<PAGE> 1
As filed with the Securities and Exchange Commission on July 13, 1995
Registration No. 33-86326
----------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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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") 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") 2,156,925(5) 5.00 10,874,625 3,717.46
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") 134,000(11) 3.00 402,000 138.62
Common Stock, $.001 par value
("Common Stock") 700,000(12) 2.00 1,400,000 482.72
Common Stock, $.001 par value
("Common Stock") 250,000(13) 3.00 750,000 310.36
Common Stock, $.001 par value
("Common Stock") 3,500,000(14) 3.00 10,500,000 3,619.35
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
Common Stock Purchase Warrants 2,211,675(15) .01 22,167 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(16) -- -- --
Total Registration Fee.................................................................................. $ 11,493.72
</TABLE>
- --------------------------------
(1) Pursuant to Rule 416, the Registration Statement also relates to an
indeterminate number of additional shares of Common Stock issuable upon
the exercise of the Class B Warrants pursuant to anti-dilution provisions
contained therein, which shares of Common Stock are registered hereunder.
(2) Pursuant to Rule 457.
(3) Includes 2,281,250 shares of Common Stock (the "Conversion Shares")
potentially issuable upon conversion of 10% convertible promissory notes
(the "Notes") which were issued pursuant to the 1994 Private Placement (as
hereinafter defined). Such Notes, by their terms, are convertible at 80%
of the prevailing market price of the Company's Common Stock. For purposes
of calculating the registration fee, such market price is assumed to be
$1.50. At July 7, 1995, the closing bid price of the Company's Common
Stock was $2.75 per
<PAGE> 3
share. The Company is currently seeking waivers of such conversion rights
from the holders of the Notes, and, to the extent received, any such
Conversion Shares will be deregistered by the Company.
(4) Common Stock underlying the Common Stock Purchase Warrants ("Private
Placement Warrants") issued upon the amendment of the Notes in 1995. 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 (i) 1,961,925 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); and (ii) 195,000 publicly traded warrants currently exercisable
at $30.00 per share and expiring September 30, 1995, which the Company
will amend on the effective date of this Registration Statement to
contaiin terms identical to the Class B Warrants. Such 195,000 warrants
are designated as additional Class B Warrants for purposes of this
Registration Statement. All such Class B Warrants are currently
exercisable at $5.00 per share, expiring June 20, 1999 and are redeemable
by the Company under certain circumstances (see Note (15) below).
(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 (the "Bank 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
held by these holders 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 (the "Blue
Diamond Warrant") issued pursuant to the Wico Merger.
(10) Common Stock issued upon exercise in June 1995 of two warrants ("Loan
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) Common Stock underlying outstanding options of present and former
directors exchanged for a like amount of options granted under various
stock option plans.
(12) Estimated number of shares of Common Stock to be offered at $2.00 per
share to certain creditors of the Company in exchange for cancellation of
indebtedness and other liabilities owed by the Company to such creditors.
(13) Common Stock underlying outstanding warrants of an executive officer.
(14) Includes an aggregate of 2,094,500 shares of Common Stock sold at $1.41
per share in a private placement consummated in July 1995 and an
additional 1,405,500 shares of Common Stock which may be offered from time
to time by the Company as a means of raising capital.
(15) Consists of (i) 2,156,925 Class B Warrants referred to in Note (5) above,
and (ii) 54,750 Private Placement Warrants referred to in Note (4) above.
(16) 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.
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<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;
Earnings to Fixed Charges Inapplicable 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>
-iii-
<PAGE> 5
PRELIMINARY PROSPECTUS DATED JULY 13, 1995, SUBJECT TO COMPLETION
CONQUEST INDUSTRIES INC.
(formerly, Conquest Airlines Corp.)
4,718,043 Shares of Common Stock; 2,156,925 Class B Redeemable Common Stock
Purchase Warrants;
54,750 Private Placement Warrants; and 53,241 Underwriter's Common Stock
Purchase Warrants
This Prospectus relates to an issuance of the following securities of
Conquest Industries Inc., a Delaware corporation (the "Company"), consisting of:
(i) an aggregate of 4,718,043 shares of common stock, par value $.001 per share
(the "Common Stock"), (ii) an aggregate of 2,156,925 Class B Redeemable Common
Stock Purchase Warrants exercisable at $5.00 per share (subject to adjustment in
certain events pursuant to the anti-dilution provisions thereof) until June 20,
1999 (the "Class B Warrants"), (iii) an aggregate of 54,750 warrants (the
"Private Placement Warrants") containing substantially the same terms as the
Class B Warrants; and (iv) an aggregate of 53,241 Common Stock Purchase Warrants
exercisable at $10.00 per share (subject to adjustment in certain events
pursuant to the anti-dilution provisions thereof) until April 23, 1997, which
were issued to the underwriter of the Company's initial public offering (the
"Underwriter's Warrants").
An aggregate of 2,612,543 of the 4,718,043 shares of Common Stock are
presently issued and outstanding, and include 2,094,500 shares recently sold at
approximately $1.41 per share (the "1995 Private Placement Shares") in a private
placement completed in July 1995 (the "1995 Private Placement"), 313,043 shares
issued in June 1994 in connection with the "Wico Merger" (herein defined) and
205,000 shares issued in June 1995 upon exercise of certain warrants. A maximum
of 700,000 additional shares of Common Stock are subject to issuance on the
effective date of the registration statement of which this Prospectus is a part
(the "Effective Date") to certain creditors of the Company in payment of
creditors claims (the "Creditors Shares") and the balance of 1,405,500 shares of
Common Stock may be issued in the discretion of the Company from time to time at
various prices (the "Shelf Shares"). An aggregate of 6,413,807 additional shares
of Common Stock being registered for sale in the Registration Statement of which
this Prospectus is a part are subject to issuance upon the conversion of certain
outstanding convertible securities and the exercise of certain outstanding
options and warrants, including the Class B Warrants, Private Placement Warrants
and Underwriter's Warrants. Except for the 1,405,500 Shelf Shares, the 700,000
Creditors Shares, an aggregate of 2,211,675 shares issuable upon exercise of the
2,156,925 Class B Warrants and 54,750 Private Placement Warrants described
below, and an aggregate of 106,482 shares of Common Stock issuable upon exercise
of the Underwriter's Warrants (and additional Class Z Warrants included
therein), all of the securities offered pursuant to this Prospectus are to be
offered for the account of certain stockholders and warrantholders (the "Selling
Securityholders") of the Company, and the Company will not receive any of the
net proceeds or related benefits in the form of debt reduction from the issuance
or resale of any of such securities.
The securities covered by this Prospectus include a maximum of 2,281,250
shares of Common Stock (the "1994 Private Placement Conversion Shares") issuable
upon conversion of $2,737,500 principal amount of Company 10% convertible notes
due October 1, 1996 (the "Private Placement Notes") issued in connection with a
1994 private placement (the "1994 Private Placement"). Such Private Placement
Notes are convertible into 1994 Private Placement Conversion Shares at 80% of
the closing bid price of the Company's Common Stock on the date of conversion.
For purposes of this Prospectus, such closing bid price is assumed to be $1.50
per share. The Company has requested that the holders of the Private Placement
Notes waive their conversion rights, in consideration for increasing the
interest rate to 11% per annum and certain additional payments to be made in
October and December 1995, aggregating $821,250 (assuming the holders of all
Private Placement Notes waive such conversion rights). To the extent that such
conversion waivers are obtained and the Company makes the required payments to
such Private Placement Note holders, the Company will deregister an applicable
number of 1994 Private Placement Conversion Shares.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL
DILUTION TO INVESTORS AND SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT
AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS."
----------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRE-
SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
(cover continued on next page)
The date of this Prospectus is _________ __, 1995
-iv-
<PAGE> 6
In addition to the 2,281,250 1994 Private Placement Conversion Shares and
4,200,000 shares of Common Stock comprising the 1995 Private Placement Shares,
Creditors Shares and Shelf Shares, this Prospectus also covers: (i) 54,750
shares of Common Stock (the "Private Placement Warrant Shares") issuable upon
exercise of the Private Placement Warrants owned by holders of the Private
Placement Notes; (ii) an aggregate of 1,961,925 shares of Common Stock issuable
upon exercise of 1,961,925 of the Class B Warrants to be issued upon the
Effective Date to stockholders of record of the Company immediately prior the
merger consummated on June 20, 1994 of Wico Holding Corp. ("Wico") into a
newly-formed acquisition subsidiary of the Company (the "Wico Merger"); (iii) an
aggregate of 195,000 shares of Common Stock issuable on exercise of 195,000
publicly traded warrants currently exercisable at $30.00 per share and scheduled
to expire on September 30, 1995, the terms of which warrants the Company will
amend on the Effective Date to be identical to the Class B Warrants and are
designated herein as additional Class B Warrants; (iv) an aggregate of 1,030,400
shares of Common Stock (the "Preferred Stock Conversion Shares") 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 ("Series B Preferred
Stock") and 800,000 shares of Series E Preferred Stock of the Company ("Series E
Preferred Stock") issued in June 1995 in exchange for other shares of Series B
Preferred Stock; (v) 400,000 shares of Common Stock issuable for $400 ($.001 per
share) upon exercise of warrants issued at the time of the Wico Merger to the
Company's principal institutional lender (the "Bank Warrant"); (vi) 200,000
shares of Common Stock purchased in June 1995 for $200 by Blue Diamond Trading
Ltd. (the "Blue Diamond Shares"); (vii) 313,043 shares of Common Stock issued in
June 1994 to former stockholders of Wico in connection with the Wico Merger;
(viii) 5,000 shares of Common Stock issued in June 1995 in connection with a
$500,000 loan made to the Company in July 1994, and since repaid; (ix) an
aggregate of 384,000 shares of Common Stock issuable upon exercise of certain
stock options and warrants granted to officers and directors of the Company; (x)
Underwriter's Warrants to purchase 53,241 units of securities (each unit
consisting of one share of Common Stock and one Class Z Warrant) issued to the
underwriter in connection with the Company's initial public offering of
securities; and (xi) the 53,241 shares of Common Stock, the 53,241 Class Z
Warrants and the 53,241 shares of Common Stock issuable upon exercise of the
Class Z Warrants included in the Underwriter's Warrants.
Each Selling Securityholder may offer their securities in such manner at
such time as they may determine, which may or may not involve brokers or
dealers. There is no underwriter or coordinating broker acting in connection
with such proposed sales.
An aggregate of 11,458,177 shares of Common Stock are currently issued and
outstanding (including 2,299,500 shares issued subsequent to March 31, 1995
(consisting of the 2,094,500 1995 Private Placement Shares, the 200,000 Blue
Diamond Shares and 5,000 additional shares). If all of the additional issuable
shares of Common Stock, including (i) the 700,000 Creditors Shares and the
1,405,500 Shelf Shares, (ii) the shares issuable upon exercise of the Class B
Warrants, the Bank Warrant, the Private Placement Warrants, the Underwriter's
Warrants, the Class Z Warrants included in the Underwriter's Warrants, and all
other outstanding warrants and options, and (iii) the shares issuable upon
conversion into Common Stock of the 1994 Private Placement Conversion Shares and
the Preferred Stock Conversion Shares, are issued, after giving effect to the
issuance thereof, an aggregate of 22,183,984 shares of Common Stock will be
outstanding. Such 10,725,807 additional shares of Common Stock constitute
approximately 48.3% of the Common Stock to be outstanding after giving effect to
such issuances. Such calculation does not give effect to the potential issuance
of 6,200,000 additional shares of Common Stock issuable upon exercise of
warrants which may be issued under specified conditions to certain affilates.
See "Management - Compensation Committee Interlocks and Insider Participation."
The actual or potential issuance of all or any material portion of the
additional 10,725,807 shares and 6,200,000 additional shares underlying the
contingent warrants to affiliates, represent substantial potential dilution in
the equity 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.
An aggregate of 2,211,675 shares of Common Stock are issuable upon the
exercise of outstanding Class B Warrants and Private Placement Warrants at an
exercise price of $5.00 per share 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 Class B Warrant and Private Placement
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 The
Nasdaq SmallCap Market ("NASDAQ") or in the over-the-counter market, is at least
$6.84 for five consecutive trading 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 the business day preceding the date
fixed for redemption. See "Description of Securities - Class B Warrants and
Private Placement Warrants."
The 800,000 shares of Series E Preferred Stock are subject to mandatory
redemption, at $1.00 per share (plus all unpaid accrued dividends), at the
option of the holders thereof, out of the gross cash proceeds, if any, received
by the Company from any public offering of securities of $3,000,000 or more. See
"Description of Securities - Series E Preferred Stock."
The Company's Common Stock and 195,000 of outstanding publicly traded
warrants exercisable at $30.00 per share and expiring on September 30, 1995
(which will be amended on the Effective Date and designated as 195,000
additional Class B 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. The Company's Series A Preferred
Stock is also listed on the Boston Stock Exchange under the symbol "CACP." On
July 7, 1995, the last reported bid price for the Company's Common Stock on
NASDAQ was $2.75 per share. No closing bid was reported for the Company's
outstanding publicly traded Warrants.
-v-
<PAGE> 7
ADDITIONAL INFORMATION
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 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 Notes 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 Securityholders and any
broker-dealer that act 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 $75,000.
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.
-vi-
<PAGE> 8
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 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. A wholly-owned 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.
On June 20, 1994, CAC Acquisition, Inc. ("CAC"), a Delaware corporation
and newly formed wholly-owned subsidiary of the Company, merged with Wico
Holding Corp. ("Wico"), a privately-held Delaware corporation, pursuant to a
Restated Agreement and Plan of Merger dated June 8, 1994 (the "Wico Merger").
Upon consummation of the Wico Merger, Wico became a wholly-owned subsidiary of
the Company and the separate existence of CAC ceased. In addition, 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 Airline 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 operation relate to continuing
businesses only, except as otherwise expressly stated. The operations of
Conquest Air have incurred significant losses and default notices have been
received from certain of the lessors of its commuter aircraft.
On June 30, 1995, the Company sold the stock of Conquest Air to Air L.A.,
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.
In addition, Air LA 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 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", "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Except for specific references to Conquest Air and its turboprop airline
operations, as used in this Prospectus the term "the Company" refers to Conquest
Industries, Inc., Wico 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,
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<PAGE> 9
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: (i) an aggregate of 4,718,043 shares of Common
Stock, (ii) an aggregate of 2,156,925 Class B Warrants, (iii) an aggregate of
54,750 Private Placement Warrants, and (iv) an aggregate of 53,241 Underwriter's
Warrants including an additional 53,241 Class Z Warrants included therein. An
aggregate of 2,612,543 shares of the 4,718,043 shares of Common Stock offered
hereby are presently issued and outstanding, including 2,094,500 1995 Private
Placement Shares sold in the 1995 Private Placement for $2,950,000. In addition,
an aggregate of up to 700,000 Creditors Shares are issuable on the Effective
Date to certain creditors of the Company in exchange for indebtedness
aggregating approximately $1,400,000 and an aggregate of 1,405,500 shares of
Common Stock constitute Shelf Shares which may hereafter be issued from time to
time in the Company's discretion. An aggregate of 6,413,807 additional shares of
Common Stock being registered in the Registration Statement of which this
Prospectus is a part are subject to issuance upon the conversion of certain
outstanding convertible securities and the exercise of certain outstanding
options and warrants, including a maximum aggregate of 2,281,250 1994 Private
Placement Conversion Shares, an aggregate of 1,030,400 Preferred Stock
Conversion Shares, the 2,156,925 Class B Warrants, the 54,750 Private Placement
Warrants, the 400,000 Bank Warrants, and the 53,241 Underwriter's Warrants and
53,241 Class Z Warrants included therein. Except for the 1,405,500 Shelf Shares,
the 700,000 Creditors Shares, an aggregate of 2,211,675 shares issuable upon
exercise of the 2,156,925 Class B Warrants and 54,750 Private Placement
Warrants, and an aggregate of 106,482 shares of Common Stock issuable upon
exercise of the Underwriter's Warrants and additional Class Z Warrants included
therein, all of the securities offered pursuant to this Prospectus are to be
offered for the account of the Selling Securityholders, and the Company will not
receive any of the net proceeds or related benefits in the form of debt
reduction from the issuance or resale of any of such securities.
The Selling Securityholders will be offering hereby: (i) an aggregate of
2,094,500 1995 Private Placement Shares, (ii) an aggregate of 2,281,250 1994
Private Placement Conversion Shares issuable at an assumed conversion price of
$1.20 upon conversion of the $2,737,500 outstanding Private Placement Notes,
(iii) an aggregate of 54,750 Private Placement Warrant Shares issuable upon
exercise of the Private Placement Warrants; (iv) an aggregate of 1,030,400
Preferred Stock Conversion Shares 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; (v) 400,000 shares of Common Stock issuable upon exercise of
the Bank Warrant; (vi) 200,000 Blue Diamond Shares issued in June 1995; (vii)
313,043 shares of Common Stock issued in June 1994 to former stockholders of
Wico in connection with the Wico Merger; (viii) 5,000 shares of Common Stock
issued in connection with a $500,000 loan made to the Company in July 1994, and
since repaid; (ix) an aggregate of 384,000 shares of Common Stock issuable upon
exercise of certain stock options and warrants granted to existing and former
officers and directors of the Company; (x) the 53,241 Underwriter's Warrants,
the 53,241 Class Z Warrants included in the Underwriter's Warrants, and an
aggregate of 106,482 shares of Common Stock issuable upon exercise of the
Underwriter's Warrants and the Class Z Warrants; and (xi) an aggregate of up to
700,000 Creditors Shares.
The Private Placement Notes are convertible by the holders at any time
prior to the October 1, 1996 maturity date at 80% of the market price of the
Company's Common Stock at the date of conversion. The Company intends to offer
to the holders of the Private Placement Notes an increase in the interest rate
on such Private Placement Notes from 10% to 11% per annum, and additional
payments aggregating $547,500 ($5,000 for each $25,000 principal amount of
Private Placement Notes) in consideration of their agreement to waive their
conversion privileges under such Private Placement Notes (the "Conversion
Waivers"). To the extent that the Company receives such Conversion Waivers and
makes the required payments to the holders of the Private Placement Notes
(payable in equal installments on October 31, 1995 and December 31, 1995), the
Company will deregister an applicable number of the 2,281,250 1994 Private
Placement Conversion Shares. The Company has engaged Rickel & Associates, Inc.
("Rickel") to act as solicitation agent in connection with the offer to the
holders of Private Placement Notes, and has agreed to pay Rickel $2,500 for each
$25,000 principal amount of Private Placement Note which accepts the Conversion
Waiver offer. See "Business - 1994 Private Placement."
The Class B Warrants and the Private Placement Warrants expire on June 20,
1999 and are exercisable at a price of $5.00 per share (subject to adjustment
pursuant to the anti-dilution provisions thereof). The Class B Warrants and the
Private Placement Warrants are subject to earlier redemption by the Company at
any time prior to expiration, at a redemption price of $.10 per Warrant, at any
time prior to its expiration date, provided that (i) notice of not less than 30
days is given to the warrantholders; (ii) the closing bid price of the Common
Stock on each of the five trading days ending on the business day preceding the
date of any notice of redemption has been at least $6.84; and (iii) the
warrantholders shall have exercise rights until the close of the business day
preceding the date fixed for redemption. See "Description Of Securities - Class
B Warrants and Private Placement Warrants."
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<PAGE> 10
SECURITIES TO BE OUTSTANDING AFTER THE OFFERING
As of the date of this Prospectus, the Company's outstanding capital stock
consists of: (i) 11,458,177 shares of Common Stock (including 2,094,500 shares
sold in July 1995 in connection with the 1995 Private Placement, 200,000 Blue
Diamond Shares issued in June 1995 and 5,000 additional shares issued in June
1995), (ii) 7,550 shares of Series A Preferred Stock, (iii) 2,000,000 shares of
convertible Series B Preferred Stock, (iv) 600,000 shares of non-convertible
Series D Preferred Stock, and (v) 800,000 shares of convertible Series E
Preferred Stock. In addition to the outstanding shares of Common Stock and
Preferred Stock, upon completion of this Offering, there will also be issued and
outstanding: (i) warrants to purchase a maximum of 1,050,000 shares of Common
Stock at $.333 per share issued in connection with the issuance of the Series D
Preferred Stock and a $150,000 loan made by an affiliate; (ii) 2,156,925 Class B
Warrants; (iii) 54,750 Private Placement Warrants; (iv) $2,737,000 of Private
Placement Notes convertible into an aggregate of 2,281,250 1994 Private
Placement Conversion Shares of Common Stock at an assumed conversion price of
$1.20 per share; (v) 400,000 Bank Warrants; (vi) 53,241 Underwriter's Warrants
and 53,241 Class Z Warrants included therein; and (vii) an aggregate of
8,956,000 shares issuable and potentially issuable upon exercise of 1,756,000
warrants and options granted to officers and directors of the Company and
6,200,000 contingent warrants issued to two directors and affiliates of the
Company. See "Management -- Compensation Committee Interlocks and Insider
Participation," "Certain Relationships and Related Party Transactions," and
"Description of Securities." An aggregate of 16,925,807 additional shares of
Common Stock are issuable and potentially issuable upon exercise or conversion
of the above securities and other outstanding options and warrants, representing
59.6% of the aggregate number of shares of Common Stock which would then be
outstanding after giving effect to such issuances.
USE OF PROCEEDS
Other than any proceeds received from the sale of up to 1,405,500 Shelf
Shares, 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 up to 1,405,500 Shelf
Shares and/or upon the exercise of the Class B Warrants, the Private Placement
Warrants, Underwriter's Warrants, Class Z Warrants and other outstanding options
and warrants will be used by the Company: (i) to repurchase, for $200,000,
600,000 shares of Series D Preferred Stock and retire a $150,000 loan from an
affiliate of a member of the Company's Board of Directors; (ii) to repay up to
$500,000 of accrued obligations of a former subsidiary retained by the Company;
and (iii) the balance for working capital purposes. To the extent that the
Company issues any of the 700,000 Creditors Shares reserved for certain
creditors, such issuance will reduce existing Company indebtedness and accounts
payable by as much as $1,400,000. See "Business - Settlement with Certain
Creditors."
RISK FACTORS
The securities offered hereby involve a high degree of risk and
substantial dilution to investors and should only be purchased by investors able
to sustain the loss of their entire investment. See "Risk Factors."
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<PAGE> 11
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) (Dollars 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 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>
SIX MONTHS ENDED
MARCH 31, YEARS ENDED SEPTEMBER 30,
---------------------------- -----------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales........................ $ 20,531 $ 21,414 $ 41,992 $ 38,783 $ 38,653 $ 39,277 $ 45,747
Cost of sales.................... 13,148 13,002 26,078 23,675 24,078 24,282 28,413
Net income (loss)................ (1,531) 693 284 443 (741) (1,742) (703)
Pro forma net income (loss)(1)... (1,531) 693 284 508 (516) (1,137) (488)
Pro forma net income (loss) per (.19) .05 .00 0.01 (0.01) (0.01) (0.01)
share (2)........................
Number of shares used in
computation...................... 9,158,677 9,158,677 9,158,677 9,158,677 9,158,677 9,158,677 9,158,677
</TABLE>
BALANCE SHEET DATA (4)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
----------- ---------------------------------------------------------
1995 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Current assets....................... $14,572 $15,757 $ 15,099 $ 15,713 $ 15,642 $ 18,145
Total assets......................... 27,097 27,436 19,912 21,384 23,158 27,394
Current liabilities.................. 9,542 9,491 6,487 6,598 7,465 7,715
Long term debt....................... 17,528 16,706 23,850 27,450 28,608 31,300
Stockholders' equity (deficiency).... 27 1,239 (10,425) (13,664) (12,915) (11,621)
</TABLE>
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(1) Pro forma net income (loss) has been calculated after giving effect to the
pro forma adjustments to the income tax provision as if Wico had not
operated as an "S" corporation. As of January 1, 1994, Wico ceased
operating as an "S" corporation.
(2) Pro forma net income (loss) per share reflects the recapitalization of
Wico 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.
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<PAGE> 12
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.
1. 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 $1,531,000 for the six-month
period ended March 31, 1995, compared with net income of approximately $693,000
for the six-month period ended March 31, 1994. Although approximately $611,000
of the losses in the six-month period ended March 31, 1995 are attributable to
losses incurred by Conquest Air (treated for accounting purposes as a
discontinued operation) and a charge of $485,000 relating to the amortization of
debt discounts recorded in the fourth quarter of fiscal 1994, 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."
2. DECREASE IN STOCKHOLDERS' EQUITY
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 six-months ended March 31, 1995, stockholders' equity at March 31,
1995 was reduced to approximately $27,000. Although such equity has and will
increase as a result of the recent sale of $2,950,000 of 1995 Private Placement
Shares, and the anticipated issuance of up to 700,000 Creditors Shares in
reduction of up to $1,400,000 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. 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."
3. CASH FLOW AND LIQUIDITY PROBLEMS
The Company is 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 six months ended March
31, 1995, operating cash flow from such businesses was only approximately
$247,000 and total cash flow was negative by $136,750. The Company is attempting
to obtain additional working capital by refinancing its senior secured
indebtedness under its line of credit. Although the Company has received a
financing proposal from an institutional lender, such proposal does not
constitute a financing commitment. Accordingly, there is no assurance that the
Company will be able to effect such refinancing, or on terms that will relieve
its liquidity and cash flow shortages. See "Management's Discussion and Analyses
of Financial Conditions and Results of Operations - Liquidity and Capital
Resources."
4. SALE OF CONQUEST AIR; CONTINUING LIABILITIES AND RISK OF
NON-PAYMENT
The Company has been making concerted efforts for over a year to dispose
of its commuter airline business conducted by Conquest Air, as the operations of
Conquest Air have incurred significant losses which has adversely affected the
Company's working capital and liquidity position. In addition, the lessors of
the aircraft operated by Conquest Air have 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, including $2.0 million of former accrued
obligations of Conquest Air
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<PAGE> 13
to the Company being assumed and repaid by Air LA. As part of the sale, the
Company provided Air LA with a secured $250,000 bridge loan pending a
contemplated debt refinancing by Air LA, and the Company remains contingently
liable to the aircraft lessors of the aircraft formerly operated by the Conquest
Air until such time as Air LA completes other anticipated equity financings. 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" and "Business - Sale of Conquest Air."
5. LICENSING AND REGULATION
The Langworthy acquisition provided a significant product line extension
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 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.
6. CONTROL BY PRINCIPAL STOCKHOLDERS
The Company's officers and directors and their affiliates and family
members beneficially own approximately 48.2% of the issued and outstanding
Common Stock of the Company and hold options and warrants (including warrants
issuable under certain conditions) which, if fully exercised, would entitle such
persons to own an aggregate of approximately 51.3% 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.
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<PAGE> 14
7. RESTRICTIVE LOAN COVENANTS AND SECURITY INTERESTS
Wico Corporation, a wholly-owned subsidiary of Wico and an indirect
subsidiary of the Company, is a party to a lending agreement with its
institutional lender (the "Lending Agreement'), which provides for a term loan
(the "Term Loan") and a revolving credit loan (the "Revolving Credit Loan") and
which contains various covenants. Such covenants, among other things, require
that Wico Corporation maintain certain financial ratios and minimum levels of
net worth, and prohibit Wico Corporation from declaring any dividends and
restrict certain other transactions. A significant portion of Wico Corporation's
assets are pledged as collateral to secure its indebtedness to the lender. In
the event of a default by Wico Corporation under the Lending 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, which would have
a material adverse effect on the operations of Wico Corporation and the Company.
Moreover, to the extent that Wico Corporation'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 Wico Corporation's future borrowing
ability. In 1993, the Lending Agreement was amended, having the effect of curing
certain financial defaults then existing under the Lending Agreement, none of
which, however, involved the failure to make payments required by the Lending
Agreement. As at March 31, 1995 and for the six months then ended, Wico
Corporation was in default of its operating income covenant and ratio of
interest expense to operating income covenant under the Lending Agreement. The
institutional lender has waived this requirement through March 31, 1995.
Although the Company anticipates that it will be in compliance with all loan
covenants by the end of its fiscal year ending September 30, 1995, it does not,
based upon current information, expect that it will be in compliance with such
covenants as at June 30, 1995 and for the nine months then ended. Accordingly,
once such figures are determined the Company will seek an additional waiver from
its lender. The can be no assurance that such waiver will be granted or that the
Company will be in compliance with this and other requirements of the Lending
Agreement in the future. In addition, Wico Corporation is required to make
annual prepayments of its Term Loan with the lender in an amount equal to 75% of
its excess cash flow, as defined in the Lending Agreement. While these
requirements have not historically adversely affected Wico Corporation's working
capital, they do have the effect of limiting Wico Corporation's ability to
expand by acquisition without the consent of its institutional lender.
Although the Company is attempting to refinance the indebtedness of Wico
Corporation with another institutional lender, such refinancing depends on a
number of factors, including certain agreements with the Company's existing
institutional lender. The Company has received a financing proposal from a new
institutional lender. However, such proposal does not constitute a binding
financing commitment. Accordingly, there is no assurance that any such
refinancing will be effected, or if so, on terms satisfactory to the Company.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
8. POSSIBLE CHANGE OF CONTROL
Pursuant to Wico Corporation's Lending Agreement with the banks signatory
thereto (the "Banks") and National Westminster Bank USA, as agent (the "Agent"),
Bentley J. Blum, Iris Feldman, Miriam Katowitz and Paul E. Hannesson
(collectively, the "Pledgors") pledged with the Agent, for the ratable benefit
of the Banks, all of the outstanding capital stock of Wico then owned or
thereafter acquired by each of them. In order to induce the Banks to consent to
the Wico Merger, the Pledgors, concurrently with the Wico Merger, pledged all
shares of the capital stock of the Company then owned by the Pledgors
(approximately 78.1% of the outstanding Common Stock) as collateral security for
the performance of Wico's liabilities and obligations to the Banks. Accordingly,
upon the occurrence of an "Event of Default" (as that term is defined in the
Lending Agreement), any and all shares of pledged stock held by the Agent may,
at the option of the Agent or its nominee, be registered in the name of the
Agent or its nominee, and the Agent or its nominee will succeed to all rights
pertaining to such shares subject to any requirements of the United States
Department of Transportation which may limit the number of shares of the Company
that may be pledged to the Agent or the rights the Agent may exercise in respect
of such shares. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources."
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<PAGE> 15
9. POTENTIAL BENEFITS TO INSIDERS UPON ISSUANCE OF CONTINGENT WARRANTS
In April 1995, in consideration of his agreement to waive $937,500 of
accured compensation, the Board of Directors of the Company agreed to issue to
Stephen R. Feldman, the Chairman of the Board of Directors, a five year warrant,
exercisable at $0.875 per share, to purchase 1,200,000 shares of Common Stock.
In addition, and in connection with a proposed refinancing of the Company senior
indebtedness, Mr. Feldman and Bentley J. Blum, a principal stockholder of the
Company, have been requested to provide their personal guarantees to the new
lender in the amounts of $1.0 million and $3.0 million, respectively, and Mr.
Blum has also been requested to collateralize his $3.0 million personal guaranty
with certain assets independent of his interests in the Company. Such affiliates
have agreed to furnish such guarantees and collateral. In consideration for
their commitment to provide such financial accommodations, in April 1995 the
Company's Board of Directors also agreed to issue to Messrs. Feldman and Blum
five year warrants to purchase 1,000,000 and 4,000,000 shares of Common Stock,
respectively, at an exercise price of $0.875 (the closing bid price of the
Company's Common Stock on the date of such warrants were authorized).
All of the above warrants, entitling the holders to purchase an aggregate
of 6,200,000 shares of Common Stock at $0.875 per share, are only issuable in
the event such refinancing shall be consummated and Messrs. Feldman and Blum
shall issue the above-contemplated guarantees. Inasmuch as the market price of
the Company's Common Stock was approximately $2.75 per share at July 7, 1995,
such warrants, if issued, will represent a substantial potential for profit to
Messrs. Feldman and Blum. The issuance of such contingent warrants may result in
a significant charge to the Company's earnings in the period when issued,
although such charge will not impact consolidated stockholders' equity. See
"Management - Compensation Committee Interlocks and Insider Participation."
10. 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.
11. 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."
12. NO DIVIDENDS
The payment of dividends, if any, 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.
-8-
<PAGE> 16
13. RISK OF DELISTING FROM NASDAQ
The Company's Common Stock is currently traded on the Small Cap Market of
The Nasdaq Stock Market ("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.
The Company has requested a hearing with the NASDAQ Listing Committee, at
which it intends to propose a plan of action which will reflect that events
subsequent to March 31, 1995, including the sale of 2,094,500 1995 Private
Placement Shares for an aggregate of $2,950,000, the contemplated reduction of
liabilities resulting from the sale of the Creditors Shares, and the effects of
the sale of Conquest Air, have enabled the Company to maintain listing
eligibility. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Pro Forma Balance Sheet." However, there can be no
assurance that the Company will be able to convince NASDAQ to maintain such
listing eligibility pending completion of this Offering and achievement of the
minimum capital and surplus requirements.
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.
14. SIGNIFICANT DILUTION TO PRESENT STOCKHOLDERS AND DEPRESSIVE EFFECT ON
MARKET PRICE OF COMMON STOCK
As at July 7, 1995, the Company's outstanding capital stock consists of
(i) 7,550 shares of Series A Preferred Stock, (ii) 2,000,000 shares of
convertible Series B Preferred Stock, (iii) 600,000 shares of non-convertible
Series D Preferred Stock, (iv) 800,000 shares of convertible Series E Preferred
Stock, and (v) 11,458,177 shares of Common Stock. An aggregate of up to 700,000
Creditors Shares are issuable on the Effective Date to certain creditors of the
Company in exchange for accrued obligations aggregating up to $1,400,000, and an
additional 1,405,500 Shelf Shares may be issued from time to time following the
Effective Date on such terms as the Company shall determine.
In addition to the aggregate of 13,563,677 shares of Common Stock
presently outstanding and to be outstanding upon issuance of the Creditor Shares
and Shelf Shares, a maximum of 6,413,807 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 the exercise of warrants and
options and the conversion of Company notes and preferred stock. The foregoing
does not include a maximum of 8,406,500 additional shares issuable and
potentially issuable in connection with other outstanding options, warrants and
convertible securities, including an aggregate of 1,756,500 shares underlying
outstanding warrants and options held by officers and directors of the Company
and an additional 6,200,000 warrants which may be issued in the future to such
directors in consideration for waiving accrued compensation and their personal
guarantees of institutional indebtedness. See "Management - Compensation
Committee Interlocks and Insider Participation." The potential issuance of an
additional 16,925,807 shares of Common Stock (including the 6,200,000 shares
underlying the contingent warrants issued to affiliates) represents 59.6% of the
28,383,984 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 equity 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.
-9-
<PAGE> 17
15. SHARES ELIGIBLE FOR FUTURE SALE
At March 31, 1995, there were an aggregate of 9,158,677 shares of Company
Common Stock issued and outstanding. The 2,299,500 additional shares of Common
Stock issued since March 31, 1995 (including 2,094,500 1995 Private Placement
Shares sold in June and July 1995, 200,000 Blue Diamond Shares sold in June 1995
and 5,000 additional shares issued in June 1995), an aggregate of 313,043 shares
issued in connection with the Wico Merger, the 700,000 Creditors Shares and
1,405,500 Shelf Shares are all being registered for immediate sale in the
Registration Statement of which this Prospectus is a part. See "Selling
Securityholders." 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 4,718,043
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 6,413,807 additional
registered shares of Common Stock upon the exercise of options and warrants and
the conversion of Company notes and 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.
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.
16. 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."
-10-
<PAGE> 18
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.
17. 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, 600,000 shares of Series D 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 1,161,400 shares of
Common Stock. There can be no assurance that additional Preferred Stock of the
Company will not be issued in the future.
18. RELATIONSHIP OF CERTAIN MARKET MAKER TO TRADING; POSSIBLE LIMITATIONS ON
MARKET MAKING ACTIVITIES
Lew Lieberbaum & Co., Inc. ("Lieberbaum"), the underwriter of the
Company's public offering in April 1993, may act in a brokerage capacity with
respect to the purchase or sale of the Common Stock and the Class B Warrants in
the over-the-counter market where each trades. Lieberbaum is a Selling
Securityholder under this Registration Statement. Unless granted an exemption by
the Commission from Rule 10b-6 under the Exchange Act, Lieberbaum will be
prohibited from engaging in any market making activities or solicited brokerage
activities with regard to the Company's securities during the periods prescribed
by exemption (xi) to Rule 10b-6. As a result, Lieberbaum may be unable to
continue to make a market for the Company's securities during certain periods
while securities of the Company owned by them are being offered to the public.
Such a limitation, while in effect, could impair the liquidity and market price
of the Company's securities.
USE OF PROCEEDS
Other than any proceeds received from the sale of up to 1,405,500 Shelf
Shares, 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 1,405,500 Shelf Shares and/or upon
the exercise of the Class B Warrants, the Private Placement Warrants,
Underwriter's Warrants and other outstanding options and warrants will be used
by the Company: (i) to repurchase, for $200,000, an aggregate of 600,000 shares
of Series D Preferred Stock and retire a $150,000 loan from an affiliate of a
member of the Company's Board of Directors; (ii) to repay up to $500,000 of
accrued obligations of a former subsidiary retained by the Company; and (iii)
the balance for working capital purposes. To the extent that the Company issues
any of the 700,000 Shelf Shares reserved for certain creditors, such issuance
will reduce existing Company indebtedness and accounts payable by as much as
$1,400,000. See "Business - Settlement with Certain Creditors."
Any net proceeds realized by the Company from the exercise of Class B
Warrants, Private Placement Warrants, Underwriter's Warrants, Class Z Warrants
and other outstanding options and warrants will be used for working capital
purposes. The maximum amount of proceeds receivable from the exercise of the
Class B Warrants, Private Placement Warrants, Underwriter's Warrants (and
underlying Class Z Warrants), and all other outstanding stock options and
warrants is approximately $10,000,000. However, inasmuch as the current $5.00
per share exercise prices of the Class B Warrants and Private Placement Warrants
is 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."
-11-
<PAGE> 19
MARKET PRICES OF THE COMPANY'S PUBLICLY TRADED SECURITIES
Principal Market
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 publicly traded Warrants are included in NASDAQ
under the symbol "CAIRW." Such Warrants are also listed on the BSE under the
symbol "CACWS." The publicly traded warrants are currently exercisable at $30.00
per share and expire on September 30, 1995. On the Effective Date of this
Prospectus, the Company will amend the terms of such publicly traded warrants to
be identical to the other 1,961,925 Class B Warrants exercisable at $5.00 per
share and expiring June 20, 1999, and such publicly traded warrants will be
designated as 195,000 additional Class B Warrants. A copy of this Prospectus
shall be forwarded to all holders of record of the Company's publicly traded
warrants.
The Company's Series A Preferred Stock is traded on the BSE under the
symbol "CACP" and was traded on NASDAQ in the first and second quarters of the
Company's fiscal year ended September 30, 1993. The NASDAQ quotes are noted with
an asterisk in the table below.
The following table sets forth reported high and low bid prices for the
Common Stock, the Class Z Warrants and Series A Preferred Stock. The quotations
represent prices between dealers, without retail mark-ups, markdowns, or
commissions. Reported prices are not adjusted to reflect the reverse one-for-ten
stock split of the Company's common stock effective in November 1994.
<TABLE>
<CAPTION>
Series A
Common Stock Warrants Preferred
--------------------------------------------------------------------------------------
Fiscal Year 1993 High Low High Low High Low
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter..................... 4 3/8 2 3/8 1 7/16 1/2 32 1/2* 17*
2nd Quarter..................... 2 1/2 11/16 11/16 5/16 17* 8*
3rd Quarter..................... 1 13/16 15/16 19/32 5/32 12 7
4th Quarter..................... 3 7/8 1 1/16 1 3/8 5/16 24 7
Fiscal Year 1994 High Low High Low High Low
- -----------------------------------------------------------------------------------------------------------------------------
1st Quarter..................... 3 13/16 1 3/4 1 7/16 3/8 24 14
2nd Quarter..................... 2 3/8 1 1/4 13/16 3/8 16 10
3rd Quarter..................... 1 27/32 21/32 5/8 1/8 10 7
4th Quarter..................... 1 1/2 3/8 1/16 8 4
Fiscal Year 1995 High Low High Low High Low
- -----------------------------------------------------------------------------------------------------------------------------
1st Quarter..................... 3 1/4 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
</TABLE>
As of July 7, 1995, the closing bid price of the Common Stock was $2.75,
the closing bid price of the Warrants was not available, and the closing bid
price of the Series A Preferred Stock was $5.
The number of record holders of Common Stock, Warrants and Series A
Preferred Stock as of July 7, 1995 was approximately 592, 12 and 4,
respectively. Management believes there are approximately 2,000 beneficial
holders of the Company's Common Stock.
Dividend Policy
The payment of dividends, if any, 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. The Company's principal operating
subsidiary, Wico Corporation (an indirect wholly-owned subsidiary of the
Company), is also prohibited by the terms of its Lending Agreement from
declaring or paying any dividends.
-12-
<PAGE> 20
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 March 31, 1995 and for the six month
periods ended March 31, 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."
SELECTED FINANCIAL INFORMATION (1)
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 the unaudited interim Financial Statements
and the notes thereto. The unaudited statements and data 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>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SIX MONTHS ENDED
MARCH 31, YEARS ENDED SEPTEMBER 30,
------------------------------- ------------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales..................... $ 20,531 $ 21,414 $ 41,992 $ 38,783 $ 38,653 $ 39,277 $ 45,747
Cost of sales................. 13,148 13,002 26,078 23,675 24,078 24,282 28,413
Net income (loss)............. (1,531) 693 284 443 (741) (1,742) (703)
Pro forma net income (loss)(1) (1,531) 693 284 508 (516) (1,137) (488)
Pro forma net income (loss)
per share (2)............... (.19) .05 .00 0.01 (0.01) (0.01) (0.01)
Number of shares used
in computation.............. 9,158,677 9,158,677 9,158,677 9,158,677 9,158,677 9,158,677 9,158,677
</TABLE>
BALANCE SHEET DATA (4)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
------------------- ----------------------------------------------------------------
1995 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Current assets................... $14,572 $ 15,757 $ 15,099 $ 15,713 $ 15,642 $ 18,145
Total assets..................... 27,097 27,436 19,912 21,384 23,158 27,394
Current liabilities.............. 9,542 9,491 6,487 6,598 7,465 7,715
Long term debt................... 17,528 16,706 23,850 27,450 28,608 31,300
Stockholders' equity (deficiency) 27 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 Wico had not
operated as an "S" corporation. As of January 1, 1994, Wico ceased
operating as an "S" corporation.
(2) Pro forma net income (loss) per share reflects the recapitalization of
Wico 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.
-13-
<PAGE> 21
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 six
months ended March 31, 1995 than for the comparable six month period in fiscal
1994, management expects an increase in consumer products sales in the second
half 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
Six months ended March 31, 1995 compared to Six months ended March 31, 1994:
<TABLE>
<CAPTION>
March 31,
1995 1994
----------------------------------
(In Thousands)
----------------------------------
<S> <C> <C>
Sales:
Distribution $ 16,003 $17,015
Consumer products 3,527 4,399
Gaming 1,001 --
----------------------------------
$ 20,531 $21,414
Gross Profit:
Distribution 5,812 6,599
Consumer products 1,536 1,813
Gaming 34 --
----------------------------------
$ 7,382 $ 8,412
Selling, Distribution and Administrative 6,976 6,239
Amortization 185 185
Interest Expense 1,061 860
Amortization of Debt Discount 485 --
Other Expense 3 11
Income (Loss) From Continuing (1,429) 1,117
Operations Before Income Taxes
Net Income (Loss) (1,531) 693
</TABLE>
Sales for the six months ended March 31, 1995 were $20,531,000 as compared
to $21,414,000 for the comparable prior year period. The 4% or $883,000 decrease
was the result of distribution sales decreasing $1,012,000 and consumer product
sales decreasing $872,000, partially offset by sales of Wico Gaming, acquired in
June 1994, of $1,001,000.
Distribution sales decreased 6% to $16,003,000. Distribution sales
continued to be hampered by soft conditions in the coin machine market. Consumer
sales declined 19.8% 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
-14-
<PAGE> 22
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 six months ended March 31, 1995 was $7,382,000 as
compared to $8,412,000 for the comparable prior year period. Distribution gross
margin percentage was 36.3% as compared to 38.5% 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 41.2% to 43.6%. Wico Gaming's gross margin of $34,000 represented a gross
margin percentage of approximately 3.4% of its net sales for the period.
Selling, distribution and administration expenses for the six months ended
March 31, 1995 were $6,976,000 (approximately 33.3% of sales) as compared to
$6,239,000 (29.4% of sales) for the comparable prior year. The 9.7% increase was
largely the result of the inclusion of Wico Gaming, which accounted for $544,000
of expenses.
Amortization of intangibles was approximately $185,000 in both periods.
Interest expense increased from $860,000 to $1,061,000. The increase is a
combination of higher borrowings as well as higher interest rates. Amortization
of debt discounts and deferred loan costs was $485,000 in the current year
period (none in the comparable prior year period).
The Company recorded a loss from continuing operations before tax benefit
of $1,429,000 and a net loss of $1,531,000 for the six months ended March 31,
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 $485,000 relating to
the amortization of debt discounts recorded in the fourth quarter of fiscal
1994, and a provision for loss on discontinued operations of $611,000. A
deferred income tax benefit of approximately $509,000 was recorded during the
six months ended March 31, 1995 as a result of the tax benefits of the operating
losses incurred during this period. Management believes that the total deferred
tax benefits, aggregating approximately $1,258,000 as of March 31, 1995 will be
recovered by the generation of financial reporting and taxable income prior to
the expiration of such net operating losses.
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 2,063 14,576
Selling, Distribution and
Administrative.................................... 12,593 11,620 10,895
Amortization........................................ 657 689 1,581
Interest Expense.................................... 1,732 2,063 2,684
Other Charges....................................... 441 --- ---
Net Income (loss) before income taxes............... 490 728 (728)
Pro Forma Net Income (loss) (1)..................... 284 508 (516)
Pro Forma Net Income (loss)
per share (1)...................................... .00 0.12 (0.12)
</TABLE>
- ---------------------
(1) For the period June 20, 1994 through September 30, 1994.
-15-
<PAGE> 23
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 8.3% increase in expenses was the largely the
result of an increase in variable advertising and freight expenses associated
with improved consumer sales. Amortization expense declined to $657,000 as
compared with $727,000 in the previous twelve-month period, as certain
intangibles were fully amortized, offset partially by the amortization of debt
discounts recorded in 1994 in connection with the Company's financings. Due to
these 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.
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
declined 6.0% 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 decline of $371,000 was largely
attributable to the decline in sales of digital-based joysticks and the
constrained growth of analog joysticks designed for use with personal computers,
due to the continued popularity of home-based video game systems.
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
35.9% 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
$1,581,000 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
-16-
<PAGE> 24
During the year ended September 30, 1994, the Company's continuing
operations operated with positive cash flow. However, as a result of continuing
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 two
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 $1,300,000, respectively. However, for the six months
ended March 31, 1995, operating cash flow was only approximately $247,000 and
total cash flow was negative by $136,750.
The Company obtained additional working capital in the third quarter of
fiscal 1995 through a $150,000 loan from an affiliate and the sale of 2,094,500
1995 Private Placement Shares for proceeds aggregating $2,950,000. The Company
is also attempting to obtain additional working capital by refinancing its
senior secured indebtedness under its line of credit. Although it has received a
financing proposal from an institutional lender, such proposal does not
constitute a financing commitment. In addition, consummation of such refinancing
will require the agreement of the Company's existing institutional lender to
subordinate a portion of its debt to the rights of such new lender. Accordingly,
there is no assurance that the Company will be able to effect such refinancing,
or on terms that will relieve its liquidity and cash flow shortages.
Under the terms of its current lending agreement, Wico must be in
compliance with certain financial ratios. Certain of the covenant requirements
include attaining minimum operating income before amortization of intangibles
and other items (as defined in the Lending Agreement) of $3,100,000, a minimum
current ratio of 1.75:1, and minimum working capital of $6,300,000. Wico is
currently in compliance with said covenants, except for the minimum operating
income covenant and the operating income to interest expense ratio covenant as
of and for the period ending March 31, 1995, compliance with which was waived by
its lender through March 31, 1995. Although the Company believes that it will be
in compliance with both loan covenants by the end of fiscal 1995, it is
anticipated that the Company was again in non-compliance with such covenant as
of and for the period ended June 30, 1995. Accordingly, the Company will seek a
further waiver from the institutional lender.
The Term Loan, maturing in October 1998, provides for monthly installments
of principal, and had a principal balance of approximately $6,211,000 at March
31, 1995. The Revolving Credit Loan, which provides for a maximum credit of
$13,000,000 (inclusive of letters of credit that may be established at the
request of Wico), is generally fully drawn upon at all times, and had an
outstanding principal balance of $13,000,000 at March 31, 1995. At March 31,
1995, the aggregate amount of borrowings under the Lending Agreement was
approximately $19,161,000. Repayment of the loans is secured by a first lien on
a substantial portion of Wico's assets, 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 of the
Company, and stock pledges in favor of the institutional lender covering all of
the outstanding shares of Common Stock owned by certain of Wico's prior
stockholders.
The maximum interest rates on the institutional loans are payable at the
option of Wico at either the prime rate plus 1-1/2% or LIBOR plus 3-1/4%
(currently __% per annum). Under certain circumstances related to earnings, the
rates of interest may be reduced to the prime rate or LIBOR plus 1-3/4%. Under
the terms of the Lending Agreement, the lender was granted a warrant to purchase
4.9% of Wico's common stock, which was exchanged for a warrant to purchase
400,000 shares of Common Stock of the Company at the time of the Wico Merger
(the "Bank Warrant"). In consideration of Wico's agreement to make a prepayment,
the lender consented to the Wico Merger and the Langworthy acquisition. Wico
used $4,000,000 in funds obtained from the Wico Merger to make such prepayment,
and agreed to pay the lender an additional $1,000,000 by December 31, 1994 and
to redeem the Bank Warrant for $1,000,000 by December 31, 1994, or, in the
alternative, incur a 1-1/2% per annum increase in the interest rate paid on the
loans and pay a fee of $375,000. The Company selected the second option and paid
$200,000 of the $375,000 fee on December 15, 1994. The $175,000 balance of such
fee is currently due and payable.
The lending agreement also provides for mandatory prepayments of the Term
Loan in amounts equal to 75% of Wico's excess cash flow (as defined). The
lending agreement contains other restrictions requiring the consent of the
lender in connection with the making of any acquisition, payment of dividends,
issuance of additional securities or making of annual capital expenditures in
excess of $500,000.
-17-
<PAGE> 25
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 &
Associates, Inc. ("Rickel"), pursuant to which Rickel agreed to use its best
efforts to solicit from the holders of the Private Placement Notes their
agreements to waive the right to convert such Private Placement Notes into
shares of Company Common Stock. In the event and to the extent that the holders
of Private Placement Notes elect such conversion waivers, they will receive (in
addition to payments of interest and principal on the Private Placement Notes)
payments aggregating $5,000 for each $25,000 principal amount of Private
Placement Notes made subject to the conversion waivers. Such payments,
aggregating $547,500 if all $2,737,500 of Private Placement Notes elect to waive
their rights of conversion, are payable in two equal installments on October 31,
1995 and December 31, 1995, respectively. In addition, the Company agreed, as
part of such arrangements, to increase to 11% the interest rate on all Private
Placement Notes made subject to the conversion waivers and to issue the Private
Placement Warrants to such noteholders, at the rate of 500 Private Placement
Warrants for each $25,000 of Private Placement Notes made subject to the
conversion waivers. The Company has agreed to pay to Rickel a fee equal to
$2,500 for each $25,000 of Private Placement Notes that execute conversion
waivers (a maximum of $273,750 if all Private Placement Noteholders elect to
waive their conversion rights).
Since the Wico Merger, the Company's airline operation has used
approximately $2,000,000 in cash through March 31, 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 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 the Company
$2,000,000 of accrued indebtedness of the former Conquest Air subsidiary,
evidenced by a separate 8% Air LA note. 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. 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 April 30, 1995, the opportunity to purchase from the
Company, at approximately $2.00 per share, an aggregate of up to 700,000 shares
of Common Stock (the "Creditors Shares"). All of the Creditors Shares are being
registered under the Registration Statement of which this Prospectus is a part.
The issuance of the 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 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 $873,631 of accrued Company obligations, including two law
firms and Messrs. Feldman Radin & Co., P.C., an accounting firm with which
Stephen R. Feldman is a principal stockholder, to accept approximately 449,816
Creditors Shares in exchange for Company obligations owed to them.
-18-
<PAGE> 26
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.
Pro Forma Balance Sheet
The pro-forma balance sheet on the following page sets forth, on a
pro-forma basis, the Company's consolidated balance sheet as at March 31, 1995,
after giving effect to: (i) the sale of the 2,094,500 1995 Private Placement
Shares, (ii) redemption for $200,000 of 600,000 shares of Series D Preferred
Stock owned by an affiliate, and (iii) the exchange of an aggregate of
$1,400,000 of Company obligations for 700,000 Creditors Shares.
-19-
<PAGE> 27
CONQUEST INDUSTRIES INC., AND SUBSIDIARES
PRO-FORMA BALANCE SHEET
MARCH 31, 1995
<TABLE>
<CAPTION>
Pro-Forma Adjustments
-----------------------------
Historical Dr. Cr. As Adjusted
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash ....................................... $ 871,130 (1) $2,900,000 (2) $ 200,000 $ 3,571,130
Trade accounts receivable .................. 5,190,743 5,190,743
Other receivables........................... 191,006 191,006
Inventories................................. 7,641,457 7,641,457
Prepaid expenses and other current assets... 677,167 677,167
------------ ---------- ---------- ------------
TOTAL CURRENT ASSETS .................... 14,571,503 2,900,000 200,000 17,271,503
MACHINERY AND EQUIPMENT - NET ................ 1,001,072 1,001,072
DEFERRED TAX ASSET ........................... 1,257,900 1,257,900
INTANGIBLE AND OTHER ASSETS - NET ............ 6,016,049 6,016,049
NET ASSETS OF DISCONTINUED OPERATIONS ........ 4,250,000 4,250,000
------------ ---------- ---------- ------------
$ 27,096,524 $2,900,000 $ 200,000 $ 29,796,524
============ ========== ========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ........................... $ 5,607,113 $ $ $ 5,607,113
Accrued expenses ........................... 2,434,428 (3) 1,400,000 1,034,428
Current portion of long-term debt........... 1,500,000 1,500,000
------------ ---------- ------------
TOTAL CURRENT LIABILITIES ............... 9,541,541 1,400,000 -- 8,141,541
------------ ---------- ------------
LONG-TERM DEBT .............................. 17,528,349 17,528,349
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock - Series A ................. 755 755
Preferred stock - Series B ................. 2,800,000 2,800,000
Preferred stock - Series D ................. 200,000 (2) 200,000 --
Common stock ............................... 91,587 (1)(3) 3,495 95,082
Additional paid-in capital ................. 12,625,815 (1)(3) 4,296,505 16,922,320
Accumulated deficit ........................ (15,616,739) (15,616,739)
Foreign currency translation adjustment .... (74,784) (74,784)
------------ ---------- ---------- ------------
26,634 200,000 4,300,000 4,126,634
------------ ---------- ---------- ------------
$ 27,096,524 $1,600,000 $4,300,000 $ 29,796,524
============ ========== ========== ============
</TABLE>
<PAGE> 28
CONQUEST INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO PRO-FORMA UNAUDITED CONSOLIDATED BALANCE SHEET
MARCH 31, 1995
A. Pro-forma adjustments have been made to the historical March 31, 1995
unaudited consolidated balance sheet to give effect to the following:
(1) The receipt of net proceeds of approximately $2,900,000 reflecting the
private placement of 2,094,500 shares of Company Common Stock for
approximately $1.41 per share, after deducting costs of the private
placement estimated to be approximately $50,000.
