are to be offered as part of a private placement transaction (the
"Offering") by the Company on a "best efforts" basis of up to 336,000 Units to
be offered to a number of sophisticated and accredited investors. There can be
no assurances, however, that this number of Units will be sold. The Company
reserves the right to increase the number of Units sold without notice to or
consent of the Subscribers or existing Unit holders.
(b) The Units are being offered to a limited number of
accredited and other sophisticated investors by the Company directly, without
sales commission, or by qualified brokers ("Selling Agents") engaged by the
Company who are registered with the Securities and Exchange Commission and are
members in good standing of the National Association of Securities Dealers,
Inc., upon the payment of up to a 10% sales commission.
3. Registration Rights
The Company has agreed to grant the holders of the Units
certain limited registration rights as to the registration of the resale of the
Common Stock included within the Units and issuable upon exercise of the
Warrants as described in the Agreement and Plan of Reorganization between the
Company and Viragen (Scotland) Limited and Viragen, Inc. dated September 20,
1995, as amended (the "Plan of Reorganization") and more specifically Exhibit
"D" thereto.
4. Binding Effect of Securities Purchase Agreement; The Closing.
(a) This Securities Purchase Agreement shall not be
binding on the Company unless and until the Company has accepted the offer
represented by an executed signature page at the end hereof. The Company may
accept or reject this Securities Purchase Agreement in the Company's sole
discretion, if the Purchaser does not meet the suitability standards
established herein or for any other reason. In the event the Company rejects
this Agreement, the Purchaser's funds will be promptly returned without
deduction of any costs and with interest to the extent obtained.
Purchaser's
2 Initials________
<PAGE> 5
(b) The closing of the purchase and sale of the Units
hereunder (the "Closing") shall occur concurrently upon acceptance by the
Company of this Securities Purchase Agreement and deposit by the Company of
funds representing the Purchase Price. Notwithstanding the above, the Company
reserves the right to reject a subscription within ten (10) days of receipt of
the Purchase Price should the Company determine during that period that the
Subscriber does not satisfy the subscriber qualifications or suitability
standards established hereafter.
5. Delivery by the Company. The Company shall deliver to the
Purchaser within ten (10) days after the Closing:
(a) A stock certificate bearing applicable restrictive
legends, duly executed by the appropriate officer(s) and registered in
Purchaser's name or its nominee; and
(b) The Warrants, the form of which is attached hereto as
Exhibit "A", duly executed by the appropriate officer(s) and registered in the
Purchaser's name or any nominee thereof.
6. Representations and Warranties of the Purchaser. The
Purchaser represents and warrants to the Company as follows:
(a) Access to Information. Purchaser has had access to
all material and relevant information concerning the Company, its management,
financial condition, capitalization, market information, properties and
prospects necessary to enable Purchaser to make an informed investment decision
with respect to its investment in the Units. Purchaser acknowledges that it
has been provided with, and carefully reviewed, the Plan of Reorganization, a
copy of which is attached hereto as Exhibit "B". Purchaser acknowledges that
it has had the opportunity to ask questions of and receive answers from, and to
obtain additional information from, the Company or its representatives
concerning the terms and conditions of the acquisition of the Units and the
present and proposed business and financial condition of the Company and has
had all such questions answered to its satisfaction and has been supplied all
information requested.
(b) SEC Reports. Purchaser acknowledges that it has been
provided with and has carefully reviewed a copy of the Company's Annual Report
on Form 10-KSB for the year ended June 30, 1994 and the Company's Quarterly
Reports on Form 10-QSB for the quarters ended September 30, 1994, December 31,
1994 and March 31, 1995.
Purchaser's
3 Initials________
<PAGE> 6
(c) Financial Matters and Sophistication. Purchaser has
such knowledge and experience in business and financial matters, such that it
is capable of evaluating the merits and risks of purchasing the Units.
Purchaser represents that it satisfies the suitability standards identified at
Paragraph 10 hereafter.
(d) Investment Intent. (i) Purchaser is acquiring the
Units for its own account and not on behalf of any other person; (ii)
Purchaser is acquiring the Units for investment and not with a view to
distribution or with the intent to divide its participation with others by
reselling or otherwise distributing the Units; and (iii) Purchaser will not
sell the Units without registration under the Act and any applicable state
securities laws, or unless the Company receives an opinion of counsel
reasonably acceptable to it (as to both counsel and the opinion) to the effect
that such registration is not necessary.
7. Understanding of Investment Risks. An investment in the Units
should not be made by a Purchaser who cannot afford the loss of his entire
Purchase Price. THE PURCHASER ACKNOWLEDGES THAT THE SECURITIES OFFERED HEREBY
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION, OR ANY STATE SECURITIES COMMISSIONS, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ADEQUACY
OR ACCURACY OF THIS SECURITIES PURCHASE AGREEMENT OR ANY EXHIBIT HEREOF. PRIOR
TO MAKING AN INVESTMENT IN THE UNITS, THE PURCHASER HAS FULLY CONSIDERED, AMONG
OTHER THINGS, THE FOLLOWING RISK FACTORS:
(a) Need for Additional Financing. The net proceeds from
this Offering will be utilized to provide the additional equity required in
conjunction with the consummation of the Plan of Reorganization and to
otherwise facilitate the growth of the Company.
(b) Restricted Securities. Neither the Shares of Common
Stock nor the Shares of Common Stock issuable upon exercise of the Warrants,
have been registered under the Act or any state securities or blue-sky law and
Subscribers may not sell or otherwise transfer the Units or components thereof
except pursuant to registration under the Act and any applicable state
securities laws or exemptions therefrom. Because of such restrictions, a
Subscriber for Units must bear the economic risks of such investment for an
indefinite period of time.
(c) No Firm Commitment to Purchase Units. The Company
intends to conduct the offer and sale of Units covered by this and other
Securities Purchase Agreements on a "best efforts" basis. To
Purchaser's
4 Initials________
<PAGE> 7
date, the Company has received no firm commitments from any Selling Agents,
underwriters or other persons to purchase any of the Units.
