<PAGE> 1
As filed with the Securities and Exchange Commission on October 18, 1995
Registration No. 33-86326
----------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------
AMENDMENT NO. 2
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>
Proposed Maximum Proposed Maximum Amount of
Title of Each Class 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") 1,750,000 $3.00 $5,250,000 $ 1,809.68
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") 54,750(4) 5.00 273,750 94.36
Common Stock, $.001 par value
("Common Stock") 1,961,925(5) 5.00 9,809,625 3,381.38
Common Stock, $.001 par value
("Common Stock") 1,030,400(6) 3.00 3,091,200 1,065.54
Common Stock, $.001 par value
("Common Stock") 400,000(7) 3.00 1,200,000 413.76
Common Stock, $.001 par value
("Common Stock") 313,043(8) 3.00 939,130 323.86
Common Stock, $.001 par value
("Common Stock") 200,000(9) 3.00 600,000 206.90
Common Stock, $.001 par value
("Common Stock") 5,000(10) 3.00 15,000 5.18
Common Stock, $.001 par value
("Common Stock") 499,315(11) 2.00 998,630 344.23
Common Stock, $.001 par value
("Common Stock") 250,000(12) 3.00 750,000 310.36
Common Stock, $.001 par value
("Common Stock") 2,082,147(13) 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") 2,016,675(14) .01 20,167 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(15) -0- -0- -0-
Total Registration Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,377.56
</TABLE>
- --------------------------------
(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 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.
<PAGE> 3
(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 the Common Stock Purchase Warrants ("Private
Placement Warrants") to be issued on the effective date of this
registration statement in connection with a 1995 amendment to the Private
Placement Notes. The Private Placement Warrants are exercisable at a price
of $5.00 per share, expiring June 20, 1999, and are redeemable by the
Company under certain circumstances.
(5) Common Stock underlying 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.
(6) 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.
(7) Common Stock underlying a warrant held by the Company's institutional
lender.
(8) 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.
(9) Common Stock issued upon exercise in June 1995 of a warrant issued pursuant
to the Wico Merger.
(10) 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.
(11) Represents all but 25,000 of the 524,315 shares of Common Stock to be
offered to certain creditors of the Company in exchange for cancellation of
indebtedness and other liabilities owed by the Company to such creditors.
(12) Common Stock underlying outstanding warrants held by an executive officer
of the Company.
(13) 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.
(14) Consists of (i) 1,961,925 Class B Warrants referred to in Note (5) above,
and (ii) 54,750 Private Placement Warrants referred to in Note (4) above.
(15) 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>
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>
<PAGE> 5
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PRELIMINARY PROSPECTUS DATED OCTOBER 18, 1995, SUBJECT TO COMPLETION
CONQUEST INDUSTRIES INC.
(formerly, Conquest Airlines Corp.)
<TABLE>
<C> <C> <C>
2,281,250 Shares of Common Stock 1,750,000 Shares of Common Stock 3,099,505 Shares of Common Stock
issuable upon conversion of 10% Notes for Selling Stockholders
1,030,400 Shares of Common Stock 1,961,925 Redeemable Class B Warrants 2,773,157 Shares of Common Stock
issuable upon conversion of and 54,750 Redeemable Private included in 2,719,916 Common Stock
Preferred Stock Placement Warrants Purchase Warrants
</TABLE>
This Prospectus relates to an offering (the "Offering") by Conquest
Industries Inc., a Delaware corporation (the "Company"), of an aggregate of up
to 10,946,812 shares of common stock, par value $.001 per share (the "Common
Stock"). A maximum of 1,750,000 shares of Common Stock (the "Company Shares")
are being offered by the Company for its own account. The remaining 9,196,812
shares of Common Stock are being offered for resale for the account of certain
securityholders, including: (i) 3,099,505 shares of Common Stock (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) 2,773,157 shares of Common Stock (the "Warrant Shares") issuable upon
exercise of a variety of Common Stock purchase warrants (collectively, the
"Warrants") 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 of Common Stock (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 of Common Stock (the "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.
The Offering also includes: (i) 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"); and (ii) up to 54,740 redeemable warrants (the "Private Placement
Warrants"), exercisable through June 20, 1999 at $5.00 per share (subject to
adjustment), which, pursuant to a private exchange offer (the terms of which are
described below) to holders of Private Placement Notes, are issuable on the
Effective Date to persons who accept new 11% non-convertible Company notes due
October 1, 1996 and other payments, in lieu of their Private Placement Notes.
The 1,750,000 Company Shares will be offered by the Company at an
offering price of $___ per share. On September 29, 1995, the closing sale price
of the Company's Common Stock, as traded on the Nasdaq SmallCap Market
("NASDAQ") was $1.75. 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 1,750,000 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 included
in an aggregate of 524,315 shares (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 $979,630 of claims against the Company.
The 2,773,157 Warrant Shares are shares of Common Stock issuable upon
exercise of 2,719,916 Warrants (including the Class B Warrants and Private
Placement 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) 54,750
Private Placement Warrants; (iii) 400,000 warrants issued in the Wico Merger to
the Company's principal lender in consideration of certain financial
accommodations (the "Bank Warrant"); (iv) 250,000 warrants issued in April 1995
to the Company's Chief Financial Officer (the "Affiliate Warrants"); and (v)
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.
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 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).
The 1,961,925 Class B Warrants and the 54,750 Private Placement
Warrants are each 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 and the Private Placement
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 are based on an assumed closing bid price of $1.50 per share.
The Company has requested that the holders of the Private Placement Notes
exchange their 10% Private Placement Notes for: (i) a like amount of 11%
non-convertible notes of the Company due October 1, 1996 (the "Exchange Notes"),
(ii) up to 54,750 Private Placement Warrants, and (iii) 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). Upon delivery of
the applicable amount of 11% Exchange Notes, cash and Private Placement
Warrants, the Company will remove from registration an appropriate number of
1994 Private Placement Conversion Shares underlying the principal amount of
Private Placement Notes exchanged. As at the Effective Date, notices of election
to exchange have been received by the holders of $________ of such Private
Placement Notes. Subject to the right of such noteholders to rescind their
elections within 10 days of receipt of this Prospectus and the Company's right
to extend the exchange offer to December 31, 1995, it is anticipated that an
aggregate of ________ of the 1994 Private Placement Conversion Shares will be
deregistered. 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 Private Placement 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, Private Placement 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,
Private Placement 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. Such 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 September 29, 1995, the last
reported sale price for the Common Stock on NASDAQ was $1.75 per share. The
closing sale price for the Public Warrants was $0.125.
<PAGE> 7
ADDITIONAL INFORMATION
The holders of any: (i) Private Placement 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 (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
- 1 -
<PAGE> 10
repayable, subject to certain mandatory prepayments out of the proceeds of
equity offerings by Air LA, 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. 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. 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 materially and adversely effect the Company's
consolidated business and financial condition. See "Risk Factors -Sale of
Conquest Air; Continuing 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 10,946,812 shares of
Common Stock. A maximum of 1,750,000 shares of Common Stock (the "Company
Shares") are being offered by the Company for its own account. The remaining
9,196,812 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) 2,773,157 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 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.
The Offering also includes: (i) an aggregate of 1,961,925 Class B
Warrants, and (ii) 54,740 Private Placement Warrants.
The 1,750,000 Company Shares will be offered at an offering price of
$______. On September 29, 1995, the closing sale price of the Company's Common
Stock, as traded on NASDAQ, was $1.75. 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 1,750,000 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 2,773,157 Warrant Shares being offered for resale are
shares of Common Stock underlying 2,719,916 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) 54,740
Private Placement Warrants; (iii) 400,000 Bank Warrants; (iv) 250,000 Affiliate
Warrants; and (v) 53,241 Underwriter's Warrants.
The 1,961,925 Class B Warrants and the 54,750 Private Placement
Warrants are each 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 and the Private Placement
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 $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."
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<PAGE> 11
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 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. The Company has requested that the holders of
the Private Placement Notes exchange their 10% Private Placement Notes for: (i)
a like amount of 11% non-convertible Exchange Notes, (ii) 54,750 Private
Placement Warrants, and (iii) 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). Upon delivery of the applicable amount of
11% Exchange Notes, cash and Private Placement Warrants, 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 11% Exchange Notes. As at the Effective Date, notices of election
to exchange have been received by the holders of $________ of such Private
Placement Notes. Subject to the right of such noteholders to rescind their
elections to exchange within 10 days of receipt of this Prospectus and the
Company's right to extend the exchange offer to December 31, 1995, it is
anticipated that an aggregate of ________ of the 1994 Private Placement
Conversion Shares will be deregistered. 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."
SECURITIES CURRENTLY OUTSTANDING
<TABLE>
<S> <C>
Common Stock: 11,445,824 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.
SECURITIES TO BE OUTSTANDING AFTER THE OFFERING (7)(8)
Common Stock: 13,720,139 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
54,750 Private Placement Warrants (6)
53,241 Underwriter's Warrants
Convertible Notes (6): $ 2,737,500 Private Placement Notes due October 1, 1996.
</TABLE>
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<PAGE> 12
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(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
11% non-convertible Exchange Notes. The Company has offered to holders
of Private Placement Notes electing to exchange such notes for Exchange
Notes: (i) Private Placement Warrants entitling the holder to purchase
0.02 shares of Company Common Stock for each $1.00 of Private Placement
Notes exchanged for $1.00 of Exchange Notes (up to 54,750 Private
Placement Warrants if all $2,737,500 of Private Placement Notes are
exchanged for $2,737,500 of non-convertible Exchange Notes), and (ii)
certain additional payments (50% to be made within 20 days following
the Effective Date of this Prospectus and the balance 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 11% non-convertible Exchange
Notes, cash and the Private Placement Warrants, the Company will remove
from registration an applicable number of 1994 Private Placement
Conversion Shares. As at the Effective Date, notices of election to
exchange have been received by the holders of $________ of such Private
Placement Notes. Subject to the right of such noteholders to rescind
their elections to exchange within 10 days of receipt of this
Prospectus and the Company's right to extend the note exchange offer to
December 31, 1995, it is anticipated that an aggregate of ________ of
the 1994 Private Placement Conversion Shares will be deregistred.
See "Business - 1994 Private Placement".
(7) Assumes the sale of all 1,750,000 Company Shares offered hereby, and
the issuance of all 524,315 Creditors Shares 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) 500,000 shares and five year warrants to purchase
up to an additional 1,250,000 shares which are potentially issuable to
Bentley J. Blum, a director of the Company, in consideration for his
commitment to provide certain collateralized guarantees in connection
with a proposed refinancing of Company secured indebtedness; and (ii)
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," and "Management - Stock
Options."
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<PAGE> 13
USE OF PROCEEDS
Other than proceeds received from the sale of up to 1,750,000 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, Private Placement 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 1,750,000 Company Shares (estimated at a
maximum of $2,937,500) will be used by the Company: (i) to repay up to
$1,000,000 of accrued obligations of a former subsidiary retained by the
Company; (ii) to pay up to $547,500 to holders of the Private Placement Notes
who agree to exchange such notes for 11% non-convertible Exchange Notes, and up
to $273,750 to the solicitation agent engaged 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. Any proceeds received from
the exercise of the Class B Warrants, the Private Placement 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. To the extent that the Company issues any 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."
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) . . . . . (3,950) 550 284 443 (741) (1,742) (703)
Pro forma net income (3,950) 550 284 508 (516) (1,137) (488)
(loss)(1) . . . . . . . . .
Pro forma net income (loss)
per share (2) . . . . . . . $ (.42) $ .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
BALANCE SHEET DATA (4)
</TABLE>
<TABLE>
<CAPTION>
June 30, 1995
September 30, Actual ProForma(5) ProForma
------------- ------ ----------- --------
As Adjusted(6)
--------------
--------- ---------------------------------------
<S> <C> <C> <C> <C>
Current assets . . . . . . . . . . $ 15,757 $ 15,307 $ 16,137 $ 19,075
Total assets . . . . . . . . . . . 27,436 28,248 29,078 32,016
Current liabilities . . . . . . . . 9,491 10,415 9,455 9,285
Long term debt . . . . . . . . . . . 16,706 17,443 17,443 17,443
Stockholders' equity (deficiency). . 1,239 390 2,180 5,288
</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.
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<PAGE> 14
(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.
(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.
(6) Pro forma, as adjusted, to give effect to (i) completion of this Offering
(assuming the sale of all 1,750,000 Company Shares offered hereby) and the
application of the net proceeds to be received by the Company (estimated
for such purposes at $2,937,500), and (ii) issuance of the remaining 88,784
Creditors Shares in reduction of approximately $169,630 of accrued Company
obligations incurred after June 1995. See "Use of Proceeds" and "Business -
Settlements with Certain Creditors."
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 $3,950,000 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 $1,240,000. 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 $390,000. 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 anticipated 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 CURRENT CREDIT AGREEMENT
The Company is subject to substantial indebtedness for money borrowed,
including $18.786 million outstanding at June 30, 1995 under a senior secured
term loan and revolving credit facility maturing in October 1998, 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
11% Exchange Notes, any remaining Private Placement Notes and all newly issued
Exchange Notes will be due and payable in full on
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<PAGE> 15
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 facility with an institutional
lender is secured by substantially all of the assets of the Company, limited
personal guarantees, each in the amount of $1,000,000, from Stephen R. Feldman,
Chairman of the Board of the Company, and Bentley J. Blum, a principal
stockholder and director, and by pledges in favor of such institutional lender
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 line of credit facility and was not in
compliance with certain financial covenants under the credit agreement with its
institutional lender. Such lender waived non-compliance with such covenants on
June 30, 1995. In the event the contemplated refinancing described below is not
consummated by October 31, 1995, the Company will be required to seek an
additional waiver of its financial covenant defaults as at September 30, 1995
and for the fiscal year then ended. The Company will not request that the
Registration Statement of which this Prospectus is a part be declared effective
by the Commission until such waiver of default has been obtained. In the event
such waiver is not obtained, the lender could declare all indebtedness to be
immediately due and payable and would be entitled to exercise its remedies under
the credit agreement. See "Security Interests and Restrictive Loan Covenants"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
The Company has received proposals from its existing institutional lender
and from another commercial lender to refinance the Company's senior secured
indebtedness and anticipates that such refinancing will be completed by October
31, 1995. Under the proposed refinancing, the Company will receive 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 will be
applied in reduction of its indebtedness to its current institutional lender. It
is also contemplated that such institutional lender will restate the outstanding
balance due as a $12.6 million term loan facility payable in installments with a
final payment of approximately $10 million due in 2000. Such proposed
refinancing will provide the Company with additional working capital. However,
there is no assurance that such refinancing will be consummated either in
October 1995 or thereafter, or consummated on the terms presently contemplated
by the Company. See "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 contemplated refinancing of its senior
debt will result in an increase in its line of credit facility and help to
relieve its current cash flow shortages, there is no assurance that even if such
refinancing is consummated the Company will not incur additional cash flow
shortages in the future or default in payment of its indebtedness, including the
$2,737,000 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."
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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 institutional
lender which provides for a term loan and a revolving credit facility and which
contain various financial covenants. Such covenants, among other things, require
that Wico and its consolidated subsidiaries maintain certain financial ratios
and minimum levels of net worth and ratios of consolidated cash flow and
interest expense to indebtedness, and prohibit the Company and its subsidiaries
from declaring any dividends and restrict certain other transactions.
Substantially all of the Company's consolidated assets are pledged as collateral
to secure its indebtedness to its institutional lender. In the event of a
default the credit agreement, the lender could declare such indebtedness to be
immediately due and payable and would be entitled to exercise the rights of a
secured creditor and foreclose upon substantially all of the assets of the
Company 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 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 existing credit agreement with its institutional lender.
Although the institutional lender waived this requirement through June 30, 1995,
there can be no assurance that such non-compliance will be waived as of
September 30, 1995 under the current credit agreement or in connection with the
proposed refinancing, or that the Company will be in compliance with this and
other requirements of the credit agreement following September 30, 1995. In
addition, the Company is required to make annual prepayments of its term loan
with its institutional lender in an amount equal to 75% of its excess cash flow
(as defined). While these requirements did not historically adversely affected
Wico Corporation's working capital, they do have the effect of limiting the
Company's ability to expand by acquisition without the consent of its
institutional lender.
In the event that the Company's contemplated refinancing is completed, it
is anticipated that the two institutional lenders will retain security interests
on substantially all of the Company's consolidated assets and will continue to
require compliance with financial loan covenants. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations Liquidity and
Capital Resources."
SALE OF CONQUEST AIR; CONTINUING 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 to the Company.
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. The Company also remains liable to the
aircraft lessors of the aircraft formerly operated by the Conquest Air until
such time as Air LA completes other anticipated equity financing. In the event
that Air LA shall default in its payment obligations to the Company or to the
aircraft lessors, the Company could incur a loss of its financial advance and
may be held liable for monetary damages by the aircraft lessors. In addition,
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 the 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 held liable for damages from 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
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<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 49.4% 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 55%
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."
CERTAIN POTENTIAL BENEFITS TO INSIDER
In connection with the contemplated refinancing of the Company's senior
indebtedness, Bentley J. Blum, a principal stockholder and director of the
Company, has been requested to increase his limited personal
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<PAGE> 18
guaranty of such indebtedness from $1.0 million to $3.0 million, and has also
been requested to collateralize the $2.0 million increase in his personal
guaranty with certain assets independent of his interests 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
contemplated refinancing and issuance of his increased collateralized guaranty,
an aggregate 500,000 shares of Company Common Stock, at $.001 per share. In
addition, on each anniversary of the date of closing of the contemplated
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 September 29, 1995, the closing sale price of
the Company's Common Stock, as reported on NASDAQ, was $1.75 per share. The
500,000 shares potentially issuable 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."
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NO UNDERWRITER FOR SALE OF COMPANY SHARES.
The 1,750,000 Company Shares are being offered pursuant to this Prospectus
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. 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."
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. The Company's principal operating
subsidiary, Wico Corporation, is also prohibited by the terms of its principal
(credit) banking agreement with National Westminster Bank USA from declaring any
dividends. 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.
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 September 30, 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) 11,445,824 shares of Common
Stock. An aggregate of up to 524,315 Creditors Shares are issuable on the
Effective Date to certain creditors of the Company in exchange for accrued
obligations aggregating up to $979,630, and an additional 1,750,000
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<PAGE> 20
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 11,445,824 shares of Common Stock presently
outstanding and the maximum of 2,274,315 additional shares to be outstanding
upon issuance of up to 524,315 Creditors Shares and up to 1,750,000 Company
Shares, a maximum of 6,279,807 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 2,773,157 Warrant Shares
underlying the Class B Warrants, the Bank Warrant, the Private Placement
Warrants, the Affiliate Warrant and the Underwriter's Warrants, (ii) the
estimated 2,281,250 Private Placement Conversion Shares, (iii) the 1,030,400
Preferred Stock Conversion Shares, and (iv) 195,000 shares issuable upon
exercise of the outstanding Public Warrants. The foregoing does not include a
maximum of 4,575,500 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 an additional 500,000
shares and up to 1,250,000 shares underlying warrants which may be issued in
connection with the Company's contemplated senior debt refinancing to Bentley J.
