<PAGE> 1
As filed with the Securities and Exchange Commission on November 2, 1995
Registration No. 33-86326
-----------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------
CONQUEST INDUSTRIES INC.
(formerly Conquest Airlines Corp.)
(Exact name of Registrant as specified in Charter)
DELAWARE
(State or Other jurisdiction of Incorporation or Organization)
2500
(Primary Standard Industrial Classification Code Numbers)
76-0206582
(I.R.S. Employer Identification Number)
6400 WEST GROSS POINT ROAD
NILES, ILLINOIS 60714
(708) 647-7500
(Address, Including Zip Code and Telephone Number, Including Area
Code of Registrant's Principal Executive Offices)
STEFFEN I. MAGNELL
6400 WEST GROSS POINT ROAD
NILES, ILLINOIS 60714
(708) 647-7500
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code of Agent for Service)
COPIES TO:
Stephen A. Weiss, Esq.
Solomon, Fornari, Weiss & Moskowitz, P.C.
650 Fifth Avenue
New York, New York 10019
(212) 265-1200
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this registration statement.
<PAGE> 2
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the
following box X .
---
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Each Class of Proposed Maximum Proposed Maximum Amount of
Securities Amount To Offering Price Aggregate Offering Registration
To Be Registered Be Registered(1) Per Security(2) Price Per Security(2) Fee
---------------- ---------------- --------------- -------------------- ------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value
("Common Stock") 3,000,000 $3.00 $9,000,000 $ 3,102.30
Common Stock, $.001 par value
("Common Stock") 2,281,250(3) 1.20 2,737,500 943.62
Common Stock, $.001 par value
("Common Stock") 2,156,925(4) 5.00 10,784,625 3,717.46
Common Stock, $.001 par value
("Common Stock") 1,030,400(5) 3.00 3,091,200 1,065.54
Common Stock, $.001 par value
("Common Stock") 400,000(6) 3.00 1,200,000 413.76
Common Stock, $.001 par value
("Common Stock") 313,043(7) 3.00 939,130 323.86
Common Stock, $.001 par value
("Common Stock") 200,000(8) 3.00 600,000 206.90
Common Stock, $.001 par value
("Common Stock") 5,000(9) 3.00 15,000 5.18
Common Stock, $.001 par value
("Common Stock") 499,315(10) 2.00 998,630 344.23
Common Stock, $.001 par value
("Common Stock") 250,000(11) 3.00 750,000 310.36
Common Stock, $.001 par value
("Common Stock") 2,082,147(12) 3.00 6,286,500 2,167.58
Common Stock, $.001 par value,
underlying Underwriters
Warrants 53,241 3.00 159,724 55.08
Common Stock, $.001 par value,
to be issued upon exercise of
Class Z Warrants issued to
Underwriter upon exercise of
Underwriters Warrants 53,241 3.00 159,724 55.08
Class B Common Stock Purchase
Warrants ("Class B Warrants") 1,961,925(13) .01 19,612 6.75
Class Z Common Stock Purchase
Warrants ("Class Z Warrants")
which are part of Underwriters
Warrants 53,241 3.00 159,724 55.08
Underwriters Warrants 53,241(14) -0- -0- -0-
Total Registration Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,911.90 (*)
- --------------------------------
</TABLE>
(*) Of which $11,377.56 has previously been paid.
This Registration Statement incorporates Post-Effective Amendment No. 1 to
Conquest Airlines Corp. (the Registrant's former name) Registration
Statement No. 33-60130, decared effective by the Securities and Exchange
Commission on April 23, 1993. The 195,000 shares of Common Stock issuable
upon exercise of 195,000 outstanding publicly traded warrants, the 53,241
Underwriter's Warrants and the 53,241 shares of Common Stock issuable upon
exercise of the Underwriter's Warrants, the 53,241 Class Z Warrants
issuable upon exercise of the Underwriter's Warrants and the 53,241 shares
of Common Stock issuable upon exercise of the Class Z Warrants were
previously registered pursuant to Registration No. 33-60131. Of the
$12,911.90 filing fee identified above, $501.42 relates to such
securities. $4,859 was previously paid as a filing fee in connection with
Registration No. 33-60130 with respect to such securities.
(1) Pursuant to Rule 416, the Registration Statement also relates to an
indeterminate number of additional shares of Common Stock issuable upon:
(i) the exercise of the Class B Warrants, Underwriters Warrants and Class
Z Warrants pursuant to anti- dilution provisions contained therein, which
shares of Common Stock are registered hereunder; and (ii) the conversion
of an aggregate of $2,737,500 of 10% convertible promissory
<PAGE> 3
notes due October 1, 1996 (the "Private Placement Notes") which were
issued in the 1994 Private Placement (as hereinafter defined). Such
Private Placement Notes, by their terms, are convertible into Company
Common Stock at 80% of the prevailing market price of the Company's Common
Stock on the date(s) of conversion; all of which shares of Common Stock
issuable upon conversion of such Private Placement Notes (the "Conversion
Shares") are registered hereunder. For purposes of calculating the
registration fee, such market price is assumed to be $1.50, and the
conversion price is assumed to be $1.20 per share.
(2) Pursuant to Rule 457.
(3) Includes 2,281,250 Conversion Shares potentially issuable upon conversion
of $2,737,500 of Private Placement Notes at an assumed conversion price of
$1.20 per share.
(4) Common Stock underlying (i) 1,961,925 Class B Warrants (the "Class B
Warrants") to be issued on the effective date of this Registration
Statement to stockholders of the Company who were record holders of the
Company's Common Stock and Series A Preferred Stock immediately prior to
the Wico Merger (as hereafter defined); which Class B Warrants are
exercisable at $5.00 per share and, to the extent unexercised, expire on
June 20, 1999; and (ii) 195,000 publicly traded warrants (the "Public
Warrants") exercisable at $5.00 per share and expiring June 20, 1999.
(5) Common Stock issuable upon conversion of (a) 2,000,000 shares of Series B
Preferred Stock which were issued in June 1994 in connection with the Wico
Merger, and (b) 800,000 shares of Series E Preferred Stock issued in May
1995 in exchange for a like number of shares of Series B Preferred Stock.
(6) Common Stock underlying a warrant held by the Company's institutional
lender.
(7) Common Stock issued to certain Wico Series AA Preferred Stock holders of
record pursuant to the Wico Merger. The Wico Series AA Preferred Stock
was exchanged for 313,043 shares of Common Stock of the Company on June
17, 1994, the effective date of the Wico Merger.
(8) Common Stock issued upon exercise in June 1995 of a warrant issued
pursuant to the Wico Merger.
(9) Common Stock issued upon exercise in June 1995 of two warrants issued to
an unaffiliated private lender and unaffiliated finder in connection with
a loan of $500,000 to the Company in July 1994.
(10) Represents all but 25,000 of the 524,315 shares of Common Stock offered to
certain creditors of the Company in exchange for cancellation of
indebtedness and other liabilities owed by the Company to such creditors.
(11) Common Stock underlying outstanding warrants held by an executive officer
of the Company.
(12) Consists of an aggregate of 2,082,147 shares of Common Stock sold at $1.41
per share in a private placement consummated in July 1995.
(13) Consists of 1,961,925 Class B Warrants referred to in Note (4) above.
(14) The underwriter's warrant issued pursuant to the 1993 Registration
Statement has been exchanged for a new underwriters warrant (the
"Underwriter's Warrant") which entitles the holder thereof to purchase, at
an exercise price of $10.00, 53,241 units, each unit consisting of one
share of Common Stock and one warrant. The warrant underlying the
Underwriter's Warrant has been restated and reclassified as the Class Z
Warrant. The Underwriter's Warrant is exercisable for a period of four
years commencing April 23, 1993. The Class Z Warrant is exercisable for a
period of four years commencing on the effective date of this Registration
Statement. This Registration Statement will register the Underwriter's
Warrant, the Class Z Warrant and the Common Stock underlying the
Underwriter's Warrant and underlying the Class Z Warrant.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE> 4
Conquest Industries Inc.
CROSS-REFERENCE SHEET
Pursuant to S-K, Item 501(b)
Showing Location in the Prospectus of
Information Required by Items of Form S-1
<TABLE>
<CAPTION>
Item Number in Form S-1 Prospectus Location
----------------------- -------------------
<S> <C> <C>
1. Forepart of Registration Statement and Outside Outside Front Cover Page
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Inside Front and Outside Back Cover Pages of
Prospectus Prospectus
3. Summary Information, Risk Factors, Ratio of Prospectus Summary; Risk Factors; Inapplicable
Earnings to Fixed Charges as to Ratio of Earnings to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Front Page of Prospectus; Risk Factors;
Underwriting
6. Dilution Dilution
7. Selling Security Holders Selling Stockholders and Plan of Distribution
8. Plan of Distribution Outside Front and Outside Back Cover Pages of
Prospectus; Underwriting
9. Description of Securities to be Registered Description of Securities; Underwriting
10. Interests of Named Experts and Counsel Inapplicable
11. Information with respect to the Registrant Prospectus Summary; Risk Factors; Use of
Proceeds; Dividend Policy; Dilution;
Capitalization; Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business; Management; Principal Stockholders;
Certain Transactions; Description of Securities;
Financial Statements
12. Disclosure of Commission Position on Indemnification for Securities Act Liabilities
Indemnification for Securities Act Liabilities
</TABLE>
ii
<PAGE> 5
PRELIMINARY PROSPECTUS DATED NOVEMBER 2, 1995, SUBJECT TO COMPLETION
CONQUEST INDUSTRIES INC.
(formerly, Conquest Airlines Corp.)
12,324,562 SHARES OF COMMON STOCK AND
2,665,166 COMMON STOCK PURCHASE WARRANTS
This Prospectus relates to an offering (the "Offering") by Conquest
Industries Inc., a Delaware corporation (the "Company"), of an aggregate of up
to 12,324,562 shares of common stock, par value $.001 per share (the "Common
Stock"). A maximum of 3,000,000 shares of Common Stock (the "Company Shares")
are being offered by the Company for its own account. 9,129,562 shares of
Common Stock are being offered for resale for the account of certain
securityholders, including: (i) 3,099,505 shares (the "Selling Stockholders'
Shares") currently outstanding and to be issued by the Company on the date of
this Prospectus (the "Effective Date") to certain stockholders of the Company
in the transactions described below (the "Selling Stockholders"); (ii) shares
(the "Warrant Shares") issuable upon exercise of a variety of Common Stock
purchase warrants (collectively, the "Warrants"), including 2,718,407 shares
which have been previously issued and are to be issued by the Company on the
Effective Date in connection with the transactions described below; (iii)
2,281,250 shares, subject to adjustment based upon applicable conversion prices
(the "1994 Private Placement Conversion Shares") issuable upon conversion of
$2,737,500 of Company 10% convertible notes due October 1, 1996 (the "Private
Placement Notes") sold by the Company in a November 1994 private placement (the
"1994 Private Placement"); and (iv) 1,030,400 shares (the "Preferred Stock
Conversion Shares") issuable upon conversion by the holders of shares of Series
B Preferred Stock and Series E Preferred Stock. An additional 195,000 Warrant
Shares are issuable upon exercise of 195,000 publicly traded warrants.
The Offering also includes an aggregate of 1,961,925 Redeemable Class B
Warrants (the "Class B Warrants") exercisable through June 20, 1999 at $5.00
per share (subject to adjustment), which Class B Warrants are, pursuant to a
restated agreement and plan of merger dated June 8, 1994 among Wico Holding
Corp. ("Wico"), the Company and its acquisition subsidiary (the "Wico Merger
Agreement"), to be issued on the Effective Date to stockholders of record of
the Company immediately prior to the June 20, 1994 consummation of the merger
of Wico into a newly-formed acquisition subsidiary of the Company (the "Wico
Merger").
The 3,000,000 Company Shares will be offered by the Company at an
offering price of $___ per share. On October 30, 1995, the closing sale price
of the Company's Common Stock, as traded on the Nasdaq SmallCap Market
("NASDAQ") was $1.0625. The Offering of the Company Shares will terminate on
January 31, 1996. The Company will retain all proceeds from the sale of all or
any portion of the 3,000,000 Company Shares which have been sold by such
termination date, net of expenses of this Offering (estimated at $125,000) and
selling commissions of up to 10% which the Company may pay to registered
broker/dealers who assist it in the sale of the Company Shares. See "Plan of
Distribution".
The 3,099,505 Selling Stockholders' Shares were acquired or are being
acquired by the Selling Stockholders in a series of private placement
transactions, including: (i) 313,043 shares issued on June 20, 1994 in
connection with the Wico Merger; (ii) 205,000 shares purchased in June 1995
upon exercise of certain warrants; (iii) 2,082,147 shares (the "1995 Private
Placement Shares") sold by the Company for approximately $1.41 per share in
June and July 1995 (the "1995 Private Placement"); and (iv) 499,315 shares of
Common Stock (the "Creditors Shares") which have been reserved for issuance on
the Effective Date, pursuant to agreements entered into with certain creditors
of the Company to issue such Creditors Shares in satisfaction of claims against
the Company.
The 2,718,407 Warrant Shares are shares of Common Stock issuable upon
exercise of an aggregate of 2,665,166 Warrants (including the Class B Warrants)
which were previously issued or are to be issued on the Effective Date by the
Company in various transactions, consisting of Warrant Shares issuable upon
exercise of: (i) 1,961,925 Class B Warrants; (ii) 400,000 warrants issued in
the Wico Merger to the Company's principal lender in consideration of certain
financial accommodations (the "Bank Warrant"); (iii) 250,000 warrants issued in
April 1995 to the Company's Chief Financial Officer (the "Affiliate Warrants");
and (iv) 106,482 shares underlying 53,241 Warrants issued in April 1993 to Lew
Lieberbaum & Co., Inc., the underwriter in the Company's initial public
offering (the "Underwriter's Warrants"). For information as to the terms of
these Warrants, see the next page of this cover page.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL
DILUTION TO THE PERCENTAGE EQUITY OF CURRENT STOCKHOLDERS, AND SHOULD NOT
BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. SEE "RISK FACTORS" (PAGE 6).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
(cover continued on next page)
The date of this Prospectus is November __, 1995
<PAGE> 6
The 1,961,925 Class B Warrants are exercisable at $5.00 per share
(subject to adjustment in certain events pursuant to the anti-dilution
provisions thereof) until June 20, 1999, when such Warrants expire. The Class
B Warrants are redeemable in whole or in part at a price of $.10 per Warrant,
at the option of the Company, upon 30 days' written notice at any time,
provided the closing bid price of the Company's Common Stock, as traded on
NASDAQ or in the over-the-counter market, is at least $6.84 for five
consecutive days ending on the day prior to the date of any notice of
redemption. The Class B Warrants and the Private Placement Warrants are
exercisable until the close of business on the day preceding the date fixed for
redemption. The Bank Warrant is exercisable at any time prior to June 20, 1999
and entitles the holder to purchase 400,000 Warrant Shares for an aggregate of
$400. The Affiliate Warrant is exercisable at $0.875 per share through April
2000, and was issued in lieu of compensation to Jerry Karlik, the Company's
Chief Financial Officer. The Underwriter's Warrants entitle the holders to
purchase, for $10.00 per unit, through April 23, 1997, an aggregate of 53,241
units of securities of the Company with each unit consisting of one share of
Common Stock and one Class Z Warrant. Each Class Z Warrant entitles the holder
to purchase one share of Common Stock for $1.00 per share for a period of four
years from the Effective Date of this Offering. See "Description of Securities
- - Warrants." Exercise of the Warrants may be prohibited in certain states.
See "Risk Factors - Non-Registration in Certain Jurisdictions of Shares
Underlying the Warrants."
The $2,737,500 of 10% Private Placement Notes due October 1, 1996 are
convertible into 1994 Private Placement Conversion Shares at 80% of the closing
bid price of the Company's publicly traded Common Stock on the date of
conversion. The 2,281,250 1994 Private Placement Conversion Shares referred to
in this Prospectus assume a closing bid price of $1.50 per share on each date
that such 10% Private Placements Notes are converted. However, based on the
$1.0625 closing bid price of the Company's Common Stock on October 30, 1995, if
all $2,737,500 of Private Placement Notes were converted into Common Stock on
such date, the effective conversion price would be $0.85 per share and an
aggregate of 3,220,558 1994 Private Placement Conversion Shares would be
issued. The registration statement of which this Prospectus is a part is
registering for resale an indeterminable number of additional Private Placement
Conversion Shares which are issuable from time to time upon conversion of
Private Placement Notes at the applicable conversion prices then in effect.
The Company has requested that the holders of the Private Placement Notes
exchange their 10% Private Placement Notes for: (i) a like amount of 12%
non-convertible notes of the Company due October 1, 1996 (the "Exchange
Notes"), and (ii) certain additional payments to be made on or before December
31, 1995, aggregating up to $547,500 ($0.20 for each $1.00 of Private Placement
Notes exchanged). The Company's offer to exchange 10% Private Placement Notes
for 12% Exchange Notes and cash will expire on December 31, 1995. Upon
delivery of the applicable amount of 12% Exchange Notes and cash, the Company
will remove from registration an appropriate number of 1994 Private Placement
Conversion Shares underlying the principal amount of Private Placement Notes
exchanged. See "Business - 1994 Private Placement".
The 1,030,400 Preferred Stock Conversion Shares are issuable upon
conversion, at $2.72 per share, of 2,000,000 shares of Series B Preferred Stock
of the Company issued in connection with the Wico Merger and 800,000 shares of
Series E Preferred Stock issued in June 1995 in exchange for other shares of
Series B Preferred Stock. The Series E Preferred Stock is subject to mandatory
redemption at $1.00 per share (plus accrued dividends), at the option of the
holders thereof, out of the gross proceeds, if any, received by the Company
from any public offering of securities of $3,000,000 or more (including, if
applicable, proceeds of the Company Shares in this Offering). See "Description
of Securities - Preferred Stock."
Although the Company will receive proceeds, at their respective
exercise prices, from the exercise of Warrants, it will not receive any of the
proceeds from the sale of Class B Warrants, or from the sale of any of the
Selling Stockholders' Shares, any Warrant Shares, any 1994 Private Placement
Conversion Shares or any of the Preferred Stock Conversion Shares. The Class B
Warrants, Selling Stockholders' Shares, Warrant Shares, 1994 Private Placement
Conversion Shares and Preferred Stock Conversion Shares may be offered from
time to time by the holders thereof through ordinary brokerage transactions, in
negotiated transactions or otherwise, at market prices prevailing at the time
of sale or at negotiated prices. Persons effecting a distribution of such
securities, including the Selling Stockholders, may be deemed to be
"underwriters" as defined in the Securities Act of 1933, as amended (the
"Securities Act"). If any broker-dealers are used, any commissions paid to
them and, if such broker-dealers purchase such securities as principals, any
profits received by such broker-dealers on the resales of the shares may be
deemed to be underwriting discounts and commissions under the Securities Act.
All costs and expenses incurred in connection with the registration of the
Class B Warrants, Selling Stockholders' Shares, Warrant Shares, 1994 Private
Placement Conversion Shares and Preferred Stock Conversion Shares will be borne
by the Company. Brokerage commissions, if any, attributable to any resales of
such securities will be borne by the holders thereof. The Company has agreed
to indemnify the Selling Stockholders and the holders of the other securities
offered hereby, and may agree to indemnify brokers selling Company Shares on
behalf of the Company, against certain liabilities, including liabilities under
the Securities Act. See "Plan of Distribution" and "Selling Securityholders."
The actual or potential issuance of all or any material portion of the
Warrant Shares, the 1994 Private Placement Conversion Shares or the Preferred
Stock Conversion Shares represent substantial potential dilution to the
percentage ownership of existing stockholders and are likely to have a
significant depressive effect on the current market price of the Company's
publicly traded Common Stock. On October 10, 1995, the Company amended the
terms of 195,000 publicly traded warrants issued in 1989 in the Company's
initial public offering (the "Public Warrants"), to (i) reduce their exercise
price from $30.00 per share to $5.00 per share (subject to adjustment in
certain events pursuant to the anti-dilution provisions thereof), and (ii)
extend the term of the Public Warrants from November 30, 1995 to June 20, 1999.
The distribution of up to 301,482 of the Warrant Shares to holders of
the 195,000 Public Warrants and the holders of the Underwriter's Warrants, as
well as the distribution of up to 53,241 Class Z Warrants issuable upon
exercise of the Underwriter's Warrants will consitute primary distributions of
those securites by the Company.
<PAGE> 7
The Company's publicly traded Common Stock and the Public Warrants are
traded on NASDAQ under the symbols "CAIR" and "CAIRW," respectively, and are
also listed on the Boston Stock Exchange under the symbols "CAC" and "CACWS,"
respectively. On October 30, 1995, the last reported sale price for the Common
Stock on NASDAQ was $1.0625 per share. The closing sale price for the Public
Warrants was $0.25.
ADDITIONAL INFORMATION
The holders of any: (i) Selling Stockholders' Shares, (ii) 1994 Private
Placement Conversion Shares or Preferred Stock Conversion Shares issuable upon
conversion of the Private Placement Notes, Series B Preferred Stock or Series E
Preferred Stock, or (iii) Warrant Shares issuable upon exercise of the Warrants
(collectively, the "Selling Securityholders") are obligated to deliver a
current Prospectus on each occasion that sales of their securities are made,
whether such sales are made directly by Selling Securityholders or through
broker-dealers. Such Prospectus must indicate the name of the beneficial
owner(s) of the securities and the aggregate amount of securities being
offered. See "Selling Securityholders and Plan of Distribution." The Company
has agreed (i) to file, during any period in which offers or sales of
securities are being made, a post-effective amendment to the registration
statement on Form S-1 under the Securities Act (the "Registration Statement")
of which this Prospectus is a part, (ii) to make available a Prospectus to each
Selling Securityholder upon request, (iii) to amend such Prospectus from time
to time after the date hereof through post-effective amendments to such
Registration Statement to reflect any facts or events which individually or in
the aggregate, represent a fundamental change in the information set forth in
the most recent Prospectus and (iv) to remove from registration by means of a
post-effective amendment of the Registration Statement any of the securities
which remain unsold at the termination of the offering which is anticipated to
occur on or about ___________, 1997 (two years from the Effective Date of this
Prospectus). The Selling Securityholders and any broker-dealer that acts in
connection with the sale of the securities owned by Selling Securityholders may
be deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act, and any commission or profit received by a broker-dealer from
the purchase or resale of such securities as principals might be deemed to be
underwriting discounts and commissions under the Securities Act. The Company
and the Selling Securityholders have agreed to mutually indemnify each other
under certain conditions. See "Selling Securityholders and Plan of
Distribution."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement with respect to the securities being
offered by this Prospectus. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto, to which reference is hereby made. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete; with respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved.
The Registration Statement and the exhibits and schedules thereto may
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and will also be available for inspection and copying at the
regional offices of the Commission located at 7 World Trade Center, New York,
New York 10048 and at Northwestern Atrium Center, 500 West Madison Street
(Suite 1400), Chicago, Illinois 60661. Copies of such material may also be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates.
The Company has informed the Selling Securityholders that the
anti-manipulative rules under the Securities Exchange Act of 1934, Rules 10b-2,
l0b-6 and 10b-7, may apply to their sales in the market and has furnished the
Selling Securityholders with a copy of these rules.
The Company will pay all expenses in connection with this offering,
which expenses are estimated to be approximately $125,000.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 and, in accordance therewith, files reports,
proxy statements and other information with the Commission. Reports, proxy
statements and other information filed by the Company with the Commission can
be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at Regional
Offices of the Commission located at Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60604, and 7 World Trade Center, New York,
New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates.
<PAGE> 8
[This page intentionally left blank]
<PAGE> 9
PROSPECTUS SUMMARY
The following is a summary of certain information contained in this
Prospectus and is qualified in its entirety by the more detailed information,
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Prospectus. Unless the context indicates otherwise, (i) all references to the
term "Company" include Conquest Industries Inc., a Delaware corporation, and
its direct and indirect subsidiaries; (ii) all share and per share data
contained in this Prospectus give effect to a one-for-ten reverse stock split
declared by the Company in November 1994; and (iii) all references to "year" or
"fiscal year" means the Company's fiscal year which ends on September 30.
THE COMPANY
The Company, through Wico Corporation and its operating subsidiaries,
is a leading manufacturer and distributor of replacement parts, accessories,
and supplies to game operators and distributors of coin-operated
amusement/arcade games, billiard tables, vending machines, such as food, soft
drink and snack machines, and gaming machines. It also supplies parts and
accessories to original equipment manufacturers ("OEMs") of arcade games. An
indirect subsidiary, Wico Gaming Supply Corp. ("Wico Gaming"), is a
manufacturer and distributor of casino supplies, including layouts, dice,
casino furniture, custom-built casino tables, playing chips, playing cards,
casino equipment and roulette and other wheel games.
The Company's broad range of products enables the Company to offer
single sourcing to its customers. In 1988, the Company acquired Penn-Ray Sutra
Corporation ("Penn-Ray"), one of the largest competitors of its distribution
business in the areas of video monitors, power supplies and billiard equipment.
Penn-Ray sold its products by means of a telemarketing operation, primarily to
large game operators, distributors and small OEMs. Its telemarketing sales
strategy complemented the Company's then existing direct sales force, which
historically serviced smaller game operators. This portion of the Company's
business, referred to as its distribution business, accounted for approximately
85%, 85% and 80% of net sales, respectively, in 1992, 1993 and 1994.
The Company is also a leading U.S. manufacturer and distributor of
consumer joysticks, which are entertainment computer control devices, and
related accessories, that it sells directly to retailers and distributors
located principally in the United States. This portion of its business,
referred to as its consumer business, accounted for approximately 15%, 15% and
20% of net sales, respectively, in 1992, 1993 and 1994. In 1989, the Company
acquired Suncom Corporation ("Suncom"), a manufacturer and distributor of
joysticks and related accessories sold primarily to the consumer market. This
complemented and enhanced the Company's existing consumer joystick business,
which now markets both Suncom and Wico branded products. The Company's
strategy is to be a market leader by offering a broad selection of high quality
products. Presently, the Company believes that it offers one of the most
complete lines of joysticks available in the consumer market. In January
1995, the Company introduced a new line of four joysticks, designated as the
F-15 line. These joysticks are each 80%-scale replicas of the joysticks
equipped in F-15 fighter planes. The line was recently introduced at an
industry trade show, and the Company has received orders from major computer
retailers and retail stores for the entire initial production run of these
joysticks, which began to be shipped in May 1995. In their initial five months
of distribution, sales of the new joystick line were approximately $3,100,000
representing approximately 75% of Suncom's total sales during such period.
On June 20, 1994, the Wico Merger was consummated, and Wico became a
wholly-owned subsidiary of the Company. Simultaneous with the Wico Merger,
Wico Gaming acquired certain assets, liabilities and divisions of Langworthy
Casino Supply, Inc. ("Langworthy"). In April 1995, Wico Gaming purchased the
operating assets of the Dice Division of Shuffle Master, Inc. ("SMI").
Until it consummated the Wico Merger, the Company was primarily engaged
in the business of operating a regional airline providing regularly scheduled
turbo-prop service to cities within the State of Texas through its wholly-owned
subsidiary, Conquest Airlines Corp. ("Conquest Air"). In August 1994, the
Company announced its intention to sell Conquest Air and such business is
treated as a discontinued operation for accounting purposes. Accordingly,
financial information and discussions of results of operations relate to
continuing businesses only, except as otherwise expressly stated. The
operations of Conquest Air incurred significant losses through June 30, 1995
and default notices were received from certain of the lessors of its commuter
aircraft.
On June 30, 1995, the Company sold the stock of Conquest Air to Air LA,
Inc. ("Air LA"), a commuter air carrier serving routes in Minnesota, in
consideration for notes and equity securities of Air LA aggregating $6,000,000.
As of the date of this Prospectus, such $6,000,000 of consideration is
represented by (i) a $3,000,000 convertible promissory note of Air LA due
August 31, 1995 and currently payable on demand, bearing annual interest from
September 1, 1995 at a bank prime rate plus 1%; which note (upon receipt of Air
LA stockholder authorization of such preferred stock) is automatically
convertible into $3,000,000 of non-dividend-bearing convertible preferred stock
of Air LA, which preferred stock in turn will be convertible, at the option of
the Company, into shares of Air LA common stock at prevailing market prices for
such common stock, and (ii) two additional promissory notes of Air LA (in the
respective principal amounts of $1,000,000 and $2,000,000) which bear interest
at 8% per annum, and are repayable, subject to certain mandatory prepayments
out of the proceeds of equity offerings by Air LA, in quarterly installments of
-1-
<PAGE> 10
$75,000 each (in the aggregate as between the two notes) commencing not later
than September 30, 1996, with all remaining unpaid principal becoming due and
payable in a balloon payment due June 30, 2000. In addition, the Company
received options to purchase 250,000 shares of Air LA common stock at $.50 per
share at any time through June 30, 2000. Air LA also agreed to pay certain
accrued obligations of the Company to the lessors of Conquest Air aircraft, but
is currently in arrears in making certain installment lease payments to such
lessors. See "Business - Sale of Conquest Air." The inability of Air LA to
make payments to such aircraft lessors or against the purchase price, when due,
could expose the Company to significant liabilities and materially and
adversely effect its consolidated business and financial condition. See "Risk
Factors -Sale of Conquest Air; Continuing Substantial Liabilities and Risk of
Non-Payment" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Results and Plan of Operations of Air LA."
Except for specific references to Conquest Air and its airline
operations, as used in this Prospectus the term "the Company" refers to
Conquest Industries Inc., Wico (including Wico Corporation) and the operating
subsidiaries of Wico on a consolidated basis. The business operations of the
Company were established in 1940, as a distributor of pinball machine parts.
Its main distribution center, manufacturing, and executive and administrative
facilities are located at 6400 West Gross Point Road, Niles, Illinois
60714-4508; its telephone number is (708) 647-7500.
THE OFFERING
This Offering consists of a maximum aggregate of 12,324,562 shares of
Common Stock. A maximum of 3,000,000 shares of Common Stock (the "Company
Shares") are being offered by the Company for its own account. 9,129,562
shares of Common Stock are being offered for resale for the account of certain
securityholders, including: (i) 3,099,505 Selling Stockholders' Shares
currently outstanding and to be issued by the Company on the Effective Date to
the Selling Stockholders; (ii) 2,718,407 Warrant Shares issuable upon exercise
of Warrants which have been previously issued and are to be issued by the
Company on the Effective Date in connection with the transactions described
herein; (iii) 2,281,250 1994 Private Placement Conversion Shares, subject to
adjustment based upon the applicable conversion price on each conversion date,
which are issuable upon conversion of $2,737,500 of Private Placement Notes;
and (iv) 1,030,400 Preferred Stock Conversion Shares issuable upon conversion
by the holders of shares of Series B Preferred Stock and Series E Preferred
Stock of the Company. An additional 195,000 Warrant Shares are issuable upon
exercise of the Public Warrants.
The Offering also includes an aggregate of 1,961,925 Class B Warrants.
The 3,000,000 Company Shares will be offered at an offering price of
$______. On October 30, 1995, the closing sale price of the Company's Common
Stock, as traded on NASDAQ, was $1.0625. The Offering of the Company Shares
will terminate on January 31, 1996. The Company will retain all proceeds from
the sale of Company Shares, net of expenses of this Offering and selling
commissions (not to exceed 10%), which the Company may pay to registered
broker/dealers assisting it in the sale of Company Shares, even if less than
3,000,000 of the Company Shares have been sold by such termination date. See
"Plan of Distribution."
The 3,099,505 Selling Stockholders' Shares being offered for resale
were acquired and are being acquired by the Selling Stockholders in a series of
transactions, including: (i) 313,043 shares issued in June 1994 in connection
with the consummation of the Wico Merger; (ii) 205,000 shares purchased in June
1995 upon exercise of certain warrants; (iii) 2,082,147 shares sold by the
Company for approximately $1.41 per share in the 1995 Private Placement; and
(iv) a maximum of 499,315 shares of the aggregate 524,315 Creditors Shares
which have been reserved for issuance on the Effective Date, pursuant to
agreements entered into since July 1995 with certain creditors of the Company
to issue such Creditors Shares in satisfaction of claims against the Company
aggregating approximately $979,630.
The maximum of 2,718,407 Warrant Shares being offered for resale are
shares of Common Stock underlying 2,665,166 Warrants of different classes and
types which were previously issued by the Company or are to be issued on the
Effective Date of this Offering in various transactions, consisting of Warrant
Shares issuable upon exercise of: (i) 1,961,925 Class B Warrants; (ii) 400,000
Bank Warrants; (iii) 250,000 Affiliate Warrants; and (iv) 53,241 Underwriter's
Warrants.
The 1,961,925 Class B Warrants are exercisable at $5.00 per share
(subject to adjustment in certain events pursuant to the anti-dilution
provisions thereof) until June 20, 1999, when such Warrants expire. The Class
B Warrants are redeemable in whole or in part at a price of $.10 per Warrant,
at the option of the Company, upon 30 days' written notice at any time,
provided the closing bid price of the Company's Common Stock, as traded on
NASDAQ or in the over-the-counter market, is at least $6.84 for five
consecutive days ending on the day prior to the date of any notice of
redemption. The Class B Warrants are exercisable until the close of business
on the day preceding the date fixed for redemption. The Bank Warrant is
exercisable at any time prior to June 20, 1999 and entitles the holder to
purchase 400,000 Warrant Shares for $400. The Underwriter's Warrants entitle
the holders to purchase, for $10.00 per unit, through April 23, 1997, an
aggregate of 53,241 units of securities of the Company with each unit
consisting of one share of Common Stock and one Class Z Warrant. Each Class Z
Warrant entitles the holder to purchase one share of Common Stock for $1.00 per
share for a period of four years from the Effective Date of this Offering. See
"Description of Securities - Warrants."
The $2,737,500 of 10% Private Placement Notes due October 1, 1996 are
convertible into 1994 Private Placement Conversion Shares at 80% of the closing
bid price of the Company's publicly traded Common Stock on the date of
conversion. For
-2-
<PAGE> 11
purposes of this Offering, such closing bid price and the number of 1994
Private Placement Conversion Shares is assumed to be $1.50 per share and
2,281,250 shares, respectively. However, based on the $1.0625 closing bid
price of the Company's Common Stock on October 30, 1995, if all $2,737,500 of
Private Placement Notes were converted into Common Stock on such date, the
effective conversion price would be $0.85 per share and an aggregate of
3,220,558 1994 Private Placement Conversion Shares would be issued. The
registration statement of which this Prospectus is a part is registering for
resale an indeterminable number of additional Private Placement Conversion
Shares which are issuable from time to time upon conversion of Private
Placement Notes at the applicable conversion prices then in effect. The
Company has requested that the holders of the Private Placement Notes exchange
their 10% Private Placement Notes for: (i) a like amount of 12% non-convertible
Exchange Notes, and (ii) certain additional payments to be made on or before
December 31, 1995, aggregating up to $547,500 ($0.20 for each $1.00 of Private
Placement Notes exchanged). The Company's offer to exchange 10% Private
Placement Notes for 12% Exchange Notes and cash will expire on December 31,
1995. Upon delivery of the applicable amount of 12% Exchange Notes and cash,
the Company will remove from registration an appropriate number of 1994 Private
Placement Conversion Shares underlying the principal amount of Private
Placement Notes exchanged. In addition, the Company will pay to Rickel &
Associates, Inc., as solicitation agent for the Company, a fee of $2,500 for
each $25,000 of Private Placement Notes exchanged, or an aggregate of $273,500
if all Private Placement Notes are exchanged for 12% Exchange Notes. See
"Business - 1994 Private Placement".
The 1,030,400 Preferred Stock Conversion Shares are issuable upon
conversion, at $2.72 per share, of 2,000,000 shares of Series B Preferred Stock
and 800,000 shares of Series E Preferred Stock issued in June 1995 in exchange
for other shares of Series B Preferred Stock. The Series E Preferred Stock is
subject to mandatory redemption at $1.00 per share (plus accrued dividends), at
the option of the holders thereof, out of the gross proceeds, if any, received
by the Company from any public offering of securities of $3,000,000 or more
(including, if applicable, proceeds of the Company Shares in this offering).
See 'Description of Securities - Preferred Stock."
<TABLE>
<CAPTION>
SECURITIES CURRENTLY OUTSTANDING
<S> <C>
Common Stock: 11,945,824 shares of Common Stock
Preferred Stock: 7,550 shares of convertible Series A Preferred Stock
2,000,000 shares of convertible Series B Preferred Stock (1)
800,000 shares of convertible Series E Preferred Stock (1)
Warrants: 195,000 Public Warrants (2)
250,000 Affiliate Warrant (3)
900,000 SGI Warrants (4)
53,241 Underwriter's Warrants
1,375,000 Warrants held by affiliates (5)
Convertible Notes (6): $2,737,500 Private Placement Notes due October 1, 1996.
<CAPTION>
SECURITIES TO BE OUTSTANDING AFTER THE OFFERING (7)(8)
<S> <C>
Common Stock: 15,470,139 shares of Common Stock (7)
Preferred Stock: 7,550 shares of convertible Series A Preferred Stock
2,000,000 shares of convertible Series B Preferred Stock (1)
800,000 shares of convertible Series E Preferred Stock (1)
Warrants: 195,000 Public Warrants (2)
250,000 Affiliate Warrant (3)
900,000 SGI Warrants (4)
1,375,000 Warrants held by affiliates (5)
1,961,925 Class B Warrants
53,241 Underwriter's Warrants
Convertible Notes (6): $2,737,500 Private Placement Notes due October 1, 1996.
- --------------------------------
</TABLE>
-3-
<PAGE> 12
(1) Convertible into an aggregate of 1,030,400 Preferred Stock Conversion
Shares, at a conversion price of $2.72 per share. The 800,000 shares
of Series E Preferred Stock were issued in June 1995 in exchange for a
like number of shares of Series B Preferred Stock. The Series E
Preferred Stock is subject to mandatory redemption at $1.00 per share
(plus accrued dividends), at the option of the holders thereof, out of
the gross proceeds, if any, received by the Company from any public
offering of securities of $3,000,000 or more (including, if applicable,
proceeds received by the Company from the sale of the Company Shares in
this Offering). See "Description of Securities - Preferred Stock."
(2) On October 10, 1995, the Company amended the terms of its Public
Warrants, to reduce their exercise price from $30.00 per share to $5.00
per share (subject to adjustment in certain events pursuant to the
anti-dilution provisions thereof) and extended their term from
September 30, 1995 through June 20, 1999.
(3) Consists of Warrants expiring April 2000 to purchase 250,000 shares of
Common Stock at $0.875 per share issued to Jerry Karlik, the Chief
Financial Officer of the Company. See "Management - Compensation
Committee Interlocks and Insider Participation."
(4) Consists of five year warrants to purchase an aggregate of 900,000
shares of Common Stock at $1.50 per share, issued to Strategic Growth
International, Inc. ("SGI"), in partial consideration for such firm
serving as investor relations consultant to the Company, pursuant to a
one year consulting agreement dated as of October 11, 1995. See
"Certain Relationships and Related Transactions."
(5) Includes: (i) warrants to purchase 625,000 shares of Common Stock at
$.333 per share issued in connection with the issuance of Series D
Preferred Stock to and a $150,000 loan made by an affiliate (which
Preferred Stock and loan have been redeemed and repaid in full); (ii)
500,000 warrants expiring April 2000 issued to officers and directors
of the Company (in addition to the Affiliate Warrants issued to Mr.
Karlik), of which 400,000 warrants are exercisable at $0.875 per share
and 100,000 warrants are exercisable at $1.41 per share; and (iii)
250,000 warrants, exercisable at $2.50 per share and expiring December
31, 1997 issued to a former officer, which are redeemable by the
Company for $50,000 at any time after January 1, 1996.
(6) Convertible into shares of Common Stock at 80% of the closing bid price
of the Company's publicly traded Common Stock on the date of
conversion. For purposes of this Prospectus, an aggregate of 2,281,250
Private Placement Conversion Shares are assumed based upon an assumed
closing bid price of $1.50 per share on the date of conversion. The
Company has requested that the holders of the Private Placement Notes
exchange such Private Placement Notes for a like principal amount of
12% non-convertible Exchange Notes. The Company has offered to holders
of Private Placement Notes electing to exchange such notes for Exchange
Notes certain additional payments (to be made on or before December 31,
1995) equal to $.20 for each $1.00 principal amount of Private
Placement Notes exchanged for Exchange Notes (an aggregate of up to
$547,500 assuming all Private Placement Notes are so exchanged). In
addition, the Company will pay a solicitation fee equal to $.10 for
each $1.00 of Private Placement Notes exchanged (a maximum of $273,750)
to Rickel & Associates, Inc., as solicitation agent for the Company,
payable in the same manner as payments are made to noteholders. Upon
delivery of the applicable amount of its 12% non-convertible Exchange
Notes and cash, the Company will remove from registration an applicable
number of 1994 Private Placement Conversion Shares. See "Business -
1994 Private Placement".
(7) Assumes the sale of all 3,000,000 Company Shares offered hereby, and
the issuance of 524,315 Creditors Shares (including 499,315 Creditors
Shares being registered for resale in this Offering) in reduction of
approximately $979,630 of accrued Company obligations. See "Business -
Settlement with Certain Creditors" and "Plan of Distribution."
(8) Does not include: (i) warrants (the "1994 Private Placement Warrants")
issuable to the holders of 10% Private Placement Notes, entitling such
holders to purchase 0.02 shares of Company Common Stock at $11.75 per
share through June 20, 1999 for each $1.00 of 10% Private Placement
Notes converted into Company Common Stock (a maximum of 54,750 of such
1994 Private Placement Warrants if all $2,737,500 Private Placement
Notes are converted; (ii) five year warrants to purchase up to
1,250,000 shares which are potentially issuable to Bentley J. Blum, a
director of the Company, in consideration for certain collateralized
guarantees provided by Mr. Blum in connection with an October 20, 1995
refinancing of the Company's secured indebtedness; and (iii) options to
purchase an aggregate of 800,500 shares of Common Stock of the Company,
including 770,500 options owned by certain officers and directors. See
"Management -- Compensation Committee Interlocks and Insider
Participation," "Certain Relationships and Related Party Transactions,"
"Principal Stockholders," "Management - Stock Options" and "Description
of Securities - 1994 Private Placement Warrants."
USE OF PROCEEDS
Other than proceeds received from the sale of up to 3,000,000 Company
Shares and/or upon the exercise of options and/or Warrants, the Company will
not receive any of the proceeds from the sale of any 1994 Private Placement
Conversion Shares, 1995 Private Placement Shares, Creditor Shares, Class B
Warrants, Underwriter's Warrants, Class Z Warrants or other securities offered
hereby. Any net proceeds received by the Company from the sale of any or all
of the 3,000,000 Company Shares (estimated at a maximum of $___________) will
be used by the Company: (i) to repay up to $550,000 of accrued obligations
retained by the Company in connection with its former Conquest Air subsidiary;
(ii) to pay up to $547,500 to holders of the Private Placement Notes who agree
to exchange such notes for 12% non-convertible Exchange Notes, and up to
$273,750 to the solicitation agent engaged
-4-
<PAGE> 13
by the Company to obtain exchanges; (iii) to pay up to $800,000 in redemption
of the outstanding Series E Preferred Stock of the Company, but only if the
aggregate gross proceeds received by the Company from the sale of the Company
Shares equals or exceeds $3,000,000; and (iv) the balance for working capital
and general corporate purposes. To the extent that less than all 3,000,000
Company Shares are sold, the Company will first allocate up to $550,000 of such
net proceeds to retire obligations incurred by Conquest Air, second to make
required payments (up to a maximum of $821,250) in connection with 12%
non-convertible Exchange Notes which are accepted in exchange for its
outstanding 10% convertible Private Placement Notes, third, to redeem Series E
Preferred Stock, if and to the extent required, and the balance, if any, for
working capital and general corporate purposes. See "Use of Proceeds."
Any proceeds received from the exercise of the Class B Warrants,
Underwriter's Warrants, Class Z Warrants, the Public Warrants and other
outstanding options and Warrants will be used for working capital and general
corporate purposes. The issuance of the 524,315 Creditors Shares will reduce
existing Company indebtedness and accounts payable by as much as $979,630. See
"Business - Settlement with Certain Creditors."
RISK FACTORS
The securities offered hereby involve a high degree of risk and
substantial dilution to the percentage equity of current stockholders and
should only be purchased by investors able to sustain the loss of their entire
investment. See "Risk Factors."
SUMMARY FINANCIAL INFORMATION
The following sets forth summary financial information regarding the
Company. The pro forma summary financial information includes adjustments to
reflect the Wico Merger. Financial information respecting airline operations
of Conquest Air are not included as a determination has been made by the Board
of Directors to sell the airline operations.
The summary financial information as of September 30, 1994, September
30, 1993, September 30, 1992 and September 30, 1991 and for each of the three
years in the period ended September 30, 1994 has been abstracted from the
financial statements of Wico included elsewhere herein.
SUMMARY FINANCIAL INFORMATION (1) (In Thousands, except per share data)
The following is a summary of the Company's financial information
extracted from indicated year-end Consolidated Financial Statements and is
qualified in its entirety by the detailed information appearing in the audited
Consolidated Financial Statements and unaudited interim Financial Statements
and the notes thereto. The unaudited statements and data at June 30, 1994 and
1995, and for the respective nine months then ended, are not necessarily
indicative of future results and should not be considered as a forecast for the
year as a whole or for any future periods.
STATEMENT OF OPERATIONS DATA (3)
<TABLE>
<CAPTION>
Nine Months Ended
June 30, Years Ended September 30,
---------------- -------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales . . . . . . . . . $29,341 $30,677 $41,992 $38,783 $38,653 $39,277 $45,747
Cost of sales . . . . . . . 18,780 18,748 26,078 23,675 24,078 24,282 28,413
Net income (loss) . . . . . (4,045) 550 284 443 (741) (1,742) (703)
Pro forma net income (4,045) 550 284 508 (516) (1,137) (488)
(loss)(1) . . . . . . . . .
Pro forma net income (loss)
per share (2) . . . . . . . $ (.46) $ .05 $ .00 $ .06 $(.07) $(.16) $(.07)
Number of shares used in
computation . . . . . . . . 9,345 7,181 7,675 7,181 7,181 7,181 7,181
</TABLE>
BALANCE SHEET DATA (4)
<TABLE>
<CAPTION>
September 30, June 30, 1995
1994 Actual ProForma(5)
---- ------ -----------
<S> <C> <C> <C>
Current assets . . . . . . $ 15,757 $ 15,307 $15,031
Total assets . . . . . . . 27,811 28,528 28,815
Current liabilities . . . . 9,491 10,415 7,955
Long term debt . . . . . . 16,706 17,443 18,396
Stockholders' equity
(deficiency) . . . . . . . 1,614 670 2,463
- -------------------------
</TABLE>
(1) Pro forma net income (loss) has been calculated after giving effect to the
pro forma adjustments to the income tax provision as if the Company had
not operated as an "S" corporation. As of January 1, 1994, the Company
ceased operating as an "S" corporation.
(2) Pro forma net income (loss) per share reflects the recapitalization of the
Company as a result of the Wico Merger. Common Stock equivalents have
been included in years where they produce a dilutive effect.
(3) Includes the results of operations for the acquired Langworthy businesses
since June 20, 1994. Excludes results of the airline operations.
-5-
<PAGE> 14
(4) Includes the assets and liabilities resulting from the Wico Merger and
acquisition of Langworthy which have been valued at their estimated fair
values as of June 20, 1994.
(5) Pro forma to give effect to (i) the completion of the 1995 Private
Placement of an aggregate of 2,082,147 shares of Common Stock in July
1995, (ii) and the redemption of $200,000 of Series D Preferred Stock and
$150,000 note payable to an affiliate, and (ii) the issuance of 435,531
Creditors Shares in reduction of approximately $810,000 of accrued Company
obligations which were recorded at June 30, 1995.
RISK FACTORS
THE SECURITIES OFFERED HEREBY INVOLVE SUBSTANTIAL INVESTMENT RISKS.
ACCORDINGLY, COMMON STOCK AND WARRANTS SHOULD BE PURCHASED OR EXERCISED AND
COMPANY NOTES CONVERTED INTO COMMON STOCK ONLY BY PERSONS WHO CAN AFFORD THE
LOSS OF THEIR ENTIRE INVESTMENT. IN EVALUATING AN INVESTMENT IN THE COMPANY
AND ITS BUSINESS PRIOR TO PURCHASE, PROSPECTIVE INVESTORS SHOULD CAREFULLY
CONSIDER THE FOLLOWING RISK FACTORS AS WELL AS OTHER INFORMATION SET FORTH
ELSEWHERE IN THIS PROSPECTUS.
RECENT LOSSES
Although the Company had net income of approximately $284,000 for the year
ended September, 30, 1994, and $443,000 for the year ended September 30, 1993,
the Company reported a net loss of approximately $4,045,000 for the nine-month
period ended June 30, 1995, compared with net income of approximately $550,000
for the nine-month period ended June 30, 1994. Approximately $2,703,000 of the
losses in the nine-month period ended June 30, 1995 are attributable to losses
incurred by Conquest Air (including a cumulative adjustment of $1,916,000) and
$775,000 relate to the amortization of debt discounts. The balance of such
losses are attributable to adverse trends in the business operated by Wico
Corporation (the principal operating subsidiary of the Company). In addition,
Wico Corporation had net losses of approximately $741,000 and $1,742,000 for
the fiscal years ended September 30, 1992 and September 30, 1991, respectively.
There can be no assurance that the Company will operate profitably in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
DECREASE IN STOCKHOLDERS' EQUITY; DEFICIT TANGIBLE NET WORTH
As of September 30, 1994 (partially as a result of the Wico Merger), the
Company's stockholders' equity was approximately $1,614,000. However, due to
losses in the nine months ended June 30, 1995, and notwithstanding the receipt
of approximately $1,570,000 from the issuance of Common Stock in the third
quarter of 1995, stockholders' equity at June 30, 1995 was reduced to
approximately $670,000. Although such stockholders' equity increased
subsequent to June 30, 1995 as a result of the sale in July 1995 of an
additional $1,180,000 of net proceeds from the sale of 1995 Private Placement
Shares, and will further increase upon the issuance of up to 524,315 Creditors
Shares in reduction of up to $979,630 of liabilities, there can be no assurance
that the Company will not continue to incur significant net losses which would
result in future reductions of stockholders' equity. In addition, at June 30,
1995, the Company's tangible net worth (tangible assets less liabilities) was a
deficit of approximately $5,500,000. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations- Pro Forma Balance Sheet" and
"Business - Sale of Conquest Air; 1995 Private Placement; and Settlements with
Certain Creditors."
SUBSTANTIAL INDEBTEDNESS AND DEFAULTS UNDER PRIOR CREDIT AGREEMENT
The Company is subject to substantial indebtedness for money borrowed,
including an aggregate of approximately $19.7 million outstanding at October
31, 1995 under a revolving credit facility due September 30, 1998 and a
separate senior secured term loan maturing in 2000, and $2.737 million of
Private Placement Notes due October 1996. To the extent that the Company is
able to exchange such Private Placement Notes for $2.737 million of 12%
Exchange Notes, any remaining Private Placement Notes and all newly issued
Exchange Notes will be due and payable in full on October 1, 1996. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations- Liquidity and Capital Resources (Private Placements)" and "Business
- -1994 Private Placement."
The Company's revolving credit and term loan facilities with institutional
lenders are secured by substantially all of the assets of the Company, limited
personal guarantees from Stephen R. Feldman, Chairman of the Board of the
Company, and Bentley J. Blum, a principal stockholder and director, in the
amounts of $1.0 million and $3.0 million, respectively, and by pledges in favor
of one of such institutional
-6-
<PAGE> 15
lenders of all of the Company's Common Stock owned by certain principal
stockholders, representing approximately 60% of the Company's outstanding
Common Stock. (see "Possible Change in Control" below).
At June 30, 1995 and at September 30, 1995, the Company had drawn the
maximum $13.0 million available under its prior line of credit facility and, as
of both such dates, was not in compliance with certain financial covenants
under the credit agreement with its then institutional lender. Such lender
waived non-compliance with such covenants on June 30, 1995, and recently waived
non-compliance with such covenants at September 30, 1995 in connection with a
refinancing of the Company's senior secured indebtedness effected October 20,
1995.
On October 20, 1995, the Company completed a refinancing of its senior
secured indebtedness with its existing institutional lender and another
commercial lender. Pursuant to the terms of the refinancing, the Company
received a maximum $14.0 million senior secured revolving credit facility with
the new commercial institutional lender due in September 1998, out of which
$6.0 million was applied in reduction of its indebtedness to its current
institutional term lender, and the remaining outstanding balance due such
lender was restated as a $12.6 million term loan facility payable in
installments with a final payment of approximately $10 million due in 2000.
The terms of the refinancing requires the Company to comply with a number of
ongoing covenants, including revised financial covenants. There is no
assurance that the Company will be able to comply with such financial covenants
or that additional waivers would be forthcoming in the event of such
non-compliance in the future. In the event such waivers are required and are
not obtained, the lenders could declare all indebtedness to be immediately due
and payable and would be entitled to exercise their remedies under the credit
agreements. See "Risk Factors - Security Interests and Restrictive Loan
Covenants" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
CASH FLOW AND LIQUIDITY PROBLEMS
The Company is also suffering from liquidity and cash flow problems,
primarily as a result of negative cash flow in the Company's recently sold
airline business, and losses in the Company's gaming business. However, as a
result of costs associated with the consolidation of its recently acquired
gaming subsidiary and weakness in demand for certain of the products
distributed by Wico, the Company's manufacturing and distribution businesses
also suffered losses due to a lack of working capital and attendant inventory
shortages. The operations from the Company's continuing businesses generated
positive cash flow in fiscal 1994, 1993 and 1992 in the amounts of
approximately $1,761,000, $1,832,000 and $1,300,000, respectively. However,
for the nine months ended June 30, 1995, operating cash flow from such
businesses was negative by $363,000 and total cash flow, exclusive of
approximately $1,570,000 received from the issuance of Common Stock in June
1995, was negative by approximately $669,000. Although the Company's believes
that the recent refinancing of its senior debt will relieve its current cash
flow shortages, there is no assurance that the Company will not incur
additional cash flow shortages in the future or default in payment of its
indebtedness, including the $2,737,500 aggregate amount of Private Placement
Notes and/or Exchange Notes due in October 1996. See "Management's Discussion
and Analyses of Financial Conditions and Results of Operations - Liquidity and
Capital Resources."
-7-
<PAGE> 16
SECURITY INTERESTS AND RESTRICTIVE LOAN COVENANTS
Wico, a wholly-owned subsidiary of the Company, and the operating
subsidiaries of Wico are parties to lending agreements with its two
institutional lenders which provide for a term loan and a revolving credit
facility and which contain various financial and other covenants. Such
covenants, among other things, require that Wico and its consolidated
subsidiaries maintain certain minimum levels of adjusted net worth and
consolidated cash flow and minimum ratios of debt service coverage and interest
expense to indebtedness, and prohibit the Company and its subsidiaries, without
the lenders consent, from declaring any dividends, making any acquisitions,
incurring additional indebtedness and engaging in certain other transactions.
Substantially all of the Company's consolidated assets are pledged as
collateral to secure its indebtedness to the institutional lenders. The
obligations of the Company and its subsidiaries under the credit agreements are
cross-defaulted, so that upon the occurrence of an event of default under
either of the credit agreements, both lenders could declare all indebtedness to
be immediately due and payable and would be entitled to exercise the rights of
secured creditors and foreclose upon substantially all of the assets of the
Company, Wico and its subsidiaries. In such event, it is unlikely that the
stockholders of the Company would realize any value on their investment in the
equity of the Company. Moreover, to the extent that the Company's consolidated
assets serve as collateral to secure outstanding indebtedness, or are
restricted from being used as security for outstanding indebtedness, such
assets will not be available to secure future indebtedness, which may adversely
affect the Company's future borrowing ability.
At June 30, 1995 and September 30, 1995 Wico was in default of its
operating income covenant and ratio of interest expense to operating income
covenant under the prior credit agreement with one of its institutional
lenders. Although the institutional lender waived this requirement through
September 30, 1995 in connection with the senior debt refinancing consummated
on October 20, 1995, there can be no assurance that the Company will be in
compliance with these and other requirements of the new credit agreements
following September 30, 1995. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
SALE OF CONQUEST AIR; CONTINUING SUBSTANTIAL LIABILITIES AND RISK OF
NON-PAYMENT
The operations of the Company's Conquest Air commuter airline business
incurred significant losses which adversely affected the Company's working
capital and liquidity position through June 30, 1995. As a result, the lessors
of the aircraft operated by Conquest Air issued default notices and the Company
was unable to pay certain other obligations of Conquest Air. The Company has
agreed to pay by January 1996 approximately $550,000 to one of such lessors and
a former Conquest Air supplier. See "Use of Proceeds."
On June 30, 1995, the Company sold the stock of Conquest Air to Air L.A.,
Inc. ("Air LA"), a publicly-owned operator of a regional commuter airline. In
consideration for such sale, the Company received an aggregate of $6 million of
Air LA equity securities and notes. As part of the sale, in consideration for
250,000 Air LA stock options exercisable at $.50 per share through June 2000,
the Company provided Air LA with a secured $250,000 bridge loan pending a
contemplated debt refinancing by Air LA. At June 30, 1995, the Company was
also in default in payments to lessors of the six remaining aircraft formerly
operated by the Conquest Air in the amount of approximately $400,000. Although
Air LA assumed such obligations, as at October 31, 1995 $192,000 of such
$400,000 amount still remain outstanding. In addition, the Company has
recently been advised that Air LA was in arrears in payment of approximately
$248,000 of monthly aircraft lease installments due from July 1, 1995 through
October 31, 1995. Air LA reported net losses of $5,376,802 for the nine month
period ended March 31, 1995. Accordingly, even if it completes its debt
refinancing and repays the Company's bridge loan, should Air LA not be able to
pay its purchase price obligations to the Company, or be unable to cure prior
defaults and pay ongoing obligations to its aircraft lessors on a timely basis,
the Company could ultimately incur both a substantial financial loss from the
sale of Conquest Air and be required to pay damages aggregating in excess of
$2.2 million to the aircraft lessors. See "Management's Discussion and
Analyses of Financial Conditions and Results of Operations - Results and Plan
of Operations of Air LA" and "Business - Sale of Conquest Air."
LICENSING AND REGULATION
The Langworthy acquisition provided a significant product line expansion
for the portion of Wico's prior business operations in the gaming industry,
consisting principally of the supply of replacement parts for slot machines.
However, such acquisition required the Company to secure additional licenses in
order to expand
-8-
<PAGE> 17
the acquired business operations. The Company plans to engage in the gaming
supply business in Connecticut, Indiana, Iowa, Louisiana, Missouri, Nevada, New
Jersey, Mississippi and other jurisdictions where gambling is authorized. The
Company has received approval for its license in Wisconsin and Mississippi, and
has received a conditional license in New Jersey. However, there can be no
assurance that the Company will not encounter delays in obtaining necessary
licenses in other jurisdictions, and that such delays will not adversely affect
the Company's planned casino supply business.
While additional licenses or authorizations are not required for the
continuation of the Company's sale and distribution of replacement parts for
slot machines or its continuation of substantially all of the Langworthy
operations in Nevada, and the Company has obtained approvals or conditional
licenses in Mississippi and New Jersey, the Company will still be required to
obtain licenses in other jurisdictions where gambling is authorized and the
Company plans to engage in the gaming supply business. It should be noted,
however, that Nevada accounted for approximately 50% of Langworthy's casino
supply business in 1993.
Any beneficial holder of securities of the Company may be subject to
investigation by the gaming authorities in any or all of the jurisdictions in
which the Company (or any of its subsidiaries) operates if such authorities
have reason to believe that such ownership may be inconsistent with such
state's gaming policies. Persons who acquire beneficial ownership of more than
certain designated percentages of securities will be subject to certain
reporting and qualification procedures established by such gaming authorities,
as well as local licensing authorities.
The failure of the Company or its key personnel to obtain or retain
required licenses, permits or approvals in one or more jurisdictions could have
an adverse effect on this aspect of the Company's gaming supply business and
could adversely affect the ability of the Company and its key personnel to
obtain or retain licenses in other jurisdictions. No assurance can be given
that such licenses, permits or approvals will be obtained, retained or renewed
in the future in the jurisdictions where the Company may seek to operate or
that competitors will not succeed in obtaining licenses where the licensing of
the Company is delayed or not approved.
CONTROL BY PRINCIPAL STOCKHOLDERS
The Company's officers and directors and their affiliates and family
members beneficially own approximately 55.9% of the issued and outstanding
Common Stock of the Company and hold options and warrants which, if fully
exercised, would entitle such persons to own an aggregate of approximately 37%
of the outstanding Common Stock on a fully-diluted basis, assuming exercise or
conversion of all warrants, options and other securities exercisable for or
convertible into Company Common Stock as at the Effective Date. Under Delaware
law, the vote of only the holders of a majority of the outstanding voting
capital stock is required to elect the entire Board of Directors and to effect
fundamental corporate changes. There are no cumulative voting rights under the
Company's Certificate of Incorporation, and thus such stockholders may possess
the ability to elect all of the members of the Board of Directors of the
Company, to increase its authorized capital, to dissolve or merge the Company
or to sell its assets, if they so choose, and to generally exert substantial
and effective control over the business and operations of the Company.
POSSIBLE CHANGE OF CONTROL
Pursuant to its current credit agreement with its institutional lender,
Bentley J. Blum, Stephen R. Feldman, Iris Feldman, Miriam Katowitz and Paul E.
Hannesson (collectively, the "Pledgors") have pledged to the lender all of the
outstanding capital stock of the Company now owned or hereafter acquired by
each of them. Such shares represent approximately 60% of the total number of
Company shares of Common Stock currently outstanding. Accordingly, upon the
occurrence of an event of default (as defined), any and all shares of pledged
stock held by the lender may, at the option of such lender or its nominee, be
registered in the name of the lender or its nominee, and the lender or its
nominee will succeed to all rights pertaining to such shares. In the event
that the contemplated refinancing is consummated, it is anticipated that the
Pledgors will continue to be required to pledge all of their shares of Company
Common Stock. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources."
-9-
<PAGE> 18
CERTAIN POTENTIAL BENEFITS TO INSIDER
In connection with the recent refinancing of the Company's senior
indebtedness, Bentley J. Blum, a principal stockholder and director of the
Company, increased his limited personal guaranty of such indebtedness from $1.0
million to $3.0 million, and has also collateralized the $2.0 million increase
in his personal guaranty with certain assets independent of his interests in
the Company. In consideration for his commitment to furnish such increased
guaranty and collateral, in September 1995 the Company's Board of Directors
agreed to issue to Mr. Blum, simultaneous with the closing of such refinancing
and issuance of his increased collateralized guaranty, an aggregate 500,000
shares of Company Common Stock, at $.001 per share. Such shares were issued to
Mr. Blum contemporaneous with the October 20, 1995 closing of the refinancing
and the issuance of his collateralized increased guaranty. In addition to such
500,000 shares, the Company further agreed that on each anniversary of the date
of closing of the refinancing, to the extent that Mr. Blum's $3.0 million
collateralized guaranty shall then remain in effect, he shall receive five year
warrants to purchase an additional 250,000 Company shares. Inasmuch as the
proposed terms of the refinancing contemplate a five year maximum term of the
credit facility, Mr. Blum would potentially be entitled to receive warrants to
purchase an aggregate of 1,250,000 additional Company shares. All such
warrants, if and to the extent issued, shall have a term expiring five years
from the date of issuance and will be exercisable at the closing sale price of
the Company's publicly traded Common Stock on the date of issuance. On October
30, 1995, the closing sale price of the Company's Common Stock, as reported on
NASDAQ, was $1.0625 per share. The 500,000 shares issued in October 1995 to
Mr. Blum for $.001 per share represent a substantial potential for profit upon
resale. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources" and "Management -
Compensation Committee Interlocks and Insider Participation."
POTENTIAL CHARGE TO FUTURE EARNINGS.
The excess, if any, between the closing sale price of the Company's Common
Stock and the average value of approximately $1.87 per share for the Creditors
Shares, could represent a charge to earnings to the Company in an amount equal
to the difference between the closing sale price of the Company's Common Stock
and value of the Creditors Shares on the date of issuance thereof. Although
such charges to earnings will not impact consolidated stockholders' equity, it
may have a material adverse effect on the market price of the Company's Common
Stock. See "Management - Compensation Committee Interlocks and Insider
Participation" and "Business - Settlement with Certain Creditors."
SEASONALITY
Wico's consumer products segment experiences its peak sales relating to
the Christmas holiday selling season. Due to the importance of the Christmas
selling season, net sales relating thereto constitute a disproportionate amount
of net sales for the entire year and all of Wico's income from operations of
this segment. Unfavorable economic conditions affecting retailers generally
during the Christmas selling season in any year could materially adversely
affect Wico's results of operations for this segment. Wico must also make
decisions regarding how much inventory to buy in advance of the season in which
it will be sold. Significant deviations from projected demand for products can
have an adverse effect on Wico's sales and profitability for this segment.
DEPENDENCE UPON KEY EXECUTIVE
The success of the Company is largely dependent on the personal efforts of
Steffen I. Magnell, its Chief Executive Officer and President, who devotes
substantially all of his business time to the affairs of the Company and Wico.
Mr. Magnell has entered into an employment agreement with the Company and Wico
expiring March 31, 1998. Under the terms such agreement, Mr. Magnell is
restricted from entering into competition with the Company. However, the
Company does not currently maintain key employee life insurance on the life of
Mr. Magnell. In the event that it became necessary to replace such person, the
Company believes that another suitable executive would be available, although
there can be no assurance that the terms and conditions of employment of such
employee will not be less favorable to the Company. See "Management."
-10-
<PAGE> 19
DEPENDENCE ON A LIMITED NUMBER OF SUPPLIERS.
The Company's consumer products business has been largely dependent upon a
principal supplier located in the Far East. Sales of such consumer products
decreased by $1,390,000 (approximately 24%) in the nine months ended June 30,
1995 as compared to the comparable nine month period in fiscal 1994, primarily
as a result of production difficulties encountered by such supplier. Although
the Company continues to purchase products from such vendor and is seeking
alternative sources of supply, there is no assurance that such sources will be
available, or that its present supplier will not incur further production
difficulties, either of which events may continue to adversely affect future
sales of the Company's consumer products. See ""Management's Discussion and
Analysis of Financial Condition and Results of Operations - Results of
Operations."
NO MINIMUM NUMBER OF COMPANY SHARES OR UNDERWRITER FOR SALE OF COMPANY SHARES.
There is no minimum number of Company Shares or net proceeds therefrom
that must be sold or received by the Company in order to consummate the
offering of the 3,000,000 Company Shares being offered pursuant to this
Prospectus; which offering of Company Shares will terminate on January 31,
1996. Accordingly, the net proceeds, if any, received from the sale of Company
Shares may be insufficient to cover offering expenses or otherwise enable the
Company to discharge certain obligations intended to be paid with such
proceeds. In addition, no funds provided by investors purchasing Company
Shares will be returned, irrespective of the number of Company Shares sold.
See "Use of Proceeds" and "Plan of Distribution - The Company Shares."
The 3,000,000 Company Shares are also being offered directly by the
Company, without the services of any underwriter or placement agent either
purchasing such Company Shares on a "firm commitment" basis or selling such
shares as agent on a "best efforts" basis. In view of the absence of an
underwriter or placement agent, the offering price for the 3,000,000 Company
Shares has been determined solely by the Company, without the involvement or
participation of any independent party and no underwriter or other
broker-dealer participated in the preparation of the offering documents.
Although the Company may engage the services of registered broker-dealers to
assist in the sale of the Company Shares, without the services of a recognized
underwriter for such securities, there is a lesser likelihood of a successful
completion of such offering for the account of the Company. See "Plan of
Distribution - The Company Shares"
NO DIVIDENDS
The payment of dividends, if any, on the Company's Common Stock rests
within the discretion of its Board of Directors and, among other things, will
depend upon the Company's earnings, capital requirements and financial
condition, as well as other relevant factors. The Company has not declared any
dividends since inception, and has no present intention of paying any dividends
on its Common Stock in the foreseeable future, and it intends to use earnings,
if any, to generate increased growth. Wico, the Company's principal operating
subsidiary, is also prohibited by the terms of its banking agreements from
paying any dividends to the Company, other than certain limited amounts. The
Company does not expect to declare or pay any dividends in the foreseeable
future. The Company intends to retain future earnings for investment in its
business.
RISK OF DELISTING FROM NASDAQ
The Company's Common Stock is currently traded on the SmallCap Market of
NASDAQ. NASDAQ imposes certain minimum criteria for continued listing of
securities. These requirements include minimums for total assets, total
capital and surplus, and share bid price of $2,000,000, $1,000,000 and $1.00,
respectively. Any issue which falls below the $1.00 bid price, but has a
market value of public float of $1,000,000 and equity of $2,000,000, is exempt
from the minimum bid price requirement.
In June 1995, NASDAQ notified the Company that, based on its consolidated
balance sheet at March 31, 1995, the Company's capital and surplus had fallen
below the minimum $1,000,000 amount necessary to maintain continued eligibility
for listing on NASDAQ. Such notice advised that the Company would be subject
to delisting unless it either demonstrated, through a periodic report filed
with the Securities and Exchange Commission, compliance with the $1,000,000
minimum capital and surplus test, or requested a temporary exception to be
considered by the NASDAQ Listing Qualifications Committee. Such exception
request is applicable when a corporation has developed a plan of action that
will result in full compliance, but requires additional time to implement.
-11-
<PAGE> 20
In response to the NASDAQ notification, in July 1995, the Company filed
its required reports with the Securities and Exchange Commission and attended a
hearing with NASDAQ. Based primarily upon receipt of proceeds aggregating
approximately $2.9 million from its 1995 Private Placement, the Company was
able to demonstrate its renewed compliance with the listing requirements; and
as a result, NASDAQ withdrew its notice to the Company.
If the Company's Common Stock were delisted from NASDAQ, it would trade on
either the NASD Bulletin Board or in the over the counter market in what is
commonly referred to as the "pink sheets", and be subject to the "penny stock"
rules of the Securities and Exchange Commission. As a consequence of such
delisting, an investor could find it more difficult to dispose of, or to obtain
accurate quotations as to the price of, the Company's Common Stock or other
securities. If this were to occur, the market for the Company's Common Stock
would be materially and adversely affected.
SIGNIFICANT DILUTION TO PERCENTAGE EQUITY INTERESTS OF PRESENT STOCKHOLDERS AND
DEPRESSIVE EFFECT ON MARKET PRICE OF COMMON STOCK
As at October 31, 1995, the Company's outstanding capital stock consists
of (i) 7,550 shares of convertible Series A Preferred Stock, (ii) 2,000,000
shares of convertible Series B Preferred Stock, (iii) 800,000 shares of
convertible Series E Preferred Stock, and (iv) 11,945,824 shares of Common
Stock. An aggregate of up to 524,315 Creditors Shares will be issued on or
prior to the Effective Date to certain creditors of the Company in exchange for
accrued obligations aggregating up to $979,630, and an additional 3,000,000
Company Shares are being offered hereby by the Company at $___ per share until
not later than January 31, 1996. See "Plan of Distribution - The Company
Shares."
In addition to the aggregate of 11,945,824 shares of Common Stock
presently outstanding and the maximum of 3,524,315 additional shares to be
outstanding upon issuance of 524,315 Creditors Shares and up to 3,000,000
Company Shares, 6,420,057 additional shares of Common Stock are being
registered pursuant to the Registration Statement of which this Prospectus is a
part and are issuable in connection with (i) the 2,718,407 Warrant Shares
underlying the Class B Warrants, the Bank Warrant, the Affiliate Warrant and
the Underwriter's Warrants, (ii) an estimated 2,281,250 Private Placement
Conversion Shares, (iii) the 1,030,400 Preferred Stock Conversion Shares, and
(iv) 195,000 Warrant Shares issuable upon exercise of the outstanding Public
Warrants. The foregoing does not include a maximum of 4,075,500 additional
shares issuable and potentially issuable in connection with other outstanding
options and warrants, including an aggregate of 1,895,500 shares underlying
outstanding warrants and options held by officers and directors of the Company
and their affiliates, and up to an additional 1,250,000 shares underlying
warrants which may be issued in connection with the Company's senior debt
refinancing to Bentley J. Blum, a principal stockholder and director, in
consideration for his increased personal guaranty of institutional indebtedness
and his providing personal collateral to secure such increased guaranty. See
"Management - Compensation Committee Interlocks and Insider Participation."
The potential issuance of an additional 14,019,872 shares of Common Stock
(including the maximum 1,250,000 shares potentially issuable to Mr. Blum in
connection with the contemplated refinancing) represents 54% of the 25,965,696
shares of Common Stock which would be outstanding on a fully-diluted basis,
assuming exercise or conversion of all such options, warrants and convertible
securities.
In addition, the Private Placement Conversion Shares are issuable at 80%
of the applicable closing bid price of the Company's publicly traded Common
Stock on each date that Private Placement Notes may be converted into Common
Stock. The 2,281,250 Private Placement Conversion Shares referred to above are
assumed based upon a $1.20 conversion price. However, based on the $1.0625
closing bid price of the Company's Common Stock at October 31, 1995, the
conversion price on such date would have been $0.85 and an aggregate of
3,220,558 Private Placement Conversion Shares would have been issued if all
$2,737,500 of Private Placement Notes had been converted on such date.
Accordingly, the 25,965,696 shares of Common Stock potentially issued on a
fully-diluted basis may be significantly increased depending upon the
applicable conversion prices of Private Placement Notes in effect on the date
of conversion, and otherwise adjusted depending upon whether and to the extent
that holders of the convertible Private Placement Notes accept non-convertible
12% Exchange Notes and cash in exchange for such Private Placement Notes. See
"Business - 1994 Private Placement."
-12-
<PAGE> 21
The issuance of such additional shares of Common Stock would represent
substantial dilution to the interests of present stockholders in the percentage
equity ownership of the Company, and such issuances (or even the potential
thereof) is likely to have a significant depressive effect on the current
market price of the Company's publicly traded Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
At October 31, 1995, there were an aggregate of 11,945,824 shares of
Common Stock outstanding, including 3,099,505 shares which are being registered
for immediate resale pursuant to this Prospectus; and an additional maximum
3,000,000 Company Shares which may be sold by the Company shortly after the
Effective Date of this Prospectus. In the four fiscal 1995 quarters ended
September 30, 1995, the market price of the Company's publicly traded Common
Stock has fluctuated between a low of approximately $.25 per share to a high of
$3.125 per share. The existence on the Effective Date of this Prospectus of an
aggregate of 6,099,505 shares of Common Stock available for immediate resale
into the market is likely to have a significant depressive effect on the market
price of the Company's publicly traded Common Stock, and could render difficult
the sales of Common Stock by investors. In addition, the potential issuance of
up to 6,420,057 additional registered shares of Common Stock upon the exercise
of Warrants and the conversion of Company Private Placement Notes and Series B
and Series E Preferred Stock represents a further potential "overhang" on the
future market price of the Company's Common Stock.
Upon the Effective Date of this Prospectus, approximately 7,500,000 shares
of Common Stock will be "restricted securities," as that term is defined under
Rule 144 promulgated under the Securities Act, in that such shares were issued
and sold by the Company in transactions not involving a public offering. In
general, under Rule 144 as currently in effect, subject to the satisfaction of
certain other conditions, after at least two years have elapsed since the
purchase of such shares from the Company or its affiliate, the holder of the
shares can (along with any person with whom such individual is required to
aggregate sales) sell, within any three-month period, a number of shares of
restricted securities that does not exceed the greater of 1% of the total
number of outstanding shares of the same class, or, if the Common Stock is
quoted on NASDAQ or a stock exchange, the average weekly trading volume during
the four calendar weeks preceding the sale. A person who has not been an
affiliate of the Company for at least three months may, after at least three
years have elapsed from the purchase of the restricted securities from the
Company or an affiliate, sell such restricted shares under Rule 144 without
regard to any of the limitations described above.
Because substantially all of the Company's outstanding restricted shares
of Common Stock will become eligible for sale pursuant to Rule 144 on or before
July 1997 (three years from the closing of the Wico Merger), the possible or
actual sales of Common Stock by stockholders of the Company pursuant to Rule
144 could have a further depressive effect upon the price of the Common Stock
in any market that may develop therefor, and could also render difficult the
sales of Common Stock by investors.
NECESSITY OF CONTINUING POST-EFFECTIVE AMENDMENTS TO THE COMPANY'S REGISTRATION
STATEMENT AND STATE BLUE SKY REGISTRATION; EXERCISE OF WARRANTS; OBLIGATION TO
SELLING SECURITYHOLDERS
In order to exercise the Class B Warrants and purchase the underlying
Common Stock, it is necessary that such warrants and underlying Common Stock be
registered or otherwise exempt from applicable registration requirements. In
addition, the conversion of the Private Placement Notes into 1994 Private
Placement Conversion Shares will likewise require the registration of such
shares. The Company would be unable to issue Common Stock to those persons
desiring to exercise their Class B Warrants and convert their Private Placement
Notes unless and until the underlying Common Stock are qualified for sale in
jurisdictions in which such purchasers reside, or an exemption from such
qualification exists in such jurisdictions. There can be no assurance that the
Company will be able to effect any required qualification.
The Class B Warrants will not be exercisable and the Private Placement
Notes may not be converted unless the Company maintains a current Registration
Statement on file with the Commission through post-effective amendments to the
Registration Statement containing this Prospectus. The Class B Warrants may
not be redeemed by the Company at any time when a current registration is not
maintained. However, the failure to maintain an effective registration
statement will not extend the term of the Class B Warrants. Although the
Company plans to file appropriate post-effective amendments to the Registration
Statement containing this Prospectus, and to maintain a current Registration
Statement on file with the Commission relating to the Class B Warrants, the
shares of Common Stock underlying such Class B Warrants and the 1994
-13-
<PAGE> 22
Private Placement Conversion Shares, there can be no assurance that such will
be accomplished or that the Class B Warrants will continue to be so registered.
See "Description of Securities - Class B Warrants."
In addition to the Class B Warrants, the underlying Class B Warrant Shares
and the 1995 Private Placement Conversion Shares, the Company has undertaken to
maintain a current registration statement with regard to the other Selling
Securityholders' securities after the date of this Prospectus until all such
securities have been resold or are otherwise capable of being resold pursuant
to an exemption from the registration requirements of the Securities Act. The
obligation to maintain a current registration statement may impose a financial
burden on the Company and create a contractual liability of the Company to the
Selling Securityholders.
AUTHORIZATION OF PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of
5,000,000 shares of "blank check" preferred stock (the "Preferred Stock") with
such designations, rights and preferences as may be determined from time to
time by the Board of Directors. Accordingly, the Board of Directors is
empowered, without stockholder approval, to issue Preferred Stock with
dividend, liquidation, conversion, voting or other rights which could adversely
affect the voting power or other rights of the holders of the Common Stock. In
the event of issuance, the Preferred Stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. As of the date of this Prospectus, there are
outstanding 7,550 shares of Series A Preferred Stock, 2,000,000 shares of
Series B Preferred Stock, and 800,000 shares of Series E Preferred Stock, which
are convertible, at the option of the holders, into an aggregate of
approximately 1,036,440 shares of Common Stock. There can be no assurance that
additional Preferred Stock of the Company will not be issued in the future.
USE OF PROCEEDS
Other than proceeds received from the sale of up to 3,000,000 Company
Shares and/or upon exercise of outstanding options and/or warrants, the Company
will not receive any of the proceeds from the sale of any 1994 Private
Placement Conversion Shares, 1995 Private Placement Shares, Creditor Shares,
Class B Warrants, Underwriter's Warrants or other securities offered hereby.
Any net proceeds received by the Company from the sale of any or all of up to
3,000,000 Company Shares (estimated at a maximum of approximately $2,937,500)
will be used by the Company: (i) to repay up to $550,000 of accrued obligations
retained by the Company related to its former Conquest Air subsidiary; (ii) to
pay up to $547,500 to holders of the Private Placement Notes who agree to
exchange such notes for the Company's 12% non-convertible Exchange Notes, and
up to $273,750 to Rickel & Associates, Inc., as soliciting agent in connection
with such note exchange offer; (iii) to pay up to $800,000 in redemption of the
outstanding Series E Preferred Stock of the Company, but only if the aggregate
gross proceeds received by the Company from the sale of Company Shares equals
or exceeds $3,000,000; and (iv) the balance for working capital purposes.
The $550,000 of accrued obligations are to represented by approximately
$350,000 due to an unaffiliated former aircraft lessor to Conquest Air and
$200,000 due to an unaffiliated third party who rendered aircraft maintenance
services to Conquest Air prior to June 1995. Both such obligations are due and
payable in full, without interest, on or before January 31, 1996.
To the extent that less than all 3,000,000 Company Shares are sold, the
Company will: (i) first allocate up to $550,000 of such net proceeds to retire
the accrued obligations incurred by Conquest Air, (ii) second, to make required
payments (up to a maximum of $821,250) in connection with 12% non-convertible
Exchange Notes accepted in exchange for the Company's currently outstanding
convertible 10% Private Placement Notes, (iii) third, to redeem Series E
Preferred Stock (if and to the extent required), and (iv) the balance, if any,
for working capital and general corporate purposes.
Any proceeds which the Company receives from the exercise of the Class B
Warrants, Public Warrants, Underwriter's Warrants and other outstanding options
and warrants shall be added to working capital and used for general corporate
purposes. The issuance of the 524,315 Creditors Shares reserved for certain
creditors, such issuance will reduce existing Company indebtedness and accounts
payable by as much as $979,630. See "Business - Settlement with Certain
Creditors."
-14-
<PAGE> 23
The maximum amount of proceeds receivable from the exercise of the Class B
Warrants, Public Warrants and Underwriter's Warrants (and underlying Class Z
Warrants) is approximately $10,000,000. However, inasmuch as the current $5.00
per share exercise prices of the Class B Warrants and Public Warrants is
significantly in excess of the current market price of the Company's Common
Stock, it is unlikely that such Warrants will be exercised in the near future
unless there is an appreciable increase in the market price of the Company's
outstanding Common Stock. Such market price may be significantly adversely
affected by the large number of additional shares of Common Stock being
registered for sale in this Prospectus. See "Risk Factors - Significant
Dilution to Present Stockholders and Depressive Effect on Market Price of
Common Stock; Shares Eligible for Future Sale" and "Selling Securityholders."
MARKET PRICES OF THE COMPANY'S PUBLICLY TRADED SECURITIES
The Company's Common Stock is traded on NASDAQ under the symbol "CAIR."
NASDAQ is the principal market for all of the Company's securities. The
Company's Common Stock is also listed on the Boston Stock Exchange ("BSE")
under the symbol "CAC."
The Company's 195,000 Public Warrants are included in NASDAQ under the
symbol "CAIRW." Such Warrants are also listed on the BSE under the symbol
"CACWS." The Public Warrants are exercisable at $5.00 per share and expire on
June 20, 1999. In accordance with their original terms, the Public Warrants
are redeemable in whole or in part at a price of $.10 per Public Warrant, at
the option of the Company, upon 30 days' written notice at any time, provided
the closing bid price of the Company's Common Stock, as traded on NASDAQ or in
the over-the-counter market, is at least $6.84 for five consecutive days ending
on the day prior to the date of any notice of redemption. The Public Warrants
are exercisable until the close of business on the day preceding the date fixed
for redemption.
The Company's Series A Preferred Stock is traded on the BSE under the
symbol "CACP" and was traded on NASDAQ in the first and second quarters of the
Company's fiscal year ended September 30, 1993. The NASDAQ quotes are noted
with an asterisk in the table below.
The following table sets forth high and low sale prices for the Common
Stock, Public Warrants and Series A Preferred Stock, as reported on NASDAQ and
on the BSE (with respect to the Series A Preferred Stock). Reported prices are
adjusted to reflect the reverse one-for-ten stock split of the Company's common
stock effective in November 1994.
<TABLE>
<CAPTION>
Public Series A
Common Stock Warrants Preferred
-------------------------------------------------------------
Fiscal Year 1993 High Low High Low High Low
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter . . . . . . . . 43 3/4 23 3/4 14 3/8 5 32 1/2 17
2nd Quarter . . . . . . . . 25 6 7/8 6 7/8 3 1/8 17 8
3rd Quarter . . . . . . . . 18 1/8 9 3/8 5 19/20 1 5/8 12 7
4th Quarter . . . . . . . . 3 7/8 1 1/16 1 3/8 5/16 24 7
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year 1994 High Low High Low High Low
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter . . . . . . . . 38 1/8 17 1/2 14 3/8 6 1/4 24 14
2nd Quarter . . . . . . . . 23 3/4 12 1/2 8 1/4 3 3/4 16 10
3rd Quarter . . . . . . . . 18 3/8 6 1/2 6 1/4 1 1/4 10 7
4th Quarter . . . . . . . . 1 1/2 3/8 1/16 8 4
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year 1995 High Low High Low High Low
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter . . . . . . . . 3 5/8 1/8 1/32 6 4
2nd Quarter . . . . . . . . 1 7/8 13/16 1 1/32 6 4
3rd Quarter . . . . . . . . 3 1/8 7/8 7/8 1/8 6 4
4th Quarter . . . . . . . 3 11/16 1 1/2 7/8 1/8 8 2
</TABLE>
-15-
<PAGE> 24
As of October 30, 1995, the closing sale price of the Common Stock was
$1.0625, the closing sale price of the Public Warrants was $0.25, and the
closing sale price of the Series A Preferred Stock was $3.00.
The number of record holders of Common Stock, Public Warrants and Series A
Preferred Stock as of October 30, 1995 was approximately 667, one and four,
respectively.
DIVIDEND POLICY
The payment of dividends, if any, on the Company's Common Stock rests
within the discretion of the Company's Board of Directors and, among other
things, will depend upon the Company's earnings, capital requirements and
financial condition, as well as other relevant factors. The Company has not
declared any dividends since inception, and has no present intention of paying
any dividends on its Common Stock in the foreseeable future. The Company
intends to use earnings, if any, to further the growth of its business. Wico
and the Company's principal operating subsidiaries, are also prohibited by the
terms of its credit agreements from declaring or paying any dividends to
Company stockholders.
[the balance of this page intentionally left blank]
-16-
<PAGE> 25
SELECTED FINANCIAL DATA
The selected financial data as of September 30, 1994, 1993 and 1992 and
for each of the three years in the period ended September 30, 1994 has been
abstracted from the audited financial statements of the Company included
elsewhere herein; the selected financial data as of September 30, 1992 and
September 30, 1991 and for the period ended September 30, 1990 has been
abstracted from audited financial statements of the Company not presented
herein. The selected financial data as of June 30, 1995 and for the nine-month
periods ended June 30, 1995 and 1994 are derived from the Company's unaudited
financial statements, and, in the opinion of management have been prepared on
the same basis as the Company's audited financial statements and include all
adjustments, consisting of normal recurring items, necessary for a fair
presentation of such interim financial data. The results of operations for the
interim periods presented are not necessarily indicative of results of
operations that may be expected for the year ending September 30, 1995. The
selected financial data should be read in conjunction with such financial
statements and related notes included elsewhere in this Prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Statement of Operations Data (3)
<TABLE>
<CAPTION>
(In thousands, except per share data)
Nine Months Ended
June 30, Years Ended September 30,
-------------------- ----------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales . . . . . . . . $29,341 $30,677 $41,992 $38,783 $38,653 $39,277 $45,747
Cost of sales . . . . . . 18,780 18,748 26,078 23,675 24,078 24,282 28,413
Net income (loss) . . . . (4,045) 550 261 443 (741) (1,742) (703)
Pro forma net income
(loss)(1) . . . . . . . (4,045) 550 261 508 (516) (1,137) (488)
Pro forma net income
(loss) per share (2) . $ (.46) $ .06 $ .00 $ .06 $ (.07) $ (.16) $ (.07)
Number of shares used
in computation . . . . 9,345 7,181 7,675 7,181 7,181 7,181 7,181
</TABLE>
Balance Sheet Data (4)
<TABLE>
<CAPTION>
June 30, September 30,
---------- -----------------------------------------------------
1995 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Current assets . . . . . . $ 15,307 $ 15,757 $ 15,099 $ 15,713 $ 15,642 $ 18,145
Total assets . . . . . . . 28,528 27,811 19,912 21,384 23,158 27,394
Current liabilities . . . . 10,415 9,491 6,487 6,598 7,465 7,715
Long term debt . . . . . . 17,443 16,706 23,850 27,450 28,608 31,300
Stockholders' equity
(deficiency) . . . . . . 670 1,614 (10,425) (13,664) (12,915) (11,621)
- ---------------------------------
</TABLE>
(1) Pro forma net income (loss) has been calculated after giving effect to the
pro forma adjustments to the income tax provision as if the Company had
not operated as an "S" corporation. As of January 1, 1994, the Company
ceased operating as an "S" corporation.
(2) Pro forma net income (loss) per share reflects the recapitalization of the
Company as a result of the Wico Merger. Common Stock equivalents have
been included in years where they produce a dilutive effect.
(3) Includes the results of operations for the acquired Langworthy businesses
since June 20, 1994. Excludes the results of operations for the airline
operations.
(4) Includes the assets and liabilities resulting from the Wico Merger and
acquisition of Langworthy which have been valued at their estimated fair
values as of June 20, 1994.
-17-
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and related notes thereto and "Selected
Financial Data" included elsewhere in this Prospectus. Prior to the Wico
Merger, the Company's primary business was the operation of its turbo-prop
airline operations and its jet airline operations. The Company sold its jet
operations in June 1994 (prior to the Wico Merger) and has sold its turbo-prop
operations in June 1995. See "Business - Sale of Conquest Airlines." The
aviation operations are treated as a discontinued operation for accounting
purposes.
OVERVIEW
The Company's results of operations are impacted by trends in the
coin-operated machine market as well as those of consumer video game
entertainment activities. Sales of the Company's distribution segment have
been essentially flat reflecting the soft condition of the coin-operated
machine market. Although sales of the Company's consumer segment are less in
the nine months ended June 30, 1995 than for the comparable nine-month period
in fiscal 1994, management expects an increase in consumer products sales in
the fourth quarter of fiscal 1995 so that total sales of consumer products in
fiscal 1995 will equal or exceed sales levels in such segment for fiscal 1994.
Management believes that consumer products sales will continue to reflect the
increased popularity of personal computer based video entertainment.