(2) The repurchase of the Series D Preferred Stock.
(3) The assumed conversion of accrued liabilities in the approximate amount of
$1,400,000 into 700,000 shares at $2.00 per share.
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."
-21-
<PAGE> 29
BUSINESS
Introduction
The Company, through 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. A 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 March 31, 1995
(approximately $1,300,000 for the six 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, LA Air assumed all of Conquest Air's aircraft leases and
purchased the stock of Conquest Air from the Company. The consideration received
by the Company consisted of three separate notes aggregating $6,000,000, one of
which will be automatically exchanged for $3,000,000 of LA Air non-dividend
paying voting convertible preferred stock upon authorization of such securities
by the LA Air 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. See "Business - Sale
of Conquest Air."
THE WICO MERGER
Until June 20, 1994, the Company was primarily engaged in the business of
operating a regional airline providing regularly scheduled turbo-prop service to
cities within the State of Texas. On June 20, 1994, CAC Acquisition, Inc.
("CAC"), a Delaware corporation and newly formed wholly-owned subsidiary of the
Company, merged with Wico Holding Corp. ("Wico"), a privately-held Delaware
corporation, pursuant to a Restated Agreement and Plan of Merger dated June 8,
1994. Upon consummation of the merger, 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").
-22-
<PAGE> 30
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
now own 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
7,000,000 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 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 exercisable until
June 20, 1999, at a price of $11.875 per share, subject to an effective
registration statement covering the underlying shares of Common Stock. In June
1995, the Company agreed to reduce the exercise price of such 1,961,925 Class B
Warrants as well as the 54,750 Private Placement Warrants to $5.00 per share. In
addition, the Company issued, for nominal consideration, to its institutional
lender 400,000 Bank Warrants and to an affiliate of its former law firm 200,000
Blue Diamond Warrants. The Blue Diamond Warrants were exercised for $200 in June
1995.
After giving effect to the Wico Merger, and the pro forma conversion of
all shares of Series B Preferred Stock, the nineteen former stockholders of Wico
owned approximately 80% of the Company's outstanding Common Stock. The
stockholders of the Company who prior to the effectiveness of the Wico Merger
held all of its capital stock continued to hold approximately 20% of its capital
stock giving effect to the Wico Merger and the aforesaid issuance and pro forma
conversion.
For accounting purposes, the merger with Wico has been treated as a
reverse acquisition. This resulted in the recapitalization of Wico with Wico
being treated as the continuing entity. The historical financial statements
contained herein are those of the business and operations of Wico. The
acquisition of Langworthy has been treated as a purchase. Assets received in the
transactions (inclusive of Conquest Air and Langworthy) have been valued at
their fair value at the date of acquisition.
On August 10, 1994, the Board of Directors of the Company elected to
change the Company's fiscal year end from May 31 to September 30 in order to
coincide with that of Wico. In addition, on August 17, 1994, the Board of
Directors of the Company determined to dispose of the airline operating unit
within the next twelve months. As a result of this Board decision, all
discussions of results of operations of the Company relate to continuing
businesses only, except as otherwise expressly stated. The Company's plan
contemplated the continuation of airline operations until the sale was
consummated.
THE DISTRIBUTION BUSINESS
The Company is a supplier of replacement parts, accessories and related
supplies to the coin-operated machine market generally. The Company is focused
on supplying operators with replacement parts and accessories in the shortest
possible period of time in order to limit the downtime of their machines.
Operators purchase the machines from regional distributors or directly from the
machine manufacturers. Typically, amusement, billiards and vending operators
purchase machines from a variety of regional distributors and operate them in
factories, offices, bars, convenience stores, and arcades.
MARKETING AND SALES
Providing customers with a single source for a broad variety of parts and
accessories is a key component of the Company's marketing approach. While the
Company believes that its products are priced competitively, low prices are not
the overriding consideration of its marketing program. Operators of
coin-operated machines strive to minimize machine downtime, and therefore prompt
availability of parts is critical to the profitability of their operation. A
single source of supply eliminates the costs and delay involved in dealing with
multiple suppliers. While the Company is required to maintain levels of
inventory consistent with this plan, the variety of product offerings, together
with timely deliveries, becomes a value-added feature which often supports a
price premium.
-23-
<PAGE> 31
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 coin-operated machines and are granted exclusive
territories. They are paid commissions averaging 6% of net sales, and
salespersons pay their own expenses, although the Company pays for health and
fringe benefits.
The Company also utilizes a telemarketing sales force of approximately 10
persons. Telemarketers provide double coverage for large accounts and are also
able to provide service for smaller customers. The telemarketing sales force is
paid an hourly wage plus a small commission.
Additionally, the Company receives incoming orders for its products
through its 648-page catalog, which is distributed annually to over 15,000
customers worldwide and offers more than 16,000 products. The Company also
distributes specialty catalogs annually for the vending, gaming and OEM
industries, and Penn-Ray produces a separate catalog for its more than 2,000
customers.
The Company periodically offers special promotions for a variety of
products. The Company's advertising department produces monthly brochures that
are mailed to active customers and inserted with merchandise shipments. These
mailings inform customers of newly available parts as well as special pricing
programs.
In an effort to provide customers with prompt deliveries, the Company
maintains five additional distribution centers throughout the United States and
one in the United Kingdom where it maintains an inventory of its most popular
products. All distribution branches are linked to the main Niles, Illinois
facility through the IBM System 4381 main frame computer that provides on-line
information and support. This system is capable of performing multiple tasks
simultaneously. It processes and stores the purchase orders for billing purposes
and develops complete accounts receivable data. Approximately 800 proprietary
programs process orders, replenish inventories and provide management
information.
Competition
The Company's distribution segment has approximately eight principal
competitors, none of which carry all of the product lines maintained by the
Company and none of which have multiple distribution centers similar to those of
the Company. In order to enter this industry segment, it would be necessary to
accumulate broad knowledge regarding the product lines and customer bases and
would likely require substantial capital in order to maintain necessary levels
of inventory. The Company believes that these factors constitute substantial
barriers to entry.
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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 are expected to be shipped beginning in May 1995.
In June 1995, the Suncom division of the Company entered into an agreement
with Spectrum Holobyte, Inc. a software developer for the marketing, sale and
distribution of Suncom products in the United Kingdom, France and Germany.
Marketing and Sales
The primary marketing strategy for the sale of consumer joysticks and
related accessories is to provide a broad selection for the Company's customers
and their retail customers. The major component of this strategy is single
sourcing for virtually all joysticks and entertainment controller needs,
providing a focus on high quality and value pricing. The Company has targeted
the high-volume personal computer mass market rather than high-tech "ultra
niche" products. Accordingly, ten customers accounted for 59% and 49% of the
Company's net sales in this market segment for the fiscal years ended September
30, 1994 and 1993, respectively.
The Company employs independent sales representatives to sell the
Company's consumer joysticks and related products to distributors, retail
representatives and major outlets. These representatives are assigned exclusive
sales territories covering the United States and also market other complementary
noncompetitive products manufactured by others. The sales representatives are
paid commissions of approximately 5% of net sales of products sold and are not
paid any salary or furnished any benefits.
Advertising and promotional efforts are comprised of a number of key
elements. The Company uses print media to target specific end users and enters
into cooperative advertising retail programs to generate retail support and
customer awareness. In addition, the Company utilizes comprehensive catalog and
collateral materials for sales support and participates in all major domestic
and foreign trade shows.
Competition
The Company competes with approximately six other companies in this
industry segment. Competition is based primarily on price and product features.
Manufacturers and vendors of personal computers, many of whom are substantially
larger than the Company, are potential competitors of the Company in this
segment.
WICO GAMING
In June 1994, and in conjunction with the merger with the Company, Wico
Gaming, a wholly-owned subsidiary of the Company, 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
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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.
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.
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<PAGE> 34
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 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
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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
In connection with the Company's Distribution and Consumer businesses, the
Company employs approximately 193 full-time employees, 128 of whom are located
at the Niles, Illinois facility, 27 in its six distribution branches, and 38 in
field sales. Of such employees, 51 persons are salaried and the balance are
employed on an hourly basis. The executive, administrative, central warehouse,
distribution branches, sales and marketing, and purchasing and manufacturing
departments, employ 3, 28, 29, 27, 97 and 9 persons, respectively. None of the
Company's employees are represented by a labor union, and management believes
that the Company's relations with its employees are good. In connection with the
Company's gaming supply business resulting from the Langworthy acquisition, the
Company employs 34 additional persons consisting of 10 salaried sales and
administrative employees and 24 hourly warehouse and production employees. None
of such employees are represented by any union, and management believes that
labor relations are also satisfactory.
SALE OF CONQUEST AIR
Conquest Air is a regional airline providing regularly scheduled non-stop
and connecting service to seven cities. Conquest Air provides service to
Abilene, Austin, Beaumont, Corpus Christi, McAllen, San Antonio and Tyler,
Texas, operating as a point-to-point, low-cost carrier offering one-class
seating and convenience for business and leisure travelers.
Until the sale of Conquest Air to Air LA, the Company leased six Metro III
aircraft on behalf of Conquest Air, each of which has 19 seats arranged in two
rows divided by a center aisle. All but two of the seats border the center aisle
and are situated next to a window. All aircraft are 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 (which amounts
are presently under negotiation), 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. In the event such lessors were to exercise their legal
remedies, they could foreclose upon and repossess the aircraft as well as
commencing suit for monetary damages.
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. All of such
promissory notes are secured by all of the assets of Air LA and Conquest Air,
except that the $250,000 loan is secured solely by the assets of Conquest Air.
The $3,000,000 convertible promissory note will, upon air LA's
authorization of preferred stock (anticipated to occur in 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,
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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 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.
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 in calendar 1995, 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, 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 annual rental
payments of $132,000, 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 $1,400,000 at March
31, 1995, including professionals who rendered services to the Company, an
opportunity to purchase from the Company, at a price of $2.00 per share, an
aggregate of approximately 700,000 Creditors Shares. One former creditor of the
Company, owed $25,000, has agreed to settle such indebtedness for the issuance
of 25,000 of the Creditors Shares; provided, that such 25,000 Creditors Shares
(issued for $1.00 per share) may not be sold or otherwise disposed of by such
creditor for a period of two years from the Effective Date of this Prospectus,
and such creditor is not included as a Selling Securityholder in this
Prospectus.
All of the Creditors Shares purchased for $2.00 per share are being
registered under the Registration Statement of which this Prospectus is a part.
The sale of such Creditors Shares are subject to certain
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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.
Except for the 25,000 Creditors Shares purchased for $1.00 per share, the
creditors who elect to accept Creditors Shares at $2.00 each in extinguishment
of Company indebtedness and other obligations owed to them 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 its 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 of 1933, as amended.
As at the date of this Prospectus, creditors holding an aggregate of
$873,631 of accrued Company obligations, including two law firms and Messrs.
Feldman Radin & Co., P.C., an accounting firm with which Stephen R. Feldman is a
principal stockholder, have agreed to accept approximately 449,816 Creditors
Shares in exchange for all Company obligations owed to such firm. See "Selling
Securityholders."
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 waive their right to
convert their Private Placement Notes into Company Common Stock (the "Conversion
Waivers"). Such Conversion Waivers, if executed, become effective only upon
payment by the Company of $5,000 to the holder of each $25,000 of Private
Placement Notes made subject to such Conversion Waiver (an aggregate of $547,500
if all Private Placement Notes are made subject to Conversion Waivers), payable
to the extent of 50% on October 31, 1995 and the balance on December 31, 1995.
Such payments are in addition to and not in lieu of the Company's obligation to
pay principal and interest on the Private Placement Notes, when due. In
addition, to the extent that holders of Private Placement Notes elect to execute
the Conversion Waiver, they will be entitled to receive: (a) their pro-rata
amount of the 54,750 Private Placement Warrants (which were originally issuable
only upon conversion of the original Private Placement Notes into Common Stock),
and (b) an increase to 11% per annum in the interest rate payable on the Private
Placement Notes.
In consideration of its acting as soliciting agent for the Conversion
Waivers, the Company has agreed to pay to Rickel $2,500 for each $25,000
principal amount of Private Placement Notes made subject to the Conversion
Waiver.
1995 PRIVATE PLACEMENT
In June and July 1995, the Company sold an aggregate of 2,094,500 shares
of its Common Stock for $2,950,000 ($1.4084505 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, at its expense to register 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."
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Mr. Magnell purchased his 142,000 1995 Private Placement Shares by
delivering the Company his $200,000 8% promissory note due October 5, 1995, and
secured by a pledged of such 142,000 purchased 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.
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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 President of Conquest Air and Director
Steffen I. Magnell. . . ..................... 50 Chief Executive Officer and President
of the Company and Wico 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.............................. 53 Director
David Schoon(1). . . . . . __ Director
Harry E. McKillop(2)......................... 64 Director
</TABLE>
- --------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Under the Company's Certificate of Incorporation, the Board of Directors
is divided into classes with the members of each class (one-third of the Board)
elected each year at the Company's annual meeting of stockholders to serve for a
period of three years and until their respective successors have been duly
elected and qualified. Since no annual meeting has been held in the previous
three years, the term of each director will expire at the next annual meeting.
The provisions of the Certificate of Incorporation which provide for the
staggered Board of Directors may not be amended or repealed without the
affirmative vote of at least 75% of the Company's outstanding shares entitled to
vote. Since this provision extends the time required to change a majority of the
Board of Directors to at least two years, it may have the effect of discouraging
a tender offer for the Company's stock or other takeover bid. The Company's
officers are appointed at the first Board meeting following the annual meeting
of stockholders and serve at the pleasure of the Board of Directors.
Stephen R. Feldman has served as Chairman of the Board of the Company
since June 1994 and of Wico since 1986. From such respective dates until April
1995, he was also Chief Executive Officer of the Company and Wico. From 1986
until the Wico Merger, he was Chairman of the Board and Chief Executive Officer
of Wico Holding Corp. He is also a certified public accountant and a principal
shareholder of the accounting firm, Feldman Radin & Co., P.C., New York, New
York. Mr. Feldman devotes approximately 80% of his time to the business of
Feldman Radin & Co. and approximately 20% of his time to the business of the
Company.
Victor M. Rivas has served as Chairman of the Board, Chief Executive
Officer and a Director of the Company from inception until June 1994, and as
President of Conquest Air and a Director of the Company since that date.
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 owned corporation providing environmental services
located 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
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<PAGE> 40
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 publicly-owned corporation providing
environmental services, located in Ohio. He is also Chairman of the Board and
majority stockholder of Federal Resources Corp., a publicly-owned corporation
engaged in the mining business, located in Utah. In addition, he is Chairman of
the Board of Specialty Retail Services, Inc., a publicly-owned 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. Mr. Blum is also a Director and stockholder of Lanxide Corporation,
a privately owned high technology company.
David Schoon [to be supplied]
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 ____________, where he has been
employed since _________. Prior to joining Alliance, Mr. McKillop was the
director of travel for EDS Corporation, a subsidiary of General Motors
Corporation. Prior to joining EDS, he served as a Vice President of Pan American
Airways ("Pan Am") for Commuter Affairs. Prior to joining Pan Am, Mr. McKillop
was employed by Braniff International for 15 years and served as Vice President
International based in Paris and London. Mr. McKillop also was employed by
United Airlines for 15 years in various capacities in the passenger and cargo
fields.
-33-
<PAGE> 41
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 Directors 1993 --- --- --- ---
Chief Executive Officer 1992 --- --- --- ---
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) ---
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, in the
event of his resignation from the Company or Wico, Mr. Sokolofski will
receive warrants to purchase 250,000 shares of Common Stock at $2.50 per
share, which warrants (the "Sokolofski 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.
(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
-34-
<PAGE> 42
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 then 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.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Steffen I.
Magnell, pursuant to which Mr. Magnell is to serve as Chief Executive Officer of
the Company and of Wico through March 31, 1998. Mr. Magnell is also serving as
President of the Company at this time. The employment agreement provides for a
base salary of $240,000 per annum (subject to annual cost-of-living increases),
a $25,000 bonus payable on September 30, 1995, additional annual bonuses tied to
the Company's achievement of net income targets, and benefits comparable to
those provided to other senior executives of the Company.
In conjunction with Mr. Magnell's employment agreement, the Company
granted to Mr. Magnell options to purchase up to 350,000 shares of Common Stock
at a price of $1.25 per share (subject to adjustment under certain
circumstances). Such options are exercisable (a) as to the first 150,000 shares,
at any time prior to the expiration of the options, (b) as to the next 100,000
shares, subject to and after the execution of the first three-year extension of
Mr. Magnell's employment agreement with the Company, and (c) as to the final
100,000 shares, subject to and after the execution of the second three-year
extension of Mr. Magnell's employment agreement. Subject to prior termination as
provided in the option agreement, all such options expire on March 31, 2004.
The Company entered into an agreement in June 1994 with Mr. Rivas,
terminating a prior employment agreement and retaining Mr. Rivas to serve as
President of Conquest Air until January 17, 1995, and thereafter subject to
termination following sixty days' notice. Pursuant to this agreement, the
Company is obligated to pay Mr. Rivas $10,625 per month and issue options to
purchase 70,000 shares of Common Stock at an exercise price of $6.5625 per
share, subject to the 1994 Stock Option Plan. In connection with this agreement,
the Company also agreed to pay Mr. Rivas an aggregate amount of $250,000 in
consideration of his agreement and release of the Company's obligations pursuant
to his prior employment agreement with the Company. Of such amount, $85,000 has
been paid to date in the 1995 fiscal year, with the balance of $165,000
remaining owing. The Company also agreed that certain indebtedness of Mr. Rivas
to the Company not in excess of $65,000 arising from the Company's payment of
life insurance premiums on his behalf shall be payable only upon his death from
the proceeds of such life insurance policy. In addition, the Company is required
to provide Mr. Rivas with the use of his present automobile.
Since June 1989, Stephen R. Feldman, Chairman of the Board of Directors,
has had an oral management consulting agreement with the Company, entitling him
to payment of a fee of $150,000 per annum for services provided to the Company
through September 1995. Mr. Feldman has agreed with the Company's institutional
lender that any such payments would be accrued but not 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.
In April 1995, the Board of Directors of the Company agreed to issue to
Mr. Feldman warrants to purchase 1,200,000 shares of Common Stock in
consideration of his waiving the right to receive approximately $937,500 of
consulting fees which has accrued under such oral agreement since June 1989.
Such warrants are issuable, however, only under certain conditions together with
other contingent warrants to purchase 5,000,000 shares of Company Common Stock
which may be issued to Mr. Feldman and Bentley J. Blum, another director and
principal stockholder of the Company. See "Compensation Committee Interlocks and
Insider Participation."
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.
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<PAGE> 43
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 presently or, in certain cases, after a three or six
month period.
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.
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.
-36-
<PAGE> 44
OUTSTANDING STOCK OPTIONS(1)
<TABLE>
<CAPTION>
Individual Grants
(a) (b) (c) (d) (e)
Number of
Securities
Underlying
Options/ % of Total Exercise or
Warrants Options/Warrants Base Price Expiration
Granted(1) Granted in 1994 ($/sh) Date
---------- --------------- ------ ----
<S> <C> <C> <C> <C>
Stephen R. Feldman........... 400,000(3)(4) 41% $0.875 4/30/00
Victor M. Rivas.............. 50,500(5)(6) 7 2.00(7) 6/20/99
70,000 10 2.00 6/30/99
Edward G. Sokolofski......... 236,000(4) 32 2.50 6/30/98
</TABLE>
(1) There were no SARs granted to any of the executive officers named in the
table in 1994.
(2) The potential realizable values represent future opportunity and have not
been reduced to present value in 1994 dollars. The dollar amounts included
in these columns are the result of calculations at assumed rates set by
the Securities and Exchange Commission for illustration purposes and these
rates are not intended to be a forecast of the Common Stock price and are
not necessarily indicative of the values that may be realized by the named
executive officer. Based upon such assumed rates the Company has ascribed
a zero value to such options since the price of the Common Stock at
February 13, 1995 was at least 100% lower than the exercise price of any
of the Company's derivative securities.
(3) 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, and 100,000 Directors Warrants issued to Mr. Feldman in April 1995.
Does not include an aggregate of 2,200,000 contingent warrants,
exercisable at $0.875 per share, which were authorized for issuance to Mr.
Feldman in April 1995 and are issuable to him under certain conditions.
See "Compensation Committee Interlocks and Insider Participation."
(4) Mr. Feldman and Mr. Sokolofski were originally issued 150,000 and 118,000
options, respectively, of Wico at an exercise price of $5.00 per share. At
the time of the Wico Merger, these options were replaced with options of
the Company with an exercise price of $2.50 per share. See Footnote 3 to
Summary Compensation Table.
(5) Consist of Class B Warrants.
(6) On August 31, 1994, the Company had 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 was issued options to purchase 50,500 shares of the Company's
Common Stock at an exercise price of $11.875 per share. In June 1995, the
exercise price of such options was reduced to $5.00 per share.
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<PAGE> 45
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
Securities
Underlying Market Price
Options of Stock at Exercise Price New Length of Original
Repriced or Time of at Time of Exercise Option Term Remaining
Name Date Amended(1) Pricing(2) Repricing Price at Date of 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>
(1) Victor M. Rivas was originally granted options to purchase an aggregate of
50,500 shares of Common Stock of the Company from July 1989 through March
1992 at exercise prices ranging from $19.25 to $10.80 per share. Mr. Rivas
subsequently exchanged his options for options to purchase 50,500 shares
of Common Stock at an exercise price of $11.875. At the time of such
exchange, the market price of the Company's Common Stock was $6.875 per
share.
(2) This represents the closing price of the Common Stock on NASDAQ, adjusted
for the reverse stock split.
STOCK OPTION VALUES
The following table sets forth the aggregate dollar value of unexercised
options held as at July 7, 1995 by the individuals named in the Summary
Compensation Table. None of the named individuals has exercised any options.
<TABLE>
<CAPTION>
AGGREGATE OPTION VALUES
Value of unexercised in the money
Number of Unexercised Options at options at
July 7, 1995 July 7, 1995
Exercisable(E)/Unexercisable(U)(1) Exercisable(E)/Unexercisable(U)(3)
---------------------------------- ----------------------------------
<S> <C> <C>
Stephen R. Feldman................... 400,000 E/OU(2) $750,000
Victor M. Rivas...................... 50,500 E/OU OE/OU
Victor M. Rivas...................... 70,000 E/OU OE/OU
Edward G. Sokolofski................. 236,000 E/OU 59,000
</TABLE>
- ----------------
(1) At July 7, 1995, all of the foregoing options and warrants Company are
immediately exercisable.
(2) Does not include an aggregate of 2,200,000 contingent warrants potentially
issuable to Mr. Feldman under certain conditions.
(3) Assumes the difference between $2.75, the closing price of the Company's
Common Stock on July 7, 1995 and the exercise prices of the above options
and warrants.
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<PAGE> 46
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 an aggregate of 100,000 five-year warrants to 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 bid price of the
Company's Common Stock on NASDAQ on the date of grant of such warrants).
The Board of Directors also authorized in April 1995, the issuance of: (i)
1,200,000 five-year warrants to Stephen R. Feldman in consideration of his
waiver of rights to approximately $937,500 of accrued compensation through
September 30, 1995 in his capacity as an officer and director of the Company and
Wico; (ii) 1,000,000 additional five-year warrants to Mr. Feldman in
consideration of his commitment to the Board of Directors to provide his
$1,000,000 personal guaranty of the Company's indebtedness to a prospective
institutional lender, if required as a condition to the refinancing of the
Company's senior secured indebtedness; and (iii) 4,000,000 five-year warrants to
Bentley J. Blum, a director of the Company, in consideration of his commitment
to the Board of Directors to provide his $3,000,000 personal guaranty of the
Company's indebtedness to such prospective institutional lender, and
collateralize $2,000,000 of such guaranty with his personal assets unrelated to
his investment in the Company. The above 6,200,000 warrants issuable to Messrs.
Feldman and Blum are all subject to consummation of such proposed refinancing of
the Company's senior secured institutional indebtedness and deliveries of their
personal guarantees and related collateral.
All warrants issuable to directors as authorized by the Company's Board of
Directors in April 1995, including the 6,200,000 contingent warrants potentially
issuable to Messrs. Feldman and Blum, are exercisable at $0.875 per share, the
closing bid price of the Company's Common Stock on the date of grant, and expire
on March 31, 2000. In addition, 300,000 stock options issued to Stephen R.
Feldman in connection with the Wico Merger, exercisable at $2.50 per share, were
repriced and reissued 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. The Series D Preferred Stock (a)
is non-voting, except to the extent otherwise required by Delaware law, (b) does
not bear any dividends, (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 Company's Series A, Series B
and Series E Preferred Stock, but senior to any distributions in respect of the
Common Stock), (d) is redeemable at the Company's option at any time in whole
(but not in part) at a price of $.3333 per share, and (e) does not entitle the
holder thereof to require the redemption thereof at any time, or to convert same
into Common Stock at any time. 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); 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.
In May 1995, BAT also lent to the Company the additional sum of $150,000
evidenced by the Company's note due September 30, 1996. Such note does not bear
interest. In consideration of such
-39-
<PAGE> 47
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,
one-third of which warrants are subject to cancellation if the $150,000 loan is
repaid on or before August 15, 1995.
In the event that the Company redeems, for $200,000, the Series D
Preferred Stock and retires the $150,000 BAT loan by August 15, 1995, BAT will
retain warrants to purchase an aggregate of 700,000 shares of Company Common
Stock at an exercise price of $.3333 per share. See "Use of Proceeds."
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.
-40-
<PAGE> 48
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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 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 includes the
11,458,177 shares outstanding at July 7, 1995, together with the 700,000
Creditors Shares to be issued on the Effective Date. Unless otherwise indicated,
all shares are directly owned as of July 7, 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) 24.0% __ 24.0%
6400 West Gross Point Road
Niles, IL 60714
Common Bentley J. Blum 7,753,050(3) 44.7% 44.7%
150 East 58th Street
New York, NY 10155
Preferred Bentley J. Blum 600,000(4) 100% __
150 East 58th Street
New York, NY 10155
Common Paul E. Hannesson 858,483 7.1% 7.1%
150 East 58th Street
New York, NY 10155
Preferred Ignace Rey and 2,000,000(5) ___% 71.2% ___%
Georges Bonvin,
Trustees
Common Ignace Rey and 736,000(6) 5.7% 5.7%
Georges Bonvin,
Trustees,
Preferred Felice F. Mischel 300,000(7) ___% 37.5% ___%
1285 Avenue of the Americas
New York, NY 10019
Common Stephen R. Feldman 5,518,842(8) 37.4% ___% 37.4%
6400 West Gross Point Road
Niles, IL 60515
Common Steffen I. Magnell 592,000(9) 4.7 ___% 4.7%
6400 West Gross Point Road
Niles, IL 60515
Common Victor M. Rivas 179,525(10) 1.5% 1.5%
Conquest Airlines Corp.
2215 E.M. Franklin Avenue
Austin, TX 78723
Common Harry McKillop 115,670(11) 0.9% __% 0.9%
801 North College Street
McKinney, TX 75089
Common David Schoon 100,000(12) 0.8% __% 0.8%
6400 West Gross Point Road
Niles, IL 60741-4508
Common All directors and executive 14,556,487(13) 70.7% 70.7%
officers as a group
(8 persons)
</TABLE>
- --------------
*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. For purposes of such calculations, the
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<PAGE> 49
condition to the issuance of the 6,200,000 contingent warrants issuable to
Messrs. Stephen R. Feldman and Bentley J. Blum are deemed to have been
satisfied, and such contingent warrants issued to such affiliates. 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, and warrants to purchase up to an additional 2,200,000
shares at $0.875 per share which may be issued to Mr. Feldman under
certain circumstances (see "Compensation Committee Interlocks and Insider
Participation.") Mrs. Feldman disclaims beneficial ownership of the
options and the underlying shares of Common Stock to be acquired by Mr.
Feldman.
(3) Includes (i) 2,575,450 shares of Common Stock owned of record by Mr. Blum,
(ii) 75,000 shares of Series E 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 1,050,000 shares of
Common Stock at $0.333 per share. Also includes contingent warrants to
purchase up to 4,000,000 additional shares of Common Stock at an exercise
price of $0.875 per share which may be issued to Mr. Blum under certain
circumstances. See "Compensation Committee Interlocks and Insider
Participation."
(4) Consists of 600,000 shares of non-voting Series D Preferred Stock
redeemable by the Company for $200,000. See "Use of Proceeds."
(5) 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 (6) 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.
(6) 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 736,000 shares of Common 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."
(7) 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." Does not include
200,000 shares of Common Stock owned by Blue Diamond Trading, Ltd., a
company owned by Ms. Mischel, and 2,500 additional shares owned directly
by Mr. Mischel.
(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, and (iii) 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. Also
includes contingent warrants to purchase up to an additional 2,200,000
shares of Common Stock at an exercise price of $0.875 per share which may
be issuable to Mr. Feldman under certain circumstances. See "Compensation
Committee Interlocks and Insider Participation."
(9) Consists of 350,000 stock options exercisable at $1.25 per share issued in
connection with Steffen I. Magnell's employment agreement, 142,000 shares
purchased by Mr. Magnell for approximately $1.41
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<PAGE> 50
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.
(10) Includes options to purchase 120,500 shares of Common Stock.
(11) Includes five year Directors Warrants exercisable at $0.875 per share to
purchase 100,000 shares of Common Stock.
(12) Consists of five year Directors Warrants to purchase 100,000 shares of
Common Stock.
(13) Includes all shares listed in the column entitled "Amount & Nature of
benBeneficial 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 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 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 a Class B Warrant 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 stockholders of Wico now own approximately 60% of the
issued and outstanding capital stock of the Company. More
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<PAGE> 51
specifically, by the terms of the Wico Merger, and following exchange of Wico
securities for Company securities: (i) the holders of Wico common stock acquired
record ownership of approximately 6,905,000 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
under Wico's 1993 Stock Option Plan were converted into options to acquire
536,000 shares of Company Common Stock. Pursuant to the Wico Merger, directors,
executive officers, five percent stockholders of the Common Stock and family
members of all such persons received the following amounts of securities of the
Company as set forth opposite each name.
<TABLE>
<CAPTION>
Shares held in the
Shares held in Wico Company
Prior to the Merger After the Merger
------------------- ------------------
<S> <C> <C>
Iris Feldman.............................................. 1,418,300 2,918,842(1)
Greater than 5% holder and
wife of Stephen R. Feldman
Bentley J. Blum........................................... 1,251,200 2,575,450(1)
Greater than 5% holder and Director
Victor M. Rivas........................................... --- 179,525(1)
Executive Officer and Director
Stephen R. Feldman........................................ --- 3,218,842(2)
Executive Officer and Director
Caisse De Retraite........................................ 368,000 736,000(1)(3)
</TABLE>
- --------------------------------
(1) Common Stock
(2) Consists of 300,000 shares of Common Stock issuable upon exercise of
options under the 1994 Stock Option Plan and 2,918,842 shares of Common
Stock owned by Mr. Feldman's wife Iris Feldman. Mr. Feldman disclaims
beneficial ownership of any shares held by Iris Feldman.
(3) Represents 2,000,000 shares of Series B Preferred Stock which is
immediately convertible into 736,000 shares of Common Stock.
Wico Corporation is a party to a Loan Agreement dated June 14, 1989, as
amended (the "Loan Agreement"), with the banks signatory thereto (the "Banks")
and National Westminster Bank USA, as agent (the "Agent"). Pursuant to the Loan
Agreement, Bentley J. Blum, Iris Feldman, Miriam Katowitz and Paul E. Hannesson
(collectively, the "Pledgors") pledged with the Agent, for the ratable benefit
of the Banks, all of the outstanding capital stock of Wico 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. In order to induce the Agent to consent to the Wico
Merger, the Pledgors, concurrently with the Wico Merger, pledged all shares of
capital stock of the Company then owned by the Pledgors (approximately 75% of
the outstanding Common Stock) as collateral security for performance of the
Borrower's liabilities and obligations to the Banks. Upon the occurrence of an
Event of Default (as that term is defined in the Loan Agreement), any and all
shares of pledged stock held by the Agent may, at the option of the Agent or its
nominee, be registered in the name of the Agent or its nominee, and the Agent or
its nominee will succeed to all rights pertaining to such shares subject to any
requirements of the United States Department of Transportation which may limit
the number of shares of the Company that may be pledged to the Agent or the
rights the Agent may exercise in respect of such shares. Events of Default under
the Loan Agreement include any failure to pay installments of principal or
interest when due, 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 Wico Merger, Wico was required by the Banks 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 Banks a fee of $375,000 and increase the rate of interest payable under
the Term
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<PAGE> 52
Loan by 1-1/2% per annum. The Company selected the second option and paid
$200,000 on December 15, 1994, with the balance payable in September 1995.
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 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. 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 Securityholders 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. Feldman Radin & Co. has
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
such firm as at May 31, 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.
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 11,458,177
shares of Common Stock (including 2,094,500 shares sold in the 1995 Private
Placement, 200,000 Blue Diamond Shares issued in June 1995 and 5,000 additional
shares issued in June 1995), 7,550 shares of convertible Series A Preferred
Stock, 2,000,000 shares of convertible Series B Preferred Stock, 600,000 shares
of non-convertible Series D Preferred Stock, and 800,000 shares of convertible
Series E Preferred Stock.
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<PAGE> 53
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.
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 authorized 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 hodler to purchase the same
number of shares of Common Stock into which the Series B Preferred Stock is
convertible), (iii) 600,000 shares of non-convertible Series D Preferred Stock,
and (iv) 800,000 shares of
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<PAGE> 54
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 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 6,040 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 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 conversation 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 D Preferred Stock
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. The Series D Preferred Stock (a)
is non-voting, except to the extent otherwise required by Delaware law, (b) does
not bear any dividends, (c) is entitled to a preference of $.3333 per share on
liquidation, dissolution or winding up of the Company (such amount to be junior
to the liquidating preferences in respect of the Company's Series A, Series B,
and Series E Preferred Stock, but senior to any distributions in respect of the
Common Stock), (d) is redeemable at the Company's option at any time in whole
(but not in part) at a price of $1.00 per share, and (e) does not entitle the
holder thereof to require the redemption thereof at any time, or to convert same
into Common Stock at any time. 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); and one-
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<PAGE> 55
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.
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 Series D Preferred Stock and 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.
WARRANTS
The warrants set forth below do not include (i) five year warrants to
purchase an aggregate of 750,000 shares of Common Stock at $0.875 per share,
which were issued in April 1995 to an officer and to each of the five members of
the Board of Directors of the Company, or (ii) additional contingent five year
warrants which may be issued under certain conditions and, if issued, will
entitle two affiliates of the Company to purchase an additional 6,200,000 shares
of Common Stock at $0.875 per share. See "Management - Compensation Committee
Interlocks and Insider Participation."
Class B Warrants and Private Placement Warrants
As of June 22, 1995, there were approximately 1,961,925 Class B Warrants
authorized to be issued, upon the effectiveness of the Registration Statement of
which this Prospectus is a part to the holders of Common Stock on the close of
business on June 20, 1994 (not including any persons or entities receiving
shares or rights to shares of Common Stock in connection with the Wico Merger).
In addition, the terms of 195,000 additional publicly traded Company warrants
(currently exercisable at $30.00 per share and scheduled to expire on September
30, 1995) will be amended on the Effective Date of this Prospectus to be
identical to the 1,961,925 Class B Warrants and are designated as 195,000
additional Class B Warrants in this Prospectus. In connection with the Company's
1994 Private Placement of $2,737,000 of Private Placement Notes, the Company
also agreed to issue a maximum of 54,650 Private Placement Warrants to those
holders of Private Placement Notes who agree to waive their rights to convert
such notes into shares of Common Stock. The terms of such Private Placement
Warrants are identical to the Class B 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 the Class B Warrants and Private Placement
Warrants, at a price of $.10 per Class B Warrant, 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 Warrants 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.
-48-
<PAGE> 56
In order for a holder to exercise a Class B Warrant and Private Placement
Warrants, 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 Class B
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.
BAT Warrants
In conjunction with the issuance of the Series D Preferred Stock and a
related $150,000 loan, the Company issued to BAT certain warrants (the "BAT
Warrants"). The BAT Warrants entitle 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).
One-third of the BAT Warrants are subject to cancellation if all of the shares
of Series D Preferred Stock are redeemed for $200,000 and the $150,000 loan is
repaid on or before August 15, 1995. The holder has the right to pay the
exercise price under the BAT 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.
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 at an aggregate exercise price of
$10.00 for a period of four years commencing on the effective date of such
Prospectus. Each unit (the "Units") consist of one share of Common Stock and one
warrant to purchase one share of Common Stock. In June 1994, such unit was
exchanged for a unit comprised 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.
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 findings 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
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<PAGE> 57
vote of a quorum consisting of disinterested directors, or by independent legal
counsel or by the stockholders. In addition, the Certificate of Incorporation
provides for the elimination, to the extent permitted by Delaware law, of
personal liability of directors to the Company and its stockholders for monetary
damages for breach of fiduciary duty as directors. This provision does not
affect the standard of conduct with which directors must comply, the
availability of equitable relief, and causes of action based upon federal law,
including the federal securities laws.
The Company maintains directors and officers insurance and company
reimbursement policy. The policy insures directors and officers against
unindemnified losses arising from certain wrongful acts in their capacities and
would reimburse the Company for such losses for which the Company has lawfully
indemnified the directors and officers.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Company of expenses incurred or paid by a director,
officer or controlling person of the Company in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Company will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
TRANSFER AGENT AND REGISTRAR
The transfer agent for the Common Stock and Warrant Agent 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) were
issued or are issuable to such individuals pursuant to the terms of the
Company's private placement completed in November 1994 (the "1994 Private
Placement"), (ii) were issued in connection with obtaining the consent of the
Company's institutional lender for the Wico Merger, (iii) were issued as part of
or in connection with Wico Merger, (iv) were issued or are issuable upon the
exercise of outstanding options or warrants, or upon the conversion of
outstanding convertible securities, (v) 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, (vi) were issued in
connection with the 1995 Private Placement of 2,094,500 shares of Common Stock,
and (vii) were issued to Lew Lieberbaum & Co., Inc., pursuant to the Company's
Registration Statement on Form S-1, SEC File No. 33-_____. Upon the sale of the
securities offered by each Selling Securityholder, except as otherwise noted,
he/she will, to the best of the Company's knowledge, have no further beneficial
interest in the Company's securities.
<TABLE>
<CAPTION>
Beneficial
Ownership
after the Offering
Common if all Shares and
Stockholder Stock Warrants Warrants are Sold
----------- ------ -------- ------------------
<S> <C> <C> <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 *
</TABLE>
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<PAGE> 58
<TABLE>
<CAPTION>
Beneficial
Ownership
after the Offering
Common if all Shares and
Stockholder Stock Warrants Warrants are Sold
----------- ------ -------- ------------------
<S> <C> <C> <C>
Scott W. Waters, Jr. 41,666(1) 1,000 *
Julian Lee Johnson, IRA 41,666(1) 1,000 *
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>
-51-
<PAGE> 59
<TABLE>
<CAPTION>
Beneficial
Ownership
after the Offering
Common if all Shares and
Stockholder Stock Warrants Warrants are Sold
----------- ------ -------- ------------------
<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 *
Fred K. Ogilvie 10,417(1) 250 *
</TABLE>
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<PAGE> 60
<TABLE>
<CAPTION>
Beneficial
Ownership
after the Offering
Common if all Shares and
Stockholder Stock Warrants Warrants are Sold
----------- ------ -------- ------------------
<S> <C> <C> <C>
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) *
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) 1.2%
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) *
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
Feldman Radin & Co, P.C. 125,000(7) -- *
Schneck, Weltman, Hasmall & Mischel LLP 100,000(7)
Potter Anderson & Corroon 10,517(7) -- *
Judson Enterprises Ltd. 1,000(7) __ *
Kronish, Lieb, Wiener *
& Hellman, L.L.P. 139,798(7) __
Packquisition Corp. 32,000(7) -- *
Mark Gasarch, Esq. 15,500(7) -- *
Gary Petrucci 71,000(10) -- *
Burton Toles 35,500(10) -- *
William Toles 71,000(10) -- *
Tol-O-Matic, Inc. 71,000(10) -- *
Delos v. Stenson 35,500(10) -- *
Richard J. Stream 50,000(10) -- *
</TABLE>
-53-
<PAGE> 61
<TABLE>
<CAPTION>
Beneficial
Ownership
after the Offering
Common if all Shares and
Stockholder Stock Warrants Warrants are Sold
----------- ------ -------- ------------------
<S> <C> <C> <C>
R. Hunt Greene & Jane E. Piccard 35,500(10) -- *
David Brink 49,984(10) -- *
James A. or Anne Beltz 35,500(10) -- *
Marshall or Ida Raye 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 & K.A. Petrucci 17,750(10) -- *
Todd M. & Cheri R. Morgan 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 Partnership Ltd. 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. or Marysue Simon 71,000(10) -- *
Robert Paymar 71,000(10) -- *
Thomas A. Sellars 17,750(10) -- *
Gary Petrucci - IRA 17,750(10) -- *
Bryan E. Zins - IRA 17,750(10) -- *
Stephen M. Carnes 28,400(10) -- *
Ted Piper 35,500(10) -- *
Jack Swenson 42,600(10) -- *
James T. Weinert 71,000(10) -- *
Jerry R. or Linda L. Kenline 20,000(10) -- *
Jonathon P. Wilke 71,000(10) -- *
Reed E. and Christine Halladay 53,250(10) -- *
Jeffrey Peterson - IRA 17,750(10) -- *
G. Terri McNellis 17,750(10) -- *
Gary Petrucci, IRA (amended) 7,100(10) -- *
Jacobs and Associates 36,000(10) -- *
Quynh v. Dang 212,300(10) -- *
Ken Norman 24,850(10) -- *
Dorothy Nathan 100,000(10) -- *
Robert I. Karon 17,750(10) -- *
Edward Sokolfski 30,000(10) -- *
Steffen I. Magnell 142,000(10) -- *
Lew Lieberbaum & Co., Inc. 106,481.4(8) 53,241(9) *
</TABLE>
-54-
<PAGE> 62
- -----------------------------------------
* Less than one percent
(1) Represents 20,833 1994 Private Placement Conversion Shares (at an assumed
conversion price of $1.20 per share) issuable upon conversion of 1994
Private Placement Notes and 500 Private Placement Warrants issued for each
$25,000 principal amount of 11% Notes issued pursuant to 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 and 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 exchanged at $2.00 per share for indebtedness
owed by the Company to such stockholders.
(8) Represents 53,241 shares of Common Stock at $10.00 per share issuable upon
exercise of the Underwriter's Warrants, and 53,241 additional shares
issuable at $1.00 per share upon exercise of the Class Z Warrants issuable
(at the rate of one Class Z Warrant for each Underwriter's Warrant) upon
the exercise of the Underwriter's Warrant.
(9) The Class Z Warrants issuable to the Underwriter upon exercise of the
Underwriter's Warrant have an exercise price of $1.00 and are exercisable
immediately upon, and for a four-year period after, the effective date of
this Registration Statement.
(10) Represents the 1995 Private Placement Shares purchased in June and July
1995.
PLAN OF DISTRIBUTION
Each Selling Securityholder is free to offer and sell his or her shares of
Common Stock or Warrants at such times, in such manner and at such prices as he
or she may determine. Such shares may be offered by Selling Securityholders in
one or more types of transactions, which may or may not involve brokers, dealers
or cash transactions. The Selling Securityholders may also use Rule 144 under
the Securities of 1933 (the "Securities Act"), to sell such securities, if they
meet the criteria and conform to the requirements of such Rule. There is no
underwriter or coordinating broker acting in connection with the proposed sale
of shares or warrants by the Selling Securityholders. It is unlikely that Class
B Warrants will be exercised or that the shares of Common Stock underlying such
warrants will become subject to a distribution while the exercise price for the
warrant ($5.00) exceeds the market value of the Company's common stock ($2.75 on
July 7, 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, all Selling Securityholders are obligated to
deliver a current Prospectus on each occasion that such Selling Securityholder
elects to offer or sell any of their securities; which Prospectus must
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<PAGE> 63
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 Notes are being made, a post-effective amendment to the
Registration Statement of which this Prospectus is a part, (ii) to make
available a Prospectus to each 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 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 Notes 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 Notes 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 Notes 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 Notes
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 Notes 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 Notes 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 Notes 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
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<PAGE> 64
LLP has previously issued audit reports to the Company for the years ended May
31, 1994 and May 31, 1993, which reports did not contain any adverse opinion or
disclaimer of opinion, or were modified as to uncertainty, audit scope, or
accounting principles. There were no disagreements on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which, if not resolved to the satisfaction of the former accountants,
would have caused them to make reference to the subject matter of the
disagreement in its reports.
On November 29, 1994, the Company engaged Grant Thornton LLP as its
independent accountants for the year ended September 30, 1994. Grant Thornton
LLP had previously served as the independent accountants for Wico Holding Corp.
and its wholly-owned subsidiaries.
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.
-57-
<PAGE> 65
INDEX TO FINANCIAL STATEMENTS
CONQUEST INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Page
----
<S> <C>
September 30, 1994
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
March 31, 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-33
Balance Sheet F-34
Statement of Income F-35
Statement of Divisional Equity F-36
Statement of Cash Flows F-37
Notes to Financial Statements F-38
September 30, 1992
Independent Auditor's Report F-41
Balance Sheet F-42
Statement of Income F-43
Statement of Divisional Equity F-44
Statement of Cash Flows F-45
Notes to Financial Statements F-46
</TABLE>
F - 1
<PAGE> 66
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
<PAGE> 67
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> 68
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 7,192,200 shares issued and outstanding in 1994
and 1993, respectively 91,587 500,000
Additional paid-in capital 12,373,815 -
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> 69
CONQUEST INDUSTRIES, INC., AND SUBSIDIARIES
(FORMERLY WICO HOLDING CORP.)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
September 30,
------------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES $41,991,512 $38,782,856 $38,653,304
COST OF SALES 26,078,087 23,674,578 24,077,535
----------- ----------- -----------
GROSS PROFIT 15,913,425 15,108,278 14,575,769
----------- ----------- -----------
OPERATING EXPENSES:
Selling, distribution and administrative expenses 12,592,710 11,620,056 10,895,368
Moving costs - - 148,563
Amortization expense 375,231 689,207 977,835
----------- ----------- -----------
12,967,941 12,309,263 12,021,766
----------- ----------- -----------
OPERATING INCOME 2,945,484 2,799,015 2,554,003
----------- ----------- -----------
OTHER EXPENSES (INCOME):
Interest expense 1,731,377 2,062,605 2,683,917
Amortization of debt discount 282,500 - -
Write off of registration costs 175,394 - -
Other 266,387 8,351 608,240
----------- ----------- -----------
2,455,658 2,070,956 3,292,157
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 489,826 728,059 (738,154)
PROVISION FOR INCOME TAXES 206,201 285,000 2,504
----------- ----------- -----------
NET INCOME (LOSS) 283,625 443,059 (740,658)
PRO-FORMA INCOME TAXES (BENEFIT) - (65,000) (225,000)
----------- ----------- -----------
PRO-FORMA NET INCOME (LOSS) $ 283,625 $ 508,059 $ (515,658)
=========== =========== ===========
PRO-FORMA EARNINGS (LOSS) PER SHARE $ 0.00 $ 0.04 $ (0.06)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES 9,158,677 9,158,677 9,158,677
=========== =========== ===========
</TABLE>
See notes to financial statements.
F - 5
<PAGE> 70
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 less costs of $575,017 - - 4,000,000 3,424,983
Repurchase of stock warrants - - - -
Translation of foreign currency - - - -
Net income - - - -
Preferred stock dividends - - - -
---------- ------------ ---------- ----------
BALANCE - SEPTEMBER 30, 1993 - - 4,000,000 3,424,983
Acquisition of Conquest Airlines Corp., less costs of $468,000
Recapitalization in connection with reverse acquisition accounting 7,550 755
Translation of foreign currency
Exchange of Series B preferred stock into common stock (1,200,000) (624,983)
Retirement of treasury stock warrant
Preferred stock dividends
One for ten reverse stock split
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 7,608 $ 500,000 $
Translation of foreign currency - -
Net loss - -
----------- --------- ---------- ---------
BALANCE - SEPTEMBER 30, 1992 7,608 500,000 -
Issuance of preferred stock less costs of $575,017 - -
Repurchase of stock warrants - - (360,000)
Translation of foreign currency - -
Net income - -
Preferred stock dividends - -
----------- --------- ---------- ---------
BALANCE - SEPTEMBER 30, 1993 7,608 500,000 - (360,000)
Acquisition of Conquest Airlines Corp., less costs of $468,000 1,966,519 (498,025) 9,136,699
Recapitalization in connection with reverse acquisition accounting 89,612,634 89,612 (90,367)
Translation of foreign currency
Exchange of Series B preferred stock into common stock 624,983
Retirement of treasury stock warrant (360,000) 360,000
Preferred stock dividends
One for ten reverse stock split (82,428,085)
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 9,158,676 $ 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
Recapitalization in connection with reverse acquisition accounting -
Translation of foreign currency 44,816 44,816
Exchange of Series B preferred stock into common stock -
Retirement of treasury stock warrant -
Preferred stock dividends (366,000) (366,000)
One for ten reverse stock split -
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>
See notes to financial statements.
F - 6
<PAGE> 71
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)
Other noncash provisions 452,881 - -
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> 72
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> 73
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> 74
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> 75
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> 76
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. 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> 77
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> 78
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> 79
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> 80
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> 81
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> 82
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> 83
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> 84
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 4,250,000
Estimated costs to dispose of Airline operation (1,951,000)
Other costs and liabilities assumed (718,000)
-----------
$ 8,639,000
===========
</TABLE>
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> 85
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> 86
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 5,996,566
Total assets 29,237,795
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> 87
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> 88
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.
F-24
<PAGE> 89
CONQUEST INDUSTRIES INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
September 30 , March 31,
1994 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,007,880 $ 871,130
Trade accounts receivable, less allowance for
doubtful accounts 5,694,272 5,190,743
Other receivables 323,843 191,006
Inventories 8,495,479 7,641,457
Prepaid expenses and other current assets 235,344 677,167
----------- -----------
TOTAL CURRENT ASSETS 15,756,818 14,571,503
MACHINERY AND EQUIPMENT - NET 1,071,301 1,001,072
DEFERRED TAX ASSET 753,000 1,257,900
INTANGIBLE AND OTHER ASSETS - NET 5,604,581 6,016,049
NET ASSETS OF DISCONTINUED OPERATIONS 4,250,000 4,250,000
----------- -----------
$27,435,700 $27,096,524
=========== ===========
</TABLE>
See notes to financial statements.
F-25
<PAGE> 90
CONQUEST INDUSTRIES INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, March 31,
1994 1995
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 4,634,545 $ 5,607,113
Accrued expenses 3,331,344 2,434,428
Current portion of long-term debt 1,500,000 1,500,000
Income taxes payable 25,018 -
------------ ------------
TOTAL CURRENT LIABILITIES 9,490,907 9,541,541
LONG-TERM DEBT 16,705,849 17,528,349
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
Series B, convertible redeemable preferred stock, no par
value; 2,800,000 shares issued and outstanding 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;
9,158,677 shares issued and outstanding 91,587 91,587
Additional paid-in capital 12,373,815 12,625,815
Accumulated deficit (13,945,520) (15,616,739)
Foreign currency translation adjustment (81,693) (74,784)
------------ ------------
1,238,944 26,634
------------ ------------
$ 27,435,700 $ 27,096,524
============ ============
</TABLE>
See notes to financial statements.