Blum, a principal stockholder and director, in consideration for the increase of
his 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 13,139,622 shares of Common Stock
(including the maximum 1,750,000 shares potentially issuable to Mr. Blum in
connection with the contemplated refinancing) represents 53.5% of the 24,575,446
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. 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 August 31, 1995, there were an aggregate of 11,445,824 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
1,750,000 Company Shares which may be sold by the Company shortly after the
Effective Date of this Prospectus. In the three fiscal 1995 quarters ended June
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
4,849,505 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
6,279,807 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 7,000,000 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.
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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 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.
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USE OF PROCEEDS
Other than proceeds received from the sale of up to 1,750,000 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, Private Placement 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 1,750,000 Company Shares (estimated at a maximum of approximately
$2,937,500) will be used by the Company: (i) to repay up to $1,000,000 of
accrued obligations of a former subsidiary retained by the Company; (ii) to pay
up to $547,500 to holders of the Private Placement Notes who agree to exchange
such notes for the Company's 11% 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. Any
proceeds which the Company receives from the exercise of the Class B Warrants,
the Private Placement Warrants, Public Warrants, Underwriter's Warrants and
other outstanding options and warrants shall be added to working capital and
used for general corporate purposes. To the extent that the Company issues any
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."
The maximum amount of proceeds receivable from the exercise of the Class B
Warrants, Private Placement 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,
Private Placement 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.
-14-
<PAGE> 23
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>
As of September 29, 1995, the closing sale price of the Common Stock was
$1.75, the closing sale price of the Public Warrants was $0.125, 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 September 29, 1995 was approximately 478, 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 agreement from declaring or paying any dividends to Company
stockholders.
-15-
<PAGE> 24
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) . . . . (3,950) 550 284 443 (741) (1,742) (703)
Pro forma net income
(loss)(1) . . . . . . . . (3,950) 550 284 508 (516) (1,137) (488)
Pro forma net income
(loss) per share (2) . . $ (.42) $ .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 . . . . . . . 28,248 27,436 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) . . . . . . . 390 1,239 (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.
-16-
<PAGE> 25
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 297 232
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) (5,689) 873
Net Income (Loss) (3,950) 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
-17-
<PAGE> 26
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 $297,000 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.
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 $5,689,000 and a net loss of $3,950,000 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.
-18-
<PAGE> 27
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.
-19-
<PAGE> 28
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 Financing
In addition to the private placements of securities described below, the
Company's principal sources of capital for operations has been the 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, provides for
monthly installments of principal and had a principal balance of approximately
$6,211,000 at June 30, 1995. The revolving credit loan provides for a maximum
borrowing of $13,000,000 (inclusive of letters of credit that may be established
upon request of the Company). At June 30, 1995 and September 30, 1995, the full
$13,000,000 maximum line of credit borrowing had been drawn 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
-20-
<PAGE> 29
rates on both the term loan and the revolving credit facility are the Bank's
prime rate plus 3.0% or LIBOR plus 4.75%. Repayment of the loans is 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, including Mr. Feldman and his wife and Mr. Blum. Under the terms
of the credit agreement, the Company must 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, the Company was not in compliance with the minimum
operating income and ratio of interest expense to operating income covenant and
anticipates that, upon completion of its audit for fiscal year ended September
30, 1995, will not be in compliance with such covenants at September 30, 1995
and for the year then ended. Although the Company obtained a waiver of its
financial covenant defaults at June 30, 1995 and anticipates that the
contemplated refinancing described below will include the Bank's waiver of any
defaults at September 30, 1995 and for the year then ended, if such refinancing
is not completed by October 31, 1995, the Company will seek a waiver for the
period ended September 30, 1995. The Registration Statement of which this
Prospectus is a part will not be declared effective by the Commission unless
such default waiver is obtained. There can be assurance that such waiver, if
required, will be forthcoming, in which event the Bank would be in position to
exercise its remedies upon a default under the credit agreement (including
foreclosure on its security interests).
Proposed Refinancing
The Company is also attempting to obtain additional working capital by
refinancing its senior secured indebtedness. Although it has received financing
proposals from Sanwa Business Credit Corp. ("Sanwa") and the Bank to effect such
refinancing, such proposals do not constitute a financing commitment. Although
the Company and its legal counsel are in the process of finalizing loan
documents with Sanwa and the Bank and expect the refinancing to be consummated
on or about October 31, 1995, there is no assurance that such refinancing will
be consummated by such date, if at all. Set forth below is a summary of the
terms of the proposed refinancing.
- Sanwa would provide the Company with a maximum $14,000,000
secured line of credit having a three year term expiring
September 30, 1998. Advances would be 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 would also
receive a $500,000 overadvance line which must be repaid on an
annual basis. The line of credit facility would bear interest
at a bank prime rate plus 1.5% or (at the Borrowers' option)
based on the LIBOR rate plus 4.25%. The Borrowers' would be
obligated under the line of credit facility to maintain certain
financial covenants, including minimum net worth, minimum cash
flow and certain ratios of interest expense and debt service to
total indebtedness.
- At closing of such revolving credit facility, it is anticipated
that the Borrowers will draw down advances of approximately
$7,400,000, of which $6,000,000 will be used to retire its
revolving credit indebtedness to the Bank under its existing
credit agreement, and the balance will be retained for working
capital purposes and the payment of certain accrued
obligations.
- Simultaneous with the closing of the contemplated Sanwa
revolving credit facility, Wico and its subsidiaries will enter
into an amended and restated term loan agreement with the Bank,
pursuant to which the outstanding balance of approximately
$12,786,000 owed to the Bank (net of the $6,000,000 payment
from the Sanwa line of credit) will be 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. The lending agreement will also provide
for mandatory
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<PAGE> 30
prepayments of the term loan in amounts equal to __% of Wico's
excess consolidated cash flow (as defined). The lending
agreement contains other restrictions on Wico and its
subsidiaries, requiring the consent of the Bank in connection
with the making of any acquisition, payment of dividends,
issuance of additional securities or making of annual capital
expenditures in excess of prescribed amounts.
- Repayment of the Sanwa revolving credit facility will be
secured by a first 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 will be secured by a first 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), 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 will be required to pledge 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."
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. Upon conversion, holders of
the Private Placement Notes would also have the right to receive options to
purchase 500 shares of Common Stock per Unit at an exercise price of $5.00 per
share for a four-year period commencing on the effective date of the
Registration Statement of which this Prospectus is a part (the "Private
Placement Warrants").
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 11% non-convertible Exchange Notes.
In consideration of accepting such exchange offer of 11% 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 11%
Exchange Notes (an aggregate of $547,500 if all $2,737,500 of Private Placement
Notes are exchanged for $2,737,500 of 11% Exchange Notes). Cash payments are to
be made by the Company, to the extent of 50% thereof, on a date which shall be
20 days following the Effective Date of this Offering, and the 50% balance on or
before December 31, 1995. Such cash payments are in addition to, and not in lieu
of, the Company's obligation to pay principal and interest on the 11% Exchange
Notes, when due. In addition to such cash payments, to the extent that holders
of Private Placement Notes elect accept the 11% Exchange Notes, they will be
entitled to receive in connection with the exchange offer, their pro-rata amount
of the 54,750 Private Placement Warrants to purchase 0.02 Company shares of
Common Stock for each $1.00 of Private Placement Notes exchanged for a like
principal amount of 11% Exchange Notes). Under the terms of the original private
placement warrants to purchase up to 54,750 shares of Common Stock at an
exercise price of $11.75 per share were issuable only upon conversion of the
original Private Placement Notes into Company Common Stock.
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.
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<PAGE> 31
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). These 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 (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. Air LA has also undertaken to cure existing defaults of Conquest Air to
its aircraft lessors. However, the Company remains contingently liable for such
defaults. 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. See "Business - Sale of Air LA."
OFFER OF CREDITORS SHARES
In order to reduce its indebtedness and improve its equity position, the
Company has offered to certain of its creditors, including professionals,
holding accounts payable and other indebtedness of the Company aggregating
approximately $1,400,000 at August 31, 1995, the opportunity to purchase from
the Company, at approximately $2.00 per share, an aggregate of up to 700,000
Creditors Shares. To the extent such offers are accepted by the creditors, all
but 25,000 of the 524,315 Creditors Shares are being registered under the
Registration Statement of which this Prospectus is a part. The issuance of the
Creditors Shares is subject to certain conditions, including (i) the
registration of such Creditors Shares under the Securities Act; (ii) receipt of
this Prospectus; and (iii) the final agreement of each of such creditors, within
ten days of receipt and review of this Prospectus, to accept such Creditors
Shares in lieu of cash obligations owed to them by the Company. As at the date
hereof, the Company has received agreements from holders of an aggregate of
$979,630 of accrued Company obligations, 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, to accept 524,315 Creditors Shares in
exchange for $979,630 of Company obligations owed to them. An aggregate of
499,315 of such Creditors Shares are being offered for resale pursuant to this
Prospectus. 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.
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<PAGE> 32
<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)
========
Certain Balance Sheet Data
--------------------------
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
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<PAGE> 33
$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
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 obligationson 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.
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<PAGE> 34
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.
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.
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<PAGE> 35
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 1.180,000 (1) 350,000 (2)(4) $ 2,739,276
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 881,741 881,714
------------- ------------ ---------- -------------
TOTAL CURRENT ASSETS 15,307,171 1,180,000 350,000 16,137,171
MACHINERY AND EQUIPMENT - NET 961,414 961,414
DEFERRED TAX ASSET 1,857,900 1,857,900
INTANGIBLES AND OTHER ASSETS - NET 5,871,820 5,871,820
NET ASSETS OF BUSINESS TRANSFERRED (B) 4,250,000 4,250,000
------------- ------------ ---------- -------------
$ 28,248,305 $ 1,180,000 $ 350,000 $ 29,078,305
============= ============ ========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable $ 6,083,625 $ $ $ 6,083,625
Accrued expenses 2,609,436 810,000 (3) 1,799,436
Current portion of long-term debt 1,500,000 1,500,000
Notes payable - stockholder 150,000 150,000 (2) --
Income taxes payable 72,340 72,340
------------- ------------ -------------
TOTAL CURRENT LIABILITIES 10,415,401 960,000 9,455,401
------------- ------------ -------------
LONG-TERM DEBT 17,443,349 17,443,349
------------- -------------
STOCKHOLDERS' EQUITY:
Preferred stock-Series A 755 755
Preferred stock-Series B and E 2,800,000 2,800,000
Preferred stock-Series D 200,000 200,000 (2) --
Common stock 102,739 (1) 9,798 117,780
(3) 5,243
Additional paid-in capital 15,471,430 (1) 1,170,202 17,446,389
(3) 804,757
Accumulated deficit (18,105,633) (18,105,633)
Foreign currency translation adjustment (79,736) (79,736)
------------- ------------ ---------- -------------
389,555 200,000 1,990,000 2,179,555
------------- ------------ ---------- -------------
$ 28,248,305 $ 1,160,000 $1,990,000 $ 29,078,305
============= ============ ========== =============
</TABLE>
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<PAGE> 36
CONQUEST INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO PRO-FORMA UNAUDITED CONSOLIDATED BALANCE SHEET
JUNE 30, 1995
(A) Pro-forma adjustments have been made to the historical June 30, 1995
unaudited consolidated balance sheet 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.
(3) Assumes the conversion of accrued liabilities of $810,000 at June 30, 1995
and 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.
(4) The repayment in July 1995 of a $150,000 loan owed to an affiliate of a
director.
(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."
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<PAGE> 37
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
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<PAGE> 38
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").
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
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<PAGE> 39
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.
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
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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 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
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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 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.
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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.
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
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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.
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.
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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. 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
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calendar 1996), may 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.
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 four of
its six aircraft. The Company believes that it will be able to settle all such
threatened litigation in connection with the issuance of the Creditors Shares.
SETTLEMENTS WITH CERTAIN CREDITORS
In order to reduce its indebtedness and improve its equity position, the
Company has offered to certain of its creditors holding accounts payable and
other indebtedness of the Company aggregating approximately $979,630 at
September 30, 1995, including professionals who rendered services to the
Company, an opportunity to 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), all remaining 499,315
Creditors Shares are being registered under the Registration Statement of which
this Prospectus is a part. The sale of such Creditors Shares are subject to
certain conditions including (i) the registration of such Creditors Shares under
the Securities Act; (ii) receipt of this Prospectus; and (iii) the final
agreement of each of such creditors, within ten days following receipt and
review of this Prospectus, to accept such Creditors Shares in lieu of cash
obligations owed to them by the Company.
All holders of Creditors Shares will be 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 the terms of the Company's agreements with each of such creditors,
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.
As at the date of this Prospectus, 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. See "Selling Securityholders."
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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 Private Placement Notes and 54,750 Private
Placement Warrants issuable (at the rate of 500 Private Placement Warrants for
each $25,000 of Private Placement Notes converted into Common Stock) only upon
conversion of the Private Placement Notes into Common Stock.
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 11% non-convertible Exchange Notes.
In consideration of accepting such exchange offer of 11% 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 11%
Exchange Notes (an aggregate of $547,500 if all $2,737,500 of Private Placement
Notes are exchanged for 11% Exchange Notes). Cash payments are to be made by the
Company, to the extent of 50% thereof, on a date which shall be 20 days
following the Effective Date of this Offering, and the 50% balance on or before
December 31, 1995. Such cash payments are in addition to, and not in lieu of,
the Company's obligation to pay principal and interest on the 11% Exchange
Notes, when due. In addition to such cash payments, to the extent that holders
of Private Placement Notes elect accept the 11% Exchange Notes, they will be
entitled to receive in connection with the exchange offer, their pro-rata amount
of the 54,750 Private Placement Warrants to purchase 0.02 Company shares of
Common Stock for each $1.00 of Private Placement Notes exchanged for a like
principal amount of 11% Exchange Notes (an aggregate of 54,750 Private Placement
Warrants if all $2,737,500 of Private Placement Notes are exchanged for 11%
Exchange Notes). Under the terms of the original private placement warrants to
purchase up to 54,750 shares of Common Stock at an exercise price of $11.75 per
share were issuable only upon conversion of the original Private Placement Notes
into Company Common Stock.
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. Such Election to Exchange
may, however, be rescinded by the holder of Private Placement Notes at any time
within 10 days of receipt of this Prospectus. The Company has the right to
extend the period of the exchange offer of notes to 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
11% 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 11%
Exchange Notes, Private Placement Warrants and cash payments, Rickel &
Associates, Inc. will receive fees aggregating $273,750.
Holders of 10% Private Placement Notes who accept the 11% non-convertible
notes will represent to the Company that such 11% 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 11% 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. As part of such exchange, the Company agreed
to register the 54,750 Private Placement Warrants and underlying Warrant Shares
under the Securities Act.
As at the date of this Prospectus, the Company has received executed
Elections to Exchange from holders of $_________ of the Private Placement Notes.
As a result, subject only to the right of such holders to rescind their
Elections to Exchange within ten days from their receipt of this Prospectus and
to the Company's right to extend the exchange offer to December 31, 1995, it is
anticipated that the Company will: (i) exchange $__________ of 11%
non-convertible Exchange Notes due October 1, 1996 for a like principal amount
of Private Placement Notes; (ii) issue an aggregate of ______ Private Placement
Warrants; and (iii) pay an
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<PAGE> 47
aggregate of $_______ to such Private Placement Note holders accepting the 11%
Exchange Notes, and an additional $________ to Rickel as its solicitation fee.
See "Use of Proceeds." In such event, the Company will remove an aggregate of
________ 1994 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."
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
Edward G. Sokolofski . . . . . . . . . 49 President and Chief Operating Officer of
Wico
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
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<PAGE> 48
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.
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.
Edward G. Sokolofski has been President and Chief Operating Officer of Wico
since 1985, and Wico Gaming since June 20, 1994. From 1978 until he joined Wico,
he was Group Vice President-Marketing/Sales/International of Turtle Wax, Inc.
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
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<PAGE> 49
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, 1994 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 1994 exceeded $100,000,
only those persons are reported here.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
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 . . . . . . 1994 --- --- 300,000(3) ---
Chairman of the Board of 1993 --- --- --- ---
Directors 1992 --- --- --- ---
Chief Executive Officer
Victor M. Rivas(2) . . . . . . 1994 $127,500 --- 50,500(5) $10,000(4)
President and Director 70,000
1993 $127,500 $25,000 35,000 $10,000(4)
1992 $105,500 4,500 $10,000(4)
Edward G. Sokolofski . . . . . 1994 $198,093 --- 236,000(3) ---
President of Wico 1993 $188,834 --- ---
1992 $182,640 --- --- ---
</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.
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<PAGE> 50
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.
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 1994. The following does not
include 236,000 stock options previously granted to Edward Sokolofski which were
not exercised and which terminated upon his resignation as an officer of the
Company on September 29, 1995.
<TABLE>
<CAPTION>
Name(4) Number of % of Total Exercise Expiration Potential Potential
Options Options Price Date Realizable Realizable
Granted Granted ----- ---- Value at 5% Value at 10%
------- ------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Stephen R. Feldman . . 300,000(1) 41% $0.875 4/30/00 $ 72,524 $ 160,500
(2)
Victor M. Rivas . . . . 50,500(3) 7 5.00(3) 6/20/99 69,761 154,154
70,000 10 2.00 6/30/99 38,679 85,471
======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Name(4)
# of # of Value of in-the- Value of in-the-
# of Shares Value Unexercised Unexercised Money Unexer- Money Unexer-
Acquired on Realized Options Options cised Options cised Options
Exercise -------- Exercisable Unexercisable Exercisable Unexercisable
-------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stephen R. Feldman . 0 0 300,000 n/a $262,500 n/a
Victor M. Rivas . . 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 300,000 options at $2.50 per share issued to Mr. Feldman in
connection with the Wico Merger, and repriced at $0.875 per share in April
1995. Does not include 100,000 Directors Warrants issued to Mr. Feldman
in April 1995. See "Compensation Committee Interlocks and Insider
Participation."
(2) Mr. Feldman was originally issued 150,000 of Wico at an exercise price of
$5.00 per share. At the time of the Wico Merger, these options were
replaced with 300,000 Company options at an exercise price of $2.50 per
share. See Footnote 3 to Summary Compensation Table.
(3) 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
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<PAGE> 51
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.
(4) Does not include up to 350,000 options exercisable at $1.25 per share
which were issued in March 1995 to Steffen I. Magnell, the President and
Chief Executive Officer of the Company, of which 150,000 options are
immediately exercisable. See "Employment Agreements."