(d) Arbitrary Offering Price. The offering price of the
Units offered hereby has been arbitrarily determined by the Company. Such
price was, however, determined by reference to the current market price,
business and financial condition of the Company, the general condition of the
securities markets and the current capital needs of the Company. There can be
no assurances that the offering price is representative of the actual value of
the Units.
(e) Dividends. The payment of dividends is not contemplated
in the foreseeable future. The payment of future dividends will be directly
dependent upon the earnings of the Company, its financial needs and other
similarly unpredictable factors. Earnings are expected to be retained to
finance and develop the Company's business.
(f) No Legal or Tax Advice. The Purchasers hereof should
consult with their respective counsel, accountant or business adviser as to
legal, tax and related matters concerning investment in the Units offered
hereby. An investment in the Units may involve certain material federal and
state tax consequences.
(g) Future Sales of Common Stock. Certain of the Company's
Shares of Common Stock currently outstanding are "restricted securities" as
that term is defined in Rule 144 promulgated under the Act and under certain
circumstances may be sold without registration pursuant to such Rule. The
Company is unable to predict the effect that sales made under Rule 144, or
otherwise, may have on the then prevailing market price of the Common Stock
although any substantial sale of restricted securities pursuant to Rule 144 may
have an adverse effect.
(H) RISK RELATED TO REGISTRATION RIGHTS. IN CONNECTION WITH
THE LIMITED REGISTRATION RIGHTS GRANTED TO HOLDERS OF THE UNITS, THE COMPANY
HAS AGREED TO UTILIZE ITS BEST EFFORTS TO FILE A REGISTRATION STATEMENT. THE
COMPANY'S OBLIGATION IN THIS REGARD IS TO PREPARE AND FILE AND USE ITS BEST
EFFORTS TO FILE A REGISTRATION STATEMENT WITHIN THE SPECIFIED TIME PERIOD.
ALTHOUGH THE COMPANY WILL USE ITS BEST EFFORTS TO COOPERATE WITH THE SEC IN
ORDER TO SECURE EFFECTIVENESS OF THE REGISTRATION STATEMENT AS SHORTLY
THEREAFTER AS IT PRACTICABLE, THERE CAN BE NO ASSURANCES AS TO WHEN THIS WILL
OCCUR, IF AT ALL. IT IS NOT UNUSUAL FOR THIS PROCESS TO TAKE SEVERAL MONTHS,
IF NOT LONGER.
Purchaser's
5 Initials________
<PAGE> 8
8. Understanding of Nature of Securities. Purchaser understands
that:
(a) The Units or any components thereof (collectively,
the "Securities") have not been registered under the Act or any state
securities laws and are being issued and sold in reliance upon certain of the
exemptions contained in the Act and under applicable state securities laws.
(b) The Securities are "restricted securities" as that
term is defined in Rule 144 promulgated under the Act.
(c) The Securities cannot be sold or transferred without
registration under the Act and applicable state securities laws, or unless the
Company receives an opinion of counsel reasonably acceptable to it (as to both
counsel and the opinion) that such registration is not necessary.
(d) The Securities and any certificates issued in
replacement therefor shall bear the following legends, in addition to any other
legend required by law or otherwise:
"The securities represented by this certificate have
not been registered under the Securities Act of 1933,
as amended. The securities represented by this
certificate have been taken by the registered owner
for investment, and without a view to resale or
distribution thereof, and may not be transferred or
disposed of without an opinion of counsel
satisfactory to the issuer that such transfer or
disposition does not violate the Securities Act of
1933, as amended, or the rules and regulations
thereunder."
(e) Only the Company can register the Securities under
the Act and applicable state securities laws.
(f) For Purchasers who are "Non-U.S. Persons" who are
purchasing pursuant to Regulation S promulgated under Act, Purchaser
additionally acknowledges that: (i) the Securities being acquired pursuant to
this Agreement have not been registered under the Act in reliance upon the
exemption from such registration requirements afforded by Regulation S under
the Act, governing the offer and sale of securities that occur outside the
U.S., nor with any state securities commission; (ii) by its purchase of the
Securities, the Purchaser represents and warrants that he/she is not a national
or resident of the U.S., within the meaning of Regulation S under the Act and
agrees that the Securities acquired
Purchaser's
6 Initials________
<PAGE> 9
by it pursuant to this Agreement shall not be voluntarily sold, transferred or
otherwise disposed of to a U.S. person (as defined by Regulation S) except in
compliance with Regulation S; and (iii) the Regulation S Shares shall have the
following legend on the certificates,
"THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT") AND ARE BEING TRANSFERRED
PURSUANT TO THE EXEMPTION UNDER REGULATION S. NO SHARES OF
THE STOCK MAY BE OFFERED, SOLD, OR TRANSFERRED (INCLUDING ANY
INTERESTS THEREIN) IN THE UNITED STATES OR TO A "U.S. PERSON"
(as defined in Regulation S promulgated under the Act) OR FOR
THE ACCOUNT AND BENEFIT OF A U.S. PERSON, EXCEPT AS PROVIDED
IN SAID REGULATION S, UNLESS THE STOCK IS REGISTERED UNDER THE
ACT OR EXEMPTION FROM SUCH REGISTRATION UNDER THE ACT IS
APPLICABLE, AS EVIDENCED BY AN OPINION OF HOLDER'S COUNSEL
ACCEPTABLE TO THE COMPANY."