RESULTS OF OPERATIONS
Nine months ended June 30, 1995 compared to Nine months ended June 30, 1994:
<TABLE>
<CAPTION>
June 30,
1995 1994
------------------------------------------
(In Thousands)
------------------------------------------
<S> <C> <C>
Sales:
Distribution $23,230 $24,836
Consumer products 4,451 5,841
Gaming 1,660 _
------------------------------------------
29,341 30,677
Gross Profit:
Distribution 8,456 9,539
Consumer products 1,952 2,390
Gaming 153 -
------------------------------------------
10,561 11,929
Selling, Distribution and Administrative 10,655 9,218
Amortization 392 232
Loss From Commuter Airline Operation 2,703 _
Interest Expense 1,639 1,310
Amortization of Debt Discount 775 -0-
Other Expense 181 296
Income (Loss) From Before Income Taxes (Benefit) (5,784) 873
Net Income (Loss) (4,045) 550
</TABLE>
Sales for the nine months ended June 30, 1995 were $29,341,000 as compared
to $30,677,000 for the comparable 1994 nine month period. The aggregate
$1,336,000 decrease (4.4%) was the result of distribution sales decreasing by
$1,606,000 and consumer product sales decreasing by $1,390,000 from the
comparable nine month period in 1994, including the discontinuation of certain
Sega and Nintendo products which represented an immaterial portion of the
consumer products business. Consumer products sales were adversely affected
primarily by production difficulties experienced by one of the Company's
vendors located in the Far East. Although the Company continues to purchase
products from such vendor, it is currently
-18-
<PAGE> 27
seeking alternative sources of supply and believes that such alternatives
sources will be available by the end of the second quarter of fiscal 1996.
During the nine months ended June 30, 1995, decreased Company sales were
partially offset by $1,600,000 of sales of Wico Gaming subsequent to its
acquisition in June 1994.
Distribution sales decreased 6.5% to $23,230,000. Distribution sales
continued to be hampered by soft conditions in the coin machine market.
Consumer sales declined 23.8% from the comparable prior year period. This
decline is attributable to the soft Christmas market and the decline in
consumer OEM sales.
Additionally, sales of both coin-operated parts and consumer joysticks
were negatively affected in the quarter due to a decreased availability of
inventory, in part a result of working capital constraints. Such lost sales
will not be recouped. Wico Gaming's sales were also negatively impacted by
licensing requirements of individual states and the length of time required in
obtaining such licenses. While applications have been submitted in all major
gaming states, the approval process is continuing.
Gross profit for the nine months ended June 30, 1995 was $10,561,000 as
compared to $11,929,000 for the comparable prior year period. Distribution
gross margin percentage for the nine months ended June 30, 1995 was 36.4% as
compared to 38.4% for the comparable prior year period. The decline was the
result of increased price competition in an overall soft market. The consumer
products division's gross margin percentage increased from 40.9% to 43.9%.
Wico Gaming's gross margin of $153,000 represented a gross margin percentage of
approximately 9.2% of its net sales for the period.
Selling, distribution and administration expenses for the nine months
ended June 30, 1995 were $10,655,000 (approximately 36.3% of sales) as compared
to $9,218,000 (30.0% of sales) for the comparable prior year. This increase
was largely the result of the inclusion of Wico Gaming, which accounted for
$634,000 of expenses.
Amortization of intangibles was approximately $392,000 in the nine months
ended June 30, 1995, as compared to approximately $232,000 in the comparable
prior year period. This increase is primarily attributable to amortization of
good will incurred in connection with acquisitions and debt refinancings.
During the nine months ended June 30, 1995, the Company recorded losses
from its commuter air operation conducted by Conquest Air of approximately
$2,703,000, including cumulative adjustments of $1,916,000 which have been
treated as a reallocation of the purchase of the commuter air operation.
Interest expense (including amortization of debt discounts) increased from
$1,310,000 to $2,414,000. The increase is a combination of higher borrowings
as well as higher interest rates. Amortization of debt discounts and deferred
loan costs was $775,000 in the current year period (none in the comparable
prior year period). The debt discounts were recorded in the fourth quarter of
fiscal 1994 as a result of the Company's refinancing of its principal bank debt
and the private placement of securities (see Note F to Notes to Financial
Statements).
The Company recorded a loss from continuing operations before tax benefit
of $5,784,000 and a net loss of $4,045,000 for the nine months ended June 30,
1995. The result was due to reduced parts and supplies sales and gross
margins, as well as the reorganization of Wico Gaming, a charge of $775,000
relating to the amortization of debt discounts recorded in the fourth quarter
of fiscal 1994, and a provision for loss on the Company's commuter airline
operations of $2,703,000. A deferred income tax benefit of approximately
$1,739,000 was recorded during the nine months ended June 30, 1995 as a result
of the tax benefits of the operating losses incurred during this period.
Management believes that the deferred tax benefits will be recovered by the
generation of financial reporting and taxable income prior to the expiration of
such net operating losses.
-19-
<PAGE> 28
Fiscal years Ended September 30, 1994, 1993 and 1992
<TABLE>
<CAPTION>
Year Ended September 30, 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Sales:
Distribution . . . . . . . . . . . . . . . $ 32,203 $32,981 $32,480
Consumer . . . . . . . . . . . . . . . . . 8,595 5,802 5,173
Gaming (1) . . . . . . . . . . . . . . . . 1,194 --- ---
-------- ------ ------
41,992 38,783 38,653
Gross Profit:
Distribution . . . . . . . . . . . . . . . 12,639 12,706 12,359
Consumer . . . . . . . . . . . . . . . . . 3,163 2,402 2,217
Gaming . . . . . . . . . . . . . . . . . . 111 --- ---
------ ------ ------
15,913 15,108 14,576
Selling, Distribution and
Administrative . . . . . . . . . . . . . . 12,593 11,620 10,895
Amortization of Intangibles . . . . . . . . . 435 689 978
Amortization of Debt Discount . . . . . . . . 222 -- --
Interest Expense . . . . . . . . . . . . . . 1,732 2,063 2,684
Other Charges . . . . . . . . . . . . . . . . 441 8 608
Net Income (loss) before income taxes . . . . 490 728 (738)
Pro Forma Net Income (loss) (1) . . . . . . . 284 508 (516)
Pro Forma Net Income (loss)
per share (1) . . . . . . . . . . . . . . .00 0.06 (0.07)
- ---------------------
</TABLE>
(1) For the period June 20, 1994 through September 30, 1994.
Fiscal Year Ended September 30, 1994 Compared with Fiscal Year Ended September
30, 1993
Distribution sales decreased 2.4% to $32,203,000 while consumer sales
increased 48.1% to $8,595,000, and gaming amounted to $1,194,000. Distribution
sales continued to be hampered by soft conditions in the coin-operated machine
market, particularly amusement games. The consumer sales increase of 48.1% was
attributable to the increased acceptance of Suncom products at retail as well
as significant OEM sales.
Gross profit for the twelve months ended September 30, 1994 was
$15,913,000, as compared with $15,108,000 in the twelve months ended September
30, 1993. This 5.3% increase was due to higher consumer sales at gross margins
of 36.8%, as compared with 41.4% consumer margins in the previous year. The
change reflected higher volume to an OEM customer at lower gross margins.
Distribution margins increased slightly to 39.2% from 38.5% in the previous
year.
Selling, distribution and administrative expenses were approximately
$12,593,000 for the twelve months ended September 30, 1994 versus $11,620,000
for the twelve months ended September 30, 1993, which was approximately 30% of
total sales in each year. The 8.4% increase in expenses was the largely the
result of an increase in variable advertising and freight expenses associated
with improved consumer sales. Depreciation and amortization expense declined
to $435,000 as compared with $689,000 in the previous twelve-month period, as
certain intangibles were fully amortized. Due to debt discounts and related
amortization, the Company anticipates amortization charges of approximately
$1.3 million in the fiscal year ending September 30, 1995.
During the twelve months ended September 30, 1994, interest expense
declined to $1,732,000 as a result of lower principal amounts outstanding, as
well as lower interest rates. High and low per annum interest rates were 8.5%
and 6.7%, respectively, in the twelve months ended September 30, 1994, they
were 10% and 7%, respectively, in the twelve months ended September 30, 1993.
-20-
<PAGE> 29
Other charges in 1994 included approximately $175,000 and $240,000 related
to the write-offs of deferred registration costs and deferred financing fees,
respectively.
As a result of the aforementioned, the Company recorded income from
operations before taxes of $490,000 in the twelve months ended September 30,
1994 as compared with income from operations before taxes of $728,000 in the
twelve months ended September 30, 1993.
Fiscal Year Ended September 30, 1993 Compared with Fiscal Year Ended September
30, 1992
Distribution sales increased 1.5% to $32,981,000, while consumer sales
increased 12.2% to $5,802,000. Distribution sales increases were adversely
affected by the slow economic recovery and the continued popularity of
home-based video games. The consumer sales increase of $629,000 was largely
attributable to the increased popularity of personal computer-based video
entertainment.
Gross profit for the fiscal year ended September 30, 1993 was $15,108,000,
compared with $14,576,000 in the fiscal year ended September 30, 1992. This
3.6% increase was primarily the result of an increase in consumer gross margin
from 42.9% to 41.4% of sales. This increase occurred due to the introduction
of higher-margin new products and a reduction in the amount of close-out
merchandise.
Selling, general and administrative expenses were $11,620,000 in fiscal
1993, approximately 30% of sales, as compared with $10,895,000 in fiscal 1992,
or 28.1% of sales. The 6.6% increase in expenses was the result of marketing
and product development expenditures for new consumer products, as well as
increased distribution marketing expenditures to support market share in the
coin-operated machine parts and billiards markets. The amortization of
intangibles resulting from acquisitions declined to $689,000 in fiscal 1993 as
compared with $978,000 in fiscal 1992, as certain intangibles were fully
amortized during 1992.
During fiscal 1993, interest expense declined to $2,063,000 as a result of
lower principal amounts outstanding, as well as lower interest rates. High and
low per annum interest rates were 8% and 6.7%, respectively, in fiscal 1993,
and 10% and 7%, respectively, in fiscal 1992.
Wico recorded income before income taxes in fiscal 1993 of $728,000, as
compared with a loss before income taxes of ($738,000) in fiscal 1992.
Improved sales and gross margins in the distribution segment, as well as
reduced interest expense and amortization, contributed most significantly to
this result.
LIQUIDITY AND CAPITAL RESOURCES
General
During the year ended September 30, 1994, the Company's continuing
operations operated with positive cash flow. However, as a result of
continuing cash demands of the Company's airline operation, as well as costs
associated with the consolidation of the Company's recently acquired gaming
subsidiary and a general softening of the coin-operated machine market, Wico
generated lower than expected sales volume in the fourth quarter of fiscal 1994
and the first three quarters of fiscal 1995, resulting in a negative cash flow
in the 1995 fiscal year to date and a shortage of working capital. The
Company's principal sources of liquidity and working capital have been cash
flow from operations for the fiscal years ending 1994 and loans and equity
provided by investors, including certain affiliates, since September 30, 1994.
Wico's operations generated positive cash flow in fiscal 1994, 1993 and 1992 in
the amounts of approximately $1,761,000, $1,832,000 and $1,329,000,
respectively. However, for the nine months ended June 30, 1995, operating cash
flow was negative by $363,000 and total cash flow was positive by $901,000.
Senior Secured Financings
Prior Credit Agreement
In addition to the private placements of securities described below, until
October 20, 1995, the Company's principal sources of capital for operations was
a combined term loan and revolving credit loan granted by National Westminster
Bank USA (the "Bank") pursuant to a credit agreement between Wico and its
operating subsidiaries and the Bank. The term loan, maturing in October 1998,
had a principal balance of approximately $6,211,000 at June 30, 1995. The
revolving credit loan provided for a maximum borrowing of $13,000,000
(inclusive of outstanding letters of credit established for the Company). At
June 30, 1995 and September 30, 1995, the full $13,000,000 maximum line of
credit borrowing had been drawn
-21-
<PAGE> 30
upon by the Company. At June 30, 1995, the aggregate amount of borrowings
under the credit agreement was approximately $18,786,000. The maximum annual
interest rates on both credit facilities was the Bank's prime rate plus 3.0% or
LIBOR plus 4.75%. Both loans were secured by a first lien on substantially
all of the Company's consolidated assets, limited unsecured personal
guarantees, each in the amount of $1,000,000, from Stephen R. Feldman, Chairman
of the Board, and Bentley J. Blum, a principal stockholder and director of the
Company, and stock pledges covering all of the Company's Common Stock now owned
or hereafter acquired by certain of the Company's principal stockholders.
Under the terms of the prior credit agreement, the Company was required to
be in compliance with certain financial covenants, including attaining a
minimum operating income before amortization of intangibles and other assets
(as defined), a current ratio of 1.75:1 and minimum working capital of
$6,300,000. At June 30, 1995 and at September 30, 1995, the Company was not in
compliance with the minimum operating income and ratio of interest expense to
operating income covenant. The Company obtained a waiver of its financial
covenant defaults at June 30, 1995 and such defaults at September 30, 1995 were
waived in connection with the refinancing described below.
The Refinancing
On October 20, 1995, the Company consummated a refinancing of its senior
secured indebtedness with Sanwa Business Credit Corp. ("Sanwa") and the Bank.
Set forth below is a summary of the terms of the refinancing.
Sanwa provided the Company with a maximum $14,000,000 secured line of
credit having a three year term expiring September 30, 1998. Advances under
such line of credit are based upon percentages of eligible accounts receivable
(85%), eligible raw materials and finished goods inventories (55%) and eligible
work-in-process inventories (20%) of Wico Corporation (a wholly- owned
subsidiary of Wico) and the subsidiaries of Wico Corporation (collectively, the
"Borrowers"). The Borrowers also received a $500,000 overadvance line which
must be repaid on an annual basis. The line of credit facility bears interest
at a bank prime rate plus 1.5% or (at the Borrowers' option) based on the LIBOR
rate plus 4.25%.
At the October 20, 1995 closing of the revolving credit facility, the
Borrowers drew down advances of approximately $7,400,000, of which
approximately $6,000,000 was used to retire its revolving credit indebtedness
to the Bank under its existing credit agreement, and the balance was retained
for working capital purposes and the payment of certain accrued obligations.
The Borrowers' are obligated under the Sanwa line of credit facility to
maintain the following financial covenants:
* An interest coverage ratio of not less than 1.00 to 1.00.
"Interest coverage ratio" is defined as the ratio of (i)
consolidated net income of the Borrowers for the applicable
period, plus interest and income taxes deducted for such
period, to (ii) interest expense for such period.
* A debt service ratio of not less than 1.25 to 1. "Debt
service ratio" is defined as the ratio of (i) consolidated net
income of the Borrowers plus interest, income taxes,
depreciation, amortization and losses attributable to the sale
of assets outside the ordinary course of business which are
deducted in such period, to (ii) interest, capital leases,
taxes and preferred dividend payments by the Borrowers and
principal payments of indebtedness and capital expenditures.
* For each of the fiscal periods set forth below, the Borrowers
are required to maintain not less than the following "EBITDA"
(defined as net income before deductions for interest, taxes,
depreciation and amortization):
<TABLE>
<CAPTION>
Period Amount
------ -----------
<S> <C>
10/1/95 through 12/31/95 $1,410,000
10/1/95 through 3/31/96 $2,270,000
10/1/95 through 6/30/96 $2,700,000
10/1/95 through 9/30/96 $3,567,100
10/1/96 through 12/31/96 $1,460,000
10/1/96 through 3/31/97 $2,360,000
</TABLE>
-22-
<PAGE> 31
<TABLE>
<S> <C>
10/1/96 through 6/30/97 $2,810,000
10/1/96 through 10/1/97 $3,717,000
Each October 1 thereafter
through the immediately
following December 31 $1,460,000
Each October 1 thereafter
through the immediately
following March 31 $2,360,000
Each October 1 thereafter
through the immediately
following June 30 $2,810,000
Each October 1 thereafter
through the immediately
following September 30 $3,717,000
</TABLE>
* For each of the fiscal periods set forth below, the Borrowers
are required to maintain not less than the following "Adjusted
Net Worth" (defined as the consolidated net worth of the
Company and its consolidated subsidiaries, included Wico and
its subsidiaries):
<TABLE>
<CAPTION>
Period Amount
------ -----------
<S> <C>
10/20/95 through 12/31/95 $1,800,000
1/1/96 through 3/31/96 $2,200,000
4/1/96 through 12/31/96 $2,800,000
1/1/97 through 3/31/97 $3,300,000
4/1/97 through 9/30/97 $3,700,000
10/1/97 through 12/31/97 $4,000,000
1/1/98 through 3/31/98 $4,300,000
From 4/1/98 and thereafter $4,700,000
</TABLE>
At June 30, 1995, on a pro-forma basis, after giving effect to the sale of
the 2,082,147 Private Placement Shares and the issuance of the 524,315
Creditors Shares in reduction of $979,630 of Company obligations, the
Borrowers'consolidated net loss, loss after adding back interest and income
taxes and negative EBITDA for the nine months ended June 30, 1995 would have
resulted in the Borrowers' being in non-compliance with the interest coverage
ratio, debt service ratio and minimum EBITDA requirements under the credit
agreement, had such financial covenants been in effect at June 30, 1995 and for
the nine month period then ended. On a pro-forma basis, the Company's Adjusted
Net Worth was $2,463,000 at June 30, 1995. See "Pro-Forma Consolidated Balance
Sheet." The Company also believes that it and Wico and its consolidated
subsidiaries will be in compliance with such financial covenants as at December
31, 1995 (the first such compliance period required under the credit
agreement). There is, however, no assurance that the Company or its
subsidiaries will not be in default of any or all of such financial covenants
at December 31, 1995 or in future fiscal periods. See "Risk Factors - Security
Interests and Restrictive Loan Covenants."
Simultaneous with the closing of the contemplated Sanwa revolving credit
facility, Wico and its subsidiaries entered into an amended and restated term
loan agreement with the Bank, pursuant to which the outstanding balance of
approximately $12,536,000 owed to the Bank (net of the $6,000,000 payment from
the Sanwa line of credit) was extended for a period of five years requiring the
payment of interest only (at an annual rate of the Bank's prime rate plus 1.5%)
through September 1996 and thereafter amortizing on a monthly basis as to
principal in the annual amount of $250,000 in fiscal 1997, $500,000 in fiscal
1998, $750,000 in fiscal 1999, $1,000,000 in fiscal 2000, with a final balloon
payment of approximately $10,100,000 due in September 2000.
Repayment of the Sanwa revolving credit facility is secured by a first
priority lien and security interest on all accounts receivables, inventories,
contract rights and general intangibles of the Borrowers. Repayment of the
Bank's restated term loan is secured by a first priority lien and security
interest on all real property, machinery, equipment, leasehold improvements
other fixed assets of Wico and its subsidiaries, by a second lien and security
interest on the assets securing the Sanwa revolving credit facility, and by the
limited personal guarantees of Stephen R. Feldman, Chairman of the Board of the
Company (in the amount of $1,000,000),
-23-
<PAGE> 32
and of Bentley J. Blum, a principal stockholder and director of the Company (in
the amount of $3,000,000), together with stock pledges in favor of the Bank
covering all of the outstanding shares of Common Stock of the Company now owned
or hereafter acquired by certain of its principal stockholders, including
Bentley J. Blum and Iris Feldman, the wife of Stephen R. Feldman. In addition,
Mr. Blum pledged to the Bank certain personal real estate related assets as
collateral for his $3,000,000 guaranty. See "Management - Compensation
Committee Interlocks and Insider Participation."
The lending agreements with both Sanwa and the Bank contain other
restrictions on Wico and its subsidiaries, requiring the consent of the lenders
in connection with the making of any acquisition, incurred of additional
indebtedness (other than specified permitted indebtedness) payment of
dividends, issuance of additional securities or making of annual capital
expenditures in excess of prescribed amounts.
Private Placements
In November 1994, the Company sold $2,737,500 of its securities in a
private placement of units. Each unit ("Unit") consisted of a $25,000
principal amount 10% convertible promissory note (the "Private Placement
Notes") due September 1996. The Private Placement Notes are convertible into
shares of the Company's Common Stock at a price per share equal to 80% of the
closing bid price of the Common Stock on the date of conversion. Pursuant to
the terms of the 1994 Private Placement, in the event and to the extent that
holders of the Private Placement Notes convert such notes into shares of
Company Common Stock, they would also receive warrants (the "1994 Private
Placement Warrants"), entitling them to purchase 0.02 shares of Company Common
Stock for each $1.00 of 10% Private Placement Notes so converted (a maximum of
54,750 warrants if all $2,737,500 of Private Placement Notes are converted), at
an exercise price of $11.75 per share. The 1994 Private Placement Warrants, if
and to the extent issued are exercisable through June 20, 1999.
In June 1995, the Company entered into an agreement with Rickel, pursuant
to which Rickel agreed to use its best efforts to solicit from the holders of
the Private Placement Notes their written consents to exchange their 10%
convertible Private Placement Notes for 12% non-convertible Exchange Notes.
In consideration of accepting such exchange offer of 12% non-convertible
Exchange Notes for 10% Private Placement Notes, the Company has agreed to pay
to holders of Private Placement Notes an amount in cash equal to $0.20 for each
$1.00 of Private Placement Notes exchanged for a like principal amount of 12%
Exchange Notes (an aggregate of $547,500 if all $2,737,500 of Private Placement
Notes are exchanged for $2,737,500 of 12% Exchange Notes). Cash payments are
to be made by the Company on or before the December 31, 1995 expiration date of
the exchange offer. Such cash payments are in addition to, and not in lieu of,
the Company's obligation to pay principal and interest on the 12% Exchange
Notes, when due.
In June and July, 1995, the Company sold an aggregate of 2,082,147 shares
of Common Stock in the 1995 Private Placement, yielding gross proceeds of
approximately $2,935,827. Out of such gross proceeds, $350,000 has been
utilized to redeem $200,000 of the Company's Series D Preferred Stock held by
an affiliate of Bentley J. Blum and to repay a $150,000 loan made to the
Company by such affiliate, and the balance of such proceeds has been and
continues to be utilized for working capital.
Sale of Conquest Air
From and after the Wico Merger, the Company's airline operation used
approximately $2,200,000 in cash through June 30, 1995. The airline operation
has continued to operate unprofitably and generate negative cash flow from its
operations. On January 1, 1995, the Company implemented across the board fare
increases, and in February 1995, the Company was successful in negotiating with
its lessors to terminate the leases of three of its aircraft which reduced the
fleet to six aircraft (compared with 16 aircraft at the time of the Wico
Merger). In connection with its termination of the leases on the three
aircraft, the Company agreed to settle the outstanding balance due under the
remaining term of such lease for approximately $350,000 and agreed to pay a
former supplier of maintenance services approximately $200,000. Both such
amounts are due by January 31, 1996. See "Use of Proceeds."
The foregoing measures, together with other cost reductions, reduced (but
did not eliminate) the continuing losses in the airline operation. Due to the
negative cash flow in the airline operation, Conquest Air was also in default
of its lease payments under the leases for its six aircraft, and has received
default notices from the lessors in respect of four of the six aircraft. On
June 30, 1995, the Company sold the stock of Conquest Air to Air LA in
consideration for (i) a $3,000,000 convertible promissory note of Air LA
-24-
<PAGE> 33
(automatically convertible into $3,000,000 of convertible preferred stock of
Air LA upon authorization of such shares by the Air LA stockholders), (ii) an
8% $1,000,000 Air LA note, and (iii) Air LA's assumption of the obligation to
repay to the Company $2,000,000 of accrued indebtedness of the former Conquest
Air subsidiary, evidenced by a separate 8% Air LA note. The $3,000,000
convertible note (and any preferred stock into which the note is converted)
will be convertible, at the option of the Company, either (a) commencing not
later than December 31, 1995, into shares of common stock of Air LA over a
two-year period at prevailing market prices for such common stock, or (b) if
Air LA has not completed a contemplated public financing by such date, the
preferred stock will be convertible at any time in whole or in part by the
Company from and after January 1, 1996 at prevailing market prices of Air LA
common stock. The $1,000,000 note and $2,000,000 note will, subject to certain
mandatory prepayments out of the proceeds of equity offerings by Air LA, be
repayable in quarterly principal installments of $75,000 each (in the aggregate
as between the two notes) commencing not later than September 30, 1996, with
all remaining unpaid principal becoming due and payable in a balloon payment
due June 30, 2000. To assist Air LA in closing the transaction pending receipt
of an anticipated debt refinancing of Air LA to be secured by both its assets
and the acquired Conquest Air assets, at the closing of the sale to Air LA, the
Company made Air LA a $250,000 loan due on the earlier of such refinancing or
July 31, 1995. Such loan remains outstanding, and the Company has not demanded
repayment pending Air LA's pursuit of debt refinancing.
Under the terms of the sale of Conquest Air, Air LA: (i) agreed to cure
certain defaults of Conquest Air to its six remaining aircraft lessors incurred
during prior to the June 30, 1995 sale date (an aggregate of approximately
$400,000 of overdue lease payment installments as at June 30, 1995), and (ii)
assumed the ongoing obligations under such aircraft leases. However, to date,
Air LA has been unable to cure $192,000 of such pre-existing defaults, and the
Company has been advised by certain of such lessors that Air LA has been late
in making approximately $248,000 of periodic monthly installment payments due
from July 1, 1995 to October 31, 1995. Monthly payments under each of the
remaining six aircraft leases, which have remaining terms at October 31, 1995
of between 18 and 24 months, range from $15,000 per month to $20,500 per month,
and aggregate $105,500 per month as to all such leases. Accordingly, the
Company remains contingently liable for such defaults in the aggregate amount
of $2,206,000 of rental payments, plus costs of collection and late fees,
unless paid by Air LA. Although Air LA has advised that it intends to bring
current all aircraft lease payment obligations incurred both prior and
subsequent to June 30, 1995 upon completion of its contemplated debt
refinancing, such refinancing and other projected financing which Air LA is
seeking to obtain have been delayed, and there is no assurance that it will be
successful in obtaining any financing or otherwise curing such lease payment
defaults. See "Risk Factors - Sale of Conquest Air; Continuing Substantial
Liabilities and Risks of Non- Payment" and "Business - Sale of Air LA."
OFFER OF CREDITORS SHARES
In order to reduce its indebtedness and improve its equity position, the
Company has entered into agreements with certain of its creditors, including
two law firms and the stockholders of Feldman Radin & Co., P.C., an accounting
firm with which Stephen R. Feldman is a principal stockholder, who hold
accounts payable and other indebtedness of the Company aggregating $979,630 at
October 31, 1995, to purchase from the Company an aggregate of up to 524,315
Creditors Shares. All but 25,000 of the 524,315 Creditors Shares are being
registered under the Registration Statement of which this Prospectus is a part.
See "Selling Securityholders."
RESULTS AND PLAN OF OPERATIONS OF AIR LA
The following summarized financial data and discussion relates to the
financial statements, results of operations and plan of operations of Air LA
for the nine months ended March 31, 1995. Such information has been derived
from Air LA's Form 10-QSB filed with Securities and Exchange Commission for the
quarter ended March 31, 1995.
<TABLE>
<CAPTION>
Summary Results of Operations Data (In thousands)
----------------------------------
<S> <C>
Operating revenues $ 3,175
Operating expenses 8,325
Operating loss (5,150)
------
Net Loss $ 5,376
=====
Net Loss per share $ (.66)
=====
</TABLE>
-25-
<PAGE> 34
<TABLE>
<CAPTION>
Certain Balance Sheet Data
--------------------------
<S> <C>
Current assets $ 672
Total assets 2,564
Current liabilities 3,577
Working capital deficiency (2,905)
Stockholders' equity $(1,013)
</TABLE>
Comparison of Nine Months Ended March 31, 1995 to Nine Months Ended March 31,
1994.
Operating Revenues. Revenues increased to $3,175,224 during the 1995 period
compared to $621,167 during the 1994 period. In the 1994 period, Air LA
operated two Metro 23 aircraft put into service late in March 1994. In the
1995 period, Air LA operated six Metro 23 aircraft and served 15 cities during
the period.
Operating Expenses. Flight operations increased to $3,575,113 in the nine
months ending March 31, 1995 compared to $777,648 in the nine months ended
March 31, 1994. This is primarily due to the additional aircraft and Air LA's
expansion of service.
Maintenance expenses increased to $1,297,377 for the nine months ended
March 31, 1995, compared to $479,680 for the nine months ended March 31, 1994.
A Metro 23 based in St. Paul required substantially more maintenance than
normal in the 1995 period. In April, 1995, the aircraft was returned to the
lessor.
Aircraft and traffic services increased to $1,394,879 during the nine
months ended March 31, 1994 compared to $368,402 for the nine months ended
March 31, 1994. The increase was due primarily to the addition of service to
new cities.
Sales and marketing increased substantially to $884,841 during the 1995
period compared with only $187,559 during the 1994 period.
General and administration increased to $1,175,073 during the nine months
March 31, 1995 compared with $182,559 for the nine months ended March 31, 1994.
Most of this increase was attributable to the increase in the number of
personnel required to run Air LA's expanded operations.
Other expenses increased overall to $124,367 for the nine months ended
March 31, 1995 compared with $24,128 for the nine months ended March 31, 1994.
Liquidity and Capital Resources
On December 31, 1994 Air LA had $75,738 in cash and $289,289 in accounts
receivable. On March 31, 1995 Air LA had $(138,430) in cash and $423,165 in
accounts receivable. The reduction in cash resulted from losses incurred in
the quarter. Revenue increased from $231,725 in the three months ended
December 31, 1994 to $1,149,075 for the three months ended March 31, 1994.
Notwithstanding continuing growth in revenue, management views current cash as
inadequate to meet the ongoing operational requirements of Air LA. further,
Air LA is seriously in arrears with many of its vendors. For the most part,
key vendors have continued to provide services and products, many being paid on
cash basis. However, several key vendors including Fairchild aircraft, the
lessor of Air L.A.'s five Metroliner aircraft, and the Los Angeles Department
of Airports have recently sent default notices to Air LA requiring timely
payment under threat of withdrawal of the goods or services that they provide.
In order to raise additional cash for current operations and continuing
expansion, Air LA reduced the exercise price on 1.25 million options from $1.50
to $1.00. This offer, originally limited to the one month between November 15
and December 15, 1994 was extended until February 15, 1995. Air LA raised
$1,004,758 in additional working capital through the exercise of these options.
Further, through May 8, 1995, Spelman & Co., Inc. secured a $575,000 loan for
Air LA, based on a secured note. Air LA has sought an additional $500,000 in
debt financing and anticipates that, based on forecast cost reductions and
revenue growth, that it may still need to raise an additional $250,000 in order
to meet ongoing operational requirements for the next 60 to 90 days at which
time it is forecast that Air LA will have significantly reduced its losses or
achieved a breakeven. Preliminary indications of approval for this loan have
been received by Air LA, but there can be no guarantee that this transaction
will be completed. Furthermore, critical to the continuation of the business
will be the cooperation of current vendors with whom Air LA must reach
-26-
<PAGE> 35
agreements for the continuing provision of goods and services until such time
as a larger financing or adequate positive cash flows can be achieved to settle
accounts owing.
In order to offset the continued losses incurred through its west coast
operations, on January 30, 1995 Air LA entered into a transaction to purchase
the assets, principally the goodwill and ongoing service, of Capitol Air
serving routes in the midwest between St. Paul, Chicago Midway Airport and
Milwaukee. Capital Air, whose assets were purchased in a non-cash transaction
in exchange for 800,000 shares of Air LA common stock and options to buy an
additional 700,000 shares at $1.75 per share, while not profitable at the time
of the acquisition, was generating significantly higher revenue per aircraft in
serve than Air LA on the west coast.
In June, 1994, with funds raised in its public offering, Air LA began an
expansion with the goal of having ten new aircraft in service within twelve
months. The business plan, based predominantly on an expansion into Mexico,
was modified to incorporate the recommendations of a consultant provided by
Fairchild Aircraft and an operational hub and maintenance facility was
established at Ontario Airport. Ontario had been newly designated an
international facility in February, 1994. Due to disappointing traffic, within
months all international service into Ontario. Due to disappointing traffic,
within months all international service into Ontario was withdrawn. Because of
continuing lease obligations on its maintenance facility, Air LA was the last
carrier to discontinue international service into Ontario. Air LA's operations
continued until Fall, 1994. It was not until February, 1995 that Air LA was
able to move, albeit on a temporary basis, its maintenance operations to Long
Beach. The disappointing results at Ontario ultimately resulting in the
company having to significantly change its hub-based strategy and resulted in
significant losses in second and third quarters of fiscal 1995.
Additional events outside the control of Air LA included financial
problems at Aeromexico, weather problems and heavy flooding in California from
the worst winter in decades, heavy competition and fare wars between Southwest
Airlines and the newly formed United Shuttle resulted in continuing high losses
as Air LA sought to find and establish itself in markets where it was
relatively protected from completion. As a result of rapidly accelerating
changes in the west coast market place and Air LA's deteriorating financial
condition, management sought to diversify its operations into other areas as a
way to broaden the base of Air LA's business. Air LA purchased the Capitol Air
routes based in St. Paul, Minnesota, and on January 27, 1995 began to deploy a
portion of its fleet to the midwest with the initiation of service on the route
between St. Paul City Airport and Chicago Midway Airport. Additional service
to Warroad, Minnesota is scheduled to commence in May, 1995.
In April, 1995, a number of the senior executive officers of Air LA
resigned their positions. A new management team was appointed by the Board of
directors based on a their plan to significantly reduce Air LA's expenses while
increasing revenue. At the time of the public offering it was difficult to
acquire reliable used Metroliner aircraft. Further, management believed that
as a start up operation Air LA's performance would be greatly enhanced through
the reliability of new aircraft and the warranties and other support from the
manufacturer would significantly reduce direct operating cost. Management
believed that the higher cost of new aircraft would be offset by these factors.
As a result Air LA entered into a contract to purchase ten new Fairchild
Metro-23 aircraft. At March 31, 1995, Air LA owes significant back payments
for aircraft leases to Fairchild, which has already notified Air LA of its
default, and there can be no guarantee that Air LA will be successful in its
negotiations with Fairchild to retain the use of the aircraft while
replacements are sought.
Although the new management team's plan is for Air LA to achieve
approximately break even financial results within 60 to 90 days, those results
are predicated on Air LA successfully raising additional working capital of
between $500,000 and $750,000 in addition to the loans arranged through Spelman
& Co., Inc. There can be no guarantee that such additional funds will be
raised. The success of the plan is also predicated on continuing cooperation
from vendors, some of whom have already notified Air LA that a default exists.
There can be no guarantee that vendors will continue to provide goods and
services on an ongoing basis. Without additional working capital and the
ongoing provision of goods and services from vendors, the continuation of Air
LA's business will be in serious jeopardy.
-27-
<PAGE> 36
EFFECTS OF CONQUEST AIR ON FUTURE COMPANY RESULTS OF OPERATIONS
The Company will account for its investment in Air L.A. on the equity
method. As the present time, based upon information provided by Air L.A., the
Company has been informed that its equity ownership for purposes of accruing
losses is 15%. In addition, the Company will quarterly evaluate the carrying
value of its investment for impairment based upon its estimate of the
undiscounted cash flows it expects to receive from Air L.A.
SEASONALITY
Wico's consumer products segment experiences its peak sales relating to
the Christmas holiday selling season. Due to the importance of the Christmas
selling season, net sales relating thereto constitute a disproportionate amount
of net sales for the entire year and all of Wico's income from operations of
this segment. Unfavorable economic conditions affecting retailers generally
during the Christmas selling season in any year could materially adversely
affect Wico's results of operations for this segment. Wico must also make
decisions regarding how much inventory to buy in advance of the season in which
it will be sold. Significant deviations from projected demand for products can
have an adverse effect on Wico's sales and profitability for this segment.
INFLATION
To date, inflation has not had a material effect on the Company's
operations.
-28-
<PAGE> 37
CONQUEST INDUSTRIES INC. AND SUBSIDIARIES
PRO-FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1995
The following pro-forma consolidated balance sheet sets forth on a
pro-forma basis the Company's consolidated balance sheet as at June 30, 1995,
after giving effect to: (i) the sale of the 2,082,147 Private Placement Shares
in June and July 1995, (ii) the redemption for $200,000 of 600,000 shares of
Series D Preferred Stock owned by an affiliate, (iii) the repayment of a
$150,000 loan owed to an affiliate, and (iv) the exchange of an aggregate of
$979,630 of Company obligations for 524,315 Creditors Shares.
<TABLE>
<CAPTION>
Pro-Forma Adjustments
----------------------------------
Historical Dr. Cr. As Adjusted
------------- ------------ ---------- -------------
ASSETS
------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash $ 1,909,276 (1) 1,180,000 (2) 350,000 $ 1,633,526
(3) 273,750
(4) 547,000
(5) 285,000
Trade accounts receivable 4,364,708 4,364,708
Other receivables 209,227 209,227
Inventories 7,942,219 7,942,219
Prepaid expenses and other current assets 881,741 881,741
------------- ------------ ---------- -------------
TOTAL CURRENT ASSETS 15,307,171 1,180,000 1,455,750 15,031,421
MACHINERY AND EQUIPMENT - NET 961,414 961,414
DEFERRED TAX ASSET 1,857,900 1,857,900
INTANGIBLE AND OTHER ASSETS - NET 6,151,820 (6) 562,500 6,714,320
NET ASSETS OF AIRLINE TRANSFERRED
UNDER CONTRACTUAL ARRANGEMENT 4,250,000 4,250,000
NOTES RECEIVABLE -- --
------------- ------------ ---------- -------------
$ 28,528,305 $ 1,742,500 $1,455,750 $ 28,815,055
============= ============ ========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 6,083,625 (10) $ 810,000 $ $ 5,273,625
Accrued expenses 2,681,776 2,681,776
Current portion of Long-Term Debt 1,500,000 (11) 1,500,000 --
Notes payable - stockholder 150,000 (2) 150,000 --
------------- ------------ ---------- -------------
TOTAL CURRENT LIABILITIES 10,415,401 2,460,000 -- 7,955,401
------------- ------------ ---------- -------------
LONG-TERM DEBT 17,443,349 (4) 547,000 (11) 1,500,000 18,396,349
-------------
STOCKHOLDERS' EQUITY:
Preferred stock-Series A 755 755
Preferred stock-Series B 2,800,000 2,800,000
Preferred stock-Series D 200,000 (2) 200,000 --
Common stock 102,739 (1) 9,773 123,380
(6) 5,625
(10) 5,243
Additional paid-in capital 15,846,430 (1) 1,170,227 18,378,289
(6) 556,875
(10) 804,757
Accumulated deficit (18,200,633) (3) 273,750 (18,759,383)
(5) 285,000
Foreign currency translation adjustment (79,736) (79,736)
------------- ------------ ---------- -------------
669,555 1,305,750 4,052,500 2,463,305
------------- ------------ ---------- -------------
$ 28,528,305 $ 3,765,750 $4,052,500 $ 28,815,055
============= ============ ========== =============
</TABLE>
-29-
<PAGE> 38
CONQUEST INDUSTRIES INC., AND SUBSIDIARIES
CONSOLIDATED PRO-FORMA STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Pro-Forma Adjustments
------------------------
Historical Dr. Cr. As Adjusted
------------------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
NET SALES $29,341,087 $29,341,087
COST OF SALES 18,779,667 18,779,667
---------- ----------- ---------- -----------
- -
----------- ----------
GROSS PROFITS 10,561,420 10,561,420
---------- ----------- ---------- ----------
OPERATING EXPENSES:
Selling, distribution and administrative
expenses 10,655,338 10,665,338
Depreciation and amortization expenses 391,985 391,985
Loss from airline operations 2,703,059 2,703,059
---------- ----------- ---------- ----------
- -
---------- ----------- ---------- ----------
13,750,382 13,750,387
---------- ----------- ---------- ----------
- -
----------- ----------
OPERATING INCOME (LOSS) (3,188,692) (3,188,962)
----------- ----------- ----------- -----------
OTHER EXPENSES (INCOME):
Interest Expense 1,639,115 (7) 257,000 1,896,115
Amortization of debt discount 775,000 (8) 84,375 859,375
Other-net 181,036 181,036
--------- --------- --------- -----------
2,595,151 341,375 - 2,936,526
---------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (5,784,113) 341,375 - (6,125,488)
PROVISION FOR INCOME TAXES (BENEFIT) (1,739,000) (9) 130,000 (1,869,000)
------------ --------- --------- ------------
NET INCOME (LOSS) $(4,045,113) $ 341,375 $ 130,000 $(4,256,488)
=========== ======= ======= ==========
EARNINGS (LOSS PER SHARE) $ (0.46) $ (0.48)
========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES 9,345,000 9,345,000
========== ==========
</TABLE>
-30-
<PAGE> 39
CONQUEST INDUSTRIES INC., AND SUBSIDIARIES
(FORMERLY WICO HOLDING CORP.)
CONSOLIDATED PRO-FORMA STATEMENT OF OPERATIONS
FOR YEAR ENDED SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Pro-Forma Adjustments
-----------------------
Historical Dr. Cr. As Adjusted
-------------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
NET SALES $41,991,512 $41,991,512
COST OF SALES 26,078,087 26,078,087
---------- ----------- ---------- -----------
- -
----------- ----------
GROSS PROFITS 15,913,425 15,913,425
---------- ----------- ---------- -----------
OPERATING EXPENSES:
Selling, distribution and administrative
expenses 12,592,710 12,592,710
Moving costs - -
---------- -----------
Amortization expense 435,232 435,232
---------- ----------
- -
----------- ----------
13,027,942 13,037,942
---------- ----------- ---------- -----------
- -
---------- ----------- ---------- -----------
OPERATING INCOME 2,885,483 2,85,483
---------- ----------- ----------- ---------
OTHER EXPENSES (INCOME):
Interest Expense 1,731,377 (7) 20,000 1,751,377
Amortization of debt discount 222,500 (8) 112,500 335,000
Write off of registration costs 175,394 175,394
Other 266,387 266,387
--------- --------- --------- ---------
-
---------- ----------- ---------- -----------
2,395,658 132,500 2,885,483
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 489,825 132,500 - 357,325
PROVISION FOR INCOME TAXES 206,201 (9) 50,350 155,851
---------- --------- --------- ---------
NET INCOME (LOSS) 283,624 132,500 50,350 201,474
-
-----------
PRO-FORMA INCOME TAXES (BENEFIT)
--------- -------- --------- ---------
PRO-FORMA NET INCOME $ 283,624 $ 132,500 $ 50,350 $ 201,474
========= ======== ======= =========
PRO-FORMA EARNINGS (LOSS) PER SHARE $ 0.00 $ (0.01)
========= ===========
WEIGHTED AVERAGE NUMBER OF SHARES 7,675,000 7,675,000
========== =========
</TABLE>
-31-
<PAGE> 40
CONQUEST INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO PRO-FORMA UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(A) Pro-forma adjustments have been made to the historical June 30, 1995
unaudited consolidated financial statement to give effect to the
following:
(1) The receipt in July 1995 of additional net proceeds of approximately
$1,180,000 from the 1995 Private Placement.
(2) The redemption in July 1995 of $200,000 of Series D Preferred Stock for an
aggregate price of $200,000 and the repayment in July 1995 of a $150,000
loan owed to an affiliate of a director.
(3) The payment of $273,750 made in October 1995 to the agent in connection
with the restructuring of the Company's Private Placement Notes due
October 1, 1996.
(4) The payment of $547,000 to the holders of the Private Placement Notes due
October 1, 1996.
(5) The payment of expenses associated with the Nat West and Private Placement
Notes refinancings.
(6) The issuance of 500,000 common shares to one of the Company's principal
stockholders in connection with the Nat West refinancing, valued at 75% of
the approximate fair market value of such shares on the date of their
issuance.
(7) Additional interest expense calculated based upon the revised effective
interest rate of the restructured Private Placement Notes due October 1,
1996 and revised principal loan agreements.
(8) Amortization of deferred debt costs recorded in number 5 above as follows:
(1) 84,375 for the nine months ended June 30, 1995 and (2) $112,500 for
the year ended September 30, 1994.
(9) The tax benefit related to the additional interest and amortization in
numbers 7 and 8 above.
(10) The conversion of accrued liabilities of $810,000 at June 30, 1995
exclusive of additional obligations of $169,630 incurred subsequent to
June 30, 1995, in the approximate amount of $979,630 into an aggregate of
524,315 Creditors Shares of Common Stock.
(11) To reclassify the current portion of long term as a result of the Nat West
refinancing.
(B) In June 1995, the Company completed the sale of the common stock of
Conquest Air for $6,000,000 in securities of the purchaser, Air LA. The
carrying value of the airline has not been adjusted for pro-forma
purposes. See "Business - Sale of Conquest Air."
-32-
<PAGE> 41
BUSINESS
INTRODUCTION
The Company, through Wico Corporation and its wholly-owned operating
subsidiaries, is a leading manufacturer and distributor of replacement parts,
accessories, and supplies to game operators and distributors of coin-operated
amusement/arcade games, billiard tables, vending machines, such as food, soft
drink and snack machines, and gaming machines. It also supplies parts and
accessories to original equipment manufacturers ("OEMs") of arcade games. An
indirect subsidiary, Wico Gaming, is a manufacturer and distributor of casino
supplies, including layouts, dice, casino furniture, custom-built casino
tables, playing chips, playing cards, casino equipment and roulette and other
wheel games.
The Company's broad range of products enables the Company to offer single
sourcing to its customers. In 1988, the Company acquired Penn-Ray Sutra
Corporation ("Penn-Ray"), one of the largest competitors of its distribution
business in the areas of video monitors, power supplies and billiard equipment.
Penn-Ray sold its products by means of a telemarketing operation, primarily to
large game operators, distributors and small OEMs. Its telemarketing sales
strategy complemented the Company's then existing direct sales force, which
historically serviced smaller game operators. This portion of the Company's
business, referred to as its distribution business, accounted for approximately
85%, 85% and 80% of net sales, respectively, in 1992, 1993 and 1994.
The Company is also a leading U.S. manufacturer and distributor of
consumer joysticks, which are entertainment computer control devices, and
related accessories, that it sells directly to retailers and distributors
located principally in the United States. This portion of its business,
referred to as its consumer business, accounted for approximately 15%, 15% and
20% of net sales, respectively, in 1992, 1993 and 1994. In 1989, the Company
acquired Suncom Corporation ("Suncom"), a manufacturer and distributor of
joysticks and related accessories sold primarily to the consumer market. This
complemented and enhanced the Company's existing consumer joystick business,
which now markets both Suncom and Wico branded products. The Company's
strategy is to be a market leader by offering a broad selection of high quality
products. Presently, the Company believes that it offers one of the most
complete lines of joysticks available in the consumer market.
Until it consummated the Wico Merger, the Company was primarily engaged in
the business of operating a regional airline providing regularly scheduled
turbo-prop service to cities within the State of Texas. The Company's
wholly-owned subsidiary, Conquest Air, is still engaged in conducting limited
aviation operations in Texas on a reduced basis. In August 1994, the Company
announced its intention to sell Conquest Air and such business is treated as a
discontinued operation for accounting purposes. Accordingly, financial
information and discussions of results of operation relate to continuing
businesses only, except as otherwise expressly stated. The airline business of
Conquest Air incurred significant operating losses through June 30, 1995
(approximately $2,703,000 for the nine months then ended), and represented a
drain on the Company's cash flow. In addition, the Company has recently been
notified by certain of its aircraft lessors of defaults under the current
leases.
On June 30, 1995, Air LA purchased the stock of Conquest Air from the
Company. The consideration received by the Company, and Air LA thereby
indirectly assumed responsibility for Conquest Air's aircraft leases (although
the Company remains contingently liable thereon as of the date of this
Prospectus). The consideration received by the Company consisted of three
separate notes aggregating $6,000,000, one of which in $3,000,000 principal
amount (currently payable on demand) will be automatically exchanged for
$3,000,000 of Air LA non-dividend paying voting convertible preferred stock
upon authorization of such securities by the Air LA stockholders. The
remaining two notes, aggregating $3,000,000, bear interest at 8% per annum and
are payable in installments through June 2000 (subject to certain mandatory
prepayment provisions), and include $2,000,000 of intercompany obligations from
Conquest Air to the Company which have been assumed by Air LA. See "Business -
Sale of Conquest Air."
THE WICO MERGER
Until June 20, 1994, the Company was primarily engaged in the business of
operating a regional airline providing regularly scheduled turbo-prop service
to cities within the State of Texas. On June 20, 1994, CAC Acquisition, Inc.
("CAC"), a Delaware corporation and newly formed wholly-owned subsidiary of the
Company, merged with Wico Holding Corp. ("Wico"), a privately-held Delaware
corporation, pursuant to a Restated Agreement and Plan of Merger dated June 8,
1994. Upon consummation of the merger on June 20, 1994, Wico became a
wholly-owned subsidiary of the Company and the separate existence of CAC
ceased. In addition, simultaneous with the merger, Wico Gaming Supply Corp.
("Wico Gaming"), a wholly-owned subsidiary of Wico, acquired certain assets,
liabilities and divisions of Langworthy Casino Supply, Inc. ("Langworthy").
-33-
<PAGE> 42
Concurrent with the Wico Merger, the stockholders of Wico exchanged their
Wico securities for Company securities and became the controlling stockholders
of the Company. The basis of the control is that the former stockholders of
Wico became the owners of approximately 80% of the issued and outstanding
capital stock of the Company. Under the terms of the merger, following
exchanges of Wico securities for Company securities, the following Company
securities were issued: (i) the holders of Wico common stock acquired record
ownership of approximately 6,900,000 shares of Company Common Stock in exchange
for 2,944,000 shares of Wico common stock; (ii) certain holders of Wico
preferred stock acquired record ownership of 2,800,000 shares of Company Series
B Preferred Stock in exchange for 2,800,000 shares of Wico 10% Series AA
convertible preferred stock ("Wico AA Preferred Stock") and Wico 10% Series A
convertible preferred stock; and (iii) certain other holders of Wico AA
Preferred Stock acquired record ownership of 313,043 shares of Company Common
Stock in exchange for 1,200,000 shares of Wico AA Preferred Stock. All of the
options to purchase Wico common stock granted under Wico's 1993 Stock Option
Plan were converted into options to acquire 536,000 shares of Company Common
Stock.
The Company also agreed to issue five year Class B Warrants to purchase an
aggregate of 1,961,925 shares of Common Stock to the stockholders of record of
the Company on the close of business on June 20, 1994 (not including any
persons or entities affiliated with Wico receiving shares or rights to shares
of Common Stock in connection with the Wico Merger). The Class B Warrants are
issuable subject to the effectiveness of a registration statement covering such
Class B Warrants and the underlying Warrant Shares. Originally intended to be
exercisable at a price of $11.875 per share, in June 1995 the Company agreed to
reduce the exercise price of such 1,961,925 Class B Warrants to $5.00 per
share. Such Class B Warrants, when issued, will be exercisable by the holder
at any time until their June 20, 1999 expiration date, subject to the right of
the Company to redeem such Class B Warrants under certain conditions. See
"Description of Securities - Class B Warrants." In addition, on closing of the
Wico Merger, the Company issued, for nominal consideration, to its
institutional lender 400,000 Bank Warrants and to Blue Diamond Trading, Ltd.,
an affiliate of its former law firm, 200,000 Warrants. The Blue Diamond
Warrants were exercised for $200 in June 1995.
After giving effect to the Wico Merger, and the pro forma conversion of
all shares of Series B Preferred Stock, the nineteen former stockholders of
Wico owned approximately 80% of the Company's outstanding Common Stock. The
stockholders of the Company who prior to the effectiveness of the Wico Merger
held all of its capital stock continued to hold approximately 20% of its
capital stock giving effect to the Wico Merger and the aforesaid issuance and
pro forma conversion.
For accounting purposes, the merger with Wico has been treated as a
reverse acquisition. This resulted in the recapitalization of Wico with Wico
being treated as the continuing entity. The historical financial statements
contained herein are those of the business and operations of Wico. The
acquisition of Langworthy has been treated as a purchase. Assets received in
the transactions (inclusive of Conquest Air and Langworthy) have been valued at
their fair value at the date of acquisition.
On August 10, 1994, the Board of Directors of the Company elected to
change the Company's fiscal year end from May 31 to September 30 in order to
coincide with that of Wico. In addition, on August 17, 1994, the Board of
Directors of the Company determined to dispose of the airline operating unit
within the next twelve months. As a result of this Board decision, all
discussions of results of operations of the Company relate to continuing
businesses only, except as otherwise expressly stated. The Company's plan
contemplated the continuation of airline operations until the sale was
consummated.
THE DISTRIBUTION BUSINESS
The Company is a supplier of replacement parts, accessories and related
supplies to the coin-operated machine market generally. The Company is focused
on supplying operators with replacement parts and accessories in the shortest
possible period of time in order to limit the downtime of their machines.
Operators purchase the machines from regional distributors or directly from the
machine manufacturers. Typically, amusement, billiards and vending operators
purchase machines from a variety of regional distributors and operate them in
factories, offices, bars, convenience stores, and arcades.
Marketing and Sales
Providing customers with a single source for a broad variety of parts and
accessories is a key component of the Company's marketing approach. While the
Company believes that its products are priced competitively, low prices are not
the overriding consideration of its marketing program. Operators of
coin-operated machines strive to minimize machine downtime, and therefore
prompt availability of parts is critical to the profitability of their
operation. A single source of supply eliminates the costs and delay involved
in dealing with multiple suppliers. While the Company is required to maintain
levels of inventory consistent with this plan, the variety of product
offerings, together with timely deliveries, becomes a value-added feature which
often supports a price premium.
-34-
<PAGE> 43
The Company estimates that more than 80% of all orders are shipped within
24 to 48 hours. Customers are provided toll-free telephone numbers, and orders
are entered by an on-line data entry system. The Company attempts to provide
customers with personalized business relationships through regional salesmen,
supplemented by a telemarketing staff. The distribution segment is not
dependent on any customer and no customer of this segment accounts for more
than 3% of its net sales. Historically, bad debts for customers have not been
significant, and accounts receivable are normally outstanding between 45 and 60
days, which the Company believes are within industry norms.
In 1988, the Company acquired Penn-Ray, one of its largest competitors in
the areas of video monitors, power supplies and billiard equipment, selling its
products by means of a telemarketing operation. Penn-Ray's expertise in the
amusement and billiards segments of the market complemented the Company's then
existing product mix in this area. Penn-Ray had strong product offerings in
these areas with an emphasis on large game operators, distributors and small
OEMs, which the Company was able to service through its regular field sales
force. In February 1991, the coin-operated amusement customers of Penn-Ray
were integrated into the Company's marketing system. The Penn-Ray division now
focuses exclusively on the sale and distribution of billiard supplies to retail
billiard outlets.
Within the Company's distribution segment. approximately 9% of 1994 sales
were derived from direct sales of products to OEMs. Due to the Company's
position as a manufacturer of joysticks and related control products, video
game manufacturers requested that the Company supply parts directly to their
manufacturing facilities. As a result, the majority of sales in the OEM
segment have been generated by the supply of joysticks and related accessories.
The Company has a direct sales staff of 41 employees, differentiating it
from its competitors, which the Company believes rely heavily on telemarketing
operations, with a limited direct sales force. The Company has completed a
major upgrade in its sales communication effort by implementing an electronic
voice mail and message system with beeper interface to allow prompt
salesperson/customer communication, order processing and similar functions.
Within the Company's parts distribution business, salespersons focus
primarily on the operators of coinoperated machines and are granted exclusive
territories. They are paid commissions averaging 6% of net sales, and
salespersons pay their own expenses, although the Company pays for health and
fringe benefits.
The Company also utilizes a telemarketing sales force of approximately 10
persons. Telemarketers provide double coverage for large accounts and are also
able to provide service for smaller customers. The telemarketing sales force
is paid an hourly wage plus a small commission.
Additionally, the Company receives incoming orders for its products
through its 648-page catalog, which is distributed annually to over 15,000
customers worldwide and offers more than 16,000 products. The Company also
distributes specialty catalogs annually for the vending, gaming and OEM
industries, and Penn-Ray produces a separate catalog for its more than 2,000
customers.
The Company periodically offers special promotions for a variety of
products. The Company's advertising department produces monthly brochures that
are mailed to active customers and inserted with merchandise shipments. These
mailings inform customers of newly available parts as well as special pricing
programs.
In an effort to provide customers with prompt deliveries, the Company
maintains five additional distribution centers throughout the United States and
one in the United Kingdom where it maintains an inventory of its most popular
products. All distribution branches are linked to the main Niles, Illinois
facility through the IBM System 4381 main frame computer that provides on-line
information and support. This system is capable of performing multiple tasks
simultaneously. It processes and stores the purchase orders for billing
purposes and develops complete accounts receivable data. Approximately 800
proprietary programs process orders, replenish inventories and provide
management information.
Competition
The Company's distribution segment has approximately eight principal
competitors, none of which carry all of the product lines maintained by the
Company and none of which have multiple distribution centers similar to those
of the Company. In order to enter this industry segment, it would be necessary
to accumulate broad knowledge regarding the product lines and customer bases
and would likely require substantial capital in order to maintain necessary
levels of inventory. The Company believes that these factors constitute
substantial barriers to entry.
THE CONSUMER BUSINESS
The Company has developed its consumer joystick business through the
acquisition of Suncom, new product development, and marketing. The Company is
a supplier of analog-based entertainment control devices designed for use with
personal
-35-
<PAGE> 44
computer based entertainment software, including joysticks, palm-held game
pads, and yokes, which resemble aircraft controllers (collectively,
"joysticks"). This segment currently markets a diversified line of the Company
and Suncom joysticks to consumers primarily using the Suncom name, and
management believes that it maintains a market share estimated by the Company
at 20%.
In late 1992, Suncom launched two new products, the FX 2000 joystick and
the Command Control game pad. The FX 2000 is an ergonomic joystick and the
Command Control pad allows computer games to be played with a controller
similar to those used with home video game systems. In mid-1993, Suncom
introduced a G Force Yoke, "My First Joystick," and AXYS joystick. The G Force
Yoke is targeted at the flight simulation computer software market. "My First
Joystick" is targeted at parents who buy educational computer software for
their children. AXYS was the first joystick with an "office" appearance, which
is installed on personal computers to allow entertainment programs to be
controlled by joysticks designed to incorporate ergonomic wrist strain relief
features, more generally found in office oriented products. This product may
also be used with production-based office and business programs, such as
graphic design and spread sheet programs. In late 1993, the Flight Max
platform joystick and Gameport 2000 game card were introduced. Product
development is also ongoing to respond to the developing joystick market for
Macintosh computers.
In January 1995, the Company introduced a new line of four joysticks,
designated as the F-15 line. These joysticks are each 80%-scale replicas of
the joysticks equipped in F-15 fighter planes. The line was introduced at a
major trade show, and the Company has received orders from major computer
retailers and retail stores for the entire initial production run of these
joysticks, which began to be shipped in May 1995. Since May 1995, the Company
has sold approximately $3,100,000 of these items, representing approximately
75% of Suncom's total sales during such period.
In June 1995, the Suncom division of the Company entered into an agreement
with Spectrum Holobyte, Inc. a software developer for the marketing, sale and
distribution of Suncom products in the United Kingdom, France and Germany.
Marketing and Sales
The primary marketing strategy for the sale of consumer joysticks and
related accessories is to provide a broad selection for the Company's customers
and their retail customers. The major component of this strategy is single
sourcing for virtually all joysticks and entertainment controller needs,
providing a focus on high quality and value pricing. The Company has targeted
the high-volume personal computer mass market rather than high-tech "ultra
niche" products. Accordingly, ten customers accounted for 59% and 49% of the
Company's net sales in this market segment for the fiscal years ended September
30, 1994 and 1993, respectively.
The Company employs independent sales representatives to sell the
Company's consumer joysticks and related products to distributors, retail
representatives and major outlets. These representatives are assigned
exclusive sales territories covering the United States and also market other
complementary noncompetitive products manufactured by others. The sales
representatives are paid commissions of approximately 5% of net sales of
products sold and are not paid any salary or furnished any benefits.
Advertising and promotional efforts are comprised of a number of key
elements. The Company uses print media to target specific end users and enters
into cooperative advertising retail programs to generate retail support and
customer awareness. In addition, the Company utilizes comprehensive catalog
and collateral materials for sales support and participates in all major
domestic and foreign trade shows.
Competition
The Company competes with approximately six other companies in this
industry segment. Competition is based primarily on price and product
features. Manufacturers and vendors of personal computers, many of whom are
substantially larger than the Company, are potential competitors of the Company
in this segment.
WICO GAMING
In June 1994, and in conjunction with the Wico Merger, Wico Gaming, a
wholly-owned subsidiary of Wico, acquired certain divisions of Langworthy, a
56-year-old manufacturer and distributor of casino supplies, located in Las
Vegas, Nevada. The purchase price for the Langworthy acquisition was
$1,750,000 and assumption of certain liabilities to trade creditors. The
assets acquired were Langworthy's layout business, dice manufacturing,
furniture business, including custom-built casino tables and other furniture
items and accessories, playing chips, and playing cards businesses. Layouts
are specially screened felt pieces of billiard cloth for gaming tables, such as
blackjack, roulette and poker tables. At the time of acquisition, most of the
Langworthy business was transacted with casinos located in Nevada, and Wico
Gaming presently has the necessary regulatory
-36-
<PAGE> 45
authorizations to continue substantially all of this business. Wico Gaming
plans to expand the operation and distribute these products in other states in
which casinos operate in the United States. Such plans require that the
Company obtain various additional licenses or authorizations.
The Langworthy acquisition constituted a substantial product line
expansion for the Company's existing business in the gaming industry,
consisting principally of replacement parts for slot machines and certain
non-gaming supplies and products used by casinos. In addition to a dedicated
sales force for the gaming supply business, the Company's distribution
business' national sales force and telemarketing operation will provide
immediate sales support on a national basis.
The Langworthy business supplies casinos with products for table games
(including blackjack, roulette and poker). Langworthy's sales were
historically divided between replacement parts and new installations. The
replacement business involved two custom manufacturing operations, dice and
layouts. New installation products consist of furniture, gaming tables, slot
machine stands, change racks and similar items. Products not manufactured by
Wico Gaming are acquired from various suppliers. Wico Gaming is not dependent
upon any individual supplier.
Management believes that the Langworthy acquisition enabled the Company to
position itself as a single-source casino gaming parts supplier, of particular
significance to smaller locations such as riverboat operations and Native
American casinos. The useful lives of Wico Gaming's products range from
several hours in the case of playing cards and dice to several months in the
case of layouts and several years in the case of casino chips and gaming
furniture.
In April 1995, Wico Gaming purchased the operating assets of the Dice
Division of Shuffle Master, Inc. ("SMI"). Annual sales of the SMI Dice
Division were approximately $300,000 in its fiscal year ended immediately prior
to the purchase by Wico Gaming. The purchase price for the assets was
$240,000, of which $60,000 was paid in cash, with the balance payable in
quarterly installments (with interest at 6% per annum) through April 2000.
This acquisition expands Wico Gaming's customer base in its dice business, with
the customers of the acquired business including casinos, riverboats and other
gaming establishments located primarily in Nevada, Mississippi and New Jersey.
There are a number of companies that are in competition with Wico Gaming
in each of its product lines. With regard to layouts, management believes that
the key competitive factors are cloth quality, enhanced graphics, and clarity
and range of colors. The primary competitive factor for dice sales are quality
and pricing, and casinos generally purchase dice from more than one supplier.
In the area of gaming furniture, competition is based on quality, price and
durability. The key competitive factor for playing chips are durability,
graphics, ease of handling and security, and with regard to playing cards, the
key competitive factors are price, ease of handling, durability, brand name
identification and reputation.
Approximately 50% of Wico Gaming's business is comprised of sales to
casinos located in Las Vegas, Nevada. Wico Gaming is not dependent upon any
individual customer.
The casino industry, and the gaming industry in general, have experienced
substantial growth in recent years. As interest in gambling establishments
continues to grow, the demand for machines and parts is expected to increase
significantly. Management believes, although there can be no assurance, that
the growth prospects for the acquired Langworthy and SMI businesses are
favorable, and should mirror developments in the gaming industry generally.
Management believes, although there can be no assurance, that with a more
aggressive sales and marketing effort, which is planned, Wico Gaming will be
able to expand its market share even if the gambling industry is unable to
sustain its recent growth rate.
The manufacture and distribution of gaming equipment and supplies are
subject to certain federal, state and local regulations. Regulations may vary
significantly among jurisdictions, although virtually all require licenses,
permits and approvals in connection with the manufacture, distribution or
supply of some or all of the Wico Gaming products.
The manufacture and distribution of gaming equipment and associated
products in Nevada are subject to extensive state and local regulations.
Except with respect to the manufacture and sale of roulette and other gaming
wheels, Wico Gaming holds the necessary authorizations required for its gaming
supply business to continue the Langworthy and SMI business in Nevada.
However, sales of roulette wheels and similar devices have not historically
been material to Langworthy. Wico Gaming is subject to licensing and
regulatory control by the Nevada Gaming Commission, the Nevada State Gaming
Control Board and various local regulatory agencies.
Under the New Jersey Casino Control Act, a license to sell the Langworthy
products must be obtained, since an existing New Jersey license maintained for
the Company's distribution business does not permit the sale of these products
in New Jersey. Wico Gaming has submitted the appropriate applications in New
Jersey, and has received a conditional license to sell its products in that
state.
-37-
<PAGE> 46
Wico Gaming also plans to operate the gaming supply business in other
jurisdictions, including Connecticut, Indiana, Iowa, Louisiana, Missouri and
Mississippi, where gambling is authorized. It will be necessary that Wico
Gaming qualify and obtain licenses in each of these jurisdictions, and in this
connection, Wico Gaming has been approved for licensing in Wisconsin and
Mississippi, and has submitted applications in substantially all of its other
intended jurisdictions for business. Although the regulatory schemes in these
jurisdictions are not identical, their material attributes are substantially
similar. There can be no assurance that such licenses, approvals or findings
of suitability will be obtained and, if obtained, will not be revoked,
suspended or conditional or that Wico Gaming will be able to obtain the
necessary approvals for its future products as they are developed. If a
license, approval or finding of suitability is required by a regulatory
authority and Wico Gaming fails to seek or does not receive the necessary
license, approval or finding of suitability, Wico Gaming may be prohibited from
selling its products in such jurisdiction or may be required to sell its
products through other entities at a reduced margin.
MANUFACTURING OPERATIONS
With respect to the Company's parts distribution business, approximately
90% of the products sold by the Company are purchased from other manufacturers
or distributors, and approximately 10% are internally produced or assembled.
Approximately 73% of the products purchased by the Company in this segment are
purchased domestically. Within the Company's consumer segment, approximately
90% of the products sold are produced for the Company using company-owned molds
and dies and relying upon utility and design patents and specifications owned
by the Company. Substantially all of such products are produced in Taiwan and
China. All foreign transactions are denominated in U.S. dollars, thereby
reducing transactional risks associated with fluctuations in foreign currency
exchange. Within the consumer segment, approximately 10% of the products sold
are assembled at the Company's facilities in Niles, Illinois.
Taken as a whole, the Company deals with over 1,000 suppliers. In 1994,
the top 10 suppliers accounted for approximately 38% of total purchases. The
Company believes that it maintains good relationships with all of its major
vendors and has relationships with secondary vendors for all major product
categories and believes that it could obtain products from alternative sources
at comparable prices and terms.
PRODUCT LIABILITY
The Company currently has $1,000,000 of product liability insurance for
its current products and does not intend to increase coverage. There can be no
assurance that the Company's existing coverage will be sufficient to cover any
liability resulting from any product liability claims or that the Company would
have available funds to pay any claims over the limit of its insurance. Either
an underinsured or an uninsured claim could have a material adverse effect on
the Company.
TRADEMARKS, PATENTS AND PROPRIETARY RIGHTS
The Company is dependent upon the development and maintenance of strong
brand recognition for its current and proposed products sold in the consumer
segment. The Company maintains numerous trademark registrations in the United
States and certain foreign countries. The Company believes that brand name
identification differentiates its consumer products from those of its
competitors and reflects the Company's marketing strategy of providing
customers and consumers with a high-quality, value oriented product.
The Company also holds numerous utility and design patents in the United
States and certain foreign countries for its distribution and consumer segment
products. All such patents and trademarks are owned by the Company, which is
not obligated to pay any license or royalty fees in connection therewith. No
one patent or small number of patents are material to either the Company's
distribution or consumer products business segments.
GOVERNMENTAL REGULATION
In order to sell a number of its products in New Jersey, the Company
maintains a Casino Service Industry License, authorizing it to offer casinos or
casino applicants goods and services not directly related to casino or gaming
activity. No other jurisdictions where the Company currently sells its
products requires licensure for such associated gaming products. The sale of
products comprising the business of Wico Gaming requires that additional
licenses and authorizations be obtained, subjecting the Company to additional
governmental regulation. Any beneficial holder of securities of the Company
may be subject to investigation by the gaming authorities in any or all of the
jurisdictions in which Wico Gaming operates or sells products if such
authorities have reason to believe that their ownership may be inconsistent
with such state's gaming policies. Persons who acquire beneficial ownership of
more than certain designated percentages of securities will be subject to
certain reporting and qualification procedures established by such gaming
authorities as well as local licensing authorities.
-38-
<PAGE> 47
EMPLOYEES
As at June 30, 1995 the Company employed approximately 193 full-time
employees, 128 of whom are located at the Niles, Illinois facility, 27 in its
six distribution branches, and 38 in field sales. Of such employees, 51
persons are salaried and the balance are employed on an hourly basis. The
executive, administrative, central warehouse, distribution branches, sales and
marketing, and purchasing and manufacturing departments, employ 3, 28, 29, 27,
97 and 9 persons, respectively. None of the Company's employees are
represented by a labor union, and management believes that the Company's
relations with its employees are good. In connection with the Company's gaming
supply business resulting from the Langworthy acquisition, the Company employs
34 additional persons consisting of 10 salaried sales and administrative
employees and 24 hourly warehouse and production employees. None of such
employees are represented by any union, and management believes that labor
relations are also satisfactory.
SALE OF CONQUEST AIR
Conquest Air is a regional airline providing regularly scheduled non-stop
and connecting service to seven cities. Conquest Air provides service to
Abilene, Austin, Beaumont, Corpus Christi, McAllen, San Antonio and Tyler,
Texas, operating as a point- to-point, low-cost carrier offering one-class
seating and convenience for business and leisure travelers.
Until the sale of Conquest Air to Air LA, the Company leased six Metro III
commuter aircraft on behalf of Conquest Air. All aircraft were leased from
unaffiliated third parties. Exclusive of residual or penalty payments in
respect of aircraft for which the Company effected an early termination of its
lease, the aggregate monthly lease cost of all such aircraft leases is
approximately $106,000. In addition, the Company was required to pay varying
rates per engine hour which is deposited in an engine reserve account
maintained by the lessors which is utilized for engine overhauls. In May and
June 1995, the Company received default notices from the lessors of four of its
six aircraft.
On June 30, 1995, the Company consummated the sale of the capital stock of
Conquest Air to Air LA, for consideration consisting of a $3,000,000
convertible promissory note of Air LA, and an additional 8% promissory note in
the principal amount of $1,000,000. The Company also received from Air LA an
additional 8% promissory note in the amount of $2,000,000, representing Air
LA's assumption of certain intercompany indebtedness previously owed by
Conquest Air to the Company. In conjunction with the closing, the Company
loaned to Conquest Air the sum of $250,000, which will be repayable (together
with interest at 8% per annum) out of the proceeds of Air LA's next public or
private equity offering, or otherwise on demand made at any time after July 31,
1995. Such $250,000 loan remains outstanding on the date of this Prospectus,
and the Company has not demanded repayment thereof pending Air LA's pursuit of
its debt refinancing. In consideration of such $250,000 loan, Air LA issued to
the Company options, exercisable at $.50 per share through June 30, 2000, to
purchase 250,000 shares of Air LA common stock. All of the $6,000,000 of
promissory notes issued to the Company by Air LA in the transaction are secured
by all of the assets of Air LA and Conquest Air, except that the $250,000 loan
made by the Company to Air LA is secured solely by the assets of Conquest Air.
The $3,000,000 convertible promissory note is currently payable on demand
and bears interest at a bank prime rate plus 1%. Such convertible note will,
upon Air LA's authorization of preferred stock (anticipated to occur in
November 1995), be automatically converted into $3,000,000 of non-dividend
bearing convertible preferred stock of Air LA. Such preferred stock is
convertible, at the option of the Company over a two year period commencing
December 31, 1995 if Air LA completes a contemplated public financing by such
date. If, as expected, such Air LA public financing is delayed beyond calendar
1995, the preferred stock will then be convertible, at the option of the
Company, at any time or from time to time (without restriction of the
conversion period), into shares of Air LA common stock at prevailing market
prices for such common stock. Such convertible promissory note, and the
preferred stock into which it is convertible, entitles the Company, in its
discretion, to elect two members to the Board of Directors of Air LA. The
Company has no present intention of electing any members to the Air LA Board of
Directors.
Subject to certain mandatory prepayments out of the proceeds of equity
offerings by Air LA, the $1,000,000 promissory note and the $2,000,000
promissory note issued as part of the sale of Conquest Air will be repayable in
quarterly installments of $75,000 each (in the aggregate as between the two
notes) commencing not later than September 30, 1996, with all remaining unpaid
principal becoming due and payable in a balloon payment due June 30, 2000.
As part of the sale to Air LA, Air LA has agreed to cure the existing
defaults under the leases for the six aircraft being operated by Conquest Air
at the time of the sale, although the Company will remain contingently liable
under such leases unless and until Air LA provides satisfactory deposits and/or
other assurances to the lessors, in order to obtain the release of the Company
from the obligations under such leases. The Company has been advised by
certain of such aircraft lessors that Air LA has only paid $192,000 of
approximately $400,000 of lease payments in arrears during the Company's
operation of
-39-
<PAGE> 48
Conquest Air. In addition, Air LA has been late in making certain of the
$105,500 aggregate monthly installment payments due under such leases. At
October 31, 1995, approximately $248,000 in monthly lease payment installments
are overdue. Air LA's obligation to make the required lease payments and
obtain the release of the Company from liability under the leases is secured by
a pledge of the outstanding capital stock of Conquest Air.
Air LA has received a financing commitment from a lender to provide a
refinancing of its indebtedness secured by all of its assets, including the
acquired assets owned by its Conquest Air subsidiary. In light of its
significant recent losses from operations, the consummation of such debt
financing within the next 90 days, as well as a contemplated public offering of
Air LA equity securities (estimated to occur in the first half of calendar
1996), will be of material importance to Air LA's ability to both cure the
Company's defaults to the Conquest Air aircraft lessors and to meet its
purchase price obligations to the Company. See "Risk Factors -Sale of Conquest
Air; Continuing Liabilities and Risk of Non-Payment."
PROPERTIES
The Company occupies a 115,000 square foot facility located in Niles,
Illinois, approximately 10 miles outside of Chicago, Illinois, which contains
its main distribution and manufacturing facilities and executive offices. The
facilities are leased through June 1996 and the Company has a ten-year lease
extension option upon substantially the same terms and conditions presently in
effect. The current monthly rent is approximately $53,000 (inclusive of real
estate taxes and other charges).
The Company also maintains six other distribution centers which are
located in New Jersey, California, Georgia, Texas, Nevada and the United
Kingdom. These facilities vary in size from approximately 4,800 square feet to
approximately 15,000 square feet, with a current aggregate monthly rent of
approximately $24,000. These are all leased facilities that warehouse and
stock the fastest moving inventory items.
The Company has combined its existing Las Vegas, Nevada operations with
the acquired businesses of Langworthy and relocated to a single facility of
approximately 21,000 square feet located in the Hughes Airport Center adjacent
to McCarran Airport. The terms of the five-year lease require rental payments
at the rate of $11,000 per month, plus payment of certain operating expenses.
LEGAL PROCEEDINGS
The Company is not currently involved in any material legal proceedings.
However, litigation has been threatened against the Company for non-payment of
certain obligations by a number of creditors, including the lessors of certain
of the six remaining aircraft. The Company believes that it will be able to
settle certain of such threatened litigation in connection with a portion of
the proceeds of this Offering, and anticipates that Air LA will, upon
completion of its contemplated financings, will be able to relieve the Company
from its contingent liabilities in respect of the remaining aircraft leases.
There is no assurance, however, that Air LA will complete such intended
financings or otherwise be able to reestablish and maintain current payments
under such assumed aircraft leases. See "Use of Proceeds," "Risk Factors -
Sale of Conquest Air; Continuing Substantial Liabilities and Risk of
Non-Payment" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Results and Plan of Operations of Air LA."
SETTLEMENTS WITH CERTAIN CREDITORS
In order to reduce its indebtedness and improve its equity position, the
Company has entered into agreements with certain of its creditors holding
accounts payable and other indebtedness of the Company aggregating
approximately $979,630 at October 31, 1995, including professionals who
rendered services to the Company, pursuant to which such creditors will
purchase from the Company an aggregate of 524,315 Creditors Shares.
All of the Creditors Shares are to be purchased for $2.00 per share,
except for one creditor which the Company has agreed to issue 75,000 Creditors
Shares for $1.41 per share, and a second creditor which the Company agreed to
issue 25,000 Creditors Shares for $1.00 per share. Other than the creditor
accepting 25,000 Creditors Shares in reduction of a $25,000 Company obligation
(whose shares will remain unregistered restricted securities), the Company has
agreed to register all remaining 499,315 Creditors Shares under the
Registration Statement of which this Prospectus is a part.
An aggregate of 15 creditors, including two law firms and stockholders of
Messrs. Feldman Radin & Co., P.C., an accounting firm with which Stephen R.
Feldman is a principal stockholder, have agreed to accept 524,315 Creditors
Shares in exchange for all Company obligations owed to such creditors.
The holders of 499,315 of the Creditors Shares are Selling Securityholders
in this Prospectus. See "Selling Securityholders." As such, each such
creditor and any broker/dealer that may act on its behalf in connection with
the sale of any Creditors Shares may be deemed to be an "underwriter" within
the meaning of Section 2(11) of the Securities Act. Under
-40-
<PAGE> 49
the terms of the Company's agreements with each of such creditors who are
Selling Securityholders, the Company agreed to deliver to such creditor a
current prospectus, either through a new registration statement or a
post-effective amendment to the Registration Statement of which this Prospectus
is a part. The Company also agreed to indemnify each creditor from certain
liabilities under the Securities Act.
1994 PRIVATE PLACEMENT
In September 1994, the Company completed a private placement of $2,737,500
principal amount of 10% convertible Private Placement Notes due October 1,
1996. The Private Placement Notes are convertible into shares of Common Stock
at 80% of the prevailing market price of such Common Stock on the date such
notes are converted. Assuming a prevailing market price of $1.50 per share, if
fully converted, an aggregate of 2,281,250 1994 Private Placement Conversion
Shares would be issuable if all Private Placement Notes were converted by the
holders. An aggregate of 109.5 units of securities were sold in the 1994
Private Placement, consisting of the 10% Private Placement Notes and 54,750
1994 Private Placement Warrants issuable (at the rate of 0.02 Private Placement
Warrants for each $1.00 of Private Placement Notes converted into Common Stock)
only upon conversion of the Private Placement Notes into Common Stock. Such
1994 Private Placement Warrants, if and to the extent issued upon conversion of
10% Private Placement Notes, are exercisable at $11.75 per share and expire
June 20, 1999, to the extent unexercised.
In June 1995, the Company entered into an agreement with Rickel, pursuant
to which Rickel agreed to use its best efforts to solicit from the holders of
the Private Placement Notes their written consents to exchange their 10%
convertible Private Placement Notes for 12% non-convertible Exchange Notes.
In consideration of accepting such exchange offer of 12% non-convertible
Exchange Notes for 10% Private Placement Notes, the Company has agreed to pay
to holders of Private Placement Notes an amount in cash equal to $0.20 for each
$1.00 of Private Placement Notes exchanged for a like principal amount of 12%
Exchange Notes (an aggregate of $547,500 if all $2,737,500 of Private Placement
Notes are exchanged for 12% Exchange Notes). Cash payments are to be made by
the Company on or before December 31, 1995, when the exchange offer will
expire. Such cash payments are in addition to, and not in lieu of, the
Company's obligation to pay principal and interest on the 12% Exchange Notes,
when due.
Each holder of 10% Private Placement Notes has been requested to execute
and deliver to the Company an Election to Exchange setting forth their
agreement to participate in the exchange offer described above. The period of
the exchange offer of notes expires on December 31, 1995.
In consideration of its acting as soliciting agent for the Company in
connection with the exchange offer, the Company has agreed to pay to Rickel
$0.10 for each $1.00 principal amount of Private Placement Notes exchanged for
12% Exchange Notes. Accordingly, if the holders of all of the $2,737,500 of
Private Placement Notes elect to exchange such Private Placement Notes for 12%
Exchange Notes and cash payments, Rickel & Associates, Inc. will receive fees
aggregating $273,750.
Holders of 10% Private Placement Notes who accept the 12% non-convertible
notes will represent to the Company that such 12% non-convertible notes have
been acquired for investment purposes only and are restricted securities within
the meaning of the Securities Act. The Company believes that the exchange of
the Company's 10% Private Placement Notes for a like amount of 12%
non-convertible notes due October 1, 1996 and the other consideration paid to
the holders of the Private Placement Notes is a private transaction exempt from
the registration requirements of the Securities Act.
To the extent that holders of 10% Private Placement Notes exchange such
notes for 12% Exchange Notes and cash, the Company will remove a like principal
amount of 10% Private Placement Conversion Shares from the registration
statement of which this Prospectus is a part. See "Selling Securityholders."
1995 PRIVATE PLACEMENT
In June and July 1995, the Company sold an aggregate of 2,082,147 shares
of its Common Stock for approximately $2,935,827 ($1.41 per share) in a private
placement to 50 unaffiliated accredited investors and to Steffen I. Magnell,
the President and Chief Executive Officer of the Company, who purchased 142,000
of such 1995 Private Placement Shares. Under the terms of a securities
purchase agreement with such investors, the Company agreed to register, at its
expense, the 1995 Private Placement Shares under the Securities Act in
connection with any registration statement covering securities being offered
for the account of any persons other than the Company. The Company has
included such 1995 Private Placement Shares in the registration statement of
which this Prospectus is a part. See "Selling Securityholders."
-41-
<PAGE> 50
Mr. Magnell purchased his 142,000 1995 Private Placement Shares by
delivering to the Company his $200,000 8% promissory note due December 31,
1995, which is secured by a pledge of such 142,000 shares. Mr. Magnell has
agreed not to publicly sell any of his 142,000 1995 Private Placement Shares
for a period of two years from the date of purchase (July 1997). All other
investors in the 1995 Private Placement paid cash for their 1995 Private
Placement Shares.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The executive officers and directors of the Company and key personnel are
as follows:
<TABLE>
<CAPTION>
Name Age Office
---- --- ------
<S> <C> <C>
Stephen R. Feldman(1) . . . . . . . . . 52 Chairman of the Board
Victor M. Rivas(2) . . . . . . . . . . 51 Director
Steffen I. Magnell. . . . . . . . . . . 50 Chief Executive Officer of the Company and
Wico, President of the Company, and
Director
Jerry Karlik . . . . . . . . . . . . . 40 Chief Financial Officer
Nolan A. Lameka . . . . . . . . . . . . 57 Vice President and Chief Financial Officer
of Wico
Bentley J. Blum . . . . . . . . . . . . 54 Director
David Schoon(1). . . . . . 43 Director
Harry E. McKillop(2) . . . . . . . . . 64 Director
</TABLE>
- --------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Under the Company's Certificate of Incorporation, the Board of Directors
is divided into classes with the members of each class (one-third of the Board)
elected each year at the Company's annual meeting of stockholders to serve for
a period of three years and until their respective successors have been duly
elected and qualified. Since no annual meeting has been held in the previous
three years, the term of each director will expire at the next annual meeting.
The provisions of the Certificate of Incorporation which provide for the
staggered Board of Directors may not be amended or repealed without the
affirmative vote of at least 75% of the Company's outstanding shares entitled
to vote. Since this provision extends the time required to change a majority
of the Board of Directors to at least two years, it may have the effect of
discouraging a tender offer for the Company's stock or other takeover bid. The
Company's officers are appointed at the first Board meeting following the
annual meeting of stockholders and serve at the pleasure of the Board of
Directors.
Stephen R. Feldman has served as Chairman of the Board of the Company
since June 1994 and of Wico since 1986. From such respective dates until April
1995, he was also Chief Executive Officer of the Company and Wico. From 1986
until the Wico Merger, he was Chairman of the Board and Chief Executive Officer
of Wico Holding Corp. He is also a certified public accountant and a principal
shareholder of the accounting firm, Feldman Radin & Co., P.C., New York, New
York. Mr. Feldman devotes approximately 80% of his time to the business of
Feldman Radin & Co., P.C. and approximately 20% of his time to the business of
the Company.
Victor M. Rivas has served as Chairman of the Board and Chief Executive
Officer of the Company from inception until June 1994, and as President of
Conquest Air until the sale of Conquest Air to Air LA on June 30, 1995.
Steffen I. Magnell has been Chief Executive Officer of the Company and
Wico and President of the Company since April 1, 1995. From January 1994 to
March 1995, Mr. Magnell was President of Tol-O-Matic, Inc., a supplier of fluid
power components for factory automation systems. For five years immediately
prior to his association with Tol-O-Matic, Mr. Magnell was President and Chief
Operating Officer of Sanborn Compressor Company, Inc., a manufacturer of air
compressors and related products, located in Minneapolis, Minnesota.
-42-
<PAGE> 51
Jerry Karlik has been Chief Financial Officer of the Company since
September 1994. He is the treasurer and a director of Commodore Environmental
Services, Inc., a publicly held corporation providing environmental services,
headquartered in New York. He serves as an officer and director of various
companies owned or controlled by or affiliated with Bentley J. Blum, a director
and principal stockholder of the Company. Mr. Karlik devotes approximately 20%
of his business and professional time to the affairs of the Company.
Nolan A. Lameka joined Wico in 1975 as Corporate Controller and Vice
President-Finance, and was promoted to his current position in 1986. Prior
thereto, he held senior positions in accounting and finance with Mason-Barron
Laboratories and Ampex Corporation.
Bentley J. Blum has been a Director of the Company since June 1994.
Previously, Mr. Blum was a Director and principal stockholder of Wico Holding
Corp. He is Chairman of the Board and majority stockholder of Commodore
Environmental Services, Inc., a corporation providing environmental services,
headquartered in New York, and a director and principal stockholder of Lanxide
Corporation, a developer of patented ceramic composite technology and
materials. He is also Chairman of the Board and majority stockholder of
Federal Resources Corp., a corporation engaged in the mining business, located
in Utah. In addition, he is Chairman of the Board of Specialty Retail
Services, Inc., a corporation formerly engaged in specialty retailing and
presently inactive. He also manages numerous personal investments in the areas
of real estate and oil and gas properties.
David Schoon has been providing financial consulting services since 1992
as a principal of Stock Portfolio Management, Inc., Grand Rapids, Michigan. A
chartered life insurance underwriter, certified financial planner and chartered
financial analyst, Mr Schoon has been involved in insurance and financial
consulting since 1983 in the Michigan area. He is a director of Sparton
Corporation (NYSE), a manufacturer of electronic surveillance and automotive
parts.
Harry E. McKillop has served as a Director of the Company since June 1994.
He had previously served as a Director of Conquest Air since August 1989. Mr.
McKillop is presently President of Alliance International, Inc. where he has
been employed since 1993. Prior to joining Alliance, Mr. McKillop was the
director of travel for EDS Corporation, a subsidiary of General Motors
Corporation. Prior to joining EDS, he served as a Vice President of Pan
American Airways ("Pan Am") for Commuter Affairs. Prior to joining Pan Am, Mr.
McKillop was employed by Braniff International for 15 years and served as Vice
President International based in Paris and London. Mr. McKillop also was
employed by United Airlines for 15 years in various capacities in the passenger
and cargo fields.
EXECUTIVE COMPENSATION
CASH COMPENSATION
The following table sets forth the aggregate cash compensation (including
incentive compensation) paid by the Company and its subsidiaries for services
rendered during the fiscal year ended September 30, 1995 to its Chief Executive
Officer and to each of the three other most highly compensated executive
officers of the Company whose aggregate cash compensation from the Company and
its subsidiaries for that period exceeded $100,000. As the Company only had
two other executive officers whose aggregate compensation in 1995 exceeded
$100,000, only those persons are reported here.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL
COMPENSATION (1) Securities
Underlying All Other
Name and Principal Position Year Salary Bonus Options # Compensation
--------------------------- ---- ------ ----- --------- ------------
<S> <C> <C> <C> <C> <C>
Stephen R. Feldman . . . . . . 1995 --- --- --- ---
Chairman of the Board of
Directors 1994 --- --- 300,000(3) ---
Former Chief Executive
Officer 1993 --- --- --- ---
Steffan I. Magnell . . . . . . 1995 $138,461 $25,000 350,000(6) $5,600
President, Chief Executive
Officer 1994 --- --- --- ---
and Director
1993 --- --- --- ---
</TABLE>
-43-
<PAGE> 52
<TABLE>
<S> <C> <C> <C> <C> <C>
Victor M. Rivas(2) . . . . . . 1995 $127,500 --- --- $10,000(4)
President and Director
50,500(5)
1994 $127,500 --- 70,000 $10,000(4)
1993 $125,500 $25,000 35,000 $10,000(4)
Edward G. Sokolofski (7) . . . 1995 $165,422 --- $7,660
President of Wico 1994 $198,093 --- 236,000(3) ---
1993 $188,834 --- --- ---
</TABLE>
(1) The Company did not grant any restricted stock awards or long term
incentive plan payouts ("LTIPs") to any of the named executive officers in
this table nor does the Company maintain any LTIPs. Additionally, certain
incidental personal benefits to executive officers of the Company may
result from expenses incurred by the Company in interacting with the
financial community and identifying potential acquisition targets. The
above summary compensation table does not describe such incidental
personal benefits made available to executive officers during 1994,
because the incremental cost to the Company of such benefits is below the
Securities and Exchange Commission disclosure threshold. These benefits
may include personal use of automobiles leased by the Company and its
subsidiaries.
(2) Victor M. Rivas had been an officer and director of the Company prior to
the Wico Merger, and his compensation prior to such date reflects that
paid to him by Conquest Air.
(3) On June 30, 1993 and prior to the Wico Merger, Mr. Feldman was granted
options to purchase 150,000 shares of common stock of Wico at an exercise
price of $5.00 per share and Mr. Sokolofski was granted options to
purchase 118,000 shares of common stock of Wico at $5.00 per share.
Subsequently, coinciding with the Wico Merger, Mr. Feldman's and Mr.
Sokolofski's options were exchanged, so that each of Mr. Feldman and Mr.
Sokolofski would have options to purchase the same percentage of shares of
the Company and at the same relative price as they had in Wico. As a
result, Mr. Feldman was issued options to purchase 300,000 shares and Mr.
Sokolofski was issued options to purchase 236,000 shares of the Company's
Common Stock at an exercise price of $2.50 per share. In addition, Mr.
Sokolofski and the Company agreed that, in the event of his resignation as
an officer of the Company, Mr. Sokolofski would receive warrants to
purchase 250,000 shares of Common Stock at $2.50 per share, which warrants
will expire on December 31, 1997, and unless exercised, may be redeemed by
the Company at $.20 each at any time after January 1, 1996. On September
29, 1995, Mr. Sokolofski tendered his resignation as an officer of the
Company and Wico and received such redeemable warrants. As a result of
his resignation, all 236,000 stock options previously issued to him, and
unexercised, were terminated.