F-26
<PAGE> 91
CONQUEST INDUSTRIES INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31, Six months ended March 31,
--------------------------- ---------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $10,056,954 $10,353,224 $20,530,724 $21,414,269
COST OF SALES 6,557,746 6,391,450 13,148,193 13,001,924
----------- ----------- ----------- -----------
GROSS PROFIT 3,499,208 3,961,774 7,382,531 8,412,345
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Selling, distribution and administrative expenses 3,481,919 3,047,299 6,976,090 6,238,981
Amortization expense 92,329 92,329 184,657 184,657
----------- ----------- ----------- -----------
3,574,248 3,139,628 7,160,747 6,423,638
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) (75,040) 822,146 221,784 1,988,707
----------- ----------- ----------- -----------
OTHER EXPENSES (INCOME):
Interest expense 588,126 434,344 1,061,481 860,311
Amortization of debt discount 290,000 - 485,000 -
Other-net 104,514 12,290 104,514 11,423
----------- ----------- ----------- -----------
982,640 446,634 1,650,995 871,734
----------- ----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (1,057,680) 375,512 (1,429,211) 1,116,973
PROVISION FOR INCOME TAXES (BENEFIT) (359,000) 142,695 (509,000) 424,450
----------- ----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS (698,680) 232,817 (920,211) 692,523
LOSS FROM DISCONTINUED OPERATIONS (611,008) - (611,008) -
----------- ----------- ----------- -----------
NET INCOME (LOSS) $(1,309,688) $ 232,817 $(1,531,219) $ 692,523
=========== =========== =========== ===========
PRO-FORMA EARNINGS (LOSS) PER SHARE:
From continuing operations $ (0.08) $ 0.01 $ (0.12) $ 0.05
From discontinued operations (0.07) - (0.07) -
----------- ----------- ----------- -----------
$ (0.15) $ 0.01 $ (0.19) $ 0.05
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES 9,158,677 9,158,677 9,158,677 9,158,677
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
F-27
<PAGE> 92
CONQUEST INDUSTRIES INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Preferred Stocks
--------------------------------------------------------------
Series A Series B Series D
-------------------- --------------------- -----------------
Shares Amount Shares Amount Shares Amount
-------- ---------- --------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - SEPTEMBER 30, 1994 7,550 $ 755 2,800,000 $2,800,000 - -
Net loss - - - -
Preferred stock dividend - - - -
Issuance of Series D preferred stock in exchange for
shareholder loans 200,000 200,000
Translation of foreign currency - - - -
Issuance of warrants in connection with debt - - - -
-------- ---------- --------- ---------- ------- --------
BALANCE - MARCH 31, 1995 7,550 $ 755 2,800,000 $2,800,000 200,000 $200,000
======== ========== ========= ========== ======= ========
</TABLE>
<TABLE>
<CAPTION>
Retained
Common Stock Paid-in Treasury Earnings
------------------
Shares Amount Capital Stock (Deficit)
--------- ------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE - SEPTEMBER 30, 1994 9,158,676 $91,587 $12,373,815 $ - $(13,945,520)
Net loss (1,531,219)
Preferred stock dividend (140,000)
Issuance of Series D preferred stock in exchange for
shareholder loans 102,000
Translation of foreign currency
Issuance of warrants in connection with debt 150,000
--------- ------- ----------- --------- ------------
BALANCE - MARCH 31, 1995 9,158,676 $91,587 $12,625,815 $ - $(15,616,739)
========= ======= =========== ========= ============
</TABLE>
<TABLE>
<CAPTION>
Foreign
Currency
Translation
Adjustment Totals
---------- -----------
<S> <C> <C>
BALANCE - SEPTEMBER 30, 1994 $(81,693) $ 1,238,944
Net loss (1,531,219)
-
Preferred stock dividend (140,000)
Issuance of Series D preferred stock in exchange for
shareholder loans 302,000
Translation of foreign currency 6,909 6,909
Issuance of warrants in connection with debt 150,000
-------- -----------
BALANCE - MARCH 31, 1995 $(74,784) $ 26,634
======== ===========
</TABLE>
See notes to financial statements.
F-28
<PAGE> 93
CONQUEST INDUSTRIES INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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. ACQUISITION 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>
Six months ended
March 31, 1994
----------------
<S> <C>
Revenues, net $23,535,000
-----------
Operating income $ 2,211,000
-----------
Pro-forma net income $ 1,382,000
===========
Pro-forma income per share $ .13
===========
</TABLE>
F-31
<PAGE> 94
4. INVENTORIES
Inventories are summarized as follows at March 31, 1995:
<TABLE>
<S> <C>
Manufacturing inventories:
Material and work-in-process $1,653,553
Finished products 1,076,819
----------
2,730,372
Purchased merchandise for resale 4,911,085
----------
$7,641,457
==========
</TABLE>
5. STOCKHOLDERS' EQUITY
(a) In February 1995, the Company borrowed $200,000 from the
Blum Asset Trust ("BAT") an affiliate of Bentley J. Blu m. The loan was
non-interest bearing and was repayable on demand. In May 1995, pursuant to a
prior agreeme nt, the loan was converted into 600,000 shares of new Series D
preferred Stock of the Company, and the Company si multaneously issued to BAT
warrants entitling BAT to purchase, at any time on or before February 15, 2000,
u p to 600,000 shares of Common Stock at a price of $.3333 per share (subject to
adjustment under certain ci rcumstances); and one-third of such warrants are
subject to cancellation if all of the shares of Series D Preferre d Stock are
redeemed on or before August 15, 1995. BAT has the right to pay the exercise
price under such w arrants by delivering to the Company for cancellation a
number of shares of Series D Preferred Stock having an a ggregate liquidation
preference equal to the amount of the subject exercise price.
F-32
<PAGE> 95
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-33
<PAGE> 96
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-34
<PAGE> 97
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-35
<PAGE> 98
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-36
<PAGE> 99
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-37
<PAGE> 100
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-38
<PAGE> 101
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-39
<PAGE> 102
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-40
<PAGE> 103
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-41
<PAGE> 104
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-42
<PAGE> 105
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-43
<PAGE> 106
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-44
<PAGE> 107
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-45
<PAGE> 108
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>
September 30,
------------------------
1992 1991
-------- --------
<S> <C> <C>
Finished goods $ 44,440 $ 00,000
Work-in-process 10,369 00,000
Raw materials and supplies 88,878 00,000
-------- --------
</TABLE>
F-46
<PAGE> 109
<TABLE>
<S> <C> <C>
$143,687 $000,000
======== ========
</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-47
<PAGE> 110
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>
<PAGE> 111
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
============
<PAGE> 112
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.
<PAGE> 113
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 307,595 329,206
PRO-FORMA INCOME TAXES 107,043 114,564
---------- ----------
PRO-FORMA NET INCOME $ 200,552 $ 214,642
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 114
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC Registration Fee.......................................................... *
NASD Filing Fee............................................................... *
Transfer Agent Fees........................................................... *
Printing Costs................................................................ *
Legal Fees and Expenses....................................................... *
Accounting Fees and Expenses.................................................. *
Blue Sky Fees and Expenses.................................................... *
Miscellaneous................................................................. *
Total................................................................... *
* To be filed by amendment.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The General Corporation Law of Delaware provides generally that a
corporation may indemnify any person who was or is a party to or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, or investigative in nature
to procure a judgment in its favor, by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) and, in a proceeding not by or in
the right of the corporation, judgments, fines and amounts paid in settlement,
actually and reasonably incurred by him in connection with such suit or
proceeding, if he acted in good faith and in a manner believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reason to believe his conduct was
unlawful. Delaware law further provides that a corporation will not indemnify
any person against expenses incurred in connection with an action by or in the
right of the corporation if such person shall have been adjudged to be liable
for negligence or misconduct in the performance of his duty to the corporation
unless and only to the extent that the court in which such action or suit was
brought shall determine that, despite the adjudication of liability but in view
of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for the expenses which such court shall deem proper.
The By-Laws of the Company provide for indemnification of officers and
directors of the Company to the greatest extent permitted by Delaware law for
any and all fees, costs and expenses incurred in connection with any action or
proceeding, civil or criminal, commenced or threatened, arising out of services
by or on behalf of the Company, providing such officer's or director's acts were
not committed in bad faith. The By-Laws also provide for advancing funds to pay
for anticipated costs and authorizes the Board to enter into an indemnification
agreement with each officer or director.
In accordance with Delaware law, the Company's Certificate of
Incorporation contains provisions eliminating the personal liability of
directors, except for breach of a director's fiduciary duty of loyalty to the
Company or to its stockholders, acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of the law, or in respect
of any transaction in which a director receives an improper personal benefit.
These provisions only pertain to breaches of duty by directors as such, and not
in any other corporate capacity, e.g., as an officer. As a result of the
inclusion of such provisions, neither the Company nor stockholders may be able
to recover monetary damages against directors for actions taken by them which
are ultimately found to have constituted negligence or gross negligence, or
which are ultimately found to have been in violation of their fiduciary duties,
although it may be possible to obtain injunctive or equitable relief with
respect to such actions. If equitable remedies are found not to be available to
stockholders in any particular case, stockholders may not have an effective
remedy against the challenged conduct.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been
II-1
<PAGE> 115
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
therefore is unenforceable.
RECENT SALES OF UNREGISTERED SECURITIES
In February and May 1991, the Company sold $710,000 in principal amount of
10% convertible promissory notes in private transactions as bridge financing
pending the completion of a public offering, of which $285,000 was purchased by
directors of the Company including Victor M. Rivas, the Company's Chairman of
the Board, and $300,000 was purchased by Edmund Shea, a stockholder of the
Company. Up to 6.7% of the principal amount of the notes were convertible into
shares of the Company's Common Stock at the rate of $1.00 per share. The notes
were subsequently retired following successful completion of the offering as
herein described. As of March 1, 1992, the holders of the notes exercised the
conversion rights provided for in the notes and accordingly the shares were
issued. This transaction was a private transaction not involving a public
offering and was exempt from the registration provisions of the Securities Act
pursuant to Sections 4(2) and 4(6) thereof. Commonwealth Associates acted as
placement agent in connection with the offering and received commissions and
other compensation for its services.
In May 1992, the Company sold 14,667 shares of Common Stock at $15.00 per
share to six individuals. This transaction was a private transaction not
involving a public offering and was exempt from the registration provisions of
the Securities Act pursuant to Section 4(2) thereof and Regulation D and Rule
506 promulgated thereunder.
In October 1992, the Company completed the sale of 75,000 shares of Common
Stock to 39 unaffiliated individuals at $15.00 per share. This transaction was a
private transaction not involving a public offering and was exempt from the
registration provisions of the Securities Act pursuant to Section 4(2) thereof
and Regulation D and Rule 506 promulgated thereunder.
In April 1991, the Company exchanged existing warrants (held by one
entity) to purchase in the aggregate 19,500 shares of Common Stock at $25.00 per
share for a new warrant to purchase 10,000 shares at $10.00 per share. This
warrant was subsequently exchanged for a new warrant to purchase 10,000 shares
at $5.00 per share in January 1992. These warrants were exercised in April 1993.
This transaction was a private transaction not involving a public offering and
was exempt from the registration provisions of the Securities Act pursuant to
Section 4(2) thereof.
In April 1991, the Company lowered the exercise price of a warrant to
purchase 4,000 shares of Common Stock to $10.00 per share, and thereafter
lowered the exercise price to $5.00 per share in January 1992, for services
rendered in connection with a financial consulting agreement. These warrants
were exercised in April 1993. This transaction was a private transaction not
involving a public offering and was exempt from the registration provisions of
the Securities Act pursuant to Section 4(2) thereof.
In March 1992, the Company issued warrants to purchase 10,000 shares of
Common Stock at $23.75 per share to each of two consultants. This transaction
was a private transaction not involving a public offering and was exempt from
the registration provisions of the Securities Act pursuant to Section 4(2)
thereof.
In June 1992, the Company issued warrants to purchase 10,000 shares of
Common Stock at $30.00 per share in consideration of the use of certain
facilities provided by Mr. Hunt during the previous four years and Mr. Hunt's
agreement to continue to permit the use of such facilities for an additional two
years. This transaction was a private transaction not involving a public
offering and was exempt from the registration provisions of the Securities Act
pursuant to Section 4(2) thereof.
In March 1993, the Company sold $452,000 principal amount of 8% promissory
notes due the earlier of one year from the date of issuance or the sale of any
public debt or equity offering from which the Company realized net proceeds of
$385,740. The Company also agreed to issue to the noteholders shares of Common
Stock equal to 50% of the principal amount of the notes divided by the public
offering price of the unit offering through the Underwriter as described below.
This transaction was a private transaction not involving a public offering and
was exempt from the registration provisions of the Securities Act pursuant to
Section 4(2) thereof. Lew Lieberbaum & Co., Inc. acted as placement agent in the
offering.
In April 1993, in connection with the offering of units of the Company,
the Company issued to Lew Lieberbaum & Co., Inc., the underwriter in that
transaction (the "Underwriter"), certain Warrants in registered form. The Class
B Warrants were part of units which were purchasable by the Underwriter upon
exercise of certain units. In June 1994, the Company exchanged the registered
Warrants issued to the
II-2
<PAGE> 116
Underwriter for 53,241 unregistered Underwriter's Warrants of the Company in a
transaction in which the securities were exempted pursuant to Section 3(a) of
the Securities Act.
In November 1994, the Company sold to 69 purchasers an aggregate of 109.5
units for a total price of $2,737,500. Each unit consisted of (i) a $25,000
principal amount 10% convertible promissory note (the "Notes") and (ii) the
right to receive warrants, upon the conversion of each Note, to purchase 500
shares of Common Stock exercisable at a price of $5.00 per share until June 20,
1999. The Notes are convertible at any time at 80% of the closing bid price of
the Company's publicly traded Common Stock on the date of conversion. If such
price were $1.50 per share, an aggregate of 2,281,250 1994 Private Placement
Conversion Shares would be issuable. The Notes were sold through Rickel &
Associates, Inc. ("Rickel") as placement agent. Rickel received a commission
equal to 10% ($273,750) of the gross proceeds of the offering and an additional
3% ($82,125) of the gross proceeds of the offering as a non-accountable expense
allowance. This transaction was a private transaction not involving a public
offering and was exempt from the registration provisions of the Securities Act
pursuant to Section 4(2) thereof.
In April 1995, the Board of Directors of the Company authorized for
issuance to certain of its officers and directors five year warrants to purchase
an aggregate of 6,850,000 shares of Company Common Stock at an exercise price of
$0.875 per share, of which warrants to purchase an aggregate of 6,200,000 of
such shares are subject to consummation of a proposed debt refinancing by the
Company.
In May 1995, the Company issued to an affiliate of a director 600,000
shares of Series D Preferred Stock, and warrants to purchase 1,050,000 shares of
Common Stock at $.3333 per share. The consideration paid for such securities was
the conversion of a $200,000 demand loan made by such director's affiliate to
the Company in February 1995, and an additional $150,000 loan due September 30,
1996 made in May 1995. This transaction was a private transaction not involving
a public offering and was exempt from the registration provisions of the
Securities Act pursuant to Section 4(2) thereof.
In June 1995, the Company issued 800,000 shares of Series E Preferred
Stock, which shares were issued for consideration consisting of 800,000 shares
of Series B Preferred Stock of the Company, and the cancellation of certain
warrants held by the holders of such Series B Preferred Stock. This transaction
was a private transaction not involving a public offering and was exempt from
the registration provisions of the Securities Act pursuant to Section 4(2)
thereof.
In June 1995, the Company sold an aggregate of 2,094,500 shares of Common
Stock at approximately $1.41 per share in a private placement to __ investors.
This transaction was a private transaction not involving a public offering and
was exempt from the registration provisions of the Securities Act pursuant to
Section 4(2) thereof.
II-3
<PAGE> 117
List of Exhibits
<TABLE>
<CAPTION>
Exhibit Description of Exhibit Page No.
------- ---------------------- --------
<S> <C>
3(a) Certificate of Incorporation (as amended including preferred
stock designations) (1)
3(b) By-Laws(1)
4(b) Form of Redeemable Common Stock Purchase Warrant (1)
5 Opinion of Solomon, Weiss & Moskowitz, P.C.*
10(a) Employment Agreement between the Company and Edward G.
Sokolofski (1)
10(b) Lease between Wico Corporation and LaSalle National Bank,
as Trustee(1)
10(c) Loan Agreement between Wico Corporation and National
Westminster Bank USA (1)
10(d) Amended and restated guarantees of Stephen Feldman and
Bentley Blum in favor of National Westminster Bank USA (1)
10(e) Security Agreement between Wico Corporation and National
Westminster Bank USA (1)
10(f) Termination of Employment Agreement and Consulting
Agreement between Victor R. Rivas and Conquest Airlines
Corp. dated June 17, 1994 (1)
10(g) Agreement by and between the Company and American Stock
Transfer & Trust Co., Inc.*
10(h) Asset Purchase Agreement by and between Wico Acquisition
Co. and Langworthy Casino Supply(1)
10(i) Securities Purchase Agreement among the
Company and the purchasers of 2,094,500
shares of Common Stock.
10(j) Stock Purchase Agreement and exhibits between the Company
and Air L.A., Inc.
10(k) Agreements in connection with amendment to Series B
Preferred Stock and issuance of Series E Preferred Stock
10(l) Agreements in connection with issuance of Series D Preferred
Stock and related $150,000 Note to Blum Asset Trust
10(m) Forms of agreements in connection with issuance of Creditors
Shares in exchange for Company obligations
32.1 Consent of Grant Thornton
32.2 Consent of Allen G. Roth
</TABLE>
* to be filed by amendment.
- -----------
(1) Filed as an exhibit with the original filing of this Registration
Statement, filed on November 14, 1994
II-4
<PAGE> 118
UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement: (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement; and (iii) to include
any material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the Offering of such securities at that time shall be deemed to be
the initial bona fide Offering thereof.
(3) To remove from registration by means of post-effective amendment any
of the securities being registered which remain unsold at the termination of the
Offering.
(4) To file a post-effective amendment to the registration to include any
financial statements required by Rule 3-19 of Regulation S-X at the start of any
delay Offering or throughout a continuous Offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer of controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
II-5
<PAGE> 119
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-1 and has duly caused this
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on July 12, 1995.
CONQUEST INDUSTRIES INC.
By: Stephen R. Feldamn By: Jerry Karlik
----------------------------- ---------------------------
Stephen R. Feldman Jerry Karlik
Chairman of the Board Chief Financial Officer
(Principal Executive Officer) (Principal Financial or
Accounting Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Stephen R. Feldman and Jerry Karlik,
jointly and severally, as his true and lawful attorney-in-fact and agent, each
with full power of substitution and resubstitution for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each said attorney-in-fact or agent or substitute lawfully
does or causes to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to the Registration Statement on Form S-1 has been signed
below by the following persons in the capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Capacity in Which Signed Date
- --------- ------------------------ ----
<S> <C> <C>
Stephen R. Feldman Chairman of the Board July 12, 1995
- ---------------------------
Stephen R. Feldman
Victor M. Rivas Director
- ---------------------------
Victor M. Rivas July 12, 1995
Steffen I. Magnell Chief Executive Officer July 12, 1995
- ---------------------------
Steffen I. Magnell of the and President of
the Company
Jerry Karlik Chief Financial Officer July 12, 1995
- ---------------------------
Jerry Karlik
Bentley J. Blum Director July 12, 1995
- ---------------------------
Bentley J. Blum
Harry McKillop Director July 12, 1995
- ---------------------------
Harry McKillop
David Schoon Director July 12, 1995
- ---------------------------
David Schoon
</TABLE>
<PAGE> 120
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS ON SCHEDULE
To the Stockholders
CONQUEST INDUSTRIES, INC.
In connection with our audits of the consolidated financial statements of
Conquest Industries, Inc., as of and for the years ended September 30, 1994 and
1993, referred to in our report dated December 9, 1994 (except as to Note L
(1), which is as of January 20, 1995), which is included in the prospectus
constituting Part I of this Registration Statement, we have also examined
Schedule II as of September 30, 1994, 1993 and 1992, and for each of the three
years in the period ended September 30, 1994.
In our opinion, this schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information required to be set forth therein.
/s/ Grant Thornton LLP
- -----------------------
GRANT THORNTON LLP
New York, New York
December 9, 1994
S-1<PAGE> 121
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description of Exhibit Page No.
------- ---------------------- --------
<S> <C>
3(a) Certificate of Incorporation (as amended including preferred
stock designations) (1)
3(b) By-Laws(1)
4(b) Form of Redeemable Common Stock Purchase Warrant (1)
5 Opinion of Solomon, Weiss & Moskowitz, P.C.*
10(a) Employment Agreement between the Company and Edward G.
Sokolofski (1)
10(b) Lease between Wico Corporation and LaSalle National Bank,
as Trustee(1)
10(c) Loan Agreement between Wico Corporation and National
Westminster Bank USA (1)
10(d) Amended and restated guarantees of Stephen Feldman and
Bentley Blum in favor of National Westminster Bank USA (1)
10(e) Security Agreement between Wico Corporation and National
Westminster Bank USA (1)
10(f) Termination of Employment Agreement and Consulting
Agreement between Victor R. Rivas and Conquest Airlines
Corp. dated June 17, 1994 (1)
10(g) Agreement by and between the Company and American Stock
Transfer & Trust Co., Inc.*
10(h) Asset Purchase Agreement by and between Wico Acquisition
Co. and Langworthy Casino Supply(1)
10(i) Securities Purchase Agreement among the
Company and the purchasers of 2,094,500
shares of Common Stock.
10(j) Stock Purchase Agreement and exhibits between the Company
and Air L.A., Inc.
10(k) Agreements in connection with amendment to Series B
Preferred Stock and issuance of Series E Preferred Stock
10(l) Agreements in connection with issuance of Series D Preferred
Stock and related $150,000 Note to Blum Asset Trust
10(m) Forms of agreements in connection with issuance of Creditors
Shares in exchange for Company obligations
32.1 Consent of Grant Thornton
32.2 Consent of Allen G. Roth
</TABLE>
* to be filed by amendment.
- -----------
(1) Filed as an exhibit with the original filing of this Registration
Statement, filed on November 14, 1994
<PAGE> 1
STOCK PURCHASE AGREEMENT
BETWEEN
CONQUEST INDUSTRIES INC.
AND
THE PARTY SIGNATORIES TO THIS AGREEMENT
Dated: June __, 1995
<PAGE> 2
THIS STOCK PURCHASE AGREEMENT ("Agreement"), dated as of June __,
1995, is entered into by and between CONQUEST INDUSTRIES INC. (formerly,
Conquest Airlines Corp.), a Delaware corporation (the "Company"); and THE
PERSONS, FIRMS AND/OR CORPORATIONS WHO HAVE EXECUTED THIS AGREEMENT ON THE
SIGNATURE PAGE HEREOF (hereinafter individually referred to as an "Investor"
and collectively as the "Investors").
W I T N E S S E T H:
WHEREAS, the Investors have offered to purchase from the Company
certain shares of Common Stock of the Company, for the purchase price and upon
the terms and conditions hereinafter set forth; and
WHEREAS, the Board of Directors of the Company has accepted
the Investors' offer and has agreed to sell to the Investors such shares of
Common Stock, all upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereby agree as follows:
1. AUTHORIZATION OF ISSUE.
The Company has authorized the issuance and sale to the Investors of
an aggregate of up to One Million Four Hundred and Twenty Thousand (1,420,000)
shares (the "Subject Shares") of common stock, $.001 par value per share, of
the Company (the "Common Stock"). The is no minimum number of Subject Shares
which must be sold prior to the Closing Date in order to consummate the
transactions contemplated by this Agreement.
2. ISSUANCE OF SUBJECT SHARES; PURCHASE PRICE.
(a) On the terms and subject to the conditions hereinafter set forth,
on the Closing Date (as hereinafter defined), the Company hereby agrees to
issue and sell to the Investors, and the Investors hereby agree to purchase as
principals for their own account that number of the Subject Shares set forth
opposite the name of each Investor listed on Schedule "1" annexed hereto and
made a part hereof. In the event and to the extent that any of the Investors
listed on Schedule "1" does not purchase and full pay for his or its Subject
Shares on the Closing Date, any of the other Investor(s) may purchase such
Subject Shares in pro-rata amounts or in such other amounts or proportions as
they may agree upon.
(b) The purchase price per share for each of the Subject Shares shall
equal an aggregate of One and 4085/10000 ($1.4085) Dollars. The aggregate
purchase price payable by each of the Investors for their respective Subject
Shares shall be as set forth on Schedule "1" hereto.
-1-
<PAGE> 3
(c) The purchase price for the Subject Shares shall be paid at the
Closing either by wire transfer of immediately available funds to an account
designated by the Company, or by certified or bank cashier's checks payable to
the order of the Company. Notwithstanding the foregoing, Steffen I. Magnell
("Magnell"), the Chief Executive Officer of the Company, shall purchase his
142,000 Subject Shares by delivery to the Company of his 8% promissory note in
$200,005 principal amount (the "Magnell Note"), payable as to principal and
accrued interest on a date which shall be ninety (90) days following the
Closing Date. The purchase price shall be payable by each Investor on the
Closing Date against delivery of the Subject Shares being purchased by him or
it, all of which shall be registered in the name of the applicable Investor
purchasing such Subject Shares.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby makes the following representations and warranties
to the Investors, with respect to the Company and each of its subsidiary
corporations (the "Subsidiaries"), all of which are listed in its Form 10-K
Annual Report for the fiscal year ended September 30, 1994 (the "1994 Form
10-K"), as filed with the Securities and Exchange Commission ("SEC") under
Section 13 or 15(d) of the Securities and Exchange Act of 1934, as amended (the
"1934 Act"):
(a) ORGANIZATION AND GOOD STANDING. The Company and each of its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or continuance,
with full corporate power and authority to own its properties and carry on its
business as now being conducted and anticipated to be conducted following
consummation of the transactions contemplated hereby. Each of the Company and
the Subsidiaries is qualified as a foreign corporation and is in good standing
in each jurisdiction in which the conduct of its business or the ownership of
its assets requires such qualification. The copies of the Certificates of
Incorporation and By-Laws of the Company and the Subsidiaries (together with
all amendments thereto) are correct and complete and are available for
inspection by the Investors and their representatives.
(b) CAPITALIZATION OF THE COMPANY.
(i) The authorized capital stock of the Company as at
September 30, 1994 and as at March 31, 1995 is as set forth on the Company's
Form 10-Q Quarterly Report for the quarter ended March 31, 1995, as filed with
the SEC under the 1934 Act (the "March 1995 Form 10-Q").
(ii) All of the issued and outstanding shares of Company
Common Stock are, and all of the Subject Shares will be, upon issuance in
accordance with the terms hereof, validly issued, fully paid and non-assessable
and were, or will be in the case of the Subject Shares, issued in compliance
with applicable United States federal and state securities laws.
(iii) Except (A) as provided by this Agreement, or (B) as
disclosed (x) in the Company's 1994 Form 10-K, (y) in the March 1995 Form 10-Q
and in the Company's quarterly
-2-
<PAGE> 4
report on Form 10-Q issued under the 1934 Act for the fiscal quarter ended
December 31, 1994, respectively (the "Fiscal 1995 Quarterly Reports") and (z)
in the draft of Amendment No. 1 to Registration Statement on Form S-1, dated
June 22, 1995 (the "Form S-1 Draft"), true and complete copies of which has
been furnished to the Investors, there is no existing option, warrant, call,
commitment or other agreement to which the Company is a party requiring, and
there are no convertible securities of the Company outstanding which upon
conversion would require, the issuance of any additional shares of Common Stock
or other securities convertible into shares of Common Stock. No voting
agreements or preemptive or similar rights are available to the holders of any
shares of Common Stock or other securities of the Company.
(d) AUTHORIZATION AND EXECUTION OF AGREEMENT AND EXHIBITS. The
Company has all requisite corporate power and authority to execute, deliver and
perform its obligations under this Agreement, to issue the Subject Shares in
the manner and for the purpose contemplated by this Agreement, and to execute,
deliver and perform its obligations under this Agreement and the Registration
Rights Agreement constituting Exhibit "A" hereto. The execution and delivery
of this Agreement and the Exhibit hereto and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action of the Company.
(e) ENFORCEABILITY OF AGREEMENT AND EXHIBITS. This Agreement and
the Registration Rights Agreement have been duly executed and delivered and
constitute the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms, subject in each
such case, to applicable bankruptcy, insolvency, reorganization and similar laws
affecting creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity).
(f) CONFLICTING AGREEMENTS AND OTHER MATTERS. The execution,
delivery and performance by the Company of this Agreement and all other
agreements and instruments heretofore or hereafter to be executed and delivered
by the Company in connection with the consummation of the transactions
contemplated by this Agreement, and compliance by the Company with the terms
and provisions hereof applicable to it, including the issuance and sale of the
Subject Shares does not and will not: (i) violate any provision of any law,
rule, regulation, order, writ, judgment, decree, administrative determination
or award having applicability to the Company or any of the Subsidiaries; (ii)
conflict with or result in a breach of or constitute a default or cause the
acceleration of any obligation under the Certificate Incorporation or By-Laws
of the Company or any of the Subsidiaries or any indenture or loan or credit
agreement, or any other material agreement or instrument, to which the Company
or any of the Subsidiaries is a party, or by which the Company or the
Subsidiaries or any of their respective properties are bound or affected; or
(iii) result in, or require the creation or imposition of, any lien upon or
with respect to any of the properties of the Company or any of the
Subsidiaries.
-3-
<PAGE> 5
(g) LITIGATION OR PROCEEDINGS. Except as disclosed in the Company's
1994 Form 10-K, in the Fiscal 1995 Quarterly Reports or in the Form S-1 Draft
(collectively, the "Disclosure Documents") or on Schedule 3(g) annexed hereto,
there is no action, suit, proceeding or investigation pending or, to the
knowledge of the Company, threatened against or affecting the Company or any of
the Subsidiaries or any of their respective properties before or by any court,
governmental or regulatory authority (federal, state, local or foreign) which
either:
(i) relates to or challenges the legality, validity or
enforceability of this Agreement, or any other document or
agreement heretofore or hereafter to be executed and delivered
by the Company pursuant hereto or in connection herewith or
therewith; or
(ii) if determined adversely (A) would have a material adverse
effect on the financial condition, properties, assets,
business or results of operations of the Company and the
Subsidiaries, when taken as a consolidated whole (a "Material
Adverse Effect"), or (B) could materially impair the ability
or obligation of the Company or the Subsidiaries to perform
fully on a timely basis any obligation which it has or will
have under this Agreement or the Registration Rights
Agreement.
(h) GOVERNMENTAL CONSENTS, ETC. No authorization, consent, approval,
license, qualification or formal exemption from, nor any filing, declaration or
registration with, any court, governmental agency or regulatory authority or
any securities exchange or any other person or entity (collectively
"Approvals") is required in connection with the execution, delivery or
performance by the Company of this Agreement, or for the consummation of the
transactions contemplated hereby.
(i) USE OF PROCEEDS. The proceeds to the Company from the sale of
the Subject Shares will be applied to reduce indebtedness and certain accounts
payable and for general working capital.
(j) ACCURACY OF ALL PUBLIC FILINGS. The Company has furnished to the
Investors an accurate and complete copies of the Disclosure Documents and has
made available to the Investors or their representatives such other documents
and reports filed by or on behalf of the Company with the SEC. Except as
otherwise set forth in Section 3(l) below, none of such documents, when filed,
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(k) NO MISREPRESENTATION. Subject only to the provisions of Section
3(l) below, no representation or warranty of the Company contained in this
Agreement or in the Disclosure Documents or in any other instrument furnished
by the Company to the Investors pursuant to the terms hereof, contains any
untrue statement of a material fact, or omits to state a material fact
necessary to make the statements contained herein or therein not misleading.
-4-
<PAGE> 6
(l) FORM S-1 DRAFT FOR INFORMATION PURPOSES ONLY. Notwithstanding
anything to the contrary, express or implied, contained in this Section 3 or
elsewhere in this Agreement, it is expressly understood and agreed by the
Investors that the Form S-1 Draft: (i) is subject to further review by
management of the Company and its legal and financial representatives,
including its auditors, (ii) is incomplete and does not contain all required
financial information, (iii) is subject to revision prior to its filing with
the SEC, and (iv) following its filing with the SEC is subject to further
comment by the staff of the SEC and amendments (which comments and amendments
may be material) before being declared effective by the SEC. Accordingly, it
is expressly acknowledged and agreed that: (A) such Form S-1 Draft is submitted
to the Investors for informational purposes only, (B) the Company is not making
and representations and warranties as to the accuracy of the information
contained therein, and (C) Investors should not rely upon such Form S-1 Draft
in making their investment decisions in connection with the purchase of the
Subject Shares. Copies of all material changes to the Form S-1 Draft, if any,
made by the Company prior to the Closing Date will be furnished to the
Investors by the Company.
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS.
Each of the Investors hereby severally (not jointly and severally)
represents and warrants to the Company as follows:
(a) INVESTIGATION; INVESTMENT REPRESENTATIONS. Each Investor hereby
acknowledges and agrees that he or it:
(i) possesses such knowledge and experience in financial and
business matters that he or it is capable of evaluating the
merits and risks of his or its investment hereunder;
(ii) has been afforded the opportunity to ask questions of,
and receive answers from, the Company concerning the terms and
conditions of its investment, the transactions contemplated
hereby and the business and affairs of the Company;
(iii) is aware that the Company and its Subsidiaries have
recently incurred substantial losses and that there are
significant investment risks inherent in their purchase of the
Subject Shares;
(iv) is prepared to sustain a total loss of his or its
investment in the Subject Shares;
(v) has examined, to the extent he or it deems appropriate,
all of the agreements and documents referred to herein or in
the schedules hereto and such other documents that it has
requested;
(vi) understands that the Subject Shares are not being
registered under the 1933
-5-
<PAGE> 7
Act, on the grounds that the issuance thereof is exempt from
registration under Section 4(2) of the Securities Act of 1933,
as amended, as a transaction by an issuer not involving a
public offering, and the Company's reliance on this exemption
is predicated in part on such Investor's representations and
warranties contained in this Section 4(a);
(vii) is acquiring his or its Subject Shares for his or its
own account, for investment purposes only and not with a view
to the distribution or resale thereof; and
(viii) is an "accredited investor", as that term is defined in
Regulation D, as promulgated under the 1933 Act.
(b) EXECUTION AND EFFECT OF AGREEMENT. Each Investor has all
necessary power and authority to enter into this Agreement and consummate the
transactions contemplated hereby. This Agreement constitutes the legal, valid
and binding obligation of the Investor, enforceable against such Investor in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and subject, as to enforceability, to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or
in equity).
(c) NO ACTIONS. There is no action, suit, proceeding or
investigation pending or, to the best knowledge of the Investor, threatened
against the Investor which might question the legality, validity or
enforceability of this Agreement or the consummation of any of the transactions
contemplated hereby.
(d) ACKNOWLEDGEMENT OF COMPANY DISCLAIMER WITH RESPECT TO FORM S-1
DRAFT; MATERIAL CHANGES AFFECTING THE COMPANY. By their execution of this
Agreement, each of the Investors: (i) acknowledges that they have read this
Agreement and specifically the disclaimer of the Company contained in Section
3(l) above, (ii) acknowledges that the Form S-1 Draft has been submitted to
such Investor for informational purposes only, (iii) acknowledges that the
Company is making no representation or warranty herein as to the accuracy or
completeness of the information contained in such Form S-1 Draft, and (iv)
recognizes that the contents thereof should not be relied upon by any of them
in connection with making their respective investment decisions with respect to
purchasing the Subject Shares.
5. SEC FILINGS. For so long the Investors shall continue to own any of
the Subject Shares, the Company will furnish to such Investors, upon written
request therefor, copies of all documents filed by the Company with the SEC
under the 1934 Act, including, without limitation, all Form 10-K Annual
Reports, all Form 10-Q Quarterly Reports and other Form 8-K Interim Reports,
and copies of the Registration Statement and Preliminary Prospectus' derived
from the Form S-1 Draft, and amendments thereto, as filed by the Company with
the SEC.
-6-
<PAGE> 8
6. LEGENDS ON SUBJECT SHARES.
(a) RESTRICTIONS ON TRANSFER. Each of the Investors acknowledges
that the Company's securities being issued and sold hereunder are being so
issued and sold in transactions which are exempt from the registration
requirements of the 1933 Act. None of the Subject Shares may be distributed,
transferred, or otherwise disposed of (a "Transfer") by the Investors, except
pursuant to an effective Registration Statement under the 1933 Act which is
current with respect to the securities offered thereby, or pursuant to an
applicable exemption therefrom, and pursuant to applicable "Blue Sky" or state
securities laws or an applicable exemption therefrom.
(b) STOP TRANSFER INSTRUCTIONS AND LEGEND. The Company may cause its
transfer agent to establish appropriate stop transfer instructions with respect
to the Subject Shares and shall cause to be set forth on the certificates
representing any Subject Shares legends substantially in the following form:
"The securities represented by this certificate have not
been registered under the United States Securities Act of
1933, as amended. No transfer of such securities shall be
valid or effective except pursuant to a registration statement
covering such securities declared effective by the Securities
and Exchange Commission pursuant to the applicable
registration requirements of the Securities Act of 1933, as
amended, or an opinion of counsel satisfactory to the Company
that such registration is not required."
7. CONDITIONS PRECEDENT TO CLOSING.
(a) CONDITIONS PRECEDENT TO OBLIGATIONS OF THE INVESTORS. The
obligation of the Investors to purchase the Subject Shares to be purchased by
it at the Closing hereunder is subject to the fulfillment on or prior to the
Closing Date of the following conditions:
(i) The Investors shall have received certificates
evidencing all, and not less than all, of the Subject Shares.
(ii) The Investors shall have received an opinion, in form
and content satisfactory to the Investors and its legal counsel, addressed to
the Investors and dated the Closing Date, of Solomon Weiss & Moskowitz P.C. in
respect of the representations and warranties set forth in Sections 3(a) and
Section 3(d) of this Agreement (the "Opinion Letter").
(iii) The Company shall have duly executed and delivered to
the Investors the Registration Rights Agreement in the form of Exhibit "A"
hereto.
(iv) The representations and warranties made by the Company herein
shall be true and correct in all material respects on and as of the Closing
Date with the same effect as though such representations and warranties had
been made on and as of the Closing Date, and the Company shall have complied in
all material respects with all conditions and covenants hereunder required
-7-
<PAGE> 9
to be performed by it at or prior to the Closing Date.
(v) All legal matters incident to the transactions
contemplated by this Agreement shall have been reasonably approved by counsel
to the Investors.
(vi) The sale of the Subject Shares by the Company shall not
be prohibited or enjoined (temporarily or permanently) as of the Closing Date,
nor shall any such action be pending or threatened.
(b) CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY. The
obligation of the Company to issue and sell the Subject Shares to be issued
pursuant to this Agreement is subject to the fulfillment on or prior to the
Closing Date of the following conditions:
(i) The representations and warranties made by the Investors herein
shall be true and correct in all material respects on and as of the Closing
Date with the same effect as though such representations and warranties had
been made on and as of the Closing Date.
(ii) The Investors shall have tendered payment in full of
the purchase price for the Subject Shares as contemplated by Section 2 of this
Agreement.
(iii) The purchase of the Subject Shares to be purchased by
such Investors hereunder shall not be prohibited or enjoined (temporarily or
permanently) under the laws of any jurisdiction to which the Investors is
subject.
(iv) The Investors shall have executed the Registration
Rights Agreement.
(v) All legal matters incident to the transactions
contemplated by this Agreement shall have been reasonably approved by counsel
to the Company.
8. CLOSING.
(a) The Closings. The closing of the sale of the Subject Shares
hereunder to each Investor (the "Closing") shall take place at various times
and dates following the date hereof at the offices of the Company, c/o Wico
Corporation, 6400 West Gross Point Road, Niles, Illinois 60648, or by mail, and
shall continue until the close of business (Illinois time) on July 7, 1995.
The date of each such Closing with a particular Investor is referred to in this
Agreement as the "Closing Date".
(b) Deliveries at the Closings. At each Closing, the Investor shall
deliver to the Company, c/o Wico Corporation at the address specified above
(attention: Steffen I. Magnell, President) the following:
(i) A true copy of this Agreement duly executed by such
Investor on the signature page hereof, including the
address of such Investor;
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<PAGE> 10
(ii) A true copy of the Registration Rights Agreement
(Exhibit "A" hereto), duly executed by such Investor
on the signature page thereof;
(iii) A true copy of the subscription letter in the form of
Exhibit "B" annexed hereto and made a part hereof,
duly executed by such Investor;
(iv) The Investor's check, payable to the order of
Conquest Industries Inc. in the amount of the
Investors Purchase Price for the number of Subject
Shares being subscribed to by such Investor; and
(v) A completed Purchaser Questionaire (either for an
individual Investor or a corporate Investor) in the
form of Exhibit "C" annexed hereto and made a part
hereof, filled out and duly executed by such
Investor.
The Company shall, not later than five (5) business days following
July 7, 1995, deliver to each Investor the Company's stock certificates
evidencing their Subject Shares as well as counterparts of this Agreement and
the Registration Rights Agreement, duly executed by the Company.
9. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
All representations, warranties, covenants and agreements of the
Company or of the Investors contained in this Agreement or in any certificate,
document, schedule or instrument delivered pursuant hereto shall survive the
Closing hereunder and the delivery of any and all documents and instruments
hereunder, regardless of any investigation made by or on behalf of the
Investors or the Company, respectively. All statements contained in any
certificate, schedule or other document delivered by the Company pursuant
hereto in connection with the transactions contemplated hereby shall be deemed
representations and warranties of the Company.
10. NOTICES.
Any notices or other communications required or permitted hereunder
shall be in writing and personally delivered or sent by telecopier or by
registered or certified mail, return receipt requested, postage prepaid,
addressed or telecopied as follows or to such other address or telecopier
number of which notice has been given pursuant hereto:
If to the Company: Conquest Industries, Inc.
c/o Wico Corporation
6400 West Gross Point Road
Niles, Illinois 60648
Attn: Steffen I. Magnell,
Chief Executive Officer
fax. no. (708) 647-6438
-9-
<PAGE> 11
With a copy to: Solomon Weiss & Moskowitz, P.C.
650 Fifth Avenue
New York, New York 10019
Attn: Stephen A. Weiss, Esq.
fax. no. (212) 246-2561
If to the Investors: To the addresses listed
on the signature page hereof
11. ENTIRE AGREEMENT; AMENDMENT ETC.
This Agreement, together with the Registration Rights Agreement,
represents the entire understanding and agreement among the parties hereto with
respect to the subject matter hereof, and supersedes all prior agreements or
understandings, whether written or oral. With the written consent of the
Investors or the holders of a majority of the outstanding Subject Shares, the
obligations of the Company and the rights of the holders of the Subject Shares
may be waived or modified (either generally or in a particular instance, either
retroactively or prospectively and either for a specified period of time or
indefinitely), and with the same consent the Company, when authorized by
resolution of its Board of Directors, may enter into a supplementary agreement
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Agreement. Neither this Agreement
nor any provision hereof may be changed, waived, discharged or terminated
orally, except by a statement in writing authorized as aforesaid and signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought.
12. SUCCESSORS.
This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns.
13. SECTION HEADINGS.
The section headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
14. APPLICABLE LAW.
This Agreement shall be governed by, construed and enforced in
accordance with the substantive laws of the State of Delaware, without
reference to or application of principles of conflicts of laws.
-10-
<PAGE> 12
15. EXPENSES.
The Company, on the one hand, and the Investors, on the other hand,
shall pay their own respective legal fees and expenses and other out-of-pocket
expenses incurred in connection with this Agreement and the transactions
contemplated hereby, including those fees and expenses relating to the
preparation of this Agreement and the documents relating hereto.
16. SEVERABILITY.
If at any time subsequent to the date hereof, any provision of this
Agreement shall be held by any court of competent jurisdiction to be illegal,
void or unenforceable, such provision shall be of no force and effect, but the
illegality or unenforceability of such provision shall have no effect upon and
shall not impair the enforceability of any other provision of this Agreement.
17. NO WAIVER.
The failure of any party at any time or times to require performance
of any provision hereof shall in no manner affect the right at a later time to
enforce the same. No waiver by any party of any condition, or of the breach of
any provision, term, covenant, representation or warranty contained in this
Agreement, whether by conduct or otherwise, in any one or more instances shall
be deemed to be construed as a further or continuing waiver of any such
condition or of the breach of any other provision, term, covenant,
representation or warranty of this Agreement.
18. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
CONQUEST INDUSTRIES INC.
BY:
------------------------------
STEFFEN I. MAGNELL, CHIEF
EXECUTIVE OFFICER
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<PAGE> 13
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<PAGE> 15
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ADDRESS: NAME OF INVESTORS:
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<PAGE> 16
SCHEDULE "1"
<TABLE>
<CAPTION>
NAME OF INVESTOR NO. OF SUBJECT SHARES TOTAL PURCHASE PRICE
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<S> <C> <C>
</TABLE>
-15-
<PAGE> 17
Exhibits
A - Registration Rights Agreement
B - Subscription Letter
C - Purchaser Questionaire (individual or corporate)
-16-
<PAGE> 18
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
DATED AS OF JUNE __, 1995
BY AND BETWEEN
CONQUEST INDUSTRIES INC.
AND
THE PARTY SIGNATORIES TO THIS AGREEMENT
<PAGE> 19
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("Agreement") is made and entered
into as of June __, 1995, by and between CONQUEST INDUSTRIES, INC., a Delaware
corporation (the "Company"); and THE PERSONS, FIRMS AND/OR CORPORATIONS WHO
HAVE EXECUTED THIS AGREEMENT ON THE SIGNATURE PAGE HEREOF (hereinafter
individually referred to as an "Investor" and collectively as the "Investors").
This Agreement is made pursuant to Section 7(a)(iii) of the Stock
Purchase Agreement dated as of June __, 1995, by and between the Company and
the Investors (the "Purchase Agreement"). The Company has agreed to provide
the Investors the registration rights with respect to the Registerable
Securities, as defined and set forth in this Agreement. The execution and
delivery of this Agreement is a condition to the Closing under the Purchase
Agreement. Unless otherwise separately defined herein, all capitalized terms
used in this Agreement shall have the meanings ascribed to them as set forth in
the Purchase Agreement.
The parties hereby agree as follows:
1. Securities Subject to this Agreement
(a) Definitions. As used herein, the term "Registerable
Securities" shall means the Subject Shares as defined in the Purchase
Agreement, and the term "Registerable Security" shall mean each of the Subject
Shares.
(b) Restricted Securities. The Subject Shares are
"restricted securities", as that term is defined in Rule 144 promulgated under
the 1933 Act (the "Restricted Securities"). For the purposes of this
Agreement, any Registerable Security will cease to be a Restricted Security
when (i) pursuant to a registration statement covering such Restricted Security
has been declared effective by the United States Securities and Exchange
Commission (the "Commission"), and it has been disposed of pursuant to such
effective registration statement; or (ii) it is distributed to the public
pursuant to Rule 144 (or any similar provision then in force) under the 1933
Act).
(c) Holders of Registerable Securities. A Person is
deemed to be a holder of Registerable Securities whenever such Person owns
Registerable Securities or has a right to acquire such Registerable Securities,
whether or not such acquisition has actually been effected; provided, that in
no event will any Registerable Security be deemed to be owned by more than one
Person.
(d) Stock Splits, Dividends, etc. The provisions of this
Agreement shall apply to any shares or other securities resulting from any
stock split or reverse split, stock dividend, reclassification of the capital
stock of the Company, consolidation or reorganization
1
<PAGE> 20
of the Company, and any shares or other securities of the Company or of any
successor company which may be received by the Investors by virtue of his or
its ownership of Registerable Securities.
2. Required Registration
(a) Shelf Registration. The Company, agrees to file on or
after June 30, 1995, but in no event later than September 30, 1995, a
registration statement on any appropriate form pursuant to Rule 415 under the
Act and/or any similar rule that may be adopted by the Commission with respect
to the Registerable Securities (the "Shelf Registration"). The Company agrees
to use its best efforts to have the Shelf Registration declared effective as
soon as reasonably practicable after such filing, but in no event later than
March 31, 1996, and to keep the Shelf Registration continuously effective for a
period of two years (or, if for any reason the effectiveness of the Shelf
Registration is suspended, such period shall be extended by the aggregate
number-of days of each such suspension) following the date on which the Shelf
Registration is declared effective; provided, however, that the effectiveness
of the Shelf Registration may be terminated earlier with respect to any issue
of securities if and to the extent that none of the securities of such issue
registered therein are Restricted Securities or are outstanding.
The Company further agrees if necessary, to supplement or
amend any Shelf Registration, as required by the registration form utilized by
the Company or by the instructions applicable to such registration form or by
the Act or the rules and regulations thereunder or as reasonably requested by
the holders of (or any underwriter for) a majority amount of any issue of the
then outstanding Registerable Securities (each, a "Majority Amount" of such
issue) to which such Shelf Registration relates, and the Company agrees to
furnish to the holders of Registerable Securities copies of any such supplement
or amendment prior to its being used and/or filed with the Commission. The
Company agrees to pay all of its Registration Expenses (as hereinafter defined)
in connection with the Shelf Registration, whether or not it becomes effective.
The holders of the Registerable Securities to be registered
shall pay, pro rata, all underwriting discounts and commissions or placement
fees of any investment banker or bankers and/or manager or managers used in
connection with the sale of their Registerable Securities pursuant to the
Registration Statement.
(b) Piggy-Back Registration
(i) In the event that, at any time or from time
to time prior to the effective date of the Shelf Registration, the Company
proposes to register any Common Stock under the 1933 Act, other than pursuant
to a registration statement on Forms S-4 or S-8 or any successor to such Forms
and other than pursuant to Section 2(a) above, for the purpose of the sale of
Common Stock owned by any present or future holder of Common Stock (other than
the Company), the Company, shall mail or deliver to all holders of Registerable
2
<PAGE> 21
Securities, at least 10 days prior to the filing with the Commission of the
registration statement covering such Common Stock, a written notice (a
"Registration Notice") of its intention so to register such Common Stock.
(ii) In the event that a Registration Notice shall
have been so mailed or delivered, each holder of Registerable Securities may
elect to include in such registration statement such percentage of its
Registerable Securities as equals the percentage derived by adding all of the
shares of Common Stock registered on behalf of each of the holders on whose
behalf such registration statement is being filed (excluding the holders of
Registerable Securities) and dividing such number by the total number of shares
of Common Stock owned by such holders (excluding the holders of Registerable
Securities). To the extent that a holder of Registerable Securities chooses to
include such Registerable Securities as it is entitled to include pursuant to
the proceeding sentence such holder shall mail or deliver to the Company, a
written notice (a "Supplemental Notice") (A) specifying the number of shares of
Registerable Securities proposed to be sold or otherwise transferred by such
holder, (B) describing the proposed manner of sale or other transfer thereof
under the Securities Act; provided, however, that such Supplemental Notice
shall be so mailed or delivered by such holder not more than 5 days after the
date of delivery to such holder of a Registration Notice. If the registration
statement for which piggy back registration rights have been granted relates to
an underwritten offering and the underwriter advises that it must limit the
number of shares of Common Stock being registered, then the number of shares
which shall be included in such registration statement on behalf of each holder
shall be reduced pro-rata.
3. Holdback Agreement; Restrictions on Public Sale by Holders of
Registerable Securities.
In connection with the piggyback registration statement referred to in
Section 2 above, to the extent not inconsistent with applicable law, each
holder of Registerable Securities whose securities are included in such
registration statement agrees not to effect any public sale or distribution of
the issue being registered or a similar security of the Company or any
securities convertible into or exchangeable or exercisable for such securities,
including a sale pursuant to Rule 144 under the Act, during the 14 Business
Days prior to, and for such period of time following the effective date not to
exceed a 360-day period as the Company or any managing underwriter of an
offering of securities subject to such piggyback registration may specify
(except as part of such registration), if and to the extent timely notified of
such restriction in writing by the Company, in the case of a non-underwritten
public offering, or by the managing underwriter or underwriters, in the case of
an underwritten public offering.
4. Registration Expenses
Subject to the limitation on expenses provided in Section 2,
all expenses incident to the Company's performance of or compliance with this
Agreement, including, without limitation, all registration and filing fees, all
fees and expenses associated with filings required to be made with the National
Association of Securities Dealers, Inc.
3
<PAGE> 22
("NASD") and/or The NASDAQ Stock Market ("NASDAQ"), as may be required by the
rules and regulations of the NASD or NASDAQ, fees and expenses of compliance
with securities or blue sky laws (including fees and disbursements of counsel
in connection with blue sky qualifications of the Registerable Securities),
rating agency fees, printing expenses (including expenses of printing
certificates for the Registerable Securities in a form eligible for deposit
with the Depositary Trust Company and of printing prospectuses if the printing
of prospectuses is requested by holder of Registerable Securities), messenger
and delivery expenses, internal expenses (including, without limitation, all,
salaries and expenses of their officers and employees performing legal or
accounting duties), fees and expenses of counsel for the Company and its
independent certified public accountants (including the expenses of any special
audit or "cold comfort" letters required by or incident to such performance),
securities acts liability insurance (if the Company elects to obtain such
insurance), fees and expenses of other Persons retained by the Company (all
such expenses being herein called "Registration Expenses") will be borne by the
Company; provided that in no event shall Registration Expenses include any
underwriting discounts, commissions or fees attributable to the sale of the
Registerable Securities.
5. Indemnification: Contribution
(a) Indemnification by the Company. The Company agrees
to indemnify each holder of Registerable Securities, its general partners,
general partners of the general partner, limited partners, officers, directors,
employees and agents and each Person who controls such holder (within the
meaning of the Act), against all losses, damages, liabilities and expenses
(including reasonable costs of investigation and legal expenses) arising out of
or based upon any untrue or alleged untrue statement of a material fact
contained in any registration statement, prospectus or preliminary prospectus,
or any amendment or supplement thereto, or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein (in the case of a prospectus or preliminary
prospectus, in light of the circumstances under which they are made) not
misleading, except insofar as the same are contained in any information with
respect to such holder furnished in writing to the Company by such holder
expressly for use therein. The Company also agrees to reimburse each such
holder and each such officer, director, partner and controlling Person for any
legal or other expenses reasonably incurred by such holder or such officer,
director, partner or controlling Person in connection with investigating or
defending any such loss, damage, liability or action to the extent that the
same are not incurred in connection with the proviso of the preceding sentence.
(b) Indemnification by Holders of Registerable
Securities. In connection with any registration statement in which a holder of
Registerable Securities is participating, each such holder will furnish to the
Company in writing, such information and affidavits with respect to such holder
as the Company reasonably requests for use in connection with any such
registration statement or prospectus and agrees to indemnify, to the extent
permitted by law, the Company, the directors, officers, employees and agents
and each Person who controls the Company (within the meaning of the Act), and
any investment advisor thereof or
4
<PAGE> 23
agent therefor against any losses, damages, liabilities and expenses resulting
from any untrue statement of a material fact or any omission of a material fact
required to be stated in the registration statement or prospectus or any
amendment thereof or supplement thereto or necessary to make the statements
therein (in the case of a prospectus, in the light of the circumstances under
which they were made) not misleading, to the extent, but only to the extent,
that such untrue statement or omission is contained in or failed to be
contained in any information or affidavit with respect to such holder so
furnished in writing by such holder specifically for inclusion therein or
resulting from the violation of applicable securities laws of such holder or
its agents in connection with the sale of the Registerable Securities.
(c) Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder agrees to give prompt written notice to
the indemnifying party after the receipt by such Person of any written notice
of the commencement of any action, suit, proceeding against such Person or
investigation thereof made in writing for which such Person will claim
indemnification or contribution pursuant to this Agreement and, unless in the
reasonable judgment of such indemnified party a conflict of interest may exist
between such indemnified party and the indemnifying party with respect to such
claim, permit the indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to such indemnified party. If the indemnifying
party is not entitled to, or elects not to, assume the defense of a claim, it
will not be obligated to pay the fees and expenses of more than one counsel
with respect to such claim, unless in the reasonable judgment of counsel to
such indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to
such claim, in which event the indemnifying party shall be obligated to pay the
fees and expenses of such additional counsel or counsels. No indemnifying
party will be required to consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such indemnified party of a release from all
liability in respect of such claim or litigation. The indemnifying party will
not be subject to any liability for any settlement made without its consent,
which shall not be unreasonably withheld. The failure of any indemnified party
to give such notice as provided herein shall not relieve the indemnifying party
of its obligations under this Agreement unless, and only to the extent that,
the failure of the indemnified party to give such notice is (i) deliberate and
wilful and (ii) results in actual harm to the indemnifying party.