TEN YEAR OPTION REPRICING
The following table sets forth the information noted for all repricing of
options held by an executive officer of the Company in the last 10 complete
fiscal years.
<TABLE>
<CAPTION>
Number of
Shares
Underlying Market Price
Options of Stock at Exercise New Length of Original
Repriced or Time of Price at Exercise Option Term Remaining
Name Date Amended Pricing Time of Price at Date of Repricing
---- ---- ------- ------- ----- --------------------
Repricing
---------
<S> <C> <C> <C> <C> <C> <C>
Victor M. Rivas August 30, 1994 2,000 2.00 $11.875 $5.00 1 day
Victor M. Rivas August 30, 1994 4,500 2.00 $11.875 $5.00 1 year 8 months
Victor M. Rivas August 30, 1994 4,500 2.00 $11.875 $5.00 3 years 8 months
Victor M. Rivas August 30, 1994 4,500 2.00 $11.875 $5.00 2 years 8 months
Victor M. Rivas August 30, 1994 5,000 2.00 $11.875 $5.00 3 years 8 months
Stephen R. Feldman March 8, 1995 300,000 0.875 $2.50 $0.875 4 years 8 months
Victor M. Rivas August 30, 1994 30,000 2.00 $11.875 $5.00 3 years 8 months
- ----------------
</TABLE>
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
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<PAGE> 52
$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.
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.
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<PAGE> 53
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.
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 has 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 has 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 contemplated 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. All such warrants, if and to the
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<PAGE> 54
extent issued, would expire five years from their respective dates of issuance
and would be exercisable at the closing sale price of the Company's publicly
traded Common Stock on the date of issuance of such warrants. On September 29,
1995, the closing sale price of the Company's Common Stock, as reported on
NASDAQ, was $1.75 per share.
The following performance graph compares the percentage change in the
Company's total shareholder return on its Common Stock since the June 20, 1994
Wico Merger through June 30, 1995, as compared to the NASDAQ Market as a whole,
and as compared to a peer group of similar entities, all of which have been
publicly traded before June 20, 1994 (the "Peer Group"). Information prior to
June 20, 1994 would not be relevant, as the Company's only business prior to
such date was the operation of a regional airline which was sold on June 30,
1995.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG THE COMPANY,
NASDAQ MARKET INDEX AND PEER GROUP INDEX
<TABLE>
<CAPTION>
Date Conquest Industries NASDAQ Market Index Peer Group Index
- ---- ------------------- ------------------- -----------------
<S> <C> <C> <C>
06/20/94 $100.00
06/30/94 33.89 $159.0 $141.8
09/30/94 29.00 172.2 138.5
12/31/94 11.908 230.266 174.384
03/31/95 14.496 250.841 166.832
06/30/95 31.581 286.760 168.788
</TABLE>
Assumes $100 invested on June 20, 1994; Assumes all dividends reinvested,
and return calculated through June 30, 1995.
As shown on the above performance graph, a $100 investment in the
Company's Common Stock made on June 20, 1994 was worth $36.97 at June 30, 1995,
as compared to a $91.90 for a comparable investment in the Peer Group. A
comparable NASDAQ Broad market investment would have been worth $116.24. The
Peer Group includes the following securities: W.W. Grainger, Inc. and Paul-son
Gaming Corporation.
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<PAGE> 55
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 11,445,824 shares
outstanding at September 30, 1995, and the 524,315 Creditors Shares to be issued
as of the Effective Date. Such outstanding shares do not include any of the
1,750,000 Company Shares to be offered for sale by the Company through January
31, 1996. Unless otherwise indicated, all shares are directly owned as of
September 30, 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 3,328,050(3) 26.0% * 26.0%
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 7,648,562(14) 55.0% * 55.0%
officers as a group
(8 persons)
</TABLE>
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<PAGE> 56
- --------------
*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) 2,575,450 shares of Common Stock owned of record by Mr. Blum,
(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
500,000 shares of Common Stock and 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
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<PAGE> 57
affiliated; and (iv) 2,500 additional shares owned directly by Ms.
Mischel. See "Selling Securityholders."
(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. 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
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<PAGE> 58
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 following tables 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.
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<PAGE> 59
<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 potential issuance of 500,000 shares of Common Stock and
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."
(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
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<PAGE> 60
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 contemplated refinancing of the Company's senior
secured indebtedness it is anticipated that the Bank, as Wico's term lender
under the proposed restated senior secured term loan will continue 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. The balance remains outstanding.
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 Wico.
In June 1995, the Blue Diamond Warrant was exercised in full. In addition, in
July 1994, Ms.
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<PAGE> 61
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 11,445,824
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.
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<PAGE> 62
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
-54-
<PAGE> 63
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.
-55-
<PAGE> 64
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 and Private Placement 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).
In connection with its pending private placement exchange offer of 11%
$2,737,500 non-convertible Exchange Notes due October 1, 1996 to holders of
$2,737,500 of Private Placement Notes, the Company has agreed to issue to the
holders of such Private Placement Notes who exchange such convertible notes for
11% non-convertible Exchange Notes, a maximum of 54,750 Private Placement
Warrants (at the rate of a Private Placement Warrant to purchase 0.02 shares of
Common Stock for each $1.00 of Private Placement Notes so exchanged). As part of
such transaction, the Company has agreed to register such Private Placement
Warrants, when issued, for sale by the holders thereof, as well as the maximum
54,750 shares of Common Stock issuable upon exercise of such Private Placement
Warrants.
Each of the Class B Warrants and Private Placement Warrants, when issued,
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 either or both of the Class B Warrants and Private
Placement 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 and the Private Placement 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 and Private
Placement 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 or Private Placement
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 Private Placement 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 and Private Placement 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 and Private Placement 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 and Private Placement Warrants are not registered in the state in which
a holder resides, the Class B Warrants and Private Placement Warrants will not
be exercisable and the holders thereof will be deprived of any value therefor.
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<PAGE> 65
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 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
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<PAGE> 66
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) will be issuable to creditors of the Company who have
agreed (subject to their review of this Prospectus and final acceptance of such
terms) 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
if all Shares and
Common Warrants are Sold
--------------------
Stockholder Stock Warrants
----------- ------ --------
<S> <C> <C> <C>
Steven M. Johnson 31,250(1) 750 *
Helen G. Johnson
Wood Alexander Breazeale III 10,417(1) 250 *
John A. Nelson 10,417(1) 250 *
Robert W. Vonderhorst 10,417(1) 250 *
Mitchell S. Rothstein 83,332(1) 2,000 *
Terence D. Jung 10,417(1) 250 *
Michael T. Merlob 20,833(1) 500 *
Richard S. Gebelein 10,417(1) 250 *
Jan Arnett 20,833(1) 500 *
Scott W. Waters, Jr. 41,666(1) 1,000 *
Julian Lee Johnson, IRA 41,666(1) 1,000 *
</TABLE>
-58-
<PAGE> 67
<TABLE>
<CAPTION>
Beneficial Ownership
after the Offering
if all Shares and
Common Warrants are Sold
--------------------
Stockholder Stock Warrants
----------- ------ --------
<S> <C> <C> <C>
Oppenheimer & Company, Inc. C/F
Marion J. Creel 10,417(1) 250 *
Alexander Properties Group, Inc.
c/o Andrew Alexander 10,417(1) 250 *
Marvin Numeroff (TE) 83,332(1) 2,000 *
Nancy Davis 83,332(1) 2,000 *
Kenneth D. Rickel Trustee 41,666(1) 1,000 *
Evelyn Rickel Grantor
Retired Income Trust
Kenneth D. Rickel Trustee
Robert Rickel Grantor
Retired Income Trust 41,666(1) 500 *
Oppenheimer & Company, Inc. C/
Helen R. Hernandez 41,666(1) 1,000 *
Oppenheimer & Company, Inc. C/F
Luis Hernandez 20,833(1) 500 *
William A. Cauldwell 20,833(1) 500 *
Dennis P. Smith 20,833(1) 500 *
Charles H. Vath 10,417(1) 250 *
Theresa Karwacki C/F
Nicole D. Karwacki 10,417(1) 250 *
Theresa Karwacki C/F
Jason P. Karwacki 10,417(1) 250 *
Oppenheimer & Company, Inc. C/F
M. Steven Shannon, IRA 20,833(1) 500 *
James B. Perry and
Judith A. Perry 20,833(1) 500 *
Hugh M. Lokey 10,417(1) 250 *
David Safar C/F
Elena Safar UGMA N.J. 10,417(1) 250 *
Rachelle Safar 10,417(1) 250 *
David and Rachelle Safar (JT) 10,417(1) 250 *
Jeffrey E. Baker 187,497(1) 4,500 *
Sol Feldman 83,332(1) 2,000 *
Ken Holmgren and
Alicia Holmgren (TE) 41,666(1) 1,000 *
Oppenheimer & Company, Inc. C/F
Alice W. Baldwin, IRA 31,250(1) 750 *
Alice W. Baldwin 72,916(1) 1,750 *
Allen Thomas Davis, Jr. 20,833(1) 500 *
E. Hoke Sullivan 20,833(1) 500 *
Del. Charter Guarantee & Trust Co.
TTEE FBO: H. Werner Teichert 20,833(1) 500 *
Oppenheimer & Company, Inc. C/F
Jaya Padmanabhan, MD (IRA) 166,664(1) 4,000 *
</TABLE>
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<PAGE> 68
<TABLE>
<CAPTION>
Beneficial Ownership
after the Offering
if all Shares and
Common Warrants are Sold
--------------------
Stockholder Stock Warrants
----------- ------ --------
<S> <C> <C> <C>
Jaya Padmanabhan 125,000(1) 3,000 *
Oppenheimer & Company, Inc. C/F
Waters Bros. Enterprises, Inc.
Profit Sharing Plan & Trust 83,332(1) 2,000 *
Oppenheimer & Company, Inc. C/F
Waters Bros. Ent., Inc.
Pension Plan & Trust 41,666(1) 1,250 *
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) 500 *
Oppenheimer & Company, Inc. C/F
K.C. Padmanabhan, IRA 10,417(1) 250 *
O. Gray Sheppard, Jr. 28,833(1) 500 *
Donna Franco 10,417(1) 250 *
Cornelius N. Vetten 10,417(1) 250 *
Lois M. Ritter 41,666(1) 1,000 *
Winifred L. Libby Trust
Winifred L. Libby TTEE 62,500(1) 1,500 *
David G. and Maria Hauser (JT) 10,417(1) 250 *
Wayne Malen 83,332(1) 2,000 *
Jeffrey Feldman 20,833(1) 500 *
Saul and Shelly Pomerantz (TE) 20,833(1) 500 *
Alan Feldman 20,833(1) 500 *
Kenneth Hollins 20,833(1) 500 *
Frederic J. Paschkes 20,833(1) 500 *
Michael Schneider 20,833(1) 500 *
Wayne Batson 10,417(1) 250 *
Wade H. Hicks III 20,833(1) 500 *
Harold A. Wright and
Sue Wright 10,417(1) 250 *
Thomas A. Grillo 20,833(1) 500 *
Robert E. Woodard 20,833(1) 500 *
Trisha Hawthorne 41,666(1) 1,000 *
Oppenheimer & Company, Inc. C/F
William D. McGaha, IRA 10,417(1) 250 *
Robert R. Pavese 20,833(1) 500 *
Robert R. Pavese TTEE u/w/o
Lynn Kolp FBO Chris Kolp u/w/o 10,417(1) 250 *
Wesley Weili Pan and 10,417(1) 250 *
Jian Zhang (JT)
Hector E. Perez 10,417(1) 250 *
</TABLE>
-60-
<PAGE> 69
<TABLE>
<CAPTION>
Beneficial Ownership
after the Offering
if all Shares and
Common Warrants are Sold
--------------------
Stockholder Stock Warrants
----------- ------ --------
<S> <C> <C> <C>
Fred K. Ogilvie 10,417(1) 250 *
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) -- *
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) -- *
</TABLE>
-61-
<PAGE> 70
<TABLE>
<CAPTION>
Beneficial Ownership
after the Offering
if all Shares and
Common Warrants are Sold
--------------------
Stockholder Stock Warrants
----------- ------ --------
<S> <C> <C> <C>
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) -- *
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) -- *
</TABLE>
-62-
<PAGE> 71
<TABLE>
<CAPTION>
Beneficial Ownership
after the Offering
if all Shares and
Common Warrants are Sold
--------------------
Stockholder Stock Warrants
----------- ------ --------
<S> <C> <C> <C>
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) Represents: (i) 20,833 1994 Private Placement Conversion Shares (at an
assumed conversion price of $1.20 per share) issuable upon conversion of
each $25,000 principal amount of Private Placement Notes, and (ii) 500
Private Placement Warrants to be issued in connection with the proposed
1995 amendment to the Private Placement Notes for each $25,000 principal
amount of new 11% non-convertible Private Placement Notes issued pursuant
to the 1995 amendment to the terms of the 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 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.
-63-
<PAGE> 72
(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 29, 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."
(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.
-64-
<PAGE> 73
PLAN OF DISTRIBUTION
The Company Shares
The Company intends to commence the offer and sale of the 1,750,000 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
1,750,000 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 September 29, 1995, the closing sale price of the Company's
Common Stock, as traded on NASDAQ, was $1.75 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 1,750,000 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) Private Placement Warrants,
(iii) Selling Stockholders' Shares, (iv) 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 (v) 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 or
Private Placement 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 ($1.75 on September 29, 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 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
-65-
<PAGE> 74
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, through the writing of options on the securities 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.
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
-66-
<PAGE> 75
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.
-67-
<PAGE> 76
[This page intentionally left blank]
<PAGE> 77
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> 78
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> 79
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 5,604,581 3,655,189
NET ASSETS OF DISCONTINUED OPERATIONS 4,250,000 --
----------- -----------
$27,435,700 $19,912,170
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F - 3
<PAGE> 80
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 12,373,815 428,191
Treasury stock warrant - (360,000)
Accumulated deficit (13,945,520) (13,863,145)
Foreign currency translation adjustment (81,693) (126,509)
------------ ------------
1,238,944 (10,424,671)
------------ ------------
$ 27,435,700 $ 19,912,170
============ ============
</TABLE>
See notes to financial statements.
F - 4
<PAGE> 81
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 COMMON SHARE $ 0.00 $ 0.06 $ (0.07)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 7,675,000 7,181,000 7,181,000
=========== =========== ===========
</TABLE>
See notes to financial statements.
F - 5
<PAGE> 82
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 3,025,000
Warrants and shares issued in connection with debt offerings 37,500
----------- --------- ---------- ---------
BALANCE - SEPTEMBER 30, 1994 9,158,677 $ 91,587 12,373,815 $ -
=========== ========= ========== =========
</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 3,025,000
Warrants and shares issued in connection with debt offerings 37,500
------------ --------- ------------
BALANCE - SEPTEMBER 30, 1994 $(13,945,520) $ (81,693) $ 1,238,944
============ ========= ============
</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> 83
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> 84
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> 85
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> 86
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> 87
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> 88
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.
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> 89
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> 90
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) 2-5 637,433 360,999
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
---------- ----------
7,909,494 5,590,970
Less: accumulated amortization 2,304,913 1,935,781
---------- ----------
$5,604,581 $3,655,189
========== ==========
</TABLE>
F-14
<PAGE> 91
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> 92
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
$3,100,000 and to the private placement lenders $350,000 (of which
$200,000 has been
F-16
<PAGE> 93
recognized at September 30, 1994). The credit to paid-in capital for
the debt discount has been reduced by the $375,000 of payments to be
made by Conquest in fiscal 1995.
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> 94
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> 95
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> 96
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> 97
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 710,000 721,000
Net income per common share $ .04 $ .07
</TABLE>
F-21
<PAGE> 98
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> 99
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> 100
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 Setempber 30, 1995, the Company is not in compliance with certain
financial covenants under its loan agreement with its institutional
lender. Prior to effectiveness of the registration statement, the
Company will resolve these defaults by either: (1) obtaining a waiver
in connection with the contemplated refinancing, or (2) obtaining
seperate written waiver from such bank. Although the Bank waived its
requirement through June 30, 1995, there can be no assurance that such
non compliance will be waived as of September 30, 1995.
F-24
<PAGE> 101
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 $ 2,739,276 $ 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 16,137,171 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 5,871,820 5,871,820 5,604,581
NET ASSETS OF AIRLINE TRANSFERRED UNDER
CONTRACTUAL ARRANGEMENT 4,250,000 4,250,000 -
NET ASSETS OF AIRLINE HELD FOR SALE - - 4,250,000
----------- ----------- -----------
$29,078,305 $28,248,305 $27,435,700
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-25
<PAGE> 102
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 $ 6,083,625 $ 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 1,500,000
Notes payable - shareholder - 150,000 -
Income taxes payable 72,340 72,340 25,018
------------ ------------ ------------
TOTAL CURRENT LIABILITIES 10,265,401 10,415,401 9,490,907
LONG-TERM DEBT 17,443,349 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 112,512 102,739 91,587
Additional paid-in capital 16,641,657 15,471,430 12,373,815
Accumulated deficit (18,105,633) (18,105,633) (13,945,520)
Foreign currency translation adjustment (79,736) (79,736) (81,693)
------------ ------------ ------------
1,369,555 389,555 1,238,944
------------ ------------ ------------
$ 29,078,305 $ 28,248,305 $ 27,435,700
============ ============ ============
</TABLE>
See notes to financial statements.
F-26
<PAGE> 103
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 112,328 92,328 296,985 232,270
------------ ------------ ------------ ------------
3,791,576 2,979,399 10,952,323 9,450,650
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) (612,687) 537,009 (390,903) 2,478,103
------------ ------------ ------------ ------------
OTHER EXPENSES (INCOME):
Loss from airline operations 2,092,051 - 2,703,059 -
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
------------ ------------ ------------ ------------
3,036,207 736,542 5,298,210 1,605,378
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (3,648,894) (199,533) (5,689,113) 872,725
------------ ------------ ------------ ------------
PROVISION FOR INCOME TAXES (BENEFIT) (1,230,000) (101,450) (1,739,000) 323,000
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (2,418,894) $ (98,083) $ (3,950,113) $ 549,725
============ ============ ============ ============
EARNINGS (LOSS) PER SHARE
Net inncome (loss) $ (0.26) $ (0.03) $ (0.45) $ 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> 104
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 12,373,815 $ -
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 15,471,430 $ -
======= =========== ========== ============ ========== =======
<CAPTION>
Foreign
Retained Currency
Earnings Translation
(Deficit) Adjustment Totals
------------- ----------- -----------
<S> <C> <C> <C>
BALANCE - SEPTEMBER 30, 1994 $(13,945,520) $ (81,693) $1,238,944
Net loss (3,950,113) (3,950,113)
Reallocation of Purchase of CAC. 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 $(18,105,633) $ (79,736) $ 389,555
============ ========= ===========
</TABLE>
See notes to financial statements.