9. Warranties and Representations of the Company. The Company
represents and warrants to Purchaser as follows:
(a) Organization and Standing of the Company. The
Company is a duly organized and validly existing corporation in good standing
under the laws of the State of Delaware with adequate power and authority to
conduct the business in which it is now engaged and has the corporate power and
authority to enter into this Agreement, and is in good standing in such other
states or jurisdictions as is necessary to enable it to carry on its business;
(b) Corporate Power and Authority. The execution and
delivery of this Agreement and the transaction contemplated hereby has been
duly authorized by the Company's Board of Directors. No other corporate act or
proceeding on the part of the Company is necessary to authorize this Agreement
or the consummation of the transaction contemplated hereby. When duly executed
and delivered by the parties hereto, this Agreement will constitute a valid and
legally binding obligation of the Company enforceable against the Company in
accordance with its terms; and
(c) Securities. All the Securities have been duly
authorized and, upon issuance and sale pursuant to the terms of this Agreement,
will have been validly issued fully paid and non-assessable and will be free
and clear of all liens, claims and encumbrances.
Purchaser's
7 Initials________
<PAGE> 10
10. IMPORTANT CONSIDERATIONS: SUITABILITY STANDARDS - WHO SHOULD
INVEST
INVESTMENT IN THE UNITS INVOLVES A DEGREE OF RISK AND IS
SUITABLE ONLY FOR PERSONS OF SUBSTANTIAL FINANCIAL RESOURCES WHO HAVE NO NEED
FOR LIQUIDITY IN THEIR INVESTMENT.
A substantial number of state securities commissions have
established investor suitability standards for the marketing within their
respective jurisdictions of restricted securities. Some have also established
minimum dollar levels for purchases in their states. The reasons for these
standards appear to be, among others, the relative lack of liquidity of
securities of such programs as compared with other securities investments.
Investment in the Units involves a degree of risk and is suitable only for
persons of substantial financial means who have no need for liquidity in their
investments.
The Company has adopted as a general investor suitability
standard the requirement that each subscriber for Units represent in writing
that the Subscriber: (a) is acquiring the Units for investment and not with a
view to resale or distribution; (b) can bear the economic risk of losing its
entire investment; (c) its overall commitment to investments which are not
readily marketable is not disproportionate to its net worth, and an investment
in the Units will not cause such overall commitment to become excessive; (d)
has adequate means of providing for its current needs and personal
contingencies and has no need for liquidity in this investment in the Units;
(e) has evaluated all the risks of investment in the Company; and (f) has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of investing in the Company or is relying on
its own purchaser representative, in making an investment decision.
In addition, all its Subscribers for Units must be extremely
sophisticated investors with substantial net worth and experience in making
investments of this nature and be "accredited investors," as defined in Rule
501 of Regulation D under the Act, by meeting any of the following conditions:
(i) has an individual income in excess of $200,000 in each of
the two most recent years or joint income with his or her subscriber spouse in
excess of $300,000 in each of those years, and he or she reasonably expects an
income in excess of the aforesaid levels in the current year, or
Purchaser's
8 Initials________
<PAGE> 11
(ii) he or she has an individual net worth, or a joint net
worth with his or her spouse, at the time of his or her purchase, in excess of
$1,000,000 (net worth for these purposes includes homes, home furnishings and
automobiles), or
(iii) he or she otherwise satisfies the Company that he or
she is an accredited investor, as defined in Rule 501 under the Act.
Other categories of investors included within the definition
of accredited investor include the following: certain institutional investors,
including certain banks, whether acting in their individual or fiduciary
capacities; certain insurance companies; federally registered investment
companies; business development companies, (as defined under the Investment
Company Act of 1940); Small Business Investment Companies licensed by the Small
Business Administration; certain employee benefit plans; private business
development companies, (as defined in the Investment Advisers Act of 1940); tax
exempt organizations (as defined in Section 501(c)(3) of the Internal Revenue
Code) with total assets in excess of $5,000,000; entities in which all the
equity owners are accredited investors; and certain Affiliates of the Company.
A partnership subscriber, which satisfies the requirements set
forth in clauses (a) through (f) above shall satisfy the suitability standards
if it is an accredited investor by reason of clause (iii) above, or if all of
its partners are accredited investors. A corporate subscriber, which satisfies
the requirements set forth in clauses (a) through (f) above shall satisfy the
investor suitability standards if it is an accredited investor by reason of
clause (iii) above, or if all of its shareholders are accredited investors.
Corporate subscribers must have net worth of at least three (3) times the
amount of their investment in the Units.
The suitability standards referred to above represent minimum
suitability requirements for prospective purchasers and the satisfaction of
such standards by a prospective purchaser does not necessarily mean that the
Units are a suitable investment for such purchaser. The Company may, in
circumstances it deems appropriate, modify such requirements. The Company may
also reject subscriptions for whatever reasons, in its sole discretion, it
deems appropriate.
Securities Purchase Agreements may not necessarily be accepted
in the order in which received. Purchasers who are residents of certain states
may be required to meet certain additional suitability standards.
Purchaser's
9 Initials________
<PAGE> 12
THE ACCEPTANCE OF A SUBSCRIPTION FOR UNITS BY THE COMPANY DOES
NOT CONSTITUTE A DETERMINATION BY THE COMPANY THAT AN INVESTMENT IN THE UNITS
IS SUITABLE FOR A PROSPECTIVE INVESTOR. THE FINAL DETERMINATION OF THE
SUITABILITY OF INVESTMENT IN THE UNITS MUST BE MADE BY THE PROSPECTIVE INVESTOR
AND HIS OR HER ADVISERS.
11. State Laws Considerations
(a) Florida Residents.
Pursuant to Section 517.061(11)(a)(5) of the Florida
statute, when sales are made to five or more persons in Florida, Florida
investors have a three day right of rescission. If a Florida resident has
executed a Securities Purchase Agreement, he may elect, within three business
days after signing the subscription agreement, to withdraw from the Agreement
and to receive a full refund and return (without interest) of any money paid by
him. A Florida resident's withdrawal will be without any further liability to
any person. To accomplish such withdrawal, a Florida resident need only send a
letter or telegram to the Company at the address set forth in this Agreement
indicating their intention to withdraw. Such letter or telegram must be sent
and postmarked prior to the end of the aforementioned third business day. If a
Florida resident sends a letter, it is prudent to send it by certified mail,
return receipt requested, to insure that it is received and also to evidence
the time and date when it is mailed. Should a Florida resident make this
request orally, he should ask for written confirmation that his request has
been received.