(d) Contribution. If the indemnification provided for in
this Section 5 from the indemnifying party is unavailable to an indemnified
party hereunder in respect of any losses, damages, liabilities or expenses
referred to therein by reason other than that set forth in the exception in the
first sentence of Section 5(a) hereof, then the 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, damages,
liabilities or expenses in such proportion as is appropriate to reflect the
relative fault of the indemnifying party and indemnified parties in connection
with the actions or inactions which resulted in such losses, damages,
liabilities or expenses, as well as any other relevant equitable
considerations. The relative fault of such indemnifying party and indemnified
parties shall be determined by
5
<PAGE> 24
reference to, among other things, whether any action in question, including any
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact, has been made by, or relates to information
supplied by, such indemnifying party or indemnified parties, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such action. The amount paid or payable by a party as a result of the
losses, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 5(c), any legal or
other fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5(d) 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. Notwithstanding the provisions of this Section 5(d), an
indemnified holder shall not be required to contribute any amounts in excess of
the amount by which the total price at which the Registerable Securities were
sold by such indemnified holder and distributed to the public exceeds the
amount of any damages which such indemnified holder has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission. 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.
If indemnification is available under this Section 5, the
indemnifying parties shall indemnify each indemnified party to the full extent
provided in Sections 5(a) and (b) without regard to the relative fault of said
indemnifying party or indemnified party or any other equitable consideration
provided for in this Section 5(d).
In the event that any provision of an indemnification clause
in an underwriting agreement executed by or on behalf of a holder of
Registerable Securities differs from a provision in this Section 5, such
provision in the underwriting agreement shall determine such holder"s rights in
respect thereof.
6. Participation in Underwritten Registrations
The Investors may not participate in any underwritten
registration with respect to the Registerable Securities unless it (a)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements and (b) agrees to pay its pro rata portion of
all underwriting discounts, commissions and fees.
7. Rule 144
The Company covenants that it will file the reports required
to be filed by it under the Act and the Exchange Act and the rules and
regulations adopted by the
6
<PAGE> 25
Commission thereunder (or, if it is not required to file such reports, it will
make publicly available such information including information required by Rule
15c2-11 promulgated under the Securities Exchange Act of 1934, as amended, as
will enable the holders of Registerable Securities to sell any Registerable
Securities held by them without registration as described in this Section 7);
and it will take such further action as any holder of Registerable Securities
may reasonably request, all to the extent required from time to time to enable
such holder to sell Registerable Securities without registration under the Act
within the limitation of the exemptions provided by (a) Rule 144 under the Act,
as such Rule may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the Commission. Upon the reasonable request of
any holder of Registerable Securities, the Company will deliver to such holder
a written statement as to filings made by the Company with the Commission.
(a) Amendments and Waivers. Except as otherwise provided
herein, the provisions of this Agreement may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of holders
of at least a Majority Amount of each issue of Registerable Securities then
outstanding affected by such amendment, modification, supplement, waiver or
departure.
(b) Notices. All notices and other communications
provided for or permitted hereunder shall be made by hand delivery or
registered first-class mail to the addresses specified in the Purchase
Agreement.
All such notices and communications shall be deemed to have
been duly given when delivered by hand, if personally delivered, or two
Business Days after being deposited in the mail, postage prepaid, if mailed.
(c) Successors and Assigns. This Agreement shall inure to
the benefit of and be binding upon the successors and assigns of each of the
parties hereto.
(d) Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(e) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(f) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware applicable
to contracts made and to be performed wholly within that jurisdiction. The
parties hereto agree to submit to the jurisdiction of the courts of the State
of Delaware in any action or proceeding arising out of or relating to this
Agreement.
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(g) Severability. In the event that any one or more of
the provisions contained herein, or the application thereof in any
circumstances, is held invalid, illegal or unenforceable in any respect for any
reason, the validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions contained herein shall not
be in any way impaired thereby, it being intended that all of the rights and
privileges of the holders of Registerable Securities shall be enforceable to
the fullest extent permitted by law.
(h) Entire Agreement. This Agreement, together with the
Purchase Agreement, is intended by the parties as a final expression of their
agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
and therein. This Agreement and the Purchase Agreement supersede all prior
agreements, negotiations, and understandings between the parties with respect
to such subject matter.
(i) Attorneys' Fees. In any action or proceeding brought
to enforce any provision of this Agreement or of the Registerable Securities,
or where any provision hereof is successfully asserted as a defense, the
successful party shall be entitled to recover reasonable attorneys' fees in
addition to any other available remedy.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
CONQUEST INDUSTRIES INC.
BY:
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STEFFEN I. MAGNELL, CHIEF
EXECUTIVE OFFICER
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ADDRESS:
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EXHIBIT "B"
SUBSCRIPTION LETTER
_______ __, 1995
CONQUEST INDUSTRIES INC.
c/o Wico Corporation
6400 West Gross Point Road
Niles, Illinois 60648
Attn: Steffen I. Magnell,
Chief Executive Officer
Gentlemen:
The undersigned hereby subscribes to an aggregate of _______ Subject
Shares of Conquest Industries Inc. (the "Company"), pursuant to the terms of
the Stock Purchase Agreement dated as of June __, 1995 (the "Agreement") at a
purchase price of $1.4085 per Subject Share.
In connection with such subscription, the undersigned tenders herewith
his check in the amount of $___________, representing the aggregate Purchase
Price for such Subject Shares.
The undersigned has read the Agreement and all of the Exhibits thereto
and has reviewed the 1994 Form 10-K, the March 1995 Form 10-Q and the Form S-1
Draft submitted with the Agreement and its Exhibits. As used herein, all
capitalized terms have the same meaning as are defined and set forth in the
Agreement.
Very truly yours,
------------------------------------
[Name of Subscriber]
<PAGE> 1
EXHIBIT 10(J)
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of June 30, 1995, by and among Air L.A., Inc., a Delaware corporation
("Air L.A."), and Conquest Airlines Corp., a Delaware corporation
("Subsidiary"), and Conquest Industries Inc., a Delaware corporation
("Conquest").
A. Conquest owns all of the outstanding common stock par value $.01
per share (the "Stock") of Subsidiary.
B. Conquest has recently transferred certain of its assets and
liabilities used in the operation of its airline business to Subsidiary, in
order to facilitate the transaction contemplated by this Agreement, pursuant
to the terms of a Bill of Sale and an Assignment and Assumption Agreement
(collectively, the "Assignment Agreement"), in the forms attached hereto as
Exhibit A.
C. Conquest now desires to sell the Stock to Air L.A., and Air L.A.
desires to purchase the Stock from Conquest, upon the terms and conditions
contained herein.
Accordingly, in consideration of the premises and of the respective
covenants and agreements contained herein, and for full and adequate
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
1. Purchase and Sale of Stock. Upon the terms and subject to the conditions
set forth in this Agreement, Conquest shall sell to Air L.A., and Air L.A.
shall purchase from Conquest, the Stock, for an aggregate purchase price (the
"Purchase Price") of $4,000,000 payable in the form of three promissory notes
of Air L.A.:
(i) a $3,000,000 convertible promissory note (the "Convertible Note")
in the form attached hereto as Exhibit B, which is convertible into 3,000,000
shares of Air L.A.'s Preferred Stock (the "Preferred Stock") which Air L.A.
intends to authorize at its annual meeting of stockholders (the "Annual
Meeting") on August 25, 1995 with the rights, preferences and privileges as
more fully set forth in the Certificate of Designations, Preferences, and
Rights of Convertible Preferred Stock attached hereto as Exhibit C.
(ii) a $1,000,000 promissory note in the form attached hereto as
Exhibit D.
Such promissory notes, together with a $2,000,000 promissory note to be
simultaneously issued by Air L.A. to Conquest in substitution for $2,000,000 of
Indebtedness owed by Subsidiary to Conquest, are referred to collectively
herein as the "Notes."
2. Closing. Subject to the conditions set forth in this Agreement, the
purchase and sale of the Stock pursuant to this Agreement (the "Closing") shall
take place at the offices of Conquest at 2215 E.M. Franklin Avenue, Austin
Texas or at another mutually agreeable location, on (i) June 27, 1995 or (ii)
such other date, not later than June 30, 1995, which is
<PAGE> 2
agreed to by Air L.A. and Conquest (the "Closing Date"). At the Closing (a)
Conquest shall deliver to Air L.A. a certificate registered in the name of the
Air L.A. evidencing the Stock; and (b) Air L.A. shall deliver to Conquest the
Notes.
3. Representations and Warranties of Conquest. Conquest hereby represents and
warrants to Air L.A. as follows:
3.1 Organization and Good Standing. Conquest is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
3.2 Due Authorization. Conquest has the corporate power and authority
to enter into this Agreement and to perform its obligations hereunder. This
Agreement has been duly executed and delivered by, and constitutes a valid and
binding obligation of, Conquest, enforceable against Conquest in accordance
with its terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally and by the principles governing the availability of
equitable remedies).
3.3 No Breach. Except as set forth in Section 3.11 hereof and as
contemplated hereby or disclosed in Schedule 3.3 hereto, the execution, delivery
and performance of this Agreement by Conquest and the consummation of the
transactions contemplated hereby do not and will not: (a) contravene any
provisions of the governing corporate documents of Conquest or Subsidiary; (b)
conflict with, result in a breach of any provision of, constitute a default
under, result in the modification or cancellation of, or give rise to any right
of termination or acceleration in respect of, after notice or lapse of time or
both, any material contract, agreement, commitment, understanding, arrangement
or restriction of any kind to which Conquest or Subsidiary is a party to or
which Conquest or Subsidiary or any of their respective properties are subject
except for the Aircraft Leases, as defined and more fully described in Section
5.3 below; (c) result in the creation of any security interest, pledge, lien,
charge, claim, option, equity, right, restriction on transfer or encumbrance of
any nature whatsoever ("Security Interest") upon, or any person obtaining any
right to acquire, any properties, assets or rights of Conquest or Subsidiary;
(d) violate or conflict in any material respect with any Legal Requirements (as
defined in Section 3.11 hereof) applicable to Conquest or Subsidiary or any of
their businesses or properties; or (e) require any authorization, consent,
order, permit or approval of, or notice to, or filing, registration or
qualification with, any governmental, administrative or judicial authority.
3.4 Organization and Capitalization of Subsidiary. Subsidiary is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The authorized capital stock of Subsidiary
consists of 2,000 shares of common stock. The Stock constitutes all of the
issued and outstanding capital stock of Subsidiary. The Stock has been validly
authorized and issued, is fully paid and nonassessable and has not been issued
in violation of any preemptive rights or of any federal or state securities
law. There is no security, option, warrant, right, call, subscription,
agreement, commitment or understanding
2
<PAGE> 3
of any nature whatsoever, fixed or contingent, that directly or indirectly (i)
calls for the issuance, sale, pledge or other disposition of any shares of
capital stock of Subsidiary or any securities convertible into, or other rights
to acquire, any shares of capital stock of Subsidiary or (ii) obligates
Subsidiary to grant, offer or enter into any of the foregoing or (iii) relates
to the voting or control of such capital stock, securities or rights. Conquest
owns the Stock free and clear of any Security Interest.
3.5 Validity of Assignment Agreement. The Assignment Agreement has
been duly executed and delivered by, and constitutes a valid and binding
obligation of, Conquest and Subsidiary, enforceable against Conquest and
Subsidiary in accordance with its terms (except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally and by the principles
governing the availability of equitable remedies).
3.6 Operation of Subsidiary. Other than the receipt of the assets and
liabilities in accordance with the Assignment Agreement and the operation of
such assets and liabilities in the normal course of business, Subsidiary has
not transacted any business.
3.7 Financial Statements.
(i) Conquest has delivered to Air L.A. (i) its Annual Report
on Form 10-K for the fiscal year September 30, 1994 (the "Conquest 10-K") and
(ii) its quarterly report on Form 10-Q for its fiscal quarters ended December
31, 1994 and March 31, 1995 (the "Conquest 10-Qs"). Neither the Conquest 10-K
nor the Conquest 10-Qs, as of their respective filing dates, contained any
untrue statement of a material fact or omitted to state any material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading, and all such filed
documents (including the financial statements contained therein), as of their
respective filing dates, complied as to form in all material respects with the
applicable requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the applicable rules and regulations thereunder.
(ii) The Conquest 10-K and the Conquest 10-Qs including the
related notes contained therein (the "Conquest Financial Statements") fairly
present the financial position of Conquest and the results of operations and
changes in financial condition as of the dates and periods specified
therein. The Conquest Financial Statements have been prepared in accordance
with generally accepted accounting principles consistently applied throughout
the periods involved, except as otherwise noted therein.
(iii) Conquest has previously delivered to Air L.A. a true and
complete copy of the pro forma balance sheet of Subsidiary as of May 31, 1995,
attached hereto as Exhibit F (the "Subsidiary Balance Sheet"). The
Subsidiary Balance Sheet is in accordance with the books and records of
Subsidiary and fairly presents the financial position, and stockholders' equity
of Subsidiary as of the date indicated, in conformity with generally accepted
3
<PAGE> 4
accounting principles consistently applied (except as otherwise indicated in
such statement), and indicates all adjustments, which consist of only normal
recurring accruals, necessary for such fair presentations. The Subsidiary
Balance Sheet does not reflect any write-up or revaluation increasing the book
value of any assets. The books and accounts of Subsidiary are complete and
correct and fully and fairly reflect all of the transactions of Subsidiary.
3.8 Absence of Undisclosed Liabilities. Subsidiary does not have any
liability of any nature whatsoever (whether known or unknown, due or to become
due, accrued, absolute, contingent or otherwise) including, without limitation,
any unfunded obligation under employee benefit plans or liabilities for taxes,
except for (i) liabilities reflected or reserved against in the Subsidiary
Balance Sheet as of May 31, 1995 (the "Subsidiary Balance Sheet Date"), (ii)
current liabilities incurred in the ordinary course of business and consistent
with past practice after the Subsidiary Balance Sheet Date and any other
liabilities in excess of $5,000. Except as set forth in Schedule 3.8 hereto,
Subsidiary is not a party to any agreement, or subject to any charter or by-law
provision, or any other corporate limitation or any Legal Requirement (as
defined in Section 3.11 hereof), which has, or in the future can reasonably be
expected to have, a Material Adverse Effect.
3.9 Value of Assets. The assets and liabilities on the Subsidiary
Balance Sheet have a net book value ("Net Book Value") of at least $1,000,000.
The Net Book Value of the Subsidiary is unaudited, but Conquest hereby
represents that the Net Book Value is in accordance with the books and records
of Conquest and Subsidiary and has been determined in accordance with generally
accepted accounting principles except as otherwise described thereon. Other than
the liabilities contained on the Subsidiary Balance Sheet and set forth on
Schedule 3.9, and liabilities incurred in the ordinary course of business since
the Subsidiary Balance Sheet Date, Subsidiary is not obligated under any
contract, agreement, judgment or decree for any debt, obligation or judgment.
3.10 Absence of Material Adverse Effect; Conduct of Business. Since
the Subsidiary Balance Sheet Date, there has been no change in, or effect on
Subsidiary or its business which is, or with reasonable probability might be,
materially adverse to the business, operations, assets, condition (financial or
otherwise) or prospects of Subsidiary, taken as a whole (a "Material Adverse
Effect") and to the knowledge of Conquest, there is no condition or development
of any kind (including, without limitation, any Claim as defined in Section
3.11 hereof) which, so far as reasonably can be foreseen at this time, may
result in any Material Adverse Effect.
3.11 Legal Matters.
(i) There is no material claim, action, suit, litigation,
investigation, inquiry, review or proceeding (collectively, "Claim") pending
against, or, to the best knowledge of Conquest or Subsidiary threatened
against, Conquest, Subsidiary, any ERISA Plan or any of their respective
properties or rights before or by any court, arbitrator, panel, agency or other
governmental, administrative or judicial entity except for threatened actions
in respect
4
<PAGE> 5
of the payment of liabilities as set forth in Conquest Financial Statements and
the Subsidiary Balance Sheet and neither Conquest nor Subsidiary is subject to
any judgment, decree, writ, injunction, ruling or order (collectively,
"Judgment") of any governmental, administrative or judicial authority.
(ii) The business of Subsidiary is being conducted in compliance with
all laws, ordinances, codes, rules, regulations, standards, Judgments and other
requirements of all governmental, administrative or judicial entities,
including without limitation the Federal Aviation Administration and the
Department of Transportation (collectively, "Legal Requirements") applicable to
Subsidiary or any of its businesses or properties other than instances of
non-compliance that individually or in the aggregate would not, and insofar as
may reasonably be foreseen in the future will not, have a Material Adverse
Effect. Subsidiary holds, and is in compliance with, all franchises, licenses,
permits, registrations, certificates, consents, approvals or authorizations
(collectively, "Permits") required by all applicable Legal Requirements other
than instances of non-compliance that individually or in the aggregate would
not, and insofar as may reasonably be foreseen in the future will not, have a
Material Adverse Effect. With respect to Permits issued by the United States
Department of Transportation ("DOT") and/or the Federal Aviation Administration
("FAA"), on information and belief the Subsidiary may temporarily continue to
operate after the Closing Date under such existing Permits. It is understood,
however, that (i) Air L.A. has the obligation after the Closing Date to file
information to obtain approval of the continuing fitness of Subsidiary to
operate under such existing Permits and (ii) Air L.A.'s failure to timely file
proper and satisfactory information with DOT or FAA after the Closing Date
could result in the suspension or revocation of such Permits. Air L.A. shall
have the sole responsibility for obtaining approval of DOT and FAA regarding
Subsidiary's continuing fitness to operate after the Closing Date.
(iii) Subsidiary owns or holds all Permits material to the conduct of
its business. No event has occurred and is continuing which permits, or after
notice or lapse of time or both would permit, any modification or termination
of any Permit.
(iv) Neither Conquest nor Subsidiary (a) has received any notice
asserting any noncompliance with any Legal Requirement or permit, (b) is
subject to any Legal Requirement or Permit which if enforced against or
complied with by Conquest or Subsidiary would have a Material Adverse Effect,
or (c) has any knowledge of any Legal Requirement proposed or under
consideration which if effective, other than as disclosed on the Conquest
Financial Statements, so far as reasonably can be foreseen at this time could
have a Material Adverse Effect. No governmental, administrative or judicial
authority has indicated any intention to initiate any investigation, inquiry
or review involving Conquest or Subsidiary, regarding any ERISA Plan or any of
their respective properties or rights.
3.12 Taxes. Conquest and Subsidiary have filed, on a timely basis,
all returns, reports and declarations required to be filed for all periods
prior to, and those including, the Closing Date and all such returns, reports
and declarations were correct and complete in all
5
<PAGE> 6
material respects. Neither Conquest nor Subsidiary has extended any time in
which to file any such returns, reports or declarations. Conquest and
Subsidiary have paid, or withheld as the case may be, at the time and in the
manner required, or where payment is not required to be made, has set up an
adequate accrual, in conformity with generally accepted accounting principles
consistently applied, for the payment of, all taxes for all periods prior to
and those including the Closing Date (whether or not shown as any return,
report or declaration) and there are no tax liens on any of the properties of
Subsidiary. There are no tax audits of any kind pending or threatened against
Conquest or Subsidiary. Neither Conquest nor Subsidiary have received or been
threatened with a claim for assessment, proposed assessment, or collection of
any tax nor does Conquest or Subsidiary have any knowledge of any set of facts
which could reasonably be expected to give rise to such a claim. Neither
Conquest nor Subsidiary have outstanding agreements or waivers extending or
waiving any statute of limitations with respect to the collection or assessment
of any tax nor will either enter into any such agreement prior to or on the
Closing Date. There are in effect no powers of attorney or other authorizations
to any persons to represent Subsidiary with respect to any tax. Subsidiary has
not been a party to any tax-sharing agreement or similar arrangement regulating
the allocation of taxes and payments between itself and any person or entity.
No consent, agreement or other undertaking has been filed by Conquest or
Subsidiary to have the provisions of Section 341(f) of the Internal Revenue
Code apply. Conquest will indemnify Air L.A. pursuant to Sections 7.1 and 8
hereof for any tax assessed or otherwise required to be paid by Subsidiary,
except for taxes disclosed on the Subsidiary Balance Sheet, including all
associated costs incurred in defending such claim, for all periods prior to,
and those including the Closing Date resulting from an audit, review by an
assessing tax authority or otherwise. For purposes of this Agreement, the term
"tax" shall include all federal, state, local, foreign or other government
income, franchise, gross receipts, property, sales, use, transfer, excise
employment, withholding and other taxes assessments or other government charge
of any nature whatsoever including, without limitation all interest, penalties,
fines, assessments and deficiencies related thereto. Subsidiary does not have
any equity interest in any corporation, partnership, association or joint
venture.
3.13 Condition of Assets. All real property, improvements, aircraft,
engines, machinery, equipment and other tangible property owned or used by or
leased to Subsidiary are in good operating condition and in good repair subject
to normal wear and tear. Conquest or Subsidiary has caused all regularly
scheduled maintenance on the subject aircraft to be performed in accordance
with the terms of the Aircraft Leases.
3.14 Labor Relations. Conquest and Subsidiary have paid or made
provision for the payment of all salaries and accrued wages and has complied in
all respects with all applicable laws, rules and regulations relating to the
employment of labor, including those relating to wages, hours, collective
bargaining and the payment and withholding of taxes, and has withheld and paid
to the appropriate government authority, or is holding for payment not yet due
to such authority, all amounts required by law or agreement to be withheld from
the wages or salaries of the employees of Conquest or Subsidiary working in the
airline
6
<PAGE> 7
business. There are no controversies pending or, to the knowledge of Conquest
or Subsidiary, threatened between Conquest or Subsidiary and any labor union or
other collective bargaining unit representing any of such employees. No union
or other collective bargaining unit has been certified or recognized by
Conquest or Subsidiary as representing any of such employees.
3.15 Brokers. Neither Conquest, Subsidiary, nor any director, officer
or employee thereof has employed any broker or finder or has incurred or will
incur any broker's, finder's or similar fees, commissions or expenses, in each
case in connection with the transactions contemplated by this Agreement.
3.16 Disclosure. This Agreement, the information and schedules
referred to herein and the information that has been furnished to Air L.A. by
Conquest and Subsidiary in connection with the transactions contemplated hereby
do not include any untrue statement of a material fact and do not omit to state
any material fact necessary to make the statements contained herein or therein,
in light of the circumstances under which they were made, not misleading.
4. Representations and Warranties of Air L.A. Air L.A. hereby represents
and warrants to Conquest as follows:
4.1 Organization and Good Standing. Air L.A. is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and is qualified and in good standing as a foreign corporation in
each jurisdiction in which such qualification is required.
4.2 Due Authorization. Air L.A. has the corporate power and authority
to enter into this Agreement, the Registration Rights Agreement and the
Security Documents (each as referred to and defined below), and to execute and
deliver the Notes and to perform its obligations hereunder and thereunder.
Subject to receipt of the consent or approval of its stockholders for the
filing of a Certificate of Amendment to Air L.A.'s Certificate of Incorporation
as contemplated by Section 4.9 below, Air L.A. has the corporate power and
authority to issue the Preferred Stock; and Air L.A. has no reason to believe
that such consent or approval of its stockholders will not be obtained at or
prior to the Annual Meeting. This Agreement, the Registration Rights
Agreement, the Security Documents and the Notes and, subject to issuance upon
receipt of the consent of its stockholders for the filing of a Certificate of
Amendment to Air L.A.'s Certificate of Incorporation as contemplated by Section
4.9 below, the Preferred Stock, have been duly executed and delivered by Air
L.A. and constitute valid and binding obligations of Air L.A., enforceable
against Air L.A. in accordance with their respective terms (except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally and by the principles governing the availability of equitable
remedies).
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<PAGE> 8
4.3 Capitalization. The authorized capital stock of Air L.A. consists
of 10,000,000 shares of Common Stock, $.10 par value, of which 8,416,688 shares
are issued and outstanding. All issued and outstanding stock has been validly
authorized and issued, is fully paid and nonassessable and has not been issued
in violation of any preemptive rights or of any federal and state securities
law. In addition, the Company has reserved 250,000 shares for issuance under
its 1994 Stock Option Plan, and there are 3,818,407 shares reserved for
issuance pursuant to options held by certain officers and a former employee
(876,667 options), directors (275,000 options), consultants (260,000), Capital
Air, Inc. (700,000 options), Spelman & Co., Inc. (260,000 warrants), and
certain broker dealer (200,000) and certain investors in the Company (1,246,740
options). [In addition, Air L.A. will issue an additional option for an
additional 1,000,000 shares concurrently with the close of the transactions
contemplated hereby. Except as set forth above, there is no security, option,
warrant, right, call subscription, agreement, commitment or understanding of
any nature whatsoever, fixed or contingent, that directly or indirectly (1)
calls for the issuance, sale, pledge or other disposition of any shares of
capital stock of Air L.A. or any securities convertible into, or other rights
to acquire, capital stock of Air L.A., or (2) obligates Air L.A. to grant,
offer or enter into any of the foregoing, or (3) relates to the voting or
control of such capital stock, securities or rights.
4.4 No Breach. The execution, delivery and performance of this
Agreement by Air L.A. and the consummation of the transactions contemplated
hereby and thereby do not and will not: (a) contravene any provisions of the
Certificate of Incorporation or By-Laws of Air L.A.; (b) after notice or lapse
of time or both conflict with, result in a breach of any provision of,
constitute a default under, result in the modification or cancellation of, or
give rise to any right of termination or acceleration in respect of, any
contract, agreement, commitment, understanding, arrangement or restriction of
any kind to which Air L.A. is a party to or which Air L.A. or any of Air L.A.'s
property is subject; (c) violate or conflict with any Legal Requirements
applicable to Air L.A. or any of its businesses or properties; or (d) require
any authorization, consent, order, permit or approval of, or notice to, or
filing, registration or qualification with, any governmental, administrative or
judicial authority.
4.5 Financial Statements.
(i) Air L.A. has delivered to Conquest its annual report on Form
10-K for the fiscal year ended June 30, 1994 (the "Air L.A. 10-K") and its
quarterly reports on Form 10-Q for its fiscal quarters ended September 30,
1994, December 31, 1994 and March 31, 1995 (the "Air L.A. 10-Qs"). Neither
the Air L.A. 10-K nor the Air L.A. 10-Qs, as of their respective filing dates,
contained any untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements made therein in light
of the circumstances under which they were made, not misleading, and all such
filed documents (including the financial statements contained therein), as of
the respective filing dates, complied as to form in all material respects with
the applicable requirements of the Exchange Act and the applicable rules and
regulations thereunder.
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<PAGE> 9
(ii) The Air L.A. 10-K and the Air L.A. 10-Qs including the
related notes contained therein (the "Air L.A. Financial Statements") fairly
present the financial position of Air L.A. and the results of operations and the
changes in financial condition as of the date and periods specified therein.
The Air L.A. Financial Statements have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved, except as otherwise noted therein.
(iii) Air L.A. has previously delivered to Conquest a true
and complete copy of its pro forma balance sheet as of May 31, 1995 (the "Air
L.A. Balance Sheet"). The Air L.A. Balance Sheet is in accordance with the
books and records of Air L.A. and fairly presents the financial position,
results of operations, stockholders' equity and changes in financial position of
Air L.A. as of the date indicated, in conformity with general accepted
accounting principles consistently applied (except as otherwise indicated in
such statement) and indicates all adjustments, which consist of only normal
recurring accruals, necessary for purpose of such fair presentation. The Air
L.A. Balance Sheet does not reflect any write-up or revaluation increasing the
book value of any assets. The books and accounts of Air L.A. are complete and
correct and fully and fairly reflect all of the transactions of Air L.A.
4.6 Absence of Undisclosed Liabilities. Air L.A. does not have any
liability of any nature whatsoever (whether known or unknown, due or to become
due, accrued, absolute, contingent or otherwise) including, without limitation,
any unfunded obligation under employee benefit plans or arrangements or
liabilities for taxes, except for (i) liabilities reflected or reserved against
in the Air L.A. Balance Sheet as of May 31, 1995 (the "Air L.A. Balance Sheet
Date"), and (ii) current liabilities incurred in the ordinary course of
business and consistent with past practice after the Air L.A. Balance Sheet
Date which, individually and in the aggregate, do not have a Material Adverse
Effect and any other liabilities in excess of $5,000. Air L.A. is not a party
to any agreement, or subject to any charter or by-law provision, any other
corporate limitation or any Legal Requirement, which has, or in the future can
reasonably be expected to have, a Material Adverse Effect.
4.7 Absence of Material Adverse Effect; Conduct of Business. Since
the Air L.A. Balance Sheet Date, there has been no change in, or effect on, Air
L.A. or its business which has had, or with reasonable probability might have,
a Material Adverse Effect and to the knowledge of Air L.A., there is no
condition, development or contingency of any kind (including, without
limitation, any Claim) existing or in prospect which, so far as reasonably can
be foreseen at this time, may result in any Material Adverse Effect.
4.8 Legal Matters.
(i) There is no Claim pending against, or, to the best
knowledge of Air L.A., threatened against Air L.A. or any of its properties or
rights before or by any court, arbitrator, panel, agency or other governmental,
administrative or judicial entity, except as set forth in the Air L.A.
Financial Statements and the Air L.A. Balance Sheet; and
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Air L.A. is not subject to any Judgment of any governmental, administrative or
judicial authority.
(ii) The business of Air L.A. is being conducted in compliance
with all Legal Requirements applicable to Air L.A. or any of its businesses or
properties other than instances of noncompliance that individually or in the
aggregate would not, and insofar as may reasonably be foreseen in the future
will not, have a Material Adverse Effect. Air L.A. holds, and is in compliance
with, all Permits required by all applicable Legal Requirements other than
instances of noncompliance that individually or in the aggregate would not, and
insofar as may reasonably be foreseen in the future will not, have a Material
Adverse Effect.
(iii) Air L.A. owns or holds all Permits material to the
conduct of its business. No event has occurred and is continuing which
permits, or after notice or lapse of time or both would permit, any
modification or termination of any Permit.
(iv) Air L.A. (a) has not received any notice asserting any
noncompliance with any Legal Requirement or Permit, (b) is not subject to any
Legal Requirement or Permit which if enforced against or complied with by Air
L.A. would have a Material Adverse Effect, and (c) has no knowledge of any
Legal Requirement proposed or under consideration which if effective, other
than as disclosed on the Air L.A. Financial Statements, so far as reasonably
can be foreseen at this time, could have a Material Adverse Effect. No
governmental, administrative or judicial authority has indicated any intention
to initiate any investigation, inquiry or review involving Air L.A. or any of
its properties or rights.
4.9 Taxes. Air L.A. has filed, on a timely basis, all returns,
reports and declarations required to be filed for all period prior to, and
those including, the Closing Date and all such returns, reports and
declarations were correct and complete in all material respects. Air L.A. has
not extended any time in which to file any such returns, reports or
declarations. Air L.A. has paid, or withheld as the case may be, at the time
and in the manner required, or where payment is not required to be made, has
set up an adequate accrual, in conformity with generally accepted accounting
principles consistently applied, for the payment of, all taxes for all periods
prior to and those including the Closing Date (whether or not shown on any
return, report or declaration) and there are no tax liens on any of its
properties. There are no tax audits of any kind pending or threatened against
Air L.A. Air L.A. has not received or been threatened with a claim for
assessment, proposed assessment, or collection of any tax nor does Air L.A.
have any knowledge of any set of facts which could reasonably be expected to
give rise to such a claim. Air L.A. does not have outstanding agreements or
waivers extending or waiving any statute of limitations with respect to the
collection or assessment of any tax nor will it enter into any such agreement
prior to or on the Closing Date.
4.10 Brokers. Neither Air L.A. nor any director, officer or employee
thereof has employed any broker or finder or has incurred or will incur any
broker's or finder's or
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similar fees, commissions or expenses, in each case in connection with the
transactions contemplated by this Agreement.
4.11 Disclosure. This Agreement, the information and schedules
referred to herein and the information that has been furnished to Conquest by
Air L.A. in connection with the transactions contemplated hereby, do not
include any untrue statement of a material fact and do not omit to state a
material fact necessary to make the statements contained herein or therein, in
light of the circumstances under which they were made, not misleading.
5. COVENANTS.
5.1 Bridge Financing. Air L.A. may, after the Closing Date, attempt
to obtain bridge loan financing secured by the assets of Air L.A. and
Subsidiary. Of such loan proceeds up to $700,000 may be secured by the assets
of Subsidiary. Any proceeds which are secured in whole or in part by
Subsidiary's assets, up to $700,000, shall be applied to Subsidiary's
operations including bringing the Aircraft Leases current, and to reimburse
Air L.A., for the deposit made pursuant to Section 10.9. Conquest shall
cooperate with Air L.A.'s attempts to obtain such financing, including the
execution of any appropriate subordination of Conquest's lien on Subsidiary's
assets, if any.
5.2 Preparation of Financial Statements. Conquest and Air L.A. shall
cooperate in the preparation of pro forma financial statements of Subsidiary
and its operations in accordance with the requirements of Article 11 of
Regulation S-X of the Securities Act of 1933, as amended.
5.3 Aircraft Leases. Among the assets that Air L.A. seeks to acquire
in connection with purchase of the Stock, is the right to continue to use in
Subsidiary certain aircraft listed on Exhibit G currently leased by Conquest
pursuant to certain aircraft leases (the "Aircraft Leases"). In this regard,
Air L.A. has agreed to assume all obligations under the Aircraft Leases after
the Closing Date. Notwithstanding anything hereunder to the contrary, Air L.A.
acknowledges and agrees that the lessors named on Exhibit G of aircraft listed
thereon may condition their consent to the transfer of the Aircraft Leases to
Subsidiary and to the transactions contemplated by this Agreement on, among
other things, completion of Air L.A.'s Secondary Offering as defined in Section
5.7 below. The parties will cooperate and use their best efforts to cause the
conditions to obtaining such consents to be fulfilled. Conquest shall remain
liable (jointly and severally with Subsidiary) on the Aircraft Leases until
completion of the Secondary Offering. Upon the completion of the Secondary
Offering, Air L.A. shall take all reasonably necessary steps to cause the
assignment of those Aircraft Leases into its or Subsidiary's own name and to
cause Conquest to be released from its obligations thereunder, including the
deposit with the lessors of up to an aggregate of three month's lease payments
as a security deposit on the Aircraft Leases. Air L.A. shall indemnify Conquest
for any liability arising out of Air L.A.'s or Subsidiary's non-performance
under the Aircraft Leases after the Closing Date.
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5.4 Section 338 Election. Air L.A. intends to exercise its election
under Section 338 of the Internal Revenue Code of 1986, as amended, with
respect to its acquisition of the Stock and Conquest agrees to cooperate with
Air L.A. in the filing of a joint election.
5.5 Tax Liability. Conquest shall remain the agent for Subsidiary
with respect to all income tax liabiity of Subsidiary arising prior to and
including the Closing Date.
5.6 Additional Agreements. Subject to the terms and conditions of
this Agreement, each of the parties hereto agrees to use its best efforts at
its own expense to take, or cause to be taken, all action and to do, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement. In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers of Conquest, Subsidiary and Air L.A. shall take all such necessary
action.
5.7 Secondary Offering. Attached hereto as Exhibit I is a true,
complete and correct copy of the letter of intent (the "Letter of Intent")
between Air L.A. and Spelman & Co., Inc., relating to a proposed public
offering (the "Secondary Offering") of Air L.A.'s common stock. Air L.A. will
use its best efforts to consummate the Secondary Offering on substantially the
terms set forth in the Letter of Intent as soon as practicable but in no event
later than December 31, 1995. Air L.A. will not make any material change in
the terms of the Secondary Offering from those described in the Letter of
Intent without the prior written consent of Conquest, which consent will not be
unreasonably withheld.
5.8 Annual Meeting, Amendments to Certificate of Incorporation. At
the Annual Meeting, Air L.A. will seek stockholder approval of, among other
things, proposals to amend Air L.A.'s Certificate of Incorporation to (i)
authorize at least 3,000,000 shares of preferred stock designated Series A
Convertible Preferred Stock as described in Exhibit B and which will be issued
upon conversion of the Convertible Note, (ii) increase the number of authorized
shares of Air L.A.'s common stock from 10,000,000 shares to 50,000,000 shares
and (iii) effect a one for four reverse split of the outstanding shares of Air
L.A. common stock. Upon authorization of the amendments to the Air L.A.
Certificate of Incorporation as described above, Air L.A. will immediately file
a Certificate of Amendment to its Certificate of Incorporation to effect the
foregoing amendments.
5.9 Chief Executive Officer. At Conquest's request, Air L.A. will use
its best efforts to hire a new Chief Executive Officer who shall be acceptable
to Conquest in its reasonable discretion so long as the Convertible Note is
outstanding.
5.10 Board Representation. From the Closing Date and until the
issuance of the Preferred Stock, Air L.A. will use its best efforts to cause
its Board of Directors to consist of seven members and to cause the election or
appointment of a designee of Conquest (the "Conquest Designee") as two of the
seven members. Without limiting the foregoing, Air
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L.A. will cause the nomination for election to the Board of such designees at
the Annual Meeting. Until such time as the Convertible Note has been paid in
full or converted into Preferred Stock, unless the Conquest Designees shall be
serving on Air L.A.'s Board of Directors, Air L.A. will give Conquest actual
notice of all regular meetings and all special meetings of Air L.A.'s Board of
Directors, will permit a person designated from time to time by Conquest to
attend such meetings as observers, and will provide Conquest with all
information provided to the directors of Air L.A. Such regular meetings will
be held at least quarterly and at least a majority of the members of Board of
Directors must be present at such meetings. Air L.A. will reimburse any person
designated as observers by Conquest for reasonable out-of-pocket expenses
incurred traveling to and attending such meetings. Conquest agrees that it and
its designees shall not disclose any confidential information obtained in
connection with this Section 5.10 to any person (other than persons in a
confidential relationship with Conquest) unless such person has agreed in
writing to maintain such information confidential; provided, however, that
nothing herein shall be deemed to prevent the disclosure of any confidential
information if such disclosure is (i) required to be made in a judicial,
administrative or governmental proceeding, (ii) required by any applicable law
or regulation, (iii) made to any governmental agency or regulatory body having
or claiming authority over any aspect of Conquest's businesses in connection
with the exercise of such authority or claimed authority, (iv) subject to
subpoena, or (v) made on a confidential basis as Conquest deems reasonably
necessary or appropriate to any of its investors, any bank or financial
institution and/or counsel to or other representatives of such investors, bank
or financial institution.
5.11 Conquest Employees. With respect to Conquest's or Subsidiary's
employees, Conquest and Air L.A. will cooperate to ensure that there will be no
notice obligations under the Worker Adjustment and Retraining Notification Act
or other applicable law. Conquest shall cooperate with Air L.A. and take all
reasonable actions to assure that Air L.A. is not subject to liability for any
employee actions or claims arising during their employment in the airline
operations of Conquest or Subsidiary prior to the closing of the transaction
contemplated by this Agreement, other than as incurred in the normal course of
business of the airline. Conquest will indemnify Air L.A. from and against any
loss, claim or damage for employment related claims or liabilities outside of
the normal course of business of Conquest or Subsidiary and arising prior to
the Closing Date in accordance with the provisions of Section 7. Air L.A.
covenants that it will centralize its operations in Austin, Texas, and agrees
that neither Conquest nor Subsidiary shall be obligated to terminate any
employees prior to Closing.
5.12 Access to Information. From and after the date hereof until the
CLosing Date, Air L.A., Conquest and each of their representatives and advisors
shall have reasonable access to the other's books and records for the purpose
of performing due diligence in connection with the transactions contemplated by
this Agreement. Each shall make its officers and executive employees available
at reasonable times to respond to questions that the other, its representatives
or advisors may have during that time.
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6. Survival. All representations, warranties, covenants and agreements
contained in this Agreement, or in any exhibit, schedule, certificate, document
or statement delivered pursuant hereto, shall survive (and not be affected in
any respect by) the Closing for a period of one year, notwithstanding any
investigation conducted by any party hereto and (subject to the provisos set
forth in Sections 7.1 and 7.2 hereof) any information which any party may
receive; provided that any covenant or undertaking which, by its terms or by
fair implication, is to continue for any longer period of time shall continue
in effect for such longer period of time.
7. Indemnification. The parties shall indemnify each other as set forth
below:
7.1 Indemnification by Conquest. Subject to Sections 6 and 8 hereof,
Conquest shall, from and after the Closing, indemnify, defend and hold harmless
Air L.A. and its officers, directors, shareholders, employees and agents from
and against all claims, losses, damages, liabilities and expenses (including
without limitation attorneys' fees, settlement costs and any legal or other
expenses for investigation or defending any actions or threatened actions)
asserted against, imposed upon or incurred by Air L.A. or its officers,
directors, stockholders, employees and agents in connection with, on account
of, or as a result of (i) any misrepresentations or breach of any of the
representations and warranties made by Conquest herein, (ii) the breach of any
covenant, agreement or obligation of Conquest contained herein, (iii) any taxes
which are assessed in respect of the transfer of assets and liabilities
pursuant to the Assignment Agreement, or (iv) the operation of its business
prior to the Closing Date, except for the specific liabilities included on the
Subsidiary Balance Sheet attached hereto as Exhibit F and any liabilities
thereafter incurred in the normal course of Subsidiary's business, but
including any loss, claim, damage or expense arising out of the failure to
perform regularly scheduled maintenance to the subject aircraft pursuant to the
terms of the Aircraft Leases.
7.2 Indemnification by Air L.A. Subject to Sections 6 and 8 hereof,
Air L.A. shall, from and after the Closing, indemnify, defend and hold harmless
Conquest, its officers, directors, shareholders, employees and agents from and
against all claims, losses, damages, liabilities and expenses (including
without limitation, settlement costs and any legal or other expenses for
investigation or defending any actions or threatened actions) asserted against,
imposed upon or incurred by Conquest or its officers, directors, shareholders,
employees and agents, in connection with, on account of, or as a result of (i)
any misrepresentations or breach of any of the representations and warranties
made by Air L.A. herein, or (ii) the breach of any covenant, agreement or
obligation of Air L.A. contained herein, or (iii) Air L.A.'s ownership of the
Stock and/or operation of the business of the Subsidiary following the Closing
Date, including but not limited to any failure to pay any of the liabilities
reflected in the Subsidiary Balance Sheet or thereafter incurred in the normal
course of Subsidiary's business.
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8. Rules Regarding Indemnification. The obligations and liabilities of
each indemnifying party hereunder with respect to claims resulting from the
assertion of liability by the other party or third parties shall be subject to
the following terms and conditions:
8.1 The indemnified party shall give prompt written notice to the
indemnifying party of any claim which might reasonably be deemed to give rise
to a claim by the indemnified party against the indemnifying party based on the
indemnity agreements contained in Section 7 hereof, stating the nature and
basis of said claims and the amounts thereof, to the extent known.
8.2 In the event any action, suit or proceeding is brought against the
indemnified party, with respect to which the indemnifying party may have
liability under the indemnity agreement contained in Section 7 hereof, the
action, suit or proceeding shall be defended (including all proceedings on
appeal or for review which counsel for the indemnified party shall deem
appropriate) by the indemnifying party. The indemnified party shall have the
right to employ its own counsel in any such case, but the fees and expenses of
such counsel shall be at the indemnified party's own expense unless the
employment of such counsel and the payment of such fees and expenses both
shall have been specifically authorized by the indemnifying party in
connection with the defense of such action, suit or proceeding, or such
indemnified party shall have reasonably concluded and specifically notified the
indemnifying party that there may be specific defenses available to it which
are different from or additional to those available to indemnifying party or
that such action, suit or proceeding involves or could have an effect upon
matters beyond the scope of the indemnity agreement contained in Section 7
hereof, in any of which events the indemnifying party, to the extent made
necessary by such defenses, shall not have the right to direct the defense of
such action, suit or proceeding on behalf of the indemnified party. In such
case only that portion of such fees reasonably related to matters covered by
the indemnity agreement contained in Section 7 hereof shall be borne by the
indemnifying party. The indemnified party shall be kept fully informed of such
action, suit or proceeding at all stages thereof whether or not it is so
represented. The indemnifying party shall make available to the indemnified
party and its attorneys and accountants all books and records of the
indemnifying party relating to such proceedings or litigation and the parties
hereto agree to render to each other such assistance as they may reasonably
require of each other in order to ensure the proper adequate defense of any
such action, suit or proceeding.
8.2 The indemnified party shall not make any settlement of any claims
without the written consent of the indemnifying party, which consent shall not
be reasonably withheld or delayed.
9. Conditions to the Obligations of Air L.A. to Effect the Closing. The
obligations of Air L.A. required to be performed by it at the Closing shall be
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions, each of which may be waived by Air L.A. as provided
herein except as otherwise required by applicable law:
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9.1 Representations and Warranties; Agreements; Covenants. Each of
the representations and warranties of Conquest and Subsidiary contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and shall be true and correct in all material respects as of the
Closing. Each of the obligations of Conquest required by this Agreement to be
performed by it at or prior to the Closing shall have been duly performed and
complied with in all material respects as of the Closing, and all conditions
precedent under this Section 9 shall have been satisfied. At the Closing, Air
L.A. shall have received a certificate, dated the Closing Date and duly
executed by the chief executive officer and the chief financial officer of
Conquest and Subsidiary, to the effect that the conditions set forth in the two
preceding sentences have been satisfied, including but not limited to the
Minimum Net Book Value set forth in Section 3.9.
9.2 Authorization; Consents. All corporate action necessary to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby shall have been duly and
validly taken by Conquest. All notices to, and declarations, filings and
registrations with, and consents, authorizations, approvals and waivers from,
third parties and governmental and regulatory bodies required to consummate the
transactions contemplated hereby, which, either individually or in the
aggregate, if not made or obtained, would have a Material Adverse Effect shall
have been made or obtained except for (i) the consent of the lessors under the
Aircraft Leases which may be conditioned upon the closing of the Secondary
Offering as described in Section 5.3 and (ii) any other consents which,
pursuant to Schedule 3.3, are to be obtained and delivered subsequent to the
Closing.
9.3 Absence of Litigation. No order, stay, injunction or decree of
any court of competent jurisdiction in the United States shall be in effect (i)
that prevents or delays (beyond June 30, 1995) the consummation of any of the
transactions contemplated hereby or (ii) that would impose any material
limitation on the ability of Air L.A. effectively to exercise full rights of
ownership of the Stock. No action, suit or proceeding before any court or any
governmental or regulatory entity shall be pending (or threatened by any
governmental or regulatory entity), and no investigation by any governmental or
regulatory entity shall have been commenced (and be pending) seeking to
restrain or prohibit (or questioning the validity or legality of) the
consummation of the transactions contemplated by this Agreement or seeking
material damages in connection therewith which Air L.A., in good faith and with
the advice of counsel, believes makes it undesirable for Air L.A. to proceed
with the consummation of the transactions contemplated hereby.
9.4 Aircraft. Subject to Subsidiary's responsibility or obligation
for up to $400,000 of accrued lease payables and $110,000 of accrued engine
reserves (as of May 31, 1995), Conquest shall have endeavored to obtain the
consents of the lessors under the Aircraft Leases with respect to the
assignment thereof by Conquest to Subsidiary (and, if required, with respect to
any deemed assignment upon the sale of the Stock hereunder), provided that
failure to obtain such consents shall not delay the Closing. Conquest shall
thereafter remain liable on the Aircraft Leases in accordance with Section 5.3,
and shall continue to seek any
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required consents. Conquest shall return all aircraft, other than those listed
on Exhibit G, to the lessor(s) thereof, and Conquest will assume all costs and
expenses in connection therewith.
10. Conditions to the Obligations of Conquest to Effect the Closing. The
obligations of Conquest required to be performed by it at the CLosing shall be
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions, each of which may be waived by Conquest as provided
herein except as otherwise required by applicable law:
10.1 Representations and Warranties; Agreements. Each of the
representations and warranties of Air L.A. contained in this Agreement shall be
true and correct in all material respects as of the date hereof and (having
been deemed to have been made again at and as of the Closing) shall be true and
correct in all material respects as of the Closing. Each of the obligations of
Air L.A. required by this Agreement to be performed by it at or prior to the
Closing shall have been duly performed and complied with in all material
respects as of the Closing and all conditions precedent under this Section 10
shall have been satisfied. At the Closing, Conquest shall have received a
certificate, dated the Closing Date and duly executed by the chief executive
officer and the chief financial officer of Air L.A. to the effect that the
conditions set forth in the preceding two sentences have been satisfied.
10.2 Authorization; Consents. All corporate action necessary to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby shall have been duly and
validly taken by Air L.A. All notices to, and declarations, filings and
registrations with, and consents, authorizations, approvals and waivers from,
governmental and regulatory bodies required to consummate the transactions
contemplated hereby, which, either individually or in the aggregate, if not
made or obtained, would have a Material Adverse Effect shall have been made or
obtained.
10.3 Absence of Litigation. No order, stay, injunction or decree of
any court of competent jurisdiction in the United States shall be in effect
(i) that prevents or delays (beyond June 30, 1995) the consummation of any of
the transactions contemplated hereby or (ii) that would impose any material
limitation on the ability of Conquest effectively to exercise full rights of
ownership of the Notes. No action, suit or proceeding before any court or any
governmental or regulatory entity shall be pending (or threatened by any
governmental or regulatory entity), and no investigation by any government or
regulatory entity shall have been commenced (and be pending) seeking to
restrain or prohibit (or questioning the validity or legality of) the
consummation of the transactions contemplated by this Agreement or seeking
material damages in connection therewith which Conquest, in good faith and with
the advice of counsel, believes makes it undesirable for Conquest to proceed
with the consummation of the transactions contemplated hereby.
10.4 Voting Agreement. The stockholders of Air L.A. listed on Exhibit
H-1 (the "Insiders"), Air L.A. and Conquest shall have entered into a Voting
Agreement, substantially in the form of Exhibit H-2 hereto, pursuant to which
the Insiders will agree to vote their
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shares of Air L.A. common stock in favor of the election of the two Conquest
Designees for director of Air L.A. and for the other matters referred to in
Section 5.10 hereof.
10.5 Consent of Spelman & Co., Inc. The consent of Spelman & Co.,
Inc. to the transactions contemplated by this Agreement as required by the
Letter of Intent shall have been obtained.
10.6 Certificates. Conquest shall have furnished Air L.A. with such
certificates of its officers and others as Air L.A. may reasonably request to
evidence compliance with the conditions set forth in this Section 10.
10.7 Security Documents. Air L.A. and Subsidiary shall have delivered
to Conquest a guaranty and security agreement in the form of Exhibit J hereto
(the "Security Agreement") duly executed in favor of Conquest, appropriate
financing statements on Form UCC-1, duly executed by Air L.A. and Subsidiary,
necessary or desirable in order to perfect the security interests purported to
be created by the Security Agreement, and all such other documents requested
pursuant to the Security Agreement (collectively, the "Security Documents").
10.8 Registration Rights Agreement. Air L.A. shall have delivered to
Conquest a registration rights agreement in the form of Exhibit K hereto (the
"Registration Rights Agreement") providing for certain registration rights with
respect to the shares of common stock of Air L.A. issuable upon conversion of
the Preferred Stock and the Convertible Note under certain circumstances.
10.9 Deposit. Air L.A. shall have deposited $250,000 into an escrow
account to be paid to the Aircraft Lessors on the close of escrow against any
accrued lease payables then outstanding.
11. Miscellaneous
11.1 Confidentiality. All data, reports, forecasts, records, drawings
documentation, processes, designs, photographs, specifications, and commercial,
financial or other information, whether written or oral, machine readable, or
any other form (collectively, "Information") disclosed by one party (the
"Disclosing Party") and reviewed by the other party (the "Reviewing Party")
shall be used only for the purpose of completing due diligence hereunder. Each
Reviewing Party agrees to maintain the confidentiality of all Information, and
not to disclose that Information to any third party or to use, exploit or copy
the Information without the prior written consent of the Disclosing Party.
This restriction shall not apply to Information which (i) is currently in the
public domain or subsequently comes into the public domain through no fault of
the Reviewing Party and not in breach of this Section 11.1; (ii) was already
known to the Reviewing Party on the date of disclosure through a proper and
lawful source, provided that such prior knowledge can be substantiated
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and proved by documentation; or (iii) property and lawfully becomes available
to the Reviewing Party from sources independent of the Disclosing Party.
11.2 Announcements. Prior to the Closing, the timing and content of
all announcements regarding any aspect of the transactions contemplated by this
Agreement to the financial community, government agencies, employees or the
public generally will be mutually agreed upon in advance (unless Air L.A. or
Conquest is advised by counsel that any such announcement or other disclosure
not mutually agreed upon in advance is required to be made by law).
Notwithstanding the foregoing, Conquest and Air L.A. acknowledge that each will
be obligated to file a Current Report on Form 8-K concerning the execution of
this Agreement and each consents to disclosure of the information contained
herein on that report.
11.3 Expenses. Each of the parties hereto shall pay its own fees and
expenses (including the fees of any attorneys, accountants, investment bankers
or others engaged by such party) in connection with this Agreement and the
transactions contemplated hereby whether or not the transactions contemplated
hereby are consummated. Conquest shall be responsible for payment of any sales
taxes arising out of the sale of the Stock, or the transfer of assets and
liabilities pursuant to the Assignment Agreement.
11.4 Headings. The section headings herein are for convenience of
reference only, do not constitute part of this Agreement and shall not be
deemed to limit or otherwise affect any of the provisions hereof.
11.5 Notices. All notices or other communications required or
permitted hereunder shall be given in writing and shall be deemed sufficient if
delivered by hand, telecopied, or mailed by registered or certified mail,
postage prepaid (return receipt requested), as follows:
If to Conquest:
Stephen Feldman, Chairman of the Board
Conquest Industries Inc.
2215 E.M. Franklin Avenue
Austin, Texas 78723-9970
Fax No. (212) 355-3631
With a copy to:
Stephen A. Weiss, Esq.
Solomon, Weiss & Moskowitz, P.C.
650 Fifth Avenue, 7th Floor
New York, New York 10019
Fax No. (212) 246-2561
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<PAGE> 20
if to Air L.A.:
Dennis Altbrandt, Chief Executive Officer
Air L.A., Inc.
5933 West Century Blvd., Suite 500
Los Angeles, California 90045
Fax No. (310) 641-2344
With a copy to:
Dennis J. Doucette, Esq.
Luce, Forward, Hamilton & Scripps
600 West Broadway, Suite 2600
San Diego, California 92101
Fax No. (619) 232-8311
or such other address as shall be furnished in writing by such party, and any
such notice or communication shall be effective and be deemed to have been
given as of the date so delivered or telecopied or three days after the date so
mailed; provided, however, that any notice or communication changing any of the
addresses set forth above shall be effective and deemed given only upon its
receipt.