F-28
<PAGE> 105
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) $(3,950,113) $ 549,725
----------- -----------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 1,555,687 557,196
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 3,587,199 506,688
----------- -----------
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> 106
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> 107
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.
F-31
<PAGE> 108
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 continue to evaluate the assets it has received and the financial
position of Air LA and may change the carrying value at some future date.
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> 109
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> 110
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 (1,753,000)
F-34
<PAGE> 111
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> 112
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> 113
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> 114
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> 115
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> 116
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> 117
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> 118
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> 119
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> 120
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> 121
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> 122
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> 123
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> 124
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> 125
<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> 126
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)(2) 175,394 --
Other (266,387) -- (266,387)(3) 239,987 (26,400)
----------- ---------- ----------- -------- ----------
Total other income (expense) (2,455,658) -- (2,455,658) 415,381 (2,040,277)
----------- ---------- ----------- -------- ----------
INCOME (LOSS) BEFORE TAXES 489,825 307,596 797,421 415,381 1,154,802
PROVISION FOR INCOME TAXES 206,201 107,043 313,244(4) 131,807 445,051
----------- ---------- ---------- -------- ----------
NET INCOME $ 283,624 $ 200,553 $ 484,177 $283,574 $ 709,751
=========== ========== ========== ======== ==========
</TABLE>
See Notes to Pro-Forma Consolidated Statement of Operations
F-50
<PAGE> 127
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 elimination of the write-off of registration costs.
3. The elimination of the write-off of certain deferred loan costs.
4. The income tax effect of the above at 38%.
F-51
<PAGE> 128
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> 129
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> 130
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> 131
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> 1
Exhibit 10(Q)
CONQUEST INDUSTRIES, INC.
2215 E.M. FRANKLIN AVENUE
AUSTIN, TEXAS 78723
September 13, 1995
Mr. Steven Sherb
c/o Feldman Radin & Co., P.C.
805 Third Avenue
New York, New York 10022
RE: CONQUEST INDUSTRIES, INC.
Dear Mr. Sherb:
This letter will acknowledge that you have claimed that Conquest
Industries, Inc., a Delaware corporation ("Conquest") and/or certain of its
wholly owned subsidiaries (collectively with Conquest, the "Corporations") are
indebted to you for services rendered and/or pursuant to existing agreements in
the approximate amount of $20,000.00 (the "Indebtedness").
This letter will confirm the offer by Conquest to sell to you an
aggregate of 10,000 shares of common stock of Conquest, $.001 par value per
share (the "Subject Shares"), at a purchase price of $2.00 per share (the "Per
Share Price") in full and final settlement of all claims made by you with
respect to the Indebtedness. You have indicated an interest in purchasing the
Subject Shares from Conquest upon the terms and conditions set forth below.
1. The Subject Shares shall be registered under the Securities
Act of 1933 as amended (the "Act") and, if you accept Conquest's offer to
purchase the Subject Shares (in the manner hereinafter provided), you shall be
included as a Selling Stockholder in the Prospectus forming a part of the
registration statement pursuant to which the Subject Shares shall be registered
under the Act.
2. You shall purchase and pay for all or any portion of the
Subject Shares which you shall elect to purchase, against delivery of stock
certificates evidencing such Subject Shares, an amount equal to the aggregate
number of Subject Shares purchased by you, multiplied by the Per Share Price
(the "Purchase Price") either in cash, or by extinguishing the Indebtedness
which you claim is owed to you which shall equal the Purchase Price of such
Subject Shares. In the event you shall elect to pay the Purchase Price in cash,
the Conquest shall forthwith pay to you an amount equal to the Purchase Price
paid by you, in cancellation of the Indebtedness.
3. Your obligation to purchase all or any portion of the
Subject Shares shall be expressly conditioned upon Conquest delivering to you
either (A) a final Prospectus declared effective by the Securities and Exchange
Commission (the "SEC") pursuant to which your
<PAGE> 2
Mr. Steven Sherb
September __, 1995
Page 2
Subject Shares shall have been registered under the Act; or (B) a preliminary
Prospectus which shall be in response to comments from the SEC and which shall
not, in the opinion of securities counsel to the Company, Messrs. Solomon, Weiss
& Moskowitz, be subject to any further amendments prior to effectiveness, which
would otherwise require recirculation of such preliminary Prospectus (either of
the prospectuses referred to in this Paragraph 3 are deemed to be a "Final
Prospectus").
4. You hereby agree, by your execution of this letter, that
unless you have notified Conquest, in writing, within 10 days of receipt of the
Final Prospectus of your election not to Purchase all of the Subject Shares
offered to you hereunder, you shall be deemed to have accepted Conquest's offer,
and pay the Purchase Price for all Subject Shares referred to above, at a
closing which shall be held not later than 30 days following receipt of such
Final Prospectus at the offices of Jaspan, Ginsberg, Schlesinger, Silverman &
Hoffman, 300 Garden City Plaza, Garden City, New York 11530. At such closing,
Conquest shall deliver to you stock certificates evidencing your Subject Shares,
and (unless you elect to pay the Purchase Price in cash as aforesaid) you shall
pay the Purchase Price therefor by extinguishing the Indebtedness, in full.
5. Any notice given by you to Conquest shall be deemed to have
been validly given if given by recognized overnight courier service such as
Federal Express or by certified mail, postage prepaid, addressed to Conquest
Industries, Inc., c/o Jaspan, Ginsberg, Schlesinger, Silverman & Hoffman, 300
Garden City Plaza, Garden City, New York 11530., Attention: Allen Perlstein,
Esq.
6. Both you and Conquest acknowledge that as a Selling
Stockholder, you will be obligated to deliver a current Prospectus on each
occasion that you make sales of the Subject Shares, whether such sales are made
directly by you or through broker/dealers; which Prospectus must indicate the
name of the beneficial owner(s) of the Subject Shares and the aggregate amount
of Subject Shares being offered. Conquest has agreed (I) to file, during any
period in which offers or sales of Subject Shares are being made, a
post-effective amendment to the registration statement on Form-S-1 under the Act
(the "Registration Statement"), (II) to make available a Prospectus to each
Selling Stockholder upon request, (III) to amend such Prospectus from time to
time after the effective date of the Final Prospectus 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 Subject Shares which remain unsold at the termination of
the offering which is anticipated to occur on or about July 31, 1997. In such
<PAGE> 3
Mr. Steven Sherb
September __, 1995
Page 3
connection, you acknowledge that you, as a Selling Stockholder, and any
broker/dealer that may act on your behalf in connection with the sale of Subject
Shares may be deemed to be "underwriters" within the meaning of Section 2(11) of
the Act, and any commission or profit received by a broker/dealer from the
purchase or resale of Subject Shares as principals might be deemed to be
underwriting discounts and commissions under the Act.
7. Conquest shall have the absolute right, in its sole
discretion, to withdraw its offer of sale of the Subject Shares to you at any
time prior to the effectiveness of the Final Prospectus. Any such withdrawal of
our offer shall not however, reduce or otherwise affect the Indebtedness which
you claim is owed to you.
8. In the event the closing of the transaction contemplated
herein does not take place, the parties hereto reserve any rights they may have
one against the other with respect to the Indebtedness or otherwise.
If the foregoing accurately reflects the substance our mutual agreement
and understanding at this time, please so indicate by executing a copy of this
letter in the space provided below.
Very truly yours,
CONQUEST INDUSTRIES, INC.
By: /s/ JERRY KARLIK
-------------------------------------
Jerry Karlik, Chief Financial Officer
ACCEPTED AND AGREED TO:
/s/ STEVEN SHERB
- -------------------------------
STEVEN SHERB
Dated: September 13, 1995
<PAGE> 4
CONQUEST INDUSTRIES, INC.
2215 E.M. FRANKLIN AVENUE
AUSTIN, TEXAS 78723
September 12, 1995
Mr. Paul Ehrlich
c/o Feldman Radin & Co., P.C.
805 Third Avenue
New York, New York 10022
RE: CONQUEST INDUSTRIES, INC.
Dear Mr. Ehrlich:
This letter will acknowledge that you have claimed that Conquest
Industries, Inc., a Delaware corporation ("Conquest") and/or certain of its
wholly owned subsidiaries (collectively with Conquest, the "Corporations") are
indebted to you for services rendered and/or pursuant to existing agreements in
the approximate amount of $16,000.00 (the "Indebtedness").
This letter will confirm the offer by Conquest to sell to you an
aggregate of 8,000 shares of common stock of Conquest, $.001 par value per share
(the "Subject Shares"), at a purchase price of $2.00 per share (the "Per Share
Price") in full and final settlement of all claims made by you with respect to
the Indebtedness. You have indicated an interest in purchasing the Subject
Shares from Conquest upon the terms and conditions set forth below.
1. The Subject Shares shall be registered under the Securities
Act of 1933 as amended (the "Act") and, if you accept Conquest's offer to
purchase the Subject Shares (in the manner hereinafter provided), you shall be
included as a Selling Stockholder in the Prospectus forming a part of the
registration statement pursuant to which the Subject Shares shall be registered
under the Act.
2. You shall purchase and pay for all or any portion of the
Subject Shares which you shall elect to purchase, against delivery of stock
certificates evidencing such Subject Shares, an amount equal to the aggregate
number of Subject Shares purchased by you, multiplied by the Per Share Price
(the "Purchase Price") either in cash, or by extinguishing the Indebtedness
which you claim is owed to you which shall equal the Purchase Price of such
Subject Shares. In the event you shall elect to pay the Purchase Price in cash,
the Conquest shall forthwith pay to you an amount equal to the Purchase Price
paid by you, in cancellation of the Indebtedness.
3. Your obligation to purchase all or any portion of the
Subject Shares shall be expressly conditioned upon Conquest delivering to you
either (A) a final Prospectus declared effective by the Securities and Exchange
Commission (the "SEC") pursuant to which your
<PAGE> 5
Mr. Paul Ehrlich
September __, 1995
Page 2
Subject Shares shall have been registered under the Act; or (B) a preliminary
Prospectus which shall be in response to comments from the SEC and which shall
not, in the opinion of securities counsel to the Company, Messrs. Solomon, Weiss
& Moskowitz, be subject to any further amendments prior to effectiveness, which
would otherwise require recirculation of such preliminary Prospectus (either of
the prospectuses referred to in this Paragraph 3 are deemed to be a "Final
Prospectus").
4. You hereby agree, by your execution of this letter, that
unless you have notified Conquest, in writing, within 10 days of receipt of the
Final Prospectus of your election not to Purchase all of the Subject Shares
offered to you hereunder, you shall be deemed to have accepted Conquest's offer,
and pay the Purchase Price for all Subject Shares referred to above, at a
closing which shall be held not later than 30 days following receipt of such
Final Prospectus at the offices of Jaspan, Ginsberg, Schlesinger, Silverman &
Hoffman, 300 Garden City Plaza, Garden City, New York 11530. At such closing,
Conquest shall deliver to you stock certificates evidencing your Subject Shares,
and (unless you elect to pay the Purchase Price in cash as aforesaid) you shall
pay the Purchase Price therefor by extinguishing the Indebtedness, in full.
5. Any notice given by you to Conquest shall be deemed to have
been validly given if given by recognized overnight courier service such as
Federal Express or by certified mail, postage prepaid, addressed to Conquest
Industries, Inc., c/o Jaspan, Ginsberg, Schlesinger, Silverman & Hoffman, 300
Garden City Plaza, Garden City, New York 11530., Attention: Allen Perlstein,
Esq.
6. Both you and Conquest acknowledge that as a Selling
Stockholder, you will be obligated to deliver a current Prospectus on each
occasion that you make sales of the Subject Shares, whether such sales are made
directly by you or through broker/dealers; which Prospectus must indicate the
name of the beneficial owner(s) of the Subject Shares and the aggregate amount
of Subject Shares being offered. Conquest has agreed (I) to file, during any
period in which offers or sales of Subject Shares are being made, a
post-effective amendment to the registration statement on Form-S-1 under the Act
(the "Registration Statement"), (II) to make available a Prospectus to each
Selling Stockholder upon request, (III) to amend such Prospectus from time to
time after the effective date of the Final Prospectus 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 Subject Shares which remain unsold at the termination of
the offering which is anticipated to occur on or about July 31, 1997. In such
<PAGE> 6
Mr. Paul Ehrlich
September __, 1995
Page 3
connection, you acknowledge that you, as a Selling Stockholder, and any
broker/dealer that may act on your behalf in connection with the sale of Subject
Shares may be deemed to be "underwriters" within the meaning of Section 2(11) of
the Act, and any commission or profit received by a broker/dealer from the
purchase or resale of Subject Shares as principals might be deemed to be
underwriting discounts and commissions under the Act.
7. Conquest shall have the absolute right, in its sole
discretion, to withdraw its offer of sale of the Subject Shares to you at any
time prior to the effectiveness of the Final Prospectus. Any such withdrawal of
our offer shall not however, reduce or otherwise affect the Indebtedness which
you claim is owed to you.
8. In the event the closing of the transaction contemplated
herein does not take place, the parties hereto reserve any rights they may have
one against the other with respect to the Indebtedness or otherwise.
If the foregoing accurately reflects the substance our mutual agreement
and understanding at this time, please so indicate by executing a copy of this
letter in the space provided below.
Very truly yours,
CONQUEST INDUSTRIES, INC.
By: /s/ JERRY KARLIK
-------------------------------------
Jerry Karlik, Chief Financial Officer
ACCEPTED AND AGREED TO:
/s/ PAUL EHRLICH
- -------------------------------
PAUL EHRLICH
Dated: September 12, 1995
<PAGE> 7
CONQUEST INDUSTRIES, INC.
2215 E.M. FRANKLIN AVENUE
AUSTIN, TEXAS 78723
September 12, 1995
Mr. Arthur Radin
c/o Feldman Radin & Co., P.C.
805 Third Avenue
New York, New York 10022
RE: CONQUEST INDUSTRIES, INC.
Dear Mr. Radin:
This letter will acknowledge that you have claimed that Conquest
Industries, Inc., a Delaware corporation ("Conquest") and/or certain of its
wholly owned subsidiaries (collectively with Conquest, the "Corporations") are
indebted to you for services rendered and/or pursuant to existing agreements in
the approximate amount of $87,000.00 (the "Indebtedness").
This letter will confirm the offer by Conquest to sell to you an
aggregate of 43,500 shares of common stock of Conquest, $.001 par value per
share (the "Subject Shares"), at a purchase price of $2.00 per share (the "Per
Share Price") in full and final settlement of all claims made by you with
respect to the Indebtedness. You have indicated an interest in purchasing the
Subject Shares from Conquest upon the terms and conditions set forth below.
1. The Subject Shares shall be registered under the Securities
Act of 1933 as amended (the "Act") and, if you accept Conquest's offer to
purchase the Subject Shares (in the manner hereinafter provided), you shall be
included as a Selling Stockholder in the Prospectus forming a part of the
registration statement pursuant to which the Subject Shares shall be registered
under the Act.
2. You shall purchase and pay for all or any portion of the
Subject Shares which you shall elect to purchase, against delivery of stock
certificates evidencing such Subject Shares, an amount equal to the aggregate
number of Subject Shares purchased by you, multiplied by the Per Share Price
(the "Purchase Price") either in cash, or by extinguishing the Indebtedness
which you claim is owed to you which shall equal the Purchase Price of such
Subject Shares. In the event you shall elect to pay the Purchase Price in cash,
the Conquest shall forthwith pay to you an amount equal to the Purchase Price
paid by you, in cancellation of the Indebtedness.
3. Your obligation to purchase all or any portion of the
Subject Shares shall be expressly conditioned upon Conquest delivering to you
either (A) a final Prospectus declared effective by the Securities and Exchange
Commission (the "SEC") pursuant to which your
<PAGE> 8
Mr. Arthur Radin
September __, 1995
Page 2
Subject Shares shall have been registered under the Act; or (B) a preliminary
Prospectus which shall be in response to comments from the SEC and which shall
not, in the opinion of securities counsel to the Company, Messrs. Solomon, Weiss
& Moskowitz, be subject to any further amendments prior to effectiveness, which
would otherwise require recirculation of such preliminary Prospectus (either of
the prospectuses referred to in this Paragraph 3 are deemed to be a "Final
Prospectus").
4. You hereby agree, by your execution of this letter, that
unless you have notified Conquest, in writing, within 10 days of receipt of the
Final Prospectus of your election not to Purchase all of the Subject Shares
offered to you hereunder, you shall be deemed to have accepted Conquest's offer,
and pay the Purchase Price for all Subject Shares referred to above, at a
closing which shall be held not later than 30 days following receipt of such
Final Prospectus at the offices of Jaspan, Ginsberg, Schlesinger, Silverman &
Hoffman, 300 Garden City Plaza, Garden City, New York 11530. At such closing,
Conquest shall deliver to you stock certificates evidencing your Subject Shares,
and (unless you elect to pay the Purchase Price in cash as aforesaid) you shall
pay the Purchase Price therefor by extinguishing the Indebtedness, in full.
5. Any notice given by you to Conquest shall be deemed to have
been validly given if given by recognized overnight courier service such as
Federal Express or by certified mail, postage prepaid, addressed to Conquest
Industries, Inc., c/o Jaspan, Ginsberg, Schlesinger, Silverman & Hoffman, 300
Garden City Plaza, Garden City, New York 11530., Attention: Allen Perlstein,
Esq.
6. Both you and Conquest acknowledge that as a Selling
Stockholder, you will be obligated to deliver a current Prospectus on each
occasion that you make sales of the Subject Shares, whether such sales are made
directly by you or through broker/dealers; which Prospectus must indicate the
name of the beneficial owner(s) of the Subject Shares and the aggregate amount
of Subject Shares being offered. Conquest has agreed (I) to file, during any
period in which offers or sales of Subject Shares are being made, a
post-effective amendment to the registration statement on Form-S-1 under the Act
(the "Registration Statement"), (II) to make available a Prospectus to each
Selling Stockholder upon request, (III) to amend such Prospectus from time to
time after the effective date of the Final Prospectus 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 Subject Shares which remain unsold at the termination of
the offering which is anticipated to occur on or about July 31, 1997. In such
<PAGE> 9
Mr. Arthur Radin
September __, 1995
Page 3
connection, you acknowledge that you, as a Selling Stockholder, and any
broker/dealer that may act on your behalf in connection with the sale of Subject
Shares may be deemed to be "underwriters" within the meaning of Section 2(11) of
the Act, and any commission or profit received by a broker/dealer from the
purchase or resale of Subject Shares as principals might be deemed to be
underwriting discounts and commissions under the Act.
7. Conquest shall have the absolute right, in its sole
discretion, to withdraw its offer of sale of the Subject Shares to you at any
time prior to the effectiveness of the Final Prospectus. Any such withdrawal of
our offer shall not however, reduce or otherwise affect the Indebtedness which
you claim is owed to you.