(b)(i) PENNSYLVANIA RESIDENTS.
IF A SUBSCRIBER IS A PENNSYLVANIA RESIDENT, HE HAS
THE RIGHT TO CANCEL AND WITHDRAW THIS SECURITIES PURCHASE AGREEMENT AND HIS
PURCHASE OF UNITS UPON WRITTEN NOTICE TO THE GIVEN WITHIN TWO BUSINESS DAYS
FOLLOWING THE DATE OF RECEIPT BY THE COMPANY OF THE PURCHASER'S EXECUTED
SECURITIES PURCHASE AGREEMENT. UPON SUCH CANCELLATION OR WITHDRAWAL, HE WILL
HAVE NO OBLIGATION OR DUTY UNDER THIS SECURITIES PURCHASE AGREEMENT AND WILL BE
ENTITLED TO THE FULL RETURN OR ANY AMOUNT PAID BY HIM PURSUANT TO THIS
AGREEMENT. THE UNDERSIGNED FURTHER ACKNOWLEDGES THAT HE UNDERSTANDS THAT ANY
NOTICE OF CANCELLATION OR WITHDRAWAL SHOULD BE MADE BY TELEGRAPH OR CERTIFIED
OR REGISTERED MAIL AND WILL BE EFFECTIVE UPON DELIVERY TO WESTERN UNION OR
DEPOSIT IN THE UNITED STATES MAILS, POSTAGE OR OTHER TRANSMITTAL FEES PAID.
Purchaser's
10 Initials________
<PAGE> 13
(ii) IF HE IS A PENNSYLVANIA RESIDENT, except for
the right of cancellation described in subsection (i), he may not sell his
Units for twelve months from the date of purchase as such a sale would violate
Section 203(d) of the Pennsylvania Securities Act of 1972 and the regulations
promulgated thereunder.
(c) New York Residents
This Securities Purchase Agreement has not
been filed with or reviewed by the Attorney General of the State of New York
prior to its issuance and use. The Attorney General of the State of New York
has not passed on or endorsed the merits of this Agreement. Any representation
to the contrary is unlawful. This Agreement does not contain an untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made. In light of the circumstances under with they were made,
not misleading, it contains a fair summary of the material terms of documents
purported to be summarized herein.
(d) New Jersey Residents.
Neither the Attorney General of the State nor
the Bureau of Securities has passed on or endorsed the merits of this
Securities Purchase Agreement. The filing of the Securities Purchase Agreement
with the Bureau of Securities does not constitute approval of the issue or the
sale thereof by the Bureau of Securities or the Department of Law and public
safety of the State of New Jersey. Any representation to the contrary is
unlawful.
12. Notices. All notices, requests, consents or other
communications required or permitted hereunder shall be in writing and shall be
hand delivered or mailed first class postage prepaid, registered or certified
mail, to the following addresses:
If to the Company:
Sector Associates, Ltd.
401 City Avenue
Suite 725
Bala Cynwyd, PA 19004
Attention: Mr. Andrew Panzo
In the case of Purchaser:
To the address set forth at the end of this Agreement
Purchaser's
11 Initials________
<PAGE> 14
or to such other addresses as may be specified in accordance herewith from time
to time.
Such notices and other communications shall for all purposes
of this Agreement be treated as being effective upon being delivered personally
or, if sent by mail, five days after the same has been deposited in a regularly
maintained receptacle for the deposit of United States mail, addressed as set
forth above, and postage prepaid.
13. Survival of Representations and Warranties. Representations
and warranties contained herein shall survive the execution and delivery of
this Agreement.
14. Parties in Interest. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and permitted assigns of the parties hereto,
provided that this Agreement and the interests herein may not be assigned by
either party without the express written consent of the other party.
15. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
16. Sections and Other Headings. The section and other headings
contained in this Agreement are for the convenience of reference only, do not
constitute part of this Agreement or otherwise affect any of the provisions
hereof.
17. Counterpart Signatures. This Agreement may be signed in
counterpart and all counterparts together shall become effective only when the
counterpart(s) have been executed and delivered by and on behalf of the Company
and the Purchaser.
IN WITNESS WHEREOF, intending to be legally bound, the parties hereto
have caused this Agreement to be signed by their duly authorized officers.
Purchaser
By:
--------------------------------------------
Name (Please Print)
--------------------------------------------
Name (Signature)
Purchaser's
12 Initials________
<PAGE> 15
Residence of Purchaser:
---------------------------------------------
---------------------------------------------
Social Security No.
--------------------------
___________/$_______________
Number and dollar amount
of Units purchased.
Attest: Agreed and Accepted
by SECTOR ASSOCIATES, LTD.
By:
- ---------------------------- -----------------------------
Secretary Authorized Executive Officer
Purchaser's
13 Initials________
<PAGE> 1
Exhibit 4.8
<PAGE> 2
EXHIBIT 4.8
FORM OF
WARRANT TO PURCHASE
COMMON STOCK OF
SECTOR ASSOCIATES, LTD.
Void after 5:00 p.m. Eastern Standard Time on _____________ __, 1998.
This is to verify that, FOR VALUE RECEIVED,
_____________________________________________, with a principal address as
indicated on the Company's books and records, or assigns (hereinafter referred
to as the "Holder") is entitled to purchase, subject to the terms and
conditions hereof, from Sector Associates, Ltd., a Delaware corporation
("Company"), ________ shares of Common Stock, (the "Common Stock") during the
period commencing at 9:00 a.m., Eastern Standard Time on _____________ __, 1995
(the "Commencement Date") and ending at 5:00 p.m. Eastern Standard Time on
_____________ __, 1998, (the "Termination Date") at an exercise price of $.43
per share of Common Stock. The number of shares of Common Stock purchasable
upon exercise of this Warrant (the "Warrant(s)") and the exercise price per
share shall be subject to adjustment from time to time upon the occurrence of
certain events as set forth below.