(4) Consists of the payment of $10,000 life insurance premiums paid by the
Company for the benefit of Mr. Rivas to be repaid only out of the proceeds
of such policy upon his death. Simultaneously with the Wico Merger, the
Company agreed to forego repayment of these amounts until such repayment
can be made out of the proceeds of the policy.
(5) In July 1989, Mr. Rivas received options to purchase 2,000 shares of
Common Stock at an exercise price of $19.25 per share. In March 1990,
March 1991, March 1992, and March 1993, he received options to purchase
4,500, 4,500, 4,500 and 5,000 shares, respectively, at exercise prices of
$15.80 per share. In March 1993, he was also issued options to purchase
30,000 shares at $10.80 per share. On August 31, 1994, all of Mr. Rivas's
options to purchase an aggregate of 50,500 shares of Common Stock were
cancelled and Mr. Rivas was issued options to purchase 50,500 shares of
Common Stock at an exercise price of $11.875 per share. In June 1995, the
exercise price of such options was reduced to $5.00 per share.
(6) Consists of options to purchase up to 350,000 shares of Common Stock at a
price of $1.25 per share (subject to adjustment under certain
circumstances) which were issued in connection with Mr. Magnell's
employment agreement. Mr. Magnell became President and Chief Executive
Officer of the Company effective April 1, 1995. See "Employment
Agreements."
(7) Mr. Sokolofski resigned as an officer of the Company on September 29,
1995.
-44-
<PAGE> 53
STOCK OPTION GRANTS
The following table sets forth the information noted for all grants of
stock options made to each of the executive officers of the Company named in
the Summary Compensation Table during fiscal year 1995. The 236,000 stock
options previously granted to Edward Sokolofski have not been exercised and
terminated on September 29, 1995, simultaneous with his resignation as an
officer of the Company.
OPTION GRANTS IN THE LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rate of
Stock Price Appreciation
for Option Term
---------------------------
Name(5) Number of % of Total Exercise Expiration 5% ($) 10% ($)
Options Options Price Date -------- ----------
Granted Granted ----- ----
------- -------
<S> <C> <C> <C> <C> <C> <C>
Stephen R. Feldman . . 100,000(1) 12.50 $0.875 3/31/00 $24,175 $53,420
Edward Sokolofski . . . 250,000(2) 31.25 2.50 12/31/97(2) $64,063 $131,250
Steffan I. Magnell . . 350,000(3) 43.75 $1.25 3/31/04 $241,606 $594,102
Steffan I. Magnell . . 100,000(3) 12.50 $1.41 6/30/00 $38,956 $86,082
Victor M. Rivas . . . . -0-(5) --- --- ---
</TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
# of Shares Unexercised Options at Fiscal in-the money Options at
Acquired on Value Year-End Fiscal Year-End
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stephen R. Feldman 0 0 400,000(1)(4) n/a $350,000 n/a
Edward Sokolofski(2). . . 0 0 236,000 n/a n/a n/a
Steffen I. Magnell(3) . . 0 0 250,000 200,000 $109,000 $100,000
Victor M. Rivas (5) 0 0 120,500 n/a n/a n/a
</TABLE>
In accordance with rules promulgated by the Securities and Exchange
Commission, this table reflects hypothetical gains or "options spreads" that
would exist for the respective options based on assumed annual compound stock
price appreciations of 5% and 10% from the date the options were granted over
the full option term until expiration.
(1) Includes 100,000 Directors Warrants issued to Mr. Feldman in April 1995.
See "Compensation Committee Interlocks and Insider Participation."
(2) Includes warrants to purchase 250,000 shares of Common Stock at $2.50 per
share issued to Mr. Sokolofski in connection with the resignation of his
employment on September 29, 1995. Such warrants will expire on December
31, 1997, and unless exercised, may be redeemed by the Company at $.20
each at any time after January 1, 1996. On September 29, 1995, Mr.
Sokolofski tendered his resignation as an officer of the Company and Wico
and as a result, all 236,000 stock options previously issued to him, and
unexercised, were terminated.
-45-
<PAGE> 54
(3) Includes (i) options to purchase an aggregate of 350,000 shares of Common
Stock at $1.25 per share issued to Mr. Magnell in connection with his
employment agreement effective as of April 1, 1995, of which 150,000
options are immediately exercisable, 100,000 options are subject to a
three-year extension of his employment agreement commencing April 1, 1998,
and the remaining 100,000 options are exercisable subject to a second
three year extension of such employment agreement, commencing April 1,
2001; and (ii) 100,000 immediately exercisable five year warrants at $1.41
per share issued to Mr. Magnell in June 1995. See "Employment
Agreements" and "Compensation Committee Interlocks and Insider
Participation."
(4) Includes 300,000 options originally issued to Mr. Feldman in connection
with the Wico Merger and subsequently repriced in April 1995 to $0.875 per
share. See "Compensation Committee Interlocks and Insider Participation."
(5) On August 31, 1994, the Company cancelled options to purchase 50,500
shares of the Company's Common Stock belonging to Mr. Rivas with an
exercise price ranging from $19.25 per share to $10.80 per share and in
their place issued options to purchase 50,500 shares of the Company's
Common Stock at an exercise price of $11.875 per share. In June 1995, the
exercise price of such options was reduced to $5.00 per share.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Steffen I.
Magnell, pursuant to which Mr. Magnell is to serve as Chief Executive Officer
of the Company and of Wico through March 31, 1998. Mr. Magnell is also serving
as President of the Company at this time. The employment agreement provides
for a base salary of $240,000 per annum (subject to annual cost-of- living
increases), a $25,000 bonus payable on September 30, 1995, additional annual
bonuses tied to the Company's achievement of net income targets, and benefits
comparable to those provided to other senior executives of the Company.
In conjunction with Mr. Magnell's employment agreement, the Company
granted to Mr. Magnell options to purchase up to 350,000 shares of Common Stock
at a price of $1.25 per share (subject to adjustment under certain
circumstances). Such options are exercisable (a) as to the first 150,000
shares, at any time prior to the expiration of the options, (b) as to the next
100,000 shares, subject to and after the execution of the first three-year
extension of Mr. Magnell's employment agreement with the Company, and (c) as to
the final 100,000 shares, subject to and after the execution of the second
three-year extension of Mr. Magnell's employment agreement. Subject to prior
termination as provided in the option agreement, all such options expire on
March 31, 2004.
The Company entered into an agreement in June 1994 with Mr. Rivas,
terminating a prior employment agreement and retaining Mr. Rivas to serve as
President of Conquest Air until January 17, 1995, and thereafter subject to
termination following sixty days' notice. Pursuant to this agreement, the
Company is obligated to pay Mr. Rivas $10,625 per month and issue options to
purchase 70,000 shares of Common Stock at an exercise price of $6.5625 per
share, subject to the 1994 Stock Option Plan. In connection with this
agreement, the Company also agreed to pay Mr. Rivas an aggregate amount of
$250,000 in consideration of his agreement and release of the Company's
obligations pursuant to his prior employment agreement with the Company. Of
such amount, $85,000 has been paid to date in the 1995 fiscal year, with the
balance of $165,000 remaining owing. The Company also agreed that certain
indebtedness of Mr. Rivas to the Company not in excess of $65,000 arising from
the Company's payment of life insurance premiums on his behalf shall be payable
only upon his death from the proceeds of such life insurance policy. In
addition, the Company is required to provide Mr. Rivas with the use of his
present automobile.
Since June 1989, Stephen R. Feldman, Chairman of the Board of Directors,
has had an oral management consulting agreement with the Company, entitling him
to payment of a fee of $150,000 per annum for services provided to the Company.
Mr. Feldman has agreed with the Company's institutional lender that any such
payments would not be paid in any fiscal year in which the Company's
consolidated income before interest and taxes in the prior year was not equal
to or greater than $5,000,000. As a result, no payments under this consulting
agreement have been paid to date.
-46-
<PAGE> 55
STOCK OPTION PLANS
Prior to the Wico Merger, the Company had adopted several stock option
plans, pursuant to which a total of 158,000 options were outstanding on the
date of the Wico Merger. In connection with the Wico Merger, the Company
terminated all of such plans and adopted the 1994 Stock Option Plan described
below. Accordingly, no further options may be granted under the terminated
plans.
The Company undertook to adopt the 1994 Stock Option Plan to permit the
holders of Wico stock options at the time of the Wico Merger to convert them
into options to purchase Common Stock of the Company. All of the options to
purchase Wico common stock granted under Wico's 1993 Stock Option Plan have
been converted into options to acquire 536,000 shares of Common Stock.
The 1994 Stock Option Plan was adopted on June 16, 1994 and provides for
the grant of options to acquire an aggregate of 2,000,000 shares of Common
Stock to employees, officers or directors of, or counsel to, the Company. The
1994 Stock Option Plan authorized the Board to issue incentive stock options
("ISO's"), as defined in Section 422A of the Internal Revenue Code (the
"Code"), and stock options that do not conform to the requirements of that Code
section ("Non-ISO's"). Officers, directors and consultants who are not
employees of the Company or any subsidiary thereof may only be granted
Non-ISO's.
The Board administers the 1994 Stock Option Plan with full power and
authority to take any action required or permitted to be taken under the 1994
Stock Option Plan. The Board has discretionary authority to determine the
types of stock options to be granted, the persons among those eligible to whom
options will be granted, the number of shares to be subject to such options and
the terms of the stock option agreements.
The exercise price of each ISO shall not be less than 100% of the fair
market value of the Company's Common Stock at the time of grant, except that in
the case of a grant to an employee who owns (within the meaning of Code Section
422A(b)(6)) 10% or more of the outstanding stock of the Company (a "10%
Stockholder"), the exercise price shall not be less than 110% of such fair
market value. For purposes of the 1994 Stock Option Plan, the fair market
value of shares of the Company's Common Stock on a given date is the average of
the closing bid and asked prices per share of Common Stock as reported on
NASDAQ. The exercise price of each Non-ISO is determined by the Board at the
time of the grant of the Non-ISO.
Options may be exercised in the manner and at such times as may be fixed
by the Board, but may not be exercisable on or after the tenth anniversary
(fifth anniversary in the case of an ISO granted to a 10% Stockholder) of the
grant of such options. Payment by option holders upon exercise of an option
may be made (as determined by the Board), in cash, or by check, promissory
note, delivery of shares of stock or cancelling an appropriate portion of the
options.
No option granted under the Plan is transferable by the optionee other
than by will or the laws of descent and distribution, and each option is
exercisable during the lifetime of the optionee only by such optionee. Upon
the termination of the option holder's employment or other relationship with
the Company and any subsidiary, his options, to the extent not theretofore
exercised, will expire immediately or, in certain cases, after a three or six
month period.
As at September 30, 1995, options to purchase 800,500 shares of Common
Stock, including 770,500 options held by officers and directors of the Company,
were issued and outstanding.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Directors of the Company who are not employees each received $300 for each
meeting attended by them for their services as such during the 1994 fiscal
year. Such fees have been increased to $500 per meeting attended in the 1995
fiscal year.
Salvatore Palacino, who was the Secretary and a director of the Company
until his resignation on June 17, 1994, had served on the compensation
committee of the Board. Although Mr. Palacino served as Secretary of the
Company during its last fiscal year, he received no compensation for serving as
such.
In April 1995, the Board of Directors appointed an Audit Committee and a
Compensation Committee. Messrs. Feldman and Schoon were appointed to the Audit
Committee and Messrs. Rivas and McKillop were appointed to the Compensation
Committee.
-47-
<PAGE> 56
In April 1995, the Board of Directors of the Company authorized for
issuance of 100,000 five-year warrants to each of Messrs. Feldman, Blum, Schoon
and McKillop (an aggregate of 400,000 warrants), in their capacities as members
of the Company's Board of Directors (the "Directors Warrants"), and 250,000
five-year warrants to Jerry Karlik, the Company's Chief Financial Officer. All
400,000 Directors Warrants and the 250,000 warrants issued to Mr. Karlik are
exercisable at $0.875 per share (the closing sale price of the Company's Common
Stock on NASDAQ on the date of grant of such warrants).
All warrants issuable to directors as authorized by the Company's Board of
Directors in April 1995 are exercisable at $0.875 per share, the closing sale
price of the Company's Common Stock on the date of grant, and expire on March
31, 2000. In addition, in April 1995, the 300,000 stock options issued to
Stephen R. Feldman in connection with the Wico Merger and exercisable at $2.50
per share, were repriced as 300,000 stock options exercisable at $0.875 per
share.
In February 1995, The Blum Asset Trust ("BAT"), an affiliate of Bentley J.
Blum, made a non-interest-bearing demand loan to the Company in the amount of
$200,000. In May 1995, pursuant to a prior agreement between the Company and
BAT, the Company issued to BAT, in repayment of the demand loan, 600,000 shares
of new Series D Preferred Stock of the Company. In conjunction with the
issuance of the Series D Preferred Stock, the Company issued to BAT warrants
entitling the holder to purchase, at any time on or before February 15, 2000,
up to 600,000 shares of Common Stock at a price of $.3333 per share (subject to
adjustment under certain circumstances). In July 1995, the Company redeemed
all of the Series D Preferred Stock, and in connection therewith, 200,000 of
the 600,000 warrants were cancelled.
In May 1995, BAT also lent to the Company the additional sum of $150,000.
In consideration of such additional loan, the Company issued to BAT additional
five-year warrants to purchase 450,000 shares of Common Stock at a price of
$.3333 per share. On July 5, 1995, the Company repaid such loan in full, and
in connection therewith, 225,000 of the 450,000 warrants were cancelled.
In June 1995, the Company issued to Steffen I. Magnell, the Company's
President and Chief Executive Officer, five-year warrants to purchase an
aggregate of 100,000 shares of Company Common Stock at an exercise price of
$1.41 per share, the same price per share at which he purchased 142,000 shares
of Common Stock in the 1995 Private Placement.
In connection with the contemplated refinancing of the Company's senior
indebtedness, Bentley J. Blum had been requested by the Bank to increase his
limited personal guaranty of the proposed restated term loan due 2000 from
$1,000,000 to $3,000,000, and had also been requested to collateralize the
$2,000,000 increase in his personal guaranty with certain personal assets
independent of his equity in the Company. Mr. Blum has agreed to furnish such
increased guaranty and collateral. In consideration for such commitment, in
September 1995 the Company's Board of Directors agreed to issue to Mr. Blum,
simultaneous with the closing of such refinancing and issuance of his increased
guaranty and pledge of collateral an aggregate 500,000 shares of Company Common
Stock at $.001 per share. In addition, on each anniversary of the date of
closing of such refinancing, to the extent that Mr. Blum's guaranty continues
to remain in force and is collateralized by his personal assets (excluding his
equity in the Company), he shall receive five year warrants to purchase an
additional 250,000 Company shares. Inasmuch as the proposed terms of the
refinancing contemplate a five year maximum term loan from the Bank, Mr. Blum
would potentially be entitled to receive warrants to purchase an aggregate of
1,250,000 additional Company shares. On October 20, 1995, such refinancing was
consummated and Mr. Blum increased his personal guaranty of the restated term
loan to $3.0 million, provided the bank with a collateral assignment of certain
personal real estate assets owned by him, and received 500,000 shares of
Company Common Stock for $500. All of the 1,250,000 warrants issuable to Mr.
Blum, if and to the extent issued pursuant to his agreement with the Company,
will expire five years from their respective dates of issuance and will be
exercisable at the closing sale price of the Company's publicly traded Common
Stock on the date of issuance of such warrants. On October 30, 1995, the
closing sale price of the Company's Common Stock, as reported on NASDAQ, was
$1.0625 per share.
-48-
<PAGE> 57
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock and Preferred Stock as of
the Effective Date by (i) each stockholder known by the Company to be a
beneficial owner of more than 5% of the Company's Common Stock or any Series of
Preferred Stock, (ii) each of the directors of the Company, (iii) the Company's
President, and (iv) all directors and officers of the Company as a group.
Shares of Common Stock outstanding as at the Effective Date of this Prospectus
is calculated at 11,970,139 shares of Common Stock, represented by the
11,945,824 shares outstanding at October 31, 1995, and the 524,315 Creditors
Shares to be issued on or before the Effective Date. Such outstanding shares do
not include any of the 3,000,000 Company Shares to be offered for sale by the
Company through January 31, 1996. Unless otherwise indicated, all shares are
directly owned as of October 31, 1995.
<TABLE>
<CAPTION>
Name and Address Amount & Nature of Percent Percent Percent
Title of Class of Beneficial Ownership Beneficial Ownership (1) Common Preferred Voting
-------------- ----------------------- ------------------------ ------- --------- -------
<S> <C> <C> <C> <C> <C>
Common Iris Feldman 2,918,842(2) 24.4% -- 24.4%
6400 West Gross Point Road
Niles, IL 60714
Common Bentley J. Blum 3,828,050(3) 30.1% * 30.1%
150 East 58th Street
New York, NY 10155
Common Paul E. Hannesson 858,483 7.2% -- 7.2%
150 East 58th Street
New York, NY 10155
Preferred Ignace Rey and 2,000,000(4) -0-% 71.2% -0-%
Georges Bonvin,
Trustees
Common Ignace Rey and 736,000(5) 6.2% -- 6.2%
Georges Bonvin,
Trustees,
Preferred Felice F. Mischel 300,000(6) -0-% 10.7% -0-%
1285 Avenue of the Americas
New York, NY 10019
Common Felice F. Mischel 412,900(7) 3.4% -- 3.4%
1285 Avenue of the Americas
New York, NY 10019
Common Stephen R. Feldman 3,362,342(8) 27.2% -- 27.2%
6400 West Gross Point Road
Niles, IL 60515
Common Steffen I. Magnell 392,000(9) 3.2% -- 3.2%
6400 West Gross Point Road
Niles, IL 60515
Common Victor M. Rivas 125,500(10) 1.0% -- 1.0%
2215 E.M. Franklin Avenue
Austin, TX 78723
Common Strategic Growth 900,000(11) 7.0% -- 7.0%
International, Inc.
111 Great Neck Road
Great Neck NY 11021
Common Harry McKillop 115,670(12) 1.0% -- 1.0%
801 North College Street
McKinney, TX 75089
Common David Schoon 100,000(13) 1.0% -- 1.0%
6400 West Gross Point Road
Niles, IL 60741-4508
Common All directors and executive 8,148,562(14) 59.1% * 59.1%
officers as a group
(8 persons)
- --------------
</TABLE>
-49-
<PAGE> 58
*Less than one percent.
(1) Beneficial ownership is determined in accordance with rules of the
Commission, and includes generally voting power or investment power with
respect to securities. Shares of Common Stock subject to warrants and
options currently exercisable within 60 days are deemed outstanding for
computing the percentage ownership of the person holding the warrants or
options but are not deemed outstanding for computing the percentage
ownership of any other person. Except as indicated in footnotes to this
table, the persons named in the table above have sole investment power
with respect to all shares of Common Stock shown as beneficially owned by
them.
(2) Excludes an option to purchase 300,000 shares and a Directors Warrant to
purchase 100,000 shares at $0.875 per share held by Ms. Feldman's husband,
Stephen R. Feldman, at $0.875 per share (see "Compensation Committee
Interlocks and Insider Participation.") Mrs. Feldman disclaims
beneficial ownership of the options or warrants and the underlying shares
of Common Stock to be acquired by Mr. Feldman upon exercise thereof.
(3) Includes (i) 3,075,450 shares of Common Stock owned of record by Mr. Blum
(including 500,000 shares issued to him in connection with the October 20,
1995 Company debt refinancing), (ii) 75,000 shares of Series B Preferred
Stock held by the Blum Family Trust U/A/D May 9, 1990 which are
convertible into 27,600 shares of Common Stock, (iii) 100,000 Directors
Warrants exercisable at $0.875 a share, and (iv) warrants held by BAT to
purchase a maximum of 625,000 shares of Common Stock at $0.333 per share.
Does not includes the potential issuance of warrants to purchase up to
1,250,000 additional shares of Common Stock issuable under certain
conditions in connection with certain financing accomodations which will
be provided by Mr. Blum in the event of the Company's contemplated debt
refinancing. See "Compensation Committee Interlocks and Insider
Participation."
(4) Messrs. Rey and Bonvin are trustees of Caisse De Retraite Et De Prevoyance
Du Personnel en Seignant Du Canton Du Valais, a Cantonal teachers' pension
fund. At any time prior to any exercise of a certain warrant currently
held by the Caisse De Retraite (see Note (5) below), the Series B
Preferred Stock owned by the Caisse De Retraite may be converted into
736,000 shares of Common Stock. Such Trustees may presently be deemed the
beneficial holders of such shares of Common Stock since they maintain the
requisite votes to effectuate such conversion or exercise such warrant in
lieu of conversion.
(5) At the holder's option, at any time prior to any exercise of a certain
warrant currently held by the Caisse De Retraite, all shares of Series B
Preferred Stock owned by each holder (but not a portion thereof) can be
immediately converted into shares of Common Stock at the rate of .368
shares of Common Stock for each share of Series B Preferred Stock. Such
warrant, issued in May 1995 as part of an amendment to the terms of the
Series B Preferred Stock, is exercisable between September 30, 1995 and
March 31, 2000, and may be exercised by the holder only in lieu of
converting its or their shares of Series B Preferred Stock into Common
Stock. The warrant entitles each holder to purchase the same number of
shares of Common Stock into which its or their Series B Preferred Stock
would be convertible (an aggregate of 736,000 shares) at an exercise price
equal to $0.68 below the mean average closing price of the Company's
publicly traded Common Stock over a 30 day period prior to exercise
(subject to a minimum exercise price of $.50 per share). Such warrant and
its underlying shares of Common Stock are restricted securities and will
not be registered by the Company under the Securities Act of 1933, as
amended, including the Registration Statement of which this Prospectus is
a part. See "Description of Securities -
Series B Preferred Stock."
(6) Consists of Series E Preferred Stock owned by Ms. Mischel which may be
converted into 110,400 shares of Common Stock (at the rate of 0.368 shares
of Common Stock for each share of Series E Preferred Stock). The Series E
Preferred Stock is subject to mandatory redemption at $1.00 per share
(plus all unpaid accrued dividends) under certain circumstances. See
"Description of Securities - Series E Preferred Stock."
(7) Includes (i) 110,400 shares issuable upon conversion of Series E Preferred
Stock owned by Ms. Mischel; (ii) 200,000 shares of Common Stock owned by
Blue Diamond Trading, Ltd., a company owned by Ms. Mischel; (iii) 100,000
Creditors Shares issuable to SWH&M, a law firm with which Ms. Mischel is
affiliated; and (iv) 2,500 additional shares owned directly by Ms.
Mischel. See "Selling Securityholders."
-50-
<PAGE> 59
(8) Consists of (i) 300,000 shares of Common Stock issuable upon exercise of
an option under the 1994 Stock Option Plan, (ii) 100,000 Directors
Warrants exercisable at $0.875 per share, (iii) 43,500 Creditors Shares
to be issued to Mr. Feldman; and (iv) 2,918,842 shares of Common Stock
held by Mr. Feldman's wife, Iris Feldman. Mr. Feldman disclaims
beneficial ownership of any shares held by Iris Feldman.
(9) Consists of 150,000 stock options issued in March 1995 which are
immediately exercisable at $1.25 per share 142,000 shares purchased by Mr.
Magnell for approximately $1.41 per share in the 1995 Private Placement,
and an additional 100,000 five year warrants exercisable at $1.41 per
share issued to Mr. Magnell in June 1995. Does not include 200,000
additional stock options at $1.25 per share through March 31, 2004, which
were issued under Mr. Magnell's employment agreement and are exercisable,
as to 50% in April 1998 and as to the balance commencing April 2001.
(10) Includes options to purchase 120,500 shares of Common Stock.
(11) Consists of five year warrants issued as of October 11, 1995 entitling the
holder to purchase an aggregate of 900,000 shares of Common Stock at an
exercise price of $1.50 per share (the "SGI Warrants"). Such SGI Warrants
were issued in partial consideration for investor relations services to be
rendered pursuant to a one year consulting agreement with SGI. Messrs.
Richard Altshuler and Richard Cooper, the principals of SGI, are each the
beneficial owners of 450,000 of such SGI Warrants. See "Certain
Relationships and Related Transactions."
(12) Includes five year Directors Warrants exercisable at $0.875 per share to
purchase 100,000 shares of Common Stock.
(13) Consists of five year Directors Warrants exercisable at $0.875 per share
to purchase 100,000 shares of Common Stock.
(14) Includes all shares listed in the column entitled "Amount & Nature of
Beneficial Ownership" for Messrs. Stephen R. Feldman, Blum, Magnell,
Rivas, McKillop, Schoon, and Jerry Karlik, the Company's Chief Financial
Officer who holds immediately exercisable warrants to purchase 250,000
shares at $0.875 per share, expiring April 2000.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1989, the Board of Directors of Wico authorized a distribution of
$12,000,000 to Wico's then stockholders. The stockholders gave Wico demand
notes for the amount of the distribution, payable with interest at 12% per
annum to commence following maturity. The loan was made with proceeds of
Wico's bank debt refinancing in June 1989. In 1991, a dividend in the
principal amount of the loans was declared in satisfaction of the stockholders'
obligations thereunder.
In 1992, Bentley J. Blum, a Director and principal stockholder of Wico,
and Stephen R. Feldman, Chairman of the Board and Chief Executive Officer of
Wico, made subordinated loans to Wico, each in the amount of $500,000, bearing
interest at the prime rate plus 1-1/2%, not to exceed 10% per annum, maturing
on July 31, 1994, and each furnished Wico's institutional lender with personal
guarantees in the amount of $1,000,000, as additional collateral to secure
Wico's obligations to the lender. Total interest expense relating to these
loans for the year ended September 30, 1992, amounted to approximately $16,000.
The principal amounts of these subordinated loans were cancelled in connection
with the issuance and sale in 1993 of Wico Series A preferred stock described
below.
In 1993, Wico sold 656,250 shares, 1,000,000 shares and 343,750 shares of
Wico Series A preferred stock to Iris Feldman, a principal stockholder of Wico
and spouse of Stephen R. Feldman, the Blum Family Trust, of which Bentley J.
Blum is a co-trustee and principal beneficiary, and Arthur Radin, who is a
principal shareholder of Feldman Radin & Co., P.C., of which Stephen R.
Feldman is also a principal shareholder, and is the spouse of Miriam E.
Katowitz, a principal stockholder of Wico, respectively, for $1,800,000, the
same net price paid by the unaffiliated purchaser discussed below, consisting
of cash and cancellation of subordinated notes. During 1993, dividends with
respect to Wico Series A preferred stock in the amounts
-51-
<PAGE> 60
of approximately $36,350, $23,850 and $12,500 were paid by Wico to the Blum
Family Trust, Iris Feldman and Arthur Radin, respectively. In September 1993,
1,850,000 of the shares of preferred stock owned by such holders were sold at
the full face amount of such shares ($1,850,000) to eight persons, none of whom
was an officer, director, or affiliate of Wico.
Simultaneously with the issuance of Wico Series A preferred stock
described above, Wico issued 2,000,000 shares of Wico Series A preferred stock
for $1,800,000 (net of selling commissions) cash to a foreign pension plan,
unaffiliated with Wico. These shares of Wico Series A preferred stock were
convertible into 368,000 shares of Wico common stock, approximately 9.2% of the
then issued and outstanding Wico common stock.
In January 1994, the eight persons who acquired Wico Series A preferred
stock in September 1993 as described above, entered into agreements with Wico
to exchange their shares of Wico preferred stock into Wico Series AA preferred
stock on a share-for- share basis. This exchange was completed in March 1994.
The Wico Series AA preferred stock did not contain voting rights or any
liquidation preferences.
In connection with the Wico Merger, the Company also agreed, subject to
the effectiveness of the Registration Statement of which this Prospectus is a
part, to issue the Class B Warrants to each Company stockholder of record on
the close of business on June 20, 1994 (not including any persons or entities
affiliated with Wico who received shares or rights to shares of Common Stock in
connection with the Wico Merger).
Concurrent with the Wico Merger, the stockholders of Wico exchanged their
Wico securities for Company securities and became the controlling stockholders
of the Company. The former holders of Wico Common Stock now own approximately
60% of the issued and outstanding Common Stock of the Company. More
specifically, by the terms of the Wico Merger, and following the exchange of
Wico securities for Company securities: (i) the holders of Wico common stock
acquired record ownership of approximately 6,900,000 shares of Company Common
Stock in exchange for 2,944,000 shares of Wico common stock; (ii) certain
holders of Wico preferred stock acquired record ownership of 2,800,000 shares
of Company Series B Preferred Stock in exchange for 2,800,000 shares of Wico
preferred stock ; and (iii) certain other holders of Wico preferred stock
acquired record ownership of 313,043 shares of Company Common Stock in exchange
for 1,200,000 shares of such Wico preferred stock. All of the options to
purchase Wico common stock granted to Stephen R. Feldman and Edward Sokolofski
under Wico's 1993 Stock Option Plan were converted into options to acquire
536,000 shares of Company Common Stock. The 236,000 Company options issued to
Mr. Sokolofski terminated in September 1995 upon his resignation as an officer
of the Company.
The table on the following page sets forth (i) the number of shares of
Wico common stock owed by the principal owners of Wico common stock and Wico
preferred stock immediately prior to the Wico Merger, (ii) the number of shares
of Company Common Stock (including shares underlying options and Company Series
B Preferred Stock) issued to the owners of such Wico securities pursuant to the
Wico Merger, and (iii) shares of Common Stock then held by other directors and
executive officers and holders of 5% or more of the Company's Common Stock at
the time of the Wico Merger.
-52-
<PAGE> 61
<TABLE>
<CAPTION>
Shares held in the Company
Shares held in Wico Immediately
Prior to the Merger After the Merger
------------------- ----------------
<S> <C> <C>
Iris Feldman . . . . . . . . . . . . . . . . . . . 1,418,300(1) 2,918,842(1)
Greater than 5% holder and
wife of Stephen R. Feldman
Bentley J. Blum . . . . . . . . . . . . . . . . . . 1,251,200(1) 2,575,450(1)(2)
Greater than 5% holder and Director
Paul E. Hannesson . . . . . . . . . . . . . . . . . 417,067(1) 858,483(1)
Miriam Katowitz . . . . . . . . . . . . . . . . . . 250,288(1) 515,090(1)(3)
Victor M. Rivas . . . . . . . . . . . . . . . . . . --- 125,500(4)
Executive Officer and Director
Stephen R. Feldman . . . . . . . . . . . . . . . . 1,418,300 (5) 3,218,842(5)
Felice F. Mischel . . . . . . . . . . . . . . . . 300,000(6) 110,400(6)(7)
Caisse De Retaite . . . . . . . . . . . . . . . . . 2,000,000(6) 736,000(6)
Greater than 5% holder
</TABLE>
- --------------------------------
(1) Represents shares of Common Stock of Wico and of the Company, as
indicated.
(2) Does not include an additional 752,600 shares of Common Stock issuable
upon (i) conversion of 75,000 shares of Series B Preferred Stock held by
the Blum Family Trust U/A/D May 9, 1990 which are convertible into 27,600
shares of Common Stock, (ii) exercise of 100,000 Directors Warrants at
$0.875 a share, and (iii) exercise of warrants held by BAT to purchase a
maximum of 625,000 shares of Common Stock at $0.333 per share. Also does
not includes the issuance in October 1995 of 500,000 shares of Common
Stock to Mr. Blum in connection with the Company senior debt refinancing,
and warrants to purchase up to 1,250,000 additional shares of Common Stock
issuable under certain conditions in connection with the financing
accomodations provided by Mr. Blum at closing of such debt refinancing.
See "Compensation Committee Interlocks and Insider Participation."
(3) Does not include 75,000 shares of Wico preferred stock exchanged in the
Wico Merger for 75,000 shares of Company Series B Preferred Stock which
are owned by Arthur Radin, the husband of Miriam Katowitz. Such shares of
Series B Preferred Stock are immediately convertible into 27,600 shares of
Company Common Stock. Mr. Radin is a principal stockholder in Feldman
Radin & Co., P.C., an accounting firm in which Stephen R. Feldman, the
Chairman of the Board and principal stockholder of the Company is also a
principal stockholder. Mr. Radin will also receive an additional 43,500
Creditors Shares as of the Effective Date. Mr. Radin disclaims beneficial
ownership of any shares held by Miriam Katowitz. See "Business -
Settlement with Certain Creditors" and "Selling Securityholders."
(4) Consists of 5,000 shares of Common Stock and options to purchase 120,500
additional shares of Common Stock
(5) Consists of (i) 300,000 shares of Common Stock issuable upon exercise of
options under the 1994 Stock Option Plan granted to Stephen R. Feldman in
the Wico Merger, and (ii) 2,918,842 shares of Common Stock issued to Iris
Feldman in the Wico Merger in exchange for 1,418,300 shares of Wico common
stock owned by her. Iris Feldman is the wife of Stephen R. Feldman. Mr.
Feldman disclaims beneficial ownership of any shares held by Iris Feldman.
Does not include: (i) 100,000 Directors Warrants exercisable at $0.875 per
share, which were subsequently issued to Stephen R. Feldman, or (ii)
43,500 Creditors Shares issuable to Mr. Feldman on the Effective Date.
See "Management - Compensation Committee Interlocks and Insider
Participation" and "Selling Securityholders."
(6) Represents (i) 2,000,000 shares of Wico preferred stock owned by Caisse De
Retraite exchanged for 2,000,000 shares of Company Series B Preferred
Stock in the Wico Merger; which Series B Preferred Stock is immediately
convertible into 736,000 shares of Common Stock; and (ii) 300,000 shares
of Wico preferred stock owned by Felice F. Mischel exchanged for 300,000
shares of Company Series B
-53-
<PAGE> 62
Preferred Stock in the Wico Merger; which Series B Preferred Stock is
immediately convertible into 110,400 shares of Common Stock.
(7) Does not include: (i) 100,000 shares of Wico preferred stock exchanged in
the Wico Merger for 100,000 shares of Company Series B Preferred Stock
(immediately convertible into 36,800 shares of Common Stock) which was
owned by Edward Weltman, the law partner of Felice F. Mischel; (ii)
202,500 shares of Company Common Stock issued to Ms. Mischel, for nominal
consideration, upon exercise of warrants granted to her in connection with
the Wico Merger; and (iii) 100,000 Creditors Shares issuable to Schneck
Weltman Hasmall & Mischel LLP, a law firm in which Ms. Mischel and Mr.
Weltman are partners. The shares of Series B Preferred Stock issued to
Ms. Mischel and Mr. Weltman, together with 400,000 additional shares of
Series B Preferred Stock issued to certain other individuals were
exchanged by the Company in June 1995 for Series E Preferred Stock
(convertible into the same number of shares of Company Common Stock) which
Series E Preferred Stock is redeemable at the option of the holders under
certain conditions. See below and "Selling Securityholders."
In connection with the loan agreement dated June 14, 1989, as amended,
between Wico Corporation and the Bank, Bentley J. Blum, Iris Feldman, Miriam
Katowitz and Paul E. Hannesson (collectively, the "Pledgors") pledged to the
Bank, for itself and as agent, all of the outstanding capital stock of Wico
Corporation then owned or thereafter acquired by each of them. On June 20,
1994, such shares of capital stock were exchanged into shares of capital stock
of the Company in accordance with the Wico Merger. Upon the occurrence of an
event of default (as defined), any and all shares of pledged stock held by the
Bank may, at the option of the Bank or its nominee, be registered in the name
of the Bank or its nominee, and the Bank or its nominee will succeed to all
rights pertaining to such shares. Events of default under the credit agreement
include any failure to pay installments of principal or interest when due
(including indebtedness to the Company's revolving credit lender), failure to
comply with various financial ratios and earnings tests beyond any applicable
grace periods, and customary cross-default and bankruptcy-related occurrences.
In connection with the October 20, 1995 refinancing of the Company's
senior secured indebtedness the Bank, as Wico's term lender under the restated
senior secured term loan continued to retain under a restated pledge agreement
all such shares of Company Common Stock now or hereafter owned by the Pledgors.
In connection with the Wico Merger, Wico was required by the Bank to
prepay $4,000,000 of the term loan and either (a) prepay an additional
$1,000,000 and repurchase the Bank Warrant for an additional $1,000,000, or (b)
pay the Bank a fee of $375,000 and increase the rate of interest payable under
the term loan by 1-1/2% per annum. The Company selected the second option and
paid $200,000 on December 15, 1994. In connection with the senior debt
refinancing in October 1995, the Company agreed to pay the Bank the $175,000
balance, without interest, in 16 equal quarterly installments of $10,937.50,
commencing January 1997 and payable on the first day of each succeeding April,
July, October and January.
Felice F. Mischel and Edward Weltman, partners in the law firm of Schneck
Weltman Hashmall & Mischel LLP ("SWH&M"), owned 300,000 and 100,000 shares of
Series B Preferred Stock, respectively, which they received upon the Wico
Merger, in exchange for an identical number of shares of Wico Series AA
preferred stock which had been purchased by them in 1993 for $300,000 and
$100,000, respectively. Such shares of Series B Preferred Stock were
convertible into 110,400 and 36,800 shares of Common Stock. In June 1995, the
holders of 800,000 shares of Series B Preferred Stock, including Ms. Mischel
and Mr. Weltman, agreed to exchange such shares for 800,000 shares of Series E
Preferred Stock. Each share of Series E Preferred Stock is convertible into
0.368 shares of Common Stock (the same conversion ratio as the Series B
Preferred Stock). However, the holders of the Series E Preferred Stock have
the right to compel redemption of such Series E Preferred Stock at $1.00 per
share (a maximum of $800,000) in the event that the Company consummates a
public offering of securities (including, if applicable, the Company shares in
this offering) and receives proceeds of $3,000,000 or more. See "Description
of Securities - Series E Preferred Stock." The 294,400 shares of Common Stock
issuable upon conversion of the Series E Preferred Stock are being registered
for sale in the Registration Statement of which this Prospectus is a part. See
"Selling Securityholders."
In connection with the Wico Merger, Blue Diamond Trading Ltd., a company
owned by Ms. Mischel, was granted warrants to purchase 200,000 shares of Common
Stock, exercisable for a period of ten years at a price of $.001 per share (the
"Blue Diamond Warrant"), as a fee for the introduction of the Company to
-54-
<PAGE> 63
Wico. In June 1995, the Blue Diamond Warrant was exercised in full. In
addition, in July 1994, Ms. Mischel arranged for a private secured loan to be
made to her in the amount of $500,000, which in turn, was loaned to the Company
on an unsecured basis. This loan has been repaid. In consideration for making
such loan, the Company paid a fee of $50,000 to Ms. Mischel which fee was paid
over by her directly to the private lender. The Company also issued warrants
to purchase 2,500 shares of Common Stock, exercisable at a price of $.001 per
share for a period of five years to each the private lender and Ms. Mischel.
Prior to the Wico Merger, SWH&M acted as general counsel to each of Wico and
the Company. Ms. Mischel was also a director of the Company until June 20,
1994 (although she abstained from voting in connection with the Wico Merger).
SWH&M did not act as counsel to either Wico or the Company in connection with
the Wico Merger.
In June 1995, the Company entered into an agreement with SWH&M pursuant to
which SWH&M agreed to accept an aggregate of 100,000 shares of Common Stock (at
a price of $2.00 per share) in exchange for the extinguishment of approximately
$200,000 of accrued professional fees owed to such firm by the Company. Such
agreement also provided that SWH&M would be a Selling Securityholder with
respect to such 100,000 Creditors Shares.
In 1994, the Company accrued approximately $163,000 for professional
accounting and tax services rendered to Wico by Feldman Radin & Co., P.C.,
approximately $38,000 of which has been paid to date. An additional $125,000
of accounting and tax services were rendered by such firm to the Company in
fiscal 1995. Stockholders of Feldman Radin & Co., P.C. have agreed to accept
on the Effective Date of this Prospectus an aggregate of 125,000 Creditors
Shares in exchange for $250,000 of accrued obligations owed to Feldman Radin &
Co., P.C. by the Company and assigned by such firm to its stockholders in
September 1995. It is anticipated that Feldman Radin & Co., P.C. will continue
to furnish professional accounting and tax services to the Company upon
competitive terms.
On October 12, 1995, the Company entered into a one year consulting
agreement effective as of October 11, 1995 with SGI, pursuant to which SGI
agreed to establish a comprehensive investor relations program for the Company,
including relations with the financial community, providing research coverage
and general public and investor relations. For its services, the Company
agreed to pay SGI a fee of $7,000 per month and issued the SGI Warrants. Such
SGI warrants expire October 11, 2000, and entitle SGI and its affiliates to
purchase up to 900,000 shares of Company Common Stock at an exercise price of
$1.50 per share (the closing sale price of the Company's Common Stock on NASDAQ
on the effective date of grant). Pursuant to the terms of the consulting
agreement, the Company granted SGI certain future registration rights with
respect to shares of Common Stock issuable upon exercise of such SGI Warrants.
DESCRIPTION OF SECURITIES
GENERAL
The Company's Certificate of Incorporation authorizes the Company to issue
25,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock. The
Company's outstanding capital stock as of the date hereof consists of
11,945,824 shares of Common Stock (including 2,082,147 shares sold in the 1995
Private Placement), 7,550 shares of convertible Series A Preferred Stock,
2,000,000 shares of convertible Series B Preferred Stock, and 800,000 shares of
convertible Series E Preferred Stock.
COMMON STOCK
Subject to the rights of the holders of the Preferred Stock, and any
shares of Preferred Stock which may be issued in the future, holders of shares
of Common Stock are entitled to cast one vote for each share held at all
stockholders' meetings for all purposes, including the election of directors.
Common stockholders have the right to share ratably in such dividends on
shares of Common Stock as may be declared by the Board of Directors out of
funds legally available therefor. Upon liquidation, dissolution or winding up
of the affairs of the Company, each outstanding share of Common Stock will be
entitled to share equally in the assets of the Company legally available for
distribution to stockholders after the payment of all debts and liabilities,
subject to the rights of the holders of Preferred Stock then outstanding.
-55-
<PAGE> 64
Common stockholders have no preemptive rights. There are no conversion or
redemption privileges or sinking fund provisions with respect to the Common
Stock. All of the outstanding shares of Common Stock are, and all of the
shares of Common Stock issued upon conversion of currently outstanding
Preferred Stock will be, validly issued, fully paid and non-assessable.
The holders of shares of Common Stock do not have cumulative voting
rights, which means that the holders of more than 50% of the Company's voting
securities (including the Series A, Series B and Series E Preferred Stock,
voting one vote per share with the Common Stock as a single class), voting for
the election of Directors, can elect all of the Directors to be elected, if
they so choose; and in such event, the holders of the remaining shares will not
be able to elect any of the Company's directors.
Section 203 of the Delaware General Corporation Law provides that a
corporation shall not engage in any business combination with any interested
stockholder for a period of three years following the date that such
stockholder became an interested stockholder (the "Date"). An interested
stockholder is defined as an owner of 15% or more of the outstanding voting
stock of the corporation. A business combination is allowed under certain
circumstances, including, among other provisions, if prior to the Date, the
Board of Directors of the corporation approved the business combination or the
transaction which resulted in the stockholder becoming interested.
Accordingly, pursuant to Section 203, the Company cannot, for a period of three
years commencing June 20, 1994, enter into a business combination with Iris
Feldman or Bentley J. Blum. Both Ms. Feldman and Mr. Blum became interested
stockholders pursuant to the Wico Merger.
PREFERRED STOCK
The Board of Directors is authorized to issue shares of Preferred Stock,
from time to time in one or more series. The Board may issue a series of
Preferred Stock having the right to vote on any matter submitted to
stockholders, including, without limitation, the right to vote by itself as a
series, or as a class together with the Common Stock and/or any other or all
series of Preferred Stock. The Board of Directors may determine that the
holders of Preferred Stock voting as a class will have the right to elect one
or more additional members of the Board of Directors, or the majority of the
members of the Board of Directors. In the event the holders of Preferred Stock
are given the right to elect a majority of the Board of Directors, the holders
of the Preferred Stock would be able to control the Company's policies and
affairs.
The Board of Directors may also grant to holders of any series of
Preferred Stock, preferential rights to dividends and amounts payable in
liquidation. Furthermore, the Board of Directors may determine whether the
shares of any series of Preferred Stock may be convertible into shares of
Common Stock or any other series of Preferred Stock at a specified conversion
price or rate, and upon other terms and conditions as determined by the Board
of Directors.
The power of the Board of Directors to issue Preferred Stock with
preferential voting, dividend and other rights may make the Company a less
attractive acquisition candidate. Such power may also discourage or impede
offers to acquire the Company not approved by the Board of Directors, including
offers for some or all of the shares of any class or series of the Company's
capital stock at substantial premiums above the then current market value of
such shares.
As at the date of this Prospectus, there were outstanding (i) 7,550 shares
of Series A Preferred Stock convertible, at any time at the option of the
holders, into a total of approximately 6,040 shares of Common Stock; (ii)
2,000,000 shares of Series B Preferred Stock convertible, at any time at the
option of the holders, into a total of 736,000 shares of Common Stock (or in
lieu thereof, subject to a warrant entitling the holder to purchase the same
number of shares of Common Stock into which the Series B Preferred Stock is
convertible), and (iii) 800,000 shares of Series E Preferred Stock convertible,
at any time at the option of the holders, into a total of 294,400 shares of
Common Stock.
Series A Preferred Stock
The holders of Series A Preferred Stock are entitled to one vote per share
voting together with holders of Common Stock as one class. Dividends are
payable semiannually in cash or in additional shares of Series A Preferred
Stock at the Company's discretion, when and if declared by the Board of
Directors. Each share of Series A Preferred Stock is redeemable by the
Company, at its option, for $9.25 per share plus accumulated dividends, upon
not less than 30 days nor more than 60 days written notice, provided the
closing bid price
-56-
<PAGE> 65
of the Company's Common Stock is at least $3.00 for 30 consecutive business
days ending within 15 days prior to the notice of redemption. Each share of
Series A Preferred Stock is convertible into 0.8 shares of Common Stock,
subject to adjustment under certain circumstances. There are currently 7,550
shares of Series A Preferred Stock outstanding.
Series B Preferred Stock
The holders of Series B Preferred Stock are entitled to one vote per share
voting together with holders of Common Stock as one class. Dividends are
payable semiannually before any dividends are declared and paid on the Common
Stock, but after dividends are declared and paid on the Series A Preferred
Stock, in cash only, when and if declared by the Board of Directors. Each
share of Series B Preferred Stock is redeemable by the Company, at its option,
for $1.00 per share plus accumulated dividends (payable in cash or other
consideration as the Company and the holders of a majority of Series B
Preferred Stock may agree), upon not less than 30 days written notice. In the
event of such optional redemption by the Company, at least an aggregate of
100,000 shares, or an integral multiple thereof, must be redeemed and
repurchased. The Series B Preferred Stock was also subject to mandatory
redemption by the Company at $1.00 per share under certain conditions, if
requested by the holders of a majority of such Series B Preferred Stock. The
liquidation amount is subordinate to the Series A Preferred Stock and is $1.00
per share plus accumulated dividends. The holders of the Series B Preferred
Stock may elect to convert the Series B Preferred Stock into Common Stock as
described below.
In May 1995, the Series B Preferred Stock was amended so as to eliminate
all mandatory redemption rights of the holders of the Series B Preferred Stock.
In consideration of such amendments, the holders of the outstanding shares of
Series B Preferred Stock were issued warrants to purchase an aggregate of
1,030,400 shares of Common Stock (although 294,400 of such warrants were
thereafter cancelled in conjunction with the exchange of 800,000 shares of
Series B Preferred Stock for 800,000 shares of Series E Preferred Stock as
described below). Such remaining outstanding warrants, entitling the holders
to purchase an aggregate of 736,000 shares of Common Stock, are exercisable at
any time from September 30, 1995 through March 31, 2000, at an exercise price
per share equal to an amount which is $.68 less than the mean average closing
price of the Common Stock during the 30 calendar day period ending on the day
before the date of exercise (subject to a minimum price of $.50 per share).
Each holder of Series B Preferred Stock has reserved the right to convert, at
any time prior to any exercise of any of such holder's warrants, all (but not
less than all) of such holder's shares of Series B Preferred Stock into a
number of shares of Common Stock equal to the total number of shares then
issuable upon the exercise in full of such holder's aforesaid warrant (a
conversion ratio of 0.368 shares of Common Stock for each share of Series B
Preferred Stock). Upon each such conversion of Series B Preferred Stock into
Common Stock, such holder's warrants automatically terminate.
Series E Preferred Stock
In May 1995, the holders of 800,000 shares of Series B Preferred Stock
agreed to exchange such shares of Series B Preferred Stock, on a
share-for-share basis, for 800,000 shares of new Series E Preferred Stock of
the Company. In conjunction with such exchange, the warrants issued to such
holders in May 1995 (in conjunction with the amendment of the Series B
Preferred Stock) were cancelled.
The Series E Preferred Stock (a) is entitled to one vote per share, voting
together with the Common Stock as a single class, (b) bears dividends payable
semi-annually before any dividends are declared and paid on the Common Stock,
but pari passu with the dividends on the Series B Preferred Stock, (c) is
entitled to a preference of $1.00 per share on liquidation, dissolution or
winding up of the Company (such amount to be junior to the liquidating
preferences in respect of the Series A Preferred Stock, pari passu with the
liquidation preferences in respect of the Series B Preferred Stock, and senior
to any distributions in respect of the Common Stock), (d) is redeemable at the
Company's option at any time and from time to time at a price of $1.00 per
share, (e) may be converted into Common Stock at any time at the rate of 0.368
shares of Common Stock for each share of Series E Preferred Stock (subject to
adjustment under certain circumstances), and (f) is subject to mandatory
redemption, at the option of the holder, upon the consummation by the Company
of a public offering of its securities in which the Company receives gross
proceeds of $3,000,000 or more.
-57-
<PAGE> 66
WARRANTS
The description of the various warrants set forth below do not include the
Company's 195,000 outstanding Public Warrants exercisable at $5.00 per share
through June 20, 1999, and, in addition, do not include: (i) five year warrants
to purchase an aggregate of 650,000 shares of Common Stock at $0.875 per share,
including the Affiliate Warrant, which were issued in April 1995 to the
Company's Chief Financial Officer and to four members of the Board of Directors
of the Company, (ii) five year warrants to purchase 100,000 shares of Common
Stock at $1.41 per share issued in June 1995 to the Company's President, or
(iii) five year warrants which may be issued under certain conditions, at the
rate of 250,000 warrants per year over a five year period, in connection with
the proposed refinancing of the Company's senior secured indebtedness, which,
if issued, would entitle Bentley J. Blum, a director and principal stockholder
of the Company to purchase up to a maximum of 1,250,000 shares of Common Stock
at exercises prices equal to the closing sale price of the Company's Common
Stock, as reported on NASDAQ of each date such contingent warrants are issued.
See "Management - Compensation Committee Interlocks and Insider Participation."
Class B Warrants
In connection with the Wico Merger, and subject to the effectiveness of
the Registration Statement of which this Prospectus is a part, in June 1994 the
Company authorized for issuance an aggregate of 1,961,925 Class B Warrants to
the holders of Common Stock on the close of business on the effective date of
the Wico Merger (not including any persons or entities receiving shares or
rights to shares of Common Stock in connection with the Wico Merger).
Each of the Class B Warrants will entitle the holder thereof to purchase
one share of Common Stock at an exercise price of $5.00 per share until June
20, 1999, when the warrants expire.
The Company may redeem the Class B Warrants, at a price of $.10 each, in
whole or in part, at the option of the Company, provided that the bid price of
the Common Stock is at least $6.84 for five consecutive trading days ending 15
days prior to the date of the notice of redemption. The Class B Warrants may
not be redeemed at any time when holders are unable to exercise due to the
absence of a current registration statement although the absence of the
registration statement will not extend the expiration date. In the event that
the Company exercises its right to redeem the Class B Warrants, such Warrants
will be exercisable until the close of business on the date immediately prior
to the date fixed for redemption in such notice. If any Class B Warrant or
Private Placement Warrant called for redemption is not exercised by such time,
it will cease to be exercisable and the holder thereof will be entitled only to
the redemption price.
In order for a holder to exercise a Class B Warrant, there must be a
current registration statement on file with the Commission relating to the
shares of Common Stock underlying the Class B Warrants, and such shares must be
registered or qualified for sale under the securities laws of the state in
which such warrantholder resides. The Company will be required to file
post-effective amendments to the Registration Statement filed in connection
with the issuance of such Class B Warrants when events require such amendments.
There can be no assurance that such Registration Statement (or any other
registration statement filed by the Company to cover shares of Common Stock
underlying the Class B Warrants) will be kept current. If a registration
statement covering such shares of Common Stock is not kept current for any
reason, or if the shares underlying the Class B Warrants are not registered in
the state in which a holder resides, the Class B Warrants will not be
exercisable and the holders thereof will be deprived of any value therefor.
1994 Private Placement Warrants
Pursuant to the terms of the 1994 Private Placement, the holders of the
Company's 10% $2,737,500 convertible Private Placement Notes due October 1,
1996 are entitled to receive, upon conversion of such Private Placement Notes
into 1994 Private Placement Conversion Shares, a 1994 Private Placement Warrant
entitling such holder to purchase shares of Company Common Stock, at the rate
of 0.02 shares for each $1.00 of Private Placement Notes so converted int
Private Placement Conversion Shares. In the event all $2,737,500 of 10%
Private Placement Notes are converted into Private Placement Conversion Shares,
an aggregate of 54,750 Private Placement Warrants would be issued. The Private
Placement Warrants entitle the holder to purchase Company Common Stock at an
exercise price of $11.75 per share at any time prior to June 20, 1999, when the
1994 Private Placement Warrants expire. The 1994 Private Placement Warrants
are redeemable at the option of the Company, upon 30 days' written notice at
any time, provided the closing bid
-58-
<PAGE> 67
price of the Company's Common Stock, as traded on NASDAQ or in the
over-the-counter market, is at least $6.84 for five consecutive days ending on
the day prior to the date of any notice of redemption. The Private Placement
Warrants are exercisable until the close of business on the day preceding the
date fixed for redemption. Holders of 1994 Private Placements Warrants, if and
when issued, are entitled to certain registration rights related to such
Warrants and the underlying shares of Common Stock.
BAT Warrants
In conjunction with the issuance of Series D Preferred Stock and the
borrowing of a $150,000 loan, the Company issued to the Blum Asset Trust
("BAT"), an affiliate of Bentley J. Blum, certain warrants (the "BAT
Warrants"). The BAT Warrants originally entitled the holder thereof to
purchase, at any time on or before February 15, 2000, up to 1,050,000 shares of
Common Stock at a price of $.3333 per share (subject to adjustment under
certain circumstances). In connection with the redemption of the Series D
Preferred Stock and the repayment of such $150,000 loan in July 1995, 425,000
of the BAT Warrants were cancelled, leaving 625,000 BAT Warrants outstanding.
SGI Warrants
In connection with a one year investor relations consulting agreement
entered into as of October 11, 1995, the Company issued five year warrants
entitling SGI to purchase an aggregate of 900,000 shares of Company Common
Stock at an exercise price of $1.50 per share (the closing sale price of the
Company's publicly traded Common Stock on the date of issuance). See "Certain
Relationships and Related Transactions."
Underwriter's Warrants
Pursuant to the Company's prospectus dated April 23, 1993, the Company
sold to Lew Lieberbaum & Co., Inc., the underwriter in that transaction (the
"Underwriter"), 53,241 Warrants (the "Underwriter's Warrants") which entitled
the Underwriter to purchase 53,241 units of securities (the "Units") at an
aggregate exercise price of $10.00 per Unit for a period of four years
commencing on the date of such prospectus. Each Unit consists of one share of
Common Stock and one warrant to purchase one share of Common Stock. In June
1994, the Underwriter's Warrants were exchanged for new Underwriter's Warrants
comprised of an aggregate of 53,241 shares of Common Stock and 53,241 Class Z
Warrants to purchase Common Stock.
Class Z Warrants
As a component of the Underwriter's Warrants, the Underwriter may purchase
units which are comprised of one share of Common Stock and one Class Z Warrant
at an exercise price of $10.00 per Warrant. The Class Z Warrant is exercisable
for one share of Common Stock at an exercise price of $1.00 per share. The
Class Z Warrants are exercisable for a period of four years commencing on the
effective date of the Registration Statement of which this Prospectus is a
part.
DIVIDENDS
The holders of Common Stock are entitled to receive such dividends, if
any, as may be declared from time to time by the Board of Directors, in its
discretion, from funds legally available therefor. The Company has never paid
dividends on its Common Stock, and it currently intends to retain all earnings
for use in its business. Accordingly, it is anticipated that no dividends will
be paid in the foreseeable future.
STOCKHOLDER REPORTS
The Company distributes annual reports to its stockholders containing
audited financial statements with a report thereon by independent certified
public accountants after the end of each fiscal year. In addition, the Company
may furnish to its stockholders quarterly reports for the first three quarters
of each fiscal year containing unaudited financial statements and other
information after the end of the fiscal quarter.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Certificate of Incorporation and By-Laws of the Company provide that
the Company shall indemnify to the fullest extent permitted by Delaware law any
person whom it may indemnify thereunder, including directors, officers,
employees and agents of the Company. Such indemnification (other than as
ordered by
-59-
<PAGE> 68
a court) shall be made by the Company only upon a determination that
indemnification is proper in the circumstances because the individual met the
applicable standard of conduct. Advances for such indemnification may be made
pending such determination. Such determination shall be made by a majority
vote of a quorum consisting of disinterested directors, or by independent legal
counsel or by the stockholders. In addition, the Certificate of Incorporation
provides for the elimination, to the extent permitted by Delaware law, of
personal liability of directors to the Company and its stockholders for
monetary damages for breach of fiduciary duty as directors. This provision
does not affect the standard of conduct with which directors must comply, the
availability of equitable relief, and causes of action based upon federal law,
including the federal securities laws.
The Company maintains directors and officers insurance and company
reimbursement policy. The policy insures directors and officers against
unindemnified losses arising from certain wrongful acts in their capacities and
would reimburse the Company for such losses for which the Company has lawfully
indemnified the directors and officers.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
TRANSFER BANK AND REGISTRAR
The transfer agent for the Common Stock and Warrant Bank for the Company's
Warrants is American Stock Transfer & Trust Company, New York, New York.
SELLING SECURITYHOLDERS
All securities offered for the account of Selling Securityholders (i) are
issuable to such individuals pursuant to the terms of the Company's 1994
Private Placement, as amended, (ii) were issued as part of or in connection
with the Wico Merger, (iii) were issued or are issuable upon the exercise of
Warrants currently outstanding or to be issued on or immediately after the
Effective Date, or upon conversion of outstanding Series B Preferred Stock and
Series E Preferred Stock, (iv) are issuable to creditors of the Company who
have agreed to accept Creditors Shares in payment of outstanding obligations
owed to such creditors by the Company or (v) were issued pursuant to the 1995
Private Placement of 2,082,147 shares of Common Stock. Upon the sale of the
securities offered by each Selling Securityholder, except as otherwise noted,
he/she will, to the best of the Company's knowledge, have no further beneficial
interest in the Company's securities.
<TABLE>
<CAPTION>
Beneficial Ownership
after the Offering
Common if all Shares and
Stockholder Stock Warrants Warrants are Sold
----------- ------ -------- --------------------
<S> <C> <C>
Steven M. Johnson 31,250(1) *
Helen G. Johnson
Wood Alexander Breazeale III 10,417(1) *
John A. Nelson 10,417(1) *
Robert W. Vonderhorst 10,417(1) *
Mitchell S. Rothstein 83,332(1) *
Terence D. Jung 10,417(1) *
</TABLE>
-60-
<PAGE> 69
<TABLE>
<CAPTION>
Beneficial Ownership
after the Offering
Common if all Shares and
Stockholder Stock Warrants Warrants are Sold
----------- ------ -------- --------------------
<S> <C> <C>
Michael T. Merlob 20,833(1) *
Richard S. Gebelein 10,417(1) *
Jan Arnett 20,833(1) *
Scott W. Waters, Jr. 41,666(1) *
Julian Lee Johnson, IRA 41,666(1) *
Oppenheimer & Company, Inc. C/F
Marion J. Creel 10,417(1) *
Alexander Properties Group, Inc.
c/o Andrew Alexander 10,417(1) *
Marvin Numeroff (TE) 83,332(1) *
Nancy Davis 83,332(1) *
Kenneth D. Rickel Trustee 41,666(1) *
Evelyn Rickel Grantor
Retired Income Trust
Kenneth D. Rickel Trustee
Robert Rickel Grantor
Retired Income Trust 41,666(1) *
Oppenheimer & Company, Inc. C/
Helen R. Hernandez 41,666(1) *
Oppenheimer & Company, Inc. C/F
Luis Hernandez 20,833(1) *
William A. Cauldwell 20,833(1) *
Dennis P. Smith 20,833(1) *
Charles H. Vath 10,417(1) *
Theresa Karwacki C/F
Nicole D. Karwacki 10,417(1) *
Theresa Karwacki C/F
Jason P. Karwacki 10,417(1) *
Oppenheimer & Company, Inc. C/F
M. Steven Shannon, IRA 20,833(1) *
James B. Perry and
Judith A. Perry 20,833(1) *
Hugh M. Lokey 10,417(1) *
David Safar C/F
Elena Safar UGMA N.J. 10,417(1) *
Rachelle Safar 10,417(1) *
David and Rachelle Safar (JT) 10,417(1) *
Jeffrey E. Baker 187,497(1) *
Sol Feldman 83,332(1) *
Ken Holmgren and
Alicia Holmgren (TE) 41,666(1) *
Oppenheimer & Company, Inc. C/F
Alice W. Baldwin, IRA 31,250(1) *
Alice W. Baldwin 72,916(1) *
</TABLE>
-61-
<PAGE> 70
<TABLE>
<CAPTION>
Beneficial Ownership
after the Offering
Common if all Shares and
Stockholder Stock Warrants Warrants are Sold
----------- ------ -------- --------------------
<S> <C> <C> <C>
Allen Thomas Davis, Jr. 20,833(1) *
E. Hoke Sullivan 20,833(1) *
Del. Charter Guarantee & Trust Co.
TTEE FBO: H. Werner Teichert 20,833(1) *
Oppenheimer & Company, Inc. C/F
Jaya Padmanabhan, MD (IRA) 166,664(1) *
Jaya Padmanabhan 125,000(1) *
Oppenheimer & Company, Inc. C/F
Waters Bros. Enterprises, Inc.
Profit Sharing Plan & Trust 83,332(1) *
Oppenheimer & Company, Inc. C/F
Waters Bros. Ent., Inc.
Pension Plan & Trust 41,666(1) *
Oppenheimer & Company, Inc. C/F
Beauchamp Hardware Supply, Inc.
Profit Sharing Plan & Trust
F/B/O Eustis W. Beauchamp and
Patricia Beauchamp co-TTES and
co-Custodians DTD 2/25/92 20,833(1) *
Oppenheimer & Company, Inc. C/F
K.C. Padmanabhan, IRA 10,417(1) *
O. Gray Sheppard, Jr. 28,833(1) *
Donna Franco 10,417(1) *
Cornelius N. Vetten 10,417(1) *
Lois M. Ritter 41,666(1) *
Winifred L. Libby Trust
Winifred L. Libby TTEE 62,500(1) *
David G. and Maria Hauser (JT) 10,417(1) *
Wayne Malen 83,332(1) *
Jeffrey Feldman 20,833(1) *
Saul and Shelly Pomerantz (TE) 20,833(1) *
Alan Feldman 20,833(1) *
Kenneth Hollins 20,833(1) *
Frederic J. Paschkes 20,833(1) *
Michael Schneider 20,833(1) *
Wayne Batson 10,417(1) *
Wade H. Hicks III 20,833(1) *
Harold A. Wright and
Sue Wright 10,417(1) *
Thomas A. Grillo 20,833(1) *
Robert E. Woodard 20,833(1) *
Trisha Hawthorne 41,666(1) *
Oppenheimer & Company, Inc. C/F
William D. McGaha, IRA 10,417(1) *
</TABLE>
-62-
<PAGE> 71
<TABLE>
<CAPTION>
Beneficial Ownership
after the Offering
Common if all Shares and
Stockholder Stock Warrants Warrants are Sold
----------- ------ -------- --------------------
<S> <C> <C> <C>
Robert R. Pavese 20,833(1) *
Robert R. Pavese TTEE u/w/o
Lynn Kolp FBO Chris Kolp u/w/o 10,417(1) *
Wesley Weili Pan and 10,417(1) *
Jian Zhang (JT)
Hector E. Perez 10,417(1) *
Fred K. Ogilvie 10,417(1) *
Caisse De Retraite
Et De Prevoyance
Du Personnel en
Seignant Du Canton
Du Valais 736,000(2) - *
Felice F. Mischel 110,400(2) *
Edward Weltman 36,800(2) *
Arthur Radin 27,600(2) *(13)
Blum Family Trust 27,600(2) *
Richard M. Brooks 9,568(2) *
Howard Levin 5,152(2) *
Ronald Feldman
as Trustee for Julie 22,080(2) *
and Melissa Levin
717 Associates 55,200(2) *
Blue Diamond Trading Ltd. 200,000(3) *
Felice F. Mischel 2,500(4) *
Jordan Barness 2,500(4) *
Bianca Trading, Inc. 104,348 *
Bjorn Trading, Inc. 104,348 *
Ignot Holdings, SA 104,348 *
National Westminster Bank USA 400,000(5) 400,000 *
Anthony Pierrea 15,000(6) 15,000 *
Salvatore Palacino 15,000(6) 15,000 *
Peter K. Hunt 15,000(6) 15,000 *
David Willmott 5,000(6) 5,000 *
Robert Wigmore 5,000(6) 5,000 *
Estate of Rafael Rivas 15,500(6) 15,500 *
Harry McKillop 13,000(6) 13,000 *
Victor Rivas 50,500(6) 50,500 *
Jerry Karlik 250,000(6) 250,000 70,000
Stephen R. Feldman(11) 43,500(7) -- 400,000(12)
Arthur Radin(11) 43,500(7) -- *(13)
Elliott Glass(11) 12,500(7) -- *
Steven Sherb(11) 10,000(7) -- *
Paul Ehrlich(11) 8,000(7) -- *
</TABLE>
-63-
<PAGE> 72
<TABLE>
<CAPTION>
Beneficial Ownership
after the Offering
Common if all Shares and
Stockholder Stock Warrants Warrants are Sold
----------- ------ -------- --------------------
<S> <C> <C> <C>
Marsha Ellowitz(11) 5,000(7) -- *
Carl Vogt(11) 2,500(7) -- *
Schneck, Weltman, Hashmall & Mischel LLP 100,000(7)
Potter Anderson & Corroon 10,517(7) -- *
Judson Enterprises Ltd. 1,000(7) -- *
Kronish, Lieb, Wiener *
& Hellman, L.L.P. 139,798(7) --
Packquisition Corp. 32,500(7) -- *
Mark Gasarch, Esq. 15,500(7) -- *
Lew Lieberbaum & Co., Inc. 75,000(7) -- *(14)
Gary Petrucci 71,000(10) -- *
Burton Toles 35,500(10) -- *
William Toles 71,000(10) -- *
Tol-O-Matic, Inc. Profit Sharing Trust 71,000(10) -- *
Delos v. Stenson 35,500(10) -- *
Richard J. Stream 50,000(10) -- *
R. Hunt Greene 35,500(10) -- *
David Brink 50,000(10) -- *
James A. Beltz 35,500(10) -- *
Marshall Chernin 17,750(10) -- *
Howard Goldberger 17,750(10) -- *
Robert D. Goldberger 17,750(10) -- *
Scott F. Drill 40,000(10) -- *
Thomas A. Sherman 17,750(10) -- *
R.J. Petrucci 17,750(10) -- *
Todd M. Morgan Separate Property Trust 53,250(10) -- *
Randall L. Johnson 20,000(10) -- *
Peter A. Vogt 35,500(10) -- *
Revis Stephenson, III 17,750(10) -- *
James Vieburg 17,750(10) -- *
Applecrest Family Ltd. Partnership 17,750(10) -- *
Ed Koehler 35,500(10) -- *
G & T Trading Co. 50,000(10) -- *
Larry E. Miller 71,000(10) -- *
Ralph Burnett 71,000(10) -- *
Steven C. Simon 71,000(10) -- *
Robert Paymar 71,000(10) -- *
Thomas A. Sellars 17,750(10) -- *
Gary Petrucci - IRA 24,849(10) -- *
Bryan E. Zins - IRA 17,750(10) -- *
Stephen M. Carnes 28,399(10) -- *
</TABLE>
-64-
<PAGE> 73
<TABLE>
<CAPTION>
Beneficial Ownership
after the Offering
Common if all Shares and
Stockholder Stock Warrants Warrants are Sold
----------- ------ -------- --------------------
<S> <C> <C> <C>
Addison Piper 35,500(10) -- *
Jack Swenson 42,500(10) -- *
James T. Weinert 71,000(10) -- *
Jerry R. Kenline 20,000(10) -- *
Jonathon P. Wilke 71,000(10) -- *
Reed E. Halladay 53,250(10) -- *
Jeffrey Peterson - IRA 17,750(10) -- *
G. Terri McNellis 17,750(10) -- *
Duane R. Jacobs 36,000(10) -- *
Quynh v. Dang 21,299(10) -- *
Ken Norman 24,850(10) -- *
Daniel and Adele Bivona 50,000(10) -- *
Robert Weeman 50,000(10) -- *
Thomas E. Miller 35,500(10) -- *
J.P. Buldac 142,000(10) -- *
Robert I. Karon 17,750(10) -- *
Edward Sokolofski 30,000(10) -- 250,000(15)*
Steffen I. Magnell 142,000(10) -- 250,000(16)*
Lew Lieberbaum & Co., Inc. 106,482(8) 53,241(9) *
</TABLE>
- -----------------------------------------
* Less than one percent
(1) The persons listed in the foregoing table are holders of $2,737,500 of the
Company's outstanding 10% Private Placement Notes due October 1, 1996.
The number of shares of Common Stock listed opposite the names of such
persons assumes the issuance to each of them of 1994 Private Placement
Conversion Shares at the rate of 20,833 Private Placement Conversion
Shares issuable upon conversion (at an assumed conversion price of $1.20
per share) of each $25,000 principal amount of Private Placement Notes.
The $2,737,500 of currently outstanding 10% Private Placement Notes are
convertible at 80% of the closing bid price of the Company's Common Stock
at each date that notice of conversion is given to the Company by a holder
of such notes. The 2,281,250 Private Placement Conversion Shares referred
to in this Prospectus, assumes a closing bid price of $1.50 and a
conversion price of $1.20 per share. At October 30, 1995, such closing
bid price was $1.0625 per share, and if all $2,737,500 of Private
Placement Notes had been converted by the holders on such date, the
conversion price would have been $0.85 per share and an aggregate of
3,220,588 Private Placement Conversion Shares would have been issued to
the above persons, pro-rata based on their individual ownership of 1994
Private Placement Notes. The registration statement of which this
Prospectus is a part includes an indeterminable number of 1994 Private
Placement Conversion Shares which are potentially issuable at various
conversion prices to the holders of Private Placement Notes. The Company
has offered to exchange, at any time through December 31, 1995, all or any
portion of such 10% convertible Private Placement Notes for 12%
non-convertible Exchange Notes due October 1, 1996, plus additional cash
payments to be made by December 31, 1995. See "Business - 1994 Private
Placement."
(2) Represents (i) an aggregate of 736,000 shares of Common Stock issuable
upon conversion of 2,000,000 shares of Series B Preferred Stock, and (ii)
an aggregate of 294,400 shares of Common Stock issuable upon conversion of
800,000 shares of Series E Preferred Stock, at the rate of 0.368 shares of
Common Stock for each full share of Series B Preferred Stock or Series E
Preferred Stock. All shares of Series B Preferred Stock and Series E
Preferred Stock are immediately convertible. The Series E Preferred
-65-
<PAGE> 74
Stock is subject to mandatory redemption under certain conditions. See
"Description Securities - Series E Preferred Stock."
(3) Represents shares of Common Stock issued to Blue Diamond, an affiliate of
Felice F. Mischel, upon exercise of the Blue Diamond Warrant.
(4) Represents shares of Common Stock issued pursuant to warrants issued to
Ms. Mischel and Mr. Barness in connection with a $500,000 loan made by Mr.
Barness to the Company in July 1994 and since repaid. The warrants
representing these shares are immediately exercisable.
(5) Represents shares of Common Stock issuable to National Westminster Bank
USA upon exercise of a warrant held by such bank, which warrant is
immediately exercisable.
(6) Represents shares of Common Stock issuable pursuant to certain options or
warrants.
(7) Represents Creditors Shares to be issued at $2.00 per share for
indebtedness owed by the Company to such stockholders.
(8) Represents 53,241 shares of Common Stock at $10.00 per share issuable upon
exercise of the Underwriter's Warrants, and 53,241 additional shares
issuable at $1.00 per share upon exercise of the Class Z Warrants issuable
(at the rate of one Class Z Warrant for each Underwriter's Warrant) upon
the exercise of the Underwriter's Warrant.
(9) The Class Z Warrants issuable to the Underwriter upon exercise of the
Underwriter's Warrant have an exercise price of $1.00 and are exercisable
immediately upon, and for a four-year period after, the effective date of
the Registration Statement of which this Prospectus is a part.
(10) Represents the 1995 Private Placement Shares purchased in June and July
1995.
(11) Represents Creditors Shares issuable for services rendered by Feldman
Radin & Co., P.C., and distributed by such accounting firm to its
stockholders, consisting of Messrs. Feldman Radin, Glass, Sherb, Ehrlich,
Ellowitz and Vogt. Feldman Radin & Co., P.C. rendered $250,000 of
accounting services to the Company and Wico through September 1995. In
September 1995, such accounting firm assigned its accounts receivable from
the Company to its stockholders, and such persons agreed to exchange such
accrued accounts payable for 125,000 Creditors Shares. Mr. Feldman,
Chairman of the Board and of the Company has advised the Company that he
will not offer or sell any of his Selling Stockholders' Shares or other
shares of Common Stock issuable upon exercise of options and warrants
described in footnote (12) below for a period of at least six months from
the date of this Prospectus.
(12) Represents (i) options to purchase 300,000 shares and (ii) a Directors
Warrant to purchase 100,000 shares, which options and warrants are
exercisable at $0.875 per share. (See "Management - Compensation
Committee Interlocks and Insider Participation.") Does not include
2,918,842 shares of Common Stock owned of record and beneficially by Iris
Feldman, the wife of Stephen R. Feldman. Mr. Feldman disclaims beneficial
ownership in the 2,918,842 shares of Common Stock owned by his wife Iris
Feldman.
(13) Does not include 515,090 shares owned of record and beneficially by Miriam
Katowitz, the wife of Arthur Radin. Mr. Radin disclaims beneficial
ownership in such shares.
(14) Represents Creditors Shares issued to Lew Lieberbaum & Co., Inc. in lieu
of $106,000 of accrued financial consulting fees owed by the Company.
Does not include 106,481.4 shares of Common Stock issuable upon exercise
of Underwriter's Warrants issued to such firm, as the former underwriter
of the Company's securities. See footnote (9) above.
(15) Represents immediately exercisable warrants granted to Mr. Sokolofsky to
purchase 250,000 shares of Common Stock at $2.50 per share through
December 31, 1997 issued in connection with his September 30, 1995
resignation as an officer of the Company. Such warrants may be redeemed
for $50,000 ($.20 per warrant) by the Company at any time after January
1996 and prior to their December 31, 1997 expiration. See "Management -
Executive Compensation."
-66-
<PAGE> 75
(16) Represents (i) options expiring March 31, 2004 granted to Mr. Magnell to
purchase 350,000 shares of Common Stock at $1.25 per share, of which
150,000 options are immediately exercisable, and (ii) 100,000 Directors
Warrants issued to Mr. Magnell in June 1995 and exercisable at $1.41 per
share.
PLAN OF DISTRIBUTION
The Company Shares
The Company intends to commence the offer and sale of the 3,000,000
Company Shares immediately upon the Effective Date of this Prospectus. Such
Offering of Company Shares will terminate the earlier to occur of (i) the sale
of all 3,000,000 Company Shares, or (ii) January 31, 1996 (the "Termination
Date"). The Company intends to sell all or any portion of the Company Shares
at a price of $_____ per share. On October 30, 1995, the closing sale price of
the Company's Common Stock, as traded on NASDAQ, was $1.0625 per share. The
Company may engage registered broker/dealers to solicit and/or effect sales on
the Company's behalf, and pay such broker/dealers commissions not to exceed 10%
of the gross sales prices of the Company Shares. The Company does not
presently have any agreements with any such broker/dealers with respect to the
offer or sale of Company Shares, although the Company may hereafter do so, and
in connection therewith, may agree to indemnify such broker/dealers against
certain liabilities, including liabilities under the Securities Act.
No director, officer or affiliate of the Company is affiliated with any
broker-dealer or shall receive any commissions or other compensation in
connection with the sale of any of the Company Shares.
If all 3,000,000 Company Shares are sold, the Company will receive
proceeds aggregating $________, less commissions aggregating not more than
$________ and approximately $125,000 of expenses of this Offering. On the
Termination Date, the Company will retain the net proceeds of all Company
Shares sold as of the Termination Date, irrespective of the aggregate number of
Company Shares then sold.
Selling Securityholders
Each holder of any: (i) Class B Warrants, (ii) Selling Stockholders'
Shares, (iii) 1994 Private Placement Conversion Shares or Preferred Stock
Conversion Shares issuable upon conversion of the Private Placement Notes,
Series B Preferred Stock or Series E Preferred Stock, or (iv) Warrant Shares
issuable upon exercise of the Warrants (individually a "Selling Securityholder"
and collectively, the "Selling Securityholders") is free to offer and sell his
or her shares of Common Stock or Warrants at such times, in such manner and at
such prices as he or she may determine. Such shares may be offered by Selling
Securityholders in one or more types of transactions, which may or may not
involve brokers, dealers or cash transactions. The Selling Securityholders may
also use Rule 144 under the Securities of 1933 (the "Securities Act"), to sell
such securities, if they meet the criteria and conform to the requirements of
such Rule. There is no underwriter or coordinating broker acting in connection
with the proposed sale of shares or warrants by the Selling Securityholders.
It is unlikely that Class B Warrants will be exercised or that the shares of
Common Stock underlying such Warrants will become subject to a distribution
while the exercise price for the Warrants ($5.00) exceeds the market value of
the Company's common stock ($1.0625 on October 30, 1995). However, those
shares of Common Stock which are already outstanding and being offered
hereunder by the Selling Securityholders may be expected to be distributed
currently, although there can be no assurance as to whether, when or to what
extent such distribution may occur.
The Company has agreed to register the securities owned by the Selling
Securityholders pursuant to the Registration Statement of which this Prospectus
is a part and to pay all expenses in connection therewith, other than brokerage
commissions and fees and expenses of counsel to the Selling Securityholders in
connection with any subsequent sales of their securities.
Under the Securities Act, each Selling Securityholder is obligated to
deliver a current Prospectus on each occasion that such Selling Securityholder
elects to offer or sell any of his or her securities; which Prospectus must
indicate the name of the beneficial owner(s) of the securities and the
aggregate amount of securities being
-67-
<PAGE> 76
offered. Accordingly, only the Selling Securityholders designated above may
effect offers and sales of securities pursuant to this Prospectus.
In accordance with its undertakings pursuant to Rule 415 under the
Securities Act, the Company has agreed (i) to file, during any period in which
offers or sales of Selling Securityholders' securities are being made, a
post-effective amendment to the Registration Statement of which this Prospectus
is a part, (ii) to make available a Prospectus to each Selling Securityholder
upon request, (iii) to amend such Prospectus from time to time after the date
hereof through post-effective amendments to such Registration Statement to
reflect any facts or events which individually or in the aggregate, represent a
fundamental change in the information set forth in the most recent Prospectus,
and (iv) to remove from registration by means of a post-effective amendment of
the Registration Statement any of the securities which remain unsold at the
termination of the offering.
The Company and each of the Selling Securityholders have entered into an
agreement pursuant to which the Company has agreed to indemnify such Selling
Securityholders and each person who controls such Selling Securityholders,
generally against any and all losses, claims, damages, liabilities and expenses
arising out of or based on a breach of covenant, agreement, representation or
warranty made by the Company in such agreement or any untrue statement of a
material fact in the Registration Statement, including this Prospectus, or any
amendment or supplement thereto. Each of the Selling Securityholders has
agreed to indemnify the Company, the officers and directors and each person who
controls the Company, but only with respect to information relating to such
Selling Securityholder expressly provided for use in the Registration
Statement, Prospectus, or any amendment or supplement thereto, including but
not limited to information contained in this section entitled "Selling
Securityholders." In the event that any other securityholder subsequently
elects to become a "Selling Securityholder," it is anticipated that the Company
will enter into a similar indemnity agreement with such securityholder.
The Selling Securityholders named above have advised the Company that
sales of their securities may be effected from time to time in transactions
(which may include block transactions), in the over-the-counter market, in
negotiated transactions, or a combination of such methods of sale, at fixed
prices that may be changed, at market prices prevailing at the time of sale, or
at negotiated prices. The Selling Securityholders may effect such transactions
by selling the securities directly to purchasers or through broker-dealers that
act as agents or principals. Such broker-dealers may receive compensation in
the form of discounts, concessions or commissions from the Selling
Securityholders and/or the purchasers of the securities for whom such
broker-dealers may act as agents or to whom they sell as principals, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions).
The Selling Securityholders and any broker-dealers that act in connection
with the sale of securities as principals may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act and any commissions
received by them and any profit on the resale of securities as principals might
be deemed to be underwriting discounts and commissions under the Securities
Act. The Selling Securityholders may elect to indemnify any agent, dealer or
broker-dealer that participates in transactions involving sales of the
securities against certain liabilities, including liabilities under the
Securities Act.
The Company has not engaged the services of any broker-dealer either to
purchase securities from Selling Securityholders or to act as agent for any of
the Selling Securityholders in connection with any distribution of such
securities.
In order to comply with the securities laws of certain jurisdictions, the
securities may not be offered or resold by any Selling Securityholder unless
they have been registered or qualified for sale in such jurisdictions or an
exemption from registration or qualification is available and the requirements
of such exemption have been satisfied. The Company does not currently intend
to register or qualify the resale of the securities in any such jurisdictions.
However, an exemption is generally available for sales to registered
broker-dealers and certain institutional buyers. Other exemptions under
applicable state securities laws may also be available.
The Company will not receive any of the proceeds from sales of any of the
securities by any of the Selling Securityholders.
-68-
<PAGE> 77
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Price Waterhouse LLP, the Company's former independent accountants, was
dismissed, effective November 29, 1994, in an action approved by the Board of
Directors of the Company. Price Waterhouse LLP has previously issued audit
reports to the Company for the years ended May 31, 1994 and May 31, 1993, which
reports did not contain any adverse opinion or disclaimer of opinion, or were
modified as to uncertainty, audit scope, or accounting principles. There were
no disagreements on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure which, if not resolved to
the satisfaction of the former accountants, would have caused them to make
reference to the subject matter of the disagreement in its reports.
On November 29, 1994, the Company engaged Grant Thornton LLP as its
independent accountants for the year ended September 30, 1994. Grant Thornton
LLP had previously served as the independent accountants for Wico Holding Corp.
and its wholly-owned subsidiaries.
In October 1995, the Board of Directors engaged BDO Seidman, LLP as its
independent accountants for the year ended September 30, 1995. The audit
report for the year ended September 30, 1994 issued by Grant Thorton LLP did
not contain any adverse opinion or disclaimer of opinion, or were modified as
to uncertainty, audit scope, or accounting principles. There were no
disagreements on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure which, if not resolved to
the satisfaction of Grant Thorton LLP, would have caused them to make reference
to the subject matter of the disagreement in its reports.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Solomon,
Fornari, Weiss & Moskowitz, P.C., 650 Fifth Avenue, New York, New York 10019.
EXPERTS
The financial statements and schedules included in this Prospectus and
elsewhere in the Registration Statement of which this Prospectus is a part have
been audited by Grant Thornton LLP, independent certified public accountants to
the extent indicated in their reports with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in accounting and
auditing in giving said reports. Said firm's opinion includes an explanatory
paragraph.
The financial statements of Langworthy Casino Supply included in this
Prospectus have been audited by Allen G. Roth, independent certified public
accountant, to the extent and for the period set forth in his report appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of said individual as an expert in auditing and accounting.
-69-
<PAGE> 78
INDEX TO FINANCIAL STATEMENTS
CONQUEST INDUSTRIES INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Page
----
<S> <C>
September 30, 1994, 1993 and 1992
Independent Auditor's Report F-2
Consolidated Balance Sheet F-3
Consolidated Statements of Operations F-5
Consolidated Statements of Changes in Stockholders' Deficit F-6
Consolidated Statements of Cash Flows F-7
Notes to Financial Statements F-9
June 30, 1995 (Unaudited)
Consolidated Balance Sheet F-25
Consolidated Statements of Operations F-27
Consolidated Statements of Changes in Stockholders' Deficit F-28
Consolidated Statements of Cash Flows F-29
Notes to Financial Statements F-31
LANGWORTHY CASINO SUPPLY
September 30, 1993
Independent Auditor's Report F-35
Balance Sheet F-36
Statement of Income F-37
Statement of Divisional Equity F-38
Statement of Cash Flows F-39
Notes to Financial Statements F-40
September 30, 1992
Independent Auditor's Report F-43
Balance Sheet F-44
Statement of Income F-45
Statement of Divisional Equity F-46
Statement of Cash Flows F-47
Notes to Financial Statements F-48
Pro-Forma Consolidated Statement of Operations F-50
Notes to Pro-Forma Consolidated Statement of Operations F-51
</TABLE>
F-1
<PAGE> 79
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
To the Stockholders
CONQUEST INDUSTRIES, INC.
We have audited the accompanying consolidated balance sheets of Conquest
Industries, Inc. (formerly Wico Holding Corp.) as of September 30, 1994 and
1993, and the related consolidated statements of operations, changes in
stockholders' deficit and cash flows for each of the three years in the period
ended September 30, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Conquest
Industries, Inc. as of September 30, 1994 and 1993, and the results of its
operations and its cash flows for each of the three years in the period ended
September 30, 1994, in conformity with generally accepted accounting principles.
As described in Note L (1), the Company has recorded an estimate of the value
upon the disposition of its aviation operations at $4,250,000. It is
reasonably possible that the ultimate amount, if any, obtained upon disposition
of the aviation operations could be lower than the carrying value.
/s/ GRANT THORNTON LLP
- ----------------------
GRANT THORNTON LLP
New York, New York
December 9, 1994, except as to Note L (1),
which is as of January 20, 1995
F - 2
<PAGE> 80
CONQUEST INDUSTRIES, INC., AND SUBSIDIARIES
(FORMERLY WICO HOLDING CORP.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
--------------------------
1994 1993
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 1,007,880 $ 791,037
Trade accounts receivable, less allowance for
doubtful accounts of $179,337 and $156,647 at
September 30, 1994 and 1993, respectively 5,694,272 5,234,424
Other receivables, principally income tax refunds 323,843 --
Inventories 8,495,479 8,946,352
Prepaid expenses and other current assets 235,344 126,818
----------- -----------
TOTAL CURRENT ASSETS 15,756,818 15,098,631
MACHINERY AND EQUIPMENT - NET 1,071,301 1,158,350
DEFERRED TAX ASSET 753,000 --
INTANGIBLE AND OTHER ASSETS - NET 5,979,581 3,655,189
NET ASSETS OF DISCONTINUED OPERATIONS 4,250,000 --
----------- -----------
$27,810,700 $19,912,170
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F - 3
<PAGE> 81
CONQUEST INDUSTRIES, INC., AND SUBSIDIARIES
(FORMERLY WICO HOLDING CORP.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
------------------------------
1994 1993
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable $ 4,634,545 $ 3,185,596
Accrued expenses 3,331,344 1,692,911
Current portion of long-term debt 1,500,000 1,333,334
Income taxes payable 25,018 275,000
------------ ------------
TOTAL CURRENT LIABILITIES 9,490,907 6,486,841
LONG-TERM DEBT 16,705,849 23,850,000
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY (DEFICIENCY):
Preferred stock, authorized 5,000,000 shares, issuable in series
Series A, preferred stock, $.10 par value; 7,550 issued and
outstanding (liquidation preference: $93,257) 755 -
Series B, convertible redeemable preferred stock, no par
value; 2,800,000 and 4,000,000 shares issued and outstanding
in 1994 and 1993, respectively 2,800,000 3,424,983
Common stock, $.01 par value; 25,000,000 shares authorized;
9,158,677 and 7,180,907 shares issued and outstanding in 1994
and 1993, respectively 91,587 71,809
Additional paid-in capital 12,748,815 428,191
Treasury stock warrant - (360,000)
Accumulated deficit (13,945,520) (13,863,145)
Foreign currency translation adjustment (81,693) (126,509)
------------ ------------
1,613,944 (10,424,671)
------------ ------------
$ 27,810,700 $ 19,912,170
============ ============
</TABLE>
See notes to financial statements.
F - 4
<PAGE> 82
CONQUEST INDUSTRIES, INC., AND SUBSIDIARIES
(FORMERLY WICO HOLDING CORP.)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
September 30,
------------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES $41,991,512 $38,782,856 $38,653,304
COST OF SALES 26,078,087 23,674,578 24,077,535
----------- ----------- -----------
GROSS PROFIT 15,913,425 15,108,278 14,575,769
----------- ----------- -----------
OPERATING EXPENSES:
Selling, distribution and administrative expenses 12,592,710 11,620,056 10,895,368
Moving costs - - 148,563
Amortization expense 375,231 689,207 977,835
----------- ----------- -----------
12,967,941 12,309,263 12,021,766
----------- ----------- -----------
OPERATING INCOME 2,945,484 2,799,015 2,554,003
----------- ----------- -----------
OTHER EXPENSES (INCOME):
Interest expense 1,731,377 2,062,605 2,683,917
Amortization of debt discount 282,500 - -
Write off of registration costs 175,394 - -
Other 266,387 8,351 608,240
----------- ----------- -----------
2,455,658 2,070,956 3,292,157
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 489,826 728,059 (738,154)
PROVISION FOR INCOME TAXES 206,201 285,000 2,504
----------- ----------- -----------
NET INCOME (LOSS) 283,625 443,059 (740,658)
PRO-FORMA INCOME TAXES (BENEFIT) - (65,000) (225,000)
----------- ----------- -----------
PRO-FORMA NET INCOME (LOSS) $ 283,625 $ 508,059 $ (515,658)
=========== =========== ===========
PRO-FORMA EARNINGS (LOSS) PER SHARE $ 0.00 $ 0.06 $ (0.07)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES 7,675,000 7,181,000 7,181,000
=========== =========== ===========
</TABLE>
See notes to financial statements.