8. In the event the closing of the transaction contemplated
herein does not take place, the parties hereto reserve any rights they may have
one against the other with respect to the Indebtedness or otherwise.
If the foregoing accurately reflects the substance our mutual agreement
and understanding at this time, please so indicate by executing a copy of this
letter in the space provided below.
Very truly yours,
CONQUEST INDUSTRIES, INC.
By: /s/ JERRY KARLIK
-------------------------------------
Jerry Karlik, Chief Financial Officer
ACCEPTED AND AGREED TO:
/s/ ARTHUR RADIN
- -------------------------------
ARTHUR RADIN
Dated: September 12, 1995
<PAGE> 10
CONQUEST INDUSTRIES, INC.
2215 E.M. FRANKLIN AVENUE
AUSTIN, TEXAS 78723
September 13, 1995
Mr. Elliot Glass
c/o Feldman Radin & Co., P.C.
805 Third Avenue
New York, New York 10022
RE: CONQUEST INDUSTRIES, INC.
Dear Mr. Glass:
This letter will acknowledge that you have claimed that Conquest
Industries, Inc., a Delaware corporation ("Conquest") and/or certain of its
wholly owned subsidiaries (collectively with Conquest, the "Corporations") are
indebted to you for services rendered and/or pursuant to existing agreements in
the approximate amount of $25,000.00 (the "Indebtedness").
This letter will confirm the offer by Conquest to sell to you an
aggregate of 12,500 shares of common stock of Conquest, $.001 par value per
share (the "Subject Shares"), at a purchase price of $2.00 per share (the "Per
Share Price") in full and final settlement of all claims made by you with
respect to the Indebtedness. You have indicated an interest in purchasing the
Subject Shares from Conquest upon the terms and conditions set forth below.
1. The Subject Shares shall be registered under the Securities
Act of 1933 as amended (the "Act") and, if you accept Conquest's offer to
purchase the Subject Shares (in the manner hereinafter provided), you shall be
included as a Selling Stockholder in the Prospectus forming a part of the
registration statement pursuant to which the Subject Shares shall be registered
under the Act.
2. You shall purchase and pay for all or any portion of the
Subject Shares which you shall elect to purchase, against delivery of stock
certificates evidencing such Subject Shares, an amount equal to the aggregate
number of Subject Shares purchased by you, multiplied by the Per Share Price
(the "Purchase Price") either in cash, or by extinguishing the Indebtedness
which you claim is owed to you which shall equal the Purchase Price of such
Subject Shares. In the event you shall elect to pay the Purchase Price in cash,
the Conquest shall forthwith pay to you an amount equal to the Purchase Price
paid by you, in cancellation of the Indebtedness.
3. Your obligation to purchase all or any portion of the
Subject Shares shall be expressly conditioned upon Conquest delivering to you
either (A) a final Prospectus declared effective by the Securities and Exchange
Commission (the "SEC") pursuant to which your
<PAGE> 11
Mr. Elliot Glass
September __, 1995
Page 2
Subject Shares shall have been registered under the Act; or (B) a preliminary
Prospectus which shall be in response to comments from the SEC and which shall
not, in the opinion of securities counsel to the Company, Messrs. Solomon, Weiss
& Moskowitz, be subject to any further amendments prior to effectiveness, which
would otherwise require recirculation of such preliminary Prospectus (either of
the prospectuses referred to in this Paragraph 3 are deemed to be a "Final
Prospectus").
4. You hereby agree, by your execution of this letter, that
unless you have notified Conquest, in writing, within 10 days of receipt of the
Final Prospectus of your election not to Purchase all of the Subject Shares
offered to you hereunder, you shall be deemed to have accepted Conquest's offer,
and pay the Purchase Price for all Subject Shares referred to above, at a
closing which shall be held not later than 30 days following receipt of such
Final Prospectus at the offices of Jaspan, Ginsberg, Schlesinger, Silverman &
Hoffman, 300 Garden City Plaza, Garden City, New York 11530. At such closing,
Conquest shall deliver to you stock certificates evidencing your Subject Shares,
and (unless you elect to pay the Purchase Price in cash as aforesaid) you shall
pay the Purchase Price therefor by extinguishing the Indebtedness, in full.
5. Any notice given by you to Conquest shall be deemed to have
been validly given if given by recognized overnight courier service such as
Federal Express or by certified mail, postage prepaid, addressed to Conquest
Industries, Inc., c/o Jaspan, Ginsberg, Schlesinger, Silverman & Hoffman, 300
Garden City Plaza, Garden City, New York 11530., Attention: Allen Perlstein,
Esq.
6. Both you and Conquest acknowledge that as a Selling
Stockholder, you will be obligated to deliver a current Prospectus on each
occasion that you make sales of the Subject Shares, whether such sales are made
directly by you or through broker/dealers; which Prospectus must indicate the
name of the beneficial owner(s) of the Subject Shares and the aggregate amount
of Subject Shares being offered. Conquest has agreed (I) to file, during any
period in which offers or sales of Subject Shares are being made, a
post-effective amendment to the registration statement on Form-S-1 under the Act
(the "Registration Statement"), (II) to make available a Prospectus to each
Selling Stockholder upon request, (III) to amend such Prospectus from time to
time after the effective date of the Final Prospectus 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 Subject Shares which remain unsold at the termination of
the offering which is anticipated to occur on or about July 31, 1997. In such
<PAGE> 12
Mr. Elliot Glass
September __, 1995
Page 3
connection, you acknowledge that you, as a Selling Stockholder, and any
broker/dealer that may act on your behalf in connection with the sale of Subject
Shares may be deemed to be "underwriters" within the meaning of Section 2(11) of
the Act, and any commission or profit received by a broker/dealer from the
purchase or resale of Subject Shares as principals might be deemed to be
underwriting discounts and commissions under the Act.
7. Conquest shall have the absolute right, in its sole
discretion, to withdraw its offer of sale of the Subject Shares to you at any
time prior to the effectiveness of the Final Prospectus. Any such withdrawal of
our offer shall not however, reduce or otherwise affect the Indebtedness which
you claim is owed to you.
8. In the event the closing of the transaction contemplated
herein does not take place, the parties hereto reserve any rights they may have
one against the other with respect to the Indebtedness or otherwise.
If the foregoing accurately reflects the substance our mutual agreement
and understanding at this time, please so indicate by executing a copy of this
letter in the space provided below.
Very truly yours,
CONQUEST INDUSTRIES, INC.
By: /s/ JERRY KARLIK
-------------------------------------
Jerry Karlik, Chief Financial Officer
ACCEPTED AND AGREED TO:
/s/ ELLIOT GLASS
- -------------------------------
ELLIOT GLASS
Dated: September 13, 1995
<PAGE> 13
CONQUEST INDUSTRIES, INC.
2215 E.M. FRANKLIN AVENUE
AUSTIN, TEXAS 78723
September 13, 1995
Ms. Marsha Ellowitz
c/o Feldman Radin & Co., P.C.
805 Third Avenue
New York, New York 10022
RE: CONQUEST INDUSTRIES, INC.
Dear Ms. Ellowitz:
This letter will acknowledge that you have claimed that Conquest
Industries, Inc., a Delaware corporation ("Conquest") and/or certain of its
wholly owned subsidiaries (collectively with Conquest, the "Corporations") are
indebted to you for services rendered and/or pursuant to existing agreements in
the approximate amount of $10,000.00 (the "Indebtedness").
This letter will confirm the offer by Conquest to sell to you an
aggregate of 5,000 shares of common stock of Conquest, $.001 par value per share
(the "Subject Shares"), at a purchase price of $2.00 per share (the "Per Share
Price") in full and final settlement of all claims made by you with respect to
the Indebtedness. You have indicated an interest in purchasing the Subject
Shares from Conquest upon the terms and conditions set forth below.
1. The Subject Shares shall be registered under the Securities
Act of 1933 as amended (the "Act") and, if you accept Conquest's offer to
purchase the Subject Shares (in the manner hereinafter provided), you shall be
included as a Selling Stockholder in the Prospectus forming a part of the
registration statement pursuant to which the Subject Shares shall be registered
under the Act.
2. You shall purchase and pay for all or any portion of the
Subject Shares which you shall elect to purchase, against delivery of stock
certificates evidencing such Subject Shares, an amount equal to the aggregate
number of Subject Shares purchased by you, multiplied by the Per Share Price
(the "Purchase Price") either in cash, or by extinguishing the Indebtedness
which you claim is owed to you which shall equal the Purchase Price of such
Subject Shares. In the event you shall elect to pay the Purchase Price in cash,
the Conquest shall forthwith pay to you an amount equal to the Purchase Price
paid by you, in cancellation of the Indebtedness.
3. Your obligation to purchase all or any portion of the
Subject Shares shall be expressly conditioned upon Conquest delivering to you
either (A) a final Prospectus declared
<PAGE> 14
Ms. Marsha Ellowitz
September __, 1995
Page 2
effective by the Securities and Exchange Commission (the "SEC") pursuant to
which your Subject Shares shall have been registered under the Act; or (B) a
preliminary Prospectus which shall be in response to comments from the SEC and
which shall not, in the opinion of securities counsel to the Company, Messrs.
Solomon, Weiss & Moskowitz, be subject to any further amendments prior to
effectiveness, which would otherwise require recirculation of such preliminary
Prospectus (either of the prospectuses referred to in this Paragraph 3 are
deemed to be a "Final Prospectus").
4. You hereby agree, by your execution of this letter, that
unless you have notified Conquest, in writing, within 10 days of receipt of the
Final Prospectus of your election not to Purchase all of the Subject Shares
offered to you hereunder, you shall be deemed to have accepted Conquest's offer,
and pay the Purchase Price for all Subject Shares referred to above, at a
closing which shall be held not later than 30 days following receipt of such
Final Prospectus at the offices of Jaspan, Ginsberg, Schlesinger, Silverman &
Hoffman, 300 Garden City Plaza, Garden City, New York 11530. At such closing,
Conquest shall deliver to you stock certificates evidencing your Subject Shares,
and (unless you elect to pay the Purchase Price in cash as aforesaid) you shall
pay the Purchase Price therefor by extinguishing the Indebtedness, in full.
5. Any notice given by you to Conquest shall be deemed to have
been validly given if given by recognized overnight courier service such as
Federal Express or by certified mail, postage prepaid, addressed to Conquest
Industries, Inc., c/o Jaspan, Ginsberg, Schlesinger, Silverman & Hoffman, 300
Garden City Plaza, Garden City, New York 11530., Attention: Allen Perlstein,
Esq.
6. Both you and Conquest acknowledge that as a Selling
Stockholder, you will be obligated to deliver a current Prospectus on each
occasion that you make sales of the Subject Shares, whether such sales are made
directly by you or through broker/dealers; which Prospectus must indicate the
name of the beneficial owner(s) of the Subject Shares and the aggregate amount
of Subject Shares being offered. Conquest has agreed (I) to file, during any
period in which offers or sales of Subject Shares are being made, a
post-effective amendment to the registration statement on Form-S-1 under the Act
(the "Registration Statement"), (II) to make available a Prospectus to each
Selling Stockholder upon request, (III) to amend such Prospectus from time to
time after the effective date of the Final Prospectus 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 Subject Shares which remain unsold at the
<PAGE> 15
Ms. Marsha Ellowitz
September __, 1995
Page 3
termination of the offering which is anticipated to occur on or about July 31,
1997. In such connection, you acknowledge that you, as a Selling Stockholder,
and any broker/dealer that may act on your behalf in connection with the sale of
Subject Shares may be deemed to be "underwriters" within the meaning of Section
2(11) of the Act, and any commission or profit received by a broker/dealer from
the purchase or resale of Subject Shares as principals might be deemed to be
underwriting discounts and commissions under the Act.
7. Conquest shall have the absolute right, in its sole
discretion, to withdraw its offer of sale of the Subject Shares to you at any
time prior to the effectiveness of the Final Prospectus. Any such withdrawal of
our offer shall not however, reduce or otherwise affect the Indebtedness which
you claim is owed to you.
8. In the event the closing of the transaction contemplated
herein does not take place, the parties hereto reserve any rights they may have
one against the other with respect to the Indebtedness or otherwise.
If the foregoing accurately reflects the substance our mutual agreement
and understanding at this time, please so indicate by executing a copy of this
letter in the space provided below.
Very truly yours,
CONQUEST INDUSTRIES, INC.
By: /s/ JERRY KARLIK
-------------------------------------
Jerry Karlik, Chief Financial Officer
ACCEPTED AND AGREED TO:
/s/ MARSHA ELLOWITZ
- -----------------------------------
MARSHA ELLOWITZ
Dated: September 13, 1995
<PAGE> 16
CONQUEST INDUSTRIES, INC.
2215 E.M. FRANKLIN AVENUE
AUSTIN, TEXAS 78723
September 13, 1995
Mr. Carl Vogt
c/o Feldman Radin & Co., P.C.
805 Third Avenue
New York, New York 10022
RE: CONQUEST INDUSTRIES, INC.
Dear Mr. Vogt:
This letter will acknowledge that you have claimed that Conquest
Industries, Inc., a Delaware corporation ("Conquest") and/or certain of its
wholly owned subsidiaries (collectively with Conquest, the "Corporations") are
indebted to you for services rendered and/or pursuant to existing agreements in
the approximate amount of $5,000.00 (the "Indebtedness").
This letter will confirm the offer by Conquest to sell to you an
aggregate of 2,500 shares of common stock of Conquest, $.001 par value per share
(the "Subject Shares"), at a purchase price of $2.00 per share (the "Per Share
Price") in full and final settlement of all claims made by you with respect to
the Indebtedness. You have indicated an interest in purchasing the Subject
Shares from Conquest upon the terms and conditions set forth below.
1. The Subject Shares shall be registered under the Securities
Act of 1933 as amended (the "Act") and, if you accept Conquest's offer to
purchase the Subject Shares (in the manner hereinafter provided), you shall be
included as a Selling Stockholder in the Prospectus forming a part of the
registration statement pursuant to which the Subject Shares shall be registered
under the Act.
2. You shall purchase and pay for all or any portion of the
Subject Shares which you shall elect to purchase, against delivery of stock
certificates evidencing such Subject Shares, an amount equal to the aggregate
number of Subject Shares purchased by you, multiplied by the Per Share Price
(the "Purchase Price") either in cash, or by extinguishing the Indebtedness
which you claim is owed to you which shall equal the Purchase Price of such
Subject Shares. In the event you shall elect to pay the Purchase Price in cash,
the Conquest shall forthwith pay to you an amount equal to the Purchase Price
paid by you, in cancellation of the Indebtedness.
3. Your obligation to purchase all or any portion of the
Subject Shares shall be expressly conditioned upon Conquest delivering to you
either (A) a final Prospectus declared effective by the Securities and Exchange
Commission (the "SEC") pursuant to which your
<PAGE> 17
Mr. Carl Vogt
September __, 1995
Page 2
Subject Shares shall have been registered under the Act; or (B) a preliminary
Prospectus which shall be in response to comments from the SEC and which shall
not, in the opinion of securities counsel to the Company, Messrs. Solomon, Weiss
& Moskowitz, be subject to any further amendments prior to effectiveness, which
would otherwise require recirculation of such preliminary Prospectus (either of
the prospectuses referred to in this Paragraph 3 are deemed to be a "Final
Prospectus").
4. You hereby agree, by your execution of this letter, that
unless you have notified Conquest, in writing, within 10 days of receipt of the
Final Prospectus of your election not to Purchase all of the Subject Shares
offered to you hereunder, you shall be deemed to have accepted Conquest's offer,
and pay the Purchase Price for all Subject Shares referred to above, at a
closing which shall be held not later than 30 days following receipt of such
Final Prospectus at the offices of Jaspan, Ginsberg, Schlesinger, Silverman &
Hoffman, 300 Garden City Plaza, Garden City, New York 11530. At such closing,
Conquest shall deliver to you stock certificates evidencing your Subject Shares,
and (unless you elect to pay the Purchase Price in cash as aforesaid) you shall
pay the Purchase Price therefor by extinguishing the Indebtedness, in full.
5. Any notice given by you to Conquest shall be deemed to have
been validly given if given by recognized overnight courier service such as
Federal Express or by certified mail, postage prepaid, addressed to Conquest
Industries, Inc., c/o Jaspan, Ginsberg, Schlesinger, Silverman & Hoffman, 300
Garden City Plaza, Garden City, New York 11530., Attention: Allen Perlstein,
Esq.
6. Both you and Conquest acknowledge that as a Selling
Stockholder, you will be obligated to deliver a current Prospectus on each
occasion that you make sales of the Subject Shares, whether such sales are made
directly by you or through broker/dealers; which Prospectus must indicate the
name of the beneficial owner(s) of the Subject Shares and the aggregate amount
of Subject Shares being offered. Conquest has agreed (I) to file, during any
period in which offers or sales of Subject Shares are being made, a
post-effective amendment to the registration statement on Form-S-1 under the Act
(the "Registration Statement"), (II) to make available a Prospectus to each
Selling Stockholder upon request, (III) to amend such Prospectus from time to
time after the effective date of the Final Prospectus 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 Subject Shares which remain unsold at the termination of
the offering which is anticipated to occur on or about July 31, 1997. In such
<PAGE> 18
Mr. Carl Vogt
September __, 1995
Page 3
connection, you acknowledge that you, as a Selling Stockholder, and any
broker/dealer that may act on your behalf in connection with the sale of Subject
Shares may be deemed to be "underwriters" within the meaning of Section 2(11) of
the Act, and any commission or profit received by a broker/dealer from the
purchase or resale of Subject Shares as principals might be deemed to be
underwriting discounts and commissions under the Act.
7. Conquest shall have the absolute right, in its sole
discretion, to withdraw its offer of sale of the Subject Shares to you at any
time prior to the effectiveness of the Final Prospectus. Any such withdrawal of
our offer shall not however, reduce or otherwise affect the Indebtedness which
you claim is owed to you.
8. In the event the closing of the transaction contemplated
herein does not take place, the parties hereto reserve any rights they may have
one against the other with respect to the Indebtedness or otherwise.
If the foregoing accurately reflects the substance our mutual agreement
and understanding at this time, please so indicate by executing a copy of this
letter in the space provided below.
Very truly yours,
CONQUEST INDUSTRIES, INC.
By: /s/ JERRY KARLIK
-------------------------------------
Jerry Karlik, Chief Financial Officer
ACCEPTED AND AGREED TO:
/s/ CARL VOGT
- -----------------------------------
CARL VOGT
Dated: September 13, 1995
<PAGE> 19
CONQUEST INDUSTRIES, INC.
2215 E.M. FRANKLIN AVENUE
AUSTIN, TEXAS 78723
June 30, 1995
Lew Lieberbaum & Co., Inc.
600 Old Country Road
Suite 518
Garden City, New York 11530
Attention: Leonard A. Neuhaus, C.F.O.