11.6 Assignment. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, and the provisions of Section 7
hereof shall inure to the benefit of the Indemnified Parties referred to
therein; provided, however, except as set forth below, that neither this
Agreement nor any of the rights, interests, or obligations hereunder may be
assigned by any of the parties hereto without the prior written consent of the
other parties. Notwithstanding the foregoing, Conquest may assign the right to
receive all or any portion of the Purchase Price, including all or any portion
of the Note and any associated rights, to any of its lenders or investors
without the consent of Air L.A. or any other party.
11.7 Entire Agreement. This Agreement (including the Schedules and
Exhibits hereto) embodies the entire agreement and understanding of the parties
with respect to the transactions contemplated hereby and supersedes all prior
written or oral commitments, arrangements or understandings with respect
thereto. There are no restrictions, agreements, promises, warranties,
covenants or undertakings with respect to the transactions contemplated hereby
other than those expressly set forth herein.
11.8 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
20
<PAGE> 21
11.9 Governing Law. This Agreement shall be governed by the laws of
the State of California (regardless of the laws that might be applicable under
principles of conflicts of law) as to all matters, including but not limited
to matters of validity, construction, effect and performance.
11.10 Accounting Terms. All accounting terms used herein which are not
expressly defined in this Agreement shall have the respective meanings given to
them in accordance with generally accepted accounting principles on the date
hereof.
11.11 Severability. If any one or more of the provisions of this
Agreement shall be held to be invalid, illegal or unenforceable, the validity,
legality or enforceability of the remaining provisions of this Agreement shall
not be affected thereby. To the extent permitted by applicable law, each party
waives any provision of law which renders any provision of this Agreement
invalid, illegal or unenforceable in any respect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
AIR L.A., INC.
By: DENNIS ALTBRANDT
-----------------------------
Dennis Altbrandt
Chief Executive Officer
CONQUEST AIRLINES CORP.
By: STEPHEN FELDMAN
-----------------------------
Stephen Feldman
Chairman of the Board
CONQUEST INDUSTRIES INC.
By: STEPHEN FELDMAN
-----------------------------
Stephen Feldman
Chairman of the Board
21
<PAGE> 22
Schedule 3.3
In connection with the transfer of assets and assignment of
liabilities of the airline operations by Conquest to the Subsidiary, Conquest
did not obtain lessor consents for the assignment of the Aircraft Leases, or
for the assignment of any other leases respecting assets or facilities utilized
in the airline operations (as reflected on the attached list). Also, see
Schedule 3.8 regarding the Tax Abatement Agreement.
In addition, the real property transferred by Conquest to the
Subsidiary, located in Travis County, Texas, is subject to an outstanding Deed
of Trust securing the remaining obligations under an outstanding Real Estate
Lien Note, dated December 28, 1989, originally issued by Conquest (under its
prior name, Conquest Airlines Corporation) to Travis L. Weathers and Clifton J.
Knezek. Although such Real Estate Lien Note and Deed of Trust do not purport
to prohibit the transfer of the underlying real property, or deem such a
transfer to be a default, Conquest makes no representations or warranties with
respect to any required consent of the holders of such Real Estate Lien Note or
the trustee or beneficiaries of such Deed of Trust.
<PAGE> 23
Additional Leases Regarding Airline Operations
1. Lease agreement with ATT for phone system, extending
to April 1996.
2. Lease agreement with ALCO Capital Resources, Inc. for
a photocopier, extending to December 1995.
3. Lease agreement with AMR Information Services, in
respect of reservation system set-up, extending to April 1998.
4. Month-to-month leases for office spaces at the
various airport facilities to which the airline operations provide carrier
service.
<PAGE> 24
Schedule 3.8
Conquest is party to a Tax Abatement Agreement with the City of
Austin, Texas, entered into in December 1989, the obligations under which have
been assigned by Conquest to the Subsidiary (although Conquest has not
requested the written approval of the City of Austin, required with respect to
such assignment). Such Tax Abatement Agreement, a true and complete copy of
which has heretofore been provided to Air L.A., imposes certain requirements
upon the airline operation, in order to qualify for certain tax abatements.
<PAGE> 25
Schedule 3.9
Reference is made to the Aircraft Leases, the office leases referred
to in Schedule 3.3, and the Tax Abatement Agreement described in Schedule 3.8.
<PAGE> 26
CERTIFICATE OF DESIGNATIONS, PREFERENCES,
AND RIGHTS OF CONVERTIBLE PREFERRED STOCK
William Hirsch and William Wolf certify:
Air L.A., Inc., a Delaware corporation, does by its president and its
secretary hereby certify as follows:
FIRST: That by the certificate of incorporation duly filed in the
above state, the total number of shares which this corporation may issue is
stated by Article 4 to be as follows:
"The total number of shares of stock which the Corporation
shall have authority to issue is Fifteen Million Five Hundred Thousand
(15,500,000) of which 12,500,000 shares shall be common stock, par value
of ten cents ($.10) each, and 3,000,000 shares shall be preferred stock,
par value of one dollar ($1.00) each. The Preferred Stock may be
issued from time to time in one or more series. The Board of Directors
is authorized to fix the number of shares of any series of Preferred
Stock and to determine the designation of any such series. The Board
of Directors is also authorized to determine or alter the rights,
preferences, privileges, and restrictions granted to or imposed upon
any wholly unissued series of Preferred Stock and, within the limits and
restrictions stated in any resolution or resolutions of the Board of
Directors originally fixing the number of shares constituting any
series, to increase or decrease (but not below the number of shares of
such series then outstanding) the number of shares of any such series
subsequent to the issue of shares of that series."
SECOND: That pursuant to the authority so vested in the board of
directors by the Certificate of Incorporation, the board of directors at a
meeting duly convened and held on the _______ day of ______________, 1995,
adopted the following resolution:
RESOLVED, that a series of the class of authorized $1.00 Par Value
Preferred Stock of the Corporation be hereby created, and that the
designation and amount thereof and the voting powers, preferences and
relative, participating, optional and other special rights of the shares
of such series, and the qualifications, limitations or restrictions
thereof are as follows:
Section 1. Designation and Amount. The shares of such series
shall be designated as "Series A Convertible Preferred Stock"
(hereinafter referred to as "Convertible Preferred Stock") and the
number of shares constituting such series shall be 3,000,000.
Section 2. Dividends. The holders of Convertible Preferred
Stock shall not be entitled to receive dividends.
<PAGE> 27
Section 3. Mandatory Redemption. Any net proceeds ("Proceeds")
received by the Corporation, after the payment of underwriters' discounts and
commissions, but no other amounts, from the exercise of the underwriter's
overallotment option in its secondary public offering referred to in Section
5.7 of the Stock Purchase Agreement, dated June __, 1995, by and among the
Corporation, Conquest Industries Inc. and Conquest Airlines Corp., which is
expected to close not later than December 31, 1995, but notwithstanding when
such offering closes (the "Secondary Offering"), will be applied to redeem
shares of the Convertible Preferred Stock to the extent of such Proceeds at the
par value.
Shares of Convertible Preferred Stock shall be so redeemed on the date
(or dates) (each, a "Redemption Date") of receipt of such Proceeds. To the
extent there are insufficient Proceeds for redemption of all shares of
Convertible Preferred Stock, Proceeds shall be applied to each holder's shares
of Convertible Preferred Stock on a pro rata basis. If less than all of the
shares of Convertible Preferred Stock are redeemed, all unredeemed shares shall
remain outstanding and shall be entitled to all the rights and preferences of
outstanding shares of Convertible Preferred Stock hereunder. In case less than
all the shares represented by any certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares without cost to the holder
thereof.
Any shares of the Convertible Preferred Stock redeemed pursuant to this
Section 3 or otherwise acquired by the Corporation in any manner whatsoever
shall be permanently retired immediately on the acquisition thereof and shall
not under any circumstances be reissued.
As soon as practicable after notice that the underwriters have exercised
their overallotment option and Proceeds are to be received, the Corporation
shall give written notice to each holder of shares of Convertible Preferred
Stock to be redeemed indicating the number of shares to be redeemed and the
certificate numbers thereof. Notice of each redemption of Convertible Preferred
Stock pursuant to this Section 3, specifying the date and place of redemption
and the number of shares and the certificate numbers thereof which are to be
redeemed, shall be mailed to each holder of record of shares to be redeemed at
its address as shown by the records of the Corporation not more than 60 nor less
than five days prior to the date on which such redemption is to be made.
Section 4. Voting Rights. The holders of Convertible Preferred Stock
shall have the following voting rights:
(A) Except as provided in Section 4(B) below, the holders of
the Convertible Preferred Stock shall have no voting rights other than (i)
2
<PAGE> 28
the right, voting separately as a single class, to elect two directors of the
Corporation and (ii) as otherwise required by law; provided however, that the
right of the holders of the Convertible Preferred Stock to elect two directors
shall be eliminated at such time, and only when, the number of shares of Common
Stock of the Corporation ("Common Stock") issued on conversion of the
Convertible Preferred Stock is sufficient, when using cumulative voting (and
provided that cumulative voting is then permitted to the holders of Common
Stock), to elect two directors.
(B) If the Corporation has not completed the Secondary Offering by
December 31, 1995, then, in addition to the voting rights for directors set
forth in Section 4(A) above, the holders of the Convertible Preferred Stock
shall have the same voting rights as the holders of the Common Stock. The
number of votes to which each share of the Convertible Preferred Stock shall be
entitled shall be determined by dividing one by the closing bid price per share
of the Common Stock on the record date for the shareholder meeting or action.
The holders of the Convertible Preferred Stock shall be entitled to cast for
the election of directors as many votes as shall equal the number of votes
which (except for this provision as to cumulative voting) they would be
entitled to cast for the election of directors with respect to their shares of
Convertible Preferred Stock multiplied by the number of directors to be
elected, and the holders of the Convertible Preferred Stock may cast all such
votes for a single director or may distribute them among the number to be voted
for, or for any two or more of them as they may see fit. Except as otherwise
provided herein or by law, the holders of the Convertible Preferred Stock and
the holders of the Common Stock shall vote together as one class on all matters
submitted to a vote of the Corporation's stockholders.
Section 5. Liquidation Rights. The preferential amount payable to the
holders of the Convertible Preferred Stock, in the event of any liquidation,
dissolution or winding up of the Corporation, prior to and in preference to any
distribution of any assets or surplus funds of the Corporation to the holders
of any other equity securities of the Corporation, is $1.00 per share. If the
assets or surplus funds to be distributed to the holders of the Convertible
Preferred Stock are insufficient to permit the payment to such holders of their
full preferential amount, the assets and surplus funds legally available for
distribution shall be distributed ratably among the holders of the Convertible
Preferred Stock in proportion to the full preferential amount each such holder
is otherwise entitled to receive.
Section 6. Conversion. The Convertible Preferred Stock shall be
convertible into, and for the number of shares of, Common Stock as follows:
3
<PAGE> 29
(A) If the Corporation completes the Secondary Offering prior to
December 31, 1995, then the shares of the Convertible Preferred Stock shall be
convertible into shares of Common Stock, at the election of the Corporation or
the holders of the Convertible Preferred Stock, as follows:
(i) On or after the date six months after the closing of the Secondary
Offering, the holders of the Convertible Preferred Stock may convert in the
aggregate (on a first come-first served basis as among such holders), up to
the greater of (a) Seven Hundred Fifty Thousand Dollars ($750,000) par
value of the Convertible Preferred Stock or (b) that amount of Convertible
Preferred Stock having an aggregate par value equal to the product of (1)
25% of the number of shares of Common Stock into which all three million
shares of Convertible Preferred Stock would have been converted at a
conversion price equal to the price to the public of the Common Stock in
the Secondary Offering, multiplied by (2) the Conversion Price (as defined
below) as in effect with respect to each conversion which is included in
the calculation hereunder.
(ii) On or after the date 12 months after the closing of the Secondary
Offering, the holders of the Convertible Preferred Stock may convert in the
aggregate (on a first come-first served basis as among such holders), up to
the greater of (a) an additional Seven Hundred Fifty Thousand Dollars
($750,000) par value of Convertible Preferred Stock or (b) that amount of
additional Convertible Preferred Stock having an aggregate par value equal
to the product of (1) 25% of the number of shares of Common Stock into
which all three million shares of Convertible Preferred Stock would have
been converted at a conversion price equal to the price to the public of
the Common Stock in the Secondary Offering, multiplied by (2) the
Conversion Price as in effect with respect to each conversion which is
included in the calculation hereunder.
(iii) On or after the date 18 months after the closing of the
Secondary Offering, the holders of the Convertible Preferred Stock may
convert in the aggregate (on a first come-first served basis as among such
holders), up to the greater of (a) an additional Seven Hundred Fifty
Thousand Dollars ($750,000) par value of Convertible Preferred Stock or
(b) that amount of additional Convertible Preferred Stock having
an aggregate par value equal to the product of (1) 25% of the number of
shares of Common Stock into which all three
4
<PAGE> 30
million shares of Convertible Preferred Stock would have been converted
to a conversion price equal to the price to the public of the Common
Stock in the Secondary Offering, multiplied by (2) the Conversion Price
as in effect with respect to each conversion which is included in the
calculation hereunder.
(iv) To the extent that additional shares of Convertible
Preferred Stock remain unconverted, then, on or after the date 24 months
after the closing of the Secondary Offering, the holders of the
Convertible Preferred Stock may convert any remaining Convertible
Preferred Stock.
Notwithstanding anything to the contrary contained herein, in no event will the
holders of the Convertible Preferred Stock be entitled to convert in excess of
the aggregate par value of the shares of Convertible Preferred Stock
outstanding.
If the Corporation does not complete the Secondary Offering by December 31,
1995, then all of the shares of Convertible Preferred Stock shall become
immediately convertible at such times and in such amounts as the holders
thereof shall desire.
(B) The conversion rate for each share of Convertible Preferred Stock
shall be determined by dividing one by the last reported closing bid price for
the Corporation's Common Stock on the date immediately prior to the date of the
holder's notice of conversion, subject to adjustment as provided below. Such
closing bid price is referred to herein as the "Conversion Price."
(C) Before any Convertible Preferred Stock may be converted into
Common Stock at the option of the holder, the holder must surrender the
certificate or certificates for those shares, duly endorsed in blank or
accompanied by proper instruments of transfer, at the office of the Corporation
or of any transfer agent for the Convertible Preferred Stock. The holder shall
also give written notice to the Corporation at such office that the holder
elects to convert a specified number or all of the shares represented by the
surrendered certificate(s). The notice shall also specify the name or names in
which the holder wishes the certificate or certificates for Common Stock to be
issued. If a name specified is not that of the holder, the notice shall also
state the address of the new holder and any other information required by law.
The Corporation shall, as soon as practicable thereafter, issue and deliver at
such office to the holder of Convertible Preferred Stock converted, or to that
holder's nominee or nominees, certificates for the number of full shares of
Common Stock to which the holder shall be entitled,
5<PAGE> 31
and shall pay to the holder cash (calculated at the applicable Conversion Price)
in lieu of any fraction of a share. Conversion shall be deemed to have been
made as of the date of notice by the holder of the Convertible Preferred Stock
to be converted, and the person or persons entitled to receive the Common Stock
issuable upon conversion shall be treated for all purposes as the record holder
or holders of those shares of Common Stock on that date. Convertible Preferred
Stock that is converted upon the Corporation's election shall be converted into
Common Stock upon the basis set forth above, and shares of Common Stock shall
thereupon be issued and outstanding. The board of directors of the Corporation
may order any holders of outstanding certificates of Convertible Preferred Stock
to surrender them for certificates evidencing Common Stock. The order may
provide that a holder of certificates so to be exchanged is not entitled to vote
or to receive dividends or to exercise any other rights of a stockholder until
the holder has complied with this order, but this order shall be operative only
after notice and only until compliance.
(D) The Corporation shall at all times reserve and keep available out
of its authorized Common Stock the full number of shares of Common Stock of the
Corporation issuable upon the conversion of all outstanding shares of the
Convertible Preferred Stock. The Corporation shall not grant any rights to
purchase and shall not issue any additional shares of Common Stock or
securities convertible into or exchangeable for Common Stock if, as a result of
such issuance, there would be an insufficient number of shares of Common Stock
remaining unissued and available for issuance to permit conversion of all the
then outstanding shares of convertible Preferred Stock.
Section 7. Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend which is the same as cash dividends paid
in previous quarters) or other distribution, the Corporation shall mail to each
holder of Convertible Preferred Stock at least ten (10) days prior to the
record date specified for such action, a notice specifying the date on which
any such record is to be taken for the purpose of such dividend or distribution
and describing such dividend or distribution.
Section 8. Registration Rights. The Convertible Preferred Stock shall
be "restricted shares" under Rule 144 of the Securities Act of 1933, as
amended, and shall be subject to the requirements of such Rule. The holders of
the Preferred Stock shall have certain registration rights as set forth in that
Registration Rights Agreement, dated _______________, 1995 between the
Corporation and Conquest Industries Inc., a Delaware corporation.
6
<PAGE> 32
Section 9. Notices. Any notices required by the provisions of this
Certificate to be given to the holders of Convertible Preferred Stock shall be
deemed given at the time deposited in the United States mail, postage prepaid
and addressed to each holder of record at its address appearing on the books of
the Corporation.
Section 10. Transferability. The shares of Convertible Preferred
Stock may be transferred upon compliance with all applicable federal and state
securities laws and regulations.
Section 11. Covenants. So long as any of the shares of the
Convertible Preferred Stock authorized hereby shall be outstanding, the
Corporation shall not, without first obtaining the affirmative vote or written
consent of not less than sixty-six and two-thirds percent (66-2/3%) of such
outstanding shares of Convertible Preferred Stock:
(a) amend or repeal any provision of, or add any provision to, the
corporation's Certificate of Incorporation or Bylaws if such action would alter
or change the par value of the Convertible Preferred Stock or the preferences,
rights, privileges or powers of, or the restrictions provided for the benefit
of the Convertible Preferred Stock;
(b) reclassify any Common Stock into shares having any preference or
priority as to dividends or assets (including, without limitation, upon
liquidation, dissolution or winding up) superior to or on a parity with any
such preference or priority of the Convertible Preferred Stock;
(c) pay or declare any cash dividend on any securities or apply any of
its assets to the redemption, retirement, purchase or other acquisition
directly or indirectly, through subsidiaries or otherwise, of any securities
junior in priority as to dividends or assets ("Junior Securities"), or on a
parity with any preference or priority of the Convertible Preferred Stock
("Parity Securities"), or any rights, options, warrants to purchase, or
securities convertible into, Junior Securities or Parity Securities;
(d) create or issue any securities of the Corporation which have
equity features and which rank on a parity with or senior to the Convertible
Preferred Stock upon payment of dividends or upon liquidation, dissolution,
winding up or other distribution of assets or with any terms more favorable
than those of the Convertible Preferred Stock;
(e) increase the authorized number of directors constituting the Board
of Directors of the corporation to a number greater than five (5).
7
<PAGE> 33
IN WITNESS WHEREOF, Air L.A., Inc. has caused this Certificate of
Designations, Preferences and Rights of Convertible Preferred Stock to be duly
executed by its president and attested to by its secretary, this __ day
of June, 1995.
--------------------------------------
William Hirsch, President
--------------------------------------
William Wolf, Secretary
8<PAGE> 34
CONVERTIBLE PROMISSORY NOTE
$3,000,000 June __, 1995
Los Angeles, California
FOR VALUE RECEIVED, AIR L.A., INC., a Delaware corporation ("Maker"),
promises to pay to Conquest Industries Inc., a Delaware corporation ("Holder"),
or order, at 2215 E.M. Franklin Avenue, Austin, Texas, 78723-9970, the
principal amount of Three Million Dollars ($3,000,000), with interest on such
amount from the date and at the rate set forth below and payable as follows:
1. Maturity Date. The principal shall be due on August 31, 1995
("Maturity Date"). After the Maturity Date, principal, together with any and
all accrued and unpaid interest, shall be due upon demand.
2. Interest Rate. The amount of outstanding principal from and after
the Maturity Date shall bear interest at a floating rate equal to the Prime
Rate as set from time to time by the Federal Bank in San Francisco plus one
percent (1%) per annum. Interest shall be calculated on the basis of a
365-day year.
3. Payment. Any payment hereunder shall be applied first to the
payment of costs and charges of collection, if any, then to accrued interest,
and the balance, if any, shall be then applied to reduction of principal.
Principal and interest are payable in lawful money of the United States of
America. Maker shall have the right to prepay any amounts due hereunder at any
time, without premium or penalty.
4. Stock Purchase Agreement and Security. This Note shall be secured
by the assets of Maker and Conquest Airlines Corp. ("Subsidiary"). This Note
is a duly authorized note of the Maker, issued pursuant to the Stock Purchase
Agreement, dated as of June __, 1995 (the "Stock Purchase Agreement"), by and
among Maker, Holder and Subsidiary. All capitalized terms used herein and not
otherwise defined herein shall have the respective meanings ascribed to them in
the Stock Purchase Agreement. Reference is made to the Security Documents
delivered pursuant to the terms of the Stock Purchase Agreement. As security
for the payment of the Note and any other present or future obligation or
liability of Maker to Holder, Maker and Subsidiary have granted Holder a
security interest in the collateral described in the Guaranty and Security
Agreement constituting a Security Document. Reference to the Stock Purchase
Agreement, and to the other documents delivered in connection with such
Agreement, shall in no way impair the absolute and unconditional obligation of
Maker to pay both principal and interest hereon as provided herein.
5. Conversion Rights. Upon the occurrence of the following events and
as follows:
5.1 Conversion into Preferred Stock. The shareholders of
Maker shall vote on a proposal to authorize the Preferred Stock of Maker, par
value $1.00, at their annual meeting to be held on July 19, 1995, with such
rights, preferences and privileges as are<PAGE> 35
set forth in the Certificate of Designations, Preferences and Rights of
Convertible Preferred Stock, which is attached as Exhibit B to the Stock
Purchase Agreement. Upon shareholder approval of the Preferred Stock, Maker
shall file an appropriate amendment to its Certificate of Incorporation with the
Delaware Secretary of State to authorize such Preferred Stock. Subject to the
adjustments set forth below, this Note shall automatically convert into
3,000,000 fully paid and non-assessable shares of Preferred Stock upon the
filing of such amendment to the Certificate of Incorporation with the Delaware
Secretary of State (the "Conversion Date"). On or after the Conversion Date and
against delivery to the Maker by Holder of this Note marked "Paid in Full",
Maker shall deliver to Holder at the principal office of the Maker, or such
other appropriate place as may be mutually agreed upon, a certificate or
certificates for such shares of Preferred Stock. In no event, however, shall
the Maker be required to issue fractional shares of Preferred Stock.
5.2 Conversion into Common Stock. In the event that Maker's
shareholders do not authorize the Preferred Stock at their annual meeting, or
the annual meeting does not take place by September 30, 1995, then Holder shall
have the right from time to time to convert all or any portion of the principal
and accrued interest of this Note directly into shares of Maker's Common Stock.
This Note shall be convertible, in whole or in part, into Common Stock at a
price per share equal to the reported closing bid price per share of Common
Stock on the trading day immediately prior to the date of Holder's notice of
conversion. On or after the date of conversion and against delivery to the
Maker by Holder of this Note with instructions as to the amount of principal
and/or accrued interest to be converted, Maker shall deliver to Holder at the
principal office of the Maker, or such other appropriate place as may be
mutually agreed upon, a certificate or certificates for such shares of Common
Stock and a new Note of like tenor in the principal amount of the unconverted
portion of this Note. In no event, however, shall the Maker be required
to issue fractional shares of Common Stock.
5.3 Notices of Record Date. In the event of any taking by Maker of a
record of the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any divided (other than a cash
dividend which is the same as cash dividends paid in previous quarters) or
other distribution, or to vote in respect of any merger, consolidation or sale
of assets of Maker, Maker shall mail to each holder of this Note, at least ten
(10) days prior to the record date specified for such action, a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend, distribution or vote and describing such dividend or
distribution or the matter to be voted upon.
6. Covenants.
6.1 Availability of Common Stock for Conversion. The Maker will, from
time to time, in accordance with the laws of the State of Delaware, increase
the authorized amount of Common Stock if at any time the number of shares of
Common Stock remaining unissued and available for issuance shall be
insufficient to permit conversion of all the then outstanding principal amount
and/or accrued interest of this Note, or take such other action as necessary to
assure that from time to time there shall be a number of shares of Common Stock
remaining
2
<PAGE> 36
unissued and available for issuance upon conversion of all the then outstanding
principal amount and/or accrued interest of Note. The Maker will not grant any
rights to purchase and will not issue any additional shares of Common Stock or
securities convertible into or exchangeable for Common Stock if, as a result of
such issuance, there would be an insufficient number of shares of Common Stock
remaining unissued and available for issuance to permit conversion of all the
then outstanding principal amount and/or accrued interest of this Note.
6.2 Registration Rights. In the event this Note becomes convertible
into Common Stock in accordance with the terms hereof, the Holder shall be
entitled to all the rights of a holder of Registrable Securities under the
Registration Rights Agreement delivered to Holder pursuant to the Stock
Purchase Agreement with respect to the Common Stock into which this Note is
convertible and such shares of Common Stock shall be deemed Registrable
Securities thereunder.
6.3 No Impairment. The Maker will not, through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
of performance of any of the terms to be observed or performed hereunder by the
Maker but will at all times in good faith assist in the carrying out of all the
provisions of this Note and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Holder of this
Note against impairment.
7. Maximum Interest. In no event whatsoever shall the amount paid, or
agreed to be paid, to Holder for the use, forbearance or detention of money to
be loaned hereunder or otherwise for the performance or payment of any covenant
or obligation contained herein, exceed the maximum amount permissible under
applicable law. If from any circumstance whatsoever fulfillment of any
provision hereof exceeds the limit of validity prescribed by law, then, ipso
facto, the obligation to be fulfilled shall be reduced to the limit of such
validity, and if from any such circumstance Holder shall ever receive as
interest under this Note or otherwise an amount that would exceed the highest
lawful rate, such amount that would be excessive interest shall be applied to
the reduction of the principal amount owing hereunder and not to the payment of
interest, or if such excessive interest exceeds the unpaid balance of
principal, such excess shall be refunded to Maker.
8. Attorney's Fees and Costs. If either party hereto commences an
arbitration, litigation, judicial proceeding or other action against the other
party to enforce any of the terms hereof or because of the breach by such other
party of any of the terms hereof, the prevailing party shall be entitled, in
addition to any other relief granted, to all costs and expenses incurred by
such prevailing party in connection with such action, including, without
limitation, all reasonable attorneys' fees, and a right to such costs and
expenses shall be deemed to have accrued upon the commencement of such action
and shall be enforceable whether or not such action is prosecuted to judgment.
The prevailing party shall also be entitled to attorneys' fees and costs
reasonably incurred in connection with this Note in any bankruptcy, insolvency,
reorganization or other debtor-relief proceeding.
3
<PAGE> 37
9. Waivers. Maker hereby waives diligence, demand, presentment,
dishonor, notice of non-payment, protest and notice of protest; expressly
agrees that this Note, or any payment hereunder, may be renewed, modified or
extended from time to time and at any time; and consents to the acceptance or
release of security for this Note and waives the right to plead any and all
statues of limitations as a defense to any demand on this Note or to any
agreement to pay the same to the full extent permissible by law.
10. Miscellaneous. The terms of this Note shall inure to the benefit
of and bind the parties hereto and their successors and assigns. As used
herein the term "Maker" shall include, jointly and severally, the undersigned
Maker and any other person or entity who may subsequently become liable for the
payment hereof. The term "Holder" shall include the named Holder as well as
any other person or entity to whom this Note or any interest in this Note is
conveyed, transferred or assigned. If Maker is a corporation, the person
signing this Note on behalf of Maker represents and warrants that he has full
authority to do so and that this Note binds the Maker corporation.
To the extent there is more than one Holder, Holders holding a majority
of the outstanding principal amount of Notes shall have the right to make all
determinations on behalf of the Holders hereunder.
11. Governing Law and Venue. This Note shall be governed by and
construed under the internal laws of the State of California, without
reference to its conflict of laws rules. Venue in any proceeding hereunder
shall be in Los Angeles County, California. This Note shall be deemed made and
entered into in Los Angeles County, California.
12. Default and Remedies.
12.1 If any of the following events (an "Event of Default")
shall occur and be continuing for any reason whatsoever (and whether such
occurrence shall be voluntary or involuntary or come about or be effected by
operation of law or otherwise);
(i) the Maker or Subsidiary defaults in the payment when due
(whether at maturity or upon acceleration) of any principal of or interest on
this Note or any other obligation for money borrowed beyond any period of grace
provided with respect thereto, or the Maker or Subsidiary fails to perform or
observe any other agreement, term or condition contained in any agreement under
which any such obligation is created (or if any other event thereunder or under
any such agreement shall occur and be continuing) and the effect of such
failure of other event is to cause, or to permit the holder of holders of such
obligation (or a trustee on behalf of such holder of holders) to cause, such
obligation to become due prior to any stated maturity;
(ii) any representation or warranty made by the Maker or
Subsidiary in the Stock Purchase Agreement or the Security Agreement or in any
writing furnished in
4<PAGE> 38
connection with or pursuant to the Stock Purchase Agreement or the Security
Agreement shall be false in any respect on the date as of which made;
(iii) a failure to perform or observe any agreement, covenant,
term or condition contained in the Stock Purchase Agreement, or in the Security
Agreement or any other document or agreement delivered in connection with or
pursuant to the Stock Purchase Agreement, by the Maker or Subsidiary, and any
such default shall not have been remedied with 10 days of such failure;
(iv) the Maker or Subsidiary (sometimes collectively referred
to herein as "Obligors" and individually as an "Obligor") makes an assignment
for the benefit of creditors;
(v) any decree or order for relief in respect of any Obligor
is entered under bankruptcy, reorganization, compromise, arrangement,
insolvency, readjustment of debt, dissolution or liquidation or similar law
whether now or hereafter in effect (herein called the "Bankruptcy Law") of any
jurisdiction;
(vi) any petition in bankruptcy shall be filed by or against
any Obligor or any proceedings in bankruptcy, or under any law or statute of
any jurisdiction relating to the relief of debtors, being commenced for the
relief or readjustment of any indebtedness of any Obligor, either through
reorganization, composition, extension or otherwise and, if filed against any
Obligor, such petition or proceeding shall remain unstayed or undismissed for
a period of 60 days;
(vii) any order, judgment or decree is entered in any
proceedings against any Obligor appointing a trustee, receiver, liquidator,
sequestrator or other such administrator of any Obligor or decreeing the
dissolution of any Obligor and such order, judgment or decree remains unstayed
and in effect for more than sixty (60) days; or
(viii) a final judgment in an amount in excess of $250,000 is
rendered against any Obligor and, within sixty (60) days after entry thereof,
such judgment is not discharged or execution thereof stayed pending appeal, or
within sixty (60) days after expiration of any such stay, such judgment is not
discharged;
then (a) if such event is an Event of Default specified in clause (i), (ii),
(iii), or (viii) of this Section 12.1, Holder may, by written notice to the
Maker, declare the unpaid principal amount of this Note, together with accrued
interest thereon, immediately due and payable, without presentment, demand,
protest or notice of any kind, all of which are hereby waived by the Maker, and
(b) if such event is an Event of Default specified in clause (iv), (v), (vi) or
(vii) of this Section 12.1, the Note shall automatically become immediately due
and payable together with interest accrued thereon without presentment, demand,
protest or notice of any kind, all of which are hereby waived by the Maker.
5<PAGE> 39
presentment, demand, protest or notice of any kind, all of which are hereby
waived by the Maker, and (b) if such event is an Event of Default specified in
clause (iv), (v), (vi) or (vii) of this Section 12.1, the Note shall
automatically become immediately due and payable together with interest accrued
thereon without presentment, demand, protest or notice of any kind, all of
which are hereby waived by the Maker.
12.2 No right or remedy herein conferred upon the Holder is intended
to be exclusive of any other right or remedy contained herein, in the Stock
Purchase Agreement or Security Agreement or in any instrument or document
delivered in connection with or pursuant to this Note, and every such right or
remedy shall be cumulative and shall be in addition to every other such right
or remedy contained herein and therein or now or hereafter existing at law or
in equity or by statute, or otherwise.
12.3 No course of dealing between the Maker and the Holder or any
failure or delay on the part of the Holder in exercising any rights or remedies
of the Holder and no single or partial exercise of any rights or remedies
hereunder, or under the Stock Purchase Agreement or Security Agreement shall
operate as a waiver or preclude the exercise of any other rights or remedies
hereunder.
AIR L.A., INC., a Delaware Corporation
By: /s/ Dennis Altbrandt
--------------------------------------
Dennis Altbrandt, Chief
Executive Officer
6
<PAGE> 40
PROMISSORY NOTE
$1,000,000 June __, 1995
FOR VALUE RECEIVED, the undersigned, AIR L.A., INC., a Delaware
corporation (the "Maker"), hereby promises to pay to the order of CONQUEST
INDUSTRIES INC., a Delaware corporation (the "Payee"), the principal sum of One
Million ($1,000,000) Dollars, together with interest on the outstanding
principal balance hereunder accrued from July 1, 1995 at the rate of eight (8%)
percent per annum. All payments of principal and/or interest shall be paid as
set forth below, and each such payment shall be made in lawful money of the
United States of America by ordinary check payable to the order of the Payee at
c/o Wico Corporation, 6400 West Gross Point Road, Niles, Illinois 60714-4508,
or such other address as the Payee may designate in writing from time to time.
1. Payments of Principal and Interest.
(a) Accrued interest under this Note shall be due and
payable on the fifteenth day of each calendar month commencing August 15, 1995.
Pending the Maker's completion of its next registered public offering of
securities other than an offering on Form S-8 or otherwise solely in respect of
employee benefit plans (a "Qualified Offering"), the interest payable on each
interest payment date shall be in an amount equal to one-half of the accrued
interest for the most recent full calendar month, and the balance of such
accrued interest shall be added to the principal of this Note as of the last
day of the month for which such interest was accrued. From and after the
completion of the Maker's first Qualified Offering, all accrued interest under
this Note shall be payable monthly on the last day of each calendar month until
this Note is paid in full.
(b) The principal of this Note shall be payable in
quarterly installments of $75,000 each commencing on the earlier of (i) the last
day of the calendar quarter in which the Maker completes its first Qualified
Offering, or (ii) September 30, 1996. Subject to mandatory prepayment as and to
the extent provided in paragraph 1(c) below, quarterly principal installments
shall be made on the last day of each calendar quarter from and after the first
required quarterly payment hereunder, until the principal of this Note is paid
in full.
(c) Simultaneous with the closing of the Maker's first
Qualified Offering, the Maker shall be required to prepay the principal of this
Note by an amount equal to the lesser of $500,000 or the then-outstanding
principal balance of this Note, with such prepayment to be applied to the
principal installments hereunder in inverse order of maturity. Simultaneously
therewith, the Maker shall pay all accrued but unpaid interest under this Note,
-1-
<PAGE> 41
including any and all accrued interest which was theretofore added to principal
in accordance with paragraph 1(a) above.
(d) In the event that any scheduled payment date
hereunder is a day on which banks in the State of California are required or
authorized to be closed, then the payment that would be due on such day shall
instead be due and payable on the next day which is not such a non-banking day,
with additional interest for such delay.
2. Prepayment.
The Maker shall have the right to prepay, without penalty, at
any time or times after the date hereof, all or any portion of the outstanding
principal balance of this Note, together with interest on the principal amount
prepaid accrued to the date of prepayment. Any and all principal prepayments
hereunder shall be applied to the remaining principal installments hereunder in
inverse order of maturity.
3. Events of Default.
The following are Events of Default hereunder:
(a) Any failure by the Maker to pay when due all or any
principal or interest hereunder or under any other promissory note issued by
the Maker to the Payee, and the continuance of any such non-payment for five
(5) calendar days following the due date of such principal or interest; or
(b) If the Maker or its subsidiary, Conquest Airlines
Corp. ("CAC"), (i) admits in writing its inability to pay generally its debts
as they mature, or (ii) makes a general assignment for the benefit of
creditors, or (iii) is adjudicated a bankrupt or insolvent, or (iv) files a
voluntary petition in bankruptcy, or (v) takes advantage, as against its
creditors, of any bankruptcy law or statute of the United States of America or
any state or subdivision thereof now or hereafter in effect, or (vi) has a
petition or proceeding filed against it under any provision of any bankruptcy
or insolvency law or statute of the United States of America or any state or
subdivision thereof, which petition or proceeding is not dismissed within sixty
(60) days after the date of the commencement thereof, (vii) has a receiver,
liquidator, trustee, custodian, conservator, sequestrator or other such person
appointed by any court to take charge of its affairs or assets or business and
such appointment is not vacated or discharged within sixty (60) days
thereafter, or (viii) takes any action in furtherance of any of the foregoing;
or
(c) Any representation or warranty made by the Maker in
that certain Stock Purchase Agreement dated as of June __, 1995 by and among
the Maker, the Payee and CAC (the "Stock Purchase
-2-
<PAGE> 42
Agreement"), or by the Maker or CAC in that certain Security Agreement of even
date herewith by the Maker and CAC in favor of the Payee (the "Security
Agreement"), or in any other document or agreement delivered by the Maker or
CAC in connection with or pursuant to the Stock Purchase Agreement or the
Security Agreement, shall be false in any material respect on the date as of
which such representation or warranty was made; or
(d) Any failure by the Maker or CAC to perform or observe
any agreement, covenant, term or condition contained in the Stock Purchase
Agreement, in the Security Agreement, or in any other document or agreement
delivered by the Maker or CAC in connection with or pursuant to the Stock
Purchase Agreement or the Security Agreement, and the continuance of such
failure or non- performance for ten (10) days; or
(e) If a final judgment in an amount in excess of
$250,000 is rendered against the Maker or CAC which is not, within sixty (60)
days after the entry thereof, discharged or the execution thereof stayed
pending appeal, or within sixty (60) days after the expiration of any such
stay, such judgment is not discharged; or
(f) Any liquidation, dissolution or winding up of the
Maker or CAC or its business.
4. Remedies on Default.
If any Event of Default shall occur and be continuing, the
holder hereof shall, in addition to any and all other available rights and
remedies, have the right, at its option (except for an Event of Default under
paragraph 3(b) above, the occurrence of which shall automatically effect
acceleration hereunder), (a) to declare the entire unpaid principal balance of
this Note, together with all accrued interest hereunder, to be immediately due
and payable, and (b) to pursue any and all available remedies for the
collection of such principal and interest, including but not limited to the
exercise of all rights and remedies provided in the Security Agreement.
5. Certain Waivers.
Except as otherwise expressly provided in this Note, the Maker
hereby waives diligence, demand, presentment for payment, protest, dishonor,
nonpayment, default, and notice of any and all of the foregoing. All amounts
payable under this Note shall be payable without relief under any applicable
valuation and appraisement laws.
-3-
<PAGE> 43
6. Amendments.
This Note may not be changed orally, but only by an agreement
in writing and signed by the party against whom enforcement of any waiver,
change, modification or discharge is sought.
7. Cumulative Remedies.
No right or remedy conferred upon the Payee under this Note is
intended to be exclusive of any other right or remedy contained herein or in
the Stock Purchase Agreement or the Security Agreement, or in any instrument or
document delivered in connection herewith or therewith, and every such right or
remedy shall be cumulative and shall be in addition to every other such right
or remedy contained herein and therein and/or now or hereafter existing at law
or in equity or otherwise.
8. Waivers; Course of Dealing.
No course of dealing between the Maker and the Payee, or any
failure or delay on the part of the Payee in exercising any rights or remedies,
or any single or partial exercise of any rights or remedies, shall operate as a
waiver or preclude the exercise of any other rights or remedies available to
the Payee.
9. Governing Law.
This Note shall be deemed to be a contract made under the laws
of the State of California and shall be governed by, and construed in
accordance with, the laws of the State of California.
10. Collection Costs.
In the event that the Payee shall, after the occurrence of an
Event of Default, turn this Note over to an attorney for collection, the Maker
shall further be obligated to the Payee for the Payee's reasonable attorneys'
fees and expenses incurred in connection with such collection.
AIR L.A., INC., A DELAWARE
CORPORATION
By: /s/
-------------------------------
(Title)
-4-
<PAGE> 44
PROMISSORY NOTE
$2,000,000 June __, 1995
FOR VALUE RECEIVED, the undersigned, AIR L.A., INC., a Delaware
corporation (the "Maker"), hereby promises to pay to the order of CONQUEST
INDUSTRIES INC., a Delaware corporation (the "Payee"), the principal sum of Two
Million ($2,000,000) Dollars, together with interest on the outstanding
principal balance hereunder accrued from July 1, 1995 at the rate of eight (8%)
percent per annum. All payments of principal and/or interest shall be paid as
set forth below, and each such payment shall be made in lawful money of the
United States of America by ordinary check payable to the order of the Payee at
c/o Wico Corporation, 6400 West Gross Point Road, Niles, Illinois 60714-4508,
or such other address as the Payee may designate in writing from time to time.
1. Payments of Principal and Interest.
(a) Accrued interest under this Note shall be due and
payable on the fifteenth day of each calendar month commencing August 15, 1995.
Pending the Maker's completion of its next registered public offering of
securities other than an offering on Form S-8 or otherwise solely in respect of
employee benefit plans (a "Qualified Offering"), the interest payable on each
interest payment date shall be in an amount equal to one-half of the accrued
interest for the most recent full calendar month, and the balance of such
accrued interest shall be added to the principal of this Note as of the last
day of the month for which such interest was accrued. From and after the
completion of the Maker's first Qualified Offering, all accrued interest under
this Note shall be payable monthly on the last day of each calendar month until
this Note is paid in full.
(b) The principal of this Note shall be payable in
quarterly installments of $75,000 each commencing on the last day of the
calendar quarter in which the Maker was required to make (whether by maturity,
mandatory prepayment or otherwise) the final principal payment under that
certain Promissory Note of even date herewith issued by the Maker to the Payee
in the principal amount of $1,000,000 (the "Other Note"), or, if such final
principal payment date under the Other Note was the last day of a calendar
quarter, then the first quarterly principal payment hereunder shall be due and
payable on the last day of the following calendar quarter. Subject to mandatory
prepayment as and to the extent provided in paragraph 1(c) below, quarterly
principal installments shall be made on the last day of each calendar quarter
from and after the first required quarterly payment hereunder, until the
principal of this Note is paid in full.
-1-
<PAGE> 45
(c) Simultaneous with the closing of the Maker's first
Qualified Offering, the Maker shall be required to prepay the principal of this
Note by an amount equal to the lesser of (i) $500,000, (ii) the amount (if any)
by which any required payment under the first sentence of paragraph 1(c) of the
Other Note was less than $500,000, or (iii) the then-outstanding principal
balance of this Note, with such prepayment to be applied to the principal
installments hereunder in inverse order of maturity. Simultaneously therewith,
the Maker shall pay all accrued but unpaid interest under this Note, including
any and all accrued interest which was theretofore added to principal in
accordance with paragraph 1(a) above. From and after the closing of the
Maker's first Qualified Offering, the Maker shall continue to pay quarterly
installments of principal in accordance with paragraph 1(b) above, except that
the entire remaining principal balance of this Note as of June 30, 2000 (or
such later date as the Maker shall close its first Qualified Offering) shall be
due and payable, together with all unpaid accrued interest, on June 30, 2000 or
the closing of the Maker's first Qualified Offering (whichever is later).
(d) In the event that any scheduled payment date
hereunder is a day on which banks in the State of California are required or
authorized to be closed, then the payment that would be due on such day shall
instead be due and payable on the next day which is not such a non-banking day,
with additional interest for such delay.
2. Prepayment.
The Maker shall have the right to prepay, without penalty, at
any time or times after the date hereof, all or any portion of the outstanding
principal balance of this Note, together with interest on the principal amount
prepaid accrued to the date of prepayment. Any and all principal prepayments
hereunder shall be applied to the remaining principal installments hereunder in
inverse order of maturity.
3. Events of Default.
The following are Events of Default hereunder:
(a) Any failure by the Maker to pay when due all or any
principal or interest hereunder or under any other promissory note issued by
the Maker to the Payee, and the continuance of any such non-payment for five
(5) calendar days following the due date of such principal or interest; or
(b) If the Maker or its subsidiary, Conquest Airlines
Corp. ("CAC"), (i) admits in writing its inability to pay generally its debts
as they mature, or (ii) makes a general assignment for the benefit of
creditors, or (iii) is adjudicated a bankrupt or
-2-
<PAGE> 46
insolvent, or (iv) files a voluntary petition in bankruptcy, or (v) takes
advantage, as against its creditors, of any bankruptcy law or statute of the
United States of America or any state or subdivision thereof now or hereafter
in effect, or (vi) has a petition or proceeding filed against it under any
provision of any bankruptcy or insolvency law or statute of the United States
of America or any state or subdivision thereof, which petition or proceeding is
not dismissed within sixty (60) days after the date of the commencement
thereof, (vii) has a receiver, liquidator, trustee, custodian, conservator,
sequestrator or other such person appointed by any court to take charge of its
affairs or assets or business and such appointment is not vacated or discharged
within sixty (60) days thereafter, or (viii) takes any action in furtherance of
any of the foregoing; or
(c) Any representation or warranty made by the Maker in
that certain Stock Purchase Agreement dated as of June __, 1995 by and among
the Maker, the Payee and CAC (the "Stock Purchase Agreement"), or by the Maker
or CAC in that certain Security Agreement of even date herewith by the Maker
and CAC in favor of the Payee (the "Security Agreement"), or in any other
document or agreement delivered by the Maker or CAC in connection with or
pursuant to the Stock Purchase Agreement or the Security Agreement, shall be
false in any material respect on the date as of which such representation or
warranty was made; or
(d) Any failure by the Maker or CAC to perform or observe
any agreement, covenant, term or condition contained in the Stock Purchase
Agreement, in the Security Agreement, or in any other document or agreement
delivered by the Maker or CAC in connection with or pursuant to the Stock
Purchase Agreement or the Security Agreement, and the continuance of such
failure or non- performance for ten (10) days; or
(e) If a final judgment in an amount in excess of
$250,000 is rendered against the Maker or CAC which is not, within sixty (60)
days after the entry thereof, discharged or the execution thereof stayed
pending appeal, or within sixty (60) days after the expiration of any such
stay, such judgment is not discharged; or
(f) Any liquidation, dissolution or winding up of the
Maker or CAC or its business.
4. Remedies on Default.
If any Event of Default shall occur and be continuing, the
holder hereof shall, in addition to any and all other available rights and
remedies, have the right, at its option (except for an Event of Default under
paragraph 3(b) above, the occurrence of which shall automatically effect
acceleration hereunder), (a) to declare the entire unpaid principal balance of
this Note, together
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<PAGE> 47
with all accrued interest hereunder, to be immediately due and payable, and (b)
to pursue any and all available remedies for the collection of such principal
and interest, including but not limited to the exercise of all rights and
remedies provided in the Security Agreement.
5. Certain Waivers.
Except as otherwise expressly provided in this Note, the Maker
hereby waives diligence, demand, presentment for payment, protest, dishonor,
nonpayment, default, and notice of any and all of the foregoing. All amounts
payable under this Note shall be payable without relief under any applicable
valuation and appraisement laws.
6. Amendments.
This Note may not be changed orally, but only by an agreement
in writing and signed by the party against whom enforcement of any waiver,
change, modification or discharge is sought.
7. Cumulative Remedies.
No right or remedy conferred upon the Payee under this Note is
intended to be exclusive of any other right or remedy contained herein or in
the Stock Purchase Agreement or the Security Agreement, or in any instrument or
document delivered in connection herewith or therewith, and every such right or
remedy shall be cumulative and shall be in addition to every other such right
or remedy contained herein and therein and/or now or hereafter existing at law
or in equity or otherwise.
8. Waivers; Course of Dealing.
No course of dealing between the Maker and the Payee, or any
failure or delay on the part of the Payee in exercising any rights or remedies,
or any single or partial exercise of any rights or remedies, shall operate as a
waiver or preclude the exercise of any other rights or remedies available to
the Payee.
9. Governing Law.
This Note shall be deemed to be a contract made under the laws
of the State of California and shall be governed by, and construed in
accordance with, the laws of the State of California.
10. Collection Costs.
In the event that the Payee shall, after the occurrence of an
Event of Default, turn this Note over to an attorney for collection, the Maker
shall further be obligated to the Payee for
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<PAGE> 48
the Payee's reasonable attorneys' fees and expenses incurred in connection with
such collection.
AIR L.A., INC., A DELAWARE
CORPORATION
By: /s/
-------------------------------
Acting Ceo (Title)
-5-
<PAGE> 49
AIR L.A., INC.
5933 West Century Boulevard, Suite 500
Los Angeles, CA. 90045
June 30, 1995
--
Conquest Industries Inc.
c/o Wico Corporation
6400 West Gross Point Road
Niles, IL 60714-4508
Re: $2,000,000 Promissory Note
Dear Sirs:
Reference is made to the Promissory Note in the principal
amount of $2,000,000 being issued on the date hereof by Air L.A., Inc. ("Air
L.A.") to Conquest Industries Inc. ("Conquest").
This will confirm that such Promissory Note has been issued to
evidence the terms of repayment of certain indebtedness heretofore owed by
Conquest Airlines Corp. to Conquest, which obligations have been assumed by Air
L.A., and shall hereafter be evidenced by and repayable pursuant to the
aforesaid Promissory Note. The issuance of such Promissory Note shall not,
however, constitute a novation of any of such assumed obligations.
Kindly confirm the foregoing by countersigning in the space
provided below.
Very truly yours,
AIR L.A., INC.
By: /s/
------------------------
ACKNOWLEDGED, CONFIRMED
AND AGREED TO:
CONQUEST INDUSTRIES INC.
By: /s/
---------------------------------------
<PAGE> 50
PROMISSORY NOTE
$250,000 June 30, 1995
FOR VALUE RECEIVED, the undersigned, CONQUEST AIRLINES CORP., a
Delaware corporation (the "Maker"), hereby promises to pay to the order of
CONQUEST INDUSTRIES INC., a Delaware corporation (the "Payee"), the principal
sum of Two Hundred Fifty Thousand ($250,000) Dollars, together with interest on
the outstanding principal balance hereunder accrued from the date hereof at the
rate of eight (8%) percent per annum. All payments of principal and/or
interest shall be paid as set forth below, and each such payment shall be made
in lawful money of the United States of America by ordinary check payable to
the order of the Payee at c/o Wico Corporation, 6400 West Gross Point Road,
Niles, Illinois 60714-4508, or such other address as the Payee may designate in
writing from time to time.
1. Payments of Principal and Interest.
The entire principal balance of this Note, and all unpaid
accrued interest thereon, shall be immediately due and payable, without
necessity of demand, concurrently with the closing of, and out of the first
proceeds of, the next debt or equity financing consummated by the Maker or the
Maker's parent, Air L.A., Inc. ("Air L.A.") from and after the date hereof,
regardless of the source of such funds or the nature of such financing;
provided, however, that in the event that the entire principal balance and all
unpaid accrued interest of this Note shall not have become due and payable or
shall not have been paid on or prior to July 31, 1995, then the entire
principal balance and all unpaid accrued interest of this Note shall be payable
on demand made at any time on or after July 31, 1995.
2. Prepayment.
The Maker shall have the right to prepay, without penalty, at
any time or times after the date hereof, all or any portion of the outstanding
principal balance of this Note, together with interest on the principal amount
prepaid accrued to the date of prepayment.
3. Security.
This Note, and all obligations hereunder (including, without
limitation, for principal, interest, and collection costs) are and shall be
secured by all of the collateral pledged and granted by the Maker to the Payee
pursuant to that certain Guaranty and Security Agreement of even date herewith
by the Maker and Air L.A in favor of the Payee (the "Security Agreement"). All
-1-
<PAGE> 51
obligations under this Note are hereby deemed to be "Obligations" for all
purposes of the Security Agreement.
4. Events of Default.
The following are Events of Default hereunder:
(a) Any failure by the Maker to pay when due all or any
principal or interest hereunder or under any other promissory note issued by
the Maker or Air L.A. to the Payee, and the continuance of any such non-payment
for five (5) calendar days following the due date of such principal or
interest; or
(b) If the Maker or Air L.A. (i) admits in writing its
inability to pay generally its debts as they mature, or (ii) makes a general
assignment for the benefit of creditors, or (iii) is adjudicated a bankrupt or
insolvent, or (iv) files a voluntary petition in bankruptcy, or (v) takes
advantage, as against its creditors, of any bankruptcy law or statute of the
United States of America or any state or subdivision thereof now or hereafter
in effect, or (vi) has a petition or proceeding filed against it under any
provision of any bankruptcy or insolvency law or statute of the United States
of America or any state or subdivision thereof, which petition or proceeding is
not dismissed within sixty (60) days after the date of the commencement
thereof, (vii) has a receiver, liquidator, trustee, custodian, conservator,
sequestrator or other such person appointed by any court to take charge of its
affairs or assets or business and such appointment is not vacated or discharged
within sixty (60) days thereafter, or (viii) takes any action in furtherance of
any of the foregoing; or
(c) Any representation or warranty made by the Maker in
that certain Stock Purchase Agreement dated as of June 29, 1995 by and among
the Maker, the Payee and Air L.A. (the "Stock Purchase Agreement"), or by the
Maker or Air L.A. in the Security Agreement or in any other document or
agreement delivered by the Maker or Air L.A. in connection with or pursuant to
the Stock Purchase Agreement or the Security Agreement, shall be false in any
material respect on the date as of which such representation or warranty was
made; or
(d) Any failure by the Maker or Air L.A. to perform or
observe any agreement, covenant, term or condition contained in the Stock
Purchase Agreement, in the Security Agreement, or in any other document or
agreement delivered by the Maker or Air L.A. in connection with or pursuant to
the Stock Purchase Agreement or the Security Agreement, and the continuance of
such failure or non-performance for ten (10) days; or
(e) Any breach or default by the Maker of its obligations
under a certain letter agreement of even date herewith, requiring joint
signatures of the Maker and the Payee on all checks
-2-
<PAGE> 52
and other withdrawals on all bank accounts and other depository accounts of the
Maker; or
(f) If a final judgment in an amount in excess of
$250,000 is rendered against the Maker or Air L.A. which is not, within sixty
(60) days after the entry thereof, discharged or the execution thereof stayed
pending appeal, or within sixty (60) days after the expiration of any such
stay, such judgment is not discharged; or
(g) Any liquidation, dissolution or winding up of the
Maker or Air L.A. or its business.