F - 5
<PAGE> 83
CONQUEST INDUSTRIES, INC., AND SUBSIDIARIES
(FORMERLY WICO HOLDING CORP.)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Series A Preferred Stock Series B
------------------------ ------------------------
Shares Amount Shares Amount
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
BALANCE - SEPTEMBER 30, 1991 - $ - - $ -
Translation of foreign currency - - - -
Net loss - - - -
---------- ------------ ---------- ----------
BALANCE - SEPTEMBER 30, 1992 - -
Issuance of preferred stock costs of $575,017 - - 2,800,000 2,800,000
Repurchase of stock warrants - - - -
Translation of foreign currency - - - -
Net income - - - -
Preferred stock dividends - - - -
---------- ------------ ---------- ----------
BALANCE - SEPTEMBER 30, 1993 - - 2,800,000 2,800,000
Acquisition of Conquest Airlines Corp., less costs of $468,000 7,550 755
Translation of foreign currency
Retirement of treasury stock warrant
Preferred stock dividends
Net income
Debt discounts recorded in connection with borrowings
Warrants and shares issued in connection with debt offerings
---------- ------------ ---------- ----------
BALANCE - SEPTEMBER 30, 1994 7,550 $ 755 2,800,000 $2,800,000
========== ============ ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Common Stock Paid-in Treasury
-----------------------
Shares Amount Capital Stock
----------- --------- ---------- ---------
<S> <C> <C> <C> <C>
BALANCE - SEPTEMBER 30, 1991 7,180,908 $ 71,809 428,191 $
Translation of foreign currency - -
Net loss - -
----------- --------- ---------- ---------
BALANCE - SEPTEMBER 30, 1992 7,180,908 71,809 428,191
Issuance of preferred stock less costs of $575,017 - - 624,983
Repurchase of stock warrants - - (360,000)
Translation of foreign currency - -
Net income - -
Preferred stock dividends - -
----------- --------- ---------- ---------
BALANCE - SEPTEMBER 30, 1993 7,180,908 71,809 1,053,174 (360,000)
Acquisition of Conquest Airlines Corp., less costs of $468,000 1,977,769 19,778 8,618,141
Translation of foreign currency
Retirement of treasury stock warrant (360,000) 360,000
Preferred stock dividends
Net income
Debt discounts recorded in connection with borrowings 3,400,000
Warrants and shares issued in connection with debt offerings 37,500
----------- --------- ---------- ---------
BALANCE - SEPTEMBER 30, 1994 9,158,677 $ 91,587 12,748,815 $ -
=========== ========= ========== =========
</TABLE>
<TABLE>
<CAPTION>
Foreign
Retained Currency
Earnings Translation
(Deficit) Adjustment Totals
------------ ----------- ------------
<S> <C> <C> <C>
BALANCE - SEPTEMBER 30, 1991 $(13,415,774) $ - $(12,915,774)
Translation of foreign currency - (7,509) (7,509)
Net loss (740,658) - (740,658)
------------ --------- ------------
BALANCE - SEPTEMBER 30, 1992 (14,156,432) (7,509) (13,663,941)
Issuance of preferred stock less costs of $575,017 - - 3,424,983
Repurchase of stock warrants - - (360,000)
Translation of foreign currency - (119,000) (119,000)
Net income 443,059 - 443,059
Preferred stock dividends (149,772) - (149,772)
------------ --------- ------------
BALANCE - SEPTEMBER 30, 1993 (13,863,145) (126,509) (10,424,671)
Acquisition of Conquest Airlines Corp., less costs of $468,000 8,638,674
Translation of foreign currency 44,816 44,816
Retirement of treasury stock warrant -
Preferred stock dividends (366,000) (366,000)
Net income 283,625 283,625
Debt discounts recorded in connection with borrowings 3,400,000
Warrants and shares issued in connection with debt offerings 37,500
------------ --------- ------------
BALANCE - SEPTEMBER 30, 1994 $(13,945,520) $ (81,693) $ 1,613,944
============ ========= ============
</TABLE>
All share information has been retroactively adjusted for the WICO Merger
and the reverse 1 For 10 split of common shares in November, 1994.
See notes to financial statements.
F - 6
<PAGE> 84
CONQUEST INDUSTRIES, INC., AND SUBSIDIARIES
(FORMERLY WICO HOLDING CORP.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
September 30,
--------------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 283,625 $ 443,059 $ (740,658)
----------- ----------- -----------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 944,132 1,159,126 2,255,226
Provision for bad debts 179,337 972 67,047
Loss (gain) on disposal of fixed assets - 217 (38,755)
Write off of deferred registration costs 175,394
Write off of deferred loan costs 239,987
Warrants and shares issued in connection with
debt offering 37,500
Deferred income taxes 89,815 - -
Changes in assets and liabilities:
Decrease (increase) in trade and other accounts receivable (963,028) (224,648) (403,843)
Decrease (increase) in inventories 450,873 959,630 (382,401)
Decrease (increase) in prepaid expenses and other
current assets (108,526) (61,484) 73,418
Increase in intangibles and other assets (680,212) - -
Increase (decrease) in accounts payable 1,448,949 (416,720) 591,626
Increase (decrease) in income taxes payable (249,982) 275,000 -
Increase (decrease) in accrued expenses (86,567) (303,425) (92,627)
----------- ----------- -----------
TOTAL ADJUSTMENTS 1,477,672 1,388,668 2,069,691
----------- ----------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 1,761,297 1,831,727 1,329,033
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash of businesses acquired, less acquisition costs 4,965,584 - -
Capital expenditures (286,850) (197,923) (144,760)
Proceeds on sale of assets - 50,002 83,151
Cash used for business acquisitions (1,939,019) - -
----------- ----------- -----------
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES 2,739,715 (147,921) (61,609)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term financing (5,272,485) (3,266,667) (3,474,000)
Preferred stock dividends (366,000) (149,772) -
Proceeds from issuance of promissory notes 1,309,500 - -
Proceeds from preferred stock offering - 2,424,983 -
Proceeds from long-term financing - - 950,000
Proceeds from stockholder and other loans - - 1,000,000
Acquisition of treasury stock - warrants - (360,000) -
Deferred financing costs - (153,368) (260,150)
Effect of foreign currency exchange rate changes 44,816 (14,490) (424)
----------- ----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (4,284,169) (1,519,314) (1,784,574)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 216,843 164,492 (517,150)
CASH AT BEGINNING OF YEAR 791,037 626,545 1,143,695
----------- ----------- -----------
CASH AT END OF YEAR $ 1,007,880 $ 791,037 626,545
=========== =========== ===========
</TABLE>
See notes to financial statements.
F - 7
<PAGE> 85
CONQUEST INDUSTRIES, INC., AND SUBSIDIARIES
(FORMERLY WICO HOLDING CORP.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
September 30,
-------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $1,576,700 $2,091,000 $2,414,000
========== ========== ==========
Income taxes $ 331,000 $ - $ 3,000
========== ========== ==========
Noncash investing and financing activities:
Conversion of stockholder and other loans to preferred stock $ - $1,000,000
========== ==========
Issuance of warrants in connection with debt $3,300,000 $ -
========== ==========
See Note L for noncash investing and financing activities regarding
acquisitions
</TABLE>
See notes to financial statements.
F - 8
<PAGE> 86
Conquest Industries, Inc.
NOTES TO FINANCIAL STATEMENTS
September 30, 1994 and 1993
NOTE A - ORGANIZATION AND SIGNIFICANT EVENTS
Conquest Industries, Inc. ("Conquest") was, until June 20, 1994,
primarily engaged in the business of operating a regional airline
providing regularly schedule turbo-prop service to cities within the
State of Texas. On June 20, 1994, CAC Acquisition, Inc. ("CAC"), a
Delaware corporation and newly formed wholly owned subsidiary of
Conquest merged with Wico Holding Corp. ("Wico"), a privately-held
Delaware corporation, pursuant to a Restated Agreement and Plan of
Merger dated June 8, 1994 (the "Wico Merger"). Upon consummation of the
merger, Wico became a wholly owned subsidiary of Conquest and the
separate existence of CAC ceased. In addition, simultaneous with the
merger, Wico Gaming Supply Corp. ("Wico Gaming"), a wholly-owned
subsidiary of Wico, acquired certain assets and liabilities of
divisions of Langworthy Casino Supply, Inc. ("Langworthy"). The
operations of Conquest and Wico and subsidiaries are collectively
referred to herein as the "Company". In August 1994, the Company
announced its intention to sell its aviation operations.
The financial statements give effect to an increase in authorized
shares approved in July 1994 and the 1 for 10 reverse stock split of
its common stock which became effective on November 18, 1994. On that
date, each ten shares of the Company's issued and outstanding shares of
common stock automatically converted into one share of common stock.
Also, all securities convertible or exercisable for common stock were
similarly effected.
Wico, through its wholly-owned operating subsidiaries, is a distributor
of replacement parts and supplies to game operators and distributors of
billiard tables, coin-operated vending machines, arcade games and other
gaming related accessories. Wico Gaming is a manufacturer and
distributor of casino supplies, including layouts, dice, casino
furniture, custom built casino tables, playing chips, playing cards,
casino equipment and roulette and other wheel games.
Giving effect to the Wico Merger, the former shareholders of Wico owned
approximately
F-9
<PAGE> 87
80% of Conquest's common stock. Stockholders of Conquest who
immediately prior to the effectiveness of the Wico Merger held all of
its capital stock, now hold approximately 20% of its capital stock
after the Wico Merger .
For accounting purposes, the merger has been treated as a
recapitalization and reverse acquisition with Wico as the acquirer. In
connection with the acquisition, Wico has valued the assets and
liabilities received in the transaction at their fair values. Such
assets and liabilities included (in addition to cash acquired) the
estimated value to be received upon the disposition of the aviation
operations, liabilities assumed, and the related deferred tax effects.
SALE OF CONVERTIBLE PREFERRED STOCK BY WICO
On May 21, 1993, Wico issued $4 million of 10% cumulative convertible
Series A preferred stock (Wico Series A preferred). The proceeds
involved the receipt of $2.4 million of net cash and the conversion of
$1 million of subordinated debt. The proceeds were used as part of a
prepayment of $2.5 million of outstanding term indebtedness and for the
repurchase from its bank lender of an outstanding warrant to acquire
17-1/2% of the common stock for $360,000. If the preferred shares were
converted into common shares, the holders of the preferred stock would
have owned approximately 20% of the outstanding common stock of Wico.
The preferred stock was also entitled to vote on all matters at
stockholders' meetings with the voting rights determined as if such
shares had been converted into common stock.
In connection with the issuance of $4 million of the Wico Series A
preferred, $2 million of these shares were acquired by Wico common
stockholders at the same net price as paid by the unaffiliated
purchasers (a foreign pension plan), $1.8 million.
The purchase price for the shares acquired by the Wico common
stockholders was paid in cash and the retirement of $1 million of
subordinated stockholder loans to Wico. Approximately 1,850,000 of the
shares of preferred stock owned by such holders were sold at the full
face amount of such shares from September 1993 to January 1994 to eight
persons, none of whom was an officer, director or affiliate of Wico.
In January 1994, the eight persons who acquired Wico Series A preferred
as described above, entered into agreements with Wico to exchange their
shares of Wico Series A preferred into Wico Series AA preferred stock
on a share-for-share basis. This exchange was completed in March 1994.
The Wico Series AA preferred stock did not contain voting rights or any
liquidation preferences and was convertible into approximately 13% of
the common stock.
THE CONQUEST/WICO MERGER ("WICO MERGER")
F-10
<PAGE> 88
As a result of the June 1994 Wico merger, all stockholders of Wico
exchanged their Wico securities for securities of Conquest. More
specifically, upon consummation of the Wico Merger, (i) the holders of
Wico common stock acquired ownership of 6,879,000 shares of Conquest
common stock in exchange for 2,944,000 shares of Wico common stock;
(ii) certain holders of Wico Series A and Series AA preferred stock
acquired ownership of 2,800,000 shares of Conquest Series B voting
preferred stock; and (iii) certain holders of 1,200,000 shares of Wico
Series AA preferred stock converted their shares and acquired record
ownership of 313,044 shares of Conquest common stock. Each share of
Conquest Series B preferred stock may be converted into .368 shares of
Conquest common stock. In addition, all of the options to purchase Wico
common stock granted under Wico's 1993 Stock Option Plan were converted
into options to acquire 536,000 shares of Conquest common stock.
Upon the Wico Merger, Conquest also agreed, subject to the
effectiveness of a Registration Statement to issue 1,978,000 warrants
to Conquest stockholders of record on the close of business on June 20,
1994 (not including any persons or entities receiving shares or rights
to shares of Conquest common stock in connection with the Merger),
exercisable until June 20, 1999, at a price of $11.88 per share (the
"Class B Warrants"). Conquest also issued two warrants to purchase
400,000 (the "Bank Warrant") and 200,000 shares (the "Blue Diamond
Warrant") of Conquest common stock, respectively. The Class B Warrants,
the Bank Warrant and the Blue Diamond Warrant are all subject to
certain registration and anti-dilution rights. The Blue Diamond Warrant
was issued to a partner in the firm which serves as general counsel to
the Company as a finders fee for the Wico merger.
Giving effect to the Wico Merger, and the conversion of all shares of
Conquest Series B preferred stock into Conquest common stock, the
former stockholders of Wico will own approximately 80% of Conquest's
outstanding common stock. The stockholders of Conquest who immediately
prior to the effectiveness of the Wico Merger held all of its capital
stock will continue to hold approximately 20% of its capital stock
giving effect to the Wico Merger and the aforesaid issuance and
conversion.
Also in June 1994, in connection with the Wico Merger, the Company,
through its wholly-owned subsidiary Wico Gaming, acquired assets and
assumed certain liabilities, consisting primarily of trade payables,
comprising certain divisions of Langworthy, a 56-year old Las Vegas,
Nevada manufacturer and distributor of casino supplies for a purchase
price of $1,750,000.
A summary of the assets acquired and liabilities assumed in connection
with the above acquisitions is included in Note L.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
F-11
<PAGE> 89
1. Basis of Consolidation The financial statements include the accounts
of Conquest and its wholly-owned subsidiaries, Wico, Suncom-UK,
Limited and Wico Gaming. All material intercompany accounts and
transactions have been eliminated.
2. Revenue Recognition - Revenue is recognized at the time merchandise
is shipped to customers.
3. Inventories - The inventories are valued at the lower of cost
(weighted average method) or market.
4. Machinery and Equipment - Machinery and equipment acquired as a
result of acquisitions are stated at fair value at the date of
acquisition, after considering their age and condition, in
accordance with the guidelines set forth in Accounting Principles
Board Opinion No. 16 (APB 16); subsequent additions are recorded at
cost. Depreciation for machinery and equipment is calculated on a
straight-line basis over ten years.
5. Intangible Assets - Identifiable intangible assets resulting from
various acquisitions in prior years were valued based upon
independent appraisals in accordance with APB 16. Other intangible
assets are valued at cost. Intangible assets are amortized on a
straight-line basis over their estimated remaining economic lives.
The Company reviews the recoverability of its intangible assets
(primarily goodwill) upon the occurrence of a significant adverse
event or if an operating division has not been profitable and
expects that trend to continue. Such assessments are performed at
each balance sheet date. Recoverabilty will be evaluated using
undiscounted cash flows.
Statement of Financial Accounting Standards No. 121 "Accounting for
the Impairment of Long-Lived Assets" ("SFAS 121") is effective for
fiscal years beginning after December 15, 1995. The Company
believes that the adoption of SFAS 121 will not have a material
effect on its financial statements.
6. Warranty Costs - The Company has certain sales agreements that
provide for free warranty service for periods ranging from one to
five years (principally in the consumer division). For the years
ended September 30, 1994, 1993 and 1992, a total of $167,000,
$33,000, and $26,000, respectively, has been provided to cover the
costs of providing such service. These costs are included in
selling, distribution and administrative expenses.
7. Co-Op Advertising - The Company grants certain of its customers an
advertising allowance based upon qualified sales. The Company's
policy is to accrue a liability in an amount equal to its estimate
of claims at the time sales are made.
8. Foreign Currency Translation Adjustment - All balance sheet accounts
of foreign operations are translated into U.S. dollars at the
year-end rate of exchange, and statement of operations items are
translated at the weighted average exchange rates for the year. The
resulting translation adjustments are made directly to a separate
component of stockholders' equity.
Foreign currency transaction gains (losses) were $(44,000),
$(38,000) and $42,000 for the
F-12
<PAGE> 90
years ended September 30, 1994, 1993 and 1992, respectively.
9. Income Taxes - Effective January 1, 1993, provisions for income
taxes include deferred taxes resulting from temporary differences in
income for financial reporting and tax purposes, using the liability
method under Statement of Financial Accounting Standards No. 109.
Such temporary differences result primarily from differences in the
carrying value of assets and liabilities.
Prior to January 1, 1993, the Company was treated as a Subchapter S.
Corporation.
10. Earnings Per Share - Earnings per share is based upon the average
shares outstanding increased by the effect, if dilutive, of common
stock equivalents (options and warrants) from date of issue using
the 20% rule. The outstanding preferred shares are not common stock
equivalents. Net earnings are adjusted for dividends on outstanding
preferred shares.
For all periods presented, the effect of potentially dilutive
securities were excluded because their effect would be
anti-dilutive.
11. Reclassifications - Certain amounts in prior years have been
reclassified to conform with classifications used in 1994.
NOTE C - INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
1994 1993
----------- ------------
<S> <C> <C>
Manufacturing inventories
Materials and work-in-process $ 1,619,694 $ 1,825,241
Finished products 1,520,439 1,694,960
----------- -----------
3,140,133 3,520,201
Purchased merchandise for resale 5,355,346 5,426,151
----------- -----------
$ 8,495,479 $ 8,946,352
=========== ===========
</TABLE>
F-13
<PAGE> 91
NOTE D- MACHINERY AND EQUIPMENT
Machinery and equipment consist of the following
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Machinery and tooling $3,281,523 $3,080,956
Furniture, fixtures and equipment 704,393 648,898
Leasehold improvements 982,777 950,145
---------- ----------
4,968,693 4,679,999
Less accumulated depreciation and amortization 3,897,392 3,521,649
---------- ----------
$1,071,301 $1,158,350
========== ==========
</TABLE>
All machinery and equipment is pledged as collateral under certain loan
agreements, as described in Note F.
NOTE E - INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist of the following:
<TABLE>
<CAPTION>
Life 1994 1993
----- ---------- ----------
<S> <C> <C> <C>
Goodwill 10-25 $6,116,102 $4,041,529
Customer lists 7-10 - 160,000
Deferred financing costs (Note G) 2-5 1,012,433 360,999
Patents 10-13 710,000 710,000
Work force in place 6-10 - 36,500
Computer software 8 264,000 264,000
Other assets - principally gaming licenses 3-10 181,959 17,942
---------- ----------
8,284,494 5,590,970
Less: accumulated amortization 2,304,913 1,935,781
---------- ----------
$5,979,581 $3,655,189
========== ==========
</TABLE>
F-14
<PAGE> 92
NOTE F - LONG-TERM DEBT
Long-term debt consists of the following at September 30, 1994 and
1993:
<TABLE>
<CAPTION>
<S> <C> <C>
Term and Revolving Credit Loan, net of
deferred debt discount of $2,905,000 in
1994 (a) $ 16,905,849 $ 25,183,333
Convertible notes payable, interest at
10% due in September, 1996, net of
deferred debt discount of $200,000 (b) 1,300,000 -
------------- -------------
Total long-term debt 18,205,849 25,183,334
Less: current portion (1,500,000) (1,333,334)
------------- -------------
Long-term debt $ 16,705,849 $ 23,850,000
============= =============
</TABLE>
(a) Conquest's principal borrowing has been its combined Term Loan and
Revolving Credit Loan pursuant to the Lending Agreement between
Wico and its bank lender. Under the terms of the Lending
Agreement, Wico must be in compliance with certain financial
ratios. Certain of the covenant requirements include attaining
operating income before amortization of intangibles and other
items (as defined in the Lending Agreement) of $3,100,000, current
ration of 1.75:1 and working capital of $6,300,000. The Term Loan,
maturing in October 1998, provides for monthly installment payment
of principal, and had a principal balance of approximately
$6,900,000 at September 30, 1994. The Revolving Credit Loan
provides for a maximum credit of $13,000,000 inclusive of letters
of credit that may be established at the request of Wico and at
the present time is in full use. Repayment of the loan is
collateralized by a first lien on a substantial portion of Wico
assets, limited personal guarantees, each in the amount of
$1,000,000 from Stephen R. Feldman, Chairman of the Board and
Chief Executive Officer of the Company, and Bentley J. Blum, a
principal stockholder and director of the Company, and stock
pledges in favor of the institutional lender covering all of the
outstanding shares of Conquest common stock owned by certain
stockholders. Repayment of the loan is also collateralized by all
of the outstanding shares of Wico Gaming Supply Corp.
The interest rate payable at September 30, 1994 on the loans are
at the option of Wico, at either the prime rate plus 1-1/2% or
LIBOR plus 3-1/4%.
F-15
<PAGE> 93
In connection with obtaining the lender's consent to the Wico
Merger and Langworthy Acquisition, the Company agreed to a
prepayment on a portion of the loans and to exchange the
warrant to purchase Wico shares for a warrant to acquire
400,000 shares of Conquest stock. The Company prepaid
$4,000,000 at the time of the Wico Merger and agreed to either
(a) prepay an additional $1,000,000 and to purchase the
lender's warrant for $1,000,000 by December 31, 1994; or (b)
an increase in the rate of interest payable under the Lending
Agreement by 1.5% and fee of $375,000. The Company chose the
second option and accordingly, an accrual of the $375,000 was
provided at September 30, 1994, of which $200,000 was paid
December 15, 1994 and the balance is due March 15, 1995.
The Lending Agreement presently provides for a mandatory
repayment of 75% of Wico's excess cash flow, as defined in the
Agreement. The Lending Agreement contains other restrictions
requiring the consent of the lender in connection with making
any acquisition, payment of dividends, issuance of additional
securities or making of annual capital expenditures in excess
of $500,000.
The aggregate amount of borrowings under the Term Note and
Revolving Credit is $19.9 million. At September 30, 1994, the
borrowings are to be repaid as follows:
<TABLE>
<CAPTION>
<S> <C>
1995 $1.5 million
1996 1.8 million
1997 2.0 million
1998 14.6 million
</TABLE>
(b) In November 1994, Conquest completed the final stage of its
private placement of $2,737,500 of notes (of which $1,500,000
had been closed by September 30, 1994). Each unit consisted of
a $25,000 principal amount 10% convertible Promissory Note
(the "Notes") due 24 months from September 1994 (or earlier
upon the occurrence of certain events). The Notes are
convertible into shares of the Company's common stock at a
price per share equal to eighty percent of the closing bid
price of the common stock on the date of conversion. Upon
conversion, holders of the Notes will also have the right to
receive options to purchase 500 shares of common stock per
unit converted at an exercise price of $11.88 per share until
June 1999.
Conquest has allocated a portion of the proceeds received from its
lenders for certain rights and concessions granted to them. The amount
of such rights and concessions has been based upon the estimated fair
value of the Company's securities and discounted for blockage and other
factors. The amount of discount attributable to the bank lender was
$3,200,000 and to the private placement lenders $350,000 (of which
$200,000 has been
F-16
<PAGE> 94
recognized at September 30, 1994). The fee paid in connection with
this transaction has been changed to to deferred costs and will be
amortized over the remainding term of the loan.
The debt discount will be amortized to expense over the lives of the
respective debt.
Included in 1992 and 1994 other expenses is a charge of $603,000 and
$240,000, respectively, related to the July 1992 and June 1994
renegotiations of the bank lending agreement. The charges result from
the accelerated amortization of previously deferred financing costs and
other costs associated with obtaining financing.
NOTE G - STOCKHOLDER TRANSACTIONS AND OTHER LOANS
During fiscal 1992, certain stockholders and an executive of Wico: (i)
made subordinated loans to the Company in an aggregate principal amount
of $1,000,000 with interest at prime plus 1-1/2% with a cap of 10% and
maturing on July 31, 1994 and (ii) guaranteed $2,000,000 of the loans
made under the loan agreement. Total interest expense relating to these
loans for the years ended September 30, 1993 and 1992 amounted to
approximately $24,000 and $16,000, respectively. During fiscal 1993,
the loans were used as part of the purchase price of the Wico Series A
preferred.
The Company has entered into an agreement with its Chairman of the
Board that he shall receive compensation of $150,000 per annum if
certain earnings levels are attained. For the three years ended
September 30, 1994, the earnings levels were not attained.
NOTE H - INCOME TAXES
The Company elected, with the consent of its stockholders, on October
1, 1988, to be taxed as a Subchapter S corporation under the provisions
of the Internal Revenue Code. The stockholders were required to report
the Company's taxable income or loss in their personal income tax
returns. Accordingly, Federal income taxes are not reflected in the
financial statements prior to January 1, 1993, when the Subchapter S
corporation election was terminated.
In 1993, the Company adopted the method of accounting for income taxes
pursuant to the Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" (SFAS 109). SFAS 109 requires the
liability method of computing deferred income taxes.
The Company's provision for income taxes for 1994 and 1993 consists of
$31,000 and $35,000 in state taxes and $175,200 and $250,000 in Federal
taxes.
Pro-forma taxes (benefits) have been calculated assuming the losses
incurred during the
F-17
<PAGE> 95
period the Company was treated under Subchapter S of the Internal
Revenue Code would have resulted in a tax refund or deferred tax asset
at an approximate 38% effective rate. The pretax profits and losses
have been adjusted for the effect of nondeductible goodwill. In 1993,
the additional benefit relates solely to losses incurred during the
part of the fiscal year (to December 31, 1992) until the Subchapter S
election was terminated.
The following is a reconciliation for the U.S. Federal statutory rate
and the effective tax rate at September 30, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Pretax earnings $ 490,000 $ 728,000
Loss incurred during period prior
to termination of Subchapter S
election - 272,000
------------ ------------
Adjusted corporate pretax earnings $ 490,000 $ 1,000,000
============ ============
Tax at Federal statutory rate $ 167,000 $ 340,000
General business credits
carryforward from 1988 - (85,000)
State income taxes, net of
Federal benefit 19,200 23,000
Tax effect of amortization of
goodwill 48,000 48,000
Reduction in valuation allowance (28,000) (47,000)
Other 6,000
------------ ------------
$ 206,200 $ 285,000
============ ============
</TABLE>
At September 30, 1994, the principal temporary differences consist of
the following:
<TABLE>
<S> <C>
Deferred tax debits:
Inventory 205,000
Accounts receivable 68,000
Liabilities assumed for Conquest 630,000
---------
903,000
Valuation allowance (100,000)
---------
Net deferred tax debits 803,000
Deferred tax credits
Depreciation and amortization (50,000)
---------
Deferred tax asset $ 753,000
=========
</TABLE>
F-18
<PAGE> 96
NOTE I - RETIREMENT PLAN
The Company has a 401(k) Retirement Plan which is generally available
to all employees who have reached the age of 21 and who have one year
of service. The Plan is a defined contribution plan and meets the
requirements of Section 401(a) and Section 501(a) of the Internal
Revenue Code. The Company does not make any contributions under the
plan.
NOTE J - LEASE COMMITMENTS
The Company leases its principal office under an agreement which
expires in 1996. Under this agreement, the Company is liable to the
lessor for real estate taxes and shall maintain owner's and tenant's
liability insurance. The lease contains a renewal option for an
additional ten-year term, and a provision for yearly increases based
upon increases in the CPI index.
The Company also leases its seven distribution facilities under
agreements which expire at various dates through 1998. Wico is liable
to the lessor for property taxes under these agreements.
Noncancellable long-term operating lease commitments at September 30,
1994 are summarized as follows:
<TABLE>
<CAPTION>
Real
Property Equipment Total
---------- ---------- ----------
<S> <C> <C> <C>
1995 $ 775,000 $ 48,000 $ 823,000
1996 573,000 41,000 614,000
1997 126,000 30,000 156,000
1998 - 18,000 18,000
---------- ---------- ----------
$1,474,000 $ 137,000 $1,611,000
========== ========== ==========
</TABLE>
Total rent expense for the years ended September 30, 1994, 1993 and
1992 amounted to approximately $1,059,000, $1,027,000 and $1,023,000,
respectively.
NOTE K - MOVING COSTS
During fiscal 1991, the Company closed one of its leased facilities and
consolidated those operations into its main location in Niles,
Illinois. In fiscal 1991, the Company estimated its cost to settle its
lease obligation, net of sublease income, was $77,400 and charged such
amount to earnings. During fiscal 1992, that estimate was revised and
an additional $149,000 charged to operations. There are no other
commitments under this lease.
F-19
<PAGE> 97
NOTE L - ACQUISITIONS
1. Wico Merger - The Wico Merger has been treated as a recapitalization
and reverse acquisition of Conquest. The Company has decided to dispose
of all of the operating assets of Conquest. Thus, the assets acquired
consisted primarily of cash, estimated value to be received upon
disposition of the aviation operations, liabilities assumed and the
related tax effect. In August, 1994 the Company decided that it would
sell the aviation operations because of the Company's projection that
the aviation operations were incurring significant cash losses. In
January, 1995 the Company took certain actions to reduce the cash
losses of the aviation operations. Those actions included an increase
in airfares and reducing the number of planes under lease.
An aviation consultant was hired by the Company to evaluate the
aviation operations. The report of the consultant concluded that the
actions taken by the Company, if ultimately combined with a track
record of future earnings, would permit the Company to obtain a
valuation of between five million and six million dollars. In
consideration of the report, the Company established a value of
$4,250,000.
The Company is engaged in discussions with a number of potential buyers
for the aviation operations, however, no definitive agreements have
been reached. Accordingly, although it believes its estimate of
$4,250,000 as the amount to be realized upon sale is reasonable, the
ultimate amount attained will be dependent upon the outcome of
negotiations. The current discussions indicate that the Company could
receive some package of securities, such as notes or restricted stock,
whose values will have to be evaluated.
In the event the Company is unable to find a buyer for its aviation
operation it will consider other alternatives to dispose of the
airline.
Presented below are the assets acquired and liabilities assumed.
Operating lease obligations (principally for turbo-prop airplanes) at
September 30, 1994 is presented later in the notes.
<TABLE>
<S> <C>
Cash $ 6,168,000
Deferred tax asset 890,000
Net assets of discontinued Airline operation (a) 4,250,000
Estimated costs to dispose of Airline operation (a) (1,951,000)
Other costs and liabilities assumed (a) (718,000)
-----------
$ 8,639,000
===========
</TABLE>
(a) The net assets of the airline operation consist principally of
accounts receivable, inventory and property and equipment. Prior
to the Wico Merger, Conquest Airlines had net assets of
approximately $8.0 million.
At September 30, 1994, the aviation operation had operating leases,
principally for turbo prop aircraft aggregating $6,150,000. The amounts
due over the next five years are
F-20
<PAGE> 98
approximately as follows:
<TABLE>
<S> <C>
1995 $ 2,213,000
1996 2,066,000
1997 1,523,000
1998 348,000
-----------
Total $ 6,150,000
</TABLE>
2. Langworthy - As discussed in Note A, during June 1994, the Company
acquired certain assets and liabilities of Langworthy. The purchase
price paid, including costs related to the transaction, amounted to
approximately $2,128,000. The acquisition has been accounted for by the
purchase method of accounting and accordingly, the purchase price has
been allocated to the assets acquired and liabilities assumed based on
their estimated market value at the date of acquisition. The excess of
the purchase price over the fair market values of net assets acquired
has been recorded as goodwill. The fair market values of these assets
and liabilities are summarized as follows:
<TABLE>
<S> <C>
Accounts receivable $ 386,000
Inventories 189,000
Machinery and equipment 14,000
Other assets 28,000
Goodwill 1,939,000
Accounts payable and accruals (including
customer deposits of $125,000) (428,000)
-----------
$ 2,128,000
===========
</TABLE>
Summarized below are the consolidated results of operations on a
pro-forma basis as if the acquired Langworthy business had been
acquired as of the beginning of the periods presented. The pro forma
information is based on Langworthy and Wico's audited historical
results of operations, giving effect for certain pro-forma adjustments.
Such pro-forma adjustments consist of (i) elimination of the write off
of registration costs in 1994 and the write off of certain deferred
debt issuance costs in 1994 net of applicable taxes; and, (ii) the
amortization of goodwill related to the Langworthy acquisition in 1994
and 1993 over twenty-five years.
<TABLE>
<CAPTION> Year Ended September 30,
------------------------------
1994 1993
----------- -----------
<S> <C> <C>
Net sales $45,306,719 $43,440,791
Net income 458,000 721,000
Net income per common share $ .02 $ .07
</TABLE>
F-21
<PAGE> 99
NOTE M - SEGMENT INFORMATION
Summary information for the Company's industry segments is as follows:
FOR THE YEAR ENDED SEPTEMBER 30, 1994:
<TABLE>
<CAPTION>
Gaming Distribution Consumer Total
------ ------------ -------- -----
<S> <C> <C> <C> <C>
Sales $1,194,381 $32,202,147 $8,594,984 $41,991,512
Operating income (loss) (91,813) 2,851,018 486,279 3,245,484
General corporate expense 300,000
Other expenses 2,395,658
Income before taxes 549,826
Identifiable assets 2,232,602 15,007,755 6,000,872 23,241,229
Corporate assets 4,194,471
Total assets 27,435,700
Other information:
Depreciation and 29,165 767,282 87,684 884,131
Amortization
Capital acquisitions 28,042 133,379 127,271 288,692
</TABLE>
F-22
<PAGE> 100
FOR THE YEAR ENDED SEPTEMBER 30, 1993:
<TABLE>
<CAPTION>
DISTRIBUTION CONSUMER TOTAL
------------ -------- -----
<S> <C> <C> <C>
Sales $32,980,709 $ 5,801,877 $38,782,586
Operating income 3,091,850 7,165 3,099,015
General corporate expenses 300,000
Other expenses 2,070,956
Income before taxes 728,059
Identifiable assets 12,801,635 6,757,398 19,559,033
Corporate assets 353,137
Total assets 19,912,170
Other information
Depreciation and amortization 927,101 231,425 1,159,126
Capital acquisitions 120,387 77,536 197,923
FOR THE YEAR ENDED SEPTEMBER 30, 1992:
<CAPTION>
DISTRIBUTION CONSUMER TOTAL
------------ -------- -----
<S> <C> <C> <C>
Sales $32,479,774 $ 6,173,530 $38,653,304
Operating income 2,162,313 88,690 2,251,003
General corporate expenses 300,000
Other expenses 2,689,157
Loss before taxes (738,154)
Identifiable assets 14,458,287 6,698,575 21,156,862
Corporate assets 227,587
Total assets 21,384,449
Other information
Depreciation and amortization 1,989,869 295,357 2,255,226
Capital acquisitions 51,399 93,361 144,760
</TABLE>
F-23
<PAGE> 101
NOTE N - STOCKHOLDERS' EQUITY
At September 30, 1994, Conquest has the following outstanding
securities which may result in the issuance of common stock:
<TABLE>
<CAPTION>
SHARES OF EXERCISE EXPIRATION
DESCRIPTION COMMON PRICE DATES
------ -------- ----------
<S> <C> <C> <C>
10% Convertible Notes Varying (a) 1996
Options for convertible noteholders 55,000 11.88 -
Series B preferred 1,030,000 (b) -
Series A preferred 8,000 11.50 -
Class B Warrants 2,173,000 $11.88 (d)
Bank Warrant 400,000 (a) 2003
Blue Diamond Warrant 200,000 (a) 2004
Options and warrants issued to
executives, employees and
Board members (c) 739,500 2.50 - 17.50 1998-1999
Underwriters warrants 106,000 10.00 - 12.50 1999
</TABLE>
(a) Convertible at 80% of market price on date of conversion. Had
the notes been converted at September 30, 1994, there would
have been 610,000 shares issued. In addition, all noteholders
who convert receive an option to purchase 500 shares of common
stock for every $25,000 of notes converted.
(b) Convertible at .368 shares of common for each share of
preferred.
(c) All options to executives, employees and Board members were
issued in fiscal 1994 at fair value or were assumed on the
consummation of the Wico merger. No options were exercised or
canceled during the year.
(d) Expires five years after the date the Company is able to have
an effective registration.
NOTE O - SUBSEQUENT EVENT (UNAUDITED)
At September 30, 1995, the Company was not in compliance with certain
financial covenants under its loan agreement with its institutional
lender. In connection with the October 20, 1995 refinancing of the
Company's long term debt, any defaults under this previous debt
agreement were cured. However, the Company is required to comply with
several financial covenants under the new credit agreements,
commencing December 31, 1995.
F-24
<PAGE> 102
CONQUEST INDUSTRIES INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
June 30,
1995 June 30, September 30,
Pro-Forma 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 1,633,526 $ 1,909,276 $ 1,007,880
Trade accounts receivable, less allowance for
doubtful accounts 4,364,708 4,364,708 5,694,272
Other receivables 209,227 209,227 323,843
Inventories 7,942,219 7,942,219 8,495,479
Prepaid expenses and other current assets 881,741 881,741 235,344
----------- ----------- -----------
TOTAL CURRENT ASSETS 15,031,421 15,307,171 15,756,818
MACHINERY AND EQUIPMENT - NET 961,414 961,414 1,071,301
DEFERRED TAXES 1,857,900 1,857,900 753,000
INTANGIBLE AND OTHER ASSETS - NET 6,714,320 6,151,820 5,979,581
NET ASSETS OF AIRLINE TRANSFERRED UNDER
CONTRACTUAL ARRANGEMENT 4,250,000 4,250,000 -
NET ASSETS OF AIRLINE HELD FOR SALE - - 4,250,000
----------- ----------- -----------
$28,815,055 $28,528,305 $27,810,700
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-25
<PAGE> 103
CONQUEST INDUSTRIES INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30,
1995 June 30, September 30,
Pro-Forma 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 5,273,625 $ 6,083,625 $ 4,634,545
Accrued expenses 2,609,436 2,609,436 3,331,344
Current portion of long-term debt - 1,500,000 1,500,000
Notes payable - shareholder - 150,000 -
Income taxes payable 72,340 72,340 25,018
------------ ------------ ------------
TOTAL CURRENT LIABILITIES 7,955,401 10,415,401 9,490,907
LONG-TERM DEBT 18,396,349 17,443,349 16,705,849
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY :
Preferred stock, authorized 5,000,000 shares, issuable in series
Series A, preferred stock, $.10 par value; 7,550 issued and
outstanding (liquidation preference: $93,257) 755 755 755
Series B, convertible redeemable preferred stock, no par
value; 2,800,000 shares issued and outstanding 2,800,000 2,800,000 2,800,000
Series D, redeemable preferred stock, no par value;
600,000 shares issued and outstanding ($200,000
liquidation preference - 200,000 -
Common stock, $.01 par value; 25,000,000 shares authorized;
10,273,921 shares issued and outstanding 123,380 102,739 91,587
Additional paid-in capital 18,378,289 15,846,430 12,748,815
Accumulated deficit (18,759,383) (18,200,633) (13,945,520)
Foreign currency translation adjustment (79,736) (79,736) (81,693)
------------ ------------ ------------
2,463,305 669,555 1,613,944
------------ ------------ ------------
$ 28,815,055 $ 28,528,305 $ 27,810,700
============ ============ ============
</TABLE>
See notes to financial statements.
F-26
<PAGE> 104
CONQUEST INDUSTRIES INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended June 30, Nine months ended June 30,
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 8,810,363 $ 9,262,559 $ 29,341,087 $ 30,676,828
COST OF SALES 5,631,474 5,746,151 18,779,667 18,748,075
------------ ------------ ------------ ------------
GROSS PROFIT 3,178,889 3,516,408 10,561,420 11,928,753
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Selling, distribution and administrative expenses 3,679,248 2,887,071 10,655,338 9,218,380
Depreciation and amortization expense 136,328 92,328 391,985 232,270
Loss from airline operations 2,092,051 - 2,703,059 -
------------ ------------ ------------ ------------
5,907,127 2,979,399 13,750,382 9,450,650
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) (2,728,738) 537,009 (3,188,962) 2,478,103
------------ ------------ ------------ ------------
OTHER EXPENSES (INCOME):
Interest expense 577,634 449,309 1,639,115 1,309,620
Amortization of debt discount 290,000 - 775,000 -
Write off of registration costs - 268,000 - 268,000
Other-net 76,522 19,233 181,036 27,758
------------ ------------ ------------ ------------
944,156 736,542 2,595,151 1,605,378
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (3,672,894) (199,533) (5,784,113) 872,725
------------ ------------ ------------ ------------
PROVISION FOR INCOME TAXES (BENEFIT) (1,230,000) (101,450) (1,739,000) 323,000
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (2,442,894) $ (98,083) $ (4,045,113) $ 549,725
============ ============ ============ ============
EARNINGS (LOSS) PER SHARE
Net inncome (loss) $ (0.26) $ (0.03) $ (0.46) $ 0.03
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES 9,530,000 7,181,000 9,345,000 7,181,000
============ ============ ============ ============
</TABLE>
See notes to financial statements.
F-27
<PAGE> 105
CONQUEST INDUSTRIES INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Preferred Stocks
Series A Series B
Shares Amount Shares Amount
----- ------- --------- ------------
<S> <C> <C> <C> <C>
BALANCE - SEPTEMBER 30, 1994 7,550 $ 755 2,800,000 $ 2,800,000
Net loss - - - -
Reallocation of purchase of CAC.
Preferred stock dividend - - - -
Issuance of Series D preferred stock in exchange for
shareholder loans - - - -
Issuance of common stock - -
Translation of foreign currency - - - -
Issuance of warrants in connection with debt - - - -
----- ------- --------- ------------
BALANCE - June 30, 1995 (unaudited) 7,550 $ 755 2,800,000 $ 2,800,000
===== ======= ========= ============
<CAPTION>
Series D Common Stock Paid-in Treasury
Shares Amount Shares Amount Capital Stock
------- ------------ ---------- ------------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - SEPTEMBER 30, 1994 - - 9,158,676 $ 91,587 12,748,815 $ -
Net loss 1,286,000
Reallocation of Purchase of CAC.
Preferred stock dividend
Issuance of Series D preferred stock in exchange for
shareholder loans 200,000 200,000 102,000
Issuance of common stock 1,115,245 11,152 1,559,615
Translation of foreign currency
Issuance of warrants in connection with debt 150,000
------- ----------- ---------- ------------ ---------- -------
BALANCE - June 30, 1995 (unaudited) 200,000 $ 200,000 10,273,921 $ 102,739 15,846,430 $ -
======= =========== ========== ============ ========== =======
<CAPTION>
Foreign
Retained Currency
Earnings Translation
(Deficit) Adjustment Totals
------------- ----------- -----------
<S> <C> <C> <C>
BALANCE - SEPTEMBER 30, 1994 $(13,945,520) $ (81,693) $1,613,944
Net loss (4,045,113) (4,045,113)
Reallocation of Purchase of CAC, Net of tax
benefit pf $630,000 1,286,000
Preferred stock dividend (210,000) (210,000)
Issuance of Series D preferred stock in exchange for
shareholder loans 302,000
Issuance of common stock 1,570,767
Translation of foreign currency 1,957 1,957
Issuance of warrants in connection with debt 150,000
------------- --------- -----------
BALANCE - June 30, 1995 $(18,200,633) $ (79,736) $ 669,555
============ ========= ===========
</TABLE>
See notes to financial statements.
F-28
<PAGE> 106
CONQUEST INDUSTRIES INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended June 30,
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(4,045,113) $ 549,725
----------- -----------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 1,650,687 557,196
Provision for bad debts 80,910 88,734
Issuance of Series D Preferred Stock 102,000 -
Deferred income taxes (1,739,000) -
Cumulative losses from airline operations 1,916,000 -
Write off of registration costs 268,000
Changes in assets and liabilities:
Decrease in trade and other accounts receivable 1,248,654 246,371
Decrease in inventories 553,260 350,749
Increase in prepaid expenses and other current assets (568,987) (8,170)
Increase in intangibles and other assets (325,864) (629,949)
Increase in accounts payable 1,449,080 198,332
Increase (decrease) in income taxes payable 47,322 (336,415)
Decrease in accrued expenses (731,863) (228,160)
----------- -----------
TOTAL ADJUSTMENTS 3,682,199 506,688
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (362,914) 1,056,413
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (296,794) (195,786)
Cash paid for acquired business - (1,750,000)
Cash of acquired airline subsidiary - 5,934,663
Other - 12,058
----------- -----------
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES (296,794) 4,000,935
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term financing (1,125,000) (5,096,755)
Preferred stock dividends (210,000) (300,000)
Proceeds from revolving credit line - 100,000
Proceeds from issuance of promissory notes, net 1,123,369 -
Proceeds from issuance of preferred stock 200,000 -
Proceeds from issuance of common stock 1,570,767
Effect of foreign currency exchange rate changes 1,968 26,294
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES 1,561,104 (5,270,461)
----------- -----------
NET INCREASE (DECREASE) IN CASH 901,396 (213,113)
CASH AT BEGINNING OF PERIOD 1,007,880 791,038
----------- -----------
CASH AT END OF PERIOD $ 1,909,276 $ 577,925
=========== ===========
</TABLE>
See notes to financial statements.
F-29
<PAGE> 107
CONQUEST INDUSTRIES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Continued)
<TABLE>
<CAPTION>
Nine months ended June 30,
1995 1994
----------- ----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 1,656,569 $1,310,000
=========== ==========
Income taxes $ - $ 614,000
=========== ==========
Noncash investing and financing activities:
Issuance of Series D preferred stock $ 102,000 $ -
=========== ==========
Assets acquired in exchange for common stock $ - $4,950,000
=========== ==========
</TABLE>
See notes to financial statements.
F-30
<PAGE> 108
CONQUEST INDUSTRIES INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying financial statements reflect all adjustments which, in the
opinion of management, are necessary for a fair presentation of the financial
position and the results of operations for the interim periods presented. All
such adjustments are of a normal and recurring nature. The results of operations
for any interim period are not necessarily indicative of a full year.
Certain financial information which is normally included in the financial
statements prepared in accordance with generally accepted accounting principles,
which is not required for interim reporting purposes has been condensed or
omitted. The accompanying financial statements should be read in conjunction
with the consolidated financial statements and notes thereto (the "Consolidated
Financial Statements") as filed by the Company with the Securities and Exchange
Commission in the Company's annual report on Form 10-K for the fiscal year ended
September 30, 1994.
2. EARNINGS (LOSS) PER SHARE
The computation of earnings per common and common equivalent share is based
upon the weighted average number of common shares outstanding during the period
plus (in periods in which they have a dilutive effect) the effect of common
shares contingently issuable, primarily from stock options, exercise of warrants
and the conversion of preferred stock. Such dilutive securities included in the
number of common shares outstanding are based on the treasury stock method.
3. SALE OF CONQUEST AIRLINES CORP.
Effective as of June 30, 1995 the Company transferred pursuant to a
contractual arrangement all of the common stock of its wholly-owned subsidiary,
Conquest Airlines Corp. ("CAC") to Air L.A., Inc. ("Air LA"), for
consideration consisting of (1) a $3,000,000 convertible promissory note of
Air LA, (2) an 8% promissory note of Air LA in the principal amount of
$1,000,000 and (3) an additional 8% promissory note of Air LA in the principal
amount of $2,000,000 representing Air LA's assumption of certain intercompany
indebtedness previously owed by CAC to the Company.
At the closing of the sale, the Company loaned to CAC the sum of $250,000
which is repayable (together with interest at 8% per annum) out of the proceeds
of Air LA's next public offering or private equity offering, or otherwise on
demand made at any time after July 31, 1995. The aforementioned promissory
notes are collateralized by all of the assets of Air LA and CAC. The $250,000
loan is collateralized only by the assets of CAC.
During the nine months ended June 10, 1995 the company recorded losses from
its commuter airline operation conducted by Conquest Air of approximately
$2,703,000 including cumulative adjustments of $1,916,000 which have been
treated as a reallocation of the purchase of the commuter air operation and
recorded as a creit to additional paid in capital (net of tax benefits of
$630,000) of June 30, 1995.
F-31
<PAGE> 109
The $3,000,000 convertible promissory note will, upon Air LA's authorization
of such preferred stock, (which is anticipated to occur in the month of August
1995), automatically convert into $3,000,000 of non - dividend bearing
convertible preferred stock of Air LA, which in turn will be convertible, at the
option of the Company, commencing not later than December 31, 1995, into shares
of common stock of Air LA over a two year period at prevailing market prices for
such common stock. Such convertible promissory note, and the convertible
preferred stock, entitles the Company, at its discretion, to elect two members
to the Board of Directors of Air LA.
Subject to certain mandatory prepayments out of the proceeds of equity
offerings made by Air LA, the $1,000,000 promissory note and the $2,000,000
promissory note issued as part of the sale of CAC will be repayable in quarterly
installments of $75,000 each (in the aggregate as between the two notes)
commencing not later than September 30,1996, with all remaining unpaid principal
becoming due and payable in a balloon payment due June 30, 2000.
Prior to the sale, CAC was in default under certain of its aircraft leases
and although Air LA has agreed to cure the existing defaults under CAC's leases
with respect to six of its aircraft being operated by CAC at the time of the
sale, the Company will remain liable under such leases unless and until Air LA
provides satisfactory deposits and/or other assurances satisfactory to the
lessors, in order to obtain the release of the Company from the obligations
under such leases.
Air LA has received a financing commitment from a lender to provide a
refinancing of its indebtedness secured by all of its assets, including the
acquired assets owned by its CAC subsidiary. Air LA is also exploring the
possibility of a private placement of securities, as well as a secondary
public offering of its common shares. In light of the significance of Air
LA's recent operating losses as reported in documents filed with the Securities
and Exchange Commission, the consummation of such debt financing within the next
ninety days, as well as a contemplated offering of Air LA equity securities in
calendar 1995, is of material importance to Air LA's ability to both cure
the Company's defaults to the CAC aircraft lessors and to meet its obligations
to the Company arising from the sale of CAC. Because of the matters discussed
above, the Company has recorded the transaction as net assets of a business
transferred under contractual arrangement in the amount of $4,250,000. The
Company will account for its investment in Air L.A. on the equity method. At
the present time, based upon information provided by Air L.A., the Company has
been informed that its equity ownership for purposes of accruing losses is
approximately 15%. In addition, the Company will quarterly evaluate the
carrying value of its investment for impairment purposes based upon its
estimate of the undiscounted cash flows it expects to receive from Air L.A.
4. PRIVATE PLACEMENT OF COMMON STOCK
In June and July 1995, the Company issued an aggregate of 2,094,500 shares
of common stock at a price of approximately $1.41 per share, yielding total
proceeds to the Company of approximately $2,950,000 of which approximately
$1,570,000 was received in June and $1,380,000 in July 1995. In July 1995,
the Company utilized $350,000 of such proceeds to redeem (for $200,000)
the outstanding shares of Series D Preferred Stock and to repay a $150,000
loan owed to an affiliate of an executive officer (collectively, the "Bridge
Repayment"). (see Note 8)
F-32
<PAGE> 110
5. CONTEMPLATED CREDITOR AGREEMENTS
In June 1995 the Company reached tentative agreement with certain of its
trade creditors whereby, subject to the effectiveness of a registration
statement in respect of among others, these shares, and the further final
agreement of such creditors to accept such shares, creditors of the Company
holding trade indebtedness in the aggregate amount of approximately $700,000
have agreed to consider accepting up to 350,000 shares of common stock of he
Company in extinguishment of such claims.
6. ACQUISITION OF LANGWORTHY CASINO SUPPLY
In June 1994 the company completed the aquisitions of Langworthy Casino
Supply. The following table sets forth pro-forma results of operations for the
Company and Langworthy Casino Supply as if the Langworthy acquisition took place
on October 1, 1993.
<TABLE>
<CAPTION>
Nine months ended June
30, 1994
----------------------
<S> <C>
Revenues, net $ 33,992,035
----------------------
Operating income $ 3,017,964
----------------------
Pro-forma net income $ 918,000
======================
Pro-forma income per share $ .07
======================
</TABLE>
7. ISSUANCE OF PREFERRED STOCK AND RELATED MATTERS
(a) In February 1995, the Company borrowed $200,000 from the Blum
Asset Trust ("BAT") an affiliate of Bentley J. Blum, a principal shareholder and
a director The loan was non-interest bearing and was repayable on demand. In
May 1995, pursuant to a prior agreement, the loan was converted into 600,000
shares of new Series D preferred Stock of the Company, and the Company
simultaneously issued to BAT warrants entitling BAT to purchase, at any time
on or before February 15, 2000, up to 600,000 shares of Common Stock at a price
of $.3333 per share (subject to adjustment under certain circumstances); and
one-third of such warrants are subject to cancellation if all of the shares of
Series D Preferred Stock are redeemed on or before August 15, 1995. BAT has the
right to pay the exercise price under such warrants by delivering to the
Company for cancellation a number of shares of Series D Preferred Stock having
an aggregate liquidation preference equal to the amount of the subject
exercise price.
F-33
<PAGE> 111
8. PRO-FORMA BALANCE SHEET
The June 30, 1995 historical balance sheet has been adjusted to give effect
to (1) the receipt of the balance of funds related to the completion of the
private placement of common stock (less estimated expenses of the offering)
(1) ($1,180,000) and (2) the redemption and repayment of the Series D
preferred stock and shareholder loan, respectively as referred to in
Note 4.
9. SUMMARIZED FINANCIAL INFORMATION OF
CONQUEST AIRLINES CORP.
The following sets forth the summarized financial information of Conquest
Airlines Corp. as of June 30, 1995 and for the nine months then ended
Current assets $ 665,000
Property and equipment, net 2,035,000
Current liabilities 1,834,000
Long term debt 184,000
Revenues 6,440,000
Cost of operations 3,058,000
Loss from operations (a) (1,753,000)
(a) Not included in the losses from commuter airline operations for the nine
months ended June 30, 1995 are losses from June 20, 1994 (acquisition date)
through Conquests fiscal year ended Septemer 30, 1994 of approximately
$950,000.
10. SUBSEQUENT EVENTS
At September 30, 1995, the Company was not in compliance with certain
financial covenants under its loan agreement with its institutional
lender. In connection with the October 20, 1995 refinancing of the
Company's long term debt, any defaults under this previous debt
agreement were cured. However, the Company is required to comply with
several financial covenants under the new credit agreements,
commencing December 31, 1995.
F-34
<PAGE> 112
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
Langworthy Casino Supply
I have audited the accompanying balance sheet of Langworthy Casino
Supply as of September 30, 1993 and the related statements of income,
divisional equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I 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. I believe that my audit provides a reasonable basis
for my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Langworthy Casino
Supply as of September 30, 1993 and the results of its operations and cash
flows for the year the ended in conformity with generally accepted accounting
principles.
/s/ ALLEN G. ROTH
---------------------------
Allen G. Roth
Certified Public Accountant
New York, New York
January 10, 1994
F-35
<PAGE> 113
LANGWORTHY CASINO SUPPLY
BALANCE SHEET
SEPTEMBER 30, 1993
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
CURRENT ASSETS:
Cash $ 344,056
Accounts receivable,
less allowance for doubtful accounts of $56,000 438,900
Inventories (Note 2) 283,222
----------
TOTAL CURRENT ASSETS 1,066,178
LEASEHOLD AND EQUIPMENT,
less accumulated depreciation of $97,926 28,694
----------
$1,094,872
==========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND DIVISIONAL EQUITY
---------------------------------
<S> <C>
CURRENT LIABILITIES:
Accounts payable $ 582,457
Accrued taxes and expenses 21,850
Customer deposits 110,282
----------
TOTAL CURRENT LIABILITIES 714,589
COMMITMENTS (Note 4)
DIVISIONAL EQUITY 380,283
----------
$1,094,872
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-36
<PAGE> 114
LANGWORTHY CASINO SUPPLY
STATEMENT OF INCOME
YEAR ENDED SEPTEMBER 30, 1993
<TABLE>
<S> <C>
SALES $4,657,935
COST OF SALES 3,282,064
----------
GROSS PROFIT 1,375,871
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES (Notes 3 and 4) 872,033
----------
INCOME BEFORE PRO-FORMA INCOME TAXES 503,838
PRO-FORMA INCOME TAXES 175,000
----------
PRO-FORMA NET INCOME $ 328,838
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-37
<PAGE> 115
LANGWORTHY CASINO SUPPLY
STATEMENT OF DIVISIONAL EQUITY
YEAR ENDED SEPTEMBER 30, 1993
<TABLE>
<S> <C>
BALANCE AT BEGINNING OF YEAR $ 21,626
Income before pro-forma income taxes 503,838
---------
525,464
Interdivisional transfers and distributions (145,181)
---------
BALANCE AT END OF YEAR $ 380,283
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-38
<PAGE> 116
LANGWORTHY CASINO SUPPLY
STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1993
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before pro-forma income taxes $ 503,838
Items not requiring the use of cash:
Depreciation 13,427
Increase in allowance for doubtful accounts 31,000
Change in assets and liabilities:
Accounts receivable (69,439)
Inventories (139,535)
Accounts payable and accrued expenses (26,275)
Customer deposits 2,681
---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 315,697
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (33,803)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Interdivisional transfers and distributions (145,181)
---------
NET INCREASE IN CASH 136,713
CASH AT BEGINNING OF YEAR 207,343
---------
CASH AT END OF YEAR $ 344,056
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ -
=========
Income taxes $ -
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-39
<PAGE> 117
LANGWORTHY CASINO SUPPLY
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1993
1. SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Presentation - The financial statements include
the financial position and results of operations of certain operating
divisions owned by Langworthy Casino Supply, Inc. (the "Corporation")
that are engaged in the manufacture of dice, gaming table layouts and
casino chips and also the distribution of casino furniture, playing
cards and various other accessories used in the gaming industry
(hereinafter the "Company").
On November 24, 1993, Langworthy signed a letter of
intent to sell the above described businesses to Wico Holding Corp.
subject to the execution of a definitive purchase agreement.
B. Inventories - Inventories are valued at the lower of
cost (first-in, first-out method) or market.
C. Depreciation and Amortization - Furniture, fixtures and
equipment are depreciated by the straight-line method over five years,
the estimated useful lives of such assets. Leasehold improvements are
amortized over the lesser of the lease terms or the estimated useful
lives of the improvements.
D. Federal income taxes have been provided on a pro-forma
basis as if the Company filed a separate tax return from that of its
affiliated entities. Income taxes were computed using a Federal tax
rate of 34.75%.
2. INVENTORIES
Inventories are as follows:
<TABLE>
<CAPTION>
September 30,
1993 1992
-------- --------
<S> <C> <C>
Finished goods $ 84,967 $ 44,440
Work-in-process 19,826 10,369
Raw materials and supplies 178,429 88,878
------- -------
$283,222 $143,687
======= =======
</TABLE>
F-40
<PAGE> 118
3. RELATED PARTY TRANSACTIONS
During the year ended September 30, 1993, Langworthy (the
Corporation) charged the Company $872,000 for management, selling and
administrative services. During that same period, the Company
transferred merchandise valued at $109,000 to a retail store owned by
Langworthy's sole stockholder.
4. LEASE COMMITMENTS
The Company rents its operating facilities from two officers
of Langworthy. Aggregate annual rentals of $110,880 are payable for
such facilities through March 31, 1998. Rent expense for the year ended
September 30, 1993 was $58,505.
5. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
Balance at Retirements Balance at
Beginning Additions and other End of
Classification of Period at Cost Changes Period
-------------- ---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Leasehold $ 4,104 $13,607 $ - $ 17,711
Equipment 88,713 20,196 - 108,909
------- ------- ------- --------
$92,817 $33,803 $ - $126,620
======= ======= ======= ========
</TABLE>
6. ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
Balance at Retirements Balance at
Beginning Additions and other End of
Classification of Period at Cost Changes Period
-------------- ---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Leasehold $ 4,104 $ 2,415 $ - $ 6,519
Equipment 80,395 11,012 - 91,407
------- ------- ------- -------
$84,499 $13,427 $ - $97,926
======= ======= ======= =======
</TABLE>
F-41
<PAGE> 119
7. VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged Balance at
Beginning to End of
Classification of Period Expense Deductions Period
-------------- ---------- ------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts $25,000 $31,000 $ - $56,000
======= ======= ======= =======
8. SUPPLEMENTARY INCOME STATEMENT INFORMATION
Maintenance and repairs $81,935
=======
</TABLE>
Other items are less than 1% of sales.
F-42
<PAGE> 120
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
Langworthy Casino Supply
I have audited the accompanying balance sheet of Langworthy Casino
Supply as of September 30, 1992 and the related statements of income,
divisional equity and cash flows for the years ended September 30, 1992 and
1991. These financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these financial
statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I 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. I believe that my audit provides a reasonable basis
for my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Langworthy Casino
Supply as of September 30, 1992 and 1991 in conformity with generally accepted
accounting principles.
/s/ ALLEN G. ROTH
------------------------------
Allen G. Roth
Certified Public Accountant
New York, New York
May 20, 1994
F-43
<PAGE> 121
LANGWORTHY CASINO SUPPLY
BALANCE SHEET
SEPTEMBER 30, 1992
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
CURRENT ASSETS:
Cash $207,343
Accounts receivable,
less allowance for doubtful accounts of $25,000 400,461
Inventories (Note 2) 143,687
--------
TOTAL CURRENT ASSETS 751,491
LEASEHOLD AND EQUIPMENT,
less accumulated depreciation of $84,499 8,318
--------
$759,809
========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND DIVISIONAL EQUITY
---------------------------------
<S> <C>
CURRENT LIABILITIES:
Accounts payable $596,992
Accrued taxes and expenses 33,590
Customer deposits 107,601
--------
TOTAL CURRENT LIABILITIES 738,183
DIVISIONAL EQUITY 21,626
--------
$759,809
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-44
<PAGE> 122
LANGWORTHY CASINO SUPPLY
STATEMENT OF INCOME
YEAR ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1992 1991
---------- ----------
<S> <C> <C>
SALES $3,256,633 $2,832,667
COST OF SALES 2,218,782 1,974,694
---------- ----------
GROSS PROFIT 1,037,851 857,973
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
(NOTE 3) 837,732 759,584
---------- ----------
INCOME BEFORE PRO-FORMA INCOME TAXES 200,119 98,389
PRO-FORMA INCOME TAXES 74,044 36,404
---------- ----------
PRO-FORMA NET INCOME $ 126,075 $ 61,985
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-45
<PAGE> 123
LANGWORTHY CASINO SUPPLY
STATEMENT OF DIVISIONAL EQUITY
YEARS ENDED SEPTEMBER 30, 1992 AND 1991
<TABLE>
<S> <C>
BALANCE AT OCTOBER 1, 1990 $ 242,450
Income before pro-forma income taxes 98,389
---------
340,839
Interdivisional transfers and distributions 40,321
---------
BALANCE AT SEPTEMBER 30, 1991 381,160
Income before pro-forma income taxes 200,119
---------
581,279
Interdivisional transfers and distributions (559,653)
---------
BALANCE AT SEPTEMBER 30, 1992 $ 21,626
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-46
<PAGE> 124
LANGWORTHY CASINO SUPPLY
STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1992 1991
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before pro-forma income taxes $ 200,119 $ 98,389
Items not requiring the use of cash:
Depreciation 13,000 13,000
Change in assets and liabilities:
Accounts receivable (148,821) (58,401)
Inventories 30,253 (18,363)
Accounts payable and accrued expenses 256,133 186,064
Customer deposits 41,076 (28,027)
--------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 391,760 192,662
CASH FLOWS FROM INVESTING ACTIVITIES - -
CASH FLOWS FROM FINANCING ACTIVITIES:
Interdivisional transfers and distributions (559,653) 40,321
--------- --------
NET INCREASE IN CASH (167,893) 232,983
CASH AT BEGINNING OF PERIOD 375,236 142,253
--------- --------
CASH AT END OF PERIOD $ 207,343 $375,236
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ - $ -
========= ========
Income taxes $ - $ -
========= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-47
<PAGE> 125
LANGWORTHY CASINO SUPPLY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1992 AND 1991
1. SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Presentation - The financial statements include
the financial position and results of operations of certain operating
divisions owned by Langworthy Casino Supply, Inc. (the "Corporation")
that are engaged in the manufacture of dice, gaming table layouts and
casino chips and also the distribution of casino furniture, playing
cards and various other accessories used in the gaming industry
(hereinafter the "Company").
On November 24, 1993, Langworthy signed a letter of
intent to sell the above described businesses to Wico Holding Corp.
subject to the execution of a definitive purchase agreement.
B. Inventories - Inventories are valued at the lower of cost
(first-in, first-out method) or market.
C. Depreciation and Amortization - Furniture, fixtures and
equipment are depreciated by the straight-line method over five years,
the estimated useful lives of such assets. Leasehold improvements are
amortized over the lesser of the lease terms or the estimated useful
lives of the improvements.
D. Federal income taxes have been provided on a pro-forma
basis as if the Company filed a separate tax return from that of its
affiliated entities. Income taxes were computed using a Federal tax
rate of 34 percent.
2. INVENTORIES
Inventories are as follows:
<TABLE>
<CAPTION>
1992
--------
<S> <C>
Finished goods $ 44,440
Work-in-process 10,369
Raw materials and supplies 88,878
--------
</TABLE>
F-48
<PAGE> 126
<TABLE>
<S> <C>
$143,687
========
</TABLE>
3. RELATED PARTY TRANSACTIONS
During the years ended September 30, 1992 and 1991, Langworthy
(the Corporation) charged the Company $837,000 and $759,000 for
management, selling and administrative services. During the same
period, the Company transferred merchandise valued at $77,000 and
$66,000, respectively to a retail store owned by Langworthy's sole
stockholder.
F-49
<PAGE> 127
CONQUEST INDUSTRIES INC. AND SUBSIDIARIES
PRO-FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1994
(Unaudited)
<TABLE>
<CAPTION>
Conquest Industries Inc.
& Subsidiaries Pro-Forma
As Reported Langworthy Combined Adjustments Pro-Forma
------------------------- ---------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES $41,991,512 $3,315,207 $45,306,719 $ $45,306,719
COST OF SALES 26,078,087 2,323,663 28,401,750 28,401,750
----------- ---------- ----------- -------- -----------
GROSS PROFIT 15,913,425 991,544 16,904,969 16,904,969
OPERATING EXPENSES:
Selling, distribution and
administrative expenses 12,592,710 683,948 13,276,658 13,276,658
Amortization expense 375,232 375,232(1) 58,000 433,232
----------- ---------- ----------- ------- -----------
Total operating expenses 12,967,942 683,948 13,651,890 58,000 13,709,890
----------- ---------- ----------- ------- -----------
OPERATING INCOME 2,945,483 307,596 3,253,079 3,195,079
OTHER INCOME (EXPENSE):
Interest expense (1,731,377) -- (1,731,377) (1,731,377)
Amortization of debt discount (282,500) -- (282,500) (282,500)
Write off of registration costs (175,394) -- (175,394) (175,394)
Other (266,387) -- (266,387) (266,387)
----------- ---------- ----------- -------- ----------
Total other income (expense) (2,455,658) -- (2,455,658) (2,455,658)
----------- ---------- ----------- -------- ----------
INCOME (LOSS) BEFORE TAXES 489,825 307,596 797,421 58,000 739,421
PROVISION FOR INCOME TAXES 206,201 107,043 313,244(4) 32,244 281,000
----------- ---------- ---------- -------- ----------
NET INCOME $ 283,624 $ 200,553 $ 484,177 $283,574 $ 458,421
=========== ========== ========== ======== ==========
</TABLE>
See Notes to Pro-Forma Consolidated Statement of Operations
F-50
<PAGE> 128
CONQUEST INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SEPTEMBER 30, 1994
(UNAUDITED)
Pro forma adjustments have been made to reflect:
1. The amortization of goodwill related to the purchase of certain of the
assets (subject to certain liabilities) of Langworthy Casino Supply over
30 years.
2. The income tax effect of the above at 38%.
F-51
<PAGE> 129
LANGWORTHY CASINO SUPPLY
BALANCE SHEET
JUNE 30, 1994
(UNAUDITED)
ASSETS
CURRENT ASSETS:
[S] [C]
Cash $ 34,663
Accounts receivable:
less allowance for doubtful accounts of $40,865 255,892
Inventories 228,136
------------
TOTAL CURRENT ASSETS 518,691
LEASEHOLD AND EQUIPMENT:
less accumulated depreciation of $104,726 28,694
------------
$ 547,385
============
LIABILITIES AND DIVISIONAL EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 288,572
------------
TOTAL CURRENT LIABILITIES 288,572
DIVISIONAL EQUITY 258,813
------------
$ 547,385
============
F-52
<PAGE> 130
LANGWORTHY CASINO SUPPLY
STATEMENTS OF INCOME
NINE MONTHS ENDED JUNE 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
SALES $3,315,207 $3,328,675
COST OF SALES 2,323,663 2,345,444
---------- ----------
GROSS PROFIT 991,544 983,231
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES 683,948 654,025
---------- ----------
INCOME BEFORE PRO-FORMA INCOME TAXES 307,596 329,206
PRO-FORMA INCOME TAXES 107,043 114,564
---------- ----------
PRO-FORMA NET INCOME $ 200,553 $ 214,642
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-53
<PAGE> 131
LANGWORTHY CASINO SUPPLY
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JUNE 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1994 1993
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before pro-forma income taxes $ 307,595 $ 329,206
Items not requiring the use of cash:
Depreciation 6,800 6,800
Increase (Decrease) in allowance for doubtful accounts (17,135) 10,000
Change in assets and liabilities:
Accounts receivable 237,868 (34,719)
Inventories (139,042) (6,292)
Accounts payable and accrued expenses (285,839) (8,311)
Customer deposits 156,107 1,341
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 266,354 298,025
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment - (26,231)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Interdivisional transfers and distributions (575,747) (203,458)
--------- ---------
NET INCREASE (DECREASE) IN CASH (309,393) 68,356
CASH AT BEGINNING OF PERIOD 344,056 207,343
--------- ---------
CASH AT END OF PERIOD $ 34,663 $ 275,699
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ - $ -
========= =========
Income taxes $ - $ -
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-54
<PAGE> 132
LANGWORTHY CASINO SUPPLY
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1994
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying financial statements reflect all adjustments which, in
the opinion of management, are necessary for a fair presentation of the
financial position and the results of operations for the interim periods
presented. All such adjustments are of a normal and recurring nature. The
results of operations for any interim period are not necessarily indicative of
a full year.
Certain financial information which is normally included in the
financial statement prepared in accordance with generally accepted accounting
principles, which is not required for interim reporting purpose has been
condensed or omitted. The accompanying financial statements should be read in
conjunction with the consolidated financial statements and notes thereto.
F-55
<PAGE> 133
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
SEC Registration Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,911.90
NASD Filing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
Transfer Agent Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
Printing Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000.00
Legal Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000.00
Accounting Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
Blue Sky Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,088.10
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $125,000.00
</TABLE>
* To be filed by amendment.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The General Corporation Law of Delaware provides generally that a
corporation may indemnify any person who was or is a party to or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, or investigative in nature
to procure a judgment in its favor, by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) and, in a proceeding not by or in
the right of the corporation, judgments, fines and amounts paid in settlement,
actually and reasonably incurred by him in connection with such suit or
proceeding, if he acted in good faith and in a manner believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reason to believe his conduct was
unlawful. Delaware law further provides that a corporation will not indemnify
any person against expenses incurred in connection with an action by or in the
right of the corporation if such person shall have been adjudged to be liable
for negligence or misconduct in the performance of his duty to the corporation
unless and only to the extent that the court in which such action or suit was
brought shall determine that, despite the adjudication of liability but in view
of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for the expenses which such court shall deem proper.
The By-Laws of the Company provide for indemnification of officers and
directors of the Company to the greatest extent permitted by Delaware law for
any and all fees, costs and expenses incurred in connection with any action or
proceeding, civil or criminal, commenced or threatened, arising out of services
by or on behalf of the Company, providing such officer's or director's acts
were not committed in bad faith. The By-Laws also provide for advancing funds
to pay for anticipated costs and authorizes the Board to enter into an
indemnification agreement with each officer or director.
In accordance with Delaware law, the Company's Certificate of
Incorporation contains provisions eliminating the personal liability of
directors, except for breach of a director's fiduciary duty of loyalty to the
Company or to its stockholders, acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of the law, or in respect
of any transaction in which a director receives an improper personal benefit.
These provisions only pertain to breaches of duty by directors as such, and not
in any other corporate capacity, e.g., as an officer. As a result of the
inclusion of such provisions, neither the Company nor stockholders may be able
to recover monetary damages against directors for actions taken by them which
are ultimately found to have constituted negligence or gross negligence, or
which are ultimately found to have been in violation of their fiduciary duties,
although it may be possible to obtain injunctive or equitable relief
II-1
<PAGE> 134
with respect to such actions. If equitable remedies are found not to be
available to stockholders in any particular case, stockholders may not have an
effective remedy against the challenged conduct.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and therefore is
unenforceable.
RECENT SALES OF UNREGISTERED SECURITIES
In February and May 1991, the Company sold $710,000 in principal amount of
10% convertible promissory notes in private transactions as bridge financing
pending the completion of a public offering, of which $285,000 was purchased by
directors of the Company including Victor M. Rivas, the Company's Chairman of
the Board, and $300,000 was purchased by Edmund Shea, a stockholder of the
Company. Up to 6.7% of the principal amount of the notes were convertible into
shares of the Company's Common Stock at the rate of $1.00 per share. The notes
were subsequently retired following successful completion of the offering as
herein described. As of March 1, 1992, the holders of the notes exercised the
conversion rights provided for in the notes and accordingly the shares were
issued. This transaction was a private transaction not involving a public
offering and was exempt from the registration provisions of the Securities Act
pursuant to Sections 4(2) and 4(6) thereof. Commonwealth Associates acted as
placement agent in connection with the offering and received commissions and
other compensation for its services.
In May 1992, the Company sold 14,667 shares of Common Stock at $15.00 per
share to six individuals. This transaction was a private transaction not
involving a public offering and was exempt from the registration provisions of
the Securities Act pursuant to Section 4(2) thereof and Regulation D and Rule
506 promulgated thereunder.
In October 1992, the Company completed the sale of 75,000 shares of Common
Stock to 39 unaffiliated individuals at $15.00 per share. This transaction was
a private transaction not involving a public offering and was exempt from the
registration provisions of the Securities Act pursuant to Section 4(2) thereof
and Regulation D and Rule 506 promulgated thereunder.
In April 1991, the Company exchanged existing warrants (held by one
entity) to purchase in the aggregate 19,500 shares of Common Stock at $25.00
per share for a new warrant to purchase 10,000 shares at $10.00 per share.
This warrant was subsequently exchanged for a new warrant to purchase 10,000
shares at $5.00 per share in January 1992. These warrants were exercised in
April 1993. This transaction was a private transaction not involving a public
offering and was exempt from the registration provisions of the Securities Act
pursuant to Section 4(2) thereof.
In April 1991, the Company lowered the exercise price of a warrant to
purchase 4,000 shares of Common Stock to $10.00 per share, and thereafter
lowered the exercise price to $5.00 per share in January 1992, for services
rendered in connection with a financial consulting agreement. These warrants
were exercised in April 1993. This transaction was a private transaction not
involving a public offering and was exempt from the registration provisions of
the Securities Act pursuant to Section 4(2) thereof.
In March 1992, the Company issued warrants to purchase 10,000 shares of
Common Stock at $23.75 per share to each of two consultants. This transaction
was a private transaction not involving a public offering and was exempt from
the registration provisions of the Securities Act pursuant to Section 4(2)
thereof.
In June 1992, the Company issued warrants to purchase 10,000 shares of
Common Stock at $30.00 per share in consideration of the use of certain
facilities provided by Mr. Hunt during the previous four years and Mr. Hunt's
agreement to continue to permit the use of such facilities for an additional
two years. This transaction was a private transaction not involving a public
offering and was exempt from the registration provisions of the Securities Act
pursuant to Section 4(2) thereof.
In March 1993, the Company sold $452,000 principal amount of 8% promissory
notes due the earlier of one year from the date of issuance or the sale of any
public debt or equity offering from which the Company realized net proceeds of
$385,740. The Company also agreed to issue to the noteholders shares of Common
Stock equal to 50% of the principal amount of the notes divided by the public
offering price of the unit offering through the Underwriter as described below.
This transaction was a private transaction not
II-2
<PAGE> 135
involving a public offering and was exempt from the registration provisions of
the Securities Act pursuant to Section 4(2) thereof. Lew Lieberbaum & Co.,
Inc. acted as placement agent in the offering.
In April 1993, in connection with the offering of units of the Company,
the Company issued to Lew Lieberbaum & Co., Inc., the underwriter in that
transaction (the "Underwriter"), certain Warrants in registered form. The
Class B Warrants were part of units which were purchasable by the Underwriter
upon exercise of certain units. In June 1994, the Company exchanged the
registered Warrants issued to the Underwriter for 53,241 unregistered
Underwriter's Warrants of the Company in a transaction in which the securities
were exempted pursuant to Section 3(a) of the Securities Act.
In November 1994, the Company sold to 69 purchasers an aggregate of 109.5
units of securities for a total price of $2,737,500. Each unit consisted of
(i) a $25,000 principal amount 10% convertible promissory note (the "Notes")
and (ii) the right to receive warrants, only upon the conversion of each Note,
to purchase 500 shares of Common Stock exercisable at a price of $5.00 per
share until June 20, 1999 (the "Private Placement Warrrants"). The Notes are
convertible at any time at 80% of the closing bid price of the Company's
publicly traded Common Stock on the date of conversion. If such price were
$1.50 per share, an aggregate of 2,281,250 1994 Private Placement Conversion
Shares would be issuable. The Notes were sold through Rickel & Associates,
Inc. ("Rickel") as placement agent. Rickel received a commission equal to 10%
($273,750) of the gross proceeds of the offering and an additional 3% ($82,125)
of the gross proceeds of the offering as a non-accountable expense allowance.
This transaction was a private transaction not involving a public offering and
was exempt from the registration provisions of the Securities Act pursuant to
Section 4(2) thereof.
In September 1995, the Company engaged Rickel to solicit the holders of
the Notes to amend the terms of such securities to eliminate the conversion
provisions thereof. In consideration for such amendment, the Company has
offered to those Noteholders electing to waive such conversion privileges: (i)
the Company's 12% non-convertible notes due October 1, 1996 in exchange for a
like principal amount of Notes currently held, and (ii) payments equal to
$5,000 for each $25,000 principal amount of Notes held by them. In addition,
the Company agreed to compensate Rickel at the rate of $2,500 for each $25,000
of Notes electing to exchange for 12% non-convertible notes. This exchange of
Notes for a like principal amount of 12% non-convertible notes was a private
transaction not involving a public offering and was exempt from the
registration provisions of the Securities Act pursuant to Section 4(2) thereof.
In April 1995, the Board of Directors of the Company authorized for
issuance to certain of its officers and directors five year warrants to
purchase an aggregate of 650,000 shares of Company Common Stock at an exercise
price of $0.875 per share.
In May 1995, the Company issued to an affiliate of a director 600,000
shares of Series D Preferred Stock, and warrants to purchase 1,050,000 shares
of Common Stock at $.3333 per share. The consideration paid for such
securities was the conversion of a $200,000 demand loan made by such director's
affiliate to the Company in February 1995, and an additional $150,000 loan made
in May 1995. (In July 1995, the Company redeemed such Series D Preferred Stock
and repaid such loan, and in connection therewith, one-third of such warrants
were cancelled.) This transaction was a private transaction not involving a
public offering and was exempt from the registration provisions of the
Securities Act pursuant to Section 4(2) thereof.
In June 1995, the Company issued 800,000 shares of Series E Preferred
Stock, which shares were issued for consideration consisting of 800,000 shares
of Series B Preferred Stock of the Company, and the cancellation of certain
warrants held by the holders of such Series B Preferred Stock. This
transaction was a private transaction not involving a public offering and was
exempt from the registration provisions of the Securities Act pursuant to
Section 4(2) thereof.
In June and July 1995, the Company sold an aggregate of 2,082,147 shares
of Common Stock at approximately $1.41 per share in a private placement to 50
investors. This transaction was a private transaction not involving a public
offering and was exempt from the registration provisions of the Securities Act
pursuant to Section 4(2) thereof.
In October 1995, the Company issued to a director and principal
stockholder an aggregate of 500,000 shares of Common Stock, for $500, and
agreed to the potential issuance of five year warrants entitling the holder to
purchase up to 1,250,000 shares of Common Stock. Such shares were issued upon
consummation of a refinancing of the Company's senior secured indebtedness,
pursuant to which such affiliate
II-3
<PAGE> 136
increased his personal guaranty to a lender from $1.0 million to $3.0 million
and provided independent collateral to the Company's lender. The issuance of
the warrants will be made in annual increments of 250,000 warrants on each
anniversary of a contemplated five year term loan if such collateralized
guaranty is then in force. The exercise prices of such warrants, if and when
issued, will be equal to the then prevailing closing sale price of the
Company's Common Stock on the date of each warrant issuance. This transaction
was a private transaction not involving a public offering and exempt from the
registration provisions of the Securities Act pursuant to Section 4(2) thereof.
In October 1995, the Board of Directors issued to Strategic Growth
International, Inc. five year warrants entitling the holder to purchase 900,000
shares of Common Stock of the Company for $1.50 per share. Such warrants were
issued pursuant to a consulting agreement entered into between the Company and
SGI. This contemplated transaction was a private transaction not involving a
public offering and exempt from the registration provisions of the Securities
Act pursuant to Section 4(2) thereof.
II-4
<PAGE> 137
LIST OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description of Exhibit Page No.
------- ---------------------- --------
<S> <C>
3(a) Certificate of Incorporation (as amended including preferred
stock designations) (1)
3(b) By-Laws(1)
4(b) Form of Redeemable Common Stock Purchase Warrant (1)
5 Opinion of Solomon, Fornari, Weiss & Moskowitz, P.C.*
10(a) Employment Agreement between the Company and Edward G. Sokolofski
(1)
10(b) Lease between Wico Corporation and LaSalle National Bank, as
Trustee(1)
10(c) Loan Agreement between Wico Corporation and National Westminster
Bank USA (1)
10(d) Amended and restated guarantees of Stephen Feldman and Bentley
Blum in favor of National Westminster Bank USA (1)
10(e) Security Agreement between Wico Corporation and National
Westminster Bank USA (1)
10(f) Termination of Employment Agreement and Consulting Agreement
between Victor M. Rivas and Conquest Airlines Corp. dated June
17, 1994 (1)
10(g) Agreement by and between the Company and American Stock Transfer
& Trust Co., Inc.*
10(h) Asset Purchase Agreement by and between Wico Acquisition Co. and
Langworthy Casino Supply(1)
10(i) Securities Purchase Agreement among the
Company and the purchasers of 2,082,147
shares of Common Stock (2)
10(j) Stock Purchase Agreement and exhibits between the Company and Air
L.A., Inc. (2)
10(k) Agreements in connection with amendment to Series B Preferred
Stock and issuance of Series E Preferred Stock (2)
10(l) Agreements in connection with issuance of Series D Preferred
Stock and related $150,000 Note to Blum Asset Trust (2)
10(m) Forms of agreements in connection with issuance of Creditors
Shares in exchange for Company obligations (2)
10(n) Employment agreement between the Company and Steffen I. Magnell
10(o) Revolving credit loan agreement between Wico Corporation and
subsidiary and Sanwa Business Credit Corp. (4)
10(p) Restated term loan agreement between Wico Corporation and
National Westminster Bank USA (4)
10(q) Agreements among the Company and certain creditors regarding
issuance of Creditors Shares (3)
10(r) Form of Letter of Transmittal and related Election to Exchange
and Notice of Rescission of Election submitted to holders of
$2,737,500 10% Company promissory notes due October 1, 1996 (3)
10(s) Form of letter to Selling Securityholders and Indemnification
Agreement. (3)
</TABLE>
II-5
<PAGE> 138
<TABLE>
<S> <C>
10(t) Consulting agreement, dated October 12, 1995, between the Company
and Strategic Growth International, Inc. (3)
10(u) Amendment to agreements among the Company and certain creditors
regarding issuance of Creditors Shares (4)
10(v) Amended and Restated form of Letter of Transmittal and related
Election to Exchange submitted to holders of $2,737,500 10%
Company promissory notes due October 1, 1996 (4)
10(w) Amended and Restated form of letter to Selling Securityholders
and Indemnification Agreement. (4)
23.1 Consent of Grant Thornton (4)
23.2 Consent of Allen G. Roth (4)
</TABLE>
* to be filed by amendment.
- -----------
(1) Filed as an exhibit with the original filing of this Registration
Statement, filed on November 14, 1994
(2) Filed as an exhibit with Amendment No. 1 to this Registration Statement,
filed on July 13, 1994
(3) Filed as an exhibit with Amendment No. 2 to this Registration Statement.
(4) Filed with this Amendment No. 3 to this Registration Statement.
UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement: (i) to include
any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii)
to reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental
change in the information set forth in the registration statement; and (iii) to
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each posteffective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of post-effective
amendment any of the securities being registered which remain unsold at the
termination of the Offering.
(4) To file a post-effective amendment to the registration to
include any financial statements required by Rule 3- 19 of Regulation S-X at
the start of any delayed offering or throughout a continuous offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer of controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such
II-6
<PAGE> 139
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
II-7
<PAGE> 140
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-1 and has duly caused this
Amendment No. 3 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on November 2, 1995.
CONQUEST INDUSTRIES INC. CONQUEST INDUSTRIES INC.
By: /s/ Stephen R. Feldman By: /s/ Jerry Karlik
------------------------------ ------------------------------
Stephen R. Feldman Jerry Karlik
Chairman of the Board Chief Financial Officer
(Principal Executive Officer) (Principal Financial or
Accounting Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Stephen R. Feldman and Jerry Karlik,
jointly and severally, as his true and lawful attorney-in-fact and agent, each
with full power of substitution and resubstitution for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each said attorney-in-fact or agent or substitute lawfully
does or causes to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 3 to the Registration Statement on Form S-1 has been signed
below by the following persons in the capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Capacity in Which Signed Date
- --------- ------------------------ ----
<S> <C> <C>
/s/ Stephen R. Feldman
- --------------------------- Chairman of the Board November 2, 1995
Stephen R. Feldman
/s/ Victor M. Rivas
- ------------------------- Director November 2, 1995
Victor M. Rivas
/s/ Steffen I. Magnell
- ------------------------- Chief Executive Officer November 2, 1995
Steffen I. Magnell of the Company and Wico, President
of the Company, and Director
/s/ Jerry Karlik
- -------------------------- Chief Financial Officer November 2, 1995
Jerry Karlik
/s/ Bentley J. Blum
- -------------------------- Director November 2, 1995
Bentley J. Blum
/s/ Harry McKillop
- -------------------------- Director November 2, 1995
Harry McKillop
/s/ David Schoon
- ------------------------ Director November 2, 1995
David Schoon
</TABLE>
<PAGE> 141
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit Description of Exhibit
- ------- ----------------------
<S> <C>
3(a) Certificate of Incorporation (as amended including preferred
stock designations) (1)
3(b) By-Laws(1)
4(b) Form of Redeemable Common Stock Purchase Warrant (1)
5 Opinion of Solomon, Fornari, Weiss & Moskowitz, P.C.*
10(a) Employment Agreement between the Company and Edward G. Sokolofski
(1)
10(b) Lease between Wico Corporation and LaSalle National Bank, as
Trustee(1)
10(c) Loan Agreement between Wico Corporation and National Westminster
Bank USA (1)
10(d) Amended and restated guarantees of Stephen Feldman and Bentley
Blum in favor of National Westminster Bank USA (1)
10(e) Security Agreement between Wico Corporation and National
Westminster Bank USA (1)
10(f) Termination of Employment Agreement and Consulting Agreement
between Victor M. Rivas and Conquest Airlines Corp. dated June
17, 1994 (1)
10(g) Agreement by and between the Company and American Stock Transfer
& Trust Co., Inc.*
10(h) Asset Purchase Agreement by and between Wico Acquisition Co. and
Langworthy Casino Supply(1)
10(i) Securities Purchase Agreement among the Company and the
purchasers of 2,082,147 shares of Common Stock (2)
10(j) Stock Purchase Agreement and exhibits between the Company and Air
L.A., Inc. (2)
10(k) Agreements in connection with amendment to Series B Preferred
Stock and issuance of Series E Preferred Stock (2)
10(l) Agreements in connection with issuance of Series D Preferred
Stock and related $150,000 Note to Blum Asset Trust (2)
10(m) Forms of agreements in connection with issuance of Creditors
Shares in exchange for Company obligations (2)
10(n) Employment agreement between the Company and Steffen I. Magnell
10(o) Revolving credit loan agreement between Wico Corporation and
subsidiary and Sanwa Business Credit Corp. (4)
10(p) Restated term loan agreement between Wico Corporation and
National Westminster Bank USA (4)
10(q) Agreements among the Company and certain creditors regarding
issuance of Creditors Shares (3)
10(r) Form of Letter of Transmittal and related Election to Exchange
and Notice of Rescission of Election submitted to holders of
$2,737,500 10% Company promissory notes due October 1, 1996 (3)
10(s) Form of letter to Selling Securityholders and Indemnification
Agreement. (3)
</TABLE>
<PAGE> 142
<TABLE>
<S> <C>
10(t) Consulting agreement, dated October 12, 1995, between the Company
and Strategic Growth International, Inc. (3)
10(u) Amendment to agreements among the Company and certain creditors
regarding issuance of Creditors Shares (4)
10(v) Amended and Restated form of Letter of Transmittal and related
Election to Exchange submitted to holders of $2,737,500 10%
Company promissory notes due October 1, 1996 (4)
10(w) Amended and Restated form of letter to Selling Securityholders
and Indemnification Agreement. (4)
23.1 Consent of Grant Thornton (4)
23.2 Consent of Allen G. Roth (4)
</TABLE>
* to be filed by amendment.
- -----------
(1) Filed as an exhibit with the original filing of this Registration
Statement, filed on November 14, 1994
(2) Filed as an exhibit with Amendment No. 1 to this Registration Statement,
filed on July 13, 1994
(3) Filed as an exhibit with Amendment No. 2 to this Registration Statement.
(4) Filed with this Amendment No. 3 to this Registration Statement.
<PAGE> 1
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "Agreement") is
made as of the 20th day of October, 1995, by and between Sanwa
Business Credit Corporation, a Delaware corporation ("Lender"), and
Wico Corporation, a Delaware corporation ("Borrower").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Borrower desires to borrow funds and obtain
other financial accommodations from Lender, and Lender is willing
to make certain loans and provide other financial accommodations to
Borrower upon the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the terms and
conditions contained herein, and of any loans or extension of
credit heretofore, now or hereafter made to or for the benefit of
Borrower by Lender, the parties hereto hereby agree as follows:
1. DEFINITIONS.
------------
1.1 General.
--------
"Account Debtor" shall mean any Person who is or who may
become obligated to Borrower or Gaming Supply under, with respect
to, or on account of an Account or a Gaming Supply Account.