RE: CONQUEST INDUSTRIES, INC.
Dear Mr. Neuhaus:
This letter will acknowledge that you have claimed that Conquest
Industries, Inc., a Delaware corporation ("Conquest") and/or certain of its
wholly owned subsidiaries (collectively with Conquest, the "Corporations") are
indebted to you for services rendered and/or pursuant to existing agreements in
the approximate amount of $108,000.00 (the "Indebtedness") as evidenced by
paragraph 5 of a certain letter between you and Conquest dated June 20, 1994 and
attached hereto as Exhibit "A" (the "Letter Agreement").
This letter will confirm the offer by Conquest to sell to you an
aggregate of 75,000 shares of common stock of Conquest, $.001 par value per
share (the "Subject Shares"), at a purchase price of $2.00 per share (the "Per
Share Price") in full and final settlement of all claims made by you with
respect to the Indebtedness. You have indicated an interest in purchasing the
Subject Shares from Conquest upon the terms and conditions set forth below.
1. The Subject Shares shall be registered under the Securities
Act of 1933 as amended (the "Act") and, if you accept Conquest's offer to
purchase the Subject Shares (in the manner hereinafter provided), you shall be
included as a Selling Stockholder in the Prospectus forming a part of the
registration statement pursuant to which the Subject Shares shall be registered
under the Act.
2. You shall purchase and pay for all or any portion of the
Subject Shares which you shall elect to purchase, against delivery of stock
certificates evidencing such Subject Shares, an amount equal to the aggregate
number of Subject Shares purchased by you, multiplied by the Per Share Price
(the "Purchase Price") either in cash, or by extinguishing the Indebtedness
which you claim is owed to you which shall equal the Purchase Price of such
Subject Shares. In the event you shall elect to pay the Purchase Price in cash,
Conquest shall forthwith pay to you an amount equal to the Purchase Price paid
by you, in cancellation of the Indebtedness.
<PAGE> 20
Lew Lieberbaum & Co., Inc
June 30, 1995
Page 2
3. Your obligation to purchase all or any portion of the
Subject Shares shall be expressly conditioned upon Conquest delivering to you
either (A) a final Prospectus declared effective by the Securities and Exchange
Commission (the "SEC") pursuant to which your Subject Shares shall have been
registered under the Act; or (B) a preliminary Prospectus which shall be in
response to comments from the SEC and which shall not, in the opinion of
securities counsel to the Company, Messrs. Solomon, Weiss & Moskowitz, be
subject to any further amendments prior to effectiveness, which would otherwise
require recirculation of such preliminary Prospectus (either of the prospectuses
referred to in this Paragraph 3 are deemed to be a "Final Prospectus").
4. You hereby agree, by your execution of this letter, that
unless you have notified Conquest, in writing, within 10 days of receipt of the
Final Prospectus of your election not to Purchase all of the Subject Shares
offered to you hereunder, you shall be deemed to have accepted Conquest's offer,
and pay the Purchase Price for all Subject Shares referred to above, at a
closing which shall be held not later than 30 days following receipt of such
Final Prospectus at the offices of Jaspan, Ginsberg, Schlesinger, Silverman &
Hoffman, 300 Garden City Plaza, Garden City, New York 11530. At such closing,
Conquest shall deliver to you stock certificates evidencing your Subject Shares,
and (unless you elect to pay the Purchase Price in cash as aforesaid) you shall
pay the Purchase Price therefor by extinguishing the Indebtedness, in full.
5. Any notice given by you to Conquest shall be deemed to have
been validly given if given by recognized overnight courier service such as
Federal Express or by certified mail, postage prepaid, addressed to Conquest
Industries, Inc., c/o Jaspan, Ginsberg, Schlesinger, Silverman & Hoffman, 300
Garden City Plaza, Garden City, New York 11530., Attention: Allen Perlstein,
Esq.
6. Both you and Conquest acknowledge that as a Selling
Stockholder, you will be obligated to deliver a current Prospectus on each
occasion that you make sales of the Subject Shares, whether such sales are made
directly by you or through broker/dealers; which Prospectus must indicate the
name of the beneficial owner(s) of the Subject Shares and the aggregate amount
of Subject Shares being offered. Conquest has agreed (I) to file, during any
period in which offers or sales of Subject Shares are being made, a
post-effective amendment to the registration statement on Form-S-1 under the Act
(the "Registration Statement"), (II) to make available a Prospectus to each
Selling Stockholder upon request, (III) to amend such Prospectus from time to
time after the effective date of the Final Prospectus 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
<PAGE> 21
Lew Lieberbaum & Co., Inc
June 30, 1995
Page 3
the most recent Prospectus, and (IV) to remove from registration by means of a
post-effective amendment of the Registration Statement any of the Subject Shares
which remain unsold at the termination of the offering which is anticipated to
occur on or about May 31, 1997. In such connection, you acknowledge that you, as
a Selling Stockholder, and any broker/dealer that may act on your behalf in
connection with the sale of Subject Shares may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Act, and any commission or profit
received by a broker/dealer from the purchase or resale of Subject Shares as
principals might be deemed to be underwriting discounts and commissions under
the Act.
7. Conquest shall have the absolute right, in its sole
discretion, to withdraw its offer of sale of the Subject Shares to you at any
time prior to the effectiveness of the Final Prospectus. Any such withdrawal of
our offer shall not however, reduce or otherwise affect the Indebtedness which
you claim is owed to you.
8. In the event the closing of the transaction contemplated
herein does not take place, the parties hereto reserve any rights they may have
one against the other with respect to the Indebtedness or otherwise.
If the foregoing accurately reflects the substance our mutual agreement
and understanding at this time, please so indicate by executing a copy of this
letter in the space provided below.
Very truly yours,
CONQUEST INDUSTRIES, INC.
By: /s/ JERRY KARLIK
-------------------------------------
Jerry Karlik, Chief Financial Officer
Accepted And Agreed To:
LEW LIEBERBAUM & CO., INC.
By: /s/ LEONARD A. NEUHAUS
---------------------------
Leonard A. Neuhaus, C.F.O.
Dated: June 30, 1995
<PAGE> 22
CONQUEST INDUSTRIES, INC.
2215 E.M. FRANKLIN AVENUE
AUSTIN, TEXAS 78723
June 30, 1995
Packquisition Corp.
c/o Elliot Fishman, Esq.
2222 Avenue X
Brooklyn, New York 11235
RE: CONQUEST INDUSTRIES, INC.
Gentlemen:
This letter will acknowledge that you have claimed that Conquest
Industries, Inc., a Delaware corporation ("Conquest") and/or certain of its
wholly owned subsidiaries (collectively with Conquest, the "Corporations") are
indebted to you for services rendered and/or pursuant to existing agreements in
the approximate aggregate amount of $65,000 (the "Indebtedness").
This letter will confirm the offer by Conquest to sell to you an
aggregate of 32,000 shares of common stock of Conquest, $.001 par value per
share (the "Subject Shares"), at a purchase price of $2.00 per share (the "Per
Share Price") in full and final settlement of all claims made by you with
respect to the Indebtedness. You have indicated an interest in purchasing the
Subject Shares from Conquest upon the terms and conditions set forth below.
1. The Subject Shares shall be registered under the Securities
Act of 1933 as amended (the "Act") and, if you accept Conquest's offer to
purchase the Subject Shares (in the manner hereinafter provided), you shall be
included as a Selling Stockholder in the Prospectus forming a part of the
registration statement pursuant to which the Subject Shares shall be registered
under the Act.
2. You shall purchase and pay for all or any portion of the
Subject Shares which you shall elect to purchase, against delivery of stock
certificates evidencing such Subject Shares, an amount equal to the aggregate
number of Subject Shares purchased by you, multiplied by the Per Share Price
(the "Purchase Price") either in cash, or by extinguishing the Indebtedness
which you claim is owed to you which shall equal the Purchase Price of such
Subject Shares. In the event you shall elect to pay the Purchase Price in cash,
the Conquest shall forthwith pay to you an amount equal to the Purchase Price
paid by you, in cancellation of the Indebtedness.
3. Your obligation to purchase all or any portion of the
Subject Shares shall be expressly conditioned upon Conquest delivering to you
either (A) a final Prospectus declared effective by the Securities and Exchange
Commission (the "SEC") pursuant to which
<PAGE> 23
Packquisition Corp.
June 30, 1995
Page 2
your Subject Shares shall have been registered under the Act; or (B) a
preliminary Prospectus which shall be in response to comments from the SEC and
which shall not, in the opinion of securities counsel to the Company, Messrs.
Solomon, Weiss & Moskowitz, be subject to any further amendments prior to
effectiveness, which would otherwise require recirculation of such preliminary
Prospectus (either of the prospectuses referred to in this Paragraph 3 are
deemed to be a "Final Prospectus").
4. You hereby agree, by your execution of this letter, that
unless you have notified Conquest, in writing, within 10 days of receipt of the
Final Prospectus of your election not to Purchase all of the Subject Shares
offered to you hereunder, you shall be deemed to have accepted Conquest's offer,
and pay the Purchase Price for all Subject Shares referred to above, at a
closing which shall be held not later than 30 days following receipt of such
Final Prospectus at the offices of Jaspan, Ginsberg, Schlesinger, Silverman &
Hoffman, 300 Garden City Plaza, Garden City, New York 11530. At such closing,
Conquest shall deliver to you stock certificates evidencing your Subject Shares,
and (unless you elect to pay the Purchase Price in cash as aforesaid) you shall
pay the Purchase Price therefor by extinguishing the Indebtedness, in full.
5. Any notice given by you to Conquest shall be deemed to have
been validly given if given by recognized overnight courier service such as
Federal Express or by certified mail, postage prepaid, addressed to Conquest
Industries, Inc., c/o Jaspan, Ginsberg, Schlesinger, Silverman & Hoffman, 300
Garden City Plaza, Garden City, New York 11530, Attention: Allen Perlstein, Esq.
6. Both you and Conquest acknowledge that as a Selling
Stockholder, you will be obligated to deliver a current Prospectus on each
occasion that you make sales of the Subject Shares, whether such sales are made
directly by you or through broker/dealers; which Prospectus must indicate the
name of the beneficial owner(s) of the Subject Shares and the aggregate amount
of Subject Shares being offered. Conquest has agreed (I) to file, during any
period in which offers or sales of Subject Shares are being made, a
post-effective amendment to the registration statement on Form-S-1 under the Act
(the "Registration Statement"), (II) to make available a Prospectus to each
Selling Stockholder upon request, (III) to amend such Prospectus from time
<PAGE> 24
Packquisition Corp.
June 30, 1995
Page 3
to time after the effective date of the Final Prospectus 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 Subject Shares which remain unsold at the termination of
the offering which is anticipated to occur on or about July 10, 1997. In such
connection, you acknowledge that you, as a Selling Stockholder, and any
broker/dealer that may act on your behalf in connection with the sale of Subject
Shares may be deemed to be "underwriters" within the meaning of Section 2(11) of
the Act, and any commission or profit received by a broker/dealer from the
purchase or resale of Subject Shares as principals might be deemed to be
underwriting discounts and commissions under the Act.
7. Conquest shall have the absolute right, in its sole
discretion, to withdraw its offer of sale of the Subject Shares to you at any
time prior to the effectiveness of the Final Prospectus. Any such withdrawal of
our offer shall not however, reduce or otherwise affect the Indebtedness which
you claim is owed to you.
8. In the event the closing of the transaction contemplated
herein does not take place, the parties hereto reserve any rights they may have
one against the other with respect to the Indebtedness or otherwise.
<PAGE> 25
Packquisition Corp.
June 30, 1995
Page 4
9. At the copy of the transaction contemplated herein, you
shall deliver a Stipulation of Discontinuance with Prejudice discontinuing a
certain action commenced by you against us in the Supreme Court of the State of
New York. New York County in form reasonably acceptable to our counsel.
If the foregoing accurately reflects the substance our mutual agreement
and understanding at this time, please so indicate by executing a copy of this
letter in the space provided below.
Very truly yours,
CONQUEST INDUSTRIES, INC.
By: /s/ JERRY KARLIK
-------------------------------------
Jerry Karlik, Chief Financial Officer
ACCEPTED AND AGREED TO:
PACKQUISITION CORP.
By:
___________________, (Vice) President
Dated: July 10, 1995
<PAGE> 26
CONQUEST INDUSTRIES, INC.
2215 E.M. FRANKLIN AVENUE
AUSTIN, TEXAS 78723
June 30, 1995
Judson Enterprises, Ltd.
18 Broadway
Niantic, Connecticut 06357
Attention: John McGill, Vice President
RE: CONQUEST INDUSTRIES, INC.
Dear Mr. McGill
This letter will acknowledge that you have claimed that Conquest
Industries, Inc., a Delaware corporation ("Conquest") and/or certain of its
wholly owned subsidiaries (collectively with Conquest, the "Corporations") are
indebted to you for services rendered and/or pursuant to existing agreements in
the aggregate amount of $2,000.00 (the "Indebtedness").
This letter will confirm the offer by Conquest to sell to you an
aggregate of 1,000 shares of common stock of Conquest, $.001 par value per share
(the "Subject Shares"), at a purchase price of $2.00 per share (the "Per Share
Price") in full and final settlement of all claims made by you with respect to
the Indebtedness. You have indicated an interest in purchasing the Subject
Shares from Conquest upon the terms and conditions set forth below.
1. The Subject Shares shall be registered under the Securities
Act of 1933 as amended (the "Act") and, if you accept Conquest's offer to
purchase the Subject Shares (in the manner hereinafter provided), you shall be
included as a Selling Stockholder in the Prospectus forming a part of the
registration statement pursuant to which the Subject Shares shall be registered
under the Act.
2. You shall purchase and pay for all or any portion of the
Subject Shares which you shall elect to purchase, against delivery of stock
certificates evidencing such Subject Shares, an amount equal to the aggregate
number of Subject Shares purchased by you, multiplied by the Per Share Price
(the "Purchase Price") either in cash, or by extinguishing the Indebtedness
which you claim is owed to you which shall equal the Purchase Price of such
Subject Shares. In the event you shall elect to pay the Purchase Price in cash,
Conquest shall forthwith pay to you an amount equal to the Purchase Price paid
by you, in cancellation of the Indebtedness.
<PAGE> 27
Judson Enterprises, Ltd.
June 30, 1995
Page 2
3. Your obligation to purchase all or any portion of the
Subject Shares shall be expressly conditioned upon Conquest delivering to you
either (A) a final Prospectus declared effective by the Securities and Exchange
Commission (the "SEC") pursuant to which your Subject Shares shall have been
registered under the Act; or (B) a preliminary Prospectus which shall be in
response to comments from the SEC and which shall not, in the opinion of
securities counsel to the Company, Messrs. Solomon, Weiss & Moskowitz, be
subject to any further amendments prior to effectiveness, which would otherwise
require recirculation of such preliminary Prospectus (either of the prospectuses
referred to in this Paragraph 3 are deemed to be a "Final Prospectus").
4. You hereby agree, by your execution of this letter, that
unless you have notified Conquest, in writing, within 10 days of receipt of the
Final Prospectus of your election not to Purchase all of the Subject Shares
offered to you hereunder, you shall be deemed to have accepted Conquest's offer,
and pay the Purchase Price for all Subject Shares referred to above, at a
closing which shall be held not later than 30 days following receipt of such
Final Prospectus at the offices of Jaspan, Ginsberg, Schlesinger, Silverman &
Hoffman, 300 Garden City Plaza, Garden City, New York 11530. At such closing,
Conquest shall deliver to you stock certificates evidencing your Subject Shares,
and (unless you elect to pay the Purchase Price in cash as aforesaid) you shall
pay the Purchase Price therefor by extinguishing the Indebtedness, in full.
5. Any notice given by you to Conquest shall be deemed to have
been validly given if given by recognized overnight courier service such as
Federal Express or by certified mail, postage prepaid, addressed to Conquest
Industries, Inc., c/o Jaspan, Ginsberg, Schlesinger, Silverman & Hoffman, 300
Garden City Plaza, Garden City, New York 11530., Attention: Allen Perlstein,
Esq.
6. Both you and Conquest acknowledge that as a Selling
Stockholder, you will be obligated to deliver a current Prospectus on each
occasion that you make sales of the Subject Shares, whether such sales are made
directly by you or through broker/dealers; which Prospectus must indicate the
name of the beneficial owner(s) of the Subject Shares and the aggregate amount
of Subject Shares being offered. Conquest has agreed (I) to file, during any
period in which offers or sales of Subject Shares are being made, a
post-effective amendment to the registration statement on Form-S-1 under the Act
(the "Registration Statement"), (II) to make available a Prospectus to each
Selling Stockholder upon request, (III) to amend such Prospectus from time to
time after the effective date of the Final Prospectus through post-effective
amendments to such Registration Statement to reflect any facts or events which
<PAGE> 28
Judson Enterprises, Ltd.
June 30, 1995
Page 3
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 Subject Shares which remain unsold at the termination of
the offering which is anticipated to occur on or about July 10, 1997. In such
connection, you acknowledge that you, as a Selling Stockholder, and any
broker/dealer that may act on your behalf in connection with the sale of Subject
Shares may be deemed to be "underwriters" within the meaning of Section 2(11) of
the Act, and any commission or profit received by a broker/dealer from the
purchase or resale of Subject Shares as principals might be deemed to be
underwriting discounts and commissions under the Act.
7. Conquest shall have the absolute right, in its sole
discretion, to withdraw its offer of sale of the Subject Shares to you at any
time prior to the effectiveness of the Final Prospectus. Any such withdrawal of
our offer shall not however, reduce or otherwise affect the Indebtedness which
you claim is owed to you.
8. In the event the closing of the transaction contemplated
herein does not take place, the parties hereto reserve any rights they may have
one against the other with respect to the Indebtedness or otherwise.
If the foregoing accurately reflects the substance our mutual agreement
and understanding at this time, please so indicate by executing a copy of this
letter in the space provided below.
Very truly yours,
CONQUEST INDUSTRIES, INC.
By: /s/ JERRY KARLIK
-------------------------------------
Jerry Karlik, Chief Financial Officer
Accepted And Agreed To:
JUDSON ENTERPRISES, INC.
By: /s/ JOHN MCGILL
---------------------------
John McGill, Vice President
Dated: July 5, 1995
<PAGE> 29
CONQUEST INDUSTRIES, INC.
2215 E.M. FRANKLIN AVENUE
AUSTIN, TEXAS 78723
June 30, 1995
Kronish, Lieb, Weiner & Hellman, L.L.P.
1114 Avenue of the Americas
New York, New York 10036-7798
Attention: Ralph Sutcliffe, Esq.
RE: CONQUEST INDUSTRIES, INC.