The shares of Common Stock or any other shares or other units of stock
or other securities or property, or any combination thereof then receivable
upon exercise of this Warrant, as adjusted from time to time, are sometimes
referred to hereinafter as "Exercise Shares". The exercise price per share as
from time to time in effect is referred to hereinafter as the "Exercise Price".
1. Exercise of Warrant; Issuance of Exercise Shares.
(a) Exercise of Warrant. This Warrant may be exercised in whole
or in part at any time or from time to time on or after the Commencement Date
and until and including the Termination Date; provided, however, that this
Warrant may not be exercised until the Company's Certificate of Incorporation
is amended, if at all, to authorize sufficient shares of Common Stock to permit
the conversion of all outstanding shares of the Company's Series B Convertible
Preferred Stock and all of the shares of Common Stock issuable upon exercise of
this Warrant. This Warrant may be surrendered on any business day to the
Company at its principal office, presently located at the address of the
Company set forth in Paragraph 9 hereof, (or such other office of the Company,
if any, as shall theretofore have been designated by the Company by written
notice to the Holder), together with: (i) a completed and
<PAGE> 3
executed Notice of Warrant Exercise in the form set forth in Appendix A hereto
and made a part hereof and (ii) payment of the full Exercise Price for the
amount of Exercise Shares set forth in the Notice of Warrant Exercise, in
lawful money of the United States of America by certified check or cashier's
check, made payable to the order of the Company.
In the event that this Warrant shall be duly exercised in part prior
to the Termination Date, the Company shall issue a new Warrant or Warrants of
like tenor evidencing the rights of the Holder thereof to purchase the balance
of the Exercise Shares purchasable under the Warrant so surrendered that shall
not have been purchased.
No adjustments shall be made for any cash dividends on Exercise Shares
issuable upon exercise of the Warrant. The Company shall cancel Warrant
Certificates surrendered upon exercise of Warrants.
(b) Issuance of Exercise Shares; Delivery of Warrant Certificate.
The Company shall, within ten (10) business days or as soon thereafter as is
practicable of the exercise of this Warrant, issue in the name of and cause to
be delivered to the Holder (or such other person or persons, if any, as the
Holder shall have designated in the Notice of Warrant Exercise) one or more
certificates representing the Exercise Shares to which the Holder (or such
other person or persons) shall be entitled upon such exercise under the terms
hereof. Such certificate or certificates shall be deemed to have been issued
and the Holder (or such other person or persons so designated) shall be deemed
to have become the record holder of the Exercise Shares as of the date of the
due exercise of this Warrant.
(c) Exercise Shares Fully Paid and Non-assessable. The Company
agrees and covenants that all Exercise Shares issuable upon the due exercise of
the Warrant represented by this Warrant Certificate will, upon issuance in
accordance with the terms hereof, be duly authorized, validly issued, fully
paid and non-assessable and free and clear of all taxes (other than taxes
which, pursuant to Paragraph 2 hereof, the Company shall not be obligated to
pay) or liens, charges, and security interests created by the Company with
respect to the issuance thereof.
(d) Reservation of Exercise Shares. At the time of or before
taking any action which would cause an adjustment pursuant to Paragraph 6
hereof increasing the number of shares of capital stock constituting the
Exercise Shares, the Company will take any corporate action which may, in the
opinion of its counsel, be necessary in order that the Company have remaining,
after such
2
<PAGE> 4
adjustment, a number of shares of such capital stock unissued and unreserved
for other purposes sufficient to permit the exercise of all the then
outstanding Warrants of like tenor immediately after such adjustment; the
Company will also from time to time take action to increase the authorized
amount of its capital stock constituting the Exercise Shares if at any time the
number of shares of capital stock authorized but remaining unissued and
unreserved for other purposes shall be insufficient to permit the exercise of
the Warrants then outstanding. The Company may but shall not be limited to
reserve and keep available, out of the aggregate of its authorized but unissued
shares of capital stock, for the purpose of enabling it to satisfy any
obligation to issue Exercise Shares upon exercise of Warrants, through the
Termination Date, the number of Exercise Shares deliverable upon the full
exercise of this Warrant and all other Warrants of like tenor then outstanding.
At the time of or before taking any action which would cause an
adjustment pursuant to Paragraph 6 hereof, reducing the Exercise price below
the then par value (if any) of the Exercise Shares issuable upon exercise of
the Warrants, the Company will take any corporate action which may, in the
opinion of its counsel, be necessary in order to assure that the par value per
share of the Exercise Shares is at all times equal to or less than the Exercise
Price per share and so that the Company may validly and legally issue fully
paid and non-assessable Exercise Shares at the Exercise Price, as so adjusted;
the Company will also from time to time take such action if at any time the
Exercise Price is below the then par value of the Exercise Shares.
(e) Fractional Shares. The Company shall not be required to issue
fractional shares of capital stock upon the exercise of this Warrant or to
deliver Warrant Certificates which evidence fractional shares of capital stock.
In the event that any fraction of an Exercise Share would, except for the
provisions of this subparagraph (e), be issuable upon the exercise of this
Warrant, the Company shall pay to the Holder exercising the Warrant an amount
in cash equal to such fraction multiplied by the Current Market Value of the
Exercise Share. For purposes of this subparagraph (e), the current Market
Value shall be determined as follows:
(i) if the Exercise Shares are traded in the over-
the-counter market and not on any national securities exchange and not in
the NASDAQ Reporting System, the average of the mean between the last bid and
asked prices per share, as reported by the National Quotation Bureau, Inc., or
an equivalent generally accepted reporting service, for the last business day
prior to the date on which this Warrant is exercised, or if not so reported,
the
3
<PAGE> 5
average of the closing bid and asked prices for an Exercise Share as furnished
to the Company by any member of the National Association of Securities Dealers,
Inc., selected by the Company for that purpose.