"Accounts" shall mean all accounts, contract rights,
chattel paper, instruments and documents, whether now owned or
hereafter acquired by Borrower.
"Accounts Report" shall mean a report delivered to Lender
by Borrower, as required by Section 6.2, specifying for each
Account Debtor obligated on the Accounts or the Gaming Supply
Accounts, such Account Debtor's name, address and outstanding
balance.
"Adjusted Net Worth" shall mean, as of any particular
date, the consolidated net worth of Conquest Industries Inc., a
Delaware corporation ("Conquest"), as of such date, as determined
in accordance with Generally Accepted Accounting Principles.
"Affiliate" shall mean any and all Persons (a) that
directly or indirectly, through one or more intermediaries, control
or are controlled by or are under common control with Borrower, (b)
that directly or beneficially own or hold 5% or more of any class
of the voting stock of Borrower, or (c) 5% or more of whose voting
stock (or in the case of a Person which is not a corporation, 5% or
more of the equity interest) is owned directly or beneficially or
held by Borrower. For the purpose of this definition, "control"
means the possession, directly or indirectly, of the power to
direct or cause the direction of management and policies of a
<PAGE> 2
Person, whether through the ownership of voting securities, by
contract or otherwise.
"Ancillary Agreements" shall mean all Security Documents
and all agreements, instruments and documents, including without
limitation, the Gaming Disposition Side Letter and all notes,
guaranties, mortgages, deeds of trust, chattel mortgages, pledges,
powers of attorney, consents, assignments, contracts, notices,
security agreements, leases, financing statements, subordination
agreements and trust account agreements whether heretofore, now, or
hereafter executed by or on behalf of Borrower or any other
Guarantor or delivered to Lender or any Participant with respect to
this Agreement.
"Base Rate Option" shall mean the interest rate option
described in Section 2.3(A)(i).
"Base Rate Portion" shall mean the portion of the
Revolving Loan, if any, which bears interest at the rate described
in Section 2.3(A)(i).
"Business Day" shall mean (a) for all purposes other than
as covered by clause (b) below, any day, other than a Saturday or
Sunday, on which the main lobby of the Depository Bank and Lender
are open for business with the general public, and (b) with respect
to all notices, determinations, fundings and payments in connection
with any LIBOR Rate Portion of the Revolving Loans, any day that is
a Business Day described in clause (a) above and that it also a day
for trading by and between banks in U.S. Dollar deposits in the
applicable interbank LIBOR market.
"Capital Expenditures" shall mean, for any period, the
aggregate of all expenditures including deposits (whether paid in
cash or property or accrued as liabilities and including the
aggregate amount of all principal payments due for the entire term
of all capital leases which are required to be capitalized on the
balance sheet) made by Borrower that, in conformity with Generally
Accepted Accounting Principles, are required to be included in the
property, plant or equipment, or similar fixed asset account, of
Borrower.
"Charges" shall mean all national, federal, state,
county, city, municipal, or other governmental (including, without
limitation, the Pension Benefit Guaranty Corporation) taxes,
levies, assessments, Charges, liens, Claims or encumbrances upon or
relating to (i) the Collateral, (ii) the Liabilities, (iii)
Borrower's and Gaming Supply's employees, payroll, income or gross
receipts, (iv) Borrower's and Gaming Supply's ownership or use of
any of its respective assets, or (v) any other aspect of Borrower's
or Gaming Supply's business.
"Collateral" shall mean all of the property and interests
in property described in Section 5.1 and all other property and
-2-
<PAGE> 3
interests in property, whether realty or personalty, which shall,
from time to time, secure any part of the Liabilities, including
without limitation the Accounts, Inventory, Equipment and General
Intangibles.
"Collateral Availability" shall have the meaning ascribed
to it in Section 2.1.
"Collateral Overadvance Facility" shall have the meaning
ascribed to it in Section 2.1.
"Debt Service Coverage" shall mean with respect to any
period, the ratio of (i) the consolidated Net Income of Parent for
such period, plus interest, income taxes, depreciation,
amortization and losses attributable to the sale of assets outside
of the ordinary course of business which were deducted in
determining Net Income for such period, to (ii) without
duplication, interest, capital lease, tax and preferred dividend
payments by Parent, principal payments with respect to Indebtedness
and Capital Expenditures scheduled to be paid during such period.
"Default" shall mean the occurrence or existence of any
one or more of the events described in Section 11.1.
"Depository Bank" shall mean the banking institution
which is referred to in Section 4.3 and which shall be the
signatory to the Special Deposit Agreement a form of which is
attached hereto as Exhibit 1.1.
"EBITDA" shall mean, with respect to any period, Parent's
consolidated net earnings (or loss) before interest expense, taxes,
depreciation and amortization for such period.
"Eligible Accounts" shall mean those Accounts included in
an Accounts Report which, as of the date of such Accounts Report
and at all times thereafter (i) satisfy the requirements for
eligibility as described in Section 3.1, (ii) do not violate the
negative covenants and other provisions of this Agreement and do
satisfy the affirmative covenants, warranties and other provisions
of this Agreement, and (iii) Lender, in its reasonable credit
judgment, deems to be Eligible Accounts.
"Eligible Inventory" shall mean those items of Inventory
included in an Inventory Report which, as of the date of such
Inventory Report and at all times thereafter (i) satisfy the
requirements for eligibility as described in Section 3.2, (ii) do
not violate the negative covenants and other provisions of this
Agreement and do satisfy the affirmative covenants, warranties and
other provisions of this Agreement, and (iii) Lender, in its
reasonable credit judgment, deems to be Eligible Inventory.
"Environmental Laws" shall mean any federal, state,
county, city, municipal or other laws, statutes, rules, regula-
-3-
<PAGE> 4
tions, orders, consent decrees, Permits or licenses, relating to
prevention, remediation, reduction or control of pollution, or
protection of the environment, natural resources and/or human
health and safety, including without limitation such laws,
statutes, rules, regulations, orders, consent decrees, permits or
licenses relating to (a) solid waste and/or Hazardous Materials
treatment, storage, disposal, generation and transportation, (b)
air, water and noise pollution, (c) soil, ground, water or
groundwater contamination, (d) the generation, handling, storage,
transportation or Release into the environment of Hazardous
Materials, and (e) regulation of underground and aboveground
storage tanks.
"Equipment" shall mean all of Borrower's now owned and
hereafter acquired equipment and fixtures, including without
limitation furniture, machinery, vehicles, trade fixtures and the
property described on Exhibit 1.2, together with any and all
accessories, parts and appurtenances thereto, substitutions
therefor and replacements thereof.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
"Event of Default" shall mean any event or condition
which, with the passage of time or the giving of notice or both,
would constitute a Default.
"Excess Availability" shall have the meaning ascribed to
it in Section 4.6(E).
"Financials" shall mean those financial statements
attached hereto as Exhibit 1.3 or delivered to Lender pursuant to
Section 10.1(F)(i) and 10.1(F)(ii).
"Gaming Disposition" shall mean the disposition of Gaming
Supply by Parent on the terms and conditions set forth in the
Gaming Disposition Side Letter.
"Gaming Disposition Side Letter" shall mean that certain
letter agreement of even date herewith among Borrower, Lender,
Gaming Supply, Parent and Conquest and pertaining to the Gaming
Disposition.
"Gaming Supply" shall mean Wico Gaming Supply Co., a
Delaware corporation and, as of the date of this Agreement, a
wholly-owned subsidiary of Parent.
"Gaming Supply Accounts" shall mean, for the period of
time in which Gaming Supply is a wholly-owned subsidiary of Parent,
all accounts, contract rights, chattel paper, instruments and
documents, whether now owned or hereafter acquired by Gaming
Supply.
-4-
<PAGE> 5
"Gaming Supply Eligible Accounts" shall mean those Gaming
Supply Accounts included in an Accosts Report which, as of the
date of such Accounts Report and at all times thereafter (i)
satisfy the requirements for eligibility as described in Section
3.1, (ii) do not violate the negative covenants and other
provisions of this Agreement and the Ancillary Agreements and do
satisfy the affirmative covenants, warranties and other provisions
of this Agreement and the Ancillary Agreements, and (iii) Lender,
in its reasonable credit judgment, deems to be Gaming Supply
Eligible Accounts.
"Gaming Supply Eligible Inventory" shall mean those items
of Gaming Supply Inventory included in an Inventory Report which,
as of the date of such Inventory Report and at all times thereafter
(i) satisfy the requirements for eligibility as described in
Section 3.2, (ii) do not violate the negative covenants and other
provision of this Agreement and the Ancillary Agreements and do
satisfy the affirmative covenants, warranties and other provisions
of this Agreement and the Ancillary Agreements, and (iii) Lender,
in its reasonable credit judgment, deems to be Gaming Supply
Eligible Inventory.
"Gaming Supply Inventory" shall mean, for the period of
time in which Gaming Supply is a wholly-owned subsidiary of Parent,
all finished goods and component parts inventory of Gaming Supply,
including, without limitation, inventory in transit, wherever
located and whether now owned or hereafter acquired by Gaming
Supply which is or may at any time be held for sale or lease.
"General Intangibles" shall mean all choses in action,
general intangibles, causes of action and all other intangible
personal property of Borrower of every kind and nature (other than
Accounts) now owned or hereafter acquired by Borrower. Without in
any way limiting the generality of the foregoing, General
Intangibles specifically includes, without limitation, all
corporate or other business records, security deposits, inventions,
designs, patents, patent applications, trademarks, trade names,
trade secrets, goodwill, copyrights, copyright applications,
registrations, licenses, franchises and tax refund claims in which
Borrower has an interest and all letters of credit, guarantee
claims, security interests or other security held by or granted to
Borrower to secure payment by an Account Debtor of any Accounts.
"Generally Accepted Accounting Principles" shall mean
generally accepted accounting principles set forth in the opinions
and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board that
are applicable to the circumstances as of the date of
determination.
"Guarantor" shall mean any Person, other than Borrower,
who is liable for the payment of any of the Liabilities, either
-5-
<PAGE> 6
primarily or secondarily (as a guarantor or an accommodation
party).
"Hazardous Materials" shall mean any flammable or
explosive materials, petroleum and petroleum derivatives (including
crude oil and its fractions), radioactive materials, hazardous
wastes, toxic substances or related materials, including without
limitation polychlorinated biphenyls, asbestos, ureaformaldehyde
insulation, industrial process and pollution control waste and any
substances defined as, or included in the definition of toxic or
hazardous substances, wastes or materials under any Environmental
Laws.
"Indebtedness" as applied to any Person, shall mean: (a)
all indebtedness for borrowed money; (b) that portion of
obligations with respect to capital leases that is properly
classified as a liability on a balance sheet in conformity with
Generally Accepted Accounting Principles; (c) notes payable and
drafts accepted representing extensions of credit whether or not
representing obligations for borrowed money; (d) any obligation
owed for all or any part of the deferred purchase price of property
or services if the purchase price is due more than six (6) months
from the date the obligation is incurred or is evidenced by a note
or similar written instrument; and (e) all indebtedness secured by
any lien, claim, encumbrance or security interest on any property
or asset owned or held by that Person regardless of whether the
indebtedness secured thereby shall have been assumed by that Person
or is nonrecourse to the credit of that Person. Without in anyway
limiting the generality of the foregoing, Indebtedness of Borrower
specifically includes (i) the Liabilities and (ii) all liabilities
evidenced by the NatWest Documents.
"Initial Term" shall have the meaning ascribed to it in
Section 2.4.
"Intercreditor Agreement" shall mean that certain
Intercreditor Agreement of even date herewith between Lender and
NatWest and consented to by Borrower and Guarantors.
"Interest Coverage" shall mean with respect to any
period, the ratio of (i) consolidated Net Income of Parent for such
period, plus interest and income taxes deducted in determining Net
Income for such period, to (ii) interest of Borrower paid or
accrued during such period.
"Interest Period" shall have the meaning ascribed to such
term in Section 2.3(G).
Interest Rate Determination Date" shall have the meaning
ascribed to such term in Section 2.3(G).
"Inventory" shall mean all goods, inventory, merchandise
and other personal property, including, without limitation,
-6-
<PAGE> 7
inventory in transit, wherever located and whether now owned or
hereafter acquired by Borrower which is or may at any time be held
for sale or lease, furnished under any contract of service or held
as raw materials, work in process, supplies or materials used or
consumed in Borrower's business, and all such property the sale or
other disposition of which has given rise to Accounts and which has
been returned to or repossessed or stopped in transit by Borrower.
"Inventory Report" shall mean a report delivered to
Lender by Borrower, as required by Section 7.2, consisting of a
detailed listing of all Inventory and Gaming Supply Inventory as of
the date of such Inventory Report describing the kind, type,
quality, quantity, location and the market value (computed on a
first-in, first-out basis) of such Inventory and Gaming Supply
Inventory.
"Liabilities" shall mean all of Borrower's liabilities,
obligations, indebtedness, covenants and duties owing to Lender, of
any kind and nature, whether heretofore, now or hereafter owing,
arising, due or payable and howsoever created, incurred, acquired,
or owing, under this Agreement or any Ancillary Agreement, whether
primary, secondary, direct, absolute, contingent, fixed or
otherwise (including, without limitation, interest, charges,
expenses, reasonable attorneys fees and other sums chargeable to
Borrower by Lender, future advances made to or for the benefit of
Borrower and obligations of performance), whether arising by reason
of an extension of credit, loan, guaranty, indemnification,
reimbursement of any obligations with respect to any letter of
credit or letter of credit guaranty or in any other matter.
"LIBOR Rate" shall mean, for any LIBOR Rate Portion, the
per annum rate of interest which is ordinarily reported on page
3750 of the Telerate Matrix (in U.S. Dollars) for a principal
amount substantially equal to the amount of such LIBOR Rate Portion
and having a maturity comparable to the Interest Period proposed to
be applicable to such LIBOR Rate Portion, as quoted to Borrower by
Lender; provided, however, if, for whatever reason, Lender shall be
unable to ascertain the LIBOR Rate pursuant to the preceding
provisions, the LIBOR Rate in such circumstances shall be the rate
per annum determined by Lender by dividing (the resulting quotient
to be rounded upward to the nearest 1/100 of one percent) (i) the
per annum rate of interest at which deposits in U.S. Dollars in an
amount substantially equal to such LIBOR Rate Portion and having a
maturity Comparable to the Interest Period proposed for such LIBOR
Rate Portion, are offered Lender or its affiliates in the London
interbank market at approximately 11:00 a.m. (London time) on the
applicable Interest Rate Determination Date, by (ii) a number equal
to 1.0 minus the aggregate (but without duplication) of the rates
(expressed as a decimal fraction) of reserve requirements in effect
on the day whiCh is two (2) Business Days prior to the beginning of
such Interest Period (including, without limitation, basic,
supplemental, marginal and emergency reserves under any regulations
of the Board of Governors of the Federal Reserve System or other
-7-
<PAGE> 8
governmental authority having jurisdiction with respect thereto, as
now and from time to time in effect) for Eurocurrency funding
(currently referred to as "Eurocurrency liabilities" in Regulation
D of such Board) which are required to be maintained by a member
bank of the Federal Reserve System.
"LIBOR Rate Option" shall mean the interest rate option
described in Section 2.3(A)(ii).
"LIBOR Rate Portion" shall mean the portion of the
Revolving Loan, if any, which bears interest at the rate described
in subsection 2.3(A)(ii).
"Loan Account" shall have the meaning ascribed to it in
Section 4.1.
"Maximum Rate" shall have the meaning ascribed to it in
Section 2.3(E).
"Maximum Revolving Facility" shall mean Fourteen Million
Dollars ($14,000,000).
"NatWest" shall mean NatWest Bank N.A., a national
banking association.
"NatWest Documents" shall mean (i) that certain Amended
and Restated Loan Agreement between Borrower and NatWest of even
date herewith (the "NatWest Loan Agreement") and (ii) all
documents, instruments and agreements contemplated by the NatWest
Loan Agreement, including without limitation the "Note", as such
term is defined in the NatWest Loan Agreement.
"Net Income" shall mean the consolidated net income of
Parent calculated in accordance with Generally Accepted Accounting
Principles.
"Notice of Conversion/Continuation" shall mean a notice
in the form of Exhibit 2.3(C).
"Overadvance Elimination Period" shall have the meaning
ascribed to it in Section 2.1.
"Parent" shall have the meaning ascribed to it in Section
10.2(C).
"Participant" shall mean any Person, now or at any time
or times hereafter, participating with Lender in the loans made by
Lender to Borrower pursuant to this Agreement and the Ancillary
Agreements.
-8-
<PAGE> 9
"Permitted Liens" shall mean:
(i) the liens created in favor of Lender, whether
pursuant to this Agreement or any of the Ancillary
Agreements or otherwise;
(ii) liens for taxes, assessments, governmental
charges or claims and unfunded liabilities under ERISA
not yet due and payable or which are being contested in
good faith and for which adequate reserves for the
payment thereof (as reasonably determined by Lender) have
been established by Borrower;
(iii) mechanics', materialmen's, carriers',
warehousemen's, suppliers' or other like liens arising by
operation of law and in the ordinary course of business
and securing obligations of a Person that are not overdue
or are being contested in good faith and for which
adequate reserves for the payment thereof (as reasonably
determined by Lender) have been established by Borrower;
(iv) liens arising or deposits made in connection
with worker's compensation, unemployment insurance, old
age pensions, social security and other similar benefits
which are not overdue or are being contested in good
faith and for which adequate reserves for the payment
thereof (as reasonably determined by Lender) have been
established by Borrower;
(v) such imperfections of title, covenants,
restrictions (including, without limitation, zoning
restrictions), easements, rights-of-way, minor defects or
irregularities in title and encumbrances on real property
which do not interfere with or impair in any material
respect the utility, operation, value or marketability of
the real property on which any such lien is imposed;
(vi) liens in connection with the acquisition of
Equipment after the date hereof by way of purchase money
security interest financing, and attaching only to the
Equipment being acquired, so long as (i) the Indebtedness
secured by purchase money security interest liens at any
time does not exceed Twenty-Five Thousand Dollars
($25,000.00) with respect to any single acquisition of
Equipment and (ii) the aggregate amount of Indebtedness
secured by all purchase money security interest liens at
any time does not exceed Fifty Thousand Dollars
($50,000.00);
(vii) liens in favor of NatWest described in, and
subject to the terms of, the Intercreditor Agreement; and
-9-
<PAGE> 10
(viii) liens existing on the date hereof and listed on
Exhibit 1.4 hereto.
"Person" shall mean any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust,
unincorporated organization, association, corporation, institution,
entity, party or government (whether national, federal, state,
county, city, municipal or otherwise, including, without
limitation, any instrumentality, division, agency, body or
department thereof).
"Private Placement Notes" shall have the meaning ascribed
to it in Section 10.2(C).
"Prime Rate" shall mean the highest "Prime Rate" of
interest quoted, from time to time, by The Wall Street Journal,
provided, however, that in the event that The Wall Street Journal
ceases quoting a "Prime Rate", "Prime Rate" shall mean the per
annum rate of interest quoted as the "Bank Prime Loan" rate for the
most recent weekday for which such rate is quoted in Statistical
Release H.15(519) published from time to time by the Board of
Governors of the Federal Reserve System, provided further that in
the event that both of the aforesaid indices cease to be published
or to quote rates of the aforesaid types, "Prime Rate" shall be
determined from a comparable index chosen by Lender in good faith.
The "Prime Rate" shall change effective on the date of the
publication of any change in the applicable index by which such
"Prime Rate" is determined.
"Release" shall mean any actual or threatened past,
present or future releasing, spilling, leaking, pumping, pouring,
emitting, emptying, discharging, seeping, injecting, escaping,
leaching, dumping or disposing, whether intentional or not.
"Reportable Event" shall have the meaning ascribed to it
in Section 9.1(0).
"Revolving Loan" shall have the meaning ascribed to it in
Section 2.1.
"Security Documents" shall mean this Agreement and all
other agreements, instruments, documents, financing statements,
notices of assignment, schedules, assignments, mortgages and other
written matter necessary or requested by Lender to create, perfect
and maintain perfected security interests in the Collateral.
"Special Collateral" shall have the meaning ascribed to
it in Section 5.3.
1.2 ACCOUNTING TERMS. Any accounting terms used in this
Agreement which are not specifically defined shall have the
meanings customarily given them in accordance with Generally
Accepted Accounting Principles.
-10-
<PAGE> 11
1.3 OTHER TERMS. All other terms contained in this
Agreement which are not otherwise defined in this Agreement shall,
unless the context indicates otherwise, have the meanings provided
for by the Uniform Commercial Code of the State of Illinois to the
extent the same are used or defined therein.
2. LOANS; GENERAL TERMS.
2.1 TOTAL FACILITY. Subject to the terms and conditions
of this Agreement, Lender shall make available for Borrower,s use
from time to time during the term of this Agreement, upon
Borrower's request therefor, a revolving line of credit consisting
of advances against Eligible Accounts, Gaming Supply Eligible
Accounts, Eligible Inventory and Gaming Supply Eligible Inventory
(the "Revolving Loan") in an aggregate principal amount not to
exceed, at any time outstanding, the lesser of (A) the Maximum
Revolving Facility, and (B) the outstanding amount of Collateral
Availability. As used in this Agreement, "Collateral Availability"
shall mean and, at any particular time and from time to time, be
equal to the sum of:
(i) Eighty-Five percent (85%) of the net amount of
Eligible Accounts and Gaming Supply Eligible Accounts,
plus
(ii) the lesser of:
(a) Six Million Dollars ($6,000,000) and
(b) the sum of (x) Fifty-Five percent (55%)
of the aggregate market value of Eligible Inventory
and Gaming Supply Eligible Inventory (determined on
a first-in, first-out basis) consisting of finished
goods and (y) the lesser of (A) Three Hundred
Thousand Dollars ($300,000) and (B) Twenty percent
(20%) of the aggregate market value of Eligible
Inventory and Gaming Supply Eligible Inventory
(determined on a first-in, first-out basis)
consisting of component parts to be assembled into
finished goods by Borrower, plus
(iii) Five Hundred Thousand Dollars ($500,000) (the
"Collateral Overadvance Facility"), minus
(iv) such reserves as Lender deems proper and
necessary from time to time,
provided, that (a) Collateral Availability attributable
to the value of Gaming Supply Eligible Accounts and the
value of Gaming Supply Eligible Inventory shall at no
time exceed (i) Four Hundred Thousand Dollars ($400,000)
from the date hereof through and including February 20,
-11-
<PAGE> 12
1996; (ii) Two Hundred Sixty-Six Thousand Two Hundred and
Sixty-Seven Dollars ($266,267) from February 21, 1996
through and including March 20, 1996; (iii) One Hundred
Thirty-Three Thousand Three Hundred Thirty Three Dollars
($133,333) from March 21, 1996 through and including
April 20, 1996 and (iv) zero (0) from and after April 21,
1996 and (b) the Collateral Overadvance Facility shall be
reduced to zero for a minimum of thirty (30) consecutive
Business Days (the "Overadvance Elimination Period")
selected by Borrower during each fiscal year of Borrower
commencing with Borrower's fiscal year ending September
30, 1996. In the event Borrower fails to select an
Overadvance Elimination Period before the thirtieth
(30th) Business Day prior to the end of any fiscal year
of Borrower, the Overadvance Elimination Period shall
cover the last thirty (30) Business Days of such fiscal
year.
Notwithstanding anything to the contrary in this Section
2.1, Lender may, in good faith and in the reasonable exercise of
Lender's credit judgment at any time and from time to time,
increase or decrease the advance percentages to be applied to
Eligible Accounts, Eligible Inventory, Gaming Supply Eligible
Accounts and Gaming Supply Eligible Inventory which are contained
in this Section 2.1.
2.2 ADVANCES TO CONSTITUTE ONE LOAN; LOAN PURPOSE. All
loans and advances by Lender to Borrower under this Agreement and
the Ancillary Agreements shall constitute one loan and all
indebtedness and obligations of Borrower to Lender under this
Agreement and the Ancillary Agreements shall constitute one general
obligation secured by the Collateral.
2.3 INTEREST.
(A) RATE OF INTEREST. The Revolving Loans shall
bear interest on the unpaid principal amount thereof from
the date such Revolving Loans are made and until paid in
full at the following rates, as selected by Borrower from
time to time as provided in Section 2.3(C):
(i) BASE RATE OPTION. That portion of the
outstanding principal balance of the Revolving
Loans subject to this option shall bear interest at
a fluctuating rate per annum equal at all times to
one and one-half percent (1.50%) in excess of the
Prime Rate; provided, that (x) the rate of interest
applicable to the Revolving Loans subject to this
option shall be decreased to one percent (1.0%)
above the Prime Rate if the audited financial
statements delivered by Borrower to Lender pursuant
to Section 10.1(F)(i) demonstrate that Parent had
Net Income greater than Two Million Two Hundred
-12-
<PAGE> 13
Fifty Thousand Dollars ($2,250,000) for any fiscal
year of Parent ending on or after September 30,
1996 and no Default and no Event of Default then
exists, such rate change to be effective as of the
first day of the next calendar month after Lender
receives such financial statements, and (y) any
portion of the Revolving Loans subject to this
option predicated on the Collateral Overadvance
Facility shall bear interest on the unpaid
principal amount thereof at the rate per annum of
three percent (3.0%) above the Prime Rate.
(ii) LIBOR Rate Option. That portion of the
outstanding principal balance of the Revolving Loan
subject to this option shall bear interest at a
fixed rate per annum equal to four and one quarter
percent (4.25%) in excess of the LIBOR Rate
applicable to such LIBOR Rate Portion; provided,
that (x) the rate of interest applicable to the
Revolving Loans subject to this option shall be
decreased to three and three quarters percent
(3.75%) above the LIBOR Rate if the audited
financial statements delivered by Borrower to
Lender pursuant to Section 10.1(F)(i) demonstrate
that Parent had Net Income greater than Two Million
Two Hundred Fifty Thousand Dollars ($2,250,000) for
any fiscal year of Parent ending on or after
September 30, 1996 and no Default and no Event of
Default then exists, such rate change to be
effective as of the first day of the next calendar
month after Lender receives such financial
statements, and (y) any portion of the Revolving
Loans subject to this option predicated on the
Collateral Overadvance Facility shall bear interest
on the unpaid principal amount thereof at the rate
per annum of five and three quarters percent
(5.75%) above the LIBOR Rate.
For purposes of this Agreement, outstanding Revolving
Loans shall be deemed to be made first against the
Collateral Availability described in subsections (i) and
(ii) of the definition of Collateral Availability and
then against the Collateral Overadvance Facility. If on
any day notice has not been timely delivered by Borrower
to Lender in accordance with the terms of this Agreement
specifying the basis for determining the rate of interest
on that day, then for that day Borrower shall be deemed
to have selected the Base Rate Option. The outstanding
principal balance of Liabilities other than the Revolving
Loan shall bear interest from the date such Liabilities
are incurred until paid in full at the Base Rate Option.
-13-
<PAGE> 14
(B) INTEREST PAYMENTS. With respect to any Base
Rate Portion, accrued interest shall be payable, in
arrears, (i) on the first day of each calendar month, and
(ii) at maturity (whether by acceleration or otherwise)
of the Revolving Loans. With respect to any LIBOR Rate
Portion, accrued interest shall be payable (i) on the
last day of the applicable Interest Period for such LIBOR
Rate Portion, and (ii) at maturity (whether by accelera-
tion or otherwise) of the Revolving Loans.
(C) CONVERSION OR CONTINUATION.
(i) Subject to the provisions of this
Agreement, Borrower shall have the option (a) as of
any date to convert all or any part of its
outstanding Base Rate Portion, if any, into one or
more LIBOR Rate Portions; (b) as of the last day of
its applicable Interest Period, to convert all or
any part of a LIBOR Rate Portion to a Base Rate
Portion on such expiration date; or (c) as of the
last day of any Interest Period, to continue all or
any part of a LIBOR Rate Portion, and, in the case
of clauses (b) and (c) of this paragraph, the
succeeding Interest Period of such continued LIBOR
Rate Portion shall commence on such expiration
date; provided, however, no outstanding portion of
the Revolving Loans may be continued as, or be
converted into, a LIBOR Rate Portion (x) if the
continuation of, or the conversion into such LIBOR
Rate Portion, would violate any of the provisions
of Section 2.3(G) or (y) if as of such date an
Event of Default or Default would occur or has
occurred and is continuing. Notwithstanding any of
the foregoing, Borrower may not select the LIBOR
Rate Option until ten (10) days after the initial
funding hereunder.
(ii) To convert or continue a LIBOR Rate
Portion under this Section 2.3(C), Borrower shall
deliver a Notice of Conversion/Continuation in the
form of Exhibit 2.3(C) to Lender no later than
12:00 noon (Chicago time) at least three (3)
Business Days in advance of the proposed
conversion/continuation date. A Notice of
Conversion/Continuation shall specify (a) the
proposed conversion/continuation date (which shall
be a Business Day), (b) the amount of the principal
portion of the Revolving Loans to be
converted/continued, and (c) whether such portion
shall be converted and/or continued. In lieu of
delivering a Notice of Conversion/Continuation,
Borrower may give Lender telephonic notice of any
proposed conversion/continuation by the time
-14-
<PAGE> 15
required under this Section 2.3(C) and such notice
shall be confirmed in writing delivered to Lender
promptly (but in no event later than 5:00 p.m.
(Chicago time) on the same Business Day). Any
Notice of Conversion/Continuation delivered by
Borrower (or telephonic notice in lieu thereof)
shall be irrevocable when given pursuant to this
clause (ii) (whether given in writing or by
telephone), and Borrower shall be bound to convert
or continue in accordance therewith.
(D) COMPUTATION OF INTEREST. Interest on all
principal Liabilities shall be computed on the basis of
the actual number of days elapsed in the period during
which interest accrues and a year of three hundred sixty
(360) days. In computing such interest, the date of the
making of the Revolving Loans, the first day of an
Interest Period or the date of any conversion into the
Base Rate Portion, as the case may be, shall be included
and the date of payment, the expiration date of the
Interest Period or the date of any conversion from the
Base Rate Portion, as the case may be, shall be excluded
so long as payment is timely received in accordance with
this Agreement.
(E) DEFAULT RATES. Notwithstanding the rates of
interest specified above, effective immediately upon the
occurrence of a Default and during the continuance
thereof, the principal balance of the Liabilities shall
bear interest payable upon Lender's demand therefor, at
a rate which is two percent (2%) in excess of the rate
otherwise payable under this Agreement. Following the
occurrence of a Default, and notwithstanding the payment
dates set forth above, Borrower shall pay interest on the
Liabilities upon Lender's demand therefor or, so long as
no demand has been made, monthly in arrears on the first
day of each month.
(F) MAXIMUM INTEREST RATE. In no event shall any
interest rate otherwise payable hereunder exceed the
maximum rate permissible by applicable law (the "Maximum
Rate"). If, in any month, any interest rate otherwise
payable hereunder, absent such limitation, would have
exceeded the Maximum Rate, and, if in future months, that
interest rate would otherwise be less than the Maximum
Rate, then that interest rate shall remain at the Maximum
Rate until such time as the amount of interest paid
hereunder equals the amount of interest which would have
been paid if the same had not been limited by the Maximum
Rate. In the event that, upon payment in full of the
Liabilities under this Agreement, the total amount of
interest paid or accrued under the terms of this Agree-
ment is less than the total amount of interest which
-15-
<PAGE> 16
would have been paid or accrued if the interest rates set
forth in this Agreement had at all times been in effect,
then Borrower shall, to the extent permitted by appli-
cable law, pay Lender an amount equal to the difference
between (i) the lesser of (a) the amount of interest
which would have been charged if the Maximum Rate had, at
all times from and after the date hereof, been in effect,
and (b) the amount of interest which would have accrued
had the interest rates set forth in this Agreement, at
all times, been in effect, and (ii) the amount of
interest actually paid or accrued under this Agreement.
In the event that Lender has received or provided for
interest and Other charges hereunder that constitute
interest in excess of the Maximum Rate, then Borrower
shall not be obligated to pay the amount of such excess
as interest and any excess shall be deemed a mistake and
cancelled automatically, and if theretofore paid by
Borrower such excess payments hereunder shall be deemed
received on account of, and shall automatically be
applied to reduce, the principal balance of Liabilities
in the inverse order of maturity, and if there are no
such Liabilities outstanding, Lender shall refund such
excess to Borrower.
(G) SPECIAL PROVISIONS GOVERNING BORROWER'S
SELECTION OF THE LIBOR RATE OPTION. With respect to the
LIBOR Rate Portion:
(i) AMOUNT OF LIBOR RATE PORTION. Each LIBOR
Rate Portion shall be for a minimum amount of Five
Hundred Thousand Dollars ($500,000) and in integral
multiples of One Hundred Thousand Dollars
($100,000) in excess of that amount.
(ii) DETERMINATION OF INTEREST PERIOD. By
giving notice as set forth in Section 2.3(C),
Borrower shall have the option, subject to the
other provisions of this Section 2.3(G), to select
an interest period (each, an "Interest Period") to
apply to each LIBOR Rate Portion described in such
notice, subject to the following provisions:
(a) Borrower may only select, as to a parti-
cular LIBOR Rate Portion, an Interest
Period of one (1), two (2) or three (3)
months in duration;
(b) In the case of immediately successive
Interest Periods applicable to the LIBOR
Rate Portion, each successive Interest
Period shall commence on the day on which
the next preceding Interest Period
expires;
-16-
<PAGE> 17
(c) If any Interest Period would otherwise
expire on a day which is not a Business
Day, such Interest Period shall be
extended to expire on the next succeeding
Business Day if the next succeeding
Business Day occurs in the same calendar
month, and if there will be no succeeding
Business Day in such calendar month, the
Interest Period shall expire on the
immediately preceding Business Day;
(d) Borrower may not select an Interest
Period as to any LIBOR Rate Portion if
such Interest Period expires after a
scheduled date of termination of this
Agreement; and
(e) There shall be no more than two (2)
Interest Periods in effect at any one
time if, after giving effect to such
request under Section 2.3(C), there
exists a Base Rate Portion; or there
shall be no more than three (3) Interest
Periods in effect at any one time if,
after giving effect to any request under
Section 2.3(C), no Base Rate Portion
shall exist.
(iii) DETERMINATION OF LIBOR RATE. As soon as
practicable on the second Business Day prior to the
first day of each Interest Period (the "Interest
Rate Determination Date"), Lender shall determine
(pursuant to the definition of "LIBOR Rate") the
interest rate which shall apply to the LIBOR Rate
Portion for which an interest rate is then being
determined and shall promptly give notice thereof
(in writing or by telephone confirmed in writing)
to Borrower. Lender's determination shall be
presumed to be correct, absent manifest error, and
shall be binding upon Borrower.
2.4 TERM OF AGREEMENT; PREPAYMENT PREMIUM. This
Agreement shall be in effect until three (3) years from the date
hereof (the "Initial Term") and shall be automatically renewed
thereafter for successive periods of one year (the "Renewal Term")
unless terminated as provided below. Either party shall have the
right to terminate this Agreement at the end of the Initial Term or
at the end of any Renewal Term by giving the other party at least
ninety (90) days prior written notice of such termination. In
addition, Borrower may terminate this Agreement prior to the end of
the Initial Term or any Renewal Term subject to the payment of the
prepayment premium described below. This Agreement may also be
terminated by Lender upon the occurrence of a Default as provided
-17-
<PAGE> 18
in Section 11. Upon the effective date of termination, all of the
Liabilities shall become immediately due and payable without
presentment, notice or demand. Notwithstanding any termination,
until all of the Liabilities shall have been fully paid and
satisfied, Lender shall be entitled to retain its security interest
in the Collateral, Borrower shall continue to remit collections of
Accounts and proceeds of Collateral as provided in this Agreement,
and Lender shall retain all of its rights and remedies under this
Agreement and the Ancillary Agreements. If, during the Initial
Term or any Renewal Term, this Agreement is terminated by Borrower,
Borrower shall pay to Lender a prepayment premium equal to (i)
three percent (3.0%) of the Maximum Revolving Facility, if such
termination occurs on or prior to the first anniversary of the date
hereof, (ii) two percent (2.0%) of the Maximum Revolving Facility,
if such termination occurs after the first anniversary but on or
prior to the second anniversary of the date hereof, and (iii) one
percent (1.0%) of the Maximum Revolving Facility, if such
prepayment occurs after the second anniversary of the date hereof
but prior to the third anniversary of the date hereof, or after the
third anniversary of the date hereof but prior to the end of the
then current Renewal Term.
2.5 CREDIT AVAILABILITY CHARGE. Lender has determined
that it cannot profitably extend financing accommodations to
Borrower unless Lender earns at least Thirty-Five Thousand Dollars
($35,000) in interest upon the Maximum Revolving Facility during
each month of the Initial Term and each Renewal Term. To
compensate Lender for the costs of being prepared to make funds
available to Borrower, Borrower agrees that if, during any such
month, the total amount of interest earned with respect to the
Maximum Revolving Facility is less than Thirty-Five Thousand
Dollars ($35,000), then Borrower shall pay to Lender at the end of
each such month a Credit Availability Charge equal to the positive
difference between the amount of interest accrued during such month
and Thirty-Five Thousand Dollars ($35,000). The aforesaid Credit
Availability Charge is in addition to any other applicable fees and
charges and shall be payable monthly during the Initial Term and
during each Renewal Term or immediately upon termination if this
Agreement is terminated prior to the end of the Initial Term or a
Renewal Term.
2.6 CLOSING FEE. Borrower shall pay to Lender a non-
refundable closing fee equal to One Hundred Forty Thousand Dollars
($140,000) fully earned and payable on the date hereof.
3. ELIGIBLE ACCOUNTS; ELIGIBLE INVENTORY.
3.1 ELEGIBLE ACCOUNTS. Upon Borrower's delivery to
Lender of an Accounts Report, Lender shall, in its reasonable
credit judgment, determine which individual Accounts and Gaming
Supply Accounts listed thereon are Eligible Accounts or Gaming
Supply Eligible Accounts. Without limiting Lender's discretion to
make such determination, the following Accounts and Gaming Supply
-18-
<PAGE> 19
Accounts shall not be deemed to be Eligible Accounts or Gaming
Supply Eligible Accounts:
(A) Any Account and any Gaming Supply Account which
does not arise from the sale of goods that have been
shipped or delivered on open account and on an absolute
sale basis and accepted by the appropriate party;
(B) Any Account and any Gaming Supply Account with
respect to which the Account Debtor's obligation to pay
such Account or Gaming Supply Account is conditioned upon
the Account Debtor's approval of the goods the sale of
which gave rise to such Account or Gaming Supply Account
or is otherwise subject to any repurchase obligation or
return right as with sales made on a bill-and-hold,
guaranteed sale, sale-and-return, sale on approval or
consignment basis;
(C) Any Account and any Gaming Supply Account with
respect to which the Account Debtor has returned or
rejected all or a part of the goods the sale of which
gave rise to such Account or Gaming Supply Account, but
only to the extent of that portion of such Account or
Gaming Supply Account attributable to the returned or
rejected goods;
(D) Any Account and any Gaming Supply Account which
is evidenced by chattel paper or an instrument of any
kind;
(E) Any Account and any Gaming Supply Account with
respect to which the Account Debtor is insolvent or the
subject of any bankruptcy or insolvency proceeding of any
kind or Lender is not satisfied with the creditworthiness
of such Account Debtor;
(F) Any Account and any Gaming Supply Account owing
from an Account Debtor located outside the United States,
unless such Account Debtor has furnished Borrower or
Gaming Supply (as applicable) with either (i) an
irrevocable letter of credit which has been issued or
confirmed by a financial institution acceptable to
Lender, is in form and substance acceptable to Lender,
has been assigned to Lender, is payable in U.S. Dollars
in an amount not less than the face value of such Account
or Gaming Supply Account and is otherwise an Eligible
Account or Gaming Supply Eligible Account or (ii)
provided that such Account or Gaming Supply Account is in
excess of $25,000, a guaranty, in form and substance
satisfactory to Lender, of such Account or Gaming Supply
Account executed and delivered by a Person (x) domiciled
in any state in the United States; (y) owning all of the
outstanding capital stock of such Account Debtor and (z)
-19-
<PAGE> 20
with financial condition and creditworthiness
satisfactory to Lender;
(G) Any Account and any Gaming Supply Account which
is not the valid, legally enforceable obligation of the
Account Debtor with respect thereto or any Account and
any Gaming Supply Account subject to a contra or with
respect to which the Account Debtor has asserted any
offset, counterclaim or defense denying liability
thereunder;
(H) Any Account and any Gaming Supply Account which
is not subject to and covered by Lender's security
interest or is subject to any other lien, claim,
encumbrance or security interest other than a lien,
claim, encumbrance or security interest in favor of
NatWest and subordinated in favor of Lender pursuant to
the Intercreditor Agreement;
(I) Any Account and any Gaming Supply Account which
is not evidenced by an invoice or other documentation in
form acceptable to Lender;
(J) Any Account and any Gaming Supply Account which
remains unpaid more than Sixty (60) days from its due
date (not to exceed One Hundred Twenty (120) days past
invoice date);
(K) All Accounts and all Gaming Supply Accounts
owing from an Account Debtor if fifty percent (50%) or
more of such Accounts or Gaming Supply Accounts are
unpaid more than sixty (60) days from their due date (not
to exceed One Hundred Twenty (120) days past their
invoice date);
(L) Any Account and any Gaming Supply Account with
respect to which the Account Debtor is located in the
State of New Jersey or Minnesota, unless Borrower or
Gaming Supply, as applicable, has filed a Notice of
Business Activities Report with the New Jersey Division
of Taxation or Minnesota Department of Revenue, as appli-
cable, for the then current year;
(M) Any Account and any Gaming Supply Account with
respect to which the representations and warranties set
forth in Section 9.2 have not been reaffirmed and
ratified as of the date of the most recent Accounts
Report delivered to Lender;
(N) Any Account and any Gaming Supply Account which
is owing from an employee, officer, agent, director,
stockholder or other Affiliate or from the United States
-20-
<PAGE> 21
of America or any department, agency or instrumentality
thereof;
(O) Any Account and any Gaming Supply Account
against which Lender is not legally permitted to make
Revolving Loans; and
(P) Any Gaming Supply Account after the earlier to
occur of (i) the Gaming Disposition or (ii) the date six
(6) months from the date hereof.
3.2 ELIGIBLE INVENTORY. Upon Borrower's delivery to
Lender of an Inventory Report, Lender shall, in its reasonable
credit judgment, determine which items of Inventory and Gaming
Supply Inventory listed thereon are Eligible Inventory and Gaming
Supply Eligible Inventory. Without limiting Lender's discretion to
make such determination, the following Inventory and Gaming Supply
Inventory shall not be deemed to be Eligible Inventory and Gaming
Supply Eligible Inventory:
(A) Any Inventory and any Gaming Supply Inventory
which is slow moving, is not in good condition, does not
meet all standards imposed by any governmental agency, or
department or division thereof, having regulatory
authority over such goods (including the use or sale
thereof), is not currently useable or currently saleable
in the ordinary course of Borrower's or Gaming Supply's
businesses, or is otherwise unacceptable to Lender due to
age, type, category or quantity;
(B) Any Inventory and any Gaming Supply Inventory
which (i) is not located at one of the locations listed
on Exhibit 3.2(B) attached hereto, (ii) is in the
possession of, or located on the premises of, a bailee,
warehouseman, processor, vendor or other third party,
unless Borrower has delivered to Lender an appropriate
waiver from such party in form and substance satisfactory
to Lender, (iii) is not subject to and covered by
Lender's security interest or (iv) is subject to any
other lien, claim, encumbrance or security interest other
than liens, claims, encumbrances or security interests in
favor of NatWest and subject to the terms of the
Intercreditor Agreement;
(C) Any Inventory and any Gaming Supply Inventory
which has been consigned, bailed, sold or leased to any
Person;
(D) Any Inventory and Gaming Supply Inventory with
respect to which the representations and warranties set
forth in Section 9.3 have not been reaffirmed and
ratified as of the date of the most recent Inventory
Report delivered to Lender;
-21-
<PAGE> 22
(E) Any Inventory and any Gaming Supply Inventory
which was purchased by Borrower or Gaming Supply in or as
part of a "bulk" transfer or sale of assets unless
Borrower or Gaming Supply, as applicable, and the seller
of such Inventory or Gaming Supply Inventory have
complied with all applicable bulk transfer laws;
(F) Any Inventory and any Gaming Supply Inventory
consisting of raw materials or work-in-process; and
(G) Any Gaming Supply Inventory after the earlier
to occur of (i) the Gaming Disposition or (ii) the date
six (6) months from the date hereof.
4. PAYMENTS.
---------
4.1 LOAN ACCOUNT; METHOD OF MAKING PAYMENTS. Lender
shall maintain a loan account (the "Loan Account") on its books in
which shall be recorded (i) all loans and advances made by Lender
to Borrower pursuant to this Agreement, (ii) all payments made by
Borrower on all such loans and advances, and (iii) all other
appropriate debits and credits as provided in this Agreement,
including, without limitation, all fees, charges, expenses and
interest. All entries in the Loan Account shall be made in
accordance with Lender's customary accounting practices as in
effect from time to time. Unless otherwise agreed to in writing
from time to time hereafter, all payments which Borrower is
required to make to Lender under this Agreement or under any of the
Ancillary Agreements shall be made by appropriate debits to the
Loan Account. Lender may, in its sole and absolute discretion,
elect to bill Borrower for any such amounts, in which case the
amounts so billed shall be immediately due and payable with
interest thereon at the rate set forth in Section 2.3.
4.2 PAYMENT TERMS. All of the Liabilities shall be
payable to Lender at the address set forth in Section 12.10 or such
other place as Lender may designate from time to time. The
Liabilities will be repayable as follows: (i) interest shall be
payable as provided in Section 2.3, (ii) fees, costs, expenses and
similar charges shall be payable as and when provided for in this
Agreement and the Ancillary Agreements, (iii) the Revolving Loan
and other Liabilities shall be payable in full on the effective
date of termination of this Agreement, and (iv) if at any time
Lender provides written notice to Borrower that the outstanding
principal balance of the Revolving Loan exceeds the Collateral
Availability or the outstanding principal balance of all of the
Liabilities exceeds the Maximum Revolving Facility, Borrower shall
immediately pay to Lender such amount as is necessary to eliminate
such excess. At Lender's option, all interest, fees, costs,
expenses and similar charges required to be made by Borrower to
Lender under this Agreement or any of the Ancillary Agreements may
be paid by debiting the Loan Account for such interest, fee, cost,
-22-
<PAGE> 23
expense or charge and crediting the principal balance of the
Revolving Loan in the Loan Account.
4.3 COLLECTION OF ACCOUNTS AND PAYMENTS. During the
term of this Agreement, Borrower shall maintain one or more lock
boxes and special accounts in Borrower's name with such bank or
banks as Lender may from time to time direct ("Depository Bank") to
which Borrower will direct its Account Debtors to immediately
deposit all remittances and proceeds of the Collateral. In the
case of deposits by Borrower, they shall be made to the special
accounts in the identical form in which such payment was made,
whether by cash or check. Each Depository Bank shall acknowledge
and agree, in a manner satisfactory to Lender, that all payments
made to a lock box or special account under its administration are
the sole and exclusive property of Lender, that Depository Bank has
no right of setoff against the funds in such lock box or special
account and that after deposit of any funds to the special account,
Depository Bank will wire, or otherwise transfer to Lender, in a
manner satisfactory to Lender, all funds deposited in the special
account. Borrower hereby agrees that all payments made to such
lock box or special account or otherwise received by Lender,
whether on the Accounts or as proceeds of other Collateral or
otherwise, will be the sole and exclusive property of Lender, and
will be applied on account of the Liabilities (conditional upon
final collection) as provided in Section 4.4 two (2) Business Days
after receipt by Lender of immediately available funds with respect
thereto. Lender agrees to promptly return to Borrower the balance
of any payments remitted to Lender at any time there exist no
Liabilities. Borrower and any Affiliates, partners, directors,
officers, employees, agents of Borrower and all Persons acting for
or in concert with Borrower shall, acting as trustee for Lender,
receive, as the sole and exclusive property of Lender, any monies,
checks, notes, drafts or any other payments relating to or proceeds
of Accounts or other Collateral which come into their possession or
under their control and immediately upon receipt thereof, shall
remit the same or cause the same to be remitted, in kind, to
Lender, at Lender's address set forth in Section 12.10 or such
other place as Lender may designate from time to time. Borrower
agrees to pay to Lender any and all fees, costs and expenses (if
any) which Lender incurs in connection with opening and maintaining
the lock box and special account and depositing for collection by
Lender any check or item of payment received or delivered to
Depository Sank or Lender on account of the Liabilities and
Borrower further agrees to reimburse Lender for any claims asserted
by Depository Bank in connection with the lock box and special
account or any returned or uncollected checks received by Deposit-
ory Bank for deposit in the lock box or special account.
4.4 APPLICATION OF PAYMENTS AND COLLECTIONS. Borrower
irrevocably waives the right to direct the application of payments
and collections received by Lender from or on behalf of Borrower,
and Borrower agrees that Lender shall have the continuing exclusive
right to apply and reapply any and all such payments and collec-
-23-
<PAGE> 24
tions against the Liabilities in such manner as Lender may deem
appropriate, notwithstanding any entry by Lender upon any of its
books and records. To the extent that Borrower makes a payment or
payments to Lender or Lender receives any payment or proceeds of
the Collateral for Borrower's benefit, which payment(s) or proceeds
or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid to
a trustee, receiver or any other Person under any bankruptcy act,
state or federal law, common law or equitable cause, then, to the
extent of such payment(s) or proceeds received, the Liabilities or
part thereof intended to be satisfied shall continue in full force
and effect, as if such payment(s) or proceeds had not been received
by Lender.
4.5 STATEMENTS. All advances to Borrower, and all other
debits and credits provided for in this Agreement, shall be
evidenced by entries made by Lender in its internal data control
systems showing the date, amount and reason for each such debit and
credit. Until such time as Lender shall have rendered to Borrower
written statements of account as provided herein, the balance in
the Loan Account, as set forth on Lender's most recent statement,
shall be rebuttably presumptive evidence of the amounts due and
owing to Lender by Borrower. Not less than ten (10) days after the
last day of each calendar month, Lender shall render to Borrower a
statement setting forth the balance of the Loan Account, including
principal, interest, expenses and fees. Each such statement shall
be subject to subsequent adjustment by Lender but shall, absent
manifest errors or omissions, be presumed correct and binding upon
Borrower and shall constitute an account stated unless, within
thirty (30) days after receipt of any statement from Lender,
Borrower shall deliver to Lender written objection thereto
specifying the error or errors, if any, contained in such state-
ment. In the absence of a written objection delivered to Lender as
set forth above, Lender's statement of Borrower's Loan Account
shall be conclusive evidence of the amount of Borrower's Liabili-
ties.
4.6 CONDITIONS TO ADVANCES. Notwithstanding any other
provisions contained in this Agreement, the making of any Revolving
Loan provided for in this Agreement shall be conditioned upon the
following:
(A) Lender shall have received by at least 10:00
A.M. Chicago time on the day the advance is requested to
be made hereunder, a telephonic request from an officer
of Borrower (or any Person authorized by Borrower
pursuant to a written list provided to Lender) for an
advance to Borrower in a specific amount.
Notwithstanding the foregoing, requests for LIBOR Rate
Portions shall be made as provided in Section 2.3. In
addition, Lender shall also have received such Accounts
Reports, Inventory Reports, financial reports and other
-24-
<PAGE> 25
information as Lender shall have requested. Advances
shall only be made on Business Days;
(B) No material adverse change, as reasonably
determined by Lender, in the financial condition or
operations of Borrower shall have occurred since the date
hereof;
(C) Neither a Default nor an Event of Default shall
have occurred and be continuing;
(D) Lender shall have received, in form and
substance reasonably satisfactory to Lender, all
certificates, orders, authorities, consents, affidavits,
schedules, instruments, security agreements, financing
statements, mortgages and other documents which are
provided for hereunder, or which Lender may at any time
reasonably request; and
(E) Solely with respect to the initial Revolving
Loans to be made by Lender on the date hereof, Lender
shall have received evidence, in form and substance
reasonably satisfactory to Lender, that Borrower has at
least $750,000 in Excess Availability. For purposes of
this Section 4.6(E), "Excess Availability" shall mean the
amount equal to (x) the lesser of (i) the Maximum
Revolving Facility and (ii) the amount of the Revolving
Loans available to Borrower as of the date hereof based
on the applicable lending formulas, and subject to the
sublimits and reserves set forth in Section 2.1 on the
date hereof (including, without limitation, a reserve of
Four Hundred Fifty Thousand Dollars ($450,000) for
inventory replenishment), minus the sum of (i) the amount
of then outstanding and unpaid Liabilities after giving
effect to the making of the initial Revolving Loans
hereunder, (ii) the amount of all accounts payable of
Borrower and Gaming Supply and taxes owing by Borrower
and Gaming Supply not current after giving effect to the
making of the initial Revolving Loans hereunder and (iii)
the payment of all closing and transaction fees and
expenses due and payable on the date hereof.
4.7 SPECIAL PROVISIONS GOVERNING LIBOR RATE PORTIONS.
Notwithstanding any other provision of this Agreement, the
following provisions shall govern with respect to LIBOR Rate
Portions as to the matters covered:
(A) In the event Lender shall have determined
(which determination shall be final and conclusive and
binding upon all parties hereto), on any Interest Rate
Determination Date with respect to any LIBOR Rate
Portions, that by reason of circumstances affecting the
interbank Eurodollar market, adequate and fair means do
-25-
<PAGE> 26
not exist for determining the interest rate applicable to
such LIBOR Rate Portions on the basis provided for in the
definition of LIBOR Rate, Lender shall on such date give
notice (by telecopy or by telephone confirmed in writing)
to Borrower of such determination, whereupon (i) no
Revolving Loans may be made as, or converted into, LIBOR
Rate Portions until such time as Lender notifies Borrower
that the circumstances giving rise to such notice no
longer exist and (ii) any Notice of Conversion/Continuation
Conversion/Continuation given by Borrower with respect to
the Loans in respect of which such determination was made
shall be deemed to be modified by Borrower and the LIBOR
Rate Portions then being requested shall be made or
continued by Lender as Base Rate Portions.
(B) If Lender shall have determined (which deter-
mination shall be final and conclusive and binding upon
all parties), with respect to any LIBOR Rate Portion and
any pending Interest Period that by reason of (i) any
change after the date hereof in any applicable law or
governmental rule, regulation or order (or any interpre-
tation thereof and including the introduction of any new
law or governmental rule, regulation or order) or (ii)
other circumstances affecting Lender or the LIBOR market
or the position of Lender or its affiliates in such
market (such as for example, but not limited to, official
reserve requirements required by Regulation D to the
extent not given effect in the LIBOR Rate), the LIBOR
Rate shall not represent the effective pricing to Lender
for U.S. Dollar deposits of comparable amounts for the
relevant period, then, and in any such event, Lender
shall promptly (and in any event as soon as possible
after being notified of a borrowing, conversion or
continuation) give notice (by telephone confirmed in
writing) to Borrower of such determination. Thereafter,
Borrower shall pay to Lender, upon written demand
therefor, such additional amounts in the form of an
increased rate of, or a different method of calculating,
interest or otherwise as Lender in its sole discretion
shall determine. A certificate as to additional amounts
owed Lender, showing in reasonable detail the basis for
the calculation thereof, submitted in good faith to
Borrower by Lender shall, absent manifest error, be final
and conclusive and binding upon all of the parties
hereto.
(C) If on any date Lender shall have reasonably
determined (which determination shall be final and
conclusive and binding upon all parties) that the making
or continuation of its LIBOR Rate Portions has become
unlawful or impossible under any law, governmental rule,
regulation or order with which Lender believes, in good
faith, it must comply (whether or not having the force of
-26-
<PAGE> 27
law and whether or not failure to comply therewith would
be unlawful), then, and in any such event, Lender shall
promptly give notice (by telephone confirmed in writing)
to Borrower of that determination. Subject to the prior
withdrawal of a Notice of Conversion/Continuation or
prepayment of the LIBOR Rate Portions as contemplated by
the following subsection, the obligation of Lender to
make or maintain the LIBOR Rate Portions during any such
period shall be terminated at the earlier of the termina-
tion of the Interest Period then in effect or when
required by law and Borrower shall no later than the
termination of the Interest Period in effect at the time
any such determination pursuant to this subsection is
made or, earlier, when required by law, repay or prepay
the LIBOR Rate Portions, together with all interest
accrued thereon.
(D) In lieu of paying Lender such additional moneys
as are required by Section 4.7(B) or the prepayment of
Lender required by Section 4.7(C), Borrower may exercise
any one of the following options:.
(i) If the determination by Lender relates
only to LIBOR Rate Portions then being requested by
Borrower pursuant to a Notice of
Conversion/Continuation, Borrower may by giving
notice (by telephone confirmed in writing) to
Lender no later than the date immediately prior to
the date on which such LIBOR Rate Portions are to
be made, withdraw that Notice of Conversion/Con-
tinuation and the LIBOR Rate Portions then being
requested shall be made by Lender as Base Rate
Portions; or
(ii) Upon written notice to Lender, Borrower
may terminate the obligations of Lender to make or
maintain the Revolving Loans as, and to convert the
Revolving Loans into, LIBOR Rate Portions and in
such event, Borrower shall, prior to the time any
payment pursuant to Section 4.7(C) is required to
be made or, if the provisions of Section 4.7(B) are
applicable, at the end of the then current Interest
Period, convert all of the LIBOR Rate Portions into
Base Rate Portions but without satisfying the
advance notice requirements therein.
(E) Borrower shall compensate Lender, upon written
request by Lender (which request shall set forth in
reasonable detail the basis for requesting such amounts
and which shall, absent manifest error, be conclusive and
binding upon all parties hereto), for all reasonable
losses, expenses and liabilities (including, without
limitation, any loss (including interest paid) sustained
-27-
<PAGE> 28
by Lender in connection with the re-employment of such
funds) Lender may sustain: (1) if for any reason (other
than a default by Lender) a borrowing of any LIBOR Rate
Portion does not occur on a date specified therefor in a
Notice of Conversion/Continuation or a telephonic request
for borrowing or conversion/ continuation therefor is
given pursuant to Section 2.3; (2) if any prepayment of
any LIBOR Rate Portion occurs on a date that is not the
last day of an Interest Period applicable to that LIBOR
Rate; (3) if any prepayment of any LIBOR Rate Portion is
not made on any date specified in a notice of prepayment
given by Borrower; or (4) as a consequence of any other
default by Borrower to repay any LIBOR Rate Portions when
required by the terms of this Agreement; PROVIDED, that
during the period while any such amounts have not been
paid, Lender shall reserve an equal amount from amounts
otherwise available to be borrowed under the Revolving
Loans.
(F) Except as provided in Section 4.7(B) with
respect to certain determinations on Interest Rate
Determination Dates, if, after the date hereof by reason
of, (1) the introduction of or any change (including,
without limitation, any change by way of imposition or
increase of reserve requirements) in or in the interpre-
tation of any treaty, law, rule, or regulation, or (2)
the compliance with any guideline or request from any
central bank or other governmental authority or quasi-
governmental authority exercising control over banks or
financial institutions generally (whether or not having
the force of law):
(i) Lender (or its applicable lending office)
shall be subject to any tax, duty, levy, cost or
other charge (except for taxes on the overall net
income or alternative minimum taxable income of
Lender or its applicable lending offiCe imposed by
the jurisdiction in which Lender's principal execu-
tive office or applicable lending office is organ-
ized, located or is doing business) with respect to
any LIBOR Rate Portions or its obligation to make
LIBOR Rate Portions, or the recording, registra-
tion, notarization or other formalization of the
LIBOR Rate Portions or the basis of taxation of
payments to Lender of the principal of or interest
or commitment fees or any amount payable on any
LIBOR Rate Portions or its obligation to make LIBOR
Rate Portions shall change; or
(ii) any reserve (including, without limita-
tion, any imposed by the Board of Governors of the
Federal Reserve System), special deposit or similar
requirement against assets of, deposits with or for
-28-
<PAGE> 29
the account of, or credit extended by, Lender's
applicable lending office shall be imposed on
Lender or its applicable lending office or the
interbank LIBOR market,
and as a result thereof there shall be any increase in
the cost to Lender of agreeing to make or making, funding
or maintaining LIBOR Rate Portions, or there shall be a
reduction in the amount received or receivable by Lender
or its lending office, then Borrower shall from time to
time, upon written notice from and demand by Lender, pay
to Lender, within five (5) Business Days after receipt of
such notice, demand and appropriate proof of such cost,
additional amounts sufficient to indemnify Lender against
such increased cost or reduced amount. A certificate as
to the amount of such increased cost or reduced amount,
submitted to Borrower by Lender, shall, except for
manifest error, be final, conclusive and binding for all
purposes. Any payments to be made by Borrower under
Section 4.7(B), 4.7(E) or 4.7(F) in respect of LIBOR Rate
Portions are to be without duplication.
(G) Calculation of all amounts payable to Lender
under this Section 4.7 shall be made as though Lender had
actually funded its LIBOR Rate Portion through the
purchase of a LIBOR deposit bearing interest at the LIBOR
Rate in an amount equal to the amount of that LIBOR Rate
Portion and having a maturity comparable to the relevant
Interest Period and through the transfer of such LIBOR
deposit from an offshore office to a domestic office in
the United States of America; PROVIDED, HOWEVER, that
Lender may fund each of its LIBOR Rate Portion in any
manner it sees fit and the foregoing assumption shall be
utilized only for the calculation of amounts payable
under this Section 4.7.
5. COLLATERAL: GENERAL TERMS.
---------------------------
5.1 SECURITY INTEREST. To secure the prompt payment and
performance of the Liabilities, Borrower hereby grants to Lender a
continuing security interest in and to all of the following
property and interest in property of Borrower, whether now owned or
existing or hereafter acquired or arising and wherever located:
(i) all Accounts, Inventory, Equipment, General Intangibles, tax
refunds, chattel paper, instruments, letters of credit, documents
and documents of title; (ii) all of Borrower's now owned or
hereafter acquired investment property including, without
limitation, all securities (certificated and uncertificated),
securities accounts and securities entitlements; (iii) all of
Borrower's deposit accounts (general or special) with any credits
and other claims against Depository Bank or Lender, or any other
financial institutions with which Borrower maintains deposits; (iv)
all of Borrower's now owned or hereafter acquired monies, and any
-29-
<PAGE> 30
and all other property of Borrower now or hereafter coming into the
actual possession, custody or control of Lender or any agent or
affiliate of Lender in any way or for any purpose (whether for
safekeeping, deposit, custody, pledge, transmission, collection or
otherwise); (v) all insurance proceeds of or relating to any of the
foregoing; (vi) all of Borrower's books and records relating to any
of the foregoing; and (vii) all accessions and additions to,
substitutions for, and replacements, products and proceeds of any
of the foregoing.
5.2 DISCLOSURE OF SECURITY INTEREST. Borrower shall
make appropriate entries upon its financial statements and books
and records disclosing Lender's security interest in the Colla-
teral.
5.3 SPECIAL COLLATERAL. If requested by Lender,
immediately upon Borrower's receipt of any Collateral which is
evidenced or secured by an agreement, chattel paper, letter of
credit, instrument or document, including, without limitation,
promissory notes, documents of title and warehouse receipts (the
"Special Collateral"), Borrower shall deliver the original thereof
to Lender or to such agent of Lender as Lender shall designate,
together with appropriate endorsements, the documents required to
draw thereunder (as may be relevant to letters of credit) or other
specific evidence (in form and substance acceptable to Lender) of
assignment thereof to Lender.
5.4 FURTHER ASSURANCES. At Lender's request, Borrower
shall, from time to time, (i) execute and deliver to Lender all
Security Documents that Lender may reasonably request, in form and
substance acceptable to Lender, and pay the costs of any recording
or filing of the same, and (ii) take such other actions as Lender
may request, in order to fully effect the purposes of this
Agreement and to protect Lender's interest in the Collateral. Upon
the occurrence of any Default, Borrower hereby irrevocably makes,
constitutes and appoints Lender (and all Persons designated by
Lender for that purpose) as Borrower's true and lawful attorney and
agent-in-fact to sign the name of Borrower on any of the Security
Documents and to deliver any of the Security Documents to such
Persons as Lender, in its sole discretion, may elect. Borrower
agrees that a carbon, photographic, photostatic, or other reproduc-
tion of this Agreement or of a financing statement is sufficient as
a financing statement.
5.5 INSPECTION. Lender (by any of its officers,
employees or agents) shall have the right, at any time or times
during Borrower's usual business hours, without prior notice, to
inspect the Collateral, all records related thereto (and to make
extracts from such records) and the premises upon which any of the
Collateral is located, to discuss Borrower's affairs and finances
with any Person for the purpose of determining or effectuating
Borrower's compliance with this Agreement (including Borrower,s
independent certified public accountants) and to verify the amount,
-30-
<PAGE> 31
quality, value and condition of, or any other matter relating to,
the Collateral; PROVIDED, that Lender shall give Borrower notice
prior to discussing Borrower's affairs and finances with any
supplier to Borrower.
5.6 PERFECTION AND PRIORITY; LOCATION OF COLLATERAL.
Borrower's chief executive office, principal place of business and
all other offices and locations of the Collateral and books and
records related thereto (including, without limitation, computer
programs, printouts and other computer materials and records
concerning the Collateral) are set forth on EXHIBIT 3.2(B) attached
hereto. Borrower shall not remove its books and records or the
Collateral from any such locations (except for removal of items of
Inventory upon its sale in accordance with the terms of this
Agreement) and shall not open any new offices or relocate any of
its books and records or the Collateral except within the conti-
nental United States of America and upon at least thirty (30) days
prior notice thereof to Lender.
5.7 LENDER'S PAYMENT OF CLAIMS ASSERTED AGAINST
BORROWER. Lender may, but shall not be obligated to, at any time
or times hereafter, in its sole discretion, and without waiving any
Default or waiving or releasing any obligation, liability or duty
of Borrower or any Guarantor under this Agreement or the Ancillary
Agreements, pay, acquire or accept an assignment of any security
interest, lien, claim or other encumbrance asserted by any Person
against the Collateral except for those security interests, liens,
claims or other encumbrances being contested in good faith by
Borrower and for which reserves or other appropriate provisions
have been made. All sums paid by Lender under this Section 5.7,
including all costs, fees (including without limitation reasonable
attorneys' fees and paralegals' fees and court costs), expenses and
other charges relating thereto, shall be payable by Borrower to
Lender on demand and shall be additional Liabilities secured by the
Collateral.
6. COLLATERAL: ACCOUNTS.
----------------------
6.1 VERIFICATION OF ACCOUNTS. Any of Lender's officers,
employees or agents shall have the right, at any time or times
hereafter, in Lender's or Borrower's name or in the name of a firm
of independent certified public accountants acceptable to Lender,
to verify the validity, amount or any other matters relating to any
Accounts by mail, telephone, telegraph or otherwise.
6.2 ASSIGNMENTS, RECORDS AND ACCOUNTS REPORT. Borrower
shall keep accurate and complete records of its Accounts, and shall
cause Gaming Supply to keep accurate and Complete records of its
Gaming Supply Accounts, and as frequently as Lender shall require,
but not less frequently than twice per week, Borrower shall deliver
to Lender an Accounts Report and formal written assignments of all
Accounts, together with copies of the sales and collection
registers and, if requested by Lender, the invoices related
-31-
<PAGE> 32
thereto. Borrower shall immediately notify Lender of any Account
and any Gaming Supply Account that Borrower knows has ceased to be
an Eligible Account or Gaming Supply Eligible Account,
respectively. Borrower shall also deliver to Lender, upon demand,
the original copy of all documents, including, without limitation,
repayment histories, present status reports and shipment reports,
relating to the Accounts and Gaming Supply Accounts included in any
Accounts Report and such other matters and information relating to
the status of then existing Accounts and Gaming Supply Accounts as
Lender shall reasonably request. Borrower shall give Lender prompt
notice of all single Accounts and Gaming Supply Accounts in excess
of Ten Thousand Dollars ($10,000) at any time or from time to time
which are in dispute between any Account Debtor and either of
Borrower or Gaming Supply. Each Accounts Report shall identify all
disputed Accounts and Gaming Supply Accounts in excess of such
amount and disclose with respect thereto, in reasonable detail, the
reason for the dispute, all claims related thereto and the amount
in controversy.
Borrower shall further deliver to Lender as frequently as
Lender shall require, but not less frequently than once per month,
(A) an aged trial balance of all Accounts and Gaming Supply
Accounts setting forth the aging of all Accounts and Gaming Supply
Accounts as well as the Account Debtor's name, address and
outstanding balance and (B) an aged trial balance of all accounts
payable of Borrower and Gaming Supply setting forth the aging of
all such accounts payable as well as each payees name, address and
the outstanding amount owing to each such payee.
7. COLLATERAL: INVENTORY.
-----------------------
7.1 SALE OF INVENTORY. Unless a Default occurs and
Lender directs Borrower to do otherwise as allowed under Section
11, Borrower may sell Inventory, and may permit Gaming Supply to
sell Gaming Supply Inventory, in the ordinary course of their
respective businesses (which, except in connection with the Gaming
Disposition, does not include any transfer in partial or total
satisfaction of Indebtedness, sales in bulk, sale on consignment or
sales on an approval or sale or return basis). All proceeds of
sales by Borrower shall be part of the Collateral and remitted to
the special account referred to in Section 4.3. Borrower shall
not, and shall not permit Gaming Supply to, rent, lease or
otherwise transfer or dispose of any of the Inventory and Gaming
Supply Inventory without Lender's prior written consent, except as
set forth in this Section 7.1.
7.2 RECORDS AND SCHEDULES OF INVENTORY. Borrower shall,
and shall cause Gaming Supply to, keep correct and accurate monthly
records on a first-in, first-out basis, itemizing and describing
the kind, type, quality and quantity of Inventory and Gaming Supply
Inventory (as applicable), Borrower's or Gaming Supply's cost
therefor, and the withdrawals therefrom and additions thereto and
Inventory and Gaming Supply Inventory then on consignment (if any,
-32-
<PAGE> 33
provided that Lender's prior written consent to such consignment
must be obtained), and shall furnish to Lender, monthly (weekly, if
any Revolving Loans are predicated on the Collateral Overadvance
Facility) a current updated Inventory Report, based on the value of
Inventory and Gaming Supply Inventory (determined on a first-in,
first-out basis). A physical count of the Inventory and, prior to
the Gaming Disposition, Gaming Supply Inventory shall be conducted
no less than annually and a report based on such count of the
Inventory and Gaming Supply Inventory shall promptly thereafter be
provided to Lender together with such supporting information
including, without limitation invoices relating to Borrower's
purchase of goods listed in said report, as Lender shall request.
7.3 RETURNED AND REPOSSESSED INVENTORY. If at any time
prior to the occurrence of a Default, any Account Debtor returns
any of the Inventory to Borrower or any of the Gaming Supply
Inventory to Gaming Supply, Borrower shall promptly determine the
reason for such return and, if Borrower or Gaming Supply accepts
such return, issue (or cause Gaming Supply to issue) a credit
memorandum (with a copy to be included in the Accounts Report) in
the appropriate amount to such Account Debtor. Borrower shall, in
all cases, immediately notify Lender of the return of any Inventory
and any Gaming Supply Inventory in excess of Ten Thousand Dollars
($10,000), specifying the reason for such return and the location
and condition of the returned Inventory or Gaming Supply Inventory.
Borrower shall also immediately notify Lender Of any Inventory and
any Gaming Supply Inventory that Borrower knows has ceased to be
Eligible Inventory or Gaming Supply Eligible Inventory.
7.4 INVENTORY CONDITION. Borrower shall maintain the
Inventory in good and saleable condition and shall cause Gaming
Supply to maintain the Gaming Supply Inventory in good and saleable
condition. Lender shall not be responsible for (i) the safekeeping
of the Inventory or Gaming Supply Inventory; (ii) any loss or
damage thereto or destruction thereof occurring or arising in any
manner or fashion from any cause; (iii) any diminution in the value
of Inventory or Gaming Supply Inventory or (iv) any act or default
of any carrier, warehouseman, bailee or forwarding agency or any
other Person in any way dealing with or handling the Inventory or
Gaming Supply Inventory. All risk of loss, damage, distribution or
diminution in value of the Inventory and Gaming Supply Inventory
shall be borne by Borrower and Gaming Supply.
7.5 EVIDENCE OF OWNERSHIP OF INVENTORY. Upon Lender's
request, Borrower shall deliver to Lender evidence, in form and
substance satisfactory to Lender, of Borrower's and Gaming Supply's
ownership of all of the Inventory and Gaming Supply Inventory,
respectively.
8. COLLATERAL: EQUIPMENT.
----------------------
8.1 EQUIPMENT RECORDS. Borrower shall at all times
hereafter keep correct and accurate records itemizing and
-33-
<PAGE> 34
describing the kind, type, age and condition of the Equipment,
Borrower's cost therefor and accumulated depreciation thereof; and
any retirements, sales, or other dispositions thereof, all of which
records shall be available during Borrower's usual business hours
at the request of any of Lender's officers, employees or agents.
8.2 EQUIPMENT CONDITION. Borrower shall maintain the
Equipment in good condition and repair, ordinary wear and tear
excepted. Lender shall not be responsible for (i) safekeeping of
Equipment; (ii) any loss or damage thereto or destruction thereof
occurring or arising in any manner or fashion from any cause; (iii)
any diminution in the value of Equipment or (iv) any act or default
of any carrier, warehousemen, bailee or forwarding agency or any
other Person in any way dealing with or handling the Equipment.
All risk of loss, damage, distribution or diminution in the value
of Equipment shall be borne by Borrower.
8.3 VEHICLES. Borrower shall, at the request of Lender,
deliver to Lender the original title certificates for all of the
vehicles owned by Borrower. Borrower agrees to take all steps
necessary to keep each vehicle title in full force and effect in
its State of registration. At the request of Lender, Borrower
shall execute such agreements and documents as are necessary to
reflect Lender's liens on the vehicles.
9. WARRANTIES AND REPRESENTATIONS.
-------------------------------
9.1 GENERAL WARRANTIES AND REPRESENTATIONS. Borrower
warrants and represents that:
(A) (i) Borrower is a Delaware corporation, duly
incorporated and validly existing and in good standing
under the laws of the State of Delaware and is qualified
or licensed as a foreign entity to do business in all
other countries, states and provinces in which the laws
thereof require Borrower to be so qualified or licensed,
except for those other countries, states and provinces in
which the failure to be qualified could not reasonably be
expected to have a material adverse effect on Borrower's
business, operations, assets or financial condition; (ii)
Gaming Supply is a Delaware corporation, duly
incorporated and validly existing and in good standing
under the laws of the State of Delaware, and is qualified
or licensed as a foreign entity to do business in all
other countries, states and provinces in which the laws
thereof require Gaming Supply to be so qualified or
licensed, except for those other counties, states and
provinces in which the failure to be qualified could not
reasonably be expected to have a material adverse effect
on Gaming Supply's business, operations, assets or
financial condition;
-34-
<PAGE> 35
(B) Neither Borrower nor Gaming Supply has used,
during the five (5) year period preceding the date of
this Agreement, and neither Borrower nor Gaming Supply
intends to use, any fictitious name, except as disclosed in
EXHIBIT 9.1(B) attached hereto;
(C) Each of Borrower and Gaming Supply has the
right and power and is duly authorized and empowered to
enter into, execute, deliver and perform this Agreement
(in the case of Borrower) and the Ancillary Agreements to
which it is a party;
(D) The execution, delivery and performance by
Borrower and Gaming Supply of this Agreement and the
Ancillary Agreements to which it is a party shall not, by
their execution or performance, the lapse of time, the
giving of notice or otherwise, constitute a violation of
any applicable law, rule, regulation, judgment, order or
decree or a breach of any provision contained in
Borrower's or Gaming Supply's organizational documents or
contained in any agreement, instrument, indenture or
other document to which Borrower or Gaming Supply is now
a party or by which it is bound;
(E) Borrower's use of the proceeds of any advances
made by Lender are, and will continue to be, legal and
proper uses (duly authorized), in accordance with
applicable laws, rules and regulations, as in effect as
of the date hereof;
(F) Each of Borrower and Gaming Supply has, and is
current and in good standing with respect to all
governmental approvals, permits, certificates,
inspections, consents and franchises (collectively,
"Governmental Approvals") necessary to conduct its
business as heretofore conducted by it and to own or
lease and operate its properties as now owned or leased
and operated by it, except for those Governmental
Approvals the failure to be current and in good standing
with could not reasonably be expected to have a material
adverse effect on Borrower's or Gaming Supply's business,
operations, assets or financial condition;
(G) None of said approvals, permits, certificates,
consents or franchises contain any material term,
provision, condition or limitation materially more
burdensome than such as are generally applicable to
Persons engaged in the same or similar businesses as
Borrower and Gaming Supply;
(H) Each of Borrower and Gaming Supply now has
capital sufficient to carry on its business and
transactions and all businesses and transactions in which
-35-
<PAGE> 36
it is about to engage and is now solvent and able to pay
its debts as they mature and Borrower now owns property
the fair saleable value of which is greater than the
amount required to pay Borrower's debts;
(I) Except as disclosed on EXHIBIT 9.1(I) attached
hereto, neither Borrower nor Gaming Supply has any
litigation pending, or to the best of its knowledge,
threatened, and neither Borrower nor Gaming Supply has
any Indebtedness (except for trade payables arising in
the ordinary course of its business) and has not
guaranteed the obligations of any other Person;
(J) Except as disclosed on EXHIBIT 9.1(J) attached
hereto, (i) neither Borrower nor Gaming Supply is a party
to any contract or agreement or subject to any charge,
restriction, judgment, decree or order materially and
adversely affecting its business, property, assets,
operations or condition, financial or otherwise; and (ii)
neither Borrower nor Gaming Supply is a party to any
labor dispute and there are no lockouts, strikes or
walkouts relating to any labor contracts and no such
contract is scheduled to expire during the Initial Term;
(K) Borrower has good, indefeasible and merchant-
able title to and ownership of the Collateral, free and
clear of all liens, claims, security interests and other
encumbrances, except for the Permitted Liens;
(L) Neither Borrower nor Gaming Supply is in
violation of any applicable statute, rule, regulation or
ordinance of any governmental entity, including, without
limitation, the United States of America, any state,
city, town, municipality, county or of any other
jurisdiction, or of any agency thereof, in any respect
materially and adversely affecting the Collateral or
either such entity's business, property, assets,
operations or condition, financial or otherwise;
(M) Neither Borrower nor Gaming Supply is in
default under any indenture, loan agreement, mortgage,
lease, trust deed, deed of trust or other similar
agreement relating to the borrowing of monies to which it
is a party or by which it is bound;
(N) The Financials fairly present the assets,
liabilities and financial condition and results of
operations of Parent and such other Persons described
therein as of the dates thereof; there are no omissions
or other facts or circumstances which are material and
there has been no material and adverse change in the
assets, liabilities or financial or other condition of
Parent since the date of the Financials; there exist no
-36-
<PAGE> 37
equity or investments in or outstanding advances to any
Person not reflected in the Financials; there are no
actions or proceedings which are pending or, to the best
of Borrower's knowledge, threatened, against Borrower or
any other Person which might result in any material
adverse change in Borrower's financial condition or
materially and adversely affect Borrower's business,
property, assets or operations or the Collateral;
(O) Neither Borrower nor Gaming Supply has received
notice to the effect that it is not in full compliance
with any of the requirements of ERISA and the regulations
promulgated thereunder and, to the best of its knowledge
there exists no event described in Section 4043 of ERISA,
excluding subsections 4043(b)(2) and 4043(b)(3) thereof
(a "Reportable Event");
(P) Each of Borrower and Gaming Supply has filed
all federal, state and local tax returns and other
reports, or has been included in consolidated returns or
reports filed by an Affiliate (provided that in the event
that Borrower files a return with an Affiliate,
Borrower's contribution with respect to taxes as a result
of the filing of such consolidated return shall not be
greater, nor the receipt of tax benefits less, than they
would have been had Borrower not filed a consolidated
return with an Affiliate), which such entity is required
by law, rule or regulation to file and all Charges that
are due and payable have been paid;
(Q) Borrower's execution and delivery of this
Agreement or any of the Ancillary Agreements does not
directly or indirectly violate or result in a violation
of any applicable laws, rules or regulations, including
without limitation, the Securities Exchange Act of 1934,
as amended, and Regulations U, G, T and X of the Board of
GovernOrs of the Federal Reserve System (12 CFR 221, 207,
220 and 224, respectively), and Borrower does not own or
intend to purchase or carry any "margin security," as
defined in such Regulations; and
(R) Except as set forth in EXHIBIT 9.1(R), each of
Borrower and Gaming Supply is in compliance in all
respects with all Environmental Laws, and neither
Borrower nor Gaming Supply is subject to any actual or
threatened judicial or administrative proceeding,
investigation or inquiry into the possibility of
violation of any Environmental Laws; neither Borrower nor
Gaming Supply is the subject of actual or threatened
investigation or inquiry evaluating whether any remedial
action is needed to respond to a Release of any Hazardous
Material into the environment, nor does either such
entity have knowledge or notice of the presence on or
-37-
<PAGE> 38
under any property owned or operated by it, or of the
Release of, any Hazardous Material; there is no claim
pending or threatened against Borrower or Gaming Supply
relating to damage, contribution, cost recovery,
compensation, loss or injury resulting from the Release
of, or exposure to, any Hazardous Material; neither
Borrower, Gaming Supply, nor, to the best of Borrower's
knowledge, any predecessor of Borrower or Gaming Supply,
has filed, or was required to file, any notice indicating
past or present Release, generation, transportation,
treatment, storage or disposal of a Hazardous Material
nor has Borrower, Gaming Supply, or, to the best of
Borrower's knowledge, any predecessor of such entity,
engaged in such activity; neither Borrower nor Gaming
Supply has known contingent liability in connection with
any Release of any Hazardous Material into the
environment; and neither Borrower nor Gaming Supply has
received notice, nor has reason to expect notice, of any
potential liability under any Environmental Laws.
9.2 ACCOUNT WARRANTIES AND REPRESENTATIONS. Borrower
warrants and represents that Lender may rely, in determining which
Accounts and Gaming Supply Accounts listed on any Accounts Report
are Eligible Accounts and Eligible Gaming Supply Accounts,
respectively, without independent investigation, on all statements,
warranties and representations made by Borrower or Gaming Supply on
or with respect to any such Accounts Report and, unless otherwise
indicated in such Accounts Report, that:
(A) Such Accounts and Gaming Supply Accounts are
genuine, are in all respects what they purport to be, are
not reduced to a judgment and, if evidenced by any
instrument, item of chattel paper, agreement, contract or
documents, are evidenced by only one executed original
instrument, item of chattel paper, agreement, contract or
document and, if requested by Lender, such original has
been endorsed and delivered to Lender;
(B) Such Accounts and Gaming Supply Accounts
represent undisputed, bona fide transactions completed in
accordance with the terms and provisions contained in any
documents related thereto,;
(C) Except for credits issued to any Account Debtor
in the ordinary course of Borrower's or Gaming Supply's
business for Inventory or Gaming Supply Inventory
returned pursuant to Section 7.3, the amounts shown on
the Accounts Report, and all invoices and statements
delivered to Lender with respect to any Account and any
Gaming Supply Account, are actually and absolutely owing
to Borrower or Gaming Supply, respectively, and are not
contingent for any reason;
-38-
<PAGE> 39
(D) There are no setoffs, counterclaims or disputes
existing or asserted with respect to any Accounts and any
Gaming Supply Accounts included on an Accounts Report,
and neither Borrower nor Gaming Supply has made any
agreement with any Account Debtor for any deduction from
such Account or Gaming Supply Account, respectively,
except for discounts or allowances allowed by Borrower
and Gaming Supply in the ordinary course of its business
for prompt payment, which discounts and allowances have
been disclosed to Lender and are reflected in the
calculation of the invoice related to such Account or
Gaming Supply Account;
(E) To the best of Borrower's knowledge, there are
no facts, events or occurrences which in any way impair
the validity or enforcement of any of the Accounts or
Gaming Supply Accounts or tend to reduce the amount
payable thereunder from the amount of the invoice shown
on any Accounts Report or on any contracts, invoices and
statements delivered to Lender with respect thereto;
(F) To the best of Borrower's knowledge, all
Account Debtors are solvent and had the capacity to
contract at the time any contract or other document
giving rise to or evidencing the Accounts and Gaming
Supply Accounts was executed;
(G) The goods, the sale of which gave rise to the
Accounts and Gaming Supply Accounts, (i) were produced in
full compliance with the Federal Labor Standards Act, 29
U.S.C. SEC. SEC 207 et seq. as amended from time to time, and
(ii) are not, and were not at the time of the sale
thereof, subject to any lien, claim, security interest or
other encumbrance, except Permitted Liens;
(H) Borrower has no knowledge of any fact or
circumstances which would impair the validity or
collectibility of any of the Accounts and Gaming Supply
Accounts;
(I) To the best of Borrower's knowledge, there are
no proceedings or actions which are threatened or pending
against any Account Debtor which might result in any
material adverse change in such Account Debtor's
financial or other condition; and
(J) The Accounts and Gaming Supply Accounts have
not been pledged or sold to any Person or otherwise
encumbered and Borrower or Gaming Supply is the owner of
the Accounts or Gaming Supply Accounts, respectively,
free of all liens and encumbrances except for the
Permitted Liens.
-39-
<PAGE> 40
9.3 INVENTORY WARRANTIES AND REPRESENTATIONS. Borrower
warrants and represents that Lender may rely, in determining which
items of Inventory and Gaming Supply Inventory listed on any
Inventory Report are Eligible Inventory and Gaming Supply Eligible
Inventory, without independent investigation, on all statements,
warranties end representations made by Borrower or Gaming Supply on
or with respect to any such Inventory Report and, unless otherwise
indicated in such Inventory Report, that:
(A) All Inventory and Gaming Supply Inventory is
located on premises listed on EXHIBIT 3.2(B) or is
Inventory or Gaming Supply Inventory which is in transit
and is so identified on the relevant Inventory Report;
(B) The Inventory and Gaming Supply Inventory has
been produced in full compliance with all requirements of
the Federal Labor Standards Act, 29 U.S.C. +SC+SC 207 et
seq., as amended from time to time;
(C) Except as specified on EXHIBIT 3.2(B), no
Inventory and no Gaming Supply Inventory is now, and
shall not at any time or times hereafter be, stored with
a bailee, warehouseman or similar party without Lender's
prior written consent and, if Lender gives such consent,
Borrower will concurrently therewith cause any such
bailee, warehouseman or similar party to issue and
deliver to Lender, in form and substance acceptable to
Lender, warehouse receipts therefor in Lender's name; and
(D) Borrower and Gaming Supply are the owners of
all of the Inventory and Gaming Supply Inventory,
respectively, free and clear of all claims, liens and
encumbrances except for the Permitted Liens and none of
the Inventory and Gaming Supply Inventory has been
leased, rented, transferred or sold, either on
consignment, on a sale or return basis, on approval, or
otherwise.
9.4 AUTOMATIC WARRANTY AND REPRESENTATION AND REAFFIRMA-
TION OF WARRANTIES AND REPRESENTATIONS. Each request for an
advance made by Borrower pursuant to this Agreement or the
Ancillary Agreements shall constitute (i) an automatic warranty and
representation by Borrower to Lender that there does not then exist
a Default or an Event of Default, and (ii) a reaffirmation as of
the date of said request of all of the warranties and represen-
tations of Borrower or any other Person contained in this Agreement
and in the Ancillary Agreements.
9.5 SURVIVAL OF WARRANTIES AND REPRESENTATIONS.
Borrower covenants, warrants and represents to Lender that all
representations and warranties of Borrower contained in this
Agreement and the Ancillary Agreements shall be true at the time of
Borrower's execution of this Agreement and the Ancillary Agree-
-40-
<PAGE> 41
ments, and shall survive the execution, delivery and acceptance
hereof and thereof by the parties thereto and the closing of the
transactions described herein and therein or related hereto or
thereto.
10. COVENANTS AND CONTINUING AGREEMENTS.
------------------------------------
10.1 AFFIRMATIVE COVENANTS. Borrower covenants that it
shall, unless Lender consents in writing otherwise:
(A) Maintain the following financial covenants:
(i) At all times during the periods set forth
below Conquest shall maintain Adjusted Net Worth in
an amount not less than the amount set forth below
opposite such period:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
From the date hereof
through December 31, 1995 $1,800,000
From January 1, 1996
through March 31, 1996 $2,200,000
From April 1, 1996
through December 31, 1996 $2,800,000
From January 1, 1997
through March 31, 1997 $3,300,000
From April 1, 1997
through September 30, 1997 $3,700,000
From October 1, 1997
through December 31, 1997 $4,000,000
From January 1, 1998
through March 31, 1998 $4,300,000
From April 1, 1998
and thereafter $4,700,000
</TABLE>
(ii) Parent shall maintain Interest Coverage
of not less than 1 to 1 for (a) the calendar
quarter ending December 31, 1995; (b) the six month
period ending March 31, 1996; (c) the nine month
period ending June 30, 1996; (d) the twelve month
period ending September 30, 1996 and (e) the twelve
month period ending on the last day of each
December, March, June and September thereafter
(commencing with December 31, 1996).
-41-
<PAGE> 42
(iii) For each period set forth below Parent
shall have EBITDA in an amount not less than the
amount set forth below opposite such period:
Period Amount
------ ------
October 1, 1995
through December 31, 1995 $1,410,000
October 1, 1995
through March 31, 1996 $2,270,000
October 1, 1995
through June 30, 1996 $2,700,000
October 1, 1995
through September 30, 1996 $3,567,100
October 1, 1996
through December 31, 1996 $1,460,000
October 1, 1996
through March 31, 1997 $2,360,000
October 1, 1996
through June 30, 1997 $2,810,000
October 1, 1996
through October 1, 1997 $3,717,000
Each October 1 thereafter
through the immediately
following December 31 $1,460,000
Each October 1 thereafter
through the immediately
following March 31 $2,360,000
Each October 1 thereafter
through the immediately
following June 30 $2,810,000
Each October 1 thereafter
through the immediately
following September 30 $3,717,000
(iv) Parent shall maintain Debt Service
Coverage of not less than 1.25 to 1.0 for (a) the
calendar quarter ending December 31, 1995; (b) the
six month period ending March 31, 1996; (c) the
nine month periOd ending June 30, 1996; (d) the
twelve month period ending September 30, 1996 and
(e) the twelve month period ending on the last day
-42-
<PAGE> 43
of each December, March, June and September
thereafter (commencing with December 31, 1996).