5. Remedies on Default.
If any Event of Default shall occur and be continuing, the
holder hereof shall, in addition to any and all other available rights and
remedies, have the right, at its option (except for an Event of Default under
paragraph 4(b) above, the occurrence of which shall automatically effect
acceleration hereunder), (a) to declare the entire unpaid principal balance of
this Note, together with all accrued interest hereunder, to be immediately due
and payable, and (b) to pursue any and all available remedies for the
collection of such principal and interest, including but not limited to the
exercise of all rights and remedies provided in the Security Agreement.
6. Certain Waivers.
Except as otherwise expressly provided in this Note, the Maker
hereby waives diligence, demand, presentment for payment, protest, dishonor,
nonpayment, default, and notice of any and all of the foregoing. All amounts
payable under this Note shall be payable without relief under any applicable
valuation and appraisement laws.
7. Amendments.
This Note may not be changed orally, but only by an agreement
in writing and signed by the party against whom enforcement of any waiver,
change, modification or discharge is sought.
8. Cumulative Remedies.
No right or remedy conferred upon the Payee under this Note is
intended to be exclusive of any other right or remedy contained herein or in
the Stock Purchase Agreement or the Security Agreement, or in any instrument or
document delivered in connection herewith or therewith, and every such right or
remedy shall be cumulative and shall be in addition to every other such right
or
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<PAGE> 53
remedy contained herein and therein and/or now or hereafter existing at law or
in equity or otherwise.
9. Waivers; Course of Dealing.
No course of dealing between the Maker and the Payee, or any
failure or delay on the part of the Payee in exercising any rights or remedies,
or any single or partial exercise of any rights or remedies, shall operate as a
waiver or preclude the exercise of any other rights or remedies available to
the Payee.
10. Governing Law.
This Note shall be deemed to be a contract made under the laws
of the State of California and shall be governed by, and construed in
accordance with, the laws of the State of California.
11. Collection Costs.
In the event that the Payee shall, after the occurrence of an
Event of Default, turn this Note over to an attorney for collection, the Maker
shall further be obligated to the Payee for the Payee's reasonable attorneys'
fees and expenses incurred in connection with such collection.
CONQUEST AIRLINES CORP.,
A DELAWARE CORPORATION
By: /s/
-------------------------------
(Title)
-4-
<PAGE> 54
INTERCREDITOR AGREEMENT
INTERCREDITOR AGREEMENT (this "Agreement"), made as of this
___ day of June, 1995, by and between CONQUEST INDUSTRIES INC., a Delaware
corporation having offices at c/o Wico Corporation, 6400 West Gross Point Road,
Niles, Illinois 60741- 4508 ("Conquest") and SPELMAN & CO., INC., a
____________ corporation having offices at ___________________________________
________________ ("Spelman");
W I T N E S S E T H :
WHEREAS, Air L.A., Inc. (the "Parent") and its wholly-owned
subsidiary Conquest Airlines Corp. (the "Subsidiary") are each indebted to
Conquest and Spelman, as more particularly set forth herein; and
WHEREAS, the indebtedness of the Parent and the Subsidiary to
Conquest and Spelman are secured by liens and security interests in and upon
substantially all of the assets of each of the Parent and the Subsidiary, as
more particularly described herein; and
WHEREAS, Spelman and Conquest desire to memorialize their
agreement as to their respective lien rights in the present and future Parent
Collateral and Subsidiary Collateral (as hereinafter defined);
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged by
the parties hereto, the parties hereby agree as follows:
1. Definitions.
As used in this Agreement, the following terms shall have the
following meanings:
(a) "Collateral" shall mean, collectively, the Parent
Collateral and the Subsidiary Collateral.
(b) "Conquest Junior Obligations" shall mean all
obligations outstanding from time to time under those three (3) promissory
notes of even date herewith, in the respective principal amounts of $3,000,000,
$2,000,000 and $1,000,000, issued by the Parent to Conquest.
(c) "Conquest Senior Obligations" shall mean all
obligations outstanding from time to time under that certain promissory note of
even date herewith in the principal amount of $250,000 issued by the Subsidiary
to Conquest.
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<PAGE> 55
(d) "Obligations" shall mean, collectively, the Conquest
Senior Obligations, the Conquest Junior Obligations, the Parent-Spelman
Obligations and the Subsidiary-Spelman Obligations.
(e) "Parent Collateral" shall mean all assets and
property pledged by the Parent at any time and from time to time as collateral
security for the Conquest Junior Obligations, and/or the Parent-Spelman
Obligations, and any products and proceeds thereof.
(f) "Parent-Spelman Obligations" shall mean all
obligations outstanding from time to time under that certain promissory note of
even date herewith in the principal amount of $150,000 issued by the Parent to
Spelman.
(g) "Subsidiary Collateral" shall mean all assets and
property pledged by the Subsidiary at any time and from time to time as
collateral security for the Conquest Senior Obligations and/or the
Subsidiary-Spelman Obligations, and any products and proceeds thereof.
(h) "Subsidiary-Spelman Obligations" shall mean all
obligations outstanding from time to time under that certain promissory note of
even date herewith in the principal amount of $100,000 issued by the Subsidiary
to Spelman.
2. Limitations on Liens.
(a) Conquest hereby confirms and agrees that it will not
receive or accept any liens or security interests in any assets or properties
of the Parent other than as collateral security for the Conquest Junior
Obligations, and will not receive or accept any liens or security interests on
any assets or properties of the Subsidiary other than as security for the
Conquest Senior Obligations and the Conquest Junior Obligations; provided,
however, that nothing herein contained shall be deemed to prohibit Conquest
from receiving a pledge of the capital stock of the Subsidiary as collateral
security for the commitment of the Parent to cause Conquest to be removed from
all liability under the Aircraft Leases (as such term is defined in that
certain Stock Purchase Agreement of even date herewith by and among Conquest,
the Parent and the Subsidiary).
(b) Spelman hereby confirms and agrees that it will not
receive or accept any liens or security interests in any assets or properties
of the Parent except as collateral security for the Parent-Spelman Obligations,
and that it will not receive or accept any liens or security interests in any
assets or properties of the Subsidiary except as collateral security for the
Subsidiary-Spelman Obligations.
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<PAGE> 56
3. Priority on Collecitons and Proceeds.
Regardless of any contrary or inconsistent provision contained
in any of the security agreements or other collateral instruments between
Conquest, the Parent and/or the Subsidiary (on the one hand) and between
Spelman, the Parent and/or the Subsidiary (on the other hand), and
notwithstanding the time, order or method of attachment or perfection as
between the liens of Conquest and the liens of Spelman, or the time or order of
filing or recording of financing statements or other evidences of liens or
security interests, the parties hereby agree that any and all amounts collected
by either Conquest or Spelman from the Parent and/or the Subsidiary (whether
representing the proceeds of Collateral or otherwise), shall be applied in the
following order of priorities:
(a) As to any amounts collected from the Parent and/or as
proceeds of any of the Parent Collateral, same shall be applied:
(i) First, to the costs and expenses of
collection;
(ii) Second, to the payment of the interest and
principal of the Parent-Spelman Obligations, until all of the Parent-Spelman
Obligations are paid in full;
(iii) Third, to the interest and principal of the
Conquest Junior Obligations, until all of the Conquest Junior Obligations are
paid in full; and
(iv) Finally, to such persons as may be legally
entitled to any further payments or proceeds after payment in full of all of
the aforedescribed Obligations.
(b) With respect to any and all amounts collected from
the Subsidiary and/or as proceeds of the Subsidiary Collateral:
(i) First, to the costs and expenses of
collection;
(ii) Second, to the payment of the interest and
principal of the Subsidiary-Spelman obligations and the Conquest Senior
Obligations, on a pari passu basis based on the relative principal amounts of
such Obligations then outstanding, until all of such Obligations have been
fully paid;
(iii) Third, to the interest and principal of the
Conquest Junior Obligations, until all of the Conquest Junior Obligations have
been paid in full; and
(iv) Finally, to such persons as may be legally
entitled to any further payments or proceeds after payment in full of all of
the aforedescribed Obligations.
The foregoing priorities, and all applicable amounts received or collected by
or on behalf of either Conquest or Spelman, shall be
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<PAGE> 57
applied, in accordance with the foregoing order of priorities, regardless of
whether any particular Obligations (to which any payments are to be applied
hereunder) shall then be due and payable.
4. Exercise of Remedies.
(a) Prior to exercising any rights or remedies against
either the Parent or the Subsidiary in respect of any Obligations, and/or
exercising any rights or remedies in respect of any of the Collateral, the
parties hereby agree to consult with one another so as to foster a more orderly
exercise of remedies, and to maximize, to the extent reasonably possible,
collections from the Parent and the Subsidiary, and in respect of the
Collateral. The foregoing notwithstanding, each party shall be entitled to
take any and all such action and to exercise any and all available remedies in
accordance with the instruments and agreements evidencing the Obligations owed
to them, and evidencing their respective interests in any or all of the
Collateral; and neither party shall have any liability to the other party by
reason of any such action or exercise of rights or remedies taken in good
faith, except to the extent of any damages caused by the gross negligence or
willful misconduct of such party.
(b) Each party shall, in connection with any sale or
disposition of Collateral, execute and deliver any and all such termination
statements and other releases in respect of such party's liens as may be
necessary or appropriate in order to obtain proceeds for distribution and
application in accordance herewith. Notwithstanding the execution and delivery
of any such termination statements and releases, the security interests of each
party shall continue to attach to the proceeds of the subject Collateral, in
accordance with the priorities set forth in this Agreement.
5. Additional Waivers. Each party expressly waives all notice of
the acceptance by the other party of the provisions of this Agreement and all
other notices not specifically required pursuant to the terms of this
Agreement; and each party expressly waives reliance by the other party upon the
lien subordinations and other agreements as herein provided. Each party
acknowledges and agrees that (a) it has received no representations or
warranties from the other party with respect to the Parent, the Subsidiary
and/or any of the Collateral, and (b) the other party shall be entitled to
manage and supervise its financial arrangements with the Parent and the
Subsidiary in accordance with its usual practices, modified from time to time
as it deems appropriate under the circumstances, without affecting the validity
or enforceability of this Agreement; provided, however, that, so long as any
Obligations are owing to the other party, neither party shall in any manner
alter, amend or modify the terms and conditions applicable to the Obligations
owed to it and/or its interests in the Collateral, without the express prior
written consent of the other party in each instance.
-4-
<PAGE> 58
6. Continuing Agreement.
(a) Each party hereto acknowledges and agrees that the terms
and provisions of this Agreement do not conflict with or violate any terms or
provisions of any agreement, instrument, or document executed by the Parent or
the Subsidiary and, or in favor of, the other party hereto, and that, to the
extent that any of the terms and provisions of this Agreement may be
inconsistent with any such agreement, instrument, or document, such agreements,
instruments and documents shall be deemed to be superseded by this Agreement.
(b) This Agreement shall be irrevocable and shall remain
in effect until the earlier of (i) the date on which all Obligations owing to
Conquest shall have been fully paid, or (ii) the date on which all Obligations
owing to Spelman shall have been fully paid.
7. Scope of Agreement. This Agreement is only intended to
establish and define the relative rights and priorities of Spelman, on the one
hand, and Conquest, on the other hand, in and with respect to the Obligations
and the Collateral; and none of the provisions of this Agreement shall impair
the obligations of the Parent or the Subsidiary to pay and satisfy its
respective Obligations.
8. Lien Transfer. In the event and to the extent that either
party shall, at any time or from time to time, transfer or assign any of its
interest in any of the Obligations or Collateral, such transfer or assignment
shall be made expressly subject to the provisions of this Agreement.
9. Waivers and Amendments.
(a) No waiver shall be deemed to be made by either party
of any of its rights hereunder, unless the same shall be in writing and signed
by such party, and each waiver, if any, shall be a waiver only with respect to
the specific instance involved and shall in no way impair the rights of such
party in any other respect at any other time.
(b) This Agreement may not be amended except pursuant to
a written instrument duly executed by Conquest and Spelman.
10. Governing Law. This Agreement shall (irrespective of the
place where it is executed and delivered) be governed, construed and controlled
by and under the laws of the State of California (without giving effect to
principles of conflicts of laws).
11. Binding Effect. This Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective
successors and assigns, but shall not be for the benefit of any third party
beneficiary.
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<PAGE> 59
12. Captions. The paragraph headings used in this Agreement are
for convenience only, and shall not affect the construction or interpretation
of this Agreement or any of the provisions hereof.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to constitute an original, but all
of which together shall constitute one and the same instrument.
14. Severability. In the event and to the extent that any
provision of this Agreement shall be held invalid or unenforceable, such
invalidity or unenforceability shall not effect the validity or enforceability
of any other provisions of this Agreement, all of which shall remain fully
enforceable as set forth herein.
IN WITNESS WHEREOF, the parties, intending to be legally bound hereby,
have caused this Agreement to be executed on and as of the date first set forth
above.
CONQUEST INDUSTRIES INC.
By: /s/
-------------------------------
SPELMAN & CO., INC.
By: /s/
-------------------------------
Acknowledged, Confirmed and
Agreed To:
AIR L.A., INC.
By: /s/
-----------------------------------
CONQUEST AIRLINES CORP.
By: /s/
-----------------------------------
-6-
<PAGE> 60
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT (this "Agreement"), dated as of June 29, 1995,
is made by and between AIR L.A. INC., a Delaware corporation having offices at
5933 West Century Boulevard, Suite 500, Los Angeles, California 90045 (the
"Company"), and CONQUEST INDUSTRIES INC., a Delaware corporation having offices
c/o Wico Corporation, 6400 West Gross Point Road, Niles, Illinois 60741-4508
(the "Optionee");
W I T N E S S E T H:
WHEREAS, in order to induce the Optionee to extend a loan to the
Company's wholly-owned subsidiary, Conquest Airlines Corp., in the principal
amount of $250,000, the Company has agreed to issue to the Optionee the option
to purchase up to 250,000 shares of common stock of the Company ("Common
Stock") on the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Company and the
Optionee hereby agree as follows:
1. THE OPTION.
Subject to the terms and conditions of this
Agreement, the Company hereby grants to the Optionee the right and option (the
"Option") to purchase from the Company up to two hundred fifty thousand
(250,000) shares of Common Stock (as adjusted from time to time, the "Shares")
at any time and from time to time during the period commencing on the date
hereof and
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<PAGE> 61
terminating at 5:00 p.m. Pacific time on June 30, 2000, at the exercise price
of Fifty Cents ($.50) per Share, subject to adjustment as hereinbelow set forth
(the "Option Exercise Price"). The Option shall expire and all rights to
purchase Common Stock pursuant thereto (to the extent not previously exercised)
shall cease at 5:00 p.m. Pacific time on June 30, 2000 (the "Expiration Date").
2. EXERCISE OF OPTION. In order to exercise the Option,
the Optionee shall give written notice to the Company specifying the number of
Shares with respect to which the Option is being exercised, which notice shall
be accompanied by payment in full of the Option Exercise Price for such Shares
(in each instance, an "Option Exercise"). Such payment shall be made by
certified or bank check drawn on a bank which is a member of the Federal Reserve
and payable to the order of the Company.
3. ADJUSTMENTS TO SHARES SUBJECT TO OPTION. The number
of shares of Common Stock covered by the Option, the Option Exercise Price, and
the type of securities subject to the Option, shall be proportionately and
equitably adjusted from time to time for any increase or decrease in the number
of outstanding shares of Common Stock, or any change in the type of Company
securities held by the holders of outstanding Common Stock, resulting from a
stock split or other subdivision respecting the Common Stock, any consolidation
of shares of the Common Stock, any other capital adjustment of shares of the
Common Stock, any exchange or conversion of the Common Stock for other
securities, or the payment of a stock dividend upon the Common Stock.
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<PAGE> 62
4. REGISTRATION RIGHTS. The Shares purchasable pursuant
to this Option, and the holders thereof, shall be entitled to registration
rights in respect of such Shares on a basis consistent with the registration
rights set forth in that certain Registration Rights Agreement of even date
herewith by and among the Company and the Optionee (as holder of the Company's
convertible promissory notes being issued on or about the date hereof), as if
the Shares were "Registrable Securities" as defined in such Registration Rights
Agreement, provided that in any instance in which the amount of securities to
be registered at any time pursuant to the Registration Rights Agreement exceeds
any limitation provided in the Registration Rights Agreement, then the
registration rights of the holders of the Shares shall be junior to the rights
of the holders of those "Registrable Securities" specifically identified as
such in the Registration Rights Agreement.
5. ISSUANCE OF SHARES; RESTRICTIONS.
(a) The Company shall, within ten (10) business
days after the Option has been duly exercised in whole or in part, deliver to
the Optionee one or more certificates, registered in the name of the Optionee,
for the number of Shares with respect to which the Option has been exercised.
Unless the subject Shares are then subject to a currently effective
registration statement under the Securities Act of 1933, as amended (the
"Act"), and applicable state securities laws, the Company may legend any stock
certificate issued hereunder to reflect any restrictions provided under
applicable state securities or other laws as determined by counsel
-3-
<PAGE> 63
to the Company, as well as any other restrictions provided for in this Section
5.
(b) Unless the subject Shares are then subject to
a currently effective registration statement under the Act and applicable state
securities laws, all shares of Common Stock issued to the Optionee pursuant to
any Option Exercise shall further bear a legend to the following effect:
"The shares evidenced by this certificate have been acquired
for investment and have not been registered under the
Securities Act of 1933, as amended, or applicable state
securities laws, and may not be offered, sold or otherwise
transferred, pledged or hypothecated unless and until
registered under the Securities Act of 1933 or applicable
state securities laws, or unless, in the opinion of counsel
satisfactory to the Corporation, in form and substance
satisfactory to the Corporation, such offer, sale, transfer,
pledge or hypothecation is exempt from registration or is
otherwise in compliance with such laws."
6. COMPLETE AGREEMENT; AMENDMENTS. This Agreement
constitutes the complete understanding and agreement between the parties hereto
as to the subject matter hereof, and no waiver, amendment or modification of
any of the terms or provisions hereof shall be valid unless made pursuant to an
instrument in writing signed by both parties. This Agreement supersedes any
and all prior agreements and understandings between the parties hereto relating
to the subject matter hereof.
7. SEVERABILITY. In the event that any provision of
this Agreement shall hereafter be declared to be invalid or unenforceable in
whole or in part, such invalidity or unenforceability shall not affect any
provisions of this Agreement or portions of such provisions not rendered
invalid or
-4-
<PAGE> 64
unenforceable, which provisions or portions of such provisions shall continue
in full force and effect.
8. SUCCESSORS AND ASSIGNS. All of the terms and
provisions of this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns.
Subject to compliance with any applicable securities laws restrictions, this
Agreement and the Option are transferable and assignable (in whole or in part)
at the discretion of the Optionee and/or any subsequent holder.
9. GOVERNING LAW. This Agreement shall be governed by
and construed and enforced in accordance with the laws of the State of
Delaware, without giving effect to any choice of law principles thereunder.
10. NOTICES. All notices, offers, acceptances and
communications to be made, served or given under or pursuant to this Agreement
shall be in writing and shall be deemed to have been duly given when personally
delivered, one (1) day after being deposited with a recognized overnight
courier service properly addressed and with all charges prepaid or billed to
the account of the sender, or three (3) days after being sent by registered or
certified mail, return receipt requested, postage prepaid, addressed to the
party being notified at such party's address first set forth above. Any party
may change the address to which notices or communications shall be sent by
giving written notice to the other party of such changed address, provided that
any such notice of change of address shall not be effective until received by
the party being notified.
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<PAGE> 65
11. HEADINGS. The captions and Section headings used in
this Agreement are intended solely for ease of reference and shall not affect
the construction or interpretation of this Agreement.
AIR L.A., INC.
By: /s/
-------------------------------
CONQUEST INDUSTRIES INC.
By: /s/
-------------------------------
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<PAGE> 66
CONQUEST AIRLINES CORP
BALANCE SHEET
MAY 31, 1995
<TABLE>
<CAPTION>
ADJUSTMENTS
<S> <C> <C> <C> <C> <C> <C>
CASH
CHASE MANHATTAN - ACH SET 1,000.00 1,000.00
TEXAS COMMERCE BANK - MFE 2,237.79 2,237.79
NATIONS BANK - TX STATIONS 9,686.08 9,686.08
KEY BANK LONG ISLAND - CHE 2,743.97 (1) (2,743.97) 0.00
NATIONS BANK - OPERATING 106,278.31 106,278.31
NATIONS BANK - PAYROLL (26,077.30) (26,077.30)
PETTY CASH - MAINTENANCE 546.30 546.30
PETTY CASH - FINANCE 504.24 504.24
PETTY CASH - STATIONS 2,362.58 2,362.58
WORKING DRAWER - STATION 876.75 876.75
------------
96,160.90 95,416.93
ACCOUNTS RECEIVABLE
ACCOUNTS RECEIVABLE - UNBI 20,000.00 20,000.00
ACCOUNTS RECEIVABLE - UAT 23,034.00 23,034.00
ACCOUNTS RECEIVABLE - TVL 714.00 714.00
ACCOUNTS RECEIVABLE - EMP 2,476.98 2,476.98
ACCOUNTS RECEIVABLE - AME 112,199.50 112,199.50
ACCOUNTS RECEIVABLE - NVC 43,169.00 43,169.00
ACCOUNTS RECEIVABLE - DINE 20,520.00 20,520.00
ACCOUNTS RECEIVABLE - DISC 2,411.00 2,411.00
ACCOUNTS RECEIVABLE - ARC 16,026.91 16,026.91
ACCOUNTS RECEIVABLE - ACH 28,125.35 28,125.35
ACCOUNTS RECEIVABLE - FREI 6,118.26 6,118.26
ACCOUNTS RECEIVABLE - GOV 241.00 241.00
------------
275,045.00 275,045.00
INVENTORY
METRO PARTS - CONSUMMABL 220,930.30 220,930.30
------------
220,930.30 220,930.30
PREPAID EXPENSES
PREPAID FUEL - AUS STATION 12,108.90 12,108.90
PREPAID FUEL - ABI STATION 1,801.30 1,801.30
PREPAID FUEL - BPT STATION 1,271.73 1,271.73
PREPAID FUEL - CRP STATION 2,411.82 2,411.82
PREPAID FUEL - MFE STATION 3,957.14 3,957.14
PREPAID FUEL - TYR STATION 5,400.61 5,400.61
PREPAID FUEL - SAT STATION 2,363.91 2,363.91
PREPAID INSURANCE - OTHER 32,222.58 32,222.58
PREPAID INSURANCE - HULL & 86,298.06 86,298.06
PREPAID FRANCHISE - DELAWA 19,368.00 (8) (19,368.00) 0.00
------------
167,072.20 147,714.20
OTHER CURRENT ASSETS
DEFERRED EXPENSES 92,679.94 92,679.94
------------
92,679.94 92,679.94
</TABLE>
<PAGE> 67
<TABLE>
<CAPTION>
PROPERTY AND EQUIPMENT
<S> <C> <C> <C> <C> <C> <C>
LAND - AUSTIN 80,000.00 80,000.00
GROUND EQUIPMENT 227,630.28 227,630.28
AUTOMOTIVE EQUIPMENT 105,600.00 105,600.00
PASSENGER TRANSFER VEH 16,475.19 16,475.19
BUILDING CORP HQ 296,997.71 296,997.71
OFFICE FURNITURE AND EQUIP 140,893.61 140,893.61
COMPUTER HARDWARE 255,990.68 255,990.68
COMPUTER SOFTWARE 94,105.16 94,105.16
RESERVATION SYSTEM 69,440.83 69,440.83
SHOP MACH AND EQUIP 193,966.37 193,966.37
ROTABLE PARTS 655,898.74 655,898.74
AIRCRAFT IMPROVEMENTS 142,147.09 142,147.09
AIRCRAFT ENGINES 525,446.62 525,446.62
ENGINE OVERHAUL COSTS 17,450.31 17,450.31
ENGINE HSI COSTS 10,710.03 10,710.03
ENGINE HSI COSTS 19,189.34 19,189.34
LEASEHOLD AIRCRAFT 40,000.00 40,000.00
LEASEHOLD MAINTENANCE 3,380.00 3,380.00
LEASEHOLD STATION 129,583.51 129,583.51
PORTABLE BUILDINGS 14,241.76 14,241.76
------------
3,041,177.92 3,041,177.92
ACCUMULATED DEPRECIATION
GROUND EQUIPMENT (83,787.50) (83,787.50)
AUTOMOTIVE EQUIPMENT (99,408.43) (99,408.43)
PASSENGER TRANSFER VEH (6,814.23) (6,814.23)
BUILDING CORP HQ (46,122.40) (46,122.40)
OFFICE FURNITURE AND EQUIP (94,818.20) (94,818.20)
COMPUTER HARDWARE (124,840.29) (124,840.29)
COMPUTER SOFTWARE (86,077.64) (86,077.64)
RESERVATION SYSTEM (53,165.13) (53,165.13)
SHOP MACH AND EQUIP (83,379.04) (83,379.04)
ROTABLE PARTS (80,123.86) (80,123.86)
AIRCRAFT IMPROVEMENTS (49,384.92) (49,384.92)
AIRCRAFT ENGINES (64,157.50) (64,157.50)
LEASEHOLD AIRCRAFT (6,536.06) (6,536.06)
LEASEHOLD MAINTENANCE (2,591.64) (2,591.64)
LEASEHOLD STATION (66,710.64) (66,710.64)
PORT BUILDINGS (1,487.81) (1,487.81)
------------
(982,005.80) (982,005.80)
OTHER NONCURRENT ASSETS
SECURITY DEPOSITS 26,010.45 7 (5,170.36) 26,840.10
DEFERRED TRAINING 86,055.49 86,055.49
CASH DEPOSITS 245,200.00 245,000.00
DUE FROM OFFICERS 36,751.25 2 (36,751.25) 0.00
DEFERRED CONSULTING 9,680.22 9,680.22
CD FIRST BANK 64,000.00 64,000.00
INTERCOMPANY TRANSFERS 4,033,197.56 3 (4,033,197.56) 0.00
------------
4,506,694.97 429,775.81
------------ ------------
7,419,965.64 (4,099,221.13) 3,320,745.51
============ ============
</TABLE>
<PAGE> 68
CONQUEST AIRLINES CORP
BALANCE SHEET
MAY 31, 1995
LIABILITIES AND EQUITY
CURRENT LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
TRADE ACCOUNTS PAYABLE 479,187.75 479,187.75
ACCRUED EXPENSES 123,546.45 123,546.45
LEASES PAYABLE 350,500.00 350,500.00
CURRENT PORTION OF LONG T 171,361.25 171,361.25
ACCRUED PAYROLL 43,178.36 43,178.36
DEFERRED PASSENGER REVEN 234,946.14 234,946.14
PAYABLE TO AFLAC 145.37 145.37
ENGINE RESERVES - LEASE AIR 163,287.04 4 1,932.50 165,219.54
PILOT TRAINING ADVANCED PA 54,114.51 54,114.51
ACCRUED PROPERTY TAXES 13,975.47 13,975.47
TRANSPORTATION TAXES PAYA 62,736.30 62,736.30
ACCRUED HEALTH INSURANCE 37,513.43 37,513.43
ACCRUED SABRE BOOKING FEE (3.90) (3.90)
NOTE PAYABLE TO STERLING 206,863.10 206,863.10
----------------
1,950,351.27 1,952,283.77
LONG TERM DEBT
NOTE PAYABLE - BUILDING AUS 148,536.91 148,536.91
NOTE PAYABLE - MINI BUS 15,551.42 15,551.42
CURRENT MATURITIES OF LON (171,361.25) (171,361.25)
METRO FINDER FEES PAYABLE 21,249.89 21,249.89
ACCRUED LEASE EXPENSES 36,574.00 36,574.00
NOTES PAYABLE GARRETT AVIA 105,956.42 105,956.42
----------------
158,509.39 158,509.39
------------- --------------
TOTAL LIABILITIES 2,108,860.66 2,110,793.16
STOCKHOLDERS EQUITY
COMMON STOCK 19,777.92 5 -18,777.92 1,000.00
PREFERRED STOCK 755.00 5 (755.00) 0.00
APIC 20,343,121.64 5 (20,343,121.64) 0.00
APIC PREFERRED 1,962,247.66 5 (1,962,247.66) 0.00
RETAINED EARNINGS - PRIOR (15,406,691.62) 5 15,406,691.62 0.00
RETAINED EARNINGS - CURREN (1,626,104.82) 5 1,626,104.82 0.00
EQUITY 0.00 6 1,208,952.35 1,208,952.35
----------------
TOTAL STOCKHOLDERS EQUITY 5,311,105.98 1,209,952.35
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY 7,419,966.64 3,320,745.51
============== ==============
</TABLE>
<PAGE> 69
ADJUSTING ENTRIES
1 TO ELIMINATE LONG ISLAND BANK ACCOUNT
2 TO ACCRUE ESTIMATED INSURANCE LIABILITY
3 TO ELIMINATE INTERCOMPANY BALANCE
4 TO ADJUST ENGINE RESERVE ACCOUNT
5 TO ELIMINATE EQUITY ACCOUNTS AND ESTABLISH CAPITAL STOCK ACCOUNT
6 TO ESTABLISH NEW EQUITY ACCOUNT
7 TO ADJUST FOR DEPOSIT ON V RIVAS AUTO
8 TO ELIMINATE PREPAID FRANCHISE TAXES
<PAGE> 70
VOTING AGREEMENT
Voting Agreement, dated as of June ____, 1995, among (i)
Conquest Industries Inc., a Delaware corporation ("CII"), (ii) Air L.A., Inc.,
a Delaware corporation ("Air L.A.") and (iii) those persons listed on Schedule
1 hereto (the "Stockholders").
W I T N E S S E T H :
WHEREAS, the Stockholders are persons and entities who own
shares of the Common Stock, $.10 par value ("Air L.A. Common Stock"), of Air
L.A.; and
WHEREAS, CII and its subsidiary, Conquest Airlines Corp. (the
"Subsidiary"), a Delaware corporation, have entered into a Stock Purchase
Agreement, dated as of June __, 1995 (the "Purchase Agreement") with Air L.A.,
pursuant to which, among other things, Air. L.A. will purchase all the issued
and outstanding capital stock of the Subsidiary for a purchase price
consisting, in part, of a $3,000,000 Convertible Promissory Note (the "Note")
which is convertible into shares of Air. L.A.'s Convertible Preferred Stock
(the "Preferred Stock") upon the authorization of preferred stock by Air L.A.'s
stockholders; and
WHEREAS, the Purchase Agreement provides that the holders of
the Note will have certain rights to nominate one director of Air L.A.; and
WHEREAS, in accordance with the Purchase Agreement, Air L.A.
has agreed to use its best efforts to hold its Annual Meeting of Stockholders
(the "Meeting") on or prior to August 25, 1995, at which Meeting, Air L.A. will
seek stockholder approval of, among other things, proposals to amend Air L.A.'s
Certificate of Incorporation to (i) authorize not less than 3,000,000 shares of
preferred stock, of which 3,000,000 will initially be designated Series A
Convertible Preferred Stock as described in Exhibit C to the Purchase
Agreement, and which will be issued upon conversion of the Note, (ii) increase
the number of authorized shares of Air L.A.'s common stock from 10,000,000
shares to 50,000,000 shares and (iii) effect a one-for-four reverse split (the
"Reverse Split") of the outstanding shares of Air L.A. common stock; and
WHEREAS, CII desires to provide for the voting of the shares
of Air L.A. Common Stock held by the Stockholders for the nominees of the
Noteholders as directors of Air L.A. and for the other matters to be presented
to Air L.A.'s stockholders at the Meeting.
<PAGE> 71
NOW, THEREFORE, in consideration of the premises and mutual
covenants and agreements contained herein and in the Purchase Agreement and for
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows, with all capitalized terms
used herein and not otherwise defined herein having the respective meanings
ascribed thereto in the Purchase Agreement:
1. Voting Agreement. (a) Until the Note is no longer
outstanding, Air L.A. and the Stockholders hereby agree to use their respective
best efforts to cause Air L.A. to have a Board of Directors which will consist
of seven (7) members, two (2) of which directors (the "Noteholder Nominees")
will be nominated by the holder(s) of a majority in outstanding principal
amount of the Note for so long as the Note is outstanding. Each Stockholder
hereby agrees to vote all of his, her or its shares of Air L.A. Common Stock,
whether now owned or hereafter acquired, and to take all other necessary or
desirable actions within his, her or its control (whether in such party's
capacity as a stockholder, director, member of the executive committee or
officer of Air L.A. or otherwise, but subject in the case of officers and
directors, to their fiduciary duties under applicable law) to nominate the
Noteholder Nominees for election, and to elect such persons, as directors.
Each Stockholder hereby agrees to vote all of his, her or its shares of Air
L.A. Common Stock, whether now owned or hereafter acquired for the amendment of
Air L.A.'s Certificate of Incorporation to (i) authorize not less than
3,000,000 shares of preferred stock, (ii) increase the number of authorized
shares of Air L.A.'s common stock from 10,000,000 shares to 50,000,000 shares
and (iii) effect the Reverse Split. Notwithstanding anything herein to the
contrary, at such time as the Preferred Stock is outstanding, the holders of
the Preferred Stock shall have the right to nominate and elect directors as set
forth in the Purchase Agreement and as set forth in the Certificate of
Designation attached to the Purchase Agreement as Exhibit C. Each Stockholder
hereby agrees to take all necessary or desirable actions within his, her or its
control (whether in such party's capacity as a stockholder, director, member of
the executive committee or officer of Air L.A. or otherwise, but subject in the
case of officers and directors, to their fiduciary duties under applicable law)
to cause Air L.A. to comply with the provisions relating to such rights of the
holders of the Preferred Stock.
(b) In the event that any Noteholder Nominee for any reason
ceases to serve as a member of the Board during the period when the Note is
outstanding, Air L.A. and the Stockholders hereby agree to use their respective
best efforts (including, in the case of each Stockholder, voting his, her or
its shares of Air L.A. Common Stock in accordance with Section 1 hereof) to
cause the resulting vacancy on the Board to be filled by a representative
designated by the holders of a majority in outstanding principal amount of the
Note.
2
<PAGE> 72
2. Termination. This Agreement will terminate at such
time as the Note is no longer outstanding.
3. Amendment and Waiver. No modification, amendment or
waiver of any provision of this Agreement will be effective against any party
unless such modification, amendment or waiver is approved in writing by the
other parties hereto. The failure of any party to enforce any of the
provisions of this Agreement will in no way be construed as a waiver of such
provisions and will not affect the right of such party thereafter to enforce
each and every provision of this Agreement in accordance with its terms.
4. Severability. Whenever possible, each provision of
this Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability will
not affect any other provision or any other jurisdiction, but this Agreement
will be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein.
5. Entire Agreement. Except as contemplated by the
Purchase Agreement, this document embodies the complete agreement and
understanding among the parties hereto with respect to the subject matter
hereof and supersedes and preempts any prior understandings, agreements or
representations by or among the parties, written or oral, which may have
related to the subject matter hereof in any way.
6. Successors and Assigns. Except as otherwise set
forth herein, this Agreement will bind and inure to the benefit of and be
enforceable by each party and its respective successors and assigns.
7. Counterparts. This Agreement may be executed in
separate counterparts each of which will be an original and all of which taken
together will constitute one and the same agreement.
8. Remedies. The parties will be entitled to enforce
their rights under this Agreement specifically (without posting a bond or other
security), to recover damages by reason of any breach of any provision of this
Agreement and to exercise all other rights existing in their favor. The
parties hereto agree and acknowledge that money damages may not be an adequate
remedy for any breach of the provisions of this Agreement and that, in addition
to other remedies it may have, any party may in its sole discretion apply to
any court of law or equity of competent jurisdiction for specific performance
and/or injunctive relief in order to enforce or prevent any violation of the
provisions of this Agreement.
3
<PAGE> 73
9. Governing Law. The construction, validity and
interpretation of this Agreement will be governed by the laws of the State of
California, except to the extent of matters which are governed by the General
Corporation Law of the State of Delaware.
10. Descriptive Headings. The descriptive headings of
this Agreement are inserted for convenience only and do not constitute a part
of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first above written.
CONQUEST INDUSTRIES INC.
By: /s/
-------------------------------
Stephen R. Feldman
Chairman of the Board
STOCKHOLDERS:
------------------------
------------------------
AIR L.A., INC.
By: /s/
--------------------------------
Name:
------------------------------
Title:
-----------------------------
4
<PAGE> 74
Schedule 1
<TABLE>
<CAPTION>
Air L.A. Common %age of Outstanding
Stockholder Stock Owned Air L.A. Common Stock
- ----------- ----------- ---------------------
<S> <C> <C>
Wayne Schoenfeld 318,891 3.79%
A.C. Claseman 800,000 9.50%
William J. Hirsch 20,000 .24%
Kenneth Liso 1,000 .012%
CVD Services, Ltd. 632,911 7.52%
</TABLE>
5
<PAGE> 75
GUARANTY AND
SECURITY AGREEMENT
This GUARANTY AND SECURITY AGREEMENT dated June __, 1995
("Agreement"), is made by AIR L.A., INC., a Delaware corporation ("Air L.A."),
and CONQUEST AIRLINES CORP., a Delaware corporation (the "Grantor"), in favor
of CONQUEST INDUSTRIES INC., a Delaware corporation ("Conquest").
W I T N E S S E T H :
WHEREAS, pursuant to a Stock Purchase Agreement, dated June
___, 1995 (the "Stock Purchase Agreement"), by and among Air L.A., Conquest and
the Grantor, Air L.A. has purchased from Conquest all of the issued and
outstanding capital stock (the "Stock") of the Grantor; and
WHEREAS, in consideration for the Stock and in accordance with
the Stock Purchase Agreement, Air L.A. has concurrently herewith issued to
Conquest three (3) promissory notes of even date herewith (the "Purchase
Agreement Notes") in the respective principal amounts of $3,000,000, $2,000,000
and $1,000,000; and
WHEREAS, in order to secure the obligations of Air L.A. under
the Purchase Agreement Notes and in respect of the other Obligations (as such
term is hereinafter defined), Air L.A. and the Grantor have agreed that Grantor
will guarantee the Obligations and that each of Air L.A. and the Grantor will
grant Conquest a security interest in their respective assets, including the
real property of the Grantor listed on Schedule I hereto; and
WHEREAS, simultaneous with the consummation of the transactions
pursuant to the Stock Purchase Agreement, Conquest is, at the request of Air
L.A., extending a loan to the Grantor in the principal amount of $250,000,
represented by a promissory note of even date herewith in such principal amount
issued by the Grantor to Conquest (the "Supplemental Note"; and, collectively
with the Purchase Agreement Notes, the "Notes"); and
WHEREAS, as collateral security for the Grantor's obligations
under the Supplemental Note, the Grantor will grant Conquest a security
interest in the Grantor's assets, including the real property of the Grantor
listed on Schedule I hereto; and
WHEREAS, the Grantor has determined that its execution,
delivery and performance of this Agreement directly benefit, and are within the
corporate purposes and in the best interests of, the Grantor;
<PAGE> 76
NOW, THEREFORE, in consideration of the premises and the
agreements herein and in order to induce Conquest to accept the Note and
consummate the transaction contemplated by the Stock Purchase Agreement, Air
L.A. and the Grantor hereby agree with Conquest as follows:
SECTION 1. Premises Incorporated by Reference, Definitions.
The premises set forth above are incorporated into this Agreement by this
reference thereto and are made a part hereof. Reference is hereby made to the
Stock Purchase Agreement for a statement of the terms thereof; all terms used
in this Agreement which are defined in the Stock Purchase Agreement or in
Article 9 of the Uniform Commercial Code (the "Code") as currently in effect in
the State of California and which are not otherwise defined herein shall have
the same meanings herein as set forth therein.
SECTION 2. Grant of Security Interest. As collateral
security for all of the "Obligations" (as defined in Section 3 hereof), (i) the
Grantor hereby absolutely and unconditionally, jointly and severally with Air
L.A., guarantees the due and timely payment and performance of the Obligations,
and (ii) subject to Section 3 below, Air L.A. and the Grantor each pledges and
assigns to Conquest, and grants to Conquest a continuing security interest in,
all personal property and fixtures of Air L.A. and the Grantor, wherever
located and whether now or hereafter existing and whether now owned or
hereafter acquired of every kind and description, tangible or intangible,
including, without limitation, the following:
(a) all of Air L.A.'s and the Grantor's right, title and
interest in and to all equipment of any kind, wherever located and
whether now or hereafter existing and whether now owned or hereafter
acquired and all parts thereof and accessions thereto, including,
without limitation, all rotable and nonconsumable parts, appliances,
appurtenances, apparatus, assemblies, components, materials, items of
equipment and instruments, of whatever description located at Air
L.A.'s and the Grantor's facilities listed on Schedule I appropriate
for installation or use on or in connection with Metro III aircraft,
including without limitation any of the foregoing which is capable of
being or intended to be used in the navigation, operation or control
of aircraft in flight (all such equipment, parts and accessions being
hereinafter referred to as the "Equipment");
(b) all of Air L.A.'s and the Grantor's right, title and
interest in and to all inventory of any kind, wherever located and
whether now or hereafter existing and whether now owned or hereafter
acquired (including, without limitation, goods in which Air L.A. or
the Grantor has an interest in mass or a joint or other interest or
right of any kind), and all
2
<PAGE> 77
accessions thereto and products thereof (any and all such inventory,
accessions and products being hereinafter referred to as the
"Inventory");
(c) all of Air L.A.'s and the Grantor's right, title and
interest in and to (i) all accounts, contract rights, chattel paper,
instruments, documents, general intangibles and other rights or
obligations of any kind, whether now or hereafter existing and whether
now owned or hereafter acquired, arising out of or in connection with
the sale or lease of goods or the rendering of services or otherwise,
including, without limitation all service marks, trademarks, trademark
applications, trade secrets, goodwill, registrations, copyrights,
licenses, franchises, customer lists, and tax refunds (any and all
such accounts, contract rights, chattel paper, instruments, general
intangibles and obligations being hereinafter referred to as the
"Receivables"), and (ii) all rights now or hereafter existing in and
to all security agreements, leases and other contracts, now or
hereafter existing in, securing or otherwise relating to any such
Receivables (any and all such security agreements, leases and other
contracts being hereinafter referred to as the "Related Contracts");
(d) all right, title and interest of Air L.A. and the
Grantor in and to the aircraft engines listed on Schedule III hereto,
and any other aircraft engines which may hereafter be acquired by Air
L.A. or the Grantor, and in the case of such engines, whether or not
any such engine shall be installed in or attached to any aircraft,
together with all accessories, equipment, parts and appurtenances
appertaining or attached to the engines, whether now owned or
hereafter acquired, and all substitutions, renewals and replacements
of the engines and (collectively, the "Engines"); and
(e) all proceeds of any and all of the foregoing
Collateral and, to the extent not otherwise included, all payments
under insurance, or any indemnity, warranty or guaranty, payable by
reason of loss or damage to or otherwise with respect to any of the
foregoing Collateral;
in each case, howsoever Air L.A.'s or the Grantor's interest therein may arise
or appear (whether by ownership, security interest, claim or otherwise);
and (ii) the Grantor hereby mortgages unto Conquest all right, title and
interest of the Grantor in and to the real property listed on Schedule I hereto,
including, without limitation, and the buildings and improvements now or
hereafter located thereon together with all right, title and interest of the
Grantor now owned, or hereafter acquired, in and to property, rights and
interests (any and all such real property, buildings and
3
<PAGE> 78
improvements and property rights being hereinafter referred to as the
"Properties"), including without limitation, all awards or payments, including
interest thereon, and the right to receive the same, which may be made with
respect to the Properties, whether from the exercise of the right of eminent
domain (including any transfer made in lieu of the exercise of said right), or
for any other injury to or decrease in the value of the Properties; all proceeds
of and any unearned premiums on any insurance policies covering the Properties,
including, without limitation, the right to receive and apply the proceeds of
any insurance, judgments, of settlements made in lieu thereof, for damage to the
Properties; the right, in the name and on behalf of the Grantor, to appear in
and defend any action or proceeding brought with respect to the Properties and
to commence any action or proceeding to protect the interest of the Grantor in
the Properties;
and, with respect to leasehold interests in the Properties, if any, the ground
lease and the leasehold estate created thereby; all modifications, extensions
and renewals of the ground lease and all credits, deposits, options, privileges
and rights of the Grantor, as tenant under the ground lease, including, but not
limited to, the right, if any, to renew or extend the ground lease for a
succeeding term or terms or to purchase the fee estate in the Properties; all
the estate, right, title, claim or demand of any nature whatsoever of the
Grantor, either in law or in equity, in possession or expectancy, in and to the
Properties or any part thereof.
All of the foregoing collateral, including, without limitation, the
Equipment, the Inventory, the Engines, the Receivables, the Related Contracts
and the Properties, is hereinafter collectively referred to as the
"Collateral."
SECTION 3. Security for Obligations. The security interest
created hereby in the Collateral constitutes continuing collateral security for
all of the obligations of Air L.A. and/or the Grantor under the Stock Purchase
Agreement, the Notes and this Agreement, whether now existing or hereafter
incurred (the "Obligations"), including, without limitation, all interest,
charges, expenses, fees, attorneys' and paralegals' fees, and any other sums
chargeable to Air L.A. and/or the Grantor under this Agreement or any other
agreement with Conquest; provided, however, that anything elsewhere contained
in this Agreement to the contrary notwithstanding, the Obligations under the
Supplemental Note are not secured by any of the Collateral of Air L.A.
SECTION 4. Representations and Warranties. Air L.A. and the
Grantor (each a "Debtor" and collectively the "Debtors") represent and warrant
as follows:
(a) All Equipment and Inventory now existing is, and all
Equipment and Inventory hereafter existing will be, located at
4
<PAGE> 79
the addresses specified therefor in Schedule I hereto. The Debtors' respective
chief place of business, chief executive office, and the place where each Debtor
keeps its records concerning Receivables and all originals of all chattel paper
which constitute Receivables are located at the addresses specified therefor in
Schedule I. None of the Receivables is evidenced by a promissory note or other
instrument. Set forth as Schedule II hereto is a complete and correct list of
each trade name used by the Debtors.
(b) Each Debtor has and will at all times have good and marketable
title to each item of its Collateral free and clear of any lien, security
interest or other charge or encumbrance except for (i) the security interest
created by this Agreement, (ii) the security interests and other encumbrances
described in or contemplated by Section 5.1 of the Stock Purchase Agreement and
(iii) with respect to the Properties, existing mortgage liens listed on Schedule
4(b) hereto. No effective financing statement or other instrument similar in
effect covering all or any part of the Collateral is on file in any recording or
filing office except (i) such as may have been filed in favor of Conquest
relating to this Agreement, (ii) such as may have been filed to perfect or
protect any security interest or encumbrance described in or contemplated by
Section 5.1 of the Stock Purchase Agreement and (iii) with respect to the
Properties existing mortgage liens listed on Schedule 4(b) hereto.
(c) The exercise by Conquest of its rights and remedies hereunder
will not contravene law or any contractual restriction binding on or affecting
either Debtor or any of its properties and will not result in or require the
creation of any lien, security interest or other charge or encumbrance upon or
with respect to any of its properties.
(d) No authorization or approval or other action by, and no notice
to or filing with, any governmental authority or other regulatory body that has
not given or made is required for (i) the grant by the Debtors, or the
perfection, of the security interest purported to be created hereby in the
Collateral or (ii) the exercise by Conquest of any of its rights and remedies
hereunder, except for the filing under the Code of required financing
statements, all of which financing statements have been duly filed and are in
full force and effect, and filings with the Federal Aviation Administration (the
"FAA").
(e) This Agreement creates a valid security interest in favor of
Conquest in the Collateral as security for the Obligations.
5
<PAGE> 80
(f) The amount represented by each Debtor to be owing by
each account debtor and by all account debtors in respect of the
Receivables will at such time be the correct amount actually and
unconditionally owing by such account debtors to the best of each
Debtor's knowledge (subject to normal insurance company reimbursement
policies and customary bad debt, administrative and contractual
allowances).
SECTION 5. Covenants as to the Collateral. So long as any of
the Obligations shall remain outstanding, unless Conquest shall otherwise
consent in writing:
(a) Further Assurances. Each Debtor will at its expense,
at any time and from time to time, promptly execute and deliver all
further instruments and documents and take all further action that may
be necessary or desirable or that Conquest may request in order (i) to
perfect and protect the security interests purported to be created
hereby, (ii) to enable Conquest to exercise and enforce its rights and
remedies hereunder in respect of the Collateral or (iii) to otherwise
effect the purposes of this Agreement, including, without limitation:
(A) marking conspicuously each chattel paper included in the
Receivables and each Related Contract and, at the request of Conquest,
each of its records pertaining to the Collateral with a legend, in
form and substance satisfactory to Conquest, indicating that such
chattel paper, Related Contract or Collateral is subject to the
security interest created hereby, (B) executing and filing such
security agreements, financing or continuation statements, or
amendments thereto, mortgages and deeds as may be necessary or
desirable or that Conquest may request in order to perfect and
preserve the security interest purported to be created hereby and (C)
furnishing to Conquest from time to time statements and schedules
further identifying and describing the Collateral and such other
reports in connection with the Collateral as Conquest may reasonably
request, all in reasonable detail.
(b) Location of Equipment and Inventory. Each Debtor
will keep its Equipment and Inventory (other than Inventory and used
Equipment sold in the ordinary course of business) at the locations
specified therefor in Schedule I hereof.
(c) Condition of Equipment and Engines. Each Debtor
will cause its Equipment (other than used Equipment sold in the
ordinary course of business) and Engines to be maintained and
preserved in the same condition, repair and working order as when
acquired (reasonable wear and tear excepted), and will forthwith, or
in the case of any loss or damage to any of the Equipment and Engines
as quickly as practicable after the occurrence thereof, make or cause
to be made all repairs, replacements, and other improvements in
connection therewith
6
<PAGE> 81
which are necessary or desirable in connection with the business of
such Debtor or that Conquest may reasonably request to such end. Each
Debtor will promptly furnish to Conquest a statement respecting any
loss or damage in excess of $10,000 to any of the Equipment and/or
Engines.
(d) Taxes. Each Debtor will pay promptly when due all
property and other taxes, assessments and governmental charges or
levies imposed upon, and all claims (including claims for labor,
materials and supplies) against, its Equipment, Inventory, Engines and
Properties except to the extent that validity thereof is being
contested in good faith by proper proceedings which stay the
imposition of any penalty, fine or lien resulting from the non-payment
thereof and with respect to which adequate reserves have been set
aside for the payment thereof.
(e) Insurance.
(i) Each Debtor will, at its own expense,
maintain insurance with respect to its Equipment, Inventory,
Engines and Properties in such amounts, against such risks, in
such form and with such insurers, as shall be reasonably
satisfactory to Conquest from time to time. Each policy for
liability insurance shall provide for all losses to be paid on
behalf of Conquest and the subject Debtor as their respective
interests may appear, and each policy for property damage
insurance shall provide for all losses (except for losses of
less than $10,000 per occurrence) to be paid directly to
Conquest. At the request of Conquest, each such policy shall
in addition (A) name the subject Debtor and Conquest as
insured parties thereunder (without any representation or
warranty by or obligation upon Conquest) as their interests
may appear, (B) contain the agreement by the insurer that any
loss thereunder shall be payable to Conquest notwithstanding
any action, inaction or breach of representation or warranty
by the subject Debtor, (C) provide that there shall be no
recourse against Conquest for payment of premiums or other
amounts with respect thereto and (D) provide that at least 30
days' prior written notice of cancellation or of lapse shall
be given to Conquest by the insurer. Each Debtor will, if so
requested by Conquest, deliver to Conquest original or
duplicate policies of such insurance and, as often as Conquest
may reasonably request, a report of a reputable insurance
broker with respect to such insurance. Each Debtor will also,
at the request of Conquest, duly execute and deliver
instruments of assignment of such insurance policies and cause
the respective insurers to acknowledge notice of such
assignment.
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(ii) Reimbursement under any liability insurance
maintained by the Debtors pursuant to this Section 5(e) may be
paid directly to the person who shall have incurred liability
covered by such insurance. In the case of any loss involving
damage to Equipment, Inventory or Engines as to which
paragraph (iii) of this Section 5(e) is not applicable, the
subject Debtor promptly will make or cause to be made the
necessary repairs to or replacements of such Equipment,
Inventory or Engines, and any proceeds of insurance maintained
by the subject Debtor pursuant to this Section 5(e) shall be
paid to such Debtor as reimbursement for the costs of such
repairs or replacements.
(iii) Upon the occurrence and during the continuance
of an "Event of Default" under any of the Notes (an "Event of
Default") or the actual or constructive total loss (in excess
of $10,000 per occurrence) of any Equipment, Inventory or
Engines, all insurance payments in respect of such Equipment,
Inventory or Engines shall be paid to Conquest and applied as
specified in Section 7(b) hereof.
(f) Provisions Concerning the Receivables.
(i) Each Debtor will (A) provide Conquest thirty
(30) days' prior written notice of any change in such Debtor's
name, identity, corporate structure, chief place of business
or chief executive office which might make any financing
statement filed hereunder misleading, and prior to such change
such Debtor will have presented to Conquest for filing all
amendments to financing statements and all additional
financing statements necessary to maintain the security
interests granted hereunder at all times, (B) keep all
originals of all chattel paper which constitute Receivables at
the location specified therefor in Schedule I hereof, unless
the subject Debtor obtains the prior written consent of
Conquest, and (C) keep adequate records concerning the
Collateral, Receivables and chattel paper and, upon notice to
the subject Debtor, permit representatives of Conquest at any
time during normal business hours to inspect and make
abstracts from such records (other than confidential patient
medical records and confidential personnel records) and
chattel paper.
(ii) Except as otherwise provided in this
Subsection (f), each Debtor will continue to collect, at its
own expense, all amounts due or to become due under the
Receivables. In connection with such collections, each Debtor
may (and, at Conquest's direction, will) take such action as
such Debtor or Conquest may deem necessary or
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<PAGE> 83
advisable to enforce collection or performance of the Receivables;
provided, however, that Conquest shall have the right at any time, upon
the occurrence and during the continuance of an Event of Default or an
event which, with the giving of notice or the lapse of time or both,
would constitute an Event of Default, and upon written notice to the
subject Debtor of its intention to do so, to notify the account debtors
or obligors under any Receivables of the assignment of such Receivables
to Conquest and to direct such account debtors or obligors to make
payment of all amounts due or to become due to the Debtor thereunder
directly to Conquest and, upon such notification and at the expense of
such Debtor and to the extent permitted by law, to enforce collection
of any such Receivables and to adjust, settle or compromise the amount
or payment thereof, in the same manner and to the same extent as such
Debtor might have done. After receipt by a Debtor of the notice from
Conquest referred to in the proviso to the immediately preceding
sentence, (A) all amounts and proceeds (including instruments) received
by such Debtor in respect of the Receivables shall be received in trust
for the benefit of Conquest hereunder, shall be segregated from other
funds of such Debtor and shall be forthwith paid over to Conquest in
the same form as so received (with any necessary indorsement) to be
held as cash collateral and either (1) released to the subject Debtor
so long as no Event of Default shall have occurred and be continuing or
(2) if any Event of Default shall have occurred and be continuing,
applied as specified in Section 7(b) hereof, and (B) such Debtor will
not adjust, settle or compromise the amount or payment of any
Receivable or release wholly or partly any account debtor or obligor
thereof or allow any credit or discount thereon.