(ii) if the Exercise Shares are listed or traded
on a national securities exchange or in the NASDAQ National Market System, the
closing price on the principal national securities exchange on which they are
so listed or traded or in the NASDAQ National Market System, as the case may
be, on the last business day prior to the date of the exercise of this Warrant.
The closing price referred to in this clause (ii) shall be the last reported
sales price or, in case no such reported sale takes place on such day, the
average of the reported closing bid and asked prices, in either case on the
national securities exchange on which the Exercise Shares are then listed or in
the NASDAQ Reporting System; or
(iii) if no such closing price or closing bid and asked
prices are available, as determined in any reasonable manner as may be
prescribed by the Board of Directors of the Company.
2. Payment of Taxes. The Company will pay all documentary stamp taxes,
if any, attributable to the initial issuance of Exercise Shares upon the
exercise of this Warrant; provided, however, that the Company shall not be
required to pay any tax or taxes which may be payable in respect of any
transfer involved in the issue of any Warrant Certificates or any certificates
for Exercise Shares in a name other than that of the Holder of a Warrant
Certificate surrendered upon the exercise of a Warrant, and the Company shall
not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the
Company the amount of such tax or shall have established to the satisfaction of
the Company that such tax has been paid.
3. Mutilated or Missing Warrant Certificates. In case any Warrant
Certificate shall be mutilated, lost, stolen or destroyed, the Company may in
its discretion issue, in exchange and substitution for and upon cancellation of
the mutilated Warrant Certificate, or in lieu of and in substitution for the
Warrant Certificate lost, stolen or destroyed, a new Warrant Certificate or
Warrant Certificates of like tenor and in the same aggregate denomination, but
only (i) in the case of loss, theft or destruction, upon receipt of evidence
satisfactory to the Company of such loss, theft or destruction of such Warrant
Certificate and indemnity or bond, if requested, also satisfactory to them and
(ii) in the case of mutilation, upon surrender of the mutilated Warrant.
Applicants for such substitute Warrant Certificates shall also
4
<PAGE> 6
comply with such other reasonable regulations and pay such other reasonable
charges as the Company or its counsel may prescribe.
4. Rights of Holder. The Holder shall not, by virtue of anything
contained in this Warrant Certificate or otherwise, be entitled to any right
whatsoever, either in law or equity, of a stockholder of the Company, including
without limitation, the right to receive dividends or to vote or to consent or
to receive notice as a shareholder in respect of the meetings of shareholders
or the election of directors of the Company or any other matter.
5. Registration of Transfers and Exchanges. The Warrant shall be
transferable, subject to the provisions of Paragraph 7 hereof, only upon the
books of the Company if any, to be maintained by it for that purpose, upon
surrender of the Warrant Certificate to the Company at its principal office
accompanied (if so required by it) by a written instrument or instruments of
transfer in form satisfactory to the Company and duly executed by the Holder
thereof or by the duly appointed legal representative thereof or by a duly
authorized attorney and upon payment of any necessary transfer tax or other
governmental charge imposed upon such transfer. In all cases of transfer by an
attorney, the original letter of attorney, duly approved, or an official copy
thereof, duly certified, shall be deposited and remain with the Company. In
case of transfer by executors, administrators, guardians or other legal
representatives, duly authenticated evidence of their authority shall be
produced, and may be required to be deposited and remain with the Company in
its discretion. Upon any such registration of transfer, a new Warrant
Certificate shall be issued to the transferee named in such instrument of
transfer, and the surrendered Warrant Certificate shall be canceled by the
Company.
Any Warrant Certificate may be exchanged, at the option of the Holders
thereof and without change, when surrendered to the Company at its principal
office, or at the office of its transfer agent, if any, for another Warrant
Certificate or other Warrant Certificates of like tenor and representing in the
aggregate the right to purchase from the Company a like number and kind of
Exercise Shares as the warrant Certificate surrendered for exchange or
transfer, and the Warrant Certificate so surrendered shall be canceled by the
Company or transfer agent, as the case may be.
6. Adjustment of Exercise Shares and Exercise Price. The Exercise price
and the number and kind of Exercise Shares purchasable upon the exercise of
this Warrant shall be subject to adjustment from time to time upon the
happening of certain events as hereinafter provided. The Exercise Price in
effect at any time and the number and kind of securities purchasable upon
exercise of each Warrant shall be subject to adjustment as follows:
5
<PAGE> 7
(a) In the case the Company shall (i) pay a dividend or make a
distribution on its shares of Common Stock in shares of Common Stock, (ii)
subdivide or classify its outstanding Common Stock into a greater number of
shares, or (iii) combine or reclassify its outstanding Common 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 proportionally adjusted
so that the Holder of this Warrant exercised after such date shall be entitled
to receive the aggregate number and kind of shares which, if this Warrant had
been exercised by such Holder immediately prior to such date, he would have
owned upon such exercise and been entitled to receive upon such dividend,
subdivision, combination or reclassification. For example, if the Company
declares a 2 for 1 stock dividend or stock split and the Exercise Price
immediately prior to such event was $5.00 per share, the adjusted Exercise
Price immediately after such event would be $2.50 per share. Such adjustment
shall be made successively whenever any event listed above shall occur.