(B) Pay to Lender, on demand, any and all fees,
costs or expenses which Lender or any Participant pays to
a bank or other similar institution arising out of or in
connection with (i) the forwarding to Borrower or any
other Person on behalf of Borrower, by Lender or any
Participant, of proceeds of Revolving Loans made by
Lender to Borrower pursuant to this Agreement, and (ii)
the depositing for collection, by Lender or any
Participant, of any check or item of payment received or
delivered to Lender or any Participant on account of the
Liabilities;
(C) At its sole cost and expense, keep and maintain
the Collateral insured for its full insurable value
against loss or damage by fire, theft, explosion,
sprinklers and all other hazards and risks which
specified by Lender from time to time by obtaining
policies naming Lender as lender's loss payee (none of
which shall be cancelable or subject to modification
without at least thirty (30) days notice to Lender), with
coverage, form and amount and with companies satisfactory
to Lender, and at Lender's request will deliver each
policy or certificate of insurance together with the
applicable loss payee endorsement to Lender. Borrower
will collaterally assign to Lender all business
interruption insurance. All proceeds of insurance shall
be paid to Lender and applied to the Liabilities in such
manner as Lender deems appropriate. In addition,
Borrower will deliver renewals for all of such policies
at least thirty (30) days prior to the expiration date of
the subject policy. Without limiting the generality of
the foregoing, unless otherwise agreed in writing by
Lender, all of such policies shall (i) provide that no
act of any person other than Lender will affect Lender's
right to recover under such policies; (ii) be in an
amount at least equal to the greater of (a) original
cost, and (b) replacement value of the Collateral covered
thereby; and (iii) contain an agreed-value clause
sufficient to eliminate any risk of co-insurance;
(D) Notify Lender promptly upon learning thereof of
any event or occurrence causing a material loss or
decline in value of the Collateral and the estimated (or
actual, if available) amount of such loss or decline;
(E) Promptly upon Borrower's learning thereof,
notify Lender of (i) any material delay in Borrower,s or
Gaming Supply's performance of any of its obligations to
any Account Debtor and of any assertion of any material
claims, offsets, defenses or counterclaims by any Account
-43-
<PAGE> 44
Debtor and of any material allowances or credits granted
(including all credits issued for returned or repossessed
Inventory and Gaming Supply Inventory) or other monies
advanced by Borrower or Gaming Supply to any Account
Debtor, and (ii) all material adverse information
relating to the financial or other conditions of any
material Account Debtor;
(F) Keep books of account and prepare financial
statements and furnish to Lender the following (all of
the foregoing and following to be kept and prepared in
accordance with Generally Accepted Accounting Principles
applied on a basis consistent with the Financials):
(i) as soon as available, but not later than
one hundred twenty (120) days after the close of
each fiscal year of Borrower, consolidated and
consolidating financial statements of Parent
(including balance sheets and profit and loss
statements with supporting footnotes) as at the end
of such year and for the year then ended all in
reasonable detail as requested by Lender and
examined by a firm of independent certified public
accountants of recognized national standing sel-
ected by Borrower and containing the unqualified
opinion of such independent certified public
accountants with respect to the financial state-
ments, together with a certificate from such
accountants certifying that Lender may rely on such
financial statements;
(ii) as soon as available, but not later than
thirty (30) days after the end of each month
(forty-five (45) days after the end of each month
on which one of Borrower's fiscal quarters ends),
consolidated and consolidating financial statements
of Parent (including balance sheets and statements
of profit and loss and of surplus), all in
reasonable detail as requested by Lender and
certified by Borrower's principal financial officer
as prepared in accordance with Generally Accepted
Accounting Principles (subject to customary fiscal
year end adjustments) and fairly presenting the
financial position and results of operations of
Borrower for such month and the portion of
Borrower's fiscal year then elapsed;
(iii) as soon as available, but not later than
sixty (60) days before the beginning of each fiscal
year of Borrower, a cash flow projection for such
fiscal year on a monthly basis and for each of the
next two fiscal years on an annual basis, together
-44-
<PAGE> 45
with appropriate supporting documents acceptable to
Lender; and
(iv) such other data and information (finan-
cial and other) as Lender, from time to time, may
reasonably request, bearing upon or related to the
Collateral, Borrower's or parent's financial
condition or results of its operations, or the
financial condition of any Person who is a
guarantor of any of the Liabilities;
(G) Except as may occur in the ordinary course of
Borrower's business, notify Lender through its scheduled
daily (Accounts) or monthly or weekly (Inventory) reports
of any Eligible Account, Gaming Supply Eligible Account,
Eligible Inventory or Gaming Supply Eligible Inventory
that Borrower knows has ceased to be an Eligible Account,
Gaming Supply Eligible Account, Eligible Inventory or
Gaming Supply Eligible Inventory, respectively, and the
reason(s) for such ineligibility;
(H) Notify Lender, promptly upon Borrower's
learning of (i) any litigation affecting Borrower or
Gaming Supply, whether or not the claim is considered by
Borrower to be covered by insurance; and (ii) the
institution of any suit or administrative proceeding
which in each case may materially and adversely affect
Borrower's or Gaming Supply's business, property, assets,
operations or condition, financial or otherwise;
(I) Provide Lender with copies of all agreements
between Borrower or Gaming Supply and any warehouse at
which Inventory or Gaming Supply Inventory may, from time
to time, be kept and all leases or similar agreements
between Borrower and Gaming Supply on the one hand and
any Person on the other, whether Borrower or Gaming
Supply is lessor or lessee thereunder;
(J) Maintain (i) product liability insurance in an
amount satisfactory to Lender but in no event less than
One Million Dollars ($1,000,000.00); and (ii) general
public liability insurance in an amount satisfactory to
Lender but in no event less than Five Million Dollars
($5,000,000.00) per occurrence, for bodily injury and
property damage, by obtaining policies (none of which
shall be cancelable or subject to modification without at
least thirty (30) days notice to Lender) in coverage and
form and with companies satisfactory to Lender and at
Lender's request will deliver each policy or certificate
of insurance to Lender. In addition, Borrower will
deliver renewals for all of such policies at least thirty
(30) days prior to the expiration date of the subject
policy;
<PAGE> 46
(K) Furnish Lender within five (5) Business Days
after the occurrence of any of the following events, with
appropriate notice thereof: (i) the happening of a
Reportable Event with respect to any profit sharing or
pension plan governed by ERISA (such notice shall contain
the statement of the chief financial officer of Borrower
setting forth details as to such Reportable Event and the
action which Borrower proposes to take with respect
thereto and a copy of the notice of such Reportable Event
to the Pension Benefit Guaranty Corporation), (ii) the
termination of any such plan, (iii) the appointment of a
trustee by an appropriate United States District Court to
administer any such plan, or (iv) the institution of any
proceedings by the Pension Benefit Guaranty Corporation
to terminate any such plan or to appoint a trustee to
administer any such plan;
(L) Furnish to Lender a copy of each report which
is filed by Borrower or Gaming Supply with respect to any
profit sharing or pension plan governed by ERISA promptly
after the filing thereof with the Secretary of Labor or
the Pension Benefit Guaranty Corporation and notify
Lender promptly upon receipt by Borrower or Gaming Supply
of any notice of the institution of any proceeding or
other actions which may result in the termination of any
such plans;
(M) Comply, and cause Gaming Supply to comply, with
all applicable Environmental Laws, prevent any property
now or hereafter owned or operated by Borrower and Gaming
Supply from being in violation of applicable
Environmental Laws, and promptly respond to any on-site
or off-site Release of a Hazardous Material into the
environment to correct, mitigate, remove, prevent,
remediate or clean such Release. Borrower shall, and
shall cause Gaming Supply and its and Gaming Supply's
respective employees, agents, contractors and
subcontractors and any other Persons from time to time
present on or occupying property now or hereafter owned
or operated by either of Borrower and Gaming Supply to,
keep and maintain such property in compliance with
applicable Environmental Laws. Neither Borrower nor
Gaming Supply shall, nor shall either entity permit any
employees, agents, contractors or subcontractors of such
entities to, use, generate, manufacture, handle, treat,
store or dispose on, under or about any property now or
hereafter owned or operated by either of Borrower and
Gaming Supply, or transport to or from such property any
Hazardous Materials, except such Hazardous Materials as
may be required to be generated, used, stored,
manufactured, handled, treated or transported in
connection with the permitted uses of such property and
-46-
<PAGE> 47
then only to the extent permitted by law after obtaining
all necessary permits and licenses therefor;
(N) Promptly give notice to Lender upon Borrower's:
(i) receipt of any notice that Borrower or Gaming Supply
is not or might not be in full compliance with
requirements of applicable Environmental Laws; (ii)
receipt of notice that Borrower or Gaming Supply is
subject to investigation or inquiry evaluating whether
any corrective or remedial action is needed to respond to
the Release of any Hazardous Material; (iii) receipt of
notice of claim made or threatened by any Person against
Borrower, Gaming Supply or any property now or hereafter
owned or operated by Borrower or Gaming Supply, relating
to damage, contribution, cost recovery, compensation,
loss or injury resulting from Release or exposure to any
Hazardous Material; (iv) discovery of any occurrence or
condition on any real property adjoining or in the
vicinity of any property now or hereafter owned or
operated by Borrower or Gaming Supply, or any part
thereof, that could cause such property to be subject to
clean-up, corrective action, remediation or response
under any Environmental Laws; or (v) receipt of notice
that any property now or hereafter owned or operated by
Borrower or Gaming Supply is, or may be, subject to a
lien in favor of any Person for (a) any liability under
federal, state or local laws, or (b) damages arising
from, or costs incurred by, any Person in response to a
Release of a Hazardous Material or other substance into
the environment; and
(O) Continue Steffen Magnell's employment as the
Chief Executive Officer of Borrower, except that such
employment may be terminated so long as a Chief Executive
Officer acceptable to Lender is employed by Borrower
within thirty (30) days following the date of Steffen
Magnell's termination of employment.
10.2 NEGATIVE COVENANTS. Borrower covenants that after
the date hereof it shall not, and shall cause Gaming Supply not to,
take any of the actions described below, without the prior written
consent of Lender.:
(A) Merge or consolidate with or acquire the stock
of any Person or acquire assets from any Person (except
to the extent such acquisition of assets is permitted
under Section 10.2(K));
(B) Make any investment in the securities of any
Person or make loans or other advances of money to any
Person; PROVIDED, that Borrower may make loans and
advances to (i) Gaming Supply not to exceed Four Hundred
Thousand Dollars ($400,000) in the aggregate at any time
-47-
<PAGE> 48
outstanding until the earlier of (x) the Gaming
Disposition or (y) the date six (6) months from the date
of this agreement and (ii) Suncom Technologies, Ltd.
("Suncom") in respect of sales of goods by Borrower to
Suncom in the ordinary course of business;
(C) Declare or pay distributions upon any such
entity's equity capital or make any distribution of
property or assets; PROVIDED, that Borrower may declare
and pay dividends to Wico Holding Corp., a Delaware
corporation ("Parent") provided that (a) no Revolving
Loans are then predicated on the Collateral Overadvance
Facility, (b) no Defaults or Events of Default then exist
or would be caused by the payment thereof, (c) such
dividend payments do not exceed Five Hundred Eighty-One
Thousand Dollars ($581,000) per fiscal year of Borrower
minus the sum of (i) cash received by Conquest during
such fiscal year from Air L.A., Inc. or its Affiliates in
connection with the sale by Conquest to Air L.A., Inc. of
the outstanding capital stock of Conquest Airlines Corp.
and (ii) the amount of dividends paid by Gaming Supply to
Parent during such fiscal year, and (d) such
distributions are distributed by Parent to Conquest and
are used by Conquest solely to satisfy current
obligations owing in respect of (x) Series A, Series B,
Series C, Series D and Series E preferred stock of
Conquest and (y) certain promissory notes issued by
Conquest in connection with a July, 1994 private
placement in an aggregate amount of $2,737,500.00 (the
"Private Placement Notes");
(D) Pay any management, consulting or other fees to
any Person, except in the ordinary course of business to
a Person that is not an Affiliate;
(E) Redeem, retire, purchase or otherwise acquire,
directly or indirectly, any of such entity's capital
stock or make any material change in such entity's
capital structure or in any of its business objectives,
purposes and operations;
(F) Enter into, or be a party to, any transaction
with any Affiliate, officer or shareholder of such
entity, except in the ordinary course of and pursuant to
the reasonable requirements of such entity's business and
upon fair and reasonable terms which are fully disclosed
to Lender and are no less favorable to such entity than
would obtain in a comparable arm's length transaction
with a Person not an Affiliate, officer or shareholder of
such entity;
(G) Enter into any transaction which materially and
adversely affects the Collateral or Borrower's ability to
-48-
<PAGE> 49
repay the Indebtedness or permit a modification of any
kind or nature with respect to any Account or Gaming
Supply Account in any material respect, including any of
the terms relating thereto, except, during the absence of
a Default, in accordance with practices and policies
previously disclosed in writing to Lender and for credits
given for inventory and Gaming Supply Inventory returned
pursuant to Section 7.3;
(H) Guarantee or otherwise, in any way, become
liable with respect to the obligations or liabilities of
any person, except (i) as set forth on EXHIBIT 9.1(I)
attached hereto, (ii) by endorsement of instruments or
items of payment for deposit to the general account of
Borrower or for delivery to Lender on account of the
Liabilities and (iii) Gaming Supply may guarantee
Borrower's repayment of the Liabilities;
(I) Except for Permitted Liens or as otherwise
expressly permitted in the Ancillary Agreements,
encumber, pledge, mortgage, grant a security interest in,
assign, sell, lease or otherwise dispose of or transfer,
whether by sale, merger, consolidation, liquidation,
dissolution, or otherwise, any of its property; provided,
that (i) Borrower and Gaming Supply may sell Inventory
and Gaming Supply Inventory in the ordinary course of
their business (which, except in connection with the
Gaming Disposition, does not include a transfer in
partial or total satisfaction of Indebtedness, sales in
bulk, sales on consignment or sales on an approval or
sale or return basis), (ii) Borrower may sell or
otherwise dispose of obsolete Equipment with an aggregate
net book value not to exceed Fifty Thousand Dollars
($50,000) in any fiscal year so long as the proceeds
thereof are delivered to Lender or used to acquire
Equipment of equal or greater value and (iii) Gaming
Supply may grant a security interest in all or
substantially all of its assets to Lender to secure the
guarantee described in Section 10.2(H);
(J) Except as provided on EXHIBIT 9.1(I), incur any
Indebtedness for borrowed money (other than the
Liabilities and purchase money financing of Equipment to
the extent permitted herein) other than Indebtedness
which is unsecured or secured by assets other than the
Collateral and in each such case is to Persons who
execute and deliver to Lender (in form and substance
acceptable to Lender and its counsel) subordination
agreements subordinating their Claims against Borrower to
the payment of the Liabilities;
(K) Make Capital Expenditures in any fiscal year of
Borrower (exclusive of expenditures pursuant to Section
-49-
<PAGE> 50
10.2(L)) in excess of Three Hundred Thousand Dollars
($300,000) in each such fiscal year,;
(L) Make expenditures in connection with the
relocation of Borrower's principal place of business in
excess of Three Hundred Thousand Dollars ($300,000);
(M) Amend or modify any of the NatWest Documents or
prepay all or any portion of the indebtedness evidenced
by any of the NatWest Documents other than (i) as set
forth on EXHIBIT 10.2(M); (ii) with the net proceeds of
an equity offering by Conquest; or (iii) with the
proceeds of loans made to Borrower by a bank or other
financial institution pursuant to documentation
substantially similar to the terms and conditions of the
NatWest Documents, in form and substance acceptable to
Lender and subordinated in favor of Lender pursuant to
documentation substantially similar to the terms and
conditions of the Intercreditor Agreement and in form and
substance satisfactory to Lender; and
(N) Change the end of Borrower's and Gaming
Supply's fiscal year from September 30 of each calendar
year.
10.3 CONTESTING CHARGES. Notwithstanding anything to the
contrary herein, Borrower and Gaming Supply may dispute any Charges
without prior payment thereof, even if such non-payment may cause
a lien to attach to Borrower's or Gaming Supply's assets, provided
that Borrower shall give Lender prompt notice of such dispute and
shall be diligently contesting or causing Gaming Supply to contest
the same in good faith and by an appropriate proceeding and there
is no danger of a loss or forfeiture of any of the Collateral and
provided further that, if the same are potentially or actually in
excess of Fifty Thousand Dollars ($50,000) in the aggregate at any
time hereafter, Borrower shall give Lender such additional
collateral and assurances as Lender, in its sole discretion, deems
necessary under the circumstances, immediately upon demand by
Lender.
10.4 PAYMENT OF CHARGES. Subject to the provisions of
Section 10.3, Borrower shall pay, and shall cause Gaming Supply to
pay, promptly when due all of the Charges. In the event either of
Borrower or Gaming Supply, at any time or times hereafter, shall
fail to pay the Charges or to promptly obtain the satisfaction of
such Charges, Borrower shall promptly so notify Lender thereof and
Lender may, without waiving or releasing any obligation or
liability of Borrower hereunder or any Default, in its sole
discretion, at any time or times thereafter, make such payment or
any part thereof (but shall not be obligated so to do), or obtain
such satisfaction and take any other action with respect thereto
which Lender deems advisable. All sums so paid by Lender and any
expenses, including reasonable attorneys' fees, court costs,
-50-
<PAGE> 51
expenses and other charges relating thereto, shall be payable by
Borrower to Lender upon demand and shall be additional Liabilities.
10.5 INSURANCE; PAYMENT OF PREMIUMS. All policies of
insurance on the Collateral or otherwise required hereunder shall
be in form and amount satisfactory to Lender and with insurers
reasonably recognized as adequate by Lender. Borrower shall
deliver to Lender evidence of the existence of each policy of
insurance and evidence of payment of all premiums therefor and
shall deliver evidence of renewals of all such policies to Lender
at least thirty (30) days prior to their expiration dates. Such
policies of insurance shall contain an endorsement, in form and
substance acceptable to Lender, showing all losses payable to
Lender. Such endorsement shall provide that the insurance
companies will give Lender at least thirty (30) days prior notice
before any such policy shall be altered or canceled and that no act
or default of Borrower or any other person shall affect the right
of Lender to recover under such policy in case of loss or damage.
Borrower hereby directs all insurers under such policies to pay all
proceeds payable thereunder directly to Lender. Borrower
irrevocably makes, constitutes and appoints Lender (and all
officers, employees or agents designated by Lender) as Borrower's
true and lawful attorney and agent-in-fact for the purpose of
making, settling and adjusting claims under such policies,
endorsing the name of Borrower in writing or by stamp on any check,
draft, instrument or other item of payment for the proceeds of such
policies and for making all determinations and decisions with
respect to such policies. If Borrower shall fail to obtain or to
maintain any of the policies required by this Agreement or to pay
any premium relating thereto, then Lender, without waiving or
releasing any obligation or default by Borrower hereunder, may (but
shall be under no obligation to do so) obtain and maintain such
policies of insurance and pay such premiums and take any other
action with respect thereto which Lender deems advisable. All sums
so disbursed by Lender, including reasonable attorneys' fees, court
costs, expenses and other charges relating thereto, shall be
payable by Borrower to Lender upon demand and shall be additional
Liabilities.
10.6 SURVIVAL OF OBLIGATIONS UPON TERMINATION OF
AGREEMENT. Except as otherwise expressly provided for in this
Agreement and in the Ancillary Agreements, no termination or
cancellation (regardless of cause or procedure of this Agreement or
the Ancillary Agreements) shall in any way affect or impair the
powers, obligations, duties, rights, and liabilities of Borrower or
Lender in any way or respect relating to any transaction or event
occurring prior to such termination or cancellation, the Colla-
teral, or any of the undertakings, agreements, covenants, warran-
ties and representations of Borrower or Lender contained in this
Agreement or the Ancillary Agreements. All such undertakings,
agreements, covenants, warranties and representations shall survive
such termination or cancellation.
-51-
<PAGE> 52
11. DEFAULT: RIGHTS AND REMEDIES ON DEFAULT.
11.1 DEFAULT. The occurrence of any one or more of the
following events shall constitute a Default:
(A) Borrower fails to pay any part of the Liabili-
ties or any other Indebtedness when due and payable or
declared due and payable;
(B) Borrower fails or neglects to perform, keep or
observe any term, provision, condition or covenant
contained in this Agreement or in any of the Ancillary
Agreements;
(C) A default shall occur and shall not be cured
within any applicable cure period, if any, or waived
under any material agreement, document or instrument
other than this Agreement or any of the Ancillary
Agreements now or hereafter existing, to which Borrower
or, prior to the Gaming Disposition, Gaming Supply is a
party, including without limitation (i) any of the
NatWest Documents, (ii) that certain Replacement
Promissory Note dated April 28, 1995 executed by Gaming
Supply in favor of Shuffle Master, Inc. and (iii) that
certain Security Agreement dated April 28, 1995 between
Gaming Supply and Shuffle Master, Inc.;
(D) Any statement, warranty, representation,
report, financial statement, or certificate made or
delivered by Borrower, any Guarantor or any of their
respective officers, employees or agents, to Lender is
not true and correct in any material respect;
(E) There shall occur any material uninsured damage
to or loss, theft, or destruction of any of the Colla-
teral;
(F) The Collateral or any of Borrower's or any
Guarantor's other assets are attached, seized, levied
upon or subjected to a writ or distress warrant, or come
within the possession of any receiver, trustee, custodian
or assignee for the benefit of creditors; an application
of a receiver, trustee, or custodian for possession of
any of the Collateral or any of Borrower's or any
Guarantor's other assets is filed and the same is not
dismissed within thirty (30) days after the filing
thereof;
(G) An application is made by Borrower or any
Guarantor for the appointment of a receiver, trustee or
custodian for any of the Collateral or any of Borrower's
or any Guarantor's other assets; a petition under any
section or chapter of the Bankruptcy Code or any similar
-52-
<PAGE> 53
law or regulation is filed against Borrower or any
Guarantor and is not dismissed with thirty (30) days
after filing; a petition under any section or chapter of
the Bankruptcy Code or any similar law or regulation is
filed by Borrower or any Guarantor; Borrower or any
Guarantor makes an assignment for the benefit of its
creditors or any case or proceeding is filed by or
against Borrower or any Guarantor for its dissolution,
liquidation, or termination; Borrower or any Guarantor
ceases to conduct its business as now conducted or is
enjoined, restrained or in any way prevented by court
order from conducting all or any material part of its
business affairs;
(H) Except as permitted in Section 10.3, a notice
of lien, levy or assessment is filed of record with
respect to all or any substantial portion of Borrower's
or any Guarantor's assets by the United States, or any
department, agency or instrumentality thereof, or by any
state, county, municipal or other governmental agency
including, without limitation, the Pension Benefit
Guaranty Corporation, or any taxes or debts owing to any
of the foregoing becomes a lien or encumbrance upon the
Collateral or any of Borrower's or any Guarantor's other
assets;
(I) Judgment(s) is or are rendered against Borrower
in excess of Fifty Thousand Dollars ($50,000) which is
not paid or are not stayed within thirty (30) days of the
entry thereof;
(J) Borrower or any Guarantor becomes insolvent or
fails generally to pay its debts as they become due;
(K) If any individual who is a Guarantor shall die
or become incompetent;
(L) If any Guarantor revokes or terminates any
guaranty relating to any of the Liabilities or defaults
under the terms of any such guaranty;
(M) If there shall be a change in the ownership
structure of Borrower or Gaming Supply as set forth on
EXHIBIT 11.1(M) hereto other than, with respect to Gaming
Supply, in connection with the Gaming Disposition;
(N) If either Parent or Conquest fails to comply
with any of its obligations set forth in the Gaming
Disposition Side Letter within the applicable time
periods established therein; or
(O) Conquest fails to apply any cash or cash
equivalents received by Conquest in connection with the
-53-
<PAGE> 54
disposition by Conquest of any note issued by, or equity
interest in, Air L.A., Inc. (including, without
limitation, in connection with any public or private
offering by Air L.A., Inc.) to reduce any outstanding
indebtedness evidenced by the Private Placement Notes.
11.2 ACCELERATION OF THE LIABILITIES. Upon and after the
occurrence of a Default, all of the Liabilities may at any time
prior to the cure thereof, at the option of Lender and without
demand, notice, or legal process of any kind, be declared, and
immediately shall thereupon become, due and payable.
11.3 REMEDIES. Upon and after the occurrence of a
Default, Lender shall have all of the following rights and
remedies:
(A) All of the rights and remedies of a secured
party under the Illinois Uniform Commercial Code or other
applicable law, all of which rights and remedies shall be
cumulative, and none exclusive, to the extent permitted
by law, and in addition to any other rights and remedies
contained in this Agreement and in any of the Ancillary
Agreements;
(B) The right to (i) peacefully enter upon the
premises of Borrower or any other place or places where
the Collateral is located and kept to the extent per-
mitted by law, without any obligation to pay rent to
Borrower or any other person, through self-help and
without judicial process or first obtaining a final
judgment or giving Borrower notice and opportunity for a
hearing on the validity of Lender's claim, and remove the
Collateral from such premises and places to the premises
of Lender or any agent of Lender, for such time as Lender
may require to collect or liquidate the Collateral,
and/or (ii) require Borrower to assemble and deliver the
Collateral to Lender at a place to be designated by
Lender;
(C) The right to (i) notify the post office
authorities to change the address for delivery of
Borrower's mail to an address designated by Lender and
receive and open Borrower's mail and collect any and all
amounts due from Account Debtors, provided that Lender
forwards such mail to Borrower, (ii) notify Account
Debtors that the Accounts have been assigned to Lender
and that Lender has a security interest therein, and
(iii) direct such Account Debtors to make all payments
due from them upon the Accounts, including the Special
Collateral, directly to Lender or to a lock box desig-
nated by Lender. Lender shall promptly furnish Borrower
with a copy of any such notice sent and Borrower hereby
agrees that any such notice in Lender's sole discretion,
-54-
<PAGE> 55
may be sent on Lender's stationery, in which event,
Borrower shall, upon demand, co-sign such notice with
Lender;
(D) The right to sell, lease, assign or to other-
wise dispose of all or any Collateral in its then
condition, or after any further manufacturing or proces-
sing thereof, at public or private sale or sales, with
such notice as provided in Section 11.4, in lots or in
bulk, for cash or on credit, all in accordance with
applicable law and as Lender, in its sole discretion, may
deem advisable. At any such sale or sales of the
Collateral, the Collateral need not be in view of those
present and attending the sale, nor at the same location
at which the sale is being conducted. Lender shall have
the right to conduct such sales on Borrower's premises or
elsewhere and shall have the right to use Borrower's
premises without charge for such sales for such time or
times as Lender may see fit. Lender is hereby granted a
license or other right to use, without charge, Borrower's
labels, patents, copyrights, rights of use of any name,
trade secrets, trade names, trademarks and advertising
matter, or any property of a similar nature, as it
pertains to the Collateral, in advertising for sale and
selling any Collateral and Borrower's rights under all
licenses and all franchise agreements shall inure to
Lender's benefit but Lender shall have no obligations
thereunder. Lender may purchase all or any part of the
Collateral at public or, if permitted by law, private
sale and, in lieu of actual payment of such purchase
price, may setoff the amount of such price against the
Liabilities. The proceeds realized from the sale of any
Collateral shall be applied first to the reasonable
costs, expenses and attorneys' and paralegals' fees and
expenses incurred by Lender for collection and for
acquisition, completion, protection, removal, storage,
sale and delivery of the Collateral; second to interest
due upon any of the Liabilities; and third to the
principal of the Liabilities. Lender shall account to
Borrower for any surplus. If any deficiency shall arise,
Borrower shall remain liable to Lender therefor.
11.4 NOTICE. Borrower agrees that any notice required to
be given by Lender of a sale, lease, other disposition of any of
the Collateral or any other intended action by Lender, which is
personally delivered to Borrower or which is deposited in the
United States mail, postage prepaid and duly addressed to Borrower
at the address set forth in Section 12.10, at least ten (10)
Business Days prior to any such public sale, lease or other
disposition or other action being taken, or the time after which
any private sale of the Collateral is to be held, shall constitute
commercially reasonable and fair notice thereof to Borrower.
-55-
<PAGE> 56
12. MISCELLANEOUS.
12.1 APPOINTMENT OF LENDER AS BORROWER'S LAWFUL ATTORNEY-
IN-FACT. Borrower, irrevocably designates, makes, constitutes and
appoints Lender (and all persons designated by Lender) as Bor-
rower's true and lawful attorney and agent-in-fact and Lender, or
Lender's agent, may, without notice to Borrower:
(A) At any time hereafter, endorse by writing or
stamp Borrower's name on any checks, notes, drafts or any
other payment relating to and/or proceeds of the Colla-
teral which come into the possession of Lender or under
Lender's control and deposit the same to the account of
Lender for application to the Liabilities; and
(B) At any time after the occurrence of a Default
Lender may, at any time priOr to the cure thereof, in
Borrower's or Lender's name: (i) demand payment of the
Collateral; (ii) enforce payment of the Collateral, by
legal proceedings or otherwise; (iii) exercise all of
Borrower's rights and remedies with respect to the
collection of the Collateral; (iv) settle, adjust,
compromise, extend or renew the Accounts and the Special
Collateral; (v) settle, adjust or compromise any legal
proceedings brought to collect the Collateral; (vi)
satisfy and release the Accounts and Special Collateral,;
(vii) take control, in any manner, of any item of payment
or proceeds referred to in Section 4.3; (viii) prepare,
file and sign Borrower's name on any proof of claim in
Bankruptcy or similar document against any Account
Debtor; (ix) prepare, file and sign Borrower,s name on
any notice of lien, assignment or satisfaction of lien or
similar document in connection with the Collateral; (x)
do all acts and things necessary, in Lender's sole
discretion, to fulfill Borrower's obligations under this
Agreement; (xi) endorse by writing or stamp the name of
Borrower upon any chattel paper, document, instrument,
invoice, freight bill, bill of lading or similar informa-
tion recorded on or contained in any data processing
equipment and computer hardware and software relating to
the Collateral to which Borrower has access.
12.2 MODIFICATION OF AGREEMENT: SALE OF INTEREST. This
Agreement and the Ancillary Agreements may not be modified, altered
or amended, except by an agreement in writing signed by Borrower
and Lender. Borrower may not sell, assign or transfer this
Agreement or the Ancillary Agreements or any portion hereof or
thereof, including, without limitation, Borrower's right, title,
interest, remedies, powers, or duties hereunder or thereunder.
Borrower hereby consents to Lender's participation, sale, assign-
ment, transfer or other disposition, at any time or times herea-
fter, of this Agreement or the Ancillary Agreements or of any
portion hereof or thereof, including, without limitation, Lender's
-56-
<PAGE> 57
right, title interest, remedies, powers, or duties hereunder or
thereunder.
12.3 ATTORNEYS' FEES AND EXPENSES; LENDER'S OUT-OF-POCKET
EXPENSES. If, regardless of the existence of a Default or an Event
of Default, Lender incurs legal or other costs and expenses or
employs counsel, accountants or other professionals for advice or
other representation or services in connection with this Agreement
or the Ancillary Agreements or any transactions or matters arising
thereunder, including without limitation in connection with:
(A) The preparation, negotiation and execution of
this Agreement, all Ancillary Agreements, or any amend-
ment, modification or waiver, of this Agreement or any of
the Ancillary Agreements;
(B) Any litigation, contest, dispute, suit,
proceeding or action (whether instituted by Lender,
Borrower or any other Person) in any way relating to the
Collateral, this Agreement, the Ancillary Agreements or
Borrower's or any Guarantor's affairs;
(C) Any attempt to enforce any rights of Lender or
any Participant against Borrower or any other Person
which may be obligated to Lender or such Participant by
virtue of this Agreement or the Ancillary Agreements,
including, without limitation, the Account Debtors;
(D) Any attempt to inspect, verify, protect,
collect, sell, liquidate or otherwise dispose of any of
the Collateral; and
(E) Any inspection, verification, protection,
collection, sale, liquidation or other disposition of any
of the Collateral, including without limitation, Lender's
periodic or special audits of Borrower's books and
records;
then in any such event, the reasonable attorneys' and paralegals'
fees and expenses arising from such services and all other incurred
expenses, costs, charges and other fees of or paid by Lender in any
way or respect arising in connection with or relating to any of the
events or actions described in this Section 12.3 shall be payable
by Borrower to Lender upon demand and shall be additional
Liabilities. Without limiting the generality of the foregoing,
such expenses, costs, charges and fees may include Uniform
Commercial Code and other public record searches; lien filing fees;
appraisal costs; surveys; title insurance costs; environmental
audit and review costs; counsel and accountants' fees, costs and
expenses; court costs, fees and expenses; photocopying and
duplicating expenses; court reporter fees, costs and expenses; long
distance telephone charges; air express charges; telegram charges,;
secretarial overtime charges; and expenses for travel, lodging and
-57-
<PAGE> 58
food paid or incurred in connection with the performance of all
such services.
12.4 WAIVER BY LENDER. Lender's failure, at any time or
times hereafter, to require strict performance by Borrower of any
provision of this Agreement or of any Ancillary Agreement shall not
constitute a waiver, or affect or diminish any rights of Lender
thereafter to demand strict compliance and performance therewith.
Any suspension or waiver by Lender of a Default under this
Agreement or any Ancillary Agreement shall not suspend, waive or
affect any other Default under this Agreement or the Ancillary
Agreements, whether the same is prior or subsequent thereto and
whether of the same or of a different type. None of the under-
takings, agreements, warranties, covenants and representations of
Borrower contained in this Agreement or the Ancillary Agreements
and no Default under this Agreement or the Ancillary Agreements
shall be deemed to have been suspended or waived by Lender, unless
such suspension or waiver is by an instrument in writing signed by
an officer of Lender and directed to Borrower specifying
suspension or waiver.
12.5 SEVERABILITY. Wherever possible, each provision of
this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of
this Agreement shall be prohibited by or invalid under applicable
law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
12.6 PARTIES: ENTIRE AGREEMENT. This Agreement and the
Ancillary Agreements shall be binding upon and inure to the benefit
of the respective successors and assigns of Borrower and Lender.
Borrower's successors and assigns shall include, without limita-
tion, a trustee, receiver or debtor-in-possession of or for
Borrower. Nothing contained in this Section 12.6 shall be deemed
to modify Section 12.2. This Agreement is the complete statement
of the agreement by and between Borrower and Lender and supersedes
all prior negotiations, understandings and representations between
them with respect to the subject matter of this Agreement.
12.7 CONFLICT OF TERMS. The provisions of the Ancillary
Agreements are incorporated in this Agreement by this reference.
Except as otherwise provided in this Agreement and except as
otherwise provided in the Ancillary Agreements by specific
reference to the applicable provision of this Agreement, if any
provision contained in this Agreement is in conflict with, or
inconsistent with, any provision in any Ancillary Agreement, the
provision contained in this Agreement shall govern and control.
12.8 WAIVER BY BORROWER. EXCEPT AS OTHERWISE PROVIDED
FOR IN THIS AGREEMENT OR REQUIRED BY LAW, BORROWER WAIVES (i)
PRESENTMENT, DEMAND AND PROTEST, NOTICE OF PROTEST, NOTICE OF
PRESENTMENT, DEFAULT, NON-PAYMENT, MATURITY, RELEASE, COMPROMISE,
-58-
<PAGE> 59
SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER,
ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS, CHATTEL PAPER
AND GUARANTIES AT ANY TIME HELD BY LENDER ON WHICH BORROWER MAY IN
ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS WHATEVER LENDER
MAY DO IN THIS REGARD; (ii) ALL RIGHTS TO NOTICE AND A HEARING
PRIOR TO LENDER'S TAKING POSSESSION OR CONTROL OF, OR TO LENDER'S
REPLEVY, ATTACHMENT OR LEVY UPON THE COLLATERAL OR ANY BOND OR
SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING
LENDER TO EXERCISE ANY OF LENDER'S REMEDIES; AND (iii) THE BENEFIT
OF ALL VALUATION, APPRAISEMENT, EXTENSION AND EXEMPTION LAWS.
BORROWER ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY ITS OWN COUNSEL
WITH RESPECT TO THIS AGREEMENT AND THE TRANSACTIONS EVIDENCED BY
THIS AGREEMENT.
12.9 GOVERNING LAW. THIS AGREEMENT HAS BEEN DELIVERED
FOR ACCEPTANCE BY LENDER IN CHICAGO, ILLINOIS AND SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED
TO THE CONFLICTS OF LAW PROVISIONS) OF THE STATE OF ILLINOIS.
BORROWER HEREBY (i) IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY
STATE OR FEDERAL COURT LOCATED IN COOK COUNTY, ILLINOIS, OVER ANY
ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY MATTER ARISING FROM
OR RELATED TO THIS AGREEMENT OR ANY ANCILLARY AGREEMENT; (ii)
WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON BORROWER, AND
CONSENTS THAT ALL SUCH PERSONAL SERVICE OF PROCESS BE MADE BY
MESSENGER, CERTIFIED MAIL OR REGISTERED MAIL DIRECTED TO BORROWER
AT THE ADDRESS SET FORTH IN SECTION 12.10 AND SERVICE SO MADE SHALL
BE DEEMED TO BE COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT OR
THREE (3) BUSINESS DAYS AFTER THE SAME SHALL HAVE BEEN POSTED TO
BORROWER'S ADDRESS; (iii) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
BORROWER MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING; (iv)
AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL
BE CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER JURISDICTIONS BY
SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW; AND
(v) AGREES NOT TO INSTITUTE ANY LEGAL ACTION OR PROCEEDING AGAINST
LENDER OR ANY OF LENDER'S DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR
PROPERTY, CONCERNING ANY MATTER ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY ANCILLARY AGREEMENT IN ANY COURT OTHER THAN ONE
LOCATED IN COOK COUNTY, ILLINOIS. NOTHING IN THIS SECTION 12.9
SHALL AFFECT OR IMPAIR LENDER'S RIGHT TO SERVE LEGAL PROCESS IN ANY
MANNER PERMITTED BY LAW OR LENDER'S RIGHT TO BRING ANY ACTION OR
PROCEEDING AGAINST BORROWER OR BORROWER'S PROPERTY IN THE COURTS OR
ANY OTHER JURISDICTION. BORROWER AND LENDER EACH WAIVE TRIAL BY
JURY IN ANY ACTION OR PROCEEDING OF ANY KIND IN ANY COURT TO WHICH
BORROWER AND LENDER MAY BOTH BE PARTIES AND BORROWER CONSENTS TO
THE GRANTING OF SUCH LEGAL AND EQUITABLE RELIEF AS IS DEEMED BY THE
COURT.
12.10 NOTICE. Except as otherwise provided herein, any
notice required hereunder shall be in writing and addressed to the
party to be notified as follows:
-59-
<PAGE> 60
(A) If to Lender, at:.
Sanwa Business Credit Corporation
One South Wacker Drive
Chicago, Illinois 60606
Attention: Michael Cox, Vice President, Commercial
Finance Division
(B) If to Borrower, at:
Wico Corporation
6400 Gross Point Road
Niles, Illinois 60714
Attention: Steffen I. Magnell
or to such other address as each party may designate for itself in
the manner herein prescribed. Notices shall be deemed to have been
duly given (i) if delivered personally or otherwise actually
received, (ii) if sent by overnight delivery service, (iii) if
mailed by first class United States mail, postage prepaid,
registered or certified, with return receipt requested, (iv) if
sent by telex, with telex confirmation of receipt (with duplicate
notice sent by United States mail as provided above), or (v) if
sent by telecopy, with telecopy confirmation of receipt (with
duplicate notice sent by United States mail as provided above).
Notice mailed as provided in clause (iii) above shall be effective
upon the expiration of three (3) Business Days after its deposit in
the United States mail. Notice given in any other manner described
in this paragraph shall be effective upon receipt by the addressee
thereof; PROVIDED, HOWEVER, that if any notice is tendered to an
addressee and delivery thereof is refused by such addressee, such
notice shall be effective upon such tender.
12.11 INDEMNIFICATION. Borrower agrees to defend,
protect, indemnify and hold harmless Lender and each and all of its
officers, directors, employees, attorneys and agents ("Indemnified
Parties") from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses and disbursements of any kind or nature whatsoever
(including without limitation the reasonable fees and disbursements
of counsel for the Indemnified Parties in connection with any
investigative, administrative or judicial proceeding, whether or
not the Indemnified Parties shall be designated a party thereto),
which may be imposed on, incurred by, or asserted against any
Indemnified Party (whether direct, indirect or consequential and
whether based on any federal or state laws or other statutory
regulations, including without limitation securities, environmental
and commercial laws and regulations, under common law or at
equitable cause, or on contract or otherwise) in any manner
relating to or arising out of this Agreement or any of the
Ancillary Agreements, or any act, event or transaction related or
attendant thereto, the making and the management of the advances
and other financial accommodations hereunder (including any
-60-
<PAGE> 61
liability under Environmental Laws) or the use or intended use of
the proceeds of the advances and other financial accommodations
hereunder; PROVIDED, that Borrower shall not have any obligation to
any Indemnified Party hereunder with respect to matters caused by
or resulting from the willful misconduct or gross negligence of
such Indemnified Party. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in the preceding
sentence may be unenforceable because it is violative of any law or
public policy, Borrower shall be liable for the maximum portion
which it is permitted to pay and satisfy under applicable law. Any
liability, obligation, loss, damage, penalty, cost or expense
incurred by the Indemnified Parties for which Borrower is respon-
sible or for which Borrower has indemnified the Indemnified Parties
shall be paid to the Indemnified Parties on demand. The provisions
of and undertakings and indemnifications set out in this section
shall survive the satisfaction and payment of the Liabilities and
termination of this Agreement.
12.12 COVENANT NOT TO SUE RE: ENVIRONMENTA MATTERS.
Without limiting any other waiver contained in this Agreement,
Borrower hereby forever waives, releases and covenants not to bring
any demand, claim, cost recovery action or lawsuit it may now or
hereafter have or accrue against any Indemnified Party arising from
any violation of Environmental Laws.
12.13 SUPERVENING ILLEGALITY. If, at any time or times
hereafter, there shall become effective any amendment to, deletion
from or revision, modification or other change in any provision of
any statute, or any rule, regulation or interpretation thereunder
or any similar law or regulation, affecting the financing arrange-
ments described in this Agreement and/or the selling of partici-
pations therein, Borrower shall, at Lender's option, either (i) pay
to Lender the then outstanding balance of the Liabilities, and hold
Lender harmless from and against any and all obligations, fees,
liabilities, losses, penalties, costs, expenses and damages, of
every kind and nature, imposed upon or incurred by Borrower by
reason of Lender's failure or inability to comply with the terms of
this Agreement or the Ancillary Agreements or (ii) indemnify and
hold Lender harmless from and against any and all obligations,
fees, liabilities, losses, penalties, costs, expenses and damages,
of every kind and nature, imposed upon or incurred by Lender by
reason of such amendment, deletion, revision, modification, or
other change.
12.14 INCREASED CAPITAL. If either (a) the introduction
of or any change in or in the interpretation of any law or
regulation or (b) compliance by Lender with any guideline or
request from any central bank or other governmental authority
(whether or not having the force of law and whether or not the
failure to comply therewith would be unlawful) affects or would
affect the amount of capital required or expected to be maintained
by Lender or any corporation controlling Lender, and Lender
determines that the amount of such capital is increased by or based
-61-
<PAGE> 62
upon the existence of Lender's commitment hereunder to make
advances and other financial accommodations, then, upon demand by
Lender, Borrower shall immediately pay to Lender, from time to time
additional amounts sufficient to compensate Lender in the light of
such circumstances, to the extent that Lender determines such
increase in capital to be allocable to the existence of or Lender's
commitment hereunder to make the advances and other financial
accommodations hereunder. A certificate as to such amounts
submitted to Borrower by Lender shall, in the absence of manifest
error, be conclusive and binding for all purposes.
12.15 SECTION TITLES, ETC. The section titles and table
of contents, if any, contained in this Agreement are and shall be
without substantive meaning or content of any kind whatsoever and
are not a part of the agreement between the parties hereto. All
references herein to Sections, paragraphs, clauses and other
subdivisions refer to the corresponding Sections, paragraphs,
clauses and other subdivisions of this Agreement; and the words
"herein", "hereof", "hereby", "hereto", "hereunder", and words of
similar import refer to this Agreement as a whole and not to any
particular Section, paragraph, clause or subdivision hereof. All
Exhibits which are referred to herein or attached hereto are hereby
incorporated by reference.
IN WITNESS WHEREOF, this Agreement has been duly executed
as of the day and year specified at the beginning hereof.
WICO CORPORATION
/s/ Steffen I. Magnell
By:_______________________________
Name: Steffen I. Magnell
Title: CEO
SANWA BUSINESS CREDIT
CORPORATION
/s/ Michael J. Cox
By:_______________________________
Name: Michael J. Cox
Title: V.P.
Attachments: Exhibit 1.1, 1.2, 1.3, 1.4, 3.2(B), 9.1(B), 9.1(I),
9.1(J), 9.1(R), 10.2(M) and 11.1(M)
-62-
<PAGE> 63
EXHIBITS
1.1 Special Deposit Agreement
1.2 List of Equipment
1.3 Financial Statements
1.4 Liens, Claims, Security Interests or Encumbrances
2.3(C) Notice of Conversion/Continuation
3.2(B) Inventory Locations, Chief Executive Office
9.1(B) Fictitious Names
9.1(I) Pending Litigation; Indebtedness; Guaranties
9.1(J) Adverse Contracts or Agreements; Labor Issues
9.1(R) Environmental Conditions
10.2(M) Permitted Prepayments
11.1(M) Ownership Structure
<PAGE> 1
AMENDED AND RESTATED
LOAN AGREEMENT
BY AND BETWEEN
WICO CORPORATION
AND
NATWEST BANK N.A.
October 20, 1995
<PAGE> 2
AMENDED AND RESTATED LOAN AGREEMENT
AGREEMENT, made this 20th day of October 1995, by and
between:
WICO CORPORATION (formerly known as Wico Distribution
Corp.), a Delaware corporation (the "Borrower"); and
NATWEST BANK N.A., a national banking association (the
"Bank");
W I T N E S S E T H
WHEREAS, the Borrower, certain banks from time to time
party thereto (the "Existing Banks") and National Westminster Bank
USA (the predecessor in interest of the Bank) as agent (in such
capacity, the "Existing Agent") for the Existing Banks entered into
a Loan Agreement dated as of June 14, 1989, as amended by an
Amendment and Supplement to Loan Agreement dated July 24, 1992, an
Amendment and Supplement No. 2 to Loan Agreement dated May 21,
1993, an Amendment and Supplement No. 3 to Loan Agreement dated
June 17, 1994 and an Amendment and Supplement No. 4 to Loan
Agreement dated December 1, 1994 (as so amended, the "Existing Loan
Agreement"), pursuant to which the Existing Banks agreed to make
loans and otherwise extend credit to or for the account of the
Borrower in an aggregate principal amount of up to $35,500,000 (the
"Existing Loans");
WHEREAS, the Borrower's obligations under the Existing
Loan Agreement are secured by, inter alia, a first lien on and
security interest in all of the Borrower's personal property,
tangible and intangible, and a Pledge of all of the issued and
outstanding shares of capital stock of the Borrower's subsidiaries;
WHEREAS, the Borrower's obligations under the Existing
Loan Agreement are guaranteed by certain of the Borrower's
subsidiaries and affiliates, which guaranties (other than the
Individual Guaranties (hereinafter defined)) are secured by a first
lien on and security interest in all of such subsidiaries' and
affiliates' personal property, tangible and intangible;
WHEREAS, the Borrower's obligations under the Existing
Loan Agreement are further secured by a pledge by the respective
owners thereof, of the issued and outstanding shares of capital
stock of the Borrower, Wico Holding Corp., Wico Gaming Supply Corp.
and Conquest Industries Inc.;
WHEREAS, the Borrower desires to obtain additional
financing (the "SBCC Loans") from Sanwa Business Credit Corporation
("SBCC") pursuant to a Loan and Security Agreement dated the date
hereof (as the same may be amended from time to time, the "SBCC
Loan Agreement") between the Borrower and SBCC;
<PAGE> 3
WHEREAS, not less than $6,000,000 of the proceeds of the
SBCC Loans shall be used to repay the Existing Loans;
WHEREAS, the Bank is the sole Existing Bank;
WHEREAS, it is a condition precedent to the obligations
of SBCC to make the SBCC Loans that SBCC be granted a first lien on
and security interest in certain of the personal property, tangible
and intangible, of the Borrower, Wico Holding Corp. and Wico Gaming
Supply Corp. and that the Bank subordinate its lien on such
personal property of such corporations and release the stock
pledged to it (other than the stock of Conquest Industries Inc.);
WHEREAS, the Borrower desires to amend the Existing Loan
Agreement in certain other respects; and
WHEREAS, the Bank is willing to agree to the foregoing on
the terms and conditions hereinafter set forth,
NOW, THEREFORE, the parties hereto agree as follows:
Article 1. Definitions
-----------
As used in this Agreement, the following terms shall have
the following meanings:.
"Accounts Receivable Projections" - the projections
prepared by the Borrower of the Borrower's accounts receivable as
of the last day of the two months immediately succeeding the
Closing Date.
"Affiliate" - as to any Person, any other Person that
directly or indirectly controls, or is under common control with,
or is controlled by, such Person. As used in this definition,
"control" (including, with its correlative meanings, "controlled
by" and "under common control with") shall mean possession,
directly or indirectly, of power to direct or cause the direction
of management or policies (whether through ownership of securities
or partnership or other ownership interests, by contract or
otherwise), provided that, in any event: (i) any Person which owns
directly or indirectly 5% or more of the securities having ordinary
voting power for the election of directors or other governing body
of a corporation or 5% or more of the partnership or other
ownership interests of any other Person (other than as a limited
partner of such other Person) will be deemed to control such
corporation or other Person; and (ii) each shareholder, director
and officer of the Borrower shall be deemed to be an Affiliate of
the Borrower.
"Amended and Restated Guaranties" - as defined in
subsection 2.12(a) hereof.
-2-
<PAGE> 4
"Applicable Margin" - two and one-half percent (2 1/2%).
"Assignment of Life Insurance" - as defined in subsection
2.13(a)(i)(E) hereof.
"Bank" - as defined in the preamble hereto.
"Bank Debt" - as at any date, the aggregate outstanding
principal amount of the Note.
"Bentley J. Blum" - Bentley J. Blum, an individual.
"Blum Guaranty" - as defined in subsection 2.12(d)
hereof.
"Borrower" - as defined in the preamble hereto.
"Borrower Copyright Agreement" - as defined in subsection
2.13(a)(i)(D) hereof.
"Borrower Patent Agreement" - as defined in subsection
2.13(a)(i)(B) hereof.
"Borrower Security Agreement" - as defined in subsection
2.13(a)(i)(A) hereof.
"Borrower Security Documents" - as defined in subsection
2.13(a)(iii) hereof.
"Borrower Security Interest Confirmation" - as defined in
subsection 2.13(a)(ii) hereof.
"Borrower Trademark Agreement" - as defined in subsection
2.13(a)(i)(C) hereof.
"Business Day" - any day other than Saturday, Sunday or
other day on which commercial banks in New York City are authorized
or required to close under the laws of the State of New York.
"Capitalized Lease" - any lease the obligations to pay
rent or other amounts under which constitute Capitalized Lease
Obligations.
"Capitalized Lease Obligations" - as to any Person, the
obligations of such Person to pay rent or other amounts under a
lease of (or other agreement conveying the right to use) real
and/or personal property which obligations are required to be
classified and accounted for as a capital lease on a balance sheet
of such Person under generally accepted accounting principles and,
for purposes of this Agreement, the amount of such obligations
shall be the capitalized amount thereof, determined in accordance
with GAAP.
-3-
<PAGE> 5
"Cash" - cash and cash equivalents, as defined in
accordance with GAAP consistently applied.
"Closing Date" - October 20, 1995.
"Code" - the Internal Revenue Code of 1986, as it may be
amended from time to time.
"Collateral" - as defined in the respective security
Documents.
"Compliance Certificate" - a certificate executed by the
Chairman of the Board and Vice President of the Borrower to the
effect that: (i) as of the effective date of the certificate, no
Default or Event of Default under this Agreement exists or would
exist after giving effect to the action intended to be taken by the
Borrower as described in such certificate, and (ii) the representa-
tions and warranties contained in Article 3 hereof are true and
with the same effect as though such representations and warranties
were made on the date of such certificate, except for changes in
the ordinary course of business none of which, either singly or in
the aggregate, have had a material adverse effect on the business,
operations or financial conditions of the Borrower.
"Conquest" - Conquest Industries Inc., a Delaware
corporation formerly known as "Conquest Airlines Corp."
"Conquest Warrant" - the warrant to purchase capital
stock of Conquest dated June 17, 1994 issued to the Bank.
"Controlled Group" - all members of a controlled group of
corporations and all trades or businesses (whether or not incorpo-
rated) under common control which, together with the Borrower, are
treated as a single employer under Section 414(b), 414(c) or 414(m)
of the Code and Section 4001(a)(2) of ERISA.
"Corporate Guarantor" - as defined in subsection 2.12(b)
hereof.
"Corporate Guaranty(ies)" - as defined in subsection
2.12(b) hereof.
"Debt Instrument" - as defined in subsection 8.4(a)
hereof.
"Default" - an event which with notice or lapse of time
or both would constitute an Event of Default.
"Director's Fees" - for any period, all fees, emoluments
or similar compensation paid to officers and directors of the
Borrower in connection with the performance of their duties with
respect to the Borrower.
-4-
<PAGE> 6
"Dollars" and "$" - lawful money of the United States of
America.
"Environmental Laws and Regulations" - all environmental,
health and safety laws, regulations, resolutions, and ordinances
applicable to the Borrower or any other Loan Party, or any of their
respective assets or properties, including, without limitation: (i)
all regulations, resolutions, ordinances, decrees, and other
similar documents and instruments of all courts and governmental
authorities, bureaus and agencies, domestic and foreign, whether
issued by environmental regulatory agencies or otherwise, and (ii)
all laws, regulations, resolutions, ordinances and decrees relating
to Environmental Matters.
"Environmental Liability" - any liability under any
applicable law for any release of a hazardous substance caused by
the seeping, spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or
disposing of hazardous wastes or other chemical substances,
pollutants or contaminants into the environment, and any liability
for the costs of any clean-up or other remedial action including,
without limitation, costs arising out of security fencing,
alternative water supplies, temporary evacuation and housing and
other emergency assistance undertaken by any environmental
regulatory body having jurisdiction over the Borrower or any other
Loan Party to prevent or minimize any actual or threatened release
by the Borrower or any other Loan Party of any hazardous wastes or
other chemical substances, pollutants and contaminants into the
environment which would endanger the public health or the environ-
ment.
"Environmental Matter(s)" - a release of any toxic or
hazardous waste or other chemical substance, pollutant or contam-
inant into the environment or the generation, treatment, storage or
disposal of any toxic or hazardous wastes or other chemical
substances.
"Environmental Proceeding" - any judgment, action,
proceeding or investigation pending before any court or govern-
mental authority, bureau or agency, including, without limitations,
any environmental regulatory body, with respect to or threatened
against or affecting the Borrower or any other Loan Party or
relating to the assets or liabilities of any of them, including,
without limitations, in respect of any "facility" owned, leased or
operated by any of them under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, or
under any state, local or municipal statute, ordinance or regula-
tion in respect thereof, in connection with any release of any
toxic or hazardous waste or chemical substance, pollutant or
contaminant into the environment, or with the generation, storage
or disposal of any toxic or hazardous wastes or other chemical
substances.
-5-
<PAGE> 7
"ERISA" - the Employee Retirement Income Security Act of
1974, as it may be amended from time to time, and the regulations
thereunder.
"Event of Default" - as defined in Article 8 hereof.
"Existing Agent" - as defined in the recitals hereto.
"Existing Banks" - as defined in the recitals hereto.
"Existing Guaranty(ies)" - as defined in subsection
2.12(c) hereof.
"Existing Loan Agreement" - as defined in the recitals
hereto.
"Existing Loans" - as defined in the recitals hereto.
"Financial Statements" - with respect to the Borrower and
its Affiliates: (i) its audited balance sheet as at September 30,
1994 together with the related audited income statement and
statement of changes in financial position for the fiscal year then
ended, and (ii) its unaudited balance sheet as at June 30, 1995,
together with the related unaudited income statement and statement
of changes in financial position for the 9-month period then ended.
"GAAP" - Generally Accepted Accounting Principles.
"Gaming Supply" - Wico Gaming Supply Corp., a Delaware
corporation formerly known as "Wico I Acquisition Co."
"Gaming Supply Guaranty" - as defined in subsection
2.12(c) hereof.
"Gaming Supply Security Agreement" - as defined in
subsection 2.13(d)(i) hereof.
"Gaming Supply Security Documents" - as defined in
subsection 2.13(d)(iii) hereof.
"Gaming Supply Security Interest Confirmation" - as
defined in subsection 2.13(d)(ii) hereof.
"Guarantor(s)" - as defined in subsection 2.12(c) hereof.
"Guaranty(ies)" - as defined in subsection 2.12(d)
hereof.
"Indebtedness" - with respect to any Person, all:
(i) liabilities or obligations, direct and contingent, which in
accordance with generally accepted accounting principles would be
-6-
<PAGE> 8
included in determining total liabilities as shown on the liability
side of a balance sheet of such Person at the date as of which
Indebtedness is to be determined, including, without limitation,
contingent liabilities which, in accordance with such principles,
would be set forth in a specific Dollar amount on the liability
side of such balance sheet, and Capitalized Lease obligations of
such Person; (ii) liabilities or obligations of others for which
such Person is directly or indirectly liable, by way of guaranty
(whether by direct guaranty, suretyship, discount, endorsement,
take-or-pay agreement, agreement to purchase or advance or keep in
funds or other agreement having the effect of a guaranty) or
otherwise; (iii) liabilities or obligations secured by Liens on any
assets of such Person, whether or not such liabilities or obliga-
tions shall have been assumed by it; and (iv) liabilities or
obligations of such Person, direct or contingent, with respect to
letters of credit issued for the account of such Person and bankers
acceptances created for such Person.
"Individual Guarantors" - as defined in subsection
2.12(a) hereof.
"Individual Guaranty" - as defined in subsection 2.12(a)
hereof.
"Individual Pledge Agreement" - as defined in subsection
2.13(b)(i) hereof.
"Individual Pledge Confirmation" - as defined in
subsection 2.13(b)(ii) hereof.
"Individual Pledge Documents" - as defined in subsection
2.13(b)(iii) hereof.
"Individual Pledgors" - Bentley J. Blum, Iris Feldman,
Miriam Katowitz and Paul E. Hannesson and any Person to whom any
stock of Conquest owned by such individuals and pledged to the Bank
has been transferred.
"Intercreditor Agreement" - as defined in subsection
4.1(m) hereof.
"Investment" - by any Person: (a) the amount paid or
committed to be paid, or the value of property or services
contributed or committed to be contributed, by such Person for or
in connection with the acquisition by such Person of any stock,
bonds, notes, debentures, partnership or other ownership interests
or other securities of any other Person; and
(b) the amount of any advance, loan or extension of
credit by such Person, to any other Person, or guaranty or other
similar obligation of such Person with respect to any Indebtedness
of such other Person, and (without duplication) any amount
-7-
<PAGE> 9
committed to be advanced, loaned, or extended by such Person to any
other Person, or any amount the payment of which is committed to be
assured by a guaranty or similar obligation by such Person for the
benefit of, such other Person.
"Investors" - First Securities, Geneva, Switzerland and
its associated investors or any other person, firm, corporation or
other entity reasonably satisfactory to the Bank.
"IRS" - Internal Revenue Service.
"Lien" - any mortgage, deed of trust, pledge, security
interest, encumbrance, lien or charge of any kind (including any
agreement to give any of the foregoing), any conditional sale or
other title retention agreement, any lease in the nature of any of
the foregoing, and the filing of or agreement to give any financing
statement under the Uniform Commercial Code of any jurisdiction.
"Loan" - as defined in Section 2.1 hereof.
"Loan Documents" - this Agreement, the Note, the
Guaranties, the Guarantor Confirmations, the Security Documents,
the Subordination Agreements, the Warrant Exercise Agreement, the
Conquest Warrant and all other documents executed and delivered in
connection herewith or therewith, including all amendments,
modifications and supplements of or to all such documents.
"Loan Party" - the Borrower, any Subsidiary, WHC, any
Subsidiary of WHC, any Guarantor, any Individual Pledgor and any
other Person (other than the Bank) which now or hereafter executes
and delivers to the Bank any Loan Document.
"Management Fees" - for any period, all fees, emoluments
or similar compensation paid or incurred by any Person to the
Shareholders or any of their Affiliates (other than professional
fees at customary hourly rates payable to Feldman Radin Feinsod &
Co. for services actually rendered) in respect of services rendered
in connection with the management or supervision of the management
of the Borrower, WHC or the Subsidiary.
"Management Subordination Agreement" - as defined in
subsection 2.14(a) hereof.
"Management Subordination Confirmation" -as defined in
subsection 2.14(b) hereof.
"Mortgage Assignment" - as defined in subsection 2.13(d)
hereof.
"Note" - as defined in Section 2.2 hereof.
"Obligations" - collectively, all of the Indebtedness,
-8-
<PAGE> 10
liabilities and obligations of the Borrower to the Bank, whether
now existing or hereafter arising, whether or not currently
contemplated, including, without limitation, those arising under
the Loan Documents.
"Operating Income" - for any period, the consolidated net
income of any Person before interest, taxes and charges for
amortization.
"Payment Dates" - the first day of each calendar month.
commencing on October 1, 1996.
"PBGC" - as defined in Section 3.17 hereof.
"Permitted Liens" - as to any Person: (i) pledges or
deposits by such Person under workers' compensation laws, unemploy-
ment insurance laws, social security laws, or similar legislation,
or good faith deposits in connection with bids, tenders, contracts
(other than for the payment of Indebtedness of such Person), or
leases to which such Person is a party, or deposits to secure
public or statutory obligations of such Person or deposits of Cash
or U.S. Government Bonds to secure surety, appeal, performance or
other similar bonds to which such Person is a party, or deposits as
security for contested taxes or import duties or for the payment of
rent; (ii) Liens imposed by law, such as carriers, warehousements,
materialments and mechanics' liens, or Liens arising out of
judgments or awards against such Person with respect to which such
Person at the time shall currently be prosecuting an appeal or
proceedings for review; (iii) Liens for taxes not yet subject to
penalties for non-payment and Liens for taxes the payment of which
is being contested as permitted by Section 6.6 hereof; and (iv)
survey exceptions, encumbrances, easements or reservations of, or
rights of others for rights of way, highways and railroad cross-
ings, sewers, electric lines, telegraph and telephone lines and
other similar purposes, or zoning or other restrictions as to the
use of real properties, or Liens incidental to the conduct of the
business of such Person or to the ownership of such Person's
property which were not incurred in connection with Indebtedness of
such Person, all of which Liens referred to in the preceding clause
(iv) do not in the aggregate materially detract from the value of
the properties to which they relate or materially impair their use
in the operation of the business taken as a whole of such Person,
and as to all the foregoing only to the extent arising and
continuing in the ordinary course of business.
"Person" - an individual, a corporation, a partnership,
a joint venture, a trust or unincorporated organization, a joint
stock company or other similar organization, a government or any
political subdivision thereof, a court, or any other legal entity,
whether acting in an individual, fiduciary or other capacity.
"Plan" - at any time an employee pension benefit plan
-9-
<PAGE> 11
which is covered by Title IV of ERISA or subject to the minimum
funding standards under Section 412 of the Code and is either: (i)
maintained by the Borrower or any member of the Controlled Group
for employees of the Borrower, or by the Borrower for any other
member of such Controlled Group, or (ii) maintained pursuant to a
collective bargaining agreement or any other arrangement under
which more than one employer makes contributions and to which the
Borrower or any member of the Controlled Group is then making or
accruing an obligation to make contributions or has within the
preceding five plan years made contributions.
"Post-Default Rate" - in respect of any amounts payable
by the Borrower hereunder not paid when due (whether at stated
maturity, by acceleration or otherwise), a rate per annum during
the period commencing on the due date until such other amounts are
paid in full equal to 4% above the Prime Rate as in effect from
time to time plus the Applicable Margin (but in no event less than
the interest rate in effect on the due date).
"Preferred Stock" - the Series A, Series B, Series D and
Series E convertible preferred stock of Conquest.
"Prime Rate" - the interest rate established from time to
time by the Bank as its prime rate at the Principal Office.
Notwithstanding the foregoing, the Borrower acknowledges the fact
that the Bank may regularly make domestic commercial loans at rates
of interest less than the rate of interest referred to in the
preceding sentence. Each change in any interest rate provided for
herein based upon the Prime Rate resulting from a change in the
Prime Rate shall take effect at the time of such change in the
Prime Rate.
"Principal Office" - the principal office of the Bank
presently located at 175 Water Street, New York, New York 10038.
"Purchase Money Security Interest" - as defined in
Section 7.2(d) hereof.
"Restructuring Fee" - as defined in Section 2.5 hereof.
"SBCC" - Sanwa Business Credit Corporation, a Delaware
corporation.
"SBCC Loan Agreement" - as defined in the recitals
hereto.
"SBCC Loans" - as defined in the recitals hereto.
"Security Documents" - as defined in subsection 2.13(f)
hereof.
"Shareholders" - Bentley J. Blum, Paul E. Hannesson, Iris
-10-
<PAGE> 12
Feldman and Miriam Katowitz.
"Subordination Agreements" - as defined in subsection
2.14(b) hereof.
"Subsidiary" - with respect to any Person, any corpo-
ration, partnership or joint venture whether now existing or
hereafter organized or acquired: (i) in the case of a corporation,
of which a majority of the securities having ordinary voting power
for the election of directors (other than securities having such
power only by reason of the happening of a contingency) are at the
time owned by such Person and/or one or more Subsidiaries of such
Person, or (ii) in the case of a partnership or joint venture in
which such Person is a general partner or joint venturer or of
which a majority of the partnership or other ownership interests
are at the time owned by such Person and/or one or more of its
Subsidiaries. Unless the context otherwise requires, references in
this Agreement to "Subsidiary" or "Subsidiaries" shall be deemed to
be references to a Subsidiary or Subsidiaries of the Borrower.
"Suncom U.K." - Suncom Technologies Ltd., a company
organized under the laws of the United Kingdom.
"Suncom U.K. Security Agreement" - as defined in
subsection 2.13(c)(i) hereof.
"Suncom U.K. Security Documents" - as defined in
subsection 2.13(c)(iii) hereof.
"Suncom U.K. Security Interest Confirmation" -as defined
in subsection 2.13(c)(ii) hereof.
"Terrace" - Terrace Realty, Inc., a Delaware corporation.
"Warrant Confirmation" - as defined in Section 2.17.
"Warrant Exercise Agreement" - the agreement dated June
17, 1994 by and among Bentley J. Blum, Iris Feldman and the Bank
providing for shares of common stock of Conquest to be made
available by Bentley J. Blum and Iris Feldman, subject to the terms
and conditions of such agreement, upon the exercise of the Conquest
Warrant.
"WHC" - Wico Holding Corp., a Delaware corporation, and
the owner of all of the issued and outstanding capital stock of the
Borrower.
Any accounting terms used in this Agreement which are not specif-
ically defined herein shall have the meanings customarily given to
them in accordance with generally accepted accounting principles as
in effect on the date of this Agreement, except that references in
Article 5 to such principles shall be deemed to refer to such
-11-
<PAGE> 13
principles as in effect on the date of the financial statements
delivered pursuant thereto.
Article 2. Loan; Collateral; Subordinations.
---------------------------------
Section 2.1 The Loan.
--------
On the Closing Date, without giving effect to the
application of the proceeds of the SBCC Loans made on the Closing
Date pursuant to subsection 2.4(b) hereof, the aggregate outstand-
ing principal amount of the Existing Loans is Eighteen Million Five
Hundred Thirty-Five Thousand Eight Hundred Forty-Eight Dollars
($18,535,848.00), consisting of Term Loans and Credit Loans (as
each such term is defined in the Existing Loan Agreement) under the
Existing Loan Agreement. The Bank's Revolving Credit Commitment
(as defined in the Existing Loan Agreement) is hereby terminated
and all Existing Loans are hereby converted to a term loan in the
principal amount of Eighteen Million Five Hundred Thirty-Five
Thousand Eight Hundred Forty-eight Dollars ($18,535,848.00) (the
"Loan"), payable in accordance with, and otherwise subject to the
terms and conditions of, this Agreement.
Section 2.2 The Note.
---------
The Loan shall be evidenced by a single promissory note
of the Borrower in substantially the form of Exhibit A annexed
hereto (the "Note"), which Note shall be issued in replacement of
and as a substitution for the "Notes" of the Borrower issued
pursuant to the Existing Loan Agreement. The Note shall be dated
the Closing Date, shall be payable to the order of the Bank in a
principal amount equal to the outstanding principal amount of the
Loan on the Closing Date (without giving effect to the payment
required to be made pursuant to Section 2.4(b) hereof), and shall
otherwise be duly completed. The Note shall be payable as provided
in Section 2.4 hereof. The Bank shall, upon the making and
delivery by the Borrower of the Note, mark the Second Substituted
Term Note and the Second Substituted Revolving Credit Note
"Replaced by Substituted Note" and return them to the Borrower.
Section 2.3 Interest Rate.
-------------
(a) The Borrower shall pay to the Bank interest on
the unpaid principal amount of the Loan for the period commencing
on the Closing Date until the Loan shall be paid in full, at the
rate per annum equal to the sum of the Prime Rate plus the
Applicable Margin.
(b) Notwithstanding the foregoing, the Borrower
shall pay interest on the Loan or any installment thereof, and on
any other amount payable by the Borrower hereunder which shall not
be paid in full when due (whether at stated maturity, by accelera-
-12-
<PAGE> 14
tion or otherwise) for the period commencing on the due date
thereof until the same is paid in full at the Post-Default Rate.
(c) Accrued interest on the Loan shall be payable
monthly in arrears commencing on the first day of each month of
each year commencing on the first such date to occur following the
Closing Date and continuing on each such day of each such month
thereafter, except that (i) payment of accrued interest at the rate
of 1/2% per annum shall be deferred until the due date of the last
installment of principal (in accordance with the stated terms
hereof, by acceleration, or otherwise) and (ii) interest which is
payable at the Post-Default Rate shall be payable on demand of the
Bank.
Section 2.4 Principal Repayment.
--------------------
(a) The Borrower shall pay to the Bank the
principal of the Loan in 48 consecutive monthly installments
commencing on October 1, 1996 and on each Payment Date thereafter
(provided that the last such payment shall be in an amount
sufficient to repay in full the principal amount of the Loan), with
the amount of the installment paid on each Payment Date to be in
the respective amounts set forth below:
<TABLE>
<CAPTION>
Principal Amount of the
Principal Payment Loan Payable on each
Dates such Payment Date
- ----------------- -----------------------
<S> <C>
The first date of each month $20,833.33
from October 1, 1996 through
and including September 1, 1997
The first date of each month 41,666.67
from October 1, 1997 through
and including September 1, 1998
The first date of each month 62,500.00
from October 1, 1998 through
and including September 1, 1999
The first date of each month 83,333.33
from October 1, 1999 through
and including August 1, 2000
September 1, 2000 10,244,181.37, or
such lesser amount
as shall equal the
the then outstanding
principal amount of
the Loan
</TABLE>
(b) In addition to the principal payments set forth
in subsection 2.4(a) hereof, the Borrower shall pay to the Bank on
-13-
<PAGE> 15
the Closing Date in payment of the principal of the Loan from the
proceeds of the SBCC Loans an amount equal to (i) Six Million
Dollars ($6,000,000) plus (ii) the amount, if any, by which the
aggregate principal amount of the SBCC Loans made on the Closing
Date exceeds Eight Million Dollars ($8,000,000).
Section 2.5 Restructuring Fee and March Fee.
--------------------------------
(a) The Borrower shall pay to the Bank a restructuring
fee (the "Restructuring Fee"), in consideration of the Bank
restructuring the Existing Loans, in the sum of $125,000, payable
in five (5) installments, each in the amount of $25,000, on the
Closing Date and on each September 1 thereafter, commencing on
September 1, 1996.
(b) The Borrower acknowledges that it owes the Bank the
sum of $175,000, consisting of the unpaid portion of the New
Restructuring Fee provided for in the Existing Loan Agreement that
became due and payable on March 15, 1995 (the "March Fee"). The
Borrower shall pay the March Fee in sixteen (16) equal consecutive
quarterly installments of $10,937.50 each, without interest, on the
first day of January, April, July and October of each year,
commencing on January 1, 1997.
Section 2.6 Prepayments.
-----------
(a) The Borrower shall have the right to prepay the
Loan from time to time in whole or in part, provided that the
Borrower shall give the Bank notice of each such prepayment not
less than one (1) Business Day (and not less than 11:00 a.m. New
York City time on such day) prior to the proposed date of such
prepayment.
(b) In the event that at any time (i) the stock or
assets of Suncom U.K. are included in the borrowing base under the
SBCC Loan Agreement or (ii) a third party that is not an Affiliate
of the Borrower agrees to lend to the Borrower or Suncom U.K.
secured by the stock or assets of Suncom U.K., the Bank shall
release its security interest in the stock of Suncom U.K. and its
charge on the assets of Suncom U.K. upon receipt from the Borrower
of a mandatory prepayment of principal hereunder in the amount of
$591,925.
(c) All prepayments of the Loan shall be made
together with payment of all interest accrued on the amount prepaid
at any time without premium or penalty, and each prepayment shall
be applied to the installments of the Loan in the inverse order of
their maturities.
Section 2.7 Use of Proceeds of the Existing Loans.
-------------------------------------
The Borrower acknowledges that the proceeds of the
Existing Loans were used in accordance with the terms of the
-14-
<PAGE> 16
Existing Loan Agreement.
Section 2.8 Time and Method of Payments.
---------------------------
All payments of principal, interest, the Restructuring
Fee, the March Fee and other amounts (including indemnities)
payable by the Borrower hereunder shall be paid to the Bank at the
Principal Office, in Dollars, in immediately available funds, not
later than 11:00 a.m., New York City time, on the date on which
such payment shall become due (and the Bank may, but shall not be
obligated to, debit the amount of any such payment which is not
made by such time to any ordinary deposit account of the Borrower
with the Bank). Any such payment made on such date but after such
time shall, if the amount paid bears interest, be deemed to have
been made on and interest shall continue to accrue and be payable
thereon until the next succeeding Business Day. If any payment of
principal or interest becomes due on day other than a Business Day,
such payment maybe made on the next succeeding Business Day and
such extension shall be included in computing interest in connec-
tion with such payment. All payments hereunder and under the Note
shall be made without set-off or counterclaim and in such amounts
as may be necessary in order that all such payments shall not be
less than the amounts otherwise specified to be paid under this
Agreement and the Note (after withholding for or on account of: (i)
any present or future taxes, levies, imposts, duties or other
similar charges of whatever nature imposed by any government or any
political subdivision or taxing authority thereof, other than any
tax (except those referred to in clause (ii) below) on or measured
by the net income of the Bank pursuant to applicable federal, state
and local income tax laws, and (ii) deduction of amounts equal to
the taxes on or measured by the net income of the Bank payable by
the Bank with respect to the amount by which the payments required
to be made under this sentence exceed the amounts otherwise
specified to be paid in this Agreement and the Note).
Section 2.9 Computations.
------------
Interest on the Loan shall be computed on the basis
of a year of 360 days and actual days elapsed (including the first
day but excluding the last) occurring in the period for which
payable.
Section 2.10 Minimum Amount of Prepayments.
-----------------------------
Each optional prepayment of principal of the Loan
hereunder shall be in an amount not less than $1,000 and shall be
in an integral multiple of $1,000.
Section 2.11 Lending Offices.
---------------
The Loan shall be made and maintained at the Bank's
Principal Office.
-15-
<PAGE> 17
Section 2.12 Guaranties.
----------
(a) The due payment and performance of $2,000,000
of the Obligations has heretofore been severally guaranteed to the
Bank by Bentley J. Blum and Stephen R. Feldman (each an "Individual
Guarantor" and collectively, the "Individual Guarantors") in the
amount of $1,000,000 by each of them pursuant to the terms of an
amended and restated guaranty dated May 21, 1993 (each an "Amended
and Restated Guaranty" and collectively, the "Amended and Restated
Guaranties") in favor of the Existing Agent.
(b) The due payment and performance of all of the
Obligations has heretofore been guaranteed to the Bank by Suncom
U.K. (the "Corporate Guarantor") pursuant to the terms of a
guaranty dated November 30, 1993 (the "Corporate Guaranty") in
favor of the Existing Agent.
(c) The due payment and performance of all of the
Obligations has heretofore been guaranteed to the Bank by Gaming
Supply (Gaming Supply, together with the Individual Guarantors and
the Corporate Guarantor, the "Guarantors") pursuant to the terms of
a guaranty dated June 17, 1994 (the "Gaming Supply Guaranty"; and
together with the Amended and Restated Guaranties and the Corporate
Guaranty, individually, an "Existing Guaranty" and collectively,
the "Existing Guaranties") in favor of the Existing Agent.
(d) Simultaneously with the execution and delivery
of this Agreement, (i) Bentley J. Blum shall execute and deliver to
the Bank a second amended and restated guaranty (the "Blum
Guaranty"; and together with the Existing Guaranties, individually,
a "Guaranty" and collectively, the "Guaranties"), pursuant to which
Bentley J. Blum shall confirm, amend and restate his obligations
under his Existing Guaranty and increase the maximum principal
amount of the Obligations for which Bentley J. Blum shall be liable
from $1,000,000 to $3,000,000, and (ii) each other Guarantor shall
confirm such Guarantor's obligations under such Guarantor's
Guaranty and confirm that the Indebtedness, liabilities and
obligations guaranteed by such Guarantor under such Guaranty shall
include the Obligations of Borrower to the Bank as amended and
restated by this Agreement, by the execution and delivery of
confirmations and amendments in form and substance satisfactory to
the Bank (the "Guarantor Confirmations"). Each Guarantor shall
execute and deliver, or cause to be executed and delivered, to the
Bank such other agreements, documents and instruments as the Bank
may reasonably require in order to effect the purposes of the
Guarantors and this Section 2.12.
Section 2.13 Security.
--------
(a)(i) The Borrower has heretofore:
(A) Granted to the Existing Agent a first Lien
-16-
<PAGE> 18
on all of the Borrower's personal property and assets, tangible and
intangible, by the execution and delivery to the Existing Agent of
a Borrower Security Agreement dated June 14, 1989 (the "Borrower
Security Agreement");
(B) Granted to the Existing Agent a first Lien
on, and pledged to the Existing Agent, all of its patents by the
execution and delivery to the Existing Agent a Mortgage and
Assignment of Security Interest in Letters Patent dated June 14,
1989 (the "Borrower Patent Agreement");
(C) Granted to the Existing Agent a first Lien
on, and pledged to the Existing Agent, all trademarks held by the
Borrower by the execution and delivery to the Existing Agent of a
Trademark Security Agreement dated June 14, 1989 (the "Borrower
Trademark Agreement");
(D) Granted to the Existing Agent a first Lien
on, and pledged to the Existing Agent, all copyrights held by the
Borrower by the execution and delivery to the Existing Agent a
Copyright Security Agreement dated June 14, 1989 (the "Borrower
Copyright Security Agreement"); and
(E) Granted to the Existing Agent a Lien on,
and assigned to the Existing Agent, all of its right, title and
interest in, to and under the insurance policies on the life of
Edward Sokolofski, by the execution and delivery to the Existing
Agent, a collateral assignment of life insurance. Simultaneously
with the execution and delivery of this Agreement, the Bank shall
release the collateral assignment of the insurance policies on the
life of Edward Sokolofski, and the Borrower shall, within sixty
(60) days following the date hereof, grant to the Bank a Lien on,
and assign to the Bank, insurance policies in an aggregate amount
not less than $2,000,000 on the life of Steffen I. Magnell, by the
execution and delivery to the Bank of a collateral assignment of
life insurance (the "Assignment of Life Insurance"), such policies
and collateral assignment to be in form and substance satisfactory
to the Bank.
(ii) Simultaneously with the execution and
delivery of this Agreement, the Borrower shall acknowledge and
confirm to the Bank that the term "Obligations" as used and defined
in the Borrower Security Agreement, the Borrower Patent Agreement,
the Borrower Trademark Agreement, the Borrower Copyright Agreement
and the Assignment of Life Insurance (or any other term used
therein to describe the Indebtedness, liabilities and obligations
secured thereby) includes, without limitation, in each case, the
Obligations of the Borrower to the Bank as amended and restated by
this Agreement, and that the collateral covered thereby is subject
to no other Lien, except the Liens described in Section 7.2 hereof,
by the execution and delivery to the Bank of a security interest
confirmation in form and substance satisfactory to the Bank (the
-17-
<PAGE> 19
"Borrower Security Interest Confirmation"). The Borrower shall
execute and deliver, or cause to be executed and delivered, to the
Bank such other agreements, documents and instruments as the Bank
may reasonably require in order to effect the purposes of the
Borrower Security Agreement, the Borrower Patent Agreement, the
Borrower Trademark Agreement, the Borrower Copyright Agreement and
the Assignment of Life Insurance and this subsection 2.13(a)(ii).
(iii) The Borrower Security Agreement, the
Borrower Patent Agreement, the Borrower Trademark Agreement, the
Borrower Copyright Agreement, the Assignment of Life Insurance, the
Borrower Security Interest Confirmation and such other agreements,
documents and instruments are sometimes hereinafter referred to as
the "Borrower Security Documents".
(b)(i) The Individual Pledgors have heretofore
granted to the Existing Agent a first Lien on, and pledged to the
Existing Agent all of the issued and outstanding capital stock of
Conquest owned by the Individual Pledgors, excluding the Preferred
Stock and any common stock issued on conversion thereof and the
common stock issued upon exercise of the warrants held by First
Securities (Firsec S.A.), Arthur Radin, Iris Feldman and the Blum
Family Trust, by the execution and delivery to the Existing Agent
of a pledge agreement dated May 21, 1993 (as amended, the "Individ-
ual Pledge Agreement").
(ii) Simultaneously with the execution and
delivery of this Agreement, the Individual Pledgors shall acknowl-
edge and confirm to the Bank that the term "Obligations" as used
and defined in the Individual Pledge Agreement (or any other term
used therein to describe the Indebtedness, liabilities and
obligations secured thereby) includes, without limitation, the
Obligations of the Borrower to the Bank as amended and restated by
this Agreement, by the execution and delivery to the Bank of a
pledge agreement confirmation in form and substance satisfactory to
the Bank (the "Individual Pledge Confirmation"). Each Individual
Pledgor shall execute and deliver, or cause to be executed and
delivered, to the Bank such other agreements, documents and
instruments as the Bank may reasonably require in order to effect
the purposes of the Individual Pledge Agreement and this subsection
2.13(b)(ii).
(iii) The Individual Pledge Agreement, the
Individual Pledge Confirmation and such other agreements, documents
and instruments are sometimes hereinafter referred to as the
"Individual Pledge Documents".
(c)(i) Suncom U.K. has heretofore granted to the
Existing Agent a first Lien on all of Suncom U.K.'s real and
personal properties and assets, by the execution and delivery to
the Existing Agent a mortgage debenture dated November 30, 1993,
1993 (the "Suncom U.K. Security Agreement").
-18-
<PAGE> 20
(ii) Simultaneously with the execution and
delivery of this Agreement, Suncom U.K. shall acknowledge and
confirm to the Bank that the Indebtedness, liabilities and
obligations secured by the Suncom U.K. Security Agreement includes,
without limitation, the Obligations of the Borrower to the Bank as
amended and restated by this Agreement, and that the collateral
covered thereby is subject to no other Lien, except the Liens
described in Section 7.2 hereof, by the execution and delivery to
the Bank of a security interest confirmation in form and substance
satisfactory to the Bank (the "Suncom U.K. Security Interest
Confirmation"). Suncom U.K. shall execute and deliver, or cause to
be executed and delivered, to the Bank such other agreements,
documents and instruments as the Bank may reasonably require in
order to effect the purposes of the Suncom U.K. Security Agreement
and this subsection 2.13(c)(ii).
(iii) The Suncom U.K. Security Agreement, the
Suncom U.K. Security Interest Confirmation and such other agree-
ment, documents and instruments are sometimes hereinafter referred
to as the "Suncom U.K. Security Documents".
(d)(i) Gaming Supply has heretofore granted to
the Existing Agent a first lien on all of Gaming Supply's personal
property and assets, by the execution and delivery to the Existing
Agent a security agreement dated June 17, 1994 (the "Gaming Supply
Security Agreement").
(ii) Simultaneously with the execution and
delivery of this Agreement, Gaming Supply shall acknowledge and
confirm to the Bank that the term "Obligations" as used and defined
in the Gaming Supply Security Agreement (or any other term used
therein to describe the Indebtedness, liabilities and obligations
secured thereby) includes, without limitation, the Obligations of
the Borrower to the Bank as amended and restated by this Agreement,
and that the collateral covered thereby is subject to no other
Lien, except the Liens described in Section 7.2 hereof, by the
execution and delivery to the Bank of a security interest confirma-
tion in form and substance satisfactory to the Bank (the "Gaming
Supply Security Interest Confirmation"). Gaming Supply shall
execute and deliver, or cause to be executed and delivered, to the
Bank such other agreements, documents and instruments as the Bank
may reasonably require in order to effect the purposes of the
Gaming Supply Security Agreement and this subsection 2.13(d)(ii).
(iii) The Gaming Supply Security Agreement, the
Gaming Supply Security Interest Confirmation and such other
agreements, documents and instruments are sometimes hereinafter
referred to as the "Gaming Supply Security Documents".
(e) In order to secure the due payment and
performance by the Borrower of the Obligations, Terrace shall,
simultaneously with the execution and delivery of this Agreement,
-19-
<PAGE> 21
assign to the Bank a mortgage in the outstanding principal amount
of $2,790,076 covering real property in New Castle County,
Delaware, pursuant to an assignment of mortgage in form and
substance satisfactory to the Bank the ("Mortgage Assignment"), and
shall, simultaneously with the execution and delivery of this
Agreement, execute and deliver, or cause to be executed and
delivered, such other agreements, certificates, documents and
instruments as the Bank may reasonably require in connection
therewith.
(f) The Borrower Security Documents, the Individual
Pledge Documents, the Suncom U.K. Security Documents, the Gaming
Supply Security Documents, the Mortgage Assignment and the other
agreements, documents and instruments referred to in subsections
2.13(a), (b), (c), (d) and (e) are sometimes hereinafter referred
to as the "Security Documents".
(g) Upon the fulfillment to the satisfaction of the
Bank of the conditions precedent contained in Article 4 hereof, the
Bank shall release to the Borrower or its designee the capital
stock of the Borrower, WHC and any Subsidiary of WHC held by the
Bank prior to the Closing Date.
Section 2.14 Subordination.
-------------
(a) The Borrower and the Shareholders have
heretofore subordinated the payments permitted to be made by the
Borrower to the Shareholders and their Affiliates, as set forth in
subsection 7.13(a) hereof, by the execution and delivery to the
Existing Agent of a Management Subordination Agreement dated June
14, 1989 (the "Management Subordination Agreement").
(b) Simultaneously with the execution and delivery
of this Agreement, the Borrower and the Shareholders shall
acknowledge and confirm to the Bank that the term "Senior Debt" as
used and defined in the Management Subordination Agreement
includes, without limitation, the Obligations of the Borrower to
the Bank as amended and restated by this Agreement, by the
execution and delivery to the Bank of a Management Subordination
Confirmation satisfactory in form and substance to the Bank (the
"Management Subordination Confirmation"; the Management Subordina-
tion Agreement and the Management Subordination Confirmation are
hereinafter referred to together as, the "Subordination Agree-
ments").
Section 2.15 Additional Costs.
----------------
In the event that any existing or future law or
regulation or guideline or interpretation thereof by any court or
administrative or governmental authority Charged with the adminis-
tration thereof, or compliance by the Bank with any request or
directive (whether or not having the force of law) of any such
-20-
<PAGE> 22
authority shall impose, modify or deem applicable or result in the
application of, any capital maintenance, capital ratio or similar
requirement against the Loan, and the result of any event referred
to above is to impose upon the Bank or increase any capital
requirement applicable as a result of the making or maintenance of,
the Loan or the obligation of the Borrower hereunder with respect
to the Loan (which imposition of capital requirements may be
determined by the Bank's reasonable allocation of the aggregate of
such capital increases or impositions), then, upon demand made by
the Bank as promptly as practicable after it obtains knowledge that
such law, regulation, guideline, interpretation, request or
directive exists and determines to make such demand, the Borrower
shall immediately pay to the Bank from time to time as specified by
the Bank additional commitment fees which shall be sufficient to
compensate the Bank for such imposition of or increase in capital
requirements together with interest on each such amount from the
date demanded until payment in full thereof at the post-Default
Rate. A certificate setting forth in reasonable detail the amount
necessary to compensate the Bank as a result of an imposition of or
increase in capital requirements submitted by the Bank to the
Borrower shall be conclusive, absent manifest error or bad faith,
as to the amount thereof.
Section 2.16 Set-Off.
-------
The Borrower hereby agrees that, in addition to (and
without limitation of) any right of set-off, banker's lien or
counterclaim the Bank may otherwise have, the Bank shall be
entitled, at its option, to offset balances held by it at any of
its offices against any principal of or interest on the Loan, or
any fee payable to it, which is not paid when due (regardless of
whether or such balances are then due to the Borrower), in which
case it shall promptly notify the Borrower provided that its
failure to give such notice shall not affect the validity thereof.
Section 2.17 Conquest Warrant.
----------------
Conquest has previously delivered to the Bank the
Conquest Warrant, which as of the Closing Date grants to the Bank
the right to purchase 400,000 shares of common stock, .001 par
value, of Conquest, for an exercise price of $.01 per share without
giving effect to the antidilution provisions of the Conquest
Warrant. Simultaneously with the execution and delivery of this
Agreement, the Borrower shall cause Conquest to confirm to the Bank
that the Conquest Warrant remains in full force and effect by the
execution and delivery to the Bank of a confirmation in form and
substance satisfactory to the Bank (the "Warrant Confirmation").
Article 3. Representations and Warranties.
------------------------------
The Borrower hereby represents and warrants to the
Bank that:
-21-
<PAGE> 23
Section 3.1 Organization.