(iii) Subject to customary bad debt, administrative and
contractual allowances, neither Debtor will, without the prior written
consent of Conquest, grant any extension of the time of payment of any
of the Receivables, compromise, compound or settle the same for less
than full amount thereof, release, wholly or partly, any person liable
for the payment thereof, or allow any credit or discount whatsoever
thereon.
(iv) In any suit, proceeding or action brought by Conquest
with respect to any Receivable, the subject Debtor will save, indemnify
and keep Conquest harmless from and against all expense, loss or damage
suffered by reason of any defense, setoff, counterclaim, recoupment or
reduction of liability whatsoever of the obligee thereunder, arising
out of a breach by such Debtor of any obligation or arising out of any
other agreement,
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<PAGE> 84
indebtedness or liability at any time owing to or in favor of such
obligee or its successors from such Debtor, and all such obligations
of the Debtor shall remain enforceable against and only against such
Debtor and shall not be enforceable against Conquest.
(g) Transfers and Other Liens. Neither Debtor will (i)
sell, assign (by operation of law or otherwise), exchange or otherwise
dispose of any of the Collateral (whether now owned or hereafter acquired) to
any Person except for (A) collections on notes, instruments, accounts
receivables, chattel paper, and other rights to payment in the ordinary
course of business for the full amount of the obligations arising thereunder,
and (B) other dispositions of assets having a fair market value of not more
than $100,000; provided, however, in the event any used Equipment or Engines
are sold or otherwise disposed of and the subject Debtor directly or
indirectly uses the proceeds thereof to finance the purchase of replacement
Equipment or Engines, such Debtor shall deliver to Conquest written evidence
of the use of the proceeds for such purpose; or (ii) create or suffer to
exist any lien, security interest or other charge or encumbrance upon or with
respect to any of the Collateral except for (A) the security interests
created hereby and (B) the security interests and other encumbrances
described in or contemplated by Section 5.1 of the Stock Purchase Agreement.
SECTION 6. Additional Provisions Concerning
the Collateral.
(a) Each Debtor hereby authorizes Conquest to file,
without the signature of such Debtor where permitted by law, one or more
security agreements, financing or continuation statements, mortgages, deeds,
liens and amendments thereto, relating to the Collateral. Each Debtor agrees
that a carbon, photographic, photostatic or other reproduction of this Agreement
or of a financing statement is sufficient as a financing statement.
(b) Each Debtor hereby irrevocably appoints Conquest such
Debtor's attorney-in-fact and proxy, with full authority in the place and stead
of such Debtor and in the name of such Debtor or otherwise, from time to time in
Conquest's discretion, to take any action and to execute any instrument which
Conquest may deem necessary or advisable to accomplish the purposes of this
Agreement.
(c) If either Debtor fails to perform any agreement
contained herein, Conquest may itself perform, or cause performance of, such
agreement or obligation, and the expenses of Conquest incurred in connection
therewith shall be payable by such Debtor under Section 8 hereof.
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<PAGE> 85
(d) The powers conferred on Conquest hereunder are solely
to protect its interest in the Collateral and shall not impose any duty upon it
to exercise any such powers. Except for the safe custody of any Collateral in
its possession and the accounting for moneys actually received by it hereunder,
Conquest shall have no duty as to any Collateral or as to the taking of any
necessary steps to preserve rights against prior parties or any other rights
pertaining to any Collateral.
(e) Anything herein to the contrary notwithstanding, (i)
each Debtor shall remain liable under the Related Contracts to the extent set
forth therein to perform all of its obligations thereunder to the same extent as
if this Agreement had not been executed, (ii) the exercise by Conquest of any of
its rights hereunder shall not release either Debtor from any of its obligations
under the Related Contracts and (iii) Conquest shall not have any obligation or
liability by reason of this Agreement under the Related Contracts nor shall
Conquest be obligated to perform any of the obligations or duties of either
Debtor thereunder or to take any action to collect or enforce any claim for
payment assigned hereunder.
SECTION 7. Remedies Upon Default. If an Event of Default
shall have occurred and be continuing:
(a) Conquest may exercise in respect of the Collateral,
in addition to other rights and remedies provided for herein or otherwise
available to it, all of the rights and remedies of a secured party upon default
under the Code (whether or not the Code applies to the affected Collateral),
and also may (i) require each Debtor to, and each Debtor hereby agrees that it
will at its expense and upon request of Conquest forthwith, assemble all or
part of the Collateral as directed by Conquest and make it available to
Conquest at a place to be designated by Conquest which is reasonably convenient
to both parties, including, without limitation, each Debtor's premises and (ii)
without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any of Conquest's
offices or elsewhere, for cash, on credit or for future delivery, and at such
price or prices and upon such other terms as Conquest may deem commercially
reasonable. Each Debtor agrees that, to the extent notice of sale shall be
required by law, at least 10 days' notice to such Debtor of the time and place
of any public sale or the time after which any private sale is to be made shall
constitute reasonable notification. Conquest shall not be obligated to make
any sale of Collateral regardless of notice of sale having been given. Conquest
may adjourn any public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned. Conquest shall have
the right upon any such public sale or sales, and, to the extent permitted by
law, upon any such private sale or sales, to purchase
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<PAGE> 86
the whole or any part of said Collateral so sold, free of any right or equity
of redemption in either Debtor, which right, to the extent permitted by
applicable law, is hereby waived and released.
(b) Any cash held by Conquest as Collateral and all cash
proceeds received by Conquest in respect of any sale of, collection from, or
other realization upon, all or any part of the Collateral shall be applied as
follows:
(i) First, to the payment of the reasonable costs and
expenses, including reasonable attorneys' fees and legal expenses,
incurred by Conquest in connection with (A) the administration of this
Agreement, (B) the custody, preservation, use or operation of, or the
sale of, collection from, or other realization upon, any Collateral,
(C) the exercise or enforcement of any of the rights of Conquest
hereunder or (D) the failure of either Debtor to perform or observe
any of the provisions hereof;
(ii) Second, at the option of Conquest, to the payment or
other satisfaction of any liens and other encumbrances upon any of the
Collateral;
(iii) Third, ratably to the payment of the Obligations,
first in respect of any fees not covered by clause (i) above, second,
in respect of accrued but unpaid interest on the Notes, third, in
respect of unpaid principal of the Notes, and fourth, to any other
outstanding Obligations;
(iv) Fourth, to the payment of any other amounts required
by applicable law (including, without limitation, Section 9-504(1)(c)
of the Code or any successor or similar, applicable statutory
provision); and
(v) Fifth, the surplus proceeds, if any, to the Debtors
or to whomsoever shall be lawfully entitled to receive the same or as
a court of competent jurisdiction shall direct.
(c) In the event that the proceeds of any such sale,
collection or realization are insufficient to pay all amounts to which Conquest
is legally entitled, the Debtors shall be jointly and severally liable for the
deficiency, together with interest thereon at the highest rate specified in any
Note for interest on overdue principal thereof or such other rate as shall be
fixed by applicable law, together with the costs of collection and the
reasonable fees of any attorneys employed by Conquest to collect such
deficiency.
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<PAGE> 87
SECTION 8. Indemnity and Expenses.
(a) Each Debtor agrees to indemnify Conquest from and
against any and all claims, losses and liabilities growing out of or resulting
from this Agreement (including, without limitation, enforcement of this
Agreement), except claims, losses or liabilities resulting solely and directly
from Conquest's negligence or willful misconduct.
(b) The Debtors will jointly and severally upon demand
pay to Conquest the amount of any and all costs and expenses, including the
fees and disbursements of Conquest's counsel and of any experts and agents,
which Conquest may incur in connection with (i) the administration of this
Agreement, (ii) the custody, preservation, use or operation of, or the sale of,
collection from, or other realization upon, any Collateral, (iii) the exercise
or enforcement of any of the rights of Conquest hereunder or (iv) the failure
by either Debtor to perform or observe any of the provisions hereof.
SECTION 9. Notices, Etc. All notices and other communications
provided for hereunder shall be in writing and shall be mailed, telecopied or
delivered, if to either Debtor, to it at Air L.A.'s address or telecopier number
specified in the Stock Purchase Agreement; if to Conquest, to it at its address
or telecopier number specified in the Stock Purchase Agreement; or as to any
such person at such other address or telecopier number as shall be designated by
such person in a written notice to such other persons complying as to delivery
with the terms of this Section 9. All such notices and other communications
shall be effective (i) if mailed, upon receipt or five days after mailing,
whichever is earlier, (ii) if telecopied, one day after being telecopied, or
(iii) if delivered, upon delivery.
SECTION 10. Security Interests Absolute. All rights of
Conquest, all security interests and all obligations of the Debtors hereunder
shall be absolute and unconditional irrespective of: (i) any lack of validity
or enforceability of the Stock Purchase Agreement, any of the Notes, or any
other agreement or instrument relating thereto, (ii) any change in the time,
manner or place of payment of, or in any other term in respect of, all or any
of the Obligations, or any other amendment or waiver of or consent to any
departure from the Stock Purchase Agreement, any of the Notes, or any other
agreement or instrument relating thereto, (iii) any increase in, addition to,
exchange or release of, or nonperfection of any lien on or security interest
in, any other collateral, or any release or amendment or waiver of or consent
to departure from any guaranty, for all or any of the Obligations, (iv) any
other circumstance which might otherwise constitute a defense available to, or
a discharge of Air L.A. or the Grantor in respect of the Obligations or this
Agreement or (v) the absence of any action on
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<PAGE> 88
the part of Conquest to obtain payment or performance of the Obligations from
Air L.A. or the Grantor.
SECTION 11. Miscellaneous.
(a) No amendment of any provision of this Agreement shall
be effective unless it is in writing and signed by all parties hereto, and no
waiver of any provision of this Agreement, and no consent to any departure by
either Debtor therefrom, shall be effective unless it is in writing and signed
by Conquest, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
(b) No failure on the part of Conquest to exercise, and
no delay in exercising, any right hereunder or under the Stock Purchase
Agreement, the Notes or any other document shall operate as a waiver thereof;
nor shall any single or partial exercise of any such right preclude any other
or further exercise thereof or the exercise of any other right. The rights and
remedies of Conquest provided herein and in the Stock Purchase Agreement, the
Notes and/or other documents are cumulative and are in addition to, and not
exclusive of, any rights or remedies provided by law. The rights of Conquest
under this Agreement, the Notes, the Stock Purchase Agreement or any other
document against any party thereto are not conditional or contingent on any
attempt by Conquest to exercise any of its rights under any other document
against such party or against any other person.
(c) Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or invalidity without
invalidating the remaining portions hereof or thereof or affecting the validity
or enforceability of such provision in any other jurisdiction. In the event
that the security interests provided hereunder are held to be prohibited,
unenforceable or invalid with respect to any portion of the Obligations, then
the security interest with respect to that portion of the Obligations shall be
ineffective to the extent of such prohibition, unenforceability or invalidity
without invalidating or otherwise affecting the security interest securing any
other portion of the Obligations.
(d) This Agreement shall create a continuing security
interest in the Collateral and shall (i) remain in full force and effect until
the payment in full (whether in cash or upon conversion) or release of the
Obligations, (ii) be binding on Debtors and their respective successors and
permitted assigns and shall inure, together with all rights and remedies of
Conquest hereunder, to the benefit of Conquest and its successors, transferees
and assigns. Without limiting the generality of the foregoing, Conquest may
assign or otherwise transfer any or all of the Notes held by it, and Conquest
may assign or otherwise transfer
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<PAGE> 89
its rights under the Stock Purchase Agreement or any other document, to any
other person, and such other person shall thereupon become vested with all of
the benefits in respect thereof granted to Conquest, herein or otherwise. None
of the rights or obligations of either Debtor hereunder may be assigned or
otherwise transferred without the prior written consent of Conquest.
(e) Upon the satisfaction in full of the Obligations, (i)
this Agreement and the security interest created hereby shall terminate and all
rights to the Collateral shall revert to the Debtors and (ii) Conquest will,
upon the Debtors' request and at the Debtors' expense, (A) return to the Debtors
such of the Collateral as shall not have been sold or otherwise disposed of or
applied pursuant to the terms hereof and (B) execute and deliver to the Debtors
such documents as the Debtors shall reasonably request to evidence such
termination.
(f) Conquest shall be under no obligation to marshall any
assets in favor of the Debtors or against or in payment of any or all of the
Obligations. To the extent that either Debtor makes a payment or payments to
Conquest or Conquest receives any payment or proceeds of the Collateral for the
benefit of a Debtor, which payment(s) or proceeds or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, receiver or any party under any
bankruptcy law, state or federal law, common law or equitable cause, then, to
the extent of such payment or proceeds received, the Obligations or part thereof
intended to be satisfied shall be revived and continue in full force and effect,
as if such payment or proceeds had not been received by Conquest.
(g) This Agreement shall be governed by and construed in
accordance with the internal laws (as opposed to the conflicts of law
provisions) and decisions of the State of California, except as required by
mandatory provisions of law and except to the extent that the validity or
perfection or the perfection and the effect of the perfection or nonperfection
of the security interest created hereby, or remedies hereunder, in respect
of any particular item of Collateral are governed by the law of a jurisdiction
other than the State of California.
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<PAGE> 90
IN WITNESS WHEREOF, the Grantor has caused this Agreement to
be executed and delivered by its officer thereunto duly authorized, as of the
date first above written.
AIR L.A., INC.
By:
--------------------------------
(Title)
CONQUEST AIRLINES CORP.
By:
--------------------------------
(Title)
ACCEPTED AND AGREED TO:
CONQUEST INDUSTRIES INC.
By:
------------------------------
(Title)
<PAGE> 91
Schedule I
To
Security Agreement
Real Property
Air L.A. owns no real property. Air L.A. will be headquartered and operating
out of: 2215 E.M. Franklin Avenue, Austin, TX 78723.
<PAGE> 92
Schedule II
To
Security Agreement
Trade Names, Etc.
The only tradename owned by Air L.A. is "Capitol Air." It does presently
operate as "Air L.A."
<PAGE> 93
Schedule III
To
Security Agreement
Description of Engines
Manufacturer Model Manufacturer's Serial No.
- ------------ ----- -------------------------
No engines owned by Air L.A.
<PAGE> 94
STOCK PLEDGE AGREEMENT
STOCK PLEDGE AGREEMENT (this "Agreement"), dated the 30th day
of June, 1995, by and between AIR L.A., INC., a Delaware corporation having an
address at 5933 West Century Boulevard, Suite 500, Los Angeles, California
90045 (the "Pledgor"), and CONQUEST INDUSTRIES INC., a Delaware corporation
having an address at c/o Wico Corporation, 6400 West Gross Point Road, Niles,
Illinois 60714 (the "Pledgee");
W I T N E S S E T H:
WHEREAS, pursuant to that certain Stock Purchase Agreement
dated June 30, 1995 (the "Purchase Agreement"), the Pledgor is, concurrently
herewith, purchasing from the Pledgee all of the issued and outstanding shares
of common stock of the Pledgee's wholly-owned subsidiary, Conquest Airlines
Corp. (the "Company"), and in conjunction therewith and pursuant to the terms of
the Purchase Agreement, the Pledgor has agreed to cause the Pledgee to be
removed from any and all liability under those certain "Aircraft Leases" (as
more particularly defined in the Purchase Agreement), such agreement to remove
on the part of the Pledgor being hereinafter referred to as the "Obligations";
and
WHEREAS, in order to induce the Pledgee to enter into the
Purchase Agreement and accept the Pledgor's promise to perform the Obligations,
the Pledgor has agreed to pledge to the Pledgee all of the issued and
outstanding capital stock of the Company (the "Shares");
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. Definitions.
In addition to those terms defined elsewhere in this Agreement,
the following terms shall have the following meanings wherever used in this
Agreement:
(a) "Event of Default" shall mean either a payment default
by the Company under the Aircraft Leases or the failure of the Pledgee to remove
the Pledgor's liability under the Aircraft Leases on or before December 31,
1995.
(b) "Satisfaction Date" shall mean that date on which the
Pledgor shall be removed from liability under the Aircraft Leases.
<PAGE> 95
2. Pledge of the Shares.
(a) As security for the due and timely performance of the
Obligations, the Pledgor hereby pledges to the Pledgee, and grants to the
Pledgee a first priority lien and security interest in, all of the Shares and
all proceeds thereof, until the Satisfaction Date. In furtherance of such
pledge, the Pledgor is delivering herewith to the Pledgee the stock certificate
representing all of the Shares, accompanied by a stock power duly endorsed in
blank for transfer.
(b) In the event that, at any time prior to the
Satisfaction Date, any dividends, distributions, options, warrants or other
rights or property are distributed upon or in respect of the Shares
(notwithstanding that same would constitute a violation of paragraph 8 below),
same shall be delivered by the Pledgor to the Pledgee hereunder, and same shall
constitute "Shares" for all purposes of this Agreement.
3. Retention of the Shares.
(a) Except as otherwise provided herein, the Pledgee shall
have no obligation with respect to the Shares or any other property held or
received by the Pledgee hereunder, except to use reasonable care in the custody
and preservation thereof, to the extent required by law.
(b) The Pledgee shall hold the Shares and any other
property held or received by the Pledgee hereunder in the form in which same are
delivered herewith, unless and until there shall occur an Event of Default.
4. Rights of the Pledgor.
Throughout the term of this Agreement, so long as no Event of
Default has occurred and is continuing, the Pledgor shall have the right to
vote the Shares in all Company matters, except as to matters inconsistent with
the terms of this Agreement.
5. Event of Default; Power of Attorney.
(a) Upon the occurrence of an Event of Default, the
Pledgee shall thereafter have the right to (i) vote the Shares in all Company
matters, (ii) receive in its own name any and all distributions which may
thereafter be paid in respect of the Shares, all of which, upon receipt by the
Pledgee, may be applied by the Pledgee to the payment or performance of the
lessee's obligations under the Aircraft Leases including, but not limited to,
the deposit as security under such Leases of such amounts as may be necessary
to obtain from the lessors thereunder a complete release of the Pledgee's
liability under the Aircraft Leases, (iii) transfer all or any portion of the
Shares (as determined by the Pledgee in its
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<PAGE> 96
discretion) on the books of the Company to and in the name of the Pledgee or
such other person or persons as the Pledgee may designate, (iv) effect any sale,
transfer or disposition of all or any portion of the Shares and in furtherance
thereof, take possession of and endorse any and all checks, drafts, bills of
exchange, money orders or other documents and instruments received on account of
the Shares, all of which, upon receipt by the Pledgee, may be applied by the
Pledgee to the payment or performance of the lessee's obligations under the
Aircraft Leases including, but not limited to, the deposit as security under
such Leases of such amounts as may be necessary to obtain from the lessors
thereunder a complete release of the Pledgee's liability under the Aircraft
Leases, (v) collect, sue for and give acquittance for any money due on account
of any of the foregoing, and (vi) take any and all other action contemplated by
this Agreement, or as otherwise permitted by law, or as the Pledgee may
reasonably deem necessary or appropriate, in order to accomplish the purposes of
this Agreement.
(b) In furtherance of the foregoing powers of the
Pledgee, the Pledgor hereby authorizes and appoints the Pledgee, with full
powers of substitution, as the true and lawful attorney-in-fact of the Pledgor,
in his or its name, place and stead, to take any and all such action as the
Pledgee, in its sole discretion, may deem necessary or appropriate in
furtherance of the exercise of the aforesaid powers. Such power of attorney
shall be coupled with an interest, and shall be irrevocable until the
Satisfaction Date. Without limitation of the foregoing, such power of attorney
shall not in any manner be affected or impaired by reason of any act of the
Pledgor or by operation of law. Nothing herein contained, however, shall be
deemed to require or impose any duty upon the Pledgee to exercise any of the
rights or powers granted herein.
(c) The foregoing rights and powers granted to the
Pledgee, and the foregoing power of attorney, shall be fully binding upon any
person who may acquire any beneficial interest in any of the Shares or any
other property held or received by the Pledgee hereunder.
6. Foreclosure; Sale of Shares.
(a) Without limitation of paragraph 5 above, in the event
that the Pledgee shall make any sale or other disposition of any or all of the
Shares following an Event of Default, the Pledgee may also:
(i) offer and sell all or any portion of the
Shares by means of a private placement restricting the offer or sale to a
limited number of prospective purchasers who meet such suitability standards as
the Pledgee and its counsel may deem appropriate, and who may be required to
represent that they are purchasing Shares for investment and not with a view to
distribution;
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<PAGE> 97
(ii) purchase all or any portion of the Shares
for the Pledgee's own account at a price not less than the highest bona fide
offer received therefor, which if effected in a manner in compliance with
applicable law, shall be deemed to be a commercially reasonable disposition of
the subject Shares;
(iii) sell any or all of the Shares upon credit or
for future delivery, without being in any way liable for failure of the
purchaser to pay for the subject Shares; and
(iv) receive and collect the net proceeds of any
sale or other disposition of any Shares, and apply same in performance of the
Obligations and pay any expenses relating thereto (including the costs and
expenses of the sale or disposition of the Shares) as the Pledgee may, in its
absolute discretion, deem appropriate.
(b) Upon any sale of any of the Shares in accordance with
this Agreement, the Pledgee shall have the right to assign, transfer and deliver
the subject Shares to the purchaser(s) thereof, and each such purchaser shall be
entitled to hold such Shares absolutely free from any right or claim of the
Pledgor and/or any other person claiming any beneficial interest in the Shares,
including any equity of redemption (which right and all other such rights are
hereby waived by the Pledgor to the fullest extent permitted by law).
(c) Nothing herein contained shall be deemed to require
the Pledgee to effect any sale or disposition of any Shares at any time, or to
consummate any proposed public or private sale at the time and place at which
same was initially called. It is the intention of the parties hereto that the
Pledgee shall, subject to any further conditions imposed by this Agreement, at
all times following the occurrence of an Event of Default, have the right to use
or deal with the Shares as if the Pledgee were the outright owner thereof, and
to exercise any and all rights and remedies, as a secured party in possession of
collateral or otherwise, under any and all provisions of law.
7. Covenants, Representations and Warranties.
In connection with the transactions contemplated by this
Agreement, and knowing that the Pledgee is and shall be relying hereon, the
Pledgor hereby covenants, represents and warrants that:
(a) the Shares have been duly and validly issued, are
fully paid and non-assessable, constitute all of the issued and outstanding
capital stock of the Company, and are owned by the Pledgor free and clear of any
and all restrictions, pledges, liens, encumbrances or other security interests
of any kind, save and except for the pledge to the Pledgee pursuant to this
Agreement;
(b) there are no options, warrants or other rights in
respect of the sale, transfer or other disposition of any of the
4
<PAGE> 98
Shares, and the Pledgor has the absolute right to pledge the Shares hereunder
without the necessity of any consent of any person;
(c) neither the execution or delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, nor the compliance
with or performance of this Agreement by the Pledgor, conflicts with or will
result in the breach or violation of or a default under the terms, conditions or
provisions of (i) any mortgage, security agreement, indenture, evidence of
indebtedness, loan or financing agreement, or other agreement or instrument to
which the Pledgor is a party or by which the Pledgor is bound, or (ii) any
provision of law, any order of any court or administrative agency, or any rule
or regulation applicable to the Pledgor;
(d) this Agreement has been duly executed and delivered by
the Pledgor, and constitutes the legal, valid and binding obligation of the
Pledgor, enforceable against the Pledgor in accordance with its terms;
(d) there are no actions, suits or proceedings pending or
threatened against or affecting the Pledgor that involve or relate to the
Shares;
(e) the Pledgor shall not, at any time prior to the
release of the lien on the Shares in accordance with paragraph 9 below, (i)
sell, transfer or convey any interest in any of the Shares, or (ii) suffer or
permit any other pledge, lien or encumbrance to be created upon or granted with
respect to any of the Shares; and
(f) from time to time hereafter, the Pledgor shall take
any and all such further action, and shall execute and deliver any and all such
further documents and/or instruments, as the Pledgee may request in order to
accomplish the purposes of this Agreement, in order to enable the Pledgee to
exercise any of its rights hereunder, and/or in order to secure more fully the
Pledgee's interest in the Shares.
8. Covenants of the Pledgor with respect to the Company.
From the date hereof until the Satisfaction Date, the Pledgor
shall not suffer or permit the Company to do any of the following without the
prior written consent of the Pledgee in each instance:
(a) amend its Certificate of Incorporation or By-Laws;
(b) issue any shares of the Company's capital stock;
(c) issue or create any warrants, obligations,
subscriptions, options, convertible securities or other commitments
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<PAGE> 99
under which any additional shares of the Company's capital stock might be
directly or indirectly issued; or
(d) agree to do, or take any action in furtherance of, any
of the foregoing.
The Pledgor shall be liable for any and all damages which may be suffered or
incurred by the Pledgee as a proximate result of any breach or violation of
this paragraph 8.
9. Return of the Shares.
To the extent that the Pledgee shall not previously have taken,
acquired, sold, transferred, disposed of or otherwise realized value on the
Shares in accordance with this Agreement, the Pledgee shall release its lien
hereunder and return the Shares to and in the name of the Pledgor at the
Satisfaction Date.
10. Miscellaneous.
(a) Any notices or consents required or permitted under
this Agreement shall be in writing and shall be deemed given when personally
delivered, when sent by recognized overnight courier service with all charges
prepaid or billed to the account of the sender, or when mailed by certified
mail, return receipt requested, with all charges prepaid, in each instance
addressed to the party being notified at his or its address first set forth
above. Either party may change its address for notices by means of written
notice given in accordance herewith, provided that same shall not be deemed to
have been given until actual receipt by the party being notified.
(b) The laws of the State of California shall govern the
construction and enforcement of this Agreement and the rights and remedies of
the parties hereto.
(c) This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective heirs, executors,
administrators, personal representatives, successors and assigns. Except as
otherwise referred to herein, this Agreement, and the documents executed and
delivered pursuant hereto, constitute the entire agreement between the parties
relating to the specific subject matter hereof.
(d) Neither any course of dealing between the Pledgor and
the Pledgee nor any failure to exercise, or any delay in exercising, on the
part of the Pledgee, any right, power or privilege hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, power or
privilege operate as a waiver of any other exercise of such right, power or
privilege or any other right, power or privilege.
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<PAGE> 100
(e) The Pledgee's rights and remedies, whether established
hereby or by any other agreements or by law or in equity, shall be cumulative
and may be exercised singularly or concurrently.
(f) No change, amendment, modification, waiver, assignment
of rights or obligations, cancellation or discharge hereof, or of any part
hereof, shall be valid unless the Pledgee shall have consented thereto in
writing.
(g) The captions and paragraph headings in this Agreement
are for convenience of reference only, and shall not in any way define, limit
or describe the construction, terms or provisions of this Agreement.
(g) If any provision of this Agreement is held invalid or
unenforceable, either in its entirety or by virtue of its scope or application
to given circumstances, such provision shall thereupon be deemed modified only
to the extent necessary to render same valid, or not applicable to given
circumstances, or excised from this Agreement, as the situation may require, and
this Agreement shall be construed and enforced as if such provision had been
included herein as so modified in scope or application, or had not been included
herein, as the case may be.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the date first set forth above.
PLEDGOR:
AIR L.A., INC.
By:
------------------------------
PLEDGEE:
CONQUEST INDUSTRIES INC.
By:
------------------------------
ACKNOWLEDGED BY THE COMPANY:
CONQUEST AIRLINES CORP.
By:
-----------------------
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<PAGE> 101
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (the "Agreement") made as of this ___ day of
June, 1995 by and among AIR L.A., INC., a Delaware corporation (the "Company"),
and the holders of the Company's Convertible Promissory Notes (the "Notes") from
time to time.
W I T N E S S E T H :
WHEREAS, pursuant to a Stock Purchase Agreement, dated June __, 1995 (the
"Stock Purchase Agreement"), by and among the Company, Conquest Industries Inc.
("Conquest") and Conquest Airlines Corp. (the "Subsidiary"), the Company has
purchased from Conquest all of the issued and outstanding capital stock (the
"Stock") of the Subsidiary;
WHEREAS, in consideration for the Stock and in accordance with the Stock
Purchase Agreement, the Company has issued to Conquest a Convertible Promissory
Note in the principal amount of $3,000,000, which is convertible into shares of
the Company's Common Stock, $.10 par value per share (the "Common Stock"), under
certain circumstances;
WHEREAS, under certain circumstances described in the Note (which,
collectively with any replacements or subdivisions, are referred to herein as
the "Notes"), the Notes will be automatically converted into shares of the
Company's Convertible Preferred Stock (the "Convertible Preferred Stock"), which
shares will be convertible into shares of Common Stock;
WHEREAS, the execution and delivery of this Agreement is a condition
precedent to the performance of the obligations of Conquest and the Subsidiary
under the Stock Purchase Agreement; and
WHEREAS, the parties hereto wish to provide for certain registration rights
with respect to securities of the Company.
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
AGREEMENTS
The Company and the Holders covenant and agree as follows:
<PAGE> 102
1. DEFINITIONS. For purposes of this Agreement:
(a) The terms "register," "registered" and "registration" refer
to a registration effected by preparing and filing a registration statement or
statements or similar documents in compliance with the Securities Act of 1933,
as amended (the "Securities Act"), and pursuant to Rule 415 under the Securities
Act or any successor rule providing for offering securities on a continuous
basis ("Rule 415"), and the declaration or ordering of effectiveness of such
registration statement or document by the Securities and Exchange Commission
(the "SEC").
(b) The term "Registrable Securities" means (i) the Common
Stock of the Company issuable upon conversion of the Notes, (ii) the Common
Stock of the Company issuable upon conversion of the Convertible Preferred Stock
and (iii) any Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any convertible security, warrant, right or other
security which is issued as) a dividend or other distribution with respect to,
or in exchange for or in replacement of such Common Stock.
(c) The term "Holder" includes (i) Conquest, and (ii) each
person who is a permitted transferee or assignee of the Registrable Securities
pursuant to Section 8 of this Agreement; and
(d) The term "Convertible Securities" means the Notes and the
Convertible Preferred Stock.
2. REGISTRATION.
(a) Subject to, and in accordance with, the provisions
contained in this Agreement, the Company shall effect the registration under the
Securities Act of at least 1,000,000 of the Registrable Securities through the
inclusion of the sale of the Registrable Securities in the registration
statement relating to the Secondary Offering (as defined in the Stock Purchase
Agreement); provided, however, that a Holder may inform the Company in writing
that it wishes to exclude all or a portion of its Registrable Securities from
such registration.
(b) Request for Registration. At any time after the earlier of
(i) the Expiration Date (as defined below) or (ii) December 31, 1995 if the
Secondary Offering (and the concurrent registration required by Section 2(a))
has not been consummated by such date, Holders who hold a majority in interest
of the Registrable Securities may make a written request (the "Demand") for
registration under the Securities Act (a "Demand Registration") of all or part
of their Registrable Securities; provided, that, the Company shall only be
obligated to effect (A) a Demand Registration if the Company has not already
effected a registration under the Securities Act of all Registrable Securities
in accordance with Section 2(a) of this Agreement and (B) one Demand
Registration in
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total. The Demand shall specify the number of Registrable Securities proposed
to be sold and will also specify the intended method of disposition thereof.
Within ten days after receipt of a Demand, the Company shall give written notice
of such Demand to all other holders of Registrable Securities and shall include
in the Demand Registration all Registrable Securities with respect to which the
Company has received written requests for inclusion within 30 days after the
receipt of the Company's notice by the applicable holder of Registrable
Securities. Each request for inclusion shall also specify the number of
Registrable Securities to be registered and the intended method of distribution
thereof.
A registration will not be deemed a Demand Registration
hereunder (A) unless a registration statement with respect thereto has been
declared effective by the SEC under the Securities Act, (B) if after the Demand
Registration has become effective under the Securities Act, the Registration
Statement is interfered with by any stop order, injunction or other order or
requirement of the SEC or other governmental agency or court for any reason, or
(C) if the conditions to closing specified in the underwriting agreement, if
any, entered into in connection with the Demand Registration are not satisfied.
3. OBLIGATIONS OF THE COMPANY. In connection with any registration
of the Registrable Securities pursuant to Section 2 of this Agreement, the
Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement or
statements or similar documents (the "Registration Statement") with respect to
all Registrable Securities, other than any Registrable Securities excluded by
Holders pursuant to Section 2, and use its best efforts to cause the
Registration Statement to become effective as soon as reasonably possible after
such filing, and to keep the Registration Statement effective pursuant to Rule
415 (i) in the case of a registration pursuant to Section 2(a) hereof, at all
times until the date (the "Expiration Date") which is 24 months following the
effective date of the Secondary Offering, and (ii) in the case of a Demand
Registration under Section 2(b) hereof, for a period equal to the longer of (A)
six months following the effective date of the Registration Statement or (B) 24
months following the effective date of the Registration Statement if the
Secondary Offering (and the concurrent registration required by Section 2(a))
has not been consummated by December 31, 1995, which Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein) in either case shall not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading.
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<PAGE> 104
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times during the
applicable period set forth in Section 3(a) hereof (each, the "Effective
Period") and during such period to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by the
Registration Statement.
(c) Furnish promptly to each Holder whose Registrable
Securities are included in the Registration Statement such numbers of copies of
a prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as such Holder may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by such Holder.
(d) Use its reasonable efforts to register and qualify the
Registrable Securities covered by the Registration Statement under such other
securities or Blue Sky laws of such jurisdiction as shall be reasonably
requested by the Holders who hold a majority in interest of the Registrable
Securities included in the Registration Statement and prepare and file in those
jurisdictions such amendments (including post-effective amendments) and
supplements and to take such other actions as may be necessary to maintain such
registration and qualification in effect at all times during the applicable
Effective Period, and to take all other actions necessary or advisable to enable
the disposition of such securities in such jurisdictions, provided that the
Company shall not be required in connection therewith or as a condition thereto
to qualify to do business, to file a general consent to service of process or to
subject itself to general taxation in any such states or jurisdictions or to
provide any undertaking or make any change in its charter or bylaws which the
Board of Directors determines to be contrary to the best interest of the Company
and its stockholders.
(e) Notify the Holders, at any time when a prospectus relating
to Registrable Securities covered by the Registration Statement is required to
be delivered under the Securities Act, of the happening of any event as a result
of which the prospectus included in the Registration Statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing. The Company
shall use its best efforts to promptly amend or supplement the Registration
Statement to correct any such untrue statement or omission.
(f) Notify the Holders who hold Registrable Securities being
sold of the issuance by the SEC of any stop order
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<PAGE> 105
suspending the effectiveness of the Registration Statement or the initiation of
any proceedings for that purpose. The Company will use its best efforts to
prevent the issuance of any stop order and, if any stop order is issued, to
obtain the lifting thereof at the earliest possible time.
(g) Permit a single firm of counsel, designated as selling
stockholders' counsel by the holders of a majority in interest of the
Registrable Securities being sold, and compensated by the Holders, to review the
Registration Statement and all amendments and supplements thereto a reasonable
period of time prior to their filing, and shall not file any document in a form
to which such counsel reasonably objects.
(h) Make available for inspection by the Holders, any
underwriters participating in the offering pursuant to the Registration
Statement and the counsel, accountants or other agents retained by the Holders
or any such underwriter (collectively, the "Inspectors"), all pertinent
financial and other records, corporate documents and properties of the Company
(collectively, the "Records"), and cause the Company's officers, directors and
employees to supply all information reasonably requested by the Holders or any
such underwriters in connection with the Registration Statement. Records and
other information which the Company determines in good faith to be confidential,
and of which determination the Inspectors are so notified, shall not be
disclosed by the Inspectors (or used for any purpose unrelated to the offering)
unless (i) the disclosure of such Records is necessary in the opinion of counsel
to the Holders to comply with the Federal securities laws, (ii) the disclosure
of such Records is necessary to avoid or correct a misstatement or omission in
the Registration Statement, (iii) the release of such Records is ordered
pursuant to a subpoena or other order from a court of competent jurisdiction, or
(iv) the information in such Records has been made generally available to the
public other than by disclosure in violation of this or any other agreement.
(i) If the Common Stock is then listed on a national securities
exchange, use its best efforts to cause the Registrable Securities to be listed
on such exchange if the listing of such Registrable Securities is then permitted
under the rules of such exchange, or if the Common Stock is not then listed on a
national securities exchange, use its best efforts to facilitate the quotation
of the Common Stock on NASDAQ.
(j) Provide a transfer agent and registrar, which may be a
single entity, for the Registrable Securities not later than the effective date
of the Registration Statement.
(k) Take all actions reasonably necessary to facilitate the
timely preparation and delivery of certificates (not bearing any restrictive
legend) representing the Registrable
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<PAGE> 106
Securities to be sold pursuant to the Registration Statement and to enable such
certificates to be in such denominations and registered in such names as the
Holders or any underwriters may reasonably request.
(l) Take all other actions reasonably necessary to expedite and
facilitate disposition by the Holders of the Registrable Securities pursuant to
the Registration Statement.
4. OBLIGATIONS OF THE HOLDERS. In connection with the registration
of the Registrable Securities, the Holders shall have the following obligations:
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Agreement with respect to each
Holder that such Holder shall furnish to the Company such information regarding
itself, the Registrable Securities held by it, and the intended method of
disposition of such securities as shall be reasonably required to effect the
registration of the Registrable Securities and shall execute such documents in
connection with such registration as the Company may reasonably request;
(b) Each Holder agrees to cooperate with the Company in
connection with the preparation and filing of any registration statement
hereunder, unless such Holder has notified the Company in writing of his
election to exclude all of his Registrable Securities from the Registration
Statement;
(c) Each Holder agrees to enter into and perform his
obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations and market stand-off obligations, with the managing underwriter of
such offering and to take such other actions as are reasonably required in order
to expedite or facilitate the disposition of the Registrable Securities, unless
such Holder has notified the Company in writing of his election to exclude all
of his Registrable Securities from the Registration Statement; and
(d) Each Holder agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(e),
such Holder will immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until such Holder's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3(e).
5. EXPENSES OF REGISTRATION. All expenses other than underwriting
discounts and commissions incurred in connection with registration, filings, or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing, filing
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<PAGE> 107
and qualification fees, printers and accounting fees, the fees and disbursements
of counsel for the Company and the fees and disbursements of one firm of counsel
for the Holders shall be borne by the Company; provided, however, that,
notwithstanding anything herein to the contrary, the Company will only bear the
expense of up to three post-effective amendments to be filed in connection with
meeting its obligation to keep Registration Statement effective through the
Expiration Date as set forth in Section 3(a). Any post-effective amendments to
the Registration Statement in excess of three which are prepared and filed
shall, if prepared and filed at the request of Holders holding a majority in
interest of the Registrable Securities, be at the expense of the Holders. The
Company shall bear the cost of all supplements to the prospectus which are not
post-effective amendments.
6. INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, its directors and officers, and each person, if
any, who controls such Holder, any underwriter (as defined in the Securities
Act) for the Holders and each person, if any, who controls any such underwriter
within the meaning of the Securities Act or the Securities Exchange Act of 1934,
as amended (the "1934 Act"), against any losses, claims, damages, expenses or
liabilities (joint or several) to which any of them may become subject under the
Securities Act, the 1934 Act or otherwise, insofar as such losses, claims,
damages, expenses or liabilities (or actions or proceedings, whether commenced
or threatened, in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively, a "Violation"): (i)
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading or (iii) any violation or
alleged violation by the Company of the Securities Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the 1934 Act or any state securities law; and the Company will reimburse the
Holders and each such underwriter or controlling person, promptly as such
expenses are incurred, for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim, damage,
liability, action or proceeding; provided, however, that the indemnity agreement
contained in this subsection 6(a) (I) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the prior written consent of the Company, which
consent shall not be
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<PAGE> 108
unreasonably withheld, (II) shall not apply to any such case for any such loss,
claim, damage, liability or action arising out of or is based upon a Violation
which occurs in reliance upon and in conformity with written information
furnished expressly for use in connection with such registration by the Holders
or any such underwriter or controlling person, as the case may be, and (III)
with respect to any preliminary prospectus, shall not inure to the benefit of
any person from whom the person asserting any such claim purchased the
Registrable Securities that are the subject thereof (or to the benefit of any
person controlling such person) if the untrue statement or omission of material
fact contained the preliminary prospectus was corrected in the prospectus, as
then amended or supplemented. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Holders or
any such underwriter or controlling person and shall survive the transfer of the
Registrable Securities by a Holder pursuant to Section 8.
(b) To the extent permitted by law, each Holder, severally and
not jointly, will indemnify and hold harmless, to the same extent and in the
same manner set forth in Section 6(a), the Company, each of its directors, each
of its officers, each person, if any, who controls the Company within the
meaning of the Securities Act or the 1934 Act, any underwriter and any other
stockholder selling securities pursuant to the Registration Statement or any of
its directors or officers or any person who controls such holder or underwriter,
against any losses, claims, damages or liabilities (joint or several) to which
any of them may become subject, under the Securities Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and such Holder
will reimburse any legal or other expenses reasonably incurred by any of them in
connection with investigating or defending any such loss, claim, damage,
liability or action. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such indemnified party
and shall survive the transfer of the Registrable Securities by the Holders
pursuant to Section 8. The Company shall be entitled to receive indemnities
from underwriters, selling brokers, dealer managers and similar securities
industry professionals participating in the distribution, to the same extent as
provided above, with respect to information about such persons so furnished in
writing by such persons expressly for inclusion in the Registration Statement.
(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action (including any
governmental action), such indemnified party will,
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if a claim in respect thereof is to be made against any indemnifying party under
this Section 6, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel satisfactory to the indemnifying parties; provided,
however, that an indemnified party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the indemnifying party, if, in
the reasonable opinion of counsel for the indemnifying party, representation of
such indemnified party by the counsel retained by the indemnifying party would
be inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The Company shall pay for only one legal counsel for the Holders;
such legal counsel shall be selected by the Holders holding a majority in
interest of the Registrable Securities. The failure to deliver written notice
to the indemnifying party within a reasonable time of the commencement of any
such action shall relieve such indemnifying party of any liability to the
indemnified party under this Section 6 only to the extent prejudicial to its
ability to defend such action, but the omission so to deliver written notice to
the indemnifying party will not relieve it of any liability that it may have to
any indemnified party otherwise than under this Section 6. The indemnification
required by this Section 6 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, promptly as such
expense, loss, damage or liability is incurred and is due and payable.
(d) To the extent any indemnification by an indemnifying party
is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under this Section 6 to the extent permitted by law; provided that (i) no
contribution shall be made under circumstances where the maker would not have
been liable for indemnification under the fault standards set forth in this
Section 6, (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(1) of the Securities Act)
shall be entitled to contribution from any seller of Registrable Securities who
was not guilty of such fraudulent misrepresentation and (iii) contribution by
any seller of Registrable Securities shall be limited in amount to the net
amount of proceeds received by such seller from the sale of such Registrable
Securities.
7. REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to
making available to the Holders the benefits of SEC Rule 144 promulgated under
the Securities Act and any other rule or regulation of the SEC that may at any
time permit the Holders to sell securities of the Company to the public without
registration, the Company agrees to:
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<PAGE> 110
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the 1934 Act; and
(c) furnish to each Holder, so long as such Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144,
the Securities Act and the 1934 Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company and (iii) such other information as may be reasonably requested in
availing the Holders of any rule or regulation of the SEC which permits the
selling of any such securities without registration.
8. LIMITATIONS ON REGISTRATION OF ISSUES OF SECURITIES. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of Holders holding a majority of the Registrable Securities,
enter into any agreement with any director or officer (or any affiliate of a
director or officer) of the Company giving such person any registration rights
the terms of which are more favorable than the registration rights granted to
the Holders hereunder.
9. ASSIGNMENT OF REGISTRATION RIGHTS. The rights to have the
Company register securities pursuant to this Agreement may be assigned by the
Holders to transferees or assignees of such securities. The term "Holders" as
used in this Agreement shall include such assignees.
10. MISCELLANEOUS.
(a) Notices required or permitted to be given hereunder shall
be in writing and shall be deemed to be sufficiently given when personally
delivered or sent by registered mail, return receipt requested, addressed (i) if
to the Company, at Air L.A., Inc., 5933 W. Century Blvd., Suite 500, Los
Angeles, CA 90045, Attention: Chief Executive Officer, and (ii) if to a Holder,
at the address set forth under his or her name in the Stock Purchase Agreement,
or at such other address as each such party furnishes by notice given in
accordance with this Section 9(a).
(b) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, will not operate as a waiver thereof. No waiver will be effective
unless and until it is in writing and signed by the party giving the waiver.
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(c) This Agreement shall be enforced, governed and construed in
all respects in accordance with the laws of the State of California. In the
event that any provision of this Agreement is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any provision hereof
which may prove invalid or unenforceable under any law shall not affect the
validity or enforceability of any other provision hereof.
(d) This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof. Any provision of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only by a writing executed by the Company and Holders who hold a
majority in interest of the Registrable Securities. Any amendment or waiver
effected in accordance with this Section 9(d) shall be binding upon such Holder
and the Company.
(e) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall be entitled to act upon the basis of
instructions, notice or election received from registered owner of such
Registrable Securities.
DATED this 30TH day of JUNE , 1995.
-------- --------------------------
AIR L.A., INC.
By:
--------------------------------
Title:
-----------------------------
ACCEPTED AND AGREED:
CONQUEST INDUSTRIES INC.
By:
--------------------------------
Title: Chairman
-----------------------------
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<PAGE> 1
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF DESIGNATION
OF
RIGHTS AND PREFERENCES
OF
CONQUEST INDUSTRIES INC.
(Pursuant to Section 151 and 228
of the General Corporation Law of the State of Delaware)
CONQUEST INDUSTRIES INC., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), hereby certifies as follows:
FIRST: Pursuant to a Certificate of Decrease and Certificate
of Designation of Rights and Preferences filed by the Corporation with the
Secretary of State of Delaware on June 17, 1994 (the "Certificate of
Designation"), there was established a series of preferred stock of the
Corporation designated as "Series B Preferred Stock."
SECOND: Pursuant to the authority contained in the Certificate
of Incorporation of the Corporation, and in accordance with Section 151(g) and
228(a) of the General Corporation Law of the State of Delaware, the Board of
Directors of the Corporation, and the holders of a majority of the outstanding
shares of capital stock of the Corporation entitled to vote thereon (including
the Series B Preferred Stock voting separately as a class), have authorized the
following amendments with respect to the terms, rights, preferences, powers and
limitations of the Series B Preferred Stock:
1. Section (3)c of Part A of Article Fourth of the
Certificate of Designation is hereby deleted and of no further force or effect.
2. Section (5) of Part A of Article Fourth of the
Certificate of Designation is hereby amended so as to read in full as follows:
(5) Conversion.
a. Each holder of Series B Preferred
Stock as of the date of issuance (on or about April 26, 1995) of those certain
common stock purchase warrants (the "Warrants") being issued by the Corporation
to the holders of the Series B Preferred Stock and providing for purchase
rights in respect of an aggregate of 1,030,400 shares of Common Stock (subject
to adjustment in accordance with the terms of the Warrants), shall have the
right, at its option, at any time prior to any exercise of any of the Warrants
issued to such holder, to convert all (and not less than
<PAGE> 2
all) of such holder's shares of Series B Preferred Stock (as constituted on the
date of the issuance of the Warrants) into that number of fully paid and
non-assessable shares of Common Stock and/or other securities or property as
would then be issuable upon the exercise in full of the Warrants originally
issued to such holder; and upon any such conversion, the entire Warrants
originally issued to such holder shall automatically be deemed cancelled,
extinguished and of no further force or effect, regardless of whether such
Warrants are tendered pursuant to Section (5)b below. To the extent permitted
by law, when shares of Series B Preferred Stock are converted, all dividends
accrued and unpaid (including any compounding thereof in accordance with
Section (2) above) on the stock so converted to the date of conversion (whether
or not currently payable) shall be automatically waived and cancelled effective
upon such conversion.
b. In order to convert shares of Series
B Preferred Stock into shares of Common Stock and/or other securities or
property pursuant to the right of conversion set forth in Section (5)a, the
holder thereof shall surrender the certificate or certificates representing
Series B Preferred Stock and such holder's Warrants, duly endorsed to the
Corporation or in blank, at the principal office of the Corporation and shall
give written notice to the Corporation that such holder elects to convert the
same, stating in such notice the name or names in which such holder wishes the
certificate or certificates representing the subject shares of Common Stock
and/or other securities or property to be issued. The Corporation shall,
within five business days, deliver at said office or other place to such holder
of Series B Preferred Stock, or to such holder's nominee(s), a certificate or
certificates for the number of shares of Common Stock and/or other securities
or property to which such holder shall be entitled as aforesaid. Shares of
Series B Preferred Stock shall be deemed to have been converted as of the date
of the surrender of such shares and the subject Warrants as provided above, and
the person or persons entitled to receive the shares of Common Stock and/or
other securities or property issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock
and/or other securities or property on such date.
c. The issuance of certificates for
shares of Common Stock and/or other securities or property upon the conversion
of shares of Series B Preferred Stock shall be made without charge to the
converting stockholder for any original issue or transfer tax in respect of the
issuance of such certificates and any such tax shall be paid by the
Corporation.
d. The Corporation shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock and/or other securities or property, solely for the purpose of effecting
the conversion of Series B Preferred Stock,
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<PAGE> 3
the full number of shares of Common Stock and/or other securities or property
then deliverable upon the conversion or exchange of all shares of Series B
Preferred Stock at the time outstanding. The Corporation shall at all times
take such corporate action as shall be necessary in order that the Corporation
may validly and legally issue fully paid and non-assessable shares of Common
Stock and/or other securities or property upon the conversion of Series B
Preferred Stock in accordance with the provisions hereof.
THIRD: The foregoing amendments to the Certificate of
Designation have been adopted by resolution of the Board of Directors of the
Corporation in accordance with Section 151(g) of the General Corporation Law of
the State of Delaware. Such amendments have further been approved in writing
by the holders of a majority of the outstanding shares of capital stock of the
Corporation entitled to vote thereon (including the holders of a majority of
the outstanding shares of the Series B Preferred Stock voting separately as a
class) in accordance with Section 228(a) of the General Corporation Law of the
State of Delaware, and written notice of such amendments has been sent to all
other stockholders entitled to notice thereof in accordance with Section 228(d)
of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Conquest Industries Inc. has caused this
Certificate to be signed by its Chairman this 25th day of April, 1995.
/s/ Stephen R. Feldman
----------------------------
Stephen R. Feldman, Chairman
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<PAGE> 4
CERTIFICATE OF STOCK DESIGNATION
OF
CONQUEST INDUSTRIES INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"Corporation") is CONQUEST INDUSTRIES INC.
2. The certificate of incorporation of the Corporation authorizes
the issuance of 5,000,000 shares of redeemable convertible preferred stock of
the Corporation having a par value of ten cents ($.10) per share, and expressly
vests in the Board of Directors of the Corporation the authority provided
therein to fix by resolution or resolutions the designation, number,
preferences and relative, participating, optional and other special rights and
the qualifications, limitations, restrictions and other distinguishing
characteristics of each series of Preferred Stock to be issued.
3. The Board of Directors of the Corporation, pursuant to the
authority expressly vested in it as aforesaid, has adopted the following
resolutions creating a Series E issue of the Preferred Stock of the Corporation
as follows:
RESOLVED: That there shall be created a series of the
Preferred Stock of the Corporation, to be designated as
"Series E" of such Preferred Stock and to consist of 800,000
shares of such Preferred Stock, which will have relative
rights, preferences and limitations as follows:
1. DESIGNATION. A series of Preferred Stock hereby
created, consisting of 800,000 authorized shares, shall be designated "Series E
Preferred Stock" and is hereafter called the "Series E Preferred Stock." Each
share of Series E Preferred Stock shall have a par value of $.10.
2. DIVIDENDS. In each year, the holders of shares of
the Series E Preferred Stock shall be entitled to receive, before any dividends
shall be declared and paid upon or set aside for the Common Stock, par value
$.001, of the Corporation ("Common Stock") in such year, when and as declared
by the Board of Directors of the Corporation, out of funds legally available
for that purpose,
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<PAGE> 5
dividends in cash at the rate of $.10 per annum per share, and no more, payable
semi-annually (except that the first dividend payment shall be an amount equal
to accumulated dividends from the date of initial issuance at the rate of 10%
per annum, at which time there shall also be due and payable to the initial
holders of Series E Preferred Stock all unpaid accrued dividends (the
"Accumulated Series B Dividends"), to the date of tender thereof, on the shares
of Series B Preferred Stock tendered as payment (in whole or in part) for the
Series E Preferred Stock), on each September 1 and March 1, commencing on
September 1, 1995 (each of the semi-annual periods commencing on each September
1 and March 1, respectively, including the period commencing with the date of
initial issuance, being hereinafter called a "Dividend Period"). Dividends on
the Series E Preferred Stock shall be cumulative from the date on which payment
is made on account of the initial issue of such stock (whether or not there
shall be surplus of the Company legally available for the payment of such
dividends), so that, if at any time Full Cumulative Dividends (as defined
below) upon the Series E Preferred Stock to the end of the last completed
Dividend Period shall not have been paid or declared and a sum sufficient for
payment thereof set apart, the amount of the deficiency in such dividends
(compounded annually from the due date thereof at the rate of 10% per annum)
shall be fully paid, or dividends in such amount (including such compounding)
shall be declared on the shares of the Series E Preferred Stock and a sum
sufficient for the payment thereof shall be set aside for such payment, before
any sum or sums shall be set aside for or applied to the purchase or redemption
of the Common Stock or upon any shares of any other class of stock ranking as
to dividends or upon liquidation junior to the Series E Preferred Stock and
before any dividend shall be declared or paid or any other distribution ordered
or made upon any of the Common Stock or upon any shares of any other class of
stock ranking as to dividends junior to the Series E Preferred Stock; provided,
however, that nothing contained in this Section shall be construed to limit the
right of the Corporation to purchase or redeem any outstanding warrants or
options of the Corporation. Furthermore, for all purposes of paying and/or
setting aside dividends, dividends on the Series E Preferred Stock shall, on a
per share basis, be pari passu with the dividends on the Series B Preferred
Stock, as if the Series E Preferred Stock and the Series B Preferred Stock were
treated as a single series. As used herein, the term "Accrued Dividends" with
respect to the Series E Preferred Stock shall mean Full Cumulative Dividends to
the date as of which accrued dividends are to be computed, less the amount of
all dividends theretofore paid, upon the relevant shares of Series E Preferred
Stock. As used herein, the term "Full Cumulative Dividends" with respect to
the Series E Preferred Stock shall mean (whether or not in any Dividend Period,
or any part thereof, with respect to which such term is used there shall have
been stated capital, capital surplus, or earned surplus of the Corporation
legally available for the payment of such dividends) that amount which shall be
equal to dividends at the full rate fixed for the
-2-
<PAGE> 6
Series E Preferred Stock as provided herein for the period of time elapsed from
the date of issuance thereof to the date as of which Full Cumulative Dividends
is to be computed.