(b) In case the Company shall hereafter issue rights or warrants
to all holders of its Common Stock entitling them to subscribe for or purchase
shares of Common Stock (or securities convertible into Common Stock) at a price
(or having a conversion price per share) less than the current market price of
the Common Stock (as defined in subsection (d) 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 Exercise Price in effect
immediately prior to the date of such issuance by a fraction, the numerator of
which shall be the sum of the number of shares of Common Stock outstanding on
the record date mentioned below and the number of additional shares of Common
Stock which the aggregate offering price of the total number of shares of
Common 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 Common Stock, and the denominator of which shall be the sum of the number
of shares of Common Stock outstanding on such record date and the number of
additional shares of Common 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 Common Stock are not delivered (or securities convertible into
Common 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
6
<PAGE> 8
delivery of only the number of shares of Common Stock (or securities
convertible into Common Stock) actually delivered.
(c) Whenever the Exercise Price payable upon exercise of each
Warrant is adjusted pursuant to Subsection (a) and (b) above, the number of
Exercise Shares purchasable upon exercise of this Warrant shall simultaneously
be adjusted by multiplying the number of Exercise Shares initially issuable
upon exercise of this Warrant by the Exercise Price in effect on the date
hereof and dividing the product so obtained by the Exercise Price, as adjusted.
(d) For the purpose of any computation under Subsection (b) above,
the current market price per share of Common Stock at any date shall be deemed
to be the average of the daily closing prices for 30 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 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.
(e) No adjustment in the Exercise Price shall be required unless
such adjustment would require an increase or decrease of at least ten cents
($0.10) in such price; provided, however, that any adjustments which by reason
of this Subsection (e) 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 (6) 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 (6) 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 (6), as it, in its sole discretion, shall
determine to be advisable in order that any dividend or distribution in shares
of Common Stock, subdivision, reclassification or combination of Common Stock,
issuance of Warrants to Purchase Common Stock or distribution of evidences of
indebtedness or other assets (excluding cash dividends) referred to hereinabove
in this Section (6) hereafter made by the Company to the holders of its Common
Stock shall not result in any tax to the holders of its Common Stock or
securities convertible into Common Stock.
(f) Whenever the Exercise Price is adjusted, as herein provided,
the Company shall promptly cause a notice setting forth the adjusted Exercise
Price and adjusted number of Shares issuable upon exercise of each Warrant to
be mailed to the Holders, at their last addresses appearing in the Warrant
Register, and shall cause a certified copy thereof to be mailed to its transfer
agent, if
7
<PAGE> 9
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 (6), and a
certificate signed by such firm shall be conclusive evidence of the correctness
of such adjustment.
(g) In the event that at any time, as a result of an adjustment
made pursuant to Subsection (a) above, the Holder of this Warrant thereafter
shall become entitled to receive any exercise Shares of the Company, other than
Common Stock, thereafter the number of such other shares so receivable upon
exercise of this Warrant 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 common Stock contained in Subsections (a) to (e), inclusive
above.
(h) Irrespective of any adjustments in the Exercise Price or the
number or kind of Exercise Shares purchasable upon exercise of this Warrant,
Warrants theretofore or thereafter issued may continue to express the same
price and number and kind of shares as are stated in the similar Warrants
initially issuable pursuant to this Agreement.
(i) Whenever the Exercise Price shall be adjusted as required by
the provisions of the foregoing Section, the Company shall forthwith file in
the custody of its secretary or an Assistant Secretary at its principal office
and with its stock transfer agent, if any, an officer's certificate showing the
adjusted Exercise Price determined as herein provided, setting forth in
reasonable detail the facts requiring such adjustment, including a statement of
the number of additional shares of Common Stock, if any, and such other facts
as shall be necessary to show the reason for and the manner of computing such
adjustment. Each such officer's certificate shall be made available at all
reasonable times for inspection by the holder and the Company shall, forthwith
after each such adjustment, mail a copy by certified mail of such certificate
to the Holder.
7. Restrictions on Transferability; Restrictive Legend. Neither this
Warrant nor the Exercise Shares shall be transferable except in accordance with
the provisions of this paragraph.
(a) Restrictions on Transfer; Indemnification. Neither this
Warrant nor any Exercise Share may be offered for sale or sold, or otherwise
transferred or sold in any transaction which would constitute a sale thereof
within the meaning of the Securities Act of 1933, as amended (the "1933 Act"),
unless (i) such security has been registered for sale under the 1933 Act and
registered or
8
<PAGE> 10
qualified under applicable state securities laws relating to the offer and sale
of securities, or (ii) exemptions from the registration requirements of the
1933 Act and the registration or qualification requirements of all such state
securities laws are available and the Company shall have received an opinion of
counsel satisfactory to the Company that the proposed sale or other disposition
of such securities may be effected without registration under the 1933 Act and
would not result in any violation of any applicable state securities laws
relating to the registration or qualification of securities for sale, such
counsel and such opinion to be satisfactory to the Company.
The Holder agrees to indemnify and hold harmless the Company against
any loss, damage, claim or liability arising from the disposition of this
Warrant or any Exercise Share held by such holder or any interest therein in
violation of the provisions of this Paragraph 7.
(b) Restrictive Legends. Unless and until otherwise permitted by
this Paragraph 7 or in the Agreement of Sale, this Warrant Certificate, each
Warrant Certificate issued to the Holder or to any transferee or assignee of
this Warrant Certificate, and each Certificate representing Exercise Shares
issued upon exercise of this Warrant or to any transferee of the person to whom
the Exercise Shares were issued, shall bear a legend setting forth the
requirements of paragraph (a) of this Paragraph 7, together with such other
legend or legends as may otherwise be deemed necessary or appropriate by
counsel to the Company.