Dear Mr. Sutcliffe:
This letter will acknowledge that you have claimed that Conquest
Industries, Inc., a Delaware corporation ("Conquest") and/or certain of its
wholly owned subsidiaries (collectively with Conquest, the "Corporations") are
indebted to you for services rendered and/or pursuant to existing agreements in
the aggregate amount of $279,597.00 (the "Indebtedness").
This letter will confirm the offer by Conquest to sell to you an
aggregate of 139,798.00 shares of common stock of Conquest, $.001 par value per
share (the "Subject Shares"), at a purchase price of $2.00 per share (the "Per
Share Price") in full and final settlement of all claims made by you with
respect to the Indebtedness. You have indicated an interest in purchasing the
Subject Shares from Conquest upon the terms and conditions set forth below.
1. The Subject Shares shall be registered under the Securities
Act of 1933 as amended (the "Act") and, if you accept Conquest's offer to
purchase the Subject Shares (in the manner hereinafter provided), you shall be
included as a Selling Stockholder in the Prospectus forming a part of the
registration statement pursuant to which the Subject Shares shall be registered
under the Act.
2. You shall purchase and pay for all or any portion of the
Subject Shares which you shall elect to purchase, against delivery of stock
certificates evidencing such Subject Shares, an amount equal to the aggregate
number of Subject Shares purchased by you, multiplied by the Per Share Price
(the "Purchase Price") either in cash, or by extinguishing the Indebtedness
which you claim is owed to you which shall equal the Purchase Price of such
Subject Shares. In the event you shall elect to pay the Purchase Price in cash,
Conquest shall forthwith pay to you an amount equal to the Purchase Price paid
by you, in cancellation of the Indebtedness.
<PAGE> 30
Kronish, Lieb, Weiner & Hellman, L.L.P.
June 30, 1995
Page 2
3. Your obligation to purchase all or any portion of the
Subject Shares shall be expressly conditioned upon Conquest delivering to you
either (A) a final Prospectus declared effective by the Securities and Exchange
Commission (the "SEC") pursuant to which your Subject Shares shall have been
registered under the Act; or (B) a preliminary Prospectus which shall be in
response to comments from the SEC and which shall not, in the opinion of
securities counsel to the Company, Messrs. Solomon, Weiss & Moskowitz, be
subject to any further amendments prior to effectiveness, which would otherwise
require recirculation of such preliminary Prospectus (either of the prospectuses
referred to in this Paragraph 3 are deemed to be a "Final Prospectus").
4. You hereby agree, by your execution of this letter, that
unless you have notified Conquest, in writing, within 10 days of receipt of the
Final Prospectus of your election not to Purchase all of the Subject Shares
offered to you hereunder, you shall be deemed to have accepted Conquest's offer,
and pay the Purchase Price for all Subject Shares referred to above, at a
closing which shall be held not later than 30 days following receipt of such
Final Prospectus at the offices of Jaspan, Ginsberg, Schlesinger, Silverman &
Hoffman, 300 Garden City Plaza, Garden City, New York 11530. At such closing,
Conquest shall deliver to you stock certificates evidencing your Subject Shares,
and (unless you elect to pay the Purchase Price in cash as aforesaid) you shall
pay the Purchase Price therefor by extinguishing the Indebtedness, in full.
5. Any notice given by you to Conquest shall be deemed to have
been validly given if given by recognized overnight courier service such as
Federal Express or by certified mail, postage prepaid, addressed to Conquest
Industries, Inc., c/o Jaspan, Ginsberg, Schlesinger, Silverman & Hoffman, 300
Garden City Plaza, Garden City, New York 11530., Attention: Allen Perlstein,
Esq.
6. Both you and Conquest acknowledge that as a Selling
Stockholder, you will be obligated to deliver a current Prospectus on each
occasion that you make sales of the Subject Shares, whether such sales are made
directly by you or through broker/dealers; which Prospectus must indicate the
name of the beneficial owner(s) of the Subject Shares and the aggregate amount
of Subject Shares being offered. Conquest has agreed (I) to file, during any
period in which offers or sales of Subject Shares are being made, a
post-effective amendment to the registration statement on Form-S-1 under the Act
(the "Registration Statement"), (II) to make available a Prospectus to each
Selling Stockholder upon request, (III) to amend such Prospectus from time to
time after the effective date of the Final Prospectus through post-effective
amendments to such Registration Statement to reflect any facts or events which
<PAGE> 31
Kronish, Lieb, Weiner & Hellman, L.L.P.
June 30, 1995
Page 3
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 Subject Shares which remain unsold at the termination of
the offering which is anticipated to occur on or about July 10, 1997. In such
connection, you acknowledge that you, as a Selling Stockholder, and any
broker/dealer that may act on your behalf in connection with the sale of Subject
Shares may be deemed to be "underwriters" within the meaning of Section 2(11) of
the Act, and any commission or profit received by a broker/dealer from the
purchase or resale of Subject Shares as principals might be deemed to be
underwriting discounts and commissions under the Act.
7. Conquest shall have the absolute right, in its sole
discretion, to withdraw its offer of sale of the Subject Shares to you at any
time prior to the effectiveness of the Final Prospectus. Any such withdrawal of
our offer shall not however, reduce or otherwise affect the Indebtedness which
you claim is owed to you.
8. In the event the closing of the transaction contemplated
herein does not take place, the parties hereto reserve any rights they may have
one against the other with respect to the Indebtedness or otherwise.
If the foregoing accurately reflects the substance our mutual agreement
and understanding at this time, please so indicate by executing a copy of this
letter in the space provided below.
Very truly yours,
CONQUEST INDUSTRIES, INC.
By: /s/ JERRY KARLIK
-------------------------------------
Jerry Karlik, Chief Financial Officer
Accepted And Agreed To:
KRONISH, LIEB, WEINER & HELLMAN, L.L.P.
By: /s/ RALPH SUTCLIFFE
- --------------------------
Ralph Sutcliffe, Member
Dated: July 5, 1995
<PAGE> 32
CONQUEST INDUSTRIES, INC.
2215 E.M. FRANKLIN AVENUE
AUSTIN, TEXAS 78723
June 30, 1995
Mark Gasarch, Esq.
c/o Scheichet & Davis
505 Park Avenue
New York, New York 10022
RE: CONQUEST INDUSTRIES, INC.
Dear Mr. Gasarch:
This letter will acknowledge that you have claimed that Conquest
Industries, Inc., a Delaware corporation ("Conquest") and/or certain of its
wholly owned subsidiaries (collectively with Conquest, the "Corporations") are
indebted to you for services rendered and/or pursuant to existing agreements in
the aggregate amount of $31,000 (the "Indebtedness").
This letter will confirm the offer by Conquest to sell to you an
aggregate of 15,500 shares of common stock of Conquest, $.001 par value per
share (the "Subject Shares"), at a purchase price of $2.00 per share (the "Per
Share Price") in full and final settlement of all claims made by you with
respect to the Indebtedness. You have indicated an interest in purchasing the
Subject Shares from Conquest upon the terms and conditions set forth below.
1. The Subject Shares shall be registered under the Securities
Act of 1933 as amended (the "Act") and, if you accept Conquest's offer to
purchase the Subject Shares (in the manner hereinafter provided), you shall be
included as a Selling Stockholder in the Prospectus forming a part of the
registration statement pursuant to which the Subject Shares shall be registered
under the Act.
2. You shall purchase and pay for all or any portion of the
Subject Shares which you shall elect to purchase, against delivery of stock
certificates evidencing such Subject Shares, an amount equal to the aggregate
number of Subject Shares purchased by you, multiplied by the Per Share Price
(the "Purchase Price") either in cash, or by extinguishing the Indebtedness
which you claim is owed to you which shall equal the Purchase Price of such
Subject Shares. In the event you shall elect to pay the Purchase Price in cash,
the Conquest shall forthwith pay to you an amount equal to the Purchase Price
paid by you, in cancellation of the Indebtedness.
<PAGE> 33
Mark Gasarch, Esq.
June 30, 1995
Page 2
3. Your obligation to purchase all or any portion of the
Subject Shares shall be expressly conditioned upon Conquest delivering to you
either (A) a final Prospectus declared effective by the Securities and Exchange
Commission (the "SEC") pursuant to which your Subject Shares shall have been
registered under the Act; or (B) a preliminary Prospectus which shall be in
response to comments from the SEC and which shall not, in the opinion of
securities counsel to the Company, Messrs. Solomon, Weiss & Moskowitz, be
subject to any further amendments prior to effectiveness, which would otherwise
require recirculation of such preliminary Prospectus (either of the prospectuses
referred to in this Paragraph 3 are deemed to be a "Final Prospectus"). Conquest
agrees that it shall deliver copies of all Post effective amendments to you.
4. You hereby agree, by your execution of this letter, that
unless you have notified Conquest, in writing, within 10 days of receipt of the
Final Prospectus of your election not to Purchase all of the Subject Shares
offered to you hereunder, you shall be deemed to have accepted Conquest's offer,
and pay the Purchase Price for all Subject Shares referred to above, at a
closing which shall be held not later than 30 days following receipt of such
Final Prospectus at the offices of Jaspan, Ginsberg, Schlesinger, Silverman &
Hoffman, 300 Garden City Plaza, Garden City, New York 11530. At such closing,
Conquest shall deliver to you stock certificates evidencing your Subject Shares,
and (unless you elect to pay the Purchase Price in cash as aforesaid) you shall
pay the Purchase Price therefor by extinguishing the Indebtedness, in full.
5. Any notice given by you to Conquest shall be deemed to have
been validly given if given by recognized overnight courier service such as
Federal Express or by certified mail, postage prepaid, addressed to Conquest
Industries, Inc., c/o Jaspan, Ginsberg, Schlesinger, Silverman & Hoffman, 300
Garden City Plaza, Garden City, New York 11530, Attention: Allen Perlstein, Esq.
Any notice given by Conquest to you shall be deemed to have been validly given
if given by recognized overnight courier service such as Federal Express or by
certified mail, postage prepaid addressed to Mark Gasarch, c/o Scheichet &
Davis, P.C., 505 Park Avenue, New York, New York 10022.
6. Both you and Conquest acknowledge that as a Selling
Stockholder, you will be obligated to deliver a current Prospectus on each
occasion that you make sales of the Subject Shares, whether such sales are made
directly by you or through broker/dealers; which Prospectus must indicate the
name of the beneficial owner(s) of the Subject Shares and the aggregate amount
of Subject Shares being offered. Conquest has agreed (I) to file, during any
period in which offers or sales of Subject Shares are being made, a
post-effective amendment
<PAGE> 34
Mark Gasarch, Esq.
June 30, 1995
Page 3
to the registration statement on Form-S-1 under the Act (the "Registration
Statement"), (II) to make available a Prospectus to each Selling Stockholder
upon request, (III) to amend such Prospectus from time to time after the
effective date of the Final Prospectus 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 Subject Shares
which remain unsold at the termination of the offering which is anticipated to
occur on or about July 10, 1997. In such connection, you acknowledge that you,
as a Selling Stockholder, and any broker/dealer that may act on your behalf in
connection with the sale of Subject Shares may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Act, and any commission or profit
received by a broker/dealer from the purchase or resale of Subject Shares as
principals might be deemed to be underwriting discounts and commissions under
the Act.
7. The parties hereto shall have their absolute right, in their
sole discretion, to withdraw its offer of sale of the Subject Shares to you at
any time prior to the effectiveness of the Final Prospectus. Any such withdrawal
of our offer shall not however, reduce or otherwise affect the Indebtedness
which you claim is owed to you.
8. In the event the closing of the transaction contemplated
herein does not take place, the parties hereto reserve any rights they may have
one against the other with respect to the Indebtedness or otherwise.
9. At the closing of the transaction contemplated herein, you
shall deliver a Stipulation of Discontinuance with Prejudice discontinuing a
certain action commenced by you in the Supreme Court of the State of New York.
New York County in form reasonably acceptable to our counsel. In addition, the
parties shall exchange reciprocal general releases at the closing of the
transaction contemplated herein.
10. Conquest agrees to indemnify and hold Gasarch harmless from
and against all claims and liabilities including reasonable counsel fees and
disbursements arising out of any statement of material fact or omission of a
statement of material fact contained in the Prospectus, other than those
relating directly to you and disclosure of which you are responsible for. You
agree to indemnify and hold Conquest harmless from and against any and all
claims and liabilities arising out of any statement of material fact or omission
of a statement of a material fact made by you.
<PAGE> 35
Mark Gasarch, Esq.
June 30, 1995
Page 4
If the foregoing accurately reflects the substance our mutual agreement
and understanding at this time, please so indicate by executing a copy of this
letter in the space provided below.
Very truly yours,
CONQUEST INDUSTRIES, INC.
By: /s/ JERRY KARLIK
-------------------------------------
Jerry Karlik, Chief Financial Officer
ACCEPTED AND AGREED TO:
/s/ MARK GASARCH
- ------------------------
Mark Gasarch
Dated: July 5, 1995
APPROVED:
/s/ WILLIAM J. DAVIS
- -----------------------------
William J. Davis
ATTORNEY FOR MARK GASARCH
<PAGE> 36
CONQUEST INDUSTRIES, INC.
2215 E.M. FRANKLIN AVENUE
AUSTIN, TEXAS 78723
July 12, 1995
H.D. Brous & Company
80 Cutter Mill Road
Suite 404
New York, New York 10021
Attention: Mr. Howard Brous
RE: CONQUEST INDUSTRIES, INC.
Dear Mr. Brous:
This letter will acknowledge that you have claimed that Conquest
Industries, Inc., a Delaware corporation ("Conquest") and/or certain of its
wholly owned subsidiaries (collectively with Conquest, the "Corporations") are
indebted to you for services rendered and/or pursuant to existing agreements in
the aggregate amount of $25,000.00 (the "Indebtedness").
This letter will confirm the offer by Conquest to sell to you an
aggregate of 12,500.00 shares of common stock of Conquest, $.001 par value per
share (the "Subject Shares"), at a purchase price of $2.00 per share (the "Per
Share Price") in full and final settlement of all claims made by you with
respect to the Indebtedness. You have indicated an interest in purchasing the
Subject Shares from Conquest upon the terms and conditions set forth below.
1. The Subject Shares shall be registered under the Securities
Act of 1933 as amended (the "Act") and under any applicable New York State "Blue
Sky" laws )the "Blue Sky") and, if you accept Conquest's offer to purchase the
Subject Shares (in the manner hereinafter provided), you shall be included as a
Selling Stockholder in the Prospectus forming a part of the registration
statement pursuant to which the Subject Shares shall be registered under the
Act.
<PAGE> 37
H.D. Brous & Company
July 12, 1995
Page 2
2. You shall purchase and pay for all or any portion of the
Subject Shares which you shall elect to purchase, against delivery of stock
certificates evidencing such Subject Shares, an amount equal to the aggregate
number of Subject Shares purchased by you, multiplied by the Per Share Price
(the "Purchase Price") either in cash, or by extinguishing the Indebtedness
which you claim is owed to you which shall equal the Purchase Price of such
Subject Shares. In the event you shall elect to pay the Purchase Price in cash,
Conquest shall forthwith pay to you an amount equal to the Purchase Price paid
by you, in cancellation of the Indebtedness.
3. Your obligation to purchase all or any portion of the
Subject Shares shall be expressly conditioned upon Conquest delivering to you a
final Prospectus declared effective by the Securities and Exchange Commission
(the "SEC") pursuant to which your Subject Shares shall have been registered
under the Act (the "Final Prospectus").
4. You hereby agree, by your execution of this letter, that
unless you have notified Conquest, in writing, within 10 days of receipt of the
Final Prospectus of your election not to Purchase all of the Subject Shares
offered to you hereunder or unless the SEC issues a stop order or otherwise
suspends or terminates the effectiveness of the registration of the subject
shares, you shall be deemed to have accepted Conquest's offer, and pay the
Purchase Price for all Subject Shares referred to above, at a closing which
shall be held not later than 30 days following receipt of such Final Prospectus
(unless adjourned by the consent of the parties hereto) at the offices of
Jaspan, Ginsberg, Schlesinger, Silverman & Hoffman, 300 Garden City Plaza,
Garden City, New York 11530. At such closing, Conquest shall deliver to you
stock certificates evidencing your Subject Shares, and (unless you elect to pay
the Purchase Price in cash as aforesaid) you shall pay the Purchase Price
therefor by extinguishing the Indebtedness, in full.
5. Notwithstanding the foregoing, if the Registration Statement
(as defined below) is not declared effective by the SEC within sixty (60) days
of the date hereof (which Registration Statement shall include the Subject
Shares), then at your option, in lieu of the 12,500 shares described above,
Conquest shall sell to you, at the closing referred to in paragraph 4 above
(which shall, however, be held within fifteen (15) days following the expiration
of the sixty (60) day period referred to above), an aggregate of 25,000 shares
of common stock of
<PAGE> 38
H.D. Brous & Company
July 12, 1995
Page 3
Conquest, $.001 par value per share, at a purchase price of $1.00 per share
(which shall, for all purposes of this Agreement, be deemed the "Per Share
Price"). The Purchase Price for such 25,000 shares shall be payable in the same
manner as described above (either in cash or by cancellation of the
Indebtedness). You agree that you will have no registration rights with respect
to such 25,000 Shares.
6. Any notice given by you to Conquest shall be deemed to have
been validly given if given by recognized overnight courier service such as
Federal Express or by certified mail, postage prepaid, addressed to Conquest
Industries, Inc., c/o Jaspan, Ginsberg, Schlesinger, Silverman & Hoffman, 300
Garden City Plaza, Garden City, New York 11530., Attention: Allen Perlstein,
Esq. Any notice given by Conquest to you shall be deemed to have been given by
recognized overnight courier service such as Federal Express or by certified
mail, postage prepaid addressed to H.D. Brous & Company, 80 Cutter Mill Road,
Suite 404, New York, New York 10021.
7. Both you and Conquest acknowledge that if the Subject Shares
are included in the Registration Statement you will be obligated to deliver a
current Prospectus on each occasion that you make sales of the Subject Shares,
whether such sales are made directly by you or through broker/dealers; which
Prospectus must indicate the name of the beneficial owner(s) of the Subject
Shares and the aggregate amount of Subject Shares being offered. Conquest agrees
(I) to file, during any period in which offers or sales of Subject Shares are
being made, any post-effective amendments to the registration statement on
Form-S-1 under the Act (the "Registration Statement"), (II) to make available a
Prospectus to each Selling Stockholder upon request, (III) to amend such
Prospectus from time to time after the effective date of the Final Prospectus
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 Subject Shares which remain unsold at the
termination of the offering which is anticipated to occur on or about July 10,
1997. In such connection, you acknowledge that you, as a Selling Stockholder,
and any broker/dealer that may act on your behalf in connection with the sale of
Subject Shares may be deemed to be "underwriters" within the meaning of Section
2(11) of the Act, and any
<PAGE> 39
H.D. Brous & Company
July 12, 1995
Page 4
commission or profit received by a broker/dealer from the purchase or resale of
Subject Shares as principals might be deemed to be underwriting discounts and
commissions under the Act.