-------------
(a) Each of the Borrower and its Subsidiary and
each other Loan party is duly organized and validly existing under
the laws of its state of organization and has the power to own its
assets and to transact the business in which it is presently
engaged and in which it proposes to be engaged. Exhibit B annexed
hereto accurately and completely lists, as to each of the Borrower
and the Subsidiary and each other Loan party: (i) the state of
incorporation or organization of each such entity, and the type of
legal entity which each of them is, (ii) as to each of them which
is a corporation, the classes and number of authorized and
outstanding shares of capital stock of each such corporation, and
the owners of such outstanding shares of capital stock, (iii) as to
each of them which is a legal entity other than a corporation (but
not a natural person), the type and amount of equity interests
authorized and outstanding of each such entity, and the owners of
such equity interests, (iv) and the business in which each of such
entities is engaged. All of the foregoing shares or other equity
interests which are issued and outstanding have been duly and
validly issued and are fully paid and non-assessable, and are owned
by the Persons referred to on Exhibit B, free and clear of any Lien
except as otherwise provided for herein. Except as set forth on
Exhibit B, there are not outstanding any warrants, options,
contracts or commitments of any kind entitling any Person to
purchase or otherwise acquire any shares of capital stock or other
equity interests of the Borrower or any Subsidiary or any other
Loan Party nor are there outstanding any securities which are
convertible into or exchangeable for any shares of capital stock or
other equity interests of the Borrower or any Subsidiary or any
other Loan party. Except as set forth on Exhibit B, neither the
Borrower nor any Subsidiary nor any other Loan Party has any
Subsidiary.
(b) Each of the Borrower and its Subsidiaries and
each other Loan party is in good standing in its state of organi-
zation and in each state in which it is qualified to do business.
There are no jurisdictions other than as set forth on Exhibit B
hereto in which the character of the properties owned or proposed
to be owned by the Borrower or its Subsidiaries or any other Loan
Party or in which the transaction of the business of the Borrower
or its Subsidiaries or any other Loan party as now conducted or as
proposed to be conducted requires or will require the Borrower or
its Subsidiaries or any other Loan party to qualify to do business
and as to which failure so to qualify could have a material adverse
effect on the business, operations, financial condition or
properties of the Borrower or any Subsidiary or any other Loan
party.
(c) Wico Nevada, Inc., a Delaware corporation, was
merged into the Borrower, with the Borrower being the surviving
corporation.
-22-
<PAGE> 24
(d) Exhibit B accurately and completely lists, as
of the Closing Date, the classes and number of authorized shares of
capital stock of Conquest and the number of shares of each such
class outstanding as of the Closing Date. All of such outstanding
shares have been duly and validly issued and are fully paid and
non-assessable. Except as set forth on Exhibit B, there are not
outstanding any warrants, options, contracts or commitments of any
kind entitling any person to purchase or otherwise acquire any
shares of capital stock or other equity interests of Conquest, nor
are there outstanding any securities which are convertible into or
exchangeable for any shares of capital stock or other equity
interests of Conquest. Exhibit B accurately and completely sets
forth all changes to the capital structure of Conquest (including,
without limitation, stock splits, reverse stock splits, redemptions
of shares and issuances of shares) since June 17, 1994.
Section 3.2 Power, Authority, Consents.
--------------------------
(i) The Borrower and each other Loan party has the
power to execute, deliver and perform the Loan Documents to be
executed by it, (ii) the Borrower has the power to borrow hereunder
and has taken all necessary corporate action to authorize the
borrowing hereunder on the terms and conditions of this Agreement,
and (iii) the Borrower and each Loan Party has taken all necessary
action, corporate or otherwise, to authorize the execution,
delivery and performance of the Loan Documents to be executed by
it. No consent or approval of any Person (including, without
limitation, any stockholder of any corporate Loan Party or any
partner in any partnership Loan Party), no consent or approval of
any landlord or mortgagee, no waiver of any Lien or right of
distraint or other similar right and no consent, license, certifi-
cate of need, approval, authorization or declaration of any
governmental authority, bureau or agency, is or will be required in
connection with the execution, delivery or performance by the
Borrower or any other Loan Party, or the validity, enforcement or
priority, of the Loan Documents or any Lien created and granted
thereunder, except as set forth on Exhibit C annexed hereto, each
of which either has been duly and validly obtained on or prior to
the date hereof and is now in full force and effect, or is
designated on Exhibit C as waived by the Bank.
Section 3.3 No Violation of Law or Agreements.
---------------------------------
The execution and delivery by the Borrower and each
other Loan Party of each Loan Document to which it is a party and
performance by it hereunder and thereunder, will not violate any
provision of law and will not, except as set forth on Exhibit C
annexed hereto, conflict with or result in a breach of any order,
writ, injunction, ordinance, resolution, decree, or other similar
document or instrument of any court or governmental authority,
bureau or agency, domestic or foreign, or any certificate of
incorporation or by-laws of the Borrower or any other corporate
-23-
<PAGE> 25
Loan Party or partnership agreement or other organizational
document or instrument of any Loan Party which is not a corporation
or create (with or without the giving of notice or lapse of time,
or both) a default under or breach of any agreement, bond, note or
indenture to which the Borrower or any other Loan Party is a party,
or by which any of them is bound or any of their respective
properties or assets is affected, or result in the imposition of
any Lien of any nature whatsoever upon any of the properties or
assets owned by or used in connection with the business of the
Borrower or any other Loan Party, except for the Liens created and
granted pursuant to the Security Documents.
Section 3.4 Due Execution, Validity, Enforceability.
---------------------------------------
This Agreement and each other Loan Document to which
any Loan Party is a party has been duly executed and delivered by
the Loan Party which is a party thereto and each constitutes the
valid and legally binding obligation of the Borrower or such Loan
Party which is a party thereto, enforceable in accordance with its
terms.
Section 3.5 Properties, Priority of Liens.
-----------------------------
All of the properties and assets owned by the
Borrower and the Subsidiary and each other Loan Party which is
executing a Security Document are owned by each of them, respec-
tively, free and clear of any Lien of any nature whatsoever, except
for the Liens permitted by Section 7.2 hereof. The Liens which
have been created and granted by the Security Documents constitute
valid perfected Liens on the properties and assets covered by the
Security Documents, subject to no prior or equal Lien except as
permitted by Section 7.2 hereof.
Section 3.6 Judgments, Actions, Proceedings.
-------------------------------
Except as set forth on Exhibit D annexed hereto,
there are no outstanding judgments, actions or proceedings,
including, without limitation, any Environmental Proceeding,
pending before any court or governmental authority, bureau or
agency, with respect to or, to the best of the Borrower's knowl-
edge, threatened against or affecting the Borrower or any Subsid-
iary or any other Loan Party, involving, in the case of any court
proceeding, a claim in excess of Twenty Five Thousand Dollars
($25,000), nor, to the best of the Borrower's knowledge, is there
any reasonable basis for the institution of any such action or
proceeding which is probable of assertion, nor are there any such
actions or proceedings in which the Borrower or any Subsidiary or
any other Loan Party is a plaintiff or complainant.
Section 3.7 No Defaults, Compliance With Laws.
---------------------------------
Neither the Borrower nor any Subsidiary nor any
-24-
<PAGE> 26
other Loan Party is in default under any agreement, ordinance,
resolution, decree, bond, note, indenture, order or judgment to
which it is a party or by which it is bound, or any other agreement
or other instrument by which any of the properties or assets owned
by it or used in the conduct of its business is affected, which
default could have a material adverse effect on the business,
operations, financial condition or properties of the Borrower or
any Subsidiary or any other Loan Party or on the ability of the
Borrower or any other Loan Party to perform its obligations under
the Loan Documents to which it is a party. The Borrower and its
Subsidiaries have complied and are in compliance in all material
respects with all applicable laws, ordinances and regulations,
resolutions, ordinances, decrees and other similar documents and
instruments of all courts and governmental authorities, bureaus and
agencies, domestic and foreign, including, without limitation, all
applicable Environmental Laws and Regulations, non-compliance with
which could have a material adverse effect on the business,
operations, financial condition or properties of the Borrower or
its Subsidiaries or any Loan Party or on the ability of the
Borrower or the Subsidiary or any Loan Party to perform its
obligations under the Loan Documents to which it is a party.
Section 3.8 Burdensome Documents.
--------------------
Neither the Borrower nor any other Loan Party is a
party to or bound by, nor are any of the properties or assets owned
by the Borrower or any other Loan Party used in the conduct of
their respective businesses affected by, any agreement, ordinance,
resolution, decree, bond, note, indenture, order or judgment,
including, without limitation, any of the foregoing relating to any
Environmental Matter, which materially and adversely affects its
business, assets or condition, financial or otherwise.
Section 3.9 Financial Statements; Accounts
Receivable Projections.
------------------------------
(a) Each of the Financial Statements is correct and
complete and presents fairly the consolidated financial position of
the Borrower and its Subsidiaries, and each other entity to which
it relates, as at its date, and has been prepared in accordance
with GAAP, except with respect to those financial statements which
are unaudited and which are subject to: normal year end audit
adjustments; and the absence of footnotes and disclosures otherwise
required pursuant to GAAP. Neither the Borrower nor its Subsidiar-
ies, nor any other entity to which any of the Financial Statements
relates, has any material obligation, liability or commitment,
direct or contingent (including, without limitation, any Environ-
mental Liability), which is not reflected or referred to in the
Financial Statements. The Borrower's fiscal year is the
twelve-month period ending on September 30 in each year.
(b) The Accounts Receivable Projections have been
-25-
<PAGE> 27
prepared on the basis of the assumptions accompanying them and
reflect as of the date thereof the Borrower's good faith projec-
tions, after reasonable analysis, of the accounts receivable of the
Borrower and its Subsidiaries, including a projected aged accounts
receivable trial balance, as of the last day of the two months
immediately succeeding the Closing Date.
Section 3.10 Tax Returns.
-----------
Each of the Borrower, its Subsidiaries and the other
Loan Parties has filed all federal, state and local tax returns
required to be filed by it and has not failed to pay any taxes, or
interest and penalties relating thereto, on or before the due dates
thereof. Except to the extent that reserves therefor are reflected
in the Financial Statements: (i) there are no material federal,
state or local tax liabilities of the Borrower, its Subsidiaries or
any other Loan Party due or to become due for any tax year ended on
or prior to the date of the most recent balance sheet included in
the Financial Statements relating to such entity, whether incurred
in respect of or measured by the income of such entity, which are
not properly reflected in such balance sheet relating to such
entity, and (ii) there are no material claims pending or, to the
knowledge of the Borrower, proposed or threatened against any of
the Borrower, its Subsidiaries or any Loan Party for past federal,
state or local taxes, except those, if any, as to which proper
reserves are reflected in the Financial Statements.
Section 3.11 Intangible Assets.
-----------------
Each of the Borrower and its Subsidiaries possesses
all necessary patents, trademarks, service marks, trade names, and
copyrights, and rights with respect to the foregoing necessary to
conduct its business as now conducted and as proposed to be
conducted, without any conflict with the patents, trademarks,
service marks, trade names, and copyrights and rights with respect
to the foregoing of others, and each of such patents, trademarks,
service marks, tradenames, copyrights and rights with respect
thereto, together with any pending applications therefor, are
listed on Exhibit E annexed hereto.
Section 3.12 Regulation U.
-------------
No part of the proceeds received by the Borrower or
its Subsidiaries from the Loan will be used directly or indirectly
for the purpose of purchasing or carrying, or for payment in full
or in part of Indebtedness which was incurred for the purposes of
purchasing or carrying, any margin stock as such terms is defined in
SEC. SEC. 221.3 of Regulation U of the Board of Governors of the Federal
Reserve System, 12 C.F.R., Chapter II, Part 221.
Section 3.13 Name Changes, Mergers, Acquisitions;
Location of Collateral.
----------------------
-26-
<PAGE> 28
(a) Except as set forth on Exhibit F annexed
hereto, neither the Borrower nor any Subsidiary nor any other Loan
Party which has granted Liens on its assets (other than shares of
stock) pursuant to any Security Document has within the six-year
period immediately preceding the date of this Agreement changed its
name, been the surviving entity of a merger or consolidation, or
acquired all or substantially all of the assets of any Person.
(b) No Collateral constituting personal property
having an aggregate fair market value in excess of $50,000 covered
by the Security Documents has, at any time during the four-month
period immediately preceding the date hereof, been located anywhere
other than at its location on the date hereof, except as set forth
on Exhibit F annexed hereto.
Section 3.14 Licenses and Approvals.
----------------------
The Borrower, its Subsidiaries and each other Loan
Party has all necessary licenses, permits and governmental
authorizations, including, without limitation, licenses, permits
and authorizations relating to Environmental Matters, to own and
operate its properties and to carry on its business as now
conducted.
Section 3.15 Labor Disputes.
---------
There are no actions or proceedings pending or, to
the best of the knowledge of the Borrower, threatened against the
Borrower or its Subsidiaries, by or on behalf of, or with, its
employees, other than employee grievances arising in the ordinary
course of business which are not, in the aggregate, material.
Section 3.16 Condition of Assets.
-------------------
All of the assets and properties of the Borrower and
the Subsidiary, which are reasonably necessary for the operation of
its business, are in good working condition, ordinary wear and tear
excepted, and are able to serve the function for which they are
currently being used.
Section 3.17 ERISA.
-----------
(a) The Borrower does not have and has never had,
any Plan in connection with which there could arise a direct or
contingent liability of the Borrower to the Pension Benefit
Guaranty Corporation ("PBGC"), the Department of Labor or the
Internal Revenue Service ("IRS"). The Borrower is not a partic-
ipating employer in: (i) any Plan under which more than one
employer makes contributions as described in Sections 4063 and 4064
of ERISA, or (ii) a multiemployer plan as defined in Section
4001(a)(3) of ERISA.
-27-
<PAGE> 29
(b) All references to the Borrower in this Section
3.17 or in any other Section of this Agreement relating to ERISA,
shall be deemed to refer to the Borrower and all other entities
which are, together with the Borrower, part of a Controlled Group.
Article 4. The Closing.
-----------
Section 4.1 Conditions to Effectiveness of Agreement.
----------------------------------------
The effectiveness of this Agreement shall be subject
to the fulfillment (to the satisfaction of the Bank) of the
following conditions precedent:
(a) The Borrower shall have executed and delivered
to the Bank the Note.
(b) The Borrower shall have: (i) executed and
delivered to the Bank the Borrower Security Documents and (ii)
otherwise duly complied with all of the terms and conditions of the
Borrower Security Documents.
(c) Bentley J. Blum shall have executed and
delivered the Blum Guaranty and each other Guarantor shall have
executed and delivered to the Bank a Guarantor Confirmation and
each Guarantor otherwise shall have duly complied with all of the
terms and conditions of the Guaranty to which it is a party.
(d) The Individual Pledgors shall have: (i)
executed and delivered to the Bank the Individual Pledge Confirma-
tion and (ii) otherwise duly complied with all of the terms and
conditions of the Individual Pledge Documents.
(e) Suncom U.K. shall have: (i) executed and
delivered to the Bank the Suncom U.K. Security Interest Confirma-
tion and (ii) otherwise duly complied with all of the terms and
conditions of the Suncom U.K. Security Documents.
(f) Gaming Supply shall have: (i) executed and
delivered to the Bank the Gaming Supply Security Interest Confirma-
tion and (ii) otherwise duly complied with all of the terms and
conditions of the Gaming Supply Security Documents.
(g) Conquest shall have executed and delivered to
the Bank the Warrant Confirmation.
(h) Terrace shall have executed and delivered to
the Bank the Mortgage Assignment and caused to be executed and
delivered such other agreements, certificates, documents and
instruments in connection therewith, in form and substance
satisfactory to the Bank, as the Bank may reasonably request,
including the following: (A) a mortgagee title policy naming the
Bank as assured in an amount equal to the outstanding principal
-28-
<PAGE> 30
amount of the mortgage covered by the Mortgage Assignment, with a
negative amortization endorsement, (B) estoppel certificates from
each of the mortgagor and the ground lessee, (C) a letter from Bank
of Delaware, as first mortgagee, stating that the first mortgage
held by it is not in default and reflecting the outstanding amount
thereof, and (D) evidence of termination of the assignment of the
mortgage in favor of Barclays Bank.
(i) The Borrower and the Shareholders shall have
executed and delivered to the Bank the Management Subordination
Confirmation and shall otherwise have duly complied with all of the
terms and conditions thereof.
(j) Kronish, Lieb, Weiner & Hellman LLP, counsel to
the Borrower, Gaming Supply, WHC and the Individual Pledgors shall
have delivered their opinion, to, and in form and substance
satisfactory to, the Bank, with such reliance on such opinions of
special counsel in jurisdictions other than New York as shall be
attached thereto as are satisfactory in form and substance to the
Bank and on which Kronish, Lieb, Weiner & Hellman LLP shall state
that they and the Bank are, in their opinion, justified in relying.
(k) Each of the Individual Guarantors shall have
delivered to the Bank financial statements, on the standard form of
individual financial statement prepared by the Bank, as of the
Closing Date.
(l) The Bank shall have received copies of the
following:
(i) The Financial Statements and the Accounts
Receivable Projections;
(ii) All of the consents, approvals and waivers
referred to on Exhibit C annexed hereto, except only those which,
as stated on Exhibit C, shall not be delivered;
(iii) The certificates of incorporation of the
Borrower and the other Loan Parties that are corporations,
certified by the Secretary of State of their respective states of
incorporation;
(iv) The by-laws of the Borrower and the other
Loan Parties that are corporations, certified by their respective
secretaries;
(v) All corporate action taken by the Borrower
and the other Loan Parties to authorize the execution, delivery and
performance of each of the Loan Documents to which it is a party
pursuant hereto or in connection herewith;
-29-
<PAGE> 31
(vi) Good standing certificates with respect to
each of the Borrower and the other Loan Parties that are corpora-
tions from the Secretary of State of their respective states of
incorporation and qualification;
(vii) An incumbency certificate (with specimen
signatures) with respect to the Borrower and the other Loan Parties
that are corporations; and
(viii) True, correct and complete copies of the
SBCC Loan Agreement and all agreements, documents and instruments
executed and delivered in connection therewith, certified by the
secretary of the Borrower.
(m) The Bank and SBCC shall have entered into an
intercreditor agreement in form and substance satisfactory to the
Bank (the "Intercreditor Agreement");
(n) (i) The Borrower shall have complied and shall
then be in compliance with all of the terms, covenants and
conditions of this Agreement;
(ii) There shall exist no Default or Event of
Default hereunder; and
(iii) The representations and warranties
contained in Article 3 hereof shall be true and correct on the date
hereof;
and the Bank shall have received a Compliance Certificate dated the
Closing Date certifying, inter alia, that the conditions set forth
in this subsection 4.1(n) are satisfied on such date.
(o) All legal matters incident to the execution and
delivery of this Agreement shall be satisfactory to special counsel
to the Bank.
Article 5. Delivery of Financial Reports,
Documents and other Information.
-------------------------------
After the payment and discharge of all indebtedness
owing to SBCC arising out of the SBCC Loans and the termination of
the obligation of SBCC to lend under the SBCC Loan Agreement, so
long as the Borrower is indebted to the Bank and until payment in
full of the Note and full and complete performance of all of its
other obligations arising hereunder, the Borrower shall deliver to
the Bank:
-30-
<PAGE> 32
Section 5.1 Annual Financial Statements.
---------------------------
Annually, as soon as available, but in any event
within ninety (90) days after the last day of each of its fiscal
years, a consolidated and consolidating balance sheet of the
Borrower, its Subsidiaries, WHC and any Subsidiary of WHC as at
such last day of the fiscal year, and consolidated and consolidat-
ing statements of income and retained earnings and changes in
financial position, for such fiscal year, each prepared in
accordance with generally accepted accounting principles consis-
tently applied, in reasonable detail, and, as to the consolidated
statements, certified without qualification by BDO Seidman or
another firm of independent certified public accountants satisfac-
tory to the Bank, or certified, as to the consolidating statements,
by the chief financial officer of the Borrower, as fairly present-
ing the financial position and the results of operations of the
Borrower, its Subsidiaries, WHC and any Subsidiary of WHC as at and
for the year ending on its date and as having been prepared in
accordance with GAAP.
Section 5.2 Quarterly Financial Statements.
------------------------------
As soon as available, but in any event within
forty-five (45) days after the end of the Borrower's first three
fiscal quarterly periods, a consolidated and consolidating balance
sheet of the Borrower, its Subsidiaries, WHC and any Subsidiary of
WHC as of the last day of such quarter and consolidated and
consolidating statements of retained earnings and changes in
financial position, for such quarter, and on a comparative basis
figures for the corresponding period of the immediately preceding
fiscal year, all in reasonable detail, each such statement to be
certified in a certificate of the president or chief financial
officer of the Borrower as fairly presenting the financial position
and the results of operations of the Borrower, its Subsidiaries,
WHC and any Subsidiary of WHC as at its date and for such quarter
and as having been prepared in accordance with generally accepted
accounting principles consistently applied (subject to year-end
audit adjustments and the absence of footnote requirements under
GAAP).
Section 5.3 Monthly Financial Statements.
----------------------------
As soon as available, but in any event within thirty
(30) days after the end of each calendar month, a consolidated and
consolidating balance sheet of the Borrower, its Subsidiaries, WHC
and any Subsidiary of WHC as of the last day of such month and
consolidated and consolidating statements of retained earnings for
such month, and on a comparative basis figures for the correspond-
ing month of the immediately preceding fiscal year, all in
reasonable detail, each such statement to be in the form custom-
arily prepared by the management of the Borrower for its internal
use.
-31-
<PAGE> 33
Section 5.4 Compliance Information.
----------------------
Promptly after a written request therefor, such
other financial data or information evidencing compliance with the
requirements of this Agreement, the Note and the other Loan
Documents, as the Bank may reasonably request from time to time.
Section 5.5 No Default Certificate.
----------------------
At the same time as it delivers the financial
statements required under the provisions of Section 5.1 and 5.2, a
certificate of the president or chief executive officer of the
Borrower to the effect that no Event of Default hereunder and that
no default under any other agreement to which the Borrower, its
Subsidiaries, WHC and any Subsidiary of WHC is a party or by which
it is bound, or by which, to the best knowledge of the Borrower,
any of any such Person's respective properties or assets, taken as
a whole, may be materially affected, and no event which, with the
giving of notice or the lapse of time, or both, would constitute
such an Event of Default, exists, or, if such cannot be so
certified, specifying in reasonable detail the exceptions, if any,
to such statement.
Section 5.6 Certificate of Accountants.
--------------------------
At the same time as it delivers the financial
statements required under the provisions of Section 5.1, a
certificate of the independent certified public accountants of the
Borrower addressed specifically both to the Borrower and the Bank
to the effect that during the course of their audit of the
operations of the Borrower and its condition as of the end of the
fiscal year, nothing has come to their attention which would
indicate that an Event of Default or Default hereunder has
occurred, or, if such cannot be so certified, specifying in
reasonable detail the exceptions, if any, to such statement.
Section 5.7 Accountants' Reports.
--------------------
Promptly upon receipt thereof, copies of all other
reports submitted to the Borrower by its independent accountants in
connection with any annual or interim audit or review of the books
of the Borrower made by such accountants.
Section 5.8 Copies of Documents.
-------------------
Promptly upon their becoming available, copies of
any: (i) financial statements, projections, non-routine reports,
notices (other than routine correspondence), requests for waivers
and proxy statements, in each case, delivered by the Borrower, its
Subsidiaries, WHC or any Subsidiary of WHC to any lending institu-
tion other than the Banks; (ii) correspondence or notices received
by the Borrower, its Subsidiaries, WHC or any Subsidiary of WHC
-32-
<PAGE> 34
from any federal, state or local governmental authority which
regulates the operations of the Borrower, its Subsidiaries, WHC or
any Subsidiary of WHC relating to an actual or threatened change or
development which would be materially adverse to the Borrower, its
Subsidiaries, WHC or any Subsidiary of WHC; (iii) registration
statements and any amendments and supplements thereto, and any
regular and periodic reports, if any, filed by Conquest, the
Borrower, its Subsidiaries, WHC or any Subsidiary of WHC with any
securities exchange or with the Securities and Exchange Commission
or any governmental authority succeeding to any or all of the
functions of the said Commission; (iv) letters of comment or
correspondence sent to Conquest, the Borrower, its Subsidiaries,
WHC or any Subsidiary of WHC by any such securities exchange or
such commission in relation to Conquest, the Borrower, its
Subsidiaries, WHC or any Subsidiary of WHC and their respective
affairs; (v) written reports submitted by the Borrower, its
Subsidiaries, WHC or any Subsidiary of WHC by its independent
accountants in connection with any annual or interim audit of the
books of the Borrower, its Subsidiaries, WHC or any Subsidiary of
WHC made by such accountants; and (vi) any appraisals received by
the Borrower, its Subsidiaries, WHC or any Subsidiary of WHC with
respect to the properties or assets of the Borrower, its Subsidiar-
ies, WHC or any Subsidiary of WHC.
Section 5.9 Notices of Defaults.
--------------------
Promptly, notice of the occurrence of any event
which constitutes, or with notice to it or lapse of time, or both,
would constitute, an Event of Default hereunder or under SBCC Loan
Agreement, or would constitute or cause a material adverse change
in the condition, financial or otherwise, or the operations of
Conquest, the Borrower, its Subsidiaries, WHC or any Subsidiary of
WHC.
Article 6. Affirmative Covenants.
----------------------
After the payment and discharge of any indebtedness
owing to SBCC arising out of the SBCC Loans, so long as the
Borrower is indebted to the Bank, and until payment in full of the
Note and full and complete performance of all of its other
obligations arising hereunder, the Borrower shall and shall cause
WHC and each Subsidiary of the Borrower or WHC and each Guarantor
to:
Section 6.1 Books and Records.
------------------
Keep proper books of record and account in a manner
reasonably satisfactory to the Bank in which full, true and correct
entries shall be made of all dealings or transactions in relation
to its business and activities.
Section 6.2 Inspections and Audits.
-----------------------
-33-
<PAGE> 35
Permit the Bank to make or cause to be made, at the
Borrower's expense, inspections and field audits of any books,
records and papers of the Borrower, and to make extracts therefrom
and copies thereof, and to make inspections and examinations of any
properties and facilities of the Borrower, WHC and each Subsidiary
of the Borrower or WHC, on reasonable notice, at all such reason-
able times and as often as the Bank may reasonably require, using
internal or outside auditors or examiners, in order to assure that
the Borrower is and will be in compliance with its obligations
under the Loan Documents or to evaluate the Bank's investment in
the Note.
Section 6.3 Maintenance and Repairs.
------------------------
Maintain in good repair, working order and condi-
tion, subject to normal wear and tear, all material properties and
assets from time to time owned by it and used in or necessary for
the operation of its business, and make all reasonable repairs,
replacements, additions and improvements thereto.
Section 6.4 Continuance of Business.
------------------------
Do, or cause to be done, all things reasonably
necessary to preserve and keep in full force and effect its
corporate existence and all permits, rights and privileges
necessary for the proper conduct of its business and continue to
engage in the same line of business.
Section 6.5 Copies of Corporate Documents.
------------------------------
Subject to the prohibitions set forth in Section
7.12 hereof, promptly deliver to the Bank copies of any amendments
or modifications to its, WHC's and any Subsidiary's and any
Guarantor's certificate of incorporation and by-laws, certified
with respect to the certificate of incorporation by the Secretary
of State of its state of incorporation and, with respect to the
by-laws, by the secretary or assistant secretary of the corpora-
tion.
Section 6.6 Perform Obligations.
--------------------
Pay and discharge all of its obligations and
liabilities, including, without limitation, all taxes, assessments
and governmental charges upon its income and properties, when due,
unless and to the extent only that such obligations, liabilities,
taxes, assessments and governmental charges shall be contested in
good faith and by appropriate proceedings and that, to the extent
required by generally accepted accounting principles then in
effect, proper and adequate book reserves relating thereto are
established by the Borrower, or, as the case may be, by WHC or the
appropriate Subsidiary or Guarantor, and then only to the extent
that a bond is filed in cases where the filing of a bond is
-34-
<PAGE> 36
necessary to avoid the creation of a Lien against any of its
properties.
Section 6.7 Notice of Litigation.
---------------------
Promptly notify the Bank in writing of any litiga-
tion, legal proceeding or dispute, other than disputes in the
ordinary course of business or, whether or not in the ordinary
course of business, involving amounts in excess of Twenty Five
Thousand Dollars ($25,000), affecting the Borrower, WHC, any
Subsidiary of the Borrower or WHC or any Guarantor whether or not
fully covered by insurance, and regardless of the subject matter
thereof (excluding, however, any actions relating to workers'
compensation claims or negligence claims relating to use of motor
vehicles, if fully covered by insurance, subject to deductibles).
Section 6.8 Insurance.
----------
(a) (i) Maintain with responsible insurance
companies such insurance on such of its properties, in such amounts
and against such risks as is customarily maintained by similar
businesses; (ii) file with the Bank upon its request a detailed
list of the insurance then in effect, stating the names of the
insurance companies, the amounts and rates of the insurance, the
dates of the expiration thereof and the properties and risks
covered thereby; and (iii) within twenty (20) days after notice in
writing from the Bank, obtain such additional insurance as the Bank
may reasonably request.
Section 6.9 Notice of Certain Events.
-------------------------
(a) Promptly notify the Bank in writing if the
Borrower or any other Loan Party receives: (i) any notice of any
violation or administrative or judicial complaint or order having
been filed or about to be filed against the Borrower or such other
Loan Party alleging violations of any Environmental Law and
Regulation, or (ii) any notice from any governmental body or any
other Person alleging that the Borrower or such other Loan Party is
or may be subject to any Environmental Liability; and promptly upon
receipt thereof, provide the Bank with a copy of such notice
together with a statement of the action the Borrower or such other
Loan Party intends to take with respect thereto.
Section 6.10 Comply with ERISA.
-----------------
Comply with all applicable provisions of ERISA now
or hereafter in effect.
Section 6.11 Environmental Compliance.
-------------------------
Operate all property owned or leased by it such that
no obligation, including a clean-up obligation, shall arise under
-35-
<PAGE> 37
any Environmental Law and Regulation, which obligation would
constitute a material Lien or charge (prior to that in favor of the
Bank) on any property of the Borrower or any other Loan Party;
provided, however, that in the event that any such claim is made or
any such obligation arises, the Borrower or such other Loan Party
shall, at its own cost and expense, immediately satisfy such claim
or obligation.
Section 6.12 Conduct of Business Operations.
-------------------------------
The Borrower and any Subsidiary of the Borrower
shall conduct its business in a manner which is separate from and
independent of the business of Conquest, and, more particularly,
the Borrower shall:
(a) maintain separate books and records (including,
where applicable, tax, financial reporting, accounting, payroll and
employee benefits administration, and legal) and separate bank
accounts;
(b) keep its assets separately identified and
segregated and not commingle its assets with any other entity,
whether or not such entity is an Affiliate;
(c) provide for reasonable reimbursement to it for
any tax-sharing or other similar arrangements entered into with any
Affiliate; provided, however, that it shall enter into any such
arrangement with an Affiliate only pursuant to an agreement which
shall have been submitted to and approved in writing by the Bank;
(d) maintain separate stationery, business forms
and telephone numbers from any Affiliate; and
(e) continue to have directors and officers who are
not substantially identical with those of Conquest so that the
independent nature of its activities will be observed and main-
tained.
Article 7. Negative Covenants.
-------------------
After the payment and discharge of all indebtedness
owing to SBCC arising out of the SBCC Loans and the termination of
the obligation of SBCC to lend under the SBCC Loan Agreement, so
long as the Borrower is indebted to the Bank and until payment in
full of the Note and full and complete performance of all of its
other obligations arising hereunder, the Borrower shall not and not
permit WHC, any Subsidiary of the Borrower, any Subsidiary of WHC
or any Guarantor (other than an Individual Guarantor) to do, agree
to do, or permit to be done, any of the following:
Section 7.1 Indebtedness.
-------------
-36-
<PAGE> 38
Create, incur, permit to exist or have outstanding
any Indebtedness, except:
(a) Indebtedness of the Borrower to the Bank and
under this Agreement and the Note;
(b) Indebtedness of the Borrower to SBCC under the
SBCC Loan Agreement;
(c) Taxes, assessments and governmental charges,
non-interest bearing accounts payable and accrued liabilities, in
any case not more than 90 days past due from the original due date
thereof, and non-interest bearing deferred liabilities other than
for borrowed money (e.g., deferred compensation and deferred
taxes), in each case incurred and continuing in the ordinary course
of business;
(d) Indebtedness secured by the security interests
referred to in subsection 7.2(d) hereof; and
(e) As set forth on Exhibit G annexed hereto.
Section 7.2 Liens.
------
Create, or assume or permit to exist, any Lien on
any of the properties or assets of the Borrower or any of its
Subsidiary, whether now owned or hereafter acquired, except:
(a) Those created and granted by the Security
Documents;
(b) Liens in favor of SBCC securing the Indebted-
ness under the SBCC Loan Agreement;
(c) Permitted Liens;
(d) Purchase money mortgages or security inter-
ests, conditional sale arrangements and other similar security
interests, on motor vehicles and equipment acquired by the Borrower
or any Subsidiary (hereinafter referred to individually as a
"Purchase Money Security Interest") with the proceeds of the
Indebtedness referred to in subsection 7.1(d) hereof; provided,
however, that:
(i) The transaction in which any Purchase
Honey Security Interest is proposed to be created is not then
prohibited by this Agreement;
(ii) Any Purchase Money Security Interest shall
attach only to the property or asset acquired in such transaction
and shall not extend to or cover any other assets or properties of
the Borrower or, as the case may be, a Subsidiary; and
-37-
<PAGE> 39
(iii) The Indebtedness secured or covered
by any Purchase Money Security Interest shall not exceed the lesser
of the cost or fair market value of the property or asset acquired
and shall not be renewed, extended or prepaid from the proceeds of
any borrowing by the Borrower or any Subsidiary; and
(e) As set forth on Exhibit H annexed hereto.
Section 7.3 Guaranties.
-----------
Except as set forth on Exhibit G annexed hereto,
assume, endorse, be or become liable for, or guarantee, the
obligations of any Person, except by the endorsement of negotiable
instruments for deposit or collection in the ordinary course of
business. For the purposes hereof, the term "guarantee" shall
include any agreement, whether such agreement is on a contingency
or otherwise, to purchase, repurchase or otherwise acquire
Indebtedness of any other Person, or to purchase, sell or lease, as
lessee or lessor, property or services, in any such case primarily
for the purpose of enabling another person to make payment of
Indebtedness, or to make any payment (whether as an advance,
capital contribution, purchase of an equity interest or otherwise)
to assure a minimum equity, asset base, working capital or other
balance sheet or financial condition, in connection with the
Indebtedness of another Person, or to supply funds to or in any
manner invest in another Person in connection with such Person's
Indebtedness.
Section 7.4 Mergers, Acquisitions.
----------------------
Merge or consolidate with any Person or acquire all
or substantially all of the assets or any of the capital stock of
any Person.
Section 7.5 Redemptions; Distributions.
---------------------------
(a) Purchase, redeem, retire or otherwise acquire,
directly or indirectly, or make any sinking fund payments with
respect to, any shares of any class of stock of the Borrower or any
Subsidiary now or hereafter outstanding or set apart any sum for
any such purpose; or,
(b) Declare or pay any dividends or make any
distribution of any kind on the Borrower's outstanding stock, or
set aside any sum for any such purpose PROVIDED, that Borrower may
declare and pay dividends to WHC, provided that (a) no Defaults or
Events of Default then exist or would be caused by the payment
thereof, (b) such dividend payments do not exceed Five Hundred
Eighty-One Thousand Dollars ($581,000) per fiscal year of Borrower
minus the sum of (i) cash received by Conquest during such fiscal
year from Air L.A., Inc. or its Affiliates in connection with the
sale by Conquest to Air L.A., Inc. of the outstanding capital stock
-38-
<PAGE> 40
of Conquest Airlines Corp. and (ii) the amount of dividends paid by
Gaming Supply to WHC during such fiscal year, and (c) such
distributions are distributed by WHC to Conquest and are used by
Conquest solely to satisfy current obligations owing in respect of
(x) Series A, Series B, Series C, Series D and Series E preferred
stock of Conquest and (y) certain promissory notes issued by
Conquest in connection with a July, 1994 private placement in an
aggregate amount of $2,737,500.00.
Section 7.6 Stock Issuance.
---------------
Issue any additional shares or any right or option
to acquire any shares, or any security convertible into any shares,
of the capital stock of the Borrower, WHC or any subsidiary.
Section 7.7 Changes in Business.
--------------------
Make any material change in its business, or in the
nature of its operation, or liquidate or dissolve itself (or suffer
any liquidation or dissolution), or convey, sell, lease, assign,
transfer or otherwise dispose of any of its property, assets or
business except in the ordinary course of business and for a fair
consideration or dispose of any shares of stock or any Indebted-
ness, whether now owned or hereafter acquired, or discount, sell,
pledge, hypothecate or otherwise dispose of accounts receivable.
Section 7.8 Prepayments.
------------
Make any voluntary or optional prepayment of any
Indebtedness for borrowed money incurred or permitted to exist
under the terms of this Agreement, other than the SBCC Loans and
Indebtedness evidenced by the Note.
Section 7.9 Investments.
------------
Make, or suffer to exist, any Investment in any
Person, including, without limitation, any shareholder, director,
officer or employee of the Borrower or any of the Subsidiaries,
except:
(a) Investments in:
(i) obligations issued or guaranteed by the
United States of America;
(ii) certificates of deposit, bankers accep-
tances and other "money market instruments" issued by any bank or
trust company organized under the laws of the United State of
America or any State thereof and having capital and surplus in an
aggregate amount not less than $100,000,000;
(iii) open market commercial paper bearing the
-39-
<PAGE> 41
highest credit rating issued by Standard & Poor's Corp. or by
another nationally recognized credit rating firm;
(iv) repurchase agreements entered into with
any bank or trust company organized under the laws of the United
States of America or any State thereof and having capital and
surplus in an aggregate amount not less than $100,000,000 relating
to United States of America government obligations; and
(v) shares of "money market funds", each
having net assets of not less than $100,000,000; in each case
maturing or being due or payable in full not more than 180 days
after the Borrower's acquisition thereof;
(b) Investments in the form of loans to employees
of the Borrower or any Subsidiary or any Guarantor, provided that
the outstanding principal amount of all such loans to any one
employee shall at no time exceed $25,000 and that the aggregate
outstanding principal amount of all such loans shall at no time
exceed $100,000; and,
(c) Investments by the Borrower in any Subsidiary
and by any Subsidiary in the Borrower.
Section 7.10 Fiscal Year.
------------
Change its fiscal year.
Section 7.11 ERISA Obligations.
------------------
(a) Be or become obligated to the PBGC other than
in respect of annual premium payments in excess of $50,000.
(b) Be or become obligated to the IRS with respect
to excise or other penalty taxes provided for in those provisions
of Section 4975 the Code, as in effect or hereafter amended or
supplemented, in excess of $50,000.
Section 7.12 Amendment of Documents.
-----------------------
Modify, amend, supplement or terminate, or agree to
modify, amend, supplement or terminate its certificate of incorpo-
ration or by-laws, or any of the subordinated notes or other
agreements or evidences of indebtedness covered by the Subordina-
tion Agreements.
Section 7.13 Management Fees.
----------------
(a) Pay, or be or become obligated to pay, any
Management Fees to any Shareholder or any Affiliate thereof, or any
interest on any deferred obligation therefor.
-40-
<PAGE> 42
(b) Pay, or be or become obligated to pay, any
Director's Fees to any person, or any interest on any deferred
obligation therefor, including, without limitation, to any
shareholder, director, officer or employee of the Borrower.
Section 7.14 Transactions with Affiliates.
-----------------------------
Except as expressly permitted by this Agreement,
directly or indirectly: (i) make any Investment in an Affiliate;
(ii) transfer, sell, lease, assign or otherwise dispose of any
assets to an Affiliate; or (iii) merge into or consolidate with or
purchase or acquire assets from an Affiliate; or enter into any
other transaction directly or indirectly with or for the benefit of
any Affiliate (including, without limitation, guarantees and
assumptions of obligations of an Affiliate); provided, however,
that (a) payments on Investments expressly permitted by Section 7.9
hereof may be made, (b) any Affiliate who is an individual may
serve as an employee or director of the Borrower, WHC or any
Subsidiary and receive reasonable compensation for his services in
such capacity, and (c) the Borrower or any Subsidiary may enter
into any transaction with an Affiliate providing for the leasing of
property, the rendering or receipt of services or the purchase or
sale of product, inventory and other assets in the ordinary course
of business if the monetary or business consideration arising
therefrom would be substantially as advantageous to the Borrower or
such Subsidiary as the monetary or business consideration which
would obtain in a comparable arm's length transaction with a Person
not an Affiliate.
Section 7.15 Independent Business Operations.
--------------------------------
Engage in any business activities with Conquest,
whether or not in accordance with the provisions of Section 7.14
hereof.
Article 8. Events of Default.
------------------
If any one or more of the following events ("Events of
Default") shall occur and be continuing, the entire unpaid balance
of the principal of and interest on the Note outstanding and all
other obligations and Indebtedness of the Borrower to the Bank
arising hereunder and under the other Loan Documents shall
immediately become due and payable upon written notice to that
effect given to the Borrower by the Bank (except that in the case
of the occurrence of any Event of Default described in Section 8.6
no such notice shall be required), without presentment or demand
for payment, notice of non-payment, protest or further notice or
demand of any kind, all of which are expressly waived by the
Borrower:
Section 8.1 Payments.
---------
-41-
<PAGE> 43
Failure to make any payment or mandatory prepayment
of principal or interest upon any Note or to make any payment of
the Restructuring Fee, the March Fee or any other amount payable
hereunder when due; or
Section 8.2 Covenants.
----------
After the payment and discharge of all indebtedness
owing to SBCC arising out of the SBCC Loans and the termination of
the obligation of SBCC to lend under the SBCC Loan Agreement,
failure to perform or observe any of the agreements of the
Borrower, WHC or any Subsidiary of the Borrower or WHC or any
Guarantor contained in Article 7 hereof; or
Section 8.3 Other Covenants.
----------------
(a) After the payment and discharge of all
indebtedness owing to SBCC arising out of the SBCC Loans and the
termination of the obligation of SBCC to lend under the SBCC Loan
Agreement,
(i) Failure by the Borrower to perform or
observe any term, condition or covenant (other than those provided
for Section 8.1 or 8.2 hereof) of this Agreement or of any of the
other Loan Documents to which it is a party, which shall remain
unremedied for a period of 30 days after notice thereof shall have
been given to the Borrower by the Bank; or
(ii) Failure by any Loan Party other than the
Borrower to perform or observe any term, condition or covenant of
any of the Loan Documents to which it or he is a party, which shall
remain unremedied for a period of 30 days after notice thereof
shall have been given to the Borrower by the Bank; or
Section 8.4 Other Defaults.
---------------
(a) The declaration by SBCC that the Liabilities
(as defined in the SBCC Loan Agreement) are immediately due and
payable (unless such declaration shall have been rescinded); or the
acceleration of such Liabilities without such declaration; or the
taking of any action by SBCC to foreclose or realize upon or
enforce any of its rights against property of the Borrower, WHC,
Gaming Supply or the Subsidiaries of the Borrower or WHC; or
(b) After the payment and discharge of all
indebtedness owing to SBCC arising out of the SBCC Loans and the
termination of the obligation of SBCC to lend under the SBCC Loan
Agreement,
(i) Failure to perform or observe any term,
condition or covenant of any bond, note, debenture, loan agreement,
indenture, guaranty, trust agreement, mortgage or similar instru-
-42-
<PAGE> 44
ment to which the Borrower, WHC or any Subsidiary of the Borrower
or WHC is a party or by which it is bound, or by which any of its
properties or assets may be affected including, without limitation,
the SBCC Loan Agreement or any of the subordinated notes or other
agreements or evidences of Indebtedness covered by any Subordina-
tion Agreement (a "Debt Instrument"), so that, as a result of any
such failure to perform, the Indebtedness included therein or
secured or covered thereby may be declared due and payable prior to
the date on which such Indebtedness would otherwise become due and
payable; or
(ii) Any event or condition referred to in any
Debt Instrument shall occur or fail to occur, so that, as a result
thereof, the Indebtedness included therein or secured or covered
thereby is declared due and payable prior to the date on which such
Indebtedness would otherwise become due and payable; or
(iii) Failure to pay any Indebtedness for
borrowed money in accordance with its stated terms, or when due at
final maturity or pursuant to demand under any Debt Instrument;
provided, however that the provisions of this Section 8.4 shall not
be applicable to any Debt Instrument which relates to or evidences
Indebtedness which, on the date this Section 8.4 would otherwise be
applicable thereto, evidences Indebtedness in a principal amount of
less than $100,000.
Section 8.5 Representations and Warranties.
-------------------------------
Any representation or warranty made in writing to
the Bank in any of the Loan Documents or in connection with the
making of the Loan, or any certificate, statement or report made or
delivered in compliance with this Agreement, shall have been false
or misleading in any material respect when made or delivered; or
Section 8.6 Bankruptcy.
-----------
(a) The Borrower, WHC or any Subsidiary of the
Borrower or WHC or any Guarantor shall make an assignment for the
benefit of creditors, file a petition in bankruptcy, be adjudicated
insolvent, petition or apply to any tribunal for the appointment of
a receiver, custodian, or any trustee for it or him or a substan-
tial part of its or his assets, or shall commence any proceeding
under any bankruptcy, reorganization, arrangement, readjustment of
debt, dissolution or liquidation law or statute of any jurisdic-
tion, whether now or hereafter in effect, or the Borrower, WHC or
any Subsidiary of the Borrower or WHC or any Guarantor shall take
any corporate action to authorize any of the foregoing actions; or
there shall have been filed any such petition or application, or
any such proceeding shall have been commenced against it or him
which remains undismissed for a period of thirty (30) days or more;
or any order for relief shall be entered in any such proceeding; or
-43-
<PAGE> 45
the Borrower, WHC or any Subsidiary of the Borrower or WHC or any
Guarantor by any act or omission shall indicate its or his consent
to, approval of or acquiescence in any such petition, application
or proceeding or the appointment of a custodian, receiver or any
trustee for it or him or any substantial part of any of its or his
properties, or shall suffer any custodianship, receivership or
trusteeship to continue undischarged for a period of thirty (30)
days or more; or
(b) The Borrower, WHC or any Subsidiary of the
Borrower or WHC or any Guarantor shall generally not pay its or his
debts as such debts become due; or
(c) The Borrower, WHC or any Subsidiary of the
Borrower or WHC or any Guarantor shall have concealed, removed, or
permitted to be concealed or removed, any part of its or his
property, with intent to hinder, delay or defraud its or his
creditors or any of them or made or suffered a transfer of any of
its or his property which may be fraudulent under any bankruptcy,
fraudulent conveyance or similar law; or shall have made any
transfer of its or his property to or for the benefit of a creditor
at a time when other creditors similarly situated have not been
paid; or shall have suffered or permitted, while insolvent, any
creditor to obtain a Lien upon any of its or his property through
legal proceedings or distraint which is not vacated within thirty
(30) days from the date thereof; or
Section 8.7 Judgments.
----------
After the payment and discharge of all indebtedness
owing to SBCC arising out of the SBCC Loans and the termination of
the obligation of SBCC to lend under the SBCC Loan Agreement, any
judgment against the Borrower, WHC or any Subsidiary of the
Borrower or WHC or any attachment, levy or execution against any of
its properties for any amount in excess of Fifty Thousand Dollars
($50,000) shall remain unpaid, unstayed on appeal, undischarged,
unbonded or undismissed for a period of thirty (30) days or more;
or
Section 8.8 ERISA.
------
After the payment and discharge of all indebtedness
owing to SBCC arising out of the SBCC Loans and the termination of
the obligation of SBCC to lend under the SBCC Loan Agreement,
(i) The termination of any Plan or the institution
by the PBGC of proceedings for the involuntary termination of any
Plan, in either case, by reason of, or which results or could
result in, a "material accumulated funding deficiency" under
Section 412 of the Code; or
(ii) Failure by the Borrower to make required
-44-
<PAGE> 46
contributions, in accordance with the applicable provisions of
ERISA, to each of the Plans hereafter established or assumed by it;
or
Section 8.9 Ownership of Stock of Borrower
WHC and Conquest.
-----------------
After the payment and discharge of all indebtedness
owing to SBCC arising out of the SBCC Loans and the termination of
the obligation of SBCC to lend under the SBCC Loan Agreement,
(i) WHC shall at any time own, beneficially and
of record, less than 100% in the aggregate of the issued and
outstanding capital stock of the Borrower having ordinary voting
rights for the election of directors; or
(ii) Conquest shall at any time own, beneficially
and of record, less than 100% of the aggregate of the issued and
outstanding capital stock of WHC having ordinary voting rights for
the election of directors; or
(iii) The Individual Pledgors (or in the event of
the death of any of them, his estate, legal representative or
heirs) shall at any time own, beneficially and of record, less than
30% in the aggregate of the issued and outstanding capital stock
of Conquest having ordinary voting rights for the election of
directors.
Section 8.10 Liens.
------
After the payment and discharge of all indebtedness
owing to SBCC arising out of the SBCC Loans and the termination of
the obligation of SBCC to lend under the SBCC Loan Agreement, any
of the Liens created and granted to the Bank under the Security
Documents shall fail to be valid, first, perfected Liens, subject
to no prior or equal Lien, except as permitted by Section 7.2
hereof.
Article 9. Miscellaneous Provisions.
-------------------------
Section 9.1 Fees and Expenses; Indemnity.
-----------------------------
The Borrower will promptly pay all costs of the Bank
in preparing the Loan Documents and all costs and expenses of the
issue of the Note and of the Borrower's and any other Loan Party's
performance of and compliance with all agreements and conditions
contained herein on its part to be performed or complied with
(including, without limitation, all costs of filing or recording
any assignments, mortgages, financing statements and other
documents), and the reasonable fees and expenses and disbursements
of special counsel to the Bank, in connection with the preparation,
execution and delivery, administration, interpretation and
-45-
<PAGE> 47
enforcement of this Agreement, the other Loan Documents and all
other agreements, instruments and documents relating to this
transaction, the consummation of the transactions contemplated by
all such documents, the preservation of all rights of the Bank, the
negotiation, preparation and execution and delivery of any
amendment, modification or supplement of or to, or any consent or
waiver under, any such document (or any such instrument which is
proposed but not executed and delivered) and in connection with any
claim or action threatened, made or brought against the Bank
arising out of or relating to any extent to this Agreement, the
other Loan Documents or the transactions contemplated hereby or
thereby. In addition, the Borrower will promptly pay all costs and
expenses (including, without limitation, reasonable fees and
disbursements of counsel) suffered or incurred by the Bank in
connection with its enforcement of the payment of the Note or any
other sum due to it under this Agreement or any of the other Loan
Documents or any of its other rights hereunder or thereunder. In
addition to the foregoing, the Borrower shall indemnify the Bank
and its respective directors, officers, employees, attorneys and
agents against, and hold each of them harmless from, any loss,
liabilities, damages, claims, costs and expenses (including
reasonable attorneys' fees and disbursements of counsel) suffered
or incurred by any of them arising out of, resulting from or in any
manner connected with, the execution, delivery and performance of
each of the Loan Documents, the Loan and any and all transactions
related to or consummated in connection with the Loan, including,
without limitation, losses, liabilities, damages, claims, costs and
expenses suffered or by the Bank or any of its respective direc-
tors, officers, employees, attorneys or agents arising out of or
related to any Environmental Matter, Environmental Liability or
Environmental Proceeding, or in investigating, preparing for,
defending against, or providing evidence, producing documents or
taking any other action in respect of any commenced or threatened
litigation, administrative proceeding or investigation under any
federal securities law or any other statute of any jurisdiction, or
any regulation, or at common law or otherwise, which is alleged to
arise out of or is based upon: (i) any untrue statement or alleged
untrue statement of any material fact of the Borrower and its
Affiliates contained in any document or schedule filed with the
Securities and Exchange Commission or any other governmental body;
(ii) any omission or alleged omission to state any material fact
required to be stated in such document or schedule, or necessary to
make the statements made therein, in light of the circumstances
under which made, not misleading; (iii) any acts, practices or
omission or alleged acts, practices or omissions of the Borrower or
its agents related to the making of any acquisition, purchase of
shares or assets pursuant thereto, financing of such purchases or
the consummation of any other transactions contemplated by any such
acquisitions which are alleged to be in violation of any federal
securities law or of any other statute, regulation or other law of
any jurisdiction applicable to the making of any such acquisition,
the purchase of shares or assets pursuant thereto, the financing of
-46-
<PAGE> 48
such purchases or the consummation of the other transactions
contemplated by any such acquisition; or (iv) any withdrawals,
termination or cancellation of any proposed such acquisition for
any reason whatsoever. The indemnity set forth herein shall be in
addition to any other obligations or liabilities of the Borrower to
the Bank hereunder or at common law or otherwise. The provisions
of this section 9.1 shall survive the payment of the Note and the
termination of this Agreement.
Section 9.2 Taxes.
------
If, under any law in effect on the Closing Date, or
under any retroactive provision of any law subsequently enacted, it
shall be determined that any Federal, state or local tax is payable
in respect of the issuance of the Note, or in connection with the
filing or recording of any assignments, mortgages, financing
statements, or other documents (whether measured by the amount of
indebtedness secured or otherwise) as contemplated by this
Agreement, then the Borrower will pay any such tax and all interest
and penalties, if any, and will indemnify the Bank against and save
it harmless from any loss or damage resulting from or arising out
of the nonpayment or delay in payment of any such tax. If any such
tax or taxes shall be assessed or levied against any Bank or any
other holder of the Note, the Bank, or such other holder, as the
case may be, may notify the Borrower and make immediate payment
thereof, together with interest or penalties in connection
therewith, and shall thereupon be entitled to and shall receive
immediate reimbursement therefor from the Borrower. Notwithstand-
ing any other provision contained in this Agreement, the covenants
and agreements of the Borrower in this Section 9.2 shall survive
payment of the Note and the termination of this Agreement.
Section 9.3 Survival of Agreements and
Representations; Waiver of Trial by Jury.
-----------------------------------------
All agreements, representations and warranties made
herein shall survive the delivery of this Agreement and the Note.
THE BORROWER WAIVES TRIAL BY JURY IN ANY LITIGATION IN ANY COURT
WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF, THIS
AGREEMENT, ANY OF THE OTHER LOAN DOCUMENTS, OR ANY INSTRUMENT OR
DOCUMENT DELIVERED PURSUANT TO THIS AGREEMENT, OR THE VALIDITY,
PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF.
Section 9.4 Lien on and Set-off of Deposits.
--------------------------------
As security for the due payment and performance of
all the Obligations, the Borrower hereby grants to Bank a Lien on
any and all deposits or other sums at any time credited by or due
from the Bank to the Borrower, whether in regular or special
depository accounts or otherwise, and any and all monies, securi-
ties and other property of the Borrower, and the proceeds thereof,
now or hereinafter held or received by or in transit to the Bank
-47-
<PAGE> 49
from or for the Borrower, whether for safekeeping, custody, pledge,
transmission, collection or otherwise, and any such deposits, sums,
monies, securities and other property, may at any time after the
occurrence and during the continuance of any Event of Default be
set-off, appropriated and applied by the Bank against any of the
Obligations, whether or not any of such Obligations is then due or
is secured by any collateral, or, if it is so secured, whether or
not the collateral held by the Bank is considered to be adequate,
all as set forth in and pursuant to Section 2.16 hereof.
Section 9.5 Modifications, Consents and
Waivers; Entire Agreements.
---------------------------
No modification, amendment or waiver of or with
respect to any provision of this Agreement, the Note, the Security
Documents, or any of the other Loan Documents and all other
agreements, instruments and documents delivered pursuant hereto or
thereto, nor consent to any departure by the Borrower from any of
the terms or conditions thereof, shall in any event be effective
unless it shall be in writing and signed by the Bank. Any such
waiver or consent shall be effective only in the specific instance
and for the purpose for which given. No consent to or demand on
the Borrower in any case shall, of itself, entitle it to any other
or further notice or demand in similar or other circumstances.
This Agreement embodies the entire agreement and understanding
among the Bank and the Borrower and supersedes all prior agreements
and understandings relating to the subject matter hereof.
Section 9.6 Remedies Cumulative.
--------------------
Each and every right granted to the Bank hereunder
or under any other document delivered hereunder or in connection
herewith, or allowed it by law or equity, shall be cumulative and
may be exercised from time to time. No failure on the part of the
Bank or the holder of the Note to exercise, and no delay in
exercising, any right shall operate as a waiver thereof, nor shall
any single or partial exercise of any right preclude any other or
future exercise thereof or the exerCise of any other right. The
due payment and performance of the Borrower's indebtedness,
liabilities and obligations under the Note and this Agreement shall
be without regard to any counterclaim, right of offset or any other
claim whatsoever which the Borrower may have against the Bank and
without regard to any other obligation of any nature whatsoever
which the Bank may have to the Borrower, and no such counterclaim
or offset shall be asserted by the Borrower in any action, suit or
proceeding instituted by the Bank for payment or performance of the
Borrower's indebtedness, liabilities or obligations under the Note,
this Agreement, the Security Documents or any of the other Loan
Documents or otherwise.
Section 9.7 Further Assurances.
-------------------
-48-
<PAGE> 50
At any time and from time to time, upon the request
of the Bank, the Borrower shall execute, deliver and acknowledge or
cause to be executed, delivered and acknowledged, such further
documents and instruments and do such other acts and things as the
Bank may reasonably request in order to fully effect the purposes
of this Agreement, the other Loan Documents and any other agree-
ments, instruments and documents delivered pursuant hereto or in
connection with the Loan, including, without limitation, the
execution and delivery to the Bank of mortgages in form and
substance satisfactory to the Bank covering all real property or
interests therein acquired by the Borrower, and all leases of real
property entered into by the Borrower as tenant or lessee, after
the date of this Agreement, promptly after such acquisition or the
entering into of any such lease.
Section 9.8 Notices.
--------
All notices, requests, reports and other communi-
cations pursuant to this Agreement shall be in writing, either by
letter (delivered by hand or commercial messenger service or sent
by certified mail, return receipt requested, except for routine
reports delivered in compliance with Article 5 hereof which may be
sent by ordinary first-class mail) or telegram, addressed as
follows:
(a) If to the Borrower:
Wico Corporation
6400 W. Gross Point Road
Niles, Illinois 60648
Attn: Steffen I. Magnell
with copies to:
Kronish, Lieb, Weiner & Hellman LLP
1114 Avenue of the Americas
New York, New York 10036
Attn: Ralph J. Sutcliffe
(b) If to the Bank:
NatWest Bank N.A.
175 Water Street, 24th Floor
New York, New York 10038
Attn: Douglas J. MacInnes,
Vice President
with a copy (other than in the
case of Borrowing Notices and
reports and other documents
delivered in compliance with
-49-
<PAGE> 51
Article 5 hereof) to:
Winston & Strawn
175 Water Street
New York, New York 10038
Attention: Richard B. Teiman, Esq.
Any notice, request or communication hereunder shall be deemed to
have been given on the day on which it is delivered by hand or such
commercial messenger service to such party at its address specified
above, or, if sent by mail, on the third Business Day after the day
deposited in the mail, postage prepaid, or in the case of tele-
graphic notice, when delivered to the telegraph company, addressed
as aforesaid. Any party may change the person or address to whom
or which notices are to be given hereunder, by notice duly given
hereunder; provided, however, that any such notice shall be deemed
to have been given hereunder only when actually received by the
party to which it is addressed.
Section 9.9 Counterparts.
-------------
This Agreement may be signed in any number of
counterparts with the same effect as if the signatures thereto and
hereto were upon the same instrument.
Section 9.10 Construction; Governing Law;
Consent to Jurisdiction.
------------------------
(a) The headings used in this Agreement and the
table of contents are for convenience only and shall not be deemed
to constitute a part hereof. All uses herein of the masculine
gender or of singular or plural terms shall be deemed to include
uses of the feminine or neuter gender or plural or singular terms,
as the context may require. This Agreement, the other Loan
Documents and all other documents and instruments executed and
delivered in connection herewith and therewith, shall be governed
by, and construed and interpreted in accordance with, the laws of
the State of New York.
(b) THE BORROWER IRREVOCABLY CONSENTS THAT ANY
LEGAL ACTION OR PROCEEDING AGAINST IT UNDER, ARISING OUT OF OR IN
ANY MANNER RELATING TO THIS AGREEMENT, AND EACH OTHER LOAN DOCUMENT
MAY BE BROUGHT IN ANY COURT OF THE STATE OF NEW YORK OR IN THE
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK.
THE BORROWER, BY THE EXECUTION AND DELIVERY OF THIS AGREEMENT,
EXPRESSLY AND IRREVOCABLY ASSENTS AND SUBMITS TO THE PERSONAL
JURISDICTION OF ANY OF SUCH COURTS IN ANY SUCH ACTION OR PROCEED-
ING. THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF
ANY COMPLAINT, SUMMONS, NOTICE OR OTHER PROCESS RELATING TO ANY
SUCH ACTION OR PROCEEDING BY DELIVERY THEREOF TO IT BY HAND OR BY
MAIL IN THE MANNER PROVIDED FOR IN SECTION 9.8 HEREOF. THE
BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES ANY CLAIM OR
-50-
<PAGE> 52
DEFENSE IN ANY SUCH ACTION OR PROCEEDING BASED ON ANY ALLEGED LACK
OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON-CONVENIENCE
OR ANY SIMILAR BASIS. THE BORROWER SHALL NOT BE ENTITLED IN ANY
SUCH ACTION OR PROCEEDING TO ASSERT ANY DEFENSE GIVEN OR ALLOWED
UNDER THE LAWS OF ANY STATE OTHER THAN THE STATE OF NEW YORK UNLESS
SUCH DEFENSE IS ALSO GIVEN OR ALLOWED BY THE LAWS OF THE STATE OF
NEW YORK. NOTHING IN THIS SECTION 9.10 SHALL AFFECT OR IMPAIR IN
ANY MANNER OR TO ANY EXTENT THE RIGHT OF THE BANK TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER IN ANY
JURISDICTION OR TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.
Section 9.11 Severability.
-------------
The provisions of this Agreement are severable, and
if any clause or provision hereof shall be held invalid or
unenforceable in whole or in part in any jurisdiction, then such
invalidity or unenforceability shall affect only such clause or
provision, or part thereof, in such jurisdiction and shall not in
any manner affect such clause or provision in any other jurisdic-
tion, or any other clause or provision in this Agreement in any
jurisdiction. Each of the covenants, agreements and conditions
contained in this Agreement is independent and compliance by the
Borrower with any of them shall not excuse non-compliance by the
Borrower with any other. All covenants hereunder shall be given
independent effect so that if a particular action or condition is
not permitted by any of such covenants, the fact that it would be
permitted by an exception to, or be otherwise within the limita-
tions of, another covenant shall not avoid the occurrence of an
Event of Default or Default if such action is taken or condition
exists. The Borrower shall not take any action the effect of which
shall constitute a breach or violation of any provision of this
Agreement.
Section 9.12 Binding Effect; No Assignment
or Delegation by Borrower.
--------------------------
This Agreement shall be binding upon and inure to
the benefit of the Borrower and its successors and to the benefit
of the Bank and its respective successors and assigns. The rights
and obligations of the Borrower under this Agreement shall not be
assigned or delegated without the prior written consent of the
Bank, and any purported assignment or delegation without such
consent shall be void.
Section 9.13 Assignments and Participations by Bank.
---------------------------------------
(a) The Bank may assign or sell participations to
one or more banks or other entities all or a portion of its rights
and obligations under this Agreement (including, without limita-
tion, all or a portion of the Loan and the Note).
(b) The Bank may, in connection with any assignment
-51-
<PAGE> 53
or participation or proposed assignment or participation pursuant
to this Section 9.13, disclose to the assignee or participant or
proposed assignee or participant, any information relating to the
Borrower or any other Loan Party furnished to the Bank by or on
behalf of the Borrower; provided that, prior to any such disclo-
sure, the assignee or participant or proposed assignee or partici-
pant shall agree to preserve the confidentiality of any confiden-
tial information relating to the Borrower received by it from the
Bank.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed on the date first above written.
WICO CORPORATION
By: ??????? CEO
-------------------------
Title
NATWEST BANK N.A.
By: ??????? VP
-------------------------
Title
-52-
<PAGE> 54
LIST OF EXHIBITS
Exhibit A - Form of Note
Exhibit B - States of Incorporation and Qualification;
Capitalization and Ownership of Stock
Exhibit C - Consents, Waivers, Approval; Violation of
Agreements
Exhibit D - Judgments, Actions, Proceedings
Exhibit E - Patents, Trademarks, Trade Names, Service
Marks, Copyrights
Exhibit F - Name Changes, Mergers, Acquisitions
Exhibit G - Permitted Indebtedness and Guarantees
Exhibit H - Permitted Security Interests, Liens, and
Encumbrances
-53-
<PAGE> 55
TABLE OF CONTENTS
Page
Article 1. Definitions . . . . . . . . . . . . . . . . -2-
Article 2. Loan; Collateral; Subordinations . . . . . . -12-
Section 2.1 The Loan. . . . . . . . . . . . . . . . -12-
Section 2.2 The Note . . . . . . . . . . . . . . . -12-
Section 2.3 Interest Rate . . . . . . . . . . . . . -12-
Section 2.4 Principal Repayment . . . . . . . . . . -13-
Section 2.5 Restructuring Fee and March . . . . . -14-
Section 2.6 Prepayments . . . . . . . . . . . . . . -14-
Section 2.7 Use of Proceeds of the Existing Loans. -14-
Section 2.8 Time and Method of Payments . . . . . . -15-
Section 2.9 Computations. . . . . . . . . . . . . . -15-
Section 2.10 Minimum Amount of Prepayments . . . . . -15-
Section 2.11 Lending Offices. . . . . . . . . . . . -15-
Section 2.12 Guaranties. . . . . . . . . . . . . . . -16-
Section 2.13 Security. . . . . . . . . . . . . . . . -16-
Section 2.14 Subordination. . . . . . . . . . . . . -20-
Section 2.15 Additional Costs. . . . . . . . . . . . -20-
Section 2.16 Set-Off. . . . . . . . . . . . . . . . -21-
Article 3. Representations and Warranties . . . . . . . -21-
Section 3.1 Organization . . . . . . . . . . . . . -22-
Section 3.2 Power, Authority, Consents. . . . . . . -23-
Section 3.3 No Violation of Law or Agreements. . . -23-
Section 3.4 Due Execution, Validity, Enforceability.
. . . . . . . . . . . . . . . . . . . . . . . -24-
Section 3.5 Properties, Priority of Liens. . . . . . -24-
Section 3.6 Judgments, Actions, Proceedings. . . . -24-
Section 3.7 No Defaults, Compliance With Laws. . . -24-
Section 3.8 Burdensome Documents. . . . . . . . . . -25-
Section 3.9 Financial Statements; Accounts
Receivable Projections . . . . . . . . -25-
Section 3.10 Tax Returns. . . . . . . . . . . . . . -26-
Section 3.11 Intangible Assets. . . . . . . . . . . -26-
Section 3.12 Regulation U. . . . . . . . . . . . . . -26-
Section 3.13 Name Changes, Mergers, Acquisitions;
Location of Collateral . . . . . . . . -27-
Section 3.14 Licenses and Approvals. . . . . . . . . -27-
Section 3.15 Labor Disputes. . . . . . . . . . . . . -27-
Section 3.16 Condition of Assets . . . . . . . . . . -27-
Section 3.17 ERISA. . . . . . . . . . . . . . . . . -27-
Article 4. The Closing. . . . . . . . . . . . . . . . . -28-
Section 4.1 Conditions to Effectiveness of Agreement
. . . . . . . . . . . . . . . . . . . . . . . . -28-
Article 5. Delivery of Financial Reports,
-i-
<PAGE> 56
Documents and other Information . . . . . . -30-
Section 5.1 Annual Financial Statements. . . . . . -31-
Section 5.2 Quarterly Financial Statements. . . . . -31-
Section 5.3 Monthly Financial Statements. . . . . . -31-
Section 5.4 Compliance Information. . . . . . . . . -32-
Section 5.5 No Default Certificate. . . . . . . . . -32-
Section 5.6 Certificate of Accountants. . . . . . . -32-
Section 5.7 Accountants' Reports. . . . . . . . . . -32-
Section 5.8 Copies of Documents. . . . . . . . . . -32-
Section 5.9 Notices of Defaults. . . . . . . . . . -33-
Article 6. Affirmative Covenants . . . . . . . . . . . -33-
Section 6.1 Books and Records. . . . . . . . . . . -33-
Section 6.2 Inspections and Audits. . . . . . . . . -33-
Section 6.3 Maintenance and Repairs. . . . . . . . -34-
Section 6.4 Continuance of Business. . . . . . . . -34-
Section 6.5 Copies of Corporate Documents. . . . . -34-
Section 6.6 Perform Obligations. . . . . . . . . . -34-
Section 6.7 Notice of Litigation. . . . . . . . . . -35-
Section 6.8 Insurance. . . . . . . . . . . . . . . -35-
Section 6.9 Notice of Certain Events. . . . . . . . -35-
Section 6.10 Comply with ERISA. . . . . . . . . . . -35-
Section 6.11 Environmental Compliance. . . . . . . . -35-
Section 6.12 Conduct of Business Operations. . . . . -36-
Article 7. Negative Covenants . . . . . . . . . . . . . -36-
Section 7.1 Indebtedness. . . . . . . . . . . . . . -36-
Section 7.2 Liens . . . . . . . . . . . . . . . . . -37-
Section 7.3 Guaranties. . . . . . . . . . . . . . . -38-
Section 7.4 Mergers, Acquisitions. . . . . . . . . -38-
Section 7.5 Redemptions; Distributions. . . . . . . -38-
Section 7.6 Stock Issuance. . . . . . . . . . . . . -39-
Section 7.7 Changes in Business. . . . . . . . . . -39-
Section 7.8 Prepayments. . . . . . . . . . . . . . -39-
Section 7.9 Investments. . . . . . . . . . . . . . -39-
Section 7.10 Fiscal Year. . . . . . . . . . . . . . -40-
Section 7.11 ERISA Obligations. . . . . . . . . . . -40-
Section 7.12 Amendment of Documents. . . . . . . . . -40-
Section 7.13 Management Fees. . . . . . . . . . . . -40-
Section 7.14 Transactions with Affiliates. . . . . . -41-
Section 7.15 Independent Business Operations. . . . -41-
Article 8. Events of Default . . . . . . . . . . . . . -41-
Section 8.1 Payments. . . . . . . . . . . . . . . . -41-
Section 8.2 Covenants. . . . . . . . . . . . . . . -42-
Section 8.3 Other Covenants. . . . . . . . . . . . -42-
Section 8.4 Other Defaults. . . . . . . . . . . . . -42-
Section 8.5 Representations and Warranties. . . . . -43-
Section 8.6 Bankruptcy. . . . . . . . . . . . . . . -43-
Section 8.7 Judgments. . . . . . . . . . . . . . . -44-
Section 8.8 ERISA. . . . . . . . . . . . . . . . . -44-
Section 8.9 Ownership of Stock of Borrower
-ii-
<PAGE> 57
WHC and Conquest. . . . . . . . . . . . -45-
Section 8.10 Liens. . . . . . . . . . . . . . . . . -45-
Article 9. Miscellaneous Provisions . . . . . . . . . -45-
Section 9.1 Fees and Expenses; Indemnity. . . . . . -45-
Section 9.2 Taxes. . . . . . . . . . . . . . . . . -47-
Section 9.3 Survival of Agreements and
Representations; Waiver of Trial by Jury -47-
Section 9.4 Lien on and Set-off of Deposits. . . . -47-
Section 9.5 Modifications, Consents and
Waivers; Entire Agreements . . . . . . -48-
Section 9.6 Remedies Cumulative. . . . . . . . . . -48-
Section 9.7 Further Assurances. . . . . . . . . . . -48-
Section 9.8 Notices. . . . . . . . . . . . . . . . -49-
Section 9.9 Counterparts. . . . . . . . . . . . . . -50-
Section 9.10 Construction; Governing Law,;
Consent to Jurisdiction . . . . . . . . -50-
Section 9.11 Severability. . . . . . . . . . . . . . -51-
Section 9.12 Binding Effect; No Assignment
or Delegation-by Borrower . . . . . . . -51-
Section 9.13 Assignments and Participations
by Bank . . . . . . . . . . . . . . . . -51-
-iii-
<PAGE> 58
THIRD SUBSTITUTED TERM NOTE
---------------------------
$18,535,848.00 New York, New York
October 20, 1995
FOR VALUE RECEIVED, the undersigned, WICO CORPORATION (f/k/a
Wico Distribution Corp .) a Delaware corporation (the "Borrower"),
promises to pay to the order of NATWEST BANK N.A. (f/k/a National
Westminster Bank USA), a national banking association organized and
existing under and by virtue of the laws of the United States of
America (the "Bank") the principal sum of EIGHTEEN MILLION FIVE
HUNDRED THIRTY-FIVE THOUSAND EIGHT HUNDRED FORTY-EIGHT AND 00/100
DOLLARS ($18,535,848.00), payable in 48 consecutive monthly
installments commencing on October 1, 1996 and on the first day of
each calendar month thereafter (each such date, a "Repayment Date")
(provided that the last such payment shall be in an amount
sufficient to repay in full the principal amount hereof), with the
amount of the installment paid on each Payment Date to be in the
respective amounts set forth below:
Principal Amount of the
Principal Payment Loan Payable on each
Dates such Payment Date
- ----------------- ------------------------
The first date of each month $20,833.33
from October 1, 1996 through
and including September 1, 1997
The first date of each month 41,666.67
from October 1, 1997 through
and including September 1, 1998
The first date of each month 62,500.00
from October 1, 1998 through
and including September 1, 1999
The first date of each month 83,333.33
from October 1, 1999 through
and including August 1, 2000
September 1, 2000 10,244,181.37, or
such lesser amount
as shall equal the
the then outstanding
principal amount of
this Note
and to pay interest on the unpaid principal amount hereof at the
rates per annum, for the periods set forth in and at the times
provided for in the Amended and Restated Loan Agreement, dated
October 20, 1995, by and between the Borrower and the Bank (as the
same may hereafter be amended, modified or supplemented, the "Loan
Agreement") and as calculated therein.
<PAGE> 59
EXHIBIT B
TO
AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
STATES OF INCORPORATION AND QUALIFICATION
AND CAPITALIZATION AND OWNERSHIP
OF STOCK OF WICO CORPORATION AND WICO HOLDING CORP.
---------------------------------------------------
WICO CORPORATION (the "Borrower")
(a) (i) The Borrower is a corporation
incorporated under the laws of the State of Delaware.
(ii) There are 2,000 authorized and 1,000
issued and outstanding shares of common stock, no par value, of
the Borrower. All 1,000 issued and outstanding shares are held
by Wico Holding Corp. and the stock certificate number for the
1,000 shares is 16.
(iii) If not a corporation, type and amount
of equity interests authorized and outstanding of the entity and
the owners of such equity interests:
Not applicable
(iv) The Borrower is engaged in the
manufacture and distribution of accessories for computers and
video games and other electronic or electronic-related products.
(v) Liens on issued and outstanding shares
of stock of the Borrower:
All issued and outstanding shares have been
pledged to National Westminster Bank USA, as Agent, such lien to
be released and such shares to be pledged to Sanwa Business
Credit Corporation.
(vi) Outstanding warrants, option contracts
or commitments of any kind entitling any Person to purchase or
otherwise acquire any shares of capital stock or other equity
interests of the Borrower:
None
(vii) Outstanding securities which are
convertible into or exchangeable for any shares of capital stock
or other equity interests of the Borrower:
None
(viii) Subsidiaries of the Borrower:
<PAGE> 60
Suncom Technologies Limited, a corporation
incorporated under the laws of the United Kingdom.
(b) Jurisdictions where the Borrower is qualified
to do business and where failure to so qualify could have a
material adverse effect on the business, operations, financial
condition or properties of the Borrower:
California, Georgia, Illinois, Nevada, New Jersey,
Pennsylvania and Texas
WICO HOLDING CORP. ("WHC")
(a) (i) WHC is a corporation incorporated under
the laws of the State of Delaware.
(ii) There are 1,000 authorized and 10
issued shares of common stock, $1.00 par value of WHC. All
issued and outstanding shares are held by Conquest Industries.
(iii) If not a corporation, type and amount
of equity interests authorized and outstanding of the entity and
the owners of such equity interests.
Not applicable
(iv) WHC is a distributor of replacement
parts, accessories and supplies to game operators and
distributors of coin-operated amusement/arcade games, billiard
tables, vending machines and gaming machines.
(v) Liens on issued and outstanding shares
of stock of WHC:
All issued and outstanding shares have been
pledged to National Westminster Bank USA, as Agent, such lien to
be released and such shares to be pledged to Sanwa Business
Credit Corporation.
(vi) Outstanding warrants, option contracts
or commitments of any kind entitling any Person to purchase or
otherwise acquire any shares of capital stock or other equity
interests of WHC:
None
(vii) Outstanding securities which are
convertible into or exchangeable for any shares of capital stock
or other equity interests of WHC:
None
2
<PAGE> 61
(viii) Subsidiaries:.
Wico Corporation, Wico Gaming Supply Corp.
(b) Jurisdictions where WHC is qualified to do
business and when failure to so qualify could have a material
adverse effect on the business, operations, or financial
condition or properties of the WHC:
Mississippi
SUNCOM TECHNOLOGIES, LTD. ("SUNCOM U.K.")
(a) (i) Suncom U.K. is a corporation
incorporated under the laws of the United Kingdom.
(ii) There are 1,000 authorized and 2 issued
and outstanding shares of common stock, (pound sterling) 1 par value of Suncom
U.K.
The 2 shares are held by the Borrower and the
stock certificates for the 2 shares are No. 3 and No. 4.
(iii) If not a corporation, type and amount
of equity interests authorized and outstanding of the entity and
the owners of such equity interests:.
Not applicable.
(iv) Suncom U.K. is engaged in the
distribution of computer joysticks.
(v) Liens on issued and outstanding shares
of stock of Suncom:
All issued and outstanding shares are
pledged to National Westminster Bank USA, as Agent.
(vi) Outstanding warrants, option contacts
or commitments of any kind entitling any person to purchase or
otherwise acquire any shares of capital stock or other equity
interests of Suncom U.K.:
None
(vii) Outstanding securities which are
convertible into or exchangeable for any shares of capital stock
or other equity interests of Suncom U.K.:
None
3
<PAGE> 62
(viii) Subsidiaries of Suncom U.K.:
None
(b) Jurisdictions where Suncom U.K. is qualified
to do business and where failure to so qualify could have a
material adverse effect on the business, operations, financial
conditions or properties of Suncom U.K.:
Not Applicable
WICO GAMING SUPPLY CORP. ("Gaming")
(a) (i) Gaming is a corporation incorporated
under the laws of the State of Delaware.
(ii) There are 3,000 authorized and 100
issued shares of common stock, $1.00 par value, of Gaming. All
100 issued and outstanding shares are held by Wico Holding Corp.
and the stock certificate number for the 100 shares is 1.
(iii) If not a corporation, type and amount
of equity interests authorized and outstanding of the entity and
the owners of such equity interests:
Not Applicable
(iv) Gaming is Las Vegas, Nevada
manufacturer and distributor of casino supplies.
(v) Liens on issued and outstanding shares
of stock of Gaming:
All issued and outstanding shares of
Gaming are pledged to National Westminster Bank USA, as Agent,
such lien to be released and such shares to be pledged to Sanwa
Business Credit Corporation.
(vi) Outstanding warrants, option contracts
or commitments of any kind entitling any Person to purchase or
otherwise acquire any shares of capital stock or other equity
interests of Gaming:
None.
(vii) Outstanding securities which are
convertible into or exchangeable for any shares of capital stock
or other equity interests of Gaming:
None.
(viii) Subsidiaries:
4
<PAGE> 63
None.
(b) Jurisdictions where Gaming is qualified to do
business and where failure to so qualify could have a material
adverse effect on the business, operations, financial condition
or properties of the Borrower:
Indiana, Mississippi, Missouri, New Jersey and Nevada
CONQUEST INDUSTRIES INC. ("Conquest")
(i) Conquest's Certificate of Incorporation
authorizes 25,000,000 shares of common stock , $.001 par value
("Conquest Common Stock") and 5,000,000 shares of preferred
stock. As of the date hereof there are 11,445,824 shares of
Conquest Common Stock, 7,550 shares of Series A Preferred Stock,
2,000,000 shares of Series B Preferred Stock and 800,000 shares
of Series E Preferred Stock issued and outstanding.
(ii) Outstanding warrants, option contracts or
commitments of any kind entitling any Person to purchase or
otherwise acquire any shares of capital stock or other equity
interests of Conquest:
a. The Series A Preferred Stock, Series B
Preferred Stock and Series E Preferred Stock are convertible
into Conquest Common Stock;
b. $2,737,500 of the outstanding 10% notes
issued in connection with Conquest's 1994 private placement
("1994 Notes") are convertible into Conquest Common Stock.
Conquest has asked that the holders of the 1994 Notes, waive
this conversion right in exchange for certain accommodations
including receipt of warrants to purchase shares of Conquest
Common Stock at $5.00 per share through June 20, 1999
("Private Placement Warrants"). If all such conversion
rights are waived, a total of 54,750 Private Placement
Warrants will be issued.
c. 195,000 Public Warrants exercisable at $5.00
per share through June 1999;
d. Warrants to purchase an aggregate of 650,000
shares of Conquest Common Stock at $0.875 per share through
April 2000;
e. Warrants to purchase an aggregate of 100,000
shares of Conquest Common Stock at $1.41 per share through
June 2000;
f. Class B Warrants to purchase an aggregate of
1,961,925 shares of Conquest Common Stock at $5.00 per share
through June 20, 1999;
5
<PAGE> 64
g. NatWest Warrant to purchase 400,000 shares of
Conquest Common Stock for an aggregate purchase price of
$400 which warrant is exercisable through June 20, 1999.
h. BAT Warrants to purchase an aggregate of
625,000 shares of Conquest Common Stock at $.3333 per share
through June 20, 1999;
i. SIG Warrants to purchase 900,000 shares of
Conquest Common Stock at the last bid price on October 12,
1995 which expire on October 12, 2000.
j. Warrants to purchase units, exercisable at
$10.00 per unit for a period ending four years from the
effective date of Conquest's pending registration statement
("Expiration Date"), each unit Consisting of the right to
purchase one shares of Conquest Common Stock and one
Warrants to purchase Conquest Common Stock, exercisable at
$1.00 per share through the Expiration Date;
k. In connection with this transaction, Conquest
will issue 500,000 shares of Conquest Common Stock and will
potentially issue Warrants to purchase an aggregate of
1,250,000 shares of Conquest Common Stock at market.
(iii) Changes to Conquests capital structure
since June 17, 1994:
a. On September 1, 1994, Conquest increased it
authorized capital to 250,000,000 shares of Conquest Common
Stock and 100,000,000 shares of preferred stock.
b. On November 18, 1994, in connection with a
reverse split, Conquest decreased it authorized capital to
25,000,000 shares of Conquest Common Stock and 10,000,000
shares of preferred stock.
c. On January 13, 1995, Conquest increased the
number of authorized Series B Preferred Stock to 2,800,000
and amended the conversion provisions to decrease the
conversion rate for such shares.
d. On May 12, 1995, Conquest (i) decreased the
number of authorized Series C Preferred Stock to zero, (ii)
further modified the terms of the Series B Preferred Stock,
(iii) designated 600,000 shares of preferred stock as Series
D Preferred Stock and (iv) designated 800,000 shares of
preferred stock as Series E Preferred Stock.
6
<PAGE> 65
EXHIBIT C
TO
AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
CONSENTS, WAIVERS, APPROVAL;
VIOLATION OF AGREEMENTS
-----------------------
Consent of Shuffle Master, Inc. to the granting of liens with
respect to certain equipment owned by Wico Gaming Supply Corp.,
which consent has been obtained.
1
<PAGE> 66
EXHIBIT D
TO
AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
JUDGEMENTS, ACTIONS PROCEEDINGS
-------------------------------
1. Suncom Technologies, a division of Wico Corporation
("Suncom") received a letter on March 1, 1995 from the attorneys
representing Thrustmaster, Inc. ("Thrustmaster") informing Suncom
of its belief that several of Suncom's joystick products may
infringe on Thrustmaster patents. On March 22, 1995, after review
of such claims by Suncom's patent counsel, such counsel responded
to Thrustmaster stating that Suncom's existing products do not
infringe on the specified patents. No further action has been
taken by either party with respect to this matter.
2. Suncom received a letter on August 8, 1995 from the attorneys
representing CH Products claiming that Suncom's description of
several of its products as "flight stick" violated CH Products'
trademark on the term "Flightstick" and demanding that Suncom
cease and desist from use of the term. On August 21, 1995, after
preliminary review of such claims by Suncom's intellectual
property counsel, such counsel responded to CH Products stating
that trademarked term was nothing more than a combination into a
single work of the two word noun "flight stick" has long been
used as the name of a component of an airplane. In addition,
counsel undertook to do a more comprehensive study of the matter
and respond formally to the allegations in due course. Such
study is still underway at this time.
4. Worldwide Aircraft Service, Inc. has filed suit against
Conquest Airlines, Inc., a subsidiary of Conquest, in Greene
County Missouri for labor, material and services provided for
aircrafts in the principal amount of $216,997.66.
5. Conquest has settled ending distribution of stock pursuant
to a registration statement actions for payment of outstanding
legal fees and printing fees.
6. Litigation has been threatened against Conquest by a number
of its creditors, including the lessors of four aircrafts owned
by Conquest Airlines Corp.
1
<PAGE> 67
EXHIBIT E
TO
AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
PATENTS
-------
A. Utility Patents in the United States
------------------------------------
===========================================================================
PAT.
NO TITLE ISSUE DATE
- ---------------------------------------------------------------------------
4128222 LEG ASSEMBLY FOR PINBALL GAME 12/05/78
- ---------------------------------------------------------------------------
4168067 POST FOR PINBALL GAME APPARATUS 09/18/79
- ---------------------------------------------------------------------------
4240634 ELASTIC BAND FOR PINBALL GAME 12/23/80
- ---------------------------------------------------------------------------
4324403 POST ASSEMBLY FOR PINBALL GAME 04/13/82
- ---------------------------------------------------------------------------
4331324 LIFT DEVICE FOR PINBALL GAME 05/25/82
- ---------------------------------------------------------------------------
4361827 VEHICLE ALARM SYSTEM 11/30/82
- ---------------------------------------------------------------------------
4362300 CAP FOR PINBALL GAME REBOUND DEVICE 12/07/82
- ---------------------------------------------------------------------------
4382166 JOYSTICK WITH BUILT-IN FIRE BUTTON 05/03/83
- ---------------------------------------------------------------------------
4426081 DROP TARGET APPARATUS 01/17/84
- ---------------------------------------------------------------------------
4470320 JOYSTICK ASSEMBLY WITH WEAR MEMBER 09/11/84
- ---------------------------------------------------------------------------
4473725 MODULAR JOYSTICK CONTROLLER 09/25/84
- ---------------------------------------------------------------------------
4492830 JOYSTICK WITH SINGLE-LEAF SPRING SWITCH 01/08/85
- ---------------------------------------------------------------------------
4493992 ADAPTER CIRCUIT FOR TRACKBALL DEVICE 01/15/85
- ---------------------------------------------------------------------------
4505165 TRACKBALL DEVICE 03/19/85
- ---------------------------------------------------------------------------
4558609 JOYSTICK CONTROLLER WITH INTERCHANGEABLE 12/17/85
HANDLES
- ---------------------------------------------------------------------------
5068498 JOYSTICK FOR MOUNTING ON DUAL-WIDTH 11/26/91
PANELS
- ---------------------------------------------------------------------------
5406040 JOYSTICK WITH IMPROVED ACTUATOR 04/11/95
- ---------------------------------------------------------------------------
4533092 VIDEO CASSETTE RAPID REWIND/FAST FORWARD 08/06/85
DEVICE
- ---------------------------------------------------------------------------
4628713 LOCK UP FOR VIDEOTAPE CASSETTES 12/16/86
- ---------------------------------------------------------------------------
4864272 JOYSTICK CONTROLLER 09/05/89
===========================================================================
2
<PAGE> 68
PATENTS
B. Design Patents in the United States
-----------------------------------
===================================================================
PAT. NO TITLE ISSUE DATE
- -------------------------------------------------------------------
D269608 VIDEO GAME CONTROL UNIT 07/05/83
- -------------------------------------------------------------------
D269609 VIDEO GAME 07/05/83
- -------------------------------------------------------------------
D272921 CONTROL FOR A VIDEO GAME OR THE LIKE 03/06/84
- -------------------------------------------------------------------
D276247 CURSOR CONTROL 11/06/84
- -------------------------------------------------------------------
D278919 CONTROL FOR A VIDEO GAME OR THE LIKE 05/21/85
- -------------------------------------------------------------------
D279202 CONTROL FOR A VIDEO GAME OR THE LIKE 06/11/85
- -------------------------------------------------------------------
D279203 CONTROL FOR A VIDEO GAME 06/11/85
- -------------------------------------------------------------------
D281164 MOUSE 10/29/85
- -------------------------------------------------------------------
D285201 KEYBOARD INCLUDING TRACKBALL 08/19/86
- -------------------------------------------------------------------
D289306 TRACKBALL 04/14/87
- -------------------------------------------------------------------
D291318 COMBINATION TRACKBALL AND MOUSE 08/11/87
- -------------------------------------------------------------------
D291574 KEYBOARD INCLUDING TRACKBALL 08/25/87
- -------------------------------------------------------------------
D292927 MOUSE FOR CONTROLLING THE CURSOR ON 11/24/87
COMPUTER DISPLAY SCREEN
- -------------------------------------------------------------------
D303405 JOYSTICK 09/12/89
- -------------------------------------------------------------------
D303815 JOYSTICK 10/03/89
- -------------------------------------------------------------------
D311218 JOYSTICK 10/09/90
===================================================================
3
<PAGE> 69
PATENTS
-------
C. Utility Patents in Foreign Countries
------------------------------------
======================================================================
COUNTRY PAT. TITLE ISSUE DATE
NO.