3. REDEMPTION.
(a) So long as any shares of Series E Preferred
Stock are outstanding, the Corporation may, at the option of the Board of
Directors, at any time or from time to time, redeem the whole or any part of
such Series E Preferred Stock pursuant to the provisions hereof. Any
redemption pursuant to this Section 3(a) shall be at a redemption price equal
to $1.00 per share (payable in cash or other consideration as the Company and
the holders of a majority of the Series E Preferred Stock may agree), plus an
amount equal to Accrued Dividends (plus any compounding thereof in accordance
with Section 2 above) on the shares of Series E Preferred Stock being redeemed.
If less than all the shares of Series E Preferred Stock at any time outstanding
shall be called for redemption, the redemption shall be made pro rata with
respect to such shares and in such manner as may be prescribed by resolution of
the Board of Directors; and in the event that any shares of Series B Preferred
Stock at any time outstanding shall be called for redemption, then the
Corporation shall simultaneously redeem a portion of the outstanding shares of
Series E Preferred Stock (ratably among the holders thereof as aforesaid), such
portion to be equal, on a percentage basis, to that portion of the Series B
Preferred Stock then being redeemed. The date of each such redemption is
herein referred to as a "Redemption Date".
(b) Notice of every redemption pursuant to
Section 3(a) above shall be sent by registered or certified mail, postage
prepaid, to the holders of record of the shares of Series E Preferred Stock so
to be redeemed at their respective addresses as the same shall appear on the
books of the Corporation. Such notice shall be deposited in the United States
mail not less than thirty (30) days in advance of the Redemption Date. The
holders of the shares of Series E Preferred Stock to be redeemed shall be
entitled, before such Redemption Date, to convert any such shares called for
redemption pursuant to Section 5 below. The holders of the shares of Series E
Preferred Stock to be redeemed shall surrender to the Corporation the
certificates for the shares of Series E Preferred Stock so redeemed and not
converted; provided, that on and after the Redemption Date all rights of the
holders of shares of Series E Preferred Stock as stockholders of the
Corporation with respect to those shares of Series E Preferred Stock to be
redeemed, except the right to receive the redemption price, shall cease and
terminate and the shares designated for redemption shall no longer be
outstanding whether or not the certificates for the shares so redeemed have
been received by the Corporation.
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<PAGE> 7
(c) In the event that the Corporation proposes to
consummate a public offering of securities of the Corporation pursuant to a
registration statement filed under the Securities Act of 1933, as amended (the
"Act"), other than a registration statement on Form S-8 or S-4 or any
equivalent form then in effect, then the Corporation shall give written notice
thereof by registered or certified mail, postage prepaid, to the holders of
record of the shares of Series E Preferred Stock so to be redeemed at their
respective addresses as the same shall appear on the books of the Corporation,
not less than thirty (30) days in advance of the effectiveness of the subject
registration statement under the Act. Without prejudice to such holder's right
or obligation to convert shares of Series E Preferred Stock into Common Stock
of the Corporation in accordance with Section 5 below, each holder of Series E
Preferred Stock shall have the right, at its option, exercisable during the
30-day period following the giving of the Corporation's notice hereunder, to
require the Corporation to redeem all or any portion of such holder's shares of
Series E Preferred Stock upon the consummation of the subject public offering
if and only if the Corporation receives gross proceeds from such public
offering of not less than $3,000,000 (with the consummation of such public
offering being deemed to occur at the time that the Corporation receives the
minimum $3,000,000 gross proceeds following the effectiveness of the applicable
registration statement under the Act), at a redemption price equal to $1.00 per
share plus an amount equal to Accrued Dividends and any unpaid Accumulated
Series B Dividends (plus any compounding thereof in accordance with Section 2
above) on the subject shares being redeemed. Upon the consummation of the
subject public offering with the minimum $3,000,000 gross proceeds received by
the Corporation, those holders of shares of Series E Preferred Stock who have
elected to have any of such shares redeemed hereunder shall surrender to the
Corporation the certificates for the shares of Series E Preferred Stock to be
redeemed hereunder; provided, that on and after the date of the consummation of
the subject public offering with the minimum $3,000,000 gross proceeds received
by the Corporation, all rights of the holders of such shares as stockholders of
the Corporation with respect to those shares of Series E Preferred Stock to be
redeemed, except the right to receive the redemption price, shall cease and
terminate and such shares shall no longer be outstanding whether or not the
certificates for the shares so redeemed have been received by the Corporation.
In the event that any proposed public offering for which the Corporation has
given notice hereunder shall not be consummated for any reason, or shall be
consummated with less than $3,000,000 of gross proceeds received by the
Corporation, any and all redemption election(s) made under this Section 3(c) in
connection with such proposed public offering shall be deemed rescinded and
terminated upon the abandonment of such proposed public offering or the
conclusion of such public offering.
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<PAGE> 8
4. RIGHTS ON LIQUIDATION, DISSOLUTION OR WINDING UP. In
the event of any liquidation, dissolution or winding up of the Corporation, the
holders of shares of the Series E Preferred Stock then outstanding shall be
entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders, whether from stated capital, capital surplus,
earned surplus or other amounts, before any payment shall be made to the
holders of any Common Stock, or any other class of stock ranking, as to
liquidation, dissolution or winding up, junior to the Series E Preferred Stock,
an amount equal to $1.00 per share plus an amount equal to Accrued Dividends
and any unpaid Accumulated Series B Dividends (plus any compounding thereof in
accordance with Section 2 above); provided, however, that the holders of the
Series E Preferred Stock shall not be entitled to receive such liquidation
payment until the liquidation payments on all outstanding shares of Series A
Preferred Stock and any other securities ranking senior to the Series E
Preferred Stock as to liquidation, if any, shall have been paid in full. If
upon any liquidation, dissolution or winding up of the Corporation, the assets
of the Corporation available for distribution to its stockholders shall be
insufficient to pay to the holders of shares of the Series B Preferred Stock
and the Series E Preferred Stock the full amounts to which they respectively
shall be entitled, the holders of shares of the Series B Preferred Stock and
the Series E Preferred Stock shall share ratably in any distribution of assets
according to the respective amounts which would be payable on or with respect
to the shares held by them upon such distribution if all amounts payable on or
with respect to said shares were paid in full. In the event of any
liquidation, dissolution or winding up of the Corporation, after payment shall
have been made to the holders of shares of the Series E Preferred Stock of the
full amount to which they shall be entitled as aforesaid, the holders of any
shares of Common Stock, or any other class of stock ranking, as to liquidation,
dissolution or winding up, junior to the Series E Preferred Stock, shall be
entitled, to the exclusion of the holders of shares of Series E Preferred
Stock, to share, according to their respective rights and preferences, in all
remaining assets of the Corporation available for distribution to its
stockholders.
5. CONVERSION.
(a) Each holder of Series E Preferred Stock shall
have the right, from time to time at its option, to convert any or all of such
shares of Series E Preferred Stock (in units of 1,000 shares or any whole
multiple thereof) into fully paid and nonassessable shares of Common Stock of
the Corporation, at the rate of one (1) share of Series E Preferred Stock for
.368 shares of Common Stock, subject to adjustment as provided in Section 5(d)
below. To the extent permitted by law, when shares of Series E Preferred Stock
are converted, all dividends accrued and unpaid (including any compounding
thereof in accordance with Section 2 above) on the stock so converted to the
date of conversion (whether
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<PAGE> 9
or not currently payable) shall be automatically waived and canceled effective
upon such conversion.
(b) In order to convert shares of Series E
Preferred Stock into shares of Common Stock pursuant to the right of conversion
set forth in Section 5(a), the holder(s) thereof shall surrender the
certificate or certificates representing the subject Series E Preferred Stock,
duly endorsed to the Corporation or in blank, at the principal office of the
Corporation and shall give written notice to the Corporation that such
holder(s) elects to convert the same, stating in such notice the name or names
in which such holder(s) wishes the certificate or certificates representing
shares of Common Stock to be issued. The Corporation shall, within five
business days, deliver at said office or other place to such holder of Series E
Preferred Stock, or to such holder's nominee(s), a certificate or certificates
for the number of shares of Common Stock to which such holder(s) shall be
entitled as aforesaid, together with cash to which such holder(s) shall be
entitled in lieu of fractional shares in an amount equal (calculated in
accordance with Section 5(f) below) to the same fraction of the conversion
amount of a whole share of Common Stock on the business day preceding the day
of conversion. Shares of Series E Preferred Stock shall be deemed to have been
converted as of the date of the surrender of such shares for conversion as
provided above, and the person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock on such date.
(c) The issuance of certificates for shares of
Common Stock upon the conversion of shares of Series E Preferred Stock shall be
made without charge to the converting stockholder for any original issue or
transfer tax in respect of the issuance of such certificates and any such tax
shall be paid by the Corporation.
(d) The number of shares of Common Stock into
which the shares of Series E Preferred Stock may be converted shall be subject
to the following adjustments:
(i) If the Corporation shall declare and
pay to the holders of Common Stock a dividend or other distribution
payable in shares of Common Stock, the number of shares of Common
Stock into which Series E Preferred Stock may be converted immediately
prior thereto shall be adjusted so that the holders of Series E
Preferred Stock thereafter surrendered for conversion shall be
entitled to receive the number of shares of Common Stock which such
holders would have owned or been entitled to receive after the
declaration and payment of such dividend or other distribution if such
shares of Series E Preferred Stock had been converted immediately
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<PAGE> 10
prior to the record date for the determination of stockholders
entitled to receive such dividend or other distribution.
(ii) If the Corporation shall subdivide
the outstanding shares of Common Stock into a greater number of shares
of Common Stock, or combine the outstanding shares of Common Stock
into a lesser number of shares, or issue by reclassification of its
shares of Common Stock any shares of the Corporation, the number of
shares of Common Stock into which Series E Preferred Stock may be
converted shall be adjusted so that the holders of Series E Preferred
Stock thereafter surrendered for conversion shall be entitled to
receive the number of shares of Common Stock which such holder would
have owned or been entitled to receive after the happening of any of
the events described above if such shares of Series E Preferred Stock
had been converted immediately prior to the happening of such event on
the day upon which such subdivision, combination or reclassification,
as the case may be, becomes effective.
(iii) The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held
by or for the account of the Corporation, and the disposition of such
shares shall be considered an issue or sale of Common Stock, for the
purposes of this Section 5(d).
(iv) All calculations under this Section
5(d) shall be made to the nearest one-thousandth of a share.
(e) The Corporation shall at all times reserve
and keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of effecting the conversion of Series E Preferred Stock,
the full number of shares of Common Stock then deliverable upon the conversion
or exchange of all shares of Series E Preferred Stock at the time outstanding.
The Corporation shall take at all times such corporate action as shall be
necessary in order that the Corporation may validly and legally issue fully
paid and nonassessable shares of Common Stock upon the conversion of Series E
Preferred Stock in accordance with the provisions hereof.
(f) No fractional shares of Common Stock or scrip
representing fractional shares of Common Stock shall be issued upon any
conversion of Series E Preferred Stock. If any such conversion would otherwise
require the issuance of a fractional share of Common Stock, then the
Corporation shall pay in lieu of issuing any fractional share an amount in cash
equal to the same fraction of the market value of one share of Common Stock,
based on the average closing price of the Corporation's Common Stock on NASDAQ
for the five trading days immediately preceding such conversion.
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<PAGE> 11
6. VOTING RIGHTS.
(a) Except as otherwise provided herein, or as
required by the General Corporation Law of the State of Delaware, the holders
of shares of Series E Preferred Stock shall have the right to vote, together
with the holders of all the outstanding shares of capital stock of the
Corporation as a single class, and not as a separate class, on all matters on
which holders of Common Stock shall have the right to vote. The holders of
shares of Series E Preferred Stock shall have the right to cast one vote for
each share of Series E Preferred Stock held by them.
(b) In addition to any other vote or
authorization that may be required therefor, any amendment or modification from
time to time of the relative rights, preferences, powers, limitations or other
attributes of the Series E Preferred Stock, and/or any increase from time to
time in the number of authorized shares of Series E Preferred Stock, shall only
be effected upon the affirmative vote or written consent of the holders of not
less than eighty-five (85%) percent of the outstanding shares of Series E
Preferred Stock.
(c) Whenever holders of Series E Preferred Stock
are required or permitted to take any action by vote, such action may be taken
without a meeting on written consent, setting forth the action so taken and
signed by the holders of the outstanding capital stock of the Corporation
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all such shares entitled to
vote thereon were present and voted.
7. PRIORITY. All Series E Preferred Stock shall rank
junior upon liquidation, dissolution and winding up to all Series A Preferred
Stock outstanding on the date hereof, shall rank pari passu in dividends,
liquidation, dissolution and winding up to all Series B Preferred Stock
outstanding following the issuance of Series E Preferred Stock, and shall rank
senior in dividends, liquidation, dissolution and winding up to all Series D
Preferred Stock.
8. CONSIDERATION FOR ISSUANCE. Shares of Series E
Preferred Stock may only be issued for consideration which includes a like
number of shares of outstanding Series B Preferred Stock. Upon tender to the
Corporation of shares of outstanding Series B Preferred Stock as consideration
(in whole or in part) for the issuance of a like number of shares of Series E
Preferred Stock, the Corporation shall, upon issuance of such shares of Series
E Preferred Stock, cancel the tendered shares of Series B Preferred Stock, and
shall not reissue such canceled shares of Series B Preferred Stock.
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<PAGE> 12
RESOLVED: That the statements contained in the foregoing
resolution creating and designating the said "Series E" issue
of the Preferred Stock of the Corporation and fixing the
number, powers, preferences and relative, optional,
participating and other special rights and the qualifications,
limitations, restrictions and other distinguishing
characteristics thereof shall, upon the effective date of said
Series, be deemed to be included in and be a part of the
certificate of incorporation of the Corporation pursuant to
the provisions of Sections 104 and 151 of the Delaware General
Corporation Law.
Signed and attested to on May ___, 1995.
----------------------------
Stephen R. Feldman, Chairman
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<PAGE> 1
CERTIFICATE OF STOCK DESIGNATION
OF
CONQUEST INDUSTRIES INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"Corporation") is CONQUEST INDUSTRIES INC.
2. The certificate of incorporation of the Corporation authorizes
the issuance of 5,000,000 shares of redeemable convertible preferred stock of
the Corporation having a par value of ten cents ($.10) per share, and expressly
vests in the Board of Directors of the Corporation the authority provided
therein to fix by resolution or resolutions the designation, number,
preferences and relative, participating, optional and other special rights and
the qualifications, limitations, restrictions and other distinguishing
characteristics of each series of Preferred Stock to be issued.
3. The Board of Directors of the Corporation, pursuant to the
authority expressly vested in it as aforesaid, has adopted the following
resolutions creating a Series D issue of the Preferred Stock of the Corporation
as follows:
RESOLVED: That there shall be created a series of the
Preferred Stock of the Corporation, to be designated as
"Series D" of such Preferred Stock and to consist of 600,000
shares of such Preferred Stock, which will have relative
rights, preferences and limitations as follows:
1. DIVIDENDS. The shares of the Series D Preferred
Stock shall not entitle the holders thereof to receive any dividends at any
time.
2. REDEMPTION.
(a) So long as any shares of Series D Preferred
Stock are outstanding, the Corporation may, at the option of the Board of
Directors, at any time or from time to time, redeem all (but not less than all)
of the outstanding Series D Preferred Stock pursuant to the provisions hereof.
Any redemption pursuant to this Section 2(a) shall be at a redemption price
equal to $.3333 per
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<PAGE> 2
share (payable in cash or other consideration as the Corporation and the
holders of a majority of the Series D Preferred Stock may agree). The date of
each such redemption is herein referred to as a "Redemption Date".
(b) Notice of every redemption pursuant to
Section 2(a) above shall be sent by first class mail, postage prepaid, to the
holders of record of the shares of Series D Preferred Stock at their respective
addresses as the same shall appear on the books of the Corporation. Such
notice shall be deposited in the United States mail not less than thirty (30)
days in advance of the subject Redemption Date. The holders of the shares of
Series D Preferred Stock shall surrender to the Corporation the certificates
for the shares of Series D Preferred Stock; provided, that on and after the
Redemption Date, unless default shall be made by the Corporation in providing
monies to the holders of record of Series D Preferred Stock for the payment of
the redemption price, all rights of the holders of shares of Series D Preferred
Stock as stockholders of the Corporation with respect to the Series D Preferred
Stock, except the right to receive the redemption price, shall cease and
terminate and such shares shall no longer be outstanding whether or not the
certificates for the shares so redeemed have been received by the Corporation.
3. RIGHTS ON LIQUIDATION, DISSOLUTION OR WINDING UP. In
the event of any liquidation, dissolution or winding up of the Corporation, the
holders of shares of the Series D Preferred Stock then outstanding shall be
entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders, whether from stated capital, capital surplus,
earned surplus or other amounts, after payment in full of all amounts payable
on liquidation, dissolution or winding up to the holders of the Series A
Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock,
but before any payment shall be made to the holders of any Common Stock, or any
other class of stock ranking, as to liquidation, dissolution or winding up,
junior to the Series D Preferred Stock, an amount equal to $.3333 per share.
If upon any liquidation, dissolution or winding up of the Corporation, the
assets of the Corporation available for distribution to its stockholders shall
be insufficient to pay to the holders of shares of the Series D Preferred Stock
the full amounts to which they shall be entitled, the holders of shares of the
Series D Preferred Stock shall share ratably in any distribution of assets
according to the respective amounts which would be payable on or with respect
to the shares held by them upon such distribution if all amounts payable on or
with respect to said shares were paid in full. In the event of any
liquidation, dissolution or winding up of the Corporation, after payment shall
have been made to the holders of shares of the Series D Preferred Stock of the
full amount to which they shall be entitled as aforesaid, the holders of any
shares of Common Stock, or any other class of stock ranking, as to liquidation,
dissolution or winding up, junior to the Series D
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<PAGE> 3
Preferred Stock, shall be entitled, to the exclusion of the holders of shares
of Series D Preferred Stock, to share, according to their respective rights and
preferences, in all remaining assets of the Corporation available for
distribution to its stockholders.
4. VOTING RIGHTS. Except as and to the extent otherwise
required by law, the Series D Preferred Stock shall not entitle the holders
thereof to any vote on matters to be voted upon by the stockholders of the
Corporation.
RESOLVED: That the statements contained in the foregoing
resolution creating and designating the said "Series D" issue
of the Preferred Stock of the Corporation and fixing the
number, powers, preferences and relative, optional,
participating and other special rights and the qualifications,
limitations, restrictions and other distinguishing
characteristics thereof shall, upon the effective date of said
Series, be deemed to be included in and be a part of the
certificate of incorporation of the Corporation pursuant to
the provisions of Sections 104 and 151 of the Delaware General
Corporation Law.
Signed and attested to on April ___, 1995.
/s/
-----------------------
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<PAGE> 4
CONQUEST INDUSTRIES INC.
COMMON STOCK PURCHASE WARRANT
Expiring February 15, 2000
Number of Warrants: 600,000 Warrant No. DW-1
THIS IS TO CERTIFY that The Blum Asset Trust is the owner of the
number of Warrants set forth above, each of which Warrants entitles the owner
thereof to purchase from Conquest Industries Inc. a Delaware corporation (the
"Company"), at any time on and after the Date of Issuance (as hereinafter
defined) but not later than 5:00 p.m., New York City time, on the Expiration
Date (as hereinafter defined), one Stock Unit (as hereinafter defined) at a
purchase price of $.3333 per Stock Unit (the "Exercise Price"), subject to the
terms and conditions herein provided.
1. Definitions.
As used in this Warrant, the following terms have the
following respective meanings:
(a) "Company" has the meaning set forth in the preamble
of this Warrant.
(b) "Date of Issuance" means the date set forth next to
the signature of the Company on the signature page hereof.
(c) "Exercise Price" has the meaning set forth in the
preamble of this Warrant.
(d) "Expiration Date" means February 15, 2000.
(e) "Holder" means any permitted owner of this Warrant
from time to time.
(f) "Shares" means shares of the Company's common stock,
$.001 par value per share.
(g) "Stock Unit" means one (1) Share, as same may be
adjusted from time to time in accordance with paragraph 4(a) below, and shall
include any additional securities, cash or property in respect thereof in
accordance with paragraph 4 below.
(h) "Warrant" means this Common Stock Purchase Warrant,
as same may be amended from time to time in accordance herewith.
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<PAGE> 5
(i) "Warrants" means, in any amount, the right to
purchase such number of Stock Units hereunder upon the exercise hereof.
(j) "Warrant Stock" means, collectively, (i) the Shares
purchasable by the Holder hereof upon the exercise of this Warrant, and (ii)
any other securities forming a part of any Stock Unit in accordance with
paragraph 4 below.
2. Cancellation; Exercise of Warrant.
(a) This Warrant has been issued in conjunction with the
issuance of an aggregate of 600,000 shares of Series D Preferred Stock of the
Company (the "Preferred Stock"), which, pursuant to the terms thereof, may be
redeemed by the Company at its option at any time. In the event that all of
the then-outstanding Preferred Stock is redeemed by the Company on or before
August 15, 1995, then one-third of the Warrants shall automatically be deemed
cancelled and of no further force or effect at the time of the redemption of
the Preferred Stock. In conjunction with and at the time of any redemption of
the Preferred Stock occurring on or before August 15, 1995, the Holder shall
deliver to the Company, at its office set forth in paragraph 9 below, this
Warrant for cancellation in whole or in part (as applicable), and the Company
shall deliver to the Holder a new warrant in substantially the form of this
Warrant evidencing any uncancelled portion of this Warrant; provided, however,
that notwithstanding any failure by the Holder to deliver this Warrant for
cancellation (in whole or in part) hereunder, this Warrant (or the cancelled
portion thereof, as the case may be) shall cease to be of any force or effect
on and as of the date of the redemption of the Preferred Stock. So long as any
portion of this Warrant shall be subject to cancellation pursuant to this
paragraph 2(a), such portion which is subject to cancellation shall not be
deemed "vested" for purposes of exercise pursuant to paragraph 2(b) below.
(b) In order to exercise this Warrant, in whole or in
part (but only to the extent vested in accordance with paragraph 2(a) above),
the Holder hereof shall deliver to the Company, at its office set forth in
paragraph 9 below, at any time and from time to time between the Date of
Issuance and the Expiration Date, (i) a written notice of such Holder's
election to exercise, which shall specify the number of whole Stock Units to be
purchased, (ii) either (A) such Holder's check payable to the Company in an
aggregate amount equal to the aggregate Exercise Price for those Stock Units
being purchased, (B) at the Holder's option, shares of Preferred Stock having
an aggregate liquidation preference equal to the aggregate Exercise Price for
those Stock Units being purchased (which shares of Preferred Stock shall be
deemed to have been delivered in payment of such Exercise Price, and shall be
cancelled by the Company with no right of reissuance thereof), or (C) at the
Holder's option, any combination of the consideration permitted
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<PAGE> 6
pursuant to the foregoing clauses (A) and (B), and (iii) this Warrant. Upon
receipt thereof, the Company shall, as promptly as practicable and in any event
within fifteen (15) days thereafter, cause to be executed and delivered to such
Holder a certificate or certificates representing the aggregate number of fully
paid and nonassessable Shares and/or any other property forming a part of the
subject Stock Unit(s) issuable upon such exercise. Such stock certificate(s)
shall be in such denominations as may be specified in the Holder's notice, and
shall be registered in the name of such Holder or such other name or names as
shall be designated in such notice.
(c) All certificates representing Warrant Stock as
aforesaid shall be deemed to have been issued, and the Holder or other person
designated to be named therein shall be deemed to become a holder of record of
the subject Warrant Stock (including, to the extent permitted by law, the right
to vote such securities or grant consents or receive notices as a stockholder),
as of the time the Holder's notice and payment is received by the Company as
aforesaid. If this Warrant shall have been exercised only in part, the Company
shall, concurrently with its delivery pursuant to paragraph 2(b) above, deliver
to the subject Holder a new warrant (in substantially the form of this Warrant)
evidencing the rights of such Holder to purchase the remaining Stock Units
called for by this Warrant.
(d) All Warrant Stock issuable upon the exercise of this
Warrant in whole or in part shall, upon payment therefor in accordance
herewith, be validly issued, fully paid and nonassessable.
3. Transfer and Assignment; Lost or Stolen Warrant.
(a) In addition to the limitations pursuant to paragraph
10 below, Warrants evidenced by this Warrant may only be transferred in
conjunction with a transfer of an equal number of shares of Preferred Stock,
and to the same transferee to whom such shares of Preferred Stock are being
transferred.
(b) Subject to paragraph 3(a) above and paragraph 10
below, this Warrant and all rights hereunder are transferable, in whole or in
part, on the books of the Company to be maintained for such purposes, upon
surrender of this Warrant, and the certificates representing the corresponding
number of shares of Preferred Stock, at the office of the Company set forth in
paragraph 9 below, accompanied by a written assignment duly executed (with
signature medallion guaranteed) by the Holder hereof indicating the number of
Warrants and shares of Preferred Stock being assigned or transferred. Upon any
such delivery, the Company shall, subject to paragraph 10 below, execute and
deliver to the Holder and/or the assignee(s) (as the case may be) new Preferred
Stock certificates and new warrants (in substantially the form of this Warrant)
in the
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<PAGE> 7
appropriate denominations, and this Warrant shall thereupon be cancelled.
(c) Upon receipt by the Company of evidence satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant, and (in
the case of loss, theft or destruction) receipt of reasonably satisfactory
indemnification, and (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will execute and deliver to the
Holder a new Warrant of like tenor, and any such lost, stolen, destroyed or
mutilated Warrant shall thereupon become void.
4. Adjustment of Stock Unit.
(a) In the event and to the extent that, at any time and
from time to time prior to the Expiration Date, there shall occur any stock
split, stock dividend, combination or subdivision of shares, recapitalization
or other such event relating to the Shares or any other securities or other
property then constituting or forming a part of a Stock Unit, then the number
and type of Shares or other securities or property constituting a Stock Unit
shall be correspondingly adjusted on and as of the date of such stock split,
stock dividend, combination or subdivision of shares, recapitalization or other
such event.
(b) Similarly, in the event of any merger or
consolidation in which the Company shall be a constituent party at any time and
from time to time prior to the Expiration Date, (i) the Holder hereof shall
thereafter be entitled to receive, upon exercise of this Warrant, such shares
of stock, securities, cash or other property as would have been received by
such Holder if such Holder had exercised this Warrant immediately prior to such
merger or consolidation, and (ii) if the surviving entity in such merger or
consolidation is not the Company, such surviving entity shall, by written
instrument executed and delivered to the Holder hereof, assure to such Holder
upon exercise hereof the delivery of such shares of stock, securities, cash or
other property, and the continuing benefits of this Warrant in respect thereof.
(c) In the event of any merger or consolidation of the
Company with or into another corporation, or the sale, lease or conveyance of
all or substantially all of the assets of the Company, or the voluntary or
involuntary dissolution, liquidation or winding up of the Company, then, and in
any such case, the Company shall mail to the Holder, at least fifteen (15) days
prior thereto, a notice stating the date or expected date on which such action
is to be taken and the expected record date for determining stockholders of
record (if required) in connection therewith. Such notice shall also specify
the date or expected date, if any is to be fixed, as of which record holders of
Shares shall be entitled to exchange their Shares for securities or other
property deliverable upon such merger, consolidation, sale, lease, conveyance,
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<PAGE> 8
dissolution, liquidation, winding up or other action, as the case may be.
(d) In addition to any notice pursuant to paragraph 4(c)
above, the Company shall give prompt written notice to the Holder hereof
following the occurrence of any of the events described in this paragraph 4,
and shall, as appropriate, provide such Holder with a calculation in reasonable
detail of any adjustment in the composition of the Stock Units.
5. Financial Information.
The Company shall provide to each Holder, upon request
therefor from time to time, a copy of the most recent quarterly or annual
report previously filed by the Company with the Securities and Exchange
Commission, or if no such reports are then current, a copy of the most recent
quarterly or annual financial statements of the Company then available, all of
which shall be prepared in accordance with generally accepted accounting
principles consistently applied.
6. Reservation of Shares.
The Company shall at all times reserve and keep available for
issuance upon the exercise hereof such number of authorized but unissued or
treasury Shares (and/or any other securities or property forming a part of a
Stock Unit) as shall be sufficient to permit the full exercise of this Warrant.
7. Expenses.
The Company shall pay any and all expenses, transfer taxes and
other charges, including all costs associated with the preparation, issuance
and delivery of stock or warrant certificates, that may be incurred in respect
of the issuance or delivery of Warrant Stock upon any exercise of this Warrant.
The Company shall not, however, be required to pay any tax which may be payable
in respect of any transfer arising by reason of the issue and delivery of
Warrant Stock in any name other than that in which this Warrant is registered,
and no such issue or delivery shall be made unless and until the person
requesting same has paid to the Company the amount of any such tax, or has
established the payment of such tax to the Company's satisfaction.
8. Warrant Holder Not Deemed a Stockholder.
Except as otherwise provided herein, no Holder of this
Warrant, as such, shall be entitled to vote or receive dividends or be deemed
the holder of shares of the Company for any purpose, nor shall anything
contained in this Warrant be construed to confer upon the Holder hereof, as
such, any of the rights of a stockholder of the Company or any right to vote,
give or withhold consent to
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<PAGE> 9
any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, receive dividends or subscription rights, or
otherwise, prior to the issuance of record to the Holder of the Shares which
the Holder is then entitled to receive upon the due exercise of this Warrant.
9. Notices.
Any and all notices to be given to the Company hereunder shall
be given to the Company at its offices located at 2215 E. M. Franklin Avenue,
Austin, Texas 78723, Attention: President. Any and all notices to be given to
the Holder hereof shall be given to such Holder at its address as same appears
on the records of the Company.
10. Securities Act Restrictions.
The Holder, by its acceptance hereof, acknowledges and
confirms that neither this Warrant nor any of the Warrant Stock have been
registered under the Securities Act of 1933, as amended (the "Act"), or the
securities laws of any state, and neither this Warrant nor any Warrant Stock
may be sold, transferred, pledged or hypothecated in the absence of an
effective registration statement under the Act and any applicable state
securities laws relating to such security or an opinion of counsel (as
hereinafter described) that registration is not required under the Act and any
applicable state securities laws. Unless and until this Warrant and/or the
subject Warrant Stock (as the case may be) shall become and remain subject to
an effective registration under the Act and any applicable state securities
laws, the Company may require, as a condition to effecting any transfer or
assignment hereof or thereof on the books of the Company, a legal opinion in
form and from counsel satisfactory to the Company, to the effect that an
exemption from registration under the Act and any applicable state securities
laws is available for such proposed transfer or assignment. Each certificate
representing any Warrant Stock shall bear an appropriate legend to the
foregoing effect.
11. Miscellaneous.
(a) No provision hereof, in the absence of affirmative
action by the Holder to effect any exercise hereunder, shall give rise to any
liability of such Holder for the Exercise Price or as a stockholder of the
Company, regardless of whether such liability is asserted by the Company or by
any creditor or creditors of the Company.
(b) Neither this Warrant nor any of the terms or
conditions hereof may be waived, amended or modified, except with the written
consent of the Company and the registered Holder hereof.
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<PAGE> 10
(c) This Warrant shall be governed by and construed in
accordance with the laws of the State of New York.
(d) The captions and paragraph headings used in this
Warrant are for convenience of reference only, and shall not be referred to in
connection with any interpretation or construction hereof.
IN WITNESS WHEREOF, the Company, having validly authorized the
issuance of this Warrant and all performance hereunder, has caused this Warrant
to be executed by its duly authorized officer as of the Date of Issuance.
Date of Issuance: April ___, 1995
CONQUEST INDUSTRIES INC.
By:
------------------------------
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<PAGE> 11
CONQUEST INDUSTRIES INC.
COMMON STOCK PURCHASE WARRANT
Expiring May 15, 2000
Number of Warrants: 450,000 Warrant No. DW-2
THIS IS TO CERTIFY that The Blum Asset Trust is the owner of the number of
Warrants set forth above, each of which Warrants entitles the owner thereof to
purchase from Conquest Industries Inc., a Delaware corporation (the "Company"),
at any time on and after the Date of Issuance (as hereinafter defined) but not
later than 5:00 p.m., New York City time, on the Expiration Date (as hereinafter
defined), one Stock Unit (as hereinafter defined) at a purchase price of $.3333
per Stock Unit (the "Exercise Price"), subject to the terms and conditions
herein provided.
1. Definitions.
As used in this Warrant, the following terms have the following
respective meanings:
(a) "Company" has the meaning set forth in the preamble of this
Warrant.
(b) "Date of Issuance" means May 10, 1995.
(c) "Exercise Price" has the meaning set forth in the preamble of
this Warrant.
(d) "Expiration Date" means May 15, 2000.
(e) "Holder" means any permitted owner of this Warrant from time to
time.
(f) "Shares" means shares of the Company's common stock, $.001 par
value per share.
(g) "Stock Unit" means one (1) Share, as same may be adjusted from
time to time in accordance with paragraph 4(a) below, and shall include any
additional securities, cash or property in respect thereof in accordance with
paragraph 4 below.
(h) "Warrant" means this Common Stock Purchase Warrant, as same may
be amended from time to time in accordance herewith.
<PAGE> 12
(i) "Warrants" means, in any amount, the right to purchase such
number of Stock Units hereunder upon the exercise hereof.
(j) "Warrant Stock" means, collectively, (i) the Shares purchasable
by the Holder hereof upon the exercise of this Warrant, and (ii) any other
securities forming a part of any Stock Unit in accordance with paragraph 4
below.
2. Cancellation; Exercise of Warrant.
(a) This Warrant has been issued in conjunction with a loan in the
principal amount of $150,000 being made by The Blum Asset Trust to the Company
on the Date of Issuance, which loan is represented by a Promissory Note of the
Company in such principal amount dated the Date of Issuance (the "Note"), which
Note may, pursuant to the terms thereof, be prepaid by the Company at its option
at any time and from time to time. In the event that the entire principal
amount of the Note is prepaid by the Company on or before June 15, 1995, then
all of the Warrants shall automatically be deemed cancelled and of no further
force or effect at the time of the prepayment in full of the Note; and in the
event that the entire principal amount of the Note is prepaid subsequent to June
15, 1995 but on or before July 15, 1995, then one-half of the Warrants shall
automatically be deemed cancelled and of no further force or effect at the time
of the prepayment in full of the Note; and if the entire principal amount of the
Note shall be prepaid subsequent to July 15, 1995 but on or before November 15,
1995, then one-third of the Warrants shall automatically be deemed cancelled and
of no further force or effect at the time of the prepayment in full of the Note.
In conjunction with and at the time of any prepayment in full of the Note
occurring on or before November 15, 1995, the Holder shall deliver to the
Company, at its office set forth in paragraph 9 below, this Warrant for
cancellation in whole or in part (as applicable), and the Company shall deliver
to the Holder a new warrant in substantially the form of this Warrant evidencing
any uncancelled portion of this Warrant; provided, however, that notwithstanding
any failure by the Holder to deliver this Warrant for cancellation (in whole or
in part) hereunder, this Warrant (or the cancelled portion thereof, as the case
may be) shall cease to be of any force or effect on and as of the date of the
prepayment in full of the Note. So long as any portion of this Warrant shall be
subject to cancellation pursuant to this paragraph 2(a), such portion which is
subject to cancellation shall not be deemed "vested" for purposes of exercise
pursuant to paragraph 2(b) below.
(b) In order to exercise this Warrant, in whole or in part (but only
to the extent vested in accordance with paragraph 2(a) above), the Holder hereof
shall deliver to the Company, at its office set forth in paragraph 9 below, at
any time and from time to time between the Date of Issuance and the Expiration
Date, (i) a
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<PAGE> 13
written notice of such Holder's election to exercise, which shall specify the
number of whole Stock Units to be purchased, (ii) either (A) such Holder's check
payable to the Company in an aggregate amount equal to the aggregate Exercise
Price for those Stock Units being purchased, (B) at the Holder's option, by
surrender for cancellation of a portion of the principal balance of the Note
equal to the aggregate Exercise Price for those Stock Units being purchased
(which amount of Note principal shall be deemed to have been delivered in
payment of such Exercise Price, and shall be cancelled by the Company), or (C)
at the Holder's option, any combination of the consideration permitted pursuant
to the foregoing clauses (A) and (B), and (iii) this Warrant. Upon receipt
thereof, the Company shall, as promptly as practicable and in any event within
fifteen (15) days thereafter, cause to be executed and delivered to such Holder
a certificate or certificates representing the aggregate number of fully paid
and nonassessable Shares and/or any other property forming a part of the subject
Stock Unit(s) issuable upon such exercise. Such stock certificate(s) shall be
in such denominations as may be specified in the Holder's notice, and shall be
registered in the name of such Holder or such other name or names as shall be
designated in such notice.
(c) All certificates representing Warrant Stock as aforesaid shall
be deemed to have been issued, and the Holder or other person designated to be
named therein shall be deemed to become a holder of record of the subject
Warrant Stock (including, to the extent permitted by law, the right to vote such
securities or grant consents or receive notices as a stockholder), as of the
time the Holder's notice and payment is received by the Company as aforesaid. If
this Warrant shall have been exercised only in part, the Company shall,
concurrently with its delivery pursuant to paragraph 2(b) above, deliver to the
subject Holder a new warrant (in substantially the form of this Warrant)
evidencing the rights of such Holder to purchase the remaining Stock Units
called for by this Warrant.
(d) All Warrant Stock issuable upon the exercise of this Warrant in
whole or in part shall, upon payment therefor in accordance herewith, be validly
issued, fully paid and nonassessable.
3. Transfer and Assignment; Lost or Stolen Warrant.
(a) In addition to the limitations pursuant to paragraph 10 below,
Warrants evidenced by this Warrant may only be transferred in conjunction with a
transfer of Note principal in an amount equal to the aggregate Exercise Price of
those Warrants being transferred, and to the same transferee to whom such Note
principal is being transferred.
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<PAGE> 14
(b) Subject to paragraph 3(a) above and paragraph 10 below, this
Warrant and all rights hereunder are transferable, in whole or in part, on the
books of the Company to be maintained for such purposes, upon surrender of this
Warrant, and surrender of the Note for cancellation (in whole or in part, as the
case may be), at the office of the Company set forth in paragraph 9 below,
accompanied by a written assignment duly executed (with signature medallion
guaranteed) by the Holder hereof indicating the number of Warrants and amount of
Note principal being assigned or transferred. Upon any such delivery, the
Company shall, subject to paragraph 10 below, execute and deliver to the Holder
and/or the assignee(s) (as the case may be) a new promissory note (in
substantially the form of the Note) and new warrants (in substantially the form
of this Warrant) in the appropriate denominations, and this Warrant shall
thereupon be cancelled.
(c) Upon receipt by the Company of evidence satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) receipt of reasonably satisfactory indemnification,
and (in the case of mutilation) upon surrender and cancellation of this Warrant,
the Company will execute and deliver to the Holder a new Warrant of like tenor,
and any such lost, stolen, destroyed or mutilated Warrant shall thereupon become
void.
4. Adjustment of Stock Unit.
(a) In the event and to the extent that, at any time and from time
to time prior to the Expiration Date, there shall occur any stock split, stock
dividend, combination or subdivision of shares, recapitalization or other such
event relating to the Shares or any other securities or other property then
constituting or forming a part of a Stock Unit, then the number and type of
Shares or other securities or property constituting a Stock Unit shall be
correspondingly adjusted on and as of the date of such stock split, stock
dividend, combination or subdivision of shares, recapitalization or other such
event.
(b) Similarly, in the event of any merger or consolidation in which
the Company shall be a constituent party at any time and from time to time prior
to the Expiration Date, (i) the Holder hereof shall thereafter be entitled to
receive, upon exercise of this Warrant, such shares of stock, securities, cash
or other property as would have been received by such Holder if such Holder had
exercised this Warrant immediately prior to such merger or consolidation, and
(ii) if the surviving entity in such merger or consolidation is not the Company,
such surviving entity shall, by written instrument executed and delivered to the
Holder hereof, assure to such Holder upon exercise hereof the delivery of such
shares of stock, securities, cash or other property, and the continuing benefits
of this Warrant in respect thereof.
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<PAGE> 15
(c) In the event of any merger or consolidation of the Company with
or into another corporation, or the sale, lease or conveyance of all or
substantially all of the assets of the Company, or the voluntary or involuntary
dissolution, liquidation or winding up of the Company, then, and in any such
case, the Company shall mail to the Holder, at least fifteen (15) days prior
thereto, a notice stating the date or expected date on which such action is to
be taken and the expected record date for determining stockholders of record (if
required) in connection therewith. Such notice shall also specify the date or
expected date, if any is to be fixed, as of which record holders of Shares shall
be entitled to exchange their Shares for securities or other property
deliverable upon such merger, consolidation, sale, lease, conveyance,
dissolution, liquidation, winding up or other action, as the case may be.
(d) In addition to any notice pursuant to paragraph 4(c) above, the
Company shall give prompt written notice to the Holder hereof following the
occurrence of any of the events described in this paragraph 4, and shall, as
appropriate, provide such Holder with a calculation in reasonable detail of any
adjustment in the composition of the Stock Units.
5. Financial Information.
The Company shall provide to each Holder, upon request therefor from
time to time, a copy of the most recent quarterly or annual report previously
filed by the Company with the Securities and Exchange Commission, or if no such
reports are then current, a copy of the most recent quarterly or annual
financial statements of the Company then available, all of which shall be
prepared in accordance with generally accepted accounting principles
consistently applied.
6. Reservation of Shares.
The Company shall at all times reserve and keep available for issuance
upon the exercise hereof such number of authorized but unissued or treasury
Shares (and/or any other securities or property forming a part of a Stock Unit)
as shall be sufficient to permit the full exercise of this Warrant.
7. Expenses.
The Company shall pay any and all expenses, transfer taxes and other
charges, including all costs associated with the preparation, issuance and
delivery of stock or warrant certificates, that may be incurred in respect of
the issuance or delivery of Warrant Stock upon any exercise of this Warrant. The
Company shall not, however, be required to pay any tax which may be payable in
respect of any transfer arising by reason of the issue and delivery of Warrant
Stock in any name other than that in which
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<PAGE> 16
this Warrant is registered, and no such issue or delivery shall be made unless
and until the person requesting same has paid to the Company the amount of any
such tax, or has established the payment of such tax to the Company's
satisfaction.
8. Warrant Holder Not Deemed a Stockholder.
Except as otherwise provided herein, no Holder of this Warrant, as
such, shall be entitled to vote or receive dividends or be deemed the holder of
shares of the Company for any purpose, nor shall anything contained in this
Warrant be construed to confer upon the Holder hereof, as such, any of the
rights of a stockholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, receive dividends or subscription rights, or
otherwise, prior to the issuance of record to the Holder of the Shares which the
Holder is then entitled to receive upon the due exercise of this Warrant.
9. Notices.
Any and all notices to be given to the Company hereunder shall be
given to the Company at its offices located at 2215 E. M. Franklin Avenue,
Austin, Texas 78723, Attention: President. Any and all notices to be given to
the Holder hereof shall be given to such Holder at its address as same appears
on the records of the Company.
10. Securities Act Restrictions.
The Holder, by its acceptance hereof, acknowledges and confirms that
neither this Warrant nor any of the Warrant Stock have been registered under the
Securities Act of 1933, as amended (the "Act"), or the securities laws of any
state, and neither this Warrant nor any Warrant Stock may be sold, transferred,
pledged or hypothecated in the absence of an effective registration statement
under the Act and any applicable state securities laws relating to such security
or an opinion of counsel (as hereinafter described) that registration is not
required under the Act and any applicable state securities laws. Unless and
until this Warrant and/or the subject Warrant Stock (as the case may be) shall
become and remain subject to an effective registration under the Act and any
applicable state securities laws, the Company may require, as a condition to
effecting any transfer or assignment hereof or thereof on the books of the
Company, a legal opinion in form and from counsel satisfactory to the Company,
to the effect that an exemption from registration under the Act and any
applicable state securities laws is available for such proposed transfer or
assignment. Each certificate representing any Warrant Stock shall bear an
appropriate legend to the foregoing effect.
-6-
<PAGE> 17
11. Miscellaneous.
(a) No provision hereof, in the absence of affirmative action by the
Holder to effect any exercise hereunder, shall give rise to any liability of
such Holder for the Exercise Price or as a stockholder of the Company,
regardless of whether such liability is asserted by the Company or by any
creditor or creditors of the Company.
(b) Neither this Warrant nor any of the terms or conditions hereof
may be waived, amended or modified, except with the written consent of the
Company and the registered Holder hereof.
(c) This Warrant shall be governed by and construed in accordance
with the laws of the State of New York.
(d) The captions and paragraph headings used in this Warrant are for
convenience of reference only, and shall not be referred to in connection with
any interpretation or construction hereof.
IN WITNESS WHEREOF, the Company, having validly authorized the issuance of
this Warrant and all performance hereunder, has caused this Warrant to be
executed by its duly authorized officer as of the Date of Issuance.
Date of Issuance: May 10, 1995.
CONQUEST INDUSTRIES INC.
By:
----------------------------------
-7-
<PAGE> 18
PROMISSORY NOTE
$150,000 May 10, 1995
FOR VALUE RECEIVED, the undersigned, CONQUEST INDUSTRIES INC., a
Delaware corporation (the "Maker"), hereby promises to pay to the order of THE
BLUM ASSET TRUST (the "Payee"), the principal sum of One Hundred Fifty Thousand
($150,000) Dollars, and, if any portion of this Note is not paid when same
shall first become due and payable (whether upon maturity, by acceleration or
otherwise), then the unpaid principal balance hereof shall thereafter accrue
interest at a floating rate equal to the "prime rate" of interest publicly
announced from time to time by Citibank, N.A. as its "prime rate" of interest
(regardless of whether such rate is the best rate offered or extended by such
bank). All payments of principal and/or interest shall be paid as set forth
below, and each such payment shall be made in lawful money of the United States
of America by ordinary check payable to the order of the Payee at 150 East 58th
Street, Suite 3400, New York, New York 10155, or such other address as the
Payee may designate in writing from time to time.
1. Payments of Principal and Interest.
(a) The entire principal balance of this Note shall be
due and payable on June 30, 1996, and to the extent that this Note is not paid
in full on such date, the unpaid principal balance of this Note plus accrued
interest thereon (as hereinabove provided) shall thereafter be due and payable
on demand.
(b) Any payments received by the Payee in respect of this
Note subsequent to the date on which this Note first becomes due and payable
(whether upon maturity, by acceleration or otherwise) shall first be applied to
unpaid accrued interest hereunder, and then to the principal balance hereof.
2. Prepayment.
The Maker shall have the right to prepay, without penalty, at
any time or times after the date hereof, all or any portion of the outstanding
principal balance of this Note.
3. Events of Default.
The following are Events of Default hereunder:
(a) Any failure by the Maker to pay when due all or any
principal or interest hereunder or under any other promissory note issued by
the Maker to the Payee, and the continuance of any such non-payment for five
(5) calendar days following the due date of such principal or interest; or
-1-
<PAGE> 19
(b) If the Maker (i) admits in writing its inability to
pay generally its debts as they mature, or (ii) makes a general assignment for
the benefit of creditors, or (iii) is adjudicated a bankrupt or insolvent, or
(iv) files a voluntary petition in bankruptcy, or (v) takes advantage, as
against its creditors, of any bankruptcy law or statute of the United States of
America or any state or subdivision thereof now or hereafter in effect, or (vi)
has a petition or proceeding filed against it under any provision of any
bankruptcy or insolvency law or statute of the United States of America or any
state or subdivision thereof, which petition or proceeding is not dismissed
within sixty (60) days after the date of the commencement thereof, (vii) has a
receiver, liquidator, trustee, custodian, conservator, sequestrator or other
such person appointed by any court to take charge of its affairs or assets or
business and such appointment is not vacated or discharged within sixty (60)
days thereafter, or (viii) takes any action in furtherance of any of the
foregoing; or
(c) Any liquidation, dissolution or winding up of the
Maker or its business.
4. Remedies on Default.
If any Event of Default shall occur and be continuing, the
holder hereof shall, in addition to any and all other available rights and
remedies, have the right, at its option (except for an Event of Default under
paragraph 3(b) above, the occurrence of which shall automatically effect
acceleration hereunder), (a) to declare the entire unpaid principal balance of
this Note, together with any and all accrued interest hereunder, to be
immediately due and payable, and (b) to pursue any and all available remedies
for the collection of such principal and interest, and any further interest
thereafter accruing hereunder.
5. Certain Waivers.
Except as otherwise expressly provided in this Note, the Maker
hereby waives diligence, demand, presentment for payment, protest, dishonor,
nonpayment, default, and notice of any and all of the foregoing. All amounts
payable under this Note shall be payable without relief under any applicable
valuation and appraisement laws.
6. Amendments.
This Note may not be changed orally, but only by an agreement
in writing and signed by the party against whom enforcement of any waiver,
change, modification or discharge is sought.
-2-
<PAGE> 20
7. Cumulative Remedies.
No right or remedy conferred upon the Payee under this Note is
intended to be exclusive of any other right or remedy contained herein or in
any instrument or document delivered in connection herewith, and every such
right or remedy shall be cumulative and shall be in addition to every other
such right or remedy contained herein and therein and/or now or hereafter
existing at law or in equity or otherwise.
8. Waivers; Course of Dealing.
No course of dealing between the Maker and the Payee, or any
failure or delay on the part of the Payee in exercising any rights or remedies,
or any single or partial exercise of any rights or remedies, shall operate as a
waiver or preclude the exercise of any other rights or remedies available to
the Payee.
9. Governing Law.
This Note shall be deemed to be a contract made under the laws
of the State of New York and shall be governed by, and construed in accordance
with, the laws of the State of New York.
10. Collection Costs.
In the event that the Payee shall, after the occurrence of an
Event of Default, turn this Note over to an attorney for collection, the Maker
shall further be obligated to the Payee for the Payee's reasonable attorneys'
fees and expenses incurred in connection with such collection.
CONQUEST INDUSTRIES INC.
By:___________________________
(Title)
-3-
<PAGE> 1
EXHIBIT 10(m)
CONQUEST INDUSTRIES, INC.
2215 E.M. Franklin Avenue
Austin, Texas 78723
June 30, 1995
Potter Anderson & Corroon
Delaware Trust Building
Wilmington, Delaware 19801
Attention: Robert Payson, Esq.
Re: Conquest Industries, Inc.
Dear Mr. Payson:
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 $21,034.00 (the "Indebtedness").
This letter will confirm the offer by Conquest to sell to you an
aggregate of 10,517.00 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> 2
Potter Anderson & Corroon
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 brokers/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> 3
Potter Anderson & Corroon
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 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 agree-
ment 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:
POTTER ANDERSON & CORROON
By: /s/ ROBERT PAYSON
-----------------------------------
Robert Payson, A Member of the Firm
Dated: July 6, 1995<PAGE> 4
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> 5
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> 6
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> 7
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> 8
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> 9
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 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> 10
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> 11
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> 12
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> 13
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> 14
July 7, 1995
Allen Perlstein
Jaspan, Ginsberg, Schlesinger,
Silverman & Hoffman
300 Garden City Plaza
Garden City, New York 11530-3324
Re: Conquest Industries, Inc.
with Lew Lieberbaum & Co., Inc.
Dear Allen:
Enclosed please find the executed letter agreement regarding the
indebtedness that we claim is owed to us by Conquest. Pursuant to paragraphs 2
and 4, we hereby elect to receive 75,000 shares of Common Stock of Conquest in
exchange for extinguishing the indebtedness. As we agreed, the extinguishment of
the indebtedness constitutes the total consideration for the 75,000 shares.
Please provide us with a copy of the registration statement and advise
us of the closing date at your earliest convenience.
Very truly yours,
/s/ LAWRENCE P. SANDOR
------------------------
Lawrence P. Sandor, Esq.
General Counsel
<PAGE> 15
[JASPAN, GINSBERG, SCHLESINGER, SILVERMAN & HOFFMAN LETTERHEAD]
June 30, 1995
Lawrence P. Sandor, Esq.
Lew Lieberbaum & Co., Inc.
600 Old Country Road
Garden City, New York 11530
Re: Conquest Industries, Inc.
with Lew Lieberbaum & Co.
Dear Larry:
Enclosed please find a revised letter agreement in connection with the
above referenced.
It is imperative that countersigned copies be returned to me via
telecopier no later than mid-day on Friday, July 7, 1995 for inclusion of Lew
Lieberbaum & Co., Inc. in the Registration Statement. Initially, a facsimile
counterpart containing your signature will be adequate, to be followed by an
original executed counterpart.
As such, please see that the enclosed is executed and returned to me by
that time.
Please feel free to contact me with any questions you may have.
Best regards.
Very truly yours,
/s/ ALLAN PERLSTEIN
------------------------
Allan Perlstein
AP/mdg
Enclosure
cc: Conquest Industries, Inc.
<PAGE> 16
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> 17
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> 18
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: July 6, 1995
<PAGE> 19
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.
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.
<PAGE> 20
H.D. Brous & Company
July 11, 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 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 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.<PAGE> 21
H.D. Brous & Company
July 11, 1995
Page 3
6. Any notice given to you by 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 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.
<PAGE> 22
H.D. Brous & Company
July 11, 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:_____________________________________
Jerry Karlik, Chief Financial Officer
Accepted And Agreed To:
H.D. Brous & Company
By:______________________________________
Howard Brous, President
Dated: July __, 1995
<PAGE> 1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our reports dated December 9, 1994 (except as to Note L, which
is as of January 20, 1995), accompanying the financial statements and schedule
of Conquest Industries, Inc. (formerly Wico Holding Corp.) 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
July 11, 1995
<PAGE> 1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
I consent to the use in this Registration Statement on Form S-1 of my
reports dated January 10, 1994 and May 20, 1994 relating to the financial
statements of Langworthy Casino Supply and the reference to my firm under the
captions "EXPERTS" in the Prospectus.
/s/ Allen G. Roth
-----------------
Allen G. Roth
Certified Public Accountant
New York, New York
July 12, 1995