(c) Notice of Proposed Transfers. Prior to any transfer, offer to
transfer or attempted transfer of this Warrant or any Exercise Share, the
holder of such security shall give written notice to the Company of such
holder's intention to effect such transfer. Each such notice shall (x)
describe the manner and circumstances of the proposed transfer in sufficient
detail, and shall contain an undertaking by the person giving such notice to
furnish such other information as may be required, to enable counsel to render
the opinions referred to below, and shall (y) designate the counsel for the
person giving such notice, such counsel to be satisfactory to the Company. The
person giving such notice shall submit a copy thereof to the counsel designated
in such notice and the Company shall submit a copy thereof to its counsel, and
the following provisions shall apply:
(i) If, in the opinion of each such counsel, the
proposed transfer of this Warrant or Exercise Share, as appropriate, may be
effected pursuant to the terms of the Agreement of Sale and without
registration of such security under the 1933 Act, the Company shall, as
promptly as practicable, so notify the
9
<PAGE> 11
holder of such security and such holder shall thereupon be entitled to transfer
such security in accordance with the terms of the notice delivered by such
holder to the Company. Each certificate evidencing the securities thus to be
transferred (and each certificate evidencing any untransferred balance of the
securities evidenced by such certificate) shall bear the restrictive legends
referred to in subparagraph (b) above, unless in the opinion of each such
counsel such legend is not required in order to insure compliance with the 1933
Act.
(ii) If, in the opinion of either of such counsel,
the proposed transfer of securities may not be effected without registration
under the 1933 Act, the Company shall, as promptly as practicable, so notify
the holder thereof. However, the Company shall have no obligation to register
such securities under the 1933 Act, except as otherwise provided herein or in
the Agreement of Sale.
The holder of the securities giving the notice under this subparagraph
(c) shall not be entitled to transfer any of the securities until receipt of
notice from the Company under paragraph (i) of this subparagraph (c) or
registration of such securities under the 1933 Act has become effective.
(d) Removal of Legend. The Company shall, at the request of any
registered holder of a Warrant or Exercise Share, exchange the certificate
representing such security for a certificate representing the same security not
bearing the restrictive legend required by subparagraph (b) if, in the opinion
of counsel to the Company, such restrictive legend is no longer necessary.
8. Registration Under the Securities Act of 1933. The Company has agreed
to grant the holder hereof the limited registration rights set forth in Section
7.8 of the Agreement and Plan of Reorganization between Viragen (Scotland)
Limited, Viragen, Inc. and the Company dated as of September 20, 1995, as
amended, and as more particularly described in Exhibit "D" thereto.
9. Notices. All notices or other communications under this Warrant
Certificate shall be in writing and shall be deemed to have been given if
delivered by hand or mailed by certified mail, postage prepaid, return receipt
request, addressed as follows:
10
<PAGE> 12
If to the Company:
Sector Associates, Ltd.
401 City Avenue
Suite 725
Bala Cynwyd, PA 19004
Attention: Mr. Andrew Panzo
and to the Holder:
at the address of the Holder appearing on the books of the
Company or the Company's transfer agent, if any.
Either of the Company or the Holder may from time to time change the
address to which notices to it are to be mailed hereunder by notice in
accordance with the provisions of this Paragraph 9.
10. Supplements and Amendments. The Company may from time to time
supplement or amend this Warrant Certificate without the approval of any
holders of Warrants in order to cure any ambiguity or to correct or supplement
any provision contained herein which may be defective or inconsistent with any
other provision, or to make any other provisions in regard to matters or
questions herein arising hereunder which the Company may deem necessary or
desirable and which shall not materially adversely affect the interests of the
Holder.
11. Successors and Assigns. This Warrant shall inure to the benefit of
and be binding on the respective successors, assigns and legal representatives
of the Holder and the Company.
12. Severability. If for any reason any provision, paragraph or terms of
this Warrant Certificate is held to be invalid or unenforceable, all other
valid provisions herein shall remain in full force and effect and all terms,
provisions and paragraphs of this Warrant shall be deemed to be severable.
13. Governing Law. This Warrant shall be deemed to be a contract made
under the laws of the State of Delaware and for all purposes shall be governed
by and construed in accordance with the laws of said State.
14. Headings. Paragraph and subparagraph headings, used herein are
included herein for convenience of reference only shall not
11
<PAGE> 13
affect the construction of this Warrant Certificate nor constitute a part of
this Warrant Certificate for any other purpose.
IN WITNESS WHEREOF, the Company has caused these presents to be duly
executed the day and year defined herein as the "Commencement Date."
SECTOR ASSOCIATES, LTD.
By:
---------------------------
Chief Executive Officer
12
<PAGE> 14
APPENDIX A
NOTICE OF WARRANT EXERCISE
Pursuant to a Warrant by and between the undersigned
and Sector Associates, Ltd., a Delaware corporation (the "Company"), dated as
of _______________________, 19__, and subject to the vesting periods set forth
therein, the undersigned hereby irrevocably elects to exercise its warrant to
the extent of purchasing ______________ shares of Common Stock (the "Warrant
Shares"), of the Company as provided for therein.
The undersigned hereby represents and agrees that the
Warrant Shares purchased pursuant hereto are being purchased for investment and
not with a view to the distribution or resale thereof, and that the undersigned
understands that said Warrant Shares have not been registered under the
Securities Act of 1933, as amended.
Payment of the full Purchase Price of the Warrant
Shares is enclosed herewith, in the form of a check made payable to the
Company.
The undersigned requests that a certificate for the
Warrant Shares be issued in the name of:
---------------------------------------
---------------------------------------
---------------------------------------
(Please print name, address and social security number)
Dated: , 199
---------------------------------------------- ----
Address:
-----------------------------------------------------
-----------------------------------------------------
Signature:
---------------------------------------------------
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 271,071
<SECURITIES> 50,000
<RECEIVABLES> 20,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 741,071
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 741,071
<CURRENT-LIABILITIES> 90,818
<BONDS> 0
<COMMON> 203,413
0
0
<OTHER-SE> 446,840
<TOTAL-LIABILITY-AND-EQUITY> 741,071
<SALES> 0
<TOTAL-REVENUES> 39,988
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 844,993
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (805,005)
<INCOME-TAX> 0
<INCOME-CONTINUING> (805,005)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (805,005)
<EPS-PRIMARY> (.32)
<EPS-DILUTED> (.32)
</TABLE>