- ----------------------------------------------------------------------
Canada 1182157 JOYSTICK WITH BUILT-IN FIRE 02/05/85
BUTTON
- ----------------------------------------------------------------------
Canada 1192246 MODULAR JOYSTICK CONTROLLER 08/20/85
- ----------------------------------------------------------------------
Canada 1192285 TRACKBALL DEVICE 08/20/85
======================================================================
4
<PAGE> 70
PATENTS
D. Design Patents in Foreign Countries
-----------------------------------
===============================================================================
COUNTRY PAT. NO. TITLE ISSUE DATE
- -------------------------------------------------------------------------------
Benelux 10302 VIDEO GAME CONTROL UNIT 12/21/82
- -------------------------------------------------------------------------------
France 824448 VIDEO GAME CONTROL UNIT 12/21/82
- -------------------------------------------------------------------------------
France 883795 JOYSTICK 06/10/88
- -------------------------------------------------------------------------------
Germany MR29904 JOYSTICK 06/03/88
- -------------------------------------------------------------------------------
Italy 34425 VIDEO GAME CONTROL UNIT 10/10/85
- -------------------------------------------------------------------------------
Italy 53722 JOYSTICK 03/22/90
- -------------------------------------------------------------------------------
Sweden 45425 JOYSTICK 04/05/89
- -------------------------------------------------------------------------------
United 1010405 VIDEO GAME CONTROL UNIT 12/02/83
Kingdom
- -------------------------------------------------------------------------------
United 1050881 JOYSTICK 05/11/89
Kingdom
===============================================================================
5
<PAGE> 71
TRADEMARKS
----------
A. Trademark Registrations in the United States
--------------------------------------------
===============================================================================
REG. NO. TITLE ISSUE
DATE
- -------------------------------------------------------------------------------
996355 WICO 10/22/74
- -------------------------------------------------------------------------------
1222886 WICO 01/04/83
- -------------------------------------------------------------------------------
1281665 FAMOUS RED BALL 06/12/84
- -------------------------------------------------------------------------------
1281718 THE BOSS 06/12/84
- -------------------------------------------------------------------------------
1281759 THE BOSS & DESIGN 06/12/84
- -------------------------------------------------------------------------------
1302811 COMPUTER COMMAND 10/30/84
- -------------------------------------------------------------------------------
1320239 WICO 02/19/85
- -------------------------------------------------------------------------------
1350421 WICO 07/23/85
- -------------------------------------------------------------------------------
1515790 THE SOURCE 12/06/88
- -------------------------------------------------------------------------------
1533398 WONDER RUBBER 04/04/89
- -------------------------------------------------------------------------------
1371945 ANIMATION STATION 11/19/85
- -------------------------------------------------------------------------------
1657216 ICONTROLLER 09/17/91
===============================================================================
6
<PAGE> 72
TRADEMARKS
----------
B. Trademark Registrations in Foreign Countries
--------------------------------------------
===============================================================================
COUNTRY REG. NO. TITLE ISSUE
DATE
- -------------------------------------------------------------------------------
Australia A398201 WICO 07/14/87
- -------------------------------------------------------------------------------
Benelux 396313 WICO 08/01/84
- -------------------------------------------------------------------------------
Canada 369472 ERGOSTICK 06/15/90
- -------------------------------------------------------------------------------
Canada 282677 WICO 08/26/83
- -------------------------------------------------------------------------------
France 1507323 ERGOSTICK 09/13/88
- -------------------------------------------------------------------------------
Germany 1148916 ERGOSTICK 11/02/89
- -------------------------------------------------------------------------------
Ireland 109619 WICO 06/18/85
- -------------------------------------------------------------------------------
Italy 549559 ERGOSTICK 09/24/91
- -------------------------------------------------------------------------------
Italy 458421 WICO 12/09/86
- -------------------------------------------------------------------------------
Japan 2366643 ERGOSTICK 12/25/91
- -------------------------------------------------------------------------------
Japan 2044251 WICO 04/26/88
- -------------------------------------------------------------------------------
South 83/7702 WICO 10/12/84
Africa
- -------------------------------------------------------------------------------
Switzerland 319254 WICO 12/31/82
- -------------------------------------------------------------------------------
Taiwan 177658 WICO 04/16/82
- -------------------------------------------------------------------------------
United 1148636 WICO 01/19/83
Kingdom
================================================================================
7
<PAGE> 73
COPYRIGHTS
================================================================================
REGISTRATION DATE OF
NUMBER TITLE OF WORK REGISTRATION
- -------------------------------------------------------------------------------
TX333937 1980 CATALOG 09/24/79
- -------------------------------------------------------------------------------
TX579372 1981 CATALOG 11/10/80
- -------------------------------------------------------------------------------
TX787249 1982 CATALOG 10/21/81
- -------------------------------------------------------------------------------
TX1009861 1983 CATALOG 11/09/82
- -------------------------------------------------------------------------------
TX1135147 ENGINEERING MANUAL 06/10/83
- -------------------------------------------------------------------------------
TX1135180 GAMING CATALOG 06/10/83
- -------------------------------------------------------------------------------
TX1226147 1984 CATALOG 11/14/83
- -------------------------------------------------------------------------------
TX1439886 1985 CATALOG 10/01/84
- -------------------------------------------------------------------------------
TX1505610 SMARTCARD MANUAL 01/25/85
- -------------------------------------------------------------------------------
TX1527504 SMARTBOARD MANUAL 02/22/85
- -------------------------------------------------------------------------------
TX1558602 SMARTBOARD COMPUTER PROGRAM 01/16/86
- -------------------------------------------------------------------------------
TX1563157 PROGRAMMABLE CONTROLLER INTERFACE 01/22/85
- MODEL 2
- -------------------------------------------------------------------------------
TX2254587 1988 CATALOG 02/18/88
- -------------------------------------------------------------------------------
TX2486350 1989 CATALOG 01/17/89
- -------------------------------------------------------------------------------
TX2501450 1986 CATALOG 01/09/89
- -------------------------------------------------------------------------------
TX2505847 1987 CATALOG 02/10/89
- -------------------------------------------------------------------------------
TX2679578 PENN-RAY SUTRA 1989 CATALOG 11/02/89
- -------------------------------------------------------------------------------
TX2817176 1990 BOTTLING CATALOG 05/07/90
- -------------------------------------------------------------------------------
TX2824494 1990 GAMING CATALOG 05/08/90
- -------------------------------------------------------------------------------
TX2867802 1990 CATALOG 06/25/90
- -------------------------------------------------------------------------------
TX2955875 1991 CATALOG 11/16/90
- -------------------------------------------------------------------------------
TX3166052 PENN-RAY 1991 CATALOG 10/01/91
- -------------------------------------------------------------------------------
TX3206369 1992 CATALOG 12/09/91
- -------------------------------------------------------------------------------
TX3471201 1993 CATALOG 01/14/93
- -------------------------------------------------------------------------------
TX3700775 1994 VENDING SUPPLIES 12/09/93
- -------------------------------------------------------------------------------
TX3763663 1994 CATALOG 12/01/93
- -------------------------------------------------------------------------------
8
<PAGE> 74
- -------------------------------------------------------------------------------
TX3842827 1995 CATALOG 10/31/94
- -------------------------------------------------------------------------------
TX3921909 1995 VENDING SUPPLIES 10/31/94
===============================================================================
9
<PAGE> 75
EXHIBIT F
TO
AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
Name Changes; Mergers; Acquisitions
-----------------------------------
WICO CORPORATION
I. Name Changes:
Original Name: "Wico
Holding Corp."
a) From "Wico Holding Corp." to "Wico
Distribution Corp." on April 26, 1988.
b) From "Wico Distribution Corp." to "Wico
Corporation" on August 7, 1990.
II. Mergers:
The following corporations merged into Wico
Corporation on the dates listed next to their names:
Wico Management & Development Corp. October 12, 1988
Suncom, Incorporated June 29, 1989
Wico Nevada June 29, 1989
III. Acquisitions:
Penn-Ray Sutra Corp
WICO GAMING SUPPLY CORP.
I. Name Changes:
Original Name: "Wico I
Acquisition Co."
10
<PAGE> 76
a) From "Wico I Acquisition Co." to "Wico
Gaming Supply Corp." on May 2, 1994.
II. Mergers:
None
III. Acquisitions:
Acquisition of Langworthy Casino Supply, Inc. ("Langworthy"), a
Nevada corporation, pursuant to that certain Asset Purchase
Agreement by and among Wico I Acquisition Co., a Delaware
corporation, Langworthy, and Donald Jarchow. The acquisition was
consummated on June 20, 1994.
Acquisition of certain assets of Shuffle Master, Inc. was
consummated on April 28, 1995.
WICO HOLDING CORP.
I. Name Changes:
None
II. Acquisitions:
Merger with Conquest Airlines Corp., ("Conquest") pursuant to
that certain Restated Agreement and Plan of Merger, dated as of
June 8, 1994, by and among Conquest, CAC Acquisition, Inc., a
Delaware corporation, and WICO Holding Corp., a Delaware
corporation. A Certificate of Merger was filed with the
Secretary of State of the State of Delaware on June 17, 1994.
11
<PAGE> 77
EXHIBIT G
TO
AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
PERMITTED INDEBTEDNESS AND GUARANTEES
-------------------------------------
$168,996.11 Replacement Promissory Note dated April 28, 1995 by
Wico Gaming Supply Corp. in favor of Shuffle Master, Inc.
12
<PAGE> 78
EXHIBIT H
TO
AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
PERMITTED SECURITY INTERESTS
LIENS AND ENCUMBRANCES
----------------------
All obligations under the Security Agreement dated April 28, 1995
by Wico Gaming Supply Corp. in favor of Shuffle Master, Inc.
13
<PAGE> 1
CONQUEST INDUSTRIES INC.
6400 WEST GROSS POINT ROAD
NILES, ILLINOIS 60714
As of October 31, 1995
Mr. Stephen R. Feldman
c/o Feldman Radin & Co., P.C.
805 Third Avenue
New York, New York 10019
RE: CONQUEST INDUSTRIES INC.
EXCHANGE OF INDEBTEDNESS FOR SHARES
OUR FILE NO. 4491.02
Dear Mr. Feldman:
Reference is made to that certain letter agreement, dated
September __, 1995, by and between Conquest Industries Inc. (the "Company")
and yourself (the "Agreement"), whereby you agreed to exchange $87,000 of
Company indebtedness due you for an aggregate of 43,500 shares of the
Company's common stock, which shares the Company agreed to register under
the Securities Act of 1933, as amended (the "Act"). All capitalized terms
used herein without definition have the respective meanings ascribed to them
in the Agreement.
By execution of this letter agreement you hereby agree to amend the
Agreement as follows:
1. Section 3 of the Agreement is hereby deleted in its entirety and
replaced by the following new Section 3:
"Your agreement to purchase all or any portion of the Subject
Shares, as evidenced by your execution of this letter, shall be
irrevocable."
2. Section 4 of the Agreement is hereby deleted in its entirety and
replaced by the following new Section 4:
"Certificates representing the Subject Shares shall be issued to
you promptly upon your execution of this
<PAGE> 2
Agreement, as amended. Such Subject Shares shall initially bear
a legend indicating that such shares are restricted securities
under the Act."
If you are in accord with the foregoing, then the Company respectfully
requests that you confirm same by countersigning a counterpart copy of this
letter in the space provided and returning it via facsimile to our counsel,
Solomon, Fornari, Weiss & Moskowitz, P.C., attention Stephen A. Weiss (fax no.
212-246-2561), by Tuesday, November 7, 1995.
In the event that you do not return this letter agreement to our
counsel by November 7, 1995, the Company will be unable to fulfill its
obligations under the Agreement and, therefore, pursuant to Section 7 of the
Agreement, the Company's offer of the Subject Shares to you shall be withdrawn.
Very truly yours,
CONQUEST INDUSTRIES INC.
By:
----------------------------
Jerry Karlik
Chief Financial Officer
Acknowledged, Confirmed
and Agreed To:
/s/ STEPHEN R. FELDMAN
- -------------------------------------
Stephen R. Feldman
-2-
<PAGE> 3
CONQUEST INDUSTRIES INC.
6400 WEST GROSS POINT ROAD
NILES, ILLINOIS 60714
As of October 31, 1995
Potter Anderson & Corroon
Delaware Trust Building
Wilmington, DE 19801
Attention: Robert Payson, Esq.
RE: CONQUEST INDUSTRIES INC.
EXCHANGE OF INDEBTEDNESS FOR SHARES
OUR FILE NO. 4491.02
Gentlemen:
Reference is made to that certain letter agreement, dated June 30,
1995, by and between Conquest Industries Inc. (the "Company") and yourself (the
"Agreement"), whereby you agreed to exchange $21,034 of Company indebtedness
due you for an aggregate of 10,517 shares of the Company's common stock, which
shares the Company agreed to register under the Securities Act of 1933, as
amended (the "Act"). All capitalized terms used herein without definition have
the respective meanings ascribed to them in the Agreement.
By execution of this letter agreement you hereby agree to amend the
Agreement as follows:
1. Section 3 of the Agreement is hereby deleted in its entirety and
replaced by the following new Section 3:
"Your agreement to purchase all or any portion of the Subject
Shares, as evidenced by your execution of this letter, shall
be irrevocable."
2. Section 4 of the Agreement is hereby deleted in its entirety
and replaced by the following new Section 4:
"Certificates representing the Subject Shares shall be issued
to you promptly upon your execution of this Agreement, as
amended. Such Subject Shares shall
<PAGE> 4
initially bear a legend indicating that such shares are
restricted securities under the Act."
If you are in accord with the foregoing, then the Company respectfully
requests that you confirm same by countersigning a counterpart copy of this
letter in the space provided and returning it via facsimile to our counsel,
Solomon, Fornari, Weiss & Moskowitz, P.C., attention Stephen A. Weiss (fax no.
212-246-2561), by Tuesday, November 7, 1995.
In the event that you do not return this letter agreement to our
counsel by November 7, 1995, the Company will be unable to fulfill its
obligations under the Agreement and, therefore, pursuant to Section 7 of the
Agreement, the Company's offer of the Subject Shares to you shall be withdrawn.
Very truly yours,
CONQUEST INDUSTRIES INC.
By:
-------------------------
Jerry Karlik
Chief Financial Officer
Acknowledged, Confirmed
and Agreed To:
POTTER ANDERSON & CORROON
By:
------------------------------------
-2-
<PAGE> 5
CONQUEST INDUSTRIES INC.
6400 WEST GROSS POINT ROAD
NILES, ILLINOIS 60714
As of October 31, 1995
Mark Gasarch, Esq.
c/o Scheichet & Davis
505 Park Avenue
New York, New York 10022
RE: CONQUEST INDUSTRIES INC.
EXCHANGE OF INDEBTEDNESS FOR SHARES
OUR FILE NO. 4491.02
Gentlemen:
Reference is made to that certain letter agreement, dated June 30,
1995, by and between Conquest Industries Inc. (the "Company") and yourself (the
"Agreement"), whereby you agreed to exchange $31,000 of Company indebtedness
due you for an aggregate of 15,500 shares of the Company's common stock, which
shares the Company agreed to register under the Securities Act of 1933, as
amended (the "Act"). All capitalized terms used herein without definition have
the respective meanings ascribed to them in the Agreement.
By execution of this letter agreement you hereby agree to amend the
Agreement as follows:
1. Section 3 of the Agreement is hereby deleted in its entirety and
replaced by the following new Section 3:
"Your agreement to purchase all or any portion of the Subject
Shares, as evidenced by your execution of this letter, shall
be irrevocable."
2. Section 4 of the Agreement is hereby deleted in its entirety
and replaced by the following new Section 4:
"Certificates representing the Subject Shares shall be issued
to you promptly upon your execution of this Agreement, as
amended. Such Subject Shares shall
<PAGE> 6
initially bear a legend indicating that such shares are
restricted securities under the Act."
If you are in accord with the foregoing, then the Company respectfully
requests that you confirm same by countersigning a counterpart copy of this
letter in the space provided and returning it via facsimile to our counsel,
Solomon, Fornari, Weiss & Moskowitz, P.C., attention Stephen A. Weiss (fax no.
212-246-2561), by Tuesday, November 7, 1995.
In the event that you do not return this letter agreement to our
counsel by November 7, 1995, the Company will be unable to fulfill its
obligations under the Agreement and, therefore, pursuant to Section 7 of the
Agreement, the Company's offer of the Subject Shares to you shall be withdrawn.
Very truly yours,
CONQUEST INDUSTRIES INC.
By:
----------------------------
Jerry Karlik
Chief Financial Officer
Acknowledged, Confirmed
and Agreed To:
By:
-----------------------------------
Mark Gasarch
-2-
<PAGE> 7
CONQUEST INDUSTRIES INC.
6400 WEST GROSS POINT ROAD
NILES, ILLINOIS 60714
As of October 31, 1995
Kronish, Lieb, Weiner & Hellman, L.L.P.
1114 Avenue of the Americas
New York, New York 10022
Attn: Ralph Sutcliffe, Esq.
RE: CONQUEST INDUSTRIES INC.
EXCHANGE OF INDEBTEDNESS FOR SHARES
OUR FILE NO. 4491.02
Gentlemen:
Reference is made to that certain letter agreement, dated June 30,
1995, by and between Conquest Industries Inc. (the "Company") and yourself (the
"Agreement"), whereby you agreed to exchange $279,597 of Company indebtedness
due you for an aggregate of 139,798 shares of the Company's common stock, which
shares the Company agreed to register under the Securities Act of 1933, as
amended (the "Act"). All capitalized terms used herein without definition have
the respective meanings ascribed to them in the Agreement.
By execution of this letter agreement you hereby agree to amend the
Agreement as follows:
1. Section 3 of the Agreement is hereby deleted in its entirety and
replaced by the following new Section 3:
"Your agreement to purchase all or any portion of the Subject
Shares, as evidenced by your execution of this letter, shall
be irrevocable."
2. Section 4 of the Agreement is hereby deleted in its entirety
and replaced by the following new Section 4:
"Certificates representing the Subject Shares shall be issued
to you promptly upon your execution of this
<PAGE> 8
Agreement, as amended. Such Subject Shares shall initially
bear a legend indicating that such shares are restricted
securities under the Act."
If you are in accord with the foregoing, then the Company respectfully
requests that you confirm same by countersigning a counterpart copy of this
letter in the space provided and returning it via facsimile to our counsel,
Solomon, Fornari, Weiss & Moskowitz, P.C., attention Stephen A. Weiss (fax no.
212-246-2561), by Tuesday, November 7, 1995.
In the event that you do not return this letter agreement to our
counsel by November 7, 1995, the Company will be unable to fulfill its
obligations under the Agreement and, therefore, pursuant to Section 7 of the
Agreement, the Company's offer of the Subject Shares to you shall be withdrawn.
Very truly yours,
CONQUEST INDUSTRIES INC.
By:
------------------------------
Jerry Karlik
Chief Financial Officer
Acknowledged, Confirmed
and Agreed To:
KRONISH, LIEB, WEINER & HELLMAN, L.L.P.
By:
-------------------------------------
Ralph Sutcliffe, Member
-2-
<PAGE> 9
CONQUEST INDUSTRIES INC.
6400 WEST GROSS POINT ROAD
NILES, ILLINOIS 60714
As of October 31, 1995
Judson Enterprises, Ltd.
18 Broadway
Niantic, Connecticut 06357
Attn: John McGill, Vice President
RE: CONQUEST INDUSTRIES INC.
EXCHANGE OF INDEBTEDNESS FOR SHARES
OUR FILE NO. 4491.02
Gentlemen:
Reference is made to that certain letter agreement, dated June 30,
1995, by and between Conquest Industries Inc. (the "Company") and yourself (the
"Agreement"), whereby you agreed to exchange $2,000 of Company indebtedness due
you for an aggregate of 1,000 shares of the Company's common stock, which
shares the Company agreed to register under the Securities Act of 1933, as
amended (the "Act"). All capitalized terms used herein without definition have
the respective meanings ascribed to them in the Agreement.
By execution of this letter agreement you hereby agree to amend the
Agreement as follows:
1. Section 3 of the Agreement is hereby deleted in its entirety and
replaced by the following new Section 3:
"Your agreement to purchase all or any portion of the Subject
Shares, as evidenced by your execution of this letter, shall
be irrevocable."
2. Section 4 of the Agreement is hereby deleted in its entirety
and replaced by the following new Section 4:
"Certificates representing the Subject Shares shall be issued
to you promptly upon your execution of this Agreement, as
amended. Such Subject Shares shall
<PAGE> 10
initially bear a legend indicating that such shares are
restricted securities under the Act."
If you are in accord with the foregoing, then the Company respectfully
requests that you confirm same by countersigning a counterpart copy of this
letter in the space provided and returning it via facsimile to our counsel,
Solomon, Fornari, Weiss & Moskowitz, P.C., attention Stephen A. Weiss (fax no.
212-246-2561), by Tuesday, November 7, 1995.
In the event that you do not return this letter agreement to our
counsel by November 7, 1995, the Company will be unable to fulfill its
obligations under the Agreement and, therefore, pursuant to Section 7 of the
Agreement, the Company's offer of the Subject Shares to you shall be withdrawn.
Very truly yours,
CONQUEST INDUSTRIES INC.
By:
---------------------------
Jerry Karlik
Chief Financial Officer
Acknowledged, Confirmed
and Agreed To:
JUDSON ENTERPRISES, LTD.
By:
-------------------------------------
John McGill, Vice President
-2-
<PAGE> 11
CONQUEST INDUSTRIES INC.
6400 WEST GROSS POINT ROAD
NILES, ILLINOIS 60714
As of October 31, 1995
Lew Lieberbaum & Co., Inc.
600 Old Country Road
Suite 518
Garden City, New York 11530
Attn: Leonard A. Neuhaus, CFO
RE: CONQUEST INDUSTRIES INC.
EXCHANGE OF INDEBTEDNESS FOR SHARES
OUR FILE NO. 4491.02
Gentlemen:
Reference is made to that certain letter agreement, dated June 30,
1995, by and between Conquest Industries Inc. (the "Company") and yourself (the
"Agreement"), whereby you agreed to exchange $108,000 of Company indebtedness
due you for an aggregate of 75,000 shares of the Company's common stock, which
shares the Company agreed to register under the Securities Act of 1933, as
amended (the "Act"). All capitalized terms used herein without definition have
the respective meanings ascribed to them in the Agreement.
By execution of this letter agreement you hereby agree to amend the
Agreement as follows:
1. Section 3 of the Agreement is hereby deleted in its entirety and
replaced by the following new Section 3:
"Your agreement to purchase all or any portion of the Subject
Shares, as evidenced by your execution of this letter, shall
be irrevocable."
2. Section 4 of the Agreement is hereby deleted in its entirety
and replaced by the following new Section 4:
"Certificates representing the Subject Shares shall be issued
to you promptly upon your execution of this
<PAGE> 12
Agreement, as amended. Such Subject Shares shall initially
bear a legend indicating that such shares are restricted
securities under the Act."
If you are in accord with the foregoing, then the Company respectfully
requests that you confirm same by countersigning a counterpart copy of this
letter in the space provided and returning it via facsimile to our counsel,
Solomon, Fornari, Weiss & Moskowitz, P.C., attention Stephen A. Weiss (fax no.
212-246-2561), by Tuesday, November 7, 1995.
In the event that you do not return this letter agreement to our
counsel by November 7, 1995, the Company will be unable to fulfill its
obligations under the Agreement and, therefore, pursuant to Section 7 of the
Agreement, the Company's offer of the Subject Shares to you shall be withdrawn.
Very truly yours,
CONQUEST INDUSTRIES INC.
By:
---------------------------
Jerry Karlik
Chief Financial Officer
Acknowledged, Confirmed
and Agreed To:
LEW LIEBERBAUM & CO., INC.
By:
-------------------------------------
Leonard A. Newhaus, CFO
-2-
<PAGE> 13
CONQUEST INDUSTRIES INC.
6400 WEST GROSS POINT ROAD
NILES, ILLINOIS 60714
As of October 31, 1995
Packquisition Corp.
c/o Elliot Fishman, Esq.
2222 Avenue X
Brooklyn, New York 11235
RE: CONQUEST INDUSTRIES INC.
EXCHANGE OF INDEBTEDNESS FOR SHARES
OUR FILE NO. 4491.02
Gentlemen:
Reference is made to that certain letter agreement, dated July 10,
1995, by and between Conquest Industries Inc. (the "Company") and yourself (the
"Agreement"), whereby you agreed to exchange $65,000 of Company indebtedness
due you for an aggregate of 32,500 shares of the Company's common stock, which
shares the Company agreed to register under the Securities Act of 1933, as
amended (the "Act"). All capitalized terms used herein without definition have
the respective meanings ascribed to them in the Agreement.
By execution of this letter agreement you hereby agree to amend the
Agreement as follows:
1. Section 3 of the Agreement is hereby deleted in its entirety and
replaced by the following new Section 3:
"Your agreement to purchase all or any portion of the Subject
Shares, as evidenced by your execution of this letter, shall
be irrevocable."
2. Section 4 of the Agreement is hereby deleted in its entirety
and replaced by the following new Section 4:
"Certificates representing the Subject Shares shall be issued
to you promptly upon your execution of this Agreement, as
amended. Such Subject Shares shall
<PAGE> 14
initially bear a legend indicating that such shares are
restricted securities under the Act."
If you are in accord with the foregoing, then the Company respectfully
requests that you confirm same by countersigning a counterpart copy of this
letter in the space provided and returning it via facsimile to our counsel,
Solomon, Fornari, Weiss & Moskowitz, P.C., attention Stephen A. Weiss (fax no.
212-246-2561), by Tuesday, November 7, 1995.
In the event that you do not return this letter agreement to our
counsel by November 7, 1995, the Company will be unable to fulfill its
obligations under the Agreement and, therefore, pursuant to Section 7 of the
Agreement, the Company's offer of the Subject Shares to you shall be withdrawn.
Very truly yours,
CONQUEST INDUSTRIES INC.
By:
---------------------------
Jerry Karlik
Chief Financial Officer
Acknowledged, Confirmed
and Agreed To:
PACKQUISITION CORP.
By:
-----------------------------------
Joseph H. Weiss, President
-2-
<PAGE> 15
CONQUEST INDUSTRIES INC.
6400 WEST GROSS POINT ROAD
NILES, ILLINOIS 60714
As of October 31, 1995
Schneck, Weltman, Hashmall & Mischel, LLP
1285 Avenue of the Americas
New York, New York 10019
Attn: Felice Mischel, Esq.
RE: CONQUEST INDUSTRIES INC.
EXCHANGE OF INDEBTEDNESS FOR SHARES
OUR FILE NO. 4491.02
Gentlemen:
Reference is made to that certain letter agreement, dated June 30,
1995, by and between Conquest Industries Inc. (the "Company") and yourself (the
"Agreement"), whereby you agreed to exchange $279,597 of Company indebtedness
due you for an aggregate of 139,798 shares of the Company's common stock, which
shares the Company agreed to register under the Securities Act of 1933, as
amended (the "Act"). All capitalized terms used herein without definition have
the respective meanings ascribed to them in the Agreement.
By execution of this letter agreement you hereby agree to amend the
Agreement as follows:
1. Section 3 of the Agreement is hereby deleted in its entirety and
replaced by the following new Section 3:
"Your agreement to purchase all or any portion of the Subject
Shares, as evidenced by your execution of this letter, shall
be irrevocable."
2. Section 4 of the Agreement is hereby deleted in its entirety
and replaced by the following new Section 4:
"Certificates representing the Subject Shares shall be issued
to you promptly upon your execution of this
<PAGE> 16
Agreement, as amended. Such Subject Shares shall initially
bear a legend indicating that such shares are restricted
securities under the Act."
If you are in accord with the foregoing, then the Company respectfully
requests that you confirm same by countersigning a counterpart copy of this
letter in the space provided and returning it via facsimile to our counsel,
Solomon, Fornari, Weiss & Moskowitz, P.C., attention Stephen A. Weiss (fax no.
212-246-2561), by Tuesday, November 7, 1995.
In the event that you do not return this letter agreement to our
counsel by November 7, 1995, the Company will be unable to fulfill its
obligations under the Agreement and, therefore, pursuant to Section 7 of the
Agreement, the Company's offer of the Subject Shares to you shall be withdrawn.
Very truly yours,
CONQUEST INDUSTRIES INC.
By:
----------------------------
Jerry Karlik
Chief Financial Officer
Acknowledged, Confirmed
and Agreed To:
SCHNECK, WELTMAN, HASHMALL & MISCHEL, LLP.
By:
-------------------------------------
-2-
<PAGE> 17
CONQUEST INDUSTRIES INC.
6400 WEST GROSS POINT ROAD
NILES, ILLINOIS 60714
As of October 31, 1995
Mr. Steven Sherb
c/o Feldman Radin & Co., P.C.
805 Third Avenue
New York, New York 10019
RE: CONQUEST INDUSTRIES INC.
EXCHANGE OF INDEBTEDNESS FOR SHARES
OUR FILE NO. 4491.02
Dear Mr. Sherb:
Reference is made to that certain letter agreement, dated September
13, 1995, by and between Conquest Industries Inc. (the "Company") and yourself
(the "Agreement"), whereby you agreed to exchange $20,000 of Company
indebtedness due you for an aggregate of 10,000 shares of the Company's common
stock, which shares the Company agreed to register under the Securities Act of
1933, as amended (the "Act"). All capitalized terms used herein without
definition have the respective meanings ascribed to them in the Agreement.
By execution of this letter agreement you hereby agree to amend the
Agreement as follows:
1. Section 3 of the Agreement is hereby deleted in its entirety and
replaced by the following new Section 3:
"Your agreement to purchase all or any portion of the Subject
Shares, as evidenced by your execution of this letter, shall
be irrevocable."
2. Section 4 of the Agreement is hereby deleted in its entirety
and replaced by the following new Section 4:
"Certificates representing the Subject Shares shall be issued
to you promptly upon your execution of this
<PAGE> 18
Agreement, as amended. Such Subject Shares shall initially
bear a legend indicating that such shares are restricted
securities under the Act."
If you are in accord with the foregoing, then the Company respectfully
requests that you confirm same by countersigning a counterpart copy of this
letter in the space provided and returning it via facsimile to our counsel,
Solomon, Fornari, Weiss & Moskowitz, P.C., attention Stephen A. Weiss (fax no.
212-246-2561), by Tuesday, November 7, 1995.
In the event that you do not return this letter agreement to our
counsel by November 7, 1995, the Company will be unable to fulfill its
obligations under the Agreement and, therefore, pursuant to Section 7 of the
Agreement, the Company's offer of the Subject Shares to you shall be withdrawn.
Very truly yours,
CONQUEST INDUSTRIES INC.
By:
---------------------------
Jerry Karlik
Chief Financial Officer
Acknowledged, Confirmed
and Agreed To:
- ------------------------------------
Steven Sherb
-2-
<PAGE> 19
CONQUEST INDUSTRIES INC.
6400 WEST GROSS POINT ROAD
NILES, ILLINOIS 60714
As of October 31, 1995
Mr. Paul Ehrlich
c/o Feldman Radin & Co., P.C.
805 Third Avenue
New York, New York 10019
RE: CONQUEST INDUSTRIES INC.
EXCHANGE OF INDEBTEDNESS FOR SHARES
OUR FILE NO. 4491.02
Dear Mr. Ehrlich:
Reference is made to that certain letter agreement, dated September
12, 1995, by and between Conquest Industries Inc. (the "Company") and yourself
(the "Agreement"), whereby you agreed to exchange $16,000 of Company
indebtedness due you for an aggregate of 8,000 shares of the Company's common
stock, which shares the Company agreed to register under the Securities Act of
1933, as amended (the "Act"). All capitalized terms used herein without
definition have the respective meanings ascribed to them in the Agreement.
By execution of this letter agreement you hereby agree to amend the
Agreement as follows:
1. Section 3 of the Agreement is hereby deleted in its entirety and
replaced by the following new Section 3:
"Your agreement to purchase all or any portion of the Subject
Shares, as evidenced by your execution of this letter, shall
be irrevocable."
2. Section 4 of the Agreement is hereby deleted in its entirety
and replaced by the following new Section 4:
"Certificates representing the Subject Shares shall be issued
to you promptly upon your execution of this
<PAGE> 20
Agreement, as amended. Such Subject Shares shall initially
bear a legend indicating that such shares are restricted
securities under the Act."
If you are in accord with the foregoing, then the Company respectfully
requests that you confirm same by countersigning a counterpart copy of this
letter in the space provided and returning it via facsimile to our counsel,
Solomon, Fornari, Weiss & Moskowitz, P.C., attention Stephen A. Weiss (fax no.
212-246-2561), by Tuesday, November 7, 1995.
In the event that you do not return this letter agreement to our
counsel by November 7, 1995, the Company will be unable to fulfill its
obligations under the Agreement and, therefore, pursuant to Section 7 of the
Agreement, the Company's offer of the Subject Shares to you shall be withdrawn.
Very truly yours,
CONQUEST INDUSTRIES INC.
By:
---------------------------
Jerry Karlik
Chief Financial Officer
Acknowledged, Confirmed
and Agreed To:
- -----------------------------------
Paul Ehrlich
-2-
<PAGE> 21
CONQUEST INDUSTRIES INC.
6400 WEST GROSS POINT ROAD
NILES, ILLINOIS 60714
As of October 31, 1995
Mr. Arthur Radin
c/o Feldman Radin & Co., P.C.
805 Third Avenue
New York, New York 10019
RE: CONQUEST INDUSTRIES INC.
EXCHANGE OF INDEBTEDNESS FOR SHARES
OUR FILE NO. 4491.02
Dear Mr. Radin:
Reference is made to that certain letter agreement, dated September
12, 1995, by and between Conquest Industries Inc. (the "Company") and yourself
(the "Agreement"), whereby you agreed to exchange $87,000 of Company
indebtedness due you for an aggregate of 43,500 shares of the Company's common
stock, which shares the Company agreed to register under the Securities Act of
1933, as amended (the "Act"). All capitalized terms used herein without
definition have the respective meanings ascribed to them in the Agreement.
By execution of this letter agreement you hereby agree to amend the
Agreement as follows:
1. Section 3 of the Agreement is hereby deleted in its entirety and
replaced by the following new Section 3:
"Your agreement to purchase all or any portion of the Subject
Shares, as evidenced by your execution of this letter, shall
be irrevocable."
2. Section 4 of the Agreement is hereby deleted in its entirety
and replaced by the following new Section 4:
"Certificates representing the Subject Shares shall be issued
to you promptly upon your execution of this
<PAGE> 22
Agreement, as amended. Such Subject Shares shall initially
bear a legend indicating that such shares are restricted
securities under the Act."
If you are in accord with the foregoing, then the Company respectfully
requests that you confirm same by countersigning a counterpart copy of this
letter in the space provided and returning it via facsimile to our counsel,
Solomon, Fornari, Weiss & Moskowitz, P.C., attention Stephen A. Weiss (fax no.
212-246-2561), by Tuesday, November 7, 1995.
In the event that you do not return this letter agreement to our
counsel by November 7, 1995, the Company will be unable to fulfill its
obligations under the Agreement and, therefore, pursuant to Section 7 of the
Agreement, the Company's offer of the Subject Shares to you shall be withdrawn.
Very truly yours,
CONQUEST INDUSTRIES INC.
By:
--------------------------
Jerry Karlik
Chief Financial Officer
Acknowledged, Confirmed
and Agreed To:
- ----------------------------------
Arthur Radin
-2-
<PAGE> 23
CONQUEST INDUSTRIES INC.
6400 WEST GROSS POINT ROAD
NILES, ILLINOIS 60714
As of October 31, 1995
Mr. Elliot Glass
c/o Feldman Radin & Co., P.C.
805 Third Avenue
New York, New York 10019
RE: CONQUEST INDUSTRIES INC.
EXCHANGE OF INDEBTEDNESS FOR SHARES
OUR FILE NO. 4491.02
Dear Mr. Glass:
Reference is made to that certain letter agreement, dated September
13, 1995, by and between Conquest Industries Inc. (the "Company") and yourself
(the "Agreement"), whereby you agreed to exchange $25,000 of Company
indebtedness due you for an aggregate of 12,500 shares of the Company's common
stock, which shares the Company agreed to register under the Securities Act of
1933, as amended (the "Act"). All capitalized terms used herein without
definition have the respective meanings ascribed to them in the Agreement.
By execution of this letter agreement you hereby agree to amend the
Agreement as follows:
1. Section 3 of the Agreement is hereby deleted in its entirety and
replaced by the following new Section 3:
"Your agreement to purchase all or any portion of the Subject
Shares, as evidenced by your execution of this letter, shall
be irrevocable."
2. Section 4 of the Agreement is hereby deleted in its entirety
and replaced by the following new Section 4:
"Certificates representing the Subject Shares shall be issued
to you promptly upon your execution of this
<PAGE> 24
Agreement, as amended. Such Subject Shares shall initially
bear a legend indicating that such shares are restricted
securities under the Act."
If you are in accord with the foregoing, then the Company respectfully
requests that you confirm same by countersigning a counterpart copy of this
letter in the space provided and returning it via facsimile to our counsel,
Solomon, Fornari, Weiss & Moskowitz, P.C., attention Stephen A. Weiss (fax no.
212-246-2561), by Tuesday, November 7, 1995.
In the event that you do not return this letter agreement to our
counsel by November 7, 1995, the Company will be unable to fulfill its
obligations under the Agreement and, therefore, pursuant to Section 7 of the
Agreement, the Company's offer of the Subject Shares to you shall be withdrawn.
Very truly yours,
CONQUEST INDUSTRIES INC.
By:
--------------------------
Jerry Karlik
Chief Financial Officer
Acknowledged, Confirmed
and Agreed To:
- ----------------------------------
Elliot Glass
-2-
<PAGE> 25
CONQUEST INDUSTRIES INC.
6400 WEST GROSS POINT ROAD
NILES, ILLINOIS 60714
As of October 31, 1995
Ms. Marsha Ellowitz
c/o Feldman Radin & Co., P.C.
805 Third Avenue
New York, New York 10019
RE: CONQUEST INDUSTRIES INC.
EXCHANGE OF INDEBTEDNESS FOR SHARES
OUR FILE NO. 4491.02
Dear Ms. Ellowitz:
Reference is made to that certain letter agreement, dated September
13, 1995, by and between Conquest Industries Inc. (the "Company") and yourself
(the "Agreement"), whereby you agreed to exchange $10,000 of Company
indebtedness due you for an aggregate of 5,000 shares of the Company's common
stock, which shares the Company agreed to register under the Securities Act of
1933, as amended (the "Act"). All capitalized terms used herein without
definition have the respective meanings ascribed to them in the Agreement.
By execution of this letter agreement you hereby agree to amend the
Agreement as follows:
1. Section 3 of the Agreement is hereby deleted in its entirety and
replaced by the following new Section 3:
"Your agreement to purchase all or any portion of the Subject
Shares, as evidenced by your execution of this letter, shall
be irrevocable."
2. Section 4 of the Agreement is hereby deleted in its entirety
and replaced by the following new Section 4:
"Certificates representing the Subject Shares shall be issued
to you promptly upon your execution of this
<PAGE> 26
Agreement, as amended. Such Subject Shares shall initially
bear a legend indicating that such shares are restricted
securities under the Act."
If you are in accord with the foregoing, then the Company respectfully
requests that you confirm same by countersigning a counterpart copy of this
letter in the space provided and returning it via facsimile to our counsel,
Solomon, Fornari, Weiss & Moskowitz, P.C., attention Stephen A. Weiss (fax no.
212-246-2561), by Tuesday, November 7, 1995.
In the event that you do not return this letter agreement to our
counsel by November 7, 1995, the Company will be unable to fulfill its
obligations under the Agreement and, therefore, pursuant to Section 7 of the
Agreement, the Company's offer of the Subject Shares to you shall be withdrawn.
Very truly yours,
CONQUEST INDUSTRIES INC.
By:
--------------------------
Jerry Karlik
Chief Financial Officer
Acknowledged, Confirmed
and Agreed To:
- -------------------------------------
Marsha Ellowitz
-2-
<PAGE> 27
CONQUEST INDUSTRIES INC.
6400 WEST GROSS POINT ROAD
NILES, ILLINOIS 60714
As of October 31, 1995
Mr. Carl Vogt
c/o Feldman Radin & Co., P.C.
805 Third Avenue
New York, New York 10019
RE: CONQUEST INDUSTRIES INC.
EXCHANGE OF INDEBTEDNESS FOR SHARES
OUR FILE NO. 4491.02
Dear Mr. Vogt:
Reference is made to that certain letter agreement, dated September
13, 1995, by and between Conquest Industries Inc. (the "Company") and yourself
(the "Agreement"), whereby you agreed to exchange $5,000 of Company
indebtedness due you for an aggregate of 2,500 shares of the Company's common
stock, which shares the Company agreed to register under the Securities Act of
1933, as amended (the "Act"). All capitalized terms used herein without
definition have the respective meanings ascribed to them in the Agreement.
By execution of this letter agreement you hereby agree to amend the
Agreement as follows:
1. Section 3 of the Agreement is hereby deleted in its entirety and
replaced by the following new Section 3:
"Your agreement to purchase all or any portion of the Subject
Shares, as evidenced by your execution of this letter, shall
be irrevocable."
2. Section 4 of the Agreement is hereby deleted in its entirety
and replaced by the following new Section 4:
"Certificates representing the Subject Shares shall be issued
to you promptly upon your execution of this
<PAGE> 28
Agreement, as amended. Such Subject Shares shall initially
bear a legend indicating that such shares are restricted
securities under the Act."
If you are in accord with the foregoing, then the Company respectfully
requests that you confirm same by countersigning a counterpart copy of this
letter in the space provided and returning it via facsimile to our counsel,
Solomon, Fornari, Weiss & Moskowitz, P.C., attention Stephen A. Weiss (fax no.
212-246-2561), by Tuesday, November 7, 1995.
In the event that you do not return this letter agreement to our
counsel by November 7, 1995, the Company will be unable to fulfill its
obligations under the Agreement and, therefore, pursuant to Section 7 of the
Agreement, the Company's offer of the Subject Shares to you shall be withdrawn.
Very truly yours,
CONQUEST INDUSTRIES INC.
By:
-------------------------
Jerry Karlik
Chief Financial Officer
Acknowledged, Confirmed
and Agreed To:
- -------------------------------------
Carl Vogt
-2-
<PAGE> 29
CONQUEST INDUSTRIES INC.
6400 WEST GROSS POINT ROAD
NILES, ILLINOIS 60714
As of October 31, 1995
Mr. Stephen R. Feldman
c/o Feldman Radin & Co., P.C.
805 Third Avenue
New York, New York 10019
RE: CONQUEST INDUSTRIES INC.
EXCHANGE OF INDEBTEDNESS FOR SHARES
OUR FILE NO. 4491.02
Dear Mr. Feldman:
Reference is made to that certain letter agreement, dated September
__, 1995, by and between Conquest Industries Inc. (the "Company") and yourself
(the "Agreement"), whereby you agreed to exchange $87,000 of Company
indebtedness due you for an aggregate of 43,500 shares of the Company's common
stock, which shares the Company agreed to register under the Securities Act of
1933, as amended (the "Act"). All capitalized terms used herein without
definition have the respective meanings ascribed to them in the Agreement.
By execution of this letter agreement you hereby agree to amend the
Agreement as follows:
1. Section 3 of the Agreement is hereby deleted in its entirety and
replaced by the following new Section 3:
"Your agreement to purchase all or any portion of the Subject
Shares, as evidenced by your execution of this letter, shall
be irrevocable."
2. Section 4 of the Agreement is hereby deleted in its entirety
and replaced by the following new Section 4:
"Certificates representing the Subject Shares shall be issued
to you promptly upon your execution of this
<PAGE> 30
Agreement, as amended. Such Subject Shares shall initially
bear a legend indicating that such shares are restricted
securities under the Act."
If you are in accord with the foregoing, then the Company respectfully
requests that you confirm same by countersigning a counterpart copy of this
letter in the space provided and returning it via facsimile to our counsel,
Solomon, Fornari, Weiss & Moskowitz, P.C., attention Stephen A. Weiss (fax no.
212-246-2561), by Tuesday, November 7, 1995.
In the event that you do not return this letter agreement to our
counsel by November 7, 1995, the Company will be unable to fulfill its
obligations under the Agreement and, therefore, pursuant to Section 7 of the
Agreement, the Company's offer of the Subject Shares to you shall be withdrawn.
Very truly yours,
CONQUEST INDUSTRIES INC.
By:
--------------------------
Jerry Karlik
Chief Financial Officer
Acknowledged, Confirmed
and Agreed To:
- -------------------------------------
Stephen R. Feldman
-2-
<PAGE> 31
FORM OF 12% EXCHANGE NOTE
This Note has not been registered under the Securities Act of 1933, as amended
(the "1933 Act"), or under the provisions of any applicable state securities
laws, but has been acquired by the registered holder hereof for purposes of
investment and in reliance on statutory exemptions under the 1933 Act, and
under any applicable state securities laws. This Note may not be sold,
pledged, transferred or assigned except in a transaction which is exempt under
provisions of the 1933 Act and any applicable state securities laws or pursuant
to an effective registration statement; and in the case of an exemption, only
if the Company has received an opinion of counsel satisfactory to the Company
that such transaction does not require registration of this Note.
CONQUEST INDUSTRIES INC.
__________, 1995 $_______
AMENDED AND RESTATED PROMISSORY NOTE
CONQUEST INDUSTRIES INC., a Delaware corporation (the
"Company"), for value received, hereby promises to pay to
______________________ or registered assigns (the "Holder"), on October 1,
1996 (the "Maturity Date"), at the principal offices of the Company, the
principal sum of ____________________ ($______) Dollars in such coin or
currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts, and to pay interest
on the outstanding principal balance hereof at the rate of twelve (12%) percent
per annum from 1995 until the Company's obligation with respect to the payment
of such principal sum shall be discharged as herein provided. Interest shall
be payable quarterly commencing January 1, 1996 and shall accrue and be payable
in like coin or currency to the Holder hereof at the principal offices of the
Company. In the event that for any reason whatsoever any interest or other
consideration payable with respect to this Note shall be deemed to be usurious
by a court of competent jurisdiction under the laws of the State of New York or
the laws of any other state governing the repayment hereof, then so much of
such interest or other consideration as shall be deemed to be usurious shall be
held by the holder as security for the repayment of the principal amount hereof
and shall otherwise be waived.
1. Transfers of Note to Comply with the 1933 Act
The Holder agrees that this Note may not be sold, transferred,
pledged, hypothecated or otherwise disposed of, in whole or in part, except as
follows: (a) to a person who, in the opinion of counsel to the Company, is a
person to whom the Note may legally be transferred without registration and
without delivery of a current prospectus under the Securities Act of 1933, as
amended (the "1933 Act") with respect thereto and then only against receipt of
an agreement of such person to comply with the provisions of this Section 1
with respect to any
<PAGE> 32
resale or other disposition of the Note; or (b) to any person who complies with
the provisions of this Section 1 with respect to any resale or other
disposition of the Note; or (c) to any person upon delivery of a prospectus
then meeting the requirements of the 1933 Act relating to such securities and
the offering thereof for such sale or disposition, and thereafter to all
successive assignees.
2. Prepayment
The principal amount of this Note may be prepaid by the
Company, in whole or in part without premium or penalty, at any time and from
time to time. Upon any prepayment of the entire principal amount of this Note,
all accrued but unpaid interest shall be paid to the Holder on the date of
prepayment.
3. Covenants of Company
(a) The Company covenants and agrees that, so
long as this Note shall be outstanding, the Company will:
(i) Promptly pay and discharge all
lawful taxes, assessments and governmental charges or levies imposed upon the
Company or upon its income and profits, or upon any of its property before same
shall become a lien upon the Company's assets or property, as well as all
lawful claims for labor, materials and supplies which, if unpaid, would become
a lien or charge upon such properties or any part thereof; provided, however,
that the Company shall not be required to pay and discharge any such tax,
assessment, charge, levy or claim so long as the validity thereof shall be
contested in good faith by appropriate proceedings and the Company shall set
aside on its books adequate reserves with respect to any such tax, assessment,
charge, levy or claim so contested;
(ii) Do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate
existence, rights and franchises and comply with all laws applicable to the
Company as its counsel may advise;
(iii) At all times maintain, preserve,
protect and keep its property used and useful in the conduct of its business so
that the business carried on in connection therewith may be properly and
advantageously conducted in the ordinary course at all times;
(iv) Keep adequately insured, by
financially sound insurers, all property of a character usually insured by
similar corporations and carry such other insurance as is usually carried by
similar corporations; and
(v) At all times keep true and correct
books, records and accounts.
-2-
<PAGE> 33
4. Events of Default
(a) This Note shall become due and payable
immediately upon any of the following events, herein called "Events of
Default":
(i) Default in the payment of the
principal or accrued interest on this Note, when and as the same shall become
due and payable, whether by acceleration or otherwise;
(ii) Default in the due observance or
performance of any covenant, condition or agreement on the part of the Company
to be observed or performed pursuant to the terms hereof, if such default shall
continue uncured for 10 days after written notice, specifying such default,
shall have been given to the Company by the Holder;
(iii) Material default in the payment of
any principal or interest due in connection with any secured or institutional
indebtedness now or hereafter due and owing by the Company;
(iv) The entry of a final judgment,
arbitration award or order against the Company in an amount exceeding $100,000
which judgment remains unsatisfied for thirty (30) days after the date of such
entry;
(v) Application for, or consent to, the
appointment of a receiver, trustee or liquidator for the Company or of its
property;
(vi) Admission in writing of the Company's
inability to pay its debts as they mature;
(vii) General assignment by the Company for
the benefit of creditors;
(viii) Filing by the Company of a voluntary
petition in bankruptcy or a petition or an answer seeking reorganization, or an
arrangement with creditors; or
(ix) Entering against the Company of a
court order approving a petition filed against it under the federal bankruptcy
laws, which order shall not have been vacated or set aside or otherwise
terminated within 60 days.
(b) The Company agrees that it shall give notice
to the Holder at his or her registered address, by certified mail, of the
occurrence of any Event of Default within five (5) days after such Event of
Default shall have occurred.
(c) In case any one or more of the Events of
Default specified above shall happen or be continuing, the Holder may proceed
to protect and enforce his or her right
-3-
<PAGE> 34
by suit in the specific performance of any covenant or agreement contained in
this Note or in aid of the exercise of any power granted in this Note or may
proceed to enforce the payment of this Note or to enforce any other legal or
equitable rights as such Holder may have.
5. Miscellaneous
(a) This Note has been issued by the Company
pursuant to authorization of the Board of Directors of the Company.
(b) The Company may consider and treat the person
in whose name this Note shall be registered as the absolute owner thereof for
all purposes whatsoever (whether or not this Note shall be overdue) and the
Company shall not be affected by any notice to the contrary. Subject to the
limitations herein stated, the registered owner of this Note shall have the
right to transfer this Note by assignment, and the transferee thereof shall,
upon his or her registration as owner of this Note, become vested with all the
powers and rights of the transferor. Registration of any new owners shall take
place upon presentation of this Note to the Company at its principal offices,
together with a duly authenticated assignment. In case of transfer by
operation of law, the transferee shall notify the Company of such transfer and
of his or her address, and shall submit appropriate evidence regarding the
transfer so that this Note may be registered in the name of the transferee.
This Note is transferable only on the books of the Company by the holder
hereof, in person or by attorney, on the surrender hereof, duly endorsed.
Communications sent to any registered owner shall be effective as against all
holders or transferees of the Note not registered at the time of sending the
communication.
(c) Payments of interest shall be made as
specified above to the registered owner of this Note. Payment of principal
shall be made to the registered owner of this Note upon presentation of this
Note after maturity. No interest shall be due on this Note for such period of
time that may elapse between the maturity of this Note and its presentation for
payment.
(d) The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder of the Company, whether at law or in
equity, and the rights of the Holder are limited to those expressed in this
Note.
(e) Upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Note, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this Note,
if mutilated, the Company shall execute and deliver a new Note of like tenor
and date. Any such new Note executed and delivered shall constitute an
additional contractual obligation on the part of the Company, whether or not
this Note so lost, stolen, destroyed or mutilated shall be at any time
enforceable by anyone.
(f) This Note shall be construed and enforced in
accordance with the laws of the State of New York. The Company and the Holder
hereby consent to the jurisdiction
-4-
<PAGE> 35
of the Courts of the State of New York and the United States District Courts
situated therein in connection with any action concerning the provisions of
this Note instituted by the Holder against the Company.
(g) No recourse shall be had for the payment of
the principal or interest of this Note against any incorporator or any past,
present or future stockholder, officer, director, agent or attorney of the
Company, or of any successor corporation, either directly or through the
Company or any successor corporation, or otherwise, all such liability of the
incorporators, stockholders, officers, directors, attorneys and agents being
waived, released and surrendered by the Holder hereof by the acceptance of this
Note.
(h) The Company shall pay all costs and expenses
incurred by the Holder to enforce any of the provisions of this Note,
including reasonable attorneys' fees and other expenses of collection.
6. Replacement of Old Note
This Note replaces, amends and restates in its
entirety the 10% Convertible Promissory Note(s) due October 1, 1996 (the "Old
Note(s)") issued in November 1994 by the Company to the current Holder in like
aggregate principal amount (which Old Note(s) is deemed cancelled upon the
Holder's receipt hereof), provided that this Note does not effect a novation of
the obligations represented by the Old Note(s).
IN WITNESS WHEREOF, CONQUEST INDUSTRIES INC., has caused this Note to
be signed in its name by its duly appointed officer as of the date first set
forth above.
ATTEST: CONQUEST INDUSTRIES INC.
______________________ By:_________________________
-5-
<PAGE> 1
CONQUEST INDUSTRIES INC.
6400 West Gross Point Road
Niles, Illinois 60714
November 3, 1995
AMENDED AND RESTATED
TRANSMITTAL LETTER
Dear Investor:
You are one of the investors who purchased securities of Conquest
Industries Inc. (the "Company"), in connection with a private placement
consummated in November 1994 (the "Private Placement"), in which Rickel &
Associates, Inc. ("Rickel") acted as Placement Agent. You should have received
from the Company a Transmittal Letter, dated October 16, 1995, which offered
you the right to exchange your existing 10% convertible promissory notes of the
Company for 11% non-convertible promissory notes of the Company, certain cash
consideration and warrants to purchase shares of the Company's common stock
(the "Initial Offer"). Due to certain requirements under the Securities Act of
1933, as amended (the "Securities Act"), the Company is hereby withdrawing the
Initial Offer, and is replacing the Initial offer with a new exchange offer
pursuant to the terms of this Amended and Restated transmittal letter (the
"Exchange Offer").
THE PRIVATE PLACEMENT
Under the terms of the Private Placement, investors received, for each
$25,000 invested, units of securities (the "Units"), each Unit consisting of:
(a) a $25,000 principal amount of 10% convertible promissory
note of the Company due October 1, 1996 (the "Old Notes"); and
(b) upon conversion of the Old Notes into shares of Company
Common Stock, the right to receive redeemable common stock
purchase warrants (the "Conversion Warrants") entitling the
holder to purchase 500 shares of the Company's common stock
(the "Common Stock"), at an exercise price of $11.75 per share
through June 20, 1999 (the number of shares issuable upon
exercise of the Conversion Warrants and the exercise price per
Conversion Warrant have been adjusted to reflect a one-for-ten
reverse split of the Common Stock which occurred in November
1994.)
An aggregate of $2,737,500 of Old Notes, representing 109.5 Units were
sold in the Private Placement.
<PAGE> 2
The Old Notes are currently convertible into shares of Company Common
Stock (the "Conversion Shares") at a conversion price per share equal to 80% of
the closing bid price of the Company's publicly traded Common Stock on each
date a holder of Old Notes advises the Company of his or its intention to
convert all or any portion of their Old Notes. At October 30, 1995, the
closing bid price of the Company's Common Stock, as traded on The Nasdaq
SmallCap Market ("Nasdaq") was $1.0625 per share. Accordingly, if any of the
Old Notes had been converted on such date, the conversion price would have been
$0.85 per share, and if all $2,737,500 of Old Notes had been converted on
October 30, 1995, an aggregate of 3,220,588 Conversion Shares would have been
issued.
THE EXCHANGE OFFER
In order to avoid the potential additional dilution resulting from
periodic conversions of the Old Notes and the issuance of an undeterminable
amount of Conversion Shares, the Company is offering to each investor holding
Old Notes, an opportunity to exchange such Old Notes for an identical principal
amount of the Company's 12% non-convertible notes due October 1, 1996 (the "New
Notes").
As an inducement to each holder of Old Notes to exchange such Old
Notes for New Notes, the Company is offering to each electing to participate in
the Exchange Offer an amount in cash equal to $0.20 for each $1.00 principal
amount of Old Notes exchanged for $1.00 principal amount of New Notes (the
"Cash Payment").
Under the terms of the Exchange Offer, for each $25,000 principal
amount of Old Notes exchanged for New Notes, the investor would receive $5,000
in Cash Payments.
Assuming all $2,737,500 of Old Notes are exchanged for $2,737,500 of
New Notes, the investors would receive an aggregate of $547,500 of Cash
Payments.
As you may know, the Company has filed a Registration Statement (the
"registration Statement") with the Securities and Exchange Commission (the
"Commission"), pursuant to which the Company is: (i) registering for sale an
aggregate of 1,750,000 shares of its Common Stock for the account of the
Company; and (ii) registering for resale an aggregate of approximately
9,129,562 additional shares of Common Stock for the account of certain
securityholders, including therein an estimated 2,281,250 Conversion Shares
potentially issuable to holders of the Old Notes (assuming a conversion price
of $1.20 per share). HOWEVER, SUCH REGISTRATION STATEMENT ALSO INCLUDES AN
INDETERMINATE NUMBER OF CONVERSION SHARES (IN ADDITION TO THE 2,281,250 SHARES
REFLECTED IN THE REGISTRATION STATEMENT) WHICH ARE POTENTIALLY ISSUABLE
DEPENDING ON THE CLOSING BID PRICE OF THE COMPANY'S COMMON STOCK ON THE DATE A
HOLDER OF OLD NOTES ELECTS TO SO CONVERT. ACCORDINGLY, SUBJECT TO THE
PROSPECTUS DELIVERY REQUIREMENT DISCLOSED IN THE REGISTRATION STATEMENT, ALL
CONVERSION SHARES WILL BE REGISTERED FOR RESALE UNDER THE SECURITIES ACT OF
1933, AS AMENDED, IRRESPECTIVE OF THE APPLICABLE CONVERSION PRICE OR THE NUMBER
OF CONVERSION SHARES ISSUED TO ANY ONE OR MORE HOLDERS OF OLD NOTES.
-2-
<PAGE> 3
To the extent that Old Notes are exchanged for New Notes, an
applicable number of Conversion Shares will be de-registered, as they will no
longer be potentially issuable.
A copy of the Preliminary Prospectus of the Company included in
Amendment No. 3 to the Company's Registration Statement is enclosed with a copy
of this letter.
SUCH PRELIMINARY PROSPECTUS IS BEING FURNISHED FOR INFORMATIONAL PURPOSES ONLY
AND THE NEW NOTES OFFERED HEREBY ARE NOT BEING OFFERED PURSUANT TO THE
PRELIMINARY PROSPECTUS OR ANY REGISTRATION STATEMENT REVIEWED OR DECLARED
EFFECTIVE BY THE SECURITIES AND EXCHANGE COMMISSION, AND NEITHER THE OLD NOTES
OR THE NEW NOTES ARE BEING REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED.
EACH INVESTOR SHOULD TO REVIEW CAREFULLY THE ENCLOSED PRELIMINARY
PROSPECTUS WHICH SETS FORTH A NUMBER OF SIGNIFICANT RISKS CONCERNING THE
COMPANY, INCLUDING, WITHOUT LIMITATION, RECENT SIGNIFICANT LOSSES FROM
OPERATIONS, SUBSTANTIAL CASH FLOW AND LIQUIDITY PROBLEMS, AND SUBSTANTIAL
SECURED INDEBTEDNESS WHICH IS SENIOR TO THE INDEBTEDNESS EVIDENCED BY THE OLD
NOTES AND TO BE EVIDENCED BY THE NEW NOTES.
The Cash Payments to be made to holders of Old Notes electing to
exchange such Old Notes for New Notes will be payable in full on or before
December 31, 1995.
In addition to the Cash Payments to be made to holders of Old Notes
electing to participate in the contemplated exchange, the Company will pay to
Rickel & Associates, Inc. ("Rickel"), who is acting as agent for the Company in
obtaining exchanges of Old Notes for New Notes, a fee equal to $2,500 for each
$25,000 principal amount of Old Notes exchanged for New Notes. Accordingly, if
all Old Notes are exchanged for New Notes, Rickel shall be entitled to receive
a maximum fee equal to $273,750. Such fee shall be payable to Rickel at the
same time and in the same manner as the Cash Payments are made to investors
participating in the exchange.
NONE OF THE NEW NOTES ISSUED TO HOLDERS OF OLD NOTES ELECTING TO
PARTICIPATE IN THE EXCHANGE WILL BE REGISTERED UNDER THE SECURITIES ACT, AND
ALL OF SUCH NEW NOTES WILL BE "RESTRICTED SECURITIES" (AS THAT TERM IS DEFINED
IN THE RULES AND REGULATIONS PROMULGATED UNDER THE SECURITIES ACT).
Accordingly, each holder of Old Notes who elects to exchange such Old
Notes for New Notes will, pursuant to the "Election to Exchange" form annexed
to this letter, represent to the Company that the New Notes will have been
acquired for investment purposes only and not with a view to the distribution
or resale thereof.
-3-
<PAGE> 4
THE EXCHANGE OFFER CONTEMPLATED HEREBY WILL EXPIRE AT 5:00 P.M. (NEW
YORK TIME) ON DECEMBER 31, 1995.
PROCEDURE FOR EXCHANGING OLD NOTES FOR NEW NOTES
AS INDICATED IN THE ATTACHED FORM ENTITLED "ELECTION TO EXCHANGE", THE
COMPANY IS REQUESTING THAT EACH HOLDER OF OLD NOTES PROVIDE RICKEL WITH AN
INDICATION OF WHETHER YOU INTEND TO EXCHANGE YOUR OLD NOTES FOR NEW NOTES
PURSUANT TO THE TERMS OUTLINE ABOVE AND IN THE ENCLOSED PRELIMINARY PROSPECTUS.
YOU ARE NOT REQUIRED TO EXECUTE THE ENCLOSED ELECTION TO EXCHANGE AND
MAY ELECT NOT TO PARTICIPATE IN THE EXCHANGE OF THE OLD NOTES FOR NEW NOTES AND
CASH PAYMENTS DESCRIBED HEREIN.
If you do not elect to participate in the exchange of Old Notes for
New Notes contemplated hereby, you will retain your Old Notes and all rights
and privileges associated with your investment in the Company will continue to
be governed by the original terms outline in the Private Placement Memorandum.
However, you will NOT be entitled to receive any Cash Payments, and any such
Warrants you may be entitled to receive upon conversion of all or any portion
of your Old Notes will be at the original $11.75 per share exercise price.
A REGISTRATION STATEMENT RELATING TO THE CONVERSION SHARES HAS
BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BUT HAS
NOT YET BECOME EFFECTIVE. SUCH SECURITIES DESCRIBED HEREIN
MAY NOT BE SOLD, NOR MAY OFFERS TO BUY THESE SECURITIES BE
ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS LETTER SHALL NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY
SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION
OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH STATE.
If you have any further questions concerning the proposed Exchange
Offer, please contact your Rickel representative.
-4-
<PAGE> 5
We hope, after reviewing this letter and enclosed Preliminary
Prospectus, you elect to participate in the Company's Exchange Offer. Whether
or not you elect to so participate, the Company appreciates your continued
support of the Company, and will make every effort to reward your faith.
Very truly yours,
CONQUEST INDUSTRIES INC.
By:
----------------------------
Jerry Karlik, Chief
Financial Officer
-5-
<PAGE> 6
ELECTION TO EXCHANGE
Rickel & Associates, Inc.
875 Third Avenue
New York, New York 10022
Attn: Elliot Smith, Executive Vice President
Gentlemen:
The undersigned acknowledges receipt of the Amended and Restated
Transmittal Letter of Conquest Industries Inc. (the "Company"), dated November
3, 1995. Unless otherwise defined, all capitalized terms used herein shall
have the same meaning as are set forth in such Transmittal Letter.
Subject at all times to compliance by the Company with its covenants
and agreements set forth in the Transmittal Letter, including the timely
payment to me of appropriate amount of Cash Payments, I hereby agree as
follows:
1. Election to Exchange. The undersigned, as the record owner of
$________ principal amount of Old Notes, hereby agrees to exchange all of the
above-referenced Old Notes for a like principal amount of New Notes.
2. Additional Consideration. In addition to its delivery of New Notes,
the Company will deliver to me, in the manner set forth in the Amended and
Restated Transmittal Letter, Cash Payments equal to $0.20 for each $1.00
principal amount of Old Notes exchanged.
Based upon the foregoing, the undersigned shall receive from the
Company, for each $25,000 principal amount of Old Notes exchanged:
(a) $25,000 principal amount of New Notes; and
(b) Cash Payments aggregating $5,000, payable on or before
December 31, 1995.
3. Failure to Perform. In the event that, for any reason, the Company
fails or refuses to deliver the New Notes and other consideration outlined in
Section 2 above, this Election to Exchange shall be deem null and void, ab
initio, and shall be deemed of no further force or effect. In such event, all
rights and benefits which the undersigned possesses under the Old Notes and
pursuant to the terms of the Private Placement shall remain in full force and
effect.
4. Representations of the Undersigned. The undersigned acknowledges that
the New Notes being acquired in exchange for the Old Notes will not be
registered under the Securities Act, or the securities laws of any state; that
absent an exemption from registration contained in those laws, the New Notes
would require registration, and that the Company's reliance upon such
-6-
<PAGE> 7
exemption is based upon the undersigned's representations, warranties, and
agreements contained herein.
The undersigned further represents, warrants, and agrees as follows:
(a) The undersigned has carefully read the Company's
Preliminary Prospectus delivered by the Company prior to execution and delivery
of this Amended and Restated Transmittal Letter, signifying participation in
the Exchange Offer. The undersigned has been given the opportunity to ask
questions of, and receive answers from, the Company concerning the business,
financial conditions and prospects of the Company and terms and conditions of
the Exchange Offer, and to obtain such additional information, to the extent
the Company possesses such information or can acquire it without unreasonable
effort or expense, necessary to verify the accuracy of same as the undersigned
reasonably desires in order to evaluate the risks of a exchanging the Old Notes
for New Notes pursuant to the Exchange Offer. The undersigned understands the
content of the Preliminary Prospectus and the Amended and Restated Transmittal
Letter, and the undersigned has had the opportunity to discuss any questions
regarding the same with his counsel or other advisor. Notwithstanding the
foregoing, the only information upon which the undersigned has relied is that
set forth in the Preliminary Prospectus and the Amended and Restated
Transmittal Letter. The undersigned has received no representations or
warranties from the Company, its employees or agents in making his or her
investment decision other than as set forth in the Preliminary Prospectus and
Amended and Restated Transmittal Letter.
(b) The undersigned is aware that the acquisition of the
New Notes is a speculative investment involving a high degree of risk, that
there is no guarantee that the undersigned will receive repayment of such New
Notes, when due, or otherwise realize any gain from this investment, and that
the undersigned could lose the total amount of this investment. The
undersigned has specifically reviewed the section in the Preliminary Prospectus
entitled "Risk Factors."
(c) The undersigned understands that no federal or state
agency has made any finding or determination regarding the fairness of this
offering of the New Notes, or any recommendation or endorsement of this
offering of the New Notes.
(d) The undersigned is acquiring the New Notes for the
undersigned's own account, with the intention of holding the New Notes with no
present intention of dividing or allowing others to participate in this
investment or of reselling or otherwise participating, directly or indirectly,
in a distribution of the New Notes, and shall not make any sale, transfer, or
pledge thereof without registration under the Securities Act and any applicable
securities laws of any state or unless an exemption from registration is
available under those laws.
(e) The undersigned represents that he or she has
adequate means of providing for his or her current needs and personal and
family contingencies and the absence of liquidity in this investment in the New
Notes is acknowledged and represents an acceptable risk to the
-7-
<PAGE> 8
undersigned. The undersigned has no reason to anticipate any material change
in his or her personal financial condition for the foreseeable future.
(f) The undersigned is financially able to bear the
economic risk of this investment, including the ability to hold the New Notes
indefinitely, or to afford a complete loss of his investment in the New Notes.
(g) The undersigned understands that the statutory basis on
which the New Notes are being sold to the undersigned and others would not be
available if the undersigned's present intention were to hold the New Notes for
a fixed period or until the occurrence of a certain event. The undersigned
realizes that in the view of the Commission, a purchase now with a present
intent to resell by reason of a foreseeable specific contingency or any
anticipated change in the market value, or in the condition of the Company, or
that of the industry in which the business of the Company is engaged or in
connection with a contemplated liquidation, or settlement of any loan obtained
by the undersigned for the acquisition of the New Notes (if applicable), and
(if applicable) for which such New Notes may be pledged as security or as
donations to religious or charitable institutions for the purpose of securing a
deduction on an income tax return, would, in fact, represent a purchase with an
intent inconsistent with the undersigned's representations to the Company, and
the Commission would then regard such sale as a sale for which the exemption
from registration is not available. The undersigned will not pledge, transfer
or assign this Amended and Restated Transmittal Letter.
(h) The undersigned represents that the consideration
provided for this investment is either separate property of the undersigned,
community property over which the undersigned has the right of control, or are
otherwise funds as to which the undersigned has the sole right of management.
The undersigned is purchasing the New Notes with the undersigned's
consideration and not with the funds of any other person, firm, or entity and
is acquiring the New Notes for the undersigned's account. No person other than
the undersigned has any beneficial interest in the New Notes being purchased
hereunder.
(i) The address shown above in this Election to Exchange
is the undersigned's principal residence.
(j) The undersigned has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of an investment in the New Notes.
(k) The undersigned acknowledges that the New Notes which
the undersigned will receive will contain a legend substantially as follows:
THE SECURITIES WHICH ARE REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN
-8-
<PAGE> 9
ACQUIRED FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO
DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, TRANSFERRED, MADE
SUBJECT TO A SECURITY INTEREST, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER THE
ACT OR ANY STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL FOR
THE COMPANY IS RECEIVED THAT REGISTRATION IS NOT REQUIRED
UNDER SUCH ACT OR STATE LAWS.
The undersigned further acknowledges that a stop transfer order will be placed
upon the New Notes in accordance with the Securities Act. The undersigned
further acknowledges that the Company is under no obligation to aid the
undersigned in obtaining any exemption from registration requirements.
(l) The undersigned expressly acknowledges and agrees
that the Company is relying upon the undersigned's representations contained in
herein.
<TABLE>
<S> <C>
Dated: , 1995
------------ -----------------------------------------------------
Print Full Name of Investor
----------------------------------------------------
Signature of Investor
</TABLE>
Principal Amount of 10% Notes due October 1, 1996
Owned of record by the above Investor: $_____________
Name of Investor:
- ---------------------------------------------------------
Address:
- ---------------------------------------------------------
Number of Units Owned:
- ---------------------------------------------------------
-9-
<PAGE> 1
CONQUEST INDUSTRIES INC.
C/O JERRY KARLIK, CHIEF FINANCIAL OFFICER
40 CUTTERMILL ROAD - SUITE 209
GREAT NECK, NEW YORK 11021
TELEPHONE: (516) 482-5995 TELECOPIER NO. (516) 482-5406
November 3, 1995
To all Selling Securityholders
of Conquest Industries Inc.
RE: CONQUEST INDUSTRIES INC.
REGISTRATION OF SECURITIES
Dear Sir/Madam:
Conquest Industries Inc., a Delaware corporation (the "Company") has
filed with the Securities and Exchange Commission (the "Commission") a
registration statement on Form S-1, Registration No. 33-86326 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"1933 Act").
The Company proposes to register for your account as well as for the
account of certain other holders of securities of the Company (collectively,
including yourself, the "Selling Securityholders"), certain securities of the
Company (collectively, the "Securities"). A copy of the Preliminary Prospectus
included in Amendment No. 3 to such Registation Statement, as filed with the
Commission on November 2, 1995 is enclosed with this letter.
The Securities being registered for the account of the Selling
Securityholders consist of the following:
(a) an indeterminable number of shares of Common Stock
(the "Private Placement Conversion Shares") issuable upon
conversion of the Company's 10% convertible notes due October
1, 1996 issued in connection with a November 1994 private
placement (the "Private Placement Notes"). By their terms,
the Private Placement Notes are convertible into Company
Common Stock at a price per share equal to 80% of the
Company's prevailing per share market price on each date such
notes are converted. The Preliminary Prospectus included in
the Registration Statement refers to 2,281,250 Private
Placement Conversion Shares (based upon an assumed $1.50 per
share market price), although all Private Placement Conversion
Shares issuable under the above formula under the Private
Placement Notes are being registered for resale under the 1933
Act.
<PAGE> 2
(b) an aggregate of 1,030,400 shares of Common Stock (the
"Preferred Stock Conversion Shares") issuable upon conversion
by the holders of Company Series B Preferred Stock and Series
E Preferred Stock.
(c) an aggregate of 2,082,147 shares of Common Stock sold
in June and July 1995 at approximately $1.41 per share in a
private placement (the "1995 Private Placment Shares").
(d) 400,000 shares of Common Stock issuable upon exercise
of a warrant held by NatWest Bank USA (the "Bank Warrant").
(e) 499,315 shares of Common Stock, representing
approximately 95.23% of the 524,315 shares of Common Stock
issuable on the effective date of the Registration Statement
to certain creditors of the Company in lieu of accrued
obligations owed to such creditors (the "Creditors Shares").
(f) 250,000 shares of Common Stock issuable upon exercise
of a warrant held by Jerry Karlik, Chief Financial Officer of
the Company (the "Affiliate Warrant").
(g) 518,043 additional shares of Common Stock which were
issued in connection with the June 20, 1994 Wico Merger and
upon exercise of certain warrants (the "Additional Shares").
(h) 106,482 shares of Common Stock issuable upon exercise
of warrants held by Lew Lieberbaum & Co. and its affiliates,
the former underwriter in the Company's initial public
offering (the "Underwriter's Warrants").
As a potentional holder of Private Placement Conversion Shares,
Creditors Shares and/or Preferred Stock Conversion Shares, or as a holder of
1995 Private Placement Shares, the Bank Warrant, the Affiliate Warrant, the
Additional Shares or the Underwriter's Warrants (as the case may be), you have
the right to have included in the Company's Registration Statement the
applicable number and amount of Securities owned by you.
The Company believes, based upon its records, that the type and number
of Securities owned by each of you is as set forth under the caption "Selling
Securityholders" starting on pages 60 of the enclosed Preliminary Prospectus,
included in Amendment No. 3 to the Company's Registration Statement on Form S-1
as filed with the Commission on November 2, 1995.
Accordingly, enclosed herewith please find an acceptance letter and a
Selling Securityholder Agreement. If you chose to have your Securities
registered under the 1933 Act, please return both the completed acceptance
letter and the Selling Securityholder Agreement on or before the 5:00 p.m. (New
York City time) on November 6, 1995 indicating whether or not you wish to have
your Securities included in the Registration Statement. If we have not
received your written reply by 5:00 New York City time on November 6, 1995,
your Securities will NOT
-2-
<PAGE> 3
be registered under the 1933 Act and will be removed from the Company's
Registration Statement. You may telecopy your response to the undersigned at
the above number.
As a "Selling Securityholder" you will be obligated to deliver a
current Prospectus on each occasion that sales of your Securities are made,
whether such sales are made directly by you as a Selling Securityholder or
through broker-dealers. The Company has agreed (i) to file, during any period
in which offers or sales of securities are being made, a post-effective
amendment to the Registration Statement under the 1933 Act of which such
Prospectus is a part, (ii) to make available a Prospectus to each Selling
Securityholder upon request, (iii) to amend such Prospectus from time to time
after the effective date thereof through post-effective amendments to such
Registration Statement to reflect any facts or events which individually or in
the aggregate, represent a fundamental change in the information set forth in
the most recent Prospectus and (iv) to remove from registration by means of a
post-effective amendment of the Registration Statement any of the securities
which remain unsold at the termination of the offering which is anticipated to
occur on or about two years from the effective date of the Prospectus. The
Selling Securityholders and any broker-dealer that acts in connection with the
sale of the securities owned by Selling Securityholders may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act, and
any commission or profit received by a broker-dealer from the purchase or
resale of such securities as principals might be deemed to be underwriting
discounts and commissions under the Securities Act. By execution of the
enclosed Selling Securityholder Agreement, you and the Company will agree to
mutually indemnify each other under certain conditions.
As a Selling Securityholder, the anti-manipulative rules as
promulgated under the Securities Exchange Act of 1934 may apply to your sales
in the market. Copies of Rules 10b-2, l0b-6 and 10b-7 are enclosed herewith
for your convenience.
PROCEDURES TO FOLLOW:
IN THE EVENT YOU DESIRE TO BE A SELLING SECURITYHOLDER, YOU MUST
COMPLETE THE ATTACHED FORM ENTITLED "SELLING SECURITYHOLDER TO COMPLETE" AND
EXECUTE THE ENCLOSED SELLING SECURITYHOLDER AGREEMENT. PLEASE RETURN A COPY OF
BOTH DOCUMENTS TO THE COMPANY, C/O JERRY KARLIK, CHIEF FINANCIAL OFFICER, 40
CUTTERMILL ROAD, SUITE 209, GREAT NECK, NEW YORK 11021, OR TELECOPY THE FULLY
EXECUTED ATTACHED FORM AND SIGNATURE PAGE OF THE SELLING STOCKHOLDER AGREEMENT
TO THE COMPANY AT (516) 482-5406.
IN THE EVENT YOU FAIL OR REFUSE TO FORWARD THE ENCLOSED DOCUMENTS TO
THE COMPANY, C/O MR. KARLIK PRIOR TO THE EFFECTIVE DATE OF THE REGISTRATION
STATEMENT, YOU WILL NOT BE INCLUDED AS A SELLING SECURITYHOLDER THEREIN, AND
YOU SECURITIES WILL NOT BE INCLUDED IN THE FINAL REGISTRATION STATEMENT.
For further information concerning your obligations as a Selling
Securityholder, see "PLAN OF DISTRIBUTION - Selling Securityholders" in the
enclosed Preliminary Prospectus.
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT
YET BECOME EFFECTIVE. THE
-3-
<PAGE> 4
SECURITIES DESCRIBED HEREIN MAY NOT BE SOLD, NOR MAY OFFERS TO
BUY THESE SECURITIES BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS LETTER SHALL
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF SUCH STATE.
If you have any questions with respect to this matter, please do not
hesitate to contact or the undersigned or our legal counsel Solomon Fornari
Weiss & Moskowitz, P.C., 650 Fifth Avenue, New York, New York 10019 (212)
265-1200, attn: Mark Coldwell, Esq.
Sincerely,
CONQUEST INDUSTRIES INC.
By:
-------------------------
Jerry Karlik, Chief
Financial Officer
Enc.
-4-
<PAGE> 5
SELLING SECURITYHOLDER TO COMPLETE:
PLEASE CHECK THE APPROPRIATE LINE(S):
____ I wish to have my Securities registered in the Company's current
Registration Statement as filed with the Securities and Exchange
Commission. My completed Selling Securityholder Agreement is attached
hereto.
____ I have hereby acknowledge receipt of, and affirm that I have
carefully reviewed, the Preliminary Prospectus, dated November 2,
1995. I further acknowledge that the number of the Securities
attributed to me on pages 58-62 of such Preliminary Prospectus, as
well as all other information contained therein, concerning my plan of
distribution and intentions with respect to such Securities recited
therein, is true and correct.
____ The number of Securities attributed to me for which I have
registration rights is NOT correct. The correct number and type of
Securities owned by me is _______________ ___________________________.
____ I do NOT wish to have the Securities registered in the Company's
Registration Statement.
DATED: November __, 1995
-----------------------------------
Signature of Selling Securityholder
-----------------------------------
Name of Selling Securityholder
-----------------------------------
Address of Selling Securityholder
-5-
<PAGE> 6
SELLING SECURITYHOLDER AGREEMENT
__________, 1995
Conquest Industries Inc.
6400 Gross Point Road
Niles, Illinois 60714
Attention: Steffan I. Magnell, President
Dear Sirs:
The undersigned (the "Selling Securityholder") proposes to sell the
type and number of securities of Conquest Industries Inc. (the "Company") set
forth along side the Selling Securityholder's name on Exhibit A annexed hereto
(the "Securities") in connection with the Company's proposed public offering of
securities.
1. REGISTRATION STATEMENT AND PROSPECTUS: The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the Securities Act of 1933, as amended, and
the rules and regulations of the Commission promulgated thereunder
(collectively called the "Act") a registration statement on Form S-1, including
a preliminary prospectus, relating to the registration of: (i) warrants
(designated as 1,961,925 redeemable Class B Warrants) to purchase a maximum of
1,961,925 shares of Common Stock of the Company, $.001 par value per share (the
"Common Stock"); and (ii) an aggregate of 12,129,562 shares of Common Stock of
the Company, including therein the Securities.
As used in this Agreement, the term "Registration Statement"
means such registration statement, including exhibits and financial statements
and schedules and documents incorporated therein by reference, as amended when
it becomes effective, and the term "Prospectus" means such prospectus in the
form first filed on behalf of the Company with the Commission pursuant to Rule
424(b) under the Act.
2. AGREEMENTS OF THE COMPANY AND THE SELLING SECURITYHOLDER:
The Company and the Selling Securityholder agree as follows:
(a) the Company will notify the Selling Securityholder
(1) when the Registration Statement has become effective and when any
post-effective amendment thereto becomes effective, (2) of any request by the
Commission for amendments or supplements to the Registration Statement or the
Prospectus or for additional information, (3) of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration Statement or
the initiation of any proceedings for that purpose and (4) of the happening of
any event during the
1
<PAGE> 7
nine-month period beginning on the effective date of the Registration Statement
which in the judgment of the Company makes any statement made in the
Registration Statement or the Prospectus untrue or which requires the making of
any changes in the Registration Statement or the Prospectus in order to make
the statements therein not misleading. Upon the happening of any event set
forth in subclauses (2) or (4) above, the Selling Securityholder will, upon
written notification by the Company, promptly cease using the Prospectus or any
preliminary prospectus, as the case may be, until an appropriate supplement or
amendment is prepared and filed with the Commission;
(b) the Company will give you notice of its filing of any
amendment to the Registration Statement or any amendment or supplement
to the Prospectus;
(c) upon the expiration of the above-referenced
nine-month period, and thereafter from time to time, the Company will
deliver to you, without charge, as many copies of the Prospectus or
any amendment or supplement thereto as you may reasonably request;
(d) prior to any public offering of the Securities, the
Company will cooperate with you and your counsel in connection with
the registration or qualification of the Securities for offer and sale
under the securities or Blue Sky laws of such jurisdictions as you
reasonably request, provided that in no event shall the Company be
obligated to qualify to do business in any jurisdiction where it is
not now so qualified or to take any action which would subject it to
general service of process in any jurisdiction where it is not now so
subject. The Company will pay all fees and expenses (including fees
and expenses of counsel to the Company) relating to qualification of
the Securities under such securities or Blue Sky laws;
(e) the Company will pay all expenses in connection with
(1) the preparation, printing and filing of the Registration
Statement, each preliminary prospectus and the Prospectus, (2) the
issuance and delivery of the Securities (other than transfer taxes)
and (3) furnishing such copies of the Registration Statement, the
Prospectus and any preliminary prospectus, and all amendments and
supplements thereto, as may be reasonably requested for use in
connection with the offering and sale of the Securities by the Selling
Securityholder.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY:
The Company represents and warrants to the Selling Securityholder that:
(a) each preliminary prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the Act, complied when so
filed in all material respects with the Act, and when the Registration
Statement becomes effective and at all times subsequent thereto
through the date that all Securities have been sold by means of the
Registration Statement, the Registration Statement and the Prospectus,
and any supplements or amendments thereto, will fully comply with the
provisions of the Act, and the Registration Statement and the
Prospectus at all such times will not contain an untrue statement of a
material fact or
2
<PAGE> 8
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, except that
this representation and warranty does not apply to statements or
omissions in the Registration Statement or the Prospectus or any
preliminary prospectus made in reliance upon information furnished to
the Company in writing by any underwriter identified therein (if any),
or furnished for use therein by or on behalf of any person identified
as a "Selling Securityholder" in the Prospectus and any preliminary
prospectus, or any supplement or amendment, including all information
contained in the sections of the Prospectus and any preliminary
prospectus, or any supplement or amendment, entitled "Selling
Securityholders" and "Plan of Distribution", a copy of which section
as currently written is annexed hereto as Exhibit A; and
(b) this Agreement has been duly authorized, executed and
delivered by the Company and is a legal, valid and binding agreement
of the Company in accordance with its terms.
4. REPRESENTATIONS AND WARRANTIES OF THE SELLING SECURITYHOLDER:
The Selling Securityholder represents and warrants to the Company:
(a) this Agreement has been duly authorized, executed and
delivered by the Selling Securityholder and is a legal, valid and
binding agreement of the Selling Securityholder in accordance with its
terms; and
(b) when the Registration Statement becomes effective and
at all times subsequent thereto through the date that all Securities
have been sold by means of the Registration Statement, such parts of
the Registration Statement and Prospectus, and any supplements or
amendments thereto, as relate to the Selling Securityholder and are
based on information furnished in writing to the Company by or on
behalf of the Selling Securityholder for use in the Registration
Statement, the Prospectus, any preliminary prospectus or any such
supplement or amendment, will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein not
misleading; provided, that notwithstanding the above, all information
contained in the sections of the Prospectus and any preliminary
prospectus, or any supplement or amendment, entitled "Selling
Securityholders" and "Plan of Distribution", is true and correct and
does not contain an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary, as
such information relates to the Selling Securityholder, in order to
make the statements therein not misleading; and provided further, that
all such information identified above shall be deemed to be
information furnished in writing to the Company by the Selling
Securityholder for use in the Registration Statement, the Prospectus
or any preliminary prospectus or any supplement or amendment thereto.
3
<PAGE> 9
5. INDEMNIFICATION:
The Company agrees to indemnify and hold harmless the Selling
Securityholder from and against any and all losses, claims, damages,
liabilities and expenses (including reasonable costs of investigation) arising
out of or based upon a breach of a covenant, agreement, representation or
warranty made by the Company in this Agreement or upon any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or the Prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses arise out of or are based upon
any such untrue statement or omission or allegation thereof based upon
information furnished in writing to the Company by or on behalf of the Selling
Securityholder for use therein.
If any action or proceeding (including any governmental investigation)
shall be brought or asserted against the Selling Securityholder in respect of
which indemnity may be sought from the Company, the Selling Securityholder
shall promptly notify the Company in writing, and the Company shall assume the
defense thereof, including the employment of counsel reasonably satisfactory to
the Selling Securityholder, and the payment of all expenses. It is agreed and
acknowledged that except as limited below the Company shall be entitled to
employ a single counsel to defend all "Selling Securityholders" identified in
the Registration Statement and the Prospectus in connection with any action for
which any such persons can seek indemnification from the Company hereunder.
The Selling Securityholder shall have the right to employ separate counsel in
any such action and to participate in the defense thereof, but the fees and
expenses of such counsel shall be the expense of the Selling Securityholder
unless (a) the Company has agreed to pay such fees and expenses, or (b) the
Company shall have failed to assume the defense of such action or proceeding
and employ counsel reasonably satisfactory to the Selling Securityholder in any
such action or proceeding, or (c) the named parties to any such action or
proceeding (including any impleaded parties) include both the Selling
Securityholder and the Company, and the Selling Securityholder shall have been
advised by counsel that there may be one or more legal defenses available to it
or him which are different from or additional to those available to the Company
and any other persons indemnified by the Company (in which case the Selling
Securityholder notifies the Company in writing that it elects to employ
separate counsel at the expense of the Company and the Company shall not have
the right to assume the defense of such action or proceeding on behalf of the
Selling Securityholder, it being understood, however, that the Company shall
not, in connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for the Selling Securityholder, which firms shall be
designated in writing by the Selling Securityholder). The Company shall not be
liable for any settlement of any such action or proceeding effected without its
written consent, but if settled with its written consent, or if there be a
final judgment for the plaintiff in any such action or proceeding, the Company
agrees to indemnify and hold harmless the Selling Securityholder from and
against any loss or liability by reason of such settlement or
4
<PAGE> 10
judgment.
The Selling Securityholder agrees to indemnify and hold harmless the
Company, its directors and officers, and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, to the same extent as the foregoing indemnity from the Company to
the Selling Securityholder, but only with respect to (i) a breach of a
covenant, agreement, representation or warranty made by the Selling
Securityholder in this Agreement, (ii) information relating to the Selling
Securityholder furnished by or on behalf of the Selling Securityholder for use
in the Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any preliminary prospectus, and (iii) such other information as
shall be identified in accordance with Section 4(b) of this Agreement. In case
any action or proceeding shall be brought against the Company, its directors or
officers or any controlling person, in respect of which indemnity may be sought
against the Selling Securityholder, the Selling Securityholder shall have the
rights and duties given to the Company, and the Company or its directors or
officers or such controlling person shall have the rights and duties given to
the Selling Securityholder, by the second paragraph of this Section 5.
If the indemnification provided for in this Section 5 is unavailable
to an indemnified party under the first or third paragraph hereof in respect of
any losses, claims, damages or liabilities referred to therein, then each
applicable indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities in such proportion as is
appropriate to reflect the relative fault of the Company and the Selling
Securityholder in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative fault of the Company and the Selling
Securityholder shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission to
state a material fact relates to information supplied by the Company or by or
on behalf of the Selling Securityholder and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable by a party as a result of
the losses, claims, damages and liabilities referred to above shall be deemed
to include, subject to the limitations set forth in the second paragraph of
this Section 5, any legal or other fees or expenses reasonably incurred by such
party in connection with investigating or defending any action or claim.
The Company and the Selling Securityholder agree that it would not be
just and equitable if contribution pursuant to this Section 5 were determined
by pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section 5
and the representations and warranties of the Company and the Selling
Securityholder contained in this
5
<PAGE> 11
Agreement shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Company or the Selling
Securityholder.
6. MISCELLANEOUS: Notice given pursuant to any of the
provisions of this Agreement shall be in writing and shall be mailed or
delivered (a) to the Company at the office of the Company at 6400 West Gross
Point Road, Niles, Illinois 60714, Attention Mr. Steffan Magnell; and (b) to
the Selling Securityholder, at the address of such Selling Securityholder as
may appear from time to time on the Company's stock ledger. Any notice hereof
may be made by telex or telephone, but if so made shall be subsequently
confirmed in writing.
This Agreement has been and is made solely for the benefit of the
Company and the Selling Securityholder and of the controlling persons,
directors and officers referred to in Section 5 hereof, and their respective
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware.
Please confirm that the foregoing correctly sets forth the agreement
among the parties hereto.
Very truly yours,
SELLING SECURITYHOLDER
-----------------------------------
Name:
------------------------------
Address:
---------------------------
---------------------------
---------------------------
Confirmed as of the date
first above mentioned.
CONQUEST INDUSTRIES INC.
By:
-----------------------------
Steffan I. Magnell, President
6
<PAGE> 1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our reports dated December 9, 1994 (except as to Note L (1),
which is as of January 20, 1995), accompanying the consolidated financial
statements and schedules of Conquest Industries, Inc. contained in the
Registration statement and Prospectus. We consent to the use of the
aforementioned reports in the Registration Statement and Prospectus, and to the
use of our name as it appears under caption "Experts."
GRANT THORNTON LLP
New York, New York
November 2, 1995
<PAGE> 1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
--------------------------------------------------
I consent to the use in this Registration Statement on Form S-1 of my
reports dated January 10, 1994 and May 20, 1994 relating to the financial
statements of Langworthy Casino Supply and the reference to my firm under the
Captions "EXPERTS" in the Prospectus.
/s/ Allen G. Roth
Allen G. Roth
Certified Public Accountant
New York, New York
November 2, 1995