8. In the event the closing of the transaction contemplated
herein does not take place, the parties hereto reserve any rights they may have
one against the other with respect to the Indebtedness or otherwise. The parties
intend this letter to constitute a binding legal agreement.
If the foregoing accurately reflects the substance our mutual agreement
and understanding at this time, please so indicate by executing a copy of this
letter in the space provided below.
Very truly yours,
CONQUEST INDUSTRIES, INC.
By: /s/ JERRY KARLIK
-------------------------------------
Jerry Karlik, Chief Financial Officer
Accepted And Agreed To:
H.D. Brous & Company
By: /s/ HOWARD BROUS
----------------------------
Howard Brous, President
Dated: July 18, 1995
<PAGE> 1
Exhibit 10(R)
CONQUEST INDUSTRIES, INC.
6400 West Gross Point Road
Niles, Illinois 60714
October 16, 1995
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.
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.
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 September 29, 1995, the closing bid price
of the Company's Common Stock, as traded on The Nasdaq SmallCap Market
("Nasdaq") was $1.75 per share. Accordingly, if Old Notes were converted on such
date, the conversion price would be $1.40 per share, and if all $2,737,500 of
Old Notes
<PAGE> 2
had been converted on September 29, 1995, an aggregate of 1,955,357 Conversion
Shares would be 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 11% 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 such
exchange:
(i) a warrant, exercisable at any time through June 20, 1995, entitling
the holder to purchase 0.02 shares of Company Common Stock at an
exercise price of $5.00 per share (the "Warrants") for each $1.00
principal amount of Old Notes exchanged; and
(ii) 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 proposed exchange offer of New Notes for Old
Notes (the "Exchange Offer"), for each $25,000 principal amount of Old Notes
exchanged for New Notes, the investor would receive:
(a) Warrants entitling the investor to purchase an aggregate of 500
shares of Company Common Stock; and
(b) $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 54,750 Warrants and
$547,500 of Cash Payments.
As you may know, the Company has filed a 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 9,196,812 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 the indeterminable number of Conversion Shares (other than 2,281,250
shares) 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.
-2-
<PAGE> 3
In addition to registering ALL Conversion Shares potentially issuable
upon conversion of Old Notes, the proposed Registration Statement also proposes
to register the Warrants and shares of Common Stock issuable to holders of Old
Notes who elect to exchange their Old Notes for New Notes. If ALL $2,737,500 of
Old Notes are exchanged for $2,737,500 of New Notes, an aggregate of 54,750
registered Warrants entitling the holders to purchase, at $5.00 per share,
54,750 shares of Common Stock would be issued by the Company.
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. 2 to the Company's Registration Statement is enclosed for you
review with a copy of this letter.
The Cash Payments to be made to holders of Old Notes electing to
exchange such Old Notes for New Notes will be payable (i) to the extent of 50%
thereof, on a date which shall be 20 days following the date that the Company's
Registration Statement shall be declared effective by the Commission (the
"Effective Date"), and (ii) the balance of 50% of such Cash Payments will paid
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 conversions of New Notes for Old 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.
ALL NEW NOTES ISSUED TO HOLDERS OF OLD NOTES ELECTING TO PARTICIPATE IN
THE EXCHANGE WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND 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.
EACH INVESTOR IS STRONGLY URGED 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, SUBSTANTIAL SECURED
INDEBTEDNESS
-3-
<PAGE> 4
WHICH IS SENIOR TO THE INDEBTEDNESS EVIDENCED BY THE OLD NOTES AND TO BE
EVIDENCED BY THE NEW NOTES, AND DEFAULTS UNDER CERTAIN FINANCIAL COVENANTS
GRANTED TO THE COMPANY'S INSTITUTIONAL LENDER.
IT SHOULD BE NOTED THAT THE ENCLOSED PRELIMINARY PROSPECTUS IS SUBJECT
TO FURTHER REVIEW AND COMMENT BY THE STAFF OF THE COMMISSION. IN THE EVENT THAT
SUCH REGISTRATION STATEMENT IS NOT DECLARED EFFECTIVE BY THE COMMISSION BY THE
CLOSE OF BUSINESS ON NOVEMBER 13, 1995, THE COMPANY WOULD BE REQUIRED TO INCLUDE
IN SUCH REGISTRATION STATEMENT AND RELATED PROSPECTUS THE AUDITED FINANCIAL
STATEMENTS FOR ITS FISCAL YEAR ENDED SEPTEMBER 30, 1995. IF SUCH AUDITED
FINANCIAL STATEMENTS ARE REQUIRED, THE EFFECTIVENESS OF THE REGISTRATION
STATEMENT COULD BE SUBSTANTIALLY DELAYED.
IN ADDITION TO THE ENCLOSED PRELIMINARY PROSPECTUS, EACH HOLDER OF OLD
NOTES WILL RECEIVE A COPY OF THE FINAL PROSPECTUS, WHEN AND IF DECLARED
EFFECTIVE BY THE COMMISSION.
THE EXCHANGE OFFER CONTEMPLATED HEREBY WILL EXPIRE ON A DATE WHICH
SHALL BE TEN (10) DAYS OF THE DATE OF YOUR RECEIPT OF THE FINAL
PROSPECTUS; PROVIDED, THAT THE COMPANY MAY, AT ITS ELECTION, EXTEND THE
EXPIRATION DATE OF THE EXCHANGE OFFER (THE "EXPIRATION DATE") TO 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,
CASH PAYMENTS AND WARRANTS DESCRIBED HEREIN.
IN ADDITION, EVEN IF YOU ELECT TO EXECUTE AND RETURN TO RICKEL YOUR
ELECTION TO PARTICIPATE IN THE EXCHANGE, YOU MAY RESCIND SUCH ELECTION WITHIN
TEN (10) DAYS OF THE DATE OF YOUR RECEIPT OF THE FINAL PROSPECTUS. IN ORDER TO
RESCIND SUCH ELECTION YOU MUST MAIL OR TELECOPY YOUR NOTICE OF RESCISSION OF
ELECTION (attached as Exhibit "A" to
-4-
<PAGE> 5
your Election to Exchange) NOT LATER THAN TEN (10) DAYS FROM THE DATE OF RECEIPT
OF SUCH FINAL PROSPECTUS.
THE COMPANY WILL ARRANGE TO MAIL OR DELIVER BY HAND TO EACH OF YOU THE
FINAL PROSPECTUS ON OR IMMEDIATELY FOLLOWING THE EFFECTIVE DATE, AND WILL ALLOW
AN ADDITIONAL THREE (3) BUSINESS DAYS FROM SUCH EFFECTIVE DATE TO INSURE TIMELY
RECEIPT BY EACH OF YOU OF SUCH FINAL PROSPECTUS. ACCORDINGLY, IT IS ANTICIPATED
THAT YOUR NOTICE OF RESCISSION MUST BE RECEIVED BY RICKEL APPROXIMATELY 13 DAYS
AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT.
HOLDERS OF OLD NOTES WHO DO NOT EXECUTE THE ELECTION TO EXCHANGE MAY DO
SO FOLLOWING THEIR RECEIPT OF THE FINAL PROSPECTUS; PROVIDED THAT SUCH ELECTION
TO EXCHANGE IS RECEIVED BY RICKEL WITHIN TEN (10) DAYS OF THE DATE OF YOUR
RECEIPT OF THE FINAL PROSPECTUS.
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 or Warrants, 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 AND
THE WARRANTS 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 you Rickel representative.
-5-
<PAGE> 6
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
-6-
<PAGE> 7
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 Transmittal Letter of
Conquest Industries Inc. (the "Company"), dated October 13, 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 (i) my irrevocable right to rescind this
Election to Exchange in accordance with the procedures outlined in the
Transmittal Letter, and (ii) 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 and issuance of Warrants which are
registered under the Securities Act, 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 Transmittal Letter,
Cash Payments equal to $0.20 for each $1.00 principal amount of Old Notes
exchanged and Warrants entitling the undersigned to purchase 0.02 shares of
Common Stock, $.001 par value per share, of the Company for each $1.00 principal
amount of Old Notes exchanged for New Notes.
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;
(b) Cash Payments aggregating $5,000, payable (i) $2,500 on a
date which shall be 20 days following the Effective Date of the
Company's Registration Statement, and (ii) $2,500 on or before
December 31, 1995; and
(c) Warrants, expiring on June 20, 1999 to the extent
unexercised, to purchase 500 shares of Company Common Stock at
an exercise price of $5.00 per share. The number of shares of
Common Stock issuable upon exercise of such Warrants shall be
subject to adjustment pursuant to anti-dilution provisions
-7-
<PAGE> 8
contained therein which shall be substantially identical to the terms
outlined in the Private Placement Memorandum.
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 of 1933, as amended (the "Securities Act"), or the securities
laws of any state; that absent an exemption from registration contained in those
laws, the securities comprising the New Notes would require registration, and
that the Company's reliance upon such 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 and, when delivered, will carefully read the Company's
Final Prospectus. 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 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 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 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" and will further review such section in the Final Prospectus, when
received.
(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.
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<PAGE> 9
(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 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 Subscription Agreement.
(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.
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<PAGE> 10
(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 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 certificates for the securities 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.
5. Rescission of Election to Convert. The undersigned acknowledges that this
Election to Convert is subject to rescission at the sole and exclusive option of
the undersigned in accordance with the procedures set forth in the Transmittal
Letter, including execution by the undersigned of the NOTICE OF RESCISSION OF
ELECTION annexed to the Transmittal Letter; receipt of which is acknowledged by
the undersigned.
Dated: _________, 1995
__________________________
Print Full Name of Investor
__________________________
Signature of Investor
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<PAGE> 11
Principal Amount of 10% Notes due October 1, 1996
Owned of record by the above Investor: $_____________
Name of Investor: _______________________________________
Address: ________________________________________________
Number of Units Owned: __________________________________
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<PAGE> 12
NOTICE OF RESCISSION OF ELECTION TO EXCHANGE
To: Rickel & Associates, Inc.
875 Third Avenue
New York, New York 10022
Telecopier No: (212) 754-9636
Gentlemen:
The undersigned hereby elects TO RESCIND his Election to Exchange
$___________ principal amount of 10% convertible notes of Conquest Industries
Inc. (the "Company") due October 1, 1996 ("Old Notes") for an identical
principal amount of 11% non-convertible notes of the Company due October 1, 1996
(the "New Notes") pursuant to the Exchange Offer set forth in the Transmittal
Letter of the Company dated October 13, 1995.
Accordingly, the undersigned will NOT participate in such Exchange
Offer and waives any rights to receive New Notes, Cash Payments or Warrants
being offered in the Exchange Offer to holders of Old Notes who exchange same
for New Notes.
Very truly yours,
Dated: _________, 1995
______________________________
Print Full Name of Investor
______________________________
Signature of Investor
Principal Amount of 10% Notes due October 1, 1996
Owned of record by the above Investor: $_____________
Name of Investor: ________________________________________________________
Address: _________________________________________________________________
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<PAGE> 13
FORM OF 11% 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 eleven (11%) 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> 14
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> 15
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> 16
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> 17
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: ___________________________
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<PAGE> 1
EXHIBIT 10(S)
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
October 16, 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. 2 to such Registation Statement, as filed with the
Commission on October 16, 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) a maximum of 54,750 five year redeemable warrants
exercisable at $5.00 per share through July 20, 1999
(designated as "Private Placement Warrants") and the maximum of
54,750 shares of Common Stock issuable upon exercise of such
Private Placment Warrants; which Private Placement Warrants are
being offered on the effective date of the Registration
Statement as part of an unregistered private exchange offer to
holders of 10% Private Placement Notes to exchange such Private
Placement Notes for (i) certain cash payments, (ii) a maximum
of $2,737,500 of 11% non-convertible notes due October 1, 1996
(the "Exchange Notes") and (iii) the Private Placement
Warrants. A separate Letter of Transmittal relating to such
exchange offer of 11% Exchange Notes for Private Placement
Notes has been forwarded under separate cover to the holders of
Private Placment Notes.
(c) 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.
(d) 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").
(e) 400,000 shares of Common Stock issuable upon exercise of a
warrant held by NatWest Bank USA (the "Bank Warrant").
(f) 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").
(g) 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").
(h) 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, Private
Placement Warrants, 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.
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<PAGE> 3
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" on pages 58 through 62, inclusive, of the enclosed Preliminary
Prospectus, included in Amendment No. 2 to the Company's Registration Statement
on Form S-1 as filed with the Commission on October 16, 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 October 31, 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 October 31, 1995, your
Securities will NOT 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.
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<PAGE> 4
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" on page 64
of 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 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.
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<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 October 16, 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: October __, 1995
________________________________________
Signature of Selling Securityholder
________________________________________
Name of Selling Securityholder
________________________________________
Address of Selling Securityholder
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<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 and 54,750 Private Placement Warrants) to purchase a
maximum of 2,016,675 shares of Common Stock of the Company, $.001 par value per
share (the "Common Stock"); and (ii) a maximum aggregate of 10,946,812 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
Exhibit 10(T)
[STRATEGIC GROWTH INTERNATIONAL, INC. LETTERHEAD]
October 12, 1995
Mr. Stephen R. Feldman
Chairman
CONQUEST INDUSTRIES INC.
6400 W. Gross Point Road
Niles, IL 60714
Dear Mr. Feldman:
This letter is to confirm the agreement under which Strategic Growth
International, Inc. ("SGI") will serve as Investor Relations Consultant to
Conquest Industries Inc. ("the Company"). The date of execution of this
Agreement is October 11, 1995 (the "agreement execution date"). The agreement
shall have a duration of 12 months from the agreement execution date.
DUTIES:
As Investor Relations Consultant, we will:
a) Consult with the management of the Company on Investor Relations aspects
of shareholder communications, including how to arrange and conduct
meetings with the professional investment community and investor groups;
how to communicate the corporate message to specified audiences, and
how to enhance relations with security analysts and the financial press.
b) Help develop and implement a comprehensive Investor Relations program.
The program will be designed to achieve results-oriented goals and
objectives. The programs will include as its objectives:
- Introducing the Company, its core business and new activities to the
professional investment community and thereby work to create a new
base of investors in the Company's stock, among both institutional and
retail broker segments of the financial community.
- Developing research coverage on the Company.
- Developing additional active market makers.
- Assisting the company in creating media opportunities, as appropriate.
c) Provide professional staff services to help the Company carry out its
programs and objectives.
<PAGE> 2
Mr. Stephen R. Feldman
October 12, 1995
Page 2
The scope of SGI's services shall not include any activities related to or
regarding the raising of funds. Such activities shall be subject to a separate
agreement.
SERVICE FEES:
The Company will pay SGI:
1. A monthly retainer fee of $7,000 for services under this agreement.
The monthly retainer shall commence on the agreement execution date
for twelve months.
2. Immediately upon execution of this agreement, the Company will issue
to SGI a warrant to purchase 900,000 shares of the Company's common
stock. The warrant shall be exercisable at $1.50 and shall be of a
duration of five years from such date. Commencing one year after the
date hereof, the shares underlying the warrant shall be subject to
two piggyback registration rights and one demand registration right
for so long as such shares cannot be transferred without
registration under the Securities Act of 1933. The warrants will be
adjusted for customary anti-dilutive events such as stock reverses
and splits.
Upon execution of this agreement, the warrant shall be considered as having been
fully awarded to SGI, and SGI shall have all legal rights and benefits in such
options. SGI shall have the right to transfer such options to both officers and
other principals of SGI, but shall not otherwise sell or transfer either the
warrants or any underlying shares for a period of one year from the date hereof.
SECURITIES ACT REPRESENTATION:
SGI is acquiring the warrants referred to above and will acquire the underlying
shares of common stock for investment without any view to a public distribution
thereof and it will not transfer either the warrant or the underlying shares
absent registration under the Securities Act of 1933 or a valid exemption
therefrom. SGI has made such investigation concerning the Company and its
business and financial condition as it has deemed necessary for the purpose of
making the investment decision to acquire the warrant.
OUT-OF-POCKET EXPENSES:
The Company will reimburse SGI for all reasonable out-of-pocket disbursements,
including travel expenses, made in the performance of it duties under this
agreement. Items, such as luncheons with the professional investment community,
graphic design and printing, postage, long distance telephone calls, etc., will
be billed as incurred.
<PAGE> 3
Mr. Stephen R. Feldman
October 12, 1995
Page 3
RECORDS AND RECORD KEEPING:
SGI will maintain and submit to the Company prior to reimbursement accurate
records of all out-of-pocket expenditures incurred on behalf of the Company.
Authorization for projects and operating activities will be obtained in advance
before commitments are made.
TERMS OF PAYMENT:
Billings will be done monthly for the coming month. Expenses and charges will
be included in the following month's bill. Payment is due within ten days upon
receipt of invoice.
LIABILITY:
The Company agrees to indemnify and hold harmless SGI from and against any and
all losses, claims, damages, expenses or liabilities which SGI may incur based
upon information, representations, reports or data furnished by the Company to
the extent that such material is furnished, prepared or approved by the Company
in writing for use by SGI, provided that the Company is notified promptly of
any claim, action, suit or proceeding giving rise to the right of
indemnification, that the Company has the right to retain exclusive control
over the defense of any action, suit or proceeding and that SGI cooperates with
the Company in connection with any such claim, action, suit or proceeding.
Notwithstanding the foregoing, the Company shall not be liable and will not
indemnify SGI in respect of any losses, claims, damages, expenses or
liabilities arising from SGI's misconduct or negligence in performing its
duties under this agreement.
SGI agrees to indemnify and hold harmless the Company from and against any and
all losses, claims, damages, expenses or liabilities which the Company may
incur based on SGI's misconduct or negligence in performing its duties under
this Agreement, provided that SGI is notified promptly of any claim, action,
suit or proceeding giving rise to the right to indemnification, that SGI has
the right to retain exclusive control over the defense of any action, suit or
proceeding and that the Company cooperates with SGI in connection with any such
claim, action, suit or proceeding.
This agreement shall be subject to the jurisdiction of/and laws of the State of
New York.
Please confirm agreement to the above by endorsing all three copies (3) and
return two (2) copies to SGI.
AGREED AND ACCEPTED BY: DATED: 10/12/95
----------------------------
/s/ ?????????????????? /s/ ?????????????????????
- --------------------------- -----------------------------------
Conquest Industries Inc. Strategic Growth International, Inc.
<PAGE> 1
Exhibit 23.1
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 the caption "Experts."
/s/ GRANT THORNTON LLP
- ----------------------
GRANT THORNTON LLP
New York, New York
October 17, 1995
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
I consent to the use in this Registration Statement on Form S-1 of my
reports dated May 20, 1994 and January 10, 1994 relating to the financial
statements of Langworthy Casino Supply for the years ended September 30, 1992
and 1993, respectively, 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
1995
